TIOL-DDT 1419 · 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 1419 </font><br> 09.08.2010 <br> Monday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Prohibition on Export of Non-basmati Rice - exemption </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> DGFT has notified that the ban on export of Non-Basmati rice shall not be applicable on export of 3 lakh tonnes of parboiled non-Basmati rice to Bangladesh from the Central Pool at prevalent economic cost through FCI. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2009/dgft09not055.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Notification No. 55/2009-2014, Dated: August 6, 2010 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Prohibition on export of wheat - exemption for export of wheat to Bangladesh </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> DGFT has notified that the prohibition imposed on export of wheat shall not be applicable to export of 2,00,000 MT of wheat to Bangladesh through Food Corporation of India. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2009/dgft09not056.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Notification No. 56/2009-2014, Dated: August 6, 2010</font></strong></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Valuation of Commission paid to foreign service providers – Whether under Section 67(1)(i) or Section 67(2) of Finance Act, 1994 </strong></font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> received a mail from a concerned netizen, the excerpts of which are as follows: </font></p> <blockquote> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>"We are engaged in the export business and giving sales commission to foreign agents in foreign currency. We are remitting amount in foreign currency based on the % of FOB/C&F/CIF value of the goods, as the case may be. </em></strong></font></p> <p align="justify"><em><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">We are paying service tax on commission paid to foreign agents in foreign currency under the head of " <u>Business Auxiliary Services</u>" over and above of amount paid to foreign agents. We are calculating service tax considering payment of commission as Gross Amount including Service Tax as per section 67 (2) of Finance Act and depositing the same with the department as detailed in the example below: </font></strong></em></p> <p><em><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Example: Commission amount paid: Rs. 1,00,000 Service Tax Paid: <u>Rs.100000 X 12.36</u> / 112.36 = Rs. 11,000 </font></strong></em></p> <p align="justify"><em><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">We have taken this view since no service tax is collected from the provider of service hence gross amount can be treated as inclusive of service tax. </font></strong></em></p> <p><em><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is our assumption is correct?" </font></strong></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Considering that this issue could be gnawing the minds of many recipients of services from abroad, we decided to put this issue in the public domain and also put across our viewpoint on this issue as follows: </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>With regard to levy of service tax on services received in India from service providers located outside India, section 66A of the Finance Act, 1994 provides that the recipient located in India shall be deemed as the provider of taxable service and accordingly the said recipient shall be liable to pay service tax. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As regards valuation of taxable services, provisions of section 67 ibid apply. According to section 67(1)(i), the taxable value shall be the gross amount charged by the service provider and service tax shall be paid thereon by the service provider. Section 67(2) stipulates that in cases where gross amount charged is inclusive of service tax then the taxable value shall be calculated accordingly i.e. the gross amount charged in such instances will be cum tax value.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This can also be illustrated with a simple example:</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Case 1: Amount billed by the service provider = Rs 1,00,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ST payable by treating this amount as taxable value = Rs.100000 X 12.36% = Rs. 12,360/- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amount paid to the service provider = 1,00,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ST paid to the department = Rs 12,360/-</font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In this case, the ST liability is correctly shown as Rs 12,360/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Case 2: Amount billed by the service provider = Rs 1,00,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ST payable by treating this amount as cum tax value = Rs.100000 X 12.36 / 112.36 = Rs. 11,000 </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amount paid to the service provider = 1,00,000 - 11,000 = 89,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ST paid to the department = Rs 11,000/-</font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In this case, cum-tax benefit is admissible.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Case 3: Amount billed by the service provider = Rs 1,00,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> ST paid by treating this amount as cum tax value = Rs.100000 X 12.36 /112.36 = Rs. 11,000</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amount paid to the service provider = Rs. 1,00,000/-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ST paid to the department = Rs 11,000/-</font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">This is not correct method of paying tax as the amount paid to the service provider is Rs 1,00,000, but not Rs 89,000/- . Hence cum-tax benefit is not available. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, for a service provider to determine the taxable value in terms of provisions of section 67(1)(i) or provisions of section 67(2), it depends on the contractual arrangement/ agreement between the service provider and the service recipient with regard to the treatment to be given to the contract value i.e. whether the contract value has to be treated as an amount inclusive of all taxes (including service tax) or a value excluding all taxes (including service tax). This is irrespective of the fact that a recipient of service is liable to pay service tax in terms of section 66A.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, it may be wrong to assume that merely because the actual service provider residing outside India is not paying the service tax and such service tax liability is shifted to the service recipient by virtue of the deeming fiction created by section 66A, the gross amount charged by the service recipient will be inclusive of service tax and therefore should be treated as cum tax value in <font color="#FF6633">all the cases.</font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, in the fitness of things, it would be proper to discharge tax liability by examining each case instead of claiming cum-tax benefit in all the cases.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In any case, if the taxable service received is input service as defined in Rule 2(l) of CENVAT Credit Rules, 2004 then whatever service tax is paid as a recipient of taxable services, such service tax would be available as input credit.</font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Inputs used in dutiable and exempted goods - retrospective amendments in FA 2010 – interest @ 24%? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Finance Act, 2010 provided for proportionate reversal of <em>CENVAT Credit</em> on inputs used in exempted and dutiable goods. But the Act also provides for payment of interest @24% from the date of clearance till the date of payment. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Netizen asked us a doubt. - “Now a doubt arises with regard to the past cases where in the party has paid /reversed credit attributable to exempted goods along with interest at 13% . Now is he required to pay additional interest of 11% to settle/close the issue in terms of retrospective amendments. Or can the adjudicating authorities decide the cases by dropping further proceedings in past cases without insisting payment of additional interest.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many Departmental officers feel that differential 11% interest is payable. This will now lead to another round of litigation. Board should immediately clarify this issue and avoid unnecessary litigation. In any case Courts are of the consistent view that once credit is reversed, it is as good as not taking credit. </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><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">MODVAT/CENVAT Credit on inputs and capital goods used in mines. Inputs eligible; Capital Goods used outside not entitled – Supreme Court</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> so far as the <em>MODVAT/CENVAT credit</em> on inputs (explosives, lubricating oils etc.) is concerned, the issue is squarely covered by the decision of this Court in the case of <em>Vikram Cement Vs. CCE</em> <strong>(<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2006/2006-TIOL-04-SC-CX-LB.htm" target="_blank">2006-TIOL-04-SC-CX-LB</a></font>)</strong> Therefore, the appeals, where credit on inputs is concerned, are allowed; As regards the <em>MODVAT/CENVAT credit</em> on capital goods, if the mines are captive mines so that they constitute one integrated unit together with the concerned cement factory, <em>MODVAT/CENVAT credit</em> on capital goods will be available to the assessee.; If the mines are not captive mines but they supply to various other cement companies of different assessees, and it is found that the said goods were being used in the lime stone mines outside the factory of the assessee, <em>MODVAT/CENVAT credit</em> on capital goods used in such mines will not be available to the concerned assessee under the appropriate <em>MODVAT/CENVAT Rule</em>s. </font></p> <p><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">Sec 4 - assessee following project completion method is out of purview of revised AS-7 - AO cannot ignore it and apply percentage completion method particularly when it has been accepted for earlier years: ITAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the Tribunal is - Whether an assessee who is following project completion method and has constructed the residential complex on his own is out of the purview of revised (Accounting Standard) AS-7 which is applicable in the case of construction contracts and recognizes percentage completion method and hence the AO was not correct in ignoring project completion method and applying percentage completion method particularly when the method applied by the assessee has been accepted in earlier years. And the answer is YES.</font></p> <p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax</strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue files appeal in ST7 against a manufacturer taking CENVAT Credit – Appeal should have been filed under Central Excise Act – Non Existent Commissioner in Committee of Commissioners – Appeal not maintainable - CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> view of the fact that appeal has been filed in form meant for service tax appeal and in respect of a manufacturer who had availed <em>CENVAT credit</em> and it should have been filed under Central Excise Act and during the relevant time there was no Commissionerate at Valsad at all, the appeal becomes not maintainable under the law and accordingly the same is rejected.</font></p> <p><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> </body> </html>