TIOL-DDT 750 · the untouched capture
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<p><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 750</font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
28.11.2007<br>
Wednesday</font></b> </font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service <st2:PersonName w:st="on"><st1:GivenName w:st="on">Tax- <st1:Sn
w:st="on">Works</st2:PersonName> Contract - composition - ongoing project - not eligible? </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Immediately after the scheme was introduced, we carried an article in June 2007, <u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5570" target="_blank">Service Tax on Works Contract - A storm in the (S)T cup!</a> </u> wherein the author, G Natarajan emphatically stated that ongoing projects would be eligible for the composition asserting that,</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"the payment of service tax on the said activity, prior to 01.06.2007, under a different category of service is not at all relevant to opt for the composition scheme under Works Contract Service."</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently, the Chennai Service Tax Joint Commissioner informed an assessee in a written communication that "it is clarified that the benefit is not available for ongoing projects and the option can be exercised for new contracts/projects only". The JC does not explain, why it cannot be allowed.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we bring you another article on the subject by <st2:place w:st="on"><b><font color="#663399">S Sivakumar</font></b></st2:place> on the subject.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">S.
Jai Kumar,</font> </b>an expert on the subject commented,</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Say, you are classifying your product under a residual heading as 'others' in the central excise tariff under six digits. Subsequently the eight digit tariff comes and your product finds a specific entry in the eight digit tariff. Will you not classify your product under that specific heading thereafter? In other words, every time you pay tax, be it excise duty or service tax, you are supposed to classify your product/service, which in normal course is deemed to have been done. Going by this, for the services rendered by you after <st2:date ls="trans"
Month="1" Day="6" Year="2007" w:st="on">1/6/2007</st2:date>, when you classify your service, WCis the most appropriate one and as per sec 65A of the FA, you have to classify it accordingly. The string attached by way of the composition rules that you should exercise your option is only for compositionscheme which is a subset under the WC. In other words, there cannot be adisputeabout the classification under WC wef <st2:date ls="trans" Month="1" Day="6"
Year="07" w:st="on">1/6/07</st2:date>. If at all there is a dispute it can only be about theoption of composition under the WC levy. Now coming to the option, once you are under WC levy wef <st2:date
ls="trans" Month="1" Day="6" Year="07" w:st="on">1/6/07</st2:date>, then the relevant date for exercising the option could only be <st2:date ls="trans"
Month="1" Day="6" Year="07" w:st="on">1/6/07</st2:date> and not before because before <st2:date ls="trans" Month="1" Day="6" Year="07" w:st="on">1/6/07</st2:date>, there was no WC and an option couldnever be exercised under WC. </font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Before parting,</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">On the contrary, iftheWC levy had come with a higher rate than the construction/eci, tell me, whether the department is going to allow me to continue my construction/eciservices under the old head or insist that I reclassify my services under WC??? </font></p>
<p ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6431" target="_blank">See our <u>Special Column</u> today</a></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Delay in finalisation of demands - PAC recommendations - CBEC guidelines</b></font></p>
<p align="justify" style='text-align:justify;'><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Based on the recommendations of the PAC, CBEC has instructed the field that:-</font></p>
<p align="justify" class=MsoListParagraphCxSpFirst style='
text-align:justify;
'><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The usage of the saving clause (as for as possible) of section 11A (2A) of the Central Excise Act should be minimized and be deemed as an exception rather than a rule. (this is adjudication within one year/six months - as far as possible)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Each adjudicating authority shall submit a report to his immediate superior if the time limit given in section 11A (2A) is not adhered to. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. In this report, specific reasons should be given for delay in adjudication beyond the normal limit prescribed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Reasons should be given for delay in adjudication beyond the normal limit prescribed. The Supervisory Authority should satisfy himself that reasons given for the delay are genuine or else he should take further appropriate action to ensure adjudication of the case without delay. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. All the cases presently pending adjudication should be reviewed accordingly, and a compliance report should be sent to the DG (Inspection) by 01.1.2008.</font></p>
<p align="justify" class=MsoListParagraphCxSpLast style='
text-align:justify;
'><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Section 33(A)(2) of the Act stipulates that the adjudicating officer shall not grant adjournments during adjudication proceedings more than thrice to a noticee. This provision should be strictly adhered to. However, if there is any practical difficulty in adhering to this provision, the same may be brought to the notice of the Board.</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=31&filename=notification/excise/2007/PAC.htm" target="_blank">F.No.221/01/2006-CX-6(Pt.)- Dated: <st2:date ls="trans" Month="11" Day="05" Year="2007" w:st="on">November 05, 2007</st2:date></a><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2007/PAC.htm"><st2:date ls="trans" Month="11" Day="05" Year="2007" w:st="on"></st2:date></a><st2:date ls="trans" Month="11" Day="05" Year="2007" w:st="on"></st2:date></u></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>What did the PAC say?</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please have a look at <u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3998" target="_blank">TIOL-DDT 408 - 18 07 <st2:metricconverter
ProductID="2006 in" w:st="on">2006 </st2:metricconverter></a><st2:metricconverter
ProductID="2006 in" w:st="on"></st2:metricconverter><st2:metricconverter
ProductID="2006 in" w:st="on">in</st2:metricconverter> which we covered in detail the recommendations of the <st2:stockticker w:st="on">CAG</st2:stockticker>. </u>Over the <st2:stockticker w:st="on">CAG</st2:stockticker> report, the Public Accounts Committee of Parliament recommended,</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>1.</strong> <b>Board Circulars have no effect:</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The Committee note that the amount involved in demand cases (<i>i.e. </i>where show cause notices have been issued) pending adjudication for a period beyond the stipulated one year was substantial. The inclusion of sub-section 11A(2A) wherein a provision was made to qualify the time limit does not seem to have acted as a deterrent in this regard. It is matter of concern for the Committee that inspite of fixation of time limit in the statute, pendency not only continued but actually rose during the years 2001-02 and 2004-05. Though the number of cases came down by nearly 32 per cent during 2005-06, the excise duty involved in the pending cases were about 82 per cent of pendency of previous year. It would be pertinent to note that fixation of time limit of adjudication was actually a consequence of the Committee's recommendation in their earlier Report on the subject. However, the Committee are perturbed that the problem of delay and pendency of adjudication cases persists nevertheless.<font color="#663399"> <b>Although, the Department have</b></font><b> <font color="#663399">been issuing circulars and instructions to improve the situation, evidently this has not had the desired impact at the ground level.</font></b> The Committee would therefore now like the Department to devise more effective and stringent administrative measures and controls-beyond routine circulars and instructions in order to ensure that adjudications are made promptly and within the stipulated period. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, it appears that adjudication officers are prone to postponing finalisation of demands by taking shelter under the clause <i>'where it is possible to do so'. </i>The Committee find that the saving clause, inserted in order to be invoked under exceptional circumstances is being used at the slightest pretext. The Committee recommend that the usage of this clause should be minimised and be deemed as an exception rather than a rule. [<i>Recommendation Sl.No. 2</i>]</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>2.</strong> <b>In spite of a galore of instructions and circulars issued by the Ministry/Board to adhere to the provisions and conditions enumerated in them, the Committee have found that they have not made any significant impact on the functioning of the adjudicating authorities.</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> In several cases, adjudication was kept pending for want of administrative action. In such a situation characterised by laxity and even inaction by the field formations, mere issuance of circulars/instructions appeared to be an action, routine in manner serving no meaningful purpose. Obviously, the circulars and instructions have not been followed up with regular monitoring by the Board. Matters were allowed to drift and substantial revenue remained blocked and uncollected. Apparently, the periodical reports and returns which the revenue field formations are required to furnish to the Board either did not reflect a true picture of the adjudication position or were simply ignored by the Board. The Committee expect that the Board, which is the apex body responsible for the performance of the field offices, would play their assigned role and streamline their methods and functioning with tangible outcomes for Revenue. [<i>Recommendation Sl.No. 3</i>]</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">3. Officers don't like high revenue cases:</font></b> On perusal of the age-wise pendency of various adjudication cases, the Committee have noted that there was a general tendency on the part of the adjudicating officers to deal with low revenue cases at the cost of keeping high revenue cases pending. As a result, pendency of high revenue cases rose significantly. The Committee also recommend that the Department should gear up their machinery for early disposal of <i>'high revenue' </i>cases even by constituting specially empowered cells for timebound disposals. [<i>Recommendation Sl.No. 4</i>]</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">4. 89% of Revenue held up with Commissioners</font></b><font color="#663399">:</font> The analysis of demand cases pending adjudication as on 31st March, 2006 has revealed that cases involving about 89 percent of revenue were pending at the level of Commissioners, although it constituted only about 13 per cent in terms of figures. The Committee would like to be apprised about the concrete action taken in this matter. In this connection, it will not be out of place to mention that the Ministry must also ensure, that the Adjudicating officers are given a reasonably stable tenure to accomplish their targets. They should also be provided with adequate administrative/infrastructural support for this purpose. [<i>Recommendation Sl.No. 5</i>] [<font color="#663399"><b>Maybe the Committee was not told that the Commissioners have an army of support staff and royal infrastructure - all that he has to do is sign on the dotted line]</b></font></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">5. No meaning if quasi judicial proceedings are allowed to linger on: </font></b>The Committee would like to point out that the advantages of a <i>quasi-judicial </i>process, wherein adjudication at the initial stages are made by departmental officers themselves, will be lost, if the process is allowed to linger on. The rationale of shorter procedures and quicker decisions inherent and expected in a <i>quasi-judicial </i>proceeding, specially formulated at the initial stages of the adjudicatory/appellate mechanism, will also thus be defeated, if cases are indefinitely delayed at the expense of Revenue. The Ministry should therefore either strictly enforce the statutory limits on grant of adjournments or review the limitation itself in the light of practical constraints faced by the Adjudicating officers. The Committee may be apprised about the initiative taken in this regard. [<i>Recommendation Sl.No. 6</i>]</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">6. No monitoring by Board:</font></b><font color="#663399"></font> The Committee are constrained to observe that various measures initiated by the Ministry/Board have not yielded the desired results as there was lack of consistent monitoring and the controls exercised were insufficient. In this regard, the Committee would like to emphasise that various wings of the Department ought to work in tandem and in close co-ordination so that redtapism and delay, which particularly come to the fore when cases are remanded back for fresh or <i>'de novo' </i>adjudication, are eliminated. <i>'De novo' </i>cases should henceforth be treated and monitored as a separate category of adjudication and disposed of accordingly within the stipulated time. [<i>Recommendation Sl.No. 7</i>]</font></p>
<p align="center" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Setback
for Chartered Accountants; Word 'business' does not include 'profession'
to allow deduction under Clause (iv) of Sec 32(1) of I-T Act : SC Larger
Bench</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> key
Section of Income tax which is involved in this dispute is Sec 32. It allows
depreciation on various types of capital assets acquired to run business
or profession. The core issue is about whether the word ''business' in Clause
(iv) of Sec 32(1) also includes 'profession' for allowing deduction? And
the answer given by the Larger Bench of Apex Court is that <b>there
is nothing in Section 32(1)(iv) which envisages the scope of word "business" to
include in it "profession" as well.</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6430" target="_blank">See
our today's Breaking News </a></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Gem
& Jewellery products - Value Addition on annual basis instead of each
consignment</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per para 11 of the Appendix 14-I-C, </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>11.</b> <b><u>Gem and Jewellery Products</u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The minimum value addition <b><font color="#663399">on each consignment</font></b> shall be in terms of para 4.A.2.1 of the Handbook of Procedures.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now this is amended to read as </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Minimum value addition <b><font color="#663399">on annual basis</font></b> shall be in terms of para 4A.2.1 of the Hand book of Procedures.</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=47&filename=notification/dgft/2007/dgft07pn084.htm" target="_blank">PUBLIC NOTICE NO. 84 (RE-2007)/2004-2009, Dated: <st2:date ls="trans" Month="11" Day="26"
Year="2007" w:st="on">November 26, 2007</st2:date></a><st2:date ls="trans" Month="11" Day="26"
Year="2007" w:st="on"></st2:date></u></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Jurispruden<font color="#663399" size="4">tiol</font></b> <b>- tomorrow's cases<font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><strong><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></strong></b></font></b></font></b></font></p>
<p align="justify"><font color="#FF6699" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Income Tax</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9966">Rectification of mistake apparent - Sec 254(2) of Income Tax Act - Supreme Court says principle of rectifying errors is different from tribunal or court's inherent powers to review decision; None should suffer due to error committed by ITAT</font></b></font></p>
<p align="justify" ><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong>is common knowledge that our tax tribunals have the right to rectify mistake from the record. But what causes trouble is <b><font color="#FF9966">the thin line between the inherent power to review its decision and powers to rectify mistake apparent.</font> </b>While distinguishing these two critical terms, the Apex Court in its latest decision has held in the context of Sec 254(2) of the Income Tax Act that <b><font color="#FF9966">the rationale of enacting such a Section is to ensure that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal.</font></b> This fundamental principle has nothing to do with the inherent powers of the Tribunal.</font></p>
<p align="justify" ><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Long-term capital gains - Definition of 'capital asset' refers to property of any kind 'held' - In contra-distinction of word 'owner' or 'owned', definition uses phrase 'held' - Law does not contemplate compliance of an impossible act : Madras High Court</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held that even if the amount was not paid in full by the assessee in terms of the agreement, it could not be construed that the assessee had no right or interest in the property. The assessee was put in possession as early as 1970 and was remaining in occupation as a matter of right. Thus for all purposes, he was a beneficial owner from the start. In the context of this view taken, the Court held that the capital gain was assessable as long-term capital gain.</font></p>
<p align="justify"><font color="#FF6699" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax </b></font></p>
<p align="justify" ><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Pay out amount received from bank for services rendered chargeable to service tax under head 'BAS' - Matter remanded to <st2:PersonName w:st="on">Commissioner<st1:Sn w:st="on">(A)</st2:PersonName> for deciding matter on merits : Tribunal</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The case is - in order to facilitate their customers to avail finance from the banks to purchase vehicles (for which the assessee was the dealer), they had been acting under an agreement with the bank by which they were required to process loan applications of such customers and after scrutinizing the same forward them to the bank. It was the assessees case that while they received 3% to 5% of the financed amount for this service from the bank as commission, they retained only 1% to 2%, and passed on the remaining amount to the customer as discount. According to the Revenue, the assessee had evaded Service Tax under the head BAS on the "pay out" received by them from the bank for their services.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>See our columns tomorrow for the judgements</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>
<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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