TIOL-DDT 652 · the untouched capture
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<p align="justify"><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 652</font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
09.07.2007<br>
Monday</font></b></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Service Tax - Does anybody know the accounting codes of the services? </font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax assessees are required to pay the Tax by a GAR-7 challan in the banks. This challan requires you to quote the accounting code for the service for which you are paying the tax. But does any one know these codes? The codes are allotted by the Principal Chief Controller of Accounts of the CBEC. Now this high sounding Authority takes its own sweet time to allot the numbers. The code for the Secondary and Higher Education Cess is yet to be allotted. The PCCA seems to be unaware of a tax called SHE.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But that alone is not the problem. Nobody in the country seems to be sure as to how many taxable services are there and what their code numbers are. Every day I get at least 10 calls asking for the code. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many commissioners have issued circulars asking the assessees to pay the Service Tax through the GAR-7 form and with correct accounting codes. Now where do you go for the accounting code? The accounting codes are given on the reverse of the GAR-7 challan, if you can get one. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now if you have a look at the reverse of the challan, you will find that there are 95 services and their codes listed. But we have 100 services. What about the missing five? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The mystery deepens! Its not actually five missing services but many more. The seven new services introduced in this year's budget are not included in the list. But if you add these seven, the number would be 102, but we have only 100 services. How this extra two services? Actually the reverse of the challan contains 5 services which do not exist. So if you take away those five from the list you are left with 97 services. But that still leaves three services uncovered. Yes! Three services simply do not figure in the list. They are</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. insurance auxiliary services concerning life insurance business;(zy)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. technical testing and analysis;(zzh), and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. foreign exchange broker (zzk)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, under what accounting code would any one providing these services pay the tax?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What can you say about a department which cannot allot the accounting codes for the taxes it wants to collect?</font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Service Tax - foreign service provider and Indian tax payer - since when?</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 68(1) of the Finance Act 1994, the person providing Service is required to pay the Service Tax. As per Section 68(2), </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notwithstanding anything contained in sub-section (1), in respect of any taxable service <b><font color="#663399">notified</font></b> by the Central Govt. in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be <b><font color="#663399">prescribed</font></b> at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So according to this section</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.For <b><font color="#663399">certain</font></b> services, persons other than those providing the services can be made to pay the tax.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.The Government has to<font color="#663399"> <b>notify</b></font> those <b><font color="#663399">services</font></b><font color="#663399">.</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.The manner and the person liable to pay the tax can be prescribed.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.<b> <font color="#663399">Prescribed</font></b> means, prescribed by the rules. [Section 65(86)]</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.Once the notification is issued <b><font color="#663399">(for the services)</font> </b>and the person and the manner are prescribed <b><font color="#663399">(in the rules)</font></b>, the law would apply to that person as if he is the person liable to pay the Service Tax.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It can be seen that the basic requirement to make somebody other than the service provider to pay the Service Tax is a <b><font color="#663399">notification</font></b> to notify the services and <b><font color="#663399">rules</font></b> to prescribe the persons and the manner of payment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was under these provisions that the Notification has been issued to make certain services for which somebody other than the service provider <b><font color="#663399">(not necessarily the service recipient)</font></b> can be made responsible for paying Service Tax. Notification No. 36/2004 - ST dated 31.12.2004 made the following services applicable under Section 68(2). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(A) <b><font color="#663399">the services</font></b>,-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) in relation to telecommunication service;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) in relation to general insurance business;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) in relation to insurance auxiliary service by an insurance agent; and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) in relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods is,-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) any company formed or registered under the Companies Act, 1956 (1 of 1956);</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) any corporation established by or under any law;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of <st1:country-region
w:st="on"><st1:place w:st="on">India</st1:place></st1:country-region>;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) any co-operative society established by or under any law;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) any body corporate established, or a partnership firm registered, by or under any law;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) in relation to business auxiliary service of distribution of mutual fund by a mutual fund distributor or an agent, as the case may be; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) in relation to sponsorship service provided to any body corporate or firm located in <st1:country-region w:st="on"><st1:place
w:st="on">India</st1:place></st1:country-region>;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(B) any taxable service provided or to be provided from a country other than <st1:country-region
w:st="on">India</st1:country-region> and received in <st1:place w:st="on"><st1:country-region
w:st="on">India</st1:country-region></st1:place>, under section 66A of the Finance Act, 1994.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So these are the services for which persons other than the service provider may be made to pay the Service Tax. As to who is responsible for paying the tax and how? - It is to be prescribed by the Rules.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strangely the Rules had already prescribed this. As per Rule 2(d) of the Service Tax Rules, Persons liable to pay Service Tax are:-</font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
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<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>S.No</strong></font></p></td>
<td width=216 valign=top>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SERVICE</strong></font></p></td>
<td width=331 valign=top>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PERSON LIABLE TO PAY Service Tax </strong></font></p></td>
</tr>
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<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to telecommunication service</b></font></p>
</td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) the Director General of Posts and Telegraphs, or </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) the Chairman-cum-Managing Director, Mahanagar Telephone Nigam Ltd, <st1:City w:st="on"><st1:place
w:st="on">Delhi</st1:place></st1:City></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) any other person who has been granted a licence by the Central Government under the first proviso to sub-section (1) of Section 4 of the Indian Telegraph Act, </font></p>
</td>
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<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to general insurance business</b></font></p>
</td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the insurer or re-insurer, as the case may be, providing such service;</font></p></td>
</tr>
<tr>
<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to insurance auxiliary service by an insurance agent</b></font></p>
</td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">any person carrying on the general insurance business or the life insurance business, as the case may be, in <st1:country-region w:st="on"><st1:place w:st="on">India</st1:place></st1:country-region></font></p></td>
</tr>
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<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv)</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to any taxable service provided or to be provided by any person from a country other than <st1:country-region w:st="on">India</st1:country-region> and received by any person in <st1:country-region w:st="on"><st1:place
w:st="on">India</st1:place></st1:country-region> under section 66A of the Act</b></font></p></td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the recipient of such service</font></p></td>
</tr>
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<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v)</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to taxable service provided by a goods transport agency, where the</b> <b>consignor or consignee of goods is,-</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) any company established by or under the Companies Act, 1956 (1 of 1956);</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) any corporation established by or under any law;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of <st1:country-region
w:st="on"><st1:place w:st="on">India</st1:place></st1:country-region>;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) any co-operative society established by or under any law;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) any body corporate established, or a partnership firm registered, by or under any law,</font></p></td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage</font></p></td>
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<tr>
<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">vi</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to business auxiliary service of distribution of mutual fund by a mutual fund distributor or an agent, as the case be</b></font></p></td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the mutual fund or asset management company, as the case may be, receiving such service</font></p></td>
</tr>
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<td width=43 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">vii</font></p></td>
<td width=216 valign=top>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>in relation to sponsorship service provided to any body corporate or firm located in <st1:country-region
w:st="on"><st1:place w:st="on">India</st1:place></st1:country-region></b></font></p></td>
<td width=331 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the body corporate or, as the case may be the firm who receives such sponsorship service</font></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It can be seen that there are seven categories of services where the service provider is not responsible for paying Service Tax, but it can also be seen that it is not in all cases that the <b><font color="#663399">recipient is liable to pay tax. </font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">So the Government was indeed right in issuing the notification and that too before 1.1.2005, when the levy on GTA became effective.</font> </b>Had the notification not been issued, it would have been illegal to collect the tax from consignors and consignees. Our babus deserve all praise for making the levy legal, a day before impost instead of taking the retrospective legislation route. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But it does raise certain other questions. Till 31.12.2004, there was no notification specifying<font color="#663399"> <b>services</b></font> for which persons other than service providers were required to pay tax. But the Rules even then prescribed four categories of services for which<font color="#663399"> <b>others</b></font> had to pay Service Tax. In the absence of a notification, this rule was illegal. So till 31.12.2004, the Service Tax collected from insurance companies for services provided by the agents and recipients of services provided by non residents was without any authority of law. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal was also of the same opinion when a single member in <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-236-CESTAT-DEL.htm" target="_blank">2007-TIOL-236-CESTAT-DEL</a></font> held that, Rule 2(d) itself "may not suffice Revenue to direct" the appellant to discharge his Service Tax liability as service receiver, and if the contention of the Revenue was accepted, then there was no necessity for the Government to issue the said Notification notifying the Service Tax receiver from non-resident provider. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">A division Bench of the Tribunal referring to the above decision, held that</font></strong>, the taxable service was notified in the official gazette under sub-section 68(2) only on 31.12.2004 by the Notification No. 36/2004-ST w.e.f. 01.01.2005 and Service Tax was not leviable on the receiver for the period prior to 01.01.2005. <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-399-CESTAT-MUM.htm" target="_blank"><font size="1">2007-TIOL-399-CESTAT-MUM</font></a></u></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>But disputes will haunt and the case is likely to go to the Larger Bench, if the observations of the bench hearing a stay petition recently are any indication.</strong></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">From our Legal Corner - tomorrow's cases</font></b></font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF0000">Income Tax</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Goodwill not eligible for depreciation but other assets like telecast rights entitled to depreciation - Deferred Revenue expenditure eligible for deduction - Mere entry in books cannot disentitle claim of deduction of expenses which assessee entitled to claim as per provisions of IT Act : ITAT</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF0000">Customs</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Smuggling of ghee! No label on container showing date of manufacture, quantity, batch number and expiry date - assumed to be smuggled - liable to confiscation?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF0000">Central Excise </font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Excise - valuation - goods manufactured by EOU out of indigenous inputs would be deemed to have been manufactured in DTA unit - clearances to sister unit - Rule 8 of Valuation Rules applies : CESTAT</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u><font color="#663399">See our columns tomorrow for the judgements</font></u></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>
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