IN a landmark decision, the Nagpur Bench of the Bombay High Court held that outdoor catering is an eligible input service for taking CENVAT Credit. In a major departure from the routine judgements, the High Court held that the ratio of the Supreme Court judgement in the Maruti Suzuki case [2009-TIOL-94-SC-CX] was applicable, the judgement in its entirety would not be applicable as far as input service is concerned.

What constitutes input service had been a bone of contention in many a case before the Tribunal and the High Courts.

In an interesting observation, the Tribunal in the Sundaram Brake Linings case [2010-TIOL-863-CESTAT-MAD] had stated,

“Neither biscuits can be considered to be input for manufacture of say a motor vehicle part, or paper or cement, nor the duty paid on biscuits can be allowed as credit for paying duty on such motor vehicle part or paper or cement. The Department's case is that when biscuits are not inputs for motor vehicle part, paper or cement, the service tax paid for supply of biscuits cannot be allowed for paying duty on the motor vehicle parts, paper or cement. I have chosen the real life example of biscuits to illustrate the point that supply of biscuits to the workers engaged in the manufacture of motor vehicle parts, paper or cement cannot be considered as an input service by any stretch of imagination unless the biscuits eaten by the workers can be said to be integrally connected to the manufacture of the finished goods like motor vehicle parts, paper or cement.”

Now, the Bombay High Court has emphatically held that, “ the definition of ¶input service¶ is very wide and covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products. To put it differently, the definition of input service is not restricted to services used in or in relation to manufacture of final products, but extends to all services used in relation to the business of manufacturing the final product.”

We bring you this landmark judgement today with our analysis. Please see Breaking News.

We also bring you today an in-depth analysis of the issue by one of our distinguished commentators, Chennai based Advocate Joseph Prabakar. Please see CENVAT on Input Services – Will the controversy end with Ultratech decision?

Works contract service - How to compute small scale exemption?

RECENTLY, an assessee has encountered a strange problem. He is a service provider under works contract and opted to pay service tax under composition scheme at the rate of 4% on the gross amount. He wanted to avail the exemption of Rs 10 lakhs available under Notification No 6/2005-ST. He satisfied all the conditions of the Notification. The only issue is how to compute the aggregate value not exceeding rupees ten lakhs for works contract service. Since there is no separation of goods and service in his works contract, he does not want to limit the exemption to first 10 lakhs of the amount received as it includes material value.

The assessee informed us that he encountered different propositions from different sources. One theory is, (can we call CAG theory?) since the levy under works contract is at 4% under composition, the 10 lakhs exemption should be reduced on pro-rata basis to 10 lakhs multiplied by 4 divided by 10 ( normal rate of service tax).

Another theory is (can be called “the consultant theory”) that the exemption should be in fact, enhanced on pro rata basis by multiplying 10 lakhs with 10 divided by 4, which gives an exemption up to 25 lakhs for works contract. This theory is supported by the argument that under small scale exemption, the Government is ready to forego service tax of Rs 1 lakh ( at 10% on 10 lakhs value). So for works contract service, the value for revenue of 1 lakhs would be Rs 25 lakhs. Sounds convincing.

But apparently a clarification or an amendment would help the tax payers (stakeholders) .

Customs Complications - Board solutions?

RECENTLY Member (Cus & EP) of CBEC, SK Goel chaired a meeting of the Customs Consultative Group in Mumbai. We bring you some of the queries raised and the Member's crisp replies.

Q: Safeguard of CHA Industry: The Government has imposed safeguard duty on various measures to safeguard the domestic industry. Similarly some measures from Government side may please be taken to safeguard the Indian origin CHAs who are facing serious injury due to arrival of various foreign bound service industries into the CHA trade.

Suggestion

++ The Service Tax is same for domestic and foreign based industry. The same may be increased for foreign based service industry to safeguard the domestic industry.

++ Special exemption in TDS or Service Tax may be given to Indian Origin CHAs.

++ Foreign Agencies shall not be allowed to operate CHA business in India and must be restricted to manufacturing activity only under collaboration.

++ Customs Act and CHA Regulations may please be suitably amended/ modified to incorporate necessary provision to grant CHA licenses to 100% Indian Companies/ Indian citizens only.

A: Such requests may not be acceptable in the present circumstances. However, Bombay Custom House Agents Association was advised to send a detailed note in the matter for consideration of the Board.

Q. Administrative control of all EOU units other than port cities was with the Jurisdictional Central Excise. However under Circular No. 31/2003 dt. 07.04.2003 the Board specifically created an exception for Bangalore. With this circular, all EOU / STP / EHTP units was brought under the administrative control of Commissioner of Customs, Bangalore, under his territorial jurisdiction. Now, Commissioner of Customs, Bangalore has issued a Public Notice No. 32/2010 dated 26.05.2010 stating that all EOU units will be shifted from Customs to Central Excise from 31.07.2010 which was issued in pursuance of Board's directions. Bangalore Association has written a letter to Chief Commissioner of Central Excise on 22.07.2010 expressing the difficulties and specially requested the role of CHAs under central excise.

Bangalore CHA Association received reply from Central Excise the request and mentioned that there is no scope for CHA's under central excise Act.

From 2003 to 2010 the number of units have almost doubled and nearly five thousand units are functioning at Bangalore. Accordingly the scope of the business of CHA's also increased to multiple level. By this sudden move by the authorities at Bangalore will certainly deprive the future of nearly fifty to sixty CHA's purely depending on Custom Division activities.

They have finally requested to restore all the EOUs/EHTPs/STP work to the Customs Division at Bangalore.

A: the transfer of control over EOUs from Customs to Central Excise in port cities and Bangalore has been a conscious decision, taken for ensuring a better, more effective tax administration. With this decision all the EOUs in the country are under Central Excise control which ensure not only uniformity in application of laws but also better compliance management. The role of CHAs however,still remains unchanged which is in the area of import / export activities of the EOUs.

We will bring you more clarifications in the next editions of DDT.

Revenue Blunders in UK - 15M Wrong Tax Bills

FIFTEEN Million Tax Payers in UK are being told that they have paid the wrong tax – all because of a computer mess up.

Civil servant Douglas Marsh has received a letter from HM Revenue and Customs demanding £11,000 in back payments Douglas, 61, said: ¶It was shocking to get this in the post - it's an outrageous amount to ask anyone to be paying.”

A Labour MP had this to say about the Revenue Department, “The Revenue doesn't tell the politicians, they don't admit the problems and don't even consult their staff. Demotivated, hidden away, it's a bunker mentality hoping to get through, hoping to survive, hoping next year will be better. That's not good enough for a public service.”

This mess could affect one in three tax payers.

Jurisprudentiol – Tuesday's cases

Customs

Even an allegedly void order is to be challenged within period of limitation – CESTAT

The party aggrieved by the invalidity of the order has to approach the Court for relief of declaration that the order against him is inoperative and not binding upon him. He must approach the Court within the prescribed period of limitation. If the statutory time limit expires the Court cannot give the declaration sought for.

Income Tax

If employees lease out their own premises to employer against rent and occupy same, whether they lose their HRA benefits - NO, says Tribunal

THE issue before the Tribunal is - if employees lease out their premises to their employer against rent and occupy the same, whether they lose their HRA benefits - Whether obligation falls on the employer to compute the value of perquisite for accommodation after adjusting the lease amount paid and what is left over should be treated as HRA benefit. NO, says the Tribunal.

Central Excise

M-seal is ‘other mastics' classifiable under heading 32.14 of CETA, 1985 and not 'Putty' - CESTAT

Holding that the impugned goods were classifiable as ‘Other mastics' and not covered under the notification 5/2001-CE(N.T) dated 01.03.2001, the order demanding duty for the earlier period viz. 1.4.01 to 28.2.2002 by assessing the goods under section 4A was held to be unsustainable and set aside. The appellants were also held to be eligible for consequential relief.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice DAY.

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