TMI Tax Updates - e-Newsletter
January 31, 2014
Case Laws in this Newsletter:
Articles
By: Surender Gupta
Summary: The Allahabad High Court upheld Rule 5A(2) of the Service Tax Rules, 1994, affirming its consistency with Section 72A of the Finance Act, 1994. This ruling mandates that audits under the EA-2000 Scheme be conducted by Chartered Accountants or Cost Accountants, not departmental officers. Assessees must provide necessary records for audit, but the audit itself will be performed by qualified professionals. Despite this, assessees remain subject to audits, and the Central Excise/Service Tax department retains authority to inspect premises and scrutinize records. This decision presents opportunities for accountants but maintains challenges for assessees.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) lacks the authority to transfer appeals to another authority if it does not have jurisdiction over them. Section 129A of the Customs Act, 1962 outlines the types of orders that can be appealed to CESTAT, while Section 129B allows the tribunal to confirm, modify, or annul decisions or remand cases for fresh adjudication. However, if an appeal is not maintainable, CESTAT cannot transfer it to another authority. The Gujarat High Court confirmed that CESTAT should reject or return non-maintainable appeals rather than transferring them, emphasizing the tribunal's limited powers under Rule 41.
News
Summary: The Minister of State for Commerce and Industry held a meeting to review the performance of Export Promotion Council for EOUs and SEZs, addressing policy and operational challenges. Key issues include the withdrawal of tax exemptions, uncertainty in tax impositions, and lack of incentives for SEZs compared to other exporters. Suggestions were made to extend benefits under the Foreign Trade Policy to SEZs and reclassify SEZ lending as infrastructure projects to reduce borrowing costs. Additionally, the impact of FTAs on domestic industries in SEZs was discussed, and state-level challenges such as duties and policy implementation were highlighted.
Summary: India and Fiji have signed a Double Taxation Avoidance Agreement (DTAA) to prevent double taxation and fiscal evasion concerning income taxes. This agreement, signed by representatives from both governments, aims to provide tax stability and enhance economic cooperation, promoting investment, technology, and service exchanges between the two nations. It includes provisions for information exchange and tax collection assistance, with specific rules on taxing business profits, international air traffic operations, dividends, interest, royalties, and technical service fees. The agreement also features anti-abuse measures to ensure benefits are exclusive to residents of India and Fiji.
Summary: The Central Board of Direct Taxes (CBDT) has postponed implementing a new procedure for Permanent Account Number (PAN) allotment. The decision to change the process, outlined in Circular No. 11 dated January 16, 2014, has been put on hold until further notice. Consequently, the existing procedure for PAN application and allotment will remain in effect.
Summary: The Union Cabinet approved the deputation of Group A officers from the Department of Telecommunications and other ministries with telecommunications and IT expertise to Telecommunications Consultants India Limited (TCIL) for three years starting 01.10.2013. This decision, adhering to Department of Public Enterprises guidelines, allows up to 10% of below board level posts at TCIL to be filled this way, optimizing technical manpower utilization. TCIL, an ISO-certified Mini Ratna Category-I Public Sector Undertaking, is a leading telecommunications consultancy and engineering company established by the Government of India in 1978.
Summary: The Competition Commission of India (CCI) has initiated an investigation against Western Coalfields Limited (WCL) and Coal India Limited (CIL) following a complaint by Wardha Power Company Limited. The complaint alleges that WCL and CIL abused their dominant market position and included discriminatory clauses in their Fuel Supply Agreement. The CCI found a prima facie case for a potential violation of Section 4 of the Competition Act and directed the Director General to investigate, with a report due within 60 days. Similar investigations have been conducted against CIL and its subsidiaries in the past.
Summary: The Reserve Bank of India set the reference rate for the US dollar at Rs.62.7335 and for the Euro at Rs.85.6075 on January 30, 2014. The previous day's rates were Rs.62.2005 for the US dollar and Rs.84.9640 for the Euro. The exchange rates for the British Pound and Japanese Yen against the Rupee were 103.8679 and 61.22, respectively, on January 30, compared to 103.1160 and 60.22 on January 29. The SDR-Rupee rate will be determined based on this reference rate.
Summary: The Central Government has acknowledged the US Federal Reserve's decision to reduce its monthly purchase of securities from USD 75 billion to USD 65 billion. This move was anticipated and is not expected to impact Indian markets adversely. The Federal Reserve has indicated that future asset purchases will be adjusted based on economic conditions. India is deemed well-prepared for any potential effects, with robust foreign exchange reserves, strong FDI and FII inflows, and moderated inflation. The current account deficit is projected to be below USD 50 billion for 2013-14. Both the Indian government and the Reserve Bank of India remain vigilant to maintain financial stability.
Notifications
Customs
1.
07/2014 - dated
28-1-2014
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Cus (NT)
Amendments in the Notification No.152/84-Customs, dated the 15th May, 1984
Summary: The Government of India has amended Notification No. 152/84-Customs, dated May 15, 1984, to allow the import of machinery and equipment previously exported to Bhutan from countries other than India through an Indian entry point. This exemption is for use in Bhutanese projects, provided the importer presents a 'Letter of Guarantee' or 'Bill of Import' and other relevant documents to the Customs authorities. The Customs officials must verify the identity of the goods. This amendment is enacted under the Customs Act, 1962, in the public interest.
2.
06/2014 - dated
23-1-2014
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Cus (NT)
Amendment in the notification of the Government of India, No.63/94-Customs (N.T.) dated the 21st November, 1994.
Summary: The Government of India has amended Notification No. 63/94-Customs (N.T.) dated November 21, 1994, concerning customs regulations at Inland Container Depots (ICD), Land Customs Stations (LCS), and ports. The amendment, issued by the Central Board of Excise and Customs under Notification No. 06/2014-Customs (N.T.), modifies the entry for the land frontier with Bangladesh. Specifically, it updates the Land Customs Station entry number (20) to include the road from Sonahat to Golakganj and the Dimakuri-Bishkhowa road from Kanuri Part-II to border pillar number 1009.
Highlights / Catch Notes
Income Tax
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Trade Advances for Commercial Transactions Not Deemed Dividends u/s 2(22)(e) of Income Tax Act.
Case-Laws - AT : Deemed dividend - Trade advance which are in the nature of money transacted to give effect to commercial transaction would not fall within the ambit of the provisions of section 2(22)(e) - AT
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Section 40(a)(ia) Provisions Do Not Override Section 201: Assessee Liable for TDS on Interest Payments.
Case-Laws - AT : Provisions of section 40(a)(ia) do not override the provisions of section 201 – assessee is liable to TDS on interest payments, even if it has not claimed the same as deduction while computing total income - AT
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Court Rules Assessee Not Bound by Post-Approval Conditions for Deductions Under Income Tax Act Section 80IB(10.
Case-Laws - HC : Deduction u/s 80IB(10) - The assessee is not expected to fulfil the conditions which were not on the statute when such approval was granted to the assessee - HC
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Funds Collected from Public Considered Capital for Income Generation Purposes Under Tax Rules.
Case-Laws - HC : The assessee has collected the funds from the public/depositors, who have deposited the money to earn interest - This amount is capital which will be utilized to earn income - HC
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High Court: Incidental Surpluses in Trust Activities Not Classified as Trade or Commerce Under Trust Law.
Case-Laws - HC : Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business - HC
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Profits u/s 80HHE: Exclude Other 10A Units' Turnover, Calculate Each Unit's Total Turnover Separately.
Case-Laws - HC : While computing the profits of the said unit, the turnover of other 10A units cannot be added to arrive at the total turnover of the business as stipulated under Sub Section (3) of Section 80HHE - HC
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Commissioner Lacks Arbitrary Power in Trust Registration Cancellations for Non-Genuine Activities or Misaligned Objectives.
Case-Laws - HC : Cancellation of registration of a trust on the ground that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution cannot be construed as a conferment of arbitrary power to the Commissioner. - HC
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Disallowing AMP expenses u/ss 37 and 92 leads to double addition, which is impermissible and redundant.
Case-Laws - AT : If the amount of AMP expenses is disallowed by processing under both the sections, that is 37 and 92, there can be no scope for again reverting to section 37(1) as it will amount to double addition - AT
Customs
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High Court Overturns Orders Disallowing Central Excise Duty Drawback for Merchant Exporters.
Case-Laws - HC : Duty Drawback - Merchant exporter - disallowing Central Excise portion of the drawback, in terms of the adjudicating authority and revisional order is hereby set aside - HC
Service Tax
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Service Tax Audit: Only Chartered Accountants Can Conduct Audits, Materials Collected by Authorized Officers or Auditors.
Case-Laws - HC : Service Tax Audit under EA-2000 - for the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant - HC
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Court Upholds Service Tax on Works Contracts, Ready-Mix Concrete; Applies Only to Service Component of Composite Contracts.
Case-Laws - HC : Constitutional validity - Levy of the service tax on the works contract and Ready-mix Concrete - The provisions clearly relate only to the service component of the composite contracts - decided in favor of revenue - HC
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Service Tax Calculation Excludes Reimbursements for Input Expenses; Only Actual Service Value Taxable According to Case Laws.
Case-Laws - AT : Assessable value - reimbursements of expenses - inputs used in rendering services cannot be treated as reimbursable costs. - AT
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Manpower Supplier Must Pay Service Tax on Full Gross Amount, Not Just Retained Charges, Rules Court.
Case-Laws - AT : Valuation - Service of manpower supply - Assessee paid tax on the portion of the service charges retained by the appellants - the appellants are liable to pay service tax on the gross amount received - AT
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Court Evaluates if Hospital Construction is Commercial or Industrial for Tax Purposes; Appellant's Belief Deemed Bona Fide.
Case-Laws - AT : Whether construction of hospital is a commercial or industrial construction - appellant cannot be prima facie faulted for having entertained a bonafide belief that their activity was not taxable - AT
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Service provider's use of radiation and convection equipment not taxable under consulting engineer services.
Case-Laws - AT : Activity undertaken by the service provider involves radiation and convection using equipments like spraying ejector, steam ejector, nozzles with hoses and air compressors is not taxable as consulting engineer service - AT
Central Excise
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High Court Criticizes Strict Rejection of Rebate Claim for Two-Month Delay Beyond Six-Month Limit u/r 18.
Case-Laws - HC : Rejection of rebate claim - Rule 18 - NTF No. 19/2004-CE(NT) - Period of limitation of 6 months - the delay is only of about two months. The Commissioner should have considered the reasons for the delay in a liberal manner - HC
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Court Rules Notification No. 16/97 CE Explanation is Prospective, Clarificatory; Applies Only to Future Actions.
Case-Laws - HC : Insertion of Explanation in the notification no. 16/97 CE - Whether Retrospective of Prospective - Whether Clarificatory or declaratory - held as prospective in nature - HC
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Panel Boards and PVC Cables Used in Production Eligible for Cenvat Credit as Capital Goods.
Case-Laws - HC : Panel Board and PVC cables which do not participate in the manufacturing process and are only used for producing or processing of any goods eligible for Cenvat Credit as capital goods - HC
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