TIOL-DDT 1784 · 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 1784 </font><br> 30.01.2012 <br> Monday </strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax – Big Blow to Builders - High Court Dismisses Writ Petition</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NETIZENS</strong> may recall Finance Act 1994 was amended by the Finance Act 2010 to introduce an explanation to Section 65(105)(zzq) and Section 65(105) (zzzh). Besides, a new provision was introduced in the form of clause (zzzzu) in Section 65(105). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This had been challenged in the Bombay High Court by about 800 members of the <em>Maharashtra Chamber of Housing Industry</em> and the High Court had granted an interim relief – <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-526-HC-MUM-ST.htm" target="_blank"><font size="1">2010-TIOL-526-HC-MUM-ST</font></a></strong>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the High Court has dismissed the writ petitions filed by the builders. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The grounds taken by the petitioners were: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>i) The amendment is beyond the legislative competence of Parliament since the subject matter of the tax falls within the legislative power of the States under Entry 49 of List II to the Seventh Schedule of the Constitution. The explanation would indicate that it is a transaction of sale or an agreement to sell an immovable property yet to be constructed or under construction and not certified to be complete by the appropriate authority, which is sought to be taxed. Unless there is a transaction, which involves a transfer of immovable property or a contemplated transfer and a receipt of money, no charge would arise. Hence, the tax is directly one on the transfer of land or buildings and would fall within the legislative competence of the State legislatures under Article 246(3) read with Entry 49 of List II; </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii) By the explanation to clauses (zzq) and (zzzh), the construction of a new building or complex is by a deeming fiction treated to be a service when - (i) The construction is intended for sale; and (ii) Some receipt is envisaged before the grant of a completion certificate by the appropriate authority. The tax in pith and substance is not on construction, but on the sale of land and the element of sale is essential to fasten the charge. The sale of immovable property before, during or after construction, but before a completion is granted can by no stretch of imagination be regarded as a service. Once a completion certificate is received, there would be a sale pure and simple. In substance, the tax is on the transfer of land and buildings and therefore a tax on land and buildings within the meaning of Entry 49 of List II; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii) The provisions of Section 65(105)(zzzzu) are unconstitutional because - (a) No element of service is involved whatsoever since the advantage that is sought to be brought to tax attaches to the preferential location or development of the property; (b)There is no voluntary act of rendering service; (c) The tax must be regarded as a tax on land per se, because it is a tax on location; and (d) What is the preferential location or an extra advantage or a payment over and above the basic sale price is not defined. The provision is therefore vague and suffers from the vice of an excessive delegation of legislative power since the enforcement of the provision is left to the unguided discretion of the administrative authority; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iv) Between a builder and a contractor who constructs a building, there may be a service element involving a service provider and receiver. Between the builder and a buyer, there is no provision of service. The title to the building which is under construction vests in the builder. After construction is complete and a final transfer of title takes place, there can in any event be no provision of service; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">v) The explanation has brought in two fictions of a deemed service and a deemed service provider which will fall foul of the provisions of Sections 67 and 68 of the Finance Act. </font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court was not impressed and dismissed the petitions. This may not be the end of the story – the Supreme Court is still there! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you the High Court order today. Please see <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14170" target="_blank">Breaking News </a></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Please also see <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=11836" target="_blank">DDT 1513 – 23.12.2010</a>, <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=13590" target="_blank">DDT 1729 – 09.11.2011</a> and <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14129" target="_blank">DDT 1780 – 23.01.2012 </a></strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Challenging Imposition of Service Tax – Not a Wise Business Policy? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GETTING</strong> a stay against a new imposition does not seem to make good business sense. When the Government introduces a new levy, they study the legal implications and are usually ready to counter any legal attack. In the unlikely event of Government failing in the court, they always have the weapon of retrospective amendment, which they will use liberally. Not a single service, so far had been effectively set aside and the Government's success rate is almost hundred per cent. Ultimately the service provider will have to pay the tax and with interest and sometimes with penalty too and at that time they will not be able to collect the tax from their customers. Apart from the huge expenses in the High Court and the Supreme Court, the petitioners will end up paying the tax with interest. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us have a look at some of the cases where the imposition of Service Tax was challenged. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Laghu Udyog Bharati v UOI – </em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2002/2002-TIOL-162-SC-ST.htm" target="_blank"><font size="1">2002-TIOL-162-SC-ST</font></a></strong>, the Supreme Court set aside the tax payable by recipients holding ‘<font color="#FF6633"><strong>that the provisions of Rule 2(d)(xii) and (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed </strong></font>.' This was the only decision where the levy was quashed, but the Government brought in retrospective legislation and undid the Supreme Court judgement and in <em>Gujarat Ambuja Cement v UOI </em>- <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2005/2005-TIOL-53-SC-ST.htm" target="_blank"><font size="1">2005-TIOL-53-SC-ST</font></a></strong>, the Supreme Court upheld the retrospective amendment. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>TN Kalayana Mandapam Association v UOI, – </em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2004/2004-TIOL-36-SC-ST.htm" target="_blank"><font size="1">2004-TIOL-36-SC-ST</font></a></strong>, the Supreme Court held that <font color="#FF6633"><strong>a tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire purchase activities</strong></font>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>All India Federation of Tax Practitioners v UOI </em>– <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2007/2007-TIOL-149-SC-ST.htm" target="_blank"><font size="1">2007-TIOL-149-SC-ST</font></a></strong>, the Supreme Court held that <font color="#FF6633"><strong>Parliament has legislative competence to levy service tax on chartered accountants, cost accountants and architects</strong></font>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Association of Leasing and Financial Service Companies v UOI</em> -<strong> <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=42&filename=legal/sc/2010/2010-TIOL-87-SC-ST-LB.htm" target="_blank">2010-TIOL-87-SC-ST--LB</a></font></strong> , the challenge was to the imposition of Service Tax on financial leasing services including equipment leasing and hire purchase. The Supreme Court held that <font color="#FF6633"><strong>Service Tax, insofar as it relates to financial leasing services including equipment leasing and hire-purchase is within the legislative competence of the Parliament under Entry 97, List I of the Seventh Schedule to the Constitution</strong></font>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In<em> Addition Advertising v UOI </em>- <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2003/2003-TIOL-124-HC-AHM-ST.htm" target="_blank"><font size="1">2003-TIOL-124-HC-AHM-ST</font></a></strong>, the Gujarat High Court upheld the constitutional validity of Service Tax on advertising services. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Retailers Association of India v UOI</em> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2011/2011-TIOL-523-HC-MUM-ST.htm" target="_blank"><font size="1">2011-TIOL-523-HC-MUM-ST</font></a></strong>, the Bombay High Court upheld the constitutional validity and retrospective amendment in respect of Service Tax on renting of immovable property. So did the Delhi High Court in <em>Home Solutions Retails (India) Ltd. v. Union of India</em> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2011/2011-TIOL-610-HC-DEL-ST-LB.htm" target="_blank"><font size="1">2011-TIOL-610-HC-DEL-ST-LB</font></a></strong> </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hundreds of lawyers have appeared in these cases and Crores of rupees must have been spent on the futile litigation – the only community, which benefits from this type of litigation, is the one of lawyers and all the others including the Government (which is the ultimate winner) do lose precious money and time. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is a mystery that leading businessmen who are otherwise very clever do not understand this simple fact or maybe the lawyers are superlatively bright (in getting cases, if not in winning them) and convince the businessmen that it is better to fight in courts than pay the taxes. Ultimately it makes good sense for the Government – they get the taxes and a whopping 18 percent interest and perhaps some more amounts by way of penalties. No business these days brings in such good returns. <font color="#FF6633"><strong>Look before you leap into litigation</strong></font>. </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">ASK and IT shall be Done! </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASK</strong> is the Income Tax Department's Ayakar Seva Kendra which will help clients with the paperwork and e-filing. The IT department wants to change people's perception of it as a department to be afraid of, to a service agency. The first ASK counter in Karnataka was opened in Bangalore last week. </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">AG's Audit of Tax Documents - Trouble in Pakistan </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> strong debate is going on in TIOL columns about the AG's Audit visiting the premises of assessees for audit. A similar issue is in news in Pakistan. The Auditor General of Pakistan in his recent reports has complained that Federal Board of Revenue (FBR) authorities were creating obstacles in the conduct of its audit. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The FBR, on the other hand, countered these accusations by questioning the authority of the auditor general in conducting its internal audit. In a circular issued on September 8 2010, the FBR denied the jurisdiction of audit by the department of the auditor-general of Pakistan. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The auditor general's report countered this circular, stating that it was issued even though the law and justice division had already given its opinion in 2008 that the auditor general did in fact have such jurisdiction. It also directed that the FBR should ensure production of all auditable accounts and that appropriate action should be taken against all those who hindered audit activity. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">According to the Auditor-General's Functions, Powers, Terms and Conditions of Service) Ordinance 2001, the officer in charge of any office or department should provide all available facilities for audit inspection. Any person or authority hindering the functions of the auditor general regarding inspection of accounts shall be subject to disciplinary action. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The FBR has even taken the matter to the Supreme Court of Pakistan. </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">What do Corrupt Government Officers do with Bribes? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Andhra Pradesh State Excise officers have an innovative investment idea. The officers and liquor syndicates are hands in glove in evasion and cheating. The excise officers get a good cut in the illegal operations. Where do they invest this black money? Plough it back into the illicit trade by financing it for a decent interest. A head Constable had given a loan of Rs. 53 Lakhs to a syndicate and a junior officer had given a loan of Rs. 2.44 Crores, according to the State ACB. </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><font 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"><strong><font color="#663399">Customs</font></strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Advance Ruling - super concentrate classified as products of chemical industry under heading 3824 90 90: AAR </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> goods are undeniably products of chemical industry. No other specific headings of the tariff under which they could fall for classification. Consequently, their classification will have to be under the residuary entry of chapter 38 of the tariff i.e. heading 3824 90 90. </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 when a car dealer provides accessories to purchasers on complimentary basis, same is to be construed as 'hospitality' and expenditure incurred is liable to Fringe Benefit Tax.- NO: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE</strong> is a car dealer. The Assessing Officer held that the car accessories provided free of cost to the customers, on which expenditure of Rs.30,67,696/- was incurred, was in nature of hospitality and covered under Section 115WB(2)(B) and was, therefore, taxable. He, accordingly added an amount of Rs.6,13,539/-, being 20% of the purchase value/ expenditure of Rs.30,67,696/- to the total value of Fringe Benefits as declared by the assessee. The Assessing Officer also observed that providing of free of cost accessories was a promotional scheme to boost car sales. </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">Availment of balance 50% credit on capital goods - If the capital goods are lying in factory for installation and the process of erection was being carried out then it has to be considered as satisfying meaning of term ‘capital goods are in possession and use of manufacturer': CESTAT LB </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> duty confirmed by the Commissioner is in respect of balance 50% of Cenvat credit availed by the appellant in respect of capital goods during the subsequent financial year. <strong>The said credit was rejected by the Commissioner on the ground that the said capital goods had not been installed and put to use by the next financial year</strong>, and as such credit was not available. </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><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"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p> </body> </html>