DESCRIPTION SERVICE TAX B CENVAT CREDIT RULES, 2004 EXCISE DUTY CENTRAL SALES TAX CUSTOMS DUTY COMMON ISSUES

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Bartholomew Perry
5 years ago
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2 SUGGESTIONS RELATING TO INDIRECT TAXES INDEX PART DESCRIPTION A SERVICE TAX B CENVAT CREDIT RULES, 2004 C EXCISE DUTY D CENTRAL SALES TAX E CUSTOMS DUTY F COMMON ISSUES PART A: SERVICE TAX Partial Reverse Charge as defined u/s 68 (2) Service tax is an indirect tax, where the service provider has to collect the tax from the service receiver and deposit it in the government account. As per section 68(1) of Finance Act, 1994, every person providing taxable service to any person is liable to pay service tax. However, an exception to the above rule is mentioned in section 68(2) of the Act which empowers Central Government to notify the services in respect of which even service receiver shall be liable to pay service tax wholly or partially. This is termed as Reverse Charge Mechanism. Further, in respect of certain services both service receiver and provider are required to pay service tax proportionately; it is termed as Partial Reverse Charge Mechanism (PRC). Service Tax Payable under reverse charge is payable in cash only i.e. benefit of Cenvat cannot be availed for discharging the Service Tax liability. Suggestions:

3 Return / Payment of Service Tax Every assessee s is required to submit a half yearly return in form S.T.-3 or S.T.-3A (in triplicate) along with copies of form GAR 7(T.R.-6 challans). For the purpose of filing returns, half year is counted from April to September and October to March. In case the assessee s has opted for provisional payment of service tax, he is required to file the service tax return in form S.T.-3A. (Rule 7(1) of Service Tax Rules, 1994). The half yearly return is required to be filed by the 25 th of the month following a particular half year (Rule 7(2) of Service Tax Rules, 1994). The department has extended the facility of filing the returns on-line (e-filing of returns). This facility is available for all the categories of service providers. Suggestions:

5 Currently the time limit allowed to revise the return is 90 days. The e-return is allowed to be revised only once whereas there is no legal bar on revising the return more than once. So multiple times revision to be allowed in 180 days rather 90 days. Facility to file an online return for prior periods also be made available. Presently, the system do not show/allowed the online return for prior period and it is only using the excel utility; one can upload previous return, which also, will not be visible for future use on login of assessee s. Currently e-payment is mandatory if service tax payments for the year exceed Rs. 1 lac. The limit of Rs.1 lac needs to be increased to 5 lacs as to eliminate the hardships faced by small tax payers who are unable to make the e-payment. In Present Service Tax Return, Provision to claim 50% Credit by banking Industry is not available. Further, in case the assessee s is in dilemma that where a declaration is to be made in Service tax return, no explanatory notes, FAQ is available to assist the assessee s. 3. Refund under Service Tax If service tax is paid in excess of the actual liability, assessee s is required to claim refund of excess amount of service tax paid. He cannot adjust excess tax paid against subsequent payment of tax. Moreover, excess service tax paid is refundable, only if it is proved that the claimant of refund has already refunded such amount to the person from whom it was received or has not collected at all from any one. The application should be filed within 1 year from the relevant date i.e., from the date of payment of the service tax. Suggestions To avoid the cumbersome procedure and pressure on large refund pending with department, it is proposed, that condition laid down in Rule 6(3),6(4A) of Service Tax Rules 1994, i.e. for Adjustment of Excess Service Tax paid need to dispensed away. Time limit should be increased in case of exporter. 4. Authority of Advance Ruling: While reading the eligibility of applicant, it is mentioned that Any joint venture with the non-resident who has got a substantial interest may apply. Now while going through the provisions, what is Substantial Interest is not defined. Secondly, to apply Indian residents unless they are limited company are not permitted to apply for AAR. Since Provisions under Service tax are of self-assessment by assessee s and in most of the cases, Assessee s transactions are of recurring nature. Now, if the assessee s wish to clarify, whether his particular activity is subject to service tax or not, there is no mechanism available for him. In case, assessee s filing the query before department, there

6 is no clarification being issued for number of years. Hence, we propose either a separate mechanism for every assessee s should be in-place, else AAR should be permitted. 5. Netting of payments While paying service tax on output liability credit of service tax paid on reverse charge is not automatically allowed. Department is asking first to pay under reverse charge and then claim credit to pay tax on output liability, which need to be clarified. 6. Multiple inquiries Due of poor IT infrastructure and Lack of clarity available, there are a large number of instances when the assessee s financial statements are being scrutinized by different wings of department simultaneously. The present structure or authority available for this scrutiny are o Director General of Investigation o Audit wings in Commissionerate o Anti Evasion Wing of Commissionerate o Range Official of Commissionerate In-spite of Assessee s requesting not to go for simultaneous inquiry, there are hardship being faced. Normal answer is, we are not aware, what they are checking. Whereas, each summons/inquiry letter asks for financial data for last five year, which is again possible if invocation of extended period is there, again for which whether any basis is there or not. 7. Point of Taxation Rules As per prevalent Service tax Point of Tax provisions there are cases like in Builders, AMC Service Providers, FIIs, where the assessee s is issuing letter/notice to recover the money from resident, account holder which may be in dispute. To illustrate, buyer of property are not paying installment, if the builder will not send notice to collect money, they will not get any money. But the moment they issue notice, liability of service tax will arise, which need to pay even collection of principal is uncertain. Likewise the case of recovery notice for NPAs from FIIs and recovery letter by RWAs from its members. To avoid the hardship, provisions need change. 8. Determination of Value Rules 2006 In view of recent contradictory judgments, there is need to clarify the present position of taxability of reimbursement.

7 PART B: CENVAT CREDIT RULES, Reversal of CENVAT Credit Rule 6(3) of the Cenvat Credit Rules, 2004 provide for reversal of Cenvat credit in case dutiable / non-dutiable goods are manufactured and taxable/non-taxable services are provided. Suggestions There is a system under rule 6(3)(a) of filing intimation about the percentage of credit will be availed. Whereas except in first year, the details are otherwise also available with department through Service Tax return filed by assessee. Omission in filing the said intimation causes hardship. Hence propose to remove this kind of procedure which no meaning and cause hardship. PART C: EXCISE DUTY 10. Audit Issues EA 2000 is a modern, transparent and interactive method of audit wherein the auditor proceeds with audit fully conversant with the business of the assessee. At the end of the process of verification, the auditor prepares Audit Report which incorporates all the audit objections/audit paras. An audit report provides (issue or para wise) the issue in brief, the reply or the explanation of the assessee, the reason for the auditor not being satisfied with the reply, the amount of short payment (if tabulated) and the recoveries of the same. Suggestions It is suggested that a copy of audit report of the assessee under Excise Audit 2000 scheme be provided: - To facilitate the assessee to take corrective actions - To ensure/prove that audit is done upto a particular period. as in absence of the audit report with the assessee he is unable to prove that his accounts are audited till a particular period and is sometimes subjected to re-audit as there is no mechanism in the department to ensure the same. 11. Dispute Resolution The central excise law provides that before any action is taken against an assessee he must be given reasonable opportunity of presenting his case. Thus, if on account of an infraction of the provisions of the central excise law, it is considered appropriate to penalize the defaulter, then it is necessary to first issue a show cause notice. The show cause notice would detail the provisions of law allegedly violated and ask the assessee to show cause why action should not be initiated against him. Thus, a show cause notice gives the assessee the opportunity to present his case. Suggestions

8 It is suggested that measures for improved tax payer service and tax payer education programme be taken. The Range officer may be advised to educate the assessee after changes in law by Finance Act /Excise Act/ Rules /notification by way of monthly meetings of all assesses of that Range so that assesses are aware of the changes and updates in the law. Normally an Assistant Commissioner/ Deputy Commissioner undertake the following: - Inquiry of a case - Issuance of Show Cause Notice - Adjudication - Tax Collection Authorities playing multiple roles pose a few issues for the assessee. There has to a segregation of roles of authority for process improvement and to provide an early relief to assessee. 12. 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) (ii) (iii) (iv) (v) Notices are issued to Managing Director/ Director/ Chairman despite the fact that they are not concerned with routine functioning of business. Notices are issued even for seeking that information what can be obtained by ordinary letters. The time mentioned in the notice is not rigidly followed. As a result, plenty of precious time of the assessee is wasted. Copy of the recorded statement is not provided immediately to the concerned assessee. Summons issued even in those cases where question of law is involved. Suggestion There should be a proper procedure u/s 14 which need to be followed while invoking Section 14 backed with rules.

9 PART D: CUSTOMS DUTY 13. Clearing House Agent Nowadays the Importer and Exporter are not opting to clear the goods through CHA but they are clearing it through Freight Forwarders, hence CHA cannot opt to have KYC of the actual importers and exporters. It is, therefore, suggested to add a column of freight forwarder in B/E and S/B through CHA and freight forwarders be given PAN based registration. This will help to make accountable lot of freight forwarders who are lying loose as their income can be assessed in a right manner also resulting into higher service tax (indirect tax). PART F: COMMON ISSUES 14. Disparity between interest payable by assessee and Department under central excise, service tax and customs At present, 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 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) (ii) 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 was actually paid. 15. 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 Excise, the auditors from CAG visit assessees premises/interact with assessees

10 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 Suitable amendment should be made CAG audit. Accommodate auditors or not suitable clarification be given that this is the stand of the revenue. 16. 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 Customs dated 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 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 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. 17. Documents required for Registration In order to deal with the hardships caused in obtaining the registration it is suggested that an exhaustive list of documents required to be submitted with the registration form be provided vide a notification/ circular from time to time. This will streamline the registration process and reduce rejection of applications. 18. 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 system of issuing a comprehensive circular at the end of the

11 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) (b) 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 assessee s will be aware of necessary procedural steps and exemptions as available. A comprehensive circular makes easy to review all updates in an indexed manner. Training of Departmental Personnel It has been observed that the understanding of this central law across the country is not the same. Different Commissionerate 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 interpret and analyze the financial statements. This causes difficulties for both the assessee s 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 (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

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

By: Madhukar N Hiregange June 3, 2014

Pre- Budget - Suggestions for Revenue Augmentation & Reforms By: Madhukar N Hiregange June 3, 2014 Suggestions for Revenue Augmentation + Reforms Information in respect of assessees be shared between the