Aug 27, 2012

Service Tax Updates

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Understanding Service Tax Law

Comments on Draft Circular dated 27.July.2012 on Leviability of Service Tax on Staff Benefits and Employment Related Transactions
1. India has got over six lakh companies- listed, unlisted, public and private and a majority of such companies are family run or small. Even some companies exist on paper.
About 9000 companies are listed companies with broad based board of directors in place. Such listed companies do pay sitting fee and other forms of remuneration to its directors – eg, commission, bonus, ESOPs, right shares etc.

2. Directors on company boards could be executive or non-executive directors. Executive directors include executive chairman, managing directors, joint managing director, executive director or any other whole-time director, by whatever name called. Non-executive directors could be non-official directors or independent directors or nominee directors or elected directors who do not engage themselves in day to day activities of the company.

3. It is suggested that for the purpose of levy of Service Tax, only listed companies should be covered. This will facilitate cost effective tax collection, serve the objective and avoid smaller companies to fall under reverse charge. Alternatively, the criteria for CARO applicability may be followed so that all companies to which CARO applies will be covered in tax net. This limit is based on capital and turnover.

4. It is also suggested that tax should be collected from the service provider only and not made payable by the company under reverse charge basis. Since most of the directors on the corporate boards are educated, professionals and of high caliber, compliance is almost assured which will save companies from unnecessary and avoidable compliance under reverse charge.

5. It should be amply clarified that all executive / whole-time directors are not covered for Service Tax purpose.

6. Also, where a directors attends a meeting as a government / bank nominee and no fee is paid or is payable to such director or his / her nominating agency, then Service Tax should not be payable on the notional valuation invoking valuation Rules. There are instances where government officers attend the meetings of banks / PSUs etc for which no fees is paid either to the concerned director or his sponsoring agency.
7. It may also be clarified for the sake of clarity that only fees / commission is taxable and not the cost of attending the meeting, which is otherwise borne by the company itself.

8. There is a confusion prevailing about taxability of remuneration to partners paid by firms. Since partners provide service to their own firm, there should be no taxability. Moreover, partners can lawfully draw salary from the firm for the work done by them in the firm. The firms profits are directly related to the efforts put in by the partners of the firm. Unlike a company which is a separate legal entity / artificial juristic person, a firm is represented by its partners. Company is managed by directors who may or may not be promoters / shareholders. In case of partners, it is not so and their liability is also unlimited. In view of this, it is suggested that it should be suitability clarified that partners salary is not covered in the scope of Service Tax. The salary to partner is allowed, both under Income Tax Act, 1961 and Partnership Act, 1934.
From The Government

Public Notice No. 1/2012 – dated 21.Aug.2012
Dispute Resolution and Tax-Payer Services through Indirect Tax Ombudsman, Delhi.
1. Attention of the Customs, Central Excise and Service Tax assesses, Importers, Exporters, Manufacturers, Service Providers and other members of Industry and Trade is invited to “Indirect Tax Ombudsman Guidelines, 2011” hereinafter referred to as ‘the Guidelines’, which is available in websites of both the Ministry of Finance and Central Board of Excise & Customs, (CBEC). In accordance with the said ‘Guidelines’, the Government of India has decided to set up the institution of ‘Indirect Tax Ombudsman’ at seven locations—Delhi, Mumbai, Chennai, Kolkata, Bangalore, Ahmedabad and Lucknow. The undersigned has been appointed as the Indirect Tax Ombudsman, Delhi with jurisdiction over the states of Delhi, Haryana, Punjab, Himachal Pradesh and Jammu & Kashmir.:

2. The post of Indirect Tax Ombudsman has been created with the objective of enabling resolution of complaints relating to grievances against Customs, Central Excise and Service Tax Department and facilitating settlement of such complaints with satisfaction of the complainant. Para 10 (III) of ‘the Guidelines’ explains as to who can come up with complaint or grievance to the Ombudsman. Certain basic conditions will have to be followed before lodging the complaint with the Ombudsman. First, the complainant will have to make a representation either to the Grievance Cell of the Department or to the officer superior to the one complained against in the field formation. The next condition is that either the complainant did not receive reply from the authority complained to, within one month of lodging the complaint or the complaint was rejected or he was not satisfied with the reply to the complaint. Para 9 of „the Guidelines? specifies the grounds on which a complaint may be filed. One of the main grounds is delay in the following – issuance of refunds or rebate beyond the prescribed time limit, adjudication, registration of tax-payers, giving effect to appellate orders, release of seized books of account and assets etc. The other ground is non-adherence to principle of ‘First Come First Served’ in sending refunds and to rules prescribed for disbursement of drawback etc. Then there are grounds like unwarranted rude behaviour of the official with the tax-payers, non-acknowledgement of letters and documents and violation of administrative instructions and circulars by the officials etc. Para 10 of the Guidelines explains the procedure for filing complaint. A representation or complaint has to be filed in writing by the complainant himself or his authorized representative. For complaints filed electronically, while action will be initiated by the Ombudsman, the print-out will have to be signed by the complainant at the earliest. The complaint must contain the details of the basic facts relating to the complaint and the relief sought.:

3. Power and duties of the Ombudsman have been outlined at Paras 8 (I, II, III) of the Guidelines. The Ombudsman shall have power to facilitate settlement of complaints either by agreement through conciliation and mediation between the Commissionerate and the complainant or by passing an „award?. The details relating to passing an ‘award’ have been explained at Para 13 of the Guidelines. The ‘award’ would be a speaking order comprising the elements specified at sub-para (II) of aforesaid Para 13. The ‘award’ would be binding on the concerned office as well as the complainant subject to the conditions specified at sub- para ( IV ) of aforesaid Para 13. The Ombudsman will protect individual tax- payer’s rights and will maintain confidentiality of information and document except to the extent considered by him to be reasonably required for complying with the principles of natural justice and fair play in the proceedings.

4. Further, Paras 11 & 12 of the guidelines clarify that for the purpose of promoting settlement of the complaints by agreement, the Ombudsman may follow such procedure as he may consider appropriate and that the proceedings before the Ombudsman shall be summary in nature, and that the Ombudsman shall not be bound by any legal rules of evidence.

5. This is also to inform that being a newly created post, the office of the Indirect Tax Ombudsman, Delhi is in the process of being set up. Meanwhile, the Indirect Tax Ombudsman, Delhi has started functioning from his official residence at C II/ 101 A, Satya Marg, Chanakyapuri, New Delhi-21, and a few representations have already been disposed of. Till the time the regular office address is notified, representations/complaints relating to the jurisdiction of Indirect Tax Ombudsman, Delhi may be addressed to him at the aforesaid address of the official residence. He may also be contacted at Mobile phone number 09999099394, whenever felt necessary.
6. Any difficulty noticed in implementing this Public Notice may be brought to the notice of the undersigned in the address given at foregoing Para 5.

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