TMI Tax Updates - e-Newsletter
January 7, 2014
Case Laws in this Newsletter:
Articles
By: AMIT BAJAJ ADVOCATE
Summary: The Punjab VAT Act, 2005 introduced single-stage taxation on certain goods from January 1, 2014, taxing them at the first sale in Punjab and exempting subsequent sales. However, the treatment of stock as of December 31, 2013, caused confusion. The Excise and Taxation Department clarified that dealers must declare such stock and continue paying tax under the existing provisions until sold. The rate applicable to this stock is the pre-2014 rate of 14.30%. The clarification also addressed the inclusion of certain goods in the single-stage system, but left many questions unanswered, causing confusion among dealers.
By: Rishi Chanan
Summary: Rule 8(3A) of the Central Excise Rules, 2002 mandates that if an assessee defaults on duty payment beyond 30 days, they cannot use Cenvat credit and must pay duty consignment-wise. This rule lacks provisions for distinguishing between bonafide and willful defaults. Judicial rulings, such as those in Meenakshi Associates and Saurashtra Cement Ltd., have questioned the rule's fairness, particularly regarding penalties. The Central Board of Excise & Customs is considering amending the rule, seeking input on its enforcement and effectiveness, and exploring alternatives like automatic penalties to improve compliance and reduce adjudication processes.
By: Bimal jain
Summary: The Central Board of Excise & Customs issued a circular clarifying that the exemption of Special Additional Duty (SAD) does not apply to goods cleared from Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) to Domestic Tariff Area (DTA) units for self-consumption, such as stock transfers. Although Notification No. 45/2005 exempts SAD on goods brought into DTA, this does not apply if the goods are exempt from sales tax in DTA. The circular may lead to disputes if goods used in manufacturing are sold with appropriate sales tax, as SAD exemption should theoretically continue.
News
Summary: The 4th India-South Korea Finance Ministers Meeting will address the macroeconomic situation and policy responses, focusing on trade, investment, taxation, and finance matters. Attendees include senior finance officials from both nations. Discussions will cover the global and bilateral economic outlook, cooperation under frameworks like the G20, and bilateral collaboration directions. Key topics include establishing a roadmap for mid- to long-term cooperation, easing customs processes, SME collaboration, and investment opportunities. The meeting will also discuss revising the Korea-India Double Taxation Convention, financial sector cooperation, and infrastructure development collaboration.
Summary: The Finance Minister has intervened to expedite the release of insurance claims for farmers affected by the 2012 drought in Tiruvadanai Taluk, Ramanathapuram District. The Agricultural Insurance Corporation has approved the first installment of claims under the National Agricultural Insurance Scheme, totaling Rs. 740.80 crore for Tamil Nadu's paddy crop. The funding breakdown includes contributions from the Government of India, the State Government, and the AIC. Currently, 83.8% of the claims will be disbursed, with the remainder pending additional contributions. The Minister is committed to ensuring full claim settlements for the affected farmers promptly.
Summary: The Reserve Bank of India set the reference rate for the US dollar at Rs.62.3790 and for the Euro at Rs.84.9720 on January 7, 2014. The previous day's rates were Rs.62.3265 for the US dollar and Rs.84.6151 for the Euro. Additionally, the exchange rates for the British Pound and Japanese Yen against the Indian Rupee were 102.2454 and 59.71, respectively, on January 7, 2014. The Special Drawing Rights (SDR) to Rupee rate will be determined based on these reference rates.
Summary: The Government of India announced the re-issue of four government stocks through price-based auctions, totaling Rs. 15,000 crore. The stocks include 7.28% Government Stock 2019, 8.83% Government Stock 2023, 8.32% Government Stock 2032, and 9.23% Government Stock 2043. The auctions, conducted by the Reserve Bank of India, will use a uniform price method on January 10, 2014. Up to 5% of the stocks will be reserved for eligible individuals and institutions under a non-competitive bidding scheme. Results will be announced on the auction day, with payments due by January 13, 2014.
Notifications
DGFT
1.
64 (RE-2013)/2009-2014 - dated
6-1-2014
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FTP
Amendments in Chapter 3 of Foreign Trade Policy 2009-14
Summary: The Government of India has amended Chapter 3 of the Foreign Trade Policy (FTP) 2009-14, effective immediately. The amendment specifies that Duty Credit Scrips can be used for paying Custom Duties in cases of Export Obligation (EO) defaults for authorizations under Chapters 4 and 5 of the policy, but penalties and interest must be paid in cash. Scrips issued under SHIS, SFIS, and AIIS cannot be used for Custom Duties in EO defaults under Chapter 4. These scrips can be used for composition fees, application fees, and value shortfall payments under specified conditions.
FEMA
2.
294/2013-RB - dated
12-11-2013
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FEMA
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2013
Summary: The Reserve Bank of India issued the Foreign Exchange Management (Seventeenth Amendment) Regulations, 2013, amending the 2000 regulations concerning the transfer or issue of security by persons resident outside India. Key changes include allowing shares or convertible debentures with an optionality clause, provided they lack an assured exit price, as eligible instruments for foreign investors. Additionally, foreign investors can exit investments after a minimum lock-in period, with exit prices determined by market price for listed companies, Return on Equity for unlisted companies, and internationally accepted pricing for preference shares or debentures, without assured returns.
Income Tax
3.
01/2014 - dated
6-1-2014
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IT
In pursuance of sub-clause (ii) of clause (a) of sub-section (1) of Section 138 of the Income Tax Act, 1961
Summary: The Central Government, under Section 138 of the Income Tax Act, 1961, has issued Notification No. 01/2014, dated January 6, 2014. This notification specifies that officers of the rank of Secretary in various States and Union Territories in India are designated as responsible for implementing the National Food Security Act, 2013, on behalf of their respective governments. This decision is made in the public interest to facilitate the effective execution of the Act.
Circulars / Instructions / Orders
Central Excise
1.
978/2/2014-CX - dated
7-1-2014
Levy of the Education Cess and the Secondary and Higher Education Cess on other cesses- reg.
Summary: The circular clarifies that the Education Cess and the Secondary and Higher Education Cess should not be calculated on cesses levied under Acts administered by departments other than the Ministry of Finance (Department of Revenue), even if they are collected by the Department of Revenue. This includes cesses like the Sugar Cess and Tea Cess, which are governed by different departments. The circular reiterates that only duties both levied and collected by the Department of Revenue are subject to these cesses. All pending assessments should be finalized in line with this clarification, and any difficulties should be reported to the Board.
Highlights / Catch Notes
Income Tax
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Assessee Can Include Cost of Improvement in Capital Gains Calculation, Even if Contractors Didn't Perform Work.
Case-Laws - AT : Capital gain - the assessee cannot be denied cost of improvement for the purpose of computing capital gains simply because the contractors to whom the payments were made did not carry out the work - AT
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Back-to-Back Truck Hiring is Subcontracting: TDS Applicable u/s 194C(2) of Income Tax Act.
Case-Laws - AT : TDS - if it is found that trucks were hired by the assessee for back to back hiring out of trucks by the assessee, it will indeed be a case of sub-contracting the work, and, to that extent, provisions of Section 194 C(2) will indeed come into play - AT
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Completion Certificate Not Needed for Home Deduction u/ss 24(1)(vi) & 80C, Says CBDT Circulars.
Case-Laws - AT : TDS on salary – neither Rule 26B nor the Circulars of CBDT stipulate obtaining of completion certificate of house before allowing deduction u/s. 24(1)(vi) and u/s. 80C of the Act for arriving at the TDS liability - AT
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Expenditure on exempt income u/s 14A must be added back for book profit u/s 115JB.
Case-Laws - AT : Expenditure relatable to exempt income as provided under sub section (1) of section 14A is required to be added back while computing book profit under section 115JB - AT
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Contracts with design, development, and maintenance qualify for section 80IA deductions; not classified as simple works contracts.
Case-Laws - AT : If the contracts involve design, development, operating and maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under section 80IA - AT
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Penalty u/s 271G Overturned; Assessing Officer Directed to Use Sections 271AA or 271BA Instead.
Case-Laws - AT : Penalty u/s 271G – Failure to maintain documents and accounts being audited - AO should have initiated penalty proceedings u/s 271AA/271BA – the penalty levied u/s 271G set aside - AT
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Assessment Validity Challenged: Warrant Not in Assessee's Name; CIT(A) Deleted Addition Without Reviewing Seized Materials.
Case-Laws - AT : Validity of Assessment made u/s 158BC – Warrant of authorization not issued in the name of assessee – CIT(A) committed an error in deleting the addition without considering the seized materials which were available on record - AT
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Court Upholds Order: Disallowance u/s 40(a)(ia) Invalid When Tax Deduction at Source is Impractical.
Case-Laws - AT : Disallowance u/s 40(a)(ia) - as the deduction of tax at source by the assessee was unfeasible, representing an impossibility – the order deleting the disallowance u/s. 40(a)(ia) for non-deduction of tax at source upheld - AT
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Depreciation on Leased Buses: Determining Operating vs. Finance Lease Status Doesn't Disqualify Current Claims.
Case-Laws - AT : Depreciation on lease buses – Nature of lease – Operating lease OR Finance Lease – merely because depreciation is allowed on the same assets (buses) to M/s. DMRC Ltd. would not ipso facto disentitle the assessee to its rightful claim - AT
Customs
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Importing Duty-Free Goods from SEZ into Domestic Market Without Authorization Violates Customs Duty Laws, High Court Rules.
Case-Laws - HC : Duty free goods imported in a unit of Special Economic Zone if it is brought to the domestic market without authority violating the statutory prescriptions, it is a clear case of evasion of customs duty - HC
Wealth-tax
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Property Valuation Boosted by 20% Residential Use Conversion; Remains Non-Taxable for Wealth Tax Purposes.
Case-Laws - AT : Valuation of property - Enhancement in valuation - Land converted from small scale industrial use to 20% residential use - still being used for business - not taxable under wealth tax - AT
Service Tax
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Delay Condonation Denied: Change of Opinion Not Sufficient Cause for Late Appeal Filing.
Case-Laws - AT : Condonation of delay - Change in opinion - Delay due to analysis of appeal - how a mere change of opinion could be construed as a sufficient cause warranting condonation of delay - Condonation denied. - AT
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Tax Demand for Telephone Services u/s 73 Dismissed Due to Lack of Show Cause Notice, Best Judgment Used.
Case-Laws - AT : Demand without issue of show cause notice - Telephone services - Demand of differential tax u/s 73 - Best Judgement Assessment u/s 72 - demand set aside - AT
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Court Finds No Evidence of Commission on Software Invoices; Grants Stay in Case.
Case-Laws - AT : Reimbursement of invoices paid for the licensed software downloaded of M/s. Microsoft Inc., USA - There is no evidence that while routing the payment, the group concern in USA has retained any commission/margin for the services said to have been rendered by them - stay granted - AT
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Grass and Debris Removal Not Classified as Cleaning Under Service Tax Regulations in Townships and Residential Areas.
Case-Laws - AT : Cutting and removal of all kind of unwanted grass, bushes, trees, weeds and removal/uprooting the roots of wild vegetation, removal of debris and garbage from the roads, streets and open space of ONGC township and residential areas of the ONGC prima facie will not fall not under the Cleaning Activities - AT
Central Excise
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Cenvat Credit Denied Due to Non-Compliance with Rule 9(1) Format; New Cases Not Allowed at Appeal Stage.
Case-Laws - AT : Cenvat credit on Input services – Debit notes raised by service provider not in prescribed format as per Rule 9(1) of Cenvat credit rules – A new case cannot be made by Revenue at the Appellate Stage as per the settled law - AT
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Roop Amruta's Classification as Ayurvedic Medicine Under Chapter Heading 3004 9011 Disputed; Testing Request Denied, Stay Granted.
Case-Laws - AT : Correct classification of Roop Amruta – Under Chapter Heading 3004 9011 as Ayurvedic Medicine or not – The appellants request to get the goods tested by an Ayurvedic Laboratory or Drug Controller of India stands rejected - stay granted - AT
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