TIOL-DDT 1404 · 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 1404</font><br> 19.07.2010<br> Monday</strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 6 (6) of <em>CENVAT Credit</em> Rules 2004 - needs to be revisited</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> a significant move towards integration of taxes on goods and services, cross sectoral credit across goods and services was notified in 2004 by merging the CENVAT Credit Rules for goods and services. However, experience over a period of time proved the word “integration” wrong. What they did actually was only “Joining”. Otherwise, what could be the reason for not allowing credit on tippers and dumpers used for providing taxable services like mining or earth preparation? This anomaly has only been rectified recently. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is one more anomaly which needs to be removed immediately. Under Rule 6(6) of the <em>CENVAT Credit</em> Rules, 2004, certain categories of supplies like exports, supplies to SEZ units etc are excluded from the purview of Rules 6(1),6(2),6(3) and 6(4) and hence full CENVAT Credit can be taken by the supplier on the inputs/input services even if the supplies are exempted / made without payment of duty. However there is no mention of any output services in Rule 6(6). To give an example, services rendered to the developers or the units in SEZ are exempted vide Notification No 9/2009-ST Dated 3.3.2009. The exemption is absolute for the services consumed within the SEZ and for other services, the exemption is allowed to the SEZ unit/ Developer through refund mechanism. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It appears the <em>CENVAT credit</em> on input services is denied to the service providers who supply their output services to SEZ units by invoking the provisions of Rule 6 (1) of the CENVAT Credit Rule 2004. When Rule 6(6) specifically mentions that the provisions of Rule 6(1) are not attracted to the goods supplied to the units in SEZ/ Developers, it makes no sense to deny the same benefit to the suppliers of services. This kind of problems will surface if we join the rules instead of integrating. It will benefit a number of service providers if Rule 6(6) is amended to include services supplied to SEZ Units also in addition to the goods. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Also see <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8697"><strong>DDT 1065</strong> </a>and <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9063"><strong>DDT 1116</strong> </a></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Demand notices for erroneous refunds - Whether governed by monetary limits </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> received this mail from a confused departmental officer –</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Grant or rejection of refund of Central excise duty is covered u/s 11B of the CEA, 1944 and the proper officer who undertakes this onerous task is the Assistant/Deputy Commissioner of Central Excise. The quantum of refund involved is not an issue and there are no monetary limits laid down for sanction of the same. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In case a refund claim sanctioned by the Assistant/Deputy Commissioner is not found to be proper or legal by the Commissioner, Central Excise, he can take recourse to review proceedings u/s 35E of the CEA, 1944 and direct filing an appeal before the Commissioner (Appeals) to decide the points raised in the review order. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board has vide <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/1998/excircular423.htm" target="_blank">Circular 423/56/98-CX dated 22.09.1998</a></strong></em> emphasized that mere review proceedings u/s 35E(2) of the CEA, 1944 do not result in recovery of erroneously granted refund but a demand notice u/s 11A of the CEA, 1944 is compulsory. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue that needs <strong>clarity</strong> is as to whether this demand notice to be issued u/s 11A of the CEA, 1944 is governed by the monetary limits contained in the Board Circular no. 752/68/2003-CX dated 01.10.2003 issued with the caption “<font color="#FF6633"><em><strong>Power of Adjudication of Central Excise Officers under Section 33 and Section 11A of the Central Excise Act, 1944 - Instruction -Regarding</strong></em></font>.”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assume that a refund of Rs.51 lakhs has been sanctioned by the AC/DC. However, the Commissioner in review proceedings has directed filing of an appeal before the Commissioner (Appeals). So, an appeal has been filed and the same is pending for disposal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since as per Board's instructions a demand is required to be issued u/s 11A for recovery of the erroneous refund of Rs.51 lakhs, the demand notice is prepared and in view of the monetary limits envisaged in the Circular dated 1.10.2003, the same is signed and made answerable to the Commissioner of Central Excise. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The question is whether this demand notice is proper in law. </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">My perception is that it is wrong and the reasons are – </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ When the fact remains that refund claims are governed by section 11B of the CEA, 1944, grant or denial of the same vests in the hands of the A.C/D.C of Central Excise and cannot be usurped in any manner by the jurisdictional Jt. Commissioner/Additional Commissioner or for that matter by the Commissioner himself by initiating proceedings u/s 11A of the CEA, 1944 for recovery of erroneous refunds. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The monetary limits prescribed by the Board are in terms of the powers conferred in the proviso to section 33 of the CEA, 1944. It needs mention that section 33 of the CEA, 1944 speaks of the powers of adjudication given to the officers for confiscation of any goods and for imposition of penalty. Obviously, the power to decide a show cause notice demanding Central Excise duty is contained in section 11A of the CEA, 1944 and in those cases where there is no such proposal of confiscation of any goods or imposition of any penalty, there is no role to be played by section 33A of the CEA, 1944 and it can be kept out along with the instructions on monetary limits as laid down by the Board. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To sum up, demands for recovery of erroneously granted refunds are not to be governed by the monetary limits prescribed by the Central Board of Excise & Customs in its Circular 01.10.2003 and the amendments carried thereto. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the above arguments may fail in case of notice issued in respect of recovery proceedings initiated for getting back duty erroneously refunded by reasons of fraud, suppression, collusion etc. This is for the reason that such demand notices would also invoke penal provisions under section 11AC of the CEA, 1944 and the monetary limits of adjudication would creep in via section 33 of the CEA, 1944. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">I am confused. Will DDT guide me?</font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">DDT on its part requests the Board to issue a Circular and clarify the doubts raised for the benefit of the ‘concerned' departmental officers. </font></strong></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">No VAT on Service Tax </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RECENTLY</strong> a question was raised before the Commissioner, Department of Trade and Taxes, National Capital Territory of Delhi, “whether VAT is applicable on basic price of softwares/software licence plus Service Tax or only on basic price of software” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 2(zd) of the Delhi value Added Tax Act, 2004, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(zd) “sale price” means the amount paid or payable as valuable consideration for any sale, including- </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ the amount of tax, if any, for which the dealer is liable under section 3 of this Act; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ in relation to the delivery of goods on hire purchase or any system of payment by installments, the amount of valuable consideration payable to a person for such delivery including hire charges, interest and other charges incidental to such transaction; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ in relation to transfer of the right to use any goods for any purpose (whether or not for a specified period) the valuable consideration or hiring charges received or receivable for such transfer; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ any sum charged for anything done by the dealer in respect of goods at the time of , or before, the delivery thereof;</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ <strong>amount of duties levied or leviable on the goods under the Central Excise Act, 1944 (1 of 1944) or the Customs Act, 1962 (52 of 1962), or the Punjab Excise Act, 1914 (1 of 1914) as extended to the National Capital Territory of Delhi whether such duties are payable by the seller or any other person; and</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ amount received or receivable by the seller by way of deposit (whether refundable or not) which has been received or is receivable whether by way of separate agreement or not, in connection with, or incidental to or ancillary to the sale of goods; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ in relation to works contract means the amount of valuable consideration paid or payable to a dealer for the execution of the works contract; </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Departmental representative stated that as per the definition of “sale price”, VAT is not to be charged on Service Tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commissioner held that VAT is to be charged on the basic amount and not on the Service Tax amount.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is an important issue which the GST Regime has to take into consideration. </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"> – 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">Prior to amendment in 2006 Companies were not included under definition of consulting engineer. Works Contract only from 1.6.2007 - High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FROM</strong> the combined reading of the definition of Consulting engineer prior to 2006 and after 2006, it is clear to the Court that the service rendered by the Company had not been included under the definition of consulting engineer prior to 2006 as it stood under Section 65(13). As a matter of fact, this Court has decided the said point in CEA 12/2007 on 1st April 2010 - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-451-HC-KAR-ST.htm" target="_blank"><font size="1">2010-TIOL-451-HC-KAR-ST</font></a></strong> stating that prior to the Amendment Act, 2006, the Companies were not included under the definition of consulting engineer. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Writing off of credit balances - assessee writes off liability of term loan in nature of cash credit used for day to day operations - Sum is taxable if credited to Profit & Loss Account: ITAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue relating to writing off of credit balances is - Whether in view of the decision of Supreme Court in the case of <em>T.V.Sundaram</em> <strong>(<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=37&filename=legal/sc/2002/2002-TIOL-239-SC-IT.htm" target="_blank">2002-TIOL-239-SC-IT</a></font>)</strong> a receipt when credited to P&L account changes its character and hence the AO was justified in taxing the benefit arising to an assessee who has written off his outstanding liability of term loan in the nature of cash credit limit used by the assessee for day to day operations. . </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">Department can invoke Bank Guarantee when notification conditions are not fulfilled – High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHERE</strong> advance licenses were obtained by misrepresentation without even having manufacturing facilities, the Customs Department would be justified in initiating action and no error in invoking the Bank Guarantee. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements </strong></font></p> <p align="left"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more<strong> DDT</strong></font></p> <p align="left"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p> <p align="left"><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"><strong>vijaywrite@taxindiaonline.com</strong></a></font></p> </body> </html>