INSTRUCTION NO 11/2013, Dated: 27 August, 2013
Subject: – Action on Unmatched Challans reflected in Form 26AS – direction of the Hon'ble Delhi HC in the case 'Court on Its Own Motion vs. UOI & Ors in WP(C) 2659/2012 & WP(C) 5443/2012′- regarding
1. The. Hon'ble Delhi High Court vide its judgement in the case 'Court On its Own Motion vs. UOI and Ors' (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14.03.2013) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of 'Unmatched Challans' reflected in Form 26AS where the report by the deductor in the TDS statement are not found available in the OLTAS database resulting in TDS mismatch.
2. The unmatched challans belong to two categories of TDS statements, viz.-
(i) Statements pertaining to FY 2011-12 and earlier which have been processed by jurisdictional TDS Assessing Officers [hereinafter AOs(TDS)]
(ii) Statements pertaining to FY 2012-13 onwards, now processed by CPC(TDS)
3. The Hon'ble Delhi High Court (reference: para 42 of the order), has directed that
"…with regard to unverified TDS under the heading 'U' in form 26AS for verification and correcting unmatched challans within a time period, which should be fixed by the Boardkeeping in mind the date of filing of return and processing of return by the assessing officers."
4. In view of the above direction of the Hon'ble High Court, it has been decided by the Board that the CPC(TDS)/AOs(TDS) shall immediately issue letters to the deductors, in whose case TDS challans are unmatched, with a view to verify and correct these challans. If necessary, the deductors may be asked to file correction statements, as per the procedure laid down and necessary follow up action be taken. The task should be completed by 31st December, 2013 for FY 2012-13 in the case of CPC (TDS) and FYs 2011-12 & earlier in case of AOs (TDS).
5. This may be brought to notice of all Officers working under your jurisdiction for compliance.
6. Hindi version shall follow.
F. No. 275/0312013-IT(B)
(Anshu Prakash)
Director IT (Budget), CBDT
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Plug unimaginable leakage of service tax applicable on import of services
AUGUST 20, 2013
By TIOL Edit Team
REVENUE leakages due to shoddy collection of direct and indirect taxes is a perennial feature of the Indian taxation system. Shoddiness is due to varied reasons that include staff shortages, poor infrastructure and lack of information exchange and coordination between different regulatory authorities.
Comptroller and Auditor General (CAG) every year brings to light several instances of revenue leakages that the Revenue Department at times accepts and acts to recover the revenue lost or overlooked.
In the current monsoon session of Parliament, CAG has presented a clutch of reports on taxation issues. One of the reports that deserve highest priority and immediate attention relates to 'Levy and Collection of Service Tax on Import of Services'.
Import of services including payment of royalty for use of brand or technology owned by a foreign entity was brought under the ambit of service tax (ST) in April 2006.
Strict monitoring of import of services is required to not only prevent leakage of ST and income tax but to also to check money laundering. If a thorough investigation is made into all such imports, a scam may come to light.
Many analysts would harbour such apprehensions after reading CAG report. The suspicion becomes strong if one reckons the fact that services are relatively intangible and hard to verify their disclosed value or price.
That the revenue leakage through import of services is unimaginable and probably massive is evident from CAG's findings arrived on the basis of study of 37 of the 99 purpose codes specified by Reserve Bank of India (RBI) for reporting remittance of foreign exchanges.
The selected 37 codes prima facie relate to transactions that attract ST. CAG study is largely a sample survey of select registered manufacturers and service providers, authorized foreign exchange dealers (AFEDs) and ST commissionerates.
A whopping Rs 8 lakh crore was remitted by businesses for transactions that fall under 37 purpose codes during four years ending 31 March 2011.
CAG found that Revenue Department/Central Board of Excise and Customs (CBEC) does not have a mechanism to arrive at a reliable estimate of value of taxable services imported. It thus can't estimate the gap between collectible tax and tax actually collected.
As put by CAG, "the department did not have any prescribed specific accounting codes or any alternative mechanism to arrive at reliable figures of the taxes collected relating to import of services."
It is shocking to learn that CBEC neither has a system of calling for an annual information returns (AIRs) from identified parties such as AFEDs nor of utilizing data of high value transactions available with other authorities to check potential evasion of ST.
It is no wonder that CAG has listed several instances of tax evasion, under-estimation of tax liability and failure to collect taxes.
One of alleged case of evasion has resulted in ST show-cause notices demanding payment of Rs 900 crore. This might turn out to be case of fly-by-night operator.
A Mumbai-based company named Zoom Developers Limited remitted foreign currency equivalent to Rs 513.15 crore during 2007-08 to 2010-11 under the purpose codes that relate to import of services.
CAG report says: "The assessee could not be located at its registered premises. The Commissioner could not provide its ST returns for the above period or any prior period."
Unable to locate the company, the department has altered its field formations to prevent revenue leakages. It has also sought RBI's help to know about the whereabouts of the assessee.
CBEC has not even taken basic initiatives such as creating awareness through mass media among importers about their liability to pay ST on import of services.
It is disgusting to learn that CBEC requires nudging by CAG for performing such simple pro active role.
CAG has also advised CBEC to initiate steps to enable its staff to access the electronic data available with the Income Tax Department to maximize revenue collection through optimal use of resources.
The Finance Ministry has told CAG that a committee has been set up to work out modalities for sharing information between CBDT and CBEC.
If the Government puts in place a robust system of regular exchange of information between different regulatory agencies, then cases of evasions, under-assessment and non-collection would decline dramatically.
Exchange of information, flagging concerns on real-time basis and inter-agency cooperation requires strong intervention by ministers and bureaucrats at the highest level. In the absence of requisite the Executive's action, different regulatory agencies would continue to protect their turf.
The Government should perhaps institute handsome awards that should be jointly awarded to regulators concerned for successful plugging of revenue leakages, etc.
taxation of Industrial Alcohol: A knotty issue
AUGUST 28, 2013
THE business of dealing in alcohol based products has always been considered to be a res extra commercium activity in India. The Indian society in comparison to Western societies, typically, is one of the cliched 'dry' societies. In fact, a few States in India have prohibited the sale and purchase of alcohol, thus, famously referred to as dry States. The other State Governments officially declare dry days on certain festivals banning the consumption of alcohol.
This characteristic of the Indian society was duly noted by the framers of the Constitution, while drafting a Constitution for an Independent India. The fields of legislation specified and divided in three lists of the Seventh Schedule to the Constitution exhaustively cover industries dealing in all kinds of alcohol, potable or non-potable. The Constitution divides the subject in a manner which is compatible both with the Union as well as State Governments. The Directive Principles of State Policy also impose a duty on the State to improve public health, particularly prohibition on consumption, except for medicinal purposes, of intoxicating drinks and of drugs which are injurious to health.
Broadly, the power to legislate and levy taxes on alcohol not fit for human consumption rests with the Parliament and the levy of taxes on alcohol fit for human consumption falls within the power of State Legislatures. The State Legislatures are empowered to make laws regulating the production, manufacture, possession, transport, purchase and sale of intoxicating liquors as well as the fees in respect of any of the matters enumerated in List II of the Seventh Schedule, but not including fees taken in any court.
This division of fields of legislation between the Union and the States has been a matter of judicial scrutiny, the unsettled area being the difference between alcohol 'fit' for human consumption and that 'unfit' for human consumption. However, the Constitutional Courts, speaking through plethora of judgments, have always given a liberal construction to the constitutional provisions empowering the Parliament/ State Legislatures with respect to the alcohol industry in India. This article traces the approach of the Courts on the subject whilst highlighting some landmark decisions.
In State of Bombay v. F N Balsara, {AIR 1951 SC 318} certain provisions of the Bombay Prohibition Act, 1949 were sought to be declared unconstitutional. Construing Entry 35 of List II (which, inter-alia, deals with the production, manufacture, possession, transport, purchase and sale of intoxicating liquors), the Apex Court held that the word 'liquor' covered not only those alcoholic liquids which were generally used for beverage purposes and produce intoxication, but also all liquids containing alcohol. It may be that the latter meaning is not the meaning which is attributed to the word 'liquor' in common parlance especially when the word is prefixed by the qualifying word 'intoxicating', but having regard to the numerous statutory definitions of the word, such a meaning could not have been intended to be excluded from the scope of the term 'intoxicating liquor' as used in Entry 31 of List II.
The reservations regarding the power of the State Legislatures to regulate the misuse of industrial alcohol were addressed by a seven-judge bench of the Supreme Court inSynthetics & Chemicals Limited v. State of UP, (2002-TIOL-723-SC-CT). It is important to note down certain observations of the Supreme Court in this case which, in no uncertain terms, upheld the subject power of state legislatures.
The Court opined that the expression 'alcoholic liquor for human consumption' always meant and still refers to liquor which is consumable as such without any processing. Further, as a matter of fact, the fermentation industries producing alcohol are covered under the scope of the Industries (D&R) Act, 1951 [ a Central Act ].
Notwithstanding the above, the Court held that Entry 8 and 66 of List II and Article 47 of the Constitution confers on the State Legislatures to make laws regarding regulation of use of industrial alcohol for preventing its conversion into intoxicating or drinkable liquor. In exercise of such powers, the States may impose certain fees containing the element of quid pro quo.
Later, elaborating on this power of the State Legislatures, the Supreme Court, in State of UP v. Vam Organic Chemicals Limited, {AIR 2003 SC 4650} observed that in general, it is the potable liquor which is within the legislative domain of the States. The industrial alcohol may not be potable as such; however, the States may frame regulations to ensure that the industrial alcohol is not surreptitiously converted into potable alcohol. The Court reiterated that any fee imposed in the exercise of such power has to pass the test of quid pro quo, i.e. the fee must be in proportion to the cost incurred by the States to regulate the use of industrial alcohol. A similar observation was made by the Supreme Court in 2008 in Mohan Meakin Limited v. State of Himachal Pradesh, {2009 (3) SCC 157}.
The regulation of industrial alcohol by States with a view to prevent its conversion into potable liquor was recently reaffirmed by the High Court of Punjab & Haryana in Industrial Organics Limited v. State of Punjab, {2012 (1) ILR 658 (P&H)} wherein it struck down the increase in permit fee for denatured spirit on ground of being excessive, i.e. absence of quid pro quo.
To conclude, it is now well established that the State Legislatures can impose fee for the purposes of regulating the use of industrial alcohol and denatured spirits. However, under the garb of such constitutional power, no levy can be imposed without any element of quid pro quo.
Notwithstanding the clear position of law as laid down by the Constitutional Courts, these levies are expected to be a matter of judicial scrutiny on the basis of their constitutionality. If one goes for a reality check, the State Legislatures are also imposing unreasonable fees in the name of licenses and permits in relation to industrial alcohol, while being mindful of the fact of such fee being ultra vires in the absence of any quid pro quo.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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