PRE-BUDGET MEMORANDUM...PRE-BUDGET MEMORANDUM on INDIRECT TAX LAWS 2016-17 Bombay Chartered...
Transcript of PRE-BUDGET MEMORANDUM...PRE-BUDGET MEMORANDUM on INDIRECT TAX LAWS 2016-17 Bombay Chartered...
PRE-BUDGET
MEMORANDUM on
INDIRECT TAX LAWS
2016-17
Bombay Chartered Accountants’ Society 7, Jolly Bhavan No. 2, New Marine Lines, Mumbai 400 020
Tel. : 61377600 Fax : 61377666
E-mail : [email protected] Website : www.bcasonline.org
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Managing Committee
President
Raman H. Jokhakar
Vice President
Chetan M. Shah
Hon. Joint Secretaries
Narayan R. Pasari
Sunil B. Gabhawalla
Hon. Treasurer
Manish P. Sampat
Members
Abhay R. Mehta
Anil D. Doshi
Bharatkumar K. Oza
Bhavesh P. Gandhi
Jagdish T. Punjabi
Jayant M. Thakur
Krishna Kumar Jhunjhunwala
Mihir C. Sheth
Mukesh G. Trivedi
Narayan K. Varma
Nitin P. Shingala
Rutvik R. Sanghvi
Samir L. Kapadia
Saurabh P. Shah
Sonalee A. Godbole
Suhas S. Paranjpe
Indirect Taxation Committee Chairman
Govind G. Goyal
Ex-Officio
Raman H. Jokhakar
Chetan M. Shah
Convenors
Mandar U. Telang
Suhas S. Paranjpe
Saurabh P. Shah
Members
A. R. Krishnan
Ashit K. Shah
Bakul B. Mody
Bharat M. Shemlani
Bharatkumar K. Oza
Bhavna G. Doshi
Chandrakant B. Thakar
Chirag B. Mehta
Hasmukh H. Kamdar
Janak K. Vaghani
Jayraj S. Sheth
Naresh K. Sheth
Parind A. Mehta
Pranay H. Marfatia
Puloma D. Dalal
Rajiv J. Luthia
Rajkamal R. Shah
Sagar N. Shah
Samir L. Kapadia
Sanjay M. Dhariwal
Santosh M. Jain
Shreyas Sangoi
Sunil B. Gabhawalla
Surendra S. Gupta
Uday V. Sathaye
Udayan Choksi
Bombay Chartered Accountants’ Society 7, Jolly Bhavan No. 2, New Marine Lines, Mumbai 400 020
Tel. : 61377600 Fax : 61377666
E-mail : [email protected] Website : www.bcasonline.org
WebTV : www.bcasonline.tv Web Journal: www.bcajonline.org
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PRE-BUDGET MEMORANDUM 2016-17
SUGGESTIONS ON SERVICE TAX
Synopsis
Sr. No. Particulars Page No.
CHANGES IN LAW
1 Evidence of completion of construction should not be restricted to the
―completion certificate‖ granted by a competent authority but other
evidence such as Architect‘s certificate should also be relied upon as
allowed prior to 1.7.2012
2
2 Personal penalty on directors, managers etc. may be dispensed with
(section 78A) 4
3 Fixed mandatory pre-deposit for preferring appeals to Commissioner
(Appeals) / Tribunal – reconsideration required – Mandatory pre-deposit
should be optional 5
CHANGES IN RULES
4 Services provided by Indian establishments of an entity to overseas
establishment of same entity to be considered as exports (Changes in Rule
6A of the Service tax Rules, 1994) 6
5 Revision of Returns – Rule 7B of Service Tax Rules – Time limit to be
extended. 7
6 Late fees for delay in filing service tax returns 8
7 Annual returns 8
8 Time limit (1 year) for taking Cenvat Credit on ―inputs‖ and ―input
services‖ to be withdrawn or in the alternative be increased to one year
from the end of financial year and also to be made not applicable in cases
where tax liability arises after investigation, audit, assessment
proceedings or appeals.
8
OTHER CHANGES
9 Rate of interest to be reinstated at the old rate of 18% instead of slab
ranging from 18% to 30% p.a. 10
10 Service tax payment – based on accounting codes under erstwhile
classification may be dispensed with. 12
11 Swachh Bharat Cess levied under Chapter VI of Finance Act, 2015 to be
integrated in Cenvat Credit Rules 12
12 Exhibit 1 14
2
CHANGES IN LAW
1. Evidence of completion of construction should not be restricted to the
“completion certificate” granted by a competent authority, but other
evidence such as Architect’s certificate should also be relied upon as
allowed prior to 1.7.2012.
1.1 Section 66E(b) has sought to bring an agreement for ‗sale‘ of office units/
residential flats within the ambit of service tax if any amount has been
received by the builder from the buyer before the completion of office
units / residential flats. The date of grant of a ‗completion certificate‘ by a
competent authority under any law for the time being in force is being
considered as the only evidence of completion. Subsequently vide press
release dated 26.10.2015 occupation certificate was also considered to be
adequate proof of completion of construction of the office units /
residential flats. However, other options should also be considered
namely a certificate from architect, chartered engineer or a licensed
surveyor certifying completion so as to substantiate that the sale is of a
completed office units / residential flats as was the law prior to 1.7.2012.
1.2 Further, in several cases though the building is complete and ready for
occupation the flat owners/developers are not able to get completion
certificate from the relevant authorities, so as to substantiate that it is a
sale of completed flat. Further, completion certificate is issued only after
several compliance of several statutory formalities which are not related
to the completion of construction work of any building. Hence in many
cases especially in cities like Mumbai, the property is completed and
occupied for several years [25-30 years] but the completion certificate
from municipal authorities is not received. In such cases even sale of
completed flats/ offices maybe subject to service tax though it is not the
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intention of the Legislature nor would there be an element of service in
such transaction.
1.3 In this regard prior to introduction of Negative List Regime i.e. 1st July
2012, when in a similar situation sale of under construction flats/offices
were subject to service tax from 01.07.2010 the Ministry of Finance had
clarified by issuing M.F. (D.R) Order No. 1/2010 dated 22th June 2010
(Removal of difficulties order), that a certificate issued by, (i) Architects,
(ii) Chartered Engineers, and (iii) Licensed Surveyors would also qualify
for determination of ‗completion‘ of construction though there is a
requirement for obtaining a completion certificate from the relevant
authority [Copy of said order attached – Exhibit 1]
1.4 Hence, it is hereby suggested that the evidence of completion of
construction should not be restricted to production of ‘completion
certificate’ even in cases of requirement of such certificate under the
law but a certificate from an architect, chartered engineer or a licensed
surveyor should also be relied on. The Explanation (I) to section 66E(b)
maybe amended as follows:
“66E. Declared services.— The following shall constitute declared services,
namely :—
(a) …………….
(b) construction of a complex, building, civil structure or a part thereof,
including a complex or building intended for sale to a buyer, wholly or partly,
except where the entire consideration is received after issuance of completion
certificate by the competent authority.
Explanation.— For the purposes of this clause,—
(I) the expression ―competent authority‖ means the Government or any
authority authorised to issue completion certificate under any law for the time
being in force or any of the following, namely :—
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(A) architect registered with the Council of Architecture constituted under
the Architects Act, 1972 (20 of 1972); or
(B) chartered engineer registered with the Institution of Engineers (India); or
(C) licensed surveyor of the respective local body of the city or town or
village or development or planning authority;
who is authorised under any law for the time being in force, to issue a
completion certificate in respect of complex or building, as a precondition
for its occupation.
(II) the expression ―construction‖ includes additions, alterations,
replacements or remodelling of any existing civil structure;
(c) ………………‖
2. Personal penalty on directors, managers etc. may be dispensed
with-Section 78A
2.1 Section 78A provides for imposing a financial penalty upto Rs. 1,00,000/-
on directors, managers, secretary or other officers in-charge of the
company for specified contraventions committed by a company.
2.2 In this regard, it may be noted that for similar contraventions, such
persons are already liable to prosecution under Section 89 of the Act r.w.
s. 9AA of the Central Excise Act. Thus, in view of the liability for
prosecution there is no need to provide for penalty also. Such a
corresponding penalty is absent in Customs, Excise and Income-Tax.
Further, in any case separate penalties are already provided for the
company which has defaulted.
2.3 In view of the above, the provisions Section 78A appear to be very harsh.
It is hereby suggested that this section 78A be deleted.
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3. Fixed mandatory pre-deposit for preferring appeals to Commissioner
(Appeals) / Tribunal – reconsideration required – Mandatory pre-
deposit should be optional.
3.1 The Finance (No. 2) Act, 2014 has amended section 35F of the Central
Excise Act, 1944 by providing for fixed mandatory pre-deposit of certain
percentage of adjudicated demands (‗duty / tax demanded or penalty or
both‘) for filing an appeal before the Commissioner (Appeals) / Tribunal
as under:
Sl.
No.
Particulars Percentage of pre-deposit
(i) Appeal to the Commissioner
(Appeals)
7.5% of tax in case where tax or
tax and penalty are in dispute; or
7.5% of penalty where only
penalty is in dispute
subject to a maximum amount of Rs.
10 crores.
(ii) Appeal to Tribunal – 1st Stage [i.e.
against CCE‘s order]
7.5% of tax in case where tax or
tax and penalty are in dispute; or
7.5% of penalty where only
penalty is in dispute
subject to a maximum amount of Rs.
10 crores.
(iii) Appeal to the Tribunal – 2nd stage
[against CCE(Appeals)‘s order]
10% of tax in case where tax or tax
and penalty are in dispute; or
10% of penalty where only penalty
is in dispute
subject to a maximum amount of Rs.
10 crores.
3.2 Considering the past trend, the order adjudicating a SCN invariably
sustains the demand alongwith penalties and in most cases the assessee
has no option but to file an appeal. The mandatory deposit would cause
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undue hardship specially if the assessee has a very good case on merits.
He cannot afford to pay the mandatory pre-deposit. It goes against the
persons who cannot afford to fight or who have a very good case. Further,
there would be no discrimination between good case and bad case and
between assessee who can pay and assessee who cannot pay.
3.3 In view of the above, it is hereby suggested that the requirement of
mandatory pre-deposit should be optional i.e. an assessee may have
either one of the option –
(i) apply to the appellate authority for a waiver of pre-deposit of
demands adjudicated (tax, interest, penalties) as per the erstwhile
provisions; or
(ii) pay the mandatory pre-deposit as prescribed.
CHANGES IN RULES
4. Services provided by Indian establishments of an entity to overseas
establishment of same entity to be considered as exports (Changes in
Rule 6A of the Service tax Rules, 1994)
4.1. Under Section 65B(44) of the Act an establishment of a person in taxable
territory and any of his other establishments in non-taxable territory is
treated as establishment of distinct persons. Accordingly, as per CBEC‘s
Education Guide where a service has been provided by an overseas
establishment of an entity to the Indian establishment of the same entity
the recipient establishment in India would be liable to pay service tax on
the said services under reverse charge mechanism. However, in a reverse
scenario (i.e. exports) where a service has been provided by an Indian
establishment of an entity to the overseas establishment of the same entity
the services would not be considered as exports in view of the express
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provisions of Rule 6A(1)(f). In such a scenario, the benefit of exports
would not be available in the context of Cenvat Credit Rules. Hence the
service provider would have to reverse proportionate cenvat credit
attributable to such exports under Rule 6(3) of the Cenvat Credit Rules,
2004 since the services would be considered as an exempt service as the
place of provision of such services is outside India. Moreover no rebate
of service tax paid on input services would also be available. This would
result in making the exports costlier, which is not the intention of the
legislature. Further the deeming fiction for import of services that the
transaction in effect is in between two separate entities should also be
applicable for exports with no dilution.
4.2. Hence it is hereby suggested that Clause (f) to Rule 6A(1) of the Service
Tax Rules, 1994 maybe deleted.
5. Revision of Returns – Rule 7B of Service Tax Rules – Time limit to be
extended.
5.1 Rule 7B provides that an assessee may revise his returns to correct a
mistake or omission, within 90 days from the date of submission of the
original return. However, it is submitted that normally, mistakes or
omissions come to light during the course of audit or finalisation of the
accounts which generally takes place after the financial year ends.
5.2 Hence it is hereby suggested that the time limit for revision of returns
should be atleast six months from the end of the financial year. This is
so even in case of other laws such as income tax, state VAT laws, etc.
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6. Late fees for delay in filing service tax returns.
6.1 Rule 7C of the Service Tax Rules, 1994 prescribes payment of late fees
for delay in filing Service Tax Returns based on the number of days of
delay. Section 70 of the Finance Act, 1994 provides for upper limit for
payment of Late Fees which is presently Rs.20,000/-. However, this
would cause undue hardships in case of small assesses in case where the
tax liability itself is less than Rs. 20,000/-.
6.2 Hence, it is humbly suggested that the upper limit for payment of late
fees be fixed based on amount of Service Tax liability, which will give
relief to small assesses.
7. Annual returns
7.1 There should be annual returns instead of half yearly returns though taxes
could be paid on a quarterly/monthly basis. Annual return would also
ensure that the return is in line with the accounts of the assessee. It would
also obliterate a lot of paper work and reduce the time of the department
and the assessee.
8. Time limit (1 year) for taking Cenvat Credit on “inputs” and “input
services” to be withdrawn or in the alternative be increased to one
year from the end of financial year and also to be made not
applicable in cases where tax liability arises after investigation, audit,
assessment proceedings or appeals.
8.1 The Central Government has w.e.f. 1.3.2015 provided a time cap for
‗taking‘ cenvat credit on inputs / input services viz., within 1 year from
the date of the document based on which credit is taken.
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8.2 The above provision is likely to cause undue hardship to the assessee in
view of the following reasons –
(i) The right to take credit is vested in the assessee the minute he
receives input or the input service and such right should not be
allowed to lapse within 1 year since the supplier has already paid
the tax / duty to the Government.
(ii) Many a times a manufacturer or service provider may dispute the
excisability of the product manufactured or taxability of the service
provided which dispute invariably extends beyond 1 year before
being finally settled. The Courts and Tribunals have always
allowed the assessee to take cenvat credit on his input / input
service for the disputed period if the demand on his output gets
sustained. The time limit which is sought to be imposed would
prejudicially affect the assessee where he is demanded service tax
for a period of 5 years on his output but he is not allowed to take
cenvat credit on his input / input services in view of the time cap.
(iii) Many a time as a result of audits, it may come to the light of the
assessee that he has missed taking cenvat credits. In such cases, the
mistakes may come to light only on audits after the end of the
financial year by which time he may be disentitled to take genuine
credits.
8.3 When the professed intent of the Government is to move towards GST,
such limitation casts a serious cascading effect on the business of the
assessee.
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8.4 In view of the above, it is hereby suggested that –
I. Time cap of 1 year for taking cenvat credit may be deleted.
II. In the alternative, if for any compelling reason the time cap
provisions are to be retained –
(i) The time limit must be increased from 1 year of the
document date to 1 year from the end of the financial year
in which credit was to be taken.
(ii) The time cap should not be made applicable where the tax
on the goods manufactured / output service is paid after
investigation, audit, assessment proceedings or appeals.
OTHER CHANGES
9. Rate of interest to be reinstated at the old rate of 18% instead of slab
ranging from 18% to 30% p.a.
9.1 W.e.f. 1.10.2014, the rate of interest on delayed payment of service tax
has been increased from 18% p.a. to a slab system of interest rate in the
range of 18%- 30% as under.
Sr. No. Period of Delay Rate of simple interest *
1. Upto 6 Months 18%
2. More than 6
months and upto 1
year
a) 18% for the first 6 months of delay
and
b) 24% for the delay beyond 6 months
3. More than 1 year a) 18% for the first 6 months of delay;
b) 24% for the period beyond 6
months upto 1 year; and
c) 30%for any delay beyond 1 year.
*Note: For assessee having a taxable turnover upto sixty lakhs in preceding financial
year, interest rate shall be reduced by 3% for every period of delay.
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9.2 The above rates of interest are astronomically high considering that –
(i) The interest for delayed payment of service tax is supposed to be
compensatory in nature and not penal since penal provisions
already exist. Infact, service tax is the only law where there is not
only a penalty of 100% of tax for non-payment of tax with an
intent to evade tax (section 78) but also a penalty u/s. 76 upto 10%
of tax amount for delayed payment of service tax. This penalty for
delayed payment of service tax is not there in other laws since
interest provisions already exist.
(ii) The present interest rates on bank deposits are in the range of 8% -
9%.
(iii) The rate of interest payable under other laws are as under
Sr. No. Nature of Tax Rate of interest
1. Income Tax - Advance Tax
- TDS
12 % p.a.
18 % p.a.
2. Central Excise Duty 18 % p.a.
3. Customs Duty 18 % p.a.
(iv) Paradoxically interest on refunds is payable by the department only
at 6% that too, from the date not when the tax was paid but from
the date after the expiry of 3 months from when the refund
application is made.
9.3 In view of the above, it is hereby suggested that the interest on delayed
payment of service tax should be reinstated at old rate of 18% instead of
the peak rate of 24% - 30%.
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10. Service tax payment – based on accounting codes under erstwhile
classification may be dispensed with.
10.1 Circular No. 165/16/2012-ST, dated 20.11.2012 read with Notification
No. 48/2012-ST, dated 30.11.2012 provides for payment of service tax in
the accounting codes under erstwhile classification.
10.2 In many cases, this creates substantial hardship to the assessee in
determining the classification, particularly in the absence of the relevant
definitions under the new negative list regime.
10.3 The objective to pay service tax based on accounting codes was to
monitor service tax collections sector-wise. However, the onus of
classification of services without definitions is difficult and perhaps
infructuous work for the assessee.
10.4 Thus, it is suggested that the said Notification be rescinded and the said
Circular be withdrawn.
11. Swachh Bharat Cess levied under Chapter VI of Finance Act, 2015 to
be integrated in Cenvat Credit Rules.
11.1 The FAQs on Swachh Bharat Cess (SBC) issued by CBEC has stated that
SBC is not integrated with Cenvat Credit chain and therefore credit of
SBC cannot be availed nor can the liability to pay SBC be discharged by
utilizing credit of SBC paid on input services. It is suggested that such
non integration of SBC with the extant Cenvat Credit Rules would result
in cascading effect of tax resulting in inflation and increased cost of
goods and services.
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11.2 Hence it is suggested that suitable amendments may be made in the
Cenvat Credit Rules, 2004, so that SBC may be integrated with Cenvat
Credit Rules and the SBC liability on output services can be discharged
by availing and utilizing credit of SBC paid on input services.
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Exhibit 1
M.F.(D.R.) ORDER NO
1/2010, Dated : June 22, 2010
In exercise of the powers conferred by sub-section (1) of section 95 of the
Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the
Central Government, hereby makes the following Order, namely :-
1. (1) This Order may be called as the Service Tax (Removal of Difficulty)
Order, 2010.
(2) This Order shall come into force on the 1st day of July, 2010.
2. For the purposes of sub-clauses (zzq) and (zzzh) of clause (105) of section 65
of the Finance Act, the expression ‗authority competent' includes, besides any
Government authority,-
(i) architect registered with the Council of Architecture constituted under the
Architects Act, 1972( 20 of 1972); or
(ii) chartered engineer registered with the Institution of Engineers (India); or
(iii) licensed surveyor of the respective local body of the city or town or village
or development or planning authority;
who is authorised under any law for the time being in force, to issue a
completion certificate in respect of residential or commercial or industrial
complex, as a precondition for its occupation.
F. No. 334/3/2010-TRU
(K.S.V.V.Prasad)
Under Secretary to the Government of India
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