TIOL-DDT 1234 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">TIOL-DDT 1234</font> <br>
11.11.2009 <br>
Wednesday</strong></font></p>
<p><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> This
edition of DDT is all about GST and today's DDT bears a nice number 1 2
3 4. </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST is not simply VAT plus service tax - First Discussion paper – It's all win-win? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>“GST is not simply VAT plus service tax </strong> but an improvement over the previous system of VAT and disjointed service tax. However, for this GST to be introduced at the State level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with the Centre.”, says the <strong>First Discussion Paper On Goods and Services Tax In India, </strong>released yesterday. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for </font></p>
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<blockquote><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) additional power of levy of taxation of services for the States, </font></blockquote>
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<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) subsuming of several taxes in the GST and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through a more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST. With the GST being properly formulated by appropriate calibration of rates and adequate compensation where necessary, there may also be revenue/resource gain for both the Centre and the States, primarily through widening of tax base and possibility of a significant improvement in tax-compliance. In other words, the GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Governments. The GST may, indeed, lead to the possibility of collectively positive-sum game. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CGST, SGST and IGST - the future language of taxation</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the Discussion paper on GST repeatedly emphasised that it is aimed at removing the cascading effect that still exists after the CENVAT/VAT regime, it conveniently did not highlight the expansion of the central tax to post manufacturing activities, the burden of which cannot be insignificant. At present, Central Excise duty is levied only on manufacture of goods, but not on subsequent trading. In the GST era, there will be CGST till the retailer and all the dealer value additions are brought in the tax net. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">IGST – How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method</font></strong>? An illustration: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Illustration: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Say CGST is @ 10% and SGST @ 10% </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IGST is 10+10 = 20% </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us say the value of goods exported from one state to the other is Rs 100/- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IGST to be collected by the Centre = Rs 20/- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assuming Rs 5 each was paid from the credit of SGST, CGST and IGST and the remaining Rs 5 in cash, then: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The exporting state will transfer Rs 5 (SGST credit) to the Centre (as Centre has got only Rs 15 in the form of CGST (Rs 5), IGST (Rs 5) and Rs 5 in cash. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The buyer in the importing state can use the ICGST Credit for payment of SGST. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Centre will pay this amount of Rs 20 ICGST to the importing State. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST - Import / export of services – destination based consumption tax theory is back? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue of deciding what is import/export in respect of services has created a lot of disputes and discussions. Though there are separate rules to decide what constitutes export/import of a service, divergent views are taken by different formations. The Discussion Paper on GST proposes to follow the destination principle to decide the basis on which the revenue will accrue to a state. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The paper states:- </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST on Imports: </strong> The GST will be levied on imports with necessary Constitutional Amendments. Both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST Discussion Paper – And slip shows </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Discussion paper states, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The shortcoming in CENVAT of the Government of India lies in <em><font color="#FF6633">non-inclusion of several Central taxes in the overall framework of CENVAT, such as additional customs duty</font></em>, surcharges, etc., and thus keeping the benefits of comprehensive input tax and service tax set-off out of reach for manufacturers/ dealers. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Additional Customs Duty is cenvattable! </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The paper states, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Para 1.6 Subsequently,
after Constitutional Amendment empowering the Centre to levy taxes on services,
these service taxes were also added to CENVAT in 2004-05. </strong></font></p>
<p><em><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Was the levy unconstitutional prior to this amendment? </font></strong></em></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST – Certain – Not from 1.4.2010 </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If there is anything certain about GST, it is that it cannot be implemented from 1.4.2010. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Addressing the meeting of the Empowered Committee of State Finance Ministers Union Finance Minister Pranab Mukherjee said, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The proposed Goods and Services Tax (GST) can deliver on all these promises only if it has the following essential features: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) It is comprehensive in scope and applies to as large a range of goods and services as possible by minimizing the number of exemptions to a small list of essential items which impact the common man. To the extent possible, the exemption lists of the States and the Central Government are in alignment; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) The rates of tax of CGST and SGST taken together are moderate; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) The rates of tax of SGST and exemptions from SGST are uniform throughout the country so that a given set of goods and services invites the same tax treatment in every State; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) The input credit chain is seamless covering the entire value chain from manufacturing to retail without breaks regardless of whether goods or services are supplied within a State or across State boundaries; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) As far as possible, every transaction in the tax net bears both CGST and SGST; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) The tax treatment of goods and services is similar; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vii) The Central and State levies are fully neutralized in the case of exports (out of India); and </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(viii) The procedures are simple and harmonized between the Centre and the States. </font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He had the last laugh when he said, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“On our part, I assure you that the recommendations and suggestions made in the Discussion Paper would receive our in-depth and meticulous attention so that we are able to jointly finalize the structure and design of GST at the earliest.” </font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So what was released yesterday was only the States' proposal and the Centre will come out with its proposals soon. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Before 1.4.2010, is it possible to </strong></font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Get the constitution amended? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Get the law relating to Central GST passed by Parliament? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Get the laws relating to State GST passed by all State legislatures? Do they have a model legislation? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) Get the computers ready to capture and manage data? Are all the States IT ready? </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have just four and a half months to do all these and even assuming that by a miracle, we are able to do all the above, what if the scheme is stayed by a High Court? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Direct Taxes Code which is proposed to take off in 2011 is already in the public domain and the Revenue Secretary is already into his road shows promoting the code. The GST which is to come into effect a year earlier is yet to have a code, but there will be road shows, the first of which is to be held this weekend. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GST with TIOL </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will cover the GST for you as nobody can or will. Today we are bringing you three articles from top experts in the field. We also plan to introduce a feature where you can upload your comments, questions, suggestions, etc, without editorial interference. We hope our enlightened Netizens would use this opportunity in a responsible way so that there is healthy discussion and useful suggestions which we can pass on to the Authorities <strong><font color="#FF6633">concerned</font></strong>. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Be with us <strong>TIOL
RUN UP TO GST. </strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Thursday's cases</font></strong></font></strong></font></p>
<p><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Cenvat Credit allowed on Outdoor Catering Service in appeal by assessee - When there is no Cenvat Credit demand against the respondent, penalty cannot be imposed – CESTAT dismisses Revenue appeal. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE Cenvat credit in question is the one availed of the Service Tax paid on Outdoor Catering Service and the amount involved is Rs.1,25,877/-. The original authority denied this credit saying that this cannot at all be called an ‘Input Service' in terms of the CCR, 2004. He also imposed an equivalent penalty. The large scale manufacturer took the matter to the Commissioner (Appeals) who too took a similar view excepting that he reduced the penalty to Rs.15,000/- saying that the issue concerns interpretation of the legal provisions. This was in the month of April, 2008 when the Larger Bench decision in GTC Industries was awaited. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Floriculture and tissue culture business – covered under agricultural income – exempted - ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As is evident from a plain reading of the legal provision under section 2 (1A)(b)(i), all that is to be seen for this purpose is whether the land is subjected to land revenue or is subject to a local rate assessed and collected by the officers of the Government as on an agricultural land. There are no other conditions imposed under the statute so far the qualitative test for land is concerned. Once any one of these two tests are satisfied, nothing further needs to seen so far as the nature of land is concerned. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Department loses Rs. 9.2 crores of customs duty and major penalties due to half baked investigation and poorly drafted show cause notice – CESTAT sets aside Commissioner's order confirming duty demand and imposition of penalties </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THERE </strong> were innumerable instances where Revenue lost cases due to half baked efforts put in investigation and shoddy drafting of show cause notices. Many a time investigating officers stumble upon a fantastic case which clearly points to evasion of duties but could not salvage any of it due to shoddy work in piecing together the information and bringing out the various aspects in the show cause notice and also fail to identify the parties to the show cause notice. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more<strong> DDT</strong> </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p>
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