TMI Tax Updates - e-Newsletter
November 10, 2015
Case Laws in this Newsletter:
Articles
By: Monarch Bhatt
Summary: The Finance Act, 2015 introduced the Swachh Bharat Cess (SBC) to fund cleanliness initiatives, effective from November 15, 2015. Initially set at 2% on taxable services, it was revised to 0.5% with a 1.5% exemption. SBC applies to all taxable services, excluding those exempt under specific notifications or not subject to service tax under section 66B. CENVAT credit is not available for SBC. The Point of Taxation Rules, 2011, govern its collection. SBC affects various services, including transport, hospitality, and construction, with specific rates. Notifications for accounting codes and foreign currency exchange are anticipated.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The Swachh Bharat Cess, introduced under Section 119 of the Finance Act, 2015, is a levy on taxable services at a rate of 0.5% to fund Swachh Bharat initiatives. This cess is in addition to existing service taxes and follows the same rules for collection and refunds as outlined in the Finance Act, 1994. It applies to services not exempt from service tax and is payable monthly, with separate accounting required. The proceeds are credited to the Consolidated Fund of India and utilized as appropriated by Parliament. CENVAT credit applicability for this cess is subject to government notification.
By: Bimal jain
Summary: The Swachh Bharat Cess (SB Cess) of 0.5% on the value of all taxable services was introduced effective November 15, 2015, to support Swachh Bharat initiatives. This levy is in addition to the existing 14% service tax, raising the total to 14.5%. The cess does not apply to services on the Negative List or those exempted under Section 93 of the Finance Act, 1994. There are unresolved issues regarding accounting, Cenvat credit, and the impact on ongoing transactions. Clarifications are needed to address these concerns and ensure smooth implementation.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Section 80E of the Income Tax Act, 1961, allows deductions for interest on loans taken for higher education, defined as post-secondary studies recognized by authorized bodies. The deduction is applicable for seven years from the initial assessment year when interest payment begins and covers loans for the taxpayer's relatives, including spouse, children, or legally-guarded students. The case discussed involves an individual's claim for interest deduction on an education loan for his son's studies in the USA. The Tribunal ruled that Section 80E does not restrict deductions to education pursued only in India, allowing the appeal for the deduction.
News
Summary: The Central Board of Excise and Customs (CBEC) has announced amendments to the tariff values for various commodities under the Customs Act, 1962. The notification includes tariff values for items such as crude palm oil, RBD palm oil, crude palmolein, RBD palmolein, crude soybean oil, brass scrap, poppy seeds, areca nuts, gold, and silver. Notably, there are no changes in the tariff values for these commodities, maintaining the existing rates. The notification specifies the tariff values in US dollars per metric tonne or per unit for each commodity, ensuring consistency in the customs valuation process.
Summary: The Government of India and the Asian Development Bank (ADB) have signed a $273 million loan agreement to improve rural roads in Assam, Chhattisgarh, Madhya Pradesh, Odisha, and West Bengal. This is the final tranche of an $800 million financing facility under the Rural Connectivity Investment Program, aimed at constructing over 6,000 kilometers of all-weather roads, benefiting over 4,200 rural communities. The project supports the Pradhan Mantri Gram Sadak Yojana by enhancing rural connectivity to markets and essential services. The Ministry of Rural Development oversees the project, with state agencies responsible for implementation, expected to complete by December 2017.
Summary: The Government of India approved four foreign direct investment proposals totaling approximately Rs. 384.45 crore based on the Foreign Investment Promotion Board's recommendations. Approved proposals include Eucare Pharmaceuticals for a 33% foreign investment, Hanon Systems for purchasing equity shares, Lupin Limited for issuing ESOPs to non-resident employees, and BF Elbit Advanced Systems to increase foreign shareholding to 49%. Five proposals were deferred, including those from Diarough Far East Holdings and SeQuent Scientific. Four proposals were rejected, including those from Barefoot Resorts and Franklin Templeton Asset Management. One proposal from Alkem Laboratories for an IPO does not fall under FIPB's purview.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 66.3378 on November 9, 2015, compared to Rs. 65.7910 on November 6, 2015. The exchange rates for other major currencies against the Rupee were also provided: the Euro was at Rs. 71.4458, the British Pound at Rs. 100.0308, and 100 Japanese Yen at Rs. 53.79 on November 9, 2015. The Special Drawing Rights (SDR) to Rupee rate will be determined based on this reference rate.
Notifications
Customs
1.
107/2015 - dated
9-11-2015
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Cus (NT)
Fixation of T V of Edible oil, Brass, Poppy seed, Areca nut, gold and Sliver
Summary: The Central Board of Excise & Customs (CBEC) has issued Notification No. 107/2015-CUSTOMS (N.T.) dated November 9, 2015, under the Customs Act, 1962, amending the tariff values for certain goods. The notification updates the tariff values for crude palm oil, RBD palm oil, other palm oils, crude palmolein, RBD palmolein, other palmolein, crude soybean oil, brass scrap, poppy seeds, gold, silver, and areca nuts. Most tariff values remain unchanged except for gold, which is set at $354 per 10 grams. This amendment follows the principal notification No. 36/2001-Customs (N.T.).
Circulars / Instructions / Orders
Customs
1.
3/Ad.IV/2015 - dated
13-8-2015
Renaming of DG Inspections (Customs & Central Excise) as Directorate General of Performance Management under CBEC
Summary: The Directorate General of Inspection (Customs & Central Excise) has been renamed as the Directorate General of Performance Management (Customs, Central Excise & Service Tax) under the Central Board of Excise & Customs (CBEC). The new directorate will study departmental efficiency, suggest improvements, inspect field formations, monitor performance, process rebate claims, and implement government language policies. It will also manage the Authorized Economic Operator Programme, conduct special studies, hold examinations for Customs House Agents, supervise manual preparation, assist in performance evaluation, and handle tax arrear recovery. This change is effective immediately and remains until further notice.
Highlights / Catch Notes
Income Tax
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High Court Rules Advertisement Expenses Don't Imply Commercial Intent, Overturns Section 10(23C)(vi) Registration Denial.
Case-Laws - HC : Registration under Section 10 (23C)(vi) denied - expenditure on advertisement made does not necessarily means that the activity of the petitioner is commercial in nature or is being done with the intention to earn more profit. Such finding given by the authority is patently erroneous - HC
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Interest Payments on State Govt Loan Not Exempt from TDS Due to Non-Compliance with Section 194A, Section 196.
Case-Laws - HC : Non deduction of TDS u/s 194A - Loan amount raised from the State Government and the interest payable to the Government - assessee was unable to show that the payment of interest was made to the Government except to repeat that the corpus fund was created by the Government from which the loan was advanced to the appellant - benefit of section 196 cannot be extended - HC
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Bangalore Airport qualifies for tax deduction under Income Tax Act's Section 80IA as a statutory body.
Case-Laws - AT : Eligibility for deduction under section 80IA - whether the Bangalore International Airport Ltd. [BIAL] is a statutory body u/s 80IA(4)(i) of the Act? - Held Yes - AT
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Trust Income Taxed u/s 64(1)(iii); Assets Deferred Until Majority, Section 64(1)(v) Not Applicable.
Case-Laws - SC : Trusts for the benefit of two minor children - provisions of section 64(1)(iii) invoked to include the income of trust into the income of assessee (Individual) - the deferment of the benefit is beyond the period of minority of the assessee's three sons, since the assets are to be received by them when they attain majority, the provisions of section 64(1)(v) have no application. - SC
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Entity's Profits Directed to Public Services; Qualifies for Tax Exemption Under Income Tax Act Section 11(2) and 2(15).
Case-Laws - HC : Entitlement to exemption u/s 11(2) - The memorandum of association does not permit the profits to be distributed between the members. The profits are provided to be utilised for services of the public utility, would thus clearly fall and will qualify for exemption within the meaning of "charitable purpose", as defined in section 2(15) - HC
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Court Rules Unaccounted Turnover Cannot Be Included in Tax Calculations Based on Central Excise Show-Cause Notice.
Case-Laws - HC : Determination of unaccounted turnover - There is no provision to simply incorporate the demand made in the show-cause notice issued under the central excise laws for the purpose of computation of tax under the Income-tax laws. - HC
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Interest on State Government grants in fixed deposits is capitalized, not taxed as income.
Case-Laws - HC : Interest earned on grants made by the State Government kept in fixed deposits pending utilization - interest on all these fixed deposits are considered to be capitalised and not revenue receipts to treat it as an income. - HC
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Income from 'seconds' sale subject to block assessment u/s 158BA; dual accounting not allowed by law.
Case-Laws - HC : Income from 'seconds' - block assessment in the light of the provisions of section 158BA - No law permits maintenance of two sets of accounts, i.e., one unaccounted and the other accounted - HC
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Mutual Fund Waivers Not Taxable: Section 41(1) Excludes Non-Debited or Non-Deducted Amounts from Tax Liability.
Case-Laws - HC : Taxability of the amount waived by the mutual funds/financial institutions - the amount of principal waived by the financial institutions cannot be taxed under section 41(1) as the same had not been debited to the profit and loss account in the earlier years nor had been claimed as a deduction from taxable income - HC
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High Court Allows Interest Deduction for Assessee's Interest-Free Loan to Sister Concern, Citing Potential Financial Benefits.
Case-Laws - HC : Disallowance of interest paid to the bank - the appellant/assesse had advanced an interest free loan to its sister concern - there would be a direct benefit on account of the advance made by the appellant to its sister company if the same improves the financial health of the sister company and makes it a viable enterprise. - deduction on interest allowed - HC
Customs
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Duty Drawback Cannot Be Denied for Lack of Physical Examination per Circular No. 04/2004.
Case-Laws - SC : Benefit of duty drawback - Conversion of free shipping bills into drawback shipping bills - Circular No. 04/2004 dated 16.01.2004 - there was no reason for denying the benefit only on the ground that at the time when the appellant had sought the duty drawback, the goods could not be physically examined. - SC
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Tribunal Misinterprets Partner Statements, Overlooks Evidence in Goods Undervaluation Case at Chennai and Mumbai Ports.
Case-Laws - SC : Undervaluation of goods - no documentary evidence was produced by the assessee to support the plea that the goods at Chennai port were inferior in quality than the goods imported and cleared at Mumbai port - Tribunal has not only misinterpreted the statements of two partners of the assessee, it has also sidetracked and ignored other relevant material. - SC
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Supreme Court Confirms Customs Benefits for Bridges and Aerobridges Under Notifications 36/96-CUS and 11/97-CUS for Airport Upgrades.
Case-Laws - SC : Classification of goods - Bridges/Aerobridges - required to be used for the modernization of airport facilities - benefit of Notification No. 36/96-CUS dated 23.07.1996 and Notification No.11/97-CUS dated 01.03.1997 allowed - SC
Corporate Law
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Court Approves Share Capital Reduction Without Creditor Settlement Under Companies Act Section 101(2) and (3) Exemption.
Case-Laws - HC : Reduction of paid up share capital seeked - the procedure stipulated in Section 101(2) and (3) of the Companies Act, 1956, for the settlement of list of creditors will not apply. The prayers sought for in this petition are granted and the petition is allowed. - HC
Service Tax
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Fraudulent CENVAT Credit Claims via Fake Commission Payments to Sub-Brokers Lead to Demand for Repayment and Penalties.
Case-Laws - AT : Fraudulent availment of CENVAT Credit - Inference of fraudulent transactions in the matter of payment of commissions to sub-brokers - The facts remained unnoticed if the same would have not been detected by the department. - Demand with penalty upheld - AT
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Refund Denied Due to Limitation: Calculate from Service Tax Payment Date for Exported Services Rebates.
Case-Laws - AT : Denial of refund claim - Bar of limitation - The relevant date for refund in the case of rebate should be from the date of payment of service tax on the taxable services exported. - AT
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Appellant Entitled to Interest on Delayed Service Tax Refund to Prevent Unjust Enrichment Under Legal Framework.
Case-Laws - AT : Claim of interest - Delayed refund - Unjust enrichment - appellant is entitled for claim of interest on delayed refund - AT
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SEZ Unit Rent-a-Cab Services Exempt from Service Tax under Notification 4/2004-ST, March 31, 2004.
Case-Laws - AT : Rent-a-Cab Service provided to SEZ unit - benefit of Notification 4/2004-ST dated 31/03/2004 - There is no dispute that the appellant herein rendered service of tour operator for transportation of employees of a unit situated in SEZ - exemption allowed. - AT
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Assessee Granted Cum-Tax Benefit: Value of Services Treated as Cum-Tax Amount When Service Tax Not Charged.
Case-Laws - AT : Demand of service tax - cum-tax benefit expended to the assessee - value received for the taxable purpose needs to be considered as cum-tax amount if the service tax is not charged. - AT
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Service Tax Rate Set at 14.5% Including Swachh Bharat Cess Effective November 15, 2015.
: Effective rate of service tax will be 14.5% inclusive of Swachh Bharat Cess w.e.f. 15-11-2015
Central Excise
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Valuation Dispute Leads to Excise Duty Refund; Contractual Obligation Ensures No Unjust Enrichment Under Agreement with HLL.
Case-Laws - AT : Refund - unjust enrichment - excess payment of duty due to valuation dispute - in terms of legally enforceable Agreement of the appellant with HLL, the loan amount, was to be returned to HLL as soon as the Appellant gets refund of the excise duty; the refund would not be hit by the bar of unjust enrichment - AT
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Affixing Revised MRP Stickers on Packages Complies with Rule 6 of 1977 Rules and Section 4A of 1944 Act.
Case-Laws - AT : MRP based Valuation u/s 4A - affixing of sticker showing revised MRP over the printed MRP on the packages is in accordance with Rule 6 of the Standards of Weight and Measures (Package) Rule, 1977 and it fulfils the requirement of the declaration in terms of Section 4A of Central Excise Act, 1944 - AT
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Tariff Heading 1701.31 Confirmed for Levy Sugar Classification Under Central Act; No Dispute on Applicability.
Case-Laws - AT : Classification of goods - Classification under CSH 1701.31 or 1701.39 - Clearance of sugar as levy sugar - It is nobody s case that the said Act is not Central act. The tariff heading 1701.31 is applicable in the cases in hand. - AT
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Job Worker in Body Building Industry Exempt from Automobile Cess Under 1984 Rules and 1951 Act.
Case-Laws - AT : Automobile cess - whether the appellant being job worker i.e. manufacturer of body building is required to pay automobile cess or not as per Automobile Cess Rules, 1984 read with Industries (Development and Regulation) Act, 1951 or not - Held No - AT
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Court Rules in Favor of Appellant for Suo Moto Re-credit of Cenvat Credit Reversed After Audit on GTA Service.
Case-Laws - AT : CENVAT Credit - suo moto re-credit of Cenvat credit which was reversed at the instance of Audit Team on GTA service - appellant is entitle for Cenvat credit - demand set aside - AT
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Court Rules Cenvat Credit Cannot Be Claimed on Lost or Written-Off Goods in Central Excise Case.
Case-Laws - AT : Reversal of cenvat credit on goods lost / written off - returned goods - on written off value, Cenvat credit is not admissible - AT
VAT
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Court Orders Return of Cheques in Disputed VAT Case, No Legal Basis for Pre-Order Tax Recovery Found.
Case-Laws - HC : Challenge to coercive recovery of alleged Value Added Tax - no provision is pointed out to us under which the department can recover disputed tax even before passing any order by competent authority - respondents are directed to return three cheques - HC
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Sales Tax Exemption on Rice Bran: Selling Dealer Not Required to Verify Usage by Purchasing Dealer for Tax Deduction.
Case-Laws - HC : Claim of sales tax exemption on rice bran - It is not for the selling dealer to go after the purchasing dealer to find out as to in what manner he utilized the goods, which it has purchased on the strength of the Declaration Forms in order to be entitled to the deduction. Such a requirement would fasten an impossible burden on the selling dealer. - HC
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