TIOL-DDT 2807 · the untouched capture
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<p><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=23157"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2015_1.jpg" alt="DDT in Limca Book of Records - Third Time in a row" width="300" height="148" hspace="5" border="0" align="right" ></a><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 2807 </font><br>
15 03 2016 <br>
Tuesday </strong></font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">CAG Slams Service Tax Department - Strange ways of running the Department </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> CAG in its latest Report No.1/2016 on Service Tax has highlighted the strange and callous ways adopted by the Department in important matters. Some of the issues discovered by the CAG shows the Department in really very poor light. The CBEC Chairman and the Finance Minister should take serious note of CAG's observations and do something to change the attitude and functioning of the department. Here are some of the CAG findings: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_1.jpg" alt="Legal Corner Icon" width="250" height="75" hspace="5" border="0" align="left">In Visakhapatnam-I Commissionerate, an amount of Rs. 25.01 crore was confirmed (October 2011) in OIO under Port Services. However, verification of calculation attached to SCN had revealed that the actual amount of Service Tax required to be demanded would be Rs. 9.24 crore. Thus, there was an excess demand in SCN amounting to Rs. 15.77 crore during the period 2009-10 and 2010-11. This happened due to arithmetical mistake in calculation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When we pointed this out (September 2014), the Ministry accepting (November 2015) the audit objection, stated that the railway freight though stated to be non taxable in the SCN, was added to the taxable value and appeared to be a clerical error. They further stated that the demand was confirmed in the OIO to the tune of Rs. 25.01 crore. Department's contention, that an error amounting to Rs.15.77 crore in SCN was a clerical error, was not acceptable and also such a major error was not noticed while adjudicating the SCN. Further progress in the case was awaited (January 2016) </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">***** </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_2.jpg" alt="Legal Corner Icon" width="200" height="60" hspace="5" border="0" align="left">In Guwahati Commissionerate, one SCN showing demand of Rs. 2.17 crore for the period September 2003 to April 2007 was issued (March 2009) to the assessee, the General Manager, BSNL (Land Line) for recovery of CENVAT credit irregularly availed by the assessee. We observed that the Adjudicating Authority in its OIO (March 2013) had dropped the demands alongwith interest and penalty as there was no proposal at all to invoke the extended period in the SCN. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When we pointed this out (August 2014), the Ministry did not accept (November 2015) the audit objection and stated that as there was "<em>willful suppression</em>" in this case, and automatic invocation of extended period would come into play. However, the fact remained that SCN was dropped in adjudication due to non invocation of extended period in the SCN and this order was not challenged. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">***** </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_3.jpg" alt="Legal Corner Icon" width="200" height="65" hspace="5" border="0" align="left">Section 37C of Central Excise Act, 1944 which is also applicable to Service Tax, provides that any SCN shall be served a) by sending it with registered post with acknowledgement due to the person for whom it is intended or his authorised agent, b) if it cannot be served as aforesaid, then by affixing a copy at a conspicuous space in factory or warehouse, c) if this is also not possible, then by affixing a copy on the notice board of the office or authority which issued the notice etc. Further, as per CBEC's Draft Adjudication Manual, one of the most important principles of natural justice is that the noticee shall be given reasonable opportunity of being heard before any adverse order is passed against him. We observed in Rajkot Commissionerate an SCN raised (April 2010) for a Service Tax demand was not delivered to the assessee as the department could not trace the assessee. The case was adjudicated (November 2011) without communicating SCN and holding of personal hearing which was against the principles of natural justice. We also observed that OIO was not communicated to the assessee in contravention of the aforesaid provision. When we pointed this out (September 2014), the Ministry replied (November 2015) that in future, procedure under section 37C would be followed in case of necessity and that instructions in this regard would be followed in true spirit. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">*** </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_4.jpg" alt="Legal Corner Icon" width="200" height="65" hspace="5" border="0" align="left">Issuance of adjudication orders within stipulated period after completion of personal hearings. As per Para No. 3 of Board's Circular dated 20 September 2010, in all cases, where the personal hearing has already been completed, orders should normally be issued within a month of the date of completion of the personal hearing. We observed that Department passed OIOs in 472 cases in 21 Commissionerates after a delay ranging from 01 day to beyond two years (in excess of 30 days from the date of completion of last personal hearing granted to the parties). Two-thirds of these delays were beyond one month. Such delay was more than one year in 14 cases. When we pointed this out (June 2014 to October 2014), the Ministry accepted the facts in most of the cases (November 2015) and stated that it was due to acute shortage of staff, frequent change in adjudicating authorities, infrastructural constraints, high volume of records in the case, late submission of additional records by the assessees etc. The reply was not acceptable as in any case, adjudication orders should have been issued within 30 days from the date of completion of PH. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">***** </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_5.jpg" alt="Legal Corner Icon" width="200" height="65" hspace="5" border="0" align="left">Internal control in respect of preparation and issuance of SCNAs per draft adjudication manual of the Department, the SCN should not be vague, confusing or self-contradictory. Issue of two SCNs on the same issue is not legally proper. We observed that in six cases in four Commissionerates, demands were issued twice on the same issue and dropped by the Adjudicating Authority on the said ground. The Ministry accepted the audit objection (November 2015) in three cases. Further, in three cases the Ministry stated there was no irregularity in issuance of second SCN. The reply of the Ministry was not acceptable as the adjudicating authority had dropped the second SCN in all three cases stating that issuing two SCNs on the same issue was not legally proper. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Noida Commissionerate, SCN was issued (March 2013) for a Service Tax demand under reverse charge mechanism pertaining to the period (FY07 to FY11) for an amount of Rs. 1.25 crore. The assessee intimated that another SCN was issued on the same issue for the same period (FY07 to FY11). It was also ordered by the adjudicating authority (March 2014) that demand was withdrawn as the same demand was confirmed in November 2012. Thus, issue of two SCNs on one and same issue was not proper. When we pointed this out (May 2014), the Ministry accepted the facts (November 2015) and stated that directions were issued to the field formation to take all care while issuing demand. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Shillong Commissionerate, an SCN was issued (August 2010) to BSNL, Manipur SSA, Imphal, for a Service Tax demand of Rs. 59.18 lakh, though the same demand had been adjudicated in June 2008. However, the Adjudicating authority had dropped the same issue (November 2011) to avoid double adjudication on the issue. Thus, there was a mistake in SCN issued. Thus, issue of two SCNs on the same issue occurred due to absence of proper monitoring system in the department in this regard. When we pointed this out (August 2014), the Ministry replied (November 2015) that point had been noted for further guidance. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">***** </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_6.jpg" alt="Legal Corner Icon" width="200" height="65" hspace="5" border="0" align="left">It was noticed during audit that the journey of SCN right from the first step of issue of SCN till its adjudication was fraught with delays and shortcomings. The time limit prescribed for issue of Show Cause Notice was one year with provision to invoke extended period of five year for specific circumstances. But instead, it was seen that the extended period was used as a routine provision rather than a rare exception. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_2807_7.jpg" alt="Legal Corner Icon" width="200" height="65" hspace="5" border="0" align="left">We observed in test check in 13 Commissionerates that different registers as prescribed were either not maintained at all or maintained incompletely. Further, we noticed discrepancy, as given below, in figures of pendency of adjudication in the MTR for the month of March 2014 in respect of Bhubaneswar-I Commissionerate which was submitted to the Director General of Service Tax, Mumbai by the Chief Commissioner, Bhubaneswar Zone and by Bhubhaneswar-I Commissionerate:- </font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(Pendency of adjudication as on 31st March 2014)</font></strong></p>
<table width="90%" border="1" align="center" cellpadding="3" cellspacing="0">
<tr bgcolor="#FF9966">
<td rowspan="2" bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Source</strong></font></div></td>
<td colspan="2" bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Chief Commissioner's Report </strong></font></div></td>
<td colspan="2" bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Commissioner's report </strong></font></div></td>
</tr>
<tr>
<td bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No.</strong></font></div></td>
<td bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Amt. (Rs in lakh) </strong></font></div></td>
<td bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No.</strong></font></div></td>
<td bgcolor="#FBD7C6"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Amt. (Rs. in lakh) </strong></font></div></td>
</tr>
<tr bgcolor="#CFEFEF">
<td><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">OB</font></strong></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">390</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45,147.11</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">383</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">53,331.09</font></div></td>
</tr>
<tr>
<td><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Receipts</font></strong></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">05</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3,935.00</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">20</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">339.57</font></div></td>
</tr>
<tr bgcolor="#CFEFEF">
<td><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Total</font></strong></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">395</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">49,082.11</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">403</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">53,670.66</font></div></td>
</tr>
<tr>
<td><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Disposal</font></strong></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">14</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1,946.02</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">13</font></div></td>
<td><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">151.61</font></div></td>
</tr>
<tr bgcolor="#CFEFEF">
<td><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CB</font></strong></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">381</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">47,136.09</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">390</font></div></td>
<td bgcolor="#CFEFEF"><div align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">53,519.05</font></div></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When we pointed this out (July 2014), a revised statement was furnished (July 2014) by Commissioner, Bhubaneswar I to audit, which also did not match with the figures of Chief Commissioner's report. </font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600"><a name="f1"></a>TDS Mismatch - No Coercive Action- CBDT </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>BY</strong> letter dated 01.06.2015, the CBDT had issued directions to the field officers that in case of an assessee whose tax has been deducted at source but not deposited to the Government's account by the deductor, the deductee assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income. It was further specified that section 205 of the Income-tax Act, 1961 puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch in such situations cannot be enforced coercively. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, instances have come to the notice of the Board that these directions are not being strictly followed by the field officers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board reiterates the instructions in its letter dated 01.06.2015 and directs the assessing officers not to enforce demands created on account of mismatch of credit due to non-payment of TDS amount to the credit of the Government by the deductor. </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTkzOTA=" target="_blank">CBDT Office Memorandum in F.NO. 275/29/2014-IT (B)., Dated: March 11 2016 </a></font></strong></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600"><a name="f2"></a>Recent Supreme Court cases </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF"><strong>CENTRAL</strong> Excise - Classification - New classification cannot be done at the Tribunal stage for the first time: </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessee classified his goods under Chapter Heading 4009.99 of the Central Excise Tariff, which was approved by the Assistant Commissioner. Revenue filed an appeal with the Commissioner (Appeals) pleading that the correct classification was Chapter Heading 4016.99. Commissioner (Appeals) rejected the Revenue Appeal. On further appeal by Revenue, CESTAT instead of deciding whether the goods fall under Chapter Heading 4009.99 as contended by the assessee and approved by the Assistant Commissioner or Chapter Heading 4016.99 as sought to be contended before the Commissioner (Appeals), took the view that the goods fall under Chapter Heading 8448.00. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Supreme Court remanded the matter to the Tribunal to take a decision on whether the goods manufactured by the assessee are classifiable under Chapter Heading 4009.99 as claimed by the assessee or 4016.99 as claimed by the Revenue. The order of remand is limited only to this issue. It is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see <em><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTExOTkx" target="_blank">Precision Rubber Industries (P) Ltd. VS Commissioner of Central Excise, Mumbai -
2016-TIOL-28-SC-CX</a></em></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">Bullet proof Vehicles - Cost of bullet proofing done by job worker not to be added to arrive at transaction value: </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The admitted facts are that as far as clearance of the Jeeps from the factory of the respondent/assessee is concerned, they were cleared without any bullet proofing. It is only after clearance that the Jeeps were sent to get the processing of bullet proofing carried out by job workers outside the factory premises. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal has, thus, rightly held that in such circumstances, the cost of bullet proofing could not be added to arrive at the transaction value. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The order of the Tribunal does not warrant any interference. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see <em><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTExOTkz" target="_blank">Commissioner of Central Excise & Customs Vs Mahindra & Mahindra Ltd -
2016-TIOL-29-SC-CX</a></em></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" style="background-color:#F3DBCF">Central Excise - Classification-Tetmosol Soap- Not a toilet soap - Tribunal in error - nothing to prevent anybody from using medicated soap for toilet purposes </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Issue: </strong>whether the soap manufactured by the appellant called ‘Tetmosol soap' falls within CET Heading 3401.11 as claimed by the assessee or CET Heading 3401.19 as claimed by the Revenue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee's view:</strong> the soap is used for medicinal purposes, primarily for the treatment of a skin disease called scabies. It is not a soap that is used ordinarily for toilet purposes but like any other soap it can, of course, be used for toilet purposes. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Revenue View: </strong>the wrapper in which the toilet soap is packed mentions that it can be used as a toilet soap. It is on this basis the Revenue claims that Tetmosol soap manufactured by the appellant falls within CET Heading 3401.19. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tribunal Decision:</strong> the product in dispute is soap for toilet use and is, therefore, not classifiable under CET sub-heading 3401.11 but under CET sub-heading 3401.19 as upheld by the lower authorities. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Supreme Court Decision:</strong> There is nothing to prevent anybody from using medicated soap for toilet purposes but it is not what the soap is intended for. Clearly, the product in dispute is classifiable under CET Heading 3401.11 which is the more appropriate CET Heading rather than the residuary CET Heading 3401.19. Tribunal was in error in taking the view that the soap would fall in the residuary entry of CET Heading 3401.19. Tribunal Order Set aside. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see <em><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTExOTkw" target="_blank">V.V.F LTD VS Commissioner of Central Excise, Surat-II -
2016-TIOL-27-SC-CX
</a></em></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>
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