Tuesday, July 24, 2012

Retrospective Amendment - Beneficial to Assessee

Retrospective Amendment - Beneficial to Assessee
By CA Pradeep Jain, CA Preeti Parihar & Manish Vyas

IT is said by many learned authors that the Government has used the weapon of retrospective amendment to nullify the Court's ruling. This is being used against the manufacturers. But this time the Government has proved that the same is wrong. A number of retrospective amendment has been done in this budget also but all in favour of the assessee. We are discussing these amendments in this article one by one:-



According to Rule 6(1) of the Cenvat Credit Rules, 2004, the Cenvat credit is not allowed on such quantity of input which is used in or in relation to the manufacturer of exempted goods or for provision of exempted services. If common inputs/input services are used for providing both exempted and taxable services or manufacturing both dutiable or exempted goods; credit will be allowed if separate records are maintained or proportionate reversal is done or an amount @ 6%/5% is paid at the time of removal of exempted goods or providing of exempted services.

But as per Rule 6 (6) of Cenvat Credit Rules, the provision of Rule 6 is not applicable in cases of some exempted clearances/services, for e.g. clearance to 100% EOU. Services provided to SEZ without payment of service tax were added in rule 6(6) w.e.f. 1.4.11. As such, prior to this date, provisions of rule 6(6) are not applicable in the case of services provided to SEZ. Hence the reversal is to be done prior to this date. The department has demanded duty from the service providers in this regard. But this was not the intention. Hence the Rule 6(6) was amended by the Board. But the department said that the aforesaid notification is applicable from the date of issue. Hence the demand for the prior period is sustainable and the service provider should reverse the cenvat credit.

Now retrospective amendment is made in respect of services provided to SEZ. With this amendment, "Providing of taxable service without payment of service tax" will be exempted from the formalities of rule 6 even before 1.4.2011. Hence the demand issued by the department will be dropped.

2. Issue


With effect from 25 July, 2011 the exemption is given to the service related to setting of common facilities for treatment and recycling of effluents and solid waste vide notification no. 42/2011-ST. This exemption was highly appreciated as it was in public interest. The Gujarat High Court has also held in case of Green Environment services co-operative society Limited v. Union of India [2009(3)STR250(Guj.)] that the work undertaken by the party is of public interest and they should approach the central government for exemption and the government should consider the same. Thereafter, the Board has given the exemption from this date. But again the department said that the same is applicable from the date of its issue and it is not applicable for the earlier period.

Now, government has brought a retrospective amendment in the said notification. Now the benefit of this notification is available in respect of services provided after 16 June 2005. After passing of the budget, the department will drop the proceedings initiated in this regard. This is also welcome step on the part of Government which shows that the Government is not pro-revenue as is normally said.

3. Issue


The construction of road was excluded from the purview of service tax under Commercial construction service. As the definition of commercial construction does not include the road construction. But it was in the dispute whether the repairs of Road will chargeable to service tax when the construction of road itself is excluded. A lot of litigation went on the same. Even the Board has clarified vide circular number 110/4/2009-ST dated 23.2.2009 on the same point that certain work done will be treated as construction of road and other will be treated as repairing of road. The repairing of road will fall under Management, maintenance and repair service and there is no exemption under the aforesaid service. Hence the same is chargeable to service tax. But this was not the intention of the Government. Hence, exemption under notification 24/2009-ST dated 27 th July 2009, amendment was made and Repairs of Road was excluded from levy of service tax. But the litigation continued for the past period.

Now, retrospective amendment has been made in respect of services provided in relation to repairs of road. The effect of this amendment is that the service related to repairs of road provided before 27 th July 2009 and after 16 th June 2005 will also be exempted now. Once again Government has proved that they are trade friendly.

4. Issue


The earlier dispute was that whether the exemption will allowed on the service related to Management, Maintenance or repair service in relation to non-Government Buildings?

Retrospective amendment has been made in this regard and now service related to Management, Maintenance or repair service in relation to non-Government Buildings provided after 16 th June 2005 will be exempt. However, this amendment has limited affect till the new scheme of service tax by negative list is implemented. The new scheme will exempt this service by some another notification. But all these amendments have changed the face of Government and it is proved that they do the things which are right whether these are in favour of assessee or the revenue.

With all these retrospective amendments in service tax whereby the relief is granted to the service providers, it is proved that the Government will do the right thing. These all steps of present Government have increased the faith in the minds of the service industry. We welcome these steps. The field formation should also take a lesson from these steps and amend their approach and become friendly with trade and industry. They should not raise the huge demands on assessee on small technical points.

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