TIOL-DDT 620 · 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 620</font></b><b></b></font><font face="Verdana, Arial, Helvetica, sans-serif"><font size="2"><b><br>
24.05.2007<br>
Thursday</b></font></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Works contract Service Tax – all worked up</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Yesterday’s <b>DDT</b> mentioned, "The Service provider who pays the Service Tax @ 2% will not be eligible for cenvat credit."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An alert netizen, KartikSolanki points out that the restriction is only in relation to inputs. As per the notification no. 32/2007, a works contractor, who opts to pay service tax @ composition rate of 2% can not avail CENVAT credit of any duties or cess paid on '<b>inputs</b>'.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Yes Sir, you are right; the bar is only for inputs and not for input services or capital goods. Is this a conscious decision or an error? After all when abatement is given under Notification No. 1/2006, no credit at all is allowed.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another important feature is that the stipulation in Notification Number 1/2006 that value of materials / goods supplied / used in the works contract <b>needs to be added</b> to the gross amount charged, is <b>not</b> found in the new works contract composition scheme rules. Hence, in a Rs 10 Crore commercial construction contract, if the value of own material used by the service provider is, say, to the extent of Rs 3 Crores, that fact would result in the said contract falling within the definition of ‘works contract’. Additionally, in the same contract, if client supplies materials worth Rs 5 Crores or 20 Crores, then 2% service tax needs to be paid by the service provider on Rs 10 Crores only (Gross amount charged) and <b>not</b> on Rs 15 Crores or Rs 30 Crores.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Was the government planning to give a bonanza to the assessees? Now all the eligible service providers can get into the works contract wagon and save a lot of Service Tax. In a Rs. 10 Crore construction activity, if the cost of materials supplied by the client is Rs. 8 Crores, under construction service, the tax liability would have been Rs.39.6 Lakhs (12% of 33% of Rs. 10 Crores). Now under Works Contract, it would be only Rs. 4 lakhs (2% of Rs. 2 Crores). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why was the abatement of 67% given? Maybe, under the assumption that 67% constitutes goods and 33% is service. And what was wrong with the abatement scheme? Maybe a little more abatement could have been given. Importing Sales Tax concepts into Service Tax may not be all that wise a step. We have to wait for the issues to settle.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Exemption from service tax to foreign missions/ consulates and to the personnel</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">At present ‘service specific exemptions’ are available to certain specified foreign missions/ consulates (vide notification Nos. 5/96-ST, 10/96-ST, 44/98-ST, 50/98-ST, 51/98-ST and 1/2001-ST), while for UN and other International Organizations a general exemption is available under Not. No.16/2002-ST. It was observed that the present service tax exemption scheme to foreign missions/ consulates and their personnel is selective and is not flexible enough to be useful for negotiations with other countries, to the extent of providing or modifying the tax concessions on reciprocal basis. It was also noted that a relatively flexible exemption system is available in respect of excisable goods vide serial No. 81 of Notification No. 6/2006-CE dated 1/3/06, and therefore, it may be preferable to modify the service tax exemption scheme in the same pattern. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And it has been decided to prescribe the scheme for service tax exemption in similar lines to the excise exemption, with required modifications. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government has issued two notifications yesterday to exempt </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. all taxable services provided to foreign diplomatic missions or consular posts in <st1:country-region
w:st="on">India</st1:place></st1:country-region> for their official use, and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. all taxable services provided to diplomatic mission agents or career consular officers posted in a foreign diplomatic missions or consular posts in <st1:country-region
w:st="on">India</st1:country-region></st1:place> for their personal use.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Of course the exemption comes with stringent conditions, certification, verification et all! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>For the Diplomatic Mission</st1:place></st1:City>:</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Get a certificate of eligibility from the Protocol Division of the Ministry of External Affairs.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The Head of the Mission</st1:place></st1:City> has to give a copy of that certificate to the Service Provider.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. He should give an undertaking that the services are for use in his mission.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. He should maintain an account of the undertakings issued, name, address, invoice number and registration number of the Service Provider.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>For the Service Provider:</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Mention the sl No. and date of the undertaking in the invoice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Retain the documents given by the mission for verification.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Just imagine the number of audit paras after one year. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Consequently the earlier exemption notifications are rescinded.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2007/stnot07_033.htm" target="_blank">Notification Nos 33</a><b>, </b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2007/stnot07_034.htm" target="_blank">34</a></u> <b>and </b><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2007/stnot07_035.htm" target="_blank">35<u>/2007-Service Tax, Dated: May 23, 2007</u></a><b><u> and </u></b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2007/cbec_letter.htm" target="_blank">letter from Commissioner, Service Tax</a></u><b><u>.</u></b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>ITR-1 is the simplest form in the world – PC </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Minister Chidambaram, addressing the Convocation Ceremony of the first Batch of Tax Return Preparers (TRPs) said that the TRP scheme was a unique initiative of the Government to encourage young men and women graduates to embark upon a successful career as TRPs and eventually as financial advisors to small and marginal taxpayers.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Projecting direct taxes as a progressive tax and the taxes of the future, the Finance Minister emphasised that an unprecedented and highest ever tax collection of Rs.2,29,505crore was achieved by the Income Tax department at the lowest cost of 0.59%. <br>
<br>
Allaying the common misconception that tax laws and procedures in India were among the most complicated in the world, the Finance Minister emphasised that the tax return forms, specially the return form ITR-I, were among the simplest in the world.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The TRPs would help collect more taxes and inculcate the habit of voluntary tax compliance among small and marginal taxpayers. The Finance Minister personally distributed certificates to 23 TRPs, each of whom had scored 100% in the certification test.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In her welcome address, CBDT Chief, IndiraBhargava said that the Tax Return Preparer Scheme announced in the union budget 2006-07 is one of the boldest attempts by the Income-tax department to provide quality taxpayer service to the small and marginal taxpayers so that the citizens can fulfil their tax obligation with ease. She said, the scheme gives a unique opportunity for the Income Tax Department to provide self-employment opportunities to the bright youth of the country and give them a platform to extend a helping hand to the members of their community.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department has already set up a Resource Centre that is headed by a Commissioner of Income-tax to monitor the implementation of the scheme. The Resource Centre will constantly monitor the work of the TRPs in the field and issue quality alerts to them, as and when needed. </font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Can Abhishek Bachan and Aishwarya Bachan be asked to pay Service Tax on the telecast of their marriage? </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was a question the Tribunal asked. Excerpts from the CESTAT judgement.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">By taking a common example from recent time, coverage of marriage rites between celebrity couple Arun Nair and Elizabeth Hurley are reported to be exclusively sold to “Hello” magazine and similarly there are rumours of sale of “marriage function” of leading movie actor AbhishekBachhan with Aishwarya Rai to a particular channel for broadcasting. Will such sale of performance rights coverage would convert the seller into an advertising agency, providing any service in relation to advertisement to a client. The answer is emphatic ‘No’. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was incidentally the case of BCCI. The Cricket Board won the case with as much ease as <st1:country-region w:st="on">Australia</st1:place></st1:country-region> beating BanglaDesh. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our</strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5517" target="_blank">Breaking News</a> <strong>for more details. </strong></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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