Indirect Taxes - Amazon Web...

31
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NEW DELHI POST-BUDGET MEMORANDUM 2014 IndirectTaxes

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIANEW DELHI

POST-BUDGETMEMORANDUM

2014Indirect�Taxes

ABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAIABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAIABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAI

INDIRECT TAXES COMMITTEE

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(Set up by an Act of Parliament)

ICAI Bhawan, A-29, Sector - 62, NOIDA (U.P.) India

Telephone Board : +91 120 3045 900 Ext. 954E-mail : [email protected]; Website : http://www.icai.org

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POST-BUDGET MEMORANDUM

2014

Indirect Taxes

THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA NEW DELHI

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CONTENTS Page No.

I. INTRODUCTION 1

II. EXECUTIVE SUMMARY 3

III SUGGESTIONS IN DETAIL

A. Service Tax

1. Section 67A- Proposed amendment to determination of rate of exchange for calculation of taxable value in respect of certain services

10

2. E- Payment of Service Tax 11

3. Increase in value of service portion in respect of certain works contracts

11

4. Interest on delayed payment of service tax 12

5. Proposed amendment in Section 80(1) –No waiver of penalty even when complete details of the transactions are available in the specified record.

14

6. Services received by Educational Institutes 16

7. Proposed Amendment in Section 83 Proposed -Application of Section (2A) of the Central Excise Act, 1944

16

8. Non-removal of condition of payment in case of partial reverse charge Credit Mechanism

17

9. Definition of Intermediately Services 18

10. Time Limits for Completion of Adjudication 18

B. Central Excise

11. Pre-deposit for Appeal 20

12. Appeal to the Supreme Court 22

13. Amendment in rule 6 of Central Excise (Determination of Price of Excisable Goods Rules), 2000

23

C. CENVAT Credit Rules, 2004

14. Availment of Cenvat Credit on Input and Input Service 24

15. Transfer facilities to LTU 25

D. Common Issues

16. Creation of additional posts 27

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POST-BUDGET MEMORANDUM-2014

I. INTRODUCTION

1.0 The Council of the Institute of Chartered Accountants of India

considers it a privilege to submit this Post-Budget Memorandum to the

Government.

1.1 In this memorandum, we have suggested certain amendments to the

proposals contained in the Finance (No.2) Bill, 2014 which would help the

Government to achieve the desired objectives.

1.2 We have noted with great satisfaction that the suggestions given by

the Committee in the past have been considered very positively. Certain

representations made in the post-budget memorandum of earlier years

have formed the basis of amendments proposed in the current Finance Bill.

In formulating our suggestions in regard to the Finance (No. 2) Bill 2014,

the Indirect Taxes Committee of the ICAI has considered in a balanced

way, the objectives and rationale of the Government and the practical

difficulties/hardships faced by taxpayers and professionals in application

of the Indirect Tax Laws. We are confident that the suggestions of the

Indirect Taxes Committee of ICAI given in this Memorandum shall receive

positive consideration.

1.3 In this memorandum, firstly an executive summary of our

suggestions on the specific clauses of the Finance (No.2) Bill, 2014 has been

given in respect of Indirect Taxes. The detailed suggestions are given

thereafter.

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

2

1.4 In case any further clarifications or data is considered necessary, we

shall be pleased to furnish the same.

The contact details are:

Name and Designation Contact Details

Ph. No. Email Id

CA. Atul Gupta , Chairman, Indirect Taxes Committee

9810103611 [email protected]; [email protected]

CA. Sharad Singhal, Secretary, Indirect Taxes Committee

09310542608 0120-3045954

[email protected]

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II.

EXEC

UT

IVE

SUM

MA

RY

S.N

o.

Top

ic(s

) S

ugg

esti

on(s

)

A.

SE

RV

ICE

TA

X

1.

S

ecti

on

67A

- P

rop

osed

am

end

men

t to

d

eter

min

atio

n o

f ra

te o

f ex

chan

ge f

or

calc

ula

tion

of

taxa

ble

val

ue

in r

esp

ect

of

cert

ain

ser

vice

s

It is

sug

gest

ed t

hat

AS

11 b

e pr

escr

ibed

for

dete

rmin

ing

the

rate

of

exch

ange

for

cal

cula

tion

of

taxa

ble

valu

e in

res

pect

of

cert

ain

serv

ices

in

orde

r to

avo

id e

xist

ence

of

two

diffe

rent

set

of

met

hod

for

acco

unti

ng o

f for

eign

exc

hang

e re

late

d tr

ansa

ctio

ns.

Add

itio

nally

, it

is s

ugge

sted

tha

t in

stea

d of

pre

scri

bing

new

rul

es

for

dete

rmin

atio

n of

rat

e of

exc

hang

e, th

e m

etho

d fo

r de

term

inat

ion

of r

ate

of e

xcha

nge

in l

ine

wit

h A

S-11

be

incl

uded

und

er S

ervi

ce

Tax

Rul

es, 1

994

itse

lf.

2.

E

- Pay

men

t of

Ser

vice

Tax

It

is

su

gges

ted

that

ap

prop

riat

e lim

it

for

the

e-

paym

ent

be

pres

crib

ed a

ccor

ding

to

the

data

ava

ilabl

e w

ith

the

min

istr

y in

or

der

to s

uppo

rt th

e sm

all s

ervi

ce p

rovi

ders

.

3.

In

crea

se i

n v

alu

e of

ser

vice

por

tion

in

re

spec

t of

cert

ain

wor

ks

con

trac

ts

It is

sug

gest

ed th

at th

e en

try

give

n in

sub

-cla

use

B &

C o

f Rul

e 2A

(i

i) b

e m

erge

d to

60%

inst

ead

of 7

0%.

4.

In

tere

st o

n d

elay

ed p

aym

ent

of s

ervi

ce

tax

It is

sug

gest

ed t

hat

this

am

endm

ent

shou

ld b

e ap

plic

able

for

thos

e as

sess

es

who

ha

ve

colle

cted

th

e ta

x bu

t no

t re

mit

ted

to

the

gove

rnm

ent.

The

ass

esse

e m

akin

g de

lay

in p

aym

ent

of t

ax d

ue t

o ot

her

reas

ons

be n

ot p

enal

ized

in p

arit

y w

ith

the

evad

ers.

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The I

nstit

ute o

f Cha

rter

ed A

ccou

ntan

t of I

ndia

Post

Bud

get M

emor

andu

m, 2

014-

Indi

rect

Tax

es

4

It i

s su

gges

ted

that

the

rat

es o

f in

tere

st b

e re

stor

ed t

o th

e or

igin

al

rate

at

18%

irre

spec

tive

of t

he p

erio

d of

del

ay a

s fr

om t

he a

fore

said

ca

lcul

atio

n ef

fect

ive

rate

of

inte

rest

com

es t

o 36

% p

er a

nnum

or

3% p

er m

onth

whi

ch is

ver

y hu

ge. I

t m

ay b

e no

ted

that

und

er t

he

Inco

me-

tax

Act

, del

ay in

pay

men

t of

tax

onl

y at

trac

t in

tere

st t

hat

too

at t

he m

uch

low

er r

ate

of 1

2% p

er a

nnum

(af

ter

retu

rn d

ate

18%

P.A

) an

d th

ere

is n

o pe

nalt

y pr

ovis

ions

for

dela

y in

pay

men

t of

inco

me

tax.

Wit

hout

pre

judi

ce t

o ab

ove,

it

is s

ugge

sted

tha

t a

high

er r

ate

of

inte

rest

rat

e m

ay b

e ch

arge

d ac

cord

ing

to s

lab

rate

of

the

duty

de

man

ded

to p

rote

ct th

e sm

all s

ervi

ce p

rovi

ders

.

The

int

eres

t ra

tes

for

both

the

dem

and

of t

he d

uty/

tax

and

the

refu

nd o

f the

dut

y/ta

x be

mad

e un

iform

. The

re is

nee

d fo

r fa

irne

ss

and

equi

ty in

the

rat

es a

t w

hich

inte

rest

is p

aid

by t

he d

epar

tmen

t an

d th

at is

cha

rged

from

tax

paye

r.

Furt

her,

uni

form

ity

be a

lso

ensu

red

in r

espe

ct o

f da

te o

f ch

argi

ng

inte

rest

on

duty

/tax

dem

ands

vis

-à-v

is d

ate

of p

ayin

g in

tere

st o

n re

fund

of d

uty/

tax.

Int

eres

t on

del

ayed

ref

unds

be

also

pai

d by

the

D

epar

tmen

t fro

m th

e da

te o

n w

hich

dut

y/ ta

x w

as a

ctua

lly p

aid.

5.

P

rop

osed

am

end

men

t in

Sec

tion

80(

1) –

No

wai

ver

of

pen

alty

ev

en

wh

en

com

ple

te d

etai

ls o

f th

e tr

ansa

ctio

ns

are

avai

lab

le in

the

spec

ifie

d r

ecor

d

It is

sug

gest

ed to

dro

p th

e pr

opos

ed a

men

dmen

t in

Sect

ion

80(1

).

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The I

nstit

ute o

f Cha

rter

ed A

ccou

ntan

t of I

ndia

Post

Bud

get M

emor

andu

m, 2

014-

Indi

rect

Tax

es

5

6.

S

ervi

ces

rece

ived

b

y E

du

cati

onal

In

stit

ute

s

It is

sug

gest

ed th

at R

enti

ng o

f Im

mov

able

pro

pert

y se

rvic

e pr

ovid

ed

to E

duca

tion

Inst

itut

ions

con

tinu

e to

be

exem

pted

.

It i

s al

so s

ugge

sted

tha

t sc

ope

of e

xem

pted

ser

vice

s to

be

enha

nced

by

cov

erin

g gu

est

facu

lty

/ te

ache

rs,

and

com

pute

r /

IT l

ab /

so

ftw

are

serv

ices

. (O

r A

ll se

rvic

es d

irec

tly

rela

ting

to

the

deliv

ery

of e

duca

tion

or

trai

ning

to s

tude

nts)

7.

P

rop

osed

A

men

dm

ent

in

Sec

tion

83

P

rop

osed

-A

pp

lica

tion

of

Sec

tion

(2

A)

of th

e C

entr

al E

xcis

e A

ct, 1

944

It i

s su

gges

ted

not

to a

pply

Sec

tion

5A

(2A

) of

the

Cen

tral

Exc

ise

Act

, 19

44 i

n Se

rvic

e T

ax b

y am

endi

ng S

ectio

n 83

of

the

Fina

nce

Act

, 199

4.

8.

N

on-r

emov

al o

f co

nd

itio

n o

f p

aym

ent i

n

case

of

p

arti

al

reve

rse

char

ge

Cre

dit

M

ech

anis

m

It is

sug

gest

ed t

hat

appr

opri

ate

amen

dmen

t be

mad

e so

tha

t se

rvic

e re

cipi

ent

of p

arti

al r

ever

se c

harg

e be

mad

e at

par

wit

h se

rvic

e re

cipi

ent o

f 100

% r

ever

se c

harg

e ca

ses.

9.

D

efin

itio

n o

f In

term

edia

tely

Ser

vice

s

It

is

sugg

este

d th

at i

nter

med

iary

of

serv

ices

and

int

erm

edia

ry o

f go

ods

can

be c

over

ed u

nder

rul

e 3

itse

lf.

Alt

erna

tive

ly, i

t is

sug

gest

ed t

hat

appr

opri

ate

amen

dmen

t be

mad

e so

that

fore

ign

exch

ange

ear

ning

s fr

om b

oth

com

mis

sion

on

serv

ices

an

d go

ods

be z

ero

rate

d.

10.

T

ime

Lim

its

for

Com

ple

tion

of

A

dju

dic

atio

n

It i

s su

gges

ted

that

the

wor

ds u

se “

whe

re i

t is

pos

sibl

e to

do

so”

need

to

be o

mit

ted

to m

ake

it m

anda

tory

. It

may

be

note

d th

at i

n th

e In

com

e T

ax A

ct, 1

961

asse

ssm

ents

has

to

be c

ompl

eted

by

the

asse

ssin

g of

ficer

wit

h in

the

spec

ified

tim

e lim

it.

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The I

nstit

ute o

f Cha

rter

ed A

ccou

ntan

t of I

ndia

Post

Bud

get M

emor

andu

m, 2

014-

Indi

rect

Tax

es

6

B.

CE

NT

RA

L E

XC

ISE

11.

P

re-d

epos

it f

or A

pp

eal

It i

s su

gges

ted

that

, P

re-d

epos

it o

f on

ly 1

% b

e de

man

ded

at f

irst

st

age

and

seco

nd s

tage

app

eal o

r 2%

be

dem

ande

d at

firs

t app

eal t

o C

EST

AT

onl

y.

Alt

erna

tive

ly, i

t is

sugg

este

d th

at a

Ban

k G

uara

ntee

be

prov

ided

as

an a

ltern

ativ

e to

pre

dep

osit

to s

afeg

uard

the

wor

king

cap

ital o

f the

as

sess

ee.

Wit

hout

pre

judi

ce t

o th

e ab

ove,

it is

sug

gest

ed t

hat

a S

lab

syst

em

may

be

intr

oduc

ed t

o sa

fegu

ard

the

smal

l sc

ale

indu

stri

es,

smal

l se

rvic

e pr

ovid

ers

or B

IFR

indu

stri

es.

It is

als

o su

gges

ted

that

the

rele

vant

pro

visi

ons

be s

uita

bly

clar

ified

su

ch

that

on

pa

ymen

t of

m

anda

tory

pr

e-de

posi

t, th

e ba

lanc

e de

man

d st

ands

aut

omat

ical

ly s

taye

d an

d no

rec

over

y pr

ocee

ding

th

ereo

f wou

ld b

e in

itia

ted

by t

he d

epar

tmen

t to

mee

t th

e in

tent

ion

beyo

nd th

e pr

opos

ed p

rovi

sion

.

It i

s su

gges

ted

that

in

case

pre

dep

osit

is

man

date

d an

d ob

ligat

ed

then

the

int

eres

t on

dut

y/ta

x de

man

ded

shou

ld n

ot b

e ch

arge

d fo

r th

e pe

riod

till

the

appe

al is

dis

pose

d of

f.

It i

s su

gges

ted

that

sai

d pr

e de

posi

t sh

ould

onl

y be

in

resp

ect

of

duty

/ tax

dem

ande

d an

d no

t on

the

pen

alty

am

ount

as

pre-

depo

sit

on p

enal

ty c

anno

t be

levi

ed u

nles

s it

s ca

use

is p

rove

d.

Page 10: Indirect Taxes - Amazon Web Servicesidtc-icai.s3.amazonaws.com/download/34248postbudgetmdum14-idt… · Indirect Taxes ABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAI INDIRECT TAXES

The I

nstit

ute o

f Cha

rter

ed A

ccou

ntan

t of I

ndia

Post

Bud

get M

emor

andu

m, 2

014-

Indi

rect

Tax

es

7

Subj

ect

to a

bove

, app

ropr

iate

cla

rific

atio

n m

ay b

e in

sert

ed t

o av

oid

the

inte

rpre

tati

on o

f TR

U L

ette

r.

It is

Sug

gest

ed t

hat

appr

opri

ate

clar

ifica

tion

be

prov

ided

in r

espe

ct

of t

he c

ases

rem

and

back

to

com

mis

sion

er f

or r

e-as

sess

men

t an

d w

hat

wou

ld h

appe

ned

to d

epos

ition

of

pre

dep

osite

d ag

ains

t or

igin

al o

rder

and

whe

ther

aga

in

pre

depo

sit

need

s to

be

paid

to

appe

al fo

r re

-ass

esse

d or

der.

It is

sug

gest

ed t

hat

appr

opri

ate

clar

ifica

tion

be p

rovi

ded

in r

espe

ct

of a

ppea

l to

ass

essm

ent

orde

r pa

ssed

aga

inst

dut

y pa

id u

nder

pr

otes

t.

12.

A

pp

eal t

o th

e S

up

rem

e C

ourt

It i

s su

gges

ted

that

dis

posa

l of

app

eals

per

tain

ing

to a

ll ca

ses

be

also

rou

ted

thro

ugh

Hig

h C

ourt

as

it i

s ea

sily

acc

essi

ble

from

va

riou

s pa

rts

of th

e C

ount

ry.

13.

A

men

dm

ent

in r

ule

6 o

f C

entr

al E

xcis

e (D

eter

min

atio

n

of

Pri

ce

of

Exc

isab

le

Goo

ds

Ru

les)

, 200

0

In c

ase,

whe

re g

oods

are

sol

d at

pri

ce l

ess

than

the

cos

t, th

e tr

ansa

ctio

n is

at

ar

m’s

le

ngth

an

d in

voic

e pr

ice

cons

titu

tes

tran

sact

ion

valu

e. T

here

fore

, it

is s

ugge

sted

tha

t tr

ansa

ctio

n va

lue

wou

ld b

e th

e as

sess

able

val

ue w

hen

good

s ar

e so

ld a

t a

pric

e le

ss

than

the

man

ufac

turi

ng c

ost.

C.

CE

NV

AT

CR

ED

IT R

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The I

nstit

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The I

nstit

ute o

f Cha

rter

ed A

ccou

ntan

t of I

ndia

Post

Bud

get M

emor

andu

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014-

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9

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III. SUGGESTIONS IN DETAIL A. SERVICE TAX

1. Section 67A- Proposed amendment to determination of rate of exchange for calculation of taxable value in respect of certain services

Section 67A of the Finance Act 1994 provides that the rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided. For the purposes of this section, “rate of exchange” means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962 (52 of 1962).

Union Budget 2014-15 has amended the explanation to Rule 67A so as to enable the Government to prescribe rules for determination of rate of exchange for calculation of taxable value in respect of certain services. This amendment has been proposed in view of requests from the trade and industry to delink the conversion from the notified Customs rates of exchange as at present.

Issue

Determination of rate of exchange by government prescribed rules will lead to duplication of accounting as in the case of Income Tax. .

Assesses follow Accounting Standard 11 prescribed by Companies Act 1956/2013 dealing with Foreign Exchange Rates and Foreign Currency transactions. It states that “foreign currency monetary items should be reported using the closing rate. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amount in reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date. In such circumstances, the relevant monetary item should be reported in the reporting currency at the amount which is likely to be realised from, or required to disburse, such item at the balance sheet date. “

Thus, introduction of new rules for determination of rate of exchange for calculation of taxable value in respect of certain services will propagate double set of accounting and add to the woes of the assessee.

Suggestions:

It is suggested that AS 11 be prescribed for determining the rate of exchange for calculation of taxable value in respect of certain services in order to avoid existence of two different set of method for accounting of foreign exchange related transactions.

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

11

Additionally, it is suggested that instead of prescribing new rules for

determination of rate of exchange, the method for determination of rate of exchange in line with AS-11 be included under Service Tax Rules, 1994.

2. E- Payment of Service Tax

Rule 6(2) of Service Tax Rules, 1994 has been substituted with effect from October 1, 2014 vide Notification No. 9/2014 -ST dated 11.07.2014 with a view to make e-payment of Service Tax mandatory for every assessee.

However, proviso to aforesaid Rule 6(2) provides that jurisdictional Assistant Commissioner of Central Excise or jurisdictional Deputy Commissioner may allow the assessee to deposit the Service Tax by any mode other than internet banking. Before this amendment, e-payment of Service Tax was not mandatory if the amount of duty to be paid was less than Rs. 1 lac.

Issues

The above amendment may cause undue hardship for small service providers. Small Service Providers, mainly in unorganized sectors, are uneducated and it is a possibility that they may not be able to make e-payment of Service Tax due to lack of facilities. In case of default, Interest and Penalty would also be levied.

Suggestion

It is suggested that appropriate limit for the e payment be prescribed according to the data available with the ministry in order to support the small service providers.

3. Increase in value of service portion in respect of certain works contracts

Notification 11/2014- ST dated 11-07-2014 amends taxability of Service Portion of Works Contracts related to maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property with effect from 1st October 2014. Taxable Value will be 70% of Total Amount Charged for the works contract other than original works.

Before Amendment, Service Portion in respect of Works Contracts

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

12

related to maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property was 60% of Total Amount Charged for the works contract

Issue

Most of the States provide standard deduction to the extent of 30% in case of works contract related to maintenance, repair, reconditioning or restoration or servicing of any goods or maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property. Rest 70% is chargeable to VAT considering the sale of material in case of works contract. In case of aforesaid services it may be noted that, cost of material used is on a higher end.

70% is already chargeable to VAT and with this amendment another 70% is chargeable to Service Tax. This leads to payment of Taxes on 140% of the value which in itself is a hardship.

Suggestion

It is suggested that the entry given in sub-clause B & C of Rule 2A (ii) be merged to 60% instead of 70%.

4. Interest on delayed payment of service tax

In exercise of the powers conferred by Section 75 & in supersession of the Notification No. 26/2004-ST dated 10.09.2004; the Central Government vide Notification No. 12/2014-ST dated 11.07.2014 has fixed the following rates of simple interest per annum for delayed payment of Service Tax with effect from 01.10.2014

S. No Period of delay Rate of Simple Interest (1) (2) (3)

1. Upto Six Months 18% 2.

More than six months and upto one Year

18% for the first six months of delay and 24% for the delay beyond 6 Months

3. More than One Year 18% for the first six months of delay; 24% for the period beyond six months upto one year and 30% for any delay beyond one year

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

13

Issue

In order to have better understanding of the aforesaid interest rates, the following illustration has been provided:

For Instance: M/s ABC Ltd discharges its Service Tax Liability amounting to Rs 1,00,000 for the Month of April 2014 on 6th Nov 2015. In that case, amount of interest required to be paid by M/s ABC Ltd shall be computed as under:

The due date of discharging Service Tax Liability in the aforesaid case shall be 06th May 2014. Thus, interest shall be computed as under:

The interest rate slab is very harsh for the assessee as delay of 3 years means interest of almost 100%.

Additionally, a penalty under section 76 of the Finance Act, 1994 is imposed on non-payment of service tax at the rate of Rs. 100/- per day of default or 1% per month, whichever is higher.

Period Days for

Interest

Computation of amount of interest (As

by Amended

Computation of amount of

interest (Old Provision)

comparison

Interest for the period 07.05.2014 to 06.11.2014

184 Days

=100000*18% *184 / 365 = 9074

=100000*18%* 184/365 = 9074

NO EFFECT

Interest for the period 07.11.2014 to 06.05.2015

181 Days

=100000*18%*181/365= 8,926

=100000*24%*181/365= 11,901

INCREASE BY 33.33%

Interest for the period 07.05.2015 to 06.11.2015

184 Days

=100000*18%*184/365= 9,074

=100000*30%*184/365= 15,123

INCREASE BY 66.67%

Total Interest payable by ABC Ltd.

27,074 36,099

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

14

Thus, another 12% for the year will be imposed for the same default i.e. if the default is beyond one year then highest slab of interest will be applicable plus the penalty under section 76 will be imposed thereby accumulating the interest and penalty together to 42%, which is very high.

Suggestion

It is suggested that this amendment should be applicable for those assesses who have collected the tax but not remitted to the government. The assessee making delay in payment of tax due to other reasons be not penalized in parity with the evaders.

It is suggested that the rates of interest be restored to the original rate at 18% irrespective of the period of delay as from the aforesaid calculation effective rate of interest comes to 36% per annum or 3% per month which is very huge. It may be noted that under the Income-tax Act, delay in payment of tax only attract interest that too at the much lower rate of 12% per annum (after return date 18% P.A) and there is no penalty provisions for delay in payment of income tax.

Without prejudice to above, it is suggested that a higher rate of interest rate may be charged according to slab rate of the tax demanded to protect the small service providers.

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.

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/ tax was actually paid.

5. Proposed amendment in Section 80(1) –No waiver of penalty even when complete details of the transactions are available in the specified record

Section 80(1) is proposed to be amended to exclude reference of first proviso to Section 78(1). The aforesaid proposed amendment removes the power to waive 50% penalty imposed in cases where Service Tax has not been levied or paid or has been short levied or short paid or

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

15

erroneously refunded by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of Chapter V of the Finance Act, 1994 or the rules made there under but true and complete details of transactions are available in the specified records. Thus, penalty levied under section 78(1) cannot be dropped on the basis of reasonable cause.

Issue

The reason for the said amendment of the section is to safeguard the revenue against loss, if any. The penalty has been provided in addition to interest. Mere fact that without mens rea, any can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test. Section 37 of Central Excise Act, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention.

For any penal proceedings, the following conditions laid down in Hindustan Steel, 83 ITR 26 (SC) should be applied :

Penalty can be levied only if assessee acted deliberately, i.e., mens rea, guilty mind is essential before penalty can be levied,

Power to levy penalty is discretionary and penalty cannot be levied merely because it is lawful to do so,

No penalty can be levied for technical or venial breach of the provisions, and

No penalty can be levied where breach of provisions flows from bona fide belief of the assessee.

When the assessee acts with the bona fide belief, there cannot be any intention to evade duty and penalty cannot be levied. (i) Akbar Badruddin Jiwani v. Collector of Customs 1990 (47) ELT 161 (SC); (ii) Tamil Nadu Housing Board v. Collector 1990 (74) ELT 9 (SC)

Suggestion

It is suggested to drop the proposed amendment in Section 80(1)

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

16

6. Services received by Educational Institutes

The Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended in respect of providing services of renting of immovable property to educational institutions stands withdrawn with effect from 11th July, 2014 vide Notification No. 06/2014-ST dated July 11, 2014. The government has therefore limited the scope of exemption in lieu of renting of immovable property and through specification of auxiliary services.

Issue

The levy of service tax on renting of immovable property provided to the educational institutions will substantial increase the cost to the education.

Further to remove the ambiguity, the auxiliary services has been defined where in the scope has not covered the services provided by Guest Faculty / teachers and IT lab services.

Suggestion

It is suggested that Renting of Immovable property service provided to Education Institutions continue to be exempted.

It is also suggested that scope of exempted services to be enhanced by covering guest faculty / teachers, and computer / IT lab / software services. (Or All services directly relating to the delivery of education or training to students)

7. Proposed Amendment in Section 83 Proposed -Application of Section (2A) of the Central Excise Act, 1944

It is proposed to include Sub-section (2A) of Section 5A of the Central Excise Act, 1944 under section 83 of Finance Act, 1994. As a result, Central Government would be able to add and give retrospective effect to the explanations to any notification or orders issued earlier subject to the condition that such explanation must have been added within a year from the date of issue of such notification.

Issue:

The proposed change is against the policy statement of Finance minister regarding retrospective amendment in Tax Laws.

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

17

Suggestion

It is suggested not to apply Section 5A(2A) of the Central Excise Act, 1944 in Service Tax by amending Section 83 of the Finance Act, 1994.

8. Non-removal of condition of payment in case of partial reverse charge Credit Mechanism

Notification No. 21/2014 –CE dated 11th July, 2014 has inserted a proviso in Rule 4(7) which state that in respect of an input service, where the service recipient is liable to pay a part of service tax and the service provider is liable to pay the remaining part, the CENVAT Credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9.

Due to above proviso, the service recipient would not able to take credit in the case of partial reverse charge unless he has made payment of input service and service tax paid or payable there on.

However, in the case of 100% reverse charge, credit is available to the service recipient once he made the payment of tax to the Government. Also in other than reverse charge cases, service recipient or manufacturer can take credit of input or input service on receipt of invoice without making any payment.

Issue

In the case of partial reverse charge, proposed amendment has put undue hardship to the recipient of service which mandate to make payment of input service and service tax thereon to avail the CENVAT Credit on such services. The proposed amendment is against the industry norms, which provide credit period to the vendor for making payment of services and may cause working ccapital problem for the service recipient.

Suggestion:

It is suggested that appropriate amendment be made so that service recipient of partial reverse charge be made at par with service recipient of 100% reverse charge cases.

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

18

9. Definition of Intermediately Services

Notification No. 14/2014 –ST dated 11th July, 2014 has amended the definition of “intermediary” to mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service or supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.

Issues

Due to the said new definition, the foreign inflow would become chargeable to service tax.

Suggestion:

It is suggested that intermediary of services and intermediary of goods can be covered under rule 3 itself.

Alternatively, it is suggested that appropriate amendment be made so that foreign exchange earnings from both commission on services and goods be zero rated.

10. Time Limits for Completion of Adjudication

Section 73 is proposed to be amended for providing time limits for completion of adjudication as follows:

The Central Excise Officer shall determine the amount of service tax due under subsection (2)—

(a) within 6 months from the date of notice, where it is possible to do so, in respect of cases of Service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded whose limitation is specified as 18 months in sub-section (1);

(b) within one year from the date of notice, where it is possible to do so, in respect of cases fraud, collusion etc. where extended period of limitation of 5 years is invoked or cases where during the course of any audit, investigation or verification it is found that any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded but the true and complete details are available in the specified records falling under the proviso to sub-section (1) or the proviso to sub-section (4A).";

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The Institute of Chartered Accountant of IndiaPost Budget Memorandum, 2014- Indirect Taxes

19

Issue

The proposed amendment is use of the phrase “where it is possible to do so”, which make it the provision recommendatory rather than mandatory.

Suggestion

It is suggested that the words use “where it is possible to do so” need to be omitted to make it mandatory. It may be noted that in the Income Tax Act, 1961 assessments has to be completed by the assessing officer with in the specified time limit.

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B. CENTRAL EXCISE

11. Pre-deposit for Appeal

Existing Section 35F provides that where an appeal is to be preferred before Commissioner (Appeals) or before Tribunal, duty, interest or penalty shall be deposited prior to filing appeal. However, the Commissioner (appeals) or CESTAT may waive deposit of such adjudicated levies. Further, in terms of Section 35C(2A), the stay granted by the CESTAT stands vacated where the appeal is not disposed off within 365 days from the date of order of the stay.

Section 35F is proposed to be substituted with a new section to prescribe a mandatory pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing the appeal before the Commissioner (Appeals) or the Tribunal at the first stage, and 10% of the duty demanded or penalty imposed or both for filing second stage appeal before the Tribunal. However, the amount of pre-deposit payable shall be subject to a ceiling of Rs. 10 Crore. It is also pertinent to add here that all pending appeals or stay applications shall be governed by the statutory provisions prevailing at the time of filing such applications or appeals.

Issue

The proposed substitution of Section 35F is likely to prove highly detrimental to the interest of genuine assesses who might get wrongly implicated by the Revenue Authorities for evasion of taxes/duty. Further, such substitution will only lead to empower Revenue Authorities, since initiation of any proceedings against an assessee, will ultimately lead to depositing of a certain percentage of amount, by an assessee, with the treasury even if it not a legitimate due to the Government. To say it simply, proposed amendment is likely to adversely affect genuine assesses’ Right to appeal before the higher authorities.

Furthermore, taking away the right of dispensing of Pre-deposit and making it mandatory to deposit a certain percentage of duty demanded before filing an appeal, would cause undue-hardship to small entrepreneurs/ manufacturers/service providers. It is noteworthy that a small entrepreneur, as per the present amendment, will first have to make a pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing an appeal before Commissioner (Appeals) and if, the assessee doesn’t get a favorable order, then again he will have to make a mandatory pre-deposit of 10% of the duty demanded or penalty imposed or both, if he approaches the Hon’ble Tribunal. Therefore in totality, the assessee will have to pay a total of 17.5% of pre-deposit of

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duty demanded and equivalent percentage of penalty [which works out to be 35% of duty demanded] which will only lead to causing undue hardship and harassment to small entrepreneurs at the hands of the Revenue.

Further, if the assessee succeeds in its appeal, then the prescribed percentage of amount deposited with the Government will have to obtained by way of refund, which itself is a daunting task for an assessee to obtain from the Department.

On the other hand, such proposed substitution is likely to benefit tax evaders, as by depositing a prescribed percentage at the time of appeal, the matter could be prolonged till the appeal comes up for regular hearing before the Hon’ble Courts.

Additionally, in the Finance Minster Speech he said that “ to expedite the process of disposal of appeals, amendment have been proposed in Custom and Central Excise Act with a view to freeing appellate authorities from hearing Stay application and to take up regular appeals for final disposal” It is not clear as to whether after the mandatory pre deposit Stay application would still need to be filed by assessee to avoid the proceedings of recovery of demand / penalty raised.

In addition, TRU Letter further states that another 10% of Pre-deposit in case of second stage of appeal in addition to the 7.5% of the demand and /or Penalty totaling to 17.5%, however language of the section 35F is different.

Further, it is submitted that in most of the cases unconditional stay has been granted by the tribunal to the assessee.

Suggestions

It is suggested that, Pre-deposit of only 1% be demanded at first stage and second stage appeal or 2% be demanded at first appeal to CESTAT.

Alternatively, it is suggested that a Bank Guarantee be provided as an alternative to pre deposit to safeguard the working capital of the assessee.

Without prejudice to the above, it is suggested that a Slab system may be introduced to safeguard the small scale industries, small service providers or BIFR industries.

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It is also suggested that the relevant provisions be suitably clarified such that on payment of mandatory pre-deposit, the balance demand stands automatically stayed and no recovery proceeding thereof would be initiated by the department to meet the intention beyond the proposed provision.

It is suggested that in case pre deposit is mandated and obligated then the interest on duty/tax demanded should not be charged for the period till the appeal is disposed off.

It is suggested that said pre deposit should only be in respect of duty/ tax demanded and not on the penalty amount as pre-deposit on penalty cannot be levied unless its cause is proved.

Subject to above, appropriate clarification may be inserted to avoid the interpretation of TRU Letter.

It is suggested that appropriate clarification be provided in respect of the cases remanded back to Commissioner for re-assessment and what would happened to deposition of pre deposited against original order and whether again pre deposit needs to be paid to appeal for re-assessed order.

It is suggested that appropriate clarification be provided in respect of appeal to assessment order passed against duty paid under protest.

12. Appeal to the Supreme Court

Under section 35L(1) of Central Excise Act, 1994 (b) an appeal lies to the Supreme Court from —

any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

Finance (No.2) Bill, 2014 has proposed to insert sub-section(2) in section 35L to provide that the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment

Issue

The above amendment would practically lead to a situation where a major chunk of the cases will be appelable to the Supreme Court by-passing High Court. As is well known that Supreme Court is already

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flooded with pending matters, centralization of appeals to the Supreme Court will lead to delay in disposal of appeals.

Further, accessibility of Supreme Court is very difficult for remote area assesses which will lead to increase in the cost of litigation to the assessee.

Suggestion:

It is suggested that disposal of appeals pertaining to all cases be also routed through High Court as it is easily accessible from various parts of the Country.

13. Amendment in rule 6 of Central Excise (Determination of Price of Excisable Goods Rules), 2000

Rule 6 of the above rules has been amended so as to provide that in cases where excisable goods are sold at a price below the manufacturing cost and profit and there is no additional consideration flowing from the buyer to the assessee directly or from a third person on behalf of the buyer, value for the assessment of duty shall be deemed to be the transaction value.

Issue

Rule 6 operates only if price is not the sole consideration. In the case mentioned above, goods are deliberately sold at less than cost price and no additional consideration is flowing from the buyer to the assessee directly or from a third person on behalf of the buyer. Hence, rule 6 need not be applied in this situation.

Suggestion

In case, where goods are sold at price less than the cost, the transaction is at arm’s length and invoice price constitutes transaction value. Therefore, it is suggested that transaction value would be the assessable value when goods are sold at a price less than the manufacturing cost.

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C. CENVAT CREDIT RULES, 2004

14. Availment of Cenvat Credit on Input and Input Service

With effect from 1st September 2014 Rule 4(1) and Rule 4(7) of Cenvat Credit Rules, 2004 are amended vide Notification No. 21/2014 – Central Excise (N.T.) dated 11.07.2014.

Rule 4(1) provides that the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. The new proviso provides that the manufacturer or the provider of output service shall not take CENVAT credit after six months from the date of issue of any of the documents specified in Rule 9(1).

Similarly, Rule 4(7) provides that the CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received. Fifth proviso to Rule 4(7) of the Cenvat Credit Rules, 2004 provides that where the Cenvat credit has already been taken on receipt of invoice but has to be paid because of non-payment to the input service provider within 3 months then the same is available later on payment to the input service provider. The new Proviso provides that the manufacturer or the provider of output service shall not take CENVAT credit after six months from the date of issue of any of the documents specified in Rule 9(1).

Prior to this amendment the availment of Cenvat credit was not barred by any time limit.

Issue

If the payment is not made to input service provider or manufacturer within 6 months of issuance of invoice, then the receiver’ of input or input services will stand to lose the CENVAT credit with the insertion of proposed proviso.

On reading of the amended provision, it is not clear if the time limit of 6 months would be applicable only for the invoices issued on or after 1st September 2014 or even for invoices which are eligible for credits prior to 1st September 2014 but assessee has not availed the credit till date.

Sometimes the assessee is not able to avail the credit due to unawareness/lack of clarity or wrong accounting in the books. The newly inserted proviso could lead to loss of credit.

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Suggestions

It is suggested that the said new proviso should not be made applicable as it is not in sync with principles of Value Added Tax/ CENVAT Credit. Also, this is not in line with international trade and practices.

Further, in case the payment to provider of services/ manufacturer is not made within the period of 3 months then the receiver of input or input service is required to reverse the CENVAT credit so availed and he is allowed to avail the same only when the payment is made to the vendor. With this amendment, the receiver of input or input service is compelled to make the payment within 6 months to avail the credit which leads to blockage of working capital.

There could be instances wherein the date of CENVAT invoice would be dated much earlier than the date of actual receipt of goods. In this scenario, the assessee loses substantial time. It is suggested that it would have been better if six months time period is allowed from the date of receipt of goods instead of issue date/invoice date.

In case of interpretational issues and extended period is invoked, then there will be demand of 5 years whereas credit of the same period will not be allowed which is against the spirit of law and will cause hardship to assessee. To illustrate, an assessee is rendering 100 Rs. services and outsourcing the same in 80 Rs. Now in case of old period investigation on some interpretational issue or based on some judgment form apex court, he is obliged to pay tax on Rs. 100 but will not be allowed to claim credit on Rs. 80. We may have live example where different judgment suggests to pay tax after a substantial period pass over.

Without prejudice to above, it is suggested that an appropriate clarification be provided in respect of retention money retained by the service provider or manufacturer as per the terms of contract.

15. Transfer facilities to LTU

Rule 12A of the Cenvat Credit Rules, 2004 was introduced to centralise assessment of taxes and give certain facilities to the LTU. One such facility was transfer of CENVAT credit from one unit to another unit.

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Issue

By amendment to the Cenvat Credit Rules, 2004, transfer of credit from one registered premises to another registered premises is being withdrawn wef 11.7.2014.

Suggestion

One of the main attractions to the LTU scheme was the flexibility given to such LTU's. Such flexibility was desirable given the contribution of the LTU to the exchequer. Withdrawal of facilities would only make the scheme unattractive and give doubts in the mind of the tax paying LTU. Therefore, it is suggested that this amendment be withdrawn forthwith.

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D. COMMON ISSUES

16. Creation of additional posts

Vide Clause 72, 73, 88 and 89 of the Finance Bill 2014 additional posts of Principal Commissioner and Principal Chief Commissioner have been created.

Suggestion

It is suggested that creation of additional posts at the higher levels should be done only where the statute clearly provides for specific functions and after discussion with stake holders. It should not be seen that posts are created where there is no additional benefit to the taxpayer. It also militates against the very principle of "maximum governance minimum Government".

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2014Indirect�Taxes

ABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAIABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAIABOUT ICAI AND INDIRECT TAXES COMMITTEE OF ICAI

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