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ICAI Submits Post Budget Memoranda 2013 - Indirect Taxes
April, 30th 2013
        POST-BUDGET
       MEMORANDUM
           2013
         Indirect Taxes



THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
                    NEW DELHI
  POST-BUDGET MEMORANDUM, 2013




             INDIRECT TAXES




THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
                  NEW DELHI
                          CONTENTS

                                                                       Page No.

 I.    INTRODUCTION                                                       1

II.    EXECUTIVE SUMMARY                                                2 - 19

III.   DETAILED SUGGESTIONS

A.     Service Tax

 1.    Voluntary Compliance Encouragement Scheme [VCES]                   20

 2.    Reduction of abatement in case of construction services            24

 3.    Services provided by Air conditioned Restaurants.                  26

 4.    Exemption to transport of foodstuffs in a goods carriage by a      29

       Goods Transport Agency

 5.    Penalty in case of failure to take registration                    31

 6.    Penalty for offences by director etc. of company                   32

 7.    Power to arrest                                                    35

 8.    Advance ruling to resident public limited company                  37

 9.    Withdrawal of exemption to repairs and maintenance                 38

       services provided to the Government in respect of an aircraft

10.    Withdrawal of exemption to charities providing services for        39

       advancement of "any other object of general public utility"

11.    Withdrawal of exemption to parking services                        40



                                         ii
                                                                         Page No.

12.   New Return Form ST-3                                                  41

13.   Withdrawal    of   exemption     to    services   provided   by       41

      educational institutions

14.   Amendments in negative list                                           43

15.   Collection of any amount as service tax and non-payment               45

      thereof

B.    Central Excise Duty & Customs Duty

1.    Stay to be vacated after a period of 365 days                         47

2.    Garnishee proceedings                                                 49

3.    Disposal of appeal by a single member Bench of the Tribunal           50

4.    Clearance of goods for home consumption                               51

C.    Goods and Service Tax (GST)

1.    Roadmap for GST                                                       53

D.    Others

1.    Disparity   between   interest   payable    by    assessee   and      54

      Department under central excise, service tax and customs

2.    Audit by CAG                                                          55

3.    Powers under section 14 of the Central Excise Act, 1944               55

4.    Appeal from CESTAT in valuation and classification matters            56




                                       iii
                                                       Page No.

5.   Exemption from payment of duty by way of refund      57

     mechanism

6.   Suggestions for Reduction of Litigation              57




                                    iv
I.    INTRODUCTION

1.0   The Institute of Chartered Accountants of India (ICAI) considers it

      a privilege to submit this Post-Budget Memorandum, 2013 on

      Indirect Taxes to the Government of India.

1.1   This Memorandum contains suggestions on issues arising out of

      budget proposals relating to service tax, central excise duty and

      custom. We believe that addressing the said issues would make

      tax laws simple, fair and transparent and avoid litigation.







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                                                                      The Institute of Chartered Accountant of India
                                                 Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




                             II.   EXECUTIVE SUMMARY

                                       A. SERVICE TAX

S. No.            Topic(s)                                        Suggestion(s)

1.       Service    Tax    Voluntary     The Scheme be also made applicable in cases of partial default
         Compliance    Encouragement     i.e, where the returns has been filed but the tax has not been
         Scheme [STVCES]                 paid either in part or full.
                                         It is suggested to cover all pending cases before Department
                                         as a onetime settlement as in many of the cases the tax payers
                                         might have defaulted due to ignorance of law or the amount of
                                         demand might be incorrectly computed by the Department
                                         without providing for deduction for value of goods used in
                                         rendering service or taking extended period of limitation
                                         which will not stand the test of law in higher courts. By
                                         bringing such assessees also within the gamut of the
                                         STVCES, the Government would be able to reduce litigation
                                         and at the same time raise substantial amount of revenue on
                                         account of tax arrears.
                                         The Scheme be extended to assessees who have not filed


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                                                   The Institute of Chartered Accountant of India
                              Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.   Topic(s)                              Suggestion(s)
                       service tax returns but do not have any tax dues to declare so
                       that they may file returns without being liable to penalty
                       leviable under rule 7C of the Service Tax Rules, 1994.
                     It be clarified that casual enquiries / seeking information on
                     global basis would not lead to the rejection of the declaration.
                     Only where there has been a sustained investigation as on the
                     allocated date or SCN issued would the declaration be
                     rejected. For instance, where the department has issued a
                     letter indicating date/s of visit, the entitlement to the scheme
                     should not be rejected.
                     Appropriate clarification be issued to provide that `audit'
                     would mean audit initiated under section 72A of the Finance
                     Act, 1994.
                     The declaration be rejected by the designated authority after
                     giving an opportunity of being heard to the declarant.
                     It is suggested that uniform guidelines/advisory be issued by
                     the Board to determine whether a declaration filed by an
                     assessee is substantially false.



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S. No.             Topic(s)                                        Suggestion(s)
                                          Appropriate mechanism be incorporated in the Scheme to
                                          maintain the confidentiality of the information furnished
                                          therein.
                                          Appropriate amendment be made to take care of the tax dues
                                          pertaining to the period 01.10.2007 to 31.03.2008 owing to
                                          the expiry of limitation period of five years.
                                          It be notified as part of the Scheme that during the
                                          interregnum viz., effective 01.03.2013 upto the date of
                                          notification, the recovery proceedings will not be initiated
                                          where the assessee has communicated the intent to opt for the
                                          Scheme.

2.       Reduction of abatement in        Considering that the normal commercial connotation for
         case of construction services    denoting the area of a residential unit is super area, the
                                          notification be amended to include the same and since super
                                          area is generally 25-30% higher than the carpet area, the limit
                                          of super area be fixed at 2500 sq. ft.
                                          The term `amount charged' be defined as the total amount
                                          paid by the buyer for acquiring the residential property.



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                                                                        The Institute of Chartered Accountant of India
                                                   Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.             Topic(s)                                         Suggestion(s)
                                          To avoid confusions, it be clarified that the higher abatement
                                          of 75% would be available to residential properties which
                                          satisfy either of the two conditions namely, carpet area being
                                          less than or equal to 2000 sq ft or amount charged being less
                                          than Rs. 1 crore

3.       Services provided by      Air    Keeping with the Government's policy of taxing luxury and
         conditioned Restaurants          demerit goods, it is suggested that the service tax be limited
                                          only to the restaurants having centralized air conditioning
                                          and serving alcoholic beverages. Restaurants having facility
                                          of mere split or window air-conditioning facility be kept
                                          outside the service tax net. .
                                          It be clarified that free home delivery, being mere sale of food,
                                          should not be liable to service tax.
                                          Appropriate clarification be also issued for AC restaurants
                                          having self-service concept and in case of bulk supply of food
                                          or beverages.
                                          A clarification be issued with regard to service tax
                                          applicability on `eating joints/stalls' situated in Metro



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                                                                         The Institute of Chartered Accountant of India
                                                    Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.             Topic(s)                                          Suggestion(s)
                                             stations/Malls etc. which do not have centralized air-
                                             conditioning installed in their premises per se but enjoy the
                                             air conditioning facility by virtue of being in an establishment
                                             which has the facility of centralized air conditioning.
                                           Eating joint be defined to clarify which type/kind of eating
                                           joints would be covered under the proposed amendment.

4.       Exemption to transport of         Considering the possibilities of disputes that may arise owing
         foodstuffs in a goods carriage    to the varied interpretations of the term `foodstuff', it is
         by a Goods Transport Agency       suggested that the term be defined in the notification and the
                                           exemption be allowed to the foodstuff per se irrespective of the
                                           type of end use.

5.       Penalty in case of failure to     In order to avoid ambiguity and arbitrary use of discretionary
         take registration                 powers by the Revenue, a measurable penalty in terms of the
                                           number of days of delay be imposed. For instance, a penalty
                                           which is lower of Rs.10,000 or Rs.200 per day of the default
                                           could be levied.




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                                                                          The Institute of Chartered Accountant of India
                                                     Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.               Topic(s)                                         Suggestion(s)

6.       Penalty     for    offences   by    Given the practice presently being followed by the field
         director etc. of company            formations, there are fair chances of the proposed legislation
                                             being misused. Also there would be protracted litigation with
                                             the directors, managers, secretary or other officers of company
                                             who would claim innocence.
                                             It is suggested that the proposed section be revisited and
                                             modified on the lines of the erstwhile Section 81 which
                                             granted immunity to a director etc. who exercised due
                                             diligence and also extended the penal provisions provided
                                             therein to firm, body corporate etc.
                                             Detailed guidelines be issued to field formations on how to
                                             read and implement this section with extreme caution.
                                             Alternatively, section 80 be amended suitably to include
                                             reference to section 78A so that penalty leviable thereon may
                                             be waived if the concerned person is able to prove reasonable
                                             cause of such failure.
                                             The penal provisions as provided under section 78A(c) of the
                                             Finance Act, 1994 for taking CENVAT credit without actual



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                                                             The Institute of Chartered Accountant of India
                                        Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.              Topic(s)                             Suggestion(s)
                                  receipt of services be revised in line with the CENVAT Credit
                                  Rules, 2004. In other words, appropriate amendment be made
                                  in section 78A(c) to make it in sync with the CENVAT Credit
                                  Rules, 2004.

7.       Power to arrest        Power to authorize any Officer of Central Excise not below
                                the rank of Superintendent of Central Excise to arrest a
                                person be vested with the Chief Commissioner of Central
                                Excise instead of Commissioner of Central Excise.
                                Power to arrest be used only in case of subsequent offences.
                                In other words, first-time offenders be spared from arrest.
                                The proposed provision authorizing the Assistant/Deputy
                                Commissioner to grant bail in respect of bailable offences be
                                reconsidered.
                                Detailed guideline be issued to ensure strong discipline in
                                administering such provisions only in gross cases of willful
                                evasion or non-compliance.
                                Considering that the Supreme Court has held in many cases
                                that in revenue and fiscal matters of interpretation there


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                                                                       The Institute of Chartered Accountant of India
                                                  Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.             Topic(s)                                        Suggestion(s)
                                            should be no arrests, the power to arrest ought to be used only
                                            sparingly and the field formations be informed appropriately.

8.       Advance ruling to resident       The benefit of advance ruling provisions be extended to all
         public limited company           new ventures whether by residents or non-residents in case of
                                          service tax as well.



9.       Withdrawal of exemption to       Since this amendment has unintentionally created a revenue-
         repairs  and    maintenance      neutral situation for Government, it is suggested not to carry
         services provided to the         out this amendment.
         Government in respect of an
         aircraft

10.      Withdrawal of exemption to       The exemption to charitable activities relating to
         charities providing services     "advancement of any other activity of general public utility"
         for advancement of "any other    be restored.
         object of general public
         utility"




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                                                                             The Institute of Chartered Accountant of India
                                                        Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.                 Topic(s)                                          Suggestion(s)

11.          Withdrawal of exemption to         The exemption provided to services by way of vehicle parking
             parking services                   to general public be restored.
                                                Appropriate clarification be issued to explain the position of
                                                law in this regard as also necessary amendment, if required,
                                                be made to entitle such sub-contractors to avail CENVAT
                                                credit of the service tax/excise duty paid by them on the input
                                                services/inputs.

12.          New Return Form ST-3               Suitable amendment be made in Form ST-3 to re-introduce
                                                the column requiring disclosure of unpaid liability up to the
                                                return period.
13.          Amendments in negative list :
      (i)    Approved             Vocational    It is suggested that the proposed amendment to deem course
             education course                   run by an industrial training institute or an industrial
                                                training centre affiliated by State Council of Vocational
                                                Training as approved vocational education course be made
                                                effective retrospectively from 01.07.2012.

      (ii)   Process     amounting        to    It is suggested that the proposed amendment to include


                                                        10
                                                                            The Institute of Chartered Accountant of India
                                                       Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.                 Topic(s)                                         Suggestion(s)
            manufacture or production of         processes under the Medicinal and Toilet Preparations (Excise
            goods                                Duties) Act, 1955 within the ambit of process amounting to
                                                 manufacture be made effective retrospectively from
                                                 01.07.2012.

      (iii) Service relating to agriculture    Similarly, retrospective effect be given from July 1, 2012 to
            or agriculture produce [Sec        the proposal of including all types of testing in relation to
            66D(d)(i)]                         `agriculture' or `agriculture produce' under the negative list

14.         Collection of any amount as        For the sake of clarity, the language of the section be
            service tax and non-payment        appropriately modified to provide that the extended
            thereof                            punishment under section 89(ii) would be applicable only
                                               when the non-payment or short-payment, as the case may be,
                                               of amount collected as service tax exceeds Rs.50 lakh.




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                                                                        The Institute of Chartered Accountant of India
                                                   Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




                     B. CENTRAL EXCISE DUTY & CUSTOMS DUTY

S. No.               Topic(s)                                           Suggestion(s)

1.       Stay to be vacated after a period    Considering that the CESTAT is already reeling with a
         of 365 days                          pendency of over 80,000 to 90,000 cases and the day to day
                                              focus is only towards the stay hearing which on occasions is
                                              akin to the final hearing in terms of time taken for the same, it
                                              is suggested that the limitation period of 180 days for grant of
                                              stay be removed from central excise and customs provisions.

2.       Garnishee proceedings                Appropriate amendment be made in section 11 of the Central
                                              Excise Act, 1944 and section 142 of the Customs Act, 1962 to
                                              define as to when the duty becomes payable.
                                              Appropriate mechanism be built in to protect the bank/debtor
                                              if the tax payers were to proceed against them

3.       Disposal of appeal by a single       Number of Benches of CESTAT ought to be increased.
         member Bench of the Tribunal         "e-courts" be introduced in the working of CESTAT benches
                                              as in the ITAT (where a start has been made).
                                              A team of management graduates from Business Schools and



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                                                                  The Institute of Chartered Accountant of India
                                             Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.             Topic(s)                                       Suggestion(s)
                                          practising bar members and law graduates from Law Schools,
                                          as are available, be put in place at each CESTAT bench to
                                          identify same or similar issues in matters (including
                                          somewhat similar or allied issues) so that all these could be
                                          bunched together and disposed off on time bound basis.
                                        Practicing Chartered Accountants be made eligible for being
                                        appointed as Members of the CESTAT as in the case of
                                        Income-tax Appellate Tribunal.

4.       Clearance of goods for home    The interest free period for payment of customs duty be
         consumption                    increased from 2 days to 5 days as was the situation before
                                        Finance Bill, 2013.




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                                                                The Institute of Chartered Accountant of India
                                           Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




                             C. GOODS AND SERVICE TAX

S. No.               Topic                                       Suggestion

1.       Roadmap for GST              It is suggested that a comprehensive road map with specific
                                      timelines be announced for implementation of Goods and
                                      Service Tax.




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                                                                         The Institute of Chartered Accountant of India
                                                    Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




                                              D. OTHERS

S. No.               Topic(s)                                            Suggestion(s)

1.       Disparity between interest payable         The interest rates for both the demand of the duty/tax and
         by assessee and Department under         the refund of the duty/tax be made uniform. There is need
         central excise, service tax and          for fairness and equity in the rates at which interest is paid
         customs                                  by the department and that is charged from tax payer.

                                                    Further, uniformity be also ensured in respect of date of
                                                  charging of interest on duty/tax demands vis-à-vis date of
                                                  paying interest on refund of duty/tax. Interest on delayed
                                                  refunds be paid by the Department from the date on which
                                                  duty was actually paid.

2.       Audit by CAG                              Audit of excise be introduced at par with Income Tax or
                                                  Sales Tax Department.

3.       Powers under section 14 of the             Section 14 of the Central Excise Act be suitably amended
         Central Excise Act, 1944                 so as to stop the misuse of the powers provided therein.
                                                  Summons be not issued unless information has been sought


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                                                                            The Institute of Chartered Accountant of India
                                                       Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.                    Topic(s)                                          Suggestion(s)

                                                     in writing [served to correct address] and the same has not
                                                     been provided.

4.         Appeal from CESTAT in valuation            Necessary amendments be made to file appeal in High
           and classification matters                Court in valuation and classification matters as well.

5.         Exemption from payment of duty              It is suggested that the present system of granting
           by way of refund mechanism                exemption through refund route be reviewed and be made
                                                     simple to comply.

6.         Suggestions for Reduction of Litigation

     (a)   Streamlining    of   Circulars/Trade        Issue of circulars be examined and if at all they need to be
           Notices                                   issued, the Board should issue circulars by exercising
                                                     utmost caution and design the circular meticulously to
                                                     avoid any interpretational issues by the industry or the field
                                                     formations at the lower level.

                                                      Further, a practice of issuing a Master Circular on 1st



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                                                  Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.                Topic(s)                                         Suggestion(s)

                                                April every year in Excise/Custom/Service tax compiling all
                                                related circulars issued during the year be adopted on an
                                                annual basis. This would ensure better compliance as
                                                assessees will be aware of necessary procedural steps and
                                                exemptions as available. A comprehensive circular makes
                                                easy to review all updates in an indexed manner.

                                                 Also, it be made mandatory for the Officers to only use the
                                                current circulars.

 (b)     Training      of     Departmental        A comprehensive training covering all the substantive,
         Personnel                              procedural aspects of the law and understanding of financial
                                                statements be scheduled for the officers at all levels.

 (c)     Accountability of tax collectors         In order to project a sense of even-handedness in dealing
                                                with tax payers, provisions relating to accountability be
                                                introduced and not be formulated independently. The
                                                Tribunal or Commissionerate (Appeal) may impose
                                                reasonable cost for the same.



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                                                                     The Institute of Chartered Accountant of India
                                                Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.               Topic(s)                                        Suggestion(s)

                                                If there are rewards awarded to the departmental officers
                                              for anti-evasion cases then there ought to be penalty also for
                                              frivolous litigations.

 (d)     Timely information and guidance        It is suggested that all the orders passed by CESTAT and
                                              Adjudicating Authority/ Commissioner (Appeals) be made
                                              available on websites for ready reference of the industry.
                                              The CBEC may play a proactive role and issue clarifications
                                              on problems / issues of industry which are similar in nature
                                              to avoid such problems resulting in litigation at a later
                                              stage.

 (e)     Vacancies in Tribunal                 The vacancies in Tribunal be filled. A fast track system of
                                              disposal of cases be introduced to deal with high revenue
                                              cases and settled issues.

 (f)     E-filing                              E-filing of appeals be introduced to encourage paperless
                                              society as an environment friendly measure.




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                                                              The Institute of Chartered Accountant of India
                                         Post-Budget Memorandum, 2013- Indirect Taxes: Executive Summary




S. No.               Topic(s)                                 Suggestion(s)

 (g)     Independent adjudication        Retired officers of Central Excise, Customs and Service
                                       Tax department be not allowed to appear in adjudication,
                                       first appellate authority or any other proceedings before the
                                       departmental authorities for a period of 1 year after their
                                       demitting office.




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                                   The Institute of Chartered Accountant of India
                                 Post Budget Memorandum, 2013- Indirect Taxes




                          A. SERVICE TAX
1.   Service Tax Voluntary Compliance Encouragement Scheme
     [STVCES]

     Amendment

     Proposal to introduce a service tax Voluntary Compliance
     Encouragement Scheme, 2013 (STVCES) is certainly a welcome
     move as it would enable/entice the service providers as well as
     service receivers - liable to pay service tax under reverse charge -
     who are either stop filers, non-filers or non-registrants or who
     have not disclosed their true liability in the returns filed by them
     during the period from October 2007 to December 2012 to pay
     their tax dues without payment of interest and penalty.

     Issue

     The scheme is applicable to full defaulters i.e., who have not paid
     their tax dues as also not filed service tax returns. There could be
     cases where an assessee honestly filed the returns but due to
     unavoidable reasons failed to pay service tax. Such cases of
     partial default will not be entitled to the scheme. However, an
     assessee who has not filed the return and also not paid the tax
     will be eligible for scheme. Therefore, an honest assessee who
     could not pay tax due to genuine reasons would be at a
     disadvantageous position vis a vis dishonest assessee who never
     had the intention of disclosing his tax liability and paying tax
     thereon.

     Suggestions

     The Scheme be also made applicable in cases of partial default
     i.e, where the returns has been filed but the tax has not been paid
     either in part or full.

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                               The Institute of Chartered Accountant of India
                             Post Budget Memorandum, 2013- Indirect Taxes






Issue

The Scheme is not available to the persons to whom any notice or
an order of determination under section 72 or section 73 or
section 73A has been issued before 01st March 2013. It is also not
available to persons against whom any enquiry or investigation
initiated by way of search of premises or issue of summons or
calling for information/documents or an audit is pending as on
01.03.2013.

Suggestions

(i)     It is suggested to cover all pending cases before
        Department as a onetime settlement as in many of the
        cases the tax payers might have defaulted due to ignorance
        of law or the amount of demand might be incorrectly
        computed by the Department without providing for
        deduction for value of goods used in rendering service or
        taking extended period of limitation which will not stand
        the test of law in higher courts. By bringing such assessees
        also within the gamut of the STVCES, the Government
        would be able to reduce litigation and at the same time
        raise substantial amount of revenue on account of tax
        arrear.

(ii)    It be clarified that casual enquiries / seeking information
        on global basis would not lead to the rejection of the
        declaration. Only where there has been a sustained
        investigation as on the allocated date or SCN issued,
        declaration be rejected.       For instance, where the
        department has issued a letter indicating date/s of visit,
        the entitlement to the scheme should not be rejected.




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                               The Institute of Chartered Accountant of India
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(iii)   The declaration be rejected by the designated authority
        after giving an opportunity of being heard to the declarant.

(iv)    Appropriate clarification be issued to provide that `audit'
        would mean audit initiated under section 72A of the
        Finance Act, 1994.

Issue

There are many cases where the assessees have stopped paying
service tax as their turnover of taxable services have gone below
the threshold limit. However, they have not surrendered their
registration certificate. Since a person needs to have tax dues for
availing the benefit of this Scheme, such persons do not have any
option to file their returns and surrender their registration.

Further, there may be assessees who would not have filed returns
for a particular period on account of nil service tax liability but
have been filing returns and paying service tax after becoming
liable for service tax. The Scheme cannot be availed by such
assessees also.

Suggestion

The Scheme be extended to assessees who have not filed service
tax returns but do not have any tax dues to declare so that they
may file returns without being liable to penalty leviable under
rule 7C of the Service Tax Rules, 1994.

Issue

The benefit of the scheme can be availed for the tax dues for the
period beginning from 1.10.2007 and ending 31.12.2012.
However, by the time the scheme gets implemented, the
limitation period of five years for the period 01.10.2007 to
31.03.2008 would expire. Therefore, the assessees having tax

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dues pertaining to this period would not come forward to avail
the benefit of this scheme.

Suggestion

Appropriate amendment be made to take care of the tax dues
pertaining to the period 01.10.2007 to 31.03.2008 owing to the
expiry of limitation period of five years.

Issue

As per proposed section 101, where the declaration is found
substantially incorrect by the Commissioner, a show cause notice
would be served for recovery of tax dues not paid or short paid.
Such discretionary powers may adversely affect the assessees and
may not yield the desired results.

Suggestions

(i)     It is suggested that uniform guidelines/advisory be issued
        by the Board to determine whether a declaration filed by
        an assessee is substantially false.

(ii)    Appropriate mechanism be incorporated in the Scheme to
        maintain the confidentiality of the information furnished
        therein.

Issue

The Scheme states that so long as no proceedings have been
initiated upto 28.02.2013, any person may opt for the scheme.
However, it is relevant to note that the effective date of the
Scheme is yet to be notified. In the interregnum, viz., effective
01.03.2013 upto the date of notification, the proceedings could be
initiated in various cases and without prejudice to the entitlement
of the assessee to opt for the Scheme, various recovery

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     proceedings could also be initiated and and even orders be
     passed.

     Suggestion

     It be notified as part of the Scheme that during the interregnum
     viz., effective 01.03.2013 upto the date of notification, recovery
     proceedings will not be initiated where the assessee has
     communicated the intent to opt for the Scheme.

2.   Reduction of abatement in case of construction services

     Amendment

     Abatement available to developers of complex, building or civil
     structure has been reduced from the existing 75% to 70% in
     following cases:-

     a.     Residential properties having a carpet area above 2000 sq ft
            and where amount charged is equal to or more than Rs. 1
            crore,

     b.     Commercial properties.

     Issues

     Carpet area vis a vis super area

     In the normal commercial parlance, invariably all the
     builders/developers indicate the area of a flat/residential unit in
     terms of `super area' and not the `carpet area' as provided in the
     notification. Therefore, it would be practically difficult to claim
     abatement and the end-users will also be not clear about his
     actual service tax liability.

     `Carpet Area' is the area calculated from inner wall to wall
     distance inside the house. This would also include steps if any,

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inside the house. So essentially, carpet area is the net usable area
inside the house. Another term used in this sector is the `Built up
Area' which is Carpet Area + Area of walls and ducts+ 1/2 the
Area of terrace. This is usually 10% more than the carpet area.
`Super Area' is built up area + area occupied by common
amenities like lifts, corridors, awnings, club house, stairs. Super
area is usually around 25% more than built up area or 35% more
than carpet area.

Amount charged ­ what does it include?

Further, it not clear that which items of cost of the residential unit
would be included in the term `amount charged' i.e., whether the
same will include, premium location charges, parking charges,
club membership fees etc.

Suggestions

(i)     Considering that the normal commercial connotation for
        denoting the area of a residential unit is super area, the
        notification be amended to include the same and since
        super area is generally 25-30% higher than the carpet area,
        the limit of super area be fixed at 2500 sq. ft.

(ii)    The term `amount charged' be defined as the total amount
        paid by the buyer for acquiring the residential property.

(iii)   To avoid confusions, it be clarified that the higher
        abatement of 75% would be available to residential
        properties which satisfy either of the two conditions
        namely, carpet area being less than or equal to 2000 sq ft
        or amount charged being less than Rs. 1 crore.




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3.   Services provided by Air conditioned Restaurants

     Amendment

     Notification No. 25/2012 ST dated 20.06.2012 has been amended to
     provide that all restaurants with air-conditioning or central air
     heating (including restaurants not serving liquor as well) in any
     part of the establishment at any time during the year would be
     liable to service tax with effect from April 1, 2013. Before this
     amendment, service tax was leviable only on those restaurants
     which had the facility of air-conditioning or central air-heating in
     any part of the establishment, at any time during the year, and a
     licence to serve alcoholic beverages.

     Issues

     Burdensome for the common man

     Given the rising temperatures in the recent times, the above
     amendment will invariably cover all the restaurants in majority
     of India as air conditioning is no more a luxury but a necessity.
     Therefore, in the present time of rising inflation when prices have
     risen steeply, such increase in the cost of eating out will further
     increase the woes of the common man.

     Home delivery

     Another issue that has come up is that many of the AC
     restaurants not serving liquor offer free home delivery of food.
     Since by virtue of the above amendment, all AC restaurants
     would be liable to service tax, it is not clear as to whether the free
     home delivery of food offered by these restaurants would be
     liable to service tax. There are also few eateries who only offer
     take aways or free home delivery of food as they do not have
     adequate space for seating arrangements.


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It is worthwhile to note here that in case of transaction involving
free home delivery of food, the dominant nature of the
transaction is that of a sale and not service as the food is not
served at the restaurant and no other element of service which is
offered at the restaurants be it ambience, live entertainment, if
any, air conditioning, or personalized hospitality is offered.
Furthermore, no amount is charged for such free delivery of
food.

Bulk supply of food or beverages

It is not clear as to whether service tax will be charged if order for
bulk supply of food [say 400 boxes is placed on an air-
conditioned restaurant or air-heated restaurant etc. in connection
with a function to held outside [say at home of the person placing
the order] the said restaurant. It is noteworthy that in this case
facility of air-conditioning or air-heating is immaterial for the
customer because he will not take the food in the restaurant.

Self service

Another issue may arise in case of AC restaurants which do not
offer services of waiters i.e., where the concept of self-service is
prevalent.

Double taxation

Almost all hotels and restaurants across the country are charging
VAT on 100% billed amount and also service tax on 40% of the
billed amount. In a way, the customer ends up paying tax on a
value which comes to 140% of Bill which apparently is a clear cut
case of double taxation. Sale of food is no doubt chargeable to
VAT and hence levy of VAT is not an issue here. The main issue
which the Government must address is that service tax is levied
only on the service charges, if any. The impact of double taxation

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would certainly become more severe with the scope of service tax
levy being expanded to cover all AC restaurants.

Meaning of `Air-conditioning facility'

It is not clear as to what "Central Air-heating" intends to cover
which could not be covered by "air-conditioning" when term
"air-conditioning" itself refers to any form of technological
cooling, heating, ventilation, or disinfection that modifies the
condition of air. Doubt arises because of use of words "the
facility of air-conditioning or central air-heating".

Meaning of `Any part of Establishment'

Another issue is as to what is meant by term `any part of
establishment'. It is not clear as to whether service tax will apply
on eating joints at Metro Stations etc. as an eating joint at a Metro
Station, in itself, does not have the facility of Air-conditioning but
the Metro Station has the facility of air-conditioning. Similar
issue may arise in case of a Mall having centralised air-
conditioning system where small stalls offer ice creams etc., or
just bakery products. Service tax liability on these stalls need to
be examined.

Definition of Eating Joints

Eating joints having air-conditioning facility would be covered
under service tax net after proposed amendment. It is not clear
as to whether, eating joints include places where proper meal is
served or the place where any kind of food stuff is served, say a
Vada pav just costing Rs. 20/.

Suggestions

(i)    Keeping with the Government's policy of taxing luxury
       and demerit goods, it is suggested that the service tax be

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             limited only to the restaurants having centralized air
             conditioning and serving alcoholic beverages. Restaurants
             having facility of mere split or window air-conditioning
             facility be kept outside the service tax net.

     (ii)    It be clarified that free home delivery, being mere sale of
             food, should not be liable to service tax.

     (iii)   Appropriate clarification be also issued for AC restaurants
             having self-service concept and in case of bulk supply of
             food or beverages.

     (iv)    A clarification be issued with regard to service tax
             applicability on `eating joints/stalls' situated in Metro
             stations/Malls etc. which do not have centralized air-
             conditioning installed in their premises per se but enjoy
             the air conditioning facility by virtue of being in an
             establishment which has the facility of centralized air
             conditioning.

     (viii) Eating joint be defined to clarify which type/kind of eating
            joints be covered under the proposed amendment.

4.   Exemption to transport of foodstuffs in a goods carriage by a
     Goods Transport Agency

     Amendment

     With effect from April 1, 2013, transport of foodstuff including
     flours, tea, coffee, jaggery, sugar, milk products, salt and edible
     oil, excluding alcoholic beverages in a goods carriage by a Goods
     Transport Agency has been exempted from payment of service
     tax.    The above change has been effected by amending
     Notification No. 25/2012 ST dated 20.06.2012.



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Issue

The term foodstuff has not been defined in the notification. The
notification only provides that foodstuff include flours, tea, coffee
etc. It is not clear as to what all will constitute foodstuff.

Collinsdictionery.com defines the term food stuff as "any
material, substance, etc, that can be used as food."
Wordwebonline.com defines food stuff as "consumer goods sold
by a grocer" or "a substance that can be used or prepared for use
as food."

There could be cases where a foodstuff can be used in multiple
ways. For instance, guar flour (not edible directly) is used in
making processed cheese, bakery items, soups, noodles and also
in preparation of beverages. At the same time, it is also used in
chemical industry, paper industry, cosmetics, etc. Similar is the
case with salt. Besides being a foodstuff, it is also used in the
aluminium purification, caustic/chlorine manufacture, pottery
production, soap and glycerine manufacture, etc.

The divergent uses of the products may lead to disputes. Also, it
will not always be possible to correlate the item with its end use
in order to claim the exemption. Thus, some sort of clarification
is required on this aspect.

Suggestion

Considering the possibilities of disputes that may arise owing to
the varied interpretations of the term `foodstuff', it is suggested
that the term be defined in the notification and the exemption be
allowed to the foodstuff per se irrespective of the type of end use.




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5.   Penalty in case of failure to take registration

     Amendment

     The existing section 77(1)(a) provides that any person who is
     liable to pay service tax, or required to take registration, fails to
     take registration in accordance with the provisions of section 69
     or rules made under this Chapter shall be liable to pay a penalty
     which may extend to [ten thousand rupees] or two hundred
     rupees for every day during which such failure continues,
     whichever is higher, starting with the first day after the due date,
     till the date of actual compliance.

     Section 77(1)(a) is proposed to be amended to provide that any
     person who is liable to pay service tax or required to take
     registration, fails to take registration in accordance with the
     provisions of section 69 or rules made under this Chapter shall be
     liable to a penalty which may extend to ten thousand rupees."

     Issue

     The word "may" in the proposed section leads to uncertainty.
     There are fair chances of the discretionary powers of the
     Adjudicating Officer being misused in the sense that maximum
     penalty could be levied even if the delay is only of few days.

     Suggestion

     In order to avoid ambiguity and arbitrary use of discretionary
     powers by the Revenue, a measurable penalty in terms of the
     number of days of delay be imposed. For instance, a penalty
     which is lower of Rs.10,000 or Rs.200 per day of the default could
     be levied.




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6.   Penalty for offences by director etc. of company

     Amendment

     Director, manager, secretary or other officer of the company, who
     is in any manner `knowingly concerned' with specified
     contraventions, is proposed to be made liable to a penalty upto
     Rs. 1 Lakh under a new section 78A.                  The specified
     contraventions would include evasion of service tax, issuance of
     invoices, bill, challan without the provision of taxable service,
     availment and utilization of credit without actual receipt of
     taxable service or excisable goods or failure to pay any amount
     collected as service tax to the credit of the Central Government
     beyond the period of 6 months from the date on which such
     payment becomes due.

     The penal provisions to rope in the directors and other officers of
     a company for committing the specified offences also exist in
     Central Excise Act, 1944 [Section 9AA], the Customs Act, 1962,
     the FEMA, etc. Even the erstwhile section 81 of the Finance Act,
     1994, as it then stood, before it was deleted with effect from 10-9-
     2004, provided penal consequences in case of `offences by
     companies'.

     Issues

     `Knowingly concerned' ­ prone to varied interpretations and disputes

     A perusal of the new proposal would indicate that, it is far more
     stringent, as compared with the earlier provision of Section 81 of
     the Act as it stood before 10-9-2004. The erstwhile section 81 of
     the Act was similar to section 9AA of the Central Excise Act,
     1944. Both the sections mentioned above granted immunity to
     the person in charge of and responsible to the conduct of the
     business of the company from the penal provisions if he proved

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that the offence was committed without his knowledge and that
he had exercised all due diligence to prevent commission of such
offence. Also, both the sections provided that company means
any body corporate and includes a firm or other association of
individuals. However, the proposed section 78A only talks about
offences by director etc. of a company.

In respect of the four specified offences committed by a company,
a director, etc. who at the time of such contravention was in
charge of, and was responsible to, the company for the conduct of
business and was `knowingly concerned' with such contravention
would be liable to penalty. Therefore, issues like the time of
contravention, circumstances when a director can be held to be in
charge of the conduct of business and knowingly concerned with
the alleged contraventions will invariably be the subject matter of
litigation.

In a typical case where contraventions happen at the operational
level without the knowledge of the top management, there
appears to be no respite from penalty under the proposed
legislation even when the director had exercised all due diligence
to prevent the commission of the offence.

The acid test for a director etc. to be proceeded against under the
proposed Section 78A is that he should have been `knowingly
concerned' with the contravention. As is their wont, this test
applied by the Departmental officers will invariably result in the
imposition of maximum penalty.

Section 78A(c) not in sync with CENVAT Credit Rules, 2004

Further, availment and utilization of credit of service tax, either
fully or partially, without actual receipt of taxable services is also
proposed to be made a specified offence under section 78A(c).


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However, rule 4(7) of the CENVAT Credit Rules allows
"CENVAT credit in respect of input service on or after the day on
which the invoice, bill or, as the case may be, challan referred to
in rule 9 is received.

Suggestions

(i)     Given the practice presently being followed by the field
        formations, there are fair chances of the proposed
        legislation being misused. Also there would be protracted
        litigation with the directors, managers, secretary or other
        officers of company who would claim innocence.

        It is suggested that the proposed section be revisited and
        modified on the lines of the erstwhile Section 81 which
        granted immunity to a director etc. who exercised due
        diligence and also extended the penal provisions provided
        therein to firm, body corporate etc.

(ii)    Detailed guidelines be issued to field formations as to how
        to read and implement this section with extreme caution.

(iii)   Alternatively, section 80 be amended suitably to include
        reference to section 78A so that penalty leviable thereon
        may be waived if the concerned person is able to prove
        reasonable cause of such failure.

(iv)    The penal provisions as provided under section 78A(c) of
        the Finance Act, 1994 for taking CENVAT credit without
        actual receipt of services be revised in line with the
        CENVAT Credit Rules, 2004. In other words, appropriate
        amendment be made in section 78A(c) to make it in sync
        with the CENVAT Credit Rules, 2004.




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7.   Power to arrest

     Amendment

     Section 90 is proposed to be introduced to specify and
     differentiate the offences provided in section 89(1) into
     cognizable offences from non-cognizable and bailable offences.
     Further, section 91 is proposed to be introduced to empower
     Commissioner of Central Excise to authorize any officer of
     Central Excise not below the rank of Superintendent of Central
     Excise to arrest a person for offences specified under clauses (i) &
     (ii) of section 89(1) i.e., where the amount involved in the offence
     exceeds Rs. 50 Lakh.

     Issue

     The possibility of misuse of powers granted by proposed Section
     91 cannot be ruled out. Therefore, suitable safeguards must be
     inbuilt to avoid the misuse of said power. Since this provision
     impacts "life and liberty" issues, it needs to be implemented very
     carefully. The lurking danger of such a provision is that it may be
     misused when there are revenue shortfalls and tax officers are
     under pressure to meet revenue targets.

     Further, Section 91(3) read with section 90 is proposed to
     empower the Assistant/Deputy Commissioner to release an
     arrested person on bail if he commits any of the following non-
     cognizable and bailable offence

      Knowingly evades payment of service tax under this Chapter;
      or

      Avails and utilises credit of taxes or duty without actual
      receipt of taxable services or excisable goods either fully or



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       partially in violation of the rules made under the provisions of
       this Chapter; or

 Maintains false books of accounts or fails to supply any
 information which he is required to supply under this Chapter
 or the rules made thereunder or supplies false information;

The attempt to make the offences under indirect taxes by and
large non-bailable, and authorising the Assistant/Deputy
Commissioner to grant bail in respect of bailable offences gives a
potent weapon of corruption in the hands of Revenue Officers.
While hard measures are required to deal with willful tax
offenders, provisions such as these have a potential for misuse.
There could be situations where the assessees might be treated
worse than criminals who commit cognizable offence under
ordinary criminal laws.

Suggestions

(i)       Power to authorize any Officer of Central Excise not
          below the rank of Superintendent of Central Excise to
          arrest a person be vested with the Chief Commissioner of
          Central Excise instead of Commissioner of Central Excise.

(ii)      Power to arrest be used only in case of subsequent offences.
          In other words, first-time offenders be spared from arrest.

(iii)     The proposed legislation authorising the Assistant/Deputy
          Commissioner to grant bail in respect of bailable offences
          be reconsidered.

(iv)      Detailed guidelines be issued to ensure strong discipline in
          administering such provisions only in gross cases of
          willful evasion or non-compliance.



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                                    The Institute of Chartered Accountant of India
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     (v)     Considering that the Supreme Court has held in many
             cases that in revenue and fiscal matters of interpretation
             there should be no arrests, the power to arrest ought to be
             used only sparingly and the field formations be informed
             appropriately.

8.   Advance ruling to resident public limited company

     Amendment

     With effect from 01.03.2013, Notification No. 4/2013-S.T. dated
     01.03.2013 has notified resident public limited companies as class
     or category of resident persons who can apply for advance ruling
     in case of specified matters relating to service tax.

     Further, according to the Explanation to the said notification, the
     term "Public Limited Company" means a company in terms of
     Section 3(1)(iv) of Companies Act, 1956 and includes a private
     company that becomes a public company by virtue of section 43A
     of the said Companies Act, 1956. Therefore, a private company
     as defined under section 3(1)(iii) of the Companies Act, 1956 is
     not eligible to apply for Advance Rulings.

     Issue

     There is lot of uncertainty in the business due to changing
     position of law coupled with lack of understanding of such law
     by the business community. The nature of indirect taxes is such
     that it is collected and paid to the Government at the time of
     transaction. If there is uncertainty and the same is not collected
     at the time of occurrence of transaction, then it has to be borne by
     the manufacturer/service provider, which can completely ruin
     the business prospects.       Therefore, to ensure certainty in
     business, it would be ideal that they should know about the legal
     implications and tax incidence in advance.

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     Further, as the concept of negative list of services and the law
     introduced for the implementation of the same is very new and
     entirely different from the old law, it would take some time for
     the tax payers to understand and appreciate the new provisions
     and ensure compliance. There ought to be lot more doubts,
     issues which, if clarified at the initial stages would go a long way
     in reducing litigations and augmenting revenue of the
     Government.

     In fact, the current proposal to allow a producer/manufacturer
     and importer/exporter to seek advance ruling while starting a
     new business of production/manufacture and new business of
     import/export respectively under excise and customs laws is a
     welcome move which has been the need of the hour.

     Suggestion

     The benefit of advance ruling provisions be extended to all new
     ventures whether by residents or non-residents in case of service
     tax as well.

9.   Withdrawal of exemption to repairs and maintenance services
     provided to the Government in respect of an aircraft

     Amendment

     Exemption under Entry no. 25(b) until 31.03.2013 is available in
     respect of services provided to Government, a local authority or a
     governmental authority, by way of repair or maintenance of a
     vessel as well as an aircraft. However, with effect from
     01.04.2013 the exemption would be withdrawn in respect of
     repair or maintenance of an aircraft. In other words, exemption
     under Entry No. 25(b) has been restricted only to repair and
     maintenance of a vessel.


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      Issue

      The amendment under Entry No. 25(b) is not likely to bring any
      additional revenue for the Government. In fact, it is a revenue-
      neutral situation because it entails payment of service tax by one
      Government Department [which has received the services of
      repair or maintenance of an aircraft] to another Government
      Department [Central Excise Department which has been vested
      with the power to administer service tax].

      Suggestion

      Since this amendment has unintentionally created a revenue-
      neutral situation for Government, it is suggested not to carry out
      this amendment.

10.   Withdrawal of exemption to charities providing services for
      advancement of "any other object of general public utility"

      Amendment

      With effect from April1, 2013, the definition of "charitable
      activities" is being changed by deleting the portion listed in sub-
      clause (v) of clause (k). Thus the benefit to charities providing
      services for advancement of "any other object of general public
      utility" will not be available.

      Issue

      Removal of advancement of any other object of general public
      utility from the definition of charitable activities will adversely
      affect many genuine charitable activities which do not otherwise
      fall under sub-clauses (i) to (iv) of the definition provided under
      clause (k). Objects like relief of poor, rehabilitation of reformed
      prisoners, welfare of disabled, elderly, single and destitute


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      women, education of girl child etc. are some of the activities that
      would be deprived of the benefit of exemption.

      Further, in the light of compulsory contribution towards
      corporate social responsibility (CSR) proposed in the Companies
      Bill, there is a need to ensure that undue service tax is not levied
      on public charitable services sponsored by corporate(s) under
      CSR contribution on account of restrictive meaning of charitable
      activities.

      Suggestion

      The exemption to charitable activities relating to "advancement
      of any other activity of general public utility" be restored.

11.   Withdrawal of exemption to parking services

      Amendment

      With effect from April1, 2013, services by way of vehicle parking
      to general public have been made liable to service tax.

      Issue

      Making parking charges liable to service tax will cause genuine
      hardship to the common man as the tax levy would further
      increase the already inflated cost of the parking charges.

      In actual practice, the main contractors who are awarded the
      parking tender, sub-contract the parking contracts to small sub-
      contractors in the unorganized sector. Issues may arise in
      controlling, regulating and ensuring compliance of tax laws by
      these small service providers of unorganized sector. It is not
      clear as to whether they would be entitled to CENVAT credit and
      what would be the form of the invoice to be issued by them.



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      Suggestions

      (i)     The exemption provided to services by way of vehicle
              parking to general public be restored.

      (ii)    Appropriate clarification be issued to explain the position
              of law in this regard as also necessary amendment, if
              required, be made to entitle such sub-contractors to avail
              CENVAT credit of the service tax/excise duty paid by them
              on the input services/inputs.

12.   New Return Form ST-3

      Issue

      The new form ST-3 addresses various problems being faced by
      the assessees earlier. However, there is no column akin to
      erstwhile Column 4C which enabled an assessee to disclose his
      liability which remains unpaid upto the end of the return period.
      This actually helped genuine law abiding assessees to counter the
      allegations of malafide, if imposed on them.

      Suggestion

      Suitable amendment be made in Form ST-3 to re-introduce the
      column requiring disclosure of unpaid liability up to the return
      period.



13.   Withdrawal of exemption to services provided by educational
      institutions

      Amendment

      The exemption under Entry No.9 of Mega Exemption Notification
      No. 25/2012-ST dated 20th June, 2012 has been restricted to services

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                              The Institute of Chartered Accountant of India
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"provided to" educational institution in respect of education
exempted from service tax, by way of,-

(a) Auxiliary educational services; or

(b) Renting of immovable property

The erstwhile Entry not only provided exemption to
abovementioned services when provided to educational
institution but also when the same were provided by an
educational institution. However, the exemption has now been
restricted to only services provided to educational institutions.

Issue

Notification No. 25/2012 ST dated 20.06.2012 defines "auxiliary
educational services" means any services relating to imparting
any skill, knowledge, education or development of course
content or any other knowledge ­ enhancement activity, whether
for the students or the faculty, or any other services which
educational institutions ordinarily carry out themselves but may
obtain as outsourced services from any other person, including
services relating to admission to such institution, conduct of
examination, catering for the students under any mid-day meals
scheme sponsored by Government, or transportation of students,
faculty or staff of such institution;

With this amendment, host of services like services relating to
admission to such institution, conduct of examination, catering
for the students under any mid-day meals scheme sponsored by
Government, transportation of students/teachers, when provided
by educational institution itself would become taxable.
However, when such services would be outsourced by the
educational institution to the third party, the same would be
exempt.

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      The important point to consider here is that the end-user i.e., the
      student will have to bear the burden of service tax on these
      auxiliary education services even when the educational
      institution outsources such activity to the third party. The
      withdrawal of exemption will certainly lead to increase in the
      cost of education.

      Education being one of the priority sectors of the Government
      has been kept outside the service tax net by including the same in
      the negative list of services. Following the legislative intent,
      auxiliary education services being incidental to or necessary to
      the provision of education services, had also been exempted from
      service tax levy. However, the amendment made in Notification
      No. 25/2012 ST dated 20.06.2012 is not in line with the said
      objective of the Government. Moreover, there does not seem to
      be any sound reason for considering a particular activity as
      taxable or exempt depending upon who the service provider is.

      Suggestion

      It is suggested to reinstate the exemption granted to the auxiliary
      education services when provided by the educational institution
      since levying service tax on such services would definitely
      increase the cost of the already very expensive education, which
      will again be very burdensome for the common man.



14.   Amendments in negative list

      (i)   Approved vocational education course

      Amendment
      The Finance Bill, 2013 has proposed to amend the definition of
      approved vocational education course to include a course run by

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                              The Institute of Chartered Accountant of India
                            Post Budget Memorandum, 2013- Indirect Taxes



an industrial training institute or an industrial training centre
affiliated by State Council of Vocational Training.
Issue
The amendment will be effective from the date when the
President gives his assent to the bill. However, industrial
training institutes or an industrial training centres affiliated by
State Council of Vocational Training would still be liable to
service tax for the period between 01.07.2012 till the date of the
enactment of the Bill.
Suggestion
It is suggested that the proposed amendment to deem course run
by an industrial training institute or an industrial training
centre affiliated by State Council of Vocational Training as
approved vocational education course be made effective
retrospectively from 01.07.2012.

(ii)    Process amounting to manufacture or production of goods

Amendment

The definition of `process amounting to manufacture or
production of goods' in section 65B(40) is proposed to be
expanded to include processes under the Medicinal and Toilet
Preparations (Excise Duties) Act, 1955.

Issue

Since the amendment would be effective from the date of the
enactment of the Finance Bill, 2013, the process on which duty is
payable under the Medicinal and Toilet Preparations (Excise
Duties) Act, 1955 would be liable to service tax for the period
between 01.07.2012 till the date of the enactment of the Bill. As
such process cannot be constructed as a service - the fact

                               44
                                      The Institute of Chartered Accountant of India
                                    Post Budget Memorandum, 2013- Indirect Taxes



      recognized by the Finance Bill, 2013 itself - the same ought to be
      included in the Negative list from 01.07.2012 onwards.

      Suggestions

      (i)     It is suggested that the proposed amendment to include
              processes under the Medicinal and Toilet Preparations
              (Excise Duties) Act, 1955 within the ambit of process
              amounting      to manufacture      be  made effective
              retrospectively from 01.07.2012
      (ii)    Similarly, retrospective effect be given from July 1, 2012 to
              the proposal of including all types of testing in relation to
              `agriculture' or `agriculture produce' under the negative
              list.

15.   Collection of any amount as service tax and non-payment
      thereof

      Amendment

      Section 89 is proposed to be amended to provide that any person
      who collects any amount as service tax but fails to deposit the
      same to the Central Government within 6 months would be
      punishable with imprisonment for a term which may extend to 7
      years but not less than 6 months if such amount exceeds Rs.50
      lakh.

      Issue

      Sub-clause (d) of section 89(1)(d) reads as under:

      "(d) collects any amount as service tax but fails to pay the
      amount so collected to the credit of the Central Government
      beyond a period of six months from the date on which such
      payment becomes due,"


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                              The Institute of Chartered Accountant of India
                            Post Budget Memorandum, 2013- Indirect Taxes



The proposed clause (ii) of section 89 reads as under
"(ii) in the case of the offence specified in clause (d), where the
amount exceeds fifty lakh rupees, with imprisonment for a term
which may extend to seven years:
Provided that in the absence of special and adequate reasons to
the contrary to be recorded in the judgment of the court, such
imprisonment shall not be for a term of less than six months;"
Though it is evident from the Memorandum to the Finance Bill,
2013 that the imprisonment for seven years would be applicable
only when the non-payment of the amount collected as service
tax exceeds Rs. 50 lakh, the drafting of the section leaves scope
for ambiguity.

For instance, it cannot be said with certainty that imprisonment
of one year would be applicable in a case where the assessee
collects Rs 60 lakh as service tax but deposits Rs. 40 lakh.

Suggestion

For the sake of clarity, the language of the section be
appropriately modified to provide that the extended punishment
under section 89(ii) would be applicable only when the non-
payment or short-payment, as the case may be, of amount
collected as service tax exceeds Rs.50 lakh.




                               46
                                   The Institute of Chartered Accountant of India
                                 Post Budget Memorandum, 2013- Indirect Taxes




      B. CENTRAL EXCISE DUTY & CUSTOMS DUTY

1.   Stay to be vacated after a period of 365 days

     Amendment

     Section 35C(2A) of the Central Excise Act, 1944 is proposed to be
     amended to provide that in cases where the delay in disposing of
     the appeal is not attributable to the appellant, the Tribunal would
     be empowered to extend the period of stay by a period not
     exceeding 185 days. However, if the appeal is not disposed of
     within the total period of 365 days from the date of order, the
     stay order shall stand vacated.

     Similar amendment is proposed in section 129B of the Customs
     Act, 1962.

     Issue

     The Finance Act, 2002 inserted sub-section 2A in section 35C to
     provide that the Tribunal should hear and decide every appeal
     within a period of 3 years from the date of the appeal. Further,
     where a stay has been granted, the Appellate Tribunal should
     dispose of the appeal within a period of 180 days from the date of
     stay order. However, the stay order will get vacated after the
     expiry of 180 days, if such appeal is not disposed of within 180
     days.

     Inspite of the clear provisions of section 35C(2A), CESTAT has
     been granting an extension of the stay initially ordered by relying
     upon, inter alia, the decision in CCE, Mangalore vs. Indian Oil
     Corporation Ltd. 2010-TIOL-695-HC-KAR-CX, considering the fact



                                    47
                               The Institute of Chartered Accountant of India
                             Post Budget Memorandum, 2013- Indirect Taxes



that the appellant is not, in any way, responsible for the
pendency of the appeal.

The proposed amendment seems to take care of such situations
as the proposed proviso lays down that Tribunal would be
empowered to extend the period of stay only by 185 days even in
cases where the delay in disposing of the appeal is not
attributable to the appellant. Thus, CESTAT would now be able
to grant stay only for a total period of 1 year from the date of
filing the appeal.

It may be noted that an identical provision (restricting the power
of the Tribunal to grant stay for a period of 365 days only) exists
under the third proviso to sub-section (2A) of Section 245 of the
Income-tax Act. However, the pendency at CESTAT and the
number of benches of CESTAT cannot be compared with the
pendency and number of Benches of Income-tax Appellate
Tribunal (ITAT).

Further, in a catena of judgments, including Ronuk Industries [333
ITR 99 (Bom)], Tata Communications Ltd. vs. ACIT [138 TTJ 257
(Mum)(SB)], Vodafone West Ltd vs. Vodafone West Ltd. vs. ACIT
[2013-TIOL-68-ITAT-AHM] and Qualcomm Incorporated vs. ADIT
[2012-(210)- TAXMAN-0617-DEL] it has been held that despite
the third proviso to Section 254(2A) of the IT Act, the Tribunal
had the power to grant stay of demand beyond the prescribed
period of 365 days, if the assessee was not at fault. Moreover
grant of stay, etc. varies from case to case basis. Its period cannot
be restricted without examining the facts of the case. The
proposed amendment can be challenged as violative of Article 14
of the Constitution as being unreasonable.




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                                   The Institute of Chartered Accountant of India
                                 Post Budget Memorandum, 2013- Indirect Taxes



     Suggestion

     Considering that the CESTAT is already reeling with a pendency
     of over 80,000 to 90,000 cases and the day to day focus is only
     towards the stay hearing which on occasions is akin to the final
     hearing in terms of time taken for the same, it is suggested that
     the limitation period of 180 days for grant of stay be removed
     from central excise and customs provisions.

2.   Garnishee proceedings

     Amendment

     It is proposed that money due to the Government may be
     recovered from any person other than from whom money is due
     after giving a proper notice, if that other person holds money for
     or on account of the first person.

     Section 11 of the Central Excise Act, 1944 and section 142 of the
     Customs Act, 1962 are proposed to be amended to give effect to
     this amendment.

     Issue

     With this amendment, the Central Excise and Customs
     Authorities can issue garnishee orders to banks and debtors of
     assessees and recover the dues, whether or not it is "payable".
     Since it is not provided in the proposed amendment, as to when
     the duty would become payable, the same could be from the
     stage of issue of show cause notice upto the stage of appeal
     pending in the High Courts. In other words, the time when the
     duty becomes payable would be left to the discretion of the
     Revenue Officers.

     In the absence of clarity with respect to the stage when the duty
     or tax becomes payable, there are fair chances of this provision

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                                   The Institute of Chartered Accountant of India
                                 Post Budget Memorandum, 2013- Indirect Taxes



     being misused. For instance, garnishee orders can be issued to
     banks or debtors only on the basis of a demand notice.

     Suggestion

     (i)     Appropriate amendment be made in section 11 of the
             Central Excise Act, 1944 and section 142 of the Customs
             Act, 1962 to define as to when the duty becomes payable.

     (ii)    Appropriate mechanism be built in to protect the
             bank/debtor if the tax payers were to proceed against
             them.

3.   Disposal of appeal by a single member Bench of the Tribunal

     Amendment

     Section 35D of the Central Excise Act, 1944 and section 129C of
     the Customs Act, 1962 are proposed to be amended to raise the
     monetary limit of the Single Bench of the Tribunal to hear and
     dispose of appeals from Rs.10 lakh to Rs.50 lakh.

     Issue

     The move to increase the monetary limit of the single member
     Bench of the Tribunal is aimed at reducing the pendency of the
     Tribunals. However, it may ultimately end up in adding to the
     huge backlog of the cases pending for hearing before the
     Tribunal. There is an urgent need to reduce the litigation time as
     pending and frivolous litigation reduces the confidence of the tax
     payer and increases the costs of doing business.

     For example Andhra Pradesh contributes more than 50% of the
     cases in CESTAT, Bangalore. However, there was no Division
     Bench until very recently for the past 8 to 9 months. Similar



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                                    The Institute of Chartered Accountant of India
                                  Post Budget Memorandum, 2013- Indirect Taxes



     situation continued in Chennai for almost over a year after the
     Technical Member retired.

     Suggestions

     (i)     Number of Benches of CESTAT ought to be increased.

     (ii)    "e-courts" be introduced in the working of CESTAT
             benches as in the ITAT (where a start has been made). The
             CESTAT by and large is a judicial body and is the only
             forum of solace for the hapless assessees who have to face
             the "blind confirmation" quite naturally (compelled by a
             variety of reasons) of monumental demands at the first
             and only level before the Commissioners in adjudication
             proceeding.

     (iii)   A team of management graduates from Business Schools
             and practising bar members and law graduates from Law
             Schools, as are available, be put in place at each CESTAT
             bench to identify same or similar issues in matters
             (including somewhat similar or allied issues) so that all
             these could be bunched together and disposed of on time
             bound basis.

     (iv)    Practicing Chartered Accountants be made eligible for
             being appointed as Members of the CESTAT as in the case
             of Income-tax Appellate Tribunal.

4.   Clearance of goods for home consumption

     Amendment

     Section 47(2) of the Customs Act, 1962 is proposed to be amended
     to reduce the interest free period for payment of import duty
     from 5 days to 2 days.


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                             The Institute of Chartered Accountant of India
                           Post Budget Memorandum, 2013- Indirect Taxes



Issue

A period of 2 days is very short for the payment of import duty.

Suggestion

The interest free period for payment of customs duty be increased
from 2 days to 5 days as was the situation before Finance Bill,
2013.




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                                     The Institute of Chartered Accountant of India
                                   Post Budget Memorandum, 2013- Indirect Taxes




               C. GOODS AND SERVICE TAX (GST)

1.   Roadmap for GST

     The Finance Minister has outlined the roadmap for ushering in the
     GST regime by allocating a sum of Rs.9, 000 crore towards the first
     installment of the balance of CST compensation.

     However, no indication was given on the structure of GST network
     (GSTN), which has been approved by the Empowered Committee of
     State Finance Ministers. Further, no specific timelines have been
     indicated for ushering in a common tax code for service tax and
     central excise duty followed by GST, which is going to subsume all
     major indirect taxes levied by the Central and State Governments.

     Suggestion

     It is suggested that a comprehensive road map with specific
     timelines be announced for implementation of Goods and Service
     Tax.




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                                      The Institute of Chartered Accountant of India
                                    Post Budget Memorandum, 2013- Indirect Taxes




                             D.    OTHERS

1.   Disparity between interest payable by assessee and Department
     under central excise, service tax and customs

       At present, interest @ 18% is payable by the assessee when duty
       is short levied /short paid or not levied /not paid. However, in
       case of delayed refunds, the Department is liable to pay interest @
       6%. Thus, there is a significant gap, between the rate of interest
       payable by the assessee and the Department. In fact, the
       disparity has become more than 50% after the interest on delayed
       payment of tax/duty was increased from 13% to 18% last year.

       Further, interest for duty/tax demands is charged from the date
       on which duty becomes due, whereas interest on delayed refunds
       is paid from the date after expiry of three months from the date
       of receipt of refund application. Presently, assessee has to apply
       for interest on delayed refund.

       Suggestions

       (i)     The interest rates for both the demand of the duty/tax and
               the refund of the duty/tax be made uniform. There is need
               for fairness and equity in the rates at which interest is
               paid by the department and that is charged from tax payer.

        (ii)   Further, uniformity be also ensured in respect of date of
               charging interest on duty/tax demands vis-à-vis date of
               paying interest on refund of duty/tax. Interest on
               delayed refunds be also paid by the Department from the
               date on which duty was actually paid.



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                                    The Institute of Chartered Accountant of India
                                  Post Budget Memorandum, 2013- Indirect Taxes




2.   Audit by CAG

       Manufacturers have to undergo audit for broadly three
       taxation wings of Government i.e., Income Tax, Excise &
       Customs and Sales Tax. Out of these wings, only with respect
       to audit of Central of Excise, the auditors from CAG visit
       assessees' premises/interact with assessees which leads to
       wastage of assessees' valuable time & resources as well as
       unnecessary litigation which normally does not yield any
       additional revenue for Government. In the present regime of
       simplification of excise laws, such visits/interactions with
       assessees are unwarranted.      CAG should interact with
       concerned Government Departments like they do for Income
       Tax and Sales Tax.

       Suggestion

       It is suggested that the matter be discussed by the CBEC with
       CAG and audit of excise be introduced at par with Income Tax
       or Sales Tax Department.

3.   Powers under section 14 of the Central Excise Act, 1944

       Section 14 of the Central Excise Act is applicable in case of
       service tax matters also. According to this section powers have
       been given to Central Excise Officers to issue summons to the
       assessee to give evidence and produce documents in enquiries
       conducted under the Act. These provisions are often misused
       as under:

       (i)   Notices are issued to Managing Director/ Director/
             Chairman despite the fact that they are not concerned
             with routine functioning of business.


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                                     The Institute of Chartered Accountant of India
                                   Post Budget Memorandum, 2013- Indirect Taxes



       (ii)    Notices are issued even for seeking that information
               what can be obtained by ordinary letters.

       (iii)   The time mentioned in the notice is not rigidly followed.
               As a result, plenty of precious time of the assessee is
               wasted.

       (iv)    Copy of the recorded statement is not provided
               immediately to the concerned assessee.

       (v)     Summons are issued even in those cases where question
               of law is involved.

       Suggestion

       It is suggested that section 14 be suitably amended to so as to
       stop the misuse of the powers provided therein. Summons be
       not issued unless information has been sought in writing
       [served to correct address] and the same has not been provided.
       Establishment of simplified procedure will reduce undue
       harassment and cost to assesses and will at the same time
       meet the needs of the department to obtain requisite
       information. This will also avoid high handedness of some
       officers in dealing with the tax payers and will create a more
       cordial attitude/approach.

4.   Appeal from CESTAT in valuation and classification matters

       Under the present law an appeal relating to valuation and
       classification matters directly goes to Supreme Court from the
       Tribunal by passing the High Court.

       Suggestion

       Necessary amendments be made to file appeal in High Court in
       such cases as well.

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                                    The Institute of Chartered Accountant of India
                                  Post Budget Memorandum, 2013- Indirect Taxes



5.   Exemption from payment of duty by way of refund mechanism

       Section 5A of the Central Excise Act, 1944 or section 25 of the
       Customs Act, 1962 or section 93 of the Finance Act, 1994
       empowers the Central Government to exempt from payment of
       excise duty/customs duty/service tax. However, off late, few
       exemption notifications have been issued under the above
       statutory provisions which are in effect a refund mechanism
       subject to fulfillment of conditions. For instance, Notification
       No.102/2007 Cus dated 14.9.07 as amended which provides for
       refund of special additional duty of 4% leviable under section
       3(5) of the Customs Tariff Act, 1975 or Notification No. 40/2012
       ST dated 20.06.12 which provides refund of service tax to SEZ
       developer/unit.

       The above notifications have lot of conditions and procedures.
       Many a times the assessees face great difficulties in claiming
       the said exemption. The administration of these notifications is
       resulting in harassment of the assessee besides breeding heavy
       litigations.

       Suggestion

       It is suggested that the present system of granting exemption
       through refund route be reviewed and be made simple to
       comply.

6.   Suggestions for Reduction of Litigation

       (a)   Streamlining of Circulars/Trade Notices

             CBEC, as practice regularly issues notifications and
             circulars to make changes in the rules and procedures
             and to clarify the Department's stand in relation to a
             particular issue or provision. However, there is no


                                     57
                              The Institute of Chartered Accountant of India
                            Post Budget Memorandum, 2013- Indirect Taxes



      system of issuing a comprehensive circular at the end of
      the year which will incorporate all the circulars issued
      during the year. It may be noted that RBI issues master
      circulars every year, replacing individual circulars issued
      during the year.

      Suggestions

      (i)   Issue of circulars be examined and if at all they
            need to be issued, the Board should issue circulars
            by exercising utmost caution and design the
            circular meticulously to avoid any interpretational
            issues by the industry or the field formations at the
            lower level.

      (ii) Further, a practice of issuing a Master Circular on
           1st April every year in Excise/Custom/Service tax
           compiling all related circulars issued during the
           year be adopted on an annual basis. This would
           ensure better compliance as assessees will be aware
           of necessary procedural steps and exemptions as
           available. A comprehensive circular makes easy to
           review all updates in an indexed manner.

      (iii) Also, it be made mandatory for the Officers to only
            use the current circulars.

(b)   Training of Departmental Personnel

      It has been observed that the understanding of this
      central law across the country is not the same. Different
      Commissionerates have different views on variety of
      issues particularly in case of real estate sector. Further, it
      is an admitted fact that administering authorities are not
      trained in accounting and thus, find it difficult to

                               58
                             The Institute of Chartered Accountant of India
                           Post Budget Memorandum, 2013- Indirect Taxes



      interpret and analyze the financial statements. This
      causes difficulties for both the assessee and the
      Department.

      Departmental officers undergo training but there is need
      for more comprehensive and interactive sessions where
      they can discuss and debate issues with their peers duly
      facilitated by experienced professionals. This will go a
      long way in enhancing quality of services of the
      Department.

      Suggestion

      A comprehensive training covering all the substantive,
      procedural aspects of the law and understanding of
      financial statements be scheduled for the officers at all
      levels.

(c)   Accountability of tax collectors

      In the present tax laws, there is no accountability on the
      part of tax collectors. This leads to the misuse of powers
      vested in them vide the respective legislations. For
      proper discharge of responsibilities, accountability is a
      necessary counter-balance and is very essential for
      effective discharge of the authority vested in a person

      Suggestion

      In order to project a sense of even-handedness in dealing
      with tax payers, provisions relating to accountability be
      introduced and not formulated independently.         The
      Tribunal or Commissionerate (Appeal) may impose
      reasonable cost for the same.



                              59
                               The Institute of Chartered Accountant of India
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      If there are rewards awarded to the departmental
      officers for anti-evasion cases then there ought to be
      penalty also for frivolous litigations.

(d)   Timely information and guidance

      It has been observed that the order passed by CESTAT
      and Adjudicating Authority/ Commissioner (Appeals)
      does not reach to the industry timely, resulting non
      compliance or non timely compliance.

      Further, it is felt that the time lag for the issuance of the
      clarifications on common problems/ issues of pertaining
      to industry.

      Suggestion

      It is suggested that all the orders passed by CESTAT and
      Adjudicating Authority/ Commissioner (Appeals) be
      made available on websites for ready reference of the
      industry. The CBEC may play a proactive role and issue
      clarifications on problems / issues of industry which are
      similar in nature to avoid such problems resulting in
      litigation at a later stage.

(e)   Vacancies in Tribunal

      Suggestion

      The vacancies in Tribunal be filled. A fast track system
      of disposal of cases be introduced to deal with high
      revenue cases and settled issues.

(f)   E-filing of appeals be introduced to encourage paperless society
      as an environment friendly measure.



                                60
                             The Institute of Chartered Accountant of India
                           Post Budget Memorandum, 2013- Indirect Taxes



(g)   Retired officers of Central Excise, Customs and Service Tax
      department be not allowed to appear in adjudication, first
      appellate authority or any other proceedings before the
      departmental authorities for a period of 1 year after their
      demitting office.




                              61
  The Institute of Chartered Accountants of India (ICAI) is a statutory body established under
  the Chartered Accountants Act, 1949 to regulate the profession of Chartered Accountants in
  India. During its more than six decades of existence, ICAI has achieved recognition as a
  premier accounting body not only in the country but also globally, for its contribution in the
  fields of education, professional development, maintenance of high accounting, auditing and
  ethical standards. ICAI now is the second largest accounting body in the whole world.

  The Council of ICAI functions through various Standing and Non-Standing Committees.
  Indirect Taxes Committee is one of the most important non-Standing Committee's of ICAI.
  The main function of the Indirect Taxes Committee is to examine the indirect tax laws, rules,
  regulations, circulars, notifications, etc., which may be enacted or issued by the Government
  from time to time and to send suitable memoranda containing suggestions for improvements
  in the respective legislation. The Indirect Taxes Committee actively facilitates the process of
  formulation of budget by offering pre-budget and post-budget suggestions/ comments to
  simplify tax laws and their administration for the purpose of making it more responsive to tax
  payers.

  The Indirect Taxes Committee comprises of members from all over the Country having vast
  experience and expertise in indirect tax laws. For the year 2013-14, the Indirect taxes
  Committee is chaired by CA. Sanjay 'Voice of CA' Agarwal and consists of the following
  members:

                             Members of the Central Council
CA. Subodh K. Agrawal,                       CA. K. Raghu,
President, ICAI                              Vice President, ICAI
CA. Sanjay 'Voice of CA' Agarwal             CA. Atul Kumar Gupta
Chairman, Indirect Taxes Committee           Vice-Chairman, Indirect Taxes Committee
CA. Jay Ajit Chhaira                         CA. Pankaj Inderchand Jain
CA. Sanjeev K. Maheshwari                    CA. Dhinal Ashvinbhai Shah
CA. Nilesh Shivji Vikamsey                   CA. G. Sekar
CA. Shyam Lal Agarwal                        CA. Manoj Fadnis
                                 Government Nominees
Shri Bhaskar Chatterjee                      Shri J.S. Deepak
Shri Salil Singhal
                                   Co-opted Members
CA. P. Rajendra Kumar                        CA. Ravinder Singh Kalra
CA. S. Venkataramani                         CA. Sushil Kumar Goyal
CA. Arun Kumar Agarwal
 
 
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