Value of goods and materials supplied free of cost outside taxable value or gross amount charged?

By | January 30, 2015
construction service, if the service recipient provides cement and steel, should the value of the cement and steel be included in the “gross amount charged” or the ‘consideration’ received for providing the service? Board had clarified that gross amount charged shall include the value of goods and materials supplied.
The Larger Bench of the CESTAT in a landmark classic order in Bhayana Builders – 2013-TIOL-1331-CESTAT-DEL-LB, held that only the value of goods supplied by the service provider and not the recipient should be included in the gross amount.
The Larger Bench in an erudite sentence held, “goods and materials, supplied/ provided/ used by the service provider for incorporation in the construction, which belong to the provider and for which the service recipient is charged towards the value of such supply/ provision / use and the corresponding value whereof was received by the service provider, to accrue to his benefit, whether independently specified as attributable to the specific material/ goods incorporated or otherwise, would alone constitute the gross amount charged.”
The Government did the obvious – they filed an appeal in the Supreme Court in this case as well as similar cases. The Supreme Court on Tuesday admitted the appeals.
And this decision was for the period prior to 1.7.2012. Does the position change after that? Can the Board clarify or should litigation reach its logical goal of the Apex Court?
Appeals – Why difference in provisions in Service Tax and Central Excise
Central Excise:
As per Section 35B(2) of the Central Excise Act, if the Committee of Commissioners is of the opinion that an order passed by the Commissioner (Appeals), is not legal or proper, it can direct any Central Excise Officer to appeal to the Tribunal.
As Section 35E(1), of the Central Excise Act, the Committee of Chief Commissioners of Central Excise may, of its own motion, call for and examine the record of any proceeding in which a Commissioner of Central Excise as an adjudicating authority has passed any decision or order under this Act for the purpose of satisfying itself as to the legality or propriety of any such decision or order and may, by order, direct such Commissioner or any other Commissioner to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Committee of Chief Commissioners of Central Excise in its order.
Customs:
As per Section 129A(2) of the Customs Act, if the Committee of Commissioners is of the opinion that an order passed by the Commissioner (Appeals), is not legal or proper, it can direct the proper officer to appeal to the Tribunal.
As per Section 129D(1) of the Customs Act, the Committee of Chief Commissioners of Central Excise may, of its own motion, call for and examine the record of any proceeding in which a Commissioner of Customs as an adjudicating authority has passed any decision or order under this Act for the purpose of satisfying itself as to the legality or propriety of any such decision or order and may, by order, direct such Commissioner or any other Commissioner to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Committee of Chief Commissioners of Customs in its order.
Service Tax:
As per Section 86(2) of the Finance Act, 1994, if the Committee of Chief Commissioners objects to any order passed by the Commissioner of Central Excise under section 73 or section 83A, it can direct the Commissioner to appeal to the Appellate Tribunal against the order.
As per Section 86(2A) of the Finance Act, 1994, if the Committee of Commissioners objects to any order passed by the Commissioner of Central Excise (Appeals), it can direct any Central Excise Officer to appeal on its behalf to the Appellate Tribunal against the order.
Under all the three Statutes, what the Department is doing is appealing to the Tribunal against the orders of Commissioners or Commissioner (Appeals). But see the difference in procedure.
Appeals against orders passed by Commissioner (Appeals)
Central Excise
Customs
Service Tax  
1.
Committee should form an opinion that the order isnot legal or proper.
Committee should form an opinion that the order isnot legal or proper.
It is enough if the Committee objects to any order.
Legality and propriety are not issues
2.
Committee can direct any Central Excise Officer to appeal to the Tribunal.
Committee can direct the proper officer to appeal to the Tribunal.
Committee can directany Central Excise Officer to appeal to the Tribunal.
Appeals against orders passed by Commissioner (Jurisdictional)
1.
Committee may of its own motion, call for and examine the record of any proceeding…
Committee may of its own motion, call for and examine the record of any proceeding…
The Law does not state how the order will reach the Committee.
2.
Review is for the purpose of satisfying itself as to the legality or proprietyof the Order.
Review is for the purpose of satisfying itself as to the legality or proprietyof the Order.
It is enough if the Committee objects to any order.
Legality and propriety are not issues
For identical purposes why can’t they have identical law? This is what happens when Revenue officers try their hand in law making. However loosely or carelessly they are worded, they go to Parliament and get the strong imprint of the Parliament of India and is applied with respect by the courts.
Why should there be satisfaction of legality and propriety in Central Excise and Customs and only objection in Service Tax?
And what is your problem if there are different yardsticks?
Please see the details in the following case.
In Kundalia Industries – 2011-TIOL-930-HC-DEL-CX, the Delhi High Court held that there should be a meaningful consideration which should be reflected on the note sheets in order to comply with the requirement of Section 35B(2) and since the Commissioners simply signed on the notesheets, the Revenue Appeal was dismissed.
Relying on the above decision, the CESTAT dismissed a Revenue Appeal in LR Sharma & Co.– 2013-TIOL-944-CESTAT-DEL. The Tribunal observed that as pointed out by the High Court,mere appending of signature on the departmental note file in a mechanical fashion does not constitute sufficient compliance with the clearly implied statutory obligation of due application of mind by the Commissioners comprising the committee.
But this was a Service Tax case and the Revenue had argued that:

Under the Central Excise Act, the committee if of the opinion that an adjudication order or an appellate order is not legal and proper may direct preferring of an appeal to the Tribunal. Section 86(2) of the Act enjoins that the committee, if it objects to an adjudication order, may direct an appeal to be preferred to the Tribunal. In view of the difference in the language of the two distinct provision conferring discretion on the committee under the different enactments, even if Chief Commissioners (DZ& CZ) in the present case had merely appended their signatures (on 14.07.2012 and 23.07.2012) the respective office notes, there is sufficient compliance of Section 86(2).

See how the difference was used. But the Tribunal was not impressed.
Revenue will not accept a dismissal that easily and they went to the High Court.
This time around, the High Court too agreed that there is a difference. The High Court found that Kundalia was of no assistance to the assessee as it concerned authorization under Section 35 of the Central Excise Act, 1944 (requiring the Chief Commissioners to be of the opinion that the order in question is illegal and improper, as opposed to only objecting to the order under Section 86(2)). (2014-TIOL-2458-HC-DEL-ST)
And the assessee’s appeal was dismissed in the Supreme Court. See (2014-TIOL-103-SC-ST) & (2014-TIOL-104-SC-ST-LB).
So, the Law is in Customs or Central Excise, the Committee should be satisfied that the order under review is not legal and proper, if they want to appeal. But in Service Tax, a mere objection is enough – even if they feel that the order is legal and proper, just for the fun of it, they can decide to appeal!
Ease of doing business?
(PS: all the differences are not highlighted. To avoid confusion, reference to Principal Chief Commissioner and Principal Commissioner is avoided.)
But there is uniformity in difference
INCIDENTALLY, in terms of section 86 of the FA, 1994 where the Committee of Chief Commissioners/Commissioners of Central Excise differs in its opinion against the order of the Commissioner of Central Excise/Commissioner of Central Excise (Appeals), it shall state the point or points on which it differs and make a reference to the Board/jurisdictional Chief Commissioner which/who shall, after considering the facts of the order, if is of the opinion that the order passed by the Commissioner of Central Excise/Commissioner of Central Excise (Appeals) is not legal or proper, direct the Commissioner of Central Excise/any Central Excise officer to appeal to the Appellate Tribunal against the order.
Meaning to say that in Service Tax matters too if there is a difference in opinion, the Board/Chief Commissioner has to come to an opinion that the order is not legal or proper. But this yardstick is absent at the first stage as mentioned above.
Interestingly, the aforesaid provisions are common to all the three enactments.
No Appeal Against Vodafone – Cabinet
WE had reported in November (DDT 2484), that the Attorney General has advised the Government not to appeal against the Bombay High Court decision in the Vodafone case, where the demand was to the tune of Rs 3,200 crore in a transfer pricing case. (2014-TII-19-HC-MUM-TP).
Based on the opinion of the Chief Commissioner, the CBDT Chairperson and the Attorney General, the Union Cabinet decided to:
i. accept the order of the High Court of Bombay and not to file SLP against it before the Supreme Court of India;
ii. accept of orders of Courts/ ITAT/ DRP in cases of other taxpayers where similar transfer pricing adjustments have been made and the Courts/ ITAT/ DRP have decided/decide in favour of the taxpayer.
There is a similar case of Shell India with Rs. 18,000 Crores.
Is this decision a follow up of the image improving exercise of the Government after President Obama’s visit? When Obama reaches the White House, he will be greeted with the information that India has made doing business here a little easier.
Please also see our CobWeb today.
Central Excise and Service Tax Awards
CBEC has decided to award Commendation Certificates to the selected officers at the All India level in different grades who, by their innovative ideas/continued devotion and commitment to duty, have contributed to promoting excellence in the fields of Central Excise and Service Tax administration. The objective is to give due recognition to officers who may have contributed significantly in diverse areas such as trade facilitation, automation, enforcement, audit, infrastructure development, human resource development, personnel management, secretarial work, legislation, policy making, legal, judicial and training which often remain unrecognized by way of formal awards. The Commendation Certificates are proposed to be distributed at the Central Excise Day function being organized in New Delhi on 24th February 2015.
Chief Commissioners are to send nominations latest by 10th February 2015. Care should be taken to send proposals of only such officers whose record of service/integrity is absolutely beyond doubt. At the time of sponsoring the names itself, the sponsoring authority should satisfy that the officer is really a deserving candidate for the award and also enjoys an excellent general reputation .
Officers satisfying the above criteria may rush with their applications.
Why can’t they call this also as Presidential Awards to make it more attractive and prestigious?
CBEC DG, Inspection, F. No. 1014/2/2015., Dated: January 28, 2015
Babus – No Premium Trains for LTC
SEVERAL references are received from various Ministry/ Departments seeking clarification regarding admissibility of travel by Premium Trains run by Indian Railways while availing of LTC.
Government has decided that:
Travel by Premium Trains is not permissible on LTC. Hence, the fare charged by the Indian Railways for the journey(s) performed by Premium trains shall not be reimbursable for the purpose of LTC. Cases where LTC travel in such Premium Trains has already been undertaken by the Central Government Employees, the train fare may be reimbursed restricting it to the admissible normal fare for the entitled class of train travel or the actual fare paid, whichever is less.
DoPT Office Memorandum in No. 31011/ 2/ 2015-Estt.(A-IV)., Dated: January 27, 2015
No deputation for babus if IPR is not filed
IPR stands for Immovable Property Return. Government has advised its employees to file the return latest by 31.01.2015.
Government cautions that if IPRs are not filed by the stipulated date, vigilance clearance will be denied for deputation, training and empanelment.
DoPT Office Memorandum in No. 26/1/2015-CS.I(PR/CMS)., Dated: January 27, 2015
JurisprudentiolFriday’s cases
CESTAT
Not considering precedent orders by CESTAT – Cryptic orders lacking in reasoning and precision are passed day in and day out – Fault lies either in process of selection and appointment or because there is no review and appraisal of performance of Tribunal Members from time to time: HC
WE have also cautioned the Tribunal in number of cases that the process of adjudication and in Revenue matters requires an early finality to vexed issues. If the issues are raised repeatedly then all more there ought to be certainty and end to the litigation. In Revenue matters none is benefited by delays. If the delays are caused by repeated remand of proceedings then that has to be avoided. If its earlier orders have been brought to the notice of the Tribunal, then, the least that is expected is that they are dealt with and considered seriously and a conclusion is reached about their applicability to the facts and circumstances of a given case. The Tribunal, which is manned by experienced members drawn from the Revenue or Technical Services and Judiciary, is expected to perform this task efficiently. They are selected and appointed on account of their merit and not just their experience. They may not have dealt with matters which required them delivering judgments and passing binding orders after hearing both sides and on questions of law, but, their learning knowledge and experience as Members of the Tribunal would improve their performance by passage of time. This minimal expectation is not fulfilled nowadays and cryptic orders lacking in reasoning and precision are passed day in and day out.

Income Tax
Whether when except advances shown against current asset for fiscal, there is no other evidence to prove that land was purchased for purpose of business, sale of such land attracts tax on capital gains – YES: ITAT
A survey was carried out. On scrutiny it revealed that assessee had claimed a loss of Rs. 98.62 lacs on sale of a property. Assessee entered into an agreement on 31.12.2005 to purchase a property with ‘N’, for a total consideration of Rs. 4.25 crores. He made a payment of Rs. 15 lacs in Dec. 2005. Assessee sold the said plot in three pieces. Total consideration received in three pieces was less by Rs. 98.62 from its purchase price and thus, assessee claimed loss. AO observed that the guidance value of this property for this purpose was Rs.1400 per sft, whereas, as per the sale value consideration shown by the assessee, the rate worked out to Rs.902/- per sft. AO worked out the cost of acquisition at Rs. 1085 per sq. ft. being the proportionate cost of the property as on the date of agreement. On the basis of the same, AO disallowed the loss and made an addition of Rs. 1.65 crores. CIT (A) rejected the claim of the assessee.
The issue before the Bench is – Whether when except the advances shown against the current asset for the fiscal, there is no other evidence to prove that land was purchased for purpose of business, sale of such land attracts tax on capital gains. YES is the answer.

Central Excise
Too late in day for Revenue to urge that refund application was not maintainable – Interest u/s 11AB of CEA, 1944 is payable only in respect of clearances post 28.09.1996 irrespective of date of passing of the adjudication order – Revenue appeal dismissed: HC
The application of the Assessee was to seek refund of a sum erroneously recovered as interest and for the period prior to 28th September, 1996. Since the demand was for a period from February, 1995 to December, 1999, till 28th September, 1996, no interest could have been levied on the unpaid duty amount. In these circumstances, the application for refund could not have been rejected only on the ground that it was not maintainable.
The provisions of section 11AB inserted w.e.f. 28th September, 1996 are in the nature of penal interest and would apply only to those cases where clearances were affected after 28th September, 1996, irrespective of the date of passing of the adjudication order.

Leave a Reply

Your email address will not be published. Required fields are marked *