TIOL-DDT 642 · the untouched capture
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<p><font size="3"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 642</font></strong></font><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
25.06.2007<br>
Monday</font></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Comments on the Draft Circular on procedural issues in Service Tax Law </font>
</strong></p>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">These are the comments from our core team, which we hope the CBEC would consider
before making the circular official.<br>
<br>
<strong>Service tax Return:</strong><br>
<br>
Para 9.3 states that persons who are not liable to pay service tax because
of exemption including threshold exemption are not required to file ST-3
returns on the reasoning that that an ‘assessee’ is defined
as a person liable to pay service tax. Going by this reasoning, the service
providers who are between Rs 7 and 8 lakhs also need not file any ST-3
returns though they have obtained a registration. It would be of great
help to such service providers who have obtained a registration but are
within the threshold exemption, if CBEC clarifies explicitly that they
do not have to file any ST-3 Returns. Board had In <b>F.No. 137/58/2007-CX.4
dated 29.3.2007 clarified as follows:-</b><br>
<br>
<font color="#663399">it has been stated that a large number of show cause notices are pending
adjudications that have been issued for non-filing of ST-3 returns. It has
also been pointed out that many of these cases pertain to ST registrants,
whose annual turnover fall under the exempted limit of Rs. 4 lacs p.a (now
raised to Rs. 8 lacs p.a). The issue requiring resolution is whether such
notices can be dropped to reduce the pendency of adjudication.<br>
<br>
02. The issue has been examined. The service tax return is required to be
filled under Section 70 of the FA, 1994 by 'Every person liable to pay the
service tax'. Similarly, as per Rule 7 of the ST Rules, 1994, 'Every assessee'
is required to submit service tax return. By definition, an 'assessee' is
a person liable to pay service tax. Thus, it can be concluded that for persons,
who are not liable to pay service tax (because of the exemption) are also
not required to file ST-3 returns. Pending show cause notices may be disposed
of taking into consideration the view as above.</font></font></p>
<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#000000">The Circular needs to clarify this issue more emphatically.</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>E-Filing of Returns:</strong><br>
<br>
Para 9.4 states that assessees can file returns electronically. A simple
directive to the field formations that they should not insist a manual return
from those assessees who have filed returns electronically would be of great
help to those assessees who file returns electronically. It would indeed
save a lot of time for such assessees from duplicating this job of filing
returns. Another aspect of this electronic filing of returns is that whenever
the Ministry intends to revise/amend the return and issues a notification
to that effect, it should ensure that the software meant for e-filing is
also updated before issuing notifications for such revision/amendment of
returns.<br>
<br>
<strong>Assessment:<br>
</strong><br>
Para 10.1 states that where an assessment is provisional and the Assistant
Commissioner/Deputy Commissioner finalizes the assessment, the assessee is
required to pay the differential amount of service tax with interest. The
interesting part is, as per Rule 6(4) of the Service Tax Rules,<br>
<br>
<font color="#663399">Assistant Commissioner of Central Excise or the Deputy Commissioner of Central
Excise, as the case may be, on receipt of such request, may allow payment
of service tax on provisional basis on such value of taxable service as may
be specified by him and the provisions of the <b>Central Excise (No.2) Rules,
2001</b>, relating to provisional assessment, except so far as they relate to
execution of bond, shall, so far as may be, apply to such assessment.</font><br>
<br>
Now first of all the Central Excise (No.2) Rules, 2001 do not exist now
and if they do, the interest rate is a huge 24%. Don’t you think
you need to amend the Service Tax Rules to bring in the Central Excise
Rules, 2002?<br>
<br>
<strong>Cenvat Credit:</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Para 11.1(a) states that cenvat credit A/c cannot be utilized for payment
of service tax on outward freight paid to a GTA on the ground that though
there is a deemed legal fiction of a person liable for paying service tax
becomes a provider of taxable service in the Cenvat Credit Rules 2004,
the GTA’s service to a manufacturer is still an output service and hence
they cannot utilize their cenvat credit A/c for paying the service tax leviable
on outward freight. It seems the Board has conveniently ignored a recent
judgment of CESTAT Principal bench which allowed utilization of cenvat credit
A/c by a manufacturer for paying service tax on GTA service. Before the Board
can come out with a clarification on the ineligibility of utilization of
cenvat credit A/c for paying service tax on GTA service by a manufacturer,
it should amend the rules and wipe out that deemed fiction. This can’t
be done because it will have an impact on the definition of ‘input
service’.<br>
<br>
Therefore the alternative mechanism is put a bar in Rule 3 of the Cenvat
Credit Rules, 2004 to the effect that manufacturers who are availing GTA
service and pay outward freight cannot utilize their cenvat credit A/c
for paying service tax thereon. Alternatively they should know the fate
of the CESTAT judgment as to whether the Department has preferred any appeal
in the High Court of Madras against that judgment. In Board’s own
words (Para 2) wherever there is inconsistency in the circular with a provision
of the Rule or the Act then such provision in Rule or Act will prevail.
In such a case the manufacturer can still utilize the cenvat credit A/c
notwithstanding anything contained in this circular.<br>
<br>
Further it was stated in Para 11.1(b) that manufacturers cannot take credit
of the service tax paid on the outward transportation from the place of
removal citing the judgments of Hon’ble CESTAT in re Gujarat Ambuja Cements
and NHK springs. An elaborate dissection on the definition of ‘place
of removal’ was made in this circular (also quoted NHK springs judgment).
After all this it was concluded that outward transportation upto the ‘place
of removal’ can only be treated as an input service and hence credit
of service tax to this extent only can be allowed. Unfortunately the phrase ‘place
of removal’ is also present in the main part of the definition of ‘input
service’ which reads as follows: “used by the manufacturer, whether
directly or indirectly, in or in relation to the manufacture of final products
and clearance of final products from the place of removal”. Now this ‘place
of removal’ as per Section 4 (3) (c) means a factory, depot, premises
of a consignment agent or any other premises from where the goods are sold
after their clearance from the place of removal.<br>
<br>
So when a depot is also a ‘place of removal’ and if a manufacturer
uses ‘any service’ to clear his goods for sale from such ‘place
of removal’ then such service qualifies as an input service as per
the definition of ‘input service’ in the Cenvat Credit Rules
2004. And the service which any manufacturer uses for clearance of goods
from such place of removal (depots) is GTA service only. Merely because it
was not explicitly stated in the main part of the definition regarding ‘outward
transportation’ for clearance of goods from such place of removal
(depots) it does not mean that a manufacturer cannot take any credit of
service tax paid on the outward freight at their depots.<br>
<br>
Moreover to extrapolate what is stated in an inclusive definition that
follows the main definition and impose it on the main definition and override
what is stated in the main definition is not legally tenable (though Hon’ble
CESTAT has precisely done this in Gujarat Ambuja judgment). If the Board
can name any other taxable service that can be utilized by a manufacturer
for clearance of his goods for sale from the ‘place of removal’ (read
depots) other than GTA service then they can advise the manufacturers not
to take credit of service tax paid on the outward freight at their depots
etc. Till such time the manufacturers are legally eligible to take such
service tax as credits. Moreover there is another view on this at the Bangalore
CESTAT though the order was delivered only at the stage of stay application
and pre-deposit.<br>
<br>
CBEC’s inclination to latch on to orders which are favourable to
the cause of revenue ignoring contrary stands is well known and the clarification
with regard to availability of credit of service tax paid on outward transportation
is not in tune with the Rule and needs reconsideration (notwithstanding
the two CESTAT judgments which in any case will be appealed against by
the aggrieved assessees).<br>
<br>
It was also further clarified that if the contract for sale and supply
of goods transfers the right of property in such goods to the buyer only
after they are delivered at the buyer’s premises then any service
tax paid on such outward freight will be allowed as input credit. This
is a logic which was relevant in excise law (now redundant in view of Rule
5 of Central Excise Valuation Rules) and it is not understood as to how
this can be made applicable to decide the fate of credit of service tax
paid on outward freight. Is it not ironical for the Board to propose such
an irrelevant proposition in service tax law and overturn its own clarification
and provide recipe to assessees to revise their freight contracts with
transporters and in turn with their buyers?<br>
<strong><br>
Revision of Orders:</strong><br>
<br>
Para 16.1 states that Section 84 provides a Commissioner with an authority
to review the orders passed by the subordinate officers within a span of
two years from the date of passing such orders. Recently an amendment was
brought in the Excise law to curtail the time limit for review under 35E
was reduced from one year to three months and for filing of appeals after
such review from three months to one month. It is suggested that Ministry/CBEC
brings in a similar amendment to curtail the time limit under Section 84
of the Finance Act 1994 and make the lives of the assessees easier rather
put an issue decided by a subordinate officer in a state of suspended animation
for two years by a Commissioner.<br>
<br>
<strong>OTHER SUGGESTIONS:<br>
<br>
RECOVERY OF ARREARS:</strong><br>
<br>
By virtue of an amendment through Finance Act 2006, Section 73C was introduced
in Chapter V of the Finance Act 1994 to provide for provisional attachment
of property to protect revenue. The Ministry is yet to specify the procedure
(either by way of Rules or a Circular) to be adopted by the field formations
for provisional attachment of property. All will be happy if you forget about
this.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>From our Legal Corner – tomorrow’s cases</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong><font color="#000000">Central Excise</font></strong><font color="#663399"><br>
<br>
<font color="#FF6666">Bisleri Club soda eligible for SSI exemption – Show Cause Notice is
the foundation on which the department has to build up its case - If the
allegations are not specific and are on the contrary vague, lack details
and/or unintelligible that is sufficient to hold that the noticee was not
given proper opportunity to meet the allegations – Supreme Court</font><br>
<br>
<b>In a rare case, the Commissioner passed an order in favour of the assessee – naturally
the department went in appeal and lost in the Tribunal; not to be dissuaded
by such small failures, Revenue took up the issue in the Supreme Court
and royally lost.</b><br>
<br>
<b><font color="#FF6666">Assistant Commissioner sits in judgement over Tribunal's orders - Order set
aside - refund ordered within seven days - AC's Order <font color="#FF0000">contumacious</font> : Tribunal</font></b> <br>
<br>
You know what is <b><font color="#FF0000">contumacious – It means stubbornly
disobedient, rebellious</font></b> And that is what most of our officers are!<br>
<br>
<b>An Assistant Commissioner had the audacity to sit in judgement over a
Tribunal order and refuse to grant refund as directed by the Tribunal. Many
of them believe that they can get away with flouting the orders of the Tribunal,
because they know ultimately that Tribunal is very kind and don’t really
initiate any action for such arrogant and flagrant disobedience. (Some other
time I will bring you an interesting incidence where the Tribunal found an
officer guilty on every count but let her off because she was too young!
Now she is a very senior officer!). They can always tell their bosses – “after
all I have been only protecting government revenue” But what
they really do is damage the very respect for LAW!</b><br>
</font><br>
<strong><font color="#000000">Income Tax</font></strong></font></p>
<p align="justify"> <font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6666">Interest and remuneration paid to partners - liable to be excluded from Gross
Total Income for purpose of deduction u/s 80HH : Bombay HC</font><br>
<br>
<font color="#000099">See our columns tomorrow for the judgements</font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL
debate – Valuation of physician samples</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/debate.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></b>There is a lot of confusion regarding assessment of Physician samples after
the Board's circular 813/10/2005 dt. 25.4.06 which has been upheld by Mumbai
HC order in Indian Drugs manufacturer Association case. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board's circular appears to be valid only where the Physician samples
are being manufactured by independent manufacturers. However where the Physician
sample is manufactured by job worker or loan licence, there seems to be no
change in assessment and therefore they should be continued to be assessed
as per earlier practice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However field formations have issued SCNs all over India demanding duty on
Physician samples where the same is manufactured by job workers and loan licencees
to pay duty under Rule 4 of the Central Excise Valuation Rules. Today we are
carrying a researched article in our Guest Column on the issue and we invite
our esteemed netizens to comment on the issue.</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<br>
<font color="#FF6666"><b>Until Tomorrow with more DDT</b></font></font></p>
<p align="justify"><b><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Have a nice day.</font></b></p>
<p align="justify"><b><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Mail your comments to</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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