TIOL-DDT 2205
08.10.2013
Tuesday

IN Malappuram District Parallel College Association case - 2006-TIOL-35-HC-KERALA-ST,  the Kerala High Court observed,

"Of course, article 41 also provides that the State shall within its economic capacity and development make effective provision for securing the right to work to education and to public assistance in cases of unemployment, old age, etc. There is certainly force in the contention of the petitioners that even if the State is not able to finance higher education as required under the Directive Principles of State Policy under article 41 of the Constitution, it should not deny and discourage opportunities for education by adding cost to it in the form of tax on education which will certainly disable the economically weaker sections from pursuing higher studies. Addl. Solicitor General of India appearing for the respondents submitted that so many educational institutions are mushrooming and education is carried on as business. Therefore, according to him, there is no illegality or even impropriety in levying tax on such educational institutions. I am unable to appreciate this apprehension of the Government because this malady has to be corrected only by levying income-tax on the institutions and not by licensing the institutions to collect service-tax from students. In fact section 10(22) of the IT Act which granted blanket income-tax exemption for educational institutions is now deleted and exemption is provided with moderation in section 10(23C) of the said Act. Of course, section 11 of the IT Act which provides cover to large number of tax evaders under the guise of charity will continue to protect educational institutions as charity includes education also. If education is run on business lines, then solution is to amend section 11 and other relevant provisions of the IT Act withdrawing the exemptions to institutions and Government can simultaneously provide financial aid to beneficiaries which will put an end to misuse of income-tax provisions. Therefore I do not think the levy of service-tax on students will serve the purpose of disciplining those who make business out of education. Tax on education, particularly when the incidence of tax is passed on to the beneficiaries, that is, the students, is a regressive legislation and has to be condemned, more so, when large number of poor people seek salvation through education and employment."

The Court said that it had to uphold the levy no matter whether the Court considers the levy unwise, improper or even a regressive measure, which is a policy matter to be left to the wisdom of the Legislature.

If these commercial coaching centres are fleecing the students, it is unfair, unjust and unsocial for the State also to join to extract its pound of flesh from the students who flock to these institutions with a hope of getting a job. All the students in these crass commercial coaching centres are not the very rich ones. I know a Sepoy in the Central Excise Department who invested his lifetime savings to admit his son in a private unrecognized college for an MBA course with the hope that he would get a good job. Should you burden this fellow with an additional Service Tax burden? When you wine and dine in a Star hotel where they charge you Rs.100 for a Rs.20 bottle of water, you get an abatement of 60% of the value for payment of Service Tax, but when you pay a college, you don't get any abatement! If Government cannot finance education, the least it should do is to avoid taxing it!

Recently, the issue of taxation of commercial training and coaching was before the Larger Bench of the CESTAT. It was argued before the Larger Bench that there was a fundamental distinction between "education" on the one hand and "training or coaching" on the other. But the Tribunal could not go beyond the Statute and so upheld the levy.

We bring you the Larger Bench Order today. Please see Breaking News.

Please also see Coaching, training and education - Should Education be taxed?

Service Tax - Restaurant Service - Board Clarifications

CBEC has issued certain clarifications on doubts and questions raised in representations:

1. In a complex where air conditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, will service tax arise in the non-air conditioned restaurant?

Clarifications: Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year (hereinafter referred as ‘specified restaurant') attracts service tax.

In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non centrally air-heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned / non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the CENVAT Credit Rules.

2. In a hotel, if services are provided by a specified restaurant in other areas e.g. swimming pool or an open area attached to the restaurant, will service tax arise?

Clarifications: Yes. Services provided by specified restaurant in other areas of the hotel are liable to service tax.

Isn't this contradictory to the first clarification? When service provided in a non-AC restaurant from a common kitchen is exempted, how come service provided at swimming pool and open area is taxable?

3. Whether service tax is leviable on goods sold on MRP basis across the counter as part of the Bill/invoice.

Clarifications: If goods are sold on MRP basis (fixed under the Legal Metrology Act) they have to be excluded from total amount for the determination of value of service portion.

No restaurant sells the MRP affixed goods at the price shown but do so at a higher price, which they attribute to "service" charges. Normally in a Star Hotel, a thirty rupee bottle of water is sold for a hundred rupees. Now is the Service Tax exempted or should they pay Service Tax on seventy rupees? When you have a treat in a hotel, it is actually the Government that has a treat, for the Central and State Governments take away 25% of your bill. In such a scenario, does the Board intend to say that if the MRP affixed goods are sold at a higher price, the value is not to be excluded! And why would MRP based goods be sold ‘across the counter' ONLY. They are provided along with the food items - eg. Aerated waters/mineral water. So, is this clarification not applicable when the MRP based goods are given to a customer along with his food at the AC restaurant? Complicated calculations ahead…..

The Delhi High Court in the case of The Federation of Hotel Restaurants Association of India - 2007-TIOL-345-HC-DEL-SWMA had held -

MRP price - Petitioners question the impermissibility to charge customers above the MRP on mineral water bottles - Predominant activity of a hotel or restaurant is to provide service and not sale of any provisions which is only incidental to its main activity and, thus supply of food and drink by them does not constitute sale - There is no violation of Standards of Weights and Measures Act which limits charging above the listed price - Petition allowed.

When the law allows these restaurants to charge from customers more than the MRP price, can the non-exclusion of the MRP from the value of service be justified?

And is the Board aware of the Kerala High Court decision in the case of Kerala Classified Hotels and Resorts Association - (2013-TIOL-533-HC-KERALA-ST) which held that when food is supplied or alcoholic beverages are supplied as part of any service, such transfer is deemed to be a sale and there cannot be a different component of service which could be imposed with any service tax in exercise of the residuary power of the Central Government under Entry 97 of List I of the Constitution of India?The Court had declared that sub Clauses (zzzzv) and (zzzzw) to Clause 105 of Section 65 of the Finance Act 1994 as amended by the Finance Act 2011 is beyond the legislative competence of the Parliament as the sub Clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule.

Circular No. 173/8/2013-ST., Dated: October 07, 2013

WTO Chief in India

DIRECTOR General of the World Trade Organization (WTO), Roberto Carvalho de Azevêdo was in New Delhi yesterday. He had a meeting with Commerce and Industry Minister Anand Sharma.

While recognising the importance of Trade Facilitation (TF) and upgrading infrastructure at border, ports and custom procedures for giving a boost to exports, Sharma underscored the need for addressing the concerns of food security which have been outlined in a proposal presented by G-33 countries. He observed that food security is the most fundamental of human needs and the lack of it can have profound ramifications as seen during the food price volatility and crises of recent years. He urged Azevêdo to persuade all parties to discuss the food security proposal constructively.

With less than 10 weeks remaining before the Ninth Ministerial Conference of the WTO in December 2013, Sharma and Azevêdo had a detailed discussion on the issues being negotiated for an outcome in the Bali Conference.

Anand Sharma assured the DG of India's cooperation in striving to achieve a balanced outcome at Bali and an early resolution of remaining issues in the DDA post-Bali.

CENVAT credit of duty paid on Capital goods taken of 100% in first year itself - what is recoverable is interest on such wrongly availed credit from date of taking credit till the end of Financial Year: CESTAT

THE appellant is a PSU oil giant. Instead of availing 50% CENVAT credit of the duty paid on capital goods in the year of receipt, they availed the full credit. They also took CENVAT credit of Rs.14,42,690/- on various items which they reversed subsequently and they are not disputing the inadmissibility of the said credit.

SCN was issued invoking extended period of time and demands were confirmed by denying 50% of the credit and also the CENVAT credit of Rs.14.42lakhs which the appellant had taken incorrectly.

Before the CESTAT, the appellant while accepting the allegations levelled of CENVAT credit incorrectly availed of Rs.14.42 lakhs (Rs.8900/- being disputed as that availed on Welding rods) submitted that in the matter of pre-mature availment of credit on Capital goods in the first year itself, since the appellant is eligible for taking CENVAT credit of the balance 50% in the subsequent year, therefore, what is liable to be paid by them is only interest on 50% of the credit taken in advance and not reversal of the amount per se. It is also submitted that being a PSU, suppression cannot be alleged.

The Revenue representative fairly agreed with the appellants' submission regarding "interest only" payment but pleaded that the appellant be put to terms.

The Bench observed -

"5. After careful consideration of the submissions made by both the sides and in view of the admitted position that the appellant has taken credit on capital goods wrongly, which was not due to them in the first year, the appellant is liable to pay interest on such credit wrongly availed from the date of taking of the credit till the end of the financial year. According to the learned counsel, the interest liability would be approximately Rs.3.25 lakhs. Similarly, on the wrongly availed credit of Rs.14.42 lakhs, the interest liability would be approximately Rs.3 lakhs."

In fine, the CESTAT directed the appellant to make a pre-deposit of Rs.6.25 lakhs being the interest component and report compliance for obtaining stay.

See 2013-TIOL-1481-CESTAT-MUM

 Jurisprudentiol - Wednesday's cases

Service Tax

Service Tax - Works Contract Service in relation to execution of works contract in respect of canals - Lift Irrigation covered by Exemption Notification 41/2009 - Pre-deposit waived: CESTAT

THE appellant submitted that the services provided by them in respect of works are in respect of Lift Irrigation Schemes for lifting the water from source to the canal and for further transmission of water. After considering the submissions and the meaning of the words 'in respect of', prima facie conclusion is that the expression covers the work undertaken which is in relation to canals. Undisputedly, the pump house and other facilities were erected by the appellant to lift the water from lower level to higher level of canals. In these circumstances, the appellant has made out prima facie case for complete waiver in view of the fact that the period involved is subsequent to October 2009 and during the relevant period, exemption notification was available.

Income Tax

Whether during adjudication u/s 263, CIT can bring new materials into picture to prove that order of AO is erroneous - NO: Delhi HC

ASSESSEE is an Indian commercial broadcasting television network Company. During assessment, disallowance of interest of Rs.1,83,503/- was made. Assessee had claimed deduction u/s 80HHF of Rs.14,73,12,763/- which was specifically mentioned and allowed in the assessment order. Subsequently CIT issued show cause notice u/s 263 on the basis that in AY 2002-03, deduction was claimed u/s 80HHF, for which essential conditions include export or transfer of any film software, television software, music software, telephone news software including telecast rights. The issues before the Bench are - Whether inadequate inquiry made by assessing officer would render the order erroneous, so as CIT can exercise its power u/s 263; Whether commissioner u/s 263 can initiate proceedings on the basis enquiries, in matters or orders which are already concluded; Whether CIT can issue show cause notice merely on the basis that, AO exercising its quasi judicial powers has concluded a matter differently; Whether CIT can remand a matter to AO to decide whether the findings recorded are erroneous; Whether during adjudication u/s 263, CIT can bring new materials into picture to prove that order of AO is erroneous and Whether notice u/s 263 can be raised merely on suspicion basis. And the verdict goes against the Revenue.

Central Excise

Rule 7(2) of CCR - Recipient of inputs is expected to know his immediate supplier and there is no further requirement to find out as to from where his supplier has procured inputs - penalties set aside and appeals allowed: CESTAT

INASMUCH as Rule 7(2) of the Cenvat Credit Rules requires the recipient of the inputs to know the identity of the supplier of the goods, which in the present case was second stage dealer, the said rule stands satisfied by the manufacturer with second stage dealer having deposed that they had in fact supplied to the manufacturer, payment for which were made by them in cheque, no reasons to uphold the findings of the lower authorities that no inputs were actually received by them. There is neither any allegation nor any evidence on record to show that such inputs were procured from some other alternative source. Admittedly, the said appellant could not have manufactured final product, without the receipt of the inputs, in which case revenue findings that no inputs were actually received cannot be upheld. Recipient of the inputs is expected to know his immediate supplier and there is no further requirement to find out as to from where his supplier has procured the inputs.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

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