Important Decisions on Indirect Tax Related Issues or Indirect Tax Related Disputes
In July 2013, the Union Finance Minister Shri P.Chidambaram constituted a Forum for exchange of views between industry groups and Government on tax related issues or tax related disputes. The Forum is chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister and supported by officers of the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC). The Forum has heard various industry groups and associations during August – September 2013 and the issues raised by them are being brought to the notice of the Finance Minister.
On the indirect tax side, the Union Finance Minister Shri P.Chidambaram has taken the following decisions so far with respect to IT, reinsurance and manufacturing sectors:
1. Pending Service Tax refunds/rebates for export of services –
• Issue: The prescribed procedure demands documents from other departments, particularly matching of FIRCs with export invoices by banks, on which the taxpayer does not have control.
Decision: Instruction has been issued to the field formation on 04.09.2013 for acceptance of self-certification submitted by the claimant for refund claim under notification 5/2006-Central Excise dated 14.03.2006.
• Issue: Problems are being faced in establishing nexus of input services with exports.
Decision: The procedure for calculating the refund on the basis of the ratio of export turnover to total turnover that was introduced in 2012 will be applied for pending refund cases. Instructions will be issued accordingly.
2. Liability of payment on removal of Capital Goods after use –
Issue: The amendment in CENVAT Credit Rules, 2004, w.e.f. 1st April 2012, to provide for liability for payment on removal of capital goods, whether as capital goods (on the basis of depreciation at the rate of 2.5% per quarter), or as waste and scrap, whichever was higher, was causing hardship to the assessees as the amended rules assumed shelf life of 10 years for capital goods that often tended to have a shorter shelf life. Industry had suggested that the reversal of input tax credit should be based on the transaction value of the scrap or waste.
Decision: An amendment has been carried out vide Notification No. 12/2013-CE(NT) dated 27th September, 2013, allowing reversal of credit on transaction value basis if capital goods are cleared as waste and scrap.
3. Distribution of CENVAT Credit by Input Service Distributor –
Issue: The industry represented that the amendment in Rule 7 of the CENVAT Credit Rules in 2012 imposing additional conditions in relation to distribution of credit, was leading to practical difficulties and errors, which in turn, would result in undue disputes and litigation with the Department. They suggested that CENVAT Credit Rules 2004 should be amended appropriately to allow distribution of eligible input credit of the service tax by the input service distributors to any unit of the entity so long as the unit to which credit is getting distributed is manufacturing dutiable goods or providing taxable output services.
Decision: A draft amendment in Rule to mitigate the problem would be placed in public domain by 17/12/2013 seeking comments of stakeholders within 10 days. The same will be finalized by 31/12/2013.
4. Clarification in respect of Central Excise Notification No.33/2012 –
Issue: Industry represented that, though vide the aforementioned notification Government has permitted use of Status Holder Incentive Scheme (SHIS) Scrip to be utilized for payment of excise duty while procuring domestic machines, the Notification is being treated as an ‘exemption notification’ in the some field offices and demand notices are being issued to units clearing the consignments under this Scheme.
Decision: To clarify the position, necessary Circular 973/07/2013/CX dated 4.9.2013 has been issued whereby no reversal of credit is required in cases specified therein.
5. CENVAT Credit on endorsed bill of entry –
Issue: The earlier practice of endorsement of Bill of Entry by customs officer to an importer has since been dispensed with. This has led to ambiguity as to the mechanism by which CENVAT credit would be available to a subsequent manufacturer receiving the imported goods.
Decision: A process is being designed to get the importers to register with the Department, who may then more easily pass on the CENVAT credit of CVD to a manufacturer. The new mechanism will be in place by 31/12/2013.
6. Valuation of goods sold at a price below the cost of production –
Issue: Hon’ble Supreme Court has in a recent decision in the case of CCE, Mumbai vs. Fiat India (P) Ltd. held that where products are sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty. Pursuant to this decision field authorities are asking assessees to furnish cost data of various products for past years.
Decision: The modality of implementation of the decision of the Hon’ble Supreme Court is under consideration of a committee of Chief Commissioners. The Circular in this regard will be issued by 15/01/2014.
7. Service tax in respect of services provided by reinsurance agents –
Issue: Industry raised the issue of liability to service tax on brokerage paid by foreign reinsurers to Indian reinsurance agents for placement of reinsurance business with them. The business is organized in such a way that the reinsurance premium including brokerage for reinsurance is paid to the broker. This premium, net of brokerage, is passed on by the broker to the reinsurer. It was explained that service tax was paid on composite amount including reinsurance premium and brokerage paid to the broker as well as separately charged on the brokerage, which resulted in double taxation.
Decision: Department will seek inputs from the insurance industry to ascertain whether there is double taxation of the brokerage paid to reinsurance agents, and issue circular, if necessary, for mitigation of double taxation, if any.