NEWSLETTER- JUL 2018baroda-icai.org/Module2011/MemberNewsLetter/Full/1_98.pdf · 2018-07-07 · Baroda Branch of WIRC of ICAI 3 apparentlyabettedinthecommissionofacolossal act of

Volume - VI | July 2018

Baroda Branch of Western India Regional Council ofThe Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India(Setup by an Act of Parliament)

EditorialTeam

Contents

CA. Dhiren Parikh 93762 11099Chairman

CA. Hitesh Agrawal 99980 28737

CA. Krunal Bhrambhatt 78748 11551

CA. Vin d Pahilwani 98980 78176

CA. Pradeep Agrawal 98985 60967

CA. Arpan Dodia 98983 83530

CA. Abhijit J Kotecha 98254 83173

CA. Manoj Sahu 90990 94500

CA. Rikin Patel 88667 09509

Vice-Chairman

Secretary

Treasurer

Ex-officio

IP - Chairman

Committee Member

Committee Member

Committee Member

o

CA. Dhiren Parikh CA. Manoj Sahu

CA. Rahul Parikh CA. Nayan R Kothari

CA. Neena Patel CA. Gunjan Agrawal

CA. Jigita Shah CA. Dhruti Vaidya

CA. Parth Patel CA. Chintan Popat

Forthcoming Events ... 2

Direct Tax Updates ... 2

Judicial Decisions on Indirect Taxes ... 3

...

Scrap Retained By The Job Worker

FAQ on ICDS - V Part II- Tangible Fixed Assets

Snap Gallery ... 11

GST Update 4

Ind AS 115 - Revenue fromContracts with Customers Part 1

... 9

... 5

... 7

Pg. No.

ManagingCommittee

Chairman Communication

Dear Members,

July 1st is a day of pride for the entire CA fraternity. It is the day whenthe relentless efforts of our visionary founding fathers fructified and anindependent accounting body was established in India. On thismomentous occasion of CA Foundation Day we salute all thosevisionaries who have laid the strong foundation of our esteemedInstitute and have bestowed upon us the legacy of this noble profession.

Our Institute step into the 70th year of its glorious existence. It should beno surprise that there are Members today who have been in the service ofthe profession and the Institute for the same period, as well. On theFoundation Day, Baroda Branch took the initiative to felicitate theseveterans who have completed 70 years of Membership. These Membersare an inspiration to all of us and I pray that we can all continue to servethe profession with the same dedication and fervor displayed by theseesteemed Members. As a part of the celebrations of Platinum Jubileeyear, branch has also organised cultural evening programme.

In the month of June Baroda branch hosted two big events one is WIRCSub Regional Conference jointly with Anand and Bharuch Branch ofWIRC of ICAI where more than 465 delegates attended the conferenceand second is CA Students Conference. I thank Team WIRC forreposing trust in Baroda Branch and allowing us to host Sub RegionalConference jointly at Baroda. I am also thankful to all the participants ofthe Conference for making it a grand success. As a thoughtful citizen

and member of responsible noble profession and to support initiative ofICAI on Go Green Agenda, Baroda Branch has taken 2 new initiativeson the day of conference--one is circulating paper book of thisconference in digital mode (i.e. in pen drive) and second is installinggreen renewable energy that is solar panel of 20 kilo watt at ICAIBhawan Baroda and it is inaugurated by Hon’ble Vice President CA.Prafulla Chhajed on the day of conference. Baroda Branch is the firstbranch of institute to install Solar system. This initiative will be costeffective for Baroda Branch and will reduce approximately 29 tonnes ofcarbon from atmosphere and will generate 27500 units annually. Theseinitiatives have been very well appreciated by Hon’ble Vice PresidentCA. Prafulla Chhajed and requested us to send detailed project report toinstitute to consider it as platform for information for other branches.

On 29th and 30th June , Baroda Branch of WIRC of ICAI and BarodaWICASA has organised CA Students Conference wherein more than750 students have participated. We are thankful to Board of Studies forgiving us opportunity to host this conference.

Besides monthly series of GST clinic and Investor Awarenessprogramme jointly with National Stock Exchange Ltd.(NSE) were alsoorganised. Baroda Branch has also celebrated 21st June as InternationalDay ofYoga.

In the month of July, we have planned to organise workshop on Mergersand Acquisitions, Talk show on work profile, opportunities and careerprospects for a CA. Details of programs for the month of July are givenin the newsletter.

Income tax returns filing season has started and this is a busy time formembers as 31st July is the due date of filing returns of specifiedassessee. So complete your task at the earliest.

With warm regards,

Chairman

CA. Dhiren Parikh

e-Newsletter(Circulated by Email)

Baroda Branch of WIRC of ICAI2

Branch Events69th CA Day CelebrationDay & Date : Sunday, 01.07.2018

ICAI Bhawan, VadodaraVenue :

Day & Date :

Time :

Speakers :

Fees :

Venue :

Rs.250/- including GST till 06.07.18 afterwards

Rs.300 including GST

ICAI Bhawan, Vadodara

Saturday, 07.07.2018

02.00 to 05.00 pm

CA. Suril Mehta

CA. Chinmay Naik

Time Program

09.00 am Flag Hoisting

09.00 am to 11.00 am Blood Donation Camp

09.30 am Tree Plantation

10.00 am Swachh Bharat Abhiyan

A Talk Show on Work Profile, Opportunitiesand Career Prospects for a CA in Valuation,M&A Private Equity Tax, CA Practice,Transfer Pricing, Due Diligence, Banks, PSU(Industry), NBFCs

Workshop on Unlocking Value throughMergers & Acquisitions

Fees : NIL

ICAI Bhawan, VadodaraVenue :

Topic Speaker

Valuation, M&A CA. Suril Mehta

Financial Due Diligence CA. Chinmay Naik

M&A - Private Equity Tax CA. Vaibhav Thakkar

Transfer Pricing CA. Prashant Kotecha

Topic Speaker

CA Practice CA. Milin Mehta

NBFCs CA. Aarsh Shah

PSUs CA. Jai Shah

Banking CA. Vishwanathan Iyer

given an opportunity of cross examination the

third party in whose search promissory note was

found.

The Finance Ministry has notified 280 as the cost

inflation index (CII) number for FY 2018-19. This

number is important as it will be used to compute

inflation adjusted long-term capital gains accrued

in Financial Year 2018-19 and consequently

impacts the amount of tax payable on them. The

notification is dated 5 June, 2018.

I believe, after consideration of judicial decisions

in this regard, that Income-tax ought to be levied

on real income of an assessee and if the Assessee

has cooked up his accounts to inflate profits for a

purpose, and that fact is not in dispute, Income-

tax should not levied on the basis of such inflated

profits.

However, the law is an unruly horse which can

take you to unknown territories. Such an issue

arose before the High Court at Calcutta in case of

Binod Kumar Agarwala Versus Commissioner Of

Income Tax.

The Hon’ble High Court held that the doctrine of

pari delicto would apply (still to find out what it

means) and it precludes the appellant from

detracting from the figures contained in the

balance-sheet and profit and loss accounts

certified on July 18, 2005 at any subsequent stage.

Then comes the whip for our profession. It held

that the Appellate Tribunal may only be faulted

for not reporting Roy Ghosh and Associates to the

Institute of Chartered Accountants for having

2. Cost Inflation Index

3. Effect of inflating profits for bank loans

1. Value of material found during search

In many cases, the Revenue loses tax and penalty

which would be otherwise recoverable, when the

concerned Officers do not follow the proper

process of law.

In case material found during search indicate

unaccounted income in your hands, you would

believe that tax liability on you cannot be avoided.

However, that is not so.

In the case of ITO Vs. Mayur Agarwal reported at

128 ITD 55, it was held that no addition can be

made merely on the basis of evidence procured

from Third party when the assessee denied

transactions unless such party is put up for cross

examination.

In case of one Sunita Dhadda, ITAT deleted the

addition of Rs.4,07,00,000/- made by the

Assessing Officer and confirmed by the CIT(A)

on account of on money by the assesse from a

Unique Group, which was evidenced by the

document seized during search u/s 132 of the Act.

The reason was that opportunity of cross-

examination of one Ravindra Singh Thakkar on

whose testimony the tax liability was fastened,

was not afforded

In Special Leave Petition, The Hon'ble High Court

held that the amount covered by promissory note

could not be assessed as income of the assessee

from undisclosed sources as the assessee was not

Contributed by :can be reached at [email protected]

CA. Narendra Hindocha

Direct Tax Updates

07.07.2018, Saturday, 6:15 pm to 8:30 pm

08.07.2018, Sunday, 11:00 am to 1:00 pm

HrsCPE 3

Jointly Organised with Baroda Branch of WICASA


apparently abetted in the commission of a colossal

act of misrepresentation which the appellant

assessee undertook before his bankers for the

purpose of obtaining credit facilities by indicating

a financial position that was not warranted by the

books of the assessee. In the light of the above, the

cases were dismissed with costs assessed at

Rs.10,000/- to be paid to the Department.

Delhi Bench of ITAT, in case of ITO V. Pallavi

SrivastavaI, in

The Assessee had invested

Rs. 12,30,000/- in mutual fund and not

It was held that there is a mistake of getting

the information through AIR and the transaction

was wrongly reported by the department. The

Assessing Officer was instructed to inform

DGIT(System) to verify such information from

the department server and correct it. T The

appellant’s returned income was accepted

When a company not listed on Stock Exchange

issues shares at a premium, issue price exceeding

fair market value is to be included in income. Such

a provision is apparently to prevent a person

receiving income, which is liable to tax, in the

garb of share premium, which is not liable to tax.

Fair market value is to be determined as per Rule

11UA(2). This rule requires valuation based on

book value of its assets but the Assessee is

4. Addition based on Annual Information

Return(AIR)

5. Chartered Accountants not to value equity

shares under section 56(2)(viib)

T.A .No.-1448/Del/2013 dealt with

a case in which addition was based on

information in AIR.

Rs. 28

lakh as claimed by theAssessing Officer based on

AIR.

permitted to justify higher fair value computed

based on discounted free cash flow method. Such

higher fair value could so far be determined either

by a Merchant Banker or a Chartered Accountant.

By notification dated 24th May 2018, such higher

fair value not cannot be determined by a Chartered

Accountant but only by a Merchant Banker.

I believe Merchant bankers also employ Chartered

Accountants for the purposes of such valuation

and do not see proper logic for specifically

excluding Chartered Accountants practicing as

Chartered Accountants for such purpose. Our

Institute has sought reconsideration of the

amendment


CA. Anirudh Sonpal

Judicial Decisions onIndirect Taxes

I. VALUATION

The manufacturer-assessee was collecting various

charges like packing, wear & tear, delivery

charges, collection charges etc. in relation to

industrial gasses supplied to customers in tonners,

canisters, pipelines etc; such charges recovered

were accounted as other incomes like delivery

charges, facility charges etc. The dispute was with

reference to levy of excise duty on such additional

charges. Upon reference, a five - member bench of

the Honourable Supreme Court observed that the

measure of levy contemplated in Section 4 of the

Central Excise Act,1944 is not controlled by the

nature of levy; so long as a reasonable nexus is

discernible between measure and nature of levy,

Section 3 & 4 of the CEA,1944 operate in their

respective fields.

[CCE, Indore vs Grasim Industries Ltd – SC]

With reference to collection of GST, the

Honourable High Court observed that practise of

collecting post-dated cheques under coercion

under raid was not a permissible means of

collection of revenue particularly when no tax

demand was confirmed or had crystallized. The

Honourable High Court further observed that even

attachment of bank accounts is in the nature of a

drastic measure and cannot be exercised in a

routine matter, particularly when no reasons were

given by the revenue authorities for exercising

such drastic power.

[Remark Flour Mills Ltd vs State of Gujarat –

Gujarat HC]

3.1 Solar Power Generating System attracts a

concessional GST rate of 5%, With reference to

execution of EPC contract for construction of

Solar Power Plants, the AAR ruled that such

construction leads to development of solar power

plant which is an immovable property and the

contract was in the nature of Works Contract

service attracting GST rate of 18%. The AAR

further observed that this was not a case of

composite supply wherein the rate for the whole

EPC contract can be fixed at 5%.

[Giriraj Renewables Pvt Ltd –AAR Maharashtra]

3.2 In case of supply together of UPS and Batteries,

the AAR observed that in case of UPS having

II. DEMAND & RECOVERY

III. CLASSIFICATION & RATES


inbuilt batteries, the same would be a supply of

UPS and taxable under Sr No 375 of Schedule III

of GST Rates. However, where UPS and Batteries

were separate items, though supplied under same

contract and invoice, the supply is more in the

nature of a Mixed Supply and would be taxed

accordingly. The AAR rules that such supply

cannot be treated as a Composite Supply since

both UPS and Batteries are distinct supplies and

separable supplies.

[Switching Avo Electro Power Ltd – AAR West

Bengal]

3.3 TheApplicant supplies coal to its sister unit, which

converts the coal to electrical energy. The AAR

observed that such supply of coal for conversion to

electrical energy is not in the nature of Job-Work

transaction since job-work, under GST, is limited

to ‘treatment or process’ whereas conversion of

coal into electrical energy was in the nature of

‘manufacture, since a distinct product emerges.

Accordingly, conversion by the sister unit of coal

supplied by the Applicant to electrical energy was

in the nature of Supply since both are distinct

persons.

[JSW Energy Limited –AAR Maharashtra]

3.4 Jewellery watch, predominantly having 90%-95%

of gold, silver, precious stone etc and the value of

watch itself was hardly 2%-5%, merits

classification asArticle of Jewellery under Gujarat

VAT.

[State of Gujarat vs Titan Industries Ltd – SC]

3.5 In case of supply of services by way of

construction of a complex, building, civil structure

or a part thereof, including a complex or building

intended for sale to a buyer, wholly or partly,

except where entire consideration had been

received after issuance of completion certificate,

GST would be payable on two third of total

amount consisting of amount charged for transfer

of land or undivided share of land and whole of

consideration charged for supply of goods and

service.

[Sanjeev Sharma –AAR New Delhi]

Government has allowed transporter to fill up 'Part

B' of e-way bill when goods are reloaded in a

vehicle which is meant for delivery to consignee;

seizure of goods during transportation from

consignor's place to transporter on ground that

'Part B' of e-way bill was not filled, was not

justified.

[Rivigo Services Pvt Ltd vs State of UP-

Allahabad HC]

IV. E WAYBILL


CA. Manilal Parsiya

GST Update

Central Government vide

extends the time limit

for furnishing the return by an Input Service Distributor

in FORM GSTR-6, for the months of July, 2017 to June,

2018, till the 31st day of July, 2018.


amends Central Goods

and Service Tax Rules, 2017 as under:

Notification No. 25/2018

Central Tax, dated 31.05.2018



1. Insert second proviso to Rule 37(1) to the effect

that the value of supplies on account of any

amount that the supplier is liable to pay in relation

to such supply but which has been incurred by the

recipient of the supply and not included in the

price actually paid or payable for the goods or

services or both, shall be deemed to have been paid

for the purposes of the second proviso to sub-

section (2) of section 16.”.

2. Insert second proviso to Rule 83(3) to extend time

limit from one year to eighteen months to pass

exam by a sales tax practitioner or tax return

preparer under the existing law for a period of not

less than five years.

3. By way of substitution of Rule 89(5) with

retrospective effect from 1st July 2017, now

refund for inverted duty structure in case of supply

of service is also available.

4. Insert second proviso to Rule 97 to the effect that

an amount equivalent to fifty per cent. of the

amount of cess determined under sub-section (5)

of section 54 read with section 11 of the Goods and

Services Tax (Compensation to States) Act, 2017

(15 of 2017), shall be deposited in the Fund.

5. Substituted Rule 133 provides further that the

deposit of an amount equivalent to fifty per cent.

of the amount determined by anti-profiteering

authority in the Fund constituted under section 57

and the remaining fifty per cent. of the amount in

the Fund constituted under section 57 of the Goods

and Services TaxAct, 2017 of the concerned State,

where the eligible person does not claim return of

the amount or is not identifiable.


6. No e-way bill is required to be generated in case of

where empty cylinders for packing of liquefied

petroleum gas are being moved for reasons other

than supply.


Seeks to specify goods

which may be disposed off by the proper officer after its

seizure, having regard to the perishable or hazardous

nature, depreciation in value with the passage of time,

constraints of storage space or any other relevant

considerations of the said goods.


amends Central Goods

and Service Tax Rules, 2017 as under:

1. By inserting Rule 58(1A) it is prescribed in respect

of E-way bill rules, a transporter who is registered

in more than one State or Union Territory having

the same Permanent Account Number, he may

apply for a unique common enrolment number by

submitting the details in FORM GST ENR-02

using any one of his Goods and Services Tax

Identification Numbers, and upon validation of

the details furnished, a unique common enrolment

number shall be generated and communicated to

the said transporter: Provided that where the said

transporter has obtained a unique common

enrolment number, he shall not be eligible to use

any of the Goods and Services Tax Identification

Numbers for the purposes of the E-way rules.

2. Rule 138C provides for a summary report of every

inspection of goods in transit shall be recorded

online by the proper officer in Part A of FORM

GST EWB-03 within twenty four hours of

inspection and the final report in Part B of FORM





GST EWB-03 shall be recorded within three days

of such inspection.

A proviso has been inserted to provide that where

the circumstances so warrant, the Commissioner,

or any other officer authorized by him, may, on

sufficient cause being shown, extend the time for

recording of the final report in Part B of FORM

EWB-03, for a further period not exceeding three

days.

An explanation is inserted that the period of

twenty four hours or, as the case may be, three days

shall be counted from the midnight of the date on

which the vehicle was intercepted.

Background

Indian Accounting Standards (Ind AS) were notified by

the Ministry of Corporate Affairs (MCA) vide their

notification dated 16th February, 2015 in which Ind AS

115 Revenue from Contracts with Customers was

notified. At that time the corresponding international

standards IFRS 15 and ASC 606 announced by the

IASB & FASB respectively were to be effective from

financial periods commencing on or after 1st January,

2017.

Subsequently, since implementation of IFRS 15 and

ASC 606 was postponed to 1st January, 2018, MCA on

30th March, 2016 omitted Ind AS 115 and introduced

Ind AS 11 Construction Contracts and Ind AS 18


CA. Vishal Doshi

Ind AS 115 - Revenuefrom Contracts with

Customers Part 1

Revenue.

On 28th March, 2018, MCA has notified Ind AS 115

Revenue from Contracts with Customers to be effective

from financial periods commencing on or after 1st

April, 2018.

Ind AS 115 provides a single comprehensive

framework to be used by businesses to recognize

revenue from customers. The revenue recognition

standards & guidance which will be superseded by Ind

AS 115 are:

• Ind AS 11 Construction Contracts (Appendix A &

B relating to Service Concession Arrangements

shall becomeAppendix D & E of IndAS 115)

• IndAS 18 Revenue

• Guidance Note on Accounting for Real Estate

Transactions issued by the Institute of Chartered

Accountants of India.

The objective of IndAS 115 is to establish the principles

that shall be applied to report about the

• nature (what is being sold),

• amount (at what price it is being sold),

• timing (when is it being sold); and

• uncertainty of revenue and cash flows (whether

money will be recovered) arising from a contract

with a customer.

To meet the objective, the terms of the contract and all

relevant facts and circumstances shall be duly

considered. The provisions of the Standard shall be

applied consistently to contracts with similar

Standards superseded

Objective


characteristics and in similar circumstances.

This Standard can be applied to a portfolio of contracts

with similar characteristics if the effects on the financial

statements of applying this Standard to the portfolio is

not expected to be materially different from applying to

the individual contracts within that portfolio. When

accounting for a portfolio, an entity shall use estimates

and assumptions that reflect the size and composition of

the portfolio.

An entity shall apply this Standard to all contracts with

customers, except the following:

• lease contracts within the scope of Ind AS 17

Leases;

• insurance contracts within the scope of IndAS 104

Insurance Contracts;

• financial instruments and other contractual rights

or obligations within the scope of Ind AS 109

Financial Instruments, Ind AS 110 Consolidated

Financial Statements, Ind AS 111 Joint

Arrangements, Ind AS 27 Separate Financial

Statements and Ind AS 28 Investments in

Associates and Joint Ventures; and

• non-monetary exchanges between entities in the

same line of business to facilitate sales to

customers or potential customers. For example,

this Standard would not apply to a contract

between two companies that agree to exchange

similar products having same fair value and

thereby not having any commercial substance.

A contract with a customer may be partially within the

scope of Ind AS 115 and partially within the scope of

other Ind AS listed above. In such situation, to separate

Scope

the components:

W h e n a

contract is

p a r t i a l l y

wi th in the

s c o p e o f

another Ind

A S , t h e n

whether the

other Ind AS

contains any

guidance to

separate the

components?

• Apply the guidance in

the other Ind AS to

separate the components

• Exclude the amount

allocated to non-revenue

component under that

other Ind AS from the

transaction price under

IndAS 115

Apply Ind AS 115 guidance

to separate the components

YES

NO

Core Principle

The 5-step approach

The core principle of this Standard is that an entity shall

recognise revenue to depict the transfer of promised

goods or services to customers in an amount that

reflects the consideration to which the entity expects to

be entitled in exchange for those goods or services.

To meet the core principle and to achieve the objectives,

Ind AS 115 prescribes revenue to be recognized by

applying these 5 steps:

Understanding of some key terms used in the standard

Contract is an agreement between two or more parties

which is legally enforceable and creates enforceable

rights and obligations. It can be written, oral or as per

customary business practices of the entity.

Customer is a party that has contracted with an entity to

obtain goods or services that are an output of the entity’s

ordinary activities in exchange for consideration. Sale

of fixed assets would not normally be considered as

entity’s ordinary activities.

Performance Obligation is a promise in the contract to

transfer (1) single good or service or bundle of goods or

services that are distinct or (2) series of distinct goods or

services that are substantially the same and have the

same pattern of transfer to a customer.

Performance obligation is a key-definition/significant

part of this standard as the timing of revenue

recognition depends on the satisfaction of performance

obligations in the contract.

Distinct Goods and Services - a promised good or

service is distinct if both the following criteria met:

(i) The customer can benefit from the goods or

services either on its own or in conjunction with

other readily available resources with them. The

readily available resources can be goods or

services separately sold by the entity or by another

entity or which the customer has already obtained

from the entity or from other transaction.

(ii) It is separately identifiable from the other

promises in the contract. This would require

determining within the context of the contract, the

nature of the promise to transfer each of those

goods or services individually or to transfer a

combined item or items to which the promised

goods or services are inputs. While assessing

whether the promise is distinct within the context

of the contract, the following factors needs to be

considered:

a) the nature of promise to transfer goods or


service individually or as combined output

b) the goods or services are highly integrated,

interrelated or interdependent in the contract

c) the goods or services promised in the

contracts should not significantly modify or

customize or be modified or customized by

other goods or services in the contract. Contract asset is an entity’s right to consideration in

exchange for goods or services that the entity has

transferred to a customer when that right is conditioned

on something other than the passage of time.

It is important to distinguish between Contract Asset

vis-à-vis Trade Receivable. A contract asset shall be

recognised when an entity has a right to receive

consideration, but the right is not yet due (it is

conditional). For example, an entity enters into a

contract to supply 1200 units of a product in lots of 100

units and payment would be due after supply of every

400 units. Although the entity would supply and raise

invoice for each lot of 100 units, it would consider it as

contract asset till 400 units are supplied because it has a

right to consideration after every 100 units which is

conditional upon the supply of balance units upto 400

units. Upon supply of 400 units the contract asset would

be considered as Trade Receivable.

Contract liability is an entity’s obligation to transfer

goods or services to a customer for which the entity has

received consideration (or the amount is due) from the

customer.

Normally, all advances received from customers shall

be considered as contract liability as the entity has an

obligation to transfer goods or services against the

advance received.

Contract

Sale andinstallationof AirConditioner(AC) withAnnualMaintenance Contract(AMC)

Turnkeycontract forbuilding afactory

Capable of beingdistinct

• AC cannot beused withoutinstallation, butcustomer can getinstallationservice fromanother supplier.

• AMC can be soldseparately and canalso be contractedwith anothersupplier.

• Sale of AC,installationcharges and AMCare capable ofbeing distinct.

• Customer canbenefit from eachsupply or serviceseparately.

• The services ofdesigning, projectmanagement canbe obtained fromother suppliers.

• Activities relatingto purchase ofmaterials, siteclearance, layingfoundation,construction, etc.can be sourcedfrom othersuppliers.

Distinct withincontext of thecontract

• AC cannotfunction without theinstallation serviceand is interrelated.AC is not distinct onits own as it must becombined withinstallation.

• AMC isindependent of saleand installation andis distinct.

• All the activitieswithin the contractare highlyinterrelated andinterdependent.

• The goods orservices providedunder the contractare not separatelyidentifiable fromother promises in thecontract

PerformanceObligations

1. Sale &installationof AC

2. AnnualMaintenance Contract

1. Bundledgoods orservicesrepresentedby theturnkeycontract

Capable of beingdistinct

• The goods orservices to besupplied arecapable of beingdistinct.

Contract Distinct withincontext of thecontract.

PerformanceObligations


CA. Abhay Desai

Scrap Retained By TheJob Worker - What Are

The GST Implications ??

1. Sometimes it happens that a registered suppliersending the goods for job work asks the job workerto retain the scrap generated after the said jobwork. Job worker shall thus sell the said scrap andkeep the consideration with himself. In addition tothe said amount, job worker shall also charge theagreed price to the registered supplier for the jobwork charges. Assuming that the job worker is notrelated to the registered supplier and is alsoregistered under GST, he shall levy the tax on thejob charges invoiced by him. Therefore the issuefor the present article is whether the job worker isrequired add the value of scrap, retained by him, tothe price charged by considering the same as a“consideration” for the supply of job workservices ?

2. Sec. 9(1) of the Central Goods & Services Tax(“CGST”)Act, 2017 provides for levy of tax on thevalue determined u/s 15 of the said Act. Sec. 15(1)provides as under:

“15. (1) The value of a supply of goods or servicesor both shall be

for the said supplyof goods or services or both where the supplier andthe recipient of the supply are not related and

3. Sec. 15(4) further provides that where the value ofsupply cannot be determined u/s 15(1), the sameshall be determined in the manner prescribed. Themanner for determination of such value for theissue before us is prescribed under Rule 27 of theCGST Rules, 2017. Said rule provides that where

the transaction value, which is the

price actually paid or payable

the

price is the sole consideration for the supply.”


the “consideration” is not wholly in money, thevalue of supply shall be –

(a) be the open market value of such supply;

(b) if the open market value is not available underclause (a), be the sum total of consideration inmoney and any such further amount in moneyas is equivalent to the consideration not inmoney, if such amount is known at the time ofsupply;

(c) if the value of supply is not determinableunder clause (a) or clause (b), be the value ofsupply of goods or services or both of likekind and quality;

(d) if the value is not determinable under clause(a) or clause (b) or clause (c), be the sum totalof consideration in money and such furtheramount in money that is equivalent toconsideration not in money as determined bythe application of rule 30 or rule 31 in thatorder.

4. Combined reading of the above provisionsprovides that where the price is not the soleconsideration of the supply, the value shall bedetermined u/s 15(4) of the CGST Act, 2017 readwith Rule 27 of the CGST Rules, 2017. Thereforecan we say that the scrap retained by the jobworker is a “consideration” in kind and thus theprice (i.e. job work charges) charged is not the soleconsideration of supply and hence transactionvalue cannot be accepted ?

5. Rule 27 starts with the phrase “where the supply ofgoods or services is for a consideration not whollyin money”. Hence the moot question before us iswhether the scrap retained by the job worker canbe considered as a “consideration” ?

6. Word consideration is defined u/s 2(31) of the

CGST Act, 2017. Relevant portion is reproducedbelow :

“Consideration in relation to the supply of goodsor services or both includes––

(a) any payment made or to be made,

whetherby the recipient or by any other person butshall not include any subsidy given by theCentral Government or a State Government;”

7. Clause (a) of the above definition thus providesthat any payment whether in money or otherwise,“in respect of”, “in response to” or “for theinducement” of the supply in question shall beconsidered as a consideration. In this background,can scrap retained by job worker be considered asa “consideration” ?

8. No businessmen would ideally allow the jobworker to retain the scrap and also not consider thesame while deciding the job work charges unlessthe value of scrap is immaterial. Hence theregistered supplier would have considered the factthat the job worker will get benefited with thescrap generated at his end and to that extent thevalue of job work charges will be adjusted. In suchscenario the value of scrap generated will indeedbe included as a consideration “in respect of”, “inresponse to” or “for the inducement” of the supplyof job work services.

9. And this is what Apex Court held in the case of

Apex Court in the case of Ujagar Printsv/s. Union of India (1989) 39 ELT 493 (SC) hadheld that the assessable value of goods cleared bythe job worker shall include the cost of material

whether in

money or otherwise, in respect of, in

response to, or for the inducement of, the

supply of goods or services or both,

G e n e r a l E n g i n e e r i n g Wo r k s Ve r s u s

Commissioner of Central Excise (2007) 212 ELT

295 (SC).

and the processing charges of the job worker. Inthis case one of the issue was whether the“processing charges” of the job worker shallinclude the value of scrap retained by the said jobworker (we shall not advert to other issues of thesaid ruling since the same are not relevant for thepresent issue). The Court held as under:

“It must be clarified that the value of scrap wouldbe included in the value of the points and crossings

---If the conversion charges are not depressed or ifthe scrap/waste is returned then, their value willnot get added.

The burden of proving that the price is sodepressed would be on the Revenue. But one of themethods of proving it would be through thecontract between the parties itself. In this case thecontract is on record. The contract provides asfollows: -

"The prices quoted are based on the free supply ofRails by you at our works, Bharatpur, WesternRailway, Rajasthan. The tonnage for Rails will be5% more than the net requirement of Railsrequired for different items of Switches, 5% beingthe manufacturing wastage.

The total requirement of Rails for different itemswould be forwarded to you within ten days ofreceipt of your formal order. Manufacturingwastage of 5% has been considered and thereforethis wastage will not be separately accounted forand shall not be returned. Any surplus materialsreceived from you against the contract, will bereturned to you and dispatched to the destinationas advised by you, F.O.R. Our word."

Thus, the

only in case where it is shown that the conversion

charges get depressed by the fact that the

processor is allowed to keep and sell the scrap.

contract clearly indicates that the price



CA. Prashant Upadhyay

FAQ on ICDS - V Part II- Tangible Fixed Assets

(conversion charges) have been worked out on

the basis that 5% wastage would be available to

the Appellants. price has

been affected by the sale of scrap.

(CCE.,

Nagpur v. Lloyds Steels Industries Limited

(2007) 213 E.L.T. 339 (S.C.))

The conversion charges are with due

consideration of scrap credit after reduction of

estimated salvage value.”

This indicates that theIn this view, we

are in agreement with the view of the Tribunal thatin computing the value of points and crossings thevalue of scrap sold has to be taken into account.”

10. In another case before the Apex Court

on the same issuethe Court followed the above referred ruling sincethe contract clause provided as under:

“(a) Conversion charges are applicable on CRoutput waste of CR coils including 1.5%unrolled/semi-rolled material going along with theCR FH coil.

11. Hence in cases where the contract envisages thescrap to be retained by the job worker and the jobwork charges are adjusted on this account, thevalue of actual scrap generated shall be treated as aconsideration and GST shall be leviable. Thevaluation of said scrap shall be done as per Rule 27(supra) of the CGST Rules, 2017.

12. However, in cases where the contract does notenvisage the scrap to be retained by the job workerand still job worker retains the scrap (normally ofinsignificant amount) we are of the view that thesame cannot be considered as a considerationsince the same is never factored while determiningthe job work charges.

13. Thus the manner of determination of the job workcharges and the contractual clauses shall be thebase for deciding whether the value of scrap shallbe treated as a “consideration”.

14. Before we part, it may also be noted that if thevalue of scrap is treated as a consideration it willbe taxed not only in the hands of the job worker butalso in the hands of the registered supplier. This isbecause Sec. 7(1)(a) of the CGST Act, 2017construes any supply of goods by way of barter inthe course or furtherance of business as atransaction leviable to tax. Hence the registeredsupplier sending the goods for job work andallowing the job worker to retain the scrap will beconsidered as having passed the property in goods(viz. scrap) to the said job worker. Hence evenregistered supplier will have to prepare a taxinvoice for the value of scrap retained by the jobworker.At the end of day, it will indeed be revenueneutral but what to do. One will have to do thepaperwork to avoid getting caught by the officerson the wrong foot.

Property, Plant and Equipment. Otherwise, they are

classified as inventory. An item of Property, Plant

and Equipment shall be recognised as asset, if and

only if, it is probable that future economic benefits

associated with the item will flow to the entity and

the cost can be measured reliably.

In cases where, under the tests laid down under AS

10 and Ind AS 16, stand-by equipment, servicing

equipment or spares are classified as inventory, but

as per this ICDS, these are required to be recognised

as tangible assets and necessary adjustment will have

to be done in computing the income. In such

situations, the amount expended on stand-by

equipment, servicing equipment and spares which

has been debited to the profit and loss account will

have to be reduced from the expenditure to be

claimed in computing the taxable income and added

to the appropriate block of assets, with

corresponding depreciation claim.

In this regard reference may be made to the

Explanation to section 30 as well as Explanation to

section 31 of the Act which provide that capital

expenditure will not be allowed as current repairs.

The issue may be decided on the basis of following

judicial pronouncements:

CIT v Sri Mangayarkarasi Mills (P.) Ltd. [2009] 315

ITR 114 (SC)

CIT v Saravana Spinning Mills (P.) Ltd. [2007] 293

ITR 201 (SC)

Surinder Madan vACIT [2014] 364 ITR 461 (Del)

CIT v H.P. Global Soft Ltd. [2012] 349 ITR 462

(Kar)

2) What are the provisions in the standard relating to

cost incurred on commissioning of a project?

Para 8 of the standard states that, the expenditure

incurred on start-up and commissioning of the

1) What is the provision in the standard relating to

Stand-by equipments and servicing equipments?

Para 4 of the standard states that Stand-by equipment

and servicing equipment are to be capitalised.

Machinery spares shall be charged to the revenue as

and when consumed. When such spares can be used

only in connection with an item of tangible fixed

asset and their use is expected to be irregular, they

shall be capitalised.

Both AS 10 and Ind AS 16 provide that spare parts,

stand-by equipment and servicing equipment are to

be recognised as assets if they meet the definition of


project, including the expenditure incurred on test

runs and experimental production, shall be

capitalised. The expenditure incurred after the plant

has begun commercial production, that is,

production intended for sale or captive consumption,

shall be treated as revenue expenditure.

Expenditure incurred post commencement of

commercial production, whether for sale or internal

consumption, is to be treated as a revenue expense

under this ICDS as well as underAS 10 & IndAS 16.

However, treatment of expenditure incurred during

the interval between the date when the asset is ready

to commence commercial production and the date of

actual commencement of production is not

addressed by ICDS. Such cost is not incurred for

making the asset ready for its intended use and hence

should not be included as part of its cost. AS 10

provides that costs incurred while an item capable of

operating in the manner intended by management

has yet to be brought into use, is not included in the

carrying amount of an item of property, plant and

equipment. According to Ind AS 16, recognition of

costs in carrying amount of an item of plant, property

or equipment ceases if the item is in the location and

condition necessary for it to be operating in the

manner intended by the management.

There have been conflicting rulings relating to

allowability of depreciation from the date of

commencement of trial production to the date of

commencement of commercial production, and as to

whether trial production costs are revenue

expenditure or to be capitalised. According to this

ICDS, such costs incurred during trial production

stage, will need to be capitalised, and cannot be

claimed as revenue expenditure. In this respect a

reference may be made to the clarifications on ICDS

contained in Circular no. 10/2017, dated 23rd

March, 2017 issued by the CBDT. Question no. 15

and answer thereto are reproduced below:

Para 8 of ICDS-V states expenditure

incurred on commissioning of project, including

expenditure incurred on test runs and experimental

production shall be capitalized. It also states that

expenditure incurred after the plant has begun

commercial production i.e., production intended for

sale or captive consumption shall be treated as

revenue expenditure. What shall be the treatment of

expense incurred after the conduct of test runs and

experimental production but before commencement

of commercial production?

As clarified in Para 8 of ICDS-V, the

expenditure incurred till the plant has begun

commercial production, that is, production intended

for sale or captive consumption, shall be treated as

capital expenditure.

Question 15:

Answer:

However, such capitalisation would be subject to the

provisions of Para 7 of this ICDS, that deals with

administration and other general overhead expenses

to be excluded from the cost of tangible fixed assets

if they do not relate to a specific tangible fixed asset.

Such expenditure should, therefore, be allowable as

revenue expenditure.

However, both AS 10 and Ind AS 16 do not make a

specific reference to such cases. Therefore, any such

trial run expenditure that is otherwise charged in the

accounts but under the provisions of this ICDS is

required to be considered as part of the cost of the

asset, should be excluded while computing the total

income and added to the cost of the asset as per this

ICDS.

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NEWSLETTER- JUL 2018baroda-icai.org/Module2011/MemberNewsLetter/Full/1_98.pdf · 2018-07-07 · Baroda Branch of WIRC of ICAI 3 apparentlyabettedinthecommissionofacolossal act of