Great Expectations


Introduction

Many readers while reading this article would feel that I am making motherhood statements and that this is not the right forum for such articles or that it is too harsh / bold and the like. However, I disagree. As stated infra this is my individual effort in an attempt to make the administration answerable and accountable, since neither the assessees nor the legislature is taking any action in this direction.

As a citizen I genuinely desire that my Country’s tax administration be efficient, clean, professional and in fact sub-serve the publics’ interest. This is one of the only forums I have at my individual disposal to script my unheard and minority voice.

This paper is written as a concerned citizen, aware lawyer and as a law-abiding denizen of India, fed up, disgusted and frustrated with the manner in which the Government of India purportedly promises to simplify tax regime, desires to make tax equitable and progressive (refer para 137 of the FM’s speech). I am exercising my freedom of speech in what follows. The fine print in the budget, as usual, has an open Pandora’s box full of goodies (sarcasm intended) in store for assessees, sets the background for ground realities, false promises leading to denial of many a right of the law-abiding tax payer and increasing the burden of tax administration for assessees beyond permissible limits. This paper is as much about the attitude of public servants as it is about the excesses of tax administration. Life for the tax payer in the coming years would be anything but simple, least of all equitable and regressive to the core.   Read on.

 

Experience at His Master’s office

I’ll start with my own experience at the tax office. What I’ve observed over the decade is the unmistakable servile attitude of most of the employees working in the departments of the GOI. The way they salute and stand in rapt attention when any high-ranking officer arrives at the office, how there are at least three peons following one officer, one with his bag, the other with his water bottle and newspapers and the next with his breakfast /lunch, depending on the hour of arrival. I have always had the thought that if public servants do not salute the common man who is firstly – the main cause for their existence and secondly for their salaries then:-

¨      How will the tax administration know who they are answerable to?

¨      How will it know that they are accountable to We the people? And

¨      How will they know they are there to do public service as public servants?

How many of us boast of knowing a high-ranking officer whose main aim genuinely is to help the public / tax payers. I’m not, for a moment, saying there are no officers of such calibre. I’m yet to come across a second and have only known a superintendent who has not only desired to help but has in fact helped the common man. This was only a superintendent in the whole scheme of the tax administration hierarchy which is only an aberration to the system which was successfully able to remove such aberration and keep the treacherous wheels of bureaucracy running. This superintendent takes care of more than 50 -60 destitute children and also runs a school and by now may be a college, hats off to this Gentleman. I wish God makes more like him.

The officers of the service tax department are especially of the calibre which will establish beyond an iota of doubt that they believe they are PUBLIC MASTERS. I have experienced (for more than a decade) and am yet to experience (since I’m not planning to retire any soon) that no officer represents a public office with a zest, desire, passion and motto to serve the tax payer or the country with a desire to be a bridge between the taxpayer and the administrator. All that most of the officers do is self-service to the exception of public service as we all know it.

A shining example of one such officer (high-ranking mind you) follows: For this officer’s actions speak louder than words for they are unmistakably that of a master and a king and not that of a public servant. The officer with all possible airs of a KING walks into his office at 11.30 a.m. or any time thereafter every day without exception (as far as I know), has his cuppa of tea or whatever he has (for he has not yet offered what he has to me, for me to state) and then calls the first one in a long line of people waiting for personal hearings. In the bargain assessees, consultants and their counsel imperatively have a long wait in his office and if they want to be heard by afternoon they have to arrive sharp at 10 and sometimes wait till 12.30 or even later to be the first one to be called in for a hearing. If a high-ranking authority in the system who has to lead by example (or that is what I thought) and be a beacon for others to see and emulate, functions in such a haughty, high-handed and KINGLY manner as if he were the ruler, a MONARCH, a master is there hope for officers lower in rank, more so when this particular officer stops functioning i.e. his morning shift ends sharp at 1.30 for lunch (without exception). No one (except me, since I’m yet to come across someone who tries or does something about it) questions such un-unprofessional, wasteful way of functioning. Bear in mind the adage “time is money”, which is especially true for a professional for time is of the essence. The un-professionalism does not end there – there’s more – once an assessee, consultant or counsel enters his chamber for a personal hearing, the first thing that greets such a person is pleasant music (specifically Ghazzals) emanating from the computer speakers and the assessee, consultant or counsel is expected to submit his case in the din of the music. The said officer sits on the same floor as many other COMMISSIONERS’ & a CHIEF COMMISSIONER. Ironical is’nt it? I believe that We are to blame and not the Master, for no one questions in this democratic country which is more of a banana republic, where public servants rule over the actual public masters. Read on there’s more.

All of us “We the People” need (in my opinion) introspect on the following:

¨      Can it be said that in such an office with an officer of such calibre will justice not only be done but be shown to be done?

¨      Should “We the people” have to pay for such dis-service?

¨      Should such officers be accountable? If yes to who?

¨      Should a public office function in such a manner, when there are others who function diligently in a professional manner?

I am not at all opposed to the passion the Officer holds for music, but it would be in the fitness of things if such passions are pursued at his own expense, time and place when he or she is alone and not in the midst of functioning as a quasi-judicial officer – for the farce is apparent. Should “We the people” have respect for such officers and office.

 

Cause for this state of autocratic rule of law

If public servants have attained the status of PUBLIC MASTERS it is all of us “We the people” as the great human Mr. Nani Palkhivala put it, the denizens who are to blame, because if in a private organization one enters office regularly at 11.30, such a person will not only have to be at home but will be marked for his acts and employment for such a person will be an impossibility. For discipline is for all of us to inculcate, especially public servants. We only become stronger by discipline. The apathetic and sad situation today is that no one (including upright, uptight and so-called doyens of the profession and business) question such un-professional, wasteful, haughty and high-handed acts of Public Masters. They would rather succumb to their fancies and whims because they are high-ranking officers and no one desires to take them on as the professionals feel that it is the cause of the tax payer that he represents and he has to be patient and should not show his personal traits before any such officer, not that the officer in question is judicious either.  Come to think of it my take is that consultants, lawyers state the above as a reason not to do anything about such state of affairs for they have also become a part of the system and do not want to change it. For change is scary. The same way as the country never elects BJP as a majority party – for fear of change. To even think such a thought would be to take a hit on ones profession (in these times of C & F agencies ruling the roost or be marked by other officers high-ranking or low ranking or be called a fighter cock a misguided missile and the like.

Many to whom I showed this article were of the opinion that I should not publish this article and that it would do me more harm than good. My answer was this article is not for any gain or recognition. It’s written with a sense of duty for a clean and accountable tax administration.

Shining examples in the Tax administration to emulate

The next example is of a person who was in Belgaum who had a placard behind his seat stating that his work timings are from 9 to 5.30 and if he is not to be found in his seat doing work or is found accepting a bribe the telephone number of the person with whom a complaint could be lodged was stated. This is a dead breed today. The present crop of public servants is a breed with no back bone, no moral fibre and spineless to the core. All that requires their constant attention is their APR’s to be impeccable. Public servants have forgotten who their BOSSES / MASTERS are. They have forgotten that they are answerable to the people. This article, if printed, will be the first one amongst a series to follow bringing out such instances which I personally have experienced and will be my contribution in this fight for my right to have an upright, morally truthful, ethical, professional, incorrupt and assessee friendly tax administration. Public servants have to be made accountable for their actions and time spent at public office to “We the people” for the Government / legislature also forms a part of the same system in which the Tax administration exists.

A dead star

A classic example of Tax administration’s functioning like a fishing expedition and hounding assessees’ (fishes in the sea) is the Information Technology sector companies who till date are used, misused and abused. Their patience is tried and tested on a trial and error basis by three departments, one of the State and two Central, seeking to tax one transaction, one consideration and one activity under three different statutes making one subject the object of three levies. Our Constitutional fathers (We the people) would be proud of the way in which the tax administration functions based on the demarcation and fetters put in the Constitution. Such are the great days We live in. The local VAT authorities, the central excise department and the service tax department. Should the IT companies pay central excise duty treating their activity to be a manufacturing activity equating themselves to a factory in an industrial area and its qualified educated engineers as labourers or should they pay VAT treating their activity as a sale or should they pay service tax treating their activity as service. In the alternative like my colleague (N Anand) propounds not pay anything treating it as a copyright (since it qualifies to be an original literary work). Well kaliyuga, what more can I say after writing all of the above and rest to follow. Such Companies are presently paying VAT and Service tax both. For Companies also are without a spine. I believe that it was NASSCOM and other IT companies due to whose endeavours ITSS was brought into the service tax net as a service. Who’s to blame. No one it’s not a blame game of the rule of law is to prevail. I’m not here to answer only question and attempt to make the tax administration accountable. This dear readers’ is the state of our tax administration in my India which proposes of being a developed nation in the comity of Countries.

Some thoughts

We, the people are under a blanket belief that the rule of law prevails in India. It’s time India and Indians wake up and make the tax administration answerable. If one delegates what one has to do it never gets done the way one wanted it done, experience has taught me this eternal truth.  It is time to own responsibility before there is nothing more left to own or manage and the category of people who come in “What’s in it for me” would have owned it all.

It ought to be clear to the Government and tax administration that because lakhs and lakhs of public and commoners pay their taxes, the Government can function and their so-called public servants be treated like GODs and the publics’ money wasted. If all of us were to stop paying taxes the Government will be powerless because there would be no money in its coffers to play with, to hoard ill-gotten wealth in banks abroad, to amass disproportionate assets, to send their kids to schools which the best of brains cannot enter and to seek bribes to do their duty since their allegiance ought to be towards the Constitution of India which is given by us to ourselves i.e. We the People.

The mandate and intent of the GOI is clear – pay maximum tax, shut down business, increase inflation, cut the Cenvat chain, increase fiscal deficit, go on foreign trips abroad with families on the public’s money, buy expensive cars, make changes to one’s office every year on the purported basis of vastu, make retrospective legislations overturning every decision passed in favour of the tax payer, increase the cost of every commodity be it essential or non-essential and then wonder why India is not growing in such a situation.

Citizens and tax payers should endeavour to bring to the GOI’s attention that laws should be framed to sub-serve the tax payers interests and not the Government’s or its tax administrators’ interest. Fact being tax administration is for the people and not otherwise ought to be borne in mind.

I have observed that Assistant Commissioners in the service tax department come in top end Verna’s, have independent bungalows and send their children to the most expensive of schools. How can this be possible in a country where the rule of law is supposed to govern everyone (including the public servants)?

Have all mother’s sons become napunsaks’ without a back bone or moral fibre for such injustice to be perpetrated in the name of tax administration, buying peace with the department and all kinds of reasons / justification which any fertile mind can think of.

 

Kautilya’s theory

The ideal system of tax according to Kautilya’s Arthashastra, in that day, age and time was gaining as much tax revenue as possible for his king; promoting economic growth and development within the kingdom; ensuring that resources are used efficiently; and applying taxes that are “fair” and “just”. Taxes during that time were convenient to pay, easy to calculate, inexpensive to administer, fair (equitable) in its burden, non-distortive of economic behavior in its impact (neutral), and in general did not inhibit economic growth and development. Now juxtapose the present tax proposals against the above principles and the answer to any person of ordinary prudence would be crystal clear. The point that the Government exists, subsists and functions for the people should be driven home and every PUBLIC SERVANT serving India should bear this in mind when he comes to office every day without exception. It is only then that We the people of India will see some semblance of efficiency. It is important for the GOI & its functionaries that their allegiance is towards the Citizens (We the people) and not towards purported PUBLIC MASTERS who are in fact public servants scripting their juniors APRs.

Award worthy feature of Budget – 2012

This year saw the advent of the all-pervasive GOI resorting to illogical and illegal means to justify their end by regimenting the understanding of the population by saying “Heads I win, Tails you Lose” in their all-pervasive Bhagavadgita titled “Education Guide” (EG). History will remember EG as one of the saddest days for tax administration and manner of functioning of the GOI. The EG has been issued with a disclaimer that the GOI (the very institution which issued the EG) is not bound by what is stated in the EG and that it is only for assessees’ guidance. Someone please tell me who needs guidance – the department or assessees’? If guidance is what they sought to give should’nt they (GOI) be bound by such guidance since it is they who are guiding.

Why the disclaimer?

Should We the people of India trust the GOI? and

By such acts of the GOI can it be trusted?

The effect of such an illegal guide is that even if the tax administration acts as per the guide and states so in writing, nothing can be done about it by a tax payer because the very issuance and existence of EG is illegal in the first place. In legal terms void ab-initio. It is neither in the nature of a regulation, rule or byelaw having the essential characteristics of law to enable tax payers to challenge the EG in a court of law.

Are We the people of India to expect justice when the GOI resorts to illegal means?

Whose Interests are being taken care of by the GOI by issuing illegal guides?

I entreat all Indians to wake up before it’s late for in the context of the present GOI it is not known who runs India. Is it the Prime Minister or is it the President or Is it the extra constitutional party President whose symbol is the palm of a hand.  When the engine which drags the bogey is functioning in such a blatant illegal manner can tax administration be expected to follow Dharma, rule of law or Constitution?

Take into consideration the experience of exporters till date and ask yourself a question – How many exporters have received export benefits (refunds in simple language)? The answer would be zilch, because across India the pending amount to be refunded to exporters hovers around the unimaginable figure of 3000 odd crore. A dimension that all of us should appreciate is that section 11BB of the Central Excise Act, 1944 (CEA) made applicable to the FA by section 83 postulates that when refunds are not sanctioned within three months from the date of filing the refund claim the assessee is entitled to interest (at whatever piddly rate). Now take the 3000 crore and calculate simple interest @ 6% for a minimum of three years. Understand this – the interest portion would have to be given by the department unless they challenge refund of the principal because interest is an accessory. Also understand that the interest would have to be paid by the GOI from the taxes that we citizens pay to the GOI. It’s the Citizens money being paid to exporters for inefficiencies built up by the GOI, for faults within their departments, for issuing illogical conditions to be fulfilled and for building and rewarding in-competencies in tax departments. Does no one, high enough, have some sense that it is We the people who will lose ultimately.

I implore all upright, straight forward, people to act and fight for our right. In India it is “giski lathi uske bhains”. Hopefully times will change.

My thanks are due to Rajesh Chander Kumar, Chidanand Urs, K S Naveen Kumar and N Anand (All practicing IDT lawyers).

Views expressed herein are solely that of the author and mistakes which have crept in the paper are also the singular responsibility of the author.

This article is not intended to hurt the sentiments of any person/s/ public servant/s.

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THE NEVERENDING LOOP OF REVERSE CHARGE


Prologue

The legislature in the 11 – 12 budget amendments by insertions in Chapter V & VA of the Finance Act, 1994 (FA for short) made effective from 1.7.12 has enforced recommendations of the Kelkar committee i.e. to charge service tax based on a negative list of services.  The manner in which the legislature has gone about doing this in their usual slip-shod manner forms the subject of this paper.

Insertion of new charging section 66B

Presently section 66B is the charge for services defined as any activity (inertia included) by a person to another for a consideration except services in the negative list. Section 66B is the only charging section which in clear and singular terms postulates “the rate of tax to be charged on the value of all services except services spelt out in the negative list provided or to be provided in the taxable territory by one person to another and collected in a manner as prescribed.

The effect of section 66B is that:

¨      Service tax would be charged @ 12%

¨      On the value of service

¨      Excluding services specified in the negative list

¨      Provided or to be provided in the taxable territory

¨      By one person to another and

¨      Collection of such a charge would be as prescribed under the rules.

What emanates from the above is that the charge applies only in respect of services provided or to be provided in the taxable territory and not in respect of receipt of services from outside the taxable territory. Taxable territory is defined in section 65B(52) to mean the territory to which the provisions of the Chapter (V & VA of the FA) apply. This imperatively leads one to section 64 in terms of which the extent and application of the Chapter is postulated to be the whole of India except the state of Jammu & Kashmir. India is defined in section 65B(27) to mean the territory of the union as defined in clauses 2 & 3 of Article 1 of the Constitution of India, its territorial waters, continental shelf, exclusive economic zone or other maritime zone, seabed and subsoil underlining the territorial waters, air space above its territory and territorial waters and installations, structures and vessels located in the continental shelf of India for the purpose of prospecting or extraction or production of mineral oil and natural gas and supply thereof.

66B, in my opinion can be understood only in the manner stated above and not in any other manner.  This is because of the use of words taxable territory in the definition which leads one imperatively to services rendered in the Indian Territory.

Interpretation placed on the above section is based on the golden rule of interpretation which I believe does not need further elaboration.

 

Questions

My understanding of the charging section in 66B leads me to two questions –

  1. What about services received from outside India? And 

  2. Which is the charging section on services received from outside the taxable territory?

Background and Discussion

Readers would appreciate the background prior to section 66A in the FA. To summarise as per section 68 of the Finance Act, 1994:

¨      Liability to pay service tax was on the person providing the taxable service.

¨      However, as per section 68(2) the Government had to notify services for which a person other than service provider is made liable to pay the tax. 

¨      The Service Tax Rules framed by the Government of India, in rule 2(1)(d)(iv) of the said Rules, 1994 postulated that the liability to pay service tax is on the recipient of service when taxable service is provided by a non-resident or a person who is outside India and does not have any office in India w.e.f. 16.8.2002.

¨      However, the Government failed to notify such persons in the “official gazette” as per the mandate in section 68(2).

¨      A rule cannot override the provisions of the Act and provide for something, which the Act does not envisage.

¨      The Government of India officially notified such services for the purposes of section 68(2) only in the year 2004 vide notification no.36/2004-ST, dt.31.12.2004. 

It is to be appreciated that even after notification of such services no service tax liability crystallized on receipt of services from outside India. This was because there was no charging section in the act. Section 66A was inserted into FA to capture import of taxable services under the tax net with effect from 18.04.2006. It is further to be appreciated that insertion of 66A in the statute book itself led credence to the view that there had to be a charging section to enable the administration to charge service tax on import of service.

Examination of section 66A would reveal that what 66A did was create two deeming fictions, one deeming receipt of service from outside India as a taxable service and secondly treating the recipient of such service as the person providing such service within India. This inevitably led the recipient of service to section 66 by virtue of treatment of the imported services as if rendered in India. By virtue of such a deeming fiction there was a link between 66A & 66 which was the charge in respect of services provided within India and also the charge in respect of receipt of services from outside India. (Emphasis on the link between section 66 & 66A).

 

Present situation

Presently there is no link absolutely whatsoever between receipt of services from outside India and section 66B to enable the Government to seek service tax on import of service. The assessees have therefore been transported to the era prior to 18.4.2006 and I think that this would again lead assessees and the government into another loop of litigation.

 

Summary

What I fail to gather is despite the history behind taxation of import of services, i.e.rule 2(1)(d)(iv), etc., refer discussion above, how can the legislature create such a lacuna to the misfortune of assessees.

Experience is supposed to be a wise teacher, it appears it is otherwise for the legislature.

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Import of Service – Input service or Output service and Cenvat Setoff


 

Issue

The subject matter of this paper is – Whether Cenvat credit can be setoff against liability on import of services?

Argument of the Department against set-off is – Provision of Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, which postulates that the services received would not be an output services for the purpose of availment of Cenvat credit.

The background on the advent of Cenvat and other attendant legal aspects on why setoff is permissible forms the matter of discussion in this paper.

Introduction of Modvat now Cenvat

Modvat / Cenvat scheme in our country owes its birth to the Indirect Taxation Enquiry Committee formed in 1976. This Committee was popularly/commonly known as the Jha Committee. The Committee made the following suggestions:

¨      The Long Term Fiscal Policy suggested extension of proforma credit to all excisable commodities to overcome the vexatious question of cascading effect tax on commodities.

¨      Modvat allowed a manufacturer to obtain instant and complete reimbursement of all excise duty paid on components and raw materials.

¨      The scheme provided transparency disclosing full taxation on a product.

¨      The scheme’s introduction was a measure of cost reduction of the final product.

¨      The scheme avoids payment of duties on earlier duties paid.

¨      It benefited consumers.

Object of the Cenvat Credit Scheme

The object of the Cenvat Credit scheme can be gathered from the decision of the Supreme Court in CCE Vs. Dai Ichi Karkaria Ltd., 1999 (112) ELT 353 (SC). The essence of the decision is:

¨      Credit available on receipt of inputs in a factory.

¨      Entitlement to use the credit any time thereafter.

¨      No provision that provides for reversal of credit except when it has been illegally availed.

¨      Its benefit is available without limitation in time.

¨      The credit is indefeasible.

¨      No co-relation of raw material and final product.

Purpose of Cenvat credit scheme

The scheme is a beneficial scheme implemented to avoid the cascading effect of taxes. It is a scheme that provides definitions of various expressions like, inputs, capital goods, exempted goods, exempted services, input service, output service etc. It also specifies various types of duties that can be availed as Cenvat credit. It specifies when such types of duties can be setoff against what type of liability. This is the scheme that governs the availability and utilization of Cenvat credit since the time of its inception.

Import of goods and payment of Customs Duty:

Import of goods into the territorial jurisdiction entails payment of Customs duties on clearance of goods from the warehouse. The amount of duty paid as CVD on import of goods is eligible as Cenvat credit to manufacturers and service providers. This is to maintain a level playing field between assessees’ manufacturing goods in India and those importing same/similar goods.  Point being that the amount of CVD paid as duty is available as Cenvat credit.

However, this is not equitable to the present situation because though economically speaking there is no difference between goods and services, for the purposes of the charge to be attracted under Customs Act, 1962 and Finance Act, 1994, what is to be examined is the charging section and not the actual transaction. This is because of creation of deeming fictions in the charging sections.

Further, there is no uniform GST in India.

Eligibility to avail Cenvat Credit

Eligibility to avail Cenvat credit is in terms of Rule 3 of the Cenvat Credit Rules, 2004. In terms of which twelve types of duties are allowed to be availed as credit on inputs, capital goods and input services. At serial no.(ix) service tax leviable u/s 66 of the Finance Act, 1994 is allowed to be availed as credit. Sub Rule (4) to Rule 3 provides that Cenvat credit may be utilized for payment of (e) service tax on any output service. Output service is defined in Rule 2(p) and input service in R.2 (l).

Advent of Service Tax on Import of Service:

As per section 68 of the Finance Act, 1994 liability to pay service tax is on the person providing the taxable service. However, as per section 68(2) the Government has to notify services for which any person other than the service provider is made liable to pay the tax. The Service Tax Rules framed by the Government of India, in rule 2(1)(d)(iv) of the said Rules, 1994 (as amended from time to time) envisages that the liability to pay service tax is on the recipient of service when taxable service is provided by a non-resident or a person who is outside India and does not have any office in India w.e.f. 16.8.2002. However, such persons who were made liable to pay service tax as per the above rule were not notified in the “official gazette” as mandated under section 68(2) of the Act. A rule cannot override the provisions of the Act and provide for something, which the Act does not envisage. The Government therefore could not have framed rules in August 2002, without first notifying the relevant scheme under section 68(2) by describing the categories of service providers in respect of whom the Government could frame rules to require the receivers of services to discharge service tax, payable by the provider of service. The Government of India officially notified such services for the purposes of section 68(2) only in the year 2004 vide notification no.36/2004-ST, dt.31.12.2004. In law there could not have been any liability of whatsoever nature on the service recipient to pay service tax before 31.12.2004. That the issuance of notification no.36/2004-St itself is enough proof that postulates of section 68(2) had to be fulfilled before the service recipient could be made liable to pay service tax. 

Section 66A is now the charge in terms of which service tax is imposed on import of services with effect from 18.04.2006. Notification 11/2006-St was issued in terms of sections 93 & 94 of the Finance Act, 1944 read with section 66A. This notification was the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

Legal Position – Charging section

An examination of the charging section entails that the charge on import of service is in terms of section 66A which necessarily leads one to section 66 (the charging section for domestic service providers). The relevant part of the provision is extracted below for better comprehension:

“Section 66A postulates in sub-section (1) that “Where any service specified in clause (105) of section 65 is (b) received by a person (hereinafter referred to as the recipient) who has his usual place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purpose of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India and accordingly all the provisions of this chapter shall apply”.

Section 66A has three corollaries:

¨      Services imported are treated as taxable services.

¨      Such services are deemed to be provided in India by the service recipient and

¨      All provisions of Chapter V & VA of the Finance Act, 1994 (including the Cenvat Credit Rules) are made applicable.

This means that when a service recipient receives any service from abroad, the services are treated as if they were provided in India deeming such service as a taxable service rendered in India.

To appreciate the charging section on import of services (RCM) S.66A and its necessary linkage to S.66 it is imperative to understand the importance of the charging section and the effect of a deeming fiction in law. Both these aspects are addressed below:

The Charging section (in the present case S.66A r/w S.66) provides for the levy of service tax on import of service. It creates a charge and defines the nature of the charge. Service tax is primarily on rendering of taxable services. It is an indirect tax which the provider of service passes on to the ultimate consumer. The tax can be levied at any convenient stage so long as the character of the impost, that is, it is a tax on the provision of services, is not lost. The method or time or the person from whom it is collected does not affect the essence of the tax, but only relates to the machinery of collection for administrative convenience. In the context of import of services merely because the tax is collected from the recipient of services (which in fact would be an input service), it does not lose its nature of being an impost on the rendering of taxable services. In other words a charging section is a section which enables charging of tax or creating the liability to pay tax.  

There is a distinction between the object of tax, the incidence of tax and the machinery for the collection of the tax. The distinction is important but is often confused. Legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery. There is a further distinction between objects of taxation in our constitutional scheme. The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the collection has been described as “an accident of administration; it is not the essence of tax”. It will not change and does not affect the essential nature of service tax. Subject to legislative competence tax can be imposed at the stage which the authority finds to be convenient and the most effective, whatever stage it may be. The Central Government is therefore legally competent to evolve suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed.

The argument that recipient of services are not connected with the service since the service is rendered to them would be farfetched and untenable because of the fiction in section 66A that – the services received are treated as if the recipient had himself provided the service in India.

Section 68 is a machinery section in that it provides for the incidence of taxation and is not the charging section which is Section 66. The amendments to Section 66 brought about in 2000 changed the point of collection of tax from the provider of the service to “such manner as may be prescribed”. Section 68(1-A) as it stood in 1997 provided for the collection and recovery of service tax in respect of the services referred in sub-clauses (g) to (r) of Section 65(41), from such person and in such manner as may be prescribed. The 1998 Finance Act maintained this. Now, the Service Tax Rules, 1994 provided for the collection and recovery of tax from the users or payers for the services. This was the prescribed method. All that the proviso to Section 68(1-A) did was to prescribe the procedure for collection with reference to services of goods transport operators and clearing agents which services had already been expressly included under the Finance Act, 2000 in the definition of taxable service.” The above averments are the findings of the Supreme Court in CCE Vs. Acer India Ltd., 2004 (172) ELT 289 (SC), KSEB Vs. CCE, 2008 (9) STR 3 (SC).

The Supreme Court in All India Federation of Tax Practitioners Vs. UOI, 2007 (7) STR 625 (SC), held that “Finance Act is passed every year to fix the rate of tax. This is the primary object for enacting the Finance Act. But it does not mean that a new distinct charge cannot be introduced by the Finance Act. For example, what is not “income” under the Income Tax Act (“IT Act”) can be made income by the Finance Act. This is, however, subject to the Finance Act complying with the Constitutional limitations. Additional tax revenue can be collected either by increasing the rate or by levy of a fresh charge. All levies through the medium of the Finance Act may either enhance the rate or levy a fresh charge. The Finance Act can also make an extensive modification in an Act”.

Fiction – applicability – what is?

To appreciate the delicate point being made here, an examination of what exactly is a fiction and how law treats a fiction is important. A legal fiction is defined in P. Ramanatha Aiyar’s Advanced Law Lexicon – 3rd Edition Re-print 2009 at page no.1814 & 2681. The Latin equivalent is Fictio juris.  A fiction of law is a supposition of law that a thing is true without enquiring whether it be so or not. A legal assumption that a thing is true which is either not true, or which is probably false. The Supreme Court in Bengal Immunity Co Vs. St of Bihar, AIR 1955 SC 661 in the context of Article 286(2) held that a legal fiction presupposes the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. If the purpose of a legal fiction is for some specified purpose, one cannot travel beyond the scope of that purpose. In sum a fiction of law has to be given its due play and necessarily has to be taken to its logical end and all facts required for such a conclusion, if not present, have to be assumed.

Setoff Issue

As stated above input service credit is allowed to be setoff against any output service liability, except in the case of GTA 65(105)(zzp), which taxable service has been specifically excluded from the definition of “output service” in Rule 2(p) of the Cenvat Credit Rules, 2004.

Reason of doubt:

Rule 5 of the Taxation of Services (Provided from outside India and received in India) Rules, 2006, provides that the taxable services provided from outside India and received in India shall not be treated as output services for the purpose of credit of duty of excise paid on any input or service tax paid on any input services under Cenvat Credit rules, 2004.

However, the self-same rules in its definitions postulates that Output service shall have the meaning assigned to it in clause (p) of Rule 2 of the Cenvat Credit Rules, 2004.

(There is an apparent contradiction here – i.e. which definition ought to be given precedence. The one in CCR or the one in Rule 5).

The Commissionerates of Jamshedpur and Madurai in their wisdom have also issued two Trade Notices in No.43/2008 & 21/JAM/2008 clarifying (which they hardly do) that the taxable service is an output service only for the limited purpose of charging service tax and not for the purpose of Cenvat Credit Rules, 2004. That the payment for such services could be made in cash and input service tax can be availed as Cenvat credit.

Due to this clarity in the ambiguous provision of law (sarcasm intended) the trade and industry pay tax by cash and avail service tax as an input service.

The above provisions i.e. Rule 5 and the definition of an output service in the Taxation of Services (Provided from outside India and received in India) Rules, 2006 coupled with the two trade notices have had an effect of treating a deemed output service (in terms of the charging section 66A) as an “input service” negating the use of accumulated Cenvat credit to setoff the liability on import of service. The Question that comes up is whether the charging section has to be read down in line with the Taxation of Services (Provided from outside India and received in India) Rules, 2006 or vice-versa. The answer to this question would, in my opinion, resolve the issue. What has been missed out (whether deliberately is not known) is that both Rule 5 and the trade notices advance a theory that is conflicts with the effect of charging section 66A.

Open Issues:

The issues that arise from the above are: –  

  1. What is the nature of services received from abroad?
  2. Is it Input service or Output service?
  3. What is the legal position on import of service given the deeming fiction in section 66A?
  4. Should a legal fiction be given effect to even if it results in absurdity?
  5. What was the purpose of Taxation of Services (Provided from outside India and received in India) Rules, 2006?
  6. Can the Taxation of Services (Provided from outside India and received in India) Rules, 2006 postulate on what would be output service?
  7. Can the rule making authority go beyond the purpose of the delegation?
  8. What is the sanctity of the definition of output service in the Cenvat Credit Rules, 2004?
  9. What prohibited the legislature from incorporating Rule 5 of Taxation of Services (Provided from outside India and received in India) Rules, 2006 in the definition of output service in the Cenvat Credit Rules, 2004?
  10. Whether the express omission of import of services in the definition of output service would still have the effect of negating the fiction in the charging section 66A?
  11. When the provision of a rule is not in accordance with the provision of the charging section – how is it to be resolved?
  12. Can a limited interpretation be given to the charging section?
  13. Can it be argued that the charging section is only for the purpose of payment of tax?
  14. Are rules sub-servient to the provisions of a statute?
  15. What is the principle of reading down?
  16. Should the principle of reading down be applied in the present situation?
  17. Is’nt it a fact that Rules are framed to advance the purpose of the statute?

Alternative reason why import of service is an output service

Another aspect by virtue of which import of service would be an “output service” without placing reliance on the charging section are two definitions i.e. “person liable for paying service tax and provider of taxable service” in the Cenvat Credit Rules, 2004 read with section 68(2) of the Finance Act, 1994.

The definition of provider of taxable service includes a person liable for paying service tax and the definition of person liable for paying service tax has the meaning assigned to it in Rule 2(1)(d) of the Service Tax Rules, 1994. The relevant provision of Rule 2(1)(d) is extracted below to better appreciate this discussion:

Person liable for paying service tax ” means, -

(iv)      in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service.

The point being made here is this – that a provider of taxable service includes a person liable for paying tax i.e. service recipient. In other words a service recipient is a person liable to pay tax and therefore a service provider of output services. Reading section 68(2) also leads one to the above conclusion. This is because output services are defined to mean any taxable service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ‘provider’ and ‘provided’ shall be construed accordingly. This analogy cannot be defeated by insertion of a rule in rules providing for taxation of import of services because the purpose of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was only to provide for taxation of import of services and not to curtail the ambit of benefit extended by the Cenvat Credit Scheme and the deeming fiction created in terms of section 66A.

Factually the recipient is a service receiver and therefore the service received would be an input service but for the deeming fiction in section 66A. Because of the legal fiction created through section 66A, recipients pay service tax as if they are the “output service provider”. The rights and obligation of the ‘deemed service provider’ have been clearly stated in Section 68(2) of Finance Act, 1994 itself as: ……..the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in Section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. Thus for the purpose of payment service tax, the service recipient has to be a treated as a service provider in respect of import of service and the two trade notices and Rule 5 of the Import of Service Rules have to be read down to bring them in line with the effect of section 66A.

This is also because when a Section of the Act creates a legal fiction as clear as the one created in section 66A, there is no room for doubt whether a manufacturer or service provider can or cannot be treated as a “service provider” under Rule 2(p) of CCR, 2004, irrespective of the effect of the fiction on the CCR.

Cenvat availability for setoff

It is equally settled that a service provider is entitled to pay output tax by adjustment of Cenvat credit; there is no provision in the entire scheme of the Cenvat credit rules that a “deemed service provider” is barred from this entitlement.

I therefore do not find any bar on the part of a service recipient in paying service tax through their Cenvat credit account. The question of availing Cenvat credit on a deemed output service is alien to the concept of availment and eligibility to Cenvat Credit in terms of Rule 3 of the Cenvat Credit Rules, 2004. This is the reason that the Government would stand to loose in the long run because the tax paid on an output service is being allowed to be availed as input tax credit. The analogy adopted is disturbing also because it brings to the fore the understanding (mis-understanding actually) of the limb administering the law relating to service tax, of the basic concepts of the provisions of the Service tax law and the Cenvat Scheme.

Judicial pronouncements

In CCE & C Vs Phil Corporation Ltd., 2008 (223) ELT 9 (SC), it was held that the Courts have to make serious efforts to ascertain the spirit and intention of the Parliament in enacting deeming fictions. Once the legislative intent is gathered, then the bounden duty and obligation of Courts is to decide the cases in consonance with the legislative intent.

 Hon’ble Justice Markandey Katju in Ispat Industries Ltd., Vs. CC, 2006 (202) ELT 561 (SC), held that if two interpretations of a rule are possible, one which would uphold its validity while the other which would invalidate it, the former should be preferred. It was further held in this decision that Rule 9(2) of Customs (Valuation) Rules, 1988 – Gunpradhan principle is fully applicable – Rule 9(2) ibid is subservient to Section 14 of Customs Act, 1962, hence, to be interpreted in such a way as to make it in accordance with main object that is contained in Section 14 ibid – Object of Section 14 ibid is ‘primary’ whereas conditions in Rule 9(2) ibid are ‘accessories’.    

 CONCLUSION

The manner in which section 66A has been framed leaves no room for doubt that the services rendered from abroad and received in India are deemed to have been provided in India by the recipient of service. The effect of this legal fiction is that the recipient is the provider of taxable service. When we examine as to what services are normally provided by a provider of taxable service the only logical answer a man of ordinary prudence can arrive at is “output service”.

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SIMPLE, EQUITABLE & PROGRESSIVE – BUDGET 2012 – 2013 – A MISNOMER


 

The Union budget this year is historical not because of its intrinsic value or because it is relief oriented or because it has made petrol cheaper or home loans cheaper, but because the budget booklet is voluminous running into 540 pages. These 540 pages contain something purportedly called a “guidance note” running into 124 pages explaining the budget proposals. The intent of the budget proposals, according to me, can be explained in two words “more revenue”. This, in a nutshell is the progressive, equitable and simplistic budget.  It is stated by the FM that the proposals would result in a net revenue gain of Rs.45,940/- crore from indirect tax. The manner in which this windfall is proposed to be raised is disturbing, alarming and against the rule of law. The guidance note is akin to a command to post graduates in mathematics to recite multiplication tables while on job.

 

For example the proposals relating to “declared services” are nothing short of re-writing settled law and encroaching on the domain of State legislatures. It is startling to note that not a single State Government has raised any concern on this aspect. One may also look upon it as the equitable “jiski lathi uske bhains” adage. Meaning a message from the Centre to the state to tow their dikat relating to GST or else be prepared for encroachment. It is a clear message from the Centre that heads it wins and tails States lose. The proposals raise another important question – one relating to trust and rights of tax payers. This is because the trade and business was under the illusion that if something is goods service tax would be inapplicable. However as stated above, the proposals relating to declared services cast a serious doubt on the extent to which the businessmen, trade and common man can believe the government. The words uttered during the budget speech are at total divergence with the fine print. Given attempts by the Centre to encroach on the domain of the state legislature, what guarantee does any State Government have in future that once GST is implemented the Centre will not dictate and hold the State Governments to ransom to act as per its dikat because disbursing money due to State Governments would be at the sole discretion of the Centre. The autonomy given to the States under the Constitution will remain only on paper (already evidenced by the attempt to tax “deemed sale” by including the value of goods), while practice will be something else altogether. This phenomenon is disturbing because what is promised today would be conveniently broken tomorrow by retrospective amendments. The Central Government’s desires are clear. It is the story of the ends justifying the means. Rule of law has no relevance in Kaliyuga, it is a mere embellishment to be taught in schools and colleges and forgotten once it is to be implemented in practice. 

 

Progressively proceeding – The FM at para 175 states that budget measures were guided by a need to move towards simple, equitable and progressive system. One need not be a scientist to understand the implication of these words, as one look at the budget proposals, their size, and last but not the least the guidance note given to comprehend the proposals make the intent of these words crystal clear. The proposals in my humble opinion are complex, inequitable and regressive. If the proposals were to be simple, equitable and progressive there would be no reason to issue a guidance note of 124 pages clarifying the intent of the Government. The Government has set up a committee to ascertain cause of increase in litigation in this country. But the budget proposals act as a catalyst for fuelling litigation. This does not make sense. On the one hand there is a committee set up to examine the reasons for increase in litigation and on the other hand the budget proposals seek to charge service tax on the value of goods, thereby encroaching on the state legislature’s domain and increasing litigation.

The administrative implementation of collecting service tax under the category of declared services would not only create untold miseries but also cause havoc for the common man who might either be a service provider, recipient or person liable to pay service tax. In the Government’s ingenuity this year both the recipient and provider have been made liable to pay service tax in percentages subject to fulfilment of conditions. Thankfully once these percentages are added they do not exceed 100%. The FM has magnanimously left such an exercise for future FM’s.

The simplistic approach in defining “declared services” is clear from a perusal at Article 366(29A) of the Constitution of India and the background for which such an Article was inserted and comparing it with the declared services definition. The intent is patent. The “declared service” definition is nothing short of an attempt to garner and corner service tax on “sale” transactions. Assessees’ can look forward to a rewarding and prolonged litigating period of not less than 10 – 30 years initiated by Pranab Da’s contentious Budget proposals of 2012 – 2013. The person who proposed to charge service tax on such declared services ought to be conferred a life time achievement award for turning the wheel a full circle and re-opening the settled concept of “deemed sale” under the six sub-clauses of Article 366(29A). This would be one of the core reasons that the committee would find latter on why litigation in India is on the increase.  

In this paper I examine two simplistic, equitable and progressive proposals:

First – definition of “service” and Second the “valuation” of such service.

Assessees’ can rest assured that this Government is out to squeeze every pound of flesh along with bone, marrow and sinew to get every drop of blood available, without taking cognizance of the issue whether a transaction is sale or service. Both departments i.e. VAT & service tax will now hound assessees’ seeking to tax transactions by considering the entire value of a composite transaction, for only mere transfer of title in goods by way of sale now stands excluded from the definition of service. The operative word is mere. Mere means simpliciter, thereby simplistically excluding composite transactions involving elements of sale and service.

Readers would be aware of the fact that the Constitution had to be amended in order that sales tax (now VAT) be levied on a transactions resembling sale in the year 1982 by the 46th constitutional amendment. The FM and his lackeys did not consider it a necessity that the Constitution should be amended for service tax to be charged on the service element in a composite transaction. No such amendment has been proposed in the Constitution. The principle that “there is no intendment in a tax statute” is a well settled to cite precedents. Nevertheless, service tax is proposed on declared services. I am not saying that Centre does not have power to tax the service element in a composite contract. What I am saying is that the Centre cannot do so till the Constitution provides for it.  Assessees’ would bear the brunt of this proposal and would have to pay VAT on the sale portion under the composition scheme (which most of assessees’ do) and pay service tax by including the value of goods, thereby burdening the ultimate consumer with double taxation and steeply increasing the cost of the product to the end customer.

Budget proposals

Service is defined to mean – any activity carried out by a person for another for consideration and includes a declared service. The definition also has a “does not includepart which I will dwell on latter. A look at the definition brings us to the use of the word “means”. The meaning of means when employed in a definition and the interpretation to be accorded to such a definition without exception is restrictive. This is because it means a particular thing thereby restricting the scope and ambit of the definition. However a look at the definition of service is like wondering how the dark side of the moon looks. The expression “means any activity” cannot by any degree of inference be narrowly construed. This is because the meaning of “activity” is as wide as the ever expanding infinite universe itself (no exaggeration).  The word activity is not defined in the proposals but dictionaries define this word to mean – interest, hobby, pastime, pursuit, occupation, venture, undertaking, enterprise, project, action, motion, movement, commotion, hustle, bustle, labour, exercise, function- actual, potential or mental, observation, experiment, inquiry, discussion, re-creation, to name a few. The word activity encompasses many more meanings than what is given above. Readers would be interested to note that inertia for a consideration for another person is also an activity and would be liable to service tax once the proposals become law (refraining from doing something for a consideration).

The next crucial word in the definition of service is consideration which is not defined in the budget proposals. In the absence of a definition in the FA, definitions in any agnate or cognate act can be adopted. Neither the CEA nor the CA have defined consideration. However section 2(d) of the Indian Contract Act, 1872 defines consideration as follows: “when, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. Given this definition, consideration means anything received in return for provision of activity. This includes monetary, non monetary or deferred consideration. Guidance note 2 provides the department’s understanding of the word consideration. Interested readers may refer to the guidance note for some guidance on consideration.

Proceeding further there ought to be mutuality when service is provided, it must be provided by one person to another. The word person is defined in section 65B(37) which may be profitably referred to. It is further submitted that there are two exceptions to this principle of mutuality i.e. an establishment in taxable territory and another establishment of the same person located outside the taxable territory would be treated as distinct persons and an unincorporated association or body of persons and members thereof would also be treated as distinct persons.

The next critical aspect but disturbing facet of the definition of service is the “does not include” part in the definition, in terms of which mere transfer of title in goods or immovable property by way of sale, gift or in any other manner for consideration does not constitute service. The effect of this exclusion from the definition of service is this -

  • There ought to be change in ownership of goods for the exclusion to apply.
  • Mere transfer of possession or custody without transfer of ownership would be service. – Readers would appreciate that when goods are transferred with possession coupled with effective control, such transaction is exigible to VAT. It is my surmise that henceforth such transactions would be a service, because in such transactions the condition of “mere transfer of title” is not fulfilled.
  • Readers can gauge the scope for litigation on this issue. There would be more work for the committee to arrive on causes of increase in litigation – yearly budgets being the frontrunner. 
  • The use of the word mere in the exclusion clause signifies that the department would hereafter take the schedule of the local VAT laws in which specified works contracts / composite contracts are mentioned excluding transactions relating to buildings and structures and hold alln other transactions as being exigible to service tax. Whether sales tax has been paid on the deemed sale value or not. It does not end here. What the department would contend is that the value of goods would also have to be included to compute service tax.
  • Another facet which arises for consideration is the re-emergence of the ‘dominant theory’ test to be applicable to all transactions which are composite in nature except works contract and catering contract, because according to the department all other clauses in Article 366(29A) would necessarily have to invoke the dominant intention test to ascertain if the contract is for a mere transfer of title or for rendering of any activity.
  • To top it all there is a proposal to delete notification 12/2003-ST, (for people who are not aware of this notification, this notification exempts the value attributable to sale of goods subject to non availment of Cenvat credit on such goods). This would buttress what I have stated above.

 The next bewildering aspect is the distrust created by the budget proposals – to cite an example – the guidance note states that deemed sales in Article 366(29A) are also included in the definition of sale. This would mean that the value attributable to such deemed sale would be outside the scope of the valuation mechanism under service tax law. However the blatant lie embedded in this statement stands exposed by the presence of the exclusion in the definition of service i.e. “mere transfer of title in goods or immovable property by way of sale, gift or in any other manner for consideration does not constitute service. This means to say that in all transactions detailed at Article 366(29A) clauses (a) to (f), there is no mere transfer of title but all the cases involve elements of service also. The scary part is that the dominant intention of most of such transactions would be service and by virtue of this, there is a stark contrast between what is stated to be purportedly excluded and the manner in which the fine print is going to be interpreted by the department given the guidance note misguiding the department. It is to be appreciated that the above definition is capable of creating insurmountable litigation for no fault of assessees and on issues which have attained finality. Assessees would do well to be prepared for another protracted round of litigation and retrospective amendments on this issue.

A fact to be noted is that the Tribunals across the Country have, even before the budget proposals confirmed service tax by invoking the dominant theory test on the value attributable to goods by holding that the dominant intention in transactions resembling sale is service and therefore even if sales tax is paid service tax would be payable on the value of goods. This is the equitable treatment meted out by our so-called justice system.

Some missed opportunities

Let us examine some pertinent questions –

  1. Why has the budget always enforced rights of governments in taxing the public without recognizing the corresponding duty of the administration?
  2. Why is no time frame fixed to conclude adjudication?
  3. Why is no accountability fixed for taking decisions contrary to precedents?
  4. Why does the tax payer not have any rights against the Government for frivolous and vexatious action by the executive?
  5. Why does the Government not guarantee tax payers rights against harassment by the Department?
  6. Why should assessees’ pay through the PLA during the month of March?
  7. Is it impossible to draft legislative documents using simple sentences and intelligible language?
  8. Why does the Government not comprehend it is a collective body of public servants?
  9. Why should the Government punish Jack for the sins of Peter?

Last but not the least the annual budget exercises have come to mean overcoming and outsmarting decisions of courts by amendments to laws (retrospectively) and creating controversies where none ought to exist. This is a bemoanable state of affairs in our country. From 1950 onwards, ever since we the citizens gave unto ourselves the Constitution, the Parliament is seen struggling against the effect of the provisions of the Constitution. Whenever there was any conflict between the policies of the political party in power and the mandate in the Constitution, the political party did not modify or mould its policies in consonance with the Constitution. It amended the Constitution unhesitatingly and sometimes mischievously and today the effect of these amendments is that the sacred parchment, setting out the rules of governance has been reduced to a political document to suit the convenience of the political party in power. Therefore amending law and crushing the common man under the weight of excessive taxation has become routine and is second nature of the party currently in power. It is akin to a monarchy being run by a super prime ministers without the authority of law (read Mrs. G) reducing others in the cabinet to myrmidons. This being the state of affairs, can “we the people” expect anything simple, equitable and progressive from the FM is the question all of us have to ask (Not forgetting that politics is a game of convenience and expediency).   

(The views expressed are entirely mine and errors which may have crept in, are inadvertent)

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Sale & Purchase – A Merry-go-around


 

Background

Sales tax was introduced for the first time in India by the then C. P. & Berar Province (now Madhya Pradesh) in 1938. Madras(now Chennai) was the first state to enact a legislation known as Madras General Sales Tax Act, 1939. By 1948 almost all states enacted laws for taxing sale and purchase of various commodities. Under the Government of India Act, 1935 power to levy tax on sale was given under entry 48 of List II of VII schedule. After adoption of the Constitution of India State legislatures derived their powers to levy tax under Article 246 read with three lists. During the 50’s & 60’s, various State legislatures levied and collected sales tax on various transactions wherein one or more of the ingredients of “sale of goods” as legally understood under the Sale of Goods Act, 1930 was missing. For instance, compulsory acquisition of goods by the Government under the Essential Commodities Act, contract for works, hire purchase, supply of food and beverages by hotels and restaurants, etc. There were sharp conflict of opinion over such taxation amongst the High Courts and many cases reached the apex court and quashed by the apex court on the ground that essentials of “sale” are missing in the transaction. In order to resolve this controversy reference was made to the Law Commission. The Commission in its 61st report recommended certain amendments to the Constitution and it was decided to levy tax on transactions resembling sales. In the year 1982, Parliament passed the 46th amendment act amending the Constitution in order to bring many of the transactions in which property in goods passed but which could not be considered as sale of goods for the purposes of levy of sales tax.

 

Scope of the amendment

By the 46th amendment a new clause 29A was introduced in Article 366. This insertion defined the expression “tax on sale or purchase of goods” employed in various Articles including the Seventh Schedule to the Constitution to bring within its ambit six specific types of transactions which prior to 1982 were not sale transactions i.e. deemed sale. By virtue of this insertion hitherto non sale transactions were by a deeming fiction considered to be sale transaction and the value attributable to sale of goods was made exigible to sales tax.

 

Service Tax – Scope & background

Service tax was introduced for the first time in 1994. The tax was on three services initially and now has expanded to 119 services. The impost is on the rendering of taxable services defined in section 65(105) on the gross amount charged for rendering such services. The expression service has not been defined in the Finance Act, 1994. However, dictionaries give the meaning as “fruitful labour which does not give rise to tangible property”. Given this brief background on service tax, what is imperative is that in terms of the Constitution of India as expounded by the Supreme Court in decisions including but not limited to BSNL Vs. UOI, 2006 (2) STR 161 (SC) and Imagic Creative Pvt., Ltd., Vs. CCT, 2008 (9) STR 337 (SC), to name a couple, what emanates is that when sales tax is leviable on a particular transaction the self-same transaction cannot be said to be a service. In other words the Supreme Court has time and again held that payment of service tax and VAT are mutually exclusive. It held that composite transactions/contracts may consist of different elements attracting different levies under different enactments. Further it also held that the entire proceeds of the contract could not be made exigible to VAT / service tax. That VAT & Service tax would be leviable only to the extent of element of sale / service. As a result what follows is that once a transaction is held to be a sale the same transaction cannot be held to be a service and vice-versa.

 

Current trend in the CESTAT

The present trend in the CESTAT is – A view is being developed (by a few) that the value of goods is includible in the value of the service in the light of usage of the expression gross amount in section 67, which is the valuation mechanism prescribed in the Finance Act, 1994 and on applying the rule of harmonious interpretation and holding that sale for the constitution is not sale for service tax notification 12/03/.

 

Reason for this article

The recent path breaking decisions of the CESTAT is the reason for this article. This article is written as an informed citizen and denizen of India. I am exercising my right to freedom in writing this article. My aim and purpose in writing this article is not to ridicule or show the CESTAT decision making process in a bad light. All that I am doing is bringing to the fore certain glaring discrepancies in the recent decisions of the CESTAT, which in my opinion are unsettling settled law. This relates to Article 366(29A) (a) to (f) of the Constitution of India.

 

Food for thought

Here is some food for thought – Should the CESTAT by respecting the precedential value of a catena of Supreme Court decisions follow the law laid down or does it have the power, competence and jurisdiction to distinguish a Supreme Court decision rendered on an identical/similar issue?

 

My take on recent CESTAT Decisions

The decisions of the Tribunal in Sayaji hotels, Instrumentation Ltd & Mahabala Mannur have been arrived upon by recording a finding that actual sale is absent. That for the purposes of notification 12/03-ST the concept of sale under the Sale of Goods Act, 1930 would be inapplicable and that sale ought to be understood as per section 2(h) of the Central Excise Act, 1944. The rule of harmonious construction has also been cited to construe the meaning, scope and import of sale for the purposes of the Finance Act, 1994.

 

What I fail to understand is this – the basis to arrive upon the conclusions in the above decisions is palpably erroneous because after the 46th amendment to the Constitution of India the question in relation to the six instances enumerated therein i.e. sub articles (a) to (f) to Article 366 (29A) there is no scope to argue that sales tax is not exigible when there is no actual sale of goods. Because after the 46th amendment to the Constitution all the six instances under Article 366(29A) are by a deeming fiction deemed to be sale transactions and the value attributable to such sale is exigible to sales tax / VAT. In my view, though the six transactions enumerated in Article 366(29A) are deeming fictions but nevertheless these are construed and regarded as actual “sale” for all legal, practical and taxation purposes.

 

Now, when for the purposes of the Constitution of India the six instances in Article 366(29A) are sale transactions and when a lot of water has flown under the bridge on the argument whether there ought to be actual sale, intent of parties etc., is the CESTAT justified in law to rely on a rule of harmonious construction to construe an unambiguous provision against the assessee and lay down a ratio that the value of goods is includible in the gross amount charged for the purposes of imposition of service tax?

 

Secondly, does it not stand to reason that –

¨       When the Constitution of India had to be amended to bring six instances enumerated in Article 366(29A) within the ambit of concept of deemed sale then to impose service tax on similar transactions would the Constitution not have to be amended again?

¨       An argument against this reasoning would be that when the value attributable to sale of goods (deemed sale is what is being deliberated here) is made exigible to sales tax / VAT the remainder of the consideration is towards labour and this is the value of service exigible to service tax.

¨       The above argument would not stand the test of rule of law (in my opinion) because it is well settled by time and hallowed by decisions of the Apex Court that tax cannot be levied by implication.

¨       If service tax is leviable on remainder of the consideration would this not be a crystal clear instance of service tax being imposed by implication rather than as a result of a clear cut mandate?  

¨       There is no mandate according to the rule of law as enshrined in the Constitution of India to impose service tax on the value attributable to services in a composite transaction where there are elements of sale and service.

¨       Is’nt it intellectual dis-honesty on the part of the signatories to the decisions cited above to try to subvert the rule of law in trying to change settled law only to garner more revenue for the politicians to play havoc with such accumulation of hard earned monies – examples being the 2G scam, the CWG scam and many more which have not yet been unearthed.

¨       Is it right on the part of the members to lay down law a law stating that value of goods is includible in the gross amount charged for services in order to compute service tax liability when law is settled on the aspect that the Central government does not have the power, competence or jurisdiction to levy any tax (except where sale occasions the transport of goods interstate) on the sale of goods.

¨       More-so because in terms of the seventh schedule to the Constitution of India the power, competence and jurisdiction to levy sales tax is exclusively given to the State Governments.

¨       Therefore what cannot be done directly also cannot be permitted to be done in-directly.

¨       The decisions under deliberations are excellent examples and samples of in-directly perpetrating what cannot be done directly.

 

Coming back to the discussion on the ratio adopted by the CESTAT i.e. no actual sale and definition under section 2(h) of the CEA ought to be adopted an observation which springs to my mind is worthy of mention i.e. even the supreme court in the context of decisions rendered in the context of Constitutional validity of the service tax provisions have time and again reiterated their understanding. One such example of understanding can be gathered from Tamil Nadu Kalyana Mandapam Association Vs. UOI, 2004 (167) ELT 3 (SC) at para 42, 43 & 44 have referred to the concept of sale of goods under the Sale of Goods Act, 1930 and sale under the law of contracts holding in the following terms “as far as the above point is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case on hand.

1.          M/s. J.K. Jute Mills Co. Ltd. v. The State of U.P. & Anr. [1962] 2 SCR 1;

2.          M/s. Gannon Dunkerley & Co. and Ors. v. State of Rajasthan & Ors. (1993) 1 SCC 364;

3.          The State of Madras v. Ganon Dunkerley & Co. (Madras) Ltd. [1959] SCR 379;

4.          The Sales Tax Officer, Pilibhit v. M/s. Budh Prakash Jai Prakash [1955] 1 SCR 243;

5.          M/s. George Oakes (P) Ltd. v. State of Madras [1962] 2 SCR 570.

Para 43. In regard to the submission made on Article 366(29A)(f), we are of the view that it does not provide to the contrary. It only permits the State to impose a tax on the supply of food and drink by whatever mode it may be made. It does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. This is particularly apparent from the following phrase contained in the said sub-article “such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods”. In other words, the operative words of the said sub-article is supply of goods and it is only supply of food and drinks and other articles for human consumption that is deemed to be a sale or purchase of goods.

Para 44. The concept of catering admittedly includes the concept of rendering service. The fact that tax on the sale of the goods involved in the said service can be levied does not mean that a service tax cannot be levied on the service aspect of catering

 

The interested reader is requested to read the decision of the Supreme Court in State of Uttar Pradesh Vs. UOI, 2004 (170) ELT 385 (SC) which decision went on the basis of substance of the transaction determining if the transaction is a sale or a service. A transaction could be sale for the purposes of one enactment and service for the purposes of another. The reason for stating this decision in this article is simply to enable the interested reader to gather from where the analogy adopted in the recent CESTAT decisions emerged. This decision was overruled by the decision of the Supreme Court in BSNL Vs. UOI, 2006 (2) STR 161 (SC). The extent to which the BSNL decision overruled the State of UP decision is not known. If the analogy adopted in the overruled Supreme Court decision is carefully appreciated, the source of the CESTAT’s reasoning would also be clear.

 

Despite all of the above, in 2011 the CESTAT arrives upon a conclusion that section 2(h) of the CEA is more sacrosanct than the definition of sale under the Sale of Goods Act, 1930. Does it not stand to reason that if the highest law of the land postulates that a certain transaction is a deemed sale would or could there be scope for any other Court in this country to hold to the contrary and advance a finding that there ought to be actual sale? Only time will tell.

 

Food for thought

Even if a Court does hold to the contrary – Is it not right to state that such a Court has not followed the law of the land as stated in Article 141 of the Constitution of India.

Even if it does lay down some law contrary to the Constitution of India would’nt such a decision be illegal ab-initio?

 

Another disturbing feature is the finding in the order of the CESTAT that the legal fiction of sale in Article 366(29A) of the Constitution of India is of no relevance for service tax and the gross amount of the contract would attract service tax. In other words value of the goods is includible in the gross amount of the service. The CESTAT does not give importance to the use of expression “for such service” after the words “gross amount”. It merely appreciates “gross amount” without appreciating that “gross amount” is for “such services” which would inevitably mean the portion of consideration not attributable to sale of goods.   It is a sine-qua-non that provisions of tax law have to be holistically appreciated and appreciation / interpretation of tax provisions in bits and pieces would lead to disastrous consequences.

 

On notification no.12/03

The decisions under deliberation appear to be a brain child to overcome benefit given under notification 12/03. On a mere perusal of notification 12/03 what emerges clearly is that the intent of the legislature is to give benefit / abatement to the value of goods sold in the course of rendering services subject to non availment of cenvat on the inputs and subject to evidence. The controversial decisions if appreciated would lead one to the conclusion that benefit under 12/03 is sought to be denied on one pretext or the other. By interpreting notification 12/03 as being available only to actual sale is to disfigure the intent, purpose and object of notification 12/03. The manner in which the word “sale” in notification 12/03 has been interpreted would lead to defeating the very purpose for which the notification was issued in the first place and in the second defeats the ratio laid down by the Supreme Court holding that levy of VAT & service tax is mutually exclusive.

 

As an informed denizen and a practicing in-direct tax lawyer what I fail to comprehend is – If the Supreme Court states that the deeming fiction in Article 366(29A) was to enable the states to levy sales tax on the portion of the contract which represents sale then is it prudent and judicially proper for the CESTAT to hold in Sayaji Hotels case at para 22.2 -

When a Mandap Keeper, while providing catering service as part of the service in relation to use of Mandap by his client, serves the food and drink, just because by virtue of the legal fiction of Article 366(29A)(f), sales tax is charged on the supply of the foods and drink served by treating the same as deemed sale, the Mandap Keeper does not became the seller of food and drinks for the purpose of Notification No. 12/03-S.T”.

 

If the above were to be the legal position, why should the Government give ad-hoc abatement under notification No.1/06-ST when Mandap Keepers supply food and drink.  Should it not be the duty of the CESTAT to examine the entire issue holistically keeping in mind the entirety of the Finance Act, 1944 including various notifications issued thereunder vis-à-vis Sales Tax laws? More-so when the President of the CESTAT is a retired High Court judge.

 

What the CESTAT failed to take cognizance of is that the said deeming fiction operates in the Constitution of India which I was told and had led to believe in these 10 years of my practice, as the supreme law of the land and if any other law advanced a principle / aspect / provision which was contrary to anything contained in the Constitution of India then such a contrary principle / provision/ enactment had to be read down and had to be brought in line with what was stated in the Constitution. This was one of my first lessons while I studied law.

 

Be that as it may, the question which needs immediate attention is whether the CESTAT is legal and proper in laying down law contrary to Constitutional mandate as interpreted by the Apex Court decisions which are binding in terms of Article 141 and advancing unsustainable theories that if deemed sale operates for the purposes of the Constitution it shall not operate for the purpose of a notification i.e. 12/03 because there is no actual intent etc., and there is no actual sale. When there is a deeming fiction created to enable the State Governments to levy sales tax can there be an argument that there is no actual sale. If that were to be so then could the State Governments tax such transactions, if there were to be no sale of goods? The very meaning of the expression deeming fiction is to acknowledge the presence of something which actually is not. The CESTAT members, it appears have lost sight of this elementary principle of law while rendering illogical and intellectually dis-honest decisions.  

 

The intent and actual sale concepts, in my opinion have no relevance in the post 366 (29A) era. After article 366(29A) was inserted the six clauses which were (emphasis supplied) hitherto not considered to be actual sale were thereafter considered to be actual sale of goods. What needs appreciation here is that there was no actual sale or intent because of the operation of the deeming fiction inserted in Article 366(29A). Therefore in the six clauses after insertion of Article 366(29A) in the Constitution of India there is a deemed sale of goods and such deeming fiction in the Constitution of India operates and cuts across all other laws in force in India. If any law advances or any attempt is made to advance a theory which goes against the deemed sale concept under Article 366 (29A) such law necessarily has to be read down and brought in line with what is stated in the Constitution of India.

 

However, the principle of reading down might not have been one of the principles by which the CESTAT would have been impressed and hence instead chose to apply the Rule of harmonious construction to a clear unambiguous notification 12/03. According to me there is no scope for interpretation when a provision is as clear as crystal. Notification 12/03 luckily is one such crystal clear notification which calls for no interpretative skills on the part of the person desirous of claiming its benefits.

 

If what has been stated above is appreciated the analogy adopted by the CESTAT would hold no water because the CESTAT is not competent to criticize or take a stand contrary to what the Supreme Court and the Constitution of India postulate. It is the bounden duty of the CESTAT not to create controversies which have a far-reaching impact and have the tendency of increasing litigation on issues which are settled. It is also the bounden duty of the CESTAT to follow the law laid down by the Supreme Court and to respect the mandate in the Constitution of India.   

 

I hope against hope that the people involved in the arguing the cases cited above challenge the validity of the decisions in the High Court where some constitutional appreciation can be expected. I also hope that the CESTAT is used as an instrument to reduce litigation rather than to create them.

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Tax by implication – Perfect examples


Tax cannot be levied by implication” is a well settled principle chronicled in the annals of tax laws, direct and indirect. A perfect example of tax by implication was the levy of sales tax on a composite contract of sale and service prior to the 46th amendment to the Constitution of India in 1982.

Examples of tax by implication after the 46th amendment can be gathered from the taxable service categories of

¨       Construction services.

¨       Outdoor catering services.

¨       Photography services and

¨       Works contract services.

¨       Information Technology Software Services

¨       Management, maintenance or repair

Service tax on these services came into effect from various dates. What is startling is that the constitutional validity of some of the above services has been upheld by the Supreme Court without appreciating the deliberation to follow.

The controversy on whether sales tax could be levied on value of materials supplied in a composite contract when the contract was an indivisible one (the indivisibility aspect being legal only till the 46th amendment, according to me) was settled in the decision of the Supreme Court in State of Madras Vs. Gannon Dunkerley & Co. Pvt., Ltd., 9 STC 353 (SC). The effect of this decision was that the State had no power to levy tax on entire receipts of an indivisible composite contract and it also had no power to split up a composite agreement into its constituent parts, single out that which relates to supply of materials and impose tax treating it as sale.

 In 1982 the parliament passed the 46th amendment to the Constitution in order to bring many of the transactions in which property in goods passed but which were earlier not considered sale. By this amendment a new clause 29A was inserted in Article 366 of the Constitution of India. By virtue of this insertion the scope of the expression “tax on sale or purchase of goods” was amplified by a deeming fiction. This clause is proposed to be deleted for the anvil of GST.  

There were six clauses to Article 366 (29A) by virtue of which hitherto non-sale transactions were deemed to be sale. What merits careful appreciation is that the amendment was with specific reference to the State’s power to levy sales tax on a deemed concept of sale post 46th amendment. Reference may be had to the decisions in Builder’s Association of India Vs. State of Karnataka, 88 STC 248 (SC) and Gannon Dunkerley & Co Vs. State of Rajasthan, 88 STC 204 (SC) for an understanding of the concept of deemed sale of goods.

This deliberation deals with service tax imposed by the Central Government on that portion of the consideration that is not taxed to sales tax by the states in a composite contract of sale of goods and rendering of service, by implied reference to Article 366(29A) of the Constitution of India. In plain and simple words – what is not permitted to be done through the front door is openly done through the back door.

 In all the six services, above, there is an element of transfer of property in goods (either deemed or actual), which amounts to sale of goods in terms of the Constitution of India. Sales tax is leviable by the State’s on that part of the consideration attributable to deemed sale of goods after the 46th amendment to the Constitution of India.

However, it is interesting to note that the Constitution of India does not have any specific article empowering the Central Government to levy service tax on the element of labour / service involved in a composite contract of sale and service.

In the context of the six services above what is to be measured is that the 46th amendment to the Constitution of India was singularly with specific reference to State’s power to levy sales tax on the portion attributable to sale of goods in a composite contract of sale and service. That’s it and that’s all. There was absolutely no other intent. This analogy is buttressed by the statement of objects and reasons of the 46th amendment to the Constitution. Not abstracted here, interested reader would do well to go through it at their leisure.

A question which comes to mind at this juncture is this – When the constitution had to be amended (46th amendment) to authorize State Governments to levy sales tax on the sale element in a composite contract, why is’nt such an amendment required / necessary /imperative to empower the Central Government to levy service tax on the service element in a composite contract of sale and service?

If the Central Government levies service tax on the service element without there being a Constitutional sanction for such an act, would’nt such an act be unconstitutional? Would’nt such an act be “taxation by implication” (necessary or otherwise).

This article merely proposes that service tax cannot be levied on the service element in a composite contract of sale and service by repeated reference to Article 366(29A), to draw an inference that when the State can levy sales tax on the sale element in a composite contract, the remaining element is attributable to service and therefore the levy of service tax on such part of a composite contract is justified. Such a reading according to me, would not be justified / legal or proper and would not be in consonance with the mandate of Article 265 of the Constitution.

 Taxation by implication has been struck down, not only in our country but also world over. There is nothing like an implied power to tax. The source of power (Article 366 (29A) r/w Article 265 does not speak of service tax and cannot be so interpreted by expanding it as to include therein the power to tax by implication or by necessary implication.

In Tandy Leather Company v.United States, 347 F.2d 693 (5th Cir. 1965), Judge Hutcheson of the 5th Circuit eloquently and unequivocally proclaimed at p. 694-5:

“that the burden in such a case is always on the collector to show, in justification of his levy and collection of an excise tax, that the statute plainly and clearly lays the tax; that, in short, the fundamental rule is that taxes to be collectible must be clearly laid.”

The power to tax is an attribute of sovereignty in a country. Parliament of India is allowed more freedom of choice in taxation in comparison to other laws. Taxation is not merely a means to raise revenue but a means to reduce inequalities. The lobbying capacity of any particular sector determines the leviability of tax on such a sector in today’s times. In taxation matters, it is not a question of power, but one of constraints of the policies the interest of economy, of trade, profession and industry, the justness of the burden, its acceptability and other similar considerations. These are never the aspects taken into consideration while levying tax in India.

In my personal opinion, the rule of law ought to be this – where the intent or meaning of tax statutes, or statutes levying taxes, is doubtful, they are, unless a contrary legislative intention appears, to be construed most strongly against the government and in favor of the taxpayer or citizen.

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Bill of entry assessment


 

Rendition of the judgement in Flock India’s (FI for short) case by the Summit Court was interpretation of Central Excise law at its best, there could not, in my opinion, have been a better judgement given the facts of the case. However, the chaos caused thereafter, by application of its ratio to purported bill of entry assessments under the Customs law by various forums is legend. This is the subject matter of this paper. The decision is now a double-edged sword that cuts, both the assessees and the department.

It escapes one’s mind as to how a decision that dealt with assessment of goods, in the sense of agitating classification by way of a refund claim, when the order classifying goods under a particular tariff entry was not challenged before the appellate authorities under Central Excise as it stood during 1982 (when the procedures for assessment towards excisable goods were stringent and there was departmental control being exercised over removal of goods), be applied to a bill of entry assessment under the Customs law (which law and procedure has more or less remained the same except for the advent of technology in the past few months i.e. EDI system of presenting a bill of entry).

In order to appreciate the decision in FI’s case it is elementary to get the facts in FI’s decision straight. The same, as understood (or misunderstood) by me, were as follows: - 

  1. FI were manufacturers of jute hessian flocked with nylon under L-4 license issued under the Act.
  2. FI filed a classification list in which classification for their goods was claimed under item 22-A.
  3. The Assistant Collector after examining the product passed an order on 21-1-78 holding that FI’s product in question was classifiable under tariff item 22-B carrying 25% ad valorem rate of duty.
  4. In the said order the Assistant Collector expressly stated that the assessee may prefer an appeal against his order to the Collector (Appeals).
  5. FI neither challenged the said order by filing any appeal nor did it pay the duty under protest.
  6. FI thereafter filed a refund claim on 6-4-1979 claiming refund of duty paid contending inter alia that their product was wrongly classified under tariff item No. 22-B, instead it ought to be classified under tariff item No. 22-A and that the differential duty ought to be refunded.
  7. The AC after service of notice on FI passed an order dated 27-8-1980 dismissing the claim for refund on the ground that the order dated 21-1-1978 classifying the product as falling under tariff item 22-B had attained finality, and that the claim for refund was not maintainable.
  8. FI filed an appeal before the Collector (Appeals) who by an order dated 6-1-1984 allowed the appeal, set aside the order dated 27-8-1980 passed by the AC and remanded the matter with a direction to reconsider the matter on merits including the question whether the goods were classifiable under tariff item 22-A or 22-B.
  9. The Department challenged the order of the Collector (Appeals) by filing an appeal before the Customs, Excise & Gold (Control) Appellate Tribunal (CEGAT) which appeal was dismissed by an order passed on 19-9-88.
  10. The said order was challenged in the Supreme Court by the Department and the question before the Supreme Court was dependent on whether the jurisdiction of the Assistant Collector while considering an application for refund of duty paid was independent of the jurisdiction exercised by him in determining classification of the product in question. This was the question of law (kindly appreciate the parody).
  11. Reference to Rule 11 as it stood at the relevant point of time was made by the Supreme Court. The same is extracted hereunder for readers’ easy reference:

“Rule 11 Claim for refund of duty. – (1) Any person claiming refund of any duty paid by him may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the date of payment of duty: Provided, that the limitation of six months shall not apply where any duty has been paid under protest.

Explanation : Where any duty is paid provisionally under these rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate of duty, as the case may be.

(2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by the applicant should be refunded to him, he may make an order accordingly.

(3) Where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to an person, the proper officer may refund the amount to such person without his having to make any claim in that behalf.

(4) Save as otherwise provided by or under these rules no claim for refund of any duty shall be entertained.

Explanation : For the purposes of this rule, “refund” includes rebate referred to in Rules 12 and 12A.”

  1. For a determination of the question formulated by the Supreme Court it was pertinent to refer to the provisions relating to appeals under the Act. Section 35 of the Central Excise Act, 1944 provided for appeals to Collector (Appeals). Sub-section (1) thereof laid down that any person aggrieved by any decision or order under the Act by a Central Excise officer lower in rank than a Collector of Central Excise may appeal to the Collector (Appeals) within 3 months from the date of communication to him of such decision or order. Proviso to sub-section (1) laid down that the power was vested in Collector (Appeals) to extend the period by further three months if he was satisfied that the appellant was prevented by sufficient cause from presenting the appeal aforesaid within the period of three months prescribed under the sub-section. Section 35-A laid down the procedure to be followed in disposal of the appeal. In sub-section (3) thereof it was provided that the Collector (Appeals) may after making such further inquiry as may be necessary pass such order as he thinks fit confirming, modifying or annulling the decision or order appealed against, or may refer the case back to the adjudicating authority with such directions as he may think fit for a fresh adjudication or decision, as the case may be. Section 35B (1) (b) made an order passed by the Collector (Appeals) under Section 35A appealable to the appellate tribunal.
  2. In view of the above factual background the Supreme Court held that classification of goods manufactured by an assessee was important for the purpose of levy and collection of excise duty and at the relevant point of time Rule 173B cast a duty on every assessee to file with the proper officer a declaration listing the goods manufactured by him (claiming a particular classification) for approval and the proper officer after such inquiry as he deemed fit would approve the list with such modifications as considered necessary and clearances were to be made only thereafter.
  3. The Apex Court held that there was no scope for doubt that in a case where an adjudicating authority had passed an order which was appealable under the statute and the party aggrieved did not choose to exercise the statutory right of preferring an appeal, it was not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order.
  4. That if this position was accepted then the provisions for adjudication in the Act and the Rules, the provision for appeal in the Act and the Rules would lose relevance and the entire exercise would be rendered redundant.
  5. Such a position in the Supreme Court’s view ran counter to the scheme of the Act and introduced an element of uncertainty in the entire process of levy and collection of excise duty.
  6. Therefore, an order, which was appealable under the Act and was not challenged would not be liable to be questioned and the matter was not to be reopened in a proceeding for refund.

Now in these circumstances the point under deliberation, in this paper, is this – Whether Courts and Tribunals are legally justified (taking into consideration the provisions of law, scheme of things, procedures followed and manner in which the laws are administered) to apply FI’s decision to a purported bill of entry assessment under Customs and consistently hold that unless the bill of entry assessment is challenged no action can be taken (i.e. refund, classification or demand). More sense on this contentious yet settled issue is sought to be made by analyzing the scheme of assessment under Central Excise and Customs law and analyzing the scheme of assessments under both the laws during 1982 and presently.

What merits appreciation if the ratio of FI’s decision is to be applied across the board is that when form ER1’s or ST3’s are not challenged by the Department no show cause notice can be issued for non-levy, short levy or erroneous refund. This is because the Act does not specify whether the assessment ought to be self or departmental and if it is departmental whether the assessee ought to be a mute spectator or play an active role in the assessment proceedings.  Such a view in my opinion is absurd. More-so when section 27 of the Customs Act, 1962 in clear, uncertain and unambiguous terms postulate that a refund claim can be preferred “pursuant to an order of assessment”. The readers may appreciate that no reference is made to a bill of entry assessment. The aspect that needs to be countenanced and determined is this – when section 27 is clear and unambiguous are Courts and Tribunals justified in law to interpret the provisions in such a manner and apply a decision rendered during the year 1982 in the context of the Central Excise Act, 1944 to a purported bill of entry assessment under Customs Act, 1962, when the law and procedures applicable to assessments under central excise and customs are not pari materia or remotely identical. 

PROCEDURES OF ASSESSMENT UNDER CENTRAL EXCISE: 

From 1961 to 1965 procedures for assessment of excise duty were broadly this. Companies used to supply the price list every quarter to the Superintendent, who would approve the price list. The price list so approved formed the basis of assessment and levy of excise duty. This was the invariable course of business. The assessment of duty was made on RT 12 statements when the assessees’ filed monthly statements. Thus, in law the date of payment of duty was the date of assessment by proper officer of Central Excise.

It may at this juncture be appropriate to mention that an assessment without the application of an identifiable test (emphasis supplied) would be nothing but perverse and arbitrary. 

Assessment was defined under Rule 2 of the CER, 1944 as – assessment means assessment of duty made by the proper officer and includes re-assessment, provisional assessment under R.9B, summary assessment under Rule 37A and best judgement assessment under R173Q and any order of assessment in which the duty assessed is nil. During this era (emphasis supplied) the assessees’ were required under Chapter VII that dealt with Removal of excisable goods on determination of duty by producers, manufacturers or private warehouse licenses, to follow the following procedure: - 

¨         173 A – Application;

¨         173B – Assessee to file list of goods for approval of the proper officer;

¨         173C – Assessee to file price list of goods assessable ad valorem;

¨         173CC – Assessee may remove goods in certain cases pending approval by the proper officer of the classification or price list;

¨         173 D – Assessee to furnish information regarding principal raw material;

¨         173 E – Determination of normal production;

¨         173 F – Assessee to determine the duty due on the goods and to remove them on payment thereof;

¨         173FF – Assessee to remove goods from the factory or warehouse during the hours fixed by Collector;

¨         173G – Procedure to be followed by the assessee;

¨         173H – Retention or re-entry of duty paid goods in the factory or warehouse;

¨         173I – Assessment by proper officer – (1) The PO shall on the basis of information contained in the return filed by the assessee under sub-rule (3) of Rule 173G and after such further inquiry as he may consider necessary assess the duty due on the goods removed and complete the assessment memorandum on the return. A copy of the return so completed shall be sent to the assessee 

(2) The duty determined and paid by the assessee under rule 173F shall be adjusted against the duty assessed by the proper officer under sub-rule (1) and where the duty so assessed is more than the duty determined and paid by the assessee, the assessee shall pay the deficiency by making a debit in the account current within ten days of receipt of a copy of the return from the PO and where such duty is less, the assessee shall take credit in the account current for the excess on receipt of the assessment order in the copy of the return duly countersigned by the Supdt of CE.

¨         173K – Special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable goods (other than declared excisable goods);

¨         173L – Refund of duty on goods returned to factory;

¨         173N – Procedure in respect of warehoused goods;

¨         224 – Restriction on removal of goods;

During this period the assessees’ were required to maintain the following registers as per statute: - 

Particulars of Registers Name Relevant Rule as per which the register had to be maintained
Register of declarations and annual returns by small growers and curers S.B R15, 16, 36 & 37
Daily stock account of excisable goods RG1 53
Account of excise duty / CVD paid material received for the manufacture of other excisable goods RG23 R56A

The following were the formats of applications for statutory removal common to all manufacturers/producers:

Particulars of applications Name Relevant Rule as per which the register had to be maintained
Application for removal of excisable goods on payment of duty – AR 1 – Rule 9, 9B, 52, 80, 93 & 158
of excisable goods from a factory or a bonded warehouse to another warehouse – AR3 – R156, 156A & 158
     

The following were the transport documents required to be issued by the assessee as per statute

Particulars of transport documents Name Relevant Rule as per which the register had to be maintained
Permit for duty paid un-manufactured products – – TP 1 R.25, 32 & 33
Permit for un-manufactured products on which duty has not been paid – – T P 2 R.32, 33 & 156A
Certificate for un-manufactured products on which duty has not been paid – – TP3 R31, 32 & 33
Gate pass for removal of excisable goods from a factory or a warehouse on payment of duty – – GP1; R.52-A, 173G

The following were the returns, which had to be filed as per the statute

Particulars of Returns Name Relevant Rule as per which the Return had to be filed
Annual returns of un-manufactured products grown – RT1 – R36
Annual returns of un-manufactured products cured – – RT2 R37
Monthly return of excisable goods manufactured and issued RT3 – R54 –
Monthly return of other goods manufactured RT4 -R54 –
Periodical/Quarterly return of materials used RT5 – R55 –
Monthly return of stocks and receipts of CE stamps purchased for cash RT 6 – R.67 –
Monthly return of stocks and receipts of CE stamps obtained on credit– RT 6(Cr.) – R.67
Monthly return of excisable goods used without payment of the whole or part of the duty for special industrial purposes and of commodities manufactured therefrom    

In order to appreciate the gulf of difference between assessments under central excise and customs a glance at the provisions relating to “assessment” under the Customs laws would be helpful. The same are summarized below, for reference:

Customs Act, 1962 – “Assessment” – Section 2 – includes provisional assessment, reassessment and any order of assessment in which the duty assessed is nil.

Section 17 at all material points of time in this discussion dealt with assessment of duty wherein at (1) it was laid down that after an importer had entered any imported goods under section 46 or an exporter under section 50 the said goods without undue delay be examined and tested by the PO. (2) After such examination and testing, duty if any leviable on such goods save as otherwise provided in section 85, be assessed. (3) For the purpose of assessing duty under sub-section (3) the PO may require the importer, exporter or any other person to produce any contract, broker’s note, policy of insurance, catalogue or other document whereby the duty leviable on the imported goods or export goods can be ascertained and to furnish any information required for such ascertainment which it is in his power to produce or furnish, and thereupon the importer, exporter or such other person shall produce such document and furnish such information. (4) Notwithstanding anything contained in this section, imported goods or export goods may prior to the examination or testing thereof, be permitted by the proper officer to be assessed to duty on the basis of statements made in the entry relating thereto and the documents produced and information furnished under sub-section (3); but if it is found subsequently (emphasis supplied) on examination or testing of the goods or otherwise that any statement in such entry or document or any information so furnished is not true in respect of any matter relevant to the assessment the goods may without prejudice to any other action which may be taken under this Act, be re-assessed to duty (emphasis supplied). The highlighted provisions would be redundant if the ratio of FI’s decision is applied.

Section 18 – provided for provisional assessment of duty and section 19 for determination of duty where goods consist of articles liable to different rates of duty. These were and are the only provisions under the Customs law, which provide for assessment.

The point again being driven home is this – that on a comparison with the above procedures of the Customs law and of those under the Central Excise law it can be established beyond doubt in a judicious court of law that the procedures and scheme of things under excise and customs were and are to use the language of studied moderation “a world apart”, they are not even identical.

Assessment/Re-assessment – Procedures for assessment of duty can arise in different situations – Sections 13, 17, 27 and 28 of Customs Act. – Section 17 provides for two types of procedures for assessment, one after examination and testing of goods, and another before such testing to expedite clearances of goods on the basis of statements in bill of entry, which may require re-assessment in case such statements are found incorrect in any manner. But this Section nowhere lays down that re-assessment can only be made for the reason mentioned in that Section alone and for no other reason. It can arise for various other reasons or situations such as disputes on valuation, or classification, or matters involving benefits of notifications. For instance, Section 27 provides for refund claims, or Section 28 for demand of duty short levied for these and other reasons, which involve re-assessment of duty originally assessed. If the interpretation that re-assessment can only be done under Section 17 is to be followed, then other Sections would be rendered nugatory. Similar is the case with Section 15 in so far as prior entry system is concerned otherwise its proviso would become redundant. As per a rule of interpretation, various Sections of an Act have to be construed harmoniously. Any interpretation, which renders other portions of the Act nugatory has to be rejected.

Assessment and rate of duty – Laying down the procedure of assessment does not override the charging provision under Section 15 of the Customs Act, 1962 – No conflict between the provisions of Sections 15 and 17 of the Customs Act, 1962. – Section 17 does not over-ride Section 15, or for that matter any other Section inasmuch as the former is a machinery provision laying down procedures of assessment in certain situation whereas Section 15 is a part of the charging provisions under the Act laying down crucial date for the rate of duty in force which is to be applied to the goods. In fact, there is no conflict between Section 17 and the other Sections because each one of them covers a different type of situation.  Looking at the Scheme of things under the Customs Act, 1962,  it would appear that- (a) special forums have been created and the procedure prescribed for the adjudication of rights and liabilities there under; (b) refund of duty collected on the basis of erroneous assessment has been specifically provided for and a period of limitation had also been prescribed; (c) the remedies provided are not inadequate. The assessees can get the errors in assessments rectified in appeal or in other proceedings if they so chose, since questions relating to correctness of an assessment, apart from its constitutionality or competence are for the decision of the authorities constituted under the statute and in accordance with the provisions thereof.

On comparing the above provisions one would definitely for sure come to the indubitable, inescapable and logical conclusion that the procedure / scheme of assessment under Central Excise was in no way remotely identical or deceptively similar or in pari-materia with the provisions relating to a purported bill of entry assessment under the Customs law then or now.

The point being made here is that the law relating to assessment under the Central Excise and the Customs were and are not even remotely similar and therefore are the Courts and Tribunals legally justified in interpreting the provisions of Customs in a perverse manner so as to frustrate the object of provisions relating to refund and apply a decision rendered in the context of Central Excise in the year 1982 to present assessments under Customs law. – Refer decision in Priya Blue Industries case – a mediocre decision – there is no reference to the facts of the case and any discussion on how the decision in FI’s case was even relevant.  

Some of the reasons, in my opinion, for inapplicability of FI’s decision to a bill of entry assessment under Customs law and some important questions arising for deliberation are stated below and it may be appreciated that the reasons/questions are only illustrative in nature and innumerable instances can be stated at any given point of time:

  1. In order for a decision to be applied as a precedent to any given case it is a sine-qua-non that the facts of the case ought to be identical or similar;
  2. In order for a decision to be applied as a precedent to any given case it is a sine-qua-non that the provisions of law being interpreted and the scheme of things ought to be in pari materia;
  3. The scheme of assessments under Central Excise law and a bill of entry assessment under the Customs law are different; (refer discussion infra).
  4. The provisions under the Central Excise and Customs laws dealing with assessments are not in pari material; 
  5. The application of the FI’s decision to a bill of entry assessment runs counter to the provisions of the Customs law dealing with refunds and renders the provisions of section 27 of the Customs Act, 1962, redundant and a mere embellishment; (with due respect to the decision in Priya Blue Industries case which interprets the expression “pursuant to an order of assessment” in a manner inconsistent with legal principles)
  6. If the decision in FI’s case is applied to a bill of entry assessment then CBEC’s supplementary instructions issued vide a Circular / notification in the context of refunds under customs law is rendered a mere farce when it is settled law that instructions of the Board are binding on departmental officers even if it places an interpretation counter to that of a Supreme Court decision;
  7. The principle of estoppel would be applicable to taxing statute as the assessee and or the Department would be estopped from seeking refund or enhancing the value of imported goods as the case may be, without first challenging a purported bill of entry assessment;
  8. What is the order of assessment being referred to in the FI’s decision;
  9. Where is an order in a bill of entry assessment;
  10. What is the meaning of an order;
  11. Is a bill of entry assessment an appealable order;
  12. What is an appealable order;
  13. Are there reasons given in the bill of entry for denial of any benefit or any justification for classifying any particular product under a particular entry;
  14. Is such a reasoning being given in the EDI system being followed (where the computer is the proper officer conducting the purported assessment); 
  15. What is the meaning of natural justice;
  16. Are’nt the principles of natural justice rendered a mere embellishment;
  17. When is a hearing given;
  18. When are allegations made known;
  19. Is there a speaking order;
  20. Do the purported assessment of bills of entry show any application of mind;
  21. Has any officer of the customs granted benefit of any notification legally available to imports if the importer has not claimed the same in the bill of entry;
  22. Is’nt it the duty of the officer of the customs to educate and guide any importer on the benefits available to any particular product being imported;
  23. Were any decisions expounding the meaning of the expression “assessment order” referred to by any Court, Tribunal or administrative authority before applying the ratio of the FI decision;
  24. Why was the expression assessment order not expounded in any of the decisions;
  25. Is the assessment order being spoken of in FI’s decision made under section 47 of the Customs Act, 1962 or under section 17 or under both;
  26. Does the proper officer have jurisdiction to pass an order under section 47 determining the liability to duty;

 

These are a few pointers as example on why the decision in FI’s case cannot be applied across the board when it is said that a bill of entry assessment is an appealable order. Were any of the above aspects even remotely appreciated in any of the decisions rendered on this subject till-date?

Judicial decisions which, have expounded the meaning of the expression “assessment” under the Central Excise and Customs laws would be of relevance to the issue under deliberation, and would substantiate the argument being made against the application of the decision in FI’s case left, right and centre by various Courts, judicial and quasi judicial forums in this country.

¨              The decision of the Supreme Court in Hazari Mal Kathiala Vs. ITO, 1958 (30) ITR 500 (SC) expounded as to what is assessment and re-assessment in the context of section 13 of the Income Tax Act, 1922. The Court held that assessment commences when the ITO issues a notice under section 22 and terminates when the ITO determines the amount due by the assessee and Re-assessment it was held commences with the issue of a notice under section 34 which empowered the ITO to re-examine and re-determine the income tax liability inspite of prior determination. The Court held that in any case the rule in pari-materia was not applicable when the object to which the words are applied or the intention with which the measure is enacted require the words to be differently understood in the two statutes or where the expression used in the later statute are not re-enacted with the same limitations as in the earlier statute or where a contrary intention is manifested by other qualifying or explanatory terms. The Court held that statutes in pari-materia may not be resorted to control the clear language of the statute under consideration and relied upon Palmer Vs. Santvoord, 153 New York 612 in support of this proposition. The Court held that in construing the expression “assessment” appearing in section 13 of the IT Act of 1950, the Court ought to have regard to the policy which introduced its enactment, for it is a cardinal rule of interpretation that in construing law of a doubtful meaning the Court should adopt the sense of the words which promote in the fullest measure the policy of the legislature and to avoid a construction which would alter or defeat that policy. The Court held that the same word may mean one thing in one context and another in a different context as held in D N Banerji Vs. P R Mukherjee & Ors, 1953 SCR 302 and held that as pointed out by Justice Holmes in an oft quoted passage “A word is not crystal, transparent and unchanged; it is the skin of a living thought and, may vary greatly in color and contents according to the circumstances and time in which it is used. The Court held that assessment is the official determination of liability of a person to pay a particular tax and that the levy of taxes is generally a legislative function; assessment a quasi-judicial and collection an executive act and that these three expressions were of the widest significance and embraced in their broad sweep all the proceedings which could possibly be imagined for raising money by exercise of the power of taxation from the inception to the conclusion of the proceedings. A similar line of reasoning emanates from the decision in A N Lakshman Shenoy Vs. ITO and Another, 1958 (34) ITR 275 (SC) and in this decision at page no.293 it is held that in his speech in Commissioners for General Purposes of Income Tax for the City of London Vs. Gibbs and Others, 1942 AC 402, Lord Simond pointed out that the word assessment was used in the English Income Tax Code in more than one sense; and sometimes within the bounds of the same section, two separate meanings could be found. One meaning is the fixing of the sum taken to represent the actual profit and the other the actual sum in tax, which the taxpayer is liable to pay. In Bhawani Cotton Mills Ltd., Vs. State of Punjab, 1967 (20) STC 290, it was observed “in Modern taxation laws it was not unusual to find a provision the effect of which is to make imperative the initial deposit of tax which may in certain contingencies have ultimately to be refunded on the ground that it was not due”. The coercive aspect of levy when its meaning was considered in connection with the process of collection was also considered and it was held that the submission that “even if the word levy is to be taken to mean to impose, assess or collect under the authority of law it could only mean collection after assessment and not a deposit which a dealer had to make in accordance with his quarterly return. It was held that if there is a liability to tax, imposed as per the taxing statute, then the course open is to follow the provisions in regard to the assessment of such liability.

¨              In Chatturam Vs. CIT, 15 ITR 302, quoting from the judgement of Lord Dunedin in Whitney V. Commissioner of Inland Revenue, 1926 AC 37, it was held that there are three stages in the imposition of a tax. There is the declaration of liability, i.e. the part of the statute, which determines what persons in respect of what property are liable to tax. Next is the assessment. Liability does not depend on assessment. That, ex-hypothesi, has already been fixed. But assessment particularizes the exact sum, which a person liable has to pay.  Lastly, the method of recovery, if the person taxed does not voluntarily pay. Also see CIT & Aden Vs. Khemchand Ramdas, 1938 (6) ITR 414 PC for a similar line of reasoning.

¨              The decision in D N Kohli, CCE Vs. Krishna Silicate and Glass Works and Anr, 1983 (12) ELT 216 (Bom.). The High Court in this case held that mere signing of AR 1 memorandum by inspector was not determination of assessable value and final assessment. – Refer Para 12 of the judgement.

¨             The Calcutta Bench of the CEGAT in Balaji Fastners Vs. CCE, 1990 (46) ELT 543 (T), held at para 49, 50 & 51 that assessment by proper officer under Rule 173I (CEA) cannot be equated with the work of the computist in the Customs, as under Rule 173I, the officer has to apply his own mind and is required to complete the assessment after such further enquiry as may be considered necessary. It is noteworthy that this rule directs the provision to ‘assess the duty” and not merely to compute the same although computation is (also) naturally involved and is indeed necessary to conclude the process. We also hold that adjustment was not assessment but it was our opinion that it was consequential to completion of assessment and this completion by the Superintendent is the tail end of the process of assessment which was spread over, distinct, self-contained stages beginning with the approval of classification list by Assistant Collector and ending with the completion of RT12 by the Superintendent. The action of the Superintendent is thus the concluding part of the process and ultimately the matter reaches finality only on the date and time of passing of the assessment order on the RT12 by the Superintendent of Central Excise in terms of Rule 173I. As a matter of fact, the procedure prescribed for assessment under the Customs Act is quite different from the one prescribed under Central Excise Act and even within Central Excise, it is different for the items under physical control and the items under SRP, and therefore, it would not be correct in our view to apply the procedure of one category in respect of another. In fact the very concept and mode of assessment has undergone a fundamental change after introduction of SRP, inasmuch as under this scheme, the goods could be cleared in anticipation of finalization of assessment, which was unthinkable prior to introduction of this system. It will be erroneous, therefore, to read the new provisions in the light of old ones or in the context of old concept, which must be given a go by in view of the new situation. [This decision aptly elucidates the concepts of assessment under the Customs and Excise laws].

¨             The views expressed by the CEGAT Calcutta Bench in CCE Vs. Indian Cable Company Ltd., 1990 (47) ELT 112 (T), are as follows – The procedure laid down in Rule 173-I is a vital part of the self-removal procedure scheme where under the assessee takes clearance of excisable goods by debit of duty determined by himself on the basis of approved classification list and price list as applicable. No assessment of goods by the departmental officers takes place at the time of the clearance of the goods under the self-removal procedure scheme. A monthly return of production and clearances and payments of duty is submitted which is called RT-12. Only when the RT-12 is scrutinized by the departmental officers would they come to know whether the duty calculations and payment shown in the RT-12 are correct. In the present case the duty rate has been declared by the assessee himself for the said goods. Likewise, the quantity cleared has also been declared by them. The classification and the rate of duty which have already been determined by the Assistant Collector while approving the classification list had been indicated by the assessee in the RT-12. It is seen that while calculating the amount of duty by applying the rate of duty to the quantity cleared the present respondents have committed an error and paid a lower amount of duty than what was liable to be paid. There have been no assessment of officers at this stage and the revised amount of duty calculated by the Superintendent and communicated to the assessees for making payment is not the result of any adjudication action disputing a claim either on classification or on valuation by the assessee. [Readers kindly take notice of this averment]. It was to take care of such situation arising for example from errors in calculation that Rule 173-I has been introduced in the Central Excise Rules. This is a self-contained provision and is not required to be pressed into service by following the procedure prescribed under Section 11A. The decision under Section 11A would be in the nature of an adjudication of a disputed issue. In the present cases, Rule 173-I seeks to confer the power of the departmental officers concerned with the task of original assessment, the power to correct mistake in calculation etc. committed by the assessee while making the calculation of duty and subsequent payment. This is a unilateral action by the assessee at this stage and the departmental officer comes into the picture only when he sees the RT-12 at the time of scrutiny and completion. Since the assessee is not prejudiced by the assessment order which is only checking the correctness of the detail submitted by them in the RT-12 return and taking corrective action only in the course of mistake, the procedure of issuing show cause notice and giving hearing would not be called for and the Rule rightly excludes such a procedure.

¨             It is of supreme importance to take cognizance of the decision of the High Court of Calcutta in Bengal Tools Ltd., Vs. Additional DGRI, 1995 (77) ELT 858 (Cal.), wherein the nature and scope of the power u/s 47 was held to be administrative. It was held that the power u/s 47 was, to see that goods are not prohibited and that assessed duty has been paid and the section did not involve any adjudication nor proper officer making an order of clearance thereunder an adjudicating authority nor does the section result in rendering other powers under the Act nugatory, such as those under Section 28 and Section 111 and that an order under Section 47 was not final in that sense.

¨              In Vijay Rosin Traders Vs. CC, 1994 (72) ELT 54 (T), it was held assessment-cum-clearance order made by proper officer under Section 47 or 51 of Customs Act, 1962 – No finality attached thereto – Proceedings for demand of short levy, seizure, confiscation etc., was permissible.

¨              In Electric Lamp Manufacturers (India) Pvt., Ltd., Vs. CCE, 1981 (8) ELT 37 (Cal.), it was held that the description of the commodity in the declaration form or the other item in the declaration forms filled in by the manufacturer for the purpose of assessment of Excise Duty cannot be final and binding on manufacturer. It should be noted that there cannot be in the first instance an estoppel against statute and secondly, no tax can be collected except under the express authority of law. Assessment, it should be remembered is a quasi-judicial function and has to determined or quantified in accordance with express provision of law. Assessment made without application of mind thus would be bad and null and void.

In order to better appreciate the issue under deliberation an examination of what is an appealable order and the need of an appealable order being a speaking order is necessary and imperative.

Brevity being the essence of substance the author is being brief so as to restrict the length of this article, which cannot be called brief and hence have substance (pun intended). Nevertheless the interested readers in whom I would have kindled some sort of inquiry are advised to refer a few decisions, which have examined the meaning and scope of the expression appealable order, speaking order and as to what are the principles of natural justice. I thank the interested readers for their patience in appreciating the deliberation herein.

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