TIOL-DDT 2454 · 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"><s><strong><font size="2"><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 color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=20079"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2014_1.jpg" alt="DDT in Limca Book of Records - Third Time in a row" width="250" height="123" hspace="5" border="0" align="right"></a></font></strong></font></strong></font></strong></font></strong></font></strong></s>TIOL-DDT 2454 </font><br> 13.10.2014<br> Monday</strong></font></p> <div align="center"><font color="#006600" face="Georgia, Times New Roman, Times, serif"><em><strong><font size="3">Service Tax - Export - Microsoft has the lost </font><font color="#006600" size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><em>word</em></strong></em></font></strong></em></font> </div> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> was a 256 Crore case and the issue was very simple. The wise men at the Board, the learned Commissioners, distinguished lawyers, the agonised assessees and even the Hon'ble Lordships had no real idea as to what constitutes export of services. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We reported the story first in 2008 as <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7285" target="_blank"><strong>The 'real' and 'surreal' tax demands besiege Microsoft in India!</strong> </a></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Microsoft India (Pvt) Ltd has entered into a "Market Development Agreement” with MO, Singapore under which the former will use its best efforts to further the interest of MO and maximize the markets for Microsoft products in India, Bhutan, Nepal and Maldives. For such service, Microsoft (India) Pvt Ltd will issue invoices in USD on MO Singapore. Microsoft (India) has been treating such income as export of service (under Business Auxiliary Service) and therefore has not paid any service tax on the income received. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is the case of the Department that the service cannot be considered as export of service. The grounds taken were: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>The services of marketing of Microsoft products rendered by MSIPL are performed and used in India for furtherance of business of Microsoft, Singapore; </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The service tax is a destination based tax and particularly in case of exports, the place of performance of the service is very crucial for deciding whether the service is covered under export of service or not. </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Delhi Service Tax Commissioner confirmed a tax and penalty of Rs. 256 Crores on 23.09.2008. The CESTAT ordered a pre-deposit of Rs. 70 Crores. - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2009/2009-TIOL-1325-CESTAT-DEL.htm" target="_blank"><strong><font size="1">2009-TIOL-1325-CESTAT-DEL</font></strong></a>. On appeal, the Delhi High Court did not find it a fit case for interference. - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2009/2009-TIOL-601-HC-DEL-ST.htm" target="_blank"><strong><font size="1">2009-TIOL-601-HC-DEL-ST</font></strong></a></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the CESTAT, there was a difference of opinion between the two Hon'ble Members. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Member (J) held that "<em>meaning of export presupposes taking out of India to a place outside India; Article 286 (1) (b) of the Constitution explains what "export" means. Such concept was incorporated into Customs Act, 1962 in term of section 2(18) thereof. The activity of "taking out of India to a place outside India" is recognized test to hold an activity to be export. Activity relating to goods being equal to the activity relating to service, following "Principles of Equivalence", meaning of the term "export" recognized by Constitutional provision and tested by law relating to Central Sales Tax, Customs, Central Excise and Export and Import Policy... .</em>” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Member (T) observed, "<em>The word "export" in Article 286 in the Constitution is used with reference to goods. So is the case with definition of "export" in section 2 (18) of the Customs Act, 1962. It will obviously need some dovetailing in the context of export of service which issue has come up only after 1994. It is this dovetailing that is being achieved through Export of Service Rules, 2005 and the criteria laid down in the Rules are neither arbitrary nor inconsistent with any provision in the Constitution. The issue being dealt with in the Rules is that whether taking out of India should be decided with reference to the situs of the property or the situs of the activity or the situs of the person receiving the service. <strong>It is difficult to conceive of taking the service and crossing the border</strong>"</em> </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue was very simple as explained by the Member (T) that<em> <font color="#FF0000">If a person does market promotion for a manufacturer located outside India for selling the goods in India after its import, the goods will be considered to be imported but the marketing services will be considered to be exported. </font></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But obviously, it was difficult to understand this simple logic. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And so the matter went to a Third Member. And recently the Third Member gave her decision. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually in another case on an identical issue [<em>Paul Merchants Ltd</em>. - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2012/2012-TIOL-1877-CESTAT-DEL.htm" target="_blank"><strong><font size="1">2012-TIOL-1877-CESTAT-DEL</font></strong></a>], the matter was decided by a Third Member on a reference from a Bench of the same Members. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As the issue was already decided two years ago, the Third Member in this Microsoft case also decided the case in favour of Microsoft. I discussed the issue with a colleague and an assessee - both believe that Microsoft's problems are over as the issue is twice settled by two (deemed) Larger Benches of the Tribunal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But stories don't end like that. The Paul Merchants case has been taken to the High Court by the Revenue - and obviously the Microsoft case will also go the same way. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Microsoft must have found creating <font color="#FF0000"><strong>Windows</strong></font> and <font color="#FF0000"><strong>Office </strong></font> much easier than understanding Indian Tax Laws. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Please see</strong> <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTY2OTI="><strong><font size="1">2014-TIOL-1964-CESTAT-DEL </font></strong></a></font></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see: </font></strong></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>1.</strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9556"><strong>DDT 1181-24.08.2009 </strong></a></font></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5165">Export of Service : To deliver or to provide is the question? </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8659">DDT 1060 - 25.02.2009 </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=13551">Service Tax - Money Transfer from abroad - whether Export or Service rendered in India - Matter referred to Third Member: CESTAT </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9562">ST - Export of Services - Provision of marketing support services on behalf of client outside India not regarded as export of service if said services are consumed by ultimate clients located in India - Microsoft ordered to pre-deposit Rs 70 Crore: CESTAT </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7285">The 'real' and 'surreal' tax demands besiege Microsoft in India! </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9902">Microsoft - Export vs import of services - Rs 70 Crores pre-deposit confirmed - Not a fit case to interfere under writ jurisdiction: Delhi HC </a></font></strong></p> <p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a></a>8. <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MTM2NDE=">DDT 1733 - 16.11.2011 </a></font></strong></p> </blockquote> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600">CBEC Cadre Review- Changes in Jurisdiction of Chief Commissioners </font></strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> CBEC cadre restructuring is to be effective from 15 October. A large number of officers are to get promotions, but CBEC has not been able to promote a single officer above the rank of Inspector as part of the Cadre Review. In spite of that, they are going ahead with the reorganisation of the Department. This means for the assessees, their Ranges, Divisions, Commissionerates and Zones are changed. And if you want to file returns your identity in ACES has changed. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has issued an order specifying the Chief Commissioners and their jurisdiction. Not a single Commissioner has been promoted but the existing 39 Chief Commissioners are allotted the revised jurisdictions along with some additional charge. Some of these Chief Commissioners are to be promoted as Principal Chief Commissioners. What is stopping the Board? </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/sernews/order/cbec_cadre_10102014_1.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Office Order No. 187/2014, Dated: October 10, 2014 </font></strong></a></p> <p align="center"><em><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><font color="#006600">CBEC Cadre Review- Changes in ACES - Not Single Chief Commissioner responds to Board Member's Directions </font></strong></font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> part of the re-organisation, the CBEC Member SB Singh had in a letter dated 19.9.2014 given detailed instructions on what all things are to be done regarding ACES. He wanted the Chief Commissioner to send the information latest by 30.9.2014. But on 10.10.2014, he finds that not a single Chief Commissioner has complied with his instructions. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now he wants the information by 25-10-2014. This time if the information is not submitted -<em> delay in submission of information would be viewed <strong>seriously</strong> and Chief Commissioners held personally responsible for delay and incorrect submission of information</em>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessees are to get new CDR (Commissionerate Division and Range) Code - but obviously this is not going to happen by 15th October; so the Board Member clarifies that after 15th October, 2014 and till the process of migration to new CDR is completed, assessees would continue to pay duty using their existing CDR code (Commissionerate, Division and Range Code.) </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He also clarifies that <em>Show Cause Notices where necessary would be issued as per new jurisdictions after 15th October, 2014 as new jurisdictions come into effect from that date</em>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For service tax cases, the last date for SCN will be 25th October - By this time many Show Cause Notices might have been approved and ready for issue - tough task to change them all in last minute. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Once the new codes are allotted, auto-generated emails would be sent to the assessees by the Directorate General of Systems informing them of the new location codes. The Member expects the whole system to be in place by 30th of November, 2014. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the Board is not able to promote about 400 Superintendents, many of whom are in the same cadre for more than twenty years. Now there is a 27-year gap between the senior-most and junior-most Superintendent. They are not able to promote even 14 Chief Commissioners. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In such a chaotic situation, why do they want to go for a more chaotic reorganisation and create hell for the assessees? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now none of the new zones will have a regular Chief Commissioner and similarly no new Commissionerate will have a regular Commissioner. They will all be run by additional charge officers. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can't they postpone this massive exercise till they are fully ready? </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/sernews/order/cbec_cadre_10102014.htm" target="_blank"><strong>CBEC Member's D.O.F.No.96/42/2014-CX.1, Dated: October 10, 2014</strong></a></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 face="Georgia, Times New Roman, Times, serif"><em><font color="#006600" size="3">Jurispruden</font><font color="#FF6633" size="4">tiol</font><font color="#006600" size="3"> – Tuesday's cases</font></em></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">FERA</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> </font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Statement might be fictitious creation of Enforcement Directorate - Statements not to believed unless there is independent corroboration: SC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TWENTY</strong> five years ago, the officers of the Enforcement Directorate recovered an amount of Rs. 8,24,900/-; must be quite a huge amount of money at that time. The Supreme Court on 10th October 2014 ordered release of the amount. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Statements: "The statements can under no circumstances constitute the sole basis for recording the finding of guilt against the appellant. If findings could be returned by exclusively relying on such oral statements, such statements could easily be thrust upon the persons who were being proceeded against on account of their actions in conflict with the provisions of the 1973 Act. Such statements ought not to be readily believable, unless there is independent corroboration of certain material aspects of the said statements, through independent sources. The nature of the corroboration required, would depend on the facts of each case. </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 sovereign power of State to levy tax can be extended to level of regulating conduct of citizen to such an extent of verification that is equivalent to one which is made by police against an accused - NO: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessees are the members of the Hindu Undivided Family, with Karta of the family being also an independent assessee. All the assessees had availed the benefit under Voluntary Disclosure of Income Scheme (VDIS) by declaring their items, which were mostly of jewellery, namely gold and diamonds and received certificates of disclosure. In the meanwhile, the assesses sold away the jewellery declared by them under the VDIS and the sale proceeds of the jewellery were shown in the respective returns, as capital gains. Subsequently, an enquiry was conducted against the genuinity of sale of diamonds at Surat, and dissatisfied, the AO held that the sale proceeds of diamonds as unexplained cash credit. On appeal, the CIT(A) confirmed the order of the AO. On further appeal, the Tribunal however allowing the appeal of the assessees, set aside the order of the CIT(A). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE issue before the Bench is - Whether the sovereign power of a State to levy tax can be extended to the level of regulating the conduct of a citizen to such an extent of verification that is equivalent to the one which is made by the police officials <em>vis-a-vis</em> a person, who committed the crime. NO is the answer. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Applicant is required to pay service tax as service recipient is located in India and service has been provided in India by applicant - Pre-deposit ordered of Rs.6 crores: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> Courier received in India, the remuneration towards service rendered received in India and they are paying the service tax on whole of the amount. Therefore, whatever amount they paid to the foreign entity, the applicant is not required to pay service tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When foreign entity is receiving courier to be delivered in India and the same has been given to the applicant to deliver in India: In that case, the service although performed in India but rendered to foreign entity therefore, relying on the decision in the case of <em>Paul Merchants, v. CCE </em>-<strong> <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2012/2012-TIOL-1877-CESTAT-DEL.htm" target="_blank">2012-TIOL-1877-CESTAT-De</a><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2012/2012-TIOL-1877-CESTAT-DEL.htm">l</a></font></strong>. Prima facie on this activity, the applicant is not required to pay the service tax…. </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> <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@tiol.in" target="_blank"><strong>vijaywrite@tiol.in </strong></a> </font> </body> </html>