YES, the rather agonising wait is over. For more than a month, we were flooded with calls and mails as to when the Board would come out with the notifications. We advised the Netizens not to be eager for the undesirable and we were certainly not eager to show initiative in unpleasant activities.

The Board finally came out with a slew of notifications yesterday and considering the enormity of their number, DDT had to come out with a supplementary yesterday to cover those notifications. The new taxable services and the various provisions of the Finance Act, 2010 related to service tax matters shall come into force with effect from July 1, 2010. Levy of clean energy cess also will come into effect from July 1, 2010.

Board also issued notifications exempting certain activities from levy of service tax in public interest. The prominent among them being (i) exemption from levy of service tax on transportation of persons by air from or to the north eastern states in India; (ii) exemption from levy of service tax on construction service provided to JNNURM and Rajiv Awas Yojana schemes; (iii) exemption to sponsorship services provided to sporting activities conducted by certain sports organizations and authorities; (iv) exemption to certain services provided within port or airport; (v) exemption from levy of service tax on distribution of electricity; (iv) exemption provided to certain types of air travel.

Air Travel – If aircraft operator avails CENVAT Credit, no exemption: In addition to the above, Board issued notifications to provide for concessional rate of service tax on domestic (any class) and international (economy class) air travel subject to non-availment of CENVAT Credit on inputs used for providing taxable service ( probably the Board forgot to include input services and it may come out with an amendment subsequently or was it deliberate – only time can tell ).

Mining – Credit on Dumpers: Further, Board amended CENVAT Credit Rules, 2004 to allow credit on dumpers, tippers registered in the name of output service providers engaged in providing ‘site formation and clearance service' and ‘mining or mineral exploration service'. In June 2009, we had carried an article - CENVAT Credit Rules 2004 need a re-look! by a Superintendent suggesting this amendment. It took the BOARD just twelve months to do so. A Netizen called me up and said, “ Either they should work in field or Supdts should be posted in Board. ”

Didi Does it Again: As usual, the taxability of transport of goods by rail and exemptions related thereto was pushed further to January 2011. Probably Didi's strong arm twisting is forcing the Finance Ministry to perennially dodge imposition of levy on this taxable service.

Notifications were also issued to clarify the scope and extent of levy, applicability of provisions of Excise Act, exemption from levy of ECess and SHE Cess etc. on ‘clean energy cess' and also notified Clean Energy Cess Rules, 2010.

Service Tax on Construction Service - Is cost of land includible in taxable value?

BUT the most controversial of all these is the Notification No. 29/2010-ST related to abatement scheme provided to ‘construction services'. In his speech in the Parliament on the discussions related to Finance Bill, 2010, the Finance Minister said, “………….The construction sector has requested for a review of the changes in the service tax law proposed in this year's Budget. Several suggestions have been made by the trade associations. Considering all the inputs, I propose to provide tax relief to this sector by enhancing their rate of abatement from 67% to 75% of the gross value where such value includes the value of the land constructed upon. Certain procedural bottlenecks relating to the completion certificate prescribed in the law would also be simplified.”

In Notification No. 29/2010-ST an abatement of 75% is allowed on the taxable value subject to the condition of that the cost of land is included therein. The condition in the said notification reads as follows:

“This exemption shall not apply in cases where the cost of land has been separately recovered from the buyer by the builder or his representative.”

The issue here is whether cost of land can be included at all in the taxable value. Section 67(1)(i) of the Finance Act, 1994 which deals with valuation of taxable services provides that ‘service tax is chargeable on any taxable service with reference to its value, then such value shall — in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;'

So the intention of the legislature is to tax only the ‘service' and the ‘gross amount charged by the service provider would be for such service provided or to be provided by him.' It was in this backdrop, Board issued a clarification vide paragraph 13.6 of Circular F.No.B1/ 6 /2005-TRU, dated: July 27, 2005 wherein it was clarified by the Board that the taxable service is the service provided in relation to construction of a residential complex. Service tax would be payable only on the gross amount charged by the service provider for the construction service provided and it would not include the cost of land and stamp duty paid for registration of land.

While this clarification (i.e. TRU letter dated July 27, 2005) was perfectly legal and constitutional (because only States have the power to levy any tax on ‘lands and buildings'), Board by virtue of this latest notification, armed with the amendments made by Finance Act, 2010, seems to have reversed this Constitutional scheme of things by affirming that the gross amount charged by the service provider should also include ‘cost of land and stamp duty paid thereon for registration of land' and thereby allowing an abatement of 75% of the gross amount charged provided the builder or his representative do not recover ‘cost of land' separately from the buyer.

Good amount of litigation lies ahead!

Now let us take a look at what is in store in this notification:

Separately recovered? This exemption shall not apply in cases where the cost of land has been separately recovered from the buyer by the builder or his representative. Will he be denied the exemption even if he agrees to pay the tax on the cost of the land?

25% or 33%? Now builders will have to run to Consultants and accountants to decide whether they should pay tax on 25% value by including the cost of land or 33% by not including it? Here is a quick worksheet prepared by TEAM TIOL.

As per the above worksheet, at land cost 25%, there is a small difference. Above 25%, one should go for 33% and below 25%, they should go for land cost inclusion.

But maybe builders would like to go to the nearest High Court instead of going to accountants to settle the issue.

With GST just a few months away, is it fair and worth to create so much confusion and litigation in Service Tax?

UK - The Most Indebted Country in World

GIVEN below is an extract from the Budget of the new government of UK presented yesterday.

Over the past decade, economic growth in the UK has been driven by the accumulation of unsustainable levels of private sector debt and rising public sector debt. This pattern of unbalanced growth and excessive debt has helped create the exceptional economic and fiscal challenges that the Government must address, to restore the economy to sustainable, balanced and private sector-led growth.

Central Excise

SCN issued after one year - when there is no suppression, collusion etc: if there is no collusion or willful mis - statement or suppression of facts or contravention with an intention to evade payment of excise duty, such demand can be treated as barred by time under Sec. 11A of Central Excise Act.: High Court

IN view of the absence of material allegations required to be made under the show cause notice and issuance of show cause notice four years after the payment of duty, claim of the appellant has to be held as barred by limitation and in view of non-adjudication of the claim of the assessee under sub-section (2) of Sec. 11A, substantial questions are answered in favour of the assessee and against the Revenue..

Income Tax

Income tax - Is assessee entitled to move Settlement Commission even after detection of concealed income by Revenue - Can Revenue make Settlement Commission a party along with assessee in a writ - YES, says HC

THE issue before the High Court is - Whether writ is maintainable against the Settlement Commission if it has been made a party in association with the assessee. And the answer is YES.

Service Tax

Supply of skilled personnel to execute task orders for Infosys and TCS is taxable under “Manpower recruitment or supply agency” service - CESTAT upholds demand of service tax

WHAT is the pre-requisite for relying on a case law while arguing your case? It should have been delivered at least a day before your case is heard. You can't really help if the case law to be relied is pronounced on the same day of hearing of your case by the same Bench.

Confusing?

Please wait till tomorrow.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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