The DGST is at it again. In a controversial letter to all the Chief Commissioners, He (yes, he is a Capital H) has not only over ruled a Board Circular but put the Board on Notice – all because only 43 days are left to collect the Service Tax illegally, in this financial year.

The controversy before the DG is Service Tax on construction services. Board Circular 80/2004 dated September 17, 2004 had clarified that Estate builders who construct buildings/ civil structures for themselves (for their own use, renting it out or for selling it subsequently) are not taxable service providers.

The idea is if you sell a building, you are not providing a service but if you construct a building for somebody, you are.

But the DG is not impressed with the Board’s logic or authority. The DG wants to get his strength from a recent(?) judgement of the Supreme Court in Raheja Development Corporation Vs State of Karnataka - 2005-TIOL-77-SC-CT. wherein the Supreme Court held that the activities undertaken by builders for construction of flat/building for or on behalf of the prospective customers for consideration in cash or deferred payment is covered under the works contract and not under sale. The DG wants to use this Sales Tax judgement to overrule the Board circular and goes on to give his verdict, “Considering the above decision, if the construction is undertaken by the builder for prospective customer under an agreement for sale and after construction, the rights in property have been transferred to the said prospective purchasers, the activity will amount to ¶work contract¶ or taxable service is covered under the Service Tax and not sale.”

So the DG has observed that builders are avoiding Service Tax by illegally following the Board Circular and not the DG’s belated but right opinion. DG holds that the Board circular is not applicable and wants the Chief Commissioners to go into the attack mode and “initiate pro-active measures to realize service tax on this service especially when only 43 days are now left in the current fiscal.” He also laments the fact that the Service Tax collections from this head are reportedly too low. (Fortunately he is not sure!)

The DG has further directed the Chief Commissioners to report to him and the Board the action taken by them on a weekly basis.

The DG apparently has no respect for the law or his colleagues but what is baffling is that he has scant respect for his boss, the Board. He has marked a copy of his letter to the Member, CBEC with a note, “If the Board has a contrary view, the same may please be communicated for compliance. Considering that only 43 days are left in the current fiscal, the urgency of this communication to the field formation can hardly be over emphasized especially when the revenue ramifications are enormous.” (Pray, why did you wait till you have only 43 days sir?)

Now he has put the Board in a very embarrassing position. First he decides that the Board circular is not correct and so overrules it. Then he informs the Board that his decision is urgent and in the interest of Revenue and if the Board, unlike him, is anti revenue, they can inform him so.

Revenue officials are not exactly famous for adhering to judicial discipline, but are they not at least bound by executive discipline? Is not the DG bound by the Board’s circular? If he is not happy with the Board Circular, can’t he write to the Board to amend the Circular instead of shooting off his orders to the Chief Commissioners? Now the Chief Commissioners are in a more difficult position. Are they bound by the DG’s orders? They have a circular from the Board and a letter from the DG. Which one should they follow? What happens if a Chief Commissioner has a view different from that of the Board and the DG? Can he issue another letter and ask the DG and the Board to tell him if they have contrary view? What will happen to administration if all subordinate officers blatantly refuse to follow the orders of the superiors?

In order to maintain uniformity of tax administration, the Apex Court of this country had held that Board circulars are binding on the field even if they are wrong and even if they are against the decisions of the Supreme Court itself. But the DG Service Tax seems to be above all this. Perhaps his action is a blatant contempt of the Supreme Court. In the Paper Products case - 2002-TIOL-84-SC-CX, the Supreme Court emphatically held, Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of court proceedings.

The DG who relies on a Supreme Court decision in a sales tax case, surely is aware of the other cases especially relating to his own department where the Hon’ble Court requires the DG to obey the Board even if the Board is wrong.

Incidentally, we carried the Supreme Court decision referred to by the DG on 9th May 2005. Had he acted then, he would have had 326 days in the current fiscal to collect the tax, instead of the paltry 43 days he is now left with. After being silent for ten months after the judgement was published, he suddenly drops the bomb now in the fag end of the year, obviously to boost revenue. Anything for Revenue? The consultants in this country should be grateful the DG for gifting them so much work.

Now that the Board is under notice from the DG, it is expected that the Board will exercise its authority and tell the DG that his business is not to overrule Board circulars and that his business is to unquestioningly obey the Board circulars and execute them with all sincerity and dedication. If the Board does not do that, there is the danger of every Chief Commissioner challenging and disobeying Board Circulars and once the virus spreads, every officer in the department right down to the sepoy can have their own views on every matter and Board and other authorities can go on issuing instructions which will not be obeyed or followed.

If the Board is prepared to accept the DG’s views, the least they should is concur with the DG and issue another circular that in obedience to the directions of the DG, the Board is pleased(forced) to modify the instructions in Circular No. 80/2004. Will the Board act?

DGST’s letter in F.No.V/DGST/22/Audit/Misc./1/2004/ dated 16th February, 2006

FLAGRANTE DELICTO

What does Caught red handed mean?

The act of committing a crime. When a person is arrested flagrante delicto - while committing a crime - the only evidence required to convict him is to prove that fact.

This is actually the Latin version of “caught red handed”

There is an opinion that the phrase “caught red handed” comes from the fact that when CBI traps somebody, they apply a chemical to the currency and when the offender’s hand is washed, it turns red. This is far from the truth at least by about 400 years. This was used by the 15th Century writer Sir Walter Scott in his Ivanhoe.

This is based on the metaphor of a murderer being caught with blood still on his hands, and so should be as old as the days before guns, when hands, clubs, daggers etc were sophisticated weapons to kill somebody.

Until tomorrow with more DDT

Have a nice day.

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