CAG report on Non Compliance with Service Tax Rules and Regulations
Executive summary of the Report of the Comptroller and Auditor General of India for the year ended March 2013
Union Government, Department of Revenue, (Indirect Taxes – Service Tax), Report No. 6 of 2014
The Audit Report for the year ended March 2013 has been prepared for submission to the President of India under Article 151(1) of the Constitution of India. Audit of Revenue Receipts – Indirect Taxes of the Union Government is conducted under section 16 of the Comptroller and Auditor General of India's (Duties, Powers and Conditions of Service) Act, 1971. The Report presents the results of audit of receipts of Service Tax.
The observations included in this Report cover the findings of test checks conducted during 2012-13, as well as those which came to notice in earlier years but were not included in previous Reports.
Executive Summary
This Report contains 151 audit observations pertaining to Service Tax, having revenue implication totalling Rs. 265.75 crore. The Ministry/department had, till February 2014, accepted 147 audit observations involving revenue of Rs. 262.29 crore and reported recovery of Rs. 65.28 crore. Significant findings are as follows:
Chapter I: Service Tax Administration
- Indirect tax revenues as a percentage of Gross domestic product decreased from 4.80 per cent in FY09 to 4.69 per cent in FY13. During the same period, Service Tax revenues as a percentage of GDP rose to 1.31 from 1.08. Service Tax revenues grew by 36 per cent to Rs. 1,32,601 crore in FY13.
(Paragraphs 1.6 and 1.7)
- The number of Service Tax registrations under section 69 of the Finance Act grew by over 50 per cent from 12.26 lakh in FY09 to 18.71 lakh in FY13.
(Paragraph 1.13)
- Over 75 per cent of e-filed returns were marked by ACES for review and correction in each of the past three years. As on 31 March 2013, 14.74 lakh returns (80 per cent of returns marked for review and correction) were pending corrective action.
(Paragraph 1.17)
- Nearly 50 per cent of Service Tax assessees paying revenue over Rs. 1 crore annually which were due for audit by the Central Excise and Service Tax department remained unaudited during 2012-13.
(Paragraph 1.19)
- Delay in disposal of over 10 per cent of refund claims in FY13 exceeded one year. Besides, over 2000 claims involving Rs. 11,000 crore were pending disposal for over 1 year as of March 2013.
(Paragraph 1.24)
- Adjudication cases involving Service Tax implication of over Rs. 64,599.24 crore were pending finalisation as on 31 March 2013.
- Cases involving Service Tax of Rs. 1,37,950.40 crore were pending before appellate forums as on 31 March 2013.
(Paragraph 1.28)
- Measures initiated by the department to improve recovery of arrears have not made significant impact. Recovery during FY13 viz. Rs. 2,321.69 crore, continued to be at below 12 per cent of the arrears at the commencement of the year.
(Paragraph 1.29)
- 851 audit paragraphs involving Service Tax totalling Rs. 1,508.45 crore were reported during the last 5 years (including the current year's report). The Government had accepted audit observations in 815 audit paragraphs involving Rs. 1,398.90 crore and had recovered Rs. 395.09 crore.
(Paragraph 1.31)
Chapter II: Non-compliance with Rules and Regulations
- We observed instances of incorrect availing/utilisation of cenvat credit, nonpayment/ short payment of tax and non-payment of interest on delayed payments involving Service Tax implication of Rs. 237.17 crore.
(Paragraph 2.1)
Chapter III: Effectiveness of Internal Control
- We observed, inter alia, instances of delayed issue of show cause notice, deficiencies in scrutiny and internal audit carried out by departmental officers. Service Tax involved in these observations was Rs. 28.58 crore.
Non Compliance with Rules and Regulations
2.1 We examined the records maintained by assessees in relation to the payment of Service Tax and checked the correctness of tax payment and availing of Cenvat credit. We noticed cases of irregular availing and utilisation of Cenvat credit, non/short payment of Service Tax etc. involving revenue of Rs. 237.17 crore. We communicated these observations to the Ministry through 131 draft audit paragraphs. The Ministry/Commissionerate accepted (February 2014) the audit observations in 127 draft audit paragraphs and initiated/completed corrective action in all these cases involving revenue of Rs. 233.95 crore. We have furnished the details of these paragraphs in Appendix II. The Ministry contested three draft audit paragraphs and is yet to respond to one draft audit paragraph (February 2014).
2.2 Non-payment of Service Tax
2.2.1 Service Tax on Foreclosure charges
As per the erstwhile Section 65(12) of the Finance Act, 1994 (as amended), "banking and other financial services" inter alia includes lending. Ministry of Finance vide letter F. No. 345/6/2008-TRU dated 11-06-2008 clarified that pre-closure/foreclosure charges collected for early payment of loans, are leviable to Service Tax.
M/s Bajaj Auto Finance Ltd in Pune I Commissionerate collected Rs. 12.38 crore on account of foreclosure charges of loans during April 2007 to March 2011, on which Service Tax amounting to Rs. 1.41 crore was not paid which was recoverable along with interest. We observed that though the Commissionerate's audit party audited the assessee in August 2009 and September 2010, it failed to detect the non-payment of Service Tax.
The Commissionerate intimated (February 2013) that it had issued show cause cum demand Notice for Rs. 1.49 crore along with interest and penalty covering the period from 2007-08 to 2011-12. However, the Ministry contested (November 2013) the audit observation on the ground that the foreclosure charges are treated as loss of interest. As interest is excluded from the levy of Service Tax, this does not amount to service as per the provisions of the Finance Act 1994. The Ministry further added that CESTAT New Delhi had taken the same view in the case of SIDBI vs CCE Chandigarh (January 2011).
We observed that the Ministry's reply is silent about TRU's clarificatory letter cited above according to which foreclosure charges collected for early payment of loans are leviable to Service Tax. Further, in the case of HUDCO vs Commissioner of Service Tax Ahmedabad, CESTAT, Ahmedabad (November 2011) had held that Service Tax is leviable on the reset charges and pre-payment charges paid by the customers.51
Recommendation: CBEC may issue a clarification concerning the applicability of TRU letter F. No. 345/6/2008-TRU dated 11 June 2008 keeping in view the various CESTAT decisions on the subject.
2.2.2 Non-payment of Service Tax under Import of Services
Section 65(55b) of the Finance Act, 1994 defines intellectual property service to mean transferring temporarily or permitting the use of any intellectual property right.52 Further, intellectual property right under section 65(55a) of Finance Act, 1994 means any right to intangible property viz. trademarks, designs, patents or any other similar intangible property under any law for the time being in force but does not includes copyright.53 Intellectual property service is taxable with effect from September 2004. Rule 2(i)(d) of Service Tax Rules, 1994 envisages, inter alia, that the person receiving taxable service in India is liable for payment of Service Tax on services provided by person who is non resident or is from outside India or does not have any office in India.
M/s Mark Exhaust Systems Ltd, Gurgaon, entered into an agreement with Futaba Industrial Co. Ltd. Japan and Sankai Giken Kagyo Co. Ltd. Japan for getting technical assistance. As per the agreement, the service receiver was liable to pay 3 per cent of the aggregate "Net Saleable Price" for use of intellectual property right and technical information to Futaba Industrial Co. Ltd., Japan and Sankai Giken Kagyo Co. Ltd., Japan on six-monthly basis in March and September of each year. Test-check of records indicated royalty payment of Rs. 428.47 lakh to Futaba Industrial Co. Ltd., and Sankai Giken Kagyo Co. Ltd. pertaining to the year 2010-11. As this service was chargeable to Service Tax in India, the assessee was required to pay tax of Rs. 44.13 lakh under reserve charge method. However, the assessee did not pay the same.
When we pointed out the non-payment of Service Tax and interest (December 2011), the Commissionerate informed (August 2012) that the assessee had deposited Service Tax of Rs. 53.38 lakh including R & D Cess of Rs. 22.26 lakh against the actually paid royalty amounting to Rs. 518.37 lakh for the year 2010-11. Recovery of interest was still pending (June 2013).
However, the Ministry contested the audit observation in its reply (February 2014) stating that as the services were rendered in 2010-11, Service Tax was applicable only on payment basis. As the payment for the services received during 2010-11 was made to service providers on 20 June 2011 and 29 December 2011 against which the Service Tax was
51 2011-I5T-671-CESTAT-Ahm.
52 as applicable before 1 July 2012.
53 as applicable before 1 July 2012.
deposited by the assessee on 15 June 2011 and 23 December 2011 respectively, there was no delay in payment of tax.
The reply of the Ministry is not acceptable in view of notification No. 19/2008 (ST) dated 10 May 2008 (introducing explanation below proviso (3) to Rule 6(1) of Service Tax Rules, 1994) to the effect that where transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, shall include any amount credited or debited, in the books of account of a person liable to pay Service Tax. As per section 65(7b) of the Finance Act, 1994 (as applicable prior to 1 July 2012) read with clause (g) of section 92A (1) of the Income Tax Act, 1961, there exists a relationship of associate enterprise between the assessee and the service provider. The technical collaboration agreement signed between the assessee and the Japanese companies indicates clearly that the assessee was wholly dependent on the use of their certain intellectual property rights. Therefore, the assessee was liable to pay Service Tax on accrual basis in respect of the services received.
2.3 Short payment of Service Tax
2.3.1 Irregular suo motu adjustment of Service Tax
Rules 6(4A) and 6(4B) of the Service Tax Rules, 1994 envisage that where an assessee has paid any amount in excess of the amount required to be paid towards Service Tax liability for a month, he may adjust such excess amount against his Service Tax liability for the succeeding month subject to the following conditions viz. (i) excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification, (ii) excess amount paid by an assessee having centralized registration, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit, (iii) in other cases, the excess amount paid may be adjusted with a monetary limit of one lakh rupees for the relevant month and (iv) the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.54 Further, as per section 83 of the Finance Act, 1994, read with Section 11B of the Central Excise Act, 1944, any person claiming refund of Service Tax and interest, if any, paid on such Service Tax may make an application, for refund of such duty and interest, to the Assistant Commissioner or Deputy Commissioner of Central Excise, before the expiry of one year from the relevant date.
M/s ICICI Securities Ltd., in ST I Mumbai Commissionerate, registered service provider under the category of Stock Broking service, filed ST-3 return on 26 October 2009 for the period April 2009 to September 2009 and declared Rs. 35.11 crore towards the value of taxable services rendered during this period. The assessee paid Rs. 3.56 crore as against 54 Rules as applicable during the period covered by CERA.
Service Tax liability of Rs. 3.62 crore. On scrutiny of the reconciliation statement provided by the assessee, we observed that the gross receipt of services rendered was Rs. 37.83 crore but the assessee had declared it as Rs. 35.11 crore in the ST-3 return after considering a reduction of taxable services valued at Rs. 2.72 crore. The differential amount had been returned to various clients and related to transactions pertaining to the months of January, February and March 2009; this was meant to be a benefit under a promotional scheme wherein the rates of brokerage were reduced with retrospective effect. Thus, the assessee adjusted Service Tax of Rs. 33.64 lakh suo motu. We observed that the adjustment pertained to the valuation of services which had in fact been fully rendered. Moreover, though the assessee was centrally registered, the adjustment was not on account of delayed receipt of details of payments towards taxable services. Further, the amount adjusted was also more than one lakh rupees. In view of the above, the suo motu adjustment done by the assessee was not possible under Rules 6(4A) and (4B). The assessee should have applied for refund of the said amount. This resulted in short payment of Service Tax of Rs. 33.64 lakh which was recoverable with interest and penalty.
When we pointed this out (March 2008), the Commissionerate intimated (March 2013) that demand of Rs. 33.64 lakh had been confirmed against the assessee with interest at applicable rate and penalty of Rs. 33.69 lakh.
However, the Ministry contested (February 2014) the audit observation stating that adjustment of Service Tax was on account of refund of brokerage received and was done in accordance with Rule 6(3) of the Service Tax Rules, 1994. The Ministry added that though the assessee did not show the adjustment in its ST-3 return in the manner required, this was only a procedural lapse involving no revenue loss.
We observe, however, that the prerequisite for Rule 6(3) of the Service Tax Rules, 1994 to apply viz. the non-provision, either wholly or partially for any reason, of the service to be provided, is not satisfied in this case. Here, the service had been provided fully to the clients. Later, the clients were given the benefit of a promotional scheme through reduction in the rates of brokerage with retrospective effect. The claim of excess tax amount paid was accordingly, purely on account of reasons involving valuation. 'Valuation' is specifically mentioned in Rule 6(4B) as one of the reasons not permissible for making tax adjustments under Rule 6(4A). Besides, the amount adjusted was in excess of the amount permissible, viz. Rs. one lakh for the relevant month. The assessee had also not complied with the requirement under Rule 6(4B) of intimating the department within 15 days from the date of adjustment. Thus, the assessee could not take the benefit of either Rule 6(3) or of Rule 6(4A) read along with Rule 6(4B).
Moreover, we observe that the audit observation and the Ministry's reply, which was contrary to the Commissionerate's reply and the Order-in-Original, also highlight a lacuna in the then extant rules viz. that they did not cover the aspect of the date relevant
for determining the value of a taxable service and whether the value of taxable services could be lowered retrospectively in a manner detrimental to Revenue. This is not explicitly covered in the Point of Taxation Rules, 2011 either.
2.4 Availing/utilisation of Cenvat Credit
2.4.1 Wrong utilization of Cenvat credit for payment of tax on input service.
Cenvat credit can be utilized for payment of Service Tax on output services.55However, by virtue of omission of "explanation" below the definition of "output service" with effect from 19 April 2006, only such taxable services as are provided by a service provider shall be considered as output service.56 CBEC Circular No. 97/8/2007 dated 23 August 2007 clarified that service provided by a goods transport agent for which the consignor or consignee is made liable to pay Service Tax does not become an 'output service' for such consignor or consignee and that the payment of such Service Tax cannot be made through credit accumulated by such consignor or consignee. Moreover, GTA services have been specifically excluded from the purview of output services with effect from 1 March 2008.57
M/s Neo Carbons Pvt. Ltd., Barauni in Patna Commissionerate utilized Cenvat credit of 12.11 lakh during April 2006 to March 2009 for payment of Service Tax towards the GTA services received by them. As these services were input services, the utilization of Cenvat credit of 12.11 lakh for these input services was irregular, which was recoverable along with interest.
When we pointed this out (July 2009), the Commissionerate stated (November 2012) that it had issued a demand-cum show cause notice dated 19 April 2012 for 10.99 lakh covering the period February 2007 to March 2009. The Commissionerate did not intimate reasons for not covering the period April 2006 to January 2007 in the show cause notice.
We await the Ministry's response (February 2014).
55 as per rule 3(4)(e) of the Cenvat Credit Rules, 2004.
56 by Finance Act, 2006 and notification No. 08/2006/CE dated 19 April 2006.
57 By Cenvat Credit (Amendment) Rules, 2008 w.e.f 1.3.2008.
Source – http://saiindia.gov.in/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/union_compliance/2014/INDT/6of2014.pdf
CAG report on Non-Compliance with Excise Duty Rules and Regulations
Report of the Comptroller and Auditor General of India for the year ended March 2013 – Report No. 8 of 2014
This Report for the year ended March 2013 has been prepared for submission to the President of India under Article 151 of the Constitution of India. The Report contains significant results of the compliance audit of the Central Excise receipts under Central Board of Excise and Customs, Department of Revenue, Ministry of Finance.
The instances mentioned in this Report are those, which came to notice in the course of test audit for the period 2012-13 as well as those which came to notice in earlier years, but could not be reported in the previous Audit Reports.The audit has been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India.
Executive Summary
This Report contains 62 audit observations pertaining to Central Excise duties, having a revenue implication totaling RS. 182.90 crore. The Ministry/department had, until March 2014, accepted audit observations involving revenue of RS. 179.44 crore and reported recovery of RS. 21.29 crore. Some significant findings are as follows:
Chapter I: Central Excise and Service Tax Revenues
- Central Excise revenue has shown growth during FY09 to FY13 except in FY10. During FY13, Central Excise collections grew by 21.36 per cent over the previous year.
(Paragraphs 1.7)
- Revenues forgone on account of Central Excise exemptions continued during FY13. Exemptions under section 5A(1) of the Central Excise Act amounted to RS. 2,06,188 crore (RS. 1,87,688 crore as general exemptions and RS. 18,500 crore as area based exemptions) i.e. 117 per cent of the revenues from Central Excise.
(Paragraph 1.16)
- Cases involving duty of RS. 17,020.54 crore were pending as on 31 March 2013. The pendency is increasing every year. 326 cases involving RS. 1,353.85 crore were pending for more than two years.
(Paragraph 1.26)
- Arrears pending for recovery reached to RS. 47,621 crore in FY13 while collection was only RS. 1,884 crore during the year. Pendency of arrears is increasing every year and the recoveries were a meagre 5 per cent of outstanding arrears.
(Paragraph 1.35)
Chapter II: Non-compliance with Rules and Regulations
- We noticed cases of irregular availing and utilisation of cenvat credit, non/short payment of Central Excise duty involving revenue of RS. 66.76 crore.
(Paragraphs 2.1)
Chapter III: Effectiveness of Internal Control
- We observed, inter alia, instances of deficiencies, in scrutiny and internal audit process. Duty/tax involved was RS. 116.03 crore.
(Paragraphs 3.2)
Non-Compliance with Rules and Regulations
2.1 We examined the records maintained by the assessees in relation to the payment of Central Excise duty and checked the correctness of duty payment and availing of cenvat credit. We noticed cases of irregular availing and utilisation of cenvat credit, non/short payment of Central Excise duty involving revenue of RS. 66.76 crore. We communicated these observations to the Ministry through 54 draft audit paragraphs. The Ministry/ Commissionerate accepted (March 2014) the audit observations in 49 draft audit paragraphs and initiated/completed corrective action in all these cases involving revenue of RS. 62.98 crore. We have furnished the details of these paragraphs in Appendix Ill.
2.2 Non-payment/Short payment of Central Excise duty
2.2.1 Non-payment of Central Excise duty
Rule 8 of the Central Excise Rules, 2002 envisages that the duty on the goods removed from the factory during a month shall be paid by the 5th day of the following month and for the month of March by 31st day of March. If an assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with interest. Further, sub-rule 3 (A) of rule 8, as amended by Notification dated 1 June 2006 provides that if the assessee defaults in payment of duty beyond thirty days from the due date the assessee shall pay excise duty for each consignment at the time of removal, without utilising the cenvat credit till the date the assessee pays the outstanding amount including interest thereon and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow.
M/s Sree Metaliks Ltd., Angul in Bhubaneswar–I Commissionerate defaulted in payment of duty during January 2011 to March 2011. As per the provisions cited above, the assessee was liable to follow consignment-wise clearance from March 2011 by debiting duty in PLA and without utilizing cenvat credit. However, it was noticed that assessee took the credit in PLA before actual deposit of the amount in bank and debited the duty consignment wise for subsequent clearances which was not in order. Hence, the clearance made from March 2011 to August 2011 involving duty of RS. 91.57 lakh was irregular which needed to be recovered along with interest and penalty.
When we pointed this out (March 2013), the Ministry replied (February 2014) that RS. 91.57 lakh need not be recovered from the assessee as it already stood
paid though belatedly. Only interest and penalty for delayed payment of duty may be recoverable. SCN for recovery of duty, interest and penalty had been issued.
However, the Ministry did not provide any comments regarding the duty of RS. 56.42 lakh for January 2011 to March 2011 which was yet to be paid.
2.2.2 Short payment of central excise duty due to under valuation
As per rule 8 of Central Excise (Valuation) Rules 2000, where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the valuation shall be one hundred and ten per cent of the cost of production or manufacture of such goods. Section 11AB of the Central Excise Act 1944 envisages that where any duty of excise has not been levied, the person, in addition to the duty, is liable to pay interest from the first day of the month succeeding the month in which the duty ought to have been paid.
M/s Jindal India Ltd in Kolkata II Commissionerate, cleared MS/ERW tubes & Pipes of Steel (Black) on stock transfer basis to their sister unit at Ghusuri during the period 2010-11 on payment of duty on lower assessable value than the value as determined and certified by Chartered Accountant. This resulted in short payment of duty of RS. 27.65 lakh besides interest as applicable.
When we pointed this out (September 2011), the Commissionerate while not admitting the objection (October 2011) stated that the assessee followed the practice of paying duty on the basis of CAS-4 certificate prepared and certified by Chartered Accountant for a month on goods cleared prospectively for the period from 11th of the next month to the 10th of the month succeeding the next month. The Commissionerate further added that on some occasions, the assessee had also paid higher duty due to adoption of such practice.
The contention of the Commissionerate is not tenable since duty on goods cleared to sister unit for a period should have been paid on the value determined as per CAS-4 for the said period. As assessee paid duty on a lesser value than the value applicable as per CAS-4 for the said period, differential duty on the basis of CAS-4 along with interest was required to be paid irrespective of the fact of paying higher duty by assessee for earlier occasions for which refund provisions were applicable.
The Commissionerate intimated (September 2012 & October 2012) issuance of SCN for an amount of RS. 87.68 lakh along with interest and penalty.
Ministry stated (September 2013) that the cost of production for the goods consumed captively is determined on the basis of actual cost incurred in the previous month by the assessee and any difference or short payment seems allowable as it is a continuous process.
The reply of the Ministry is not tenable as duty on the goods cleared to a sister unit for a particular period should be paid on the value determined as per CAS-4 certificate for the said period only. Therefore, the assessee was liable to pay differential duty.
2.2.3 Undervaluation of goods cleared to related party.
Rule 8 read with proviso to rule 9 of the Central Excise Valuation (Determination of Price of excisable Goods) Rules, 2000, stipulates that where excisable goods are not sold by the assessee but are consumed by the assessee or on behalf of the assessee by a related person for manufacture of other articles, the assessable value of such goods shall be 110 per cent of the cost of production or manufacture of such goods. Further, the Board had clarified (13th February 2003) that the value of goods consumed captively should be determined in accordance with the Cost Accounting Standards (CAS-4) method only. Further, section 11AB of Central Excise Act 1944, requires payment of interest on delayed payment of duty.
M/s Hindustan Polyamides and Fibres Ltd under Pune Ill Commissionerate cleared compressed hydrogen gas to its other unit located at Koregaon Bhima for captive consumption during the period April 2008 to March 2011. However, the assesse did not prepare CAS-4 for arriving at the assessable value for such clearances as per the provisions mentioned above. This resulted in undervaluation of goods cleared for captive consumption and short payment of duty of T 10.63 lakh which was recoverable with interest.
When we pointed this out (July 2011), the assesse paid duty of RS. 10.63 lakh in July 2011. Ministry confirmed the recovery of amount with interest (February 2014); however, it did not admit the objection and stated that in the era of self assessment the irregularity could have come to fore only at the time of internal audit. The reply was not relevant to the audit objection and the Ministry was requested (March 2014) to clarify whether it was of the view that the assessee, by not preparing the CAS-4 certificate followed the correct practice.
2.3 Cenvat credit
2.3.1 Irregular availing of cenvat credit on ineligible inputs/input services
As per Rule 2(k) of Cenvat Credit Rules 2004, input means all goods used in the factory by the manufacturer of the final product but excludes any goods which have no relationship whatsoever with the manufacture of a final product.
M/s Grasim Industries Ltd under Commissionerate of Central Excise in Indore availed cenvat credit of duty paid on angle, nut, bolt, channel, electrode, plates, sheets, etc. to the tune of RS. 34.64 lakh during 2011-12. As these items cannot be considered as inputs, availing of cenvat credit on these items was incorrect and was recoverable along with interest.
When we pointed this out (December 2012), the Ministry accepted the objection and intimated (November 2013) that an SCN for RS. 1.16 crore was being issued for wrongly availed cenvat credit with interest and penalty.
2.3.2 Incorrect availing of cenvat credit for duty paid on exempted goods
CBEC clarified on 4 January 1991 that in the event of manufacturer availing cenvat credit and paying duty on exempted/nil rate of duty final products on his volition, the payment would not be in the nature of duty and were to be treated as deposits and hence credit of duty paid on such inputs was not admissible. Further, as per notification No. 6/2002-CE dated 1 March 2002 as amended vide notification No.4/2006-CE dated 1 March 2006, Iron ore is chargeable to nil rate of duty.
M/s Tata Sponge Iron Ltd in Bhubaneswar-II Commissionerate, engaged in manufacture of sponge iron, availed cenvat credit of RS. 2.11 crore on iron ore concentrate purchased during April 2008 to March 2009. Since the iron ore concentrate was exempt from duty, availing cenvat credit on the concentrate by the assessee was irregular. The cenvat credit availed irregularly i.e. RS. 2.11 crore was to be reversed along with interest and penalty.
When we pointed this out (July 2009), the Commissionerate intimated (March 2012) that SCN for RS. 3.31 crore was issued in June 2010 covering the period from June 2009 to April 2010.
Ministry did not admit the audit objection and stated (August 2013) that the decision of CESTAT in the case of M/s SAIL cited in {2003 (154) ELT 65 (TriKolkata)) that iron ore fines and sized iron ore not liable to duty was not accepted by the Board and an appeal was pending in the Supreme Court.
The reply of the Ministry is not tenable as the said appeal had already been decided by the Supreme Court in {2012(283) ELT A112 (SC)) rejecting the appeal of the revenue thereby holding that no duty was liable on iron ore concentrate. Therefore, in view of the Board circular cited supra, credit was not admissible on duty paid on iron ore concentrate.
Source- http://saiindia.gov.in/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/union_compliance/2014/INDT/8of2014.pdf
Provision Regarding Contribution to Political Parties by the Companies
Contributions to political parties are governed by Section 182 of the Companies Act, 2013. A company that is not a Government company and which is in existence for at least last three financial years may contribute up to 7.5% of its average net profits during the last three years to a political party/parties registered under the representation of Peoples Act, 1951. This is subject to further elaborations and restrictions in the said section. Following permission to establish Electoral Trust companies under the Income Tax Act, a company can also make contributions within the above limits and restrictions to 'Electoral Trust Companies' and reflect these contributions in their books of accounts. The Electoral Trust Companies are, however, required to indicate the amounts passed on to them by companies and contributed by them to a political party or parties in the manner laid down in section 182(3) of the Companies Act, 2013. There is no proposal to review the above arrangements.
The relevant provisions of the Companies (Donations to National Funds) Act, 1951 have already been incorporated in the Companies Act, 2013. Section 181 and 183 of the Act allows companies to contribute to bonafide and charitable funds and to national funds etc. In view of this, this Ministry has initiated to repeal the Companies (Donations to National Funds) Act, 1951.
This was stated by Smt. Nirmala Sitharaman, MoS in the Ministry of Corporate Affairs in written reply to a question in the Rajya Sabha today.
I-T - Whether in case of sale and lease-back deal where sales tax was paid, depreciation can be disallowed merely because Central Excise papers treat machinery as 'not for sale' - NO: HC
By TIOL News Service
CHENNAI, JULY 23, 2014: THE issues before the Bench are - Whether in a case of sale and lease back deal where sales tax was paid, depreciation can be disallowed merely because the Central Excise papers treat the machinery as 'not for sale' and whether the rental income earned from leasing of such assets is to be treated as business income. And the verdict goes in favour of the assessee.
Facts of the case
The assessee, a finance company, had entered into an Sale and Lease back agreement with the manufacturer of a machinery, to acquire ownership of machinery for consideration and thereafter lease the said machinery to the same company. The machinery was manufactured by that company and sold to the assessee and on the transaction, sales tax was levied and collected from the assessee and paid out to the Government. On the leased out machinery, assessee had received rental income and it was disclosed in the return as business income of the assessee. The AO had also accepted the lease amount as business income of the assessee. The assessee in this case claimed depreciation on the machinery so leased out, but the same was disallowed by the AO primarily relying upon the Central Excise document, where it was shown that the machinery was "not for sale".
On appeal, the CIT(A) was of the view that the words "not for sale" used in the central excise document was more to indicate that the machinery was not for sale to any third party, that was to say that it was not transferable to any other person than the manufacturer, who had sold it to the assessee and retained the machinery inside the premises under the terms of the lease agreement. It was also held that once it was admitted by the AO that sales tax leviable on such transaction had been levied and paid out to the Government and the lease rental in respect of machinery was assessed as business income of the assessee, it was evident that the assessee was treated as the owner of the machinery in question and the manufacturer was only a lessee and, therefore, allowed the claim of depreciation made by the assessee.
On further appeal, the Tribunal affirmed the view of the CIT(A) on the undisputed facts and held that the assessee was the owner of the machinery in question and the said machinery was used for its leasing business in the assessment year under consideration and, therefore, they were eligible for depreciation. Tribunal had placed reliance on the case of CIT v. High Energy Batteries (India) Ltd., 2012-TIOL-376-HC-MAD-IT.
Held that,
++ the facts narrated above are not disputed by the Standing Counsel for the Revenue. In the case on hand, we find that the sale was on payment of sales tax and the assessee has received the lease amount and disclosed the same as business income. Therefore, there cannot be any dispute that the assessee is the owner of the goods. It is another matter that the Central Excise document does not disclose sale. The excise duty is payable on manufacture. That is not the issue in the present case. That apart, there is no material produced by the Revenue to show that the transaction of sale and lease back was not genuine or was bogus, warranting interference with the concurrent findings arrived at both by the Commissioner of Income Tax (Appeals) as well as by the Tribunal;
++ for the foregoing reasons, on the above stated facts, no substantial question of law arises for our consideration and we find no reason to differ with the concurrent findings rendered by the Commissioner of Income Tax (Appeals) and the Tribunal. In the result, this appeal is dismissed.
To cut a long story short – excise duty not leviable on subsidy given to Fertilizers
CA. Pradeep Jain
CA. Preeti Parihar
Hushen Ganodwala
Introduction:-
Providing the food grains at affordable prices to the public at large is the key policy of any government. Effective production of food grains is not possible without the fertilizers. A fertilizer is a chemical or natural substance added to soil or land to increase its fertility. Thus, to improve the quality as well as the quantity of agricultural produce, fertilizers are the key ingredients. Due to this, government has declared various policies for subsidizing the prices of fertilizers so that they are available to the farmers at affordable prices. However, these subsidies have become the point of dispute between the fertilizer manufacturers and the Central Excise department since announcement of budget 2011-12 when the excise duty was levied on the chemical fertilizers. Now after a wait of two years, Board has come up with a clarification on the issue. This article is about the history behind the dispute and clarification issued in this regard.
Backdrop:-
Excise duty levy @1% (without availing CENVAT benefit) was levied in the Budget 2011-12 [w.e.f. 1st March, 2011] on chemical fertilizers falling under Chapter 31 of the Central Excise Tariff such as Urea, Di-ammonium Phosphate (DAP), Ammonium Sulphate, Single Super Phosphate (SSP), etc. and various grades of complex fertilizers. The Department of Revenue had clarified to the Department of Fertilizers that:
(a)In the case of price-controlled fertilizers which are sold to distributors/wholesale dealers at MRP fixed by the Government at the time of their clearance from the factory the excise duty of 1% would be chargeable on the MRP and not on the total cost of production and
(b)In the case of fertilizers not subject to price-control, the excise duty would be chargeable on their wholesale price representing the transaction value at the factory gate.
It is worth noting here that the government fixes MRP of certain fertilizers falling in the category of price controlled fertilizers which are to be sold at the notified MRP only irrespective of the actual cost of production which is on much higher side. This is being done to provide the fertilizers at affordable prices to the farmers. In order to meet the gap of cost of production and MRP, the government allows the reimbursement which is known as subsidy. As per the current policy, MRP of urea is controlled and fixed by the Government. In P&K fertilizer, however, the MRP is deregulated and companies are free to fix the MRP. They do so after taking into account the subsidy component which is fixed on the basis of nutrient content (i.e per kg subsidy is fixed by the Government for phosphate, potash, nitrogen and sulphur). Both in the case of urea and P&K, fertilizer subsidy is given by the Government to benefit the farmers, as subsidy would reduce the selling price which is paid by farmers. Moreover, the share of subsidy in delivered cost of urea would increase from 69% in 2012-13 to 81% in 2014-15. The share of maximum retail price (MRP), on the hand, would decline to 19% from 31%.
The issue:-
The fertilizer manufacturers were paying the excise duty on price controlled fertilizers by excluding the value of subsidy, i.e. on the MRP notified by the Government. The following illustration shows the manner of calculation of excise duty by the fertilizer manufacturers:-
| Sr. no. | Particular | |
| 1 | The Cost of production of Urea per tons (Assuming) | 20000 |
| 2 | Profit | 2000 |
| 3 | Selling price {[1]+[2]} | 22000 |
| 4 | Notified price by Government as MRP | 12000 |
| 5 | Subsidy received from government {[1]-[3]} | 8000 |
| 6 | Excise duty payable or paid [Without CENVAT facility] {[4]*1%} —————————–> | 120 |
The excise duty paid by the fertilizer manufacturers was calculated on the MRP declared by the Government. This was also at par with the above referred clarification issued by Department of Revenue to the Department of Fertilizers that in case of price controlled fertilizers, the excise duty will be levied on the MRP only irrespective of the fact that the cost of production is much higher than MRP. However, despite this fact, the Excise Department had started issuing the show cause notices to the fertilizer manufacturers proposing the levy of excise duty on the subsidy component. According to the department the value of subsidy was also includible in the assessable value of the fertilizers. These show cause notices were backed by the Supreme Court decision in the case of CCE, Mumbai v/s/ M/s Fiat India Pvt. Limited [2012-TIOL-58-SC-CX].
Supreme Court judgment in the case of M/s Fiat India Pvt. Ltd.:-
The facts in the case of M/s Fiat India (P) Ltd were that the company had declared assessable value for Uno model cars at a price which was substantially lower than the cost of manufacture, and the company continued to sell the cars at a loss making price for nearly five years. The company admitted that the purpose of doing so was to penetrate the market and to compete with the other manufacturers of similar cars. It was under these circumstances that the Hon'ble Supreme Court held that such sales could not be regarded as sales in the ordinary course of sale or trade, nor could the declared value be accepted as the normal price for sale of cars. As the main reason for selling cars at a lower price than the manufacturing cost and profit was to penetrate the market, the apex court held that this would constitute extra-commercial consideration and not the sole consideration. Since the price was not the sole consideration for sale of cars, the Court held that the Department was justified in invoking the provisions of Valuation Rules for the purpose of levy of excise duty.
By relying on this judgment, the departmental officials started to issue the show cause notices to the fertilizer manufacturers alleging that in view of the Supreme Court judgment, the excise duty paid on the MRP declared by them is not correct. It was alleged that the MRP is not the correct assessable value and subsidy is also includible in the same in view of above cited decision of Supreme Court. This penetrated the fertilizer industry since the amount of subsidy was much higher and levying the excise duty on the same would result into increased financial burden on the farmers since the incidence of excise duty is always passed on to the buyer. This was not the intention of the government. Resultantly, representations were made to the Board to clarify the matter. Now, the Board has come up with a clarification given vide circular no. 983/7/2014-CX dated 10-07-2014.
Circular no. 983/7/2014-CX dt. 10.7.2014:-
In this circular, it has been clarified by the Board that the subsidy is not includible in the assessable value of the fertilizers and the decision of M/s Fiat India Pvt. Ltd. is not applicable in this case. It has been clarified that the main aim of fertilizer policy of the Government of India is to provide fertilizers to farmers at affordable prices. The subsidy is not linked to the buyer and it cannot be said that the subsidy given by the Government to the manufacturer is part of the consideration flowing from the buyer to the manufacturer. Likewise, it cannot be said that fertilizer manufacturers have under-declared the value with a view to penetrating the market or competing with the other manufacturers of similar fertilizers as it was being done in the case of M/s Fiat India Pvt. Ltd. It has been clarified that in the Fiat India case, it was a conscious decision on the part of the manufacturer to sell the goods below the cost of production to penetrate the market and to compete with the other manufacturers of similar cars. However, this is not the case of fertilizer manufacturers. It has been clarified that the manufacturers of fertilizers do not gain any extra commercial advantage vis-a-vis other manufacturers because of the subsidy received from the Government. The subsidy paid by the Government to the manufacturer is in larger public interest and not for benefitting any individual manufacturer-seller and it is also not paid on behalf of any individual buyer or entity. In view of the above, it can be concluded that the subsidy component is not an additional consideration and hence, the MRP at which the fertilizer is sold to buyers by the manufacturers is the sole consideration for its sale. Even though the subsidy component has money value, it cannot be considered as an additional extra-commercial consideration flowing from the buyer to the seller.
While winding:-
The clarification issued by Board eventhough somewhat late, is a welcome step. It is one of the rarest circular which has analyzed the situation in a proper manner and has also given an appropriate clarification on the issue. This will cool down the burning issue of valuation of excise duty on the fertilizers, resulting into relief to the fertilizer industry.
Parities & Anomalies Brought Between Section 40(a)(i) & Section 40(a)(ia) by Finance Bill 2014
CA Surbhi Jain
TDS as the name implies, aims at collection of tax at the very source of income. Its of great significance to the Government as it propones the collection of tax, provides for a greater reach and wider base for tax and from the perspective of Tax Payer, it distributes the incidence of tax and provides for a simple and convenient mode of payment. With the presentation of Finance Bill 2014 at house, provisions of TDS stand relaxed as compared before.
As per section 192 to 196D of Income Tax Act 1961, certain payments made to NON-RESIDENT OR RESIDENT are required deduction of tax at source ( i.e.TDS) at the time "when money is credited to the account of payee in books of payer or at the time of payment" , whichever is earlier.
In this article I will be discussing Section 40(a)(i) and Section 40(a)(ia) of Income Tax Act 1961 and the amendments inserted in them as per the Finance Bill 2014. As per these sections certain payments made to NON-RESIDENT OR RESIDENT on which TDS is required to deducted but it is not deducted or deducted but not paid to the government within the time specified then such sum are disallowed for the previous year in which such sum is credited in books or paid.
Earlier there was a anomaly between the two sections, the due date specified for deduction and deposit of TDS in case of payment made to NON RESIDENT as per section 40(a)(i) so that such sum paid or credited in books during any previous year can be claimed as expense during the same previous year was 30th april of the year following that previous year. And in case of payment made to RESIDENT the due date specified for for deduction and deposit of TDS as per section 40(a)(ia) so that such sum paid or credited in books during any previous year can be claimed as expense during the same previous year was due date of filling of return of deductor of TDS as per section 139(1).
For your reference dates for different assessee for filing of income tax return as per section 139(1).
| Assessee | Due Date of filling of return |
(whose accounts are not subject to audit under section 44 AB) | 31st July |
(whose accounts are subject to audit under section 44 AB)
| 30th September |
| 30th November |
Finance Bill has tried to bring parity regarding the above issueby making both the dates specified same as due date of return filling of deductor as per section139(1). The amendment to section 40(a)(i) has been discussed below in detail .
Here I am quoting the law and the amendment made hereunder.
As per Section40(a)(i) of Income Tax Act 1961, expenses mentioned here under will be disallowed if
" any interest, royalty, fees for technical services or any other sum chargeable under act , which is payable,
(A) Outside India or
(B) In India to a Non Resident, or to a foreign company ,
on which tax is deductible at source under chapter XVIIB, and such tax has not been deducted or, after deduction has not been paid during the previous year, or on or before the due date specified as per section 200(1) or on or before the due date as per section 139(1).
Provided that where in respect of any sum, tax has deducted in any subsequent year or, has been deducted in the previous year but paid after the due date specified as per section 200(1) after the due date specified in section 139(1) , such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid."
Words in Bold are substituted by finance Bill 2014.
Meaning thereby disallowance under Section 40(a)(i) of Income Tax Act 1961 will be attracted
(i) if the amount paid or payable is interest, royalty ,fees for technical services or any other sum chargeable under the income tax act and
(ii) aforesaid sum is paid/payable Outside India to a Non resident or a foreign company or In India to a Non resident or a foreign company and
(iii) Sum is taxable in the hands of the recipient under the income tax and Tax is deductible at source(TDS) under chapter XVIIB
(iv) And any of the following default takes place,
Default A : Tax at source has not been deducted or,
Default B: Tax at source has been deducted but has not been paid during the previous year,or paid after the due date specified in section 139(1).
In case any of the two aforesaid defaults take place, then the payer is not allowed deduction(100%) of such sum paid or payable in that previous year for such previous year.
However one proviso (exception) to above case is where
(i) Tax has been deducted in the subsequent year of credit or payment or,
(ii) Tax has been deducted in the previous year but paid in any subsequent year after the time prescribed under section 139(1).
Then such sum will be allowed as deduction in the year in which such tax has been paid.
Here earlier there was an anomaly between section 40 (a)(i) and section 40 (a)(ia) [ discussed later in this article]. Government has tried to bring parity between the two by bringing amendment to the law by Finance Bill 2014.
Lets understand the amendment with help of an example, ABC Ltd. [due date of filling of income tax return is 30th September as per section 139(1)] has to make a payment of Rs 5,00,000 to MR.B as fees for technical services availed in July 2015, MR.A has deducted tax at source on the aforesaid sum but has not deposited due to any reason it with government till 30th September 2016. Prior to the amendment for claiming such payment as expense in the P/Y 15-16 MR. A has to deposit TDS with the government till 30th april 2016(i.e. for any payment credited or paid in any previous year , TDS must be deposited till 30th April of subsequent year following that previous year). But as per amendment such time limit has been extended till due date of filling of return as per section 139(1) of the deductor i.e. ABC Ltd.
Consequently , as per amendment ABC Ltd. can not claim such payment as expense for the previous year 2015-16(500000 is disallowed 100%) . He can claim such sum as expense in the year in which TDS is deposited by him with the government.
However one major difference has been introduced between the two sections by the Finance Bill 2014 . Prior to amendment, in case of default under section 40(a)(ia) [ discussed below] takes place then any sum paid under the aforesaid section is disallowed (100%) in the previous year in which such same is paid or credited in books.As per the Finance bill 2014, the disallowance in case of default is changed from 100% to 30%. Now in case of aforesaid default only 30% of such sum is disallowed and 70% will be given as deduction for the previous year in which such sum is paid or credited. The 30% of such sum will be allowed in the year of payment of TDS. Whereas in case of default under section 40(a)(i) the disallowance is 100% itself.
The amendment is discussed below in detail .
As per Section40(a)(ia) of Income Tax Act 1961, expenses mentioned here under will be disallowed if
" any interest ,commission or brokerage, rent, royalty, fees for technical services , payable to a RESIDENT, or amounts payable to a contractor or sub- contractor being Resident for carrying out any work (including supply of labour for carrying out any work) or any salary payable under section 192 , on which tax is deductible at source under chapter XVIIB, and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in section 139(1) , thirty percent of any sum payable to a resident.
Provided that where in respect of any sum, tax has deducted in any subsequent year or, has been deducted during the previous year but has been paid after the due date specified in section 139(1) , thirty percent of such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid.
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such sum is not deemed to be an assessee in default under the first proviso to section 201(1), then for the purpose of this sub clause , it shall be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso."
Words in Bold are inserted by finance Bill 2014.
Meaning hereby disallowance will be attracted under section 40 (a)(ia) if the amount payable isany interest, commission or brokerage, rent, royalty, fees for technical services , payable to a RESIDENT, or amounts payable to a contractor or sub- contractor being resident for carrying out any work ( including supply of labour for carrying out any work) , on which tax is deductible at source under chapter XVIIB, and tax is not deducted or deducted but not paid to the credit of central government before the due date as per section 139(1) i.e. is the due date of filling of income tax return .
However, again there is an anomaly between the two sections and i.e. in case resident payee( who has earned the income) has taken such sum for computing income in the return of income(ROI) under section 139 and resident payee has paid tax due on income declared by him in ROI, then the payer(who has to make payment) is not deemed to be defaulted under section 40(a)(ia).
Also salary payable to resident employees were not covered earlier by the said section which now stand covered under the same and all provisions of this section will apply same to salary also as to other nature of payment .
Lets understand this with the help of an example, say, A Ltd. Whose date of filling of return is 30th September pays the following sums without deduction of TDS, Rs. 200000 to MR.B , a resident, as rent(due date of filling of return for MR.B is 31st July) and Rs. 500000 to XYZ LTD , a resident company, as professional fees( due date of filling of return for XYZ LTD is 30th September). The above sum were paid on 1st july, 2015 without deduction of tax. Also MR.B & XYZ LTD has not added such income in their return of income.as per law tax has to be deducted and paid till 30th September i.e. due date of filling of return of A LTD for availing such payment as expense in P/Y 2015-16. Now as per amendment to Finance Bill 2014, 210000 {30% of (200000+500000)} will be disallowed in the previous year 2015-16 and 490000 (700000-210000) will be allowed as expense previous year 2015-16. However had this payment is made to NON RESIDENT under section 40(a)(i) and TDS is not deposited by due date then 100% of amount Rs.700000 would have been disallowed.
I hope my article helped you to understand the amendment by Finance Bill 2014.
Mail further queries to youngmindsoln@gmail.com.
Budget 2014 – Does it really not contains retrospective amendments?
V Swaminathan B.Sc. B.L., FCA
Finance (No. 2) Bill 2014 – A study
INTRODUCTION
The Finance (No. 2) Bill 2014 makes for the maiden fiscal enactment of the newly installed government.
The point of intriguing point of poser, for an insightful scrutiny is this: – Is it the bill absolutely free from 'retroactivity' as sought to be made out in officialdom , besides among the legal and other circles?
Prologue
Almost everyone, including active and proactive professional tax advisers- mainly, lawyers and CAs, having something to do or other with the Budget proposals of the newly installed government, have sought and brought to focus the 'highlights'. Even so, it is sad to observe that, in so doing, in one's conviction, some of the deficiencies, hidden or otherwise, it is noted, have not been even touched upon, for reasons not known. One such aspect that appears to have been simplistically glossed over, despite it being of the most concern to the tax payers relates to 'retrospective' changes in the law. So much so, by and large, the impression floated around, unwittingly or otherwise, in learned circles is that if were to go by the effective dates specified, the empowered ministries in general, and the Revenue in particular, have done their best to live up to the repeated assurance to do away with the age old obnoxious weakness of retrospective legislation – which the towering legal luminary/tax expert of our own times ('Nani') was never tired of referring to and ridiculing remorsefully as, 'change mania', 'obsessive attitude', the historical fact of successive governments failure to save the tax payer from being made the victim of 'palpable injustice', and so on. But, it seems that is not a well-founded impression.
REASONING for saying so :
With reference to the specific amendments made in the 2014 fiscal budget (since enacted) , of section 54 and 54 F of the IT Act, a view has been floated around in certain quarters . That is to the effect that the Finance Minister has now tweaked 'this section' (reference is to section 54) to specify that only "ONE residential house in India" would be eligible for the tax break, and not more than one. (BOLD FONT SUPPLIED)
According to a seemingly well reasoned analysis in a published article, the recent amendments made are with a view to set at rest the till now on-going controversy, and the mutually contradicting judicial opinion, on the erstwhile (before amendment) provisions, on two facets, not just one; That is, in order to set at rest the raging controversy on, -
(1) the meaning of 'a' ; and
(2) whether residential house, even if situate 'outside India', should qualify for the CGT exemption..
Be that as it were, the amendment, to reiterate, in own individual perspective, seemingly suffers from a malady, – rather a thus far remaining unidentified and being ignored fallacy:
That has something to do with the vexing battle of wits, being tirelessly fought for decades, on the issue of amending any enactment with retrospective effect.
To explain:
(A) Having sold an asset held earlier, in the financial year ended 31-3-2014, tax payer could possibly have, in order to availing of tax exemption as per the THEN law, taken positive steps to accomplish his intention; such as, entering into/concluding a deal with promoter, and / or seller, for purchase or construction of a new asset. According to a strict reading of the unamended section itself , the time limit allowed for his doing so is 2/3 years; which is to be continued thereafter as well. Imaginably, such a time limit could conceivably expire anytime ONLY later; that is, in no case OR not in all cases, before 31-3-2014. On that premise, the point in mind is this: Will not, because of the subject two- fold amendment (s) , in such cases the effect of the proposed amendment(s) would have a retroactive impact in its legal sense of the concept, seemingly unfair by any logic; perhaps, though not intended.
Can there be any scope for a different thinking /line of reasoning, with 'fair play' in the backdrop?
Looking at from another angle , as well:
(a) The tax exemption pertains to / is of income arising from transfer of asset held in a year anterior to the year ending 31-03-2015;
(b) albeit amendments referred to are of section 54 and 54F, and said to be prospectively from April 1, 2005, those pertain/would, in terms, apply also to income from a transaction effected at an earlier point time, that is prior to 31-03-2014; that is , not only to income accruing or arising after that date ;
(c) the denial of exemption under the amended section (s) is, in essence, of income accruing or arising in a year also anterior to the one in which exemption is, as per the law, entitled to be allowed; and
(d) thus, consequence of the proposed amendment attaches/dates back to an earlier year- that is, retroactively.
So far as could be seen/is intelligible or decipherable , there appears to be no scope for any different opinion on the foregoing aspects. Should, however, there be , from eminent law experts, welcome to share with the rest for the benefit of , not merely the taxpaying community, the Revenue as well.
Aside: One's honest guess is that, the subject amendments, relate to and, more or less , are in line with corresponding proposals, though not exactly, intended to be effected through the DTC , but have come to be advanced, pending its long due enactment, for more than one reason. Not to be over sighted, – even if these were to have waited for, and brought in only through DTC, if and when ecacted, then also it would have become necessary to avoid the treacherous 'retroactivity', but through the mechanics of so called , – 'Repeals and Savings'.
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