Last week, Finance Act, 2010 came into effect. A few days earlier, Finance Minister Pranab Mukherjee had spelt out his response to several representations regarding his Budget proposals. Apparently, there were hardly any representation about the changes that will create tax liability for taxpayers with retrospective effect, or he decided not to yield to the representations.
A very useful change that the finance minister agreed to related to small scale industries. Manufacturers whose turnover in the previous year does not exceed Rs 4 crore are eligible to clear goods up to Rs 1.5 crore value in the current year without excise duty payment.
However, the exemption is not available to goods that bear the brand name of another person. Many small units making packing materials bearing the brand name of another person had represented that they should also get the exemption.
In September 2008, the government decided to allow the exemption to packing materials but restricted the benefit to printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks and metals metal labels. In February 2009, the item ‘plastic bags’ was added to the list. In September 2009, ‘printed laminated rolls’ also became eligible for exemption. This February, ‘plastic containers and plastic bottles’ were added to the list. Now, the relevant notification has been amended allowing exemption to all goods that are in the nature of packing materials and are meant for use as packing material by or on behalf of the person whose brand name they bear. This change will benefit a large number of small industries and reduce scope for litigation but it operates with prospective effect from April 29, 2010.
A change or clarification that benefits a large number of assessees and eliminates litigation deserves retrospective effect. As a matter of principle, retrospective effect to legislations must be made to remove difficulties to taxpayers. For example, this February, the government gave retrospective effect to an amendment that removed difficulties in claiming refund of the unutlised Cenvat Credit on account of exports under bond or undertaking.
There are amendments, however, that create liability to pay tax with retrospective effect. Such amendments must be avoided or thoroughly debated in a transparent manner before giving effect. Service tax on ‘commercial coaching classes’ is a good example. Many non-profit institutions had not charged service tax on trainings that they conduct for a nominal fee, because it was their understanding that they need not collect service tax. They had won their cases in the Tribunal and the issue is pending before the Supreme Court. The law has now been amended fastening tax liability on such institutions with effect from 2003. Last year, retrospective amendment created fresh difficulties for exporters using the Duty Free Import Authorisation scheme.
Retrospective amendments that create tax liability with retrospective effect, by their nature, are unfair because at the relevant time the tax payer, as he understood the law, was fully compliant. The best way to test the correctness or otherwise of his interpretation is to approach the courts. Where, an extraordinary situation warrants retrospective amendment that might affect the taxpayer adversely, the proposals deserve more transparent discussions. It is doubtful if representations on such proposals get any attention from the legislators or the government.
Source: BS
What has happened to the retrospective amendment to Section 80HHC of the IT Act,1961? It has plunged many export units into deep tax burden and resultant closure of units!
In this regard, please see my comments in taxguru.
The retrospective amendements to nullify the judicial pronouncements wherein the judgment is against the revenue.
If you can see, it all started from amending the law retrospectively nullifying of the Apex Court decision in respect of Laghu Udyog. From there on, no stoppage of the retrospective amendements casting liability.
With such series of retrospective amendments, the tax payer whether it is an individual is always constrained to believe that the tax exemption is an eye wash as it will be withdrawn at any time after the benefit is availed.
It is well settled law that the amendements which are clarificatory is retrospective in nature and that cast liability on the tax payer should be prospective. But the series of retrospective amendments in the law makes one believe that it is not so. It is always the case of the revenue to win through the retrospective amendments.
Would request the Hon’ble Govt to ensure that the amendments that cast liability on the tax payer should only be prospective amendment of the law and not retrospective.