New Modus Operandi in Corruption - Officers ingenuity whether commendable or condemnable?
IT appears that in Bangalore service tax assessees, especially those engaged in export of services viz., STPI units are having a harrowing time securing refund of duties/taxes in terms of Rule 5 of CENVAT Credit Rules, 2004. This is in spite of a plethora of circulars, directions and clarifications issued by the Board. CBEC even went to the extent of retrospectively amending the Notification No. to facilitate hassle free refund mechanism for service exporters.
But Bangalore is far from Delhi and the Board's directions seem to be falling on deaf ears. Unfortunately, Board also should share the blame in this fiasco to a certain extent. A case in point is Circular No. 122 dated April 30, 2010 where inadvertently or otherwise it is mentioned that “service tax has to be paid to the Government Account”, thereby bringing in a new concept not supported by the prevailing statutory provisions, through the back door, though this is currently restricted to transactions with ‘Associated Enterprises'. Please also see our commentary on this in 05.05.2010. While we mentioned therein that sincere field officers will not hesitate in denying eligibility of CENVAT credit in the absence of proof of this payment to Government Account by the service providers, there are some imaginative officers in the field (Bangalore) who have implemented this aspect for other transactions as well and gaining illegal pecuniary benefits legally. Sounds strange Doesn't it. Please read on.
For example, for allowing credit of service tax paid on renting of immovable property to STPI units and consequently refund of such credit amounts, the officers in Bangalore are insisting that they (STPI units) have to bring proof of payment of service tax to the Government account by their landlords. If they scamper to get the copies of ST-3 returns supported by the GAR-7 challans filed by their landlords (to the service tax authorities - their own colleagues sitting in the next cabin), the officers go one step further and raise an objection that the information provided does not specifically indicate if the landlord has paid any service tax on the lease rentals received from them. They are forcing them to get back-up work sheets prepared by the landlords to substantiate their claims. This is not the end of the story.
Obviously, the harried assessees cannot go back to their landlords and ask for the workings. So the officers suggest an easy way out not only for this sticky issue but also for a smooth and hassle free refund cheque for certain ‘designated input services' (though Rule 5 allows refund of credit without any discrimination amongst the categories of input services, in Bangalore, it appears, there is a restriction on allowing refund to only four or five input services). They brazenly ask the assessee to make a ‘decent contribution' to the ‘charity organizations/trusts' established by them either in their own names or in the names of their family members and which are engaged in running old age homes, schools, orphanages etc. They insist that the payments are made in cheques and also promise to issue IT certificates which in turn allows these assessees to claim income tax exemption benefits. The entire transaction between the officers and the assessees appears to be above board, courtesy income tax exemption certificates for receiving ‘contribution'
What an ingenious way of institutionalizing corruption!