TIOL-DDT 1431 · the untouched capture
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<font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL-DDT
1431</strong></font><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif"><strong><br>
</strong></font><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">25.08.2010 <br>
Wednesday</font></strong></div>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service
Tax – Works Contract – On-going confusion?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NEARLY</strong>
14 years ago, the Supreme Court in Ranadey Micronutrients </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif">[<strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-184-SC-CX.htm" target="_blank">2002-TIOL-184-SC-CX</a></strong>]</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> said, “consistency and discipline are of far greater importance than the
winning or losing of court proceedings”.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since
the day the Service Tax was levied on works contract, there has been confusion
and litigation all round.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the following confusion/disputes were brought to the notice of the Board, with
respect to long term works contracts which were entered into prior to 01.06.2007
(when the taxable service, namely, Works contract came into effect) and were
continued beyond that date:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i.
<font color="#FF3333">While prior to the said date services like Construction;
Erection, commissioning or installation; Repair services were classifiable
under respective taxable services even if they were in the nature of works
contract,</font> whether the classification of these activities would undergo
a change? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii.
Whether in such cases of continuing contracts, the Works Contract (Composition
Scheme for payment of Service Tax) Rules, 2007 under Notification No. 32/2007-ST
dated 22/05/2007 would be applicable? </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And
the Board clarifies:-</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i.
As regards the classification, with effect from 01.06.2007 when the <font color="#FF3333"><strong>new
service</strong></font> ‘Works Contract’ service was made effective,
classification of aforesaid services would undergo a change in case of long
term contracts even though part of the service was classified under the respective
taxable service prior to 01.06.2007. This is because ‘works contract’
describes the nature of the activity more specifically and, therefore, as
per the provisions of section 65A of the Finance Act, 1994, it would be the
appropriate classification for the part of the service provided after that
date. [<font color="#FF3333">if it is a <strong>new service</strong> as admitted
by the Board, how could it be taxed from a date prior to its imposition?</font>]</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii.
As regards applicability of composition scheme, the material fact would be
whether such a contract satisfies rule 3 (3) of the Works Contract (Composition
Scheme for payment of Service Tax) Rules, 2007. This provision casts an obligation
for exercising an option to choose the scheme prior to payment of service
tax in respect of a particular works contract. Once such an option is made,
it is applicable for the entire contract and cannot be altered. Therefore,
in case a contract where the provision of service commenced prior to 01.06.2007
and any payment of service tax was made under the respective taxable service
before 01.06.2007, the said condition under rule 3(3) was not satisfied and
thus <strong>no portion of that contract would be eligible for composition
scheme.</strong> On the other hand, even if the provision of service commenced
before 01.06.2007 but no payment of service tax was made till the taxpayer
opted for the composition scheme after its coming into effect from 01.06.2007,
such contracts would be eligible for opting of the composition scheme. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii.
The Board’s previous Circular No. 98/1/2008-ST dated 04.01.2008 and
the ratio of judgement of the High Court of Andhra Pradesh in the matter of
M/s. Nagarjuna Construction Company Limited vs. Government of India </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-403-HC-AP-ST.htm" target="_blank">2010-TIOL-403-HC-AP-ST</a>)</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> are in line with the above interpretation. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So,
the Board wants ongoing contracts to be taxed under 'Works Contract', but no
portion of that contract will be eligible for composition. Why? Because, the
service provider <font color="#663300">did not have the wisdom to consult an
astrologer before paying the service tax on the future works contract prior
to 1.6.2007!</font> Service Tax is so complicated that even seasoned tax experts
cannot help you. Astrologers are more reliable, for they can accurately predict
the movement of the stars – yours as well as revenue's!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will
the learned Board please clarify:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
works contract is also taxable prior to 1.6.2007 under different heads of construction/erection,
commissioning etc, why they have introduced a <strong>new service</strong> called
works contract? If the intention is only for providing an option of composition,
why this needs to be termed as a new service?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And
why the Board has selective respect for the judiciary? While it is readily accepting
the AP High Court order, it has no respect for the Majority order in case of
Indian Oil Tanking </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/2010/2010-TIOL-1015-CESTAT-MUM.htm" target="_blank">2010-TIOL-1015-CESTAT-MUM</a>)</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">,
wherein it was held that the work contract service is not taxable prior to
1.6.2007. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
the whole bargain, tax consultants can smile all the way to the bank, for they
are the only winners in this unproductive battle of wits.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2010/sercir128.htm" target="_blank">CBEC
Circular No.128/10/2010-ST Dated: August 24, 2010</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Has
Board forgotten its Master Circular?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> 2007, Board had issued a detailed Circular No. 96/7/2007 dated 23.08.2007 as
the Master Circular covering all technical issues relating to Service Tax and
a three digit code was allotted to each individual service for which Board clarifications
were given. All future clarifications were supposed to be amendments to this
Master Circular. Even the Circular No. 96/1/2008 dated 4.1.2008, was an amendment
to this Circular. But somehow after that Board forgot about its Master Circular.
The present clarification given yesterday should have also been part of the
Master Circular. Maybe after ten years Board will again appoint a Committee
to weed out all useless Circulars and compile a New Master Circular. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Patriotic
Corruption – In favour of Indians against Foreigners – Anti Dumping
Director in CBI Custody</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong>
seems corruption in the Anti Dumping Directorate has a patriotic overturn. The
beneficiaries are always Indians and the victims foreigners. In the interest
of Indian Companies, the officers are induced to impose anti dumping duty and
their patriotic zeal, supported ably by a little consideration, make them pliable.
The CBI has arrested a Director, Anti Dumping in the Commerce Ministry in three
cases, two of them dealing with anti dumping related corruption while the third
one was an extra curricular initiative where the Director tried to use his influence
with the Coal Ministry to get some undue favour!. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>From
our Legal Corner - Tomorrow's cases</strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central
Excise </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Intention
to evade duty by invoking extended period of limitation has to be proved
by Department; When there is a bona fide doubt on excisability of
goods, extended period of limitation cannot be invoked; when facts are
known to Department, it cannot be held that there is suppression on
part of assessee:: High Court </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHEN</strong>
there was a bona fide doubt on the payment of duty with regard to the samples
of Cigarettes drawn for testing and the same was cleared only with the decision
of the Apex Court, it cannot be held that there was suppression of facts or
any willful intention to evade duty. In fact, intention to evade duty by invoking
the extended period of limitation has to be proved by the Department. When there
is a bona fide doubt on the excisability of the goods, the extended period of
limitation cannot be invoked. Further, when the facts are know to the Department
and when the officers of the Department have been inspecting the products and
have also been in constant correspondence with the assessee, who has in turn
replied to the various letters of the Department, it cannot be held that there
is suppression on the part of the assessee, so as to justify invokation of proviso
to Section 11A of the Act. -<em> <strong>Revenue Appeal Dismissed</strong></em></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">Sec
36(1)(iii) - Share application money - Is it debt for assessee till share allotment
is done? - Can assessee claim deduction for interest paid on such debt? - YES,
says ITAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue is - Whether share application money is debt for the assessee company
till the time the share allotment is done. Whether interest paid on such debt
is allowable.</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">Settlement
Commission bound to follow Valuation Rules while settling a valuation issue:
High Court </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong>
settling the case of under valuation, the Settlement Commission is also required
to determine the duty liability by adopting the lowest value in terms of Rule
5 and Rule 6 of the Valuation Rules. The Settlement Commission cannot ignore
and/or overlook the provisions of Rule 5 and Rule 6 of the Valuations Rules.</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">See
our columns Tomorrow for the judgements</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
tomorrow with more DDT </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a Nice Day</font></p>
<p align="justify"><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" target="_blank">vijaywrite@taxindiaonline.com
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