TIOL-DDT 978
24.10.2008
Friday

The Parliamentary Standing Committee on Finance had recommended to the Government to open up Advance Ruling facility to Resident assessees.

In its memorandum to the Committee your TIOL had submitted,

The advance ruling now is basically applicable to a non-resident Indian or a resident Indian having a Joint venture with a foreigner. This is unfair to a Citizens of India.

A confident government, sure of its policies and laws should gladly allow advance ruling, for that can solve many a future litigation.

In matters of taxation, especially indirect taxes, the tax payer has to be sure about his liability at the time of paying tax as this liability is shifted to the customer. But if the liability arises months or even years after the transaction is over, the customer will not be available to transfer the liability.

When the government makes laws, it is assumed, they have enough clarity and they know what the laws mean. It is not always easy to translate noble thoughts into understandable English and so litigation follows, sometimes ending at the Apex Court and sometimes not ending there also with retrospective legislation.

This kind of uncertainty will shake the confidence of an entrepreneur who invests his money, time, knowledge, and aspirations. Advance Ruling is a great concept to solve this problem. Government should be confident enough to declare in advance what its intentions are, especially to the one who seeks the revelation of such intentions. Lifting of the legislative veil to understand in clear terms the liabilities of a tax payer should be part of tax laws.

With service tax expanding like wild fire, confusion and litigation are not far behind. In the plethora of taxable services, notifications, instructions etc, every service tax assessee lives under a Damocles' sword of a demand struck on him five long years after rendering service. Today he asks the department for a clarification which nobody is prepared to give him and assuming that no tax is payable he doesn't collect any taxes. But after five years he is asked to pay the tax of 12.36% with interest and a mandatory penalty of an equal amount. He will simple go out of business for he cannot collect that money from his customer nor can he afford to pay the tax which would work out to more than 25% of his transaction. Nobody makes that kind of profit. With the confusion and uncertainty prevailing for a long period of time, the government will accumulate only litigation and not taxes. It may even be killing the goose that lays golden eggs. Certainty of taxation is good more for the government than the tax payer.

While the foreigner is allowed the benefit of advance ruling, the Indian is not allowed that in his own country. This discrimination beats logic. Attracting foreign investment is perfectly alright but does that mean that an Indian investor should be treated like a third rate slave on whom any amount of indignities can be heaped? Does the government want Indian entrepreneur to go and settle abroad and them come back as NRI and do business in India to be eligible for benefits of advance ruling (as suggested by a Commissioner in a meeting). Inviting the foreigners should not be at the cost of and by denying similar facilities to Indian investors. Our craze for foreign goods and foreign investment should not result in ill-treatment of our own countrymen.

Facility of advance ruling for a foreigner only, by definition implies lack of clarity in our laws and an offer to clarify them in advance to a foreigner so that he is not burdened with a demand later. Denial of the same facility to an Indian investor clearly implies that though the laws are not clear, we don't believe our taxpaying citizens deserve any clarification and demands can be struck on them at sweet will. This is demeaning, discriminating, insulting and tragic. Even the British government would have been a little embarrassed to make such laws for the Indians.

And we are happy to report that the Hon'ble Parliamentary Committee has accepted our suggestion.

Para 6 of the Committee's report thanks us and we deem it a great privilege to be of some assistance to the Indian Parliament.

6. The Committee wish to express their thanks to PHD Chamber of Commerce and Industry (PHDCCI), Institute of Chartered Accountants of India (ICAI) Federation of Indian Export Organisations (FIEO), Taxindiaonline.com Pvt. Ltd. and Shri S.R. Wadhwa, former Chairman, Income Tax Settlement Commission for furnishing Memoranda in connection with examination of the Bill.

We bring you some extracts from the 72 nd Report of the Committee to Parliament:-

54. If all residents are brought under the purview of Authority for Advance Rulings, the system may get choked with all parties short-circuiting assessing authorities, appellate authorities, tribunals, etc. The Committee, therefore, suggest that in case it is decided to continue with the system of Advance Rulings, there should be a provision enabling any resident assessee to seek a ruling on matters of interpretation involving substantial question of law.

88. It has been suggested to the Committee that the Bill should provide for right to appeal against the advance rulings. The Committee feel that the extraordinary writ jurisdiction of the High Courts and the Supreme Court as the only available option may not fully serve the cause of assessees. The Committee, therefore recommend that there should be an express provision in the Bill providing for right to appeal. The Committee also desire that there should be an enabling provision in the Bill for establishment of additional Benches of the Authority based on workload.

89. The merged Authority is to have one post of Chairman and three posts of members (two from the respective Revenue Services and one from the Indian Legal Service) as against two posts of Chairmen and four posts of members in the existing two Authorities. The Committee desire that the procedure for selecting the members, which is presently not stipulated under any Act or rule, be prescribed under the rules to be framed under the proposed Act so as to provide clarity and avoid possible misgivings on the selection procedure.

90. The Committee desire that while providing the proposed Authority with officers and staff as may be necessary in terms of the provisions of Clause 11, and transferring the officers and staff of the existing two Authorities to the proposed Common Authority in terms the provisions of Clause 13(3), issues relating to cost effectiveness are appropriately considered and such of the posts of supporting staff etc. found to be redundant or in excess abolished. The Committee also note in this regard that while savings in costs has been indicated to be a major benefit that would accrue following the merger of the existing two Authorities, the expenditure incurred on the Authorities has increased from 1.65 crore in 2001-02 to Rs.3.02 crore in 2007-08, while, the net savings or reduction in the establishment expenditure expected to accrue on account of reduction in the number of sanctioned posts consequent on the merger of the Authorities is expected to be just Rs. 11.22 lakhs. The Committee desire that efforts be made to bring down the establishment costs of the Authority substantially.

91. A total of 51 cases pertaining to the AAR (IT) and 9 cases pertaining to the AAR (C&CE) were pending as on 31st May, 2008. It is observed that though the time limit for pronouncing rulings by the Authority on Advance Rulings (Income Tax) is six months, there have been 16 cases pending with it for over one year. Similarly, the Authority on Advance Rulings (Customs and Central Excise), which is to give rulings within three months has six cases pending over 180 days.  The Committee trust that, as assured by the Revenue Secretary, the prescribed time frame for pronouncing the rulings by the Authority is adhered to.

Companies Bill 2008 - Intends to modernize structure for Corporate Regulation in the country

The much-awaited Companies Bill, 2008 has been introduced in the Lok Sabha . More than five years ago, the Government had introduced the Companies (Amendment) Bill, 2003 in the Rajya Sabha on 7.5.2003, which is now withdrawn.

The Companies Bill, 2008 is intended to modernize the structure for corporate regulation in India and represents a major reform statement by the Government to promote the development of the Indian corporate sector through enlightened regulation.

The comprehensive revision of the Companies Act, 1956 was taken up by the Ministry since not only had the number of companies in India expanded from about 30,000 in 1956 to above 7 lakhs today, the Indian corporate sector had also transformed itself in a manner that was unimaginable even a decade ago.

The Companies Bill, 2008 seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that foster entrepreneurship, investment and growth.

The Bill reinforces shareholders democracy, facilitates e-Governance in company processes, recognizes the liability of Boards , directors and senior management personnel of companies, provides for a new scheme for penalties and punishment for non compliance or violation of the law, harmonizes corporate regulation with action by sectoral regulators, incorporates a new framework for mergers and amalgamations of companies and provides an extensive Insolvency Code based on the latest principles recommended by the United Nations Commission on International Trade Law (UNCITRAL).

Excise Duty payment on LPG Bulk Movements on stock transfer to Bottling Plants.- Supreme Court confirms that Board Circulars are binding on the Department

The CBEC had vide Circular No. 563/59/2000-CX, dated 21-12-2000 clarified that,

3. The Commissioners of Central Excise, Vadodara, Indore and Surat had raised the demands against different parties (IOC/GAIL/ONGC) in their jurisdiction for short payment of duty for they had cleared the LPG in bulk but paid the duty at the price fixed by OCC for LPG packed meant for domestic purposes. These demands were also duly confirmed holding inter alia that duty was chargeable on value applicable to the form of LPG at the time of clearance from the factory. Against these orders of Commissioners of Central Excise, Vadodara , Indore & Surat , the IOC, GAIL and ONGC had filed appeals after taking Committee on Disputes clearance in the Tribunal. The Tribunal allowed their appeals taking notice of several considerations put forward by the appellants including the intentions behind the conversion from specific to ad valorem duty, various aspects of administrative price regime applicable to certain bulk Petroleum products including LPG, the instructions by a Circular issued by Ministry of Petroleum as to how price should be calculated and duty paid for LPG when it was cleared for packing in bottling units etc. Tribunal ultimately held that the assessable value for the LPG cleared in bulk by the appellants, for bottling for domestic consumption, should be assessed at the lower value fixed by OCC for that category. [Please see Tribunal judgment reported in 2000 (36) RLT 611(T)].

4. As the view taken by Tribunal did not appear to be strictly in accordance with the provisions of Sec. 4, the Department filed a Civil Appeal in the Supreme Court, after obtaining the clearance from the Committee on Disputes and also after obtaining the opinion of the learned Attorney General. The Hon'ble Supreme Court, however, during the course of hearing, desired that the matter should be resolved by the two Departments i.e. Department of Revenue and Ministry of Petroleum. The matter was accordingly recently discussed first in the Board and thereafter in a meeting held between the representatives of Department of Revenue and Department of Petroleum & Natural Gas. The various aspects of the dispute were examined and it was inter alia noted that the product was being marketed under administered price regime and the producers/marketing oil companies had no choice but to sell the products at prices fixed by OCC. It was also a fact that LPG whether it was cleared in packed condition from refinery or when packed in an outside bottling unit, was sold at same price to consumers as fixed by OCC. It was felt, therefore, that it may not be appropriate to insist on Supreme Court's ruling as to whether as per Section 4 higher value (and resultant excise duty) in second category of cases is legally justified. Both the Departments agreed that even if Supreme Court agreed with revenue view point the Oil Companies will not be able to recover any duty. After discussions with representatives of Ministry of Petroleum and considering Hon'ble Apex Court direction to resolve the dispute essentially between Govt. and PSUs , it has been decided by the Govt. that in the special circumstances of production and marketing of LPG with Administered Price regime, we may accept the order of the CEGAT vide their order No. 1528 to 1538/99-A dated 27-10-1999 in the case of M/s. Gas Authority of India Ltd. v. Commissioner of Central Excise, Vadodara , subject to the condition that the refineries/oil companies who have already paid up the demands raised by the Central Excise Department and consequently may be entitled for refund will not be paid any interest on the refund amount held admissible subject to the principle of unjust enrichment being satisfied. It has also been agreed that the oil companies will scrutinize their records and wherever LPG has been cleared at lower price meant for LPG packed (Domestic) but actually sold in bulk, they will forthwith pay differential duty on such LPG bulk.

5. Department has moved Supreme Court for withdrawal of its appeal based upon the above decision.

6. The above principle agreed in the particular CEGAT judgment on the issue of LPG valuation for excise duty purposes, will apply also in all other disputes on same issue including those at show cause notice stage or where assessment of LPG were being made on provisional basis as per Board's instruction, or other reasons pending settlement of the issue before CEGAT . These cases may be decided accordingly.

In spite of this clear clarification, the Department again took the matter to the Supreme Court.

The Supreme Court in CIVIL APPEAL NO.432 OF 2008, held,

Having heard learned counsel on both sides, we are of the view that  the issue involved in this case is squarely covered by the Circular issued by  Central Board of Excise & Customs, New Delhi, bearing No. 563/59/2000-CX, dated 21st December, 2000 (at page 67 of Volume-I) which circular is  binding on the Department.

Hence, this Civil Appeal stands dismissed with no order as to costs.

Today is UNO day - Partnership is the way of the future, says Secy. Genl.

Today is the 63 rd anniversary of UNO, which is supposed to be a Public Holiday in all the Member Countries.

In his message on the occasion, Ban Ki-moon, Secretary-General says,

This is a crucial year in the life of our United Nations. We have just passed the midpoint in the struggle to reach the Millennium Development Goals -- our common vision for building a better world in the 21st century. We can see more clearly than ever that the threats of the 21st century spare no one.  Climate change, the spread of disease and deadly weapons, and the scourge of terrorism all cross borders.  If we want to advance the global common good, we must secure global public goods.

Many countries are still not on track to reach the Millennium Development Goals by the target date of 2015. I am also deeply concerned about the impact of the global financial crisis. Never has leadership and partnership been more important.

This makes our success at the high-level MDG event in September all the more remarkable. We brought together a broad coalition for change. Governments, CEOs and civil society. We generated unprecedented commitment in pledges and partnerships to help the world's poor.

The final tally is not in yet, but the total amount pledged at the MDG event may exceed 16 billion dollars.

Partnership is the way of the future. Just look at the advances on malaria. Our global malaria effort has brought us within range of containing a disease that kills a child every 30 seconds. It is doing so through focused country planning. Greater funding. Coordinated global management. Top-notch science and technology.

We need models like these to tackle other challenges, including climate change, as we approach the conferences on Poznan and Copenhagen. We need them to achieve all the other Millennium Development Goals.

Let us keep building on this as a way forward. There is no time to lose. The United Nations must deliver results for a safer, healthier, more prosperous world. On this UN Day, I call on all partners and leaders to do their part and keep the promise.

Jurisprudentiol– Monday's cases

Central Excise

Refund of Duty paid in excess due to calculation error - when the purchaser has categorically informed that they have not availed CENVAT credit of the component of excess duty and not paid the supplier and which fact has been certified by jurisdictional Superintendent, no question of unjust enrichment: Tribunal

THE refund claim has been filed by the appellant on the ground that there was a calculation error and due to which the appellant has paid excess duty. Both the authorities, while deciding the case have held that the appellant has not crossed the hurdle of unjust enrichment and they have not produced record that they have not recovered duty from their buyers.

Income Tax

Company engaged in the business of hire purchase and investments is a Financial Company; interest from delayed payment from debtors is not on account of interest on loans and advance and hence is not liable to interest tax: ITAT Spl Bench

INTEREST from delayed payment from debtors is not on account of interest on loans and advance and hence is not liable to interest tax. Unless the amount which is sought to be chargeable as the chargeable interest has any necessary relationship with loans and advances, such an attempt to understand the amount alone would not satisfy the requirement of justification. Interest on delayed payments would not be an interest on loan or advance and therefore would not be includible in the chargeable interest under the Interest Tax Act.

Customs

Bank guarantee to be treated as payment of duty in anticipation of the finalization of the duty liability, it cannot be regarded as pre-deposit - Refund claim hit by limitation and bar of unjust enrichment - Appeal rejected by Majority: CESTAT

THIS difference of opinion between the Members on the bench led to the reference of the issue to the Third Member. In the instant case, President of CESTAT himself took up the issue. After deliberating on the relevant provisions with regard to provisional assessment i.e. s.18 and the decision of the Mumbai High Court in Bussa Overseas and Properties Pvt Ltd [2003-TIOL-08-HC-MUM-CUS], it was concluded that s. 18 cannot be read in isolation and any payment by way of appropriation of the security/bank guarantee has to be treated as payment duty and hence, any amount payable or refundable to the importer (appellant) would be subject to provisions of s. 27 including those relating to time-limit for claiming such refund.

See our columns Monday for the judgements

Until Monday with more DDT

Have a nice Weekend.

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