Rate of Service Tax – Section 67A linked with POT Rules, 2011 to prevent disputes

BACKGROUND – Section 67A and POT Rules:

The Point of Taxation Rules, 2011 (in short POT Rules) was introduced w.e.f. 01-04-2011 to define and determine the point of taxation (in short POT) i.e. point in time when a service shall be deemed to have been provided. The twin objectives was to bring certainty regarding due date for payment of service tax (on accrual basis) and to determine the applicable rate of service tax as the one prevailing on the date of POT. While issuing the draft rules, the Central Government stated as under: 

“The purpose of these rules is to introduce clarity and certainty in the matter of levy and collection of Service Tax particularly in situations of change of rate of service tax or imposition of service tax on new services. At present there is lack of clarity as to the date from which the changed rate or a new levy of service tax become payable and tax payers as well as tax officials face uncertainty in this regard as the provisions are not explicit. Similar uncertainty prevails in regard to cases of continuous supply of services. So far these issues have been addressed by CBEC through clarificatory circulars that accompany such changes. A need has been felt to put the regulatory frame work on a transparent, clear and durable basis and hence these rules”. 

Whether the LEVY of Swachh Bharat Cess is challengeable?

To finance and promote Swachh Bharat initiatives, an enabling provision was incorporated in the Finance Act, 2015 (hereinafter referred as the Act) vide Chapter VI to empower the Central Government to impose a Swachh Bharat Cess (hereinafter referred as SBC) on all or any of the taxable services at a rate of 2% on the value of such taxable services. Sub-section (2) of Section 119 of the Finance Act, 2015 which is the charging section, is reproduced below:-

“119(2) There shall be levied and collected in accordance with the provisions of this
Chapter, a cess to be called the Swachh Bharat Cess, as service tax on ALL or ANY of the taxable services at the rate of two per cent on the VALUE of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose
relating thereto.”

The government suggested and it was expected that the SBC may be imposed only on few
selective services like telecommunication services, works contract services, hotel services, etc.

Since the Central Government was not sure whether it should levy the tax on all taxable services or on few selective services, they used the phrase, “all or any” and enabled itself to keep any service outside the scope of charging section!!

With due respect, the author is of the view that the words ‘or any’ has been used unnecessarily in the charging section, as it leads to vagueness and uncertainty to the subject of the levy.  The charging section should be clearly worded without any deficiency as regards the subject or person to be taxed. In the instant case, whether the legislation has levied SBC on all the services or on any particular services is unknown and unclear. The subject of the levy cannot be left open to be imposed at the option of the executive.

The Central Government has not yet issued notification to specify either ‘all taxable services’ or ‘list of services’ which are leviable to SBC u/s 119(2) of the Act. Interestingly, without specifying the taxable services subjected to the levy, the government has issued Notification No. 22/2015-ST dated 06-11-2015 exempting the following service from payment of SBC:

(i) Services covered under Negative List u/s 66D
(ii) Services exempt from ‘service tax’ under any notification issued u/s 93(1) of the Finance Act, 1994

Applying strict literal interpretation as applicable in case of taxing statutes, one can challenge the levy of SBC from 15-11-2015 because the Central Government has not yet exercised the powers granted under the enabling provision u/s 119(2) of the Act to notify the services which are leviable to SBC. The notification no. 21/2015-ST has simply made effective the provisions of Chapter VI from 15-11-2015 and notification no. 22/2015-ST is an exemption notification u/s 93(1) read with section 119(5). In effect, the Central Government seems to have committed blunder by exempting few services from payment of SBC without first bringing such exempted services within the four corners of the LEVY of SBC. It has not issued any notification to LEVY SBC on ALL taxable services!!! Nothing can be assumed in law.


Some important rulings of the apex court are extracted below to highlight the importance of charging section and the words used therein in case of levy of tax.

The Hon’ble Supreme Court in the case of Mathuram Agrawal v. State of Madhya Pradesh [(1999) 8 SCC 667] observed: “The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law.  Then it is for the legislature to do the needful in the matter.”

A taxing statute must be couched in express and unambiguous language. [Banarsi Debi v. JTO - (1964) 7 SCR 539].

The Act must be strictly construed in order to find out whether a liability is fastened on a particular subject. The subject is not to be taxed without clear words for that purpose; and every Act of Parliament must be read according to its natural construction of words. [A.P. Board far Water Pollution Control v. A.P. Rayons Ltd., (1989) 1 SCC 44; Re Nick-lethwait - (1855) HExch 452; Tennant v. Smith - (1892) AC 150; St. Aubyn v. A.G. -(1951) 2 All ER 473].

Words must say what they mean, nothing should be presumed or implied, they must say so. The true test must always be the language used. [Goodyear India Ltd. v. State ofHaryana - (1990) 2 SCC 71].

If the intention of the government was to exempt from SBC any particular service or to exempt the services covered under mega exemption notification or other notifications issued u/s 93(1), as it has done vide Notification No. 22/2015-ST, the same objective could have been achieved even without the use of the words ‘or any’ in the section 119(2) of the Finance Act, 2015. Section 119(5) of the Act has clearly empowered the government to use powers u/s 93 of Finance Act, 1994 to exempt any service from SBC. Thus, the words ‘or any’ has been unnecessarily used in the charging section of Swachh Bharat Cess.

***

 

Author : Manoj Agarwal

Address : Ganpati Campus, Lal Building Road, Rourkela – 769012, ODISHA

Contact : +91-9937041788

E:mail : ServiceTaxExpert@yahoo.com

Disclaimer: This article is the property of the author. No one shall publish, reproduce or use it in any manner, for any purposes, without the permission of the author. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.

Transit Sale – Dealer Registration is not mandatory

Transit Sale – Dealer Registration is not mandatory

THE Central Government has issued Notification No. 08/2015-CE(NT) dated 01-03-

2015, which is effective from the date of issue, has inter alia, inserted the following 3rd

proviso in Rule 11(2) of Central Excise Rules, 2002 (CER, 2002) 

“Provided also that if the goods are directly sent to any person on the direction of the registered 

dealer, the invoice shall also contain the details of the registered dealer as the buyer and the 

person as the consignee, and that person shall take CENVAT credit on the basis of the registered 

dealer's invoice” 

It has created a lot of confusion and worry in the minds of those manufacturers and 

dealers who receive goods directly, as consignee, from manufacturer through 

unregistered dealer (as buyer) and avail cenvat credit on the strength of invoice of 

supplier manufacturer. The proviso has also perplexed a large number of unregistered 

dealers who are being advised/ instructed by their customers and others to obtain 

central excise Dealer Registration if they wish to validly pass on the cenvat credit to 

customers. They are wondering why they are being forced to take mandatory 

registration when the same would become redundant very soon after the 

implementation of GST, which the Government has committed to bring from 01-04-

2016. 

In my view, the amendment has been made to facilitate trade and industry in view of 

the new policy of ‘Ease of doing Business’ as announced by our Prime Minister Shri 

Narendra Modi. Earlier, many registered dealers used to bring the goods in their 

registered premises simply for issuing cenvatable invoice in case of transit sale. The 

amendment has facilitated such registered dealers, who need not physically bring the 

goods at their godown/depot and can directly dispatch the same from the 

factory/depot of the supplier manufacturer. This facility, which seems to be given to 

the registered dealers to reduce unnecessary transportation cost, cannot be 

interpreted to mean that purchase through unregistered dealer is not permitted. Also, 

the manufacturer or provider of output service receiving goods directly as consignee 

from supplier manufacturer though unregistered dealer can continue to avail cenvat 

credit on inputs as earlier. The reasons for my said view are as below: 

1. The amendment is a beneficial provision given to First Stage Dealer and Second 

Stage Dealer. Rule 9(1) of Cenvat Credit Rules, 2004 (CCR) prescribes the 

eligible documents on the basis of which cenvat credit can be availed by 

manufacturer or provider of output service. One of the many eligible documents 

is the invoice issued by manufacturer. Rule 9(2) ibid provides that the document 

(i.e. invoice in our case) should contain all the particulars as per CER, 2002. 

2. Rule 11(1) of CER, 2002 provides that no excisable goods shall be removed from a 

factory or a warehouse except under an invoice signed by the owner of the 

factory or his authorized agent. Rule 11(2) ibid specifies the particulars that 

must be contained in any cenvatable invoice. The relevant portion is extracted 

below: 

“(2) The invoice shall be serially numbered and shall contain the registration number, address of 

the concerned Central Excise, name of the consignee, description, classification, time and date of 

removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of 

goods and the duty payable thereon... 

. 

Provided also that if the goods are directly sent to any person on the direction of the registered 

dealer, the invoice shall also contain the details of the registered dealer as the buyer and the 

person as the consignee, and that person shall take CENVAT credit on the basis of the registered 

dealer’s invoice”...

3. It is clear from plain reading that the name of the consignee must be mentioned 

in the cenvatable invoice and so the consignee is the person entitled to avail 

cenvat credit and not the ‘buyer of goods’. To provide an exemption to this rule, 

the 3rd proviso has been inserted to provide that in case of transit sale, the 

details of ‘registered dealer’ as ‘buyer’ should also be mentioned in the 

cenvatable invoice. 

4. The proviso is very specific and has limited application only for ‘registered 

dealers’. If an unregistered dealer is doing transit sale, he can continue to issue 

commercial invoice as earlier, as the proviso is applicable only when the goods are 

sent to any person on the direction of the registered dealer, which he is not. 

5. In case of transit sale/E1 sale where the buyer is an unregistered dealer, the 

customer/end user can continue to avail cenvat credit on the basis of supplier 

manufacturer’s invoice, as earlier, if the invoice contains it’s name as consignee 

as provided in the sub rule 2. The manufacturers invoice showing recipient name 

as consignee is also a valid document for Cenvat as has been clarified in Circular 

No 96/7/95-CX dated 13-02-1995. The earlier procedure and law is still valid. 


6. In addition to the ‘consignee’, the Central Government intended to allow ‘buyer’ 

to take credit by sending materials directly to consignee. Hence the newly 

inserted 3rd proviso to Rule 11(2) of CER, 2002 has provided an additional method 

for availing cenvat credit to BUYER, who should be a REGISTERED DEALER. 

The Hon’ble Rajasthan High Court had ruled that merely providing an alternative 

method or additional method for availing Cenvat Credit does not take away the 

entitlement to avail Cenvat credit on the basis of original document and the 

judgement has also been recently followed by Hon’ble Gujarat High Court. 

Further, in my view, the last line in the 3rd proviso, which says “and that person shall 

take CENVAT credit on the basis of the registered dealer’s invoice” seems to be ultra 

vires the Central Excise Act, 1944 or the rules thereunder and if challenged, may be 

struck down by the judiciary. In my view, if any trader, whether registered dealer or 

not, instruct his supplier to directly dispatch the excisable goods to the consignee, 

without first physically bringing the goods in his godown/depot, then such trader cannot 

issue valid cenvatable invoice even when he is a registered dealer. In view of the various 

issues involved, the Central Government should immediately issue necessary amendment 

or clarification to bring certainty and peace of mind to the trade and industry. 

*** 

Author : Manoj Agarwal 

Address : Opp. Mandir, Lal Building Road, Rourkela – 769012, ODISHA 

Contact : +91-9937041788 

E:mail : ServiceTaxExpert@yahoo.com

Kindly give your valuable feedback and contact for further clarifications, if any.

Disclaimer: This article is the property of the author and is for information purpose. No one shall print, 

publish, copy, reproduce or use it in any manner, except for personal, non-commercial use, without the 

permission of the author. The author shall not be responsible or liable for anything done or omitted to be 

done on the basis of this article.