TIOL-DDT 939 · the untouched capture
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<p align="justify"><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL-DDT 939 </strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><br>
28.08.2008 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Premature withdrawal! Notification 108/95-CE: Is the Board's clarification on the retrospective status of the explanation valid? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> It
may be recalled that in <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7557" target="_blank">DDT
905</a> , the scope of amendment to Notification No. 108/95-CE dated 28.08.1995
by Notification No. 13/2008-CE dated 01.03.2008 and the CBEC's clarificatory
letter FNo.101/7/2008- CX-3 dated June 12, 2008 issued to the field formations
was extensively discussed. We also highlighted the two schools of thought
on the applicability of this amendment and the status of the explanation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One school viewed that the exemption is available as long as the goods are not withdrawn from the project till the completion of the project. This means if a Road Roller is supplied for the project of laying a Highway funded by the international organization, the exemption is available even if the Roller is withdrawn after the completion of the project. While the other interpreted the explanation to mean that the goods supplied should form part of the project permanently and the exemption is not applicable if the goods are withdrawn even after the completion of the project. We also drew the netizens attention to an article from one of our esteemed contributors - <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7238">Premature withdrawal</a></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
Let us quickly take a recap of the Board's letter issued to the field recently
in <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2008/letter.htm" target="_blank">F.No.101/7/2008-CX-3</a>.
In the clarification letter dated June 12, 2008, Board had clarified that
the exemption would be applicable only when goods supplied to the project
become a part of the project permanently and not for t he goods which are
used by the contractors for execution of the project and after completion
of such project, the said goods are not diverted by the contractors, for
further deployment in other projects. It was further clarified that this
amendment is purely clarificatory and therefore has retrospective effect. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is it as simple as the Board wanted it to be? Well! The controversy refuses to die. In a recent mail to <strong>DDT</strong>, an enlightened netizen questioned the validity of Board's claim on the retrospective status of the new explanation added to the Notification from a different perspective. He wrote in: </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">"By virtue of sub section 2A to Section 5A of the Central Excise Act, 1944, if there is any expediency or necessity to clarify the scope or applicability of any notification issued under sub section (1), the Central Government shall insert an explanation in such notification at any time within one year of issue of the said notification and such explanation shall have effect as if it was always a part of the original notification. </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"> In the light of the above, it is clear that explanation-2 added to the Notification No.108/95-CE dated 28.08.1995 is effective only from 01.03.2008 as the said explanation was inserted vide Notification 13/2008 CE dated 1.3.2008 during the course of budget 2008". </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While parting, he asked us to take a relook into this controversy – which we do as a responsible and responsive watchdog. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> After studying the provisions of Section 5A (2A), which mandates that the Government ought to insert an explanation to clarify its intentions within one year from the date of issue of the original notification and applying this to the facts of the current amendment and the follow-up clarification, it is felt that the observation of the netizen is indeed absolutely correct. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Notes on Clauses to the Finance Bill 2002 by which the new Sub section 2A to section 5A was introduced, states, </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Clause 128 seeks to amend section 5A of the Central Excise Act, so as to <strong>empower </strong> the Central Government to issue the notification or order to clarify the scope or applicability of any exemption notification or order issued under this section <strong>within one year </strong> from the date of issue of the notification or the order. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Of course, the then JS,TRU, who gave his customary explanation of the budget, forgot about the<font color="#FF0000"> one year period</font>, when he stated, </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Another important change is that the Government will now be permitted to explain or clarify the scope of an exemption by issue of an explanation by a notification, which will be effective from the <strong>date of the first exemption notification itself. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the instant case, the explanation is inserted after 13 years which is clearly beyond the mandated (<strong>empowered</strong>) one year. Then obviously it will not have a retrospective effect in terms of Section 5A (2A) and would be effective only from the date from which it is inserted. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Will anybody hazard a guess on the status of Board's recent missive to the field formations through letter dated June 12, 2008 and the follow-up show cause notices issued by the field formations based on this letter? Well, it will only enrich the consulting fraternity and they should thank the Board for coming up with such unreasonable clarifications. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the assessees who are stuck with notices from the Department will have to simply point out Section 5A (2A) and plead that the amendment to Notification No. 108/95 does not have retrospective effect as it was not issued within one year of the original notification. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Concluding, <strong>DDT </strong> once again raises the fundamental question about the slackness with which the Board goes about drafting important pieces of subordinate legislations. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>Business Process Reengineering Project of Income Tax Department – hygienic toilets in IT offices</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Background & Need for the Project: </strong>Collection of Direct Taxes which is administered by the Income Tax Department (ITD for short) has been growing at a very fast pace in recent years. Direct taxes collections in Financial Year 2007-08 stood at Rs. 3,14,468 Crores as against Rs 48,280 Crores in the Financial Year 1997-98. Similarly, the taxpayer base has also expanded and the number of tax payers at the beginning of FY 2007-08 stood at 3 Crores. This scenario coupled with <strong>globalization of the world economy </strong><font color="#FF0000">(what does this mean? Just another jargon in reports!)</font>, reduction of trade barriers and technology enabled methods of conducting business has redefined the performance expectations from the ITD posing a challenge to its capacity and functioning as an efficient organization. A need was thus felt to critically review the existing functioning of the Income Tax Department. The Finance Minister in his budget speech of 2006 announced that IT Department will undergo business process re-engineering. A Directorate of BPR was accordingly created in May 2006 headed by an officer of the rank of Director General of Income Tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Through a global tendering process, M/s PricewaterhouseCoopers was appointed as external consultant for the BPR project. The Business Process Re-engineering exercise was conducted by the BPR Directorate with the objective of enabling the ITD to deal with the challenges emerging from the new work environment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Objectives of the Project: </strong>The main objectives of the BPR project can be summarized as under: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Re-evaluation of all current processes to remove the redundant and obsolete processes and redesign or create new processes which are more efficient and maximize use of resources to produce the best results </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Identification of stakeholder's needs and the ways in which the organization can meet them especially taxpayer's needs for information, convenience of filing tax returns & documents, payment of taxes and speedier issue of refunds </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Use best and leading practices of other organizations to develop milestones, objectives, targets to benchmark organizational performance </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Increase alignment between people, processes and technology </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Enhance employee involvement, skills and organizational creativity </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Short Description of the Project: </strong>The project commenced on 1st May, 2007 and was completed with finalization of 18 reports covering more than 2000 pages within a timeframe of eight months. <font color="#FF0000">[All government projects end up in REPORTS!] </font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Outcomes: </strong>The Business process Re-engineering of the Income tax Department is first such project initiated by the Government of India where a comprehensive study of such a large Department has been undertaken and changes have been recommended taking a holistic view of the Department that would fundamentally change the way the Department functions in as much as all activities which do not require exercise of discretion in individual cases and are amenable to large scale automation will be dealt by Bulk Operation Division (BOD) where there will be no taxpayer interface. The creation of BOD would help in reducing the pressure on the inadequate manpower and infrastructure across various ITD offices by leveraging economies of scale and technology, thereby de-cluttering the office of the Assessing Officers and enabling them to better perform their compliance functions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Recommendations focused on Taxpayer Services:</strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Setting up a Directorate of Taxpayer Services to address the issues of taxpayer grievances and education. <font color="#FF0000">[Does it mean more jobs?]</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Additional channel for filing tax returns/documents at Facilitation Centres </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Ensuring that correct details payments are recorded and credited to taxpayer's account </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Effective recording/tracking of all taxpayer communications </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Ease of payment of taxes through ATM for individuals </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Call-centres to deal with taxpayer queries </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Automatic updating of address from returns in PAN/TAN database </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Functional segregation- IT enabled processes to ensure quicker processing/issue of refunds </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Use of SMS for information dissemination to taxpayers </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Better infrastructure facilities for taxpayer in ITD offices like waiting lounge, drinking water, <strong><font color="#FF0000">hygienic toilet</font></strong>, etc. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Recommendations focused on Revenue augmentation </strong></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Detect stop filers and non filers through use of 3 rd party and TDS data </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Non-intrusive Measures such as sending pre-populated returns to the tax payer in cases of clear and apparent mismatch of information given in the return and that available with the ITD to be settled by accepting payment of tax plus penal amount. Similarly, for a limited number of cases falling in a small band below the risk score at which cases are selected for scrutiny, total wealth statement to be called and kept on record. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Work-flow based system of working with no option at any level to work manually </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• Robust risk profiling system for selection of cases for scrutiny. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When is CBEC coming out with such a report?</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></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>VAT</strong> </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No VAT from both contractor and sub-contractor -AP High Court order upheld – Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nearly two years ago we had carried the landmark decision of the AP High Court - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2006/2006-TIOL-327-HC-HYD-VAT.htm" target="_blank">2006-TIOL-327-HC- HYD -VAT.</a></strong></font> </p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Supreme Court, on an appeal from the State, has confirmed the Ruling, both on facts and law. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Now will this have any implications in Service Tax? </strong></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>Erroneous drawback – whether appeal concerning redemption fine on goods exported hit by s 129A (1) of Customs Act – ROM application against Tribunal order rejecting appeal also dismissed. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>Assistant Commissioner denied the drawback of Rs.33 ,882/- and imposed an equivalent penalty. However, no redemption fine was imposed holding that the goods are not available for confiscation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant was not successful before the Commissioner (Appeals) and hence filed a Revision Application before the Government of India which too was dismissed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Later in the day, Revenue noticed that no redemption fine was imposed by the adjudicating authority and so they too took the matter to the Commissioner (A) who remanded the matter . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The exporter is aggrieved with this order and knocks the gates of the Tribunal only to be shown the door. </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 color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>When actual cost of food and beverage is available, there is no need for paying service tax for amounts received on account of their sale especially when sales tax has also been paid - No Suppression of facts is found, to invoke longer period – Pre-deposit waived and stay granted: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SERVICE</strong> tax levy has reached the skies. Service tax authorities in Bangalore have sought to levy service tax on supply of food and beverages provided by the assessee to various airlines. The assessee is engaged in the following activities:Wrapping/handling of food, loading and transportation of food trolleys, storage, handling and setup of catering equipment, storage and handling of dry stores other recycling items and cleaning of equipment, handling of waste, cabin service and laundry services. They are registered with the department and discharging service tax under the category of ‘Outdoor Caterer's service. There is no dispute in this regard. The only dispute is whether the consideration received for supply of food and beverages is includible in the value of taxable service. </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>Benefits under RBI's Optional Early Retirement Scheme – eligible for deduction under Section 10 (10C): It is well-settled that circulars can bind Income-tax Officer but will not bind the appellate Authority or Tribunal or Court or even assessee: Bombay High Court. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HIGH </strong>Courts are divided on this issue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Logic alone will not be determinative of a controversy arising from a taxing statute. Equally, common sense is a stranger and an incompatible partner to the Income-tax Act. It does not concern itself with the principles of morality or ethics. It is concerned with the very limited question as to whether the amount brought to tax constitutes the income of the assessee. It is equally settled law that if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. </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="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day. </font></p>
<p align="justify"><font color="#FF6633" 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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