TIOL-DDT 515 · the untouched capture
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<p align="justify"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT
515</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><br>
19.12.2006<br>
Tuesday</b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No
Service Tax on </strong><b>Public Authorities performing statutory functions
– Board clarifies</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One of our regular columnists
had just made an article on an Audit objection onnon payment of tax by institutes/
government bodies like Legal Metrology dept, electrical inspectorate, RTA etc.
The Board Circular has killed our story, but we are happy that Board has clarified
an important issue.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Board says <font color="#663399">“A number of sovereign/public authorities (i.e.
an agency constituted/set up by government) perform certain functions/ duties,
which are statutory in nature. These functions are performed in terms of specific
responsibility assigned to them under the law in force. For examples, the Regional
Reference Standards Laboratories (RRSL) undertake verification, approval and
calibration of weighing and measuring instruments; the Regional Transport Officer
(RTO) issues fitness certificate to the vehicles; the Directorate of Boilers
inspects and issues certificate for boilers; or Explosive Department inspects
and issues certificate for petroleum storage tank, LPG/CNG tank in terms of
provisions of the relevant laws. Fee as prescribed is charged and the same is
ultimately deposited into the Government Treasury. A doubt has arisen whether
such activities provided by a sovereign/public authority required to be provided
under a statute can be considered as ‘provision of service’ for the purpose
of levy of service tax.”</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board has examined the
matter and expresses the view that</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The activities performed
by the sovereign/public authorities under the provision of law are in the nature
of statutory obligations which are to be fulfilled in accordance with law.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The fee collected by
them for performing such activities is in the nature of compulsory levy as per
the provisions of the relevant statute, and it is deposited into the Government
treasury.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Such activity is purely
in public interest and it is undertaken as mandatory and statutory function.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. These are not in the
nature of service to any particular individual for any consideration.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Therefore, such an activity
performed by a sovereign/public authority under the provisions of law does not
constitute provision of taxable service to a person and, therefore, no service
tax is leviable on such activities. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. However, if such authority
performs a service, which is not in the nature of statutory activity and the
same is undertaken for a consideration not in the nature of statutory fee/levy,
then in such cases, service tax would be leviable, if the activity undertaken
falls within the ambit of a taxable service.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is nice of the Board
to issue such a clarification, but will the CAG agree? Will they not question
the very competence of the Board to issue such a clarification? Where is it
laid down that statutory activities are outside the purview of Service Tax?
Shouldn’t there be either an exemption or exclusion?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2006/sercir89.htm">CIRCULAR
NO. 89/07/2006- ST,Dated: December 18 , 2006 </a></u></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>TDS for
contractors - contract for work and contract for sale -Contradiction between
two circulars – CBDT clarifies after 11 years.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Circular No. 681 dated 8.3.94
of the Board clarifies in Para 7(vi) that the provisions of section 194C would
not apply to contracts for sale of goods and further clarifies that where the
property in the article or thing so fabricated passes from the fabricator-contractor
to the assessee only after such article or thing is delivered to the assessee,
such contract would be a contract for sale and so outside the purview of the
section 194C. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In reply to question No.
15 in Circular No. 715 dated 8.8.95 on the subject of applicability of Section
194C, in respect of contract for supply of printed material as per prescribed
specifications, it has been said that such contracts would also be covered under
Section 194C. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There seems to be an apparent
contradiction between these two circulars.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board in typical bureaucratic
lingo does not say which circular is correct. It says that the 1995 circular
has to be understood with the principles laid down in the 1994 circular.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board now clarifies that</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Before taking a decision
on the applicability of TDS under section 194C on a contract, it would have
to be examined whether the contract in question is a 'contract for work' or
a 'contract for sale' and TDS shall be applicable only where it is a 'contract
for work'.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ the provisions of section
194C would apply in respect of a contract for supply of any article or thing
as per prescribed specifications only if it is a contract for work and not a
contract for sale</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2006/it06cir013.htm">CIRCULAR
NO. 13/2006, Dated: December 13, 2006 </a></u></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Education
Cess – where does it go?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ever wonder what happens
to the 2% education cess we pay on the central taxes? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A non-lapsable fund called
the PrarambhikShikshaKosh (PSK) has been established for transferring /crediting
into it, the proceeds of education cess. A provision of Rs. 8,746 crores for
the initial transfer to the newly created PSK has been made in the Union Budget
2006-07 against estimated receipts of education cess.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The proceeds of Education
Cess are utilized exclusively for the Sarva ShikshaAbhiyan (SSA) and Mid-Day
Meal Scheme (MDM) of the Government after exhausting the funds provided to these
schemes by way of Gross Budgetary Support (GBS).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the financial year 2006-07,
the unaudited tentative figures of expenditure up to November 2006, recoupable
from PSK was Rs. 3673 Crores.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This information was given
by the Minister of State for Human Resource Development, M.A.AFatmi in the
RajyaSabha yesterday.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Foreign
Companies in India – which is the favorite destination? </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Which state in India has
the largest number of foreign companies? If you thought it was Maharashtra,
because Mumbai is the fiscal capital of India, you are wrong. If you thought
it was Karnataka or Andhra Pradesh, the IT strong states, you are again wrong,
if you thought it was Modi’s Gujarat – again wrong. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is strangely Delhi. Obviously
they understand India’s babudom and doing business in India means business with
the Government and makes good business sense to be where the government is.
Of the 2069 foreign companies operating India, 1280 are in Delhi, while Maharashtra
has 361 and Karnataka has 159. While Andhra Pradesh has 26, Tamil Nadu has 75
and West Bengal has not done badly with 62. Foreigners were not exactly fascinated
by the Lalu couple and there is only one foreign company operating in Bihar.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was informed in Parliament,
yesterday by the Minister of Company Affairs. </font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>CII suggestions
for Budget 2007</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CII has suggested</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
reduce the excise duty rate from 16 to 14 percent.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
reduction of excise duty on processed foods, pesticides for agriculture, energy
efficient triphosphor fluorescent lamps, electric fans, caprolactum and two
wheelers from 16 to 8 percent.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Reduction of excise duty on all type of cars from 24 to 16 percent and on
cement from Rs.400 to Rs.350 per ton.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
allow full CENVAT credit on capital goods on the date of the receipt.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
allow payment of excise on used capital goods at the time of removal either
on transaction value or on the depreciated value, as against the present provision
of reversal of full CENVAT credit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
allow CENVAT credit on LDO and HSD when used for generation of power or in
the process of manufacture.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
relax the requirement of pre-authentication of invoices for assessees paying
excise duty of more than Rs. 5 crores. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
fix time limit for review of abatement rate by Advisory Committee on Abatement
and give feedback of the findings of the committee to the applicant. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
bringing down the CST rate from four to two percent from April 1, 2007, and
thereafter announcing a roadmap for further reduction of CST to NIL. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
For increasing the revenue from service tax, more services should be brought
under the tax net. But keep the rate at 12%.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
initiate concrete steps for implementation of Goods and Services Tax (GST)
so that the common tax can be in place by 2010</font></p>
</blockquote>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
tomorrow with more DDT </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day. </font></p>
<p align="justify"><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">vijaywrite@taxindiaonline.com</a></span></font></p>
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