TMI Tax Updates - e-Newsletter
August 27, 2015
Case Laws in this Newsletter:
TMI SMS
Articles
By: Bimal jain
Summary: The Chandigarh Commissionerate clarified that free home delivery or pick-up of food is not subject to Service tax, as the transaction is considered a sale rather than a service. This decision aligns with the Central Board of Excise and Customs' (CBEC) intention to exempt such transactions from Service tax, as they do not involve service elements like dining amenities. The clarification emphasizes that Service tax applies when food is served in a restaurant, not when delivered or picked up, which instead attracts VAT under state law. This clarification is crucial for consistent application across jurisdictions.
By: Dr. Sanjiv Agarwal
Summary: The article discusses the taxability of lease premiums under service tax law. It distinguishes between upfront lease premiums and periodic lease charges, noting that service tax applies only to the latter. Lease premiums, considered a one-time payment for obtaining a lease, are not subject to service tax as they do not constitute payment for the continued use of property. Various judicial rulings support this view, emphasizing that service tax is applicable only on periodic rent payments, not on lease premiums or notional interest on security deposits. The article concludes that lease premiums are capital receipts, not taxable under service tax.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: A proviso is a legal clause added to a principal clause to exclude certain elements from the main provision. Its primary function is to qualify or limit the main clause, although it can sometimes serve as an independent provision. Courts have recognized that a proviso can clarify the scope of a statute, especially when the main provision is ambiguous. The interpretation of a proviso requires considering the context and purpose of the legislation. It is typically meant to carve out exceptions from the main provision, but in certain cases, it may act as a substantive provision itself, as noted in various judicial interpretations.
News
Summary: The Central Board of Excise and Customs has amended its notification regarding the exchange rates of certain foreign currencies for imported and exported goods, effective from August 26, 2015. Changes in Schedule-I include updated rates for the Danish Kroner, Euro, and Swiss Franc, with specific rates for both import and export transactions. In Schedule-II, the rate for the Japanese Yen has been revised. These adjustments are made under the authority of Section 14 of the Customs Act, 1962, aimed at aligning the exchange rates used for customs purposes with current market conditions.
Summary: The Deputy Governor addressed the FIBAC 2015 conference, emphasizing the synergy between disruptive innovation and inclusive growth, particularly in the financial sector. Disruptive innovations, such as mobile technology and new banking models, are enhancing financial inclusion by reaching underserved populations. Initiatives like Payment Banks and Small Finance Banks aim to provide financial services to low-income groups, fostering inclusive growth. However, he cautioned against unregulated disruptive innovations like cryptocurrencies and crowdfunding, which pose risks such as money laundering and lack of regulatory oversight. The speech highlighted the importance of balancing innovation with regulatory vigilance to ensure sustainable growth.
Summary: The Reserve Bank of India set the reference rate for the US Dollar at Rs. 66.1610 on August 26, 2015, down from Rs. 66.7090 on August 25, 2015. Consequently, the exchange rates for other currencies against the Rupee were adjusted. The Euro was valued at Rs. 75.8867, the British Pound at Rs. 103.8794, and 100 Japanese Yen at Rs. 55.28 on August 26, 2015. These rates are determined using the reference rate for the US Dollar and the middle rates of cross-currency quotes. The SDR-Rupee rate is also based on this reference rate.
Notifications
Customs
1.
82/2015 - dated
25-8-2015
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Cus (NT)
Rate of exchange of conversion of the foreign currency with effect from 26th August, 2015
Summary: The Central Board of Excise and Customs issued Notification No. 82/2015 on August 25, 2015, amending the exchange rates for certain foreign currencies effective from August 26, 2015. In Schedule-I, the exchange rates for the Danish Kroner, Euro, and Swiss Franc were updated for both imported and export goods. The rates are 10.40 and 10.15 for the Danish Kroner, 77.60 and 75.75 for the Euro, and 71.90 and 70.20 for the Swiss Franc. In Schedule-II, the exchange rate for the Japanese Yen was set at 56.05 for imports and 54.80 for exports.
SEZ
2.
G.S.R. 627(E) - dated
6-8-2015
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SEZ
Special Economic Zones (Second Amendment) Rules, 2015
Summary: The Central Government has issued the Special Economic Zones (Second Amendment) Rules, 2015, under the authority of section 55 of the Special Economic Zones Act, 2005. These amendments modify the Special Economic Zones Rules, 2006, specifically altering rule 30, sub-rule (1). The amendment replaces the reference to "ARE-1" in Notification number 42/2001-Central Excise (NT) with both "ARE-1" and "ARE-2" as referred to in Notification number 21/2004-Central Excise (NT). These changes are effective from the date of their publication in the Official Gazette.
Circulars / Instructions / Orders
Service Tax
1.
C. No. ST-20/STD/Misc./Sevottam/62/12/4693 - dated
13-8-2015
Clarification on levy of Service Tax on food sold by way of Pick-up or Home Deliveries –C/Regarding
Summary: The circular from the Office of the Deputy Commissioner clarifies that Service Tax is not applicable to food sold through pick-up or home delivery by restaurants, as these transactions are primarily sales rather than services. The absence of in-restaurant services such as ambience, entertainment, or personalized hospitality means the dominant nature is sale. Service Tax applies only if there is an element of service, such as food being served on the premises. Additionally, no Service Tax is charged if the delivery is free. This clarification is issued with the approval of the Additional Commissioner.
Customs
2.
19/2015 - dated
10-8-2015
Facility of Direct Port Delivery-Reg.
Summary: The Commissioner of Customs in Cochin has issued a notice regarding the Direct Port Delivery (DPD) facility. Importers, Customs Brokers, and related stakeholders are advised not to indicate a Container Freight Station (CFS) in the Import General Manifest (IGM) for DPD containers, as it is unnecessary and affects bond debiting. DPD holders should instruct steamer agents accordingly to avoid unnecessary movement approvals. Out of Charge should be obtained from Port CFS (Q10) unless special permission is granted to use another CFS. This directive is effective immediately, and any implementation issues should be reported to the Commissioner.
Highlights / Catch Notes
Income Tax
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No Penalty for Urgent Loan from Political Party: Genuine Transaction u/s 271D, No Violation of Section 269SS.
Case-Laws - HC : Penalty under Section 271D - violation of provisions of Section 269SS - the funds were urgently required for conversion of the property, a loan was taken from the Samajwadi Party, which was deposited in her account and, subsequently, the loan was paid back to the Samajwadi Party - as the genuineness of the transaction has not been disputed by the AO - No penalty - HC
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ITAT to Reassess Penalty u/s 271C for Non-Deduction of TDS, Not TDS Applicability u/ss 194J/194C.
Case-Laws - HC : TDS liability - ITAT was not required to decide whether the amount paid was liable to be deducted u/Sec. 194J or 194C but whether on non-deduction of TDS, penalty was leviable u/Sec. 271C of the Act or not - ITAT to re-adjudicate the matter - HC
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US Entity's Income in India Not Liable for TDS Due to No Permanent Establishment u/ss 195 & 197.
Case-Laws - HC : Liability for deduction of TDS u/s 195 r/w S.197 - the income earned by M/s Sheraton International, USA in India was not liable for deduction of TDS u/s 195 r/w S.197 of the Act, in respect of payments made by the assessee as they did not have a permanent establishing in India as per S.9 r/w its explanation - HC
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Court Approves Assessee's Claim of Expenditure u/s 37 for Employee-Induced Loss to IHCL, Deeming it Legitimate.
Case-Laws - HC : Addition under the head of 'fraud payment'- The failure by the Assessee's employees to do so resulted in a legal liability on the Assessee to make good the loss to IHCL - claim of expnediture u/s 37 allowed - HC
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High Court Upholds Tribunal Decision: Revised Tax Return u/s 139(5) Admissible Even After Deadline.
Case-Laws - HC : Interpretation of Section 139(5)- whether Tribunal is right in law in holding the 'revised return' of income filed by the assessee beyond the time limit prescribed under section 139(5) of the Income Tax Act is admissible? - Held Yes - HC
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Assessee cannot raise issues at Tribunal without prior objection to Dispute Resolution Panel u/s 144C(8).
Case-Laws - AT : TPA - the assessee cannot seek to raise an issue before the Tribunal in respect of which he has not filed any objection before the Dispute Resolution Panel nor has the Dispute Resolution Panel considered the issue in exercise of their powers u/s 144C(8) - AT
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Transfer of Development Rights to Subsidiary Not Considered Income, Excluded from Book Profit u/s 115JB.
Case-Laws - AT : Profit on transfer of development rights to the fully owned subsidiary company - since the said profit does not fall under the definition of “income” at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB - AT
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Provision for SOBM and Drill Cutting Disposal Expenses Considered Tax Neutral; Deduction Allowed in Subsequent Year.
Case-Laws - AT : Expenditure claimed under the head “provision towards SOBM and drill cutting disposal expenses” - the said provision is offered as income in the succeeding year in the form of reduction of corresponding expenditure - claim is tax neutral in nature - deduction allowed - AT
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Court Rules Future Profits Irrelevant in Current Arm's Length Price Calculation for Cross-Border Deals.
Case-Laws - AT : Transfer pricing adjustment - there is no justification for inclusion of the future year’s profit margins while determining the ALP of the current year’s international transactions. - AT
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Assessing Officer Lacks Evidence on Alleged Profit Shifting to Clients; Relied Solely on MCX Report.
Case-Laws - AT : Addition relating to shifting of profits made - AO has not brought any material on record to show that the assessee had received back corresponding amount equivalent to the amount of profit claimed to have been shifted to the clients. The AO has mainly relied upon the report given by the MCX and has drawn adverse conclusions without bringing any material to support his view. - AT
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Section 69C Addition Challenged: Sale Deed Declared Null & Void, No Evidence of Cash Transaction, No Addition Made.
Case-Laws - AT : Addition made u/s 69C - the vary basis for making the addition i.e. the Sale Deed was declared as Null & Void and there was no evidence available on the record to substantiate that the cash transaction had ever passed hands - no addition - AT
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Erroneous Tax Orders Can Be Revised u/s 263 to Protect Revenue Interests and Ensure Proper Tax Collection.
Case-Laws - HC : Revision u/s 263 - According to the scheme of the Act, the revenue is entrusted with the levy and collection of tax in accordance with law. If due to an erroneous order of the Assessing Officer, the revenue is deprived of tax lawfully payable by an assessee, it would certainly be prejudicial to the interests of the revenue. - HC
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Investment Delays in REC Bonds Don't Deny Section 54EC Tax Exemption; Non-Availability Not a Valid Reason.
Case-Laws - AT : Disallowance of exemption claimed u/s 54EC on investment in REC Bonds - Claim of the assessee cannot be denied on the only ground of delay in investing in the REC Bonds due to non-availability of REC Bonds. - AT
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Functional Similarity in Transfer Pricing: Previous Year's Analysis Holds in Current Year Assessments.
Case-Laws - AT : Transfer pricing adjustment - in the earlier year once these two companies have been found to be functionally similar, then in this year they cannot be rejected on functional analysis. - AT
Customs
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Palm Oil Import Ban Upheld: Authorities Show Rational Basis, No Violation of Article 14 Found.
Case-Laws - SC : Prohibition on import of Palm oil – Violation of Article 14 – Revenue have been able to demonstrate intelligible basis for issuing impugned Notifications having rational nexus with objectives sought to be achieved – Thus, it cannot be said that notification was violative of Article 14 of Constitution - SC
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Tribunal's Deposit Condition Unjustified: No Evidence of Policy Violation by Assessee in Commissioner's Findings.
Case-Laws - HC : Precondition to Appeal – Reproduction of Commissioner’s findings show that there was no conclusion reached that assessee had violated any comprehensive policy or any provisions in Customs Manual –That itself made out arguable case - Tribunal was not justified in imposing condition of deposit on assesse - HC
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Court Orders Deportation for Two Women Convicted of Drug Export; Considers Their Role as Mothers in Decision.
Case-Laws - HC : Attempt to export controlled substance – Both convicts have young children to look after and it is also to be borne in mind that convicts are women - Appeal disposed off with direction that both accused be deported to their country - HC
Corporate Law
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SEBI Orders Wind-Up of Non-Compliant Collective Investment Schemes; SAT Upholds Decision to Protect Investors' Interests.
Case-Laws - AT : Registration for operating CIS scheme - sham CIS – Winding up of scheme and refund on non-compliance – Whether SEBI was justified in holding that schemes floated by Applicant constitute Collective Investment Schemes (CIS) under SEBI Act, 1992 and that Applicant and its promoters and directors, were liable to wind up said schemes – Held Yes - SAT
Service Tax
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Court Rules 536-Day Appeal Delay Excusable Due to Advocate's Ill Health; Litigant Not Penalized for Uncontrollable Circumstances.
Case-Laws - HC : Condonation of delay - Inordinate delay of 536 days - the appeal should not have been dismissed merely on the ground of delay because a litigant should not suffer because of ill health of the Advocate - HC
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Lumpsum Job Work Contracts in Factories Exempt from "Manpower Supply Recruitment Services" Classification for Service Tax.
Case-Laws - AT : Job Work activity - lumpsum contract of carrying out the job in the factory premises - This activity will not be covered under the category of "Manpower Supply Recruitment Services" - AT
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Selling SIM cards with prepaid service tax by telecom companies isn't a Business Auxiliary Service.
Case-Laws - HC : Business Auxiliary Service - Sale of SIM cards - activity of purchase and sale of SIM Card belonging to BSNL where BSNL has discharged the Service Tax on the full value of the SIM cards does not amount to providing Business Auxiliary Service - HC
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Provision of Table Space to Banks Not Taxable Under Business Auxiliary Services; Service Tax Demand Set Aside.
Case-Laws - AT : Business Auxiliary Services - Space provided to banks - mere providing of table space will not give valuable inputs to identify as to what taxable service is rendered. - Demand set aside - AT
Central Excise
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Valuation of excisable goods must consider "transaction value" and "cash discounts" per Section 4 at removal time.
Case-Laws - SC : Valuation - what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be - “cash discount” has therefore to be taken into account in arriving at “price” even u/s 4 - SC
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Vaseline Classified as Medicament for Cracked Heels; Primary Treatment Use Places it in Chapter 30 Classification.
Case-Laws - SC : Classification of Vaseline - the product was formulated and essentially used for treatment of 'cracked heels' - smoothing the skin was secondary in nature - it was to be treated as a medicament and classified under Chapter 30 - SC
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Authorities Delay Action on Unlicensed Activity; Show Cause Notice Issued Years Later, Extended Limitation Period Invoked.
Case-Laws - SC : Invocation of extended period of limitation - When the authorities ask the appellants to take licence in the year 1983 itself and the respondents did not comply, nothing prevented the authorities to take action against the respondents immediately, rather than waiting for number of years before issuing the show cause notice - SC
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Court Allows Revenue to Recover Excise Duty After Multiple Adjournments Due to Appellant's Conduct.
Case-Laws - AT : Recovery of excise duty - since Last 2 years the case has been listed number of times and getting adjourned - Keeping in view the conduct of appellant/advocate Revenue is free to recover the adjudged liability. - AT
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VAT Excluded from Excise Duty Due to Genuine Belief; Longer Limitation Period for Duty Recovery Not Applicable.
Case-Laws - AT : Valuation - Short payment of excise duty - appellant had acted under bona fide belief that VAT amount collected by them from the customers and retained was not includible in the assessable value - longer limitation period would not be available and as such - AT
VAT
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High Court: No reversal of Input Tax Credit when credit note issued, as no DVAT provision undermined by discounts.
Case-Laws - HC : Reversal of Input Tax Credit on issuance of credit note – nothing has been brought on record by Department to show that arrangement by which discounts/incentives were offered to purchasing dealers by selling dealers was with view to "defeat the application or purposes of" any provision of DVAT - ITC not be reversed - HC
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Court Rules Interest on Tax Refunds Starts from Deposit Date, Not Assessment Order Date.
Case-Laws - HC : Interest on refund of Tax demand – Interest to be granted from date of deposit or from the date of assessment order – Revenue suffers no loss thereby for it has enjoyed benefit of money during period - interest allowed from the date of deposit - HC
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