TIOL-DDT 1970
26.10.2012
Friday

A significant change in the Service Tax administration from 01.07.2012 is the partial reverse charge method introduced on certain specified services. Under this system, the service receiver has to pay the specified portion of the service tax and the service provider will pay the remaining portion. Since the liability of the service provider is only a part of the full tax liability, there is every possibility for accumulation of CENVAT Credit in service providers' accounts. This issue has already been identified by the department and the JS(TRU) letter dated 16.3.2012 says "In extreme situations the small service provider is also being allowed the refund of unutilized CENVAT credit if any, available with him. Suitable changes will be made in CENVAT Credit Rules, to this effect".

They have kept their word and vide Notification No 28/2012-CX., (N.T.), Dated : June 20, 2012, a new Rule 5B has been inserted in the CENVAT Credit Rules, 2004 as under:

5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis. - A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.

Unfortunately, the job is not over yet and a Notification prescribing the conditions or procedures has to be issued under Rule 5B. But so far, no such Notification has been issued. It is now nearly four months after the launch of partial reverse charge method and many assessees may be facing the problem of accumulation of CENVAT Credit under partial reverse charge.

While it is laudable that the Board recognised this problem while making these changes and even amended the CENVAT Credit Rules, it is deplorable that the Board has not issued the notification to specify the procedure, safeguards, conditions and limitations.

DDT hopes the Notification will be issued immediately to save the assessee from the ligation of time bar later.

FTP - Validity of Duty Credit Scrips Issued after 05.06.2012

THE validity of Duty Credit Scrips issued under Chapter 3 was reduced from 24 months to 18 months vide Public Notice No.12 dated 26.7.2012. This Public Notice was deemed to have been issued on 05.06.2012 so as to make these provisions consistent with the Foreign Trade Policy (FTP) announced on 05.06.2012 and to avoid inconvenience to trade and industry.

RAs have issued duty credit scrips during this period i.e. from 05.06.2012 to 26.7.2012 with a validity of 24 months.

To avoid any increased transaction cost to exporters, DGFT clarifies that duty credit scrips issued up to 26.07.2012 will continue to have validity of 24 months and duty credit scrips issued after 26.7.2012 will have validity of 18 months.

DGFT Policy Circular No. 7/(RE-2012)/2009-14, Dated: October 25 2012

Company Law - Filing of Balance Sheet in XBRL - Date Extended

THE time limit to file the financial statements in the XBRL mode without any additional fee/penalty has been extended up to 15th December 2012 or within 30 days from the date of Annual General Meeting of the Company whichever is later, according to a Circular issued by the MoCA.

MCA General Circular No. 34/2012, Dated: October 25 2012

Can Review Petition be filed in HC against an order against which SLP had been dismissed by SC?

UNDER Article 136 of the Constitution, the Supreme Court may, in its discretion, grant Special Leave to appeal from any judgement, decree, sentence or order in any cause or matter passed or made by any court or tribunal. This is apart from the appeal provisions contained in certain specified Acts like the Central Excise Act or the Customs Act.

Now, suppose an SLP is filed in the Supreme Court against an order of the High Court and the SLP is dismissed with or without reasons. The party files a review petition in the High Court and against the order in review, again files an SLP in the Supreme Court. Is it allowed?

This was the question before the Supreme Court in a recent case.

The Supreme Court did not have a ready answer as it found that much could be said for both sides. The Supreme Court observed, "We notice considerable arguments are being raised before this Court as well as before various High Courts in the country on the maintainability of review petitions after the disposal of the special leave petition without granting leave but with or without assigning reasons on which also conflicting views are also being expressed by the two-Judge Benches of this Court. In order to resolve those conflicts and for proper guidance to the High Courts, we feel it would be appropriate that this matter be referred to a larger bench for an authoritative pronouncement."

So, the matter is now before a Larger Bench of the Supreme Court. We will know the answer in a few years.

See 2012-TIOL-104-SC-Misc for the judgement delivered on 19.10.2012

Seller is entitled to forfeit earnest money where sale of immovable property falls through by reason of fault of purchaser: SC

AN Agreement for Sale of property was entered into between the appellant (Seller) and the respondent (Purchaser) on 29.11.2005 for a total consideration of Rs. 70,00,000/- to be paid on or before 5.3.2006 and, towards earnest money, an amount of Rs.4,00,000/- was paid on 29.11.2005 and another Rs.3,00,000/- on 30.11.2005, that means, altogether Rs.7,00,000/- was paid, being 10% of the total sale consideration. The purchaser, however, could not pay the balance amount of Rs. 63,00,000/- before 5.3.2006, consequently, the sale deed could not be executed. Seller, therefore, did not return the earnest money to the purchaser.

Consequently, the purchaser, as plaintiff, instituted a suit before the Additional District Judge, Delhi for recovery of Rs. 7,00,000/- from the seller-defendant of the earnest money paid by him. Defendant contested the suit stating that, as per the agreement, he is entitled to forfeit the amount of earnest money, if there was a failure on the part of the purchaser-plaintiff in paying the balance amount of Rs. 63,00,000/-.

The trial Court dismissed the suit holding that the defendant is entitled to retain the amount of earnest money since the plaintiff had failed to pay the balance amount of Rs. 63,00,000/- before 5.3.2006.

On appeal, the High Court took the view that the seller is entitled to forfeit only a nominal amount and not the entire amount of Rs. 7,00,000/-. The High Court further held that the seller can forfeit an amount of Rs.50,000/- out of the amount of Rs.7,00,000/- and he is bound to refund the balance amount of Rs. 6,50,000/- to the purchaser. To this extent, a decree was also passed in favour of purchaser against the seller. It was also held that the purchaser is also entitled to interest @ 12% per annum from 29.11.2005 till the amount is paid.

The matter reached the Supreme Court with the question, whether the seller is entitled to retain the entire amount ofRs.7,00,000/- received towards earnest money or not.

The Supreme Court referred to its own earlier decisions and observed that the following principles emerge regarding "earnest"

1) It must be given at the moment at which the contract is concluded.

2) It represents a guarantee that the contract will be fulfilled or, in other words, "earnest" is given to bind the contract.

3) It is part of the purchase price when the transaction is carried out.

4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser.

5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest.

So, the Supreme Court held, "Law is clear that to justify the forfeiture of advance money being part of ‘earnest money' the terms of the contract should be clear and explicit. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance, by the depositor. There can be converse situation also that if the seller fails to perform the contract the purchaser can also get the double the amount, if it is so stipulated. It is also the law that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part payment of consideration and not intended as earnest money then the forfeiture clause will not apply."

See 2012-TIOL-103-SC-Misc for the judgement delivered on 18.10.2012

Meeting Bulaao Committee Lagaao

GOD got bored with life in Heaven. He wanted somebody to enliven the spirits in Heaven and so He took away Jaspal Bhatti. Please see this episode http://www.youtube.com/watch?v=25qVt6B16TM which is a replica of what can happen in any Government office, especially our Revenue Offices.

DDT Cartoon

Jurisprudentiol – Monday's cases

Service Tax

Appellants were eligible for CENVAT credit for amount paid as ST and, therefore, this is a situation which was revenue neutral - by not paying ST immediately, appellants have lost more than Rs.26 lakhs paid as interest - no service recipient would evade payment of ST and become liable to pay interest which cannot be taken as credit - Penalties Set aside: CESTAT

THE Appellants are engaged in providing Port services. Proceedings were initiated against the appellants on the ground that they are liable to pay Service Tax on commercial charges paid by them for availing External Commercial Borrowings (ECB) under "Banking and Other Financial Services" during the period from 2005-06 to June, 2010. After submitting the details in response to the query made on 21.08.2010, appellants promptly paid the Service Tax of Rs.1,75,74,654/- with interest in September/October, 2010 and informed the DGCEI. Obviously not content with the promptness, proceedings were initiated inter alia for imposition of penalty and against the order imposing the same the appellant is before the CESTAT.

Income Tax

Whether when assessee has built units having area below 1000 sq. ft. but it has also offered option to combine two flats exceeding 1000 sq feet, it loses claim to Sec 80IB(10) benefits - YES: ITAT

THE issues before the Bench are - Whether when the assessee has built units having area below 1000 sq. ft. but it has also offered the option to combine two flats exceeding 1000 sq feet, it loses claim to Sec 80IB(10) benefits; Whether the assessee can be given Sec 80IB(10) benefits on pro rata basis for flats having an area of less than 1000 sqft and Whether when the projections/elevations area implies that there are extended area and can be utilized as carpet area, the said extended area of projections/elevations/balconies are to be included while admeasuring all the flats for the purpose of section 80IB(10). Tribunal dismisses Assessee's as well as Revenue's appeals.

Central Excise

Once duty on final products has been accepted by department, CENVAT credit availed need not be reversed even if activity does not amount to manufacture: CESTAT

IF you do not pay any duty by claiming an exemption, they breathe down your necks saying that the exemption has been wrongly availed. But these allegations are, more often than not, bordering on the innovative and intelligent kind. On the other hand, if you pay duty, they say that the process/activity does not amount to manufacture u/s 2(f) of the CEA, 1944 and that you are paying duty un-necessarily merely to pass CENVAT credit to the consignee.

This reverse psychology is ingrained so much in the Revenue formations, particularly the Audit groups, that there may hardly be any Central Excise Commissionerate in the country that does not have a ‘case' belonging to the said category.

Until Monday with more DDT

Have a Nice Weekend.

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