TIOL-DDT 2648
24 07 2015
Friday

MANY including Courts believe that Service Tax is levied under Entry 92C of the Seventh Schedule to the Constitution of India inserted by the eighty eighth amendment which brought in Article 268A.

Article 268A (1) states,

"Taxes on services shall be levied by the Government of India".

Entry 92C reads as:

"92C. Taxes on services."

But there is a small problem - the Eighty eighth amendment was never notified!

In an article for us in June 2009, the eminent senior advocate Arvind P Datar wrote, "Interestingly, Entry 92C and Article 268A were inserted by the 88th Amendment to the Constitution. But both these have not been notified till date."

In the Madras Hire Purchase Association case - 2009-TIOL-338-HC-MAD-ST, argued by Mr.Datar, the Madras High Court observed, "Service tax is made by Parliament under Entry 92C of List I and Article 268-A… "

I asked Mr.Datar on this immediately after the High Court judgement was delivered. He wrote to me, "I had specifically argued that 92C and 268A had not been notified; we are moving the Supreme Court against this order." He did and the Supreme Court in 2010-TIOL-87-SC-ST-LB observed, "this Court has on three different occasions upheld the levy of service with reference to Entry 97 of List I in the face of challenges to the competence of the Parliament based on the entries in List II and on all the three occasions, this Court has held that the levy of service tax falls within Entry 97 of List I."

So, Service Tax is levied under the residual entry 97 of the Seventh Schedule to the Constitution, and not under entry 92C.

Now the Constitution Amendment Bill to bring in GST specifically provides for omitting Entry 92C in the Seventh Schedule and Article 268A in the Constitution. Remember these provisions were never notified.

Interestingly, this point came up before the Rajya Sabha Select Committee, which studied the Constitution Amendment Bill. Some Members sought clarifications and asked, "What is entry 92C?" (as it does not figure in the Constitution)

The Committee observed,

Regarding the aforesaid Entry, the Committee is of the view that Entry 92C was inserted by the Constitution (Eighty-Eighth Amendment) Act, 2003 to empower the Union to impose service tax on certain services read with article 268A of the Constitution.

Notwithstanding, the service tax levied under the Finance Act, 1994 were continuing as such. The amendment was carried out in the Constitution but the provision was never brought into force. Since Parliament has enacted the said constitutional provision and as such the provision stands as the part of Constitution; unless it is omitted by a Constitution Amendment Act by Parliament, it will continue to sit in the Constitution. Therefore, it is necessary to omit the said provision to ward of any future doubts about GST.

High Court Imposes Costs on Customs Department for disobedience

THIS pertains to finalisation of provisional assessment by the Assistant Commissioner in the year 1996. The Commissioner (A) allowed the appeal of the importer against which the Department appealed to the Tribunal. The Tribunal in 1997 remanded the matter back to the Commissioner of Customs (Appeals).

Finally, the Commissioner of Customs (Appeals), by order dated 31.03.1998, agreed with the contention of the importer. However, the department once again took up the matter before the CESTAT.

The CESTAT passed Majority Order dated 18.04.2005, giving a finding against the petitioner.

Challenging the said order of the CESTAT, the importer had filed Writ Petition and the High Court, by order dated 02.12.2008, dismissed the same on the ground of alternative remedy.

The importer preferred an appeal before the High Court and the Court, by order dated 20.11.2009, allowed the writ appeal in favour of the importer.

However, in spite of the High Court order, the Assistant Commissioner did not finalise the assessment of the 63 imports already made by them.

Therefore, they were constrained to file another writ petition in 2012. The High Court by order dated 07.01.2013, once again directed the Department to rework and finalize the assessment in terms of the 2009 order of the High Court.

Thus the importer had two favourable orders from the High Court on the same issue.

But mere High Court orders don't impress powerful Assistant Commissioners. They will think of implementing the High Court orders only if the Commissioner is pleased to accept the High Court order.

The High Court observed,

From the facts, it is clear that the petitioner has been made to fight a long battle resulting in physical and mental harassment apart from financial implications. When a case like this absolutely warrants imposition of damages, a let-loose and slight approach would only further encourage the authorities in playing foul games even before Courts.

Therefore, although this Court can direct the Government to initiate departmental action against all those officers responsible for non-compliance of the orders passed by this Court, while refraining from doing so, this Court deems it fit to impose exemplary costs of Rs.1,00,000/- (Rupees one lakh) on the respondent-department and, out of such amount, Rs.50,000/- shall be paid to the petitioner towards the litigation fees and the balance amount of Rs.50,000/- shall be paid to the Tamil Nadu Mediation and Conciliation Centre, Chennai, for wasting the precious time of the Court.

Accordingly, the respondents are directed to complete the said exercise within a period of four weeks from the date of receipt of a copy of this order.

Needless to mention that the department is at liberty to recover the said amount from those persons who are responsible for non-implementation of the orders passed by this Court as stated above, after issuing proper notice to them .

Most probably, they will take the matter to the Supreme Court. And will they recover the cost from the officers responsible. It is almost impossible to find a responsible officer in the department. The High Court had passed its first order in 2009 and in the last six years, at least 20 officers must have dealt with the file and each one of them will prove that he was not responsible.

The importer had to suffer an amount of Rs. 22 lakhs and now the Department will have to pay interest for this amount apart from the cost of a lakh of rupees. This is what the overzealous officers contribute to the Department.

We bring you this order today.

Please see Breaking News.

Also see another order of the Bombay High Court where the SCN was quashed since the same was unadjudicated for 17 years and the amount of Rs.2.07 crores deposited under Protest by the Petitioner in May 1996 was allowed to be claimed as refund along with interest. In this case, the High Court has also directed the Secretary in the Ministry to initiate departmental and other legal proceedings so that all guilty of causing loss to public exchequer are brought to book.

Also See Breaking News

SBI seeks exemption from GST

THE State Bank of India submitted to the Select Committee of Rajya Sabha on GST:

Financial services are exempt from GST/VAT in almost all countries. However, In India, service tax is leviable on fee based services provided by the banks and financial institutions. Presently, the tax is applicable on all fee based activities including the services provided to weaker section of society, whose accounts were opened for financial inclusion to achieve the social goal of the Government. Retail transactions, in terms of volume, constitute more than 90% in banks. The value of service for most of these transactions does not exceed Rs.100/- considering the larger goal of the Government, it is requested that GST should not be applicable on services rendered to retail depositors. In case the Government wishes to levy GST on such services, some abatement may be considered so that the cost of services to retail customers does not go up, as GST rate is likely to be substantially higher than the present service tax rate. This will go a long way in continuing with affordable banking services to all.

Considering the huge network of branches/ATM and also considering the complexities involved, we request that banks should be permitted to have a single registration and discharge GST liability centrally and credits of SGST should be available across States.

Newspaper reports that the GST rate is likely to be 20-22% as against service tax rate of 14%. Considering that in most of the countries, banking services are outside GST, the increase in the tax rate will further increase the cost of banking services. This results into cost of doing business to be much higher in India as compared to other competing countries. To be internationally competitive, the GST rate for banking industry should be minimum and in no case should it be more than what is being levied today.

We request that the best practices followed internationally may be followed and banking services are kept outside GST. If this is not possible then, interest, trading in securities and foreign currency and services to retail customers should not be liable to GST and suitable provision should be there to avail of CENVAT credit of input services taken to provide activities involved in such services.

Further, single registration coupled with IGST provision should be made available to enable CenVAT credit for consumers of banking services.

The Committee recommended:

Endorsing the views of the SBI, the Committee having same feeling as the bank recommends that the best practices followed internationally may be followed and if possible banking services may be kept outside GST. Furthermore, if this is not possible then, interest, trading in securities and foreign currency and services to retail customers should not be liable to GST and suitable provision should be there to avail of CenVAT credit of input services taken to provide activities involved in such services. Further, single registration coupled with IGST provision should be made available to enable CenVAT credit for consumers of banking services.

The Committee is of the considered opinion that if the GST rate is more than the service tax rate of 14%, the increase in the tax rate will further increase the cost of banking services. This results into cost of doing business to be much higher in India as compared to other competing countries. Therefore, the Committee recommends that to be internationally competitive, the GST rate for banking industry should be minimum .

Recommendations of Committee - Highlights

THE Committee while approving the Bill, made some very important recommendations:

Local Bodies: The State Governments take adequate measures to ensure that adequate revenues flow to the local bodies, and their resources are not adversely affected.

State Finance Commissions: The Committee is perturbed to know that State Finance Commissions (SFC) in some of the States are either non-existent or even when exist their recommendations were not accepted by the respective State Governments. The Committee understands that each tier of the Government draws it powers through the Constitution and there is a clear demarcation of fields through List I, II and III within which each tier has to function. Any encroachment by any of them would paralyze the whole system and defeat the very foundation of our Constitution.

Hence, the Committee while not venturing into the domain of the State List desires that for the betterment of our States in general and country in particular it would be prudent to abide by the recommendations of the SFCs.

Inflation: The Committee feels that it would be too early to presume as to whether the price levels will go down or up in the post GST era. What has to be seen and watched by the Government with eyes open is whether the benefit, if any, arises would certainly be passed on to the consumers or not. Hence, the Committee feels that at the most if price stability is achieved it would serve the very purpose of GST in the entire country as inflation, nowadays has not left even a single field untouched.

GSTN: The Committee feels GSTN shall play a crucial role in implementation of GST as it shall provide the IT infrastructure for implementation of GST. It noted that Non Government shareholding of GSTN is dominated by private banks. This is not desirable because of two reasons. Firstly, public sector banks have more than 70% share in total credit lending in the country. Secondly, GSTN's work is of strategic importance to the country and the firm would be a repository of a lot of sensitive data on business entities across the country. In light of above, the Committee strongly recommends that Government may take immediate steps to ensure Non Government financial institution shareholding be limited to public sector banks or public sector financial institutions.

In that backdrop, the Committee recommends that all out effort should be made to improve upon the IT preparedness of the States, so that the apprehensions related to its level of preparedness may gets addressed. For its smooth implementation, the Committee immediately recommends implementation of comprehensive training programmes at all levels to allay the fears of consumers, stakeholders, organisations, etc. A message should go loud and clear to all that we as a country are ready to adopt tax reform of unparallel nature. The Committee also recommends that for having no discernible blemishes in the implementation of GST, it is imperative that not only IT preparedness is at very high level but also prerequisites like IT infrastructure, unified tax credit clearing mechanism, etc may be put in place for its implementation.

Tariff Value of Gold Decreased

THE Government has decreased the Tariff value of Gold from 376 USD to 354 USD per 10 grams. There is no change in the Tariff Values of other items.

The Tariff values as on 15.07.2015 and with effect from 23.07.2015 are as under:

Notification No. 69/2015-Cus.(N.T.), Dated: July 23, 2015

Until Monday with more DDT

Have a nice weekend.

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