TIOL-DDT 844 · the untouched capture
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<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT
844</font><br>
11.04.2008<br>
Friday </strong></font></div>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CAG’S
ADVICE (read rap) TO REVENUE</strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service
Tax </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Decline
in revenue from a particular service, despite increase in tax base needs to
be investigated and mechanism put in place to ensure that the decline is not
due to evasion. </font></p>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Survey
is a key activity which helps to identify potential assessees and thereby
augment Government revenues. However, performance indicators for this activity
had not been prescribed. <br>
</font></li>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Measures
undertaken by the department to bring unregistered service providers into
tax net were ineffective and inadequate. Audit identified 8,394 unregistered
service providers in three services. While actual loss of revenue from 1,040
of these service providers was Rs.78.08 crore, the estimate of the revenue
loss from the remaining 7,354 unregistered service providers was Rs. 55.82
crore. <br>
</font></li>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Approximately
41 per cent of returns due were not submitted by the registered service providers
in three services, for which no action was initiated by department. Service
tax of Rs. 14.36 crore was evaded by 414 registered service providers during
the period when they did not file returns. Interest of Rs. 2.55 crore was
also leviable, besides penalty of Rs. 14.36 crore. <br>
</font></li>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Verification
of returns was ineffective and policy for scrutiny of these returns ambiguous
as service tax of Rs. 15.26 crore was short paid by the 398 registered service
providers on account of suppression of taxable value. Interest of Rs. 5.45
crore was also leviable besides penalty of Rs. 15.26 crore. <br>
</font></li>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Checking
of the ST-3 returns on the basis of information furnished by the assessees
was not done properly as irregularities involving service tax to the extent
of Rs. 7.16 crore were noticed. <br>
</font></li>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Correlation
of income tax data and service tax data is a key factor for correct evaluation
of service tax liability. However, allotment of PAN based STC numbers to enable
such correlation has been slow and nonexhaustive. </font></li>
</ul>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Promotional
measures</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
audit review of the three duty free credit entitlement schemes for </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
status holders, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
service providers and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)
vishesh krishi upaj yojana (VKUY) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">revealed
system as well as compliance weaknesses relating to issue of duty credit certificates/scrips
and in ensuring their appropriate utilisation.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There
was no mechanism to correlate declared export performance/foreign exchange earnings
with other statutory records like annual accounts, foreign inward remittance
certificate (FIRC), bank realisation certificate (BRC), income tax (IT) returns,
etc. This facilitated issue of excess duty credit certificates/scrips. The Government
may prescribe additional documents like annual accounts to be verified before
tax benefits based on export performance are granted.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
inappropriate use of duty credit certificates/scrips subsequent to these being
issued related to </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
cases where end-use of the goods imported under the certificates was not verified,
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
payment of additional duty incorrectly through the certificates, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)
payment of duty through the credit certificates/scrips despite having insufficient
credit, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv)
import of inadmissible goods, etc.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There
is an urgent need to put in place control mechanisms to plug the loopholes/lapses
pointed out. Further, the existing controls to verify data furnished by exporters
to obtain duty free benefits should be strengthened. The Ministry of Commerce
in coordination with the Ministry of Finance needs to strengthen the internal
controls governing issue of duty credit certificates/scrips under DFCE/SFIS/VKUY
as well as those relating to subsequent utilisation of these credit certificates/scrips,
to ensure that the benefits derived by the importers/exporters are the intended
ones and commensurate with the duty foregone.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
duty credit incorrectly granted/used in the deficiencies noticed in the test
check by audit was Rs. 349.67 crore. The Government needs to recover the applicable
duty foregone wherever these credits had already been utilised inappropriately,
in addition to initiating appropriate penal actions.</font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Target
plus scheme (TPS)</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
audit review has revealed system as well as compliance weaknesses relating to
issue of duty credit certificates and ensuring their appropriate utilisation.
The main cause of the irregularities noticed in audit is the complete reliance
of the scheme on the declarations furnished by exporters and certified by the
CAs for grant of TPS certificates. The noncorrelation of these declarations
with other statutory documents like annual accounts, BRCs and IT returns, was
a risk area which was left unmitigated by the department. The Ministry may consider
prescribing additional documents (like P&L A/c, IT returns, etc.) to be
verified before arriving at the trade benefits to be provided to the exporters
under other existing or future similar schemes, where tax benefits are given
based on export performance. This would mitigate the risk of obtaining of benefits
fraudulently under the FTP/schemes.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
revenue implication of this review is Rs. 294.95 crore and this amount needs
to be recovered/certificates withdrawn/amended.</font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Special
economic zones (SEZs)</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
audit review has revealed system as well as compliance weaknesses relating to
policy and procedures governing the management and functioning of SEZ units
in ensuring that these functioned as intended. There was no restriction on ‘deemed
exports’ being reckoned as exports enabling the units to attain positive
net foreign exchange earning (NFE)predominantly through deemed exports rather
than actual exports. The Government may consider restricting reckoning of deemed
exports for the purpose of calculating NFE by an appropriate scale.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
units under domestic tariff area (DTA) were put under disadvantageous position
as no provision had been made to recover duty foregone on inputs procured by
the SEZ units and used in the manufacture of products which were cleared at
‘nil’ rate of duty in DTA. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Government needs to address this disparity to ensure a level playing field for
the units in the DTA as well as in the SEZ. The SEZ scheme relies mainly on
self-certification and does not require the ‘quarterly/annual performance
reports (QPRs/APRs)’ to be supported by other statutory documents like
annual accounts, customs records, income tax (IT) returns, bank realisation
certificates (BRC), etc.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
facilitated a few units to provide incorrect/inconsistent data in their QPRs/APRs.
The NFEs derived on the basis of this inconsistent data cannot be relied upon.
The Government needs to address this concern.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While
the revenue implication of this audit review is Rs. 246.72 crore, an additional
Rs. 1,724.67 crore was foregone or could not be recovered in the absence of
enabling provisions.</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Amendment
to Section 2(f) of Central Excise Act, 1944 to include refining of Chemicals</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A
Commissioner had written to the Board in December 2007 that the process of treating
chemicals of Ordinary Grade with Sulphuric Acid, Sodium Carbonate Solution,
neutralization and distillation, amounted to manufacture and he wanted an amendment
to Chapter note 4 to cover all preparations falling under Heading 2710.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Board by a letter dated 28.2.2008 has circulated the letter to the field and
wants them to inform the Board urgently, the Present practice of assessment
in respect of refining of various chemicals, the field’s views and If
any cases has been noticed, the details thereof.</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=31&filename=notification/excise/2008/sec2f.htm" target="_blank">CBEC’s F.No. 83/1/2008-CX.3 Dated : February 28, 2008</a></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">SERVICE
TAX RETURN PREPARER SCHEME - SUGGESTIONS INVITED </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">THE</font></strong>
Central Board of Excise and Customs has constituted a Committee to suggest modalities
and prepare a Scheme for implementation of ‘Service Tax Return Preparer
Scheme’. The ‘terms of reference’ for the Committee are: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To
study the Tax Return Preparer Scheme as implemented by the Central Board of
Direct Taxes (CBDT) and make recommendations to Board as regards manner of implementation
of similar Scheme in Service tax; including, inter alia, the following;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.
The educational and other qualification to be possessed and other conditions
required to be satisfied by a person to become Service Tax Return Preparer;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.
The manner of selection of Service Tax Return Preparer and incentive/ remuneration
to Service Tax Return Preparer;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.
Training and examination of selected candidates for issuance of certificate
as service tax return preparer; the need for outsourcing of training and manner
thereof; preparation of training material/handbook; preparation of material
for publicity of the Scheme; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.
Code of conduct and duties and obligation of the Service Tax Return Preparer;
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.
Manner of review of performance and arranging of refresher course for tax return
preparer;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6.
Manner of preparation of and furnishing of service tax return by the Service
Tax Return Preparer.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7.
Other issues enlisted in sub-rule (4) of the proposed section 71 of the Finance
Act, 1994.’</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suggestions
are invited from all the stakeholders and public such as service providers,
manufacturers, traders, trade associations and federations, tax experts, individuals
etc. on the aforesaid terms of reference to facilitate the Committee to propose
a Scheme which would be beneficial to the stake holders including the government.
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You
suggestion may be sent to Shri Pawan K. Sinha, Additional Director (Member-Secretary),
<font color="#FF6633"> <strong>latest by 16th April, 2008</strong></font> on
the following address: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:strp.dgst@gmail.com">E-Mail:
strp.dgst@gmail.com </a></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Directorate
General of Service Tax, 9th Floor, Piramal Chambers, Jijibhoy Lane, <br>
Parel, Lalbaug, Mumbai 400 012 </font></strong>FAX: 2417 8515, 2410 2587 ; Tel:
2410 2584/86/89 [PBX] and 24181420 (Direct)</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">– </font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Tuesday</font><font color="#006600">'
s cases </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><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></font></strong></font></strong></font></strong></font></p>
<p align="left"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income
Tax </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Sale
of diamonds to non existing customers – reopening of assessments –
High Court not to interfere : Allahabad HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">According
to the Revenue, under the Voluntary Disclosure of Income Scheme of 1997 (VDIS),
unscrupulous assessees in Maharashtra, Gujarat, Madhya Pradesh, Bihar, Karnataka,
West Bengal, Goa, Tamil Nadu, Punjab, Uttar Pradesh, Delhi, Andhra Pradesh etc.
disclosed unaccounted money in the form of non-existent diamonds in their possession.
These non-existent diamonds were shown to have been sold, immediately after
the disclosure, by the assessees to 4 concerns</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs
</font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Duty
paid on 'ghost' goods received in a container – Refund not hit by vires
of Section 28D of Customs Act – well reasoned order of Commissioner (A)
upheld by Tribunal</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><strong>CERTAINLY</strong></em></font><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
there is a limit to the <strong><em><font color="#FF6633">fantasies</font></em></strong>
of the Revenue. Here is a case where the respondent company paid duty on the
‘supposed consignment’ received in a container. <strong><font color="#FF6633"><em>Lo
& behold,</em></font></strong> when the container was opened for examination
in the presence of the Customs officials it was found “absolutely empty”
– nothing, not even a speck of the supposed consignment was there in it!</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"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Duty
- Supplementary invoice due to revision in prices – Interest payable?
– Matter referred to Larger Bench of CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tribunal
referred the matter to a Larger Bench to consider and decide on the following
issues:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a)
Whether, in the facts of these cases, the additional amount paid by the buyer
towards price of the goods in terms of the supplementary invoice issued by the
assessee after removal of the goods can be considered to be part of the ‘transaction
value’ under Section 4 of the Central Excise Act;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b)
Whether the payment of duty under the supplementary invoice by the assessee
is covered by sub-section (2B) of Section 11A of the Act;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c)
Whether, on the amount of duty paid under the supplementary invoice, interest
is leviable under Section 11AB from the first date of the month succeeding the
month in which duty was paid in the first instance in terms of the original
invoice.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See
our columns Tuesday for the judgements</font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Monday
is a holiday</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Tuesday with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a Nice Weekend</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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