TIOL-DDT 159 · the untouched capture
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<html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 159</font><br> 17 07 2005<br> Monday</b></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Service Tax – exemption to air cargo – a boon to pharma and textile sector</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> A little, no rather a detailed, peep into history is required to appreciate the situation better. Service Tax was introduced on goods transport by aircraft with effect from 10.9.2004. By Notification No. 28/2004-S.T., dated 17-9-2004, taxable service in relation to transport of export cargo by aircraft was exempted. <br> <br> However this notification was rescinded with effect from 15.3.2005 by Notification No. 10/2005-S.T., dated 3-3-2005, that is when the confusion started with the advent of the Export of Services Rules, 2005 coming into force. Under these rules also the air cargo falling under clause zzn, could be considered as export if part of the service was rendered abroad. So even if notification No. 28/2004 was withdrawn, exporters sending their goods by air were spared of the Service Tax burden as this would get covered under export of services and so no tax was payable.<br> <br> This was too cosy a situation to last long and predictably the Government amended the export rules by notification No. 28/2005 dated 7.6.2005 ( effective from 16.6.2005) to stipulate that in respect of export cargo by air ( among many other services), the service would be treated as export only if the payment was received in convertible foreign exchange. As most of the exporters pay their airlines in Indian Rupees for freight, they became ineligible for the export benefit and so the cost of exports went up with an addition of 10.2% on freight. Sectors like high value and perishable goods like gems, fruits were badly affected. Naturally there was commotion and representation and to be fair to the Board, the lapse is rectified. <br> <br> Notification No. 29/2005 dated 15.7.2005 exempts taxable service in relation to transport of export cargo by aircraft almost identical to the notification No. 28/2004. May be a major part of the Board’s time and energy goes in correcting the mistakes it created. Exporters seem to be happy as the news was well received in trade circles. But what about the tax collected during the period 16.6.2005 to 14.7.2005? Will it be refunded/ In any case can taxes be exported? – ANOTHER CLARIFICATION, ANOTHER AMENDMENT, AN ANOTHER DAY – LET THE SHOW GO ON!<br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2005/stnot05_29.htm">Notification No. 29/2005-Service Tax, Dated: July 15, 2005</a></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006633">Is communication of acceptance of a High Court order binding on Revenue?</font></b><br> <br> From Ranaday Micro Nutrients ( </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-184-SC-CX.htm">2002-TIOL-184-SC-CX</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">) through paper products (</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm">2002-TIOL-84-SC-CX</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">) to Dhiren Chemicals (</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-83-SC-CX.htm">2002-TIOL-83-SC-CX</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">) the Supreme Court had held that Board circulars are binding on Revenue. The basic idea that ran through all the decisions of the Supreme Court was that if the Board had given a circular allowing a concession or benefit to an assessee and if the assessee had acted on that, later the Board or the department could not claim that the Board was wrong and proceed against the assessee.<br> <br> Recently an assessee tried to take this principle to a preposterous limit. <br> <br> The assessee has won a tax dispute in the High Court against the commercial taxes department of a state claiming exemption from tax during a particular period. The state went in appeal to the Supreme Court. The Supreme Court admitted the appeal but declined to grant stay. In the absence of stay, the state was bound to implement the order of the High Court. So the state government issued a letter to the subordinate tax officers informing them that the state government has accepted the High Court order and it should be implemented.<br> <br> <b>Can this letter of government accepting the High Court order be treated like the Circular from the Board which is binding on the officers?</b> After a couple of years the case came up for hearing before the Supreme Court. There the party pleaded that the governments’ letter to the field about the acceptance of the High Court order was binding on them and even if the Supreme Court set aside the orders of the High Court, no tax can be collected from them. The Supreme Court found this objection misconceived. The Circular in question here was merely an official communication to the subordinate officers directing compliance with the decisions of the High Court. They were not clarifications of statutory provisions. If they were clarifications, they would represent the official understanding of the statutory provisions and would be binding on the taxing authority. The Supreme Court further observed that the state law in question did not have a provision corresponding Section 37B of the Central Excise Act. It was circulars issued under this Section that the Supreme Court held to be binding on the Revenue in the Dhiren Chemicals case. In this particular case the Supreme Court had granted leave to appeal in August 2000 and stay was refused on contest in January 2001. In the absence of the stay by the Supreme Court the government was bound to comply with the High Court’s order. The Supreme Court observed that such compliance by itself cannot destroy the governments’ right to press their appeals before the Supreme Court. <br> <br> <b>What happens if exemption allowed by the High Court is later disallowed by the Supreme Court?</b> In the above case what would happen if the assessee had not collected tax from its customers and not paid it to the government based on the High Court order for which stay was refused by the Supreme Court? Further the state Act had a provision that no tax can be collected by the assessee from the customer if it was not liable to pay the tax to the state. There is even a hefty penalty if the tax is collected. Now suppose the assessee loses in the Supreme Court after five years of the High Court order; what happens? As per the High Court order the assessee was not required to pay tax and therefore it did not pay tax. As it was not required to pay tax it was not allowed to collect the tax from the customers. Had it collected the tax from the customers there would have been another case against the assessee and a penalty would have been imposed. Now having lost the case in Supreme Court is the assessee required to pay the tax? <b>Yes</b> says the Supreme Court. <br> <br> The Supreme Court had in the State of Rajastan Vs. J K Udaipur - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2004/2004-TIOL-96-SC-CT.htm">2004-TIOL-96-SC-CT</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">, held that the mere circumstance that the assessee having availed of the exemption were prohibited from collecting the tax from their customers, is of no consequence. The primary liability to pay the sales tax is on the seller. The seller may or may not be entitled to recover the same from the purchaser. The State government is entitled to recover the same from the assessees irrespective of the fact that they have lost the chance of passing on their liability to pay sales tax to their purchasers.<br> <br> <b>Moral of the story:</b> Be very careful when you avail an exemption in Central Excise, Service Tax, or any other tax for you may be struck with a liability a decade after you have availed the concession. And you will be made to pay the tax in glorious isolation. <br> <br> <b>See more details of this interesting case in our breaking news and the full text of the case in</b> <b><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-95-SC-CT.htm">2005-TIOL-95-SC-CT</a></font></b></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><font color="#006633"><b>Exemption to Defence projects – HAL</b></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> As per notification 39/96-Cus, dated 23.7.1996, imports by and for defence, security etc are exempted. Now the government has added machinery equipment etc., used for manufacture or repair of advance jet trainer engines and capital equipment required for manufacture of intermediate jet trainers, imported by Hindustan Aeronautics Ltd. (HAL) to the list in the notification.<br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2005/ctariff05_066.htm">Notification No. 66/2005 – Cus., dated July 14, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Import of second hand capital goods – No Indian goods allowed</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> As per Foreign Trade Policy, import of second hand capital goods is allowed without any age restrictions under the EPCG Scheme. The DGFT has now clarified that under the scheme second hand capital goods of Indian origin shall not be permitted to be imported. <br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2005/dgft05cir016.htm">Circular No. 16/2004-2009, dated July 15, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Restrictions on export of special chemicals, organisms etc.,</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The DGFT has amended the list of special chemicals, organisms, nuclear materials etc., in the ITC HS classification pertaining to restricted exports. <br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2005/dgft05not015.htm">Notification No. 15/2004-2009, dated July 15, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>SCOMET exports – DGFT prescribes procedure</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">SCOMET stands for special chemicals, organisms, materials, equipment and technologies. The export of these items is restricted under the policy. Applications for export permission will be considered by an inter-ministerial working group in DGFT taking into consideration various factors like credentials of the end users, assessed risk that the exported items will not fall into the hands of terrorists, capabilities and objectives of the recipients state relating to weapons and their delivery etc.<br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2005/dgft05pn029.htm">DGFT Public Notice No. 29/2004-2009, dated July 15, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Export promotion schemes ‘Aayaat Niryaat Form’ amendments</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The requirement of giving a self certified copy of the balance sheet filed with the Income Tax Authorities along with the form is deleted and some more agencies are added to the list of authorised agencies to issue certificates of origin. <br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2005/dgft05pn028.htm">DGFT Public Notice No. 28/2004-2009, dated July 15, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>DEEC and target plus – Only manual applications</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> DGFT has decided to process DEEC for status holders 2003-04 and target plus 2004-05 applications manually and there will be no concession in application fees as E-com facility is not availing for these schemes. <br> <br> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2005/dgft05pn030.htm">DGFT Public Notice No. 30/2004-2009, dated July 15, 2005</a></font></p> <p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Dr Man Mohan Singh in Bush land – sold out</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Today our Prime Minister starts his three day state visit to the USA. And all his events are already sold out. He is obviously a big hit with the US crowd. The National Press Club luncheon on July 20 is totally sold out and no passes are available for his address to the joint session of Congress. Though Dr. Singh is not as eloquent as his illustrious predecessor, Atal Behari Vajpayee, our PM is respected for his status as a civil servant and economist of international repute. It was almost exactly five years ago in September 2000 that Prime Minister Vajpayee addressed the US Congress and had they bothered to take him seriously then, may be they could have averted the major tragedy of September 2001. Almost exactly a year before the 11/9 tragedy, Vajpayee told the US Congress, <br> <br> <b><font color="#663399">As many of you here in the Congress have in recent hearings recognised a stark fact: no region is a greater source of terrorism than our neighbourhood. <br> <br> Indeed, in our neighbourhood -- in this, the 21st century -- religious war has not just been fashioned into, it has been proclaimed to be, an instrument of State policy. <br> <br> Distance offers no insulation. It should not cause complacence. <br> <br> You know, and I know: such evil cannot succeed. <br> <br> But even in foiling it could inflict untold suffering. </font></b><br> <br> <font color="#FF6666"><b>Until Tomorrow with more DDT<br> <br> Have a nice day. <br> <br> Mail your comments to</b></font> <a href="vijaywrite@taxindiaonline.com"><b>vijaywrite@taxindiaonline.com </b></a></font></p> </body> </html>