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GST Composition Scheme for Restaurants – Is the scheme being misused by restaurants to defraud customers?

2023 (72) G.S.T.L. J55/(2023) 6 Centax 104 (Article)

(2023) 6 Centax 104 (Article)

GST Composition Scheme for Restaurants – Is the scheme being misused by restaurants to defraud customers?

CHINTU KUMAR MANDAL

Advocate, Amicus Rarus Consults

Taxation under G.S.T. of restaurants has many facets and therefore accompanying complexities. Some have been attempted to be simplified by C.B.I.C. post implementation of G.S.T. The restaurants are divided into two different categories as well as into different tax slabs for G.S.T. The first category under which restaurants fall under is of a regular taxpayer who have to pay 5-18% tax (depending on their type and services provided) on their turnover and can also claim Input Tax Credit. The other category is where the restaurants are registered under composition scheme (also known as composite tax payers) who have to pay only 5% tax (2.5% CGST + 2.5% SGST) of the turnover. Since simplification has been limited by the Department of Goods and Service Tax, Central Board of indirect Taxes, through "Composition Scheme", therefore, the discussion for the purpose will be focused on the same.

The restaurants which opt for or are registered under the composition scheme have to comply with the following conditions:

♦		Turnover of such restaurants should not exceed the limit of Rs.1.5 Crores. This limit is reduced to Rs.75 lakhs in cases where the restaurants are registered in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh.
♦		They are limited to intra-state supply only.
♦		They are not entitled to claim/avail Input Tax Credit
♦		They cannot supply foods through e-commerce
♦		They do not have the right to collect taxes from their customers
♦		They can only raise "Bill of Supply" instead of a Tax Invoice
♦		They have to file GSTR4 on quarterly basis.

The scheme is an initiative taken by G.S.T. department for small taxpayers, to reduce their compliance burden. Under this scheme, restaurants are required, to mention:

♦		"Composition taxable person, not eligible to collect tax on supplies" on top of the bill of supply;
♦		"Composition taxable person" on every notice or signboard promptly displayed at their place of business.

However, there have been instances where restaurants registered under the composition scheme have been found to be defrauding the customers as well as the government by charging G.S.T. on outwards supplies, this amounts to a clear violation of the law and is a fraudulent practice. This is primarily due to lack of awareness amongst the customers about the prohibition on restaurants registered under the composition scheme to collect tax.

Moreover, restaurants that misuse the composition scheme are also likely to engage in other unlawful practices such as not providing proper tax invoices, under reporting their turnover and not maintaining proper records of sales and purchases. This not only leads to a financial burden on the customers but also creates a negative perception of the GST system. It is important to note that the composition scheme is intended to help small taxpayers, not to be used as a tool for defrauding customers.

Some states have been taking steps to address this issue by cracking down on such businesses and by increasing their surveillance to detect any irregularities. On the same hand the G.S.T. Council has mandated that the restaurants must display the GST rates for different services prominently. This measure is aimed at ensuring that the customers must be aware of the correct GST rate applicable to their bill and can identify any attempt to defraud them. But most of the states are still failing to take cognizance against this kind of unlawful practice resulting in defrauding of citizens and loss of revenue also. This could be because it is not easy to deployment and collate evidence through decoy customers, when the misuse has become rampant.

The composition scheme for restaurants has been a game-changer for small restaurant owners in India. This scheme has simplified the tax compliance process, reduced the tax burden, and brought many small restaurant owners into the formal economy. However, the misuse of the scheme by restaurants through issuance of bogus G.S.T. invoices is a serious issue that needs to be tackled. The GST enforcement and audit agencies need to increase surveillance and should conduct regular inspections and audits to ensure that the restaurants are duly complying with regulations and paying taxes as per the rules, failing which, take strict action against such businesses. The GST department should also consider using consumer welfare fund to spread awareness on this issue. These steps will not only safeguard consumer's interest but also the revenue. It is essential to strike a balance between tax compliance and customer protection to ensure the growth and sustainability of the restaurant industry. By working together, we can ensure that the G.S.T. system functions as intended and that businesses are held accountable for their actions. Council should also consider whether the rate of composition scheme of 5percrnt is not excessive and therefore leading to evasion. May be a rate of 1 or 2 percent like that on manufacturing sector will have reversed the evasion trend. The whole genesis of the fraud lies in the fact that rate of tax on restaurants without input credit is 5 percent and same is the rate for composition rate (which in any case does not allow input credit). But while in former case tax payer can charge and issue invoice to customer, in latter case it cannot. Therefore there is benefit for Composite scheme dealer to pass itself on as regular dealer, charge 5 percent and retain to itself. By prescription of 5 percent rate even for composition scheme, legislature has willy nilly assisted in making this supply evasion prone.

(The views are personal views of the author)

GST Tribunalisation: Is exclusion of advocates rational or deliberately dilatory, for it?

2023 (71) G.S.T.L. J50/(2023) 5 Centax 131 (Article)

(2023) 5 Centax 131 (Article)

GST Tribunalisation: Is exclusion of advocates rational or deliberately dilatory, for it?


SALIL ARORA	C.K. MANDAL
Advocate, Amicus Rarus	Advocate, Amicus Rarus

The Indian legal system is one of the oldest and most complex legal systems in the world. It has undergone various reforms over the years to meet the changing needs of society. One such reform was the introduction of the Goods and Services Tax (GST) Act in 2017, which required the establishment of a dedicated Tribunal to deal with disputes arising from it. However, a peculiar provision in the GST Act has caused confusion and raised questions about the eligibility of lawyers to be appointed as judicial members of the GST Appellate Tribunal.

The Income Tax Appellate Tribunal established as the first Tribunal in India in 1941 allowed for appointment of advocates with at least ten years of standing in a High Court as Judicial Members. Most of the other tribunals if not all have similar criteria for appointment of Judicial Members.

Section 5A of Income Tax Act, 1921

"5A. The Appellate Tribunal.—(1) The Central Government shall appoint an Appellate Tribunal consisting of as many persons as it thinks fit to exercise the functions conferred on the Appellate Tribunal by this Act.

(2) The Appellate Tribunal shall consist * * of judicial members and accountant members as hereinafter defined.

(3) A judicial member shall be a person who has for at least ten years either held a civil judicial post or been in practice as an advocate of a High Court, and an accountant member shall be a person who has for at least ten years been in the practice of accountancy as a chartered accountant under the Chartered Accountants Act, 1949 (XXXVIII of 1949), or as a registered accountant under any law formerly in force or partly as a registered accountant and partly as a chartered accountant:

Provided that the Central Government may appoint as an accountant member of the Tribunal any person not possessing the qualifications required by this subsection, if it is satisfied that he has qualifications and has had adequate experience of a character which render him suitable for appointment to the Tribunal.

……………………"

However, as per the initial provision for appointment of Judicial Members of GST Appellate Tribunal provided under Section 110(1)(b) of CGST Act, 2017 enacted on 12th April, 2017, only a Judges of High Court, District Judges and Members of Indian Legal Services having held a post not less than Additional Secretary for three years were eligible for appointment and advocates irrespective of their standing were not eligible.

Section 110. President and Members of Appellate Tribunal, their qualification, appointment, conditions of service, etc.

"(1) A person shall not be qualified for appointment as-

(a)		………
(b)		a Judicial Member, unless he--

(i)		has been a Judge of the High Court; or
(ii)		is or has been a District Judge qualified to be appointed as a Judge of a High Court; or
(iii)		is or has been a Member of Indian Legal Service and has held a post not less than Additional Secretary for three years;

……………"

The constitutional validity of the provision was challenged before the Hon'ble Madras High Court in the matter of Revenue Bar Association v. Union of India and Others [2019 (30) G.S.T.L. 584 (Mad.)] and the Hon'ble High Court held that the composition of GST Appellate Tribunal was unconstitutional and thus struck down Section 109(3) & (9) and Section 110(1)(b)(iii) of the CGST Act, 2017. The Hon'ble High Court further recommended the Parliament to evaluate lawyer's eligibility as 'judicial member'.

The provision has been subsequently amended by the Finance Act, 2023 as follows:

Section 110. President and Members of Appellate Tribunal, their qualification, appointment, conditions of service, etc.

"(1) A person shall not be qualified for appointment as—

(a)		………..
(b)		a Judicial Member, unless he—

(i)		has been a Judge of the High Court; or
(ii)		has, for a combined period of ten years, been a District Judge or an Additional District Judge;

…………………………"

The amended provision (which now excludes the members of Indian Legal Service but still does not include advocates) not only disregards Hon'ble Madras High Court judgment but also ignores judgment of Hon'ble Apex Court in the matter of Union of India v. R. Gandhi [2010 (261) E.L.T. 3 (S.C.)]wherein inter-alia it was held that only persons with a judicial background, that is, those who have been or are Judges of the High Court and lawyers with the prescribed experience, who are eligible for appointment as High Court Judges, can be considered for appointment of Judicial Members.

As per the amended provision of the CGST Act only those who have been a judge in the High Court and District Court are eligible to be appointed as a Judicial Member in GST Appellate Tribunal. It is a well-known fact, that an advocate who has been practicing in Supreme Court and High Court can be appointed as a judge in the Supreme Court or High Court as exemplified by eminent Hon'ble Judges such as U. U. Lalit (Retd. Chief Justice of India), S. M. Sikri (former Chief Justice of India), Kuldip Singh, Santosh Hegde, Rohinton Nariman, L. Nageswara Rao, Indu Malhotra, P. S. Narasimha, S. C. Roy, among others, who had previously practiced before being appointed as judges of the Supreme Court. However, the same advocate cannot be appointed as Judicial Member of the GST Appellate Tribunal due to a specific provision in the Central Goods and Services Tax Act, 2017, which prohibits the appointment of advocates as Judicial Members.

While it is true that advocates who have been practicing in the High Court or the Supreme Court, have a wealth of experience and expertise to represent their clients in any court, which is why they are effectively representing their clients for fair justice, also the same advocates can be appointed as judges of the Supreme Court or High Court. On the other hand, the same advocates are not considered competent and eligible to be directly appointed as a Judicial Member of the GST Appellate Tribunal as per Section 110(1)(b) of the CGST Act, 2017.

The amended provision is accordingly discriminatory, and its constitutional validity is likely to be challenged in the coming days which can further delay the setting of the GST Appellate Tribunals resulting in increase in filing of writ petitions by the aggrieved taxpayers before the already overburdened High Courts. It cannot be that the constituted committee of GST Council while making its report, when specifically mandated to look into case law will have ignored this aspect and its ramifications in case of judicial scrutiny. Does it mean that somewhere in the political establishment there is a thinking to delay the consequent expense involved for some more time? Only future will unfold - if it is folly to be wise, when ignorance is a bliss?

(The views of are personal views of the authors.)

Re-invented Prevention of Money Laundering Appellate Tribunal (PMLA Tribunal) working in full strength delivers path breaking decisions

023 (384) E.L.T. A7/(2023) 4 Centax 180 (Article)

(2023) 4 Centax 180 (Article)

Re-invented Prevention of Money Laundering Appellate Tribunal (PMLA Tribunal) working in full strength delivers path breaking decisions

SALIL ARORA

Advocate, Amicus Rarus Consults

After a crisis of the sorts in the working of PMLA Tribunal, when all litigants were running from pillar to post, as PMLAT had become non-functional though not non-est , due to non-filling up of vacancies. The same now is working with renewed vigor through two benches.The earlier situation had arisen, despite PMLAT plus FEMA plus SAFEMA Tribunal all being national level Tribunals, with the Bench only in Delhi. The heavily loaded Tribunal with appellate powers under three legislations and dealing with high profile cases, having remained defunct for almost one and a half year due to certain delays in appointment of its Members and Chairman. The PMLA Tribunal is now not only working smoothly but is delivering some path breaking decisions. Same thus marks a departure from the past. And in span of last one month or so it has delivered elaborate final orders touching upon various issues. This marks a break from the past as final decisions were languishing for decades together and in a number of cases are even prior to 2012. Some of these which particularly attract attention are in the matter of Abheys Realcon LLP v. Enforcement Directorate, in which the three Member Bench headed by Hon'ble Mr. Justice Munishwar Nath Bhandari has concluded that Adjudicating Authority as per the legal provisions though has the power to allow cross-examination, the same should be exercised exceptionally, as adjudicating authority considering that adjudication is time bound cannot be expected to do so routinely on request. It then went on to examine at its own as to how cross-examination of each witnesses was not required to be given, in the specific matter as either the witnesses required to be deposed were either co-accused or were not relevant to the appellant`s case. The decision assumes importance as hither to such cross-examinations were never allowed by the Adjudicating Authority. Further, the H'ble Tribunal itself went on to discuss the relevance of witnesses elaborately, before rejecting the same. The merged order therefore has all ingredients of justice having been met to the party either at the time of adjudication or at the time of hearing before appellate authority.

Again, in the matter of Shri Praful Patel v. Enforcement Directorate, while directing grant of hearing by the Adjudicating Authority, it was ruled out that even a reasoned order passed on the basis of pleadings only, but without affording hearing to the aggrieved party is not sustainable, unless such party itself defaults on the date of hearing. Further, in the matter of Shri Subhash Chandra Sharma v. Enforcement Directorate, (which was allegedly an offshoot of Hasan Ali case) which involved a foreign citizen having certain properties in India, which were attached in the year 2017 along with various Bank accounts, Shares, Securities and investments made in Mutual Funds, Life Insurance Policies etc. the H'ble Tribunal held that the decision of H'ble Supreme Court in the matter of Vijay Madanlal Chaudhary v. Enforcement Directorate, had finally concluded that copy of ECIR was not required to be given and re-productions of FIR in complaint in contents, was sufficient and would suffice.

It also held that all relied upon documents to defend case must be provided and should be shown to have been provided including those which finds mention in the complaint and show any connect or nexus with the proceeds of crime. It held that absence of such documents on record was fatal to the case of the department. Lastly, the H'ble Tribunal allowed the appeal holding that despite attachment having been done in 2017, no prosecution had been launched for almost five years and therefore, amended provisions (as carried out on 20^th March, 2019 in Section 8) of PMLA, 2002 requiring prosecution to be launched within 365 Days of attachment will apply and appeal was liable to be allowed. Interestingly, in all these case the PMLA Tribunal went on to decide all the major issues which were part of the pleadings, irrespective of the final outcome. An approach like this is sure to clear a lot of clouds and thrash issues in the evolutionary stage of the PMLA legislation.

Full Marks to PMLA Tribunal for this approach. May be it will also raise the bar of required investigative standards in days to come.

Is PMLA becoming the latest tool of greater compliances? — Recent Amendments to Section 2(1)(sa) of PMLA, 2002

(2023) 6 Centax 138 (Article)

Is PMLA becoming the latest tool of greater compliances? — Recent Amendments to Section 2(1)(sa) of PMLA, 2002

SALIL ARORA

Advocate, Amicus Rarus

In response to the Chinese apps scam, where some accounting professionals assisted in setting up shell companies, the Ministry of Finance has notified that certain activities carried out by practicing Chartered Accountants, Company Secretaries and Cost and Works Accountants on behalf of their client in the course of business will be covered under PMLA. Further, through another notification, activities carried out in the course of business on behalf of or for another person such as acting as a formation agent of companies and limited liability partnership, providing a registered office, business address or accommodation correspondence or administrative address for a company or a limited liability partnership or a trust etc. have been brought under the ambit of PMLA by exercising the power granted to Central Government underSub-clause (vi) of clause (sa) of sub-section (1) of section 2 of PMLA .

Section 2(1)(sa) of PMLA

"(sa) "person carrying on designated business or profession" means,-

(i)		a person carrying on activities for playing games of chance for cash or kind, and includes such activities associated with casino;
(ii)		Inspector-General of Registration appointed under section 3 of the Registration Act, 1908 (16 of 1908) as may be notified by the Central Government;
(iii)		real estate agent, as may be notified by the Central Government;
(iv)		dealer in precious metals, precious stones and other high value goods, as may be notified by the Central Government;
(v)		person engaged in safekeeping and administration of cash and liquid securities on behalf of other persons, as may be notified by the Central Government; or
(vi)		person carrying on such other activities as the Central Government may, by notification, so designate, from time to time;"

Gazette Notification No. S.O. 2036(E) dated 03.05.2023

In exercise of powers conferred on Central Government by the Sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002. The Central Government notifies via Notification dated 03.05.2023, that the financial transactions carried out by a relevant person on behalf of his client, in the course of his or her profession, in relation to the following activities-

(i)		buying and selling of any immovable property;
(ii)		managing of client money, securities or other assets;
(iii)		management of bank, savings or securities accounts;
(iv)		organisation of contributions for the creation, operation or management of companies;
(v)		creation, operation or management of companies, limited liability partnerships or trusts, and buying and selling of business entities,

shall be an activity for the purposes of said sub-section.

Explanation 1.- For the purposes of this notification 'relevant person' includes –

(i)		an individual who obtained a certificate of practice under section 6 of the Chartered Accountants Act, 1949 (38 of 1949) and practicing individually or through a firm, in whatever manner it has been constituted;
(ii)		an individual who obtained a certificate of practice under section 6 of the Company Secretaries Act, 1980 (56 of 1980) and practicing individually or through a firm, in whatever manner it has been constituted;
(iii)		an individual who has obtained a certificate of practice under section 6 of the Cost and Works Accountants Act, 1959 (23 of 1959) and practicing individually or through a firm, in whatever manner it has been constituted.

Explanation 2.- For the purposes of this notification 'firm' shall have the same meaning assigned to it in sub-clause (i) of clause (23) of section 2 of the Income-tax Act, 1961 (43 of 1961).

Gazette Notification No. S.O. 2135(E) dated 09.05.2023

In exercise of powers conferred on Central Government by the Sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002. The Central Government notifies via Notification dated 09.05.2023, that the following activities when carried out in the course of business on behalf of or for another person, as the case may be, as an activity for the purposes of said sub-clause, namely:-

(i)		acting as a formation agent of companies and limited liability partnerships;
(ii)		acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a firm or a similar position in relation to other companies and limited liability partnerships;
(iii)		providing a registered office, business address or accommodation, correspondence or administrative address for a company or a limited liability partnership or a trust;
(iv)		acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another type of trust; and
(v)		acting as (or arranging for another person to act as) a nominee shareholder for another person

Explanation. –For removal of doubts, it is clarified that the following activities shall not be regarded as activity for the purposes of sub-clause (vi) of clause (sa) of sub-section (1) of section 2 of the Act, namely: -

(a)		any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax as defined under section 194-I of Income-tax Act, 1961 (43 of 1961); or
(b)		any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment; or
(c)		any activity that is carried out by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of a company to the extent of filing a declaration as required under clause (b) of sub-section (1) of section 7 of Companies Act, 2013 (18 of 2013); or
(d)		any activity of a person which falls within the meaning of an intermediary as defined in clause (n) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003).

With the aforesaid notifications, the scope of Section 2(1)(sa) has been widened to include the following:

(i)		Chartered Accountants, Company Secretaries and Cost and Works Accountants carrying out certain financial transactions on behalf of their client, in the course of his or her profession.
(ii)		Individuals acting as a formation agent of companies and limited liability partnerships.
		Note: The term "formation agent" is not defined making it uncertain whether consultants who assist with company incorporation without formal authority or certification would be subject to the obligations under PMLA. Also, advocates, chartered accountants, cost accountants and company secretaries in practice, who are engaged in the formation of the company to the extent of only filing a declaration form are exempted from the purview of PMLA.
(iii)		Individuals acting as director or secretary of a company, partner of a Firm or a similar position in relation to other companies and limited liability partnerships.
(iv)		Individuals providing a registered office, business address, accommodation, correspondence or administrative address for a company, LLPs or a trust.
(v)		Individuals acting as trustees of an express trust or performing equivalent functions for other types of trust.
(vi)		Individuals acting as acting as a nominee shareholder for another person.

It is pertinent to note that the following activities have been excluded as an activity for the purpose of section 2(1)(sa)(vi) of PMLA:-

(i)		any activity that is carried out as part of any agreement of lease, sub-lease, tenancy or any other agreement or arrangement for the use of land or building or any space and the consideration is subjected to deduction of income-tax.
(ii)		any activity that is carried out by an employee on behalf of his employer in the course of or in relation to his employment.
(iii)		any activity carried out by an advocate, chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company to the extent of filing only a declaration form.
(iv)		any activity which falls within the meaning of an intermediary.

The recent amendments to PMLA have imposed additional compliance obligations on various individuals and entities. It is interesting that despite government's focus to improve India's ranking in the Ease of Doing Business (EoDB) index and Finance Minister's budget speech wherein she had assured to reduce the compliance burden on corporates such amendments are being made to PMLA which can have a far reaching impact and dissuade people from investment. This is likely to have a negative impact even if done under FATF prescription as at present only around 45 countries follow FATF.

It appears that in its enthusiasm, the Central Government has gone overboard in enumerating "reporting entities" for same kind of activities. For example, in a formation of a company, the director, the secretary, the chartered accountant or even the advocate may get involved in vetting documentation. Will all be required to report or will it turn out to be the case of too many cooks spoiling the broth and eventually no one reporting thinking that other might have done? Law relating to compliance should be pin pointed and clear in its operation and not vague as has been done under the same section earlier.

(The views of are personal views of the author)

Is cross-examination integral part of Natural Justice when PMLA provisions lay down time limit for adjudication?

Is cross-examination integral part of Natural Justice when PMLA provisions lay down time limit for adjudication?

By Divya Ratna Singh and Chintu Kumar Advocates- Amicus Rarus Consults

Published in (2023) 3 Centax 60 (Article)

In view of the recent judgment of PMLAT (APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI) in the matter of Abbeys Realcon LLP Versus Directorate of Enforcement PMLA. PMLAT agrees that cross examination is affordable by adjudicating authority but as an exception due to paucity of time as only a period of 180 days for adjudication has been provided under Section 8 of the PMLA, 2002. As the Adjudicating Authority has to proceed with and decide the matter within the time frame given under Section 5 of the Prevention of Money Laundering Act, 2002, which is 180 days from date of attachment of the property. This along with the propensity of litigant to seek cross-examination to delay of proceedings weighed in the mind of the Hon’ble tribunal to arrive at its conclusion. Hon’ble tribunal also gave sufficient weightage to the attachment provision and held that attachment is only transitory and as observed by the Hon’ble Supreme Court in Vijay Madanlal Choudhary v. UOI. has a safeguard inbuild as attachment is required to be confirmed by the adjudicating authority within 180 days and prosecution required to be filed before the special judge in 365 days. Vital question then arises that the attachment merely being a process by which a person cannot dispose of his assets during pendency of attachment does or does not deprive any substantive right to the person whose property is attached but right of enjoyment is not deprived. In fact, earlier decision of various High Courts relating to right to cross-examination in attachment proceedings were based upon this notion only, which now stands subverted as through disposition of attached property under the Prevention of Money Laundering (taking possession of attached or frozen properties confirmed by the adjudicating authorities) Rules 2013, the ED not only has a right to attach the property but also has a right to dispossess a person from the attached property. This right till now has till now been liberally exercised by investigating officers of the ED, depriving the owners of attached property not only the right of enjoyment but also of seeking the stay of operation of order from the appellate authorities. It is trite law that when a person is to be made aggrieved or deprived of his right then the full course of natural justice must run and cross-examination is vital part of it. The Hon’ble Supreme Court while delivering decision in Vijay Madanlal Choudhary case noted this tendency and also pronounced that the power to disposses must be exercised exceptionally and prudently by the ED.

This brings us to two exceptional concerns – one that right to cross-examination due to limitation of 180 days has to be provided exceptionally and not as a rule. Secondly, the dispossession of attached assets under the Prevention of Money Laundering (taking possession of attached or frozen properties confirmed by the adjudicating authorities) Rules 2013 has to be done exceptionally. Normally the investigating officers of ED exercise the power to dispossess attached assets any time after the confirmation of attachment has been done through adjudication process or any time after the stay has been filed before the appellate tribunal so as to make the applications for stay of operation of order of attachment, infructuous. Now in a case where dispossession has taken place and even cross-examination has not been provided, then definitely there are chances that prejudice will be caused to the person whose property has been attached. This is so as adjudicating authority not knowing the dispossession in future will take place will not adjudicate upon the likelihood of this aspect and may not place any fetter on the department, in this regard. It may in routine disallow cross-examination being an exceptional measure only which may be difficult to meet otherwise in span of 180 days. On the other hand, when the matter travels to tribunal if it overlooks this vital aspect any time when the final appeal is being heard or even before that on an application having been moved, in a matter where exceptional action of dispossession has been taken, may unknowingly cause injustice to the litigant who normally in cases involving dispossession should have atleast got cross-examination of vital witnesses. It is pertinent to mention that in a situation of this kind where dispossession has taken place atleast the Hon’ble tribunal should liberally consider cross-examination as a vital part of natural justice even by allowing early hearing applications or special applications in the matters involving dispossession of assets. Such an approach will enhance a cause of justice to the litigants or alternatively while denying cross-examination adjudicating authorities should take an undertaking from the department that there will be no dispossession. The former approach has a benefit, as the matter when it gets remitted back to the adjudicating authority for affording cross-examination the time limit of 180 days will not be applicable. It is hoped that in some future case the Hon’ble tribunal or some higher Court will consider all these aspects and lay down proper guidelines for cross-examination by adjudicating authority in PMLA matters.

(The views are personal views of the authors)

ARDH CHATTAR BHANG YOGA– WILL IT BE MILD THIS TIME?

ARDH CHATTAR BHANG YOGA– WILL IT BE MILD THIS TIME?

By Somesh Arora, Jyotish Parveen (Silver medalist) and Jyotish Visharad (ICAS).
Published on 22/12/2022 http://newshawk.in/?p=6715

Those in know of Mundane Vedic astrology are aware about the existence and prowess of ‘Chattar Bhang Yoga’ over the ruling class or the ruling elite. The yoga is called ‘Chatter Bhang’ as it is known to cause disturbance by loss of power or territory, to those who are ruling at that time. That is to say are under the Chattar of a ‘Singhasan’. The formation of this yoga happens when Saturn either comes to Leo or aspects the sign Leo. The later Yoga which is through aspect of Saturn is also called ‘Ardh Chattar Bhang Yoga’. This is so as Saturn the planet of mass unrest or disturbance aspects/occupies the sign of Sun (the Planetary king) and causes disturbances either to the ruled territory or the ruler. As is well known Saturn remains in one house roughly or about two and a half years and therefore will occupy either Leo or Aquarius after thirty years. Saturn occupied Leo around 1947 and India saw the power lost by the British, loss of territory as well as partition and bloodbath in newly formed India and Pakistan. Next, it occupied the same in 1977 onwards and saw Indira Gandhi and the Congress losing power through one of its worst defeats. The mildest form of Chattar Bhang Yoga happened when it last occupied Leo in 2007. Dr. Manmohan Singh, who now has the sobriquet of being an accidental Prime Minister, just got away in its mildest form by remaining confined to hospital for six weeks in 2009 due to critical redo cardiac surgery receiving 5 grafts in a 13 hours long surgery.

Since the main subject of the topic is Ardh Chattar Bhang Yoga, so for the purpose of this article, we focus on Saturn in Aquarius confined to India after independence, for the purposes of this mundane astro-analysis. Saturn was in Aquarius from Jan 27, 1964 upto April 9, 1966, when it moved into Pisces till November 3, 1966 to return in Aquarius on December 20, 1966. During the period India saw the loss of its first Prime Minister Pandit Jawahar Lal Nehru on 27^th May, 1964, due to sudden cardiac arrest. The second Prime Minister Shri. Lal Bahadur Shastri also saw not only the war in 1965, with Pakistan and initial loss of territory to it but also met his own end on 10^th January, 1966 due to cardiac arrest as per the documented version (believed to be due to enemical conspiracy by others). Shri Gulzarilal Nanda, the interim Prime Minister also lost power twice after two 13- day tenures. Firstly, after the death of Pandit Jawahar Lal Nehru and then after the death of Shri Lal Bahadur Shastri leading to yet another Prime Minister Smt. Indira Gandhi emerging during the same transit. Quite a turbulent time it was !

The next cycle of Saturn in Aquarius occurred as follows-

Aquarius (Kumbha) – 05/03/1993 to 15/10/1993

10/11/1993 to 02/06/1995

10/08/1995 to 16/06/1996

Now coming to events. Mr. P.V. Narsimha Rao seemingly completed his tenure and lost power but even he started facing the heat of multiple criminal charges including of saving his Government by buying MPs in 1993, of having received bribe of One Lakh US dollars through Chandra Swami and accusation of Rs. One crore from Harshad Mehta as also of conspiring to fudge/forge documents in St Kitts Case. All in all, he suffered reverses during the later part of the Aquarius transit of Saturn after he had also taken action in Jain Hawala diary case against his own potential rivals and party colleagues. He had not only to lose power but also face the ignominy of the being the first Prime Minister to face arrest on charges of corruption and forgery in November, 1996. Further, at the end of the transit which happened on 16/06/1996 events in quick succession occurred leading to loss of power by successive Prime Ministers. On 15/05/1996 after loss of election Mr. Rao handed over the baton of power to Shri. Atal Bihari Vajpayee who lost the power within 16 days (becoming the elected Prime Minister with shortest tenure) and thereafter even before 16/06/1996 (end of transit), Mr. Deve Gowda became the unexpected Prime Minister.

Now this brings us to the present transit of Saturn in Aquarius, the dates of transit for Saturn in Aquarius at this time are: -

Saturn enters Aquarius on 29^th April, 2022 to 12^th July, 2022. Re-enters on 17^th January, 2023 and remains there with two and fro motion till 29^th March, 2025.

The important event of General elections in natural course will be held in May, 2024. It is likely that despite having Moon Dasha of a powerful Gaj-Kesari Yoga both in 2014 and 2019 and which lasted till 2021, Prime Minister Modi may face some internal attempts to undermine his authority in present Mars Dasha by his rivals. His Mars is positioned to make a Mahapurush Yoga. Though his Moon Dasha ended in 2021, his Mangal Mahapurush dasha has already made him win Gujrat election with a thumping majority. Mangal however also rules his sixth house [which is house of illness and opponents] and despite being present in strength in Lagna may cause some health issues or rival actions of concerned, during the period 2023 to 2025. However, his remaining in power again, may not be doubtful till the time any rival with stronger planetary combination emerges. The author can narrow down that events to guard against if it all happen, may coincide with either Jupiter entering Aries or Taurus from April, 22-2023 to March, 29, 2025. The period may require a higher degree of alertness on the part of national security agencies and armed forces to guard against any territorial incursions by enemical interests.

While wishing and praying for the best of the country, the author intends to highlight that precautions can prevent any untoward event or can also minimize or reverse damage, which is the objective of this piece rather than creating any alarm based on astro-interpretations, which in any case is a science of probability.

So Causes Brahma to say !

If fraud/forgery vitiate, do bona fides abate?

If fraud/forgery vitiate, do bona fides abate?

By Somesh Arora & C. K. Mandal, Advocates (Amicus Rarus)

Published In: 2022(382) E.L.T. Part 2 (A27) – 15^th October, 2022

The proposition under Customs law, has been engaging most High Courts in India including the apex court with different views emerging especially in relation to frauds and forgeries committed in licenses. Before a detailed examination of the legal propositions is conducted, it is important to dissect various situations in which a forgery especially in licenses used in relation to various imports are concerned. Such licenses were generally issued by Ministry of Commerce and are presently issued by the office of Director General of Foreign Trade (DGFT). There can be situations, where a forgery or fraud has been committed by misrepresenting and even misleading the office of licensing authority or the DGFT Office. This could arise by falsification of export figures, export remittance certificates or even forging Bills of Entry etc. The net result is that the license issuing DGFT authorities are cheated, and the forged licenses start floating in the market and there are bonafide purchasers who buy and use such licenses till the time they are not cancelled by the DGFT Authorities.

Second situation could be, that a license is forged or a document like Transfer Release Advice (TRA) is forged, without even Ministry of Commerce or DGFT Authorities knowing about it. It is because the forged paper was never examined by them, till the forgery is detected. There can be another situation, when blank forms duly printed by the Nasik Press were stolen either from the custody or possession of DGFT Authorities and such stolen forms were duly printed on authentic licensing Forms after forging and putting stamps of exporter/ importer. Same were sold in the market and were purchased by various persons. The DGFT by not cancelling such forms despite knowledge contributed to the negligence of the purchasers and custom authorities involved who cleared the imported goods.

Coming on to the legal propositions emanating from the Supreme Court, the significant decision in this regard is reported in 2009 (235) E. L. T. 587 (S. C.) in the matter of Commissioner of Customs (Preventive) Vs. Aafloat Textiles (I) Pvt. Ltd., which laid down the principle that the fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. Same flowed from Para 28 which read as follows;

Para “28 As noted above, SILs were not genuine documents and were forged. Since fraud was involved, in the eye of law such documents had no existence. Since the documents have been established to be forged or fake, obviously fraud was involved and that was sufficient to extend the period of limitation.”

The ruling had the effect of providing extended period of limitation to the Department as per Section 28(1) even in those cases when the forgery fraud was committed by some third person, as the decision was propounded on the maxim of ‘caveat emptor’ which meant and was noted by the apex court as a maxim meaning stating that “Let a purchaser beware; who ought not to be ignorant that he is purchasing the rights of another” – [Para 23 of the decision refers]. The maxim was followed to state that no one can have better title than the one from whom he purchased and that the defects in the title of the seller passed on to the buyer also. The decision which was by a double member bench, construed Section 28(1) of the Customs Act, 1962 to provide that willful misstatement, collusion and suppression got attributed to the buyer even if forgery or fraud was committed by the seller. The decision however, did not consider the earlier proposition laid down by three Member Bench of the Supreme Court in the matter of East India Commercial Co. Ltd., Calcutta Vs. Collector of Customs, Calcutta, as reported in 1983 (13) E.L.T. 1342 (S. C.) which while dealing with proposition of License obtained by misrepresentation, held the same as voidable but otherwise good. Relevant Para of the decision is Para -35 which is as follows:

“35. Nor is there any legal basis for the contention that licence obtained by misrepresentation makes the licence non est, with the result that the goods should be deemed to have been imported without licence in contravention of the order issued under Section 3 of the Act so as to bring the case within Clause. (8) of Section 167 of the Sea Customs Act. Assuming that the principles of law of contract apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable: it is good till avoided in the manner prescribed by law. On May 1, 1948, the Central Government issued an order in exercise of the power conferred on it by Section 3 of the Act to provide for licences obtained by misrepresentation, among others, and it reads:

“The authorities mentioned in the Schedule hereto annexed may under one or other of the following circumstances cancel licences issued by any officer authorised to do so under clauses (viii) to (xiv) of the notification of the Government of India in the late Department of Commerce, No. 23-ITC/43, dated July1, 1943, or take such action as is considered necessary to ensure that the same is made ineffective, namely :-

(i) When it is found subsequent to the issue of a licence that the same had been issued inadvertently, irregularly or contrary to rules, fraudulently or through misleading statement on the part of the importer concerned; or

(ii) when it is found that the licensee has not complied with any one or more of the conditions subject to which the licence may have been issued.

SCHEDULE

Clauses	Licencing authority	Cancelling authority
Clause (xiii)	Any officer authorizes by
the Central Government.	Chief Controller of Imports and/or Govt. of India."

This order, therefore, authorised the Government of India or the Chief Controller of Imports to cancel such licences and make them ineffective. The specified authority has not cancelled the licence issued in this case on the ground that the condition has been infringed. We need not consider the question whether the Chief Controller of Imports or the Government of India, as the case may be, can cancel a licence after the term of the licence has expired, for no such cancellation has been made in this case. In the circumstances, we must hold that when the goods were imported, they were imported under a valid licence and therefore it is not possible to say that the goods imported were those prohibited or restricted by or under Chapter IV of the Act within the meaning of Clause (8) of Section 167 of the Sea Customs Act.”

Thus the apex court in its earlier decision had held the misrepresented or fraudulent licenses as voidable and same to be avoided by the License issuing authorities by cancellation of the same by the due notification or prescribed process. It also held that till the time the license was valid and not cancelled and if the goods were imported under it, the imports will be valid.

Though in the later decision of Commissioner of Customs (Preventive) Vs. Aafloat Textiles (I) Pvt. Ltd., it had not considered the above decision of East India Commercial Co. Ltd. Yet, it is to be seen, as to whether there could be any common meeting ground between the two decisions or they are in conflict with each other. Lack of bonafides, it is very clear will vitiate any underlying transaction. However, if the purchaser is bonafide and fraud or forgery committed is such which could deceive even the DGFT or customs authorities, and the purchaser was the purchaser in good faith and for consideration, then whether the underlying transaction will be void ab-initio or voidable. It is clear that willful misrepresentation, collusion and suppression in Section 28(1) will refer to the same being of the person who makes the import and is liable to pay duty as per Section 28(1), therefore, a fraud which deceives even the DGFT authorities, who fail to withdraw the same in time by cancelling the same cannot get attributed to a bonafide purchaser. However, the situation can be different if forgery is committed in the market itself by making a forged stamp paper, printing it with language of license and giving it look and feel of original license and thereby selling it in the market, even when DGFT authorities are not on the loop. Such a situation, may not require a license to be cancelled by DGFT authorities, as they were never privity to any contract and therefore, same remains void being non-est. In such a situation, one can legitimately claim that forgery has vitiated everything and that the license used by the importer was non-est and therefore, void. It appears that given the facts of various situations, in which forgeries are committed, there is not any conflict between the above two decisions of the Apex Court and either can be validly apply in their own domain of facts. The proposition of forgery making a license void or voidable, therefore, will depend upon the facts of each matter. And none of the above legal principle is absolute and can be solely applied in every situation. Bonafides therefore, can be relevant and should mitigate the impact of fraud provided a reasonable diligence is not avoided by the user/ purchaser.

[The views expressed by the authors are personal.]

De- criminalizing tax systems: Is it a warranted pragmatic approach?

De- criminalizing tax systems: Is it a warranted pragmatic approach?

By: Somesh Arora, Advocate and Former Commissioner of Customs and Excise.

Published in ECGC Bar Souvenir on Pg. No. 25

You tolerate them, they grow in numbers.

You punish them, why so for economic offence, they wonder.

You finish them, other employed by them lose their jobs.

You therefore make them mend, so that tax paying remains the trend.

In debate circles on tax systems, a renewed topical interest has been generated recently, with Mr. Tarun Bajaj, Revenue Secretary announcing the Government’s resolve to decriminalize GST tax system. Normally, it can be done (going by the norms in Customs and direct taxes) by introducing either compounding of offences or settlement provisions or more importantly by periodic upward revision of financial limits for arrest. The statement highlighted that the Government is contemplating policy initiative of not incarcerating individuals till the time an intent to come out clean, even post detection is visible.

It is interesting to be aware of how, the apex court has viewed economic offences and treatment required to be meted out to them over decades.

In 1983 (13) E.L.T. 1527 (S.C.) in the matter of BALAKRISHNA CHHAGANLAL SONI Versus STATE OF WEST BENGAL, while calling for deterrent punishment in a customs smuggling offence, it was observed that the penal treatment should be tailored to the individual but the penal strategy must be regulated by social circumstances, individual factors and the character of the crime. Since India is facing an economic crisis and gold smuggling has had a disastrous impact on the State’s economy, therefore, a serious view must be taken of professional economic offenders, such as, smugglers, hoarders and economic offenders and others of their ilk which show a distressing growing tendency. The fact that the accused comes from a respectable or high family rather emphasizes the seriousness of the malady and the consequential punishment for the violation of such laws must be equally deterrent. Similarly, in 1983 (13) E.L.T. 1661 (S.C.) in the matter of STATE OF MAHARASHTRA Versus CHAMPALAL PUNJAJI SHAH, in a customs criminal trial matter, it was noted that in economic offences stakes involved and offence being one which can jeopardize the economy of the country, it is impossible to take a lenient view. In 2017 (356) E.L.T. 3 (S.C.) in the matter of Rohit Tondon v/s E.D. in relation to bail matter under prevention of money laundering it was held that economic offences are deep-rooted conspiracies and involving huge loss of public funds, they are serious and grave offences affecting economy of country as whole.

It is thus clear that S.C. has been showing no leniency in the matters of economic offences, consistently over a period of time as the same are considered to be discriminating against the honest tax payers and society and therefore against the nation’s interest. Courts, in fact, have been coming out heavily when the economic condition of the country so warrants. Whenever an economic crisis has emerged, the approach of the courts became more deterrent too.

Therefore, in tax matters it is clear that the approach of the Court’s has emerged in synch with the approach of tax policy makers, who being aware of the comfort level or crisis in an economy, move according to times. Therefore, the prerogative to decriminalize certain tax offences , bring amnesty schemes or bring stringency in the tax systems embedded to the need of times, has been of the legislative or executive authorities. Courts however have shown little leniency only, while dealing with beneficial provisions like settlement or compounding, if broader parameters laid down in the policy are met. The policy makers while making such schemes are aware that any measure to decriminalize should not give unfair advantage to dishonest tax payers. And the remorse over past activities and desire to undo the unfair advantage obtained, is present and demonstrated in the acts. The underlying philosophy is to take away unfair advantage of tax evader by putting him in the position equivalent to that of honest tax payer and still to put some financial burden/ cost on him so that desire to be repetitive does not remain present.

Some of the amnesty schemes in the past, especially under direct tax system, which were driven purely by desire of the Governments of the day, to earn some extra revenue, even when they allowed some benefits of the past to be retained by the tax evader, were adversely commented by the apex court. Supreme Court even advised that such schemes may not meet the approval of judicial scrutiny, if brought in future.

While it may appear to a superficial analyst that bringing of amnesty schemes or decriminalizing or in contrary severely criminalizing tax offences is a periodic and recurrent exercise. And is bound to happen sooner or later or close to elections or to garner little extra, when collection gets tough (as in case of house tax). The fact for larger revenue earning levies, is that at a macro level such policy initiatives only to some extent get operationalized when tax position becomes comfortable. Logic is perhaps to reward taxpayer and trading community as a whole by making law less stringent for tax evaders so that those who are not on board with those lawfully discharging tax, should join the bandwagon by coming out clean from the past. A strong signal of arrests and prosecutions, in time of fiscal crisis, for tax evaders is equally required to be sent. None other than policy makers, thus can be aware of the timings for appropriate initiative.

In GST for instance, the existence of fake registrations and fake invoice cases right in the beginning of tax system was indicative, that not many were prepared to mend their ways of thriving on the tax evasion. They sure needed shock treatment of being behind the jail rods to do it. That having been done, through various drives and then e- invoicing bringing irreversible buoyancy in the system, the competent analyzing policy makers (now having reach of data analytics tools to assist) might have realized that it is time to introduce some element of clemency even for tax evaders wanting to mend themselves. Similarly, raising of limit say for instance from ?5 crores of evasion to ?20 crores of evasion in GST and other tax systems can lead to departmental manpower being better deployed for hardcore recovery from tax evaders on civil side, rather than wasting their breath in courts for prosecutions. Better tax compliances can also be ensured by channelizing of efforts towards those whose contribution in tax kitty, is considerable.

After all a late payment of evaded tax with interest at any point of time, still reduces burden of present or future higher taxes for the honest tax payer. And therefore is always a welcome step for the society. For the hardened ones ready to gamble their business existence, the system or the law is bound to catch up with them, some day. As far, as revenue authorities are concerned, the first principle of enforcement is focus on the big fish which are difficult to catch, rather than small ones who may be more in number but are liked as hush money is easy to beget from them. For such collusion can lead to a joint venture in plundering of evaded taxes.

For those who honestly collect indirect taxes and pay it without passing nay civil services exams, some incentive in future may someday be required to be considered.

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RECAPTULATING GST SAGA: HAS THE CHILD LEARNED TO SWIM?

RECAPTULATING GST SAGA: HAS THE CHILD LEARNED TO SWIM?

By:

SOMESH ARORA (ADVOCATE) and Former Commissioner of Customs & Central Excise]

Published in TOIL Awards Book 2022

It has been five years, since GST was introduced on 01.07.2017 with much fanfare and celebratory mood in the nation, befitting ushering in of such a big ticket tax reform. The early few months of implementation and numerable glitches being faced even by the tax payers to file GST returns, left one to feel that perhaps the launch of GST was akin to a small child being splashed in the swimming pool. Albeit, under watchful eyes of parents and coach. The possibilities were either it will learn to swim with efforts and support, or drown. The reasons for this state of affairs in the year of commencement and its immediate aftermath, were multifarious. The ones that clearly stood out were absence of robust IT System at the time of introduction capable of catching transaction and returns in one of the largest GST tax system in the world, frequent changes both in law and procedures which are common for any evolving tax regime was another. From the government’s perspective it was a call to be taken as to whether what was already delayed could be delayed further. The talks about introduction of GST as a federal tax reform had begun in the year 2006. Since then things were going topsy-turvy, due to either lack of a political will or lack of numbers, including of states required, willing to join the federal tax structure. Various issues were red flagged, which, inter-alia, included requirement of a robust IT System which was emphasized even by Mr. Nandan Nilekani, the IT network of GST way back in 2011 as the UIDAI Chairman. As the things stood later, he had to go back to Infosys to steer the GST network, which was on bumpy road of glitches, to ensure smooth ride for tax payers joining the network band wagon. A task largely achieved now. The other issue which was red flagged was possibility of use of fake Invoice and consequent frauds and revenue leakage in the event the GST System is not e-invoice based (doing system based instant matching of debits and credits in the GST Network). In the year 2006 and 2008 frauds had already started emerging of considerable magnitudes of rebate amounts floating in the erstwhile Central Excise system, mainly between Surat and Thane-II jurisdictions, on account of fake invoices and non-existing/ fictitious units. Despite all efficiencies, it took years to detect the fraud through backward verification in a system, which was pre-dominantly manual. For the Government of the day, perhaps the choice was either to further delay despite having political numbers and large federal consensus with states being on board or to postpone so as to start with a robust IT System and fairly evolved e-Invoice capturing system right from the beginning. Taking a bold initiative, the Government adopted the former course of action. And the GST was introduced on 1^st July, 2017 to be improved and improvised based on needs. Since 2017, till this year, it has been a systemic approach of crossing the bridge as and when it comes. The technical glitches in filing returns were removed, number of returns to be filed were reduced for small tax payers, threshold limits were fine-tuned by raising limits for goods as well as composition levy scheme, so that small tax payer is able to focus on its hard core and time needing requirement of doing business, rather than compliances. Fiddling and fine tuning with tax structure was done to meet the aspirations of small businesses as well as for reducing and keeping in check the price of essentials. Changes in tax structure and law were also made to meet aspirations of states, as was the requirement of consensus based modern tax structure. One of the significant achievement of the GST in last five years of operation has been that there were very few points of dissensions or negative votes to any proposal in discussions in the GST Council meetings. The credit for the same must go to the constant executive and even political level pre-consultations that generally happen on any proposal being brought to the GST Council. The task of executive officers involved has not been any different from the floor managers, who do their job in the Parliament. The officialdom even in 2016-17 and even thereafter rose to the occasion and burnt mid-night oil to promptly clarify numerable ticklish issues that led to quick evolving of the tax system. Technology was also used like never before to offer instant solutions and clarifications. The then Revenue Secretary himself clarified various issues by using the Twitter Handle. All this was unprecedented in the annals of the tax history. It was overall an admirable job both by executive as well as political establishment. GST was thus carried forward like a rafting boat in turbulent waters without allowing it to overturn by those on board.

The other distressing aspect was, that fraudsters seized an opportunity of floating fake firms and fake Invoices within the system. While the initial mood in Government over large number of registrations taking place during transition phase, was of euphoria. It soon gave way to need for strict enforcement, when it was realized that the fraudsters by using system took fake multiple registrations, to use fake Invoices to indulge in fake input credits. The detection time for concerted efforts by enforcement agencies, even using data analytics (but absence of not so great IT System), was one to two years. But finally a hard blow of detections and arrests was dealt with by the Finance Ministry, by the end of year 2020 by launching a campaign against fake invoices and fake registrations. Before the deep cleansing effort took place, the figures of fraud in most cases had crossed Rs.5 crores, and therefore a slew of arrests were made. The trend continues even till date. The revenue till January, 2020 was generally trending between an average of Rs.90000 crore to one lakh crore. A strong enforcement action, coupled with simultaneous reduction in threshold limits of mandatory e-Invoicing (for units having turnover of Rs.100 Crores and above, being brought down from 1^st January, 2021 to Rs.50 Crores from 1^st April, 2021 and now to Rs.20 Crores from 1^st April, 2022) had salutary effect on revenue. Through these measures along with betterment of IT Systems and resolute Government will exhibited, the desired effect of raising revenue was achieved. Same has now touched and crossed even the level of Rs.1.50 Lakh Crores per month and averages up to Rs.1.35 lakh crores through these two measures. All pending compensations to the states have been stated to be cleared up to date. The threshold limit of Rs.20 Crore which may already be covering 80% of the highest tax paying units, can easily be further reduced to 10 crores or even lower as and when GSTIN is sufficiently geared up and Government so requires. One more positive aspect of the GST as an evolving tax system has been fewer meetings of the GST Council, of late, leading to less frequent changes in tax laws as compared to earlier years, when even the lawyers and practitioners were having more GST Manuals on the table compared to GST litigation files.

The areas which still need to engage attention are, making aggregate turnover defined threshold limit easy to comprehend for commoners. At present, unlike Income tax one virtually needs to understand whole GST law to understand concept of threshold including concepts like taxable turnover, exempt turnover, reverse charge liability, differential between service and goods threshold , interstate supply of goods and services, export turnover, state wise differential turnover criteria etc. to know applicability of tax on oneself. There is also logic in doing way with unnecessary accounting as in income tax notional income criteria without elaborate accounts is applied up to turnover of Rs.2 crores for goods, but in GST the limit for composition scheme is Rs.1.5 crores. This requires that for the purposes of GST elaborate accounts and returns will be required to be maintained and filed by businesses falling in bracket of Rs.1.5 crores to Rs.two crores. So whatever is given by one hand of the tax systems is taken away by another hand. There is thus a case for raising composition limit to Rs.two crores as and when the Government finances so permit to achieve ease of business.

The GST journey so far in India has been one of hitch hops, but with strong shock absorbers now having been made available to the system. The evolution further may be easy and smooth. If service tax evolved in 18 years, it can be reasonably expected that much lesser period may be required for Indian GST tax system to become exemplary for others.

For our GST baby in the pool now may not be the world aquatic champion at the moment, but has already left behind the fear of its drowning and has certainly learnt to swim, to the joy of all watching.

Kudos to all those who had faith in its capabilities!!!

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Recommendation 24 (R-24) of the FATF- Looking beyond façade for ‘beneficial ownership’

				By: somesh arora Garvesh Kabra
				March 11, 2022
Published in https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=10310

The Financial Action Task Force (FATF) in its meeting on 4^th March, 2022 held in Paris adopted amendments to its Recommendation- 24 and its interpretative Note, which pertain to requirement of countries to prevent the misuse of legal persons for money laundering, as terrorist financing. This was done to ensure that there is adequate, accurate and up to date information on the beneficial ownership and control of such legal persons. The changes made in the recommendation were outcome of two years of deliberations and review including inviting comments by keeping proposed changes in public domain. The objective of strengthening international standards on beneficial ownership of juristic person is to ensure greater transparency about the ultimate ownership and control of artificial persons and to reduce the risk associated of their misuse in money laundering operations. The aim is to being greater transparency and international cooperation in relation to requirements of beneficial ownership globally, while allowing member states to have a degree of flexibility in their local laws to maintain their sovereignty. It requires member countries to direct their registered companies to collect and collate adequate, accurate and updated information about their beneficial ownership and to make such information available to competent authority in a time bound manner. Quite likely, it will result in data base not only of common promoters of various companies but also when facades of employees or other shareholders are used to conceal real entity of the promoters or company is just a shell company created for some extraneous considerations.

The recommendation also requires any public authority to function as a registry for information relating to beneficial ownership and even to obtain information relating to such companies through regulated financial institutions and professionals and even regulators of stock exchanges. The changes also require stronger control to prevent the misuse of bearer shares and nominee arrangements, including issue of new bearer shares and share warrants. The information relating to beneficial ownership shall be shared on need based basis by the Member States, if so required as part of the international cooperation under their respective Prevention of Money Laundering legislations.

It is to be noted that Indian Legislation by way of major amendments brought in through amending of Act of 2013 had already brought in the concept of `beneficial ownership’ by introducing Section 2(f)(a) w.e.f. 15.02.2013 in PMLA,2002. Section 2(f)(a) inserted the relevant definition as follows:

“Beneficial Owner’ means an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a judicial person;”

It also vide Section 11A of the Prevention of Money Laundering Act, 2002 inserted by (Act 14 of 2019) effective from 25.07.2019 in Clause 11A (2) required the reporting entities shall perform AADHAR based authentication to verify the identity of its clients or the beneficial owner, but the same shall be done as per voluntary choice of client of beneficial owner and it shall not be denied, services for not having AADHAR number. Therefore, while requiring beneficial ownership to be reported by various financial institutions etc., the AADHAR based identification was still kept as a voluntary exercise. However, Indian authorities still did a commendable job by identifying and closing shell companies by cracking down upon them and freezing thousands of crores of assets through money laundering proceedings in India and overseas. In reply to a Parliament Question, it was stated that 3.82 lakh shell companies were struck off in three years prior to September, 2020 in various special drives undertaken by the Ministry of Corporate Affairs. It was also reported that Financial Intelligence Unit (FIU) had sent 289 legal requests to its counterparts across the world during the year 2018-2019 seeking cooperation from various countries regarding undisclosed foreign assets and cross border co-holding of various shell companies. It is in this context of international cooperation that the recent amendment adopted by FATF will have a major role to play, it is expected that the member States of FATF shall amend their own enactments at the national level, incorporating the agreed changes and standards within the time frame agreed upon. India has a good track record and has established itself as a country that has taken adequate enforcement measures against shell companies which were being used for money laundering, what has been lacking is response to international cooperation being sought from other nations by India. Further, institutionalizing, international mechanism on this aspect may only go to help FATF compliant countries like India to strengthen their enforcement. Further, coming to existence of dummy shares in corporate system, there are lot of old shares which are lying in physical form in India. The shares in DEMAT forms are subjected regularly to KYC compliance. But physical shares are now required by law to be under Demat form in time bound manner or those lying unclaimed are required to vest in the State. However, the Investor Education and Protection Funds (IEPF) Authority has not been acting proficiently till now even in relation to claims lodged with it. Even processing of genuine claims has been made a cumbersome process by the IEPF at it has just delayed things during pandemic times leading to huge pendency of claims with them.

It is estimated that about ? 7 to 8 Lakhs worth of shares are lying in physical form, many of whom are genuine shares and required to be transmitted as per law. But the babus in IEPF are making things rather difficult by demanding unnecessary papers and even the Secretaries of concerned companies have a lackadaisical approach while dealing with such shares. The pathetic response in this regard and time being taken to dispose claim can be a matter of system failure study. While it is expected, that the Government Authorities will be able to separate the wheat from chaff, the over enthusiastic but inefficient IEPF Authorities may and secretaries of the companies may not allow the genuine funds of the Indians to just vest in the Government as unclaimed or benami just due to their lethargy. For such a huge sums to be vested as benami or laundered will only reflect badly on India. Another aspect which India needs to work upon is frequently found different `beneficial owners’ behind imports done by someone else under its IEC Code. Such financers in DRI Investigation are termed as ‘mastermind’ and most of the show cause notices are issued as ‘either importer on documents or the master mind’ being liable for customs duties.

It is required that such mastermind who are nothing but beneficial owners of the imported consignments are covered under scope of definition of ‘beneficial owner’ under Prevention of Money Laundering Act, 2002 and brought to book like any other person and even international cooperation should not be confined only to juristic person as definition at least in our statute covers any individual also.

While proposed international cooperation on `Beneficial Owner` is definitely a step forward, it is hoped that India will not have same harrowing experience from some of the founding State members of FATF on cooperation, as it is having in relation to known fugitives who ran away with billions of rupees of loans.

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By:

SOMESH ARORA (ADVOCATE), [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Central Excise]

GARVESH KABRA (ADVOCATE-ON-RECORD), Supreme Court of India

By: somesh arora - March 11, 2022

Kaccha Papad, Pakka Papad, Revenue twist to the 'Fryum Papad'

MARCH 05, 2022 Published in https://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=43014

By Somesh Arora, Advocate, Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Central Excise

THANK God the Gujarat Appellate Authority for Advance Ruling rising to the occasion and understanding the importance of Papad for the cottage industry all over India has finally decided that the Unfried Fryums are 'NIL' rated under GST and classified under Tariff Heading 1905 90 40 and not under Tariff Heading 2106 90 99 @18%, as was decided by various Advance Ruling Authorities. At the root of the controversy was an advance ruling by the Gujarat A.A.R. IN RE: Sonal Product as reported in - 2019-TIOL-70-AAR-GST which held that "Unfried Fryums" made of different raw materials are Namkeen and not Papad, therefore classifiable under Tariff Heading 2106 90 99 @18%. The same was later on followed by A.A.R. GST Gujarat in Re: Jayant Food Products reported in - 2022-TIOL-07-AAAR-GST and also followed in - 2020-TIOL-307-AAR-GST in RE: J.K. Food Industries and even in- 2020-TIOL-307-AAR-GST in RE: Piyush Jayantilal Dobaria. Significantly, even the Advance Ruling Authority of Madhya Pradesh in RE: Alisha Foods reported in - 2020-TIOL-17-AAR-GST also held that Fryums are not Papad and are classifiable under 2106 90 99, CGST @9% + SGST @9%. This created an enormous uncertainty in the Fryum making industry which has become a cottage industry like any other Papad making, in India and meant a gap of 18% duty between other Papad and Fryums. The Papad industry as a whole works on a margin of 5 to 6 percent and has the supply chain extending right from MSME and cottage industries (Manufacturing point) to the remotest vendor in rural areas, many of whom carry such products on push carts in weekly markets. The so termed ingredient test and use of Anglicised generic term ‘Unfried Fryums' as distinguished from traditional Papads, for the item, to determine and apply common parlance test by the overzealous Advance Ruling Authority of Gujarat caused, havoc in the industry and perhaps went much against the wishes even of the GST Council.

Finally, the controversy was left to be settled by the Gujarat Advance Ruling Authority in - 2022-TIOL-07-AAAR-GST IN RE: Jayant Food Products, wherein it was held that the main ingredients in Fryums as compared to other papads were same as well as manufacturing process of PAPAD and impugned product is similar. "Fryums" was only a brand name of company and not generic name of the impugned product. And that both products are ready to cook products and can be consumed after roasting or frying in oil and consumed as snack. Therefore, both products i.e. "PAPAD" and product in question are same except they are known by different name in general public i.e. as "PAPAD" and "Fryums". Impugned product was manufactured from wheat flour, superfine wheat flour, rice flour, starch, corn flour, cereal flour and all these products were covered under chapter 10 and 11 of Customs Tariff Act. 1975. That the Fryums can be categorized as crispy savoury food product and thus classifiable under Tariff Item 1905 90 40 and chargeable to NIL rate of Goods and Service Tax as per Sl. No. 96 of Notification No. 2/2017-C.T. (Rate), dated 28/06/2017 and Notification No. 2/2017-IGST (Rate), dated 28/06/2017. It also held that in matters of classification of goods common parlance test continues to be one of the determinative tests for classification of product and it is User's understanding that is as strong factor in the determination of classification of products. Therefore, both by ingredients test and common parlance test, different conclusions were reached by different advance Ruling Authorities and the Appellate Advance Ruling authority. While the controversy might have been set at rest in the state of Gujarat as far as those who went in appeal are concerned. The ruling may survive in state of M.P. or for those parties who did not appeal. This cannot be a happy situation either for the department or for the litigant parties, as the same product gets classified under different heads in different states or even with in the same state as happened with state of MP and Gujarat for the parties who did not go in for any appeal, in this instant. Thriving litigation, suspense and ambiguity, therefore cannot be in interest adversarial taxation system, as it can hit business interest and policies hard. Nation thus suffers if there is prolonged suspense about the extent of taxation. Even an overzealous revenue oriented advance ruling system becomes self-defeatist, as it no more promotes certainty at the earliest but the ambiguity to the hilt.

This is only one such situation, and many can arise or may already be there in relation to other products, as multifarious Advance Ruling Authorities pronounce at logger heads with each other, bringing distortion even within the same State or in other States who part of a uniform federal tax structure of GST. We also recall an advance ruling which had to be set right because it even considered transit and other areas in baggage halls as part of territory of India attracting IGST unsettling the notion of import under Customs Act and duty free area concept underlined by passenger facilitation and baggage related treaties and conventions. It shall therefore be prudent that either the CBIC or the Secretariat of GST Council has a clarification issuing process to do away with the distortion and differences within various Advance Ruling Authorities at the earliest and such clarifications expected to be statutorily and uniformly followed by all Advance Ruling Authorities in India. This will not only bring down unnecessary conflicting rulings, but also reduce the possibility of Advance Ruling being declared a nullity, if difference of opinion emerges at the level of Appellate Authority for Advance Ruling, as has started happening in some States.

The advance rulings are required to bring clarity to the fore to the business and not pose brain or revenue twisters in their wake.

[The views expressed are strictly personal]

Proper officer under Customs Act, 1962 -- will the loose cannon misfire again?

Proper officer under Customs Act, 1962 -- will the loose cannon misfire again?

By:

Somesh Arora, Advocate (Amicus Rarus) Former Commissioner of Customs & Excise]

The battle lines for a renewed Mahabharata on ‘proper officer under Customs Act, 1962 are being redrawn again with both the Judiciary and the Executive becoming hyper active post the Cannon India Pvt Ltd vs Union of India matter.

While the Department has filed a review petition against the case listed for hearing on March 9, 2022, and is also battling out on new turf of other cases pending in the Supreme Court, the Executive has done its bit through proposed amendments in Finance Bill, 2022.

The Bill is likely to become Finance Act on approval by the Parliament. In the recent matter of Union of India and Others vs Godrej and Boyce Manufacturing Company Ltd., the matter of Cannon India Pvt Ltd was brought into contention.

The apex court, after being pointed out that Cannon India had while focusing on the definition of ‘Proper Officer' under the Customs Act, ignored Section 28(11) as amended which would have come to the rescue of the Customs Department, issued notice to the other side.

The Department had engaged the Attorney General and whole contingent of advocates to argue the matter from the side of Union of India. The notice has been issued to the respondents and the matter is listed for arguments on March 8, 2022.

In the meanwhile, on the legislative side through the Budget and Finance Bill, a set of amendments have been proposed under Section 2(34) in the definition of ‘Proper Officer' and in Section 3 to include DRI officers within the ambit of ‘Classes of Officers of Customs'.

Further, Sections 5(1A), (1B) have been introduced to give the Board the power to assign function as officers of Customs and also sub-Section 5(4) and 5(5) have been introduced to allow Central Board of Indirect Taxes and Customs (CBIC) to impose conditions, while assigning any function to officers of Customs and also to give concurrent powers to two or more officers of Customs.

The note on Clause 96 provides that the Clause has been introduced to give validation to any action taken or function performed before Finance Act, 2022 under various specified Chapters of Customs Act, 1962 and Notifications issued thereunder for appointing an officer of Customs or assessing functions, by giving retrospective effect to Sections 2, 3 and 5 of the Customs Act, 1962, amended by the Act to that effect.

While it cannot be denied that notes on clauses can be a good guide of interpretation, a good draftsman would rather like the relevant provision to be clear and unambiguous and conveying the whole meaning and purposes rather than drawing aid from any interpretation tool.

It is here that Clause 96 has done the opposite and the same is reproduced below:

"Validation of certain actions taken under Customs Act - Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, or in the provisions of the Customs Act, 1962 (52 of 1962) (hereinafter referred to as the Customs Act) -

(i) Anything done or any duty performed or any action taken or purported to have been taken or done under Chapters V, VAA, VI, IX, X, XI, XII, XIIA, XIII, XIV, XVI and XVII of the Customs Act, as it stood prior to its amendment by this Act, shall be deemed to have been validly done or performed or taken.

(ii) Any notification issued under the Customs Act for appointing or assigning functions to any officer shall be deemed to have been validly issued for all purposes, including for the purposes of Section 6.

(iii) For the purposes of this Section, Sections 2, 3 and 5 of the Customs Act, as amended by this Act, shall have and shall always be deemed to have effect for all purposes as if the provisions of the Customs Act, as amended by this Act, had been in force at all material times.

Explanation -- For the purposes of this Section, it is hereby clarified that any proceeding arising out of any action taken under this Section and pending on the date of commencement of this Act shall be disposed of in accordance with the provisions of the Customs Act, as amended by this Act.

A plain reading of the provision indicates that non-obstante clause operates irrespective of any judgment, decree or order of any Court, Tribunal or any other authority as well as in preference to any provision of Customs Act and includes in its ambit, "anything done or any duty performed or any action taken or purported to have been taken or done" under stipulated 12 Chapters of the Customs Act as they stood prior to the amendment by the Act.

While Clauses 2 and Clause 3 still deal with point of appointments of officers, Clause 1 has been drafted broadly enough to include anything done or any duty performed or action taken. The Clause is thus comprehensively wide to include almost actions like search, seizure and arrest, confiscation of goods, adjudication etc. and if anything done was reversed by any court then department can take resort to the provision even to legally revise the same as act done or any action taken prior to amendment by the Finance Act, 2022 on which no judgment, decision can have impact.

One cannot ignore the fact that Clause 1 has been badly drafted and does not bring out the object of the note on Clauses. One cannot be oblivious of the fact that language as used affords an interpretation that various Acts like seizures and confiscation by any officer gets validated even when reversed by courts, in any routine litigation.

Scope of better language therefore cannot be denied. The Customs Department has been a victim of poor drafting of provisions, at least twice earlier on account of DRI officers declared to be not ‘proper officer' in the Sayed Ali vs Commissioner of Customs case, as reported in 2011 (E.L.T. 17 (S. C.) and in Cannon India Pvt Ltd in 2021.

Relevant provision should not therefore suffer a vice of loose cannon of drafting. The Department should, therefore, contemplate amending the provision when Finance Bill undergoes process of becoming the Act. For it is a provision that should dictate the law and not the explanatory clauses, (which are last drawn aids of interpretation) and can never replace the simple and plain words of the statute.

Insertion of new section 135AA in Customs Act, 1962 - Was it a necessity or response to inaction under existing legislations?

Insertion of new section 135AA in Customs Act, 1962 - Was it a necessity or response to inaction under existing legislations?

By:

Somesh Arora, Advocate (Amicus Rarus)

Former Commissioner of Customs & Excise]

Published in http://www.smetimes.in/smetimes/in-depth/2022/Feb/08/customs-act-new-section72784.html

The recent budget through Finance Bill has sought introduction of Section 135AA as a part of the Customs Act, 1962 the same is reproduced below:

Clause 94. After section 135A of the Customs Act, the following section shall be inserted, namely:

Protection of data.

Section 135AA.

(1) If a person publishes any information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods under this Act, unless required so to do under any law for the time being in force, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to fifty thousand rupees, or with both.

(2) Nothing contained in this section shall apply to any publication made by or on behalf of the Central Government.

Explanation. -- For the purposes of this section, the expression "publishes" includes reproducing the information in printed or electronic form and making it available for the public'.

Clause 94 of Finance Bill, 2022 thus seeks to insert new section 135AA in the Customs Act, so as to make punishable the publishing of information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods, unless required so to do under any law for the time being in force except that provision shall not apply to any publication made by or on behalf of the Central Government.

The stated object of introduction of Section 135AA is to protect the import and export data submitted to Customs by importers or exporters in their declaration by making publishing of such information, unless provided by the law, as an offence under Customs Act. An exception has been carved out as far as any publication is made by or on behalf of the Central Government.

Therefore, the data published by Ministry of Commerce which normally forms basis of Anti-Dumping duty and Safeguard proceedings and is presented in aggregate without naming the importers and exporters, continues to remain unaffected.

The purpose of the provision is to prevent details of imports and exports as may be captured by the IT System of Customs Department or by NIDB data from being leaked out.

It is stated that proposal will only criminalise the illicit publication of transactional data by private entities, especially where the data reveals the identity of exporter or importer.

The provision seeks to empower the Customs to combat bad actors and hackers who illicitly mine commercially identifying and sensitive information and are engaged in selling transactional information or the dark web or through websites.

A number of entities (websites) have been identified by the CBIC who are selling data containing the name of exporter/importer, description of goods, quantity, value, classification etc. By selling commercially sensitive information, including the names of importers and exporters, they adversely impact the competitive position of Indian exporters in the international trade.

Earlier, in 2016, the Government had taken the step of protecting data of Indian exporters and importers, after rescinding provisions for publication of daily lists of transactions. The details are as follows -

"Publication of Daily Lists of Imports & Exports Rules, 2004" was rescinded under notification 140/2016 - Customs (NT) dated 25th November 2016, at the behest of Ministry of Commerce, which was prompted by industry complaints regarding leakage of commercially identifying and confidential information of import/export transactions.

As is mentioned, a need for such a measure to Customs Department arose as various data of importer or exporter was getting published on Internet and was after hacking etc., being illegally commercially exploited. It is also a fact that same was used by various persons either to offer defense in matters relating to valuation or classification.

But, instead of taking actions against such hackers under existing laws wherein a much severe punishments are available (as under the Information Technology Act as also under the Copyright Act which includes data base in its purview and both of which are again in turn covered under Prevention of Money Laundering Act, 2002), the Department has chosen to answer its own inaction against such hackers through creation of another provision providing far less punishment through an offense which has been made bailable and non-cognizable and prescribes punishment of only six month or fine up to Rs 50,000, or both.

On the other hand, publishing of such information from the database will prevent a lot of assessees in offering effective defense against differential classification or valuation being accepted by the Department at various ports, unless the department decides to make such vital information available without names and addresses of importer and exporters.

This may either encourage litigation or inconsistent assessment at various ports and therefore, varied assessment procedures in practice. The flipside is that vital information which may require business secrecy of importers and exporters may be maintained but only to some extent as foreign based hackers will still do their job.

While carving out such provision department has chosen the recourse of more power to itself, which rather shows that department has not chosen the Information Technology enforcement authorities or copyright authorities or Enforcement Directorate working under the same Ministry.

The right of any litigant to contest and defend itself against any Show Cause Notice, which indicates discriminatory practices should not be ignored neither the adequacy of other more effective existing legislations, the use of which department never seems to have made.

Since a litigant has a right to seek any information in possession of the Department for the purpose of his defense, will the department provide information without disclosing names of importers and exporters, about the classification of any product as assessed by the Department at various ports or the valuation thereof for contemporaneous imports and exports, if demanded under Right to Information Act, 2005 or for purpose of defense, remains to be answered. The wheat therefore must be separated from chaff.

It will be a pragmatic approach to legally allow publishing of such information sans name and addresses, and the same can be done by the Customs Department or Central Government only on commercial basis.

The format can be such as can be accepted by the courts and the Adjudicating Authority for their evidentiary value.

If the department is really serious about enforcing such provision, it should publish the classification of various products at various ports or the price range at which the same gets cleared in any particular month and treat the same as permissible evidence for defense purposes with statutory authority of law.

And further, it is time that the government decides to provide IPR protection to business secrets, which it has not done so far under Indian dispensation, rather than allowing such piecemeal efforts under various legislations for protection of data.

[Somesh Arora is an Advocate (Amicus Rarus), and Former Commissioner of Customs & Excise]

Insertion of new section 135AA in Customs Act, 1962 - Was it a necessity or response to inaction under existing legislations?

By:

Somesh Arora, Advocate (Amicus Rarus)

Former Commissioner of Customs & Excise]

Published in http://www.smetimes.in/smetimes/in-depth/2022/Feb/08/customs-act-new-section72784.html

The recent budget through Finance Bill has sought introduction of Section 135AA as a part of the Customs Act, 1962 the same is reproduced below:

Clause 94. After section 135A of the Customs Act, the following section shall be inserted, namely:

Protection of data.

Section 135AA.

(1) If a person publishes any information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods under this Act, unless required so to do under any law for the time being in force, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to fifty thousand rupees, or with both.

(2) Nothing contained in this section shall apply to any publication made by or on behalf of the Central Government.

Explanation. -- For the purposes of this section, the expression "publishes" includes reproducing the information in printed or electronic form and making it available for the public'.

Clause 94 of Finance Bill, 2022 thus seeks to insert new section 135AA in the Customs Act, so as to make punishable the publishing of information relating to the value or classification or quantity of goods entered for export from India, or import into India, or the details of the exporter or importer of such goods, unless required so to do under any law for the time being in force except that provision shall not apply to any publication made by or on behalf of the Central Government.

The stated object of introduction of Section 135AA is to protect the import and export data submitted to Customs by importers or exporters in their declaration by making publishing of such information, unless provided by the law, as an offence under Customs Act. An exception has been carved out as far as any publication is made by or on behalf of the Central Government.

Therefore, the data published by Ministry of Commerce which normally forms basis of Anti-Dumping duty and Safeguard proceedings and is presented in aggregate without naming the importers and exporters, continues to remain unaffected.

The purpose of the provision is to prevent details of imports and exports as may be captured by the IT System of Customs Department or by NIDB data from being leaked out.

It is stated that proposal will only criminalise the illicit publication of transactional data by private entities, especially where the data reveals the identity of exporter or importer.

The provision seeks to empower the Customs to combat bad actors and hackers who illicitly mine commercially identifying and sensitive information and are engaged in selling transactional information or the dark web or through websites.

A number of entities (websites) have been identified by the CBIC who are selling data containing the name of exporter/importer, description of goods, quantity, value, classification etc. By selling commercially sensitive information, including the names of importers and exporters, they adversely impact the competitive position of Indian exporters in the international trade.

Earlier, in 2016, the Government had taken the step of protecting data of Indian exporters and importers, after rescinding provisions for publication of daily lists of transactions. The details are as follows -

"Publication of Daily Lists of Imports & Exports Rules, 2004" was rescinded under notification 140/2016 - Customs (NT) dated 25th November 2016, at the behest of Ministry of Commerce, which was prompted by industry complaints regarding leakage of commercially identifying and confidential information of import/export transactions.

As is mentioned, a need for such a measure to Customs Department arose as various data of importer or exporter was getting published on Internet and was after hacking etc., being illegally commercially exploited. It is also a fact that same was used by various persons either to offer defense in matters relating to valuation or classification.

But, instead of taking actions against such hackers under existing laws wherein a much severe punishments are available (as under the Information Technology Act as also under the Copyright Act which includes data base in its purview and both of which are again in turn covered under Prevention of Money Laundering Act, 2002), the Department has chosen to answer its own inaction against such hackers through creation of another provision providing far less punishment through an offense which has been made bailable and non-cognizable and prescribes punishment of only six month or fine up to Rs 50,000, or both.

On the other hand, publishing of such information from the database will prevent a lot of assessees in offering effective defense against differential classification or valuation being accepted by the Department at various ports, unless the department decides to make such vital information available without names and addresses of importer and exporters.

This may either encourage litigation or inconsistent assessment at various ports and therefore, varied assessment procedures in practice. The flipside is that vital information which may require business secrecy of importers and exporters may be maintained but only to some extent as foreign based hackers will still do their job.

While carving out such provision department has chosen the recourse of more power to itself, which rather shows that department has not chosen the Information Technology enforcement authorities or copyright authorities or Enforcement Directorate working under the same Ministry.

The right of any litigant to contest and defend itself against any Show Cause Notice, which indicates discriminatory practices should not be ignored neither the adequacy of other more effective existing legislations, the use of which department never seems to have made.

Since a litigant has a right to seek any information in possession of the Department for the purpose of his defense, will the department provide information without disclosing names of importers and exporters, about the classification of any product as assessed by the Department at various ports or the valuation thereof for contemporaneous imports and exports, if demanded under Right to Information Act, 2005 or for purpose of defense, remains to be answered. The wheat therefore must be separated from chaff.

It will be a pragmatic approach to legally allow publishing of such information sans name and addresses, and the same can be done by the Customs Department or Central Government only on commercial basis.

The format can be such as can be accepted by the courts and the Adjudicating Authority for their evidentiary value.

If the department is really serious about enforcing such provision, it should publish the classification of various products at various ports or the price range at which the same gets cleared in any particular month and treat the same as permissible evidence for defense purposes with statutory authority of law.

And further, it is time that the government decides to provide IPR protection to business secrets, which it has not done so far under Indian dispensation, rather than allowing such piecemeal efforts under various legislations for protection of data.

[Somesh Arora is an Advocate (Amicus Rarus), and Former Commissioner of Customs & Excise]

Union Budget 2022-2023

FEBRUARY 02, 2022, Published in https://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=42804

By Somesh Arora, Advocate (Amicus Rarus) Former Commissioner of Customs & Excise]

Snippets on the Budget Speech:

- The booster Budget, in the lighter vein, has been special in more than one ways. It is the first Budget Speech since 18.02.1869, when Mr. James Wilson the Member Finance of Indian Viceroy's Council presented his first Budget of pre-independent India (described as Economical Mandarin of high standing by none other than Karl Marx), that shows gender bias of a different kind. World seems to have come full circle as in earliest Budget Speeches a person or a tax payer was described with biased gender as "He". In late 90's the Budget Speeches became gender neutral and a tax payer was described as 'a person' without reference to 'he' or 'she' or 'his' or 'her'. However, as a marked change while referring to the tax return filer Assessee, the same was described as 'she' and 'her' with reference to provision in Income Tax relating to correction of the Return filed in two years. For a change, the male gender may have to now crib about discrimination through women empowerment. So, even if the women have not got restoration of special deduction for women, they have no reason to have a grouse. May be in the next Budget it is a menfolk who may have to demand special deduction for men.

- With roughly about one hour and twenty five minutes, this is the shortest speech by Smt. Nirmala Sitharaman out of the four given till date. The fiscal proposals which were not requiring any great elaboration were over in 15 to 20 minutes. Easily the most interesting out of her speeches, it saw no one yawning either in the treasury benches or in opposition. Even the audience were spell bound till the end. Clearly a mark of good Speech, Kudos to Hon'ble Finance Minister for mastering the art of Budget Speech, which showed up in ample measure in the present speech.

- Devoid of any mention of any State going into 2022 Election (may be as per the requirement of Election Commission). The outlays mentioned were crisp and to the point, not elaborating in details as have been the practice with many earlier Finance Ministers.

- The Speech was clearly different from the earlier versions of the present Government and addressed the international audience and showed no nonsense financial indiscipline or populism measures. Message was clear on building futuristic India. The taxation proposals, were relegated to the background except for compliance simplification and elimination of complicated tariff exemptions as in case of Customs. It is believed the Customs Tariff Act and its Schedule will become easy to decipher for any international exporter, importer. The proposal to setting up of International Arbitration Centre will be a sure positive for corporate business both of India as well as those doing business with Indians. Categorising 'Virtual Digital Assets' as 'Capital Asset' and subjecting the same to 30% taxation and also the transaction relating thereto to 1% GST is bound to bring about a lot of clarity in relation to Crypto Currencies, however, a proper definition of 'Virtual Digital Assets' shall be required so that there is no confusion in taxing the same with various assets held in digital or dematerialized form, as the later are not virtual only but are backed by some security or equitable share in terms of business. As increase of Capex of 35.4% which is likely to go into mainly in infrastructure is step forward, as an effective engine for mid to long term GDP growth of India. Sale of 5G Spectrum and roping in private players is sure to bring much needed revenue for the Government and promise to provide optical fibre in every village by 2025 can be a game changer for the Digital Global India. As it is required to be preceded by good power connectivity for every village. If these measures are realized, same are bound to bridge the rural-urban divide in many ways.

- Another impressive point about the Budget out lays is emphasis on hi-tech future technologies like Drones for agriculture monitoring, National Tele-mental health programme, Education course via TV, Mobile Apps etc. e-passport with enabled Chips. Drones, Space, e-vehicles and artificial intelligence to be treated as engines for employment generation. RBI providing digital rupees through Block Chain are major data bound to be taken note of by the future investors to have a look at India as a sound proposition for business investment. The measure may even sound death knell of cryptos that thrive on black money (i.e. Mogambo Khush Hua Currencies- as I call them).

- Notwithstanding, a slight disappointment by the middle class taxpayers for having to remain content with the "Thank You Note" only from the Hon'ble Finance Minister. The Budget is futuristic and will strengthen the immune system of Indian Economy from pandemic shocks.

May our great nation re-write its high growth story post pandemic as promised through the 8.5% projected growth and even higher than that in the latter years. It is hoped that with this Budget India as a Nation will end up saying "Thank You" to our dear F.M. when eventually higher GDP growth is achieved.

(The Views expressed are strictly personal.)

Will settled be unsettled or re-settled?

Will settled be unsettled or re-settled?

By:

SOMESH ARORA (ADVOCATE), [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Central Excise]

Ever since the provision of paying interest on refunds after a period of three months was brought in various fiscal statutes, the valiant revenue soldiers got into the habit of giving technical objections in case refund was required to be sanctioned and the inefficiency did not permit it to be sanctioned within three months. This phenomenon was seen often in cases, where consequential refunds after winning a litigation was required to be made to an assessee by the Department. A simple letter close to the end of the three months period to satisfy Department on unjust enrichment or to provide original and not certified copy of any document or file application in a different format was considered enough to take the last date of rectification of such mistakes, by the Department as the date of filing of refund application. While various courts had different takes on all these technical objections, the matter was settled vide decision of Hon’ble Supreme Court in UNION OF INDIA & OTHERS VERSUS M/S HAMDARD (WAQF) LABORATORIES [2016 (3) TMI 68 - SUPREME COURT], in which Hon’ble Supreme Court laid down various timelines to be followed by the Department and also indicated that Department can reject a refund application but can not drag it unnecessarily on technicalities. Relevant date for payment of Interest on delayed refund under Section 11BB of Central Excise Act, 1944 was indicated to be on expiry of three months from the date of receipt of application seeking refund and not from the date of removal of defects. The above decision was followed in APAR INDUSTRIES (POLYMER DIVISION) VERSUS UNION OF INDIA [2015 (12) TMI 1255 - GUJARAT HIGH COURT], stating that for refund/rebate time limit provided under Section 27 of Customs Act, 1962/Section 11BB of Central Excise Act, 1944 must be computed from date of original filing of rebate claim and not from date of re-submission of claim after rectification of mistake/defects.

However, in CENTRAL MINE PLANNING AND DESIGN INSTITUTE LTD. VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX & CENTRAL EXCISE, , BHOPAL [2021 (8) TMI 302 - CESTAT NEW DELHI], decided on 06.08.2021 the Ld. Single Member Bench held that Interest on delayed refund when refund claim filed initially found deficient and after receiving deficiency memo, refund claim complete in all respects was filed on 14.07.2018. The interest on refund to commence three months after date of removal of deficiency in claim i.e. from 14.07.2018 for Section 11B of Central Excise Act, 1944 as made applicable to Service Tax vide Section 83 of the Finance Act, 1994. The appeal was thus dismissed ignoring the Supreme Court’s decision which to be fair to the bench was never cited before it and old decision as reported in STATE BANK OF INDIA VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I [2014 (9) TMI 876 - CESTAT MUMBAI], was followed by it.

This despite the fact, that the same bench with same constitution in the matter of CAPARO ENGINEERING INDIA LTD VERSUS CGST, C.C. & C.E., UJJAIN [2018 (12) TMI 922 - CESTAT NEW DELHI], had earlier decided on 06-12-2018 in Appeal Nos. E/53148-53149 /2018-SM (by taking cognizance of decision of Apex Court in Union of India Vs. Hamdard (WAQF) Laboratories -cited supra)that it was obligatory on Department’s part to inform deficiencies and defects in the refund application within two days of receipt thereof. And that no distinction existed in Statute between date of receipt of application and date of receipt of application complete in all respect. The provision is nowhere expressing about “application” to be called so only in case it is supported by the requisite documents. The law has been settled that the fiscal legislation has to be construed strictly and one has to look merely at what is said in the relevant provision.

It, therefore, appears that due to non-citing of the earlier decisions including of the apex court, the Hon’ble bench has taken an inconsistent view to its own view in earlier case as also to the latest views of various High Courts and Supreme Court, Union of India Vs. Hamdard Labs. (Cited supra), if so it may be a case for rectification of mistake either suo-moto or on filing of ROM application by the concerned party.

By: somesh arora - December 7, 2021

Oh Marie, why did they maketh you so dear? Tax India on line (December 1,2021)

DCEMBER 01, 2021

By Somesh Arora, Advocate

REMEMBER those days when you never acted that pricey and hard to get. You vitalized us all then, which you do even now. But now you have become little hard to get.

The taxmen, along with others of your class of glucose and milky varieties used to look upon you with sense of favour till 2017. For you were priced at below Rs.100/- per Kg. and had a visibility in all the mid day meals, famines, floods and for all purposes of charity, which required nutrition for the under nourished of this country placed at rank 102 out of 117 of a number of countries assessed by WHO in Global Hunger Index of 2019. Even the Government at various levels is making serious endeavor to improve nutrition through likes of you. You were affordable and attractively priced and appropriately taxed. We saw you being aerial dropped right in floods in food packs and being lapped up even by labour class during pandemic during their pad yatras to their native places during curfew of 2020. Hon'ble Prime Minister in his Mann ki Baat session called upon to observe the entire month of September of 2020 as 'Poshan Maah' i.e. 'Nutrition month'. He recalled the maxim - "Yatha Annam Tatha Mannam,” which means that mental and intellectual development is directly related to the quality of our food intake. Therefore, you not only help nourish and satiate hunger but also help in providing well shaped minds.

Successive governments and taxmen have realized and appreciated your potential and meted you a special treatment worthy of you, if you commanded retail sale price of less than Rs.100/- per Kg. For instance in Central Excise Tariff Act, 1985 just before introduction of GST Tariff within the Chapter Heading 1905, you along with others of your class were subjected to Central Excise effective duty of 'Nil', while other premium biscuits like Waffles and Wafers etc. were subjected to 6% duty vide Notification No. 12/2012-CE dated 17.03.2012.

However, GST came and changed it all. Taxmen lost their love for you. The fine distinction based on the logic of nutrition was overlooked. And you became more classy and joined the elite company of various other premium biscuits, cookies and Pastries, Cakes and other Baker's wares, whether or not containing Cocoa, Communion Wafers etc. and started getting taxed @18% (i.e. 9% CGST + 9% SGST/UTGST) vide Notification No.1/2017-C.T.-(Rate) and 1/2017-I.T.-(Rate) dated 28.06.2017 and SGST/UTGST Notification. Your erstwhile poor cousin 'Rusks' continued with lower tax rate of 5% despite commanding market price of Rs.150/- per Kg. Why the taxmen sought you for higher rate continues to be somewhat of a mystery? The net result is that some manufacturers have deserted you now for the premium varieties like Chocó biscuits and cookies. You in future along with others of your ilk may now be less visible and more pricey. You will be missed in famines and in charity. The premium ones replacing you are already costing twice as much as you used to do earlier. Those helping the malnourished may have to be content with less numbers than they were doing in the same amount.

How do we wish that GST Council has a relook on you and on the shape of your tax structure. For we loved the old you always, as you had existed. Well packed, well shaped, affordable and easy to carry anywhere and to handover to any needy, carrying your date of birth on your packing. Your populist appeal has been lost. Now, you appear to be for the rich, as the incentive to keep your price below Rs.100/- has also gone.

Marie, we request you - Dear, don't make yourself so dear.

[The author is Chief Consultant (Amicus Rarus) and former Commissioner of Customs & Central Excise. The views expressed are strictly personal.]

GST threshold: Why does a law have to be so complicated that even tax officials interpret it differently?

The complicated prescription for determining if a business is above the threshold for GST registration trips even laywers and tax professionals

By:
August 14, 2020 1:25:22 AM

GST threshold: Why does a law have to be so complicated that even tax officials interpret it differently?

By Somesh Arora

I am reminded of a famous qawwali from the 1960s:“Main idhar jaoon ya udhar jaoon/Badi musquil mein hoon ab kidhar jaoon”. The digitalisation/computerisation of the spheres of governance has no doubt made life simpler for many. Taxpayers have got accustomed to the GST Network. But, a complicated threshold takes away the joy, especially for those who have to decide whether they are in the tax system and, therefore, have to register for GST and file 37 or so returns, or are out of it and can relax.

The success of a tax system lies in its simplicity and the taxpayers’ ability to navigate it. A pragmatic tax system can lose its sheen if the procedure or the machinery provisions are complicated. Therefore, the most emphasised canons of taxation are certainty and simplicity. The prime minister had called GST a ‘good and simple tax’. If the malady of multifarious conditions in the threshold is not remedied in time, it will lead to unprecedented litigation in the days to come. At the core of the problem is the highly ‘qualified’ aggregate turnover-based threshold, the likes of which perhaps don’t exist in any other tax system.

At present, the threshold limit for GST registration has been kept at Rs 20 lakh for services and Rs 40 lakh for the supply of goods. One aspect of this limit is that, under the old tax systems, the threshold for VAT by various states was between Rs 5-10 lakh, and for services under the Finance Act, 1994, was Rs 10 lakh.

When GST came was rolled out, an equal threshold, of Rs 20 lakh, was kept for both services and goods. With the changed thresholds, arbitrariness has come to determine the fixation. The other contour of the problem is in the threshold being defined in most complicated terms for any tax system. The threshold has been defined in terms of aggregate turnover, which includes the value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse-charge basis), exempt supplies, exports of goods or services or both, and inter-state supplies of the persons on all-India basis but excluding central tax, state tax, etc. There have been a number of advance rulings sought by persons just to determine whether they are required to register.

What makes the threshold complex is the fact that one has to know what supplies of services and goods are GST-exempt and, therefore, know the applicable tariff. Also, what are taxable supplies and what are not, what will constitute inter-state supply of service and what won’t, and what are exclusively reverse-charge or exempt supplies for the purposes of registration under Section 22 of GST Act, including those made on behalf of someone else. Understanding GST is difficult since one has to run through a gamut of provisions, including various tariffs and notifications. This is a complex job for lawyers, tax officials and other professionals, let alone the common tax payer. The dynamics of this frequently-changing law is complicated by the GST Council, which keeps redefining it on nearly a monthly basis. Once the audit starts, those for whom the threshold becomes a virtual stranglehold with duty, interest and penal liabilities, will suffer the most. To make matters worse, the rulings of the Advance Ruling Authority (ARA) further complicate the issue. In the matter of Re: Anil Kumar Aggarwal, the ARA on GST of Karnataka recently ruled that even the interest on FDR, whether accrued or received, interest on Post Office deposits in National Savings Certificates, interest income credited to PF account or on National Pension Scheme (NPS), shall all be part of aggregate turnover and registration will be needed after factoring these in. The ARA, without going into the question in much details, ruled so, without even bringing out whether these interests earned were in relation to business or otherwise. As deposits are made in personal capacity in savings schemes like PPF and NPS, the same cannot, by common sense, be for business purposes. Further, the ARA did not go into whether Service Accounting Code (SAC) 9971 is applicable to deposits extended by banks and, therefore, only those are exempt, since SAC 9971 is applicable only to deposits extended by banks and does not cover individuals. It has also not dealt with the question whether an amount kept in one’s own account in a bank can be treated as transfer and, therefore, a supply of service? The cryptic order passed has no reasoning, but just a declaration that the interest on the types of deposits indicated above are exempt, but still inclusible in the aggregate turnover as it forms supply.

There is an urgent need to simplify the “threshold”, and more so for services. Why does a law have to be so complicated that even tax officials interpret it differently? Is the common man required to be a tax-expert simply to pay taxes? Is he required to devote time to business or providing services, or should be running around just to find out whether he has a tax liability or not and whether he has crossed the threshold limits and is obliged to file 37 returns for services provided? Despite such efforts, he may encounter different shades of opinions from lawyers and other professionals.

The minimum that the policymakers should do is to make an absolute and unconditional threshold of GST at whatever level it is deemed appropriate, like the case is in other tax systems. Though, the problem is, in a federal tax structure, even if the Centre decides to do it today, it may take about six months before the Council affords approval and the notifications are issued. Till such time, the GST will continue to remain complicated at the threshold only.

The author is Chief consultant (Amicus Rarus), and former commissioner of Customs & Central Excise

Why revenue’s stand on GST rates on hand sanitisers is flawed

FINANCIAL EXPRESS: 23.07.2020

Why revenue’s stand on GST rates on hand sanitisers is flawed

By: Somesh Arora |

Published: July 23, 2020 7:00 AM

On July 15, the finance ministry clarified that hand sanitisers are to be treated as a disinfectant, quite like soap, etc. The ministry press note stated that hand sanitisers attract an 18% GST rate

EIB told the DGGSTI about the two different GST rates in the market, apparently without investigating the underlying cause.

Covid-19 times have created their own classification issues from an indirect taxation perspective; the Central Board of Indirect Taxes, Directorate General of Goods & Service Tax Intelligence (DGGSTI) and the Economic Intelligence Bureau (EIB) as well as the ministry of Ayush are all flummoxed by this. Hand sanitisers are now manufactured largely by two types of units: the ones that had converted their alcohol manufacturing capacity and the ones that got licences from Ayush, reporting ingredients as prescribed by recognised Ayurvedic texts. The latter’s product attracts a GST rate of 12% since it fulfilled the condition of being an Ayurvedic medicament falling under Tariff head 3004, while the other’s attracts 18% under the Tariff Head 3402.

EIB told the DGGSTI about the two different GST rates in the market, apparently without investigating the underlying cause. The DGGSTI concurred broadly with the EIB, but sent the intelligence to field units with a caution on investigating the matter.

On July 15, the finance ministry clarified that hand sanitisers are to be treated as a disinfectant, quite like soap, etc. The ministry press note stated that hand sanitisers attract an 18% GST rate. It further supported the rate classification with the proposition that a lesser rate will make the duty-structure inverse, and will neither make the country atmanirbhar nor benefit the consumer.

The ministry press note has stirred controversy, and it appears it is contrary to the decision of the Supreme Court in Commissioner of Central Excise vs Wockhardt Life Sciences, in which heading 3003, meant for medicaments, was preferred over heading 3402 for hand solutions based on sodium hydroxide, as the hand solutions (quite like hand sanitisers in the present case) were considered to have prophylactic use, and were therefore covered under “medicaments”. The SC had also rejected Revenue’s contention that the impugned product was primarily used as detergent/cleansing preparation, and can’t be a ‘medicament’.

A product being prophylactic in use, and therefore, a medicament, is decided by its predominant use; soaps, detergents, etc, are used in bathing and washing, and can’t be equated with hand sanitisers due to the trite law laid down by the SC. In light of the SC judgment, it should have been ascertained whether hand sanitisers, which have predominantly prophylactic use, are medicaments or not. Also, when the Ayush department has granted licences for products whose ingredients are mentioned in Ayurvedic texts, Revenue should have further clarified if such products, being Ayurvedic, will attract 12% GST rate if they satisfy requisite conditions. This was the criteria laid down by the SC while holding Vicks Vaporub as an ayurvedic product due to it being a medicament and its ingredients being in accordance with Ayurvedic texts even if its formulation is not in the same proportion (Naturalle Health Products (P) Ltd. Vs CCE, Hyderabad). These decisions were based on HSN-based classification, which has been adopted (upto 4-digits) for GST classification. Revenue has made the 4-digit classification and relevant notes of HSN redundant by indicating (though incorrectly) that the GST Council has fixed rates for all kind of hand sanitisers. It defies logic that the consideration of inverse-duty structure should decide the classification and rate. The press note celebrates ‘Atmanirbhar Bharat’ goals, but ironically ignores the licence granted by the Ayush ministry even as the propagation of traditional systems of medicine is an important goal for this government, too.

The prescription of DGGSTI to field units to verify and investigate the matter is the best advice under the circumstances.

The author is Advocate and former Commissioner of Customs & Excise

BUDGET 2020-21-The ‘Maya jugglery’ for middle class. ELT LAW TIMES 1st Fuburary, 2020 Vol.371: part 3

BUDGET 2020-21-The ‘Maya jugglery’ for middle class

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate (Amicus Rarus)

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A record breaking two hours and forty five minutes of speech bettering her own last year`s record by half an hour by FM was the high point of the budget this time. However, there were far few yawns and greater discipline in treasury benches. Allocations were elaborately spelt and oratory was near to its best but forgetting that `brevity is the soul of the wit'. If the focus of the budget was on attracting foreign investment, then the patience required to sit through the rituals of the budget gave an indication, as to the perseverance required to make a successfulentrepreneurship bid in India.

The middle class which was waiting with baited breath to have more money by way of reduced taxes in its hands has been given an option to splurge money out of its own compulsory savings of Section 80-C and standard deduction, if it wanted to claim lower tax. The 'conditions that apply' are so onerous, that middle class would be reminded of entering into a contract with a real estate builder. And all this in the name of giving a moon to the ordinary tax payer- that it will not require a Charted Accountant to exist for them. The Budget however has its own positives as are enumerated below:

CHEER FACTORS:

Customs:

Loopholes plugged under Trade Agreements and even concessional rate can be denied without verification in certain cases.
Apart from gold and silver, Central Government has been empowered to impose duties for other goods also in case of uncontrolled imports.
Basic customs duty on import of news print and light weight coated paper reduced from 10% to 5%.
Lower customs duty on certain inputs and raw materials like fuse, chemicals and plastics.
Electronic Duty Credit Ledger to be created.
Tougher Safeguard and Anti-dumping mechanism to be put in place for excessive imports. Rules framed even for Countervailing Duty for imports.

Income Tax:

Change in tax slabs: no tax up to Rs. 2.5 lakh, 5% for income between Rs 2.5-5 lakh, 10% tax for income between Rs. -7.5 lakh as against 20%, 15% tax for income between Rs. 7.5-10 lakh as against 20%, 20% tax for income between Rs. 10-12.5 lakh as against 30%, 25% tax for income between Rs. 12.5 lakh -15 lakh as against 30% and 30% tax for income above Rs. 15 lakh.
Tax audit turnover threshold raised to Rs 5 crore from Rs 1 crore.
Dividend Distribution Tax abolished for companies.
Concessional corporate Tax rate of 15% extended to new electricity generation companies.
Start-ups with turnover up to Rs 100 crores to enjoy 100% deduction for 3 consecutive years out of 10 years.
Tax deferred on employee stock ownership plan (ESOPS) for start-ups.
100% tax exemption to Foreign Sovereign Wealth Fund investments in India if made before 31 March 2024.
IT Act to be amended to facilitate e-appeal.
Cooperative societies to be taxed at 22%+10% surcharge and 4% cess with no exemptions/deductions.
Additional deduction up to Rs. 1.5 lakhs for interest paid on loans for an affordable house extended till 31 March 2021.
Instant PAN allotment through Aadhar.
Pilot project for self polated returns to be initiated.
A Tax Payer Charter to do no harassment to be incorporated in the Statute itself.
Up to 10% less value in real estate than the stamp duty value not to be added as income of buyer and seller.
'Vivadh se vishwas', scheme to be introduced for pending litigations and appeals under Income Tax.
Survey u/s 133A to be only with approval of CIT.

GST:

Simplified returns from 1 April, 2020.
Refund to be simplified and automated.
Electronic invoices to be implemented.
Q.R. Code (bar code) to be used to capture details in system.

Others:

Fiscal laws and Companies Act to be revisited for decriminalising the same.
More hospitals to be created by imposing Health Cess on imports of medical equipments.
Data Center Parks to be created throughout the country for data analytics and artificial intelligence.
Sharda Act to be revisited to consider raising of women's marriage age.
No manual clearing of gutters and sewerage.
Rules to be amended to provide for direct recruitment to Tribunals.
Up to Rs. five lakhs of a deposit in a bank to be insured.
Investment in gold to be permitted as off shore companies to foreign investors.

TEAR FACTORS:

Customs:

Import duty hiked on inputs used by footwear (from 25% to 35%) and furniture (from 20% to 25%).
Health Cess of 5% on imported medical devices.
Duty hiked on toys to 60% from 20%, on furniture to 25%, on shoes to 35%, on steel kitchen ware, trophy/ bell, staple pins, locks, aluminium kitchen ware, glass table, ceramic ware, artificial flowers, shoe parts all raised to 20%, lighting fixture to 25% welding machine parts to 10%, refrigerator to 15%, brush, hair access, vacuum flask, home appliances, fans all raised to 20% from 10%.

Income Tax:

Dividends taxable in the hands of recipient
Tinkering of slabs with no substantial benefits as seventy deductions including standard deduction withdrawn.
Penalty of 100% on fake invoices or invoices with wrong particulars in line with GST Laws
More NRIs brought in tax net by changing definition of residents and also including certain global incomes of Indian citizens working abroad.
TCS Provision made stringent to include sal.es of goods of more than Rs. 50 lakhs to 1% and also on foreign remittance under LRS exceeding seven lakhs and also on overseas tour package.
Charitable Trust to be penalised for delayed filing of annual statement of donation received.
Fair market value of immovable property as on 1. 4. 2001 not to exceed circle rate.
Exemption to employers contribution to Provident Fund etc. restricted to Rs.7.50 lakhs.

Others:

Cigarettes and other tobacco products (excluding bidis) will become more expensive due to raisinof Central Excise Duty.

FEAR FACTORS:

Customs:

Back to protectionism:-Section 11(2) (f) amended to include other goods along with gold and silver to enable the Central Government to restrict imports.
Law made to provide countervaling duty on imports and stringent law for dumped goods, Country of origin rules to be amended and concessional rate of duty under trade agreements can be withheld without verification in certain cases.
More exemptions to be withdrawn.

Income-Tax:

Law made complicated by two slab system and removal of some established deductions like 80-C. Compliance to become difficult without consultants.
More deductions are withdrawn.
May expose middle income tax payers compulsive saving meant for old age either to consumption or equity markets in case new tax slabs are opted for.

The budget was expected to be a path breaking one, being the first budget of the new decade. However, as has been the case with earlier budgets, it is bound to fall short of middle class expectations, who will be required to make their choices very prudently so as not to indulge in too much of consumption at the cost of their compulsive savings u/s 80-C, which was meant generally for their old age. If new tax slabs are opted for, it will have to be ensured that savings in tax are not frittered away in consumption or equity exposure. The tax saved from their view point, should ideally be invested in potentially safe instruments ensuring 8 to 9% return. Only then, this `jig-saw puzzle budget' can be claimed to be solved by them.

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PMLA MADE EASY SERIES - ARTICLE 8 (EXCISE LAW TIMES 15th. NOVEMBER,2019 Vol.368:part 4

By :Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

SPECIAL COURTS

Special Courts: Expeditious and efficacious mechanism for Trial -

The Central Government has constituted the Special Courts in consultation of the Chief Justice of India to try the offences of Money Laundering under the Act. The offences triable by Special Court now are the money laundering offences as well as scheduled offences, if complaint is filed before it or the same are transferred to it, even if pending in any other courts. This removes dichotomy of decisions on the same facts and mostly same evidence and serves the purpose of enforcement better as possibility of conflicting orders gets eliminated. The special courts shall largely follow procedure Code of Criminal Procedure, since the Code is applicable to the Special Courts, unless specified to the contrary in the Act. Accordingly appeals and revisions and quashing of proceedings and bail etc. can also be considered by the Higher Courts. But the Special Courts can be effective instrument of affording justice only if the bias in favour of enforcement agencies does not exist.

Special Courts(SECTION 43) -

(i)The Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts for such area or areas or for such case or class or group of cases as may be specified in the notification.

(ii) While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the code of Criminal Procedure, 1973, be charged at the same trial.

Special Court empowered to deal with various laws:Special Courts have been constituted to try offences under the PML Act by the Central government in consultation with the Chief justice of various High Courts through notifications. Further, it has also been provided, for through an amendment now that Special Court can also try an offence apart from PMLA offences, obviously this refers to a scheduled offence with which an accused may under Code of Criminal Procedure,1973 be charged, at the same trial. In fact as a matter of strategy and not to obtain contradictory orders from different courts, Enforcement Directorate now a day prefers that predicate offence and PMLA offence are both tried simultaneously by the same special court.

Offences triable by Special Courts (SECTION 44) –

(i) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),-

(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed. However, the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such scheduled offence.

(b) a Special Court may, upon a complaint made by an authority authorised in this behalf under this Act take cognizance of offence under section 3, without the accused being committed to it for trial;

Provided that after conclusion of investigation, if no offence of money laundering is made out requiring filing of such complaint, the said authority shall submit a closure report before the Special Court; or* (inserted by Finance Act, 2019 dated 2^nd August, 2019

(c) if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money-laundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed.

(d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), as it applies to a trial before a Court of Session. It is clarified that—

(i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial;

(ii) the complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be conducted to bring any further evidence, oral or documentary, against any accused person involved in respect of the offence, for which complaint has already been filed, whether named in the original complaint or not."

(ii) Nothing contained in this section shall be deemed to effect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of 1974) and the High Court may exercise such powers including the power under clause (b) of sub-section (1) of that section as if the reference to "Magistrate" in that section includes also a reference to a "Special Court" designated under section 43.

Special Courts to be jurisdiction specific, according to the area where such offence is committed

The offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed. However, the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such scheduled offence, unless same is transferred to it. As now the money laundering offences have been made standalone offences, therefore it has also been provided that the inquiry and trial by the special court shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial. The special courts too shall follow procedure as laid down in Criminal Procedure code for the purposes of trial and can take into account any further evidence that may be thrown up during investigation as well as can consider trial of any other person on fresh evidence coming on record.

Offences to be cognizable and non-bailable (SECTION 45) –

(1)Notwithstanding anything contained in the

Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence under this Act shall be released on bail or on his own bond unless—

the Public Prosecutor has been given an opportunity to oppose the application for such release; and

where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail

A person, who, is under the age of sixteen years, or is a woman or is sick or infirm, or is accused either on his own or along with other co-accused of money-laundering a sum of less than one crore rupees may be released on bail, if the Special Court so directs the Special Court shall not take cognizance of any offence punishable under section 4 except upon a complaint in writing made by—

the Director; or

Any officer of the Central Government or a State Government authorised in writing in this behalf by the Central Government by a general or special order made in this behalf by that Government.

(1A) notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), or any other provision of this Act, no police officer shall investigate into an offence under this Act unless

specificallyauthorised, by the Central Government by a general or special order, and, subject to such conditions as may be prescribed.

(2) The limitation on granting of bail specified in sub-section (1) is in addition to the limitations under the Code of Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in force on

granting of bail.

‘Explanation.—For the removal of doubts, it is clarified that the expression "Offences to be cognizable and non-bailable" shall mean and shall be deemed to have always meant that all offences under this Act shall be cognizable offences and non-bailable offences notwithstanding anything to the contrary contained in the Code of Criminal Procedure, 1973, and accordingly the officers authorised under this Act are empowered to arrest an accused without warrant, subject to the fulfilment of conditions under section 19 and subject to the conditions enshrined under this section.' (Inserted by Finance Act, 2019) dated 02^nd August, 2019

Offences to cognizable and non bailable: Section 45 lays down a non–obstante clause in relation to bail provisions making Code of Criminal Procedure, 1973 (2 of 1974) inapplicable. The condition on which bail can be considered by the Courts are provided by this section only and therefore in case of any conflict with Cr. P.C., the conditions of this section shall prevail .This section required amendment by virtue of substitution in Finance Act, 2018 in sub section(1) and it proviso after the same was struck down as unconstitutional by the Supreme Court as laying down unreasonable condition for bail. The cognizance of the offences under the Act can however can be taken by the officers of Enforcement Directorate only and not by Police officers, as only the officers of E.D. alone at present are the authorized officers under the Act.

(i) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) (including the provisions as to bails or bonds), shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the persons conducting the prosecution before the Special Court, shall be deemed to be a Public Prosecutor. The Central Government may also appoint for any case or class or group of cases a Special Public Prosecutor.Application of the Code of Criminal Procedure, 1973 to proceedings before Special Court (SECTION 46) –

(ii) A person shall not be qualified to be appointed as a Public Prosecutor or a Special Public Prosecutor under this section unless he has been in practice as an Advocate for not less than seven years, under the Union or a State, requiring special knowledge of law.

(iii ) Every person appointed as a Public Prosecutor or a Special Public Prosecutor under this section shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973 (2 of 1974) and the provisions of that Code shall have effect accordingly.

Special Court to be a court of session and to follow Cr. P C in relation to bail and bond and public prosecutor to have qualifications as prescribed in the code: Thissection borrows provision from Code of Criminal Procedure,1973 relating to bail and bond for the Special Court and for this purpose Special Court is deemed to be Court of Session and the person conducting prosecution shall be treated as Public Prosecutor. The Central Government shall be free to appoint any person as Special Public Prosecutor for any case or class of group of cases. To be appointed as Public Prosecutor or Special Public Prosecutor, a person should have a standing in practice as advocate for not less than 7 years.

Every person appointed as Public Prosecutor or Special Public Prosecutor shall be deemed to be Public Prosecutor under the provision of Code of Criminal Procedure, 1973. Thus, the provisions of Cr. P.C. have been made applicable wherever the procedure is not specifically provided for under the sui-generis legislation of PMLA.

Appeal and revision (SECTION 47) -The High Court may exercise, so far as may be applicable, all the powers conferred by Chapter XXIX or Chapter XXX of the Code of Criminal Procedure, 1973 (2 of 1974), on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High court.

Appeals to lie to High Court against orders of Special court in the same manner as it lies against sessions court: High Court shall have all the powers conferred by Chapter XXIX and XXX of Code of Criminal Procedure, 1973 which it has in relation a Court of session with its jurisdiction in relation to Special Court within the local jurisdiction. Therefore, against all bail applications or for applications for quashing of proceedings before the special court shall lie before the High Court.

PMLA MADE EASY SERIES –ARTICLE 10 (EXCISE LAW TIES 15th. DECEMBER,2019)

By :Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

RECIPROCAL ARRANGEMENT FOR ASSISTANCE IN CERTAIN MATTERS AND PROCEDURE FOR ATTACHMENT AND CONFISCATION OF PROPERTY

International Cooperation for trans border crimes:This chapter deals with provisions relating to trans- border crimes of money laundering and their treatment through international cooperation. The provisions stipulate that the Central Government may enter into agreement with the Foreign Governments in respect of cooperation needed for enforcing the provisions of the Act or for exchanging information. Further area of cooperation can be to examine the facts/circumstances, require production of accused, attaching and liquidating its property or enforce any measures as per the specifications of the Special Courts or to forward the evidences to the Special Courts etc. Similarly, the Central Government shall also assist the contracting state in the provided areas of cooperation. The basic idea is that of international co-operation in combating proceeds of crime. All the 37 member states under FATF particularly have an obligation to co-operate on accepted principles of mutual help. Even other countries who are not Members of FATF have also taken upon themselves obligations of certain compliances in various degrees upon themselves.

The chapter deals with requests being received from a Contracting State by the Central Government from a Court asking for attachment, seizure, freezing or confiscation of any property involved in commission of Money Laundering Offence under the corresponding law of the Contracting State the Central government can forward such request to the Director for execution of the same, under the provisions of this Act.

-When a criminal case for trial is closed or concluded by a Court outside India, and it finds the Money Laundering offence of that country has been committed under corresponding law of any other country, the Special Court on receipt of application from the Director for execution of confiscation and after giving notice to the effected person shall make it stand confiscated to the Central Government. This provision by virtue of Section 2(a) has been inserted in Section 60 w.e.f. 15.02.2013 vide S. O. No. 343(E) dated 08.02.2013.

- On receipt of any request under Section 58 or 59 relating to assistance and reciprocal arrangements for transfer of accused person, the Director shall take all necessary action for tracing and identifying all such property and to cause any inquiry, investigation, survey in respect of any person, place, property, documents etc. or any other relevant matters. Such inquiry or investigation shall be carried out with such directions as may be issued and also in accordance with the provisions of this Act. All provisions contained in this Act relating to attachment, Adjudication and vesting of property in Central government mentioned in Chapter 3 and survey, searches and seizure as contained in Chapter 5 shall mutatis-mutandis apply to the property in respect of which letter or request is received from a Court or Contracting State.

-When any property is confiscated as a result of execution of request from a Contracting State the Central Government shall have the option either to return such property to the requesting State or to compensate that State by disposal of such property on mutually agreed terms, so as to take into account various reasonable expenses incurred for investigation, prosecution or judicial proceedings leading to the return or disposal of such confiscated property. This provision was brought into force w.e.f. 01.06.2009 by virtue of insertion by Act (21 of 2009), Section 12.

Definitions.-In this Chapter, unless the context otherwise requires (SECTION 55)-

(a) "contracting State" means any country or place outside India in respect of which arrangements have been made by the Central Government with the Government of such country through a treaty or otherwise;

(b) "identifying" includes establishment of a proof that the property was derived from, or used in the commission of an offence under section 3;

Definitions:

Contracting states: Includes States with whom multi-lateral or bi-lateral arrangements exist:It means any country outside India with which arrangements have been made by the Central Government through a bilateral Treaty or a multi lateral arrangement.

Therefore, treaty obligations cover not only multilateral treaties but also any bi lateral that India may mutually enter into with any sovereign state and even outside FATF.

`Identifying’ property derived from commission of money laundering offence: It means the process of establishment of a proof through investigation that any property was derived from or used in the commission of any offence of Money Laundering or proceeds of crime as under Section 3.
`Tracing’: Goingto the source of suspect property and its trail up to disposition: It means process of determining the nature, source, disposition, movement, title or ownership of any property in short it means establishing the link of a suspect property during investigation with source of proceeds of crime or tainted money.

Agreements with foreign countries(SECTION 56) -(l) The Central Government may enter into an agreement with the Government of any country outside India for-

(a) enforcing the provisions of this Act;

(b) exchange of information for the prevention of any offence under this Act or under the corresponding law in force in that country or investigation of cases relating to any offence under this Act, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) The Central Government may, by notification in the Official Gazette, direct that the application of this Chapter in relation to a contracting State, with which reciprocal arrangements have been made, shall be subject to such conditions, exceptions or qualifications as are specified in the said notification.

Entering into agreements with other countries for enforcing provisions of the Act and for exchange of information:For the purpose of this Chapter Central Government can enter into any agreement with any country outside India for enforcing provisions of this Act and for exchange of information under this Act or under the corresponding Law of that country outside India or for investigation of cases under this Act. It can also by process of Notification, make such provisions as may be necessary for implementing the agreement. It can also subject such Notification to any such reciprocal arrangements or to any such condition, exceptions or qualifications as it may think fit.

Letter of request to a contracting State in certain cases (SECTION 57)-

(l) Notwithstanding anything contained in this Act or the Code of Criminal Procedure, 1973 (2 of 1974) if, in the course of an investigation into an offence or other proceedings under this Act, an application is made to a Special Court by the Investigating Officer or any officer superior in rank to the Investigating Officer that any evidence is required in connection with investigation into an offence or proceedings under this Act and he is of the opinion that such evidence may be available in any place in a contracting State, and the Special Court, on being satisfied that such evidence is required in connection with the investigation into an offence or proceedings under this Act, may issue a letter of request to a court or an authority in the contracting State competent to deal with such request to-

(i) examine facts and circumstances of the case,

(ii) take such steps as the Special Court may specify in such letter of request, and

(iii) forward all the evidence so taken or collected to the Special Court issuing such letter of request.

(2) The letter of request shall be transmitted in such manner as the Central Government may specify in this behalf.

(3) Every statement recorded or document or thing received under sub- section (1) shall be deemed to be the evidence collected during the course of investigation.

Assistance to a contracting State in certain cases (SECTION 58) -

(i) Where a letter of request is received by the Central Government from a court or authority in a contracting State requesting for investigation into an offence or proceedings under this Act and forwarding to such court or authority any evidence connected therewith, the Central Government may forward such letter of request to the Special Court or to any authority under the Act as it thinks fit for execution of such request in accordance with the provisions of this Act or as the case may be, any other law for the time being in force.

Special courts likewise to entertain request from the courts of contracting states to examine, collect and forward evidence from India: Similar provision to Section 57, on the basis of reciprocal arrangement, also exists for Indian Government in relation to any Contracting State under the treaty whereby, a letter of request received by the Central government from a competent Court or Authority in a Contracting State for request for investigation for an offence or proceeding under this Act or any evidence collected there is required to be entertained by India. The Central Government in this regard shall forward such request to a Special Court or Authority for the purposes of execution under the provisions of this Act or any other Law for the time being in force.

Special Court to release the property(SECTION 58A) -Where on closure of the criminal case or conclusion of a trial in a criminal court outside India under the corresponding law of any other country, such court finds that the offence of money-laundering has not taken place or the property in India is not involved in money-laundering, the Special Court may, on an application moved by the concerned person or the Director, after notice to the other party, order release of such property to the person entitled to receive it.

Closure in Contracting state of money laundering case to lead to release of any attached property in India by Indian Special Courts:The Section was introduced by insertion by Act-IIof 2013 w.e.f. 15.02.2013 vide S. O. No. 343 (E) dated 02.08.2013. It provides that on closure of a Criminal case or conclusion of a trial in a Criminal Court outside India under the corresponding law of any other country, if such Court finds the offence of Money Laundering has not taken place, then such Special Court which is seized of the matter in India may on application by the concerned person or the Director and after notice to the other party, order release of such property.

Letter of request of a contracting State or authority for confiscation or release the property (SECTION 58B) -Where the trial under the corresponding law of any other country cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Central Government shall, on receipt of a letter of request from a court or authority in a contracting State requesting for confiscation or release of property, as the case may be, forward the same to the Director to move an application before the Special Court and upon such application the Special Court shall pass appropriate orders regarding confiscation or release of such property involved in the offence of money- laundering.

Request of contracting state for confiscation or release of property on non conclusion of trial due to death or any other event to be entertained by Special Courts :As provided, in relation to a Trial Court under corresponding Law relating to Money laundering in a country outside India, if the trial cannot be conducted for reason of death of the accused or accused having been declared a proclaimed offender, or for any other reason due to which trial commenced but could not be concluded, the Central Government on receipt of letter of request from a Court or Authority in such Contracting State requesting for confiscation or release of property as the case may be, shall forward the same to the Director to move an application before the Special Court to pass appropriate order regarding confiscation or release of such property.

Under Section 58BIndia at the request of the Contracting State can also, through Special Court, execute:

(a) a summons to an accused person, or

(b) a warrant for the arrest of an accused person, or

(d) a search-warrant, issued by a Court, Judge or Magistrate in a contracting State, it shall cause the same to be served or executed as if it were a summons or warrant received by it from another Court in the said territories for service or execution within its local jurisdiction.

After execution such process can be forwarded to the contracting state as per laid down procedure in Section 17,18 and 19

Reciprocal arrangements for processes and assistance for transfer of accused persons(SECTION 59) - (l) Where a Special Court, in relation to an offence punishable under section 4, desires that-

(a) a summons to an accused person, or

(b) a warrant for the arrest of an accused person, or

(c) a summons to any person requiring him to attend and produce a document or other thing, or to produce a document or other thing, or to produce it, or

(d) a search-warrant, issued by it shall be served or executed at any place in any contracting State, it shall send such summons or warrant in duplicate in such form, to such Court, Judge or Magistrate through such authorities, as the Central Government may, by notification, specify in this behalf and that Court, Judge or Magistrate, as the case may be, shall cause the same to be executed.

(2) Where a Special Court, in relation to an offence punishable under section 4 has received for service or execution-

(a) a summons to an accused person, or

(b) a warrant for the arrest of an accused person, or

(i) a warrant of arrest has been executed, the person arrested shall, be dealt with in accordance with the procedure specified under section 19;

(ii) a search warrant has been executed, the things found in this search shall, so far as possible be dealt with in accordance with the procedure specified under sections 17 and 18:

Provided that in a case where a summon or search warrant received from a contracting State has been executed, the documents or other things produced or things found in the search shall be forwarded to the Court issuing the summons or search warrant through such authority as the Central Government may, by notification, specify in this behalf.

(3) Where a person transferred to a contracting State pursuant to sub-section (2) is a prisoner in India, the Special Court or the Central Government may impose such conditions as that Court or Government deems fit.

(4) Where the person transferred to India pursuant to sub-section (1) is a prisoner in a contracting State, the Special Court in India shall ensure that the conditions subject to which the prisoner is transferred to India are complied with and such prisoner shall be kept in such custody subject to such conditions as the Central Government may direct in writing.

Process of serving and forwarding of various accused etc. :Under the reciprocal arrangements that exist under this Section, if the Special Court, in relation to an offence punishable under section 4, desires any process to be served or a search warrant to be executed then it shall send such process etc. in such form, to such Court in the Corresponding State, as the Central Government may, by notification, for execution in such State.

Similarly if a Special Court, in relation to an offence punishable has received for service or execution any process from any Court in the corresponding State, then it it shall cause the same to be served or executed as if it were a summons or warrant received by it from another Court in the said territories for service or execution within its local jurisdiction and after execution shall forward such process etc. to the Court issuing the summons or search warrant through such authority as the Central Government may, by notification, specify in this behalf.

Where a person transferred to a contracting State pursuant to any request by a Corresponding State is a prisoner in India, the Special Court or the Central Government may impose such conditions as that Court or Government deems fit.

On the same footing, where the person transferred to India pursuant to request made by Special Court of India is a prisoner in a contracting State, the Special Court in India shall ensure that the conditions subject to which the prisoner is transferred to India are complied with and such prisoner shall be kept in such custody subject to such conditions as the Central Government may direct in writing.

Attachment, seizure and confiscation, etc., of property in a contracting State or India(SECTION 60)-(l) Where the Director has made an order for attachment of any property under section 5 or for freezing under sub-section (lA) of section 17 or where an Adjudicating Authority has made an order relating to a property under section 8 or where a Special Court has made an order of confiscation relating to a property under sub-section (5) or sub-section (6) of section 8, and such property is suspected to be in a contracting State, the Special Court, on an application by the Director or the Administrator appointed under sub-section (1) of section 10, as the case may be, may issue a letter of request to a court or an authority in the contracting State for execution of such order.

(2) Where a letter of request is received by the Central Government from a court or an authority in a contracting State requesting attachment, seizure, freezing or confiscation of the property in India, derived or obtained, directly or indirectly, by any person from the commission of an offence under a corresponding law committed in that contracting State, the Central Government may forward such letter of request to the Director, as it thinks fit, for execution in accordance with the provisions of this Act.

(2A) Where on closure of the criminal case or conclusion of trial in a criminal court outside India under the corresponding law of any other country, such court finds that the offence of money-laundering under the corresponding law of that country has been committed, the Special Court shall, on receipt of an application from the Director for execution of confiscation under sub-section (2), order, after giving notice to the affected persons, that such property involved in money-laundering or which has been used for commission of the offence of money-laundering stand confiscated to the Central Government.

(3) The Director shall, on receipt of a letter of request under section 58 or section 59, direct any authority under this Act to take all steps necessary for tracing and identifying such property.

(4) The steps referred to in sub-section (3) may include any inquiry, investigation or survey in respect of any person, place, property, assets, documents, books of account in any bank or public financial institutions or any other relevant matters.

(5) Any inquiry, investigation or survey referred to in sub-section (4) shall be carried out by an authority mentioned in sub-section (3) in accordance with such directions issued in accordance with the provisions of this Act.

(6) The provisions of this Act relating to attachment, adjudication, confiscation and vesting of property in Central Government contained in Chapter III and survey, searches and seizures contained in Chapter V shall apply to the property in respect of which letter of request is received from a court or contracting State for attachment or confiscation of property.

(7) When any property in India is confiscated as a result of execution of a request from a contracting State in accordance with the provisions of this Act, the Central Government may either return such property to the requesting State or compensate that State by disposal of such property on mutually agreed terms that would take into account deduction for reasonable expenses incurred in investigation, prosecution or judicial proceedings leading to the return or disposal of confiscated property.

Execution of orders through courts in contracting states of attachment, confirmation, freezing etc., on mutual basis:Where any attachment of any property under Section 5 or freezing is done under Section 17 of any record or under Section 17A(a) of any property is done or Adjudicating Authority has passed an order under Section 8 for confirming attachment or Special Court has confiscated a property under Section 8 and such property is suspected to be located in Contracting State, the Special Court requires an accused person to be summoned, a warrant for an accused person to be arrested or to summon any person to attend and produce a document or other thing or issues a search warrant, then such person shall be served or summon or search warrant executed at any place in any Contracting State.

It is thus clear that the provisions of Prevention of Money Laundering Act, 2002 are much more stringent and fast tracked than the normal extradition provision which require a treaty between the contracting states and is normally agreed to only if the offence is a criminal offence in the domain of both the countries and only after the Court in the country from where the offender is to be extradited, is satisfied that prima-facie an offence is made out. This makes it a time consuming exercise, whereas under Section 59 to cause a summon or a warrant to be responded to only presence of accused in the Contracting State is required to be shown. This makes the task of the Investigating Officers much easier and chances of getting a fugitive back from the land of a contracting member, that much simpler.

Procedure in respect of letter of request(SECTION 61)-Every letter of request, summons or warrant, received by the Central Government from and every letter of request, summons or warrant, to be transmitted to a contracting State under this Chapter shall be transmitted to a contracting State or, as the case may be, sent to the concerned Court in India and in such form and in such manner as the Central Government may, by notification, specify in this behalf.

All request to a contracting state and from it to be made in prescribed format as per a Notification:The procedure for transmission of letter of request and for receiving the same from the contracting state and manner in which the same shall be done will be according to a Notification as the Central government specify in this regard.

PMLA MADE EASY SERIES-ARTICLE 9 (EXCISE LAW TIMES 1st. December,2019)

By :Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

AUTHORITIES

Functional and administrative hierarchy : Authorities and officers under the Act:Like any other Act, even PMLA provides for certain Authorities based on their functional division and hierarchy. These are:

1. Director/ Additional Director/ Joint Director.

2. Deputy Director

3. Assistant Director, and

4. Other officers appointed by the Act.
All the aforesaid appointments shall be made by the central government. However, the powers granted are in accordance with the grade of the authority and accordingly powers of the superior authority can be given over to the lesser authority to reduce the burden of the same.

Assistance to be provided by the officers of enumerated departments:
To assist the officers, other officers of various departments may be appointed. Such officers are conferred partly some of the powers under the PMLA, 2002. These officers are:
1. Officers of customs of Central Excise Department
2. Officers under the NDPs Act

3. Officers of the Stock Exchange

4. Officers of the RBI

5. Officers of the police

6. Officers of the Securities Exchange Board

7. Officers of Central Government, State Government, local authorities/ banking companies.

Most of the enforcement powers etc. are however retained by E. D. and for reporting and adjudication by Director (FIU), Ministry of Finance.

Authorities under the Act (SECTION 48)-There shall be the following classes of authorities for the purposes of this Act, namely:-

(a) Director or Additional Director or Joint Director,

(b) Deputy Director,

(d) such other class of officers as may be appointed for the purposes of this Act.

Class of officers with omnibus class(d) empowering other than specified officers:Section prescribes the class of officer for the purpose of exercising power under the Act. Such authorities consist of Director, Additional Director or Joint Director or Deputy Director or Assistant Director and other class of officer as may be appointed for the purpose of this Act.

Generally, the power of investigation has been vested in the officer of rank of Assistant Director or Deputy Director, whereas the Senior officer above this rank exercise the power of sanctioning prosecution, approval of various actions and supervising of investigation etc.

Appointment and powers of authorities and other officers (SECTION 49) –

(i) The Central Government may appoint such persons as it thinks fit to be authorities for the purposes of this Act.

(ii) Without prejudice to the provisions of sub-section (1), the Central Government may authorise the Director or an Additional Director or a Joint Director or a Deputy Director or an Assistant Director appointed under that sub- section to appoint other authorities below the rank of an Assistant Director.

(iii) Subject to such conditions and limitations as the Central Government may impose, an authority may exercise the powers and discharge the duties conferred or imposed on it under this Act.

Power to appoint other officers under the Act conferred upon officers up to the rank of Assistant Director only: This section empowers Central Government to appoint authorities other than those enumerated in section 48 for the purposes of this Act. It also provides powers to officers above the rank of Assistant director to delegate powers to the officers lower in rank than an Assistant Director. Upon such power being conferred, the authority so appointed can discharge duties subject to conditions and limitations as may be imposed by the Central Government. However, the principle that a delegate cannot further delegate has to be kept in mind while empowering lower officers.

In exercise of these power, the Central Government has already conferred power under this Act to Director of Financial intelligence unit under Ministry of Finance with effect from 1^st July 2005 for adjudication of offences relating to reporting entities and reporting by them.

Similarly, the Central Government has also conferred power with effect from 1^st July 2003 on Director of enforcement appointed under Foreign Exchange Management Act, 1999 to exercisespecified powers under this Act.

Powers of authorities regarding summons, production of documents and to give evidence, etc. (SECTION 50)-

(i) The Director shall, for the purposes of section 13, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:-

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a reporting entity and examining him on oath;

(d) receiving evidence on affidavits;

(e) issuing commissions for examination of witnesses and documents; and

(f) any other matter which may be prescribed.

(ii) The Director, Additional Director, Joint Director, Deputy Director or Assistant Director shall have power to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under this Act.

(iii) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.

(iv) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code, 1860 (45 of 1860).

(v) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit, any records produced before him in any proceedings under this Act.

(vi)Provided that an Assistant Director or a Deputy Director shall not-

(a) impound any records without recording his reasons for so doing

(b) retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the Joint Director.

Director( FIU), Ministry of Finance appointed under the Act for the purposes of imposing fine under Section 13 shall have the same power for evidence etc., as exist for a court under Code of Civil Procedure, 1908:The Director( FIU), Ministry of Finance appointed under the Act for the purposes of imposing fine under Section 13 shall have the same power under Code of Civil Procedure, 1908 as they are vested for trying a suit in relation to discovery and inspection, enforcing attendance of any person or reporting entity, compelling production of record, receiving evidence or issuing commission for examination of witnesses and documents, in any prescribed manner.

All officers above the rank of Assistant Director shall have the power to summon any person to give evidence or to produce any record during the course of proceeding under the Act. All such summoned persons shall be bound to attend in person or through authorization as such other officers may direct and shall be bound to state the truth or any subject for which they are examined or are making statements or producing such documents as are required.

Every proceeding for summon under this section shall be concluded as Judicial proceeding for the purposes of Section 193 and 228 of the IPC ( Section 193 deals with perjury and Section 228 deals with contempt or obstruction of a public servant sitting in judicial proceeding).

Subject to any rules that may be prescribed by the Central Government on this behalf any officer conferred with the power to summon may impose or retain in his custody, any record produced before him for such period as he may think fit. However, Assistant Director or Deputy Director should not impound any records without recording their reasons for doing so. For retaining in their custody any such records for a period not extending 3 months such Assistant Director or Deputy Director has to obtain previous approval of the Joint Director.

Jurisdiction of authorities (SECTION 51)-

(i) The authorities shall exercise all or any of the powers and perform all or any of the functions conferred on, or, assigned, as the case may be, to such authorities by or under this Act or the rules framed there under in accordance with such directions as the Central Government may issue for the exercise of powers and performance of the functions by all or any of the authorities.

(ii) In issuing the directions or orders referred to in sub-section (1), the Central Government may have regard to anyone or more of the following criteria, namely:-

(a) territorial area;

(b) classes of persons; (c) classes of cases; and

(d) any other criterion specified by the Central Government in this behalf.

Jurisdiction of authorities and extent of it to be decided by the directions of the Central Government: The authorities shall exercise power and perform function assigned to them under this Act or the rules framed in accordance with such directions as the Central Government may issue for the exercise of powers and performing the functions. The Central Government here normally means Ministry of Finance. While issuing such directions, the Central Government will have regard to one or more of the following criteria i.e. territorial area, classes of person, classes of cases and any other criteria specified by the Central Government in this behalf.

Power of Central Government to issue directions, etc. (SECTION 52)–

(i)The Central Government may, from time to time, issue such orders, instructions and directions to the authorities as it may deem fit for the proper administration of this Act and such authorities and all other persons employed in execution of this Act shall observe and follow such orders, instructions and directions of the Central Government.

(ii)Provided that no such orders, instructions or directions shall be issued so as to-

(a) require any authority to decide a particular case in a particular manner; or

(b) interfere with the discretion of the Adjudicating Authority in exercise of his functions.

Power of the Central Government to issue order to authorities, but not directions for exercise of judicial discretion:For the proper administration of this Act, the Central Government has power to issue any order, instruction and direction to the authorities as may be deemed fit and such authorities are required to observe and follow such orders. However, no such order, instruction or direction shall be issued requiring any authority to decide a particular case in a manner (such case should normally involve exercise of judicial powers and more executive) or be interfere with the discretion of Adjudicating Authority in exercise of its function. Therefore, the power to issue direction has to confirm to discharge of executive function and not the manner of judicial. The orders issued by the Central Government shall be in the nature of executive instructions and therefore, may not be binding on judicial officers.

Empowerment of certain officers (SECTION 53) –

(i)The Central Government may, by a special or general order, empower an officer not below the rank of Director of the Central Government or of a State Government to act as an authority under this Act.

(ii)The Central Government may empower an officer below the rank of Director if the officer of the rank of the Director or above are not available in a particular area.

Powers exercisable even by officer of the rank of Director of the state Government and exceptionally by even officer below such rank, if empowered by the Central Government: It empowers the Central Government to allow exercise of its authority under this Act to an officer not below the rank of Director of the Central Government by a special or general order. Such powers can be allowed to be wholly performed by any such officers as well as partly. The exercise of whole powers is done normally when an equivalent officer of the same Ministry is asked to hold additional charge. However, the Central Government can also empower an officer below the rank of below of the Director, if officer of rank of director or above are not available in a particular area.

Certain officers to assist in inquiry, etc. (SECTION 54)-

(i)The following officers and others are hereby empowered and required to assist the authorities in the enforcement of this Act, namely:-

(a) officers of the Customs and Central Excise Departments;

(b) officers appointed under sub-section (1) of section 5 of the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985);

(d) members of the recognised stock exchange referred to in clause (f) of section 2 and the officers of the stock exchanges recognised under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(e) officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);

(f) officers of police;

(g) officers of enforcement appointed under sub-section (1) of section 36 of the Foreign Exchange Management Act, 1999 (40 of 1999);

(h) officers of the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ha) officers of the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);

(hb)officers of the Forward Markets Commission established under section 3 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);

(hc) officers and members of the recognised association recognised under section 6 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);

(hd) officers of the Pension Fund Regulatory and Development Authority;

(he) officers of the Department of Posts in the Government of India; (hf) Registrars or Sub-Registrars appointed by the State Governments under section 6 of the Registration Act, 1908 (16 of 1908);

(hg) registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988 (59 of 1988);

(hh) officers and members of the Institute of Chartered Accountants of India constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949);

(hi) officers and members of the Institute of Cost and Works Accountants of India constituted under section 3 of the Cost and Works Accountants Act, 1959 (23 of 1959);

(hj) officers and members of the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980

(i) officers of any other body corporate constituted or established under a Central Act or State Act;

(j) such other officers of the Central Government, State Government, local authorities or reporting entities as the Central Government may, by notification, specify, in this behalf.

Officers listed empowered and required to provide assistance of various departments, organizations and Institutes: It enumerates the list of officers who are empowered and are required to assist the authorities appointed for the purposes of this Act. List of such officer includes

Officer of customs and Central Excise Department (this needs amendment as after 1.7.2017 after introduction of G.S.T, the department is known as Custom and Central GST Department)
Officers appointed under sub section1 of Section 5 of Narcotic Drugs and Psychotropic Substance Act,1985
income-tax authorities under sub-section (1) of section 117 of the Income-tax Act, 1961
members of the recognised stock exchange referred to in clause (f) of section 2 and the officers of the stock exchanges recognised under section 4 of the Securities Contracts (Regulation) Act, 1956
officers of the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934
officers of police;
officers of enforcement appointed under sub-section (1) of section 36 of the Foreign Exchange Management Act, 1999
officers of the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992
officers of the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999
officers of the Forward Markets Commission established under section 3 of the Forward Contracts (Regulation) Act, 1952
officers and members of the recognised association recognised under section 6 of the Forward Contracts (Regulation) Act, 1952
officers of the Pension Fund Regulatory and Development Authority;
officers of the Department of Posts in the Government of India;
Registrars or Sub-Registrars appointed by the State Governments under section 6 of the Registration Act, 1908
registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988
officers and members of the Institute of Chartered Accountants of India constituted under section 3 of the Chartered Accountants Act, 1949
officers and members of the Institute of Cost and Works Accountants of India constituted under section 3 of the Cost and Works Accountants Act, 1959
officers and members of the Institute of Company Secretaries of India constituted under section 3 of the Companies Secretaries Act, 1980;

(ii) officers of any other body corporate constituted or established under a Central Act or State Act;

(iii) such other officers of the Central Government, State Government, local authorities or reporting entities as the Central Government may, by notification, specify, in this behalf.

The expression used in `”empowered and assist”, therefore generally empowerment of essential functions for performance is done while officers of E.D. perform the core. Such assistance is generally required in search and seizure operations or for performance of audit or for reporting any offence etc.

PMLA Made Easy Series –Article 7 (EXCISE LAW TIMES 1st. NOVEMBER,2019

Appellate Tribunal

By :Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

Prevention of Money Laundering Appellate Tribunal (PMLAT) is the first stage appellate Tribunal for all matters adjudicated under PMLA, 2002. Since 2016, now there is a common Tribunal for PMLA and Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976) (FTPA) matters and even for Foreign Exchange Management Act (FEMA) cases. Consequent upon such merger, Sections 27, 28, 29, 30, 31, 32, 33 and 34 stands repealed since all these are already provided for in Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. Therefore, there was no need of duplication or diversions in various Sections which could have led to confusion.

The Appellate Tribunal was established by Central Government to hear appeals against the decisions of Adjudicating Authority and authorities under this Act including of Director (FIU), Ministry of Finance. Appeals to the Appellate Tribunal can be made by the Director, or any person aggrieved by an order made by the Adjudicating Authority, or any banking institution or allied institution within 45 days from the date on which a copy of the order is received accompanied by the prescribed fees. The Appellate Tribunal shall normally comprise of a Chairperson and two other Members. However, there is no bar on a single member bench hearing the appeal.

The chapter further provides that the Civil Court shall have no jurisdiction over the suit/proceeding empowered to be determined by the Director, Adjudicating Authority or Appellate Tribunal. However appeal may further be made to the High Court within 60 days from the date of communication of the decision/order of Appellate Tribunal to him.

Establishment of Appellate Tribunal (SECTION – 25) -

The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976)shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority and the other authorities under this Act.

Appellate Tribunal Merged with SAFEMA and has same powers and functions w.e.f. 1/6/2016 providing same qualifications and composition of its members: With effect from 01.06.2016 and through amendment in Section 25 by way of substitution, term ‘Appellate Tribunal’ now has the same meaning and is now the same Tribunal as is constituted under Section 12(1) of Smuggler and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. Prior to amendment (of 01.06.2016) vide GSR 439 (E) dated 01.07.2005, the Tribunal was created and at that time Section 25 read as follows:

“25. Establishment of Appellate Tribunal.- The Central Government shall, by notification establish an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority and authorities under this Act.”

Appeals to Appellate Tribunal (SECTION - 26) –

(i) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an order made by the Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal.

(ii) Any reporting entity aggrieved by any order of the Director made under sub-section (2) of section 13, may prefer an appeal to the Appellate Tribunal.

(iii) Every appeal preferred under sub-section (1) or sub-section (2) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or Director is received and it shall be in such form and be accompanied by such fee as may be prescribed.

(iv) Provided that the Appellate Tribunal may after giving an opportunity of being heard entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(v) On receipt of an appeal under sub-section (1),or sub-section (2), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(vi) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Director, as the case may be.

(vii) The appeal filed before the Appellate Tribunal under sub-section (1) or sub-section (2) shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally within six months from the date of filing of the appeal.

Provision relating to disposal of appeal in six months only recommendatory and not binding;

This provision lays down that Tribunal shall be first court of appeal whether for appeals against adjudicating authority or against the orders of Director (FIU). Though a recommendatory provision of 6 months has been made for disposal of appeal, but the same hardly gets followed because of lack of benches, the result is that appeals remaining pending even for 8-10 years.

This Section permits appeals to be filed by both the aggrieved person as well as the Enforcement Directorate to the Appellate Tribunal. Aggrieved person in turn can be the one who has an adverse order from the Adjudicating Authority as well as any reporting entity which is aggrieved by the Order of the Director passed under Section 13 by the Director (FIU), who has competence to impose fine on reporting entities. All Appeal should be filed in normal course within 45 days from the date of receipt of Order of the Adjudicating Authority or Director in prescribed form and with prescribed fee. However, as is common with most Appellate Authorities, the Appellate Tribunal can after giving an opportunity of being heard condone any delay, if sufficient cause is shown. There is no time limit up to which condonation of delay can be done by the Appellate Tribunal once it is satisfied with the sufficiency of cause shown. After receiving any appeal, Appellate Tribunal can by affording opportunity of being heard, pass orders confirming, modifying or setting aside the order appealed against. Copy of Order so passed, is sent to Adjudicating Authority or the Director, as the case may be. There is a guidance provision for the Appellate Tribunal to dispose of appeals expeditiously and finally within six months from the date of filing of the appeal. But as the things stand today, it is followed more in breach than in compliance. Further, there is no procedure prescribed as to who will review the order of Director(FIU) if department is aggrieved by it. It could be that necessity has not arisen to require such a provision till date, but prudence requires that it should be created at the earliest.

Composition, etc., of Appellate Tribunal (Section 27)-Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Qualifications for appointment (SECTION 28) –Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Term of Office (SECTION 29) –Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Conditions of service (SECTION 30) - Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Vacancies (SECTION 31) -Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Resignation and Removal (SECTION 32)-Repealed by the Finance Act, 2016 (28 of 2016) , sec. 232(c) (w.e.f.1-6-2016)

Member to act as Chairperson in certain circumstances (Section 33) -Repealed by the Finance Act, 2016 (28 of 2016) , sec. 232(c) (w.e.f.1-6-2016)

Staff of Appellate Tribunal (Section 34) –Repealed by the Finance Act, 2016 (28 of 2016), sec. 232(c) (w.e.f.1-6-2016)

Procedure and powers of Appellate Tribunal (Section 35) - (i) The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Appellate Tribunal shall have powers to regulate its own procedure.

(ii) The Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit, in respect of the following matters, namely:-

(a) summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) reviewing its decisions;

(g) dismissing a representation for default or deciding it ex parte;

(h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and

(i) any other matter, which may be, prescribed by the Central Government.

(iii) An order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of civil court and, for this purpose, the Appellate Tribunal shall have all the powers of a civil court.

(iv) Notwithstanding anything contained in sub-section (3), the Appellate Tribunal may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

(v) All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code, 1860 (45 of 1860) and the Appellate Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973 (2 of 1974).

PMLA Tribunal is vested with powers to provide its own procedures, but principles of `Natural justice’ cannot be foregone:Like any other Tribunal, PMLAT has also been vested with powers, by virtue of this Section to regulate its own procedure till the time it is following ‘Principles of Natural Justice’. The expression used is ‘shall be guided by’. However, prudence demands to the extent possible PMLAT should follow Principles of Natural Justice and afford opportunities of hearing to the other side apart from necessary documents etc. The Tribunal is not bound by the Code of Civil Procedure, 1908 as most of the Tribunals are not.

Distribution of business amongst Benches (Section 36)-Where any Benches are constituted, the Chairperson may, from time to time, by notification, make provisions as to the distribution of the business of the Appellate Tribunal amongst the Benches and also provide for the matters which may be dealt with by each Bench.

Roaster and distribution of work to be decided by the Chairman:By virtue of his Section the Chairman of the Prevention of Money-Laundering Appellate Tribunal has been empowered to distribute business among various Benches of the Tribunal and also the matter to be dealt by each Bench. The power of distribution however is to be exercised by issuance of Notification of particular interest in the amendment carried out in this Section which substitutes the expression ‘Chairperson’ with ‘Chairman’ w.e.f. 01.06.2016.

Power of Chairman to transfer cases (SECTION 37)-On the application of any of the parties and after notice to the parties, and after hearing such of them as he may desire to be heard, or on his own motion without such notice, the Chairman may transfer any case pending before one Bench, for disposal, to any other Bench.

Chairman also vested with the powers to transfer any case to any bench either on application or on his own motion: The Chairman on application of any of the parties and after hearing other side or on his own motion, even without notice can transfer any case pending before any Bench to any other Bench. The power can be exercised both administratively as well as through judicial order. While passing judicial order, notice to the other parties and hearing may be desirable, but while passing the order on own motion such notice may not be required by the Chairman and the same can be done through administrative order.

Decision to be by majority (Section 38)- If the Members of a Bench consisting of two Members differ in opinion on any point, they shall state the point or points on which they differ, and make a reference to the Chairman who shall either hear the point or points himself or refer the case for hearing on such point or points by third Member of the Appellate Tribunal and such point or points shall be decided according to the opinion of the majority of the Members of the Appellate Tribunal who have heard the case, including those who first heard it.

Decisions by majority. Difference between the even number to be decided by referring to another member: The decision of the Benches of the PMLA Tribunal is required to be passed by majority. While this may not presentany difficulty in case of Three Member Bench, if there are two Members or even number in the Bench and they differ in opinion on any point in equal strength, then they can make a reference to the Chairman who then can hear the matter himself or refer it to any third Member on points of difference. The matter then shall be decided by the majority of opinion including of those who constituted the initial Bench.

Right of appellant to take assistance of authorised representative and of Government to appoint Presenting Officers.(Section 39)- (l) A person preferring an appeal to the Appellate Tribunal under this Act may either appear in person or take the assistance of any authorised representative of his choice to present his case before the Appellate Tribunal.

Explanation.-For the purposes of this sub-section, the expression "authorised representative" shall have the same meaning as assigned to it under sub-section (2) of section 288 of the Income-tax Act, 1961 (43 of 1961).

(2) The Central Government or the Director may authorise one or more authorised representatives or any of its officers to act as presenting officers and every person so authorised may present the case with respect to any appeal before the Appellate Tribunal.

Both sides of the adversarial litigation allowed to be represented by their own qualified representatives:An appellant before Prevention of Money Laundering Tribunal (PMLAT) can appear in person to plead its case or can also seek assistance of any authorised representative. Term ‘Authorised Representative’ has the same meaning as given in sub-Section (2) of Section 288 of the Income Tax Act, 1961.

The Central Government or the Director can authorize one or more of their authorized representatives or any of its officers to act as Presenting Officer before Prevention of Money Laundering Tribunal.

Members, etc., to be public servants (Section 40) - The Chairman, Members and other officers and employees of the Appellate Tribunal, the Adjudicating Authority, Director and the officers subordinate to him shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code, 1860 (45 of 1860).

Chairman, Members and officers to be public servants only, for the purposes of the I.P.C:Chairman, Members and other Officers, employees of the Prevention of Money Laundering Tribunal, the Adjudicating Authority, Director and Officers sub-ordinate to him have been deemed as Public Servants within the meaning of Section 21 of Indian Penal Code, 1860, Section 21 of I.P.C. defines Public servant, but by virtue of operation of this section all the above officers are also deemed as included in definition of ` public servant’

Civil court not to have jurisdiction (Section 41) - No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

Jurisdiction of Civil courts excluded for matters with in domain of Director, adjudicating authority or the appellate tribunal: The Prevention of Money Laundering Act, 2002 offers an alternate and sui-generis system not bound by detailed procedures of civil court. Under the system, Director, Adjudicating Authority and Appellate Tribunal have been sufficiently empowered to execute legislative will and to administer justice. Therefore, no civil court can have jurisdiction over such matters or can grant any injunction in respect of any action taken by such authorities under this Act. This maintains sufficient autonomy of civil rights of the parties under the Act. The director here means Director (FIU), as only he has been empowered to adjudicate and determine under the Act. Therefore for all the proceedings relating to attachment by adjudicating authority, penalty by Director (FIU) and appeals thereof are civil in nature.

Appeal to High Court (Section 42) -Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.

Explanation.-For the purposes of this section, "High Court" means-

(i) The High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain; and

(ii) Where the Central Government is the aggrieved party, the High Court within the jurisdiction of which the respondent, or in a case where there are more than one respondent, any of the respondents, ordinarily resides or carries on business or personally works for gain.

High Courts to be the second Court of Appeal under the Act: HighCourt acts as a second court of appeal under the Act. Against the decisions of Prevention of Money Laundering Tribunal any aggrieved person including the Department can file an Appeal to the High Court within 60 days from the date of communication of such decision to him. The appeal can be filed both on question of law as well as on facts arising out of the order. Therefore, the ambit of power to entertain appeal by the High Court is much wider as not confirmed only to question of law. The High Court on being satisfied about sufficiency of cause has also been allowed to condone delay beyond 60 days. As per the Explanation appended to Section 42 the Appellate jurisdiction of the High Court shall be determined by the following principles:

The Appellate High Court shall be the one in the jurisdiction of which the aggrieved person ordinarily resides or carries
on business or is gainfully employed;

and

In case of Central Government being aggrieved party, the relevant High Court shall be where the respondent or in case there are more respondents, any of the respondents ordinarily resides or carry on business or personally work for gain.

PMLA Made Easy Series- Article 6 (EXCISE LAW TIMES 15 OCTOBER,2019 )

Powers relating to search , seizure and arrest of investigating officers

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

The chapter deals with the technicalities involved in survey, search and seizure, power of arrest or retention of property or records as well as presumptions as to records/property, or even inter-connected transactions. The burden of proof however shall lie on the accused to show that his property is untainted or else attachment and consequential confiscation follows. The Chapter covers extensive powers of enforcement bestowed on the officers to hit out at the targeted money laundry. Powers are however, subjected to safeguards of reporting to an independent adjudicating authority at each and of recording `reasons to believe’ in writing in advance at each stage of investigation or resumption of records etc. and to act in a time bound manner. It is therefore, incumbent upon Adjudicating authority to act and apply its own mind independently in an unbiased mind and without prejudice and not mechanically and without proper application, as it is the Adjudicating Authority only that can act as a catalyst between abuse and proper use of the authority by the officers.

Power of survey (SECTION 16)—

(i) Where an authority, on the basis of material in his possession, has reason to believe (the reasons for such belief to be recorded in writing) that an offence under section 3 has been committed, he may enter any place—

(a)within the limits of the area assigned to him; or

(b)in respect of which he is authorised for the purposes of this section by such other authority, who is assigned the area within which such place is situated, at which any act constituting the commission of such offence is carried on, and may require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, such act so as to,—

afford him the necessary facility to inspect such records as he may require and which may be available at such place;
afford him the necessary facility to check or verify the proceeds of crime or any transaction related to proceeds of crime which may be found therein; and
furnish such information as he may require as to any matter which may be useful for, or relevant, to any proceedings under this Act.

Explanation.—For the purposes of this sub-section, a place, where an act which constitutes the commission of the offence is carried on, shall also include any other place, whether any activity is carried on therein or not, in which the person carrying on such activity states that any of his records or any part of his property relating to such act are or is kept.

(ii)The authority referred to in sub-section (1) shall, after entering any place referred to in that sub-section immediately after completion of survey, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope in the manner as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period as may be prescribed.

(iii)An authority acting under this section may—

place marks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom,
make an inventory of any property checked or verified by him, and
record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.

Survey on the basis of recorded reason to belief and on the basis of material in possession and only for premises where commission of offense is suspected to be carried out: The power of survey is similar in PMLA as well as now under GST Act. By virtue of power of survey an authorized officer on the basis of material in his possession and after having reason to belief which is required to be recorded in writing can enter any premises with in the designated jurisdiction, at which any act constituting the commission of offence of PMLA is carried on, and may require any proprietor, employee or any other person to,—

afford him the necessary facility to inspect such records as he may require and which may be available at such place;
afford him the necessary facility to check or verify the proceeds of crime or any transaction related to proceeds of crime which may be found therein; and
furnish such information as he may require as to any matter which may be useful for, or relevant, to any proceedings under this Act.

The reasons recorded for conducting survey are required to be conveyed to the Adjudicating Authority in a prescribed manner.

Officers conducting survey may for its purpose —

place marks of identification on the records inspected by him and make or cause to be made extracts or copies there from,
make an inventory of any property checked or verified by him, and
record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.
A survey is therefore short of a search as it only allows entry in the premises and allows a person to tender and afford inspection of document and facilities warranted by the officer/s conducting such survey. However, one should be mindful that deliberate non-cooperation by the person being surveyed can lead to reason to believe with the officers that some offence might have been committed and can require operations to be converted to proper search.

Search and seizure (SECTION –17) —

(1)Where the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person—

(i)has committed any act which constitutes money-laundering, or

(ii)is in possession of any proceeds of crime involved in money-laundering, or

(iii)is in possession of any records relating to money-laundering, or

(iv) is in possession of any property relating to crime then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to—

(a)enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;

(b)break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;

(c)seize any record or property found as a result of such search;

(d)place marks of identification on such record or make or cause to be made extracts or copies there from;

(e)make a note or an inventory of such record or property;

(f)examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be , or any other officer who may be authorized by the Central Government, by notification for this purpose.

(1A) Where it is not practicable to seize such record or property, the officer authorized under sub – section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned.

Provided that if, at any time before its confiscation under sub- section (5) or sub – section (7) of section of section 8 or section 58 B or sub – section (2A) of section 60, it becomes practical to seize a frozen property, the officer authorized under sub – section (1) may seize such property.

(2)The authority, who has been authorised under sub-section (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

(3)Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence: Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section.

(4)The authority, seizing any record or property under sub – section (1) or freezing any record or property under sub-section(1A) shall, within a period of thirty days from such seizure or freezing , as the case may be, file an application, requesting for retention of such record or property seized under sub- section(1) or for continuation of the order of freezing served under sub- section (1A), before the Adjudicating Authority.

Searches to be on the basis of prior information and reason to believe in writing and on the basis of search authorization by officer not below the rank of Deputy Director: Searches under the Act can only be ordered by Director or officers up to the rank of Deputy Director, but not by any officer below that rank. It has to be done on the basis of information in possession of such officer, and he to record his `reason to believe’’ in writing. Such reason to believe has to be with in the following parameters but not as mere reproduction of the same, as application of mind is required to be demonstrated. The reason to believe should be that a person (i)has committed any act which constitutes money-laundering, or

(ii)is in possession of any proceeds of crime involved in money-laundering, or

(iii)is in possession of any records relating to money-laundering, or

(iv) is in possession of any property relating to crime. On existence of such reasons the person authorizing search can authorise any officer subordinate to him to—

(a)enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;

(b)break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;

(c)seize any record or property found as a result of such search;

(d)place marks of identification on such record or make or cause to be made extracts or copies there from;

(e)make a note or an inventory of such record or property;

(f)examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

However, no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be , or any other officer who may be authorized by the Central Government, by notification for this purpose. Therefore searches which were earlier confined to offence report having been filed with courts by any agency now can be conducted even before that, by recording `reasons to believe’ and forwarding the same to Additional Secretary to Government of India. Since, the Director Enforcement is generally of the rank of Additional Secretary and above therefore forwarding such report and reasons to him may suffice for administrative purposes and legality of this Section.

If for some reasons the records or property is not practicable to seize the such record or property, the officer authorized can make an order to freeze such property. Upon such freezing the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned for his knowledge and action. If on later date but before confiscation it becomes practical to seize a frozen property, then officer authorized can seize such property.

Further, sub section (3) of Section17 specifically provides for a situation when survey can be converted to search operations under the Act. It lays down that where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence. It also provides that no authorization referred in this shall be required for search under this sub-section. In fact such conversion as one can see if out of investigative necessity where incriminating evidence or circumstances of grave nature exist, which require immediate action without waiting for search warrant. In investigative parlance these are also known as hot pursuit situations.

The authority, seizing any record or property under or freezing any record or property shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized or for continuation of the order of freezing served before the Adjudicating Authority.

Search of persons (SECTION – 18) —

(1)If an authority, authorised in this behalf by the Central Government by general or special order, has reason to believe (the reason for such belief to be recorded in writing) that any person has secreted about his person or in anything under his possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under this Act, he may search that person and seize such record or property which may be useful for or relevant to any proceedings under this Act:

Provided that no search of any person shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offense to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department of unit, as the case may be, or any other officer who may be authorize by the Central Government, by notification, for this purpose.

(2)The authority, who has been authorised under sub-section (1) shall, immediately after search and seizure, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

(3)Where an authority is about to search any person, he shall, if such person so requires, take such person within twenty-four hours to the nearest Gazetted officer, superior in rank to him, or a Magistrate: Provided that the period of twenty-four hours shall exclude the time necessary for the journey undertaken to take such person to the nearest gazetted officer, superior in rank to him, or Magistrate's Court.

(4)If the requisition under sub-section (3) is made, the authority shall not detain the person for more than twenty-four hours prior to taking him before the Gazetted Officer superior in rank to him, or the Magistrate referred to in that sub-section: Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of detention to the office of the Gazetted Officer, superior in rank to him, or the Magistrate's Court.

(5)The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge such person but otherwise shall direct that search be made.

(6)Before making the search under sub-section (1) or sub-section (5) the authority shall call upon two or more persons to attend and witness the search, and the search shall be made in the presence of such persons.

(7)The authority shall prepare a list of record or property seized in the course of the search and obtain the signatures of the witnesses on the list.

(8)No female shall be searched by any one except a female.

(9)The Authority shall record the statement of the person searched under sub-section (1) or sub-section (5) in respect of the records or proceeds of crime found or seized in the course of the search

(10)The authority seizing any record or property under sub-section (1) shall, within a period of thirty days from such seizure, file an application requesting for retention of such record or property, before the Adjudicating Authority.

Personal search only to be with approval of officer of the rank of Additional Secretary or Magistrate and with reasons in writing: This Section contains provisions relating to search of a person. The same may be required while conducting search of a premises or otherwise. It provides that if an authority, authorised in this behalf by the Central Government by general or special order, has reason to believe and such reason to be recorded in writing that any person has secreted about his person or in anything under his possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under this Act, he may search that person and seize such record or property which may be useful for or relevant to any proceedings under this Act. However, no such search of any person shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised before a Magistrate or court for taking cognizance of the scheduled offence, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate to an officer not below the rank of Additional Secretary to the Government of India etc. It shall be incumbent upon the person, who has been authorized to immediately after search and seizure, forward a copy of the reasons so recorded along with material in his possession, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

Where an authority is about to search any person, he shall, if such person so requires, take such person within twenty-four hours to the nearest Gazetted officer, superior in rank to him, or a Magistrate. However, while computing the period of twenty-four hours, the time necessary for the journey undertaken to take such person to the nearest Gazetted officer or Magistrate's Court shall be excluded. The need for invoking such provision may not normally arise as mostly the search parties are composed on some gazette officer. The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge such person but otherwise shall direct that search be made. Before making the search, the authority shall call upon two or more persons to attend and witness the search, and the search shall be made in the presence of such persons. The authority shall prepare a list of record or property seized in the course of the search and obtain the signatures of the witnesses on the list. Such document is normally known as Panchnama. No female shall be searched by anyone except a female. The Authority shall record the statement of the person searched in respect of the records or proceeds of crime found or seized in the course of the search. The authority seizing any record or property shall within a period of thirty days from such seizure, file an application requesting for retention of such record or property, before the Adjudicating Authority.

This brings us to a related question as to whether during search authorized a of a place, it appears that something vital has been secreted on body of any person, then can such search warrant which is for the premises be valid for search of a premises. The answer to this query may be in negative. This is for the reason that both search warrants are outcomes of `reason to believe’ to be recorded in writing in advance. Therefore, if during search of a premises, search of a peronsa present on the premises, is also required then fresh search authorization for the person after recording reasons in writing may be required

5.5. Power to arrest (SECTION19)-

(1)If the Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

(2)The Director, Deputy Director, Assistant Director or any other officer shall, immediately after arrest of such person under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such order and material for such period, as may be prescribed.

(3)Every person arrested under sub-section (1) shall within twenty-four hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction:

Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of arrest to the the Special Court or the Magistrate’s Court.

Investigative stage arrest prior to trial by Assistant Director or above on the basis of material and reasons to be recorded in writing:The power to arrest envisaged in the Section is investigative stage arrest after the Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government by general or special order, on the basis of material in his possession reason to believe which is required to be recorded in writing that any person has been guilty of an offence punishable under this Act. The grounds of arrest are required to be informed to such person and he is required to be produced in 24 hours of his arrest to a Special court or a Magistrate Court. Authorised officer may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. These are also the requirements under Cr. P.C. as well as those laid down by the apex court in various rulings.

The Director, Deputy Director, Assistant Director or any other officer shall, immediately after arrest of such forward a copy of the order, along with the material in his possession, to the Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such order and material for such period, as may be prescribed.

It can thus be seen that Adjudicating Authority acts also as a custodian of all `reasons to believe’ of executive authorities under the Act. This reduces administrative bias as such custodian is independent of the department.

Retention of property (SECTION 20)

(1)Where any property has been seized under section 17 or section 18 or frozen under sub-section (1A)of section 17 and the officer authorised by the Director in this behalf has, on the basis of material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property is required to be retained for the purposes of adjudication under section 8, such property may, if seized, be retained or if frozen may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such property was seized or frozen, as the case may be.

(2)The officer authorised by the Director immediately after he has passed an order for retention of the property for purposes of adjudication under section 8 shall forward a copy of the order along with the material in his possession, referred to in sub-section (1), to the Adjudicating Authority, in a sealed envelope in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

(3)On the expiry of the period specified in sub-section (1), the property shall be returned to the person from whom such property was seized unless the Adjudicating Authority permits retention of such property beyond the said period.

(4)The Adjudicating Authority, before authorising the retention of such property beyond the period specified in sub-section (1), shall satisfy himself that the property is prima facie involved in money-

Laundering and the property is required for the purposes of adjudication under section 8.

(5)After passing the order of confiscation under sub-section (5) or sub-section(7) of section 8, Special Court, shall direct the release of all property other than the property involved in money-laundering to the person from whom such properties were seized or the person entitled to receive it.

(6)Where an order releasing the property has been made by the Special Court under sub section(6) of Section 8 or by the Adjudicating Authority under Section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act.

Retention of any property by investigating officers to be with time bound approval of adjudicating:

This section provides a unique requirement and process of having stamp of approval of adjudicating authority to continue to retain seized or frozen property by the investigating officers after a stipulated time. Investigating officers are required to make time bound application and Adjudicating Authority is required to give time bound decision after giving copy of complaint to the person concerned and hearing him on the matter and passing a reasoned decision. The process involved is as follows:

-For any property seized or frozen, the officer authorised by the Director on the basis of material in his possession and reason to believe to be recorded in writing that such property is required to be retained or frozen for the purposes of adjudication may continue to retain, seize or keep frozen such property for a period not exceeding one hundred and eighty days from the day of such seizure or freezing.

The officer authorised by the Director immediately after he has passed an order for retention of the property for purposes of adjudication shall forward a copy of the order along with the material in his possession,, to the Adjudicating Authority, in a sealed envelop in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

On the expiry of the period aforesaid period of 180 days, the property shall be liable to be returned to the person from whom such property was seized unless the Adjudicating Authority permits retention of such property beyond the said period. Therefore, the extinction of retention by the adjudicating authority has to be allowed within the stipulated period of 180 days.

The Adjudicating Authority, before authorising the retention of such property beyond the period of 180 days, shall satisfy himself that the property is prima facie involved in money-laundering and the property is required for the purposes of its own adjudication.

Further, the power to release property retained or seized etc, other than those confiscated is also vested in Special Court. It shall while passing order of confiscation under sub-section (5) or sub-section(7) of section 8, direct the release of all property other than the property involved in money-laundering to the person, from whom such properties were seized or the person entitled to receive it.

Where an order releasing the property has been made by the Special Court under sub section(6) of Section 8 or by the Adjudicating Authority under Section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of such order to accommodate time for appeal proceedings.

Retention of records (SECTION 21)—

(1)Where any records have been seized under section 17 or section 18, and the Investigating Officer or any other officer authorised by the Director in this behalf has reason to believe that any of such records are required to be retained for any inquiry under this Act, he may retain such records for a period not exceeding three months from the end of the month in which such records were seized.

(2)The person, from whom records were seized, shall be entitled to obtain copies of records retained under sub-section (1).

(3)On the expiry of the period specified under sub-section (1), the records shall be returned to the person from whom such records were seized unless the Adjudicating Authority permits retention of such records beyond the said period.

(4)The Adjudicating Authority, before authorising the retention of such records beyond the period mentioned in sub-section (1), shall satisfy himself that the records are required for the purposes of adjudication under section 8.

(5)After passing of an order of confiscation or release under sub-section (5) or sub section (6) or sub-section(7) of section 8 or Section 58 B or sub-section (2A) of sanction 60, the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized.

(6)Where an order releasing the records has been made by the court (adjudicating authority under sub-section (5) of Section21), the Director or any officer authorised by him in this behalf may withhold the release of any such records for a period of ninety days from the date of receipt of such order, if he is of the opinion that such records are relevant for the appeal proceedings under this Act.

Documents to be retained with time bound approval of adjudicating authority too by the investigating officers: Like the property, provision has also been made to allow retention of seized records to the authorized investigating officers through permission from adjudicating authority. It provides initial retention by authorized officers of records for the purposes of inquiry for three months, on having reason to believe. It may be noted that even though there is no requirement in this particular sub-section to record the reason to believe in writing, still it is better to do so for the officer or at least to record that factum of him having reason to believe in writing. The person, from whom records were seized, shall be entitled to obtain copies of records retained. This facility is provided ostensibly, so as not to cause any disruption in his normal business or personal functioning.

On the expiry of the period three months, the records shall be returned to the person from whom such records were seized unless the Adjudicating Authority permits retention of such records beyond the said period. Therefore, it is implicit that investigating officer has to approach adjudicating authority with in the aforesaid period of three months.

The Adjudicating Authority, before authorising the retention of such records beyond the period of three months, shall satisfy himself that the records are required for the purposes of adjudication.

After passing of an order of confiscation or release under sub-section (5) or sub section (6) or sub-section(7) of section 8 or Section 58 B or sub-section (2A) of sanction 60, the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized.

Where an order releasing the records has been made by the court (adjudicating authority under sub-section (5) of Section21), the Director or any officer authorised may withhold the release of any such records for a period of ninety days from the date of receipt of such order to accommodate for appeal proceedings. It is implicit that for retention beyond the period of 90 days the permission will have to be sought and same required to be prayed for to the appellate authority.

Presumption as to records or property in certain cases (SECTION 22 )—

(1)Where any records or property are or is found in the possession or control of any person in the course of a survey or a search or where any record or property is produced by any person or has been resumed or seized from the custody or control of any person or has been frozen under this Act or under any other law for the time being in force, it shall be presumed that—

(i)such records or property belong or belongs to such person;

(ii)the contents of such records are true; and

(iii)the signature and every other part of such records which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a record, stamped, executed or attested, that it was executed or attested by the person by whom it purports to have been so stamped, executed or attested.

(2)Where any records have been received from any place outside India, duly authenticated by such authority or person and in such manner as may be prescribed, in the course of proceedings under this Act, the Special Court, the Appellate Tribunal or the Adjudicating Authority, as the case may be, shall—

(a)presume, that the signature and every other part of such record, which purports to be in the handwriting of any particular person or which the court may reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in that person’s handwriting; and in the case of a record executed or attested, that it was executed or attested by the person by whom it purports to have been so executed or attested;

(b)admit the document in evidence, notwithstanding that it is not duly stamped, if such document is otherwise admissible in evidence.

Presumptions drawn from recovery from possession, contents of records and signatures on documents etc.: This section provides for certain presumptions and properties during the course of investigation and proving of the charge. The presumption in relation to records arise if they are recovered from possession or control of a person during any search or survey or when same is produced or resumed or frozen from custody or control under this Act or under any other law for the time being in force. It shall be presumed that—

(i)such records or property belong or belongs to such person;

(ii)the contents of such records are true; and

Further for records received form courts and authorities abroad, it has been provided that where any records have been received from any place outside India, duly authenticated by such authority or person and in such manner as may be prescribed, in the course of proceedings under this Act, the Special Court, the Appellate Tribunal or the Adjudicating Authority, it shall be presumed—

(a)that the signature and every other part of such record, which purports to be in the handwriting of any particular person or which the court may reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in that person’s handwriting; and in the case of a record executed or attested, that it was executed or attested by the person by whom it purports to have been so executed or attested;

(b)that the document can be admitted evidence, notwithstanding that it is not duly stamped, if such document is otherwise admissible in evidence.

Presumption in inter-connected transactions (SECTION 23)— Where money-laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation under section 8 or for the trial of the money laundering offence it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court, be presumed that the remaining transactions form part of such inter-connected transactions.

Presumptions that inter connected transactions are all involved in money laundering if some are proved :This section provides a presumption in relation to inter-connected transactions, whereby prosecution is only required to prove one or more out of inter-connected transactions and is absolved from the requirement of proving the rest to adjudicating Authority or Special Court.

Burden of Proof (SECTION 24) —In any proceeding relating to proceeds of crime under this Act, -

In the case of a person charged with the offence of money laundering under section 3, the authority of Court shall, unless the contrary is proved presume that such proceeds of crime are involved in money laundering; and
In the case of any other person, the authority or Court may presume that such proceeds of crime are involved in money laundering.

Burden of proof on the accused barring proving predicate offence: Theburden of proof in any proceedings relating to proceeds of crime has been placed on the accused. It is to be noted that only burden of proving predicate offence is on the department and thereafter if a person is charged with the offence of money laundering u/s 3, there is a presumption that the proceeds of crime are involved in money laundering, unless contrary is proved by the person charged with the offence.. One has to keep in mind while at dealing with Enforcement Directorate that it is a premier investigating agency with all India jurisdiction having access to a lot of information and has the capacity to easily verify the same.

Another thing to be noted is that there are two kinds of presumptions provided in the Section, one those related to persons who are specifically charged u/s 3 of the Act with having committed money laundering with proceeds of crime and which is absolute and mandatory and courts are required to presume it as the expression used in Clause (a) is `shall’. However, in clause (b) it has been provided that in the case of any other person, the authority or Court `may’ presume that such proceeds of crime are involved in money laundering. Therefore, for the persons not specifically charged u/s 3, it is the discretion of the court to presume or not so presume as the legislature has chosen to use expression `may’ in contrast to expression `shall‘ in clause (a).

PMLA MADE EASY SERIES- Article 5 (EXCISE LAW TIMES 1st. OCTOBER,2019)

OBLIGATIONS OF BANKING COMPANIES, FINANCIAL INSTITUTIONS AND INTERMEDIARIES

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

The Act provides that every banking company, financial institution and intermediaries should maintain a record of transactions and provide this information to the Director( FIU), Ministry of Finance when required to do so. They are also required to verify and maintain the records of the identity of all its clients. Such records shall be maintained for a period of 10 years from the date of cessation of the transaction between the clients and the banking companies. Now, after the amendments introduced vide Finance Act, 2019 reporting entities are also required to act as the first level of scrutiny and are required to check the underlying genuineness of the transaction to be reported as well.

The procedure for procuring the information shall be drawn by the Central Government in consultation with the RBI.

This particular chapter has been included keeping in mind the usage of cash for the purposes of illegal transactions particularly advance for sale/purchase of property. The check over the Bank creates a stricter balance because the influx and out flux of money can easily be kept in account.

The information received in this regard from the banks during demonetization helped various agencies in conducting many successful raids by income tax and money laundering authorities. The chapter deals with reporting mechanism under PMLA, 2002. It is to be noted that reporting agency has been kept separate from enforcement department and even penalties for non- reporting though increased through recent amendments are far less and more in the nature of financial penalties as compared to money laundering offences by any person or corporate.

For the purpose of this Act, Director (Financial Intelligence Unit) in the Ministry of Finance has been designated as the nodal officer to receive all the reports from reporting agency and to supervise their scrutiny and consolidation. It is also an authority to adjudicate and impose venalities for defaulting reporting entities under the Act.

Reporting entity to maintain records (SECTION - 12 )—

(i)Every reporting entity shall—

(a)maintain a record of all transactions, including information relating to transaction covered under clause (b), in such manner as to enable it to reconstruct individual transactions

(b)furnish to the Director within such time as may be prescribed , information relating to such transaction, whether attempted or executed, the nature and value of which may be prescribed

(c)verify the identity of its clients, in such manner and subject to such conditions as may be prescribed;

(d) identify the beneficial owner, if any, of such of its clients, as may be prescribed;

(e) maintain record of document evidencing identity of its client and beneficial owners as well as account files and business correspondence relating to its clients.

(ii) Every information maintained, furnished or verified, save as otherwise provided under any law for the time being in force, shall be kept confidential.

(iii) The records referred to in clause (a) of sub –section (1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.

(iv)The records referred to in Clause (e) of sub – section (1) shall be maintained for a period of five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later.

(v) The Central Government may, by notification, exempt any reporting entity or class of reporting entities from any obligation under this Chapter.

Reporting entities to maintain records for five years. Failure to maintain and report to FIU to attract penalties. KYC norms also prescribed.

It lays down the following obligations on banking companies, financial institutions and intermediaries. Every banking company, financial institution and intermediary should – maintain a record of all transactions, the nature and value of which may be prescribed irrespective of the fact as to whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other, and where such series of transactions take place within a month; furnish information of such transactions to the Director; verify and maintain the records of the identity of all its clients. The need to record even a series of transaction has risen as earlier the offences in Par B of the Schedule were punishable only of offences involved monetary limit of Rs.30 lakhs, which is now not the case after amendments.

Access to information (SECTION 12A) – Amended by Finance Act, 2019 dated 2.08.2019

(i)The Director may call for from any reporting entity any of the records referred to insection 11A, sub-section (1) of section 12, sub-section (1) of section 12AA and any additional information as he considers necessary for the purposes of this Act.

(ii) Every reporting entity shall furnish to the Director such information as may be required by him under sub – section (1) within such time and in such manner as he may specify.

(iii) Save as otherwise provided under any law for the time being in force, every information sought by the Director under sub – section (1), shall be kept confidential.

Notified transactions to be reported by Banks to Director (FIU) Failure to attract penal action. : With the latest amendment introduced vide Finance Act, 2019, Director can call for any records of the reporting entities. Under this section banks and various other entites are directed to maintain information in respect to nature, amount of transaction and the currency in which it was denominated, further the date on which it was undertaken. The procedure for furnishing such information should be as follows:

There shall be communication of name, designation, address, of the principal officer to the director.
Every banking company, financial institution and intermediary may evolve an internal mechanism for furnishing information referred to in clauses (A), (B), (BA), (C) and (D) of sub-rule (1) of rule 3 in such form and at such intervals as may be directed by its regulator.
Further it shall be the duty of every banking company, financial institution and an intermediary to observe the procedure and the manner of furnishing information as specified by the regulator in sub-rule (3)

Further the principal officer of a banking company, a financial institution and an intermediary, as the case may be, shall furnish the information in respect to the transactions referred to in clause (A), (B) and (BA) of sub-rule (1) of rule 3, every month to the director by the 15^th day of the succeeding month. The information furnished should promptly be in writing or fax or by e-mail to the director in respect to transactions referred in clause (C) of sub-rule (1) of rule 3 not later than seven working days from the date of occurrence of such transaction. Further, this section was amended to provided additional information from reporting entities that may be called by Director. And if the director is satisfied that the transaction is suspicious as referred to in clause (D) of sub-rule (1) of rule 3, the furnishing of information should not take more than seven days. Provided that information furnished in such manner is strictly confidential.

Enhanced due diligence (Section 12AA)(inserted by Finance Act, 2019 dated 02^nd of August, 2019)

(1) Every reporting entity shall, prior to the commencement of each specified transaction (a) authenticate the identity of the clients undertaking such specified transaction in such manner and subject to such conditions as may be prescribed;

(b) take additional steps to examine the ownership and financial position, including sources of funds of the client, in such manner as may be prescribed;

(c) take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties.

(2) Where the client fails to fulfill the conditions laid down under sub-section (1), the reporting entity shall not allow the specified transaction to be carried out.

(3) Where any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed.

For the purpose of this section, “authentication” means the process as defined under sub-section (c) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.

(4) The information obtained while applying the enhanced due diligence measures under sub-section(1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity.’.

Section 12 AA was introduced to provide for enhanced due diligence by reporting entitles based on aadhaar, also to establish ownership and source of funds etc. This virtually requires reporting entities to become the first scrutiny agency under the PMLA, 2002.It provides that reporting entities shall authenticate the identity of clients be it any gold purchaser or property purchaser etc. through additional steps like Aadhar as may be prescribed and shall be required to take additional steps to determine the ownership, financial position, sources of funds of the client as well as the purpose behind the transaction and the intended nature of transaction between the parties. On such information not having being provided, the reporting entities can refuse to carry out transaction. It is also expected that in case the transaction is considered suspicious or is likely to involve any proceeds of crime, the scrutiny level of the reporting entity will correspondingly, go up and record of enhanced due diligence shall be kept for 5 years. Such diligence shall be specially warranted to monitor subsidies etc as may be provided by the Government through the banking system.

Powers of Director to impose fine (SECTION 13) —

(i)The Director may, either of his own motion or on an application made by any authority, officer or person, make such inquiry or cause such inquiry to be made, as he thinks fit to be necessary, with regard to the obligations of the reporting entity, under this Chapter.

(ii) If at any stage of inquiry or any other proceedings before him, the Director having regard to the nature and complexity of the case, is of the opinion that it is necessary to do so, he may direct the concerned reporting entity to get its records, as may be specified, audited by an accountant from amongst a panel of accountants, maintained by the Central Government for this purpose.

(iii) The expenses of, and incidental to, any audit under sub – section (1A) shall be borne by the Central Government.

(iv)If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations under this Chapter, , without prejudice to any other action that may be taken under any other provisions of this Act, he may, -

(a) issue a warning in writing ; or

(b) direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions;

(c) direct such reporting entity or its designated director on the Board or any of its employees, to send reports at such interval as may be prescribed on the measures it is taking; or

(d)by an order, impose a monetary penalty on such reporting entity or its designated director on the Board or any of its employees, which shall not be less than ten thousand rupees but may extend to one lakh rupees for each failure.

(v)The Director shall forward a copy of the order passed under sub-section (2) to every banking company, financial institution or intermediary or person who is a party to the proceedings under that sub-section.

(vi) By virtue of an explanation added to Section by amending act of 2013 it has been provided that an ` Accountant’ shall mean a Chartered accountant within the meaning of the Chartered Accountant Act,1949(38 of 1949)

Director (FIU) is the authority to adjudicate and impose penalties for failures of reporting entities to maintain accounts or for failure to report transactions.-

This Section vests the power to impose penalty of fine etc. on the reporting entity or its employees or directors etc. which has committed any default. In case of delayed submission of information or furnishing of wrong information or withholding of information or part of information sought by director and other such authorities without any prejudice to any other action that may be taken. The director on application of any authority, officer or person may either conduct the enquiry into the matter of non-reporting himself or cause such enquiry to be made with regard to obligations of reporting entity under chapter IV. If in the course of enquiry it is ascertained that reporting entity or designated director of the board or any of its employees has failed to comply with the said obligations then the director is empowered to impose the monetary penalty as indicated in clauses (a) to (d) of sub-section of the Act. The Director has also been empowered for the purposes of enquiry to take assistance of any chartered Accountant whose expenses for services rendered shall be borne by the Central Government.

The reason for these powers given to the director is to make the reporting entity and its concerned officers disclose the requisite information to the Director and other authorities correctly and within time. So that periodic consolidation of information for early warning trends can be done any attempts to launder money thwarted at the earliest.

No civil or criminal proceedings against reporting entity, its directors and its employees in certain cases (SECTION 14)-

The reporting entity, its directors and its employees shall not be liable to any civil or criminal proceedings against them for furnishing information under clause (b) of sub-section(1)of section 12.

Reporting entities, its director and employees not to be liable for any civil or criminal proceedings other than penalty under Section 13. This section provides immunity to the reporting entity, its directors and employees for any proceedings instituted against them civil or criminal, for furnishing information under clause (b) of sub-section (1) of Section 12. It also provides exception of such to be under section 13(1) i.e. punishment by order of director under either of clauses (a) to (d) of sub-section (2) of Section 13. Therefore the plea of any confidentiality clause, banking secrecy law or fiduciary relationship etc. should not come in the way of any compliant reporting entity.

After the insertion of Section 12 A the additional information can also be sought by the Director besides the information already called under Section 12 (1)(b) of the Act under the prescribed time. The information sought by director is also required to be kept confidential by the reporting entity. Since the provisions under section 14 are only limited to the actions taken by reporting entity under section 12 (1) (b), it is uncertain whether default on part of reporting entity by provisions under section 12A would be able to keep immune the reporting entity and its employee etc. from any civil or criminal proceedings. Therefore, it is desirable that most reporting entities should rather go in for the compliance side of this Act.

Procedure and manner of furnishing information by reporting entities (SECTION 15)— (Amended by Finance Act, 2019 dated 02^nd August, 2019) -The Central Government may, in consultation with the Reserve Bank of India, prescribes the procedure and the manner of maintaining and furnishing information by a reporting entity under section 11A, sub-section (1) of section 12 and subsection (1) section 12AA for the purpose of implementing the provisions of this Act.

Procedure for reporting to be evolved in consultation with RBI for all reporting entities:Every reporting entity including a banking company or financial institution etc. have been directed after consultation with the R.B.I. to maintain record of all transactions including the record of:

All cash transactions of prescribed value or its equivalent in foreign currency.
All series of transaction taking place within a month indirectly connected to each other which have been valued below rupees ten lakhs or its equivalent in foreign currency.
All cash transaction where the counterfeit currency have been used as a genuine currency, transactions where the forgery of security or a document has taken place facilitating the transactions.
All suspicious transactions whether or not made in cash and by way of deposits, credits, withdrawals, from any accounts in whatsoever name they are referred to or any currency maintained by way of cheques, pay orders, demand drafts etc. Further it also includes money transfer or remittances, loans and advances including credit or loan substitutes, investments or through any other contingent liability.
Any other information that may be prescribed for the purposes of Section 12 AA subsequent to amendment as provided vide Finance Act,2019.

Reporting entities have also the obligation to maintain information related to nature, amount, and date of the transactions. Provided that a banking company, financial institution or intermediary, as the case may be, and its employees shall keep the fact of furnishing information in respect of transactions . Consultation with R.B.I has been prescribed for the purposes of this Section to avoid unnecessary duplicity of accounts and reports.Now, after the amendment through Finance Act,2019, of this section, theCentral Government is allowed to prescribe procedure and manner of maintaining information, additionally in relation to newly introduced Section 11A and 12 AA in consultation with RBI.

PMLA MADE EASY SERIES 4 (EXCISE LAW TIMES 15th. SEPTEMBER, 2019

PROCESS OF ATTACHMENT AS A PRECURSOR TO EVENTUAL CONFISCATION OF PROPERTY

Somesh Arora

CHIEF CONSULTANT (AMICUS RARUS) &

FORMER COMMISSIONER OF CUSTOMS & EXCISE

Part – 4

Attachment of property involved in money-laundering (Section 5) -

(i) Where the Director, or any other officer not below the rank of Deputy Director authorized by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that -

(a) any person is in possession of any proceeds of crime; and

(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eight days from the date of the order, in such manner as may be prescribed. It provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or Court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country.

(ii) Any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.

(iii) The computing period of 180 days, the period during which the proceeding under this section is stayed by the High Court shall be excluded and a further period of 30 days from vacation of stay shall be counted.

(iv) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

(v) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (3) of Section 8, whichever is earlier.

(vi) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.

Explanation - For the purposes of this sub-section “person interested”, in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.

(vii) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.

Preemptive action of attachment of any property to check subsequent layering or concealment:- Section 5 contains one of the most important punitive action under the law, even though intended to be preemptive. While even certain tax laws also have provision for limited duration attachment during investigation, the attachment under this Act lasts even beyond the initiation of trial of money laundering offence and properties attached can only be released through a judicial order. The attachment provisions are mostly tilted in favour of the department and it is only recently the checks and balances are being provided by various High Courts. Till recent past, hardly any relief was secured by litigants at the level of Adjudicating Authorities or even PMLA Tribunal. Under Section 5(1), after amendment by Act 2 of 2013 with effect from 15-2-2013 ‘director or any other officer not below the rank of Deputy Director on having reason to believe, which belief has to be recorded in writing and has to be formed on the basis of material in his possession, that any person is in possession of any proceeds of crime and such proceeds of crime is likely to concealed, transferred or dealt with in any manner, which can frustrate any proceedings relating to confiscation of proceeds of crime, can order in writing the provisional attachment of involved property’.

Conditions for exercising Provisional attachment : (1) There should be adequate material before such officer, which makes him believe that if the attachment of the proceeds of crime is not ordered, it might result in frustration of the confiscation.

(2) A person must be in possession of the proceeds of crime.

(3) The competent investigating office must have reason to believe that a predicate offence as per the scheduled offences under this Act has been committed.

(4) Such proceeds of crime are likely to be concealed or transferred or dealt with in any manner, which may result in frustrating any proceedings of their ultimate confiscation.

Adjudicating Authorities, composition, powers, etc. (Section 6) -

(i) The Central Government shall, by notification, appoint an Adjudicating Authority to exercise jurisdiction, powers and authority conferred by or under this Act.

(ii) An Adjudicating Authority shall consist of a Chairperson and two other Members. Provided that one Member each shall be a person having experience in the field of law, administration, finance or accountancy.

(iii) A person shall, however, not be qualified for appointment as Member of an Adjudicating Authority, -

(a) in the field of law, unless he -

• is qualified for appointment as District Judge; or

• has been a member of the Indian Legal Service and has held a post in Grade I of that service;

(b) in the field of finance, accountancy or administration unless he possesses such qualifications, as may be prescribed.

(iv) The Central Government shall appoint a Member to be the Chairperson of the Adjudicating Authority.

(v) Subject to the provisions of this Act, -

• the jurisdiction of the Adjudicating Authority may be exercised by Benches thereof;

• a Bench may be constituted by the Chairperson of the Adjudicating Authority with one or two Members as the Chairperson of the Adjudicating Authority may deem fit;

• the Benches of the Adjudicating Authority shall ordinarily sit at New Delhi and such other places as the Central Government may, in consultation with the Chairperson by notification, specify;

• the Central Government shall, by notification, specify the areas in relation to which each Bench of the Adjudicating Authority may exercise jurisdiction.

(vi) Notwithstanding anything contained in sub-section (5), the Chairperson may transfer a Member from one Bench to another Bench.

(vii) If at any stage of the hearing of any case or matter it appears to the Chairperson or a Member that the case or matter is of such a nature that it ought to be heard by a Bench consisting of two Members, the case or matter may be transferred by the Chairperson or, as the case may be, referred to him for transfer, to such Bench as the Chairperson may deem fit.

(viii) The Chairperson and every Member shall hold office as such for a term of five years from the date on which he enters upon his office. Provided that no Chairperson or other Member shall hold office as such after he has attained the age of sixty-five years.

(ix) The salary and allowances payable to and the other terms and conditions of service of the Member shall be such as may be prescribed. Provided that neither the salary and allowances nor the other terms and conditions of service of the Member shall be varied to his disadvantage after appointment.

(x) If, for reasons other than temporary absence, any vacancy occurs in the office of the Chairperson or any other Member, then the Central Government shall appoint another person in accordance with the provisions of this Act to fill the vacancy and the proceedings may be continued before the Adjudicating Authority from the stage at which the vacancy is filled.

(xi) The Chairperson or any other Member may, by notice in writing under his hand addressed to the Central Government, resign his office. Provided that the Chairperson or any other Member shall, unless he is permitted by the Central Government or relinquish his office sooner, continue to hold office until the expiry of three months from the date of receipt of such notice or until a person duly appointed as his successor enters upon his office or until the expiry of his term of office, whichever is the earliest.

(xii) The Chairperson or any other Members shall not be removed from his office except by an order made by the Central Government after giving necessary opportunity of hearing.

(xiii) In the event of the occurrence of any vacancy in the office of the Chairperson by reason of his death, resignation or otherwise, the senior-most Member shall act as the Chairperson of the Adjudicating Authority until the date on which a new Chairperson appointed in accordance with the provisions of this Act to fill such vacancy, enters upon his office.

(xiv) When the Chairperson of the Adjudicating Authority is unable to discharge his functions owing to absence, illness or any other cause, the senior-most Member shall discharge the functions of the Chairperson of the Adjudicating Authority until the date on which the Chairperson of the Adjudicating Authority resumes his duties.

(xv) The Adjudicating Authority shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Adjudicating Authority shall have powers to regulate its own procedure.

Does the expression ‘Bench’ refers to single or more than one member?

At present, the provision exists only for one Adjudicating Authority after amendment was made by amending Act of 21 of 2009 by virtue of which substitution was made to provide for one adjudicating authority instead of “one or more adjudicating authorities”. Adjudicating Authority under the Act has been kept separate from the investigating officers and is supposed to be completely independent from the interference and bias of Enforcement Directorate. It is supposed to be a multi member authority with a Chairman having been allowed to hold office up to the attainment of age of 65 years. Any Member or Chairperson can resign from the office and in the absence of the Chairperson, the next senior most Member is required to be discharging his function. The Adjudicating Authority has one administrative member, one member from the field of law and one from Finance and Accountancy. It has been specifically provided that adjudicating authority shall not be bound by Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice and that adjudicating authority shall have powers to regulate its own procedures. It is thus clear, that adjudicating authority can chalk out its own procedures, subject to the condition that the same shall not be violative of principles of natural justice by which it is supposed to be guided. It is, therefore, clear that even when adjudication has been kept time bound, the authority has to adhere to the principles of natural justice in conduct of all its proceedings and if for some reason, it cannot follow the same then the cogent reasons must come from the order it passes. The law of natural justice depends on the facts of each case, it still has certain important limbs like relied upon documents and document for effective defence to be provided as also hearing to be provided along with cross-examination to be afforded in suitable situations, where defence cannot be effective. One who hears should decide. One should not be a judge in his own case. The order passed should be well reasoned, etc.

Staff of Adjudicating Authorities (Section 7) -

(i) The Central Government shall provide each Adjudicating Authority with such officers and employees as that Government may think fit.

(ii) The officers and employees of the Adjudicating Authority shall discharge their functions under the general superintendence of the Chairperson of the Adjudicating Authority.

(iii) The salaries and allowances and other conditions of service of the officers and employees of the Adjudicating Authority shall be such as may be prescribed.

Chairperson to be the administrative in-charge of staff of Adjudicating
Authority

The Central Government shall provide each Adjudicating Authority such contingent of staff as Government may think fit for discharge of the function. However, such staff shall function under the superintendence of the Chairperson of the Adjudicating Authority.

Adjudication (Section 8 ) -

(i) On receipt of a complaint under sub-section (5) of Section 5, or applications made under sub-section (4) of Section 17 or under sub-section (10) of Section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of Section 5, or, seized or frozen under Section 17 or Section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government.

(ii) Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person.

(iii) Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

(iv) The Adjudicating Authority shall, after -

(a) considering the reply, if any, to the notice issued under sub- section (1);

(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and

(c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering : Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.

(v) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of Section 5 or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, such attachment or retention of the seized property or record shall -

(a) continue during the pendency, investigation for a period not exceeding three hundred and sixty five days (by virtue of amendment through Finance Act, 2019 from earlier 90 days w.e.f. 20-3-2019) of the proceedings relating to any offence under this Act before a Court or under the corresponding law of any other country before the competent Court of criminal jurisdiction outside India, as the case may be; and

(b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2A) of Section 60 by the Special Court.

Explanation — For the purposes of computing the period of three hundred and sixty five days under clause (a), the period during which the investigation is stayed by any Court under any law for the time being in force shall be excluded.

(vi) Where the provisional order of attachment made under sub-section (1) of Section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the attached property under Section 5 or frozen under sub-section (1A) of Section 17, in such manner as may be prescribed.

(vii) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money–laundering shall stand confiscated to the Central Government.

(viii) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.

(ix) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of Section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money- laundering after having regard to the material before it.

(x) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of money laundering.

(xi) However, the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of Money Laundering.

(xii) Again, the Special Court may, if thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed.

Adjudicating Authority to act on his own ‘reason to believe’ that must be recorded in writing about an offence having been committed :- On receipt of a complaint, the Adjudicating Authority, if it has a reason to believe that any person has committed an offence or is in possession of proceeds of crime, can proceed to confirm attachment or retention. Needless to say that such reason to believe has to be in writing and part of the records. The authority may serve notice of not less than 30 days to such person asking of his income, earning or assets by which he has acquired the attached property and to show cause such person that why such property may not be declared under Money Laundering and be confiscated. It is also proposed that where the attached property is held by person on behalf of other person or the property is owned jointly by many persons, then a copy of notice shall also be served to all other such persons. The adjudicating authority after considering the reply shall issue notice for hearing to the person or the director or any officer authorized taking all the relevant documents placed on record by him and shall issue order after finding out whether any property written in notice are involved in Money Laundering. Further property claimed by any other person to whom the notice has not been issued then, such person will also get an opportunity to be heard. The adjudicating authority shall decide after considering the reply and relevant documents as to whether property is involved in money laundering or not and by passing the order, the authority shall confirm the attachment or retention of property. Thereafter, the attachment or retention of record shall continue even during the course of investigation for not more than 365 days (excluding the period of any stay by any Court). Further, the Director or any other officer can take the possession of the property only when the provisional orders have been confirmed by the Adjudicating Authority for attachment. Therefore, the dispossession process succeeds confirmation of retention, attachment etc. by the adjudicating authority. If the Special Court during the course of trial finds that no offence of money laundering has taken place, then the attachment of property shall cease to have effects, otherwise on commission of offence of money laundering having been found, confiscation of attached assets can be proceeded against.

Vesting of property in Central Government (Section 9) -

(i) Where an order of confiscation has been made under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2A) of Section 20 in respect of any property of a person, all the rights and title in such property shall vest absolutely in the Central Government free from all encumbrances.

(ii) However the Special Court where the Special Court or the Adjudicating Authority, as the case may be, after giving an opportunity of being heard to any other person interested in the property attached under this Chapter or seized or frozen under Chapter V, is of the opinion that any encumbrance on the property or lease-hold interest has been created with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrances or lease-hold interest to be void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrances or lease-hold interest : Provided further that nothing in this section shall operate to discharge any person from any liability in respect of such encumbrances which may be enforced against such person by a suit for damages.

Despite attachment, property to vest in Central Government only on confiscation being ordered by Special Court or Adjudicating Authority :

It is to be noted that earlier the power to declare any encumbrance or lease-hold interest in any seized property was vested only in the Adjudicating Authority, but now with the Special Court having been given powers under Section 8(5) to confiscate a property, the power to declare encumbrance or lease hold interest void has equally been vested in the Special Court or Adjudicating Authority. However, such encumbrance or leasehold interest can only be declared void if it is created with a view to defeat the provisions of the Chapter.

Management of properties confiscated under this Chapter (Section 10) -

(i) The Central Government may, by order published in the Official Gazette, appoint as many of its officers (not below the rank of a Joint Secretary to the Government of India) as it thinks fit, to perform the functions of an Administrator.

(ii) The Administrator appointed shall receive and manage the property in relation to which an order has been made in such manner and subject to such conditions as may be prescribed.

(iii) The Administrator shall also take such measures, as the Central Government may direct, to dispose of the property which is vested in the Central Government under Section 9.

Central Government empowered to appoint officers to manage confiscated properties. Such officers not to be below the rank of Joint Secretary to Government of India. This Section empowers Central Government to appoint officers not below the rank of Joint Secretary to Government of India to perform the function of an Administrator in respect of properties confiscated under this Chapter. The Administrator so appointed shall manage such properties in the prescribed manner and shall also be responsible for disposing of the properties which are vested in Central Government consequent upon confiscation order passed under Section 9. In this regard it is pertinent to note that such Administrators take over properties and discharge their function only after the same have been confiscated.

Power regarding summons, production of documents and evidence, etc.
(Section 11) -

(i) The Adjudicating Authority shall, for the purposes of this Act, have the same powers as are vested in a civil Court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely :-

(a) discovery and inspection,

(b) enforcing the attendance of any person, including any officer of a banking company or a financial institution or a company, and examining him on oath,

(d) receiving evidence on affidavits,

(e) issuing commissions for examination of witnesses and documents, and

(f) any other matter which may be prescribed.

(ii) All the persons so summoned shall be bound to attend in person or through authorised agents, as the Adjudicating Authority may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.

(iii) Every proceeding under this section shall be deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code (45 of 1860).

Wide powers vested in Adjudicating Authority to summon person or document for fact finding at its own level : Powers to summon persons or documents of the Adjudicating Authority are similar under Section 11 to those provided under Civil Procedure Code, 1908 and can be used for the following purposes :

(a) discovery and inspection,

(b) enforcing the attendance of any person, including any officer of a banking company or a financial institution or a company, and examining him on oath,

(d) receiving evidence on affidavits,

(e) issuing commissions for examination of witnesses and documents, and

(f) any other matter which may be prescribed.

The persons summoned can attend proceedings in person or through an authorized representative. From the wide powers found in the Act, it is clear that Adjudicating Authority for its own purposes can do the fact finding, though in most cases it has not done so due to time bound nature of the proceedings. In fact, the brunt of time bound proceedings in adjudication is borne by the appellate authority where matters lingers on for years as the ground work is hastily done by the adjudicating authority. This trend needs to be reversed and corrected urgently by Legislature, as defendants hardly get time to explain assets and come out with effective defence including conducting cross-examination. There has been hardly any request considered by the adjudicating authority for cross- examination even in high profile money-laundering matters.

Prevention of Money Laundering Act, 2002- The Curtain raiser ( EXCISE LAW TIMES 1st. AUGUST 2019)

Prevention of Money Laundering Act, 2002- The Curtain raiser

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

(Editorial: Beginning with this issue a series of articles shall be published with commentary from the author on various provisions of PMLA, 2002 to acquaint readers with the provisions in a lucid manner)

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Introduction: Prevention of Money Laundering is one of the biggest challenges today before the comity of nations, linked as it is with the need to curb and combat terrorism, drug menace and other criminal activities doing disservice to the society, has also incidentally turned out to be one of the most vicious and maligned tool of political vendetta and show of power. Initially, conceived to cover narcotics and then terrorism, which were the two main concerns for USA, it went on to cover more and more offences in the ambit of proceeds of crime. Now, the international cooperation under aegis of Financial Action Task Force (FATF) is aiming it to become a standalone offence and all steps are being taken by various countries including India in that direction. India has committed to achieve this by 2020. But the question that bothers one’s mind is whether the stringent legislations have actually served their purpose? Has terrorist activity and funding actually gone down and have such activities been curbed? The answer is clearly no, as terrorist outfits are mushrooming worldwide and herein lies, the collective failure of international effort. One main cause of it is that sometime laundering as well as terrorist funding itself is state sponsored and when same rogue states become members of the treaties and conventions, there is ultimately little to achieve, except to place them in grey list. Pakistan is an example of this situation. It was the incident of 9/11, which triggered the need of effectively curbing terrorist funding through international cooperation and India consequently adopted the legislation in line with international thinking in 2002 itself (to become effective from 17/1/2013), as it too was facing the heat of terrorist activities for decades, both in its Northern and Eastern regions. But most of it was state sponsored. When any member state offers tacit support or explicit funding to such organizations or individuals and allows its soil to be used freely and allows its financial system to be exploited for providing financial muscle to these outfits against other member state of the Financial Action Task Force (FATF), there is bound to be failure around. The point to emphasize is that act of money laundering should not be confined to individuals only, but even some State abets the same, then it should also be brought to book through international sanctions. But none of this has actually happened. So the broad picture today is that U.S. has avenged its attack by dismembering Al-Qaida and Osama Bin laden and therefore is hardly bothered. Countries like India, are being asked to do more and more on black money instead of on terror funding, which is matter of concern to it and any investigation brings human rights issues or non compliance of summons or fugitives getting shelter in countries like U. K., Dubai etc. India and U.S. with great difficulty finally succeeded to rein in terrorist Masood Azhar in May,2019 , involved in so many attacks as international terrorist, despite substantial majority of nations being with them, but only China opposing it in Security Council because of its vested interest in Pakistan shows how defiance rather than compliance rules. The real test of international efforts on money laundering lies ahead in the treatment that some of the preachers countries of such legislations show towards fugitives from law, from countries like India.

“Money” and “ Laundering”: The concepts: To understand the concept of Money laundering , we need to understand the concept of Money first. Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. Money is generally considered to have the following four main functions, which are summed up in a rhyme found in older economics textbooks: "Money is a matter of functions four, a medium, a measure, a standard, a store."

Although the word “laundering” is generally used for cleaning dirty clothes, the term Money Laundering refers to the conversion or “Laundering” of money which is illegally obtained, in order to make it appear to originate from a legitimate source. Thus it is a process by which proceeds from illegal activities are disguised in order to conceal their illicit origin. Money Laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drug / arms trafficking, terrorism and extortion.

Money Laundering: India’s commitments and efforts: Government of India is committed to tackle the menace of Money Laundering and has always been part of the global efforts in this direction. India is signatory to the following UN Conventions, which deal with Anti Money Laundering / Countering the Financing of Terrorism:

1. International Convention for the Suppression of the Financing of Terrorism (1999);

2. UN Convention against Transnational Organized Crime (2000); and

3. UN Convention against Corruption (2003)

A consequence of the political Declaration adopted by the special session of the United Nations General Assembly (UNGASS) held on 8th to 10th June 1998 (of which India is one of the signatories) calling upon member States to adopt Anti-Money Laundering Legislation & Programme, the Parliament has enacted a special law called the ‘Prevention of Money Laundering Act, 2002’ (PMLA 2002). This Act has been substantially amended, by way of enlarging its scope, in 2009 (w.e.f. 01.06.2009), by enactment of Prevention of Money Laundering (Amendment) Act, 2009. The Act was further amended by Prevention of Money-Laundering (Amendment) Act, 2012 w.e.f. 15-02-2013. Further amendments have been carried out in 2015 to bring undisclosed foreign assets held overseas with in the ambit of PMLA,2002 and to make money laundering a standalone offence and again in 2018 to redefine, interalia, the proceeds of crime.

SALIENT FEATURES OF THE PMLA,2002:

Offence of Money Laundering and its punishment( 3-10 Years of imprisonment for various offences)

An offence of money laundering is said to be committed when a person in any way deals with the proceeds of crime. The proceeds of the crime referred above include the normal crimes and the scheduled crimes. The prescribed punishment is 3-7 years rigorous imprisonment for an offence of money laundering with fine for offences in Part B and C. In case of an offence mentioned under Part A, imprisonment would extend up to 10 years.

(ii) Attachment, Adjudication and Confiscation( All actions time bound)

The confiscation of the property under the Act is dealt with in accordance with the chapter III of the said Act. An official not below the rank of Deputy Director can order attachment of proceeds of crime for a period of 180 days, after informing the Magistrate. Thereafter he will send a report containing material information relating to such attachment to the Adjudicating Authority. Section 8 details the procedure of adjudication. After the official forwards the report to the Adjudication Authority, this Authority should send a show cause notice to concerned person(s) within 30 days. After considering the response and all related information, the Authority can give finality to the order of attachment and make a confiscation order, which will thereafter be confirmed or rejected by the Special Court.

(iii)Obligations of Banking Companies, Financial Institutions and Intermediaries( Reporting of certain transactions with potential of money laundering)

The reporting entity is required to keep a record of all material information relating to money laundering and forward the same to the Director( FIU). Such information should be preserved for 5years. The functioning of the reporting entity will be supervised by the Director who can impose any monetary penalty or issue warning or order audit of accounts, if the entity violates its obligations. The Central Government, after consulting the Reserve Bank of India is authorised to specify rules relating to managing information by the reporting entity.

(iv) Enforcement, Adjudication and Appellate Paraphernalia( Separation of investigation and adjudication)

Adjudicating Authority - The Act empowers the Central Government to constitute an Adjudicating Authority having a Chairman and 2 members and define their scope of functioning and other terms of service. The Adjudicating Authority will operate through a Single or Division bench. The Authority has been given autonomous powers to regulate its adjudicating procedure.
Administrator - The property laundered will be taken care of i.e. managed after confiscation by an Administrator who will act in accordance with the instructions of the Central Government. There is already a proposal under discussion to outsource management of attached properties to any outside agency considering that more than Rs. 50,000 crores worth of assets are lying attached with Enforcement Directorate at present.
Appellate Tribunal - All appeals from an order made by the Adjudicating Authority will lie to an Appellate Tribunal constituted by the Central Government. It will consist of 2 members headed by a Chairman.36 An official can resign by sending his resignation to the Central Government thereby giving a 3 months’ notice. He can also be removed by an order made by the Central Government on the grounds of misbehaviour or incapacity.
Special Courts - the Central Government, after consulting the High Court is empowered to designate Court of Sessions as Special Courts. The Special courts can try all scheduled offences and that under section 4 and also offence under section 3, but after the authority requests in this behalf.
Authorities under the Act - There shall be the following classes of authorities for the purposes of this Act, namely:

(a) Director or Additional Director or Joint Director,

(b) Deputy Director,

(d) such other class of officers as may be appointed for the purposes of this Act.40

(vi) Summons, Searches and Seizures etc.- The enforcement troika of 3 S’s

The power of surveying and scrutinizing records kept at any place is conferred on the Adjudicating Authority. The Authority may ask any of its officials to carry on the search, collect all relevant information, place identification marks and thereafter send a report to it. The search of a person to be conducted is allowed if it is ordered by the Central Government. The authority authorized in this behalf cannot detain a person beyond 24 hours, must ensure the presence of 2 witnesses, prepare a list of things seized signed by the witnesses and forward the same to the Adjudicating Authority. A property confiscated or frozen under this Act can be retained for 180 days. This period can be extended by the Adjudicating Authority after being satisfied of the merits of the case. The Court or the Adjudicating Authority can subsequently also order the release of such property. There shall be a presumption of the ownership of property and records recovered from a person's possession. The burden of proof will be on the accused to prove that he isnot guilty of an offence under this Act. The offences under the Act are to be cognizable and non-bailable.

(Vi) Another special feature of the Act is the provision relating to providing and taking of international cooperation through courts for arrest, search , seizures, attachment and confiscations in relation to transaction shaving cross border implications. It is unique in many respects and represents the need of coordination and procedure for it between various member countries.

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BITS & BYTES JANUARY,2019 Published in RTT

Wishing all the readers of Revenue Transparency Times a VERY HAPPY AND PROSPERUS NEW YEAR, 2019. May the New Year 2019 again allow Indian Democracy to show its vibrancy to usher in changes/stability that may best serve the interest of this great nation. Let the best of experience in politics be retained while infusing best of fresh talent that the country has abundance of. Let the Institutions of Judiciary, Executive, Armyand Media work without any sense of fear and favour. Let the peace prevail and be so strong that elements of terror are won over. Ultimately, let this great nation emerge stronger by everyday in 2019 and be the pioneer of World’s Peace Efforts and restoration and growth of nature with its flourishing environment.

GST the Makeover:

All that can not be cured must be endured. It holds true of GST also which is now in the wake of forthcoming elections undergoing a radical makeover. The need to give respite to small tax payers and to reduce their compliance burden was always there. While some since the beginning of GST were vocal in its criticism specially relating to huge compliance burden. It causes on small taxpayers, there were others who were indulging in Government appeasement and trying to justify the nuisance which the GST had created for small taxpayers since inception the extent of computer literacy and about 30% even not knowing basic three r’s (reading, writing and arithmetic) was a factor which was never considered by the policy makers. The Law has initially made was outcome of deliberations between big Corporates and their Associations big accounting and Audit firms and select Bureaucrats who had to hurriedly do their job. One fall in elections and thing become quite apparent to the present regime as well as various state governments. A real reform has now begin with composition limit being raised to Rs.1.5 Crores, services being covered in the Composition Scheme, higher thresholds being considered as well as insurance schemes for small taxpayers being considered. All this along with reduced number of returns required to be filed alongwith their periodicity was really required. Even for the Government of the day nothing much is lost in case GST reform can be carried out in the remaining period of its tenure. Fortunately for it the opposition parties unlike Malaysia cannot be too vocal against GST as they had themselves pitched for it at some point of time or other. And also because most of the decisions in the Council’s meetings have been unanimous. While it can be denied the GST as a tax reform has always warranted for India its shape and contours need to be redesigned and re-oriented. Elections are a great leveller for any party having absurdity of thinking and one really hopes that by the time one or two more big elections happened. GST will be on path of becoming good and simple tax which despite claims it was not as unprecedented level of amendments in law and procedures, in last one and a half year have indicated.

CBI or Mini FBI Parliament:

You give too much power to any enforcement agency are in no time it becomes politicised or an autocratic institution. Same happened with Federal Bureau of Investigation which eventually the United States Legislature had to tamewith lot of efforts. The war between CBI has also exposed the same phenomenon. To any objective person Verma Vs Asthana because a battle around between congress and BJP, with each party using its clout to conduct its own media trial apart from judicial trial with all this clout. It too also exposes as how even the smaller political parties were trying to put their ow2n choice of officers in mid to top range of CBI. In this process, even the efforts of those who work their hearts out to keep the flag of CBI High, have also gone down the drain. Not only the top brass of CBI has been shamed in the process but also the credibility of CBI has got eroded where by some of the State Governments ruled by opposition have also withdrawn their mandate to CBI to do any investigation in their State limits. Such scenario will make Central Government dependent upon NIA or Enforcement Directorate for specialized investigation in State domain of various kind of offences. There too the vesting of too much power can have its own parrels. Some of the cases recently booked against some of the officers of ED have already raised this alarm. The need of the hour therefore is to have a lean and thin agency, whose officers are well paid of and are above corruption or political influence with the top man being a jurist or a law man of repute.

BITS & BYTES FEBRUARY,2019

Interim Budget 2019

In one our forty five minutes that Mr. Piyush Goyal rose to deliver his 2019 Interim Budget Speech, a valiant attempt was made to change the course of electoral history for Modi Government for forthcoming General Elections. Not only the speech was a compendium of how to present successes and setbacks of BJP rule with positivity. But it also was a synopsis for all the speeches to be made by the leaders of BJP during Elections -2019. And to top it all, there a serious attempt to woo back the most vocal and somewhat annoyed middle class voters. All in all, it was an opportunity well availed and seized by Mr. Piyush Goyal in the absence of recuperating Mr. Arun Jaitley. The most cheered initiative was to raise income tax rebate to Rs.5,00,000 from present Rs.3,50,000/-

Comparisons at times can be interesting, in 2014 Interim Budget, Mr. Chidambaram presented his Budget Speech for forty odd minutes . He gave Tax concessions on Excise side for motor vehicles and machinery, did not Change Income Tax and tinkered with priority Sector Allocations and provided Rs.65,000/- crore for fuel subsidy, Rs.11,200 crore for Capital Infusion in PSBs and promised waiver of education loans and One Rank One Pension, to strengthen subsidies through Aadhar, creation of seven new Airports and one million jobs. At the end of it, it was still an opportunity lost as the electoral battle Of General Election 2014 eventually proved. A much greater effort this time has been placed by the BJP Government to seize the opportunity presented by last Budget Speech, prior to elections. The rhetoric has certainly been better. For those historically inclined, exactly 100 years back, Indian Budget for the year 1919-1920 which was the first Budget after the World war ended in October, 1918 also saw a bold initiative of Imperial Government through doubling up the Income Tax exemption limit from Rs.1000 to Rs.2000. This was done as Indian Economy after seeing a sharp rise in Manufacturing Sector and Exports during the war efforts of Indo-British Forces, nosedived once the war got over and was in the grip of inflation of essential items. The measure to double the Income Tax Limit resulted in estimated loss of assesses of 2,37,000 out of total number of assesses of 3,80,000 which was roughly two-third of the total number of tax filers. But the Government of that day took the pragmatic step to relieve low tax paying assesses from compliance burden and to get rid of Summary Assessment which was taking lot of effort for the Department for this class of tax payers. British Indian Government of that time, while moving the measure expressed sympathy with the small employee and the small traders who were hit hard by the increase in prices and had to bear the brunt of high cost of living. Contrast this, with the measure in this year Budget, where Government haschosen to increase the rebate limit to provide select benefit of Rs.7,500 extra to lowest strata of income only which earns up to Rs.5 lakhs. Going by the Cannons of Taxation, while the measure successfully stands scrutinyof rationality, as it gives lesser relief to the persons in higher income brackets, the obsession to keep number of tax return filers on the higher side becomes too obvious. Love for statistics, it appears has been allowed to overwhelm tax simplification and reform. What great purpose will be served to require all those within the tax bracket of Rs.2,50,000 to Rs.5,00,000/- to file returns in an economy where digitalization is stated to be increasing and information returns, in any case provide enormous feedback and intelligence inputs becomes hard to appreciate. Perhaps the requirement of filing income tax returns could have been confined to persons with gross income of Rs.4,50,000/- and above only. This could have reduced compliance burden on the bracket of Rs.2, 50,000 to Rs.4, 50,000/- gross income and would have come as a big respite.

On various specific measures in the budget, while on the GST, the speech only highlighted whatever decisions were already taken by the GST Council and could not have been taken by the Finance Minister and his office alone. Custom was by and large left untouched barring Single window Concept for manufacture in-bond. It was Direct Taxes which saw the major changes by which Government has attempted to win over the voters. The major steps in this direction are the following:

Tax rebate limit under Section 87A increased from Rs.3.5 lakhs to Rs.5 lakhs for tax payers, thereby increasing maximum limit of Rs.12,500. Revenue impact to be Rs.18,000 crore for this measure.
No tax on notional rent for second self-occupied house under “Income from house property” that is up to two self-occupied house properties , even if lying vacant for self-occupied .
TDS limit under Section 194A hiked from Rs.10,000 to Rs.40,000 on Post Office Savings and Bank Deposits.
Standard Deduction for the Salaried Class increased from Rs.40,000 to Rs.50,000.
Section 54 exemption now available on the second house property, provided the capital gains is less than or equal to Rs. 2 Crores to be availed only once in a lifetime.

Similarly, for other sections of society, Finance Minister through Direct Taxes has sought to provide relief .For business, MSME and Real Estates Sectors following Direct Tax proposals have been made:

Benefits under Section 80-1BA to be extended for one more year-to the housing projects approvedtill 31^st March,2020.
Period of exemption from levy of Tax on notional rent, on unsold inventories is extended from one year to two years, starting from the end of the year in which the project is completed.
SMEs with earning below Rs.5 Crore will soon file GST returns once in every 3 months. .
MSMEs and Traders who are GST Registered SME Units will get 2% interest rebate on an incremental loan of Rs.1 crore.
The requirement of sourcing from SMEs by Government enterprises has been increased by 25%with 3% reserved for Women-owned SMEs.
A scheme of “Business loan up to Rs.1 crore in 59 minutes” will be implemented.
Limit to deduct TDS on rent under Section 1941 has been increased from Rs.1,80,000 to Rs.2, 40,000.

Finance Minister too has tinkered with various allocations. For MGNREGA Rs. 60,000 crores allocation has been made and similarly higher allocations for Women empowerment for UjjwalaYojna, PM Mudra Yojna and through 26weeks Maternity Leave provision has been made. For Banking Sector, he has offered 2.6 lakh crores of recapitalization of PSU Banks. In Pension Sector, he has offered Mega Pension Yojna for 10 crore workers in the Unorganized Sector whereby through contribution of Rs.55 to 100 per month, workers shall be entitled to Rs.3,000 pension per month post 60. All this by the present Government with the single point wish list of getting a majority verdict in forthcoming elections.

Will the Janta oblige? It will become clear in matter of few months.

Indian Policing and Intelligence Network- Is it a case of too many cooks spoil the broth?

In the aftermath of Pulwama attack, eyebrows are being raised about the failure of Intelligence Agencies. If in the hotbed of terrorism, none of the intelligence or Policing Agencies could get the wink of what was cooking up, then there can be tittle doubt that either the deployment or functioning of intelligence agencies is flawed. Since independence, India started having multiplicity of forces and intelligence outfits. Apart from strong Indian Army, creation of new forces were justified, ostensibly giving the reason speciality of tasks involved or specialised terrain being given to them. There was always another lesser talked reason, of a lurking fear in the minds of political establishments, of a strong Indian Army likely to take over the reins of power from the democratically elected heads of Government. This was perhaps fuelled by the experiments with democracy of neighbouring nation of Pakistan and later on Bangladesh, both of whom were part of erstwhile British India. As a result, India as we see today has multiple Military and Para Military Organisations along with number of Intelligence networks, mostly working at a logger heads with each other. And wasting their limited resources, in keeping tab on the same individuals and groups, though from different prospective and working at cross purposes. It may not be out of place to given my own experience to highlight and illustrate the point. In 1991, at Indira Gandhi International Airport, Immigration and Customs were having their own computer networks based on their own dossiers and database. Both used to check passengers on arrival and departure by feeding details, this resulted in delays in clearance of flight and at times pressure situations leading to random checking by both agencies. To eliminate delays, database of both agencies were combined with either having acility to see their own alerts on the screen. Only immigration was feeding the details and time for passenger clearance halved and detections became better. Therefore, synergy and merger of intelligence agencies has always a useful purpose to serve.

Historically in India, while Indian Army, Intelligence Bureau, Central Reserve Police Force and Assam Rifles pre-existed independence. After independence, Para Military Forces were created chronologically as follows, Indian Tibbatian Border Police (ITBP) in 1962 during the course of Indo-China War for hostile terrain in Himalayan Region. This was followed by Sashtra Seema Bal (SSB) in 1963, Border Security Force (BSF), in 1965 during the course of Indo-Pak War. Then Central Industrial Security Force (CISF) was created in 1969, Indian Coast Guard in 1978 and National Security Guard (NSG) in 1984. Together the number of armed forces including Army and Para Military Forces comes to around 1.3 Million. As far as Intelligence Agencies are concerned, Intelligence Bureau (IB) was the oldest, formed in 1887 apart from that Military Intelligence also existed prior to independence. Criminal Investigation Department (CID) for various States were created during the British time. Since independence, Central Bureau of Investigation (CBI) was created in 1963. Border Security Force (BSF) has its own intelligence set up called G-Branch. Other agencies entrusted with intelligence work include Research and Analysis Wing which is an agency formed in 1968 for external intelligence and Central Economic Intelligence Bureau (CEIB), which first formed in 1985, as an apex agency for economic offence related intelligence. Other premier intelligence and investigating agency include Directorate General of Revenue Intelligence (DGCEI) which deals with anti- Smuggling, Narcotics, other Border offences and Custom Appraisement cases, Directorate General of GST Intelligence (DGGSTI) which is an Apex Agency now dealing with GST Offences and was earlier dealing with Central Excise and Service Tax Offences. We also have Narcotics Control Bureau (NCB) which deals with Narcotics related offences in India and also does liaison with International Agencies. For Income Tax and Black Money related offences, the Apex Agency is Directorate General of Investigation which comes under Income Tax Department. Directorate of Enforcement which was created in 1956 works directly under Department of Revenue and deals with Foreign Exchange & Management Act, 1999 (FEMA) offences as well as with the offences under Prevention of Money Laundering Act, 2002. Since, 2001 with the spurt in terrorist activities, various organisations have been created to deal with terrorism related offences. These include National Technical Research Organisation (NTRO) created in 2004 which works under National Security Advisor under Prime Minister’s Office. In 2009, National Investigation Agency (NIA) was created to deal with terrorism and other serious offences, which reports to Ministry of Home Affairs. Similarly, in the aftermath of Mumbai attacks, National Intelligence Grid (NIG) was created to enable quick mobilisation of forces in the event of any sudden attack. At the State level most of the States have Economic Offences Wing under Police Department alongwith CID. Both Central and State Intelligence Agencies have also been created Cyber cells to deal with Cyber Crimes. As is apparent from above, there is duplicity in the functioning of various Agencies and Para Military Forces. BSF, ITBP and Sashtra Seema Bal can easily be merged into one unified command saving unnecessary administrative expenses. For all the internal security need a unified Central Force can be considered. Indian Coast Guard can be contemplated for merger either into Indian Navy or with Indian Customs as was the situation prior to its creation. As far as Intelligence Agencies are concerned, Intelligence Bureau can also have a Central Economic Intelligence Wing. Most of the work related to elections, which earlier was being undertaken by it for its masters, is now better done by psephologists or own intelligence networks of political parties. While all other Agencies under Ministry of Revenue can be merged into one outfit having different Wings related to GST, Income Tax and Black Money, FEMA and Money Laundering and Customs and Narcotics Offences. Even Economic Offences Wing of CBI can also be merged into this outfit so that CBI can focus on serious criminal IPC offences dealing with murders, rapes and such heinous crimes against the State. This will enable better Intelligence gathering and sharing. Also an Apex Agency can be created for terrorism related offences which can have representation from State Cadres on Deputation and from Central Forces with both intelligence and investigation powers. It is also important to provide an Intelligence arm to every deployed unit to Armed Forces at the field level as the Centralised Intelligence Setup can only have limited role to play as most of them rely upon electronic surveillance and overt intelligence. Greater access to social media is under mining importance of covert intelligence at the field levels. Various Ministries or Departments are generally loathe to provide greater funding to field units and most of them are eaten by Heaquarters only. This lack of funding and manpower resources to field units results in Pulwama like situation.

A re-structuring and re-inventing of such setups is therefore the need of the hour so that the administrative cost can be saved at the apex level by merger of agencies and more funds and resources can be made available for the field units who are the cutting edge levels of covert intelligence. And also bear the brunt for lack of it.

Bits & Bytes MARCH,2019

Elections 2019: The season of promises: Iflast election season, it was Rs.15 lakhs in each bank account from black money returned from by BJP. Though later dubbed as `Chunavi jumla’ by its own leaders. This year it has been promise of Rs.12,000/- per men sum pension for 25 crores of poor population by Rahul Gandhi. Not realizing that the outlay will be Rs.18,00,000 crores. For a Nation struggling with its GST revenue numbers, this translates into more than twice the Central share of GST. Therefore, practically a government in order to fulfill this kind of promise needs equivalent of two GST taxes to be generated, if it does not want to increase deficit financing and raise inflation. Is this much of taxing of public, possible? It is obviously not. But then ‘Jumlebaazi’ in a Democracy and that too during elections is no one’s exclusive preserve. The greater the desperation to win an election, greater is the ‘Jumlebaazi and then it is the other side which engages it too, So, finally it becomes a ‘Qwaali’ of ‘Jumlebaazi’

Prospects for General Election 2019:

Without getting into very detailed analysis as three political groups are in the fray and Congress is by now known to be out of Maha-Gathbandhan. The broad based prediction can be drawn from the Smvatsar which begins from 6^th April, 2019. Sambatsar 2076 is known in the ancient Vaidik Astrological Texts, known as “Pramadi” the ruling planet in the Planetary Cabinet of the year will be the Saturn as the King (Raja) and Sun as the Mantri. Now this situation, in this year is exactly opposi8te to what is normally provided in the Vadic Astrology of assigning attributes to the planets. While Sun is considered as the King in the Planetary Cabinet, Saturn represents masses or sub-servient. Therefore, situation in this Sambatsar is exactly opposite in India. It is the will of the masses that will dominate the will of the King or Ruling Class. Simply stating, it is not uncommon in an Election year, where those vying for honours for becoming Parliamentarians have to go with begging bowls for votes to the public. But this process is likely to end by May, 2019. However, Sambatsar lasts for almost 12 months. Does not it indicate that even when ruler is given mandate to rule, he will still be subjected to the dominance of many others, even if not by masses directly , then at least by those who are elected by them. This is possible only when the leading party that puts the Prime Minister in Chair needs a Coalition Support. Therefore, indications are that there will b e a Coalition Government. Is not only will the ruling Prime Minister need support of various others, but may also have to act in tandem with their advice. Compare this with Sambatsara 2071 which was known as ‘Palwang’ and in which the presiding planets of the cabinet for the Gregorian Calender 2014-15, where Moon as the King (Raja) and Moon as the Council (Mantri). Since Moon is considered to be a Royal Planet in the Vaidik Planetary Cabinet, even though assign the role of a queen, it brought a thumping majority in may years to the ruler and the ruling elite. The year 2014-15 itself was a year of great possibilities and some positive experimentation. If we still go back to the Sambatsara 2065, which was ruling in the Gregorian Year 2009-10, the Sambatsar was known as ‘Pallava’ which is generally known to be troublesome for both, a ruling class as well as public. The year Pallava had Moon as its King (Raja) and Sun as the Minister (Mantri). Now this is a unique role reversal, whereas the queen rules and the King advices. At the relevant time though Congress secured better numbers, it had in place the ruler “Dr. Man Mohan Singh” who was dominated by the acting actual King Mrs. Sonia Gandhi” as Advisor wielding effective power. If we go still back Sambatsara 2060 which was ruling in the Election Year 2004-05, Sun was the ruling planet as the King with Mars as the Minister (Mantri). The year saw a new ruler been put in place whereby Mars provided a conflicting Council or a conflict of views within the Ministry. This was the year when UPA came into power and the ruling Prime Minister Dr. Manmohan Singh” had to balance advice not only of Sonia Gandhi but also of CPM and other Political Groups.

From the above analysis one can make out that opening Sambatsara in the Election year provides a broad indication as to what is going to transpire in India, as far as the Political scenario is concerned. However, the period between two Elections is 5 years and each Sambatsar presents its own possibilities depending upon the ruling Cabinet of each year.

If the analysis as above is correct, this year the will and selection of the masses is bound to surprise the ruling elite.

So causes Bramha to say.

BITS & BYTES, April,2019

century of a massacre that changed the course of Indian

History—Jallianwala Bagh tragedy, 13

TH

April, 1919.

Of the many epoch making moments during the course of Indian

Freedom Struggle , Jallianwala Bagh Massacre by Reginald

Edward Harry Dyer will rank as one of the top ones that shocked

and awakened Indian Public against the British misrule. On a

meeting held to celebrate Baisakhi by a peaceful crowd and

Section144 was enforced, Edward Dyer marched his troops to the

Jallianwala Bagh Compound and (red hundreds of rounds on the

unarmed and innocent members of the public. Approximately one

thousand were killed and more than 1,500 wounded, some of

them including women and children trying to climb the compound

wall to escape. Many fell in the well and died during their

attempted escapade. The well was found full of bodies up to the
surface when the guns became silent. Shamelessly, General O`

Dyer, who had ordered armed deployment, before Hunter

Commission appointed to enquire about the incident stated that

he was not ashamed and may even repeat such incident if

occasion arose again. The world has not witnessed another such

ruthless show of power by the rulers against its own unarmed

people anywhere in the world without there being any apparent

provocation. The incident mobilized the people of India and

exposed the tyranny of the British Rulers. Shaheed Udham Singh

just a lad at the time of incident avenged the loss of his own

through elimination of Michael O` Dyer. It also changed the

course of History and successive periodic agitations made British

eventually leave India in 1947. It is almost been hundred years

but not even a single unconditional apology has been coming

forth from the British Rulers or Monarchy. There are many who

feel that it is the curse of innocent children, women and other

persons who died in the incident that has led British Empire,

disintegrate. A mighty, but arrogant regime that used to boast

that Sun never sets in British Empire, has eventually seen its own

fall over the last hundred years. It has shrunken to be of the size

only of Indian State of Uttar Pradesh. Its economy is in tatters

and directionless. It lives only in its past glory and makes its

Monarch, as the only brand worth selling to the tourists. The

apologies from the unrepentant Governments continue to elude

India. And so does the curse of the Jallianwala Bagh continue to

trouble India’s former rulers. Such is the divine Justice of Nature.
Election time, sting operation time:

While normal time condemnation or sting operations draw

aggressive reaction or even suits of defamation by the persons

a:ected, elections are the time when politicians of all hue,

indulge in mudslinging and expose the true character of our

politicians. The bouts and duals during elections also expose the

true colors of our politicians to their hero worshippers. The

exposures this time have led to skewed assets or incomes, fake

degrees, huge assets found in raids, liquor or cash caught in

transit. But interesting part has been the massive usage of black

money by all in the elections. While all successive Governments

make tall claims of curbing corruption and black money, the fact

is that it all remains a lip service, as the political parties are

themselves the biggest bene(ciaries of black money and

corruption funds during elections. The Election Commission, is

given a lollipop of total expenditure on elections being shown to

be few hundreds of crores, and the expenditure observers hardly

been able to catch anyone spending extra. The actual

expenditure runs in tens of thousands or even more. The two

sting operations which have shaken the people of India just

before the Election 2019 relate to sting operation of TV9-

BharatVarsh of (fteen MPs of all political parties who admitted to

spending Rs.10 to 15 crore of their own. They also revealed as to

how tens of crores were being spent on the big time rallies of

their national leaders. There were admissions galore to the usage

of Ambulances for ferrying cash during code of conduct period or
that there can be hardly any Member of Parliament who does not

use black money. All this was put forth shamelessly. While some

of those exposed have lost their tickets, others have gone

unpunished. Political parties , however are unshaken as perhaps

all are involved. The second expose was by made Mr. Kapil Sibbal

as spokesperson of Congress against stalwarts of BJP for misusing

demonetization and generating premium on preprinted new

currency notes and handling the same through their conduits for

conversion in lieu of old demonetized notes. If allegations of Mr.

Kapil Sibal are not true, it is expected that BJP will take suitable

legal action for defamation as it has been doing against some

other leaders in opposition. A country cannot think of eradicating

corruption if quantum of such huge black money is used in its

electoral process. It is time that all political parties sit together

and chalk out a pragmatic strategy to provide for State funding of

elections and holding elections at one go. This will also reduce

dependence of political masters on business houses and

consequent. If same is delayed further, the Democracy itself will

become a big burden on this nation and its elected

representatives will continue to live in hypocrisy and in a state of

being pocketed by corporate.

BUDGET 2019-20 Will the budget end Bahi Khata relating to Excise and Service Tax litigation of the tax payers? July,2019 (Tax India on line)

Much media hype was built around the maiden budget of Ms. Nirmala Sitharaman, Finance Minister being the first from a woman in many decades. Newspapers were full of their wish list and speculation about what all was about to happen in their tendency of one upmanship and so were the T.V. Channels in their quest for eye balls. Budget proposal were asked in all sincerity and thereafter speculation started about inheritance tax, GST frauds under PMLA and many others. None of these fructified except the cash withdrawal tax which was pitched at one crore in the budget, instead of oft sounded Rs.10 lakhs in the pink media. Little had the media realized that most of the tax proposals had been tackled in interim budget of 2019 and that there was little room available for the FM for manoeuvring at this stage when almost one third of the fiscal had already run its course. The lack of knowledge about the nitty gritty of the budget was too self evident in speculating media. The budget therefore was given thumbs down by certain segments in ignorance, even when it did not deserve to. The main fiscal provision worth applauding in the tax proposals is amnesty scheme for ending litigation in for central excise and service tax, which is so liberal that everyone will be tempted to settle his litigation at the earliest. Really a bold step to reduce burden on existing business people and step forward to allow them to reduce tax. This sure is to my mind the most outstanding provision in the tax proposals. But incidentally it did not receive much space in an otherwise lengthy speech of almost two hours fifteen minutes. Overall, Madam FM did a good job of her maiden budget and therefore in the convention of Mr. Chidamabaram being called Chidu, Dr. Manmmohan Singh being called Manni, earns the pet and affection name of `Seethe’. Wishing her many more budget presentation in the august house.

Cheer Factors:

Custom:

No custom duty on certain parts of Electrical vehicles
Capital goods for manufacturing electric items including cell phone cameras, phone chargers and adapters, set top boxes, lithium ion cell, display modules will have no customs duties on them.
No Custom Duty on import of Defense Equipment not manufactured in India for next five years.
Custom Duty reduced on certain raw-materials like inputs for Artificial Kidney, Capital Goods required for manufacture of specified electronic goods etc.
Export duty charges on tanned leather has been removed. Hides, skins, leather, tanned and untanned of all sorts has been reduced from 60% to 40%.
The government is removing customs duties from defense equipment and its parts imported by the Ministry of Defence or Armed Forces.
The same as above goes for medical devices - “raw material, parts or accessories for use manufacture of artificial kidneys, disposable sterilized dialyzer and micro-barrier of artificial kidney”. While these carried the applicable rate of customs duties, it has now been reduced to none.
The duty on inputs for manufacturing CRGO steel, and amorphous alloy ribbon, have been halved to 2.5% and 5% respectively.
Export duty on EI tanned leather and Hides, skins and leathers, tanned and untanned, all sorts. Reduced form 15% to Nil.
Designated persons other than persons in charge of a vessel or a ship or vehicle also allowed to file departure manifest.
Redemption fine in lieu of confiscation can also be waived in deemed closure cases.
BCD on Uranium and other concentrates being made `Nil” BCD also being made ` nil` for all goods of TH2844 for nuclear power generation.
Duty on wool fiber and wool tops reduced form 5% to 2.5%
Parts of telephone handsets exempted
Section 9C of the Customs Tariff Act,75 being amended to provide for certain appeals regarding safeguard levy and investigation to be heard by CESTAT.

Income Tax:

PAN and Adhaar interchangeable and allow those who do not have PAN to file income tax returns. In addition to that, those who do not have PAN can simply quote their Aadhar Number instead of PAN.
Corporate tax with turnover of up to Rs.400 crore slashed to 25 per cent from a current rate of 30 per cent.
Additional Rs.1.5 lakh tax relief on home loan for purchase of a house up to Rs.45 lakh.
Tax deduction interest on loans taken of upto Rs.1.50 lakhs /per fiscal on Electric vehicles.
Proposed easing angel tax for startups MSMEs.
Angel Tax: Will not require scrutiny from I-T department for startup.
Capital gain exemption from sale of residential house or investment in startups extended till Financial Year 2021.
STT restricted only to the difference between settlement and strike price in case of exercise of options.
TDS on insurance to be now 5 percent on net income instead of 1% on gross receipt. Provision to be applicable from 1.9.2019.

Others:

Amnesty schemefor Excise and Service Tax litigants. Even EOUs/ SEZ units facing Central Excise demand can benefit.

It will be of reader’s interest to reproduce provisions relating to the scheme, for ease of reference:

(CHAPTER V of Finance Bill, 2019

Clause 119. (1) This Scheme shall be called the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (hereafter in this Chapter referred to as the “Scheme”). (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

120. In this Scheme, unless the context otherwise requires,— (a ) “amount declared” means the amount declared by the declarant under section 124; (b) “amount estimated” means the amount estimated by the designated committee under section 126; (c) “amount in arrears” means the amount of duty which is recoverable as arrears of duty under the indirect tax enactment, on account of— (i) no appeal having been filed by the declarant against an order or an order in appeal before expiry of the period of time for filing appeal; or (ii) an order in appeal relating to the declarant attaining finality; or (iii) the declarant having filed a return under the indirect tax enactment on or before the 30th day of June, 2019, wherein he has admitted a tax liability but not paid it; (d) “amount of duty “ means the amount of central excise duty, the service tax and the cess payable under the indirect tax enactment; (e) “amount payable” means the final amount payable by the declarant as determined by the designated committee and as indicated in the statement issued by it, in order to be eligible for the benefits under this Scheme and shall be calculated as the amount of tax dues less the tax relief; (f ) “appellate forum” means the Supreme Court or the High Court or the Customs, Excise and Service Tax Appellate Tribunal or the Commissioner (Appeals); (g) “audit” means any scrutiny, verification and checks carried out under the indirect tax enactment, other than an enquiry or investigation, and will commence when a written intimation from the central excise officer regarding conducting of audit is received; (h) “declarant” means a person who is eligible to make a declaration and files such declaration under section 124; (i ) “declaration” means the declaration filed under section 124; (j) “departmental appeal” means the appeal filed by a central excise officer authorised to do so under the indirect tax enactment, before the appellate forum; (k) “designated committee” means the committee referred to in section 125; (l) “discharge certificate” means the certificate issued by the designated committee under section 126; (m) ‘‘enquiry or investigation’’, under any of the indirect tax enactment, shall include the following actions, namely:— (i) search of premises; (ii) issuance of summons; (iii) requiring the production of accounts, documents or other evidence; (iv) recording of statements; Short title and commencement.

Definitions. (n) “indirect tax enactment” means the enactments specified in section 121; (o) “order” means an order of determination under any of the indirect tax enactment, passed in relation to a show cause notice issued under such indirect tax enactment; (p) “order in appeal” means an order passed by an appellate forum with respect to an appeal filed before it; (q) “person” includes— (i) an individual; (ii) a Hindu undivided family; (iii) a company; (iv) a society; (v) a limited liability partnership; (vi) a firm; (vii) an association of persons or body of individuals, whether incorporated or not; (viii)the Government; (ix) a local authority; (x) an assessee as defined in rule 2 of the Central Excise Rules, 2002; (xi) every artificial juridical person, not falling within any of the preceding clauses. (r) ‘‘quantified”, with its cognate expression, means a written communication of the amount of duty payable under the indirect tax enactment; (s) “statement” means the statement issued by the designated committee under section 126; (t) “tax relief” means the amount of relief granted under section 123; (u) all other words and expressions used in this Scheme, but not defined, shall have the same meaning as assigned to them in the indirect tax enactment and in case of any conflict between two or more such meanings in any indirect tax enactment, the meaning which is more congruent with the provisions of this Scheme shall be adopted.

121. This Scheme shall be applicable to the following enactments, namely:— (a) the Central Excise Act, 1944 or the Central Excise Tariff Act, 1985 or Chapter V of the Finance Act, 1994 and the rules made thereunder; (b) the following Acts, namely:— (i) the Agricultural Produce Cess Act,1940; (ii) the Coffee Act, 1942; (iii) the Mica Mines Labour Welfare Fund Act, 1946; (iv) the Rubber Act, 1947; (v) the Salt Cess Act, 1953; (vi) the Medicinal and Toilet Preparations (Excise Duties) Act, 1955; (vii) the Additional Duties of Excise (Goods of Special Importance) Act, 1957; (viii) the Mineral Products (Additional Duties of Excise and Customs) Act, 1958; (ix) the Sugar (Special Excise Duty) Act, 1959; (x) the Textiles Committee Act, 1963; (xi) the Produce Cess Act, 1966; (xii) the Limestone and Dolomite Mines Labour Welfare Fund Act, 1972; (xiii) the Coal Mines (Conservation and Development) Act, 1974; (xiv) the Oil Industry (Development) Act, 1974; 5 10 15 20 25 30 35 4 37 (xv) the Tobacco Cess Act, 1975; (xvi) the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976; (xvii) the Bidi Workers Welfare Cess Act, 1976; (xviii)the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978; (xix) the Sugar Cess Act, 1982; (xx) the Jute Manufacturers Cess Act, 1983; (xxi) the Agricultural and Processed Food Products Export Cess Act, 1985; (xxii) the Spices Cess Act, 1986; (xxiii)the Finance Act, 2004; (xxiv) the Finance Act, 2007; (xxv) the Finance Act, 2015; (xxvi) the Finance Act, 2016; (c) any other Act, as the Central Government may, by notification in the Official Gazette, specify.

122. For the purposes of the Scheme, “tax dues” means— (a) where— (i) a single appeal arising out of an order is pending as on the 30th day of June, 2019 before the appellate forum, the total amount of duty which is being disputed in the said appeal; (ii) more than one appeal arising out of an order, one by the declarant and the other being a departmental appeal, which are pending as on the 30th day of June, 2019 before the appellate forum, the sum of the amount of duty which is being disputed by the declarant in his appeal and the amount of duty being disputed in the departmental appeal: Provided that nothing contained in the above clauses shall be applicable where such an appeal has been heard finally on or before the 30th day of June, 2019. Illustration 1: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.1000 and amount of penalty of Rs.100. The declarant files an appeal against this order. The amount of duty which is being disputed is Rs.1000 and hence the tax dues are Rs.1000. Illustration 2: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.900 and penalty of Rs.90. The declarant files an appeal against this order. The amount of duty which is being disputed is Rs.900 and hence tax dues are Rs.900. Illustration 3: The show cause notice to a declarant was for an amount of duty of Rs.1000 and an amount of penalty of Rs.100. The order was for an amount of duty of Rs.900 and penalty of Rs.90. The declarant files an appeal against this order of determination. The departmental appeal is for an amount of duty of Rs.100 and penalty of Rs.10. The amount of duty which is being disputed is Rs.900 plus Rs.100 i.e. Rs.1000 and hence tax dues are Rs.1000. Illustration 4: The show cause notice to a declarant was for an amount of duty of Rs.1000. The order was for an amount of duty of Rs.1000. The declarant files an appeal against this order of determination. The first appellate authority reduced the amount of duty to Rs.900. The declarant files a second appeal. The amount of duty which is being disputed is Rs.900 and hence tax dues are Rs.900; (b) where a show cause notice under any of the indirect tax enactment has been received by the declarant on or before the 30^th day of June, 2019, then, the amount of duty stated to be payable by the declarant in the said notice: Provided that if the said notice has been issued to the declarant and other persons making them jointly and severally liable for an amount, then, the amount indicated in the said notice as jointly and severally payable shall be taken to be the amount of duty payable by the declarant; (c) where an enquiry or investigation or audit is pending against the declarant, the amount of duty payable under any of the indirect tax enactment which has been quantified on or before the 30th day of June, 2019; Tax dues. 38 (d) where the amount has been voluntarily disclosed by the declarant, then, the total amount of duty stated in the declaration; (e) where an amount in arrears relating to the declarant is due, the amount in arrears.

123. (1) Subject to the conditions specified in sub-section (2), the relief available to a declarant under this Scheme shall be calculated as follows: (a) where the tax dues are relatable to a show cause notice or one or more appeals arising out of such notice which is pending as on the 30th day of June, 2019, and if the amount of duty is,— (i) rupees fifty lakhs or less, then, seventy per cent. of the tax dues; (ii) more than rupees fifty lakhs, then, fifty per cent. of the tax dues; (b) where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is nil, then, the entire amount of late fee or penalty; (c) where the tax dues are relatable to an amount in arrears and,— (i) the amount of duty is, rupees fifty lakhs or less, then, sixty per cent. of the tax dues; (ii) the amount of duty is more than rupees fifty lakhs, then, forty per cent. of the tax dues; (iii) in a return under the indirect tax enactment, wherein the declarant has indicated an amount of duty as payable but not paid it and the duty amount indicated is,— (A) rupees fifty lakhs or less, then, sixty per cent of the tax dues; (B) amount indicated is more than rupees fifty lakhs, then, forty per cent. of the tax dues; (d) where the tax dues are linked to an enquiry, investigation or audit against the declarant and the amount quantified on or before the 30th day of June, 2019 is— (i) rupees fifty lakhs or less, then, seventy per cent. of the tax dues; (ii) more than rupees fifty lakhs, then, fifty per cent of the tax dues; (e) where the tax dues are payable on account of a voluntary disclosure by the declarant, then, no relief shall be available with respect to tax dues. (2) The relief calculated under sub-section (1) shall be subject to the condition that any amount paid as pre-deposit at any stage of appellate proceedings under the indirect tax enactment or as deposit during enquiry, investigation or audit, shall be deducted when issuing the statement indicating the amount payable by the declarant: Provided that if the amount of pre-deposit or deposit already paid by the declarant exceeds the amount payable by the declarant, as indicated in the statement issued by the designated committee, the declarant shall not be entitled to any refund.

124. (1) All persons shall be eligible to make a declaration under this Scheme except the following, namely:— (a) who have filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019; (b) who have been convicted for any offence punishable under any provision of the indirect tax enactment for the matter for which he intends to file a declaration; (c) who have been issued a show cause notice, under indirect tax enactment and the final hearing has taken place on or before the 30th day of June, 2019; (d) who have been issued a show cause notice under indirect tax enactment for an erroneous refund or refund; (e) who have been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before the 30th day of June, 2019; (f) a person making a voluntary disclosure,— (i) after being subjected to any enquiry or investigation or audit; or (ii) having filed a return under the indirect tax enactment, wherein he has indicated an amount of duty as payable, but has not paid it; 5 10 15 20 25 30 35 40 45 Relief available under Scheme. Declaration under Scheme. 39 (g) who have filed an application in the Settlement Commission for settlement of a case; (h) persons seeking to make declarations with respect to excisable goods set forth in the Fourth Schedule to the Central Excise Act, 1944; (2) A declaration under sub-section (1) shall be made in such electronic form as may be prescribed.

125. (1) The designated committee shall verify the correctness of the declaration made by the declarant under section 124 in such manner as may be prescribed: Provided that no such verification shall be made in case where a voluntary disclosure of an amount of duty has been made by the declarant. (2) The composition and functioning of the designated committee shall be such as may be prescribed.

126. (1) Where the amount estimated to be payable by the declarant, as estimated by the designated committee, equals the amount declared by the declarant, then, the designated committee shall issue in electronic form, a statement, indicating the amount payable by the declarant, within a period of sixty days from the date of receipt of the said declaration. (2) Where the amount estimated to be payable by the declarant, as estimated by the designated committee, exceeds the amount declared by the declarant, then, the designated committee shall issue in electronic form, an estimate of the amount payable by the declarant within thirty days of the date of receipt of the declaration. (3) After the issue of the estimate under sub-section (2), the designated committee shall give an opportunity of being heard to the declarant, if he so desires, before issuing the statement indicating the amount payable by the declarant: Provided that on sufficient cause being shown by the declarant, only one adjournment may be granted by the designated committee. (4) After hearing the declarant, a statement in electronic form indicating the amount payable by the declarant, shall be issued within a period of sixty days from the date of receipt of the declaration. (5) The declarant shall pay electronically through internet banking, the amount payable as indicated in the statement issued by the designated committee, within a period of thirty days from the date of issue of such statement. (6) Where the declarant has filed an appeal or reference or a reply to the show cause notice against any order or notice giving rise to the tax dues, before the appellate forum, other than the Supreme Court or the High Court, then, notwithstanding anything contained in any other provisions of any law for the time being in force, such appeal or reference or reply shall be deemed to have been withdrawn. (7) Where the declarant has filed a writ petition or appeal or reference before any High Court or the Supreme Court against any order in respect of the tax dues, the declarant shall file an application before such High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the Court, he shall furnish proof of such withdrawal to the designated committee, in such manner as may be prescribed, along with the proof of payment referred to in sub-section (5). (8) On payment of the amount indicated in the statement of the designated committee and production of proof of withdrawal of appeal, wherever applicable, the designated committee shall issue a discharge certificate in electronic form, within thirty days of the said payment and production of proof.

127. Within thirty days of the date of issue of a statement indicating the amount payable by the declarant, the designated committee may modify its order only to correct an arithmetical error or clerical error, which is apparent on the face of record, on such error being pointed out by the declarant or suo motu, by the designated committee.

128. (1) Every discharge certificate issued under section 126 with respect to the amount payable under this Scheme shall be conclusive as to the matter and time period stated therein, and– (a) the declarant shall not be liable to pay any further duty, interest, or penalty with respect to the matter and time period covered in the declaration; (b) the declarant shall not be liable to be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration; (c) no matter and time period covered by such declaration shall be reopened in any other proceeding under the indirect tax enactment. Ame of s Rectification of errors. 5 10 15 20 25 30 35 40 45 Verification of declaration by designated committee. 1 of 1944. Issue of statement by designated committee. Issue of discharge certificate to be conclusive of matter and time period. 50 40 (2) Notwithstanding anything contained in sub-section (1),— (a) no person being a party in appeal, application, revision or reference shall contend that the central excise officer has acquiesced in the decision on the disputed issue by issuing the discharge certificate under this scheme; (b) the issue of the discharge certificate with respect to a matter for a time period shall not preclude the issue of a show cause notice,— (i) for the same matter for a subsequent time period; or (ii) for a different matter for the same time period; (c) in a case of voluntary disclosure where any material particular furnished in the declaration is subsequently found to be false, within a period of one year of issue of the discharge certificate, it shall be presumed as if the declaration was never made and proceedings under the applicable indirect tax enactment shall be instituted.

129. (1) Any amount paid under this Scheme,— (a) shall not be paid through the input tax credit account under the indirect tax enactment or any other Act; (b) shall not be refundable under any circumstances; (c) shall not, under the indirect tax enactment or under any other Act,— (i) be taken as input tax credit; or (ii) entitle any person to take input tax credit, as a recipient, of the excisable goods or taxable services, with respect to the matter and time period covered in the declaration. (2) In case any pre-deposit or other deposit already paid exceeds the amount payable as indicated in the statement of the designated committee, the difference shall not be refunded.

130. For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in sub-section (1) of section 123, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to the matter and time period to which the declaration has been made.

131. (1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Scheme. (2) Without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:— (a) the form in which a declaration may be made and the manner in which such declaration may be verified; (b) the manner of constitution of the designated committee and its rules of procedure and functioning; (c) the form and manner of estimation of amount payable by the declarant and the procedure relating thereto; (d) the form and manner of making the payment by the declarant and the intimation regarding the withdrawal of appeal; (e) the form and manner of the discharge certificate which may be granted to the declarant; (f) the manner in which the instructions may be issued and published; (g) any other matter which is to be, or may be, prescribed, or in respect of which provision is to be made, by rules. (3) The Central Government shall cause every rule made under this Scheme to be laid, as soon as may be after it is made, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule. Restrictions of Scheme. Removal of doubts. Power to make rules.

132. (1) The Central Board of Indirect Taxes and Customs may, from time to time, issue such orders, instructions and directions to the authorities, as it may deem fit, for the proper administration of this Scheme, and such authorities, and all other persons employed in the execution of this Scheme shall observe and follow such orders, instructions and directions: Provided that no such orders, instructions or directions shall be issued so as to require any designated authority to dispose of a particular case in a particular manner. (2) Without prejudice to the generality of the foregoing power, the Central Board of Indirect Taxes and Customs may, if it considers necessary or expedient so to do, for the purpose of proper and efficient administration of the Scheme and collection of revenue, issue, from time to time, general or special orders in respect of any class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by the authorities in the work relating to administration of the Scheme and collection of revenue and any such order may, if the said Board is of opinion that it is necessary in the public interest so to do, be published in the prescribed manner.

133. (1) If any difficulty arises in giving effect to the provisions of this Scheme, the Central Government may, by order, not inconsistent with the provisions of this Scheme, remove the difficulty: Provided that no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Scheme come into force. (2) Every order made under this section shall, as soon as may be after it is made, be laid before each House of Parliament.

134. (1) No suit , prosecution or other legal proceeding shall lie against the Central Government or any officer of the Central Government for anything which is done, or intended to be done in good faith, in pursuance of this Scheme or any rule made thereunder. (2) No proceeding, other than a suit shall be commenced against the Central Government or any officer of the Central Government for anything done or purported to have been done in pursuance of this Scheme, or any rule made thereunder, without giving the Central Government or such officer a prior notice of not less than one month in writing of the intended proceeding and of the cause thereof, or after the expiration of three months from the accrual of such cause. (3) No proceeding shall be commenced against any officer only on the ground of subsequent detection of an error in calculating the amount of duty payable by the declarant, unless there is evidence)

Incentive will be offered on purchase of electric vehicles adding that government has already moved to GST council to cut rates from 12% to 5%.
Rs.3,000/- pension per month for workers from the informal sector.
2% interest subvention for GST-registered MSME on fresh or incremental loans.
New television channel for start-ups.
Pension benefit extended to retail traders with annual turnover less than Rs.1.5 crore.
New payment platform for MSMEs to be created.
No Service Tax on license fee for liquor license
Retrospective exemption from service tax in certain cases relating to long-term lease of plots for development of infrastructure for financial business. No service tax shall be levied or collected on upfront amount, called as premium, salami, cost, price, development charges or by any other name, payable in respect of service by way of granting long term lease of thirty years or more of plots for development of infrastructure for financial business, provided or agreed to be provided by the State Government Industrial Development Corporations etc. to the developers in any industrial or financial business area during the period 1st day of October 2013 to 30th June 2017.
Retrospective service tax exemptions to IIM in line with what is presently being given to IIMs.

Fear Factors:

Customs:

Gold import duty as well as duty on precious metals raised. Spurt in smuggling likely with customs duty on gold being raised form 10 percent to 12.5%. Gold Control era has shown that there is no correlation between higher duty and gold exports, but certainly between high gold duty and smuggling.

Tear Factors:

Customs:

Precious metals including gold, silver, platinum in base, semi-manufactured, unwrought of powder form will see buyers paying 12.5% customs, increased from 10%. This is applicable to waste and scrap, as well as ornaments made of precious metals as well.
Construction materials such as floor covering of plastics, ceramic tiles and metal fittings will have a customs duty of 15% raised from 10%.
For 2019-20, marble slabs will see twice as much customs tariff of 40%.

An increased duty of 7.5% will be imposed on stainless steel in ingots or other primary forms as well as its semi-furnished products, from the earlier 5%.
Duty on electronics and electrical equipment increases for indoor and outdoor split-system air conditioning units, loudspeakers, digital video records, network, video recorders, CCTV cameras and optical fibres, among others.
Duty on imported books has been increased by 5%
Cashews are going to get more expensive. While the earlier tariff rate was 45%, it has now been increased to 70% under this budget. (Health Ministry also says have snack of chana etc. O! visiting bade babu).
A range of automobile parts will also see an increase in rate of duty. That includes motor vehicle parts, chassis and bodies, including cabs, for certain motor vehicles from 10% to 15%.
BCD of Rupee one per tonne on imported crude being imposed. This is apart from increase in cess.
BCD on newspaper print, uncoated and coated paper used in printing now raised from Nil to 10 percent.( Go paperless, save trees)
Exemption to water blocking tapes used in optical fibers for telecom now withdrawn. Duty raised on optical fibers too.
Duty on various metals being raised. Similarly duty being raised for various auto parts, split air- conditioners parts, catalytic converters, stone crushing parts, digital video recorders and CCTV cameras etc., loudspeakers.

Income Tax:

No change in tax slabs or exemption limit.
Surcharge tax rates for the higher income group individuals having taxable income from Rs.2 crore to Rs.5 crore and Rs.5 crore and above is to be increased by 3 percent and 7 percent respectively.
Levy of TDS of 2 per cent on cash withdrawal exceeding Rs.1 crore in a year from a bank account.

Others:

Increase in Special Additional Excise Duty and Road and Infrastructure cess each by Re.1/- per litre on petrol and diesel in anticipation of prices of petrol coming down as indicated in Economic survey. This works out to Rs.2/- each on Diesel and Petrol.
Cigarettes containing tobacco will become more expensive.
Increase in excise duty of 0.5 % on products are Cigarettes, Hookah or gudaku tobacco, Smoking mixtures for pipes and cigarettes, -Biris, Chewing, Tobacco, Jarda Scented Tobacco. Protects NCCD also in the wake of recent Supreme Court ruling. (And those who paid despite my opinion to the contrary- Well do not claim refund now for the past as unjust enrichment is only right of the department and no one else.)

Legal Provisions Change Tracker:

Income tax:

Scope of Black Money Act relating to undisclosed foreign assets extended to include even NRIs and persons not ordinarily resident in India with retrospective effect from 2016 with consequent powers also given to reopen assessments.

The existing anti abuse provision u/s 115QA of the Act, pertaining to buy-back of shares from shareholders by companies not listed on a recognised stock exchange, to be extended to all companies including companies listed on recognised stock exchange.
5% TDS on payments exceeding Rs.50 lakh by individual or HUF for professional works.
Enhancing threshold of tax for launching prosecution for non-filing of returns from Rs.3,000 to Rs.10,000, for proceeding against a person and exempting appropriate class of persons from the anti-abuse provisions of section 50CA and section 56 of the Income Tax Act.
Pre-filled tax returns will be made available to taxpayers which will contain details of salary income, capital gains from securities, bank interests, and dividends etc. and tax deductions. Information regarding these incomes will be collected from the concerned sources such as Banks, Stock exchanges, mutual funds, EPFO, State Registration Departments etc.

Customs:

Provisions relating to wrongful sale of scrips, licenses etc. for facilitating import made more stringent providing not only for recovery of duty , but also arrest seller if value exceeds Rs.50 lakhs and such offences shall be non-bailable( 7 years imprisonment), penalty for seller not exceeding value of fake scrip.
Provisions introduced for proper officer to seek documents like aadhar and other identity proofs for verification of identity of importer. This will enable enforcement action against those using fake EXIM papers.
Proper officer now on its own can also scan body of a person believed to have secreted gold etc. inside his body.
Provison of arrest of an accused outside territory of India also made.
Attachment of bank accounts of persons in possession of smuggled goods.
Provision made in Customs Tariff Act,75 to empower Central Government to include such countries goods etc. through which circumvention of imposed countervailing duties takes place. Provision shall be used when country of origin or nature of goods is found to be used to be misdeclare to escape duty.

GST:

Applicability of interest on delay in tax payment through cash only.

Provision for transfer of cash ledger balances inter-se between different heads..
Enabling provisions for new returns made. Lesser frequency and electronic invoice systems to be notified later.,
Creation of National Appellate Authority for Advance Ruling in case of conflicting rulings.
Imposition of penalty equivalent to 10% of profiteered amount in anti-profiteering proceedings.

To make Amnesty scheme, which is probably the best in many years on litigation front, a roaring success, much will depend upon the attitude of departmental officers. It is expected that committee formed for the purpose will be liberal in approach and not stingy and each formation will have its time bound targets to diminish cases. Only then recovery can be expected from this well intended scheme.

Further, a reinvented India at this take off stage is heavily dependent on transfer of globalized technologies, innovation and foreign capital. A budget speech in election year can totally address Indian audience, but in other years has to equally focus on opportunities for those who want to invest in India. Therefore, highlighting proposals to lure foreign investors can be a good strategy too. If the budget proposals do not focus on foreign audience or enthuse them, then it may be a case of opportunity lost. As far as new India is concerned, enough of belt tightening, it is now time to actually fly.

To recapitulate Madam FM’s couplet used in budget speech and to respond to it:

`Yakin ho tou rasta nikalta hai,

hawa ki aut le kar bhi Chirag jalta hai’

Response:

“Yakin bahut kar liya, abb raaste nahin manjil ki baat kar lo,

Chirangon ka zikar ho chuka, abb to hawa ka rukh morne ki baat kar lo”

Are we ready for a big bang legal action against terrorism

By: Somesh Arora |

Published: July 17, 2019 2:23:41 AM (Financial Express)

The provision of Bills and amending legislations are indications that, along with ground-level policing action, the legal framework is available to tighten the screws on nefarious designs of terrorists and their supporters.

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That this government has a penchant for springing surprises was evident with the sudden moves of demonetisation, surgical strikes after the Uri attacks, and the Balakot air strike. But when the action has to be taken internally, preparing of a robust legal ground is indispensable. The provision of Bills and amending legislations are indications that, along with ground-level policing action, the legal framework is available to tighten the screws on nefarious designs of terrorists and their supporters. While certain laws do exist for this purpose—the Prevention of Money Laundering Act (PMLA), 2002, was the most effective instrument to suck out the finances of terrorism supporters—hardly anything was being done to book and investigate cases in terrorist-hit areas in the Northeast, Kashmir, Chhattisgarh, West Bengal and Odisha. Sleeper units of ISI are known to exist even in Tamil Nadu, Kerala and Karnataka. One reason could be the clout that such outfits wield in such areas, which negates the influence of government machinery and renders intelligence gathering very difficult.

Now, the legislative changes being brought at one go are unprecedented. Just to list the major ones:

> The Unlawful Activities Amendment Bill, 2019, is being amended to proceed against an individual to be declared terrorist instead of just an organisation, which was the case earlier;

> Another amendment seeks to allow the investigation to be conducted by an officer of the National Investigation Agency (NIA) with prior approval of the director general even at a place other than that where the property representing the proceeds of terrorism is situated.

Second, to strengthen the mechanism of reporting of transactions by reporting entities, the PMLA, 2002, has been amended by seeking to insert Section 12AA by virtue of Clause 189 of the Finance Bill, 2019. It provides that reporting entities shall authenticate the identity of clients be it gold purchaser or property purchaser, etc, through additional means like Aadhaar or as may be prescribed, and such entities shall be required to take additional steps to determine the ownership, financial position, sources of funds of the client as well as the purpose behind the transaction and the intended nature of the transaction between the parties.

On such information not having being provided, the reporting entities can refuse to carry out transaction for such a person. It is also expected that in case the transaction is considered suspicious or is likely to involve any proceeds of crime, the scrutiny level of the reporting entity will correspondingly go up. This effectively means that the reporting entities shall act as the first level of scrutiny of suspect transactions under the PMLA.

Thirdly, the National Investigation Agency Act has been sought to be amended by allowing to probe cybercrime cases as well as cases of human trafficking. Similarly, the NIA shall be authorised and competent to also investigate ‘individual’ suspects’ links to terror along with terrorist organisations.

The Benami Transactions (Prohibition) Act, 1988, is being amended by adding Section 54(B) to permit entries in the records or other documents in the custody of any authority to be admitted as evidence in any prosecution or attachment proceedings. Even certified copies henceforth shall be allowed to be adduced where originals, for some reason, cannot be produced. The net effect will be that the records of the registrar of properties or of any other body on the production of such record or attested copies can be allowed as evidence and its authenticity taken as proved. It is amply clear that this strengthening of provisions can facilitate action against property attachments and confiscations even through remote investigations, and therefore terrorists activities can be financially paralysed and their supporters crippled.

Further, Section 72(A) PMLA is being inserted to provide for an inter-ministerial coordination committee with statutory backing, to allow various agencies dealing with money laundering, counter terrorism, financial sector crimes, etc, to act in synergy with others. Although such arrangements were earlier also available in the Joint Intelligence Committee and the Economic Intelligence Bureau, now they have been legally structured and cooperation shall be required to be statutorily provided by all regulators and agencies. In the 1980s, the government had created the Economic Intelligence Council under the chairmanship of the finance minister to encourage collation and dissemination of information—but the avowed purpose couldn’t be achieved. Whether the new legislation can surmount individual organisations’ quest for glory is something the current dispensation should focus on. However, with the stated resolve and the past experience of 3-4 years, maybe things will be done differently now.

While legislative intent can provide muscle to the efforts of ground-level officers, it is eventually the righteous officers who make or mar the effects of a legislation. Too many cases are quashed by courts for lack of proper investigation. Conviction is always dependent on tying up evidence and within all fours of the law. At the same time, fundamental right violations have to be curbed. Too free a hand and that too without exacting supervision can create cavalier investigators with disregard to extant laws. One must remember the adage: ‘Power tends to corrupt, and absolute power corrupts absolutely’.

CESTAT Allahabad final order in the matter of M/s Nidhi Auto Pvt. Ltd. VERSUS Commissioner of Central Excise, Noida-I

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL ALLAHABAD REGIONAL BENCH - COURT No. I Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017-[DB] [In Appeal No.70154 of 2017] (Arising out of Order-in-Original No. 27/Pr. Commissioner/Noida-I/2016-17 dated 22/12/2016 passed by Commissioner of Central Excise, Noida-I) M/s Nidhi Auto Pvt. Ltd. …..Appellant (C-43, Phase-II, Noida) VERSUS Commissioner of Central Excise, Noida-I ….Respondent (C-56/42, Sector-62) WITH (i) Excise Appeal No.70145 of 2017 (M/s Ruby Steels) (ii) Excise Appeal No.70146 of 2017 (Sanjeev Agarwal Partner) (iii) Excise Appeal No.70147 of 2017 (Sanjay Agarwal Partner) (iv) Excise Appeal No.70155 of 2017 (Kunj Behari Thakur Accountant) (v) Excise Appeal No.70156 of 2017 (Kuldeep Singh Parmar Director) (Arising out of Order-in-Original No. 27/Pr. Commissioner/Noida-I/2016-17 dated 22/12/2016 passed by Commissioner of Central Excise, Noida-I) APPEARANCE: Shri Somesh Arora & Shri Ranvir Singh, Advocates for the Appellant Shri Gyanendra Kumar Tripathi, Deputy Commissioner, Authorised Representative for the Respondent CORAM: HON’BLE SMT. ARCHANA WADHWA, MEMBER (JUDICIAL) HON’BLE MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL) FINAL ORDER NOs. 71086-71091 / 2019 Date of Hearing : 10/04/2019 Date of Pronouncement : 18/06/2019 Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 2 PER: ANIL G. SHAKKARWAR The above stated six appeals are taken together for disposal since all of them are arising out of a common impugned Order-in-Original No. 27/Pr. Commissioner/Noida-I/2016-17 dated 22/12/2016 passed by Commissioner of Central Excise, Noida-I. 2. Brief facts of the case are that M/s Nidhi Auto Pvt. Ltd. (hereinafter referred to as M/s Nidhi Auto) were engaged in the manufacture of Sheet Metal components used for manufacture of Air conditioners, Refrigerators, Washing Machine, etc. and supplied the same to M/s L.G. Electronics Pvt. Ltd. and to venders of M/s L.G. Electroncis Pvt. Ltd. The main inputs used in the manufacture of said final products were G.P. Sheets/Coils, G.I. Sheets/Coils and C.R. Sheets/Coils. Appellants were procuring the said inputs from registered dealer M/s Ruby Steels, Ghaziabad. On 28.01.2015 simultaneously searches were conducted at factory premises of M/s Nidhi Auto, Residential premises of Shri Sanjay Agarwa and Shri Sanjeev Agarwal, partners of M/s Ruby Steels. At the said premises certain documents records, ledgers etc. were recovered. At factory premises of M/s Nidhi Auto Ledger Account in respect of M/s Ruby Steels were found and it revealed that the said ledger accounts were maintained in two parts. They were resumed as per Sl. No.69 and Sl. No.70 of Panchnama dated 28.01.2015. The ledger account at Sl. No. 69 was maintained for the period Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 3 from 01.04.2011 to 27.01.2015 and the other ledger account entered at Sl. No.70 was maintained for the period from 01.04.2011 to 03.01.2015. Further, at the residential premises of Shri Sanjay Agarwal and Shri Sanjeev Agarwal a diary was recovered, which recorded certain entries for the period from 06.03.2014 to 27.01.2015 and the same reflected date-wise details of payment received through RTGS, Cheques by M/s Ruby Steels from M/s Nidhi Auto. On tallying the entries of the said payment through RTGS and Cheques contained in the said diary it was found that the same was matching with the record of ledger account pertaining to M/s Ruby Steels maintained by M/s Nidhi Auto in ledger recorded at Sl. No.70 and the same did not match with the ledger account maintained which was recorded at Sr. No. 69. Thereafter, statement of Shri Sanjay Agarwal was recorded on 09.02.2015 and further inquires were made with the transporters. During the investigation, revenue came to know that Shri Arun Jain, proprietor of transport agency who through letter dated 30.01.2015 submitted three notebooks which contain date-wise details of transportation made by Shri Arun Jain during the period from 01.08.2014 to 29.01.2015. On scrutiny, it came to knowledge of revenue that each and every entry of transportation was matching with invoices which were entered in ledger account at Sl. No. 69 and no entry of transportation of goods were found in respect of the records of ledger accounts at Sr. No.70. To carry out further investigations statement of Shri Kuldeep Singh Parmar was recorded on 29.02.2015. Shri Kuldeep Singh Parmar was director of M/s Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 4 Nidhi Auto. On 08.04.2015 statement of Shri Kunj Bihari Thakur, Accountant of M/s Nidhi Auto was recorded. On the basis of above stated investigations, it appeared to revenue that M/s Nidhi Auto was engaged in fraudulent availment of Cenvat credit without receipt of goods only on the basis of invoices issued by M/s Ruby Steels and entered into ledger account at Sl. No.70. Therefore, it appeared to revenue that M/s Nidhi Auto availed inadmissible Cenvat credit of around Rs.4.66 crores during the period from April, 2011 to January, 2015 without receipt of inputs on the basis of invoices issued by M/s Ruby Steels. Therefore, appellants were issued with a show cause notice dated 04.01.2016 through which it was proposed to disallow Cenvat credit of around Rs.4.66 crores under Rule 14 of Cenvat credit Rules, 2004 and recover the same and also proposed to appropriate Rs.1.52 crores already deposited by M/s Nidhi Auto. Further, there were proposals for imposition of penalties under Rule 26 of Cenvat Credit Rules, 2002 on Shri Kuldeep Singh Parmar, Director of M/s Nidhi Auto, Shri Kunj Bihari Thakur, Accountant of M/s Nidhi Auto and M/s Ruby Steels, Ghaziabad, Shri Sanjay Agarwal, Partner of M/s Ruby Steels and Shri Sanjay Agarwal partner of M/s Ruby Steels. 3. All the noticees contested the said show cause notice. It was submitted before the Original Adjudicating Authority that in respect of all the goods entered in ledger accountant at Sl. No.69 and at Sl. No. 70 were actually received and payments were made through RTGS and Cheques and that there were 1860 invoices entered in ledger account at Sl. No.70. The Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 5 allegations were based on diary maintained and found at the residence of Shri Sanjay Agarwal & Shri Sanjeev Agarwal and was maintained only for the period from 06.03.2014 to 27.01.2015 which is not a sufficient evidence to make allegations for 5 years. It was further contended that said diary did not have mention as to whether any commission or any monitory consideration was being retained by M/s Ruby Steels for issuing alleged fake invoices. It was further contended that the said diary has no connection with supply made by M/s Ruby Steels to M/s Nidhi Auto and the diary entries had no reference to any invoice number issued by M/s Ruby Steels to M/s Nidhi Auto and therefore, correlation or nexus between the diary and ledger account cannot be established. Further, the writer of the diary was not identified and statement of the writer was not recorded therefore the said diary is not a reliable piece of evidence as held by this Tribunal in the case of Jayshree Vyapar Ltd. Vs Commissioner of Central Excise, Rajkot reported at 2015 (327) ELT 380 (Tri.-Ahmd). They further contended that as per the allegations in the show cause notice the inputs were not received and total quantity of inputs allegedly not received were 9112.5 MT and during the relevant period finished goods totally weighing 25781.88 MT were manufactured and cleared on payment of duty and revenue has not established from where the appellants have procured the required inputs if they have not received inputs but only he received invoices. They further submitted before the Original Adjudicating Authority that the evidence in the form of statement of Shri Arun Jain, Proprietor Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 6 was available only in respect of 5 months and on the basis of statement for 5 months allegations for 5 years cannot be levied. Further, the appellants also sought cross examination of all those whose statements were relied upon for issuance of show cause notice and relied upon ruling by Hon’ble Allahabad High Court in the case of Commissioner of Central Excise, Meerut-I Vs Parmarth Iron Pvt. Ltd. reported at 2010 (260) ELT 514 (All.). They further submitted that Shri Kuldeep Singh Parmar Director of the appellant retracted in his statement recorded on 29.09.2015 by filing an affidavit on 30.09.2015 duly notarized and therefore, the statement dated 29.09.2015 cannot be relied upon. The learned Original Adjudicating Authority has taken into consideration the evidences at ledger account at Sl. No.69 and Sl. No. 70, diary received from the residences of Shri Sanjay Agarwal and Shri Sanjeev Agarwal partner of M/s Nidhi Auto and statement of Shri Arun Jain and concluded that appellant did not received inputs and they only received the invoices and availed the inadmissible Cenvat credit. Therefore, he confirmed the demand of around Rs.4.66 crores under Section 11A of Central Excise Act, 1944 and appropriated Rs.1.52 crores deposited. Further, he imposed penalty of Rs.4.66 crores on the appellant under Section 11AC of Central Excise Act, 1944 read with Rule 15 of Cenvat credit Rules 2005. He further imposed penalties under Rule 26 of Central Excise Rules, 2002 on Shri Kuldeep Singh Parmar, Shri Kunj Bihari Thakur, M/s Ruby Steels and Shri Sanjeev Agarwal. Aggrieved by the above order, all the above stated appellants are before this Tribunal. Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 7 4. Shri Somesh Arora learned Advocate and Shri R.S. Yadav learned Advocate appeared on behalf of all the appellants. They made following submissions:- a) Reliance on diary seized from the residence of the partner of Ruby Steels is contrary to the provisions of law, since the author of the said diary has not been identified and his statement is not recorded and also that the diary was recorded for the period from 06.03.2014 to 27.01.2015 that is only for 11 months and the said evidence was relied upon for raising demand for the period of 5 years and therefore, entire demand is without any basis. b) Contrary to the claim of revenue, 13 entries in the diary are pertaining to ledger at Sl. No.69. c) The record maintained by Shri Arun Jain, transporter was only for 5 months and the said record was relied upon for raising the demand for 5 years and therefore, the demand is without any basis. d) Cross examination of evidences was not allowed and therefore reliance on the statements for confirmation of demand is contrary to the ruling by Hon’ble Allahabad High Court in the case of Commissioner of Central Excise Vs Parmarth Iron Pvt. Ltd. reported at 2010 (260) ELT 514 (All.). e) Shri Kuldeep Singh Parmar retracted his statement dated 29.09.2015 on 30.09.2015 and therefore, reliance on statement of Shri Kuldeep Singh Parmar dated 29.09.2015 for confirmation of demand is not sustainable. f) Invoices were issued by registered dealer M/s Ruby Steels and the same were duly recorded in statutory Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 8 records and the payments to M/s Ruby Steels were made by M/s Nidhi Auto through banking channels and no cash was recovered from either end during searches and there were no evidence that any cash was received back by M/s Ruby Steels from M/s Nidhi Auto. g) Documentary evidence at the end of M/s Ruby Steels and M/s Nidhi Auto cannot be displaced on the basis of unauthenticated statements not tested on the touch stone of cross examination. h) Revenue failed to compute total inputs received by M/s Nidhi Auto during the period from April, 2011 to 03.01.2015. During the period from April, 2011 to 03.01.2015 M/s Nidhi Auto purchased total 18123.67 MT of inputs from M/s Ruby Steels on the basis of valid invoices and M/s Ruby Steels had paid VAT on the same and the receipt of inputs was properly recorded in RG-23 records by M/s Nidhi Auto and that total quantity mentioned in two ledger at Sl. No.69 and 70 was equal to total quantity of inputs purchased from M/s Ruby Steels. The total quantity stated in ledger at Sl. No.69 was 9011.170 MT and the same in other ledger was 9112.500 MT. i) Revenue has not conducted any investigation on 9112.500 MT of inputs recorded in ledger at Sl. No.70 dispatched by M/s Ruby Steels and allegedly not received by M/s Nidhi Auto. In respect of such huge quantity revenue has not identified, who were the transporters and who were the purchasers. j) M/s Nidhi Auto during the period from 01.04.2011 to 03.01.2015 received total quantity of raw material to the tune of Rs.27590.570 MT including 18123.670 MT received from M/s Ruby Steels and during the same period cleared goods weighing 25781.880 MT on payment of duty and reflected the same in ER-1 returns. Revenue has not Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 9 conducted any investigations as to if M/s Nidhi Auto did not allegedly receive 9112.500 MTs of inputs from M/s Ruby Steels then from where they procured inputs for manufacture of finished products weighing 25781.880 MT and paid duty on the same. k) Therefore, entire show cause notice is presumptive and issued without evidence for making allegations and therefore the impugned order is not sustainable. l) Since the impugned order is not sustainable, the penalties imposed on other appellants are also not sustainable. 5. Heard Shri Gyanendra Kumar Tripathi, learned Deputy Commissioner on behalf of the revenue. He has reiterated the findings by the Original Adjudicating Authority in the impugned order. 6. Having considered the submissions from both the sides and on perusal of record, we note that the Original Adjudicating Authority has basically relied on few statements recorded and two ledgers maintained by the appellant M/s Nidhi Auto and one diary recovered from the residence of partner of M/s Ruby Steels and transport details for five months provided by Shri Arun Jain and he has accepted all the evidences relied upon for issue of show cause notice without examining the contentions of the appellants which were submitted before him before passing the impugned Order-in-Original. We note that it was held by Hon’ble Allahabad High Court in the case of Commissioner of Central Excise Vs Permarth Iron Pvt. Ltd. (supra) that if revenue does Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 10 not allow cross examination of any prosecution witness then revenue cannot rely on the statement given by such prosecution witness for confirmation of demand. In the present case cross examination of none of the prosecution witnesses were allowed. Therefore, following the ruling by Hon’ble Allahabad High Court, we hold that none of the statements were admissible evidence in the present case. We, further, note that it is settled law that if the author of a diary is not identified and his statement is not recorded then such diary is not admissible evidence. In the present case, we find that the author of the diary recovered at the residence of the partner of M/s Ruby Steels was not identified and his statement was not recorded and therefore, the diary recovered was not admissible evidence. Further, we also note that it was alleged that M/s Nidhi Auto was maintaining parallel ledgers whereas we find that M/s Nidhi Auto was maintaining two ledgers which was in the regular course of business and that the goods entered were tallying with the total quantity received by them in both the ledgers put together. Further, revenue could not exhibit any discrepancy of total inputs reflected in two ledgers put together with entries of inputs in RG-23 records. Further, we note that revenue has not investigated as to if 9112.500 MT of quantity of inputs shown in the books of account of M/s Ruby Steels were not delivered to M/s Nidhi Auto and only invoices were given then where did such huge quantity of inputs gone and to whom and who was the transporter. Further, revenue also did not investigate as to if 9112.500 MT of inputs were not received by M/s Nidhi Auto then Excise Appeal Nos. 70145-70147 & 70154-70156 of 2017 11 from where M/s Nidhi Auto has procured inputs for manufacture of goods which were cleared on payment of duty. We, therefore, do not find the impugned order to be sustainable. 7. We, therefore, set aside the entire impugned order and allow all the appeals. All the appellants shall be entitled to consequential relief, as per law. (Pronounced in open court on-18/06/2019) Sd/- (Archana Wadhwa) Member (Judicial) Sd/- (Anil G. Shakkarwar) Member (Technical) akp

BITS & BYTES May,2019 Published in RTT

Mr. Modi- The great come back:

In a victory which has been unprecedented in many respects, Mr. Modi won with a thumping majority with more than 300 seats for BJP and more than 350 for NDA Alliance, when the results were declared on 23^rd. May, 2019. In the process, he becomes the first big leader who has won elections despite implementing Goods & Service Tax (GST) during his first term. He is also the first non-Congress Prime Minister to have won two consecutive full terms with majority for his own party. The increase of 15% in his vote share is also the highest between two terms of a party in Indian elections. All this makes him one of the most popular & most voted leader of the largest democracy. No leader could have asked for a better mandate, in an election which was based on various economic and political issues and devoid of any sympathy wave which happened in favor of Rajiv Gandhi in 1985. Heartiest congratulations to him and his party. With great mandate, he and his team shall be expected to shoulder greater responsibilities, as there are lot of expectations built around him. Not only, he has to carry forward his unfinished agenda but also has to carry forward the tax and other reforms. He has already put in place an infrastructure which can carry India to the growth path of 8% or more of GDP Growth. Foreign Direct Investment (FDI) may not happen to the extent, it may be expected as worldwide there is a recession and every country is looking for investment in its own territory. Protectionism can be back, if trade war between America and China does not end immediately. India which was a late entrant and beneficiary of liberalisation may have lesser years compare to China’s period of high pedestal growth. Therefore, while reaping benefit of liberaised Service Sector Exports, India may have to build an equally competitive economy for domestic supply of goods and for exports, in case protectionism stages a comeback. On political front, terrorism which has been an impediment in India’s growth needs to be tackled. Tax and other reforms have to be carry forward to provide real ease of doing business. The attitude of Bureaucratic machinery as well as Enforcement Agencies will need a total revamp and reorientation in this regard. Every Indian wishes that Mr. Modi and his young team will tackle these issues as priority and will bring India out of the clutches of poverty and hunger. But foremost should be electoral reforms, as expensive electoral politics shunts out political talent in a country, where there is otherwise abundance of it. Corruption cannot be eliminated in big democracies till polity &elections are resource dependent on big business. Also, how an equitable model of state funding can be worked out is a big challenge. Frequency of elections imposes burden on ex-cheques and causes frequent absence.

Age is a bar:

In most of the developed countries, the discrimination on the basis of age is

Prohibited. It is debarred even to ask age for offering Private Sector jobs. A person is entitled to continue his work till the time his health permits and cannot be terminated due to old age. So much so, that even Private Sector Employers ask the age only after a person has been selected for the job. Indian scene is a far cry for that. Our Constitution though prohibits discrimination on the basis of sex but does not do so on the basis of age. What to talk of the constitution there is no codified law even providing protection against discrimination on the basis of age. Therefore, a senior officer even after retiring may keep on getting extensions and even further employments n Government, those at the lower levels may hardly see it. Therefore, in India there are hardly any claims, for bias due to age and remedies may be under torts. Not only the USA and Canada based Companies which do not ask for age in their country, do it openly here but also retire people of all health after a specified age. Women likewise get lot of privileges for being of that sex. Such privileges extend from reservation in education Institutions to various legislations, which give them special treatment. The Government as a policy encourages special treatment in Stamp Duty or in Taxation benefits, even though the earlier discriminatory Acts like dowry, Prohibition of visit to temples, no share in ancestral property has been done away with. The society, therefore, keeps on living with the thought that the women per say are either socially or economically backward and therefore, need special discriminatory treatment. More often such practices and favorable discriminatory treatments are encouraged by political interests. India should therefore, gradually and effectively do away with discrimination based on age or sex. There is in fact no need to rush to make special laws for women, if the crime against them are properly investigated and punished under existing laws. The institutions like Khaap Panchayats which were taking severe action against women in the past were getting encouraged as a State machinery has become a mute spectator. Failure of State can be no reason to discriminate against men. All the laws giving special treatment to women ultimately are laws based on sexual discrimination against men. Uniform laws with uniform applicability is therefore, only way to eliminate discrimination of any kind.

Delhi international Airport Limited Appeal No. ST/52332/2016-CUS [DB] Decided on 08.02.2019

IN THE CUSTOMS, EXCISE AND SERVICE TAX

APPELLATE TRIBUNAL, NEW DELHI

PRINCIPAL BENCH, COURT NO. II

Date of Hearing: 20.12.2018 Date of Decision: 08.02.2019.

Appeal No.ST/52332/2016-CUS [DB]

[Arising out of Order-in-Original No 10/2016-ST dated 29.04.2016 passed by

Additional Director General, Directorate General of Central Excise Intelligence]

DELHI INTERNATIONAL AIRPORT LIMITED Appellants

Vs.

CGST-DELHI Respondent

Appearance:

Shri Somesh Arora, A.S. Hasija, Advocate for the Appellants

Shri Amresh Jain, AR for the Respondent

CORAM:

Hon’ble Shri Anil Choudhary, Member (Judicial)

Hon'ble Shri C.L. Mahar, Member (Technical)

FINAL ORDER NO._50213/2019

Per Anil Choudhary:

The appeal is directed against Order-in-Original No.10/2016-ST dated 29.04.2016 issued vide F.No.DZU/Adj/DIAL/12/2015/3750 dated 02.05.2016passed by Additional Director General, Directorate General of Central Excise Intelligence, New Delhi-110066.

The facts leading to the issuance of the impugned order briefly are that M/s Delhi International Airport (P) Ltd, New Udaan Bhawan, Opp. Terminal-3, IGI Airport, New Delhi-110037 (hereinafter referred to as DIAL) in pursuance of privatization process of Ministry of Civil Aviation, entered into an “Operation,

Management and Development Agreement” (OMDA)with Airport Authority of India (AAI) for Delhi Airport on 04.04.2006 and under the Agreement the appellant had exclusive rights to undertake some of the functions like operating, maintaining, developing, designing, constructing, upgrading IGI Airport and to perform services relating to aeronautics and non aeronautics. It was their responsibility to adhere to Master Plan norms of the competent local authority and the land area utilized of non transfer assets not to exceed 5%, and to allow any development as per the Civil Aviation Security norms as per Para 2.2.4 of the said agreement which reads as under:-

“2.2.4 It is expressly understood by the Parties that the JVC shall provide Non-Aeronautical Services at the Airport as above, provided however that the land area utilized for provision of Non-Transfer Assets shall not exceed five percent (or such different percentage as set forth) in the master plan norms of the competent local authority of Delhi, (as the same may change from time to time) of the total land area constituting the Demised Premises. Provided however that the Non-Transfer Assets, if any, that form part of the Carved-Out Assets and/ or situated upon the Existing Leases shall be taken into account while calculating the percentage of total land area utilized for provision of Non-Transfer Assets.”

Same was to be on 30 years lease extendable at the consent of both the parties.

Appellant DIAL under the OMD Agreement, also had at its disposal vacant land situated at the Hospitality District termed „Aero Cityâ€Ÿ. For development of these areas DIAL entered into two agreements one- termed as

„Development Agreementâ€Ÿ, one such detailed agreement with „Silver Resort Hotel India Pvt. Ltdâ€Ÿ (SRHIPL) entered into on 26.02.2010 has been submitted with the appeal memoand the other termed as „Infrastructure Development and Service Agreementâ€Ÿ (IDSA) and one such detailed agreementwith the SRHIPL has also been submitted. Similar agreements wereentered with 12 other parties, i.e. total 13 parties, as detailed below:-

Asset s area	Area in acre	BUA sft	Successf ul bidders	Develope rs	Total infra deposi	Date DA	of	Date of IDSA
	s				ts
1	5.48	650,000	Juniper Hotels	Juniper Hotels	71.50	2.6.2009		2.6.200 9
2	4.69	625,000	AAPC	Caddie Hotels	68.75	15.6.200 9		15.6.20 09
3	5.03	730,000	Blue Coast	Silver Resorts	60.23	26.2.201 0		26.2.20 10
4	4.55	578,000	Aria Hotels	Aria Hotels	63.58	4.7.2009		4.7.200 9
5A	1.58	240,000	Pride Hotels	Pride Hotels	26.40	24.2.201 0		24.2.20 10
5B	1.58	240,000	Sweta Estates	Central Park Infra Dev	26.40	27.2.201 0		27.2.20 10
6	1.95	232,000	Lemon Tree	Hyacinth Hotels	25.52	25.5.200 9		25.5.20 09
7	2.22	300,000	Bhati Realty	Oak Infra Dev	33.00	25.2.201 0		25.2.20 10
8	2.3	325,000	Bhati Realty	Oak Infra Dev	35.75	25.2.201 0		25.2.20 10
9	1.71	190,000	InterGlob e Hotels	nterGlob e Hotels	20.90	3.6.2009		3.6.200 9
10	1.6	175,000	Bird Group	Bird Group	19.25	28.5.200 9		28.5.20 09
11	3.1	450,000	Bhati Realty	Aspen Buildtech	20.35	29.5.200 9		29.5.20 09
12	1.6	185,000	Wave Impex	Wave Hospitali ty	20.35	29.5.200 9		29.5.20 09
13	7.7	1,200,0 00	DB Hospitali ty	DB Hospitali ty	132.00	11.11.20 09		11.9.20 09
Total	45.0 9	6,120,0 00			653.13

The area wise details of each developer with whom agreements were entered and Allocated „Advance development costâ€Ÿ (ADC) or „total infra depositâ€Ÿ received are also given in the above table.

As per Article 3 of the Agreement the „Advance development costâ€Ÿ was allocated to various successful bidders by allocating and working out the same on the basis of Rs.1,100/- per Sq

Ft. of maximum gross built up area.

The said Article 3 reads as below:-

“3.1 Advance Development Cost

1.1.1The Developer shall pay Dial, a sum of Rs. 1100/-

(Rupees Eleven Hundred) per square foot of the Maximum GBA on Asset Area 3 in terms of Development Agreement being Rs. 80,30,00,000/- (Rupees eighty crores thirty lacs), as an advance towards development cost (the “Advance Development Cost”). The Parties agree that DIAL shall not have the right to escalate the Advance Development Cost for any reason whatsoever.

1.1.2The Advance Development Cost shall be payable by the Developer to DIAL, in three tranches within one year from the date hereof. The Developer shall pay 50% of the Advance Development Cost to DIAL, concurrently with the execution of this Agreement (“First Tranche”) in the manner specified herein.

1.1.325% of the Advance Development Cost, shall be payable within 6 months from the date hereof. The remaining 25% of the Advance Development Cost shall be payable by the Developer to DIAL, on or before the first anniversary of the date hereof.

1.1.4Subject to Article 6.4 hereof, the Parties agree that any portion of Advance Development Cost paid by the Developer to DIAL, as has not been utilized by DIAL towards development of any infrastructure Facilities during the course of the Initial Term, as certified by the internal auditors of DIAL, shall be returned to the Developer upon the earlier of the expiry of the Initial Term or upon termination of Development Agreement in accordance with the terms thereof.

1.1.5The Parties recognize and agree that nothing contained in this Agreement shall confer any title or ownership rights in respect of the Infrastructure Facilities on the Developer and any revenues accruing therefrom shall be solely to DIALâ€Ÿs account.

The total airport site area covered under OMDA with Airport Authority of India dtd. 04.04.2006 was 5000 acres, out of which 62.5 acres was allowed to be developed as “Hospitality District” for commercial development, out of which 45 acres were earmarked as asset area and leased out to various developers, in consideration of the license fee, for development under the “Development Agreements”, and the appellant discharged Service Tax on the said consideration under the category „Airport Service” This issue is not in dispute. For developing and providing infrastructure facilities in the remaining area of the “Hospitality District” (other than Asset Area) the appellant entered into „Infrastructure Development and Services Agreementâ€Ÿ (IDSA) with each developer. All the agreements i.e. DA and IDSA with 13 parties were entered prior 1.07.2010, i.e. the date on which notification No.31/2010 – ST dt.01.07.2010 came into existence by virtue of which vacant land became subject of „renting of immoveable property serviceâ€Ÿ. By virtue of these agreements the vacant lands (in asset area 3) within Hospitality District were leased/ licensed to Developers under Development Agreement.

Certain common areas outside the Asset Area 3, were to be developed and provided with infrastructure facilities and were to be maintained by the appellant under „IDSA Agreementâ€Ÿ. In relation to these infrastructure development facilities, the IDSA agreement provided that DIAL shall be responsible to provide in Asset Area-3, following common infrastructure facilities, upon receipt of advance towards development cost, from the Developer, and payment of maintenance charges:

power supply at 11KW to Developer in Asset Area-3, thereafter

Developer shall be responsible for internal distribution.

water infrastructure and supply at Asset Area-3 at a single

location,

Road Network, including peripheral roads, however Developers shall be responsible for development of all internal roads within Asset Area-3
Fire Fighting, DIAL to be responsible for common storage tank external fire ring main and Hydrants at common area of Asset Area-3. Developer to be responsible for internal storage tanks and installation of fire detection and fighting system within Asset Area-3.
Storm Water Drain along the primary grid road whereas

developer will construct internal storm water drains.

Common Service Corridor
Landscaping of common areas outside asset Area -3
Metro Station Facilities close to the Hospitality District
9 Meter corner areas to provide road junction

Identical agreements were entered with different developers for common facilities. All such developers were paying advance development cost to DIAL with a condition to terminate agreement, in case of facilities not been provided and DIAL was required to compensate.

All maintenance chargeslater on separately collected (post development) were however subjected to payment of tax, which was duly deposited and the same is not in dispute.

Appellant was claiming exemption under Notification No.31/2010-ST dated 22.06.2010. However, the Department was of the view that after amendment in Airport service w.e.f. 01.07.2010 the classification of the „land development costâ€Ÿ was under „Renting of Immovable Property Servicesâ€Ÿ This, as per the department, was clarified to the appellant on 02/03.05.2012 vide C.No.IV(16)HQ/Tech/ST/179/2011,in response to clarification sought by M/s Aria Hotels & Consultancy Services Pvt. Ltd., which was one of the parties to such agreements with the appellant. Even though the letter itself mentioned that the issue is being referred to the Board for confirmation of views, but still the Ld. Commissioner has referred it as the final view of the Department in the impugned order. However, w.e.f. 01.07.2010 appellant discharged tax liability on License Fees received by them under Development Agreement with Silver Resort Hotel India Pvt. Ltd. (SRHIPL) entered into on 26.02.2010. Similarly the appellant has discharged tax liability on License Fees received by them under

Development Agreement with other parties also. This issue is not in dispute. Prior to this on 09.07.2007 appellant had sought an opinion from M/s PWC, which had opined that no service tax was payable on vacant land as it was out of the ambit of taxable service of „renting of immovable propertyâ€Ÿ. And same was not payable on Advance Development Cost also, as development of common facilities are not for any one exclusive developer, and cannot be considered as rent of immovable property or any other contesting service like BAS and Airport service. The relevant portions are extracted below:-

“3.6. Indirect Tax Implications;

Whether grant of right to develop, operate and maintain non-transferable assets with grant of license in respect of Land can be treated as „taxable serviceâ€Ÿ under service tax regulations?

Under the proposed arrangement, DAPL, will give license of Land to the licensee with the right to use the said land for specific purpose of developing, operating and maintaining facilities over the Land. As a consideration for the license of land development right, licensee would pay an annual license fee to DAPL. As the transaction is in the nature of „license of land acquisition of development right, there is exposure of service tax or VAT to such transaction as explained below:-

Service Tax;

As per service tax law there is no service tax on the right to use of land. Further, in the Budget 2007 a new taxable category of „renting of immovable propertyâ€Ÿ has been inserted which excludes „vacant landâ€Ÿ from its ambit. Therefore the activity of licensing of land by DAPL , to licensee would not be chargeable to service tax. Also, the activity of grant of development right is not covered under any taxable category of service.

Whether advance received by DAPL from licensees towards development of basic common infrastructure facilities is taxable to service tax under service tax regulations?

Given the background that the licensee would pay the advance to DAPL for development of common infrastructure facilities, such as roads, power, water and other infrastructure facilities which DAPL is obliged to develop in terms of its Development Agreement with the licensees, and which eventually would be used by the said licensees, it is relevant to examine the subject transaction for service tax exposure.

The relevant taxable categories that need to be considered in the instant case are:-

Renting of Immovable Property Services.
Business Support Services
Airport Services.

Following is a brief analysis of the above taxable categories in terms of their applicability to the instant transaction;

Renting of Immovable Property Services; As per the definition of immovable property service under the service tax law (refer annexure 2 for the definition), this category covers the services of renting, leasing, letting of an immovable property for the furtherance of business or commerce. Further, immovable property has been defined to cover buildings and land appurtenant to these buildings. In the instant case the common facilities being used are understood to be that of road, power, water etc which are not in the nature of building/ part of building. Accordingly, since the facilities being provided do not fall under the definition of immovable property, no service tax implication would arise under this category. Further, these services cover renting, leasing, letting out of immovable property. Renting, leasing, letting out of facilities is an arrangement wherein an exclusive right is granted for the immovable property, whereas in this case the various sub-licensees would be using these common facilities and there would be no exclusive right to anybody. Since these services are neither for renting, leasing or letting out in relation to an immovable property, they would not attract any service tax under the category of Renting of Immovable Property.

Business Support Services; As per the definition of support service under the service tax law, this category covers the services provided for effective administration of an organization. It specifically includes service of provision of infrastructural facilities like that of office utilities, lounge, reception etc. As clarified by the CBEC instruction letter, this is infrastructural support for providing instant offices along with secretarial assistance also known as „Business Centre Servicesâ€Ÿ. The use of common facilities provided by DAPL to the sub-licensees would not fall under this category as these facilities are not in the nature of business centre services. Accordingly, these services are not chargeable to service tax under the category of business support services.

Airport Services; Airport services as defined under the Finance Act, 1994 (refer annexure2 for definition) are any services provided by the airport authority or any other person authorized by it, in an airport or civil enclave. In the instant case DAPL has been given the right to manage the property which flows from the right given by AAI to DIAL and then by DIAL to DAPL. Further as per the definition these should be services provided in the airport. For this purpose it is required to be examined whether the common facilities are located inside the airport.

The airport has not been directly defined under the service tax provisions. It is taken to have the sme meaning as is assigned to it by the Airport Authority Act, 1994, which while defining the term „airportâ€Ÿ uses the terms „aerodromeâ€Ÿ and „aircraftâ€Ÿ as defined in Aircraft Act, 1934. Following are the relevant definitions:-

„Airportâ€Ÿ has the meaning assigned to it in clause(b) of Section 2 of the Airport Authority of India Act,1994 (Section 65 (3c) of the Finance Act,

1994)

„Airportâ€Ÿ means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of Section 2 of the Aircraft Act, 1934.(Clause (b) of Section 2 of the Airport Authority of India Act, 1994).

„Aerodromeâ€Ÿ means any definite or limited ground or water area intended to be used, either wholly or in part, for landing or departure of aircraft and includes buildings, shed, vessels, piers and other structures thereon or appertaining thereto.(Clause (2) of Section 2 of Aircraft Act, 1934).

Combining and relating all the above definitions, the term „Airportâ€Ÿ would mean to cover the following :-

(i). Runways for landing and taking off of aircrafts.

(ii). Area where aircraft maintenance and passenger facilities are provided.

(iii). Aerodrome i.e an area intended to be used for landing or departure of aircraft and includes all buildings, sheds, vessels, piers and other structures thereon or appertaining thereto.

As we have been made to understand that the area on which the common facilities would be constructed falls beyond the boundary of the airport area used for landing and taking off of aircraft, a view may be taken that such area would not be appertaining to the area intended to be used for landing or departure of aircraft covered under the definition of airport as discussed above. Accordingly, the applicability of the category of airport service to the instant transaction can be ruled out.

Based on the above discussion, it may be seen that the advance received by DAPL from the licensees for development of common facilities by DAPL, does not sell under any of the taxable service category, therefore, there is no service tax exposure on the instant transaction.

C.Whether refundable deposits received by DAPL from the licensees for overall development of infrastructure facilities are liable for service tax?

The refundable deposits received by DAPL for overall development of infrastructure facilities would not attract service tax liabilities as the basic activity of such development would not attract service tax as per the above discussion.

6. The Office of Commissioner Service Tax, vide letter dated 16.05.2011 in response to inquiry made by M/s Aria, opined that Service Tax was payable on License Fees, for Development Right for the purpose of hotel, but the Opinion given was not final. On another representation by M/s Aria on 11.07.2011 an Assistant Commissioner was deputed on the site, who gave his report on

18.11.2011 indicating that site appeared to be located outside IGI Airport and License fee payable to DIAL was liable to tax. In another letter dated 02.12.2011, the Assistant Commissioner (Technical) stated that tax was required to be paid as „Renting of Immovable Propertyâ€Ÿ and not as „Airport Serviceâ€Ÿ. Another representation, as given in SCN, appears to have been made by M/s CAS Associates on 13/12/2011. Another representation was made by the appellant on 17.01.2012 on the same issue, however the Assistant

Commissioner in response, vide letter dated 08.02.2012 opined that License Fee is taxable as Airport Service. Another Clarification was received from Dy. Commissioner, Service Tax on 02.05.2012 stating that on re-examination of issue the Department is of the view that the license fee is chargeable to service tax as renting of immovable property services. However, the matter has been referred to Board Office for confirmation.But, no confirmation from Board was received by the Appellants. It is claimed by the appellant that the Development Agreement was duly enclosed by M/s Aria Hotels, while seeking clarification from Chairman CBEC, vide letter dated 11.07.2011. Similarly, letter dated

17.07.2012 to Commissioner, Service Taxclearly indicates that Development Agreement dated 04.07.2009 was duly enclosed. Even the notes to clauses of the Development Agreement, in Notes to Clauses No.1.1.39 clearly refers to and defines „Infrastructure Development and Services Agreementâ€Ÿ,even Para 6.1.2 also has a clear reference to „Infrastructure Development and Services

Agreementâ€Ÿ. The relevant portion of the said Para 6.1.2 is extracted below:-

“Provided that the Developer shall, subject to the terms of the „Infrastructure Development and Service Agreementâ€Ÿ, be solely

responsible to seek connection of, procure and ensure, at its own cost and expense, the supply of all fuel, consumables and other services and all other utilities required for the construction and operation and maintenance of Assets at Asset Area-3 and DIAL shall not be responsible to provide any infrastructure in relation to any such services and/ or utilities DIAL shall provide reasonable assistance to the Developer in applying for and procuring any such connections for supply of fuel and

other utilities.”

In the meanwhile, DGCEI initiated investigation, whether the element of „Advance Development Costâ€Ÿ received from Developers towards development of common infrastructure facilities, is classifiable as renting of immovable property services. Department is of the view that only one agreement should have suffice and the advance receipt for specific purposes of developing common facilities under IDSA, should also be included as License Fee. As such services provided or to be provided are in relation to vacant land. After completion of investigations based on facts narrated in preceding paras, Show Cause Notice dated 10.10.2014 was issued by the Additional Director General, DGCEI (Hqrs), New Delhi under F. No 574/CE/41/20/Inv./ Pt.II/11327 dated 10.10.2014. The said Show Cause Notice was adjudicated by the adjudicating authority on contest vide the impugned order wherein demand of Rs.

54,31,68,584/-(Fifty Four Crores Thirty One Lakh Sixty Eight Thousand Five Hundred Eighty Four) was confirmed, interest demanded under Section 75 and penalties under Sections 77 and 78 of Finance Act, 1994 were imposed. Hence the present appeal.

Sh Somesh Arora, Advocate, Ms Mehak Gupta and Sh A.S. Hasija, Consultant appeared for the appellant and Sh Amresh Jain, DR, appeared for Revenue.
Heard both sides and perused case records, oral and written submissions made and the case laws.
The issue before us is whether „Advance Development Costâ€Ÿ received from Developers towards development of common infrastructure facilities, is covered under service category of „Renting of Immovable Property Servicesâ€Ÿ and whether extended period of limitation can be invoked in the facts and circumstances of the case.

10.1. The definition of renting of immovable property as contained in Section 65(105)(zzzz) is as follows:

“Taxable services means any services provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or for furtherance of, business or commerce.

Explanation 1.- For the purposes of this sub-clause, "immovable property" includes -

building and part of a building, and the land appurtenant thereto;
land incidental to the use of such building or part of a building;
the common or shared areas and facilities relating thereto; and
in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, but does not include -
vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;
vacant land, whether or not having facilities clearly incidental to the use of such vacant land;
land used for educational, sports, circus, entertainment and parking purposes; and
building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

Explanation 2. - For the purposes of this sub-clause, an immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce;

11.We observe that granting of License to the Developer for the Asset Area and Development of Common infrastructure facilities, outside the Asset Area, are two independent and distinct transactions and the same cannot be considered together, so as to constitute a single transaction: The basic nature of two agreements is distinct and the same conferred different rights, obligations and therefore have a distinct scope. From the perusal of these agreements, it is clear that the Development Agreement provided exclusive right and payment of

License Fees to develop Hotels etc. on the designated portion or plot of land. The „Infra Development and Service Agreementâ€Ÿ (Infra Agreement) conferred no exclusive rights but obligation on DIAL to develop common facilities for the various developers, as well as the common public, on payment of apportioned shares of such approx developments cost, outside Asset Area-3, on all Developers. It is seen that there were financial obligations imposed on DIAL in case it failed to provide the facilities, even in future. The Infra Agreement had two components (i) Development of Common facilities (ii) Maintenance of various services, -both are in relation to real estate which were not part of Asset Area-3 and are related to Common and Public Area with no exclusive right being conferred. Under the OMD Agreement entered between the appellant and AAI, appellants had responsibilities to adhere to various construction norms, civil aviation security norms and norms of master plan of Delhi Government and of other agencies. Therefore, even while allowing development rights to developers in allocated development area, as per norms and approved plans, for common areas, it had to perform supervisory role to develop facilities as per approved plans. Since it was the appellantâ€Ÿs responsibility, as a privy to contract under OMD Agreement, to be responsible for operation management and development. In terms of the agreements such common facilities could not have been developed by any developer for everyone including members of public. Therefore, only the appellant was responsible to do the same. It is hard to equate, by any reasoning, development of common facilities with any leased or rental property and such common facilities were never the exclusive right of any developer. As per the Agreement the appellant had to recover such development cost of common facilities from the Developers, as the appellant was providing common facilities as well as plug in facilities in relation to road network, water, power supply, storm water drain etc. and the Developers could have their own internal developments to suit the requirement of their own development of Hotels etc. Further, as per the terms of IDSA no profit was to be made or surplus retained by the appellant, and any excess deposit of the Advance Development Cost was liable to be returned to the 13 parties/ developers after completion of the work. Therefore, no consideration for any purported service has been retained by the appellant. The provision of gross value invoked by the Department under Section 67 of the Finance Act, 1994, for the activities performed prior to amendment of Section 67 w.e.f. May 14, 2015, can not include the value of goods and services, cost of which is only defrayed or reimbursed to the appellant even in advance, in terms of IDSA, The Department has failed to show, if any portion was retained by the Appellant as its remuneration for alleged services provided. Reliance in this regard is placed on 2018 (10) G. S. T. L. 401 (S. C.), in the matter of Union of India Vs.

Intercontinental Consultants and Technocrats Pvt. Ltd. (Para 16, 22, 24,

25 and Para 29). The relevant paras are extracted below;

16. Mr. J.K. Mittal, Advocate, appeared for M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. He argued with emphasis that the impugned judgment of the High Court was perfectly in tune with legal position and did not call for any interference. At the outset, he pointed out that the Parliament has again amended Section 67 of the Act, by the Finance Act, 2015 w.e.f. May 14, 2015. By this amendment, explanation has been added which now lays down that consideration includes the reimbursement of expenditure or cost incurred by the service provider. Taking clue therefrom, he developed the argument that for the first time, w.e.f. May 14, 2015, reimbursement of expenditure or cost incurred by the service provider gets included under the expression „considerationâ€Ÿ, which legal regime did not prevail prior to May 14, 2015. Therefore, for the period in question, the „considerationâ€Ÿ was having limited sphere, viz. it was only in respect of taxable services provided or to be provided. On that basis, submission was that for the period in question, that is covered by these appeals, there could not be any service tax levy on reimbursed expenses, as Section 67 of the Act did not provide for such an inclusion. Mr. Mittal also referred to Para 2.4 of Circular/Instructions F. No. B-43/5/97-TRU, dated June 6, 1997 wherein it is clarified that “...various other reimbursable expenses incurred are not to be included for computing the service tax”.

22.Section 66 of the Act is the charging Section which reads as under:

“there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of

Section 65 and collected in such manner as may be prescribed.”

24.In this hue, the expression „suchâ€Ÿ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing „suchâ€Ÿ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service, cannot form part of that valuation as that amount is not calculated for providing such „taxable serviceâ€Ÿ. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of

Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider „for such serviceâ€Ÿ and the valuation of service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.

25.This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.

29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended vide Finance Act, 2015, with effect from May 14, 2015, whereby Clause (a) which deals with „considerationâ€Ÿ is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of

Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under : A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of “interpretation of statutes”. Vis-a-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.

Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrowâ€Ÿs backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.”

Reliance in this regard is also placed on the decision of this Bench (same composition) in the matter of Premium Real Estate Developers, Rajat Yadav Vs. C. S. T. Service Tax, Delhi, Final Order No.53322-53323/2018 dated 30.09.2013, where the issue before the bench was relating to Advance receipt by the Appellants for purchase of land, Development of Land and Registration of land. The Settlement of the Accounts was still to take place and the exact component of consideration of alleged service received was still to be ascertained. The Department was of the view that advance received by the appellant itself was taxable in its hand as per Section 67. Disagreeing with the proposition, and giving relief to the party the bench observed as follows: ‘Para 29. We feel that since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of the view that taxable value itself has not acquired finality in this case.

Para 31. As discussed above, since the exact amount of remuneration for providing any services, if any, has not been quantified, at the same time since most of the MOU remained to be fully executed and therefore the exact amount of remuneration, which was the difference in amount paid to the seller of land and average price decided in MoU, could not be finalized and therefore we feel that taxable value has not reached finality and therefore demanding service tax on the entire amount paid to the appellant for acquisition of land is not sustainable in law in view of the discussion in the preceding paras.

Para 32. Further we find that the issue relates to interpretation, and there is no malafide on the part of the appellant. The transaction is duly recorded in the books of accounts maintained by the appellant. Further, there is no suppression of information from the revenue. Accordingly, we hold that the extended period of limitation is not applicable.”

Reliance in this regard is also placed on the decision of this Tribunal

Bench- Chennai, in the case of Commr. Of C.Ex. & S.T, Madurai Vs Sashwath Construction Pvt Ltd-2018 (10) GSTL 273 (Tri-Chennai) wherein it was heldConstruction of Residential Complex Service,-Amount received by builder from allottees under category â€Ÿeasement rightsâ€Ÿ for using certain common areaTaxability of-Order of authorities below holding amount being relatable to construction and land value, hence not taxable, sustainable especially when Revenue not challenged such finding on merit but only contested that the same is beyond the scope of show cause notice-Amount received for easement rights held not taxable-Section 65 (30)(a) and 65 (105) (zzzh) of the Finance Act, 1994.

Development of Common Infrastructure facilities outside Asset Area cannot be construed as „Renting of Immovable Propertyâ€Ÿ or a service in relation to the renting of immovable property. The treatment of reimbursement of cost, of common facilities, as „Renting Serviceâ€Ÿ by the Adjudicating Authority is not legal because such common facilities were developed by taking advances as a pool of fund, for the infrastructure to be used by common beneficiaries and the account was to be settled as per Agreement by returning excess, if any, or charging deficit, etc. if any, if the cost of the works exceeded or was less than the amount collected as advance. It is common knowledge that rent/lease rent is never subjected to such accounting on real cost basis. It is not in dispute that the maintenance element in future, was the service, on which appellants were duly discharging tax liability alongwith that on the lease rent of the land of Asset Area-3. In fact, such common area facilities were outside the vacant land in Asset Area-3. For rent on immovable property service, the expression „in relation toâ€Ÿ has to be read in conjunction with the expression „rentalâ€Ÿ. The term „rentalâ€Ÿ even in enlarged form of Lease, Rent, Licence, etc., cannot encompass anything done for development of the common facility/ property. There is difference between anything done in relation to „renting of immovable property serviceâ€Ÿ and anything done in relation to „immovable propertyâ€Ÿ per-se, which is in common domain. The latter cannot fall within the ambit of the former,
From the definition of Renting of Immovable Property Services as contained in Section 65(105)(zzzz), (reproduced above), it is evident that in order to be covered under renting of immovable property services, the nature of the activity should be that of renting or letting or leasing or licensing or other similar arrangements of immovable property for use in the course or furtherance of business.

A perusal of the definition of the word „rentingâ€Ÿ shows, that the transaction should be under any tenancy, lease, license or any other similar agreement arrangement, whereby an immovable property is given for use to the service recipient. It would be worthwhile to consider the meaning/ definitions of various words namely, rent, lease, license, etc, used in the definition of renting of immovable property. Dictionary meaning of various terms are extracted below;

Renting

It is act of letting out or allowing the use to another person.

As per Blackâ€Ÿs Law Dictionary, Renting means usually fixed periodical return, especially, an agreed sum paid at fixed intervals by a person for any use of the property or car.

The definition of „leaseâ€Ÿ and „licenseâ€Ÿ as envisaged under Section 105 of Transfer of Property Act and Section 52 of the Indian Easement Act, respectively;

Section 105 of Transfer of Property Act reads;

“105. Lease Defined-A lease of immovable property is a transfer of right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or anything of value, to be rendered periodically or on specified occasions to the transferor by the transferee who accepts the transfer on such terms.”

Section 52 of the Indian Easement Act, 1882 reads;

“License Defined—Where one person grants to another, or to a definite number of other persons a right to do, in or upon the immovable property of the grantor, something which would, in the absence of which, be unlawful and such right does not amount to an easement or an interest in the property, the right is called license”

Section 105 of Transfer of Property Act,1882 defines a lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. Under 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of interest in the immovable property. The transfer of interest is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease and it follows from it that the lessee gets that right to the exclusion of the lessor. Whereas under Section 52 of the Indian Easement Act, 1882, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a license. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission his occupation would be unlawful. It does not create in his favour any estate or interest in the property.

In this regard reliance is placed on the decision of the Honâ€Ÿble Supreme Court in the case of C.M. Beena Vs P.N. Ramachandra Rao-(2004) 3 SCC 595 wherein it has been held that lease refers to conferring of a right to possess exclusively coupled with transfer of a right to enjoy the property.

It is evident that the transaction of renting an immovable property includes within its scope the granting of the right to use the immovable property by way of tenancy, lease, license etc. It also includes any other arrangement of similar nature. In order to understand the scope of „any other arrangement of similar natureâ€Ÿ the rule of ejusdem generis is to be applied. A lucid illustration from Salmond on Jurisprudence Twelfth Edition, page 135, is extracted with advantage;

“This (i.e the rule of ejusdem generis) however, is only the application of a common sense rule of language. If a man tells his wife to go out and buy butter, milk, eggs and anything else she needs, he will not normally be understood to include in the term „anything else she needsâ€Ÿ a new hat or an item of furniture”

The words used together should be understood as deriving colour and sense from each other. The rule of ejusdem generis is generally invoked where the scope and ambit of the general words which follow certain specific words (which have some common characteristics and constitute a genus) is required to be determined. By the application of this rule, the scope and ambit of general words which follow certain specific words constituting a genus, is restricted to things ejusdem generis, with those preceding them. To put it differently, the general expression has to be read to comprehend things of the same kind as those referred to by the preceding specific things, constituting a genus. Thus, as per the well known rule of interpretation namely, ejusdem generis, words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. In other words, the specific words will control the interpretation of the general word, which follow them, By applying the principle of ejusdem generis the general term of „other similar arrangementâ€Ÿ has to be interpreted in the light of the specific terms

used in the definition, namely, renting, letting, leasing and licensing.

16. As discussed abovethe term „rentâ€Ÿ means letting out or use by another person usually for fixed periodical return. It cannot encompass Development and Maintenance of common facilities, which was to be defrayed on the basis of actual expense incurred. Again lease involves transfer of rights by transferor to the transferee. In this case, there is no right vested in immovable property to be transferred to Developer, again for License a right is required to be conferred to do or continue to do something upon the immovable property of the granter. In this case however, the common area is meant for public use and such immovable property is neither the property of DIAL nor the developer. The road network, metro facilities, etc. are for the general/common use of public and confer any rights, neither on DIAL nor on any Developers. Advance Development Cost is not consideration for any services rendered. In this regard a fine distinction has been drawn by this Tribunal, „As to what amounts to Services having connection with the Renting of Immovable Property and the services which have relation to the construction of building on a vacant land allotted on free hold basis. The latter were held not taxable as they had nexus with the construction of building on the vacant land and therefore, did not attract Service Tax. Reliance in this regard is placed on 2014 –TIOL-1741-CESTAT-DEL in the matter of M/s Greater

NOIDA Industrial Development Authority Vs. Commissioner of Central Excise And Service Tax, NOIDA (Para 11.2).

“However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis, have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges etc. would not attract service tax.”

As per case of M/s Greater NOIDA Industrial Development Authority,

(supra) the charges collected to undertake various municipal functions like Fire Services, Public amenities, public conveniences including street lightings, parking light, were in the nature of services to be provided by the municipalities and were liable to tax under Management Maintenance and Repair Services in respect of charges collected from allottees., even when within specified industrial area and not outside, it was regarded not as „Renting of Immovable Property Service,â€Ÿ but as „Management Maintenance and Repair Servicesâ€Ÿ. Therefore, by no sense of imagination, the Common Area Services outside „Asset Areaâ€Ÿ can be regarded as Renting of Immovable Property

Services.

Reliance in this regard is also placed on the matter of RICO LTD. VS.

COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I-2018 (10) G. S. T. L. 92

(Tri. Del):

We find that there is no Service Provider-Service Recipient relationship between the appellant and the Developers, as regards the Advance development cost, because common facilities developed belong to none (held in trust) and the benefit is derived by all the 13 developers, as well as the public. Hence the same is not liable to Service Tax. It is also an undisputed fact that the appellant was not entitled to retain any portion of advance development cost as its own profit or remuneration for service. The whole cost estimated was apportioned between the 13 Developers @ Rs.1100/- per Sq. ft of GBA (gross built up Area) of construction done by developers in the assets area of 45 acres. The whole Advance Development Cost under the IDSA contract was required to be either spent as per the estimates and excess if any, was to be returned. Since there is only development of common infrastructure facilities involved (as trustee), there is no service flowing from any party to other. The common facilities developed are also outside the asset area which is in the nature of infra development and the same is neither renting of immovable property, nor in relation to renting of immoveable property. Development of common infra outside asset area cannot be said to be in relation to renting of immoveable property, as no interest in common area is transferred under IDSA to developer. In fact the services which can be in relation to renting of immoveable property are in the nature of broker services etc., and not infrastructure facilities which become part of immoveable property in common areas. In fact Section 65(105)(zzzz) explanation 1 sub clause 4 includes within the ambit of immoveable property, only such common areas and facilities which are within complex of such estates. The area outside and common facilities outside such area, are certainly not included. Advance development cost is not consideration for any services rendered, therefore, Section 67 has been improperly invoked to take gross value as consideration for alleged services provided, even when whole of the deposit is liable to be spent and nothing retained as per the IDSA agreement. This position stands amply clarified in U.O.I vs. Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (10) G.S.T.L. 401 (S.C.). Even in Ahmedabad Management Association vs. Commissioner of Service Tax, Ahmedabad- 2009 (14) STR 171 (Tri. Ahmd) - This tribunal held that a quid pro quo has to be established before levying service tax. Thus the recovery of cost cannot be made liable to service tax.
It is settled law that service tax, if any, is not applicable on the Advance Development Cost received prior to 01.07.2010. In the instant case taxable event happened even prior to the date when licensing of vacant land was included in the renting of immovable services w.e.f 01.07.2010. Therefore, taxable event having occurred earlier to the point of levy of service tax, the same cannot be levied. Reliance is placed on:
(2000) 119 SCC 182 (SC), 20^th Century Finance Corporation Ltd. and Anothers vs. State of Maharashtra.
2009 (13) STR 159 (Tri. Bom): Bajaj Allianz General Insurance

Co. Ltd. vs. CCE, Pune.

In any case the development of land or common facilities for commercial exploitation and usage by public cannot be termed as Renting of Immovable Property as it is the case of Land Development. Reliance in this regard is placed on2015 (37) STR 859 (Tri. Del.) as confirmed in 2015 (040) STR J132

(S. C.) in the matter ofAlokik Township Corporation Vs. Commissioner of Central Excise and Service Tax, Jaipur-I. (Para 7 and 7.1):- In which matter construction of sewerage line, laying of underground water supply pipe line or of overhead water tank, construction of dividers and footpath along with plantation were clearly held as activities relating to land development. Number of activities performed in the instant case in relation to land like levelling of land and preliminarily development, boundary wall, construction of road as per norms, landscape garden, construction laying of open and underground drainage, water management, footpaths, construction of tanks, laying of water supply and sewerage pipelines are similar to the activities in the present case. Further the findings of the Ld Commissioner that „ the situation is akin to one where some well known developer of residential land like DLF or HUDA were to charge two amounts for the plots one for the land and the other one for the facilities and amenities like roads, water, sewerage, parks, etc. Obviously, the development charges are part of the charges meant for the land with the specific land useâ€Ÿ. The Ld. Commissioner thereby admits that all development charges are in relation to development of land with common facilities and not for renting. Therefore, based on discussion in the preceding paras, we are of the view that the „Infrastructure development costâ€Ÿ as per IDSA is not covered under renting of immovable property and is not chargeable to service tax.

a.Second issue on which the appellant has asserted is that extended period of limitation cannot be invoked in the present case and the demand, if any, is time barred. We find that there is nothing brought out on record that the appellant had any intent to evade payment of Service Tax on the consideration paid by the Developers for renting, as alleged. In fact the Appellant had paid Service Tax on the consideration being Licence Fees. There appears no suppression as everything was revealed and was available on Balance Sheet submitted to the Department during Audit conducted from July, 2012 to 2013 and also the same were reflected in ST-3 Returns. It is clear that the appellant nurtured a bonafide belief and it involves interpretation The Department was also not clear on the matter, as is clear from various correspondences discussed in the preceding paras.. Reliance in this regard is placed on:2016 (42) STR

634 (Cal.): in the matter ofSimplex Infrastructure Ltd. Vs. Commissioner Service Tax, Kolkata-Extended period not applicable-when assessee is diligent in responding to all notices issued by the Department explaining nature and scope of their business with supporting documents- There was full and sufficient disclosure of nature of assesseeâ€Ÿs business– There was no suppression of material facts to keep

Department in dark with deliberate intent to evade payment of Service tax, - Section 73 of Finance Act, 1994 not invocable. It is settled law that the element of „intent to evadeâ€Ÿ is inbuilt in the expression „suppressionâ€Ÿ – Reliance in this regard is also placed on 2006 (4) STR 583 (Tri. Bang.) in the matter of Elite Detective Pvt. Ltd. Vs. Commissioner, and Religare Securities Ltd. Vs. CST, Delhi as reported in 2014 (36) STR 937 (Tri. Del.): wherein it was held that- the suppression of fact has to be „with intent to evadeâ€Ÿ.

We note from the facts of the case that it was the appellant who had sought clarification from the Department regarding taxability or otherwise for various services provided by them. On 16.05.2011, Office of Commissioner gave interim reply, stating opinion was not final. On

18.11.2011 an Assistant Commissioner after visiting the site gave the opinion that tax was dischargeable as renting of immovable property. Again on 08.02.2012 an Assistant Commissioner opined that „Licence Fee is taxable as Airport Serviceâ€Ÿ. Lastly on 02.05.2012 Deputy Commissioner of Service Tax on re-examination gave opinion that the alleged service is taxable as renting of immovable property but at the same time the matter has been referred to the Board Office. Till date no clarification from the Board has been received. It is thus clear that the matter involved both physical verification as well as examination of legal issue on which even within the Department different sets of opinion existed. Again, all agreements IDSA and Development Agreement were entered from June, 09 to Feb, 2010 i.e prior to date of lease rent of vacant land becoming taxable Renting of vacant land was brought under service tax net w.e.f. 1.07.2010. Therefore, no tenable assertion can be made that the appellant, with deliberate intent, entered into two sets of agreements on same date, as alleged by the department, thereby ignoring the vital fact that there is a vast difference in nature and activities covered by Development Agreement and IDSA.

It is on record that Development Agreement was enclosed by M/s Aria Hotels while seeking clarification from Chairman vide letter dated

11.07.2011 Similarly, letter dated 17.07.2012 to Commissioner, Service Taxindicates that Development Agreement dated 04.07.2009 was duly enclosed. Also the notes on clauses of the Development Agreement, in Clause No.1.1.39 clearly refer to and defines „Infrastructure Development and Services Agreementâ€Ÿ. Therefore, it is not correct that the appellants had not informed or misled the Department about the existence of IDSA. It is on record that all the clarification by M/s Aria and the Appellants were in relation to License Fee of vacant land and that the Legal Opinion of PWC dated 09.07.2007 had clearly indicated that the advances received towards Development of basic common infrastructure facilities were not liable to service tax either as „Renting of Immovable Property Servicesâ€Ÿ as they do not vest any exclusive right in any immovable property in creation of common facilities or „Business Support Services or „Airport Servicesâ€Ÿ.Even when „Renting of Immovable Property w.e.f. 01.07.2010, included vacant land, the opinion has remained relevant because no exclusive right stood vested in creation of common facility.

Again as far as non- taxability of Advance Development Cost is concerned, appellant had acted on legal opinion given by PWC which had clearly opined in 2007 that since what has been developed was infrastructure for common facilities and no exclusive rights has been vested in one or any developer. Therefore, such ADC was not taxable as renting of immoveable property. The reasoning given by the PWC in its opinion dt.09.07.2007 continues to be valid even after amendment in the definition of renting of immoveable property with effect from 1.07.2010, which brought even the vacant land with the scope of renting of immoveable property services. Therefore, we hold that extended period of limitation cannot be invoked in the facts and circumstances of the case in hand.

20. In view of the above, we hold that the impugned order is not

sustainable under law and, therefore, is set aside and the appeal filed by the appellant is allowed with consequential relief, if any.

(Order pronounced in the open court on 08.02.2019. )

(C. L. Mahar) (Anil Choudhary)

Member (Technical) Member (Judicial) Rekha

Delhi international Airport Limited Appeal No.ST/52815/2016-CUS [ DB] Decided on 18.01.2019

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI

PRINCIPAL BENCH, COURT NO. II

Date of Hearing: 04.12.2018 Date of Decision: 18.01.2019

Appeal No. ST/52815/2016-CUS [DB]

[Arising out of Order-in-Original No. OIO-DLI-SVTAX-003-COM-56-15-16 dated 12/07/2016 passed by Commissioner of Service Tax-DELHI-III]

DELHI INTERNATIONAL AIRPORT LIMITED Appellants

Vs.

CGST-DELHI III Respondent

Appearance:

Shri Somesh Arora, A.S. Hasija, Advocate for the Appellants

Shri Amresh Jain, AR for the Respondent

CORAM:

Hon’ble Shri Anil Choudhary, Member (Judicial)

Hon'ble Shri C.L. Mahar, Member (Technical)

FINAL ORDER NO._50064/2019__

Per Anil Choudhary:

The issue in this Appeal is whether service tax have rightly been levied on „Development Feeâ€Ÿ, collected by the appellant, from the passengers at IGI Airport.
M/s Delhi International Airport Limited w.e.f 10.04.2017 (hereinafter Appellant) has filed the present appeal against the Order-InOriginal No. DLI-SVTAX-003-COM-56-15-16 dated 12.07.2016 passed by the Commissioner of Service Tax, Delhi-III (Adjudicating Authority). Vide the impugned order the Adjudicating authority has adjudicated the following Show Cause Notices:-

Show Cause Notice dated 24.06.2011 issued vide F. No DLII/ST/R-XI/SCN/DIAL/29/2011/987 for Rs.128,33,10,337/-
Addendum to Show Cause Notice dated 19.09.2011 issued vide F. No DL-II/ST/R-XI/SCN/DIAL/29/2011/1501 for Rs3,55,65,653/-

Show Cause Notice dated 18.04.2013 issued vide F. No DLII/ST/R-XI/SCN/DIAL/29/2011/292 for Rs 44,37,26,187/-
Show Cause Notice dated 21.10.2014 issued vide F. No DL-II/ST/R-XI/SCN/DIAL/29/2011/1262 for Rs 85,80,22,610/-

Total Rs. 262,06,24,787/-

The appellant is a company incorporated under the provisions of Companies Act, 1956 and is registered with Service Tax Department vide Registration No. AACCD3570FST001. They entered in Agreement with

Airports Authority of India, for „Operation, Management and Development Agreementâ€Ÿ (OMDA) dated 4th April, 2006, to undertake some of its functions namely, operating, maintaining, developing, designing, constructing, upgrading, modernizing, financing and managing IGI Airport and to perform services and activities constituting Aeronautical and NonAeronautical services (excluding the Reserved Activities) at the IGI Airport.

As per the OMDA the appellant has been granted the exclusive right in respect of IGI Airport inter alia to develop, finance, design, construct, modernize, operate, maintain, use and regulate the use by third parties of the airport and to enjoy complete and uninterrupted possession and control of the airport site and the existing assets for a period of 30 years (with an option to extend it by another 30 years)
As per the terms of OMDA, the appellant was granted the right to determine, demand, collect, retain and appropriate charges from the users of Airport which will be in the nature of aeronautical charges, charges for non-aeronautical services and Passenger Service Fee. The aeronautical charges are levied by the appellant at IGI Airport for provision ofAeronautical services and consequent recovery of costs relating to Aeronautical Assets and the same are determined as per State Support Agreement. Further Passenger Service Fee are collected and disbursed in accordance with the provisions of State Support Agreement. These charges are not in dispute. The AAI Act and the Aircraft Rules, 1937 permit collection of certain regulated charges from the passengers at the IGI Airport. Such regulated charges are permitted to be collected from the passengers at the IGI Airport, are (a) Passenger Service Fee under Rule 88 of Aircraft Rules, 1937 and (b) Development Fee (in short DF) under Section 22A of the Airports Authority of India Act, 1994.

The Central Government vide Letter No. AV.24011/002/2008-AD dated 09.02.2009 conveyed their approval under Section 22A of the AAI Act, for levy of DF by the appellant at the IGI Airport @ Rs. 200/- per departing domestic passenger and @ Rs.1300/- per departing international passenger purely on “ad hoc” basis. The “ad hoc” approval granted was subject to submission of final project cost estimates. The said approval; for levy of DF was allowed based on appellantâ€Ÿs request to bridge funding gap of the project cost through DF. The appellant vide its letter dated 09.03.2009 intimated the Commissioner of Service Tax, New Delhi that levy of DF is in the nature of statutory levy to fund a public purpose and not towards rendition of any service per se. That the DF is not in connection with provision of taxable service, and hence not subject of levyof Service Tax.

The adjudicating Authority adjudicated the aforementioned Show Cause Notices vide the common impugned order wherein demand ofRs.262,06,24,787/- was confirmed under Proviso to Section 73(1) of Finance act, 1994. An amount of Rs. 130,17,48,797/- already deposited by the appellant under protest, was appropriated, interest under Section 75 ofFinance Act, 1994 demanded and penalties under Section 78 and 76 of the Act ibid, were imposed. Hence the present appeal.

Shri Somesh Arora, Advocate appeared for the appellant and Sh Amresh Jain, DR, represented Revenue.
Learned Counsel for appellant relies upon the definition of „airportâ€Ÿ in Section 65(3c) of Finance Act, 1994 and the taxable service in Section 65(105)(zzm) to contend that the taxable activity cannot be said to have occurred as the collections are intended for future development(s) whereas „airportâ€Ÿ as referred to in Section 65(105)(zzm) is the existing airport.Drawing attention to the decision of the Honâ€Ÿble Supreme Court in Consumer Online Foundation & Others v. Union of India [(2011) 5 SCC 360] it was claimed that such statutory levies being in the nature of cess or tax, was not liable to taxation. The following cases were also relied upon

i. Mumbai International Airport P. Ltd. Vs Commr. Of ST-I, Mumbai-2017 (51) STR 280 (Tri-Mumbai)

ii. Cochin International Airport Ltd. v. Commissioner of Central Excise & Customs, Kochi-2007 (7) STR 468 (Tri-Bang)

iii. Commissioner of Central Excise v. Cochin International Airport Ltd-2009 (16) STR 401 (Ker)

Learned DR supported the impugned order contending that in the impugned order the appellant as well as the passengers did not entertain the idea that they were collecting or paying a tax when transacting in the development fee and thereby seeking to counter the plea on behalf of the appellant, that this levy should have the status of a tax.
We find that identical issue has been dealt with by the co-ordinate bench of Mumbai Tribunal in the case of Mumbai International Airport P. Ltd. Vs Commr. Of ST-I, Mumbai-2017 (51) STR 280 (Tri-Mumbai) as under:-
" 8. The tax authorized to be collected as per Section 65(105)(zzm) of Finance Act, 1994 after 1st July, 2010 is on service :

“to any person, by airport authority or any other person, in any airport or a civil enclave” for the period prior to that was :

“to any person, by airports authority or any person authorized by it, in an airport or a civil enclave”

9.Undoubtedly, for exigibility to tax, the service must be rendered to a person by the specifically described service provider within an airport. The scope of the activities of the appellant vis-à-vis passengers who bear the burden of „development feeâ€Ÿ needs examination.

Passengers in an airport are individuals who intend to travel by an airline that has the said airport as a scheduled port of call. The contractual nature of this relationship is enshrined in the ticket, which provides access to the airport, process through check-in and security, space for waiting and necessary amenities and provision for boarding an aircraft.

There is no assertion in the impugned proceedings that the passenger is required to effect payment for any of these activities. These facilities were available without any additional charge before the imposition of „development feeâ€Ÿ and continue to be available after its quashing. No additional benefit accrued to the passenger during the period of levy of „development fee.â€Ÿ These are basic facilities that is inherent in the civil aviation sector in which the appellant, a non-public sector entity, is a recent entrant.

10.Civil aviation sector in India was, for long, under the monopoly of the Government of India with carriage effected by two corporations established by Acts of Parliament and the „ground facilitiesâ€Ÿ under the control of the Ministry of Civil Aviation. Air carriage was de-nationalised first and, in keeping with the evolving trend of autonomy for infrastructure sector, management of airports were consolidated under a single authority with the enactment of the Airports Authority of India Act, 1994. Later on, airport operators were brought into the legislative framework by incorporation of leasing mechanism. The appellant is one such.

11.Owing to this transition from being a departmental undertaking of the Government to an authority with consequent financial independence but at the same time requiring, in the interest of safety and security, some level of control, de-regulation was of limited and confined to the financial aspect of airport management. Having created a statutory authority, it was also incumbent upon the statute to contain the scope of the functions of the authority. Hence the specific enumeration of role and responsibility in Section 12 of the Airports Authority of India Act, 1994. Despite the grant of financial autonomy the need for dependence on the State exchequer could not be eliminated and hence appropriate types of levies as well as restrictions on their utilization were incorporated in the statute. To be noted in particular was the control imposed on the collections that do not relate to commercial operations. The provisions of Sections 22 and 22A of the Airports Authority of India Act, 1994 should be viewed in the specific context of substitution of the constitutional funds of the Government of India for deposit and drawal with that of the accounts of the Authority.

12.Section 22 of the Act enables the airport authority to charge users of its facilities. We have noted supra that this provision was never invoked for passengers and payments were restricted to and only upon exercise of option to procure food and non-food articles from licencees situated in the airport premises. On the other hand, the levy under Section 22A of the Act did not afford the privilege of exercise of an option by the passenger and enforced, without consent of the passenger, through the airlines on the basis of passenger data furnished by them on a fortnightly basis. The amounts so collected were placed in an escrow account owing to the restricted scope of expenditure being specifically enumerated in Section 22A of the Act. There is, therefore, a substantive difference between a charge under Section 22 and levy under Section 22A. It could well be said that charge under Section 22 if visited upon a passenger would be a consideration for a service. Such an interpretation cannot be accorded to a levy under Section 22A which is independent of Section 22 and distinct in the method of implementation - in procedure and rigidity - as held by the Honâ€Ÿble Supreme Court in re Consumer Online Foundation (supra).

13.Consequently, the proximateness of the levy of „development feeâ€Ÿ to the facilities offered under Section 12 of the Airports Authority of India Act, 1994 is not established. The decision of the Honâ€Ÿble Supreme Court in re Consumer Online Foundation (supra) makes it abundantly clear that „development feeâ€Ÿ is a levy for a future establishment. This reinforces our conclusion that there are no services being rendered for which this levy is being charged.

14.It is the contention of the Learned Authorized Representative that with the striking down of this levy in the case of the appellant, the amounts so collected do not require to be utilized in a manner prescribed in the Act and, hence, should be deemed to be collection for commercial purpose. We cannot agree with this contention because the Honâ€Ÿble Supreme Court in the very same decision has directed that the amount so collected should necessarily be used only for the purpose intended in Section 22A of the Act. In that context, the attempt by Revenue to cite intention of the two parties by reference to Bharat Sanchar Nigam Ltd.

supra as germane to delinking it from tax is rendered irrelevant.

15.The decision of the Tribunal in Cochin International Airport Ltd.v. Commissioner of Central Excise & Customs, Kochi-2007 (7) STR 468 (Tri-Bang) affirmed by the Honâ€Ÿble High Court of Kerala- 2009 (16) STR 401 (Ker) and by the Honâ€Ÿble Supreme Court-2010 (17) STR J79 (SC) has again clarified that the „development feeâ€Ÿ is not linked to provision of service and hence not liable to service tax. The Honâ€Ÿble High Court of Kerala had observed thus :

“… … … Even though Airport is also rendering services to the passengers like restaurants, air-conditioning, facility for foreign exchange transactions by allowing Branches of Banks and other dealers to operate, duty free shop for incoming and outgoing passengers to purchase articles, etc., service tax can be demanded for such services only when

Airport collects service charge for any of the services rendered by them. A Single Judge of this court in the judgment reported in a batch case namely, OP. No. 13451/1996 and connected cases held that similar fee collected by the Kozhikode Airport Authority is without any justification.

Even though appeal was filed against the said judgment before the Division Bench, we are told that the Calicut Airport discontinued collection of users fee. Following this, the respondent also has stopped collection of users fee. The facts and circumstances of the case and the evidence clearly prove beyond doubt that the users fee collected is only for enhancing the revenue of the Airport and not for any service rendered to outgoing international passengers. Section 67 defining value of taxable services for charging service tax says that the value of service shall be gross amount charged by the service provider for the service provided to the recipient. Since collection of users fee is not for any specific service rendered by them, but is a flat rate of charge to one category of passengers namely, outgoing international passengers, it cannot be said that the amount so collected is by way of service charge. We, therefore, hold that the Tribunal rightly held that no service tax is payable for the users fee collected by the respondent. The appeals are accordingly dismissed.”

We in complete agreement with the conclusion arrived at hold that the ratio of the above said judgment squarely covers the case in hand. We find no reason or occasion to differ with the same. In view of the above and the definition of „airport servicesâ€Ÿ in Section 65(105) (zzm), we hold that service tax is not chargeable on Development Fee. Accordingly we find that the impugned order is not sustainable in law and we set aside the same with consequential relief.
Appeal is accordingly allowed.

(Order pronounced in the open court on_18/01/2019_)

(C. L. Mahar) (Anil Choudhary)

Member (Technical) Member (Judicial)

Rekha

BITS & BYTES,2018 Published in RTT.

Bits & Bytes :

By:

Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

The corrupt belly:

On a visit to Pakistan in 1991, I had an occasion to be around when Pakistani Customs made an unclaimed consignment of seven Kgs of Heroin caught in Samjhouta Express (Lahore side). I congratulated the Assistant Commissioner with whom I happened to be sitting with. While instructing the intercepting party, the Assistant Commissioner was getting annoyed with the staff over unclaimed seizure from the train bogey. After parting company from A.C., the Inspector from Pakistani Customs who was escorting me told me that they have disposed drugs at Rs.20,000/- per Kg. On my expressing shock, he informed it was with knowledge of Assistant Commissioner. ‘Why was he pulling up you guys over unclaimed seizure then?’ I asked. To be informed that claimed seizure would have meant more money from smuggler. ‘But don’t you have anti-corruption agencies like CBI as we have? ‘I asked, “We do have. Par auna de vi didh ne. Allah janda “He replied. (God knows that such agencies also have a stomach) May our CBI never have such didh( Belly)!

Trespassing and killing in Sentinel Island of Andaman & Nicobar:

The killing of American Tourist Mr. Allen John has raised many eyebrows both relating to legality of the issue as well as diplomacy. The subject was reportedly killed while trying to venture on the prohibited island of Hunter tribal, who remain cut off from the present civilisation. The North Central Island is outbound for visitors, but Mr. Allen John managed to get illegally ferried close to the island with the help of some fisherman. While a Murder case has been registered relating to the death of U. S. citizen. Probe also indicates that Mr. Allen John had visited the island earlier also. It is also revealed from the diary of this U. S. Missionary that the so called tourist was a Christian evangelist who attempted to convert one of the world’s last remaining isolated tribe and had a conviction in his conversion mission as per the diary notes found written by him. It has also became known that Mr. Allen John in his earlier attempt for converting tribes was shot at with the bow and arrow, piercing a bible he was carrying. He even considered the island as the Satan’s last strong hold. He had earlier also reached the isolated island on fishing vessel under cover of darkness and evading patrol parties. It is clear from the diary entries that he was on a virtual suicide mission. While the tribes have a history of killing poachers, Indian Government gave sufficient warning and has even a patrol to not allow any visitor to the island. India also stands committed to protect these tribal, who have remained in their isolation from outside civilisation for more than 10000 years. Even during the Tsunami of 2004 their well being and head count was checked by the Indian Government on a helicopter. Only 15 Sentinelese are estimated to be inhabitants of the Island. Though Indian Government has registered a case of murder as IPC extends to whole of India, but pertinent questions of law will arise relating to criminal jurisprudence in a matter like this.

Firstly, whether IPC can be effectively applied to these isolated tribes?
Who will investigate such a crime if there was any, considering that Indian Government does not permit any person to land on the island as the tribe needs immunity from viral infections and modern day diseases.
Whether there was a murder with motive or in self defence out of fear of a perceived invading enemy?
Whether Mr. Allen John was making a suicide attempt or indulging in religious adventurism?
Whether the fisherman who left him close to island in a boat were guilty of murder or simply of conniving in trespass to a prohibited area?
Whether these tribes can be treated to have culpable knowledge as is possessed by men of knowledge of law or as the ones dealing with very basic instincts not influenced by modern day civilisation and law?
Should such tribes like doli incpax be considered as incapable of crime even though not being due to their age but because of their learning levels and exposure?

Significantly, whether such subject and territory should be kept within the purview of Indian Penal Code or there should be an exception made by the legislature in relation to killings done under the tribal belief by sentinelese or other such. It is to be noted that IPC came into existence in 1860 and the last attempts which were made to woo these Sentinelese to modern civilisation, were about 200 years back when gifts of different kind including food were being sent to them. But attempts were given up after there were fears of the catching infections and dying because of modern day ailments. It is not understood as to why an exception under Indian Penal Code was not made for these Islands and such Sentinelese or other tribes. The protection of their distinct identity and their isolated existence needs separate law or at least separate treatment under Central laws. Will courts or legislature even now take corrective action at this belated stage like they have done in relation to Section 377 of Indian Penal Code, by striking down the same in LGBT case in the matter of NAZ Foundation Vs. Government of NCT of Delhi? Only time will provide the narrative.

Is Chemical analysis manipulation the last bastion of customs corruption?:-

Most of the disputes on imports and exports side, relating to the identity of the goods or conformity with the BIS Standards, eventually get decided through Chemical analysis and testing. Since there are expert views, these are seldom questioned, even by the Courts and judiciary. When the reward on catches of Heroin was purity based, it was commonly heard that things could be managed to get a higher purity even while having their correct identity. There have been instances when conflicting reports often emerge during litigation and the benefit accrues to the assessee. The wrong finding could be with either of the Labs, whether of the Government or Private ones. Instances of collusion have also been found. A spate of cases by DRI recently indicate so. In the Mundra-Kandla belt, it comes out that not all was well with the way chemical examinations were being conducted. While certain consignments originating from the same manufacturer/refinery have been cleared in the last three months, at the intervention of DRI a number of consignments have been intercepted too. Few importers have been arrested also, as the consignments were found mis-declared by them and as low aromatic compounds as against actual item being kerosene, which is a canalised item. The consignments that were cleared by the customs were on the basis of Chemical analysis report and it was found by DRI that there was connivance between CHA and chemical examiner on the basis of certain messages that were found during investigation. Since then, the consignments which have come later are all being tested as Kerosene by the same lab. The CHA was arrested by the DRI and Chemical Examiner was looking for an anticipatory bail. Incidentally, there is a co-relation between the petrol prices going high, and illegal import of Kerosene taking place. Perhaps the adulterating petrol pumps thrive on this ad-mixture. It is stated that 300 containers of kerosene mis-declared as Industrial Grade Solvant were to pass through these ports only and 139 containers have been intercepted by the DRI. Prior to this also a Chemical Examiner in 2012 was apprehended by the Punjab Police for giving negative result of narcotics. All this raises serious doubts about functioning of the institutions of Chemical Examiner which are hardly subjected to any vigilance scrutiny or Audit etc., by outside agencies. This despite the fact that revenue worth crores of rupees is dependent upon findings of such labs and even whether a substance is narcotics or not depends solely upon their findings. There have been instances where chemical examiners on cross examination have been shown to be possessing knowledge not sufficient for their job. In such a situation, it is important for the Department and Central Agencies to device technology based solutions to defeat such attempts and to weed out corruption. The minimum the inspecting agencies or Commissioners can do is to countercheck at least 5% of the samples drawn and kept at the custom houses from undisclosed chemical examiners other than the one’s, who initially did the check. This would be quite a deterrence for the corrupt. Further, since new technologies are available and are quite cheap, the whole process of opening of sample to testing the same at the Chemical Laboratory should be video taped and the same should be made available for scrutiny by the investigating agency or through an e-link to the concerned Commissionerate as well as party on request and payment. The head of all the Chemical Laboratories can be made responsible to maintain record of such video recordings. This too will eliminate connivance between the Chemical labs and importers/CHA.

Money Laundering -International Obligation and Incorporation in Local Laws

Money Laundering-International obligations and incorporation in local laws.

BY-SOUMIK PURKAYASTHA (AMICUS RARUS).

Money Laundering (ML) is an act of preparing of criminal proceeds to mask its unlawful root. Psychological oppression (another term in usage for ‘terrorism’), illicit arms deals, money related violations having roots in crime, and the exercises of composed wrongdoing, including drug trafficking and prostitution rings, has potential to create incredible sums. Misappropriation, insider exchanging, pay off and Public channels misrepresentation (personating) deliver vast benefits and make a motivating force to legitimize the ill gotten increases through tax evasion. At the point when a criminal movement creates generous benefits, the individual or gathering associated with such exercises causes the assets to safe heavens by masking the sources, changing the frame, or moving the assets to a place where they are less inclined to draw in consideration. Most on a very basic level, Money Laundering is inseparably connected to the fundamental criminal action that produces it. Generally, the laundering empowers criminal action to proceed.

Now effectively working under the aegis of Financial Action Task Force (FATF). ML has evolved over a period of time through various international efforts. The strategy developed has two components, one eliciting information at local levels and sharing the critical and desired at the international levels.

Second, component is investigative where by Member States cooperate with each other to take action against the offenders and their properties located in their jurisdictions.

The International Organisational structure and how it evolved:

THE VIENNA CONVENTION:

It was the first major step taken to tackle the menance of money laundering held in December, 1988. This convention was the base for efforts to combat money laundering by advising the member states to criminalize the laundering of money in respect of drug trafficking. It laid emphasis on extradition of accused.

BASLE COMMITEE:

The Basle Statement of Principles on the avoidance of criminal utilization of the banking framework was a critical leap forward on the monetary front to make them control system for money laundering on worldwide level.

1. KYC-This orders the bank to make sensible endeavours to decide their client's valid identity and are viable techniques for checking the bonafide of new client.

2. Compliance with Laws-Bank administration ought to guarantee high moral guidelines in agreeing to laws and control and keep a vigil to not give services when any money laundering activity is suspected.

3. Cooperation with the law enforcement agencies - Banks should hold on to the directions defined by the law authorization organizations and in this manner work as an inseparable unit to handle the danger of money laundering.

4. Adherence to the statement-This directs the bank to be in line with the statement of principles to check the prospective money laundering.

UN CONVENTION AGAINST ILLICIT TRAFFIC IN NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES:

This UN Convention was one of the iconic conventions in as much as the countries to the Convention recognized the links between illegal drug trafficking and other related organized criminal activities which undermine the legitimate economies and threaten the stability and sovereignty of the nations and that illegal drug trafficking is an international criminal activity which produces huge profits, enabling criminal organizations to penetrate, and corrupt the structures of government, legitimate commercial and financial businesses and society at all levels. The need of the treaty was that the signatories need to criminalize the laundering of drug money, and confiscate it whenever found. It was by this movement that motivated FATF to make a similar framework.

GLOBAL PROGRAMME AGAINST MONEY LAUNDERING (GPML):

The Global Programme against Money Laundering established in 1997 which was the mandate given to UNODC in the 1988 UN Convention against Illegal Traffic in Narcotic Drugs and Psychotropic Substances. GPML was further made stronger in 1998 by the United Nations General Assembly Special Session (UNGASS) Political Declaration and Action Plan against Money Laundering which broadened its jurisdictions to deal with drug offences to all serious crime.

Three further Conventions have adopted/specify provisions for AML/CFT related crimes:

• International Convention for the Suppression of the Financing of Terrorism (1999),

• UN Convention against Transnational Organized Crime (2000)

• UN Convention against Corruption (2003)

INTERNATIONAL MONEY LAUNDERING INFORMATION NETWORK (IMOLIN):

IMoLIN is an Internet-based network assisting organizations which was made to fight against money laundering and the financing of terrorism. IMoLIN, child of UN office on Drugs and Crime has been developed by the world's leading anti-money laundering organizations. It provides with an international database called Anti-Money Laundering International Database (AMLID) that analyses jurisdictions' national anti-money laundering legislation.

WOLFSBERG AML PRINCIPLES:

It laid down eleven principles in order to help in the fight against money laundering, corruption and other related serious crimes. The importance of these principles is that it comes from initiative by private sector in contrary to most of the initiatives which come from public sector led by governments and their regulatory and law enforcement agencies, or by government representatives acting through international forums such as the Financial Action Task Force (FATF) and the Basel Committee of Bank Supervisors. The Wolfsberg Principles are a non-binding set of best practice guidelines governing the establishment and maintenance of relationships between private bankers and clients.

FATF:

The FATF is the most effective administrative body set up at the G7 summit at Paris in 1989 with the goal to have legitimate, administrative and operational measures to battle tax evasion and terror funding and other related dangers to the integrity of the global money related framework. The FATF has built up a series of recommendations that are perceived as the worldwide models for battling tax evasion and the financing of psychological oppression. They frame a reason for a co-ordinated reaction to these dangers to the respectability of the monetary related framework and help guarantee a level playing field. In April 1990, it issued a report containing a set of Forty Recommendations, which were expected to thorough arrangement of activity expected to battle against illegal tax avoidance. In October 2001, it issued the Eight Special Proposals to manage the issue of money laundering. In October 2004, it distributed a Ninth Special Recommendation, additionally fortifying the concurred global measures for fighting illegal tax avoidance and terrorism funding.

The FATF's essential approaches issued are the Forty Recommendations on tax evasion from 1990 and the Nine Special Recommendations (SR) on Terrorism Financing (TF).

Together, the Forty Recommendations and Special Recommendations on Terrorism Financing set the worldwide standard against illegal tax avoidance measures and fighting the financing of psychological warfare and fear based terrorism acts. They set out the standards for activity and permit nations a measure of adaptability in actualizing these standards as per their specific conditions and protected structures. The two arrangements of FATF recommendations are expected to be incorporated at the national level through enactment and other legitimate municipal legal empowerments.

EGMONT GROUP:-

The Egmont Group serves as an international network has laid down improved communication and interaction among Financial Intelligence Units (FIU). Egmont Group is named after the venue in Brussels where the first such meeting of FIU was held in June, 1995. The objective of the Group is to provide a platform for FIUs around the world to improve support to their respective governments in the fight against money laundering terrorist financing and other financial crimes.

ASIA/PACIFIC GROUP: -

One regional grouping that is particularly relevant for India is the Asia/Pacific Group on money laundering (APG). It was officially established as an autonomous regional anti-money laundering body in February, 1997 at the Fourth Asia/Pacific Money Laundering Symposium in Bangkok, Thailand. The purpose of APG is to facilitate the adoption, implementation and enforcement of internationally accepted anti-money laundering and anti-terrorist financing standards set out in the recommendations of the FATF. The APG undertakes studies of methods and trends of money laundering and the financing of terrorism in Asia/Pacific region.

How is India shaping up for the expectations of International anti-money laundering cooperation?

India was last monitored by FATF in 2013 and did well to come out of continuous assessing list due to its efforts on ML front getting noticed by International Comity of Nations. Its next appraisal is due in 2020 now. India after bringing in PMLA in 2002 has been constantly amending its legislation in tune with the changing requirements of FATF.

Some such efforts are as follows:

IMPORTANT CHANGES BROUGHT OUT BY THE AMENDMENT ACT OF 2009

New definitions of authorised person; designated business or profession; offence of cross border implications; and Payment system operator was introduced.
Changes were made in the definition of financial institution, non-banking financial company and scheduled offence.
Provisions with regard to attachment of property involved in money laundering and search and seizure were amended.
Amendment was made with regard to provision for attachment, seizure and confiscation etc., of property in a contracting State or India.
Certain offences added in Part A & B of the Schedule to the Act. Offences added included those pertaining to insider trading and market manipulation as well as smuggling of antiques, terrorism funding, human trafficking other than prostitution, and a wider range of environmental crimes.
A new category of offences which have cross-border implications was introduced as Part C.

IMPORTATNT CHANGES BROUGHT BY 2012 AMENDMENT:

The following are the key amendments to the PMLA Act:

Expanded the definition of offence of money laundering to include activities like to include attempts like concealment, acquisition, possession and use of proceeds of crime.
Removed the upper limit of Rs.5 Lakhs as punishment and making imprisonment more vigorous.
Expanded the scope and duration of Attachment of property to 180 days
Introduced the concept of Reporting Entity.
Increased the powers of the Director to call for records and conduct inquiries
Provided that special courts can release property in case of decision by a foreign court.
Clarified that prosecution extends not only to individuals but to Companies as well
Deleted the monetary threshold that applied to the offence of money-laundering of Rs.30 Lakhs.

Amendment of 2016:- Made holding of assets abroad by Indians without permission a scheduled offence.

AMENDMENTS MOVED in 2018:

Government passes Finance Act to amend the Prevention of Money-laundering Act, 2002. The Amendments are aimed at increasingly making ML as a standalone offence:

-Amendment in definition of “proceeds of crime”: The definition of "proceeds of crime" in PMLA was amended in 2015 to include "property equivalent held within the country" in case proceeds of crime is taken out or held "outside the country". The present amendment shall allow to proceed against property equivalent to proceeds to crime held outside the country also.

- Amendment in bail provisions: Amendment proposed in Section 45(1) would make the applicability of bail conditions uniform to all the offences under PMLA, instead of only those offences under the schedule which are liable to imprisonment of more than 3 years. This will be a significant step forward in delinking the proceedings against scheduled offences and Money laundering.

- Further limit of Rs.One Crore shall allow court to apply bail provisions more leniently to less serious PMLA cases. (This is first time in many years that any provision has been made more pragmatic.)

- Corporate frauds included as Scheduled offence: Section 447 of Companies Act is being included as scheduled offence under PMLA so that Registrar of Companies in suitable cases would be able to report such cases for action by Enforcement Directorate under the PMLA provisions. This provision shall strengthen the PMLA with respect to Corporate frauds.

- Measures to enhance effectiveness of investigations: Section 5(1) of the Act provides that every order of provisional attachment passed by an officer of Enforcement Directorate shall cease to have effect after 180 days from the date of the provisional attachment order, unless confirmed by the Adjudicating Authority under PMLA within that period. The section is proposed to be amended to include the period of stay in this time limit of 180 days and also further period of not more than 30 days to take care of delays if any in communication of judicial orders.

- Under the existing provision of Section 8(3), presently, the Directorate is required to file prosecution immediately after confirmation by Adjudicating Authority. Proposed amendment gives 90 days more for investigation to ED, before prosecution is filed.

- New sub-section (2) of section 66 is being introduced to provide for clear guidelines to share the information relating to contraventions of other laws noticed during investigation by ED, with concerned authorities under the said Acts. This shall enable exchange of information among agencies and enhance effectiveness of efforts against black money.

- Measures for restoration of property of persons adversely affected by PMLA investigation: This will be a great reprieve for banks who in ignorance of any ML having been done become the pledge of assets. Present provisions under Section 8(8) allow distribution of confiscated property to the rightful claimants, only after the trial is complete. Present amendment allows Special Court, if it thinks fit, to consider the claims of the claimants for the purposes of restoration of such properties even during trial also, in such manner as may be prescribed.

It is apparent that India has been quite responsive and has done enough to change in tune with the latest recommendations of FATF, despite having a huge cash based agrarian economy, not having elaborate accounting and digit al systems, affordable by most and even in enforcement. It has legitimate expectations that other countries will not become heavens of fugitives from its soil, specially those who have done billon of dollars worth of frauds and are nesting in countries who were flag bearers of international money laundering endeavours. The ball is in their court now and they have to prove their credentials. Stringent Indian laws are already creating internal hue and cry as perhaps no nation has changed so much in such a short time as India has. And this has been done even at the cost of social and economic disruption and turmoil. But for India years of suffering from terror funding is what has prompted it to do it with a strong resolve. Let other members also prove equal to the task.

Attachment of property involved in Money Laundering -Is the Law made legally more complicated?

Attachment of property involved in money-laundering-_Is the law being made legally more complicated?

By: Pulkit Agrawal, Amicus Rarus (Money Laundering Division)

Though civil in nature, Section 5 relating to attachment is one of the most effective provisions as far as enforcement is concerned and one of the most dreaded by the accused. This is more so after 2013 when Rules have come in to effect to dispossess also after attachment. Therefore, on one side we have department having accumulated assets worth thousands of crores in hand and in possession and on the other side accused languishing in the Courts trying to chase and recover possession of assets that were once there and now no more simply because of law which eventually may or may not convict them. Not only he, is suffering but also his families and all his employees. The state gets a right like in Communism to deprive any person of his land and property simply by pronouncing that they have ‘reason to believe’ that some funds have been generated out of one or many of the listed crimes and they may beconcealed in future. If this is Consequence of a treaty obligation of India at an international forum, then one wonders why India could not oppose it there. As the draconian laws, made agitate against the very spirit of fairness and all principles of criminology, member countries affected need to be vocal about it. Are those who sit from Indian side lack a perspective about India or are they unable to make out a strong case for India at the negotiating table the way the teams could do at World Trade Organisation to the satisfaction of developing and least developed countries?

Coming to the provision incorporated in Indian law relating to attachment. Thesignificant provision is contained in Section 5 andprovides overwhelming power to the authorities after recent amendments. Earlier, authorities were allowed to attach properties involved in Money Laundering with three conditions required to be fulfilled, these were:

Any person is in possession of any proceeds of crime.
Such person has been charged of having committed a scheduled offence; and
Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime.

‘Attachment’ in turn as defined in Section 2(d) of this Act, means prohibition of transfer, conversion, disposition or movement of property by an order issued under Chapter III.

Since2013, by virtue of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules,2013, the Departmenthas also taken upon itself the power to dispossess the attached assets. Therefore, while earlier attachment order only disallowed a person to disposeof properties, but now department actually can take over possession & usage of the attached properties to itself.If it so desires, it can reduce an accused to an employee working for it in relation to any factory which was previously owned by him and to submit even profits to it.

Further, after amendment in Section 5, three conditions required for attachment have now been reduced to two. These are firstly, that the person should be in possession of any proceeds of crime, secondly, such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime.

The condition of person having committed scheduled offence has been dispensed with ostensibly with the intent of making Money Laundering as a stand alone offence with no relevance to scheduled offence. It is another matter of legal interpretation though engaging various courts that definition of ‘Proceeds of Crime’ continues to have reference to scheduled offence.

Different connotations of ‘proceeds of crime’ and its various aspects, (definition of which has remained unchanged since inception), as derived from various case law is as follows:

In the case of IndianBank v. The Deputy Director, Directorate of Enforcement, Chennai &Ors. It was held that the properties cannot be attached under Section 5 of the PML Act if the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1)(c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner.

Also, Proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.

In the case of B. Rama Raju, S/o B. Ramalinga Raju vs. Union of India (UOI), the "proceeds of crime" has been described as under:

" Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the reply furnished by a noticee in response to a notice issued under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the Section 8(2) process."

We also need to remember that such order of attachment cannot be made unless, with regard to the scheduled offence, report must be forwarded to the magistrate under Section 173 of Code of Criminal Procedure, 1973 or the person who is authorised to investigate the case submits the report before the Magistrate or the Court taking the cognizance of the Scheduled Offence.

Section 173 of the Code of Civil Procedure talks about the Report of a Police Officer on completion of the investigation and as soon as the report is completed it should be forwarded to the Magistrate.

And, Scheduled offence means an offence specified under Part A or Part C of the Schedule of the Prevention of Money Laundering Act, 2002.

It has been pointed out by the Madras High Court in Dr V.M. Ganeshan v. Joint Director, there are three categories of persons who come within the ambit of the second proviso to Section 5(1) of PMLA:

a person who is not accused of any offence, but who was merely come to possess, under fortunate or unfortunate circumstances, a property that represents the proceeds of crime;
the person against whom a complaint is lodged, but the investigation is not yet complete and a final report under Section 173 of the Code of Criminal Procedure not yet filed; or
a person who is accused of committing an offence and against whom a final report has been filed under Section 173 of the Code of Criminal Procedure before the competent Court.

The second proviso to Section 5(1) of PMLA would also cover a situation where, although a person has been suspected of committing the offence under Section 3 of PMLA, 2002, the investigation is still in progress and the investigating agency has not reached a stage where it can file a report/charge-sheet under Section 173 CrPC. Such a person would also be covered by the second proviso to Section 5(1) of the PMLA, 2002.

It is thus clear that Courts have not considered even the term ‘proceeds of crime’ tobe delinked from the scheduled offences. Therefore, even removing the condition in relation to Sec. 5 of commission of scheduled offence may not necessarily compel courts to think that attachments can be of proceeds from any offence other than scheduled offence despite deletion of condition in Sec.5.

Therefore, the amendment may only promote litigation without making proceeds of crime delinked from scheduled offence or making it a standalone offence despite their being intent to do so.

Another aspect dealt with by Section 5 and consequent upon Rules framed under it isdispossession of attached assets is being done consequent upon Rules framed in this regard in 2013, which has already lead to a situation whereby more than 30,000 crores of assets are in possession of the department and are not being put to optimal use even to the extent they were being done earlier. Government and Enforcement Directorate are now toying with the idea of outsourcing these assets for optimal utilisation. How far such an experiment will be successful is something to be seen in future and appreciated. Already, the Bankruptcy Code is only leading to minting of money by those who are appointed as liquidators by the Government. With such persons hardly having any experience to run the corporate governance, they have to eventually fall back on the shoulders of the same management.A person divested usage of its assets after prolong litigation, even if manages to win also, there is likelihood that the property might have lost its value. And it may even happen that he never gets to see it in his lifetime.Again, to what extent natural justice should be followed by the Adjudicating Authority after dispossession is being done consequent upon orders and which is a serious civil consequence for accused is matter of debate as before Rules for dispossession Adjudicating Authorities were not following natural justice elaborately and never allowed cross examination etc. But to do the same now may violate natural justice despite proceedings being made time bound under the statute. Therefore, there is a need to expedite proceedings at every stage including prosecution proceedings in special or other courts. While most of the proceedings have been made time bound, the result in effect is that justice becomes a casualty, as attachments are being done at the drop of the hand without elaborate dispensing of natural justice or without affording cross examination etc., even though when there is no specific statutory mandate against it. The bottle neck appears at the level of PMLA Tribunal which unlike other Tax Tribunals has a cumbersome procedure of filing petitions, counter and rejoinders etc. typical of a High Court. The tribunalisation has not helped expedience in disposal. One factor responsible is that orders passed by the Adjudicating Authorities have hardly been of much assistance in spelling out reasoning. And also because Tribunal dealing with such high stake matters has to look after other matters like SAFEMA etc. and holds Bench only in Delhi.

YOU MESS UP, I PAY

YOU MESS UP, I PAY:

Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

In a Judgment with far reaching consequences, the Constitution Bench of Apex Court in Civil Appeal No. 3327 of 2007, in the matter of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company & Others delivered its Five Judge decision on 30.07.2018. The Bench set up to examine the correctness of the ratio in Sun Export Corporation Mumbai Vs. Collector of Customs, Mumbai as reported in (1997) 6 SCC 564, was mainly concerned with the question as to what should be the interpretive rule to be applied, while interpreting a tax exemption provision/Notification specially when there is an ambiguity as to its applicability with reference to the entitlement of assessee or the rate of tax to be applied.

The H’ble Bench after considering the decision in Sun Export’s case (Three Judge bench) along with other relevant case law concluded that the exemption Notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the Exemption Notification. Also, that when there is ambiguity in an exemption Notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. It also held that the ratio in Sun Export case (supra) is not correct and all the decision which took similar view as in Sun Export case (supra) stands over-ruled.

The Court while arriving at the aforesaid decision examined various judgments which were for and against the proposition that the benefit of ambiguity in a taxing statute must go to the assessee, but held that the principle applicable to the taxing Statute may not apply to an Exemption Notification as it is in the nature of exception and has to be construed strictly even in the face of ambiguity . The benefit of ambiguity or obscurity in an Exemption Notification, thus cannot go to assessee but to the State, as exception operates even in the domain of an exemption Notification when it comes to ambiguity.

The Judgment, though well reasoned and properly dissects and analyses various case law on the subject, presents a devil in its implementation by the Executive. A vital point to consider, and which appears to have been missed out and is raising quite a few eyebrows is: that if the State is negligent or the wrong doer, and an ambiguity appears/occurs, for whatever reasons including improper draftsmanship, in an Exemption Notification; and the assessee interprets it in a particular manner beneficial to him and if there is an ambiguity which is likely to have an alternate interpretation and proceeds on that basis, should he be penalized by demand of duty, interest and even penalty, simply because the Government/Department of Revenue issuing an Exemption Notification left ambiguities in itsscope? It has to be remembered that the State has all powers to delete, amend or alter any exemption Notification, if ambiguity comes to its notice. Presently State has sufficiently armed itself even with the power to amend Exemption Notification any time during the course of the year, while the same was earlier being done mostly at the time of budget. The peril inbuilt in the instant interpretation is that an assessee suffers even when he though he has no hand in the drafting of the Notification. For the Revenue it is: “heads I win, tails you lose.” In the matter of I.T.C. Ltd. v/s C.C.E., New Delhi reported in 2004(171)E.L.T. 433(S.C.) a judgment which was incidentally not examined by the H`ble Constitution Bench in the Dilip Kumar`s case, the following practical solution was provided by the Lordships while dealing with an ambiguity in the Notification. “Presumably the phrase “badly drafted” was used to mean that the language of the Entry was ambiguous. In case of such ambiguity ‘close reasoning’ will be employed - but without stretching the language to arrive at the only reasonable construction. These decisions exemplify the general rule of statutory construction that words have to be construed strictly according to their ordinary and natural meaning, particularly when the statute is a fiscal one irrespective of the object with which the provision was introduced. Of course if there is ambiguity in the statutory language, reference may be made to the legislative intent to resolve the ambiguity. But if the statutory language is unambiguous then that must be given effect to. The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statute are, on their own terms ambivalent and do not manifest the intention of the legislature.” Therefore, solution provided was to first look for legislative intent behind the ambiguous notification rather than giving outright benefit to the State.

The result of the Dilip Kumar Judgment is that the assessee who will end up paying for the ambiguity which is caused/created or is left by the Revenue. The interpretation will not only re-define justice by tilting it in favour of Revenue but may also end up encouraging Revenue to become callou/casual while drafting Exemption Notifications. Armed with the Dilip Kumar Judgment, it will have nothing to lose but only gain out of loose ends of an exemption Notification through demands of duty, interest and penalties and even extended period demands, which it otherwise makes at the drop of the hat. The assessee in case of doubt may have to either reach out authorities, and wait for their reply which is often delayed as field authorities in turn refer the matter to Board for interpretation and all this may even defeat the purpose for those actually deserving exemption.

It is a cardinal principle of justice that one who does wrong, has to pay for it. But this may not remain the case in future with tax exemption notifications. With State allowed to have the cake and eat it to. It will eventually be a premium on casualness. Surely, not the way Justice system may have wanted it to be.

Should Money Laundering be made a standalone offence due to International Pressure?

Should Money Laundering be made a standalone offence due to international pressure? Published in ELT. VOLUME 361 PART 4

KRATARTH BHARGAVA (Amicus Rarus)

The term "Money Laundering" originated with the Italian mafia who allegedly purchased 'Laundromats' (Facilities and Machines for laundry) to commingle (or mix) their illegal profits from prostitution and bootlegged liquor sales with legitimate business sales from the 'Laundromats' to obscure their illegal profit. This enabled them to show any amount of coinage and currency notes to be shown as receipt from laundry and to bring it in the accounting fold as clean money. Since then, there have been various interpretations of the term. In legal texts, ‘Money Laundering’ as was initially conceived under Prevention of Money Laundering Act, 2002(PMLA) was a predicate offence based offence - in the sense that the commission of an offence was required to be intrinsically linked with a charge of Scheduled offence. Without such charge, the cognizance of the offence under PMLA could not be taken. Such offences, as contained in the Schedule to the PMLA, were called predicate offences. Generation of proceeds from such crimes and attempts to make the same as untainted is what attracted the PMLA provisions.

In International arena, the first Financial Action Task Force (FATF) in its mutual assessment of India in 2010 while generally expressing satisfaction over steps taken for prevention of money laundering, emphasized a number of loopholes in the then existing legislation, for which it suggested changes. Among the key recommendations made by FATF was incorporating money laundering as a standalone offence. After analysing PMLA provisions, the FATF proposed that “legal measures are taken to allow for confiscation of the money laundered as subject of the Money laundering offence and which is not dependent on conviction for the predicate offence” i.e. to make a stand-alone Money Laundering offence.

The FATF in its report contended that the predicate offence based conviction condition creates fundamental difficulties when trying to confiscate the proceeds of crime in the absence of a conviction of a predicate offence. Therefore, there was a need to make money laundering a standalone offence, where the laundered assets become corpus delicti (concrete evidence of a crime) and should be forfeitable as such without relation to conviction in the predicate offence.

India was asked to make money laundering an explicitly standalone offence to upgrade its compliance ahead of the on-site mutual site evaluation by FATF in 2020.

Since then, India has made several important legislative changes and attempts in the recommended direction of making Money Laundering as a standalone offence. In the past, in various cases after being discharged from the predicate offence, the charges of money laundering were completely dropped in the appeals due to its nature.

Despite several amendments, the Prevention of Money Laundering Act (PMLA) remained a predicate-offence-oriented law till 2013. This meant investigation in a case under PMLA, depended on the fate of cases pursued by primary agencies such as the CBI, Police and later DRI etc.

Similarly, offence relating to the Income Tax within the territory of India are currently not covered under the scheduled offence or assessed under PMLA. Therefore, if it is believed that the funds generated are outcome of money laundering and the funds prove the case, then income tax violations or Central Excise violations or even GST violations which are biggest reason of generation of black money will attract PMLA provisions too. That means that onus of proof will get shifted in respect of these violations also and despite admissions it will be for accused to show that funds were generated out of these violations and not from the scheduled offence. This is nothing but absurdity till even a single offence capable of generating black money is left out of the ambit of PMLA, and which does not have onus of proof on the assessee or tax payer. Because what cannot be done under the main legislation will be done by operation of PMLA Act.

Now coming to the statutory provisions under Indian Law, Section 3 of Prevention of Money Laundering Act, 2002 which provides –

“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected for proceeds of crime including its concealment, possession and acquisition or use and projecting or claiming (emphasis supplied on amendment brought by substitution by Act 2 of 2013 w.e.f. 15/2/2013) it as untainted property shall be guilty of the offence of money laundering.”

Therefore, proceeds of crime have to be included and also scheduled offences as under Section 2(u) has a clear reference to the schedule offences while defining ‘proceeds of crime’. Therefore despite amendments, the earlier position that Money Laundering as an offence is completely dependent on proceeds of crime, continues. According to the nature of the crime specified under Section 3, the offence of money laundering has been defined as an offence of projecting the proceeds of crime as untainted property. Since crime cannot be other than those specified in the schedule, therefore violations of the nature of income tax and excise etc. are clearly out of the ambit, though many agree that they too are outcome of criminal activity liable to prosecution.

Further, since the offence of Money laundering was inextricably connected with the Predicate Offence, 2013 amendments to the PMLA provided that the trial for the predicate offence as well as offence punishable under Section 4 should be conducted by the Special Court. Through this amendment the offence of money laundering was given a separate platform as contended by the Enforcement Directorate (ED). In fact, Enforcement Directorate after the acquittal of all the accused persons in 2G spectrum allocation case under the Prevention of Money Laundering Act, 2002 (PMLA), has contended that the special court appeared to have failed to appreciate several factors that positioned money laundering as a standalone offence. ED is of the opinion that “The materials and evidences considered while framing the charges weren’t considered while deciding the prosecution compliant under PMLA. The agency believed that the acquittal was completely based on the commission of the offence and “not the occurrence of criminal activity.” The agency believed that the standalone nature of the offence was completely ignored by the Special Court. However, it appears that it is thinking of ED emerging form what it wants to do under its international obligations and scrutiny rather than what is getting reflected from the legal text of PMLA,2002. As in Indian situation, possession of money or assets cannot be reflective of offence of Money Laundering alone, if this was the case then there was hardly any need to so extensively amend Benami Properties Act in 2016.Fact is that in Indian context, money gets generated not only from listed offences under PMLA but also in greater quantum form money generated from unlisted offences like income tax. If all such activities get covered and onus is on the accused to show that money attached was from say income tax offences and not from scheduled criminal activity then half of India may be liable to be put in prison after losing all assets that might have been made from time immemorial and which cannot be explained. Obviously, the desire to make Money Laundering as a standalone offence in Indian context is devoid of ground realities and being done under International pressure where perhaps India has been unable to forcefully put across its view point and secure concession. For a country like India where till recently most of the Governments have been giving amnesty schemes for most economic offences, such a change overnight is neither desirable nor pragmatic. In contrast to this the attitude of countries like U.K., U.S.A. and even Canada who are the pioneers of such legislations and where with impunity fugitives from Indian laws including terrorist continue to find shelter. In fact, track record of U.K. in cases of Vijay Malya, Nirav Modi and Lalit Modi leave much to be desired as far as fugitives from Indian law on ML are concerned. They were some of the biggest accused who cheated Indian public of their savings. And if they cannot be brought to book through cooperation of U.K. and FATF, then India should have no business to do with FATF. India should also learn to put its foot down and expose those countries who preach without practicing. Also before bringing such legislations in force which are devoid of any practicability, a onetime amnesty to all Indians to freely disclose all their assets including their holding of jewellery, properties etc. must be provided. Otherwise, FATF will have to do massive funding of prisons and U. K. will again crib that Indian prisons are not of the standards of Vijay Malya.

BITS & BYTES JUNE,2018 Published in RTT

BITS AND BYTES

By:

Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

Money Laundering as a ‘stand alone’ offence:

Is Enforcement Directorate correct in its approach to register new ECIR under different offence?

Pursuant to deliberations at the forum of Financial Action Task Force (FATF) since 2010, India is commitment bound to take all steps to make money laundering as a stand alone offence by the year 2020, if required through enabling changes in legislative provisions. In the wake of 2G Scam case where Enforcement Directorate had to draw a flak from the Courts due to acquittal of all accused from the predicate offence and also from connected proceeding under PMLA, a re-think within the organisation of Enforcement Directorate is going on to appeal against acquittal to the higher Appellate Forums, inter-alia, on the ground that Court failed to appreciate that Money Laundering was a standalone offence. The thinking in the Enforcement Directorate Circle is that they have the unexplained proceeds which as per them are proceeds of crime and though the predicate offence initially made out may not have been proved in the courts, it can still proceed under PMLA. As the proceeds can well be proceeds of any other crime as listed in the Annexure to the PMLA. In fact, by virtue of various amendments made from 2012 onwards, Enforcement Directorate is of the view that it has become stand alone offence independent of predicate offence, therefore, since in criminal matters there is no limitation, it can always register a fresh ECIR to prove its case of Money Laundering with unexplained assets. The Enforcement Directorate is venturing in to this line of argument by agitating it before various High Courts as well as Supreme Court by advancing the same. In this context, Section 3 of PMLA, 2002 is relevant, which at present reads as “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming” it as untainted property shall be guilty of offence of Money Laundering.”

The reference to Proceeds of Crime [PoC] as per Section 2(4) has a reference to Scheduled offence. Therefore, it is apparent that to have an offence of Money Laundering the proceeds of crime will have to be generated from the criminal activities, of one or more of the Scheduled Offences. Now the question arises, as to what will be the effect, if one gets exonerated from the predicate offence or the Scheduled Offence from which money is alleged to have been generated. One view, which Enforcement Directorate believes in, is that it can still exercise its powers to cover the person under Money Laundering by alleging that proceeds of crime arose under any other Scheduled Offence. But the same were proceeds of crime, nevertheless. It will require though to allege that some different offence had been committed from the range of offences available in the schedule, which it can prove with its investigating capability as also that the proceeds of crime have been generated from such other offence. While legally and theoretically, there may not be anything against such an approach but it can always boomerang if used in routine by casting a shadow of doubt about the approach of premier investigating agency like Enforcement Directorate. It may only exhibit its inability to investigate properly, and also its acknowledgment, that it failed in first attempt, to identify the offence supported by evidence. The more Enforcement Directorate will exercise such an option, the more it will have a loss of face. Further, when it comes to attachment of property in terms of Section 5 of PMLA, it has been provided that the very basis of attachment is that any authorised officer not below the rank of Deputy Director should have reason to believe “the reason for such believe to be recorded in writing” that (i) any person is in possession of any proceeds of crime; (ii) and such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed.

If attachment of property is done by a Senior Officer of Enforcement Directorate on a recorded reason to belief that a particular Scheduled Offence has been committed and later on such belief falls flat and Enforcement Directorate again approaches Courts including Adjudicating Authority that it has a reasonable belief that not ‘X’ but now ‘Y’ offence appears to have been committed, then will not a question arise and Courts will find that such a reasonable belief itself is most ‘unreasonable’. Such a shadow of doubt about ‘reasonableness’ will be cast even if the second time an offence is alleged if of a type which was not scheduled offence earlier. For example, if a person is alleged of corruption earlier and charge falls flat, is again alleged to have generated money out of Customs mis-declaration regarding valuation, which became an scheduled offence in 2015 and not corruption this time. Since, PMLA is a legislation with most stringent provisions and a person having been harassed once, is again being sought to be subjected to jeopardy of a different kind, it is most likely that such approach will be viewed as unreasonable and may not permit Enforcement Directorate to continue to persist with the attachment it made earlier, now on the basis of any other offence.

It is equally that the onus of proof, which lies on the accused gets heavily shifted on the Department in such a situation as the accused on exoneration has discharged the initial onus put on him and if the Department again wants to shift it on the accused then it will need to do so, by overwhelming evidence rather than by simple assertion. It is most probable that sooner or later the Courts will adopt such approach. The reference to such Scheduled offence exists under the legislations even in United States where instead of term ‘Scheduled Offence’ term ‘Specified Offence’ appear in the legislation. In the mean while several courts are dissecting the provisions.

BITS & BYTES MAY,2018 Published in RTT

By:Somesh Arora,

Advocate (Amicus Rarus),

Former Commissioner of Customs and Central Excise.

The Story of Stolen Heritage and all round Inaction:

Had it been a matter in the interest of any other country specially those who are considered to be the force behind International Organisations, by now they would have promptly enforced some treaty down the throats of other members of comity of nations. Perhaps, as quickly as various money laundering and anti terrorist treaties were entered into, after strikes of 9/11 on Twin Towers of World Trade Centre. But here apathy continues as the country involved is India which has a rich and overflowing heritage which can easily go off its shores through smugglers and their syndicates. And can eventually adorn museums of countries like United States. But the Governments may continue to mutely watch. The story relates to period of 1971 when a Natraj Idol along with four others went missing from the Kailasanathar Temple at Punnainallur in Thanjavur. The statues lying in the vault were substituted with fake imitations. The temple authorities themselves found that the original antique Idols had been replaced by cheap replicas and reported the matter. The investigative efforts of the CID and other Investigating Agencies of the State Police proved to be a mere eye wash as total of 5 bronze statues were mysteriously carted away from the strong room of the Temple. However, now it has been found by some of the Temple Authorities and activists that the same Idol of Nataraja with its rings of flames missing has become an exhibit in a museum in the New York City. Its journey from temple of India to Museum of New York is a mystery waiting to be unravelled. Four of the Idols were reportedly intercepted by the Kolkata Airport Officers but were improperly allowed to proceed from the country in 1973 despite there existing records of correspondence having been done with the Hindu Religious and Charitable Endowments Department. It is widely believed that one of the Idol allowed to proceed was the same Natraj Statue but despite the same having been found in New York Museum, the ASI Delhi and even the MEA as well as Hindu Religious and Charitable Endowments Department continue to be in a state of hibernation and even a claim has not been lodged with the U. S. Authorities or their Museum Authorities. Even Police Authorities in India do not appear to have bothered to remove the dust from an old file and to investigate as to how these precious Idols managed to reach USA and that too at a public place like museum. Steps for seeking repatriation are a far cry, not even enough appears to have been done to authenticate identity and to adduce proper and sufficient evidence to make a claim.

Is it rather in the interest of oriental countries like India, China, Japan etc. to make the world to enter into an International Treaty under the aegis of UNESCO to seek international protection of articles of national heritage or of national importance of its member states and to seek international cooperation in weeding out smuggling, profiteering out of such articles and providing for repatriation back of such articles, if found in private or public possession of any member state and if its legitimate ownership or custody with evidences is established by claiming State . But for this to happen India must learn to value its own national and cultural heritage and exhibit its own resolve to the international community. But the way our authorities behave towards such matters, leave much to be desired. Agencies like ASI are even unable to maintain National heritage Sites like Red Fort or Humayun Tomb. Customs at time makes stray seizures at the Borders of such statutes but smugglers are able to carry on with their job with consistent ease and in utter disregard of law and procedures that exist. Even courier of late has become a channel. Why cannot even the export of all metallic and stone statues be subjected to certification of a notified Government agency? After all the loss due to some antiques getting exported can be much higher than cost of regulating exports of all statues. Substituting antique idols or stealing them and smuggling them out is a Child’s job. Based upon my own experience in Goa as Additional Commissioner (Anti Smuggling), I had highlighted the ease of smuggling out antique idols from India based on a case study of a smuggling case. The matter pertained to more than 700 years old statues which on being slightly chipped off were immersed in river bed of Mandovi close to sea in Goa as per the traditional Hindu practice. The same after years of immersion were about to be retrieved by divers engaged by the smugglers when Goa Customs on the basis of intelligence intercepted the same and additionally retrieved another statue from the river bed in the year 2003. All these Idols are now part of Goa Customs Museums. But the lesson learnt and conveyed for action to the respective governments has gone unheeded. Till date right from the year 2003 and then after my retirement through print media it has been emphasised repeatedly that a procedure should be evolved that no immersion of idols in any river bed or water bodies should take place without notifying ASI or any other designated agency of the Government of India. Such agency shall be assigned the task of retrieving them and putting them in Museums after few days of immersion. This will take care not only of religious sentiments but also of cultural heritages and will considerably dent Idol smuggling. But it appears that there are some strong vested interests who have not allowed action on this front or there exists total unconcern or indifference towards the issue. Will this Government prove to be different and actually take steps to conserve and preserve national cultural heritage or will it sleep over the matter like its predecessors to allow Indians to see Indian Cultural Heritage by touring countries like Germany, England,Italy and USA etc. only?

BITS & BYTES APRIL,2018 , RTT

Bits and Bytes:

By: Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

E-Way Bill to be again flagged off on Ist April, 2018:Finally, the Central E-way Bill has again been re-notified to take off on Is April, 2018 after the initial attempt failed on Ist Feb.,2018. For the sake of the Nation and the Good and Simple Tax, one really wishes that take off this time on Fool`s day is finally successful. Otherwise the GSTN will get the credit of making a fool of millions of Indians on the day. The experience with GSTN in the last eight months makes one wonder- Why Nilekani and his associates do not go in for auspicious Muhurta for launch of every module? After all if ISRO can do it with most of its launches being in Sarvarthsiddh muhurta and attaining success mostly with all its Chandrayans and reusable rockets, there should not be any stopping for GSTN to do it. Anyway, the modified version as approved by the Council in its 26^th Meeting has certain important changes. Firstly, multiple consignment till the total value does not exceed Rs. 50,000/- do not need an e-way bill,but same is discretionary. For job- work consignments either Principal or Job-worker will generate e-way bill irrespective of value of consignment for inter-state movement. The value of exempted goods shall be excluded from the value of Rs 50,000/- for E-way bill. For public transport in case used either consignor or consignee shall be required to generate E-way bill. Now for movement upto 50 km.s for transporter`s office will not require Part-B of the E-way Bill but only Part-A. Expiry of one day in transit shall be reckoned at 12-00 hours at midnight. Once subjected to any check the same consignment cannot be again subjected to any check without specific information.

Multi thousand Crores alleged undervaluation case of DRI in CESTAT- Are all the allegations worth it? For the last two months press in Mumbai has been full of stories about case of over invoicing of coal and electricity generation equipment against about forty of India’s biggest energy companies. The total amount involved in the cases is an estimated Rs 50,000 crores, as per estimates of DRI. Out of this amount, around Rs 30,000 crore is on account of the over-invoicing of coal imported mainly from Indonesia and remaining for over invoicing of power machinery from China. The brunt of higher costs was borne by consumers. It is another thing that neither the agency has made any arrests nor any preventive detention despite the fraud having been detected years back.

On the receiving end of DRI investigations were not only Anil Ambani , Essar and Adani groups but also various PSUs like National Thermal Power Corporation and various state electricity boards. Case thus has curious overtones, because if PSU officials were involved then matter clearly should have been dealt with by CBI. Similarly, if money laundering with consumers money after doing the fraud was involved, as also the remittance of foreign exchange , then PMLA and DOE should have been in picture. In a lead case to reach before the CESTAT after confirmation in adjudication, a private company called Knowledge Infrastructure Systems Private Limited( KISPL), was involved. In this matter, DRI in an unprecedented move raised doubts about the conduct of a particular member of the Tribunal who is part of the Double Member Bench. The case may have heavy stakes for DRI, who has to justify its investigation before a Tribunal generally perceived to be unbiased as against most Adjudicating Authorities who have extreme revenue bias and even most of the poorly investigated cases also smoothly sail before them as the deciding authorities are mostly departmental officers. However, in this case Adani Group got a selective reprieve. Otherwise generally for officers it is considered a sacrilege to drop any DRI made case. On the other hand the names of big wigs are involved who have the legal muscle to justify their actions. The DRI investigation alleged that 40 major companies, including Knowledge Infrastructure Systems Private Limited, had inflated the value of coal imported from Indonesia for power generation, which resulted in illicit benefits of Rs 30,000 crore. The value and grade of the imported coal was mis-declared to show higher values and higher costs, which, in turn, resulted in consumers having to pay more for electricity, under the contracts which allow cost plus certain margin as the sale price. The investigations have reportedly revealed that the illegal gains were laundered through shell companies in tax havens outside India. However, the cases even during Adjudicating have seen a topsy-turvy ride. In adjudication proceedings, Mr. KVS Singh, passed orders in cases relating to three companies, while in two relating Adani Group he dropped demands worth Rs. 3,974 cores, in which Department has come in appeal, in the third pertaining to KISPL he upheld the demand of more than Rs. 17 .5 crores based mostly on the same modus operandi and on charge of over valuation.

During the course of the appeal of KISPL, the DRI in an unusual move filed an application through an affidavit before Justice Satish Chandra—the president of CESTAT, seeking that CJ Mathew, the technical member on the bench hearing the KISPL case, recuse himself from the case on the basis that his conduct has been partial. This despite the fact that Mr C.J. Mathews is a former departmental officer promoted as Member ( Technical) and holds a secondary position in the Bench as mostly Member ( Judicial ) have been the presiding Member and if a difference arises between the two then as per procedure of the CESTAT, matter becomes referable to the third member for decision. A request for recusal therefore is very rarely made in CESTAT. Any wrong order passed by the CESTAT can always be appealed to the High Courts or even to the Supreme Court. It has been reported by the press that as against Adani which has been let off, KISPL is a Delhi-based company controlled by its Chairman and managing director, Rahul Bhandare. His father, Murlidhar Chandrakant Bhandare, was a well-known lawyer who was a three-term member of the RajyaSabha (between 1980 and 1994) from the Congress party, and a former Governor of Odisha (from 2007 till 2013). His mother, Sunanda Bhandare, was a renowned judge of the Delhi High Court. According to the DRI’s detailed investigations laid out in the notice, KISPL imported steam coal through intermediary firms based in Hong Kong and Singapore. The coal was shipped from Indonesian ports, whereas KISPL submitted invoices issued by firms such as Knowledge International Strategy Systems Pte, Singapore and Springs Trader Ltd, Hong Kong. KISPL supplied the imported coal to thermal power stations of the Maharashtra State Power Generation Company Limited, or Mahagenco, located at Bhusawal and Chandrapur. The DRI investigation claimed that the Singapore company was a “wholly owned subsidiary” of KISPL, as its promoters held majority shares in it and therefore was a `related persons’ and prices were influenced. The notice further stated that the Singapore company allegedly suppressed documents showing the actual value and grade of the procured coal, and created false documents to show that it had imported higher grades of coal. The amounts generated on account of the difference in prices were routed through a shell company based in Hong Kong. The DRI alleged that coal of a lower grade was supplied to public-sector power-generation companies at inflated prices in collusion with certain officers of the public-sector undertakings.

In January 2017 on a petition filed after adjudication, the High court directed KISPL to file an appeal before the alternate forum of the CESTAT—and directed the tribunal to decide KISPL’s appeal within six months. Accordingly, the company filed an appeal before the CESTAT bench in Mumbai on 14 February. Matter was earlier heard by Bench consisting of Sh. D.N. Panda and Sh. Mathews but Sh. D.N. Panda submitted an order( claimed by DRI to be in its favour) just days before his retirement on 14.11.2017 which could not be perused/ signed or dissented with by the other member i.e. Sh. Mathews till the retirement of Sh . Panda.

After Mr. Panda’s retirement, a new bench was constituted with Mr Mathew and Mr. Anil Choudhery as the composition. The constitution of Bench is decided by H`ble President of CESTAT who normally sits in Delhi. The appeal was listed for its first hearing on 8 January 2018. Five days before the hearing, Mr. PRV Ramanan, a former chief Commissioner of customs and special counsel in the case, sought an adjournment of four weeks, citing “personal reasons.” However, the CESTAT denied his request, on the basis of Bombay High Court’s January 2017 order to expedite decision.

The bench heard the case twice on 8 and 17 January, 2018—during the absence of the DRI’s special counsel.Mr. Mukul Rohagi, senior advocate caused appearance on behalf of the company. The DRI has sought Mathew’s recusal from the bench firstly, before the same bench which declined and then before the H`ble President of the CESTAT. The CESTAT bench heard the DRI’s special counsel’s submissions on 15 and 16 February. The matter is reserved for final hearing and the press reports on selective leakages in the meantime continue to appear to cause a flutter. The controversy has raised vital questions- Should an agency or the department of the Government be leaked an order of a Member even before it has become a Bench`s order and therefore has no legal existence? If so, who is responsible for such a leakage?. Can aspersions be made only on the basis of assumptions that order of a Member can be against a particular litigant? Do the decisions of the Bench become the decisions of a particular member when it suits a litigant? Can whole trade and all tax payers likewise allege bias against all adjudicating Authorities who being revenue officers possess administrative bias and decide 90 percent cases against tax payers and seek that whole process should be changed? What action if any has been taken by the department if it felt that high stake matters decided by its own Adjudicating Authority were illegal and improper? Why DRI did not seek his recusal or transfer if its first order was incorrect? If a judicial remedy can suffice in case of unfavorable order of Adjudicating Authority then why it cannot be done in case of unfavorable order by CESTAT? Why department is using all the pressure tactics by going to press even before the judgment is out? Is it media trial being selectively opted by the department? If DRI was so convinced about the evidence collated then why it did not arrest and prosecute anyone or launched preventive detention as the matter had recurring offense, in all these matters with repeated imports? Why matter could not be pursued by PMLA and CBI when they have better expertise and legal muscle to deal with such cases? Why if evidence was strong prosecution was not approved or launched by DRI in the case of KISPL, as is the norm? Why even DRI is speaking in two different tones in these matters even now? Is Member – Technical being made a scapegoat in some bigger game or is the evidence in the matter not sustainable? Why all out pressure is being exerted on Tribunal and same could not be done during adjudication? May be the matter will finally go upto Supreme Court and get decided then. But not before the damage has been done to the repute and approach of various agencies and even to the Tribunal through moves which are unprecedented.

Permissibility of Input Tax Credit on â€œOutdoor Catering Serviceâ€ after amendment of 2011: Whether reference to larger bench was required?

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise.

Reference to Larger Bench has been made in the matter of Wipro Limited Vs. CCE, Bangalore as reported in 2018 (9) G. S. T. L. 285 (Tribunal Bangalore), by the Hon’ble Single Member. The reference has been made on the issue of eligibility of Input Service Credit on Outdoor Catering Services after amendment in Rule 2(1) of CENVAT Credit Rules, 2004 vide amendment dated 01.04.2011. The divergent views noted were of M/s Hindustan Coca Cola Beverages Pvt. Ltd. as reported in 2017 (49) S. T. R. 88 (Tri. Hyderabad) by Single Member bench, which was in support of the view that credit is permissible even after amendment. And as against the proposition was the contrarian view of Bangalore Bench only as reported in C. E. A. T. Laboratories Pvt. Ltd. Vs. Commissioner as reported in 2016 (42) S. T. R. 720 (Tri.-Bangalore) being single member view of the Jurisdictional bench. While referring the matter to the Larger Bench from Bangalore Bench however, the following case law could not be taken note of due to non quoting of the same by the representing sides:

2017 (47) S. T. R. 33 (Tri. -Hyderabad)(Single Member) in the matter of Hindustan Petroleum Corporation Limited Vs. CCE, Vishakhapattnam and
2016 (45) S. T. R. 383 (Tri. Mumbai)in the matter of Reliance Industries Ltd. Vs. Commissioner of Central Excise and Service Tax (L. T. U.), Mumbai

While the first case law was a Single Member judgment, the decision in the case of Reliance Industries Ltd. was a Double Bench judgment in which referring Member Shri M. V. Ravindran was himself a part of the Bench. The case law of Reliance Industries Ltd. has been followed extensively by the Hyderabad Bench, and since a Division Bench judgment was existing though not quoted to the Single Member referring Bench of Bangalore, therefore, it appears that if the same had been quoted by the Officers of the court representing the matter, then reference to the Larger Bench may not have been required and the same appears superfluous in the light of ratio of most of the case law including Double Member Bench, which lays down that credit is permissible even after amendment of 2011.

In this connection following observation of the apex court are relevant as made out in reference to the Larger Bench in the matter of 2017 (6) G.S.T.L. 136 (S.C.) SHANTI FRAGRANCES Versus UNION OF INDIA, in which though a reference has been made as to whether in the order of precedent and Judicial discipline -a judgment of Full bench (say 7 members) with greater strength but with dissent (4-3) with less members concurring than another full bench judgment of say all members of Full Bench (say with 5 members) but all giving contrarian view with unanimity will prevail, are relevant:

“13. Let us consider a hypothetical example, where a 2 Judge Bench has laid down the law in a particular way. If nine other 2 Judge Benches have followed the first 2 Judge Bench decision, is it open for three learned Judges to overrule all of the 2 Judge Benches i.e. twenty learned Judges? The obvious answer would be yes, because the 3 Judge Bench is really overruling the first 2 Judge Bench decision, which was merely followed by nine other 2 Judge Benches. As against this, however, if a unanimous 5 Judge Bench decision is overruled by a 7 Judge Bench, with four learned Judges speaking for the majority, and three learned Judges speaking for the minority, can it be said that the 5 Judge Bench has been overruled? Under the present practice, it is clear that the view of four learned Judges speaking for the majority in a 7 Judge Bench will prevail over a unanimous 5 Judge Bench decision, because they happen to speak for a 7 Judge Bench. Has the time come to tear the judicial veil and hold that in reality a view of five learned Judges cannot be overruled by a view of four learned Judges speaking for a Bench of 7 learned Judges? This is a question which also needs to be addressed and answered.”(Emphasis supplied)

Another relevant decision in the matter is 2002 (144) E.L.T. 7 (S.C.) PRADIP CHANDRA PARIJA Versus PRAMOD CHANDRA PATNAIK:- Judicial Discipline - Reference to Larger Bench - Judicial discipline requires that two Judges Bench should follow the decision of a Bench of three learned Judges - If two Judges Bench concludes that the earlier judgment of three learned Judges is very incorrect and under no circumstances to be followed, proper course is to set out the reasons why it could not be agreed with the earlier judgment and refer the matter to a Bench of three Judges and if then the Bench of three Judges also comes to the conclusion that the earlier judgment of a Bench of three learned Judges is incorrect, it should refer the matter to a Bench of five learned Judges - Constitutional Bench ordered that the matter to be placed before a Bench of three Judges - Articles 141 & 145(3) of the Constitution of India read with Order VII, (1) & (2) of the Supreme Court Rules, 1966. [paras 6, 9].

The H’ble Single Member referring matter to the larger Bench, it appears was fully aware of the order of precedent as can be made out from the following judgment pronounce by him in the matter 2007 (216) E.L.T. 306 (Tri. - Mumbai)PACIFIC ORGANICS PVT. LTD. Versus COMMISSIONER OF C. EX., THANE, -Judicial discipline - Binding precedent - Judgment and order of Division Bench binding on Single Member Bench - However, if single Member Bench comes to a conclusion that Division Bench not stated correct law, it can refer matter to Division Bench to consider if the same requires re-consideration by Larger Bench, as per ratio of law laid down by Supreme Court in 2002 (144) E.L.T. 7(S.C.) - Section 35C of Central Excise Act, 1944. [para 10].

Therefore, the reference appears to be outcome of relevant case law not having been put up before him by the officers of the court and oversight of Double Bench decision.

E-WAY BILL

GENESIS OF E-WAY BILL SYSTEM IN INDIA AND WHY IT IS DESIRED BY ENGORCEMENT?:

By:

Somesh Arora,

(B. Com, LLM UQ-Australia, CAIIB, PGD in LL & LA)

Traditionally an E-Way Bill is considered as a document issued by a carrier giving details relating to a shipment of consignment of goods, also the names of consignor and consignee, the points of origin and destination and in some cases the route. With digitalization the Electronic Way Bills have come into vogue. While these documents are typically a contract of carriage but of late the tax systems specially the Indirect Taxes have come to use the same to their advantage to prevent leakage of revenue through tracking of movement of goods from the enforcement angle. The enforcement logic is that there should be documentary trail of goods right from production/importation point to the consumption point to reduce evasion. As nothing can be better than a documentary evidence, to prove a case or to shift the onus. On Customs side, there have been detected cases where goods were imported in the name of existing companies without their knowledge and were diverted to the venue or godowns of the smugglers. There have also been instances when goods through forged documents were cleared in the names of Export Oriented Units (EOUs) at concessional rates and were diverted and smuggled without even the knowledge of concerned Export Oriented Unit. Disappearance of vehicle or goods brought under carnet systems are also known in many domains. On the side of the Value Added Tax (VAT), Karnataka VAT Authorities were the first to introduce computerized entry and exit system to ascertain movement of goods that entered in the state, after diversions were noticed. In Central Excise side the famous, Surat fraud Case in 2005 involving hundreds of Crores, in which massive rebates were taken by procuring fake Invoices raised an alarm with the authorities, as most of the factories providing such Invoices, were found non existent and there was hardly any accompanying movement of goods. This led to export of cheap apparels and even rags, thereby duping the Government Authorities.

So Taxmen in India had red flagged two things, right from the beginning when discussions relating to GST in 2006 were underway. Firstly, that there has to be system based matching of the Invoices to eliminate fake Invoices to be introduced in the system and their detection has to be at the earliest stage, if not instant. Secondly, the movements of high value consignments within India should be recorded in a system, so as to identify, confront and question any wrongdoer. Therefore concept of Electronic Way Bill was envisaged as a response. It is supposed to cover not only intra state movements, interstate movements but also movements from various Custom Ports by any importer after the goods are cleared by a Custom Port. To keep petty transactions out of the ambit of Electronic Way Bill, transaction with consignment value of less than Rs.50,000/- and movements of less than 10 Kilometre of distance have been kept out, though in the case of latter transaction, Part-A of the Electronic Way Bill is required to be filled up. Similarly, the consignments cleared on other than motorised vehicle have been kept out of the purview, and so have been the consignments of gold, gem and jewellery for security reasons. The system broadly works on the basis, that the person legally made responsible to issue Electronic Way Bill will generate a system based E-way bill number, which will eventually be placed on the Invoice. And only on generation of such a Electronic Way Bill Number the goods shall move and the transporters must have this Electronic Way Bill Number with them, on any inspection of goods being done during transit. The transit time has also been stipulated and is one day for first 100 KM and thereafter in multiples of 100 for every extra day. For extraordinary circumstances the transgression from schedule can be explained to the Commissioner to seek his approval. There is also a provision that if the vehicle is stopped for any reason by any authority, then details of such intervention should also be reflected in the Electronic Way Bill System. For Customs, every movement of the cleared goods will require generation of Electronic Way Bill, but not for the goods which are still in Customs custody whether symbolic or actual. Therefore, containers moving from Gateway ports to Inland Container Depots, which are still having bottle seal or electronic seal (when imported) may not require an Electronic Way Bill. The Central Government had initially started a trial run on Electronic Way Bill System from 16.01.2018 to notify the procedure and make the requirement of Electronic Way Bill effective from 1^st February, 2018, however, due to technical glitches the same had to be postponed on 2^nd February, 2018. States were given directions to introduce the same for inter-state movement, on their own Electronic Way Bills in staggered manner up to 30^th June, 2018. Many States like Uttrakhand, Uttar Pradesh and Rajasthan even started the same before 1^st February, 2018. States like Andhra Pradesh have for the time being postponed their E-way Bill in tune with the Central Government. However, authorities are quite serious about implementing the Electronic Way Bill at the earliest possible and that too, without truncating the legal provisions too much. The challenge of introducing Electronic Way Bill is huge in a country like India where the transport and movement of goods through Rail is enormous. And determined evaders are ever ready to exploit any loophole to their advantage. Therefore to make the measure effective, a lot of thinking is taking place and introduction of Part-A of Electronic Way Bill for movement of less than 10 KM, as also the requirement of generation of Electronic Way Bill by the registered dealer on procurement from unregistered dealer have been introduced. However, such procedures if do not achieve the desired results can be counter -productive and a major irritant for those assessees who like to be on right side of law and are generally compliant. Enforcement agencies, therefore, will have to constantly monitor and learn from evolutionary experiences. The advantage on the Customs side can be palpable for the enforcement agencies, as they will always have a trail on Custom side on bogus or mis-declared imports, as an importer can always be asked to indicate as to whom the next sale was made and of how much quantity. Through his system transaction and like wise his purchaser can also be hauled up. The routine checks in transit by multiple State and Central agencies will have to be intelligence based, otherwise removal of State entry barriers may have no meaning. And it may become a case of ease on one hand and create a bigger nuisance by other.

(Author is Advocate and Former Commissioner of Customs, Excise and Service Tax. He can be contacted for further queries at www.amicusrarus.comor email: amicusrarus@yahoo.com)

BITS & BYTES MARCH,2018 Published in RTT

BITS AND BYTES MARCH, 2018:

By:

Somesh Arora [Advocate (Amicus Rarus) and Former

Commissioner of Customs & Excise]

What ails the Banking System?

The Neerav Modi, fraud along with similar frauds coming to light

right from Winstron Diamond, Nakshatra, Gitanjali Gems and

Rotomac indicate that the detections so far despite being huge,

may just be a tip of the iceberg. The reluctance of the Banks to

give out the name of the defaulters other than wilful defaulters or

those who are involved in their non performing assets is

therefore, quite understandable. “Just obscure what cannot be

cured” seems to be the underlying philosophy. Everyone,

excepting the depositors benefit from the situation. The banks

can continue to show fictitious and unreal book profits. The

Share Market benefits from the speculation with ups and downs.

Those who received the loan, benefit the most by enjoying the

fruit of the loans and not having to repay. The Political parties

can have easy prey to have their political funding. Therefore, it is

only the depositor who suffers or genuine loan takers who have
to pay higher than normal rate of interest to pay for the misdeeds

of the loan defaulters. One more victim can be shareholders of

such companies whose directors dupe them as well as the

companies while fleeing to lead life of comforts in foreign nests. If

the Government tries to protect the Banks through infusion of

capital to allow them to overcome their non performing assets, it

will be still the tax payers who will have to suffer. Since,

Nationalisation in 1969 there has hardly been any Government

which has not tried to install some of its own favourites in the top

management of the banks. It allows leverage to fund their own

favourites with loans, who in turn oblige back with election

funding at the appropriate times. The heavy cost of election

funding in bigger democracies is fast turning out to be ` mother

of all evils’ with most political outfits believing in “jo dikhta hai

so bikta hai’. Some of the Bank`s staff including those in the top

management also make hay while the sun shines. Frauds are

therefore, bound to be forever in the banking system, till it is

revamped. Structural banking reforms for nationalised banks,

though extremely desirable are not in the interest of any political

setup. The regulators of financial institutions like RBI and SEBI

either do not bother about the complaints or willingly maintain

stoic silence considering that they may be receiving complaints in

hordes. They rather prefer to allow other agencies to investigate

as and when the things reach the scam level. SEBI too rather

than becoming effective regulator has become an agency to

overlook breeding of frauds. About the auditors the lesser said

the better. Till date there has been `nil” contribution from any
Chartered accountant in breaking out any worthwhile scam or

fraud, even though they are supposed to be the first line of

defense for depositors and share holders. But this line it appears

has become most manageable. Both RBI and SEBI, incidentally,

are also the most opaque in terms of responding to information

under RTIs. The only chance for a big loan defaulter getting

caught in time is if he wields no influence or if he has remained

aligned to a political party which gets out of power and favour.

The Big corporate, therefore, are wise enough to sail in two

political boats and do not prefer another one to come in fray at

the Central level or even frequent holding of elections due to

fractured mandates. It is a well known truth about our

recruitment processes that most of them are hardly above board

and only exceptions are Civil Services exams and some of other

positions in PSUs and in some of the States and for Central

Subordinate Services. These are the agencies about whom no

complaint or allegation has ever been heard. When the merit is

not a criteria for reaching the top management, but political

alignment are, meritocracy and professionalism are bound to be

the victims. Why it has not occurred to any one that promotions

and recruitments to the top management in nationalised banks

should be through agency like UPSC only without any political

interference or is it that the same does not suit the political

outfits and crony capitalism. The evil of abridged Balance Sheets

and Profit and Loss Accounts being made available to General

public and shareholders since 1990 is another evil, which shows

that there is complete collapse and absence of political will to
rectify the situation, which has just raised opaqueness in public

financial documents. It was measure brought to curtail costs

when the Balance sheets were required to be sent to all the

shareholders but continues even now when e-mails are in vogue.

Name any company that has committed any economic fraud and

one can analyse that its abridged financial statements never had

the critical information in details. Still the red flagged area

continues for some strange reasons. Political will can remedy in

no time all that is going wrong with the taxes, monies and

deposits of gullible public but same has been exhibited so far

only in rhetoric. With every change of Government hopes are

raised, just to confirm that costly elections are making mockery

of democratic process at least in big democracies.

Will the present Government be different in remaining of its

tenure or will it also prove to just an “also ran like others” type of

a Government will be seen in the near future?

BITS & BYTES,

Budget 2018-19

BUDGET 2018-19

Budget 2018-19- Is protectionism back?

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate (Amicus Rarus)

As usual, Government calls it ‘Dream Budget’ and opposition a ‘Nightmare”. The peculiarity about budget exercise is that opposition does not find anything right in it and Ruling party does not find anything wrong in it. The common man is always left confused as to whether at the end of the next fiscal he is going to be left with something in his pocket or be devoid of all. Electronic media and stock markets only compound the confusion. The budget this year was without its usual sheen because G.S.T. is out and old excise and service tax are there only for name sake. What good is the budget secrecy in present day system when GST tax structuring are through publicized agenda and the most important fiscal change of imposing Long term capital gains was well available to the people of India with exact details of the proposal and freezing date of 31^st January, 2018. Markets had already reacted to it. Isn't it time that revenue proposals should be in public domain as most of them are in any case, now? Even on the Customs side Ex- F.M. Mr. Chidambaram had empowered executive to do tariff restructuring, any time during the course of the year as is being also done both for GST and Customs. Why deprive all the TRU officers of their home comforts and home food, while making budget in this changed India?

It also appears that at Davos, H`ble P.M. more than convincing others with his emphatic speech on virtues of continuing globalization for economic growth, came back more convinced by the preachers of protectionism. And why not, when the big ones are returning to it, why should India lag behind as it did by bidding late for liberalization in mid 90s? The Budget marks a big reversal to protectionism in recent years with increase in a number of items on customs side by sizeable percentage, apart form surcharge. The F.M. has therefore, placed big bet on old war horse of `Customs’ for revenue, apart from the last resort of disinvestment of Rs.80,000 crores. The skies therefore may be bereft of Maharaja soon.

General: 5 Lakh medical insurance cover per year for 10 Crore poor families in World`s biggest health insurance plan.( Are there sufficient hospitals for this?)

Four Government Insurance Companies to be merged ( Will it reduce ever increasing third party insurance premium?)
Crypto Currency not legal
Disinvestment target at Rs.80000 Crores in next fiscal.
5 Lakhs Wi-Fi hotspots to provide easy internet access in remote areas.
Gold policy to allow gold to act as asset class
24 new medicial colleges.
12 % contribution of EPFO by the Govt. for now enterprises for 3 years – Women deduction @ 8 % instead of 12 % for 3 years( The reasoning of allowing women to carry more carry home given by F.M. in budget speech not very convincing and agitates against the philosophy of old age security schems. “Save today for the rainy today tomorrow”.

Cheer Factors:

Income tax:

Difference between Circle rate and transaction value to be ignored if upto 5%. ( Too little too late recognition of the fact that with in same locality prices can be different e.g. Flats of Trump Estates selling in Gurgoan at Rs.10 crores)
30% Corporate tax for companies with turnover of above Rs.250 Crores for lesser turnover @25%.( 90 percent companies to benefit, the contribution of remaining 10 percent is for Oppositon( if any) to find out.)
Pensioners to be allowed tax free interest on saving upto Rs.50,000/-
100% tax deduction to companies with revenue of Rs.100 Crores registered Farmer producers Cooperatives
No TDS on FD, Post office Interest upto Rs.50,000/- for senior citizen
Health Insurance premuim deduction upto to Rs.50,000/- and Rs.1 lakh for senior citizen with critical illness, current limit of exempted interest raised from Rs.10,000/- to Rs.50,000/-, they can also earn up to 8% interest under Pradhan Mantri Vandana Yoyana up to Rs.15 Lakh of investment.( Old is gold. Senior is premier.)
Long Term Capital Gains of over Rs.1 lakh to be taxed @ 10% without indexation benefits. Gains to be calculated from the value as on 31.1.2018.( Make a kill with the short term gains @15% is the message).
100 percent Tax Deduction to Farmer Producer Companies with an annual turnover of Rs.100 crores on profit derived from such activities.
Deduction to New Employee u/s 80JJAA extended to Footware and leather Industry.
Payments made by Trusts and institutions above Rs.10,000/- in cash to be treated as income.
Cess on personal and corporate income to be up form 3% to 4% to be called as Health and Education Cess.
E- assessment to be rolled out to reduce interface.(Welcome step. Also required in GST.)

Customs:

Import duty on raw cashew down to 2.5% from 5 %. ( Some more cashews for the visiting senior officers in the field)
Pre – Notice consultation to reduce litigation in taxation. ( It was hardly followed despite instructions on Central Excise side)
Electrodes for furnaces @0%
Articles of stone and Bricks/Blocks and Tiles to command lower duty from 10% to 7.5%.
Duty on the solid tempered glass for manufacture of Solar Penals being reduced to Nil from 5%.
Silver and gold in various forms being exempted from newly imposed social welfare surchage beyond 3%
Power to remand of Commissioner (Appeals) in specified cases is being brought in.
Provisions being created for reciprocal arangement for exchange of information between foreign customs.
CBEC becomes Central Board of Indirect Taxes and Customs.( Hope new name is numeriologically proper)
Separate authority for Advance Ruling for Customs to be created.
Offences related to prohibited goods or restriction and obligations, if provided in any other law as to be considered executable only if such prohibition or restriction/obligation is notified under Customs Act, only.
Provision relating to controlled delivery of narcoptics and such substances being brought in the Statute through Section 109A.

Fear Factors:

Rs.80,000 Crores through disinvestment of public sector undertaking in the next fiscal clsoe on the heels of Rs.100,000 crores this fiscal- estimated-Kuch bachega kya?).
Revneue generation is estimated of next fiscal is 17.25 lakh cores over revised estimate of 15.05 lakhs crores for current fiscal. A huge gap of Rs. 2.20 Crores. Can such Buoyancy be expected in an election year to fulfill all promised expenditure allocations?
Customs:Custom offences henceforth shall include offences of contraventions committed even outside India by any person.( Kanoon ke lambe haath)
Definition of Indian Custom Waters is being changed to bring it in line with GST so as to include even Exclusive Economic Zone.( Territorial enrichment of Indian Customs first time since 1962.High Sea sales will need to be effected outside Exclusive Economic Zone)- May see more litigation.

Tear Factors:

Income Tax:

No change in personal tax salaried tax payers.
Standard Deduction upto Rs.40,000 in lieu of exemption in respect of Transport allowance and reimbursement of miscellaneous medical expenses.( It will not even offset inflation on limit of Rs.2,50,000 for two years. Clearly budget without populism but for fiscal discipline.)
Tax on distributed Income by Equity oriented Mutual Funds @10%
Long Term capital gains on equity and mutual funds beyond Rs. lakh per annum to be taxed at 10 percent.

Customs:

Custom Duty on mobile phones hiked from 15% to 20 %( Karbonn will give way to Jio hand sets).
Heavy cess of 10 percent on aggreagate of Customs duties ot replace 3% educational cess imposedto be called as Social welfare Surcharge. However, such social welfare surcharge shall be exempted from levy on IGST.( Take by another hand what has been given by GST by the other)
Crude vegetable oil from 12.5% to 30%.
Refined vegetable oils from 20% to 35%
Basic Custom Duty (BCD) on Orange fruit juice to 35%
Other Fruit Juice like Pineapple, Tomato, Apple juice, from 35% to 50%
Alcoholic breverages up from 30% to 50%
Waterproof and other footwear shall be subjected to higher rate of duty up from 10% to 20% whereas the parts of footwear will be up from 10% to 15%.
Refractory Bricks and Blocks and other refractory ceramic goods to command higher duty of 7.5% up from 5%.
Silica for use in telecommunication grade optical fibre being raised to 5% from NIL.
BCD on cut and polished coloured gem stone and diamonds (semi procesed) and non Industrial diamonds including lab grown, being increased from 5% to 2.5%.
BCD on immitation jewellery has been increased from 15% to 20%.
BCD on various parts of ignition engines, aircraft engines, Engines of Motor Cars and Motorcycles has been raised from 7.5% to 15%.
BCD and CKD import of Motor Vehicles being raised from 10% to 15% and completely build unit from 20% to 25%.Even parts and accessotries to be raised from 10% to 15%.
BCD on Medical devices being raised from 7.5% to 10%.
BCD on all items wrist watches, clocks and watch moments of other clock is raised from 10% to 20%.
BCD on Seats other than circraft Seats and parts thereof raised from 10% to 20%.
BCD on Solar Lentern being raised from 10% to 20%
BCD on Video Games, Festive and Carnival for other entertainment articels, Equipment of gimnastic and general exercise, Fishing rods, Round about and swings, Date Sealing or numbering Stamps, Cigarette ligheters and other lighters, Scent-sprays and other toilet sprays, being raised from 10% to 20%.
Social Welfare surcharge 10 percent of all taxes on customs side to be levied on imported goods w.e.f. 02.02.2018 and Education Cess and Higher Education Cess shall be abolished. Social Welfare Surcharge shall however be restricted to 3% on Petrol, Diesel, Silver and Gold.

Excise:

Road and infrastructure Cess of Rs.8/-as additional duty of Excise is being re-imposed on Petrol and High Speed Diesel. However, basic Excise duty on Petrol and Diesel is being reduced to Rs.2/-.
The R & I Cess shall however not be leviable on Ethanol Blended Petrol. However, all these changes may not have any effect on total excise duty of Petro and High Speed Diesel Oil.

Election year budget is crucial for every Government . In 2014, previous F.M. made skewed expenditure allocation of more than 20 percent to indulge in populism in 2013 and 2014, but U.P.A. still lost the elections. Now this Government has avoided populism and has kept an eye on deficit control. India has a long way to go for egaliatian reforms though every budget speaks about it. The Budgets only raise dreams that become bigger in elections. One hopes and prays that eventually in the next General Elections eventually the lesser evil wins.

BITS AND BYTES Published in RTT NOVEMBER,2017

Bits and Bytes:

By:

Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

Ease of doing business: A ladder in the snake and ladder game

India goes up by thirty notches in the ranking. Congrats to India for moving up in World Bank’s Ranking of ‘ease of doing business’. India now stands up at 100^th rank up from 130 in the last year. Revenue Department equally deserves to be congratulated as paying taxes was the parameter which improved the most. Similarly trading across the border and paying Custom Duties etc. also improved considerably. It is expected that India will move up further to the rank of top 50 Nations as Government is working in collaboration with World Bank on 200 identified reforms that will propel India into top 50 bracket. In the process of getting ranked at 100, India also became top ten improvers in a year’s time in the survey of World Bank. The Government of India has been focussed on this task since 2014 when India was ranked at 142 and since then various processes of e-governance especially in Delhi and Mumbai enabled it to achieve overall improvement in ease of doing business. One wishes that the momentum gained shall be maintained in years to come and the reform process will get deep routed with the support of various State Governments also, who will be equally inspired to speed up process for land availability, electricity, water supply and other paraphernalia falling under their domain. But the way GST Network is creating problems for the tax payers and is making return filing so difficult, one wonders if a realistic appraisal will not make things difficult again. But time to rejoice, nevertheless, till a snake bites again.

Is Public Interest Litigation becoming a Multi Crore Industry monopolised by few?

In a widely circulated message on social media, National Lawyers Campaign( NLC) based at Mumbai has pitched for curtailment of Public Interest Litigation by churning out figures of Rs.10,000 crore for PIL Industry and with a figure of Rs.1,000 crore attributed to one gentleman only. The figures can be doubted but the concern for unnecessary PILs is something which various Courts including the Apex Court has also expressed the concern about. A number of N.G.O.s act as a façade for some political and economic interests to lend their names to such litigations. Most CHigh Courts and even Supreme Court has oflate been discouragaing such litigation and in a number of cases even costs have been imposed. Recently, a senior officer of the CBI was also caught in the crossfire of his supporters and adversaries. While the officer enjoys a tremendous reputation and support with in the Government, his adversaries carried a smear campaign at the time of his promotion, which was threatened to be questioned through a PIL. Informed sources indicate that a controversy was created over some rental receipts of some property of the officer concerned, even when the same were duly accounted for, to vilify the officer close to his promotion, by the vested interests. How such receipts can become matter of any complaint or prudent investigation even, is a matter of debate? It is becoming increasingly clear that PILs are becoming tool used for political motives, for publicity by various NGOs and individuals. Filing of such PILs have started to hinder normal litigation process as Courts have to increasingly deal with such litigation to the detriment of the routine pendency. Some regulations and discipline in relation to PILs is therefore, warranted.

GSTN woes continue, unabated:

Finally at the receiving end of GSTN failure is the Infosys now. Many in the Government have started blaming Infosys for GST Network to be a non-starter now, as it is becoming increasingly clear that things may not be properly operationalised, even by January. While one can understand that there was some degree of haste shown by the Government in implementing GST on 1^st July, 2017 without there being a proper ground testing of the GSTN, it is equally true that situation so far indicates that there was utter failure on the part of Infosys in identifying the likely areas of troubles. Glitches are therefore, taking too long to get resolved. Crawling speed, generating errors and crashing are some of the key failures. There are number of systems which are still to become functional even though are highly desirable for the functioning of GSTN. Even those which have become operative are still to reach optimal functioning. As the blame game between Infosys and officials reaches a crescendo, it is becoming evident that GSTN will continue to be a laggard for a long time to come and will bring a bad name to this E-governance model. It is also likely that if the ease of paying taxes is not improved in the short run, India may slip down even in ease of doing business as this was a parameter in which India has shown maximum improvement.

CESTAT, Chandigarh: Witnesses a strike by Lawyers.

Appalled by the delay in writing orders by the Bench of CESTAT, Chandigarh and having been led to repeatedly required to come for hearings, the lawyers at CESTAT Bar Chandigarh struck work on 1^st November, 2017. This is unprecedented scenario in any Quasi Judicial body and is in complete derogation of various decisions of High Courts and the even the Supreme Court which have clearly mandated that the decision must be given within stipulated period of conclusion of hearing. The aggrieved lawyers cited instances where orders were not issued despite hearings having taken place for almost a year. While normally it is Judiciary which reminds Bar not to waste time by striking work so that courts are able to attend to litigation, in this instance it was a different ball game. One hopes that good sense will prevail and overall improvement will be brought in the functioning of the Bench at Chandigarh. So that the creation of bench at the door step of the litigants does not prove counterproductive to the perceived objective.

AGRAWAL ROUND ROLLING MILLS LTD. Versus COMMR. OF C. EX. & S.T., RAIPUR

2015 (317) E.L.T. 145 (Tri. - Del.)

IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI

Justice G. Raghuram, President and Shri Rakesh Kumar, Member (T)

AGRAWAL ROUND ROLLING MILLS LTD.

Versus

COMMR. OF C. EX. & S.T., RAIPUR

Final Order Nos. A/52487-52488/2014-EX(DB), dated 26-5-2014 in Application Nos. E/Stay/57635 & 57637/2013 in Appeal Nos. E/57063 & 57066/2013-EX(DB)

Demand and penalty - Clandestine manufacture and clearance of MS Ingots - Evidence - Cross-examination - Denial of - Evidence based on power consumption per MT of goods being much higher than limit of 830 units prescribed for manufacture of said product as per Technical Literature of M/s. Inductotherm, manufacturers of Induction furnace installed in manufacturer’s factory - Opinion of National Institute of Technology, Raipur that proportion of pig iron in said product cannot be more than 8% for production of said product whereas its consumption in manufacturer’s factory is 16% - Records recovered from broker firm indicating 685.44 MT of said product sold and cleared through said firm without issue of invoices and without payment of duty - Income shown by manufacturer from commodity trading transaction while enquiry with Commodity & Derivative Exchange Ltd. showed no such transactions taking place, leading to presumption that said income from clandestine clearance - HELD : Manufacturer’s request for cross-examination of witnesses and experts whose opinion and statements formed basis of above evidence refused by department in violation of Section 9D of Central Excise Act, 1944, resulting in denial of natural justice - Information from Commodity & Derivative Exchange from it cannot be relied upon as contents of letter from Manager of said Exchange Ltd. not disclosed in show cause notice - Impugned order set aside and matter remanded to adjudicating authority for de novo decision relying on evidence disclosed in show cause notice only - Sections 11A and 11AC ibid - Rule 26 of Central Excise Rules, 2002. [paras 6, 7]

Adjudication - Natural justice - Cross-examination - Adjudicating authority in accordance with provisions of Section 9D(2) of Central Excise Act, 1944 must examine the witnesses whose statement have been relied upon by Department and thereafter must permit their cross-examination by appellant, if registered by them. [para 7]

Appeal disposed of

CASES CITED

Commissioner v. Ballarpur Industries Ltd. — 2007 (215) E.L.T. 489 (S.C.) — Relied on [Paras 3, 6]

Commissioner v. Govind Mills Ltd. — 2013 (294) E.L.T. 361 (All.) — Referred................... [Para 3]

Commissioner v. Parmarth Iron Pvt. Ltd. — 2010 (260) E.L.T. 514 (All.) — Referred......... [Para 3]

J & K Cigarette Ltd. v. Collector — 2009 (242) E.L.T. 189 (Del.) = 2011 (22) S.T.R. 225 (Del.) — Referred [Para 3]

Kanungo & Co. v. Collector — 1983 (13) E.L.T. 1486 (S.C.) — Distinguished............ [Paras 4, 7]

Kishanchand Chellaram v. CIT — 1980 (Supp.) SCC-660 — Relied on................................. [Para 7]

Slotco Steel Products Pvt. Ltd. v. Commissioner — 2012 (281) E.L.T. 193 (Del.) — Referred [Para 3]

REPRESENTED BY : Shri Somesh Arora, Advocate, for the Appellant.

Shri Pramod Kumar, Jt. CDR, for the Respondent.

[Order per : Rakesh Kumar, Member (T)]. - The facts leading to filing of these two appeals and stay application are, in brief, as under :-

1.1 M/s. Agrawal Round Rolling Mills Ltd., Raipur, Chhattisgarh (hereinafter referred to as “Appellant Company”) are engaged in the manufacture of Mild Steel Ingots (MS Ingots) and rolled products of iron and steel falling under Chapter 72 of the Central Excise Tariff. Sh. Mahesh Kumar Agrawal is the Director of the Appellant Company. The main raw materials for manufacture of MS Ingots is Sponge Iron, Pig Iron, Steel Scrap and Ferro Alloys. Pig Iron is used for addition of carbon and its quantity is dependent upon whether the steel to be made is Mild Steel or high carbon steel. Ferro Alloys are added for manufacture of Alloy Steel and Stainless Steel. The period of dispute in this case is from May ’05 to Aug. ’06.

1.2 M/s. Monu Steel, Raipur, Chhattisgarh, a Proprietorship Concern of Sh. S.K. Pansari is a Commission Agent/Broker dealing in various Iron and Steel products viz. - Sponge Iron, MS Ingots etc. Acting on an intelligence that Appellant Company along with other Iron Steel manufacturers was evading Central Excise duty by clandestine removal of MS Ingots through M/s. Monu Steel, Raipur, the Premises of M/s. Monu Steel were searched on 15-1-2007 and some incriminating records found were taken over. The statements of Sh. S.K. Pansari were recorded on 15-1-2007, 19-9-2007, 21-9-2007, 30-5-2008 and 2-6-2008 under Section 14 of the Central Excise Act, 1944. Sh. Pansari in these statements while admitting that he is a Commission Agent dealing in various Iron Steel products including MS Ingots, stated that he is contacted by both the sides buyers as well as sellers, that he as broker procure sales orders for various Iron and Steel manufacturers including the Appellant Company for which he was getting commission, that though the sales orders were received over phone, he was making entries in respect of them in his diary which includes name of the buyer, name of the seller, bill number, bill amount etc., that documents recovered from his premises contained details regarding sales by various Iron and Steel manufacture including the Appellant Company through, him that abbreviation “O” means material sold without bill on which excise has not been paid and that the abbreviation “R” means Regular payment in 10 to 15 days. Scrutiny of the records recovered from M/s. Monu Steel indicated that during the period of dispute 685.44 MT of MS Ingots had been cleared and sold by the Appellant Company to various customers through M/s. Monu Steel without payment of duty and without issue of invoices. The Authenticity of records maintained by M/s. Monu Steel appeared to be backed by the fact that a number of entries in the records recovered from M/s. Monu Steel were tallying with the entries regarding sales as recorded in the record of the Appellant Company.

1.3 Since the records recovered from M/s. Monu Steel read with his statements indicated that the appellant were making clandestine clearances without payment of duty, further scrutiny of the records of the Appellant Company was conducted. It was found that there were two induction furnace of 6 MT capacity each were installed in the factory premises of the appellant company and as per the technical literature of the furnace manufacturer M/s. Inductotherm average power consumption per MT of MS Ingots produced was 830 units. However, while average power consumption during 2006-07 varied from 3305 units per MT for 1444 units per MT which appeared to be abnormal. Moreover there were vide fluctuations from to months in power consumption per MT of MS Ingots produced which indicated that the appellant were under reporting the production of MS Ingots. By taking average power consumption as 830 units per MT, it appeared that total production of MS Ingots during period from April ’05 to Aug. ’06 had been under reported by 21082 MT valued at Rs. 32,62,82,135/- on which duty involved was Rs. 5,32,49,247/-. Thus the Department was of the view that excise duty to this extent has been evaded by the appellant company during period from April ’06 to Aug. ’06.

1.4 Another raw material for manufacture of Mild Steel Ingots is Pig Iron which is added Carbon. The Investigating Officers obtained an opinion from the Department of Metallurgy, National Institute of Technology, Raipur (C.G.) under their letter No. 1388/Met. Engg./Consultancy/2009, dated 6-8-2009 stating that the maximum proportion of Pig Iron should not be more than 8%. However, it was found that in the appellant unit use of Pig Iron was to the extent of 16%, which also indicated that the production of MS Ingots was being under reported.

1.5 The statement of Sh. Mahesh Aggarwal, Director of the Appellant Company was recorded in course of which he was questioned about the above discrepancy in the consumption of electricity per MT and consumption of Pig Iron but he could not give any satisfactory reply.

1.6 In view of the above investigation show cause notice dated 28-5-2010 issued to the appellant company and its Director Sh. Mahesh Aggarwal and Sh. Monu Steels for :-

(a) Demand of Central Excise duty amounting to Rs. 5,32,49,247/- from the appellant company on alleged clandestine removal of 21082 MT of MS Ingots during period from May ’05 to Aug. ’06 along with interest thereon under Section 11AB;

(b) Imposition of penalty under Section 11AC on the Appellant Company; and

(c) Imposition of penalty under Rule 6 of the Central Excise Rules, 2002 on M/s. Monu Steel and Sh. Mahesh Kumar Aggarwal, Director of the Appellant Company;

1.5 The above show cause notice was adjudicated by the Commissioner vide Order-in-Original dated 8-2-2013 by which he confirmed the above mentioned Central Excise duty demand along with interest and while imposed of penalty of equal amount on the Appellant Company under Section 11AC, imposed penalty of Rs. 1 Crore on Sh. Mukesh Kumar Aggarwal and penalty of Rs. 2 lakh on M/s. Manu Sales under Rule 6 of the Central Excise Rules, 2002.

1.6 Against this order of the Commissioner these two appeals have been filed by the Appellant Company and its Director Sh. Mahesh Kumar Aggarwal along with Stay Application.

2. Heard both the sides. Though the matter was listed only for the hearing of the stay applications, after hearing the same for sometime, the Bench was of the view that the matter can be taken up for final disposal as the same has to be remanded. Accordingly with the consent of both sides, the matter was heard for final disposal.

3. Sh. Somesh Arora, Advocate, the learned counsel for the appellant, pleaded that duty demand of Rs. 5,32,49,247/- against the appellant on alleged clandestine removal of 21082 MT of MS Ingots during period from April ’05 to Aug. ’06 is based on the assumption, that for manufacture of one MT of MS Ingots, 830 units of electricity is consumed and that the proportion of Pig Iron in the manufacture of MS Ingots cannot be more than 8%., that another evidence relied upon by the Department is the papers recovered from the premises of M/s. Monu Steel (Proprietorship Concern of Sh. S.K. Pansari), that the Appellant had sought cross-examination of the person from National Institute of Technology, Raipur who had tendered the opinion regarding consumption of Pig Iron and also the cross examination of Sh. S.K. Pansari of M/s. Monu Steel but the cross-examination of these persons has been dis-allowed, that there is no basis for adopting the figure of 830 units of electricity for manufacture of one MT of MS Ingots, as earlier, the appellant’s unit had been examined by the audit and the consumption of 1100 unit of electricity per MT has been accepted, that no experiment has been conducted in the appellant’s factory to determine the actual consumption of electricity for production of one MT on Mild Steel Ingots, that consumption of electricity depends upon various factors like power break down, power fluctuation, quality of scrap, etc., that letter from Department of Metallurgy, National Institute of Technology, Raipur opines that consumption of Pig Iron in the manufacture of MS Steel Ingots cannot be more than 8% is merely an opinion and unless the cross examination of the person which has given this opinion is allowed and its correctness is ascertained by cross examination of that person, this opinion has no evidentiary value, that similarly, the author of documents recovered from the premises of M/s. Monu Steels has not been identified for which cross-examination of Sh. S.K. Pansari was necessary, but the same has not been allowed, that the documents recovered from the premises of M/s. Monu Steel are third party documents which cannot be admitted as evidence without cross examination of the person from whom the documents have been recovered and the author of the documents, that cross-examination of a witness whose statement has been relied upon is mandatory if the same has been requested and denied without any valid reason, it amounts to denial of natural justice, that in this regard he relies upon the judgment of Hon’ble Allahabad High Court in the case of Parmarth Iron Ltd., reported in 2010 (260) E.L.T. 514 (All.), that Hon’ble Delhi High Court in the case of Slotco Steel Products Pvt. Ltd. v. CCE, Delhi, reported in 2012 (281) E.L.T. 193 Delhi, relying upon its earlier judgment in the case of J&K Cigarette reported in 2011 (22) S.T.R. 225 (Del.) = 2009 (242) E.L.T. 189 (Del.) has held that in terms of the provisions of Section 9D of the Central Excise Act, 1944, the cross-examination of the persons whose statement has been relied upon by the Department cannot be refused unless the Adjudication Authority had after hearing the party given a findings to the effect that the presence of the witnesses cannot be obtained without undue delay or expense which the officer concerned considers un-reasonable, that in terms of the Provisions of Section 9D(2) the Adjudicating Authority before relying upon the statement of a witness against the assessee, has to ascertain its correctness by examining him and permitting his cross-examination, that in this regard he relies upon the judgment of Hon’ble Allahabad High Court in the case of Govind Mills Ltd., reported in 2013 (294) E.L.T. 361 (All.), that in view of the above the denial of cross-examination has resulted in violation of the principle of natural justice, that Adjudicating Officer in the impugned order (para 3.5.12 of the impugned order) has relied upon collateral evidence in form of Appellant’s transactions in commodity trading through National Commodity & Derivative Exchange Ltd., Mumbai, which on inquiry were alleged to be fictitious transactions and on this basis it has been alleged that the appellant had shown an income of Rs. 7,84,93,467/- from commodity trading, which actually is the income from un-accounted manufacture and clandestine sale of the MS Ingots, that Commissioner in this regard has relied upon certain evidence which had not been disclosed in the show cause notice, that as held by the Apex Court in the case of CCE v. Ballarpur Industries Ltd. reported in 2007 (215) E.L.T. 489 (S.C.), show cause notice is the foundation of a case and the Adjudication Authority cannot Notice travel beyond the allegation made in the Show Cause Notice and that in view of this the enquiry with National Commodity & Derivative Exchange Ltd., Mumbai cannot be used as evidence against the appellant. He, therefore, pleaded that the impugned order is not sustainable.

4. Sh. Pramod Kumar, learned Jt. CDR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the allegation of duty evasion against the appellant company is based on concrete evidence on record, that the power consumption of 830 unit per MT has been adopted on the basis of the technical literature of M/s. Inductotherm who are the manufactures of the induction furnace installed in the appellant factory, that no explanation has been given by the Appellant for vide fluctuation in power consumption per MT of MS Ingots which has varied from 3305 units per MT to 1444 per MT during April ’05 to Aug ’06 period, that the only explanation for such high power consumption is un-accounted, manufacture of MS Ingots cleared without payment of duty, that the fact of un-accounted manufacture and clearance of MS Ingots is also corroborated by the consumption of Pig Iron in the appellant factory which is 16% while in terms of the opinion given by the Department of Metallurgy, National Institute of Technology, Raipur, the same could not be more than 8% as higher quantum of use of Pig Iron would result in higher percentage of Carbon in the steel and the same would no longer remain Mild Steel, that the allegation of un-accounted manufacture clearances of MS Ingots is further corroborated by the records recovered from broker M/s. Monu Steel which indicate that 685.44 MT of MS Ingots sold through M/s. Monu Steel had been cleared without issue of invoices and without payment of duty, that authenticity of records of M/s. Monu Steel is clear from the fact that a number of entries in the same tally with entries regarding clearances on the official records of clearance maintained by the Appellant Company, that huge income shown by the appellant through Commodity trading, while the enquiry with the National Commodity & Derivative Exchange Ltd., Mumbai, showed that appellant company had not made any transactions is another evidence showing that the income from the un-accounted production and sale of steel Ingots was being shown an income from commodity trading, that in these circumstances, denial of cross-examination would not amount to violation of natural injustice and in this regard Commissioner has correctly relied upon the judgment of Apex Court in the case of Kanungo & Co. reported in 1983 (13) E.L.T. 1486 (S.C.), that in the appellant’s factory, that there are two furnaces, each of 6 MT capacity and on the basis of declared production of MS Ingots their capacity utilization was 30% to 37% while such low capacity utilization is economically not viable, that in view of this, the Commissioner’s Order is based on concrete evidence on record and as such there was no violation of natural injustice. He, therefore, pleaded that there is no infirmity in the impugned order.

5. We have considered the submissions from both the sides and perused the records. The duty demand for the period from April ’05 to Aug. ’06 is in respect MS Ingots which are manufactured by the appellant. The raw material for the MS Ingots is Sponge Iron, Pig Iron, Steel Scrap and Ferro Alloys. The MS Ingots are manufactured by using two induction furnaces each of 6 MT capacity manufactured by M/s. Inductotherm. The allegation of un-accounted manufacture and clandestine removal of 21082 MT MS Ingots during period of April ’05 to Aug. ’06 is based on the assumption that power consumption per MT of MS Ingots is 830 units of electricity which according to the Department, is based on Technical Literature of M/s. Inductotherm. The other supporting evidence relied upon by the Department is :-

(a) documents recovered from M/s. Monu Steels through whom 685 MT of MS Ingots had been sold by the Appellant Company and which are not recorded in the books of accounts being maintained by the Appellant Company;

(b) Statement of Sh. S.K. Pansari of M/s. Monu Steel admitting recovery of those documents also the fact that he was a broker for the appellant company and other manufacturer of Iron and Steel products and the entries with “O” were the entries in respect of which the goods had been sold without bills;

(c) Opinion of National Institute of Technology, Raipur, Department of Metallurgy, under their letter dated 6-8-2009 wherein they have opined that proportion of Pig Iron in the manufacture of Mild Steel Ingots cannot be more than 8%;

(d) Enquiry with National Commodity & Derivative Exchange Ltd., Mumbai regarding the commodity trading transaction of the appellant company, from which the appellant company have shown the income of Rs. 7,84,93,467/- during the year 2006-07 while the enquiry with Commodity & Derivative Exchange Ltd., showed that the transactions were bogus;

6. As regards the evidence in support of the allegation that the appellant company during 2006-07 had declared an income of Rs. 7,84,93,467/- from commodity trading while inquiry with M/s. National Commodity & Derivative Exchange Ltd., Mumbai indicated that they had not made any such transaction and this indicated that the income of Rs. 7,84,93,467/- during 2006-07 was actually from un-accounted manufacture and sale of steel products, it is seen that while in Para 3.5.12 of the impugned order, this allegation is mentioned as it referred to in Annexure-9 of the Show Cause Notice which are documents relating to the appellant company’s Commodity trading transaction for the year 2006-07, the contention of the appellant company is that the enquiry with Sh. Sharad Joshi, Manager (Legal), M/s. National Commodity & Derivative Exchange Ltd., Mumbai, who has stated that the appellant company was not registered as a client with any member of the Exchange had not been disclosed in the Show Cause Notice. It is seen that contents of the letter dated 30-9-2008 Sh. Sharad Joshi referred to in Para 3.5.12 of the impugned order had not been disclosed in the Show Cause Notice and therefore the same cannot be relied upon in the Adjudication Proceedings, as in view of the judgment of Apex Court in the case of CCE v. Ballarpur Industries Ltd. (supra), if the Show Cause Notice did not make an allegation that the income from un-accounted manufacture and sale of MS Ingots was being shown as income from Commodity Trading, such an allegation cannot be made the basis for confirming duty demand in the Adjudication Order.

7. Since the duty demand against the appellant is based on Technical Literature of M/s. Inductotherm wherein it is mentioned that for production of one MT of MS Ingots is 830 units of electricity is consumed and also the opinion given by M/s. National Institute of Technology, Raipur regarding consumption of Pig Iron being not more than 8%, the appellant had sought cross-examination of the Technical Experts. Similarly another corroborative evidence used by the Department is the documents recovered from premises of M/s. Monu Steel, a Proprietorship Concern of Sh. S.K. Pansari and in this regard the cross-examination for S.K. Pansari had been requested. But we find that same has been refused by the Adjudicating Authority without giving any valid reasons. It is well settled law that when duty demand against an assessee is based on opinion given by an expert and his cross-examination is requested, it has to be allowed. As opinion given by the technical expert is only an opinion evidence and its evidentiary value has to be ascertained by permitting his cross-examination. Similarly documents recovered from the premises of M/s. Manu Steels which are one of the main corroborative, evidence are in the nature of third party documents, and, therefore, in view of Apex Court’s judgment in the case of Kishanchand Chellaram v. CIT, reported in 1980 (Supp.) SCC-660, the cross-examination of Sh. S.K. Pansari from whose premises these documents had been recovered was necessary, more so when the same had been requested and as such the denial of his cross-examination has resulted for denial of natural justice. The judgment of the Apex Court in case of Kanungo & Co. (supra), relied upon by the Department and wherein it was held that natural justice is not violated if cross-examination of the person giving information is not allowed is not applicable to the facts of the case. The impugned order, therefore, is not sustainable. The same is set aside and the matter is remanded to original adjudicating authority for de novo decision. In course of de novo Adjudication, the adjudicating authority should not rely upon any evidence which was not disclosed in the Show Cause Notice. The Adjudication Authority, in accordance with the Provisions of Section 9D(2) of the Central Excise Act, 1944 must examine the witnesses whose statements have been relied upon by the Department and thereafter must permit their cross-examination by the Appellant, if requested by them. The appeal and the stay application stand disposed of as above.

COMMR. OF C. EX., RAIPUR Versus ANOPCHAND TRILOKCHAND JEWELLERS P. LTD

2017 (356) E.L.T. 271 (Tri. - Del.) COMMR. OF C. EX., RAIPUR Versus ANOPCHAND TRILOKCHAND JEWELLERS P. LTD.

Brand name - Inscription on jewellery - Embossing of gold supplier’s initials viz “AT” on jewellery by goldsmith working on labour basis - HELD : Mere inscription of two small letters on various jewellery items not to make said letters brand name unless impugned two letters covered by definition of brand name or trade name - Different trade mark/brand name registered in assessee’s name, and same not used for subject goods viz. articles of jewellery - Mere use of minute-sized two letters not to be called assessee’s brand name - No merit in Revenue’s appeal - Impugned order sustains. [paras 6, 6.1, 6.2, 6.3, 6.4]

Appeal rejected

CASE CITED

C. Krishnaiah Chetty & Sons Pvt. Ltd. v. Commissioner — 2009 (246) E.L.T. 353 (Tribunal) — Relied on [Para 6.3]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Instruction F. No. B-1/1/2005-TRU, dated 4-3-2005 ................................ [Paras 4, 5]

REPRESENTED BY : Shri Yogesh Agarwal, DR, for the Appellant.

Shri Somesh Arora, Advocate, for the Respondent.

[Order per : Ashok K. Arya, Member (T)]. -Revenue (CCE, Raipur) is in appeal against Commissioner’s Order No. 50/2010, dated 9th August, 2010 whereunder the proceedings against the appellant viz. M/s. Anopchand Trilokchand Jewellers Pvt. Ltd. have been dropped.

2. Revenue has been represented by the ld. AR, Shri Yogesh Agarwal and respondents viz. M/s. Anopchand Trilokchand Jewellers Pvt. Ltd. and Shri Ashok Kumar Bardia, Director have been represented by the ld. Advocate, Shri Somesh Arora.

3. The brief facts are given below :

(i) The Revenue issued show cause notice dated 30-11-2009, inter alia, stating that the respondents were engaged in the manufacture and sale of articles of jewellery bearing the trade name/brand name “Anopchand Trilokchand” - abbreviation “AT”, falling under Chapter 71 of Central Excise Tariff Act, 1985 and, therefore, inter alia, were liable for payment of Central Excise duty along with interest.

(ii) The Commissioner by the impugned order, inter alia, states that inscription of letters “AT” is in very small letter form, which is barely visible to naked eyes, cannot be treated as a brand name of jewellery, and identity of the jeweller M/s. Anopchand Trilokchand is also established with the inscriptions; therefore this is not a case of sale of branded jewellery but affixing mark to identify the jewellery as sold by them. Therefore, Commissioner in the impugned order held that the impugned items are out of ambit of “articles of jewellery on which brand name or trade name is indelibly affixed or embossed on the Articles of Jewellery itself” falling under Heading No. 7113 (Sl. No. 14 of the Notification) of Notification No. 4/2005, dated 1-3-2005, during the relevant period. Accordingly, the proposed demand of duty is not sustainable under the law. Since the demand is not sustainable under the law there is no cause of imposing penalty on Noticee No. 1 and Noticee No. 2.

4. The ld. AR, based on the appeal memorandum inter alia submits as below :

The Central Board of Excise and Customs vide F. No. B-1/1/2005-TRU, dated the 4th March, 2005, clarified the certain doubts among the field formations regarding the dutiability of Articles of Jewellery. In para 2(iii), it is unambiguously clarified that, when a jeweller sells articles of jewellery to customers, after putting the brand name/trade name or an abbreviation thereof or a mark which has a connection with such brand name/trade name on the articles of jewellery, such jewellery will be branded jewellery and will be liable to tax. In the instant case the mark ‘at’ or ‘AT’ put on the jewellery clearly indicates that the ornament is manufactured by M/s. Anopchand Trilokchand Pvt. Ltd. and it can be considered as their brand name/trade name. A customer can easily identify the identity of the manufacturer by noticing the particular marking that the jewellery belongs to a particular manufacturer. This means that there is no need to replicate the entire registered brand name/trade name on the jewellery to make it a branded jewellery and just by embossing a mark on the jewellery if a connection can be established with the brand, it becomes branded jewellery and taxable.

5. The ld. Advocate for the appellants based on the written submissions mainly, inter alia, submits as under :

(i) The fact of minuteness of AT mark and same being placed at inconspicuous place was correctly appreciated by the Commissioner that such jeweller’s mark was incapable of conveying anything to the customer.

(ii) Again, there is factual error in the sanction when it states that we were manufacturing our jewellery; in fact we were getting it done from goldsmiths on labour basis, which was an undisputed fact. Throughout we have argued that such marks were placed by the goldsmiths and were our jewellers’ mark only.

(iii) Commissioner has correctly held in para 11.9 of his findings that the respondents would have been covered under Clause 2(iii) of Board Circular dated 4-3-2005 only if they had used “AT” in stylized manner with the ‘diamond’ and ‘full name of their company’, which is their trade mark.

6. After careful consideration of the facts on record and the submissions of both sides, it appears that mere inscription of two small letters viz. “AT” on various jewellery items cannot make said letters “AT” a brand name unless these two letters “AT” could be covered by the definition of brand name or trade name. The brand name or trade name has been defined in Chapter Note 12 of Chapter 71 of the Central Excise Tariff, which reads as under :

“In this Chapter, “Brand Name” or “Trade Name” means a brand name or trade name, whether registered or not that is to say, a name or a mark, such as symbol, monogram, label, signature or invented words, or any writing which is used in relation to a product for the purpose of identity, or show as to indicate, a connection in course of trade between the products and some person using such name or mark with or without any indication of the identity of that person.”

6.1 The Revenue claims that the respondent carries two letters viz. “AT” on their goods (jewellery). Revenue’s contention is that these two letters give the identification of the respondents viz. Anopchand Trilokchand Pvt. Ltd. to the jewellery sold by the respondents to their customers and when this is an indication of the identity of the respondents, then such jewellery has to be treated as ‘articles of jewellery bearing the trade name or brand name’ on which Central Excise duty is liable to be paid.

6.2 The respondents have argued that “AT” mark is in minutesize and placed at inconspicuous place and this is not embossed by them rather it is done by the goldsmith who work on labour basis for manufacturing the said jewellery. These marks are in the category of jeweller’s mark. The respondents also argued that their trade mark is different, where they used two letters “AT” with the “diamond at the top of ‘AT’ and full name of their company”. In this regard, the respondents have also given certificate of registration of the trade mark No. 626761 issued by Trade Marks Registry, Government of India.

6.3 In the impugned order, the Commissioner has cited the CESTAT, Bangalore’s decision in the case of C. Krishnaiah Chetty & Sons Pvt. Ltd. v. CCE - 2009 (246) E.L.T. 353 (Tri.-Bang.) which has observed that mere embossing initials of raw material supplier cannot be equated with affixing of brand name.

6.4 Considering above discussions and the fact that the respondents have a different trade mark/brand name registered in their name, which has not been used for the subject goods viz. articles of jewellery, mere use of minute-sized two letters - “AT” cannot be called the brand name of the respondents. Therefore, we are of the considered view that Revenue’s appeal has got no merits and deserve to be rejected.

7. In the light of above, the impugned order sustains and the Revenue’s appeal is hereby rejected.

(Pronounced in Court on 1-2-2017)

IS IT THE "EASE OF DOING FRAUDS " IN STOCK MARKETS IN INDIA ?

Is it the “Ease of doing frauds” in stock markets in India

By:Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

We hear much about creation of various Regulatory Authorities, KYC norms, tightening of procedures, linking with Aadhar Card and Biometrics and any conceivable procedures as and when some big fraud happens. But do such authorities and procedures really help in matters of curbing frauds. One can nurture serious doubts going by the track record of regulators .Most of the Regulatory Authorities have become parking space for fat salaries to its officials as post retirement benefit or while being in service to enjoy metropolitan posting. If one looks at the record of SEBI or of Officers of NSE and BSE and functioning of various Chartered Accountants and Inspection Teams engaged to check the frauds, it needs much to be desired. Eventually system needs a major overhaul. The Stock Exchange frauds right from the time of Harshad Mehta have been happening with consistency,giving thumbs down to all the regulation. The list is rather long with Harshad Mehta scam in the Year 1992 of Rs.4000 Crores, C. R. Bhansali Scam- Yr.1996 (Rs.1200 Crores), Ketan Parekh Scam-Year 2001- Rs.800 Crores, Satyam Scam - Yr. 2009 - Rs.14162 Crores, Sahara Bond Scam Year-2010- Rs.2429 Crores, Speak Asia Scam- in the Year 2012 of Rs.2200 Crores by Ram Sumiran Pal, Sharda Scam Year-2013- Rs.10000 Crores, NSEL Scam by Jagdish Shah in December- 2013 Rs.5600 Crores. A part from this there are various frauds by Stock Brokers,in suspected collusion/connivance with Audit/Inspection Officers of various agencies and depositories. And those independent Auditors engaged for the namesake by such fraud brokers to dupe gullible investors through jugglery in the financial statements. At times some allurements are offered against the SEBI rules. List of such brokers includes SVSC Wealth Management Services Pvt. Ltd. , which cheated 318 clients in 2016, Sandeep Sehgal fraud, in which Padam Bhushan Awardee – Gulshan Lal Tandan died during the investigations relating to illegal transfer of his shares in 2012. Recently thousands of investors have been duped with CDSL emerging as the favourite depository of the defrauding stock brokers. As if KASSA and Unicorn both of which had CDSL as its depository was not enough, in the latest scam of Amrapali Aadya Trading and Broking Pvt. Ltd. (with the same depository)more than 500 Crores of investors wealth out of about 1100 Crores has been wiped off, of 7000 investors. due to alleged laxity of Auditors Depository Exchange Officers, NSE and BSE and SEBI Inspection Teams. All of this deserves an independent probe in view of blame game in which everyone is shifting the ball to the other side. The scamster Sanjeev Sinha who was running the Stock Broking Company as his personal fiefdom with his sister and wife holding charge as Directors and his favourite employees involved in the scam earning much higher than deserving salaries for conniving in various violations. The investors money was siphoned of to enrich Sinha and Family and to pay off his speculative losses and debts. The Investors Shares were retained in the ‘common pool account’ against their expressed mandate and legal requirement and then the desperado fraudster pledged shares to the banks, who despite RBI requirement to do due diligence that investors securities from Pool account are not pledged to them, ignored the same and thereby facilitated the fraud. However they were quick to liquidate the shares pledged to them and SEBI kept acting like a mute spectator with `what to do approach’. The fraud came to light when investors started complaining in April-May, 2017 about their shares vanishing. The CDSL was found highly irregular in sending statements, NSE and SEBI Teams, despite knowing earlier frauds of KASSA and Unicorn chose to do audit/inspections looking everywhere excepting the pool account despite their Audit/ Inspection Manuals having the requirement. About the companyauditors, the lesser said the better, as even the Prime Minister Shri Modi has adequately commented about that breed of Chartered Accountants, who facilitate frauds rather than check the same. The SEBI took its own time to pass its Interim Order about the fraud till 23^rd August, 2017 to direct freezing of various available assets. The time from March/April up to August, 2017 was Crucial enough to facilitate Sanjeev Sinha to launder money for his purposes. The NSE and SEBI have adopted a typical government department approach of “Save Your Skin” by not referring the matter to CBI or Supreme Court for further directions in the matter. Therefore, while Amrapali Real Estate Company is being punished by the Supreme Court for duping house buyers, Sanjeev Sinha Of M/s Amrapali Aadya Trading and investment and his conniving colleagues are having a free run. The initial investigations of SEBI has revealed that the investors assets were used to buy properties, pledge shares and to provide funding to various sister concerns and a famous Dairy Farm in Bihar which may have even some political overtones.The efficacy of a Dairy Farm/Company as an instrument in laundering money is all well known, as one can easily sell off cows and buffalos or even replace milch cows with old ones to leave no trail or assets for attachment by any agency. The beneficiary of the laundered money then can easily fly to a safe heaven.As far as the investors are concerned, there are limitations galore. Firstly, there is total lack of transparency by NSE, CDSL and SEBI. RTIs Filed by Investors are awaiting response. NSE and BSE, though have declared the Stock Broker a defaulter have only one obligation i.e.to pay up to Rs.25 Lakhs/Rs.15 Lakhs respectively from Investors Protection Fund. Even this payment is in the nature of ex-gratia despite both exchanges collecting huge money from the stock market to constitute this fund. In the past only 40% of the investors have been able to get even the truncated ex-gratia. Therefore , on what basis the discretion is exercised remains shroudedinmystery. The investors are not even sure as to what proportion of their equity has been wiped off or laundered? And estimates indicate that 80% of investor’s wealth may be intact. When and how it is going to be liquidated and given back to investors is anybody’s guess only? Further, the law/rules do not clarify as to whether the loss will fall upon those whose securities have been lost or will have to be borne by all the investors taken together? The law of the land does not permit a class action suit by investors against the defrauding Broker and the relevant Stock Exchange who were the principals in the matter and may have vicarious liability. In any case, to bring all the 7000 investors together on a platform is a daunting task. The much touted creation of a mass fraud agency and law by the Hon’ble Finance Minister in 2014 Budget in the aftermath of Sharda Scam has still to see the light of the day. Even for lodging claims with NSE/BSE, the investors have to face all the red tape and repeated visits, with all the documents and details of the accounts and transactions being asked and different NSE/BSE officials at different places in India asking for documents as per their own whims and fancies. As far as, the main person involved i.e. Sanjeev Sinha, he has carried out the fraud with impunity and has shown to the world how easy it is to do fraud at the stock markets and dupe investors, if one does not care for captivity of few days. He is still to be punished for this fraud despite SEBI passing on-merits an interim order bringing out all his admissions and as to how he committed the fraud, violating all laws, rules and regulations. If committing fraud can reckon as doing business then it seems it can be done with consummate ease. Police as usual is taking its own time to lodge FIR after understanding contours of the fraud to the best of its ability. So, investors have been left high and their complaints not being entertained or only Police diary number being given or EOW waiting for more complaints to be be clubbed from nook and corner of India before carrying out any worthwhile investigations . As far as temples of justice are concerned, like in every other temple, the presiding deity has a discretion to grant a wish or not. The investors like devotees are free to try their luck. TV channels in the meanwhile are continuing to debate rise and fall of shares to woo with a bait the new investors, for the fraudulent shark of the stock markets.

GSTN -NETWORK OR NIGHTMARE?

GSTN-Network or Nightmare?

By:

Somesh Arora [Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise]

Published in GST LAW TIMES VOLUME 5:ISSUE:2 :12th OCTOBER,2017

On 1^st. July, 2017 to the rejoice of every Indian, it was demonstrated to the world that India can move decisively to achieve set datelines even with the most complicated e- governance and fiscal models. GST was ushered in involving more than 10 million GST taxpayers and with attending task of matching 3 billion invoices. Seldom had in Indian democracy, a structure involving all States and the Union had moved in tandem, with such efficiency. The legislative effort put in was next only to framing of Constitution in the history of independent India.

The determination of the P.M. was responded in equal measure by the think tank headed by the Finance Minister, Revenue Secretary and ably assisted by the officers of the CBEC. The law and procedures were evolved at a brisk pace and response of Trade and Industry bodies was fabulous too. For the first time, the Revenue Secretary became available for the needs of trade through his now famous Twitter Handle on GST, which enabled quick solutions on the legal side. But suddenly cosmos started paving way to chaos. One after the other failures and delays started threatening the system and the goodwill generated by the Government. What has proved to be a laggard is the Goods and Services Tax Network (GSTN). While the team of the CBEC Officials, Revenue Secretary, States, GST Council under Finance Minister ran their initial laps so well and handed over the baton to each other by sprinting according to their capacities , the initiative was frittered away in the hands of GST Network. You name a problem right from connectivity issues, to formatting, to non linking with suvidha providers, delays in uploading returns and Application Programming Interfaces( API), and it is there. This has brought a disgrace to functioning of GST not only in the opinion of taxpayers but also of all users. What was dubbed to be the I.T. backbone of GST has actually turned out to be a shaky skelton. From June only, the Knowledge partner Infosys along with GSTN had started putting blame to the fact that specifications were not frozen and forms were being changed. Perhaps it was a tell-tale sign of a bad workman quarreling with its tools.

The returns for July,2017 and August,2017 already stand postponed for filing in September and October and by the look of the things may even get further delayed. In fact, people have stopped having faith in the datelines being given by the GST Network. The problem is they come like shooting stars and people have always to stay glued to the sky gazing and waiting, like it happened in case of TRANS-01 and Form 3B. Many filled up the wrong details in the last minute rush or were unable to file, despite wanting to. Outcome is delay in getting the credit, even when same is due. This will lead to increase in working capital requirements and avoidable litigation at the later stage. But many tax payers will suffer due to the inefficiency of GSTN. If the Government officials could work and burn the mid night oil in the month of June and July, why could not the GSTN respond in equal measure. Apprehensions are being expressed in certain quarters that it may not be before January, 2018 that all the systems shall be put in place with proper formats. GSTN initially blamed the frequent change and non freezing of formats for returns and other forms, as the reason for the delay. From August onwards, it became clear that it was GSTN that was going wrong. The Management Service Provider and Infosys as the main stake holders and knowledge partner, in the functioning of GSTN have so far failed to converge their energies to provide the proper functioning IT System, even much beyond the GST rollout date. The GSTN Suvidha Providers have also till date failed to provide the promised services and linkups to the network for the end users. The taxpayers, therefore, have been left in lurch and have to do the uploading themselves or through their Chartered Accountants, even leading to the system crash at times. Infosys has its own corporate issues to sort out as a first. Its previous management has left the task unfinished. The GSTN in turn has been revising its timeline for release of application programming interfaces( APIs) and this has led to frequent changes of return datelines. The Ist Phase of IT interface involving Registration, Payment and Returns is far from functioning smoothly excepting registration which was undertaken in a phased manner. Second phase relating to appeal, assessment and enforcement will now also need to be undertaken simultaneously, as the time is of essence. The ambitious E-Way bill project is hardly going to be implemented well in time before Diwali sets in. The E- way bill rules have recently been formalized and in case the success is not achieved of implementing the same by Ist October, 2017 i.e. the date fixed by the Council then the very purpose of implementing GST by Ist July, 2017 to provide sufficient lead time before Diwali on 19^th October, 2017 shall stand defeated. This despite the Government and eventually the trade cooperating to the hilt. The matching of 3 billion invoices, once the monthly returns are filed or self populated shall pose another challenge.

People are getting restive and the writ petition filed by Rajasthan Tax Consultants Association in H`ble Rajasthan High Court has been allowed to specific petitioners who approached the High Court in have been granted relief after examining issues most of which are related to the functioning of the GSTN by allowing Petitioners to file information and returns etc.before District Information Officers and same shall be treated as retrun filed in the systemwithin o interest or penalty levied on persons whootherwise pay duty and file reurns to such DIOs

As is well known, the people of India tolerate chaos till it has eventual potential to produce cosmos. It is time the GSTN tightens its belt and ensures timely delivery to turn damp monsoon into a Diwali without gloom. For nightmares should not last beyond darkness.

Rahu's Transit In Cancer from August,2017 -What it Holds for India?

Rahu’s Transit in Cancer from August, 2017- What it holds for India?

By: Somesh Arora, Advocate (Amicus Rarus), Former Commissioner of Customs and Excise. RTT JULY 2017 Edition.

In Mundane Astrology the third house represents Ministry of Communication, Media, Public Education in general, Air Traffic, Air Force, Shipping Ports, Satellite linkedcommunications, neighbouring and bordering countries, mishap and accidents, worry or excitement, disruptions. Opposed to the third house and therefore, aspected by any planet in the third house shall be 9^th house which represents Law & Justice, International law and Litigation, United Nations, Government Secrets, Navy & Naval Officers, Political propaganda and sensation.

Rahu as is known to any astrologer, is the planet of highest uncertainties and when it happens to be in Cancer and that too in the third house and transits over Natal Moon, when considered from birth chart of India, when considering the birth date of India as 15^thAugust, 1947 at 00.01 Hrs. in New Delhi, India. The capacity to cause distress becomes accentuated. The Third House which has Cancer as its Rashi also includes Mercury, Sum, Moon, Venus, Saturn, posited in it, in case of Natal chart of independent India. It is therefore, natural that the disruptive planet Rahu transiting over Cancer with 5 planets posited in it will have huge impact on India. This is so because Sun in Mundane Astrology represents the top echelons of power including the Prime Minister. Moon represents the public, Venus the women and the luxuries, Mercury the young and adolescents and Saturn represents the elderly. In short all segments of the population gets effected by the events and disruptions, that are created by or associated with Rahu transiting over Cancer and Ketu being in the 9^th House in Capricorn . The axis of Rahu - Ketu is known to cause sudden disruptions, sudden turn of events which are generally unforeseeable even few year back. The Rahu and Ketu are going to be in this position for at least one and a half year starting from August, 2017 and as the following events of the past will exhibit, it will be having potential of causing distress, negative influences and gloom of the similar nature over the larger population of India.

The last time this transit happened was during 1999-2000, it caused disruption in power with Vajpayee Government loosing power with one vote in Parliament. It caused unexpected war with intruding Pakistani military in Kargil and also caused huge loss of life of more than 10000 people in one of the biggest cyclone tragedies the world ever witnessed, when it struck in Orissa.

Prior to this Rahu transited in Cancer in 1980-81, during which cycle it caused change of power with the non Congress Government i.e. Janta Government loosing power and in the Election that followed Smt. Indira Gandhi came to power but even she could not escape the wrath of Rahu, when she lost her deputy in politics and her son Shri Sanjay Gandhi in an aeroplane crash.

Prior to this the Rahu had transited in Cancer during the period from 1962 to 1964 and India had to face a demoralising defeat in the hands of China in the border conflict and later it had also to loose its First Prime Minister since independence I.e. Shri Jawahar Lal Nehru, through a sudden and massive heart attack in May, 1964.

Prior to this though Independent India Chart was not in existence as it was British India, which was ruling till 1947, still the Rahu’s transit in Cancer did not leave the British rulers unaffected. They had not only to face the severest challenge after 1857 in 1942 when Quit India Movement was launched but had also to face the ignominy of massive loss of soldiers and reverses in World War-II, at a time when the British were in the thick of the things and were spear heading the war efforts of allied forces. During the period between 1942 -1943, it continued facing reverses, loss of lives and crushing economic setbacks , till the time Rahu by change of position to Gemini did not bring a respite to them.

One only hopes that at this point of transit, situation does not lead to a confrontation with either China or Pakistan, both of whom have been adopting aggressive posturing against India. One also wishes that the political stability of India is not compromised by the disruptive suddenness of events, that Rahu is known to generate.

ON THE THRESHOLD OF THE NEW TAX SYSTEM....

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise

ON THE THRESHOLD OF THE NEW TAX SYSTEM…… published in GST LAW TIMES , JULY Edition

By the time this write-up is published, India will have entered an epoch making era of a new taxation system with new beginnings, new aspirations and with resolve for new achievements. Goods and Service Tax will finally emerge, after embracing all indirect fiscal laws and after waiting for more than a decade, to be a reality. Successive Governments wanted to usher in this tax reform but could not do so either due to lack of consensus or lack of confidence in number-crunching games which needed majority, both in Parliament and States, to see the legislation through. The tryst with the GST on 1^st July, 2017 was destined to be in the hands Shri Narendra Modi. It is expected that the prime mover behind the tax reform of the Century, that is the Prime Minister of India - Shri Narendra Modi, knowing his eloquence for speech, will sure herald this tax regime with in a grand style on the eve of specified date. And when he does it, India will become 146^th country to be having GST out of 193 U. N. Member States. India thus, though a late entrant in this globally accepted tax regime which has largely harmonized basic tax structuring, moved eventually very fast and decisively to implement it. Considering that it was only in last July that the constitutional, legislative and implementation process was started, the decision has to be hailed for reversing by now well known Indian red tape.

India through the new GST Regime is experimenting on a lot of new frontiers. It is an attempt to unlock the potential of an economy which was till now known for generation of black money and bureaucratic slowdowns to development. For those, who were paying taxes properly even under the old regime, there may be only a cheer factor in the GST, for they will get un-seaming Input Credit right from B2B to ultimate B2C stage. For those who were thriving on breaking links between the CENVAT credit chain to escape taxes, the new GST regime may require reinvention of business policies and taxation. Officials of Ministry of Finance who in the last month or so have worked their heads and hearts out deserve kudos. The small team at the helm of affairs led by Mr. Adhia, in the Ministry of Finance and even members of the GST council have worked day-in and day-out to write law, rewrite law, reform law, to seek industry feedback and to evolve the tax system even before its implementation. The spirit of evolving with open-mindedness has been so far at display at all levels. It is expected that the same concern and sensitivity will continue for another decade since, a legislation with such far reaching impact cannot be developed and evolved in a matter of few months and years. Service tax has been a case in point as it was evolving and growing till the very last days.

A discernable feature of GST regime as a tax system, is that it seeks to go back to egalitarian reforms through fiscal measures. Since liberalization in 1990s, exemptions and multiple tax slabs in Indirect taxes have been generally looked-down upon and emphasis on making tax law simple and reducing exemptions and tax slabs became so emphatic that the demarcation between necessities, luxurious and non-luxurious items came to be undone. Historically, canons of taxation have emphasized and evidence is always available in Kautilya’s Arthshastra, that from 3^rd century B. C. kings and rulers were always subjecting necessities to lower taxation and luxuries to higher. Socialist India till 1993 regarded cars, air-conditioners etc. as items of luxuries, but the same witnessed lowering of rate of taxation during the period of liberalization. Overloading of roads by cars and consequent carbon emissions have again put such motor vehicles out of the category of luxuries and therefore higher rate was called for. During the last two decades, Australia was the only country which continued to use exemptions in taxation, as a tool of economic reforms. In GST regime, while exemptions are not many, the differential rate of taxation which is based on rational intelligible differentia is a welcome step and India can boast-off of having a multiple slab GST structure instead of one rate, based on sensitivity to the needs of the masses. Whether with this well-conceived GST tax regime expected GDP growth of 2% will be achieved will largely depend upon how the tax buoyancy (which is sure to be achieved), will be put to use by the P. M. and his deputy Shri Arun Jaitley - Finance Minister of India. They have a choice to use it for expanding defense-base or even to fritter away the increased revenue earnings in populist measures like loan waivers or giving subsidies or indulging in other kinds of financial indiscipline that the country has witnessed in the past in the hands of many political parties. Or they also have an option to use such resources for providing a robust infra-growth and a solid entrepreneurial framework to create job opportunities and employment and take India few notches up on the growth path. Time between July 1^st and May 2019, will therefore be crucial to see as to whether revenue growth was also coupled by decline in expenditure corruption which, in any regime has been expected to remain above 30%. This tax reform therefore is only one side of the coin. Much still remains to be done on the flip side of expenditure. And citizens of India will expect the Government to deliver on this front as well by making a new beginning of social audit by taxpayers.

ON THE LEGAL THRESHOLD…..

At this nascent stage, it is important for the tax payers to understand the legal threshold limits under the CGST, IGST and SGST etc. to know whether they are covered in the tax regime and how the small vendors can deal with it without any substantial increase in their liability or compliance costs. In this context, following Statutory structuring of provisions is of significance: -

S. 2(6) - “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes Central tax, State tax, Union Territory tax, Integrated tax and Cess.

S. 2 (94) - Registered Person

“registered person” means a person who is registered under section 25 but does not include a person having a Unique Identity Number.

S. 2 (107) - Taxable Person

“taxable person” means a person who is registered or liable to be registered under section 22 or section 24.

S. 10 - Composition Levy

(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding, —

(a) one percent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.

(2) The registered person shall be eligible to opt under sub-section (1), if :—

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;

(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council :

Provided that where more than one registered persons are having the same Permanent Account Number [issued under the Income-tax Act, 1961 (43 of 1961)], the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

Section 22 - Persons liable for registration

(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

(2) Every person who, on the day immediately preceding the appointed day, is registered or holds a license under an existing law, shall be liable to be registered under this Act with effect from the appointed day.

(3) Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.

(4) Notwithstanding anything contained in sub-sections (1) and (3), in a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation or, as the case may be, demerger of two or more companies pursuant to an order of a High Court, Tribunal Persons liable for registration. Manner of recovery of credit distributed in excess. SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 25 or otherwise, the transferee shall be liable to be registered, with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.

Explanation––For the purposes of this section,––

(i) the expression “aggregate turnover” shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals;

(ii) the supply of goods, after completion of job work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker;

(iii) the expression “special category States” shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution.

Section 23 - Persons not liable for registration:

(1) The following persons shall not be liable to registration, namely:––

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) an agriculturist, to the extent of supply of produce out of cultivation of land.

(2) The Government may, on the recommendations of the Council, by notification, specify the category of persons who may be exempted from obtaining registration under this Act.

SCHEDULE III of CGST: - Activities or transactions which shall be treated neither as a supply or goods nor a supply of services

1. Services by an employee to the employer in the course of or in relation to his employment.

2. Services by any court or Tribunal established under any law for the time being in force.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. Actionable claims, other than lottery, betting and gambling.

Explanation—For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court.

· From the definition of Aggregate Turnover, it is clear that all types of turnover excepting those on reverse charge basis are includable in the aggregate turnover. It is important for the people to know that even the exempt supplies, export of goods and services or even interstate stock transfer to another unit (which was hitherto not taxable under the State VAT regimes is also taxable now).

· It is also a settled position in law that all exempt supplies, imports and even-zero rated supplies are taxable supplies unless specifically excluded. It should be understood that there is no negative list as such of goods as non-taxable supplies. In schedule III as indicated above, only enumerates services and sale of land and actionable claims (other than lottery, betting and gambling) as having been deemed to be neither goods nor services.

· The definition of goods in Section 2 (52), inter-alia includes actionable claims. Therefore, as far as goods are concerned, only such actionable claims which are other than lottery, betting and gambling are in the non-taxable category despite being goods.

· It is therefore clear that supply of all goods unless specifically excluded in some other provision will be part of the aggregate turnover.

· Thus, such supply of goods even when exempted or zero-rated shall generally still be decisive in working out the legal threshold in Section 22 in working out limits of 20 lacs or 10 lacs (for special category states) for the purposes of taking registration and filing of returns. Similarly, since the expression aggregate turnover also figures in relation to composition levy as provided in Section 10, it shall also be generally relevant for deciding outer threshold limit of 75 lacs and 50 lacs (for special category states).

· Section 23 indicates two categories of persons who are not required to take registration and therefore are not required to file returns as per the statute.

These two categories include: -

(a) a person exclusively engaged in supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the IGST.

(b) an agriculturist to the extent of supply of produce out of cultivation of land.

(c) apart from this, Government on the recommendation of the Council by notification can also specify the category of persons who may be exempted from obtaining registration.

· Section 23 therefore offers a great relief to the persons who are not required to register and file returns if they are dealing exclusively in goods and services that are not liable to tax or wholly exempt from tax under this act or IGST. By virtue of operation of this section the term ‘aggregate turnover’ gets modified as appearing in Section 22, as exempted supply will not be considered as part of aggregate turnover for the purposes of registration provisions. Since, the number of goods which are either totally exempted or zero-rated are quite a few, therefore all the persons dealing with it will not be required to take registration or file returns if they have zero liability of the tax. Besides there are about 87 services (as of date), which are exempt form tax.

· As far as the ‘government power-declaration of any category of person as exempted from registration’ is concerned, the same has already been used at least for notifying persons from whom liability has been shifted due to reverse charge if they are providing no other services.

Following illustrations will amplify the point on operation of these limits:

ILLUSTRATION-A lawyer provides the supply of rental services worth Rs.1 lacs and has a legal practice of Rs.25 lacs, which is under reverse charge liability. Then as per provisions, he shall be required to take registration and file returns but a lawyer who has a legal practice of 80 lacs but no rental income will not be required to take registration.

· As far as an agriculturist is concerned, it is to be noted that supply of produce out of cultivation of land though otherwise a part of `aggregate turnover’ has been excluded and agriculturist is not required to be registered and file returns and also all activities of cultivation of plants and rearing of animals have been exempted under service tax exemption. Therefore, farmers and persons in animal husbandry will not require to be registered without any limit.

THRESHOLD OF COMPOUNDING…….

· As far as composition scheme is concerned, it is to be noted that the same is applicable to a registered person only if he is not engaged in supply of services other than restaurant services etc., or in making any interstate outward supply of goods or in making any supply of goods through an electronic commerce operator required to collect TDS under Section 52, is not a manufacturer of goods as may be notified by the Government or in making any supply of goods which are not leviable to tax under the Act.

· A person availing composition levy cannot take any input credit nor can collect any tax from the recipient of supplies.

· The provisions of composition levy starts with non-obstante clause applicable to the provisions of the whole Act but since the ‘registered person’ has been used in it as also the term ‘aggregate turnover’, therefore a person who is otherwise liable to be registered alone can come within the purview of composition levy. But from the term `aggregate turnover’ it flows that if a person has some turnover which is taxable and a bigger proportion of component of turnover which is non-taxable then the availment of composition levy will have to be viewed differently in different situations.

ILLUSTRATIONS: -

a. A person is having taxable turnover of 5 lacs worth of goods which are taxable and 60 lacs of turnover which is exempted and zero-rated. Such a person is outside the purview of Registration as well as Composition levy.

b. A person has 25 lacs worth of taxable turnover and 80 lacs worth of non-taxable turnover. Such a person is liable to be registered as well as is outside the purview of composition scheme.

c. A restaurant in its premises provides services relating to serving of food etc worth 60 lacs and also, from the same premises, sells its own branded spices worth 18 lacs, then that will be out of the purview of Composition levy.

d. A restaurant in Gurgaon serves food worth 70 lacs as well as door-to-door supply of food worth Rs.7 lacs in Delhi, which is an interstate supply. Such a restaurant will be outside the purview of Composition levy.

e. A milkman supplies milk in open worth 55 lacs and packed cheese worth 21 lacs. He will be out of the purview of composition levy.

Now since the law is being implemented afresh, there will be many taxpayers who will come within the purview of GST from the night of 1^st July and there will be other tax payers who will be dealing with the new concepts, therefore knowing their threshold and when they are over-stepping it is important to understand. In parting, it is also desirable that GST council which has been empowered to raise the limit of Composition levy upto Rs.1 crore should atleast exercise this power, in respect of those suppliers in whose case non-taxable or exempt supplies are 50% of the threshold limit of 75/50 lacs. This will enable lesser complications for small vendors, pansaaris, etc who deal with heterogeneous goods. There is an extended logic for such a step and even a need to go beyond it because on the Income Tax side a shopkeeper is allowed to consider 8 lacs out of 2 crore worth of turnover as his notional income and pay tax accordingly. This was done by this Government on the pretext of making life easy for small businesses and was heavily quoted in his speeches by the Hon’ble Prime Minister during demonetization. Effectively, also this step on the Income Tax side is a way forward as it does away with unnecessary compliance and maintenance of books of accounts. Requiring the same thing to be done for persons just above the threshold of it of Rs.75/50 lacs on GST side appears a retrograde move. Hope at the appropriate time GST tax think-tank and mandarins in FINMIN will address this issue.

Intellectual Property Rights â€“ Valuation and Audit â€“ Is India still in nascent stage of evolving these concepts?

Intellectual Property Rights – Valuation and Audit – Is India still in nascent stage of evolving these concepts?

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise

The concept of exclusive Intellectual Property Rights Audit and valuation of Trademarks, Patents, Copyrights or other Intellectual Property Rights (IPR) is mostly alien to Indian business and the corporate world. Even Indian banks including private financial institutions are not equipped to properly value such assets which can be a substantial chunk of business assets for Businesses dealing with goods as well as Information Technology (IT) and other Services. A patent at any given point of time will have market worth depending upon inventiveness involved in developing it, the stringency of enforcement of IPR in the domains where such patent is registered and such value will keep on dwindling the moment a registered patent is approaching end circle of its life span of 20 years. A trademark will command a market value by factoring in the existence of longevity of goods and services, on which such trademark or a brand name is affixed. The value will also depends upon money spent on advertisement to create a brand recognition in public. The value of IPR also depends on other multifarious variables and can witness a sharp rise and decline in short term of time. The variable factors can be existence of completing brands for similar product and services, change of fashion in case of design, change in reading or viewing habits in case of copyright or development of better technologies in case of patents. All these indices need to be incorporated while making any attempt to value IPR that a business or an individual may possess. Related to this is the issue of identifying the existence of IPR assets which may be vested in or owned by a business or a corporate, as non-identification of the same and failing to pursue any action against infringers can lead to the situation where by a claim to an IPR may be lost. An Intellectual property audit has several objectives:

· Identification of IPR which may exists within any organization being audited.

· Assuring that identified IPR are properly assigned, licensed and protected and there is no overlapping of market between different assignees.

· To identifying any developing Intellectual assets that are worth protecting and therefore registering.

· Identifying any gaps that may exist in the systematic usage of knowledge and converting intellectual capital into intellectual assets.

· Identifying any gaps problems of failures in the procedure followed by a business in identifying and ensuring security of such assets against any misuse or infringement in future.

IPR auditing includes the survey of the company’s IP portfolio and competitive position in the marketplace, followed by a more focused analysis of IPR issues of particular interest. The most comprehensive audits include estimates of the IP’s monetary value, and protocols and detailed recommendations for dealing with IP in the future.

The importance of IPR Audit assumes a lot of significance at the time when any merger or acquisition has to take place or Rights are to purchased. Even large and well organized business set ups falter on this count. For example Volkswagen group acquired business interest of all assets of Rolls Royce Company around the Year 2000. However, while in process of acquisition of plant, equipment etc. they somehow failed to get the famous Roll Royce trademark. Later on it was revealed to them that the trademark was owned by Roll Royce Air plane Engine Company which was altogether different entity. Even there existed further licensing agreement between the Airplane Company and Motor Car company. The license agreement terminated upon change of ownership by the Car Company. Therefore, Volkswagen was left high and dry and had to renegotiate.

During demonetization certain banks had to initially face copyright issues as the new note of Rs.2,000/- with its size was not in the copyright agreement that they had with suppliers and machines were not equipped to dispense them. Such issues may have been difficult to imagine even for macro level economists in Ministry of Finance or in RBI. But they do crop up.

Further, in the Indian context, the loan case of kingfisher on its Brand name is worthy of notice. When the kingfisher was still operating, its brand value was estimated to be of $ 550 million (Rs. 3000 cr.). With such valuation, Kingfisher airlines took loan from 14 banks including State Bank of India, IDBI Bank, Punjab National Bank, Bank of India and Bank of Baroda under the debt recast agreement in which company took loan valuing Rs. 6500 crore and brand name was given as collateral but none of the banks in India had capitalized brand value in the their balance sheets because it is an intangible assets. Central Bureau of Investigation (CBI) which is investigating the whole matter is also, interalia, probing how banks took brand Kingfisher as collateral because giving loan on the brand value is a major concern. It is basically an intangible asset on which there is no convention of going loan.

That bring us to pertinent question that whether a loan should or should not be given on IPR assets, which command huge value and are built up by huge ad or research spend.It is true that an IPR is akin to any other property right and is considered for taxation on its sale and purchase and is also registered for its life. But the reluctance of Banks to give advances against it, or accepting IPR as collateral, stems from the fact that there hardly exists any system of its audit or valuation in India. Banking prudence will therefore generally avoid it or accept it, subject to huge margin money.

Since IPR assets can form formidable part of asset class of any business nowadays. It is therefore, imperative that such assets are valued and audited periodically and properly. Existence of an institutionalised arrangement of valuation and audit in the country is therefore a must. It will enable funding of research on loans, can augment and canalise Government expenditure on technology and research on sound basis. And can fetch the realistic commercial value from the market on final sale or at the time of commercial exploitation of such IPR.

( Author is Master of Laws( IPR) from University of Queensland. Views expresses are his own)

The Central Goods and Services Tax Act, 2017- Salient Features (Sections 35- 48)

By: Somesh Arora, Advocate (Amicus Rarus), Former Commissioner of Customs and Excise

Published in Service Tax Review Vol.52 Part 2

Section 35 deals with ‘Accounts and Records’. A registered person shall maintain records at principal place of business, as per its certificate of registration. The Statutory requirement of accounts is in relation (i) Goods produced or manufactured (ii) inward or outward supply of goods and services or both (iii) stock of goods (iv) input credit availed or output tax payable and paid and (v)such other particulars as may be prescribed. If one or more places of business as mentioned in the registration certificate are provided, then the record has to be maintained at every such places of business separately. It is also provided that a registered person has discretion to keep records in electronic form as may be prescribed. Every owner or operator of a warehouse, godown and every transporter whether registered or not, shall maintain record with prescribed details. The Commissioner has the power to notify a class of taxable persons to maintain additional accounts and documents for the said purpose. The Commissioner also has the power to grant a permission to maintain any other records and documents by the registered person, if it is not in a position to keep such accounts, as prescribed in the Section. A registered person whose turnover exceeds beyond the limits prescribed, has to get his accounts audited from a Chartered/ Cost Accountant and submit a copy of annual accounts along with reconciliation statement and all other documents. In case a registered person fails to maintain and keep accounts of goods and services or both, the proper officer shall determine the amount of tax to be paid on goods and services that are not accounted for but have been supplied by the registered person. Proceedings for recovery of unpaid tax shall also be undertaken.

Section 36 deals with ‘Period of retention of accounts’.It states that every registered person is required to keep and maintain accounts and other records and shall retain them until the expiry of 72 months from the due date of filing the annual return. A registered person who is a party to appeal or in any investigation before any Appellate Authority or Revisional authority either filed by him or the Commissioner is required to keep the records at books pertaining to subject matter to appeal till one year of final disposal of such appeal etc. Therefore, the burden to keep records during litigation and even a year after that has been passed on to the assessee by way of this Section.

Chapter IX deals with `Returns’. It is furnishing of information periodically, filing of returns relating to supplies and of debit and credit notes and reconciling the same on monthly basis with final reconciliation through annual returns that forms the backbone of GSTN system. As the whole system is electronically based therefore understanding of whole functioning of GST depends upon understanding the operation of this chapter.

Section 37 Deals with ‘Furnishing details of outward supplies’. It provides various details in relation to output supplies by a registered person and the time frame for the same. It provides that registered persons but excluding input service distributors, non-resident taxable persons and persons operating under Composition levy or person liable for TDS or for collection tax at source, shall electronically furnish in prescribed form and manner, the details of output supplies during a tax period on or before 10^th day of succeeding month. Such details shall be communicated to the receiver of supplies with in prescribed timeframe. This section also lays down that there shall be a bar on providing such information of output supplies from 11^th to 15^th day of the succeeding month. However, Commissioner can extend such time limit for furnishing details for any class of taxable person for reasons to be recorded in writing .Such extension can be granted for both Central and State laws by any of the corresponding Commissioners. The person (receiver) of the supplies on communicating of the details shall either accept or reject the details between 15th to 17^th days of the succeeding month. Any registered person who has furnished details of outward supplies which remained unmatched upon matching exercise conducted by the GSTN, shall on discovery of error or omission can rectify such error and shall pay tax and interest incase of short payment of tax on account of such error. But such rectification has to be done before the prescribed period of filing annual return generally after the month of September following the relevant financial year. The details of output supplies shall include details of invoices, debit notes, credit notes and revised invoices etc.

Similarly, Section 38 provides for ‘Furnishing details of inward supplies’. Every Registered person (other than those exempted )is required to verify, validate, modify or delete the details relating to outward supplies communicated to him Under Section 37 and to prepare details of his inward supplies etc. in respect of such supplies that have not been declared by the outward supplier. This forms the database for reconciliation by GSTN. It is obligatory for such Registered person to provide details of inward supplies to him including those goods and services on which tax is payable on reverse charge basis, as also the inward supplies under IGST act or on which IGST is payable under section 3 of Custom Tariff Act between the period after 11^th day and up to 15^th day of the succeeding tax period in prescribed period. Commissioner can similarly extend time limit for furnishing details for class of taxable person and any extension by State or Union Territory Commissioner shall be deemed to be notified by the Central commissioner. The details of inward supplies modified shall be communicated to outward supplier in prescribed manner. The details of supplier furnished in the return shall also be communicated to the outward supplier. For any unmatched error or omission found from the information provided by inward supplier, which remains unreconciled, the inward supplier shall pay tax in case there is any short payment in the return furnished for such tax period. There is a similar limitation of not allowing for rectification of error and omission after the prescribed period of filing return has lapsed generally after September that follows the end of Financial Year.

Section 39 provides ‘Furnishing of returns’. All returns shall be furnished electronically. Every registered person (other than those exempted) shall furnish in his return of inward or outward supplies of goods and services or both or input tax credit availed ,tax payable and tax paid electronically before 20^th day of succeeding month . Similarly, a registered person paying tax under Compositionlevy shall furnish his return in each quarter with in 18^th day after the end of a quarter. Whereas, every registered person who is required to deduct TDS shall furnish monthly return by 10^th of the succeeding month. And every taxable person who is an Input Service Distributor shall furnish his return electronically within 13 days after the end of such month. But a Non-resident taxable person registered under the Act shall furnish his return with 20^th day or after the end of month or within 7 days after the last day of period of limited period registration u/s 27.However, Commissioner can extend such time limit for furnishing details for such class of taxable person for reason to be recorded in writing. And any extension granted by Commissioner of State tax or UT tax, shall be deemed to be provided under the Act. A registered personwho is liable to furnish his return but fails to do by due date, shall nevertheless pay his tax due by that date. A registered person who has furnished his details of both inward or outward supplies in his return and later discovers errors and omission can rectify and shall pay tax along with by due date of the returns. However, no rectification would be allowed in returns of the Suppliers after the due date for the month of September or second quarter or relevant annual return. Any registered person would not be allowed to furnish the return of present tax period if the previous tax return has not been filed.

Section 40 deals with ‘First return’.Every registered person with outward supplies from the date of his eligibility to registration to the date of actual registration shall furnish the same in the first return after registration.

Section 41 deals with ` Claim of input tax credit and provisional acceptance thereof’. Every registered person who is entitled to take credit on input tax shall take the same as on self-assessed basis in his return and the same will be credited on provisional basis in the electronic credit ledger. The credits shall only be utilized to pay self-assessed output tax.

Section 42 deals with ‘Matching, reversal and reclaim of input tax credit’.A registered person is required to provide every detail of inward supplies for a tax period andsame shall be matched with corresponding details of the outward supply furnished by the corresponding registered supplier in his valid return including with details of IGSTunder Customs Tariff Act, 1975 to prevent the duplication of input tax credits. A registered person should match the invoices or debits notes related to inward supply of goods and services or both with the details of outward supplier for claiming input tax credit and the matching transactions shall be accepted as final and such acceptance shall be communicated to the recipient in a prescribed manner. It provides that where an inward supply is less as compared to tax declared by the inward supplier or by the outward supplier in their returns to claim input tax credit, the discrepancy shall be communicated to both suppliers in prescribed manner. The amount for which discrepancy is communicated and is not rectified by the supplier in his return for that month then same shall be added to the output tax liability of the recipient for the succeeding month. Again, the amount claimed as input tax credit found in excess due to duplication shall be added to the output tax liability of the recipient in his return for the month in which duplication is communicated. If, however the supplier provides the details of the invoices and debit notes in his valid return, then the recipient can get the amount reduced from his output tax liability within the time specified time. A recipient shall be liable to pay interest on added amount if so made in his output tax liability at the rate fixed up to 18% from the date of availing the credits till there are corresponding additions made. Where the reduction in output tax liability is accepted, the interest already paid shall be refunded in the electronic cash ledger of the recipient but the amount of interest credited to recipient shall not exceed the amount of interest paid by the supplier. However, if amount is reduced from the output tax liability for no discrepancy having been found with the supplier then same shall be added to the output tax liability of the recipient in his return of the month in which his contravention is noticed and he shall also be liable for interest.

Section 43 deals with ‘matching, reversal and reclaim of reduction in output tax liability’.A registered person is required to provide every detail of credit notes of outward supplies for a tax period and same shall be matched with corresponding details of the inward tax credit furnishedby the recipient in his valid return for the corresponding period for duplication, if any. Where the details on both ends match, same shall be accepted as final and such acceptance shall be communicated in a prescribed manner.It also provides that the discrepancy on either side should be communicatedto avoid duplication of claims of outward tax credit between both the parties in the prescribed manner. The discrepancy of theamount communicated between the supplier and recipient and if not rectified by the recipient, the same shall put as output tax liability for the said month of the output supplier. However, on such discrepancy being sorted out later in his return by the recipient, outward supplier shall be entitled to reduce the corresponding amount in his next return. A supplier shall be liable to pay amount as output tax liability along with interest on the same at rate of up to 18% for the period from the date of availing credit to the date of addition of such claim. If the reduction in the amount specified as the output tax liability is accepted, the same along with interest shall be credited to the electronic cash ledger of the recipient subject to the condition that the payment for interest shall not exceed the amount as paid by the other defaulting part i.e. Supplier in this case.However, if amount is reduced from the output tax liability after acceptance of the same, then same shall be added to the output tax liability of the supplier who shall also be liable for interest.

Section 44 deals with ‘Annual return’. Every registered person, other than Casual taxable person or Non-resident taxable person or Input Service Distributor, Tax Deductor or Collector at source, shall furnish an annual return electronically before 31^st December of the end of every financial year in a prescribed manner. Every registered personwho is required to get his account audited every year shall furnish the return along with audited annual accounts and a reconciliation statement reconciling value of supplies declared in the returns with financial statement.

Section 45 deals with ‘Final return’. A registered person who was otherwise required to file a return and whose registration is cancelled shall furnish his return as a final return within three months from the date of cancellation or date of order of cancellation, whichever is later, in a prescribed form and manner.

Section 46 deals with ‘Notice to return Defaulters’. If a registered person fails to furnish his return then notice shall be issued to file the same within 15 days in prescribed manner.

Section 47 deals with ‘Levy of late fee’. A registered person, who fails to furnish details as required under this chapter, shall pay a late fee of one hundred rupees daily not exceeding total of five thousand rupees for the default period. However, a person who defaults on annual return of Section 44 shall be liable to Rs. 100 per day subject of maximum of a quarter of his annual turnover in the State or Union Territory.

Section 48 deals with ‘Goods and service tax practitioners’. The eligibility conditions shall be as prescribed. A registered person shall authorize a goods and service tax practitioner to furnish details of his outward and inward supplies in a prescribed manner. However, the responsibility for correctness of any particulars furnished in the return or other details filed by the goods and service tax practitioner shall continue to rest on the registered person only.

……….

The Central Goods and Service Tax Act, 2017- Will it achieve â€œEasy of doing businessâ€ through complexity of legislation?

The Central Goods and Service Tax Act, 2017- Will it achieve “Easy of doing business” through complexity of legislation?

By:

Somesh Arora, Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

The fabulous concept of GST which had the potential to simplify life and provide ease of doing business in India may face a spanner, when it comes to making people understand the provisions. As the legislation itself, has been made so complicated that it is bound to add another dimension to making business difficult to do. The drafting of the Act is horrible to say the least. It is also indicative that the Central Government despite veto power in the GST Council will have to be increasingly accommodative of collective thinking (right or wrong) of various States. And the experience gained in making Central Excise Act simple and easy to understand in at last two decades has all been undone here, obviously with so many States wanting their say in the matter. More than 85 Sections are loaded with elaborate procedures with prescription for more in Rules or through orders. Criss- Cross references in 95 Sections and definitions with staggered provisions on various topics makes it a specimen of “how not to draft a law”. Compare this with Central Excise Act, 44 which has served well for so many decades and which has few Sections and General Rules and then Rules specific to each topic with hardly any repetitions. One can easily look into Sections, Rules relevant to oneself while avoiding the unnecessary crap. The Notes on Clauses do not help either as in most cases they perform the task if indexing of Section Notes. Obviously the drafting of this law is a case of too many cooks spoiling the broth. Passed Law is bound to produce more GST experts and Authors than it did during the decade of its unborn existence between 2006-16. Legislation sure has a potential to generate employment of Accountants, Consultants and Lawyers in its present form.

If so many elaborate Procedures contained in the Act were not sufficient, there is as usual elaborate Rule making power of Central Government u/s 164 and Regulation making power of the Board u/s 165 in the Act, as also powers have been vested in State and Centre officers to issue orders. Some of them will be binding in both the Central and State Domain. The definitions contained in any of the Acts (Central or State) will be applicable to all Central and State legislations, if a term is not defined under that Act. Meaning thereby, that one has to keep a tab on definitions in more than 35 Central, State and Union Territory Legislations. This itself, will be a compendium.

Points to Ponder:

- Exclusion of State of J & K from the purview of the Act. The Exclusion of J & K State is likely to create a situation where in Central Excise Act, 1944 may not operate in the State of J & K from September, 2017 unless some exception is made under 101^st Constitutional Amendment. Since J & K is out of taxable territory though being part of India U/S 2(56). It becomes a non taxable territory. In effect, it means loss of one more revenue channel for the Centre in the State of J & K.

- In Section 2(7), while defining Agriculturist, only Individuals or HUF (Hindu Undivided Family) have been kept within the purview. Though omission of Agriculture cooperative is noticeable, as it has been India’s endowed policy to encourage cooperative farming. It means that agriculture done by Co-Operatives will be taxable. Will it encourage agricultural Co-operatives? Hopefully this should be amended whenever the time comes for next amendment to encourage co-operative farming by farmers with small holdings.

- In Section 2(44), the term ‘Electronic Commerce’ has been defined as supply of Goods and Service over Digital or electronic network. It is a fact that Supply in most of the cases of Electronic Commerce takes place physically and only orders are processed over digital and electronic networks. In fact, the definition could have provided for “Substantial part of processing of supplies” takes through digital and electronic networks. The way the definition has been worded, disputes are likely to arise as to whether the goods which are physically delivered will or will not be covered in `Electronic Commerce’

- In Section 2(75) though the term ‘money’ excludes Currency held or exchanged for its numismatic value but still the same will be covered in the definition of goods. Therefore, no great purpose has been served by this exclusion except that it may have been some borrowed definition cut and pasted into new legislation.

- In Section 2(77) the definition of ‘non-resident taxable person’ has been provided quite at variance from Income Tax Act and every person who has no fixed place for business or residence in India is a Non Resident Taxable Person. Therefore a non-resident status has been linked to a person not having a place of business or residence in India. Does it mean that a homeless and a business place deprived person is a ‘Non-resident taxable person? Well the point to ponder may not last long, as by 2020, it is promised that no person shall be homeless in India.

- In Section 2(97) a ‘non taxable territory’ means a territory which is outside a taxable territory. Even J & K for that matter is a non – taxable territory. Fiscally disintegrated, but politically integrated J & K.

- In Section 6(2), a proper officer under SGST as well as CGST has been given power to initiate any proceedings on a subject matter. This will lead to a situation where cognizance of the matter can be taken even by pre-dating to exclude the investigation agencies and public authorities, which are more inconvenient to an assessee in trade. Reminds one of the often heard stories of engineered raids by businesses to exclude other dreaded agencies. The tug-of-war that ensues is not unknown for those familiar with functioning of DGCEI and Service Tax field commissionerates in the initial stages of evolution of Service Tax.

- Another area, where the disputes are likely to arise are, in relation to Section 8 where in ‘Composite and Mixed Supplies’ have been outlined. While the assessee is likely to claim more supplies of the Composite nature, the revenue is likely to cover most as mixed supplies to collect more supplies on the highest slab in the rate of tax. Same tax treatment to both on highest tax slab of the composition or admixture or through HSN based treatment of admixtures will have been better.

- Similarly, in case of Composition Levy as provided in Section 10, while one percent will be attracted in case of manufacture, the same shall be half percent for other than manufacturing activity. This will allow the decades old litigation on the concept of manufacture as is known to the Central Excise Department to continue because term ‘manufacture’ with a definition of Section 2(72) of Emergence of New Product with a distinct name, character and use, has been provided. It appears that the GST authorities are going to be equally enamored with the concept of ‘Manufacture’ as their predecessor Central Excise Department has been in the past. And all this just for half percent difference in rate structure of manufacture vis-à-vis the common trader. This is nothing but inviting unnecessary litigation. Again, as far as Composition levy U/s 10 is concerned vide Section 10(4), it has been built in that person availing it can neither collect any tax nor can take credit on inputs. The Clause relating to non- Charging of tax is litigation prone, as it has a potential to turn indirect tax levy to direct tax levy. Since, one is required to pay the same from its own pocket.

- Similarly in Section 14, the proviso to Clause B (3) appearance to be superfluous, when seen in the light of explanation and it is not understood and so why such ambiguous proviso has been created.

- In Section 15, the term value of taxable supply, though it is stated to be transaction value but same shall include all Taxes, Duties, Cess and fees, the SGST and UTGST meaning thereby, that there will be tax on value and inclusion of all taxes. This is nothing but a cascading tax of different kind from Central Excise to Service Tax as it known to us. It will also complicate calculations for the purposes of TDS and tax at source u/s 51 and 52 working of 1 percent sans taxes.

More dissection later:

Money Laundering Legislation - How to deal with fugitives?

Money Laundering Legislation - How to deal with fugitives?

By: Somesh Arora, Former Commissioner of Customs and Excise,

Advocate (Money Laundering).

Since, Prevention of Money Laundering Act, 2002 is outcome of elaborate international deliberations, which were adopted as a Political Declaration and Global Programme of Action against terrorist funding and money laundering world wide, it is to be expected that the same shall be having elaborate provisions embedded in it, for international cooperation. The Financial Action Task Force (FATF) established in 1989 on an ongoing basis monitors the progress of various issues and points where international cooperation is required. Not only are the recommendations of FATF contained in as provisions in most of the local legislations of the Member States, but at regular meetings are also taken up as points of interaction between representatives of the Member States. The States are allowed to become Members only if stipulated number of recommendations of FATF, are complied with by that State to curb organized crime through banking or other channels of money laundering. The provisions relating to reciprocal arrangement for assistance that the Member Nations to the FATF are required to provide, as far as our Indian law is concerned are contained, in Chapter IX of the Prevention of Money Laundering Act, 2002.

In this regard, Sections 55 to 61lays down the obligations of Contracting States on mutual basis and enforcement of the provisions of Prevention of Money Laundering Act, 2002 can be done by any Contracting Party even in a domain outside India also, if there exists an agreement.

Provisions under PMLA, 2002 deal with principle of mutuality and requires Courts in India also to provide same level of co-operation to the other contracting party. In this regard under Section 57 an application by Investigating Officer is required to be made to Special Court under Prevention of Money Laundering Act relating to the fact that any evidence required in connection with an investigation in India is likely to be available in any place in the Contracting State. On the basis of such application the Special Court can make a request to a Court or an authority in a Contracting State to examine facts and circumstances of the case and to take such steps as a Special Court may specify including forwarding of any evidence that they have been collected in that Contracting State. Under Section 58D Contracting State can also be requested to confiscate any property once the Special Court passes appropriate orders and transmits it to the Central Government for making suitable request. Section 59 contains Provisions relating to Summons, issue of Warrant, Summons to any person requiring him to attend and produce the documents or even a Search Warrant can be issued to be executed at any place in Contracting State through designated authorities. When a person is transferred to India pursuance to his arrest etc. the Special Court in India is required to ensure that the conditions subject to which the prisoners is transferred to India are complied with. Section 60 empowers Special Court through Central Government Authorities to cause attachment, seizure and confiscation etc. of property of a Money Laundering Offender in a contracting State. It is thus clear that the provisions of Prevention of Money Laundering Act, 2002 are much more stringent than the normal extradition provision which require a treaty between the contracting states and is normally agreed to only if the offence is a criminal offence in the domain of both the countries and only after the Court in the country from where the offender is to be extradited, is satisfied that prima-facie an offence is made out. This makes it a time consuming exercise, whereas under Section 59 to cause a summon or a warrant to be responded to only presence of accused in the Contracting State is required to be shown. Therefore, while the agency seeking trial of a predicate offence, for which PMLA proceedings are eventually initiated, can apply for extradition of a fugitive which is a time consuming exercise. The authorities under PMLA can take resort to Provisions of Section 59 in case even if a summon is not responded to during investigation stage. This makes the task of the Investigating Officers much more easier and chances of getting a fugitive back from the land of a contracting member, that much simpler.

In the context of Vijay Mallya matter, while his lawyers have been taking a defence that he was a loan defaulter and had not committed any fraud and that his repayment capacity had dwindled due to business losses, the PMLA Authorities have taken the ground that he had committed predicate offence of fraud, criminal conspiracy etc. and had parked funds obtained from loans abroad, with a view to cheating Banks through deliberate default. Therefore, it initiated proceedings under Prevention of Money Laundering Act, 2002 and wanted Vijay Mallya to respond to enable it to perform its investigations. At this stage alone, the matter through the intervention of the Special Money Laundering Court was taken up with the British Authority, with whom India has a Mutual Legal Assistance Treaty (MLAT) for prevention of Money Laundering. A non-bailable warrant in this regard after obtaining the same from Special Court was sent through Central Government with the requisite Letter of Request. Thereafter the British Designated Authorities conducted the necessary proceedings as per the terms of MLAT and arrested and then bailed Shri Vijay Mallya, subject to conditions. Obviously this may not mean an end to the troubles of Shri Vijay Mallya and even though his extradition under India U. K. Treaty may not come through easily but the provisions of Section 59 and reciprocal arrangements under MLAT with U. K., if pursued to their logical conclusions may require them to take the desired action of Special Court of production of Shri Vijay Mallya before them. Overall, it will be a first real test as to how far the provisions of mutual cooperation and reciprocal arrangements under Prevention of Money Laundering Legislation can actually work. The reports in the Press in the meanwhile counting the numbers of fugitives which were expedited from U.K. may not be of much relevance in view of changed legal scenario.

The Central Goods and Services Tax Act, 2017- Salient Features (Sections 1-10)

The Central Goods and Services Tax Act, 2017- Salient Features (Sections 1-10)

By:

By: Somesh Arora, Advocate (Amicus Rarus), Former Commissioner of Customs and Excise.

Various salient feature of the Central Goods and Services Tax Act, 2017, which has been enacted recently after Presidential assent, for the benefit of readers are as follows:

The Act is applicable to only intra state supplies of goods and services or both and is in the Central domain unlike Intra Goods and Service Tax (IGST) which seeks to tax interstate transactions. This Act is applicable to whole of India except the State of J & K, which has been treated as non-taxable territory for the purposes of this Act. (Section-1)

Significant Definitions as contained in Section 2 include `Aggregate Turnover’, which includes all turnover in State and inter-state transactions and includes even exempt supplies for export of goods but excludes taxes under GST scheme, Cess and reverse charge based supplies – Section 2(6).

‘Business’as defined in Section 2(17) is comprehensive enough and specifically includes transactions irrespective of volume, frequency, continuity or regularity. Even facilities to a member of club have been included. Section 2(18) defines `Business Vertical’ which can be distinct component of an enterprise, which is engaged in supply of individual goods and services and which has independent risk and returns. The Definition has relevance as different ‘business vertical’ have been treated as different activities for the purpose of taxation.

‘Capital Goods’in Section 2(19) have been defined on the basis of assets, the value of which is capitalized in the books of account. Therefore even long lasting books or software programmes are capital goods and input credit on the same will be taxable if the depreciation under Income Tax is claimed on them. Section 2(20) defines ‘Casual Taxable person’. It is also required to pay taxes as a person who occasionally undertakes supplies in furtherance of Business. It is to be noted that the definition of business covers transactions even without frequency but in case of casual taxation person expression `occasionally’ has been mentioned. Section 2(30) defines ‘Composite supplies’ as a supply that has any combination of various goods and services or both, but principal supply will determine the nature of composite goods and services. Section 2(31) defines ‘Consideration’ in inclusive terms as being any payment in monetary terms or otherwise, but excluding State subsidies. It also excludes any advance deposits till such deposits are eventually appropriated by the suppliers. Continuous supplies have been defined as recurrent supplies under a ‘contract’- Sec 2(32). Section 2 (45) defines ‘Electronic Commerce Operator’ as any person having a platform for electronic commerce. ‘Goods’ have been defined as moveable property other than money and securities but including actionable claim growing crops and grass under Section 2(52). In Section 2 (56) ‘India’ has been defined as per International treaties and includes territorial waters, seabed, continental shelves and exclusive economic zones and also the airspace above its territory and territorial water. Therefore, J & K, though being part of India is still a non-taxable territory. Section 2(61) defines ‘Input services distributors’ as an office of supplier that receives tax invoices for input services for distribution to any other supplies of taxable goods and services having the same PAN number as that of such distributors. Section 2(62) defines ‘Input tax’ means various taxes under GST regime (other than Cess) but excluding composition levy. Section 2(68) defines ‘Job Work’ as any treatment for process undertaken by a job worker. Section 2(70) defines ‘location of recipient’ of service as location of place of registered business or a fixed establishment elsewhere if supplies are received there or in case of more than one place, the place which is more directly concerned with the receipt of the supply or place of business recipient. Section 2(72) defines ‘Manufacture’ as processing emerging in a product with different name, different character and different use. Section 2(73) defines ‘Market value’ as value of like kind and Quality of goods, at the same time in same commercial level between unrelated recipient and supplier. Section 2(93) defines ‘Recipient of supplies and goods and services’ as the person liable to pay consideration or if no consideration is involved, the person to whom the goods are delivered or to whom the services are delivered including agents of such person. Section 2(94) while defining’ ‘Registered person’ as a person registered, excludes persons having unique identity number (meant to be used by temporary passengers as a practice in various GST regime countries). Section 2(102) defines ‘Services’ as excluding goods, money and securities but including conversion of Currencies if consideration is involved. Section 2(112) defines turnover in State or UT as aggregate value of all taxable supplies and exempt supplies made within a State or UT’s but excluding GST related taxes. Section 2(120) provides that the words and expression not defined in the Act but defined in other Acts shall have the same meaning as assigned to them in States or UT Acts. This means that for any defined term one needs to look into definitions in all more than 35 UT and State GST Legislations.

Sections 3- 5 provide for various class of officers under the Actand also lay down the officers appointed under Central Excise Act, 1944 shall also be deemed to be officers under this Act. The powers of officers will include exercising powers of any officer subordinate to him excepting Appellate Authority. Only Commissioner can delegate his powers to any subordinate officer for exercising the same. Section 6 provides certain circumstances under which State or UT officers can also be considered as authorized officers for the purposes of this Act. The proper officer for this purpose will act on recommendation of GST Council and while authorizing by Notification any Officer of the SGST and UTGST shall also intimate the jurisdictional officer of the state or UT, accordingly.

Section 6(2)(b)provides an important provision wherein it has been laid down, that where proper officer under State GST or UTGST, has initiated any proceedings on any matter, no proceedings shall be initiated under CGST. This has obviously been done to eliminate overlapping jurisdiction and exercise of powers, in demand and enforcement matters.

Section 7defines by way of inclusive definition, the term ‘Supply’ which is the subject matter of levy under Section 9. `Supply’ includes Sale, transfer, barter, exchange, license, rental, lease or disposal for consideration. It also includes imports and activities as mentioned in Schedule I and Schedule II of CGST. Schedule I deals with activities which are treated as supplies even without consideration and include permanent transfer and disposal off business assets, supplies between related persons other than gifts of less than Rs.50, 000/-(Fifty thousand rupees) from employer to employee in a financial year or supplies between Principal and Agent or import of services by a taxable person or its related person or any other establishment outside India. Schedule II deals with activities to be treated as supplies of goods on deemed basis and includes transfer of title or right in any goods, any lease, tenancy etc. of land and of a commercial building or residence complex or business or commerce either wholly or partly or any treatment or process on any other person`s goods or transfer of business assets or supply of services relating to renting of immoveable property, construction of complex, building, civil structure except where the entire consideration has been received after issuance of completion certificate. Supplies also include temporary transfer etc. of Intellectual property rights Act (IPR). Development, designing etc. of any software or agreeing to obligation to refrain from an act or to tolerate an act or a situation, as also the transfer of right to use any goods for any purpose. It also includes composite supplies and supply of goods by any un-incorporated association or body of persons to its members. Clause 2 of Section 7 indicates activities which shall not be considered as supply of goods and services. Such exclusions apart from activities of Central Government, State Government and Local Authorities, also includes the activities which have been excluded, as per Schedule-III including service of employee to an employer, service by court or tribunal, funeral services, duties performed by Constitutional authorities or Chairperson or a Member or a Director in a body established by any Centre, State or local authority. It also specifically excludes sale of land. Central Government on recommendations of Council has also been authorized to include or exclude any other supplies.

Section 8deals with `Composite and Mixed supplies’, with the Composite supply having any one Principal supply in one or more supplies, to be treated as Principal supply and to be subjected to the rate of taxation of such Principal supply. The Mixed supply shall be treated accordingly applicable to the highest rate of tax, to any of the components of the Mixture. Obviously the courts in future are likely to witness a lot of litigation on this count.

Section 9 deals with ‘Levy and Collection’. The levy which is on supply of goods and services for the purpose of CGST is an intra State supplies (Except on Alcoholic liquor for human consumption which for traditional reason has been kept out of the purview). The CGST component has been capped at 20% on value of the goods and services and within this rate, the Council shall be at liberty to vary the rate. Further availing leverage provided in 101^st Constitutional Amendment, tax on petroleum, crude, high speed diesel, natural gas and aviation turbine fuel shall be brought within the purview on the date to be notified in future. The Council has also been given power to recommend goods and services on which tax shall be levied on reverse charge basis. But this is subjected to statutory rider that in case of supplies between non-registered and registered dealer, the tax shall be paid on reverse charge basis only. Similarly Clause 5 of Section 9 envisages taxation of electronic commerce operator deeming it as supplier under the provisions of the Act, excepting when it does not have a presence in the taxable territory in which case either the person who is representing shall be treated as taxable person or electronic commerce operator shall be required to appoint a person in the taxable territory for the purpose of paying taxes. This effectively means that electronic commerce operators of the world wanting to sell in India, have to make arrangements for paying taxes in India and follow compliance procedures.

Section 10 deals with ‘Composition levy’. A registered person up to Rs.50 Lakh of turnover can opt for it and in case of manufacturer, it shall be required to pay 1% of its turnover as CGST component. In case of work contractor and supplier of food as mentioned in paragraph 6 of Schedule II, the CGST component will be 2.5% and for all other supplies CGST component will be 0.5%. However for all other activities which are deemed as supplies as per Schedule II, a registered person shall not be allowed to avail composition levy. Again persons making inter -state outward supplies and also electronic commerce operator or manufacture of notified goods shall not be entitled to composition levy. Further on exceeding aggregate turnover during a financial year, the composition scheme will come to an end. A significant provision under composition levy is that taxable person will neither collect tax from the recipient nor shall be entitled to any input tax. Does it mean, it will have to bear tax from its own pocket or it shall be allowed to in- built tax in its price without indicating it separately in the bill is a matter which requires conceptual clarification.

Bits and Bytes March, 2017 published in RTT

Bits and Bytes :

By:

Somesh Arora, Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

Elections 2017- An eye opener: The capacity of the People of India to surprise even the biggest of poll pundits could not have been better manifested than in the results of the Assembly elections in the States of U.P., Uttarakhand, Punjab, Goa and Manipur. Hardly anyone came close to predicting the mood of the people and the margin by which it was likely. The clear winner was BJP under the stewardship of that powerhouse of unmatched energy called Narendra Damodardas Modi, who in the process re-established himself after 2014 wave and is now considered by many to emerge as a clear winner in 2019, unless something drastically different happens in Politics. Dispelling all criticism about his demonetization move and rather convincing people whom he needed to in politics, that it was a move in the right direction he won the massive mandate hands down. The parties opposing him were all left in the lurch and their leaders dwarfed before his stature. The poll pundits and crying- from- the- roof top T.V. channels all failed to sense the public mood. Country for the time being has clearly come out of the shadow of coalition politics and most regional parties in the process also lost power in the debacle. Perhaps it also marks return of the leader with Charisma in Indian politics after decades of lull. Also now BJP can no more look for excuses, it has to perform and carry the Indian Growth and Development story further. As far as fragmented opposition is concerned it has to realize that it cannot act as aggregator of any rag- tag anti- Modi coalition but has to thoroughly introspect about the viability of the political talent it has and whether anyone can match the talent of touching- the- cord with the people as Mr. Modi does. The man is proving to be a dynamo in his energy level for his age. His delivery of speeches, and subjects of the locals that he touches upon, enables him to ruthlessly decimate his opponents. Not that country may not have talent to match Mr. Modi, but the ambitions of political clans and firmly entrenched politicians looking for personal gains, disables them from scouting for one in this otherwise talented Nation. But their self serving interests are getting exposed in election after election for most of these clan based parties. Grooming strong nationalist thinking in their own cadre is proving to be another flaw of these political outfits. In Punjab, Captain Amarinder Singh has a huge responsibility of at least reversing drug menace and cannot shy away from taking action against the culprits under the pretext of not wanting to follow vendetta politics. This otherwise may be treated as his weakness. All in all, the political changes of 2017 augur well for the country and show that Indian electorate cannot be taken for granted and acting in tandem can bring far reaching changes.

ICDs under siege: Never has been an intelligence based operation of this magnitude carried out in India involving so many premier agencies like DRI, I.B., and CBI. Virtually the agencies took upon themselves to carry out the clearance work at major ICDs in the country of the massive containers. In the process, the clearances slowed down. But then nothing is paramount than security of the Nation and all inconveniences do not matter. The resolve is important for it shows that intelligence inputs even not specific will be worked out by the agencies to eliminate any doubt. The operation as reported in the press was at the behest of office of National Security Advisor. There was therefore all urgency to carry it our with all the sincerity.

While writing this piece the outcome of the operation is not known, but one wishes it all success. For nothing is more important that thwarting a nefarious design of any enemy country. All of the CHAs were in one voice for the success of operation. For who does not love his country and would not like it to remain protected despite daily clamoring for their own profits and that extra buck that competition makes it little hard to get. The operation when ended will also underline the importance of having container scanners at all the major ICDs irrespective of cost involved and also the need to have cameras and recording at all the examination areas in the ports of the country. A move which has already been badly delayed without any solid reasons and now deserves to be given full attention.

Whether Justice hurried is Justice buried or Justice delayed is Justice denied?

The two propositions are back in the Bar room discussions of the CESTAT. While disposal had become a priority with the assuming of the office by the present President and files after final disposal had started moving out of the racks of the advocates making available the much needed space, the observations in an Anti- Dumping matter by H`ble High Court of Delhi and by H`ble High Court of Gujarat again brought to the fore that how much quick disposal is too much. And to what extent hearing should be effective, to win the respect for the Judiciary.The matter in the H`ble Gujrat High Court pertained to Madhusudan Industries – SCA No.1215/2017. The Hon’ble Gujarat High Court made following observations about the manner of disposal of cases by CESTAT- “the fact that the Courts and the Tribunals are respected for the matters which they adjudicate and not the matters which they dispose of. While, the Tribunal is required to endeavour to decide as many cases as possible, disposal of appeals in such a cavalier fashion would only give rise to more litigation and would not bring an end to the same.”

There are votaries for both the propositions. Courts in India now a days, are no doubt under pressure. And for CESTAT with vacant posts and GST on card, there may be added pressure. The emphasis on disposal may have even led to slightly higher than normal level of improper orders having been passed ( specially in relation to dismissal for default without discussing merits- though this will require detailed statistical analysis to be emphatically stated), but it cannot be denied that intentions were in the interest of higher disposal. At the level of CESTAT, while an improper order may not be difficult to correct through further litigation by a party who can afford expense, but for those litigating with small stakes things become difficult. That is why a liberal attitude may be warranted in respect of small litigants, even if disposal has to become a priority. A margin of error in favour of small litigant may not count for much in the ultimate analysis. But they not getting justice and further doors being closed to them can really make the CESTAT loose respect. If the functioning is fine tuned to this extent, it can go a long way in striking balance between quick disposal and effective Justice. There are Benches and Members who strike such balance quite well and command respect of most, at the Bar. It is hoped that the H`ble President with all his good intentions, his known impartial functioning and his experience will address the problem.

Bits & BYTES December 2016

Bits and Bytes:

By: Somesh Arora, Advocate(Amicus Rarus),

Former Civil Servant and Author.

The story of smelling Rs.50/notes --They travelled in a bundle to my home in Rs.24,000/- withdrawal limit fixed per week by Modi Ji but interpreted as per month by me to the family. Perhaps the bundle was lying for years in the captivity of the strong room or currency chest of the bank. Like a Jinn out of the bottle, it got a chance to come out of the confines when dear Shri Modi Ji uttered the word “Demonetization” on the dreaded 8/11. Though I was expecting new gulabi notes like an old man wanting to get a new bride, yet bank cashier had other ideas. Probably, he thought that the man who can do with his wife for so long can also do with this stash of Rs 50 notes. When brought home, my wife started screaming and shouting as if a dead and rotten rodent has been brought in. But knowing it has a lot of value in these currency starved days, she decided to do what she is best at with them-go for shopping. She brought her purse- in -use and put the stack inside while keeping aside some of the better and healthy siblings out of the bundle. Her first stopover was a gur (jaggery) shop. The shopkeeper saw the smelly note and announced that he will give gur on credit and the notes were hers to keep. Next she stopped at her favorite hair cutting saloon. Suddenly she saw that people in waiting started moving out and she got her haircut rather early. When she took out the note the barber realised who was the culprit for making his clients rush out. Here also the note was thankfully returned with expectations of pay off in January. The next stop over was at home where I greeted her on the door with the same by now familiar smell coming from her, but she was without her purse.

Seeing the quizzicality on my face, she burst out- Had to give my purse to dry cleaner, all your notes are back as they were.

Since then and even much before 31st December deadline, we have got used to the smell but neighbors are still hunting for the rotten rat all around in the society premises.

Thanks ModiJi for introducing us to another security feature added to even the non-monetised notes i.e. Pick Pocket Proof (PPP) feature.

What after Prime Ministership for P.M. Modi?There are many who are again thinking about the longevity of the Modi regime post demonetization, which has ushered in far reaching changes like of which were not witnessed in the past in the Monetary and Fiscal system of India. An analysis of his chart for those who believe in Astrology, at this juncture therefore will be a matter of interest. Based upon his details available in the public domain, his Chart has been cast as below:

Name: NarendraModi

Date of Birth: Sunday, September 17, 1950

Time of Birth: 11:00:00

Place of Birth: Mehsana

Longitude: 72 E 28

Latitude: 23 N 37

Time Zone: 5.5

Balance Of Dasha : SATURN 11 Y 2 M 12 D
Sat	17/ 9/50 to 30/11/61
Mer	30/11/61 to 30/11/78
Ket	30/11/78 to 30/11/85
Ven	30/11/85 to 30/11/05
Sun	30/11/05 to 30/11/11
Mon	30/11/11 to 30/11/21
Mar	30/11/21 to 30/11/28
Rah	30/11/28 to 30/11/46
Jup	30/11/46 to 30/11/62

Presently he is running Moon/Saturn Bhukti up to 30.09.2017, thereafter he will be running Moon/Mercury Bhukti up to February, 2019. And in normal course he will be trying to get re-elected when Moon/KetuBhukti will be running up to September, 2019. The salient features of the Horoscope are that there is GajKeshari Yoga, there is a PanchMahapurushaYoga with Mars being posited in Lagna in Kendra in its own sign. The Mars is conjunct with Moon which is ninth Lord posited in the Lagna bestowing further fortune to the subject. Jupiter and Venus, two high grade benefic are posited in kendras and aspecting each other from 4^th and 10^th house. Venus in the 10^th House is also conjunct with Saturn which being a planet of masses provides dealing with the masses and the public as the main profession apart from High Grade Ministerial Position due to Jupiter and Venus having relationship with 10^th House and their lordships conferring Raj yoga through aspect.. Budh-Aditya Yoga in 11^th house is powerful as Mercury is in own house. The Yogas with some negativity are ChanderMangal in the Lagna itself and Jupiter Saturn aspecting each other from 4^th / 10^th House. The Yogas though are considered as the norm in the present day Machiavellian Politics are never the less known to give manipulative prowess to the subject of the highest degree as they exist together in the horoscope. Though, there have been Prime Ministers of India who have risen to the Highest position by having Guru Chandal Yoga and many politicians too, still not many to my knowledge have been found possessing both. Jupiter is also in the Saturn sign and Saturn in inimical Leo, therefore, the subject in his politics can adopt manipulation if required and Chander-Mangal Yoga which is also known to be traditionally a Yoga of unconventional and socially ostracized vocations but conferring riches and resourcefulness, is conferring power on the inanimate side though causing on the animate side separation from mother and women of the house. The Yoga is quite powerful in the lagna and the Moon which is also providing GajKesari Yoga caused his rise to the position of Prime Ministership in 2014. Incidentally, he got the highest position in Moon/Rahu Bhukti and in Sade Sati of Saturn. Moon /Jupiter Bhukti which was running up to February 2016 augured well for him and brought him world wide acclaim as it was involving both the Gaj-Keshari Yoga Planets which was the high point of his life as he may not get to see Jupiter/Moon Dasha in his life time. Thereafter, the present Dasha of Moon/Saturn running up to September, 2017 has made him face some criticism due to demonetization but still his mass base may not stand eroded though substituted.Another positive aspect of Jupiter is that it is posited in centre in forth houseand therefore, may not allow any disaster to happen in his life despite opposition trying to knock him down. Moon/Rahu-Bhukti brought him the top leadership position of the country as Rahu is posited in the 5^th House influenced by the House Lord Jupiter and aspected by planets Sun and Mercury. Rahu therefore, was a top grade benefic and as per the principle of Laghu Prashari a raj yoga conferring planet and he became the Prime Minister of the country in the Sade Sati period like Indira Gandhi had become before him during her own Sadhe-Saati period. After September, 2017 he will he in Moon/Mercury Dasha which are posited in 3/11 position from each other and the Moon treatingMercury as the friend but not so by the Mercury. Bhukti Period therefore, will be a mixed lot with some set backs and some victories but not as high as Moon/Jupiter was. It is also point to be noted that Saturn/Mercury/Ketu Dashas when they were running from 1950 to 1985 were not great Dashas in his life and only prepared him through struggles for the subsequent rise. Though in the Bhukti period these Sub-Dash Lords will be only executors of trends laid down by the Moon still these three Bhuktis may not be as good as Moon/Rahu and Moon/Jupiter Bhukties were. At the time of next election Moon/KetuDasha will be running and Saturn Sade Sati will be still there. Ketu is under influence of Mercury which is sitting in own house along with Sun causing Budh Aditya Yoga. Despite he coming under lot ofmental stress during elections it may be difficult for divided opposition to dethrone him. Unless the contest emerges with any Political Leader who can rival his positive stars and manipulative political prowess. The possibility of his regaining powered appears little strong because immediately after Moon Dash gets over in 2021 Mars Dasha will start which is sitting in Lugna in own house and bestos a Mahapurusha Yoga in him and capacity to crush his rivals. Though the possibility of someone with stronger planets challenging him in 2019 can not be ignored, still out of the main rivals today in politics there seems no one who can with the might of his stars have the capacity to challenge him. The ‘Word of Caution’ for the subject will be to indulge in his political manipulations with care and only for those who deserve it rather than making the masses suffer the brunt of his wrong policy decisions. Public has a lot of faith in him but position of Saturn in Leo indicates that there could be a section of public with deepresentment against him.

So causes Bramha to say with humility, through this analysis.

THE MONEY LAUNDERERS

The money launderers

"Go to a jeweller. Give him the amount you want to convert into white as cash," read the Google link that got the most hits post-demonetisation.

Damayanti Datta

December 8, 2016 | UPDATED 16:54 IST

A +A -

"My dear citizens, today I want to make a special request to all of you?"

On November 8, when Prime Minister Narendra Modi announced on tele-vision that Rs 500 and Rs 1,000 currency notes would no longer be legal tender "from midnight tonight", to "break the grip of corruption and black money", the nation staggered. About 86.6 per cent of cash in circulation instantly became worthless paper. With just 3 per cent of Indians paying income tax, the entire shadow economy of the nation, pegged at 20 per cent of India's $2.3 trillion or Rs 156 lakh crore GDP (Ambit Capital Research, 2016), went into overdrive.

Even before people queued up in front of banks and ATMs, intelligence agencies detected an abrupt spike in hawala, or illegal foreign exchange transactions. And "How to convert black money into white?" started trending on Google, with most searches coming from the PM's own state Gujarat, followed by Maharashtra, Haryana, Punjab and Delhi. Meanwhile, there were serpentine queues at banks as the public lined up to deposit high-value currencies in their stock, or to exchange them for new. There was euphoria when banks, especially government-owned, became flush with funds that would improve their health and reduce lending rates.

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However, the mood turned sombre with, first, the Reserve Bank of India announcing that Rs 8.44 lakh crore had been deposited in banks by November 27 and, now, revenue secretary Hasmukh Adhia saying that the government expected the entire money in circulation in the form of demonetised notes to come back into the banking system. With over a month to go before the window to deposit high-value currencies with the banks closed, the prospects of large stashes of black money-Rs 4-5 lakh crore, as per original estimates-getting extinguished dimmed. And an even bigger fear emerged-thousands of crores of black money could have found its way back into the banking system, defeating the very point of demonetisation, as tricksters devised innovative ways to cheat the system. The prime minister had said his drive would give wealthy black money hoarders sleepless nights, but that didn't seem to be the case. In the eyes of the public, it was the commoner who was suffering while those with unaccounted-for money were sleeping peacefully, having laundered their illegitimate wealth.

THE DUMMIES GUIDE

"Go to a jeweller. Give him the amount you want to convert into white as cash," read the Google link that got the most hits post-demonetisation. Like a hands-on primer, it offered step-by-step guidance on how to hide one's dirty money through the supply chain of precious metals: "He will give you a cheque back for the same amount, less 4 per cent. He will give you a purchase bill to show you have sold silver utensils to him. On the amount of the cheque when you file your return, you will have to pay no capital gains tax as silver utensils are personal effects, and capital gains do not arise on sale of personal effects. There you go, the money is white now."

That has become the mantra as hidden transactions have suddenly exploded in the country's underbelly. Sensing that black money was flowing back into the system, the government warned of dire consequences for the guilty and announced changes to income tax norms to encourage more to use the legitimate route to declare their unaccounted-for money, by paying half of it as penalty. But this has come too late. Right from the word go, money-laundering networks have been spreading quickly and defiantly, in response to the new demand and the new market-to help turn unaccounted-for cash stashes into legal tender. The Indian tendency to improvise (jugaad) is up and running, turning black money white in myriad ways. Here are some new illicit networks, big and small, sophisticated and simple.

CLEANSING DIRTY MONEY

The World Bank uses the word 'money laundering' to describe a diverse array of practices designed to hide illegal and unaccounted profits: from donations and charities to illegal arms sales, drug trafficking, prostitution, fraud, insider trading, theft or tax evasion. "This 'dirty' money goes through a series of transfers and deals until its illegal source gets hazy and it takes on a 'clean' appearance," says economist Amiya Bagchi, a specialist in the history of Indian banking and finance, who acted as the 'official historian' of the State Bank of India.

In India, this activity is regulated by the Prevention of Money Laundering Act, 2002. There have been several amendments to the Act in the recent past, in tandem with the standards set by the Paris-based Financial Action Task Force, an inter-governmental body developing and promoting policies to combat money laundering and terrorist financing. But black money hoarders continue to flout the norms and dupe the authorities. Demonetisation was just another opportunity to put innovation to use. "Money laundering has a clear link with terrorist financing as well as with destructive operations, such as illegal sales of arms and ammunition," says Vikram Babbar, executive director, fraud investigation and dispute services, EY (formerly Ernst & Young).

Among the most popular and established channels of laundering, says Somesh Arora, former commissioner of customs and excise, are 'smurfing' (structuring deposits in small amounts to escape the scrutiny of the banking system); under- or over-invoicing imports/exports; using front companies in cash-generating businesses like casinos, event management, bars and night clubs etc.; circular trading (import and export of the same goods) in precious stones such as diamonds, gold etc.; chit fund companies showing deposits-and then defaults-by fictitious individuals; and fictitious sales of art/antiques while retaining the original works.

Bagchi says the money laundering process usually follows three stages. First, the launderer introduces illegal profits into the financial system, by splitting up big sums of cash into smaller amounts and depositing those directly into bank accounts in various locations-as cash, cheques or money orders. "This stage is called placement," he explains. It's followed by 'layering', when the funds are channelled-through purchase, investments, wire or hawala-into scattered accounts. Distanced from their illegal source, the funds now re-enter the legitimate economy-a stage called 'integration'-through real estate, business ventures or high-value precious metals, gems, jewellery, cars or antiques.

IN MODI'S BACKYARD

On November 14, when the PM visited his constituency Varanasi, it was business as usual there: temple bells tolled, yuva pandas shouted "Har har Mahadev", calls of "Ka ho, guru (what's up, boss)?" blended with "Naav pe jayenge (want a boat ride)?", mendicants sat in rows for free food, while cars with blinking beacons waited in no-parking zones for temple-hopping VIPs. In the city's 5,000 years of reverent irreverence, the PM's black money crusade appeared to be just a blip in time.

Photograph by Bandeep Singh

Or was it? A new buzz is taking shape in Modi's favourite backyard. "I wanted to offer Rs 101 to Ma Annapurna," says a young man, sipping tea on the ancient riverfront, "but the panditji took me aside and asked for Rs 501 in old notes." Others talked about "gupt daan", secret donations from undisclosed sources pouring in-apartments to sheets of silver, gold jewellery, and "old notes" in temple hundis. Some distance away, an ash-smeared, saffron-clad man blessed the PM profusely: "A lot of important people are now coming to Banaras." Good time to be 'holy'.

That's because the government has announced that no questions will be asked on hundi cash deposited by temples from the offerings of devotees in donation boxes. "If the money is from donation boxes, it will be exempt from taxation," says Adhia. With no limit on such anonymous deposits, temple donations have surged: at Tirupati, hundi deposits have come to Rs 30.36 crore within 10 days (after November 8), about Rs 8 crore more than the same period last year; Mumbai's Siddhivinayak has received twice the usual amount in anonymous donations; at Kerala's Sabarimala temple, donations have crossed Rs 13 crore, around Rs 2 crore more than normal; even in the little-known Sri Jalakandeswarar temple in Vellore, which normally receives donations of Rs 10,000, bundles of cash to the tune of Rs 44 lakh in Rs 500 and Rs 1,000 appeared.

How will the hundi black money turn white? Reports reveal how temple managements show this as anonymous donation, exchange it for new currency notes, keep a commission for the service and return most of it to the owner. India today's special investigation team found rampant money laundering against hefty commissions at several temples in and around Delhi. At the Vaishno temple in Ghaziabad, the head priestess Radha Mata offered to exchange banned notes for new from banks, at half the original value and a 50 per cent commission for the bank official. Her shady network appeared to be transnational as she also suggested dollar payments through hawala channels anywhere at a premium price. Secret remittances of corrupt wealth by spiritual gurus like Radha Mata were just one side of the story. Sensational news of money hoarders coming out of the shadows is adding more sizzle to the black money hunt, but not without embarrassing politicians. For instance, Mahesh Shah, an Ahmedabad-based businessman who had gone missing in November after declaring black money worth Rs 13,860 crore in September, later told income tax officials that he was just a front for illegal money belonging to many people, including politicians, bureaucrats and builders. This claim is being investigated by tax officials.

GO FOR GOLD

What a reputed Hyderabad jeweller imagined to be a closed-door operation, done discreetly after downing the shutters of his store, has brought to light a seemingly seamless mechanism to convert Rs 100 crore in cash into gold. His modus operandi was to show that he had received advances of around Rs 2 lakh, in old high-denomination notes, from about 5,000 customers buying gold worth Rs 5 lakh each. To avoid easy detection, he had deposited the money in a staggered manner, between November 10 and 17. He may have got away with it had the income tax authorities not been tipped off. When they quizzed him, the jeweller tried to reason that the transactions were carried out in four to five hours on a single day. There were other giveaways, especially the CCTV footage revealing transactions after he had downed the shutters at 8 pm on November 8.

The jewellery and bullion routes are being used extensively to launder money, say officials of the Central Board of Direct Taxes (CBDT). Jewellers have shown these sales as after November 8; however, according to an IT department investigation, a majority of these sales happened in the three hours after Modi's announcement. As a jewellery store owner in Delhi, whose family has been in the business for five decades, explains: "We just don't show transactions above Rs 2 lakh in our books." The government has made it mandatory to disclose PAN on purchase of jewellery worth over Rs 2 lakh. "People found ways around it with bills being broken down into smaller amounts and made in names that buyers claimed were theirs, but with no way of checking whether they were true or not." The CBDT has conducted over 75 nationwide searches, with CCTV footage providing vital clues.

Immediately after the PM addressed the nation, many in Rajasthan rushed to jewellers with loads of cash. Famed jewellers on Tonk Road, M.I. Road and Johri Bazaar in Jaipur just asked them to leave the cash, without any receipt, and come back after three days to take the gold. "No receipt. We have seen your face," so said the manager of one shop. And many just believed their jeweller and returned to take their jewellery or bullion on a later date, after the jewellers adjusted the stock and sale in their books. But the rush for gold saw many fake gold bars being sold as real. The sellers, mostly touts linked to gangs that deal in fake gold in and around Bharatpur, flooded the market with these. Some of the bars were plated with a fine layer of gold to dodge the 'rub test' for purity. "Such bars were sold on the premise that whosoever was buying it was buying for hoarding and would cut it or sell it after years," says a senior Rajasthan police officer. So few would realise they have bought fake gold.

The second kind of bars were made to look like ancient gold, found buried as lost treasure with the stamp of some erstwhile royalty. In such bars, holes were made and filled with pure gold. This pure gold was then used for testing. Sellers would also cut a small piece of gold from a real gold bar to let a suspicious buyer test it, if he so insisted, and smartly hand over another fake bar later on. Depending upon the amount of gold used, such fake bars are available for Rs 15,000 each for touts and are sold to unsuspecting buyers for a few lakhs. The police seized 19 fake gold bars, weighing between 500 to 800 grams, and on December 1 arrested eight touts who were looking for buyers in Bharatpur.

THE POOR AS MONEY MULES

Up until exchange of old currency was being permitted after the demonetisation announcement, using poor people-factory workers, farm labourers-as money mules was possibly the most commonly employed means to launder black money. On December 3, income tax officials recovered Rs 1.2 crore, including Rs 72 lakh in new Rs 2,000 banknotes, from the factories and residential premises of Bajaj & Sons, a Ludhiana-based automobile parts manufacturer. The owner of the enterprise, S. Bajaj, reportedly told the taxmen that he had collected the money by sending out his workers to exchange demonetised currency at bank counters across the industrial city. Bajaj & Sons is said to employ nearly 2,000 workers at multiple manufacturing units in Ludhiana. Refusing to buy the story, tax officials are reportedly looking into a possible collusion with local bankers.

Industrial hubs like Ludhiana have, in fact, become big time 'black money laundries'. Besides sending out workers to exchange old banknotes for new ones, factory owners sitting on large volumes of unaccounted cash have simply used the money to pay workers' salaries. "Thousands of factory workers, including those who had been receiving salaries via cheque or direct credit into their bank accounts, have been disbursed early pay for November and December in demonetised 500 and 1,000 rupee notes," says an established Ludhiana-based chartered accountant. Those who profess to be in the know insist that an even bigger laundering operation is underway in connivance with private bankers. Many industrialists have admitted in private that managers of certain banks approached them with "offers to exchange demonetised banknotes for a commission" that ranged between 10 and 30 per cent. Much of this was managed by using scores of individual PAN and Aadhaar details already available with these banks, to swap large tranches of cash.

Across the country, there could have been several cases where new accounts were opened with banks using inappropriate KYC (know your customer) documents, say experts. Since demonetisation, banks have been going through a lot of stress, since they had to cater to large-scale deposits of demonetised currency and exchange of old notes for new. "This operational stress could have caused slip-ups and fake documents could have passed off as genuine," says EY's Babbar. Unless banks scrutinise all accounts opened after November 8 and report any suspect accounts, the money in such accounts would have turned legitimate.

BUSINESS AS USUAL

Bhopal has a large number of companies dealing in construction. Because of the nature of the business, they keep a large amount of money with them accounted as 'cash in hand'. This cash is meant to make payments to labour, vendors, etc., and this amount also gets augmented when at times people make payments to the company in cash. Say for example, an automobile dealer receives cash as part or whole payment for sale of a vehicle. Since November 8, there are reports that companies that have the potential to show large amounts in their accounts as 'cash in hand' are taking money from people in old currency notes and showing it in their books as 'cash in hand'. The last quarterly financial closing was done on September 30, so such companies have time till December 31 to 'manipulate' their accounts to accommodate such cash. The companies are aware that their move is being watched by tax authorities and hence will not show a massive jump in 'cash in hand' in accounts. They will keep them at manageable levels. All this is being done for a consideration, said to be 20-40 per cent of the amount to be converted.

Professional colleges offering engineering, medical and MBA courses have also emerged as sinks for black money. Colleges are said to have manipulated their books by making back-dated entries of having received fees in cash from students. The catch is that the student has not really paid the fee and is unaware that the fee has been credited to his or her name. This cash, shown as fees paid by students, has been deposited in banks. The amount that has been deposited against students' names could be the unaccounted-for cash of the college owner or the unaccounted-for cash of others that is being converted for a different sort of 'fee'. That many colleges are run/controlled by politicians ensured that they were used by their owners to park their cash in its accounts. Professional colleges charge a substantial amount as fees, making it that much easier for them to convert the old black money to new currency.

Businesses where old currency is allowed have also been used to convert old notes: petrol pumps, medical stores and LPG agencies. Suppose a petrol pump has a sale of Rs 5 lakh a day. Assuming that, say, 60 per cent of the sale is made in old currency, the remaining part is made in notes of Rs 100, 50, 20 and 10, besides the new Rs 2,000 and Rs 500 notes as well. Petrol pumps have the option of replacing the amount collected from denominations that were not banned and new currency notes with old unaccounted currency notes. Again, all this can be done for a consideration.

CONSUMER IS KING

Illustration by Nilanjan Das

In Kolkata, people are going overboard to park their black money by paying huge advances as rent for flats in posh localities such as Alipore or Ballygunge. They have paid monthly rent of Rs 50,000 for a flat, which is usually let out for Rs 10,000. "People have paid rent for three years, thus turning Rs 18-20 lakh of black money white," says a chartered accountant, who had advised many. The sale of second-hand cars through brokers has gone up. Some have booked five to six second-hand cars, and for each they have paid advance as high as Rs 2 lakh. The brokers are arranging for backdated bills and claiming 10 per cent brokerage for each deal.

The Kolkata Municipal Corporation (KMC) mopped up Rs 73 crore over a period of 21 days since demonetisation. KMC has given an opportunity to defaulters to make payment of dues as well as advanced property tax in old currency notes of 500 and 1,000. It was an instant hit, even though KMC flouted the RBI guidelines and its own rules in accepting the banned notes. According to KMC rules, payment of any amount above Rs 25,000 has to be through a demand draft. However, such rules were ignored and the KMC also refrained from asking the property owners to submit their PAN. Such was the surge in tax deposits that the corporation had to buy currency counting machines to manage the huge tax inflow. "Demonetisation proved far more effective than the tax-waiver scheme, which gave relief on the interest on the outstanding tax," says a KMC officer. A Rs 20 crore rise in tax collection compared to the corresponding period last year has drawn the attention of the PMO, IT department and CAG.

UNBANKABLE BANKS

Nationalised as well as cooperative banks have become a source of turning black money into white. Four employees of the Bank of Maharashtra at Udgir in Maharashtra's Latur district were suspended on November 22 for exchanging old currency notes to the tune of Rs 15-20 lakh. The employees allegedly provided new currency notes to a trader without recording the transaction, against a commission of 30 per cent. They made entries in other customers' accounts benefitting the trader. The matter came to light when another bank employee alerted a customer in whose account the transaction was made. The customer raised the issue with the branch manager, who alerted the police.

Opaque and politically controlled, cooperative banks showed a steep jump in deposits, many of them with unverified KYC protocols. Money to the tune of Rs 49,000 is being deposited in zero balance accounts, which do not require submission of PAN, in cooperative banks across West Bengal, especially in the districts of East Midnapore, Malda, Murshidabad and South and North Dinajpur. Huge deposits have been witnessed since November 8. An obscure bank in Raiganj in North Dinajpur has recorded deposits totalling Rs 42 crore over 10 days after demonetisation. In Maharashtra, the Nashik District Central Cooperative Bank is under the scanner for exchanging Rs 47 crore without maintaining a record. The police suspect that bank officials may have laundered black money using reserved funds. A branch of the Thane District Central Cooperative Bank at Saralgaon accumulated deposits of Rs 4 crore in the first four days after demonetisation till the RBI banned the district banks from accepting old notes. According to tax officials, the problem of monitoring and investigating the cooperative banks stems from the fact that the sector is hand-in-glove with political parties. "It's not possible to track every transaction. We are also engaging the Enforcement Directorate, income tax department in the investigations because the culprits will have to face criminal action as well," says a tax official.

THE ELECTION GAME

In Dhule and Nandurbar districts of Maharashtra, on November 26, the eve of elections to five municipal councils, political workers were busy 'reaching out' to their voters. According to a resident of Shahada in Nandurbar district, each party offered Rs 2,000-2,500 per vote in old currency notes. "The candidates circulated their black money in this way. The voters, in turn, got a lump sum too. Of course, we could not use them for daily transactions, but deposited the money in the bank, which was legally allowed," says the resident whose family of 10 'earned' Rs 22,000-a big bonus for a family whose monthly income is Rs 20,000.

The elections to 147 municipal councils in the state became a major conduit carrying black money in the market. According to an insider, the candidates used old currency notes to influence the voters. "This way, they got rid of their unaccounted money and tried to secure several votes. The voters too got some money to deposit in the bank," says Umesh Choudhary, a wrestling trainer. In some cases, the candidates also paid voters' property and water taxes in old notes. No wonder, municipal bodies across Maharashtra collected Rs 1,200 crore as pending taxes in a week.

Experts are unable to put a figure to the money laundered since demonetisation, but say all of this reflects the loopholes in the system. They also call for more friendly taxes and duties (slashing stamp duty on real estate deals, for instance, can help reduce black money in the sector), a better tax framework that encourages more compliance, stubbing out corruption in government offices, more transparency in land deals and greater banking penetration in the rural areas as ways to discourage hoarding of black money. Satya Poddar, senior tax advisor with EY India, says people try to avoid high taxes by converting the taxable income into capital gains through tax-friendly jurisdictions, such as Singapore, Cyprus and Mauritius. "Capital gains is the source of all arbitrage opportunities-this is the main laundry machine," he says. Unless the tax burden becomes lighter, and effective checks and balances are put in place, black money generation will continue, and so will the attempt to turn it into white. That would put a question mark on the efficacy of Modi's black money purge through demonetisation.

With M.G. Arun, Asit Jolly, Kiran D. Tare, Rahul Noronha, Shweta Punj, Rohit Parihar and Amitabh Srivastava

GST: To sustain revenue collection, a smooth transition is critical (Published in The Financial Express - November 29, 2016 6:24 AM Delhi Edition)

GST: To sustain revenue collection, a smooth transition is critical

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise.

The first interface with a new fiscal legislation that public has while transiting from the old is always through the Transitional Provision in a new enactment. If the changes are major, the transit provisions are required to be more elaborate. Since the Draft GST Law is the outcome of convergence of various fiscal legislations at the State and Central level, therefore, provisions relating to transit are contained in little elaborately in Draft GST Law. These provisions are contained in Sections 141 to 162E. The total of 27 Sections devoted to transition only. Reportedly, another version of Draft legislation has recently been circulated to States, but the same has not been put in the public domain, as yet. Therefore, we can at this moment only analyse the version that is available to us. Transition provisions serve a restricted purpose of envisaging various situations that may arise while moving to new legislation and gradually become of historical importance with the passage of time. In the draft GST Bill, they broadly and, interalia, provide for continuity of officers with their previous designations to new both, under the Central and the State legislation pertaining to tax on goods and services, automatic migration of existing tax payers to GST etc. It is also provided that the CENVAT Credit as indicated in the last VAT, Central Excise or Service Tax Returns shall be eligible to be carried forward if it is otherwise permissible under both the old and new law. Therefore for the business, last Return under the old law has to be prepared properly and credit properly documented. This is of paramount importance, as claims later may become difficult to sustain. Since, there will be number of assessees who will come in the tax net for the first time due to lowering of SSI Excise limit from Rs.1.5 Crore to Rs.25 Lakhs (As approved by the GST Council), it has been provided that such units also shall be entitled to take credit of inputs/goods in stock as on the last day of operation of old law provided it is in possession of Invoice which is not earlier than 12 months from the appointed day. Similar provisions also exist for persons opting out of Composition Scheme under the new law, who can also claim CENVAT Credit after the appointed day(i.e. the date on which new GST law comes into force), provided it possesses the relevant Invoices, which should not be more than 12 months old. To the contrary a person which is switching over to ‘Composition Scheme’ from the normal tax regime, shall be required to reverse credit to the extent of existing stock/Inputs. Similarly there are various other transit provisions dealing with stock position, supplementary Invoice, Debit or Credit Note, pending refund claims etc. during transition, which answer most of the doubts though not all. Since, there can be various situations, the Central Board of Indirect Taxes can issue clarifications, which hopefully it will be promptly doing based upon the difficulties experienced and feedback received. Efficiency in issuing clarifications and advice to field officers to put the issues on hold till clarifications are issued in order to avoid litigation will be a welcome move. However, in the ultimate analysis a smooth transition is always achieved through a tax payer friendly approach and thorough understanding of tax authorities. Implementation of Finance Act, 1994 is an example in this regard. The Service Tax was popularised through the ‘Voluntary Compliance’ approach and in the beginning internal instructions of least searches/summons were issued and thereafter, stringency in and around 2012 was brought in and arrest provisions introduced. The introduction of a Finance Act,1994 was smooth enough and ultimately Service Tax has become a big revenue earner for the Central Ex-chequer. Draft GST law has strong enforcement provisions in the draft. And it is understandable also because this is a switch over of the old taxes to new, rather than a new one being introduced. The pressure of earning enough revenue, on the Central/State officials from the initial stage itself, will be phenomenal. As legislation is not meant to generate additional source of revenue like fresh Finance Act in 1994 was. It is incumbent upon the authorities to maintain and augment the revenue which was being generated till the cut off year both by Central and State Governments. This can bring in a tendency to use enforcement stick extensively right from the beginning, which may make the whole tax regime unpopular. Therefore, the officers have to be properly trained for a balanced approach, striking a middle path between voluntary compliance and enforcement which is just appropriate to sustain normal buoyancy in revenue collection, in transition stage. Again in transition, there are various procedural lapses which happen from the side of assessee due to lack of knowledge. These are generally liberally viewed even by the Courts. The normal tendency of the Revenue Officials is to litigate on every point of procedural lapse and allow it to be decided by the Courts only, who with near unanimity deal with such procedural lapses with disdain if they seek to deny substantive benefits, otherwise permissible. But all this, results in avoidable litigation swelling up in numbers. The best way forward is to appoint some Chief Commissioner/Commissioner level officers as the Authority for Condoning such procedural lapses, with or without imposing a nominal fine up to Rs.20,000/- so that litigation and resultant compliance cost does not swell for the small business enterprises. By resorting to such matters both Central and State Governments can considerably reduce the fear factor of new tax regime and can smooth transition.

Will the MMT have to make a trip to the Apex Court?

By :Somesh Arora, Advocate and Former Additional Director General ( DGCEI)

In itsJudgement dated 1.9.16 of the Hon’ble High Court of Delhi in the case of M/s Makemytrip examined in details the power of arrest Under the Finance Act,1994. It not only summoned and examined all records but also sought details on affidavit from various officers concerned with the investigation.

The factual matrix of the case are that in November 2015, the Delhi Zonal Unit of DGCEI initiated investigation against M/s Makemytrip (M/s MMT/assessee in short). The assesseeas per the department was engaged in the business of providing hotel/short term accommodation online. During the investigation, it was found that the assessee was collecting service tax from the customers and not paying to the Government and also misclassifying their services of providing hotel rooms/ short-term accommodation as tour operator services. As tour operator, they availed 90% abatement on the gross value to calculate service tax, while as provider of hotel accommodation, they were entitled only for 40% abatement Thus, as per the department they had collected service tax of Rs.82 crore (apprx.) during the period 2011 to 2015, but had only deposited Rs.15 crore (apprx.) to the exchequer, thereby not depositing Rs.67 crore collected as service tax by them, which as per department is a cognizable offence under sections 89(1)(ii) and 90 of the Finance Act (FA), 1994. Accordingly Sh. M. K. Pallai, Vice President (Finance) of M/s MMT was put under arrest u/s 91 of the Finance Act.

During the bail hearings of Sh. Pillai before the Chief Metropolitan Magistrate(CMM) of the Patiala House Court in January 2016, the assessee themselves undertook to make the duty payment voluntarily and the direction of the CMM court was made accordingly. Thereafter, the assessee filed a writ petition before the Delhi High Court with the prayer to direct DGCEI not to take any coercive action including threat of arrest against the petitioners for recovery of alleged Service Tax dues, and to declare the arrest of Sh. M. K. Pillai, VP of MMT as illegal. A series of hearings were held from January to May 2016 and the order was reserved. Finally the Judgement was pronounced on 01.09.2016.

In the Judgement, the Hon’ble Delhi High Court has disposed of the Writ Petition by, interalia, making the following directions:

- The Hon’ble Court has held that the due process of Law under the Finance Act, 1994 requires DGCEI Officer to issue SCN and wait till its adjudication upon which if a decision is taken to prosecute the person, only then an arrest can be made. The above reasoning is based on the interpretation that arrest can only follow determination of duty and which happens only when the matter gets adjudicated.

- The Hon’ble Court has also directed DGCEI to refund the deposit of Rs.67.44 Crore (MMT) collected as Service Tax and not paid to the Exchequer by MMT.

- The searches by DGCEI were not backed by proper reasoning of the Law and the reason to believe was absent in the factual details of the matter

- The Hon’ble High Court also went through the case file as well as the various affidavits directed to be filed by the officers and came to the conclusion that some of the reasons which were considered were post facto like there being a note sheet recording that some of the hoteliers were not even registered with the service tax department and therefore, there was no question of their coming forward to pay the duty which was primary responsibility of MMT as per the DGCEI.

However, the matter is likely to be contested further by the department by filing SLP in the apex Court as it appears aggrieved mainly on the following points

- The reasons for arrest by DGCEI were clearly spelt out in the Arrest Memo and were further ratified by the Hon’ble CMM, Patiala House Courts and the accused person was remanded to judicial custody by the Hon’ble CMM. Therefore, the order of the Hon’ble High Court that the arrest was illegal appears erroneous. The arrest by DGCEI was made during investigation and is based on the concept of reason to believe-as envisaged under Section 91 of the Finance Act, 1994 for which the SCN and adjudication process is not required.

Section 91 of the Finance Act, 1994 reproduced below:

SECTION 91. Power to arrest. -

(1) If the Principal Commissioner of Central Excise or Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (ii) of sub-section (1) of section 89, he may, by general or special order, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such person.

(2) Where a person is arrested for any cognizable offence, every officer authorised to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours.

(3) ^-deleted

(4) All arrests under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrests

- The Hon’ble High Court has also gone beyond the prayers of the petitioners by granting refund of the amount voluntarily paid by MMT and 13180 which was never requested for by the Petitioners. Not only this, the deposit of Service Tax by MMT was one of the conditions of Bail before the Hon’ble CMM which has also been interfered with as the Hon’ble High Court has said that Bail already granted to the accused would not be affected by the directions to refund the deposit to the Petitioners. The Bail Order of CMM was not at all challenged and was not part of the Prayer by MMT before the High Court.

- It may be stated that DGCEI did not conduct any search under Section 82 in the case of MMT. DGCEI Officers have gone only on visit mode under Rule 5A. Therefore, it is erroneous on the part of Hon’ble High Court to pass judgment on an action which was never undertaken by DGCEI.

- That at this stage there was no contemplation of any prosecution which is generally decided at the time of adjudication.

The matter is therefore likely to be contested further by the DGCEI, which feels strongly that it has right to arrest during investigation stage under the Provisions of Finance Act,1994 and would therefore will like to protect its turf through Judicial decision first and may even contemplate legislative amendment if so required at a later stage. The matter therefore seems far from over and battle lines shall again be drawn at the level of apex court between MMT and DGCEI.

Will inconsistency in decision making prove to be nemesis of Settlement Process?

Will inconsistency in decision making prove to be nemesis of Settlement Process?:

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

It is becoming clear that the GST is going to come shortly and the officers of Customs and Central Excise Department are naturally concerned about their new role, since dual administration has been conceptualized for GST involving both Central and State officials. Likewise, the Government of the day is equally concerned about reduction of ever mounting pendency in litigation and in efficacy of alternate dispute resolution in the tax matters. Unfortunately, certain people at the helm are least bothered about these concerns and function as per their whims and prejudices, even denying justice for the small tax payers who cannot afford prolonged litigation. Somewhere the attitude within the Department is required to change or the officers selected should understand law and how to implement it. At least the basic concept of fundamental right of Equality and consistency in administrative and other decision making is something that should not be lost sight of. This is the minimum legitimate expectation a Petitioner has while seeking redress.

In two final orders relating to petitions filed and disposed by the Settlement Commission involving same facts, totally inconsistent orders have been passed by the Settlement Commission, Delhi Bench defeating very purpose of approaching Settlement Commission by litigants. In settlement application No.4928/2015 of M/s Gayatri Construction, the charge was that manpower recruitment and supply services have been provided to M/s Jindal Steel & Power Ltd., Raigarh and tax collected from them but not deposited with the ex -chequer and case was made by Raipur Commissionerate on the basis of Balance Sheets etc. for collecting tax but not paying the same to the tune of Rs.2,89,71,697/-, an order was passed by Hon’ble Settlement Commission, New Delhi after payment of whole service tax and interest and admission of liability of imposing penalty of Rs.5 Lakhs which works out to be less than 3%, as even under the provisions of the Service Tax Act, an assessee in regular litigation is allowed to settle by paying 15% to 25% at various stages, order therefore was apparently correct and justified and provided sufficient incentive to the parties to approach the Settlement Commission for early settlement of the case. It can be easily analysed that if after paying duty only, in case a person chooses to get involved in regular litigation he can avoid paying interest for the whole length of litigation upto adjudication and even can delay payment of 25% penalty upto one month from adjudication.

It appears that such nuances are not appreciated by all in Settlement Commission. Contrast this with another case involving the same facts and delivery of manpower services to M/s Jindal Steel & Power Ltd., Raigarh and of collecting tax and not paying the same and where service tax involved was a mere Rs.36,93,498/- the same Delhi Bench, when the facts were Pari material, imposed a penalty of Rs.9,00,000/- which works out to be about 25% and that too in a much smaller case. It was not that while passing the order dated 11.08.2016 in settlement application No. 5192/2016 the Bench was not made aware of earlier order and it was not pleaded that penalty should be commensurate with the earlier case which was placed on record. That the Bench without any discussion and after noting the plea made still went ahead to impose such heavy penalty on the assessee in a highly inconsistent order to the prejudice of smaller litigant even when there was no imminent threat of prosecution or arrest as per the CBEC guidelines since they provide arrest only in case of duty involvement of one crore and above.

Such inconsistencies depending upon the Constitution of the same Bench do not augur well for the petitioners who start losing faith in the institution. Has the decision making by Settlement Commission become captive to some kind of lottery approach or do the Members in some Benches hold orders passed by other Members in disregard. Definitely something has terribly gone wrong with the approach of Settlement Commission and remedial actions are required to be taken to remove inconstancies in future. One can understand if such inconsistencies happen due to other decision not coming to light, but not when same is chosen to be ignored without reason. Needless to say that consistency is the biggest virtue of justice and of any decision making , as held by various courts in different matters for example in 2006(197) E. L. T. 469 (S. C.) in the matter of legal Engineering Works Vs. Commissioner of Central Excise, Chandigarh.

1998 (101) E. L. T. 549 (S. C.) in the matter of Northern Plastics Ltd. Vs. Commissioner of Customs and Central Excise,

2015 (40) S. T. R. 4 (Allahabad) - Indfos Industries Ltd. Vs. Commissioner of Customs and Central Excise

More over the fundamental Right of Equality cannot be violated to the prejudice of smaller tax payers, who can ill afford further litigation. This defeats the very purpose of settlement and well intended legislative objectives of encouraging early payment and settlement of cases.

Following observations of the Bombay H.C. as reported in 2010 (251) E.L.T. 481 (Bom.) in the matter of MANDHANA DYEING Versus UNION OF INDIA are relevant in this regard “A rigid attitude would inhibit a one time tax evader or unintending defaulter from making a clean breast of his affairs and would also unnecessarily strain the investigation resources of the Government.” It is hoped that Members entrusted with the task will ensure that consistency in order making is followed in future so that litigants having genuine expectations are not left high and dry. It will also be in the interest of the Department, since it absolves them from investigation and cumbersome litigation process as also the courts from avoidable appeals and writs.

(The views expressed are personal and the author has an interest as a representative in both the matters petitioned for settlement )

GST Bill: Furore amongst taxpayers; here’s why

A cursory look at the provisions clearly indicates that what has come out is one of the toughest tax legislations.

By: Somesh Arora

Published in The Financial Express

Dated : 20th July, 2016

While Parliament is preparing for the grand monsoon wedding between the Centre and states via a Constitutional Amendment in this session, the draft GST Bill has created a furore amongst taxpayers.

Like it typically happens while introducing a tax legislation—packaged as a ‘tax reform’ that has the potential to change the way business is done—GST has been popularised both by this government as well as the previous regime by dubbing it ‘tax reform of the country’, an ‘instrument of ease of doing business’ and ‘a single factor which can increase GDP growth rate by 0.5% per annum’. While the last claim will be tested with time, it is clear that the first two will be difficult to achieve, especially if what has been cooked up by the drafting teams of the Centre and states is allowed to remain as it is.

While Parliament is preparing for the grand monsoon wedding between the Centre and states via a Constitutional Amendment in this session, the draft GST Bill has created a furore amongst taxpayers. A cursory look at the provisions indicates that what has come out is one of the toughest tax legislations, even worse than the Customs Act, 1962. Though the legislation has a provision for self-assessment, it has been literally reduced to a farce, as there will be scrutiny of returns, assessment of non-filers, assessment of non-registered persons and summary assessment in special cases. Then there will be audit, special audit, inspection and verification by a computer system of mismatch of transactions, if any, relating to input and output supplies. Apart from this, there are normal provisions relating to search, seizure and arrest offences and penalties, and prosecution of cognizable and non-cognizable offences. The worst is that the ‘burden of proof’ of input credit has been shifted to the assessee, showing that nervous authorities have plugged the loophole of instant data capturing by information technology. Distrust in the assessee has been shown by introducing Section 121, which pertains to ‘Test Purchases of Goods and Services’ by using decoy customers.

The scope of ‘Advance Ruling Authorities’, though widened, has been made litigation-prone by providing for an appeal. But the whole exercise may become redundant as a difference of opinion between two members of the Advance Ruling Appellate Authority will nullify the decision.

Many definitions are superfluous and ‘business vertical’ has been defined with reference to Accounting Standard 17 of the ICAI. Not only are such standards in a state of flux, there is no complete reference of volume or year by which such accounting standards shall be known. There is a reference in various provisions relating to ‘Generally Accepted Accounting Principles’, on which even chartered accountants can differ and the assessee will have to approach a chartered accountant time and again. Such accounting principles could have been easily listed in the ‘Schedule’.
The Act stipulates taxing of a casual taxable person for all business-related transactions and the net result is that even when an old and obsolete asset is sold, one may require paying of taxes through temporary registration. For this, there is not even any exemption limit available. By the spirit of law, even raddi sold by government departments, business entities and professionals will incur tax payment. Similarly, when both supply of goods and services are going to be taxed, the purpose of defining ‘works contract’ is defeated and will create confusion.

As it often happens within two arms of the same government, while income tax allows notional income to be worked out without maintaining detailed accounts to have ease of business and less compliance cost for small businesses for an amount up to R2 crore, the composition levy not requiring detailed accounts under GST is confined up to R50 lakh limit, thus requiring detailed accounting thereafter. There is an automatic condition that any explanation added in any provision within one year will have retrospective effect from the date of provision. The concept of ‘Pure Agent’, with its 11-odd conditions and which had attracted lot of legislation before the concept of taxing gross receipts was struck down by the Delhi High Court in Intercontinental Consultants, has been brought back.

A registered person even for a non-taxable service has to issue prescribed bill of supply, leading to unnecessary documentation. Unjust enrichment provision will henceforth cover even interest. Compliance rating for every registered unit has been introduced, though no accountability for non-compliance of officer(s) has been fixed. For every litigation, even though done by the department, the assessee is required to keep the accounts till finality. Hopefully, this will mean more space available in government departments and only files with the assessee. The period of limitation has been effectively increased up to six years. Two stages of appeals have been provided with 10% mandatory deposit at each stage. Recovery provisions have been made so elaborate they can lead to duplicity.

Recovery can be made through lien, attachment, recovery from the successors, distrain of property and through certificate action of the collector and even through the magistrate by attachment of any moveable or immovable property of offender. Through a non obstante clause in Section 57, tax dues have been made first charge in the property, even though similar laws exist for EPFO, banks, etc. This will lead to a situation of, inter se, litigation between various departments. A closed factory may be sealed by five different departments with each fighting as to who will have primacy under its own non obstante clause. There are many such tedious provisions to make life difficult for the assessee. It will be, therefore, in the fitness of things that the GST draft is put to detailed scrutiny before it is notified. Any haste in this regard is bound to be counterproductive.

GST-Boon or the bane- Published Financial Express dated:20/7/2016

G. S. T.-The Monsoon Wedding that is it likely to go awry:

By: Somesh Arora

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Like it typically happens while introducing a tax legislation- same is packaged as a ‘tax reform’ that has potential to change the way business is done. GST has been attempted to be popularised both by this Government as well as previous regime by dubbing it variously “as tax reform of the century” and as an “Instrument of ease of business” or “a single factor which can increase GDP growth rate of India by 0.5% per annum”. While the last claim will be tested by time, it has become clear that the first two are not going to be there, if what has been cooked up by the drafting teams of centre and states is allowed to remain as it is. While the Parliament is preparing for the grand monsoon wedding between Centre and the States through Constitutional Amendment in the present session, the Draft GST Bill has created a furore in the user community of tax payers. A cursory look at the provisions clearly indicates that what has come out is one of the toughest tax legislation even worse than Customs Act, 1962 which was supposed to be mainly for smugglers. The legislation has provision for self assessment which has been literally reduced to farce, as there will be scrutiny of returns, assessment of non filers, assessment of non-registered persons and summary assessment in special cases. This will be apart from audit and special audit and inspection and verifications by the computer system of any mismatch of transactions relating to input and output supplies. Apart from this are the normal provisions relating to a search, seizure and arrest offences and penalties, prosecution of cognizable and non-cognizable offences. The worst is that the ‘Burden of Proof’ of input credit has been shifted on assessee, clearly showing that nervous authorities have plugged the loophole of instant data capturing by Information Technology, by putting the burden on the assessee. The distrust in the assessee has been shown by introducing Section 121, which pertains to Test Purchases of Goods and Services, by what can be an attempt to statutorily provide for using of decoy customers by the Department. The scope of ‘Advance Ruling Authorities’ though widened, has been made litigation prone by providing even an appeal. But at the end of it, the whole exercise may not yield anything as it is provided that the difference between two members of Advance Ruling Appellate Authority will mean that Ruling is incapable of being given. Hardly in any legislation, is this kind of provision seen. Many definitions are superfluous and “business vertical” has been defined with reference to Accounting Standard 17 of ICAI. Not only are such standards in state of flux, but there is no complete reference of volume or year by which such accounting standards shall be known. There is a reference in various provisions relating to “Generally Accepted Accounting Principles” on which even Chartered Accountants can differ and assessee will require to time and again go to the Chartered Account. Such accounting principles could have been easily listed in the ‘Schedule’. The Act provides taxing of a casual taxable person for all business related transactions and the net result is even an old and obsolete asset when sold may require paying of taxes through temporary registration. And for this, there is not even any exemption limit available. By the spirit of law even “Raddi” sold by any government department, business entity, professionals will require payment of tax when supplied to any person. Similarly when both supply of goods and services are going to be taxed, the purpose of defining ‘Works Contract’ is not understood and it only creates confusion. Again, as it often happens within two arms even of the same Government, while Income Tax allows notional income to be worked out without maintaining detailed account to have ease of business and less compliance cost for small businesses up to Rs.2 Crore, the composition levy not requiring detailed accounts under GST is only confined up to Rs.50 Lakhs limit, thus requiring detailed accounting thereafter. There is an automatic provision that any explanation added in any provision within one year will have retrospective effect from the date of provision. Concept of “Pure Agent” which is as hard to pass as an elephant through a tunnel, with its 11 odd conditions and which created a lot of litigation before concept of taxing gross receipts was struck down by the Hon’ble Delhi High Court, in the case of Intercontinental Consultants—reported in 2013 (29) STR 9 (Del.), has again been brought back, leaving the scope for the advocates to be happy. A registered person even for a non taxable service is required to issue prescribed Bill of Supply, making it unnecessary documentation. Unjust enrichment Provision will henceforth cover even interest too. Compliance rating for every registered unit has been introduced though no accountability for non compliance of officer(s) has been correspondingly provided or fixed. For every litigation, even though done by the Department, assessee is required to keep the accounts till finality. Hopefully, this will mean more space available in Government Department and only files with the assessee. Period of limitation has been effectively increased up to 6 years. Two stages of appeals have been provided with 10% mandatory deposit at each stage. Recovery provisions have been made so elaborate that they even lead to duplicity. Recovery can be made through lien, attachment, recovery from the successors, distrain of property and through Certificate Action of the Collector and even through the Magistrate by attachment of any moveable or immovable property of offender. Again, through a non-obstante clause in Section 57, tax dues have been made first charge in the property, even though similar laws exist for EPFO and banks etc.. This will lead to a situation of, interse, litigation between various departments of the government. A closed factory may be sealed by five different departments with each fighting as to who will have primacy under its own non-obstante clause. There are many such tedious provisions to make life difficult for assessee, it will be therefore, in the fitness of things that GST Draft is put to detailed scrutiny before it is notified. Any haste in this regard is bound to be counterproductive.

(By: Somesh Arora, Advocate, Amicus Rarus. Former Commissioner of Customs & Excise.)

Will the draft without redrafting be catastrophic?

By: Nikhilesh Verma

Team Amicus Rarus

One reading of the GST draft legislation makes it abundantly clear that whatever was conceptualised so well has been marred by the proposed legislation. With a view to incorporating every provisions, some of which are warranted also, relating to electronic verification ,inspection and scrutiny ,audit, special audit, search and seizures and arrest, prosecution for both cognizable and non cognizable offences, the drafting team has left no stone unturned to harass the assesses . All sorts of information returns have been sought to be incorporated apart from compliance rating of assesses without there being any attempt to do the same in relation to officers/offices. What has been dubbed as a tax reform of the century proceeds on the basis that it is always the assessees on the wrong and never the department or the tax collector. For the first time the burden of proof relating to eligibility of supply credit has also been shifted on the assessees. Furthermore, there are plenty of discrepancies in the draft which have been highlighted below:

A large number of the provisions of the draft bill are either borrowed from or are based upon the existing provisions of other tax legislations. The definitions clause of any enactment is an imperative part of the document which helps it stay away from interpretational ambiguities. The present draft incorporates tons of ambiguous and inconsistent definitions, which portrays callous and careless draftsmanship. The definitions of certain essential phrases are missing, for which, one may have to wait for the GST rules.

1. Definition of 'manufacture' is of no consequence in the scheme of things where supply is going to be taxed.

2. Definition of business vertical has been taken from accounting standard 17, which is not an established definition and keeps on changing .Moreover, reference to a particular edition of standards has not been made .Defining 'Business Unit' would have been better or the language itself could have been borrowed from the Accounting standards.

3. Capital goods as defined includes parts and components ,since all goods of chapter 82,84 ,85 and 90 have been mentioned, however inputs defined in clause 2(54) also includes goods other than capital goods. Does it mean that parts of machinery, electronic goods etc. sold will not be treated inputs?

4. Despite the recent Delhi High Court judgment, the term 'verify' has again been included in defining 'audit'.

5. Even selling of old assets by a business or professional has also been included in the definition of business.

6. In deemed exports the term ' convertible foreign exchange' has been used as against the normal nomenclature of using 'convertible foreign currency' in the banking industry. ‘Exchange' generally refers to the institution.

7. 'Exports' has been defined as ' taking out of India ', but, it has been left for the reader to decide that whether it means taking 'goods' out of India or something else. Same is the case with the term 'Imports'.

8. In 'Import of service’, while explanation 1 says that an establishment of a person in India and other outside India shall be treated an establishment of distinct persons. Sub clause 52D reads,'the supplier of service and recipient of service are not merely establishments of distinct persons'. Since, even in case of same person two establishments, one in India and the other outside India are to be treated as establishment of distinct person, it is not understood why the supplier of service and recipient of service are to be treated as importing and exporting service, if they are not merely establishments of a distinct person.

9. Under the new law, the taxable event would be the supply of goods and/ or services. Thus, ' supply' plays a crucial. However, point of supply offers some ambiguity by incorporating the word ' removed' , which could be interpreted as 'appropriation' or 'dispatch', thus inculcating interpretational discrepancies.

10. With respect to compounded levy, the turnover limit for a registered tax payer has been set at 50 lacs, which is way lower than the 2 crore limit set under the income tax act which makes this particular limit inconsistent with the already prevailing rules and regulations. Therefore what is being given by one arm of the government has been taken by another leaving the assessees still to maintain elaborate accounts for turnover of 50 lacs and above.

11. Small business (small traders; service providers, dealers, distributors and manufacturers) contribute richly to India's exports and accounts for a major chunk of the GDP and as much as 45% of job creations. The threshold limit to pay tax for a taxable person has been set at 5 lacs (aggregate turnover) in the north eastern states including Sikkim and 10 lacs for the rest of India .The threshold limit so proposed would certainly put a huge burden on the small businesses which certainly hints towards a big business favored policy .A historical backing to the above analysis also supports the fact that the GST is not the right system if the exemption threshold is kept low. The biggest contributing factor to this would be the rise in compliance costs for the small businesses. This would also mean that audit and enforcement costs would be significantly higher than before which may be decisive in determining what finally falls within the hands of the government as revenue. Tax evasion can become an increasing affair in the country because of increasing compliance costs.

As of now Jammu and Kashmir is covered under the draft as well , which is an attempt towards creating a border less market .Though GST would serve as a basis for Implementing the state GST enactments, they ought to follow uniformity while doing this, so as to facilitate a hassle free supply of goods.

No thought has been given as to how a small business located in far flung areas will be able to work in IT environment without subjecting him to high compliance costs. Shifting of burden of proof even for input credit on the assessees is another provision which is creating difficulty of business rather than ease of it.

Though GST as a concept is now a time tested and proven system of taxation, all provisions relating to every kind of a check other than physical control makes the draft legislation, one piece of law which distrusts assesses and is next only to the physical control in creating difficulties for the business. A complete revamp and relook of the provisions is, therefore, required before the law is notified.

GST:HOW VALID IS THE CRITICISM BY THE OPPOSITION

GST:HOW VALID IS THE CRITICISM BY THE OPPOSITION:

By Somesh Arora, Advocate, CCO Amicus Rarus and Former Commissioner of Customs and Central Excise

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The current year i.e. 2016 marks a decade of preparation of what was dubbed as the biggest tax reform announced in 2006 by the then U. P. A. Government. The Tax reform has become a captive to the number game in the centre and power grabbing attitude of the states. The destiny of this tax reform has been changing according to the ruling equations in Centre and State and the same is even now being used to extract some quid-pro-quo at the Centre level by a political party. The criticism now being leveled against the existing GST Draft Bill mainly includes that States should not have any power to levy any other taxes like ‘Entry Tax’, this in any case is not provided for in the Draft State Model GST Bill, 2016 and therefore should not be a matter of concern as the same is being subsumed even as per the concept paper. The point was being raised by States like Maharashtra who normally have different Governments in the State and Municipal levels and concern of the Municipal authorities was that they may not get their proper share of revenue in case the same has to be channelized through State Governments. But these concerns were duly addressed by assurance form the states during deliberations. Though, it is the fact that Congress had desired that there should be a cap of 18% through a Constitutional Provision, yet as the Finance Minister has pointed out no cap on the lower or higher cap has been provided for in the Draft State Model GST Bill, 2016 and the same has been done, according to an emerged consensus. This is so, because a guarantee has been given to the States by the Centre that there will be no loss of Revenue for them. Since, GST will be in formative stages of implementation and shall evolve later on, therefore, no government can risk itself committing to a particular rate only. As in that case, alternate revenue channels and levies will have to be looked for in short term, which will defeat the purpose of sub-assuming the purpose of other levies into GST and will make the reform counter productive. Another criticism of the GST is on account of making various offences non-bailable. It is a fact that tax authorities normally tend to use arrest provision for taking coercive measures during investigation. As has become known during the time when Apex Court declared that Customs and Excise offences are bailable, there was considerable reduction in voluntary deposits and arrest. It is however, a matter of perception that ever since these offences have been made non-bailable, the arrest for the same offences as well as so called voluntary deposits have gone up, this clearly shows that voluntary deposits are not voluntary but are coercive in nature to deny the assessees their right to litigate. Though GST Bill has sufficient settlement provisions, but still to make the reform worthy, it is necessary that same should also be carried out and there should be prescribed a requirement that all statements during Investigation can be recorded either before a camera or within the visible limits of an Advocate. This will ensure that voluntary statements are really voluntary and fears of assessees, and their fundamental rights are duly taken care of. Further, though there has been recently a pronouncement by the Bombay H.C. in the matter of cleartrip on the service tax side in Petition no. 1088/2016 dated 26.4.2016 that there cannot be arrest during pendency of investigation an, though H’ble Delhi H.C. is also seized of similar issue in Makemytrip case, still for non–cooperating during investigations whether such arrest can be done or not is still not clear from doubt and even the order of Bombay H.C. has still not become a final word till apex court decides the issue., which was again in relation to Finance Act,1994.

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The budget baddies

Bits and Bytes:

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

The Budget baddies: Since both the Revenue departments do not act in synch with each other, there always remain some points which make no sense despite the good intentions of either department. For example, earlier there was no audit requirement of accounts from Chartered Accountants for receipts upto Rs.25 lakhs in Income tax and Rs.40 lakhs in the service-tax side. A uniform limit was always emphasized by asking for raising limit on Income Tax side. This budget has made it 50 lakhs in Income Tax side this financial, but on Service tax it continues to be illogical 40 lakhs. Why not the same limit on both sides. Hope Finance Minister corrects before passing of the Bill. Similarly, what will happen to the professionals who are now allowed to have presumptive income tax upto Rs.2 crores. Will they need audit of their receipts above Rs.50 lakhs- still needs clarification? In fact, in case of Presumptive Income if there is no need for accounts, there cannot be need for audit. Again, while on Income tax it has been pronounced that person/officer delaying refund will have to pay personally. No such thing is there on the Customs, Excise and Service Tax. Is the ease of business confined only to the direct taxes and refunds on indirect tax side will continue to elude Tax Payers and Business? Further, if for professional there is presumptive tax of 50% of receipts, then what purpose will it serve if Service Providers will have to still maintain detailed accounts for Service tax purposes, which can be more cumbersome if CENVAT accounts too are required to be maintained. Government should therefore move for presumptive tax even on the Service tax side without waiting for GST. This can be done by asking service providers up to a particular limit say of Rs. 2 crores to pay 1/3^rd of applicable service tax without issuing CENVATABLE invoice.

Again, it appears that of late about 40 percent of the budget pertains to legal and procedural changes rather than to rate of taxes etc. Why then these cannot be brought in public domain for discussion and for elimination of likely errors rather than keeping them for secret budget parleys behind the closed doors of TRUs, which can be restricted to discussions on tariff changes. As it is only for these that rationale of secrecy exists. Hope this prudence which is highly called for prevails in the next budget.

The Hare and the tortoise: It is the story of the banks loan in the modern day banking system. The Hare with the big loans in his companies names flees fast by wings of air. The tortoise tilling the land and just managing to crawl, commits suicide over small amounts. The bankers use all power accumulated over decades through Securitisation Acts to whip the tortoise, while the Hare goes merry making, influencing, partying with all those organizing the race between the two. The social media was agog with how the Hare manipulated the system after system hopping to the success. After all, this was not the kind of race which we had read in our primary classes.

So much indulgence shown to the Hare. Tax authorities freezing and defreezing accounts not to recover Rs.300 crores of Kingfisher service tax dues, for which any ordinary tax payer will have been behind bars. Loans restructured at will till it was too late. Loans on value of Trade marks. After all the political appointments of Managing Directors of the banks is meant to serve some political interests. There are also class of politicians prepared to compromise for all the fun and frolic of few days which was on the offer on the flying wings. Ease of doing business was existing for few even in the past- demonstrated to the full. Where else in the world will such ease be available provided you do not move as a tortoise.

The Times of Corporatization: We all hailed liberalization till it meant more phones without VIP quota, 24 hours electricity, works in banks without queues, getting passports without dalals and school admission to our children without interviews which made us prepare more than our 12 standard exams. But now the ugly face- phones available in plenty but calls dropping leading to going back to landline phone and about 20 percent extra phone bill due to `why should I compensate and be accountable’ attitude of Service Provider. Our 60 percent calls are received from the people whom we do not know and who obstruct us at most crucial hours, when we are busy contributing to the GDP of the Nation. Even the wives at homes have got so fed up that if by mistake your girl friend rings, you may be given benefit of doubt of being busy with that unsolicited call from that loan or insurance or matrimony for your child Woman. Earlier it was difficult to get phone connection. Now, it is equally difficult to disconnect. You need to give five interviews for disconnection and by the time you paid the last bill the notice period will make the phone run further making it necessary to pay bill another time and from then onwards you will keep splitting your hair for the bills which will continue to come with interest raising your blood pressure, as complaint will be required to be made from the same connection of the company which you got disconnected. Private Banks now greet you not with customary wishes but with new Form of KYC and requirement of photos on every visit. Last time, the pick pocket who did the job on me must be cursing me for finding more of my aadhar type photos rather than money in the wallet. My photographer surely is happy when I tell him not to bother about my combing or dress or looks as the photo is required only for KYC and not my matrimony. Electricity earlier used to shock by coming and going frequently. In fact, in some of the states `aamed-e-bijli’ was as uncommon as ` aamed-e-mehboob’ with every one humming ` abhi na jao chor kar, ke dil abhi bara nahi”. But now it is different. Like when girl friend becomes the wife, electricity now shocks with the bills. Earlier there was que on every ration shop, Cinema talkies, hospital O.P.Ds, now it is there to reach all these in the Cars. Toll charging express ways often end up increasing the length of journey in terms of time. Comparing the situation now with the Public Enterprise days. One is compelled to have this song in heart: “Koi lauta de mere bite hue din”

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Article on GST

GST:HOW VALID IS THE CRITICISM BY THE OPPOSITION?:

By Somesh Arora, Advocate, CCO Amicus Rarus and Former Commissioner of Customs and Central Excise

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Domain war over works contracts in service tax and VAT.

THE DOMAIN WAR OVER WORKS AND CONSTRUCTION CONTRACTS- Do it proper, mandates Delhi High Court.

By:

Somesh Arora

The urge to have more and more tax avenues in the State and the Centre on the subjects within their respective subject list was obviously the reason which led to the Jurisdiction war between the Centre and the States. If one has to look into the genesis of the problem, initially in Dunkerley’s case, as reported in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., 1959 SCR 379., a Constitution Bench of the apex Court held that in a building contract which was one and entirely indivisible, there was no sale of goods and it was not within the competence of the State Provincial Legislature to impose a tax on the supply of materials used in such a contract, treating it as a sale. The above statement was founded on the premise that a works contract is a composite contract which is inseparable and indivisible, and which consists of several elements which include not only a transfer of property in goods but labour and service elements as well. Entry 48 of List II to the 7th Schedule to the Government of India Act, 1935 was under consideration before this Court in Gannon Dunkerley’s case. It was observed that the expression “sale of goods” in that entry has become “nomen juris” and therefore it has the same meaning as the said expression had in the Sale of Goods Act, 1930. In other words, the essential ingredients of a sale of goods, namely, that there has to be an agreement to sell movables for a price, and property must pass therein pursuant to such agreement, are both preconditions to the taxation power of the States under the said entry. The Court, after considering large number of judgments, ultimately came to the following conclusion :-

“To sum up, the expression “sale of goods” in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible — and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale.” (at page 425)

However, in relation to works contract, even before the Service Tax came into existence through levy on services by Finance Act, 1994, the States had started levying Sales Tax on the goods portion of a works contract on a notional basis seeking to levy on the value of goods portion, if available or on notional basis. The reason for this was 46^th Constitutional amendment. The Constitutional amendment so passed was the subject matter of a challenge in Builders’ Assn. of India v. Union of India, (1989) 2 SCC 645. This challenge was ultimately repelled and the Court stated :-

“… After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above.” (at para 36)

Since such a levy on goods portion was held to be constitutional and not ultravires to the powers of the State under the Constitution, the Centre also sought to levy tax on the service portion contained in the Works Contract. The same was also held to be within the power of the Centre. Therefore, we had situations where for the same Works contract the goods portion came to be subjected to tax under the Sales Tax/State VAT and Services portion under the Finance Act, 1994 on the basis on aspect theory. Further, what applied to works contract, ipso facto, was made applicable to Construction Contract and Services also. Same being nothing but a species of a Works Contract with a prominent difference that it also involved a transaction of transfer of property along with Construction Services, which was subjected to Stamp Duty on transfer as an immovable property by the State. Even in 2012 when Negative List was introduced, Composite Contracts were sought to be subjected to levy under the Finance Act, 1994. There can be three types of composite contracts (1) One those which involve more than one services and are to be subjected to levy according to dominant nature of the service (2) those which involved components of goods and services and were therefore composite in the sense that goods portion could be levied to tax only in the state domain while service portion could be subjected to Central levy under Finance Act, 1994 and (3) those which had component of sale of property along with construction component.

As the Central and State levies on the subject evolved, persons subjected to levy were given an option either to maintain separate accounts for goods portion and services portion or alternatively were subjected to a valuation of 1/3rd portion being generally considered as service portion by the Centre and 2/3rd portion normally notionally considered as being goods portion in a Works Contract. While there was no basis for such a division other than notional, it however by and large ensured that transaction was not subjected to arbitrary levy or double taxation.

On July, 2012, when the Negative List came in into existence in the Finance Act, 1994, the composite contracts which involved element of Construction Services and Immovable property came to be taxed in relation to construction contracts, though for immovable property component of the composite contract an abatement of 75% was provided by way of a Notification but not through mandate of Finance Act, 1994 or Rules made thereunder. As far as Service Tax Valuation Rules are concerned Rule 2A, though spelt out the mechanism for valuation of Works Contract relating to Goods and Services, did not do so in relation to specific construction contracts involving both sale of landed property as well as construction services. In Suresh Kumar Bansal & Others Vs. Union of India & Others – W. P. (C) No.2235/2011 and W. P. (C) No.2971/2011 (the judgment was delivered on 3^rd June, 2016), inter-alia, a challenge was made to the levy of construction contracts involving both sale of immovable property as well as construction services in a composite contract, Hon’ble Delhi High Court after going through various Constitutional Provisions as well as the latest decision of Hon’ble Supreme Court in the case of C. C. Ex. Vs. Larson & Toubro Ltd. reported in 2015 (39) STR 913 (S. C.) in which it held that Parliament can only tax service element and States can only tax transfer of property in goods . These two elements had to be completely segregated - If some element of transfer of property in goods remains when Service Tax is levied, it would be unconstitutional. The H`ble Delhi H.C. taking note of the position pronounced that a notification, circular or other instructions cannot meet the requirements regarding constitutionality as laid down by the apex court in L&T case (cited supra) and that the concept of ascertaining value must necessarily flow from the Charging Provision as well as the machinery provision of the Act. On the aforesaid basis, the H`ble Delhi H.C. upheld the challenge to levy of Service tax on construction services provided by a builder to flat buyers , as introduced in the Finance Act, 2010( and as continued even on introduction of negative list by Finance Act,2012) by insertion of Explanation to Section 65(105) (zzzh) of the Finance Act,1994 and struck down the provision.

(The author is Advocate and Chief Consultant (Amicus Rarus), Former Commissioner of Customs & Excise and a prolific author on tax and budgetary matters)

Budget 2016-17

Budget 2016-17

Budget with some difference.

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate. (Amicus Rarus)

The peculiarity about budget exercise is that opposition does not find anything right in it and Ruling party does not find anything wrong in it. The common man is always left confused as to whether at the end of the next fiscal he is going to be left with something in his pocket or be devoid of all. Exactly 100 years back on the leap Year of 1916, Sir William Meyer, Finance Minister had presented the Indian budget at the time of the World War, lauding India`s performance despite all the European belligerent countries doing bad. Our F.M. a century later is talking about India being heaven of stability in Global turmoil. It was then World War I, now it is war against recession. Deficit was a worry then, it is a worry now. Railway was the biggest infra project then, it still is. Income Tax exemption limit was Rs.5,000 then it is now Rs.2,50,000 despite all the inflation of 100 years, It should have been Rs.6,40,000/- but our successive Governments have found a novel way of removing poverty. Let all salaried become Income tax payers by keeping the exemption limit low. By the time of next Pay Commission all Government employees will be tax payees.

The figures of prosperity are generated by all Governments but the prosperity on ground keeps eluding. Economists seems to be doing their job well, helped by lawyers in convincing general public that there should be a feeling of déjà vu over improvement year after year. GDP keeps rising, by this example:

Experienced economist and not so experienced economist are walking down the road. They come across a pile of horse manure lying on the asphalt.

Experienced economist: "If you eat it I'll give you $20,000!"
Not so experienced economist runs his optimization problem and figures out he's better off eating it so he does and collects money.

Continuing along the same road they come across another pile of horse manure.
Not so experienced economist: "Now, if YOU eat this I’ll give YOU $20,000."
After evaluating the proposal experienced economist eats it and collects the money.

They go on. The not so experienced economist starts thinking: "Listen, we both have the same amount of money we had before, but we both ate horse manure. I don't see us being better off."

The experienced economist replies "Well, that's true, but you overlooked the fact that we've been just involved in $40,000 of trade."

When the exports do not rise deemed exports definition can be changed to show more exports with in the territory of India. If SSI numbers declines, Ministry can be kept afloat by including Medium and then Micro Enterprise in it. Nothing much seriously changes, Then how come this budget is different. I explain.

Never in a year when Pay Commission is to be implemented, Governments have got away by imposing additional tax burden of about 1 to 1.5% over the last Years tax collection projections. One may arguably say that Revenue base was strong due to Oil Pool Revenue. Then this year windfall on account of drop of prices of oil may not necessarily be available in the next year and additional taxes are projected in this year over last year`s projections in the budget since actual collections are not available till the end of March or even late. The F.M. was aware that in the wake of recession he has to increase public spend, for which he has worked on two pronged strategy- one to rely on Pay Commission and OROP spend for the salaried class to push consumption. Former being once in Ten Year phenomena and latter being once for ever. And for the rural poor and Infra spend, he has taken upon the Government to spend on gas, roads, canals etc. and on FDI for supporting Agro Industries. For the bigger entrepreneurs, he has made available greater avenues for nuclear power, oil exploration, power transmission, education and public transport and for start-ups there is plenty. For small business and professionals there is enormous reduction in compliance procedures and costs on anvil, by way of reduced litigation, justice at the door step and presumptive taxes upto Rs.2 crores without being need to maintain accounts. Only thing is that if professionals and small business do not have to do it under Income tax Act, they are still required to do it for the purposes of Service tax. Hopefully Finance Minster will address this issue. In the maze of compliance procedures that drives Indian business crazy, atleast an initiative has been taken to simplify law and procedures to allow the small business to breathe easy. The there is amnesty scheme for those who want to come out clean. For start ups government is taking upon itself the burden of Contributing 8.333 percent for three years. All in all some thing for every one to look forward to. Small tax payers get relief of Rs.3000/- for income upto Rs.5 lakhs to atleast cover them for the inflation in the last year and not to make them worse off. Overall a tight rope dance well performed by the F.M. At the end of year hopefully he will reap the benefit of high growth and that too in real terms without clutches of statistical jugglery.

Cheer Factors:

Income Tax: -GAAR deferred by one year.

- Penal provisions rationalized.

- Amnesty scheme on anvil.

- Corporate tax fine tuned with some reductions.

CUSTOMS:

Ø Basic Customs Duty (BCD) on Ethanol reduced from 5% to 2.5% (Pollution Free Vehicle on anvil).
Ø Basic Custom Duty on Silica /Sand reduced from 5% to 2.5% (Reduced margin for Sand Cartels and mafia involved)
Ø Basic Custom Duty on Coal, Lignite, Peat, Coke, Coal Gas and Tar being rationalized from 2% to 5%.- (Avoidance of Coal Scam III likely)
Ø Basic Custom Duty on wood in Chips or particles for manufacture of Paper Board and newsprint is being reduced from 5% to NIL subject to actual user condition (At least the print media should now write positive things about the government of the day.)
Ø Custom Duty on Pulp of Wood for manufacturing of sanitary Towels, napkins, Diapers is being reduced from 5% to 2.5% (Not only keep the Bharat Swachh but also the Bharatwasis.)
Ø Custom Duty on Braille Paper is being reduced from 10% to NIL (Why the hell was some one taxing it at the first stage?)
Ø Custom duty to be exempted on specified fabrics up to the value equivalent to 1% of FOB value of export in the preceding Financial Year (Garment exporter are the best Bet to push up exports in adversity, if duly incentivized)
Ø Duty on specified fibres, Filament Yarns is being reduced from 5% to 2.5%.
Ø Custom Duty being withdrawn on Solar Tampered Glasses for use in Solar Cells.
Ø Custom Duty on Brass Scrap being reduced while on primary aluminium products being raised.
Ø No SAD on machinery, electrical appliances and other instruments of Chapter 84, 85 and 90 subject to actual user condition.
Ø Custom and Excise duty being exempted on parts components etc. for use and manufacture of Routers, Broad band, Modems, Set Top Boxes, No SAD on these items also.
Ø Basic Custom Duty on refrigerated containers being reduced from 10% to 5%, (Expect more frozen fruits, vegetables and meat.)
Ø Basic Custom Duty on Golf Cars being increased from 10% to 60% (Maare Gaye Saare Golfing Baboos)
Ø Custom Duty on Toolkits for ‘Maintenance of Aircrafts’ is being exempted (Kingfisher Aircrafts can at least be back on Tarmac)
Ø New Class of Warehouses which requires physical control of stored goods being created.
Ø New Baggage Rules, 2016 being formulated to simplify Baggage Rules.
Ø Interest Rate on Custom Duty being rationalized on 15%, Custom declaration can be made only by persons carrying dutiable or prohibited goods.

CENTRAL EXCISE:

Ø Basic Excise Duty is being increased on Pan Masala from 16% to 19%, in Compounded Levy Scheme duties are also modified. Slab Rates to be continued on Pan Masala Gutkha etc. Same for Chewing Tobacco ( How Pan Masala still sells at Rupees 2/- in the market is the mystery)

Ø Water including Mineral Water and Aerated Water containing added sugar being raised from 18% to 21% (Cheers for Diabetic like me)
Ø Additional Duty of Excise on Cigarettes being substantially raised even Basic Excise Duty on other tobacco products being raised.
Ø Paper rolled Bidis to attract hike in tariff rate of duty from Rs.30/- to Rs.80/- per thousand. Effective rate continues to be same.( Sword can hang till elections are not won)
Ø Basic Excise Duty increased on un-manufactured tobacco.
Ø Duty on micronutrients used for fertilizer being reduced from 12.5% to 6%
Ø MRP based assessment being extended.
Ø Ready Mix Concrete manufactured at the site of construction being fully exempted.
Ø Basic Excise Duty on Rubber Sheets for Soles and Heels being reduced from 12.5% to 6%.
Ø Oil Cess on domestically produced crude oil being reduced.
Ø Number of Returns to be filed by Central Excise Assessee being reduced from 27 to 13, also facility being provided to file revised returns.
Ø Chief Commissioner to withdraw prosecution cases having less than Rs.5 lakhs of duty and pending for more than 15 years. (preventing litigation with the dead.)

Service Tax:

Ø Higher rate of interest to apply only to person who collects tax and does not pay.
Ø Monetary limit for filing prosecution complaints being raised to Rs.2 Crores, similarly arrest to be restricted only to cases where Rs.2 Crore and above were collected and not paid.
Ø Software Programmes subjected to RSP based excise duty to be exempted from Service Tax
Ø Service by E. P. F. O. to its employees are being exempted
Ø Interest Rates rationalized to make them 15% for all Indirect Taxes, except when duty collected but not paid, where same shall be @24%. For small asessees with less than Rs.60 Lakhs taxable services value, the interest will be 12%.
Ø Pay duty, interest and 25% penalty and get immunity from prosecution.

Tear Factors:

Income-Tax:

-E. E. T. (Exempt Exempt Tax being introduced shortly for all PF and Pension Schemes. This may cause heart burning to savers.

- No raising of exemption limit even t compensate for inflation.

Customs:

Ø Basic Custom Duty on Cashew nuts in shells increased from NIL to 5% (Eat less Calories)
Ø Custom Duty on Plans, Drawings and Designs no more exempted and now attract 10% (Litigation to be back and such papers now to come in baggage)
Ø Basic Custom Duty on Natural latex Rubber made balloons is increased from 10% to 20% (Do we still have some ballon Industry left in India?)
Ø Custom Duty on imitation jewellery being raised from 10% to 15% (Look beautiful with Indian Ethnic Jewellery, Desi Girls)
Ø CVD on Silver and Gold Dore bar being raised.
Ø Exemption from SAD is being withdrawn on PCBs for manufacture of personal computer including Tablet Computer.

CENTRAL EXCISE:

Ø Articles of Jewellery to be subjected to 1% duty without CENVAT Credit and 12.5% with CENVAT Credit of duty, However SSI Exemption Limit of Rs.6 Crore being provided.
Excise duty of 2% without CENVAT Credit to be levied on Ready made Garments of RSP of Rs.1,000/- and above and branded, with CENVAT Credit duty will be 12.5%. Tariff Value of Readymade Garments also being fixed. (Garment manufacturer Association will have some work for next six months-sufficient scope for litigation too.)For SSI Exemption only Tariff Value will be reckoned.
Ø Basic Excise Duty on aviation fuel being raised
Ø Clean Energy Cess on Coal, lignite and Peat raised
Ø Duty on Gold Bars and Gold Coins being increased from 9% to 12.5% (Cheer Factor for Smugglers)
Ø Excise Duty of 4% without CENVAT on Router, Broad band and Set Top Boxes etc.
Ø Section 11A of the Central Excise Act and Section 28 of Customs Act, 1962 being amended to increase period of limitation from 1 year to 2 years for cases not involving fraud/suppression etc. (Both for Customs and Central Excise)
Ø Infrastructure Cess being levied on Motor Vehocle other than Green Vehicles.

SERVICE TAX: -Increase of .5% w.e.f 01.06.2016 by way of “Krishi Kalyan Cess” on any or all taxable services.( Why they write `any or all’, when it has to be `all.’)

Ø Service of transportation of passenger by a stage carriage in the Negative List being omitted w.e.f. 01.06.2016. However, transportation by non A. C. carriage will continue to be exempted.
Ø Limitation for Show Cause Notice not involving fraud etc. being enhanced to 30 months in Section 73.
Ø Service provided by a Senior Advocate to an Advocate of a partnership firm of Advocates not to be exempted. However, reverse charge for legal services provided by other than Senior Advocate continue to be exempted.( Some cost for being senior)

Fear Factors:

Customs:

Ø Export Duty on Iron Ore Lumps and Iron Ore Fines, Chromium Ore on concentrates, Bauxite (Natural) being substantially reduced. (Export augmentation at the cost of value addition compromised)
Ø Too much usage of actual user condition may not bring litigation and corruption.

Excise.

- Too much duty on Cigarettes, Gutkha etc. likely to bring about illicit production.

- Increasing period of normal limitation for issuing SCN of cases where there is no suppression will make Audit lethargic despite creating so many commissionerates.

Service tax:

- Substantial increase in normal period demand for cases without fraud will encourage inefficiency in litigation and audit.

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MY FIRST ADJUDICATION

My first adjudication in the Department

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise.

One of the hot topics for discussion in tax circles is proper adjudication and debates now a days are held at various social sites to which departmental officers, in their unofficial capacity also subscribe, regarding what ails it. The points that are put up for defense of the departmental stand range from the training of the officers who adjudicate to the approach of vigilance and how, many have suffered in the past. There is element of truth in each of these points which have together crystallized in to present approach towards departmental adjudication. On the point of training, I can only confirm that most of us during our training period in 1986-87 received only one adage as an approach to Adjudication. And that was “Reject all refunds and accept all demands”. In 1987, I remember when Shri Ascharj Lal, our Assistant Director (Training) took us for a round of Central Excise office, just before a room he asked us all to stop and read loud what was written on the Board of the Room. Finding no difficulty, we in a chorus spoke out loud “Adjudication Branch”. Shri Ascharj Lal, a fine and experienced gentleman immediately corrected us. “No, read it as Confirm all demands and reject all refunds Section. And this is, if you do not want any vigilance case against you, in future to retire peacefully”.

Not to ignore the advice of our Learned Guru, most of us decided to hold steadfast to it for all times to come.

Once, posted in field as Assistant Commissioner (Prev.) Amritsar, I found that there was hardly any chance for me to adjudicate for almost a year. Then suddenly one fine day I received a phone call from my Hqrs. At Chandigarh at about 10 O’ Clock that I was being given additional charge of Assistant Commissioner, Central Excise, Pathankot with specific emphasis being laid by Shri Sunil Kumar, Dy. Commissioner (Hqrs.) who was at the other end of line that there was a provisional assessment pending and getting reflected in the pendency for more than three years and that Board had taken cognizance of the same. But despite repeated instructions, A. C., Pathankot had not finalized them. That the provisional assessments pertained to Dhariwal Cloth Mills, in District Gurdaspur. I was directed to go on that day only, finish up the job and report back.

Punjab in those days was in the grip of extreme terrorism and AC (P) being in-charge of Anti Smuggling operations was fairly well equipped with Bullet proof Gypsies and Self loading Rifles etc. Backed by my training and unflinching obedience to the seniors at that time, I chalked out my strategy to accomplish the Mission Adjudication. I took 4-5 Sepoys with one typing knowing Inspector and got into the Gypsy and straight drove to the Dhariwal Mills in Tehsil Dhariwal. On the way I was told that Dhariwal Mills was one of the oldest textile mills in Punjab and was set up as a Public Sector Undertaking during World War-II to Support the British War requirements of Tarpaulin Cloth for Tents etc. Once inside the gates of the mill, I without alighting from the vehicle and like a Gabbar in the Ram Nagar Area, asked the factory staff, who came close to my vehicle, fearing it to be like a war tank, in their factory in those turbulent times, for the persons dealing with Central Excise.

After a minute or two a lanky Sardar came on the scene and introduced himself to be the Excise manager and authorized signatory of the Dhariwal Mills. Refusing his request for a cup of tea for me and my officers, I asked him to board the vehicle and took him in the middle by asking two Sepoys to settle at the end. I told him not to fear anything and that the purpose of my visit shall be explained to him during our drive to Pathankot Central Excise. On the way he was told that it was all about adjudication of the case relating to provisional assessment and if he cooperated both of us will be back to our respective homes by evening and that any delay on his part will only require him to stay put in our Pathankot office in my august company. A wireless message was also flashed to Pathankot Divisional Office about our arrival and also for keeping the relevant file ready with Show Cause Notice. An hour later we arrived in Pathankot. After calling for the file, the submissions of the party were allowed to be made by the Manager after handing him over the Show Cause Notice. His protest that his General Manager (Indirect Taxes) may at least be allowed to be talked to, was met with the response, “Is my Adjudication Order going to be different, if your General Manager makes the submissions?” “Sir, the natural justice”. He pleaded. “It will all be done now, since we both want to be back to our families, before the terrorists start coming out for their evening stroll” I replied. After that I had no difficulty in doing spot adjudication which involved issuing of Show Cause Notice, getting written reply, conducting oral hearing and passing Adjudication Order, all by late afternoon. After this, the Manager of the Mills was lovingly dropped back to the Mills with a copy of the order and our party returned back to Preventive Amritsar. About 10 minutes later on reaching my office, Shri Sunil Kumar D. C. rang me up and asked me why I had not left Amritsar. I told him that I had already informed him telegraphically, but just to restate adjudication has been completed as was desired by him and I am back. He was virtually in a state of shock and asked me as to how I could do it and returned back to the barracks all within matter of hours. I said your direction was to do it within a day and I complied. Asked for the details, I divulged him as to how the Central Excise Adjudication was done in Customs (Prev.) style. He had a hearty laugh and told me that this kind of obedience he could not have expected even in his wildest dreams. The Commissioner when informed was also shocked and delighted. This in short was my first adjudication.

Years later, now when I hold briefs from both sides and find a systematic pressure to change attitude of adjudicators who end up confirming more than 90% Show Cause Notices and rejecting equal proportion of refunds. I empathize with the clients but also understand the predicament of adjudicators, who are mostly trained differently. If in reality, CBEC wants to make a difference, then earnest efforts must be made to inculcate change during training. Otherwise, like me the change of heart may happen post retirement only, when there will be no adjudication to do in hand.

BUDGET SUGGESTIONS: 2016-2017

Ease of doing business:

In tax related offences, allow presence of Advocate with in visible distance or video filming for all statements to be recorded voluntarily during investigation by amending law. If premier organizations engaged in enforcement actually do not violate fundamental rights of tax payer, then they should not resist the proposal.

In service tax no audit is required for professional or service related receipts up to Rs.40 Lakhs, whereas, in Income Tax in such cases, limit for audit by Chartered Accountants is Rs.25 Lakhs. Both should be kept at the uniform level of Rs.40 Lakhs to make it a purposeful benefit for tax payer.

Option for Service Tax payee to pay 1/3^rd of Service Tax on total receipts without keeping accounts other than receipts and without claiming any CENVAT. No audit or Quarterly Return for such assessees up to Rs.60 lakhs of receipts. Such notional tax to be deposited once in a year and such assessees debarred from issuing Cenvatable Invoices. However, those who want to claim CENVAT will continue to have elaborate accounts and pay normal rate.

Since the interest rate of 18 percent to 30 percent is being charged for service tax violations, which in itself is penal. Dispense with penalty for offences other than collecting tax but not paying.

Reduce litigation by empowering Chief Commissioners to condone procedural lapse if underlying transactions are correct and there is no substantive violations by recovering the fixed costs of verifying the transaction.

Creating Tax Interest Suspense Account with the Government. Till the complex Tax laws are simplified, there is always a scope for difference in interpretation and even Big Tax Advisory Firms have been seen to be faltering in Indian experience. Allow every person desirous to keep an ‘Interest Suspense Account’ with the Government in which money deposited can earn nominal interest of 3 to 4% in case it remains unutilized and which can be utilised by assessee to protect themselves for any future interest and penal liability for taxes to the extent they are covered by the deposit. Government can utilise such deposits only for Infra needs.

Since Foreign Insurance Companies have not evinced any interest in providing insurance against penal liabilities due to vagaries of taxes in India. Government Insurance Companies can be utilised for the purpose. That way either the tax department will win and Insurance Company (a Public Enterprise) will loose, but business will be protected against giant penal liabilities in cases involving interpretation of law, atleast.
Culprit Payant Principle -for tobacco and other health harming products. Impose Health Cess to be used exclusively for setting up hospitals and health care centers as part of Excise duty and Customs duty.
Health Cess to be introduced for creation of Premier hospitals and medical colleges by levying such Cess on Gutkha, Pan Masala, Chewing Tobacco etc. Compounded levy on Pan Masala/Chewing Tobacco etc. be simplified by reducing the same to single slab at the highest rate and Health Cess to be worked at 5% of the highest slab.

Other Proposals:

Custom Duty on Gold be reduced to prevent rampant smuggling being seen at the airports before smuggling syndicates re-group at the costal areas/borders and which can eventually become a security menace. Lower Custom Duty will also provide stable tax regime to popularize Gold Bonds to be issued in future.

Export Baggage Rules be codified, as Pax is not supposed to know what all is prohibited for exports under various laws, R. B. I. regulations etc.

MAT be done away with in relation to E. O. U./S. E. Z. Situation may be revisited once recessionary trends in exports disappear in the global markets.

No new taxes be imposed in view of global recession. Situation can be revisited if so required during the course of the year. Such proposal will also provide leverage for any fluctuation in oil pool prices in the current fiscal.

Consequent upon abolition of Wealth Tax, all assessments, re-opening of assessments proceedings of Wealth Tax to be completed in next two years through a sunset clause to eliminate future litigation and enable staff to be utilised for other purposes.

In Prevention of Money Laundering Act, provisions to be made for release of property on payment of the part of tainted money, if contained in any attached property. For all incomes and rents from attached properties if being deposited with Enforcement Directorate for the time being, there shall not be any service tax or income tax liability on the accused. However, if attachment is lifted without confiscation, and incomes and rents are returned by the Enforcement Directorate, the accused in the relevant financial year shall be liable for all taxes without interest and penalty on the basis of total receipt in that fiscal.

For Custom offences, if matter is settled by the Settlement Commission, proceedings if any, under Prevention of Money Laundering Act shall automatically abate.

In Prevention of Money Laundering Act, initiation of proceedings without filing of charge-sheet to be done only in exceptional cases and with approval of a committee consisting of Enforcement Director, Revenue Secretary and D. G. (EIB) to prevent abuse of existing provision.

For all adjudication of cases above 20 crores including of D. G. C. E. I. and D. R. I., D. G. I., a two member Adjudicating Authority to be constituted with one person duly qualified to be from business or tax payer community in Excise, Service Tax, Customs and Income Tax matters.

As a measure for promoting small family, a tax rebate of Rs.10,000/- to be given to either spouse not having more than two children on attainment of age of 50 of the wife or youngest wife. Likewise, all subsidies to be withdrawn for any husband and wife/wives having more than three children. Census Commissioner to be made permanent office for certifying the family members.

Expansion of ATA Carnet System in India for Import of Goods for Research &Development Purposes

What is an ATA Carnet?- The acronym ‘ATA’ is a combination of initial letters of French Words admissionFrench words "Admission Temporaire" and the English words "Temporary Admission". Like any other carnet system which deals with temporary movement of goods, cargo or motor vehicles across different Custom Frontiers( `Triptyque’) under different conventions, the system of ATA also allows free movement of goods across various Customs Jurisdictions on a temporary basis and which are not meant for consumption, under exemption from payment of regular custom duties on the strength of a ‘ATA Carnet Document’ which is backed by and provides security to Custom Authorities by an international guarantee system, for violation of any conditions of exemption notifications which are put in force by the member countries based on a Multilateral Convention and treaty. The System of internationally valid security has been established through the National Associations which are approved to issue the ATA Carnets. These National Associations are in turn approved by the Customs Department of the countries and are also affiliated to an International Guarantee chain administered by the ICC World Chambers Federation(ICC/WCF).

The ATA system is an integral part of the World Custom Organization ATA and Istanbul Conventions. The Istanbul Convention was adopted in 1990 sub-assuming in itself 13 existing ad-hoc admission agreements and that formed the basis of ATA Convention.

Advantages of the ATA system:

Ø Mutual benefits to all State parties and its nationals. The ATA carnet system (ATA Convention and Istanbul Convention) is beneficial to all parties, traders and travelers as well as Customs, as it facilitates trade and its quantum and reduces dwell time in importation and exportation, makes paper work less cumbersome for trader as well as Custom Authorities, eliminates the requirement of multi point checks and requirement of guarantees.

Ø Any duties and taxes that may become due are guaranteed merely by the presentation of the carnet and its acceptance by Customs offices. There is, therefore, no need to furnish a cash deposit or other forms of security.

Ø For the period of validity of the ATA carnet (normally one year), the goods can be temporarily imported under the same carnet in the Customs territories of as many Contracting Parties, and as often, as the carnet holder wishes.

Ø The seals affixed or the identification of the goods by a Customs office can be recognized by the Customs offices of other Contracting Parties where the goods subsequently pass. This facilitates Customs controls and saves the carnet holder time when the goods crossfrontiers.

ATA Convention:- The Indian Experiment:

India is signatory to ATA Convention. In China, India and the UAE, the use of Carnets is at present limited to fairs and exhibitions

Ø Each country in the system has a single guaranteeing body approved by the national customs authorities and the ICC World Chambers Federation (Until June 2001, the International Bureau of Chambers of Commerce). The WCF is sponsored by the International Chamber of Commerce (ICC) in Paris.

Ø In India, Federation of Indian Chambers of Commerce and Industry (FICCI), is appointed as National Guaranteeing & Issuing Association for ATA Carnets.

Ø The national guaranteeing association is entitled to issue Carnets and to authorize local chambers on the national territory to deliver them on its behalf. In major trading nations, dozens of local chambers have that authority.

Who can use ATA Carnet?

The ATA Carnet service is available to business and sales executives, exhibitors at trade fairs and traveling professionals, such as film crews, architects, artists, engineers, entertainers, photographers, sports teams and event management companies, individuals on the move - all can benefit. Sales representatives with valuable samples and people with professional equipment are the largest users.

Items excluded / not allowed under ATA Carnet:

Ø Perishable goods and items such as paint, cleaning materials, food, oils, leaflets and brochures, which are considered as "consumable items" and intended to be given away, disposed of, or utilized abroad as they would not ordinarily be re-exported.

Ø Items already sold or offered for sale. Such items are not considered samples.

Ø Un-mounted gems or gemstones; theatrical make-up, etc.

Ø Alcoholic beverages, tobacco and fuels, etc.

Ø Goods intended for processing or repair.

Ø Postal Traffic.

Ø In Indian context, at present use is only limited for goods meant for exhibitions and fairs.

How ATA Carnet can substantially augment Research & Development activity in India and also for Indian Researchers?

In Indian Context now the next challenge is to expand the system to cover samples and goods for other than exhibition purposes. At present goods meant for research and development are out of the purview of exemption in India, but Government has an open minded approach to re-visit the treaty, if so required.

· To the extent the goods are identifiable at the point of entry and exit in any customs domain and are not likely to be consumed in the country of exports and are likely to return within a maximum period of 1 year, the same can be brought and taken out under ATA Carnet. Recently, 74 countries which are signatory to ATA Carnet conference and who allow such carnets to be entertained by the customs. Total of 1,75,000 carnets covering 25 billion US dollars are currently being issued worldwide. India, UAE and China have largely permitted the use of carnets for fairs and exhibitions. India permits benefit to such carnets under Notification number 157/1990-Customs, Dated March 28, 1990. Samples are permitted by most countries as they spur research actitivties.

· The goods which are allowed for display or demonstration at present include foreign products for the purpose of demonstrating machinery or apparatus to be displayed and also equipment, apparatus and films of scientific character intended for meetings and conferences.

· It is to be noted that even at present , goods which may be the outcome of Research and Development activities worldwide can be brought in with the purpose of demonstrating reverse engineering, for commercial exploitation of various patented goods and registered designs, for the purposes of trade, exhibitions, fairs or similar shows and display. This can however at the most facilitate commercial exploitation of Intellectual property and not its development in India.

· India is also presently contemplating to enter into ATA Carnet treaty and to expand its scope to cover samples and goods for others and exhibition purposes like further Research and development.

· Another significant point is that under the ATA carnet dispensation, while the samples from other countries cannot be brought in India at present, there is no constraint for Indian Researchers and developers to carry their products to such signatory countries which allow ATA carnet for such purpose.

· For the global research and development community, ATA Carnet provides tremendous ease of business and saves its time in commercial exploitation of patents, designs, circuit layouts or other copyrighted products and it and enables process and product developments products through reverse engineering of technologically advanced products.

It can facilitate stem cell research or Pharma lab research by moving equipments temporarily to the job work site of development, if so desired by the contracting parties.

Bits and Bytes-Revenue Transparency Times- September Issue.

Bits and Bytes-Revenue Transparency Times- September Issue.
By: Somesh Arora, Advocate and Former Commissioner of Customs & Excise.
Seven Years of the RTT- Congrats for the feat accomplished. For many it may be a small achievement, but there is a different perspective to it. For a fearless journalism that does not draw upon the support of clutches of Corporate or Government funding by way of advertisement and is not aligned to any political , religious or any other group and impartially exposes the truth, survival is normally difficult. The urge for longevity can lead to compromises or a big hole in the pocket of the person owning the paper. To continue against all odds is sure a courageous effort for which Sh. A.K. Banerjee deserves the kudos. My humble association with the paper is almost of the same duration. Two conditions that I had put up for writing for the paper were that firstly, it will not edit the pieces of authorship to suit any corporate or other interest and secondly, the paper will at least reach to the people who matter in the policy making. Till date I have not got any reasons to complain. I am not sure as to how long will Mr. A.K. Banerjee be able to, single handedly, continue his efforts. For his news paper has no revenue model to sustain itself. It is only the drive of the editor helped by his friends which has kept him going. We wish he continues his effort in some form or the other, because he has over the years achieved considerably by striking fear in many hearts where it was needed. He has given early warnings to many to undertake timely correction and has voiced concerns of the people who suffered in the hands of the corrupt. The newspaper has remained ahead in its thinking in seeking correction and reforms of procedure and Policy makers in the higher echelons of power have benefitted through its feedback in taking corrective administrative action, whenever they did not want to close their eyes. It amazes one`s imagination as to how over the years this small newspapers has exposed the biggest of the corporate and other scandals which even the so called big newspaper do only selectively, safeguarding their own business interests first. Where and when it ends does not matter till the survival has been qualitatively excellent.
Action oriented Acting Chairman for too long- While the CBEC has got all the Chairs of the members finally occupied, the Chairman continues with his status of being acting for too long. Mr. Najib Shah whom many who know him acknowledge as an officer of integrity and acumen must be wondering about the suspense. Prior to this, same fate was met by Mr. Majumder who became regular after two or three months. While it cannot be denied that present Government has found him capable and competent to hold charges of DGRI, DGCEI and even Acting Chairman all simultaneously, but the adhocism about his post deserves to be ended up at the earliest. If the oft heard reason about panel of three names not being available is be believed then it is equally learnt that no one else who was eligible had applied. But then whatever be the reason such procedural rules cannot be a constraint in the way of allowing the Customs and Excise Service to have a competent officer at the helm with full authority. Uncertainty in bureaucracy generates all sorts of rumor mongering, which though may not affect an officer of the caliber of Mr. Shah, is still not desirable in the interest of administration. Hope Finance Minister will correct the situation.
Tax terrorism- When do people start fearing taxes?
Chanakya in his Niti Shastra propounded the oft sounded by our various Finance Ministers- Principles of Tax Collection. He counseled not to make taxation a painful process for people. While deciding the tax structure, one should be lenient and cautious. Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive. Taxes should be collected in small and not in large proportions. The norm of taxes during the time of Tiru-valluvar was a sixth, from out of produce or income, apart from claim of state to ownerless properties, transit duties on import and on internal traffic, apart from gains of war. Not only taxes have to be levied properly but have to be collected with a compassion. There may be some justification in considering a certain higher level of tax compared to those days, as Moderate Tax Regime in current scenario of welfare state. But the balance has to be struck to ensure that it allows the entrepreneurship to flourish rather than getting demoralised. Further while following tax structure of developed countries and their enforcement legislations, do our F.M.s keep in mind as to what are people getting in return compared to citizens of such countries in terms of social security and medical benefits. Even the tax payers in most cases end up having no retirement pension from the State after contributing their bit to the taxes. Even during the Imperial Indian period the taxes were estimate driven from the ground level with tax collectors allowed to make their estimates of likely revenue, based on the ground realities and budget expenditure being based on the aggregate of collection. The collectors enjoyed powers to waive off lagan in cases of any natural calamity to allow the taxation to serve the cannon of social justice. All that changed with expenditure side assuming significance and political populism holding the fray. The job of tax collectors became increasingly difficult as they were called upon to collect taxes which were based on expenditure needs. Even that could not have been faulted, if the expenditure would not have led to frittering away of the national tax and other resources. But spending in the last three or four decades has remained highly indisciplined and whimsical, both at the Centre and State level leading even to the admission by Mr. Rajiv Gandhi that only 10 percent of the programmed expenditure actually went for the projected plans and rest got eaten by corruption or high costs or delays. However this will continue irrespective of regimes at the helm, till focus is only on levy of taxes and its collection and no or little accountability exists on the expenditure side. There is limit to which you can tax your own people and some where the focus should shift on expenditure accountability. Simply seeing files and doing audits of vouchers of expenditure may not suffice. Transparency at each stage of expenditure and implementation of projects is required to ensure that more than 15-20 paisa in a rupee actually goes for the purpose for which it was meant. And one should realize that the biggest wastage of national resources happens due to unfinished projects which because of builder- political nexus never get completed in time. A road like that of KMP Express way, which was supposed to be finished in 2009 has till date not been completed. Imagine the wastage of national resources ( of taxes and interest loss) which have gone in acquisition of land for the project and which could not be put to alternate opportunities. And then the cost of lost agriculture produce due to land which could have been tilled for some more years and then add to it cost of delays which will have to be incurred to complete the project. One can easily estimate that nation on account of indisciplined expenditure management suffers of loss of Rs. 4 to 5 lakh crores per year in terms of GDP. While on the tax collection side there are many legislations which put penal provisions of duty, interest, penalty and arrest above 50 lakhs of evasion and even pre-investigative stage arrest. While on one side, the interest in paying the duty in time can be as high as 30%, on the other, a developer can simply get away by taking shelter of some force-majure clause. There is definitely a change in thinking required. This is what creates a difference in position of India vis-a vis China in the eventual count when it comes to speedy growth. A more stringent regulatory mechanism with greater emphasis on the expenditure side is required to be put in place so that scams like fodder scams, coal scams,2-G, CWG scams do not happen. The concerns about tax terrorism are not only required to be voiced but need to be addressed. Government needs to show some resolve on the expenditure management before asking people to shell out extra. We have seen some FMs quoting such high sounding principles of Chanakya in budget speeches but later on bringing such stringency in collection system even during the time of recession that the mismatch in words and action became too obvious. Tax payers cannot be subjected indefinitely to back breaking burdens. We cannot in the name of reform bring more and more taxes or increase quantum of it while remaining oblivious to the expenditure side. The flower cannot be allowed to be crumpled under the ruthless feet of levies and collection. Time is fast approaching to heed the warnings of having discipline in spending. Will this Government listen and react?

Bits and Bytes :AUGUST 2015

Bits and Bytes:

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

CBEC enters web cast era: Congrats to CBEC for entering in to the Live webcast era on 24^thAugust ,2015 at the time of Conference of Chief Commissioners, DGs and Acting Principal Commissioners of Customs, Excise and Service Tax in Delhi. The initiative is laudable and all those who conceived and implemented it deserve to be complimented for the effort. It was thrilling for all officers as well as members of public to hear F.M. live after his budget speech this year bringing out all the nuances relating to GST and assuring that reform was very much on the express road map of the Government. One hopes that such live telecasts become trend of Governance in future and eventually technology and bureaucracy will make it possible to hold all the meetings and conferences possible live from various locations, thereby making all these expensive meetings and disruption in the Government a matter of the past. Because every austere tax collector knows that money saved is also money collected. It will also save mortal souls like me from being caught on camera while sleeping, during such meetings and make some contribution in controlling budgetary deficit.

Can the Prevention of Money Laundering Tribunal actually decide without a regular/appointed Chairman and third member?

Since July 10^th ,2015 after the retirement of Justice Anil kumar, Former Chairperson of the above tribunal, there has been no appointment of a regular Chairperson. Now Section 27 of the PMLA,2002 prescribes the composition of the Tribunal which is entitled to hear appeals against the orders the Adjudicating Authority as One Chairperson and two other members. Again, the provisio allows the Chairperson to constitute benches which can be of one or two members. Obviously, this bench creation has to be done and ordered before the retirement of such Chairperson and in case it is not done then the alternate available is for the Central Government to designate the senior most Member to act as Chairperson. However, if there is delay in any such appointment or Bench is not constituted by the outgoing Chairperson, it is doubtful if the two members of their own can act as a Bench and decide matters as the decisions may be challenged for want of jurisdiction or improper constitution by either side. In case of option being exercised by the Central Government there may still be a requirement for a third member. One really hopes that Members of the PMLA Tribunal are not facing this predicament currently in this era of transparency and activism of right to information.

ICD,TKD in lime light:As was expected ICD, TKD has been in the lime light albeit for the wrong reasons. Considering the importance that this ICD has for the region and being the largest dry port in India, as also the trends of smuggling from this gateway one really hopes that CBEC and DRI put greater focus on this port and create some sort of a regional office of DRI at the premises only like they have done in case of Nhava Sheva port. For that will at least ensure immediate check and balances by at least two agencies. Present set up in the Ministry is most conducive for initiating such reform agenda including linking up with other Countries for having their import-export data on mutual sharing basis to detect over and under valuation which is fast becoming rampant. Otherwise the frequency of seizure cases at this port is unusually high and can lead to bigger systemic failures in future. A stitch in time, actually saves nine. The demand for posting at any level for a position at this ICD would have in any case alarmed the serious thinking CBEC members about the state of affairs.

Cost policy for the departmental officers may be the need of the hour: As if the strictures recently for not taking up matter for adjudication for 18 years were not enough. The departmental authorities have been called upon to identify and pay and recover an amount of Rs. 1,00,000 as exemplary damages for delaying a refund. Going by the state of affairs, in future, departmental officers will not only be sharing rewards for detection but , but will be asked to share exemplary costs in proportion to delay, as stick form the courts. Therefore, a policy- requiring a sheet of role played by each officer in case of delay may have to be prescribed. For what cannot be cured must be endured. The relevant matter has a citation of 2015 (8) TMI 676 - MADRAS HIGH COURT in the matter of MGM International Exports Versus The Commissioner of Customs, The Assistant Commissioner of Customs decided recently on 22 June 2015.The matter pertained to finalization of 63 assessment which court had directed to in 2009 and for which even assessee had reminded a number of times. Court while agreeing that delay was unwarranted observed that it was clear that petitioner was made to fight long battle resulting in physical and mental harassment apart from financial implications. Therefore, exemplary costs were imposed upon respondent-department for wasting precious time of the Court. While of late in Delhi, cases of disciplinary proceedings of CHAs have, after years started receiving some attention, the cases pertaining to rags at ICD, TKD, some cases pertaining to Delhi preventive for circular trading need closer monitoring at the top levels as it has been the case of book it, issue and forget it.

It also shows that internal inspection of the department which used to highlight such issues and for which purpose a very senior level officer was posted in Directorate of Inspection has not been able to perform as well as in the past. There is hardly any checks to ensure that reports which are sent by the field units are correct or not and whether the old register like 335- J or what ever be the nomenclature now are correctly maintained. The process of charge handing over/ taking over has also become a casualty with frequent transfers taking place at each level with cadre undergoing expansion at senior levels. While the old systems may not be all appropriate now, the new systems will have to be found out and put in place so that such delays and occurrences which are largely due to incorrect reporting of statistics are avoided.

Swachata abhiyaan- forgotten or ignored?: There is an office in the Loknayak Bhavan in Khan Market by the name of Safai Karamchari Commission. One just has to visit that office of the Central Government to see and believe how well safai is treated by the administration of this Commission.

Spitting of paans, sacks of bags, dusty old furniture piled up ,dirty toilets , junked fire safety box, wooden cabins close to electric points, dangling wires. You name some kind of filth and safety hazard, and it is there. Hope P.M. office will take notice of these kind of spread out offices in the capital, to see whether the word of the P.M. was never taken seriously or has been forgotten?

Bits and Bytes :October-20,2015 Revenue Tansparency Times.

Bits and Bytes :

By:

Somesh Arora Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

To tax or not to tax during recession: On the onset of USA led 2008 recession India like many other countries provided stimulus package of Rs.60000 crores mainly by reducing across the board, excise and service tax duty from 12 percent to 10%. The demand was created by stimulus and India escaped getting severely hurt by the recession excepting few sectors like realty. In 2012, however, when Indian made recession starting knocking in the economy, not only the was the stimulus reversed by hiking duty but also Rs.40000/- crores of additional taxes were imposed by way of bringing negative list of services. The impact was that recession got deep rooted and in the fiscal 2013-14, revenue target became difficult to meet and it led to a phase of what is called as tax terrorism with arrests being done in service tax and introduced in the same year. When this new Government took over it did not impose very heavy burden of taxation and in the budget of 2014-15 only Rs.10000 cores extra were required to be collected over last fiscal. Now the mid year position is that Central Excise has shown a buoyancy with 36.5% increase but over all tax collection including Customs, income tax and service tax is stated to be below targets. The buoyancy in Central excise is also largely due to Oil pool taxes where due to fall in prices, Government has been able to extract extra by imposing upto Rs. 6/- per liter as additional tax. While this may have led to slackness in demand for consumer products excepting essential food products, as transport cost has not gone down as it should have due to step fall in crude prices. Still the positive aspect is that Government intends to spend extra revenue from oil etc. on improving Infrastructure and has already announced many projects in this direction rather than frittering away the precious resources on some election relation appeasement based anti poverty programmes, as perhaps Mr. Chidamabaram was ill advised to do, just prior to 2014. Though that election was lost even in the face of fiscal ill management is another aspect. This Government`s decision to use the opportunity to give a push to Infra by taking advantage of fall in crude prices is well founded though it may bear fruit only in the time span of 2-3 years only. Till such time to expect sacrifice from people by way of taxes is a natural temptation. But same is also avoidable in the time of recession. A balance therefore needs to be struck. Best course in times of recession is to stimulate demand by allowing people to spend. Lesser taxes, OROP payouts and Seventh Pay Commission payouts can come handy in the same. However, since the Government is thinking of taking the gamble of GST in its stride, the outcome of which in terms of collection is going to be uncertain to begin with. It is better that Government concentrates on the Expenditure side and does not permit overruns in Infra projects as the same is a costly affair, which neither the Government nor tax payers can afford. Stringent Infra Project Management and expenditure monitoring therefore should be the focus area in these times of sluggish demand. Any extra burden of tax should be the last option.

Supersonic file: The speed at which the file relating to safeguard duty on Hot rolled sheets of 600mm or more moved with in the corridors of power has left everyone surprised as to whether such efficiency in Government can be expected in relation to other files also. The New D.G. ( Safeguards) joined office on 31^st August,2015. Issued notification of intent on 7^th Sept.,2015 inviting objections from interested parties with in 30 days. Recommended duty on 9^th Septemeber,2015 just on the date Bihar elections were to be announced. Which happened first on the same day, is not known. Thereafter the Board of Safeguards held its prescribed meeting and Notification imposing 20% provisional duty on all countries for 200 days was issued on 14^th Sept.,2015. Nothing wrong in having efficiency and that too of an unprecedented magnitude, perhaps even by the Global standards. But was the efficiency existing because big corporate were pursuing the matter or same level of efficiency can be expected in every file now in the Government is the question. Meanwhile the impact of duty may result in hike of Rs.4000/- per MT for this intermediate material and that too at the time when demand is sluggish. The good times due to fall in oil prices may not also, last for ever.

How real are the real estate prices in India? :Quite unreal if Mr. Raghuram as RBI Governor is to be believed. Still lot of black money involved in Delhi, if Mr. Kejriwal is to be believed who wants to raise scheduled prices further even when there are hardly any transactions happening. The last best time for the realty in India was the scam time when Commonwealth Games, 2G, Coal scams were happening. The people from four corners were involved and were buying real estate in all parts of the country raising prices in black money component. Since, then it has been a downslide and now despite prices taking a dip of about 30 percent to 40 percent and even upto 60 percent if rate of inflation is taken in to account to arrive at effective decline. Quality wise even the houses of middle class which in the urban/ metro areas are mainly flats command such a value that one wonders whether these are Taj Mahals or leaking, seepage prone, hard to fit vanquished Saddam Hussain`s holes. The developers if they sink will effect atleast 30 percent middle class population, who has taken loans and made payments to buy that seen in photographs dream apartment, which was promised delivery in 2-3 years but has taken already 8 to 9 years. It may be a good idea to keep their hopes alive than to drive them to suicide. Banks gave loans to developers without due diligence in a number of cases and Governments like that of Haryana in the past have charged hefty and unprecedented levels of EDC charges even without putting a brick for development simply to give mid -term accommodation to some developers. Where is the Union Government’s proposal mooted in 2014-15 budget to set up Tribunals and investigating body to deal with mass frauds? Forgotten after the speech?

To Pay or Not to Pay to attract dismissal for non-compliance:

To Pay or Not to Pay to attract dismissal for non-compliance:

By:

Somesh Arora -Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

Two judgments recently pronounced by Hon’ble Bombay High Court deal with the issue of dismissal of appeal for non compliance. While in the matter of Top Security Ltd. Vs. Commissioner of Central Excise and Service Tax, the High Court relied upon in the matter reported in Balaji Steels Re-rolling Mills reported in 2014 (76) S. T. R. 1201 (S. C.) to hold that Tribunal could not have dismissed appeal without Adjudication on merit and therefore, Tribunal’s order of dismissal is liable to be set aside and appeal re-stored for hearing on merits, in another matter of Rajesh H. Arora Vs. Union of India reported in 2015 (323) E. L. T. 278 (Bom.) when confronted with the same case law of the Apex Court in the matter of Balaji Steel Re-rolling Mills Vs. Commissioner (cited supra), the Hon’ble High Court held that litigant has no right to insist for hearing of appeal without complying with conditions imposed on him while granting interim stay and that hearing of appeal on merits even when conditions not complied, would put premium on negligence and intentional act of assessee, of non-compliance. In the foregoing case law, though on the same ruling of Apex Court, a diametrically opposed view appears to have been taken by the Hon’ble Bombay High Court having the same composition of the Bench. Still there is a difference of facts in both the cases in so far as in the case of Top Security Ltd. (cited supra) the petitioner had paid the duty component but not the interest as was required to be paid by the Stay Order, when the appeal was dismissed for non-compliance, but in the case of Rajesh H. Arora the petitioner had been informed that non-compliance would attract dismissal, but he neither complied nor appeared to explain its position for not making the pre-deposit as warranted. The Tribunal thus dismissed the appeal for non-prosecution. On request for restoration of appeal the Hon’ble Tribunal observed that the same could not be re-stored as the appellant had not complied with the conditions of stay. Hon’ble Bombay High court held that Order of the Apex Court was not specific to such a situation and its ratio that the Tribunal has no power to dismiss appeal for default or for want of prosecution in case the appellant is not present when the appeal is taken up for hearing did not apply in the instant case, as non-compliance with the conditions of stay cannot put assessee on a premium despite his negligence and intentional act. Therefore, the Hon’ble High court held that its view does not run counter to the law laid down by the Hon’ble Supreme Court of India. The relevant observation of the High Court in this regard is contained in para 10, as follows:

“After carefully perusing this decision of the Hon’ble Supreme Court of India, we are of the view that the same analyses the powers of the Tribunal while dealing with an appeal. The Tribunal has to be specifically vested with the power to dismiss the appeal for want of prosecution. We are inclined to apply the law laid down by the Hon’ble Supreme Court of India to the present case as well. However, we find that no litigant much less placed on par with the appellant before us has the absolute right to insist on the appeal being heard even when he does not comply with the conditions imposed on him while granting him discretionary and equitable relief of interim stay of recovery of taxes. The conditions that have been imposed by the Tribunal while granting such a discretionary and equitable relief have never been questioned by the appellant and rather he has accepted the same. He therefore, cannot be permitted to wriggle out of the same and by relying on the present state of law as emerging from the judgment of the Hon’ble

Blend is the Trend

Blend is the Trend

By: Somesh Arora, Former Executive Director, WWEPC.

What has actually revolutionized blending in textiles, in the last 50 years or so is the find of the petro based or polyester based fibers. It is not that blending was not known to the medieval world or even earlier. What initially started as brocade work in gold and silver for the rich on silk earlier in India, China, Turkey and Rome etc. became a trend to show the richness of textile. India was one of the first countries to try blending of silk and cotton to allow silk to withstand brocade work even in silver popularly known as Zari. Wool and Pashmina, on the other side was only seeing intricate embroidery with the threads and or silver work, largely. The delicate Pashmina till date does not permit embroidery otherwise than by threads.

The discovery of NYLON which was petro based and was simultaneously developed in New York and London, provided to the world a fiber which was long lasting, easy to dry, was abrasion resistant and was available in abundance and therefore was economical. Its most negative feature was roughness on the skin creating discomfort in high temperatures. Its moisture absorption capacity was also quite low compared to natural fibers like cotton. Cotton on the other side was limited in supply, was not abrasion resistant but comfortable to wear in high temperatures. Textile world thus realized that mass production can only be done through blending, which presented enormous benefits of combining benefits of different types of fibers. Thus, started Polyester- Cotton blend combining the benefits of both fibers and in various percentages. Wool polyester blends also started and had the benefit of providing better crease, low maintenance cost.

Acrylic –wool blend for knitwear also became a choice. Simultaneously, natural fibers were also blended to derive benefits of smoothness and warmth. Various apparels like shawls and stoles saw the emergence of blend of silk and wool or Pashmina in 90`s and found acceptance worldwide in the fashion world as a smooth fabric to work on.

Why trend for blend?

As indicate above, the basic purpose of blending is to give the end-product certain characteristics which are unobtainable from a single fiber component, such as strength, crease resistance, aesthetic effects and economical costing.

The objective is achieved by combining the properties of two or more fibers. Blending of different fibers is also used to increase aesthetical appeal and designs in the fabric.

Polyester/cotton blend is an example, a good end use is in suiting.

While Polyester is a man-made fiber with high abrasion resistance and cotton is a natural fiber and has good moisture absorbency & feel.

Wool/ nylon blend is another example, a good end-use is in carpets.

Nylon is a man-made fiber with high abrasion resistance and wool is a natural fiber and is springy and resilient. The nylon improves the abrasion resistance and the wool contributes warmth and resilience.

Various blending options have been developed for different fibers and different process routes. The options can be classified into the following groups, depending on the principles involved.

Stack Blending

In this method the blend components from the bale or bale breakers ( pre opened ) are weighed and laid down in alternate layers. This stack which is laid horizontally is then withdrawn vertically for feeding.

Batch Blending

Fiber batch blending of up to three lots is allowed as long as there is traceability of each fiber batch and the lots are randomly distributed across the prepreg. For prepreg materials used to establish the initial material database, each prepreg batch should contain a single and unique fiber batch.

Sliver Blending

For the most part, blending of natural and man-made fibers is still carried out in sliver form on the draw frame. This provides the best blend in the longitudinal direction. Up to the draw frame, each raw material can be processed separately on the machines best suited to it.

Present trends in blending:

The latest in the trends of blending is Lycra which is still patented and was developed mainly as sports fabric in 90s to provide all weather comfort by combining polyester with natural fibers. Lycra, in fact is a type of stretch fiber, and is also called by brand name Spandex, which is a registered trademark of Invista, formerly DuPont. It is the most recognized and popular brand of spandex throughout the world, and many designers and clothing manufacturers use Lycra now a days in their products. Lycra is used in fabric blends including cotton, silk, and synthetic fibers and even woolen suiting.

Lycra was first developed by DuPont scientists in 1958 as an alternative to the rubber used in corsets. It consists of polymer chains with rigid and flexible portions, allowing the fiber both to stretch significantly and to retain its shape. Lycra can be made in different deniers, or widths, suitable for use in a variety of products. The thinnest type, for example, is used in hosiery.

Garments made with Lycra have a number of advantages besides being able to stretch. Lycra allows garments to be more lightweight, comfortable, and breathable. It is quick drying and dyes very well, and it is resistant to bacteria, ultraviolet rays, and chlorine. Static cling and pilling are eliminated in garments with Lycra. Though stretch fabrics are not as durable as fabrics without spandex, Lycra is the most durable alternative, offering a great improvement over rubber.

Further, the trend is towards developing coarser fiber like jute by combining it with various other natural fibers to make it wearable in which India and Bangladesh are doing their bit. The world of blending is quite wide in scope as various permutations and combinations can be developed to provide multifarious choices with various characteristics and qualities. Till now the blending of two or three fibers is being experimented with. There is ample scope for combining even more synthetic and natural fibers and improving qualities of each. The vast spectrum of choices and opportunities, which the textile blending world provides is as wide as in the fashion and designing world . Though blending has been revolutionized only in the past 50 years, its full scope and potential is yet to be realized. It is hoped that the fashion world will now focus more on fabric blends and will complement the efforts of textile blending research in future.

Because blend is the trend.

Will the CBEC correct this anaomoly?

Will the CBEC correct this anaomoly?

The section 78 as amended by the Finance Act, 2015 has brought certain amendments in Section 78 of the Finance Act,1994 and also similar provisioning in corresponding sections of the Customs Act,62 and the Central Excise act,1944. The purpose of these amen ments is to provide amnesty through a lesser penalty in case a person pays duty with in a stipulated period of 30 days from the issuance of the SCN, which shall then be 15 percent of the duty.

SECTION 78. Penalty for failure to pay service tax for reasons of fraud, etc.

(1) Where any service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax, the person who has been served notice under the proviso to sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty which shall be equal to hundred per cent. of the amount of such service tax:

Provided that in respect of the cases where the details relating to such transactions are recorded in the specified records for the period beginning with the 8th April, 2011 upto the date on which the Finance Bill, 2015 receives the assent of the President (both days inclusive), the penalty shall be fifty per cent. of the service tax so determined:

Provided further that where service tax and interest is paid within a period of thirty days of -

(i) the date of service of notice under the proviso to sub-section (1) of section 73, the penalty payable shall be fifteen per cent. of such service tax and proceedings in respect of such service tax, interest and penalty shall be deemed to be concluded;

(ii) the date of receipt of the order of the Central Excise Officer determining the amount of service tax under sub-section (2) of section 73, the penalty payable shall be twenty-five per cent. of the service tax so determined:

Provided also that the benefit of reduced penalty under the second proviso shall be available only if the amount of such reduced penalty is also paid within such period:

Explanation.-For the purposes of this sub-section, "specified records" means records including computerised data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of accounts shall be considered as the specified records.

……..

…….

…..

The problem in relation to implementation of above Section arises as number of field authorities especially the newly formed Audit Commissionerates are interpreting the above clause(1) to the Section 78 in a manner that if you pay duty before SCN or with in 30 days of issuance of the same with interest, you will still not be allowed to get the benefit of reduced penalty in case transactions were found recorded in your books of accounts. The result is that whereas Ist proviso was brought in as it was considered as a lesser offence if transactions in relation to which suppression etc. is alleged are still recorded in books of accounts as Department at least can have a chance to find them out during periodic audits, the reflecting of the same in books of accounts will land you up in a soup as you will still have to pay 50% of the duty as penalty whereas the one not even reflecting any thing in the books of accounts will have to pay 15% or 25% of the duty only as penalty in case of payment of duty and interest with in stipulated period. This is so because the Department from the language of third provisio is drawing an interpretation that same is applicable only in relation to proviso 2 and not to proviso 1.

The net effect is that you will be better off in case you commit a bigger offence of concealment and shall be worse off if the same is done by showing the entries in books because in the former situation you can get away by paying 15% penalty but in later case it will not be any thing less than 50%, This even though the prudence demands that in the later case penalty should be 7.5% or 12.5% of the duty if disclosures are found in the books of accounts but are not otherwise available to department through returns or any other communication.

That there is ambiguity and the reasonable and good intentions of the policy makers are not properly getting reflected in the language and text of the provision is quite obvious. The blame therefore may be less with field officers who are going by the text and acting accordingly in issuing the SCN, except that a reference could be made to CBEC by them to avoid frivolous litigation. A trend which needs to be encouraged by the department so that situations are remedied, at the earliest without any avoidable litigation. However for CBEC at this stage two options are available either to suitably amend provision to make the same rational and reasonable or through an executive fiat issue instructions to clarify the matter and to place a reasonable interpretation on the provision. Hope there will be reaction in reasonable time.

The Prevention of Money Laundering Act, 2002- Effect of amendments brought in by the Finance Act, 2015

The Prevention of Money Laundering Act, 2002- Effect of amendments brought in by the Finance Act, 2015:

By:

Somesh Arora, Advocate (Amicus Rarus) and Former Commissioner of Customs & Excise.

The Finance Act, 2015 has considerably changed the scope of PMLA, 2002 by making certain amendments which have the effect of changing the stage when cognizance of an offence under the Act can take place. It has also brought in amendment in Part B of the Schedule of the Act and has re-introduced the same by including offences under Section 132 of the Customs Act, 1962 relating to false declaration, false documents etc. which are punishable with an imprisonment of up to 2 years, in its purview. Further, definition of ‘Scheduled offence’ has been amended with effect from 01.01.2015 so as to raise the limit of Part-B of the Schedule to One Crore from earlier Fifty Lakhs.

The definition of ‘Proceeds of Crime’ has also undergone change and same now reads “means any property derived or obtained, directly or indirectly, by any person as a result of crime activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country then the property equivalent in value held within the country (emphasized portion added by Clause 145 of Finance Act, 2015)

The above amendment ostensibly has been carried out to bring in the offences relating to undisclosed foreign assets as defined in what is popularly called as Black Money Act, 2015 of the present Government. The effect will be that –those undisclosed assets in foreign lands including bank balances in tax heavens etc., if they come to the notice of the Government and can not be brought back by it for any reason, then at least equivalent Indian Assets of the person will be liable to be attached and such person after a limited reprieve period shall be liable to be charged under the more stringent provisions of Prevention of Money Laundering Act, 2002. Therefore, even if the person does not bring back money, if the Government has sustainable evidence to show existence of undisclosed assets in offshore heavens then such person can invite attachment of his Indian assets by the authorities.

Similarly, Section 8 pertaining to Adjudication has been amended vesting the powers of making the confiscation final by the Special Court rather than by Adjudicating Authority. The Special Courts have also been vested with the power to decide various claims even against confiscated property or part thereof of a claimant with any legitimate interest in the property who may have suffered loss as a result of offence of Money laundering, provided such claimant acted in good faith. This has been done by introducing a new Clause (8) to Section 8 of the Act.

Broadly, the effect of this clause will be that Banks etc. who lend against properties in good faith, which get attached for being involved in money laundering will now be able to get them back. Similarly, it can be expected that person who acted under duress like kidnapped persons etc. shall now be able to get justice and claim back the ransom paid by them or assets purchased out of it.

However, the most significant amendment has been carried out in Section 5 of PMLA, 2002 which has the some reaching effects on investigation as well as scope of the offences under PMLA. The amended Section now reads as follows:

5. Attachment of property involved in money-laundering. - (1) Where the Director, or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that -

(a) any person is in possession of any proceeds of crime; and

he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed :

Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate - under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974); or a complaint has been filed by a person authorized to investigate the offence mentioned in that Schedule, before a Magistrate or Court for taking cognizance of the Scheduled offence, as the case may be, or a similar report, or complaint has been made or filed under the corresponding law of any other country:

Provided further that, notwithstanding any thing contained in first proviso,[ emphasized portion amended by Finance Act, 2015 to replace the expression “Clause (b)”] any property of any person may be attached under this action if the Director or any other officer not below the rank of Deputy director Authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money laundering is not attached immediately under this Chapter, the non-attachment of property is likely to frustrate any proceeding under this Act.

(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

(3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier.

(4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.

Explanation. - For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.

(5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.

The net effect of the amendment as highlighted above is, that earlier the investigators under PMLA, 2002 were able to take cognizance of the offences only when complaint was filed or a report was forwarded to a Magistrate by the Investigating Agencies dealing with the Scheduled offences. However, after this amendment the designated Investigating Officers of the PMLA shall be able to proceed with an attachment even when complaint has not been filed. This can have far reaching consequences for example, imagine –that an offence under Section 132 of the Customs act, 1962 which has now been covered in Part B of the Schedule of PMLA, 2002 is committed. Same is otherwise a compoundable offence under Customs Act, 1962. Now there can be a situation- where even prior to Show Cause Notice or even after it, PMLA Authorities do the attachment proceeding and even dispossess a person of all his assets including bank balance. The person later on either secures the compounding under Customs Act, or wants to do the same but is unable to do because all his Bank balance is already attached. What is the solution? The answer is neither provided by the Customs Authorities nor the PMLA. Whether the compounding under Customs Act will operate as an end to attachment and dispossession proceeding under PMLA is not clear. Will PMLA Authorities budge and release sufficient Bank Balances to at least allow the person to go for compounding under Customs Act is also not clear. Further, why have multiple attachment legislations like PMLA and The Smugglers and Foreign Exchange Manipulators (Forfeiture Of Property) Act, 1976 which operate more or less in the same area of customs offences?

There is also an unbridled power being vested with the PMLA Officers to attach assets under any of the various legislations which are now covered under PMLA, 2002. Supposing, in any offence only an FIR is booked and later on the Police or CBI authorities do not find sufficient evidence to pursue it in a Court of Law or file a complaint and in the meanwhile PMLA Authorities have undertaken attachment and dispossession proceedings, then at what stage the attachment proceedings will terminate and how the person concerned will get compensated for an action which should not have taken place but for the haste of the Authorities also does not come out. After all it is not uncommon to come across cases which are investigated for years and then no charge sheet is filed by Police authorities/C.B.I.

It is therefore, important that this unbridled power is suitably kept under check by an executive fiat so that it is exercised only in rare cases like foreign undisclosed assets, where the cooperation from the foreign authorities is not forthcoming or heinous crimes relating to drugs or terrorist activities where some foreign inimical country is not cooperating or a state government or a leading leader of any State Government has vested interest in any Drug crime and obliging Police is deliberately not filing the complaint. It is hoped that the Director of Enforcement as a premier investigating agency dealing with such offences will suitably device mechanism to address these issues.

article on black money

Black Money Article

The undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015- Salient Features.

By: Anjali Arora, M.A.LL.B., PGD in Taxation

Advocate, Amicus Rarus

Presented in the Lok Sabha in the budget session is the new Bill popularly know as ‘Black Money Bill’ providing for stringent punishments with a limited window for self disclosure for undisclosed foreign assets held by Indian Residents.

Following are the salient features of the proposed Bill.

The Act is contemplated to apply w.e.f. 1^st April, 2016 to Whole of India. The `Assesses’ being resident other than not ordinarily resident. Are covered with in the ambit of the presented legislation.

“Undisclosed assets located outside India” means asset located outside India in the name of assessee or of which he is beneficial user & for which there is no explanation.
“Undisclosed foreign income & asset” means total amount of undisclosed income & the value of an undisclosed asset.
Basis of charge- for every Assessment Year a tax on undisclosed income & asset of previous year (P.Y.) @30% from 1^stApril, 2016. No undisclosed asset for previous year in which such asset comes to the notice of Assessing Officer. The income and asset assessed shall not be part of total income under Income Tax Act.

No deduction of any permissible expenses as in case of Income Tax Act.

- Perjury & referral for contempt powers to assessing officer.

No order of assessment or reassessment shall be made after the expiry of two years from notice.
Usual appellate mechanism as exists for Union taxes.
Whole of the tax assessed to be paid pending appeal.
Mode of recovery:- As in Income Tax Act

Recovery from assets available only in foreign countries through intervention of Board. Which in turn is empowered to take steps as may be considered appropriate.

Interest plus penalties- A.O. may direct upto 3 times of tax as penalty

- Penalty for non-filling of Return or wrong return - Rs.10 Lakhs normally.

- Penalty equal to tax for assessee in default.

- General penalty-Rs.50,000/- to Rs.2,00,000/-

- No penalty for balance held outside India in any account upto Rs.5,00,000/-. However tax and interest to be paid.

Provision for stringent measures for Offences and prosecution:- In addition to provisions of any other Act ‘no settlement’ & income and asset assessment not hit by limitation.

a) Non-filing of return or wrong information - 6 months to 7 years + Fine.

b) Willful attempt to evade tax, penalty or interest – 3 years extendable up to 10 years + Fine

Defense available to the assessee is that he has books to show otherwise, false entry etc.) abetment-6 months to 7 years +fine.

Presumption of culpable state against the assessee, where ever any offence requires such a state to exist.
Transit provisions – self declaration within a time frame to be announce after coming into force of the Act-30% tax on undisclosed asset (of value-penalty of 100% of tax i.e. 30% + 30% of value to be paid by the person making disclosure)

Self-declaration made by assessee not admissible as evidence for Income Tax, F.E.M.A., Companies Act or Customs Act only.

Exemption from Wealth Tax of assets self declared.
Provisions of self declaration not applicable for COFEPOSA detenees, SEBI Offences etc.
Offences to be included as scheduled offences under P. M. L. A. and parallel proceedings for laundering to be initiated on filing of prosecution.

Union Budget 2015-16 -Phool Aur Kante

Union Budget 2015-2016 – “Phool Aur Kaante” Budget

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate. (Amicus Rarus)
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In last twenty years of doing budget analysis, I have still to see a Finance Minister who has been able to give all appeasing and perfect budget. Some ordinary looking budgets have led to high growth whereas at least one dream budget led to a mediocre growth. One budget allowed India to come out of clutches of recession and atleast one pushed India into recession by seeking to tax more at the time when demand was hardly picking up. In globalised scenario, the union budget does not dictate the economic growth to the extent other global factors do. This is despite budget being the most important fiscal statement of Union government. The gross estimated tax receipts in the last Budget were to the tune of Rs.13,64,524 Crores as against this in the present year Rs.14,49,490 Crores are estimated. This means a whooping Rs.84,966 Crores over last year shall be additional taxes imposed on an economy which is still to recover fully from the clutches of recession. While the Income Tax benefits are estimated to cost 8315 Crores, going by the estimates Rs.93,281 Crores will be the extra revenue to be generated from Indirect Taxes i.e. Central Excise and Service Tax- making it highest dependence on Indirect Taxes for generating resources in recent years.
Has the economy got fully out of the recession mode to be able to bear the burden of this much extra revenue largely on indirect taxes is the moot question, that will be answered by the year end by facts or statistical jugglery.

Cheer factors:

Income-tax:
• Monetization of gold along with abolition of Wealth Tax can easily be treated as the most pragmatic measure to be seen in many years. It is expected that almost every household and individual in India will benefit from this by monetizing its past holding and earning some interest on it. Much will depend upon the Income Tax Authorities and if they do not indulge in pin pricking of the taxpayers, this measure alone is capable of bringing out in monetary system huge sum of money. But the rider is the attitude of the tax authorities, will they mend their ways is a million dollar question for getting billions in the monetary system. If you keep prescribing complicated income tax returns with all the unnecessary details, it may become another case of lost opportunity.
• Corporate tax rate cut to 25% from 30% over 4 years from next year
• Senior Citizens to get Rs. 30,000/- medical insurance
• Limit of free Transport allowance raised to 1600 from 800
• Atal New pension scheme for the poor above 60
• Medical insurance Rs. 15,000/- to Rs. 25,000/-
• Employee P.F. contribution may be made optional
• Plan to incentivize credit card and debit card spend.
• Wealth tax replaced by 2% surcharge for income above Rs. 1 crore
• Black Money Bill to be tabled: Whether stringent laws on Black Money including on income from foreign assets will bring back money or will make it move from one tax haven to other?
• National pension scheme to be encouraged. Limits of Contribution enhanced
• Capital gains regime and S.T.T. to be rationalised to provide pass through benefits
• High Courts can settle and resolve commercial disputes
• Comprehensive Benami Transactions (Prohibition) Bill to be introduced to confiscate Benami Properties

Customs:
• SAD removed for most goods
• Custom Duty being reduced on Lathe Machines, Parts of Cash Dispenser and Automatic Bank Note Dispenser, Tablets, Computers, Water Blocking Tapes, Digital Still Image Video Cameras, LED TV Panels, Pace Makers, Artificial Heart and Endoscope.
• Advance Ruling being extended to resident firms for Central Excise and Customs and service tax.
• Department to withdraw prosecution where Quasi Judicial proceedings on identical set of facts have not been upheld and the same has attained finality - effect of CAG report on departmental prosecution. Tribunal, Commissioner (Appeals) etc. to become more powerful in case they act faster than prosecution courts.
• Considerable reduction in the quantum of penalty which will be 10% of duty or Rs.5,000/- whichever is greater for persons dealing with dutiable goods other than prohibited goods. Penalty being reduced for Section 114, 114A of the Customs Act, 1962.
• Amnesty Scheme of paying interest and duty within 30 days of Show Cause Notice extended to Section 28 of Customs Act, 1962 also for cases of fraud etc. payment of penalty after 15% to suffice instead of 25% - less work for Settlement Commission and Lawyers. Tax lawyers may be required to be saved from extinction.

Central Excise:
• Duty on Pan Masala and banned gutkha hiked (Cheers for health conscious only) If the logic is that there should be a duty structure even for a banned product like gutkha then why the same is not extended to narcotic drugs if made in India. For Gutkha manufacturer the best slab to work in the twin norm of capacity and value of sachet is the second slab of 301 to 750 till such time machines with more than 1000 capacity per minute are brought out by technology. The brotherhood of Excisewala and Pan Masala wala is likely to be revived as machines will be frequently required to be empirically tested for the speed.
• Duty on aerated Drinks and Drinks containing aided sugar being raised from 12% to 18%.
• Duty on Cigarettes Hiked.
• Excise duty on Leather uppers and having retail sale price of more than Rs.1,000/- per paid being reduced to 6%.
• Excise duty on Tablet Computers reduced, IC Modules Wafers, LED Lamps, Ambulance, Parts of Electrically operated vehicles, parts of pace maker.
• Hike of 3% on Polyethelene bags other than bags for Industrial use - Subzi buying may no more be in small polythene bags but in big industrial sacks with a handle stitched on the top.
• Duties on all raw material used for manufacture of Agarbatti being exempted.
• Considerable reduction in the quantum of penalty which will be 10% of duty or Rs.5,000/- whichever is greater for persons dealing with dutiable goods other than prohibited goods. Changes in Section 11AC in Central Excise Act, 1944.

Service –tax:
• Exemption from service tax to ambulance services, Varsihtha Bima Yojna, pre-conditioning, pre-cooling, ripening ,waxing etc. of fruits and veggies is being provided
• Services by local authorities in relation to admission to museums, zoo, national parks etc. is being provided. So also for admission services by all for films, sporting events, concerts and pageants etc.
• The term “Government” gets defined under the Service Tax Act. –And it is definitely not-Government is what the Government does
• Common Affluent Treatment Plants to be exempted from Service Tax
• Yoga to be treated as Charitable Purpose for Income Tax deduction on Charitable Institutions - Baba Ramdev and Sri Sri Ravishankar to get some ‘Achhe Din’
• Considerable reduction in the quantum of penalty which will be 10% of duty or Rs.5,000/- whichever is greater for persons dealing with dutiable goods other than prohibited goods. Changes in Section 76 and 78 of the Finance Act, 1994. No actions are bonafides with the Section 80 being given a burial.

Tear factors

Customs:
• Substantial Hike of 30% on Customs Duties on Commercial Vehicles
• No Settlement in Remanded matters
Central Excise:
• Central Excise duty raised to 12.5% across the board
• Central Excise duty on high speed diesel raised by Rs. 10/- per liter
• Tobacco duty raised from Rs 60/kg to Rs. 70/kg
• Rs.40,000 Crores to be extracted as Cess on petrol and Diesel by way of Cess
• Abatement on all Mineral Water being reduced from 45% and 40% to 35%
• Solar Water Heater, no more exempted. Fine till next winter

Service –tax:
• Service Tax raised to 14% from 12% across the board
• Exemptions to mutual fund services being withdrawn, so also on public telephone and free telephone services
• Reimbursable expenditure or Cost Charged by the Service Provider to be included in the value of taxable services.
• Abatement percentage of certain services being reduce and in case of others rationalized

Income-tax:
• Income tax returns to be made more complicated and information seeking in lieu of abolition of wealth tax
• Report every loan above Rs.20,000/- in cash for purchase of immovable property
• No tax exemption limits or slabs changed for individuals
• DTC Code becomes the unborn baby to be aborted. In process of being born since the year 2009 and to be delivered in this Budget as per the Speech of the Hon’ble Finance Minister in the last year Budget. The Code gets the burial and so does the exemption limit of Rs.3 lakh. – No promissory estoppels against the Government

Fear factor:

Service –tax:
• Option to levy “Swaach Bharat Cess” @2% or less on all or certain services, if need arises.

Income-tax:
• Whether Black money will come back or not after supposed to be stringent law on black money is not known. But reporting involved and threatened actions will sure make life difficult for NRIs in gulf having assets abroad through legitimate sources?
• Wealth Tax abolished but all details relating to wealth tax will be required to be given in the Income Tax Returns: Whether ‘Saral’ will be more Saral or Complex now and whether the complex Income Tax Return will be required to be filed by everyone or not, remains to be seen.

General:
• ‘Act east’ Policy for setting up of manufacturing units by Indian industrialist in Cambodia, Myanmar, Laos and Vietnam- remains to be seen whether ‘Make in India’ will happen in India or in these countries. The Mechanical tiger of Make in India seems to be going on foreign tour.
• The way the Finance Minister has started making announcements about Visa on arrival to 150 countries instead of 43 countries in the Budget Speech, we may have to re-designate Finance Ministry as ‘FINTO’ (Finance Tourism) Ministry.
• Prosecution and imprisonment up to 5 years under FEMA, 1999 for contravention of provisions of the Act in relation to any Foreign Exchange, Foreign Security or any immovable property outside India - Whether we are back to FERA days?

As an objective and apolitical analyst of the budget, I would like to react to those two liners which F.M. spoke in the opening remarks of the Budget speech:
Kuch to phool khilaye humne, aur kuch phool khilane hai
Mushkil yeh hai bag me ab tak, kaante kai purane hai

My response to this is:

Phool khilaoge jab tum, kaante tum bhi laoge,
Ghulshan abad karoge tabhi tum, jab kaanton ki umar bhoolaoge.

Move on Mr. Jaitley, you have the reins now. And it is always the next spring that decides “Phool aur Kaante?”

Union BUDGET 2015-16 Phool Aur Kante

The Economics of Forbidden Fruit

Somesh Arora Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise

The Economics of forbidden fruit: Going viral on the social media now a days is a video showing wax layers on the apples imported from abroad from countries like New Zealand and sticker imposed on it to give a fresh look to the fruit, but same being harmful for consumer especially the Indians who are used to eating Indian apples not containing such wax without peeling While India goes all out in W.T.O. deliberations to seek concessions for the agriculturists, it is not understood as to why the DGFT and BIS authorities cannot impose technical standards for apples to be imported to be wax and sticker free as most of the Indian produced apples are and we shall just be giving National treatment to the imported apples. It is again funny that India exports as well as imports apples simultaneously. While it exports some of the premium Kashmiri and H.P. apples, it imports the primarily the Australian and NZ variety The price commanded by both imported and exported is also the same. Why cannot then Indian premium apple be made available to Indian Public at the price of Rs.150 per Kg. rather than imported waxed apple? Will the authorities pay attention or the W.T.O. deliberations are just meant for foreign tours only with no action required to be taken by Indian authorities even when warranted? Or let it be a case then, that when Indian and foreign apples go on tours only then the officials of importing and exporting countries can. After all there cannot be austerity for necessity.

Lothal port: Is it receiving the kind of attention it should from Custom Museum authorities? Being the only port which was existing 5,000 years as part of Harappan Civilisation and has been rediscovered as point of foreign trade between Egypt and Iraq during that time with exports of gems stones and items of copper and imports of weapons like spears and arrows, Lothal is unique in India and in the world. But the Customs Museum in Goa hardly has any mention of it. Again in the Caves of Ajanta, a Fresco painting which should easily be more than a millennium old is available of an Indian trader visiting Iran and offering gems as Customs duty. This could easily be the oldest fresco painting relating to Customs in the world. But hardly any effort, even to put a photo of the painting in Goa Museum, or to make the Customs worldwide know about the importance of the art facet. Hope Directorate of Publicity will take note of it.

Intent to evade: Not only it is hard to prove but difficult to investigate. But somehow in Indian Customs, excise and service tax law it has always remained important to invoke extended period demands of five years. In Customs, if importer is found to be mis-declaring, colluding and suppressing the contents of its imports or its nature, then the only way for investigating officer to make an extended period demand is to take a statement from him that he had been adopting this modus operandi even for the past. How much such statement is likely to be voluntary is any one`s guess. In Central excise and service tax law such extended period demands are hard to prove for the department and even if proof is collected it can only result in closure of industry or Service Providing Unit with equal penalty and ever increasing interest sufficient to finish the unit. However in Central excise and Service tax side department has already experimented with defined penalty in case transactions are reflected/not reflected in the records and books of accounts. Why it cannot be considered to do away with intent to evade even of the purpose of demand and go to mid way path of raising demand of up to 3 years if transactions are not reflected in the accounts, while doing away with five year intention based demands? In Customs, where the offenders are more of import and run type, the problem may be there. But this will be more for consumer goods. There also as and when the Customs audit picks up it may be that records will become available and at a suitable stage department can think of doing away with the demands based on collusion, willful misstatement and suppression. This will not only reduce litigation, facilitate investigation and reduce obnoxious demands leading to closure of the units.

Prosecution alarming trends: CAG has pointed out that 11 cases of the department involving only Rs.1.82 lakhs are languishing for last more than 30 years. Imagine what must be the legal cost of pursing some of the dead. In 43 cases date of filing was not known as the files were not available. In 138 cases sending of investigation report was delayed by offices of C.B.E.C. for over 10 years. In 175 cases there was a delay in filing complaints ranging from a month to 15 years and in 19 cases prosecution was initiated without informing accused of his right of compounding. CAG has suggested review of old prosecutions so that where unwarranted same are withdrawn. It also indicated that adjudicating authorities while deciding the matter did not normally go into the question of sufficiency of evidence to launch prosecution as is required under instructions of the Board. While the department is always quite keen to have power of arrest and prosecution what it does after launching the same shows total lack of concern. Compounding scheme has not taken off in a big way too. And it is only the settlement which is more popular. If this is the way Department is going to treat prosecution then even for settlement people may not bother. For compounding of offences asking for additional compounding fee over and above duty, interest and penalty seems too much as the same is also invariably contested and In CESTAT paying of 7.5% duty can entitle as person. In fact, compounding should be allowed if a person pays whole of duty, interest and penalty which as the statistics will show is normally on much higher side and is hardly recovered. Therefore prescribing compounding fee over and above that hardly makes any sense.

Tax tourism: With so many transfers, shuffles and re-shuffles consequent upon promotions and cadre restructuring, the work in the field formations of both Boards has taken a hit for the last five to six months. So while, whole last year the tax terrorism was the culprit, which kept tax authorities on toes. This time it is tax tourism of ayarams and gayarams which is not allowing matters to get decided. Why the administrative law being fully aware of the revenue bias of quasi judicial officers did not prescribe- Let the successor of one who hears decide? In a Port in Gujarat, the ld. Commissioner who was about to retire fixed hearing and collected seven lawyers availing tax tourism opportunity, coming through hopping flights and then the retiring Commissioner at the last moment developed cold feet as his retirement was approaching next month. Since then for almost a year matter is waiting to be heard. Hope things will shortly settle down and bring in efficiency in CBEC and CBDT and phase of indecisiveness in the field will end.

Promotion time in C.B.E.C and C.B.D.T.:

Bits and Bytes:

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

Promotion time in C.B.E.C and C.B.D.T.: Finally it has arrived like a bride in a new home. Redefining designations, bringing gifts of elevation, new office, new status, congratulations and envy. Happy times for everyone except for that mother-in-law that is tax- payer in this case, who is circumspect. What will now follow is scramble for office, car, subordinate staff and good posting and housing. The influential will be segregated from the less fortunate and by the time everything is achieved in terms of infra, it may be time for another cadre review or to say – Bharat ek, Commissioners anek phenomena. The variety in designation is another interesting facet. The inspectors may have to report to multiple commissioners. Like a sepoy had become an elusive animate being in the last cadre review, this time it seems to be the turn of inspectors to be chased by many. Britishers under Physical control had one inspector attached to each factory. With the way cadre is expanding, we may after two decades have one Commissioner for one factory. The changes in Jurisdiction are happening so fast, that initially it used to take 6 months to understand the law pertaining to your charge, now it may be to know jurisdiction of your charge. On the income tax side, the Assistant Commissioners have already penetrated rural areas and may have a field each only in the field, by next cadre restructuring. By the time of the next cadre review, I am sure the designation of the highest tax officer in the field who will be invited for conference and photo shoot with the F.M. will be` Chief Principal Chief Commissioner’ and the conference will be called as C.P.C.C. conference.

The Mayhem at Wagah- Though the madness happened on the other side of the border, the colossal loss of lives of about 60, including women and children was sufficient to feel the sorrow, even on this side of the Zero line. The killings are the largest in number, on the border in the peace time and cast its shadow even on the beating the retreat ceremony. One is reminded of the satirical story of Toba Tek Singh. The story set two or three years after the 1947 independence, when the governments of India and Pakistan decided to exchange some Muslim, Sikh and Hindu prisoners and asylum inmates, and revolves around Bishan Singh, a Sikh inmate of an asylum in Lahore, who is from the town of Toba Tek Singh. And misses his relatives, who are no more visiting him in the asylum from his town. Till he is informed by a visitor that they have migrated to new India and are no more in Pakistan, to the utter confusion and amusement of Bishan Singh. Later on, as part of the exchange, Bishan Singh is sent under police escort to India, but upon being told that his hometown Toba Tek Singh is in Pakistan, he refuses to go. The story ends with Bishan lying down between barbed wire: "There, behind barbed wire, was Hindustan. Here, behind the same kind of barbed wire, was Pakistan. In between, on that piece of ground that had no name, lay Toba Tek Singh on Zero line, for ever. One wonders if many dreaded terrorists who are mentally bankrupt and have scant regard for humanity are actually insane, moving freely with arms rather than their proper place which is the mental asylum.

Story a part the fact is that exchange of inmates of asylum did take place and in Amritsar a sprawling mental asylum was created in 1950`s. The campus now is housed in a multi storeyed complex occupying much less acreage than it did initially and on the remaining a commercial mall has been built. For such patients- do not normally complain about their habitat or may be now very few are surviving, to really matter for the Government. Perhaps the world of Bishan Singhs after partition, is now under assault from crass commercialization. The line that was carved on Wagah on the day of partition is now more deeply etched in the psyche of the people of two nations. Every day you see people visiting and enjoying eye ball to eye ball confrontation and howling that goes between the border forces of the two nations. The managed drill giving the feeling of one upmanship to the people on the either side in -the Beating the Retreat Ceremony. The Indian side can derive satisfaction from the fact that liberated and progressive are our women, compared generally to the women on the other side.

On the day of mayhem, the enemy that was with in, proved to be the real one rather than one perceived to be on the other side of the border by natives of Pakistan, immediately after the Retreat Ceremony got over.

But the faith in humanity does not go off, as I am told on my visit, the story of an injured child from across the border abandoned by his mother in the fields adopted and brought up by a family this side, who eventually toiled hard as a help in Custom office to marry of his sister, when his adopting parents were gone. Strange can be the life on manmade borders.

Money Laundering Act, 2002 or Noose will Choose the neck legislation:

Bits and Bytes:

By:

Somesh Arora [Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise]

Money Laundering Act, 2002 or Noose will Choose the neck legislation: Is the law required to be equal and equally applied only by legislature and Judiciary? What if Executive is compelled to play havoc with a strong enforcement law. Money Laundering Act, 2002 created as per India’s treaty obligations under Financial Action Task Force(FATF)and considerably expended in its scope by the Amendment Act of 2012 covers a number of offences, as Scheduled offences at present and in most cases Act is applicable without any reference to the quantum of amount involved. Apart from covering all most all the I.P.C offences, it covers customs, Intellectual property rights, anti-corruption and various other legislations dealing with various economic, cultural and moral offences. In all, the enforcement machinery working under Directorate of Enforcement, apart from reporting offences and transactions to Financial Intelligence Unit in Ministry of finance, is required to overlook and investigate offences booked by at least 28 enforcement agencies working under Centre and State. These agencies also notably include Police Department of all States, D.R.I. and C.B.I. etc. Wherever a charge sheet for an offence is filed for any of the scheduled offences by any of these agencies, a parallel investigation for offence of money laundering and proceedings for attachment under it, is required to get initiated. Therefore, whatever enforcement work all State police, D.R.I., C.B. I. etc. do is required to trigger a parallel and much more cumbersome investigation under Money Laundering Act,2002. Can it be imagine what is the staff strength being utilized to enforce such legislation- only few hundreds. If the agency i.e. Directorate of Enforcement has to take its job seriously- the staff strength required to carry out such mammoth investigation and legal work will be at least to the tune of 50000 to 60000 personnel. If not given such a strength, the agency will continue to work on an ad-hoc basis and to make some exemplary cases to show statistics and appease FATF. Herein lies the evil of this legislation, it is applied selectively and with discrimination. Though enormous powers were given in the legislation for enforcement, when Sh. Chidambaram was the Finance Minister by amending the law, it continues to be staff starved for the purpose of its creation. For every case of its kind the agency books under Money Laundering Act, there are hundreds it leaves without investigation. On the Customs side, we have SAFEM(F.P.)Act,1976 and Money Laundering Act virtually providing the similar powers of attachment of assets. One can easily be scrapped.

It is therefore for all concerned to decide whether Indian citizens will have to live with a law which is applied with discrimination and which was initially meant for curbing terrorist funding but has hardly done so, as it has just widened its compass to cover all kinds of offences even if violation may be of few rupees. Or if the Government feels that law is really its worth, whether it is going to provide sufficient manpower for its enforcement to make it an effective law applied, indiscriminately. Whenever G.S.T. comes, Customs department may have surplus manpower, which MOF can contemplate utilizing for the purpose. Till such time it is noose which will continue to decide the neck that it is going to fit in.

P.M.’s Swachata Abhyaan- No prudent person can oppose the movement initiated by the P.M. on Gandhi Jayanti, though like the Apex Court, we all would have preferred it covering the adulteration and fake medicines which resulted in killings in Chhattisgarh and which continue to pollute, without even our knowledge the temple of body, given by the Almighty to us, just to profit few imprudent killers. Any good initiative is always welcome. We all wish that all public places in our cities and villages become spic and span like golf courses of corporate and super babus, some day. In Australia a paper dropped on stage was directed to be picked up by the P.M. while he was on stage, showing his seriousness about his mission. Hope next in line will also be clean drinking water and clean air and all this happens before we get choked. Good habits must be cultivated at the earliest. Then the enforcement should be effective and meaningful. In Australia and NZ they have the concept of compulsory community service for those who violate cleanliness norms. It is not uncommon to see a fresh Pravasi Bharti suffering the punishment of cleaning the park for a week or more, for having committed the offence of pissing in the park. After a week he unlearns and learns a lot, to start life long condemnation of Aprvaasi Bhartis on next visit to India. More than pecuniary punishments, the community services have an impact. Rather than traffic challans, if police and courts start sending persons indulging in road rage and traffic violators to compulsory meditation classes, perhaps it can help cooling tempers. Smokers in public can be made to undergo punishment of carrying placard of ` Smoking is injurious to Health,’ at bus stops and railway stations. Same treatment can be meted out to drunken drivers, who can be asked to clean the roads. The eve teasers can be put to clean ladies toilets and so on. Law can prescribe such punishments to be awarded by Community groups of any area where offence takes place and non-observance of community service sentence should attract heavy financial penalties.

Infant mortality of Indian Industrial units- published R.T.T- Nov.,2014

Is Infant mortality of business built in the way we frame our laws and policies?

By: SomeshArora,

Advocate & Former Commissioner of Customs & Excise.

While the business in UK, other countries of Europe and U.S.A thrives on long standing existence of the trade name and trademarks. In India,this privilege may be achieved bysome Small Bakeries, Halwai or Eatables Shops in small or big towns. Why we do not have long established brand nameshaving existence of centuries, is a matter to ponder? One of the reasons is, the way we frame our laws and policies with scant regard to the fact that the Business and Commerce should be allowed to last long and not die in most cases withina span of 10-20 years. AnIndian `Mombattiwallah’ may feel concerned and hold demonstration even when a death sentence is awarded to a criminal, who might have committed a murder of rarest of rare species, but the same person will hardly bother if a running business is ruined due to corruption of others, and regulatory burden of excessive legal compliance, thereby making hundreds of workers unemployed. In some instances, such unemployed workers may be eventually ledto committing of suicide as happened when Textile mills of Sholapur and Kolhapur closed. Not only we churn out impractical laws but we also thrive on making implementation of laws and followingof the same a mission impossible for the small Business. More than three hundred laws have recently been identified to be deleted.The existenceof the same was not even in the knowledge of anyone, but they continued to be valid laws. When the existence of lawsdealing with how -British Monarch should govern India, or that Hotels in Delhi should provide rooms to Government on demand etc,is not even known to many of legislators and even members of Judiciary, will it be proper to follow the dictum that ignorance of law is no excuse? Is law not becoming a tool of harassment by few, rather than collective will of the society. We have instances where Income Tax laws requires you to maintain accounts for 6 to 8 years, in Custom and Excise laws assesses can carry records generally for 5 years. Service tax does not require audit of Books of accounts up to Rs.40 lakhs of receipts but Income tax Act requires the same should be done if receipts are more than Rs. 25 lakhs. Income Tax Act provides that a contribution in the Employees Provident Fund Act will remain atleast in the account for 3 years to allow the benefit of Section 80-C in a particular year in which such contribution is made. However EPFO scheme provides that if on account of leaving of service or otherwise of a person, no contribution is forthcoming for 3 years then it will stop giving interest. Conflicting situations in various laws. Then we have Finance Act, 1994 which hardly any officer of the Service Tax department will understand thoroughly, what to talk of trade. While Custom and Excise laws allow the Revenue department to make demands maximum of up to 5 years from the date of Issuance of S.C.N. law relating SEZ and E.O.U. units allow the same to be done in perpetuity and consider everything done in E.O.U. as provisional. The law or the bond executedrequires you to maintain books of Accounts and documents at ad-infinitum. Will it not mean that if a SEZ unit or an E.O.U somehow manages to survive for 50 years, all it will have is store houses of files and Accounts rather than Plant and Machinery for production of goods? While the Legislature mandates the Govt. departments should not be required to give RTI for a period of more than 20 years for all its Govt. departments, for any imports made under EPCG, E.O.U, S.E.Z scheme, which normally takes a bond prescribing Books of Accounts require accounts to be maintained and documents to be retained for all years of its bonded existence. For more than 125 years spread over three centuries law under I.P.C was serving the purpose of Indians,but the incident of W.T.C. (New York Twin Towers) which forced a number of nations to go in for Money Laundering legislation, changed it all. India too choseto follow a law whereby simply commission of IPC and other offences, categorized as Scheduled Offences will attract PMLA if proceed of the crime are received. In the first case of IPR violation where Money Laundering Act has also been used, brings out how serious dimensions this Act can acquire, if no thought is put into implementing it properly. The accusation made against the accused was that it infringed a popular steel brand and received payment by selling offending goods through cheques received in business. Whatever payments were made from that A/C for buying business or other assets were attached and all sale proceeds including Cost of production incurred for genuine pre-existing business sources was treated as Proceeds of Crime. Even without realization that even under IPC and Trade Marks also what an aggrieved person claimsin Accounts of Profits or Damages. Even otherwise, the more the PMLA Act will acquire antiquity, the more every individual doing business will be required to maintain Accounts for whole of his life time or explain sources of acquisition of house hold properties etc,as the burden of proof that the assets have not been acquired is upon him. How many terrorist organizations or persons doing acts against the State have been convicted by this legislation is anybody’s guess, but the way law is being implemented,a mere copyright violation benefitting the violator by Rs.100 who buys any property of Rs.50 lakh from any account wherein the tainted 100 Rs is deposited, may be attached and person can also be deprived of the same, if the adjudicating authority confirms the attachment, for which chances are really bright as more than 90% attachments result in confirmation. While it is also a matter of fact that certain business especially of Small Scale do commit breach of law with impurity and need to be punished, but when most of S.S.I units perish within first 25 years of existence by the perennial assault of various Govt. departments that they have to deal with, then we have to consider, if our systems are actually conducive to doing business in India or approach of Babus and policy makers needs a serious re -look.

Mandatory deposit for stay- teething problems

Published E.LT. Sept.,2014- Stay on Mandatory Deposit – Teething problems:

By:
Somesh Arora. (Advocate and Former Commissioner of Customs & Excise)

Of the many initial problems that were anticipated in implementation of newly introduced scheme in Finance Act, 2014 relating to mandatory deposit for entertaining appeals before CESTAT and Commissioner (Appeals), some have already started fructifying. In fact recent Circular of the CESTAT Registry dated 28.08.2014 admits to such a confusion, when it does not categorically provides if mandatory deposit of penalty can be made from CENVAT credit or not.

It is another matter that the first line itself adds to the “confusion”, as the expression “Mandatory Penalty” should actually be “Mandatory Deposit”. However, the confusion that the Circular refers to, can be anticipated to be flowing from two judgments of the Hon’ble Tribunal as reported in:
- 2011 (264) E.L.T. 100 (Tri. - Mumbai)MANAK MOTI FORGINGS PVT. LTD.Versus COMMR. OF C. EX., AURANGABAD-Stay/Dispensation of pre-deposit - Payment of pre-deposit from Cenvat/Modvat account - Commissioner (Appeals) dismissed appeal as pre-deposit not made through TR-6 challan but by debit in Cenvat credit account - Pre-deposit of duty amount by way of debit in credit account acceptable as sufficient compliance with Section 35F of Central Excise Act, 1944 - However, penalty cannot be deposited through such debit - Presently debit of duty would suffice for purpose of Section 35F ibid - Impugned order set aside - Commissioner (Appeals) to dispose appeal on merit without insisting on any further pre-deposit. [para 4]
- 2012 (280) E.L.T. 272 (Tri. - Chennai)COMMISSIONER OF CENTRAL EXCISE, TIRUNELVELI Versus DERIK MONOFIL PVT. LTD.- Penalty and interest - Cannot be paid from the credit amount maintained but has to be paid in cash - Sections 11A and 11AB of Central Excise Act, 1944. [para 2]
Incidentally, both the cases do not give reasons for the course of action adopted. One is, therefore, left to imagine.
It appears too that there is a confusion in some field officers and some Commissioner (Appeals) are of the view that the pre-deposit of 7.50% in relation to penalty also can be made from the CENVAT Account as there is no bar on the same in the law. While it is apparently correct that there is nothing in the statute which debars payment of penalty through CENVAT Credit Account. The same is also not specifically provided. The above judgments of the CESTAT though not providing detailed reasoning, it appears are outcome of a thinking, which has developed from a legal dictum that while duty is an ever lasting liability till the assets exists, a personal penalty dies with the person.

It is quite clear that Personal Penalty alone will exist against Directors, Smugglers, identified tax evaders and their accomplices only, who in any case will be required to pay the penalties in cash. However, in case of Proprietory concern, the penalties are inter changeably imposed and even Show Cause Notices issued either on the proprietory concern or on the Proprietor. In substance, such a penalty is against a Propritory concern and there should be no difficulty in allowing the same to be paid even from the CENVAT Credit Account of the proprietary concern.
In case of a Company, the Personal penalty against the Director, will have to be surely paid by him in cash. However, in case of a on a Firm vis-à-vis its partner the situation in case law, is in a state of flux. Nevertheless, the chances of a firm incurring penalty without duty is rare as it cannot be accomplice and is normally a main accused. Therefore, it will be interesting to see what clarification the CBEC issues. Till such time, as per Clause (i), even when the penalty alone is involved, the same will have to be paid in cash.
Further, though the Rule 3 of CENVAT Credit Rules provides that the CENVAT Credit may be utilised for any payment of Central Excise Duty on goods finally cleared or Service Tax on any output service, it does not specifically provide for utilisation of the same for payment of interest or penalty. This reasoning may provide another diamension to the proposition because a pre-deposit in appellate proceedings is not exactly, payment of duty or penalty or interest, but a matter of safeguarding of Revenue Interest. If that be so, C.B.E.C. should be liberal enough to allow the same to be paid out of CENVAT Credit Account through its executive fiat.
Again, it will be of interest to note what approach do the Commissioners ( Appeals) and CESTAT adopt towards pending Stay applications, which were filed before the coming into force of amendments in Finance Act,2014, on the issue in hand. While discretion, strictly speaking, cannot be said to be not available to the Appellate Authorities, there have to be cogent and strong reasons available for not following and being with in the now stipulated legislative limit of 7.5 % or 10%, for entertaining appeals , as this has become the guiding light even for the past and pending matters, to be non-discriminatory with the litigants. Should not this be the norm, then? After all, it may not be prudent to stray with the Moon, when guiding Pole Star is available.

Goa Museum - The untold Story

Goa Customs, Museum- The untold story:

By:

Somesh Arora. (Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise)

Destiny sometimes takes you to far off places, just to bring you back in your own, to throw up some idea which in future is to be worked further. While working in Ministry of Textiles in the year 2000, I was deputed for a course in the Department of laws, University of Queensland, Brisbane in Australia. One of the campuses of the law college was incidentally housed on the banks of the River Brisbane in Brisbane City. The address of the campus was Old Custom House, Brisbane. Part of the building used to hold law classes for the LL.M. Course, for which I was a student. Remaining portion was a Custom Museum with beautiful artifacts and pieces of Customs History displayed and preserved in it. It was, but natural for me to get attracted towards them, even if it meant skipping classes. The effort of the Australian Customs sure won its deserving appreciation from me. Back in Delhi, after almost two years, I received my posting orders for transfers to Panjim, Goa. Being without family I was staying at the Guest House just opposite the Blue Building.

The striking similarity between the Blue Building and the Old Custom House on the banks of the River Brisbane could not have been lost sight of, by me. There it was River Brisbane, here it was River Mandovi. Perhaps, reminding us of the times when small ships/boats, three or four centuries back could enter the river waters close to the sea facilitating setting up of the Custom House with in the City, instead of big ports which are now required.

Incidentally, it was also the time that ICE (Indian Custom & Excise) Building was coming up at Patto Plaza in Panjim. Blue Building was already a heritage structure being more than 400 years old. One of the points of discussion, therefore, was as to what will be the fate of Blue Building once the office shifted to the new building. The Church in the Blue Building and its old structure had a special fascination for every Custom and Excise officer. The fear was that like the house of last Portuguese Customs Commissioner, which was taken over by the State Authorities. And which thereafter, became the Chief Minister’s Residence, the same way, Indian Customs may not be deprived of the Blue Building. In the end of 2002 the day of reckoning came and office shifted to new complex with just a token presence of Commissioner kept and his office maintained for name sake, in Blue Building.

In the summer of 2003, when Blue Building was almost vacant, I received a phone call from Shri R. K. Tiwari who was the then Chief Commissioner in Pune and under whose charge the Goa Commissionerate came, to attend personally to Mrs. and Mr. Subrata Basu, who were coming for holiday in Goa and were also his batch mates. Mr. Subrata Basu, was known to be a man of varied interests and had a vision of creativity. He had already acquired his claim to fame, by creating Rock Garden in Hyderabad and doing landscaping of many Customs and Excise structures. While accompanying him on his tours, I often found that he will stop the car somewhere and see and discuss some strange non existing objects with his wife, may be in the branching of trees or in broken objects, that were hardly visible to a non-creative person like me. So, during his two days of visit, we faced many stoppages of the car and had to really appreciate different kind of animals, birds and objects, which were visible to the couple, but invisible to me, though my nods of assent were artificially coming.

Third day, I promised to show them the Chapel in the Customs House, Goa after retrieving the keys. Finally, the old Custom House, Blue Building was got opened for them and in their own imitable style, I asked them if they could see a Custom Museum inside the Blue Building which was visible to me and in which the artifacts of unique Indian Customs which it inherited from Imperial Customs, Dutch Customs, French Customs and Portuguese Customs are placed. Mr. Basu looked at my face but after a while laughed, after he got my point. He promised me that on his return to his Chief Commissionerate, he will take up the matter with Board and Shri

R. K. Tiwari and I shall soon hear about the progress of the Museum.

I knew that Mr. Subrata Basu was a man of words and will initiate the process. It was a matter of few days after his departure as the last Joint Commissioner of the Blue Building, I got a communication that it was contemplated to House Indian Customs Museum in Blue Building. I had known that Mrs. Lillian Fernandes, then Superintendent, had a special interest in Blue Building and its history and also in the History of Portuguese Customs. Therefore, in my first file note on the subject, I appointed her as the custodian of all objects for the museum which were directed to be sent from all corners of India, by the higher authorities. Soon thereafter, I got transferred but with satisfaction that of passing on the baton to senior officers, who were competent enough to one day make reality of the concept, which finally they did after I left the service in 2008. Destiny had a role to play in the events as they shaped up and for me the idea that came from a distant land became a concept and there after emerged as a reality when in the year 2010, Mrs. Fernandes took me for a trip around the Museum. Which I can legitimately claim to have got the first vision to see, even prior to visionary Sh. Subrata Basu. Blue Building was saved from acquisition by State authorities to house the first ever Custom Museum in South East Asia and the idea enthused Income Tax Department also to start its Museum. The Goa State Authorities have now decided that even old Adil Shah Palace, housing their earlier Secretariat, which is building adjoining Blue Building, will be converted in to a State Museum. Thanks Brisbane Customs.

Automatic stay when pre-deposit made after 6.9.2014

Automatic Stay when Pre- Deposit Made After 6-8-2014—Stay Orders Issued prior To 6-8-2014 to Continue.

By:

Somesh Arora. (Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise)

On the enactment of Finance Bill, 2014 certain significant changes have been introduced in Section 35F clearly bringing out that on mandatory deposit being made, there shall be no need of grant of stay from the Appellate Tribunal. In fact in Section 35B of the Central Excise Act, 1944, the words “for grant of stay or” have been omitted by the Finance Act, 2014. The net effect is that a stay application is no more envisaged to be filed. Again in Section 35F the provision earlier made under the Finance Bill, 2014 in Section 35F, of demanding 7.5% or 10% of the duty demanded or penalty imposed or both, now stands amended to read “duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute”.

This brings greater clarity in provision relating to mandatory deposit and consequent stay. This coupled with amendment in Section 35C which was proposed by the Finance Bill 2014 and which has the effect of deleting all the three provisos to Section 35C (2A), has the effect of making the legislative intent quite clear that on mandatory deposit of Section 35F, having been made, there shall be no requirement of making a separate Stay application before the Hon’ble Tribunal and the automatic Stay, so granted shall continue to be in operation till the decision of the appeal.

Old stays to be everlasting: Incidentally, the fallout of the deletion of all the three provisos to Section 35(2A) is that the stays granted by the Tribunal which earlier had the validity of only one year by virtue of adding of a proviso in the budget of 2013 are now going to be validated till final hearing unless the stay order so specifies. Even the department had applied the proviso relating to stay becoming non est after one year to all the stays granted even if they were granted prior to amendment of 2013, now it cannot even take a stand that deletion of the proviso relating to validity of stay will have effect only in future. Therefore, now all the stays granted without Tribunal providing validity will continue to last even beyond one year. This makes even the reference to larger bench of the Tribunal on this point only of academic interest for the future.

However, there is an expectation built in sub-Section 2A of Section 35C that Appellate Tribunal shall hear and decide the appeal within a period of 3 years of filing of the appeal to the extent possible. When the Budget Proposal came, a view was being debated that the legislative intent was to provide for mandatory deposit to entertain appeal and that the “expression for grant of stay” in Sub-section 7 of Section 35B still warranted, a stay application to be filed before the Hon’ble Tribunal. This should now be clear that legislative intent is clearly to work out a provision for mandatory deposit in lieu of stay and that any literal interpretation emerging to the contrary in the legal text, shall be clarified either by legislative amendment or through clarification by C.B.E.C.

A view which is still being taken by certain protagonists of the ‘stay is a must theory’ is -that since Stay has specifically not been done away with, it continues to exist, even for cases of mandatory deposit. This is an outright foolish notion, which deserves to be rejected at the outset. A legislature can not be required to prescribe specifically in negation, the outcomes of the provisions made. The warrant to drive left in a traffic law does not require a prescription not to drive to the right side. The controversy, therefore, should rest at that. The underlying need to evolve the concept of “Mandatory deposit for grant of Stay”, however, cannot be ignored by all concerned. There can definitely be situations, where judiciousness is necessary. Administrative Authorities can often be found lacking and can cause undue hardship even with the mandatory deposits. Some of the situations which readily come to mind are as follows:

(i) Stay of operation of order, may be required, even when there is no revenue involved legal rights are involved like in cases of suspension, prohibition, revocation of licenses of CHAs or Department may require Stay of operation of an Order of the lower authorities, at the level of CESTAT.

(ii) Cases where, mere procedural contraventions have taken place like in cases of CENVAT Credit being disallowed on grounds of some or other particulars found, missing. In this context it is important to note that for departmental authorities every procedure is sacrosanct and justice in such cases of procedural lapses, where transaction in substance is correct, is only done at the level of Tribunal and above. If the demands are made in such cases, the burden of getting the matter heard through mandatory deposit can be quite crushing for the assessee.

(iii) Department, has to as per instructions, issue protective demands, even when it does not agree with the Audit Paras made by the officers of Comptroller and Auditor General (CAG). It takes years to decide such Audit Paras and burden on assessee can be exorbitant if it has to rush for filing an appeal with mandatory deposit in each case.

(iv) All the Departmental Appeals against refund, normally seek Stay of operation of Order. However,, if Stay is not even warranted at the Tribunal level all the refunds will be held in abeyance for years together, just on filing of Departmental appeal.

(v) In cases which are before BIFR making of stipulated mandatory deposit is also not feasible for a sick unit.

(vi) It will be highly injudicious to expect an assessee who shell out 7.5% to 10% of the duty involved in cases with the Order-in-Original has been hurriedly passed by not providing Relied Upon Documents (RUDs) or Non- Relied upon Documents or by not affording Cross-examination etc. even when the same was warranted as per Section 9D. As per existing dispensation also, if the departmental officers err in this regard, the assessee is required to shell out market interest, even due to lack of competence of the Adjudicating Authority and now the assessee shall be additionally called upon to pay 7.5% to 10% just to get heard in the matter.

In view of the foregoing the tweaking of the provisions may be required so as to provide for entertaining of appeal without mandatory pre-deposit. This can be decided by Higher Administrative Authorities for lower levels of adjudication or by Tribunal for higher level of Adjudicating Authorities. Such seeking of waiver of mandatory deposit can be provided for in certain enumerated situations.

It is hoped that in course of time CBEC and Ministry of Finance will address these issues and provide a proper mechanism based on equity and fairness to all.

---------------

( Published in 2014 (306)E.L.T.- Part4 – A127)

Natural Justice - Unnatural exploitation by Revenue officers

Natural justice- Unnatural exploitation by Revenue officers:

By:

Somesh Arora. -Advocate(Amicus Rarus) and Former Commissioner of Customs & Excise

It may not be an exaggeration that barring some 20 percent officials in the field, remaining 80 percent either are not aware of principles of natural justice or do not want to follow it or have a half hearted commitment in observing the principles leading to high level of litigation with no result to the Department as recoveries are jeopardized and exploitation of those tax payers, who want to run business and have to pay interest cost, in accordance with the amended law on interest which after 2011 provides that even in such eventuality of remand, the interest clock will continue to tik.

Firstly, coming to supply of relied upon documents, there is an almost all pervasive habit of either not supplying or supplying only part of the relied upon documents with receipt being taken from the Noticee, which becomes matter of agitation. In one case, a Premier Agency took the receipt of the relied upon documents even when latter events proved that they had never received the same from the field officers. The running from pillar to post to prove his point cost assessee a fortune worth few lakhs, which he could have easily deposited with the Government rather than spending on Airlines between Banglore and Panchkula. In this context, DRI does a good job of obtaining acknowledgement by having a running serial number of all the pages of SCN and RUDs leaving no scope for confusion, but DGCEI officers and other field officers have a variable practice leading to litigation. Again, on the point of non-relied upon documents there continues to be dispute, sometimes agencies like DGCEI direct collection in 30 days but the field units do not comply, other time the documents recovered from other Noticees, but required for defense or relied upon in the body of the SCN, are not made available or are questioned.

Secondly, though the law envisages up to three adjournments generally before an ex- parte order is passed, three hearings are taken to be sufficient or even the hearing when Adjudicating Authority was not available in the office due to some reason is also taken as an opportunity or three date are provided in one hearing notice considering these to be sufficient, contrary to the rulings on the subject.

Thirdly, the settled position in law relating to cross examination is ignored with impunity by the field officers as if not calling a witness is something of a sacrosanct duty they have to perform as revenue officials. In this regard, Section 9 D of the Central Excise Act,1944 and mutatis mutandis, provisions u/s 138 B of the Customs Act, 1962 are disregarded with impunity.

SECTION 138B Relevancy of statements under certain circumstances. - (1) A statement made and signed by a person before any gazetted officer of customs during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, -

when the person who (a) made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or

when the person who (b) made the statement is examined as a witness in the case before the court and the court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

The provisions of sub-section (1) shall, so far as may be, (2) apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.

Both the above referred Sections, i.e. Sec 9D and 138 B were introduced in the relative legislations by the amending Act of 1973.

Section 9D came in for scrutiny of H`ble Delhi High Court in the matter of J.K. Cigarettes, wherein the H`ble H.C. as per the direction of the Apex court was deciding the question of Constitutional validity of the aforesaid amendment on the ground of affording excessive power to Adjudicating Authority and possibility of misuse or abuse by not providing cross examination on some pretext or the other. In the matter reported in 2009 (242) E.L.T. 189 (Del.)J & K CIGARETTES LTD.Versus COLLECTOR OF CENTRAL EXCISE, while holding that cross examination is generally the rule and refusal subject to conditions of Section 9 D an exception. The H`ble Court summarized its findings as follows:

“Para 32. Thus, we summarize our conclusions as under :-

(i) We are of the opinion that the provisions of Section 9D(2) of the Act are not unconstitutional or ultra vires;

(ii) while invoking Section 9D of the Act, the concerned authority is to form an opinion on the basis of material on record that a particular ground, as stipulated in the said Section, exists and is established;

(iii) such an opinion has to be supported with reasons;

(iv) before arriving at this opinion, the authority would give opportunity to the affected party to make submissions on the available material on the basis of which the authority intends to arrive at the said opinion; and

(v) it is always open to the affected party to challenge the invocation of provisions of Section 9D of the Act in a particular case by filing statutory appeal, which provides for judicial review.”

Therefore, it is clear that any refusal of cross examination is required to be subjected to procedural and substantive safeguards as enumerated above by the H`ble H.C. of Delhi, so as not to be excessive abuse of power by the Adjudicating Authority. Otherwise the Higher appellate Authorities are bound to remand the matters. The same findings find echo in the later observations of various High Courts and also of Delhi H.C. in the matter of 2013 (294) E.L.T. 353 (Del.)BASUDEV GARG Versus COMMISSIONER OF CUSTOMS- Adjudication - Evidence - Statement against assessee cannot be used without giving them opportunity of cross-examining deponent - Cross-examination is valuable right of accused/noticee in quasi judicial proceeding which can have adverse consequences for them - However, it can be taken away in exceptional circumstances stipulated in Section 9D of Central Excise Act, 1944 and Section 138B of Customs Act, 1962 - Unless such circumstances exist, noticee would have right to cross-examination. [paras 10, 14].

However, despite law being so clear the departmental officers continue to refuse cross examination on slightest pretext under some old and outdated judgments which are quoted out of context to somehow give justification to refuse cross examination. It is to be noted that neither Sea Customs Act, 1878 nor Customs Act, 1962 or Central Excise Act, 1944 prior to 1973 had any such provision as Section 138 B ( reproduced supra) or Section 9 D respectively, therefore all the judgments rendered in context of old law even of Supreme Court, High Courts or Tribunal on natural justice prior to 1973 or in context of old law or without recourse to the new provisions are now not of any great relevance and Delhi H.C. and other High Courts like Allahabad High Court who have noted the decisions of J.K. Cigarettes hold the field now and reliance upon old judgments by the departmental officers is now totally misplaced.

Some of these judgments which are frequently and incorrectly relied upon by the departmental officers are as follows;

1983 (13) E.L.T. 1486 (S.C.)KANUNGO & CO. Versus COLLECTOR OF CUSTOMS, CALCUTTA AND OTHERS- It was delivered in the context of Section 167(8) of the Sea Customs Act, 1878 read with Section 3(2) of the Imports and Exports (Control) Act, 1947 and is no more relevant. In any case, it only dealt with refusal of Cross examination of informer and not the witnesses.
1. 1983 (13) E.L.T. 1546 (S.C.)COLLECTOR OF CUSTOMS, MADRAS AND OTHERS Versus D. BHOORMULL- It was delivered relying on Kanungo and Co.`s case and was based on law prior to existence of section 138 B of the Customs act,62.

The right to have cross examination of a relied upon testimony was also upheld by the apex court in:

1. 2000 (117) E.L.T. 538 (S.C.)SOUNDS N. IMAGES Versus COLLECTOR OF CUSTOMS

In fact, the case of kanungo was examined threadbare by the H`ble tribunal in the matter of 1988 (34) E.L.T. 357 (Tribunal)RATTAN SINGH AND SONS Versus COLLECTOR OF CUSTOMS, NEW DELHI in the following Paras :

`Para 9. We are aware of several cases where the right of cross-examination was denied but yet the court held that the said denial did not amount to any denial of natural justice. For instance in Kanungo and Co. v. Collector of Customs - 1983 (13) E.L.T. 1486 (S.C.) — AIR 1972 S.C. 2136, the Court held that the denial of the right to cross-examine the informants, on whose information action was being taken against the smuggler, would not amount to a denial of natural justice since the identity of the informants was to kept secret to protect such source. Again in Gurbachan Singh (AIR 1952 S.C. 221) it was held that denial of cross-examination of the witness on whose information the order for externment had been passed would not violate natural justice since the witnesses would not like to come in the open to depose against bad characters due to fear of violation of their person or property. In two other cases i.e. S.K. Suri (AIR 1973 M.P. 278) and Hiranath (AIR 1973 S.C. 1260) denial of opportunity to cross-examine, a lady lecturer in one case and girl students in the other case, was held not to constitute denial of natural justice, on the ground that the procedure adopted by the Adjudicating Officer was right and was a proper way for providing a justice and reasonable enquiry without exposing the lecturer or the women students to harassment. Thus these cases establish that denial of opportunity to cross-examine persons, on whose statements reliance was being placed to conclude against the delinquent, need not in all cases lead to a conclusion of denial of natural justice. The reason given was either to protect the anonymity of the informants or to protect the witnesses from further harassment which the enquiring authority felt was bound to follow if cross examination was permitted.

12. In the present case there is no question of protecting the anonymity since the person whose opinion was being relied upon was disclosed. Nor would it be a case where there can be any apprehension that to permit cross-examination of such a person would inevitably lead to harassment. Nor is this a case where, as under the National Security Act considered in A.K. Roy (AIR 1982 S.C. 710), a right of cross-examination is denied under the Act itself. Nor is this a case where the adjudicating officer had no powers to summon a witness and compel attendance. The Additional Collector had such a power under Section 108 of the Customs Act.’

Therefore, it is quite clear that providing of cross examination is a norm and denial an exception which again has to be done with sufficient safeguards as provided in Section (9D) of the Central Excise Act, 44 and Section 138 B of the Customs Act,62 and that too has to be done with procedural safeguards a outlined by the Delhi H.C. in the aforesaid matter of J.K. Cigarettes.

Bits and Bytes- May, 2014- Published in revenue Transparancy Times.

Bits and Bytes -

By:

Somesh Arora. (Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise)

Modi in Delhi- Finally he comes. To unfurl the Indian flag from the sets of Red fort to ramparts of the real one. The journey has been dream like for a man stated to be doing dream selling. The arrival on the national scene is a kind of stuff the Bollywood blockbusters are made of. Is India back to having a Charismatic leader after a long dry spell? Time will tell after testing Nandru for a while. During the elections, while Rahul and Kejriwal got their pet names of ` Rahu and Keju’, Narender Modi became Nandru, after a friend informed that Nandru means Lotus stem in Kashmiri. So, welcome Nandru to the city of Delhi where we both are going to be contemporaries, for some span of our life. While, there will be many who will give you solicited or unsolicited advice, during your stay and tenure here, which I wish will be real long. I too have my lists of advises based on my experience of more than twenty years of stay now in this city. First is save yourself from pollution of Delhi, specially in winter. Remain confined to Lutyens Zone for most part of your stay, for living outside would mean constant coughing due to SMP level of the city being the highest in the world. Keju stands testimony. While there is no hurry for you to do anything about it, as we the Delhites do get some clean air, though only with in the confines of ICUs of the Hospitals. As far as water is concerned, there are varieties of it available here. One for sanitation, one for drinking through twenty liter bottles, one for cleaning utensils and clothes, one for bathing and last one to privileged few for gardens and pots. This gives Delhi its Panj-aab Character. Don`t for the sake of your previous occupation ever take tea outside as you never can trust the Khoya and milk here, 75 percent samples contain urea and other adulterants. Trust your very own Amul after checking thoroughly that packing has not been tampered with. There are number of Sheela-nyas which the ex-C.M. had done and which projects are lying like that only, some of them are of the period prior to Common Wealth Games. God knows when are they going to be finished. So if you see some structures in and around Delhi looking like ruins don`t think they are of Mahabharta`s vintage but they only look like that. Files in the hands of Babus without wheels and Cars on the roads despite wheels, hardly ever move here. But the phenomena may not affect you. The files in various departments can appear, disappear and reappear like the magic trick of Jadugar Sarkar. Delhi Golf club is the place where maximum decision making happens in Delhi. May be a good idea to open small branch office of P.M.O. there. Your name will be the latest to be dropped for familiarity even by those who like me may have seen you at the most in your 3- D avatar. For this is the culture of the city. The street fights in the city in recent years have been less in comparison to the temple of democracy, where you prostrated recently. Some of us do hope that rather than restoring various other temple structures, your Government gives priority to ` `shudikaran’ of this temple. So, this is Delhi with some of its shades. Enjoy and have a happy stay, Nandru.

Porters at the ports- The story of Customs anywhere remains incomplete without the story of rich porters at the ports. In India, right from the time of Haji Mastan we always had the Customs Clearance Facilitators to the smugglers. Inspectors come and go, officers come once in a life time, but these porters are permanent fixtures of any port and that puts them in position of great demand with the smugglers. At Attrai Rail we have a group of porters who employ their cronies to lift the baggage as they can only lift notes of Gandhi or of Jinnah. Their children study in Lawrence and other reputed schools , they own large tracts of lands on the border to allow them an alternate channel to smuggle, most of them have their own transport companies to handle goods with care. Even in our own Delhi, in the evening, at ICDs, pilfered goods bazaar is run by these porters and at the airports all kinds of special services are provided by them. It is for these reasons that from a Porter to a Don can be a steep but quick rise for these porters. The best way to know them at any port is through their inability to handle heavy pieces of luggage, which their prosperity disables them from doing.

`Daaru and butter chicken’ or `Smack and Snack’ in Punjab- It is stated that land of Daaru and butter chicken has now moved to stronger version of ` smack and snack’ as even the vendors of eggs provide `purri’ (why there is no English version of this word). The Punjabis who are not into it are surely concerned that they may not be reduced to minority in the state and showed their resentment even in the recent elections in their own way. Attari rail in the recent point of time has emerged as one inlet for such drugs to come in as seizures and involvement of some staff has shown, Customs has tightened its belt since then by posting some responsible officers. But drugs continue to pour in through what is conventionally called as `conceal and clear” method by which Pak smugglers conceal these drugs at night in Indian fields and the same are removed in the morning by farmers working in the fields and moved to the Indian side of the fence for local consumption now. The sophistication to the operation has been provided by usage of Pak mobiles by Indian smugglers, which avoids detection by Indian agencies, as towers used are all from the other side of the border. Usage of sniffer dogs with the petrol parties of BSF may help. So far they have been used more for detection of explosives and are trained mostly for that. The drug menace now is no more for consumption in USA and India no more a transit point, but a market for its consumption exists in J&K, H.P.(Kullu Manali), Punjab and Haryana. Dhabas in Haryana in the evening on G.T. Road on stretch from Pipli to Ambala are quite prone to these kind of activities.

Doggie is dahej- With the umpteen number of dog lover ladies I see on social media, proudly displaying their prized possession of various sizes and breeds, I think it will be apt to say `doggie hi dahej hai’ in these times. Imagine if the young maiden enters the new house in the august company and escorted by a dog, all the `saas’ and `sasur’ will forget to ever pull her up. In good old times we used to hear that a servant used was a part of the dowry to serve the rich lady in her next place with all expenses being foot by her maiden family. Now the law and economics does not permit that. So to give her company and not to make her miss everyone from her earlier family the pet can be a good choice. The husband may be bitten and barked at in the beginning, but will gradually learn to live together like our MPs after the elections, become a cohesive lot. The cases of bride burning or lady bashing will immediate see a drop and this will also usher in the much promised ` women empowerment.’ Though the demand for anti- rabbies treatment may also go up. The initial breed can be a really ferocious one and with bonhomie developing in the in- laws house the later can be sweet little pups.

Stay -Stay,stay away,for reduced litigation-pave the way

Stay- Stay, stay away, for reduced litigation -pave the way:

By: Somesh Arora, Advocate

If budget 2014-15 will be known for one measure with far reaching consequences on litigation, then it is the introduction of provision relating to pre-fixed amount to be paid by tax payers for getting their appeals heard. Having already been tried by some states and still in the stage of evolution and litigation, the provision has benefit of reducing two tiers of litigation to one, thereby reducing work load by atleast 40%, at appellate forums. Again, it has potential to reduce discretion and thereby oft complained corruption. Inconsistent orders at lower levels have been often commented about by the higher Judiciary. Subjectivity rather than objectivity in dealing with stays was becoming quite apparent. Prima facie view only, not binding nature of a stay order was becoming defense to dispense discretionary justice. Now, all that goes.

For the department the benefit will flow from money getting deposited at the early stage of hearing of appeal by Commissioner (Appeals), where up to 15%( 7.5% plus 7.5%) of amount can be realized at the maximum with in 60 days of adjudication. Till now 90% of the appeals were heard without pre-deposit despite their being a provision existing for seeking pre-deposit. That was because most of the Commissioner( Appeals) were hearing appeal simultaneously with the main appeal, as they had little or manageable pendency. But scenario was quite different at the CESTAT level where it was becoming hard to get the stay heard even up to a year and regular matter was coming up for hearing after a gap of 6 to 10 years of filing of appeal. And even a matter granted with early hearing for 4 to 5 years. All that is bound to change. While Revenue will benefit and will not have to rush for recoveries as it was doing recently, the benefit will be there too for small tax payer as there may not be too much pressure to deposit too much amount as (in) voluntary payment and there will be certainty about litigation and no longer running for somehow litigating extensively to get stay or partial stay right up to Supreme Court. The bigger tax payers may benefit from cap of Rs. 10 crores which exists in Clause 98 of the Finance Bill,2014, which while seeking to amend Section 35F provides as follows:

(i) 7.5% of the duty demanded or penalty imposed or bothto be deposited , for filing appeal before the Commissioner (Appeals) or the Tribunal at the first stage and,

(ii) 10% of the duty demanded or penalty imposed or both, for filing the second stage appeal before the Tribunal.

(iii) The amount of such pre-deposit payable would be subject to a ceiling of Rs.10 Crore.

The changes will be effective from the date of enactment of the Finance Bill, 2014.

The move in the budget can be described as a step forward in the right direction aiming at reducing of litigation, increasing revenue and generally affording justice to the assessee by considerably reducing the scope for discretion which was liable to be misused.

In the days to come, the provisions will be thread bare analyzed and there may be a spate of challenges in the Court as legal practitioners will also see their practice getting reduced considerably. But then that is a too myopic view, when the overall interest of the country is to be taken in consideration and reduction of compliance cost for tax payers is to be achieved. Basically the provision is a reform that can surely be evolved with a bit of fine tuning.

From the departmental officers, however, a reasonable expectation will be the judiciousness in raising demands and imposition of penalties on the small tax payers. The Zero may have been invented in India, but liberal usage of it by the Revenue officers in figures of duty demanded and penalty imposed in adjudication proceedings can sure be detrimental to the interest of tax payers, especially in service tax. And also will the Department now do away with the provision that requires that stay once granted will be valid for a year only, so that same does not act to the detriment of those who may have already deposited more that 7.5% to 10% before amendment takes effect. Again, it is hoped that voluntary deposit now will be truly voluntary and in vicinity of 7.5% to 10% of likely duty. And so, shall be the provisional release of goods on guarantee amount close to that.

Bits and Bytes- June, 2014- Published in revenue Transparency Times.

Idea times:

A new Government at the helm, with a first term Prime Minister and with a reputation of openness to fresh ideas and a zeal to implement them. It must be a time when Top echelons in Bureaucracy will be on a lookout out for officers who are go-getters and can give fresh ideas and implement them. The staleness normally sets in after a period of two years in a new regime. Till such time the key words doing the buzz in official circles will be ` think tank’, ` task masters’, `achievers’, `loyal to the task’. The last one becomes important to indicate that whatever officer was doing in the previous regime was out of ` sincerity’ to the task and not `loyalty’ to the previous regime. The latter term is usually used to tarnish someone out to be considered for important assignment but not amenable and among the favourites of the opinion giver and puts a person in the devil`s category for the new regime, even though the person may be of competence and integrity. But a shake up always happens with a change of regime and fortunes of civil servants also change along with political masters. Fresh ideas also get discussed and get dropped depending upon who is giving them. Seniority in suggestions is required to be maintained. Fresh minds in Civil Services cannot talk about their ideas unless they are fairly old and senior and ideas become out of date. Some of the ideas that will eventually meet with the approval of the Minister or will originate at his level, will be termed as `revolutionary’ and Minister convinced that it was the best thing to have happened to India. Efforts to implement such ideas will find mention in the written speeches of the Minister and his Achievement-list to get him a grading of ` performing Minister’. The Official world thus goes on. The entrepreneurs manage to get their jobs done in any regime and those who do not have to term themselves as a `Commoner’ or `losers’. The ideas create and recreate, ideas mar and demolish and ideas divide- the change in Government is indeed time for `idea-ism’ for great India.

Marine ideas: One of the ideas successfully implemented and being followed in Germany is to put a container on big wheels right from the off- loading stage from the ship by using only once the cranes fitted at the port. Thereafter the trailer with the wheels and container on it is carried in the train or in big trucks to the ultimate destination. The dwell time reduction achieved through the measure is 5 to 6 hours in International trade through this small inventiveness in Logistics sector.

In Holland, Containers are being used to provide multi-floored housing with windows fitted and staircase being provided from outside. Interiors done beautifully and containers fitted with air-conditioners, the whole housing not only is cost effective, earth quake resistant but can also be easily dismantled and carried to any other destination. Any takers for the idea, especially those organizing next kumbh mela, or looking to provide decent accommodation at reasonable cost.

While anyone into serious Cruise business has still to touch the shores of India in a big way, tourist destinations in Europe, especially close to the coast are busy getting the second-hand and only capable of floating Cruise ships for providing reasonable accommodations to the tourists termed as ` Botels’. Imagine how cost effective it can be it a Botel like this can come close to Hotel Taj in Mumbai or in Mandovi in Goa. But are there any takers for such ideas in our incredible India.

While in Rome, carry police from Home: Those complaining about the policing in India should visit Rome first to see one of the worst specimens. On a three day visit with another family, on the first day the head of the accompanying family got his purse picked. Next day, it was the turn of Yours truly who after realizing what has been done identified the man, got the train chain pulled, ran and chased the man, got him blocked at the escalator, got the purse retrieved and caught the man in a true Hollywood block buster style and handed him over to the Metro Security. Could have spoken a Filmi dialogue like “Agar tum Euro hi loote to mein shayad tumhe maaf ker deta, magar tumne do Gandhi bhi lootne ki koshish ki. Aur Yeh koi Indian nahi maaf kar sakta” The last day again at the station we were virtually surrounded by a gang of 25 persons including young girls and men passing messages on phone for the `prey and their movements’, moving only when some odd security man came, girls changing dresses to escape attention and chase continued till next station. A real battle of wits between the hounded and the hounds. In India on an average, experience has shown that a person has pocked picked once in ten years and similarly faces one theft in a decade and here imagine what must be the number of reported and unreported crime. Though visibility of Police in public is being detested in many countries and its their mobility to reach the spot of crime that is emphasized. The former has a distinct advantage in preventing the crime, is quite clear from Indian experiment, not withstanding all the criticism that our police faces.

Budget-2014-15

Budget 2014-15:

Promises to keep, beginnings to make - Budget.

By: Somesh Arora, Former Commissioner of Customs and Excise, Advocate. (Amicus Rarus)

--------------

The maiden budget of Shri Arun Jaitley and Modi Government has turned out to be on expected lines. There were aspirations to meet after land slide victory and promises to keep even though the available resources made the whole exercise a tight rope dancing. In an effort to deliver on most of the election promises, the details indicate that atleast a token of allocations have been made on all the fronts. A simple reform like raising of qualifying limit of Salary/ wages from Rs. 6,500/- to a higher level under Provident Fund Act, considering that even the minimum wage is above Rs. 7,000/- in most of the states, was not carried out earlier due to inertia in decision making. Finally it has got raised to Rs. 15,000/-. The manufacturing and infrastructure sector has again started getting all the attention. Will this mark the comeback of high growth of industrial output for India? - Only future will provide the answer.

The detailed budget speech probably the longest in last 20 years had elaborate accounts of allocations running up to even tens of Crores on the down side. While this indicated that budget exercise had taken care of even the remotest corners of India and had something of a consolation to offer to them, it also made the speech little boring devoid as it was of any customary poetry. But that should not take away the credit from the P.M. and his F.M. for presenting a budget which will provide impetus to infra sector, power sector with particular emphasis on solar energy, defence sector and manufacturing sector. The budget can be hailed as Entrepreneur friendly, FDI friendly and Middle class friendly. While the promises may take long to eventually deliver, atleast the first step has been taken. Retaining of MNREGA may be a smart move to blunt the criticism of Opposition. Budget seems to be giving all the handle to entrepreneurs to grow, while retaining the hard core task of regulation, governance and infra development to the Government, but that too, through PPP model. If still growth is not realized, then entrepreneurs have nothing but themselves to blame.

Cheer Factors:

Customs:

Ø Basic Customs Duty on fatty acids, crude palm stearin, RBD and other palm stearin and specified industrial grade crude oils is being reduced from 7.5% to Nil for manufacture of soaps and oelochemicals subject to actual user condition.- Soap , soap everywhere but no water to bathe.
Ø Basic Customs Duty on denatured ethyl alcohol is being reduced from 7.5% to 5%.- new fuel to choke less of our lungs.
Ø Full exemption from basic customs duty is being granted to de-oiled soya extract, groundnut oil cake/oil cake meal, sunflower oil cake/oil cake meal, canola oil cake/oil cake meal, mustard oil cake/oil cake meal, rice bran/rice bran oil cake and palm kernel cake, up to 31.12.2014 - Tide over food inflation temporarily- short duration achhe din.
Ø Basic Customs Duty on steel grade dolomite and steel grade limestone is being reduced from 5% to 2.5% - steel industry should cheer and not crumble like rusted iron.
Ø The BCD on anthracite coal and other coal is being reduced from 5% to 2.5%. The CVD on Anthracite coal, Coking coal and other Coal is being reduced from 6% to 2% - Coal without mining and scams.
Ø Basic Customs Duty on crude naphthalene is being reduced from 10% to 5% - Petro brings memory of Amabani only.
Ø Basic Customs Duty on raw materials for manufacture of spandex yarn viz. Diphenylmethane 4,4 di-isocyanate (MDI) and Polytetramethylene ether glycol (PT MEG) is being reduced from 5% to Nil- Ahmedabad and Surat Conquer
Ø Full exemption from Basic Customs Duty is being provided on specified raw materials used in the manufacture of solar backsheet and EVA sheet for use in manufacture of solar PV cells or modules- it is Sunshine all the way. Future Indian roof tops will only be of solar panel. Litigation will be more on Dhoop Chori.
Ø Specified goods imported for use in the manufacture of textile garments for export are fully exempt from BCD and CVD subject to the condition that the manufacturer produces an entitlement certificate from the Apparel Export Promotion Council - Meet the Thailand challenge, Indian Garment exporters.
Ø The BCD on ships imported for breaking up is being reduced from 5% to 2.5%- Expect old ship jam in Jamnagar.
Ø Full exemption from Special Additional Duty (SAD) is being provided on specified inputs (PVC sheet & Ribbon) used in the manufacture of smart cards- better to use smart card as your visiting card.
Ø Basic Customs Duty is being reduced from 10% to 5% on forged steel rings used in the manufacture of bearings of wind operated electricity generators- Making Netherland of India.
Ø Full exemption from Basic Customs Duty is being granted to pre-forms of precious and semi-precious stones- Come cheaper uncut, go dear cut.
Litigation to be reduced through enlarging scope of Advance Ruling Authority, Settlement Commission and reduction in Stay applications- There may be initial litigation on how to interpret automatic stay provision though.
Ø The duty free entitlement for import of trimmings & embellishments and other goods used by the readymade textile garment sector for manufacture of garments for export is being increased from 3% to 5%.
Ø 24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods to facilitate cargo clearance- Day or night and Sun or rain, a custom officer has to work and deliver always.
Ø ‘Indian Customs Single Window Project’ to facilitate trade, to be implemented- no more carrying of stamps and B/Es by C.H.A.s

Central Excise:

Ø Excise duty on Branded Petrol is being reduced from Rs.7.50 per litre to Rs. 2.35 per litre- When Central Excise looses, others tend to gain. How long that others will be the consumers?
Ø Full exemption from excise duty is being provided to specified raw materials used in the manufacture of backsheet and EVA sheet for manufacture of solar photovoltaic cells or modules- Sun reaches Union budget of India also.
Ø Full exemption from excise duty is being provided to DDT manufactured by Hindustan Insecticides Limited for supply to the National Vector Borne Diseases Control Programme (NVBDCP) of the Ministry of Health & Family Welfare- Is the Mosquito still scared of DDT?
Ø Full exemption from excise duty is being provided on plastic materials reprocessed out of the scrap or waste and cleared into the DTA by an EOU-Which part of Mother India will bear pollution?
Ø Full exemption from excise duty is being provided for security threads and security fibre supplied to Security Paper Mill, Hoshangabad and Bank Note Paper Mill India Private Limited (BNPMIPL), Mysore- Hope Pakistan will not remove excise duty( sorry GST there now) on these products.
Ø Full exemption from excise duty is being provided on solar tempered glass used in the manufacture of solar photovoltaic cells or modules, solar power generating equipment or systems and flat plate solar collectors.- India may soon need to have solar holdiay on a cloudy day. Like we have ‘system down’ holidays in banks.
Ø Excise duty is being reduced from 12% to Nil on forged steel rings used in the manufacture of bearings of wind operated electricity generators. (CVD also goes on imports).
Ø Full exemption from excise duty is being provided to reverse osmosis (RO) membrane element for water filtration or purification equipment (other than household type filter) - Ganga will one day flow through R.O.

Service –tax:

Ø Provision of Services Rules to be amended and tax incidence to be reduced on transport of goods through coastal vessels to promote Indian Shipping industry. (Captains of these ships cannot afford a wife at every port)
Ø Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net (point of litigation- wholly conducted)
CENVAT credit for services of rent-a-cab and tour operators to be allowed to promote tourism.
Ø Service tax exempted on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled.
Ø Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 exempted, from service tax. (E.P.F.O case likely to get confirmed)
Ø Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs. 50, 000 per life insured.
Ø For safe disposal of medical and clinical wastes, services provided by common biomedical waste treatment facilities exempted.

Income-tax:

Ø Personal Income-tax exemption limit raised by Rs. 50,000/- that is, from Rs. 2 lakh to 2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs. 2.5 lakh to Rs. 3 lakh in case of senior citizens.- Those who do not want to pay tax can now stop at Rs. 2.49 lacs instead of Rs. 1.99 lacs. More GDP and per capita income in the offing.
Ø Investment limit under section 80C of the Income-tax Act raised from Rs. 1 lakh to Rs. 1.5 Lakh- Save more for the rainy day, so that other multiply on your savings or dupe you of it.
Ø Deduction limit on account of interest on loan in respect of self occupied house property raised from “1.5 lakh to 2 lakh”.- Government will share some burden of yours, when that builder fails to deliver once in a life time flat of Yours.
Ø Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment- Itne se inka kya hoga?
Ø Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017.
Ø 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017- some power to powerless.
Ø Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains- Atithi devo bhav.

Ø Concessional rate of 15 percent on foreign dividends without any sunset date to be Continued- the sun never sets, when dividend is from the west.
Ø The eligible date of borrowing in foreign currency extended from 30.06.2015 to 30.06.2017 for a concessional tax rate of 5 percent on interest payments- Reducing the LIBOR pains.
Tax incentive extended to all types of bonds instead of only infrastructure bonds- Bonds to become attractive like James Bond.
Ø Introduction of a “Roll Back” provision in the Advanced Pricing Agreement (APA) scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in previous four years in specified circumstances.- If I have to understand every tax law, then what for are the Big Fours there.
Ø Introduction of range concept for determination of arm’s length price in transfer pricing regulations. To allow use of multiple year data for comparability analysis under transfer pricing- More difficult for Department to prove not at arm’s length case.
Ø To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Mutual Funds, other than equity oriented funds - C.As need to explore some new trick now.
Ø Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes - Simple Arithmetic to transfer portion of your dividend to tax authorities by cum-tax mechanism.
Ø In case of non deduction of tax on payments, 30% of such payments will be disallowed instead of 100 percent. - getting your TDS certificate will become more difficult in short.
Ø Government to review the DTC in its present shape and take a view in the whole Matter- Yeh review kab tak chalega? Will any Astrologer tell?
Ø 60 more Ayakar Seva Kendras to be opened during the current financial year to promote excellence in service delivery- SEVA word se bahut dar lagta hai sahib.

Tear Factors:

Customs:

Ø Export duty on bauxite is being increased from 10% to 20%.( Keep Bauxite on Indian soil only)
Ø The BCD on Coking coal is being increased from NIL to 2.5% and on steam coal and bituminous coal from 2% to 2.5%. Basic Customs Duty on metallurgical coke is being increased from Nil to 2.5%.
Ø Basic Customs Duty on Polystyrene (other than moulding powder) is being increased from 1.15% to 7.5%
Ø The exemption from education cess and secondary and higher education (SHE) cess leviable on CVD is being withdrawn on certain electronic goods

- Back to multiple cess days.

Ø Basic Customs Duty on half-cut or broken diamonds is being increased from NIL to 2.5% and on cut & polished diamonds including lab-grown diamonds and colored gemstones from 2% to 2.5%.

Central Excise:

Ø Basic Excise Duty is being increased from 12% to 16% on pan masala, from 50% to 55% on unmanufactured tobacco and from 60% to 70% on jarda scented tobacco, gutkha and chewing tobacco.(Banned Gutkha to become expensive)

Service tax;

Ø To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Service provided by radio-taxis brought under service tax.
Ø Services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants brought under service tax.
Ø Shylock`s interest of upto 30 percent for delay in paying service tax.- If you collect and do not pay, your period of arrest will ensure that once you come out your home, car and assets will all vanish.

Litigation factor: Requirement of payment of 7.5 percent (Ist Appeal stage) and 10 percent( IInd stage appeal) or Ist Appeal at CESTAT stage of duty or penalty or both, irrespective of whether the case is of Clandestine Removal or legal interpretation. Time to get all 100 crores notices from the department. If you do not get RUDs or Cross examination you may still have to shell out a hefty sum to get the case back. While interest above is missing the `or’ later can be dangerous.

Bits and Bytes By Somesh Arora

Bits and Bytes - April, 2014 By:Somesh Arora. (Chief Consultant (Amicus Rarus) and Former Commissioner of Customs & Excise)
India in Election mode- When India goes in the election mode the world watches. The great Indian Election Tamasha in its 2014 version, is un-paralleled in its scale of massiveness and grandeur. Tourism opportunity, that offers a show next only to Olympics. Tens of channels, beaming pre-poll surveys almost on a daily frequency. Social media being chosen for choicest of invectives and abuses, anchors trying to prove how they are better than the best candidate vying for the top job, leaders working harder than they did in the last four years on their campaigning efforts, brand building of individuals to the extent that can make giant Mickey Mouse Brand diminutive. Ammas, trying to shed flab and look trim so as to save wood on their cutouts- a go green spirit sufficient to earn carbon points for some parties. Statistics, being churned out to prove and disprove a lie. The oldest, of the junked helicopter, being put to use. Business people, giving `Chanda’ to parties of all hues, in proportion to their winning prospects. Best of the brains, using and understanding and doing reverse-engineering of electronic machines, to defeat election commission efforts to favour their favorites. Musclemen in demand to prevent and do booth capturing like my favorite legal phrase of ` does or prevents from doing’. Election Commission trying to secure greater turnover percentage, like a Class XII student trying to secure better than the cut off of last year or an Olympian trying to give better timing than the Bronze medalist of last Olympics. Expenditure observers worried more about their own safe exit from unsafe constituencies rather than the expense account of contestants, who in any case do not exceed the limit like S.S.I. assessees or non Income tax payers. Lower level employees, grudgingly doing the election duty of manning or womanning the booth. And finally the heart beats of the contestants and their B.P. being controlled with high potency` Losars’ (no brand building but this is the only name I know of B.P. medicine). Children acquiring vocabulary of invectives from our politicians, who in turn can make our cops of Haryana and Punjab Police sound respectable in comparison. Dhols, T.V., Radio, SMS and Cyber media ads, flags on human skins, cut outs, banners, trees, all possible public spaces being used and some of them with such indelible print that they can last till next elections. Some parties, requesting for re-elections, even when the indelible ink mark of the previous election, has not left the finger. Techniques being developed to get that mark on the finger prints removed or erased with chemicals including phosphorous on the match stick. Nothing sharpens an Indian brain and muscles and makes our politicians work, like an election does. The posters are peculiar too, while in South the contestant must have a Sun glasses on. In North, a namaskar and show of humility is mandatory. A wave of hand goes only for the big leaders. Which way the Rajnikant moves has to be interpreted from his comments and that one factor can change even the Indian politics at the Center. All in all we wish well for the Indian democracy and hope that the best candidates of all parties win in the 2014 elections.Of Involuntary voluntary payments and curtain downs on Cenvat from January- When the Year end of a not so good Revenue Collection Year comes to end, certain course of actions become justified:A man was waiting to cross the highway but was hesitant because of speeding cars. Suddenly Yamdoot appeared & said, "Man, why are you afraid like this...You are going to live 90 year of age. Don't let such little things scare you ever."The man moved forward with new courage, got hit by the first car and died.In Heaven, he asked Yamdoot as to why did he lie. The Yamdoot answered, "Sorry man, year-ending pressure buddy, had to achieve my targets.Therefore, to expect our Revenue Collecting machinery to be different is asking for too much. What the Assessees avoid therefore are the Year end summons and even if they appear they do it without cheque books. CENVAT credits are all exhausted by December. And this year even hearing dates of March with the Commissioner (Appeals) were avoided with the thinking that pre-deposit will become imminent.The Revenue sleuths caught hold of some inoperative EOUs and made them shell out part deposits on account of drawback claimed even when the imports were duty paid on the ground that they cannot dare do it while being an EOU, even if imports had discharged duty burden and as per Drawback Rules they were entitled because a Notification meant to be beneficially construed was strictly interpreted even contrary to the Rules to make the Assessees shell out money. The end of the Financial Year this time has incidentally coincided with Election Year posing dilemma to business whether to shell out this way or that way. However, it is always better to lean towards Revenue because it is bound to catch up with you sooner or later, as it was realized by this experience:Once a ITO, ITI and STENO of INCOME TAX DEPT came across a jin.Jin said I'll fulfill 3wishes but u r 3persons so I'l l fulfil 1 wish each.
STENO :- Send me to America with a lot of money. STENO disappears...(wish fulfilled)ITI- Send me to Paris with a lots of beautiful girls. ITI disappears... (wish fulfilled)Jin to ITO:- What is your wish? ITO - I want these 2 idiots back for March Closing. (wish fulfilled)Of the big time arrests that the Service Tax made was an N.C. P. leader in Aurangabad for collecting and not paying service tax of more than 50 lakhs and of Customs was one T.M.C leader for smuggling gold in Kolkatta. Therefore, Revenue does not even spare politicians, now a days.
Bahut Nainsaafi hai : A man in North East came to vote with 39 wives and 39 mid aged men came in a group in Haryana without even a single one having any wife. Diversity in Unity of India............

Wool- the wonder fiber

Wool- The fiber that has charmed the world.

BY: Somesh Arora, Advocate

Former Executive Director, WWEPC.

On the occasion of the Golden Jubilee of Wool & Woollens Export Promotion Council (WWEPC) in the year 2014 it is great feeling to be writing for the commemorative issue of this great organization, of which I was a part from the Years 1997 to 2002. Formed in 1964, WWEPC has to its credit the honor of being one of the oldest, Export Promotion Council in India. It deals with a product which has the history of millennium of years of export from India. The Council, therefore holds a distinct and special place in being the part of the promotion effort of a product in the export basket of India, which has uninterruptedly been India’s export commodity to the people, who live by classy choice of their own worldwide. Such buyers have always clamored for India’s Kashmiri Woolen Carpets, Pashmina and Shahtush Shawls (in the past) and traditional Jamavar (being used by the royals to keep warmth in their tents when being away from the palaces). The wool generated in the plains in areas of Rajasthan, Madhya Pradesh and in the regions of Kutch was always for the masses, but the color, spark and splendor was added through mirror work, embroidery and other embellishments. The tradition with little variation continues till today. India’s export basket of wool however has undergone change and now includes woolen Stoles, Suiting, Knitwear and other fashion apparels. Shahtush, however is now missing due to ban imposed by environmental authorities.

Wool- the historical moorings: Although sheep were domesticated nine to eleven thousand years ago, archaeological evidence found from various sites in Iran suggests that selection for woolly sheep may have begun around 6000 BC,^]with the earliest woven wool garments having only been dated to two or three thousand years later. Prior to invention of shears, in the Iron age, wool was plucked out by hand or by bronze combs. In Roman times, wool, linen, and leather clothed the European population; Pliny the Elder records in his Natural History that the reputation for producing the finest wool was enjoyed by Tarentum, where selective breeding had produced sheep with a superior fleece. The wool trade developed into serious business, a generator of capital. In the 13^thcentury, the wool trade became the economic engine of the Central Italy. By the end of the 14^th Century, Italy predominated and has hardly looked back till now in production of high end woolen fabrics and garments. The exports of raw wool to Italy from England expanded and in 1275 A.D., it had to impose an export tax on wool called the "Great Custom". The Industrial Revolution introduced mass production technology into wool and wool cloth manufacturing. Australia's colonial economy was based on sheep rearing, and the Australian wool trade eventually overtook that of the Germans by 1845, providing wool for Bradford, which developed as the heart of industrialized woolens production.

In India references, to wool have been found in the Vedic texts and even Kautilya Arthashastra describes ten varieties of Kambals (blankets) made of wool. India at present has 44 descript sheep breeds spread over a wide range of environmental conditions.

Wool – some interesting facts:

The collapse in the price of wool began in late 1966 with a 40% drop; with occasional interruptions, the price has tended down. The result has been sharply reduced production and movement of resources into production of other commodities, in the case of sheep growers, to production of meat.
In December 2004, a bale of the world's finest wool, averaging 11.8 microns, was sold for $3,000 per kilogram at auction in Melbourne, Victoria. The finest bale of wool ever auctioned was sold for a seasonal record of 269,000 cents per kilo during June, 2008. This bale was produced by the Hillcreston Pinehill Partnership and measured 11.6 microns, 72.1% yield and had a 43 newtons per kilotex strength measurement. The bale realized $247,480 and was exported to India.
Superwash wool (or washable wool) technology first appeared in the early 1970s to produce wool that has been specially treated so it is machine washable and may be tumble-dried. This wool is produced using an acid bath that removes the "scales" from the fiber, or by coating the fiber with a polymer that prevents the scales from attaching to each other and causing shrinkage. This process results in a fiber that holds longevity and durability over synthetic materials, while retaining its shape.
- In 2007, a new wool suit was developed and sold in Japan that can be washed in the shower, and which dries off ready to wear within hours with no ironing required. The suit was developed using Australian Merino wool, and it enables woven products made from wool, such as suits, trousers, and skirts, to be cleaned using a domestic shower at home
- The Wool Act of 1699 was a legislation, which attempted to heighten taxation and increase control over colonial trade and production. It opened Britain's wool industry by limiting wool production in Ireland and forbidding the export of wool from the American colonies. The Act prohibited American colonists from exporting wool, wool yarn, or wool cloth to markets outside the individual colony in which it was produced, and also restricted the import of woolens and linens created in other areas of the British Empire. In effect, it forced all wool and wool products produced by colonies and dependent areas of the United Kingdom to be sold to British markets, and then resold to British citizens in all areas of the empire. Each sale generated taxes on these goods. Shopkeepers had a very hard time during period when the Wool Act was in force. Some colonists opposed this Act by buying more flax and hemp. It was repealed by the Statute Law Revision Act, 1867.

Such are the qualities relating to moisture resistance, warmth and coolness and rebounding to the crease that wool is often described as a fiber that is used by Astronauts for comfort in the confines of their spacecraft. Wool protects mountain climbers and polar scientists, the sailors who navigate single-handed the oceans of the world and men ‘who strike oil in Alaska’. It is a fiber fit for heroes-and for more ordinary folk. As modern as moon flight and as ancient as the hills. A fiber both for classes and masses.

M/s Girnar Transformers Pvt. Ltd. Vs. CCE, Kanpur

M/s Girnar Transformers Pvt. Ltd. ( Appellant) Vs. CCE, Kanpur (Respondent)

ISSUES

1.Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?

2.Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3.Whether their Lordships wish to see the fair copy of the Order?

4.Whether Order is to be circulated to the Departmental authorities?

Service Tax Appeal No. 56146 OF 2013 with S. T. stay No. 56588 of 2013

(Arising out of order-in-Appeal No. 312-ST/APPL/KNP/2012 dated 13.12.2012 passed by the Commissioner of Central Excise, Kanpur).

Appearance: Sh. Jitin Singhal, Advocate for the appellant, Shri Somesh Arora, Dr. G.K. Sarkar & Sh. B.L. Narasimhan, Advocates as amicus curie.

Shri Govind Dixit, DR for the Respondent

Coram: Honble Mr. Justice G. Raghuram, President

Hon’ble Mr. Rakesh Kumar, Technical Member

Final Order No. 50590 /2014

Per: Justice G. Raghuram:

The assessee company has preferred this appeal. The Deputy Commissioner, Central Excise, Kanpur passed an order dated 28.03.2012 confirming service tax demand of Rs. 10,24,952/-, interest and penalties, including penalty of an equal amount as the assessed tax, under Section 78 of the Finance Act, 1994 (the Act).

2. Under an agreement with M/s Dakshinanchal Vidyut Vitran Nigam Limited (DVVNL) the appellant was providing maintenance and repairs of old and damaged transformers. On allegation that during 01.04.2010 to 31.03.2011, the appellant failed to disclose the gross consideration received for having provided the taxable management, maintenance or repair (MMR) service to M/s DVVNL; had disclosed only labour charges received but not the gross value received, proceedings were initiated by the show cause notice dated 07.10.2011. The proceedings culminated in the adjudication order, dated 28.03.2012.

3. Aggrieved, the appellant preferred an appeal before the Commissioner, Central Excise & Customs (Appeals), Kanpur, alongwith an application seeking waiver of pre-deposit. By the order dated 29.08.2012, the appellate authority granted waiver of pre-deposit, on condition of deposit of 25% of the duty and penalty confirmed by the adjudicating authority. The pre-deposit was directed to be made by 30.09.2012. The appellant by letter dated 29.08.2012 requested the appellate Commissioner to reconsider the order of pre-deposit, since it was under severe financial distress.

4. By the (impugned) order dated 13.12.2012, the Commissioner (Appeals) rejected the appeal for failure in pre-deposit, ordered on 29.08.2012. The appellate authority observed that if the assessee were aggrieved against the pre-deposit order it should have approached this Tribunal; that the appellate authority has become functous officio after passing the pre-deposit order; and had no authority to review that order. Since there was no authority conferred to review the pre-deposit ordered, the appellate authority held, the appellants request for review (of the pre-deposit ordered on 29.08.2012) cannot be entertained. The appeal was rejected. Assessee is therefore before this Tribunal against this order dated 13.12.2012.

5. At the stage of considering the stay application, on 21.01.2004 we entertained a doubt as to the appropriate disposition warranted by this Tribunal, in the circumstances; whether an appeal against such order of the appellate Commissioner was maintainable; if maintainable whether it is permissible to reconsider the correctness of the appellate Commissioners order dated 29.08.2012 (directing pre-deposit before that authority); and if not whether the impugned order rejecting the appeal for failure of pre-deposit is liable to be interfered with by this Tribunal. Since the above issues have a general application and are recurrent issues before this Tribunal, the stay application along with the substantive appeal were listed for hearing after an invitation to the bar to make submissions on these issues. We have heard the learned Counsel for the appellant Sh. Jitin Singhal, and Sh. Somesh Arora, Sh. G.K. Sarkar and Sh. B. L. Narasimhan, as well.

6. We dispose of the stay application granting waiver of pre-deposit and the substantive appeal as well, by this order.

7. Section 83 of the Act enjoins application of certain provisions of the Central Excise Act, 1944 (the 1944 Act) to service tax. Section 35 F of the 1944 Act is one such provision which is made applicable to service tax matters. Section 35 F of the 1944 Act enjoins pre-deposit of tax, interest and penalties as assessed, when an appeal is preferred against an order, whether the appeal be preferred before the Commissioner ( Appeals ) or to this Tribunal. The first proviso to Section 35 F authorizes the appellate authority to dispense with the pre-deposit requirement, where the appellate authority is of the opinion that deposit of the duty/ tax demanded or penalty levied would cause undue hardship to an appellant but subject to such conditions as the appellate authority may deem fit to impose, so as to safeguard the interest of Revenue. Principles governing the exercise of discretion while granting waiver of pre-deposit or a stay are spelt out in several decisions, including decisions of the Supreme Court in Assistant Commissioner, Central Excise vs. Dunlop India Ltd.1; Benera Valves Ltd. Vs. CCE2; S. Vasudeva vs. State of Karnataka3; Bhabya Apparels Pvt. Ltd. Vs. Union of India 4; Union of India vs. Adani Exports Ltd5 ; Monotosh Saha vs. Enforcement Directorate 6; Vijay Prakash D. Mehta vs. Collector of Custom7.

8. The issue whether the learned appellate Commissioner erred in the exercise of discretion (in directing pre-deposit of 25% of the assessed liability, vide the order dated 29.08.2012) must however depend on whether that order had attained temporal finality since the appellant had not challenged that order and allowed that order to attain finality; whether an appeal against that order could be preferred to this tribunal and whether in an appeal preferred against the impugned order (dismissing the appeal), treating this as an order passed under Section 35 A, the correctness of the pre-deposit order dated 29.08.2012 passed appellate Commissioner could be considered.

9. Section 35 A of the 1944 Act sets out the procedure to be followed by the appellate Commissioner while disposing of appeals. Section 85 (5) of the Act provides that in hearing of appeals and passing orders under this provision, the Commissioner (Appeals) shall exercise the same powers and follow the same procedure as he exercises and follows in hearing appeals and making orders under the 1944 Act. Thus, the procedure for hearing appeals enjoined by Section 35 A of the 1944 Act is mandated to be followed by the Commissioner (Appeals) while hearing and disposing of appeals under the Act. A similar provision with regard to hearing and passing orders by this Tribunal is set out in section 86 (7) of the Act. Section 86 of the Act provides an appellate remedy to this Tribunal against a primary adjudication order passed by the Commissioner of Central Excise under Section 73 or 83 A, or an order passed by a Commissioner (Appeals) under Section 85. Section 85 (4) of the Act authorizes the Commissioner (Appeals) to hear and determine an appeal preferred to that authority and to pass such orders as he thinks fit including an order enhancing the service tax, interest or penalty.

10. On a primary analysis of the provisions of Sections 85 and 86 of the Act it appears that an appeal to this Tribunal lies only against a final order passed by the Commissioner (Appeals) in an appeal preferred to him; and not against an (interlocutory) order of pre-deposit passed by that authority, in exercise of discretion under the first proviso to Section 35 F of the 1944 Act. Since it is the settled legal principle that an appellate remedy is a creature of the statute; and availability of an inherent appellate remedy shall not be assumed; and requires to be legislatively provided, it is legitimate to infer that no appellate recourse to this Tribunal is open to an assessee against an (interlocutory) order of pre-deposit passed by the Commissioner (Appeals), since such an order would not be a order, which by itself disposes of appeal on merits. The appropriate remedy available to an assessee aggrieved by an order of pre-deposit passed by the Commissioner (Appeals) would therefore be judicial review under Article 226 or a supervisory curative recourse under Article 227, of the Constitution. Precedents however appear to belie this empirical assumption.

11. We consider some of the precedents which consider whether an appeal lies to this Tribunal against an order of pre-deposit passed by the Commissioner (Appeals).

12. In Hindustan Lever Ltd. vs. CCE, Chennai8, the Madras High Court ruled that an order passed under Section 35 F, not being a final order passed under Section 35 A of the 1944 Act, no appeal to this Tribunal is maintainable and a writ petition is maintainable. The Madras High Court quoted with approval decisions of this Tribunal in Bhushan Industrial Company Pvt. Ltd. Vs. CCE, Chandigarh 9 ; and International Computers vs. CCE 10, for this conclusion.

13. In Rajkumar Shiv Hare vs. Assistant Director11, the relevant facts were that appellate Tribunal under FEMA, 1999 directed pre-deposit of the adjudicated penalty, observing that in default the appeal would be dismissed. Against this order a writ petition was filed before the Delhi High Court which was rejected on the ground of territorial jurisdiction. Before the Supreme Court the fundamental issue which was considered was (also) whether a writ petition was maintainable against an order of the appellate Tribunal directing pre-deposit. The apex Court concluded that under the statutory scheme of FEMA in particular Section 35 thereof provided for an appeal to the High Court, against any decision or order of the appellate Tribunal. An appeal to the High Court is therefore available against an interlocutory order of the appellate Tribunal (directing pre-deposit) as well, rule the Supreme Court.

14. Following this decision, the Madras High Court in Metal Weld Electrodes vs. CESTAT 12 ruled that a remedy against a pre-deposit order passed by the CESTAT is by way of an appeal to the High Court and not a writ petition. This decision proceeded on an analysis of the provisions of Section 35G of the 1944 Act which facilitated an appellate remedy to the High Court from every order passed in appeal, by the appellate Tribunal (CESTAT). Consequently, writ petitions filed challenging pre-deposit orders passed by CESTAT were rejected, granting liberty to prefer appeals (to the High Court) under Section 35G of the 1944 Act.

15. The Punjab and Haryana High Court vide the decision dated 15.01.2013 in CWP No. 13288 of 2012, in a writ petition preferred by M/s Surya Air Products Pvt. Ltd., ruled that an order passed by the Tribunal in an application for waiver of pre-deposit (under Section 35F) must be considered as an order passed in the substantive appeal and such an order is an appealable order in terms of Section 35G of the Act. The High Court dismissed the writ petition, since an effective alternative remedy of appeal is available.

16. In its decision dated 31.07.2013, the Punjab and Haryana High Court in CWP No. 1672 of 2013, an appeal preferred by M/s Surya Pharmaceuticals and others, distinguished the judgment of the Madras High Court in Hindustan Levers Ltd vs. CCE, Chennai (supra) and concluded that an assessee, aggrieved by an order of pre-deposit passed by the Commissioner (Appeals) (under Section 35F of the 1944 Act) could prefer an appeal to the CESTAT. This conclusion was recorded on the basis that the requirement of pre-deposit and the discretion to waive pre-deposit under provisions of Section 35F is integral to the scheme of appellate powers conferred by Section 35 and Section 35A of the 1944 Act; and an order of pre-deposit passed under Section 35F is essentially an order passed in an appeal filed under Section 35 read with Section 35A.

17. In Mela Ram & Sons vs. Commissioner of Income Tax, Punjab 13 the issue was whether an order of the appellate Assistant Commissioner refusing to condone the delay in preferring an appeal is an order under Section 30(2) or one, under Section 31 of the Income Tax Act. Supreme Court held that Section 31 being the only provision relating to hearing and disposal of appeals, if an order dismissing an appeal on the ground of bar of limitation is passed in appeal, it must fall within Section 31. Section 33 conferred a right of appeal against all orders passed under Section 31. It must therefore follow that an appeal would lie not only against an order that could be passed under Section 31(3)(a), i.e. confirming, reducing, enhancing or annulling the assessment after a consideration of merits of the appeal but also against an order dismissing an appeal as a consequence of rejection of an application for condonation of delay in preferring the appeal. The Court concluded that an order of the appellate Assistant Commissioner (holding that there were no sufficient reasons for condoning the delay and rejecting the appeals as time barred), would be an order passed under Section 31 and be open to appeal and, it would make no difference in the position whether the order of dismissal is made before or after the appeal is admitted.

18. In P. S. Pictures, Bombay vs. Collector of Customs, Bombay14 a full Bench of this Tribunal held that an order of a lower appellate authority disposing of an appeal, confirming the order under appeal is appealable under Section 128A and not under Section 129E of the Customs Act, 1962.

19. In Shree Ambika Steel India vs. CCE, Chandigarh15 a full Bench of this Tribunal held that an order of the appellate Commissioner dismissing an appeal for non-compliance with a pre-deposit order, is an order passed under Section 35A of the 1944 Act and not one under Section 35F and an appeal to the Tribunal thereagainst, is maintainable.

20. In an appeal arising under the Customs Act, 1962 (the 1962 Act), this Tribunal in Syed Aizaz Ahmed vs. CC, Bangalore16 ruled that an appeal before the Tribunal would lie against an order of the appellant Commissioner dismissing an assessees appeal on the sole ground of failure of pre-deposit. The reasons recorded are: (a) the scheme of law requires a remand to the Commissioner (Appeals) for a decision on merits; (b) the Tribunal has power (of remand) while the Central Government (exercising revisional jurisdiction) has no such power; (c) the scheme of the Act does not foreclose or permit bypassing the appellate Commissioners jurisdiction to deal with the substantive issues on merits; and (d) that on a harmonious construction of provisions of Sections 129(a) and 129(b) (d) of the 1962 Act, the issue whether a dismissal of an assessees appeal by the appellate Commissioner for failure of pre-deposit, without having to examine the substantive issue on merit is sustainable in law, must be determined by the Tribunal.

21. In Baron International Limited vs. Union of India 17, the High Court clearly ruled that the CESTAT has no inherent power to review its orders. This is also the well settled position see Harbhajan Singh vs. Karam Singh18; D.N. Roy vs. State of Bihar19; Patel Narshi Jhakesshi vs. Pradyumnasinghji 20; Mehar Singh Nanakchand vs. Naunihal Jhakkar Das21; State of Assam vs. J.N. Roy22; Major Chandra Bhan vs. Latafat Ullah Khan23; R.R. Varma vs. Union of India24; Gram Panchayat Kauouda vs. Div. of Consolidation of Holdings25; and Lily Thomas vs. Union of India 26;

22. The scope of Section 35C(2) came to be considered in CCE, Vadodara vs. Steelco Gujarat Limited27, which ruled that the power of review is not inherent to the Tribunal unless expressly granted by the statute; and no such power is granted under provisions of the 1944 Act. The provision grants but a limited power to rectify errors. The Court pointed out that although the ground for rectification namely, an error on the face of the record may be common to a power for review as well, the nature of the power to be exercised in the two cases must be distinguished; the power of review is not limited to rectification and is wider than the power conferred under Section 35C(2). Drawing on this decision, the Bombay High Court in Sarla Performance Fibers Ltd. vs. Union of India28; Union of India vs. Sir Hurkisondas Nurottam Hospital & Medical Research Centre29; and in Tejus Proprietary Concern of Tejus Rohitkumar Kapadia vs. Union of India30 after referring to its the earlier decision in Maina Khemka vs. Union of India 31 held that though the Tribunal cannot exercise a review jurisdiction, a party can always seek a modification of the order, within the permissible limits and parameters laid down in law. Such power, of modification, according to the above decisions is limited to rectification of an order on the ground of a mistake apparent on the face of the record, one of the shades of power to review, granted under Section 35C(2) of the Act. Such power of rectification authorizes modification of an interim order of stay/ pre-deposit as well, though on the limited ground of error apparent on the face of the record, ruled the High Court.

23. The scope of review jurisdiction is explained in several decisions including Shiv Deo Singh vs. State of Punjab 32; Sow Chandra Kanta and Another vs. Sheikh Habib 33; Aribam Tuleshwar Sharma vs. Aribam Pishak Sharma and Others 34; and in Northern India Caterers (India) Limited vs. Lt. Gen. of Delhi. The decisions inter alia explain that a review is not permissible on the ground that the earlier decision was inconsistent with a binding precedent, pronounced subsequent to such decision.

24. However, the Karnataka High Court in M. I. Metal Sections Pvt. Ltd. vs. CCE, Bangalore35; ruled that if as the result of a subsequent decision of the Tribunal any change in the correct legal position has been brought about, an appellant can move the Tribunal for modification of the order passed by the Tribunal. The High Court ruled that it is improper for the Tribunal to dismiss an appeal merely since an assessee failed to comply with the condition of pre-deposit ordered. When the appeal is listed for hearing, it will be open to an assessee / appellant to move the Tribunal, even at that stage, to address a plea that it could not comply with the (pre-deposit) order passed by the Tribunal, on account of financial difficulties or circumstances beyond its control; and where such a plea is raised the Tribunal shall have to consider its merits, ruled the High Court.

25. The Gujarat High Court in Amar Food Products vs. Union of India36 considered the scope of Section 35F of the 1944 Act, and pointed out that where, subsequent to an order of pre-deposit, the decision of a Tribunal which was a basis for the pre-deposit was referred for consideration to a Larger Bench, that would constitute a change in circumstances warranting entertainment of an application for modification of the earlier interim order; and no application for modification of the stay order (in such circumstances) should be rejected, including on the ground that the appeal itself stood dismissed for failure of pre-deposit.

26. In Maruti Udyog Ltd. vs. CCE, Delhi-III37; Ador Polycontainers Ltd. vs. CCE, Aurangabad38; and in Dr. V.V. Patil S.S.K. Ltd. vs. CCE, Aurangabad39 this Tribunal ruled that the appellate Commissioner has power to consider modification of an order of pre-deposit passed by that authority.

27. In the light of the decisions of the Bombay High Court in Sarla Performance Fibers Ltd.; Sir Hurkisondas Nurottam Hospital & Medical Research Centre and in Tejus Prop. Concern (supra), it would follow that the appellate Commissioner has jurisdiction and powers to entertain an application for rectification and modification of an order of pre-deposit or stay; to be exercised in terms of Section 35C(2), namely for rectification of an error apparent on the face of the record.

28. CCE, Chandigarh vs. Smithkline Beecham Co. Health C. Ltd.40 had occasion to consider Revenues appeal against an order of the Tribunal which considered an appeal against an order of the appellate Commissioner. The appellate Commissioner had dismissed an appeal without going into merits, on the limited ground of failure of pre-deposit ordered. The Supreme Court ruled that in such factual matrix, the Tribunal ought not to have entertained and determined substantive merits of the appeal but could have considered only the validity of the appellate Commissioners order, dismissing the appeal for failure of pre-deposit.

29. Decisions of this Tribunal in The Latur District Central Co-op. Bank Ltd. vs. CCE, Aurangabad41; Shardha Synthetics Pvt. Ltd. vs. CCE, Mumbai42; Pure Helium (India) Ltd. vs. CCE, Mumbai-III43; Vikram Green Tech (I) Ltd. vs. CCE, Pune-I44; and Ispat Industries Ltd. vs. CCE, Raigad45 illustrate a regular practice of entertainment of appeals preferred against decisions of appellate Commissioners dismissing appeals by assessees for failure of pre-deposit and considering merits of orders of pre-deposit earlier passed by appellate Commissioners.

30. While no uniform, or a wholly coherent norm could be culled out from the several decisions adverted to (supra), we are able to identify the following principles from the precedents, to the extent relevant and material for the purposes of the issues arising in the present case. The following principles, in our considered view emerge:

(a) While considering an application for waiver of pre-deposit, the appellate Commissioner is required to avoid a mechanical and ritualistic approach. A waiver of pre-deposit application must be disposed of applying the principles set out in the judgments of the Allahabad High Court in ITC vs. Commissioner (Appeals) Meerut46 and the A. P. High Court in CCE, Guntur vs. Sri Chaitanya Educational Committee47. A summary of the principles governing the exercise of discretion in this area is set out in paragraph 14 of the judgment of the A.P. High Court;

(b) The Commissioner (Appeals) has the power, authority and jurisdiction to entertain an application for rectification or modification of an order of pre-deposit/ stay passed by that authority. While no power is specifically conferred on the Commissioner (Appeals) either under Sections 35 or 35A of the 1944, Act to review his own decision; and though the provisions of Section 35C(2) of this Act confer the power (to rectify any mistake apparent on the record) only on this Tribunal, the Commissioner (Appeals) may entertain an application for rectification/ modification of a pre-deposit order, but only for rectification of an error on the face of the record;

(c) The appellate Commissioner could avoid an invitation/ plea for rectification by a careful, good faith and critical analysis of the prima-facie merits of the case and other relevant parameters, while disposing of an application for pre-deposit. Adjudicatory discipline mandates that the appellate Commissioner must follow established judicial norms by unreservedly following decisions of the Supreme Court, the High Courts and of this Tribunal, wherever such decisions operate and are brought to his notice, instead of proceeding on an independent analysis of the applicable legal provisions and persisting in applying such interpretation though it be at variance with interpretations by the Supreme Court, the High Court or the Tribunal, as the case may be; and

(d) An appeal to this Tribunal is maintainable against an order of the Commissioner (Appeals) dismissing an appeal for failure of pre-deposit.

(e) In view of the decision of the Punjab and Haryana High Court in Surya Pharmaceutical Ltd. (supra), since an order of pre-deposit passed by the appellate Commissioner, in exercise of discretion under Section 35F of the 1944 Act amounts to an order passed under the generality of the appellate jurisdiction under Section 35, an appeal lies to this Tribunal against such order as well, apart from an appeal against the final order dismissing an appeal for failure of pre-deposit;

(f) While considering an appeal preferred against a final order passed, rejecting an appeal for failure of pre-deposit, the Tribunal is authorized to consider the correctness/ appropriateness of an earlier order (of pre-deposit) passed by the appellate Commissioner, the non compliance whereof resulted in dismissal of the appeal by that authority;

(g) While disposing of an appeal against a final order of the appellate Commissioner, (dismissing an appeal for failure of pre-deposit), the Tribunal shall not adjudicate upon the merits of the appeal. If the order of pre-deposit passed by the Commissioner (Appeals), in the given facts and circumstances is erroneous, the Tribunal is required to set aside the order of the appellate authority and remit the matter to the appellate Commissioner for denovo consideration, after passing an appropriate order as to pre-deposit.

31. Coming to the merits of the present appeal, the primary authority confirmed the demand of service tax, penalty and interest on the ground of non remittance of service tax on the gross consideration received for repair and maintenance of old/ damaged transformers, from DVVNL. The appellant had remitted service tax on the value of the labour charges received; but not on the value of replaced parts such as HV/LT leg coils, transformer oil and other goods used in the process of repair/ maintenance. The agreement between the parties catalogues a break-up of the total cost of repair and maintenance, under several heads such as labour charges and value of items to be replaced. The adjudicating authority concluded that though the total cost of the repair package is separately mentioned under the different heads in invoices and the assessee had remitted central excise duty and sales tax, as the case may, be on the coils, transformer oil, and other purchased items which were used in the repairs/ maintenance, since the taxable service was provide under a composite contract, the gross consideration received is the taxable value.

Assessee had preferred an appeal to the appellate Commissioner against this order and by the order dated 29.08.2012 the stay application was disposed of by the appellate authority directing pre-deposit of 25% of the assessed liability. Since there was a failure of the pre-deposit ordered, the appeal was dismissed on that singular ground. We notice that this Tribunal in the final order passed in s vide the final order No. ST/A/402/12-Cus dated 23.05.2012 and in the final order dated 21.11.2012 in ST Appeal No.161/2012 has consistently ruled that goods which are deemed to have been sold in execution of works contracts, including in the process of rendering the taxable repair / maintenance service cannot be included within the ambit of the taxable value for the service provided. The decision of this Tribunal in Balaji Tirupati Enterprises vs. CCE, Meerut-II is confirmed by the decision of the Allahabad High Court. Revenues appeal thereagainst was rejected in CC&CE vs. Balaji Tirupati 48.

32. In the light of the above rulings, the appellant/ assessee has made out a strong prima facie case on merits and it would occasion undue hardship in the circumstances, to direct pre-deposit. The order of the Commissioner (Appeals) directing pre-deposit is therefore unsustainable. Since the appeal was rejected by the appellate Commissioner on the singular ground of failure of pre-deposit, the impugned order rejecting the appeal cannot be sustained. Since the appellate Commissioner has not disposed of the assessees appeal on merits, we are precluded from considering the substantive merits of the present appeal.

31. On the aforesaid analysis we set aside the order of the Commissioner, Central Excise and Customs, Kanpur dated 13.12.2012 in OIA No. 312-ST/APPL/KNP/2012 as well as the order dated 29.08.2012 in OIA No. 260-ST/Stay/APPL/KNP/2012 (directing pre-deposit); grant waiver of pre-deposit; and remit the matter to the learned Commissioner (Appeals). The appellate Commissioner shall now dispose of the appeal on merits and in accordance with law. We clarify that nothing in this judgment should be considered as an expression by this Tribunal on the substantive merits of the assessees appeal. The appellate Commissioner shall dispose of the appeal by due consideration of the material on record and the applicable principles of law. No order as to costs.

(Justice G. Raghuram) President AND (Rakesh Kumar) Technical Member

Bits & Bytes Feb 2014

600 colour blind drivers in DTC. Now this was found in response to a R.T.I. application. If responded correctly, it must give the DTC a dubious distinction of being an employer, dealing with transport and employing maximum number of colour blind. A distinction, which is sufficient to earn it a name in Guinness Book of World Records. But, incidentally, it also explains me the cause of why the back of my car took a hit from a D.T.C. bus while waiting for the signal to turn green from red. If many of them are actually blind to red colour then the traffic light can act like a Matador and see them coming charging to the middle. Wherever, for a crime in a bus, a driver is called as a witness, a defense lawyer can successfully take advantage to show that he could not have seen the criminal in the colour of dress that he was wearing. For Kejriwal, it poses a dilemmas as to how to confirm such drivers in his regime as per his electoral promise without proper medical test. And to opposition a handle to show why he promised more than he is capable of delivering.

- Tilapia fish bring down cases of Dengue- This is an experiment to control dengue cases which was successfully carried out in Pakistan and resulted in bringing down the cases down to 100 in 2012 from 20,000 in 2011. Tilapia fish which is known to be eating larva of mosquito spreading dengue was placed, wherever puddles or old water could be found by the Municipal staff and the outcome was phenomenal reduction in dengue cases. Since the matter and the success story is already in public domain, it is not understood why the health authorities in Delhi and other part of the country are refusing to learn lesson from the same and implementing the same here.

In this regard, a report published as early as in 1990 is extracted-

[Preliminary study on the biological control of dengue vectors by fish in Liouchyou Prefecture, Pingtung County, Taiwan].

Wang CH, Hwang JS, Lay JR.

Author information

Abstract

An investigation made in May 1989 with questionnaires to 2,480 families in Liouchyou Prefecture, Pingtung County, showed that there were about 6,533 water containers in the whole village, of which 49.83% were used to store water for drinking, and the remaining 50.17% were used for washing clothes and watering plants. 32.42% of the residents volunteered to rear fish in the family water containers to control the mosquito population. During the period from April to October 1989, there was a total approximately 17,600 Gambusia affinis, Poecilia reticulata, Tilapia mossambica, and Sarotherodon niloticus released into the household water containers in the Liouchyou areas to control dengue vectors--Aedes aegypti and Aedes albopictus. One month after the release, a comparison of the container index of Aedes larvae showed that among 530 containers with fish in them, the positive container index was 3.58; among the 3,219 containers without fish in them, it was 25.97. Furthermore, the positive container index without fish was as high as 97.32 in May 1989, and dropped to as low as 18.00 at the end of September 1989. This indicats that rearing fish to control household mosquitoes yielded significant results in the initial stage. Also, in some water containers Gambusia affinis and Porcilia reticulata lived longer than five months, and Gambusia affinis could eat 31.33 Aedes larvae/0.4078g fish per day on the average. It appears that the biological control of dengue vectors by fish in the Liouchyou areas would be advantageous.

Will Indian Public health authorities and Governments take some action to reduce loss of precious Indian lives which are on the rise on year-to- year basis due to the dengue menace?

Opinion of the bar- Opinions expressed at the Advocate`s Bar can be interesting and enlightening, as they are not only on variety of topics, but also like the Indian ragas swing according to the moods of the time. While in the morning the waiting lawyers may only discuss news papers, the hours that follow are normally spent on discussing Members or Judges or Appellate Authorities and depending on the outcome of the case that they appeared in, as also whether the result in the court met their aspirations , the discussion can range from outright approval to condemnation of the Person on the high seat. Afternoon discussions are normally leisurely and show the Members of the legal fraternity in their best mood. One person who came particularly for high rating this fortnight in discussions at the CEGAT Bar was Ms.Aruna N. Gupta, Commissioner( Appeals), Ghaziabad and Meerut, praised by many members of the Bar for her integrity, punctuality, quick disposal and judiciousness. Members were particularly impressed with her starting her work at 9.30 A.M. sharp, calling all cases without any undue wait for the lawyers and tax payers, disposing cases and giving decisions in matter of days and not having pendency beyond 15-20 days. Really wish that C. B.E.C has more such officers of caliber, sincere to the task assigned and who really show the way to reduce litigation with their fairness, and promptness.

- Safeguarding of revenue interest- Since the passing of the ruling in the matter of Union of India versus Adani Exports Ltd., as reported in 2007 (218) E.L.T. 164 (S.C.), which laid down ` Even when Tribunal decides to grant full or partial stay it has to impose such conditions as may be necessary to safeguard the interest of revenue as an imperative requirement under Section 129E of Customs Act, 1962. [para 9]’, though there has been no amendement in Section 129 E, Department has armed itself with sufficient powers under the Act to safeguard its own interest. For now, a stay order is operative only for one year and also as per the C.B.E.C Lagaan circular, if an appeal is not filed or stay order not obtained with in stipulated time then department can initiate recovery proceedings. Again, u/s 28 BA, Department has taken to itself the power to do provisional attachment to protect revenue during pendency of demand proceedings of a person to whom notice is served. Now in most of the cases, Department in its discretion does not exercise such powers, Can it later seek imposition of harsh conditions from Tribunal at the appellate stage. Again, should not Tribunal be wary of imposing harsh condition at stay stage to deny appellants their precious right to be heard, since Department has already extensively armed itself with various provisions to safeguard its own interests through various legislative provisions. There clearly appears to be a need for some of the Benches to revisit and relook at the old approach of imposing conditions which can result in denial of justice to the litigant. If Department can secure its interest through attachment as provided in the provisions, then condition of demanding securities/ guarantee at the option of the litigant, may also appear to be correct rather than cash deposits.

BITS AND BYTES JANUARY 2014

Welcome 2014: While wishing readers a very happy and prosperous new year, I profoundly hope that the year will be full of excitement for all Indians and revenue officials in particular, who are hoping to move up the ladder through the much awaited cadre restructuring. As far as average Indian is concerned, the built up to the elections, its process and installing the new Government itself is going to be an amazing exercise. I take this opportunity to reproduce some interesting excerpts provided by a reader published in New York Times about Indian elections, which I am sure will catch up imagination of all of us.

THE INDIAN ELECTIONS - NEW YORK TIMES It is truly the greatest show on Earth, an ode to a diverse and democratic ethos, where 700 million + of humanity vote, providing their small part in directing their ancient civilization into the future. It is no less impressive when done in a neighborhood which includes de-stabilizing and violent Pakistan, China, and Burma. It's challenges are immense, more so probably than anywhere else, particularly in development and fending off terrorism -- but considering these challenges and its neighbors, it is even more astounding that the most diverse nation on Earth, with hundreds of languages, all religions and cultures, is not only surviving, but thriving. The nation:where Hinduism, Buddhism, Jainism, and Sikhism were born, which is the second largest Muslim nation on Earth;where Christianity has existed for 2000 years;where the oldest Jewish synagogues and Jewish communities have resided since the Romans burnt their 2nd temple;where the Dalai Lama and the Tibetan government in exile reside;where the Zoroastrians from Persia have thrived since being thrown out of their ancient homeland;where Armenians and Syrians and many others have come to live; where the Paris-based OECD said was the largest economy on Earth for 1500 of the last 2000 years, including the 2nd largest, only 200 years ago;where 3 Muslim Presidents have been elected,where a Sikh is Prime Minister and the head of the ruling party a Catholic Italian woman,where the past President was also a woman, succeeding a Muslim President who as a rocket scientist is a hero in the nation; where a booming economy is lifting 40 million out of poverty each year and is expected to have the majority of its population in the middle class already, equal to the entire US population, by 2025;where its optimism and vibrancy is manifested in its movies, arts, economic growth, and voting, despite all the incredible challenges and hardships;where all the great powers are vying for influence, as it itself finds its place in the world. Where all of this is happening, is India, and as greater than 1/10th of humanity gets ready to vote, it is an inspiration to the entire World. — V Mitchell, New York, NY --

Imagine an Economy that has remained No.1 or 2 for 1800 years out of 2000 years in the world. Can we Indians vote sensibly in 2014 to get back to India that glory of the past by electing competent people? The year a head will tell.

BJP`s tax agenda: The proposed introduction of Banking transaction tax as a substitute to all other taxes, prima facie, appears interesting, devoid as it is of any detail, except that it will be accompanied by demonetization of big notes of Rs. 500/- and Rs. 1,000/- and will be introduced by 2025, if it comes and remains in power till then. Credit to them for some out of box thinking. Though it is not clear as to how the party intends to deal with some of the best brains in the country who are working as Chartered Accountants, Tax lawyers and Tax collectors and whose skills will be rendered redundant. And whether it actually has the potential to garner the extent of taxes that have been projected. But even at this stage, it can be credited with having some thinking which has the potential to reduce, considerably the compliance cost to the tax payer, which is estimated to be about 39 percent of the taxes collected if cost of accounting, bribes, litigation costs, loss of entrepreneurial and other man hours is taken into account. But this compliance related services form an important chunk of service sector GDP too. Whatever may be the final outcome, at least the need to make tax laws simpler and not more than one or two taxes, is being felt even by the mainstream parties and this augurs well for trade and industry.

The Corporate Lohri: You may have heard of Corporate Diwali that causes traffic jams in Delhi in the week preceding the Great Festival. And where everyone who has anything with the Govt. is wished and also in turn goes to wish, leaving a message to the effect of not being at home, but make your packet comfortable. Perhaps the ultimate beneficiaries of this give and take process are only the lowly babus or top bureaucrats with all other just doing the `Thali exchange”, as happens on Karva-chauth. As distinguished from the above, the Corporate Lohri is once in a five year affair that happens in election year, where every political party knocking at the corporate door is required to be given a handsome Lohri, whether or not it sings the conventional Lohri songs. Giving of such Lohri in such a year is considered auspicious for the financial health and wellbeing of the Corporate in the next five years and not giving the same or being selective can lead to your share being de-graded to Category B on the bourses or in extreme cases to winding up proceedings in the Courts. So recession or not, I wish happy Lohri to Corporate India in the Year 2014.

Ban Ban go Away, All fraudsters want to play

Ban- Ban Go Away, All the Fraudsters Want to Play:

By: Somesh Arora, Advocate

Former Commissioner of Customs and Excise

For the Year end round up of 2013 of the social achievements of the law makers and enforcers- one can count the ban on Gutkha as one big one, arising out of the concern for the health of Indians. The ban was brought about through the intervention of Hon’ble Supreme Court of India and legislated by most of the states by reporting compliance to the directions. The Ban on Gutkha has been imposed in 23 states and 5 union territories of India till July 2013. Indeed it was a good and very thoughtful beginning despite the dissenting voices about the richer and more harmful cousin of Gutkha i.e. Cigarette still being out of the preview of the ban. The active smoker and passive smoker aspects of harm, of the Cigarette is what makes it more harmful. Still, the ban can be reckoned as a bold move because even a small state like Bhutan had to give up the ban on Tobacco products, in a period of less than two year because the breach by the consumers and producers was rampant and had to re-impose it. In India, the initial reports indicated that the activities were shifting to Nepal to cater to the needs of the bulk consuming States of West Bengal, U. P. and Bihar. The inventiveness of law abiding (but not committed to the cause) allowed them to formulate new pouches of Tobacco and Pan Masala separately, so as to all that a consumer has to do is bare admixing at his own end to have the same pleasure. The traditional Pan in the green leaf, however, continues to co-exist too, but one has to walk down to a pan shop and ask for “Tobacco Wala Paan”. There have certainly been some notable exceptions of law abiding manufacturers who have stopped Gutkha manufacturing activity altogether and are content to produce sada Pan Masala only sans tobacco.

The feeling of déjà-vu, over the ban to those who had filed P.I.L., however, has been short lived and has already changed by the time, the curtains to the year end are being drawn. Overall the production of Gutkha in India has seen a perceptible decline since the ban has been introduced and the Pan Masala Packaging Machine (Capacity Determination and Collection of Duty) Rules, 2008 launched with much fan fair to augment Gutkha revenue have lost half of its applicability as well as 70% of its revenue due to ban on Gutkha. The ban has also brought in its wake the clandestine operation by fraudsters and loss of revenue. Major beneficiaries have been the states of Tamil Nadu and Karnataka which are fast emerging as hubs of such illegal manufacture and are on the fore front of violating the ban. Assisted by the presence of inactive and muted authorities in the state who either refuse or are made to ignore such nefarious activities. According to recent report dated 17.11.2013 in by-weekly KUMUDAM Reporter, the illegal Gutkha has the blessing of Political bosses, the Gutkha is freely available at a price of Rs.10/- for the quantity which earlier used to sell at Rs.1/-. The pouches just have the name of the earlier Gutkha manufacturer by the name of MDM without any name of the product, date of manufacture, date of expiry, details of ingredients or the prescribed Statutory Warning of the Government. That without such details, this product which contains tobacco, will be more harmful and will be a virtual poison can be anybody`s take. As per the Reporter, Gutkha is freely available all over Chennai and that even General Secretary of the Tamil Nadu Trader’s Association admitted that it is being sold freely while the enforcement agencies look the other way. That even after the imposition of ban in May,2013 by the Tamil Nadu Government, six tonnes of Gutkha brought in the lorry from places like Hyderabad by a train was caught on 6^th August. It was also pointed out by the Reporter that one political VIP of Thiruvallur District is in support of this company. The reporter has also given the address of MDM Company and also the name of the VIP i.e. EZHU MALAYIAN as its owner. Some stray arrests were also stated to be made by local police, but the man and material released in the time it takes to make a few mobile calls.

This appears to be just a beginning of the tolerance towards the banned substance. Situation may arise in future when such Tolerance may go to the level of 80% to 90%, if proliferation goes unchecked and new hubs of illegal Gutkha may flourish, not only in these states but everywhere in India. It is surprising that not only the State Authorities are inactive but even the Central Agencies like Central Excise Authorities in the State or DGCEI are either not getting the wind of it or have failed to take action. The way the pouches are being marketed and made available to the consumers it is only a matter of time before a Hooch deaths like tragedy takes place, through an expired Gutkha which has become poison. Have we opted for an instant as well as cancerous death in place of a cancerous death only, through this ban- at that too at 10 times of its original price, only time and enforcement machinery of the Government will tell?

Anti-dumping : Should India experiment with 'Countervailing Export Levy' as 'no-heart-burn' measure?

Anti-dumping : Should India experiment with 'Countervailing Export Levy' as 'no-heart-burn' measure?

By Somesh Arora, Addl Commissioner

BEING a strong votary of free trade, W.T.O regime provides only three exceptional circumstances, where if justified under law, tariff barriers can be raised. This limited protection is available only in the case of Anti-dumping duties, Safeguard duties and Countervailing duties. Among these, only safeguard duties, which are meant to protect the domestic industry, has restricted provision to provide compensation to the country, from where the imported goods originated.

Almost ten years of existence of W.T.O. has shown that most popular and legal protection measure used worldwide has been levy of Anti-dumping duties. This has naturally raised some alarm in the comity of nations and even India has been advised not to make frequent use of it.

That excessive usage of Anti-dumping levy has some inherent seeds of discontent in it is quite obvious. This levy is discriminatory and selective and is normally opposed by exporters, who feel that it is an attempt to raise tariff barrier by the domestic industry of importing country. In fact Anti-dumping duties originated only in the early 20th Century and was picked up as a concept by GATT and subsequently W.T.O. only as a result of existence of such provisions in the legislations of some member countries. Becoming wiser from the experience, W.T.O. while permitting levy of anti-dumping duties also provided scope for political mediation so that negotiating members remain aware of the sentiments of each other and even while proceeding legally do not remain oblivious of political or diplomatic fallouts. Provision relating to consultation between member countries is spelt out in clause 6 of Agreement of Anti-Dumping.

Tracing the History, Dumping as an economic problem is as old as advent of industrialization and growth of international trade that followed. Mass production meant need to explore overseas markets. By the onset of 20th Century, industrialization led competition in international trade brought in its wake, the phenomena of dumping the goods in international markets. While at the micro level, the factors which led to it was the urge to either have increased market share in the face of competition or else to atleast be satisfied with recovery of some portion of fixed costs in recessionary conditions in overseas markets till all of the variable costs were being recovered.

At macro level, the reason of dumping was mainly nationalistic consideration of having augmented exports by vigorously pursuing predatory pricing policy with an eye on the long term gains, even if it meant financial losses in the short term. One of the earliest legislative instances of Anti-dumping measure dates back to year 1905, when British and New Zealand manufacturers of agricultural implements complained about efforts of an American Harvester Trust to monopolise markets by systematic price-cutting. As a result, ?The Agricultural Implement Manufacturer, Importation and Sales Act,? was passed for unfairly traded imports and continued till 1915. It being specific Act for a particular commodity, a general legislation was later introduced as part of Customs Act. In the USA by 1916, an Anti-Dumping Act had been formulated which even went to the extent of imposing criminal penalties on importers. By 1920, Anti-dumping steps had really caught up in a big way in USA, Canada and Europe in the aftermath of world War-I. One of the economic reasons of World War-II was allegation of massive dumping being exercised by Japan and its retaliation by aggrieved Countries, which eventually frustrated the importing Countries and strained their relationship with Japan.

The point in tracing the genesis of the levy is to emphasize that its rampant use is not without its pitfalls. As can be observed, Anti-dumping legislations primarily evolved, when international law was still in its infancy and was more of an outcome of economic wisdom & will of individual state, who wanted to protect their industry against the onslaught of undesirable imports in their sovereign domain. However, as the law stands today it represents more of desire of comity of nations to regulate through rule-bound system, undesirable international trade transactions through the instrument of Anti-Dumping levy, under given circumstances. Further, due emphasis in W.T.O. has been given to mediation and counselling before resorting to levy on the basis of principles enshrined in Public international law.

This change if kept in mind can be utilized to turn ?Anti-dumping? levy as an efficacious instrument for remedying all the ills of the past through little fine-tuning. For instance, under W.T.O. as also under relevant State laws based on W.T.O., before levying Anti-Dumping, concerned States have to be informed, investigations have to be conducted, preliminary & then final levy is imposed depending upon outcome of investigations & mediation. The whole exercise from initiation to completion on an average takes about one year & once levied Anti-Dumping duty is liable to be reviewed after five years. At the preliminary stage, the importing country on the basis of evidence arrives at quantum of levy, which can initially be imposed. Suppose, at this stage if exporting country during mediation, suo moto, offers to impose equivalent of preliminary Anti-Dumping levy arrived at by importing Country as ?Countervailing Export duty? on the relevant product or relevant industry, then the very economic basis will be lost, as the landed cost in the Country of import will go up, which is the main factor in calculation of levy. This will enable exporting Country to earn some revenue from its own subjects, as well as prevent injury to domestic industry of importing country and thereby make ?Anti-Dumping? levy infructuous. Indeed ?A win all? & ?No heart burns? situation. As the law stands today, there does not seem any illegality in adopting such a negotiating stance. From the perspective of developing countries, adopting such a positioning can be a matter of both fiscal prudence & political aptness. Therefore, developing Countries through their collective bargaining should try to secure such provisions at least for themselves in the W.T.O. laws to give it statutory backing. To begin with, India can experiment with offer of such ?Countervailing Export levy? to test water. May be this mechanism will find a solution to the potential of abuse of ?Anti-Dumping? levies that W.T.O has been raising an alarm about even before its 10th anniversary.

(The views expressed are author?s personal)

Landing charges in Customs valuation: Should notional be rational?

Landing charges in Customs valuation: Should notional be rational?

JULY 28, 2008

By Somesh Arora, Commissioner of Customs & Excise (Retd)

RULE 10(2) of Customs Valuation (Determination of value of imported goods) Rules, 2007 provides as follows:

?For the purpose of sub-section(1) of section14 of the Customs Act,1962 and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include-

(a) The cost of transport of the imported goods to the place of importation;

(b) Loading, unloading and handling charges associated with the delivery of the imported goods a the the place of importation; and

(c) The cost of insurance;

Provided that?

where the cost of transport referred to in clause(a) is not ascertainable, such cost shall be twenty percent of the free on board value of the goods:
the charges referred to in clause (b) shall be one percent of the free on board value of the goods plus the cost of transport referred to in clause(a) plus the cost of insurance referred to in clause (c);
where the cost referred to in clause ( c) is not ascertainable, such cost shall be 1.125% of free on board value of the goods?

Further clause (3) of the same rule provides that ''additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data.''

The mandate for sub- clauses (a), (b), (c) above and clause (3) is in accordance with the international treaty provisions as applicable to India as a signatory. But the notional additions in provisos (i), (ii), (iii) as above are the improvisations made by Indian Custom Authorities. Again, it is to be noted that while notional additions in provisos (i) and (iii) are displaceable, if actually ascertainable, the additions provided for in proviso (ii) are compulsorily applicable.

This compulsory application of landing charges has been accepted by most importers as afait accompli and has not been challenged in many cases. In its earlier, prior to amendment form as proviso (ii) to Rule 9(2) of erstwhile Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 as amended in 1990, it faced a serious challenge in Madras H.C. in the matter of WIPRO LTD. versus Astt. Collector of Customs, Madras (2003-TIOL-204-HC-MAD-CUS). The matter was decided against the appellants and then taken by them to Apex Court, where it was admitted and is awaiting decision since 2004.

The appellants in the matter had taken the argument that

a. That notional cannot be made applicable when actuals are available.

b. That notional percent of 1% if applied in their case of import of computer items resulted in much heavier import duty when compared with actual landing charges of Airport Authority of India.

The High Court, while rejecting the appeal, observed that percentage as above has been fixed on the basis of objective and quantifiable data taking into consideration the experience gained by the authorities and the difficulties in ascertaining the actuals . It then went on to decide that custom authorities have the power to fix the norm and same is not ultravires. It was also observed by the HC that the reasons for fixing the percentage irrespective of the weight of articles imported vis-?-vis the value is only to achieve certainty for proper determination in advance of duty and directed at eliminating the problems manifest by experience.

It is to be noted, that requirement to make additions to the price on the basis of objective and quantifiable data is also a requirement imposed on Indian Custom authorities under international treaty obligations, Then, Can it be said that Indian custom authorities acted on objective basis while imposing percentage on value basis and not on quantity or volume basis which is the norm, the world over for charging handling or loading, unloading charges? Any objective or quantifiable data would have shown that universally loading charges are charged on the basis of the load or volume. Will it be proper to load consignment of gold and iron machinery on value basis and still consider that it is objective? Will any loader charge or any rational business person pay on that basis? With due respect to observations of the H.C., while cost of insurance can have nexus to value, same cannot be said about the charges of loading and unloading. And what is devoid of reality cannot be termed as objective nor can be the same on basis of quantifiable data. In practice, most of the air-cargo generally would be high value but will have lesser weight and most of the sea-cargo would be voluminous or have higher weight relative to its value.

Therefore, fixing of charges for loading/unloading on the basis of weight would have provided a more objective basis. Right of the department to fix norm, of course, is a settled right. But doing it on the basis of weight would be objective, based on quantifiable data and would have provided certainty about duty in advance also , if that was the overwhelming objective of the department. And to make it equitable and fair, it would have been proper on the part of the Revenue to allow it to be displaced by giving evidence that in actual it was less than notional as in the case of proviso(i) and (iii).

CHA Licensing Regulation: AB TAK 100!

CHA Licensing Regulation: AB TAK 100!

MARCH 30, 2009

By Somesh Arora, Former Commissioner of Customs & Excise

IF one figure resonates in the ears of CHA community more than anything else, then it is the figure of 100. For this is the number of CHA licences suspended or revoked recently by Mumbai Customs alone. An unprecedented figure in the History of Mumbai/Bombay Customs House, which spans more than 150 years counting the time of Imperial Customs, as well. Why this sudden spurt? Has the community turned evil overnight? Is a strong Administrator at the helm doing his job going by the legal text and creating a stir with a purpose? These questions baffle the affected as well as all the keen observers of the development, alike.

Let me recall some years and events to analyse the prevailing situation:

Year 1991-92 - A lady passenger arrested at IGI Airport for carrying 20 gm of foreign-marked gold on the explicit orders of the then Commissioner, as the prevailing instructions of that time required any person carrying foreign marked gold to be arrested. Effect - Instructions amended and value specified by the Board.

Year 1992-93: A lady passanger with a child in her lap truthfully declared that blanket she was carrying from Nepal was purchased for Rs.1,000 and was charged prevailing duty of Rs 2,500 with resultant harassment to her and the child. Complaint to the Board led to the admission from Airport Customs that law was being implemented and inconvenience was inherent. Result ? Baggage allowance allowed to passengers coming by air from Nepal which was hitherto only `Zero? rupees.

Year 1986-04: Everyone who was found in possession of even small quantities of drugs was required to be tried for an offence which prescribed punishment of 10 years. Cases were booked even for 100gms of Heroin and tried for years and led to discharge of accused in many cases on technical grounds by courts. Eventually a celebrity arrest led to amendment wherein scales of punishment linked with quantity possessed were prescribed.

Contrast this with

Year 1996: It was found that exports of fertile top soil as also the thorium rich sand from kerala from India were taking place to countries like Dubai, Australia, Canada etc. for peanuts resulting in greenery in such countries and soil erosion in India. Top soil being a scarce resource which Mother Nature takes million of years to create. Uproar in parliament after some news item based on the report led to ban of soil exports from India with immediate effect. Where is that ban figuring now in latest EXIM policy is anybody's guess.

Year 2003: A container heading for a port from a gateway port was opened on the way, with hinges of the door removed and seal remaining intact, all cargo of liquor and cigarettes contained in was removed and iron scrap filled and would have got cleared as on earlier occasions with scrap being declared in Bill of Entry, but for the information. It was suggested that gateway ports should have x-ray machines for containers to avoid any inlet for any cargo which could threaten security of the nation- Action taken only in year 2005 after some blasts in a Port Town.

Year 2004: It was reported that chipped off idols, in old and ancient temples of Goa were not considered worthy of worship as per Hindu rituals and were immersed in rivers as per Temple customs and same were then retrieved by smugglers for sale in international markets. It was suggested that immersion ceremonies by law should be notified to Archaeological survey of India for it to keep guard and later retrieve idols to place them in Museums as part of our cultural heritage. Till now, there is no action even for such an ostensibly prudent suggestion.

Now, Year 2009: Customs House Licensing Regulation,2004 prescribes certain obligations on the part of CHA and non-fulfillment has only punishments prescribed in generality without regulation wise categorisation i.e suspension and eventual revocation of license or forfeiture of deposit. For years together, smaller obligations like non-maintenance of accounts, not guiding importers, not reporting change in constitution of firm etc. were dealt with as per the understanding of the concerned Commissioners, sometimes inviting more punishments and other time less. There are no guidelines existing from the Board as to how each case depending upon the seriousness of breach should be dealt with. Result is that a strong administrator (may be with a purpose in mind) revokes 100 licences in a short span and gives relief in a good number of cases, where breach is considered trivial by him. Tribunal looks for technicalities to give relief in the cases, where suspension has been resorted to. But the sheer number of cases create a stir. Till now, the much awaited guidelines from the Board have not seen the light of the day.

The point to be made is that a good administrator may devise his own means to convey across the message he wants to. The approach may be painful till it lasts. It may be purely textual rather than based on equity in the short run. But eventually it does ring the bell where it should. For that probably is the only way to get heeded in a system full of bureaucratic delays and incumbants with a laid back approach.

(The author is Chief Consulting Officer, Amicus Rarus Consults and former Commissioner of Customs & Central Excise)

Budget : The train in front of engine budget!

MARCH 4, 2008

By Somesh Arora, ADG, DGCEI

THE financial year 2008-09, if the beginning made by the budget is any indication can well go down in the annals of history as ?The year of AAM AADMI?. Corporate world with its strong lobbies and stronger vocal cords may feel that it has been heard little this time, but if one year in a five year term goes to vox populi, it can only augur well for democracy. To put it in terms of Laloo's rail parlance ? while the corporate engine carried forward the growth story of India creditably for last four years carrying the train of masses along, this year the FM and the Government at large have decided to put the train first and engine at the back with profound hope that train will reach higher mountainous growth path of targeted growth of 10 per cent. Every true Indian will just utter 'amen? to that.

Debt waiver to farmers, providing financial muscle to banks so that they concentrate more on core banking rather than wasting energies on irrecoverable bad debts or on calculating interest every quarter on such loans knowing that same will only remain paper entries and will compound only their audit paras., leaving more spending power in the hands of middle class with hope that they spend and fuel growth in the corporate sector, simplification of tax laws, simple dispute settlement mechanism for small taxpayers, greater financing made available to agriculture sector to take off the financial worries of farmers who were on brink of hunger death defying the much propagated `trickle down? effect of the growth story- the Budget has it all.

For a revenue officer the beauty of the budget lies in the fact that bulk of the revenue has been sought to be collected by plugging loopholes and by issuing legal clarifications and by arming itself with provisions against tax evaders. Greater clarity, less litigation and early dispute resolution for small service tax payers are some of the hall marks. The fine print says it all - service tax on Information Technology was a long due measure, which was endorsed by many respectable entrepreneurs with in the industry. Even otherwise, taxing off the shelf software and not taxing customized software made little sense going by the cannons of taxation. Likewise, provision to tax short term capital gains at a higher rate in case of stock markets is only a measure to rein in the speculative activity and irrespective of how the market behaves can only be considered as a rational step. With the SEZ Act providing a slew of benefits, curbing some of the direct fiscal benefits was very much on the anvil, increase of custom duty rate from 25 % to 50 % for DTA clearances by EOU`s was very much on cards.

Amendment is Sec 2 (d) of CEA, 1944 to include in the definition of goods any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable is obviously an attempt to settle the legal position once for all. But the matter of interest will be to see as to how a comprehensive phrase like?any article, material, substance? is finally interpreted, because after every process a material or a substance is a new material or a substance and can be capable of being brought to the market. Does it mean that old notion of different name, character and use for excisability will no longer prevail? The matter may call for little discussion.

Introduction of amended Section 3A brings back the arming provision to the department of fixing production norm on the basis of capacity of production. Only this time it is with adequate safeguard of being made applicable in respect of notified goods, which will no doubt be identified on the basis of their evasion proneness and is therefore a measure which will be welcome both by law enforcers as well as honest tax payers.

On the service tax side, bringing in the tax network supply of tangible goods for use can churn out good revenue for the department as it can cover dump trucks, geo-tech vessels, oil ridges, machinery or equipment lease.

Bringing in the ambit of service tax net, the foreign exchange transaction by money changers can also be a good source of revenue as large commissions charged by building them in the exchange rates were going untaxed. Surely, a sign that service tax is has acquired sufficient maturity and expertise in administration in identifying tax avenues and plugging loopholes. Another, example of this is action of promptly clarifying the existence of leviablity of lottery tickets, rather than allowing the possibility an existing source of revenue to be lost at the altar of legal interpretation. Any delay would have meant frittering away the chance of recovery of about 2,000 cores of revenue with recurring effect each year. Substitution of 'any person? in place of expression 'client or customer? in number of service will also remove any ambiguity that might have been created by any legal ingenuity.

Provision for tax return preparers for service tax is a tax payer friendly measure which will also generate an avenue of employment for the educated unemployed youth. Provision of Dispute resolution mechanism for small service tax payers of up to Rs. 25,000 is again a trade friendly step and is bound to reduce petty litigation.

For many of those who were brought up in my generation, when the Prime Minister of the Nation had to urge his countrymen to forego one meal a week so that our other countrymen do not sleep with hunger to the present day when the FM of the country gives clarion call to spend and consume tax saved in the current fiscal so that while helping agriculture the wheels of industry are not put to a grinding halt- this has been a truly amazing transition for the nation. If you are prepared to give us a commitment as a nation, Dear FM sir that no farmer will die of hunger in this country you have nothing to worry about. For your countrymen had obliged four decades back and they will oblige this time also. So, much for betting on AAM AADMI.

(The views expressed are strictly author?s personal and should not be construed in any manner as official policy statement)

SOCIAL SECURITY SYSTEMS : DO THE EARLY WARNINGS PROVIDE THE WAKE UP CALL?

SOCIAL SECURITY SYSTEMS : DO THE EARLY WARNINGS PROVIDE THE WAKE UP CALL?

By Somesh Arora, IRS

WORLDWIDE, Social Security Systems for superannuated workers evolved through the transition from fund-based security to pension-based claim. This is largely due to certain undisputed benefits enjoyed by the latter over the former. While a Provident Fund can be of greater use only in hands of those few, who have greater investment acumen than the professional fund managers, even in their case, there is always a lurking threat of overspend or of compulsive spend on social needs, leaving eventually very little in their old age. Compared to above, a pension plan provides a regular income over the life time of the pensioner and even somewhat restricted cover for the family of the deceased pensioner in the event of his death. Recognizing this, the Indian Social Security System also started to rely on pension plans in a big way from 1995, when Employees? Provident Fund Organisation (EPFO) enacted its Employees? Pension Scheme in the year 1995, which along with Employees? Provident Funds Scheme of 1952 and Employees? Deposit Linked Insurance Scheme forms the tribrachial of our old age benefit plans for employees.

Provident Funds are generally based on defined contribution-undefined benefit principle, because returns against the contribution are not pre-defined and are based on year to year earnings.

Again, the Deposit Linked Insurance Scheme allows defined benefit-against defined contribution on the happening of certain unforeseen circumstances. The defined benefit is based on past accumulations (say of average last 12 months) just before happening of the event. However, a pension plan model can be chosen to be either a defined contribution ? undefined benefit or a defined contribution ? defined benefit. A third variant not much in vogue can be ? undefined contribution ? defined benefit. To have a better understanding of the concept one has to know the factors, which will have effect on the ultimate benefits which can be given under a Pension Plan. Some are enumerated below:

- amount contributed by the members, their employers or Government share, which forms the core of investment corpus;

- prevailing rate of interest on investment securities and likelihood of any variation going by the past trends;

- average life expectancy and its trend in future;

- demographic composition of contributing and benefiting population and likely changes in such composition in future.

As can be made out, working out an annuity based Pension Plan can be a complex matter, involving accurate factorization of various trends. As the study of various Social Security Systems will reveal, many pension benefit plans have collapsed or had to be heavily supported by the Governments because one or the other factor was not properly read by the planners. While in some countries, it was the demographic composition which was misread, in other countries, falling interest regimes coupled with assured defined benefits resulted inmassive gaps between the inflows and outflows.

Going by the Fund Managers? perspective, a defined benefit should ideally have undefined contribution as its mate in principle. But this may not inspire confidence in contributor, as his contribution may need redefining, every time interest rate undergoes a change of few points.

A defined contribution ? Undefined benefit also does not augur well for member or investor, since there remains a suspense till the end as to the amount of pension an employee may receive. This may defeat his own planning for funds in the old age.

A defined contribution ? defined benefit principle will require someone to shoulder the responsibility for fluctuations in contribution, when interest rates fluctuate. The most suited for the role may be the Governments as the contributing partner, since the interest regimes are controlled by their policies. Especially, in falling interest rate regimen, creation of ?interest fluctuation reserve? assumes paramount importance. But this requires pumping in funds and therefore a resolute political will. Creation of such a reserve can be somewhat delayed but cannot be avoided. For any Government of the day, this may prove politically tempting option to avoid putting in funds, for a while, but this can only have serious repercussions and can even play havoc with the social security network ultimately.

In Indian context, where the pension coverage became available from the year 1995, one should reasonably expect that annuity planners and experts might have factored in the demographic changes likely to occur in working population. But as the falling interest rates had not stabilized by then and the trend in the past twenty years was indicator only of increasing interest rate, therefore whether the planners had rightly read the future trend and incorporated it into the Scheme remains the moot question. If not, then the policy makers will have to immediately initiate corrective action, so that an extremely well meaning ?Pension Scheme? does not become a financial burden later on. For, that age-old adage of Fund Management ? ?Contribute today, so that you contribute less tomorrow? holds well in equal measure for government also. Imprudent Fiscal Management today can only be at the cost of ?Disaster Management? tomorrow. Are our pension fund managers alert to any warning signals that may emerge or are wake up calls being turned off? Only time will tell.

( Views expressed are strictly personal)

FTP - Time to unleash industrial growth through SEZs

APRIL 21, 2008

By Somesh Arora, Former Commissioner of Customs & Central Excise

IT is indeed heartening to note through the Commerce Minister?s speech on Foreign Trade Policy 2008-09 that India has achieved 1.5% share in the world trade and is now vying for 5% by 2020. A far cry from the earlier days of the turn of century when 1% share by 2010 was considered as a highly ambitious target. Commerce Minister has particularly commended SEZ exports for registering about 50% growth each year in the last three years and has sought to allay any fears about the appropriateness of encouraging SEZ in spite of concerns expressed to the contrary.

The justification for opening SEZs as a policy especially in relation to encouraging manufacturing sector cannot be undermined. Historically speaking, the sufferance rate of taxation as far as manufacturing sector is concerned has been the highest. A sector which contributes 23% of the GDP today suffers about 80% of taxation, while agriculture sector contributes the minimum to the taxation kitty; even the sunrise service sector which contributes 53% of the GDP hardly suffers 15% of the taxation. This is mainly due to the reason that whole of excise revenue, 85% of the customs revenue and considerable part of the corporate tax and income tax comes from the manufacturing sector only.

While heavy doses of taxation on the manufacturing sector served the purpose of our erstwhile British rulers who were mainly concerned with running their own machines at the cost of Indian raw materials it definitely strangulated the Indian industry which had to suffer not only heavy taxation but also procedures like physical controls. The net result was that indigenous industry mainly remained a purchaser of patented British machinery and gained access even to the Indian market only when national freedom movement agitations like Swadeshi supported it. The onslaught of cheap industrial products of imported origin mainly British was so severe, that it had crippling effect on the Indian industry.

Post Independence, India had to continue to rely on the collection of excise revenue as a compulsion, since collections from Income Tax were abysmally low. However the Indian industry continued to grow mainly because the high walls of protectionism raised through high Customs duties provided an insulated access to Indian market. However post liberalization, this scenario has changed altogether. Today low Customs duties provide inroads to the manufacturers from outside to the Indian market and likewise for Indian manufacturers there is a wide global market waiting to be exploited. Therefore, the policy of ?export without taxes? assumes paramount significance because all member states of WTO follow the same with equal vigour. While the dependence of Indian fiscal policy to generate taxes on manufacturing sector is likely to continue even in the years to come, Indian products can become globally competitive only if the same are subjected to no tax regime. This is where a strong case exists for opening SEZs providing international class facilities. The requisites, however, are availability of good connectivity, good infrastructure including land at competitive prices, tax free regime including least procedural hassles as also accessibility to latest technologies and cheap labour. State Governments realizing that it can be too much of a call for them have encouraged private enterprise to take the task of development. However, if the road map of some of the ambitious projects is observed, it has become clear that delays have already started hurting the policy objectives, if not defeating them altogether. The land acquisition for instance is happening at the snail?s pace leading to project cost overruns and delays. The developers have not only been left to meet social rehabilitation programmes envisaged in the Industrial Policy of the relevant states, but have been largely fending for themselves in acquisition matter with little or no support from concerned states. Sorting of infrastructure issues like power and water are also causing inordinate project delays. Fickle mindedness of some of the state governments about whether to have or not to have projects is creating an atmosphere of uncertainty. The resistance to tax exemptions on the ground that considerable revenues shall be foregone becomes little unpalatable, as the sector is presumed to be a non- tax regime. Do we for instance ever calculate as to what is the revenue foregone on account of keeping agriculture sector tax exempt or ever estimate what is the revenue foregone on account of customs, income tax, excise or service tax evasion.? The choice is between having industrialization which is focused on global markets and coincidentally also allows down stream industrialization to happen within India and having no industrialization at all. If with in the larger framework, some provisions need fine-tuning then concerned Ministries should sort these out.

Further since the cooperation between Central and State authorities is sine qua non for implementing SEZ development, therefore the erring states who after initially committing themselves at the approval stage for development of SEZs, backtrack later should be brought under the regulatory provisions of FRBM Act for not being development-friendly and can be considered for fiscal disincentives while sharing revenue. Therefore only a joint initiative by MOC and MOF carried out with conviction can turn the ambitious and visionary projects of some of the prominent SEZ developers into a reality. Support of state governments and their keenness to implement these projects so that the SEZs in their area are competitive not only in comparison to other Indian sates but also globally is warranted in equal proportion. For, every day lost by developers in their schedule of implementation will only cost dear the exporter- entrepreneurs who intend setting up units in such SEZs and will make Indian exports dearer to that extent.

India - What Future holds for it?

By Somesh Arora, Advocate and Former Commissioner of Customs & Excise

IN the domain of Mundane Astrology, there are two charts of India which are considered relevant, though the existence of an ancient chart pertaining to `Bharatvarsha' since the time of Varahamira is also known to exist, but because the political boundaries have undergone considerable change since then, therefore, what are relevant for Union of India now, are the Charts which are known as ?India's Independence chart' and ?India's Republic Chart'. The astrologers while dealing with mundane matters normally look for India's Independence Chart for evaluating matters like external affairs, internal disturbances, general well being and economy of the nation. However, the chart pertaining to India's republic provides better clues relating to matters falling within the preview of judiciary and legislature, major reforms pertaining to the laws and an insight into the functioning of the judiciary. With the above approach, the predictive analysis about India is being sought to be done. The limitation of an astrologer who normally is capable of ascertaining the probabilities and not the exact truth has to be kept in mind by the reader.

Pisces	Aries	Taurus - Asc -Rahu	Gemini - Mars,
Aquarius	Indian Independence Chart-15 Aug.,1947, 00:00 hours, New Delhi		Cancer Sun,Ven,Mer, Saturn,Moon
			Leo
Sagittarius	Scorpio-Ketu	Libra-Jup	Virgo

Sun dasha- from 11/9/2009 to 10/9/2015

India as per its independence chart was undergoing the Dasha of ?Venus' from 1989 up to the end of 2009. The Venus Dasha which is the Ascendant and Sixth Lord and is posited in Cancer in the Third House was ?Raj Yog Karaka' for India and true to its potential brought India out of clutches of utter poverty and indebtedness, to make it an economic power house whose existence and presence was reckoned and came to be acknowledged all over the world. The turnaround of India economy started with Venus/Sun Bhukti around 1992 and brought to prominence the women of India, in political and glamour related fields. True to its promise during Venus Dasha, the Indians and Indian women in particular achieved success in sports, Cinema (With Bollywood getting International acclaim), politics, Industry, Economy, Education, Information technology, Administration and Beauty pageants etc. and became the major contributors to the economic success story of India. Incidentally, the Information technology, cinema, beauty contests, gems and jewellery, gold adornments, handicrafts are all fields related to the feminine planet `Venus'. India never looked back from 1992 to 2009 despite the world facing its worst recession in the last 80 years in the Year 2008. Incidentally, the only significant difference between the Natal chart of India and its neighbor Pakistan, who also got its independence at the same time of midnight but one day earlier i.e. on 14th August,1947, is that while Moon which represents in mundane astrology- the public and women is strongly posited in its own house in 3 rd from the Ascendant for India, the same in case of Pakistan is posited in inimical sign of Mercury (not considered inimical, of course, by the Moon as per the classical texts) in the 2 nd house form the ascendant causing Chandra-Mangal Yoga. This difference alone makes the Indian democracy vibrant and its women stronger and progressive and contributing to the well-being of the economy even through entrepreneurship. While the weak Moon in Pakistan`s chart causes weakening of its democracy. The political power being taken over, by the men in uniform, due to influence of Mars. Such equation thus always causing internal feuds and also the earning of the state through questionable means which even indicates the influence of drug lords and arms smugglers over some of the Government institutions.

Now, from the end of 2009, India is undergoing Sun Dasha which is the 4 th Lord posited in third. Since it is in conjunction with Venus, Mercury, Saturn and Moon therefore, the trend of growth set up by Venus may not only continue in the Dasha of Sun till 2015, but also of Moon which continues till the end of 2025. Therefore, the growth story started during the Dasha of Venus remains intact and may continue till 2025. The years ahead, therefore will allow India to pursue its economic success story with a degree of continuity. The Sun however, being a natural malefic is not without its own share of some negative

events. Since, Sun represents the top echelons of power, therefore, some established heads of Centre and States may have to loose power during the Sun Dasha, especially during currently running Rahu Bhukti and later on in Sun/Saturn Bhukti. India also needs to be alarmed against usurping of its territories by some inimical neighboring countries during the period running up to 2015. Some act of aggression against the territory of India is also not ruled out. Though India will be found equally or more aggressive and matching to the threats. The year up to 2015 will make Indian Policy makers realize the impending threats of famines, global warming and receding water tables, but equally, the same issues will engage and receive the focused attention of policy makers who will also suitably respond with the policy and action oriented initiatives which will result in water availability and harnessing of hydro power during the Moon Dasha i.e. between the period 2015 to 2025. The Mars Dasha starting from 2025 and up to 2032, however may see the increased role of army in domestic politics. But such role may not be negative as in the case of Pakistan.

Looking at the India's Republic Chart, an important date line is emerging from 24.06.2011. This is a period when Ascendant and 10 th Lord Jupiter posited in 11 th House in debilitation starts its Dasha period. The period will mark the beginning of massive judicial and legislative reforms and will see the decline of corruption in Judiciary as well as in Executive through a slew of measures unleashed through a continual but gradual process. The cleansing will be top driven and may get ushered through initiatives which may be outcome of deviant and not exactly a conformist movement.

Asc. Rahu	Moon
	Chart 26-01-1950 10:15A.M.,Delhi Indian Republic
Sun-Jup- Ven	Chart 26-01-1950 10:15A.M.,Delhi Indian Republic	Sat
Mer		Mars-Ketu

Jupiter dasha- from 24/6/2011

The considerable changes in Judiciary and legislature, will be discernible to whole of the world and will lead to punishing of rich and mighty. The Judiciary will re-orient itself and shall be found to be responding to the task of eradicating corruption and bringing about equality through means which would have been unimaginable few years back. The intense power conflict between the beneficiaries of corruption and those fighting against will be quite visible in the years to come, but the presence of Rahu in Ascendant in both the charts of India indicates that the corruption may at the most get reduced with some guilty being punished but may not get totally eradicated. India will also see during the Jupiter Dasha, reform of its economic and financial system through legislative and judicial measures. Many new economic laws will be formulated, old laws reformed and quite of a few new institutions shall be created in the matters of public finance and economic administration. The period overall surely marks a betterment for India, for what it got as a nation from its legislature and Judiciary during the 18 years Dasha of Rahu which finally comes to an end on 24.06.2011. Both these wings of democracy may also get to see greater stability and continuity in the policies in the next 16 years.

(Author is Jyotish Praveen (Silver medalist), Jyotish Vishaard and Associate of Indian Council of Astrological Sciences)

RIGHT TO RECOVER : TRUSTING THE UNFAITHFUL!

By Somesh Arora, Addl Commissioner (Customs & Excise)

I?m the right to recover - I rough up those,
Who do not cough up their dues,
I?m omnipresent in every legislation,
And I get courted by all without hesitation,
Everyone thinks with them I am supreme,
Their lawyers go to the court and shout and scream,
Every now and then the courts decide where I?ll rank,
Sometimes the first is with the crown and sometimes with the Bank,
I start up thus by being only a million,
I swell, while assets deplete, making the gap a billion,
Defaulters in the meanwhile rejoice and make merry,
For they are not bothered ? few pennies left - go to Tom, Dick or Harry.

As the common law developed so did the concept of supremacy of Crown?s debt. It effectively meant that governmental dues being in the nature of dues to the crown had to be settled first and only the balance could remain available for other creditors. Advent of social security legislations, which, interalia, provided old age security benefits like provident fund and pensions underlined the importance of social security and their recovery started ranking higher than even the tax dues to the government. The underlying notion which received support from the courts was that the contributions under these schemes were in the nature of workers' dues and were distinguishable from the other debts in the strict sense. This concept flowed from the relevant legislation i.e. The Employees? Provident funds and Miscellaneous Provisions Act, 1952 (hitherto P.F.Act) which by virtue of sec.11 bestowed an overwhelming right by laying down that amounts due under the Act are to be paid in priority to all other debts in the winding up or insolvency proceedings.

Sec.11 (2) makes it explicit that the amount due under the Act shall notwithstanding anything, contained in any other law for the time being in force be paid in priority to all debts. Also among the government dues, which department/organization will have the first right has remained debatable. Further, the incidence of high non-performing assets compelled the government to create Debt Recovery Tribunals and enable banks to recover their own dues with overwhelming priority over other legislations, as dues of the banks were considered debts secured by contractual obligations. This again led to conflicting judgments coming from various High courts on the issue as to whether the dues of the government being crown?s debts secure a priority or the banks dues secured by assets do.

Even between Employees? Provident Fund Organisation (EPFO) on the one hand and the bank on the other, a round of litigation has started as banks claim that they also have in their relevant Statute, right to recover which gives powers analogous to Sec.11 (cited supra) and their being the enactment later in date prevails even to the exclusion of P.F.Act. As on date, however, Kerala H.C. and High Court of Maharashtra have upheld the right of E.P.F.O., but a final word has still to come from the apex court.

Since, every department/organization has in its enactment, a provision to levy interest on amount defaulted, and with every round of litigation and consequent time taken, the amount due continues to swell. This in turn, automatically disentitles unsecured creditors and those ranking down the rung from recovering anything. Therefore, there is always a desire among various departments to notch the higher right of priority, which in turn promotes litigation. For example, the sums dues towards EPFO not only consist of employers? and employees? contribution, but also the interest component thereon as also the penalty adjudicated and even interest on penalty. The interest element continues to rise even till the last date of litigation as same is required to be paid to employees and is therefore required to be collected. Under the P.F. Act, EPFO is entitled to recover such sums even from personal assets of any person who was a director at the time of the default. Needless to point, that any litigation between departments, only permits such directors sufficient time to part with or dispose off any assets, which they may possess.

For any Recovery officer it is hardly uncommon to come across situations, when a sick unit in default is sealed and taken over by Banks, P.F.Dept., Labour department, Customs & Excise, Income-Tax department all at the same time and then starts the litigation over who recovers the first as also a slew of stay applications seeking restraint against disposal of assets against each other. By the time, the matter gets decided by the courts, the plant & Machinery gets reduced to a junk. Labourers continue to suffer to have their dues. Even land and building, if available is just enough to recover dues of just one agency/department, whose right is adjudged supreme. This puts to peril all other creditors who rank lower down the recovery ladder.

Recovery of arrears is getting more focused attention currently than ever before and even Finance Minister has placed heavy reliance on it for making up for revenue shortfall to some extent in the current fiscal. But the emphasis has simultaneously come from Labour Ministry as well, as EPFO has projected payment of 8.5% interest on deposits with it as against earning of less than 8%, which it may get on its investments mainly by relying on recoveries of arrears. In case of EPFO, the buoyancy registered in recovering defaulted amounts recently has been quite encouraging. The thrust came mainly due to quick identification process of defaults, which EPFO has been able to manage well with its newly initiated Business Process Reengineering (BPR) Programme as also highly motivated effort to get its first right of recovery recognized by the courts. But being the first with the right to recover also brings along the onerous responsibility of acting fast to identify, default and liquidate assets, so that delay does not harm and create inequitable situation for the later ranking creditors as also the employees who are made to wait unnecessarily for their dues. BPR Programme of EPFO, interalia, seeks to remedy this malady of delay only and can be hailed as a step in the right direction.

Discussion above, clearly underscores the need for creating a specialized agency under the aegis of the Central Government, which should be entrusted with the task of liquidating assets of the defaulters on priority basis to be deposited and later shared by all the creditors, including revenue and other departments, banks and state authorities on some equitable basis. To begin with, on the lines of high-power committee of Secretaries to resolve disputes relating to public sector undertakings (already in existence), recovery related disputes between various government departments can also be handed over to a specialized committee. The committee can have the right to order immediate disposal of all available assets also. This will curb undue litigation, make defaulters more accountable and will also reduce wastage of time and energy within the government. A coordinated approach will thus enable exchequer to realize defaulted amount quickly, as also will considerably reduce litigation related costs for it. After all, a defaulter cannot be allowed to take it easy, while various arms of the crown engage each other in bitter fights.

(The views expressed are strictly personal of the author )

Budget 2013-14 - Prudence over populism in an election year

Budget 2013-14 - Prudence over populism in an election year

MARCH 01, 2013

By Somesh Arora, Former Commissioner of Customs and Excise, Advocate.( Amicus Rarus)

KNOWN for being a seasoned Finance Minister with all his experience as such of recent years, Mr. Chidambaram sprang a surprise in this year`s budget by opting for financial discipline and aiming for growth rather than populism of appeasing middle class or even poor by announcing any new schemes or big plan outlays. Not many FMs can indeed have the courage to resist populism in an election year. Therefore one really wishes that the path of prudence that he has chosen to follow, eventually leads to growth and enables his party to stage a comeback.

It will also be important to capture the historical connect of this year`s budget as it has been presented exactly 100 years after India`s pre -war budget of 1913-14. That budget was epoch making and later led to becoming a reference point for many statistical comparisons with post war period. One hopes that this year`s budget made under severe economic and fiscal constraints also eventually proves equally path breaking. In 1913-14, an amount of 10 crore pounds was committed towards the Imperial war expenditure which led to a dose of additional taxes and later 14 crore pounds went into two Indian war loans and issue of treasury notes for Imperial expenditure. This, despite the fact that expenditure for Indian army deployed for war effort was met out of the Imperial budget. Up to 1918-19, 23 crores pounds worth of additional taxes were levied in India but the positive fall out for India was that balance of trade which was negative till 1913-14 became positive till the end of the war as it gave impetus to Indian industry and produce. But equally the inflation in India (especially the cost of living) touched new highs in a decade up to 1923-24. Challenges, therefore, are not historically unknown to anyone entrusted with the task of budgeting for this great nation.

Cheer Factors:

Customs:

? Customs Duty on hazel Nuts reduced from 30% to 10%

? Basic Customs duty on de-hulled oat grain reduced from 30% to 15%

? De-oiled rice bran oil cake being exempted from duty

? Duty on bituminous coal reduced from 5% to 4%, However on steam coal raised.

? Import Duty on precious stone and semi precious stones reduced from 10% to 2%.( Comment: One can hope to see more of stone studded jewellery with less of gold in the market soon.)

? Export duty exempted on flat rolled products of iron and non alloy steel coated or plated with zinc with retrospective effect w.e.f. 01.03.2011.

? Specified machinery for Leather Industry as well as Textile Industry subjected to reduced import duty from 7.5% to 5%.

? Duty free limit on jewellery for an Indian passenger residing for one year abroad raised to Rs.50,000/- in case of gentleman and Rs.1,00,000/- for lady passenger.( comment : Nothing will happen of Bhappi Lahiri with this limit of Rs.50,000/-)

? Jurisdiction of Single Member Bench of Tribunal extended from Rs.10 Lacs to Rs.50 Lacs. (Comment : Orders of Commissioner(appeals) in a single hand now.)

Central Excise :

Tapioca Sago (Sabudana) exempted from Central Excise duty.

? Hena Powder or Paste not mixed with other ingredients exempted from excise duty.

? All Hand made Carpets and other textile floor covering made up of Jute and Coir fully exempted.

? Zero Excise duty route being re-stored in readymade garments

? Goods manufactured and captively consumed within the factory of production of an area based exemption scheme in Uttrakhnd and Himachal Pradesh also exempted.

? Advance Ruling for Custom and Excise purposes extended to any new business of import or export including Indian business and similarly for a manufacturer regarding admissibility of credit of Central Excise duty, even resident Public Ltd. companies are liable for advance ruling on central excise and Service Tax matter.( Comment : Now, this may be the only option left for litigation, now that CESTAT is virtually being made redundant by the Government by virtual taking away of its power)

? Jurisdiction of Single Member Bench of Tribunal extended from Rs.10 Lacs to Rs.50 Lacs.

? Service ?tax : Negative List to include Industrial Training Institutes or Vocational Training Institutes affiliated to State Council or National Skill Development Corporation.

? Testing of agriculture produce also included in Negative List.

? Voluntary compliance Scheme introduced to give immunity from interest, penalty and other proceedings for truthful disclosure of tax from 1 st October, 2007 to 31 st December, 2012. ( Comment: This may be the last chance to pay off decently, now that litigation is hardly going to be a remedy)

Income-tax :

? Super Rich with more than 1 Crore income to be taxed with surcharge of 10%.( Comment : Small price to pay for those 42,000 privileged to be called so.)

? Domestic Companies also will have to pay surcharge of 10% if Income exceeds Rs.10 Crore.

? 15% Investment allowance if investment of 100 Crore made in new assets.

? S.T.T. on Share/ securities transfer reduced.

? GAAR provisions to be applied from 01.04.2016 and assessment will be approved by an approving panel consisting, inter-alia, a High Court Judge.( Comment : one more citadel of power of bureaucrats falls to judiciary after one mistake.)

Tear Factors:

Customs:

? Boxite and Ilmenite to attract export duty @10% and 5% respectively.

? Customs duty raised on Raw Silk from 5% to 15%.

? Import duty on Set Top Box raised from 5% to 10%.( Comment: It was reduced to encourage usage, now raised when it has been made compulsory)

? Import duty on High End Cars with more Engine Capacity will raise from 75% to 100% and on import of old cars being raised from 100% to 125%.( Comment : Little more for that extra space on Indian roads)

? Similarly Custom duty on import of Motorcycle with capacity of 800CC or more raised from 60% to 75%.

? Interest free period for payment of import duty being reduced from 5 days to 2 days.

? Storage period for imported goods in a warehouse being reduced to 30 days (extendable to 60 days by the Commissioner)

? Custom House Agent now to be called Custom Brokers and shall be liable to disciplinary action even for offences relating to Finance Act, 1994.( Comment : Now Commissioners ( General) can break the backs of the brokers)

Central Excise:

? Cigarette, Cheroots and Cigar etc. being subjected to higher excise duty.( Comment : Ah! That costly puff made costlier.)

? Duty raised on Marble Slabs

? Branded Ayurvedic Medicaments and also Unani Siddha and Homeopathic being subjected to MRP based assessment with 35% abatement.( Commen t: All sale depots of Bapus, Swamis and Ammas to be effected)

? 4% Excise duty being imposed on Silver produce or manufacture during the process of Zinc or Lead Smelting.

? Compounded duty rate on Stainless Steel Patta/ Patti being increased from Rs.30,000/- to Rs.40,000/- per machine/ per month.

? Excise duty on Mobile Hand Sets for more than Rs.2,000/- being increased from 1% to 6%.( Comment : would only mean lower C.V.D. for cheaper Chinese mobiles)

? Excise duty on SUVs of more than 1500CC being increased from 27% to 30% except for Taxis. ( Comment : Very reluctantly raised tax, as the percentage says it.)

Service-tax :

? Renting of immovable property to educational Institutes by specified education institutes, will not be available for exemption.

? Exemption to Cinema Films, if not exhibited in Cinema Halls, no more available.( Comment : Tax when they sell it to T.V. )

? All Air Conditioned Restaurants to pay Service Tax.( Comment : What will be the status during power cuts or ban on running A/cs by the State Government?)

? Exemption to transportation of goods by Railways and Vessels not to be available for Petro Products, Postal Mails, Mail bags and House Hold effects.( Comment : Why petro products, which lobby interested in getting it taxed?)

? No more exemption for vehicle parking to general public or maintenance of Government aircrafts.( Comment : Rarely available Parking to become costly, even when towing charges of Delhi police remain the same. What to do?)

? Exemption for certain charitable activities being reduced from 25 Lacs to 10 Lacs.

? Abatement for High end properties of more than 2000 Sq. Ft. or of value of Rs.1 Crore or more reduced from 75% to 70%.

Income-Tax:

? Only moderate tax credit of Rs.2000/- to every person whose income is up to Rs.5 lacs only .( Comment : Simple calculation made difficult- may be till Finance Act, 2013)

? 1% TDS to be deducted on every transaction of immovable property of over Rs.50 Lacs.( Comment : What the Finance Act, 2012 decided not to do will be done in Finance Act,2013)

Fear Factors:

Customs:

? Section 104 of the Customs Act, 1962 amended to make certain offences non bailable, if duty sought to be evaded exceeds Rs.50 Lacs or value of import or export goods is more than Rs. 1 Crore or if goods are prohibited and notified under Section 11 or if drawback fraud or exemption from duty exceeds Rs.50 Lacs.

( Comment: Lawyers in the criminal courts to be busy again)

? Automatic Vacation of Stay Order beyond period of one year in Customs, Central Excise and Service Tax matters even if granted by the Tribunal.( Comment: Go straight to High court and do not waste your time in Tribunal. Aping Income-tax without having so much no. of benches in CESTAT)

? Provisional attachment of property belonging to any person under Customs Act can be done, if a Show Cause Notice to him has been issued.( Comment : Only professional smugglers with no assets kindly stay in the business)

? Any person to whom a notice of recovery of money from a defaulter is issued is required to comply with, otherwise he, himself is a defaulter in the Customs Act.

( Comment: Oh Banks! do not feel happy with your non-obstante clause or secured creditor over sovereign debt argument, even you can be declared defaulter now and your property attached)

Central Excise:

? Automatic Vacation of Stay Order beyond period of one year in Customs, Central Excise and Service Tax matters even if granted by the Tribunal.

? Any person to whom a notice of recovery of money from a defaulter is issued is required to comply with, otherwise he, himself is a defaulter in the Customs Act.

? Certain High Value offences made non-bailable.

Service-Tax:

? Service Tax- even if grounds for invoking extended period are not sustained under Section 73 of the Finance Act, 1994, the Central Excise Officers will still be able to make demands for 18 months.( Comment: Expect only extended period notices from the department pl. Even if you win the demand for interest on 18 months will make it a bad bargain for you)

? Provisions introduced for making certain offences under Service tax as non- bail able.

Income-Tax :

Provisions relating to penalty for non- filing of information Returns made more stringent with a penalty of Rs.100/- for every day of default. Penalty to be further enhanced to Rs.500/- per day if return is not furnished despite notice.( Comment : Do not forget to tell about your spending or foreign travel, you may not pay income-tax but not filing this return can make your foreign trips really expensive. Though Income-tax ads claim to be watching you they still want to hear from you or will finish you up. Wish it goes back to original provision during passing of Finace Act.)

While wishing FM luck for his effort to turnaround the economy in a big way in the limited time that is available to him, one would like to be reminded of the great words of his own favourite poet i.e. Tiru-valluvar in Kural- It is not a great misfortune for a State if its revenues are limited, provided the expenditure is kept within bounds.

I am sure his wisdom of Eight years as F.M. of this country will have abundantly made it clear to him that wasteful expenditure that does not reach the people it is meant for, is as bad as evasion of taxes.

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site. )

Budget time - It's Suggestion time!

Budget time - It's Suggestion time!

FEBRUARY 02, 2011

By Somesh Arora, Advocate, Former IRS and C.C.O.( Amicus Rarus)

IT is that time of the year when wise men of TRU go in their customary annual huddle within the confines of the North Block and men/women of every hue put up their thinking hats about what should budget contain. This mortal being is no exception. Though the budget exercise is gradually losing its sheen as the changes are carried out throughout the year and TRU which used to be 'last quarter busy only' section has now got work throughout the year, depriving the TOTRUs of their much envied beginning of the year cinema breaks to Connaught Circus. The media hype accompanying the budget exercise and later its analysis, and the ups and downs of the stock market, which is capable of reading a lot, even if FM sneezes (cotton handkerchiefs may get an exemption, throat soothers may become cheap, pollution control equipment list may have more inclusions etc.) makes it an exercise which is next only to elections. So, it is a good time to join the bandwagon, though many suggestions are the outstanding of the previous year and will continue to be outstanding even in the next year because they are not found to be outstanding by those who listen and decide.

Direct taxes : Since last year my suggestion to abolish or raise the wealth tax limit was partly met and the limit raised and has been promised to be raised with the notification of DTC, therefore, I will not touch upon it.

1. After simplification of the tax structure, to my mind, next assault has to be on the complicated tax compliance issues. All business and professions can be given the option of paying tax up to receipts of 25 lakhs by treating 50% of the receipts as taxable income on a notional basis just by maintaining the account of receipts only. This will better tax recovery and will reduce unnecessary maintenance of accounts by small business and professionals.

2. The accounting for share market transactions and recording of capital gains on the same is a complicated process involving FIFO method, looking at the holding period of every single transaction. May be by enhancing STT the same can be done away all together, as the Government will not lose revenue or at least can jeck up STT to that level and investors will be saved of such cumbersome recording of transactions for which even a software has not been developed till date. In the event any Income Tax officer thinks otherwise, then let some of the worthy officers of the department maintain these accounts on a trial basis for two different individuals for about two hundred transactions and I shall cede that there is no logic in my suggestion.

3. I am sure see that a number of bigwigs amongst politicians, industrialists, bureaucrats are likely to be cornered over disclosures of names featuring in Swiss bank and other tax heavens list. Government should pragmatically come out with one last time ? Amnesty orCompounding Scheme ?, as this is the only way to get the money back to where it belongs. In any case, talking about ethical issues is fine, (since some newspapers are opposing the move), but if the country can alleviate all its poverty, remove all hunger related deaths from its map through influx of such money, then all the intellectual and ethical arguments get dwarfed. Otherwise with all their might, all the agencies of India will never be able to get this money back to Indian coffers. Again, are we still not continuing to have such amnesty schemes every year for various taxes like service tax, house tax and even VAT, then what is wrong in making it known to all defaulters by legislative process that it is one last time and allow it for income-tax purpose also?

4. Again, my all time favourite on the income-tax side is the rebate for small family norm, which I am always surprised as to why is not being accepted. This can be in the form of tax rebate for individuals for any member of the family adhering to small family norm to check the population growth. It can be Rs. 10,000 for two children and Rs.15, 000 for one child family. It has been real long since this government or any other government in the past paid a lip service to family planning. So, why not reward those who voluntarily think of the national cause. The FM and his team will also show that they are sincere towards the burning issues of the nation. Initially, the benefit can be extended to any couple who goes in for voluntary sterilization etc. during child bearing age or who are certified medically to have crossed child bearing age, with one or two children in the family.

5. Further, suggestion will be to hike the rate of corporate tax and MAT or by levy of special purpose cess on tobacco products etc. solely with the objective of creating a corpus for political funding of elections. A beginning has to be made somewhere considering that India is again slipping down in the list of corrupt nations prepared by Transparency International. Why not make a beginning this year? How the corpus is going to be apportioned can be left to the collective wisdom of the legislators to decide.

Indirect taxes

Central Excise

1. With the change in the nomenclature of The standard of Weights and Measures Act, 1976 to The Legal Metrology Act, 2009, a change in the relevant central excise notifications shall be necessary.

2. The Pan Masala Packing Machines (Capacity Determination and Collection of duty) Rules, 2008 are facing a challenge of constitutional validity in various courts and apex court at present, some of the misgivings of the assesses are not misplaced because of the way certain provisions have been worded or are being interpreted by the field officers. The following may need a re-look as far as wording is concerned as they are leading to impression in the field that these rules give them power even to levy duty and penalty much beyond what is mandated as the maximum duty or penalty under Section 3A of the Central Excise Act, 1944 or under section 11A as the maximum mandatory penalty.

Following amendments are required;

Rule 9- Indicate time frame (say of three months) with in which a person is a defaulter for the purpose of proviso 2 and therefore, can discharge duty with interest but with no penalty, and when he becomes defaulter for the purposes of proviso 7 and has to therefore incur penal duty and penal penalty which is more than 100 percent as prescribed under the Act. Also the concept of penal duty as enshrined in proviso 7 is unknown to any tax legislation and cannot be termed as excise duty. The same is also without mandate under the Act.

Rule8- Proviso 1 to Rule 8 requires amendment to bring it in line with Chewing Tobacco Machine Rules, as the same logic mutatis-mutandis applies. The following substitution therefore is required:

Provisio 1 should read as: ? Provided that where a manufacturer uses an operating machine to produce pouches of different retail sale prices during a month, he shall be liable to pay the duty applicable to the pouch bearing the highest retail sale price for the whole month.?

Customs:- 1. A relook is required at the baggage free allowance limits as the same have not been revised for a number of years.

2. Codify export baggage rules by at least bringing out the absolute export restrictions, as outbound passenger is not supposed to look into all the FEMA Rules, export control orders and restrictions under EXIM policy etc.

Service-Tax: Bring in the reverse charge liability for advertisement and sponsorship services, as the same is most evaded service and putting the service seeker under liability to deposit shall considerably swell the coffers of the revenue and reduce administrative costs.

General: 1. To avoid pitfalls of vagaries of highly unpredictable tax litigation in India, it is suggested that Advance Pre-Deposit Tax accounts for Litigation should be introduced, wherein any tax payer can deposit money as a lien for any uncertain tax liability of income-tax, customs, excise and service tax and can be freed from levy of interest or penalty liability to the extent of credit balance in the deposit account, in the event of same being imposed by any litigation. And in case of fruit of litigation goes in favour of assessee, DOR can pay nominal interest of 3% to 4% on credit balance. Government can use savings generated through this account for developing infra or any other cause close to its heart.

2. With the Settlement Commission now allowed taking cognizance of clandestine removal and smuggling cases, power of Chief Commissioners in this regard to grant amnesty against prosecution, which in any case is rarely being used, can be taken away. Further, the settlement commission can be allowed to be approached even after 1st adjudication and/or at the stage when the Department decides to proceed with the prosecution.

3. SAFEMA can be abolished by including custom offences in the Money Laundering Act, which in any case mostly has fraud cases involving misdecleration, undervaluation coverable under section 420 of I.P.C. and hence under Money Laundering. Similarly, offences of NDPS are being covered under the Money Laundering Act. Attachment provisions under NDPS Act can be done away with. Do not need too many nooses around the neck of the man to be hanged.

4. National Tax Tribunal be notified- Let us feel that Government is not only interested in creating provisions in the statute book but also likes to notify them. Let the present FM cut this ribbon, we will all clap.

5. Qualification for becoming Member (Technical) of CESTAT be brought at par With ITAT i.e. an Additional Commissioner with three years standing to be eligible to catch young member (technical) for CESTAT. ?Catch them young' applies with equal force to CESTAT also.

6. Advance Ruling Authority - Jurisdiction may be extended to cover all Indians or at least all service tax matters. Why not give the foreign treatment to even Indian nationals also?

7. Creation of a Separate Directorate for IPR (Border) Enforcement and Adjudication under CBEC. Let this be a focused area for us to prove to the world that we really care on enforcement aspect of IPR, even enforcement of foreign trademarks, copyrights etc. can be entrusted to this agency even if violations occur in the interior. It will definitely keep Customs and Excise Department busy in the post G.S.T regime.

8. Create more benches of CESTAT, at least equal in number to ITAT as a precursor and preparation for G.S.T., even otherwise with service tax litigation going up; there is a strong case for creating more benches of CESTAT. Not only is the number of cases swelling, but courtrooms also have lawyers overflowing to the corridors.

9. The requirement which has developed of approaching CESTAT for seeking extension of stay every six months can be done away with as it has not served any purpose excepting increasing the burden of already over worked Benches of the CESTAT.

10. 1st stage appeal to Commissioner (Appeals), which in any case in more than 95 % cases is heard along with the main appeal can be legally allowed to be heard without any requirement of pre ?deposit of duty and interest. The measure will be trade friendly and in any case is not serving any useful purpose.

11. Similarly for the 1st stage appeal to the Tribunal (normally against the order of Commissioner), an option can be given to the appellant to opt for pre-deposit of 50% of duty voluntarily in cases where there is no mandatory penalty and 75% of the duty, where there is a mandatory penalty to enable hearing of final appeal without any further pre-deposit. This will reduce burden of hearing stay applications on the CESTAT and get some deposit for the DOR.

Last but not the least,

TAX Payer Empowerment:

1. Create tax ombudsman as a body having representation of Samman holding tax payers. Let the Tribunals have some members selected from this section of society.

2. Allow Samman holder Central Excise assesses paying revenue of more than one crore, 1% as tax collection incentive as they reduce cost of collection to the department.

3. Income-tax returns to collect and collate information from taxpaying asessees regarding where would they like 10% tax payers discretionary spend to go i.e. whether in education, science research, poverty alleviation, defense, electoral reforms etc. and Government to give weight age to such view in future budgeting.

Need to introspect over failings and success of CWG

Need to introspect over failings and success of CWG

DECEMBER 12, 2010

By Somesh Arora, Former Commissioner of Customs & Central Excise

NOW that the much-touted sports event in the South-East Asia is over, we can draw some solace from the fact that despite seeing a number of failings, we did not fail as a nation. For the respite that came from Games being a complete let down we must thank our former Prime Minister Indira Gandhi (Posthumously), our creative talent of Hindi Film Industry and our Army and security agencies, in that order. To Mrs Indira Gandhi, we feel obliged because ultimately 80 percent of the stadia and other facilities, which were used in these games were those created during her time at the time of Asiad in 1982. With only, the top floor of the stadia,, being built for the games. But for her contribution of the past, we might have been totally disgraced as a nation. To the time tested creative talent of Film Industry, we again owe a lot, because right from the presence in the closing ceremony of previous version of games in Australia in 2006 to the opening ceremony in Delhi in 2010 to its closing ceremony, its strong contribution brought us accolades. The Commonwealth games have never seen such an opening and may not see it in a long time, because the only better version of Hollywood may not be involved, as USA is not part of these games. The Army as usual should get credit because they delivered when the ?Jugaad? failed. They fixed up the footbridge that collapsed days before the game. Their imprint on the games could be seen from providing security cover to holding well-drilled medal ceremonies to hoisting of the flags, to nurturing some of the winning talent of the Games.

Now, what brought us disgrace, the list can be long. It consists of individuals, institutions and organizations. About 50 % of the projects which were initiated in the names of the games with the datelines of completion before CWG, remained incomplete. Roads in Delhi, other than those that had the CWG lane remained full of pits or patchwork. Why the things came to a pass that nothing short of the PM of the country had to inspect unfinished venues personally and had to call emergency meeting of the Cabinet to get the promised delivery. Despite, this some of the stadium remained unfinished, games village could not accommodate all, the metro line from airport to railway station could not be delivered and even Organising Committee had to admit that they were virtually cheated by contractors who kept them in the dark. The confidence in contractors proved a bane for the games and almost showed that the mandate of the Government has ceased to run over them. Perhaps, it also showed that no other PM of India has proved strong enough to extract delivery from corrupt elements that are involved in construction projects to the extent Indira Gandhi and Rajiv combination in 1982 could. Now, we may have to think twice before undertaking to organize such big sporting events. We, at the most are fit to organize big time cultural events and may be forced to disguise any other event under the shadow of our culture, as happened with XIXth CWG. The fact of the matter is that our Developer-Contractor industry, despite being the least regulated in the world is so incompetent ( by and large) and fed on corruption that it takes everything for granted. For it, do not exist the democratic pillars of Legislature, Executive and Judiciary. As, it has learned to manage all of these. Since 2008(i.e. recession), this nexus has duped public of its money by not delivering on 90 percent of land and other projects in housing and commercial sector promised to it. The deadlines simply do not exist for developers and contractors, because they feel that they can easily take on even the might of the public. There may be hardly any developer in the country, which does not have the blessings of some big time politician. And once these developers and contractors share the fruits of corruption with them, they treat the beneficiaries as the dogs who at the most can bark at them but cannot bite. However, this time they betrayed even some politicians and government by delaying and siphoning off to other projects the monies; they got for CWG at inflated prices. Such was their confidence of getting away with their wrongdoings and in the weakened mandate of the people in position. Since, 1970?s, the smuggling which was most lucrative and remunerative of illegal activities, started yielding to money laundering in land deals and attracted even the biggest of the names of that time like Haji Mastan to be followed by Dawood towards real estate. By 1990?s the nexus of Developer-Contractors?Politicians became so strong that it came to exist even in Tier- II and Tier-III cities. The law remained loose and Industry has remained unregulated till date and attracts highest cash inflows from tax evaders, smugglers and canalizes the corruption money of the powerful next only to Swiss accounts. Obviously, there are vested interest and blue-eyed boys of people in position and power, who help them in getting the best land deals and change of land use and government contracts. Such all pervasive is their hold on the economy that they can, with their clout, get the best of the mines in tribal areas, get the agricultural lands notified as SEZs, delay the execution of projects with impunity. The government of the day failed in the instant case of CWG to appreciate that they can even betray them in execution as they so often do with the public. Every politician has to realize that corruption comes with a price tag. The hands that deliver the slush money are also the ones, who take you for granted and can run you down. This is the peril of the corruption. It erodes authority. In the past, we had Cabinet Ministers, who were able to keep their safe distance from the corporate czars and mafias. But around late 1980?s, the holding of durbar culture marked the beginning of erosion of the authority of the top politicians, in a number of cases. In Judiciary, those judges who even now practice abstinence from open public contact, have high public image. In a democracy, the inaccessible people in position are reached out through lobbying and the accessible through liaisoning. While the former is done publicly and can be counteracted by other pressure groups, same cannot be the case with the latter, which is done in privacy.

In fact, if the contractor lobby in this country had been compliant with the government contracts, there would not have been any need to persist with agencies like NHAI (which has the ability to perform well depending upon who is the Minister at the helm) or with individuals like E. Sreedharan, who are being made to work on important projects despite their age, because there are no substitutes available for their ability of timely execution in this country of more than one billion. One can empathise with him, when he expressed that Airport-New Delhi Station Express Line could not be completed in time, as the contract was not being handled by Metro directly. The Army which has the ability of timely execution cannot be called to execute civil projects. So, the options are naturally limited for any Government. Why the governments look so pathetic and compromised, that we have the instance of CM of a state surveying a half mud- half built expressway on a helicopter, after the expiry of its first dateline for completion. One has not to look beyond the blogs and websites to see how this nexus has cheated and duped the citizens of India in every nook and corner of their hard earned savings of a lifetime with delays and non-delivery. Recent `Adarsh Society Scam? involving bureaucrats and even top military officials shows how deep rooted is the malaise. Consider the death of more than 56 persons in one building collapse in the National capital of Delhi, which was not related to any natural cause but to human greed of builder-police and-MCD mafia and we deserve to hang our heads in shame. Add to this, the CM of Karnatka unabashedly holding on to the post after land scam in the state and showing the door to his relatives from the official residence as a remedy. If someone has to be shown the door, let it be my kith and kin from my residence rather than me from the office, seems to be the mindset at play. Mockery getting the better of law and public opinion, in each instance. It is a clear pointer to the total collapse of the system. Such events are not sporadic but occur with regular frequency. If one starts counting them, the cumulative effect of the events will be quite heart breaking for any of us. We, the people of India are equally responsible for giving ourselves this Banana Democratic Republic of Scamland ( B.D.R.S.) to ourselves in this 7th decade of Independence, for we choose the wrong people to represent us and undermine our hard won independence.

The Chinese, with whom we tend to compare ourselves were able to hold Asian Games after Olympics on an all together different venue. But our sports administrators lost an opportunity to build another new and Hi-tech city, simply because one sports administrator wanted venue of the Games village to be close to his house to reduce commuting time for him in Delhi.

Remedial course, which can be designed, will require putting in place a strong regulation mechanism with emphasis on timely delivery. Blacklisting Developers cannot help as the Men behind these companies can always float a new one. Better to have an independent rating system for the Government Contractors in place and may be an intelligence based performance system appraisal. The new ones can initially be tried only for minor contracts involving value of less than one crore and the established ones with high rating can be given high value contracts. The regulations can be in place to disallow the use of public money for any other project and purpose than the one for which it is received. For, it is seen that number of these developers and contractors siphon off money from semi ?finished projects to other projects especially during the Industry created boom periods. And while it reduces requirement of self funding for them, by what has come to be known as process of ?Topi Ghumana? (?rotating the hat? - if I am permitted loose translation), but inflates the cost due to delay for the prospective buyers. The regulations should emphasize on allowing money to be recovered only linked with construction or with development of land. Heavy penal clauses to be evoked in case of delay when time is of essence in case of government projects. Regulations should also permit funding by banks and financial institutions of only that part which is unencumbered and on which no installment has been paid by the prospective buyers. For instance, if on a one core rupee worth of a land, Rs. 50 lakhs have been paid by the prospective buyer, then bank should not advance loan for more than 50 lakhs less margin money and should see to it that it is reduced further with every further money recovered from buyer. In the days to come, it can be expected that lot of buyers or banks are going to be duped due to non-observance of this simple common sense based loan practice. The non ?delivery by the developers to their prospective buyers in a number of cases is due to the fact that land allotted to their buyers are also given as security to banks for loans taken by them. And the post 2008 scenario, has compelled the developers to default or delay in many cases on their loan repayments and they only hope for the buyers who have by now paid substantial money, is to wait till another boom in land prices materializes i.e. till the ?hat starts rotating? again.

Our Cultural Heritage being smuggled out - Limitation of Customs!

AUGUST 13, 2010

By Somesh Arora, Former Commissioner of Customs & Central Excise

IT was in the summer of 2003 in Goa. An intelligence input received indicated, an attempted bid to retrieve some idols, from the river bed of Mandovi at a point close to a Village where immersions ceremonies were being held by native Hindus, by some smugglers who dealt with antique idols. Operation conducted at the daesignated spot during the day time, though alerted the retrievers and enabled their escape, nonetheless resulted in seizure of one antique stone idol left behind by the escapees. But, as the intelligence had indicated presence of more than one idol, therefore under water operation was launched at the designated spot, taking help of National Institute of Oceanography (NIO) divers and pressing the customs interception boats into action.

The operation continued for three days at the eerie site with the divers encountering human skulls and bones in the pits in the river bed and setting monsoon making the waters rough and choppy, thus making the whole operation difficult to conduct. NIO after rendering help for three days advised calling of the operation and finally withdrew from the same. However, on persistence of the Informer the operation by the Customs continued and help of some professional divers was taken, which enabled retrieval of another idol of Natraja (Shiva) in ashtdattu (eight metals) on the 4th day, confirmed to be more than 800 years old by the NIO testing. The Monsoon finally disallowed the operation to be carried any further and the same had to be abandoned as the divers were able to have a visibility not beyond two feet in the muddy waters. So, final score was retrieval of two idols. The peculiarity of a feature, confirmed in respect of both the idols by the NIO testing, was that they were lying in the river bed for more than a decade.

Though the operation was called off, the job of investigation was far from over. The intelligence inputs were hardly of any avail in indicating as to where the idols came from and only expressed the possibility that these idols were abandoned more than a decade back, when two warring gang of smugglers clashed in the river. The name of persons who were retrieving by making valiant effort of working under water without proper equipment at such a lonely site, were also not available from the intelligence inputs and their escape did not help the matter, any further. Thus, the whole investigation was nothing more than a wild goose chase.

The immersion site where the operation was conducted was close to a coastal village and out of desperation to get some clue, the sarpaanch of the village was called to find out about any special incident which might have happened to his knowledge about a decade back and was shown the idols which were recovered. It was only then that he narrated that about 12 years back an immersion ceremony of the Hindu idols from a temple stated to be in a little far off village in Goa only and dating back to the times of Vijaynagara Empire had taken place at the immersion Ghat. Since, the version corroborated the forensic evidence provided by NIO of idols being in the river bed for more than a decade, therefore a back check with the temple authorities was imminent. When the temple priest was contacted he confirmed that in 1992, the temple had performed immersion of seven Hindu idols and the reason for the same was that as per Hindu rituals of idol worship, any idol if it is chipped of in part or whole becomes Khandit ( lifeless)and is no more considered worthy of worship as it is believed that Praana (life) which is brought in an idol when it is made worthy of worship at the time of installation i.e. during praana ?pratishta rituals, has left the idol and therefore it is fit only for immersion. The fact was confirmed from the scrutiny of idols as one in the stone was slightly chipped of from the nose, and in the idol of Natraaja the floral ring around the dancing idol was found broken. The priest was taken to authenticate whether the idols recovered by us were the same which had been immersed in the river 12 years back. He, after visual examination duly confirmed the same. The priest also informed that such rituals are carried out everywhere in India in the temples and many idols which are otherwise having antique value are just immersed in the river beds.

The case was an eye-opener to us as customs officers, as it indicated how a colossal loss of national cultural heritage is and might be taking place away from the probing eyes and without the knowledge of authorities and smugglers may be retrieving such idols with persistent ease and selling these in the multi-million dollar antique market. While, we could not retrieve more than two out of the seven and cannot even say with authority whether these were retrieved before we came to know about them or whether the remaining five are still in the river bed only, the two seized by us were kept in Customs godown to be placed in Customs Museum, which was being conceived at that time.

However, we were equally determined that the lessons drawn from the seizure which was made after spending few lakhs of Rupees of the ex-chequer should not be lost sight of. Accordingly, we wrote our reports and made a significant suggestion that to preserve such national cultural heritage in future and equally to give due regard to the religious rituals of Hindus, such immersion ceremonies involving antique idols should henceforth be mandatorily notified to Archaeological Survey of India(ASI) or any other designated agency, so that they may retrieve them rather than smugglers doing it and our precious cultural heritage may find its space in the Museums of India rather than adorning the living rooms of an antique collectors, to the deprivation of the whole Nation. But, to my regret, this is one suggestion I could not see implemented till my retirement from the Department, though the same was most reasonable. I only wish that someone responsible amongst the Higher ups in the Government will read this write up and will take steps to implement it.

Legal compliance issues - Is India heading towards becoming most regulated economy?

Legal compliance issues - Is India heading towards becoming most regulated economy?

May 26, 2010

By Somesh Arora, Advocate & C.C.O. (Amicus Rarus Consults)

FOR the entrepreneurs of India, it has been a virtual saga of being out of the fire and into the fire pan. The globalization and consequent liberalization in 1990's brought in a temporary whiff of fresh air for them, when so termed `inspector raj ? was dismantled and atleast in some of the Central Government departments like Customs, Excise and Income-tax, the process of simplification was started in the right earnest. However, before the same could percolate down to states and municipal levels, the imported regulations from all over the world have started affecting them in a big way. While some related to environment etc. are understandable, there seems to be mushrooming growth of regulatory authorities each armed with their legislations, and as the recent spate of IRDA and SEBI has shown, fighting for their own space. Individual privacy and space have already been heavily intruded by Income-tax information returns, know your customer norms, which are required for banks, mutual funds, DEMAT and broking accounts and keep on changing with regular frequency. Average Indian is getting fed up of giving his photographs to so many agencies. Individuals of my age often think, why they were not taking so many, when we were young and good-looking (atleast in our perception). Income-Tax authorities will not let a person forget his PAN number, even if in old age the poor person is suffering from Amnesia or Alzheimer's. It was often said that American economy is most liberal yet most regulated. In India, while we are no where being close to the former, thanks to the imported laws and regulations, we shall soon be offering competition to U.S.A. in the latter. The liberalization for us has brought not only more of imported goods but also imported laws. If serious Fraud office is in U.K. , we must have it here. They have competition commission, let us rechristen our MRTP and name it so. Even our accounting norms and standards from 2011 shall be imported. If they have EET in their provident Funds, we must have the same. Overhaul all tax laws, prescribe new returns even before the earlier law could settle in someone`s mind. If the previous Saral was saral, then let there be sequels of Sarals. If someone forgets any of thousands of laws being churned out, then ignorance of law is no excuse. Hang the person with interest, penalties, prosecution and even interest on penalties (as in case of EPFO). The office of President of India , when invited President Musharaff from Pakistan, for more than three days forgot that there is some obscure instruction with F.R.R.O., requiring each Pak national to report. If this can happen at that level, then thank your stars if as an ordinary mortal, you ignored some dormant but ticking like a time- bomb law, but still got away with it. If you are a civil servant and some one brings Mithai for you, the conduct rules require that you open the box and check that Mithai is of not more than Rs.100/-. Therefore, only sweets made of vanaspati or mustard oil are permissible and visitor must be asked the value of gift brought by them. During last elections, when Wealth Tax limit was Rs.15 lakhs, quite a few prospective electoral candidates declared their assets which contained lists of cars and jewellery in excess of Rs.15 lakhs and thus indicated they should have been Wealth Tax Assessees, but whether they were or were aware is the question. Even if you are an ascetic and have renounced the world, you still need to be aware of certain laws and regulations as you may be entering restricted forest or reserved area without valid permission or may be hauled up for polluting Himalayas. Therefore, justifiably there should be entry level awareness course for prospective renounces of the world.

Next, let me dwell upon SSI industry which has now become Micro, Small and Medium enterprise in the post liberalized era to show that growth trajectory is northward on the basis of combined statistical jugglery. A number of SSI units are facing closure and if one does an analysis, about 80 percent closures are because of some or the other legal compliance issues, which did not engage attention at the right time and swelled in time causing financial wreck. A typical S.S.I unit has to deal with 36 legislations, and compliance burden on them, even when we go by utopian presumption of none of the government agencies being corrupt, is about 20 percent of cost of production or services in terms of time and other costs involved. One can easily double up this figure, if it is presumed that some of the Departments are corrupt and have extraneous reason to show the might of law. Even if one such Department is not satisfied or appeased, it is capable of wrecking an SSI industry through entangling them in some violation of law, which might have been overlooked or ignored. The applicable list of laws can broadly be Income-tax, Customs, Excise, Service-tax, Property Tax, E.P.F., E.S.I, VAT,CST, Entry tax, Octroi, Environment laws, Banks, Financial institutions, Industrial development authorities, Labour welfare and Trade Union laws, SEBI, Insurance, Shops and Establishments, Factories Act , Power or Electricity Department, water department, Legislations relating to workmen`s security and safety and compensation and labour employment and exit laws, Professional tax laws and CESS Acts, sewage department, Companies Act or Partnership Act, F.E.M.A, EXIM regulations, RBI regulations, Telephone, Railways, Police and municipal building bye laws and regulations in general, a part from Industry specific. Then there are certain labour laws specially relating to EPFO and ESI under which if an employer fails at any point of time to pay Provident Fund or ESI contribution then at any point of time thereafter employer or any partner or director of the company shall be liable to pay the same with interest, penalty and again interest and penalty, and under law not only his business assets but even personal assets can be attached and such employer, partner or director can be arrested for any period till recovery is made. There have been instances when EPFO started making recovery efforts for defaults in the year 1962, in the year 2004 only and the meager sums of defaults through the power of compounding become crores of recoverable dues. It is normally believed that an SSI unit starts having serious problems with legal compliance issues with one or more of the multifarious agencies it has to deal with, after 10 years of its existence and most of the units suffer their mortality any time after that period. A company in India requires 10 to 12 years period just to windup its business and six months to 3 years to get established. Greater the regulation, greater will be the infant mortality rate of such SSI units.

Coming to the bigger corporate entities, the problem is not that much from small time Inspectors or visiting officers (as they hardly understand or are allowed access to the complex accounting system and the maze of inter corporate transactions that a Satyam like corporate entity may have so as to be able to detect any serious contraventions). But the problem mainly arises from the complexities of the legal issues and its differential interpretation at various level of policy making. A major corporate entity just to build a good legal compliance system through SAP or any other IT enabled solution need to spent sixty to seventy crores for initial setting up and then need to spend a fortune on engaging audit and legal personnel and firms to ensure periodic compliance with minimum of 70 to 100 laws they have to deal with. At times the total legal compliance costs for them, in terms of man hour spent, system building cost, hidden cost, and system maintenance cost, turns out to be more than the total amount of taxes these companies pay out. Even if such Corporate Giants come out unscathed and remain protected from litigation, due to good legal compliance system, still the heavy cost of ensuring compliance makes their products uncompetitive in international markets, as administrative overheads incurred by them turn out to be of a much higher magnitude compare to less regulated economies like China etc. Policy makers have to understand that every added regulation, return, statistics etc. demanded add to the cost of products and services and makes the conduct of such business that much more complex. Courts have to be liberal with omission of procedural compliances and have to really consider when the defaults were intentional or otherwise and have to give business appropriately chance to survive. For any closure not only effects that entrepreneur but also the employees who eke out their living serving such enterprise. The role of the Government in dealing with Satyam issue has been exemplary as it punished the wrongdoer but saved the enterprise and its employees. Legislations like G.S.T are welcome as they subsume various other legislations and intervention of one or two departments only will be there and of others will be eliminated. But GST is one good reform we are trying to ape. There is scope of doing much more. Reforms need to originate in our own country by evolving a `think process' rather than an `ape process'. Let there be a GST like model for labour laws also minimizing compliance costs for entrepreneur and for various other laws. Let the effected interest come out with new ideas and let technology assist in enabling them. Let every prospective Indian Civil Servant and judicial officer have a compulsory business attachment during probation to understand how difficult it is to do business in this country from cottage to SSI to corporate level. Special Economic Zones, likewise, will have a meaningful existence only if they become the least regulated zones. This aspect of these Zones needs greater attention than even the tax aspect.

(The author is former IRS officer)

GST rollout - Is it going to be roller coaster ride?

GST rollout - Is it going to be roller coaster ride?

NOVEMBER 04, 2009

By Somesh Arora, Advocate & IRS (Rtd)

THE countdown to GST rollout having already begun and the major fiscal transition in the last five decades, now just being less than seven months, it may be appropriate to do the proper assessment of the level of preparedness so that disaster, if any waiting to happen may be averted in time. The winds of over enthusiasm often have the tendency of uprooting reason and caution. The apprehension appears to be real as the Government has already decided to take the plunge from 1 st April 2010 without so much as even a debate on the proposed legislation. The Task force and committees constituted for the purpose have all been without any expert from Excise and Customs side, despite the Department being the most experienced in handling the Value Added Tax and enforcement related thereto. The absence of expertise developed by Customs and Excise Department in the Task force is likely to leave it without the benefit of having a preview on developing effective enforcement mechanism. And the tax system evolving by learning from experience rather than from expertise already available, which is sufficient to sound early warnings to make system fool proof to a considerable extent. The roll out is being dubbed as the biggest reform on indirect taxes, but is woefully found lacking in public debate unlike the Draft Tax Code, which is already in public domain even one and a half year before its proposed date of implementation. Why is Government going about the task in such a discreet manner is anyone's guess. It could have something to do with the resistance of some of the states.

Let us try to analyze as to where the things can go wrong, if not properly addressed even before the take off stage of the new tax regime. Whether it is the VAT system in the States or CENVAT in the Central domain, one of the major areas of concerns has been the floating bogus invoice, which is generated by unscrupulous elements at the drop of the hat. Under Central Excise alone, there has been good number of scams in the areas of Surat , Goa , Thane and Mandi Gobindgarh. The magnitude of detected frauds alone has been to the tune of hundreds of crores even when all have not been detected by the Central Excise authorities due to lack of where withal and infra support as also because of lack of cultivated intelligence in certain cases. Even when such detections were made by premier investigating agency like DGCEI (which normally get more support from field formations than others), the average time to verify authenticity or otherwise of a CENVAT invoice has been 6-8 months and that too in most cases where definite intelligence about invoices of input credits being fake has been available. Considering the same in the early stages, in some of the Commissionerates a sample check of only 1 percent was prescribed which also because of the tediousness and dwell time involved has been followed more in breach, leaving the field open for such frauds especially by textile, metals and other SSI sectors. The investigations conducted in some of the cases have revealed gory details like often these units were opened in the names of facades, some of the EOU`s were found to be managed by illiterate and vulnerable people who were given small sums by the fraudsters, who in turn were selling these invoices to willing takers on 15 percent to 20 percent of the face value without there being any accompanied goods. In one of the cases, a SSI unit conducted a fraud of more than 8 crores, the real owner purchased an iron mine and was having a permanent five-star suite and was a frequent flyer to Dubai but was not even having even a PAN card number.

Now, consider the likely scenario, post GST. In Central Excise Department, mostly the factories and bigger excise units are dealt with, therefore backward verification is much more easier as it is all with in the same Department and that too involving existence of factory or otherwise and authenticity with the concerned range. Still process takes between 6 to 8 months, as the payment particulars are not linked with any computer system, whereby the data of say Chandigarh can be verified while sitting in Banglore. If the exercise of the enormity of the GST is to be rolled out, the way out for a country of the magnitude of India is to possess another super computer like that of NSDL which instantly captures all data relating to transactions of share market in up country or where ever in matters of split seconds and can indicate the same on any number of computer screens instantly and still has capacity available to lend it to another Department like Income-Tax or in the alternate,to rely on manual system of verifying invoices through stipulated backward checks. The latter is likely to be futile exercise, unless there is High powered Central agency in existence which can conduct such checks with in matter of days as State Governments may not be easily amenable to furnishing such information if same is sought by say a politically rival state. Again, say if it turns out that in the system few crores of invoices have been found generated from a Naxal infested remote area, then minimum dwell time to verify it manually shall be at least two to three years, by which time the fraud would have assumed gigantic proportion and fraudster might be sitting in a Tax- heaven, in a Enemy country or in the lap of D-company. One should compare the cost of printing fake currency notes with the cost of printing fake invoice to see the potential damage that can be done. This problem of national security which may be involved, it is hoped has been addressed by the members of Task force on GST. One should understand why has not USA implemented such taxation even when the population size is 1/3 rd of ours. No haste therefore is warranted in implementing GST unless we have dependable data capturing system about payments in place. Let not emotions of ushering in quick reforms alone hold the sway. A lop sided view and preparedness before initiation is the need of the hour. The roll out should not become a case of ?Act in haste and repent later.

New Direct Taxes Code: Is curse going to be worse?

New Direct Taxes Code: Is curse going to be worse?

AUGUST 26, 2009

By Somesh Arora, Advocate & Former Commissioner of Customs & Excise

ONE of the striking features which hits out after going through the various new provisions of Direct Taxes Code (DTC), is the treatment meted out to the existing senior citizens as well as future generation of retirees. While existing Direct Tax system has a provision incorporated for tax rebate for the senior citizens, considering the requirement for allowing them to carry back home little more out of their pension and superannuation funds, the same has been given a go by in the DDTC. What is particularly distressing is the fact that this highly warranted rebate was introduced only recently i.e. in the old age of the existing Direct Tax System after much deliberations and fanfare considering the rationale of providing senior citizens that little extra for their medical care in the evening of their life. A logic which was also carried forward by the 6th Pay Commission, when it provided for higher pension amounts for those who attain age of 80 years and above and therefore have higher need for medical and other expense. But the rationale of the present tax system as also of the 6 th pay commission has been totally reversed and undone by the new DDTC.

Secondly, while most of the free allowances and limits like under present 80C are being trebled or more, the most important need of the senior citizens i.e. medical and hospitalization insurance has only been allowed deduction of up to Rs 20,000/- only by way of contribution. This meager enhancement of limit by Rs.5,000/- from present Rs.15,000/- in any case is likely to be eaten away by the inflation even before the DDTC is implemented by proposed date of 1st April, 2011. therefore, the Senior citizens are likely to be left high and dry on this count also. Again, the enhancement of limit of voluntary saving under present 80-C from present one lakh to three lakhs may have some meaning for a relative young tax payer, it is completely meaningless for the senior citizens. Even the most persistent LIC Insurance agent knows that it defies logic to tell an 80 year old to save money through an insurance policy which is only going to leave his inheritors richer at his cost. The ancient Egyptian belief that Mummified bodies will benefit from the jewels laid at rest with them may not find many believers today.

The third and the most draconian feature as far as senior citizens are concerned especially of the next generations, is the concept of ?EET? i.e. ?Exempt Exempt Tax? to be introduced and to be applied to provident and pension funds. Certain members of the drafting team have always remained disillusioned to ape this concept from the West has never been a hidden secret, but the concept where it exists, like in some of the developed countries is in only those markets where stringent regulatory mechanism for capital market exists. And not in countries like India where plethora of stock market frauds are awaiting to happen like Harshad Mehta Scam, , UTI scam , Ketan Parekh Scam, Satyam Computers scam - just to recollect a few.

It has been an endowed policy of the various Provident Funds and Pension Schemes framed under the Statute to allow safety of Social Security Funds, by allowing less exposure to the equity market and more to the Debt instruments and GILT edged securites. This policy alone has allowed Funds handled by the organizations like EPFO not to be frittered away, when the Bears of the stock markets start wagging their tails as happened in the recent downturn, when more than 50% of capital in the share market of India got eroded in matter of a month. Visualising this, especially in the wake of the UTI scam it was considered prudent by the Fund Managers of EPFO, PPF, GPF to allow lower rate of interest but to ensure security of Social Security Funds of miniscule 5% of Indian population which have some sort of social security cover. Therefore, while the Governments, RBI and the Public Sector Undertakings got cheaper funds available to them through lower rate of interest which they had to pay, Organizations like EPFO got the much needed security of their funds for their subscribers. Even the EPFO stood rock solid against some of the Exempted Funds under its Administration seeking to invest more in the stock markets especially in equity funds in the overall interest of security of its subscribers. The rate of interest given to their subscribers was just 1% to 2% above the existing rate of inflation and eventual withdrawal were not taxed as retires in the old age got the benefit which was just few points above rate of inflation.

Now, imagine the scenario, when contribution will not be taxed, interest income will not be taxed, but eventual withdrawal will be taxed in the old age exposing 60% of the contributors to the highest slab of Income Tax in a particular year to avail of withdrawal of their own social security funds. This would mean a substantial portion of the precious security funds of the senior citizens will get eroded. And what may appear to be a win-win situation for the Direct Tax Authorities would mean compelling the Pension and Provident funds to equally earn more for their subscribers and thereby a compulsion to expose greater percentage of the funds to the equity market (like it happens in some of the developed countries). Are the Indian senior citizens and the Government of India prepared for such risk exposure?

Not so, if the New Pension Scheme is an indication where only 1700 subscribers took the bait of higher returns in July, 2009 i.e. the month when it was thrown open to public. Therefore, eventually Direct Tax Authorities in India will be able to gain only at the cost of either higher rate of interest on Government Bonds and Debt Instruments or at the Cost of exposing the precious social security funds of the 5% covered population of India to higher risk of speculative equity share market returns. Indeed not a happy situation, because one arm of the government will gain at the cost of other arm and the Funds of the subscribers will get exposed to the vagaries of the speculation of equity market in not so mature and well regulated capital market, for eventual no gain.

Unless a thought is spared even at this stage for the Senior Citizens even , the DDTC is likely to create a situation where the curse (of old age as believed by many) may only become worse.

Wealth Tax - most breached tax legislation - time to abolish it! Also notify National Tax Tribunal

Wealth Tax - most breached tax legislation - time to abolish it! Also notify National Tax Tribunal

JUNE 19, 2009

By Somesh Arora, Fomer Commissioner of Customs & Excise

THE pre-budget exercise is generally a time for budget makers as well as for the Councils, associations, trade bodies to look into the Archives for outstanding and current wishes from the F.M. While the F.M plays Santa Claus to some, others are left high and dry waitng for the goodies to come next year. Only in this case the Santa claus has decided to visit us in India in the peak of the summer. The hopes are high this time, with all and sundry having expressed faith in the Government and People of India having granted the biggest gift this year to the Government of the day. With baton having been handed over to new FM, he will also be equally keen to prove his worth on a familiar turf, playing his second innings.
The wish list that I making is one which has few points oft repeated in the past and few fresh ones.

++ Abolition of wealth tax considering the cost of recovery involved and amount collected. This tax should have long gone, for it is the most breached piece of Tax legislation. If all the political candidates, who stood in current general elections this time are made to stand scrutiny on the assets declared by them before Election Commissioner, I have an uncanny feeling that about 50% will be found to be defaulting on this tax. Just about 300 croes being garnered with equal amount of tax collection charges and heavy cost in terms of wastage of filing information. Earlier when its abolition was debated, same was stalled on the ground of need for more information about assets by tax authorities, but now that purpose is being met of Income- Tax department through Information returns, So, the continuance of a tax regime which is followed more in breach seems to be serving no purpose except to force our own citizens to become defaulters of tax.

++ Tax rebate for individuals or any member of the family adhering to small family norm to check population growth can be Rs 10,000 for two children and Rs.15,000 for one child per family. It has been real long since this Government or any other Government in the past has even paid a lip service to family planning. So, why not reward those who voluntarily think of the National Cause. The PM and his team will also show that they are sincere towards the burning issues of the Nation.

++ One time amnesty scheme to allow Indians holding money in tax havens to bring it back to India (to be invested in low yield or no yield Infra bonds with a lock in period of three years). If this Government really wants to be a step ahead of what Advaniji thought for his biggest poll-plank, then here is the solution. Pressurizing tax heavens to give details will only make the tainted money to run from one tax haven to another, with very little of it likely to land in India. One big solution for all our recession related woes, even though Supreme Court had recommended that amnesty schemes should not be resorted too often. But one last time, this seems to be the only pragmatic solution.

++ To avoid pitfalls of vagaries of highly unpredictable tax litigation in India, it is suggested that advance pre-deposit tax accounts for litigation should be introduced, wherein any taxpayer can deposit money and earn savings rate of interest for any uncertain tax liability of Income-tax, Customs, Excise and Service tax and can be free from interest or penalty liability to the extent of credit balance in the deposit account and in the event of fruit of litgation going in favour of assessee. DOR should pay nominal interest of 3% to 4% on credit balance.

++ Provision for separate tariff for import of services from SEZ units to DTA. This can be equivalent to prevailing rate of service tax applicable for DTA to DTA service provider i.e. 10 percent. This will remove existing anamoly under SEZ Act which requires such services to be subjected to customs duty. Also, since a policy decision to this effect has already been taken, FM should also introduce import duty tariff for supply of electricity from SEZ to DTA during this budget only.

++ CHA Regulation, 2004 needs to be amended to provide guidelines for taking various kind of disciplinary action against CHA linked with gravity of offence. This will ease the burden on Commissioners by creating certainty and will make the job of CHA`s easy after a spate of suspensions in Mumbai.

++ Settlement Commission to be allowed to take cognizance of clandestine removal and smuggling cases again. However, department can retain the right to appeal in case aggrieved by the decision. Power of Chief Commissioners in this regard which in any case is hardly being used can be taken away. This will make a defunct establishment atleast to have some work.

++ SAFEMA should be abolished in view of the Money Laundering Act covering customs Offences and providing for attachment. Similarly, offences of NDPS are being covered under Money Laundering Act. Attachment provisions under NDPS Act can be done away with. Do not need too many nooses around the neck of a man to be hanged.

++ National Tax Tribunal be notified. Let us feel that Government is not only interested in creating provisions in the statute book but also likes to notify them. Let the present FM cut this ribbon, we will all clap.

++ Qualification for becoming Member (Technical) of CESTAT be brought at par With ITAT i.e an Additional Commissioner with three years standing to be eligible to catch young Member (technical) for CESTAT. With so many young faces in the Cabinet, is it not the right time to allow young faces to come in CESTAT also atleast theoretically.

++ Advance Ruling Authority - Jurisdiction be extended to cover all Indians or atleast all service tax matters. Why not give the foreign treatment to even Indian Nationals also? Alas, the WTO only created Rules for foreigners not getting National Treatment, never thought there could be a reverse situation also in countries like MY INDIA.

++ Free allowances under Income-Tax Act be indexed as provided for in the 6th Pay commission. If pay Commission can do it why should not Income Tax Department do it as well. So, have the free Income-Tax limit, Section 80-C limit, other allowances indexed. It would reduce the burden of budget exercise for future FMs.

++ Creation of a Seperate Directorate For IPR (Border ) enforcement and adjudication under CBEC. Let this be a focused area for us to prove to the world that we really care on enforcement aspect of IPR. Even enforcement of foreign Trademarks, copyrights etc. can be entrusted to this agency even if violations occur in the interior. It Will definitely keep Customs and Excise Department busy in post G.S.T regime.

I think it should be enough of homework for FM and his team to do, what with so many Associations and trade bodies after him. It reminds me of my own times of summer home work, which I used to leave incomplete, weighing the consequences of getting scolded from the teachers, as not so grave as to forego the fun with the friends in sweltering heat. But for FM, there is always a next time and next year will be more congenial February to complete the task.

India and Chattar Bang Yoga: Is Prime Minister going to be lucky enough to escape with minimum?

ndia and Chattar Bang Yoga: Is Prime Minister going to be lucky enough to escape with minimum?

JANUARY 25, 2009

By Somesh Arora, Commissioner of Customs & Excise (Rtd)

THE Saturn in Leo sign, where it reaches once in 30 years transiting one sign every two and a half years out of total 12 signs of the zodiac is what causes Chattar Bang yoga, an astrological combination, which causes chattar bang (the umbrella or throne of king to break), a loose astrological term to connote the loss of power or territories by the kings or the top leaders ruling at the time when the transit just begins. This time the transit began in 2007 and is going to end upon 8th Sept. 2009. World wide major changes have already happened at the top, with Pakistan?s Military Dictator losing power and same coming in the hands of an unexpected player. Next in line has been United States of America, where power has come to someone whom no one could have expected about a year back. In the Indian context study of Chattar Banga yoga offers interesting facets. A research conducted by one of renowned astrologer has revealed that from the time of Mahabharta, from whatever historical and astronomical (the latter are used extensively by vedic astrologers to date back events) records are available, India or its ruling powers have suffered whenever Chattar Banga Yoga has been in operation.

Let us examine the history, the last transit was in the period 1977-80, which saw the firmly entrenched PM of India Mrs. Indira Gandhi and latter Sh. Morarji Desai losing power and little known names like the latter and Sh. Charan Singh emerging at the top slot of national polity. In Pakistan also, Military Junta seized power and Bhutto got assassinated, much like her daughter in the next transit this time.

Prior to this the transit occurred in 1947-50, British Indian Government ruling for so many years lost its power in both India and Pakistan. The two top leaders of national movement i.e. Mahatma Gandhi and Mohd. Ali Jinnah of both sides lost their lives during this transit.

Earlier to this transit occurred in 1917-1920, which brought set backs to British Government during course of World War-I. In India, it saw the Jallianwala Bagh Massacre and Martial Law imposition in several towns, an event equal in magnitude to the massacre unleashed on the streets in Mumbai by terrorists last year.

Prior to this transit occurred in 1887-90, which saw the emergence of Congress as a civil right movement and also the exit of Viceroy Lord Dufferin in 1888, a known sympathizer of Congress.

This brings us to the previous transit of Saturn in Leo sign i.e. in 1857-59, which saw the Ist war of independence being waged against East India Company, called Mutiny by them. This saw the loss of power by East India Company which was ruling over India or its greater parts for more than a century and Queen of England being proclaimed as the ruler of India.

Prior to this, in the transit of 1827-30, Lord Amherst lost power to Lord Bentinck over the historically recorded unpopularity over giving judicial powers to collectors. One can go on backwards to prove the point. It is evident that India being one of the most populous regions of the world has suffered whenever Chattar Bang Yoga transit has been in operation. The sufferings have been more or at times less depending upon other astrological combinations.

This brings us to the latest. While India has suffered some of the worst terrorists attacks in the last two years, somehow on political front, the Government has managed to come out unscathed so far despite having close brushes with the loss of power, through attempted withdrawal of support of its allies and consequent no confidence motion. True to its promise of making ruler lose power, Dr. Manmohan Singh has been forced to proceed on leave due to health reasons, handing over reins of power of the country to Sh. Pranab Mukherjee. One really wishes him best of health and early return to power. Then there is impending election round the corner, the results of which are likely to come out during the transit period. Will one get to see emergence of a new and unexpected player at that time on national scenario? Quite likely, if one goes by the promise that is held out by the transit. If that happens, Dr. Manmohan Singh may emerge as one of the rare kings, who by and large remained unaffected by this adverse transit. Amen!

CHA Licensing Regulation: AB TAK 100!

CHA Licensing Regulation: AB TAK 100!

MARCH 30, 2009

By Somesh Arora, Former Commissioner of Customs & Excise

Recession: India's most dubious import since Independence

MARCH 01, 2009

By Somesh Arora, Commissioner of Customs & Excise (Rtd)

IT has finally arrived - the most feared, apprehended, talked about crisis to stalk every Indian alike - whether he is a corporate, a politician, an employee or a petty businessman. Its arrival being seen with ominous signs of stock piling and inventory hold-ups, job losses, imports lying uncleared on ports, exports becoming a slow moving item, the so-called imported inflation of last year turning into deflation causing still bigger worries for the Government.

The protagonists, supporters and votaries of globalisation and liberalization who were so far on cloud nine riding the success of their economic programmes translating into economic growth for India have suddenly been taken aback with the turn of events with initially the unbridled inflation hitting out at the AAM AADMI and now recession hitting out at almost everyone including middle class and rich corporate. Time has and will prove further that globalisation can be an unruly horse for any Government of an independent state. The reality of cycle of protectionism and liberalization may again come to the fore with the monster of protectionism beginning to raise its head. What a mighty USA would like to protect is, its own turf in terms of employment levels in these hard times of worst recession, many of us may get to witness for the first time in our lifetime. Let us not forget what happened after the great depression of 1929, when Smoot-Hawley Tariff Act, 1934 debated in the aftermath of fall of stock markets in 1929 brought about high tariffs for more than 30,000 items resulting in virtual halt of imports to USA from Euopean countries.Finally, the situation changed when comity of nations eventually got together leading to other cycle of liberalisation under Bretton-Woods system and the GATT. Nationalistic considerations do have a tendency to overweigh the collective wisdom and chain reactions do emerge when some contries try to protect their national interests. What USA seems to have begun with this time is service sector imports, with bulk of the job-losers being citizens from outside USA and also the BPO jobs facing the flak even if not cut altogether. Let us not forget that service sector imports and exports are as important today in international trade as goods were in 1930`s.

Considering the Indian Scenario, the changes have been quite abrupt and sudden and we have been virtually swept by the events taking shape globally with no cushion available this time, since the high walls of protectionism and tariffs have virtually ceased to exist for us. While for a decade and a half we were the beneficaries of gloabalisation, today we find ourselves at the receiving end of it. The only fault for which we can be blamed is that our corporates failed to hear the sincere and well meaning advise of our Prime-Minister when two years back he sounded them not to unnecessarily increase the salary levels of its executives and manegerial personnel to global levels. What became a comment to be ridiculed by them at that time considering the same as an interference in their corporate freedom has come to haunt them as a pearl of advice which they could have acted upon but had chosen to ignore. So, today we have our corporate leaders becoming the hate object of their own ex-employees, for they have been forced to resign or laid off. It has also resulted in wage bill of the government to go up to some extent, as comparison with the corporate salary structure was unavoidable factor for the 6 th pay commission to consider. Now, there is lurking fear that even states may follow the same due to political considerations and this may create havoc of the sorts for state finances as dwindling production in any case is likely to result in dwindling revenue or less than the normal gorwth in the same. Increased wage bill may also result in less planned expenditure for the states which may negate any stimulus spend. While the Central pay Commission got implemented when the going was good, following the same in state domain immediately may only boomerang in these times. As far as corporate employment situation is concerned, it is quite grim. When it comes to manegerial personnel, there is normally a tendency as any Human Resource Manager can vouchsafe, to coneal lay offs as resignation in corporate culture so that business reputation of the relevant corporate does not suffer. It is believed that estimated figure of 25 lakh job losses at this point of time is much lower than the actual if forced resignations are taken into consideration. Further, the job cut figures will not include the bulk of consultants and on-call employees taken from contractors or human resource consultants. What is worse is that all these employees are in high salary bracket, as the cutting of labour costs entails chopping of the jobs of the most expensive managerial employees at the first. In retail business and reality for instance, only a year back most expesnsive employees were being hired as these were considered sunrise sectors. Today, these sectors are witnessing the maximum lay-offs or so called resignations or offers of dislocations to induce employees to volunteer resignations.

Economically, the situation is so bad that all the decades old theories of linkages and correlations between oil prices and value of gold etc. have fallen like pack of cards proving the follies of economists and business strategists alike. The share market and economic analysts coming on TV with their theories appear like a bunch of astrologers analysing Rahu-ketu-shani nexus, some of whom even like to pay TV channels for their appearnce. Incidentally it is the last creed of astrologers which is doing a booming business now a days. What ever funding the Governement is doling as bail outs appears peanuts in the face of loss of confidence amongst business enterpreneurs. So, grim is the situation that a Head of a leading business family has shot off letter to all his Chief Executive Officers to exhaust upto the last penny in their current or cash-credit accounts and to pick up finances from whatever source they can at what ever interest rates. Faced with this kind of insatiable appetite for credit of the big business enterprise, it is any one`s guess as to when the percolating effect of credit coming to smaller business will start happening despite the government pumping in funds. Perhaps, percolating effect theroy of economic growth will now be better understood by the small business enterprise as they will empathise better with poor dying farmers who waited endlessly for the fruits of Indian growth story to reach them, while India was stated to be shining.

Coming to job situation, according to some estimates the curent recession world wide may affect one billion jobs, it can be conservatively estimated that out of these about 100 millions may be of Indians in India or aborad. The affected persons will not be those only who loose jobs but also those whose pay packages are reduced or who do not get raises commensurate with the reate of inflation,if any. With so many people affected, the recessionary conditions are going to be far more accentuated than what the Governments may like their citizens to believe. If the first signs of recession have emerged from USA, the turn around may also begin to show up from there only with MNC`s taking their greenbacks to that country leading to strenghtening of US dollar and some returns on that currency. The ultimate sign off to recession in that country will be through reversal of job situations.

Why the job situation is being emphasised? It is because all real estate spend, vehicle spend, air ?travel spend and spend on products of mass comforts are linked to the good times of the employees. A job loss, in any business enterprise, of an employee who is not perceived to be inefficient leads to a situation akin to that in a slaughter house, where if one poultry bird is pulled out of the cage other start believing that their fate is advanced and sealed for the worst leading to prolonged noises being made. But the times like these also separate the grain from the chaff. So, we have self styled business tycoons who were riding the fortunes of their forefathers or of good times now making huge cash losses due to speculation and now trying to pass the burden of their mis-adventures to their corporations, resorting to undue cutting of jobs in a desperate bid to save their public images rather than taking the blame on themselves for their stupid business decisions. We also have shining exmples of one or two professional companies escpecially the leader in Information Technology depending on policy of least job cuts and on the efficiency of their employees to tide over the crisis. It is believed that the company has asked to proceed its employees on voluntary leave to do social work, with these employees getting 50 percent of their last salary and to be called back when tides are turned. Indeed a lesson for most of the` lala ji'companies in India to emulate.

For the government which is going to go in political hibernation shortly, it may be too much to ask to react at this stage. But even if the government is able to measure the extent of damage and gets to the figures of exact job losses in remaining time and link all its bail out spends with the condition of retention of job or creation of job capacity, it still would have done a creditable job. Otherwise, increased number of highly educated unemployed people in a country which has virtually very little social security benefits to boast about can lead to a situation where growing crime graph and venting of frustrations is witnessed, simply waiting to be exploited by some unscruplous political party or a group. The threat appears to be quite real if the increasing influence of Talibans in a recession hit, politically weak neighbouring country of Pakistan is taken as an example.

The corporates in India barring few may not be prepared to come forward to share any responsibility of social rehabilitation of those who come on roads because of them. The political parties needing election funding may be on a weak wicket to exhort them to do extra. With every passing day more lay-offs are bound to happen leaving behind a trail of affected Indian urban families. It is a situation calling for financial emergency where extraordinary measures like special security funding for those who lost jobs recently is required to be created with Government directing corporates who lay off to contribute to the corpus. Further, the companies getting benefit of bail outs may be directed to compulsory adhere to salary structure as prescribed by the government as has been done by the Obama Government in USA.

Or, the last option for my spiritually inclined country as often happens, is to leave all things to the will of the God.

(The author is CCO, Amicus Rarus Consults)

SEZs: Are these Special (or Sick) Economic Zones?

SEZs: Are these Special (or Sick) Economic Zones?

DECEMBER 29, 2008

By Somesh Arora, Commissioner of Customs (Rtd)

THE party time for Special Economic Zones may well be over before it has actually begun. With that will be over the worry lines for Revenue Department, which was spending sleepless nights over purported loss of revenue because of more than 500 approved zones and more than 250 already notified. However, not all this may augur well for Ministry of Commerce, which will have to consider bail out packages and compromises on its disciplinary powers.

The changed outlook has been so sudden and abrupt that it has taken even the staunchest supporters of the concept by surprise. Till last December (talking of YOY basis) or even until September this year, there were prospective Developers seen in the corridors of Udyog Bhavan making a beeline with their requests for approval/notification of SEZs. Now, given a choice even some of the biggest and leading players would like to wriggle out of the projects, provided they are allowed to exit honourably with chunks of land allowed to be denotified. The dilemma before the MOC will be to reverse its stand in the wake of denotification debate in the context of Goa, where it took a stand in the courts that under SEZ Act, there is no power to denotify. If it sticks to its guns, the MOC may well soon have a mini cadre of Central Government Administrators rather than Development Commissioners, which it was contemplating. This is because delays/defaults in implementing the already notified projects will be so rampant in the days to come that resort to Section 10 of SEZ Act, 2005 ( which allows administrator to be appointed may become the only option), if Board of Approvals decides not to live with delays at least till the next property boom. Grim situation, indeed. It actually is. Not to be carried away with the figures of rising exports, more approvals, more employment generation in SEZ arena. Reality is the that leading developers today are laying off employees by hundreds, have abandoned their land acquisition plans (even if not abandoning the projects altogether) and are only interested in salvaging their land banks because of the pressure from state governments/ industrial authorities who helped acquisitions on the condition of reversion of land in case of projects failing to come up. There are hardly any takers for the projects as units are finding the prices of land and fixed assets quoted by the developers astronomically high. With every passing day, developers are incurring interest costs on the capital employed by them in acquiring land banks, which for them will be hard to recover. In addition, further deployment of capital in developing projects is not found feasible even by cash rich developers in the face of lack of demand.

The crown of becoming laughing stock, of course, should go to the local level politicians in the rural areas some of whom were so shrewd that having sold their own land holdings at good prices to prospective developers were resisting attempts by other farmers to do so. Their promises of getting even better prices to the farmers and staring agitations for the same have all gone flat. Now they are scared to face their own constituency. In Haryana, where more than 30 SEZs were supposed to come in and around Gurgoan only, the situation at social levels has become interesting. We have there one class of farmers who made the killing by selling lands in areas like Jhajjar, bought fertile land elsewhere and were still left with enough to afford Ford Endeavors, Toyatas and a likes, as also good wine and quality Tobacco for their HUKKAS. We also have in the same rural areas their next-door neighbors who did not sell their land expecting better prices to come their way and are managing to do with their bullock-carts, desi-daru and shared hukka. Of course, their generation next telling sarcastically to their Bapus as to what can happen to them if they do not listen to them but to the local level politicians.

The runner up crown, undoubtedly, should go to some of the so called leading developers who announced projects as big as developing two Chandigarhs by engaging foreign consultants for their world class projects which would have dwarfed even if not put to shame the likes of Le Corbusier. But are today considering alternates of developing low cost housing for weaker sections to salvage their land banks. Who should be the second runner-up, it is left for everyone to guess.

However, objectively speaking, can authorities approving projects falling with in the defined parameters be blamed for indiscriminately going in for numbers. The answer is clear NO, because Constitution has provided everyone a right to do business and profession. In addition, no applicant can be refused on the ground that there stand too many applications already approved. It is for the people in the business to contemplate as to how much competition from others is going to be there and whether the same will remain viable in the long run. Nevertheless, ape mentality is hard to overcome. Even after years of end of License Raj, there are many with the mindset to think that every permission/ approval from Ministry of Commerce is a goldmine. A privilege, which they are going to have at the cost of others. On its part, MOC clearly works under defined guidelines and for it to refuse permission to anyone who falls in the parameters is legally not possible. It is, therefore, for the business people to make an informed choice rather than go with the herd mentality. MOC surely, now has a role in doing effective monitoring.

There are many reasons, which can now be thought of, since the hindsight wisdom is available, for the SEZ concept to develop snags even at the take off stage.

For once, too many seekers were jumping the bandwagon without going into the fine print of the policy and experience. With the earlier seven Government SEZ's, taking 15 to 20 years ( with the sole exception of SEEPZ) to register sizeable occupancies despite the best location advantage, low cost of land acquisition, full state support available in terms of power, electricity etc., for developers to think that they had a magic stick to turn their projects in to goldmines overnight was rather far fetched.

Secondly, without the support of the State Governments in acquisition of land, the fixed cost of acquisition and development for some of the developers was turning out to be so high in the face of competition, interse, that the price demanded by them from prospective units was affordable only for those units who wanted floor space area advantage on the land. This meant targeting sectors like Information Technology, Pharma or BPOs. While I.T. everyone was heavily betting on, it was owing to prospect of substitution demand emanating from shifting of units from IT parks in the face of likelihood of sunset clause under Income Tax Act being enforced. However, that has not happened due to extension of sunset clause. New demand is hard to come by in the face of recession. Even otherwise, the demand would have been garnered by IT SEZs run by IT giants like Infosys rather than an upstart developer getting substantial share of it.

For FDI in manufacturing sector to come in is also difficult. As given a choice, a well informed foreign manufacturer would rather set up shop in an SEZ in China where advantages in terms of low cost of land , higher productivity, better technical know how are available. In fact, in some of the areas the cost of land acquisition has gone so high for developers that the rates at which it will be sold to manufacturing units will form 13% to 15% of their total cost of project as against 4%to 5%, which is the norm. This high cost of fixed assets is likely to eat into whatever tax benefits may come in the way of these units in terms of direct and indirect tax incentives. Therefore, Revenue Department should not unduly worry.

Lastly, on comparison with EOU scheme, one finds that because of the flexibility it offers, it has turned out to be a better option than the SEZ unit is. Both are more or less equitable in terms of fiscal and other incentives. But, purely from the business prospective, it is advantage EOU. One can set up unit wherever land is found in economical parcels, it can be located close to point of labour or raw material availability, and it offers environment to work in a much more private space away from the probing eyes of your competitors in an SEZ. (DRI may not be too happy with the last observation). Further, In Indian context socially speaking, barring the Big Industrial Enterprise, there is a tendency to have Industrial growth close to own native place of promoters. This is because of the strong familial ties, which require presence in and around their own area. Therefore, even when such entrepreneurs venture into exports, they prefer EOU scheme.

However, not all this means that SEZ story is going to be a sob story only. There is hope for smaller SEZs located on the periphery of big towns, where eventually IT and BPO sector is going to flourish, once the recession is over. Even for the bigger SEZs, which have managed to keep their cost of acquisition of land on the lower end, the hope holds on. Besides, in the time of crisis some out of the hat thinking on the part of Central and State Governments may be required especially in service sectors. For instance medical tourism, spiritual tourism, education are sunrise sectors. Investments in these can be encouraged. Permission to open casinos in SEZs to allow people to do gaming against foreign exchange can be permitted by states like Haryana, Maharashtra etc. which have got approved some of the highest number of SEZs and are now riddled with the prospect of , the leading developers shutting shop. As far as developers are concerned, from now on, it is going to be the survival of the fittest and only those will eventually profit who have courage, conviction and cash pots ?all in abundance.

Money Laundering: Let law be 'laundered' first!

Money Laundering: Let law be 'laundered' first!

DECEMBER 08, 2008

By Somesh Arora, Former Commissioner of Customs & Excise

AN operation of the magnitude of what was conducted in Mumbai from 26th to 29th November by terrorists would have required a preparation of at least one year involving training of commando operations, the cost of visiting the site for recce, the cost of actual operation involving arms, ammunition, cost of stay besides cost of trainers in the country, training in the modern tech gadgetry and its usage and consequential financing running into million of dollars. All this could have been possible only if some state was sponsoring such terrorism or with the possibility of involvement of an organized terrorist outfit or mafia gang. The focus of investigative agencies has therefore necessarily to be on this aspect of funding and how the same is laundered to reach as a resource to these outfits. Comity of nations has also to think in terms of solution when a state overtly or covertly connives to give shelter to mafia members, drug syndicate owners or terrorists with nefarious designs against humanity. When any member state offers tacit support or explicit funding to such organizations or individuals and allows its soil to be used or freely allows its financial system to be exploited for providing financial muscle to these outfits against other member state of the United Nations, then same should be treated as an act of war. The point to emphasize is that act of money laundering may not be confined to individuals only, but willy-nilly even some states may abet the same. That is where the international law will have to widen its ambit to include collective action against such states also under the aegis of United Nations.

Enactment of Money Laundering Act, 2002, pursuant to international consensus, in national domain is no doubt a laudable step. However, the Act being in its formative stages has to undergo evolutionary steps and would be enriched both by international experiences as well as domestic, once it is put on to the touchstone of litigation. There are obvious and some glaring chinks which need to be addressed. For instance in Schedule I of the Act are included especially kidnapping for ransom, extortion, robbery and dacoity. Under the scheme of the Act if anyone benefits out of these crimes and converts the proceeds of these crimes to untainted property, then he commits the crime of money laundering. His asset are therefore liable to be attached and on crime of kidnapping, extortion etc. being proved are liable to vest in the Central Govt. administrator and the whole process cannot be questioned in a civil court. Sounds good. But supposing I am kidnapped, and my people at home (presuming my wife is unhappy with my kidnapping) go and beg and borrow to get me released from kidnapper and Mr. kidnapper diligently converts the proceed of crime to immovable assets which when he gets caught get attached and then vest in administrator finally. Then will it be fair to deprive my people of their initial money. Law does not have answer to this. Supposing my family goes to High Court pleads in equity jurisdiction and High Court orders reversion of property in whatever shape back to my people. Then may be I will get a remedy but so will everyone similarly placed. Then what is the fun of doing attachment and confiscation under Money Laundering Act. The law should straightaway provide that proceeds of crime as well assets procured from laundering out of these crimes of kidnapping, extortion, robbery and dacoity would only be investigated for reversion of assets or proceeds thereof to lawful claimants rather than state acting as a depriving agent by vesting such assets to itself. Of course Money Laundering will continue to be a triable offence against the person who commits such an act.

Difficulties about including an attempt to launder money have been already commented about by some of the learned authors. If such person was party to both initial commission of Schedule I offence as well as had assisted in laundering can he be covered, but then again he will be an abettor of offence rather than person attempting it because person who attempts an offence must actually fall short of committing it. So, there was no point in including attempt under the definition of Section 3 and a person abetting the offence both at initial stage as well as money laundering stage would have sufficed.

Again, under the category `waging a war? against the state which figures in schedule I what is supposed to be covered. Most of the funds are required by any group or organization prior to committing of an offence of waging a war against the state. Will say a terrorist kill people on the roads and then stop to check their pockets, collect money and take it to his shelter in India to convert it into say immovable property? Will a subversive group fighting war with Indian army like to take control of assets of Indian people or would like to launder them? All subversive activities require funds before they are committed. Therefore inclusion of `attempting to wage a war? makes sense but not actual waging of war.

Again, in the scheduled offences list both manufacture and sale of arms have been included as also separately possession and carrying of prohibited arms and ammunition. What nexus one can establish of money laundering with brandishing of prohibited weapons or possession of it? Can any investigative agency prove such offence and can any court uphold it.

Therefore, there is a serious thought required as also a relook at the offences included in The Act. Let it not be a decorative piece of legislation showcasing many offences just to swell the number but also in the process the redundancy of its contents.

DEPB on supply of goods from DTA to SEZ Developers: DGFT needs to do some more homework!

DEPB on supply of goods from DTA to SEZ Developers: DGFT needs to do some more homework!

OCTOBER 1, 2008

By Somesh Arora, Former Commissioner of Customs & Excise

PURSUANT to the reported decisions of Empowered Group of Ministers Meeting, the DGFT has permitted DEPB benefit for supply of goods from DTA to SEZ developers/co-developers against supplies made in Indian Rupees. This was in full realization of the fact that though this was a permissible benefit under SEZ Act, but still could not be given because of the policy stipulation permitting such benefits only for payments made in foreign exchange, which in case of developers was a practical impossibility to have. It is expected that drawback will soon also be permitted in line with reported decisions of EGOM for payments against Indian Rupees.

The relevant text of DGFT notification reads

?An exporter may apply for credit, at specified percentage of FOB value of exports, made in freely convertible currency. In case of supply by a DTA unit to SEZ unit/sez Developer/Co-Developer, an exporter may apply for credit for exports made in freely convertible currency or payment made from foreign currency account of SEZ unit/ SEZ Developer/ Co-Developer. In addition, the exporter shall also be entitled for DEPB benefit in case payment is made in Indian Rupees by SEZ Developer/Co- Developer for supplies received w.e.f.10.2.2006?

It is evident from the plain reading of the notification that benefit is available with retrospective effect from the date mentioned therein i.e. 10.2.2006. However, to avail of this substantive benefit by the suppliers of the developers, certain procedural compromises will have to be considered. This is so because till the date of notification i.e. 18/9/2008, this benefit was not available, therefore the usual procedure of filing Bill of Export in the hands of DTA supplier and filing of Bill of entry in the hand s of SEZ unit/ Developer could not have been complied with and in greater likelihood such goods might have come on procedures like A.R.E.-1. Since, procedures cannot be observed retrospectively therefore DGFT will have to for the past transactions consider documents like A.R.E.-1's as proof of movement of goods form DTA to SEZ and permit benefits to exporters if found preferable by them over usual excise duty exemption etc.

Again, Sec.26 of SEZ Act, 2005 prescribes that every Developer and entrepreneur shall be entitled to the following exemptions, drawback and concessions, namely:-

exemption from any duty of customs, under the Customs Act,1962 or the Customs Tariff Act,1975 or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorized operations by the Developer or entrepreneure.

It is clear that export benefits to SEZ will include drawback, exemptions etc. of all the custom duties levied under Customs Tariff Act, 1975. This is irrespective of the schedule of the Customs Tariff Act. Therefore, all the duties levied under Schedule II (i.e . . . export duty) of the Tariff Act will have to be subjected to benefits like DEPB, Drawback etc.

Since till now it is customary to cast DEPB and Drawback schedule without any reference to calculation of export duties and because SEZ Act permits such duties to be subjected to drawback etc, therefore reworking will have to be done both in Drawback schedule as well in DEPB rates for supplies to SEZ units / developers for all the items mentioned in Schedule II of The Customs Tariff Act, 1975.

This also brings us to an important question relating to the fate of litigation pertaining to levy of export duty on supplies made to SEZ developers/units by DTA suppliers. As has been reported by TIOL, a number of such cases has been initiated and in number of such cases stays have been granted by various High Courts, where the matter is awaiting final decision. In the light of foregoing discussion, it has become evident that an important argument on the part of SEZ Developers/units will be the revenue neutrality of such initiative of Dept of Revenue as whatever will be payable by DTA unit by one hand will now be entitled to DEPB/Drawback from the Government on the other hand.

Therefore, it may make sense for the Dept. of Revenue to grant exemption as envisaged in Sec.26 (1) (a) to export duty as available in the scheme of thing of SEZ legislation, thereby avoiding much of the unwarranted litigation

Invocation of Sec 3A of CEA: The new avataar of production norm

Invocation of Sec 3A of CEA: The new avataar of production norm

JULY 09, 2008

By Somesh Arora, IRS (Retd)

THE fascination of the Revenue Department to acquire and use power of fixing production norm in what it perceives as evasion prone commodities or units is as old as R.173-E of the erstwhile Central Excise Rules, 1944. The sequel has been addition /deletion and then addition of Section3-A again in the Act. In none of its incarnations, the provision has existed without its fair share of litigation. In fact, fixing a norm on account of any one factor of production in the complex world of business can never be an easy task. Even a very basic machine like a charkha can be run manually by two different persons at different pace. A household machine like an airconditioner can have different levels of electricity consumption for the same tonnage. Therefore, to single out a factor and to apply it as a norm can be an onerous task fraught with the peril of dissatisfaction of effected parties. How, varied can be such estimates can be seen from the fact that just eight months back, Revenue had thought that a duty of Rs. 12 lacs should suffice for a packing machine making pouches up to value of Rs 1.50, but has revised the estimates to Rs.19 lacs as a benchmark for the same.

The department had armed itself with the power to fix production norm in evasion prone units in the budget of current year. Invocation of the same for gutkha industry it appears was always on the anvil. However, while a detailed exercise appears to have been done in making elaborate provisions, certain goof ups have been made, which will have to engage the attention of authorities sooner or later. While in the past, mostly compounded levy was fixed on the basis of norm of per machine, this time Department has chosen to adopt the twin criteria of price range of product sold as well as number of machines in a factory. This is where some serious complications have arisen. As pointed out by a prominent analysts of TIOL. The Government in its notification has specified the duty applicable which is as follows:

S. No.	Retail sale price (per pouch)	Rate of duty per packing machine per month (Rs. in lakh )
		Pan masala	Pan masala containing tobacco

(1)	(2)	(3)	(4)
1.	Up to Rs. 1.00	9.25	12.50
2.	From Rs. 1.01 to Rs. 1.50	14	19
3.	From Rs. 1.51 to Rs. 2.00	18	24
4.	From Rs. 2.01 to Rs. 3.00	26	36
5.	From Rs. 3.01 to Rs. 4.00	34	47
6.	From Rs. 4.01 to Rs. 5.00	43	59
7.	From Rs. 5.01 to Rs. 6.00	51	70
8.	Above Rs.6.00	50 + 8.36 * (P - 6), where P represents retail sale price of the pouch	69 + 11.45 * (P - 6), where P represents retail sale price of the pouch

Illustration. - The rate of duty per packing machine per month for a gutkha pouch having retail sale price of Rs. 8.00 (i.e. 'P') shall be
= Rs. 69 + 11.45*(8-6) lakhs
= Rs. 91.90 lakhs

TIOL illustration

If your Gutkha pouch has MRP of Rs 6.00, as per the above table, you have to pay Rs. 70 lakhs a month. You can save Rs 89,000/- duty per month per machine by just increasing the MRP to Rs 6.01/ - This is how it works. Since the MRP is more than Rs 6/-, you are under Serial No 8. Now, as per the formula, your duty will be Rs 69 + 11.45 multiplied by (6.01-6.00). This makes the total duty as Rs 69.11 lakhs (Rs 69 lakhs plus 0.11 lakhs)

So now, Gutkha with MRP of Rs 5.50/- attracts more duty than gutkha with MRP of Rs 6.01/-.

What is indeed intriguing is the fact, that down the line for each slab the person having MRP close to the opening level of the slab e.g. 1.01, 1.51,2.01 etc. ends up paying more taxes than the person having MRP close to the ending level of the slab i.e. 1.50, 2.00, 3.00 etc. Now this is against the established cannons of the taxation, as person with lower turnover has to pay higher excise duty and the person with higher turnover has to pay less. Whether charging lower price provides an intelligible differentia to discriminate on the quantum of tax may become a debatable issue.

Further, Sec 3A has been propounded with the specific purpose of safeguarding the interest of revenue primarily considering the extent of evasion of duty in respect of notified goods. Does it give power to levy and raise taxes even beyond what is prescribed under Central Excise Tariff is a question, which will have to be addressed.

Consider this illustration:

The existing rate of basic excise duty on Pan Masala of Tariff heading 24039990 is 50%, let us assume that a manufacturer is making pouches with a price tag of Rs.1.01, so presently he was required to pay a duty on 37,44,000 pouches of norm of production /per machine/per month of Rs.9,45,360 after allowing 50% rebate on MRP as per law. Under, the new dispensation, he is required to pay Rs.19lacs, out of which by virtue of table-2 to notification 42/2008-ce- dt 1.7.2008 , a factor of 0.7355 will be allocated to central excise duty and remaining to factors like additional duty of excise, cess etc. Therefore, the central excise duty now payable will be Rs. 13,97,450. The legal question which is likely to arise then is whether Section 3-A of the Central Excise Act can be invoked so as to hike duty in a number of instances even beyond the existing Tariff rate of duty even without taking resort to Sec.3 of The Central Excise Tariff Act,1985 ?

Further, the production norm and constitution of slabs on criteria of every 50 paisa to one rupee appears to have been done on purely arbitrary basis than on any empirical study. For instance, A machine can produce 37, 44,000 pouches of one Rupee in a month, even if the pouch goes up in value up to Rs.1.50, the production does not dip.

But, same dips to 35,56,800 in the price range from Rs.1.51 to Rs. 3.00 and so on. It appears that revenue is assuming that expensive pouches will necessarily have more quantity and not better quality and hence the slow down leading to dips. Secondly, it appears that there is a presumption that quantity in each pouch can increase only at the cut off levels thought about by the department and never before or after. Is there anything in law which prevents a manufacturer to make say pouches of 5 Gms. at a price of say Rs.1.45 instead of 3 gms for Rupee one or Rs1.50. If no, then his machine will produce number of pouches in the dipped range of 35,56,800, but the Rules made under the notification do not allow any leverage to accommodate such realistic situations and make the exercise of fixing norm somewhat arbitrary.

Since, it is for the first time Revenue has sought to experiment with Sec.3-A, therefore anomalies seem to have crept, which will need to be rectified or will have to be addressed by the courts, before the Provisions evolve into a workable legislation.

Export duty on steel: Is duty leviable on supplies to SEZ developers?

Export duty on steel: Is duty leviable on supplies to SEZ developers?

MAY 19, 2008

By Somesh Arora, Former Commissioner of Customs & Excise

MY first brush with the concept of 'infinity,? I remember was, when I had just joined class VI th. The teacher explaining the concept had explained that infinity* infinity= Infinity and infinity + infinity = infinity and Infinity / infinity = Infinity and so on. All my classmates just being PAANCHVI PAAS and not so Tez were bewildered by this new revelation in Math. Naturally, there were queries as to why infinity + infinity was not = 2 infinity and why infinity*infinity was not = infinity2. The learned teacher advised us to only remember whatever was told and not to think too much about why it is so. He also informed us about one of his college-mates, who chose to do research on infinity and eventually landed up in mental asylum muttering the question which we had asked. My lessons learnt, I never dwelt on this metaphysical infinity and remained at peace with myself till the other day when something of equal magnitude hit me when I surfed through the provisions relating to export duty on steel and the relevant laws on the subject. To share the concerns which my little legal brain finds incomprehensible:

Sec 2(m) of SEZ Act, 05 defines exports as:

Taking goods or providing services out of India from a SEZ ...
Supplying goods or providing services, from Domestic Tariff Area to a unit or developer
Supplying goods or providing services, from one unit to another unit or Developer, in the same or different Special Economic Zone

Sec 53 provides that 1) A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purpose of undertaking the authorized operations.

Therefore:

Clause i) of Section 2 (m) treats SEZ as part of India.
Clause ii) proceeds on the basis that supply to a unit or developer in SEZ is exports.
Clause iii) proceeds on the basis that there can be exports even within two units of same SEZ or of an outside SEZ.

Section 53 creates a deeming fiction in law that from appointed day SEZ for authorized operation shall be territory outside India.

A particular council under the Ministry of Commerce proceeds on the basis that supplies to SEZ by DTA though exports under Section 2(m) are not exports out of India under notification 66/2008 and therefore not chargeable to export duty. But the fact remains thatthese supplies are exports under the deeming fiction of Section 53, which treats SEZ as territory outside India from appointed day. Therefore, whether defining portion or deeming fiction contained in the later provision should prevail is a matter of interpretation.

If the Council?s interpretation is carried further, then under section 26 of SEZ Act, under clause 1) read with definition of imports in Sec.29 (o) in SEZ Act, the benefit of exemption is available only for goods imported from outside the territory of India and under clause (b) to goods exported from SEZ to Outside India. That means Section 26 (a) & (b) will not have applicability in case of DTA supplies to SEZ. Then resort will have to be taken to Section 7 of SEZ Act, which deals with exemption from taxes, duties for goods and services procured from DTA by a unit or developer and since Schedule I appended to the section does not specify Customs Tariff Act, therefore exemption to export duty under Customs Tariff Act will not be available.

Similarly, there are chinks in the argument of DOR in refusing benefit of export duty. When deeming provision of Section 53 comes into play in relation to developer, the SEZ from appointed day becomes a territory outside customs territory and therefore goods supplied to it are imports in a SEZ and therefore are liable to exemption under section 26(1)(a) of SEZ Act which, interalia, includes Customs Tariff Act. It is further of interest to note that deeming fiction in Sec.53 is specific in application to developers only, as it talks of `authorized operations?. Therefore, under deeming fiction of Sec.53,while DOR is with in its rights to demand duty form DTA supplier treating him as an exporter, it is equally under obligation under Sec. 26 (1)(a) to keep it free from any customs duty under Customs Act,62 or Customs Tariff Act,75 treating these goods as imported into SEZ.

In the nutshell, the confusion seems to be arising due to the reason that ?exports? under SEZ have been defined without relation to Indian Territory. Section 53 talks of Customs territory of India (which usually includes territory of India and continental shelf and exclusive economic zone) and does not clearly spell out as to what is the purpose of creating such legal fiction and notification 66/2008 talks of exports `out of India`.

Conflicting stands and provisions, therefore, only add fuel to the fire and need to be addressed by a combined policy statement of both the concerned Ministries, and the brain raking judiciary. And for all of us lesser mortals, who do not understand a thing about the whole issue and fail to decide who is right, it will be beneficial to remember my learned teacher?s words ` NEVER TRY TO UNDERSTAND INFINITY?.

FTP - Time to unleash industrial growth through SEZs

APRIL 21, 2008

By Somesh Arora, Former Commissioner of Customs & Central Excise

Budget : The train in front of engine budget!

Budget : The train in front of engine budget!

MARCH 4, 2008

By Somesh Arora, ADG, DGCEI

(The views expressed are strictly author?s personal and should not be construed in any manner as official policy statement)

SEZ - while following footsteps of China, can India avoid the pitfalls?

SEZ - while following footsteps of China, can India avoid the pitfalls?

By Somesh Arora, IRS (C & CE)

IN the recent years, no economic legislation or concept has raised such a storm as SEZ policy. All provisions of SEZ Act have been discussed threadbare. The pros and cons of having SEZs, including what should be the ideal number for India, has been discussed elaborately. If one has to, indeed, make out a scale of length in print media published about the topic to the length in Kilometers that SEZs are going to occupy, it may already turn out to be 1 Meter to 1 K.M.

From being hailed as "locomotives of economic growth" to being condemned as 'death knell of Indian agriculture', concept has attracted divergent views. While lacunae in the legal provisions and policy are not something new, as each legislation in its formative stages has to evolve through the same, it is the economic and political rationale, which is significant and is at the core of the debate. Looking at the Chinese experiment, which India is trying to emulate to get into the higher trajectory of economic growth, it cannot be denied that SEZ started in 80`s actually provided the stimulus to the growth. At that time, China was a protected economy and could attract foreign investment by maintaining lower tariffs and free imports in these zones, which also cushioned the units established in these zones from anarchic labour laws and legal system. In a liberalized market scenario, in which tariffs are falling due to bound rate commitments that India has under WTO and with a legal system in place that is comparable to the best in the world, some of these rationales are already missing for India. Still the hassle- free environment that these zones can afford and their appeal as a successful concept cannot be denied for sheer brand value.

Highlights

++ Chinese rationales not valid for India;

++ Social Reconstruction Fund for converting arid land into arable land;

++ Determine incentives as per WTO norms;

While looking at the Chinese system, it may be important to analyse the post WTO scenario of these SEZs i.e. after China became member of WTO on December 11, 2001. A report byUS Department of State provides that China developed and expanded a complex system of investment incentives over the last 20 years. The special economic zones of Shenzhen, Shanou, Zhuhai, Xiamen and Hainan, 14 coastal cities, hundreds of development zones and designated inland cities all promote investment with unique packages of investment and tax incentives. Chinese authorities have also established a number of free ports and bonded zones. In recent years, SEZs have sought to enhance their autonomy while officials from inland China have pressed the Central Government to reduce SEZ privileges. To make progress toward a consistent (and required) national trade regime as part of its WTO accession, China has indicated that it will not introduce any new SEZ investment incentives and will decrease existing incentives over time. It also reduced by more than half the number of special economic zones in 2004. (Emphasis supplied).

Further various reports by The Economist and New-York based group on Human Rights in China provides that with a 1.3 billion population which is one quarter of the world's population and with 7% arable land at its disposal, the ability of China to feed itself is getting diminished with more and more of its agricultural land getting converted to industrial use, housing and suburban growth, highway and railroad rights of way, golf courses, recreation parks, airports and shopping malls. The per capita consumption of natural resources is skyrocketing. This has seriously strained China's resource base, even as the nation has begun to import more and more raw materials and commodities (as quoted by China online).

The fact file also narrates that China now faces:

? One of the fastest growing but least efficient energy systems in the world

? Acid rain falling over one-third of its landmass.

? 75% of its lakes and rivers seriously contaminated and half of the water in its seven major rivers being unusable even for agriculture or industry.

? 16 out of world's 20 most polluted cities.

? Very serious deforestation, especially in the foothills of the Himalayas.

? Advancing desertification

? Precipitously dropping groundwater tables allover the dry North China Plain

? The health care costs though yet are unknowable and thus incalculable are estimated to impact China to the tune of 8 to 15% of the GDP.

While launching for SEZs in a big way, fortunately for the policy makers of India, thehindsight wisdom is available as to where can the success stories emerge and where tragedies can be averted. The first lesson is to avoid indiscriminate opening of the SEZs which may eventually lead to over production and marketing concerns and ultimately for demand for more incentives to sustain. Even too much of a perceived good can be bad.Like China we should not initially open SEZs indiscriminately and close in big numbers later. Secondly, the need to curtail incentives to the extent these are incompatible with WTO must always be kept in mind.

Related SEZ stories

1) Manufacturing SEZ may not survive for long but Spl Education Zone will!

2) Anomalies in SEZ Act and conflict of interests

3) Procurement of goods by SEZ units from DTA

4) The SEZ imbroglio!

Thirdly, and most significantly, the environmental and rehabilitation issues must be kept in mind. As far as environmental issues are concerned, the record of free economic zones in India has largely remained spotless. The following of norm of establishing pollution free industry in such zones has so far remained a well-implemented rule. The only aberration which comes to mind are the setting up of hand made jewellery units in some of these zones, which usebhatties to melt the gold at high temperature in very crude refineries. However, the major concern which has been raised at political and economic fora is the acquiring of agricultural land for these SEZs, thereby displacing farmers even from some of the fertile areas, because of the desire of the interested states to have SEZs in their territory. That these SEZs bring about economic growth and raise employment levels is something that cannot be denied. And if some of the agricultural land can bring about better utilisation of economic resources by putting the same to alternate use, then what can be wrong with such a proposition. After all, for the starving farmer what can be better than getting enhanced market worth of the land in their possession and capitalize their land asset to make good money. For farmers, it is a question of having some opportunity or none. As the reports about Punjab have recently indicated, in some of the areas of Mohali where land developers have purchased agricultural land at market prices, farmers have benefited by getting greater land holdings in Moga etc. and by still having enough money for themselves.Well, all this sounds good at micro level, but the social and economic costs to the nation can be heavy. Eventually, some farmer elsewhere will have to be deprived of his landholding and area under cultivation is bound to come down. With 1.1 billion population and 2% of landmass, India's economic growth programme has somewhere got to come under sector related stress. While putting available land resources to best marginal use, the question of till when industralisation at the cost of agriculture has to be resolved? The concept of self reliance in agriculture produce which has remained for long a sacrosanct cornerstone of our economic policy cannot be sacrificed totally at the altar of globalisation, for such a move can have security implications also.

Putting limits on agricultural land which can be used by a forthcoming SEZ is a welcome step, but limit of number of SEZs or for that matter any developmental work has also to be known. For social costs of development, though difficult to ascertain initially become a matter of concern, once the issues are blown out in full proportion. Proactivism therefore is a must. Amongst the steps, which can be considered, is the contribution to Social Reconstruction Funds by SEZ developers. Such funds can be placed at the disposal of concerned states with the rider that these will be used only for socially beneficial programmes like forestation, conversion of arid lands into cultivable lands. If states for any reason have to be kept aloof then SEZ developer can be given option to assume to himself the responsibility of taking upon such forestation programmes or arid land conversion programmes. Taking over of such responsibilities by beneficiaries are not unknown and already exist for paper industrywhere wood pulp using industries are known to undertake forestation programmes.Even the environment protection related obligations of the states under Kyoto conference in detail prescribe such obligations on defaulting states who contribute the maximum to pollution due to high level of industralisation in their domain. These states are obliged to undertake green projects elsewhere, thereby to earn points from less polluting countries or to reduce the scale of emissions and pollutants in their own domain. It can be experimented even in India on intra state or interstate basis in relation to SEZ projects.

Therefore, while treading the path of economic growth with impressive strides, India must gear up simultaneously to undertake social reengineering to make the whole transition least painful. The social cost auditing of each project to achieve reduction and control must remain guiding principles of our policy. For an increase of 2% GDP growth can have meaning only when it is not coupled with equal to 2% GDP growth in expense terms on health, environment protection and social rehabilitation.

(The views expressed are author's personal)

Appointment of 6th Pay Commission - Is the furore legitimate?

Appointment of 6th Pay Commission - Is the furore legitimate?

By Somesh Arora, ADG, DGCEI, Bangalore

EVER since the announcement of appointment of 6th Pay Commission, the 'corporate media' and `Gulabi' press have been working overtime to condemn the governmental move as opportunistic in political terms and ill-fated for the country's economy. In the process, certain ground realities and factual information have been consigned to bin and expressions like 'langurs are more productive than the government employees' have been chosen to be used by some so-called economist in one of the leading magazine. The author seems to have had first hand experience of being chased away by one of such species and, therefore, can claim privity to such knowledge. The statistics can prove and statistics can disprove all in the same breath. It is the experience on ground, which can really be determinate factor. Figures are being quoted that on the base of 1971-72, the per capita salary spent of the government has gone up by 37 times whereas inflation has gone up 11 times. In the last Pay Commission, apart from merger of dearness allowance in the basic the only other major point of gain for the employees was hike in House Rent Allowance. The hike was embedded in the reality that land prices as well as rentals have gone phenomenally high. A decent two-room house in Delhi (where the maximum central government employees live) used to cost Rs 30000 in 1971-72 whereas it now costs nothing short of Rs 30 lacs and even government was not available to provide more than 50% satisfaction rate with all the housing available at its disposal. It would have been better, if the learned author and the economist had worked the cost of living with two children family norm, including cost of educating them in a city environment upto higher education level, and then talked about adequacy or otherwise of the government pay. After all even the constitution of the country also provides for decent standard of living for all its citizens in the Directive Principles of State Policy. Let the government employees at least have a fair living wage. Certain facts and figures being quoted below may be of interest to those who want to have lop-sided vision so that meek voices in support of the move are not lost in the din created by misinformed and misconceived interests:

? The sixth pay commission will be the first pay commission which will decide the terms of payment in a situation when 50% i.e. roughly two third of the D.A increase since last pay hike has already been merged in the basic.

? It will also be the first pay commission to face the situation of having to decide on the emoluments of employees whose number in employment has gone down since last such exercise.

? Though 30% cut recommended by the 5th pay commission has not been officially achieved. Considerable number of posts with in the sanctioned strength is lying vacant for number of years in various departments. For example in C.B.E.C, since last pay commission sanctioned strength has been reduced from 65000 to 60000 and 50000 people are actually working. In C.B.D.T. about 20000 posts out of sanctioned strength are lying vacant. Thus the claim that there has been no betterment in productivity is totally falsified.

? The new commission will also deal with a situation when the government employees have shown greatest responsiveness than in any other point of history to latest technological changes thereby bringing greater efficiency in administration. Many of the departments have achieved 100% computer literacy and in the last decade of transformation were called upon to maintain both manual and computerized records.

? The new commission will have also to deal with the ground reality that in international perception as registered by Transparency International, India has not only arrested the trend of being corrupt nation but has emerged from being on the slide to being a nation on the path of improvement in ranking. This is largely because the governmental vigilance machinery in the last decade has been most active. A good pay packet can further isolate the corrupt and reward the honest is known to any administrator.

? The pay commission will also have to encounter the challenge of awarding pay to the employees who in the face of worsening law and order internal situation owing to terrorism are maintaining internal security and essential services even at the grave risk to life as also the security forces who are still the most disciplined even when not receiving lavish remuneration. A thought which hardly occurs to the corporate press journalists since their only concern is that their clients may not have to shell more taxes.

? This will also be the first pay commission which will see roughly 22% of whatever it awards coming back to government coffers by way of income-tax, service-tax, excise and property and sales tax etc.

? This commission is also the one being appointed at a point of time in history when India has registered highest G.D.P. growth, highest salary hike in private sector and highest exodus of talented officers voluntarily. The impact of last pay commission though initially sent jitters in the economy but eventually led to higher consumption and higher production and increase in per capita income is a matter of record. Therefore inspite of all the criticism the nation has not been a loser due to impact of 5 th pay commission.

An oft-repeated charge against the government establishments relates to its lower productivity. It is used to justify lower salaries to government employee's vis-a Vis their private sector counterparts who enjoy hefty pay packages. The disillusionment of the public while dealing with electricity companies and banks, two of the recent sectors, which have witnessed privatization, goes to show that all talk about inefficiency in government is prompted by vested interests. A recent survey published in the "gulabi" press has indicated that public will rather deal with NSB than CITICORP bank. The critics of the pay commission have even tried to draw a wedge between senior level employees and lower level on the basis of efficiency. The fact is that productivity in the government is most difficult to measure, a call center employee may get fabulous pay packages and get talked much about odd hours of working etc. but no thought will be spared about Railway, Customs, Police employees, Coast guard, doctors in hospitals etc. who are called upon to maintain essential services at the oddest of hours.

Again, the perception of public is based on delays, which it may encounter in getting some service while dealing with some government department. But once it has to deal with the private sector, the costs of service shortly make the honeymoon eventually go sour. On the other hand, lot of productivity of the governmental organizations remains immeasurable because of its very nature. Can any one measure the time a government clerk has to spend on answering Parliament questions, preparing mountain loads of statistical information or answering information under right to information or even locating files from the dusty courtyards or responding to inspections, vigilance, audits and cumbersome litigation - all functions which are essential for any democracy but cost a lot of man-hours? Incidentally the situations like these their counterparts in the private sector do not have to encounter? These functions are swelling by the day due to other duties like elections; census surveys etc.- and somewhere affects the man-hours left for public dealing.

It may be of interest to note that when Goa got its freedom in 1962, the last Custom Commissioner was getting a salary as per available records of 28 gold sovereigns (i.e. Rs 210000 in today's time), a part from the house where present day Chief Minister stays and a Rolls Royce car. His work involved only looking after customs revenue and related work. In contrast the Commissioner today gets a carry home of Rs 25,000/-, for house he is in the Q and at the mercy of state government and an Ambassador car for his official use. In return he has to discharge duties of Commissioner of Customs, excise and service tax a part from attending various other duties relating to litigation. While it is not expected that Civil Servants and employees of the government can live like "nabobs", the point sought to be made is that emoluments have certainly declined in spite of efficiency bar going up. And that a case for fair living wage is always present. This is what is answered by pay commissions considering various factors including state of country's economy and other conflicting interests and requirements.

After all the talent costs and in an open market economy even the retention is valued in terms of opportunity costs. Can anybody deny that India attracts the best talent in its civil services through one of the toughest competitive exams in the world which attracts 4,00,000 candidates for 500 positions, all of whom are form varied streams like engineering, business administration, legal, medical and from best of the institutes. And even the recruitment in-group C attracts best of the talent selected through most competitive environment. Has the corporate sector been able to open even a single hospital in rural area or has it been able to provide banks or postal services in rural India? In spite of all the big talk, the fact is that but for government employees the far flung areas if allowed to be at the mercy of corporate giants would have remained primitive inhabitations, so let the press be responsive and while talking about productivity in government sector, take note of the contribution of all segments of governmental employment and their working conditions. It is time for a well-deserved and hard earned award for the government employees and let no one grudge it. If the taxes have to be paid for keeping all those happy who provide security to the nation, keep the wheels of this nation going even at night or educate the future, care for the ailing of this country even then it is too little a cost.

(The views expressed are author's personal.)

. Failure of WTO talks on patents & enhanced protection for traditional knowledge : Are there any alternatives available to India?

Failure of WTO talks on patents & enhanced protection for traditional knowledge : Are there any alternatives available to India?

By Somesh Arora, ADG, DGCEI

WITH the recent negotiations of World Trade Organization on TRIPS, which involved grant of patents with enhanced protection for traditional knowledge coming to a grinding halt, mainly due to hardening of stances by block led by India, China and Brazil on one hand and opposed by USA on the other, it has once again become evident that ultimately nationalistic notions overwhelm the multilaterlism. The United States rejected the demand for disclosure of traditional knowledge used in products for which a patent is sought on the ground that it will increase the cost of patent. This in effect means the rejection of proposal of various developing countries for greater recognition of traditional knowledge, so that local communities, who contributed to the preservation of such knowledge when the patent laws were not in existence, share the fruits of commercial exploitation of their knowledge base by the patent holder. India on its part has already incorporated such provisions in its Patent law thereby requiring disclosure of traditional knowledge involved in patents and also for sharing benefits arising out of commercial exploitation with the local communities concerned.

Section 10 (contents of specification) of the Patents Act, 1970 (as amended) by the Patents Second Amendment Act (2002) provides that the applicant must disclose the source and geographical origin of any biological material deposited in lieu of a description. Also Section 25(1) (j) relating to opposition to grant of patent as amended allows for opposition to be filed on the ground that the complete specification does not disclose or wrongly mentions the source or geographical material used for the invention. The Provisions were created with an eye for the future, so that protection for traditional knowledge when provided in international sphere does not require any further amendment in the law in national domain. Further, India as a strong votary for such protection had to show that such provisions are pragmatic and can be applied with ease.

While the deliberations in the World Trade Organisation may take time in the face of opposition, to eventually see the culmination, it is evident that economic interests of the countries involved will determine their respective stands. The posturing taken by countries like India, who consider themselves as the main repositories of ancient wisdom is the outcome of the notion that all patent holders, whose patents are based on traditional knowledge (even if the same is now in public domain) should share the fruits of the commercial exploitation of their inventions with the persons or communities that created or preserved such traditional wisdom.

The position taken is particularly relevant in the field of medicines, which usually draw upon the knowledge about medicinal effects of various herbs from ancient ayurvedic or other authoritative texts, which were diligently preserved for ages. But can the economic benefits to the relevant communities or interest groups come only through protection under patent laws is the moot question. In this context, it may be relevant to view the developments in the Central Excise Tariff of India relating to medicines. In the past, India had adopted a dual tariff structure policy in favour of Ayurvedic medicines in order to promote the same. The patent and proprietary medicines were made to bear higher rate of taxation, which was kept lower for ayurvedic medicines. But a spate of litigation was the result whereby certain drugs were claimed to be ayurvedic, even when revenue felt that they were allopathic. During the period `ingredients test` became the touchstone and courts held that if the authoritative ayurvedic texts mentioned about the ingredients which were predominantly contained in any drug, then the same should be treated as ayurvedic, irrespective of whether allopathic or ayurvedic system used it. The net result of litigation and desire to simplify excise tariff was that a uniform rate of taxation for all medicines came to be adopted.

The question, which incidentally never got raised or got, answered by the courts waswhether any patent on such drugs was ever taken by the drug manufacturing company in India or overseas. Because if a Drug company had obtained patent claiming the drug to be a new invention then apparently it would have faced a questionable position in claiming it to be ayurvedic product for taking the benefit of Indian excise Tariff.

It is therefore felt that if a synchronized approach is adopted by India, whereby the Patent law and Central Excise Tariff in tandem try to achieve the objective that Indian Government is seeking to achieve, then it may, ad interim, provide an effective solution till a multilateral patent treaty on traditional knowledge becomes a reality.

Under the suggested dispensation, all patented and proprietary medicines (other than those based on traditional knowledge) can be considered for higher taxation and a lower rate can be considered for (a) ayurvedic drugs (on which no patent has ever been taken anywhere) and (b) patented and proprietary medicines, which are based on traditional knowledge and are registered as such under the patents law.

This will encourage the patent holders to actually disclose if they have derived any benefit from traditional knowledge, if so then they may be required to contribute towards holder of traditional knowledge pool but will benefit from lower tariff on Central excise side. Further a full disclosure on patent aspect will reduce claims that a drug is ayurvedic, even if it was granted a patent any where in the world thereby confining the benefit of lower tariff to only the genuine ayurvedic medicines. The move will be Intellectual property friendly even though those pitching for simplification may consider it retrograde.

(The Views are personal and should not in any manner be construed as reflection of governmental policy)

Time to think of levy of countervailing service tax to protect domestic service industry

Time to think of levy of countervailing service tax to protect domestic service industry

By Somesh Arora, Addl Director General, DGCEI

WITH the rate of service tax being augmented in every budget and likely to merge with Central Excise by peaking at contemplated rate of 15% to 16%, when the promised GST would become a reality in 2010, the time has indeed come to think about CVD equivalent to service tax levied in India on component of services contained in goods, which are imported from outside India. The `Business Auxiliary Services' (BAS) head under service tax leaves room for levy of tax on services component contained in the goods. The definition of BAS w.e.f. 10-09-2004 as contained in the Finance Act,1994 provides :

"Business Auxiliary Service" means any service in relation to -

? Promotion or marketing or sale of goods produced or provided by or belonging to the client; or

? .....

? ....

? Procurement of goods or services, which are inputs for the client; or

? Production of goods for or on behalf of the client,

? ....

? A service incidental or auxiliary to any activity specified in sub clauses (i) to (iv)....................................."

Obviously, certain processes and job work services carried out on behalf of client can get covered under the aforesaid service. However, when import of like goods takes place, what shall be levied will be only the customs duty. In case, customs duty works out to be less than the rate of prevailing service tax, every prudent importer would like to have many processes got done and services taken overseas (if assuming the cost of services in India and overseas is the same). This will put Indian service provider to an unfair disadvantage. For example,(taken Hypothetically to illustrate the point) if M/s S and co. is a trader supplier of lead sanitary fixtures, which are imported by them and are got branded with their brand name from a processor in India. Then before the budget they were required to pay, on import value of Rs.1000/-, a customs duty of Rs.100/-. Again if they were paying to their processor Rs 100/- for branding services provided to them, then on the latter they were liable to discharge a duty of Rupees 10.20 as service tax on business auxiliary service. After the budget, to minimize their tax burden they take a conscious decision to get their product branded overseas, where cost of service is the same. Now, their tax liability on landed cost of product of Rs.1100/- will be Rs.110/- as customs duty. Had they continued as before, they would have been required to discharge Rs.100 as customs duty and Rs.12.24 as service tax liability, taking their total tax liability to Rs.112.24. Thus by shifting service processing overseas they have saved Rs. 2.24, even though the country is likely to loose revenue as well as the G.D.P. on account of services moving overseas. Therefore, there exists a perfect fiscal logic to levy a countervailing service tax duty of Rs.2.24.

At the initial stages, the impact may be felt in relation to those items only which are imported at customs duty of less than 12%, but as and when proposed rate of 16% GST is implemented and peak customs rate of 15% is brought down, the effect will be felt across the board and can lead to flight of GDP contributed by service sector.

So, it may be prudent to take legislative and policy measures well in time. The enhancing of special additional duty (SAD) which was levied and pegged at 4% to take care of various state levies and local taxes (which are difficult to quantify) on a notional basis can hardly be a solution. Since in the case of service tax, the burden is calculable and quantifiable. Again, the suggested levy shall not only countervail service tax, but shall have added advantage of being WTO compatible. This brings us to the next question as to how it can be ascertained that goods imported contain a component of service and value paid for imported goods contains not only the value of goods but also some element of service/s. As per the existing examination mechanism at the ports, it may not be much of a problem, since it can easily be noticed that the goods imported are containing some specialized packing, branding, testing, certification, cost of training at buyer`s site etc. which are not normally done in course of international trade and exporter`s invoice either shows value on account of such services in a segregated manner or importer can be asked to self declare such value, as is called for in the new Service Tax Valuation rules enacted in the latest Finance Act.

A proactive fiscal measure like above may be the need of the hour at this stage itself. After all, a stitch in time saves nine.

Junk management : Can the future managers choose to ignore it?

Junk management : Can the future managers choose to ignore it?

By Somesh Arora, IRS

NO resource management can be complete without effective waste management. For optimization of resources is possible only when the best is derived from it and least is allowed to be left of unwanted. What can illustrate this truth better than the treatment at home meted out by our mothers and grandmothers to that valued commodity ? Milk. Put it to uses that you feel like ? make cheese, get ghee, consume as it is, get the curd out of it, but do not allow any content of it to go waste. Even when you make cottage cheese out of it, use the water left to knead the flour. If you churn butter out of it, use the ?Chhach? to soothe your nerves in summer. Great resource management ? indeed. But it is possible because caring and determined mothers put to best use, the commodity they have known and valued since their childhood. The principle enunciated, with little variance, can be put to use in the domains of Business and Governance to manage the junk in a profitable manner. The economic aspect of waste management apart, there is another vital component relating to environment, which is increasingly acquiring significant dimension.

Waste Management

While the early part of 20th Century witnessed unprecedented industrial growth and exploitation of resources at the global level, the last couple of decades have been the time of alarm. The average temperature of the earth?s surface has risen by 0.6 degrees centigrade since the late 1800s. It is expected to increase by another 1.4 to 5.8 degrees C by the year 2100. The 1990s was apparently the warmest decade of the last millennium, and 1998 the warmest year. The average sea level rose by 10 to 20 cm during the 20th century, and an additional increase of 9 to 88cm is expected by the year 2100. The world woke to the perils that unchecked, unbridled and indiscriminate use of resources has put them to. The fact file revealed that almost everything in the environment had been put to profit-making use. Industry and Business might have profited in the short term - but social costs were heavy and at times devastating. The typical approach adopted by those who were aware and could afford was ?keep your home clean and let the garbage be collected by those who need it?. For developing countries like India, it meant moreimports of lead-scrap, iron-scrap, plastics, hazardous waste oil etc. to keep the industry running. Cheap imports brought in their wake grave environmental and health hazards. Plastic was found indestructible and strangulating our choked drainage system. Lead scrap was polluting air. Iron scrap brought along undetonated bombs. Waste oil brought profit to few but heavy costs to the Mother India.

In return, India was found gifting away its topsoil by container loads for peanuts worth of foreign exchange in a virtual blissful state of ignorance. Becoming wiser by experience, India eventually imposed bans and regulated imports.

With the increased consumerism only precipitating the matter, it is expected that Junk Management will shortly be amongst the top industries in the world. Space is becoming a problem for keeping the junked cars; pressure on urban lands requires buildings to be pulled down; industrial wastes and effluents need radical reduction; old computers and motherboards need decent burial after living their short lives; expired consumer products and medicines have to be taken off the shelf; polythene bags are required to be made extinct; old machinery and old household consumer products need to be shunted out; wars/fires/natural disasters are bringing in their own baggage of destruction that is to be jettisoned. The list can be long and provides adds-on to the enormity and stupendousness of the task.

At the international level, the initiatives that have been taken so far by comity of nations consist of emphasis on (3 r?s of) reducing, recycling and relocating sources of waste and pollutants. Backed by environmentalists, eco friendly products as substitutes are being evolved, emission levels of vehicles are being regulated, installation of water and waste management systems in industries are being prescribed. Recycling of waste to get biodegradable products is the new tech mantra. Markets are abuzz with eco labeled and eco standardized products.

In International sphere, while the World Trade Organisation on its formation in 1994 provided for no specific agreement relating to environment, it made certain provisions in various agreements that dealt with hazardous substances, sanitation and environmental issues ? e.g.:

++ GATT Agreement Article XX deals with policies affecting trade in goods for protecting human, animal or plant life or health or measures relating to conservation of exhaustive natural resources and exempts them from GATT disciplines under certain conditions.

++ In Agreement on Agriculture ? environmental programmes have been exempted from cuts in subsidies.

++ In Agreement relating to technical barriers to trade and Sanitary and Phyto Sanitary measures-Animal and plant, health and hygiene standards have been allowed to be prescribed to prohibit undesirable imports by member countries.

++ In Subsidy and Countervailing Measures ? subsidy upto 20% of the costs has been permitted as an exception for adapting to new environmental protection measures and laws.

++ In Trade Related Intellectual Property Rights Agreement, Article-27 permits the member countries to refuse to issue patents that threaten human, animal or plant life or health or is likely to cause serious risk of damage to environment.

The major dedicated initiative to regulate emission levels at the global level came by way of Kyoto Protocol adopted in Kyoto, Japan on 11th December 1997. It provided three innovative ?flexibility mechanisms? to lower the overall objective of achieving emission targets. These mechanisms enable parties to access cost?effective opportunities to reduce emissions or to remove carbon from the atmosphere in other countries. The protocol divides countries into three main groups - Annex-I. Parties include the industrialized countries and countries with economics in transition, Annex.II. Consists of countries that were members of the OECD (Organisation for Economic Co-operation and Development) in 1992, but not the countries with Economics in transit. They are required to provide financial resources to enable developing countries to undertake emissions reduction activities under the convention and assist them to adapt to adverse effects of climate change. Non-Annex-I parties are mostly countries with developing economies. Firstly, the countries in Annex-I, which are parties to the protocol (through process of ratification, acceptance and approval) are under obligation to achieve specified emission reduction targets, so as to lead to a total cut of emissions of atleast 5% from 1990 levels in the commitment period 2008-2012. Secondly, under the clean development mechanism (CDM) under Art.12 of the protocol Annex-I parties are obliged to implement projects that reduce emissions in non-Annex-I parties, or absorb carbon through afforestation or reforestation activities, in return for certified emission reductions. Thirdly, the protocol permits Emission trading, as set out in Art.17. It provides for Annex-I parties to acquire units known as ?Assigned Amount Units? (AAU?s) for using them towards meeting their emission targets under the Kyoto Protocol. Parties are also authorized to allow their legal entities (e.g. businesses, non-governmental organizations and other entities) to participate under their responsibility as envisaged in Art.17. As only Annex-I parties to the Kyoto Protocol are allowed to participate in emission trading, therefore such parties should be prepared to transfer units, when do not require for compliance with their own emission targets.

For developing countries like India, which are Non-Annex-I parties, new opportunities are likely to unfold under CDM, for reduction in Industrial and other green house gases emission as well as for afforestation and reforestation programmes. The funding for the purpose can come from Annex-I parties, as they will earn certified emission reduction. Again, the commitment to reduce emission levels by these countries can compel them to relocate some of its industry and future industrial growth to developing countries, which have significantly lower levels of emission. How much countries like India eventually avail of this opportunity will depend upon the foresight of Business enterprise and the Government. If we without further loss of time, identify some of the most polluting industries and reduce their emission levels by eco-friendly technologies, then not only the possibility of outsourced funding, technology transfers and collaborations will be available, but also reduction in emission levels can provide elbow space for more industries from developed countries to move in. Once the 1st phase target of reduction of 5% by 2012 is achieved, it is expected that future targets under Kyoto Protocol may become more ambitious, thereby, providing further business opportunities to developing countries who are quick to devise suitable strategies responding with alacrity to the provisions of the Protocol. Can therefore, any manager or an administrator with a vision and acumen choose to ignore the Junk Management ? because this is where the future is.

(The author has worked as enforcer of environmental laws and was instrumental in getting the ban imposed on exports of soils from India. However, the views expressed are strictly personal)

Budget 2005 : A balanced act with hardly any goof-ups

Budget 2005 : A balanced act with hardly any goof-ups

By Somesh Arora, IRS

EVENTUALLY, the Finance Minister has performed the ?Trapeze Act?, under the watchful eyes of the Prime Minister, in the Indian Economic arena drawing rounds of applause from a large spectrum of audience consisting of political, financial and business analysts. Seldom have budget analysts and critics looked so superfluous or so superficial after presentation of the budget. Everything appeared so simple that there was hardly any need to look elsewhere after the speech. Hopes and aspirations were fulfilled to an extent that it only allowed them to grow further. A difficult balancing act has, indeed, been carried out with a level of perfection. The ?dream team? has only carried forward the boat of Indian economy in one direction of progress rather than in opposite directions, as the hoardings of ?Amul? in Mumbai had sought to suggest, albeit, in the lighter vein. F.M.

has exhibited that he has, indeed, mastered the art of skillfully complying with all cannons of taxation to achieve all round objective of economic prosperity. Thereby, restoring faith that a budget team that steers clear of undue lobbying by business & political interests can indeed deliver with ease. While adhering to well meaning objectives of Common Minimum Programme (CMP), he has at the same time attempted to make the taxation system simple, minimally obtrusive, progressive and socially just. Having laid a sound foundation, the next task cut out for him is to build on it, block by block, through effective implementation so that engines of social engineering designed by him do not fail to deliver and actually translate in higher G.D.P. growth.

On the front of taxation, even the most well-intentioned fiscal statements and budgets are known to raise certain eyebrows and spur rounds of litigation. In the present budget, if some measures have such ready-to-sprout seeds, they are mainly in the following initiatives:

1. Levy of 2% excise duty on branded jewellery:-

Even though it has been explained as to what will constitute a ?brand and trade name? based upon various judicial pronouncements, and a definition has also been provided, still it is known that jewellery articles as such do not contain a brand on themselves, but invariably carry an in-house mark, through which jewelers are able to know that it is an article manufactured by them and based on which they are able to have buy-backs from their customers. These marks are meant for their own knowledge and their buyers may not be aware of them, unless they make it known to them. Whether such marks should be considered as trade mark in the face of a comprehensive definition will be a poser for future for excise authorities and trade. Again, all articles of jewellery are sold by jewellers in their packing, which will carry their name like jewel boxes, purses etc., whether the same can be considered as sold under brand or trade name will also need elaboration.

2. ?Business Auxiliary Services?- What constitutes ?

- Bill provides that ?production or processing of goods on behalf of the client? shall be included in business auxiliary services.

- The measure in fact, considerably augments not only the scope of ?business auxiliary services?, but also the scope of ?service-tax? per se. This may cover all goldsmiths who are producing gold articles for all those who are not manufacturing branded jewellery. Eventually, this translates to returning again to taxation era for all goldsmiths. Again, all those processes which through evolution of Central Excise Law have been held to be not amounting to manufacture will face scrutiny for service-tax coverage under this head.

3. Levy of transaction tax on cash withdrawals from banks:- Measure in itself is quite laudable, as it seeks to check the growth of black economy and provides a trail. Further, the rate of taxation of 0.1% on withdrawal is pragmatic and clearly spells out that the step is not revenue oriented, but has been initiated with any eye to curb the menace of evasion. Still, it is felt that withdrawal of above Rs 10,000/- can be done even by genuine taxpayers, governments (since they pay salaries in cash) and even corporates (who have to pay salaries in cash too). A tax evader will normally bring the cash in banking channel for a short while (if he so chooses to do) and withdraw it as per need.Therefore, as already cash deposit transactions above a particular level are being monitored, better course would have been to tax cash deposit beyond a limit and strengthen already existing mechanism rather than developing a new one on withdrawal side,thereby taxing even the genuine banking transactions.

4. Withdrawal of benefit u/s 80-L of Income-Tax Act:-

Same had been tried even earlier, but there is inherent difficulty faced by tax-payers to keep track of even small amounts that may be lying in some saving accounts with little balance. There will, obviously, be a need to get interest statements from bankers for even small accounts with little amounts of interest. It is suggested that at the time of filing of return, Income-Tax authorities should accept self-declaration of interest upto Rs 10,000/- as sufficient proof of interest income.

With the vision that F.M. has shown in the current exercise, it can be expected that these issues will be addressed shortly and may be even before the passage of Finance Bill.

(The above views expressed are strictly personal)

SOCIAL SECURITY SYSTEMS : DO THE EARLY WARNINGS PROVIDE THE WAKE UP CALL?

SOCIAL SECURITY SYSTEMS : DO THE EARLY WARNINGS PROVIDE THE WAKE UP CALL?

By Somesh Arora, IRS

( Views expressed are strictly personal)

RIGHT TO RECOVER : TRUSTING THE UNFAITHFUL!

RIGHT TO RECOVER : TRUSTING THE UNFAITHFUL!

By Somesh Arora, Addl Commissioner (Customs & Excise)

(The views expressed are strictly personal of the author )

SEZ: Incorrigible experimentation

It has been more than four decades since the first EPZ was formed in Kandla in 1965. China in comparison which was a late entrant in 1970s made these, as a much bigger success and has after benefitting from their existence, reversed the process of liberally sanctioning the same. India, however, woke up late when most of the tariff barriers were already dismantled, but sanctioned these left, right and center after coming into force of SEZ Act, 2005. Industrial houses grabbed these as if it was a never before opportunity, not realizing that even when the government had procured land for these SEZ at not so expensive acquisition price, was finding it difficult to sell out, seven official versions of these SEZs for almost four decades. With much higher acquisition cost and with lesser comparable tax incentives vis-à-vis the domestic industry, where was the scope for these SEZs to be a big draw defied sense. But then, even the astute business people are fallible and make mistakes. Though they never admit it in public. It became evident, when all the projections of Business Association bodies and Corporate, indicating a never before and huge space requirement by 2011 from IT industry and others, turned out to be a fiasco in 2008. MOC was left to take resort to the definition of `Exports’ under SEZ Act to claim that exports from SEZ were rising. That this definition, is like ever expanding ‘Small Scale Industry’ definition was known to every person who has something to do with the government statistics. Like SSI became SME i.e Small and Medium Enterprise and then SMME i.e Small, Micro and Medium Enterprise just to justify that number of SSI were not on the decline post liberalization. Though it is different story that more than 9 lakh SME units have shut shop reportedly since 2000. Tools available with the successive Governments in their armory are not only- Statistics juggling, but also the definition bungling. Exports were `goods exported out of India’ in 1980`s, then it became exports of goods and services, then it became deemed exports to SEZ and EOU`s. With the coming into force of SEZ Act, it is export of goods and services from India, exports from DTA to EOU and SEZ and then whole lot of combinations like exports from EOU to SEZ, from SEZ to SEZ, from SEZ to EOU, from DTA to Developer, from SEZ and EOU to developer etc. A reality check of what all is being included and what all is being reported may be interesting. Long live the repetitive Indian Export growth story- where the year begins with every one asking for more incentives as the scenario is bad, and ends with claims of growth despite it. The developers who were in the business had mainly set their eyes on the fact that one day the MOC will be able to yield to their original demand of allowing at least 75% of the area as non-processing, which it had resisted seeing the initial queue of the developers chasing it, but now may be more vulnerable to yield to it considering that all the big players are either getting their zones denotified or are continuing to seek extensions for development. Perhaps, waiting for projections for huge demand to come true. Let the MOC, at least give, ad interim, permission to these Developers to do farming on these lands to save country some grain imports. Import substitution is as good as Exports was the EXIM policy line in 1980`s. But that may be possible if someone requests for it. The heavy cost of land acquisition for these developers in states like Haryana which have been termed to be having best acquisition packages and where at least 50-60 of these SEZ

are supposed to be located puts a question marks on the viability of these projects with only 50% area allowed for processing zone. Other option is to open these SEZs for hither to untapped areas like Gaming activities, Casinos’, medical tourism and educational institutions etc. against stipulation of earning foreign exchange. The Casinos can no doubt reduce burden on our Cricket satta market and can provide some competition. In any case, where ever there is cricket fixing found and Indian fixer is never far behind. The art to attract is there amongst out satta entrepreneurs and urge to gamble is there amongst all, whether Indians or outsiders. What difference is there between lottery tickets and Horse racing on one hand and Casino gaming on the other, is difficult to comprehend. The suggestion will also make Cricket, little gambling proof. Otherwise the figures of stakes in betting, is indeed mind boggling. Let some people who are on the right side of the law also make some legitimate money. Tourism will also flourish. Opening of educational institutions in SEZ will not only save out flow of Foreign Exchange but will also ensure some earnings of the same from foreign students. The Indian students can be charged in new avatar of Rupee (which could have been better insignia for railways with a parallel rail track showing up in the sign). Medical tourism can ensure more supply of medicos who are well employable with in India and more medical colleges to support the demand for medicos. However, the problems which are decades old, in relation to SEZ i.e. some jewellery units running away with the gold will always remain. The quantity has only gone up many folds in the last two decades. Every surprise inspection of the unit used to make administrators more worried than the defaulting unit as there could be a big surprise for them. The units importing big machinery, by overvaluing the same and then running away with all loans, foreign parked funds and even shareholder`s funds and with no exports, will always be there. And so shall be the squabbles between the officials of MOC and MOF. The former, cribbing about the Exports, and latter about revenue. The SEZ Lab will continue to experiment even twenty years down the line, but the fruit of research may remain elusive.

Election 2014

To make predictions about elective politics in today’s time when politics is more a matter of alliance, rather than two party affair is fraught with its own perils. While the equations can continue to change in the composition of what is known as alliances of UPA and NDA till elections, it can continue to change even post elections as well depending upon the number game. The predictions that follow are, therefore, being sought to be made only on the basis of available Charts of two major parties of Congress and B. J. P. and are limited to their possibilities only.

Chart of Congress:

Date of Birth: 22.11.1969

Time of Birth 10.00 Hrs.

Place of Birth: New Delhi.

Present Dasha- Rahu/Jupiter till 17/6/2015

As the Chart indicates, the ascendant Sagittarius bestows upon the party an exceptional power to rule India. Sagittarius in general is a Lagana which produces a Rajyoga in 90% of the Horoscopes where it exists as an ascendant. The reason for this is simple. It is because Sun and Mercury which about 90% of time remain together in a house cause natural Rajyoga for this Ascendant because Mercury will be the 10th Lord and Sun will be Trikona Lord of the 9th house and their being together will have a potential of causing a Rajyoga in case of Sagittarius Ascendant, most of the time.

The other Lagna which can naturally have such position is Taurus, where Sun will be the 4th Lord and Mercury will be the 5th Lord and they being together 90% of the time will make most Taurus born persons a natural Rajyogis. But even between the two, the position is definitely better for the persons born in Sagittarius Lagna- as Sun- Mercury combine will be holding Lordship of stronger houses of Trikona/Kendra of the 9th and 10th House. With the foregoing observations, it

is obvious that Congress which has Sun-Mercury together in the 12th House will always have a good chance of coming to power vis-a-vis its other political peers, who are in the electoral fray. It also shows, that perhaps care has been and due diligence done to chose a good Mahurata, while forming Congress Party in 1969. Of which it is reaping the benefit most of the time since its formation.

Up to 1987 it was running Venus Dasha which is in its own House in 11th, along with Ascendant Lord Jupiter which provided it with the successful run to power right up to 1987 with a small brake after the Emergency period in 1977. Again, up to 1993 it was running Sun Dasha which being a Yog Karaka allowed it to remain in power and win elections in 1991, being in 12th House it also caused loss of its Party Head Rajeev Gandhi during that period. It may be pointed out that though Sun- Mercury combine bestows Raj Yoga but the same is weak in 12th House and this causes setbacks like loss of power or loss of leadership or potential leadership to Congress, which it has faced off and on, till now.

Party entered the phase of Mars from 2003 to 2010. Mars is exalted in the Second house which is also the ‘House of Family or Kutumb Bhav’. This Exalted Mars which is also the Lord of 5th House which is also the House of sudden financial gains allowed the congress to consolidate its position through one family, it has always been owing its allegiance to since independence of India. And that consolidation allowed it to gain power unexpectedly in 2004 and again in 2009. Since Congress is running Rahu Dasha now since 2010, which is posited in 3rd House and aspected by Lagna Lord Jupiter (incidentally during the General Elections 2014 Congress party will be passing through Dasha/Antar Dasha of Rahu/Jupiter only which continue till 17th June, 2015), therefore, Rahu puts party in a position where some of its own members put it to shame, scandal and disgrace.

Rahu being a Malefic and a planet of uncertainties, splits, separation will show its malefic results during the Rahu

Dasha which spans from 2010 to 2028, party may see a split, loss of power, loss of face in public due to scandals and other acts of its own members, Ministers etc., though the aspect of Jupiter still allows it to consolidate its position through some alliances etc.

Therefore, if elections are to take place in year 2014 the Rahu/Jupiter, Dasha/Antar Dasha may not allow Congress to do as well as it could perform during the Dasha of exalted Mars. The net result will be that in 2014 elections it is likely that Congress party will come down compared to its position in previous election and it only hopes of making itself relevant can be made through a support of good alliance partners in which aspect of Jupiter on Rahu can come handy. It is also likely that Congress may support some other alliance post elections though that support could be on a shaky wicket after

June, 2015.

2. Coming to the Chart of B. J. P. which was found on 06.04.1980 at 11.00 A. M. in Delhi.

Chart of B. J. P.:

Date of Birth: 06.04.1980

Time of Birth 11.00 A. M.

Place of Birth: New Delhi. Present Dasha- Sun/Rahu from—16.12.2013 up to 10.11.2014.

Next dasha- Sun/Jupiter – 10.11.2014 to 28.08.2015

Party was formed, when Gemini ascendant was rising which is posited in 9th House expected by Saturn, Mars, Jupiter, Rahu and in conjunction with Ketu, the ascendant Lord is influenced by 5 other planets which indicates that its march to power will be mostly on the clutches of the alliances which will be of diversified nature, some congenial to its ideology and other hostile. Jupiter, Saturn, Mercury are potential Raj Yogkaraka planets being the Lord of Kendras and Trikonas. It got truncated power during Mars Dasha which was running from 1995 to 2002, because Mars was figuring in “Chatur Grah Yoga” in third house in conjunction with other Raj Yog karaka planets, it allowed power to be gained through alliance which was never stable as Mars was Lord of 6th House as well, therefore, some alliance partners were internally opposed to it. Dasha of Moon which is second Lord in 6th in debilitation never allowed it to gain power at the Centre in its Dasha period from 2002-2012. Now Congress is out of Dasha of its

exalted planet Mars and BJP is out of its Dasha of debilitated planet Moon and is presently in the Dasha of Sun which is lord of the 3rd house and dispositior of all planets in the3rd house and is posited in the 10th house which represents Parliament in mundane Astrology. Therefore, its comparative position while going to the elections in 2014 is better than Congress. But as Sun is posited in 8th from its own house and also because at the time of General Elections -2014, BJP will be running Sun-Rahu Dasha which will be from 16th December, 2013 to 10th November 2014, therefore, while Congress may get a better support from its alliance partners during to running of Jupiter Bhukti in Rahu dasha, in case of BJP it is just the reverse and it may have to face internal feuds and incurring of un-pleasantness with its alliance partners. The outcome is that while party to party, BJP may perform better than Congress compared to their tallies in 2009, consolidation with its alliance partner is likely to cause problems before and after elections at least up to November, 2014 to BJP. Next phase of Sun/Jupiter Bhukti, which is from 10 November, 2014 to 28th August 2015 will however, enable consolidation of alliance by BJP with its partners as there is exchange of house between the 3rd and 10th Lord i.e. Sun & Jupiter. The closer the formation of the Government gets to November, 2014 the lesser will be the problems for BJP. It is clear that post electoral alliances may hold the key to 2014 elections and the possibility of position continuing to change even beyond Nov., 2014 appears a distinct possibility.

The word of caution is that above analysis has been done without access to the Horoscopes of UPA and NDA and is liable to change to the extent of horoscopes of constituent groups. Again, with all humility it is stated that, human limitation of receptiveness of knowledge or its interpretation does not in any way undermine the marvels of the divine subject of Astrology. Blame for any failing is therefore on the author.

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Bits & Bytes September 2013

Nice boys do not drink? Commissioner of Customs, Cochin has recently brought out an equivalent of Trade Notice bringing out that duty free allowance cannot be given to a non-adult in a family as in Kerala, sale of liquor and use of the same by a non- adult is banned. The logic of the trade notice is that since it cannot be sold or used by such a non-adult, it is not a bonafide baggage in his hands and hence liable to full duty. The instructions are contained in Trade Facility( perhaps a new name for Trade Circular invented for the baggage stations) no.18 23/2013 dated 8-8-2013. Now in this case, law does not prohibit that a non-adult cannot gift liquor to someone else, even if it is presumed that a duty free shop, located in a Customs area comes under the ambit of Kerala Abkari or Excise law, what prohibits an adult to buy it from a duty free shop and present it before Customs officers as part of the non- adult`s baggage and the same being presented for clearance as having been meant for gifts. After all the possession in the hands of a minor is not an offence. Further, if simply because by law a Child cannot consume liquor makes it as a non- bonafide baggage, then what about pardanashin woman, muslims, Gursikhs and many others, who because of their religious sanctions or cultural grooming are not supposed to consume liquor. Does it become a non- bonafide in their possession too, even if they explain that it is meant for gifting?. Again, if the same

minor brings it from a foreign duty free shop and presents it as for gifting or for consumption by his accompanying father, will the same Customs permit it, because he is simply possessing it and the same has neither been sold in Kerala nor is going to be used by him. Further why call such a dreadful notice as Trade Facility, raises my curiosity.

PIG and DOG, it`s the animal world: While working with Central Excise intelligence in the post Textile evasion era, I was normally told that PIG commodities are the biggest nuisance for Central Excise men, as the most rampant evasion was taking place in Plywood, Iron-steel and Gutkha( PIG for short). Since then atleast two commodities have been tested under compounded levy scheme by evoking Section 3A of the Central Excise Act,1944 that deals with power to have special rules for evasion prone commodities, while Iron and steel was earlier under compounded levy, Gutkha is even presently under it( though banned by all the states, but knowing that Central Excise Department has a love for keeping historical laws in its code, it continues to exist). One thing which never fails to surprise me is as to why cigarettes that account for 90 percent of the lung cancer cases due to active or passive smoking have not been banned while Gutkha has been. The passive smoke kills those who are innocent and have simply committed the wrong of living with a smoker, whereas Gutkha atleast does not kill the passive. Ban on smoking at public places is followed as much as the anti- dowry law in this country and in the eventuality that a smoker stops smoking at public place and only does it at home, he is more likely to make his wife and children all the more sick. So, why not let the whole world, have a bit of portion of the smoke from the puff. As an exception, I am reminded of one of my neighbor whose disciplinarian wife would show him out to the balcony in winter to protect her own and her children`s lungs. Equally, I should understand that we live in democracy, where lobbies matter more than the reason and logic. So the Gutkha goes and the Cigarette stays.

If PIG bothers my former Revenue colleagues, the world has been bothered by the DOG, for it is DOG who destroyed most of the God's world in the last century-most of the wars and flashpoints witnessed in the last century world over, and even now are due to troika of Diamonds, Oil and Gold ( DOG for short). One only prays that these beasts do no further harm to our national economy and the World`s peace.

Gurugiri: For the last few years it has been the period from March-to April which has normally led to expose of Gurus, this year the phenomena has been little delayed and month of August became the month of action. Finally, the Government is thinking of moving in the direction of my suggestion given earlier, in lighter vein, of making a Baba Regulatory Body. If the thinking in the Government takes shape, we may soon have a Super Baba before whom all of these Babas will have to bow. In any case it is expected that due to media awareness, either the people of India will understand as to how vulnerable they have been to the antics of most of them or many thugs will be tempted to join the ranks of existing Gurus to give them competition. Tough time for Gurugiri -either way. The vulnerability however is not confined to our superstitious Indians only, an Indian-American Chartered Accountant cum Harvard MBA- Mr. GANDHI turned out to be Raju Guide for U.S. society by becoming a Guru first with his concept of power yoga, Uae mantra, meditation, photographs of caves and Ganges and unique tripod with Hindi om at its top, enjoying ever chasing mass following and then after 18 months exposing himself by bringing out a documentary he made to show as to how vulnerable were American people. That there was nothing about his power yoga except weird posturing, that his mantra was only short form of United Arab Emirates and that his photos of Ganges and Caves were from abandoned Hollywood studios. Surprise is that even after his expose, people still want to follow his concept of power yoga and are unable to shed the divinity attached to it. At this rate we may not need a Baba Regulatory Body only for India, but an international one under the Aegis of United Nations.

Withdrawal of Tax proposal for unbranded jewellery after colossal loss?

It has become a routine that tax proposals in every budget bring about their share of strikes. During last year it was service tax on medicos and lawyers which invited strikes. This year it has been proposal to tax Bidis and unbranded gold jewellery which has incurred the wrath. But what has been alarming about this Year’s proposals is the fact that decision to withdraw has been taken only after an estimated and colossal loss of GDP of Rs. 20,000 crores was incurred, even without a single paisa going to Exchequer by way of tax. In and around Solapur, more than 65,000 women did not get paid a single paisa because their employers were on strike. Therefore, the Beedi manufacturers’ strike hurt workers disproportionately. The Government will earn less than 100 crores from this Beedi tax, out of a total budget of 1.4 lakh crores, but incurred loss of GDP and may have to spend more on the anti-poverty programmes of these base level workers. This clearly points to a disconnect between those who take such tax policy decisions and those who are going to be affected by such proposals. While we in India have been historically (not sure whether validly) following a policy of no transparency about budget tax proposals since pre- independence times. Even political class should be aware of the consequences some tax proposals have had in the history. To briefly recount, French revolution and India`s independence due to contributory factor of tax proposal of putting tax on salt and “scutage” by King Henry which allowed knights to opt out of their duties to fight in wars by paying the tax, which many believe led to creation of the Magna Carta, which limited the king’s power. Even if we want to continue with the policy of no transparency in tax proposals, the FINMIN will do itself a great service it uses the services of organizations like Central Economic Intelligence Bureau to judge the pulse of the people about some of the proposals with far-reaching consequences in so far they seek to disturb the long followed policies of the Government. Cost of compliance reduction on agenda of policy framers: It is really heartening to note that constant efforts by tax reformists have eventually put reduction of cost of compliance on the agenda of the tax policy framers. In this context, the Study Group set up under the Chairmanship of M.K. Gupta (Retd. Vice Chairman, Settlement Commission) for making a draft for common code for Excise and Service Tax has, interalia, been given following term - i. To suggest any other measure that will help in reducing the cost of compliance for business, or transition towards a comprehensives GST. It has always been emphasized by us that the only real tax reform that Government can give to the citizens of India (knowing well that each Government needs more and more revenue for itself) is reduction in cost of compliance which includes costs of unnecessary procedures, hidden costs, costs of unnecessary reporting to multiple tax agencies including returns, cost of litigation and heavy costs of maintaining accounts by employing accountants especially by small tax payers. No small tax payer will grudge paying little more on any prudent notional basis, if he is not asked to make elaborate accounting systems of CENVAT and if it saves him time and cost of looking into more and more accounts. We hope that committee will come out with a tax code which will be path breaking and simple for everyone to understand and simplify life for tax payers,

rather than churning out some imported from abroad intellectual showpiece of a legislation which not even tax collectors can understand. Tax savings : A universal urge: What Vodafone is doing to save its taxes and what the Government is doing to retain already recovered taxes and to get more is nothing new. The difference between tax evasion and tax saving was spelt out earlier by the Apex court in the famous Mc Dowell’s case. Following instances will show what the taxpaying public has been historically doing to avoid the tax through little ingenuity. -In 1696, England implemented a window tax, taxing houses based on the number of windows they had. That led to many houses having very few windows in order to avoid paying the tax. Eventually this became a health problem and ultimately led to the tax’s repeal in 1851. -In the 1700’s, England placed a tax on bricks. Builders soon realized that they could use bigger bricks (and thus fewer bricks) to pay less tax. Soon after, the government caught on and placed a larger tax on bigger bricks. Brick taxes were finally repealed in 1850. -In 1705, Russian Emperor Peter the Great placed a tax on beards, hoping to force men to adopt the clean-shaven look that was common in Western Europe. -In 1660, England placed a tax on fireplaces. The tax led to people covering their fireplaces with bricks to conceal them and avoid paying the tax. It was repealed in 1689. -Playing cards were taxed as early as the 16th century, but in 1710, the English government dramatically raised taxes on playing cards and dice. This led to widespread forgeries of playing cards to avoid paying taxes. The tax was not removed until 1960. -In 1712, England imposed a tax on printed wallpaper. Builders avoided the tax by hanging plain wallpaper and then painting patterns on the walls. -England introduced a tax on hats in 1784. To avoid the tax, hat-makers stopped calling their creations "hats", leading to a tax on any headgear by 1804. The tax was repealed in 1811 -Japan imposed a tax on whiskey which is based on the percentage of alcohol by volume, so Japanese whiskey manufacturers began diluting their product with water to avoid the tax. - In our own India, the tax on radios and televisions levied till 1970s was sought to be avoided by public by concealing antennas. Same, however was abolished during emergency period. Cannot attend to call of nature, attend phone call: In a country known for so many women in powerful positions, you’d think that access to proper sanitation and bathroom facilities would be a priority. India with about 1/7th of the world’s population, numbering around 1.2 billion. Nearly half of those — 563.73 million have mobile phone subscriptions. This does not count the landline subscriptions in any case. As per a United Nations Study, approximately $358 billion is needed by 2015 to cut in half the proportion of individuals who don’t have access to proper sanitation.

The study has revealed that it would cost about $300 to build a toilet, though this includes both labor and materials. This would in turn be economically feasible for the rest of the world, who could see a return of up to $34 for every dollar spent on the sanitation efforts. This would come about through reduced poverty, health care costs, and increased productivity. But with our misplaced priorities, it is obviously the mobile phone penetration that gets the edge. The rate at which mobile sets are being sold in India, in ten years time we will have to address the issue of junked phones and its waste disposal in a big way. This may again pose a problem of health and sanitation. So, all the wise ones start discarding your old mobile phones right now, lest Government Comes out with some kind of Green tax later. Disposal of junked Computers and Cars is also likely to invite tax in future with more of our Mother India`s territory being occupied by these.

TheImaginative Negative list:

Ever since the concept of negative list has been mooted by the tax authorities in India, my imagination about what all will be covered has become rather fertile. I have been informed that in the lanes of Chandni Chowk are available service suppliers, who provide women for carrying out the chest beating services on the sad occasions (Commonly known as Rudalis) and also men and women for demonstrations and for public meetings of the netas against payment by their chachmas. Depending upon crowd required the payment runs into lakhs for each transaction and the provider shall be definitely out of the limit of small service provider, if all the transactions are recorded. If the Service tax department can rope such suppliers in the tax network, we shall atleast come to know, who is the leader with real Charisma and who with the bought out variety. Ba-ba black sheep By some rare celestial combination, it has been observed that for the last three years, months of March to June have become months, when one or other baba out of many we have in India comes to distress by exposure of his negative side in Public. The list to name a few includes Shiv Myra Dwivedi, Bamdev Baba, Kashi Matham Raghavendra Thirtha Swamy, Sufi Bengalil Baba namely Sultan, Rajiv Ranjan Dwivedi alia sex baba, Icchadhari Bhimanand Swami, Nityananda Swami, Mumbai lap top baba Rahul Ram Kumar. This year the (dis) honour goes to none other than Nirmal Baba. Known to his many disciples for his unconventional remedies on a query being raised like why I am seeing a Samosa, so eat samosa. Keep ten rupees bundle in your locker to have wealth. I see a dog, so keep a dog. The baba obviously could not see the trouble and courts coming his way (as on the date of writing this piece- and can be prison later). Otherwise, he would have self advised himself to make a Court room and bars in his own house. The gullible public continues to get impressed with the sheer variety available and always have some or the other such baba to choose from on various channels being run to accommodate them. The only variety which is still to be heard of because of vegetarianism being professed by and large by all, is a baba known as `Tandoori Chicken Wala Baba’, who may distributes as his prasadam, only tandoori chicken. And expects from his devotees to bring in offering, `tandoori chicken’ only, when their wishes get fulfilled by coincidence of some divine will and his utterances. Atleast I for once, will not mind being a devotee. Deal Settling Tourism: (L now this one is clearly an out come of my weird thinking) The months up to May, 12 saw a drop in `deal settling tourism’ to and from Delhi and Mumbai, the biggest hubs of such activities. This was because there were less number of Kingfisher and Air-India flights available compared to last year. While the mobile phones have come to be avoided post Radia, personal presence has become essential. This led to not so big time deals being postponed. The real estate prices and the share market were consequently affected and tanked. The loss due to Airline strike to the (black) economy was of much higher degree than reported. The situation may improve post June, 2012. Terms redefined: In the modern context certain terms commonly used, it appears need to be redefined. A small exercise is attempted:

Cricket at Indian Premier League: A game in which every fifth person is high on booze, every tenth person betting, every 100th person watching the game, one in 1000 playing it- but almost everyone watching the Cheer girls. Democracy: A form of the government, of the corporates, for the corporates and by the corporates elected by people by receiving the money paid by the corporates. New Chambal: A geographical territory to the east of Chambal, formerly known as Bhopal, where white collared dacoits sit right from babus to senior officers to Chief Medical officers found to be carrying more cash than R.B.I., in their dens. Petro prices- a fiscal management tool better than interest management tool of R.B.I. commonly used to whip up profits of oil companies for three mid years of the term of a government to bring down the same to offer relief to people in the election year.

The world of code words

The world of code words-petti, khokha, bank, raddi, Supari: These words though are known to every one in the smuggling, anti-smuggling and Cine world, continue to be used because they add `peculiar to the line charm’ to the smuggling business. While `petti’ and `khokha’ are a `lakh’ and a `crore’ because of the size and volume of the currency notes involved, their size has not varied in last twenty years even though the value of currency has fallen. One lakh in Rs.1,000/- notes may even come in a pocket but still will be called a `petti’. While `greens’ were always the `dollar’, the falling `rupee’ value allowed it to be addressed it with not so pleasing `Raddi’. Expression `Supari’ for contract killing, has its roots in the old tradition of finalizing a commercial contract by exchanging `Supari’ or `pungi falam’ for evoking the Gods for the presence as witness to the contract. For C.B.I., usage of expression `Bank’ more particularly in South and West, may have its origins with the abbreviations of Central Bureau of Investigation and Central Bank of India, being the same. Negative list of Services: With the introduction of negative list of the services, all the services other than those specified in the negative list have been included with in the purview of service tax, only largely illegal services of gambling and betting find exclusion in the negative list, so that clearly means that like Income Tax Act, 1962, where illegal income is also taxable, even illegal services are now taxable and come under the service tax net. We may, therefore, now have Service tax sleuths making up for their target deficiencies and booking service providers in C.B.I offices (for their chunk in corruption services). The classification though not required any more, and mere mention of `service other than services in negative list’ may suffice as description in the SCN, the description of activities can have funny sounding nomenclatures and may include: Intelligence leakage service, Kick –back service, Under the table service (for corruption), Decision writing service (as in the case of ITAT), Question asking service, cricket betting service, Compromise with the booky services, Heroin and Heroine supplying services, sub-standard arms purchase service, Note for vote services, making a non-existing road services. The list is only inclusive and not exhaustive. -The world of code words-petti, khokha, bank, raddi, Supari: These words though are known to every one in the smuggling, anti-smuggling and Cine world, continue to be used because they add `peculiar to the line charm’ to the smuggling business. While `petti’ and `khokha’ are a `lakh’ and a `crore’ because of the size and volume of the currency notes involved, their size has not varied in last twenty years even though the value of currency has fallen. One lakh in Rs.1,000/- notes may even come in a pocket but still will be called a `petti’. While `greens’ were always the `dollar’, the falling `rupee’ value allowed it to be addressed it with not so pleasing `Raddi’. Expression `Supari’ for contract killing, has its roots in the old tradition of finalizing a commercial contract by exchanging `Supari’ or `pungi falam’ for evoking the Gods for the presence as witness to the contract. For C.B.I., usage of expression `Bank’ more particularly in South and West, may have its origins with the abbreviations of Central Bureau of Investigation and Central Bank of India, being the same. - Central Excise Day- female members add color on dias: The Central Excise day this year was special in many ways. It is for the first time in the History of the Department that CBEC was represented more by female members than the men and their presence

sure added color on the dais and therefore not only the event was colorful but even the dais. Going by the functioning of the Department at the top, their presence in the Board is sure being appreciated as all of them are known for their integrity too. - Budget blues: Going by the practice it is becoming B2B proposition indeed. Provisions are laid down in one budget but are understood or hardly understood till next budget. Even the officers in the field find it difficult to decipher the Service tax provisions, what to talk of tax payers. Therefore, the Directorate of Publicity organized the seminar on the budget as an initiative. Same was very well attended, though by the officers. At this rate, we soon may need a separate Directorate For Explaining Budget (D.E.B.) under the C.B.E.C. The individual lawyers are out on account of reverse charge liability and because of no tax on individual to individual basis. Good and my thanks to Service tax budget making team. But if firms and companies alone are going to pay tax, who in most cases will be entitled to CENVAT, then why have the tax. Has the levy become recovery of opportunity cost of interest for the interim period of CENVAT taken and CENVAT utilised. Supposing some small firms exist who are not availing CENVAT as they are not excisable or liable to any service tax, then will they pay service tax on fee to individual tax lawyers even on once- in- a blue moon litigation by taking service tax registration and filing return. We also have for the first time, concept of statutory partnership venture in paying tax on some services on pre-fixed percentage basis between two payers. God and Taxes- will remain the most discussed but still least understood, metaphysical concepts in India. Only faith in Divine and Tax Policy makers may be the solution for commoners like me. Pati peeto Andolan: This is happening in 20 villages on Kanpur including Madanpur and Kishorepur, where the women whose husbands have taken to alcoholism and gambling and wasting the hard earned money of their wives are beaten up by a Union of wives. The Movement for beating husbands, resorts to it whenever the men folk are found drinking and gambling and in most cases such hapless men are rescued not by Police but by their mothers. So, now we may have the new crop of mothers preaching their loved ones, in more than 20 kaus of these twenty villages - Bitua, daaru chor de, nahi to biwi aa jayegi. Daaru nahi chodta to biwi hi chod de. And if the movement actually succeeds, may be the Team Anna can secure management consultancy services of this union in having a `Ghooskhor peto aandolan’ to make use of their expertise.

The hypocrisy of Vigilance oath

The Hippo Oath of Vigilance Week: With all the controversy about whether CVC should go or stay, whether his integrity is questionable or not, I am reminded of an annual ritual of observance of vigilance week within the Government of India, wherein, all the public servants of Govt. of India are made to undertake an oath of maintaining absolute integrity and honesty. That a number of them keep getting caught on the next day only, because vigilance agencies have also to meet their targets and show better performance in that week, is another matter. Why have such oaths, makes no sense to me. Statistics bear me out that since the process of administration of this oath started in India; it has only slipped in its ranking of being a corrupt nation. Why can’t we have laws which are simple and leave no discretion with individuals, so that corruption is reduced and pay the Government servants- a fair living wage as is enshrined in our Constitution? Will it not make sense if the vigilance week is spent by getting and implementing suggestions from the Government servants on reducing cumbersome laws, procedures and systems, which can potentially reduce corruption? I have been told about a senior revenue official who herded all his staff to undertake the `Vigilance week oath’ by calling all his juniors as corrupt who at least deserved to be administered this oath, in a parrot like chorus. The guy himself had to cool his heels in the jail a few days later after being caught red-handed. If we cannot remove corruption from administration, let us not, make some of the Public servants, even Hippocrates by purposelessly administering such oaths.

The body and the law

This one is about a reported story from Allahabad, where a body was allowed to rot for more than two days close to the rail line and in proximity of the station because the G.R.P and other police authorities were not sure who has to draw the panchnama. Seen purely from the legal prospective the problem was indeed complex. For the law provided that for crimes committed within one K.M. of the office of the Station Superintendent were to be investigated by the G.R.P. and beyond that by the local police, therefore on the spot verification of the Jurisdiction was necessary as the unfortunate body was lying close to the end region of one K.M. Again, one K.M had to be measured with a standard or approved measuring tape which should have had the approval of the Weight and Measurement authorities and should have been inspected by the Inspector of Legal Metrology. Further, such Measure should have been stamped and renewed every two years; otherwise some stupid lawyer like me may raise the questions. The matters do not come to an end here, it is required to be decided as to whether such distance of one K.M. is required to be measured from the centre of the office of the Station superintendent or from the left or right side of his door or from the middle of the door and whether such distance has to be crow flight or depth of the platform to rail line level is also required to be measured. For a ` Barra sahib’ to answer all these questions on note sheets can surely take a lot of time. So, next time it is better to tell a body to be or a person on suicide mission to steer clearly clear of this one K.M distance so that its soul can rest in peace in heaven and body ( mortal remains) can reach Triveni at the earliest. Flourishing Indian Road Bazar Perhaps one of the great tourist attractions of the incredible India is the Lal Batti( Red Light-not to be confused with any flesh trade) Road Bazar, which has not only flourished in Metros but also to smaller towns, thanks to the tacit support of the traffic cops. The children, ladies, oldies, newly promoted beggars behaving half like beggars and half like Salespersons, all add to the colour. The vendors appear the moment there is a red light and disappear with the green, yellow is normally reserved for giving the change. The wares change with whatever the Customs allow or closes its eyes to come from China. While in the past these were indigenous tissue paper boxes to aggarbattis which escaped Central Excise duties, with changing times the Custom duty evasion is more visible with Chinese Mobile battery chargers, auto parts like steering wheel covers, Chinese balloons with chinky eyed Hanuman and Superman and Mickey mouse vying for the honors and attention from the prospective shoppers. Latest are waving pots with the waiving flowers. Sending a timely reminder that earlier in Delhi we had pots in the gardens and then gardens in the pots and now with water table drying we have both the garden and the pot on the dashboard of the car. The negotiation is so quick and sound that it can put to shame even experts in the Commercial team of Reliance. Deals are struck on the run by negotiating prices which can come down from a Hundred to a Ten, even before the Seconds clock on the red light can come down by 15 seconds. Such a bazaar does not even exist in China as the Cops there are not so accommodating to small children and ladies so as to permit them to run the risk of their life to allow the cops to earn some extra bucks.

Service tax- welcome the respite: I had promised readers of RTT to do a write up this time on how complex are the Point of Taxation Rules,2011 under service tax, but now I am refraining to do so, because while enacting the Finance Act, 2011, the same have been amended and made practical and implementable. The authorities, therefore, deserve to be applauded for the prompt action taken and in quickly redressing the grievances and apprehensions expressed in public. It is a fact of life, that there is no one person or group which does not commit mistakes while doing legislative drafting, but accepting the same and correcting it in time is a great quality, which greatly reduces prospective litigation. While we are not aware of the personalities involved, it sure raises hopes that the team at work which has exhibited open mindedness will also continue with the same zeal and make service tax legislation go back to its past glory of being simple and tax payer friendly legislation. EPFO -36 months limit to stop interest: Now, this is another case of two legislations being at loggerheads with each other and making the life of the public difficult in the process. Employees Provident Fund Organization, through a recent dictate has brought out that those members whose accounts remain inoperative for consecutive three years will not receive any payment of interest after third year. Therefore, the obvious option is to withdraw the money within three years rather than to keep the account, when you go out of employment or are unable to continue to contribute. Sounds simple. But now look at the Income-tax provisions which provide that in case you claimed deduction u/s 80-C and with draw the money within three years of the contribution in provident Fund, then you are liable to pay tax as you might have been required to pay in the year in which you actually made contribution, as if you never made it. Therefore, the choice is yours to either not lose interest in the hands of E.P.F.O. by closing account within three years or to save tax by not withdrawing money from EPFO within three years and thereby to loose interest. It appears there is an urgent need for the Government Policy makers to understand laws of other departments before embarking on the path of policy making within their own.

Tax-stressed: Talk it over

Query: Under the provision made under Budget 2009-2010 the tax on legal service is leviable interalia on firms, companies etc providing legal services to firms, companies associations. Please clarify whether a proprietorship firm created by an individual advocate is liable to pay such tax? Ans: The Partnership Act 1932, Section 4 provides that the persons who have entered into partnership with one another are called individually “partners" and collectively “a firm”. The word “proprietor firm” is a misnomer and the actual name of the business organisation is “proprietorship Concern”, which is regarded in fact not different from the individual floating it. There are any number of cases on Custom & Excise side wherein show cause notice proposing penalty on proprietorship concern ends up putting penalty on individuals or vice versa and same is upheld. There are a plethora of cases supporting the view that there is no difference between individual & proprietor. In the light of the above the term “firm” cannot be deemed to include proprietorship Concern and therefore service tax relating to legal services on proprietorship Concern does not appear to be leviable under present dispensation. Query: Our SAD has been rejected by the Custom authorities on the ground that the limitation has to be reckoned from the date of filing of warehouse Bill of Entry (into Bond) and not from the date of Ex-Warehousing Bill of Entry (out of Bond) .Kindly Clarify if the Departmental stand is correct? Ans: The Board circular no. 6/2008 dated 28/04/2008 is very clear that SAD refunds are required to be filed within 1 year from the date of payment of duty. Since date of payment in case of warehousing is date on which duty is paid on Ex-Bonding and filing of Out of Warehouse Bill of Entry, therefore the stand of the Department in rejecting claim on the basis of filing Into warehouse Bill of Entry does not appear to be correct. Query: Our unit till recently was operating under advance license scheme for Aluminum foil products? Will it be beneficial to switch over to DFIA scheme for us? What are the advantages of DFIA scheme over advance license scheme? Ans: DFIA scheme or Duty Free Import Authorization scheme allows duty free import of specified inputs for export production as per Standard Input Output Norms; description, value and quantity of inputs are endorsed on the Authorization. This Scheme has been evolved by combining the salient features of the Advance Licensing Scheme (which allows imports before exports) and Duty Free Replenishment Certificate(which allows transferability of import entitlements).Input stage rebate (Excise Rule 18) or duty free inputs (Excise Rule 19) should not be availed. Imports under the Authorization are exempt from payment of basic customs duty, additional customs duty, education cess, antidumping duty and safeguard duty. A minimum of 20% value addition will be required for issuance of such authorization except for items in gem and jewellery sector and items for which specific value addition is prescribed. Once export

obligation is fulfilled and required documents have been furnished, the Regional licensing Authority will endorse the Authorization as transferable subject to conditions of the scheme. Clubbing of advance authorizations to facilitate closure of Import and Export accounts has been allowed by DGFT so long as imported inputs are same irrespective of the fact that the export products are different. Therefore, one advantage over advance licensing would be that transferability of import entitlements are permitted. Query: Can Abatement be claimed by deducting the Tax from the next month’s liability or the refund claim has to be filed under The Pan Masala Packing Machine Rules,2008( the Rules)? Ans: The position in this regard is not very clear as the matter is still to be interpreted by courts and clarification by CBEC in its letter F. No.267/16/2009-CX-8 dated 12/3/2009 does not help matter as it only proclaims that like refunds abatement should also be subjected to pre and post audit. This has been taken by the field formations as mandate to file refund like application even for abatement even though no procedure is prescribed, no format for filing abatement claim is available and there is no express mandate available in the Rules to insist on a refund like application. In fact, the view taken by the Departmental authorities runs contrary to the ratio of the case in 2009(246) E.L.T.255 (T-Ch) in the matter of Sri Padma Bala ji Steels Pvt. Limited v/s Commissioner of Central Excise, Coimbatore, where in relation to abatement it was held that there is no mandate in provision for paying first and then taking refund. A substantive benefit of abatement cannot be denied on the ground that payment should have been made first and then refund taken. Though the judgment in above case was delivered in relation to production based capacity Rules, but holds good even under these Rules as again in these Rules, there is no express provision that amount of abatement should be paid first and then refund taken. Therefore, the matter definitely needs more clarity from CBEC. (View expressed above do not constitute legal authority)

Simple law makers- Simple laws

Problem with service tax think tank in the North Block seems to be that we have too many intellectuals and intelligent people handling the tax law and policy making process now for some years. The outcome is one of the most complicated and confused law in hand, hard to understand even for lawyers not to talk of common man. May be the job can be better performed by Officers of simple understanding. The law made can be made to be understood by any average educated Small Scale Service Provider tax payer. For if he understands the law it can be understood by most Indians. We can even call it S.S.S.P. test of understanding quotient of taxpayers. I am sure most of our present Service tax law makers will know what is wrong with their law and Policy making and it will also mean less frequent amendments in the law. For that law is the best that needs least amendment over a period of time. Garlands of the border village: This one happened while I was posted as Assistant Commissioner on Punjab border in 1990. On tour to Amritsar from Chandigarh, Commissioner suddenly decided to make a visit to some border villages and Border Out Posts( B.O.P.s), which were at the relevant time taken over by Army from B.S.F. On receipt of message at Wagah Border, the Brigadier In charge was informed of the visit to extend courtesies and protocol. The visit though happened at short notice went off well with expressions of happiness and thanks by the Commissioner. On visit to one of the border villages which was half in Pak territory and half in India, the Village Sarpanch extended courtesies by welcoming and offering quite a few garlands to Commissioner and also the usual tea and snacks. Visit over; it was time for us to thank the Sarpanch for all that he did. The Brigadier accompanying me was however surprised and could not help asking the Sarpanch as to how he managed to arrange the garlands at such a short notice, as the nearest market place was also a 30-45 minutes drive and all that he had was 15-20 minutes’ notice. The reply was amusing and also showed the quick witted rustic wisdom of Punjabis at the border. “So what, Sir, the moment I got your message, I told my folks to keep the garlands ready and they all quickly brought it from the photos of their dead ones to offer to the Commissioner”. May suffice to say that the garlands were got retrieved, and sent back to Sarpanch to put them back to the place where they belonged. Rare gems on the rear side of the Trucks : A peaceful drive on the G.T.Road especially in the North can be pleasure for the messages that are carried by the truck owners on the back side of the trucks. Savour some of the recent ones with the crude translation: 1. Sasti Daru, mehanga petrol. Jhum da jat dawe gadi rok.—Ever since the liquor has become cheaper than petrol, many wayward boozers stop on the way. 2. Vehicle with registration number 1670- main jad to ho gayi 16 di, mere piche pe gaye 70 de- Ever since I have become sweet sixteen, I am being chased even by the 70 years old. 3. And to keep the traffic cops at bay- Mame naal setting- Cops( Maternal uncles) are all set with me. 4. Buri nazar wale, NRI ho ja- You with the evil eye go and become the Non-Resident Indian.

Right to sleep: Right to sleep as a fundamental right though pronounced in a case pertaining to mid night swoop on Swami Ramdev`s gathering at Ram Leella grounds by Delhi Police has drawn some comments from Justice Kapadia, the outgoing Chief Justice of India who wished that scope of fundamental right to life should be extended with a degree of caution. However, if the apex court sticks to its judgment and continues with the right to sleep, then interesting things are bound to happen in our social and day to day lives. I, for once will be too happy if Delhi police is asked to switch off its hooter bikes that they run only on night and which are capable of spurring into action even a half asleep thief or a ghost, not to talk of making sleeping persons jump in their bed. Indian airports will have to observe night curfew on line with Europe and U.S.A. The watchman whose `Jaagte raho’ is more etched to my childhood memory than the fairy tales narrated by my mother will have to either go unemployed or will have to say ` Sote raaho’ to have some alibi. Divorce petitions will be more on the grounds of `snoring’ than on cruelty. Government meetings will become a good venue to sleep for some babus without getting disturbed. Teachers disturbing the sleeping student during boring lectures will be considered as violators. Lawyers will have to shut themselves if adjudicators go to sleep during hearing. More than anything else we will see litigation right up to apex court to define where the right to sleep will be available and what will constitute reasonable restrictions in public interest, on the same. In brief, happy days for lawyers again. Republic of chicken versus Banana republic: This one is motivated by the story of Sh. K.D. Singh , the owner of Alchemist group who after making his company a strong 10,000 crore outfit in matter of 30 years has decided to leave his verticals like food processing, health care and management of his companies to his sons, not so late in life and to dedicate himself to public life. Since, the Singh is more famous for his ` Chicken republic’ brand, it is but natural that he should enter the political arena by contesting with `chicken’ as his election symbol to encash on his already existing brand in Punjab and in North India. Once he enters in the fray, I can also start selling bananas in India under the brand name of `Banana republic’ and may be one day float a political outfit with election symbol of Banana and give Singh some political competition. While he may be able to garner all the non-veg votes, I can also think of further dividing Indian electorates on the basis of veg and non-veg and thus offer a new dimension to Indian electoral politics which is already divided on the basis of caste,religion,class, ideology, ethnicity and what not. I can foresee that his party will dominate in North, while mine in South, East and West and may eventually give victory to my brand ` Banana republic’.

Service tax: A complicated legislation

If in the early 1980s, the Income Tax Act, 1961, held the dubious distinction of being one of the most complicated fiscal statutes, the same now must now rightfully be claimed by Service Tax. Firstly, to begin with the name of the legislation, the Finance Act, 1994, even the best of Google and Yahoo engines can be put to shame as anyone not aware about the tax will at least search with the word ‘service-tax’ in it. Next is the defining section bringing out the definitions of services chargeable to tax. The sub-clauses which can go on reading as zza, zzb, zzza ,zzzb, zzc …. etc, sound more like a `snoring class’ rather than a legal clause. Obviously the alphabets have failed miserably to keep pace with the growth of coverage, which has grown from mere 3 in the year 1994 to more than 130 now. While the Central Excise law considered the reduction of a number of rules as a measure of simplification, the service tax is witnessing growth of all kind of rules, thereby ever engaging the consultants and assesses. Worse still, some of the rules have seen drastic amendments at least four to five times over even during the legal infancy of this fiscal legislation. The complicated penal provisions have already been the subject matter of the criticism of various courts. The law has become so complex that even within the Department extreme interpretations are being drawn by the officers in the field dealing with the law. And now, with provisions of prosecution and Point of Taxation Rules, the lethal combination is sure bound to break the backs of the tax- payers. The SSI exemption limit refuses to budge from 10 lakhs even when its counterpart exemption limit has been revised three times on the Income-tax side to keep pace with the inflation. If compliance cost is factored in then the tax itself is based on the cannon of regressive taxation rather than the progressive. Consider for example, an assesses with the annual receipts of Rs. 11 lakhs, he shall be required to collect and pay a tax on Rs. 11 lakhs, besides he will have to bear the cost of an accountant, of filing returns, seeking CENVAT or refunds etc. and dealing with another tax department which can thus be easily one lakh rupees per year. Therefore, effective cost for him shall be close to another 10 percent, almost same shall be the compliance cost for a service prov2ider who has an annual receipt of Rs. 1 crore. Therefore, legislation by not pitching for progressive slab rates immediately after exemption limit like the Income-Tax Act, has considerably pushed the compliance burden on small taxpayer. In fact for a medium level professional who has to foot 30% Income-tax and then 10 percent tax on receipts( or even promised receipts now with the coming into force of Point of Taxation Rules) coupled with the compliance cost, the total tax easily works out to be more than 50%, which means effectively to be back to the era of prior to liberalization, when Income-tax was about 50%, but one had to deal with only one Department. Now, consider the following conditions for getting exclusion of such a simple thing as reimbursements from the gross receipts and therefore from the tax under the Service Tax (Determination of Valuation) Rules,2006 (2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:- (i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; (iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of service authorises the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and (viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. Explanation 1.–For the purposes of sub- rule (2), “pure agent” means a person who– (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; (b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; (c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services. The provisions then proceeds to give four illustrative examples of how re-imbursements will not be allowed and gross amount shall be taxed. To the best of my memory, it is the only piece of legislation which gives four illustrations of why from the gross amount, something or the other will not be deducted, but does not give even a single illustration of how something will get excluded when a person is a pure agent and what all he will have to do for fulfilling the ‘Ashtpadi’ as indicated above, a part from three conditions for becoming a pure agent, which appear more dreadful than taking vows of ‘Brahmcharya’! Consider the following situation. Say a lawyer books an air ticket initially from his own resources and gets reimbursement, but he can never claim the exclusion from his Gross receipts, simply because clause (c) of the definition of ‘Pure Agent’ says that he should not use the service procured. With great difficulty I have been able to visualize one example. Consider an instance of an advocate incurring filing fee of Rs. 10,000/- on reimbursable basis on behalf of the client. The advocate can fulfill all the conditions, which are there in the defining portion of ‘pure agent’. But what will happen when he tries to comply with the sacred ‘asthpadi’ conditions. His power of attorney to the Registrar CESTAT will have to show that he is paying filing fee on behalf of the client, even the bankers will have to be told that the commission that they are charging for making drafts will be paid for by the client (Hope the advocate is not dispatched to the mental asylum). Second and third, conditions should not pose any problem as the client is going to avail of the benefit of filing fee and is also liable to make payment to Registrar, CESTAT. For the fourth condition, client in his power of attorney will have to authorize the advocate to incur expenses of filing fee on his behalf. Fifth condition should not pose much of a problem, because client knows that

Registrar, CESTAT is going to provide service of registration. Condition six can be fulfilled by making an appropriate invoice. Similarly, conditions no. seven and eight can be fulfilled without much difficulty. Therefore, even at the cost of going nuts, I have been able to conjure up at least one instance where the ‘pure agent’ clause can actually work and therefore, is not a nullity. May be when the next amendment of Rules takes place, the example cited above can be indicated as an illustration. I think this should be enough both for the readers and also me. I promise to come back next time with Point of Taxation Rules and their capacity to make you go bonkers, after the break.

Populism subsidy

Now this is the subsidy which is least talked about by the governments and even IMF does not attempt to tame it. In a democracy like India, typically an elected government spends the first year in thanksgiving mild tax budget, the second and third year are spent in obliging the big corporates, who contributed during the election time, at the cost of the people and fourth and fifth years are meant to indulge in populism so that the running government is re-elected and electorates with their short memory forget all the sins of corruption or hard hitting third/fourth year of the Government. The bigger the exposed scams of the government, bigger can be the doses of Populism subsidy. Ever wondered why petro prices in 2008, when crude in international market had hit US$140 was selling at Rs.55/- per litre and now in the year 2011 when crude is hovering around US$100, the same is selling at Rs 70-75. Going by justification now being doled out of prevailing dollar and crude prices, the petrol should have been selling at Rs. 100 per litre in 2008. Therefore, riding the wave of populist subsidy, we, the Indian consumers, Continued were enjoying a whopping subsidy of Rs 45 per litre. That, incidentally, was also the time when people of Nepal used to drive to India to fill up their tanks and drive back home. Since hard hitting inflation is leaving little leverage with our home managers (who incidentally prove to be better than the most professionally qualified M.B.A managers during time of crisis), it may be prudent to avoid the avoidable expenses till the last years of the government to enjoy the full benefit of the populism budget. Therefore, families can cut down on avoidable travel expenses etc. to ride on subsidized travel later rather than allowing smugglers from neighbouring countries to enjoy it. Whom to vote finally is left to the memory of the people. Indian Grand Prix: The tax or exempt: The opinion remained divided between the state and the Centre, while Uttar Pradesh was granting all exemptions including entertainment tax, reservations were visible in Ministry of Finance and Ministry of Sports at the level of the Centre. Customs allowed the goods to come in and then go back on 98 per cent drawback. Sports Ministry did not treat the event as a sporting event eligible for exemption from Customs duty. Though it is another matter that Narain Karthikeyan was awarded Padma Shri for his contribution in sports i.e. Formula One by the same government. There were political voices to tax the event as entertainment as it belonged to the category of luxurious sports, while others felt that there was no point in subjecting it to heavy taxes just at the initial stage. Considering that the event in future will only attract certain sections of society for whom spending a few extra bucks may only be a matter of pride, there may not exist a case for exemption from tax for Formula One and even the exemption from entertainment tax granted by the state government is also a matter of scrutiny of judiciary, for its rationale. Speaking of the event and the infrastructure, the last day on 30th October, 2011, attracted 40 chartered flights at the Delhi Airport, besides 60,000 vehicles to the venues and 1,50,000 strong crowd, thus making it one of the best and most elaborately organised sporting events ever in India. The Taj Expressway was opened partially only from Noida up to the venue of the event and allowed the cars coming from Delhi and Noida to move smoothly. The venue has a capacity to accommodate 1,00,000 cars in its parking lot and about

5,00,000 spectators in case the demand goes up with the passage of time. The Formula One users rated the track as one of the finest in the world. The cost involved is about Rs.1,000 core. This sure marks a big time arrival of private sporting infra and of organisation of world class events by private players in India. Surely, a matter of pride for any Indian. But what one wonders is, that if this was achievable when a private builder saw his benefit in making a world class city in the land possessed by him to eventually increase his own land prices and could achieve it in little time, why we had a failure when so called reputed builders were engaged to make Infra for Commonwealth games for the compromised politicians, even after spending huge sums of tax payers money. The cost of Beijing Asian games was much less compared to commonwealth games and this event organized in India has also not cost a fortune, therefore, one can only point out that though Indian builders have the capacity to achieve anything when it comes to their own advantage, they also exploit the compromised politicians to the hilt, when Government Public Infra is to be created. Recently, a dictate has been given to Delhi Metro Rail Corporation(DMRC) not to blacklist too many builders, as there are not may reputed builders available in India to build metro infra. Indeed, a Catch 22 situation, no way as we can groom the new ones because they are not experienced or reputed and those in the game despite mistakes should not be thrown out because there are not many available. Indeed testing time for the new man (with E. Sreedharan retiring) at the helm of affairs, which will eventually decide whether he is a man of compromises or not. If he yields, even the DMRC may go the way of other public infra projects. Seven Billionth human being It happened on October 31, 2011, or atleast it was so claimed with Nargis Yadav of U.P. My life span so far has been the journey from 2.5 billion to 7 billion and may be few more shall be added, if Providence allows me to live for some more years. Indeed a matter of some satisfaction, because Mother India during the time of my ancestors had only the privilege of having 35 crores in more than 5,000 years of its recorded history. But in the last about 50 years I have seen the number swell to 120 crores. So, I am surely living in a much crowded India, which is like a Mela in every nook and corner of its land. Our houses are becoming small, our schools, hospitals and even mortuaries are much more crowded that they were about 50 years ago. Parliament has somehow managed the problem of overcrowding by remaining at the same figure since 1971. Likewise, even CBEC and CBDT have managed to remain in the North Block for this decade by keeping its strength confined to six. Planning commission has also in the meanwhile devised new arguments and keeps on convincing us that more young population means more development and growth for India in the next 20 years. What will happen to the aged and after 20 years is chosen to be ignored. The Nation has no population policy worth its name. Nandan Nilekani is busy making UID cards, but the numbers to be covered and budget requirements are going up with every passing day. The earlier version of NSSN (National Social Security number) card for identity through EPFO had an untimely obituary after spending a few hundred crores. PAN continues to survive confined only to tax payers and lost tax payers. Either hunger, our enemies or education will help us in bringing our numbers down. We only hope it is the latter, for that will justify the existence of the Planning Commission.

Decision abhi baki hai mere dost For all those dealing with exports of services and thinking that the much-awaited decision of CESTAT in the matter pertaining to M/s Paul Merchants Ltd. ('PML') and others would clinch the issue, the wait seems to be getting longer with the split decision having been referred to third member. The bunch involving 42 appeals saw a split decision on almost all issues including on limitation. The services involved were remittances from persons abroad to persons located in India as well as remittances from persons located in India to persons located outside India through Western Union and its contracting party. While it may be premature to offer any comments till final verdict is out in the matter, it sure speaks volumes about the fact that provisions of service tax need to be simple for every one concerned to understand and interpret with ease. Even when actually the limitation period should be extended is not understood by any one exclusively out of whole of the Learned Biradari. Why cannot the government do away with the extended period clause and make it demand for two or three years flat for everyone. A discretionary penalty to only those who indulged in evasion deliberately can provide the punishment for malicious acts. This way the government will earn more, and law will also become simple for everyone to understand.

Pakistan’s terror tourism

Obama has finally caught Osama. And with that also ends Pak’s befooling of USA of almost a decade that no terrorist is operating from its territory. It appears a garrison town like an Indian SEZ is not considered by some law to be part of the territory of Pakistan. The visitors are thronging Abbottabad. For those spending hundreds of pounds to see the replicas of dungeons in London, Pakistan in South Asia is an elaborate and cheaper option. Pak tourism can sure promote this new species of tourism (at least better than promoting terrorism). What with having three most sought after terrorists in its land. Abbottabad offering the visit to fountainhead of terrorism, Karachi to Dawood`s hideout of years and other cities being sanctuary to many others. A longer visit can also provide visit to Frontier areas, where one can do shopping of weapons like A.K. 47 at throwaway prices and target practice on real life targets. Where the Gabbar Singhs of the tribal area are unable to sleep at night out of the fear that some four year old trained by the Taliban may come and pull the trigger of A.K.-47 on them. If as a tourist you return alive, you can always become rich by writing travel memoirs and if not, you still save your family the funeral expense. India’s medical tourism Equally interesting is India`s bid to promote its medical tourism. Only the medical authorities need to be aware of the compensation packages they will have to grant in cases of medical negligence involving U.S.A or E.U. citizens. While Satyam/ PWC has shelled out huge compensation to US shareholders for the accounting fraud, even the shells of groundnuts are nowhere in sight for Indian Shareholders. So, kindly consider this. The Lady Doctors and their supporting staff in a Government Hospital in Kerala, just to have an extended Good Friday did cesarean on all the expecting mothers, about more than twenty, so that they are not disturbed on Friday, Saturday and Sunday by the natural birth call of Mother Nature. The very fact that India`s maternity clinics and hospitals have a norm of 20 percent only, deliveries to be cesarean and that there was a need felt to fix such a norm indicates that not all is well with the medical care of India. While the mothers that were treated as guinea pigs may not get a hefty compensation, doing the same acts with the foreigners can put the hospitals under the hammer. God forbid the lady Doctors, if during their extended weekend they end up becoming expecting mothers and have to come for delivery in the same hospital. - Joining on a Good Muhurta: While the dateline fixed for implementation of transfer orders was still little away, about 80 percent of the order, by the directive ostensibly of the Top man in C.B.E.C, who was supposed to be on call with all the Chief Commissioners, got implemented on the day of Akshya Tritiya. No harm in going in for auspicious Muhurta in a country, where Political parties to PMs to CMs all like to join on a good Muhurta. Here was not only a transfer order, but accidently or otherwise, pains were taken to choose a muhurta for its implementation. Only in a number of cases, where matters were heard the outgoing commissioners never got time to pass the 90 percent pro-revenue or 10 percent pro-assessee orders and same will be subjected to a re-hearing with almost the same result. All this should not come as a surprise as even the Kautilya`s Arthshastra indicates how the Custom posts should be located facing north with collector`s facing east as the way to augment Ex-chequer`s revenue. Further, In the times

of sit-ins and hunger strikes, (Swami Ramdev being the latest announcing to do so from 4th June), it is advisable to start the sit-in in some auspicious Muhurta too, so that one is finally able to stand up also with his demands met. - Budget and changing times: Why is budget of India mostly presented on 28th February continues to be a mystery to me? Varied reasons like agrarian nature of economy warranting budget to be passed close to April during British time or time taken by ships carrying Indian budget to travel by sea from London to India have been given, but the web search has not yielded much. The fact is that today 65% of the economic world follows calendar year as the fiscal year and it makes much sense for India also to shift to passing of the budget in October- November so that Business Enterprise do proper tax planning and take informed decisions while placing their import orders etc. in tune with majority of the trading nations. The only change which we have made since the Raj times is to shift Budget speech to around 11A.M., from earlier 5:00 P.M. Another change which is desirable is, that since now most of the changes in legal texts, as happened in recent budgets like in Section 11A of the Central Excise Act or in Penal Provisions relating to Service tax are announced in Budget, and therefore the same can be debated in advance in public. Such changes require an air of secrecy can be no one`s case, as these do not pertain to fiscal policy or tariff. In fact before the budget even Point of Taxation Rules were placed in public domain. It is other matter that most of the debate took place only when people saw them in the budget.

Organising CWG — The deep-rooted malady

Now that the Games are over, we can draw some solace from the fact that we might have seen a number of failings, but did not fail as a nation. For the respite that came from Games being a complete let down, we must thank our former PM Mrs Indira Gandhi (posthumously), our creative talent of Hindi Film Industry and our Army and security agencies, in that order. To Mrs Indira Gandhi, we feel obliged because ultimately 80 per cent of the stadiums and other facilities, which were used in these Games were those created during her time at the time of Asiad in 1982 with only the top floor of the stadiums being built now. But for her contribution of the past, we might have been totally disgraced as a nation. To the time tested creative talent of Film Industry, we again owe a lot, because right from the presence in the closing ceremony of previous version of Games in Australia in 2006 to the opening ceremony in Delhi in 2010 to its closing ceremony, their strong contribution brought us accolades. The Commonwealth Games have never seen such an opening and may not see it in a long time, because the only better version, Hollywood, may not be involved, as USA is not part of these games. The Army as usual should get credit because they delivered when the ‘Jugaad’ failed. They fixed up the footbridge that collapsed days before the game. Their imprint on the Games could be seen from providing security cover to holding well-drilled medal ceremonies to hoisting of the flags, to nurturing some of the winning talent of the Games. Now, what brought us disgrace, the list can be long. It consists of individuals, institutions and organizations. About 50% of the projects which were initiated in the names of the Games with the datelines of completion before CWG remained incomplete. Roads in Delhi, other than those than had the CWG lane, remained full of pits or patchwork. Why the things came to a pass that nothing short of the PM of the country had to inspect unfinished venues personally and had to call emergency meeting of the Cabinet to get the promised delivery. Despite this some of the stadium remained unfinished, games village could not accommodate all, the metro line from airport to railway station could not be delivered and even Organising Committee had to admit that they were virtually cheated by contractors who kept them in the dark. The confidence in contractors proved a bane for the games and almost showed that the mandate of the Government has ceased to run over them. Perhaps, it also showed that no other PM of India has proved strong enough to extract delivery from corrupt elements that are involved in construction projects to the extent Indira Gandhi and Rajiv combination in 1982 could. Now, we may have to think twice before undertaking to organize such big sporting events. We at the most are fit to organize big time cultural events and may be forced to disguise any other event under the shadow of our culture, as happened with XIXth CWG. The fact of the matter is that our Developer-Contractor industry, despite being the least regulated in the world, is so incompetent ( by and large) and fed on corruption that it takes everything for granted. For it, do not exist the democratic pillars of Legislature, Executive and Judiciary. As, it has learned to manage all of these. Since 2008(i.e. recession), this nexus has duped public of its money by not delivering on 90 percent of land and other projects in housing and commercial sector promised to it. The deadlines simply do not exist for developers and contractors, because they feel that

they can easily take on even the might of the public. There may be hardly any developer in the country, who does not have the blessings of some big time politician. And once these developers and contractors share the fruits of corruption with them, they treat the beneficiaries as the dogs who at the most can bark at them but cannot bite. However, this time they betrayed even some politicians and government by delaying and siphoning off to other projects the monies, they got for CWG at inflated prices. Such was their confidence of getting away with their wrongdoings and in the weakened mandate of the people in position. Since, 1970’s, the smuggling which was most lucrative and remunerative of illegal activities, started yielding to money laundering in land deals and attracted even the biggest of the names of that time like Haji Mastan to be followed by Dawood towards real estate. By 1990’s the nexus of Developer-Contractors–Politicians became so strong that it came to exist even in Tier- II and Tier-III cities. The law remained loose and Industry has remained unregulated till date and attracts highest cash inflows from tax evaders, smugglers and canalizes the corruption money of the powerful next only to Swiss accounts. Obviously, there are vested interest and blue-eyed boys of people in position and power, who help them in getting the best land deals and change of land use and government contracts. Such all pervasive is their hold on the economy that they can, with their clout, get the best of the mines in tribal areas, get the agricultural lands notified as SEZs, delay the execution of projects with impunity. The government of the day failed in the instant case of CWG to appreciate that they can even betray them in execution as they so often do with the public. Every politician has to realize that corruption comes with a price tag. The hands that deliver the slush money are also the ones, who take you for granted and can run you down. This is the peril of the corruption. It erodes authority. In the past, we had r Cabinet Ministers, who were able to keep their safe distance from the corporate czars and mafias. But around late 1990’s, the holding of durbar culture marked the beginning of erosion of the authority of the top politicians, in a number of cases. In Judiciary, those judges who even now practice abstinence from open public contact, have high public image. In a democracy, the inaccessible people in position are reached out through lobbying and the accessible through liaisoning. While the former is done publicly and can be counteracted by other pressure groups, same cannot be the case with the latter, which is done in privacy. In fact, if the contractor lobby in this country had been compliant with the government contracts, there would not have been any need to persist with agencies like NHAI (which has the ability to perform well depending upon who is the Minister at the helm) or with individuals like E. Sreedharan, who are being made to work on important projects despite their age, because there are no substitutes available for their ability of timely execution in this country of more than one billion. One can empathise with him, when he expressed that Airport-New Delhi Station Express Line could not be completed in time, as the contract was not being handled by Metro directly. The Army which has the ability of timely execution cannot be called to execute civil projects. So, the options are naturally limited for any Government. Why the governments look so pathetic and compromised, that we have the instance of CM of a state surveying a half mud- half built expressway on a helicopter, after the expiry of its first dateline for completion. One has not to look beyond the blogs and websites to see how this nexus has cheated and duped the citizens of Indian in every nook

and corner of their hard earned savings of a lifetime with delays and non-delivery. Recent `Adarsh Society Scam’ involving bureaucrats and even top military officials shows how deep rooted is the malaise. Consider the death of more than 56 persons in one building collapse in the National capital of Delhi, which was not related to any natural cause but to human greed of builder-police and-MCD mafia and we deserve to hang our heads in shame. It is a pointer to the total collapse of the system. Such events are not sporadic but occur with regular frequency. If one starts counting them, the cumulative effect of the events will be quite heart breaking for any citizen of this country. The Chinese with whom we tend to compare ourselves were able to hold Asian Games after Olympics on an all together different venue. But our sports administrators lost an opportunity to build another new and Hi-tech city, simply because one sports administrator wanted venue of the Games village to be close to his house to reduce commute time for him in Delhi. Remedial course, which can be designed, will require putting in place a strong regulation mechanism with emphasis on timely delivery. Blacklisting Developers cannot help as the men behind these companies can always float a new one. Better to have an independent rating system for the Government Contractors in place and may be an intelligence based performance system appraisal. The new ones can initially be tried only for minor contracts involving value of less than one crore and the established ones with high rating can be given high value contracts. The regulations can be in place to disallow the use of public money for any other project and purpose than the one for which it is received. For, it is seen that number of these developers siphon off money from semi –finished projects to other projects especially during the Industry created boom periods. And while it reduces requirement of self funding for them, by what has come to be known as process of ‘Topi Ghumana’ (‘rotating the hat’ - if I am permitted loose translation), but inflates the cost due to delay for the prospective buyers. The regulations should emphasize on allowing money to be recovered only linked with construction or with development of land. Heavy penal clauses to be evoked in case of delay in case of government projects. Regulations should also permit funding by banks and financial institutions of only that part which is unencumbered and on which no installment has been paid by the prospective buyers. For instance, if on a one core rupee worth of a land, Rs. 50 lakhs have been paid by the prospective buyer, then bank should not advance loan for more than 50 lakhs less margin money and should see to it that it is reduced further with every further money recovered from buyer. In the days to come, it can be expected that lot of buyers or banks are going to be duped due to non-observance of this simple common sense based loan practice. The non –delivery by the developers to their prospective buyers in a number of cases is due to the fact that land allotted to their buyers are also given as security to banks for loans taken by them. And the post 2008 scenario, has compelled the developers to default or delay in many cases on their loan repayments and they only hope for the buyers who have by now paid substantial money, is to wait till another boom in land prices materializes i.e. till the ‘hat starts rotating’ again.

Nimbus pays Rs 2000 crore to BCCI, what about service tax on revenue earned

Nimbus has reportedly paid Rs 2,000 crore to BCCI for getting the cricket telecast rights for the future, which it had got in the past also. It is obvious that a telecast company which spends so much on buying such rights, gets much more as revenue by selling time slots for advertisements, but how much of it is actually paid to the government coffers is a matter of verification. CBEC, in and around year 2007, had approved of such verification against all the companies which had purchased such rights in the past, but its outcome is still to be known. Maybe with every passing day, the revenue is going down the drain of limitation. Costliest probe ever in terms of loss If you thought that Arushi murder case was the costliest CBI investigation, you may be right considering the expenditure of the agency involved, though Bofors could be another claimant. But if one has to look for costliest investigations in India in terms of loss of GDP and other costs, the dubious distinction must go to scam relating to Co-operative Societies in Dwarka (in Delhi) where about 100 societies are facing the flak with CBI and Registrar of Co-operative Societies for almost 10 years now. The buildings in question, which were supposed to house about 15,000 families and were in various stages of completion from semi-finished to finished, have started crumbling because even maintenance remains an issue here. The loss due to the structure lying unused for almost 10 years runs into several crores, but investigations are continuing at a snail’s pace. About 75,000 people could have been accommodated in these -- sufficient to house two Olympics villages or four Commonwealth Games Villages. Therefore, the next time, the officials of Commonwealth Games come calling from London blaming us for tardy progress, they can surely be shown the alternatives that our Dilli can afford for the sportspersons. Most expensive autograph When some chota mantris finally decided to walk and talk to the PM about lack of work with them, it turned out that Minister of State for Textiles Panabaaka Lakshmi had signed just one file in three months. There are two important aspects in this narrative. One, the autograph should rank as one of the costliest in the world. It can easily beat, costwise, even the best of celebrity autographs. It was estimated that in year 2000 the running cost of office of Secretary with all its paraphernalia was Rs 7 lakh lacs a month. One decade and a pay commission later, the same cost for chota mantri`s office can safely be concluded as Rs 25 lakh. Therefore, going by my not-so-good math, signature on one file alone has cost Rs 75 lakh. Sure to send two babas for a spin- one is saade Manni Baba, austerity waale and second is ours Rahul baba, train journey waale. The second and positive aspect is that the office of H`ble Minister is entitled to get the Green award for maintaining the most paperless office in the world! SEZ part of India except for exports incentives. The Gujarat High Court in a detailed judgment in the matter of M/s Essar Steels v/s UOI, the first of its kind on the new SEZ Act, has held that SEZs are part of India for the purpose of levy of duties, etc. and holding these as not a part of territory of India will be unconstitutional. The Definition of `Exports’ under the SEZ Act is meant for export

promotion and the non-obstante clause in the Act giving primacy to the definition contained in SEZ Act, 2005 would hold good, if the matter pertains to export promotion. That should bring about some clarity within all the departments including SEZ authorities as to where they stand. Therefore, now another dimension stands added to India`s multiculturalism and that is diversity in definition under various laws and their purposes. Should molesters get presidential awards? Apart from controversy relating to Sant Chatwal (the modern day Sants can turn the tide in our favour on nuclear agreement- another feather in the cap of sainthood in India), this was another issue being debated at the time of Republic Day this year. Rathore got support of Gill on the matter and why not. After all we can always trust our presidential guards, security of presiding official of largest party or CM of the largest state to come handy in case it is found that habits do actually die hard and can crop at award ceremonies. Sharad Pawar talks again. This last time it was about milk prices. How we wish that he does the same about the stocks of some companies. We, then, can trust him more than the brigade of stock analysts, who are out of hibernation and again visible on TV channels after one year of recession.

Misinterpretations of Pan Masala Packing Machine Rules cost trade dear

With Central Excise and Customs officers interpreting laws to suit themselves, the trade ends up paying undue penalties. The dept, too, is embroiled in unnecessary litigations

“Taxation should not be a painful process for the people. There should be leniency and caution while deciding the tax structure. Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive.” Chanakya (350-283 BC) The Kacchit Sarga of Valmiki’s Ramayana contains a similar advice. The ideal of the state should be to so conduct its affairs that it achieves its objectives without causing harassment. The Constitution, too, ordains likewise. While it is customary for finance ministers to reiterate this in the budgets, the assurance remains confined to their speeches only. An incident that took place barely two months ago exemplifies how trade suffers when a law is misinterpreted. A field formation of the Central Excise in south India — at the behest and interpretation of law by a senior officer — slapped showcause notices worth Rs 140 crore to Rs 600 crore on units that have been in existence for less than a year, have a turnover of Rs 5 crore to Rs 10 crore, and with total net worth of Rs 5 crore to Rs 10 crore. The action came even there was no allegation of any clandestine removal or any other charge. This marvel of (mis) interpretation was achieved through Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (hereinafter called ‘the Rules’), to suit the purpose of revenue and extraordinary detection of evasion (even when none exists). The interpretation which has been resorted to (presumably even without taking CBEC into confidence) involves Proviso 7 to Rule 9 of the Rules. The concerned field formation has demanded hundreds of crores by so construing the Rule that once an assessee defaults and pays duty with interest under Proviso 2 to Rule 9, he is still a defaulter for the purpose of Proviso 7 to Rule 9 and can be asked to pay duty on all the machines lying in his factory for the whole year despite having paid the same correctly for the period. In other words, the Commissionerate concerned has made the Proviso 2 redundant and interpreted Rule 9 in a way to declare that “once a defaulter, always a defaulter” and deserves to be punished under the draconian provision of Proviso 7 alongwith interest, although the provision, by its very language, is meant for clandestine manufacturers. While the department takes pride in the large-scale detection of evasions and the whole exercise may fetch a few “excellent” gradings in Annual Confidential Reports (ACRs) to officers concerned, it is nonetheless threatening the very existence of the units targeted. More than that, it is a gross violation of the law of the land, resulting in avoidable litigations and wastage of manpower and money. To clarify the legal position in this regard, the Rule 9 is reproduced here for reference: 9. Manner of payment of duty and interest: The monthly duty payable on notified goods shall be paid by the 5th day of same month and intimation in Form 2 shall be filed with

the Jurisdictional Superintendent of Central Excise before the 10th day of the same month: Provided that a monthly duty payable for the month of July, 2008 shall be paid on or before 15th day of July, 2008: Provided further that if the manufacturer fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with the interest at the rate specified by the Central Government vide notification under Section 11AB of the Act on the outstanding amount for the period starting with the first day after due date till the date of actual payment of the outstanding amount: Provided also that in case a manufacturer does not pay the duty payable, and continues to operate any packing machine, he shall be liable to pay the duty for the remaining months of the financial year based on the number of operating packing machines declared in the month for which duty was last paid by him or the total number of packing machines found available in his premises at any time thereafter, whichever is higher. As a reading of Rule 9 will indicate, the last (Seventh) Proviso comes into play only when a person, after paying duty for some months, or even without paying any duty at all, starts defaulting and continues to default or is indulging in clandestine manufacture. Since in such a situation it is the department that resorts to some kind of assessment of duty as there is no information forthcoming from the person, then and only then the department can take resort to Proviso 7. The Proviso will not come into picture when a person discharges his duty after a temporary default of dates and also pays interest due as per Proviso 2 of the Rule 9. Because in that case he has paid duty and, therefore, the condition of non-payment of duty payable as provided in Proviso 7 does not subsist. The demand notice of the field formation then suffers on two counts: i) It proceeds on the basis that once a defaulter (even if for a few days) is always a defaulter ii) That once a person is a defaulter historically even if for a few days, he continues to be in the category of a person who ‘does not pay the duty payable’. By common sense, no law can be so restrictive and penalising in nature that just for a default of a few days (which at times can be due to illness or otherwise of a manufacturer), it should so penalise him so as to demand duty on all machines lying in his factory even if the same are sealed by the department for the whole of the year. If this is the way the law is interpreted, it will lead to draconian consequences. Various difficulties have been experienced by the assessees dealing with gutkha and pan masala due to misinterpretation, lack of uniformity in interpretation, absence of procedures relating to abatement as also due to absence of any public notice on various procedural matters. While it needs to be appreciated that gutkha and pan masala have emerged as one of the largest tax payer industries since 2008 and are also one of the highest contributors to tax growth for the exchequer in the recession-hit times, the lack of uniformity in interpretation of the rules is causing undue hardship. This needs to be addressed through the intervention of CBEC to avoid unnecessary litigations in future. An industry, which is learning to be tax compliant after a not-so-distant past wherein everyone was forced to join evasion bandwagon (owing to other competitors), needs to be supported. educated and guided in its efforts to make a fair beginning rather than being treated with the old approach of ‘punching them at the very first sight’ and regarding the

industry as enemy of tax collectors. For, it is no prudence in killing the goose that has begun to lay golden eggs.

Keep your fingers crossed for GST launch

Whether the rate of 12 per cent of GST proposed with 5 per cent for Central component had the approval of the Central Excise authorities or was the brainchild of only one or two members of the Task Force on GST, is not free from doubt. The state governments are, of course, pitching for higher rate fearing loss of revenue to them. The thinktank within the CBEC is of the view that the low rate of 5 per cent will lead to a massive revenue gap, if their calculations are to be believed. Surely a case of house divided on the top. How the FM finally resolves the issue remains to be seen. Pink press, being a darling of the Corporate, was, however quick to lap up the news and hail it as a step positive.. But the tax collecting department which has to eventually deliver is having the nightmares, as it has not even been involved in discussions leading to going to press over the rate structure. The way things are moving on GST, the FM may well be advised to perform some Homa and look for proper Muhurta for launch of GST. Needed: code of conduct for investigative officers Six officers of DGCEI being summoned for manhandling an alleged offender in his hideout surely made news. As the court has taken cognizance of the matter, the facts leading to the matter should not be discussed. But what is a point of debate is whether use of any kind of force should be adopted by investigating officers against the accused, some of whom may be hardened evaders or criminals, in their knowledge as Intelligence officers. No for sure, except in self-defence. But in sensitive matters like these, the facts need a hard look and scrutiny, as any hasty action can be demoralizing for the agencies but inaction can encourage more use of such force. Therefore, the departmental authorities should wait for court’s verdict before taking any action and precipitating the matter. Let us not forget that there have been incidents in the past and the one that comes to mind easily is when a senior officer of a premier agency of the Department was framed in a bribery case by involving another agency in Bangalore by a smuggler and it was the resistance of a brave Additional Director General which brought out the truth in open and led to the honour of the officer being restored. Further, it is high time that CBEC formulated a ‘code of conduct’ for investigating officers and introduced a column relating to rating on observance of human right in the ACRs of investigating officers. This would give a message across the board to everyone that winds of change are blowing and that CBEC is serious about compliance of human rights. There has to be a break from the past at some point of history. Today we have a suitable climate for the same, as in the light of liberalization, tribunal and Apex Court have started holding more and more cases in favour of the Department and view deliberate violations of tax laws seriously and evaders are not able to get away simply on the basis of technicalities or benefit of doubts in the matter of evidence on the civil side. The Department can afford to make voluntary statements really voluntary. Investigating agencies overseas are using video recording devices to show that statements given were

really voluntary and credible. Something similar can be started by premier investigating agencies under CBEC. If the past has been full of leniency, a few cannot be suddenly picked up for very harsh action. CBEC should rather use it as an opportunity for setting the future right and conveying its message across strongly to avoid recurrence if the facts do eventually so point out, or else those who have wronged the officers must be exposed thoroughly. Whether cameras in docks and air cargos? While being on the topic of video filming, it has always surprised me that even when Customs areas like airports, which have little revenue earning potential, have cameras focused on baggage examiners, why is it that in the examining areas of docks and air cargo such examination is not done in front of cameras. A number of cases investigated by Custom agencies pertain to misdescription of goods for which evidence can always be made available if the cargo is examined in front of the eye of the camera. This will provide evidence for posterity and make systems like RMS more effective and collusion, etc. really difficult. Well, it needs will to put a good suggestion to implementation and just one word to rubbish it. Return of a Deputy Commissioner A Deputy Commissioner in charge of a SEZin Chandigarh, who is back from MOC to MOF, is at his wit’s end to understand as to why he was sent back: Was it on completion of his tenure or because he dared a particular corporate group to pay for not revealing all the facts to Board of Approval, thereby extracting undue duty benefits. Let us see how his own Ministry and Department treat him now. If he is dumped here also, it may be a case of “Na khuda hi mila, na visale sanam, Na idhar ke rahe na udhar ke hum”. SEZs: Main Chup rahoonga SEZs are turning out to be what ICDs were in the past decade -- approved with much fanfare, denotified at leisure by MOC. Extensions for some of the officers who believed that so many will succeed on ground as well as for the projects to be developed seem to be engaging MOC. But there are also brave hearts who are still continuing to seek approvals. The new Minister wisely maintains a stoic silence on the subject and all talks of revenue loss by the Ministry of Finance has gradually died because no one knows what will be actual figure on ground. What was a great success in 70`s need not be so in 21st century. A vintage car is better not run on an expressway. RTI restraint A crash course on how to reply RTIs will do revenue officers a lot of good. Otherwise known for their well reasoned orders (generally thanks to good Inspectors or Superintendents in Adjudication Branch), these unaided CPIOs at times exhibit quite an ignorance of the RTI Act and only enable to increase the burden on appellate authorities under the Act. Till now it was only Right of Information to about 700-odd MPs which was engaging the Government Servants, now it can be more than one billion Indians. Surely a Herculean task to keep people happy, especially when some of the applicants like to make petitions which are as long as G. T. Road. At this rate, the only task with

Public servants will be to do no work and then keep on explaining through RTIs as to why they did not work. Surely, it is also the duty of RTI applicants to act with a sense of responsibility and restraint and not to misuse the privilege so deservingly procured..

Jail bharo, but spare a thought

With a call having been given (as on date of writing this piece) by Anna and his team to fill the already overflooded jails of India in support of anti-corruption movement and Lokpal Bill, a thought crosses my mind. During the earlier days, Jail Bharo movements were mainly confined to peasantry, village or lower middle class. All of them had seldom travelled abroad. One of the times, when after visiting jail for political purpose, Prakash Singh Badal, the present Chief Minister of Punjab applied for visa of USA, same was refused to him because he had truthfully declared in his application that he was arrested in his life time. It needed quite a clarification from his personal staff to convince the Visa officials that Badal was a respected leader and his arrest was solely for political reasons. Now, that we have the middle class youth supporting the movement and many of them are visitors abroad for work or otherwise, it may need a lot of effort on their part to convince the Visa officials of various countries that arrest courted by them was for a political cause and was not an arrest for notoriety. Somesh Arora

Keep your fingers crossed for GST launch

India: What the future holds for it?

In the domain of Mundane Astrology, there are two charts of India which are considered relevant, though the existence of an ancient chart pertaining to ‘Bharatvarsha’ since the time of Varahamira is also known to exist, but because the political boundaries have undergone considerable change since then, therefore, what are relevant for Union of India now, are the charts which are known as ‘India’s Independence chart’ and ‘India’s Republic Chart’. The astrologers, while dealing with mundane matters, normally look for India’s Independence Chart for evaluating matters like external affairs, internal disturbances, general well being and economy of the nation. However, the chart pertaining to India’s republic provides better clues relating to matters falling within the preview of judiciary and legislature, major reforms pertaining to the laws and an insight into the functioning of the judiciary. With the above approach, the predictive analysis about India is being sought to be done. The limitation of an astrologer who normally is capable of ascertaining the probabilities and not the exact truth has to be kept in mind by the reader. India, as per its independence chart, was undergoing the Dasha of ‘Venus’ from 1989 up to the end of 2009. The Venus Dasha, which is the Ascendant and Sixth Lord and is posited in Cancer in the Third Sun dasha- from 11/9/2009 to 10/9/2015

House was ‘Raj Yog Karaka’ for India and true to its potential brought India out of clutches of utter poverty and indebtedness, to make it an economic power house whose existence and presence was reckoned and came to be acknowledged all over the world. The turnaround of India economy started with Venus/Sun Bhukti around 1992 and brought to prominence the women of India, in political and glamour related fields. True to its promise during Venus Dasha, the Indians and Indian women in particular achieved success in sports, Cinema(With Bollywood getting International acclaim), politics, Industry, Economy, Education, Information technology, Administration and Beauty pageants etc. and became the major contributors to the economic success story of India. Incidentally, the Information technology, cinema, beauty contests, gems and jewellery, gold adornments, handicrafts are all fields related to the feminine planet `Venus’. India never looked back from 1992 to 2009 despite the world facing its worst recession in the last 80 years in the Year 2008. Incidentally, the only significant difference between the Natal chart of India and its neighbor Pakistan, who also got its independence at the same time of midnight but one day earlier i.e. on 14th August,1947, is that while Moon which

represents in mundane astrology- the public and women is strongly posited in its own house in 3rd from the Ascendant for India, the same in case of Pakistan is posited in inimical sign of Mercury( not considered inimical, of course, by the Moon as per the classical texts)in the 2nd house form the ascendant causing Chandra-Mangal Yoga. This difference alone makes the Indian democracy vibrant and its women stronger and progressive and contributing to the well-being of the economy even through entrepreneurship. While the weak Moon in Pakistan`s chart causes weakening of its democracy. The political power being taken over, by the men in uniform, due to influence of Mars. Such equation thus always causing internal feuds and also the earning of the state through questionable means which even indicates the influence of drug lords and arms smugglers over some of the Government institutions. Now, from the end of 2009, India is undergoing Sun Dasha which is the 4th Lord posited in third. Since it is in conjunction with Venus, Mercury, Saturn and Moon therefore, the trend of growth set up by Venus may not only continue in the Dasha of Sun till 2015, but also of Moon which continues till the end of 2025. Therefore, the growth story started during the Dasha of Venus remains intact and may continue till 2025. The years ahead, therefore will allow India to pursue its economic success story with a degree of continuity. The Sun however, being a natural malefic is not without its own share of some negative events. Since, Sun represents the top echelons of power, therefore, some established heads of Centre and States may have to loose power during the Sun Dasha, especially during currently running Rahu Bhukti and later on in Sun/Saturn Bhukti. India also needs to be alarmed against usurping of its territories by some inimical neighboring countries during the period running up to 2015. Some act of aggression against the territory of India is also not ruled out. Though India will be found equally or more aggressive and matching to the threats. The year up to 2015 will make Indian Policy makers realize the impending threats of famines, global warming and receding water tables, but equally, the same issues will engage and receive the focused attention of policy makers who will also suitably respond with the policy and action oriented initiatives which will result in water availability and harnessing of hydro power during the Moon Dasha i.e. between the period 2015 to 2025. The Mars Dasha starting from 2025 and up to 2032, however may see the increased role of army in domestic politics. But such role may not be negative as in the case of Pakistan. Looking at the India’s Republic Chart, an important date line is emerging from 24.06.2011. This is a period when Ascendant and 10th Lord Jupiter posited in 11th House in debilitation starts its Dasha period. The period will mark the beginning of massive judicial and legislative reforms and will see the decline of corruption in Judiciary as well as in Executive through a slew of measures unleashed through a continual but gradual process. The cleansing will be top driven and may get ushered through initiatives which may be outcome of deviant and not exactly a conformist movement. Asc. Rahu Moon Chart 26-01-1950

10:15A.M.,Delhi Indian Republic Sun-Jup- Ven Sat Mer Mars-Ketu Jupiter dasha- from 24/6/2011 The considerable changes in Judiciary and legislature, will be discernible to whole world and will lead to punishing of rich and mighty. The Judiciary will re-orient itself and shall be found to be responding to the task of eradicating corruption and bringing about equality through means which would have been unimaginable few years back. The intense power conflict between the beneficiaries of corruption and those fighting against will be quite visible in the years to come, but the presence of Rahu in Ascendant in both the charts of India indicates that the corruption may at the most get reduced with some guilty being punished but may not get totally eradicated. India will also see during the Jupiter Dasha, reform of its economic and financial system through legislative and judicial measures. Many new economic laws will be formulated, old laws reformed and quite of a few new institutions shall be created in the matters of public finance and economic administration. The period overall surely marks a betterment for India, for what it got as a nation from its legislature and Judiciary during the 18 years Dasha of Rahu which finally comes to an end on 24.06.2011. Both these wings of democracy may also get to see greater stability and continuity in the policies in the next 16 years. ( Author is Jyotish Praveen( Silver medalist), Jyotish Vishaard and Associate of Indian Council of Astrological Sciences) --------------------

How far is the next Bhopal gas tragedy?

Indian human lives are cheaper than the lives of the shrimps in American territorial water, All the big talk about BP leakage, but for the biggest industrial tragedy, no one to bother, Man at the helm was treated as state guest and allowed a safe passage, We will get him extradited now, is the new high-sounding message, For those in the state machinery whose duty it was to check the factory safety, where are those inspectors, Not even a single one got punished or faced the music, for they were obedient hafta-collectors, Compensation continued to get reduced, with every cut that went to all the political masters, Victims will make some noise for some days, but that will be only till we have our next bigger disaster. Lucky Tobacco: Not so lucky for either side The allegations and counter allegations continue to fly between DGCEI and management of M/S Lucky Tobacco. While DGCEI officials maintain that they were obstructed and their purses snatched by the mob in the factory and therefore there was obstruction to public servants and Dacoity, the management of M/S Lucky Tobacco has alleged that provocation came from DGCEI officials as there workers were stopped from proceeding for Jumma Namaz and this hurt their religious sentiments and what followed after that was free for all on their compound. M/s Lucky Tobacco has also gone to the court on defamation and loss of business reputation against DGCEI. The task of investigation is entrusted to local police at this moment. In normal course, DGCEI would have carried Pancha witnesses as per procedure outlined in Central Excise and Preventive Manual during their search operations, and these witnesses can come out handy to the police authorities to reach out the truth. However, if there were no Panch witnesses, then the matter may only get complicated. The F.I.R of the DGCEI though mentions that officers lost their purses containing money during the alleged attack, is however, silent about what happened to their identity cards which are normally kept in purse by the officers and their loss is always a serious matter for officers of intelligence agency. It is also required to be reported to near police station or DGCEI headquarters. The card normally indicates that it is property of the concerned Government Department, therefore its forcible dispossession can even be more serious than even the dispossession of money, in an alleged charge of Dacoity.. Port of Karwar: The vanishing act The minor port of Karwar was in for major controversy, when no one short of Justice Hegde alleged that port authorities as well as the customs allowed the illegally mined material which his vigilance team had placed under seizure with the port authorities was allowed to be exported and thus illegality committed both by port authorities as well as by the Customs. His team has even suggested probe by CVC. The role of customs or its connivance/negligence can come into play only if it can be established that they had

knowledge and awareness about the material having been placed under seizure and still allowed the material to proceed and shipped. What the documents reveal in this regard will be a matter of interest? Excise Department-- Inefficiency: Bad, Efficiency: still worse Now this one is really interesting. A particular formation of Excise was informed by a Gutkha unit seven days in advance that they will be closing factory and availing abatement for 15 days. Say from Ist June to !5th June. On 31st May at 11:30 P.M., Excise officials visited the factory and started sealing process which was completed under a panchnama at 00:30 hrs. on Ist June. Again, on 15th, June, Excise officials came to the factory at 11:30 P.M. and initiated the ribbon cutting process of de-sealing under a panchnama which due to their efficiency they completed by 00:15 hours of 16th June. Since, Panchnama to Panchnama there was a shortage of 15 minutes, due to efficiency of the Department officials, therefore party was given a SCN seeking to deny duty abatement worth cores of rupees. Now, the adjudicating authority seeing the logic behind the illogical, dropped the proceedings, but the reviewing authorities have sought a review of the order and are agitating it at the appellate forum. How costly can be the Department’s efficiency at times for the tax payers!!!

GST rollout: A roller coaster ride in waiting?

The Govt has decided to enforce a new tax regime — Goods and Service Tax — from April 1, 2010 without even utilising the expertise of Excise and Customs Dept

The countdown to Goods and Service Tax (GST) rollout having already begun and the major fiscal transition in the past five decades now just being less than seven months away, it is appropriate to carry out an assessment of the entire Act in order to avoid any unforeseen or unwarranted situation. It is indeed worrisome that the government has decided to take the plunge from April 1, 2010 without so much as even a debate on the proposed legislation. This gives an impression that the government, in its over-enthusiasm, may have thrown reason and caution to the winds. The apprehension looks real when we see that the task force and committees constituted for the purpose do not comprise any expert from the Excise and Customs despite the department being the most experienced in handling the Value Added Tax (VAT) and enforcement related thereto. This would only deprive the task force of the expertise in developing an effective enforcement mechanism. It looks that the government rather believes in evolving a tax system by first introducing it and then learning from experience to know its shortcomings. It has overlooked the fact that the expertise already available is sufficient to sound early warnings to make the system foolproof to a considerable extent. The rollout is being dubbed as the biggest reform on indirect taxes, but it is woefully lacking in public debate unlike the Draft Tax Code, which is already in public domain even one and a half year before its proposed date of implementation. Why is the government going about the task in such a discreet manner is anyone’s guess. It could be something to do with the resistance of some of the states. Let us try to analyse as to where things can go wrong if not properly addressed before the take-off stage of the new tax regime. Whether it is the VAT system in the states or CENVAT in the central domain, one of the major areas of concern has been the floating bogus invoice, which is generated by unscrupulous elements at the drop of a hat. Under the Central Excise alone, there have been a number of scams in places like Surat, Goa, Thane and Mandi Gobindgarh. While the magnitude of the frauds that have come to light has been found to be to the tune of hundreds of crores, a number of frauds remain undetected by the Central Excise authorities due to lack of wherewithal and infrastructural support as also due to lack of cultivated intelligence and rampant corruption in certain cases. Even when such detections were made by premier investigating agencies like Directorate General of Central Excise Intelligence (which normally gets more support from field formations than others), the average time to verify authenticity or otherwise of a CENVAT invoice has been 6-8 months and that too when in most cases intelligence info about invoices of input credits being fake is available. Considering the same in the early stages in some of the Commissionerates, a sample check of only

Continued from page 1 1 per cent was prescribed which is also because of the tediousness and dwell time involved has been followed more in breach, leaving the field open for such frauds,

especially by textile, metals and other SSI sectors. The investigations conducted in some of the cases have threw up gory details – like often these units were opened in the names of facades, some of the EOUs were found to be managed by illiterate and vulnerable people who were given small sums by the fraudsters, who, in turn, were selling these invoices to willing takers on 15 per cent to 20 per cent of the face value without there being any accompanied goods. In another case, a small scale industries (SSI) unit committed a fraud of more than Rs 8 crores. Its real owner purchased an iron mine, had a permanent five-star suite and was a frequent flier to Dubai -- all these when he did not even have a PAN card number. Now, consider the likely scenario, post GST. In the Central Excise department which deals mostly with factories and bigger excise units, a backward verification is much more easier since it is all within the same department and involves the existence of the factories or otherwise and authenticity with the concerned range. Still, the process takes between 6 and 8 months, as the payment particulars are not linked with any computer system, whereby the data of, say, Chandigarh can be verified while sitting in Bangalore. If an exercise of the enormity of the GST is to be rolled out, the way out for a country as vast as India, therefore, is to possess another supercomputer like that of NSDL which instantly captures all data relating to transactions of share market in up country or wherever and can indicate the same on any number of computer screens instantly and still has the capacity available to lend it to another Department like Income Tax and as such to rely on manual system of verifying invoices through stipulated backward checks. The latter is likely to be a futile exercise, unless there is a high powered central agency in existence which can conduct such checks within a matter of days as state governments may not be easily amenable to furnishing such information if the same is sought by, say, a politically rival state. Again, if, for instance, if the system founds that a few crores of invoices have been generated from a Naxal-infested remote area, then the minimum dwell time to verify it manually will be at least two to three years. By then, the fraud would assume gigantic proportion and the fraudster would escape to a tax haven, or in an enemy country or in the lap of the D-company. One should compare the cost of printing fake currency notes with the cost of printing fake invoices to see the potential damage that can be done. This problem of national security that may be involved, it is hoped, has been addressed by the members of task force on GST. One should understand why the US has not implemented such a tax regime even when its population is one-third of ours. No haste is, therefore, warranted in implementing GST unless we have a dependable data capturing system about payments in place. Let not emotions of ushering in quick reforms alone hold the sway. A holistic view and preparedness before initiation is the need of the hour. The rollout should not become a case of ‘act in haste and repent later’. Somesh Arora is Former Commissioner of Customs & Excise & CCO, Amicus Rarus Consults

Draconian law of DGFT

FTDR Act, 92 can learn a few lessons from Big Brother Customs Act, 62: The compact Foreign Trade Development and (Regulation) Act, 1992 having total of 20 sections has only one section i.e. section 11 and only one penalty under that section i.e. in section 11(2) for all kinds of contraventions. The concerned penalty clause reads: “Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made thereunder or the export and import policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of the goods in respect of which any contravention is made or attempted to be made, whichever is more.” For an Act which has the underlying objective of trade and export promotion, this penal provision turns out to be quite a liability as it prescribes a mandatory penalty up to five times of the value of goods. Therefore, all of a sudden we have cases where importers under EPCG license who could not export but had duty liability of a few lakhs are faced with penalties of crores of rupees because of the value of the machines involved. Even under the Customs Act, 1962, the maximum penalties in most cases are up to 100 per cent of duty or value involved. Who can then say that shocks are mostly delivered by the Revenue Department? The worst is that the officers of DGFT under law have no choice than to either impose such penalty or to impose no penalty at all. For once, DOR is more trade friendly than DGFT. Gateman to godman For Ichhadhari Baba Swami Bhimanand Dwivedi, the journey has indeed been colourful. From guarding gates of a hotel to dancing to the tunes of filmi songs on Sai sandhya and now cooling his heels in jail. But then Baba has the illustrious company of Nityananda Paramhansa from south to match his deeds. The latter being a darling of the Banglore corporate world and known to be charging Rs 5,000 to Rs 10,000 per discourse per person (inclusive of service tax, I can vouch for it!). The list of allegations against established babas continues to grow unabated whether it be Baba Ram Rahim Singh or Asaram Bapu. The gullible public and public figures continue to get cheated, time and again after a span of some years, by some new star emerging on the horizon. Came to think of it... Why can`t we have a ‘Baba Regulatory Authority’ with a retired senior bureaucrat on extension heading the organisation with the entrusted task of regulating the babas and having a ‘Baba Certification Agency’ under its wings giving the ratings to the Babas ranging from one star to five stars— depending upon heinous nature or otherwise of the alleged crimes committed by them. Negative agricultural growth With the Economic Survey presented just before the Budget indicating that India has after quite some time gone back to negative growth of agriculture sector (mercifully, it was minus.2% only), one really wonders if India`s growth story of the recent years has not been a saga of cars, televisions and refrigerators occupying more space of Mother India and big fours of agriculture ( i.e wheat, rice, pulses and sugar) occupying less on aam aadmi`s platter. MNIK: Ad services should have ‘publicity through controversy’

With all the publicity generated just before the release of the picture My Name is Khan’ and with all of it dying within days of its release. One seriously wonders whether the definition of ‘Advertising Services’ should not include even the advertisement by generating controversy with in its ambit. Is pre-1977 position on visas needed? More than 15 dead in blast. Most of them students who had gone to study in Pune. The ‘Mombati’ crowd as usual, on the streets at night, as if Pakistan is going to be impressed by it. One really wonders at times, if opening of travel ties with Pakistan has helped India in any way or has become a constant headache enabling agents of ISI to penetrate India with consistent ease and indulge in their nefarious designs. Pakistan does not budge and just marks its time whenever any diplomatic pressure is mounted on it. Talks with Pakistan are of no avail because you have to deal with five Pakistans instead of one. Number of Pakistani citizens who come and do not go back after visa is increasing every year. The opposition keeps blaming ruling party of going soft on Pak, when it itself opened doors to its people, providing mechanism for ISI to penetrate . Why can’t revertal to pre-1977 status be considered as one of the options? Mehangai: How it can be afforded by parties? Had recently the benefit of talking to a friend in politics, who was kind enough to explain the political maths of why the inflation control is not high on the agenda of most political parties. The explanation was interesting. That`s because, for 30% to 40% rich Indians, the prices of pulses, wheat etc. do not matter even if these are Rs 1,000 per kg and also these people do not matter to political parties because they come to polling booths only if followed by cameras of TV channels or if polling booths are air-conditioned. The other class, which is about 40-45% and being poor comes to vote since voting is incentivised for them, are too happy to vote for the party which gives them BPL card and rations at lower prices. The disparity and bigger gap between market and ration prices providing to them added reason to cheer. The last and the most affected, i.e. middle class, also does not matter as very little of its 20% to 30% number actually votes as they are strong believers in Drawing Room Democracy and like more to debate votes than to cast it. Therefore, the winning political mantra is — Ensure BPL supplies and forget the rest. Innovative betting With the lottery services, games of chance, Bingo etc. being taxed as a separate service in the latest budget, the lottery can be assured of its survival. Betting, which is till now illegal but highly prevalent in India, will also be sooner or later legalised. After all better to allow our own government to earn money rather than Dubai-based syndicates to do it. In any case what is the difference between betting and horse racing bets, I have failed to understand. Presuming it is so done, then there will be interesting bets to choose from (being ready mix of politics, sports, finance etc.) : Whether SAD refund filed today be sanctioned or India`s first manned mission to moon return, earlier? Whether India`s next road policy will be to allow roads with pits to exist or to construct smooth roads with barricades and speed breakers at every 10 mts.? Whether five or more MPs will be found napping on camera on a particular day during coverage of parliamentary proceedings?

Whether GST will come first or will Sachin achieve his 100 tons in cricket earlier?

Does Rowlatt Act Still Rule Independent India?

Rowlatt Act of Independent India: As a young one and at my School going age, I learnt my first lesson about Rowlatt Act, 1919 in India`s independence history. With all my cramming prowess, my teacher made me memorize that Rowlatt Act was draconian as it permitted the British to detain any Indian without trial. By the time I studied law, similar laws had already started existing in independent India with MISA and COFEPOSA in full flow. In fact, if Lallu ji had continued to follow the tradition of naming his children(even after MISA) on the names of prevalent preventive detention laws, his children after MISA would have been called NSA,COFEPOSA, TADA, POTA, PITNDPS etc. If implementation of all these laws in free India was not appalling, we also started having curbs on the right of enjoyment of property of persons and their dependents, even when they had still to stand trial and were mere accused. While Central Excise and Customs laws provide for provisional attachment of property which eventually lapses after some period of time, Money Laundering Act permits attachment of property even without case having been proved and such attachment continues till the offence is tried and can result in confiscation on proving of charge or de-attachment at that stage, in case charge is not proved. But the law is silent as to what will happen in case conviction is reversed and confiscated property is sold or damaged to the detriment of the owner during the appellate stage, if he wins. A law for taking away the right of enjoyment of property even prior to conviction was made to my knowledge by dictator Col. Gaddafi of Libya. Even in USA such attachment is provided post conviction in cases of drug crimes. For smugglers , SAFEMA in India, provides for attachment of property post conviction or in cases where preventive detention orders were not quashed or revoked. - Recently, Justice Ramasubramaniam of H`ble Madras High Court declared the PMLA as a legislation that punishes even the victim as he is bound to loose his property either to the state or to the wrong doer. While declaring Section 8(4) of PMLA as unconstitutional, following observations were made by the Justice Ramasubramaniam “With great respect to the Division Bench of the Andhra Pradesh High Court, the court has not tested the validity of Section 8 (4) of the Act on the touchstone of the Constitutional guarantees available to children and women residing in the property and the statutory protection available to tenants in terms of other enactments. - Even if I assume for a minute that the object of the PML Act is to keep the accused out of the possession and enjoyment of the proceeds of crime, the human rights of other members of his family or even persons who are in occupation of the property under lawful agreements of tenancy cannot be thrown to the mercy of the respondents (Union Finance Ministry and Enforcement Directorate),” the judge said. - He held that PMLA, not only seeks to punish the offenders, but also seeks to punish the victims of such offences. Take for instance a case, where an offence of kidnapping for ransom punishable under Section 364-A takes place. If the amount involved is more than Rs.30 lakhs, it is a scheduled offence under PMLA. Therefore, if the accused is apprehended and charged under PMLA and the money is also recovered, then the person who paid the ransom to the accused and who happens to be the victim of the crime, will lose his money by virtue of Section 8(6) and Section 9. He would rather prefer to turn hostile in the criminal case by reaching an agreement with the accused so

that the attachment order gets lifted under Section 8(5) enabling him to take away his money. In other words, Section 8(6) and Section 9, which seeks to punish the victims of crime along with the accused, appear to be a disincentive for the victims. The same analogy holds good even for offences of robbery and dacoity punishable under Sections 392 to 402, which are included in Paragraph 1 of Part B of the schedule to the Act. A person, who is robbed or a person on whom dacoity is committed, has to lose his property to the Central Government by virtue of Section 8(6) and Section 9 of the Act, if the stand taken by the respondents is accepted. For the victims of crime, there would virtually be no difference between the accused and the Central Government, as in any case, they would have to lose their property, to either of the two. - - Now, that we have Political persons who have been on the receiving end of some of the legislations which though ostensibly were made with good objectives made them suffer as well, Is not this the time that legislation are made which are practical and do not have potential to victimize the common man? After all, if Rowlatt Act was bad for Indians under the British and was opposed by Mahatma and Lajpat Rai who mobilized opinions against it, how similar Acts can be good for Indians under Indian Government. The prudence of not taxing salt under Excise law in independent India equally applies to the Rowlatt Act. - Hope the proposed Money Laundering( Amendment) Act, 2012 will be viewed in this light and not as a mere tool to give more powers to the State or to appease some international body. - Former FMs hog the limelight: The month of July,2012 was particularly auspicious for the former occupants of the North Block. It was for the first time that an occupant of Finance Ministry in North Block moved to the middle of Raisina hill, when Mr. Pranab Mukherjee became president of India. Another former FM who became PM came back as FM, though only for a short while in July. We heard the news of former FM Sh. N.D. Tiwari being declared DNA Dad at the advanced age of 87, after a protracted legal battle having been fought by his claimant son, again a record of the sorts. Further, we found Lord Murugan and celestial combination was favorable to Sh. P.C. Chidamabram who moved retro to western part of the North Block again from its Eastern part, after again becoming FM from HM. He also got clean chit from Apex Court in 2-G scam matter signaling that in Chiddu v/s Subbu battle, it is time for the latter to lie low and accept that stars are not particularly favoring him. Greater than Rs. 2,000/- Cash Register: A part from making all its staff take the oath of integrity and honesty and no corruption atleast two times a year (the frequency may increase in future), successive Governments have also been adhering in their bid to make `serious effort to curb corruption’ to ask all its staff having public dealings to make entry in a register, if they have in their possession more than Rs.2, 000/-. How much such an initiative has curbed corruption is anybody`s guess? But, such an exercise does eat into, whatever little time an officer has for public dealings after Parliament questions, R.T.I., office work and protocol duties. Another positive fall out is that such an exercise has generated employment in and around Government offices, as we have collecting agents

available and willing to do the work for officers helping them in keeping their pockets light in Police,Custom Houses, Transport, Provident Fund ,land revenue and other departments. They also act as mobile human ATM machines -accepting and dispensing cash as per requirement. An empty pocketed corrupt officer can easily make entry of Rs.20,000/-,as he will not be subjected to any check or can borrow from his other like colleagues for the sake of showing -as the Currency note numbers are not entered and will thus get a license to make cool Rs. 20,000/- per day without much problem. The greater than Rs.2,000/- Cash register also presumes that a corrupt officer will not demand bribe other than in cash and therefore does not require him to declare his/ her Gold or solitaire rings or other material possessions. It also presumes that corruption exists only in places having public dealings, though the scams point out otherwise. That whole of the staff, whether honest or dishonest detests such a measure as lack of confidence shown by the Government in them, is another thing.

Different shades of a ban

The map appended to the autobiography of Fali S Nariman, Before Memory Fades… comes with an inscription that ` This map only shows the geographical area. It is neither accurate nor drawn to scale’ and exhibits the territories beyond line of control between India and Pakistan in a darker shade, the region of Jammu and Kashmir controlled by India in a different shade as also of Arunachal Pradesh in the same shade and remaining India in white. This brings us to the ban imposed by Ministry of Home affairs on books published overseas exhibiting actual line of control of J & k, which Customs Authorities have diligently enforced for decades. Now, in this case one can presume that Indian publishers of the work of authorship having the benefit of the availability of the view point of the eminent Jurist would have taken care of all the legalities involved, while publishing with suitable inscription. But that also brings us to the larger issue of freedom of press and any purpose being served at all by the ban imposed by Ministry of Home Affairs because anyone who intends publishing maps as per their appreciation will always be able to do so by using suitable inscriptions that map is not as per the claims of Government of India or is not accurate etc. The Internet in any case provides liberty to anyone to publish and reach out to any person with any map of any country, that it may desire. There are bound to be different territorial claims and different maps in relation to various countries. Government of India should therefore at least have a rethink about the purpose, if any being served by such ban and whether the same is required to be more strictly enforced even by banning inscriptions or it would like to scale it down with the provision in law or Constitution of India that territory of India for all legal and international territorial purposes would mean the territory as shown in the maps of Survey of India and that no other map is recognised by Government of India for such purposes.

CESTAT: The crying need for more benches

With the listing of more than 40 cases each day and members being required to give a patient hearing, go back from the courts and dictate elaborate orders addressing each submission and then to go back home and read files for the next day — it sure is a Herculean calling. A similar amount of work load exists even in the High Courts and the Supreme Court, but there the judges have the benefit of Research Assistants and young lawyers available to them. It is time the Ministry Of Finance should seriously think of creating at least 10-15 benches of CESTAT to allow for clearance of pendency. It will also augur well for the functioning of the CESTAT, if members are allowed to have assistance of young lawyers on the pattern of High Courts and the Supreme Court against monthly honorarium. Goodbye to appraising cadre: With self-assessment becoming the norm in Customs in pursuance of promises made by FM in the budget, appraisers no more needed for assessment work. It is time that the CBEC thinks of redeploying the Appraising Cadre, elsewhere and gradually of abolishing it. One good way of re-deploying it, can be Customs audit which is being thought of, as a substitute to regular assessment by the Customs Officers. This will enable their skills to be gainfully employed and will meet the requirement of officers for this additional work. Poverty line and Narcotics drugs If there is one thing common between the poverty line of Rs. 32/- for urban area and Rs. 26/- for rural area per family consumption as fixed by the Planning commission and the price of Rs one crore per kg of heroin, then it is that the prices of both refuse to budge, for the last thirty years. While poverty line definition seems to be talking of prices as were existing thirty years back, the price of heroin as reported in various seizures continues to be the same over this period. In this world, only the persons on drugs seem to be enjoying an inflation-proof smoke. There have been suggestions in the past, that glorification of drug prices should be avoided and instead of quoting arbitrary figures of one crore per k.g. of heroin, which may only have effect of attracting more people to trade and of raising margin for persons in trade, agencies should quote figures in terms of lives saved. For example, take that a quantity of say 100 gms. of heroin is enough to make a person a drug addict and therefore seizure of one k.g. of heroin has saved 10 persons from becoming drug addicts. But like all good suggestions even this one does not find many takers in the bureaucracy. Time for police to verify self A cop in Delhi loots gold chains from one and kills two during his escapade. Another cop in MP beats up and kills a mentally challenged person. Cops in Bihar let loose their lathis on women and cops in UP kill a truck driver for not paying Rs 5,000 as bribe. All, in a matter of one week. One really wonders if various state police departments that cajole all to get the servant verification as and when some incident happens are aware of the ticking bomb they are sitting on. More than corruption, it is criminalization which is becoming the issue. It is time that the police authorities do thorough antecedent verification of their fresh recruits and periodically thereafter. Special discount for Anna pledge The members of Team Anna have now started focusing on getting public servants and members of public to pledge in writing that neither they will give bribe nor accept the

same. One good way of popularizing the concept in the forthcoming Diwali sales season, could be to offer special discount by retailers to persons taking Anna pledge. This will also demonstrate to the world that honesty eventually pays and also keeps the cash registers ringing for retailers.

C.B.E.C. or Automatic Refrigerator?

Going by the number of times (starting from December 2011 to October ,2012), C.B.E.C. and its field officers have gone about freezing the account of Kingfisher to defreeze and then to refreeze it again, C.B.E.C. can legitimately claim to have acquired the sobriquet of ` Refrigerator’ for itself. The dates for freezing run as 9.12.2011, 25.02.2012, and 3.3.2012 to 5.10.2012, however there have to be equal number of dates for defreezing which are not available. Hope that appearance made by Ms. Parveen Mahajan, Chairperson (C.B.E.C.) in this regard in the electronic media in October, 2012 proves final and no more indulgence is shown to this particular assessee to the exclusion of others not so influential. New hopes for the new year: The turn of the year from 2012-13 was one of the most turbulent, I have seen during my life time in India. The events leading to death after rape of ` Damini’ have highlighted the collective failure of our society to enforce law and has also shown the disconnect that law makers have with the present generation of India. Whether, it should be enough to shake the judicial system out of its tardy actions over such matters or not, only time will tell. The matter has also raised the issues relating to sensitivity of the Police in such matters specifically and over its functioning generally. If one has to put the Police stations in various parts of the country to a simple test of how much they aspire confidence even in its own personnel to send their daughters to these premises, one can have the actual measure of what is wrong with the system of Policing in India.

The leaderless protest that followed the incident also show that politicians are fast becoming or atleast are considered irrelevant, though many of them may not understand it as yet. As far as women are concerned they feel betrayed by their own lot of empowered women who have hardly done anything for them, despite being in relevant positions in the State and Center. Lack of Governance is another serious issue which has been brought to the fore, it is but natural that corruption whether at the top levels or mid rung has its perils of erosion of authority of those who reap the financial benefit out of it. Common Wealth Games had shown us how builder mafia had defied Governments because there was certain degree of confidence that lapses and delays will be accepted by their partners in Governance. Incidents, like the rape of Damini have shown that corruption at the street levels of persons concerned with the governance has also eroded their authority with petty criminals who after bribing small amounts feel emboldened to commit bigger crimes. One can really count the Politicians who are capable of taming big corporates today, on finger tips. This is just the reverse of zero tolerance concept, whereby the criminal expects that even his bigger indulgences should be tolerated by Person in Governance befriended by him. Fast Track Courts have been inaugurated to show that matters like these will be dealt with quickly and severely, but may be for a while. It also shows that other matters pertaining to criminal justice system will continue to be laggards. May be the Government will spend money on such courts for a while as it suits the political purpose to show will to act, on issue on which society has reacted. The clamor for dealing with and preference for economic offenders rather than offenders of more heinous crimes( if they are not economically well off) is leaving the policing resources in most of the states with little time to deal with offences like murder, rape and other capital offences. One only hopes that the new year which has kindled hope that

after the need for changes, the same shall eventually be brought about, witnesses the same happening in a good time and for the good of this country. Male chauvinism or false pretence: Male chauvinism it appears, contrary to what many women may believe is not confined to India alone, as the following story will tell. Northern Chinese resident Jian Feng divorced and sued his wife for $120,000. The story goes that Mr. Feng was deeply in love with his beautiful wife until they had a baby girl. Feng was horrified at how ugly the baby was and demanded to know why his wife had cheated on him because the baby resembled neither of the parents. As it turned out, his wife had been loyal to him, but had glossed over the fact that she had spent $100,000 on intense plastic surgery to severely change how she looked before she met him. After his wife revealed this to him, Feng took his course of action and divorced and sued her, claiming that she got him to marry her under false pretences. The false pretence presumably being that she was good looking. Incredibly, the male judge sympathized with Feng and he won $120,000 in the case. He won the amount he sought, while his divorced wife had spent $100,000 on extensive plastic surgeries by apparently very talented South Korean surgeons. The skin deep beauty indeed cost shelling out a fortune from the deep pockets. May be its time, that cosmetic surgery is evolved to the extent that even next generation can be made beautiful right at the time of the birth. If so, the marketing strategy can be developed to offer- Get one done and get the next generation free. Political Management – more of a shepherd`s job- Keeping its flock together is fast becoming difficult for National political parties. We have in the list, the quickly withdrawn `dented and painted’ remark of Abhijeet Mukherji about the women demonstrators at a point of time when law and order situation was really fragile. The tributes paid by Ms. Sushma Swaraj to the departed girl were accompanied by remark from the politician of the same party about dressing code for women on the same day. We also had a Haryana Minister calling Geetika Sharma as the wrong choice for a servant of Gopal Kanda. Earlier we had a Congress Minister excusing himself from the remarks he made about old wife not looking attractive and a BJP politician incurring the wrath of Rakhi Sawant for using her picture in a not so appreciative poster. Mulayam`s party also had a state level politician justifying corruption only up to theft level and not robbery. It appears that there is a lot of scope for learning about political correctness in most of these parties. An advertisement on the TV aptly captures the mood of the public in this regard, when a child while watching a channel where a politician is giving his discourse, asks his father to show him another channel where another joker is in action. With the media always being around to get the sound bytes and with some politicians mostly suffering from verbal diarrhea, keeping their partymen to follow the policy of not having their foot in the mouth can indeed be quite a task for top leadership of the Parties.

Annual Confidential Report – Sponsorship Servic

Annual Confidential Report – Sponsorship Service : Now, this one must get the crown for being most innovative method of extracting extortion. An officer in the field, who was cooling his heels in a non-sensitive charge because of his past sins and because of being close to promotion, thought that his dry run had lasted too long. Therefore, at the time of writing A.C.Rs of his subordinates, he fixed the rate of Rs. 1,00,000/- for Good , Rs. 1,50,000/- for Very Good and Rs. 2,00,000/- for Excellent and gave option to his not so well off subordinates (because of non-sensitive charge )to get the same sponsored from parties on loan basis to be paid back in kind when their good time comes, as he may not remain in the same position after promotion. That many actually managed to get Excellent is another story. The service tax was lost to the department this year, because the negative list came to be notified little late.

Negative list – Interesting facets: What is a matter of interest is how the rewards for customs and excise informers shall be treated with the coming into force of negative list? While on the Income tax side, a specific exemption always existed for reward to informers, the negative list of services does not have any provision of this kind. Now if an informer provides information related services to any Government Agency and in turn gets a reward after expecting the same in return, it is very much a service. If the reward works out to be more than Rs. 10 lakhs( SSI service provider limit) in a year, then is it expected that service tax authorities will ask such informer to shell out service tax on such amount. It will then be a case of giving by one hand and taking away by other.

Now, that the service tax is leviable on the film stars, models etc. , one can hope that Customs will also start a Star Nite for fund raising on lines of Mumbai police, where all the stars will appear and praise the Customs, more out of fear rather because of genuine accomplishments. Now that there are not many escape routes left for tax avoidance on the service tax side except entering the contract of employment, it will be of interest to see whether the Producers Guild reverts to age old practice of engaging actors as employees with the production banner- a practice which was common during the days of Raj Kapoor, Dev Anand and Guru Dutt, when such actors were receiving salary from Production banners like NavKetan, Guru Dutt films etc.. Further, if the law as has developed on the Provident Fund and E.S.I side is considered, there are many contracts which are termed as ` contracts of employment’, the duration and period of contract may not be a consideration. It will be of interest to watch how the case law on the side of service tax develops on this aspect.

and that was Bhutan, where the ban both on smoking tobacco and chewable tobacco was imposed, to be lifted later after six months because of administrative hassles it created. If cigarette smoking world wide has come down it is not because of any ban but because of public awareness being created about its ill effects. Selective ban on Gutkha is bound to lead to higher smoking of beedis and cigarettes, as some surveys have shown that atleast 20 percent consumers use these products interchangeably. Therefore one lobby will be happy at the cost of another and public health will continue to suffer. Smuggling in the course of time is bound to pick up or law shall be subverted simply by packing tobacco and Pan Masala in different pouches to be combined for consumption at the end of the consumer. Consumption thus will not be stopped unless there is complete ban on all tobacco products, which option will again lead to consumption of stronger intoxicants or drugs. Taxing these products in the meanwhile to create a health care system is a better solution till awareness is created. Of many products that cause equal degree of harm to human health are pesticides sprayed on vegetables which are consumed by users without any knowledge and without any warning. In fact, situation is so bad that the farmers in Bhatinda( In Punjab), who were consuming their own field grown vegetables have been effected with cancer and have to take train at night for Rajasthan to get treated and the train has come to acquire the name of `cancer train’ because of the sheer number of patients it carries every night. What fate awaits the hapless and unsuspecting consumers who buy these products is any body`s guess. The adulteration of milk is so rampant that there is virtually no white colored substance which has not been used for it. The studies on the impact of such adulteration are hardly carried out by any N.G.O. as such studies are not backed by any corporate lobbies. The menace of transmission towers and brain cancer cases due to radiation from it are also likewise have not been subjected to any serious study, as there will be counter stories planted by vested interests or publication of such reports will be discouraged. There is a greater need to regulate these substances that act as Silent Killers. Adulteration affects still to be born, affects our health during our lifetime and adulterated medicines at the end of it and there are good chances that even the pure ghee that is placed on funeral pyres of many Indians is adulterated. No exaggeration, therefore in saying that an average Indian is born with adulteration, lives with adulteration, dies with adulteration and even leaves behind its mortal self to be burnt with adulteration.

New Historical Monument of Delhi : The Reliance Airport Express Metro line has emerged as the latest historical monument in the skyline of Delhi as the same is hardly being operated for some unexplicit reasons ranging from being uneconomical to having defects in the structure. However, the truth is at one point of time a train used to run on it and when it started for the first time all the bigwigs and politicos had praised it as a wonderful project.( Alas! not long time back in public memory)

A story of immersed idols, unearthed by Customs

It was in the summer of 2003 in Goa. An intelligence input received indicated an attempted bid to retrieve some idols, from the river bed of Mandovi at a point close to a Village where immersions ceremonies were being held by native Hindus, by some smugglers who dealt with antique idols. Operation conducted at the designated spot during the day time, though alerted the retrievers and enabled their escape, nonetheless resulted in seizure of one antique stone idol left behind by the escapees. But, as the intelligence had indicated presence of more than one idols, therefore under water operation was launched at the designated spot, taking help of National Institute of Oceanography (NIO) divers and pressing the customs interception boats into action. The operation continued for three days at the eerie site with the divers encountering human skulls and bones in the pits in the river bed and setting monsoon making the waters rough and choppy, thus making the whole operation difficult to conduct. NIO, after rendering help for three days, advised calling off the operation and finally withdrew from the same. However, on persistence of the informer, the operation by the Customs continued and help of some professional divers was taken, which enabled retrieval of another idol of Natraja (Shiva) in ashtdattu (eight metals) on the 4th day, confirmed to be more than 800 years old by the NIO testing. The monsoon finally disallowed the operation to be carried any further and the same had to be abandoned as the divers were unable to have a visibility not beyond two feet in the muddy waters. So, final score was retrieval of two idols. The peculiarity of a feature, confirmed in respect of both the idols by the NIO testing, was that they were lying in the river bed for more than a decade. Continued on page 10 Though the operation was called off, the job of investigation was far from over. The intelligence inputs were hardly of any avail in indicating as to where the idols came from and only expressed the possibility that these idols were abandoned more than a decade back, when two warring gang of smugglers clashed in the river. The name of persons who were retrieving by making valiant effort of working under water without proper equipment at such a lonely site, were also not available from the intelligence inputs and their escape did not help the matter, any further. Thus, the whole investigation was nothing more than a wild goose chase. The immersion site where the operation was conducted was close to a coastal village and out of desperation to get some clue, the sarpanch of the village was called to find out about any special incident which might have happened to his knowledge about a decade back and was shown the idols which were recovered. It was only then that he narrated that about 12 years back, an immersion ceremony of the Hindu idols from a temple stated to be in a little far off village in Goa only and dating back to the times of Vijaynagara Empire had taken place at the immersion Ghat. Since, the version corroborated the forensic evidence provided by NIO of idols being in the river bed for more than a decade, therefore a back check with the temple authorities was imminent. When the temple priest was contacted, he confirmed that in 1992, the temple had performed immersion of seven Hindu idols and the reason for the same was that as per Hindu rituals of idol worship, any idol if it is chipped of in part or

whole becomes Khandit ( lifeless)and is no more considered worthy of worship as it is believed that Praana (life) which is brought in an idol when it is made worthy of worship at the time of installation i.e. during praana –pratishta rituals, has left the idol and therefore it is fit only for immersion. The fact was confirmed from the scrutiny of idols as one in the stone was slightly chipped of from the nose, and in the idol of Natraaja, the floral ring around the dancing idol was found broken. The priest was taken to authenticate whether the idols recovered by us were the same which had been immersed in the river 12 years back. He, after visual examination, duly confirmed the same. The priest also informed that such rituals are carried out everywhere in India in the temples and many idols which are otherwise having antique value are just immersed in the river beds. The case was an eye-opener to us as customs officers, as it indicated how a colossal loss of national cultural heritage is and might be taking place away from the probing eyes and without the knowledge of authorities and smugglers may be retrieving such idols with persistent ease and selling these in the multi-million dollar antique market. While we could not retrieve more than two out of the seven and cannot even say with authority whether these were retrieved before we came to know about them or whether the remaining five are still in the river bed only, the two seized by us were kept in Customs godown to be placed in Customs Museum, which was being conceived at that time. However, we were equally determined that the lessons drawn from the seizure which was made after spending few lakhs of rupees of the ex-chequer should not be lost sight of. Accordingly, we wrote our reports and made a significant suggestion that to preserve such national cultural heritage in future and equally to give due regard to the religious rituals of Hindus, such immersion ceremonies involving antique idols should henceforth be mandatorily notified to Archaeological Survey of India(ASI) or any other designated agency, so that they may retrieve them rather than smugglers doing it and our precious cultural heritage may find its space in the Museums of India rather than adorning the living rooms of an antique collectors, to the deprivation of the whole nation. The worst is that such abandoned idols may not even get covered under any crime under Indian Penal Code since these are no one’s property and even under Customs Act can be seized only when actually attempted to be exported and under The Antiquity and Art Treasures Act, 1972 even if these are considered as antiques and not as broken stone or metal pieces, the only requirement is that these should be sold under license. Violation of which is again a minor violation. To my regret, above mentioned is one suggestion I could not see implemented till my retirement from the Department, though the same was most reasonable. I only wish that someone responsible amongst the higher-ups in the government will read this write-up and will take steps to implement it.

A SAD story of no refunds

Special Additional Duty (SAD) refunds are making exporters and importers of Delhi really sad on new year. While shortfall of revenue in recession is understandable, the SAD refunds filed in some cases are of more than one-year vintage and pending. How many of these are captured by the reporting system is not free from doubt. But what is worrying is that these claims are buried in files even without so much as, by now customary and established strategy, of conveying at least some technical objections to show that these are not pending with the department but with the filers. Where in the archives is the Citizen Charter of the Department, which proclaimed that all correspondence should be acknowledged in 10 days, lying buried, or is it that a refund application is not a correspondence, technically speaking. Further, CBEC, in its circular no.6/2008-cus dated 28/4/2008, had indicated that there will be no interest on such refunds in case of delay as the departmental officers are expected to grant refunds in three months. Let us wish that the new year will reduce such pendency and will enable optimism expressed by CBEC in its officers to come true. Or will the interest on such refunds become the only option for CBEC to extract compliance. Only time and budget amendments will tell. New year’s big bash If Rs 5 crore spent on a 10-minute appearance of Shah Rukh Khan by a Pan Masala host is any indicator, the new year bash across New Delhi Continued from page 1 involving a number of Bollywood celebrities would have cost nothing short of Rs 10 crore. No doubt that one has the right to spend lavishly, if Kuber is meharbaan. It is, however, another matter that extravagance of this magnitude would have saved India from all hunger related and cold weather related deaths for atleast two years. Little wonder, why a real new year or a new age never dawns upon my India despite the number of years of growth. SEZ converts cultivable land into non-cultivable? One of the repeated methodology to check that non-cultivable land alone is used for SEZ purpose to meet the target as stipulated in SEZ Act and Policy is to take an undertaking from the farmer selling the land that same was not used for agricultural purpose by the prospective developer and submission of the same to Ministry of Commerce (MOC). Since a farmer, who is getting a quoted price for the land he wants to sell is too willing to oblige, we have, therefore, on records of MOC a good share of land being declared as non-cultivable. In Haryana, for instance, it was a common refrain in the 1980s that it had more cattle loans than the cattle population taken together of even neighbouring states. Now in 2010s, it may have on record more non-cultivable land than neighboring states taken together. No plot, but shell out development fee

Haryana has emerged as a state with a dubious distinction of having the highest External Development Charges (EDC) in India .. At times, it has worked out to be about 40% to 50% of the land cost charged by the developers. Demands have been raised arbitrarily with retrospective effect even in areas like Kundli where no worthwhile development has taken place on ground. The middle class wanting to have plots have been asked to shell out lakhs even when possession is nowhere in sight. It seems another revenue channel, post-VAT period, has been chanced upon by the bureaucracy and the political class of Haryana, which is not even liable to be disciplined under Fiscal Responsibility and Budget Management Act. The delay in development increases costs, which are again passed on to the buyers and for whatever paid earlier if any interest is earned, none of the same is passed on to the buyers. Uttar Pradesh also had the same approach which was, however, changed after public hue and cry over the issue. For the common man in Haryana, it has been a case of buy properties in boom and pay through your nose in recession. Indeed, a fiscal stimulus, Haryanvi Ishtyle. Universality of official responses Few fatal attacks on Indians in Australia and reported number of assaults up from 17 in 2008 to 100 in 2009. Racists getting bolder by the inaction of the Australian Authorities. How much hue and cry we Indians had made when one communal Dara killed an Australian missionary and eventually saw to it that he got punished. But it seems that there are Daras roaming around in abundance on the streets of Melbourne and Sydney, but Australians authorities are not Indian. The Government down under also seems to be in slumber. High time Australian authorities start importing investigation officers from India rather than coming out with stereotyped orchestrated chorus response of `at this preliminary stage there does not seem to be any evidence of attack being racial.’ Sounds quite like our own home grown responses of ` an enquiry into the incident has been ordered’ or ` situation is being watched closely and is under control’ or ` the involvement of foreign hand cannot be ruled out’. There seems to be a good scope of starting an ` International Academy of official Responses’ as a commercial venture. Bihar growth story: The trickledown effect has just begun Bihar is turning out magical figures of growth, while states like Maharashtra have begun to lag behind. Reverse exodus may be a matter of time. High time that leaders from other states start demanding reservations for their own natives in Bihar on the principle of reciprocity and giving accommodation in the past as example, rather than showing the people of Bihar the door, as in Mumbai. They will prove to be true statesmen and visionary then. We had heard of reverse brain drain, but this is going to be a real reverse` class-IV’ drain, once the labour from Bihar decides to go back to their state and contribute to their own growth, compelling rest of Indians to do the Class- IV and many other chores. Second example, that one right man at the top can make much difference. First being that of sadda Manni Singh. New year’s happy notes: Rathore and Tiwari in soup. Firstly, there are many like me who admire P. Chidamabaram in his Home Minister avatar, rather than a friend of the corporate- FM avatar. It takes guts to reopen and do justice in a 20-year-old Rathore matter and to police the police. Strong message for not

only those in power, who wronged the people of India with impunity but also for those who lodged frivolous FIRs just to appease their masters in powers. For once, the executive has shown that there is some semblance of the rule of law in the country, even when all systems executive, judicial and political had initially failed to respond. From Rathore, it was quite interesting to get the quote that he learnt to smile in adversity from Pandit Nehru, but wherefrom he learnt the act of proven charge of molesting has not been revealed. Secondly, the promptness with which action was taken in the N D Tiwari episode shows that somewhere in the political class there is an increased realisation that legality of actions is more important than the history of actions of loyalty. It marks a clear departure from the past and provides answers to old breed of Congressman, as to where some of them have been found lacking in the assessment of new generation. Behave like leaders, if you want to be one, is the clear message. It also makes it clear as to why the present day young leadership of Congress is more popular in India, (especially among the youth) than the old guards of any other party.

. Clandestine Removal- Standard of proof in Central Excise- Whether preponderance of evidence or proof beyond doubt?

The difficulties being faced by lawyers and other parties to the courts in matters of clandestine removal in Central Excise pertains not only to subjective appreciation of evidence which can vary from courts to courts, but also to standard of evidence that may be required to prove a case. Incidentally not many matters after final decisions actually travel to Supreme Court or High Courts, as in most cases there being no question of law involved but only appreciation of evidence, such matters hardly get through beyond admission stage. It is, therefore, that even the standard of proof warranted has been subject matter of variance in case law pertaining to clandestine removal in the Central Excise. As per earlier trend, a difference in scale of evidence in prosecution and departmental adjudication proceedings had become discernible. In this regard, in 1984 (17) E.L.T. 513(Tribunal) INDIAN CORK MILLS LTD. AND OTHERS Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY, it was held- ` There is a considerable difference between adjudication proceedings and prosecution. Strict rules of evidence are not applicable to adjudication proceedings. The nature and extent of proof required in an adjudication proceedings is different from the nature and extent of proof required in a criminal prosecution. In the case of criminal prosecution the burden of establishing the guilt of the accused is always on the prosecutor and that burden has to be discharged beyond reasonable doubt. But in an adjudication proceedings the initial burden of establishing the charges lies on the department. When once this initial burden is discharged by the department by adducing satisfactory evidence then the onus shifts to the delinquent to rebut the evidence against him. Further, in an adjudication proceeding the department is not required to establish the guilt beyond reasonable doubt. The pre-ponderence of probability is the test to be applied.’

Commemorative “Lagaan Circular” by C. B. E. C.

By: Salil Arora, Advocate

On 1st January 2013 when CBEC for the first time in its History became an All Women’s Board, to commemorate the occasion, it appears to have issued one of the most controversial Circular in recent times, which has come to be known popularly in the tax circles as “Lagaan Circular”. The Circular bearing No. 208/36/2012-CX.6 issued on 01.01.2013 directs the revenue officers to go for coercive measures to recover the demands confirmed even during the pendency of the Stay Applications. The following timelines have been laid for recovery of confirmed demand even then they have not attended finality in relation to the Appeals pending before the Commissioner (Appeals) and CESTAT.

1. Where no appeal is filed by the assessee, recovery is to be initiated after expiry of statutory period for filing the appeal.

2. Where appeal is filed without stay application, recovery is to be initiated after expiry of statutory period for filing the appeal.

3. Where stay application is filed, recovery is to be initiated after expiry of 30 day's period of filing the appeal/stay application.

In the case of matters pending in the High Courts and Supreme Court, the above circular provides for the recovery to be initiated immediately on the issue of impugned order by the Tribunal or the High Court, if no stay is in operation.

In view of the number of the judicial pronouncements, till now the legal position was that coercive action for recovery shall not be taken by the Revenue Department during the pendency of stay application and there had been number of circulars issued accepting this position by various reconstituted avtaars of the CBEC itself. All these circulars have now been rescinded to cover up the Budget deficit during the current financial year which is presently around 20% of the budget estimates. Some of these

judgments which even now continue to be issued are as follows;

1.2013(29) S.T.R.99(All.) Hamdard( Wakf) Labs. V/s State Of U.P.- Recovery of Govt. dues during pendency of appeal is an arbitrary action, which would shake confidence of law abiding dealers and would adversely affect development and industrial growth

2. 1997 (93) E.L.T. 330 (P & H)DWARKA MINERALS & CHEMICALS (P) LTD. Versus C.C.E. (APPEALS), CHANDIGARH- Coercive steps taken for recovery of alleged duty amount before appellate authority passes order on application for interim stay - Not justifiable. -Strictures against Commissioner of Central Excise (Appeals) and Assistant Commissioner of Central Excise - The assessing authority as well as the appellate authority are part of the departmental hierarchy and there does not appear to be any rhyme or reason why appropriate steps could not be taken by the competent authority to dispose of appeal before the assessing authority takes steps for recovery of the amount allegedly due from the aggrieved party.

3. 2010 (254) E.L.T. 348 (Tri. - Del.)VIRA SCOOTERS Versus COMMISSIONER OF C. EX., LUDHIANA- Para 2.It was to the knowledge of the Department that the Tribunal is already seized with the matter as also of hearing of the matter in relation to the stay asked for by the assessee in respect of the order passed by the lower authority. In such circumstances, it was highly improper for the Department to take any step for coercive action against the appellant without even awaiting for the order of the Tribunal. Such action on the part of the Department clearly results in unnecessary increase in the workload for the Tribunal. Instead of wasting time for creating unnecessary work for the Tribunal, the Department’s people could utilise their time to identify the matters involving common issue pending before the Tribunal and assist the Tribunal in disposal of the matters speedily. We hope that the Department will take necessary steps in this regard and come forward to assist the Tribunal for speedy disposal of the matters rather than wasting their time by unwarranted increase in the workload for the Tribunal.

The furore over Lagaan Circular: The Lagaan Circular has generated a lot of heat and there is hue and cry about its timing. Because it makes the “Bhuwan” (read assessee) to run from Court

to Court to get a stay for itself within 30 days of filing of Appeal or to face “Zabaran Wasooli” (coercive recovery), even when it is a known fact that the administrative machinery of CBEC or Ministry of Finance is not even geared up to pronounce on Stay Applications for a period averaging less than 3 to 4 months for a Commissioner (Appeals) and for 6 to 8 months for matters under CESTAT, which has 12000 Stay Applications pending with itself and had atleast 30% vacancies in its Member Cadre as on 01st January, 2013. That the Circular has been issued without any ground check on reality of its own Administrative Setup and of Pendency Position is quite apparent. The Lagaan Circular leaves “Bhuwan” with hardly any choice as he has to ensure that he procures appellate order for himself by either jumping the queue of 12000 applicants or to take the onus upon himself to tone up administration in the offices of Commissioner (Appeals) as well as CESTAT, by whatever means available, as the CBEC and Ministry of Finance have clearly raised their hands to tone up the same even when it is they who are required to do the job. About a couple of years back, Ministry of Finance had issued an Advisory to the CESTAT to hear and decide Stay Applications within one month, which advisory has been followed more in breach than in compliance, as CESTAT does not have the wherewithal to cope up with increased number of appeals coming its way, without any administrative revamp or increase in number of Benches, which has stagnated for the last 10 years, despite phenomenal increase in work load.

The state of affairs existing in various Tribunals, and Government apathy and neglect of the requirements of the Tribunals has already been adversely commented upon recently by the High Courts and even the Hon’ble Suprem Court, but Ministry of Finance/CBEC seems to be of the view that by mere issuing of the Advisory, the stay applications must presumptively being heard in 30 days.

Timing of the “Lagaan Circular”:

It is a known fact that in the year 2008 when USA led recession impacted Indian Economy, the same Ministry of Finance in its budget of the relevant year came out with a Stimulus Package of Rs.60 Thousand Crores by way of reduction in tax rates across the

board. But, when the recession of 2011 has impacted Indian Economy in a much bigger way, as decline in GDP Growth rate indicates, the same Ministry of Finance during period of recession came out with budget proposals which not only raised the tax but also widened the ambit of Service Tax network through Negative List by seeking to raise Rs.40 thousand Crores worth additional revenue.

Since, the economy continues to reel under pressure of recession for most of the current fiscal, therefore, to subject “Bhuwan” to coercive recovery to fill the gap of 20% that exists in indirect tax revenue mop up is rather harsh (to use a mild expression). At the time when “Bhuwan” was expecting “Lagaan Mafi”, he is being threatened with “Zabaran Wasooli” (coercive recovery) for no fault of his. The litigation policy of CBEC pronounces that its field units should ensure reduction in litigation. However, by this one “Lagaan” Circular, CBEC has ensured that frivolous litigation would swell because “Bhuwan” will not only be required to file appeals before Commissioner (Appeals) and CESTAT but also to rush to High Courts and to the Apex Court to get directions that Department should not indulge in “Zabaran Wasooli”. Cost of compliance for Bhuwan is definitely going to increase. By this one step CBEC has also made redundant the whole process whereby stay applications could be filed with a request to condone delay in filing as provided in law, because its Field officers will ensure that there is no situation, whereby such stay applications do not become in fructuous.

‘OUTCOME’

Whether, “Bhuwan” wins eventually or the Empire does in collecting all the revenue it wants, even in time of recession, will be known on 31.03.2013. Till such time justice in revenue matters may continue to be a casualty.

Search operations by Investigating Agencies: Can security cameras on premises be ordered to be shut?

Recently, during the course of a search of a factory and residential premises conducted by the officers of Central Excise Department, a unique direction /order was given to the assessee to stop video recording by all the security cameras present in the factory premises till the search concluded. Such a direction can be presumed to have been given to avoid the embarrassment which the department had to face when the high handedness of some of its officers was allegedly captured by a hotel camera. It seems that the search parties or atleast some of them, to avoid such kind of embarrassment have modified their ‘to do list’ during search operations by adding- Turn off all the security cameras of the premises to be searched, the way earlier all phones used to be kept off the hook. While the latter used to be done to disallow contact or communication with the outside world during search operation and also as per the Preventive Manuals, the former has no such logic.

However, the above instance has triggered the following questions to be answered as per position in law:

* Whether such a direction was valid under the law? and,

* Whether the assessee was under any statutory obligation to comply with such direction/ order?

The legality of these questions at present is hard to examine because of absence of specific provisions in the law or of case law on the issue.

The Central Excise Act, 1944, the Customs Act, 1962 and the Code of Criminal Procedure, 1973 are silent on this issue as such a situation had obviously never been envisaged by the law makers while formulating the above laws. Further, in India there is no law prevalent in the country for the time being which deals with the issue of `Video Surveillance and Consent’ which is a law of recent origin even in many States of U.S. Therefore the position with regard to directive of a search party that requires the security cameras to be switched off during the search of premises, which have been installed with the intention of ensuring security and well being of the staff members of the factory and also the goods, is required to be answered more by common sense and position existing in other countries. In this regard, Sections 629-632 of the Police Powers and Responsibilities Act, 2000 (Queensland, Australia) envisage that during the course of personal search, the police must ensure that either the video cameras be turned off or the search be conducted out of the view of the camera. The concern is more out of Individual Privacy, which many State Laws in U.S. also uphold.

Although, no valid reason comes to mind as to what problems will the search officers have with the security cameras, as the footage derived from the same can only corroborate the Panchnama (and can also form part of the same), exhibit their transparency and can be used as a cogent evidence to show that the proceedings were conducted peacefully and in accordance with law. To the contrary, a direction to shut the security cameras can raise doubts over the methods adopted by the search officers, can corroborate the assertion if made later of the assessee regarding the high handedness by the search party and will ultimately make the entire Panchnama proceedings open to questioning. The C.B.E.C. Manual on Customs Law (2012 Edition) has also not tried to answer this question.

Linked to the question of allowing or disallowing such cameras is also the question of whether assessee can resist taking away the recordings of such video cameras. The answer to this will depend upon discretion of the authorities and more particularly the evidentiary value of such recordings, which an assessee cannot question.

It is presumed that law as it stands today can allow the enforcement authorities conducting search to shut off video recordings only on two legal grounds. Firstly, if they are being subjected to search as per the right available to the party being searched on grounds of Privacy and Secondly, if the continuance of recording of cameras in any way leads to obstruction of legitimate search operations by the search party. More often, if the search party is performing its duties properly, the video recording may only help in substantiating its case, therefore the prudence requires that rather than asking for such cameras on the premises to shut, the departmental officers should insist on continuation of the same. And in any case if Departmental officers feel that there is requirement for cogent reasons to disallow recording then such reasons should be explained to the party being searched and same should be recorded in Panchnama. Similarly, the party being raided can ask for the factum of closure of Cameras being ordered to be recorded in Panchnama along with its reasons of its own protest.

It is also hoped that C.B.E.C. which is normally the first to react to novel requirements posed by technology changes in relation to enforcement proceedings, would react appropriately and address this question by issuing a guidance note.

Club’s or Association’s Membership Services:

Club’s or Association’s Membership Services: Is the applicability confined to proprietor’s club only? By : Salil Arora, Consultant, Amicus Rarus Consults. Club’s or Association’s membership services were introduced only with effect from 16/06/2005 by virtue of Notification No. 15/2005 dated 07/06/2005. But these services have raised considerable litigation, which is still to settle down. The issue which is currently engaging taxperts, is whether there can be a service interse between the members and a club, more so when the club is in the form of a society owned by its own members and not a proprietor’s club owned by a person other than majority of the members. The distinction between the members’ club and proprietary club was brought out by the Apex Court in Harbour Division-II, Madras v. Young Men’s Indian Association Madras, and Ors.[ 1970 (XXVI) Sales Tax Cases 241] wherein it was held that if a members’ club even though a distinct legal entity acts only as an agent for its members in the matter of the supply of various preparations and articles to them no sale would be involved as the element of transfer would be completely absent. Members are joint owners of all the club properties. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. To show the difference of characteristic between the ‘members’ club’ and ‘proprietary club’ the Supreme Court held that where that where every member is a shareholder and every shareholder is a member then the same would be called as ‘members’ club’. In the members’ club what is essential is that the holding of the property by the agent or trustee must be for and on behalf of and not a holding antagonistic to the members of the club. If a club even though a distinct legal entity, is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent. The issue regarding taxability of services again came up in relation to `Mandap Services’ provided by certain clubs to its members in the matter of Saturday Club Ltd. Versus Asstt. Commr., Service Tax Cell, Calcutta [2006 (3) S.T.R. 305 (Cal.)], wherein it was held by the Hon’ble Kolkatta High Court : “So far as the merit is concerned, law is well-settled by now that in between the principal and agent when there is no transfer of property available question of imposition of service tax cannot be made available. It is true to say that there is a clear distinction between the ‘members’ club’ and ‘proprietary club’. No argument has been put forward by the respondents to indicate that the club is a ‘proprietary club’. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a ‘mandap’ the club cannot be called as ‘mandap keeper’ because the club is allowing his own member to do so who is, by virtue of his position, principal of the club.”

This was also followed up by the same High Court in Dalhousie Institute versus Assistant Commissioner, Service Tax Cell [2006 (3) S.T.R. 311 (Cal.)], the court held as follows: “The principle of mutuality in this case is also squarely applicable, as going by the definitions of mandap, mandap keeper and the taxable service, in this case the facility of use of the premises to the members by its club cannot be termed to be a letting out nor the members of the club using the facility of any portion of the premises for any function can be termed to be a client. The services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club.” The question in relation to Club’s or Association’s Membership Services came up for consideration of Chennai Bench of the CESTAT in its ad interim order passed in Madras Race Club Versus Commissioner of Service Tax, Chennai [2009 (14) S.T.R. 646 (Tri. - Chennai)], held: “Another part of the demand is on the amount collected by the club from its members for use of amenities provided by the club. This demand is under the head “club or association service”. In this connection, it is submitted by the learned counsel that any service rendered by a club to its members is in the nature of self-service inasmuch as there can be no club without its members. The learned counsel is invoking the ‘doctrine of mutuality’. We are impressed with this argument also and, therefore, there must be waiver of predeposit and stay of recovery in respect of the tax sought to be levied on the charges levied from its members.” The reasoning of the Calcutta H.C. adopted in Saturday Club Ltd. ( cited supra) in relation to Mandap Services was relied upon and adopted by the Hon’ble Gujarat High court in Sports Club of Gujarat Ltd. Versus Union of India [2010 (20) S.T.R. 17 (Guj.)], wherein it was held: “It is a well-settled law that in between the principal and agent when there is no transfer of property available, the question of imposition of service tax cannot be made available. The petitioners herein are a members “club” and not a “proprietary club”. It is not even the case of the respondents that the petitioners are a “proprietary club”. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest, for a function, by constructing a “mandap”, the club cannot be called as “mandap keeper” because the club is allowing its own member to do so, who is, by virtue of his position, a principal of the club. If any outside/agency is called upon to do the needful, it may raise a bill along with the service tax upon the club and the club as an agent of the members, is supposed to pay the same.” Hon’ble H.C. of Gujarat adopted the same reasoning as was followed in Sports Club of Gujarat( Cited supra) in Karnavati Club Ltd. versus Union of India [2010 (20) S.T.R. 169 (Guj.)],and further amplified it by stating that : “For the applicability of service tax, there should be existence of two sides/entities, viz. transaction as against consideration. In a “members club” there is no question of two sides. “Members” and “Club” both are the same entity. One may be called as “principal” when the other may be called as “agent”. Therefore, such transaction, in between themselves, cannot be recorded as income, sale or service.” The same has been maintained by the Apex Court in 2010 (20) STR J44 (Supreme Court) and has thus

become the law of land by virtue of Article 141 of the Indian Constitution. It is thus explicit from the ratio of all these judgments that as far as Members’ club are concerned the question as to whether there can be a service interse between member`s and the club is settled in the negative. Though the levy appears to be sustainable in relation to proprietor`s club where members and the club are different entity and the issue stands on a different footing. It is pertinent to mention that at present there is no deemed fiction existing in Section 65(25aa) in relation to Club’s or Association’s Membership Services that even the services between Members of the Members’ club and the club, interse, shall be a service for the purpose of levy. And absence of such provision can only complicate matters in future both for tax payers and the Revenue. ( The views expressed are personal)

Source: Service Tax Review

Bits & Bytes July 2013

Lean and thin investigating agencies always perform the best: Of many premier investigating agencies that keep helping the Government in crime control and detection, the experience shows that the best performing are the ones who are of latest origin and/or lean and thin in its manpower and operations. We have many examples of agencies who performed very well initially whether of Home Affairs or of Revenue, but now have become a burden and are riddled with corruption in their own mini cadres. The moment a premier investigating agency increases its staff strength, the instances of corruption with in it go up. Example of CBI officers being caught, by the same agency , and also of leakage of information pertaining to its operations by its own staff have alarmed that agency. DRI, Income Tax (Investigation), NCB, Directorate of Enforcement and even DGCEI is also not untouched by such instances. Agencies like EIB, Financial Intelligence Unit in Ministry of Finance and now National Investigation Agency( NIA) who have been keeping themselves lean and thin and hive off petty or unrelated work and are focused on their own area of work, perform well even when not much in media glare. Recently, it is observed that NIA has been doing quite a good work. Of particular mention are its operational intelligence which led to detection of Rs.200 crores worth of cash along with gold and diamonds in Mumbai in a joint operation with Income-tax. It is not that this will have been first instance of such a huge

consignment of cash, moving like this. But all other agencies in a city like Mumbai were either unaware or did not bother , till NIA gave inputs and made the detection possible even though its area of focus is terrorism related offences and trail of funding of such operations. Even the way it is proceeding in investigations relating to killing of Congressmen in Chattisgarh, where needle of suspicion points to a serious political plot or collusion of some elements, with in the politicians, is commendable, as it is carrying out its investigation without any fear or favour and is out to expose the bigger plot. In fact, the Premier Investigating Agencies by their very nature should focus on bigger crimes and should have rather quality personnel than just in numbers. Even if these agencies, at some stage get bogged down in litigation of matters booked by them, they should hive off their litigation to some specialized units rather than getting enamored with increasing their staff. For instance, EIB does not get involve in investigations but passes of intelligence to other agencies and focuses only on its hard core business. For any new investigation agency the burden of litigation to begin with is less, therefore it is able to focus on its objectives. Later it gets bogged down in litigation, requirement of more staff, whose number if increased brings its own share of problems like internal bickering and politicking, corruption and lack of focus leading to deterioration of high initial standards set by such agencies. Does it mean that a good investigating agency like a SSI unit ( which finally gets crushed with the legal compliance burden) has an effective life span of about 20- 25 years only? And the way a shrewd Entrepreneur of an SSI unit starts looking for opening a new one after some time, same way even good Ministers should explore starting a new such agency, every now and then.

Tourism 2050.-Mount Everest by road- The Uttrakhand devastation has exposed the dangers of uninhibited growth of habitations and infrastructure in high terrains. The way habitations are growing at high altitudes leading to warming up of these places and the way Governments especially of China and India are unconcerned to the perils and exploiting the resources at higher altitudes, this seems to be quite a realistic scenario. Nature`s warnings are just going unheeded like a common man`s complaints against the systems. In 2005, it was Mumbai flooded due to dwellings in the course of Mithi river. In 2010-Ladakh flooded due to cloud burst in the course of Indus. And in 2013-cloud burst compelling Mandakini to follow its abandoned west course in Kedarnath, causing devastation. Clouds cry and roar but

their voices are lost in the din of Economic Development. Already, the hill stations for spending summer have moved higher from altitudes of 7,000 ft. to 13,000 ft. with Nanital, Shimla,Mussorrie , Dalhousie etc. being what Delhi was in 1960`s. As the developers never miss such opportunities, therefore expect Ads, phone calls on your DND mobiles, SMS, e-mails proposing to sell a house at the roof of the world with 360 degree panoramic view from a multistoried at Mount Everest- the highest address in the world( higher than Burj Khalifa) in what was once having enough snow to get you water. Expect enough snowfall again, if the civilization in the lower reaches end any day.

Slim and thin bride for a groom: In case you are really interested, then one place highly recommended is the Cabin and cockpit of “ Go air” . With its obsession of cost reduction and cost cutting, the airline which was already having a thin cabin crew has further decided to employ thin female as air hostesses and pilots as every reduction of one K.G. of weight results in savings. Every additional kg on board costs Rs 3 per flight hour. With an airhostess weighing about 15-20kg less than a male flight purser, Go Air expects to save about Rs 2.5 crore to Rs 3 crore annually. With the `Go Air” having a policy not to accept 10 Rs. Coins for payment of eatables as the same may be required to be carried in next flight and to accept only Rs. 10/- notes. The weight wars in the aircrafts have just begun with Indian Airlines also wanting to do the same. Weight reduction for persons like me therefore becomes synonymous with cost reduction in future. Slim female can in turn expect to become more employable.

Bits & Bytes May 2013

Cost of Boston blasts—It is not without reason that we, most of the Indians, wish generally that America remains peaceful and free from any acts of terrorism. As far as India is concerned, it in any case survives and has been surviving for millenniums, by God`s decree, despite external and even internal forces plundering it for centuries. Such is the destiny of this nation that civilizations which attacked or plundered it, got wiped off from the world map or are occupying a very small space on it. But this nation has survived. Those indulging in loot will not be there tomorrow leaving whatever they collected to be enjoyed by someone else. However, the reason for prayers for USA, is driven by self interest. The life for an average Indian was much simpler prior to 9/11. Same changed thereafter. Now after a dozen years and another attack later on the soil of USA, one can expect more vigorous security checks, submitting KYC papers with photos to all banks, stock brokers, insurance agent etc. The adhaar card may not have been delivered but, will still be asked for. In fact, I have got so fed up submitting my KYC norms papers to these agencies that I reserve my worst photos and their copies for these only. Therefore

compared to the one at the top here, the photos submitted will sure show me like Paan Singh Tomar in his later avatar of life. About the Adhaar photos lesser said the better. In fact, Femina, rather than selecting Miss India through such a rigorous process can select on a single criteria- Beauty is what appears in the Adhaar card to be so. Coming to attacks in USA, last time banks were required to report various transactions to designated agency. But this time it may be that reporting buying of pressure cookers will be mandatory to another agency designated for the purpose. Which if I am allowed the liberty to suggest a name can be called ` Pressure cooker blast prevention agency’ and can be headed by a Joint Secretary level officer. Marathons may gradually become confined to Greece i.e. the country where it originated and may require security approval to hold from International Olympic Association . The presence of security cameras may increase and may even require a separate law indicating what to record and what not to and where all to place cameras. In short, there will be life redefining changes, which normally Government may not have brought about if the blasts by terrorists had occurred on Indian soil, as placing more police barricades alone is the stereotyped response.

Publicity by Revenue Boards: The tone and tenor of publicity by both the revenue boards has seen a marked shift in the recent months. While earlier the emphasis was on nation building through tax compliance and tax payments. Now, it is terrorizing the tax payer and non-tax payer equally- You are being watched. You spent so much on buying your wife or girl friend precious jewellery- tax man can always nab you. You spent so much on credit cards, taxman can catch you. This sure makes taxmen as dreaded as wife or girl friend, as the case may be. Service tax not to be left behind also displays its newly acquired muscle power of arrest and prosecution in its advertisements. Since it is felt by the mandarins that threatening has helped them in meeting downward revised target in the last fiscal, one can expect that soft advertising aimed at voluntary compliance is now consigned to archives. In the last three months, tax

administration has also shown that the period of bonhomie between it and the tax payer is also over and that if fiscal target requirements so warrant, all out recovery actions will be taken whether or not it increases unnecessary litigation. Incidentally the last honeymoon lasted longer that it is normally expected to be. For, there cannot be a long term relationship between tax payer and tax collector. Tax reduction is a myth in long term. Tax collectors job is rated as the sixth toughest in the world. Therefore, options are limited. What in the modern context makes it more difficult is that need for more revenue arises in the year(s), when economic growth is not robust. The ultimate solution may lie in for the Finance Minister to create a Revenue Buffer Fund, where in a percentage of cash inflows can be made when revenue exceeds targets and outflows can be made in the year of economic or natural crisis. This will help in making people feel that the Government empathizes with them in the year of sluggish economic growth. Revenue Publicity, then, can again cajole tax payers

. Bits & Bytes April 2013

Lady three wheeler driver in Delhi: While even Sri Lanka can boast of many such drivers and even war torn small city of Jaffna has many. The lady three wheeler driver are still a far cry in India. Delhi has just one for the last 10 years and that too not much talked about in the media, unlike her female counterparts in army, police and civil services who were the first ones to join the concerned vocations. With the crimes against women increasing by the day, it is definitely a brave decision on Sunita’s part to take up driving a three-wheeler as a career. And more so because it is a domain which is predominantly male oriented. From standing in long queues to get a tank full of CNG, to dealing with bad and at times drunk customers, to fix a flat tyre or attend some immediate breakdown repairs are some of the routine chores which a three-wheeler driver needs to tackle on a regular basis.

Well for those who may be interested to know about this brave lady. “I’ve never cared about what society thinks,” she said. “You can’t feed yourself if you follow society.”Chaudhary’s conservative family didn’t approve of women working outside the home. So, she left her hometown more than a decade ago, and came to Delhi.“I did not have money or the education to support myself,” she said. “All I had was the strength and determination to do something in life.” After working odd jobs, she struggled for three years to get an auto rickshaw license, due to the difficult nature of getting a commercial vehicle license. For years, Chaudhary rented an auto rickshaw for Rs.400/- a day, leaving little money leftover for daily spending. “I would sleep in the auto, and get ready and change clothes at the public toilets at the railway station,” she said.Eventually, she received a government loan to buy her own auto rickshaw, and she paid it back overtime. Several years later, she still hasn’t told her family about her job.“I eat well, and I can pay off my rent with the money that I earn. I make ends meet,” she said.Her daily earnings: Rs.500/- on average.Chaudhary says it’s a risky job and she’s also been harassed by the police. But, she’s determined to keep driving. She avoids belligerent passengers and if someone threatens her, she says she acts tough and rude.“Work is work, and if something bad has to happen, it can happen if you’re sitting at home,” she said.

While she is the first in her line, she has not been a trend setter despite being there for the last 10 years. We really wish that she inspires others as well. If we have to make Delhi safe post Damini, perhaps more than lady police constabulary, we need women auto, taxi or even bus drivers in big numbers. The minimum that the Delhi Government can do is to make learning of such driving and making of their commercial licenses free to really encourage such drivers. I hope someone is listening in the administration.

Babus better than the employees of private companies: Pulling up of DISCOMS by the Ms. Shiela Dikshit for their erratic record of attending to complaints of electricity consumers has brought to the fore the fact that atleast babus of DESU had a better track record on this count than the private companies. That was probably because the senior officers in the Government were available to pull them up. But the employees of the private company hardly bother to attend to the complaints of the public. In fact, even in case of builders one can hardly find any website having a mechanism to listen to the complaint of buyers, as most of the things that go wrong either happen as a part of the decision at the top or is in the know of the top management. Going by the experience, people have started

realizing that government employees or even of the nationalized banks were better lot to deal with, because the erratic could be pulled up by the immediate boss or may be next to it.

The Senior citizen and the unexplained income:

This one is especially for IRS.

The IRS decides to audit a Senior citizen and summons him to the Income tax office.

The INCOME TAX OFFICER was not surprised when Senior citizen showed up with his advocate.

The Income Tax officer said, Well, sir, you have an extravagant lifestyle and no full-time employment, which you explain by saying that you win money gambling. I'm not sure the Department finds that believable.

I'm a great gambler and I can prove it says Senior citizen. How about a demonstration?

The Income Tax officer thinks for a moment and said, Okay. Go ahead.

Senior citizen says, I'll bet you a thousand dollars that I can bite my own eye.

The Income Tax officer thinks a moment and says, It's a bet.

Senior citizen removes his glass eye and bites it. The Income Tax officer's jaw drops.

Senior citizen says, Now, I'll bet you two thousand dollars that I can bite my other eye.

Now the Income Tax officer can tell Senior citizen isn't blind, so he takes the bet.

Senior citizen removes his dentures and bites his good eye.

The stunned Income Tax officer now realizes he has wagered and lost three grand - with Senior citizen's advocate as a witness. He starts to get nervous.

Want to go double or nothing? Senior citizen says, I'll bet you six thousand dollars that I can stand on one side of your desk and pee into that wastebasket on the other side, and never get a drop anywhere in between.

The Income Tax officer, twice burned, is cautious now, but he looks carefully and decides there's no way this old guy could possibly manage that stunt, so he agrees again.

Senior citizen stands beside the desk and unzips his pants, but although he strains mightily, he can't make the stream reach the wastebasket on the other side, so he pretty much urinates all over the Income Tax officer's desk.

The Income Tax officer leaps with joy, realizing that he has just turned a major loss into a huge win.

But Senior citizen's own advocate moans and puts his head in his hands.

Are you okay? the Income Tax officer asks.

Not really, says the advocate. This morning, when Senior citizen told me he'd been summoned for an audit, he bet me twenty-five thousand dollars that he could come in here and pee all over your desk and that you'd be happy about it.

I keep telling you! Don't Mess and do unnecessary scrutiny of senior citizens!!

Bits& Bytes February 2013

Proposed Tax for Super-rich

For the forthcoming budget, the enhanced tax slab for super-rich is being debated. With the moderation of tax structure being the avowed aim of liberalisation, the tax on super-rich may only turnout to be a tax on some of the rich employees. If the government is really serious about garnering some revenue and also in taxing the super-rich then ideally it should tax the dividend of more than Rs 50 lakhs being received in the hands of an individual at a higher slab of 40%. With the Director’s fees being in most cases subjected to Service Tax, this is the only area by which super-rich can be taxed and a good amount of revenue can be collected. Hope the present FM will do some out of the box thinking and shall be receptive to the idea rather than just taxing the salary and other incomes and leaving aside the rich dividend recipients, who are mainly corporates Managing Directors, who as the track record shows have indulged more in amassing wealth and building individual assets for luxury rather than doing anything substantial for meeting the social responsibilities of the nation, despite being reminded about it by the PM of the country. As a measure of empowerment of such tax payers, they can be asked to indicate their choice for the areas where they would like such tax to be spent.

All for the sake of Kachorris- Maharaja`s employees taste buds.

Despite pumping of so much of money, the bad news continues to pour for Air India. With the fleet of its Dreamliner Aircrafts, which was supposed to ensure its turn around and which consumed most of its financial package, already grounded. The whims and fancies of some of its errant staff also causes a financial drain for it. This, apart from operating on not so lucrative routes and providing below par

passenger services. The Maharaja must be worried as it had to recently deal with tantrums of one of its “Kachorri Queen” as its pilot. In this instance, the pilot was keen to collect her Kachhoris ordered to be picked from Jodhpur. And for that she preferred to fly the aircraft to Jodhpur rather than taking it direct to Delhi and for which she was directed to fly. This left the passengers in the lurch and facing the ordeal. Perhaps this may be the classic example of its kind in the civil aviation history where a pilot preferred her individual indulgence to the call of duty and thereby invited vigilance action. On the flip side, if the Halwais and Namkeenwallas of Jodhpur decide to get their onion Kachhoris registered under the Geographical Indications Act, then the caption ‘the Kachhoris that can make the Maharajas go stray’ can provide a good punch line to indicate their popularity.

Old pontoon bridge no more- It was here for decades, gone today- In one of the biggest day light robberies of public property in New Delhi, the famous and historical Pontoon bridge standing on its iron capsules has been stolen through the nexus of Delhi scrap dealers and PWD officials by forging a fake license from PWD and a permission letter from U.P. Irrigation department. The boat bridge was originally known to have been used by mutineers in 1857 to reach Delhi from Meerut. Five tonnes were stated to be recovered during investigations kept in a godown in Delhi. It is surprising that robbers could get away from whole of the Traffic Police all these days when they were taking away the bridge part by part. Now the next question is whether the Authorities have the wherewithal to prevent Taj being sold to any marble dealer in future and cops at the street level are intelligent enough to check removal document s presented for the purpose.

Bits & Bytes ; January 2013

New hopes for the new year: The turn of the year from 2012-13 was one of the most turbulent, I have seen during my life time in India. The events leading to death after rape of ` Damini’ have highlighted the collective failure of our society to enforce law and has also shown the disconnect that law makers have with the present generation of India. Whether, it should be enough to shake the judicial system out of its tardy actions over such matters or not, only time will tell. The matter has also raised the issues relating to sensitivity of the Police in such matters specifically and over its functioning generally. If one has to put the Police stations in various parts of the country to a simple test of how much they aspire confidence even in its own personnel to send their daughters to these premises, one can have the actual measure of what is wrong with the system of Policing in India. The leaderless protest that followed the incident also show that politicians are fast becoming or atleast are considered irrelevant, though many of them may not understand it as yet. As far as women are concerned they feel betrayed by their own lot of empowered women who have hardly done anything for them, despite being in relevant positions in the State and Center. Lack of Governance is another serious issue which has been brought to the fore, it is but natural that

corruption whether at the top levels or mid rung has its perils of erosion of authority of those who reap the financial benefit out of it. Common Wealth Games had shown us how builder mafia had defied Governments because there was certain degree of confidence that lapses and delays will be accepted by their partners in Governance. Incidents, like the rape of Damini have shown that corruption at the street levels of persons concerned with the governance has also eroded their authority with petty criminals who after bribing small amounts feel emboldened to commit bigger crimes. One can really count the Politicians who are capable of taming big corporates today, on finger tips. This is just the reverse of zero tolerance concept, whereby the criminal expects that even his bigger indulgences should be tolerated by Person in Governance befriended by him. Fast Track Courts have been inaugurated to show that matters like these will be dealt with quickly and severely, but may be for a while. It also shows that other matters pertaining to criminal justice system will continue to be laggards. May be the Government will spend money on such courts for a while as it suits the political purpose to show will to act, on issue on which society has reacted. The clamor for dealing with and preference for economic offenders rather than offenders of more heinous crimes( if they are not economically well off) is leaving the policing resources in most of the states with little time to deal with offences like murder, rape and other capital offences. One only hopes that the new year which has kindled hope that after the need for changes, the same shall eventually be brought about, witnesses the same happening in a good time and for the good of this country.

Male chauvinism or false pretence: Male chauvinism it appears, contrary to what many women may believe is not confined to India alone, as the following story will tell. Northern Chinese resident Jian Feng divorced and sued his wife for $120,000. The story goes that Mr. Feng was deeply in love with his beautiful wife until they had a baby girl.

Feng was horrified at how ugly the baby was and demanded to know why his wife had cheated on him because the baby resembled neither of the parents. As it turned out, his wife had been loyal to him, but had glossed over the fact that she had spent $100,000 on intense plastic surgery to severely change how she looked before she met him. After his wife revealed this to him, Feng took his course of

action and divorced and sued her, claiming that she got him to marry her under false pretences. The false pretence presumably being that she was good looking. Incredibly, the male judge sympathised with Feng and he won $120,000 in the case. He won the amount he sought, while his divorced wife had spent $100,000 on extensive plastic surgeries by apparently very talented South Korean surgeons. The skin deep beauty indeed cost shelling out a fortune from the deep pockets. May be its time, that cosmetic surgery is evolved to the extent that even next generation can be made beautiful right at the time of the birth. If so, the marketing strategy can be developed to offer- Get one done and get the next generation free.

Political Management – more of a shepherd`s job- Keeping its flock together is fast becoming difficult for National political parties. We have in the list, the quickly withdrawn `dented and painted’ remark of Abhijeet Mukherji about the women demonstrators at a point of time when law and order situation was really fragile. The tributes paid by Ms. Sushma Swaraj to the departed girl were accompanied by remark from the politician of the same party about dressing code for women on the same day. We also had a Haryana Minister calling Geetika Sharma as the wrong choice for a servant of Gopal Kanda. Earlier we had a Congress Minister excusing himself from the remarks he made about old wife not looking attractive and a BJP politician incurring the wrath of Rakhi Sawant for using her picture in a not so appreciative poster. Mulayam`s party also had a state level politician justifying corruption only up to theft level and not robbery. It appears that there is a lot of scope for learning about political correctness in most of these parties. An advertisement on the TV aptly captures the mood of the public in this regard, when a child while watching a channel where a politician is giving his discourse, asks his father to show him another channel where another joker is in action. With the media always being around to get the sound bytes and with some politicians mostly suffering from verbal diarrhea, keeping their party men to follow the policy of not having their foot in the mouth can indeed be quite a task for top leadership of the Parties.

C.B.E.C. or refrigerator? Going by the number of times (starting from December 2011 to October ,2012), C.B.E.C. and its field officers have gone about freezing the account of Kingfisher to defreeze and then to refreeze it again, C.B.E.C. can legitimately claim to have acquired the sobriquet of ` Refrigerator’ for itself. The dates for freezing run as 9.12.2011, 25.02.2012, 3.3.2012 to

5.10.2012, however there have to be equal number of dates for defreezing which are not available. Hope that appearance made by Ms. Parveen Mahajan, Chairperson( C.B.E.C.) in this regard in the electronic media in October,2012 proves final and no more indulgence is shown to this particular assessee to the exclusion of others not so influential.

Remand with or without Pre-deposit: What is the correct Approach?

At all levels right from Tribunal (even within the same bench), various High Courts and right up to Apex court, no one seems to be knowing, but still everybody seems to be following what is the correct approach as per them. The contours of controversy can be deduced from the following case law:

Firstly the Tribunal:

Joseph Philip versus Commissioner of Customs, C. EX. & S.T., Goa [2011 (265) E.L.T. 201 (Tri. - Mumbai)]

Remand - Pre-deposit, requirement of - Impugned order finding fraudulent use of Customs duty exemption, and in appeal, no arguments advanced against that finding - It was a fit case to impose condition of pre-deposit on remand of the matter to secure government revenue - Fact that while denying credit of duty, adjudicating authority did not tally entries in RG-23 with amounts in related invoices, was only a minor deviation, which could not be fatal to requirement of pre-deposit - Section 35C of Central Excise Act, 1944 - Section 129B of Customs Act, 1962. [paras 19, 22].

This was also followed up in order no. 729-730/2011/EX-DB, where while remanding the matter a condition of deposit of Rs. 40 lakhs was placed on the appellant in the matter of M/s A.V.I. Plast v/s C.C.E.,Delhi-I.

The same Divisional Bench while hearing the matter in the case of Laycock Engineers versus C.C.E, Delhi-II [Final Order No. 1030-1034/ 2011-EX] held:

Para 8. At this stage, we agree with the learned advocate that in terms of declaration of law by Hon’ble Delhi High Court in the case of Satvik Industries vs. CCE, Delhi — II.(supra), the pre-deposit of even a part amount is not required to be made, once the impugned order is being set aside in as much as the order confirming demand of duty and imposing penalty becomes not ‘non-est’. As such, we are of the view that the appeals are required to be remanded without putting the appellants to any condition of pre-deposit.

Coming to High Courts now, majority seems to be favoring the principle of `no deposit while remanding’:

In Nelco Limited versus Union of India [2002 (144) E.L.T. 56 (Bom.)], held:

Refund of pre-deposit when matter remanded - Remand, effect on return of deposit - Revenue not entitled to hold on to amount deposited as security when matter remanded for re-adjudication - Sections 35F and 35C of Central Excise Act, 1944. - The CEGAT’s order dated 24th January, 1997 remands the matter for re-adjudication by the adjudicating authority. In other words, the parties were put back to the situation of a show cause notice against the Petitioner being adjudicated by the authority. Mr. Jetley fairly conceded that there is no provision in the Act which requires deposit of any amount at the stage of adjudication and that the only provision which requires deposit is Section 35-F of the Act after the adjudication has quantified the liability towards duty. [para 6]

National Oxygen Limited versus Commissioner of Customs, Chennai[2008 (231) E.L.T. 410 (Mad.)] held:

Appellate Tribunal’s order - Remand - Conditions, imposition by Tribunal - Power of Tribunal - Order appealed against before Tribunal not a speaking order - Tribunal remanded matter with direction to assessee to pre-deposit 50% of differential value - Statutory provisions do not empower Tribunal to impose such a

condition for setting aside order appealed and remitting the matter back - In absence of power vested on Tribunal to impose condition, pre-condition imposed can only be regarded as arbitrary and without any statutory backing - Section 129B of Customs Act, 1962. [paras 16, 18]

Appellate Tribunal - Powers of - Power to impose pre-condition while remitting back the matter - Tribunal, a creation of statute, to perform its function in accordance with power conferred on it - Empowered to give directions to original authority while remitting back but no power vested with Tribunal to impose pre-condition - Section 129B of Customs Act, 1962. [para 16]

Remand with pre-condition - Appellate Tribunal remanded matter for conducting de novo inquiry, with a pre-condition - Liability of assessee to pay differential duty merged with order of setting aside, as until ultimate decision is rendered assessee not liable to pay - As there is no liability, direction to pay fifty per cent of differential duty as a pre-condition, based on order which has been set aside, is arbitrary exercise of power - Section 129B of Customs Act, 1962. [para 18]

Words and Phrases - Phrase “As it thinks fit” in Section 129B of Customs Act, 1962 - Terminology cannot be interpreted independently without having any regard to subsequent terminology used in provision such as confirming, modifying or annulling the decision - Phrase ibid only means to empower Tribunal either to confirm or to modify or to annul order appealed against - It does not empower Tribunal to impose pre-condition.

In Satvik Industries versus Commissioner of Central Excise, Delhi-II[2010 (252) E.L.T. 182 (Del.)] held:

Remand order with direction of pre-deposit - CESTAT directing assessee to deposit Rs. 30 lakhs for availing fresh hearing and orders by Commissioner in remand proceedings - Impugned order set aside by Tribunal on the ground of denial of natural justice - Once adjudication order quashed, condition on deposit not imposable - On quashing, order imposing penalty non est - Impugned Tribunal order relating to deposit of Rs. 30 lakhs set aside - Commissioner to decide as per Tribunal order without any deposit - Sections 35C and 35F of Central Excise Act, 1944. - We cannot lose sight of the fact that the reason for setting aside of the order-in-original was that the petitioner had been denied an opportunity of hearing. In such circumstances, the Tribunal, in our view, ought not to have imposed a condition for deposit of Rs. 30 lakhs which is clearly harsh and

burdensome particularly, when what the appellant is seeking is an opportunity of hearing. [paras 1, 2, 3]

Shiv Sewa Sadan versus CESTAT, New Delhi [2010 (254) E.L.T. 249 (P & H)], the Single Judge held:

Remand - Condition of pre-deposit while remanding matter - Tribunal remanded matter for reconsideration after noticing that huge demand and penalties were confirmed without benefit of reply or hearing to appellant- assessee - Condition imposed for deposit of Rs. 10 lakh by Tribunal while remanding matter assailed, submitting as without jurisdiction, as no condition of pre-deposit imposable - HELD : Demand raised over Rs. 1 crore with equal penalty beside interest, etc. - Amount required to be deposited cannot be considered as pre-deposit for hearing of matter afresh - No bar under Section 35C of Central Excise Act, 1944 that while remanding Tribunal cannot impose any condition - Tribunal’s order not suffer from any legal infirmity - No merit in appeal - No question of law - Section 35C ibid. [para 3]

Appellate Tribunal - Power to impose conditions while remanding the matter - No bar under Section 35C of Central Excise Act, 1944 that while referring case back to original authority, Tribunal cannot impose any condition. [para 3]

Now, at the level of Apex Court following decisions came up in appeal:

In Nelco Limited versus Union of India [2002 (144) E.L.T. 56 (Bom.)]

Maintained by the Apex Court Union of India v. Nelco Limited – 2002 (144) E.L.T. A104 (S.C)]. The decision was maintained after elaborate discussions and after referring to various decisions. The proposition that at the time of re-adjudication, Department in any case cannot hold on to the deposit also upheld.

The decision of the Punjab & Haryana High court in Shiv Sewa Sadan versus CESTAT, New Delhi [2010 (254) E.L.T. 249 (P & H)] was maintained by the Apex Court in Shiv Sewa Sadan v. CESTAT - 2010 (254) E.L.T. A40 (S.C.).

However, the same was maintained without elaborate discussions on the after effect of pre-deposit in case refund is sought.

What course of action is available to litigant assessee? Although, the confusion persists at all levels, but judgments of the Madras High Court in National Oxygen Ltd’s (indicated above), as also of the Bombay H.C. in the matter of Nelco Ltd`s case (upheld by Apex court) discuss in detail the reasons as to why the Tribunal cannot impose a pre-condition while remanding the matter and even if such condition is imposed it ceases to be of any effect, the moment re-adjudication process starts and assessee in any case becomes entitled to refund. In Shiv Sewa Sadan`s case, the P&H H.C. ( maintained by Apex Court) has not given the verdict on the aspect of after effect of pre-deposit on re-adjudication and even the decision of Supreme Court maintaining the decision is sub-silentio on this aspect, even though the decision is of later date than Nelco`s case. Therefore, for the assessee there does not appear any bar on seeking refund even if condition of pre-deposit while remanding is placed on him. And then who knows he may even get to earn interest on such amount of pre-deposit sought to be refunded, if apex court holds on to its view in Nelco`s case.

The Pan Masala Packing Machines

The not-so-happily worded Rule 9 of The Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (hereinafter referred as the “Rules”) has led to adoption of absurd interpretation by some of the Commissionerates causing undue hardship to even the tax compliant units within the “Guthkha” industry by raising hundreds of crores of demand, despite discharging due duty with interest. It is noteworthy that the interpretation adopted by some of the departmental officers has the potential to make Proviso 2 of Rule 9 redundant as according to their interpretation, an assessee who pays duty with interest even after a mere delay of 1 day from the due date i.e. 5th day of the same month; shall be liable to pay duty as per Proviso 7 of the said Rules. In other words, the migration from the main Rule 9 requiring payment of duty by fifth of the same month to Proviso 7 shall be instant. And an assessee paying duty under Proviso 2 with interest will still have to pay higher duty under Proviso 7. The relevant portion of Rule 9 is extracted below:

Rule 9: Manner of payment of duty and interest: the monthly duty payable on notified goods shall be paid by the 5th day of same month and intimation in Form 2 shall be filed with the Jurisdictional Superintendent of Central Excise before the 10th day of the same month:

Proviso 2: Provided further that if the manufacturer fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with the interest at the rate specified by the Central Government vide Notification under Section 11AB of the Act on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the outstanding amount:

Proviso 7: Provided also that in case a manufacturer does not pay the duty payable by the due date, and continues to operate any packing machine, then till the time such non-payment continues, he shall be liable to pay the monthly duty based on the number of operating packing machines declared in the month for which duty was last paid by him or the total number of packing machines found available in his premises at any time thereafter, whichever is higher.

Unlike, various other tax legislations like Income Tax Act, 1961 and Central Excise Rules, 2002, wherein certain grace period is provided for without attracting penalty but on paying duty with interest without penal consequences, the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 do not specifically prescribe any such grace period. Therefore, the field formations are following inconsistent and differential practices, with some formations not even allowing one day’s delay and others even after 3 months or more delay allowing payment of duty with interest, without resorting to demand the duty under Proviso 7.

It shall, therefore be prudent that the Central Board of Excise and Customs prescribes any reasonable time frame within which duty can be paid under Proviso 2 without attracting Proviso 7 or may clarify that by virtue of Rule 18 of the said Rules read with Rule 8(3A) of the Central Excise Rules, 2002, the grace period shall be 30 days or any other reasonable time period may be prescribed. The relevant rules are reproduced below:

Rule 8 of the Central Excise Rules, 2002

Sub- Rule 3 A. If the assessee defaults in payment of duty beyond thirty days from the due date, as prescribed in sub-rule (1), then notwithstanding anything contained in said sub-rule (1) and sub-rule (4) of rule 3 of CENVAT Credit Rules, 2004, the assessee shall, pay excise duty for each consignment at the time of removal, without utilizing the CENVAT credit till the date the assessee pays the outstanding amount including interest thereon; and in the event of any failure, it shall be deemed that such goods have been cleared without payment of duty and the consequences and penalties as provided in these rules shall follow.

The mandate to apply this Rule in absence of any other grace period indicated in Rule 9 of the Rules is available in Rule 18, which reads as follows:

18. Provisions to apply mutatis mutandis.- Except as herein provided, all provisions of the Act and the Central Excise Rules, 2002, including those relating to maintenance of daily stock account, removal of goods on invoice, filing of returns and recovery of dues shall apply mutatis mutandis.

Indication of grace period in the language of Rule 9 of the Pan Masala Rules or through a clarification by the CBEC will result in uniformity of practice by the field units and will also avoid undue hardship to the assessees who are unable to pay duty by due date, due to unforeseen circumstances, which may result in delay of a few days. Further, while tax legislations provide for penalty in case of undue delay in payment of tax, there is no legislation known to provide for enhanced duty and penalty on it, as envisaged under Proviso 7. As Central Excise levy is essentially a tax on goods manufactured and not a tax on delayed payment, therefore Proviso 7 needs to be properly worded to call the enhanced duty as penalty on delay rather than duty on delay.

Since an identical provision also exists, mutatis mutandis, in Rule 9 of Chewing Tobacco and Unmanufactured Tobacco Packing Machines Rules, 2010, a similar treatment of providing grace period may be required there also.

(Views expressed above are personal.)

Source: Excise Law Times

Bits and Bytes By Somesh Arora

* India`s Medical tourism: Equally interesting is India`s bid to promote its medical tourism. Only the medical authorities need to be aware of the compensation packages they will have to grant in cases of medical negligence involving U.S.A or E.U. citizens. While Satyam/ PWC has shelled out huge compensation to US shareholders for the accounting fraud, even the shells of groundnuts are nowhere in sight for Indian Shareholders. So, kindly consider this. The Lady Doctors and their supporting staff in a Government Hospital in Kerala, just to have an extended Good Friday did cesarean on all the expecting mothers, about more than twenty, so that they are not disturbed on Friday, Saturday and Sunday by the natural birth call of Mother Nature. The very fact that India`s maternity clinics and hospitals have a norm of 20 percent only, deliveries to be cesarean and that there was a need felt to fix such a norm indicates that not all is well with the medical care of India. While the mothers that were treated as guinea pigs may not get a

hefty compensation, doing the same acts with the foreigners can put the hospitals under the hammer. God forbid the lady Doctors, if during their extended weekend they end up becoming expecting mothers and have to come for delivery in the same hospital.

* Joining on a Good Muhurta: While the dateline fixed for implementation of transfer orders was still little away, about 80 percent of the order, by the directive ostensibly of the Top man in C.B.E.C, who was supposed to be on call with all the Chief Commissioners, got implemented on the day of Akshya Tritiya. No harm in going in for auspicious Muhurta in a country, where Political parties to PMs to CMs all like to join on a good Muhurta. Here was not only a transfer order, but accidently or otherwise, pains were taken to choose a muhurta for its implementation. Only in a number of cases, where matters were heard the outgoing commissioners never got time to pass the 90 percent pro-revenue or 10 percent pro-assessee orders and same will be subjected to a re-hearing with almost the same result. All this should not come as a surprise as even the Kautilya`s Arthshastra indicates how the Custom posts should be located facing north with collector`s facing east as the way to augment Ex-chequer`s revenue. Further, In the times of sit-ins and hunger strikes, (Swami Ramdev being the latest announcing to do so from 4th June), it is advisable to start the sit-in in some auspicious Muhurta too, so that one is finally able to stand up also with his demands met.

* Budget and changing times: Why is budget of India mostly presented on 28th February continues to be a mystery to me? Varied reasons like agrarian nature of economy warranting budget to be passed close to April during British time or time taken by ships carrying Indian budget to travel by sea from London to India have been given, but the web search has not yielded much. The fact is that today 65% of the economic world follows calendar year as the fiscal year and it makes much sense for India also to shift to passing of the budget in October- November so that Business Enterprise do proper tax planning and take informed decisions while placing their import orders etc. in tune with majority of the trading nations. The only change which we have made since the Raj times is to shift Budget speech to around 11A.M., from earlier 5:00 P.M. Another change which is desirable is, that since now most of the changes in legal texts, as happened in recent budgets like in Section 11A of the Central Excise Act or in Penal Provisions relating to Service tax are announced in Budget, and therefore the same can be debated in advance in public. Such changes require an air of secrecy can be no one`s case, as these do not pertain to fiscal policy or tariff. In fact before the budget even Point of Taxation Rules were placed in public domain. It is other matter that most of the debate took place only when people saw them in the budget.

Garlands of the Border Village

Garlands of the border village: This one happened while I was posted as Assistant Commissioner on Punjab border in 1990. On tour to Amritsar from Chandigarh, Commissioner suddenly decided to make a visit to some border villages and Border Out Posts( B.O.P.s), which were at the relevant time taken over by Army from B.S.F. On receipt of message at Wagah Border, the Brigadier In charge was informed of the visit to extend courtesies and protocol. The visit though happened at short notice went off well with expressions of happiness and thanks by the Commissioner. On visit to one of the border villages which was half in Pak territory and half in India, the Village Sarpanch extended courtesies by welcoming and offering quite a few garlands to Commissioner and also the usual tea and snacks. Visit over, it was time for us to thank the Sarpanch for all that he did. The Brigadier accompanying me was however surprised and could not help asking the Sarpanch as to how he managed to arrange the garlands at such a short notice, as the nearest market place was also a 30-45 minutes drive and all that he had was 15-20 minutes’ notice. The reply was amusing and also showed the quick witted rustic wisdom of Punjabis at the border. “So what, Sir, the moment I got your message, I told my folks to keep the garlands ready and they all quickly brought it from the photos of their dead ones to offer to the

Commissioner”. May suffice to say that the garlands were got retrieved, and sent back to Sarpanch to put them back to the place where they belonged.

Rare gems on the rear side of the Trucks : A peaceful drive on the G.T.Road especially in the North can be pleasure for the messages that are carried by the truck owners on the back side of the trucks. Savour some of the recent ones with the crude translation:

1. Sasti Daru, mehanga petrol. Jhum da jat dawe gadi rok.—Ever since the liquor has become cheaper than petrol, many wayward boozers stop me on the way.

2. Vehicle with registration number 1670- main jad to ho gayi 16 di, mere piche pe gaye 70 de- Ever since I have become sweet sixteen, I am being chased even by the 70 years old.

3. And to keep the traffic cops at bay- Mame naal setting- Cops( Maternal uncles) are all set with me.

4. Buri nazar wale, NRI ho ja- You with the evil eye go and become the Non-Resident Indian.

Sote raaho’ to have some alibi. Divorce petitions will be more on the grounds of `snoring’ than on cruelty. Government meetings will become a good venue to sleep for some babus without getting disturbed. Teachers disturbing the sleeping student during boring lectures will be considered as violators. Lawyers will have to shut themselves if adjudicators go to sleep during hearing. More than anything else we will see litigation right up to apex court to define where the right to sleep will be available and what will constitute reasonable restrictions in public interest, on the same. In brief, happy days for lawyers again.

Republic of chicken versus Banana republic: This one is motivated by the story of Sh. K.D. Singh , the owner of Alchemist group who after making his company a strong 10,000 crore outfit in matter of 30 years has decided to leave his verticals like food processing, health care and management of his companies to his sons, not so late in life and to dedicate himself to public life. Since, the Singh is more famous for his ` Chicken republic’ brand, it is but natural that he should enter the political arena by contesting with `chicken’ as his election symbol to encash on his already existing brand in Punjab and in North India. Once he enters in the fray, I can also start selling bananas in India under the brand name of `Banana republic’ and may be one day float a political outfit with election symbol of Banana and give Singh some political competition. While he may be able to garner all the non-veg votes, I can also think of further dividing Indian electorates on the basis of veg and non-veg and thus offer a new dimension to Indian electoral politics which is already divided on the basis of caste,religion,class, ideology, ethnicity and what not. I can foresee that his party will dominate in North, while mine in South, East and West and may eventually give victory to my brand ` Banana republic’.

Simple law makers- Simple laws : Problem with service tax think tank in the North Block seems to be that we have too many intellectuals and intelligent people handling the tax law and policy making process now for some years. The outcome is one of the most complicated and confused law in hand, hard to understand even for lawyers not to talk of common man. May be the job can be better performed by Officers of simple understanding. The law

made can be made to be understood by any average educated Small Scale Service Provider tax payer. For if he understands the law it can be understood by most Indians. We can even call it S.S.S.P. test of understanding quotient of taxpayers. I am sure most of our present Service tax law makers will know what is wrong with their law and Policy making and it will also mean less frequent amendments in the law. For that law is the best that needs least amendment over a period of time.

Poverty Line and Narcotics Drugs

Poverty line and Narcotics drugs: If there is one thing common, between the poverty line of Rs. 32/- for urban area and Rs. 26/- for Rural area per family consumption as fixed by Planning commission and the Price of Rs. One crore per K.g. of Heroin, then it is that the prices of both refuse to budge, for the last thirty years. While poverty line definition seems to be talking of prices as were existing thirty years back, price of Heroin as reported in various seizures continues to be the same over this period. In this world, only the persons on drugs seem to be enjoying an inflation proof smoke. There have been suggestions in the past, that glorification of drug prices should be avoided and instead of quoting arbitrary figures of one crore per k.g. of heroin, which may only have effect of attracting more people to trade and of raising margin for persons in trade, agencies should quote figures in terms of lives saved. For example, take that a quantity of say 100 gms. of heroin is enough to make a person a drug addict and therefore seizure of one k.g. of heroin has saved 10 persons from becoming drug addicts. But like all good suggestions even this one does not find many takers in the bureaucracy.

Time for police personnel to do their own verification: A cop in Delhi loots one of his gold chains and kills two during his escapade. Another Cop in M.P. beats up and kills a mentally challenged person. Cops in Bihar let loose their lathis on women and Cops in U.P. kill a truck driver for not paying Rs. 5,000/- bribe. All, in a matter of one week. One really wonders if various State Police Departments that cajole all to get the servant verification as and when some incident happens are aware of the ticking bomb they are sitting on. More than corruption, it is criminalization which is becoming the issue. It is time, that Police Authorities do thorough antecedent verification of their fresh recruits and periodically thereafter.

Goodbye to appraising cadre: With the self assessment becoming the norm in Customs in pursuance of promise made by FM in the budget, appraisers are, no more needed for assessment work. It is time that C.B.E.C thinks of redeploying the Appraising Cadre, elsewhere and gradually of abolishing it. One good way of re-deploying it, can be Customs audit which is being thought of, as a substitute to regular

assessment by the Customs Officers. This will enable their skills to be gainfully employed and will meet the requirement of officers for this additional work.

Special Discount for Anna Pledge: The members of team Anna have now started focusing on getting public servants and members of public to pledge in writing that neither they will give bribe nor accept the same. One good way of popularizing the concept in the forthcoming Diwali Sales season, could be to offer special discount by retailers to persons taking Anna pledge. This will also demonstrate to the world that honesty eventually pays and also keeps the cash registers ringing for retailers.

CESTAT: The crying need for more benches: With the lisiting of more than 40 cases each day and members being required to give patient hearing, go back from the courts and dictate elaborate orders addressing each submission and then to go back home and read files for the next day. It sure is a Herculean calling. A similar amount of work load exists even in the High Courts and Supreme Court, but there the judges have the benefit of Research Assistants and young lawyers available to them. It is time that Ministry Of Finance should seriously think of creating atleast 10-15 benches of CESTAT to allow for clearance of pendency. It will also augur well for the functioning of the CESTAT, if members are allowed to have assistance of young lawyers on the pattern of High Courts and Supreme Court against monthly honorarium.

Negative List -Interesting Facets

Customs, more out of fear rather because of genuine accomplishments. Now that there are not many escape routes left for tax avoidance on the service tax side except entering the contract of employment, it will be of interest to see whether the Producers Guild reverts to age old practice of engaging actors as employees with the production banner- a practice which was common during the days of Raj Kapoor, Dev Anand and Guru Dutt, when such actors were receiving salary from Production banners like NavKetan, Guru Dutt films etc.. Further, if the law as has developed on the Provident Fund and E.S.I side is considered, there are many contracts which are termed as ` contracts of employment’, the duration and period of contract may not be a consideration. It will be of interest to watch how the case law on the side of service tax develops on this aspect.

Gutkha goes, survived by many- Few states notably M.P. , Maharashtra and H.P. in India have recently brought in or are contemplating a ban on Gutkha considering the same to be a health hazard and a food containing tobacco, if the Gutkha goes, it may be survived by its rich and influential cousin `cigarette’. This initiative has only one parallel and that was Bhutan, where the ban both on smoking tobacco and chewable tobacco was imposed, to be lifted later after six months because of administrative hassles it created. If cigarette smoking world wide has come down it is not because of any ban but because of public awareness being created about its ill effects. Selective ban on Gutkha is bound to lead to higher smoking of beedis and cigarettes, as some surveys have shown that atleast 20 percent consumers use these products interchangeably. Therefore one lobby will be happy at the cost of another and public health will continue to suffer. Smuggling in the course of time is bound to pick up or law shall

be subverted simply by packing tobacco and Pan Masala in different pouches to be combined for consumption at the end of the consumer. Consumption thus will not be stopped unless there is complete ban on all tobacco products, which option will again lead to consumption of stronger intoxicants or drugs. Taxing these products in the meanwhile to create a health care system is a better solution till awareness is created. Of many products that cause equal degree of harm to human health are pesticides sprayed on vegetables which are consumed by users without any knowledge and without any warning. In fact, situation is so bad that the farmers in Bhatinda( In Punjab), who were consuming their own field grown vegetables have been effected with cancer and have to take train at night for Rajasthan to get treated and the train has come to acquire the name of `cancer train’ because of the sheer number of patients it carries every night. What fate awaits the hapless and unsuspecting consumers who buy these products is any body`s guess. The adulteration of milk is so rampant that there is virtually no white colored substance which has not been used for it. The studies on the impact of such adulteration are hardly carried out by any N.G.O. as such studies are not backed by any corporate lobbies. The menace of transmission towers and brain cancer cases due to radiation from it are also likewise have not been subjected to any serious study, as there will be counter stories planted by vested interests or publication of such reports will be discouraged. There is a greater need to regulate these substances that act as Silent Killers. Adulteration affects still to be born, affects our health during our lifetime and adulterated medicines at the end of it and there are good chances that even the pure ghee that is placed on funeral pyres of many Indians is adulterated. No exaggeration, therefore in saying that an average

Indian is born with adulteration, lives with adulteration, dies with adulteration and even leaves behind its mortal self to be burnt with adulteration.

Crazy Laws Impossible Implimentation

Crazy laws, Impossible Implementation :

Labour of two and half year by one Inspector to clear one container If there is something that really surpasses the directive of Customs to clear inbound goods in containers, which do not have M.R.P. stickers on it while coming from country of the importation, only after putting the same in the Indian port, in terms of being impractical and absurd( since the possibility of massive congestion at ports has never been considered by the authorities, therefore the dictate in practice is followed more in breach than in compliance). Then, it is the requirement under Standards of Weight & Measurement Act,1976 ( soon to be re-christened as `Legal Metrology Act,2009) spelt out under its Section 41(3) that special category goods( which includes the mason`s measurement tapes) confirms to the Indian standards of such measurement and same has been verified and stamped with special seal in prescribed manner on each such tape by a local inspector before whom such measure ( say mason`s measuring tape) has been produced. Let us assume that a container of mason`s tape is imported from China( In fact many such are actually imported along with weighing machines to whom this provision equally applies) and both the importing party and the concerned Inspector are law abiding citizens of India. What follows next. The Inspector of that department reaches the container, starts opening 1,50,000 pieces one by one, measures them according to Indian standard piece, puts a verification seal and then repacks the same. Whole process will take minimum two minutes or 3,00,000 minutes for 1,50,000 pieces or 5,000 man hours or at the rate of working of 40 hours per week, by the Inspector (who has to work like a laborer), a total of 2100 hours per year or total of 2 years and 4 months to clear one container( not to allow for his earned and casual or medical leaves), otherwise the time can be more than two and a half years. And

the cost to the Ex-chequer in terms of average salary of Rs.30,,000/ per month for an inspector shall be staggering Rs. 8,40,000/- The law is an outcome of India, being party to an International treaty on Legal Metrology. Little wonder that in the market, both Indian tapes as well as imported tapes without verification and special seal are freely available.

Juta-mahima

Some one who picked it up for someone else, later became the First person of the country ,

Someone who cleaned it for the grand lady, had earned his award from the First person of the country,

Some one who threw it on George Bush ,became an eligible bachelor in the Islamic world,

Someone brought it Japani and sang his way into the hearts of millions in the communist world,

Someone got of his big brother to Ayodhya and proclaimed to the world, ` juta is king, juta is king’.

And there was some one who made India to wear it and polished off, the world wide `Ghata’ of his BATA.

But when I brought a pair for my wife as a valentine gift, she complained ` you always bring gifts for your use and this creates the rift.’

The hippo oath of vigilance week: With all the controversy about whether CVC should go or stay, whether his integrity is questionable or not, I am reminded of an annual ritual of observance of vigilance week with in Government of India, wherein, all the public servants of Govt. of India are made to undertake an oath of maintaining absolute integrity and honesty. That a number of them keep getting caught on the next day only, because vigilance agencies have also to meet their targets and show better performance in that week, is another matter. Why have such oaths, makes no sense to me. Statistics bear me out that since the process of administration of this oath started in India, it has only slipped in its ranking of being a corrupt nation. Why can`t we have laws which are simple and leave no discretion with individuals, so that corruption is reduced and pay the Government servants- a fair living wage as is enshrined in our constitution? Will it not make sense if the vigilance week is spent by getting and implementing suggestions from the Government servants on reducing cumbersome laws, procedures and systems, which can potentially reduce corruption? I have been told about a senior revenue official who herded all his staff to undertake the `Vigilance week oath’ by calling all his juniors as corrupt who at least deserved to be administered this oath, in a parrot like chorus. The guy himself had to cool his heels in the Jail two days later after being caught red-handed. If we cannot remove corruption from administration, let us not , make some of the Public servants, even Hippocrates by purposelessly administering such oaths.

Environment Ministry’s Mismanagement in Plastics Waste Management

At the insistence of the Apex Court, which had made it clear that the deadline for stopping usage of plastic pouches and sachets will not be extended beyond 1st March, 2011 and that the Ministry of Environment should notify the draft rules prepared in this regard, finally, the Ministry of Environment has acted and notified on 4th Feb, 2011 the Plastics (Manufactures, Usage and Waste Management) Rules, 2009. Since, the rules become effective from the date of the Notification , unless another date is mentioned, therefore, all users of the banned material, which prominently include Gutkha Industry were in for a rude shock, as all their materials including the ones already manufactured and even with retailers became offending goods overnight without even providing any lead time. This was sure a harsh step, as even S.C. had given an indicative dateline of 1st March, 2011. All Gutkha units which operated machines, were in any case required to pay Central Excise duty under the compounded levy scheme duty for all machines in advance upto 28th Feb 2011, running into crores, which is not liable to be refunded, as the Department takes the view that duty has to be discharged on the highest number of machines that may be operative during the month. They were virtually caught between the devil and the deep sea. As manufacturing means they will be pulled up by the sleuths of Min. of Environment and non-manufacturing means crores of duty paid as central excise going down the drain. Thanks to the Government, it appears that some of my Learned Brothers in legal fraternity are in for good times.

Negative List Services

Negative list of Services: With the introduction of negative list of the services, all the services other than those specified in the negative list have been included with in the purview of service tax, only largely illegal services of gambling and betting find exclusion in the negative list, so that clearly means that like Income Tax Act, 1962, where illegal income is also taxable, even illegal services are now taxable and come under the service tax net. We may, therefore, now have Service tax sleuths making up for their target deficiencies and booking service providers in C.B.I offices (for their chunk in corruption services). The classification though not required any more, and mere mention of `service other than services in negative list’ may suffice as description in the SCN, the description of activities can have funny sounding nomenclatures and may include: Intelligence leakage service, Kick –back service, Under the table service (for corruption), Decision writing service (as in the case of ITAT), Question asking service, cricket betting service, Compromise with the booky services, Heroin and Heroine supplying services, sub-standard arms purchase service, Note for vote services, making a non-existing road services. The list is only inclusive and not exhaustive.

-The world of code words-petti, khokha, bank, raddi, Supari: These words though are known to every one in the smuggling, anti-smuggling and Cine world, continue to be used because they add `peculiar to the line charm’ to the smuggling business. While `petti’ and `khokha’ are a `lakh’ and a `crore’ because of the size and volume of the currency notes involved, their size has not varied in last twenty years even though the value of currency has fallen. One lakh in Rs.1,000/- notes may even come in a pocket but still will be called a `petti’. While `greens’ were always the `dollar’, the falling `rupee’ value allowed it to be addressed it with not so pleasing `Raddi’. Expression `Supari’ for contract killing, has its roots in the old tradition of finalizing a commercial contract by exchanging `Supari’ or `pungi falam’ for evoking the Gods for the presence as witness to the contract. For C.B.I., usage of expression `Bank’ more particularly in South and West, may have its origins with the abbreviations of Central Bureau of Investigation and Central Bank of India, being the same.

- Central Excise Day- female members add color on dias: The Central Excise day this year was special in many ways. It is for the first time in the History of the Department that CBEC was represented more by female members than the men and their presence sure added color on the dais and therefore not only the event was colorful but even the dais. Going by the functioning of the Department at the top, their presence in the Board is sure being appreciated as all of them are known for their integrity too.

- Budget blues: Going by the practice it is becoming B2B proposition indeed. Provisions are laid down in one budget but are understood or hardly understood till next budget. Even the officers in the field find it difficult to decipher the Service tax provisions, what to talk of tax payers. Therefore, the Directorate of Publicity organized the seminar on the budget as an initiative.

Budget (D.E.B.) under the C.B.E.C. The individual lawyers are out on account of reverse charge liability and because of no tax on individual to individual basis. Good and my thanks to Service tax budget making team. But if firms and companies alone are going to pay tax, who in most cases will be entitled to CENVAT, then why have the tax. Has the levy become recovery of opportunity cost of interest for the interim period of CENVAT taken and CENVAT utilised. Supposing some small firms exist who are not availing CENVAT as they are not excisable or liable to any service tax, then will they pay service tax on fee to individual tax lawyers even on once- in- a blue moon litigation by taking service tax registration and filing return. We also have for the first time, concept of statutory partnership venture in paying tax on some services on pre-fixed percentage basis between two payers. God and Taxes- will remain the most discussed but still least understood, metaphysical concepts in India. Only faith in Divine and Tax Policy makers may be the solution for commoners like me.

Pati peeto Andolan: This is happening in 20 villages on Kanpur including Madanpur and Kishorepur, where the women whose husbands have taken to alcoholism and gambling and wasting the hard earned money of their wives are beaten up by a Union of wives. The Movement for beating husbands, resorts to it whenever the men folk are found drinking and gambling and in most cases such hapless men are rescued not by Police but by their mothers. So, now we may have the new crop of mothers

preaching their loved ones, in more than 20 kaus of these twenty villages - Bitua, daaru chor de, nahi to biwi aa jayegi. Daaru nahi chodta to biwi hi chod de. And if the movement actually succeeds, may be the Team Anna can secure management consultancy services of this union in having a `Ghooskhor peto aandolan’ to make use of their expertise.

The Duping Developers

The duping developers: If next to unscrupulous religious Babas, someone has the capacity to dupe the innocent souls of my country called Aam Aadmi, and then it is the Indian developer. While Delhi High Court has recently sent one to confines of jail for not delivering to public despite being given extra time, one only hopes that it marks the beginning and not the isolated instance. In fact, a number of our Developers have acquired the expertise of selling houses and land without any water connection, electricity and even development charges for the Governments for infertile lands and therefore have all the experience to sell the moon to this world at best of the prices and to still jack it up by 18 percent every year. It makes no sense for NASA or Chinese Space Agency to spend multi million dollars on trying to find water in Moon and Mars and then to think of developing habitation there. Our `unregulated’ developers can do it without much effort by putting acqua blue posters with green pastures of the moon being grazed by desi cows and selling the same as most ambitious projects with an `earth facing’ view. They can even get some Moon Peripheral Expressway to be announced to be made there. And in case of delay in

completion of such highway can even arrange for an aerial survey by the Chief Minister of the Moon to give directive for not delaying it further, though the same may not be followed even by the next millennium moon year. And, when through advertisements they are able to bring a boom time even though the world may be experiencing recession, they can even make all the barbers, paanwallas and pansaris in streets of Delhi as part time real estate brokers. A definite way to generate employment and growth during the downturn.

Big babus `Guide to tackle Austerity Drive’- In the official life span of a big babu, it is not uncommon to come across a period of time, when it has to face the directive to go on an austerity drive made usually by the Finance Minister. This more often happens when ever the economy goes in the mode of recession or stagflation. While worldwide, recession is required to be beaten through excess doses of expenditure; our economists in India try to do it through less expenditure. May not actually make much of a difference, it is the case of treating a patient with high fever either by soaking his forehead with cold water or giving him quilt. Economists like Doctors have to keep trying to be in the business. Here are however, few tips to beat the usually proposed austerity measures, which big babus can adopt with ease:

1. Restriction on car mileage can be taken care of by withdrawing cars of the juniors and using them for own purpose. This will also ensure un-interrupted supplies of far-fetched veggies to Mem-sahibs and reaching to office early by bada sahib.

2. Similarly, telephone bills can be lowered by shifting another connection to own office room from the subordinate`s room.

3. No more meetings in five star hotels at Government`s expense, instead some council or association can be asked to foot the bill. The Chairperson of such council or association can

be allowed to make his stupid speech to the gathering as a quid- pro-quo and to justify his incurring of expenditure to his flock.

4. Restriction on foreign allowance can be met by looking for hotel abroad which provides for breakfast, dinner and lunch in $ 200 made available for hotel stay.

5. Excess demands can be made in supplementary budget in September to show saving at the end of the year due to austerity.

6. Travel economy class by Air-India or Indian Airlines so that seat can be got upgraded from civil aviation or customs friends

7. Last but not the least, if despite all the above you still end up building access controlled toilets in the building occupied by you at huge expense, then never commit the mistake of calling these washrooms as toilets, instead a fancy nomenclature like` Secret parleys and `P(ee)’ room’ should be adopted.

Major shift likely in India`s import basket: What the summer this year in Delhi has clearly signaled is, that despite all the hike in petro prices, ten years down the line, the biggest import for India will be potable drinking water and this import may even overtake the oil bill. No water from neighbouring states as they are all thirsty, cut in supplies even to the VIP areas, 80% samples failing in water supplies to residential areas as being unfit for human consumption, no linking of rivers possible as all states are fighting despite directive having been given by the Supreme Court-- import of water, therefore, remains the only option. Sermonizing by top leaders to public to save water continued in messages, even when nothing flowed from the taps to save. The birds have already fled the land of Indraprastha to provide its residents those extra few drops that they would have taken to quench

their thirst, as token of thanks giving for years of togetherness. It is first time in life that I have seen even the toy train to Shimla was ferrying water in Syntax tanks from the point of its origin in Kalka. One really hopes that the Governments and oppositions in Centre and states will take effective steps to overcome this problem of drinking water in the country once they have overcome the more pressing and burning issues of presidential election, who should be the nominee for PM in 2014 elections, who should be the next FM and vice-president, who is secular and who is not, when to start the next stage of reforms after debating for five years, whether Centre or opposition party in its ruled states has more scams to its debit, whether growth rate is going to be 9% or 5% etc. or else the elections 2024 will be won by the political party which gives more water bottles to the Aam admi in return for its votes. For those who do not take neat may have their daru , but no water to put in it.

The Imaginative Negative List

The imaginative Negative list: Ever since the concept of negative list has been mooted by the tax authorities in India, my imagination about what all will be covered has become rather fertile. I have been informed that in the lanes of Chandni Chowk are available service suppliers, who provide women for carrying out the chest beating services on the sad occasions (Commonly known as Rudalis) and also men and women for demonstrations and for public meetings of the netas against payment by their chachmas. Depending upon crowd required the payment runs into lakhs for each transaction and the provider shall be definitely out of the limit of small service provider, if all the transactions are recorded. If the Service tax department can rope such suppliers in the tax network, we shall atleast come to know, who is the leader with real Charisma and who with the bought out variety.

Ba-ba black sheep

By some rare celestial combination, it has been observed that for the last three years, months of March to June have become months, when one or other baba out of many we have in India comes to distress by exposure of his negative side in Public. The list to name a few includes

Shiv Myra Dwivedi, Bamdev Baba, Kashi Matham Raghavendra Thirtha Swamy, Sufi Bengalil Baba namely Sultan, Rajiv Ranjan Dwivedi alia sex baba, Icchadhari Bhimanand Swami, Nityananda Swami, Mumbai lap top baba Rahul Ram Kumar.

This year the (dis) honour goes to none other than Nirmal Baba. Known to his many disciples for his unconventional remedies on a query being raised like why I am seeing a Samosa, so eat samosa. Keep ten rupees bundle in your locker to have wealth. I see a dog, so keep a dog. The baba obviously could not see the trouble and courts coming his way (as on the date of writing this piece- and can be prison later). Otherwise, he would have self advised himself to make a Court room and bars in his own house. The gullible public continues to get impressed with the sheer variety available and always have some or the other such baba to choose from on various channels being run to accommodate them. The only variety which is still to be heard of because of vegetarianism being professed by and large by all, is a baba known as `Tandoori Chicken Wala Baba’, who may distributes as his prasadam, only tandoori chicken. And expects from his devotees to bring in offering, `tandoori chicken’ only, when their wishes get fulfilled by coincidence of some divine will and his utterances. Atleast I for one, will not mind being a devotee.

Petro prices- a fiscal management tool better than interest management tool of R.B.I., commonly used to whip up profits of oil companies for three mid years of the term of a government to bring down the same to offer relief to people in the election year.

Right to information- A lucky draw, wherein, a lucky one out of 100 petitions actually gets replied. And remaining 99 travel to become ever mounting appeal pendency number in CIC`s office.

Flourishing Indian Road Bazar

Flourishing Indian Road Bazar. Perhaps one of the great tourist attractions of the incredible India is the Lal Batti( Red Light-not to be confused with any flesh trade) Road Bazar, which has not only flourished in Metros but also to smaller towns, thanks to the tacit support of the traffic cops. The children, ladies, oldies, newly promoted beggars behaving half like beggars and half like Salespersons, all add to the colour. The vendors appear the moment there is a red light and disappear with the green, yellow is normally reserved for giving the change. The wares change with whatever the Customs allow or closes its eyes to come from China. While in the past these were indigenous tissue paper boxes to aggarbaties which escaped Central Excise duties, with changing times the Custom duty evasion is more visible with Chinese Mobile battery chargers, auto parts like steering wheel covers, Chinese balloons with chinky eyed Hanuman and Superman and Mickey mouse vying for the honors and attention from the prospective shoppers. Latest are waving pots with the waiving flowers. Sending a timely reminder that earlier in Delhi we had pots in the gardens and then gardens in the pots and now with water table drying we have both the garden and the pot on the dashboard of the car. The negotiation is so quick and sound that it can put to shame even experts in the Commercial team of Reliance. Deals are struck on the run by negotiating prices which can come down from a Hundred to a Ten, even before the Seconds clock on the redlight can come down by 15 seconds. Such a bazaar does not even exist in China as the Cops there are not so accommodating to small children and ladies so as to permit them to run the risk of their life to allow the cops to earn some extra bucks.

we are not aware of the personalities involved, it sure raises hopes that the team at work which has exhibited open mindedness will also continue with the same zeal and make service tax legislation go back to its past glory of being simple and tax payer friendly legislation.

EPFO -36 months limit to stop interest: Now, this is another case of two legislations being at loggerheads with each other and making the life of the public difficult in the process. Employees Provident Fund Organization, through a recent dictate has brought out that those members whose accounts remain inoperative for consecutive three years will not receive any payment of interest after third year. Therefore, the obvious option is to withdraw the money within three years rather than to keep the account, when you go out of employment or are unable to continue to contribute. Sounds simple. But now look at the Income-tax provisions which provide that in case you claimed deduction u/s 80-C and with draw the money within three years of the contribution in provident Fund, then you are liable to pay tax as you might have been required to pay in the year in which you actually made contribution, as if you never made it. Therefore, the choice is yours to either not lose interest in the hands of E.P.F.O. by closing account within three years or to save tax by not withdrawing money from EPFO within three years and thereby to loose interest. It appears there is an urgent need for the Government Policy makers to understand laws of other departments before embarking on the path of policy making within their own.

The body and the law: Now, this one is about a reported story from Allahabad, where a body was allowed to rot for more than two days close to the rail line and in proximity of the station because the G.R.P and other police authorities were not sure who has to draw the panchnama. Seen purely from the legal prospective the problem was indeed complex. For the law provided that for crimes committed within one K.M. of the office of the Station Superintendent were to be investigated by the G.R.P. and beyond that by the local police, therefore on the spot verification of the Jurisdiction was necessary as the unfortunate body was lying close to the end region of one K.M. Again, one K.M had to be measured with a standard or approved measuring tape which should have had the approval of the Weight and Measurement authorities and should have been inspected by the Inspector of Legal Metrology. Further, such Measure should have been stamped and renewed every two years; otherwise some stupid lawyer like me may raise the questions. The matters do not come to an end here, it is required to be decided as to whether such distance of one K.M. is required to be measured from the centre of the office of the Station superintendent or from the left or right side of his door or from the middle of the door and whether such distance has to be crow flight or depth of the platform to rail line level is also required to be measured. For a ` Barra sahib’ to answer all these questions on note sheets can surely take a lot of time. So, next time it is better to tell a body to be or a person on suicide mission to steer clearly clear of this one K.M distance so that its soul can rest in peace in heaven and body ( mortal remains) can reach Triveni at the earliest.

Tax savings- a universal urge

Tax savings – a universal urge: What Vodafone is doing to save its taxes and what the Government is doing to retain already recovered taxes and to get more is nothing new. The difference between tax evasion and tax saving was spelt out earlier by the Apex court in the famous Mc Dowell`s case. Following instances will show what the taxpaying public has been historically doing to avoid the tax through little ingenuity.

* -In 1696, England implemented a window tax, taxing houses based on the number of windows they had. That led to many houses having very few windows in order to avoid paying the tax. Eventually this became a health problem and ultimately led to the tax’s repeal in 1851.

* -In the 1700’s, England placed a tax on bricks. Builders soon realized that they could use bigger bricks (and thus fewer bricks) to pay less tax. Soon after, the government caught on and placed a larger tax on bigger bricks. Brick taxes were finally repealed in 1850.

* -In 1705, Russian Emperor Peter the Great placed a tax on beards, hoping to force men to adopt the clean-shaven look that was common in Western Europe.

* -In 1660, England placed a tax on fireplaces. The tax led to people covering their fireplaces with bricks to conceal them and avoid paying the tax. It was repealed in 1689.

* -Playing cards were taxed as early as the 16th century, but in 1710, the English government dramatically raised taxes on playing cards and dice. This led to widespread forgeries of playing cards to avoid paying taxes. The tax was not removed until 1960.

* -In 1712, England imposed a tax on printed wallpaper. Builders avoided the tax by hanging plain wallpaper and then painting patterns on the walls.

-England introduced a tax on hats in 1784. To avoid the tax, hat-makers stopped calling their creations "hats", leading to a tax on any headgear by 1804. The tax was repealed in 1811

-Japan imposed a tax on whiskey which is based on the percentage of alcohol by volume, so Japanese whiskey manufacturers began diluting their product with water to avoid the tax.

- In our own India, the tax on radios and televisions levied till 1970s was sought to be avoided by public by concealing antennas. Same, however was abolished during emergency period.

* Cannot attend to call of nature, attend phone call: In a country known for so many women in powerful positions, you’d think that access to proper sanitation and bathroom facilities would be a priority. India with about 1/7th of the world’s population, numbering around 1.2 billion. Nearly half of those — 563.73 million have mobile phone subscriptions. This does not count the landline subscriptions in any case. As per a United Nations Study, approximately $358 billion is needed by 2015 to cut in half the proportion of individuals who don’t have access to proper sanitation. The study has revealed that it would cost about $300 to build a toilet, though this includes both labor and materials. This would in turn be economically feasible for the rest of the world, who could see a return of up to $34 for every dollar spent on the sanitation efforts. This would come about through reduced poverty, health care costs, and increased productivity. But with our misplaced priorities, it is obviously the mobile phone penetration that gets the edge. The rate at which mobile sets are being sold in India, in ten years time we will have to address the issue of junked phones and its waste disposal in a big way. This may again pose a problem of health and sanitation. So, all the wise ones start discarding your old mobile phones right now, lest Government Comes out with some kind of Green tax later. Disposal of junked Computers and Cars is also likely to invite tax in future with more of our Mother India`s territory being occupied by these.

* Tax proposal for unbranded jewellery- Withdrawal after what cost?

* It has become a routine that tax proposals in every budget bring about their share of strikes. If last year it was service tax on medicos and lawyers which invited strikes. This year it has been proposal to tax Bidis and unbranded gold jewellery which has incurred the wrath. But what has been alarming about this Year`s proposals is the fact that decision to withdraw has been taken only after an estimated and colossal loss of GDP of Rs. 20,000 crores was incurred, even without a single paisa going to Exchequer by way of tax. In and around Solapur, more than 65,000 women did not get paid a single paisa because their employers were on strike. Therefore, the Beedi manufacturers’ strike hurt workers disproportionately. The Government will earn less than 100 crores from this Beedi tax, out of a total budget of 1.4 lakh crores, but incurred loss of GDP and may have to spend more on the anti-poverty programmes of these base level workers. This clearly points to a disconnect between those who take such tax policy decisions and those who are going to be affected by such proposals. While we in India have been historically (not sure whether validly) following a policy of no transparency about budget tax proposals since pre- independence times. Even political class should be aware of the consequences some tax proposals have had in the history. To briefly recount, French revolution and India`s independence due to contributory factor of tax proposal of putting tax on salt and “scutage” by King Henry which allowed knights to opt out of their duties to fight in wars by paying the tax, which many believe led to creation of the Magna Carta, which limited the king’s power. Even if we want to continue with the policy of no transparency in tax proposals, the FINMIN will do itself a great service if it uses the services of organizations like Central Economic Intelligence Bureau to judge the pulse of the people about some of the proposals with far-reaching consequences in so far they seek to disturb the long followed policies of the Government.

* Cost of compliance reduction on agenda of policy framers: It is really heartening to note that constant efforts by tax reformists have eventually put reduction of cost of compliance on the agenda of the tax policy framers. In this context, the Study Group set up under the Chairmanship of Shri M.K. Gupta (Retd. Vice Chairman, Settlement Commission) for making a draft for common code for Excise and Service Tax has, interalia, been given following term -

i. To suggest any other measure that will help in reducing the cost of compliance for business, or transition towards a comprehensives GST.

It has always been emphasized by us that the only real tax reform that Government can give to the citizens of India (knowing well that each Government needs more and more revenue for itself) is reduction in cost of compliance which includes costs of unnecessary procedures, hidden costs, costs of unnecessary reporting to multiple tax agencies including returns, cost of litigation and heavy costs of maintaining accounts by employing accountants especially by small tax payers. No small tax payer will grudge paying little more on any prudent notional basis, if he is not asked to make elaborate accounting systems of CENVAT and if it saves him time and cost of looking into more and more accounts. We hope that committee will come out with a tax code which will be path breaking and simple for everyone to understand and simplify life for tax payers, rather than churning out some imported from abroad intellectual showpiece of a legislation which not even Tax collector can understand

POPULISM SUBSIDY

Populism subsidy: Now this is the subsidy which is least talked about by the Governments and even IMF does not attempt to tame it. In a democracy like India, typically an elected Government spends the first year in thanks giving mild tax budget, the second and third year are spent in obliging the big corporates, who contributed during the election time, at the cost of the people and fourth and fifth years are meant to indulge in populism so that the running Government is re-elected and electorates with their short memory forget all the sins of corruption or hard hitting third/fourth year of the Government. The bigger the exposed scams of the Government, bigger can be the doses of Populism subsidy. Ever wondered why petro prices in 2008, when crude in international market had hit US $140 was selling at Rs.55/- per liter and now in the Year 2011 when crude is hovering around US$100, the same is selling at Rs. 70-75. Going by justification now being doled out of prevailing dollar and crude prices, the petrol should have been selling at Rs. 100/- per liter in 2008. Therefore, riding the wave of populist subsidy, we the Indian Consumers were enjoying a whooping subsidy of Rs. 45/- per liter. That incidentally was also the time when people of Nepal used to drive cars to India to fill up their tanks and drive back home. Since, hard hitting inflation is leaving little leverage with our home managers( who incidentally prove to be better than the most professionally qualified M.B.A managers during time of crisis), it may be prudent to avoid the avoidable expenses till the last years of the Government to enjoy the full benefit of the Populism budget. Therefore, families can cut down on avoidable travel expenses etc. to ride on subsidized travel later rather than allowing smugglers from neighboring countries to enjoy it. Whom to vote finally is left to the memory of the people.

Indian Grand Prix: The tax or exempt: The opinion remained divided between the state and the centre, while State of U.P. was granting all exemptions including of Entertainment tax, reservations were visible in Ministry of Finance and Ministry of Sports at the level of the Centre. Customs allowed the goods to come in and then go back on 98 percent drawback. Sports Ministry did not treat the event as a sporting event eligible for exemption from Customs duty. Though it is another matter that Naraian Karthikeyan

was awarded Padma Shri for his contribution in sports i.e. Formula 1 by the same Government. There were political voices to tax the event as entertainment as it belonged to the category of luxurious sports, while others felt that there was no point in subjecting it to heavy taxes just at the initial stage. Considering that event in future will only attract certain sections of the society for whom spending few extra bucks may only be a matter of pride only, there may not exist a case for exemption from Tax for Formula 1 and even the exemption from entertainment tax granted by the state government is also a matter of scrutiny of Judiciary, for its rationale.

Speaking of the event and the Infrastructure, the last day on 30th October, 2011 attracted 40 chartered flights at the Delhi Airport, besides 60,000 vehicles to the venues and 1,50,000 strong crowd. Thus making it one of the best and most elaborately organized sporting event ever in India. The Taj Express way was opened partially only from Noida up to the venue of the event and allowed the cars coming from Delhi and Noida to move smoothly. The venue has a capacity to accommodate 1,00,000 cars in its parking lot and about 5,00,000 spectators in case the demand goes up with passage of time. The Formula 1 users rated the track as one of the finest in the world. The cost involved is slated to be about Rs.1,000 core. This sure marks a big time arrival of Private Sporting Infra and of organization of world class events by Private players in India. Sure matter of pride for any Indian. But what one wonders is, that if this was achievable when a Private Builder saw his benefit in making a world class city in the land possessed by him to eventually increase his own land prices and could achieve it in little time, why we had a failure when so called reputed builders were engaged to make Infra for Commonwealth games for the compromised politicians, even after spending huge sums of tax payers money. The cost of Beijing Asian games was much less compared to commonwealth games and this event organized in India has also not cost a fortune, therefore, one can only point out that though Indian builders have the capacity to achieve anything when it comes to their own advantage, they also exploit the compromised politicians to the hilt, when Government Public Infra is to be created. Recently, a dictate has been given to Delhi Metro Rail Corporation(DMRC) not to black list too many builders, as there are not may reputed builders available in India to build metro infra. Indeed, a catch 22 situations, no way we can groom the new ones because they are not experienced or reputed and those in the game despite mistakes should not be thrown out because there are not many available. Indeed testing time for the new man( with Sh. E. Sreedharan retiring) at the helm of affairs, which will eventually decide whether he is a man of compromises or not. If he yields, even the DMRC may go the way of other Public Infra projects.

Seven Billionth Human Being: It happened on October 31st, 2011 or atleast it was so claimed with Nargis Yadav of U.P. My life span so far has been the journey from 2.5 billion to 7 billion and may be few more shall be added, if Providence allows me to live for some more years. Indeed a matter of some satisfaction, because the Mother India during the time of my ancestors had only the privilege of having 35 crores in more than 5,000 years of its recorded History. But in the last about 50 years I have seen the number swell to 120 crores. So, I am surely living in a much crowded India, which is like a Mela in every nook and corner of its land. Our houses are becoming small, our schools, hospitals and even mortuaries are much more crowded then same were about 50 years back. Parliament has somehow managed the problem of overcrowding by remaining at the same figure since 1971. Likewise, even CBEC and CBDT have managed to remain in the North Block for this decade by keeping its strength confined to six.

Planning commission has also in the meanwhile devised new arguments and keeps on convincing us that more young population means more development and growth for India in the next 20 years. What will happen to the aged and after 20 years is chosen to be ignored. The Nation has no Population policy worth its name. Nandan Nilekani is busy making UID cards, but the numbers to be covered and budget requirements are going up with every passing day. The earlier version of NSSN( National Social Security number) card for identity through EPFO had an untimely obituary after spending few hundred crores. PAN continues to survive confined only to tax payers and lost tax payers. Either hunger, our Enemies or education will help us in bringing our numbers down. We only hope it is the latter, for that will justify the existence of Planning Commission.

Decision Abhi baki hai mere dost: For all those dealing with exports of services and thinking that the much awaited decision of CESTAT in the matter pertaining to M/s Paul Merchants Ltd. ('PML') and others would clinch the issue, the wait seems to be getting longer with the split decision having been referred to third member. The bunch involving 42 appeals saw a split decision on almost all issues including on limitation. The services involved were remittances from persons abroad to persons located in India as well as remittances from persons located in India to persons located outside India through Western Union and its contracting party. While it may be premature to offer any comments till final verdict is out in the matter. It sure speaks volumes about the fact that provisions of Service tax need to be simple for every one concerned to understand and interpret with ease. Even when actually the Limitation period should be extended is not understood by any one exclusively out of whole of the Learned Biradari. Why cannot the Government do away with the extended period clause and make it demand for two or three years flat for everyone. A discretionary penalty to only those who indulged in evasion deliberately can provide the punishment for malicious acts. This way Government will earn more and law will also become simple for everyone to understand.

WE THE PEOPLE OF INDIA

We the people of India: Decades back in late 70`s, when I just joined law, I had the good fortune of being taught the very first lesson in Constitutional law by my lecturer in Punjab who was a burly sardar, full of his practical witticism. He began by explaining the Preamble to the Constitution and particularly the expression `We the people of India’ in his own Pinglish( Punjabi- English) style- Do not feel happy and thrilled that the expression means `me and ju( you)’- ` v( we) here means the powerful people sitting in Lutyens Zone in Delhi and some few in Nariman point, who come and go in that area playing musical chair in Parliament and in the Corporate World’. If you start thinking that `V’ here means `me and ju’ and that Constitution has been provided by ju- then ju are calling for serious trouble.

These words, that continue to resonate in my mind till date were my first lesson about the political elite and masses. Now, that I see the members of the so claimed civil society emphasizing that it is the people who have empowered the Parliamentarians and not vice versa, I am reminded of the full import of the lesson given by my teacher. The struggle between political elite and those claiming to represent masses to dominate is nothing new, but rather historical phenomena. Most of the times, it is political elite that manages to survive through its collusiveness, but sometimes the masses are able to overthrow them to form a Neo-Political elite, which in turn becomes a target of the masses after some lapse of time. And, so the world goes on. Many in Indian polity accused of corruption today are the ones who started their political careers on the plank of socialism and they are the ones who oppose reform to weed out corruption. Therefore, the musical chair race goes on, may be its only time for some occupants to change the chairs in Lutyens Zone. As far as ` We the people’ are concerned, it is better to play music only without being in the race and not to get too hopeful or to call for trouble, as my learned teacher had put it.

Car Menace in Delhi: The only thing that Indian religious Gurus of India really need to do on urgent basis is to teach meditation to car drivers of India indulging in road rage. It

may be good idea for Delhi traffic cops to stop persons found speeding, jumping red light, violating traffic signals or indulging in road rage to make them sit and do meditation session of 15 to 30 minutes apart from fining them, as the latter has not helped much and death due to accidents and road rage are on the rise. Even courts dealing with traffic offences can prescribe sentences like meditation till the rising of the Court. This I am sure is the only way to make Delhites on the road to behave proper.

Incidentally, cars in Delhi can be vividly and aptly described as follows:

* An item which is a fast moving inventory in showrooms, but slow moving or roads of Delhi.

* Machines that are death traps on express ways and safest when trapped in the road jams.

* Wherein you can see abuses being hurled up on you with the rolled up window glasses of others and the abuses hurled by you are heard only by the inmates of your car and only seen by the ones for whom they are meant.

* A machine where in your entry time systolic/diastolic blood pressure is 120/80 and exit time goes to 170/110, giving your Doctor a perfect reason to prescribe life long medicine to enrich the Pharma company and to earn himself a free trip to USA.

* A machine commuting in which provides you best excuse for being late to your bosses , wife or on any appointment.

* A machine which gets its first dent even before the meter reading of distance meter reads 10 k.ms.

* Where all those who decide the petrol price hike are the ones who are driven on red beacon light, free on my pocket- petro cars or the ones who have to profit out of such hike.

The cheapest and the best Government servants- They even do not want presidential award for meritorious service:

This story should be a lesson to all those babus whose only concern is better pay in every Pay Commission without any corresponding betterment of public service. Two Indian Women in the story are claimants to be the World’s Lowest-paid Workers

After scrubbing toilets in southern India for 40 years, without taking a day off, they managed to save in whole life close to only Rs. 6,000 each. Both 59 years old, Akku and Leela started working at the Government’s Women Teacher’s Training Institute in 1971. Their salary started at 15 rupees a month, and it never changed. Both of them in the name of raise only got promises every year from their employers, who were too busy enjoying the fruits of pay commission and D.A. hike for themselves. But both still continued to work taking pride in the same.

Finally, in 2001, they raised their complaints with the Karnataka Administrative Tribunal, in Udupi, India. Without proper notice, their pay was suddenly stopped. This did not stop Akku and Leela, however and they continued cleaning toilets, three times a day, seven days a week, for 11 years — for free.

In 2003, the Karnataka Administrative Tribunal ordered the government to give the two women their dues. However, not a single rupee was given to them. Perhaps both are too poor to even take up matter for contempt of court and free legal aid department of the state is not even even aware of their plight. An easy course was , however advised to them, which they have undertaken also and that is to apply to the Guinness Book of World Records for the world’s lowest-paid workers. While they may or may not get justice despite outstanding and meritorious service rendered for 42 years, it is likey that all the Government servants who have been sitting over the matter may bring to India the dubious distinction of having the lowest paid government employees in the world.

Popular Brand Tihar Jail

Popular Brand Tihar Jail( TJ)- the Khao nahi to banao phenomena.: If there is one product item, that is perpetually in short supply on all the TJ outlets in the capital, then it is the food articles. All the khakras and Namkeens or sweets manufactured by Tihar Jail inmates remain in great demand and quite in short supply at the TJ outlets. Well, one reason that I can think of, is the remedy prescribed by the Astrologers to their clients to `Eat jail ki roti’ if they want to save themselves from becoming the makers of the same in the Jail. Khao nahi to banao. And since all the edibles fall in the same category as a roti, atlest astrologically speaking even if not according to H.S.N. Classification code, therefore all the smugglers, crooks , corporate fraudsters and all others of the same hue literally make a beeline for the stock. The other reason could be that all those who have been in and are now out do not want to change their `Zayaka’, even when the environment has changed. All said and done, this is one item that promoters of Brand TJ can really push for in a big way.

Government appeases Swami Ramdev.: Well not literally, but he has been obliged with whatever he wanted indirectly. Ever since Baba Ramdev thought of cleansing the political set up in India since 2006. One of his foremost suggestions, even to the PM and Government has been to demonetize Rs.1,000/-, as he feels that red note alone is the root cause of all the black money. Now, even if the Government has not de-monetized the same, it has through the back breaking inflation virtually reduced the value (Purchasing power) of Rs. 1,000/- note to

effectively Rs. 500/- in the last five year. May we now, pray to Swami Ramdev to atleast stop making this demand or to the Government to stop taking his request seriously for the sake of all Mehangai effected Indians. This also evokes my thoughts on another issue, why is it that the biggest note in any monetary system or in any country which is most likely to be used for black money or money laundering, always has the print shot of the most revered leader of that country. Will Gandhi Ji or George Washington have preferred their photos on the notes which they knew was most likely to remain for longer duration with corrupt, smugglers and other economic offenders?

Petro Inflation and competition commission- Now if FM is to be believed, the Petro prices are no more in the hands of the Government and are fixed by the oil companies only. The Oil companies may well be, freely legally advised to leave their old habit of hiking/ reducing the prices on the same day and to the same extent. While one can understand such a thing happening when Petro prices are administered by the Government, it is most unlikely to happen in a commercial world- that oil companies running on purely commercial principles will have exactly the same cost structure warranting hike to the same extent on the same day, unless there exists a cartelization. Hope authorities in Competition Commission are taking notes of their Rule book.

King fisher bailout.: The king of good times seems to be in bad times and asking for loans even if not the bail out. The red coloured airline has actually gone into financial red as well. Even the suggestion of the PM to lend a help, left other corporates and opposition leaders red faced. The slogans on the Face book, range from the advice to the tipplers to drink extra for the sake of the one who afforded them cheap liquor and good times earlier or to buy more `Kingfisher calendars and gift them generously, close to the new year. Since austerity measure of other Airlines like ` Indigo’ to get out of the red may be wastage of suggestion, roping in someone like Richard Branson of Virgin Atlantic through foreign equity route may provide a solution. That would also mean two kings of Good times for Kingfisher.

The Shoe with a difference Now, this was a different shoe, not only it landed on a wrong head but also the thrower was a sweet Gandhian bureaucrat. On 20th November, 2011 in Gurgaon, senior IAS officer Parveen Kumar took matters into his own hands. The Haryana Urban Development Authority (HUDA) administrator hit himself with his shoes to win over an agitated crowd, while supervising a demolition effort.

They alleged that demolition was an effort to favour a known builder. In his sincere bid to pacify the mob, the IAS officer took off a shoe and started hitting himself on the head with it repeatedly to prove his innocence. He said, he had never taken a bribe in his life and if people doubted him, then he must punish himself. Kumar also started touching the feet of some elderly people in the gathering. This had a salutary effect and Demonstrators eventually returned to their homes allowing the Demolition squad to do its job. Kumar was earlier deputy commissioner in Faridabad where he carried out special drives for sanitation and against encroachment of public land. He registered more the 20 FIRs against corrupt officers. This one may provide a clue to the politicians suffering from shoegate, like George Bush or Chinese Premier Wen Jiabao to a slew of Indian Politicians that not only can a person who missed the target be forgiven or handed over to the Police, but at times the missing missile can be allowed to land on the target with little self help, to the net effect of overwhelming sympathy of the Public.

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