TIOL-DDT 1289 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1289</font> <br>
01.02.2010 <br>
Monday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CESTAT questions very definition of 'input Services'</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> single Member Bench of the CESTAT, Chennai has passed a landmark judgement questioning the very definition of ‘input service' under the CENVAT Credit Rules. The Hon'ble member held that, “the definition of input service under the CENVAT Credit Rules which includes <em>"activities relating to business" cannot be interpreted to include an activity which is a post-manufacturing activity. It is also settled law that rules framed by the Central Govt. have to conform to the rule making powers contained in the statute, in this case under Section 37(2) of the Central Excise Act, 1944.” </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue before him was whether credit can be denied because debit notes are not eligible documents. Even the Show Cause Notice had not questioned the eligibility of the services as input services. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Hon'ble Member held that “The services which are used by the manufacturer subsequent to completion of the manufacturing and for sale of the goods cannot, therefore, be considered as input service in or in relation to manufacture.” And he remanded the matter to the Adjudicating Authority to <em>examine as to whether the impugned services can be considered to be eligible input services under the CENVAT Credit Rules read with enabling powers contained under Section 37(2) of the Act after issuing notice to the appellants. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the moot question is can Tribunal decide on an issue which was not raised before it at all? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Judicial precedent is that Tribunal cannot decide an issue which is raised for the first time before it. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Warner Hindustan Ltd vs. CCE, Hyderabad </em> - <strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-480-SC-CX.htm" target="_blank"><font size="1">2002-TIOL-480-SC-CX</font></a>, </em></strong> the Apex Court observed that <strong><font color="#FF6633">it is impermissible for the Tribunal to consider a case that is laid for the first time</font> </strong> in appeal because the stage for setting out the factual matrix is before the authorities below. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>M/s SACI ALLIED PRODUCTS LTD., U.P. v COMMISSIONER OF CENTRAL EXCISE, MEERUT </em><strong> - <em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2005/2005-TIOL-73-SC-CX-LB.htm" target="_blank"><font size="1">2005-TIOL-73-SC-CX-LB</font></a></em></strong>, the Apex Court held, <em>“It is thus seen that the Tribunal has gone totally beyond the show cause notice and the order of the Collector, which is impermissible. The appellate Tribunal cannot sustain the case of the Revenue against the appellants on a ground not raised by the Revenue either in the show cause notice or in the order.” </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The settled LAW is that Tribunal cannot go beyond the Show Cause Notice. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It did not end in Chennai but had its ripples in Bangalore. It seems when identical issues were heard in Bangalore recently, the Chennai bomb exploded and the stunned lawyers in Bangalore had to run for cover. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now if the Tribunal has the last word, the whole definition of input service will undergo a metamorphosis. Now the input service includes, among others:- </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. advertisement or sales promotion, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. market research, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now Credit will be denied if all these activities are not proved to be performed before manufacture of each consignment leaving the factory. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A very senior and highly respected lawyer called me up early Friday and agitatedly told me about this case and told me “once upon a time we used to urge the Tribunal to decide following the constitutional mandate; now we have to request them to limit to the statute which created them.” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though it is a little belated, once we had this important order, we couldn't wait to hold it on till tomorrow. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring it to you today. Please see <strong>Breaking News </strong>. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Adjustment of Advance Tax of Fringe Benefit Tax paid before its abolition – refund or adjustment allowed – CBDT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> raised this on 10th July, 2009 and the CBDT has now clarified the issue. In our article <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9345">FBT: Controversial in birth and controversial in death too! </a></strong>, we raised the question, </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">THE Finance Minister, Mr Pranab Mukherjee, proposes to guillotine the widely-disliked Fringe Benefit Tax (FBT). However, in their quick budget reactions the India Inc and the Sensex gave little credit to Dada. And now, there is a big question mark over whether India Inc will get the credit (refund) for the advance tax of FBT paid by June 15? </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Finance Bill, 2009, the FBT is proposed to be abolished from April 1, 2010 (AY 2010-11). In other words, it is not leviable for the current fiscal. If that is so, the intent to refund the first quarter payment should have been there in the Bill. But the Bill is silent and the CBDT will have to now come out with a clarification or amendment of the provision in the Bill at the time of enactment towards the end of the current month. It is quite possible that the Govt may opt for adjustment of the same towards regular advance tax payment rather than any refund. Whatever it is, a clarification is the need of the hour to address the worries of the India Inc. </font></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And now the Board clarifies, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, during the current Financial Year 2009-10 some assessees have paid “advance tax in respect of fringe benefits” for Assessment Year 2010-11. In such cases the Board has decided that any installment of “advance tax paid in respect of fringe benefits” for A.Y. 2010-11 shall be treated as Advance Tax paid by assessee concerned for A.Y. 2010-11. The assessee can adjust such sum against its advance tax obligation in respect of income for A.Y. 2010-11 or in case of loss etc claim such payment as refund of advance tax paid in A.Y. 2010-11. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But who will pay interest? The lucky ones are those law breakers who did not pay the tax by June 15 anticipating that FBT would be abolished. Please see </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9416" target="_blank">DDT 1160 23.07.2009</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>. </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Anyway the Nation should be grateful to CBDT for giving this clarification, issued much before the closure of the Financial Year, so that the FBT already paid but which was not payable could be adjusted. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2010/it10cir02.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT Circular No. 2/2010 Dated: January 29, 2010 </strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tariff Value of Brass Scrap and poppy seeds increased </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT</strong> has increased the Tariff Value of Brass Scrap from US Dollars 3490 to 3597 per MT. The tariff value for poppy seeds is increased from 3627 to 4392 Dollars. All other items remain unchanged. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2010/cnt10_010.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NOTIFICATION NO. 10/2010-CUSTOMS (N.T.) Dated: January 29, 2010 </strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax - Dispute Resolution Panel (DRP) is optional - CBDT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Finance Act 2009 has introduced the new concept of Dispute Resolution Panel (DRP). A doubt has been raised as to whether it is compulsory for an assessee to file an objection before the DRP or whether he can choose to file an appeal through the normal appellate channel of CIT (Appeals). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBDT Member (L&C), in a letter to the Director General of Income-tax (International Taxation), has clarified that the provisions of sub-section (2) to sub-section (5) of section 144C are quite clear that a choice has been given to the assessee either to go before the DRP or to prefer the normal appellate channel. <strong><font color="#663399">It is again clarified that it is the choice of the assessee whether to file an objection before the Dispute Resolution panel against the draft assessment order or not to exercise this option and file an appeal later before CIT (Appeals) against the assessment order passed by the Assessing Officer</font> </strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Member wants the position to be brought to the notice of taxpayers at large. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why couldn't the Board issue a public circular? Maybe they are emulating their cousins in the CBEC! </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Also see our article <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9984">Dispute Resolution Panel for non-resident companies - CBDT needs to be more efficient! </a></strong></font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=67&filename=notification/cbdt/2010/letter.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT Member's Letter in F. No. 142/22/2009-TPL (Pt. II) Dated: January 20, 2010</strong><br>
</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"> – Tuesday's cases</font></strong></font></strong></font></p>
<p><font 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"><font color="#663399">Central Excise </font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EPABX system installed in factory premises for communication from one department to another department can be held to be indirectly used in manufacture of the final product – CENVAT Credit available - CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue is credit of duty paid on EPABX system. In the second round of litigation (as the Tribunal had remanded the matter earlier), the Commissioner denied the MODVAT credit on the ground that the same is not used in process of manufacturing. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Quantification of duty in Show Cause Notice does not amount to predetermination of issue – writ cannot be allowed – High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> quantification of the tax in the show cause notice is a statutory requirement and cannot be stated that the authority has predecided the issue. Therefore, the decision relied on by the counsel rendered by the Supreme Court in <em>Siemens Ltd. Vs. State of Maharashtra</em> and others - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2006/2006-TIOL-190-SC-CESS.htm" target="_blank"><font size="1">2006-TIOL-190-SC-CESS</font></a></strong> has no application to the facts of the present case. </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>Interest paid under Sec 75 of Finance Act, 1994 on delayed payment of service tax has same character as that of service tax - it's compensatory in nature - to be allowed as permissible business expenditure: Delhi High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE</strong> claims deduction for interest paid u/s 75 of Finance Act, 1994 on delayed payment of service tax - AO disallows on the ground that it is penal in nature - CIT(A) disagrees and holds that the interest payment is compensatory in nature and therefore a permissible business deduction - held, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ interest payment u/s 75 of the Finance Act, 1994 has the same character as that of the service tax; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ it is compensatory in nature and cannot be held to be penal in character; it is a permissible deduction. </font></p>
</blockquote>
<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>Anti-dumping duty during interregnum period –pre-deposit ordered following ratio of Larger Bench decision - CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Larger Bench decision in case of <em>M/s Nitco Tiles</em> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=28&filename=legal/cestat/2005/2005-TIOL-1317-CESTAT-DEL-LB.htm"><strong><font size="1">2005-TIOL-1317-CESTAT-DEL-LB</font></strong> </a> relied upon by the Commissioner (Appeals) has answered the controversy as to levy of anti-dumping duty during interregnum period. Following the ratio of the Nitco Tiles' case, decision in the case of <em>Chhotulal Daga</em> - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=28&filename=legal/cestat/2008/2008-TIOL-1020-CESTAT-KOL.htm"><strong><font size="1">2008-TIOL-1020-CESTAT-KOL</font></strong> </a> was rendered. Even the case of<em> Bansilal Leisure Parks Ltd. Vs. Commissioner of Customs, Kolkata </em>– <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=28&filename=legal/cestat/2007/2007-TIOL-1388-CESTAT-DEL.htm"><strong><font size="1">2007-TIOL-1388-CESTAT-DEL</font></strong> </a> has also followed the ratio of the decision in Nitco Tiles case (supra). While larger Bench decision was made in Nitco Tiles case, there is no controversy at all left as to leviability of anti-dumping duty during the interregnum period, in absence of stay of operation of that judgment or reversal thereof by higher court. </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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