TIOL-DDT 966 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 966</font><br>
07.10.2008<br>
Tuesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Dual benefit by taking credit on inputs and collecting duty on exempted final products</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Hon'ble Comptroller and Auditor General of India has submitted his annual report on taxes. What starts as a casual visit by an innocent looking Audit party ends up with the CAG's report. See what the CAG had to say on this controversial subject that was long ago settled.</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 6 of the Cenvat Credit Rules, 2002/2004, envisages that where an assessee manufactures final products, part of which are chargeable to duty and part of which are exempt but avails of credit of duty on inputs meant for use in both the categories of final products and does not maintain separate accounts, he shall pay an amount equivalent to eight per cent (ten per cent from 8 October 2004) of the price charged for the exempted goods. The amount so payable is in lieu of cenvat credit availed of on inputs used in the manufacture of exempted goods and hence the liability is to be borne by the manufacturer himself.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Ministry had also clarified on 9 September 2002 that where a manufacturer
debits an amount equal to eight per cent in terms of rule 6 of the Cenvat
Credit Rules, 2002 and collects it from the buyers, then the amount so
collected should be deposited to the credit of the Government.Further,
the CESTAT in the case of M/s Vimal Moulders (India) Ltd. [</font><font color="#FF6633" size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2003/2003-TIOL-244-CESTAT-DEL.htm" target="_blank">2003-TIOL-244-CESTAT-DEL</a></strong></font><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>] </strong>had
held that the amount of eight per cent paid by the manufacturer but collected
from the customer was to be deposited with the Government as per the provisions
of section 11 D of the Central Excise Act.M/s Fouress Engineering (India)
Ltd., M/s Bharat Heavy Electricals Ltd., M/s Crompton Greaves Ltd. (Stamping
Division) and M/s Mather and Platt Pumps Ltd., in Bangalore II, Bhopal,
Mumbai III and Pune I Commissionerates respectively, had availed of cenvat
credit on inputs used in the manufacture of both dutiable as well as exempted
goods and did not maintain separate inventory for inputs used in the exempted
goods. The assessees cleared exempted goods and paid duty of eight/ten
per cent of the value of the exempted goods. However, Rs. 1.89 crore recovered
as excise duty from the customers during the period between November 2002
and March 2006 was irregularly retained instead of being deposited with
the Government.On this being pointed out (between January 2006 and February
2007), the Ministry in the case of M/s Fouress Engineering (India) Ltd.
stated (July 2007) that the CESTAT in various cases had held that once
the assessee had paid eight per cent of the value of exempted goods, there
was no law prohibiting the assessee from collection of such amount from
the buyers. It stated (November 2007) that M/s Bharat Heavy Electricals
Ltd. and M/s Mather and Platt Pumps Ltd. had not collected the amount as
excise duty but as equivalent to cenvat reversal and hence provisions of
section 11D were not applicable. In the case of M/s Crompton Greaves Ltd.,
the Ministry admitted the audit observation and intimated (October 2007)
that the demand of Rs. one crore had been confirmed.Reply of the Ministry
is not tenable as it is contrary to its own clarification dated 9 September
2002. Also, the absence of appropriate provisions in the Act leads to unjust
enrichment of the assessees by allowing encashment of credit, thereby defeating
the very purpose of denial of cenvat credit. </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Additionally, the Ministry has not taken appropriate action to make the law explicitly clear and to resolve the anomalous situation which has cropped up due to conflicting decisions of the CESTAT on the same issue.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is the damning observations of the Audit with which the Opposition parties can, if they want to, rock the government, as the CAG is the ultimate Auditor! But just observe the objection and see how ignorant the Audit is.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They say the law is not explicitly clear leading to conflicting decisions of the CESTAT. But Sir, long ago the CESTAT Larger Bench had clearly decided the issue in favour of the assessee in the Unison Metals Ltd Unison Metals Ltd case - </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/2006/2006-TIOL-1337-CESTAT-DEL-LB.htm" target="_blank">2006-TIOL-1337-CESTAT-DEL-LB</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>. </strong> Now
after two years of the Larger Bench Decision, the CAG is telling Parliament
that there are conflicting decisions! Obviously they are not aware of the
Larger Bench Decision or conveniently ignored it.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strangely even the Revenue seems to be unaware of the Larger Bench decision as it has not told the Audit about this! Further it has even accepted the objection in the case of <em>Crompton Greaves Ltd </em> and even informed the Audit that a duty of Rs. 1 Crore had been confirmed! [Incidentally that has been stayed by the CESTAT - </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-1060-CESTAT-MUM.htm" target="_blank">2008-TIOL-1060-CESTAT-MUM</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">]</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In fact the CBEC had graciously accepted the Larger Bench order and by CIRCULAR NO. 870/08/2008- CX ., Dated: May 16, 2008, clarified that, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“as long as the amount of 8% or 10% is paid to the Government in terms of erstwhile rule 57CC of the Central Excise Rules, 1944 or rule 6 of the CENVAT Credit Rules, the provisions of section 11D shall not apply even if the amount is recovered from the buyers.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And for the CAG , the issue is still alive and he has brought the lapse of the ministry to the notice of the Parliament. And the Parliament's Public Accounts Committee can investigate the matter which would cost the nation a few Crores of Rupees – and then finally it would be decided that the issue was settled long ago.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Who will audit the Audit? Can the CAG undertake a study on how much money and time was wasted because of the Himalayan blunders of his auditors?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Just read the observation, “the absence of appropriate provisions in the Act leads to unjust enrichment of the assessees by allowing encashment of credit, thereby defeating the very purpose of denial of cenvat credit.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is some English indeed but belies an elementary knowledge of arithmetic.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see also - <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7330" target="_blank">TIOL-DDT 869 21.05.2008</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From CAG's <strong>Report No. CA 7 of 2008 (Indirect Taxes)</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC Commissioners' promotion file goes missing – FIR launched</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
frustration among senior Additional Commissioners in the CBEC and then down
the line will continue for some time. The promotion of Additional Commissioners
as Commissioners was jinxed right from the beginning what with warring groups
of Appraisers stalling the promotion on several grounds of disputed seniority
and the Board had all these days continued with some <em>ad hoc </em>promotions.
You promote a Deputy Commissioner as Joint Commissioner on <strong>ad hoc</strong> basis
and then promote him again on <em>ad hoc </em> basis as Additional Commissioner
and then as Commissioner. <em>Ad hoc </em> or otherwise, some happy souls
were getting promoted. The Board it seems took the Law Ministry's opinion
and even the Finance Minister who is not seen exactly as employee friendly
gave his clearance for the promotion of Additional Commissioners as Commissioners
and that would have started a chain of promotions.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And
that's when the file performed the missing act. An important file is lost
from the hallowed precincts of the North Block. It is learnt that an FIR
has been filed at the Parliament Street Police Station.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not as if the file cannot be reconstructed – all the information is available somewhere – but the promotion process gets delayed and frustration mounts.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
seems that nearly 400 Group A posts are vacant in the Department and if these
vacancies continue for a long time, some Auditor can point out and rightly
so that the Department is running very well without these officers and so
these posts can be abolished. And if you conduct a study of the Commissionerates
where there are no regular Commissioners, you will find that the performance
is far better than in the Commissionerates with regular Commissioners, quipped
a Commissioner!</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>India's Service Tax on air travel breaches international obligations – IATA chief</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Taxing overflight charges breaches India's international obligations under the Chicago Convention. Imposing it on premium class tickets and landing charges is contrary to ICAO Council Resolution 8632 which calls for a reduction in such taxes. India is a long-standing membership on the ICAO Council. Not following ICAO policies is disappointing and an embarrassment”, said Giovanni Bisignani , Director General and CEO of the International Air Transport Association (IATA), which represents some 230 airlines comprising 93% of scheduled international air traffic.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apart from the tax problem, he highlighted some of the aviation problems of India.</font></p>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Indian carriers could post US$ 1.5 billion in losses in 2008, the largest outside the US.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">India is among the most expensive places on the planet to buy aviation turbine fuel (ATF). In August, it was 58% more expensive to buy fuel in Mumbai (for domestic flights) than in Singapore (for international). Excise duties, throughput fees charged by airport operators and state taxes of up to 30% for domestic flights result in a cost structure that cannot support a competitive industry.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Mumbai needs an airport that can adequately serve the financial capital of the world's second most populous nation. That means thinking much, much bigger. We must use the breathing space of the current downturn to plan for capacity in the 100 million passenger range for Mumbai, like airports in Delhi, Seoul, Hong Kong, Dubai and other important cities.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">I am an India optimist, but my biggest concern is speed. Aviation is a fast-changing industry that is fuelling much of the Indian economic success story. But the crisis is highlighting that India's decision making is too slow.</font></li>
</ul>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Direct Taxes Collection in the first six months almost 1.5 lakh Crores</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While nothing is going right in the fiscal sector, there is some consolation – the tax collections are rising.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Net direct tax collections during first six months of the present year (up to September 2008) stood at Rs.147,197 crore, up from Rs.111,055 crore, registering a growth of 32.54 percent.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Growth in Corporate Taxes was 35.65 percent (Rs.95 ,283 crore as against Rs.70,240 crore), while Personal Income Tax (including FBT, STT and BCTT) grew at 26.94 percent (Rs.51,701 crore as against Rs.40,729 crore).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Growth of Fringe Benefit Tax (FBT) was 62.23 percent (Rs.3 ,580 crore against Rs.2,207 crore); Securities Transaction Tax (STT) was 2.72 percent (Rs.3,182 crore against Rs.3,098 crore); and Banking Cash Transaction Tax (BCTT) was 17.65 percent (Rs.320 crore against Rs.272 crore).<br>
<br>
Growth in corporate tax deducted at source (TDS) remained above 52 percent; and PIT TDS grew at 28 percent despite substantial tax relief allowed to individual taxpayers in the Union Budget 2008.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Corporate TDS collections stood at Rs.30 ,810 crore as on 30th September 2008 against Rs.20,210 crore during the corresponding period last year.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">PIT TDS stood at Rs.33,276 crore as against Rs.26,002 crore in the same period.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Self-assessment tax paid by both corporate and non-corporate taxpayers, voluntarily before filing their tax returns, registered substantial growth at 111 percent and 71 percent, respectively.<br>
<br>
According to the Government, Continued high growth in TDS and FBT collections indicates inherent strength of the Indian economy and continued improvement in tax administration. Higher growth in self-assessment tax indicates continued improvement in tax compliance levels.”</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We will be vigilant and agile - Chidambaram</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A confident FM said at the NDTV Profit function yesterday that the storm in the global economy will have an indirect effect on the Indian economy, but <strong>we will be vigilant and agile</strong><em>.</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">India was taking advantage of 17 years of liberalisation; we would record a growth rate of over 8 per cent this fiscal and bounce back to 9 per cent in 2009-10.<br>
<br>
The ICICI Bank Chief said that with such a dynamic FM, everything is just fine – good to hear that as Stock Markets tumble.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>You are the spoil sport – Lalu to PC</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“I want to provided better facilities to Rail passengers and good food, but you have imposed Service Tax on the food; why don't you remove the tax so that I can provide better service and better food to the passengers?”, asked Railway Minister Lalu Yadav to the suave FM at a Public function yesterday.</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="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font>CESTAT</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Additional Charge Commissioner (or for that matter any Commissioner) has no <em>locus standi </em> to file appeal before Tribunal as they are not appointed by notification by Board - CESTAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS </strong> is a decision of the Tribunal that can have far reaching consequences, including the closing down of the Tribunal for some time. If this order of the Tribunal is given effect to, all the benches of the Tribunal can be closed down, for according to the Tribunal there is no validly appointed Commissioner in the Country who has the <em>locus standi </em> to appeal or defend in the Tribunal. The Board has not appointed a single Commissioner.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FEMA </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FEMA – failure to import after obtaining foreign exchange – Penalty justified: Calcutta High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>VIOLATION</strong> which has been done by the appellant/petitioner, cannot be stated to be a technical violation and it is well-settled law that contravention of the said Act or Foreign Exchange Regulation Act, 1973 has created a strict liability. The violation of these two Acts would come within the meaning of economic offence and cannot be treated as technical offence.</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>Deduction of laboratory expenses of foreign Head Office – AO without verification disallows, CIT(A) without verification allows; Tribunal remands – mere statement of the assessee cannot be accepted without verification: Bombay High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSING OFFICER</strong> has without calling for any documents pertaining to the laboratory expenses come to the conclusion that the laboratory expenses would fall under the category of "executive and general administration expenses" and, therefore, ceiling prescribed under sec.44C would apply to such expenses. On the other hand, the CIT(A) without any verification by merely relying on the assessee's statement that the research and development expenditure claimed does not include the expenditure in the nature of rents, rates, taxes, salaries etc. reached the conclusion that the laboratory expenditure was not connected with the general and administrative expenditure covered by clauses (a), (b), (c) and (d) of explanation (iv) of section 44C . The Tribunal in the absence of any evidence has not reached a final conclusion whether laboratory expenses are covered under section 44C or not and has taken a very reasonable and rational view namely that the matter requires consideration.</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>Unjust enrichment - provisions of unjust enrichment as applicable under the Central Excise do not apply in the service tax cases: CESTAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS </strong>is a Revenue appeal against a very detailed reasoned order by a Commissioner (Appeals) granting refund of Service Tax paid by the assessee which could not be collected from the clients. The Revenue's contention is that the assessee had got themselves registered at Mumbai. Although they had made their payments of Service Tax at Bangalore yet the jurisdiction for filing refund claim arising is at the place of registration. Another ground is that the Commissioner (A) had committed error in allowing the refund claim when the refunds are barred by Principles of Unjust Enrichment.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns tomorrow for the judgements</font></strong></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 t</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">o <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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