TIOL-DDT 1263 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1263</font> <br> 22.12.2009 <br> Tuesday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Valuation issues pertaining to Customs House Agents Service - TRU Clarifies </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> services provided by Custom House Agent were brought into the service tax net with effect from June 15, 1997. Custom House Agents Service is defined in terms of Section 65(105) (h) of the Finance Act, 1994 as any service provided or to be provided to any person, by a custom house agent in relation to the entry or departure of conveyance or the import or export of goods and the term ‘service provider' shall be construed accordingly. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the principal job of a CHA is to undertake formalities for clearance of import or export of consignments through the Customs, they also at times arrange for services like packing, unpacking, loading, unloading, bringing or removing the goods to or from the Customs area, Vessels or Aircrafts for their customers viz., importer or exporters. These services are provided by different agencies such as Port Trust, Steamer Agents, Cargo Handlers, Warehouse-keepers, Packers, Goods Transport Agents. Normally the CHAs initially pay the service charges to these agencies and later recover these charges from the customer along with their own charges CHAs. Similar arrangements are also undertaken for payment of statutory levies like Custom Duties, Port charges, Cesses etc leviable on the said goods. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue is whether the charges which are paid by the CHAs for arranging these services and later recovered from their customers (reimbursable charges) should be included in the value of taxable service for the purpose of charging service tax from CHAs. In terms of Board Circular F.No.B-43/1/97-TRU, dated 06.06.1997, Board had clarified that service tax would be charged on the ‘service charges only' and statutory levies and other reimbursable charges would not be included in the taxable value. It was also clarified that in cases where lump sum payments are made to CHAs which includes both reimbursable charges as well as service charges, service tax would be charged on 15% of such gross value. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After introduction of Service Tax (Determination of Value) Rules, 2006 with effect from April 19, 2006, all previous Circulars relating to valuation were withdrawn (Para 4.1.13 of TRU Circular F.No. B1/4/2006-TRU dated April 19, 2006). As per Rule 5(2) of Service Tax Valuation Rules, 2006, the concept of ‘pure agent' was introduced and explained (Explanation 1 thereof defines ‘pure agent'). The expenditure or costs incurred by a service provider as a ‘pure agent' of the recipient of service were allowed to be excluded from the value of taxable service subject to the conditions prescribed therein. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was reported to the Board/TRU that disputes arose on the issue of inclusion of reimbursable charges. In this regard certain field formations have also issued communications directing that charges on certain activities undertaken by CHAs are not covered under the exclusions available to ‘pure agent'. Since divergent practices with regard to records & documentations are being followed by CHAs in relation to the services received from other service providers and their billings to the customers for such receipt of services, this has given rise to more conflict and litigation. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Refer Chennai Commissioner's letter dated 07.12.2007, covered in our <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6512" target="_blank">TIOL-DDT 762 -14.12.2007 – Friday</a>. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Agitated CHAs have been representing to the Board to clarify the issue. Finally Board has clarified that the <strong><font color="#663399">exclusion</font> </strong>should be allowed to such charges from the taxable value of CHA services, where <strong><font color="#663399">all</font> </strong> the following conditions are satisfied,- </font></p> <blockquote> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">a) The activity/service for which a charge is made, should be in addition to provision of CHA service; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">b) There should be arrangement between the customer & the CHA which authorizes or allows the CHA to (i) arrange for such activities/ services for the customer; and (ii) make payments to other service providers on his behalf; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">c) The CHA does not use the activities/services for his own benefit or for the benefit of his other customers; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">d) The CHA recovers the reimbursements on ‘actual' basis i.e. without any mark-up or margin. In case of CHA includes any mark-up or profit margin on any service, then the entire charge (and not the mark-up alone) for that particular activity/ service shall be included in the taxable value; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">e) CHA should provide evidence to prove nexus between the other (than CHA) services provided and the reimbursable amounts. It is not necessary such evidence should bear the name or address of the customer. Any other evidence like BE No./Container No./BL No./packing lists is acceptable for the establishment of such nexus. Similar would be the case for statutory levies, charges by carriers and custodians, insurance agencies and the like; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">f) Each charge for separate activities/services is to be covered either by a separate invoice or by a separate entry in a common invoice (showing the charges against each entry separately) issued by the CHA to his customer. In the latter case, if certain entries do not satisfy the conditions mentioned herein, the charges against those entries alone should be added back to the taxable value; </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">g) Any other miscellaneous or out of pocket expenses charged by the CHA would be includable in the taxable value for the purposes of charging tax on CHA services. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The above mentioned conditions would be applicable for services provided with effect from April 19, 2006, i.e. after the introduction of the Valuation Rules. For the earlier period, the taxable value should be determined in accordance with the prevailing instructions issued by the Board i.e. Circular dated 06.06.1997. Any communication issued by any of the subordinate offices [must be referring to the Chennai Commissioner ] which are contrary to the conditions listed above, or as the case may be, the previous Board's Circulars stands superseded to the extent of the contradiction. Pending disputes may be settled in accordance with this latest Circular. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2009/sercir119.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC Circular No. 119/13/2009-ST Dated: December 21, 2009 </strong></font></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CHA - Customs Speed Money attracts service tax? </strong></font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS </strong>Circular has thrown up several other issues: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When we were discussing the latest Board Circular in our Edit team, several questions propped up including the question as to why the circular had to be issued at all. We understand that the Chennai Commissioner's letter referred to above simply opened a Pandora's box and CHAs were stuck with huge demands running into Crores while the actual service charges were not even in lakhs! Some worried CHA Associations took up the matter with the Board as early as in November 2008 and finally towards the end of 2009, they got a clarification – maybe a good Xmas gift! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One of my colleagues sent me a note, “But, please see the amount of time spent and the effort made by these CHAs to sort out a simple issue. They could get it as they perhaps have money and manpower. What about a small time service provider? Shouldn't the Commissioner ST Chennai be taken to task for acting in his own way without making any reference to Board?” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CHAs also engages services of rent-a-cab operator for use in providing their services and also for catering to the needs of Customs officers. They make lump sum payments to Rent-a-cab operator on monthly basis, which are recovered from their clients under miscellaneous expenses in the invoice. The Board's circular requires CHA to collect such expenses on actual basis only and the circular also requires that the CHA does not use such services for his own benefit or for the benefit of other customers. It will be a Herculean task for CHAs to satisfy this condition. Now they have to distribute the expenditure incurred towards rent-a-cab and other such services BE/shipping bill wise in each invoice instead of showing under miscellaneous head in order to meet the condition specified in Para (f) of Circular. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Another important component of miscellaneous charges collected by CHA is of course, the speed money paid to customs officers. Often the CHA collects from his clients this speed money on mark up basis - over and above the actual amount they pay. It is obvious that CHA cannot produce any bills for this speed money and hence ends up in paying service tax. Though, CHA is acting as “pure agent” when it comes to speed money, but he cannot avail the benefits of pure agent when it comes to service tax in this regard. </strong></font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another colleague asked me, “What about CENVAT credit; is CHA eligible to take <em>CENVAT credit</em> on all such services , whose value has been included in the value of services or the department wants to prove ‘nexus' with output services. The Circular should have clarified this aspect also”. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A CHA explained that this is not a workable solution as they would be left with huge amounts of un-adjustable credits. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what about <strong>Steamer Agents? </strong></font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Should there be another similar clarification on that service? </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Anyway Board has given a clarification – let's hope the field will follow it without further troubling the poor assessees. </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund of service tax paid on foreign agent commission by exporters - CBEC Clarifies </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> CBEC has clarified that: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 18/2009 dated 07/07/2009 (in the table, sl.no.2 , condition no. 2) says “exemption shall be limited to one percent of the free on board value of export goods for which the said service has been used”. This means that amount of service tax paid, which can be refunded to the exporter, is restricted to one percent of the FOB value of export goods in relation to which the taxable service of the foreign agent was used. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The current rate of service tax being ten per cent and the maximum allowable limit of foreign agency commission being ten percent of FOB, one percent of the FOB value of export goods is the maximum exemption of service tax. To settle all doubts to rest, for the purpose of service tax refund, maximum allowable foreign agency commission on export goods continues to be at the pre-budget level of ten percent of the fob value of export goods till further changes are notified. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This Circular is dated 23.11.2009 – are you surprised that we are carrying it after a month? The Board chose to make this public only yesterday. Where was this Circular hiding for a whole month? And interestingly this Circular numbered 118/2009 was released after the Circular No.119/2009 [the CHA one] was released. Maybe they are so much in love with their circulars that they don't like to leave them for the public! </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2009/sercir118.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC Circular No. 118/12/2009-ST Dated: November 23, 2009 </strong></font></a></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"> – Wednesday''s cases</font></strong></font></strong></font></p> <p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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">Central Excise</strong></font></p> <p><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Compounded levy Scheme – Penalty under Rule 96ZO mandatory; no discretion – High Court</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> provisions for imposing penalty under Rule 96ZO (3)(ii) of the Rules are held to be mandatory and there is no discretion vested in any authority to reduce the aforesaid amount of penalty on the ground that there was no intention of evading payment of duty or commission of fraud, misrepresentation etc. </font></p> <p><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>Income tax - Sec 2(13) - Assessees buy agricultural land with profit motive - land acquired by State Govt - enhanced compensation with interest paid - Profits are 'adventure in nature of trade'; interest on compensation to be taxed in year of receipt; interest u/s 234B is leviable: Bombay High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>INVESTMENT</strong> in agricultural land is one of the common investments made by taxpayers who have surplus resources. What makes purchase of agricultural land attractive to investors is its exclusion from the definition of 'capital assets' as per provisions of Sec 2, sub-section 14(iii), Clauses "a" and "b" of the Income Tax Act. No tax is payable in case of capital gains arising out of compensation received on account of the acquisition of such lands. However, the intent behind purchase of agricultural land and the period of holding the same are very critical in deciding the taxability of consideration received either on sale of the land or on being acquired by the State Govt under Land Acquisition Act. Here is an interesting case which have been examined at length by the High Court, and the case finally being ruled in favour of the Revenue. </font></p> <p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p> <p><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DEPB obtained by fraud – Customs has jurisdiction to issue SCN - Fraud unravels all – High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> the DEPB scrips have, admittedly, been sold to third parties, the only course open to the Customs Officers is to demand repayment of DEPB credit (i.e., Customs (Import) duty) from the petitioner. Exercise of power to make such a demand is referable to Section 28(1) of the Customs Act. The impugned show cause notices, which propose a demand for repayment of DEPB credit under Section 28(1) as it was availed by resort to fraudulent over-valuation of export consignments, cannot be said to have been issued without jurisdiction. </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> </body> </html>