TIOL-DDT 29 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#0000FF" size="3">TIOL-DDT
29</font><br>
11 1 2005<br>
Tuesday</b></font></p>
<p align="center"><font color="#009933" size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<b>In defence of the Government - Confusion over notification
No 36/2004 – Service Tax dated 31.12.2004</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>THE</b>
last notification of last year in Service Tax has obviously caused quite a lot
of confusion among discerning tax watchers, if the number of mails we are getting
on the subject is any indication. <b>TIOL</b> has been getting enquiries from
a large number of enlightened taxmen and observers about the consequences of
the notification which was issued under Section 68(2) of the Finance Act 1994.<br>
<br>
Many felt that the notification was faulty and that now even telephone users
need not pay Service Tax. It is assumed by a large number of thinkers that for
all the services notified under Notification No 36/2004, the recipients are
required to pay Service Tax. DDT hastens to clarify that it is not so. A little
elaboration will not be out of place. And for a change, this time around, <b>DDT</b>
is defending the Government. <br>
<br>
As per Section 68(1) of the Finance Act 1994, the person providing Service is
required to pay the Service Tax. As per Section 68(2),<br>
<br>
<i>Notwithstanding anything contained in sub-section (1), in respect of any
taxable service <b>notified</b> by the Central Govt. in the Official Gazette,
the service tax thereon shall be paid by such person and in such manner as may
be <b>prescribed</b> at the rate specified in section 66 and all the provisions
of this chapter shall apply to such person as if he is the person liable for
paying the service tax in relation to such service.</i><br>
<br>
So according to this section<br>
<br>
1. For certain services, persons other than those providing the services can
be made to pay the tax.<br>
<br>
2. The Government has to notify those services.<br>
<br>
3. The manner and the person liable to pay the tax can be prescribed.<br>
<br>
4. <b>Prescribed</b> means, prescribed by the rules. [Section 65(86)]<br>
<br>
5. Once the notification is issued (for the services) and the person and the
manner are prescribed (in the rules) , the law would apply to that person as
if he is the person liable to pay the Service Tax.<br>
<br>
It can be seen that the basic requirement to make somebody other than the service
provider to pay the Service Tax is a notification to notify the services and
rules to prescribe the persons and the manner of payment. <br>
<br>
It was under these provisions that the Notification has been issued to make
certain services for which somebody other than the service provider (<b>not
necessarily the service recipient</b>) can be made responsible for paying Service
Tax. Notification No. 36/2004 – ST dated 31.12.2004 made the following
services applicable under Section 68(2). <br>
<br>
(A) the services,-<br>
<br>
1. in relation to a telephone connection or pager or a communication through
telegraph or telex or a facsimile communication or a leased circuit;<br>
<br>
2. in relation to general insurance business;<br>
<br>
3. in relation to insurance auxiliary service by an insurance agent; and<br>
<br>
4. in relation to transport of goods by road in a goods carriage, where the
consignor or consignee of goods is a factory, company corporation etc,<br>
<br>
(B) any taxable service provided by a person who is a non-resident or is from
outside India, does not have any office in India.<br>
<br>
So these are the services for which persons other than the service provider
may be made to pay the Service Tax. As to who is responsible for paying the
tax and how? – It is to be prescribed by the Rules.<br>
<br>
Strangely the Rules had already prescribed this. As per Rule 2(d) of the Service
Tax Rules, Persons liable to pay Service Tax are:- </font></p>
<p align="center" class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><o:p></o:p></span></p>
<div align="center">
<table border=1 cellspacing=0 cellpadding=0 style='border-collapse:collapse;
border:none;mso-border-alt:solid windowtext .5pt;mso-padding-alt:0in 5.4pt 0in 5.4pt'>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal> <span
style='font-size:10.0pt;font-family:Verdana'><o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border:solid windowtext .5pt;
border-left:none;mso-border-left-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>SERVICE<o:p></o:p></span></p></td>
<td width=248 valign=top style='width:3.45in;border:solid windowtext .5pt;
border-left:none;mso-border-left-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>PERSON
LIABLE TO PAY Service Tax <o:p></o:p></span></p></td>
</tr>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
border-top:none;mso-border-top-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>(i)<o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><b>in
relation to a telephone connection or pager or a communication through
telegraph or telex or a facsimile communication or a leased circuit<o:p></o:p></b></span></p></td>
<td width=248 valign=top style='width:3.45in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l19 level1 lfo31;
tab-stops:list .25in .3in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(a)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Director General of Posts and Telegraphs, or <o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l19 level1 lfo31;
tab-stops:list .25in .3in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(b)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman-cum-Managing Director, Mahanagar Telephone Nigam Ltd, Delhi<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l19 level1 lfo31;
tab-stops:list .25in .3in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(c)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
other person who has been granted a licence by the Central Government
under the first proviso to sub-section (1) of Section 4 of the Indian
Telegraph Act, <o:p></o:p></span></p>
<p class=MsoNormal> <span
style='font-size:10.0pt;font-family:Verdana'><o:p></o:p></span></p></td>
</tr>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
border-top:none;mso-border-top-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>(ii)<o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><b>in
relation to general insurance business<o:p></o:p></b></span></p></td>
<td width=248 valign=top style='width:3.45in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(a)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman of the General Insurance Corporation of India, Mumbai; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(b)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman-cum-Managing Director of the National Insurance company Ltd.,
Calcutta; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(c)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman-cum-Managing Director of the New India Assurance Company Ltd;
Mumbai; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(d)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman-cum-Managing Director of the Oriental Insurance Company Ltd.,
Delhi; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(e)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>the
Chairman-cum-Managing Director of the United India Insurance Company
Ltd., Chennai; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l24 level1 lfo36;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(f)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
other person carrying on general insurance business and who has obtained
a certificate of registration under section 3 of the Insurance Act,
1938 (4 of 1938)<o:p></o:p></span></p></td>
</tr>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
border-top:none;mso-border-top-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>(iii)<o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><b>in
relation to insurance auxiliary service by an insurance agent<o:p></o:p></b></span></p></td>
<td width=248 valign=top style='width:3.45in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>any
person carrying on the general insurance business or the life insurance
business, as the case may be, in India<o:p></o:p></span></p></td>
</tr>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
border-top:none;mso-border-top-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>(iv)<o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><b>in
relation to any taxable service provided by a person who is a non-resident
or is from outside India, dose not have any office in India<o:p></o:p></b></span></p></td>
<td width=248 valign=top style='width:3.45in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>the
person receiving taxable service in India<o:p></o:p></span></p></td>
</tr>
<tr>
<td width=32 valign=top style='width:.45in;border:solid windowtext .5pt;
border-top:none;mso-border-top-alt:solid windowtext .5pt;padding:0in 5.4pt 0in 5.4pt'>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>(v)<o:p></o:p></span></p></td>
<td width=162 valign=top style='width:2.25in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><b>in
relation to taxable service provided by a goods transport agency, where
the</b></span><span
style='font-size:10.0pt;font-family:Verdana'> <b>consignor or consignee of goods
is,-</b></span><span style='font-size:10.0pt;font-family:Verdana'><o:p></o:p></span></p>
<p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'><o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(a)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
factory registered under or governed by the Factories Act, 1948 (63
of 1948);<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(b)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
company established by or under the Companies Act, 1956 (1 of 1956);<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(c)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
corporation established by or under any law;<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(d)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
society registered under the Societies Registration Act, 1860 (21 of
1860) or under any law corresponding to that Act in force in any part
of India;<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(e)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
co-operative society established by or under any law;<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(f)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
dealer of excisable goods, who is registered under the Central Excise
Act, 1944 (1 of 1944) or the rules made thereunder; or<o:p></o:p></span></p>
<p class=MsoNormal style='margin-left:.25in;text-indent:-.25in;mso-list:l4 level1 lfo38;
tab-stops:list .25in'> <span style='font-size:11.0pt;
font-family:"Palatino Linotype"'>(g)<span style='font:7.0pt "Times New Roman"'>
</span></span> <span style='font-size:10.0pt;font-family:Verdana'>any
body corporate established, or a partnership firm registered, by or
under any law,<o:p></o:p></span></p></td>
<td width=248 valign=top style='width:3.45in;border-top:none;border-left:
none;border-bottom:solid windowtext .5pt;border-right:solid windowtext .5pt;
mso-border-top-alt:solid windowtext .5pt;mso-border-left-alt:solid windowtext .5pt;
padding:0in 5.4pt 0in 5.4pt'> <p class=MsoNormal><span style='font-size:10.0pt;font-family:Verdana'>any
person who pays or is liable to pay freight either himself or through
his agent for the transportation of such goods by road in a goods carriage<o:p></o:p></span></p></td>
</tr>
</table>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
It can be seen that there are five categories of services where the service
provider is not responsible for paying Service Tax, but it can also be seen
that it is only in respect of two categories namely, goods transport and services
provided by non residents that the <b>recipient is liable to pay tax. <br>
</b><br>
<b>So the Government was indeed right in issuing the notification and that too
before 1.1.2005, when the levy on GTA became effective. </b>Had the notification
not been issued, it would have been illegal to collect the tax from consignors
and consignees. Our babus deserve all praise for making the levy legal, a day
before impost instead of taking the retrospective legislation route.<br>
<br>
But it does raise certain other questions. Till 31.12.2004, there was no notification
specifying <b>services</b> for which persons other than service providers were
required to pay tax. But the Rules even then prescribed four categories of services
for which <b>others</b> had to pay Service Tax. In the absence of a notification,
this rule was illegal. So till 31.12.2004, the Service Tax collected from insurance
companies for services provided by the agents and recipients of services provided
by non residents was without any authority of law. <b>Those who had paid such
Service Tax can even claim refund now.</b><br>
<br>
<b>There is an important issue which somehow the Government refuses to rectify
in spite of repeatedly being informed.</b><br>
<br>
As per Rule 9(1) of the Cenvat Credit Rules, 2004, certain documents are prescribed
for taking cenvat credit. They include <br>
<br>
(<i>e) a challan evidencing payment of service tax by the person liable to pay
service tax under sub-clauses (iii) and (iv) of clause (d) of sub-rule (1) of
rule (2) of the Service Tax Rules, 1994; or<br>
<br>
(f) an invoice, a bill or challan issued by a provider of input service on or
after the 10th day of, September, 2004;</i><br>
<br>
As per(e), the challan issued by the insurance company and service receiver
in India are valid documents for taking credit. But the challan issued by the
consignor or consignee in case of GTA is not a valid document as clause(v) of
Rule 2(1)(d) is not included in this list. But everything is not lost; there
is still hope. As per(f) above, the invoice issued by a provider of input service
is a valid document. Rule 2(r) of the Cenvat Credit Rules defines “provider
of taxable service” to include a person liable for paying service tax.
So the provider of input service also includes one who pays the Service Tax,
may be our consignee and consignor. If this is so, what is the need for (e)
above? <b>Legislation is really a tricky business!</b> If the Government means
business and is willing to listen, it can coolly delete the above clause(e)
and clarify that credit is indeed eligible on the basis of the challan from
consignor or consignee. Or will it wait for litigation to reach the Supreme
Court?<br>
<br>
(<b>TIOL</b> is grateful to a large number of netizens who sent in comments
on this subject)<br>
<br>
<font color="#009933"><b>Income Tax amends Form 7:</b></font><br>
<br>
This Form 7 is the one issued under Section 156 to demand tax after assessment.
Some minor changes have been made in the form to substitute levels of officers.
Deputy Commissioner is replaced by Joint Commissioner and Deputy Commissioner
(appeals) by Commissioner (Appeals). – See <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=35&filename=notification/cbdt/2005/it05not002.htm">Notification
No. 2/2005 dated 7.1.2005. </a><br>
<br>
<font color="#009933"><b>Deputy Assistant Commissioner? </b></font><br>
<br>
Superintendents of Central Excise and Customs- frustrated that you are not getting
that much elusive promotion to that hallowed precincts of IRS to be called an
Assistant Commissioner?. Don’t worry you will have something better. You
will be both Assistant Commissioner and Deputy Commissioner. Superintendents
with more than ten years of service are going to be called Deputy Assistant
Commissioners. Inspectors too need not worry. Those with more than twelve years
of service are going to be entrusted with the work of the Superintendents. What’s
in a name, they say! If you believe in, “call me a thoti and pay me fifty
more”, you are going to be disappointed; there will be no financial benefits.
The Service Tax Committee has recommended these changes and are most likely
to be accepted. <br>
<br>
In India we attach a lot of importance to high sounding designations. May be
its time we demystify some of them. In many countries, the head of the police
force is called the Chief Constable. Why not we call our Chief Commissioner
as Chief Sepoy and down the line, commissioner as Additional Chief Sepoy, ADC
as Deputy Chief Sepoy, JC as Additional Deputy Chief Sepoy, DC as Sepoy, AC
as Additional Sepoy, Superintendent as Deputy Sepoy, Inspector as Additional
Deputy Sepoy and Sepoy Assistant Sepoy? <br>
<br>
<font color="#9900CC"><b>The good news for taxpayers is that the smartest tax
experts don't work for the IRS. They were smart enough to realize that taxpayers
will pay more to keep their money than the government will pay to collect it.
</b></font></font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Until
tomorrow with more of DDT<br>
<br>
Have a Nice Day</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Please
send in your response to vijaywrite@taxindiaonline.com</b> </font></p>
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