TIOL-DDT 608 · the untouched capture
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<p align="justify"><font size="3" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">TIOL-DDT 608</font></b><b></b></font><font face="Verdana, Arial, Helvetica, sans-serif"><font size="2"><b><br>
08.05.2007<br>
Tuesday</b></font></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax – No provision for supplementary invoices and so no Credit?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Somebody who was required to pay Service Tax did not pay it. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Later he comes to know that he is required to pay the tax and pays the tax.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The department issues a notice to him alleging all vices including suppression.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is his client who is a duty paying manufacturer eligible for cenvat credit?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Rule 9(1) (b) of the Cenvat Credit Rules, one of the documents for taking credit is</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) a <b><font color="#663399">supplementary</font></b> <font color="#663399"><b>invoice</b>,</font> issued by a <b><font color="#663399">manufacturer</font></b> or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, <b><font color="#663399">except where the additional amount of duty became recoverable</font></b> from the manufacturer or importer of inputs or capital goods<font color="#663399"> <b>on account of</b></font> any non-levy or short-levy by reason of <b><font color="#663399">fraud, collusion or any wilful misstatement or suppression</font></b> of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So a supplementary invoice is issued by a manufacturer and if he paid the additional duty because of fraud, suppression etc, no credit is allowed.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But this fraud restriction is not applicable to Service Tax and there is no supplementary invoice on Service Tax. Then is the Service Tax credit available? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The other day I had a long discussion on this topic with our expert, Santosh Hatwar when he called on me. In continuation of our discussion, he sent me this mail.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Sec 11A of the Central Excise Act, 1944, sub-section 2B was introduced for voluntary payments of duties short paid, not paid etc by a manufacturer with interest (payment of interest is debatable in lieu of the phrase "but for" in the Explanation 2 thereof as well as in Sec 11AB) and in lieu of such voluntary payment the assessee is granted immunity from issuance of any show cause notice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Finance Act, 1994, Section 73 is parimateria with Sec 11A of CEA 1944. Section 73 (3) provides for such voluntary payments of service tax short paid or not paid etc by service providers (of course with interest and the usual "but for" phrase appended therein). <br>
<br>
However, neither Rule 4A of the Service Tax Rules 1994 which deals with issue of invoice by service provider nor Rule 9 (1) (b) of Cenvat Credit Rules 2004 is amended to provide for issue of supplementary invoices by the service providers to pass on such additional taxes which were hitherto not paid or short paid by them. In the absence of such provisions, the service providers are at a loss to pass on such excess payments by them to the recipients who can take cenvat credit of such service tax paid. <br>
<br>
Of course such supplementary invoices are ineligible for availing cenvat credit if the payments arise on account of fraud, collusion etc with intention to evade tax. However in other cases, though the service providers are eligible to pass on such excess payments of taxes, in the absence of suitable provisions in Service Tax Rules 1994 as well as Cenvat Credit Rules 2004 they are at a disadvantage. In the absence of such provisions related supplementary invoices, the service providers will not be able to recover such payments from the service recipients. <br>
<br>
I hope this brief will grab the immediate attention of the authorities and bring out suitable amendments in the relevant provisions which shall benefit the service providers.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>North East Exemption - Changing Views of the Goverment -Lack of Consistency</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>Notifications -Central Excise </u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The notifications 32/1999 and 33/1999 covered goods cleared from units located in growth centers, Integrated Development Centers, Industrial parks and also applied to specified goods of factories in North East i.e. in areas other than thrust areas.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is pertinent to note that the Industrial Policy NEIP 1997 described only industrial activity and also that in Notification 33/1999 goods of various industries such as Fruits and Vegetable Processing, Meat and Poultry Products Cereal Based Foods, Consumer Industry, Milk and Milk products, Food Packaging etc were covered for exemption. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Notifications did not contain any definition, on what activities were considered exempted and therefore if goods arose out of manufacture as defined in the Central Excise Act, they were eligible for exemption.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The units in North East obtained eligibility certificates which were issued after due verification of process and other documents. The units commenced production and enjoyed exemptions.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>North East Industrial Investment and Promotion Policy 2007 (NEIIP 2007)</u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government of India Ministry of Industry and Commerce announced NEIIPP on April 1, 2007 .This policy included in its fold the 1997 scheme policy but clubbed <st1:place w:st="on"><st1:country-region w:st="on">Sikkim</st1:country-region></st1:place> policy with it. Consequently the Industrial policy for <st1:country-region
w:st="on"><st1:place w:st="on">Sikkim</st1:place></st1:country-region> issued in 2002 and other related concessions were discontinued effective April 1,2007.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>Value addition Clause in Policy </u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">NEIIPP 2007 contains a clause on value addition which was not there in the 1997 policy and this elucidates that in order to ensure genuine industrial activity, peripheral activities like preservation during storage, cleansing operations, packing, repacking, labeling or relabelling, alteration of retail sale price are to be excluded from benefits of NEIPP 2007.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>The policy NEIIPP 2007 also contains an express statement of intent, in which the policy commits “Industrial units which have commenced production on or before 31/3/2007 will continue to get benefits /incentives under NEIP 1997”.</b></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=30&filename=notification/excise/2007/etariff07_20.htm" target="_blank">Notifications 20/2007 </a></u><b><u>and </u></b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2007/etariff07_21.htm" target="_blank">21/2007 (Central Excise)</a></u></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To give effect to the policy NEIIP 2007, the Government of India, vide Notification 20/2007 dated 25 April 2007 - CE brings in the concept of value addition as a restriction and adds that the peripheral activities as described in the policy will not be entitled to exemption.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The intention of the Government is fully justified as the new policy raises such intent and the government has the right to change the course of incentive schemes being implemented.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The catch lies in Notification 21/2007 dated 25 April 2007 wherein the Government has amended Notification 32/1999 and 33/1999 functioning or issued for giving effect to NEIP 1997 </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The government has has proposed two major changes which are </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a) Sunset dates or closure dates have been incorporated in the Notifications 32/1999 , 33/1999 which is 31 March 2007.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b) Value addition has been inserted as mandatory in the Notification 32 and 33of 1999. In other words the Notification describes the peripheral activities and denies exemption for them The peripheral activities listed in the NEIIP 2007 have also been incorporated in NEIP 1997 though it appears from a reading of NEIIP 2007 that value addition restriction will be applicable for new Notification 20/2007 (Central excise )</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>Unreasonable amendments to Notification 32/1999 and 33/1999</u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The amendment have in one stroke withdrawn excise exemption in respect of units in North East for activities which the Industrial Policy 2007 describes as peripheral and is unreasonable for the following reasons </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1) The Central Excise Act defines manufacture to include repacking or packing, labeling or relabelling of goods in unit containers in respect of goods mentioned in the Third Schedule to the Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2) The NEIIP 2007 expressly provides that the existing benefits under NEIP 1997 will continue to be unaffected.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3) The Government held out a promise of exemption and the units have enjoyed the excise exemption for over 6 years and hence if withdrawn, they will be inviting attention of the Courts to Doctrine of Promissory Estoppel.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4) Any change of view on the existing notification (32/1999 and 33/ 1999) will have to be accompanied by a window period during which the manufacturers may be given the right to make changes to their manufacturing process which will enable them to qualify for the exemption.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5) Para 5 added to Notifications 32 /1999 and 33/1999 needs to be more specific as to <b><u>what other processes would amount to manufacture</u></b> as the ambiguous clause will only add to the huge waiting list of litigation.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Conclusion </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>It is fervently hoped that the Government will give an empathetic consideration to this unintended error and restore Notifications 32/1999 and 33/1999 to status quo ante as regards value addition</b> <b>alone</b>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In case the Government opines strongly on the issue it can alternatively, provide a window of opportunity to the units, industries in the North East to make necessary changes to their manufacturing process so as pass the value addition test which will enable them to enjoy the exemption as promised in 1997 Policy statement and Notification. This however will have to be accompanied by certain guidelines which will have to be issued by CBEC on value addition and processes which constitute manufacture for the exemption notifications.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In case the Government succeeds in pushing this amendment through without considering the above requests of the small units in North East, it will be yet another glaring example of the Indian maxim “The King is above the law”.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(from material sent in by a concerned netizen)</b></font></p>
<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> </font></p>
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