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TMI Tax Updates - e-Newsletter
February 15, 2024
Case Laws in this Newsletter:
TMI Short Notes
Customs:
Summary: The Customs Trade Notice No. 09/2024, issued by India's Principal Commissioner of Customs, addresses the regulation of trade with North Korea, emphasizing adherence to international sanctions. It references the Directorate General of Foreign Trade Notification and highlights the prohibition of specific transactions to prevent the proliferation of weapons of mass destruction. The notice warns of penalties for non-compliance under the Customs Act, 1962, and stresses the importance of accurate trade data submission. It mandates stakeholders to review trade practices to avoid unauthorized transactions, reinforcing India's commitment to international trade norms and national security.
IBC:
Summary: The Supreme Court of India's ruling in the case between a construction company and other parties addresses the enforcement of arbitration awards amidst insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The court examined the enforceability of arbitration awards against a corporate debtor in insolvency, emphasizing procedural adherence and the importance of timely claim submissions. The decision highlights the need to balance the rights of arbitration award holders with the collective interests of creditors. Ultimately, the court dismissed the appeal, reinforcing the importance of adhering to timelines to ensure efficient insolvency resolution.
IBC:
Summary: The Supreme Court of India clarified the jurisdictional boundaries of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) within the Insolvency and Bankruptcy Code (IBC). The case involved a resolution plan for a company's insolvency, where the NCLT and NCLAT ordered asset revaluation, raising questions about their authority to interfere with the Committee of Creditors' (CoC) decisions. The Supreme Court emphasized the CoC's commercial wisdom should not be subject to judicial review unless objections are raised. The Court set aside the tribunals' orders, underscoring the CoC's autonomy and limiting judicial intervention.
Articles
By: Shubhanshi Suman
Summary: The article discusses the taxation dilemma concerning the rate at which domestic companies should be taxed when paying dividends to foreign shareholders. It examines the conflict between the Double Tax Avoidance Agreement (DTAA) and the Income Tax Act, 1961, particularly Section 115-O, which imposes a Dividend Distribution Tax (DDT) at a rate of 15%. The article highlights differing judicial interpretations, with some tribunals favoring DTAA provisions, which often stipulate lower tax rates, while others, like the Mumbai Tribunal, adhere to the Act's provisions. It argues for interpreting tax laws to benefit taxpayers, aligning with legislative intent rather than strict literal interpretation.
By: DEVKUMAR KOTHARI and CA UMA KOTHARI
Summary: The article discusses the need for legal provisions allowing tax authorities to recall orders when notices are not effectively served, as this can lead to ex parte orders and unnecessary litigation. It argues that noncompliance by taxpayers is often not intentional, and the absence of proper notice can prevent them from responding adequately. The article highlights a case where a tax assessee had to approach the court due to notices being posted only on a portal, leading to a court order setting aside the ex parte decision. The author suggests implementing guidelines to prevent misuse and reduce court burdens.
By: Bimal jain
Summary: The Delhi High Court ruled that anticipatory bail can be granted to an accused acting on instructions from the main accused in a GST fraud case. The Respondent, not the primary perpetrator, was cooperating with the investigation and had clear antecedents. The court noted that the Respondent transferred most of the GST refund to another entity and had given a statement under the CGST Act. Despite a Supreme Court ruling that Section 438 of the Criminal Procedure Code cannot be invoked for those summoned under Section 69 of the CGST Act, the anticipatory bail was upheld as the ruling did not apply retrospectively.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: In a case involving former employees of Air India Limited, the Delhi High Court addressed the forfeiture of gratuity following their dismissal for alleged misconduct involving unauthorized appropriation of company stock. The court examined whether the forfeiture was permissible under Section 4(6)(b)(ii) of the Payment of Gratuity Act, which requires criminal proceedings leading to conviction for an offence involving moral turpitude. The High Court, referencing a similar judgment by the Bombay High Court, concluded that forfeiture without such conviction is not justified, emphasizing the necessity of due process. Consequently, the court set aside previous decisions supporting the forfeiture.
By: Bimal jain
Summary: The Madras High Court ruled that during a GST audit under Section 65 of the CGST Act, if it is found that tax was unpaid, short paid, or Input Tax Credit (ITC) was wrongly availed or used, the proper officer can initiate action under Section 73 or 74. The petitioner, a company involved in vehicle supply and servicing, challenged the show cause notices issued post-audit, arguing that the audit report lacked findings of fraud or misstatement. The court held that such findings are not required in the audit report for action under Sections 73 or 74, dismissing the petition.
News
Summary: The Ministry of Defence (MoD) has achieved a significant milestone by surpassing Rs. 1 lakh crore in total order value through the Government e-Marketplace (GeM) portal. In the current financial year alone, transactions worth approximately Rs. 45,800 crore were completed. The MoD awarded 50.7% of its orders to Micro and Small Enterprises (MSEs), amounting to Rs. 60,593 crore, supporting India's move towards self-reliance. This accomplishment highlights the MoD's commitment to optimizing public spending and embracing digital procurement. The GeM platform has facilitated over 5.47 lakh orders, enhancing procurement efficiency and promoting economic inclusion.
Summary: The 16th Finance Commission, chaired by Dr. Arvind Panagariya, convened its inaugural meeting in New Delhi. The meeting, attended by commission members and officials, focused on discussing the commission's Terms of Reference as outlined by the President of India. The commission emphasized the importance of consulting with various stakeholders, including state governments, local bodies, and experts, to conduct comprehensive analytical work. It plans to collaborate with research organizations and think tanks to enhance its expertise in fiscal federal relations. The commission's office will be established in New Delhi, with recommendations expected by October 31, 2025, for a five-year period starting April 1, 2026.
Circulars / Instructions / Orders
DGFT
1.
43/2023 - dated
14-2-2024
Amendment in Para 2.51 of Handbook of Procedures, 2023
Summary: The Directorate General of Foreign Trade has amended Para 2.51 of the Handbook of Procedures, 2023, to include Adani Gangavaram Port as a designated sea port for scrap imports. This amendment also exempts the requirement for a Pre-Shipment Inspection Certificate (PSIC) for metallic waste and scrap imported from safe countries through 11 specified ports, now including Adani Gangavaram. Consequently, the number of designated ports for scrap imports has increased from 18 to 19, and the PSIC-exempt ports have increased from 10 to 11. This change facilitates imports from six specified safe countries without PSIC, subject to certain checks.
2.
42/2023 - dated
14-2-2024
Import of Muskmelon Seeds under ITC(HS) 12077090 of ITC(HS) 2022 for the period up to 31.08.2024
Summary: The Directorate General of Foreign Trade (DGFT) has announced procedures for the import of Muskmelon Seeds under ITC(HS) 12077090, valid until August 31, 2024. Import is restricted to 1,200 Metric Tonnes and is available only to processors on an Actual User basis. Applicants must provide a valid FSSAI Manufacturer Licence and a Chartered Accountant Certificate detailing past imports and processing volumes. Applications must be submitted online by February 22, 2024. Misdeclaration will result in disqualification and a two-year ban from future allocations. The Exim Facilitation Committee will assess applications and determine import quantities.
3.
41/2023 - dated
14-2-2024
Import of Watermelon Seeds under ITC(HS) 12077090 of ITC(HS) 2022 for the period up to 31.08.2024
Summary: The Directorate General of Foreign Trade (DGFT) has issued a public notice regarding the import of watermelon seeds under ITC(HS) 12077090, valid until August 31, 2024. The total import is capped at 33,800 metric tonnes and is restricted to processors with a valid FSSAI Manufacturer Licence. Applications for import authorization must be submitted online by February 22, 2024. Each applicant is limited to one application and must provide a Chartered Accountant certificate detailing past imports and processing volumes. Misdeclaration will result in disqualification and a two-year ban from future allocations.
Customs
4.
Public Notice No. 09 / 2024 - dated
12-2-2024
Imports from North Korea (KP) / Exports to North Korea (KP)- reg.
Summary: The circular addresses the prohibitions on imports from and exports to North Korea as outlined in the Foreign Trade Policy 2023, highlighting the need for strict compliance with these regulations. Importers, exporters, and customs brokers are reminded to accurately declare the Country of Origin/Destination to avoid penalties under the Customs Act 1962. Instances of incorrect data entries identifying North Korea have been noted, and customs officers are instructed to ensure amendments are made before clearance. The notice serves as a standing order for customs officers to adhere to these directives, with any issues to be reported to the Additional Commissioner.
Highlights / Catch Notes
GST
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Court Quashes Assessment Orders Due to Portal Issues; Petitioner Must Pay 7.5% of Disputed Tax to Proceed.
Case-Laws - HC : Breach of principles of natural justice - Petitioner was unaware of the notices and the impugned assessment orders until she received an oral intimation from the office of the respondent - The High court acknowledges the change in portal design, with notices and orders now specified under the 'View Notices' and 'View Additional Notices' tabs. However, it finds merit in providing the petitioner an opportunity to contest the proceedings. - The court quashes the impugned assessment orders but imposes a condition requiring the petitioner to remit sums equal to 7.5% of the disputed tax demand.
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Bio-Medical Waste Disposal Services Subject to 12% GST, Including 6% CGST and 6% SGST.
Case-Laws - AAR : Taxability of supply - services of disposal and treatment of Bio-Medical Waste obtained from clinical establishments - The AAR ruled that the services of disposal and treatment of Bio-Medical Waste from clinical establishments are liable to GST - The AAR determined that the applicable GST rate for the services of disposal and treatment of Bio-Medical Waste from clinical establishments is 12% (comprising CGST at 6% and SGST at 6%).
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Long-term lease premiums subject to GST unless exempt under specific conditions for industrial or financial development.
Case-Laws - AAR : Exemption from GST - upfront amount charged by the Applicant (as lease premium) for granting long-term lease of ninety years - The AAR concludes that long-term leases are not considered sales of land under GST, and hence, the upfront amount charged by NOIDA is within the scope of GST. - The AAR rules that the lease premium charged by NOIDA for granting long-term leases is exempt from GST under Entry No. 41 of Notification No. 12/2017-CT (Rate) if the lease is for an industrial plot or infrastructure development for financial business and fulfills specified conditions.
Income Tax
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Court Invalidates Income Tax Notices Issued Under Old Provisions Post-2021 for 2013-14 and 2014-15 Assessment Years.
Case-Laws - HC : Validity of reopening of assessment - scope of old unamended law and new inserted section 148A - The High court held that notices issued under the newly inserted Section 148A(b), treating them as if issued under the old Section 148 post-April 1, 2021, for assessment years 2013-14 and 2014-15 were invalid. The court found that the extension of time for issuing notices under the old Section 148, based on TOLA and subsequent CBDT notifications, was unauthorized after the old provisions were superseded by the Finance Act, 2021, without any saving clause for the old reassessment provisions.
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Revenue Appeal Dismissed: Court Finds No Evidence to Support Tax Officer's Claims on Transaction Authenticity.
Case-Laws - HC : Addition u/s 68 - The Tribunal, in dismissing the revenue's appeal, noted that while the AO had raised suspicions regarding the genuineness of the transaction, no tangible material was brought on record to support such suspicions. The assessee had disclosed the names of the jewellers to whom the jewellery was sold, along with evidence of payment through banking channels. - Now High Court confirmed the order of ITAT.
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Taxpayer's Genuine Errors Corrected, No Penalty for Misreported Donations and Asset Sale Losses.
Case-Laws - AT : Penalty 271(1)(c) - additions on account of donation and charity, and on account of loss on sale of assets, which were debited to the profit and loss account - The ITAT held that, assessee made bona fide mistakes in the computation of its total income while filing its original return of income, which were corrected by the assessee by filing the revised computation during the assessment proceedings. Thus it is is not a fit case for the levy of penalty u/s 271(1)(c).
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ITAT Rules Medical Relief Activities as Charitable, Revokes Revenue's Withdrawal of Tax Exemption Approval.
Case-Laws - AT : Approval granted u/s 10(23C)(iv) revoked - charitable activity u/s 2(15) questioned - The Revenue alleges that the assessee is promoting its own products under the guise of charitable activities. However, the assessee argues that its activities are genuine charitable endeavors aimed at benefiting the target population. - The ITAT held that, the activities of the assessee are in the category of medical relief to the poor. Thus, if we interpret the provisions of section 2(15) of the Act strictly, the proviso would not apply. - The impugned order passed by learned CIT (Exemption) withdrawing the approval granted under section 10(23C)(iv) of the Act is unsustainable.
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Tribunal Approves Section 80IA Deduction Using State Electricity Board Rates for Captive Power Plant Profits.
Case-Laws - AT : Deduction u/s 80IA in respect of profits of captive power plants ('CPPs') - The tribunal, referring to the Comparable Uncontrolled Price (CUP) method and previous rulings, held that the market value for computing profits from the CPP should be based on the rate at which the State Electricity Board (SEB) supplied power to consumers. The tribunal directed the deletion of the transfer pricing adjustment and allowed the deduction under Section 80IA based on the transfer price of Rs. 8.48 per unit.
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Tribunal Rules Payments Under India-Singapore Tax Treaty Not Reimbursements, Upholds Tax Deduction Disallowance.
Case-Laws - AT : TDS u/s 195 - disallowance u/s. 40(a)(i) - chargeability of amount to tax in India - rendering of technical services under India-Singapore tax treaty - whether being reimbursement of cost without any mark-up? - The Tribunal, after carefully considering the arguments and examining the relevant agreement, concluded that the payments made by the assessee to BYK Singapore were not reimbursement. The Tribunal noted that the agreement does not support the claim of reimbursement made by the assessee - Receipt of a fixed amount, which may be more or less than the actual outgo, cannot be designated as `reimbursement’.
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Software License Sales to Indian Customers Not Taxable as Royalty or Business Profits Under India-Japan DTAA.
Case-Laws - AT : Taxability of income in India - income from the sale of Software licenses subscription - India - Japan DTAA - CIT(A) held that the consideration received by the assessee from Indian end customers for sale of software products does not constitute royalty income and is not taxable under Article 12 of the India-Japan DTAA and is not business profits under Article 7 of the India Japan DTAA - The ITAT dismissed the appeals of the Revenue, upholding the CIT(A)'s decision to delete the addition made by the AO.
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Transaction Not Taxed as Capital Gain: No Evidence of Tenancy Rights Sale or Transfer, ITAT Rules in Favor of Taxpayer.
Case-Laws - AT : Taxability as capital gain or not - Surrender / transfer of tenancy rights - Applicability of section 50C for valuation - The AO treated the transaction as a surrender of rights by the assessee and computed LTCG - The ITAT examined the terms of the tenancy agreements and found no evidence to support the conclusion that the transaction constituted a sale or transfer of ownership rights. They noted that the agreements were in accordance with the Maharashtra Rent Control Act, 1999, and there was no consideration passed between the parties. - Additions made as long term capital gains deleted.
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Tax Exemption Granted After Appeal: ITAT Directs Review for 2016-17 and 2017-18 Following Initial Denial.
Case-Laws - AT : Benefit of exemption u/s 11/12 - Effective date of grant of registration u/s 12A - Initially application was rejected by CIT(E), but the same was approval on the direction of ITAT w.e.f. 1.4.2017 - Assessee claimed the exemption u/s 11/12 for preceding AY 2016-17 and 2017-18 also - ITAT directed the AO for carrying out verification of fulfillment of condition (iii) discussed above and if that is held to be satisfied, to verify and allow exemption u/s 11/12.
Customs
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Court Orders Return of Seized Gold Chain Due to Customs' Failure to Issue Timely Show Cause Notice Under Required Law.
Case-Laws - HC : Seeking release of seized gold - no show cause notice for seizure of the said gold chain - The High court observed that there is no provision in the Customs Act permitting the detention of goods instead of their seizure. It notes that the customs authorities cannot circumvent the statutory requirements by resorting to detention. - Citing previous judgments, the court affirms that failure to issue a show cause notice within the statutory period specified in Section 110(2) of the Act entitles the person from whom the goods were seized to their return.
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Court Reduces Bank Guarantee for Goods Release; Orders Bond for Full Value, Aligns with FSSAI Approval Standards.
Case-Laws - HC : Provisional release of detained goods - The department's insistence on a 100% bank guarantee of Rs. 25,00,000/- was deemed arbitrary and onerous, especially considering the goods were approved for domestic consumption by the FSSAI, similar to past consignments. - Accordingly, the High Court directed the provisional release of the goods upon furnishing a bank guarantee of Rs. 3,49,000/- for the first bill of entry and Rs. 2,00,000/- for the second, alongside a bond for the full value of the goods.
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Tribunal Orders Reassessment of Imported Vessel Sludge Valuation; Customs Must Prove Lubricating Oil Claim.
Case-Laws - AT : Valuation of imported goods - Sludge/Sediments found in the vessel imported for breaking - The Tribunal held that, the department could not establish conclusively that the goods claimed by the appellant as sludge/sediments is lubricating oil. Therefore, applying the price of the lubricating oil i.e. USD 420 per MT, is without any basis. Hence, the same cannot be sustained. - adjudicating authority directed to reconsider the entire case and bring any evidence, if available, to establish that the goods found in the vessel is Lubricating Oil and not sludge/sediment and thereafter matter may be decided a fresh.
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Tribunal Criticizes Unjustified Rejection of Declared Transaction Value for Imported Electronics, Urges Evidence-Based Decisions.
Case-Laws - AT : Valuation of imported goods - electronic goods including branded and non - The tribunal held that the adjudicating authority and the Commissioner (Appeals) failed to provide cogent reasons and evidence for rejecting the declared transaction value. - The tribunal enhancement of value based solely on NIDB data without additional evidence or proper analysis was erroneous. - The CESTAT further held that, there no evidence of misdeclaration or undervaluation by the appellant. - Rejection of value declared on a Bill of Entry is a serious action that should be supported by compelling provision, evidence and justifiable reasons.
IBC
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Appellant Recognized as Secured Creditor Due to Lease Premium Payments, Gains Inclusion in Creditors' Meetings.
Case-Laws - SC : CIRP - Classification of Appellant as Operational Creditor and Exclusion from COC Meetings - Financial Creditor or Operational Creditor - The Supreme Court held that the RP's classification of the appellant as an operational creditor, based on the nature of the transaction (lease premium payments), was incorrect. The court emphasized that the appellant's claim, supported by statutory provisions under the U.P. Industrial Area Development Act, 1976, constituted a secured interest over the assets of the corporate debtor, thereby warranting treatment as a secured creditor.
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Resolution Plan Approval Flawed for Ignoring Secured Creditor's Claim, Violating IBC Section 30(2) Requirements.
Case-Laws - SC : Approval of Resolution Plan Without Adequate Consideration of Appellant's Claim - Greater Noida - - The Supreme court found that the resolution plan's approval was flawed as it did not properly acknowledge or incorporate the appellant's claim or its status as a secured creditor. The plan's failure to provide for the appellant's claim, as required under Section 30(2) of the IBC, rendered the approval process defective.
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Court Orders Code of Conduct for Creditors in Insolvency to Ensure Fairness and Align with Legislative Intent.
Case-Laws - HC : Code of Conduct for the CoC - The Delhi High Court directed the Insolvency and Bankruptcy Board of India (IBBI) to frame or finalize a code of conduct/guidelines for the effective functioning of the Committee of Creditors (CoC) in insolvency resolution processes, without undermining the 'commercial wisdom' of the CoC or the legislative intent of the Insolvency and Bankruptcy Code (IBC). This directive aims to ensure that decision-making by the CoC adheres to principles of reasonableness, fairness, proportionality, and natural justice.
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NCLAT Confirms Debt and Default, Upholds CoC's Resolution Plan Under IBC, Emphasizes Limited Judicial Review in Insolvency.
Case-Laws - AT : Admissibility of section 7 application - CIRP - existence of debt and default or not - The NCLAT held that the financial distress and inability of the corporate debtor to repay its debt as per schedule led to the correct application of the Insolvency & Bankruptcy Code, 2016 (IBC). Additionally, the Tribunal supported the commercial wisdom of the Committee of Creditors (CoC) in approving a resolution plan that provided for the full claim of the secured financial creditor along with accrued interest, emphasizing the limited scope of judicial review over the CoC's decisions.
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Recusal Order Cannot Be Challenged Under Appellate Jurisdiction; NCLAT Upholds Restricted Counsel Communication.
Case-Laws - AT : Right of counsel to communicate with the Court except by filing appropriate application(s) and affidavit(s) in the proceeding pending before the Court - Influencing the decision-making process. - The NCLAT held that, the Order impugned is an order by which both the Members recused themselves from the matters. The Order dated 09.01.2024 recusing by both the members is subject matter of the Appeal - the decision taken by both the members to recuse themselves from the matter cannot be interfered with in exercise of our appellate jurisdiction. - The President of the NCLT is master of roster. All administrative powers are vested with the President.
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Tribunal Upholds Insolvency Process Start Despite 100 Allottee Threshold; Rejects Delay Tactics by Appellant.
Case-Laws - AT : Maintainability of Section 7 Application - Initiation of CIRP - threshold limit of 100 allottees - NCLT admitted the application - The Tribunal found no error in the Authority's decision to reject the IAs and observed that the Appellant's actions were motivated by malafide intent to delay the proceedings. As a result, the Section 7 Application filed by the homebuyers/allottees is upheld, and the Appellant's attempt to challenge its maintainability is unsuccessful.
Service Tax
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Lease of CESSNA Aircraft Deemed Transfer of Right to Use, Exempt from Service Tax as Not a Supply of Tangible Goods.
Case-Laws - AT : Supply of Tangible Goods Service - lease agreement - acquiring CESSNA make air craft on lease - After analyzing the lease agreement and legal provisions, the Tribunal concluded that the transaction did not fall within the definition of "Supply of Tangible Goods Service". It found that the lease involved the transfer of right to use goods and was not subject to service tax.
Central Excise
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Interest on Wrongly Availed Credit Applies Regardless of Utilization, Tribunal Upholds Strict Tax Law Interpretation.
Case-Laws - AT : Recovery of interest on the wrongly availed credit - The Tribunal upheld that interest under Rule 14 is liable on wrongly taken credit, irrespective of its utilization, aligning with the Supreme Court's interpretation in the case of Union of India Vs Ind-Swift Laboratories Ltd. Additionally, it rejected the applicability of amendment arguments regarding "substitution" in Rule 14, emphasizing strict interpretation of taxing statutes without room for implications beyond the clear statutory language.
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CENVAT Credit Denial Unjustified for Employee Transport, Canteen and Mathadi Services, Says Tribunal.
Case-Laws - AT : Denial of CENVAT Credit - services provided to the employee for transportation to and fro the workplace by bus, provision for canteen services, Mathadi services - The CESTAT held that, when all these services are specifically held by this Tribunal and confirmed by the Appellate Courts like Hon'ble High Courts and Hon'ble Supreme Court to be valid inputs for the purpose of manufacture, there is no reason for us to depart from the judicial precedent set by this Tribunal when they themselves are integral part of manufacture process for which these services availed by the Appellant can be said to be valid input services against which credit are admissible.
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Tribunal Rules Automatic Refund Due for Excess Duty Post Provisional Assessment on Sales via Agents.
Case-Laws - AT : Refund of the excess amount that was subsequently refused to be paid to the Appellant by the Refund Sanctioning Authority - Finalization of provisional assessment - Sale through C & F Agents/Depot/Consignment agent - The tribunal held that, it is apparently keeping these provisions in mind, the provision of refund of differential duty after financial assessment is codified in Rule 7 itself, in which Department would have refunded the amount on its own without any refund application being filed under Section 11(B) of the Central Excise Act, 1944 and burden of examination of passing/non-passing of duly element would have been done by itself.
VAT
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Infrastructure Firm Granted Relief from 30% Pre-Deposit Requirement in Karnataka VAT Appeal.
Case-Laws - HC : Waiver of pre-deposit condition or grant right to appeal subject to a part-deposit or security - The Karnataka High Court allowed the petition filed by an infrastructure company, engaged in constructing sub-stations/switchyards, facing financial distress and unable to pay the 30% pre-deposit required for prosecuting its appeal against the tax liability under the Karnataka Value Added Tax Act (KVAT Act). - Appellate Tribunal directed to entertain the appeal and pass appropriate orders on merits without insisting for payment of 30% pre-deposit.
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