TIOL-DDT 571
13.03.2007
Tuesday

Please bear with us for a rather lengthy DDT, but we have good news for you.

However much we want to, it is very rarely that we get an opportunity to praise the Board for some good work and today is that great day we have been looking forward to for a long time.  

  A Bouquet with the choicest flowers to the Board.

We are extremely happy to report that finally reason, law and good sense have prevailed over ridiculous clarifications. For nearly two years we have been running a virtual crusade on the issue of abatement for GTA. And finally the good Board has put the issue to rest, even clarifying that notices need not be issued pursuant to CAG’s objections.

The Board is meant to issue this kind of clarifications and we join thousands of harassed assessees all over the country in thanking the Board for the wise decision.

A little history:

It all started in 2005.

In TIOL-DDT 92 - 11 04 2005, we wrote,

What will the poor assessees do if the officers who are meant to be there to solve their problems themselves create confusion? Most of the Central Excise assessees who are also required to pay Service Tax on goods transport have been paying tax only on 25% of the value in terms of Notification No. 32/2004-Service Tax, Dated : December 3, 2004 and they are right. Now the DG, Service Tax has issued a clarification to all the Chief Commissioners that this exemption is available only if the transport agency pays the tax and not if the consignor or consignee pays it. The learned honourable and totally confused DG does not mention, why he thinks so.

Two days later inTIOL-DDT 94 - 13 04 2005, we wrote,

WE are happy to report that the DG Service Tax has withdrawn the controversial clarification we reported yesterday.  On behalf of thousands of assessees spread across this large country, we express our deep feelings of gratitude to the DG Service Tax for the courage in withdrawing the clarification which we pointed out was patently illegal. Any one can make a mistake; it takes real strength to correct a mistake. A responsible and responsive tax administration ready to admit a mistake and that too promptly before much damage could be done is the greatest happening.  Now the consignors/consignees can continue to pay Service Tax on 25% of the value.

But officers in the field who knew their DG were not prepared to believe that the DG would withdraw his circular. So in TIOL-DDT 105 - 02 05 2005, we confirmed that the DG had indeed withdrawn his circular.

In TIOL-DDT 341 13 04 2006, we reported,

The officers are not impressed and DDT understands that Show Cause Notices are being issued in several places. Recently the Commissioner, Service Tax in the Board clarified in a seminar that the DG’s letter was indeed withdrawn. But even this is no leash for the Show Cause Notice hungry officers. They continue to be issued merrily.

We confirm that the DGST has withdrawn his letter and this was confirmed by the Commissioner, Service Tax in CBEC. It is exactly a year since the DG has withdrawn his clarification but it strange that field officers are more loyal than the king. The Chief Commissioners who were prompt ion communicating the DG’s letter were not equally prompt in communicating his withdrawal. Unnecessary litigation is being produced and multiplied. Board and the DGST should once again clarify that the instructions are withdrawn and any body who acts on the withdrawn instructions should be punished.

With a hope to put the issue to rest we are giving here a copy of the letter from DGST withdrawing his instructions. It may please be noted that the letter is signed by the DG himself.

In TIOL-DDT 342 17 04 2006, we reported,

25% Service Tax on GTA - DGST’s controversial circular truly withdrawn – confirms Hyderabad Chief Commissioner

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.

And yesterday’s DDT had carried a report of the Rustagi Commission report which suggested,

The DGST Circular created the avoidable confusion. Now, it is understood that C&AG has also taken objection. This matter needs to be resolved—by resorting to retrospective amendment, if need be. The intention can not be to deny the benefit of exemption.

And now the Good News:

CBEC has issued a Section 37 B order to the effect that

1. The notifications exempt taxable services from so much of service tax as specified therein, irrespective of the person made liable to pay service tax.

2. It is, therefore, clarified that any person who is made liable to pay service tax, while discharging service tax liability on such service, is entitled to avail of the benefit of exemption in terms of aforesaid notifications No 32/2004-ST, and No. 1/2006-ST, subject to fulfillment of the conditions prescribed therein by adopting the procedure prescribed vide para-31 of circular No. B1/6/2005-TRU, dated 27.7.2005. 

3. The procedure prescribed is that a declaration by the service provider, in all such cases, on the consignment note, to the effect that the conditions of the aforesaid exemption notification have been satisfied, would be sufficient for availing of the benefit under the said notifications.

4. Opinion of Law Ministry has also been sought in this matter. Law Ministry has concurred with the above views of the Department.

5. Therefore, in all such cases, where the above procedure has been followed, no demand notice may be issued on the basis of objection raised by the C&AG office.

6. all pending matters may be decided accordingly. Past instructions, circulars and orders on the issue stand suitably modified.

service tax on interconnection service provided by one telecom operator to another – amendment only prospective

Board is in a good mood; here’s another good clarification.

The interconnection service is provided by one telegraph authority to another to enable the telephone subscribers of these telegraph authorities to connect with each other. Interconnection in technical terms means the commercial and technical arrangements under which service providers connect their equipment, networks, and services to enable their customers to have access to the customers, services, and networks of other service providers. For providing interconnection, the telegraph authority collects interconnect usage charges (IUC). A question has been raised as to whether this service is taxable and accordingly, whether service tax is applicable to IUC.

Recently we had reported a decision of the Tribunal which held that A telecom authority's link to another telecom authority cannot be considered as to a subscriber- The charges collected by them cannot be treated as towards the services rendered as leased circuit services. - 2007-TIOL-208-CESTAT-AHM

In Finance Bill, 2007, a new definition of ‘telecommunication service’ has been incorporated vide clause (104) of section 65 of the Finance Act, 1994 and IUC has been specifically incorporated in the definition of ‘telecommunication service’ to make it a taxable service. Further, any service provided or to be provided, to any person, by a telegraph authority in relation to ‘telecommunication service’ has been made taxable. This amendment will come into effect from a date to be notified by the Government after enactment of Finance Bill, 2007. Therefore, after this amendment comes into effect, service tax would be applicable to IUC charges. 

Board has now clarified that

for the period prior to the date when the amended definition of “telecommunication service” comes into effect, service tax is not applicable to IUC.

Circular No. 91/2/2007-Service Tax dated, the 12^thMarch, 2007

Money changers not liable to pay Service Tax

The good news continues. Again your TIOL had raised this issue strongly.

In TIOL-DDT 220 - 13 10 2005, we reported,

Rupee falls – thanks to TRU

If you want to buy a dollar, the exchange rate according to RBI is a little less than Rs. 45/-. But wait! TRU wants to make it more expensive or cheap depending on whether you want to buy or sell Dollars. Now if you want to exchange a dollar, the bank or the exchanger will charge you a 10% Service Tax which will make your dollar costlier by 10.2%.  In a letter addressed to the DGST with the mandatory copies to all Chief Commissioners and Commissioners, TRU wants to tax all money changers. But they are not brokers and they don’t charge a commission. They simply buy or sell foreign exchange at the rates fixed by RBI. But TRU has a different logic. The TRU letter says, “Money changers cannot go out of the purview of service tax on the plea that they are merely selling and purchasing foreign currency and not dealing or brokering in foreign exchange” .There is a strange logic behind this logic according to TRU. “Under Sale of Goods Act, Goods means every kind of moveable property but excludes money. Therefore transactions in foreign exchange do no fall under scope of sale.” And if it is not sale is it liable for Service Tax? Strangely the TRU clarification does not mention on what value the tax is to be paid. As the money changers do not charge any commission, what could be the value? Is it the gross payment?

Incidentally TRU seems to be unaware of its own clarification given in CIRCULAR NO. 62/11/2003, Dated: Aug 21, 2003 in which while observing that forex brokers included money changers, clarified that  only the service of “foreign exchange broking” when provided by foreign exchange brokers has been brought under the tax net.

In an incisive analysis on the issue, our special column asked Are hotels accepting foreign currency 'foreign exchange brokers'?

We also suggested,

Before interpreting a highly technical term like “ forex broking “ and “ forex broker “ it is expected that TRU would appreciate the ground realities and the practice prevailing in the trade circles. A phone call to RBI office or FEDAI (Foreign Exchange Dealers Association) who regulate forex management in the country, or at least to a bank dealing in foreign exchange, would have made matters more clear (that the authorized dealer or money changers are not permitted to collect any commission as per RBI guide lines), and it is what is least expected from TRU.

Service tax is leviable on foreign exchange (forex) broking service under the category of ‘banking and other financial service’. In terms of the provisions of the Finance Act, 1994, foreign exchange broker includes a money changer (authorized dealer of foreign exchange). In this context, a question has arisen as to whether the service provided by a money changer in relation to exchange of foreign currency is a forex broking service for applicability of service tax levy under ‘banking and other financial services’.

Now the Board clarifies that

1. It was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities.

2. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates.

3. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange.

4. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange.

5. Accordingly, Board is of the view that service tax is not leviable on money changing per se, as such activity does not fall under the category of foreign exchange broking.

6. The instruction issued earlier vide letter F. No. 341/44/2005-TRU, dated 6.10.2005 stands superseded. 

Great going CBEC! If this trend continues, consultants will go out of business.  While congratulating the Board, we hope and pray that such clarifications will continue to come from the Board and a little faster, so that unproductive litigation can be avoided.       

Circular No. 92/3/2007 -Service Tax dated, the 12^thMarch, 2007

Cenvat Credit - Registration Number to be shown on invoice

Rule 9(2) of the Cenvat Credit Rules, stipulates that no Cenvat Credit can be taken unless all the particulars as prescribed under the Central Excise Rules or the Service Tax Rules are contained in the document (like invoice). However if the document contains

1. details of duty or service tax payable

2. description of the goods or taxable service

3. assessable value

4. name and address of the factory or warehouse or premises of first or second stage dealers or provider of taxable service

then if the Assistant Commissioner/Deputy Commissioner is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.

The whole sub rule was substituted in this year’s budget, but obviously while substituting it, they had forgotten something very important, which is now added.

Now the document should also contain the Central Excise or Service Tax registration number of the person issuing the invoice.

NOTIFICATION NO. 19/2007-Central Excise (N.T.) ,Dated : March 7 , 2007

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@taxindiaonline.com