TIOL-DDT 1375 · 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 1375 </font><br> 08.06.2010 <br> Tuesday</strong> </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is it<em><font color="#FF6633"> Import Services</font></em> or<em><font color="#FF6633"> Input Services</font></em>? </font></strong></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=10514" target="_blank">DDT 1309 - 02.03.2010</a></strong>, it was pointed out: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> "While the noble intentions with which the amendments were brought into Notification No. 5/2006-CE (NT) are widely welcomed by the Trade and Industry, it appears that the amendment itself was made in haste. Take a look at this clause in the amending Notification 07/2010-CE (NT): </font></p> <div align="justify"> <blockquote><strong><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">iii. the portion beginning with the brackets and letter '(A)' and ending with the brackets, letter and words "(b) Output Services-", and portion beginning with the brackets and letter (B) and ending with the brackets, letter and words ' (b) Import Services' shall be omitted;</font></em></strong></blockquote> </div> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The only problem is however much you search in the notification, you will not find <em><strong>Import Services </strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually, instead of "(b) Import Services", it should have been "(b) Input Services". Though this lapse is not significant and does not impact the outcome of the proposed amendments, nevertheless the amending notification requires another amendment to set the record straight."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> suggested that the notification requires another amendment and Board has issued a corrigendum - after three months! Why does it take three months for correcting a spelling mistake? Shouldn't law making be a more serious business? </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2010/corrigendum_exnt10_7.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Corrigendum to Notification No. 07/2010-CE (NT): Dated June 04, 2010</font></strong></a></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Blatant Disobedience of Board Instructions and SC Orders by CE field officers - </font></strong><font color="#006600"><strong>ST paid by Indian recipient of Service from abroad - Is Credit allowed? </strong></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CENTRAL </strong>Excise officers in the field have time and again demonstrated that they are spoilt princes who have no respect for the Board and with routine regularity flout Board instructions and even Supreme Court orders. The Supreme Court orders that Board instructions are binding on the field officers are binding only on the Supreme Court and the Board, not the mighty Commissioners. Should the Board be silently bearing this humiliating disobedience by minor minions of the Revenue Department? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Services provided from outside India and received in India are subjected to levy of service tax under Section 66A of the Finance Act, 1994 and the liability to pay tax is on the recipient of the service. The question is whether <em>CENVAT Credit</em> is available on service tax paid on these services by the recipient of the services.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As far back as in 2006, Board clarified in F.No. B1/4/2006-TRU- Dated 19 th April 2006 that: </font></p> <blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The treatment of the recipient of service, as the deemed service provider under section 66A is only for the purpose of charging service tax on taxable services received from outside the country. Services provided from outside India and received in India, therefore, not treated as taxable service provided by the recipient for the purpose of <em>CENVAT Credit</em> Rules, 2004. However, where such service is used as an input for providing any taxable output, the service tax paid on such service can be taken as input credit. </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In F.No. 345/1/2008-TRU dated June 27, 2008, Board reiterated the above instructions and stated, </font></p> <blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The recipient of the service is required to pay service tax under Section 66A though the service is actually provided not by the recipient but by a person located in a country other than India. Such taxable services, not being actually provided by the person liable to pay service tax, are not treated as "output services" for the purpose of <em>CENVAT Credit</em> Rules, 2004. However, service tax paid under Section 66A is available as "input credit" under <em>CENVAT Credit</em> Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service. </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The views communicated by the Board in para 4.2.13. of F.No B1/4/2006-TRU dated 19 th April, 2006 are reiterated. </font></strong></p> </blockquote> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In F.No.354/148/2009-TRU dated July 16, 2009, the CBEC further clarified: </font></p> <blockquote> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The matter has been examined. The provisions under section 66A state that in case service is provided from abroad and received in India, such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of Chapter V of the Finance Act, 1994 would apply. Therefore, it is clear that section 66A is not a charging section by itself. In fact, it only creates a legal fiction to deem import of service as provision of service within India so that the provisions of Chapter V of the Finance Act, 1994 can be applied to. The charging section remains section 66 even for the service imported. In other words, the tax collected from the recipient in terms of Section 66A is also tax chargeable under section 66 of the Finance Act, 1994. </strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of the foregoing, it is clear that there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services. </font></strong></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In spite of such clear clarifications by the Board, field officers continue to deny CENVAT credit and issue notices whenever credit is taken. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently we have come across a case where the Department was of the view that since the assessee had taken the <em>CENVAT credit</em> of service tax paid on behalf of the foreign service provider, from whom the taxable service had been received by them, they are not to be considered as output service provider, and hence they are not eligible for the service tax credit. A Show Cause Notice was issued for recovery of allegedly wrongly taken service tax Cenvat credit amounting to Rs.47,39,748/- along with interest. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly in this case, the Additional Commissioner dropped the proceedings - a rare event in Central Excise. But the Commissioner did not keep quiet. He directed appeal to the Commissioner (Appeals) who being a sincere Revenue Officer quashed the orders of the Additional Commissioner. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter reached the Tribunal where a stay was granted. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But what happens to the Additional Commissioner who followed the Board directions, the jurisdictional Commissioner and the Commissioner (Appeals) who had no respect for the Board and the DR in the Tribunal who was arguing against the Board instructions? ABSOLUTELY NOTHING! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Babus are insulated. They can get away with anything, even blatant disobedience of their bosses. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Just imagine how much money and time the assessee had to spend just because the field officers have no respect for the Law and/or the Board? </font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">If the Board cannot enforce its directions, it may as well stop giving instructions. If they are serious about their instructions, they should be serious about enforcing them. Let them take this as a sample case and find out how many officers have issued Show Cause Notices on this issue against the Board instructions and award exemplary punishment to those who have disobeyed the Board. Let them do it once and Board will find unquestioned obedience. </font></strong></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We will bring you the CESTAT Stay order tomorrow.</strong></font></p> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font><font size="2"> </font> <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> <font size="2"></font> <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 align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Settlement Commission to Consider evidence filed with application: High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> observation of the Settlement Commission that no evidence or precise data had been produced proving the exact amount of duty paid on the inputs gives an impression as if the petitioner had not filed any information at all. This is not so as some evidence was produced in the said pages 45-54 of the application. So the Settlement Commission is directed to examine this aspect of the matter only and pass an appropriate order. </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 capital loss accrued to assessee as a result of sale of Group Cos' shares be said to be a colourable device merely because sales took place prior to its amalgamation - NO, says Delhi High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the High Court is whether the capital loss accrued to the assessee as a result of sale of shares of its Group companies can be said to be a colourable device merely on the ground that the sales were executed a few days prior to it's amalgamation. And the High Court's answer is NO. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Tax paid by Indian recipient of Foreign Service 'Credit as input service entitled' Stay granted: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> service recipient in India receiving taxable service from a foreign service provider pays the service tax under the provisions of Section 66 only read with Section 66A and Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994. Since the appellant, a recipient of taxable service from a foreign service provider, had paid the service tax as a deemed service provider under Section 66A of the Finance Act read with Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994 and Section 66 of the Finance Act, 1994 and since the service received has been used as input by the appellant in relation to the manufacturer of the finished products, they would be eligible for <em>CENVAT credit</em>. </font></p> <font size="2"><font face="Verdana, Arial, Helvetica, sans-serif"></font></font> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">See our columns Tomorrow for the judgements</font></strong></font></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p> <p><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> </body> </html>