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1.1.  The dispute resolution scheme aims to reducethe pending litigations before the first appellate authority (Commissioner Appeals). The said scheme is applicable in respect of dispute with respect to Customs Act, 1962, Central Excise Act, 1944 & Finance Act, 1994.

1.2. The said scheme aims at disposing of the pending appeals and the declarant shall get immunity from all the proceedings under the Act, in respect of indirect tax dispute.

1.3.  The said scheme shall come into force w.e.f. 01.06.2016 and the person desirous of applying under the said scheme shall apply by31.12.2016. The said scheme can be applied only in cases where the impugned order is in challenge and is pending before the Commissioner (Appeal) as an appeal as on 31.03.2016.

1.4. Upon receipt of the declaration, the designated authority shall acknowledge the declaration in such manner as may be prescribed.

1.5. The declarant thereafter shall pay tax due along with the interest and penalty equivalent to 25% of the penalty imposed in the impugned order within 15 days of the receipt of acknowledgment. The declarant shall intimate the payment details within 7 seven days of making the payment along with the proof of   payment.

1.6. The designated authority upon receipt of intimation payment shall pass an order of discharge of dues in such form as may be prescribed. Once theorder is passed by the designated authority, the appeal pending before the Commissioner (Appeal) shall stand disposed and the declarant shall get immunity from all proceedings under respective Act.

1.7. The order so passed by the designated authority shall result in conclusion of proceedings and no matter relating to such order can be reopened thereafter before any authority or court. Further, the issue shall not be deemed to be decided on merits and does not have any binding effect.

1.8. Moreover, the amount paid under such declaration shall not be allowed to be refunded. However, the said scheme cannot be availed by the following assessee’s:

          7.8.1.  If  the impugned order is  in  respect of search and  seizure proceedings

          7.8.2. If the impugned order is in respect of prosecution instituted before 01.06.2016 for any offence punishable under the Act

          7.8.3. If the impugned order is in respect of narcotic drugs or other prohibited goods

          7.8.4. If the impugned order is in respect of any offence punishable under the Indian Penal Code, the Narcotics Drugs and Psychotropic Substances Act, 1985 of the Prevention of Corruption Act, 1988

          7.8.5. any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act,  1974.

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Posted by on in Indirect Taxes

Overlap in Indirect Taxes

Well as the name suggests, Indirect taxes are those which are paid by the end consumers and not the businessmen directly. Intention is to pass the burden to others with a view to have a better tax collection mechanism. If that was really true,  government would not have felt the need to come out with a service tax voluntary disclosure scheme to encourage the people to pay their service tax defaults without interest and penalty as a one time amnesty.

Well lets come to the other side, Businesses also have in the last few years realised that there is more risk management required for the indirect tax compliances rather than the direct tax ones. Because when there is a demand from the direct tax authorities, it would always have to be paid out of some income generated from the business. But the indirect tax demands can be so huge that they may even eclipse the total net worth of the business.

Noteworthy at this point is to cite an example of the recent judgement of Andhra Pradesh High Court delivered against the assessee M/s GS Lamba which was engaged in the activity of giving transit millers on lease. Since it was the drivers employed by M/s GS Lamba, which were running these millers, a proper decision was taken by the assessee to pay service tax on the sales thinking that the control and possession or as they say “right to use” has not been transferred. Court on the basis of interpretation of the agreement, concluded that the right to use in all its practical sense has been transferred to the lessee and mere fact that the drivers were running the millers on their own did not alter the substance of the transaction. The substance was that millers were to run purely as per the instructions received from the lessee. Imagine the plight of the assessee when after paying service tax at 12.36%, it is now asked to pay vat at 12.5% from its own pocket, from a business which generates a net margin of 3-5%. This is the kind of the risk which some of the businesses face. Hence the structuring of the agreements assumes a lot of importance in some of these businesses. Software also being one of them where the matters have got so worse that most assesses have decided to pay both VAT and Service tax on the complete value to ward off both the authorities.

The opportunity for professionals in wake of all this is the ability to structure the contracts with proper words in order to achieve tax optimisation as well as certainty .

Construction Sector also has a very interesting relationship  with both service tax and VAT.  One could have still dealt with both, but for companies operating in multiple states, its a different VAT law in each of these states. There are states which offer very attractive composition schemes (Gujarat being one of them) and there are others which don’t.  This has ultimately lead to a lot of scope for decision making / contract structuring with a view to optimise the component of indirect taxes.

What make the battlefield interesting for the construction sector is not only the multiplicity of the laws and compliances but also the continous onslaught from our courts in the disguise of land mark judgements. K Raheja, Kone Elevators, L&T – Andhra Pradesh, Gannon Dunkerley & Co. are some of the few judgements from the apex court which have changed the whole landscape of these indirect taxes for the construction sector. Those who have not read these judgements, take time out and read them in totality and enjoy the prevailing state of confusion. The first two are already under the review of higher benches of the Honourable Supreme court since last so many years. Interestingly we have seen some cases being delivered in a fast track manner by Supreme Court only because they involved some high profile celebraties, but these matters (Kone Elevators and K Raheja) referred to above, have so far not found any priority at the judiciary.

To add salt to the wounds, everyone agrees that the judgements of K Raheja and Kone are not being implemented by the authorities in the correct perspective, but still when it comes to giving opinions, anyone (including we consultants) has no option but to follow these judgements as being proclaimed as the current law of the land. Lets now hope that the review judgements are delivered in the coming few months. But due to the fact that these critical judgements always end up taking  so much time, that in most cases the underlying law itself goes for a sea change making the review verdicts of no use for the future. For e.g. taking the cue from K Raheja, service tax law stands amended thereby taking a view that the sale of construction complex as a deemed service.  So even if the review judgements reverse the original stand, one may actually not get any benefit for the future. Lets keep our fingers crossed.

Amongst all this, it is interesting to deal with issues related to the sub-contractors both under service tax and vat. Under VAT, the L&T – Andhra Pradesh judgement has made the life easy for the contractors getting the work executed through the sub-contractors in the construction sector.  The only issue that is under discussion is whether it is possible to sublet the complete work on a back to back basis and claim complete exemption from VAT (even on the margin) on the ground that no direct purchases have been made by the contractor. Some of the major corporates have already resorted to this planning.

I can-not also stop myself from mentioning one of the funny stands taken by Delhi VAT commissionerate in the case of sale of food in trains by IRCTC, where it was held that the VAT  would be leviable in the state where the food is actually handed over to the customer. A logic which was clearly quashed by the Delhi high court on the ground that the law can never have an application which makes its application almost impossible.

Coming to Cenvat Credit, one of my favourite politicians, Mr Pranab Mukherjee when he was the finance minister was under a lot of pressure in the year 2011 to increase the tax collection, but could not have under any circumstances increased the rate of service tax as the economy was already recovering from a recession. Instead he chose the smarter way of disallowing the availment of cenvat credit by amending several clauses of the Cenvat Credit Rules, 2004. The most crucial being the definition of inputs and input services which excluded several goods and services being supplied by the construction sector. Thus the industries were not allowed to take the excise credit of cement, steel and input service credit of the services availed from construction contractors. This made the life tough to a great  extent, as now the industry started coming out with tenders where the contractors had to give a quote which was supposed to be inclusive of all the taxes.

The rules have become so tedious to understand, that now there is a good scope for a professional to practise even if he masters any of the specific issues – say the issues of disallowance of inputs when the assessee maintains common books for taxable and exempt activities addressed by Rule 6(3) of the Cenvat Credit Rules.

Reverse charge seems to be the new villain in the town. Government realised when it was drafting the voluntary disclosure scheme that the scheme would take care of the past but what about the future. And looking to the good collections under the Goods Transport Service model, the idea struck to reverse the flow of charge in certain sectors very much prone to defaults. Some of these were the unorganised construction sector, security services, vehicle hiring services, manpower supply services and also the high profile advocates (advocates were covered under the reverse charge mechanism not because of defaults but because this elite class wishes to remain isolated from the compliances required under service tax). Now whenever we talk of  reverse charge it was always supposed to be a 100% reverse charge, but surprisingly a new concept of partial reverse charge emerged from the office of service tax. This was because of those few good fishes in the pond, who argued that under a 100% reverse charge, they would have to forego their input cenvat credit and which would indirectly increase their cost of operations. And thus emerged the concept of partial reverse charge.

Indirect Taxes and Service Tax to be specific are going to remain a good area for professional practice. One gets this assurance by reading the definition of service under the new service tax law which literally says that “service is anything done for a consideration”.

(Disclaimer – The content of this writeup is based on the law as it stands today......and tomorrow is very uncertain...so take care before any practical application.)

The article is written by CA Sandesh Mundra and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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We are Ahmedabad based professional consulting firm. We are providing various services to Construction, Real Estate and Project Companies in various areas like Indirect Taxation – Service Tax & Multi state VAT consultancy, ERP implementation, Site & Management audit, Designing Tender & other related contractual documents etc.