JUNE 03, 2009

Budget 2009: Remove Cesses and include them in tax rates

By S B Parikh

THESE Cesses should be removed. Amounts collected as these Cesses, i.e. 3% of duty/tax, should be considered for inclusion in duty/tax itself, while reviewing stimulus package and/or while aligning Excise duty and Service Tax rates. Earlier Central Excise duty and Service Tax rates were as higher as 16% and 12% respectively. Now, they are 8% and 10% respectively. EC and S&HE Cess are chargeable over and above irrespective of reduction in rates. It is suggested that while reducing or increasing rates during Budget, the rates of Cesses may be included in basic duty/tax itself and collection of separate Cesses may be dispensed with. Mean rate of Central Excise duty and Service Tax, both, may be fixed at 9% or 10% inclusive of these Cesses.

Presently, these Cesses are being separately calculated, separately accounted, separately shown in documents, separately deposited in banks, separately taking as Cenvat credit, etc. For this unproductive work lot of man hours are being wasted at tax payers' end and at collecting agencies' end. Further, there are complications in calculation of these Cesses for clearances made by 100% EOU into DTA. If separate levy of these Cesses will abolish, lot of man hours can be saved.

Govt. is free to frame or change the relevant law, thereby facilitating the Govt. to spare a portion equivalent to Cess amount, i.e. 3% of total revenue collected, which may be spent for development in Education field. Such amount so spared may not be considered for distribution to States.

If this will be done, the purpose will be achieved by making few accounting entries at Central collection level only. And Millions of tax payers and Lakhs of tax collectors (including Banks) would be free from making calculation and accounting of Cesses at their level.

Service Tax abatements on condition of non availment of Cenvat Credit

Notification No. 1/2006-ST dated 1.3.2006 provides abatement (partial exemption) from Service Tax for some of the services like Mandap Keeper, Tour Operator, Rent a Cab, etc., as mentioned therein, and subject to the conditions mentioned therein. One of the conditions is that no credit of inputs, capital goods or input services should be taken.

It is understood that the abatement is prescribed towards value of goods supplied along with Service. For example, abatement of 40% is provided for Mandap Keeper's services towards the value of food supplied by the Mandap Keeper. Similarly, abatement of 60% is provided for Rent-a-Cab service towards value of fuel used by Rent-a-cab operator.

As this exemption is given towards value of goods supplied along with service, it is logical to impose the condition that Cenvat credit on inputs would not be admissible. But, there is no logic to impose condition that Cenvat credit of capital goods and input services are also not admissible.

Due to this condition, service tax providers engaged in Sub-contracting become unable to avail this exemption. For example, abatement of 67% is given for ‘Erection, Commissioning or Installation' service, if gross amount charged by the service provider includes value of Plant, Machinery, Parts, etc. If this work is given by the main Contractor to various sub contractors, they are also liable to pay service tax and they can also avail partial exemption under this notification. But, the main contractor would be unable to avail Cenvat Credit of service tax paid by sub contractors, if he wants to avail partial exemption under this Notification.

So, it is logical to suggest that the condition of not taking Cenvat credit on capital goods and input services may be removed from Notification No. 1/2006-ST dated 1.3.2006. In the similar notification(s), prevailing before issuance of Notification No.1/2006-ST, there was condition regarding not taking credit on inputs but, there was no condition regarding not taking credit on input services.

This suggestion is not new. But, it is strongly felt that this anomaly needs to be corrected.

Need for amendment in the provisions of time-limit for issuance of SCN

The department is loosing large number of cases wherein Show Cause Notice had been issued by invoking extended period of five years but, the appellate authorities / courts have held that the extended period is not available considering the facts and circumstances of the cases. In this era of liberalization and self-assessment, the liability to pay proper tax is on the assessee. Due to limited number of staff and also due to possibility of different interpretations of complex law, it is not always possible for department to issue SCN within normal period of 1 year from the date of filing of return.

It is not understood that why nation should suffer revenue loss due to non issuance of SCN within 1 year from date of filing of return, especially when there was nothing in the Return which leads to detection of short payment or non payment. It is logical to link the charges of fraud, suppression of facts, etc. with imposition of penalty, but not with duty.

It is felt that there is no logic to treat the ‘relevant date' as the date of filing of return for all the types of cases. It is suggested that the period of limitation should start from the date of detection of irregularity, which leads to issuance of SCN. Generally, irregularities are being noticed during Audit or Search. It is humbly suggested that the period of limitation should starts from the date of Audit or from the date of Search, as the case may be. It should also be made obligatory on part of the Department to gather data, to complete inquiry/investigation and to serve SCN within one year from the aforesaid ‘relevant date'. However, such SCN may cover demand related to a period up to past five years from such ‘relevant date', whether there was suppression of fact or not. However, if the facts are not suppressed or no mala fide intention exists, penalty may not be imposed.

(The views expressed are personal)