EditorialThe Goods and Services Tax (GST) has ensured formalisation of the economy and improved mop-up, delivering seamless convergence under the one-nation, one tax theme. With uniformity of rates and elimination of multiple other indirect taxes, GST has cut out the cascading of levies, widened the tax net and added to revenues. Introduction of the e-way bill has improved the system by reducing transport and logistics costs. The exports sector, too, has given its approval to GST, despite its refund challenges, as it has reduced cost of manufacturing and logistics through complete rebate of input taxes on all goods and services.
The Nikkei India Manufacturing Purchasing Managers Index (PMI) rose from 51.2 in May to 53.1 in June. This was consistent with the fastest improvement in the health of India’s manufacturing economy in 2018. India’s manufacturing conditions improved in June at the strongest pace since December 2017, supported by the sharpest gains in output and new orders in 2018. Reflecting greater production requirements, firms were encouraged to engage in purchasing activity and raise their staffing levels. On the price front, input cost inflation was the sharpest since July 2014, whilst output charges rose at a stronger pace.
The Authority for Advance Rulings (AAR) in the case of FRS Hotel Group (LUX) held that the payments received by the applicant from the Indian hotel for provision of Global Reservation Services is chargeable to tax in India under Section 9(1)(i) of the Income-tax Act, 1961 (the Act) as well as under Articles 5 and 7 of the India-Luxembourg tax treaty as business income. Further, it is attributable to the applicant’s Permanent Establishment (PE) in India since the applicant is carrying on the entire business operations from the fixed place in India. The AAR observed that since the final decision in respect of all the important functions relating to the operation and management of the hotel is in the hands of the applicant, the arrangements of this kind can only exist in a principal to principal relationship and the principal-agent relationship is completely non-existent in the present case.
The Kolkata Tribunal in the case of Onprocess Technology India Pvt Ltd held that payments to a foreign company for marketing of taxpayer’s Business Process Outsourcing (BPO) services in foreign countries are not taxable in India since the foreign marketing companies were engaged only for promoting and marketing of taxpayer’s BPO service in the U.S. Except canvassing for customers in the foreign territories, these companies did not render any service in India nor the services performed were technical in nature. Further, services rendered did not involve making available to the taxpayer any technical know-how, drawings, designs etc. with the help of which the taxpayer carried on its BPO business. Therefore, the payment of fees did not fall within the provisions of Section 9(1)(vii) of the Act or under the India-U.S. tax treaty.
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Payments received by a foreign company for global reservation/ other services are chargeable to tax in India under the Act as well as under the India-Luxembourg tax treaty
The applicant is a company within the FRHI Group incorporated under the laws of Luxembourg. The applicant is the principal operator company of the FRHI Group outside of North America and provides services in connection with hotel management and including all services that are necessary for hotel operation, such as establishing hotel standards and policies, sales and marketing, centralised reservations, purchasing and certain other services as per the operational requirements of the hotel owners to meet the hotel brand requirements.
Bengal Ambuja Housing Development Limited (BAHDL) engaged the applicant to provide certain services in different phases of hotel development and operation so that the hotel property, i.e., Swissotel Kolkata can be developed and operated as per international standards. For the aforesaid purpose, the applicant and BAHDL entered into a centralised services agreement under which the applicant agreed to provide the following services:
• GRS to facilitate reservation / booking of rooms, banquets, etc. in Indian hotel property;
• Centralised Services: miscellaneous support services as required by the Indian hotel owner at its option, including but not limited to global sales & marketing, finance support, human resources support, operations support, and technology support;
• Corporate Design & Construction services for providing advisory services in connection with any capital improvements proposed by the Indian hotel owner in relation to the hotel property, including refurbishing, maintenance, repairs or , etc.; and
• Purchasing services: Assistance in purchases of goods, supplies, and services as required by the Indian hotel owner in relation to the operation of the Indian hotel commensurate with the brand of the hotel.
The AAR held that the payments received by the applicant from the Indian hotel for provision of Global Reservation Services (GRS) is chargeable to tax in India under Section 9(1)(i) of the Act as well as under Articles 5 and 7 of the India-Luxembourg tax treaty as business income. Further, it is attributable to the applicant’s PE in India since the applicant is carrying on the entire business operations from the fixed place in India. The AAR observed that since
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the final decision in respect of all the important functions relating to the operation and management of the hotel is in the hands of the applicant, the arrangements of this kind can only exist in a principal to principal relationship and the principal-agent relationship is completely non-existent in the present case.
FRS Hotel Group (LUX) S.A.R.L. [2018] AAR No. 1010 of 2010
Payments for marketing of taxpayer’s BPO services in foreign countries are not taxable as FTS under the Act as well as under the India-U.S. tax treaty
The taxpayer was engaged in the BPO business. The taxpayer was performing the task of tracking calls, tracing shipments, conducting follow-ups and performing customer care activities. The BPO services to the foreign clients were primarily rendered in the field of supply chain optimisation and customer experience management services. To secure orders and solicit business from foreign customers, the taxpayer engaged the services of foreign marketing companies to whom market support fees were paid. Accordingly, the taxpayer entered into the agreement with the wholly-owned subsidiary in the U.S. In terms of the agreement, the U.S. company was required to provide marketing and support services and recruit and maintain at all times an appropriate number of marketing personnel and other competent personnel for the performance of services under the agreement.
During the Assessment Year (AY) 2012-13, the service fees were paid on the number of hours called by the employees on attending to the customer calls. The taxpayer was primarily catering to its clients based in U.S., U.K., and Australia. The Assessing Officer (AO) held that since the orders were executed in India, income accrued to the payees in India and under Section 9(1)(i) and 5(2)(b) of the Act, it was chargeable to tax in India and such fees were paid without deduction of tax under Section 195 of the Act. Accordingly, since the taxpayer failed to deduct tax under Section 195 of the Act, the entire marketing support fees paid was disallowed under Section 40(a)(i) of the Act.
The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the disallowance on a different footing and held that the payments made to foreign entities qualified as ‘Fees for Technical Services’ (FTS) both under the Section 9(1)(vii) of the Act as well as Article 12 of the tax treaty. Aggrieved by order of the CIT(A), the taxpayer filed an appeal before the Tribunal.
The Kolkata Tribunal held that the payments to a foreign company for marketing of taxpayer’s BPO services in foreign countries are not taxable in India since the foreign marketing companies were engaged only for promoting and marketing of taxpayer’s BPO service in the U.S. Except canvassing for customers in the foreign territories, these companies did not render any service in India nor the services performed were technical in nature. Further, services rendered did not involve making available any
technical know-how, drawings, designs, etc. with the help of which the taxpayer carried on its BPO business. Therefore, the payment of fees did not fall within the provisions of Section 9(1)(vii) of the Act or under the India-U.S. tax treaty.
Onprocess Technology India Pvt Ltd. v. DCIT (ITA No. 1047/Kol/2016)
Notifications/Circulars/Press Release
CBDT issues a final notification on special transitional provisions for a foreign company said to be resident in India on account of POEM
CBDT has issued the much awaited final notification on transitional provisions for a foreign company said to be resident in India on account of POEM. The final notification provides certain additional provisions viz. deemed computation of WDV considering the depreciation, restriction on the period for allowability of the brought forward loss and unabsorbed depreciation, allowability of such loss and depreciation on a proportionate basis where accounting period followed by the foreign company is different, etc.
Relief is given to foreign companies by providing that the compliance of TDS provisions prior to becoming Indian resident shall be considered as sufficient compliance. In addition to the allowability of FTC, it is provided that the FTC will be allowed on proportionate basis depending upon years over which income is offered to tax or assessed to tax in India.
The exceptions, modifications and adaptations shall not apply in respect of such income of the foreign company becoming Indian resident on account of its POEM in India which would have been chargeable to tax in India, even if the foreign company had not become Indian resident.
The draft notification as well as the final notification state that the tax rate applicable to a foreign company will remain same under the POEM situation. It has been clarified that in case of conflict between the provisions applicable to a foreign company as a resident and the provisions applicable to it as a foreign company, the latter shall generally prevail.
Sale of land along with staff quarters is treated as long-term capital gain despite depreciation claimed
The taxpayer entered into an agreement with different builders for selling an immovable property of the closed textile mill. In Financial Year (FY) 2009-10, the taxpayer had executed a sale deed with a builder for sale of a property and offered long-term capital gain from the sale of property by treating it as a sale of land. The AO observed that the properties sold comprise mill worker quarters against which the taxpayer had claimed depreciation earlier and therefore, the computation of capital gain was to be made in terms of Section 50(1) of the Act. Hence, the proceeds from the sale of property had to be taxed as short-term capital gain. The CIT(A) observed that the intention of the parties was to transfer the land only as a developer and it was not interested in buying staff quarters, which were occupied by the employees of the taxpayer. The staff quarters did not yield any gain to the taxpayer, rather, it took away certain amount from the consideration of land for getting those staff quarters vacated and therefore, the transfer was of land, taxable as long-term capital gain. Aggrieved, the tax department appealed before the Mumbai Tribunal.
The Tribunal observed that the intention of the parties was to sell the land as the value offered under the sale transaction was the value of land and not the staff quarters. The buyer purchased the property for the purpose of developing the land as a real estate. As per the terms of the deed, the taxpayer required to vacate the employees from the staff quarters and hand over the vacant possession of the property to the buyer and since, the taxpayer failed to vacate the staff quarters, the buyer took it upon itself to vacate the employees from the staff quarters by paying compensation to them. If one looks at the consideration paid by the buyer to the taxpayer, it cannot be said that the consideration paid was for staff quarters. On perusal of the registered development agreement, the parties intended to transact the land and the consideration was also paid for the land. Therefore, the Tribunal held that Section 50(1) of the Act would not apply and the capital gains on the sale of land would be treated as long-term capital gain.
ACIT v. Seth Industries P. Ltd. (ITA No.4094/Mum/2013) (Mum) – Taxsutra.com
The taxpayer’s tripartite agreement with land-owner and developer is not a ‘works-contract’ and hence TDS under Section 194C of the Act is not applicable
The taxpayer was a co-operative society engaged in the business of allotting housing sites to its members. The taxpayer entered into a tripartite agreement with one
developer and one vendor for development of a layout. The vendor had consented for selling of individual sites to the members of the taxpayer. The developer agreed to develop the property belonging to the vendor into residential sites so that the vendor can directly sell/register the sites to the members of the taxpayer. The taxpayer agreed to purchase the developed sites at a fixed price per square foot from the vendor and paid a certain sum in pursuance of the agreement. The AO held that the tripartite agreement was a combination of ‘contract for sale’ and ‘contract for work’ and would be covered within the scope of Section 194C of the Act. Since the taxpayer had not deducted tax with respect to a payment made in pursuance of the agreement, the AO raised a demand under Section 201(1) and 201(1A) of the Act. On appeal, CIT(A) dismissed the AO’s order. Aggrieved, the tax department filed an appeal before the Bangalore Tribunal.
The Tribunal observed that the payment was calculated on square foot and was paid for the purchase of completed property and not development work carried out. The agreement was only for the purchase of developed sites and did not involve works contract. The agreement for the development of property was between the vendor and developer and after such development, the property was transferred to the purchaser or other members for fixed consideration per square foot being cost of site including expenditure for development. The agreement was conditional because in the event of any defect in the title of the vendor over any portion of the property, the same would be set right by the vendor/developer at their own who would also extend all co-operation to the purchaser or their nominees in completing the transaction. The Tribunal held that the taxpayer was not required to deduct tax at source because the taxpayer was only a purchaser. Thus, the Tribunal ruled in favour of the taxpayer.
ITO v. ITC Employees Housing Co-operative Society Ltd. (ITA Nos. 264 to 271/Bang/2017) – Taxsutra.com
Material found during the course of survey in the premises of builder can be used in the block assessment of the taxpayer
A search was conducted by the AO in the premises of the taxpayer. On the same date, there was a survey in the premises of the builder and interior decorator who constructed and decorated the house of the taxpayer. At the same time, from the survey in the builder’s premises, the fact of the taxpayer having paid INR 9.51 million to the builder in cash was revealed which was not accounted for. The AO completed the block assessment and held that the said amount is liable to tax as undisclosed income
of the block period. The CIT(A) held that it was due to the search action that the tax department revealed that the taxpayer had engaged the services of the builder. Hence, the order of block assessment was upheld. The Tribunal set-aside the decisions of the AO and CIT(A) and allowed the taxpayer's appeal. Subsequently, the High Court dismissed the appeal of the tax department. Being aggrieved, the tax department filed an appeal before the Supreme Court.
The Supreme Court observed that the method of calculating the undisclosed income of the block period is provided under Section 158BB of the Act. On perusal of the same, it indicates that undisclosed income of the block period can be calculated on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the AO and relatable to such evidence. It is the cannon of tax law that it should be interpreted strictly. The power of survey has been provided under Section 133A of the Act. Therefore, any material or evidence found/collected in a survey which has been simultaneously made at the premises of a connected person can be utilised while making the block assessment in respect of the taxpayer under Section 158BB read with Section 158BH of the Act. The same would fall under the words ‘and such other materials or information as are available with the AO and relatable to such evidence’ occurring in Section158 BB of the Act. In the present case, the AO was justified in taking the adverse material collected or found during the survey or any other method while making the block assessment. Accordingly, the AO is correct in making addition of undisclosed income to the block assessment.
CIT v. S. Ajit Kumar (Civil Appeal No. 10164 of 2010) –Taxsutra.com
Notifications/Circulars/Press Release
CBDT Notification on ‘angel-tax’ exemption
The CBDT has issued a notification stating that the provisions of Section 56(2)(viib) of the Act shall not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the consideration has been received from an investor in accordance with the approval granted by the Inter-Ministerial Board of Certification as per the Department of Industrial Policy & Promotion (DIPP) notification dated 11 April 2018.
The CBDT has also amended Rule 11UA(2)(b) of the Income-tax Rules, 1962 (the Rules) and made compulsory valuation by a merchant banker for the purpose of determining the fair market value of unquoted equity shares and omitted the word ‘accountant.’
Notification No. 23 and 24 of 2018, dated 24 May 2018
CBDT issues draft notification proposing amendments in Forms 36/36A for filing appeals/cross objections before the Tribunal
Section 253 of the Act provides for the filing of appeals to the Tribunal in respect of the orders specified therein. Rule 47(1) of the Rules prescribe Form No. 36 for filing an appeal to the Tribunal. Further, a memorandum of cross-objections to the Tribunal can be filed in Form No.36A.
Recently, the CBDT has issued a draft notification proposing amendments in Form No. 36 (Forms of appeal), Form No.36A (cross-objection) and Rule 47 of the Rules in order to make the aforesaid Forms more informative. The amendment aims to capture information on the amount disputed in pending appeals before the Tribunal which is vital for designing the policy of the department for litigation management. The new forms contain details of the appellant, respondent, pending appeals, amount disputed in appeal or cross-objections.
CBDT draft notification - F.No.370142/8/2018-TPL, dated 13 June 2018
Payment of marketing survey expenses made directly by AE on behalf of Indian taxpayer held to be at ALP
• The taxpayer is engaged in the import of completely built units (CBUs) of BMW’s motor vehicles, related spare parts and accessories from its Associated Enterprises (AEs), assembling of completely knocked down (CKD) kits of certain products imported from its AEs and resale in the Indian market.
• During the year, the AE arranged for a market survey report for the Indian market to be prepared by a third party. For these services, the AE made direct payment to the third party on behalf of the taxpayer and subsequently recovered it from the taxpayer, at cost (i.e. without any mark-up). The transaction was justified to be at arm’s length price (ALP) by application of Comparable Uncontrolled Price (CUP) method wherein the third party payment by the AE was referred to as CUP.
• Transfer Pricing Officer (TPO) challenged aforesaid payment, stating that the market survey activity was performed at the behest of, and to the ultimate benefit of the AE. TPO also stated that the survey would have been conducted even in the absence of the taxpayer since India was a strategic market for the group and determined ALP of the transaction as nil.
• For the transaction of ‘payment of technical support cost’, the taxpayer had availed technical training services, against which payments were made based on specified hourly rates, which was benchmarked by application of CUP method wherein the taxpayer relied on the data for hourly rates from comparable agreements sourced from the database. TPO however, noted the geographical differences of the comparable agreements vis-à-vis the taxpayer and rejected the same and carried out his own search on the Internet for such hourly rates in the AE’s geography and imputed a TP adjustment.
Tribunal’s ruling
Payment of market survey expenses
• Tribunal found merit in the distinction drawn by the taxpayer vis-à-vis a shareholder activity in taxpayer’s case. Tribunal also acknowledged that the taxpayer had demonstrated that the AE had no direct sales to customers in India.
• Tribunal clearly laid out the facts that
the market survey report was clearly very specific to the Indian market, and
the sole benefit arising from such expenditure accrued to the taxpayer, cannot be disputed and deleted the aforesaid adjustment.
Payment of technical support cost
• Tribunal acknowledged that the search carried out by the taxpayer was comprehensive and appropriate and found merit in the taxpayer’s argument that the hourly rates mentioned on random websites were not reliable and could not be accepted as CUPs. Thus, Tribunal upheld the taxpayers’ comparability analysis to be correct and decided the issue in favour of the taxpayer.
BMW India Pvt Ltd v. ACIT (ITA No. 6160/Del./2014)
AMP transaction does not exist in the absence of an agreement with the AE
• The taxpayer debited Advertising, Marketing and Promotion (AMP) expenses amounting to INR136.83 crore (approx. 13 percent of the sales achieved by the taxpayer as against industry average rate of 6.39 percent). TPO noted that the royalty payment made by the taxpayer reflected steep growth from 0.15 percent in AY 1999-2000 to 0.96 percent in AY 2005-06 and in absolute terms the increase was from INR1.50 crores in AY 1999-2000 to INR10.32 crores in AY 2005-06.
• TPO contended that the relevant sales on which royalty was being paid recorded a faster growth benefiting the AE. Therefore, AMP expenses should be shared by the AE as the same were the driving forces for enhancing the business. TPO apportioned the AMP expenses in the ratio of royalty payment to total payment i.e. 0.96 percent and made AMP addition.
Tribunal’s ruling
• Tribunal observed that there was no arrangement or agreement between the taxpayer and its AE which obliged the taxpayer to undertake any brand building on behalf of its AE.
• Tribunal held that nothing was brought on record to demonstrate that incurring of AMP expenses has resulted into brand building or creating marketing intangibles for the AE. Thus, Tribunal affirmed that tax department has not produced any tangible evidence and has only argued that the brand value of the taxpayer group, as a whole, has reflected healthy growth during the period 2000 to 2006.
• Further, Tribunal observed that no co-relation has been explained between the AMP expenses incurred by the taxpayer and the growth of taxpayer group’s brand value. Thus, Tribunal held that no addition could be made on mere assumption of certain facts.
• Tribunal also noted that the AMP expenses incurred are in the nature of meeting expenses, travelling expenses, hotel expenses which has been received as well as paid by the taxpayer to third parties, which in itself cannot be said to result in creation of marketing intangibles.
• Tribunal observed that TPO has computed the said adjustment by applying Bright Line Test which is not one of the prescribed methods under Rule 10B of the Rules as per settled legal positions.
• Tribunal referred to the Bombay High Court ruling in the case of Johnson & Johnson Ltd, wherein TP adjustment was made by disallowing the payment, on the basis of an assumption that it is excessive. Tribunal held that such action is completely dehors the provisions of TP adjustment found in chapter X of the Act and that the ALP determination has to be done only by following one of the methods prescribed under the Act.
• Tribunal referred to the Delhi High Court ruling in the case of Bausch & Lomb Eyecare (India) Private Limited, wherein it was held that the Revenue had been unable to demonstrate with tangible materials the existence of an international transaction involving AMP expenses between taxpayer and foreign AE.
• Based on the aforesaid High Court decisions, the Tribunal dismissed tax department’s appeal.
Colgate Palmolive (India) Limited vs ACIT (ITA No. 6073/Mum/2014 and I.T.A. No. 2778/Mum/2011)
Notifications/Circulars/Press Releases
CBDT proposes amendment to compute interest income pursuant to secondary adjustments in case of APAs and MAPs
The CBDT issued a draft notification to propose an amendment for computation of interest income pursuant to secondary adjustments in case of Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP). A uniform time limit of 90 days, starting from different dates is prescribed for repatriation of excess money in the different types / situations of primary adjustments specified under Section 92CE(1) of the Act.
As per the proposed amendment, the reference date from which time limit of 90 days is to be computed with regard to APAs and MAPs will be as under:
• APA : from the date on which the APA has been entered into by the taxpayer under Section 92CC, where the primary adjustment to transfer price is determined by such agreement;
• MAP : from the date of giving effect by the AO under rule 44H of the Income-tax Rules, 1962 (the Rules) to the resolution arrived at under MAP, where the primary adjustment to transfer price is determined by such resolution under a Double Taxation Avoidance Agreement entered into under Section 90 or 90A of the Act.
The CBDT requested public comments from the stakeholders, by 9 July 2018.
Canteen services provided by caterer at the premises of the Principals, where menu is decided by the recipient are in the nature of outdoor catering services attracting GST at the rate of 18 per cent
Applicant was a caterer and engaged in the activity of supply food, beverages and other eatables, complete services at various places of their Principals who have in house canteens at their factories.
Applicant filed an application before AAR- Gujarat seeking a ruling on whether the activity undertaken by the applicant was in the nature of supply of service provided by a restaurant, eating joint including mess, canteen attracting GST @ 12 per cent or was in the nature of supply of service as a part of outdoor catering services attracting GST @ 18 per cent.
AAR- Gujarat passed a Ruling that where the rates for the meal, snacks, tea have been fixed and payable by the recipient, menu was required to be decided by the canteen committee of the recipient and the applicant as caterer, provided services to the recipient at the recipient’s place and not from his own premises, then the nature of service provided by the applicant was that of outdoor catering service attracting GST @ 18 per cent.
The transfer of a going concern, either as a whole or an independent part thereof, for a lump sum consideration constitutes a supply of service taxable at ’Nil’ rate of Tax
The applicant, having three manufacturing units intended to sell one unit along with all its fixed assets namely land, building, plant & machinery etc., current assets namely stock & trade receivables etc., and liabilities namely bank term loans, bank working capital loans, creditors for supplies etc., for a lump sum consideration.
Applicant filed an application before AAR- Karnataka seeking a ruling on whether the transfer of a unit as a going concern would amount to supply of goods and services and would get cover under sl.no.2 of the Notification No. 12/2017-Central Tax (Rate).
AAR-Karnataka passed a Ruling that the transaction of transfer of business as a whole of one of the units of the Applicant was in the nature of a going concern amounted to supply of service and was covered under Sl.No.2 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. Such supply was taxable at ‘Nil’ rate of GST as provided in the said Notification.
Rajashri Foods Pvt Ltd [2018-VIL-37-AAR]
Single composite contract awarded with three connected agreements for Supply of Materials, Erection & Civil Works in response to a single tender notification is an 'indivisible' contract and falls under the works contract
The applicant was engaged in execution of works awarded by a Public Sector Undertaking (PSU) for construction of power lines, erection of transmission towers and transformers under a single composite contract but under three connected agreements for Supply of Materials, Erection & Civil Works respectively.
Applicant filed an application before AAR- Karnataka seeking a ruling on whether the contract, executed by them for PSU, is a divisible contract [Supply of goods & Supply of Services] or an indivisible contract [works contract] and Whether the tax rate of 12% [CGST-6% +SGST-6%] is applicable to the above contract, in pursuance of Notification No.24/2017- Central Tax (Rate) dated 21.09.2017. The Applicant further contended that they are providing services to PSU which was a ‘State Government’ and were thus eligible for the concessional tax rate enumerated in the aforesaid notification.
AAR-Karnataka reviewed the definition of “Works Contract” as per Section 2 -clause 119 of CGST Act ‘2017 and passed a Ruling that the applicant, being the successful bidder, got the single composite contract, but with three connected agreements for Supply of Materials, Erection & Civil Works respectively. All the three agreements were awarded to the applicant in response to a single tender notification & the general terms and conditions are commonly applicable to all the three agreements. The applicant was supplying the material and providing the erection of towers service and also civil works service. Therefore the contract entered by the applicant was of the nature of ‘indivisible’ contract and squarely falls under the works contract, which is a service.
AAR-Karnataka also clarified that a statutory body, corporation or an authority created by the Parliament or a State Legislature is neither 'Government' nor a 'local authority’. Such a statutory body, corporation or an authority as a juridical entity was separate from the State and could not be regarded as the Central or a State Government and also did not fall in the definition of ‘local authority’. Hence passed a Ruling that the applicant was not entitled for the benefit of the concessional rate of GST @ 12%, in terms of Notification No.24/2017-Central Tax (Rate) dated 21 September 2017.
Outward supplies of ship stores imported without payment of duty and stored in Custom Area for supply to Indian Naval / Coast Guard ships and Ocean going merchant vessels on foreign run, taxable under GST
Applicant were holders of Special Warehouse License, issued under Section 58 (A) of the Customs Act, 1962 for storage of duty free ship stores imported without payment of duty for supply to Indian Naval / Coast Guard ships and Ocean going merchant ships.
Applicant filed an application before AAR- Andhra Pradesh (AP) seeking a ruling on whether the duty free ship stores imported without payment of duty were exempted from tax under GST on their outward supplies made to ocean going merchant vessels on foreign run, Indian Naval Ships and Indian Coast Guard Ships and If at all, they were liable for GST on their outward supplies, whether the applicant could collect the GST from the recipient for the goods.
AAR AP observed that the goods which were received by the applicant were within the Customs area as defined under Section 2(11) of the Customs Act, 1962. Accordingly goods cleared / supplied by the applicant was to be treated as supply of goods in the course of inter-State trade. Furthermore, the goods supplied by the applicant were also not an exempt supply as per the definition under Section 2(47) of the Central GST Act, 2017 as it was neither nil rated or being exempt by any Notification.
AAR AP further observed that, at best, some of the supplies of applicant may fall under the definition of ‘exports’ which was considered a zero rated supply. However, the same was not within the prerogative of the application filed.
Based on the above observation AAR AP passed Ruling that applicant were not exempted from tax under GST on their outward supplies made to ocean going merchant vessels on foreign run, Indian Naval Ships and Indian Coast Guard Ships. It further ruled that applicant could collect the applicable GST from their Principals, in case it is not exports. However, in case of exports the option lied
with the applicant based on manner of exports i.e. whether they intend to export under bond or on payment of tax.
Parsan Brothers [2018-VIL-57-AAR]
When all the necessary ingredients as per the definition of ‘job work’ are fulfilled, the activity of manufacturing amounts to ‘Job Work’
Applicant was engaged in the business of manufacture and supply of industrial gases, including Oxygen, Nitrogen, Argon etc. to its Principal who was in the business of manufacture and supply of steel at its steel plant. Applicant had entered into a Job Work agreement with its Principal as a Job worker.
In order to ensure continuous availability of the gases, the applicant’s gas plant was located at a designated land within the premises of the Steel Plant.
Principal undertook to provide the necessary goods such as Electricity, Industrial quality water to the applicant on a free-of-cost basis, using which the applicant manufactured Industrial gases (Oxygen, Nitrogen and Argon) for the Principal on Job Work basis. Applicant submitted that the arrangement was on a job work basis, as the title to the electricity and industrial water remains with Principal and the Principal was also the owner of the gases manufactured by the applicant using the said electricity and water.
It is also submitted by the applicant that in terms of the arrangement between the parties, the Principal was required to provide land and all other inputs for the processing of gases by Applicant. Since the owner of the land would own the ambient air above its land, in effect, Principal had provided the same to Applicant in terms of the arrangement (along with electricity, industrial water etc.).
In view of the aforesaid statutory position and commercial arrangement, it was clear that the Atmospheric Air used by the applicant belongs to the Principal. Thus, all the inputs viz. Atmospheric Air, Industrial Water and Electricity belonged to Principal.
Applicant further explained that from the provisions of the CGST Act, 2017, there are three essential requirements to be fulfilled by the applicant in the present case to term the present transaction as job work, namely:
• The activity undertaken by the company should qualify as a ‘treatment or process’,
• The treatment or process undertaken should be on goods i.e. the raw materials/Inputs involved in the present cases should fall within the ambit of term ‘goods,
AAR -AP examined the arguments of the Applicant and also the counter arguments made by GST Commissionerate as well as various Judgements referred by Applicant in support of his arguments. Thereafter, AAR-AP found merits in the submissions made by the applicant and passed the ruling in favour of the applicant that the activity undertaken by the applicant falls under the ‘Job Work’ as defined under Section 2(68) of the Central GST Act, 2017 and the Gujarat GST Act, 2017.
Inox Air Products Pvt Ltd [2018-VIL-70-AAR]
Excise – Decisions
Subsidy received from government cannot be included in the transaction value & duty cannot be demanded on such subsidy amount
The taxpayer had their factory situated in the State of Rajasthan and were operating under Rajasthan Investment Promotion Scheme which was notified by Government of Rajasthan with the objective of facilitating investment in the establishment of new enterprises. Under various schemes of State Government, the taxpayer was eligible for various subsidies i.e. the taxpayer was required to remit VAT on sales made by them & later on a portion of VAT paid would be remitted back to the taxpayer as subsidy amount. The taxpayer could use such subsidy amount for future payment of VAT. The revenue held that usage of such subsidy amount does not amount to actual payment of VAT & demanded duty on such subsidy received. Aggrieved by the order, taxpayer preferred an appeal to the Tribunal.
The Tribunal held that as per the concept of transaction value as outlined in section 4 of Central Excise Act, any VAT actually paid can be deducted from the transaction value for payment of excise duty. Revenue has taken the view that payment of VAT using subsidy amount cannot be considered as actual payment of VAT. However, as per the scheme of Government of Rajasthan any payment of VAT made using the subsidy amount would be considered as legal payment of tax. In view of the above, revenue was not correct in taking the view that VAT liability discharged by utilizing such subsidy amount cannot be taken as VAT actually paid.
Hence the Tribunal concluded that, there was no justification for including the subsidy amount in the assessable value, as VAT paid using the subsidy amount was considered as actual payment of tax.
Structural Waterproofing Pvt Ltd, Frontier Strips Pvt. Ltd. V. Comm. of CGST [2018 (5) TMI 1409 - CESTAT NEW DELHI]
Refund of unutilized CENVAT credit cannot be granted in the absence of physical export of goods outside India
The taxpayer was a 100 per cent EOU manufacturing drugs & vaccines. The taxpayer entered into a contract for supply of drugs & vaccines to UNICEF Denmark under a sale agreement. The drugs & vaccines were to be used for immunization program in India. However, the drugs & vaccines were not physically exported to Denmark as exporting to Denmark & later again importing the same back to India would result in extra logistical costs. Hence, the drugs & vaccines were sold in India to UNICEF
Denmark in order to avoid logistical costs of sending it abroad & receiving it back in India. The taxpayer however received the amount in convertible foreign exchange. The taxpayer applied for refund of unutilized CENVAT credit. However, the revenue authorities denied the refund amount alleging that the goods were not physically exported out of India. Aggrieved by the order, the taxpayer preferred an appeal to the Tribunal.
The Tribunal held that as per Rule 5 of CENVAT Credit Rules, 2004 there should be physical export of the goods in order to claim the refund amount. Since in the given case as the goods were not physically exported, refund amount cannot be granted to the taxpayer.
CESTAT Hyderabad – Shantha Biotechnics Pvt Ltd v. Comm. Of Central Excise, Customs and Service Tax [2018 (5) TMI 1562]
Customs – Decisions
The value of goods imported cannot be enhanced on the basis of information available in the website
The taxpayer imported certain goods & filed bill of entry for its removal. However, the revenue contended that the taxpayer has reduced the value of goods imported, as similar goods were showing a higher value in website. Hence, department enhanced the value of goods imported & levied duty on differential amount along with interest & penalty. Aggrieved by such an order, the taxpayer made an appeal to the Tribunal.
The Tribunal held that though the goods imported & the goods shown in the website were similar, they cannot be said to be identical. They differ on their technicalities & hence the value of goods as shown in the website cannot be considered for valuation of goods.
Therefore, differential duty along with interest & penalty was set aside by the Tribunal.
Manamar Singh Bedi, Barkat Hiring Company v. Comm. of Customs (Import) [2018 (5) TMI 1429]
VAT - Decisions
Goods, upon sale of which, tax is prescribed under law, would become taxable goods only when taxable event arises
In the present case, the taxpayer is a company engaged in the business of execution of works contracts, which involves utilisation of cement, steel, sand, grit, etc. The taxpayer applied for composition of tax on works contract under section 14A of the Gujarat Value Added Tax Act, 2003 (‘GVAT Act’), and was granted an option to pay lump sum tax on total turnover at the prescribed rates.
In connection to the present case, it is relevant to refer to 28(8) of the GVAT Rules, which prescribes conditions subject to which permission is granted to pay tax under composition to a dealer. One of the conditions specified under the said rule, states that, if such dealer uses any taxable goods in the execution of works contract covered under the permission to pay lump sum tax, such goods ought to have borne the tax payable under the Act.
The taxpayer, in the present case, has its own mines, from where black trap was procured and converted into grit, to be used in construction of roads. Thus, no tax was paid on grit prepared from black-trap. The issue under consideration is that, whether at the time of filing of application for composition tax, the taxpayer was required to disclose the method of procuring the grit; whether the taxpayer has breached the condition prescribed under Rules 28(8) of GVAT Rules which states that, tax has ought to be paid if any taxable goods are used by the dealer and accordingly, whether the permission granted for composition of tax to the taxpayer is liable to be cancelled.
In connection to the aforesaid issue, the High Court held that, with respect to the condition prescribed under Rule 28(8), the intent of the legislature is that, a dealer who has been granted permission for composition of tax must have paid tax, as prescribed, upon consumption of taxable goods. However, this does not mean that, the dealer has to pay tax whether such liability under the Act has arisen or not. When the taxing event is sale of goods and such event has not arisen, there would be no question of tax becoming payable under the Act. A commodity would become taxable goods and the dealer is expected to pay tax only when taxable event arises and not otherwise. The term ‘taxable goods’ and ‘tax payable’ under the Act have to be harmoniously construed.
In the present case, since the petitioner had not purchased the goods from market but had self-manufactured it from the mines, there was no occasion to pay the tax. Even if the petitioner wanted to pay tax on such goods, there is no provision under the Act under which the petitioner could do so. The view taken by the Department would disqualify a contractor, who uses self-manufactured products for home consumption in the course of execution of works contracts, from claiming composition of tax. Such an interpretation cannot be accepted.
Further, it was held by the HC that, neither the Act nor the Rules requires the petitioner to disclose its modus of obtaining black-trap or grit, while applying for composition, and thus, the petitioner cannot be expected to make declaration which was not called for.
In view of the above the petitions filed by the taxpayer were allowed and notices issued by the Department were set aside.
BSCPL Infrastructure Limited v. State Of Gujarat & 4 (Guj)
VAT
Notifications/Circulars/Press Release/Order
Maharashtra
• Vide below circular, the Government of Maharashtra has launched online facility for filing of applications
under Administrative Relief Application (‘ADM Relief’) by the dealers who have not obtained the registration upon exceeding threshold limit within the prescribed timelines i.e. there is a delay on part of dealers to obtain registration under VAT Act. This facility is also extended to CST Act, Luxury Act, and Entry Tax Act. Further, the department has also prescribed the procedures to be followed by the dealers in order to make an application under such scheme.
Trade Circular No. 16T of 2018 dated 24 May 2018
• Vide below circular, the Government of Maharashtra has instructed to all the AOs to pass the assessment orders manually till the time assessment module under SAP system gets operational for time barred assessments.
Internal Circular No. 10A of 2018 dated 16 May 2018
• Vide below notification, the Government of Maharashtra has amended the format of audit report under section 61 of the MVAT Act, 2002 i.e. Form No.704 with effect from 1 April 2018.
Notification No. VAT/AMD-2018/1B/ADM-8 dated 5 June 2018
West Bengal
• Vide below circular, the Commissioner of West Bengal basis the decision given by Tribunal, has instructed to AOs that in order to adjust the refund amount against CST dues, officers should obtain consent from the dealer for such an adjustment. Further, in case the consent is not received and which is not covered by any order of stay in pending appeal or revision, the officer should opt for recovery method. Also, such consent is required to be obtained for cases which are still pending and sent to Central Refund Unit (‘CRU’) of state.
Circular No. 255CT/PRO/3C/PRO/2018 dated 6 June 2018
Jharkhand
• Vide the below notifications, Governor of Jharkhand has exempted the sales of liquor for human consumption by or to Canteen Stores Defense Regimental Units for the bonafide use of all Defense Personnel including ex-servicemen of Jharkhand State and the Canteen of Border Security Force, Training Centre & School, Meru, Hazaribagh, from the levy of VAT payable under the Jharkhand VAT Act, 2005. Such notifications will be effective for the period 14 May 2018 to 31 March 2019.
• Vide below mentioned circular, the Government of Kerala has issued guidelines for completion of scrutiny and assessment of presumptive tax dealers for the years from 2011 to 2016. Further, it mentions that maximum two adjournments shall be granted to the dealers for completion of such assessments and any further extension shall be granted with the prior approval of Deputy Commissioner based on genuine reasons.
Circular No. 13 of 2018 dated 26 May 2018
• Vide below circular, the Government of Kerala has issued instructions to all the dealers to file closing stock inventory at the end of every FY along with annual return. For this purpose, all the assessing authorities should follow the procedures prescribed under Kerala Value Added Tax Act, 2003 and respective rules and accounting standard II, for the purpose of valuation of inventories.
Circular No. 12 of 2018 dated 23 May 2018
• Vide below mentioned circular, Kerala Government has issued instructions for filing of returns for the period April 2017 to June 2017. Accordingly, the dealers are required to file the returns on or before 30 September 2018 for the said period. Further, dealers are required to file commodity-wise closing stock inventory as on 30 June 2017 on or before 30 September 2018. The circular also states that the dealers will have comply with the audit provisions prescribed under the Kerala Value Added Tax Rules, 2005.
Circular No. 10 of 2018 dated 23 May 2018
Rajasthan
• Vide below notification, the Government of Rajasthan has launched ‘Deemed Assessment Scheme’ for the FY 2016-17, which shall be effective from 20 June 2018. This scheme shall be applicable for dealers who have submitted all the returns or audit report with returns and paid the tax due along with interest and late fees, up to 31.05.2018. Post completion of verification, order for such deemed assessment shall be issued in the prescribed manner. Further, such notification also prescribes the list of dealers, who shall not be eligible to apply under such scheme. The assessment under the Central Sales Tax Act, 1956 shall be made in the similar manner.
Notification No.F.16 (1052) Tax/VAT/CCT 2017-18/336-41 dated 11 June 2018
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Notifications/Circulars/Press Release
The Government of India issues notification on reducing the administrative charges under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
In March 2017, the Government of India (GOI) made changes in the Employees’ Provident Funds Scheme, 1952 (EPFS) by reducing the administrative charges from 0.85 per cent to 0.65 per cent1 of the monthly pay as defined under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act), with effect from 1 April 2017.
Recently, the Government of India, has issued a notification to revise the rate of administrative charges under the EPFS. This notification is effective from 1 June 2018.
Key amendments in the notification
Administrative charges under Employees’ Provident Funds Scheme, 1952
• The administrative charges paid by the employer on monthly pay (as defined under the EPF Act) has been reduced from 0.65 per cent to 0.50 per cent of the monthly pay of the employee
• Minimum administrative charges of INR75 per month for every non-functional establishment having no contributory member and INR500 per month per establishment for other establishments would need to be paid.
Notified in official gazette on 21 May 2018
Government of India declares 8.55 per cent interest rate on Employees’ Provident Funds Scheme for FY 2017-18
The Government of India has declared a rate of interest of 8.55 per cent for crediting interest on Provident Fund (PF) accumulation for members of the Employees’ Provident Funds Scheme for the FY 2017-18. The Employees’ Provident Fund Organisation (EPFO) issued a circular dated 25 May 2018 in this regard.
Circular issued by EPFO dated 25 May 2018
__________________1 Notified in official gazette on 15 March 2017
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Personal tax
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
