TMI Tax Updates - e-Newsletter
August 1, 2022
Case Laws in this Newsletter:
Articles
By: Dinesh Singhal
Summary: The article discusses the unresolved issue of Input Tax Credit (ITC) on demo vehicles under the Goods and Services Tax (GST) regime in India. It highlights conflicting rulings by various Advance Ruling Authorities (AARs) regarding the availability of ITC on demo vehicles used by car dealers for demonstration purposes. Some rulings have allowed ITC, considering the subsequent sale of demo vehicles as "further supply," while others have not, citing restrictions under Section 17(5)(a) of the CGST Act. The article argues for clarification from the authorities, suggesting that ITC should be allowed for demo vehicles as they are essential for business operations.
News
Summary: The share of exports of goods and services in GDP increased to 21.4% in 2021-22 from 18.7% in 2020-21. The overall share of goods exports in GDP rose to 13.3% from 10.9% during the same period. Key sectors contributing to this growth include engineering goods, petroleum products, and organic inorganic chemicals. The data, provided by the Ministry of Commerce and Industry, highlights a significant growth in exports, with a 36.7% increase in 2021-22, compared to a 19.5% growth in GDP. This information was shared in a written reply in the Rajya Sabha.
Summary: The Government e-Marketplace (GeM), established in 2016 by the Government of India, has achieved a total procurement value of Rs. 2,70,384 Crore as of July 25, 2022. GeM was created to modernize public procurement by utilizing technology, addressing inefficiencies, opacity, and delays in previous manual processes. The Union Cabinet approved expanding GeM's mandate to include cooperatives as buyers. GeM focuses on transparency, inclusiveness, and efficiency, providing open access to information and supporting diverse sellers, including SMEs and women entrepreneurs. The General Financial Rules were amended to mandate procurement through GeM, enhancing public procurement efficiency.
Notifications
Customs
1.
65/2022 - dated
29-7-2022
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Cus (NT)
Fixation of Tariff Value of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver
Summary: The Central Board of Indirect Taxes and Customs has issued Notification No. 65/2022-CUSTOMS (N.T.) dated July 29, 2022, revising tariff values for various goods under the Customs Act, 1962. The new tariff values, effective July 30, 2022, include Crude Palm Oil at USD 1067 per metric tonne, RBD Palm Oil at USD 1080, Crude Soya bean Oil at USD 1328, and Brass Scrap at USD 4416. For precious metals, Gold is set at USD 565 per 10 grams, and Silver at USD 629 per kilogram. Areca nuts remain unchanged at USD 7065 per metric tonne.
FEMA
2.
FEMA.3(R)(3)/2022-RB - dated
28-7-2022
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FEMA
Foreign Exchange Management (Borrowing and Lending) (Third Amendment) Regulations, 2022
Summary: The Reserve Bank of India issued the Foreign Exchange Management (Borrowing and Lending) (Third Amendment) Regulations, 2022, amending the 2018 regulations. Effective from the date of official gazette notification, the amendment temporarily increases the borrowing limit for External Commercial Borrowings (ECBs) from USD 750 million to USD 1500 million per financial year. This increased limit is applicable for ECBs raised until December 31, 2022. The amendment is made under the authority of the Foreign Exchange Management Act, 1999.
GST - States
3.
CCST.Ref.No.12039/125/2022 - dated
22-7-2022
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Andhra Pradesh SGST
Exemption of Tax Payers having Annual Aggregate Turnover upto Rs.2.00 Cr from the requirement of furnishing Annual return for the Financial Year 2021-2022
Summary: The Chief Commissioner of State Tax in Andhra Pradesh has issued an order exempting taxpayers with an annual aggregate turnover of up to Rs. 2 crore from the requirement to file an annual return for the financial year 2021-2022. This exemption is pursuant to the powers granted under the Andhra Pradesh Goods and Services Tax Act, 2017, and follows recommendations from the Goods and Services Tax Council. This decision aligns with Notification No.10/2022-Central Tax issued by the Government of India.
4.
G.O. Ms. No. 18 - dated
20-7-2022
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Puducherry SGST
Puducherry Goods and Services Tax (Amendment) Rules, 2022
Summary: The Puducherry Goods and Services Tax (Amendment) Rules, 2022, effective from July 5, 2022, introduce several amendments to the Puducherry GST Rules, 2017. Key changes include provisions for revoking suspended registrations upon filing pending returns, clarifying the value of Duty Credit Scrips, and specifying invoice declaration requirements for taxpayers exceeding certain turnover thresholds. Amendments also address erroneous refund deposits, introduce new payment methods like UPI and IMPS, and detail interest calculation on delayed tax payments. Additionally, updates to various GST forms and instructions, including GSTR-3B and GSTR-9, are outlined to enhance compliance and reporting.
5.
G.O. Ms. No. 17 - dated
20-7-2022
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Puducherry SGST
Seeks to extend dates of specified compliances in exercise of powers under section 168A of Puducherry Goods and Services Tax Act, 2017
Summary: The Government of Puducherry, under the authority of section 168A of the Puducherry Goods and Services Tax Act, 2017, has issued a notification extending certain compliance deadlines. The time limit for issuing orders related to tax recovery for the 2017-18 financial year is extended to September 30, 2023. Additionally, the period from March 1, 2020, to February 28, 2022, is excluded from the limitation period for issuing orders on erroneous refunds and filing refund applications under sections 54 and 55. This notification is effective from March 1, 2020.
6.
G.O. Ms. No. 16 - dated
20-7-2022
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Puducherry SGST
Amendment in Notification G.O. Ms. No. 2, dated the 3rd January, 2018
Summary: The Government of Puducherry has amended Notification G.O. Ms. No. 2, dated January 3, 2018, under the Puducherry Goods and Services Tax Act, 2017. The amendment, issued as G.O. Ms. No. 16 on July 20, 2022, changes the date in the fifth proviso from "30th day of June, 2022" to "28th day of July, 2022." This amendment is effective from July 5, 2022, as ordered by the Lieutenant-Governor on the recommendation of the Council. The notification was issued by the Development Commissioner-cum-Principal Secretary to Government (Finance).
7.
G.O. Ms. No. 15 - dated
20-7-2022
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Puducherry SGST
Amendment in Notification G.O. Ms. No. 34, dated the 5th August, 2019
Summary: The Government of Puducherry has amended Notification G.O. Ms. No. 34, dated August 5, 2019, under the Puducherry Goods and Services Tax Act, 2017. The amendment, effective from July 5, 2022, requires specified individuals to submit a statement detailing their self-assessed tax payments in FORM GST CMP-08 for the quarter ending June 30, 2022, by July 31, 2022. This change is issued by the Lieutenant-Governor of Puducherry, following the Council's recommendations, and is documented in Notification G.O. Ms. No. 15, dated July 20, 2022.
8.
3240/CTD/GST/2022/1 - dated
11-7-2022
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Puducherry SGST
Seeks to exempt taxpayers having AATO upto Rs. 2 crores from the requirement of furnishing annual return for FY 2021-22
Summary: The Government of Puducherry's Commercial Taxes Department issued a notification exempting registered taxpayers with an aggregate annual turnover of up to Rs. 2 crores for the financial year 2021-2022 from the requirement to file an annual return. This exemption is made under the authority of the Puducherry Goods and Services Tax Act, 2017, following the recommendations of the GST Council.
Circulars / Instructions / Orders
SEBI
1.
SEBI/HO/EFD1/EFD1_DRA4/P/CIR/2022/104 - dated
29-7-2022
Framework for automated deactivation of trading and demat accounts in cases of inadequate KYCs
Summary: The Securities and Exchange Board of India (SEBI) has established a framework for the automated deactivation of trading and demat accounts if Know Your Client (KYC) details are inadequate, particularly if addresses are outdated or incorrect. Market Infrastructure Institutions (MIIs), including stock exchanges and depositories, must attempt to deliver SEBI-issued notices physically. If delivery fails and acknowledgment is not obtained, accounts linked to the Permanent Account Number (PAN) will be deactivated. Entities can request reactivation by updating KYC records and providing proof of address and acknowledgment of receipt. The framework, effective August 31, 2022, applies to individual and joint accounts.
2.
SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/105 - dated
29-7-2022
Nomination for Mutual Fund Unit Holders – Extension of timelines
Summary: The Securities and Exchange Board of India (SEBI) has extended the timeline for mutual fund unit holders to submit nomination details or opt-out declarations. Initially mandated for investors subscribing on or after August 1, 2022, the deadline is now October 1, 2022. Asset Management Companies (AMCs) must offer unit holders the option to submit nomination or opt-out forms either physically, with wet signatures, or online. Online submissions can be validated using an e-Sign facility or two-factor authentication, including a One-Time Password sent to the registered contact details of the unit holder. This measure aims to protect investor interests and regulate the securities market.
3.
SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/0000000103 - dated
29-7-2022
Operational Circular for listing obligations and disclosure requirements for Non-convertible Securities, Securitized Debt Instruments and/ or Commercial Paper (updated as on December 01, 2022)
Summary: The Securities and Exchange Board of India (SEBI) has issued an operational circular detailing listing obligations and disclosure requirements for issuers of Non-convertible Securities, Securitized Debt Instruments, and Commercial Paper. This circular consolidates existing guidelines to streamline corporate bond market regulation, effective August 1, 2022. It includes formats for reporting the use of issue proceeds and credit rating reviews, among other submissions. Recognized stock exchanges and issuers must comply, update systems, and ensure stakeholder awareness. This circular supersedes previous ones, except those applicable to all listed entities, and is available on SEBI's website.
4.
SEBI/HO/IMD/DF2/CIR/P/2022/102 - dated
28-7-2022
Addendum to SEBI Circular on Development of Passive Funds
Summary: The Securities and Exchange Board of India (SEBI) issued an addendum to its previous circular on the development of passive funds, initially effective from July 1, 2022. The circular specified that direct transactions with Asset Management Companies (AMCs) for Exchange Traded Funds (ETFs) would be allowed only for transactions above INR 25 crore. However, due to feedback from stakeholders regarding implementation challenges, the applicability of this clause has been postponed to November 1, 2022. This decision aims to protect investor interests and regulate the securities market under the SEBI Act and Mutual Funds Regulation.
Customs
5.
11/2022 - dated
29-7-2022
Extension of Customs clearances beyond normal working hours in Inland Container Depot(s)
Summary: The Central Board of Indirect Taxes & Customs (CBIC) is considering extending 24x7 Customs clearance to Inland Container Depots (ICDs) to facilitate trade and ease business operations. Currently available at 20 sea ports and 17 airports, this extension aims to accommodate trade requirements. Chief Commissioners are advised to evaluate local needs and resources to implement extended clearance hours, which could include 24x7 operations, seven-day-a-week service, or specified extended hours. Decisions should consider trade requests, import/export volumes, and involve consultations with relevant parties. Adequate resources must be ensured, and decisions publicized through official notices. Difficulties in implementation should be reported to the Board.
Highlights / Catch Notes
GST
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High Court Invalidates Circular Contradicting GST Exemptions on Annuity Payments for Road Projects per Notifications 32 & 33/2017.
Case-Laws - HC : Exemption from CGST - toll charges - annuity (deferred payments) - Validity of clarificatory circular - The deliberation of GST Council in its meeting held on 06.10.2017 and the notifications issued pursuant thereto clearly exempts the entire annuity being paid to the petitioners towards construction and maintenance of roads. It cannot be construed to have not exempted the annuity (deferred payments) towards construction of roads. The impugned circular has the effect of overriding the notifications bearing Nos.32 and 33/2017 dated 13.10.2017 and has to be held as bad in law - HC
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Court Questions CGST and SGST Levy on Out-of-State Transport Services; Considers IGST u/s 12(9) IGST Act.
Case-Laws - HC : Levy of CGST and SGST - transportation services rendered by the drivers outside the State of Telangana - OLA - providing an electronic platform to the driver partners and to the customers - the requirement to pay IGST under Section 12(9) of IGST Act and correspondingly the nonliability to pay CGST and SGST insofar the transportation services rendered by the drivers were not considered in the right perspective. That apart though the impugned order is a lengthy one, the substantive portion appears to be without due application of mind to the legal provision. - HC
Income Tax
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High Court Allows Additional Depreciation for Assets Used Less Than 180 Days in Next Assessment Year.
Case-Laws - HC : Additional depreciation u/s 32(1)(iia) - asset put to use for less than 180 days - remaining 50% of allowable additional depreciation in the subsequent assessment year - whether the provision for allowing additional depreciation of remaining 50% is allowable in the subsequent year i.e. Assessment Year 2010-11, although the statute allowed the same w.e.f. 01.04.2016 ? - HELD Yes - HC
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PCIT Delays Jurisdiction Decision Until Post-Assessment, Contravening Section 124(4) of Income Tax Act.
Case-Laws - HC : Change of jurisdiction u/s 127 - As in the present case, the Assessing Officer rejected the objection regarding the jurisdiction and referred the matter to the PCIT to decide the issue after sixteen months. Further, the PCIT instead of deciding the issue of jurisdiction ordered that the issue of transfer of the jurisdiction will be decided after the completion of assessment. - the approach adopted by both the AO and PCIT was contrary to the mandate of law, in particular, Section 124(4) - HC
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High Court Dismisses Revenue Appeal; Upholds Project Completion Method for Income Recognition Consistency in Accounting Practices.
Case-Laws - HC : Revenue recognition - Accounting method - determination of income on completion of its projects - the method of accounting, namely, the project completion method was followed by the assessee and has been accepted by the Department and, thus, by applying the principle of consistency, the appeal of the revenue is dismissed. - HC
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Court Cautions Against Casual Tax Recovery from Directors u/s 179; Requires Proof of Company Insolvency First.
Case-Laws - HC : Recovery from the directors u/s 179 - Attachment of property - Arrears of taxes other liabilities of private company - here was no satisfaction recorded that the tax cannot be recovered. It needs to be understood that recovery procedure u/s 179 against the directors is not to be resorted to casually and only because it is convenient to do so for affecting recovery of the tax dues. - HC
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High Court Dismisses Revenue's Appeal: Penalty Notice u/s 271(1)(c) Lacked Specificity.
Case-Laws - HC : Penalty u/s 271(1) - Unaccounted cash receipts - assessment u/s 153A - the conclusion reached by the Tribunal in the instant case that the notice for imposition of penalty under Section 271(1) (c) of the Act, did not specify which limb of the said provision the penalty was sought to be levied is covered by various decisions of HC - Revenue appeal dismissed - HC
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Income from Royalties u/s 9(1)(vi) Examined Against Indo-Spain DTAA; Discrepancy in Definitions Noted.
Case-Laws - AT : Income accrued in India - Royalty u/s.9(1)(vi) - intra-group services fees - Coming to the Indo-Spain DTAA, it is axiomatic that the domestic law has not been linked with the definition of the term `royalties’ as given in the Article. The definition in the Article simply stops at receipt, inter alia, for use or right to use any ‘process’. In that view of the matter, we cannot read Explanation 6 to section 9(1)(vi) of the Act in the definition of the term `royalties’ under the Article. Though the term ‘process’ under the Act also includes payment for leased line charges in the light of Explanation 6, but absence of any analogous provision in para 3 of Article 13 of the DTAA, does not commend us to read the extended scope of the term `process’ in the DTAA. The contrary view espoused by the ld. CIT(A), ergo, cannot be accorded imprimatur. - AT
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Court Re-examines Section 54 of Income Tax Act for Multi-Unit Capital Gains Investment in 2015-16 Assessment Year.
Case-Laws - AT : LTCG - Deduction u/s. 54 - scope of amendment - "one" versus "a" - investment of capital gain into more than one residential units - Commissioner though referred the latest provisions of section 54 of the Act, however without giving any definite finding qua applicability of the latest provisions of section 54 as applicable to the case in hand, decided the appeal of the Assessee, while referring some decisions which admittedly pertains to period prior to amended provisions of section 54 of the Act, as applicable to AY 2015-16 involved in this case. - Matter restored back - AT
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Section 147 Reopens Case: Assessee Fails to Prove Purchases, Bogus Transactions Confirmed, Income Additions Upheld.
Case-Laws - AT : Reopening of assessment u/s 147 - Bogus purchases - In view of failure on the part of the assessee in substantiating the purchases from those two parties, the Assessing Officer in background of the information in investigation report, interalia, those parties were engaged in providing accommodation entries, without physical delivery of goods, held the purchases from those two parties as bogus purchases. - Additions confirmed - AT
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Court Confirms Additions u/s 68 Due to Lack of Proof on Lender's Creditworthiness and Loan Authenticity.
Case-Laws - AT : Addition u/s 68 - unexplained cash credit - unsecured loan - the assessee has not been able to establish the creditworthiness of lender nor has he been able to establish the genuineness of transaction. A perusal of the statement taken on record of the creditor raises serious doubt both on the creditworthiness of the party and genuineness of the transaction. - additions confirmed - AT
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Taxpayer's Benchmarking Accepted: License Fees for Software Services Found at Arm's Length, Overruling Initial Nil and Ad Hoc Rs. 50 Lakh Determinations.
Case-Laws - AT : TP Adjustment to the licence fees paid for time and billing software - Determination of arm's length price at Nil in grounds 1 & 2 and at Rs. 50 lakhs on ad hoc basis in ground 3 is contrary to the provisions of the Act. Resultantly, the benchmarking done by the assessee is more acceptable and the transactions of the assessee with its AE for the services availed is held to be at arm's length. - AT
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Court Rules AO Incorrectly Denied Taxpayer's Claim on Cost of Acquisition for Non-Bonus Debentures.
Case-Laws - AT : Capital Gain - computation of cost of acquisition - bonus debentures or not - re-investment of dividend amount - An amount was indeed received on behalf of the assessee and this amount has been reinvested in the debentures. The debentures were not ‘bonus’ debentures and the nomenclature given by the AO is thus incorrect. The taxes were duly paid on the deemed dividend in question, and it did constitute income of the assessee, even though received by a merchant banker on behalf of the assesse. - AO erred in declines the claim of the assessee with respect to cost of acquisition in respect of these debentures. - AT
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Taxpayer Eligible for Deduction u/s 80IB Even Without SSI Certificate During Assessment Proceedings.
Case-Laws - AT : Deduction u/s 80IB - failure to produce SSI certificate before the AO - No adverse inferences qua the entitlement of the assessee for deduction u/s 80IB could have been drawn, for the reason that the assessee had in the course of the assessment proceedings failed to place on record its certificate of registration as a SSI. - AT
Customs
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High Court Rules Show Cause Notice Premature Due to Lack of Evidence and Finalized Offence.
Case-Laws - HC : Validity of SCN - 100% EOU - Private Warehouse - Cancellation of licence under Sub Section 2(b)of Section 58 granted to petitioner under Sub-Section (1) of Section 58 of the Customs Act, 1962 - If Respondent No.2 was relying on any seizure panchanama or any other material, the same should have been mentioned in the show cause notice issued to afford fair and reasonable opportunity to petitioner to respond. That has not been done. Further, Respondent No.2 for issuing show cause notice has relied upon six show cause notices and an offence booked by DRI but none of these had attained finality. They were pending at various stages. - Thus, issuance of show cause notice itself was premature. - HC
Corporate Law
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Company Reduces Share Capital with Tribunal Approval; No Creditor Objections, Shareholders Pass Special Resolution per Section 66(1)(b.
Case-Laws - AT : Reduction of share capital - the Company has complied with all the statutory requirements as per the directions of the Tribunal and has also filed necessary Affidavits to that effect. It is also pertinent to mention that none of the Creditors objected to the reduction of the Capital. Section 66(1)(b) of the Act enables a Company to reduce its Share Capital ‘in any manner’ provided it is approved by the majority of Shareholders through a Special Resolution. - appeal allowed - AT
IBC
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CIRP Application Rejected: Meeting Minutes Don't Prove Financial Debt; Arbitration Clause in Contract Overrules IBC Proceedings.
Case-Laws - AT : Rejection of application for initiation of CIRP - The mere fact that the Corporate Debtor has admitted liability to make payment in its minutes of meeting does not change the character of the transaction into a financial debt. In Clause 18 of the contract contains arbitration clause, for settling amicably by mutual consultation and thereafter approaching the arbitration as per Arbitration & Conciliation Act, 1996. The Appellant ought to have taken recourse to Clause 18 of the Sub-Contract Agreement dated 07.03.2017 and these issues could not have been decided in IBC proceedings. The Adjudicating Authority has rightly held that it was not financial debt and rejected Section 7 Application. - AT
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CIRP Application Rejected Due to Pre-Existing Substantial Dispute as Required by Section 9(5).
Case-Laws - Tri : Initiation of CIRP - The Corporate Debtor is not to raise bogie of disputes but there has to be real substantial dispute. The existence of dispute when the Demand Notice was issued is mandatory condition for exercising jurisdiction to reject the Application by the Adjudicating Authority as is referred to in sub-section (5) of Section 9. The statute uses the expression 'existence of a dispute' - since, there exists a pre-existing dispute, the application is rejected - Tri
PMLA
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Interpreting "and" as "or" in PMLA Section 3 broadens money laundering scope; Section 5 remains constitutionally valid.
Case-Laws - SC : Power to investigate under PMLA - the expression “and” occurring in Section 3 has to be construed as “or”, to give full play to the said provision so as to include “every” process or activity indulged into by anyone. Projecting or claiming the property as untainted property would constitute an offence of money-laundering on its own, being an independent process or activity. - Section 5 of the 2002 Act is constitutionally valid. It provides for a balancing arrangement to secure the interests of the person as also ensures that the proceeds of crime remain available to be dealt with in the manner provided by the 2002 Act. The procedural safeguards as delineated by us hereinabove are effective measures to protect the interests of person concerned. - SC
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Supreme Court Clarifies "Investigation" and "Inquiry" Terms in Prevention of Money-Laundering Act, 2002, Section 2(1) Interpretation.
Case-Laws - SC : Constitutional validity and interpretation of certain provisions of the Prevention of Money-Laundering Act, 2002 - procedure followed by the Enforcement Directorate (ED) while inquiring into/investigating offences under the PMLA - The expression “investigation” in Clause (na) of Section 2(1) of the 2002 Act does not limit itself to the matter of investigation concerning the offence under the Act and is interchangeable with the function of “inquiry” to be undertaken by the Authorities under the Act. - SC
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