TIOL-DDT 1371 · 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 1371</font> <br>
02.06.2010 <br>
Wednesday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is
Service Tax applicable for economy class travel on both domestic and international
journey by Air - And should you tax poor Gulf passengers? Board should
clarify</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> received this rather longish mail from a <em><strong><font color="#FF6633">concerned </font></strong></em>Netizen, which I don't have the heart to edit.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"The service of “transport of passengers embarking on international journey by air, other than economy class passengers” provided by aircraft operators was brought into the service tax net with effect from May 01, 2006. This taxable service was defined in terms of clause (zzzo) of Section 65 (105) of the Finance Act, 1994 as follows: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#FF6633">“(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class. </font></em></font></p>
<p align="justify"><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Explanation 1.-For the purposes of this sub-clause, economy class in an aircraft meant for scheduled air transport of passengers means,— </font></em></font></p>
<p align="justify"><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) where there is more than one class of travel, the class attracting the lowest standard fare; or </font></em></font></p>
<p align="justify"><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) where there is only one class of travel, that class. </font></em></font></p>
<p align="justify"><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Explanation 2.-For the purposes of this sub-clause, in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class” </font></em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For this purpose, the word ‘passenger' was defined in sub-section (77c) of Section 65 of the Finance Act, 1994 as follows: </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>“(77c) "passenger" means any person boarding, at any customs airport, an aircraft for performing an international journey, but does not include-</em></font></p>
<p align="justify"><em><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) a person who has arrived at such customs airport from a place outside India and is in transit through India, provided that he does not pass through immigration and does not leave customs area and continues his journey to a place outside India; and </font></em></p>
<p align="justify"><em><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) a person employed or engaged by the aircraft operator in any capacity on board the aircraft” </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Finance Act, 2010, the said clause (zzzo) of Section 65 (105) and sub-section (77c of Section 65 were substituted as follows: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#663399">“(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey” </font></em></font></p>
<p align="justify"><font color="#663399"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“(77c) "passenger" means any person boarding an aircraft in India for performing domestic journey or international journey” </font></em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Initially when service tax levy was introduced on this service for the first time from May 1, 2006, the Board/ TRU through <em><strong><a href="http://www.taxindiaonline.com/RC2/union_budget/ub2006-07/cen/dojstru2.pdf" target="_blank">Circular D.O.F.NO.334 /4/2006 - TRU dated 28.02.2006</a></strong></em> clarified that ‘economy class' passengers are excluded from the levy of service tax under this sub-clause. It was further clarified that transit passengers not leaving the customs area will also not be covered under this sub-clause. Also, in response to certain queries from the Board of Airline Representatives in India, the Board/ TRU through <strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2006/sercir85.htm" target="_blank">Circular 85/3/2006-ST,Dated: October 17, 2006</a></em></strong> clarified certain doubts as to leviability of service tax on the various components of the international journey undertaken by passengers embarking on international flights. In this Circular dated October 17, 2006 it was further reiterated that the levy of service tax was only on passengers embarking in India for international journey by any class, other than ‘economy class'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the new amendments were proposed to substitute the said clause (zzzo) of Section 65 (105) and sub-section (77c) of Section 65 in Budget 2010, the Board/ TRU through <em><strong><a href="http://taxindiaonline.com/RC2/union_budget/ub2010-11/cen/dojstru2.pdf" target="_blank">Circular D.O.F . No.334 /1/2010-TRU.</a></strong></em><a href="http://taxindiaonline.com/RC2/union_budget/ub2010-11/cen/dojstru2.pdf"><strong><em>, Dated February 26, 2010</em></strong></a>, merely clarified that this taxable service is being suitably amended to extend this levy to cover all domestic and international air passengers embarking in India. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So far so good. But when you compare clause (zzzo) which existed prior to and after the amendment by Finance Act, 2010, the earlier provision excluded from its purview transportation by ‘economy class' on international journey. ‘Economy class' was explained hitherto by way of Explanations 1 and 2 appended to the erstwhile clause (zzzo). While the Circular dated 26.02.2010 highlights that the service tax levy is extended even to domestic travel, there is no mention as to whether journey by ‘economy class' is excluded from the purview of service tax levy or not. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the latest amendment to clause (zzzo), the exclusion clause for ‘economy class' is conspicuous by its absence and the amendment is also devoid of any explanations. From this it can be inferred that the service tax is leviable not only on domestic and international journeys but also on the economy class of such travels undertaken by the passengers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An argument could be made that the latest amendment is only to substitute clause (zzzo) and does not affect the two explanations which were appended to the erstwhile clause (zzzo). Unfortunately, this argument would fail on three grounds. One, in the body of erstwhile clause (zzzo) itself, there was an exclusion of ‘economy class' from the purview of taxable service which is not replicated in the newly substituted clause (zzzo). Two, the erstwhile explanations only explained what was meant by ‘economy class' which was specifically excluded from the purview of the taxable service. By virtue of the latest amended clause (zzzo), the said explanations, even if retained for argument sake, will not make any sense because the body of the amended clause (zzzo) does not have any exclusion of ‘economy class' from the purview of the taxable service as it existed prior to this amendment. Lastly, when a new ‘provision' substitutes an existing ‘provision' which has explanations or provisos appended to it and the new provision is devoid of such explanations/provisos, the intention of the legislature is to substitute the entire provision including any explanations or provisos already appended to it. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another aspect of this amendment is the change in the definition of ‘passenger'. The definition of ‘passenger' vide erstwhile sub-section (77c) meant any person boarding, at any customs airport, an aircraft for performing an international journey and did not include a person who arrived at such customs airport from a place outside India and who is in transit and does not pass through immigration/leave customs area but continues his onward journey to a place outside India. The said definition also excluded a person employed or engaged by the aircraft operator in any capacity on board the aircraft. This aspect was also clarified at Point No. 4 in Circular dated October 17, 2006. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the latest amendment to the definition of ‘passenger' does not provide for any exclusion as it existed prior to the amendment. In view of this, there is a danger of this levy being made applicable to transit passengers who do not cross the immigration/customs area and also on persons who are employed or engaged by the aircraft operators in any capacity on board the aircraft. With the result, the clarification at Point No. 4 of Circular dated October 17, 2006 comes to a naught. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In paragraph 3.2 of Circular dated February 26, 2010, it was stated by the Board/ TRU that the proposed modifications which expand the scope of the existing taxable services would come into effect from a notified date after the enactment of the Finance Bill, 2010. Now that the Finance Bill, 2010 is enacted into law with effect from May 8, 2010, the proposed amendments shall come into effect from a date which could be notified by the Board any time. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the notifications are yet to be issued by the Board to bring into effect these modifications, the Board may look into these aspects and clarify as to whether the intention is to levy service tax on all classes of travel both domestic and international and on all passengers embarking on such journey. If not, a notification may be issued to exempt levy of service tax on economy class on both domestic and international travel because persons travelling from the Gulf (from some South East Asian destinations) are predominantly transported by Air India Express flights which are economy class as defined in terms of Explanation 1(ii) to the erstwhile clause (zzzo) and such persons are ordinary people who toil for their livelihood in the Middle East and South East Asia. Also an exemption notification may be issued to exclude transit passengers and persons employed or engaged by the aircraft on travelling on board such aircraft. " </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">We would like to inform that the Finance Minister was aware of these aspects when he replied to the budget debate. In his speech in the Lok Sabha , he said</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">, <font color="#FF6633">“Ever since I proposed imposition of service tax on international and domestic air passengers in the Budget this year, I have received number of representations expressing concern that this levy would adversely affect the civil aviation sector and would make air travel prohibitive. I would like to clarify that it would not be so. The effective rates of levy, when they come into effect, would be a maximum of Rs.100 per travel for domestic journey in any class and a maximum of Rs.500 per travel for international journey by economy class. Further, domestic air travel to and from the North-Eastern sector would be exempt even from this moderate tax.” </font></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">So perhaps, all these will be covered in the Notifications to be issued soon. Let us hope the government will be kind to the Gulf passengers too. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Tariff Value of Brass Scrap decreased </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT</strong> has decreased the Tariff Value of Brass Scrap from US Dollars 3979 to 3895 per MT and that of Poppy Seeds from 3412 to 3228 dollars. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2010/cnt10_043.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">NOTIFICATION NO. 43/2010-CUSTOMS (N.T.) Dated: May 31, 2010 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">ASEAN - Preferential Trade - Vietnam and Myanmar added to list of countries </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the Customs Tariff [Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India] Rules, 2009, in Annexure IV, after S.No . 3, the following entries are inserted: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ The Socialist Republic of Viet Nam</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ The Union of Myanmar</font></p>
</blockquote>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2010/cnt10_044.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">NOTIFICATION NO. 44/2010-CUSTOMS (N.T.) Dated: May 31, 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"> – Thursday's cases</font></strong></font></strong></font></p>
<p><strong><font color="#663399" 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">Central Excise </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Provisional Assessment possible only at request of assessee or direction of officer - Rejection of refund claim upheld: High Court </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> solitary question before the HIGH Court was, whether the appellant had really deposited excise duty provisionally, and, in case the answer is in the affirmative, whether the refund claimed by the appellant was within the period of time stipulated under Section 11-B of the Central Excise Act. </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">Can
maintenance service charge which was treated as business income in earlier
AYs, be treated as fee for technical services? - NO, change of opinion
based on same set of facts is legally not sustainable: ITAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> the Revenue which is often seen very keen to undertake re-assessment, change of opinion has often proved too costly. Even in this case the fate is not different for the Revenue. The issue is - Whether reopening of an assessment, completed u/s 143(3), after the expiry of four years from the end of relevant assessment year, is permissible when the AO has taken a different view in subsequent year as regards the taxability of nature of income received by the non-resident company.<strong> Whether maintenance service charge which was treated as business income in earlier AYs can be treated as FTS , taxable under Sec 44D read with Sec 115A . </strong></font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Legal heir of deceased licensee should be a major as also ‘H' card holder so as to be permitted to work as a CHA - applicant, though a major, is not possessed of ‘H' card holder and hence she cannot be permitted to work as a CHA - in circumstances, further requirement of having to pass examination is irrelevant - Application dismissed: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ACCORDING</strong> to
sub-regulation (2) where as licence which was granted to a person under the
CHALR, 2004 for operating as a CHA in any Customs area has ceased to be
in force because of the death of that person, his legal heir, who is a major
and a ‘H' card holder may be permitted to work as a CHA with the approval
of the Commissioner and such legal heir has to pass the prescribed examination
within a period of two years from the date of death of the original licensee.</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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