MARCH 26, 2012

Retrospective Amendments in Budget 2012 – Other Side of The Coin

By Atul Bamne, Superintendent & Naval Kant Jha, Inspector of Central Excise

THE budgetary proposals related to retrospective changes in the income tax act (precisely- kolaveri di .... in case of Vodafone) has created lot of hue and cry all over the country. The doubts are being created in the minds (see all discussions in media and in seminars). Number of questions is being asked. Whether the time has come when in this country; tax is levied only on the basis of consequences? Where is the authority of law? What about the uncertainty prevailed in the mind of foreign investors? Will foreign investors rethink of investment in India? What about the Advance rulings where a non resident Indians are getting clarity on the basis of contemporary laws? (And Sometimes when the Government feel .... change it retrospectively) etc ...

The questions are unending ... Are there any answers? Yes, but one should start looking both sides of the coin. The Government's proposal should be taken in the right or wrong perspective only after thorough examination (say trial by tax pundits). This issue was placed before the Finance Minister on several occasions by the media and he has categorically clarified the motive behind the proposed changes. Reciting all these here may be out of context as the same is already in public domain. We only want to refresh readers‘s mind that all the retrospective changes cannot be regressive all the time to the trade. Isn't it a matter of the fact that in case of indirect taxation (Central Excise and Service Tax); retrospective changes when ever brought, most of the time trade and industry are the beneficiary? Even otherwise department cannot press any case beyond five years limitation (except for the subjudiced issue); consequent upon any retrospective change which trade and industry feel is casting aspersion to their interest. In the contrary, when it is beneficial to them they can take it from the date of origin of such provisions. Now, while bringing in retrospective changes, provisions for refund where taxes have been collected due to existence of such provisions are also being incorporated case to case basis. In this article some of the significant budgetary proposal, brought this year with retrospective changes related to Service Tax and to the great extend beneficial to trade and industry are being highlighted:-

++ Rule 6(6A) of the Cenvat Credit Rules 2004 - exemption from reversal of the credit for service provided to SEZ units, retrospectively since 10th Feb 2006 :-

Last year the long awaited demand to bring the clearance of goods and provision of services to SEZ (developer and units) at par; were brought under Notification 3/2011-CE (NT), dated 01/03/2011. The said Notification was made effective from 1 st of the April 2011.Similar treatment for non reversal of Cenvat credit attributable to the services provided to SEZs were given to the service providers in line with clearances by a manufacturer. Now this Rule has been proposed to be given effect since 10 th February 2006. As mentioned in the TRU mega letter dt. 16/03/2012, ‘ this will neutralize the investigations or demands for reversal of credits in respect of services provided to SEZs for the past'.

++ Exemption provided for setting up of common facilities for treatment and recycling of effluents and solid wastes:-

Vide Notification 42/2011-ST dated 25th July, 2011 exemptions from payment of service tax provided by an association of dyeing units in relation to the project; under club or association service were granted. In this budget the said Notification has been made applicable since June 16, 2005 (i.e. from the date of levy of service tax on club or association service). It is pertinent to mention that provision of refund in case of tax collected in the past due to non existence of this exemption has also incorporated subject to filing of the claims within six month of the date of the Presidential assent of the Finance Bill 2012.

++ Exemption provided to Maintenance and repairs of Road:-

The exemption to maintenance and repairs of Road were much debated issue since levy of service tax on management, maintenance or repairs of immovable property since 16/06/2005. The issue has further gained momentum after the Board vide circular No. 110/4/2009-ST dtd 23/02/2009 has clarified that certain activities carried out in relation to road would fall under the purview of Maintenance and Repair service and thus is liable for service tax. Finally vide Notification 24/2009-ST dtd 27/7/2009, all such activities were given full exemption from payment of service tax. Now in this Budget this exemption is made effective from date of levy i.e. from 16/06/2005 with provision of refund in case of tax is collected and claim is filed within six month of the enactment. This will be highly beneficial to all Government road contractors across the country, who are facing service tax demands and penal actions for the period 16/06/2005 to 26/07/2009. This is also blessing in disguise for the contractors who has paid service tax out of pocket during the said period. They can file refund claim within six month from the date on which the Finance Bill, 2012 receives the assent of the President.

++ Management, maintenance or repair service in relation to non-commercial Government buildings:-

Again exemption to management, maintenance or repair service provided in relation to non-commercial Government buildings have been proposed to granted retrospectively from the date of levy i.e. from 16/06/2005 with provision of the refund collected during the past.

Undoubtedly these proposals will bring smile on the face of large section of the trade and industries. The service providers who are going to be benefited amongst others are Government contractors engaged in road building and maintenance facing demand and penal actions for the past period. In most of the cases they have paid service tax and interest out of their pocket, causing substantial loss of the profits. Hopefully this is cheering up time for them.

(The views expressed are personal)