TIOL-DDT 342 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 342</font><br>
17 04 2006<br>
Monday</b></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>25%
Service Tax on GTA - DGST’s controversial circular truly
withdrawn – confirms
Hyderabad Chief Commissioner</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The last edition
of <b>DDT</b> had carried details of the DGST’s controversial
letter and its withdrawal. And how the field refuses to accept the fact
that the DG’s letter had indeed been withdrawn! Show Cause Notices are
being indiscriminately issued and in some cases prompted by objections raised
by the CAG based on the DG’s non existent letter! Imagine the power and
range of the DGST. He will not be able to collect a rupee more by his illegal
and unwarranted circulars, but he is certainly capable of upsetting normal life
for the assessees and making life good for the consultants. It is now more
than a year since the DG had withdrawn his letter and surprisingly the
issue is still very live. The other day in a seminar at Vizag, this was an agitated
issue and all our assurances did not really bring in any cheer as the departmental
officers refused to believe that the mighty DG would withdraw his directions.
We had supplied copies of the withdrawal letter to several departmental
officers so that litigation can be avoided.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In such a situation,
the minutes of the RAC meeting in Hyderabad comes as a welcome relief.
This was one of the questions in the RAC meeting held on 20th March 2006
under the chairmanship of the Chief Commissioner of Central Excise, Hyderabad
as communicated in his C. No. IV/16/51/2006 – CC(HZ)
Tech dated 4.4.2006, which a concerned netizen had posted to us.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">D. Whether the
seven categories of service receivers are eligible for the abatement of
75% as provided to the GTA services? In some divisions Show Cause Notices
have been issued to the tax payers denying such abatement to the manufacturers.<br>
And the Chief Commissioner clarified:-</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Yes. DGST, letter
F.No. V/DGST/43-GTO/02/2005 dated 11.04.2005 may be referred to, withdrawing
the clarification given by the DGST vide F.No. V/DGST/43-GTO/02/2005 dated
30.03.2005 that the abatement of 75% from the gross amount charged by Goods
Transport Agency for providing taxable service, is available only in cases
where Goods Transport Agency is liable to pay Service Tax and the benefit
is not available in cases where the provisions of Notification No. 35/2004-ST
dated 03.12.2004 are applicable.<br>
<br>
Thank you Chief Commissioner! But how can someone refer to the Honourable DG’s
letters when they are not made public? At least now all the Chief Commissioners
should issue instructions that no Show Cause Notice should be issued on this
ground.<br>
<br>
<font color="#006600"><b>Service Tax on GTA – credit if you pay for the
truck along with the transport charges?</b></font><br>
<br>
While the clarification on the withdrawal of DGST’s letter is heartily
welcomed, the Hyderabad Chief Commissioner has authored a new controversy.
In the same RAC meeting an innocent question was asked,<br>
<br>
<b>Can
a manufacturer use his input credit for payment of Service Tax on GTA
for which he is a deemed service provider?</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And the Chief
Commissioner has given a preposterous clarification. “The
manufacturer is eligible to adjust input service credit for paying
Service Tax on output service i.e., GTA, provided such input services are used
for providing GTA services, otherwise, the manufacturer shall pay Service Tax
in cash.”</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The clarification
comes from a misunderstanding that there is a one to one co relation between
credit and debit. According to the Chief Commissioner, the input service
tax credit can be used only if the input services are used for providing
output services. But in the case of a manufacturer, this is not at all
necessary. Let us assume there is a manufacturer who is also a service
provider and for convenience we will exclude GTA. Let us assume he is providing
the service of technical testing in addition to being a manufacturer
of dutiable excisable goods. Now when he has to pay Service Tax
on technical testing, can he use the credit available with him from
input services for payment of that tax? According to the Chief
Commissioner, it is not allowed. He will be allowed that only if the input
services have been used for providing the out put service of technical
consulting.<br>
<br>
But the law does not stipulate this. A look at some of the provisions will
make the issue clear.<br>
<br>
It is true that as per Rule 2(l) of the Cenvat Credit Rules, "input service" means
any service (i) used by a provider of taxable service for providing
an output service and this is perhaps the basis for the Chief Commissioner’s
view, but a little more reading – the very next sentence of the definition
would have made it clear that input service also means any service
used directly or indirectly, in or in relation to manufacture of final products.
So as far as a manufacturer is concerned, it is not required that the input
service should be used in providing the out put service. It can be used in
manufacture too.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further a credit
which is correctly taken cannot become bad later and there is no restriction
on how to use it. If a manufacturer has credit either from inputs or input
services, he can use it for payment of excise duty or Service Tax without
any restriction. The department can question the credit not the debit.
At the time of taking the credit on input services, the manufacturer should
be able to prove that the input services are going to be used either for</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Manufacture
of final products or</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Providing
output services.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And if the credit
taken is right, its use for payment of either excise duty or service tax
cannot be questioned for Rule 3(4) stipulates that the cenvat credit can
be used for payment of excise duty or Service Tax and there is absolutely
no restriction on whether the credit was from inputs or input services.<br>
<br>
The Chief Commissioner insists that otherwise, the manufacturer shall pay Service
Tax in cash. When credit is available why should any one
pay in cash? (except when the department forces them to do so during revenue
drive). Sir,
you can say the credit is wrong but once you accept the credit as correct,
you have no choice on the mode of payment.<br>
<br>
Above all, the impossibility of the situation as visualized by the Chief Commissioner
is surprising. Perhaps it is well known that the manufacturer
who pays Service Tax on GTA is not really a service provider and he is
paying Service Tax by a legal fiction where the service recipient is made
to pay the tax. How can a manufacturer use input services to provide the goods
transport service which is actually provided by somebody else and this manufacturer
is only asked to pay tax? There is a law which says that LAW does
not expect you to do impossible things. May be that does not apply to Service
Tax and some officers. Moral of the story- Don’t
ask clarifications; you will end up losing whatever you legally have.<br>
<br>
We will bring you more sparks from the informative RAC in the next few days.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Import
of Compressors without ODS and without refrigerant gas</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT clarifies
that registration requirement will not be applicable for importing Compressors
using non-Ozone Depleting Substances, or Compressors which do not contain
any refrigerant gas”. Based on this clarification,
Customs may allow import of Compressors filled with non-ODS substances.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2006/dgft06cir002.htm">CIRCULAR NO.
2 (RE-06)/2004-2009, Dated: April 10, 2006</a><br>
<br>
</font></p>
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<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> Ibid</I></B></TD>
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<p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Abbreviation
for ibidem, meaning "in the same place; in the same
book; on the same page."</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Generally used
for references and the source for ibid will be found in the reference just
before it. When you are giving reference to a book</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Guide
to Excise Valuation page 213</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. ibid
page 397</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This would mean
that the reference in 4 is the same as in 3, namely Guide to Excise Valuation,
but as can be seen the page number is different.<br>
<br>
<b><font color="#663399">If government can produce something that can’t
suck, they will call it a vacuum cleaner</font></b><br>
<br>
<font color="#FF6666"><b>Until tomorrow with more DDT</b></font></font></p>
<p><font color="#FF6666"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice
day.</font></b></font></p>
<p><font color="#FF6666"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your
comments to</font></b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font>
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