The Central Board of Direct Taxes (CBDT) has recently amended Rule 114B for compulsory quoting of pan in case of cash deposit exceeding fifty thousand in a single day or aggregating to more then 2.5 lakh during the period 09.11.16 till 30.12.16.
Amendment has also been made to Rule 114E for filing AIR report as required u.s 285BA reporting by banking company and a cooperative bank on account of aggregate cash deposits in one or more current account of a person in excess of Rs12.5 lakhs OR Rs2.5 lakh or more in one or more account of a person during 09.11.16 till 30.12.16.
Consequently, PAN must be furnished if cash deposits in bank account during 09-11-2016 to 30-12-2016 exceed Rs. 250000/-. Banks should furnish information regarding cash deposits during 09-11-2016 to 30-12-2016 by way of AIR information if cash deposit in current account of customer exceeds Rs. 1250000 and cash deposit in saving account exceeds Rs. 250000 during this period.
Pan was required to be furnished by depositor for cash deposits of Rs. 50000 or more in bank account per day. Through the new amendment, PAN is a mandatory requirement if cash deposited per day is lesser than 50,000 still if exceeds Rs. 250000 in aggregate, for deposits from 09-11-2016 to 30-12-2016.
Earlier annual limit for saving account was Rs. 10,00,000 and it was Rs. 50 lacs for current account for AIR Information to be filed by Banks to Income tax department. Now, for deposits from 09-11-2016 to 30-12-2016, the deposit limit for AIR Informaiton has been lowered to Rs. 250000/- for saving account and Rs. 1250000 for current account.
Read the full text of the notification below.
A division bench of Delhi High Court comprising of Chief Justice G Rohini and Justice Sangita Dhingra Sehgal has issued notice to Union Government and Reserve Bank of India (RBI) challenging the surcharge levied on credit and debit card transactions was “illegal” and “discriminatory”.
“The issue raised in the petition almost affects everyone, who operate bank accounts and the same is in the welfare of the nation at large as well,” the petition said.
Adding that “unlawful, unequal and arbitrary treatment is visible on the payment of petrol charges through credit and debit cards”.
The petitioner reportedly said that ministry and RBI are “responsible for making rules/guidelines and for monitoring banks across the country”.
“The petitioner has noticed that illegal, unequal and arbitrary treatment is seen across the country on transactions being done through credit and debit cards by levying surcharge at the rate of 2.5 per cent or more, while such surcharge is not levied when the payment of such transaction is done by making cash payment in that regard…,” the plea stated.
The bench posted the case for next hearing on January 4, 2017
Scrapping of Rs. 1000 and Rs. 500 notes are largely affecting the public. The government has made such a dire step to avoid black money, corruption and duplicate notes ie; Demonetization.
Following this drastic step, the Government has earlier directed the Income Tax Department to co-ordinate with all banks and to submit the details of individuals who effects transactions at the value of Rs. 2 lakhs.
In addition to this, the Revenue Secretary has clarified that a penalty up to 200% will be levied on cash deposits exceeding 2.5 Lakhs in case of income mismatch. He said that cash deposits above the threshold not matching with tax returns will be treated as tax evasion and a 200 percent penalty will be imposed under section 270(A) of Income Tax Act.
With an aim to penalize the taxpayers who effects transactions up to 2.5 lakhs under the 50-day window for exchange of old Rs 500 and Rs 1000 currency notes, the provisions of the Income Tax laws will be modified. Section 270(A) of the Income Tax Act will be amended to incorporate 200% penalty on the amount of tax payable.
“FICCI would urge the Government and RBI to consider bringing down the interest rates that could help stabilise the demand in the economy. A 50 basis points cut in repo rate should be considered by RBI…” – FICCI President Harshavardhan Neotia
“The demonetisation move of the Government is an extremely progressive step and will yield several benefits for the economy in the medium to long term. The decision to replace the existing currency notes of Rs. 500 and Rs. 1000 with new notes will ensure that the perpetrators of terror financing, drug financing and other anti-national activities will be severely restricted in their activities. Additionally, this will help in bringing a major transition towards a cashless economy that has its own merits. FICCI whole heartedly welcomes this move of the government and urges all its constituents to proliferate the positives of this measure taken by the government”, said Mr. Harshavardhan Neotia, President, FICCI.
“We do understand that in the immediate term the process of replacement of currency notes will lead to some inconvenience for the people. Given the scale and size of this effort, one cannot expect a transition that happens overnight. Government of RBI are continuously monitoring the situation and taking several positive measures to ease the situation for the people of our country”, he added.
The historic nature of the change of the kind we are witnessing requires complete support of every citizen of the nation. Each one of us will see the benefits of this change in the coming years. Rooting out black money from the economy will make it stronger and help us promote growth in an efficient and inclusive manner.
“Given the change underway, there could be some squeeze of liquidity for a while before things normalise. This is expected. However, to counter any downside impact on the level of economic activity, FICCI would urge the Government and RBI to consider bringing down the interest rates that could help stabilise the demand in the economy. A 50 basis points cut in repo rate should be considered by RBI as well as some measures may be introduced to provide easy finance for sectors like housing, automobiles and consumer durables. Greater focus on infrastructure projects and stepping up outlays in this area could also be considered by the government”, he added.
“Additionally, there is a need to undertake a massive campaign throughout the country to promote the use of digital means of payments. This should be accompanied by a series of incentives for the people, banks and retail merchants to adopt the digital mode for transactions”, said Mr. Neotia.
In a recent Judgment, a division bench of Madras High Court has held that, the interest on the amount borrowed for declaring dividend was allowable as deduction under section 36(1)(iii) of the Income Tax Act, even in the absence of profits/reserves and the treatment of such dividend as loans in the books of the assessee company.
The Commissioner of Income Tax, Coimbatore has filed an appeal against single bench decision in favour of M/s. Sakthi Auto Components Limited.
The assessee pointed out that there had been adequate cash profits on the dates of declaration of dividend and in any event, the declaration of dividend was itself for the purpose of business. Thus, according to the assessee, expenditure incurred in connection therewith constituted an allowable deduction in terms of Section 36(1)(iii) of the Income Tax Act.
While dismissing the appeal, the division bench comprising of Justice Nooty Ramamohana Rao and Justice Anita Sumanth has observed that, “in any event, even if borrowed funds had been utilized for the purposes of declaration of dividend, the payment of interest on such borrowings constitutes expenditure ‘for the purpose of the business’ of the assessee and is an allowable deduction in terms of Section 36(1)(iii) of the Income Tax Act”.
Read the full text of the Judgment below.
In a recent ruling, the Kerala high Court directed the revenue to refund the amount collected as Service Tax for the services in relation to serving food and beverages having Air Conditioning facility. Earlier, service tax was imposed on such services by inserting Section 66E(i) r.w.s. 65B (22) and section 65 B(44) in the Finance Act, 2012. Earlier, the provision was struck down by various High Courts against which appeals are pending before the Apex Court. While allowing the petition impugning all these provisions and related notifications, the Court held that the petitioners are entitled to refund.
Through the writ petition, the petitioner, who is an association of hotels along with a few hotel owners challenged the provision Finance Act, 2012 relating to levy and collection of service tax, in respect of service provided by restaurant, eating joints or mess, in relation to serving of food and beverages (whether or not intoxicating) having Air Conditioning facility is part of service as defined under Section 65B(44) of the Finance Act, 1994 for the purpose of charging service tax.The petitioners cited the decision of the same Court in Kerala Classified Hotels and Resorts Association v. Union of India, in support of their claim.
The Revenue, in the light of various judicial decisions, submitted that service tax is levied under the residual power of taxation in the Centre in terms of Entry 97 of List I.
While allowing the petition the Justice A.M Shaffique observed the the judgment in Kerala Classified Hotels applies to the fact situation of the present case also.
“The judgment in Kerala Classified Hotels (supra) has been upheld by the Division Bench of this Court in Union of India v. Kerala Classified Hotels and Resorts Association [2014(4) KLT S.N.68 (C.No.85)]. It is submitted by the learned counsel for the respondent that the matter is pending before the Supreme Court. Further, no stay has been granted in the matter. Therefore, right now, I am inclined to follow the law laid down by this Court and accordingly, this writ petition is allowed. The declaration sought for is granted and service tax already collected shall be refunded to the respective parties.”
Read the full text of the Judgment below.
In a recent decision, the division bench of the Madras High Court held that an order passed by a Quasi-Judicial Authority should involve valid reasons. Such reasons cannot be explained subsequently through any memorandum or any form of affidavit. In the opinion of the Court, such an order is bad in law, and is liable to be quashed.
The grievance of the assessee was that the return filed by them during mid night of the due date was treated as “belated return” by the assessing authority. Though the assessee filed an application before the CBDT seeking condonation of delay of one day, the same was rejected.The assessee approached the High Court through writ petition for relief, in which the Single bench allowed the petition by quashing the order of CBDT and directed the Assessing Officer to consider the return on merits.Aggrieved with the order, the Revenue preferred a Writ Appeal before the division bench.
The bench comprising of Justice Nooty Ramamohana Rao and Justice Dr. Anita Sumanth noted that under Section 119 (2) (b) of the Income Tax Act, the CBDT has the discretion to admit of any claim which is made beyond the period specified for doing so and when once the discretion is conferred by a statute upon an authority, such a discretion is required to be exercised on sound lines.
“It is one of the important factors to be considered while dealing with an application seeking condonation of delay as to whether grave and irreparable injury or hardship will be caused to the person concerned and as to whether or not the interests of justice would be served better, in condoning the delay.”
“In the instant case, there is no dispute or denial of the fact that the Return of Income filed by the Respondent/Assessee for the Assessment Year 2010-11, has been uploaded sometime past 00.00 hours on 15.10.2010. One can take judicial notice of the fact that uploading of Return requires not only an effort but also consumes sometime. If the Assessee has encountered certain hardship or difficulty in uploading his return, as alleged by him due to a technical snags in the website of the Income Tax Department due to the last hour rush of filing of Returns, the delay deserves to be condoned.”
While upholding the order of the Single bench, the Court observed, “We are of the opinion that an order passed by an Administrative or Quasi-Judicial Authority must necessarily be tested for its validity with reference to the reasons assigned and found on record. The reasons cannot be supplemented subsequent to the passing of such an order by furnishing any other memorandum containing additional reasons or by way of explanations in the form of an affidavit. If such subsequent improvements are to be relied upon, an order which when originally passed, which might be infirm may pass off approval for the reasons which are not available on record initially. (“The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out.”
Read the full text of the Judgment below.
As the Government is all set to introduce Goods and Services Tax (GST) by the next financial year, certain amendments will be made in the provisions of the Special economic Zones (SEZ) Act in consistent with the GST Act.
Reportedly, Revenue secretary Hasmukh Adhia chaired a meeting, attended by commerce secretary Rita Teaotia and others, on November 9 to take stock of changes required in the SEZ Act so that such zones, which are already reeling under direct taxes like MAT and DDT, are not subject to undue hassles at least in the new indirect tax regime.
Section 26 and 30 of the Act will be amended in order to ensure certain duty exemptions to the designated enclaves in the new tax regime.
According to sources, Section 26 C, E and G of the SEZ Act will be modified. Section 26C deals with exemption from any excise duty on goods brought from the domestic market to an SEZ to carry out authorised operations by the developer.
Similarly, Section 26 E provides for exemption from the service tax on relevant sevices provided to an SEZ developer. Section 26 G offers tax exemption to SEZ developers from the sale or purchase of goods other than newspapers (under the central sales tax Act, 1956).
The government had imposed the minimum alternate tax (MAT) on SEZ developers and units and the dividend distribution tax (DDT) on developers in 2011-12. Before the MAT and the DDT were imposed, the growth in exports from SEZs was as high as 121% (2009-10) and 43% (2010-11), far exceeding the increase in the country’s overall goods exports for these years.
In a recent decision, the CESTAT, Chennai branch ruled that interest cannot be allowed in case of reversal of the CENVAT credit when adequate credit is available under the Excise law.
The appellants, instant case, approached the Appellate Tribunal raising a question that whether interest is payable on the amount of reversal of the CENVAT credit taken but not utilized when adequate credit existed in statutory records.
“It is the consistent view of this Bench following the ratio of the Honble Supreme Court in the case of Commissioner of Central Excise, Mumbai I Vs. Bombay Dyeing & Mfg. Ltd. 2007 (215) ELT 3 (SC) that when there is adequate credit available, reversal arising out of unutilized credit which was taken wrongly shall not result in levy of interest. Therefore, the authority shall examine the record to find out whether on the date of taking credit, there were adequate credit available on record. If he is satisfied, there shall be no levy of interest.” the bench observed.
Read the full text of the order below.
Music download, e-book services etc from an overseas service provider are going to be expensive as the Government is going to impose 15% service tax on these items from this December.
The domestic suppliers in India are already under the Service Tax net for the services rendered by them in respect of such kind of services.At present, the place of provision of a service is either the place of the service provider.The current move is to cover such online services rendered by the overseas suppliers to the Indian recipients.Reportedly, service tax will be levied on B2B transactions between the overseas suppliers and the Indian recipients for online services except information database such as subscription for international tax journals.
Recently, the CBEC has issues three inter-linked notifications with an aim to amend the definition of the term “place of provision of service”. As per the amended provision, the place of provision of a service will be the location of a service recipient. Consequently, online services rendered by the overseas suppliers to the recipients including individuals, government, local body or government agencies based in India. The new provision is applicable from the 1st day of this December.
The notification also amends the definition of the term“online information and database access or retrieval services”in order to include services such as internet advertising, providing cloud services, e-book, movies, music, software and other intangibles via telecom network or internet, providing data or information in electronic format via a computer network, online supply of digital content, digital data storage and online gaming.
The present law only includes services whose “delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.”
Read the full text of the notification below.
In a recent case, the ITAT Vishakhapatanam bench ruled that the Assessing Authority cannot reject a claim for deduction in respect of the Research & Development facility which is already approved by the competent authority under section 35(2AB) of the Income Tax Act.
In the instant case, the assessee, who is engaged in the business of manufacturing and supply of moving display boards, data loggers and electronic systems, etc. to Indian Railways etc., filed income tax returns by claiming deduction in respect of the Research & Development. The assessee claimed that the said R&D facility was approved by the Secretary, Department of Scientific and Industrial Research (DSIR) under the provisions of section 35(2AB) of the Income Tax Act. In support of their claim, they produced a certificate issued by the competent authority. However, the Assessing Officer rejected the claim by finding that the assessee is not eligible for the said deduction since it is involved in the manufacture of goods specified in eleventh schedule of the Act. Further, the officer disallowed the claim of deduction in respect of direct expenses and bank guarantee charges on ground of non-payment of TDS.
On appeal, the first appellate authority partially allowed assessee’s claim by confirming the order of disallowance in respect of R&D and direct expenses. Aggrieved with the order, the assessee and the Revenue preferred an appeal before the Tribunal.
The division bench noted that as per the provisions of section 35(2AB) of the Income Tax Act, with relevant rules the assessee company is required to file its application for approval of its in house R&D before the Secretary, DSIR, Government of India along with an undertaking as per Form No. 32CK.
“Once, the R&D facility is approved by the competent authority and assessee has complied with the prescribed rules, the A.O. is bound to allow the deductions claimed u/s 35(2AB) of competent authority. In case the A.O. is having any doubt with regard to the goods manufactured by the assessee or expenditure claimed, the A.O. is bound to refer the matter back to the competent authority through appropriate authority i.e. the Central Board of Direct Taxes (CBDT) and seek clarifications. Thus, it would emerge from above analysis that neither the A.O. nor the board was competent to take any decision of any such controversy relating to report and approval granted by the prescribed authority as it involved expert view or opinion. It was prescribed authority alone which would be competent to take decision with regard to the correctness or otherwise and its order of approval granted in form no.3CL as prescribed u/s 35(2AB) of the Act read with rule 7A of the Income Tax Rules, 1962.”
In view of the above, the Tribunal held that the disallowance was not justified since it was merely on ground that the goods manufactured by the assessee are mere office machines and apparatus listed in Eleventh schedule.
Read the full text of the order below.
With an aim to make the payment of tax ore easier, the government has launched the GST portal (Goods and Service Tax portal). Through this, the tax payers can pay their tax returns and tax payments through credit/debit cards and other modes by logging into the new Goods and Service Tax portal.
Recently, the GSTN Chairman Shri.Navin Kumar said that the software is almost ready and the GST portal will be launched soon. GSTN is the company which is building massive IT infrastructure for Goods and Service Tax regime in India.
In a recent decision, the Delhi CESTAT allowed Cenvat credit on the amount paid as insurance on Plant & Machinery. Along with this, the Service Tax paid on availing rent-a-cab service was also allowed.
The grievance of the appellant-assessee, in the instant case was that the lower authorities denied them cenvat credit paid on rent-a-cab, which is used for bringing the employees from the residence to the factory. They further claimed that insurance paid on plant, machinery and equipments as also insurance paid on the goods exported by them.
The Tribunal noticed the decision of Punjab & Haryana High Court in the case Ambuja Cements Vs. Union of India in which it was held that insurance is admissible for cenvat credit.
In the case of Oudh Sugar Mills Ltd. Vs. CCE, Lucknow, the Delhi Tribunal has held that insurance paid on plant, machinery and equipment has to be held as input service.
Referring to the above decisions, the Tribunal set aside the orders of the lower authorities.
Read the full text of the order below.
In a recent ruling, the division bench of the Delhi High Court held that is entitled to claim benefit of Section 10A of the Income Tax Act, 1961 in respect of the software is developed by the branch as per the requirement of Head Office and not sold to any third party. While allowing the exemption to the assessee, the Court observed that the transfer of computer software by the Indian branch to the head office can be said to be ‘sale’.
In the instant case, the assessee, who is engaged in the business of Software Development and have a branch in India, had developed a software known as “Softex Form”, and exported it through data communication links. It received consideration and furnished the relevant clarification which was accepted by the STPI authorities. It also received remittances from the head office towards the export/ transmission of such software.
While filing its income tax return, the assessee claimed exemption u/s 10A which was later rejected by the assessing officer mainly on ground that transfer of software in the circumstances of the case did not amount to its export.
On appeal, the first appellate authority had upheld the assessment order. On second appeal, the ITAT accepted the contentions of the assessee. Therefore, the Revenue approached the High Court impugning the order of ITAT.
The division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri noted that section 80-IA(8) covers transfer of any goods or service “for the purpose of the eligible business” to “any other business carried on by the assessee” subject to a condition that the face value of such transactions was inconclusive and that the AO could determine the market value: for such transactions or sales.
“The incorporation in its entirety without any change in this provision [Section 80-IA(8)] to Section 10A through sub-Section (7) is for the purpose of ensuring that inter-branch transfers involving exports are treated as such as long as the other ingredients for a sale are satisfied.”
“In this case the AO carried out the exercise mandated by Section 10A(7) read with Section 80-IA(8). Consequently the particulars of the price or cost reported by the assessee were not binding or conclusive but rather they attained finality in the assessment proceedings, after due addition. It underwent further inquiry/ scrutiny under Chapter X of the Act.”
“It is undoubtedly aphorism that a legal fiction ought to be taken to its logical conclusion and the mind should not be allowed to boggle. This merely implies that a fiction should logically take a direction; the train of thought however cannot divert elsewhere. The absence of a “deemed export” provision in Section 10A similar to the one in Section 80HHC of the Income Tax Act does not logically undercut the amplitude of the expression “transfer of goods” under Section 80-IA(8) – which is now part of Section 10A of the Income Tax Act. Such an interpretation would defeat Section 10A(7) entirely.”
Read the full text of the Judgment below.
In a recent decision, the Kerala High Court held that the Deputy Commissioner has no power to extend the time limit for initiating fresh proceedings u/s 25(1) of KVAT Act. While allowing a bunch of writ petitions, the Court emphasized that the power entrusted to the Deputy Commissioner is confined to pending assessments only, subject to a condition that a notice indicating sufficient reasons for extending the time limit should be served to the assessee which is a mandatory requirement for invoking s. 25B. No fresh assessments under section 25B of the Act can be initiated on the basis of the order of the Commissioner u/s 25B.
The Court was considering a bunch of petitions in which the power of the Deputy Commissioner, Commercial Taxes to extend the period of limitation by invoking Section 25(1) or 25A of the KVAT Act. Under the section 25B,the Deputy Commissioner is empowered to extend the time for completing the assessment beyond the period specified under Section 25(1) and whether penalty proceedings could be taken against an assessee beyond the period specified under section 67(1) read with section 25(1) of the Act, or under section 45A read with section 19(1) of the Kerala General Sales Tax Act, 1963.
The petitioners urged that the power under section 25B cannot be exercised beyond the period of limitation.It was contended that in order to invoke Section 25(1), a notice must be issued to the assessee and the assessment has to be completed within 5 years from the last date of the year to which the return relates. In the absence of the same, the assessment would be barred by limitation and even an order under section 25B issued after the period of limitation will not save the proceedings.
The State, on the other hand, contended that the impugned provisio has been amended several time by extending the period of limitation by one year which permits extension of period for completing the assessment.Further section 25B of the Act gives power to the Deputy Commissioner to extend the period of limitation on certain eventualities and once such a power is exercised, it is not open for judicial review.
While analyzing the provisions of the KVAT Act, the Court observed that under section 25(1), the assessing authority has the power to make best judgment assessment at any time within five years from the last date of the year to which the return relates,in case of escaped assessment, subject to a condition that the assessee must be given an opportunity of being heard.
The Single bench of Justice A.M Shaffique pointed out that under section 19 of the KGST Act and section 25 of the KVAT Act, the assessing authority can make a fresh assessment in respect of escaped turnover even after an assessment being completed in accordance with the statute within 5 years.
Regarding the issue of power to grant extension to the period of limitation prescribed under the Act, the Court observed that “Power is vested with the assessing officer to take proceedings under Section 25(1),within five years from the last date of the year to which the return relates. The words “proceed to determine” under Section 25(1) is further qualified by the words “after issuing a notice on the dealer and after making such enquiry as it may consider necessary”. Therefore, any step under Section 25(1) has to be taken only after issuing a notice on the dealer which apparently has to be done within five years from the last date of the year to which the return relates. The first proviso relates to a dealer being heard before making assessment under Section 25(1). The third proviso which was subsequently incorporated provides extended time for completion of assessments. It could only mean that time is extended only for completing assessment which have already been initiated after issuing notice under Section 25(1) within five years from the last date of the year to which the return relates. Therefore, the provisos which extend the period to complete the assessments, are only in respect of those assessments in which notices under the first proviso to Section 25(1) had been issued within the five year period as specified therein.”
The Court further observed that notice and assessment orders issued under section 25(1) on the basis of orders passed by the Deputy Commissioner under Section 25B, in the instant case, are void since such power can be exercised only to extend the time for completing the assessment. The said section bars extending time for initiation of a fresh assessment proceeding under section 25(1).
“in view of the non obstante clause under section 25B, the Deputy Commissioner has the power to extend the time for taking steps under Section 25(1) in an instance where an investigation or enquiry is pending under the KVAT Act or any other law, or in instances where the assessment cannot be completed. But in cases where power is exercised to extend the period for completing the assessment, does it mean that the said power can be exercised to extend the period of limitation for invoking section 25(1). The statute having consciously used the words “or where any assessment cannot be completed within the periods specified under the said sections, the Deputy Commissioner may,for good and sufficient reasons, extend the period of completion of the assessment beyond the period specified in those sections.”
Read the full text of the Judgment below.
A three judge bench of Supreme Court of India led by Chief Justice T S Thakur today refused to stay the Allahabad High Court Judgment restraining Noida Toll Bridge Company Ltd from levying Toll Tax.
There would be no irreparable loss if the judgment of the High Court is not stayed, said the bench.
The three Judge bench comprising of Chief Justice T S Thakur, Justice D Y Chandrachud and Justice L Nageshwar Rao has directed Comptroller and Auditor General (CAG) to examine the relevant records of the DND flyway. The CAG directed to verify the claim of the Petitioner that the Total Cost of the Project has not been recovered and submit a report within four weeks.
“The CAG shall be at liberty to call for and examine all such records having a bearing on the financial aspects, as it requires to facilitate its decision. This will include matters and information pertaining to all the benefits which have flowed to the Petitioner under the entirety of the agreement, including the utilisation, if any. The Petitioner shall co-operate in all respects with the CAG and provide all documents, information and details as sought”, the bench said.
While refusing to stay the Allahabad High Court Judgment, the bench observed that, “It will be impossible to provide restitution to the lakhs of commuters from whom the fee would be collected to repay them in the event of dismissal of the SLP. On the other hand, if the Petitioner succeeds, it can be compensated suitably by extension of time. The balance of convenience is also against the Petitioner. Therefore, we are not inclined to grant the interim relief as prayed for”.
Read the full text of the order below.
GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. Second draft of GST law is supposed to be tabled in Parliament for approval shortly. The first model law has already been shared with public and the comments were invited.
So, on which value, GST will be levied?
There seems to be very obvious answer to this i.e. price on which the exchange of goods and services will take place. But, is it that simple, let’s check the GST valuation Rules, 2016. Rule 3 of GST Valuation rules conveys the same answer and affirms that transaction value shall even be accepted where the supplier and recipient of supply are related parties provided their relationship has not influenced the price. But this is subject to Rule 7.
Rule 7 empowers the GST officer with draconian provision to reject transaction value, if he has reasons to doubt the truth or accuracy of the value declared. He has been given powers to ask further information and evidences to cross check the price. If the officer still has reasonable doubt as to the value of transaction, after evaluation as per Rule 7, the price will be determined by Rule 4.
Rule 4 is the spinal cord of valuation rules, it introduces transfer pricing concept in the Model GST law. As per Rule 4, the transaction value of goods or services will be value of like kind and quality supplied at or about the same time to other customers with the adjustments to relevant factors like difference in date of supply, commercial and quantity levels, composition, quality and design. However, adjustment would also be made for freight and insurance charges depending upon place of supply. Rule 5 further strengthens the spinal cord above and provides that if the value cannot be determined by method as stated in Rule 4, it will be computed on the basis of cost of production or cost of services, charges for the design or brand with the addition of usual profit and general expenses. The point to note here is that these rules are applicable to all transactions irrespective of related party status.
A cursory reading of above rules may look very normal and simple to one but as you give a deep thought to it, you will start feeling the butterflies in stomach and it will leave you with bundle of nerves.
Basically, the Model GST Law has introduced transfer pricing concept in the law. Was it required, is it just copied from earlier laws? It won’t be wrong to say, the way it has been introduced
“Kahin ki eent, kahin ka roda; bhanumati ne kunba joda”
Let’s understand more about transfer pricing and it’s applicability in existing laws. Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. In principle, a transfer price should match either what the seller would charge an independent, arm’s length customer, or what the buyer would pay an independent, arm’s length supplier. Transfer pricing is perceived as major tool for corporate tax avoidance and is also referred as base erosion and profit sharing (BEPS). Transfer pricing adjustments have been a feature of many tax laws across the globe since the 1930s. All the cross border transactions made with related parties abroad are subject to pass the litmus tests of transfer pricing laws in order to prove that the transaction has been made on Arm’s length price. The rules in this regard have been adopted by most of the countries to safeguard their tax revenue. India’s transfer pricing regulations also broadly adopts the OECD principles currently.
Income Tax Act specifically lays out procedure for transfer pricing audits for transactions entered with international related parties. Domestic related party transactions are also required to be reported separately with audit requirements for higher amounts.
The proposed valuation rules in Model GST law are on the lines of India’s Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. In fact, it won’t be wrong to say that language of the proposed law has been copied from existing custom valuation rules. Further, custom law also requires related parties to refer to Special Valuation Branch (SVB) for evaluation of arms length price. Further, with the use of technology, customs have developed the dynamic data bank of historical rates reported by various importers using tariff codes to identify abnormally priced transactions. On the top of it, customs have also fixed duty price in case of various items to do away with valuation issues. According to study done by a sample set of importers, among the various roadblocks in the domain of trade facilitation, valuation related issues account for 19% of the grievances, followed by tariff classification grievances (16%).
The question arises; can customs law be replicated in GST? The objectives behind transfer provisions are quite different, in customs law government also needs to protect interest of domestic players, ensure inferior goods are not dumped in the country despite protecting country’s revenue. Here under GST regime, there is no incentive for tax planning by influencing transaction price even by related parties at one stage as it would get taxed in subsequent stage.
Central excise law in India is the oldest surviving indirect tax levy in India, but the valuation principles are still far from being settled. Safe harbour provisions (likewise Income tax) have been provided to reduce the litigation in the past. E.g. Rule 8 of excise valuation rules prescribes, that where the excisable goods are used by the manufacturer wholly or partly for in-house consumption in the manufacturing of other goods, the valuation of goods meant for in‑house consumption must be completed at 110% of the cost of production. Compounded levy schemes based upon installed capacity of production have also been provided to eliminate the need for transaction valuations.
Under GST, it would have been made some sense if lawmaker’s intent would have to double check the transaction price between related parties; but how fruitful this exercise is – to question transaction price between unrelated parties. The draft law questions the reasonability of price transacted even between unrelated parties. Unless the tax officer has got the evidence of receipt of unreported consideration, keeping of such provisions of rejection of value are drastic provisions for business. Imagine a situation, where you supply goods or services at a negotiated price and pay GST on such price and a day after completion of your transaction, GST officer negates this price. There is remotest probability that buyer will bear the additional tax on price valued by GST officer. So, the risk lies with seller / dealer only.
“May god save the ease of doing business campaign in our country. “
How the GST officer will comment upon unreasonable price, what vigilance mechanism will be used by the regulator isn’t known at this stage. It is being speculated that regulator will maintain a database of all the transactions and any abnormal price will be flagged. Can one imagine a world where any computer software or any laid out rules are able to arrive at real transaction prices? This could have been possible in case of homogeneous goods to some extent but it is quite an uphill task in case of today’s innovative product and services. Business is not a science in 21st century, business is symptomatic of our failure to efficiently harvest, distribute and replenish resources. It’s a progression from mystery to heuristic. Let the service provider be free to decide the price of his offerings, it’s not an algorithm or a software code.
Model GST law has opened up can of worms of bureaucracy and litigation by questioning the transaction between unrelated parties. Will administrators be ever able to derive an amicable approach to judge prices of goods or services? Likewise, present customs and excise laws, we seem to be entering back to the era of long list of disputed valuation litigations. Let’s hope the second draft and further rules on the subject addresses the concern.
Saurabh Gupta is a practicing Chartered Accountant having qualified post qualification course in “Master in Business Finance” from ICAI. He has over 14 years of experience in finance and accounts domain. He specializes in strategic planning and implementation, financial control, fund raising, transfer pricing audits, tax planning & statutory compliances. He is having versatile corporate experience in retail sector and has worked in financial controller role with DLF Brands prior to joining practice.
A Nine Judge bench of Supreme Court of India today upheld the Constitutional validity of the various State Government legislations to levy Entry Tax for goods coming outside from its territory.
The bench led by Chief Justice of India ruled that the tax legislation by the state does not require the consent of the President under Article 304 B of the Constitution of India. Entry Tax is not violative of the constitutionally recognised right to free trade commerce and intercourse guaranteed under Article 301 of the Constitution of India.
The bench also observed that, Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word ‘Free’ used in Article 301 does not mean “free from taxation”. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301.
Article 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters.
States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution.
The High Courts of Assam, Arunachal Pradesh, Jharkhand, Kerala and Tamil Nadu had struck down the levies imposed by their respective States on the ground that they were discriminatory in nature hence violative of Article 304(a) of the Constitution.
In a 883 page Judgment, Justice D.Y Chandrachud and Justice Ashok Bhushan wrote dissenting Judgment.
Read the full text of the Judgment below.
Q.1 A lot of small businessmen, housewives, artisans, workers may have some cash lying as their savings at home, will the income tax department ask questions if the same is deposited in banks?
A.1: Such group of people as mentioned in the question need not worry about such small amount of deposits up to Rs.1.5 or 2 lacs, since it would be below the taxable income. There will be no harassment by Income Tax Department for such small deposits made.
Q.2: Will the Income Tax Department be getting reports of cash deposits made during this period? If so, will the current threshold of reporting requirement of reporting cash deposits of more than Rs.10 lacs will only continue?
A.2: We would be getting reports of all cash deposited during the period of 10th November to 30th December,2016 above a threshold of Rs. 2.5 lacs in every account. The department would do matching of this with income returns filled by the depositors. And suitable action may follow.
Q.3: Suppose the department finds that huge amount of cash above Rs.10 lacs is deposited in a bank account, which is not matching with the income declared, what would be the tax and penalty to be paid on the same?
A.3: This would be treated as the case of tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied as per the section 270(A) of the Income Tax Act
Q.4: It is believed that a lot of people are buying jewelry now, how does department plan to tackle this?
A.4: The person who buys jewelry has to give his PAN number. We are issuing instructions to the field authorities to check with all the jewelers to ensure that this requirement is not compromised. Action will be taken against those jewelers who fail to take PAN numbers from such buyers. When the cash deposits of the jewelers would be scrutinized against the sales made, whether they have taken the PAN number of the buyer or not will also be checked.
Process of Tax Reforms will continue and pending GST issues will be resolved soon: FM Arun Jaitley
Finance Minister Shri Arun Jaitley inaugurates the Two Day Economic Editors Conference in New Delhi.
The Union Minister for Finance and Corporate Affairs, Shri Arun Jaitley said that the Government has endeavoured its best to take a number of decisions through a consensus route for the overall growth of the economy during the last two and half years. He said that the present NDA government took over under adverse global circumstances and its challenge was to re-establish the credibility of economic decision making process. But, the Government did not shy away from it and in the larger interest of the country, it tried its best to take as much decisions as possible even at risk but in the overall public interest and to speed-up the growth of the economy. The Finance Minister Shri Jaitley was delivering the Inaugural Address after inaugurating the two day Economic Editors Conference (EEC)-2016, here today.
Referring to the recent decisions taken by the Government, the Union Finance Minister Shri Jaitley said that the different sections of the economy have been opened-up for foreign investment, procedures were simplified and every effort was made to ease the environment for doing business in India. The Finance Minister said that the Government recognises the role of market forces in the economy that is why the role of Government discretion in decision making process,whether in case of auction of coal blocks or spectrum etc., was deliberately minimized.
Shri Jaitley said that the Government is working on tax reforms including Goods and Services Tax (GST). Shri Jaitley further said that the Government has initiated a series of measures to ensure that the State subsidies reach the most deserving. He said that the major issues have been resolved and GST will be implemented by April 1st 2017, besides this, parallel reforms are also in the pipe line in direct tax structure. He said tax collection this year is reasonably good, there is spurt in public expenditure and local demand is increasing. Hence there will be positive impact of recent decision of demonetising of higher value currency notes. He assured that people making small deposits for exchanging old currency notes will not be harassed.
Appreciating Press Information Bureau’s efforts for providing an opportunity to Regional Editors for direct interaction with the decision makers in the Government, Shri Jaitley said that Press Information Bureau has been extremely effective in handling the Government’s communication.
Earlier welcoming the Union Finance Minister, Senior officers and Editors from across the country and other participants, the Director General of Press Information Bureau(PIB), Shri Frank Noronha said that the main objective of the Conference is to provide a platform for interaction between the Senior Finance Journalists from different regions of the country and the Ministers and senior functionaries of the Government of India on key economic issues. He expressed hope that the Conference would also help in acquiring different perspectives of the relevant context and background behind a particular initiative of the Government. He further said that this exercise of media outreach will pave the way for better and informed perceptions which in turn will benefit and empower people through various columns and reports of the participating media delegates.
The two day conference is being organised by Press Information Bureau in collaboration with the Ministry of Finance. The Main objective of the Economic Editors Conference is to apprise the media persons about the major policy initiatives, achievements and future roadmaps of different core Economic Ministries of the Government of India.
Economic Editors from different parts of the country, along with Bureau Chiefs and Business Correspondents from Delhi are participating in this conference. Besides the Ministry of Finance, Ministries of Commerce & Industry, Railways, Road Transport and Highways, Petroleum and Natural Gas, Urban Development, Information Technology and Niti Aayog, among others are participating.
The Directorate of Advertising and Audio-Visual Publicity (DAVP) has also put an exhibition on the occasion on “70 years of India’s Independence’’.
The two-judge bench of the Supreme Court, yesterday nullified the order passed under Bengal Finance (Sales Tax) Act, 1941 against the State Bank of India as per which purchase tax was imposed on the bank for the purchase of Exim scrips. Earlier, the Kolkata High Court had quashed the impugned order finding that the purchase of Exim scrips by the Bank did not attract the provisions of Section 4(6) (iii) of the Act. Concurring with the findings of the High Court, the Apex Court ruled that the levy is unauthorized since the “ownership” in the goods was never transferred or assigned to the SBI.
The sole question before the Court was that whether the State Bank of India (SBI) and its branches, which are registered dealers under the Bengal Finance (Sales Tax) Act, 1941 would be liable to levy of purchase tax under Section 5(6a) of the Act for accepting the Exim Scrips (Export Import Licence) on payment of premium of 20 per cent of the face value of the scrips in compliance with the direction contained in the letter of Reserve Bank of India (RBI) dated 18th March, 1992.
Both the first and second appellate authorities held that he appellants are liable to pay tax on the purchase of Exim scrips. However, the High Court concluded the appeal in favour of the petitioners. The High Court decision was based on the observation of the Apex Court that REP licences/Exim scrips were merchandise and/or goods in the commercial world and were freely bought and sold in the market and hence, no argument could be urged that they do not constitute goods for the purposes of commercial transactions.
While analyzing the relevant provisions of the Act, the Court observed that “the replenishment licences or Exim scrips would, therefore, be “goods”, and when they are transferred or assigned by the holder/owner to a third person for consideration, they would attract sale tax. However, the position would be different when replenishment licences or Exim scrips are returned to the grantor or the sovereign authority for cancellation or extinction. In this process, as and when the goods are presented, the replenishment licence or Exim scrip is cancelled and ceases to be a marketable instrument. It becomes a scrap of paper without any innate market value. The SBI, when it took the said instruments as an agent of the RBI did not hold or purchase any goods. It was merely acting as per the directions of the RBI, as its agent and as a participant in the process of cancellation, to ensure that the replenishment licences or Exim scrips were no longer transferred. The intent and purpose was not to purchase goods in the form of replenishment licences or Exim scrips, but to nullify them. The said purpose and objective is the admitted position. The object was to mop up and remove the replenishment licences or Exim scrips from the market.”
“Be it noted that the initial issue or grant of scrips is not treated as transfer of title or ownership in the goods. Therefore, as a natural corollary, it must follow when the RBI acquires and seeks the return of replenishment licences or Exim scrips with the intention to cancel and destroy them, the replenishment licences or Exim scrips would not be treated as marketable commodity purchased by the grantor. Further, the SBI is an agent of the RBI, the principal. The Exim scrips or replenishment licences were not “goods” which were purchased by them. The intent and purpose was not to purchase the replenishment licences because the scheme was to extinguish the right granted by issue of replenishment licences. The “ownership” in the goods was never transferred or assigned to the SBI”, the Court said.
On the basis of the above findings, the Court upheld the order of the High Court.
Read the full text of the Judgment below.
