-
Preliminary
-
When Service Tax was first introduced
in the year 1994, it was decided that, Service Tax administration
will be carried out by Central Excise Department under the Ministry
of Finance. Though there is no separate Service Tax Act the entire
law relating to Service Tax, is contained in Chapter V of Finance
Act, 1994 (as amended from time to time.) ["Act"].
-
Section 67 of the Act is the
charging section under which Service Tax is levied which is equivalent
to section 3 of the Central Excise Act, 1944 [CEA] which is a
charging section for levy of Excise Duty.
-
The Excise Authorities find it
easy to follow the practice in Central Excise Administration for
levy, imposition and collection of Service Tax as well. Section
83 of the Act deals with application of certain provisions of
CEA in relation to Service Tax. It is also to be noted that,
under section 65(121) of the Act, it is further made clear that
words and expressions used but not defined under the Act but defined
under CEA / Rules made thereunder (CER) shall apply in relation
to Service Tax in the same manner as they applied to the duty
of excise. Thus CEA / CER play a significant role in Service
Tax administration.
- Specific provisions of CEA made applicable
to Service Tax
The following sections of CEA are
made applicable to Service Tax.
| Section |
Provisions relating to |
| 9C |
Presumption of culpable mental
state |
| 9D |
Relevancy of statements under
certain circumstances |
| 11 |
Recovery of sums due to Government
|
| 11B |
Claim for refund of duty |
| 11BB |
Interest on delayed refunds |
| 11C |
Power not to
recover duty of excise not levied or short levied as a result
of general practice |
| 11D |
Duties of Excise
collected from the buyer to be deposited with the Central
Government |
| 12 |
Application of the provisions
of (Customs Act, 1962) to Central Excise Duty |
| 12A |
Price of goods to indicate the
amount of duty paid thereon |
| 12B |
Presumption that the incidence
of duty has been passed on to the buyer |
| 12C |
Consumer Welfare Fund |
| 12D |
Utilization of the Fund |
| 12E |
Powers of Central Excise Officers
|
| 14 |
Power to summon
persons to give evidence and produce documents in inquiries
under this Act |
| 15 |
Officers required to assist Central
Excise Officers |
| 35F |
Deposit, pending appeal, of duty
demanded or penalty levied |
| 35G |
Appeal to High Court |
| 35H |
Application to High Court |
| 35-I |
Power of High
Court or Supreme Court to require statement to be amended
|
| 35-J |
Case before High Court to be
heard by not less than two judges |
| 35K |
Decision of High Court or Supreme
Court on the case stated |
| 35L |
Appeal to the Supreme Court |
| 35M |
Hearing before Supreme Court
|
| 35N |
Sums due to be paid notwith-standing
reference, etc. |
| 35O |
Exclusion of time taken for copy
|
| 35Q |
Appearances by authorized representatives |
| 36 |
Definitions |
| 36A |
Presumption as to documents in
certain cases |
| 36B |
Admissibility
of micro films, facsimile copies of documents and computer
print outs as documents and as evidence |
| 37A |
Delegation of powers |
| 37B |
Instructions to Central Excise
Officers |
| 37C |
Service of decisions, orders,
summons etc. |
| 37D |
Rounding off of duty, etc. |
| 40 |
Protection of action taken under
the Act. |
- Important recent amendments
- Recovery of Service Tax not levied
or not paid or short levied or short paid
- Procedure
A lot of trust is placed on the assessees in requiring
them to submit self-assessed returns and also a simple procedure
was prescribed for verification of the same by Superintendent.
In the absence of any return/relevant documents of accounts,
the Assistant Commissioner/Deputy Commissioner (AC/ DC) was
empowered to pass the best judgment assessment order based on
the relevant material gathered. In order to provide an assessee
friendly administration provisions of verification of returns
and best judgment assessments have been deleted w.e.f. 10-9-2004.
However, if the assessees
do not comply with the prescribed procedure, it will ultimately
result in short payment or non payment of Service Tax. If
the value of taxable service escapes from the self-assessment,
the trust shown on the assessee is not serving the purpose
and hence penal provisions are provided in this situation.
Amended section 73 of the Act contains the situations and
also contains the action to be taken by the Department to
protect the revenue implications arising out of short payment
or non payment.
In terms of sub-section (1)
of section 73, of the Act the AC/DC will serve notice on the
person chargeable with Service Tax which has not been paid
or has been short paid or to whom any sum has been erroneously
refunded. Show Cause Notice (SCN) will require such person
to show cause as to why he should not pay the amount specified
in the SCN.
-
Time limits
Through the Finance Act, 2004 a major amendment has
been made in the Service Tax law relating to recovery of Service
Tax not levied or short levied, not paid or short paid or
erroneously refunded. Provisions of section 11A of CEA are
incorporated in Service Tax law and accordingly section 73
of the Act, is now replaced with the new text, which comes
into effect from 10-9-2004. The time limit for issue of SCN
in the revised scenario is as under:
-
Within one year
– Where Service Tax has not been levied or paid or has
been short levied or short paid or erroneously refunded,
within one year from the relevant date, the AC/DC of Central
Excise will serve a notice on the person chargeable to
the Service Tax, which has not been paid or levied or
short paid, requiring him to show cause as to why he should
not be liable to pay the amount specified in the Notice.
-
Within
five years – It any Service Tax has not been
levied or paid or has been short levied or short paid
or erroneously refunded by reason of fraud, collusion,
wilful misstatement, suppression of facts or contravention
of any of the provisions of the Act or the Rules made
thereunder with intent to evade payment of Service Tax.
-
Under Central Excise,
Now applicable to Service Tax also, the extended period
of 5 years can be invoked in terms of proviso to section
11A of CEA if any duty of excise has not been levied or
has been short levied or short paid by reason of:
With an intent to evade payment
of duty
Hence existence of any of
the above circumstance is absolute essential and a prerequisite
for invocation of extended period in terms of proviso to section
11A of CEA.
Further, it is a very clearly
laid down principle that, in cases where the Excise Dept wishes
to invoke the extended time limit of 5 years for issuing SCN,
it can be done only if an assessee is guilty of wilful mis-statement
or collusion or suppression of facts or contravention of any
of the provisions of CER with the intent to evade payment
of duty. The elements of wilfulness, collusion and suppression
of facts with an intent to evade payment of duty all belong
to the domain of criminal jurisprudence having an element
of mens rea; i.e., existence of guilty mind. Therefore, the
onus is on the Excise Dept to prove that one or other of these
elements is present, so as to justify the issue of SCN by
availing the extended time-limit. This is supported by a number
of rulings of the Supreme Court, relevant extracts from some
of which, are given below:
-
In Tamil Nadu Housing
Board vs. CCE 74 ELT 9 (SC), in the context of section
11A of CEA, it was held that:
The proviso is in the nature of an exception of the principal
clause and its exercise is hedged on one side with the
existence of such situations by using strong expressions
as fraud, collusions etc. and on the other hand there
should be an intention to evade the payment of duty. Both
must concur to enable the Excise Officer to invoke the
exceptional power. The initial burden is on the department
to prove that the situations visualized by the proviso
existed and to bring on record material to show that the
appellant was guilty of any of the situations visualized
by the section.
-
In Pushpam Pharmaceuticals
Company vs. CCE 78 ELT 401 (SC), it was held that:
A perusal of proviso to section 11A indicates that the
expression "suppression of fact" has been used in company
of such strong words as fraud, collusion or wilful default.
In fact it is the mildest expression used in the proviso.
Yet the surroundings in which it has been used it has
to be construed strictly. It does not mean any omission.
The act must be deliberate. In taxation it can have only
one meaning that the correct information was not disclosed
deliberately to escape from payment of duty where facts
are known to both the parties the omission by one to do
what he might have done and not that he must have done,
does not render it suppression.
-
In Cosmic Dye Chemical
vs. CCE 75 ELT 721 (SC) it was held that:
"Intent to evade duty" must be proved for invoking proviso
to section 11A (1) of CEA for extended period of limitation.
Intent to evade duty built into the expressions "fraud"
and "Collusion" but "mis-statement" and "Suppression"
being qualified by immediately preceding words wilful
contravention of any of the provisions.
- Implications under Service Tax
The extensive judicial precedence under Central Excise,
as regards invocation of extended period of 5 years, would now
be applicable for the purpose of Service Tax.
In cases where Service Tax
has not been paid by an assessee, due to bona fide belief
as to its liability, which could be due to views expressed
in judicial rulings, Dept Clarifications, legal advice etc,
the benefit of settled position under Central Excise can be
availed for Service Tax to challenge invocation of extended
period and consequent penalty action, depending upon the facts
and circumstances of a given case.
- Taxability of job work activity
- Statutory provisions
The relevant extracts of the Finance Act, 1994 (as amended
from time to time) ["Act"] are set out hereafter for reference:
-
Section 65 (19)
of the ("Act") [As amended wef 10-9-2004]
Business Auxiliary Service means any service in relation
to:-
| (i)
|
to
………….. |
| (iii) |
|
| (iv)
|
procurement
of goods or services, which are inputs for the
client; or |
| (v) |
production
of goods on behalf of the client; or |
| (vi) |
provision
of service on behalf of the client; or |
| (vi)
|
a
service incidental or auxiliary to any activity
specified in sub-clauses (i) to (vi), such as
billing, issue or collection or recovery of cheques,
payments, maintenance of accounts and remittance,
inventory management, evaluation or development
of prospective customer or vendor, public relation
services, management or supervision; |
and includes services
as a commission agent, but does not include any
information technology service and any activity that
amounts to "manufacture" within the meaning of clause
(f) of section 2 of the Central Excise Act, 1944 (1 of
1944).
………..
-
Section 65(105)(zzb)
of the Act
Taxable Service means
any service provided –
to a client, by a commercial
concern in relation to business auxiliary service.—
The introduction of sub-clause
(v) w.e.f. 10-9-04 above envisages inclusion of job work
activity and labour contractors. The exclusion of the
term "manufacture" in terms of section 2(f) of CEA, indicates
that the manufacturing activity would not get covered
the under above, as such activity is regarded as "manufacturing"
by section 2(f) of CEA. Inclusion of sub-clause (vi) envisages
inclusion of entire sub-contracting activity in respect
of services.
In the context
of arrangement of wide spread business activities across
the country, job work constitutes a significant part of
the overall business activities. The amendments under
Business Auxiliary Service wef 10-9-2004 are likely to
have far reaching implications on Trade & Industry.
Hence the changes need careful study and understanding.
- Scope of taxable services
The relevant extracts from
Dept. Clarification dt. 10-9-2004 explaining/clarifying the
Scope of Service are reproduced hereafter for ready reference.
Para 18 — Expansion of
Business Auxiliary Service
18.1 The scope of
an existing taxable service (i.e., Business Auxiliary Service)
has been expanded to include activities relating to procurement
of inputs, production of goods (not amounting to manufacturer)
or provision of services on behalf of a client. The tax is
leviable only when the service provider is a commercial concern.
18.2 The pre-budget
definition of Business Auxiliary Service covered services,
which relate to the sale and marketing side of business. However,
the auxiliary services which relate to procurements, inventory,
production (or provision in case of services) were not covered.
The present definition intends to bring all business
auxiliary services relating to procurement, inventory and
production under service tax. Thus, the procurement
of input, capital goods or input services as defined in the
CENVAT Credit Rules, by a commercial concern for a client;
i.e., a person producing goods or providing services would
be now taxable under this category. Similarly, if a
commercial concern produces goods on behalf of the client
or provides service on behalf of a client, such activities
would come under the scope of this service, unless the activity
of service provider amount to manufacture in terms of the
Central Excise law. The aim of all such activities
is production of goods or provision of services, the whole
or part of which is being carried out by the service provider
(i.e., the agent ) on behalf of the client. Such activities
include procurements, productions or service providing activities
done for the client.
-
Manufacture under Central
Excise
If any job work/service activity
constitute "Manufacture" under CEA, then it would be out of
the purview of Business Auxiliary Service liable to Service
Tax. Hence the basic conceptual understanding of "Manufacture"
under Central Excise would be necessary for determination
of liability to Service Tax. The same is discussed hereafter.
| a)
|
Basic
pre-requisites for levy of Central excise duty |
| |
In
order to attract levy of excise duty under section
3 of CEA:
-
There should
be production or manufacture of goods in India
-
Such production
or manufacture should result in creation of excisable
goods, and
-
Such excisable
goods should be specified in the Schedule to Central
Excise Tariff Act, 1985 (CETA)
It is possible that in a given case an activity
may amount to "manufacture". However there may
be no payment of excise duty due to various reasons
To illustrate:
-
Activity does
not result in creation of excisable goods.
-
Activity results
in creation of excisable goods. However under
CETA there is ‘NIL’ duty is specified.
-
Concerned manufacturer
is operating under SSI Exemption Scheme [NIL duty
up to 100 lakhs clearances.]
-
Activity is exempted
from excise duty under Specific Job Work Exemption
Notification.
|
| |
It
needs to expressly understood that for the purpose
of Service Tax it would suffice if an activity amount
to manufacture. Aspect of payment of excise duty would
not be relevant at all. |
| b)
|
Manufacture
|
| |
Section
2(f) of the CEA defines "manufacture" as follows: |
| |
"manufacture"
includes any process,
-
incidental or
ancillary to the completion of a manufactured
product; and
-
which is specified
in relation to any goods in the section or chapter
notes of the First Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986) as amounting to manufacture;
or
-
which, in relation
to the goods specified in the Third First Schedule
involves packing or repacking of such goods in
a unit container or labelling or re-labelling
of containers including the declaration or alternation
of retail sale price on it or adoption of any
other treatment on the goods to render the product
marketable to the consumer
The statutory definition would indicate that "manufacture"
under Central Excise has to be construed through
a 3 TIER Process:
-
"general
concept" of manufacture
-
"deemed
concept" of manufacture
-
"MRP concept"
of manufacture
|
| bi)
|
Manufacture
– General concept |
| |
The
general concept of manufacture has been a subject-matter
of discussion in a number of cases by the Supreme
Court in the context of Central Excise as well as
Sales Tax. Some of the leading case laws on the subject
which have laid down principles as to what constitutes
"manufacture" are given below for reference:
-
UOI vs. Delhi
Cloth and General Mills Co. Ltd. 1 ELT J 199 (SC)
-
South Bihar
Sugar Mills Ltd. vs. UOI 2 ELT J 336 (SC)
-
Empire Industries
Ltd. vs. UOI 20 ELT 179 (SC)
-
Chowgule &
Co. Pvt. Ltd. vs. UOI 47 STC 124 (SC)
-
Dy. Commercial
Sales Tax Officer vs. Pio Food Packers 6 ELT 343
(SC)
-
Sterling Foods
vs. State of Karnataka 26 ELT 3 (SC)
-
Dy. CST vs.
Shiphy International 34 ELT 416 (SC)
-
Rajasthan
State Chemicals Works vs. CCE 55 ELT 444 (SC)
-
Siddeshwari
Cotton Mills P. Ltd. vs. UOI 39 ELT 498 (SC)
-
Mafatlal Fine
Spg. & Mfg. Co. Ltd. vs. CCE 40 ELT 218 (SC)
-
Moti Laminates
Pvt. Ltd vs. CCE 76 ELT 241 (SC)
-
UOI vs. Delhi
Cloth & General Mills Co. Ltd. 92 ELT 315
(SC)
|
| |
The
important principles relating to manufacture as laid
down in the various Supreme Court cases as well as
other judicial cases is summarized below, in order
to ascertain as to whether any job work activity/service
activity relating thereto constitutes "Manufacture"
or not:
-
Process would
imply – to subject to some special process or
treatment, to subject (especially raw material)
to a process of manufacture development or preparation
for the market, etc., to convert into marketable
form.
-
Wherever a commodity
undergoes a change as a result of some operation
performed on it or in regard to it, such operation
would amount to processing of the commodity. The
nature and extent of the change is not material.
-
The nature and
extent of processing may vary from case to case.
-
The test is whether
in the eyes of those dealing in the commodity
or in commercial parlance, the processed commodity
is regarded as distinct in character and identity
from the original commodity.
-
There may be
several stages of processing, a different kind
of processing at each stage. With each process
suffered, the original commodity experiences a
change.
-
Process in manufacture
or in relation to manufacture implies not only
the production but the various stages through
which the raw materials is subjected to change
by different operations.
-
It is only when
the change or series of changes take the commodity
to the point where commercially it can no longer
be regarded as the original commodity, but instead
is recognised as a new and distinctive article,
that a manufacture can be said to take place.
If there is no essential article, it is not possible
to say that one commodity has been consumed in
the manufacture of another. Although it has undergone
a degree of processing, it must be regarded as
still retaining its original identity.
-
The word ‘manufacture’
used as a verb is generally understood to mean
as bringing into existence a new substance and
does not mean merely to produce some change in
substance, however, minor in consequence the change
may be.
-
The word ‘manufacture’
implies a change but every change in the raw material
was not manufacture, and yet every change in an
article is the result of treatment, labour and
manipulation. But something more is necessary
and there must be transformation; a new and all
different article must emerge, having a distinctive
name, character, or use.
-
It is not necessary
that the should absolutely make out a new thing
until it is the transformation of a matter into
something else and that something else is a question
of degree whether that something else is a different
commercial commodity having distinct character,
use and name and is commercially known as such.
-
If the goods
to which some labour is applied remain essentially
the same commercial article, it cannot be said
that the final product is the result of manufacture.
-
It is the cumulative
effect of the various processes to which the raw
material is subjected to, manufactured product
emerges. Therefore, each step towards such production
would be a process in relation to the manufacture.
Where any particular process is so integrally
connected with the ultimate production of goods
that but for that process, manufacture or processing
of goods would be impossible or commercially in
expedient, that process is one in relation to
the manufacture.
-
There is no warrant
for limiting the meaning of the expression ‘in
the manufacture’ of goods to the process of production
of goods only.
-
Processing may
be an intermediate stage in manufacture and until
some change has taken place and the commodity
retains a continuing substantial identity through
the processing stage, we cannot say that it has
been manufactured.
-
The transfer
of raw material to the reacting vessel is a preliminary
operation but it is part of continuous process,
but for which the manufacture would be impossible.
-
To become a new
commercial commodity the product must cease to
be goods of one taxable description and become
those of a different taxable description.
-
If in the intermediate
stage a distinct product known to the commercial
world comes into existence, manufacture, does
take place.
-
It is necessary
to find out whether these are goods, that is to
say, articles as known in the market as separate
distinct identifiable commodities and whether
the tariff duty levied would be as specified in
the schedule.
-
If no lasting
change is brought about, it may not constitute
manufacture.
-
The duty of excise
being on production or manufacture which means
bringing out a new commodity it is implicit that
such goods must be useable, movable, saleable
and marketable.
-
The mere giving
of a new name by the seller to what is really
the same product is not the manufacture of a new
product.
-
Formation of
the mixture by the mere process of unloading does
not involve any act of manufacture.
-
Manufacture is
bringing into being goods as known in the excise
laws, that is to say, known in the market having
distinct, separate and identifiable function.
-
The article that
emerged; as a result of the process of manufacture,
must be a distinct and new article recognized
or known as such in the commercial parlance for
sale or supply.
-
The new article
should have a name which is well understood in
the market as distinguished from the name given
to the raw material from which it has been made.
-
The characteristics
of the new product must be distinct from the raw
material from which it has been made.
|
| bii) |
Deemed
concept of manufacture |
| |
In
addition to the general concept of manufacture there
is a deeming fiction under Section 2(b) of CEA, which
provides that if an activity, in relation to specified
Chapter headings/Chapter of CETA, is specified in
the relevant Chapter Notes / Section Notes of CETA,
then such activity would amount to manufacture and
would attract levy of excise duty.
To illustrate:
An activity of repacking from a bulk pack to smaller
pack would usually not amount to manufacture under
the general concept. However if such an activity is
specified under a Chapter Note in relation to specified
Chapter/Chapter headings of CETA then such activity
would be deemed to be manufacture and attract levy
of Central Excise duty, irrespective of the principles
relating to manufacture.
Some
illustrations of activities covered under deemed concept
are given hereafter:
Chapter 73 – Articles
of Iron & Steel
| a)
|
Pipes
& Tubes of heading
73.04, 73.05 & 73.06 |
•
|
Process
of drawing or re-drawing |
| b)
|
All
products of the Chapter |
•
|
Process
of galvanization |
| c)
|
Pipes
and Tubes of Heading Nos. 73.04 and 73.05 |
•
|
Process
of Coating with Cement or Polyethylene plastic
material |
Hence Chapter Notes
of relevant Chapter under CETA would have to be looked
into on a case to case basis to ascertain whether
any job work activity amounts to "deemed manufacture"
or not. |
| biii)
|
MRP
concept of manufacture |
| |
In
regard to (about 98 products specified in Third Schedule
to CETA) which are under MRP based levy, the concept
of manufacture, has be extended to cover activities
of packing, repacking, labelling etc.
Hence is regard to
products covered under MRP, the activities in relation
there to would have to be carefully examined, to ascertain
whether they fall under extended MRP concept of manufacture
or not. |
-
Summation
-
In order to determine
whether any job work activity / related service activity
is liable to Service Tax or not, subject to other provisions
of the Act, the activity performed would have to be studied
in detail, and 3 TIER PROCESS stated above applied to
ascertain whether or not the activity amounts to "manufacture"
under Central Excise.
-
If an activity amounts
to "manufacture" under Central Excise there would be no
liability to Service Tax. However, if such a person is
not registered with Central Excise Dept, implications
of activities under Central Excise could be looked into
by the Dept. for last 5 years.
-
If an activity does not
amount to "manufacture" under Central Excise, Subject
to other provisions of the Act, there could be liability
to Service Tax. In such a situation also possibilities
of Excise Dept’s examination from Central Excise point
of view cannot be ruled out.
- Analysis of some other important provisions
of CEA applicable to Service Tax
As explained above, though many of provisions of the Central
Excise are made applicable, a few important provisions are discussed
hereafter for proper appreciation of the facts and to ensure strict
compliance of the provisions of law.
- Recovery of sums due to the Government
– Section 11
Many assessees under Service Tax net are not aware still that
once the tax which is due has not been paid, it is not easy to remain
out of clutches of taxation net and the law permits recovery of
the tax not levied/short paid or erroneously refunded within 5 years
from the relevant date after establishing suppression of the value
of taxable service with an intent to evade payment of Service Tax.
Reference to section 11 of CEA which is made applicable for Service
Tax indicates that, the officer empowered by CBEC to levy the duty
or required the payment of such sums can deduct the sum so payable
from any money owing to the person from whom such sums may be recoverable.
This section further provides
that, if the amount so payable is not recoverable, the officer
may prepare a certificate signed by him specifying the amount
due from the person liable, to pay and send to the Collector of
the District in which such person resides or conducts his business
and thereafter the Collector, on receipt, of such certificate,
proceed to recover from the person the amount specified therein,
as if it were arrears of land revenue.
As per the amended provisions
of section 11 of CEA, in case of transfer / succession of business,
the transferee is liable to pay the tax which is arising out of
the purchase of business premises. As far as Service Tax is concerned,
this amendment will have the effect in the event of purchasing
or rendering services which is notified service; though credit
is permitted to transferred to the new company. It is also to
be noted that, if there is any unsettled liability of the selling
assessee, it will be falling on the buying assessee. Therefore,
before taking over the running business, extreme care should be
exercised to verify that there are not tax arrears on the transferor.
It is also to be noted that section
12 of CEA is also made applicable to Service Tax. In terms of
section 12, provisions of Customs Act relating to levy, exemption
from Customs duty, offences and penalties, confiscation and procedure
relating to offences shall be applicable in regard to similar
matters in respect of the duties imposed by section 3. Therefore,
provisions of section 142 of the Customs Act, which deals with
recovery of sums due to the government shall apply to all matters
in respect of Service Tax imposed under section 66 of the Act.
CBEC issued Circular No. 56/96-CUS dated 14-11-1996 containing
the detailed procedure for recovery of sums due to the government
and this procedure shall apply in the same manner for collection
of Service Tax due to the Government, since provisions of Customs
Act is also made applicable in view of section 12 of CEA.
-
Refund of Service Tax
– Section 11B
Though refund is legally due to the assessee, the department
is always finding one way or the other to reject the refund claim
filed by the assessee. It is, therefore, all the more necessary
for any assessee under Service Tax to know the procedure to obtain
refund of Service Tax which has been paid though it is not due
to the Government. Section 11B of CEA has been inserted by the
Act, and it contains a procedure to be followed by an assessee
to file a refund claim in the prescribed format to the AC/DC of
Central Excise and the manner of dealing with such refund application
and sanctioning of the refund.
The more important aspect of
the refund under section 11B, which is now made applicable to
Service Tax refund, is to establish that the amount claimed as
refund has not been passed on to the customer. In other words
in terms of section 12B of CEA, which is also made applicable
to Service Tax, there is a presumption that the incidence of duty
has been passed on to the buyer. It is, therefore, for the assessee
to prove the contrary. In fact if the refund is sanctioned to
the assessee and at the same time the assessee has already collected
the same amount from his customer, then such assessee will have
a windfall gain. This concept is legally termed as doctrine of
unjust enrichment. Therefore, before filing any refund claim,
the assessee should ensure that the incidence of Service Tax is
not passed on to the customer. A common question being asked while
filing a refund is the amount of refund, as and when received,
will be passed on to the customer and hence they are entitled
to obtain the refund. This thinking is not acceptable and it was
held in the case of Grasim Industries vs. CCE. (2003) 153 ELT
694 – TRI(LB)] that even passing of credit notes to justify
the refund claim is not acceptable.
Reference should be made to the
landmark judgement with regard to refund of excise duty is in
the case of Mafatlal Industries vs. Union of India which
is a nine member Bench decision of Supreme Court [1997-89- ELT
– 247-SC]
With regard to Form to be used
for obtaining refund, Form R is prescribed under the erstwhile
Rule 173S of CER, and it is applicable to Service Tax refund also.
Therefore, an assessee seeking refund, must file an appli-cation
in the prescribed form with supporting documents and to the proper
officer.
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Duty of excise to be deposited
with the Central Government – Section 11D
This section was inserted under
CEA, with effect from 20-9-1991 and it is stipulated under the
section that, if any assessee collects any amount as Excise duty,
such amount must be deposited with the Government. Though this
section faced a legal battle with regard to machinery for recovery
of the sums so collected, it has been amended suitably to overcome
the same.
Therefore, Service Tax assessees,
should also take a note of this important provision of Central
Excise made applicable to Service Tax law. It is reported that
a few service providers are collecting from their customers the
Service Tax amount but not depositing the same to the government
which is a serious contravention and hence the recovery proceedings
will start on account of such offences.
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Excise duty to be indicated
– Section 12A
Under section 12A of CEA, the
person who is liable to pay excise duty on the goods at the time
of clearance of the goods, should prominently indicate in all
the documents related to assessment, sales invoice and other like
documents, the amount of such duty which will form part of the
price at which such goods are to be sold.
Arising out of the above, all
service providers are therefore, required to indicate the Service
Tax amount separately in the invoice or bill or challan raised
on the customers while rendering the notified service. Not indicating
the Service Tax amount separately is an offence and if the amount
is not indicated separately, CENVAT credit cannot be availed by
the output service provider who uses the input service in relation
to rendering as output service and the service provider will be
required to pay Service Tax on the gross amount received (inclusive
of Service Tax). Thus all assessees must necessarily indicate
the Service Tax amount prominently in bill / challan / invoice
or any other document raised on the customer.
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Power to issue summons – Section
14
This section empowers Central
Excise Officers to issue summons to any person whose attendance
he considers necessary either to give evidence or to produce a
document or any other thing in any enquiry which is being made
by the Officer. It is clearly stipulated in the section that,
the person who is summoned is bound to attend either in person
through authorized representative as may be permitted and for
recording the statement out of the summons, sections 193 and 228
of Indian Penal Code, 1860 will be applicable since the enquiry
is treated as a judicial proceedings.
This section is like a trump
card in the hands of Central Excise officers and even Superintendent
of Central Excise is authorized to issue the summons. There are
reported misuse of this facility but legally speaking not complying
with the direction contained in the summons is a criminal offence.
Therefore, when summons is issued to any Service Tax assessee,
it has to be honoured by appearing before the Officer who issues
the same and tender evidence as directed therein.
It should be expressly noted
that non– attendence of summons could result in penal/ criminal
consequences under the Indian Penal Code
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Instructions to Central Excise
Officers – Section 37B
Under this section, CBEC will
issue from time to time orders, instructions and directions to
the Central Excise Officers for purpose of uniformity in classification
of excisable goods or with respect to levy of duty of excise on
such goods. Such orders/instructions/ directions have to be followed
by the officers strictly.
It is clarified under the section
that such orders/instructions/directions cannot require an officer
to make a particular assessment or to dispose of a particular
case in a particular manner or to interfere with the discretion
of the Commissioner of Appeals in the exercise of his appellate
function.
The above provision is made applicable
to Service Tax, therefore, in CBEC circular containing orders/instructions/directions
must be followed by the Excise officers without any deviation.
The interesting part of the legality of the circular is that they
are not binding on the assessee who can challenge the same in
the court of law. This view was accepted by the Supreme Court
in the case of C.C.E. vs. Dhiren Chemical Industries 139 ELT
3(SC).
As a result of the above, if
the circulars are favourable, assessees take shelter under the
same and if they are not so, circulars are being contested.
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Rounding off of duty – Section
37D
The amount of duty, interest,
penalty, fine or any other sum payable and the amount of refund
under the provisions of the Act shall be rounded off to the nearest
rupee. If the amount contains a part of rupee consisting of paise,
if such part 50 paise or more, it shall be increased to one rupee
and if such part is less than 50 paise which shall be ignored.
Since this provision is made
applicable to Service Tax, all Service Tax assessees can certainly
take recourse and accordingly indicate the Service Tax amount
in the bill or challan raised in respect of the service provided.
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