TIOL-DDT 812 · the untouched capture
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<p><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 812 </font><font size="3"></font><font size="2"><br>
26.02.2008 <br>
Tuesday </font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax – Evasion by Postal department? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DG, Service Tax wrote a letter to the CBEC seeking some clarifications. The Subject of the letter reads as, “ <strong>Evasion of Service Tax by the Department of Post, Madhya Pradesh , Circle- reg ” </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The question was that Indore Commissioner had a doubt that the postal department is liable to pay Service Tax on the charges it collects from mobile phone operators for “address verification and verification of other details”. It seems the postal department charges Rs. 25/- per address. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The DGST told the Board, <font color="#FF6633">Since the matter relates to Department of Post, a Central Government Department, Board may examine the taxability of this service rendered by the Postal Dept. and issue clarification before M.O. Circular is issued by this Directorate. The Commissioner has also requested that the matter may be taken with the Department of Post for depositing the tax. The same may be considered by the Board if it is felt that the Dept of Post is liable to pay service tax for such activity. </font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(In case you don't remember, MO Circular means Modus Operandi Circular – these are circulars by which the senior babus share their wealth of information on how crooked assessees are defrauding the tax administration and how vigilant the taxman should be against such frauds – and this now includes another Central Government Department!) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board replied after seven months. The Board's reply reads as, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Sub: - Evasion of Service Tax by the Department of Post, Madhya Pradesh , Circle-reg. </font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue has been examined. The service provided by Department of Post to BSNL (or for that matter to any other cell phone company) for verification of details of customers of BSNL falls within the purview of ‘support services of business and commerce' and accordingly, it is liable to service tax under the said category of taxable service.</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board wants the DGST to advise the field formations accordingly. From tomorrow, the Central Excise officers will be busy collecting data from the post offices to find out how much duty was evaded. SCNs will fly at all directions and the postal department will be imposed penalties and interest. Let us hope that no Post Master General will be imposed a personal penalty of Rs. 50 Crores as was imposed on a BHEL employee by a Commissioner. Wilful suppression and intent to evade will be charged and proved and the postal department is not going to take it lying down. They will appeal and maybe right up to the Supreme Court. In the process, many lawyers will become richer and thousands of man-hours will be wasted in both the departments and the courts – all to decide in which pocket of the government the money should be kept. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department of Posts is a Department under the Government of India working for and on behalf of the President of India and so is the Service Tax department and all the income that these two departments earn will go into the consolidated fund of India. Can we really afford a protracted legal battle between two government departments? Should so much time, effort and intelligent interpretation go into dispute settling between two government departments? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What is evasion? </strong> Can a government department be charged with evasion? Evasion requires an intention to avoid, to cheat the government. Can the President of India represented by the Postal Department be charged with cheating the President of India represented by the Finance Ministry? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Black's Law Dictionary defines evasion as the wilful attempt to defeat or circumvent the tax laws to illegally reduce one's tax liability. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The mere failure or wilful failure to pay any tax does not constitute an attempt to evade or defeat the payment of any tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong><em>Evasion involves deceit, subterfuge, camouflage, concealment, some attempt to colour or obscure events, or makes things seem other than they are. </em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The attempt in any manner to evade or defeat any tax must be wilful. Wilfulness is an act or conduct done with a bad or evil purpose. Mere understatement of income and the filing of an incorrect return does not in itself constitute wilful attempted tax evasion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is it fair on the part of the Revenue Department to correspond about the <strong>evasion </strong> by another Department of the Government of India, when for the last one year or so, even the Revenue Department is not sure whether tax was payable on the service? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If this is how Revenue treats a sister Department, you can well imagine what they must be thinking of the common citizens – all evaders and smugglers? <br>
<br>
<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2008/service_dep.htm" target="_blank">CBCE's letter F.No.149 /02/2008- CX.4 dated the 14 th January, 2008 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Approval for more SEZs </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
far approvals have been granted for setting up of 439 SEZs out of which 201
have been notified as on date. Over <strong>Rs 67347 crore </strong> have
been invested in these notified SEZs during this short span of time. Direct
employment of the order of <strong>97478 </strong>persons has been generated
in the new generation SEZs , which is in addition to the employment provided
by the 7 Central Government established SEZs which is over 1.83 lakh persons. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the meeting of the BOA held yesterday, the Board recommended grant of 10 Formal approvals including:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Formal approvals: </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Sector specific SEZ for manufacture of Transport Engineering Goods in Tamil Nadu by State Industries Promotion Corporation of Tamil Nadu Limited ( SIPCOT ). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Mineral and mineral based products SEZ in Madhya Pradesh by Madhya Pradesh Audyogik Kendra Vikas (Jabalpur) Limited </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Pharmaceuticals SEZ in GIDC , Panoli Industrial Estate, Gujarat by </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. J.B. SEZ Private Ltd. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. IT/ ITES /Electronic Hardware/Software SEZ in Andhra Pradesh by Devbhumi Realtors Pvt. Ltd </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Power SEZ in Maharashtra by Wardha Power Company Private Limited </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. IT/ ITES SEZ in Haryana by Anant Raj Industries Limited </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. Two SEZs for Handicrafts and Light Engineering in Jaipur , Rajasthan by Mahindra Worldcity ( Jaipur ) Limited </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Conversion of In Principle approval to Formal approval for: </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Auto mobile/automobile parts/auto ancillary and support services SEZ in Tamil Nadu by SIPCOT </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. IT/ ITES /EH SEZ in West Bengal by Videocon Reality and Infrastructures Limited </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>More EOUs than approved? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is learnt that the CAG's Audit has detected that there are more 100% EOUs working than the number which are permitted by the Development Commissioners. Who is responsible? Commerce Ministry or Customs Department? When last heard, they were frantically trying to match the figures. Fortunately figures will not match! </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" size="5"> </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"><strong><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"><strong><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"><strong><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"><strong><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"><strong><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"><strong><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"><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></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></b></font></b></font></b></font></b></font></b></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></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 size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Illegal gratification to Govt servants cannot be treated as incidental to any lawful business activity - Expenditure incurred for such purpose cannot be allowed as business expenditure u/s 37 of I-T Act : Allahabad HC </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CAN</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> an illegal gratification or a bribe to a government servant be treated as legitimate expenditure, eligible for deduction u/s 37 as business expenditure? This was the question which came up for argument before the High Court. And the Bench, without mincing words, ruled that a payment which was made in the form of commission to government doctors for prescribing the assessee's medicines to patients cannot be termed as legitimate expenditure as per Explanation to Sec 37(1) as it is an offence for violation of a statutory provision and amounts to misconduct for the Govt doctors as per their service rules and Prevention of Corruption Act. Since paying bribe cannot be incidental expenditure to any lawful business activity, such an expenditure cannot be allowed as deduction. </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>Modvat eligible when duty is paid subsequently, even though procedure was not followed – Revenue reference petition dismissed: Madras HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal dismissed the application holding that the order in appeal was passed following the decision of the Supreme Court in M/ S.FORMICA INDIA DIVISION Vs. COLLECTOR OF CENTRAL EXCISE. Hence, no referable question of law arose. The aggrieved Revenue has filed the Reference Case Petition seeking a direction to the Tribunal to state the case on the question of law referred to above. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court certainly has more respect for the Supreme Court than the haughty department and so could not have taken a decision against the Sc order as the Revenue appeal wanted. So the High Court rejected the Revenue reference petition. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No custodial interrogation by Customs officers – anticipatory bail granted: Delhi HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IN 2008, the DRI wants to arrest an alleged offender for the offence committed in 2003. Why? To obtain a statement! But don't they know that a custodial statement is not valid? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">The Custom Authorities unlike the police authorities cannot take the petitioner into custody for custodial interrogation</font> </strong> and that proposition is not even disputed by the respondent. There will be no purpose served by taking the petitioner into custody </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>Tribunal orders grant of interest beyond the date of refund just because it's earlier order was not challenged and had attained finality </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">CESTAT</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> order is dated 30.03.2004, it (Tribunal) could not have referred to the Commissioner( A)'s communication dated 18.04.2004 which is a date subsequent to passing of Tribunal's order. But Tribunal's order attained finality as it was not challenged. </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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