ST - Tour Operator - amendment in definition with effect from 10.9.2004 by FA, 2004 enlarging definition is only clarificatory and does not mean that supplementary services connected with tours were not included in business of operating tour prior to 10.9.2004: HC
By TIOL News Service
ALLAHABAD, JULY 5, 2014: THE appellant, a registered Tour Operatorentered into a contract with various Principal Tour Operators (PTOs) based in Delhi and Mumbai.
The period involved in the proceedings covered under the SCN dated 19.10.2007 issued by CCE, Kanpur is 01.04.2002 to 31.3.2007.
The appellant has filed the returns in ST-3 for the relevant period in dispute disclosing the amount received for the tours and transportation services and also paid tax thereon. They have claimed the exemption to the extent of 60% under the Notification No. 39/97-ST, which was available to the tour operator on a package tour.
The definition of "tour operator" during the impugned period was -
Year 2002 (w.e.f11.05.2002)
(96) "tour operator" means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder;
Year 2004 (w.e.f 10.09.2004)
(115) "tour operator" means any person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder;
The PTOs provide services of package tours to the foreign tourists and other tourists, who visit various cities and various tourist places in India. It is alleged that the package tour provided by the PTOs includes transport services, alongwith supplementary services, like, Air and Railway Tickets, food and lodging, porter-age services, monuments visit services, guide services, food services and general assistance services etc. It is the contention of the appellant that the PTOs are under the obligation to pay the service tax for rendering such services and the service tax has been paid on such services.
However, no evidence has been adduced by the appellant at any stage that on which turnover and how much services tax has been paid by the PTOs.
It is the case of the appellant that it was only engaged in the business of providing Transport services to be provided by the tourist vehicle, without any supplementary services, like, Air and Railway Tickets, food and lodging, monuments visit services, guide services, porter's services, food services and general assistance service etc. and raised bills from the PTOs only for transport services.
The claim of the appellant is that in respect of certain amount incurred on behalf of the PTOs for engaging the guides, porters or supplying the food, reimbursement is made on actual basis by the PTOs against the debit note being raised by the appellant.
It is the contention of the appellant that there was a relationship between the PTOs and the appellant as a Principal and an agent.
On the basis of investigations conducted and various documents seized, an opinion has been formed by the department that the appellant was not paying the service tax on the gross amount charged from the customers in lieu of the services rendered by tour operator.
As mentioned, a SCN came to be issued by CCE, Kanpur demanding ST of Rs.1,15,70,655/- on a gross amount of Rs.24,85,36,696/-charged and received from their customers.
The demand was confirmed on 13.03.2008 along with penalties etc. and an amount of Rs.15 lakhs paid was appropriated.The CESTAT allowed the appeal in part vide its order dated 25.08.2008. Inasmuch as the Tribunal held that the appellant is liable for the service tax on the entire gross amount of Rs.24,85,36,696/-, excluding the amount of Rs.60,26,174/- received towards temporary advance to tour escorts and the amount of Rs.42,24,160/- on account of inter branch billings income.
Imposition of penalties was also upheld but the matter was remanded for re-calculation of tax and penalty.
Subsequently, an application was filed before the Tribunal on the ground that some of the pleas, which have been taken in the appeal and the arguments raised in respect thereof during the course of the hearing have not been adjudicated but this application was rejected.
Against the Tribunal order dated 25.08.2008, the appellant has filed an appeal before the Allahabad High Court.
On the various questions of law raised by the appellant, after hearing the lengthy submissions by both sides, the High Court observed -
Double Taxation:
++ So far as the submission of learned counsel for the appellant that since service tax has been paid by the Principal Tour Operator on the entire amount received from the customers, which includes amount paid to the appellant, therefore, there should not be a double levy of service tax on the same amount inasmuch as this aspect of the matter has not been considered by the Tribunal, though raised, is concerned, we do not find any substance and the same cannot be accepted for the reasons:
(a) the appellant has filed a miscellaneous application on the ground that the issue has not been considered by the Tribunal, the same has been rejected by the Tribunal against which no appeal has been filed; and
(2) the appellant is not able to adduce any evidence in the form of assessment order of the Principal Tour Operator or any other documents issued by the service tax authorities to substantiate the claim that service tax has been paid on the entire amount by the Principal Tour Operator, which includes the amount paid to the appellant. Merely on the basis of the certificates issued by the Principal Tour Operator enclosed with the memorandum of appeal, the claim of the appellant cannot be accepted inasmuch as it is doubtful whether these certificates have been filed before the authorities below.
Limitation:
+ Circular No. F.B.43/10/97- TRU, dated 22-8-1997 clarifies that the value of taxable service in relation to the service provided by a tour operator to a client, shall be the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour. The aforesaid clarification has been reiterated by the Board in the years 2001 and 2007. Therefore, it is not, that for the first time the circular has been issued in the year 2007 clarifying the position. The position regarding the taxable services provided to any person in relation to a tour has already been explained in the year 1997 and in 2001 itself. Therefore, the appellant ought to have given the information about the supplementary services being provided in ST-3 return or otherwise. In any view of the matter, such information without any doubt ought to have been given after 10.9.2004 when the definition of Tour Operator has been amended, but the appellant willfully failed to disclose such information.
+ Therefore, in view of the above, it cannot be accepted that the appellant under the bonafide belief could not give the information about the supplementary services to the Department.
+ The appellant has availed the benefit of abatement/exemption under the Notification No. 39/97-ST to the extent of 60% of the total amount charged treating the entire services provided as a package tour, including the facilities such as Air and Railway Tickets, porterage, fooding and lodging, monuments visit services, guide services, and general assistance services etc. This clearly shows that the appellant was fully aware that it is a package tour in which supplementary services are also included, but failed to disclose the receipts towards supplementary services.
+ This proves the willful mis-statement and suppression of facts and thus, the proviso to Section 73 (1) of the Act is fully applicable to the extended period of limitation.
Whether prior to 10.09.2004 supplementary services includible:
+ Clause (n) of Sub-section (105) of Section 65 provides that taxable service means any service provided or to be provided to any person by a tour operator in relation to a tour.
+ Sub-section (115) defines 'tour operator' which means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act or Rules made thereunder.
+ Both clause (n) and sub-section (115) are to be read together. Clause (n) clearly provides service to any person by a tour operator in relation to a tour. The definition is wide and includes all the services rendered by the service provider to any person relating to tour. The charging section is Section 65(105) (n). Sub-section (115) only defines tour operator and cannotnarrow down the scope of services provided in relation to a tour.
+ The phrase 'in relation to' the tour means "in the aid of tour" also. Therefore, if any service is rendered in relation to or in the aid of tour is liable to be taxed. The taxable service, therefore, not only means mere providing of car, taxies, contract carriages on a temporary basis but it would also include other facilities supplied in relation to tour as a whole.
+ Section 65 (105)(n) defines 'taxable service' means any service provided to any person by a tour operator in relation to a tour. Thus, it includes any and all services provided by the Tour Operator in relation to a tour, namely, porterage services, monuments visit services, guide services, food services and general assistance services etc. for which the amount has been paid. The words 'in relation to a tour' is a wide and includes all sort of services, which relate to tour. It may also include supplementary services, apart from the transport services, provided by the Tour Operator. The Tour Operator is defined under Sub-section (115) of Section 65. Sub-section (115) defines 'tour operator' engaged in the business of operating tour in a tourist vehicle, read with "in relation to a tour" means carrying on the business of operating tour which includes transportation services and other allied supplementary services connecting with the tour.
+ There is nothing in the definition which excludes supplementary services which are connected to the tours. Circular dated 22.8.1997 issued by the Board also made the clarification in a similar manner. The amendment in the definition of the Tour Operator with effect from 10.9.2004 by the Finance (No. 2) Act, 2004 enlarging the definition is only clarificatory and does not mean that such services were not included in the business of operating tour prior to 10.9.2004.
+ Therefore, we are of the view that supplementary services or allied services in relation to tour were included in the taxable services provided by the Tour Operator prior to 10.9.2004 and subsequent to 10.9.2004.
Reimbursed expenses, on actual basis, whether liable to Service Tax:
+ Section 67 provides valuation of taxable service for charging the service tax. It provides that value of any taxable service shall be gross amount charged by the service provider of such service. It includes certain value of taxable service and excludes certain amount. The amount received towards supplementary services does not fall within the purview of exclusion clauses. Therefore, being a part of the gross amount, they are to be treated as the value of taxable service.
Penalties:
+ Neither the Commissioner of Central Excise nor the Tribunal has addressed the levy of penalty with reference to the provisions of Section 80 of the Act.
+ In view of the decision of the Division Bench of this Court in Central Excise Appeal No. 67 of 2014, M/s Daurala Organics the issue relating to penalty requires fresh consideration by the Commissioner of Central Excise in view of the law laid down by this Court.
Order:
The appeal is allowed in part.
The order of the Tribunal, so far as it relates to levy of service tax is concerned, is upheld and so far as the penalty is concerned, it is hereby set aside and the matter is relegated to the Commissioner of Central Excise to re-compute the quantum of service tax as per the direction of the Tribunal and re-adjudicate the issue with regard to penalty.
The questions raised in the appeal are answered accordingly.
SEBI Circular on Delivery Instruction Slip (DIS) Issuance and Processing
CIRCULAR No. CIR/MRD/DP/ 22 /2014 – Dated-July 04, 2014
Subject: Delivery Instruction Slip (DIS) Issuance and Processing
1. SEBI has vide circular no. CIR/MRD/DP/ 01 /2014 dated January 07, 2014 introduced guidelines to strengthen the supervisory and monitoring role of the depositories and their participants with respect to issuance and processing of Delivery Instruction Slips.
2. In light of the difficulties expressed by the depositories and the depository participants (DPs) and considering their request, it has been decided to make the circular effective from October 01, 2014.
3. Further, with regard to the provision under para 14 that DPs shall not accept old DIS for execution from a Beneficial Owner (BO) who has been issued new DIS, it is clarified that a period of one month may be given for receipt of DIS by the BOs. The DPs may accept old DIS during this transit period. Further, while issuing new DIS the DPs shall intimate the BO that old DIS cannot be used after the new DIS is received.
4. The depositories shall ensure the implementation of the above within the stipulated timelines. Other provisions of the circular would remain unchanged.
5. The Depositories are advised to:-
a) bring the provisions of this circular to the notice of their DPs and also to disseminate the same on their website; and
b) make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision as may be applicable/necessary ;
c) communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report.
6. This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 and section 19 of the Depositories Act, 1996 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.
Maninder Cheema
Deputy General Manager
maninderc@sebi.gov.in
CMAs' Role in Tax Audit
CMA Arif Farooqui
Finance Act, 1984 introduced Section 44AB under Income-tax Act, 1961 w.e.f Assessment Year 1985-86. Under this section, if the total sales / turnover or gross receipts for previous year exceed the prescribed limits then assessee is required to get his accounts audited by an "Accountant". This audit is popularly known as Tax Audit.Applicability of Tax Audit:Section 44AB of Income-tax Act provides for compulsory audit of accounts of certain persons carrying on business or profession.
| Assessee | Applicability |
| Business | Every assessee, whose total sales or gross receipts in any previous year exceed Rs. 1 Crore, has to get his accounts audited. |
| Professional | Every assessee, whose gross receipts in any previous year exceed Rs.25 Lakhs has to get his accounts audited. |
| Special Cases | Assessee covered u/s 44AD / 44AE / 44BB / 44BBB, if claim that profits from such activities are lower than presumptive income and his income exceed maximum exemption limit. |
Objective of Tax Audit:
Objective of Tax Audit is to ensure that assessee's books of account and other records are maintained in accordance with provisions of Income Tax Act and reflect correct income. This audit is for curbing Tax Evasion and ensures Tax Compliance.
About this article:This article is divided in two parts.
(a) Changed in "Accountant" definition
(b) Benefits to Government and Society by this change
(a) Changed in "Accountant" definition.
As we all knew Income-tax Act, 1961 is going to be replace by proposed Direct Tax Code (DTC) 2013. Many sections/definitions are changed in proposed DTC 2013 but here I will limit my article to much awaited and welcome changed in "Accountant" definition.
As per the proposed DTC, Accountant means Practicing CA, CMA or CS within the meaning of their respective acts. In other words, DTC allows Tax Audit not only by Chartered Accountants/CAs but also by Cost Accountants/CMAs.
The expansion of definition of Accountant under DTC is welcome change. Till now only Chartered Accountants are authorized for Tax Audit and enjoying monopoly of authority, which causing strict hurdle for voluntary compliance. Therefore, it is welcome that this monopoly is broken and Let the country gain by better, effective tax compliance.
This change in "Accountant" definition and authorizing CMAs for Tax Audit has raised some unnecessary doubts in our fellow professional friends. Here I am trying to help them to overcome their doubts, one by one.
Tax Audit is the exclusive domain of Chartered Accountants only??
For overcoming this doubts, let's go to history, how this Tax Audit came into existence and how only CAs authorized for it?
ICAI Financial, ICAI Cost, ICSI were established in 1949, 1959, 1980 respectively.
Finance Act 1984 introduced Tax Audit u/s 44AB under Income Tax Act, 1961 w.e.f Assessment Year 1985-86. At that time, ICAI- Cost was just two years old and ICSI was not even established. At the time out of all professional institute only ICAI- Financial was completely established and had good members' strength therefore non-inclusion of CMAs/CS in Accountant definition and only authorizing CAs, at that time is justified.
But now ICAI- Cost is more than 50 years old with good member strength too, and its members efficiently doing audit of Excise Duty, Service Tax, VAT etc. because of this, now government decided to take their services in income tax too.
So thinking that Tax Audit is the exclusive domain of Chartered Accountants only, is completely wrong.
Are CMAs competent enough to handle Tax Audit??
Syllabus, Exam procedure and Passing percentage of both ICAI are same. Perception is that because of their 3 years articleship training CAs has more practical experience to trickle Tax Audit cases.
Here I make it clear, CMA become eligible for practice only after 3 years of post-qualification experience and no one can disagree that having post qualification experience as a professional is far better than having articleship experience as trainee. Assessing officers of Income-Tax Department, who come from different streams conducting audit and scrutinizing assessment proceedings are not CA. They are able to do because of their experience they gain after joining these jobs.
CMAs are already conducting taxation audit of Excise Duty, Service Tax VAT etc, then why not Income Tax. I explained above why their name was not included earlier, now that limitation had been over and that why government authorised them in the field of Income tax too.
Along with Taxations, CMAs have wide knowledge in the field of valuation and costing, it will definitely help in curbing Tax Evasion in case of under/ over valuation of inventory. How CMAs can be useful in this, I explained in next part of this article.
(b) Benefits to Government and Society by this change
Valuation is one of the most important part of Tax Audit. If valuation is not done properly than government will lose revenue because of under computation of income. Closing stock is a powerful aspect for declaring profit. If it raised profit raised and if its value fall, profit will also fall. So closing stock valuation is an important matter for calculating correct profit and curbing Tax Evasion.
But in Audit Report/Balance Sheet of many businesses, one can easily find a note states –
"All Inventories are valued at cost, as per certificate of the management. There is no change in the method of valuation of opening and closing stock. Physically verification of stock has not been carried out by us and the same is taken as certified by the management."
Or
"Inventory – (As valued and certified by Management)."
This gives an impression that inventory valuation is not done by auditor. If inventory valuation is left to management then it is not good as a business can easily reduce its income taxes liability by adjusting its inventory value and which is against the main objective of Tax Audit.
Few Examples are given below:
→ The cost of goods sold is the largest cost component, so method used to calculate it, can have a great impact on taxable income. Cost of goods sold is depends on inventory value. A higher inventory amount would naturally reduce the gross profit amount, thereby having the same reduction affects on taxable net profit.
→ In times of inflation and rising prices, LIFO method can be used to increase cost of goods sold. Increasing the cost of goods sold will reduce profits, which in result reduce income tax liability.
→ In same way using FIFO method for inventory valuation also provides income tax benefits in some cases. If the price of goods rises over the year, FIFO method that can be used to increase cost of goods sold that will reduce taxable income.
Yes, there are regulations that must be adhered before changing certain valuation methods for accounting purposes. One cannot change valuation of inventory now then but if inventory valuation is left for management then they can change valuation method as and when it suits them. They have to just give a declaration and they knew their business licences will not be cancelled if they gave wrong declaration, unlike CAs/CMAs who have to face disciplinary action or even their COP may be cancelled if it found they had given wrong declaration.
So inventory valuation is very important for ensuring that assessee's books of account reflect correct income and objective of Tax Audit is fulfilled.
As now CMAs is coming into Tax Audit, we can expect a better inventory valuation because they are valuation experts. They will calculate true value of inventory by using Cost Accounting Standards – CAS and other Costing Techniques and businesses will has to pay correct income tax amount.
With their knowledge and skills, CMAs will surely set some benchmark in valuation and in result, it will help in curbing Tax Evasion in case of under/ over valuation. So change in "Accountant" definition is proof to be benefits for Government and Society.
Every company submit profit and loss account and balance sheet to income tax department. It includes closing stock too. For better result, In proposed DTC, Government should insure that assesses who are filing tax audit report must submit another form for closing stock valuation, which is to be mandatorily fled with form 3CD and must be certified by CMAs even if Tax Audit is done by other professionals.
Conclusion:
Government has shown confidence on CMAs and they worth it. They have required knowledge, skill and efficiently doing taxation audit of Excise Duty, Service Tax VAT etc. Go to any MNC/PSU, one can easily find CMAs doing jobs as Manager – Taxation, Manager – Accounts, Manager – Credit etc. and some are holding top management positions. so doubting their professional efficiency is completely senseless. Give some time, India will see great impact of their service in Income Tax.
(Author can be reached at E- Mail- arif_cwa@yahoo.co.in)
Reasoned orders and principle of fairness in administrative actions-a need of the hour
It is the general tendency of the adminstrative authorities more so of the tax authorities to pass non-speaking orders or to pass orders in violation of principle of fairness and rules of natural justice, without giving any opportunity of being heard to the effected person. The authorities in many case pass orders in gross violation of rules of natural justice.
The material relied upon against the effected person are not confronted to such effected person and thereby an opportunity to cross examine the same is denied and thereby right to defend oneself is also denied. On the other hand the evidences produced by the concerned person are ignored while passing the orders without rebutting the same.
The giving of reasons is one of the fundamentals of good administration. It is a safeguard against arbitrariness on the part of decision maker. An executive officer develops a habit of mind to look at things from the stand point of policy and expediency. This mental habit does not change from function to function. Giving of reasons imposes some restriction on an executive officer in a matter involving personal rights. If an adjudicator is obligated to give reasons for his conclusions, it will make it necessary for him to consider the matter, carefully. The condition to give reasons introduces clarity and transparency in administration and minimizes arbitrariness for compulsion of disclosure guarantees consideration.
The purpose of disclosure of reasons is that the people must have confidence in the judicial and quasi-judicial authorities. Unless reasons are disclosed, how can a person know whether the authority has applied its mind or not? Also, giving reasons minimizes the chances of arbitrariness. Hence, it is an essential requirement of the rule of law that some reasons, atlest in brief, must be disclosed in a judicial or quasi-judicial order, even if it is an order of affirmation.
The above view is supported by the decision of Supreme Court in Chairman, Disciplinary Authority, Rani Lakshmi Bai Kshetriya Gramin Bank v. Jagdish Sharan Varshney (2009) 4 SCC 240
Hon'ble the Supreme Court in M/s Steel Authority of India Ltd vs Sales Tax Officer, Rourkela-I, Circle [2008] 16 VST 181 (SC), as follows:
"Reason is the Heartbeat of every conclusion. It introduces clarity in any order and without the same it becomes lifeless. Giving of reasons is one of the fundamentals of good administration.
Even in respect of administrative orders Lord Denning, M.R. in Breen v. Amalgamated Engg. Union [1971] 1 All ER 1148, observed: "The giving of reasons is one of the fundamentals of good administration." In Alexander Machinery (Dudley) Ltd. v. Crabtree [1974] ICR 120 (NIRC) it was observed: "Failure to give reasons amounts to denial of justice". "Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at." Reasons substitute subjectivity by objectivity.The emphasis on recording reasons is that if the decision reveals the "inscrutable face of the sphinx", it can, by its silence, render it virtually impossible for the courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made; in other words, a speaking- out. The "inscrutable face of the sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance."
Similarly, a cardinal principle of natural justice is that an adjudicatory body is to decide the matter on the basis of materials placed before it in the cource of proceedings. The decision maker cannot take extraneous matters into consideration; it cannot base its decision on any material unless the person against whom it is sought to be utilized has been given an opportunity to rebut or explain the same.
If the adjudicator is going to rely on any material, evidence or document for basing his decision against the affected person then the same must be placed before him for his comments and rebuttal. All material must be brought to his notice and he be given an opportunity to respond to the same. The right of hearing may be of little value if the concerned person is kept in dark as to the evidence against him and he is not given an opportunity to deal with him.
It is regarded as a fundamental principle of natural justice that no materials should be relied on against a party without giving him an opportunity of explaining the same. The right to know the materials of which the authority is going to take a decision is a part of the right to defend oneself. If without disclosing any material to the concerned party, the adjudicator takes the same into consideration, and decides the matter against him, then the decision would be vitiated for it amounts to denial of a real and effective opportunity to the party to meet the case against him.
The Supreme Court has stated in this respect in Union of India v. Varma T.R., AIR 1957 SC 882 that no material should be relied on against a person without his being given an opportunity of explaining them.
In nut shell the principle of fairness and justice demands that every administrative order or even conclusion should be supported by reasons and the principle of audi alterm partem is fairly observed by giving proper opportunity to the effected person to produce all evidences in his support and also an opportunity to rebut evidences to be used against him by confronting the same to him, which are collected at his back. The authorities must also not ignore evidences produced by the effected person without rebutting the same.
All administrative orders passed in gross violation of rules of natural justice, which gets quashed in the appellate proceedings, causes unnecessary litigation and harassment to innocent persons and therefore this matter must be seriously viewed by every State Government as also the Central government, which unfortunately is not happening on the part of any one of them. Need of the hour is that a strict law fixing the responsibility of administrative officers must be enacted so that principle of fairness remains alive in the administrative actions and therefore ensuring that law and justice is administered under a good administration.
(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)
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