TIOL-DDT 2307 · 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 align="justify"><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><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><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></strong><font color="#663399" size="3">TIOL-DDT 2307</font><br> 05.03.2014<br> Wednesday</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Cheat Funds? No Service Tax? Supreme Court rejects appeal against Delhi High Court Order</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SERVICE </strong>Tax on Chit Funds was introduced by a backdoor method with a Circular No. 96/7/2007-ST, dated, 23.08.2007, wherein the Board thought that Chits are covered under <em>"banking and other financial services"</em>. This Circular was quashed by the AP High Court in <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2008/2008-TIOL-502-HC-AP-ST.htm" target="_blank"><font size="1">2008-TIOL-502-HC-AP-ST</font></a></strong></em>. Revenue has taken this to the Supreme Court where it is still pending.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Come 2012 and the Babu failed again in drafting law. The Education Guide on Service Tax does not really educate, but only tells what the Babu wanted the law to be. Para 2.8.2 of the Education Guide reads:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" style="background-color:#FFFF00" span="span"><strong>2.8.2 Would a business chit fund come under 'transaction only in money'?</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" style="background-color:#FFFF00" span="span">In business chit fund since certain commission received from members is retained by the promoters as consideration for providing services in relation to the chit fund it is not a transaction only in money. The consideration received for such services is therefore chargeable to service tax.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But, the Delhi High Court thought otherwise. While disposing of the Writ Petitions filed by Delhi Chit Fund Association, the High Court held that - <em>In a chit business, the subscription is tendered in any one of the forms of 'money' as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word 'service' as being merely a transaction in money. This would be the result if the argument that the exclusionary part of the definition in clause (a) is considered to have been enacted ex abundant cautela; if the argument based on Explanation 2 read with the exclusionary part of the definition is accepted as correct, <strong>even then the services rendered by the foreman of the chit business for which a separate consideration is charged, not being an activity of the nature explained in the said Explanation, would be out of the clutches of the definition</strong>. Either way, there can be no levy of service tax on the footing that the services of a foreman of a chit business constitute a taxable service.- <strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=ODc5MTA="><font size="1">2013-TIOL-331-HC-DEL-ST</font></a></strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently the Supreme Court dismissed the Special Leave Petition against the Delhi High Court Judgement. -<strong> Please see </strong></font><font size="2"><strong><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTI0NDI=" target="_blank"><em>2014-TIOL-23-SC-ST</em></a></font></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund of Unutilised CENVAT Credit under Rule 5B - notification is HERE!</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A </strong>significant change in service tax administration from 01.07.2012 is the partial reverse charge method introduced on certain specified services. Under this system, the service receiver has to pay the specified portion of the service tax and the service provider will pay the remaining portion. Since the liability of the service provider is only a part of the full tax liability, there is every possibility for accumulation of CENVAT Credit in service providers' accounts. This issue has already been identified by the department and the JS(TRU) letter dated 16.3.2012 says "In extreme situations the small service provider is also being allowed the refund of unutilized CENVAT credit if any, available with him. Suitable changes will be made in CENVAT Credit Rules, to this effect".</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They have kept their word and vide Notification No <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2012/exnt12_28.htm" target="_blank">28/2012- CX., (N.T.)</a></strong>, Dated: June 20, 2012, a new Rule 5B has been inserted in the CENVAT Credit Rules, 2004 as under:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis. </strong>- A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, <strong><u>as may be specified by the Board by notification in the Official Gazette</u>.</strong></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Unfortunately, the job is not over yet and a Notification prescribing the conditions or procedures has to be issued under Rule 5B. But so far, no such Notification has been issued. It is now nearly two years after the launch of partial reverse charge method and many assessees may be facing the problem of accumulation of CENVAT Credit under partial reverse charge.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF0000">TIOL had reminded the Board consistently on this issue</font> </strong>in the above words in <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTg2OTc="><strong>DDT 2197- 25.09.2013</strong></a>, <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTYzOTE="><strong>DDT 1993-30.11.2012</strong> </a>and <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=16170"><strong>DDT 1970 - 26.10.2012</strong> </a>and also in <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=17059"><strong>CBEC may like to speed up issuing Notification under Rule 5B of CCRs</strong></a><strong>.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now we are happy to report that the Board has finally come out with the notification.</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Notification - procedure, safeguards, conditions, limitations and COMPLICATIONS</strong></font></p> <p align="justify"><font color="#660000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SAFEGUARDS, conditions and limitations:</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Refund shall be claimed of unutilised CENVAT Credit during the half year for which is refund is claimed for providing a) renting of a motor vehicle; b) supply of manpower; c) works contract.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amount of refund is calculated by a formula A minus B, where</font></p> <p align="justify"><font color="#660000" size="2" face="Verdana, Arial, Helvetica, sans-serif">A = P multiplied by Q divided by R (PQ/R), where</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">P = CENVAT credit taken on inputs and input services during the half year</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Q = turnover of output service under partial reverse charge during the half year</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">R = total turnover of goods and services during the half year</font></p> </blockquote> <p align="justify"><font color="#660000" size="2" face="Verdana, Arial, Helvetica, sans-serif">B = Service tax paid by the service provider for such partial reverse charge services during the half year.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" style="background-color:#FFFF00" span="span">[<font color="#660000">Kindly note that the letters P, Q & R have been used by DDT for purpose of easy understanding and do not find mention in the notification.</font>]</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suppose P=30,000; Q=100,000; R=200,000 and B= 6,000 (all rupees) and the liability of service recipient is Rs 6,000 (50% under works contract)</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">P = 30,000</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Q = 100,000</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">R = 200,000</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A = 30000*100,000/200,000 = 15,000</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">B = 6,000</font></p> <p align="justify"><font color="#660000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A-B = 15,000-6000 = 9,000</strong></font></p> <p align="justify"><font color="#660000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund entitled = Rs 6,000/- (9,000 or 6,000 - i.e., service tax liability of the recipient of service - whichever is less)</strong></font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is this kind of formula really necessary?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Notification <em>inter alia </em> stipulates that the refund shall not exceed an amount of service tax liability paid or payable by the recipient of service; only one claim should be submitted for one half year; the amount of refund claimed should be debited in the CENVAT account; no refund is admissible for credit taken on input or input services received prior to the 1st day of July,2012<strong>.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Refund to be claimed in Form A within one year from the due date for filing Return. Claim for the period 1st July to 30th September 2012 can be filed by 30th June 2014.</font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">At last - after nearly two years, the Board has come up with the notification, much to the relief of the assessees who are stuck with CENVAT credit that they cannot use. The Government has been withholding money that legitimately belonged to the assessees. Let's hope that at least now, they would clear the refund claims quickly without raising silly and frivolous objections. In fact the Board should have clarified that the principle of 'unjust enrichment' will not apply to these refund claims.</font></p> <p align="justify"><font size="2"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2014/exnt14_12.htm" target="_blank"><font face="Verdana, Arial, Helvetica, sans-serif"><strong>Notification No.12/2014-Central Excise (N.T.), Dated: March 03 2014</strong></font></a></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Taking excess credit on 62 occasions cannot be said to be an inadvertent mistake on part of excise clerk - ROM dismissed</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> this case, the appellant had availed excess CENVAT credit - in some instances they had taken credit of the value of the goods received instead of the duty paid. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While dismissing the appeal <em><strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=ODgwNzg=" target="_blank"><font size="1">2013-TIOL-709-CESTAT-MUM</font></a></strong></em>, the Bench had observed -</font></p> <blockquote> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"8. I find that the Annexure to the Show Cause Notice dated 19.05.2008 shows there are 54 instances where the appellant has taken excess credit. The total credit so availed is to the extent of Rs.9,17,866/- and in the Show Cause Notice dated 05.12.2007 there are four instances where the appellant availed credit to the extent of Rs.1,60,166/-. Further I find that the appellant had also utilized the credit. The excess credit utilized is to the extent of Rs.18,744/-. In view of the repeated action of the appellant of taking credit on the value of goods and not of the duty paid on the goods that too 62 times and also utilizing the excess credit for payment of duty, I find no merit in the contention of the appellant that it is a bona fide mistake. The repeated action of the appellant of taking excess credit deserves the penalty under section 11AC of the Central Excise Act."</em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Against this order, the appellant has filed an application for rectification of mistake. The prayer in the application is that excess availment of credit has happened due to an act of inadvertence by the excise clerk and was thus only a <em>bona fide </em> mistake and hence the applicants are not liable for any penalty.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue opposed the application by relying upon the finding of the CESTAT given in para 8 of the final order (supra).</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Bench observed -</font></p> <blockquote> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"3. In the present case the applicants have taken excess credit 62 times during the period in dispute. In view of this it cannot be said that it is an inadvertent mistake on the part of the excise clerk."</em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Holding that there is no mistake apparent on record, which requires rectification, the ROM application was dismissed by the CESTAT.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTI0NDE="><font size="1">2014-TIOL-346-CESTAT-MUM</font></a></strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><font color="#006600">Jurispruden</font><font color="#FF6633">tiol</font><font color="#006600"> - Thursday's cases</font></strong></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399"><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">Central Excise</font></strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Export goods rejected by overseas buyer - goods re-imported & Credit availed of CVD paid thereon - credit denied and equivalent penalty imposed - as per rule 16 of CER, 2002, any goods on which duty has been paid at time of removal when brought back to factory would be eligible to CENVAT credit - <em>prima facie</em> appellant has not made case for total waiver - pre-deposit ordered of 50% of CENVAT involved: CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DURING</strong> the period October 2011 to November 2011, the appellant availed CENVAT credit of Rs.68.45 lakhs of the CVD paid against re-importation of their goods viz. cotton fabrics and made-up articles exported earlier. The goods had to be re-imported because the overseas buyer rejected the consignment citing defects.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue authorities denied this credit by concluding that since the goods exported were not duty paid and hence, when it was returned to the factory, after rejection, it cannot be admissible to CENVAT credit under Rule 16 of the CER, 2002.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Against this order of the CCE, Kolhapur, confirming the demand and imposing equivalent penalty, the appellant is before the CESTAT.</font></p> <p align="justify"><font size="2"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">Income Tax</font></strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Whether when assessee is public limited company, recovery of tax dues cannot be initiated against Directors and no proceedings u/s 179 can be initiated - YES: HC</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee was a director of one M/s. Sirs Engineering Private Limited. For the AY 2000-2001, AO passed order of assessment on 28.3.2003, raising tax demand of Rs.40,99,967/. With penalty, it came to Rs.41,09,967/. Five more separate orders of assessment dated 27.2.2004 were passed in case of the same company for the AY 1996-1997 to 1999-2000 and 2001-2002 raising different tax demands. On 22.3.2004, ITO issued a notice to the petitioner indicating that a tax demand of the said company of Rs.41,11,967/ for the AY 2000-2001 was still outstanding. Assessee was the director of the company during the relevant period and was asked to show cause why he should not be held personally liable for such recovery u/s 179.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issues before the Bench are - Whether when the assessee is a public limited company, recovery of tax dues cannot be initiated against Directors and no proceedings u/s 179 can be initiated and Whether it is necessary for the Revenue to establish that such recovery cannot be made against the company and then alone it can reach the directors who were responsible for conduct of the business during the previous year in relation to which liability existed. And the answers go against the Revenue.</font></p> <p align="justify"><font size="2"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">Service Tax</font></strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Merely because appellant collected only 75% of salary paid to employees, it does not take appellant out of purview of service tax liability - law does not envisage that appellant should be engaged in supplying manpower to various clients - Even if activity undertaken in one-time transaction, conforming to legal definition of supply of manpower, service tax liability would accrue: CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant SSKL leased out their plant and machinery to <em>M/s. Bajaj Organics Ltd., Mumbai</em>. In addition to leasing out the plant and machinery, the agreement dated 04/08/2002 also provided that the lessee, namely, <em>Bajaj Organics Ltd.</em>, shall endeavour to engage maximum possible technical and other staff from amongst the present staff on the roll of SSKL and salary of each such staff engaged by mutual consent, shall be fixed up between SSKL and <em>Bajaj Organics </em> and the same shall be reimbursed to SSKL on a monthly basis. Staff of SSKL would work under the administrative guidelines of Bajaj and if any disobedience occurs, the same staff would be returned to SSKL. The department was of the view that the appellant M/s. SSKL has supplied manpower to <em>M/s. Bajaj Organics </em> and, therefore, demanded Service Tax.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our Columns Tomorrow for the judgements</strong></font></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"><strong>Have a nice day.</strong></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"><strong>vijaywrite@taxindiaonline.com</strong></a></font></p> </body> </html>