TIOL-DDT 342
17 04 2006
Monday

The last edition of DDT had carried details of the DGST’s controversial letter and its withdrawal. And how the field refuses to accept the fact that the DG’s letter had indeed been withdrawn! Show Cause Notices are being indiscriminately issued and in some cases prompted by objections raised by the CAG based on the DG’s non existent letter! Imagine the power and range of the DGST. He will not be able to collect a rupee more by his illegal and unwarranted circulars, but he is certainly capable of upsetting normal life for the assessees and making life good for the consultants. It is now more than a year since the DG had withdrawn his letter and surprisingly the issue is still very live. The other day in a seminar at Vizag, this was an agitated issue and all our assurances did not really bring in any cheer as the departmental officers refused to believe that the mighty DG would withdraw his directions. We had supplied copies of the withdrawal letter to several departmental officers so that litigation can be avoided.

In such a situation, the minutes of the RAC meeting in Hyderabad comes as a welcome relief. This was one of the questions in the RAC meeting held on 20th March 2006 under the chairmanship of the Chief Commissioner of Central Excise, Hyderabad as communicated in his C. No. IV/16/51/2006 – CC(HZ) Tech dated 4.4.2006, which a concerned netizen had posted to us.

D. Whether the seven categories of service receivers are eligible for the abatement of 75% as provided to the GTA services? In some divisions Show Cause Notices have been issued to the tax payers denying such abatement to the manufacturers.
And the Chief Commissioner clarified:-

Yes. DGST, letter F.No. V/DGST/43-GTO/02/2005 dated 11.04.2005 may be referred to, withdrawing the clarification given by the DGST vide F.No. V/DGST/43-GTO/02/2005 dated 30.03.2005 that the abatement of 75% from the gross amount charged by Goods Transport Agency for providing taxable service, is available only in cases where Goods Transport Agency is liable to pay Service Tax and the benefit is not available in cases where the provisions of Notification No. 35/2004-ST dated 03.12.2004 are applicable.
 
Thank you Chief Commissioner! But how can someone refer to the Honourable DG’s letters when they are not made public? At least now all the Chief Commissioners should issue instructions that no Show Cause Notice should be issued on this ground.
 
Service Tax on GTA – credit if you pay for the truck along with the transport charges?
 
While the clarification on the withdrawal of DGST’s letter is heartily welcomed, the Hyderabad Chief Commissioner has authored a new controversy. In the same RAC meeting an innocent question was asked,
 
Can a manufacturer use his input credit for payment of Service Tax on GTA for which he is a deemed service provider?

And the Chief Commissioner has given a preposterous clarification. “The manufacturer is eligible to adjust input service credit for paying Service Tax on output service i.e., GTA, provided such input services are used for providing GTA services, otherwise, the manufacturer shall pay Service Tax in cash.”

The clarification comes from a misunderstanding that there is a one to one co relation between credit and debit. According to the Chief Commissioner, the input service tax credit can be used only if the input services are used for providing output services. But in the case of a manufacturer, this is not at all necessary. Let us assume there is a manufacturer who is also a service provider and for convenience we will exclude GTA. Let us assume he is providing the service of technical testing in addition to being a manufacturer of dutiable excisable goods. Now when he has to pay Service Tax on technical testing, can he use the credit available with him from input services for payment of that tax? According to the Chief Commissioner, it is not allowed. He will be allowed that only if the input services have been used for providing the out put service of technical consulting.
 
But the law does not stipulate this. A look at some of the provisions will make the issue clear.
 
It is true that as per Rule 2(l) of the Cenvat Credit Rules, "input service" means any service (i) used by a provider of taxable service for providing an output service and this is perhaps the basis for the Chief Commissioner’s view, but a little more reading – the very next sentence of the definition would have made it clear that input service also means any service used directly or indirectly, in or in relation to manufacture of final products. So as far as a manufacturer is concerned, it is not required that the input service should be used in providing the out put service. It can be used in manufacture too.

Further a credit which is correctly taken cannot become bad later and there is no restriction on how to use it. If a manufacturer has credit either from inputs or input services, he can use it for payment of excise duty or Service Tax without any restriction. The department can question the credit not the debit. At the time of taking the credit on input services, the manufacturer should be able to prove that the input services are going to be used either for

1. Manufacture of final products or

2. Providing output services.

And if the credit taken is right, its use for payment of either excise duty or service tax cannot be questioned for Rule 3(4) stipulates that the cenvat credit can be used for payment of excise duty or Service Tax and there is absolutely no restriction on whether the credit was from inputs or input services.
 
The Chief Commissioner insists that otherwise, the manufacturer shall pay Service Tax in cash. When credit is available why should any one pay in cash? (except when the department forces them to do so during revenue drive).  Sir, you can say the credit is wrong but once you accept the credit as correct, you have no choice on the mode of payment.
 
Above all, the impossibility of the situation as visualized by the Chief Commissioner is surprising. Perhaps it is well known that the manufacturer who pays Service Tax on GTA is not really a service provider and he is paying Service Tax by a legal fiction where the service recipient is made to pay the tax. How can a manufacturer use input services to provide the goods transport service which is actually provided by somebody else and this manufacturer is only asked to pay tax? There is a law which says that LAW does not expect you to do impossible things. May be that does not apply to Service Tax and some officers. Moral of the story- Don’t ask clarifications; you will end up losing whatever you legally have.
 
We will bring you more sparks from the informative RAC in the next few days.

Import of Compressors without ODS and without refrigerant gas

DGFT clarifies that registration requirement will not be applicable for importing Compressors using non-Ozone Depleting Substances, or Compressors which do not contain any refrigerant gas”. Based on this clarification, Customs may allow import of Compressors filled with non-ODS substances.

CIRCULAR  NO. 2 (RE-06)/2004-2009, Dated: April 10, 2006
 

Ibid

Abbreviation for ibidem, meaning "in the same place; in the same book; on the same page."

Generally used for references and the source for ibid will be found in the reference just before it. When you are giving reference to a book

3. Guide to Excise Valuation page 213

4. ibid page 397

This would mean that the reference in 4 is the same as in 3, namely Guide to Excise Valuation, but as can be seen the page number is different.
 
If government can produce something that can’t suck, they will call it a vacuum cleaner
 
Until tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@taxindiaonline.com