TIOL-DDT 309 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html>
<head>
<title>Untitled Document</title>
<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1">
</head>
<body>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<strong><font color="#996699" size="3">TIOL-DDT 309</font><br>
23 02 2006<br>
Thursday</strong></font></div>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Construction
Service - DG, Service Tax overrules Board Circular – issues notice to
Board</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
DGST is at it again. In a controversial letter to all the Chief Commissioners,
He (yes, he is a Capital H) has not only over ruled a Board Circular but put
the Board on Notice – all because only 43 days are left to collect the
Service Tax illegally, in this financial year.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
controversy before the DG is Service Tax on construction services. Board Circular
80/2004 dated September 17, 2004 had clarified that <strong>Estate builders
who construct buildings/ civil structures for themselves (for their own use,
renting it out or for selling it subsequently) are not taxable service providers.
</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
idea is if you sell a building, you are not providing a service but if you construct
a building for somebody, you are.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
the DG is not impressed with the Board’s logic or authority. The DG wants
to get his strength from a recent(?) judgement of the Supreme Court in <strong>Raheja
Development Corporation Vs State of Karnataka - </strong></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-77-SC-CT.htm">2005-TIOL-77-SC-CT</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>
- </strong> wherein the Supreme Court held that the activities undertaken by
builders for construction of flat/building for or on behalf of the prospective
customers for consideration in cash or deferred payment is covered under the
works contract and not under sale. The DG wants to use this Sales Tax judgement
to overrule the Board circular and goes on to give his verdict, “<em>Considering
the above decision, if the construction is undertaken by the builder for prospective
customer under an agreement for sale and after construction, the rights in property
have been transferred to the said prospective purchasers, the activity will
amount to "<strong>work contract</strong>" or taxable service is covered
under the Service Tax and not sale.</em>”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
So the DG has observed that builders are avoiding Service Tax by illegally following
the Board Circular and not the DG’s belated but right opinion. DG holds
that the Board circular is not applicable and wants the Chief Commissioners
to go into the attack mode and “initiate pro-active measures to realize
service tax on this service especially when only 43 days are now left in the
current fiscal.” He also laments the fact that the Service Tax collections
from this head are <strong>reportedly</strong> too low. (Fortunately he is not
sure!)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
DG has further directed the Chief Commissioners to report to him and the Board
the action taken by them on a weekly basis.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
DG apparently has no respect for the law or his colleagues but what is baffling
is that he has scant respect for his boss, the Board. He has marked a copy of
his letter to the Member, CBEC with a note, “<strong>If the Board has
a contrary view, the same may please be communicated for compliance. Considering
that only 43 days are left in the current fiscal, the urgency of this communication
to the field formation can hardly be over emphasized especially when the revenue
ramifications are enormous.</strong>” (Pray, why did you wait till you
have only 43 days sir?)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
he has put the Board in a very embarrassing position. First he decides that
the Board circular is not correct and so overrules it. Then he informs the Board
that his decision is urgent and in the interest of Revenue and if the Board,
unlike him, is anti revenue, they can inform him so. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue
officials are not exactly famous for adhering to judicial discipline, but are
they not at least bound by executive discipline? Is not the DG bound by the
Board’s circular? If he is not happy with the Board Circular, can’t
he write to the Board to amend the Circular instead of shooting off his orders
to the Chief Commissioners? Now the Chief Commissioners are in a more difficult
position. Are they bound by the DG’s orders? They have a circular from
the Board and a letter from the DG. Which one should they follow? What happens
if a Chief Commissioner has a view different from that of the Board and the
DG? Can he issue another letter and ask the DG and the Board to tell him if
they have contrary view? What will happen to administration if all subordinate
officers blatantly refuse to follow the orders of the superiors? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
order to maintain uniformity of tax administration, the Apex Court of this country
had held that Board circulars are binding on the field even if they are wrong
and even if they are against the decisions of the Supreme Court itself. But
the DG Service Tax seems to be above all this. Perhaps his action is a blatant
contempt of the Supreme Court. In the <strong>Paper Products</strong> case -
<strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm">2002-TIOL-84-SC-CX</a></strong>,
the Supreme Court emphatically held, <strong>Consistency and discipline are,
according to this Court, of far greater importance than the winning or losing
of court proceedings.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
DG who relies on a Supreme Court decision in a sales tax case, surely is aware
of the other cases especially relating to his own department where the Hon’ble
Court requires the DG to obey the Board even if the Board is wrong. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally,
we carried the Supreme Court decision referred to by the DG on 9th May 2005.
Had he acted then, he would have had 326 days in the current fiscal to collect
the tax, instead of the paltry 43 days he is now left with. After being silent
for ten months after the judgement was published, he suddenly drops the bomb
now in the fag end of the year, obviously to boost revenue. Anything for Revenue?
The consultants in this country should be grateful the DG for gifting them so
much work.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
that the Board is under notice from the DG, it is expected that the Board will
exercise its authority and tell the DG that his business is not to overrule
Board circulars and that his business is to unquestioningly obey the Board circulars
and execute them with all sincerity and dedication. If the Board does not do
that, there is the danger of every Chief Commissioner challenging and disobeying
Board Circulars and once the virus spreads, every officer in the department
right down to the sepoy can have their own views on every matter and Board and
other authorities can go on issuing instructions which will not be obeyed or
followed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
the Board is prepared to accept the DG’s views, the least they should
is concur with the DG and issue another circular that in obedience to the directions
of the DG, the Board is pleased(forced) to modify the instructions in Circular
No. 80/2004. <strong>Will the Board act?</strong> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2006/dgst_letter_construct.htm">DGST’s
letter in F.No.V/DGST/22/Audit/Misc./1/2004/ dated 16th February, 2006</a></strong></font></p>
<P align=center><B><IMG height=62 src="http://www.taxindiaonline.com/RC2/image/ddt/gnl_txt.jpg" width=375></B></P>
<TABLE cellSpacing=0 cellPadding=0 width=350 align=center border=1>
<TBODY>
<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">FLAGRANTE
DELICTO</font></I></B></TD>
</TR>
</TBODY>
</TABLE>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What
does Caught red handed mean?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
act of committing a crime. When a person is arrested flagrante delicto - while
committing a crime - the only evidence required to convict him is to prove that
fact.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
is actually the Latin version of “caught red handed” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There
is an opinion that the phrase “caught red handed” comes from the
fact that when CBI traps somebody, they apply a chemical to the currency and
when the offender’s hand is washed, it turns red. This is far from the
truth at least by about 400 years. This was used by the 15th Century writer
Sir Walter Scott in his<strong> Ivanhoe</strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
is based on the metaphor of a murderer being caught with blood still on his
hands, and so should be as old as the days before guns, when hands, clubs, daggers
etc were sophisticated weapons to kill somebody. </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><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
</body>
</html>