TMI Tax Updates - e-Newsletter
January 6, 2012
Case Laws in this Newsletter:
Income Tax
Service Tax
Central Excise
TMI SMS
Articles
By: DEVKUMAR KOTHARI
Summary: The article explains various legal terms and phrases commonly used in legal contexts. It provides definitions and examples for each term, such as "a fortiori," meaning an argument from stronger reason, and "ab initio," referring to something invalid from the beginning. Other terms include "accord and satisfaction," an agreement to release an obligation, "act of God," an event caused by natural forces, and "ad hoc," a solution for a specific purpose. The article also covers concepts like "ad idem," mutual agreement in contracts, "adverse possession," and "affidavit," a sworn written statement, among others.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Financial inclusion is the process of providing financial services and credit access to vulnerable and low-income groups at an affordable cost. It aims to overcome financial exclusion, which affects rural and urban poor due to unavailability, high costs, or lack of awareness of financial services. Banks play a crucial role in promoting financial inclusion by offering no-frills accounts, simplified credit facilities, and leveraging technology for better outreach. The Reserve Bank of India (RBI) has initiated various measures, including the use of business correspondents and electronic benefit transfers, to enhance financial inclusion. This effort is essential for inclusive growth and sustainable development, requiring collaboration among stakeholders and innovative approaches to reach underserved populations.
News
Summary: The Central Processing Centre in Bangalore has been criticized for sending tax notices for minimal amounts, such as Rs. 1, causing hardship to taxpayers. While the Income Tax Department does not issue refunds for amounts under Rs. 100, it has been clarified that these communications are not demand notices but part of a transparency initiative. Taxpayers are informed of arrears to allow corrections if needed. The department encourages taxpayers to report inaccuracies, and demands under Rs. 100 are not enforced but adjusted against future refunds. This effort aims to improve demand management and database accuracy.
Summary: The Finance Minister highlighted the necessity for new financial instruments like credit enhancement to boost infrastructure project financing. A pilot transaction under the Credit Enhancement Scheme, led by the Indian Infrastructure Finance Company Limited (IIFCL), was launched to support this initiative. The scheme aims to develop the infrastructure bond market by attracting investors such as insurance companies and pension funds, thereby freeing up bank capital for new projects. An MoU was signed between IIFCL, LIC, and major public sector banks to streamline funding for infrastructure projects. The initiative also involves collaboration with the Asian Development Bank for credit rating enhancement.
Summary: The Union Finance Minister announced the launch of a Pilot Credit Enhancement Scheme at the IIFCL Foundation Day, highlighting the company's role in infrastructure financing since its inception in 2006. IIFCL has sanctioned significant funding for infrastructure projects, focusing on public-private partnerships. The scheme aims to address the challenge of long-term resource availability by attracting funds from insurance and pension sectors, enhancing the infrastructure bond market, and freeing up bank credit for new projects. A memorandum of understanding involving major public sector banks and financial institutions will facilitate the financial closure of viable infrastructure projects.
Summary: The Union Finance Minister addressed the 9th India-Saudi Arabia Joint Commission Meeting, emphasizing the importance of strengthening economic ties and expanding trade beyond petroleum products. The meeting reviewed progress since the Riyadh Declaration and set ambitious future cooperation targets. The Minister highlighted the potential for joint ventures, especially in hydrocarbons, and the need for investment in Indian infrastructure. He acknowledged the significant Indian expatriate community in Saudi Arabia and proposed a Memorandum of Understanding on labor and employment. The establishment of a $750 million India-Saudi Arabia Investment Fund was prioritized to support mutual economic growth.
Summary: The Wholesale Price Index (WPI) for primary articles in India increased by 0.1% to 197.6 for the week ending December 24, 2011. The annual inflation rate for primary articles was 0.10%, down from 2.70% the previous week. Within this category, food articles saw a 0.2% decrease due to lower prices for items like jowar and vegetables, while non-food articles rose by 0.6% with increases in prices for soyabean and raw jute. The fuel and power index remained unchanged at 172.7, with an annual inflation rate of 14.60%, slightly up from 14.37% the previous week.
Summary: The Consumer Protection (Amendment) Bill, 2011, introduced in India aims to expedite case resolution and broaden the Act's scope. Key proposals include enabling online filing and fee payment for complaints, enforcing orders as civil court decrees, and imposing penalties for non-compliance. The amendments empower District Forums to operate beyond district headquarters and grant them authority to award interest for prolonged litigation. The bill also revises the appointment criteria for commission members, enhancing age and experience requirements, and allows commissions to enlist experts for significant consumer interest cases. The Central Government will monitor pending cases to improve the system's efficiency.
Summary: India and Saudi Arabia's trade reached $25.6 billion in 2010-11, marking a significant increase from $15.9 billion in 2006-07. Exports from India to Saudi Arabia grew to $5.2 billion, with key items including petroleum products, basmati rice, and machinery. Imports from Saudi Arabia, primarily crude oil and chemicals, rose to $20.4 billion. India imports nearly 23% of its crude oil from Saudi Arabia. The focus is now on enhancing trade and services through investment and joint ventures. Both countries aim to elevate their relationship to strategic energy cooperation, with India seeking participation in Saudi petroleum and gas sectors.
Summary: The Ministry of Finance of India clarified that interest rates on small savings schemes are fixed at the time of investment and remain unchanged until maturity, except for the Public Provident Fund (PPF). This clarification addresses misconceptions that rates are floating and subject to change with government securities' yields. Any changes in interest rates will only affect new investments made after the revision date. For example, an investment made on December 1, 2011, will retain its interest rate until maturity, regardless of any rate changes from April 1, 2012. PPF rates, however, are updated annually for all accounts.
Notifications
Central Excise
1.
01/2012 - dated
3-1-2012
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CE
Amends Notification No. 3/2006-Central Excise - Effective Rate of Duty on goods of Chapter 1 to Chapter 25.
Summary: The Government of India has issued Notification No. 1/2012-Central Excise, amending previous notifications related to the effective rate of duty on goods under Chapter 1 to Chapter 25. Specifically, Notification No. 03/2006-Central Excise is amended to include a new entry "11A" with goods under tariff headings 1701 13 20 and 1701 14 20, which are now exempt from duty. Similarly, Notification No. 6/2006-Central Excise is amended to include a new entry "14B" for goods under tariff heading 845290, also exempt from duty. These amendments are deemed necessary in the public interest.
Income Tax
2.
119/2011 - dated
19-12-2011
-
IT
Notification Under Section 35AC in respect of National Committee for Promotion of Social and Economic Welfare.
Summary: The Central Government, under Section 35AC of the Income-tax Act, 1961, has approved several institutions and their projects for tax deductions based on recommendations from the National Committee for Promotion of Social and Economic Welfare. The notification lists 31 institutions with their respective projects, estimated costs, and the maximum allowable deduction amounts for financial years 2011-12 to 2013-14. Projects include dementia care, vocational training, rural development, healthcare, and education for disadvantaged groups, with budgets ranging from Rs. 96 lakh to Rs. 17.73 crore. This notification is valid for three years, covering the specified financial periods.
Circulars / Instructions / Orders
FEMA
1.
64 - dated
5-1-2012
External Commercial Borrowings (ECB).
Summary: The circular addresses changes to the External Commercial Borrowings (ECB) policy, increasing the borrowing limit for eligible borrowers under the automatic route to USD 750 million per financial year. It specifies revised average maturity guidelines: a minimum of three years for ECBs up to USD 20 million and five years for amounts above USD 20 million up to USD 750 million. It allows eligible borrowers to raise Foreign Currency Convertible Bonds (FCCBs) up to USD 750 million, with certain sector-specific caps. Existing policies on eligible borrowers, recognized lenders, and other aspects remain unchanged, with necessary regulatory amendments to follow.
Customs
2.
01/2012 - dated
5-1-2012
Refund of 4% Additional Duty of Customs (4% CVD) in terms of Notification No. 102/2007-Customs dated 14.09.2001-regarding.
Summary: The circular addresses amendments to Circular No. 18/2010-Customs regarding the refund of a 4% Additional Duty of Customs (CVD). Initially, only Chartered Accountants could certify that the duty burden was not passed to buyers, but representations have led to the inclusion of Cost Accountants as well. The Board acknowledges the hardship faced by importers using Cost Accountants for VAT audits and amends the circular to allow Statutory Auditors, Cost Accountants, and Chartered Accountants to issue the necessary certification for the refund process. Public notices are advised to inform the trade and industry of these changes.
Highlights / Catch Notes
Income Tax
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Section 11(2) Doesn't Limit Section 11(1) of Income Tax Act; Accumulated Income Under 15% Unaffected.
Case-Laws - AT : The provisions contained in section 11(2) do not in any manner restrict the operation of section 11(1) of the IT Act and the accumulated income, which was less than 15 per cent of the total income.... - AT
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Court Rules Tax Exemption Valid for Non-UGC Recognized Western Music School u/s 10(23C) of Income Tax Act.
Case-Laws - HC : Exemption u/s 10(23C) – Merely on the ground that petitioner is not recognized by the UGC or any Board constituted by the Government of India for imparting formal education in the field of western music and that petitioner is not itself awarding any certificate or degree to the students, it cannot be said that it does not qualify to be an educational institution... - HC
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Court Upholds Penalty for Not Keeping Financial Records; Ignorance of Tax Laws Not a Valid Defense u/s 271(1)(c).
Case-Laws - HC : Penalty u/s 271(1)(c) - Though he is an individual and he is not expected to maintain accounts showing the current assets and liabilities, income etc., his explanation that he was innocent and he was not aware of the legal requirement cannot be accepted.... - HC
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Interest u/s 201(1A) Not a Penalty; Assessee Still "In Default" for Tax Deduction Failures.
Case-Laws - HC : The payment of interest under Section 201(1A) is not penal. Even though default was unintentional, still assessee would be deemed as “assessee in default..... - HC
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Rent Arrears for 2000-01 Not Allocable to 1996-2000 for Tax Purposes.
Case-Laws - HC : Income from House property - the arrears of rent received in the assessment year 2000-01 could not be spread over the previous years, i.e., 1996-97 to 1999-2000.... - HC
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Airport Encroachment Removal Costs Classified as Revenue Expenditure Under Liability Provision.
Case-Laws - HC : Provision of liability made for expenditure to be incurred in removal of encroachments in and around the technical area of the Airport - held as revenue expenditure.... - HC
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Taxpayers Can Choose Accounting System, But Must Comply with Section 145 Standards of Income Tax Act.
Case-Laws - HC : Assessee has right to adopt an accounting system of his choice. - Interference is permissible if the accounting system adopted is contrary to the prescribed accounting standards etc. under Section 145/145A of the Act..... - HC
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Court Rules No TDS Needed for Global Management Services, VSAT Uplinking Payments as Reimbursements.
Case-Laws - HC : TDS u/s 194J or 195 - global management services and VSAT uplinking - reimbursement of the expenses - no tax at source was deductible and the provisions of Section 40(a)(i) of the Act were not attracted. .... - HC
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Voluntary Retirement Scheme: Payments Over Rs. 5 Lakhs Don't Automatically Violate Rule 2BA or Section 10(10A) Compliance.
Case-Laws - HC : Voluntary Retirement Scheme (VRS) u/s 35DDA - merely because payment of more than Rs. 5 lakhs is made would not mean that the schemes are not in conformity with Rule 2BA and the provisions of Section 10(10A) of the Act.... - HC
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Payment to Vacate Property Can Offset Sale Proceeds for Capital Gains Tax, Court Rules.
Case-Laws - HC : Capital gains – payment made by the assessee for vacancy of the property had a link with the sale of property and, therefore, was entitled for set off against sale consideration.... - HC
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Unpaid Liabilities Not Income u/s 41(1) Despite Delays, High Court Clarifies.
Case-Laws - HC : Unpaid liabilities cannot be added as the assessee’s income under Section 41(1) merely because they remained unpaid for a sufficiently long time.... - HC
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Trust's School Deemed Commercial, Not Charitable; Revenue Wins Dispute on Tax Exemption Criteria.
Case-Laws - AT : The Revenue's principal objection is that the activities of the Trust, which are limited to running a School, is being run on commercial lines, so that there is no question of it being charitable - Decided in favor of revenue..... - AT
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Road Construction Firms Ineligible for Section 80IB Tax Deduction, Not Considered Infrastructure Development.
Case-Laws - AT : Business of civil contracts for construction of roads, highways etc. - not engaged in the business of developing any infrastructure facility – Not eligible for deduction u/s 80IB .... - AT
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Land Development Agreement Constitutes Transfer u/s 2(47)(v) of Income Tax Act, Court Rules on Ownership Rights.
Case-Laws - AT : The owners entered into land development agreement with the developer while retaining the ownership, assigned certain rights – Held as transfer u/s. 2(47)(v) of the I.T. Act..... - AT
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Discounts to Collection Centers Not Subject to TDS u/s 194H; Not Considered Commission or Brokerage Payments.
Case-Laws - AT : TDS u/s 194H - Discount offered to Collection Centres for testing of samples - No TDS.... - AT
Customs
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Certificates for 4% Additional Duty of Customs Refunds Can Be Issued by Cost or Chartered Accountants.
Circulars : Refund of 4% Additional Duty of Customs (4% CVD) - 'Cost Accountants' in addition to 'Chartered Accountants' authorized to issue certificate.
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Customs Regulations: Importing Commercial Quantities as Baggage Prohibited; Subject to Different Rules and No Exemptions.
Case-Laws - CGOVT : Import of good (in commercial quantity) through banafide baggage is not permissible - It cannot be constituted as bonafide baggage... - CGOVT
FEMA
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New ECB Guidelines: Compliance, Permissible End-Uses, and Approval Process Under FEMA for Cross-Border Borrowing.
Circulars : External Commercial Borrowings (ECB). - Cir. No. 64 Dated: January 5, 2012
Indian Laws
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Interest Rates on Small Savings Schemes in India Updated: Key Changes for Better Financial Planning Explained.
News : Clarification on Interest Rates on Small Savings Schemes.
Service Tax
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Refund of Service Tax Must Include Education Cess; Rejection Unwarranted When Service Tax is Exempt and NIL.
Case-Laws - AT : Refund of service tax to include education cess - Education Cess is levied and collected as percentage of service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL. - refund of cess can not be rejected.... - AT
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Cenvat Credit Covers Insurance for Loss of Profit as Part of 'Activities Relating to Business' in Input Services.
Case-Laws - AT : Cenvat credit on inputs services - the insurance policy to cover loss of profit would come within the expression for 'activities relating to business' in the inclusive limp of the definition of input services.... - AT
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Cenvat credit not applicable for security services; excluded from "factory" definition under Cenvat Rules, similar to salt pans.
Case-Laws - AT : Cenvat credit on inputs - Security services are area specific services - the specific exclusion salt pan from the definition of the term factory which definition is applicable to the Cenvat Rules, the security services which are area specific cannot be treated as input services.... - AT
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Visa Facilitation Services Not Taxable u/s 65(105) of Finance Act, 1994.
Case-Laws - AT : Service provided by visa facilitator in the form of assistance to individuals who intend to travel abroad, directly, does not fall under any taxable service under Section 65(105) of Finance Act, 1994. .... - AT
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Car Owned by Director, Not Company; Services Not Classified as Input for Appellant's Business.
Case-Laws - AT : Since the car is owned by an individual (director) and not by the appellant, the services rendered in relation to the car cannot be considered as input services for the appellants company..... - AT
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Pre-commissioning civil work excluded from commissioning and installation category for service tax purposes.
Case-Laws - AT : Job for pre-commissioning - civil construction work performed does not fall under the category of commissioning and installation..... - AT
Central Excise
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Manufacturer's Nil Duty Claim Denied: Power Used in Water Lifting Deemed Part of Manufacturing Process.
Case-Laws - AT : Manufacturer claimed nil rate of duty on the ground that the same are manufactured without the aid of power - Water is lifted to the water tank with the aid of power and the water so lifted is further used in the manufacture of final product - held that the goods are manufactured with the aid of power .... - AT
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Cenvat Credit Denied on Uncertified Photocopy of Bill of Entry; Original Triplicate Copy Loss Must Be Verified.
Case-Laws - AT : Duty paying documents - cenvat credit is not available on photocopy of the bill of entry when the same has been taken without certifying by the Asstt. Commissioner about loss of the original triplicate copy of the bill of entry.... - AT
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Pleasure Vessel Classification Defaults to Rule 3(c) When Not Covered by Rule 3(a) or 3(b.
Case-Laws - AT : Classification of pleasure vessel – under Rule 3(c) when the goods cannot be classified by reference to Rule 3 (a) & (b) they shall be classified under heading which occurs last in the numerical order among those which equally merit consideration .... - AT
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Suo Moto Re-Credit Not Allowed for CENVAT; Refunds Must Be Filed u/s 11B for Excess Duty.
Case-Laws - AT : Suo moto re-credit after reversal of cenvat credit - suo moto refund of excess or twice paid duty cannot be taken and all types of refund claims to have been filed under Section 11B .... - AT
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Rule 6(3)(b) CCR: Inapplicable to Inevitable Waste or Duty-Exempt By-Products.
Case-Laws - AT : Rule 6(3)(b) of CCR are not applicable in the case of arising inevitable waste or bye-product fully exempt from duty .... - AT
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Duty Payments Directed by Preventive Officers Are Considered Under Protest, One-Year Limitation Period Not Applicable.
Case-Laws - AT : CE - Payment of duty on the directions of the preventive officers held as paid under protest – period of limitation of one year is not applicable .... - AT
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Refund of Cenvat Credit u/r 5: No Reduction Without Confirmed Demand Ensures Fair Taxpayer Treatment.
Case-Laws - AT : Refund of Cenvat credit - Rule 5 of CCR - in absence of any confirmed demand, reduction from the refund claim is not proper.... - AT
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Appellant Can Claim CENVAT Credit for Service Tax on Courier Services for Business Operations, Rules Court.
Case-Laws - AT : since the Appellant could not have carried on his business without sending the samples to its dealers and prospective buyers and also without transmitting documents, cenvat credit of service tax paid on courier services allowed..... - AT
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Electricity Usage Not a Valid Measure for Output Levels in Central Excise Cases; Direct Output Measures Preferred.
Case-Laws - AT : CE - electricity consumption is not the criteria to determine output level..... - AT
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Excise Duty Rates Amended for Goods in Chapters 1-25 per Notification No. 1/2012-Central Excise, Effective January 3, 2012.
Notifications : Amends Notification No. 3/2006-Central Excise - Effective Rate of Duty on goods of Chapter 1 to Chapter 25. - Ntf. No. 1/2012-Central Excise Dated: January 3, 2012
Case Laws:
-
Income Tax
-
2011 (12) TMI 142
Imposition of interest u/s 201(1A) – Imposition of penalty u/s 221 - Assessee in default - assessee under a bona-fide belief not deducted/not paid the tax at source in respect of the reimbursements for expenses to its employees – Held that:- The payment of interest under Section 201(1A) is not penal. Even though default was unintentional, still assessee would be deemed as “assessee in default. There is, therefore, no question of waiver of such interest on the basis that the default was not intentional or on any other basis. The question of ‘good and sufficient reasons’ only arises on consideration of proviso to Section 201(1) which negate the possibility of imposition of penalty under Section 221 if the Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, in view of proviso to Section 201(1) no penalty can be imposed on the assessee under Section 221 . The matter is remanded to to the assessing officer for the limited purpose of computing the exact quantum of default and the interest payable under Section 201(1A) of the said Act. - Decided partly in favor of Revenue.
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Service Tax
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2011 (12) TMI 141
Section 66A of the Finance Act, 1994 - liability for period prior to 18.04.06 - Held that:- The order of the Commissioner revising the order of the original authority to demand service tax for the period prior to 17.04.2006 on the recipient of the services in India in the facts and circumstances are not justified in view of the judgment of the High Court in the case of Indian National Shipowners Association Vs. Union of India (2008 - TMI - 32013 - High Court Of Bombay) as conveyed by the Board to the field formations vide Circular dated 26.09.2011 - Decided in favor of assessee.
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2011 (12) TMI 138
Power of the Commissioner (Appeals) to remand - export of IT software - refund claim under Rule 5 of CENVAT Credit Rules 2004 read with Notification No. 5/2006 dated 14.3.2006 on input services used in the export of output services – Held that:- The Commissioner (Appeals) has examined and found nexus between the input services (viz manpower recruitment, commercial training, management consultancy etc) and the output services. In effect, the Commissioner (Appeals) has not remitted any issue on merits to be decided by the original authority. It is basically for quantification purposes based on the Chartered Accountant's certificate as envisaged in the Board's Circular dated 19.1.2010. - Decided against the Revenue.
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2011 (12) TMI 136
CENVAT Credit of Service Tax on rent-a-cab service - rent-a-cab service was not exclusively used in relation to manufacture – period involved April 2005 to October 2009 - Held that:- The issue is only of interpretation of law. However, the relevant decisions regarding limitation as well as admissibility of credit or otherwise, were not cited before lower authority and therefore, the matter is remanded to original adjudicating authority, who shall consider the issue afresh in the light of the decisions of the Supreme Court/High Court/Tribunal and also the provisions of law.
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Central Excise
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2011 (12) TMI 137
Manufacture of turpentine oil and rosin – assessee claimed nil rate of duty on the ground that the same are manufactured without the aid of power and also demands are time-barred - Held that:- Water is lifted to the water tank with the aid of power and the water so lifted is further used in the manufacture of final product, in view of the decision of the Supreme Court in CCE, Nagpur vs. Gurukripa Resins Pvt. Ltd. (2011 - TMI - 204457 - Supreme Court Of India) it is held that the goods are manufactured with the aid of power. Hence turpentine oil, is classifiable under Heading 3805.11 and rosin is classifiable under Heading 3806.11 of the Tariff. Further it is held that the demand beyond the normal period of limitation as provided under the provisions of Section 11A of the Central Excise Act are not sustainable hence set aside. Consequently, the demand for the normal period is confirmed and the Revenue's appeal is allowed to that extent.
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