TIOL-DDT 2757
04 01 2016
Monday

IN the tax administration, the Government wants you to do most of the work the tax officials are supposed to do and if you make a small mistake, they will show you hell. An entrepreneur wonders, "instead of being grateful to me for doing their work free, why do they treat me like a criminal?"

Recently a High Court summarised the tasks to be performed by deductors in relation to TDS provisions:

(a) Ascertain from its books of account as to which payments/expenses are covered under TDS provisions.

(b) Check up monthly record for applying the TDS provisions when payments exceed certain threshold limits mentioned in the Act.

(c) Collect PAN details from the deductee which normally are either verbally spoken by the deductee or sent by message/copy of PAN Card. Deductee does not have any mechanism to easily check the correctness of the PAN verbally spoken/received by message.

(d) deduct the TDS/TCS at the applicable rates by the end of the month.

(e) deposit the collected TDS normally within 7 days of the next month following the month in which tax has been deducted/collected.

(f) Collect various information at the end of the quarter for deductees of whom tax has been deducted/tax deducted at lower rate/no tax deducted for certain categories of deductees mentioned in the provisions of the Act.

(g) Furnish separate quarterly statement for salary, non-salary and tax collected at source.

(g) Furnish the forms manually/electronically in the way provided by Centralized Processing Cell TDS which gets some changes regularly due to advancement in technology.

Income Tax -PAN Correction only for two alpha and two numeric characters

WHILE deducting TDS, what happens if you make a mistake in the PAN of the deductee? You realise the mistake and want to correct it. A little known fact is the Income Tax Department System does not allow correction of more than four characters in the PAN.

Suppose your deductee's PAN is AABCG2414F and you mentioned AABCG4029R by mistake. Now this will not be allowed to be corrected because there is correction in 4 numeric and one alpha characters.

Strange but true! And totally illegal!

TDS Deductors beware - a mistake in deductee's PAN and you're doomed

IF you are a TDS deductor, what happens if you make a mistake in the PAN of the deductee? And you are not able to correct it as the Income Tax Department will allow correction of only four characters!

The Income Tax Department will treat it as if the deductee had no PAN and you will be asked to pay 20% as TDS instead of 2%. Interest and penalty added in good measure.

This is exactly what happened to a mega PSU - the ONGC. Read the details:

During quarters 1, 2 & 3 of F.Y. 2013-14 ONGC (assessee deductor) deducted tax at source from one of the contractors namely Gujarat Energy Transmission Corporation Ltd., a Government of Gujarat Undertaking (GETCO Ltd.) and the assessee was required to deduct 2% from the sum paid/credited to the deductee i.e. GETCO Ltd. ONGC duly deducted and deposited the tax and filed the quarterly TDS return in form 26Q as per Income-tax Rules. In form no.26Q deductor who deducts the TDS is required to furnish the details of deductee including his PAN as well as amount of sum credited/paid and TDS deducted. Inadvertently the assessee mentioned wrong PAN of the deductee due to which Centralized Processing Cell-TDS treated wrong PAN as no PAN and accordingly created demand for all the three quarters by imposing a burden of 18% as difference of low TDS deducted because as per the provisions of section 206AA of the Act in the cases when any sum is paid to deductee who does not furnish PAN, the deductor is liable to deduct TDS at rate specified in the relevant provisions of the Act or at the rates in force or @ 20%, whichever is higher calculated on the sum paid/credited to the deductee.

The assessee ONGC tried to rectify the mistake by filing correction statement but the same was rejected for the very reason that the system only allows the change of 4 characters subject to maximum of two numerical characters and two alpha characters. Whereas in the wrong PAN quoted by the deductor there were more than 4 changes and, therefore, correction statement was not accepted.

On appeal, the learned CIT(A) was pleased to confirm the demand. (what else do you think a Commissioner is for?)

ONGC approached the ITAT.

The ITAT held:

++ Refusal of the various agencies not to accept change in character in PAN details filed by deductee in its correction statement was not correct and justifiable.

++ The system is erroneous to the extent if it restricts the deductor to revise its TDS return/statement within some corners which in this case was correction of PAN details subject to change of two alpha and two numerical characters and, therefore, correction statement filed by the assessee needs to be accepted after ascertaining the correctness of the correct PAN furnished by the deductor.

Please see Oil & Natural Gas Corporation Ltd Vs Deputy Commissioner Of Income Tax - 2015-TIOL-1998-ITAT-AHM

It seems that even in cases where the PAN is corrected (four or less character cases), the corrections are not carried out for the deductor and he is still asked to pay 20% TDS!

Paying tax is not all that an easy proposition in India.

There is no such problem in Central Excise for they don't allow correction of returns!

Excise Duty on Petrol hiked

GOVERNMENT  has hiked the excise duty on petrol and diesel with effect from 2 nd January 2016

Retail prices are not going to be affected - only government wants to take advantage of the low crude price, not the refinery, not the consumer.

Notification 01/2016-CE., Dated: January 01, 2016

CENVAT Credit on Courier Imports - CENVAT Credit Rules Amended

A certificate issued by an appraiser of Customs in respect of goods imported through a Foreign Post Office, is a document prescribed under Rule 9 sub-rule (1), clause (d) of the CENVAT Credit Rules for taking CENVAT Credit.

Now this is amended to include an authorised courier. The Clause now reads as,

A certificate issued by an appraiser of Customs in respect of goods imported through a Foreign Post Office or, as the case may be, an Authorized Courier, registered with the Principal Commissioner of Customs or the Commissioner of Customs in-charge of the customs airport.

Notification No. 27/2015- CX (N.T), Dated: December 31, 2015

Why this amendment? What is the document for taking credit on inputs imported through Courier?

It's a rather long story.

This has been a question haunting the assessees for long. A typical doubt runs like this:

We are receiving imported inputs through courier agencies and they are clearing our consignment along with other consigments under single bill of entry on their own and deliver to us after collecting the duty amount and their charges. They are issuing a consolidated statement in xerox showing the details of duty paid on behalf of us at the time of delivery, along with a copy of the Bill of Entry. Our question is whether we can claim CENVAT credit based on the said document issued by the Courier.

In several places, Audit has raised objection and Department has dutifully confirmed demands when credit was taken on the courier bills of entry.

The Board had issued a clarification in 2007 (31/2007 - Cus, Dated: August 29, 2007 ) in response to a representation from Express Industry Council of India (EICI) on the difficulties being faced by them in availment of CENVAT Credit on Courier Bill of Entry.

The Board clarified that whenever consignee intends to take CENVAT credit on imported goods, normal Bill of Entry may be filed. This Bill of Entry may be used by the importer for taking CENVAT credit on any imported goods, as per clause (c) of rule (9) of CENVAT Credit Rules, 2004.

Board did not clarify as to what a normal (and what an abnormal) bill of entry is. Anyway the Board Circular came in handy to overzealous officers to deny credit.

The CESTAT in a case decided in March 2015 CCE Vs Interface Microsystems - 2016-TIOL-34-CESTAT-DEL, held,

In this case, the first issue is for denial of Cenvat credit on the strength of consolidated Courier Bills of Entry. As per Rule 9 of Cenvat Credit Rules, 2004, Cenvat credit is available on the strength of bill of entry and in the said rules there is no classification of bills of entry. The classification made by the Revenue is imaginary in the Courier Bill of Entry, an Ordinary Bill of entry or a Special Bill of Entry. It is not in dispute that respondent has taken the Cenvat credit on the strength of Courier Bills of Entry. Therefore, I hold that the Courier Bill of Entry is a specified document as per Rule 9 of Cenvat Credit Rules, 2004 .

Instead of solving the problem that the Board created in 2007, they seem to have contributed substantially to continued litigation. Now the amended rule insists on getting a certificate from an appraiser, which is easier said than done. And the field will revive all the old cases and insist that courier bill of entry is not a valid document and credit taken on that is improper.

Brilliant Order passed by young Assistant Commissioner Ruchi Bisht

THIS column cannot end today without expressing its unbounded admiration for a bold and brilliant order passed by a young IRS officer on the issue of credit on courier bill of entry.

During the course of audit, it was observed that the assessee had availed CENVAT credit on the basis of combined courier bills of entry and in terms of the clarification issued by the CBEC in Circular No.No.31/2007 (Customs) dated 29-08-2007, the assessee was required to file Normal Bill of Entry, which serves as the document for claiming CENVAT. Thus, it is alleged that combined courier bills of entry on the basis of which the cenvat credit was availed by the assessee was not the valid document for the purpose of availing cenvat credit in terms of Rule 9 of the CCR, 2004. On this ground, the cenvat credit availed by the assessee was treated as inadmissible and its recovery was proposed along with interest and invoking penal provisions.

The Assistant CommissionerRuchiBisht who adjudicated this case did not agree. She observed,

On going through the relevant provisions of Rule 9(1)(a) to Rule 9(1)(g) of CCR, 2004, I find that the said provisions actually describe the type of documents on the basis of which the cenvat credit shall be taken by the manufacturer or output service provider. I find that sub-rule 9(1) c of the said Rule prescribes " a bill of entry" as the valid document for availing cenvat credit. I also find there are no restrictions under the said Rule with regard to type of bill of entry for the purpose of availing cenvat credit. I also find that the expression "a bill of entry" occurring under the said Rule 9(1)(c) does not limit the scope of a document for imported goods to an original or duplicate copy of normal bill of entry and also that a bill of entry filed through a courier was not covered under Rule 9(1 )(c) of the Cenvat Rules. I would also like mention the provisions of sub-rule (2) of Rule 9 ibid which prescribes particulars to be contained in these documents to make them valid documents for availing the cenvat credit. ……

From the above legal provisions, it is amply clear that if the document contains basic details about duty payment, description of goods and if the goods covered under the said document are duly received and accounted for in the books of account of the receiver, the cenvat credit may be allowed even if the other requisite details are not available in the said document .

I would also like to go through the CBEC circular in question which is the only pillar on which the present show cause notice is based...

From the plain reading of the above CBEC circular it clearly emerges that the same is of clarificatory nature. The word "may' used therein also suggests that there was no compulsive restrictions imposed for use of combined courier bill of entry for availing cenvat credit thereon. I also find that there is no mention in this circular that a normal bill of entry was the only document that could be allowed under Rule 9(1)(c) of the Cenvat Rules for taking cenvat credit.

Since no dispute has been raised in the impugned show cause, it is also an admitted fact that the concerned imported goods were brought in their factory, they were accounted for in the books of accounts and they were used in relation to manufacture of final products cleared from factory on payment of appropriate excise duties by the said assessee. Thus, I find that all the basic ingredients of the Cenvat Scheme were fulfilled in this case.

Thus, from the above provisions and facts of the case; I find that as clarified by the Board, the normal bill of entry may have been used by the assessee for the purpose of availing cenvat credit instead of the combined courier bills of entry. However, considering the facts that the basic ingredients of the Cenvat Scheme were fulfilled in this case, there was only a procedural lapse on the part of the assessee for not filing the normal bills of entry for availing the benefit of cenvat credit in terms of the clarification given by CBEC.

I have no hesitation to hold that since all other provisions substantially complied with by the said assessee, there was no contravention on their part as alleged in the notice on hand and they were eligible to avail the cenvat credit in question on the basis of combined courier bills of entry being admissible to them.

This is the kind of orders that you expect from judicious officers. Ruchi Bisht is a 2010 batch IRS officer and she passed this order in 2013. It is really a brave and brilliant order from a young officer. She could have taken the normal path and confirmed the demand, but this young lady has passed an order that would stand judicial scrutiny. Very rarely you would see such ‘speaking orders' from Departmental officers. Actually such officers are the real assets of the department and the Nation as they contribute to avoidance of unnecessary litigation and waste of time and money of the department, the trade and the Courts. DDT wishes Ruchi Bishta bright and successful career in the department; we need more officers like her.

Until Tomorrow with more DDT

Have a nice day.

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