TMI Tax Updates - e-Newsletter
January 10, 2014
Case Laws in this Newsletter:
Articles
By: CHANDRAKISHORE BAJPAI
Summary: The article discusses the tax implications of inter-State transactions under the Central Sales Tax (CST) Act of 1956, focusing on the use of Form C. It explains that a concessional tax rate of 2% applies to sales made to registered dealers, provided the goods are listed in the purchasing dealer's registration certificate. Form C serves as proof for these transactions, and its submission is mandatory for tax concessions. The article also highlights the importance of including goods in the registration certificate before purchase and addresses practical issues like the timing of Form C issuance. Additionally, it clarifies that sales to Special Economic Zones (SEZ) require Form I instead of Form C.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Section 80U of the Income Tax Act, 1961 provides tax deductions for individuals with disabilities. The term "disability" is defined in alignment with the Persons with Disabilities Act, 1995, and includes conditions like autism and cerebral palsy. A deduction of 50,000 is available for individuals with disabilities, increasing to 1 lakh for severe disabilities. To claim this deduction, individuals must submit a medical certificate with their tax return. The medical authority for certification includes neurologists and government hospital officials. The validity of the certificate depends on whether the disability requires periodic reassessment.
News
Summary: The Institute of Company Secretaries of India (ICSI), under the Ministry of Corporate Affairs, has transitioned to a fully online registration system for its Company Secretaryship (CS) Course as of January 1, 2014. This move aims to provide efficient, anytime service to students. The CS Course is ICSI's flagship program, and completion of both examination and training qualifies individuals to become members and work as Company Secretaries. To assist students with online registration, ICSI offers an animated guide available on their website.
Summary: The Reserve Bank of India set the reference rate for the US dollar at Rs.61.9360 and for the Euro at Rs.84.3050 on January 10, 2014. The previous day's rates were Rs.62.1810 for the US dollar and Rs.84.4960 for the Euro. Consequently, the exchange rates for the British Pound and Japanese Yen against the Rupee were 102.0643 and 59.01, respectively, on January 10, 2014. The Special Drawing Rights (SDR) to Rupee rate will be determined based on these reference rates.
Summary: The Reserve Bank of India has announced a relaxation in Foreign Direct Investment (FDI) regulations by allowing optionality clauses in investment agreements. This change enables investors to exit investments after a minimum lock-in period without any assured returns. Previously, only equity shares or compulsorily and mandatorily convertible preference shares/debentures could be issued to foreign investors, and these did not permit optionality clauses. This regulatory adjustment is anticipated to enhance FDI inflows into India.
Summary: The Cabinet Committee on Economic Affairs has approved an increase in the import duty on refined edible oils of vegetable origin from 7.5 percent to 10 percent. This decision aims to maintain a reasonable differential between the import duties on crude and refined vegetable oils, thereby protecting the domestic refining industry and supporting domestic farmers.
Summary: The Financial Sector Legislative Reforms Commission, led by a retired Supreme Court Justice, submitted a report to the government with recommendations for enhancing governance in the financial sector. These recommendations, which do not require legislative changes, focus on consumer protection, transparency, regulatory processes, and capacity building. A Guidance Handbook has been created to assist regulators in voluntarily implementing these non-legislative recommendations. This handbook includes examples of global best practices and is available on the Ministry of Finance website. The initiative aims to standardize governance improvements across financial sector regulators.
Summary: NABARD has launched initiatives to enhance rural credit and infrastructure, focusing on warehousing, as resolved in its 198th Board Meeting. Three pilot projects targeting potato, tomato, and onion production in specific districts will be implemented through Primary Agriculture Co-operative Societies, with a total outlay of Rs 37.20 crore. These projects include market surveys, productivity improvements, and post-harvest support. NABARD has also sanctioned 548 warehousing projects under its Warehousing Scheme, aiming to create additional storage space. Furthermore, NABARD has reduced refinance rates for banks to encourage investment credit and infrastructure development in the agricultural sector.
Summary: An amount equal to 83.8% of the claims submitted by farmers has been disbursed to the nodal banks in Tamil Nadu, according to a statement by the Union Finance Minister. The Agricultural Insurance Corporation informed the minister of this progress, and it is anticipated that the banks will distribute the funds to the farmers who filed the claims. The remaining balance is expected to be disbursed soon.
Summary: In December 2013, India's exports, including re-exports, increased by 3.49% in Dollar terms and 17.24% in Rupee terms compared to December 2012, reaching $26,346.06 million. Cumulatively, exports from April to December 2013 grew by 5.94% in Dollar terms and 17.03% in Rupee terms. Imports in December 2013 decreased by 15.25% in Dollar terms and 3.98% in Rupee terms, totaling $36,486.32 million. The trade deficit for April-December 2013 was $110,042.49 million, lower than the previous year's $146,826.94 million. Oil imports slightly increased, while non-oil imports saw a significant decline.
Summary: The Cabinet Committee on Economic Affairs has approved the continuation and modification of the Mill Gate Price Scheme, now renamed the Yarn Supply Scheme (YSS), with a budget of Rs.443 crore for the 12th Plan. The scheme aims to provide subsidized yarn to underprivileged and vulnerable weavers, enabling them to compete with the powerloom and mill sectors. The target is to supply 3506 lakh kg of yarn worth Rs.4364 crore to 23 lakh handloom units. Modifications include revised quantity restrictions for cotton yarn, domestic silk, and wool, and the establishment of 10 new distribution centers by the National Handloom Development Corporation.
Summary: The Cabinet Committee on Economic Affairs has approved a proposal from the Ministry of Health and Family Welfare to upgrade existing State and Central Government medical colleges, aiming to increase MBBS seats by approximately 10,000. The initiative, part of a centrally sponsored scheme, involves a total cost of Rs.10,000 crore, with Rs.7,500 crore from central assistance and Rs.2,500 crore from State/Union Territory contributions. The funding distribution is 90:10 for North Eastern and special category States, and 70:30 for other States, with the cost per MBBS seat estimated at Rs.1.20 crore.
Summary: The Indian Revenue Service Association has donated over Rs. 34,60,458 to aid relief and rehabilitation efforts for those affected by the severe natural disaster in Uttarakhand in June 2013. The funds were presented to the Union Finance Minister and are intended for the Uttarakhand Chief Minister's Relief Fund. The association expressed their condolences and commitment to support the affected individuals through this contribution.
Notifications
VAT - Delhi
1.
F.7(400)/Policy/VAT/2011/PF/1207-1220 - dated
8-1-2014
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DVAT
Denotification of Bank of India for collections of VAT/CST dues from the dealers referred above with effect from 15th January 2014
Summary: The Government of the National Capital Territory of Delhi has issued a notification stating that the Bank of India will no longer serve as the designated government treasury for collecting VAT/CST dues from dealers registered under the DVAT Act, 2004. This change will take effect from January 15, 2014. The notification was issued by the Commissioner of Value Added Tax and is intended for publication in the Delhi Gazette Extraordinary.
Circulars / Instructions / Orders
VAT - Delhi
1.
F. 4(109)/2014/Vig./DTT/1413-1438 - dated
8-1-2014
Regarding sting operation by news channel "Aaj Tak"
Summary: A news channel aired a sting operation highlighting alleged corrupt practices within the Department of Trade & Taxes. The government emphasizes that giving or accepting illegal gratification is a serious offense and reiterates its commitment to addressing such issues. All department officials are instructed to uphold integrity and avoid corrupt practices, with warnings of stringent action against violators. The Delhi Sales Tax Bar Association is urged to report specific malpractice cases to enable corrective measures. Ward-in-charges are tasked with ensuring staff compliance with these directives.
FEMA
2.
86 - dated
9-1-2014
Foreign Direct Investment- Pricing Guidelines for FDI instruments with optionality clauses
Summary: The circular addresses guidelines for Foreign Direct Investment (FDI) instruments with optionality clauses. It allows optionality clauses in equity shares and convertible preference shares/debentures issued to non-residents under the FDI Scheme. The clauses enable investors to exit without assured returns, subject to a minimum lock-in period. Post lock-in, investors in listed companies can exit at market prices, while those in unlisted companies can exit based on Return on Equity. Investments in convertible instruments can be transferred at prices determined by international methodologies. These changes, effective from November 2013, must be adhered to for FDI compliance.
3.
87 - dated
9-1-2014
Resident Bank account maintained by residents in India –
Joint holder – liberalization
Summary: The Reserve Bank of India has liberalized the rules for resident bank accounts by allowing Non-Resident Indian (NRI) close relatives to be joint holders on an "Either or Survivor" basis. This change permits NRIs to operate these accounts for domestic payments on behalf of the resident account holder, without creating any beneficial interest for themselves. The account will remain a resident account unless the NRI becomes the sole survivor, in which case it will be reclassified as a Non-Resident Ordinary Rupee (NRO) account. Banks must verify the necessity for such arrangements and ensure compliance with the Foreign Exchange Management Act regulations.
4.
88 - dated
9-1-2014
Memorandum of Instructions for Opening and Maintenance of Rupee / Foreign Currency Vostro Accounts of Non-resident Exchange Houses
Summary: The circular issued by the central bank provides updated instructions for Authorized Dealer Category-I banks regarding the opening and maintenance of Rupee and Foreign Currency Vostro Accounts for non-resident exchange houses. The amendments expand the scope of Rupee Drawing Arrangements (RDAs) by adding new permissible transactions, which include utility service payments, tax payments, and EMI payments to banks and NBFCs in India. The guidelines emphasize that donations to charitable institutions should not be processed through exchange houses. These directions are issued under the Foreign Exchange Management Act, 1999 and are supplementary to existing regulations.
5.
89 - dated
9-1-2014
Exim Bank's Line of Credit of USD 42.61 million to the Government of the Republic of Benin
Summary: Exim Bank of India has established a USD 42.61 million Line of Credit (LOC) with the Government of Benin to finance the upgrade of water supply systems in 69 villages. The agreement, effective from December 16, 2013, mandates that at least 75% of the goods and services be sourced from India, with the remainder procured internationally. The LOC will remain open for Letters of Credit and disbursements up to 72 months from the agreement's execution date. No agency commission is payable under this LOC, but exporters may use their own resources for such payments. The circular is issued under the Foreign Exchange Management Act.
6.
90 - dated
9-1-2014
Provisions under section 6 (4) of Foreign Exchange Management Act, 1999 - Clarifications
Summary: The circular clarifies transactions under Section 6(4) of the Foreign Exchange Management Act, 1999, allowing Indian residents to hold, own, transfer, or invest in foreign assets acquired while residing outside India or inherited from someone residing outside India. It specifies that foreign currency accounts, income from employment or investments made abroad, and inherited foreign exchange are covered. Indian residents can use these assets and their income for payments or new investments abroad without Reserve Bank approval, provided funds come from eligible assets and comply with FEMA. Authorized Dealer banks must inform their clients of these provisions.
DGFT
7.
48/2009-2014 (RE- 2013) - dated
10-1-2014
Amendment in Para 5.3.1 of Handbook of Procedure Vol. I, 2009-2014.
Summary: The amendment to Para 5.3.1 of the Handbook of Procedure Vol. I, 2009-2014, issued by the Directorate General of Foreign Trade, modifies sub-para (a) to require authorization holders to present a certificate from the Jurisdictional Central Excise Authority confirming the installation of Capital Goods at their premises within six months of import completion. An extension for installation up to 18 months may be granted by the regional authority. This amendment delegates the power for granting such extensions to regional authorities.
Highlights / Catch Notes
Income Tax
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Court Confirms Validity of Notice Served After Postal Holiday u/s 143(2); Accepts First Working Day Service.
Case-Laws - HC : Validity of notice u/s 143(2) - The last date for service of the notice was 30/9/2012 which was postal holiday – Sunday - The notice u/s 143(2) has been served on the first available working day i.e. on 1/10/2012 being Monday - Service of notice is Valid - HC
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Income Tax Act Sections 237, 240, and 244(1A) mandate refunds and interest for tax overpayments by Assessing Officer.
Case-Laws - HC : Interest on refund u/s 244(1A) - The reading of Sections 237, 240 and 244(1A) casts a duty on the Assessing Officer to charge that much of tax which the assessee is liable to pay and mandates the refund of the excess amount along with interest - HC
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Taxpayers can defer capital gains tax by reinvesting in a new home u/s 54F of the Income Tax Act.
Case-Laws - HC : Exemption u/s 54F - Section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in form of a residential house - HC
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Assessee Eligible for Depreciation on "Right to Collect Toll" as Intangible Asset u/s 32(1)(ii) of Income Tax Act.
Case-Laws - AT : Depreciation - the assessee was eligible for depreciation on the ‘Right to collect Toll’, being an ‘intangible asset’ falling within the purview of section 32(1)(ii) of the Act - AT
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Visa Charges Recognized as Business Expenses, Not Subject to Fringe Benefit Tax. No Direct Employee Benefit Involved.
Case-Laws - AT : Payment on account of ‘Visa charges and others’ are legitimate business expenses and cannot be considered as paid to the employees or incurred for the benefit of employees - No FBT - AT
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Entities Collecting Mandatory Donations for Student Admissions Ineligible for Tax Exemption Under IT Act Sections 10(23C) and 11.
Case-Laws - AT : Exemption u/s 10(23C) – If donations are received compulsorily for the admission of students, by whatever name it may be called, the assessee would not be entitled for exemption either under S. 10(23C) or under S.11 - AT
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Indexation Benefits for Capital Assets Depend on Payments, Not Ownership Through Conveyance Deed.
Case-Laws - AT : Benefit of indexation – To constitute a capital asset assessee must not be the owner by way of a conveyance deed - The benefit of indexation has to be granted on the basis of payments made for acquiring the said asset - AT
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Assessee granted deduction u/s 80P(2)(a)(i) for maintaining liquid funds despite not being a co-operative bank.
Case-Laws - AT : Deduction u/s 80-P – The assessee is not a co-operative Bank - To meet any eventuality, the assessee was required to maintain some liquid funds - benefit of deduction u/s.80P(2)(a)(i) granted - AT
Customs
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Refund Denial Unjustified if Claim Filed per Section 27, Even Without Challenging Assessment u/s 128.
Case-Laws - AT : Denial of refund claim - The fact that the appellant could have challenged the assessment under section 128 of the Customs Act cannot be a reason to deny processing of a refund claim if filed within the four corners of the provisions under section 27 of Customs Act - AT
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Duty Rate for EPCG Capital Goods: Calculated on Depreciated Value at Debonding Time.
Case-Laws - AT : Duty demand - Import of capital goods under EPCG - the rate of duty that can be charged on the goods being debonded would be the rate applicable to the capital goods under EPCG scheme at the time of debonding on depreciated value - AT
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Duty Demand on Aluminium Dross: Costs of Extracting Aluminium vs. Copper Differ, Transaction Value Stands Valid.
Case-Laws - AT : Duty demand - Import of aluminium dross - cost for extracting aluminium from dross cannot be equated with the cost of copper from copper dross - no reason to reject the transaction value - AT
Service Tax
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High Court upholds 1st Appellate Authority's decision to reject late service tax appeal, stressing timely procedural compliance.
Case-Laws - HC : Condonation of delay - Non delivery or order - No illegality in the order passed by the 1st Appellate Authority declining to condone the delay and to hear the case on merits - HC
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Court Refuses to Interpret Service Tax Burden in Contractual Agreement on Partial Reverse Charge Post-July 1, 2012.
Case-Laws - HC : Contractual agreement between the service provider and service receiver - who will bear the burden of service tax - partial reverse charge after 1.7.2012 - Court finds no ground to decide the academic questions raised in the writ petition even of interpretation of provisions of law and Notification - HC
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Court Considers Tax Implications of Separating Service Costs from Spare Parts; Stay Granted Pending Decision.
Case-Laws - AT : Whether the value of the services can be split as ‘cost of spare parts’ and ‘cost of services’ and as to whether the applicant has the option not to pay tax on the value of the spare parts used - stay granted - AT
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CENVAT Credit Denied Due to 67% Abatement and No Tax Liability, Aligns with Service Tax Principles.
Case-Laws - AT : Availment of CENVAT Credit - Abatement of 67% - Cenvat credit is allowable to avoid cascading effect. If taxability does not arise admissibility of Cenvat credit does not arise. Therefore, adjudication has rightly been done on this count also denying the benefit - AT
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Appellants Required to Pay Service Tax as Goods Transport Service Recipients; Rule 6(3) Benefit Denied.
Case-Laws - AT : Denial of benefit of Rule 6(3) of the Service Tax Rules, 1994 - the appellants as recipients of Goods Transport Service are liable to pay Service Tax, they come under the category of “assessee” and, therefore, Rule 6(3) squarely applies to them - AT
Central Excise
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Investigation Launched into Alleged Illegal Manufacture and Registration of Chakado Rickshaws by Appellant, RTO Confirms.
Case-Laws - AT : Clandestine manufacture and removal - When RTO authorities have specifically stated that they have registered so many numbers of Chakado Rickshaws manufactured by the appellant, the entire issue needs to be gone into detail as to who issues the sales invoices of Chakado Rickshaws and how these Chakado Rickshaws got registered with the RTO authorities - AT
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Refund Denied: Appellant's Cost Reduction Leads to Inadmissible Claim Due to Unjust Enrichment and Excise Duty Recovery.
Case-Laws - AT : Refund of duty rejected – it was the cost of the product which was reduced by the appellant during the relevant period and the that the refund claim is not admissible on the basis of unjust enrichment where reduced cost along with leviable excise duty was being recovered by them - AT
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Court Sets Aside Demand on Cenvat Credit for Capital Goods Cleared as Scrap; No Evidence of Prior Credit Use.
Case-Laws - AT : Capital goods cleared as scrap – There is absolutely no evidence on record to show that the Cenvat Credit had been availed in respect of the capital goods which were subsequently cleared as scrap - demand set aside - AT
VAT
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High Court: Transportation and Installation Charges Excluded from VAT Sale Price to Prevent Unjust State Tax Gain.
Case-Laws - HC : Levy of Value Added Tax (VAT) - The State Government cannot enrich by wrongly bringing the transportation charges and the installation charges as part of sale price of the goods - HC
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