Representation

To,

Mr. P. Chidambaram
Honorable Finance Minister
Government of India,
North Block, Vijay Chowk,
New Delhi – 110001

Respected Sir,

Subject: Union Budget 2013-2014: Post Budget Recommendations on Indirect Taxes.

We have seen with interest the budget presented by your honor, on behalf of United Progressive Alliance (UPA) Government, in the Parliament on 28th February 2013 and appreciate your concern for challenges faced by the country and your efforts to accelerate economic growth.Our suggestion on various topics for rationalization of law, rectification of certain anomalies and correction of drafting, etc., are given in the enclosed representation relating to indirect taxes. We hope that our Representation will receive due consideration.

Thanking You,

For Bombay Chartered Accountants’ Society
Deepak R. Shah                                                     Govind G. Goyal
President                                                                Chairman, Indirect Taxes and Allied Laws Committee

Post budget memorandum 2013-14

Service Tax

1.1 The Bill has proposed to introduce a new section 78A for imposing a financial penalty up to Rs. 1,00,000/- on directors, managers, secretary or other officers incharge of the company for specified contraventions committed by a company.

1.2 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.

1.3 Further, in absence of a corresponding amendment in s. 80 of the Finance Act, 1994 the defense of ‘reasonable cause’ u/s. 80 would not be available to the imposition of penalty under the above proposed section.

1.4 In view of the above, the new provision Section 78A is very harsh. It is hereby suggested that it should be deleted.

2. Section 90 & 91 – Proposal to define certain offenses as cognizable and provide power to arrest – to be deleted.

2.1. The Bill has proposed to introduce Section 90 to provide that notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under sub-clause (ii) of the sub-section 89 of the Act (i.e. person collects service tax and fails to pay within 6 months to the credit of Central Government) shall be cognizable and non bailable. Further, it is proposed to introduce section 91 to assign powers to Commissioner to authorize Central Excise officer (not below the rank of superintendent) to arrest the assessee who commits the specified offences under the law.

2.2. Historically, the Service Tax law has always recognized that a large number of service tax assesses are from the unorganized sector. Further, the process of provision of service is quite different from manufacture. Manufacturing takes place with a defined set of activities and within a defined boundary having its own sets of rules and regulations eg. Factories Act, 1948; Standards of Weights and Measures Act, 1976 etc. A service by contrast, has no defined set of activities or defined place. It may be rendered even from the home of a self-employed person. Thus, the wherewithal for the service provider is much less. Lastly, the evidence available for non-compliance in case of manufacturing units would be more easily decipherable as against the service sector. Hence, such provisions of the excise law should not verbatim be made applicable to service tax.

2.3. Secondly, in any case, prosecution is already provided for in Section 89 which could be invoked, if required, in the normal course.

2.4. Thirdly, providing the service tax department the power to arrest would inculcate a fear psychosis in the service tax paying fraternity which will be counter productive from the Government’s prospective. There could also be cases where interpretation and opinion may vary and hence providing impromptu power to arrest without going through the prosecution proceedings u/s. 89 would be unjustified.

2.5. In view of the above, it is hereby suggested that Section 90 and 91 proposed by the Bill should be deleted as Section 89 would meet the ends of justice.

3. Voluntary Compliance Encouragement Scheme (VCES)

3.1 The VCES has been introduced to grant waiver of interest and penalties in cases where tax has been unpaid as on 01.03.2013. The Scheme is not applicable in many cases where the assessee has either disclosed the taxes in return, but was unable to pay due to genuine financial hardships. Similarly, the Scheme is not applicable in cases where SCN has been served on the assessee. This results in a situation that the Scheme favours dishonest and non compliant assesses as compared to compliant assesses who have been victims of interpretation of dynamically changing law.

3.2 It is therefore suggested that the Scheme be extended to the following cases:

a. Where letter of enquiry or SCN has already been issued.

c. Cases where the tax has not been paid but is disputed either at the adjudication level or appellate level, if the assessee agrees to pay the tax and withdraw the appeal, the interest and penalties should be waived.

3.3 It may be noted that by doing so, there is very little loss of Revenue to the Government since even in the past when such disclosure schemes have been declared, the Tribunals have been liberal in waiving penalties to similarly placed assesses who were not eligible for the Scheme.

3.4 In fact, extending the Scheme to such cases of litigation will result in a substantial increase in the revenue collection and would bring an end to many matters pending in litigation, leaving the adjudication and the appellate machineries to deal with genuine matters of dispute and ensure an expeditious disposal. This will also further the objective of the Government of setting a 365 day time frame for final disposal of the Appeal at the Tribunal level.

3.5 As regards the scheme, time limit should be prescribed for the following :
(a) rejection of declaration by designated authority under section 96 (2); and

4. Appeals to Tribunal – Certain drafting improvements

Section 86(5) is proposed to be amended to enable the Tribunal to condone a delay in filing the appeal by an assessee. Similarly, s. 86(4) also needs to be amended to enable the Tribunal to deal with the cross-objections filed by an assessee.

5.1    With the amendment of entry 19 in the mega exemption w.e.f from 1.4.13 all air-conditioned restaurants will be liable for Service Tax. This would bring a huge number of restaurants although the tax net pushing up the prices of eating out. The Excise Law has well appreciated that Excise Duty should not be applicable on food and food stuffs (Chap 1- Chap 22). Having alcoholic beverages may be a luxury but eating out for a substantial part of public may be a necessity. Secondly a host of small eating houses providing lunch at reasonable prices would be affected including cafeterias in hospitals, factory, offices etc.. Thirdly the threshold limit of 10 lakhs is too minimal for a restaurant.

5.2    In view of the above the following are suggested:

(ii)    All restaurants, eating houses and messes having turnover up to Rs. 4 crore in a year (in line with excise) should be exempted.

Customs

6.    Section 47 of the Customs Act

6.1    The section is proposed to be amended to reduce the interest-free period for payment of customs duty from 5 days to 2 days. It is difficult to get bills of entry assessed in 2 days, and in most cases, the reason for delay in clearance is not attributable to the assessee. It is therefore suggested that the interest-free period be retained at 5 days.