TMI BlogComptroller and Auditor General of India's Report on Indirect Taxes - Service Tax Compliance Audit for 2007-08 (Extracts) YearX X X X Extracts X X X X X X X X Extracts X X X X ..... . of services subjected to service tax Budget estimates Revised budget estimates Actual receipts* Difference between actual receipts and budget estimates Percentage variation 2003-04 58 8,000 8,300 7,890 (-) 110 (-) 1.38 2004-2005 71 14,150 14,150 14,199 49 0.35 2005-2006 81 17,500 23,000 23,055 5,555 31.73 2006-2007 97 34,500 38,169 37,598 3,098 8.98 2007-2008 104 50,200 50,603 51,301 1,101 2.19 * Figures as per Finance Accounts 9.3 Outstanding demands The number of cases and amount involved in demands for service tax outstanding* for adjudication/recovery as on 31 March 2008 are mentioned in the-following table :- TABLE NO.2 (Amounts in crore of rupees) Pending decision with As on 31 March 2007 As on 31 March 2008 Number of cases Amount Number of cases Amount More than five years Less than five years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 591.50 287.29 413 56.24 235.65 90 2.77 2007-08 1,716 787.18 574.54 171 179.04 331.74 34 2.74 Total 5,972 2,064.58 1,346.10 837 244.68 684.27 180 6.04 * Figures furnished by the Ministry The above data indicates that while a total of 5,972 cases of fraud/presumptive fraud were detected during the years 2005-08 by the department involving tax of Rs. 2,064.58 crore, it raised demand of Rs. 1,346.10 crore only and recovered Rs. 684.27 crore (50.83 per cent). Similarly, out of the penalty of Rs. 244.66 crore that was imposed, the department could recover only Rs. 6.04 crore (2.47 per cent). 9.5 Contents This section contains 158 paragraphs featured individually or grouped together with a revenue implication of Rs. 276.72 crore. The Ministry/department had accepted (till December 2008) audit observations in 112 paragraphs involving Rs. 47.43 crore and had recovered Rs. 23.22 crore. 9.6 Impact of audit reports 9.6.1 Revenue impact During the last five years (including the current years report), audit throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of 2008-S.T., dated 1 March 2008 from service tax upto 75 per cent of the gross amount charged as freight by GTA. Paragraphs 11.1 of AR no. CA 7 of 2008 Utilisation of cenvat credit by output service provider in excess of the prescribed limit of 20 per cent in cases where input service credit was used in output services not chargeable to tax or exempt from tax without maintaining separate accounts of the use of input services. Rule 6(3) has been amended to provide option either to pay amount at 8 per cent of the value of exempted services or to reverse proportionate credit attributable to inputs and input services used in exempted goods ( Notification No. 10/2008-CE. (N.T.), dated 1 March 2008). Chapter X Grant of Cenvat Credit of Service Tax Cenvat credit of service tax paid on input services was allowed for utilisation against the same output service with effect from 16 August 2002 under the Service Tax Credit Rules, 2002. From 10 September 2004, the said Rules were integrated with the Cenvat Credit Rules, 2004 . Under Cenvat Credit Rules , the credit availed can be utilised for payment of central excise duty on finished goods or serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d utilisation of cenvat credit on inputs and input services only and not on capital goods. The reply is not relevant as rule 6(3)(c) of the said Rules restricts utilisation of credit upto 20 per cent of the amount of service tax payable on output service. This means that the remaining eighty per cent of tax is to be paid from PLA/cash Reply of the Ministry had not been received (December 2008). 10.1.2 M/s. Vodafone Essar Cellular Ltd., Coimbatore, in Coimbatore commissionerate and M/s. Bharti Airtel Ltd., Chennai in Chennai commissionerate, engaged in the activity of providing taxable as well as exempted telephone services did not maintain separate account of input services used for the taxable and exempted output services. However, during the period April 2005 to September 2007, the assessees had not restricted the utilisation of the cenvat credit to 20 per cent of the service tax liability. The service tax liability of the assessees for the said period was Rs. 78.36 crore and the admissible limit considering the 20 per cent cap worked out to Rs. 15.67 crore. However, the assessees had utilised credit of Rs. 59.21 crore resulting in excess utilisation of cenvat credit by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it had not questioned the legality and correctness of the order in original dated 3 January 2007 of the commissioner, as an adjudicating authority cannot traverse beyond the demand raised in the show cause notice. Audit had only pointed out that the demand raised itself was short by Rs. 1.13 crore. Reply of the Ministry had not been received (December 2008). 10.1.4 M/s. Spice Communication Ltd., (Mohali), in Chandigarh I commissionerate, was engaged in the activity of providing taxable as well as exempted cellular phone (mobile phone) services and was not maintaining separate accounts in respect of both categories of services. The assessee received Rs. 473.04 crore towards taxable services provided to subscribers during 2006-07 on which service tax of Rs. 57.38 crore was payable. The assessee was entitled to utilise cenvat credit to the extent of Rs. 11.47 crore only and balance of Rs. 45.91 crore was required to be paid in cash. The assessee, however, utilised cenvat credit of Rs. 24.89 crore (Rs. 11.17 crore on inputs plus Rs. 13.72 crore on capital goods) and deposited balance of Rs. 32.49 crore in cash. This resulted in excess utiisation of cenvat credit of Rs. 13.42 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004. Reply of the department was not acceptable in view of the explicit provisions of rule 6(3)(c) which restricts utilisation of credit to the extent of twenty per cent of the tax payable on taxable output service. Reply of the Ministry had not been received (December 2008). 10.1.7 M/s. Vodafone (Hutchison Essar South) Ltd., in Hyderabad II commissionerate, engaged in providing cellular phone services, availed of cenvat credit on several inputs, input services and capital goods which were used by them for rendering both taxable and exempted output services. The assessee had not maintained separate accounts for inputs/input services used in exempted services and yet did not restrict the cenvat credit utilisation to the extent of 20 per cent (35 per cent prior to 10 September 2004) as required under the Rules. Non-observance of the prescribed ceiling limits led to excess utilisation of credit of Rs. 1.20 crore, during the periods between July 2003 and February 2005. This amount was required to be paid in cash. On this being pointed out (November 2007), the department stated (March 2008) that the ceiling limits prescribed in the rules do not apply to capital goods cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the contention of the department that the restriction was not applicable to capital goods credit was also not acceptable as rule 6(3)(c) of the Cenvat Credit Rules imposed restriction on the utilisation of cenvat credit which represented not only input goods/input services credit but also credit earned on capital goods. Reply of the Ministry had not been received (December 2008). However, the Ministry had admitted similar audit observations reported vide paragraph No. 11.1.2 of Audit Report No.CA 7 of 2008. 10.2 Cenvat credit of service tax paid on transportation services beyond the place of removal Under the provisions of rule 3 of the Cenvat Credit Rules, 2004 , a manufacturer is allowed to take credit of service tax paid on any 'input service' used in the manufacture of final goods. Service tax paid by the manufacturer for outward transportation of final products beyond the place of removal is not an input service and credit of tax paid on such service is not admissible. Forty assessees in Barigalore (1), Cochin (2), Delhi-III (4), Delhi-IV (3), Guntur (1), Hyderabad-I (3), Haldia (1), Jaipur-II (1), Kolkata-VI (1), Madurai (1), Mumbai-II (1), Mumbai-III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to those services which are notified under section 65 of the Act. Information Technology (IT) services are not covered under section 65 and hence they are not to be regarded either as taxable services or as exempted services for the purpose of allowing cenvat credit on corresponding input services. M/s. Satyam Computer Services Ltd., in Hyderabad- commissionerate, engaged in providing consulting engineers services, man power recruitment agency services etc., availed of cenvat credit on several input services and used such services for rendering taxable as well as non-taxable services (i.e. software development services relating to information technology to various agencies located within and outside India). Service tax credit on input services used in IT services rendered within India/exported out of India was not admissible as IT services cannot be regarded as output services/export of taxable services within the meaning of rule 2(p) of the Cenvat Credit Rules / rule 3 of the Export of Services Rules, 2005 . However, the assessee incorrectly availed credit of the service tax paid on input services used for IT services. The credit attributable to such ineligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on output service. The amounts billed for by the service provider against customer but not realised are not liable to service tax under the Finance Act, 1994 , as the basis for payment of service tax is actual realisation of cost of service. However, where the cost of service billed for became irrecoverable for any reason and the same was Written off fully in the books of accounts of an assessee, the Cenvat Credit Rules do not provide for recovery of the input service credit attributable to such write off. Rule 3(5C) of the Cenvat Credit Rules, 2004 , provide recovery of cenvat credit on inputs contained in final products destroyed or damaged due to natural cause (prior to this recovery was made under Board's circular of 22 February 1995). 10.4.1 M/s. Vodafone India Ltd., (Hutchison Essar South Ltd.), M/s. Bharti Airtel Ltd., and M/s. Karvy Stock Broking Pvt. Ltd., in Hyderabad commissionerate and M/s. Vodafone Essar Cellular Ltd., Ernakulam, M/s. Idea Cellular Ltd., and Bharti Airtel Ltd., in Cochin commissionerate, engaged in rendering of cellular phone services and stock broking services, had fully written off unrealised amount of service charges of Rs. 124.76 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and hence credit availed on input services used for such output services was recoverable. Reply of the Ministry had not been received (December 2008). Audit recommends that Government should introduce appropriate provision in the Cenvat Credit Rules to require reversal of cenvat credit on input services used for written off output services. 10.5 Credit on invalid documents Rule 9(1)(f) of the Cenvat Credit Rules, 2004 envisages that the cenvat credit shall be taken by the provider of output service on the basis of an invoice, a bill or challan issued by an input service provider on or after 10th day of September 2004. 10.5.1 M/s. Kitchen Appliances India Ltd., in Kolkata-III Commissionerate, engaged in the manufacture of colour TV, DVD and refrigerator, availed of input service credit on different category of services on the basis of invoices/bills/challans which were invalid. Audit observed that some of these tax paying documents had not been addressed to the recipient unit at Salt Lake while some other documents had not originated front/distributed by any registered input service distributor on behalf of the company. The assessee had also utilised th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance coverage, canteen facilities, etc., extended by employer to employees do not come within the ambit of input service. 10.6.1 M/s. Federal Mogul Goetze (India) Ltd., in Chandigarh, M/s. Dr. Reddy's Laboratory Ltd. in Hyderabad-I, M/s. Family Health Plan Ltd. and M/s. Aurobindo Pharma Ltd. (Unit I) in Hyderabad-II, M/s. Microsystems India Ltd. and M/s. Tecumseh Products India Ltd., in Hyderabad-IV and M/s. Bharat Forge Ltd., in Pune-III commissionerates, engaged in the manufacture of various excisable goods/providing insurance auxiliary services, availed of cenvat credit of Rs. 1.65 crore towards service tax paid during the period between April 2003 and March 2008 on medical insurance premia for employees, catering services offered to their employees, event management and investment advisory services etc. The availing of service tax credit on these services was incorrect as such services fell outside the scope of input service. On this being pointed out (between March and December 2007), the Ministry admitted the audit observations in five cases and intimated (between June and November 2008) recovery of Rs. 15.51 lakh, confirmation of demands of Rs. 22.71 lakh and issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008) that demand of Rs. 37 lakh had been confirmed against both the assessees. Reply in the remaining eight cases had not been received (December 2008). 10.8 Cenvat credit relating to other unit Rule 2 (1) of the Cenvat Credit Rules, 2004 , defines input service as any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal. M/s. TVS Motors Ltd., Hosur, in Chennai-III commissionerate, manufacturing mopeds, scooty and motor cycles availed of Cenvat credit of Rs. 2.58 crore during 2004-05 on the service tax paid on the input services which were common to both the units of the assessee at Hosur and Mysore. From April 2005, the assessee transferred the cenvat credit of service tax paid on the input services, relating to the Mysore unit, proportionately at 38 per cent, calculated on the basis of sale value of clearance of vehicles from Mysore unit. However, no such transfer was made for the period from 10 September 2004 to 31 March 2005, which resulted in the incorrect availing of cenvat credit of Rs. 98.15 lakh. On this being pointed out (February and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2004. M/s. Phillips Carbon Black Ltd., M/s. TFL Quinn India Ltd., M/s. NRB Bearings Pvt. Ltd., M/s. Hindalco Industries Ltd., and M/s. Hindustan Petroleum Corporation Ltd., in Bolpur, Hyderabad-I, III, Vadodara-II and Visakhapatitam-I Commissionerates respectively, availed of cenvat credit on several input services which were received prior to 10 September 2004 Since services received prior to 10 September 2004 were not eligible for cenvat credit, availing of cenvat credit of Rs. 86.94 lakh upto 9 September 2004 was incorrect. On this being pointed out (between May 2006 and January 2008), the Ministry admitted the audit observation in two cases and stated (June and July 2008) that the tax of Rs. 16.03 lakh had been recovered in one case and a show cause notice for Rs. 41.40 lakh had been issued in another case. Reply in the remaining three cases had not been received (December 2008). 10.11 Utilisation of Cenvat credit paid on behalf of foreign service providers Section 66(A) of the Finance Act, 1994 , read with Taxation of Services (provided from outside India and received in India) Rule, 2006 , stipulates that where any service specified in clause (105) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following paragraphs. These observations were communicated to the Ministry through 68 draft audit paragraphs. The Ministry/department had accepted (till December 2008) the audit observations in 55 draft audit paragraphs with money value of Rs. 15.68 crore of which Rs. 5.10 crore had been recovered. 11.1 Services rendered by indigenous service providers 11.1.1 Construction of buildings All commercial and industrial constructions have been brought under the purview of service tax with effect from 16 June 2005. As per section 65(25b) of the Finance Act, 1994 , commercial or industrial construction service, inter alia, covers construction of a new building or a civil structure or part thereof, and construction of a pipeline or conduit which is used or to be used primarily for commerce or industry or work intended for commerce or industry but does not include services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Construction of power plants, oil and gas extraction plants, and refineries etc. fall within the ambit of the definition of commercial and industrial constructions, as these establishments are primarily inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or allowing AICL to operate low cost carrier flights on certain route network. Air India allowed AICL to use Air India's international flight rights, its brand name 'Air India' and its domain knowledge. In lieu of this, AICL was required to pay a royalty of 25 per cent of the scheduled service revenue collected on low cost carrier flights. The arrangement was for a temporary usage of such rights and brand name and was effective till March 2008. The assessee collected an amount of Rs. 99.63 crore as royalty from AICL during the year 2005-06 but service tax of Rs. 10.16 crore was not paid which was recoverable with interest and penalty. This was pointed out to the Ministry/department in November 2007; its reply had not been received (December 2008). 11.1.2.2 M/s. Jagatjit Industries Ltd., Hamira, in Jalandhar commissionerate, permitted the use of its trade mark and other intellectual property rights to fourteen manufacturing units of Indian Made Foreign Liquor (IMFL). Under the agreement entered between the assessee and the IMFL manufacturing units, the technical personnel of the assessee company were to check the quality of liquor manufactured by the IMFL manufacturing units a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2008). 11.1.3.2 On line information and data base access or retrieval service has been subjected to service tax with effect from 16 July 2001. Section 65 of the Finance Act, 1994 , defines 'on line information and data base access or retrieval service' as any service provided to a customer by a commercial concern, in relation to on line information and data base access or retrieval or both in electronic form through computer network in any manner. M/s. United Telecom Ltd., Bangalore, in Bangalore commissionerate of service tax, entered into a contractual agreement with Andhra Pradesh Technology Services (APTS), an Andhra Pradesh State Government Undertaking, during February 1999, for providing 'on line information and data base access or retrieval services'. The agreement, inter alia, included providing a back bone network for data, video and voice communication throughout the state and district headquarters for application, including video conferencing, voice and data communication services to APTS. The assessee received a sum of Rs. 13.52 crore as service charges from the State Government of Andhra Pradesh, for the period from July 2001 to August 2004. Audit observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax if recipient of service is a factory, a company, a corporation, a co-operative society etc. M/s. The Chittoor Co-operative Sugars Ltd., and M/s. S.V. Co-operative Sugar Factory Ltd., in Tirupathi commissionerate, and M/s. Sudhakar Irrigation Systems Pvt. Ltd., in Hyderabad-III commissionerate, incurred an amount of Rs. 6.30 crore during the period from January 2005 to June 2007 on the transportation of inputs into their respective factories for use in manufacturing process. However, the applicable service tax of Rs. 56.14 lakh was not paid by the assessees in terms of rule 2(1)(d)(v). On this being pointed out (November 2006 and August 2007), the department accepted the audit observations in all the cases and reported (February/April 2008) that show cause notice for Rs. 92.95 lakh for the period from January 2005 to March 2007 had been issued in the first case. It also intimated that the recovery was being done in the second case and the third assessee had paid (December 2007) service tax of Rs. 3.77 lakh and interest of Rs. 0.47 lakh covering the period from January 2006 to November 2007. Reply of the Ministry had not been received (December 2008). 11.1.5.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecover service tax had not been intimated (August 2008). Reply of the Ministry had not been received (December 2008). 11.1.7 Manpower recruitment agency services Any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client, is liable to collect and pay service tax on the gross amount charged for the services rendered. 11.1.7.1 Bangalore Metropolitan Transport Corporation (BMTC), in Bangalore commissionerate of service tax, provided 'manpower recruitment services' (viz. the supply of application forms, question papers, answer sheets, processing and generation of merit list, etc., for recruitment of personnel for various posts) to the police department, health and family welfare department, forest department and fire department of the Government of Karnataka. The assessee earned Rs. 4.65 crore during the period from April 2002 to March 2007 for providing these services. The applicable service tax of Rs. 49.25 lakh was, however, not paid which was recoverable with interest and penalty. On this being pointed out (August 2007), the Ministry admitted the audit observation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact remains that action to recover tax by issue of show cause notice was taken in April 2008 after flagged the issue in audit. 11.1.9 Cargo handling services Service tax on cargo handling service was levied with effect from 16 August 2002. Section 65(23) of the Finance Act, 1994 defines 'cargo handling service' to mean loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerised freight, services provided by container freight terminal or any other freight terminal, for all modes of transport and cargo handling service incidental to freight. M/s. Jai Jawan Coal Carriers Pvt. Ltd., New Delhi, in Delhi commissionerate of service tax, provided cargo handling services and recovered Rs. 3.65 crore during the period between 2003-04 and 2005-06 as disclosed in the income tax return submitted to the income tax department. However, neither did the assessee register itself with the department nor did it pay the applicable service tax of Rs. 33.11 lakh. This was recoverable with interest and penalty. The mater was referred to the Ministry/department in January and February 2008; its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know how and related services 11.2.2.1 M/s. Steel Authority of India Ltd., (SAIL) Bhilai, in Raipur commissionerate, paid Rs. 56.23 crore between April 2000 to March 2004 in foreign currency to foreign consultants for receiving technical 'know how'. Service tax of Rs. 3.41 crore was leviable for the period from 16 August 2002 to 31 March 2004 which was not paid by the assessee. This was recoverable with interest. On this being pointed out (October 2004), the Ministry admitted the audit observation and stated (September 2008) that demand of service tax of Rs. 5.88 crore with equal amount penalty of Rs. 5.88 crore had been confirmed (December 2006). 11.2.2.2 M/s. Bosch Chassis India Ltd., Gurgaon, (formerly known as M/s. Kalyani Brakes Ltd., Gurgaon) in Delhi-I commissionerate, availed services of foreign consultants towards services of consulting engineers, intellectual property and technical testing and analysis. The assessee paid service charges of Rs. 19.72 crore to foreign companies during the years 2003-04 and 2005-06, but service tax of Rs. 1.89 crore was not paid. Service tax was recoverable with interest and penalty. On this being pointed out (March 2007), the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable service tax of Rs. 42.13 lakh was not paid by the recipient of service. On this being pointed out (February 2007), the Ministry admitted the audit observation and intimated (July 2008) that a show cause notice for Rs. 42.13 lakh had been issued. 11.2.2.6 M/s. NPCL Bharuch (amalgamated with M/s. GNFC Ltd.) and M/s. Hindalco Industries Ltd., Bharuch in Vadodara-II commissionerate, paid Rs. 9.14 crore for the consulting engineers services received from foreign consulting engineering agencies between October 1998 and March 2003. However, applicable service tax totalling to Rs. 45.69 lakh was not paid by the service receiver. On this being pointed out (November 2003 and October 2004), the Ministry admitted the audit observation and intimated (October 2008) that in respect of M/s. Hindalco Industries Ltd., demand had been confirmed and in respect of M/s. NPCL, it stated (December 2005 and January 2008) that show cause notice for Rs. 2.65 lakh had been confirmed and four show cause notices for Rs. 1.93 lakh had been issued to the foreign service providers. 11.2.3 Manpower recruitment services M/s. Dr. Reddy's Laboratories Ltd., (Unit I), in Hyderabad-II commissionerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license of M/s. Flakt Woods Group, AG Switzerland in connection with the sales and marketing of its products. The service charges were paid in foreign currency. However, service tax of Rs. 38.30 lakh payable thereon during the period between January 2003 and December 2004 was not paid, which was recoverable with interest from the recipient of services. On this being pointed out (April 2005), the department stated (September 2007) that a demand of Rs. 88.28 lakh covering the period from January 2003 to December 2006 was under issue. Further developments in this case had not received (December 2008). Reply of the Ministry had not been received (December 2008). 11.3 Other cases In 57 other cases of non-levy/non-payment of service tax of Rs. 736 crore, the Ministry/department had accepted (till December 2008) all audit observations and had reported recovery of Rs. 3.40 crore in 29 cases. Chapter XII Miscellaneous Topics of Interest Some illustrative cases pertaining to non-levy of interest on delayed payment of service tax, incorrect availing of exemption from tax, short levy of service tax due to undervaluation, incorrect classification of services etc., involving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations in principle. 12.1.3 M/s. Prakash Arts and M/s. ABC Engineering Works in Guntur commissionerate, M/s. Whirlpool of India Ltd., in Delhi commissionerate of service tax and M/s. Ranbaxy Laboratories Ltd., Dewas, in Indore commissionerate, engaged in providing of advertising services, site preparation, excavation services and manufacture of medicaments/organic compounds did not pay quarterly service tax by the due dates during 2005-06 and 2006-07. They paid the amounts with delays ranging from 1 to 288 days. The interest due on such belated payments amounting to Rs. 84.38 lakh was neither paid by the assessee nor was it demanded by the department. On this being pointed out (November 2007), the Ministry while accepting the audit observation intimated (November 2008) recovery of Rs. 8.89 lakh from M/s. ABC Engineering Works. The department also admitted the audit observations in the cases of M/s. Whirlpool of India Ltd. and M/s. Prakash Arts and reported recovery of Rs. 2.85 lakh and Rs. 47.58 lakh respectively. Reply in the remaining cases had not been received (December 2008). 12.2 Interest on wrong credit of Cenvat Rule 14 of the Cenvat Credit Rules, 2004 , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rules, consistent with these. Reply of the Ministry had not been received (December 2008). 12.3 Exemption from tax Under notification dated 31 March 2004, all taxable services provided by a person to a developer of special economic zone (SEZ) or a unit located in SEZ are exempt from levy of service tax if such services are consumed within the SEZ subject to fulfillment of certain specified conditions. The Ministry clarified on 28 June 2007 that since the exemption was intended to cover services meant for consumption in SEZ, taxable services provided and consumed within SEZ are only exempt from service tax and services provided outside SEZ and consumed outside SEZ do not qualify for exemption under the aforementioned notification. M/s. Karvy Computer Share Pvt. Ltd., in Hyderabad-II commissionerate, engaged in providing issue and share transfer agent services, undertook initial public offer (IPO) and share transfer services during 2006-07 and 2007-08 on behalf of M/s. Reliance Petroleum Ltd., and realised an amount of Rs. 12.43 crore for these services. They claimed exemption under the said notification on the ground that the said services were intended for consumption i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to hostellers, the assessee bifurcated these charges into tuition fee, mess charges and hostel charges and discharged service tax liability only on part consideration of Rs. 1.53 crore which represented tuition fee alone. The other two components were excluded by the assessee on the plea that they had no nexus to the coaching services rendered by him. This was not correct as all the amounts were collected in relation to rendering of coaching services and hostel and mess facilities were extended to boarders as incidental to the coaching services offered to them. Therefore, these elements were not to be segregated or separated from the total service charges. The service tax liability not discharged by the assessee on the remaining consideration of Rs. 11 crore collected during the years 2005-06 and 2006-07 amounted to Rs. 1.28 crore. On this being pointed out (November 2007), the department while accepting the audit observation stated (April/May 2008) that show cause notices were under issue. Reply of the Ministry had not been received (December 2008). 12.5 TDS not included in value of services The Director General of Service Tax clarified in the 'frequently asked questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee obtained registration under commercial or industrial construction service on 12 September 2005. The assessee realised Rs. 6.48 crore as service charges during the period from January 2005 to June 2006 and paid service tax of Rs. 21.81 lakh under commercial or industrial construction service after availing permissible abatement at 33 per cent from the gross value. This was not correct as service tax was leviable under erection, commissioning or installation services and such an abatement was not available under this category of service. Incorrect classification of service resulted in short payment of service tax of Rs. 44.28 lakh. This was pointed out to the Ministry/department in April 2008; its reply had not been received (December 2008). 12.7 Other cases In 140 other similar cases of short payment of service tax of Rs. 4.10 crore, the Ministry/department had accepted all audit observations and had reported recovery of Rs. 3.31 crore in 137 cases till December 2008. [Source : Report No. CA 20 of 2009-10 - Union Government (Indirect Taxes) of the Comptroller and Auditor General of India ] - Circular - Trade Notice - Public Notice - Instructions - Office order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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