TIOL-DDT 353 · 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
353</font><br>
02 05 2006<br>
</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Tuesday</b></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>LIC
gets huge demand from Service Tax </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
is understood that show-cause notices amounting to Rs. 264 crores (LIC -223
crores, balance to others) have been issued to Life Insurance companies namely,
LIC, HDFC Standard Life, Birla Sunlife, Tata AIG, ICICI and SBI Life for misusing
CENVAT credit. The immediate provocation must be that the department has realized
that due to the availability of huge overflowing credit, the Service Tax collection
on this insurance is NIL. The details of misuse alleged by the department are
as follows:</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1)
Life Insurance Companies are paying service tax on 'Risk cover premium' of life
insurance business. They are also made liable under Rule 2(d) of the Service
Tax Rules 1994 for payment of service tax under Insurance Auxiliary service
on commission paid to life insurance agents. It has been noticed that Tata AIG,
HDFC and Birla Sunlife are utilising CENVAT credit availed by them on their
various inputs, for payment of service tax on commission paid to their agents.
In terms of definition of 'output service' contained in the CENVAT Rules, 2004,
the commission paid to insurance agents cannot be treated as their output service
as they are providing other taxable service i.e. risk cover. Only if they are
not providing any other taxable service, agency can be treated as output service.
As credit can be utilised for payment of tax on output service, the utilisation
of credit by these 3 companies is not legal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
the explanation to Rule 2(p) of the Cenvat Credit Rules says, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Explanation</i>.-
For the removal of doubts it is hereby clarified that if a person liable for
paying service tax does not provide any taxable service or does not manufacture
final products, the service for which he is liable to pay service tax shall
be deemed to be the output service.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
the condition for the service on which he pays tax to be treated as output service
is that </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He
does not provide any taxable service</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>OR</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He
does not manufacture final products.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please
note that it is <b>OR</b> not <b>AND. </b>So if the tax payer is not a manufacturer
<b>or</b> a service provider – not both, the service for which he is paying
tax should be treated as his output service and so he should be allowed to use
the credit to pay the tax. Any way this confusion is now removed. So the litigation
will be for the past period.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.
It has been noticed that all the companies are providing certain exempted/non-taxable
services i.e schemes having no risk cover and other non-taxable services. These
companies are maintaining common account of inputs for both taxable and exempted
services. In terms of Rule 6(3) (c) of the CENVAT Rules, 2004, these companies
are entitled to utilise credit to the extent of an amount not exceeding 20%
of tax payable. The assessees are availing CENVAT credit of tax paid on agents
commission which is quite high as that is paid @10-30% of total premium whereas
tax is paid on risk cover portion of life insurance business. It has been found
that assessees are utilising 100% CENVAT credit for payment of tax, which results
in zero service tax payment on life insurance business. Assessees are taking
shelter of Rule 6(5) which allows full credit of tax paid on specified 16 services
(Life insurance agent is one of the specified services). The Rule 6(5) allows
full credit, but it does not override the restriction of 20% utilisation contained
in Rule 6(3)(c). Therefore, utilisation of 100% credit by these companies is
not legal.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
is hair splitting at its best. Just recap the provisions. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
credit is taken on inputs or input services, which are used in taxable as well
as exempted services, then ( as per Rule 6(2) and (3)</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
1. separate accounts are to be maintained</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
2. If separate accounts are not maintained, when tax is paid, only 20% can be
paid from the Credit account.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
there is a sub rule 5 which says that the whole of the credit can be allowed
in respect of certain services. The department agrees that Life Insurance Agent
is one of those specified services. But the contention of the department is
that as per Rule 6(5), full credit will be allowed, but as per Rule 6(3)(c),
utilization will be only 20%. If that is so what is the use of Rule 6(5)? The
assessee can any way take full credit without this sub rule. Is the rule redundant?
Before starting such huge disputes, shouldn’t this be examined by the Law ministry
and the Board or should the support system to consultants continue? </font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Should
officers get reward for doing their duty? – Delhi High Court </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Delhi High Court asked the government to explain whether it was within law to
give rewards to Government servants for discharging their duties. A Customs
officer had approached the court for a higher reward as his bosses were not
sanctioning him further rewards after he has crossed Rs. 10 lakhs of reward.
The Court observed, "cases where officials have made false claims for bounty
and rewards is reported with alarming frequency. This malaise has infiltrated
even the Army. According to press reports, persons have been killed only to
further certain officers' careers."</font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Monitoring
of Income Tax assessment to be under Section 144A - CBDT</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT
has in supersession of earlier instruction on the subject has directed that
the monitoring of cases under scrutiny by the Range Heads shall be done in accordance
with the provisions of Section 144A of the I.T. Act. As per this section, the
Joint Commissioner can give directions to the assessing Officer pertaining to
assessment.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Power of</b>
<b>Joint Commissioner to issue directions in certain cases.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>144A.
</b>Joint Commissioner may, on his own motion or on a reference being made to
him by the Assessing Officer or on the application of an assessee, call for
and examine the record of any proceeding in which an assessment is pending and,
if he considers that, having regard to the nature of the case or the amount
involved or for any other reason, it is necessary or expedient so to do, he
may issue such directions as he thinks fit for the guidance of the Assessing
Officer to enable him to complete the assessment and such directions shall be
binding on the Assessing Officer :</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Provided</b>
that no directions which are prejudicial to the assessee shall be issued before
an opportunity is given to the assessee to be heard.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><i>Explanation:
</i>For the purposes of this section no direction as to the lines on which an
investigation connected with the assessment should be made, shall be deemed
to be a direction prejudicial to the assessee.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=67&filename=notification/cbdt/2006/instruct0602.htm">INSTRUCTION
NO. 2/2006, Dated: April 27, 2006</a></u></b></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Imports
from Singapore – duty reduced</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
per Notification No. 74/2005-Customs, imports from Singapore pertaining to 2202
items attract a lower rate of 90% of the applied rate of Customs duty. Now this
is reduced to 75%. Similarly as per Notification No. 75/2005-Customs, 2413 items
attract a duty of 95% of the applied rate. This is now reduced to 90%</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2006/ctariff06_038.htm">NOTIFICATION
NO. 38/2006-Customs, Dated: April 28, 2006 </a></u></b></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Anti
dumping duty on caustic soda - extended</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Anti dumping duty on caustic soda (Sodium Hydroxide) originating in or exported
from Iran, Saudi Arabia, United States of America, France and Japan, imposed
vide notification No. 69/2001-CUSTOMS which was to lapse on 26<sup>th</sup>
June 2006 is extended up to 25<sup>th</sup> September 2006 on the request of
the Designated Authority.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2006/ctariff06_039.htm">NOTIFICATION
NO. 39/2006-Customs, Dated: April 28, 2006</a></u></b></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Import
of pets – DGFT amends circular</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
DGFT Circular No. 29/6.10.2005, states – “ As per Customs Circular No. 94/2002
dated 23.12.2002 import of pets (dog and cat only) upto two numbers per passenger
have been allowed without import licence at one time subject to the production
of the required health certificate from the country of origin and examination
of the said pets by the concerned Quarantine Officer<b>. However, it is not
covered under the said circular, it will be subject to import licence</b>.”
This <b>it </b>should have been<b> if. </b>And this is corrected now. This sentence
will now read as, “However, if it is not covered under the said circular, it
will be subject to an import licence.”</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2006/dgft06cir005.htm">DGFT
CIRCULAR NO. 05 (RE-2006)/2004-09, Dated: April 28, 2006</a></u></b></font></p>
<P align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B><IMG height=62 src="http://www.taxindiaonline.com/RC2/image/ddt/gnl_txt2.jpg" width=375></B></font></P>
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<TD><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#0000FF">suo
moto</font></strong>-<strong> an Indian legal term meaning <i>on
its own initiative, without external prompting or explicit demand</i></strong></font></TD>
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<p align=justify ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Right to Information is the right to access information held by the government
and place a positive duty on public bodies to disclose information<i> suo <a href="http://www.wordwebonline.com/en/MOTO">moto</a></i>
</font> </p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Benefit
granted by lower officer cannot be taken away in absence of appeal by Revenue
and <i>suo-moto</i> notice to appellants</strong></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>President
of the Tribunal can also constitute Larger/Special Bench <i>suo moto</i></strong></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Legal
Maxims</b></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i><font color="#663399">Cogitationis</font></i></b><font color="#663399"><b><i>
poenam nemo patitur. </i>No one is punished for merely thinking of a crime.</b></font></font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Tomorrow with more DDT </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day. </font></p>
<p><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@taxindiaonline.com"><b>vijaywrite@taxindiaonline.com</b></a></font></p>
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