TIOL-DDT 2394
11.07.2014
Friday

TIOL thanks the Government for the huge relief given in pre-deposit in appeals before the Commissioner(Appeals) and the Tribunal. We have been relentlessly crusading for this reform for quite some time.

DDT 2286 - 04 02 2014, submitted,

It is high time that we seriously think of doing away with this anarchy called pre-deposit, which is causing irreparable damage to the Industry and Trade.

Pre-deposit is really not required now, because if the assessee loses the case ultimately, he has to pay the tax/duty with 18 percent interest and this is a wonderful investment for the Government. No Government investment brings in at least a third of that kind of returns.

Even if total waiver cannot be given, let us fix pre-deposit as a standard 10 percent of the duty/tax demanded with absolutely no discretion to any appellate authority- then appellate authorities, especially the Tribunal need not waste its time on Stay matters and final matters can be taken up and perhaps they can be decided in a couple of years.

This is the best time for the Industry and Trade bodies to influence the political parties to bring in law providing for little or no pre-deposit. Political parties are offering all kinds of sops like free electricity and colour TVs to voters - with the taxpayers' money. It is time that the real taxpayers also demand and get some relief (at least a little less harassment). After all you give a lot of money to the politicians - make them listen to your woes - at least during elections.

DDT 2390 - 07 07 2014 commented,

No civilised country would perhaps have such draconian laws. Draconian laws survive not because of the tyranny of the rulers, but because of the meek acceptance of the victim subjects. This dangerous provision has been in the Statute for more than a decade - nobody took it seriously, as Tribunal Benches were fair and just in giving stay and now if it is held that the Tribunal had no business or rather the power to give stay beyond 365 days, the Indian Business is doomed.

Mr. Arun Jaitley is a learned lawyer and he would certainly understand this issue, if explained to him properly.

He is and he did.

Now you have to pre-deposit 7.5 percent for appeals to the first appellate authority and another 10 percent for a second appeal. There is no requirement of getting a Stay and then getting it extended after 180 days and then getting doomed after 365 days. The issue whether the Tribunal can grant stay beyond 365 days is before the Larger Bench of the Tribunal, various High Courts and even the Supreme Court. All those cases will become irrelevant - at least prospectively.

Now, the Tribunal can really concentrate on the work, it was created for - deciding appeals - instead of stay and waiver applications.

The statutory amendments raise several questions though:

Many of our distinguished contributing authors have expressed a fear that, notwithstanding the amendment, Department can still proceed with recovery as the pre-deposit is only a pre condition for appeal and not a stay against recovery. Let us hope when the Bill is enacted, it would be statutorily clarified that no recovery proceedings can be initiated when the appeal is pending.

There is a doubt on payment of another 10 percent for the second appeal. Though the TRU letter states that another 10 percent, the amendment does not say so clearly. So, there is a doubt whether the pre-deposit at the second appellate stage is 10 percent or 17.5 percent. Even if it is 17.5 percent, what will happen to the 7.5%deposited with the Commissioner (A)?. Shouldn't that also be considered as pre-deposit? This also needs clarification statutorily.

Pre-deposit of penalty or duty or both: As per the amendment, pre-deposit is a percentage of the duty or penalty or both. Who will decide whether duty or penalty or both have to be paid? Does the appellant have a choice?

Can Tribunal still grant waiver? Paying 10 percent of the duty or penalty may still be difficult for some assessees. Do they lose the opportunity of appealing? There are several closed companies with no assets, who are stuck with huge demands from the department. What will they do? In case of firms and companies, Commissioners are fond of imposing huge penalties on several employees of the company. Now, each one of them will have to pay a pre-deposit of 10/7.5 percent of the penalty. You may remember the classic case of a crazy Commissioner who imposed a penalty of Rs. 50 Crores on an employee of BHEL. 2002-TIOL-281-CESTAT-DEL In the new regime, if this employee wants to appeal to the Tribunal, he has to make a pre-deposit of Rs. 3.75 Crores and if he cannot raise that kind of money, he owes the Central Excise Department a whopping Rs. 50 Crores! So, there must be some mechanism for the Tribunal to waive pre-deposit in exceptional cases and individual employees and directors should be exempted from pre-deposit if the main appeal is filed by the company/firm.

Let us hope these changes would come in the Finance Act. A good Government that has gone this far should take that extra step.

The FM's Budget Team - All smiles - It's Over!

THE Finance Minister Arun Jaitley with his deputy Nirmala Sitharaman and top officers of the Finance Ministry including Finance Secretary Arvind Mayaram, Revenue Secretary Shaktikanta Das, Chairpersons of CBEC and CBDT.

Input Service Distribution - A welcome clarification

In the midst of all those Budget Notifications and laws, both the CBEC and CBDT have come out with some important Circulars.

Input service distribution under CENVAT credit Rules 2004 has always been a confusing issue. The latest amendment to Rule 7 was made vide Notification No 5/2014 CE(NT) dated 24.02.2014 substituting clause (d) as under:

"(d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.";

But still some doubts remained as to whether the credit can be distributed among all the units even if service is not used in one of the units .

Now, this issue has been clarified with clear illustration that there is no such bar and the credit can be distributed among all the units even if the service is not used in one of the units. The following illustration given in Circular No. 178/4/2014-ST dated 11.07.2014 (why the Circular should be dated 11.07.2014?) will make the things clear:

Illustration:

An ISD has a common input service credit of Rs. 12000 pertaining to more than one unit. The ISD has 4 units namely ‘A', ‘B', ‘C' and ‘D' which are operational in the current year.

The common input service relates to units ‘A', ‘B' and ‘C', the distribution will be as under:

(i) Distribution to ‘A' = 12000 * 2500000/10000000 = 3000
(ii) Distribution to ‘B' = 12000 * 3000000/10000000 = 3600
(iii) Distribution to ‘C' = 12000 * 1500000/10000000 = 1800
(iv) Distribution to ‘D' = 12000 * 3000000/10000000 = 3600

The distribution for the purpose of rule 7(d), will be done in this ratio in all cases, irrespective of whether such common input services were used in all the units or in some of the units.

There is another interesting development in this issue as clarified by the Circular.  The Unit "C" is mentioned as "providing exclusively exempted service" and as per the mathematical formula prescribed, the CENVAT credit that is distributed to this unit is Rs.1800/-. 

But what will the Unit "C" do with this credit? 

CBEC Circular No. 178/4/2014-ST, Dated: July 11, 2014

FIAT case is not applicable for Fertilizer subsidy - Board clarifies

IT seems after the FIAT case, several settled disputes are re-opened. One such dispute is whether the subsidy received from the Government by the Fertilizer manufacturers is includable in the assessable value. Trade and Industry Associations have represented that in spite of the clarification issued by the Department of Revenue to the Department of Fertilizers, the field formations have issued show cause notices to the fertilizer companies seeking to levy excise duty on the subsidy component of price-controlled fertilizers in the light of the judgment of the Supreme Court in the case of  CCE, Mumbai vs M/s Fiat India Pvt. Limited  2012-TIOL-58-SC-CX.

Board now clarifies that:

The facts at hand are clearly distinguishable from the facts and circumstances of the Fiat India case. The manufacturers of fertilizers do not gain any extra commercial advantage vis-a-vis other manufacturers because of the subsidy received from the Government. The subsidy paid by the Government to the manufacturer is in larger public interest and not for benefitting any individual manufacturer-seller and it is also not paid on behalf of any individual buyer or entity. Even though the subsidy component has money value, it cannot be considered as an additional extra-commercial consideration flowing from the buyer to the seller.

The Supreme Court, in the Fiat India case, has not ruled that the subsidy component provided by the Government would tantamount to consideration flowing from the buyer to the seller and therefore, should be included in the assessable value an excisable good in terms of the extant Valuation Rules .

It is, therefore, clarified that in respect of fertilizers for which subsidy is provided by the Government, the excise duty will be chargeable on the MRP and not on the subsidy component provided by the Government.

CBEC Circular No. 983/7/2014-CX, Dated: July 10, 2014

CBDT fixes monetary limits for appeals

CBDT has decided that Departmental appeals may be filed on merits before Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified.

Henceforth appeals shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: -

Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits.

1. Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or

2. Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or

3. Where Revenue Audit objection in the case has been accepted by the Department.

This instruction will apply to appeals filed on or after 10th July 2014

CBDT Instruction No. 5/2014, Dated: July 10, 2014

Bid Adieu to LTU

ADVOCATE G. Natarajan from Chennai, a prolific budget commentator writes in:

The Large Taxpayer Units were introduced with much fanfare by the previous FM. Over the years, not many assesses have opted for LTU, as nothing much is different in a LTU from a normal Central Excise Office, other than the issue of Visitors Pass with Access cards and the corporate atmosphere in terms of furnishing, etc.

The only two incentives for any large taxpayer to opt for LTU are

- Transfer of goods between the units, without payment of duty, which otherwise involve determination of value as per CAS 4.

- Transfer of CENVAT credit from one unit (where there is accumulation of credit) to other unit (where credit is required).

Of the above, the first one is also having a fetter that if the final products are not cleared on payment of duty or for export within 180 days, duty should be paid along with interest.

So the real incentive was only the second one.

But, now this incentive has been withdrawn vide notification 21/2014 CE NT.

So, the LTU is no more attractive and we can soon see an exodus from LTU.

Place of Supply of Services Rules - And what was that?

PARA 4.1.3(ii) of the D.O Letter of the JS(TRU-II) reads as:

(ii) The definition of intermediary is being amended to include the intermediary of goods in its scope. Accordingly, with effect from 1.10.2014, an intermediary of goods, such as a commission agent or consignment agent shall be covered under rule 9(c) of the Place of Supply of Services Rules .

Where are these Rules? Where did he get them from? What he means perhaps is the Place of Provision of Services Rules as that is what the caption to the paragraph says.

Duty Free Baggage Allowance Increased

GOOD news for those going on foreign jaunts - you can return with more phoren goods - the duty free baggage allowance is increased from Rs. 35,000 to Rs. 45,000, but the quantum of duty free cigarettes is reduced.

Notification No. 50/2014-Customs (N.T.), Dated: July 11, 2014

A great Job by Revenue Officers

THE  Officers of the Indian Revenue Service in both the Boards have done a commendable job. It is not an easy task to draft all these complicated Bills and notifications, especially in the Indirect Taxes. The Himalayan task they had so silently executed is incredible. The Legislative wing of CBEC is called Tax Research Unit (TRU) and the bright boys in TRU have done tremendous research and for one tenth of this work, they would get Ph.D from the best universities. And this year they had very little time with a new Government in place.

DDT  salutes these sincere stalwarts.

Budget With TIOL

YESTERDAY , we brought to you incisive analyses on some of the issues pertaining to the budget from our in-house experts and our distinguished guests who are all noted authorities in the field. We will bring you more analyses on the budget today and in the coming days from the best brains in the country.

DDT Cartoon

Budget Notifications At a Glance

Until Monday with more DDT

Have a nice weekend.

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