TIOL-DDT 2606
27 05 2015
Wednesday

TILL 2007, there was actually no provision to audit Service Tax assessees at their premises. By Notification No. 45/2007, dated 28.12.2007, a new Rule 5A was inserted in the Service Tax Rules. Rule 5A(2) mandated the assessees to make available the records to the audit party deputed by the Commissioner or the CAG.

The Board in F. No. 137/26/2007-CX.4 dated 1.1.2008 clarified that these amendments have been made in the service tax rules to enable the duly authorised offices to carry out audit or scrutiny as may be necessary to safeguard the interest of revenue.

But has the Government the power to frame such rules or the Board the power to issue such instructions?

The Delhi High Court in the case of M/s Travelite (India) - 2014-TIOL-1304-HC-DEL-ST , held that any attempt to include provision for such a general audit through the back door, such as through the impugned rule, is ultra-vires the rule making power conferred under Section 94(1). Rule 5A(2) was consequently struck down.

To legitimise Rule 5A(2), Section 94 was amended to insert a new clause (k), by Finance Act 2014 with effect from 06.08.2014. So, now the Rule making power includes the power to make rules for imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified.

But could this clause in Section 94 validate an already existing Rule 5A(2)?

By Notification No. 23/2014-Service Tax dated 05.12.2014, the Government inserted a new and revised Rule 5A(2) (DDT 2491), obviously in exercise of the new clause (k) of Section 94.

So the Delhi High Court order was UNDONE. The Board almost said so in Circular No. 181/7/2014-ST, dated 10.12.2014. Board clarified, "the Hon'ble High Court of Delhi in the judgment dated 04.08.2014 in the case of M/s Travelite (India) - 2014-TIOL-1304-HC-DEL-ST had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act. "

Board further stated,

Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

Board directed the Departmental Officers to audit the Service Tax assessees as provided in the departmental instructions in this regard.

First they made the Rule; then they made the Act; then they again made the rule - after litigation in several High Courts.

The issue is back in the High Court.

Mega Cabs Pvt. Ltd. has filed a writ petition in the Delhi High Court challenging the validity of -

1. Rule 5A(2) of the Service Tax Rules as substituted by Notification No. 23/2014-ST, dated 05.12.2014,

2. clause (k) of sub-section (2) of section 94 of the Finance Act, 1994 as inserted w.e.f. 06.08.2014 by the Finance Act, 2014 and

3. the Circular No. 181/7/2014-ST dated 10.12.2014 directing departmental officers to conduct audit of the service tax assessees as provided in the departmental instructions.

The Delhi High Court by order dated 22.05.2015 has issued Notice to the Union of India, Ministry of Finance, and also to the Service Tax (Audit) Department, Delhi.

Please also see:

1. Should AG's Audit be allowed to visit factories and Premises of Service Tax Assessees? - (DDT 1298)

2. AG's Audit Visit to Factories and Premises of Assessees?- (DDT 1776)

3. CAG not authorised to visit factory of assessee in private sector

4. No Audit of Private Enterprises by AG's Audit - Calcutta High Court- (DDT 1951)

5. Karnataka High Court grants Interim Stay against CAG Audit of Service Tax Assessee - (DDT 2103)

6. Audit under Service Tax only by Chartered Accountants - not by officers of Department - High Court - (DDT 2283)

7. Even if Service Tax Audit cannot be done, there is no hurdle for Central Excise Audit - CBEC - (DDT 2453)

8. Service Tax - Audit by CAs - Solution worse than Problem - (DDT 2491)

9. Service Tax Audit - Cart Before Horse - (DDT 2494)

Facilities for EOUs - CBEC Follows FTP

IN tune with the new Foreign Trade Policy 2015-2020, the Government has amended the Central Excise Notification 22/2003-CE-dated 31.03.2003 to allow the following facilities:

1. As per Para 2 (2b) of the Notification, the user industry may supply or transfer capital goods to another unit in a Special Economic Zone (SEZ) or Software Technology Park (STP) unit or Electronic Hardware Technology Park (EHTP) unit or to another Export Oriented Undertaking (EOU), as the case may be, for use within the unit after giving intimation to the said officer, subject to maintenance of proper accounts of removal and receipt of goods and following the rewarehousing procedure. Now such transferred goods may also be returned by the second unit to the original unit in case of rejection without payment of duty after giving prior intimation to the said officer and by following the re-warehousing procedure.

2. In respect of a group of EOUs or EHTPs or STPs or as the case may be, BTP units which source inputs centrally in order to obtain bulk discount and, or, reduce cost of transportation and other logistics cost and, or, to maintain effective supply chain, inter unit transfer of goods and services may be permitted on a case-to-case basis by the Unit Approval Committee. In case inputs so sourced are imported and, then, transferred to another unit, then value of the goods so transferred shall be taken as inflow for the unit transferring these goods and as outflow for the unit receiving these goods , for the purpose of calculation of NFE. (New Para 2C)

3. Unit which has not availed any duty benefit on procurement of raw material, capital goods, etc., may be provided fast track de-bonding or exit from the STP or EHTP scheme. (Para 8 Explanation 4)

4. The said officer (DC/AC) subject to the approval of the Commissioner of Customs or Commissioner of Central Excise, as the case may be, may also allow sharing of infrastructural facilities among EOUs in accordance with and subject to the terms and conditions specified in para 6.12(g) of Foreign Trade Policy 2015-2020. (Para 9)

5. An EOU which intends to set up warehousing facilities outside the EOU premises and outside the jurisdiction of Development Commissioner, at a place near to the port of export, to reduce lead time for delivery of goods overseas and to address unpredictability of supply orders, is permitted to do so subject to the provisions of notification No. 46/2001-CE (N.T.) dated the 26th June, 2001 as amended from time to time. (Para 9A)

6. The exemption shall also apply to procurement of spares or components, upto 2% of the value of manufactured articles, cleared into DTA, during the preceding year, for supply to the same consignee or buyer for the purpose of after-sale service. The same can be cleared in DTA on payment of applicable duty but such clearances shall be within the overall entitlement of the unit for DTA sale at concessional rate of duty as prescribed in Para 6.08 (a) of Foreign Trade Policy 2015-2020. [Para 10a(ia)]

Notification No. 23/2003-CE is also amended to make some minor changes.

Notification No. 28/2015-CX, Dated: May 15, 2015

Import, trading & re-export of rough diamonds by notified entities in Bharat Diamond Bourse, Bandra Kurla Cargo Complex, Mumbai - CBEC Instructions

THE Central Government had announced its intent to permit the trading of rough diamonds in India by leading diamond mining companies of the world by creating a ‘Special Notified Zone'. For this purpose, Dept. of Commerce/GJEPC have sought a regulatory framework under the Customs Act. After consultations with other regulators, namely, DGFT, RBI and with industry, namely, Bharat Diamond Bourse, and GJEPC, the CBEC has decided to introduce necessary provisions to allow and facilitate viewing/auction/sale of Rough Diamonds at Bharat Diamond Bourse, Mumbai w.e.f 1.7.2015.

The Precious Cargo Customs Clearance Centre at BandraKurla Complex, Mumbai (or PCCCC for short) is already notified u/s 8 of the Customs Act, 1962 and Bharat Diamond Bourse (BDB for short) is duly notified as a custodian u/s 45 of the Customs Act. BDB has proposed to identify an area, within the Bharat Diamond Bourse Complex which shall house facilities for receipt, storage, viewing, auctions/sales of imported Rough Diamonds. It shall include all necessary commercial, security & customs related facilities incidental to these activities. This area shall henceforth be referred as a "Special Notified Zone", (or SNZ, for short).

Board has issued instructions on functioning of this zone.

CBEC Circular No.17/2015-Cus ., Dated May 26 2015

MAT Committee Invites Suggestions

THE Committee on Direct Tax matters headed by Justice A.P. Shah which was constituted on 20.05.2015, held its first meeting on 25.05.2015. In accordance with the terms of reference, the Committee has decided to examine the matter relating to MAT on FIIs for the period prior to 01.04.2015.The Committee has invited suggestions and representations from all stakeholders, including industry associations on the above issue under examination. The suggestions may be sent by e-mail to raman-chopra@nic.in by 22.06.2015.

Department of Revenue Office Memorandum in F. No.133/27/20185-TPL., Dated May 26 2015

CBEC Members to Continue as Chief Commissioners

THE new CBEC Members will continue to hold the charges held by them prior to joining as Members in CBEC.

The Following Members will also hold charge as CCs/DGs as:

Obviously many posts from Inspector to Principal Chief Commissioner are lying vacant in the Department. Maybe most of those posts are not needed and can be abolished. But you need cadre review and promotions.

The King

'A king with no guardian or critic to rebuke him, will be ruined even if he has no enemies'- Thirukkural 448' - P Chidambaram on his Twitter.

Until Tomorrow with more DDT

Have a nice day.

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