TIOL-DDT 779 · the untouched capture
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<p><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 779 </font><font size="3"></font><font size="2"><br>
10.01.2008 <br>
Thursday </font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Banking and other financial services – private safe deposit vaults – DGST missive – a major goof? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is normally a bad time of the year, when Revenue is at its sharkish best- and the celebrated DGST is at it again. Remember the national calamity caused by the DGST some years ago clarifying that recipients of goods transport service were not eligible for abatement. Some of the SCNs are still pending. Fortunately the latest from the DGST may not be that damaging as it involves a small group of private locker providers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DGST has assumed that from April 2007, there is some major change in the Service Tax structure in relation to Banking and other financial services and wants the details of Service Tax collected from April 2007 from private service providers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DGST's letter states, </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Your attention is drawn to Section 65(105) ( zm ) of the Finance Act, which states "taxable service is a service provided or to be provided to a customer, by a banking company or a financial institution including a non-banking financial company or any other body corporate <strong>or any other person </strong> [substituted for commercial concern through budget 2007-08] in relation to banking and other financial service". </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The activities of other financial services namely, lending, issue of pay orders, demand draft, cheque, letter of credit and bill of exchange transfer of money including telegraphic transfer, mail transfer and electronic transfer providing bank guarantee, over draft facility, bill accounting facility safe deposit locker, safe vaults operation of bank account are falling under the category of ' Banking and other financial service ' . </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of above the <strong>private service providers of safe deposit vaults </strong> are liable to pay Service Tax under the said category of service. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apparently, the DGST believes that “ <strong>commercial concern </strong>” was substituted by “any other person” and this was effective from April 2007! What has happened is the exact opposite. “ <em>any other person </em>” had been substituted by “ <em><font color="#FF6633">commercial concern</font> </em>” in the last budget. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the definition does not read as the DGST thought it does as quoted above. Instead of the words, “any other person”, it now has the words, “commercial concern”! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Who are “private service providers”? </strong> Now the DGST introduces a new concept called, “private service providers” Do we have private service providers and public service providers and is there any difference in taxation between the two? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Probably what the DGST believes is that from 1.4.2007, any person (who is perhaps our private service provider) and not a commercial concern alone is liable to pay the tax. So DGST wants to tap that private person! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And incidentally the budget changes in Service Tax law came into force from 1.6.2007 and not April 2007 as the learned DGST assumes! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It would be interesting to see what reports the DGST got from the field! </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=41&filename=notification/servicetax/2008/dgstsafe.htm" target="_blank">DGST's F.No . V/ DGST /21(9)/ B&FS /01/2007 Dated : January 3, 2008</a> </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Export of restricted/prohibited items – eligibility under export promotion schemes </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the Foreign Trade Policy is supposed to be for a five year period, it is changed every year officially with a lot of pomp and show and almost weekly by delegated legislation. This creates several problems as today's exports/imports are governed by the policy as its exists today, but it may have links to past imports or exports when the policy was different. When export is prohibited but allowed by DGFT on some grounds like transitional arrangements, will the scheme benefits be allowed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT clarifies, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ even when the exports may have been permitted on account of EO of Advance Authorisation, or on account of transitional arrangements or may have been otherwise permitted by DGFT; grant of benefits under VKGUY scheme (erstwhile VKUY scheme) for exports of items which are currently restricted or prohibited in terms of ITC HS itemized Policy shall not be allowed, as the same is clearly ineligible. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++Similarly, under Focus Market Scheme, vide Para 3.9.2.2 (k) of FTP RE2007 (that applies to exports during 2007-08) and Para 3.9.2.1 of FTP RE2006 (that applies to exports during 2006-07), exports of restricted / prohibited items is ineligible. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ With respect to Focus Product Scheme/High-Tech Products Export Promotion Scheme, the above position shall again apply, as the item which has been restricted / prohibited for exports is obviously ineligible, as the same would no longer remain a Focus Product/High-Tech Product for the purpose of boosting export through grant of benefits </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=46&filename=notification/dgft/2007/dgft07cir026.htm" target="_blank">DGFT POLICY CIRCULAR NO. 26 (RE-2007) / 2004-2009 Dated: January 9 2008</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EPCG – additional EO </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per para 5.7.4 of the Handbook of Procedures, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Exports made to former USSR or to such countries as notified by DGFT shall not be counted for fixing average level of exports. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the following is added, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Additional Export Obligation (over and above indicated average) for all previous EPCG licences , which have not been redeemed, will be indicated separately.” </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=47&filename=notification/dgft/2007/dgft07pn99.htm" target="_blank">DGFT PUBLIC NOTICE NO. 99 (RE-2007)/2004-2009., Dated: January 8, 2008 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Prohibition on export of wheat not to apply to Maldives </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Notification No. 33 (RE-2007)/2004-2009, Dated : October 8, 2007 , export of wheat and wheat flour is prohibited. Now this prohibition is not applicable to export of 17,000 MT of wheat flour to Maldives through STC / MMTC </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=45&filename=notification/dgft/2007/dgft07not071.htm" target="_blank">DGFT NOTIFICATION NO. 71 (RE-2007)/2004-2009., Dated: January 7, 2007 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax – renting controversy </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Board's controversial Circular No. 98 on renting and works contract has drawn
quite flak and we have already carried incisive articles by erudite experts
Natarajan and Sivakumar . We bring you a couple of more views today and tomorrow – see our <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6625" target="_blank">Special Column</a> . </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Bharat Ratna for Vajpayee? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It's awards time! And the clever politician that he is, Advani has pitched in for the Bharat Ratna to be given to Atalji. It's a win win situation for Advani. If Vajpayee gets the award, he can use it in his next election campaign. If Vajpayee doesn't get that award, that would be better campaign material. For the last seven years, there has been no Bharat Ratna award. The Government simply cannot afford to create a controversy by giving the award. There is no doubt that Vajpayee is the tallest Indian and richly deserves the award and is the most eligible candidate but then he has to compete with Charan singh, NT Rama Rao and Kanshi Ram, who have powerful supporters. And a stronger contender seems to be Sachin Tendulkar. But why is nobody talking about Jyoti Basu and Manmohan singh who equally well deserve the award which Mahatma Gandhi did not get and which MG Ramachandran got? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And if the world's richest man is in India, is he not our Ratna? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue Boards have an equally tough time in deciding their Presidential awards, which are to be announced soon. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font> <font color="#FF6633" size="5">tiol</font> – <font color="#006600">Tomorrow's cases </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><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></b></font></b></font></b></font></strong></font></strong></font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Frivolous appeals – CBDT rapped by High Court </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Delhi HC imposes costs on Income Tax Department for mechanically filing frivolous appeals; says Revenue ' s attitude needs to be deprecated </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE New Year has just set in, and things have started going awry for the CBDT. In fact the CBDT ' s ' time chakra ' had entered the adversarial zone sometime late last year when the Delhi High Court had begun to take note of its frivolous appeals. It did warn the income tax authorities and also asked for detailed procedure and screening methodologies adopted by the Board before an appeal is filed before the High Courts. Even then, not much has happened, and it has exasperated the High Court which now appears to be fully convinced that most of the frivolous appeals have their origin in frivolous approach being adopted by the Revenue authorities . In the latest order of 2008 the High Court observes, "We have been noting for the last several months that the Revenue mechanically files frivolous appeals and despite our imposing costs on the Revenue from time to time it has not resulted in any re-thinking on the part of the Income Tax Department with regard to the filing of frivolous appeals. We have noted on several occasions that a large number of persons in the Registry are put to inconvenience because of the filing of frivolous appeals and even the time of the Court is wasted in dealing with unimportant appeals. On the other hand, serious matters which ought to deserve attention get sidelined because of this attitude of the Revenue which needs to be deprecated. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Depreciation on residential flats - no justification in restricting it to 5%; Sec 80HHC - for computation of book profit u/s 115JA , adjusted book profit is to be adopted ; Loss incurred in money-lending of surplus funds - capital loss : ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee company is engaged in the business of manufacturing and sale of automobile vehicles. The assessee ' s case was selected for scrutiny and completed u/s. 143(3). It was noticed by the Assessing Officer that the assessee has claimed depreciation on the five residential flats plus undivided interest in land. The AO restricted the depreciation in respect of five flats at 5% in place of 10%. The assessee was not successful with the Commissioner (Appeals) and is before the Tribunal. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Goods not exported - Interest payable under notification 42/ 2001CE ( N.T ) is 15% as prescribed under section 11AB & not 24% - Amendment made by notification 20/ 2007CE ( N.T ) dated 19.04.07 has retrospective effect : Tribunal </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE Apex Court in the case of Indian Tobacco Association, <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-109-SC-CUS.htm"> 2005-TIOL-109-SC- CUS </a>, at Para 15 has held that - </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“The word “substitute” ordinarily would mean “to put (one) in place of another”; or “to replace”. In Black's Law Dictionary, Fifth Edition, at page 1281, the word “substitute” has been defined to mean “To put in the place of another person or thing”, or “to exchange”. In Collins English Dictionary, the word “substitute” has been defined to mean “to serve or cause to serve in place of another person or thing”; “to replace (an atom or group in a molecule) with (another atom or group)”; or “a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the said judgment at Para 23, the SC has also held as under- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“It may, therefore, be safely concluded that by reason of the amended notification, <em>the Central Government only intended to rectify a mistake and, thus, the same will have retrospective effect and retrospective operation </em>”. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements </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 color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"></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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