TIOL-DDT 2293
13.02.2014
Thursday

IN an acidic letter to the Prime Minister, Tamil Nadu Chief Minister Jayalalithaa said, "I write to bring to your attention an invidious, discriminatory and completely unjust situation that has arisen as a result of an extremely insensitive and regressive interpretation of certain provisions of the Service Tax legislation, which has made the services like storage and handling associated with Rice liable to levy of Service Tax."

DDT had covered this issue in detail in DDT 2275 - 20.01.2014, where in it was mentioned, "So, your rice is going to be costlier because the Finance Ministry thinks that rice is not an agricultural produce. The Finance Ministry officials who interpreted this legality of what rice should be thankful that the tea boy who is waiting to become PM is not aware of this clarification (yet) - what an effective point it would make in his election speeches!"

DDT had in DDT 2276 - 21.01.2014, explained how rice became a non-agricultural produce. The Chief Minister's letter to the Prime Minister explains the issue almost exactly as DDT did.

Now, it is almost sure that the opposition parties will use this to attack the FM and the Government during the elections. It is unfortunate that a brilliant FM will become a political target for a small thing like Service Tax on storage of rice, which will hardly give him any substantial revenue. He should have exempted this by losing a couple of crores instead of losing many seats for his party.

The CM continues with her vitriol.

This very strange stance taken by the Union Finance Minister, that rice is not an agricultural product, while other cereals including wheat, are agricultural produce and hence exempt from levy of service tax on storage and other services is discriminatory, regressive and indefensible. It smacks of unfairness against people residing in certain regions of the country, especially in the South and the East where rice is the staple food grain consumed. It will raise the price of rice in the open market, particularly at a time when food inflation is already weighing down heavily on the common people.

The interpretation given by the Ministry of Finance defies logic and common sense. From time immemorial, rice has been regarded as an "agricultural commodity".

In a thoughtless, insensitive and discriminatory manner, the Ministry of Finance has proceeded to levy service tax on the storage of Rice alone amongst all food grains. It is yet another instance of how distanced and divorced the UPA Government has become from the concerns of the common people. You will agree with me that this calls for your urgent personal intervention to clarify the position and unambiguously declare rice to be agricultural produce and hence not subject to the levy of service tax for all services related with it. The service tax already levied and collected with effect from 1st July, 2012, should also be remitted and returned to the assessees.

I request you to kindly take urgent action in the matter.

Will the PM/FM react or go with the general trend now - that the UPA Government does not do anything right?

The CM's letter to the PM

Effective date for levy of excise duty on cigarettes at enhanced rates vide Finance Act, 2012 - CBEC Clarification

IN the Budget 2012-13, vide Finance Bill, 2012 as introduced in the Lok Sabha on 16.03.2012, the basic excise duty rate was increased on various lengths of cigarettes by imposing an ad valorem component in addition to the specific duty, through clause 141 of the Finance Bill read with the Seventh Schedule.

By a declaration under the Provisional Collection of Taxes Act, 1931 (PCT Act), the above increase in the excise duty was made effective immediately on the expiry of the day on which the Finance Bill, 2012 was introduced i.e. with effect from 17.03.2012.

Subsequently, by virtue of Government amendment to the Finance Bill, 2012 as introduced, the ad valorem component of 10% was converted to a specific rate. Consequently, the basic excise duty on cigarettes was levied at specific rates which were higher than the excise duty rates proposed in the Finance Bill as introduced. The Finance Bill, 2012 received the assent of the President on 28.05.2012. Thus, the provisions of the Finance Act, 2012 came into effect from 28.05.2012.

The issue that arises for consideration is whether the excise duty levied on cigarettes at higher specific rates by virtue of the Government amendments to the Finance Bill, 2012 would be applicable with effect from 17.03.2012, immediately on the expiry of the day on which the Finance Bill, 2012 was introduced or w.e.f. 28.05.2012, when the Finance Bill, 2012 received the assent of the President.

In the post-Budget letter issued under F.No.334/1/2012-TRU dated 01.06.2012, it was clarified that since clause 141 of the Finance Bill, 2012 read with the Seventh Schedule, by virtue of which the excise duty on cigarettes was increased, was declared under PCT Act, therefore the rates proposed in the Finance Bill came into effect from 17.03.2012. And, since the rates proposed in the Finance Bill have been revised through Government amendments, the revised rates will apply with effect from 17.03.2012.

Everybody (except the Board of course) knew that this view was patently illegal and without any basis. Anyway, wisdom dawned a little late and the Board sought the opinion of the Law Ministry and fortunately the Law Ministry was not confused by the Revenue drive of the Board and clarified that the tariff rate of duty on cigarettes levied vide amendments in the Finance Act, 2012 shall be applicable from the date of enactment of the said Finance Act i.e. 28.05.2012 and not from 17.03.2012.

Board is kind to accept this 'view' of the Law Ministry and clarifies that the tariff rate of duty on cigarettes levied vide amendments in the Finance Act, 2012 shall be applicable from the date of enactment of the said Finance Act i.e. 28.05.2012 and not from 17.03.2012.

The PCT Act is in existence for more than 80 years and is meant exclusively for customs and excise duties and is not applicable to any other department. The Provisional Collection of Taxes Act is a small Act with just 6 sections and it clearly says that a provision in a Bill introduced in Parliament to increase or impose excise and customs duties will have immediate effect. An amendment to the Finance Bill cannot be a Bill and in any case the PCT Act does not by any stretch of revenue imagination provide for a retrospective levy of excise duty.

But the Board had the audacity to clarify [F.No. 334/1/2012-TRU dated 01.06.2012] that the rate as enacted by the Finance Act on 28.5.2012 will have effect from 17.03.2012!

We told you so ! In DDT 1935 - 05 09 2012, we said, Where from the TRU gathers the powers to make this "specific rate of duty" applicable from 17th March 2012 defies logic.

We are happy that the wise Law Ministry and the wiser Board have accepted our view - after 18 months!

Please also see DDT 2096 dated 02.05.2013.

CBEC Circular No. 981/5/2014-CX., Dated: February 11, 2014

Senior IAS Officer complaints against PC - Humiliation

A Senior IAS officer of the 1977 batch - the Secretary in the Urban Development Ministry has complained to the Prime Minister that Finance Minister Chidambaram has humiliated him in a meeting. It all happened about the language of the Secretary - the FM is said to have told the Secretary that he does not understand his English and asked him to speak in Hindi. The Secretary complained that the FM repeated the same remark over and over in a "tone and tenor that was expressly humiliating".

The officers in the Finance Ministry know that the FM is not exactly courteous and friendly in his meetings with the babus - the suave smooth smiling calm Harvard scholar that you see on TV is an altogether different PC that you will not find in North Block meetings - but they all agree that in any meeting, he is the most well-informed person and he loses his cool when half baked information is fed to him.

The whole incident is just another example to show that the government is weak and a weak government is prone to attack.

FTP - Export of Arms and related materials to Government of Iraq - Export Policy Amended

Sl. No. 3 D (i) of 'General Notes to Export Policy-Goods under restrictions' of Schedule 2 of ITC (HS) Classification of Export & Import Items, as of now reads as:

Export of Arms and related material to Iraq is prohibited.

Now this is amended and substituted to read as:

Export of Arms and related material to Iraq is prohibited. However, export of Arms and related material to Government of Iraq shall be permitted subject to 'No Objection Certificate' from the Department of Defence Production.

So, now Export of Arms and related material to Government of Iraq is permitted subject to 'No Objection Certificate' from the Department of Defence Production.

DGFT Notification No. 67 (RE-2013)/2009-2014., Dated: February 12, 2014

FTP - Export of Arms and related materials to Government of Iraq - Foreign Trade Policy Amended

AS per para 2.1.1 of Foreign Trade Policy, 2009-14, the import/export of Arms and related material from/to Iraq is 'Prohibited'.

Now this is amended and substituted to read as:

The import/export of Arms and related material from/to Iraq is 'Prohibited'. However, export of Arms and related material to Government of Iraq shall be permitted subject to 'No Objection Certificate' from the Department of Defence Production.

As, now Export of Arms and related material to Government of Iraq is permitted subject to 'No Objection Certificate' from the Department of Defence Production, the required amendment is made in the Foreign Trade Policy.

DGFT Notification No. 68 (RE-2013)/2009-2014., Dated: February 12, 2014

Jurisprudentiol - Friday's cases

Customs

Whether, if appellant has waived his right to SCN he foregoes his right to challenge the proposed action in SCN forever - Matter referred to third Member: CESTAT

Difference of opinion:

WHETHER the appeal has to be rejected by upholding the order of Commissioner (Appeals) vide which he has enhanced the assessable value of the imported goods and has confiscated the goods with redemption fine of Rs. one lakh and has imposed penalty of Rs. 2 lakhs, as held by Member (Technical)

OR

The appeal has to be allowed in respect of assessable value, by accepting the transaction value as correct value of the imported goods and the redemption fine and penalty has to be reduced to 10% and 5% of the declared value, as held by Member (Judicial)

Income Tax

Whether once charitable institution gets registered u/s 12AA, it ipse dixit entitles assessee to get benefits under Ss 11 or 12 - NO: AP High Court

THE assessee, a charitable institution registered u/s 12AA had invested in immovable property which was found to be not in consonance with the objects of the trust and therefore, the benefits of section 11 and 12 was not granted. The assessee went in appeal before the CIT(A) and then before the Tribunal which remanded the matter to the AO. On remand, the assessee submitted that as per the resolution passed, it had decided that at the end of each year, 75% of its income would be accumulated for the purpose of construction of building and accordingly 75% of the net income was transferred to Building Fund Reserve Account.

The issue before the Bench is - Whether once the charitable institution gets registered u/s 12AA, it ipse dixit entitles the assessee to get the benefit under Section 11 or 12. And the answer is NO.

Central Excise

CENVAT - there is no bar in CCR, 2004 that capital goods cannot be sent to job worker - although 'capital goods' could not be returned "as such" after usage, in that circumstances also credit cannot be denied: CESTAT

THE respondents are manufacturers of C.I. Castings. As the respondents were not having the facilities for machining, grinding etc. to manufacture the auto components from C.I. Castings they procured tools and tips as per the requirement of the job workers and the same were sent to the job-worker for further processing. These tools and tips were received back within 180 days by the respondent but not "as such" and they took credit on the same. The Revenue was of the view that the respondent is not entitled to take CENVAT credit on these tools and tips as the same have not been received "as such".

A show-cause notice was issued. The order passed confirming the demand was set aside by the Commissioner(A). And so, the Revenue is in appeal.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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