TIOL-DDT 2290 · 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 size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><font color="#006600"><strong><strong><strong><strong><strong><strong><strong><strong><strong><img width="115" height="125" border="0" align="right" src="image/ddt/10yearsDDT.jpg" alt="" /></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><strong><font color="#006600"><strong><strong><strong><strong><strong><strong><strong><strong><strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=17063"><img width="175" hspace="5" height="120" border="0" align="right" src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2013.jpg" alt="DDT in Limca Book of Records" /></a></strong></strong></strong></strong></strong></strong></strong></strong></strong></font></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong></strong><font color="#663399" size="3">TIOL-DDT 2290 </font><br> 10.02.2014 <br> Monday </strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax - Interest on Refunds - Contravention of Constitution - PAC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Public Accounts Committee of Parliament (2012-13) in their 66th Report had disapproved withdrawal of moneys by the Ministry of Finance (Department of Revenue) out of the Consolidated Fund of India (CFI) for interest payments on income tax refunds without Parliamentary approval. An expenditure on interest on refunds amounting to Rs. 10,499 crore was incurred by the CBDT in the year 2010-11 and a total expenditure of Rs. 37,365 crore over a period of five years between 2006-07 to 2010-11 without obtaining approval of Parliament through necessary appropriations. The practice was viewed as contravention of Article 114(3) of the Constitution of India by the C&AG. On a reference by the PAC Secretariat to the Ministry of Law and Justice, the Attorney General had opined that he was in complete agreement with the views of the C&AG. The Secretary, Revenue, Ministry of Finance had also assured the Committee that the Department would devise a procedure which is Constitutionally correct and administratively feasible. Thereafter, based on the observations of the Audit, depositions made by the representatives of the Ministry of Finance (Department of Revenue) and the opinion received from the AG, the Committee, in their Report [66th Report (15th Lok Sabha)] presented to Parliament on 26-02-13, had observed that they found no valid ground as to why the Department could not make broad estimates of the interest liability on tax refunds based on the studied trends of the past and seek excess grants where estimation fell short of Parliamentary authorisation. The Committee had, therefore, recommended that the Ministry of Finance follow the prescribed procedure in accordance with the Constitution and the Financial Rules to avoid such a deviation. Subsequently, on a reference made by the Ministry of Finance (Department of Revenue), the AG tendered a revised opinion which was just opposite to the opinion given by him to the Committee on an earlier occasion.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Committee noted with deep concern that despite the Constitution prohibiting withdrawals from CFI except under Appropriation made by the legislature, the Department of Revenue has been making payment of interest on refunds without the approval of Parliament. The Committee reiterated their earlier recommendation that the Ministry devise a procedure in conformity with the Constitutional provisions and the Financial Rules so that interest payments on tax refunds are shown in the Annual Financial Statement (AFS) and Demand for Grants and receive Parliamentary approval as ordained by the Constitution.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Committee noted that no tax can be imposed or collected, save by the authority of law as proclaimed by Article 265. In view of the same, any excess payment received by the State after the tax assessment is made, has to be refunded to the assessees. The amount received in excess of the tax liability, duly computed under the provisions of the Income Tax Act, is required to be refunded as per the procedure under Income Tax Act along with the interest arising thereon. The Committee did not accept the specious argument of the Ministry that the interest payments on such refunds are reductions from gross receipts. Since interest on refund of taxes is paid out from and out of the CFI, the withdrawal of moneys from the CFI for payment of interest requires authorisation of Parliament under Article 114(3) read with Article 266(3) of the Constitution.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Committee noted that interest payments are the second largest component of revenue expenditure. The interest payment include payment of interest on Public Debt both internal and external, and other interest bearing liabilities of the Government which include insurance and Pension Funds, Provident Funds, Reserve Funds, deposits, interest on special securities issued to various Central Public Enterprises and interest payment on borrowing under market obligation scheme. The Committee noted that all the aforesaid interest payments come under the purview of revenue expenditure and form part of the Annual Budget and are appropriated with the prior approval of Parliament. The Committee further found that every year approximately 5-7 per cent of the total expenditure is incurred on interest payments by the Government.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Committee found that the Department of Revenue has no option but to seek ex ante or ex post facto Parliamentary approval for interest payments on tax refunds. The Constitution leaves no doubt about the manner of authorization of expenditure or withdrawal of moneys from and out of the CFI other than seeking ex ante approval under Article 114 and 115(1)(a) or seeking ex post facto approval of Parliament under Article 115(1)(b) of the Constitution.</font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From the<a href="http://www.taxindiaonline.com/RC2/pdfdocs/wnew/15_Public_Accounts_96.pdf" target="_blank"> <strong>96th Report of the PAC</strong></a> presented to the Lok Sabha on 06.02.2014.</font></em></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">We are RIGHT - says Government</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Government is not prepared to accept the CAG and PAC view. In a clarification, the Finance Ministry says,</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Government of India has been of the view that non reflection of interest on refund separately as expenditure in the Annual financial statement laid before both the houses of the Parliament did not violate any constitutional provision. It may also be clarified that the practice of not seeking specific appropriation for interest on refund as expenditure and treating it as reduction from gross tax revenue, has been consistently followed since the Income Tax Act came into force in 1961, with an exception in Budget Estimate (BE) for F.Y. 2001-2002, where estimated interest was separately shown as expenditure. However, in the Revised Estimate (RE) for the same year (as presented in the Budget for F.Y. 2002-2003), the interest was reduced to nil. No Budget Estimate (BE) for such interest was given in the Budgets for F.Y. 2002-2003 onwards. The learned Attorney General for India in his opinion dated 6.5.2013 also affirmed that refund on excess tax is not an expenditure under Article 112(1) of the Constitution and such outgo cannot be considered with other operational expenses.</em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Report of PAC dated 31.1.2014 was laid in Parliament on 6.2.2014 and the recommendations and observations of the Committee will receive due consideration and responded to within 6 months of the presentation, as per the requirement of the Committee.</font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Does it mean that just because the Government has been consistently and continuously committing a mistake, the mistake becomes the law? Government promises to respond within six months - the present Government has a maximum life of 75 days - who is going to respond?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Interest on Refunds - Not Properly Accounted - CAG in <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTQ5MTE="><strong>DDT 1850 - 04.05.2012</strong></a>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Interest on Refunds of Income Tax/Customs/Excise/Service Tax - unauthorised and unconstitutional? in <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTk0NDc="><strong>DDT 2266 - 06.01.2014</strong></a></font></p> </blockquote> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">All for Rs. 10/-</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS </strong>per the Rule 8 of CER, 2002, in case of goods removed during the month of March, the duty shall be paid by the 31st day of March. In the present case, for the month of March 2007, the appellant should have paid the duty on or before 31.03.2007. The appellants have paid duty but there was a difference of Rs.10/- [Rupees Ten only] while calculating the amount for payment, which they paid in the month of June 2007.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Call it avoidable harassment or a strict interpretation of the rule, but the fact is that the jurisdictional authorities felt that the short payment of this princely sum of Rs.10/- attracts the provisions of rule 8(3A) and which reads -</font></p> <blockquote> <p align="justify"><em><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">"If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon; and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow."</font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, a SCN was issued seeking recovery of the duty of Rs. 2,12,345/- through PLA/account current along with interest and imposition of equivalent amount of penalty as the appellant had utilized CENVAT credit for payment of duty after the default of Rs. 10/- and which was not permissible as per the subject rule.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The adjudicating authority upheld the charges and the Commissioner(A) too found no fault in this order.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant had to take his case to the CESTAT for it was too heavy a price he had to pay for the short payment of an amount equivalent to a chhota recharge of Rs. 10/-.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Bench observed -</font></p> <blockquote> <p align="justify"><em><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">"4. Considering the fact that the entire amount of duty along with higher education cess has been already been paid by the appellant and there was a mis-calculation which resulted in short payment of Rs. 10/- only which was also paid by the appellants on their own. In these circumstances, the impugned proceedings were not warranted…."</font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The order of the lower authority was set aside and the appeal was allowed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Although the Board has circulated an undated letter <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2013/Letter_201_2013.htm"><strong>F. No.201/08/2013-CX-6</strong> </a>[<strong>See <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTg2MzU=" target="_blank">DDT 2191</a></strong>] with the subject line "<font color="#FF0000">Review of rule 8(3A) of the CER, 2002</font>" based on the representation from the Trade that <em>the rule does not make a distinction between cases of bonafide mistake which can lead to default in payment of duty and cases of willful default</em> and indicated that it wishes to amend the rule, if it was really sincere it should have gone ahead and not resorted to calling for inputs from the field formations.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By the way, did the Board follow a similar ideology when they went ahead and amended the rules 8, 9 & 10 of the Valuation Rules, 2000?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As for the review of Rule 8(3A), the Trade is still waiting for a response.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Perhaps the Board is yet to receive those 'elusive' inputs from the field!</font></p> <p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See <font size="1"><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTIwMDM=" target="_blank">2014-TIOL-208-CESTAT-MUM</a></font></font></strong></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Court of Conscience </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> inaugurating the 150th anniversary celebrations of the oldest Bar Association in the country, Advocates Association of Western India, at Mumbai, the President Pranab Mukherjee said -</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ I too was attracted by the legal profession and graduated in the subject. Though I did not have the good fortune to practice at the Bar, the profession is indeed close to my heart as lawyers play a critical role in our society.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ It should also make you proud that the legal profession is a noble profession especially in a democracy where the rule of law prevails.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ Lawyers have the duty to ensure that none is denied justice.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ The backlog of cases in our courts is very disconcerting. The total pendency of cases in the Indian courts is a staggering 3.1 crores.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ Through your association, you should exhort your members to only seek adjournments where the reasons are compelling. This is of singular importance as delays increase the cost of litigation rendering justice a distance mirage for the vast majority.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">+ Lawyers must exude confidence and feel secure in their profession. This is a precondition for the establishment of an effective justice delivery system. At the same time, new entrants to the legal profession require support to find their feet.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And concluded his speech with the following words of Mahatma Gandhi - "<font color="#FF0000"><em>There is a higher court than courts of justice and that is the court of conscience. It supersedes all other courts"</em></font>.</font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Halwa Ceremony </font></strong></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <strong><a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTk1MzE=" target="_blank">DDT 2274</a></strong>, we mentioned - </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/Halwa_Ceremony.jpg" alt="Legal Corner Icon" width="370" height="246" hspace="5" border="0" align="left"><em>"<strong>IT</strong> is now clear that there would be no Budget presentation on February 28 as usual. The Government is planning an extended winter session of Parliament from February 5 to 21 and the vote on account is planned on February 17. So, there would be no budget exercises and the babus in North Block can relax."</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But, a full Budget or an Interim Budget, the "Halwa" ceremony cannot be dispensed with.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Although <strong>DDT</strong> does not know when this 'halva/halvah' ritual began in the North Block, it can be safely presumed that it is initiated to propitiate the gods and the goddesses for the safe passage of the Finance Bill, right from the stage of drafting to printing in the Budget Press situated in the North Block, and its laying down before the Parliament.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is also another angle to it - To maintain the secrecy of Budget, there is a "lock-in" of the officials involved in making the Budget. These officers and staff gain touch with their near and dear ones only after the Budget is presented by the Union Finance Minister in Parliament. So, perhaps, to keep them happy and at 'home', the Finance Minister and the other junior Ministers and the Secretaries, Chairpersons of the two Revenue Boards participate in the sumptuous sweetmeat indulgence.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For more, read our news story -<strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=19706">Interim Budget on Feb 17 - FM relishes Halwa Ceremony - Will it be 'tasty' for taxpayers as well?</a></strong></font></p> <p align="justify"><em><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">After all, Budget making is a<strong> helluva</strong> job!</font></em></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">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT Credit - Input Services - The definition of input service is worded in broad manner so as to bring within its ambit services availed by provider of taxable service, whether directly or indirectly - Adjudicating Authority dealt with issue in cavalier and irresponsible way.: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 is worded in a broad manner so as to bring within its ambit services availed by a provider of taxable service, whether directly or indirectly, and also enumerates some of the services which fall within the purview of the input service.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the present case, the appellant has, clearly and in detail, explained the nexus between the input service on which credit was taken and the output service provided. Instead of examining the claim of the appellant and rebuting the same, if required, the adjudicating authority has dealt with the issue in a cavalier and irresponsible way. This not what is expected of an adjudicating authority.</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">Income tax - Whether when municipal authorities collect licence fees for putting up hoardings either on municipal land or private land, such receipt is to be treated as business income as per provisions of Sec 28 - NO: HC</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the Bench is - Whether when municipal authorities collect licence fees for putting up hoardings either on municipal land or private land, such receipt is to be treated as business income as per provisions of Sec 28. And the answer goes against the Revenue.</font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Pre-deposit - Sorry state of affairs in Tribunal - it is most unfortunate that Tribunal did not wait for admission hearing of appeal by High Court: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Tribunal vide its order dated 29 October 2013 directed the appellant to deposit an amount equal to 50% of the duty confirmed (i.e. 50% of Rs. 41,48,337/-) and penalty of Rs. 5,00,000/. The Tribunal further directed appellant no.2 to deposit penalty of Rs. 1,00,000/- out of the penalty of Rs. 10,00,000/- imposed by the Adjudicating Authority.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Against this order of pre-deposit, the appellants are before the High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, the appeal filed on 27th December 2013 was listed for hearing on 20th January, 2014 but could not be taken up for admission and was adjourned. This fact was informed by the appellant to the Registrar of the Tribunal with a request that the matter listed for compliance on 21st January be adjourned to any other date after 4th February as convenient to the Tribunal. However, although this fact was informed on the date of hearing, the Tribunal did not grant any adjournment and dismissed the appeal for non-compliance on 21 January 2014 itself.</font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our Columns Tuesday for the judgements</font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tuesday 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>