TIOL-DDT 2465 · 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"><strong><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif"><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 2465</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br> 29.10.2014<br> Wednesday</font></strong></p> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600">Service Tax - Conflict between CENVAT Credit Rules and POT Rules? </font></strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per the first proviso to Rule 4(7) of the CENVAT Credit Rules (amended by Notification No. 21/2014 -CENT dated 11.07.2014),</font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">in respect of input service where whole of the service tax is liable to be paid by the recipient of service, credit shall be allowed after the service tax is paid: </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the first proviso to Rule 7 of the Point of Taxation Rules (amended by Notification No. 13/2014-S.T dated 11.07.2014),</font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">where the payment is not made within a period of three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months. </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is there a conflict between these two provisions?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a recent meeting of the RAC in Chennai Central Excise Zone, a clarification was sought, </font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"In respect of Full Reverse charge, CENVAT Credit can be taken (as per CENVAT Credit Rules), if payment of Service tax is paid by the Service Receiver even if payment to service provider is not made. Whereas in Point of Taxation Rules 7 if Payment is not made (to the Service Provider) with in 3 months of the date of Invoice, the point of taxation shall be the date immediately following the said period of 3 months. If Cenvat Credit can be taken when only service tax is paid but payment to Service provider is not made, point of taxation under amended Rule 7 first proviso does not provide for the same and is not consistent with CC Rule 4(7). Hence point of Taxation shall be date of payment to the Service Provider or Date of Payment of Service Tax whichever is earlier. This may be clarified"</font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Commissioner, Service Tax informed that both the rules i.e, Point of Taxation Rules, 2011 and CENVAT Credit Rules, 2004 are independent Rules. The Point of Taxation Rules (POTR) and CENVAT Credit Rules operate at different level. The amendment made to the first Proviso to rule 7 of the Point of Taxation Rules (POTR) is intended to specify the point of taxation for reverse charge. This Rule speaks about the rate at which the tax is to be paid, in case an assessee fails to pay service tax within the time prescribed and consequential interest liability if any whereas the CENVAT Credit Rules talk about the time of taking credit. Both these Rules are independent of each other and hence there is no need for amendment in the Point of Taxation Rules. Further, he stated that after determination of exact liability only the question of payment of Service Tax arises. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Commissioner, LTU opined on the issue that the service tax can be paid on the notional value within the time prescribed and thereafter supplementary invoice can be issued after arriving at the exact value of service. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Chief Commissioner clarified that <em>both the Rules are devised for different situations and independent of each other and has to be reckoned for the specific purposes they are intended to and therefore there is no need to propose amendment in the Point of Taxation Rules, 2011 to make it consistent with Rules 4 (7) of CENVAT Credit Rules, 2004. Chairman also clarified that Rule 7 of the Point of Taxation Rules, 2011 specifies the point of taxation shall be the date immediately following the said period of three months. So it categorically speaks about the point of taxation whereas Rule 4 of the CENVAT Credit Rules, 2004 clearly spells out the conditions including time limit of six months from the date of invoice for allowing CENVAT Credit</em>. </font></p> <p align="center"><em><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><font color="#006600">Customs - Opening of Excise Sealed Containers by the Customs Authorities </font></strong></font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> the same RAC meeting of the Chennai Central Excise Zone an issue was raised regarding opening of Excise Sealed Containers by the Customs Authorities. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Chief Commissioner clarified that after introduction of RMS, certain containers are randomly selected by the system for inspection. As the matter pertains to Customs, the same may be taken up with the Customs Authorities. For which the member stated that the issue was taken up with the Customs Authorities in the RAC meeting. In reply, Commissioner, Service Tax informed the member to wait for the minutes of the RAC meeting held at Customs. Further, it was reiterated by the Commissioner, Service Tax that as the issue pertains to Customs, the same can be clarified by the appropriate Customs Authorities (only). </font></p> <p align="center"><font face="Georgia, Times New Roman, Times, serif"><em><font size="3"><strong><font color="#006600">CBEC Chairperson Congratulates newly promoted ACs </font></strong></font></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/Shanti_Sundharamhas.jpg" alt="Legal Corner Icon" width="100" height="200" hspace="5" border="0" align="left"><strong>THE</strong> CBEC Chairperson Shanti Sundharamhas in a message congratulated the newly promoted Assistant Commissioners. She says that the promotion of a large number of Group B officers has bridged substantially the long-standing stagnation at Group B level. This was also crucial for stabilizing the cadre restructuring plan of the department. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">She applauds the efforts of the Members of the Board, DGHRD and her Staff, the team of Chief Commissioner, Meerut and the officers of CBEC for getting the Mega DPC through. She also appreciates and acknowledges groundwork done by the officers of the field. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">She hoped that the new Assistant Commissioners would put in their best to further the agenda of the department and deliver on the Government's priorities. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And finally she urged the officers to refrain from unnecessary litigation as it delays the promotional prospects of their own respective cadres. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC Chairperson retires this Friday. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/sernews/order/chairpersion_msg_28102014.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Chairperson's Message, Dated: October 28, 2014 </font></strong></a></p> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600">Government Invites Suggestions for Budget 2015 </font></strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> the context of formulating the proposals for the Union Budget of 2015-16, the Ministry of Finance would like to be benefited by the suggestions and views of the Trade and Industry Associations. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suggestions can be for changes in the duty structure, rates and broadening of tax base on both direct and indirect taxes giving economic justification for the same. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suggestions and views may be supplemented and justified by relevant statistical information about production, prices, revenue implication of the changes suggested and any other information to support the proposal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The request for correction of inverted duty structure, if any for a commodity, should necessarily be supported by value addition at each stage of manufacturing of the commodity. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It would not be feasible to examine suggestions that are either not clearly explained or which are not supported by adequate justification/statistics. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As regards direct taxes, the government policy is to phase out profit linked deductions and minimizes exemptions; this may be taken into consideration while forwarding proposals. </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/budget_trade_suggestion.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MoF DoR TRU letter in F.No.344/20/2014-TRU, Dated: October 27, 2014 </font></strong></a></p> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600">Rule 14 of CCR vs Section 11A of CEA? </font></strong></em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> a recent article on this portal, <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=21790" target="_blank"><strong>Is Rule 14 ultra vires the Central Excise Act?</strong></a>, my friend Prem Kumar Francis raised a question whether Section 11A of the Central Excise Act can be applied in Rule 14 for recovering CENVAT Credit, as Section 11A refers to duty and not credit. Writer and Advocate Gururaj informs that this question was raised during the hearing in the <em>Bill Forge</em> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2011/2011-TIOL-799-HC-KAR-CX.htm" target="_blank"><strong><font size="1">2011-TIOL-799-HC-KAR-CX</font></strong></a> case in the Karnataka High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In an article <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8809" target="_blank"><strong>Which rule should I invoke? </strong></a>on this site, a departmental officer wondered as to what the recovery provisions are for wrong credit. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This question was judicially touched upon in the <em>Vikram Ispat</em> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2009/2009-TIOL-997-CESTAT-MUM.htm" target="_blank"><strong><font size="1">2009-TIOL-997-CESTAT-MUM </font></strong></a> case in which a preliminary objection was raised that <em>it was not open to the department to invoke section 11A of the Central Excise Act for recovery of any amount of CENVAT credit availed on input services</em>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Departmental Representative submitted that <em>section 11A is very much applicable to a case where inadmissible CENVAT credit has been utilized for payment of duty of excise on final products</em>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal agreed with the DR and observed that it appears that sections 11A and 11AB will be applicable where the CENVAT credit in question has been utilized for payment of duty of excise on final products whereas sections 73 and 75 of the Finance Act are applicable where the credit has been utilized for payment of service tax on output services. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Most probably the phrase <em>mutatis mutandis</em> was used in Rule 14 without knowing its real meaning. </font></p> <p align="center"><font size="2" face="Georgia, Times New Roman, Times, serif"><strong><strong><font color="#006600"><em><font size="3">Jurispruden</font></em></font><font size="3"><em><font color="#FF6633" size="4">tiol</font><font color="#006600"> – Thursday's cases</font></em></font></strong></strong></font></p> <p align="justify"><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">Central Excise </font></strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT Credit on capital goods used initially in manufacture of exempted goods - Credit not deniable if at time of receipt, appellant had intention to use machinery for manufacture of dutiable as well as exempted final products - Matter remanded for verification of facts: CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant are engaged in manufactured of Aerated waters which are dutiable and also Maaza, a Fruit pulp based drink which is fully exempted from duty. During the period from September 2004 to August 2005, the appellant installed certain machinery in one of their plants, which was being used exclusively for manufacture of MAAZA which was fully exempt from duty. In respect of this machinery, they took capital goods Cenvat credit. Department denied the credit on the ground that the capital goods were used exclusively in the manufacture of exempted goods, in terms of Rule 6(4) of CENVAT Credit Rules, 2004. </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 provisions of Sec 14A come into play only after AO first examines disallowance made by assessee itself and then AO is not satisfied with same - YES: ITAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is engaged in Share broking business. Upon scrutiny, the AO noticed that the assessee had claimed dividend income as exempt u/s 14A, however, no disallowance under the said section was made by the assessee. The assessee offered workings for disallowance of interest paid and expenses; The AO accepted the expenses computation but rejected the working of interest income and computed the same invoking Rule 8D and accordingly made additions. On appeal, the CIT(A) held that since the assessee had established direct nexus between the borrowings and investments and accordingly allocated interest expenditure proportionately, the interest disallowance was directed to be restricted to Rs.29,91,393/-, i.e., at the amount worked out by the assessee. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue before the Bench is - Whether the provisions of Sec 14A come into play only after the AO first examines the disallowance made by the assessee itself and then the AO is not satisfied with the same. YES is the answer. </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">A trader-importer, who paid SAD on imported goods and who discharged VAT/ST liability on subsequent sale, and who issued commercial invoices without indicating any details of duty paid would be entitled to benefit of Notification 102/2007-Cus: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> claims filed by the appellant seeking refund of SAD under Notification no. 102/2007-Cus dated 14.09.2007 were rejected by the lower authorities on the ground that the endorsement as required in terms of condition 2(b) of the said Notification was not made on the invoice issued for sale of goods. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A trader-importer, who paid SAD on the imported goods and who discharged VAT/ST liability on subsequent sale, and who issued commercial invoices without indicating any details of the duty paid would be entitled to the benefit of Notification 102/2007-Cus”, although they have not made an endorsement on the invoice that credit of duty is not admissible. </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"><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></strong></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@tiol.in" target="_blank"><strong>vijaywrite@tiol.in </strong></a></font></p> </body> </html>