TIOL-DDT 1382 · 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 1382 </font><br>
17.06.2010 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax – What is Penalty under Section 78 for?</strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SECTION</strong> 78 of the Finance Act, 1994 reads as</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">78. Penalty for suppressing value of taxable service.- Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of - </font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) fraud ; or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) collusion ; or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) wilful mis -statement; or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) suppression of facts; or </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, ………… </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the heading of the Section says the penalty is for <strong>suppressing value of taxable service</strong> but the words in the section do not refer to value at all. Can penalty be imposed under Section 78 for anything other than suppression of value? </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Heads
or Tails – Which is More Legal – The Heading of a Section or its Contents? </font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> CESTAT had an occasion to discuss this very Section 78 in <em>INDUSTRIAL SECURITY AGENCY Vs CCE , ALLAHABAD </em>- </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2008/2008-TIOL-960-CESTAT-DEL.htm" target="_blank">2008-TIOL-960-CESTAT-DEL</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">.
Justice SN Jha , President observed, “ It may be kept in mind that Section
78 refers to penalty for suppressing value of taxable service. <font color="#FF6633"><strong>Though the heading of the Section cannot be read as substantive provision, it can be used as a guide to cull out the real meaning of the provision.</strong></font> The
language of the heading, prima facie, suggests that penalty can be imposed
where the person has suppressed any fact pertaining to the value of taxable
service. Non-submission of the return per se, in my opinion, may not attract
penalty under Section 78 and accordingly I am inclined to hold that the provisions
of Section 78 are not attracted in the instant case and, therefore, no penalty
thereunder could be imposed against the appellant.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 78 was earlier for penalty for suppression of value, but when they amended the Section in 2004, they forgot to amend the Marginal Heading and this farce is continuing for the last six years. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> had covered this issue earlier but some points are perhaps worth repeating. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us take another real example – the marginal heading of Section 179 of the Income Tax Act reads as <strong>Liability of directors of private company in liquidation</strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Section reads as, <em>“Notwithstanding ……..Where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.” </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please notice that there is absolutely no reference to <strong>liquidation</strong> in the Section which is mentioned in the heading. It was there some 35 years ago. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly the Section earlier read as “when any private company <strong>is wound up </strong> after the commencement of this Act, and any tax assessed on the company, whether before or in the course of or after its <strong> liquidation</strong>, in respect of any income of any previous year.” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And it was amended in 1975 by the <strong>Taxation Laws (Amendment) Act, 1975</strong> specifically to fix the liability on the Directors even when there is no liquidation. But the heading of the Section merrily reads, <strong>Liability of directors of private company in liquidation</strong> for the past 35 years and will merrily continue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Amendment had enlarged the scope of this provision so as to impose personal liability on the directors of a private company in respect of any tax payable by the company even in cases where the company has <strong>not gone into liquidation.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But they forgot to amend the heading. Now will the heading prevail or will the contents of the Section prevail? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us now look at the converse. Look at Rule 23 of the Central Excise Rules, 2002, which reads as, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Power to stop and search</strong>.- Any Central Excise Officer, may search any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with the intention of evading duty. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please notice, the heading provides for <strong>stopping</strong> and searching a conveyance, but the contents of the Rule does not mention anything about <strong>stopping</strong> – it empowers only <strong>searching</strong>. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Does it mean that a Central Excise Officer can search only a stopped vehicle or if he wants to search a running vehicle, he has to jump into that running vehicle like a Bollywood hero, and then search it? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So now will the head wag the tail or the tail wag the head? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Fortunately, our Courts are very kind to Law Drafter's blunders – contrary to popular belief among tax officials. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court had clarified this issue nearly forty years ago when it held in CHANDROJI RAO v COMMISSIONER OF INCOME-TAX, M.P . NAGPUR - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=37&filename=legal/sc/2002/2002-TIOL-640-SC-IT.htm" target="_blank"><font size="1">2002-TIOL-640-SC-IT</font></a> -<em> “The marginal heading cannot control the interpretation of the words of the section particularly when the language of the section is clear and unambiguous.”</em></strong> </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgement was delivered in 1970 and so the law makers can merrily ignore the Headings. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That still does not make the Central Excise officer's position any better as he is given the power to stop only by the Heading and not the Rule! The Rule is very unambiguous that he can search, but is not very sure about “stopping”.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can't law-making be a little more serious affair?</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Mount Pressure for GST - FM </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FINANCE</strong> Minister Pranab Babu told the South Gujarat Chambers of Commerce, yesterday, “ I urge the trade and commerce fraternity to mount pressure on policymakers for smooth convergence, which would lead to implementation of GST in a committed time frame. Change in the present system to a new one is bound to find resistance.” </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Chanakya in Ahmedabad Income Tax Office </strong></font></p>
<p align="center"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt17june_10.jpg" alt="Legal Corner Icon" width="400" height="261" hspace="5" border="0" align="center"></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FINANCE</strong> Minister Pranab Babu yesterday unveiled a statue of Chanakya in the Income Tax Office in Ahmedabad. Addressing the gathering, he said, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ tax laws have to be simple, stable and robust; tax rates should remain moderate; and multiplicity of tax exemptions and deductions should be gradually phased out in order to widen and deepen the tax base. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Tax administration needs to be further toned up by appropriate use of technology on the one hand, and improving professional competence and responsiveness of the employees on the other. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ I have recently announced that Advanced Mid-Career Training Programme ( AMCTP ) for IRS officers would be started during the current year. Similar training should be organized by the local Chief Commissioners for employees at all levels to improve the skills of its employees and to foster a sense of service to the taxpayers and the nation, to meet the challenges of switch over to the new taxation regime, meet the emerging challenges such as development of tax shelter products and use of tax havens thrown up by globalization. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ We have set up two Income Tax Overseas Units ( ITOUs ) within Indian Missions in Singapore and Mauritius and I have approved eight more such units in USA, UK, Netherlands, Japan, Cyprus, Germany, France and UAE . These ITOUs will facilitate seamless flow of tax related information from foreign tax jurisdictions and strengthen our fight against menace of tax evasion using cross border transactions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ For any organisation to work efficiently and effectively, it is of utmost importance that it has the requisite infrastructure as well as well trained and motivated manpower. Better office ambience plays an important role in improving employee satisfaction, delivery of quality services and enhancing public perception. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Reorganization of work in functional lines has led to reduction of hierarchies and a more professional environment. With employees spending a major chunk of their lives in offices, a good working environment has become critical to performance level of any organisation . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ I am happy to announce that the Income Tax Welfare Fund, pending since 1998, has become operational. The Fund has a corpus of Rs.100 crore kept in interest-bearing deposit. The interest earned annually on this deposit, and other annual accruals to the Fund, will be available for welfare activities of all employees of the Income Tax department and also help in meeting their unforeseen contingencies. </font></p>
</blockquote>
<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"> – Friday's cases</font></strong></font></strong></font></p>
<p><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">Appellant canvassed purchase orders from prospective Indian buyers for goods supplied by non-resident - commission paid to appellant in convertible foreign exchange - benefit of service provided accrued to foreign companies outside India - Rebate admissible: CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant had procured purchase orders in India for suppliers of goods located abroad and transmitted the same by courier or electronic means to the said suppliers. Acting upon those purchase orders, the suppliers exported the goods to the buyers in India and directly collected payments from them. Upon receipt of price of the goods, the suppliers paid commission to the appellant in convertible foreign exchange. Service tax was paid on these payments under Section 65(105 )( zzb ) of the Finance Act, 1994. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Subsequently, the appellant claimed rebate of the service tax of Rs.8 ,02,364 /- paid for the period from 19.4.2006 to 31.12.2006 citing Rule 5 of the Export of Services Rules, 2005. </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 - Block assessment - Law does not mandate that there should be evidence regarding concealment of income for every year during block period - TAT order set aside: 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 in view of the material found in search and also availability of huge cash not reconcilable from cash book, the AO was correct in assessing the income of the entire block period and the order of the ITAT which restricted the purview of block period in as much as it excluded those years for which no evidence was found is not tenable. And the HC's answer is YES. </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">Furnace Oil used in manufacture of exempted steam - Cenvat Credit - No suppression can be alleged when judicial decisions were in favour of assessee – High Court </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SHOW</strong> cause notice was barred by limitation as no case was made out for invocation of the extended period of limitation. In the light of the findings recorded by the Tribunal to the effect that at the relevant time there was a decision of the Larger Bench of the Tribunal as well as of this High Court in favour of the respondent, which gets reinforced by the fact that Commissioner (Appeals) had decided in favour of the respondent on merits, it appears that there was an ambiguity as regards the applicability of the relevant Rules. In the circumstances, it cannot be stated that there is any legal infirmity in the order of the Tribunal in holding that there was no suppression or mala fide on the part of the respondent so as to warrant invocation for the larger period of limitation </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><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>
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