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Union Budget 2017-18: Key expectations and highlights

Budget - By: - Bimal jain - Dated:- 31-1-2017 - Dear Professional Colleague, With complete washout of Winter Session of the Parliament in the awake of demonetisation issue coupled with tug of war on dual control issue (which finally got the consensus in 9th GST Council meeting held on January 16, 2017), all eyes are now on the Budget session of the Parliament, where the Model GST Laws are likely to be placed for approval of both the Houses of Parliament, commencing from January 31, 2017. The Uni .....

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conomy forward. Apart from these, for bringing the trend of cashless transactions, certain benefit measures can be taken in form of incentives for digital payments. The government has already taken a number of steps to encourage electronic payments like Service tax on payments made through debit and credit cards upto ₹ 2000 have been removed, cheaper petrol and diesel when paid electronically, etc. With the realistic date, as stated by the Hon ble Finance Minister, Mr. Arun Jaitley regardi .....

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ble taxation on Ocean freight paid for import of goods: Ocean freight paid for import of goods suffers from double taxation. Firstly, it is included in the assessable value for calculating Basic Customs duty which is done on CIF basis. Secondly, Service tax is charged under reverse charge after the amendment made by Finance Act, 2016, by removing services by way of transportation of goods by an aircraft or a vessel from a place outside India to the customs station of clearance in India , from th .....

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ervices is the location of service provider. Recommendation: Amendment in Rule 9 of the POP Rules is required in case of intermediaries providing services to foreign companies, as, they are often unable to collect Service tax from foreign service importer and tax becomes their cost, which, reduces the competitiveness and profit margin. Clarification on manner to register under Service tax of a person located in a non-taxable territory in India Recent amendments have been made in Service tax w.e. .....

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transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, person liable for paying Service tax other than the service provider, shall be the person in India who complies with Sections 29 (Arrival of vessels and aircrafts in India), 30 (Delivery of import manifest or import report) or 38 (Power to require production of documents and ask questions) read with Section 148 (Liability of agent appointed by the person in charge of a conveyance) of t .....

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rson located in non-taxable territory, by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India With the recent amendment w.e.f. January 22, 2017, in respect of services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory, by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India (discussed supra), w .....

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ry fees paid to Foreign Government s/agencies: As a result of insertion of the definition of Government vide the Finance Act, 2015, Service tax is to be paid under reverse charge basis by Chemical/Pharma companies, who are required to pay statutory fees to the Foreign Government for registration of their product etc, resulting in huge Service tax outflow. Recommendation: Exemption from levy of Service tax under reverse charge on statutory fees paid by Chemical/Pharma companies to Foreign Governm .....

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ices relating to events), is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided. Recommendation: Exemption from Service tax to be provided for the services provided by SEZ units to recipients located outside India but who are taxable in India under Rule 4 or Rule 7 of the POP Rules. Clarification on the applicability of Service tax on shar .....

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provided on the applicability of Service tax for sharing of expenses between two associated companies/sister concerns where there is no margin. PART II: EXCISE DUTY Exemption for tax on goods/services used for sewerage projects: Swachh Bharat is one of the major Government s initiative and in this regard sewerage and sewerage projects are important aspect in Public Health and Sanitation. Recommendation: Exemption from payment of Excise duty & Swachh Bharat Cess ( SB Cess ) on goods and serv .....

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e brunt of inverted duty structure. Some chemicals used in the manufacture of medicines draw a duty of as high as 12%, while free trade agreements (FTAs) ensure the finished products draw negligible duty. This inverted duty structure results in accumulation of credit as the complete amount of duty paid on inputs cannot be set off against the output tax liability. Recommendation: Inverted duty structure for Active Pharmaceutical Ingredients (APIs) and other pharmaceutical inputs/raw materials sho .....

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ation: The activity of change in label of the product without altering its MRP and thus providing only additional information on the product should not be considered as manufacturing activity liable to Excise duty. Further, in case of reduction in prices, as duty is already deposited on MRP value, there should not be any additional duty liability by considering it to be manufacture. Prescribed time limit for granting remission of duty: As per Rule 21 of the Central Excise Rules, 2002, remission .....

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et, 2016, Tariff rate of BCD was increased from 7.5% to 10% on 206 specified tariff lines falling in Chapters 84 and 85 of the Customs Tariff Act, 1975. Recommendation: It is suggested to restore Basic Customs duty from 10% to 7.5% on specified goods required for make in India initiatives, in Chapters 84 and 85 of the Customs Tariff Act, 1975. Education cess (EC) & Secondary Higher Education cess (SHEC) levied on Import duty charged on imported material should be abolished The EC and SHEC on .....

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ssed above. Recommendation: Clarification is required on the inclusion of value of services and intangible rights procured in relation to imported goods so as to avoid double taxation under the Customs Act, 1962 and the Finance Act, 1994. Increase in the interest-free warehousing period for imported goods: The facility of warehousing of imported goods in Customs Bonded Warehouses, without payment of Customs duty otherwise leviable on import, is permitted under the Customs Act, 1962 and Rules mad .....

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nch procedures: The Special Valuation Branch ( SVB ) is an institution specialising in investigation of transactions involving special relationships and certain special features having bearing on value of import goods. Recommendation: Proper guidelines should be provided for reducing multiple procedural compliances by introduction of a single window co-ordination for faster closure of SVB procedures. PART IV: CENVAT CREDIT Utilization of balance of accumulated EC & SHEC: Levy of EC and SHEC .....

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payment of Service tax. Input services consumed by employee during employment: Rule 2(l) of the Cenvat Credit Rules, 2004 ( the Credit Rules ), restricts availment of Cenvat credit on input services such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, whe .....

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Highlight: When electrical installations are treated as plant and machinery the depreciation has to be allowed @ 25% as per provisions contained u/s 32

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Highlight: Voluntary Reporting of Estimated Current Income and Advance Tax Liability - CBDT issues draft notification

TMI Note: Certain ICDS provisions are inconsistent with judicial precedents. Whether these judicial precedents would prevail over ICDS.

Highlight: Provisions of ICDS shall prevail w.e.f. AY 2017-18 to the transactional issues dealt therein over earlier judicial pronouncements.

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News: Voluntary Reporting of Estimated Current Income and Advance Tax Liability

TMI Note: In case of conflict between ICDS and other specific provisions of the Income-tax rules, 1962 governing taxation of income like rules 9A, 9B etc. of the Rules, which provisions shall prevail.

TMI Note: Does ICDS apply to computation of Minimum Alternate Tax (MAT) u/s 115JB of the Act or Alternate Minimum Tax (AMT) u/s 115JC of the Act.

TMI Note: Where a term has not been defined under ICDS, nor under the Act, but has different interpretations given to it by the courts in tax cases, and in ICAI Accounting Standards, which interpretation would prevail while interpreting ICDS.

TMI Note: Whether the provisions of ICDS apply to a non-resident who claims the benefit of a double taxation avoidance agreement (DTAA).

TMI Note: In case any of the ICDS provisions is contrary to a circular or press release issued by the CBDT, which would prevail over the other.

TMI Note: ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific disclosures. Where is the taxpayer required to make such disclosures specified in ICDS.

Notification: Income Computation and Disclosure Standards (ICDS) - New ICDS to be effective from AY 2017-18

News: RBI Reference Rate for US $

Highlight: GST - Detention of goods under transport - discrepancy in documents - the statutory provisions provide a mechanism for adjudication following detention of goods including for the provisional release thereof pending adjudication - HC

Highlight: Reassessment - first few paragraphs of the assessment order dealt with objections and disposed of accordingly - Unfortunately, the manner in which the AO has decided the issue is wholly unsustainable in law - HC

Highlight: Business expenditure u/s 37 - liquidated damage - breach of contract terms - Expenditure was not incurred for any purpose which is an offence or which is prohibited by law - cannot be disallowed - HC

Highlight: Valuation - inclusion of reimbursement of expenses - managing participation of clients in certain mela, fairs, promotional activities etc. - They are liable to service tax on the gross amount received - They cannot restrict their tax liability to only agency commission

Highlight: TDS liability - ITAT confirmed the liability - We do not see how it is possible for us to uphold the order of the Tribunal and when it purports to decide two Appeals of the Revenue by single paragraph conclusion - HC

Highlight: Reopening of assessment - sufficiency of material available with the AO to form a belief that income chargeable to tax had escaped assessment - bogus purchases - seller refused to respond - notice would not be interfered with - HC

Highlight: Exemption u/s 11 - education activities - transport and hostel facilities surplus cannot be considered as business income of the assessee society

News: Draft Notification for insertion of new rule 39A in the Income-tax Rules, 1962 comments and suggestions-reg.

Highlight: Genuineness of labour wages expenses, embroidery charges, fabrication expenses etc. - getting work done through small workmen who do not have any permanent place of residence - disallowance of ad hoc expenditure deleted.

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Highlight: Import of services - GST - The fact that those services were received outside India will not change the fact that the services have been paid for by the beneficiary appellant, who is located in India. - Demand confirmed.

Notification: SEZ for IT/ITES at Madhurwada Village, Visakhapatnam District in the State of Andhra Pradesh - denotified.

Highlight: Merely because payment is received in Indian rupee, it cannot be said that payment against export has not been received in convertible foreign exchange.

Highlight: Merely vehicle numbers was not mentioned on the invoices cannot be the reason to deny Cenvat Credit

Highlight: Extension of time limit for submitting the declaration in FORM GST TRAN-1 under rule 120A of the Central Goods and Service Tax Rules, 2017 - Circular

Circular: Extension of time limit for submitting the declaration in FORM GST TRAN-1 under rule 120A of the Central Goods and Service Tax Rules, 2017

News: Auction for Sale (Re-issue) of Government Stocks

Article: TDS APPLICABILITY ON GOVERNMENT CONTRACTS UNDER GST (Under Section 51 of the CGST Act, 2017)

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