TIOL-DDT 1355 · 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 1355</font> <br>
10.05.2010 <br>
Monday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Daelim Days are Over – Larger Bench holds that <em>Daelim</em> is not Good Law </font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IT</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> had to come sooner than later, but it did come a little late. We had too much of dilli daleim. Now composite contracts can be vivisected. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For more than seven years, <em>CESTAT</em> decision in Daelim Industrial Co - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2003/2003-TIOL-110-CESTAT-DEL.htm" target="_blank">2003-TIOL-110-CESTAT-DEL</a></strong></em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> that
works contracts are not divisible and therefore cannot be split to levy service
tax, held the field; in fact it was even approved by the Apex Court when
Revenue's SLP was dismissed by the Apex Court - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2004/2004-TIOL-66-SC-ST.htm" target="_blank">2004-TIOL-66-SC-ST</a></em></strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But over the years the service tax law evolved and more services were brought into the tax net – for e.g. Erection, Commissioning and Installation Service, Commercial or Industrial Construction Service, Construction of Complex Service; and the department itself was coming to terms with the various aspects of taxability of goods and services involved in service contract by giving exemption to the value of goods <em>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2003/sernot03_12.htm" target="_blank"><strong>Notification No. 12/2003-ST dated June 20, 2003</strong></a>)</em> and providing abatement from the value of taxable service <strong><em>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2006/stnot06_001.htm" target="_blank">Notification No. 1/2006-ST dated 1.3.2006</a>)</em></strong> etc.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the year 2006, the Supreme Court while dealing with taxability of sim cards under UP Trade Tax law, dealt with the Constitutional aspects of levy of both service tax and sales tax in a single contract for sale of sim cards and came to a conclusion that both the levies can be imposed on mutually exclusive values related to sale of goods and services. This judgment probably emboldened the Government to go a step further and bring into service tax net ‘works contracts' with effect from June 1, 2007. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From 2003 to 2007 much water flowed under the Daelim bridge making it a relic of the past. Now the validity of the law laid down in the Daelim Industrial case was scrutinized threadbare by a Larger Bench in its latest order dated May 6, 2010 and conclusively held that </font></p>
<blockquote>
<p align="justify"><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">“………… .An activity in the nature of service, whether provided individually or integrally and solely, separately or combinedly with other activities, has its Identity. Permutation and combination of activities or services do not change character of the activity or service. It may be possible that while an activity in a cluster of activities may be dominant others may not be prominent. But each activity has its identity, existence and independence and play its role. A plain and simple service contract or a composite contract comprising various activities of different nature of services do not make any difference to discern role of each service involved in a composite or Turnkey contracts.” </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On the efficacy of the Daelim judgment, the Larger Bench observed, </font></p>
<blockquote>
<p align="justify"><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">“ The plea that because decision of Daelim's case has been followed in the past by different Benches of the Tribunal, that holds the field does not get sanction of law when different aspects of a commercial transaction are liable to tax under different legislations according to the fields of taxation assigned to States and Government of India.” </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> got some quick comments from concerned netizens. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One netizen had this to say </font></p>
<blockquote>
<p align="justify"><em><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">“ this was very much expected especially after the BSNL judgment of Apex Court wherein it was held that Sales tax/VAT and Service tax are levied on mutually exclusive components of consideration received for sale of both goods and services under one contract. This judgment was in fact referred to by the CESTAT in this case. In my view Daelim was a flawed judgment from the word go but unfortunately it held the field for almost seven years without much of a challenge. As a matter of fact, ironing out legal creases in India takes a long time and this judgment has probably come at an appropriate time when mopping up service tax revenues is the primary focus of taxmen. In the instant case both time and luck ran out for supporters of Daelim case. More money will flow into Government's kitty. It was a reasoned judgment and I hope it will stand legal scrutiny even if it is challenged in the Apex Court.” </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, another netizen was slightly sceptical of this judgment and he sent in his comments as follows: </font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">“ The referring Bench was of the view that in the case before it, the divisibility of contract was not in issue - either in law or even on facts. Conceptually, after the 46th Amendment in terms clause (29-A) in Article 366 of the Constitution, a works contract can be dissected for the purpose of levy of sales tax and service tax ” . </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The 46th amendment says nothing about services tax. It deals with only sales tax as also explained in the statement of object and reasons. I am of the view that even today, the levy of service tax on works contract is unconstitutional. Like the amendment for levy of sales tax on works contract, for levy of service tax also, there should be an amendment. Just because some part of the works contract was brought under sales tax, the other part does not automatically go to the service tax. This issue is pending in AP High Court and let us see the outcome....” </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are sure to be flooded with comments and articles on the latest LB decision, some of which we will bring you in the days ahead. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But, for the Larger Bench Decision, please wait till tomorrow. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the meanwhile see </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3729"><strong>The Daelim dilemma! By Swamy Associates </strong></a></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=684"><strong>No Service Tax on Composite Contract - By P K Sahu </strong></a></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=4800"><strong>Service Tax on composite contract - Whether leviable? By S R Dixit, Advocate</strong> </a></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Abatement for goods under MRP based assessment – Government Not a Friend in Deed during upward revision of duty rates? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> number of goods are assessed under Section 4A of the Central Excise Act, 1944 based on the MRP. The rate of abatement is notified under a separate notification issued by exercising the powers under Section 4A. With effect from 1 st March 2008, the central excise duty rate was reduced from 16% to 14%. Along with the tariff notifications reducing the rate of duty, simultaneously the abatement was also reduced by 2 percentage points vide <strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/exnt08_14.htm" target="_blank">Notification No 14/2008 CE (NT) dated 1.3.2008</a></em></strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the second round, with effect from 24 th December 2008, duty rate was again reduced. This time also abatement on the good notified under Section 4A was reduced by 3 percentage points vide <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/exnt08_49.htm" target="_blank">Notification 49/2008 CE (NT) dated 24th December 2008</a></strong></em>. Again the duty rate was reduced with effect from 7 th July 2009. But this time, Notification 49/2008 CE (NT) was amended vide Notification No 18/2009 CE (NT) dated 7.7.2009 to increase the abatement for 5 items. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finally, when the stimulus package was rolled back in this year's budget and central excise duty rate has been enhanced to 10%, no corresponding changes have been made to the abatement rates except for two items at S.Nos. 21 and 27 of the said Notification. Without going into the reasons for simultaneous amendments made to the abatement rates along with the duty rates, it should be logical to roll back the abatement rates for all goods when the duty concessions were withdrawn. But when it comes to increasing the abatement rates, it appears that the Government has selective amnesia. Again can the Government say that raising or reducing the rates of abatement is its sole prerogative? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But why the abatement should be reduced when the duty rates are reduced? Whenever the duty rates are reduced, the manufacturers normally pass on the duty benefit by reducing the MRP. There is nothing much to worry about the abatement rates. But unfortunately it appears that the law makers are under the impression that with the reduction in duty rates, if abatement is also not reduced simultaneously, the manufacturers will be benefited by keeping the “previous tax amount” in the MRP. It leads us to a very fundamental question about the basis for fixing the abatement rates and why only five commodities were considered for <em>Notification 18/2009 CE (NT)</em> and two commodities under <em>Notification 9/2010-CE (NT)</em>. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Amends Export Obligation Period for Specified Inputs </font></strong></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Director General of Foreign Trade has made the following amendments in the Handbook of Procedures (Vol.1), 2009-14:</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After Sl. No. 5 of the Appendix 30A related to “Export Obligation Period for specified inputs”, a new Sl. No. 6 stands added as follows from immediate effect. </font></p>
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<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6) </font></p></td>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Silk in any form </font></p></td>
<td><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6 months from the date of clearance of first consignment by Customs authority. </font></p></td>
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<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2009/dgft09pn060.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Public Notice No. 60/2009-14, Dated: May 6, 2010 </font></strong></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 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">Service Tax </font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Composite Contracts - Turnkey contracts can be vivisected – Daelim – </font><font color="#FF6633" size="1" face="Verdana, Arial, Helvetica, sans-serif">(</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2003/2003-TIOL-110-CESTAT-DEL.htm" target="_blank">2003-TIOL-110-CESTAT-DEL</a></strong></em></font><font color="#FF6633" size="1" face="Verdana, Arial, Helvetica, sans-serif">)</font><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> overruled – CESTAT LB </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> can irresistibly be concluded that a contract whether composite or Turnkey may involve an activity or cluster of activities in the nature of services and such services may be provided in the course of execution of such contracts while incorporating goods into the contract concerned. Such discernible services may be advice, consultancy or technical assistance and depending upon the nature of the activity, they may be classifiable under appropriate category of taxable service under section 65 A of the Finance Act, 1994. When Article 366(29-A)(b) to the Constitution has made indivisible contracts of the aforesaid nature divisible to find out goods component and value thereof, it can be unambiguously be stated that the remnant part of the contract may be attributable to the scope of service tax under the Provisions of Finance Act, 1994. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The concept of provisional assessment and its finalization is not applicable to MRP-based assessment: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee resorted to provisional assessment during the period of dispute by furnishing the requisite bond along with bank guarantee, in which exercise they paid duty on the assessable value loaded to the extent of 25%. A show-cause notice was issued by the department proposing to finalize provisional assessment on the basis of the assessable value of CTV sets mentioned in the relevant invoices under section 4. This show-cause notice proceeded on the premise that the higher amount mentioned under section 4 in the invoice might have been recovered by the assessees dealer (depot) from the ultimate consumers as is evident from the fact that the assessee was alleged to have failed to declare the depot sale price inclusive of all expenses. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income tax - Sec 194J - Payments made to hospitals by TPAs are liable to TDS: Bombay HC </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue in this case is whether the payments made to hospitals by TPAs are liable to TDS u/s 194J? Whether the Circular of the board directing the assessing authorities to make a particular assessment or to dispose of a particular case in a particular manner is beyond the scope of section 119? </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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