FEBRUARY 20, 2012

BY Somesh Arora

SERVICE TAX - Inclusion of Member’s Club under the ambit of Club’s or Association’s Membership Services. Service Tax on Clubs and Associations is being incorrectly collected without distinction between Proprietor’s club and Members club. Whereas latter as per judgment of Apex Court and various High Court is not a service as it is the dealing between the members, interse. Therefore, a deemed fiction may be required to be created with in the definition to even consider services provided to members of a Members Club as service to avoid future litigation in this regard.

2. Preparation of brief by lawyers being copyright to be excluded from the ambit of legal services.  

Central Excise

1. Need to enhance SSI limits for Central Excise to 2.5 crores as well as for small service providers to 20 lakhs. These limits have remained stagnant even though the limits under Income-Tax as well as the rate of inflation in the last 8 Years has gone considerably high.  Experience of the past shows that in the years in which SSI limit is enhanced, the industrial growth rate goes up. Therefore, a good opportunity to raise GDP through higher industrial growth rate and have some more of white economy, which FM should lap up.

2. The Pan Masala Packing Machines (Capacity Determination and Collection of duty) Rules, 2008 are facing a challenge of constitutional validity in various courts and apex court at present, some of the misgivings of the assesses are not misplaced because of the way certain provisions have been worded or are being interpreted by the field officers. The following may need a re-look as far as wording is concerned as they are leading to impression in the field that these rules give them power even to levy duty and penalty much beyond what is mandated as the maximum duty or penalty under Section 3A of the Central Excise Act, 1944 or under section 11A as the maximum mandatory penalty.

Following amendments are required:

Rule 9 - Indicate time frame (say of six months) with in which a person is a defaulter for the purpose of proviso 2 and therefore, can discharge duty with interest but with no penalty, and when he becomes defaulter for the purposes of proviso 7 and has to therefore incur penal duty and penal penalty which is more than 100 percent as prescribed under the Act. Also, the concept of penal duty as enshrined in proviso 7 is unknown to any tax legislation and cannot be termed as excise duty. The same is also without mandate under the Act. 
Rule 8- Proviso 1 to Rule 8 requires amendment to bring it in line with Chewing Tobacco Machine Rules, as the same logic mutatis-mutandis applies. The following substitution therefore is required:

Provisio 1 should read as: “Provided that where a manufacturer uses an operating machine to produce pouches of different retail sale prices during a month, he shall be liable to pay the duty applicable to the pouch bearing the highest retail sale price for the whole month.”

General

3. Mandatory issuance of Show Cause Notice by the adjudicating authority before Chief Commissioners can initiate prosecution and amnesty proceedings against the assessee, as the issuance of the same renders the remedy of settlement of prosecution proceedings before settlement commission in fructuous. Alternatively, With the Settlement Commission now allowed taking cognizance of clandestine removal and smuggling cases, power of Chief Commissioners in this regard to grant amnesty against prosecution, which in any case is rarely being used, can be taken away. Further, the settlement commission can be allowed to be approached even after 1st adjudication and/or at the stage when the Department decides to proceed with the prosecution.

4. Creation Of more CESTAT Benches and grant of stay till the final hearing rather than for six months only.

5. Advance Rulings should cover all service tax matters as law is evolving and even amongst members of the Tribunal, difference of opinion has emerged in major cases.

6. Grant of stay before allowing a matter to be heard by Tribunal to be granted by Chief Commissioners. This will reduce burden of Tribunal and permit assessee to have atleast stay matter heard next door.

7. Removal of reference to (Free Trade Zone) in all old but existing Customs and Excise Notification and mention of ‘Special Economic Zone’ through appropriate amendment.

8. To avoid pitfalls of vagaries of highly unpredictable tax litigation in India, it is suggested that `Advance pre-deposit tax accounts’ for litigation should be introduced, wherein any tax payer can deposit money and earn savings rate of interest for any uncertain tax liability of Income-tax, Customs, Excise and Service tax and can be free from interest or penalty liability to the extent of credit balance in the deposit account and in the event of fruit of litigation going in favour of assessee. DOR should pay nominal interest of 3% to 4% on credit balance.

9. The offences of Central Excise and Customs involving forgery, fake documents, bills etc.  also involve fraud  which is covered under Section 420 and therefore under Money laundering Act. These offences can be specifically included under Prevention of Money Laundering Act or Customs and Excise Law can be suitably amended to mandatorily invoke Section 420 of I.P.C. so that no discretion is left with the field officers not to invoke the same.

10. Qualification for becoming Member (Technical)of CESTAT be brought at par with ITAT i.e. an Additional Commissioner with three years standing to be eligible to catch young Member (Technical) for CESTAT.

11. National Tax Tribunal be notified. The notification is long pending and now atleast the Government needs to show some resolve to implement it.

General:

12. Creation of a Separate Directorate for IPR (Border) Enforcement and Adjudication under CBEC. Let this be a focused area for us to prove to the world that we really care on enforcement aspect of IPR, even enforcement of foreign trademarks, copyrights etc. can be entrusted to this agency even if violations occur in the interior. It will definitely keep Customs and Excise Department busy in the post G.S.T regime.

13. Create more benches of CESTAT, at least equal in number to ITAT as a precursor and preparation for G.S.T., even otherwise with service tax litigation going up; there is a strong case for creating more benches of CESTAT. Not only is the number of cases swelling, but courtrooms also have lawyers overflowing to the corridors.

14. 1st stage appeal to Commissioner (Appeals), which in any case in more than 95% cases is heard along with the main appeal can be legally allowed to be heard without any requirement of pre–deposit of duty and interest. The measure will be trade friendly and in any case is not serving any useful purpose.

15. Similarly for the 1st stage appeal to the Tribunal (normally against the order of Commissioner), an option can be given to the appellant to opt for pre-deposit of 50% of duty voluntarily in cases where there is no mandatory penalty and 75% of the duty, where there is a mandatory penalty to enable hearing of final appeal without any further pre-deposit. This will reduce burden of hearing stay applications on the CESTAT and get some deposit for the DOR.

16. Doing away with the requirement to seek extension of Stay from CESTAT after every six months as the practice has only increased the pendency in workload at the level of CESTAT without any significant benefit to the Department.

17. The Department should contemplate raising the limit for hearing of appeals by single member to 50 lakhs so as to cover cases adjudicated by officers of the level upto Additional commissioner.

18. Levy of Health Cess on Tobacco and Tobacco products: If Insurance Companies can ask for heavy life Insurance premium from smokers and Tobacco users, why the Government should not levy a Health Cess on such products to be used solely for creation of more Government Hospitals and Medical colleges. Even those who pay such tax may have to use such facilities later, if the Doctors are to be believed.

Customs

19. Deletion of watches from notified items. These were included in the list of Notified items when quartz watches of Ricoh/Sicoh were threatening HMT watches in early 1980`s. Now the electronic modules and cheap digital watches are freely importable and hardly there is any worthwhile domestic industry which needs protection for these kind of watches. Therefore, the inclusion of the same in notified items is hardly justified.

20. A relook is required at the baggage free allowance limits as the same have not been revised for a number of years.  

21. Codify export baggage rules by at least bringing out the absolute export restrictions, as outbound passenger is not supposed to look into all the FEMA Rules, export control orders and restrictions under EXIM policy etc.

Income Tax

22. Tax rebate for individuals or any member of the family adhering to small family norm to check population growth. Can be Rs.10,000/- for two children and Rs.15,000 for one child family)- It has been real long since this Government or any other Government in the past has even paid a lip service to family planning. So, why not reward those who voluntarily think of the National Cause. The PM and his team will also show that they are sincere towards the burning issues of the Nation.

23. Free allowances under Income-Tax Act be indexed as provided for in the 6th Pay commission.  If pay Commission can do it why should not Income Tax Department do it as well? So, have the free Income-Tax limit, Section 80-C limit, other allowances indexed. It would reduce the burden of budget exercise on future FMs.

24. Limit of 15 lakhs for professionals for annual audit by C.A. under Income –Tax Act needs to be enhanced to 40 lakhs as same is the limit for service providers  (many of whom are professionals) under Service Tax. Otherwise, the benefit given under Service-Tax last year gets frittered away. After simplification of the tax structure, next assault has to be on the complicated tax compliance issues. All business and professions can be given the option of paying tax up to receipts of 25 lakhs by treating 50% of the receipts as taxable income on a notional basis just by maintaining the account of receipts only. This will better tax recovery and will reduce unnecessary maintenance of accounts by small business and professionals.

25. The accounting for share market transactions and recording of capital gains on the same is a complicated process involving FIFO method, looking at the holding period of every single transaction. May be by enhancing STT the same can be done away all together, as the Government will not lose revenue or at least can jack up STT to that level and investors will be saved of such cumbersome recording of transactions for which even a software has not been developed till date. In the event any Income Tax officer thinks otherwise, then let some of the worthy officers of the department maintain these accounts on a trial basis for two different individuals for about two hundred transactions and I shall cede that there is no logic in the suggestion.

26. Despite all the noises made by Team Anna, pragmatism should not be lost sight of.  Government should, therefore, come out with one last time “Amnesty or Compounding Scheme”, as this is the only way to get the money back to where it belongs. In any case, talking about ethical issues is fine, (since some newspapers are opposing the move), but if the country can alleviate all its poverty, remove all hunger related deaths from its map through influx of such money, then all the intellectual and ethical arguments get dwarfed. Otherwise with all their might, all the agencies of India will never be able to get this money back to Indian coffers. Again, are we still not continuing to have such amnesty schemes every year for various taxes like service tax, house tax and even VAT, then what is wrong in making it known to all defaulters by legislative process that it is one last time and allow it for income-tax purpose also?

27. Further, suggestion will be to hike the rate of corporate tax and MAT or by levy of special purpose cess solely with the objective of creating a corpus for political funding of elections. A beginning has to be made somewhere considering that India is again slipping down in the list of corrupt nations prepared by Transparency International. Why not make a beginning this year? How the corpus is going to be apportioned can be left to the collective wisdom of the legislators to decide.

Tax Payer Empowerment:

1. Create tax ombudsman as a body having representation of Samman holding tax payers. Let the Tribunals have some members selected from this section of society.

2. Allow Samman holder Central Excise assesses paying revenue of more than one crore, 1% as tax collection incentive as they reduce cost of collection to the department.

3. Income-tax returns to collect and collate information from taxpaying assessees regarding where would they like 10% tax payers discretionary spend to go i.e. whether in education, science research, poverty alleviation, defense, electoral reforms etc. and Government to give weight age to such view in future budgeting.

(The author is also a practicing advocate. He is Chief-consulting Officer (Amicus Rarus) and a Former Commissioner of Customs and Excise)