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
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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
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Page No.
5. Exemption from payment of duty by way of refund 57
mechanism
6. Suggestions for Reduction of Litigation 57
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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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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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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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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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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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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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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
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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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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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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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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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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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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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The Institute of Chartered Accountant of India
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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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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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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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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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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(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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Post Budget Memorandum, 2013- Indirect Taxes
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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Post Budget Memorandum, 2013- Indirect Taxes
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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(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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"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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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
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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 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.
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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
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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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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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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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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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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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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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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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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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(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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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
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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
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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.
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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.
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(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.
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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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