CA Pradeep Jain
CA Neetu Sukhwani
With the budget round the corner, the Department of Ministry of Finance is flooded with the representations conveying the expectations, suggestions, amendments and clarifications in the laws to be implemented in the forthcoming budget. Although, the list of expectations and amendments needed is never ending, but this article is penned to highlight the changes expected by the assessees in indirect taxation laws which if not considered, may create difficulties in doing business in an easy manner thereby refuting the motto of ‘ease of doing business’. The burning issues instilling the fire of litigation are summarized as follows:-
1. Denial of refund to exporters under notification no. 41/2012-ST dated 29.06.2012 all over India:- The issuance of Circular no. 999/6/2015-CX dated 28.02.2015 has been a setback to all the exporters claiming refund of service tax for services availed for export of goods. The reason being that the clarification of this circular that in case of export, the place of removal is port/ICD/CFS is being imported into the provisions of the notification no. 41/2012-ST dated 29.06.2012 whereby refund of services availed beyond the place of removal is being granted. It is being interpreted that since the said notification grants refund of services availed beyond place of removal only, the refund claims filed by the exporters with respect to services availed from factory gate to port of export is not admissible. Consequently, all the refund claims filed by the exporters are being rejected which is totally against the basic intention of the notification. This is also hampering the liquidity of the exporters as their refund claims are being hanged for clarification issued in the context of cenvat credit availment. However, it appears that the government realised this situation much before the budget itself, which is really appreciable as Notification no. 01/2016-ST dated 03.02.2016 has been issued wherein the Explanation A (i) specifying that refund is admissible for services used beyond place of removal for export of goods has been amended and now, refund is admissible for taxable services used beyond factory or any other place or premises of production or manufacture of goods for export. Moreover, the clause (B) stating that the place of removal will have meaning as given under section 4 Central Excise Act, 1944 is also deleted to put an end to the litigation. Now, it is only hoped that the genuine refund claims filed for the prior period are not denied on the contention that the amendment is to be applied prospectively. However, as the amendment is made in explanation, one may contend that it is clarificatory in nature and is applicable even for the prior period.
2. Denial of exemption to Heena Paste manufacturers under serial no. 134 of Notification no. 12/2012-CE dated 17.03.2012:- The serial no. 134 grants exemption to heena powder or paste, not mixed with any other ingredient. However, it is difficult to make heena paste without any ingredient and so by literally interpreting this notification, exemption was denied to all the heena paste manufacturers. Resultantly, representation was made to the Finance Minister for issuing suitable clarification as regards grant of exemption to heena paste if it is being mixed with basic ingredients like water, oils etc. Consequently, in the Budget 2014-15, it was clarified in the Tax Research Unit Letter that exemption contained in the serial no. 134 is admissible to heena powder mixed with a liquid so far that liquid is a medium to change the form of heena powder into paste but excludes products like heena dye and other cosmetics. However, inspite of the clarification, exemption is being denied to heena paste manufacturers by alleging that the paste may contain water but if oils are being mixed, the exemption is not admissible. It is pertinent to note that heena paste mixed with only water has lower shelf life and oils are mixed so that product is capable of being used for a longer period of time. Moreover, oils are being mixed by all heena paste manufacturers. If the meaning of liquid is considered as only water then the exemption will not be extended to even single heena paste manufacturer. Therefore, amendment/clarification with respect to this notification is also urgently needed.
3. Cenvat Credit of Commission paid to agent in light of Gujarat High Court decision in Cadila Healthcare Ltd.:- The field formations are reluctant to follow decisions rendered in favour of assessees but if there is decision favourable to revenue, the said decision is applied in every case irrespective of analysing the ratio of the same. Since the judgment of Gujarat High Court is delivered denying service tax credit on commission paid to agent, the said is being relied upon to deny credit to every assessee. However, the special circumstances of the case that commission agent of Cadila Healthcare Ltd. was not engaged in sales promotion activities is ignored and credit is being denied irrespective of examining the fact that the commission agent is engaged in sales promotion activities or not. The defination of input service given under Rule 2(l) of the Cenvat Credit Rules, 2004 specifically includes sales promotion within its ambit and ignoring the said provision, the demands for recovery of cenvat credit are being confirmed. However, it appears that the litigation in this regard is put to rest as yesterday, the government issued Notification no. 02/2016-C.E. (N.T.) dated 03.02.2016 wherein explanation has been inserted in Rule 2 wherein it is stated that for the purpose of clause (l), sales promotion includes services by way of sale of dutiable goods on commission basis. The government deserves a big round of applause for introducing this notification but this notification mentions that the changes made vide this notification shall come into force from the date of publication in the official gazette thereby meaning that the dispute as regards credit availment would continue for the period prior to this amendment. However, as the amendment is made by way of explanation, it should be considered as clarificatory in nature and should be applied retrospectively.
4. Clarification of utilisation of balance of Education cess and SHE cess as on 01.03.2015 and 01.06.2015:- With the exemption being given to Education Cess and SHE Cess, the government has although made provisions enabling utilisation of credit of Education Cess and SHE Cess on inputs/capital goods received on or after 01.03.2015 by manufacturers and on or after 01.06.2015 by service providers against payment of excise duty and service tax respectively. However, no amendment/clarification has been made till date regarding utilisation of the said balance available with manufacturers and service providers. Therefore, when credit of Education Cess and SHE Cess for transit period is being allowed then, the cenvat credit of the balance of education cess and SHE Cess should also be available for utilisation by the assessees. A clarification in this regard is also urgently needed.
5. Admissibility of Cenvat Credit of Swachh Bharat Cess:- Presently, the Swachh Bharat Cess is imposed on all the taxable services but no cenvat credit is available for the same. Moreover, notification no. 02/2016-CE (N.T.) dated 03.02.2016 specifies that cenvat credit of any duty specified under Rule 3 (1) of CCR, 2004 shall not be utilised for payment of SBC. This also gives indication that neither cenvat credit of basic duties can be utilised for payment of SBC nor its cenvat credit is admissible. Moreover, no proviso similar to Education Cess or SHE Cess that their cenvat credit can be utilised for payment of respective cesses has been introduced thereby clearly indicating that the cenvat credit of SBC is not available at all. However, Notification no. 02/2016-ST dated 02.02.2016 and Notification no. 03/2016-ST dated 02.02.2016 have been issued to allow refund of SBC paid on services used in SEZ and to allow rebate of SBC paid on services used for export of goods. It is pertinent to note that the government missed to amend the notification no. 02/2016-CE (N.T.) dated 03.02.2016 permitting exporters filing refund of service tax for services used in relation to export of goods. By the amendments introduced, it can be comprehended that the government does not wants to export domestic taxes. However, at the same time, allowing refund of SBC to exporters while not even allowing cenvat credit benefit to domestic service providers would definitely tantamount to discrimination. Moreover, denial of cenvat credit of SBC will be treated as cost and will lead to cascading effect of taxes. With government proposing to launch the revolutionary taxation regime, GST, the cenvat credit of SBC should be allowed to assessees.
6. Denial of refund of proportionate duty to compounded levy assessees when machines were not operated during part of month:- The Stainless Steel Patta Patti manufacturers operating under the special scheme of payment of excise duty commonly called as compounded levy scheme wherein duty is paid on the basis of number of machines operated in the factory premises are being denied refund claims if certain machines were not operated during part of the month. These assessees are required to pay excise duty in advance in the beginning of the month and if certain machines are discontinued from being operated in the middle of the month, the duty paid by them for the whole month is being accepted as their liability and refund of proportionate refund claim is being denied to them on the ground that there is no specific provision for the same. It is contended that proportionate refund is admissible only for the first month of operation. It is pertinent to note that there is Rajasthan High Court decision in case of COLLECTOR OF CENTRAL EXCISE, JAIPUR-II VS JUPITER INDUSTRIES [2006 (206) ELT 1195 (RAJ.)] which states that proportionate refund of duty is admissible as there can be no levy of excise duty when there was no manufacture. However, inspite of this decision, litigation cost is borne by assessees for claiming refund for want of specific provision. Hence, Notification no. 17/2007-CE dated 01.03.2007 may be suitably amended.
7. Demand under Rule 6 to job worker clearing goods under notification no. 214/86-C.E. dated 25.03.1986:- As for clearances under notification no. 214/86-C.E. dated 25.03.1986, principal manufacturer is liable to pay excise duty and job worker is exempted from payment of excise duty, the clearances are being treated as exempted service. This is for the reason that clause (f) of section 66D of Finance Act pertaining to negative list grants exemption to ‘any process amounting to manufacture or production of goods’ while exempted service means service which is specified in negative list. Consequently, it is being contended that since job worker provides exempted service and also clears goods on payment of excise duty, the job worker is required to comply with the provisions of Rule 6 of Cenvat Credit Rules, 2004. However, this sounds absurd because the same activity of job work is being treated as exempted service and manufacture of goods both. The assessees are being raised demands under Rule 6 for the lacunae in the statutory provisions.
Well, the list of amendments desired by the Trade and Industry is endless and very vast. However, it is hoped that the above suggestions are considered by the concerned officials and appropriate course of action is taken in the upcoming budget because with the advent of provisions of ‘Mandatory Pre-deposit’ under section 32F of the Central Excise Act, 1944, the cost of litigating frivolous matters may prove to be high and beyond the reach of assessees as huge demands are being raised only for want of amendments/clarifications. Moreover, the revenue department is instilling disputes by re-opening the settled issues which is against the very motto of ‘ease of doing business’. However, recent amendments introduced by the government do instill a ray of hope that the upcoming budget will resolve some of their disputes.