TIOL-DDT 1400
13.07.2010
Tuesday

ONCE upon a time, our wise lawmakers in the CBEC decided to tax services rendered from abroad to Indian recipients and since they had no control over the foreign service providers, they wanted to tax the Indian recipients. But they did not know how to go about it. So they amended the Rules, amended the Act, brought in Notifications and amended them – creating confusion all around. Once everybody accepted this reverse mechanism tax, the moot question was since when? There were several dates doing the rounds. An Additional Commissioner told me – whatever the law or the Courts say, the tax was always there right from the beginning – 1994; it is simple – if you import goods you pay Customs Duty; if you import services, you pay Service Tax.

While all were not so unreasonable, some wanted the tax from 1.8.2002, when the Government amended the ST Rules to make the service recipient liable to pay the tax or from 1.1.2005 when they issued Notification No. 36/2004 or 16.06.2005, when the explanation added to Section 65 became effective or 18.04.2006 when the new Section 66A came into effect.

There are advocates for all the above schools of thought, which means there is plenty of litigation.

In Hindustan Zinc Ltd Vs. Commissioner of Central Excise, Jaipur - 2008-TIOL-1149-CESTAT-DEL-LB, the Larger Bench of the Tribunal held that the Tax is not leviable before 1.1.2005. [It doesn't automatically follow that it can be levied after 1.1.2005]. The Department did not like this and went in appeal to the Supreme Court and their appeal was dismissed.

The controversy appeared to be set at rest with the decision of the Bombay High Court in Indian National Shipowners Association (INSA) Vs. Union of India - 2008-TIOL-633-HC-MUM-ST, wherein the High Court held that the tax can be levied only from 18.04.2006. The Board was not happy with this judgement also and appealed to the Supreme Court which was dismissed.

Now Board has accepted both Indian National Shipowners Association and Hindustan Zinc but has raised a new controversy.

The Commissioner (Legal) in the Board has recently written to all the Chief Commissioners and Commissioners on the issue.

The Commissioner communicates:

1. It may be noted that the judgment in the case of M/s. INSA Vs . Union of India does not apply to the cases where taxable service, provided by a non-resident, not having any office/establishment in India, is received in India.

2. However, the ratio decidendi of judgment in the case of M/s. INSA appears to have been applied wrongly in a few subsequent cases by the Courts to arrive at the conclusion that service tax would not be leviable before 18.04.2006, even on services received in India, when provided by a non resident. One such case is M/s. Unitech vs. Commissioner of Service Tax, Delhi - 2009-TIOL-293-HC-DEL-ST, wherein Hon'ble High Court of Delhi, applying the ratio of M/s. INSA case has held that service tax liability on the architectural service provided by a non resident to M/s. Unitech in India would arise w.e.f.18.04.2006 . This order has not been accepted, as Department is of the view that service tax liability in such cases arises w.e.f 1.1.2005, on reverse charge basis, in view of the ratio laid down in the cases of M/s. Hindustan Zinc Ltd and M/s. Aditya Cement. Accordingly, an SLP has been filed before the Hon'ble Supreme Court in this case.

3. In view of the above, the field formations are directed to defend the view that the levy of service tax on taxable services received in India from a non-resident, not having any office in India, arises on reverse charge basis, w.e.f.1.1.2005 as has been upheld by the Apex Court in the cases M/s. Hindustan Zinc Ltd and M/ s.Aditya Cement Ltd., distinguishing such cases on facts from the INSA case. However, levy of service tax in respect of cases where service is received outside India would follow the ratio in the aforementioned case of M/s. INSA vs UOI.

According to the learned Commissioner, the accepted position is that,

(i) in case of taxable service provided by a non-resident, not having office/ establishment in India, and received in India , the service tax liability arises w.e.f.1.1.2005 , on reverse charge basis on the recipient of service in India. Therefore, the overall facts and circumstances of each case needs to be taken into account to determine whether service is received in India or otherwise.

(ii) in case of taxable service received outside India by a person, who is resident in India or has place of business/business establishment in India, the service tax liability arises w.e.f.18.4.2006 , as is in the case of INSA , where services were received outside India for use in the ships and vessels located outside India.

Now can a Commissioner sit in judgement over a High Court order? Can the Commissioner say that Delhi High Court has wrongly applied the ratio of the Bombay High Court order? The Commissioner informs that the Department has filed an SLP against the Unitech decision, but as usual the SLP was filed belatedly and the Supreme Court has given notice on delay. Now what will happen if the Supreme Court does not condone delay?

The Commissioner says that services received outside India are taxable w.e.f.18.4.2006 . Does he mean all services ?. Even after 18.04.2006, only certain services received abroad are taxable under the reverse charge mechanism. In his eagerness to sit in judgment over the High Court orders, the learned Commissioner probably forgot to refer the law prevailing from 18.04.2006. He has not referred to the “The Taxation of services (Provided from Outside India and Received in India) Rules, 2006.”

What will happen now? The Field will fill the field with Show Cause notices to collect tax on all services received abroad.

Board's love for litigation is unlimited!

CBEC Letter F. No. 275/7/2010- CX.8A, Dated : June 30, 2010

Customs Duty Exemption on Import of Television Content – CBEC Clarifies

NOTIFICATION No. 27/2010-Customs dated 27.02.2010 provides exemption to motion pictures, music, gaming software (for use on gaming consoles), printed or recorded on media falling under headings 3706 or 8523, from so much of basic customs duty, additional duty and special additional duty of customs as is in excess of duties that would be leviable of the value of the goods were equal to the aggregate of the cost of the carrier medium and freight and insurance.

A doubt has been raised by certain importers whether the exemption applies to import of content by a television broadcaster on a medium covered under Chapter heading nos. 3706 and 8523 owing to the use of expression "motion pictures".

The Board clarifies:-

The term "motion pictures" is a generic term for making a distinction between moving pictures and still photograph and does not refer to the end use of the content captured on a medium.

As such, the reference to motion pictures in Notification No. 27/2010-Customs dated 27th February 2010 is not limited to "moving" or feature films alone and extends to any audio visual content recorded on cinematographic films, Betacam / U- matic tapes, Masters, Stampers , VCD's and DVD's. It is therefore clarified that the term motion pictures referred to in Notification No. 27/2010-Customs dated 27th February 2010 included audio visual content of all kinds like feature films advertising films, documentaries, television content, news films etc. and is not restricted to feature films or movies alone.

CBEC Circular No. 17/2010- Cus , Dated : July 6, 2010

Income Tax – Electronic Filing of Return Mandatory

THE CBDT has amended the Income Tax Rules to stipulate that:-

1. All companies to file income tax return electronically in Form No.ITR-6 with digital signature.

2. All individuals and Hindu Undivided Families (HUFs), who are required to get their accounts audited under section 44AB of the Income Tax Act 1961, are also required to file their income tax return in Form No.ITR-4 electronically with or without digital signature.

CBDT Notification No. 49/2010, Dated: July 09, 2010

CBEC's Global Notice Inviting Tender (GNIT) for procurement of three mobile gamma rays scanners upheld by High Court

THE CBEC by virtue of the GNIT had i nvited sealed global tenders for supply, installation, commissioning, site preparation and maintenance of three mobile gamma ray container scanning systems (MGCSS) for truck / trawler mounted cargo containers and other transport vehicles as required and mentioned in the tender. The said mobile gamma scanning systems ('mobile gamma ray scanners') were to be located at the Chennai Port, the Kandla Port and the Tuticorin port.

This has been challenged in the High Court of Delhi alleging that the GNIT has been issued in respect of only mobile gamma ray scanners and mobile X-ray scanners have not been included in the said GNIT. Various allegations of arbitrariness and bias / favouritism have also been leveled by the petitioners.

The High Court was not impressed and observed, “ After considering all the technical aspects and the specific requirements of the customs authorities, and after taking into consideration the advice from the Atomic Energy Department with regard to safety and radiation concerns, the respondent has chosen to employ a combination of technologies for its scanning requirements at the said three ports. It has decided to use the X-ray technology of 9MeV for the fixed scanners at the said three locations and the gamma ray technology for its mobile scanners. This decision has been arrived at after considering the pros and cons of both the technologies. These are technical issues which are best left to technical experts and the courts should not interfere with the decisions on such matters unless and until something grossly arbitrary or unreasonable is brought to the attention of the court. On going through the manner in which the decision was taken and also the WCO Note, it cannot be said that the decision to adopt the gamma ray technology for mobile scanners was arbitrary, whimsical or unreasonable. When the Court cannot return such a finding, there is no question of interfering with the said GNIT of 2009 and with the subsequent tender process.”

This judgement was delivered by the Delhi High Court yesterday and we bring it to you today. Please Click here.

Efficient Mineral Administration – Board's Instructions

‘STRIKE the Iron when it is hot' is the adage we commonly follow to gain advantage of any given situation. Mining companies in Karnataka precisely followed this proverbial route to gain advantage of the rising global demand for iron ore in the last several years and made the most of it, they are still doing so. In the process, they also allegedly resorted to illegal mining and export of iron ores, throwing rules and regulations out of the window and are raking a fortune.

As per the Karnataka Chief Minister's own admission on the floor of the Legislative Assembly last week, the illegal mining and exports were to the tune of 30.49 million tonnes over a period of last several years (seven to be precise), which resulted in a significant loss to the State Exchequer by way of royalties.

While it is not known as to how the Karnataka Government was able to arrive at a definitive quantity of illegal mining to the last metric tonne, the CBEC has issued instructions to Customs Commissionerates to help the State Governments in arriving at exact details of mineral exports by sharing information available with them.

In fact, the issue of illegal mining of minerals came up for discussion during a meeting of Committee of Secretaries held on May 20, 2010 under the Chairmanship of the Cabinet Secretary. In this meeting, it was decided that Customs Commissionerates shall share the details of minerals exported through the Ports within their respective jurisdiction with the concerned State Governments on a periodical basis. The details to be shared may include the name of the ‘state of origin', name and details of the exporter, name of the minerals, quantity and value thereof etc., so that by cross-verification, any leakage of revenue by way of less payment of royalty could be detected by the State Government. The exact modalities of information/data exchange may, however, be worked out in consultation with the concerned State Government.

Board feels that sharing of information may not pose any difficulty, as in the format for the Shipping Bill there is a data field for capturing the ‘State of Origin'. Board desires that urgent ‘necessary' action may be taken to implement the above CoS decision in consultation with the State Governments concerned.

While Board's concern for loss of revenue for State Government's due to illegal mining is appreciated, the recent incident of illegal export of about six lakh tonnes of iron ore seized by the Deputy Conservator of Forests, Karwar under the directions of the Karnataka Lokayukta and the alleged role of Customs officials in allowing the export of this seized ore indicates that all is not well in the local Custom Houses. This obviously leads to serious questions about loss of revenue to the Central Exchequer as well. After all, Central Government had imposed export duty on iron ores and concentrates in the year 2007 itself and the effective rate of export duty at present is 15%.

As per the Karnataka Government's own admissions 33.96 lakh tonnes of ore were illegally mined and exported during 2008-09 and this more than doubled to 71.28 lakh tonnes during 2009-10. If the mining companies can evade royalties to the State Exchequer, then they may not hesitate to evade export duties as well – habits die hard. Will the CBEC and its super sleuths in DRI get to the bottom of these illegal exports and check if there is any leakage of revenue to the Central Exchequer?

Customs Letter F. No.450/66/2009-Cus.IV., Dated: July 8, 2010

Jurisprudentiol –Wednesday's cases

Central Excise

MODVAT - assessee was entitled to avail of MODVAT credit in respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items as capital goods – Supreme Court

THE issue involved is MODVAT credit in respect of steel plates and M.S. channels used in the fabrication of chimney for the diesel generating set, by treating these items as capital goods in terms of Rule 57Q of the Central Excise Rules, 1944 . Period involved is prior to August 1999.

Income Tax

Interest u/s 234B - Are Settlement Commission's powers to levy interest governed by chargeability of interest in original assessment - NO, it is automatic, says Bombay HC

INTEREST is generally an interesting turf of battle in the Income Tax Act. In this case the issue is about the powers of the Settlement Commission to charge interest u/s 234B - whether the Commission's powers are governed by the chargeability of interest in the original assessment or it is automatic by virtue of Sec 234B(4). And the answer is that it is automatic and the Commission's powers are not subject to any limitation.

Customs

Application for condonation of delay on the ground of transfer of appraising officers – Major part of the delay is on the part of the review Committee – Appellant has not satisfactorily explained delay – No question of granting equitable relief - Application rejected and appeal dismissed as time-barred: CESTAT

THE Commissioner of Customs(Import), Nhava Sheva has filed the two applications, one for Condonation of delay in filing the appeal and the other for stay of the operation of the order dated 12.3.2008 passed by the Commissioner of Customs(A), Nhava Sheva. The order dated 12.3.08 of the Commissioner(A) was received on 23.4.2008 by the department and the appeal was filed on 18.05.2009. The extent of delay is nearly 300 days (whereas the department mentions that it is 387 working days!).

Until Tomorrow with more DDT

Have a nice day.