TMI Tax Updates - e-Newsletter
March 26, 2012

Case Laws in this Newsletter:

Income Tax Customs Service Tax CST, VAT & Sales Tax Wealth tax

Articles

1. Reverse Charge Mechanism in service tax-more clarifications in works contract service required

   By: AMIT BAJAJ ADVOCATE

2. FAQ ON EXCISE DUTY OF 1% ON ARTICLES OF JEWELLERY POST BUDGET-2012

   By: LALIT MUNOYAT

3. BUDGET 2012: LEARN TO LIVE WITH SERVICE TAX .

   By: Dr. Sanjiv Agarwal

4. SIMULTANEOUS AVAILMENT OF CENVAT CREDIT AND DEPRECIATION UNDER INCOME TAX ACT, 1961

   By: DR.MARIAPPAN GOVINDARAJAN

5. BUDGET 2012: PROACTIVE BUT AGGRESSION MISSING.

   By: Dr. Sanjiv Agarwal

6. Budget 2012-2013 – Deemed value of taxable service - Abatement.

   By: Surender Gupta

7. General Anti Avoidance Rules (‘GAAR’)

   By: CSSwati Rawat

8. Budget 2012-2013 - Amendments in Service Tax (Determination of Value) Rules, 2006

   By: Surender Gupta

News

1. Negative List of Services - Services which are not taxable at All

2. Release of additional instalment of Dearness Allowance and Dearness Relief.

3. Clause by Clause – Finance bill 2012

4. Change in Tariff Value of Gold Notified.

Notifications

Customs

1. Corrigendum - dated 22-3-2012 - Cus

3rd Corrigendum of notification number 21/2002-customs.

2. Corrigendum - dated 16-2-2012 - Cus

2nd Corrigendum of notification no. 4/2012 – Customs.

3. CORRIGENDUM - dated 9-2-2012 - Cus

1st Corrigendum of Notification no. 4/2012- Custom.

4. Corrigendum - dated 24-1-2012 - Cus

Corrigendum to Notification No. 125/2011 – Customs.

5. 24/2012 - dated 22-3-2012 - Cus (NT)

Amends Notification No. 36/2001-Customs(N.T) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values.

DGFT

6. 108 (RE-2010)/2009-14 - dated 22-3-2012 - FTP

Exemption of Assam Comilla Cotton [ITC(HS) Code 5201 00 12] from export restriction on cotton during the current cotton season upto 30.09.2012.

Circulars / Instructions / Orders

Service Tax

1. F.No.137/125/2011-ST - dated 27-2-2012

SECTION 65(64) OF THE FINANCE ACT, 1994 - MANAGEMENT, maintenance OR REPAIR SERVICE - Application of Service Tax on Tyre Retreading Activity .

DGFT

2. 104 (RE-2010)/2009-2014 - dated 23-3-2012

Regarding Pre-Shipment Inspection Agencies (PSIA).

3. 103 /2009-2014 (RE 2010) - dated 22-3-2012

Amendment in SION A-1778.

Companies Law

4. 6 - dated 21-3-2012

Constitution of a Committee to formulate a Policv Document on Corporate Governance.

Highlights / Catch Notes

Customs

• Corrigendum to Notification 21/2002: Updates and Clarifications for Accurate Customs Regulation Interpretation and Compliance.

  Notifications : 3rd Corrigendum of notification number 21/2002-customs. - Ntf. No. Corrigendum Dated: March 22, 2012
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• Amendment to Notification No. 36/2001-Customs: Revised Tariff Values for Palm Oil, Soybean Oil, and Brass Scrap.

  Notifications : Amends Notification No. 36/2001-Customs(N.T) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values. - Ntf. No. 24/2012 - Customs (N. T.) Dated: March 22, 2012
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DGFT

• DGFT Circular on Pre-Shipment Inspection Agencies: Guidelines for Quality Control in International Trade (2009-2014 Policy.

  Circulars : Regarding Pre-Shipment Inspection Agencies (PSIA). - Cir. No. 104 (RE-2010)/2009-2014 Dated: March 23, 2012
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• Circular No. 103 Revises SION A-1778 for 2009-2014; Effective March 22, 2012, by DGFT to Update Export Norms.

  Circulars : Amendment in SION A-1778. - Cir. No. 103 /2009-2014 (RE 2010) Dated: March 22, 2012
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• Assam Comilla Cotton Exempted from Export Restrictions Until September 30, 2012, per DGFT Notification No. 108 (RE-2010)/2009-14.

  Notifications : Exemption of Assam Comilla Cotton [ITC(HS) Code 5201 00 12] from export restriction on cotton during the current cotton season upto 30.09.2012. - Ntf. No. 108 (RE-2010)/2009-14 Dated: March 22, 2012
  Visit to Get Source

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Corporate Law

• Committee Formed to Draft Corporate Governance Policy as per Circular No. 6, Enhancing Transparency and Accountability.

  Circulars : Constitution of a Committee to formulate a Policv Document on Corporate Governance. - Cir. No. 6 Dated: March 21, 2012
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Case Laws:

• Income Tax

• 2012 (3) TMI 291
  Disallowance - TDS u/s 194C - why the assessee had not deducted TDS from Rs.50 lakhs for work, which was sub-contracted and paid to Rishikesh Properties Pvt. Ltd - that the total contract value assigned made by the M/s. PGF Limited to the respondent assessee amounted to Rs.4,85,00,000/- while a separate contract was made with M/s. Rishikesh Properties by M/s. PGF Limited only amounting to Rs.4,25,00,000/- which was also running almost at the same time and with the same management as directors who are working on behalf of both the companies are common - It is apparent that there is an inherent contradiction between the findings recorded by the Tribunal and the findings recorded by the Assessing Officer with reference to the letter of the assessee dated 5.12.2008, which had not been adverted to by the Tribunal. Letter dated 5.12.2008, which was quoted in the assessment order has not been considered - If there is violation of Section 194C, then Section 40 (a)(ia) may be attracted and the expenditure incurred on which tax has not been deducted is to be disallowed as per the terms of the said section - Decided in favor of the revenue by way of remand to Tribunal

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• 2012 (3) TMI 290
  Writ petition for quashing of notice under Section 148 of the Income Tax Act - the petitioner had filed its return of income with provisional tax audit report - the petitioner filed audited accounts with the tax audit report in lieu of notice under Section 139(9) - return filed by the assessee was not taken up for scrutiny and no notice under Section 143(2) was issued - the impugned notice under Section 148 was issued - petitioner informed that the return filed may be treated as return filed in response to notice - the petitioner asked for furnishing of “reasons to believe” recorded in writing before issue of notice under Section 148 of the Act - contention of the petitioner is that there was delay and failure to supply the exact reasons recorded by the Assessing Officer - reasons recorded by the AO for reopening was that the assessee is not offering its income earned on infrastructure utilization Fund (IUF) and interest earned thereon in its income chargeable to tax - The contention of the petitioner is that the amount deposited in the aforesaid fund is not income of the assessee and reasons to believe are a mere reason to suspect or surmise and do not disclose or state that there has been under assessment of income - Held that :- there were no original assessment proceedings and no notice under section 143(2) was issued. The time for issue notice under Section 143(2) had lapsed. The AO, therefore, could have only examined the question/aspect after issue of notice under Sections 147/148 of the Act. Whether or not notice can be issued in such cases is no longer res integra [Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, (2008) 14 SCC 208 ] - writ petition is dismissed

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• 2012 (3) TMI 289
  Exemption u/s 10(23C)(vi) - the aforesaid institute was not directly imparting education and had not employed teachers who were teaching or giving lectures to the students - Madhya Pradesh High Court in CIT v. M.P. Rajya Pathya Pustak Nigam, (2009) 226 CTR (MP) 497 examined a similar question and after referring to several decisions has held that the term educational purpose was not restricted merely to holding of teaching class or lectures but educational purpose was equally served when educational text books were published - Decided in favor of the assessee

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• 2012 (3) TMI 288
  Application for stay - There is a demand of Rs.5.76 Crores, based on the orders of assessment of which the principal amount due on account of tax is Rs.4.53 Crores and interest in the amount of Rs.1.23 Crores - Revenue has submitted that the Petitioner should be required to pay the balance of the demand and no case for stay has been made out - Assessing Officers and the Appellate Authorities are duty bound to act in accordance with binding precedent and there is no reason or justification to act in the manner in which the applications for stay have been disposed of in this case - it is not in dispute that many of these issues would be governed by the proceedings which are pending before the CIT (Appeals) for Assessment Years 200607 and 200708 which have been heard, but where orders are awaited - Petitions are accordingly disposed of

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• 2012 (3) TMI 287
  The assessee returned an income of approximately Rs.19 crores - original order of assessment demand of Rs.2 crores but reduced upon rectification to Rs.1.30 crores initially and thereafter, to Rs.1.18 crores. – assessee filed an appeal that additions have been made by the Assessing Officer on three counts: (i) Interest paid to HDFC Bank; (ii) The annual letting value of house property; and (iii) Sales promotion expense - Of the total demand of Rs.1.18 crores, an amount of Rs.78 lakhs has been adjusted against the refund due and payable AY 2010-11- Since the refund has already been adjusted, and the balance of the demand was Rs.40.54 lakhs stay on the recovery of balance until the disposal of the appeal before the CIT (Appeals) - we direct that the CIT (Appeals) shall expedite the disposal of the appeal and endeavour to do so within a period of three months from order date -make the rule absolute by modifying the order passed by the Commissioner of Income Tax by staying the recovery of the balance amount of Rs.40.54 lakhs pending disposal of the appeal.

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• 2012 (3) TMI 286
  Addition u/s.40(a)(ia) - non Deduction of TDS - 'Reimbursement of manpower cost' - assessee contented that the amounts paid were reimbursement of advances against salaries and was not a sum chargeable to tax u/s.195 - According to the assessee, its agreement to recruit the employees on behalf of the assessee on the condition that the assessee would be reimbursing the payments made to them - Held that :- If the bona fide belief of the payer is that no part of the payment has any portion chargeable to tax, he will not enter into any procedure under s.195. However, if the Department is of the view that the payer ought to have deducted tax at source, it will have recourse under Section 201 of the Act - the assessee could be justified in reaching a bona fide impression that payments effected by it to CMS RDC was not sums on which tax was chargeable in India and was not at default of Chapter XVII-B and therefore, could not have been fastened with the consequences of the nature specified in Sec.40(a)(i) of the Act- appeals of the Revenue stand dismissed.

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• 2012 (3) TMI 281
  Turnkey project – taxability of amount receivable under project - DTAA between India and Germany - consortium formed by applicant (German company) and Samsung (Korean company) to undertake the project of carrying work of all activities and services required for the design, engineering, procurement, construction, installation, commissioning and handing over of the plant on a lump sum turnkey basis – project awarded by OPAL – assessee contended it to be divisible, off shore contract of sale and services, and consideration of obligations of the applicant independent of the obligations of Samsung - Held that:- It is supply and erection contract, and risk is retained not merely until delivery but until acceptance of the works by OPAL, which is after trial and commissioning of the project. Moreover, contract does not specify that title to the machinery shall pass on to OPAL on high seas or in the country of origin. There was no mention of off-shore or on-shore supply of services in contract. Therefore, situs of the contract is in India. Contract was awarded to the Consortium and not to the two members individually. Also, price schedule and payment also deals with the entire gamut of works to be performed under the contract. Therefore, this is a case of the applicant and Samsung forming an AOP in respect of the work undertaken by the Consortium. Since contract is indivisible, hence if a part of the design and engineering work prepared solely for manufacture, procurement of equipment outside India, is done outside the country, even if it constitutes a significant part, the same cannot be viewed in isolation and apart from the contract as a whole and amount received/receivable against the aforesaid are liable to tax in India. Since the assessment is to be as an AOP and taxable in India, the question of existence or non-existence of a PE does not arise.

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• 2012 (3) TMI 280
  Approval under section 80G - request was rejected by the DIT(E) as the trust deed contains object clause that objects are not confined to India alone and can be conducted outside Indian Territory - contention by the assessee has not taken up any activities outside India and the said clause 'r' of the objects clause-3 merely remained on paper and was never implemented - assessee has further submitted that it is charitable institution registered under section 12AA of the Act - as a precautionary measure, the Trust passed a resolution amending the clause 'r' and also made an application addressed to the DIT(E) requesting for permission to amend clause 'r' of the objects clause No.3.2 - Held that :- In the present case it is clear that all the conditions laid down in Rule 11AA i.e. condition laid down in sub-clauses (i) to (v) of sub-section (5) of section 80G are fulfilled. When the assessee trust was granted registration under section 12AA, it is a testimony to the fact that the trust is established for charitable purposes - Once the condition laid down in Rule 11AA as also in sub-clauses (i) to (v) of sub-section (5) of section 80G are complied with, the trust is, eligible for registration under section 80G(5)(vi) of the Act - the assessee has already made amendment to the trust deed amending Clause 3.2 - no objection to grant approval – appeal of assessee allowed

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• Customs

• 2012 (3) TMI 273
  Relief - Notification No.17/01-Cus dated 1.3.2001, as amended by Notification No.44/01-Cus, dated 26.4.2001 - Customs authorities had refused to accept the request of the assessee and accordingly, had directed the assessee to pay the duty under the provisions of the Customs Act, 1962 - It is a settled proposition in a fiscal or taxation law that while ascertaining the scope or expressions used in a particular entry, the opinion of the expert in the field of trade, who deals in those goods, should not be ignored, rather it should be given due importance - In G.P. Ceramics Private Limited v. Commissioner, Trade Tax, Uttar Pradesh, (2009) 2 SCC 90 - Decided in favor of the assessee

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• 2012 (3) TMI 272
  Waiver of predeposit of duty,interest and penalty and stay of the impugned order -the impugned goods imported namely urea, under the licence issued by the DGFT was required to be taken into the appellants-factory for manufacture of NPK Fertilizer and the same was packed and sold to authorized dealers to be used as manure for agricultural use by the farmers at the consumer price fixed by the Government in accordance with the provisions of Essential Commodities Act - the assessee contented that when the expression used in the notification 11/97, 23/98 and 20/99 is "for use as manure" and the urea has been sold under the Fertilizer Control Order, it has to be assumed that the urea was for use as manure and the exemption has to be allowed, in view of the affidavit filed by the appellants - Held that :- the customs duty exemption states that the same is not linked to the import condition of actual use as the relevant customs notifications provided for no conditions hence, order to waiver of predeposit of the duty and interest amounts during the pendency of the appeal - the appellants have definitely violated the conditions of import license hence the appellants need to predeposit Rs.5,00,000/- towards penalty within four weeks from the date of order and report compliance .

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• Service Tax

• 2012 (3) TMI 284
  IPO Financing Fees - demand confirmed against the applicants for IPO finance under the head "Business Auxiliary Services" on the activity undertaken where they are financing to their clients through Non Banking Finance Company which are sister concerns of the applicants and share the income of interest on revenue sharing basis - MOU between the applicants and the NBFC so as to arrange finance for the applicant's clients and to share the income earned from this activity after deducting the expenses - Held that :- As per the MOU, the applicants have agreed to compensate these NBFC's, if any demand arises thus have not acted as a commission agent, hence are doing business with these NBFC's on principal to principal basis and sharing their profits. Therefore, the applicants are not rendering any service under the category of "Business Auxiliary Services"- Processing fee - applicants are collecting money on behalf of the company who issues IPOs and deposit in a designated bank assigned by the IPO issuing company and banks shared interest earned by them with the applicants on money deposited - Revenue considered this activity of promotion of the business of the Banks and liable to pay service tax under the category of "Business Auxiliary Services" - Held that :- The amount of interest income which the bank shares with the applicant is not because applicant is promoting or marketing of any of the services provided by the bank and not liable to pay service tax - Recovery of Common expenses - expenses recovered by the applicants from the co-user of the premises on actual basis - Revenue considered such recovery under the category of infrastructural support service as the applicants are providing infrastructure support service to the co-user - Held that :- these activities are not covered under the "Business Support Services" as the applicants are paying the expenses incurred by them on all the premises and thereafter recovered from the co-user on actual usage basis - Complete waiver of pre-deposit of dues adjudged in the impugned order and stay recovery thereof during the pendency of the appeal

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• 2012 (3) TMI 283
  Whether a co-operative society can be held to be liable for service tax in respect of providing banking and other financial services as covered by the expression "or any other body corporate, or any other person" used in sub-section 65 (105) (zm) and sub-section 65 (12) - Appellants rely on the section 2 (7) of the Companies Act 1956 that " body corporate" or "corporation" includes a company incorporated outside India but does not include a co-operative society registered under any law relating to co-operative societies - assessee contented the co -operative societies are already excluded from the expression "body corporate" so it cannot be brought in by another expression which is not specific to include co-operative society - The argument of the Ld AR for revenue is that a co-operative society will be covered by the expression "any other person", because such societies also are doing banking business like any other bank - Held that :- since the Co-operative societies are managed by simplified controls through different enactments does not mean that for taxing the services such societies would be on a different footing as compared to services provided by a company - Since no specific exclusion is made in Finance Act, 1994,bank run by a co-operative society will come within the scope of entry 65 (105) (zm) and 65 (12) during the relevant time- since adjudication order has imposed both penalty under section 76 and section 78 the penalty under section 76 was uphold and set side penalty under section 78 - Appeals of assess were rejected on the issue of liability for tax and held the society to pay tax.

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• CST, VAT & Sales Tax

• 2012 (3) TMI 285
  Inter-state sale vs Intra-state sale – assessee registered under MP VAT Act and CST Act, 1956 purchased tendu leaves in bid organized by MP State MFP Co-operative Federation Ltd - High court held assessee liable for payment of tax under VAT merely relying upon certain clauses in the tender documents – assessee contending it to be inter-state sale and not exigible for the levy of tax under the relevant VAT Act - Held that:- In the instant case, relevant facts were not before the High Court nor the finding of the assessing authority to decide whether the transactions in question are intra-state sales or inter-state. In our view, whenever a question arises as to whether a sale is inter-state sale or not, it has to be answered with reference to Section 3 and when the question arises, in which State is the tax leviable, one must look to and apply the test in Section 9(i). Therefore, orders passed by the High Court are set aside and appellants are directed to file their monthly/annual returns before the assessing authority. It is also directed to assessing authority to adjudicate upon the returns so filed.

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• Wealth tax

• 2012 (3) TMI 292
  Addition - Search operations were conducted during the relevant year but no incriminating material/ document regarding understatement sale transaction was found - Assessing Officer, estimated fair market value of the property as on 1.1.1964 by adopting the rent capitalization method as provided in Schedule III to the Wealth Tax Act, 1957 - Assessing Officer held: - “The perusal of details submitted by the assessee company, indicate that sale consideration shown by the assessee company is absurd when compared with the rentals, these properties were fetching - The claim of the assessee is primarily based on the argument that its sale considerations are supported by sale deed/ other agreements etc - Held that: Assessing Officer failed to conduct a detailed enquiry and verification, which may have justified their stand regarding understatement or non-declaration of the actual sale consideration - Once it is shown that consideration has been understated, it may be open to the Assessing Officer to quantify the same by reference to the market value arrived at by the rent capitalization method in the absence of any material to show the precise extent of understatement - Revenue appeal dismissed

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