TaxTMI 
TaxTMI 
Comptroller and Auditor General of India's Report on Indirect Taxes — Service tax for 2006-2007 (Extracts)
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.... Year No. of services covered by tax Budget estimates Revised budget estimates Actual receipts* Difference between actual receipts and budget estimates Percentage variation 2002-03 51 6026 5000 4122 (-) 1904 (-) 31.60 2003-04 58 8000 8300 7890 (-)110 (-) 1.38 2004-05 71 14150 14150 14199 49 0.35 2005-06 81 17500 23000 23055 5555 31.73 2006-07 97 34500 38169 37598 3098 8.98 * Figures as per Finance Accounts In 2004-05, 2005-06 and 2006-07, actual collections had been higher than the budget estimates by 0.35, 31.73 and 8.98 per cent respectively. In 2006-07 there was a short fall of Rs. 571 crore in actual receipts against the revised budget estimates. 9.3 Outstanding demands* The number of cases and amount involved in demands for service tax outstanding for adjudication/recovery as on 31 March 2007 are mentioned in the following table Table No. 2 (Amounts in crore of rupees) Pending decision with As on 31 March 2006 As on 31 March 2007 Number of cases Amount Number of cases Amount More than five years Less than five y....
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.... tax of Rs. 537.51 crore, it raised demand of Rs. 211.15 crore only and recovered Rs. 146.01 crore (69.15 per cent). Similarly, out of the penalty of Rs. 38.73 crore that was imposed, the department could recover only rupees nine lakh (0.23 per cent). 9.5 Provisional assessments The number of cases of provisional assessments and the amount involved therein as on 31 March 2006 and 31 March 2007 is exhibited in the following table :- Table No.4 (Amounts in crore of rupees) Pending decision with As on 31 March 2006 As on 31 March 2007* Number of cases Duty involved Number of cases Duty involved Court of law 0 0.00 0 0.00 Government of India or Board 0 0.00 0 0.00 Commissioners 1 8.54 0 0.00 Total 1 8.54 0 0.00 Figures furnished by the Ministry and relates to 40 commissionerates of central excise and three commissionerates of service tax. 9.6 Contents This section contains 125 paragraphs featured individually or grouped together with a revenue implication of Rs. 79.02 crore directly attributable to audit pointing out non-compliance with rules/regulations. The Ministry/department have a....
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....Paragraphs 14.5 of AR no. 11 of 2003 and 15.2 of AR no. 11 of 2005 Service tax collected but not paid to the Government. Section 87 of the Finance Act, 1994 had been amended by the Finance Act, 2006 Providing more comprehensive recovery Procedure including Coercive recovery mechanism for recovery of tax from person not registered. Paragraphs 15.2 of AR no. 11 of 2004, 15.3 of AR no.11 of 2005 Non-levy of service tax on services provided from outside India and received in India Section 66A had been inserted under the Finance Act, 1994 by the Finance Act, 2006 making the services taxable if provided from outside India. Paragraph 12.7.2 of AR no. 11 of 2000 Service tax rate of five per cent fixed under the Finance Act, 1994 had been viewed lower and audit had suggested the rate of twelve per cent. Service tax rates adopted at eight per cent with effect from 14 May 2003 by the Finance Act, 2003, Ten per cent from 10 September 2004 by the Finance Act, 2004 and twelve per cent from 18 April 2006 by the Finance Act, 2006, CHAPTER X INCORRECT ASSESSMENT OF SERVICE TAX Rule 6 of the Service Tax Rules, 1994, prescribes that service tax shall b....
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....either collected from the clients nor was it paid to the Government. Assessee also did not obtain registration certificate from the department. Service tax of Rs. 62.10 lakh was recoverable with interest of Rs. 29.04 lakh till March 2007. The department did not take any action to realise the service tax. On this being pointed out (December 2005), the Ministry accepted the audit observation and stated (October 2007) that show cause notice was being issued. 10.1.2 Port services Port services were brought under the purview of service tax with effect from 16 July 2001. Port services means any service rendered by a port or other port or any person authorised by such port or other port, in any manner, in relation to a vessel or goods. The Board clarified on 9 July 2001 that wharfage on general cargo and wharfage on petroleum products is includible in the taxable value. The Oil & Natural Gas Corporation Ltd. (ONGC) laid pipelines for the transportation of crude oil through Mumbai Port Trust area. The ONGC was required to pay compensation at half the rate of wharfage charges of crude oil imported through the said pipeline. The port received Rs. 85.01 crore for the period from A....
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....x of Rs. 39.78 lakh was not paid during the year 2005-06 which was recoverable with interest. On this being pointed out (July 2006), the Ministry admitted the audit observation and reported (September 2007) the issue of show cause notice for Rs. 54.01 lakh for the period from 10 September 2004 to 31 March 2006. 10.1.4 Goods transport service A factory registered under the Factories Act or a company established under the Companies Act, which receives the services of an agency providing services in relation to transport of goods by road, is liable to pay service tax with effect from 3 December 2004. Sixteen manufacturers, in Bolpur (2), Guntur (3), Hyderabad III (1), Hyderabad IV (1), Kolkata III (1), Kolkata V (1), Meerut I (1). 11(1), Noida (1), Pune III (3) and Visakhapatnam 11(1) commissionerates, availed goods transport services and paid transportation charges to goods transport agencies. Though these manufacturers were registered under the Factories Act or were established under the Companies Act, yet they did not pay service tax of Rs. 1.07 crore payable on the transportation charges paid between January 2005 and October 2006. On this being pointed out (March an....
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....leasing services including equipment leasing and hire purchase fall under 'banking and financial services' and are liable to tax with effect from 16 July 2001. M/s Ajara SSSK Ltd., in Pune II commissionerate of central excise and M/s Bombay Dyeing and Manufacturing Company Ltd., in Mumbai commissionerate of service tax, provided leasing of plant and machinery, supplementary equipment and other ancillary assets during the years 2003-04 and 2004-05. The assessees received Rs. three crore as hire charges/lease rent but did not pay the service tax of Rs. 27.90 lakh leviable thereon. The department also did not demand it. On this being pointed out (April 2004 and June 2005), the Ministry while admitting the audit observations, reported (September and November 2007) issue of show cause notices for Rs. 94.56 lakh to both the assessees. 10.1.7 Technical testing and analysis services Technical testing and analysis services have been brought under the service tax net from 1 July 2003. M/s Mishra Dhatu Nigam Ltd., in Hyderabad II commissionerate, performed activities of operation and maintenance of aeronautical metallurgical testing laboratory building, equipment and machinery, testi....
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....dmitting the audit observations in twenty four cases, reported (between July and November 2007) recovery of Rs. 1.25 crore from ten assesses and issue of show cause notices for Rs. 1.18 crore in nine cases. It further stated that action was being taken to recover the Service tax in five cases. Replies in the remaining cases have not been received (November 2007). 10.2.2 Consulting engineer services In terms of section 65 (31) of the Finance Act, 1994, consulting engineer means any professionally qualified engineer or an engineering firm who either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering, M/s Phoenix Yule Ltd., M/s. Ondeo Nalco Ltd., M/s. Landis and Gyr Ltd., M/s. Moser Baer Ltd. and M/s. Pricol Ltd. in Kolkata III, IV, V. Noida and Salem commissionerates respectively engaged in the manufacture of excisable goods, received technical consultancy, technical know-how, technical assistance, etc. from foreign consultants and paid service charges aggregating Rs. 29.95 crore between 16 August 2002 and 31 December 2005. However, Service tax of Rs. 1.45 crore leviable thereon ....
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....s. Aventis Pharma Ltd., in Surat II commissionerate of central excise, availed online information services, mailing services, etc through computer network from foreign companies. They paid Rs. 4.41 crore during the period between November 2002 and December 2005 to the service providers in foreign currency. However, Service tax of Rs. 35.64 lakh payable thereon was neither paid by the service provider nor service receiver. The Department also did not demand it. On this being pointed out (August and September 2005), the Ministry while accepting the audit observations, reported (November 2007) that Service tax of Rs. 1.23 lakh with interest of Rs. 27,269 had been recovered from M/s. Bosch Rexroth (India) Ltd. and two show cause notices demanding Service tax of Rs, 40.98 lakh had been issued to M/s. Flakt (India) Ltd. and M/s, Aventis Pharma Ltd. 10.2.5 Scientific and technical consultancy service Scientific and technical consultancy services were brought under the ambit of Service tax with effect from 16 July 2001. Section 65 of the Finance Act, 1994 defines scientific and technical consultancy as any advice, consultancy or scientific or technical assistance rendered in any m....
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....hat the conditions of the aforesaid notification have been satisfied. The Board again examined the issue in consultation with the Ministry of Law and issued order on 12 March 2007 under Section 37B reiterating that earlier instructions of 27 July 2005 must be followed. 10.3.1 Twelve assessees, in Vadodara II, Surat I, Vapi, Daman, Rajkot and Ahmedabad III commissionerates, engaged in the manufacture of various excisable goods, availed of the services of GTA. These assessees paid Service tax after availing of exemption of seventy five per cent on the gross freight charges paid to the GTA during the period between January 2005 and March 2006. The declarations as required under the Boards instructions cited above for satisfying the conditions of the notifications, were not obtained in any of the consignment notes issued by the GTA. Exemption of Service tax amounting to Rs. 2.42 crore availed of by the assessees was, therefore, incorrect. On this being pointed out (between March 2006 and January 2007), the department admitted the audit observations in two cases and intimated (September 2006) recovery of tax of Rs. 4.62 lakh in a case. In the other two cases, it stated (April and ....
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....er 2006 and March 2007), the Ministry while accepting the audit observations intimated (September 2007) that the demand of Rs. 13.06 lakh has been confirmed against M/s. Hanil Lear India Ltd: and show cause notices to the other two assessees are issued or are under process of issue. 10.4.2 Another assessee viz., M/s. Decisioncraft Analytics Ltd., in Ahmedabad commissionerate of Service tax, engaged in providing management consultancy services, declared gross receipt of Rs. 1.39 crore for the years 2001-02 to 2003-04 and paid Service tax accordingly. Verification of records revealed that the gross receipts for that period was in fact Rs. 2.50 crore which was also declared by the asssessee in the income tax returns for the years 2001-02 to 2003- 04. Incorrect declaration of value of services, resulted in Service tax of Rs. 9.05 lakh being paid short. This was recoverable with interest of Rs. 3.02 lakh. On this being pointed out (August 2005), the Ministry accepted the audit observation and stated (October 2007) that the demand of Rs. 6.03 lakh had been confirmed in September 2006 but the Commissioner (Appeals) had remanded the case for de novo adjudication. Further developments....
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....rvice tax of Rs. 38.47 lakh on the freight charges of Rs. 7.69 crore paid to the service providers. The assessees also did not submit returns as required under the Finance Act, 2003. The department also did not take any action to recover the Service tax with applicable interest. . On this being pointed out (between March 2005 and January 2006), the Ministry accepted the audit observation and stated (October 2007) that show cause notices had been issued to all assessees. 10.7 Incorrect issue of show cause notice Intellectual property services have been brought under the Service tax net with effect from 10 September 2004. Section 65(55a) of the Finance Act, 1994, defines intellectual property to mean any right to intangible property, trade mark, design, patents or any other similar intangible property under any law for the time being in force, but does not include copyright, CESTAT in the case of M/s. Araco Corporation, Bangalore held that transferring of technical know-how in terms of licence, fell within the category of intellectual property services [2006 (3) S.T.R. 438 (Tri. - Bang.) = 2005 (180) E.L.T. 91 (Tri. - Bang.)]. M/s. Inductotherm (India) Private Ltd., in Ahmedaba....
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.... respect of both category of services, then the provider of output service will utilise credit only to the extent of an amount not exceeding twenty per cent of the Service tax payable on the output service. 11.1.1 M/s. Bharti Hexacom Ltd., in Jaipur I commissionerate, engaged in providing both taxable and exempted cellular phone services availed of Cenvat credit on inputs, input services and capital goods; While utilising credit, the assessee restricted utilisation of Cenvat credit availed on inputs and input services only. Cenvat credit availed of on capital goods was utilised without any restriction. This was irregular in terms of the provisions cited. This resulted in excess utilisation of Cenvat credit of Rs. 12.21 crore during the year 2005-06 which was required to be recovered. On this being pointed out (August 2006), the Ministry stated (September 2007) that rule 6 imposed restriction for availing and utilisation of Cenvat credit on inputs and input services only and not on capital goods. The reply is not tenable as rule 6(3)(c) of the Rules restricts utilisation of credit upto 20 per cent of the amount of Service tax payable on output service. This means that the rema....
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....t observation and stated (November 2007) that a show cause notice has been issued which is pending. 11.3 Incorrect utilisation of cenvat credit for payment of Service tax on input services Credit availed of under the Cenvat Credit Rules can be utilised for payment of central excise duty on finished goods or for Service tax leviable on output service. There is no provision for its utilisation for payment of Service tax on any input service. Wrong utilisation of Cenvat credit is recoverable with interest. Thirty four assessees, in thirteen commissionerates, availed of Cenvat credit and utilised it for payment of Service tax leviable on services obtained from goods transport agencies or on intellectual property right services. As the assessees were not providing output services, the utilisation of Cenvat credit for payment of Service tax on input services was not correct. The assessees ought to have paid the Service tax relating to the said services through cash only. The credit incorrectly utilised for payment of Service tax amounted to Rs. 3.08 crore between September 2004 and March 2007, which was recoverable with interest. On this being pointed out (between September 2005....
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....n recovered from three assessees in Kolkatta III, Ludhiana and Surat II commissionerates and demands totalling Rs. 11.78 lakh had been confirmed against the assessees in Pune III and Trichirapalli commissionerates. It also intimated that show cause notices for tax of Rs. 9.91 crore had been issued or were being issued to the remaining eleven assessees. 11.5 Incorrect utilization of service tax credit on ineligible services Rule 3 of the Cenvat Credit Rules, 2004, allows the manufacturer or producer of final products to take credit of Service tax paid on any input service received by him, if such service is used in the manufacture of final products. M/s. Hindustan Petroleum Corporation Ltd., M/s. Rashtriya Ispat Nigam Ltd. and M/s. GMR Industries Ltd., in Visakhapatnam I commissionerate, engaged in the manufacture of various excisable goods, availed of Cenvat credit of Service tax of Rs. 49.97 lath during the period between April 2005 and December 2006 on services not used in the manufacture of final products. The first assessee obtained health insurance policies during 2005-06 for the benefit/welfare of the employees of the company. The second assessee had hired a number of p....