TMI Tax Updates - e-Newsletter
December 21, 2015
Case Laws in this Newsletter:
TMI SMS
Articles
By: Ravi Bihani
Summary: The Cenvat Credit Rules, 2004, were amended in April 2011, specifically excluding outdoor catering services from the definition of "input service" when used primarily for personal use or consumption by employees. This has led companies to generally cease claiming CENVAT credit on such services. However, if catering services are used for business purposes and the costs are not recovered from employees, CENVAT credit may still be claimed. The courts have ruled that if catering services are necessary for business operations and not primarily for personal employee use, they may qualify for CENVAT credit. The interpretation of personal use can vary by case.
By: Bimal jain
Summary: The case involved Shree Cement Ltd., which was denied Cenvat credit by the Department for service tax on cargo handling services distributed by its head office before production began. The CESTAT, New Delhi, ruled that according to Rule 3 and Rule 7 of the Credit Rules, there is no restriction on availing Cenvat credit for input services procured before manufacturing starts. It emphasized that procuring inputs or input services is essential for initiating manufacturing activities, thus affirming that Shree Cement Ltd. was entitled to the Cenvat credit in question.
By: Bimal jain
Summary: A company, facing confusion over duty rates, paid a higher excise duty under protest and later issued credit notes to buyers after receiving clarification from the Department. The company filed for a refund of the excess duty paid, but the Department rejected the claim, citing unjust enrichment. The CESTAT, Mumbai, relying on previous legal rulings, determined that the issuance of credit notes and the accounting of the amount as receivable in the balance sheet provided sufficient evidence that the duty burden was not passed to buyers. Consequently, the refund claim was allowed.
By: Dr. Sanjiv Agarwal
Summary: The proposed Goods and Services Tax (GST) includes an additional tax allowing states to levy an extra 1% on goods entering their territory, applicable for up to two years. This tax is intended to compensate manufacturing states like Maharashtra and Gujarat for potential revenue losses under the GST's destination-based model. The tax, which is non-creditable and could lead to increased costs and discourage inter-state trade, would be assigned to the originating state. While the GST Council may extend its duration, the additional tax has faced criticism from various parties and recommendations against its implementation.
News
Summary: The proposed GST return process outlines a structured approach for filing various types of returns, including GSTR-1 to GSTR-8, based on taxpayer categories such as regular, compounding, foreign non-resident, and input service distributors. The process includes self-assessment of tax liability, automated invoice matching, and maintenance of electronic ledgers. Returns are to be filed monthly or quarterly, with specific deadlines for different forms. The system allows for revisions and adjustments through debit and credit notes, and mandates the reconciliation of annual returns with audited accounts. Taxpayers can file returns via the GST portal or authorized representatives.
Summary: The proposed payment process for the Goods and Services Tax (GST) emphasizes an electronic, paperless system with a single point interface for challan generation through the GST Network (GSTN). It includes three payment modes: electronic (via credit/debit card), over-the-counter for payments up to Rs. 10,000, and NEFT/RTGS. The process involves multiple stakeholders such as taxpayers, banks, and the Reserve Bank of India (RBI), with GSTN as the central anchor for information flow. The system ensures real-time transaction confirmations and reconciliation, with mechanisms for grievance redressal in case of discrepancies in the taxpayer's cash ledger.
Summary: The report by the Joint Committee on Business Processes for GST outlines various scenarios where refunds may arise under the GST regime, such as excess payment due to mistakes, exports, finalization of provisional assessments, and transactions involving UN bodies and canteens. It proposes streamlined processes for refund applications, including online verification and linkage between GST and Customs data. The report emphasizes minimizing documentation and recommends specific time limits for filing refund applications. It also suggests procedures for handling refunds related to input tax credits, incentives, and international tourists, while ensuring compliance with principles like unjust enrichment. The process aims to enhance efficiency and transparency in refund processing.
Summary: The Ministry of Finance has implemented various initiatives in the fiscal year to enhance revenue collection, streamline taxation policies, and improve economic growth. Key achievements include a significant decline in inflation rates, with the Wholesale Price Index (WPI) dropping to -3.8% in October 2015. Measures to control inflation involved delisting certain food items from the APMC Act and adjusting import duties. The Reserve Bank of India (RBI) reduced the policy rate by 125 basis points to spur growth. Banking reforms included the establishment of Payment Banks and Small Finance Banks to boost financial inclusion. Additionally, the government launched the National Investment and Infrastructure Fund (NIIF) and promoted Public Private Partnerships (PPPs) for infrastructure development. The Ministry also focused on financial stability, tax-free bonds issuance, and international cooperation through initiatives like the BRICS New Development Bank and AIIB membership.
Summary: The deadline for payment of Central Excise duty and Service Tax for November 2015 in the Union Territory of Puducherry, excluding Mahe and Yanam, has been extended to December 20, 2015. Additionally, the deadline for filing the Central Excise return for the same period has been extended to December 31, 2015. These extensions have been officially announced by the Central Board of Excise and Customs (CBEC).
Summary: India's Finance Minister announced significant improvements in the country's macroeconomic stability, highlighting low inflation, fiscal deficit, and current account deficit. These gains are attributed to policy measures and structural reforms implemented over the past 19 months. India's GDP growth reached 7.3% in 2014-15, surpassing previous years, with notable growth in manufacturing and services sectors. Fiscal consolidation efforts continue, with increased public investment and reduced fiscal deficit. The government is addressing challenges in sectors like steel and agriculture while focusing on reducing non-performing assets in banks. Members of a parliamentary committee praised these efforts and suggested further economic improvements.
Circulars / Instructions / Orders
Income Tax
1.
22/2015 - dated
17-12-2015
Allowability of employer's contribution to funds for the welfare of employees in terms of section 43B(b) of the Income Tax Act
Summary: The circular addresses the allowability of employer contributions to employee welfare funds under section 43B(b) of the Income Tax Act. It clarifies that deductions for such contributions are permissible if paid by the due date for filing income tax returns, as per the Supreme Court's decision in Commissioner vs. Alom Extrusions Ltd. This decision, effective from April 1, 1988, ensures contributions are treated similarly to other taxes and fees. The circular instructs tax officers not to pursue appeals on this issue and to withdraw existing ones. It does not apply to employee contributions governed by section 36(1)(va).
Highlights / Catch Notes
Income Tax
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Timely Payment of Employer Contributions Essential for Tax Deductions Under Income Tax Act Section 43B(b.
Circulars : Allowability of employer's contribution to funds for the welfare of employees in terms of section 43B(b) of the Income Tax Act - Circular
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Court to Decide if Costs for Building on Leasehold Land Are Capital or Revenue Expenditure; Depreciation at Stake.
Case-Laws - HC : Amount expended for putting up multi-storied structures on leasehold land and refurbishing leasehold buildings - capital or revenue expenditure - entitlement to depreciation - Matter referred to larger bench - HC
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Section 234E Fee Levy Invalid u/s 200A: One-Year Time Limit for Rectification Has Expired.
Case-Laws - AT : Levy of fee u/s 234E in the order u/s 200A - That time limit of one year has already elapsed and the defect is thus not curable even at this stage - the impugned levy of fees under section 234 E is unsustainable in law. - AT
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Taxation of ESOPs u/s 115WB(1)(d) Depends on Date of Stock Allotment or Transfer.
Case-Laws - AT : Taxation of Employees Stock Option Plan under fringe benefit tax - Section .115WB(1)(d) - the date of actual allotment or transfer of Employees Stock Option is crucial for determination of the issue arises for consideration. - AT
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Penalty Imposed u/ss 274 & 271(1)(c) for Undisclosed Income and Incorrect Deduction Claim u/s 54.
Case-Laws - AT : Penalty u/s 274 r.w.s. 271(1)(c) - undisclosed income - wrong claim of deduction u/s 54 - assessee is exigible to levy of penalty on such income which was detected during the course of search and seizure operation, which in turn has been offered by the assessee in return of income filed pursuant to notice issued u/s 153A - AT
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Taxpayer's Trading Activity Qualifies as a Service for Deduction u/s 10AA, SEZ Act Definition Prevails.
Case-Laws - AT : Exemption u/s 10AA - Trading done by the assessee is a service and, therefore, deduction under Section 10AA is allowable - the definition of service given in the SEZ Act, 2005, which overrides the word 'service' accruing in Section 10AA by virtue of Section 51 of the SEZ Act. - AT
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Interest from Business Advances with Sister Concerns Classified as Business Income, Not Income from Other Sources.
Case-Laws - AT : The ‘interest income’ earned on business advances kept with the sister concerns should be treated as ‘business income’ instead of ‘income from other sources’ - AT
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Taxpayer's Receipt Discrepancies in TDS Certificates vs. Profit & Loss Account Deemed Unacceptable by Authorities.
Case-Laws - AT : Reconciliation of the difference between receipts as per TDS Certificates (26AS) and receipts disclosed by the assessee - the explanation put forth by the assessee in an attempt to reconcile the difference in the receipts / turnover declared in the profit and loss account vis-à-vis the receipts/turnover in the TDS Certificates, is unacceptable - AT
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Deduction for Pre-Business Recruitment Expenses Allowed u/s 37(1) Due to Necessity of Skilled Personnel.
Case-Laws - AT : Disallowance of the claim for deduction u/s. 37((1) - recruitment of employees before commencement of business - Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it would be a futile exercise to commence the business. - expenses allowed - AT
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LTCG exemption u/s 10(38) requires substantial evidence, not suspicion, for claims of broker-appellant collusion.
Case-Laws - AT : LTCG - Claim of exemption u/s 10(38) - It is a settled law that assessment cannot be made on the basis of suspicion or surmise. The AO has not brought any material on record to support his finding that there has been collusion/connivance between the broker and the appellant for the introduction of its unaccounted money. - AT
Customs
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Court Rules FIR Insufficient for Fulfilling Export Obligations; Requires Documentation for Compliance Under Advance License.
Case-Laws - HC : Fulfillment of export obligation - advance license - By merely stating that the FIR was lodged for lost documents, petitioner cannot substitute the requirement of production of documents demonstrating export obligation. - HC
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Customs Fabric Classification Depends on "Cut" or "Uncut" Warp Pile, Velvet Fabric Misclassification Rejected.
Case-Laws - AT : Confiscation - The crucial words are “warp pile fabrics, cut” (58012710) & other (5801 2720). Thus more important in the classification of a fabric under 5801 3711/19 and 5801 3720 will be the “cut” or “uncut” nature of “warp pile”. - the stand of the revenue that all categories of “velvet” fabrics will invariably fall under 5801 3711, is not correct and is rejected. - AT
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CHA License Suspension Challenged: Revocation Process Lacked Show Cause Notice, Violated Natural Justice Principles Under Customs Act.
Case-Laws - AT : Suspension of CHA license - We failed to understand the reasons for initiating revocation of CHA licence based on the alleged contravention of lending of IE code when no SCN was issued under Customs Act. - SCN itself is premeditated one and violated principles of natural justice. - AT
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Paddle Wheel Aerators Classified Under Chapter 8436 as Agricultural Machines, Not Chapter 8479, Customs Tariff Decision.
Case-Laws - AT : Classification - whether the paddle wheel aerators and its parts imported and cleared are classifiable under Chapter 8436 as other agricultural, horticultural machines or under Chapter 8479 as machines having individual functions not elsewhere specified - classifiable under chapter heading 8436 of the CTH - AT
Corporate Law
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Section 314(1)(b) of Companies Act, 1956: Relatives of directors in non-remunerative roles don't breach employment prohibitions.
Case-Laws - HC : Exclusive employment of the company - prohibition contained in Section 314(1)(b) of the 1956 - relative of a Director of a company - The statutory mandate is that being a Director in a non-remunerative and non-executive position in other companies does not amount to being in employment of those companies or holding a place of profit in those companies. - HC
Service Tax
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Government Salary Disbursements to Teachers Not Classified as Business Auxiliary Service for Service Tax.
Case-Laws - AT : Banking and other Financial Services - an amount received as a consideration for disbursement of salaries to the Govt. teachers on direction of Zillha Parishad can never be an activity covered under the definition of Business Auxiliary Service - AT
Central Excise
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ISD Can Avail CENVAT Credit for Services Before Registration; Demand Set Aside Due to Revenue's Prior Knowledge.
Case-Laws - AT : CENVAT Credit - the ISD can avail credit of service tax paid on input services received prior to registration and moreover, in this case there is only one manufacturing unit of the appellant and the Revenue was well aware of this fact from the very beginning - demand set aside - AT
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Appellants Granted Exemption for Supplying Radar to Indian Navy Under Notification No. 64/1995-CE with Competent Authority Certificate.
Case-Laws - AT : Denial of exemption under the Notification No. 64/1995-CE - appellants have supplied the radar and its parts to Indian navy, which is supported by the certificate issued by the competent authority. Therefore, the appellant has rightly claimed the excise duty paid on the goods supplied to the Indian Navy and they are eligible for exemption - AT
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Appellant EOU cleared goods duty-free under Notification No. 43/2001 for export by HLL; no duty demand justified.
Case-Laws - AT : 100% EOU - Job work - Appellant EOU cleared the goods under Notification No. 43/2001 which was issued under Rule 19 of the Central Excise Rules and the goods were ultimately exported by HLL. Therefore, the question of demanding duty on the instant coffee powder ultimately exported does not arise - AT
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