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TMI Tax Updates - e-Newsletter
February 21, 2022
Case Laws in this Newsletter:
Articles
By: Commissioner CESTATHyderabad
Summary: The Prevention of Money Laundering Act (PMLA), 2002, is a special law designed to combat money laundering and provide for the confiscation of related properties. It has an overriding effect over general laws like the Criminal Procedure Code (CrPC) when inconsistencies arise. The PMLA allows for independent prosecution and property attachment proceedings. The Supreme Court has upheld the PMLA's precedence over other laws, emphasizing its distinct objectives. Recent judgments confirm PMLA's dominance over other financial recovery laws, potentially impacting recovery proceedings by tax departments. The PMLA's provisions ensure safeguards against arbitrary enforcement while maintaining its overriding authority.
By: Rachit Agarwal
Summary: The Apex Court granted bail to the accused who had been in custody for 25 months, noting that the maximum sentence for the alleged offense is five years. The Court observed that the accused should not be indefinitely detained, especially since he has already served nearly half of the potential sentence. The investigation is ongoing, and some accused remain at large, with a significant evasion of duty alleged. Despite the appellant's history of legal violations, the Court decided that bail should be granted under conditions set by the Trial Court.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: A professor at a law university sought an advance ruling on whether income from guest lectures and government-funded research projects is taxable under the GST regime. The Authority for Advance Ruling in Karnataka determined that income from guest lectures falls under taxable services, attracting an 18% GST. The professor argued that these services are recreational and should be exempt under Notification No. 12/2017. However, the Authority ruled that the services do not qualify for exemption as they are classified under 'Other professional, technical and business services' and lack a direct contract with the government, thus subject to GST.
News
Summary: The UAE and India have signed a historic Comprehensive Economic Partnership Agreement (CEPA), marking a significant milestone in their economic relations. The agreement, witnessed by leaders from both countries, aims to boost bilateral trade to $100 billion over five years and create substantial employment opportunities. It represents the UAE's first bilateral trade accord and India's first in the MENA region. The CEPA will enhance economic and investment ties, reduce tariffs, and improve market access, fostering new trade routes between Africa and Asia. This strategic partnership is expected to strengthen cooperation in renewable energy, fintech, and healthtech, among other sectors.
Summary: India and the UAE have signed a historic Comprehensive Economic Partnership Agreement (CEPA) to boost goods trade to $100 billion over the next five years. The agreement, finalized in a record 88 days, aims to create 10 lakh jobs across sectors like textiles, gems, pharmaceuticals, and agriculture. Key features include automatic authorization for Indian pharmaceuticals, strict rules of origin, and safeguards against import surges. The CEPA marks a significant milestone in India-UAE relations, emphasizing fair trade and mutual benefits. Additional agreements include MoUs on food security and financial cooperation.
Circulars / Instructions / Orders
FEMA
1.
26 - dated
18-2-2022
Regulations Review Authority (RRA 2.0) – Interim Recommendations –Discontinuation/Merger/Online Submission of Returns
Summary: The Regulations Review Authority (RRA 2.0) has issued interim recommendations to streamline the submission of financial returns. It proposes discontinuing or merging certain returns, as detailed in Annex 1, and transitioning others from paper or email-based submissions to online filing, as listed in Annex 2. The specific timeline for these changes will be announced later. The initiative aims to simplify processes for authorized persons, enhancing efficiency in reporting financial transactions related to foreign investments, remittances, and other financial activities.
Highlights / Catch Notes
GST
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ITC on Civil and Interior Works for Rental Property Restricted u/s 17(5) of GST Law.
Case-Laws - AAR : Input tax credit - expenditure incurred for 'Civil and Interior Works' - said property is further used for letting out to different tenants on rental basis viz. for furtherance of business - Clause (c) and (d) of section 17(5) restricts ITC in respect of works contract services and goods or services used towards construction of immovable property. As such, input tax credit (ITC) of GST paid in relation to 'civil and interior works' in building and on 'construction of commercial complex' does not seems to be admissible. - AAR
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GST Case Update: Online Text-Based Services Like Books and Newspapers Not Exempt from Tax, Databases and Journals Differentiated.
Case-Laws - AAR : Classification of services - providing on-line text based information such as online books, newspapers, periodicals, directories etc (judgements/Notifications/Bare Acts/Rules/E-books/News/Articles) through their website - Database and journals or periodicals are different thing and exemption is not available to online database, online books, newspapers, directories and non-educational journals - AAR
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Electricity Charges Recovered by Maintenance Provider Subject to GST; Fails Rule 33 Pure Agent Criteria.
Case-Laws - AAR : Levy of GST - electricity charges paid to UPCL for the power consumed by residents in their residential apartments and recovered from them on actual cost basis - pure agent services - In the instant case, it is found that the applicant is using “Electricity” procured from the UPCL (Electricity supply authority) for furtherance of his interest in as much as all the infrastructure developed by them is fully dependent on the electricity (and for that matter water also) and in turn the services of MIANTENANCE & FACILITIES so offered to the Community is absolutely dependent on the electricity - the applicant does not fulfil, two criteria out of the four, as specified in explanation to Rule 33 of the CGST Rules, 2017, to be considered as a pure agent - Liable to GST - AAR
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Driver Cab Air Conditioner Units for Indian Railways Classified Under GST Tariff Chapter 86.07.
Case-Laws - AAR : Classification of goods - Coach Work like DRIVER CAB AIR CONDITIONER UNIT for EMU/MEMU trains of Railway Rolling Stock - The "classification of DRIVER CAB AIR CONDITIONER UNIT for EMU/MEMU trains", manufactured as per the specific design and layout provided by the Railways and supplied to the Indian Railways only and no-where else, falls under Chapter 86.07 of the GST Tariff - AAR
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GST on Cigarette Promotions: No Tax on Extra Packs; Supplier Eligible for ITC on Related Inputs and Services.
Case-Laws - AAR : Levy of GST - promotional scheme of extra packs of cigarettes - taxable value which can be attributed to such extra packs of cigarettes for levy of GST - There would no tax liability on additional 30 packs of cigarettes supplied with 100 packs of cigarettes. Further, ITC shall also be available to the supplier for the inputs, input services and capital goods used in relation to Supply of goods or services or both as part of such offers. - AAR
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Transportation of Goods by Road is a Composite Supply; GST Applicable at 18% Says Advance Ruling Authority.
Case-Laws - AAR : Levy of GST - Works contract or not - service of transportation of goods by road to be provided by the company under one of its contracts - Even if the considerations for two taxable supplies are separately quoted or there is single consideration for two supplies, both types of scenarios are covered under composite supply till the conditions as mentioned above for composite supply are fulfilled (i.e. naturally bundled supplies and one being principal supply and other ancillary supply to principal supply). The entire transaction of providing the goods and the services is naturally bundled and hence this is clearly a case of composite supply of goods and supply of services. - liable to GST @ 18% - AAR
Income Tax
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Sales Tax Remission Benefit Classified as Capital Receipt, Exempt from Income Tax u/s 2(24)(xviii.
Case-Laws - AT : Nature of receipt - sales tax remission benefit derived by the assessee - All the judgments cited before us also lay down the same ratio. Even otherwise subsidy is included in the definition of Income u/s 2 (24) (xviii) with effect from 1/4/2016. Accordingly, we hold that Sales tax incentive money received being the amount retained by the company in accordance with Section 41 of the West Bengal sales tax act, 1944 read with the West Bengal incentive scheme, 1999 was a capital receipt not chargeable to tax under the income tax act. - AT
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Section 68 Amendment: Unexplained Share Capital in Closely Held Companies Taxed as Income from 2013-14 Onwards.
Case-Laws - AT : Addition of bogus share application money u/s 68 - explanation to source of the source - with effect from assessment year 2013-14 section 68 of the Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the A.O., the same shall be deemed to be the income of the company u/s 68 of the Act. The said amendment has been held to be prospective and not retrospective - AT
Customs
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Section 112(a) Customs Act: Order Set Aside Due to Lack of Show Cause Notice, Violating Natural Justice Principles.
Case-Laws - AT : Penalty u/s 112(a) of the Customs Act, 1962 - Show cause notice is the basis on which any order can be passed against a person. This is the basic requirement of the principles of natural justice. As the show cause notice was not issued to the appellant, the appellant did not file any reply. The appellant cannot be faulted for not filing a reply since the show cause notice did not call upon the appellant to file a reply. - The impugned order against the appellant deserves to be set aside. - AT
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Rejection of Shipping Bill Conversion Lacks Legal Basis u/s 149 of Customs Act; No Physical Exam Needed.
Case-Laws - AT : Request for conversion of free shipping bills to advance authorization shipping bills rejected - there is no requirement under section 149 of the Customs Act, 1962 that the conversion can be allowed only if the goods have been subjected to physical examination. Therefore, the rejection of the request for conversion on the ground that physical examination was not conducted before export is without any legal basis.- AT
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Re-export of 21 imported consignments allowed without duty; extension of warehousing period granted per board circular.
Case-Laws - AT : Rejection of request for extension of warehousing period and reexport in respect of 21 consignments of imported capital goods - In the present case neither the goods were cleared for home consumption nor the department has initiated any action for sale of the goods. Therefore, in terms of the board circular 03/2003-Cus dated 14.01.2003 the appellant is entitled for re- export of the goods without payment of duty and consequently also entitled for extension of warehousing period - AT
IBC
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Appellant can carry forward losses pending Income Tax Authority's decision u/s 79; Adjudicating Authority's observations removed.
Case-Laws - AT : CIRP - Carry forward of losses - The benefit of carry forward of losses can be availed by the Appellant subject of opportunity to be given to Income Tax Authority to pass appropriate orders in accordance with Section 79 - the observations made in paragraph 238 and 244 of the order of the Adjudicating Authority need to be deleted and are hereby deleted and the benefit of carry forward losses can be claimed by the Appellant subject to decision by appropriate Income Tax Authority as per Section 79 of the Income Tax Act. - AT
Service Tax
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Interest and Penalties Justified for Wrong CENVAT Credit Use: Sections 77, 78, and Rule 14(1) Explained.
Case-Laws - AT : Recovery of interest and imposition of penalty under Sections 77 & 78 is justified - Rule 14(1)(i) of CENVAT Credit Rules, 2004 provides that where the CENVAT Credit had been taken wrongly but not utilized, the same shall be recovered under the provisions of Section 11A of the Central Excise Act, 1944 and Section 73 of the Finance Act, 1994 as the case may be. Further Rule 14(1)(ii) provides that where CENVAT Credit has been taken and utilized wrongly or has been erroneously refunded the same shall be recovered along with interest - there is clear distinction made in the statute that interest is to be recovered only in case of utilization of CENVAT Credit taken wrongly. - AT
Central Excise
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CENVAT Credit Transfer Allowed: Relocation of Factory with Inputs Qualifies u/r 10(3) Despite No Capital Goods Moved.
Case-Laws - AT : CENVAT Credit - transfer of unutilized credit, on shifting of factory - Transfer of unutilized credit also denied on the ground that appellants have shifted on inputs and not shifted the capital goods - it is not necessary that the inputs and capital goods have to be transferred. Rule 10(3) uses the expression “inputs or capital goods”. The appellant in the present case has transferred the inputs into the Puducherry unit. Thus, as per Rule 10(3), they are entitled for transfer of the unutilized credit. - AT
VAT
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High Court Reduces Penalty for Petitioner Under CST Act Section 10(A) from 100% to 50% Due to Excessiveness.
Case-Laws - HC : Quantum of penalty under section 10(A) of the CST Act - The Tribunal after detailed analysis, came to the conclusion that there was mensrea on the part of the petitioner and hence, they were liable to pay penalty. At the same time, the Tribunal observed that the penalty levied by the assessing officer, was too excessive and therefore, the same was modified by restricting to 100% and not 150% - this court is of the opinion that the levy of penalty has to be modified by restricting it to 50%, instead of 100% as done by the Tribunal. - HC
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