TIOL-DDT 2498 · 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"><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><strong><font color="#663399" size="3">TIOL-DDT 2498</font><br> 17.12.2014<br> Wednesday </strong></font></p> <p align="center"><font face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600" size="3">Audit by CE/Service Tax officers - Audit should provide help and suggestions to taxpayers to improve compliance </font></em></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> its Third Report, the Tax Administration Reform Commission (TARC) has recommended: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>One major issue that needs to be fixed is the basic approach to compliance verification. Currently, the focus appears to be primarily to find fault in assessments. This approach overlooks two important outcomes that the process can lead to namely, compliance improvement and compliance measurement. The process, therefore, needs to be made far more collaborative and transparent. It should be a part of the auditor's task to provide help and suggestions to taxpayers to improve compliance, which is the common practice internationally. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An open discussion about the issues arising in audit, and taking on board the views of taxpayers on those issues before taking a final position should be encouraged as an integral part of the process. While this is provided for in the EA 2000 process, it is apparently followed more in letter than in spirit as the conduct of the audit parties is driven by the overwhelming revenue orientation in the administration. As part of this process, when the commissioners finalise the audit points in audit committee meetings, they should be required to give an opportunity to the taxpayers being audited before they take a final view on the audit points and their record should reflect the auditee's view as well. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, as part of the quality management of audit, the DG (Audit) should independently seek feedback from the taxpayers being audited on their experience during the audit and their perception of how the audit parties conducted the audit. This can be done through a suitable questionnaire, to be sent from the DG (Audit) headquarters via email. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The performance evaluation of audit also needs to be made more broad-based. Currently, almost the entire focus in performance evaluation is on revenue involvement in the audit observations. Bearing in mind that audit is a critical feedback loop in risk assessment, evaluation should focus also on assessing the effectiveness and accuracy of audit selection and audit planning. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many administrations abroad use audit as a compliance measurement tool. Proper analysis of audit findings can give insights into the state of compliance in different sectors of the economy and can also provide pointers to areas where it is necessary to sharpen enforcement through targeted intelligence driven investigations. </font></em></p> </blockquote> <p align="center"><font color="#006600" face="Georgia, Times New Roman, Times, serif"><strong><em><font size="3">Show Cause Notices fail even to identify service, service provider and service recipient</font></em></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> its Third Report, the Tax Administration Reform Commission (TARC) has noted with concern: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>In practice, in a large number of cases, penal provisions are being applied to what are essentially tax disputes. This is true of both the departments, and is particularly true in the case of service tax. Investigations are conducted and show-cause notices are issued by service tax field authorities and the DGCEI alleging deliberate violation of legal provisions where the provisions lend themselves to different interpretations and there is no evidence of intentional tax evasion. Normally, the severe penal provisions, where a mandatory penalty equal to the amount of tax involved can be imposed, are meant to be invoked only where there is intention to evade tax with mis-declaration, wilful suppression of fact, or collusion, and the tax demand can extend to five years instead of the normal one year. In practice, when any new information is accessed by the authorities, which according to them indicates a violation, it is taken as wilful suppression of fact with intent to evade payment of duty and notices invoking severe penalties and the extended period of demand are issued even though there is no evidence to show deliberate concealment of information or to indicate mala fide intent. Some of the notices on the service tax side also reflect a superficial or misconceived understanding of the nature of business practices in the service industry and fail even to identify the service, the service provider and the service recipient. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The complicated legal provisions in tax law give rise to confusion and varying interpretations. Whether it is the interchange fee involved in complex banking transactions, the definition of canteen, the applicability of reverse charge mechanism, or a host of others, the lack of clarity in law has led to different interpretations by the authorities and the taxpayer but the latter has been saddled with notices invoking the deterrent penalty and extended demand period meant for the deliberate tax evader. These sadly get locked up in litigation. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The judiciary, including the Supreme Court, has consistently commented adversely on this tendency. But the practice has not changed. With the adjudicating authorities invariably confirming the demand and imposing penalties, the matter enters the stream of litigation. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A large number of disputes are generated because taxpayers feel compelled to contest the imposition of penalties as well as unjustified invocation of the extended period of limitation, rather than voluntarily comply within the framework of law. The Departments' success rate in litigation is woefully low. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Such a situation leads to loss of credibility for the Departments. The enforcement wings should not be frittering away their resources on cases that can best be left to the compliance verification function and resolved through normal dispute management mechanisms. They should be focusing more on in depth investigations of fraud and such investigations should be of such quality as to ensure that the cases are capable of being successfully prosecuted. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The extremely short-term focus, excessive reliance on factors like indiscriminate seizures of documents and goods for reporting performance and the absence of quality evaluation have led to a drastic decline in the quality of investigations with long-term consequences for compliance management and effective deterrence. The administration needs to prize quality over quantity if deterrence is to play an effective role in its management of compliance. Therefore, far more attention needs to be paid to selecting the right cases and investigating them with thoroughness and competence. </font></em></p> </blockquote> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Advocate - profession is noble but the professional is not necessarily so</font></em></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> upholding the levy of Service Tax on lawyers on Monday - <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTgxNDk="><strong>2014-TIOL-2279-HC-MUM-ST</strong></a>, the Bombay High Court observed, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Profession is noble but the professional is not necessarily so. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>The private law colleges and which are mushrooming do not necessarily churn out a noble professional. They may conduct and carry a course of study after completion of which they confer a degree but that hardly guarantees that the recipient thereof functions and works efficiently for the society as a whole. Thus, falling standards in the society and the urge to make quick and fast money catches up. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In present day litigation one would find parties ready to go at any length and for a favourable order. All of them do not necessarily seek justice. They are only worried and bothered about a cause which they propound and espouse. So long as that cause, whatever be its merits, succeeds, they are happy. In that process, if justice is a casualty they would hardly complain. In several instances we find that speculative litigation is instituted and pursued with full vigour and all might. Parties do not wish to give up although warned of the consequences of institution and prosecution of such a litigation. If they have brought about a situation where justice is accessible only to those with heavy purses or to wealthy or rich and hardly available and affordable for those below the poverty line and downtrodden, then, persons claiming to be professionals and advising them can hardly be said to be aggrieved. </font></em></p> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Crime, Corruption, Tax Evasion - 991 Billion USD drained from Developing Economies </font></em></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per the latest report of the Global Financial Integrity (GFI), a Washington, DC-based research and advisory organization, a record USD 991.2 billion in illicit capital flowed out of developing and emerging economies in 2012 - facilitating crime, corruption, and tax evasion. The report finds that illicit outflows are growing at an inflation-adjusted 9.4 percent per year-roughly double global GDP growth over the same period. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">GFI President Raymond Baker, an authority on financial crime said, "<em>illicit financial flows are the most damaging economic problem plaguing the world's developing and emerging economies;these outflows-already greater than the combined sum of all FDI and ODA flowing into these countries-are sapping roughly a trillion dollars per year from the world's poor and middle-income economies.</em>" </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Trade Misinvoicing Dominant Channel:</strong> The fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all illicit flows - highlighting that any effort to significantly curtail illicit financial flows must address trade misinvoicing. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>India ranks third:</strong> India ranks third in the list of top exporters of illegal capital, next to China and Russia. The cumulative black money that moved out of India in the last ten years is estimated to be 28 lakh crores. </font></p> <p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><strong><font color="#006600">Jurispruden</font></strong></strong></em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em><font color="#FF6633" size="4">tiol<font color="#006600" size="3">-</font></font></em></strong></font></strong></font><em><strong><strong><font color="#006600">Thursday's cases</font></strong></strong></em></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">Appellant manufacturing liquid gases - as customers do not have cryogenic tanks for storage, appellant leases same and charges rent - appellant also maintains such tanks - no ST payable under category of Storage & Warehousing services as appellant has no control on goods in storage tank - Appeal allowed: CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant is engaged in the manufacture and sale of liquid oxygen, nitrogen, argon etc. which is to be stored at a temperature of Minus (-) 269 0 C. As the customers who are using these gases are not having the storage facilities, the appellant is providing such storage tanks. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant is charging rent for usage of the storage tank & is also maintaining these storage tanks i.e. wear and tear of these tanks is monitored by the appellant. The appellant is paying Central Excise duty as well as VAT on the rent portion charged from the customers. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue is of the view that the rent charged by the appellant for leasing out the storage tanks to their customers fell under the category of ‘Storage and Warehousing Services' as per Section 65(102) of the FA, 1994. </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 even if there is no transfer of property rights to power agent, capital gains can be taxed in his hand - NO: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is an individual. He is a power agent of one Mr.M. Viswanathan, who is the actual owner and vendor of the property. The said Viswanathan entered into a registered power of attorney on in favour of the assessee without any consideration. After the execution of power of attorney, the property was registered in the name of the assessee's wife Dr. Meera Bai for a sum of Rs.25.00 lakhs by a sale deed. The AO took the view that it is the assessee who sold the plot to his wife Dr. Meera Bai for a sum of Rs.25.00 lakhs, whereas, the guideline value of the property was Rs.60.00 lakhs at that point of time by adopting the fair market value of the property at Rs.60.00 lakhs based on index cost at Rs.11.00 lakhs. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue before the Bench is - Whether even if there is no transfer of property rights to power agent, capital gains can be taxed in his hand. NO is the answer. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Banding of soap cakes with tapes pre-printed with brand name and MRP of combo pack amounts to manufacture u/s 2(f)(iii) of CEA, 1944 - appellant, however, treating activity as service and discharging service tax - non-filing of declaration is curable defect as appellant acted<em> bonafide</em> - matter remanded for scrutiny by adjudicating authority: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HUL</strong> was sending goods under Notification No.214/86-CE, dated 25.03.1986 to the appellant to provide service of banding the goods by a strip. Incidentally, the benefit of exemption Notification No.50/2003-CE dated 10.06.2003 (area based exemption) was being claimed & allowed to the principal manufacturer HUL& importantly the appellant was carrying out the activity for the said principal manufacturer in the same campus.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Appellant bona fide believed that the activity carried out by them was labour oriented and no manufacturing process was being carried out. Such labour work was supply of manpower and was governed by the taxing entry of Finance Act, 1994 "manpower recruitment agency service" and not a manufacturing activity. Under such belief, they obtained service tax registration & paid service tax on the labour charges received from HUL. The Department never disputed about the liability of the appellants under service tax law and they were collecting such tax without any objection from the appellant. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our Columns Tomorrow for the judgements</font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong> <a href="mailto:vijaywrite@tiol.in">vijaywrite@tiol.in</a></strong></font></p> </body> </html>