TIOL-DDT 2768
19 01 2016
Tuesday

YESTERDAY DDT reported about the CBEC Member's instructions on the action plan to reduce litigation.

Once upon a time the Show Cause Notice in Central Excise used to be issued by all officers of and above the rank of Superintendent. If extended period of limitation had to be invoked, the notice used to be issued by the Commissioner.

In the year 2000, Section 11A of the Central Excise Act was amended to stipulate that SCNs involving duty up to one crore rupees should be issued by the Commissioner or with his prior approval. SCNs involving duty above one crore were to be issued only with the prior approval of the Chief Commissioner.

16 years ago in his Budget Speech of 2000, Finance Minister Yashwant Sinha said, "To curtail the so called" "show cause notice Raj" "in customs and central excise, I have decided that henceforth, show cause notices involving duty amount of more than Rs.1 crore would be issued only with the approval of the Chief Commissioner of Customs and Central Excise. Other show cause notices would require approval of the Commissioner of Customs and Central Excise."

Not a single Draft Show Cause Notice was reported to have been rejected by any Commissioner or Chief Commissioner.

By 2003, these provisions were deleted.

In 2001, this Section was amended to stipulate that SCNs have to be adjudicated within six months/one year - wherever possible. It was rarely possible.

The Board used to review the orders passed by the Commissioners, which effectively meant that the review was done in the Chief Commissioner's office.

In 2005 they brought in the Committee of Commissioners and the Committees of Chief Commissioners. And the entire review process became a big farce. There was one Commissioner holding two charges. He assumed that he constituted the committee and passed a review order. The Committees never functioned and what was put up to one Commissioner/Chief Commissioner was routinely approved by the other without a word between the two. They merrily continue.

The Show Cause Notice Raj which Yashwant Sinha wanted to curtail in 2000 has grown out of proportions into a massive commercial enterprise.

CENVAT Credit - Common input services - Manufacture and trading

WHEN a manufacturer uses common input services for manufacture of goods and trading of goods, how is the credit taken on the common input services regularized?

There is no problem after 1.4.2011, but prior to that trading was not defined as a service and there was no clarity on the amount of credit to be reversed. Trading was declared to be an exempted service from 1.4.2011. As nobody was clear on the amount to be reversed, one Commissioner demanded 6% on the total trading value.

As per the 2011 amendment to the Rules, value of trading was to be taken as the difference between the sale price and the cost of goods sold or ten per cent of the cost of goods sold, whichever is more.

But then the Department was not ready to accept this formula for the pre 2011 period. This was agitated in the case of Mercedes Benz - 2014-TIOL-476-CESTAT-MUM and the Tribunal noted:

For example, if the turnover in particular period is say Rs.1000 crore out of which turnover of Rs.700crore is pertaining to the indigenous cars and turnover of Rs.300 crores pertains to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of Rs.3 crore should be considered pertaining to imported and traded cars.

If we go by the argument of the Ld. Sr. Advocate then the value of traded cars will have to be taken as Rs.30 crores and total turnover will be considered as Rs.730 crores and credit of Rs.10 crores will have to have apportioned in the ratio of 700:30 or 70:3.

Obviously, this would be leading to incorrect results. It would amount to 96% expenditure (relating to sales promotion) is for the domestically manufactured goods and approximately 4% expenditure on the imported and traded cars.

And the Tribunal made a fantastic observation: "perhaps the said new method has been adopted to encourage the trading of the goods rather than the manufacturing of the goods.."

This case reached the High Court which recently held (2016-TIOL-105-HC-MUM-CX), "The Tribunal must firstly refer to the substantive Rule and as operative prior to 1st April 2011 and then arrive at a conclusion in relation to the Explanation introduced with sub-clauses with effect from 1st April 2011. On its introduction and even prior thereto, we do not find any justification then to hold that the Parliament intended to encourage trading of goods rather than manufacturing of the same."

The High Court remanded the case to the Tribunal with a condition that "the Tribunal should not arrive at a conclusion that the amendment has been adopted to encourage trading in goods rather than manufacturing of the same."

If the CBEC is really serious about reducing litigation, this is one issue which calls for urgent attention. They can simply give a clarification that what applies after 1.4.2011 would also apply for the previous period, especially as there was no contrary provision during that period. What is the department's logic in not following the procedure for the previous period, except that Board corrected its mistake only in 2011. Should the assessees suffer for Board's mistakes?

IT - Ease of Doing Business and Reducing Litigation - Justice Easwar Committee releases draft report

THE Government appointed a Committee on 27th October 2015 headed by Justice RV Easwar, former President of ITAT with the following broad objectives: (DDT 2713 - 28 10 2015)

i) to study and identify the provisions/phrases in the Income Tax Act which are leading to litigation due to different interpretations;

ii) to study and identify the provisions which are impacting the ease of doing business;

iii) to study and identify the areas and provisions of the Act for simplification in the light of the existing jurisprudence;

iv) to suggest alternatives and modifications to the existing provisions and areas so identified to bring about predictability and certainty in tax laws without substantial impact on the tax base and revenue collection.

The Committee has been given a term of one year from the date of its constitution. The first batch of recommendations is to be submitted by 31st January, 2016.

The Committee has prepared a set of recommendations to be placed in the public domain with a view to seeking the response of the stakeholders.

Some of the important recommendations are:

Recommendations to promote ease of doing business and simplify procedures-

1. Enhancement and rationalisation of the threshold limits and reduction of the rates of TDS. TDS rates for individuals & HUFs to be reduced to 5% as against the present 10%.

2. Simplification & rationalisation of the provisions of Section 197 and Rules for lower or non-deduction of TDS, aimed to improve ease of doing business.

3. Proposal for certain amendments in rules 28, 28AA and 28AB to resolve practical difficulties faced by persons granted certificates for lower deduction under section 197

4. Proposal for certain amendments in rule 37BA to obviate hardships arising in relation to claiming of credit for tax deducted under section 199

5. Proposal for certain amendments in rule 30 and 31 in relation to time and mode of payment of TDS and filing of statement of TDS under the provisions of section 200

6. Rationalisation of the provisions for maintenance of books of account and tax audit.

7. A presumptive income scheme for professionals

Recommendations to check or curb litigation/facilitate speedier disposal

1. Amendments to provide that in cases where shares are shown as capital assets and held for one year or less, the Assessing Officer will not re-characterise the surplus on sale as business income, provided the surplus in a year is rupees five lakhs or less; in case they are held for a period more than one year, and shown as capital assets (and not as stock-in-trade), surplus to be taxed as long-term capital gains.

2. Amendments to Section 14A to provide that (i) dividend received after suffering dividend-distribution tax and share income from firm suffering tax in the firm's hands will not be treated as exempt income and no expenditure will be disallowed as relatable to them; (ii) expenditure disallowed shall not exceed the amount claimed. Recommendation for issue of executive instructions that no interest be disallowed if source of investment is directly relatable to taxable income.

3. Amendment to Section 56(2)(viib)(ii) to eliminate taxation of the purchaser of the property on the amount of difference between the sale price and the stamp-duty value.

4. No re-opening or revision of assessments under sections 147 and 263 respectively merely on the basis of audit objections.

5. Amendment to Section 255(3) to enhance the monetary limit for Single Member cases before the Tribunal to rupees one crore from the present rupees 15 lakhs.

6. Amendment to Section 254(2) to reduce the time-limit for rectification of orders of the Tribunal from the present four years to 120 days.

7. No penalty for concealment (i) if assessee has taken a bona fide view of a provision enabling a claim etc. or on the basis of any judicial ruling of any Tribunal, High Courts or Supreme Court and (ii) if any addition or disallowance is made ad hoc on assumptions or without evidence.

8. Deletion of section 143(1D) - Avoiding undesirable delay in issue of refunds

9. Prescribing time limit for disposal of petitions for waiver of penalty and interest under sections 273A, 273AA and 220(2A)

Set off of Refunds due to an assessee:

Adjustment of Refunds due to assessees against erroneous demands shown outstanding in their cases causes great heartburning. Even where the assessee lodges his objection on the CPC Portal pointing out that the demand sought to be adjusted against the refund was not outstanding and therefore is being erroneously adjusted, there is no remedy by which the CPC can take note of the same.

In view of the above, Section 245 is proposed to be suitably amended so as to provide that no set off of refund under this section shall be made by any income-tax authority without giving intimation in writing to such person of the action proposed to be taken under this section and without dealing with the objections if any, filed by such person in response to such intimation served on him.

Moreover, it is settled by several judicial pronouncements that where any demand outstanding against the assessee relates to a point, which stands squarely covered by a decision in favour of the assessee, such demand cannot be adjusted against any refund due to the assessee. Courts have logically explained in this regard that the assessee in such a case would have been undisputedly entitled to stay on recovery of such demand and merely because the Department is in possession of the assessee's funds due to him as his legitimate refund, the same cannot be adjusted against such a demand.

The revenue cannot defend such erroneous adjustments merely on the ground that the system does not provide for any such mechanism. Suitable systems shall be required to be put in place to provide remedy keeping in mind that the assessee's money are being adjusted without the authority of law.

SYSTEM ISSUES

The IT software needs to be strengthened to ensure that the following issues are resolved:

1. Tax Deducted at Source reflected in 26AS not reflected in OLTAS

2. TDS reflected in 26AS and OLTAS are not reflected in Income Tax Department System (ITD).

3. Even self-assessment tax and advance tax challans, are at times, not reflected in ITD and OLTAS for many years.

Income Tax Simplification Committee - First Batch Of Recommendations

Tell the FM

WE start our Budget Run Up shortly. Please send in your suggestions. Please be brief and precise if you want the powers that be to read your views. We will try to take your suggestions to the FM and maybe you can help in making the Budget 2016. Please attach your suggestions in a ‘word' document clearly mentioning your name, address, phone number and email id. We will not publish your name if you don't want to.

Rush your mails to editor@tiol.in

Until Tomorrow with more DDT

Have a nice day.

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