IN CBEC letter, F No.275/7/2010-CX8A, dated 30.06.2010, Board had communicated its view that service tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in Indian National Shipowners Association (INSA) case -  2008-TIOL-633-HC-MUM-ST would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006.

However, the appeals filed by the department before the Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005,  have been dismissed recently (subsequent to the issuance of the instruction dated 30.06.2010) in several cases. Further, Review Petition No. 1686 of 2011 filed in the case of   Bhandari Hosiery has also been dismissed by the  Supreme Court   vide   order dated 18.8.2011. 

Board, now concedes that in view of the judgements of the Supreme Court, the service tax liability on any taxable service provided by a non-resident or a person located outside India, to a recipient in India, would   arise   with effect from 18.04.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994.

The Board has at last accepted this position.

Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.06.2010 stands rescinded.

Board wants appropriate action to be taken accordingly in the pending disputes. Hundreds of cases are pending in Tribunal on this issue. Board should also instruct the Commissioners to withdraw all those appeals.

It is a great gesture on the part of the Board to gracefully accept the judgements of the Apex Court and issue these instructions.

Please also see DDT 1400 13.07.2010

CBEC Instruction in F. No. 276/8/2009-CX8A., Dated: September 26, 2011

Parliament retrospectively amends Section 28 of Customs Act - Life induced into dead SCNs

PURSUANT to the judgement of the Supreme Court dated 18.02.2011, in the Sayed Ali case - 2011-TIOL-20-SC-CUS, Board had issued an Instruction F.No.437/143/2009- Cus.IV(pt) dated 15.04.2011 directing the field formations to examine pending Show Cause Notices and wherever these are not hit by time limitation to get these issued afresh by the jurisdictional Commissionerates.

Further, as a prospective remedial measure, in terms of Section 2(34) of the Customs Act, 1962, the Board issued Notification No.44/2011-Customs (N.T.), dated 06.07.2011. By virtue of this Notification, officers of Directorate General of Revenue Intelligence (DRI), Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence (DGCEI) and Central Excise Commissionerates were assigned the functions of the ‘proper officer' for the purposes of Sections 17 and 28 of the said Act.

To address the issue of validity of Show Cause Notices issued prior to 06.07.2011, which was likely to be adversely impacted by the said judgment of the Hon'ble Supreme Court, a suitable legislative change was proposed. In this regard, the President has given assent to the Customs (Amendment and Validation) Bill, 2011 on 16.09.2011 and the corresponding Act has been published in the Gazette of India dated 20.09.2011 as Act No.14 of 2011. Thus, the amendment to Section 28 has come into force w.e.f. 16.09.2011. The said Act amends Section 28 of the Customs Act, 1962 by inserting clause (11), which reads as follows:

“(11) Notwithstanding anything to the contrary contained in any judgement, decree or order of any court of law, tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of section 4 before the sixth day of July, 2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section.”

Accordingly, as per the amended Section 28 of the Customs Act, 1962 Show Cause Notices issued prior to 06.07.2011 by officers of Customs, which would include officers of Commissionerates of Customs (Preventive), Directorate General of Revenue Intelligence (DRI), Directorate General of Central Excise Intelligence and similarly placed officers stand validated since these officers are retrospectively recognized as ‘proper officers' for the purpose of Sections 17 and 28 of the said Act.

In this regard it may also be noted that in terms of Notification No.44/2011-Customs (N.T.), dated 06.07.2011 the officers of DRI and DGCEI are ‘proper officers' for the purposes of Section 28. However, Board directs that these officers shall not exercise authority in terms of clause (8) of Section 28 of the said Act. In other words, there shall be no change in the present practice and officers of DRI and DGCEI shall NOT adjudicate the Show Cause Notices issued under Section 28 of the Act.

Since the matter pertaining to validity of Show Cause Notice stands settled in terms of Notification No.44/2011-Customs (N.T.), dated 06.07.2011 and amended Section 28 of the Customs Act, 1962, the Instruction F.No.437/143/2009-Cus.IV(pt) dated 15.04.2011 is no longer necessary. Hence, the said Instruction dated 15.04.2011 stands withdrawn with immediate effect.

Board wants pending Show Cause Notices and cases before adjudicating authorities and before appellate and judicial authorities to be dealt with on the basis of the latest legal position.

No one should ever dream of challenging this in the High Courts or Supreme Court, for retrospective amendment of law to undo Court Orders, has judicial approval in India.

Please also see TIOL-DDT 1597 28.04.2011, TIOL-DDT 1647 08.07.2011 and TIOL-DDT 1657 22.07.2011 for more on this.

Circular No. 44/2011-Cus., Dated: September 23, 2011

Removal of Ban on export of Onion - Board issues Instructions

BOARD's Circular No.41/2011-customs dated 14.09.2011 provided for monitoring of the export of Wheat, Rice and Onion.

The Board had informed vide said Circular dated 14.09.2011 that export of ONION is prohibited vide Notification No.73( RE-2010)/2009-2014 dated 09-09-2011. Now DGFT vide Notification No.75( RE-2010)/2009-2014 dated 20.09.2011 amended the said notification and lifted the ban on export of Onion with immediate effect.

Export of Onions is now allowed subject to Minimum Export Price of 5.00 per MT or as notified by DGFT from time to time. Board wants the field formations to take note of this change and strictly monitor the conditions of the said Notification.

Board's Circular no. 41/2011-Customs dated 14.09.2011 stands modified to the above extent.

Please see TIOL-DDT 1693 15.09.2011 also.

Circular No. 43/2011-Cus., Dated: September 23, 2011

RBI Rationalizes and Liberalizes ECB guidelines

RBI in consultation with the Government of India, decided to further rationalise and liberalize the ECB guidelines as under:-

(i) Enhancement of ECB limit under the automatic route

(a) Eligible borrowers in real sector-industrial sector-infrastructure sector can avail of ECB up to USD 750 million or equivalent per financial year under the automatic route as against the present limit of USD 500 million or equivalent per financial year.

(b) Corporates in specified service sectors viz. hotel, hospital and software, can avail of ECB up to USD 200 million or equivalent during a financial year as against the present limit of USD 100 million or equivalent per financial year subject to the condition that the proceeds of the ECBs should not be used for acquisition of land.

(ii) ECBs designated in INR

(a) 'All eligible borrowers' can avail of ECBs designated in INR from foreign equity holders under the automatic/ approval route, as the case may be, as per the extant ECB guidelines.

(b) NGOs engaged in micro finance activities will, however, be permitted to avail of ECBs designated in INR, as hitherto, under the automatic route from overseas organizations and individuals as per the extant guidelines.

(iii) ECB for Interest During Construction (IDC)

It has been decided to consider IDC as a permissible end-use for the Indian companies which are in the infrastructure sector, where “infrastructure” is defined in terms of the extant guidelines on External Commercial Borrowings (ECB) under the automatic/approval route, as the case may be, subject to the following conditions:-

(a) that the IDC is capitalized; and

(b) is part of the project cost.

All other aspects of the ECB policy such as eligible borrower, recognised lender, all-in-cost, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged

A P (DIR Series) Circular No. 27/RBI., Dated: September 23, 2011

RBI Liberalizes ECB guidelines for Infrastructure Sector

THE existing ECB policy has been reviewed by RBI in consultation with the Government of India and it has been decided to allow Indian companies which are in the infrastructure sector, to utilise 25 per cent of the fresh ECB raised by the corporate towards refinancing of the Rupee loan/s availed by them from the domestic banking system, under the approval route, subject to the following conditions:-

(i) at least 75 per cent of the fresh ECB proposed to be raised should be utilised for capital expenditure towards a 'new infrastructure' project(s), where “infrastructure” is as defined in terms of the extant guidelines on ECB.

(ii) in respect of remaining 25 per cent, the refinance shall only be utilized for repayment of the Rupee loan availed of for 'capital expenditure' of earlier completed infrastructure project(s); and

(iii) the refinance shall be utilized only for the Rupee loans which are outstanding in the books of the financing bank concerned.

A P (DIR Series) Circular No. 25/RBI., Dated: September 23, 2011

Liberalized ECB guidelines for import of capital goods by Infrastructure Sector

AFTER reviewing the existing ECB Policy by RBI in consultation with the Government of India it has been decided to allow Indian companies which are in the infrastructure sector, to import capital goods by availing of short term credit (including buyers'/suppliers' credit) in the nature of 'bridge finance', under the approval route, subject to the following conditions:-

(i) the bridge finance shall be replaced with a long term ECB;

(ii) the long term ECB shall comply with all the extant ECB norms; and

(iii) prior approval shall be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.

A P (DIR Series) Circular No. 26/RBI., Dated: September 23, 2011

Jurisprudentiol – Wednesday's cases

Central Excise

Penalty under rule 26 of CER is imposable on a corporate body as in eyes of law it is a juristic person - as there is no quantification of duty, penalty imposable is Rs.10,000/- only: CESTAT

WITH regard to the penalty under Rule 26 again, we do agree with the contention of the DR that in Twenty First Century a penalty can be imposed on a juristic person as per law and the corporate body is also a juristic person in the eyes of law. Penalty under Rule 26 is imposable. We do agree with the contention that there is no quantification of duty, therefore the maximum penalty under Rule 26 is Rs. 10,000/-

Income Tax

Whether Revenue can initiate reassessment proceedings merely on basis of information obtained from Central Excise Department that assessee had suppressed sales of manufactured goods - YES, but all relied upon documents to be given to assessee: ITAT

THE Assessing Officer issued a notice under sections 148 of the Act on 27.10.2008. Before issuing the said notice, the Assessing Officer recorded the following reasons for initiating proceedings under sections 147 of the Act. The CIT(A) affirmed the order of the AO. Before ITAT, it was contended that the AO has violated the principle of natural justice in as much as he had not supplied the material, collected from Excise department, to the assessee for its rebuttal.

Service Tax

When issue involved is rate of service tax liable to be paid by assessee, matter is to be heard by a Division Bench in terms of section 35D(3) of CEA, 1944 as made applicable to service tax: CESTAT

THE assessee paid service tax on the activities undertaken by them for the period July, 2005 to December, 2006 under the category of "construction of complex services" voluntarily without any protest. Subsequently, when works contract service was brought under the tax net effective from 01/06/2007, the assessee submitted that since the service provided by them comes under the category of "works contract" and not under the category of "construction of commercial complexes", they are entitled for the refund of the service tax paid by them for the previous periods.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

Mail your comments to vijaywrite@taxindiaonline.com