The government of India has constituted a task force to review the Income-tax Act, 1961 (the Act) and to draft a new Direct Tax Law in consonance with the economic needs of the country. The task force is expected to submit the draft to the government soon. After due examination, it will be issued in the public domain for suggestions before being passed as law.
During Financial Year (FY) 2017-18, 6.84 crore Income-tax returns (ITRs) were filed with the tax department as compared to 5.43 crore ITRs filed during FY 2016-17, showing a growth of 26 per cent. There has been a steady increase in the number of ITRs filed in the last four financial years. As compared to 3.79 crore ITRs filed in FY 2013-14, the number of ITRs filed during FY 2017-18 (6.84 crore) has increased by 80.5 per cent.
The Central Board of Direct Tax (CBDT) clarified that all returns for Assessment Year (AY) 2017-18 and onwards have to be processed under Section 143(1) irrespective of the fact whether the cases are under scrutiny or
Assessing Officer (AO) contemplating withholding of refund on the concern of recovery. Further, returns pushed by Centralised Processing Centre (CPC) to AO shall be processed electronically using software provided by CBDT. However, in exceptional circumstances where returns cannot be processed electronically due to technical difficulties, AO should process them manually with prior approval of Principal Commissioner of Income-tax.
The Mumbai Tribunal in the case of Bay Lines (Mauritius) held that if the Place of Effective Management (POEM) of an enterprise is not situated in one of the states but is situated in a third state, benefit of Article 8 (shipping and air transport) of the India-Mauritius tax treaty cannot be granted to the taxpayer. The argument of the taxpayer that the effective management can only be between two contracting states has not been accepted. Since major policy decisions were taken in UAE, the effective management of the taxpayer is neither in Mauritius nor in India, and it is situated in UAE.
The Delhi High Court in the case of Danisco India Private Limited held that where the non-resident deductee conducts its operation from outside the territory of India whose government has entered into a tax treaty with India, the rate of taxation would be governed by the provisions of the tax treaty and not by the specific provisions of Section 206AA of the Act.
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If POEM of an enterprise is not situated in one of the contracting states, but is situated in a third state, benefit of Article 8 of the India-Mauritius tax treaty cannot be granted
The taxpayer is a shipping company incorporated in Mauritius. The taxpayer has an exclusive agent in the form of M/s Freight Connection India Pvt. Ltd (FCIPL) and an agreement for the same was entered into by the taxpayer and the address shown at Dubai, UAE. During the year under consideration, the taxpayer filed its return of income claiming tax treaty benefit. The copy of Tax Residency Certificate (TRC) issued by the tax authorities of Mauritius indicates that the taxpayer is a resident of Mauritius.
The AO held that that the effective management of the taxpayer is situated at a place which is other than India and Mauritius and thus denied the benefit of Article 8 of the tax treaty and held that the taxpayer’s income is chargeable to tax in India. The AO also held that the agent of the taxpayer i.e. FCIPL is doing the agency work in all the Indian ports which is habitually concluding the contracts on behalf of the taxpayer and performing duties such as clearances from the government departments, deciding the brokers, contacting with the parties, loading of cargo, dealing with labourers for loading, collecting the freight on behalf of the taxpayer and also maintaining the bank account on behalf of the taxpayer, etc. Thus, the AO held that the taxpayer has a PE in India in the form of agent. The Commissioner of Income-tax (Appeals) [CIT(A)] held that the effective management of the taxpayer is neither in Mauritius nor in India but in a third country. Accordingly, the taxpayer is not entitled for the benefit of Article 8 of the tax treaty. The CIT(A) held that the taxpayer does not have a PE in India and hence it’s business profits are not taxable under Article 7 of the tax treaty.
The Mumbai Tribunal held that if the POEM of an enterprise is not situated in one of the contracting states, but is situated in the third state, benefit of Article 8 (Shipping and air transport) of the India-Mauritius tax treaty cannot be granted to the taxpayer. The argument of the taxpayer that the effective management can only be in between two contracting states cannot be accepted. Since major policy decisions were taken in UAE, the effective management of the taxpayer is neither in Mauritius nor in India and it is situated in UAE.
The Tribunal also held that the taxpayer’s agent in India is an independent agent who acts in its ordinary course of its business and whose activities are not devoted exclusively or almost exclusively on behalf of the taxpayer. Therefore, the taxpayer does not have an Agency Permanent Establishment (PE) in India. Accordingly, it has been held that even if the taxpayer's case is not covered by Article 8, the business profits would not be chargeable to tax in absence of a PE in India.
ADIT vs Bay Lines (Mauritius) [ITA No. 1181/Mum/2012]
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In case of conflict between Section 206AA of the Income-tax Act and tax treaty provisions, the rate of taxation would be as governed by the provisions of the tax treaty
The taxpayer remitted payments to a Singapore based company (non-resident company). A non-resident company is not a taxpayer in India. The services rendered by a non-resident company are in the nature of Fees for Technical Services (FTS). The India-Singapore tax treaty (tax treaty) provides a cap of 10 per cent tax rate for FTS. The taxpayer contended that on an application of the principle of law enunciated in UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), even if the tax rate for the activity which would form part of the expression FTS is higher, due to tax treaty provisions not more than 10 per cent can be recovered by the tax authorities. The taxpayer contended that Section 206AA has the effect of undoing the provisions of the tax treaty. The levy of 20 per cent rate is unconstitutional. The taxpayer relied on the recommendations of Justice Easwar’sCommittee’s report of 2016.
The taxpayer aggrieved of Section 206AA of the Act which provides a levy of 20 per cent in case of outward remittances in the hands of the payer and is applicable to a non-resident in India. The taxpayer contended that the aforesaid provisions cannot be sustained having regard to the facts of the present case. The taxpayer filed a writ petition before the Delhi High Court.
The High Court observed that the issue with respect to Section 206AA of the Act has been rendered largely academic on account of the amendment which substituted pre-existing Section 206AA(7)5 with the present Section 206AA(7) of the Act.
The amendment is mitigating to a large extent, the rigors of the pre-existing laws. The law, as it existed, went beyond the provisions of the tax treaty which in most cases mandates a 10 per cent cap on the rate of tax applicable to the contracting parties.
Section 206AA (prior to its amendment) resulted in a situation, where, over and above the mandated 10 per cent, a recovery of an additional 10 per cent, in the event, the non-resident payee, did not possess a Permanent Account Number (PAN).
Having regard to the position of law explained in Azadi Bachao Andolan and various other decisions, a tax treaty acquires primacy in such cases, where reciprocating states mutually agree upon acceptable principles for tax treatment. The provision in Section 206AA (as it existed) has to be read down to mean that where the non-resident deducteeconducts its operation from outside the territory of India whose government has entered into a tax treaty with India, the rate of taxation would be as dictated by the provisions of the tax treaty.
Danisco India Private Limited vs UOI (W.P. (C) 5908/2015)
On 19 March 2018, India and Hong Kong Special Administrative Region (HKSAR) of People’s Republic of China signed a tax treaty. The tax treaty will stimulate flow of investment, technology and personnel from India to HKSAR and vice versa, prevent double taxation and provide for exchange of information between the two contracting states. It will improve transparency in tax matters and will help curb tax evasion and tax avoidance. The tax treaty is on similar lines as entered into by India with other countries. Key features of tax treaty are as follows:
• Significant provisions of the treaty include, inter alia, source country taxation rights on capital gains from transfer of shares, other income, beneficial rate of taxation of dividend at the rate of 5 per cent on gross dividend and 10 per cent on interest, royalty and FTS, provisions on Service PE, Exchange of Information and Mutual Agreement Procedures (MAP).
• Profits of an enterprise from operation of ships or aircrafts in international traffic are primarily taxed in the resident country. However, such profits are subject to source taxation also but at a rate of 50 per cent concessional tax.
• The benefit of provisions of dividend, interest, royalty, FTS, capital gains are subject to anti-avoidance provisions..
• LOB clause inserted in the tax treaty. It also gives primacy to anti-avoidance provisions under the domestic laws.
The treaty will come into force after the completion of administrative procedures by both the countries, in particular, on the date on which the second country notifies the completion of such procedures.
Receipts by cooperative societies on account of non-occupancy charges, transfer charges, common amenity fund contribution are exempt from income tax based on the doctrine of mutuality
The taxpayer, a premises co-operative society, received from its members transfer charges, non-occupancy charges and premium on sale of additional construction rights of the society’s property. Non-occupancy charges were levied by the society and was payable by a member who does not occupy the premises but lets it out on rent and, transfer charges were collected on transfer of flat/premised by an outgoing member part of which was also paid by incoming member (transferee).
The amount received by the taxpayer was not offered to tax on the principle of mutuality. However, the AO held that non-occupancy and part of the transfer charges received from transferee constituted as business income, generating profits and surplus and having an element of commerciality and, therefore, taxable. The CIT(A) upheld the order of the AO. The Tribunal held that the transfer fee paid by the transferee member was exigible to tax as the transferee did not have the status of a member at the time of such payment and, therefore, the principles of mutuality did not apply. The High Court set aside the finding that payment by the transferee member was taxable while upholding taxability of the receipt beyond that specified in the government notification.
Supreme Court’s decision
The Supreme Court reiterated the following principles on the principle of mutuality:
• The principle of mutuality is based on common law principles. It rests on the theory that a person cannot make a profit from himself/herself. An amount received from oneself cannot be regarded as income so as to be liable to tax.
• The distinctive feature of the principle of mutuality lies in the commonness between the persons contributing to and also participating in surplus of a mutual organisation which does not have any profit motive from the transactions with its members.
• There should be complete identity between the contributors and the participants as a class, in the sense, what is returned to members is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities.
• A common feature of mutual organisations, in general, can be stated to be that the participants usually do not have the property rights to their share in the common fund, nor can they sell their share. Cessation from the membership would result in the loss of right to participate without receiving financial benefit from the cessation of the membership.
On the basis of the above principles and relying on various decisions on the matter, the Supreme Court held that various receipts were not taxable in the hands of the taxpayer as the principle of mutuality was applicable.
On transfer fee
The transfer charges are payable by an outgoing member and if for convenience, part of it is paid by the transferee, it would not partake the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non-admission, the amount is returned. Therefore, the moment a transferee is inducted as a member, the principle of mutuality applies.
It is the membership which forms a class which is relevant; the identity of an individual member is irrelevant. Hence, induction into the membership automatically attracts the principle of mutuality.
On non-occupancy charges
• Like in case of transfer fees, the non-occupancy charges collected from members are also utilised for the common benefit of facilities and amenities to the members and, hence, are indisputably used for mutual benefit.
Premium on sale of additional construction rights
• If a society inducts a new member who is required to contribute extra charges to the common funds for availing common facilities, and then occupancy rights in respect of additional construction are granted by draw of lots while society retaining ownership of property, receipt is protected by the principle of mutuality. It would be incorrect to classify it as income of the society with commerciality.
• Any contribution to the common amenity funds which is utilised for the maintenance of the properties of societies which ultimately ensures to the enjoyment, benefit and safety of the members would satisfy mutual benefit test.
• The Supreme Court upheld the order of the High Court stating that the Notification dated 9 August 2001 is applicable only to housing co-operative society and not to premises co-operative society which consists of non-residential premises.
ITO vs Venkatesh Premises Cooperative Society Limited (Civil Appeal No.2706 OF 2018) – Taxsutra.com
Deductor will be liable for disallowance under Section 40(a)(ia) of the Act in absence of payment of tax on income (on which no tax has been deducted at source) by payee due to loss return
The taxpayer is an educational institution. The taxpayer credited lease rent to Kerala State Co-operative Hospital Complex and Centre for Advanced Medical Services Ltd, however, no actual payment of tax was made. The taxpayer did not deduct tax for AY 2007-08 to 2009-10. The AO made the disallowances under Section 40(a)(ia) and treated the taxpayer as an assessee-in-default. The Tribunal upheld the order of the AO. Aggrieved, the taxpayer appealed before the Kerala High Court.
High Court decision
The taxpayer contended that proviso under Section 40(a)(ia) and Section 201(1) inserted by Finance Act 2012 was curative in nature as it was with the intention of alleviating the hardship, in cases where the resident-receiver of amounts, paid tax on such receipts, even when the payer has failed to deduct tax at source. The High Court rejected taxpayers contention.
The High Court observed that as per the first proviso to Section 201(1) when a resident, who receives any sum from the taxpayer, has furnished his return of income under Section 139 and taken into account such sum for computing income, as also paid the tax due on the income declared by him in such return of income; then the taxpayer would stand absolved from being treated as an assessee in default, despite the fact that the taxpayer had failed to deduct at source, the whole or any part of the tax in accordance with the provisions of Chapter-XVII-B. The High Court observed that the cumulative effect of the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) would be that on payment of tax by the resident receiver of the taxpayer who failed to deduct tax under Chapter-XVII-B on any sum paid to the resident receiver, would not be considered as an assessee in default and the addition under Section 40(a)(ia) would also not have to be made in the case of that taxpayer.
The High Court held that to avail of the beneficial provisos under Section 40(a)(ia) and Section 201(1), there should be return of income under Section 139, with computation of income including such amounts received, as also payment of tax on such income. Only if all the conditions are satisfied, the beneficial provision would be applicable to the taxpayer who failed to deduct tax at source. In the present case, the resident-receiver to whom the taxpayer paid or credited the lease rent has filed a return belatedly and not paid any tax due on the income declared, therefore, when, there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from Section 201(1) and Section 40(a)(ia) of the Act. Therefore, the High Court held that the taxpayer will be treated as an ‘assessee in default’ and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed.
The Academy of Medical Sciences vs CIT (ITA No. 232 of 2014) – Taxsutra.com
Registration date is relevant in determining holding period of the property in the absence of transfer of possession on agreement date
The taxpayer is an individual. On 14 June 2007, the taxpayer transferred the property under Joint Development Agreement (JDA). However, the property was acquired by an agreement to sale on 28 June 2000 and the sale deed was registered/executed on 5 December 2005. The AO and CIT(A) considered the date of registration of property for determining period of holding and computed short-term capital gain arising out of JDA. The AO held that there is ‘transfer’ within the meaning of Section 2(47) and assessed to capital gains by adopting cost of construction of the share of built up area as a consideration and computed short-term capital gains and brought to tax. The issue in the present appeal is whether the gains arising on entering into JDA is taxable as short-term capital gains or long-term capital gains.
Tribunal’s decision
The sale deed was executed on 5 December 2005 and it is trite law that on entering into an agreement of sale, the seller relinquishes certain rights in favour of the buyer. However, the crucial factor to be taken into consideration is whether the buyer has taken possession of the property and paid consideration agreed, etc.
In the present case, the taxpayer never produced the agreement of sale before the AO. Therefore, genuineness of the agreement is not beyond doubt. Further, mere perusal of the agreement of sale, it is clear that full consideration has not been paid. Out of the total amount of consideration of INR12 lakh, only a sum of INR1 lakh have been paid. There is no covenant in the agreement of sale that possession of the property was transferred in favour of the taxpayer. Therefore, it can be concluded that even in terms of agreement of sale entered into, the taxpayer has not acquired any interest in the said property from the date of agreement of sale i.e. 28 June 2000. Therefore, the agreement of sale cannot be considered for the purpose of reckoning the holding period. The only date which can be considered is the date of registration of sale deed i.e. 5 December 2005.
The decisions in the case of Sanjeev Lal vs CIT (365 ITR 389) and M. Syamal Rao vs CIT (234 ITR140) relied upon by the taxpayer are distinguishable on facts of the present case. In the said decisions, full consideration was paid by the buyer and possession of the property was handed over to the buyer by the seller. In such circumstances, the Courts have held that even on entering into agreement of sale property, rights in the said asset is extinguished and the buyer should be deemed to be the owner of the asset from the date of agreement of sale. Therefore, gains arising out of entering into JDA are assessable as ‘short-term capital gain’. Short-term capital gains are not eligible for exemption under Section 54D of the Act. Therefore, the Tribunal upheld the order the lower authorities.
Shri M.C.Sathyanarayana Gowda vs ITO (ITA No.1057 /Bang/2016) – Taxsutra
CBDT revises format of notices under Section 142(1) to implement e-assessments
The CBDT issued an order revising the format for issue of notices under Section 142(1)(ii) and (iii) of the Act. The revised format incorporates the same language as in the 143(2) notice to facilitate the taxpayer to submit the documents and respond electronically and the requirement to visit the office has been removed. This has also been implemented in the Income-tax Business Application (ITBA) system. Therefore, all the AOs are requested to use this format for the cases in e-assessment proceedings.
It is stated that in case where a notice under Section 142(1)(i) and (ii) is already issued in the old format to the taxpayers, requiring them to furnish information mentioned in the notice at the date and time fixed in the office of AO, an SMS/email is being sent to all such taxpayers intimating them to furnish the said information electronically through their account via the e-filing website. Therefore, any compliance of the taxpayer through his/her e-filing account in response to the notice issued in the old format should be considered valid.
CBDT order (F No. System/ITBA/Assessment/Notice 142(1)/2017-18C), dated 19 March 2018
CBDT notifies Centralised Communication Scheme for issuing e-notices under Section 133C of the Act
The CBDT has notified ‘Centralised Communication Scheme, 2018’ for centralised issuance of notices, in pursuance to the Finance Act, 2017 amendment to Section 133C of the Act. Under the Scheme, the Centralised Communication Centre shall issue a notice to any person under Section 133C, through email or by placing a copy in the registered account on the portal followed by an intimation on SMS, requiring him/her to furnish information or documents for the purpose of verification. With respect to response to notice, Centralised Communication Centre may prescribe a machine readable structured format for furnishing the information or documents by the person. The Scheme further specifies that Pr. DGIT/DGIT (Systems) will prescribe the procedure, formats and standards in this regard. Under the Scheme, no personal appearance is required before the designated authority at the Centralised Communication Centre in connection with any proceedings.
CBDT Notification No. 12/2018, dated 22 February 2018
Transfer pricingNotifications/Circulars/Press Releases
Transfer pricing amendments to the Budget proposals
The Government of India announced the budget proposals vide ‘The Finance Bill, 2018’ (the Bill) on 1 February 2018. From a transfer pricing perspective, the Budget 2018 proposed certain clarificatory amendments with respect to the implementation of Country-by-Country Report (CbCR) filing obligations.
The Bill has been passed, with a few additional amendments summarised below.
• Budget 2018 had proposed that in cases of constituent entities (CE) resident in India, having a non-resident parent, who were required to locally file CbCR (if certain conditions were met e.g. in cases where the agreement for exchange of information did not exist between India and country where parent was situated), the due date for filing the CbCR would be twelve months from the end of the reporting accounting year.
It is now clarified that such Indian CE would be required to file the CbCR within the period as may be prescribed.
Implication - For jurisdictions where at present India does not have an agreement for exchange of information or where there is no obligation to file a CbCR, the CE resident in India will now get some extension with regard to filing of CbCR locally. For example, Indian CEs of U.S. headquartered multinational enterprises will not be required to file the CbCR locally in India on 31 March 2018, as understood earlier.
• The existing definition of the phrase ‘agreement’ for exchange of information pertaining to CbCR has been amended to only refer to agreements for exchange of CbCR filed by the lndian Parent or Indian Alternate reporting entity. Those CbCRs filed locally by Indian CE of foreign parents have been excluded.
Implication - In cases where the Indian CE has locally filed the CbCR, such CbCR may not be exchanged by the Indian authorities with other jurisdictions.
CBDT Press release dated 23 March 2018
Indian APA accepts Customs Valuation as ALP for Transfer Pricing
The Indian Advance Pricing Agreement (APA) authorities have concluded yet another unique APA wherein the price determined by the Special Valuation Branch of the Indian Customs authorities was accepted as arm’s length price (ALP) for certain imports.
Traditionally, Transfer Pricing and Customs Valuation seek to evaluate an inter-company transaction from different (opposite) perspectives. While both regulations aim to arrive at an arm’s length price, Transfer Pricing seeks to prevent any excessive price for imports whereas Customs Valuation prevents any under-pricing for imports. Methods prescribed in these two legislations are also different. Often taxpayers find it difficult to adopt an approach which demonstrates their inter-company pricing to be at arm’s length from both perspectives i.e. Transfer Pricing and Customs Valuation.
However, in this case, Customs Valuation has been adopted for Transfer Pricing purposes in an APA, demonstrating that the Indian APA authorities are willing to go beyond the traditional approaches in light of the taxpayer’s facts to arrive at a mutually acceptable position. This reinforces the positive outlook of the APA authorities in resolving disputes of a unique nature with co-operation from the taxpayer.
HC disposes writ filed for grant of refund of SGST inadvertently deposited under Cess code, on receipt of Revenue’s undertaking to process the refund
The Mumbai High Court disposed the assessee’s writ pursuant to Revenue’s undertaking to refund amount of SGST erroneously paid under Cess code; In this case, the assessee incurred an SGST liability which was inadvertently paid under Cess code due to oversight/human error and therefore, GST portal rejected GSTR 3B return filed for the said month; Subsequently, the assessee in response to communication from GST Helpdesk generated a new challan for SGST payment and was informed to apply for refund once the refund procedure is available on the portal. However, the assessee was not satisfied with the said approach and filed a representation before CBEC, however the same also remained unentertained; consequently, the assessee preferred a writ and the High Court issued a notice to Revenue, whereby, under instructions from the Commissioner of GST and Central Excise, Revenue has informed that necessary process to refund the amount has already been initiated.
TS-421-HC-2017(BOM)-NT
The Madras High Court (Madurai bench) has admitted a writ petition in the case of Flamingo Duty Free Shops Pvt. Ltd., challenging the imposition of GST on services rendered to a Custom Bonded Warehouse.
The petitioner has challenged the levy of CGST and SGST by the Airport Authority of India on the consideration paid on renting of immovable property. The petitioner has raised issues on the location of the service recipient, the applicability of Section 13(4) of the IGST Act, and the taxability of said transaction.
Flamingo Duty Free Shops Pvt. Ltd. vs Union of India & Ors
GST Circulars
Clarifications issued regarding GST in respect of certain services
GST Council in its twenty-fifth meeting held on 18 January 2018, approved clarifications on a) exemption of hostel accommodations, b) fee paid by litigants in the Consumer Disputes Redressal Commissions are not leviable to GST c) elephants and camel ride would attract GST at 18 per cent with threshold exemption limit available to small service providers d) leasing or rental services, with or
Without an operator, shall be taxed at the same rate of GST as applicable on supply of like goods involving transfer of title in goods e) Healthcare services provided by a clinical establishment, an authorised medical practitioner or para-medics are exempt under GST f) Portion of the value of petroleum which the contractor is entitled to take in a year for recovery of these contract costs called as ‘Cost Petroleum’ is not a consideration for service to GOI and thus not taxable.
Circular No. 32/06/2018-GST, dated 12 February 2018
CBEC issues clarifications on various exports related refund issues
CBEC has issued clarifications on various exports related refund issues which covers processing of claims through an amendment through Table 9 of GSTR-1, exports without LUT, refunds in case of exports after specified period of three months from date of invoice, issuance of deficiency memos, requirement of self-declaration for non-prosecution, refund of transitional credit, discrepancy between values of GST invoice and shipping bill/bill of export, refund of taxes paid under erstwhile laws, requirement of BRC/FIRC for export of goods, and requirement of invoices for processing of refund claims.
Circular No. 37/11/2018-GST dated March 15, 2018
State GST
Nagaland – GST
The Commissioner of state taxes, Nagaland; Dimapur, has notified on first day of June 2018 for intra-state movement of goods (movement of goods which commences and terminates within the state). Provisions of rules 138 of the said rules relating to furnishing of information prior to commencement of intra-state movement of goods within the state of Nagaland and generation of e-way bill for such movement of goods will apply on and from, the first day of June 2018, for all taxable goods of any value. No e-way bill under rule 138 shall be required to be generated on intra-state movement of goods within the state of Nagaland till the thirty-first day of May 2018.
Manual filing and processing of claim of refund of inverted tax structure and deemed exports
Due to the non-availability of the refund module on the common portal, it has been decided, on the Recommendations of the Council, that the applications /documents/forms pertaining to refund claims on account of inverted tax structure and deemed exports shall be filed and processed manually till further orders.
Trade Circular No 8T of 2018
Instruction to file LUT online for zero rated supply of goods and services
GSTN portal has made the facility available for online submission of LUT. Therefore, the registered person who desires to make zero rated supply of goods or services or both without payment of the Integrated Tax (IGST) shall file an application at GSTN portal in FORM GST RFD-11
[Trade Circular no 10 T of 2018.]
Excise Duty
Decisions
Penalty cannot be imposed on the taxpayer for unintentional non-reversal of CENVAT credit on SAD
The taxpayer imported certain goods and paid CVD & SAD on such imports, w.e.f. 1 March 2005 the provisions of reversal of SAD came into force and since the same was not yet updated in the software of the taxpayer, the taxpayer could not pay the CENVAT credit availed on SAD. However, the taxpayer had payed excess CVD at the time of import of goods.
The department alleged that since the CENVAT credit availed on SAD was not paid by the taxpayer, there was malafide intension by the taxpayer on such non-payment of CENVAT credit on SAD. Accordingly the department issued an SCN to the taxpayer for payment of SAD along with penalty thereon. The department also denied to adjust the excess CVD paid by the taxpayer with the SAD amount payable by the taxpayer.
The Tribunal held that, since the taxpayer had paid excess CVD at the time of import of goods and did not pay the CENVAT credit on SAD due to software upgradation issues, it cannot be said that the taxpayer had malafideintention to evade payment of SAD on import of goods. Accordingly, it set aside the SCN issued by the
department demanding penalty. The tribunal also directed the department to adjust the excess CVD paid by the taxpayer against the SAD amount payable by the taxpayer.
Luminous Power Technologies vs CCE [2018-TIOL-602-CESTAT-DEL]
The conditions for claiming the benefits of exemption vide Sl.No.1C of Notification 04/2006 are mutually exclusive and the use of a semi colon between the two clauses clearly indicate that the two clauses are to be read disjunctively and not conjunctively
The facts of the case is that the taxpayer is engaged in manufacture of cement and clinker and cleared it in the form of 50 kg per bag, on payment of central excise duty at concessional rate availing the exemption vide Sl.No.1C of Notification 04/2006. Since the cement manufactured by the taxpayer was cleared to industrial and institutional consumers and cement packages carried the remark 'not for resale, meant for industrial/institutional consumption', the taxpayer availed benefit of the said Notification.
The department issued an SCN to the taxpayer alleging that the exemption under the said notification is applicable only when both the conditions (a) & (b) of Rule 2A of PC Rules were satisfied together and not in isolation.
The Tribunal held that the provisions of Rule 2A (a) and Rule 2A (b) are mutually exclusive and the use of semi colon between the two clauses clearly indicate that the two clauses are to be read disjunctively and not conjunctively.
Hence, the tribunal held that the taxpayer was entitled to claim the benefit of the notification.
CCE vs Ultra Tech Cement Ltd [2018-TIOL-604-CESTAT-MAD]
CENVAT credit on outdoor catering service which was availed w.r.t. annual day function of the company where most of the invitees are suppliers, vendors, customers, dealers and their families along with families of employees cannot be denied
The facts of the case is that the taxpayer availed outdoor catering service for organising an annual day function in the premises of the company where majority of the guests were suppliers, vendors, customers, dealers and their families along with the families of employees. Although outdoor catering service was excluded from the definition of input service, the taxpayer had availed the credit of outdoor catering service which he had availed for the annual function of company since it was not for personal consumption of the employees.
The department issued an SCN to the taxpayer alleging that CENVAT credit on outdoor catering service is not eligible and hence cannot be availed by the taxpayer.
The Tribunal on the basis of plethora of judgements held that the annual day function was organised as part and parcel of business activity. Further, outdoor catering service was in relation to overall function of the manufacturer related to business. Further the Tribunal found the SCN to be time barred, as SCN for the same period was issued earlier and again issuing SCN for same period by invoking extended period cannot be based on the Supreme Court judgement.
Hence, the Tribunal allowed CENVAT credit on outdoor catering service w.r.t. annual day function of the company.
Godrej and Boyce Mfg. Co. Ltd vs CCE [2018-TIOL-661-CESTAT-MUM]
Discount given by the taxpayer is not additional consideration and cannot be included in the assessable value
The facts of the case is that the taxpayer are clearing the goods to their customer on the price as agreed and confirmed as per purchase order/contract. The taxpayer were selling their goods to their customer as agreed in the purchase order and the customer were releasing the payment directly to the taxpayer after 89 days. However, considering the taxpayer's urgency in releasing the payment against clearance of goods, the customer has decided to issue a hundi of 89 days against clearance of goods which made the taxpayer entitled to get money through bankers of customer. However, the financial charge to the extent of 1.9 per cent towards release of payment immediately was a burden on the customer who negotiated with the taxpayer that in this case the taxpayer is required to give 1.9 per cent discount on the value of clearance.
However, the department alleged that 1.9 per cent discount given by the taxpayer to their customer towards compensation of financial charges charged by their bankers for obtaining payment immediately is not a discount but an additional consideration received by the taxpayer. Accordingly, the same should be included in the assessable value.
The Tribunal found that the discount was extended towards the prompt payment otherwise the customer was under obligation to release payment after 89 days. Therefore, this discount is nothing but prompt payment discount. The Tribunal further found that the taxpayer had admittedly passed on this discount to the buyer in their invoice for clearance of goods. The taxpayer has extended this discount since they have received the prompt payment instead of waiting for 89 days. Therefore, the discount extended by the taxpayer cannot be part and parcel of the assessable value and the deduction on that account is admissible.
Dagger Forst Tools Ltd vs CCE [2018-TIOL-681-CESTAT-MUM]
Service tax cannot be levied on the value of goods/ material supplied free of cost by a service recipient to supplier of services
In the instant case, some of the goods/materials (like cement, steel) were supplied/provided free of cost by the service recipients to the taxpayer for the provision of the construction service. The taxpayer did not pay tax on the goods supplied free of cost by the service recipient due to the reason that the said value does not form part of the contract value of the said service.
Revenue contended that the value of goods/materials supplied/ provided free of cost by the service recipients to the taxpayer is a form of payment and should be included in the gross amount charged.
The Supreme Court considered that the definition of the gross amount charged as provided in Section 67 of the Finance Act, 1994 and observed that the said definition only provides for the modes of payments. The court observed that the supply of free of cost goods cannot be considered as a mode of payment as per the said definition. The court also observed that the value which is not a part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.
Commissioner of Service Tax vs M/s Bhayana Builders Pvt. Ltd. [2018-TIOL-66-SC-ST]
Customs
Decisions
Amount paid due to misinterpretation of notification shall be allowed as refund
The facts of the case are that the taxpayer had filed a refund of SAD failing to claim the benefit of the notification. This bill of entry was filed on 19 November 2014 for clearance of Muscle Juice which is a health supplement. The Adjudicating authority after considering the entire issue of the refund claim, held that the appellant has paid the duty and is eligible for the refund as benefit of notification was not claimed by them. It was also held that the question of unjust enrichment also does not arise and sanctioned the refund to the appellant. Aggrieved by such an order, Revenue filed the appeal before the First Appellate Authority on the ground that taxpayer cannot claim the refund claim unless he has challenged the taxpayer’s order. The First Appellate Authority accepted the contentions raised by the Revenue and reversed the judgement/decision of the adjudicating authority holding that the refund claims cannot be considered unless the assessments are challenged.
Considering the decision of the Delhi High Court in Micromax Informatics Ltd. vs UOI, where it was held that the ratio of the judgement of the Apex Court in Priya Blue and other cases may not apply after amendment with effect from 8 May 2011, which mandates for self-assessment for the bills of entry under the EDI Scheme. It was held that the O-i-A in question is unsustainable and the refund should be allowed.
Paradise Nutrition Inc. vs CC [2018-TIOL-673-CESTAT-AHM]
VAT
Decisions
Excess sales tax paid on the provisional sales price to be refunded where the final price fixed by the Ministry is less than the provisional sales price
In the present case, the assessee was engaged in manufacturing cylinders for storage of Liquefied Petroleum Gas (LPG). During the relevant time, the assessee supplied the entire production to government owned companies. The Ministry of Petroleum and Natural Gas (MPNG) determined the cost of such cylinders as per the pricing policy.
A government company placed an order for cylinders to the assessee, wherein the supply order specified that, since the pricing of cylinders is under review of MPNG, the supplier can charge a provisional price, however, once the final price is determined by MPNG, the same would be applicable retrospectively. The assessee collected and paid sales tax on the provisional price, in the state of Rajasthan. Thereafter, the MPNG made a downward revision in the prices of a cylinder, retrospectively. Accordingly, the purchaser i.e. government company adjusted/deducted the excess consideration already paid to the assessee along with the proportionate sales tax thereon, from the payments due to the assessee
The assessee approached the Assessing Authority (AA) for refund of sales tax paid on the excess sale amount, which was refunded to the customers and also urged that such amount should not be considered in its total turnover. Such refund claim was rejected by AA on the ground that, there was no provision under the Rajasthan Sales Tax Act, 1994 (RST Act) for reducing or refunding the amount of tax once the same has been paid and that the arrangement of the assessee with the oil companies was in the nature of a private agreement and the sales tax department had nothing to do with this.
Thereafter, the Deputy Commissioner partly allowed the appeal, and the Tax Board decided in favour of revenue. The High Court also dismissed the revision petition filed by the assessee, and held that the assessee was entitled to receive the provisional amount and if he has given any discount, he cannot claim refund of the same.
Therefore, the assessee preferred an appeal before the Supreme Court. The Supreme Court held that, ‘sale price’
as defined under the RST Act, clearly indicates that, it is the price which is either paid or payable to a dealer as consideration for the sale and any sum by way of any discount or rebate according to the practice normally prevailing in the trade shall be deducted and shall not be included in the sale price.
In the present case, the provisional price was subject to review by the MPNG and the assessee was under a legal obligation only to receive the price which was fixed by MPNG. The Supreme Court also stated that, if the final price would have been higher than the provisional price, the assessee would have collected and deposited sales tax on the excess amount. However, since the price has been reduced, the assessee could not charge more than the price fixed and was bound to refund the excess amount collected and therefore, was legally entitled to get refund of sales tax paid on the excess amount. Accordingly, the appeal was allowed and the order of the High Court was set aside.
Universal Cylinders Limited vs Commercial Taxes Officer [TS-55-SC-2018-VAT]
Notifications/Circulars/Press Release/Order
Maharashtra
Vide below mentioned circular, Commissioner of Maharashtra has prescribed the procedures for the dealers to file their VAT and CST returns, for the period upto 31 March 2016, on the new portal www.mahagst.gov.in, instead of using the old portal www.mahavat.gov.in. Accordingly, the returns are now required to be filed on the new portal by the dealers, by following the relevant steps/procedures prescribed in the circular in this connection.
Trade Circular No. 9T of 2018 dated 26 February 2018vide below mentioned notification, the Governor of Maharashtra has enacted a scheme for providing the criteria for risk based selection of cases for assessment under the Maharashtra Value Added Tax, 2002 (MVAT Act) and Central Sales Tax Act, 1956 (CST Act). According to such scheme, dealers will be selected for the purpose assessment under MVAT Act and CST Act basis the various criterias prescribed under such notification, in order to complete risk based assessment under MVAT Act and CST Act.
Notification No. VAT-1518/C.R. 23/Taxation-1 dated 23 February 2018
Gujarat
Vide the below mentioned notification, the Government of Gujarat has amended the powers of the Commissioner by allowing them to extend the time limit for furnishing of annual return and VAT Audit Report for specified dealers to three months instead of one month.
Notification No.(GHN-28) VAR-2018 (48)/Th dated 28 February 2018
Personal taxNotifications/Circulars/Press Releases
Employees’ Provident Fund Organisation makes submission of claims through online mode mandatory if the settlement amount of the provident fund is above INR10 lakhs
In 1952, the Government of India introduced a mandatory savings scheme, for non-government employees, known as the Employees’ Provident Funds Scheme, 1952 (EPFS). In this scheme, both the employee and the employer are required to make a contribution to the Employees’ Provident Fund (EPF) as per the provisions of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act).
In accordance with the regulations of the EPFS and Employees’ Pension Scheme, 1995 (EPS), it is possible for employees to withdraw their Provident Fund (PF) and Pension accumulations.
In the above context, the Employees’ Provident Fund Organisation (EPFO) had launched a new facility in July 2017 for the employees/ members where they can submit the claims for availing the benefits under the EPFS and EPS through the online mode also.
Recently, EPFO has issued a circular where they have made it mandatory to submit the withdrawal claims through the online mode if the accumulations under the Provident Fund is above INR10 lakhs.
Key highlights of the circular
• As per the circular issued by EPFO, if the amount of claim settlement is above INR10 lakhs for PF claims and INR5 lakhs in respect of the EPS withdrawal claims, the claims form must be submitted through online mode only
• It has been stated that the bank account of such PF members should be seeded and verified in the system before settling such claims .
• EPFO has directed its PF officials that all claims in excess of the above limits should not be accepted in the physical form.
Indian FRRO registration, Visa extension, conversion, etcgoes digital
Earlier Indian Government had given a digital touch to the immigration compliances by introducing online FRRO registration, visa extensions forms, etc. Foreign nationals could seek an appointment online and be physically present on the appointed date for processing the application.
In line with vision of Digital India, the Indian Government has now introduced an e-FRRO portal with an objective to provide faceless, cashless and paperless service to foreign nationals.
This reform will also provide a user friendly experience to foreign nationals. They as well as their family members need not take the hurdle of going to the FRRO office.
Salient features of e-FRRO portal
• Starting 12th February 2018, mandatory visit to the local immigration office (FRRO) located at Bengaluru, Chennai, Delhi and Mumbai has been done away with;
• The portal offers online solution for application submission as well as for document upload in respect of all visa and immigration related services (such as Indian FRRO registration, visa extension, change of address/passport, visa conversion, exit permission, etc.).
• In exigency/emergency situation, one can visit the concerned FRRO to avail the services.
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.
