TIOL-DDT 826 · the untouched capture
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<p align="justify"> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#663399"><strong>TIOL-DDT 826</strong></font><strong><br />
17.03.2008<br />
Monday</strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Attrition rate – really alarming!</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Minister told the Lok Sabha on Friday that the Attrition rate in the Revenue Department is not all that serious and it is only about one percent. He said that out of the 7007 Group ‘A’ officers in the Income Tax, Customs & Central Excise Departments, only 247 officers have quit the coveted government jobs in the last three years. He also mentioned that the attrition rate in private sector was much higher. Is it that simple? The fact that 247 officers have left and many more will leave once the pay commission announces its much awaited report, should be real cause for concern. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Attrition rate is the highest now. An officer leaving the service was a great news a few years ago – hardly one or two used to leave. But today, an officer in service is often asked the question, “Why are you wasting your time here, when are you leaving?”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Huge cost of training going waste.</strong> In the private sector when an employee leaves, normally he is replaced by a better employee. In the private sector, training is almost absent. The IRS officers undergo a full-time 2 year training course and several training courses in India and abroad right through their career. On conservative estimates, the Government must be spending more than a Crore of rupees on training an IRS officer and when he walks away, the replacement is with a raw recruit on whom another Crore of rupees is spent and the cycle goes on. In the private sector, the new recruit is given about fifteen days training and is put straight to the job and if he leaves mid way they get an identical or better replacement. The English aristocracy used to get their daughters educated in the best of convents to make them perfect ladies and then they used to get them married off to pirates. Even one percent attrition is very costly Mr.FM!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Why are the officers leaving?</strong> It is not always for better pay packets. The frustrations accumulated over years of impersonal and cruel HR management would drive many sensible ones to suicide – and since they have the other option of better jobs, they choose the latter. The status of being a Government employee, the honour of working for the country and the concept of Government as a stable employer, have all weakened. You talk to any Revenue Service officer; they will complain to you about the ridiculous transfer policy. IAS & IPS officers work mostly in one state for about 30 years and are in the State capital for about 20 years. And you know they are called ‘The All India Service Officers’. The Revenue Service officers are frequently shunted from one corner of the country to another, for no good reason and in the process their family life is badly affected. May be the Indian Revenue Service has the highest number of married officers living single. One of our greatest assets is our family values. It seems Macaulay wanted to introduce English education and western values to break our family ties and he realized that as long as family ties were strong, it is difficult to rule this country. In what Macaulay and the Englishmen failed, the Finance Ministry’s transfer policy has succeeded. During Rajiv Gandhi’s Prime Minister-ship, it was propagated that the Government should keep its employees happy. One reason for the five day week was that the employee would have two days of time with his family and he would come back to work on Monday fresh and happy. The guideline that the husband and wife should be posted in the same place was seriously followed. Incidentally the Minister for Personnel at that time was Shri Palaniappan Chidambaram, the present FM who smiles away the one percent attrition. A very senior officer having his family somewhere in Deep South gets posted to Guwahati, when somebody who is willing to work in Guwahati will get his posting in Chennai – all because the policy says so.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Attrition has its cost. If it is worth spending so much of time, money and energy in recruiting quality officers and then training them at huge costs, it is certainly worth trying to retain them. More than the cost, unfortunately there is a great value loss and invariably the officers who leave are the better ones in the tribe!</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Satisfaction of the AO - CLARIFICATION ON AMENDMENT TO SECTION 271 OF Income Tax Act</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of the apprehension raised on the retrospective amendment to section 271 of the Income-tax Act, proposed in the Finance Bill, 2008, empowering the assessing officer to, inter-alia, levy penalty in case of concealment of income, the Ministry of Finance has issued the following clarification.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the context of levy of penalty under section 271 of the Income-tax Act, there has been an ongoing dispute between the Income-tax department and taxpayers on whether an assessing officer is required to record his satisfaction before initiating penalty proceedings. The Income-tax department has held the view that no separate satisfaction is required to be recorded before initiating penalty proceedings. In the case of Commissioner of Income-tax Vs. S.V. Angidi Chettiar, the Supreme Court has, while dealing with penalty under section 28 of the Indian Income-tax Act, 1922, held that “satisfaction before conclusion of proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction”.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, interpreting the aforesaid Supreme Court decision, the Delhi High Court has, in the case of CIT Vs. Ram Commercial Enterprises Limited held that “It is the assessing authority which has to form its own opinion and record its satisfaction before initiating penalty proceedings.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of conflicting judicial opinion on this issue, it was necessary to make legislative intervention and settle the matter. Therefore, clause 48 of the Finance Bill, 2008 proposes to insert a new sub-section (1B) in section 271 of the Income-tax Act so as to unambiguously provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment, and such order contains a direction for initiating of penalty proceedings under sub-section (1) of section 271, such an order of assessment or reassessment shall be deemed to constitute satisfaction of the assessing officer for initiating penalty proceedings under sub-section (1) of that section.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The proposed amendment has been given retrospective effect in order to protect the revenue’s contention on this issue in pending cases. However, this retrospective effect will not prejudice taxpayers’ right to agitate the levy of penalty on merits. Further, while no separate satisfaction is required to be recorded before initiating penalty proceedings, it is still incumbent upon the assessing officer to record his satisfaction before levying the penalty. Accordingly, there is neither violation of the principle of natural justice nor any prejudice caused to the taxpayer as a result of the retrospective amendment.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government always has an explanation for its retrospective amendments – the fact is they are to negate judicial decisions!</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Rationalisation
of rate of duty on pharma products</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pharma units are eligible for general small-scale industries excise duty exemption scheme. As such, units having clearance value upto Rs 4 crore in the preceding financial year are eligible for full excise duty exemption on their first clearances upto Rs 1.5 crore in a financial year, subject to certain conditions. In the States of Uttarakhand & Himachal Pradesh, new units or units undertaking substantial expansion are fully exempt from excise duty, while such units in the North East, Jammu & Kashmir and Kutch are entitled for refund of duty paid in cash.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government had received requests for increasing eligibility limit under SSI exemption Scheme for pharma units and enhancing the exemption limit. Government had also received requests for reducing the normal rate of excise duty from 16% to 8%/4% on pharmaceutical products including drugs.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the budget 2008-09, the issue of excise duty on pharma products was examined and excise duty on pharmaceutical products including drugs has been reduced from 16% to 8%. The tax-exemption under small scale exemption scheme was also examined and it was decided not to make any change for the present.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This information was given by S.S. Palanimanickam, Minister of State for Finance in reply to a question raised by Botcha Jhansi Lakshmi in Lok Sabha on Friday.</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Anti Dumping Duty on recordable CDs</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On the recommendations of the competent authority, the Government has imposed Anti Dumping Duty on Compact Disc-Recordable originating in, or exported from Iran, Malaysia, Korea ROK, Thailand, United Arab Emirates and Vietnam.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2008/ctariff08_034.htm" target="_blank">CBEC Notification NOs. 34/2008 - Cus, Dated: March 13, 2008</a></strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT’s circular on Budget 2007</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBDT has come out with a master circular explaining the changes made in the Finance Act 2007 – that is a full 12 days after the Finance Bill 2008 had been introduced in parliament. Why did they suddenly think of the 2007 Budget after the 2008 had been presented?</font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2008/it08cir03.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT Circular No. 3/2008, Dated: March 12, 2008</font></strong></a></p>
<p align="center"><strong><font color="#006600" size="3" face="Verdana, Arial, Helvetica, sans-serif">Jurispruden</font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#F79646" size="6">tiol</font> – Tomorrow's cases</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600" size="3" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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></font></strong></font></strong></font></strong></p>
<p align="justify"><strong><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax</font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Food for thought – Service Tax paid by Outdoor Caterers for running Canteen Services in a factory is an Input Service for availing Credit: Tribunal</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><strong>WE are hungry.</strong></em> Just three months back, we reported the Tribunal decision in the case of Bajaj Electricals [</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1866-CESTAT-MUM.htm" target="_blank">2007-TIOL-1866-CESTAT-MUM</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">],
where the Single Member Bench observed that prima facie there was <strong>no case</strong> for
a complete waiver of the cenvat credit demand of Rs.33,956/- availed on Service
Tax paid by Outdoor Caterers on Canteen services provided in the company & accordingly
the appellant was ordered to make a pre-deposit of Rs.15,000/-.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After that decision was passed, in another case of Manikgarh Cement [</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2008/2008-TIOL-133-CESTAT-MUM.htm" target="_blank">2008-TIOL-133-CESTAT-MUM</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">],
the question before the Bench was whether the Service tax paid on <em><strong>Repairs & Maintenance of civil construction viz. residential colony for factory employees</strong></em> was
available as cenvat credit. The Tribunal while allowing the appeal in that
case held that such services were relatable to business & hence the credit
was admissible.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the said matter of M/s Bajaj Electricals came up before the Tribunal (SMB) for a final hearing along with similar appeals of two more assessees & the results are <em><strong>dramatic – yes, dramatic!</strong></em></font></p>
<p align="justify"><strong><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise</font></strong></p>
<p align="justify"><font color="#663399"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue tries to pump up another Application on “usage of power” but without any success before the Tribunal</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TWO</strong> years ago, the Union Budget had some powerless news for Turpentine manufacturers – they were left without their favourite notification granting full exemption when no “power was used in the manufacturing operations”. [See our story - The end of the road to 'powerless' manufacture: Rosin, Turpentine, to name a few, now dutiable.]</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal in that famous case booked by DGCEI held that - Use of power for drawing water into overhead tank not amounts to use of power in or in relation to manufacture. This conclusion emanated from a very old TRU clarification M.F. (D.R) Letter no. B-36/11/77-TRU, dated 10/16.01.1978 & the settled law that Board Circulars are binding on the department.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Upset that they had lost a “powerful” case, the Revenue had filed a ROM application & while rejecting the same, the lively Member(T) writing for the Bench had a few caustic words for the department. He said –</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“This ROM application can be dismissed at the threshold on the solitary ground that it seeks to reargue the case by bringing in material which was not before the Tribunal when the appeal was decided after hearing both sides. The Revenue is well advised to follow the simple maxim that none is permitted to reargue the case. That we have agreed to deal with this application should not be treated as a licence to file applications seeking revision of the Tribunal’s decisions. For one thing the Tribunal, or for that matter, any quasi-judicial authority has no power to review its own order and for another there are other avenues for the aggrieved parties to seek relief by filing appeals.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, the Supreme Court decision in Rajasthan Chemical Works [<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-66-SC-CX.htm" target="_blank">2002-TIOL-66-SC-CX</a>] was also distinguished by observing thus –</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“… that case deals with the use of power while handling the raw material prior to the commencement of process of production. It is nobody’s case in the present application that the water that is pumped to the overhead tank is a raw material used in the manufacture of rosin. The ratio of the decision of the Hon’ble Supreme Court does not apply to the facts of this case. It is not possible to apply the said ratio by ignoring the facts of this case.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Needless to mention, Revenue took its case to the Supreme Court & fortunately after condoning the delay the appeal was admitted.</font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax</font></strong></p>
<p align="justify"><font color="#663399"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Land purchase - Interest paid on delayed payment - Since sale proceeds of scraps arising out of demolition of buildings on land treated as business income, interest payment, a contractual obligation, also to be treated as revenue expenditure : Supreme Court</font></strong></font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE battle between the revenue expenditure and the capital expenditure for treatment within the provisions of the Income Tax Act is as old as the Hundred-Years-War between the English and the French. And how a small piece of fact can alter the character of the expenditure can be seen from the latest case decided by the Apex Court.</font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Brief facts of the case :</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The assessee is a transport company. It </strong>entered into an agreement with M/s. Peirce Leslie (India) Ltd. on 27.9.1983 for purchase of an extent of 466 cents of land with buildings thereon at Calicut. It was agreed that the sale deed will either be got executed in favour of the assessee or its nominees. As per agreement, if the purchase price was not paid within the specified time, assessee was liable to pay interest at the rate of 18% per annum. The buildings standing on the lands were demolished and the scrap materials were sold for Rs.5,88,001/-. This income was treated as business income. Under the agreement, the assessee had to pay an interest of Rs 4 lacs for the delayed payment of purchase consideration. The assessee claimed this amount as a revenue expenditure.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The AO disallowed the claim of the assessee on the ground that the payment of interest on the purchase of the property would be in the nature of a capital expenditure and not as revenue expenditure. This order of assessing authority was confirmed by the Commissioner of Income Tax(Appeals). It was held that the intention of the assessee was to enter into an adventure in the nature of trade and ultimately the assessee had retained only 65.57 cents of land with it and the remaining land was purchased by the sister concerns of the assessee in small pieces. It was held that since the assessee was only an intermediary for the other sister concerns, the part of interest referable to the lands sold to the sister concerns could not be allowed as revenue expenditure. Thus, Commissioner of Income Tax gave part relief and allowed the interest referable to 65.57 cents of land retained by the assessee. Assessee, being aggrieved, filed an appeal before the Income Tax Appellate Tribunal. The Tribunal accepted the appeal, set aside the order passed by the CIT(Appeals).</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 time.</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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