TIOL-DDT 1765 · 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 1765 </font><br> 02.01.2012<br> Monday </strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Taxability of International Private Leased Circuit (IPLC) Service – Board Withdraws Erroneous Clarification </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>INTERNATIONAL</strong> Private Leased Circuit service providers act as a lifeline for the IT/BPO Industry as well as many MNCs in India. The IT/BPO sector as well as the MNCs incur expenses running into millions of dollars to avail of these services directly from the service providers located outside India or through group companies/associated enterprises (in case of MNCs) located outside India. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It may be noted that Lease Circuit service was brought into the service tax net from 16.07.2001 and from August 2002 onwards, when the concept of reverse charge mechanism was introduced in the service tax law, this segment of service recipients were a harassed lot. Troubles mounted when this reverse charge mechanism was fortified through section 66A of the Finance Act, 1994 from April 18, 2006. The service recipients of IPLC services in India were saddled with huge service tax demands and they were additionally burdened with litigation expenses to fight these demands and all of these exerted tremendous pressures on their bottom line. Also, one can never lose sight of the fact that when economy tumbles, this is the sector, which takes the first hit. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After concerted efforts from industry associations and bigwigs from IT/BPO sector, Board acted on their representations and issued a clarification through Circular F.No.137/21/2011-Service Tax dated July 15, 2011, wherein it was clarified that, </font></p> <p align="justify"><strong><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The activities are in the nature of Leased Circuit services presently covered under Telecommunication service. However, for getting classified under Telecommunication service, Section 65 (105 (zzzx) of the Finance Act, 1994 provides that the service should be provided by a Telegraph authority. Telecommunication service as defined under Section 65 (109a) covers services, which are provided by a person who has been granted a licence under the first proviso to sub-section (I) of section 4 of the Indian Telegraph Act, 1885. In this situation in the instant case since the service provider is located abroad, he is not covered under the definition given in Section 65 (109a). Thus, the service provided by foreign vendors cannot be taxed under Telecommunication service. </font></em></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So far so good! But unfortunately, Board's clarification did not end there. Being a "Revenue" Board, it probably did not want to let go of the chance to rake in the tax moolah. It went a step ahead and said, </font></p> <p align="justify"><strong><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The activity of receiving IPCL service from abroad is chargeable to Service Tax under Business Support Service [Section 65 (105)(zzzq) ibid] at the hands of recipients situated in India in terms of Section 66A of the Finance Act, 1994, read with Rule 2 (1) (d) (iv) of the Service Tax Rules. 1994 and provisions of Taxation of Services (Provided) From Outside India and Received in India, Rules 2006 apply. </font></em></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This Circular, instead of as acting as a soothing balm threw the ‘issue' from the frying pan into the fire, much to the consternation of the IT/BPO industry. Thankfully, Board has now “corrected” (shall we say ‘admitted its lapse') itself and came out with a fresh clarification which states, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#FF6633"><strong>Please refer to the clarifications issued vide Board's letter of even number dated 15.07.2011 on the subject mentioned above. </strong></font></em></font></p> <p align="justify"><strong><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter has been re-examined and it is seen that the IPLC is specifically covered by the definition of the telecommunication service given in clause 65 [109a(iv)] of the Finance Act, 1994. As per the said section, these services are taxable only when provided by a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1985. It is only because the foreign telecom service provider cannot constitute a telegraph authority under an Indian law that they remain outside the taxability clause of the telecommunication service. </font></em></font></strong></p> <p align="justify"><strong><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, the view taken in the said letter that what otherwise constitutes a "telecommunication service" would amount to "business support service" is erroneous. </font></em></font></strong></p> <p align="justify"><strong><font color="#FF6633"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The clarifications issued vide the above mentioned letter stands corrected accordingly. </font></em></font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finally, wisdom prevailed and correction followed suit. We should commend the Board in correcting itself and coming out with a suitable amendment to its earlier clarification. Let us hope this matter rests here and pray that there is no intention of bringing these service providers into tax net through a retrospective amendment in the forthcoming budget. After all, our government needs tonnes of money for its ever expanding <strong>welfare</strong> schemes and it will explore every opportunity to squeeze whatever tax revenue is possible. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=12912" target="_blank">TIOL-DDT Dated 08.08.2011</a></strong> in which we had raised a similar issue in respect of Banking and other financial services , and </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An article critically analyzing the merits and demerits of Board Circular Dated July 15, 2011 - <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=13018" target="_blank">Leased Circuit: Giving Clarification or Adding to Confusion! </a></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DDT also hopes that the other issue raised in<strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=12912" target="_blank">TIOL-DDT Dated 08.08.2011</a></strong> with regard to “Banking and Other Financial Services” will be acted upon by the Board at the earliest and an appropriate clarification is issued setting rest to the unwarranted litigation on that issue as well. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2011/order_IPLC.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Letter F. No. 137/21/2011–Service Tax, Dated: December 19, 2011 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">IRS v IRS - Transport of Goods by Rail - Exemption Exempted – Even without Didi </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MAMTA</strong> Didi may not be the Railway Minister, but the Indian Revenue Service has to concede to the Indian Railways. The IRS in North Block tried to levy Service Tax on goods transport by Rail, but the IRS in Rail Bhavan successfully blocked it. After several postponements, the tax was to be effective from 1 st January 2012. Now it is further extended. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The following Notifications are amended: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2010/stnot10_007.htm" target="_blank">Notification No 07/2010-Service Tax, dated the 27th February 2010: </a></strong>Rescinds Notification No. 33/2009-S.T dated 01.09.2009 [which actually exempts transport of goods by rail and if this exemption is withdrawn, the service becomes taxable]. <em>This notification was to be effective from 01.04.2010 and then extended to 01.07.2010, further extended to 01.01.2011, then to 01.04.2011, then to 01.07.2011, then to 01.01.2012 and now further extended to 01.04.2012.</em></font></p> <p align="left"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_049.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">– Notification No. 49/2011-Service Tax, Dated : December 30, 2011 </font></strong></a></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2010/stnot10_008.htm" target="_blank">Notification No 08/2010-Service Tax, dated the 27th February 2010:</a></strong> exempts certain goods like Postal Mail Bags, from Service Tax.<em> This notification was originally effective from 01.04.2010, then extended to 01.07.2010, 01.01.2011, 01.04.2011, then to 01.07.2011, then to 01.01.2012 and now further extended to 01.04.2012. </em></font></p> <p align="left"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_050.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">– Notification No. 50/2011-Service Tax, Dated : December 30, 2011 </font></strong></a></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2010/stnot10_009.htm" target="_blank">Notification No 09/2010-Service Tax, dated the 27th February 2010: </a></strong>provides abatement to transport of goods by rail. <em>This notification was effective from 01.04.2010 and similar amendments were made and in the previous round, it was made effective from 01.01.2012. Now it is effective from 01.04.2012 </em></font></p> <p align="left"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_051.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">– Notification No. 51/2011-Service Tax, Dated : December 30, 2011 </font></strong></a></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Why can't they simply say that the notifications will come into force from a date to be notified by the Government?</strong> Thousands of copies of these notifications will be printed and circulated on precious paper. Generations to come will scarcely believe that a Revenue Department in India was primarily responsible for destroying the forests of India and those generations will never forgive you for such vandalising waste in exercise of the powers <strong>wasted</strong> in you. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Financial Express reported on 31 December 2011 – "<em>New Year 2012 will bring bad news for certain sections of the industry as the government has decided to impose a 10% service tax on movement of freight through railways from January 1."</em></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax Refund to Exporters through Customs EDI </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC in <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2011/sercir149.htm" target="_blank"><strong>Circular No. 149/18/2011-Service Tax dated 16.12.2011</strong> </a>had stated, <em>"Government has proposed to introduce a simplified scheme for electronic refund of service tax to exporters, on the lines of duty drawback. With the introduction of this new scheme, exporters now have a choice: either they can opt for electronic refund through ICES system, which is based on the ‘schedule of rates' or they can opt for refund on the basis of documents, by approaching the Central Excise/Service Tax formations."</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, this scheme has been notified. The much-maligned <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2009/stnot09_017.htm" target="_blank"><strong>Notification No. 17/2009-Service Tax dated 07.07.2009</strong> </a>has been superseded and a new <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_052.htm" target="_blank"><strong>notification No. 52/2011 dated 30.12.2011</strong> </a> has been issued. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The new notification retains almost all of the <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2009/stnot09_017.htm" target="_blank"><strong>Notification No. 17/2009</strong> </a>as far as refund through the Central Excise/Service Tax officers with documents, are concerned. A new option has been given to the exporters to claim the refund on the lines of duty drawback as a percentage of the FOB value of the export goods. This continues to be an exemption notification and the exemption will work through a system of refunds. </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) The exemption shall be provided by way of refund of service tax paid on the specified services used for export of the said goods; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) The exemption shall be claimed either on the basis of rates specified in the Schedule of rates annexed to the notification, or on the basis of documents; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) No CENVAT credit of service tax paid on the specified services used for export of the said goods has been taken under the CENVAT Credit Rules, 2004; </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) The exemption shall not be claimed by a Unit or Developer of a Special Economic Zone; [<font color="#FF6633"><strong>What a way to draft a notification! Why can't they say SEZ units are not eligible, instead of saying they shall not claim?</strong></font>] </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For more details, please see <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=13969" target="_blank"><strong>Service Tax Refund to Exporters through Customs EDI Notified </strong></a></font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_052.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 52/2011-Service Tax, Dated : December 30, 2011, </font></strong></a></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tariff Value decreased for Brass Scrap and Poppy seeds </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT </strong>has decreased the tariff values of Brass Scrap (all grades) from USD 4030 to USD 3993 and decreased the tariff value of poppy seeds from USD 2044 to 1970. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is no change in the tariff value of other items. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2011/cnt11_089.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 89/2011-CUS (N.T.), Dated : December 30, 2011 </font></strong></a></p> <p align="center"><font color="#006600"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC - Transfer of Commissioners and above - Full Board being bypassed? </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=13926" target="_blank">DDT 1759 - 23.12.2011</a></strong>, we reported, </font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the Transfer Policy, the Placement Committee will be the final authority for transfer of officers below the rank of Commissioner, provided the case falls within the purview of the existing guidelines. The Placement Committee consists of the Chairman, Member (P&V) and one Member nominated by the Chairman on rotation for a period of six months. </font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>However transfer of Commissioners and Chief Commissioners are decided by the Full Board and sent for the approval of the Finance Minister through Revenue Secretary and MoS. Members in charge of Zones are likely to know the Commissioners and Chief Commissioners better and so their views are perhaps important in making transfers of senior officers. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, it seems the Board is contemplating a change in the scheme with the fate of Commissioners and Chief Commissioners also to be decided by the Placement Committee instead of by the Full Board. Is it because the powers that be are not confident of getting the support from all or some Members of the Board for their proposals?</font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Exactly a week later, we understand that the Finance Minister has approved the Board proposal and now all transfers in CBEC [from Assistant Commissioner and above] will be decided by the placement committee and the Members of the Board who are not in the Committee will have no say in transfers. Will this not undermine the status and stature of the Board and its Members? </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">Customs </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Refund - Non-challenge of assessment Order - Proper Officer required to pass speaking order when assessment is contrary to Claim of importer/exporter - Matter Remanded: HC</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> duty is cast upon the proper officer to pass a speaking order within 15 days from the date of assessment of the bill of entry or the shipping bill, except the cases where the importer confirms his acceptance of the assessment in writing; In spite of specific protest lodged by the appellant within 15 days from the date of assessment of the bill of entry, no order in terms of sub-Section 5 of Section 17 of the Act has been passed and as such, the Tribunal erred in law in rejecting the claim of refund.</font></p> <p align="justify"><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">Whether expenses incurred on removal of encroachers and their rehabilitation is revenue expenditure as payment is to facilitate smooth functioning of business - YES, rules Delhi High Court Full Bench </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE</strong>, Airport Authority of India (AAI) took over the functions of management of certain airports and other allied activities. On some of these airports, illegal encroachments were found in and around the security area of the airports. Schemes were devised to rehabilitate the encroachers and the money required for rehabilitation. Assessee had been making provision for the expenditure to be incurred in removal of encroachers and incurring the expenditure for the said purpose from time to time. AO disallowed the said claim and added to the income. CIT (A) as well as ITAT confirmed the addition. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Levy of interest upon finalization of assessment – In entire scheme of Rule 7 of CER, 2002, there is no indication that when an assessee is permitted to pay duty in pursuance of a provisional assessment order, if he is dealing with more than one goods, they have to be treated separately - Karnataka HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EVEN</strong> though duty payable under the Act is to be calculated under each head in each case, ultimately it is the total duty payable for all the goods which is the subject matter of provisional and final assessment, which has to be taken into consideration – After final assessment order is passed, if duty paid in terms of provisional assessment is less than duty payable after final assessment, then assessee is liable to pay interest on short fall – In the instant case, after final assessment adjudicating authority held that there is short payment of Rs. 10.63 lakhs and excess payment of Rs. 1.77 crores – Since assessee has paid Rs. 1.66 crores in excess, interest payment does not arise – Treatment of duty payment under two categories and the approach by the lower authorities in this regard erroneous, unwarranted and not supported by any statutory provision – Impugned order of Tribunal set aside </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more<strong> DDT</strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Day. </font></p> <div 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"><strong>vijaywrite@taxindiaonline.com </strong></a></font> </div> </body> </html>