TIOL-DDT 308 · the untouched capture
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<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT
308</font><br>
22 02 2006<br>
Wednesday</strong></font></div>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The
Bird Flu - the taxman not chickening - Are poultry Farms covered under
Service Tax ambit? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service
Tax net - especially Business Auxiliary Service - is so wide that even the service
providers themselves do not know about providing any taxable service until they
are caught in the net?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There
are branded chicken outlets which sell chicken (meat) produced from farms. The
trade practice of these branded chicken outlets will normally be in the following
manner.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Non-vegetarians
are familiar with chicken outlets - Suguna, Bromark, etc which are believed
to be selling quality chicken. But, the strange fact is that these brand owners
do not own any poultry farms. Then where do they get their chicken from? The
live chickens are supplied from poultry farms under contract farming with the
brand owners. The contract farming is done in this manner - these brand owners
enter into agreement with owners of poultry farms or persons who own the required
area of vacant land and interested in setting up a poultry farm. The brand owner
even constructs sheds and provides other equipment. The brand owners supply
eggs (imported) to all Farms which are under agreement and also supply necessary
poultry feed and vaccine. (If there is Flu, they secretly kill the chicken and
keep it a secret) There is a field executive appointed by the brand owners to
supervise the growth of chicken and also a veterinary doctor to administer necessary
vaccines to protect from any infections. The poultry farm owner has the
limited responsibility of giving feed (supplied by brand owners) at regular
intervals and to provide water. The poultry farm owner is also required to make
necessary arrangements for supply of electricity and has to pay for the electricity
consumed for lighting or to run air conditioning equipment. The field executive
appointed by the owner will check the chicken at regular intervals and once
they attain the required size and weight they are segregated and dispatched
to the nearest retail chicken outlets directly from the poultry farms. Normally
it takes 45 day for egg to grow into a full size chicken. The entire chickens
ready for consumption will be weighed before dispatch and the poultry farm owner
is paid on the basis of weight. The rate is normally Rs.2-3 per Kg. A medium
size poultry farm owner is assured of an income of Rs.5 laks per annum in this
way. The brand owners in turn sell the chicken to retail outlets.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An
alert Service Tax officer sees a tremendous opportunity in this process. Whether
the chicken contracts Flu or not, it is sure to attract Service Tax.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Production
or processing of goods for, or on behalf of the client’ attracts Service
Tax under the category <strong>Business Auxiliary service</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
can be safely concluded that the activity in the farm is production on behalf
of the client. Now the moot question is are the chickens goods? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Act (FA 1994, I get a Flu when I refer to this Act; Why can’t there be
a Service Tax Act?) defines goods as "goods" has the meaning assigned
to it in clause (7) of section 2 of the sale of Goods Act, 1930 (3 of 1930);
and that Act defines goods as </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">‘Goods’
means every kind of moveable property other than actionable claims and money;
and includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under
the contract of sale.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Captive
Animals and Birds (Live Stock) have been held to be goods - 60-STC-89.
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
chicken produced in poultry farms are goods and as they are produced for the
brand owners, the activity appears to be squarely covered under Business Auxiliary
Service.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the remaining riddle is whether an individual running a poultry farm is covered
under the term "commercial concern". </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
did the legislature really want to tax chicken? Once a wide definition is given,
we really do not know the boundaries. The Flu may keep prying officials at bay
for some time, but they are sure to reach the farms to tax the chicken. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Next
time you go to a Central Excise office, be sure to enquire whether the officer
had been to a poultry farm recently and if so if he had taken any precaution
to avoid the Flu. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Before
that chicken flu into your kitchen, it must suffer Service Tax if not infection.
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Go
vegetarian - chicken is very complicated - with taxes and Flu!</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Lahiri
committee recommends stability in duty rates for edible oils</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Committee headed by Dr. Ashok Lahiri, Chief Economic Adviser, Ministry of Finance
has submitted its report on the duty structure for edible oils. Important recommendations
are:- </font></p>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> Not
changing the tariff value in line with international prices or changing
it after a delay create distortion in resource allocation, undue revenue
gains or losses and opportunities for rent seeking. Tariff value should
be changed on a regular basis and the formula, including the relevance of
the market from which the quotation is taken and the appropriate freight,
reviewed at regular intervals. </font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> With
the country becoming self-sufficient in food- grains, particularly rice
and wheat, there is an added emphasis in recent times on the need for agricultural
diversification, including to oilseeds. Higher protection of refined oil
encourages domestic refining and meeting of the shortfall in domestic output
vis-à-vis demand through utilization of domestic refining capacity.
Simultaneously, however, it tends to increase the profit margin of the domestic
refining industry. Thus, trade and tariff policies for edible oils and oilseeds
have to reconcile interests of four different stakeholders: farmers, consumers,
the edible oil industry, and the Government’s revenue interests. </font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> Palm
is a plantation crop which requires special support. Only duty protection
is not good enough. Palm plantation in Malaysia and Indonesia were promoted
by government intervention in the erstwhile rubber plantation and proved
to be cost efficient in the long term. Promotion of oil palm in India would
require efforts over and above duty protection </font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> Three
major problems with the current import duty structure are: an inverted duty
structure in the case of vanaspati, a wide dispersion of rates across various
edible oils, and lack of stability in duty structure with frequent changes
in duties. First, with inputs attracting a higher rate of customs duty than
the refined edible oil or vanaspati, there may be negative protection for
some segments of the industry. This is most evident in the case of vanaspati
where the finished product, namely hydrogenated vegetable oil, attracts
a basic customs duty rate of only 30 per cent, while the inputs of crude
or refined oils attract higher rates between 45 per cent and 90 per cent.
This has resulted in a negative protection to the domestic vanaspati industry.
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> There
should be a fair amount of stability in rates. In eleven years since the
liberalization of edible oil imports in 1994, there have been eleven changes
in the duty rates on palm oil alone! Frequent changes in the tariff rates
since 1994 has created uncertainty for farmers in their allocation of land
for oilseeds cultivation. </font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> There
is a need to reduce the dispersion of rates across different edible oils.
Given the WTO-bound rate of 45 per cent on soybean oil, convergence requires
a downward adjustment of the duty on other edible oils to prevent soybean,
even when it is more expensive than some other oils, from becoming the major
import to bridge the demand-supply gap in edible oils in the economy. There
is need for a slow transition as well as stability in rates. Thus, the Committee
recommends a reduction in the applied rates on all oils other than soybean
to 65 per cent. Given the low value-added in the refining process, a very
large nominal duty differential between crude and refined products results
in a very high rate of protection and goes against consumer interests. Thus,
the nominal duty differential between crude and refined products may be
reduced to 7.5 per cent and fixed uniformly at 72.5 per cent for all refined
products, except soybean. The logic of harmonisation and of not having an
inverted duty structure, argues strongly in favour of increasing the duty
rate on vanaspati to 72.5 per cent from the current 30 per cent. For stability
of the tax regime, the duty rates should be kept unchanged for a period
of five years.</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> The
issue of excise duty on edible oils is closely related to the issue of excise
duty on processed food. Edible oils, particularly of the refined variety,
belongs to the non-essential category, and should be reviewed when the issue
of excise duty on processed food is decided upon. There is merit in a unified
rate for excise duty on branded and non-branded edible oil, as brand loyalties
are yet to evolve in the country and such loyalties help in ensuring appropriate
standards. </font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify"> The
excise duty exemptions granted to Kutch after the earthquake on January
26, 2001 have led to setting up of large refineries for edible with total
installed capacity of 22.80 lakh tonnes in Kutch. While the problem of a
non- level playing field for oil refiners in other parts of the country
as a result of the excise exemption to Kutch is a self- limiting problem
and will resolve itself by end-2010, in future, there is need for more caution
in granting area-based exemptions to excise duties. </font></div>
</li>
</ul>
<table width="450" border="1" align="center" cellpadding="2" cellspacing="1">
<tr>
<td rowspan="2"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Item
Description</font></strong></td>
<td rowspan="2"><p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">WTO
binding</font></strong></p></td>
<td colspan="2"><p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Crude
edible oils</font></strong></p></td>
<td colspan="2"><p align="justify"></p>
<p align="justify"></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Refined
edible oils</font></strong></p>
<p align="justify"></p></td>
</tr>
<tr>
<td width="50%"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Existing</font></strong></td>
<td width="50%"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recommended</font></strong></td>
<td width="50%"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Existing</font></strong></td>
<td width="50%"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recommended</font></strong></td>
</tr>
<tr>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Soyabean Oil</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">45</font></td>
</tr>
<tr>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rapeseed/
Mustard Oil</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">75</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">75</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">75</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></p></td>
</tr>
<tr>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Palmolein</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">300</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">80</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">90</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></td>
</tr>
<tr>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Palm
Oil</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">300</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">80</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">90</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></td>
</tr>
<tr>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Groundnut
Oil</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">300</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></td>
</tr>
<tr>
<td><p align="justify"></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sunflower/
Safflower Oil</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">300</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">75</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></td>
</tr>
<tr>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Coconut
Oil</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">300</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></td>
</tr>
<tr>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Other
Oils</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">120/300</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">85</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></p></td>
</tr>
<tr>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Oilseeds</font></td>
<td><p align="justify"> </p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">30</font></p></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">30</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">-</font></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">-</font></td>
</tr>
<tr>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Vanaspati</font></td>
<td> </td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">-</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">-</font></p></td>
<td><font size="2" face="Verdana, Arial, Helvetica, sans-serif">30</font></td>
<td><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">72.5</font></p></td>
</tr>
</table>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<strong>Contingent arrested by CBI in Central Excise office - who will
bail him out?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A
Commissioner (Appeals), two superintendents and a contingent employee were arrested
by CBI yesterday in Trichy, caught red handed with a bribe of Rs. 20,000/- .
There were too many red hands. One Superintendent receives the money, allegedly
hands it over the Commissioner who hands it over to another Superintendent who
hands it over the poor contingent employee. And all of them are in CBI custody.
These contingent employees who do almost all the work in the offices are daily
wage labourers who make about Rs. 1500/- a month with absolutely no perks or
job security. Now this contingent employee arrested in Trichy will immediately
lose his job, there will be nobody to bail him out and later to defend him in
the courts. He is almost sure to be convicted in the first court and he might
have a chance in the High Court if he can get a good lawyer. But can a man for
whom the daily food is the major problem afford to sit in jail and fight a long
legal battle? What will happen to his family? Does any one really bother? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally
as per the Transfer Policy of the CBEC, the Commissioner (Appeals) post is non
sensitive! And so is Commissioner (Adjudication). When will CBEC realise that
it is <strong>adjudication</strong> which is the most sensitive of all?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
is unfortunate that the department gets such frequent beatings with senior officers
routinely getting into the CBI net. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Smuggling
- and we, Mumbaikars ??? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT’s</strong>
<em>smuggling</em> interestingly received large scale attention. Regarding our
suggestion that there is rampant smuggling in Mumbai, a netizen wrote, "Smugglers
and we, Mumbaikars ??? Good One -- Trust me, now some one will be forced to
awaken from their 'nidra'". An officer from Mumbai Customs wrote in that Board
has started the exercise of notifying all the unnotified ports and it seems
that field formations have been asked to report the details of ports under their
jurisdiction. A lawyer friend suggested that with so much of smuggling, there
is good scope for practice in Mumbai.</font></p>
<p align="center"><B><IMG height=62 src="http://www.taxindiaonline.com/RC2/image/ddt/gnl_txt.jpg" width=375></B></p>
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<TR>
<TD><IMG height=67 hspace=5 src="http://www.taxindiaonline.com/RC2/image/ddt/gnl_word.jpg" width=67 align=absMiddle vspace=5><B><I> <font size="2" face="Verdana, Arial, Helvetica, sans-serif">Alibi -
(pronounced as aleby) -</font></I></B></TD>
</TR>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
A form of defence whereby a defendant attempts to prove that he was elsewhere
when the crime was committed; The fact of having been elsewhere when a crime
was committed.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
is a defense by an accused person to show that he could not have committed the
crime in question. A Customs officer arrested by the CBI claimed an alibi that
at the time of CBI’s search, he was actually accompanying a dead body
in a far off place and the court accepted the alibi on the ground that when
two pieces of evidence both equally strong and credible are available as in
this case, the benefit of doubt should be given to the accused. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6666">Until
tomorrow with more DDT</font></strong></font></p>
<p align="justify"><font color="#FF6666"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day. </font></strong></font></p>
<p align="justify"><font color="#FF6666"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail
your comments to</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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