TIOL-DDT 1341 · 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
1341</font><br>
20.04.2010<br>
Tuesday</strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Refund of CENVAT Credit on input services for exporters - CESTAT drops a bombshell - says credit or refund is admissible only if services are consumed in providing output service </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>BEFORE</strong> the recent explosion in Bangalore, another explosion took place in the same city. While the venue for the former was a cricket stadium, the later took place in an open court hall of the CESTAT. In an order which shakes the entire foundation of the CENVAT Credit scheme on input services, which the Government has been implementing with some considerable degree of success from 2004 onwards, the CESTAT ruled that the refund or CENVAT credit on input services is allowed only if the services are consumed in the output service. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was all going smooth until some scrupulous service exporters believed that they would be entitled to refund of service tax paid on the input services used by them under Rule 5 of the CENVAT Credit Rules read with <strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2006/exnt06_05.htm" target="_blank">notification 5/2006 CE(NT) dated 14.3.2006</a></em></strong>. Soon they realised that getting refund from the department was not so easy. Since the stakeholders are mainly multinational BPOs who also happen to be 100% EOUs earning foreign exchange to the exchequer, the issue attracted the attention of the Board which tried to see things move fast, issued clarifications on a couple of occasions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Having realised that even these clarifications would not ensure smooth sanction of refunds, it even proposed in this year's Budget to amend the Notification 5/2006 CE retrospectively to remove the hitches that were standing between the claim and the refund cheque. Little did they realise that there will be cases pending before the Tribunal and for the officers representing Revenue, their job is to see the revenue appeal wins, come what may. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a bunch of appeals relating to refund claims under Rule 5, the CESTAT delivered a judgement which will have far-reaching consequences on the entire CENVAT Credit scheme for service providers who export their services. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CESTAT held in unequivocal terms that the Government's rules making power cannot go beyond the statutory provisions. To put it simply, while Section 37(2) of the Central Excise Act, 1944 and Section 94(2) of the Finance Act empower the Government to make rules for providing credit / rebate of input services consumed for providing taxable services, it cannot make a rule to allow credit on all and sundry services which are not consumed but defined as input services under rule 2(l) of the CENVAT Credit Rules, 2004. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What a few exporters asked was refund of credit. What all the taxpayers will now get is show cause notices, denying the CENVAT credit on all input services which are not consumed in providing output services. Taking a cue from this case law, auditors from the department as well as CAG will pounce on the assessee with all types of objections and show cause notices will start flying. Of course, “preventive and intelligence” officials will not be far behind. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So there is an urgent need to do some fire-fighting. We suggest that it is high time Board intervenes in this sordid saga and proposes retrospective amendments to the relevant statutory provisions and the rules as well so that the Government's policy of zero rating the exports retains its sanctity and not bushwhacked by CESTAT in such a brazen manner. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the Board acts fast, there is still time for them to make the amendments before the Finance Bill 2010 is enacted. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Also see our detailed analysis of the order in ‘<em><strong>ST se GST Tak</strong></em>' today. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Tariff Value of Brass Scrap increased and poppy seeds decreased </font></strong></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 3898 to 4018 per MT. The tariff value for poppy seeds is decreased from US Dollars 4070 to 3897 . 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_031.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 31/2010-Cus., (N.T.), Dated: April 16, 2010</font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Border Trade With Neighbouring Countries</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> order to improve commercial relations with neighbouring countries, the Government of India has signed the South Asia Free Trade Agreement (SAFTA). India also provides preferential trade exchange to the neighbouring countries under Bangladesh, India, Myanmar, Sri Lanka, Thailand economic Cooperation (BIMSTEC) and Asia Pacific Trade Agreement (APTA) as well as under Duty Free Tariff Preferential (DFTP) Scheme. Besides, GOI has a number of bilateral agreement and discussions which helps deliberating upon and resolving certain vexed issues relating to trade and nontrade barriers. Several other initiatives for facilitating trade such as exchange of trade delegations, participation in fairs and exhibitions, organization of buyers sellers meets are also organized/facilitated from time to time. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Fish, Agriculture Products, Sports Goods, Toys, Medical Equipments and Electrical Goods etc. are the main items being traded. The details of import and export to the neighbouring countries during the last three years is given below:- </font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(Rs. In Crores) </font></strong></p>
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">S. </font></strong><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">NO. </font></strong></p>
</td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Country </font></strong></p></td>
<td colspan="2" valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2006-2007 </font></strong></p></td>
<td colspan="2" valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2007-2008 </font></strong></p></td>
<td colspan="2" valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2008-2009 </font></strong></p></td>
<td colspan="2" valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2009-2010(April 09 –September 09) </font></strong></p></td>
</tr>
<tr>
<td> </td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Export</font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Export </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Export </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Export </font></strong></p></td>
<td><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import </font></strong></p></td><br>
<td><p align="center"> </p></td>
</tr>
<tr>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Bangladesh </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7365.96 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1033.90 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11743.21 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1034.68 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11317.21 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1418.46 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5105.81 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">521.70 </font></p></td>
</tr>
<tr>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Bhutan </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">260.18 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">640.00 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">348.85 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">782.60 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">509.27 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">687.86 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">235.19 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">314.36 </font></p></td>
</tr>
<tr>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">China </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">37529.78 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">79008.60 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">43597.41 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">109116.06 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">42661.33 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">147605.59 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">19061.33 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72444.37 </font></p></td>
</tr>
<tr>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Myanmar </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">633.74 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3540.94 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">746.19 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3259.28 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1017.76 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4240.76 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">458.05 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2872.02 </font></p></td>
</tr>
<tr>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nepal </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4201.38 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1384.51 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6063.48 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2527.25 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7155.57 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2255.67 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2856.28 </font></p></td>
<td><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1020.97 </font></p></td>
</tr>
</table>
<p align="right"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(Source DGCI&S)</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This information was given by Shri Jyotiraditya M Scindia, Minister of State for Commerce and Industry, in a written reply in the Lok Sabha today. </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"> – Wednesday's cases</font></strong></font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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"><strong><font color="#663399">Income Tax</font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Banks - Provision for bad debts - mere reduction in Loans and Advances or Debtors on asset side of Balance Sheet to extent of provision for bad debt would be sufficient to constitute a write off: Supreme Court</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> first question is no more res integra . Recently, a Division Bench of this Court in the case of Southern Technologies Limited vs. Joint Commissioner of Income Tax , had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee and held, “one must understand `how to write off'. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Notfn. 21/2002-Cus</em> – whether export to SEZ satisfies condition of 'export' envisaged in Exim Policy - in view of over-riding provisions of s. 51 of the SEZ Act and definition of ‘import' under SEZ Act prima facie case in favour – Pre-deposit waived & stay ordered: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellants imported Oil Well equipments and claimed the benefit of Notification no. 21/2002, Sr. no. 217. The goods were old and used equipments and import was allowed in terms of para 2.21 of the EXIM Policy 2002-2007 subject to the condition that the goods shall be exported. The appellants also produced an Essentiality certificate from Directorate General of Hydrocarbons, required to be produced as per the condition of the Notification. The importation was made on 10.01.2007. Thereafter, the appellants submitted a photo copy of Bill of Export no. 106/09 dated 29.01.2009, whereby the appellants claimed that the condition of import, which was requirement to re-export of the same, has been fulfilled. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Sales Tax</strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">West Bengal sales Tax Act - failure to produce endorsed copy of declaration for transport by CHA– penalty imposable: Supreme Court</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ON</strong> July 30, 2002, a show-cause notice was issued to the appellant by the Assistant Commissioner of Commercial Taxes alleging contravention of Section 68 of the Act. The appellant was asked to explain as to why penalty should not be levied for such contravention. In reply, the appellant contended that he had no obligation or liability under Section 68 of the Act in respect of transportation of goods from Haldia to Chichira [exit checkpost]. According to him, the goods could be moved only by the owner or the importer directly by itself or through its transporter. </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><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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