Tax Digest (11 December 2014)

Tax Digest

December 2014

2 Tax Digest

Dear readers,We are pleased to present the December 2014 edition of EY’s quarterly newsletter The Tax Digest, which summarizes significant tax and regulatory developments in India.

This newsletter is designed as a ready reckoner and covers landmark tax judgments, an update on tax treaties and alerts on topical developments in the tax arena. It provides access to the “In the press” section, which includes published articles on various issues in the tax domain over the last quarter. It also details key thought leadership reports and other topics of an interest to tax professionals.

We hope you find this edition timely and insightful.

Best regards, EY Tax Update team

Contents (click to navigate)

Direct taxVerdicts

• Reported decisions supported by our Litigation team

• Goodwill arising pursuant to amalgamation a depreciable asset

• ►Depreciationallowableonnon–competefees

• ►Prior“satisfaction”oftaxauthorityapre-requisiteforsearchassessmentofanotherperson

• SignificantSupremeCourt(SC)decisions

• ►Referencetovaluationofficer(DVO)isjustifiedincaseofwidevariationbetweenFairMarketValue(FMV)andvalueadoptedbythetaxpayeronvaluationofproperty.

• ►Surchargeisleviedincasesofblockassessmentcasesprospectiveinapplication.

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• PaidvPayable:ThereareconflictingviewsofvariousTribunalsafterdismissalofSLPbytheSCinthecaseofVectorShipping.

• Rulingsonincome-linkedincentivedeductions:

• Income-linkeddeductionsaretobeallowedunitwise,withnoaggregationrequiredofincomefromdifferencesources.

• Newunitsformedwithpartners/employeesoferstwhileorganizationsdonotamountto“formedbysplittinguporreconstructionofexistingbusiness.”

• Recruitment-relatedservicesinFreeTradeZone(FTZ)areeligibleforprofit-linkeddeduction.

• STPI’sapprovalisapre-requisiteforclaimingprofit-linkeddeductionavailabletoExportOrientedUnits(EOUs).

• Rulingsontaxwithholding:

• TheHChasquashedtheCBDTCircularonwithholdingoftaxoninterestaccruingoncourts’depositswithbanks.

• Paymentmadetobuscontractortoprovidetransportfacilityconstitutesa“contractforwork”andnotrent.

• Discountsallowedonadvancepaymentsmadeareinthenatureof“interest.”

• Paymentforpowertransmissionisnotinthenatureofrent.

• ►Assessmentsandlitigation

• Assessmentofa“‘non-existing”taxpayerisajurisdictionaldefectandrenderstheassessmentinvalid.

• Being“aggrieved”isapre-conditionforavailing“rightofappeal.”

• TheHCgrantsaninterimstayonrecoveryproceedingsinrelationtofeesfordefaultinfurnishingwithholdingtaxstatements.

• Retrospectiveamendmentsinlaw,notabasisforrevisionofassessment

• ►Deductibilityofexpenditure

• DepreciationonroadsconstructedunderBOTarrangement

• “SecretCommission”allowableasbusinessexpenditure,providedthereisnotaintofillegality

• Disallowanceofinterestwithborrowedfundsdivertedtogiveinterest-freeloanstosisterconcernjustifiedintheabsenceofcommercialexpediency

• ►Issuesontaxabilityofcapitalgains

• SecuredlendertakingpossessionofmortgagedassetsunderSARFAESIActnotresultingin“transfer”

• Landdistributedtopartnersondissolutionoffirmconstituting“capitalasset”inthehandsofpartner,evenifheldasstockintradeinthehandsoftheorganization

• Notaxablecapitalgainonconversionofpartnershipfirmintoprivatelimitedcompany

• Amalgamatingcompanynotallowedtocarryforward“capitalloss”toamalgamatedcompany

• ►IsthereaPermanentEstablishment(PE)?

• LiaisonOffice(LO)engagedinmarketingandsalespromotionconstitutingpermanentestablishment(PE)inIndia

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• ►Othersignificantrulings:

• DelhiHCruling50%asthebenchmarktoevaluate“substantialvalue”ontaxationofindirecttransfers

• Sourcingsupportactivitiesofforeigncompanyentitledto“purchaseexclusion”provision

• DepreciationonNon-CompeteFees

• BombayHCrulingontaxWDVofassetinthehandsoftransfereepursuanttoamalgamationundercourt-sanctionedscheme

• Noremissionofliabilityonsettlementofdeferredsalestaxliabilityatnetpresentvalue(NPV)

• Deductiondisallowanceandneutralityonapplicationofnon-discriminationarticleoftaxtreaties

• Incomefromlicencefeenottobedeferred

• Taxpayereligibleforinterestonrefundarisingoutofexcesstaxespaid“mistakenly”

• “Deposits”fromsisterconcernsnotcoveredunderprovisionsofdeemeddividend

• SomekeyissuesonwhichSpecialLeavePetitionsweredismissedbytheSC

• Recentdecisionsontaxationofroyalty/FTSpayments

Treaty connections:

• India’sfirstDTAAwithBhutaneffectiveinIndiafrom1April2015

• India’sfirstDTAAwithColumbiaeffectiveinIndiafrom1April2015

• TaxInformationExchangeAgreements(TIEA)updates

• IndiaentersTIEAwithSt.KittsandNevis

• India-SanMarinoTIEAcomesintoforce

• ►OECDupdates–BEPSSpecial

• OECDreleaseshighlyanticipated2014outputofBEPSActionPlan

• Reportontax-relatedchallengesofthedigitaleconomyunderAction1

• Action2onhybridmismatcharrangements

• InterimreportunderAction5oncounteringharmfultaxpractices

• ReportunderBEPSAction6onpreventingabuseoftreatyandpublicdiscussiondraftonfollow-upworkonabuseoftreaty

• UpdatedguidanceunderBEPSAction8ontransferpricingaspectsofintangibles

• ReportunderBEPSAction13onTPdocumentationandcountry-by-countryreporting

• ReportunderBEPSAction15onfeasibilityofdevelopingmultilateralinstrumenttoamendbilateraltaxtreaties

• ReleaseofOECD’sdiscussiondraftonpreventingartificialavoidanceofPEstatusunderBEPSAction7

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Tax happenings across the border

• BrisbaneG-20Communiquéhighlightsnewdevelopmentsonarangeofglobaltaxissues

• UKandGermanyagreetojointproposalonpreferentialintellectualpropertyregimes

• TheNetherlandsannounceslimitedamendmentofits“InnovationBox”regime

• SpaintostrengthenCFCrules

• Germanyconsidersproposalfornewanti-hybridruleandotheramendments

• Irelandpublishesdraftlegislationphasingout“DoubleIrish”

• Uruguayofferscertaintaxexemptionforactivitiesperformedbymultinationalcompanies’sharedservicecenters

From the Tax Gatherer’s desk

CentralBoardofDirectTaxes(CBDT):

• CBDTissuesinternalguidelinestoputinplaceanon-adversarialtaxregime

• CBDTsetsupcommitteetodealwithretroactive“indirecttransfer”taxation

• CBDTcirculatescircularonautomaticapprovalforforeigncurrencyborrowingstoavailofreducedwithholdingtaxrate

• Depreciationonwindmillsextendedto80%

• RelaxationofmanpowerthresholdinSEZunits

Indirect Tax:Service Tax:

• LevyofServiceTaxonservicesprovidedbyACrestaurantsandservicesbyhotels,guesthouses,etc.,inrelationtoprovisionofaccommodationheldtobeunconstitutionalbytheKeralaHighCourt

• ServicesofsecondedemployeesnottaxableunderManpowerRecruitmentorSupplyAgencycategory,withHighCourt(HC)upholdingCESTAT’sdecisionasbeinginaccordancewithlaw

• HCupholdingServiceTaxonconversionofoverseasremittancesintorupees

• Inbounddeputationnotnecessarilysupplyofmanpower

• RoyaltypaidforcopyrightedimagenottaxableunderIntellectualPropertyRight(IPR)services

• Separatecontractsforsupplyofequipment;erectionandcommissioningservicesasinglecompositecontractandliabletoServiceTaxasaworkscontractservice

• AmounttobetreatedasdepositandheldasrefundableifpaidwhennoServiceTaxneededtobepaid,whetherbywayoftaxorinterest

• Interestonbill-discountingfacilityexemptfromServiceTaxandinterestearnedonoverdraftandcashcreditfacilitytoattractreversalofCENVATcredit

• Commitmentchargesheldastaxable

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• Servicetaxprima facieinapplicableonamountsretainedbyassessebankwhileadvancingloansthroughClearingCorporationofIndia(CCIL)

• MarketingandtechnicalsupportservicesprovidedbyIndianentitytooverseasentitytreatedas“exportofservices”undererstwhile“ExportofServiceRules,2005’,”asheldbythelargerbenchofCESTAT

• Collectionofexportproceedsbylocalbank(inlightofarrangementbetweenIndianbankanditsoverseasbranch)notconsideredimportofservicestheassessee’sstandpoint

• Billdiscountinginthecourseofsale/purchasenottaxableunderbankingandfinancialservices

CENVAT credit/Central Excise

• DuespayabletoExciseDepartmentnotgivenprecedenceovertherightofasecuredcreditor

• Creditonwastageduringmanufactureofexemptgoodsheldtobeineligible,with“actualremoval”testbeingirrelevant

• Refundclaimnottobeadjudgedintheabsenceofapersonalhearing—seriousprejudicebeingcausedbyrelevantauthority

• BenefitofRule6(6)(1)extendedtogoodsclearedtoa“developer”ofaSpecialEconomicZone(SEZ)foritsauthorizedoperations—amendmentmadein2008construedasretrospectiveinnature

• ExciseDutyonpromotionalexpensesincurredbydealers

• Servicesavailedattheendbybottlerswhomanufacturebeverageswithconcentratessuppliedprima facie,notCENVATable

• CENVATcreditpriortoregistrationadmissible

• AvailingCENVATcreditonadvertisingservicesrelatedtoexemptedgoodsdisallowed

• CENVATreversalformulaasprescribedinRule6(3A)oftheCENVATCreditRules,2004upheldontotalinputservicesand not only on common input services

• CreditrelatingtomanufactureinPunenon-utilizableagainstpropertyinMumbai

Customs:

• VesselsandotherfloatingstructuresimportedintoIndiaforbreakingvesselsnotliabletoCVD

• Finalizationofprovisionallyassessedbillsofentry—naturaljusticetobefollowed

• Showcausenoticeissuedwithpredeterminedconclusionsandclosedmindnotvalid

• HCpermitsprovisionalreleaseofprohibitedsecondhandmachine,subjecttoeventualadjudication

• NoliabilityonEOUutilizingimportedinputinR&Dactivity

• Rulingon“relatedparty”valuation—Tribunalreduces“profitloading”onimportsfrom10%to1%

VAT/Central Sales Tax (CST)

• Saleof“democars”nottobeeligibleforconcessionalrateofVATapplicabletosaleof“usedcars”

• PrincipleofEjusdem generisnottobeappliedtobroadenintentionoflegislature

• Burdentoprovethatcertainitemthatis“exigible”totaxisalwaysontherevenue

• BuildOperateTransfer(BOT)projectundertakenforconstructionofroadsunderaconcessionaireagreement,foraconsiderationintheformoftherighttocollecttoll,aworkscontract

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Key statutory updates

• ServiceTax:

• ►CentralBoardofCustomsandExcise(CBEC)issuesclarificationregardingmandatorypre-depositprovisions

• ►CircularonapplicabilityofServiceTaxonJointVentures(JVs)

• CircularclarifyingservicesprovidedbyIndianbanks/entitiesactingasagentstooff-shoreMoneyTransferServiceOperatorsattractsServicetax

• ►CentralExciseDuty/CENVATcredit

• InstructionsinlightoftheSC’sdecisionontheSalesTaxIncentiveSchemeinthecaseofSuperSynotexIndiaLtd;2014-TIOL-19-SC-SX

• Circularregardingdeterminationof“placeofremoval”inCENVATCreditRules,2004(CCR)

• Instructionsregardinginstancesfoundwhenassesseessubmitrebateclaimsbysplittingupamountstoavoidapre-audit investigation

• InstructionsdirectingDepartmentthatHCrulinginthecaseofBhartiAirtel,whereinCENVATcreditonTowerPartsandPre-fabricatedbuildingswasdisallowed,followed

• CBECclarifiesissuesrelatingto“availment”ofCENVATcreditaftersixmonths

• ►Customs

• CentralGovernmentnotifies“Modinagar,Ghaziabaddistrict”asInlandContainerDepotforunloading/loadingimported/exportgoods;amendsNotificationNo.12/97-Cus.

• CentralGovernmentextendsexemptionofCustomsDutyongoodsrequiredforAirborneEarlyWarningandControl(AEW&C)SystemProgrammeofMinistryofDefencetill5October2014,subjecttostipulatedconditions(exemptionhavingbeenavailableupto5April2014)

• SeekstoamendnotificationNo12/2012-Customs,dated17March2012[conditionnumber100oftheANNEXURE]toextendtheperiodforfurnishingutilizationcertificatefromjurisdictionalAC/DCofCentralExcisefrom6to12months.

• CBECextendsperiodforfurnishingutilizationcertificatefromjurisdictionalAC/DCofCentralExcisefrom6to12monthsonimportofLiquefiedNaturalGas(LNG)andNaturalGas(NG)forgenerationofelectricalenergy;amendsConditionNo.100inNotificationNo.12/2012-Cus

• CBECnotifiesdetailedprocedureforvaluation/assessmentofironore,finesandpelletexports,followingreportsofchangesinpropertiesofironoreduringtransit.

• RevisedDrawbackDutyRates

• Anti-dumpingduty(ADD)Notifications

• ►ForeignTradePolicy2009–2014

• ►DGFTnotifiesFormANF3B1toclaimbenefitofServedFromIndiaScheme(SFIS)fornetearningsfromforeignexchangein2013–14;existingFormANF3Btobefiledtoclaimbenefitsupto2012-13.

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• ►SEZs

• Harmonizationofrules,formatsandfeesforprocurementinallSEZs

• Digitizationofapplications/permissionstobemadebydevelopersofSEZunits

• ProcedureofServiceTaxrefund/exemptionforSEZ

• ►VAT/CSTnotifications—Haryana,Delhi,MaharashtraandKerala

• ►Miscellaneous:TaxAdministrationReformCommissionsubmitsitssecondreport

Regulatory

• ►ForeignDirectInvestment

• ►Liberalizationinconstructiondevelopmentsector

• ►ReserveBankofIndia

• ►RoutingbackoffundsraisedoverseastoIndia

• ParkingofExternalCommercialBorrowings(ECB)proceedsintermdepositsinIndia

• Timelimitforrealizationofexportproceeds

• ►DelegationofpowersrelatingtocompoundingofcertaincontraventionsunderFEMAfromcentraltoregionalofficeofconcerneddefaultingcompany

• Importerscanbookforwardcontractsupto100%ofeligiblelimitstohedgecurrencyrisk

• IssuanceofequitysharesunderFDIschemeagainstlegitimatedues

• ECBsinIndianrupees

• ShiftingofthreedivisionsofForeignExchangeDepartmenttoFEDCOCellatNewDelhi

• RevisioninmonetarylimitsforadjudicationofcasesbyDirectorateofEnforcement

• ►Non-bankingFinancialCompanies(NBFCs)

• ►RevisedregulatoryframeworkforNBFCs

• SecuritiesandExchangeBoardofIndia(SEBI)

• ►SEBI’sboardmeetingheldon19November2014

• ►AmendmentstoClause49ofequitylistingagreement(effectivefrom1October2014)

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Doing Business in India 2012–33

Tax library

In the press

Compilation of alerts

• DirectTax

• IndirectTax

• Regulatory

http://www.ey.com/IN/en/Services/Tax/EY-india-tax-insights-april-june-2014

http://www.ey.com/IN/en/Services/Tax/EY-india-tax-insights-april-june-2014

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http://www.ey.com/Publication/vwLUAssets/GCR_Flyer1/$FILE/GCR_Flyer1.pdf

http://tmagazine.ey.com/

http://tmagazine.ey.com/

http://www.ey.com/IN/en/Services/Tax

http://www.ey.com/in/taxwebcast

http://www.ey.com/IN/en/Services/Tax/EY-india-tax-insights-july-september-2014

http://linkd.in/1tl6W9W

http://indiataxinsightsblog.ey.com/

http://www.ey.com/IN/en/Services/Tax/Tax_Doing-business-in-India <http://www.ey.com/IN/en/Services/Tax/Tax_Doing-business-in-India>

http://www.ey.com/IN/en/Services/Tax/Tax-Library

10 Tax Digest

Verdicts

Direct tax

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Reported decisions supported by our Litigation team

Goodwill arising pursuant to amalgamation a depreciable asset

InthecaseofDCITv.ToyoEngineeringIndiaLtd.[TS-655-ITAT-2014(Mum)],theMumbaiTribunalheldthatonceaschemeofamergerisapprovedbytheHC,itwillhavetheforceofastatuteandceasetobeamerecontract.TheHC,whileapprovingthemergerscheme,dealtwithandapprovedthemethodofaccountingtobeadoptedandtheconsequentgoodwillarisingthereon.Therefore,neitherthenaturenorthequantumofgoodwillcouldbedoubted.InviewoftheSC’srulinginthecaseofSMIFSecurities[348ITR302(SC)],goodwillarisingpursuanttoatax-qualifyingmergerwasheldeligiblefordepreciation.

Depreciation allowable on non–compete fees

InthecaseofUshodayaEnterprisePvt.Ltd.vACIT[ITANo.26/Hyd/2011],theHyderabadTribunalheldthatnon-competefeespaidareeligiblefordepreciationand,basedonfacts,isnottoberegardedasashamtransaction.Inthiscase,thetaxpayerenteredanon-competeagreementwithtwofirms.Inboththesefirms,thechairmanofthetaxpayerwasamajorstakeholder.TheTaxAuthorityregardedthesaidtransactionasasham,sincepaymentwasmadewithinthesamegroup.TheTribunalheldthattheinferencedrawnbytheTaxAuthorityismoreonpresumptionandsurmisesratherthanonthebasisofstrongevidence.Italsoobservedthatwhentwoindependentpartiesenteranagreement,basedoncertaintermsandconditions,thiscannotbetermeda“sham”or“collusive”withouttherebeingsufficientevidencetoprovethis.

Prior “satisfaction” of Tax Authority a pre-requisite for search assessment of another person

InthecaseofPepsiFoodsPvt.Ltd.vACIT[TS-495-2014(Del)],theDelhiHCheld,basedonfacts,thatthenoticeissuedbytheTaxAuthoritytothetaxpayerforassessmentifasearchisinvalidshouldbequashedforwantofthesatisfactionrequirementbeingfulfilled.Photocopiesfoundinthepossessionoftheperson

“searched”doesnotnecessarilymeanandimplythatthey“belong”totheotherpersonwhoholdstheoriginals.Possessionofdocumentsandphotocopiesofdocumentsaretwoseparatethings.TheTaxAuthority’snoteshouldmentionthe“reasonforsatisfaction”thatseizeddocuments“belongto”apersonotherthanthesearchedperson(inthiscasethetaxpayer).Merelyinscribing“satisfaction”or“Iamsatisfied”inanoteororderdoesnotsuffice.Furthermore,asurmiseorconjecturecannotformthebasisof“satisfaction.”

Significant SC decisions

Reference to the Departmental Valuation Officer (DVO) is justified in case of wide variation between Fair Market Value (FMV) and value adopted by the taxpayer for property valuation

InthecaseofAmritBanaspatiCo.Ltd.v.CWT[TS-641-SC-2014],theSCupheldHC’srulingthatreferencetoDVOforvaluationofpropertyatFMVwasjustified.ProvisionsofWealthTaxActprovideforreferencetoDVOandvaluationofpropertyatFMV,incaseswhenitisnot’practicable’tovaluepropertyasperrulesprovided.TheSCconcludedthatastherewasostensiblywidevariationbetweenmarketvalueandvaluecomputedbytheTaxpayer,theTaxAuthoritywasjustifiedinreferringtoDVOforvaluationofproperty.

Surcharge levied in cases of block assessment cases prospective in application

AConstitutionalBench(CB)offivejudgesoftheSC,incaseofCITv.VatikaTownshipPvt.Ltd.[TS-573-SC-2014],hasheldthattheprovisionforlevyofsurchargeincaseofsearchassessment,insertedbyFinanceAct,2002isprospectiveinitsapplication.

EarlieraDivisionalBench(DB)oftheSC,inthecaseofSureshN.Gupta[297ITR322SC)]hadheldthatthesurchargeprovisionisclarificatoryand,therefore,hasretrospectiveeffectsoastoapplyforblockassessmentperiodfallingevenpriorto2002.

TheCBoverruledDBrulingandheldthatprovisolevyingsurchargecreatedachargeforthefirsttimeforthe

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blockassessmentw.e.f.1June2002.ThereforeitisprospectiveasitimposesanadditionalburdenontheTaxpayer.Itcannotbeconsideredasclarificatory.Further,anambiguityoruncertaintyinaprovisionisfataltocreationofachargeandiftwoviewsarepossible,theviewfavorabletothetaxpayershouldbeadopted,Thisdecisionsettlesthecontroversyoverretrospectiveapplicabilityoftheprovisolevyingsurchargeincaseofblockassessments.

‘Paid’ v. ‘Payable’, conflicting views by various Tribunals post SLP dismissal by SC in case of Vector Shipping

TheIncomeTaxLaws(ITL)providesfordisallowanceofexpenseforthepayerwherewithholdingtaxhasnotbeencompliedwithonamount“payable”.Sincetheexpressionusedis“payable”,thecontroversyisonwhetherthedisallowanceshouldberestrictedtoonlythoseamountsthathaveremainedunpaidasattheyearend.TheAllahabadHCinthecaseofVectorShippingServices(P.)Ltd.[2013]357ITR642(All)decidedthisissueintheaffirmativeandinfavorofthetaxpayer.

AfterdismissalofSLPbytheSC,[CITv.VectorShippingServices(P)Ltd.[TS-401-SC-2014](refertoSeptember2014editionofTaxDigest)],itappearsthatvariousTribunalscontinuetoadoptdivergentviewsontheissue.

IncaseofDCITv.RanaSugarLtd.[TS-622-ITAT-2014(Chandi)],ChandigarhTribunalupheldthedisallowanceofexpenditurebytakingaviewthatdismissalofSLPbytheSC,doesnotlaydownanylaw.

MumbaiTribunal,incaseofITOv.PratibhutiViniyogLtd.[TS-536-ITAT-2014(Mum)],alsotookasimilarviewandrejectedthetaxpayer’scontentionthatdismissalofSLPlaysdown‘ratiodecidendi’onthephrasepaidandpayable.

However,BangaloreTribunalincaseofCapitalPharmav.ITO[TS-714-ITAT-2014(Bang)]andDelhiTribunalincaseofITOv.KanakSingh[TS-589-ITAT-2014(Del)]deletedthedisallowance,thoughtaxwasnotwithheldsincetheexpenditurehadbeen‘paid’duringtheyearandtherewasnoamount‘payable’attheendoftheyear.BothBangaloreandDelhiTribunalacceptedtaxpayer’sreliance

onAllahabadHCrulingincaseofVectorShippingsinceSChaddismissedtheSLPfiledagainstthesaidHCruling.TheTribunalsinthesecasesfurtherheldthatinabsenceofanyjurisdictionalHCrulingontheissue,rulinginfavoroftaxpayerhastobefollowed.

Rulings on income linked incentive deductions

Income linked deductions to be allowed unit wise, no aggregation required of income from difference sources

AndhraPradeshHC,incaseofCITvPremierExplosiveLtd.[TS-671-HC-2014(AP)],ruledthatincomelinkedincentivedeductionsshouldbeallowedinrespectofeachunitseparatelyandaggregationofincomefromdifferentsourcesisnotrequired.TheHCfollowedSCrulingsincasesofCanaraWorkshop[161ITR320]andSyncoIndustriesLtd.[299ITR444]whereinSChadlaiddowntheprinciplethatprofitearnedbyoneunitshouldnotbelostordiminishedbecauseofalosssufferedbyanotherunit.TheSCemphasizedthateachunitmustbeconsideredonitsownworkingonlywhenadjudgingitseligibilityforincentivededuction.

New unit formed with partners/employees of erstwhile firm, doesn’t amount to ‘formed by splitting up or reconstruction of existing business’

UndertheITL,anewunitformedbysplittinguporreconstructionofanexistingbusinessisnoteligibleforincomelinkedincentivededuction.InthecaseofCITv.YashInternationalsInc.[TS-666-HC-2104(HP)],theTaxpayerfirmwasformedwiththesamepartnersasinanerstwhilefirmwithcertainworkersoftheerstwhilefirmalsobeingemployedwiththeTaxpayer.However,theHimachalPradeshHCnotedotherfactorssuchasquantumoffreshcapitalbroughtin,investmentinplantandmachinerymade,newbuilding,differentcustomers,andheldthatitcouldnotbesaidthatthesamepersonswerecarryingonsubstantiallythesamebusiness.TheHCthereforeallowedtheincomelinkeddeductiontotheTaxpayer.

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Recruitment related services in Free Trade Zone (FTZ) eligible for profit linked deduction

IncaseofCITv.MLOutsourcingServices(P)Ltd.[TS-568-HC-2014(Del)],theTaxpayerwasengagedinhiringemployeesforaUScompanywhichinvolveduseofInformationTechnologyinscanningandprocessingdata,conductingonlinetestofcandidatesandanalyzingtheirresults.TheDelhiHCinterpretedtheterm‘HumanResource’(HR)widelystatingthatitincludesanythingassociatedwithpersonnelofabusinessorganisation,includingtheirselectionorrecruitment.ConsequentlyasHRservicesalsofallunderinformationtechnologyenabledservices,theservicesprovidedbytheTaxpayerareeligibleforprofitlinkeddeductionbenefit.

STPI approval is pre-requisite for claiming profit linked deduction available to Export Oriented Units (EOU)

TheMadrasHC,inthecaseofCITv.LiveConnectionsSoftwareSolutionsPvt.Ltd.[TS-575-HC-2014(Mad)],deniedbenefitofprofitlinkeddeductiontoanEOUtaxpayerintheyearof‘application’ofapprovaltoSoftwareTechnologyParksofIndia(STPI)wheresuchapprovalwasnotreceivedinthatyear.TheTaxpayerhadfiledanapplicationforSTPIregistrationinMarch2005andtheapprovalwasreceivedinMay2005.Thetaxpayer’sclaimfordeductioninthetaxyear2004–05,wasdeniedonthegroundthatalltheconditionsstipulatedintheITLforavailingthedeductionwerenotsatisfiedandthatsinceapprovalofthecompetentauthoritywasapre-requisiteforavailingthededuction,merefilingoftheapplicationwouldnotsuffice.

Rulings on tax withholding

HC quashes CBDT Circular on withholding of tax on interest accruing on court deposits with banks

TheCentralBoardofDirectTaxes(CBDT)hadissuedCircular08/2011,whichrequiredbankstowithholdtaxinthenameofpersonsdepositingfundswithcourts/banksunderthesaidcourts’directions.

InthecaseofUCOBankvUOI[TS-680-HC-2014(DEL)]],quashingthecircularmentionedabove,theDelhiHCheld

thatinterestaccruingoncourtdepositswasnotliableforwithholding,sincesuchinterestneitheraccruestothecourtnortothelitigantplacingthedepositunderthecourt’sdirection.TheHCalsoheldthatwithholdingisamodeofrecoveryoftax,whichisleviedonthepersonearninganincomeandthatunlessthepersoninwhosehandstheamountisassessableisascertained,provisionsforrecoveryoftaxthroughwithholdingarerenderedineffective.Withholdingobligationonlyariseswhenthedepositwithaccruedinterestisfinallypaidtothepersonwhoisultimatelygrantedthefundsbythecourt.

InthecaseofthecourtonitsownmotionvTheH.P.Co-operativeBankLtd.andothers[TS-646-HC-2014(HP)],theHimachalPradeshHCheldthatcompensationawardedandinterestaccruedondepositsmadeundertheMotorVehiclesActisnotincomeandshouldnotbeliabletotaxwithholding.TheHCnotedthatcompensationisawardedtoamelioratethesufferingsofvictimssothattheycanbesavedfromsocialevilsandstarvation,andtherefore,quashedtheCBDTcircularNo.08/2011requiringwithholdingoftaxesonawardamountsandinterestondeposits,holdingthiscontrarytothemandateofgrantingcompensation.

Payment to bus contractor for providing transport facility “contract” for work and not rent

InthecaseofCITvApeejaySchool[TS-523-HC-2014(All)],theAllahabadHCruledthatpaymentmadetoabuscontractortoprovidetransporttostudentsandstaffwouldcomeunderthecontractforworkcategoryforthepurposeofdeterminingtaxwithholding.TheHCnotedthatthepurposeofthecontractwasnotprimarilyforhiringbusesbuttoprovidetransportandthatitwouldthereforenotcomewithinthepurviewof“rent”merelybecauseitinvolvedutilizationofvehicles.

Discount allowed for making advance payment in the nature of “interest”

TheLucknowTribunal,inthecaseofDCITvKothariFood&Fragnances[TS-559-ITAT-2014(Lkw)],heldthatthediscountallowedtoanon-resident(NR)buyerformakingadvancepaymentwasinthenatureof“interest”andrequiredtaxwithhold.Basedonfacts,theTribunalobservedthatthebenefitgiventoanNRbuyerasa

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discountwasinfactinthenatureofinterestandthedifferenceinnomenclaturedidnotchangethecharacteroftheexpenditure.Accordingly,thediscountallowedtotheNRbuyerwasdisallowedsincenotaxwaswithheld.

Payment for power transmission not in the nature of rent

InthecaseofACITv.MaharashtraStateElectricityDistributionCompanyLtd.[TS-677-ITAT-2014(Mum)],thetaxpayerpaidchargesfortransmissionofelectricity.TheTaxAuthoritydisallowedtheexpenseonthegroundthatthechargeswerepaidforuseoftransmissionlinesandthereforerequiredtaxwithholding,beinginthenatureof‘rent.”TheTribunalheldthatchargeswerepaidforpowertransmissionandnotforuseoftransmissionlinesandthatownership,controlandpossessionoftransmissionlinesalwaysremainedwiththeconcernedtransmissioncompanies,andtherefore,itcouldnotbesaidthatthechargeswerepaidfor“useoftransmissionlines.”Itwasthereforeoftheopinionthatuseoftransmissionlineswasincidentaltopowertransmission.

Assessments and litigation

Assessment in the name of “non-existing” taxpayer a jurisdictional defect and renders an assessment invalid

InthecaseofCITvDimensionApparelsPvt.Ltd.[TS-610-HC-2014(Del)],thetaxpayerhadamalgamatedwithanothercompanybeforethedateonwhichtheassessmentorderwaspassedbytheTaxAuthority.TheDelhiHCobservedthataccordingtotheprovisionsoftheITL,assessmentfortheperiodpriortothe“succession”datemustbemadeonthesuccessor,i.e.,theamalgamatedcompany.Therefore,theassessmentwasinvalidated,sincethetaxpayerwasnotinexistenceonthedatetheassessmentorderwaspassed.TheHCrejectedthecontentionoftheTaxAuthoritythatmere“non-mention”ofnameoftheamalgamatedcompanyinplaceofthetaxpayer(theamalgamatingcompany)wasamistakethatcouldberectifiedundertheprovisionsoftheITL.TheHCheldthatframinganassessmentofanon-existingentitywasnotaproceduraldefect,butajurisdictionaldefect,andcouldnotberectified.

Being “aggrieved” a pre-condition for availing “right of appeal”

InthecaseofDeepKukretivCIT[TS-616-HC-2014(UTT)],theUttarakhandHCheldthatonceadditionhasbeenmadeduringanassessmentthatwasproceedingwiththeconsentofthetaxpayer,thetaxpayercouldbesaidtobe“aggrieved”andhavetherightofappeal.Inthiscase,thetaxpayeragreedtothecostofacquisitionproposedbytheTaxAuthoritytobeadoptedforcalculationofcapitalgainontheconditionthatnopenaltyproceedingswouldbeinitiatedinrelationtothesaidaddition.However,theTaxAuthorityinitiatedpenaltyproceedings.Therefore,thetaxpayerfiledanappealagainsttheassessmentorder.Thepenaltywasthereaftercancelled.Beingawareofthesefacts,theHCheldthatthetaxpayercouldnotbesaidtobe“aggrieved,”andthattherefore,theappealwasnotmaintainable.

HC grants interim stay on recovery proceedings in relation to fees for default in furnishing withholding tax statements

AfterKarnatakaHC1,KeralaHC2,MadhyaPradeshHC3,BombayHC4andOrissaHC5,MadrasHChasalsograntedaninterimstayonrecoveryproceedingsunder234EoftheITL,whichprovidesforlevyoffeesfordefaultinfurnishingwithholdingtaxstatements.InthecaseofCNGSNandAssociates&OrsvUOI[TS-574-HC-2014(Mad)],theMadrasHCdistinguishedbetween“fee”and“penalty.”TheHCheldthattheterm“fee”intheconcernedprovisionoftheITLdenotesrenderingofaservicetoaclassoftaxpayersandthatthisisnotthecaseinthisparticularcase,butismoreinthenatureofa“penalty,”andtherefore,orderedastayonallproceedingsunderthisprovision.

Retrospective amendment in law not a basis for revision of assessment

InthecaseofCITvSaskenCommunicationTechnologiesLtd.[TS-538-HC-2014(Kar)],theKarnatakaHCruledthattheTaxAuthoritycouldnotinitiaterevisionproceedingsonthegroundthattheassessmentorderpassedoriginallywaserroneousandprejudicialtotheinterestofrevenuebecauseofretrospectiveamendmentintroducedsubsequenttopassingoftheoriginalorder.Indeciding

1AdithyaBizorpSolutionIndiaPvt.Ltd.&Ors.V.UoI&Ors.[W.P.No.6918-6938/2014(T-IT)]

2NarathMapilaLPSchool&Anotherv.UoI&Ors.[WPNo.31498/2013(J)]

3ShreeBuildersv.UoI&Ors.[W.P.No.11831/2014]4RashmikantKundalia&Anotherv.UoI&Ors.[W.P.No.771/2014]5ParthSarathiDasv.UoI&Ors.[MiscCaseNo.5546/2014]

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this,theHCfollowedtheSC’srulinginthecaseofCITvMaxIndiaLtd.[166Taxman188(SC)].

Deductibility of expenditure

Depreciation on road constructed under BOT arrangement

TheBombayHC,inthecaseofNorthKarnatakaExpresswayLtd.vCIT[TS-679-HC-2014(Bom)],deniedtaxdepreciationondevelopmentofroadsunderaBOTarrangement.ConsideringvariousprovisionsoftheNationalHighwaysAct,1956,whichrelatestodevelopmentofroads,theHCnotedthatownershipofsuchroadswasonlyvestedwiththeGovernmentofIndia,andthatmerelybecausearoadwasbuilt,maintained,managedandoperatedbythetaxpayer,thiswouldnotresultinitsownershipbeingvestedwiththetaxpayer.ItwasoftheopinionthattheGovernmentwouldcontinuetobetheowneroftheroad.Consequently,inabsenceofownership,depreciationundertheITLwasnotheldadmissibletothetaxpayer.

(For more details, please refer to EY Alert dated 13 November 2014)

TheissuebeforetheDelhiHCinthecaseofMoradabadTollRoadCo.Ltd.wasonitseligibilitytoclaimhighertaxdepreciationasa“plant”fordevelopmentoftollroadunderaBOTarrangement.TheHCconsideredthespecificdefinitionsoftheterms,“building”and“plant,”undertheITL,inwhich“building”hasbeendefinedtoincluderoadswithinitsfold,whereasplantspecificallyexcludesbuildingfromitsambit.TheHCconcludedthatbyimplication,definitionofplantexcludesroads.Itheldthatevenotherwise,toqualifyasaplant,itsfunctionaltest,i.e.,usageasatooloranapparatusinthebusiness,shouldbesatisfied,andthatsincethetollroaddidnotsatisfythefunctionaltest,itdidnotqualifyasplant.Accordingly,itheldthatthetaxpayerwasnotentitledtoclaimtaxdeprecationontheroadasaplant(i.e.,taxdepreciationattherateof25%),butasbuilding(i.e.,taxdepreciationattherateof10%).

“Secret commission” allowable as business expenditure, provided there are no taints of illegality

TheAndhraPradeshHC,inthecaseofCITvTransportCorporationofIndia[TS-556-2014(AP)],ruledthatsecretcommissions paid to promote business are allowable asbusinessexpenditure.TheHCnotedthattherearenotaintsofillegalitywithrespecttopaymentsunderconsideration,butthattoclaimasecretcommissionasadeductibleexpense,certainconditionsneedtobefulfilled,e.g.,by(i)furnishingthetransaction-wisedetailsofcommissionandcorrelationwithturnover,(ii)furnishingthenamesofrecipientsinthereturnorraisingapleatotheTaxAuthority’ssatisfactionthatthedisclosureisdetrimentaltothetaxpayer’sinterest.Thiswassatisfiedinthepresentcase.

Disallowance of interest as borrowed funds diverted for advancing interest free loans to sister concern justified in absence of commercial expediency

InthecaseofCITvS.K.RahejaDevelopmentCorporation[TS-544-HC-2014(Kar)],theKarnatakaHCdisallowedthetaxpayer’sclaimofinterestexpenditure,sinceborrowedfundsweredivertedtoitssisterconcernbywayofinterestfreeloans.TheHCdistinguishedtheSCrulinginthecaseofS.A.Builders,statingthatinthiscase,deductionofinterestwasallowedbecausetherewascommercialexpediencyingrantingofinterest-freeloanstothesisterconcern.Intheinstantcase,interest-freeloansweregrantedtothesisterconcernsinceitgotintolitigationandsufferedanarbitrationaward.TheHCheldthatsincethetaxpayerwasnotapartytothelitigation,thiscouldnotbesaidtobeloanadvancedforabusinesspurpose,andtherefore,theTribunalwasnotcorrectinallowingdeductionofinterest.

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Issues relating to taxability of capital gains

Secured lender taking possession of mortgaged assets under SARFAESI Act not resulting in “transfer”

InthecaseofRajasthanPetroSyntheticsLtd.vACIT[TS-525-ITAT-2014(Del)],theDelhiTribunalheldthattherighttoassumepossessionofaborrower’ssecuredassetsintheeventofitsdefaultinrepaymentofloanwasmerelyaspecialrightgrantedbytheSecuritisationandReconstructionofFinancialAssetsandEnforcementofSecurityInterestAct,2002(SARFAESIAct).Itheldthatsuch“possession”doesnotgrantownershiprightstothelenderandthattheborrowercanregainpossessionbydischargeofduesbeforesaleofassetsbythelender,andthattherefore,,taking“possession”doesnotpassonownershiprightstolenders,andconsequently,thereisno“transfer”intermsoftheprovisionsoftheITL.

(For more details, please refer to EY Alert dated 2 September 2014)

Land distributed to partners on dissolution of firm constituting “capital asset” in the hands of partner although held as stock in trade in the hands of the firm

InthecaseofArvindShamjiChhedavCIT[TS-577-HC-2014(Bom)],theBombayHCheldthatland(thatwasheldasstockintradebythefirm)distributedtopartnersondissolutionofthefirmassumedthecharacterofacapitalassetinthehandsofthepartners,especiallywhenitwasexplicitlystatedassuchinthedissolutiondeed.Italsoheldthatsaleofsuchlandsinthehandsofapartnerwastobetaxedasacapitalgainwhentherewasnoprooftoshowthatthelandsubsequentlysoldbythepartnerwasheldasstockintradeatthetimeofsale.

No taxable capital gain on conversion of partnership firm into private limited company

TheAndhraPradeshHC,inthecaseofCITvUnitedFishNets[TS-545-2014(AP)],ruledthattheredidnotariseanytaxablecapitalgainonconversionofthepartnershipfirmintoacompany.TheHCnotedthatthereshouldbe

dissolutionofthefirmanddistributionofitsassetstoenableittocomeunderthepurviewofcapitalgain.TheHCalsonotedthatinconvertingthefirmintoacompany,therewasnophysicaltransferofassetsfromthefirmtothecompany.ItfollowedtherulinginthecaseofTexspinEngineering&ManufacturingWorks[263ITR345],whereintheBombayHC,explainingthedifferencebetweenvestingofassetsanddistributionofassets,heldthatinthecaseofconversionofafirmintocompany,thereisvestingofassetstothecompanyandnotdistribution.

Amalgamating company not allowed to carry forward “capital loss” to amalgamated company

InthecaseofClariantChemicals(I)Ltd.vACIT[TS-620-ITAT-2014(Mum)],theMumbaiTribunalheldthattheamalgamatedcompanycannotcarryforwardthecapitallossesoftheamalgamatingcompanyintheabsenceofaspecificprovisionundertheITL.TheTribunalobservedthatprovisionsrelatingtocarryingforwardoflossesincaseofamalgamationallowcarryingforwardofaccumulatedlossesandunabsorbeddepreciationtobesetoffwhilecomputingbusinessincomeonlyandnotforanyotherheadofincome.TheTribunalalsoheldthatthetaxpayer,i.e.,theamalgamatedcompany,wasnotallowedtosetoffandcarryforwardthecapitallossoftheamalgamatingcompany.

Is there a Permanent Establishment (PE)?

Liaison Office (LO) engaged in marketing and sales promotion constituting PE in India

TheAllahabadHC,inthecaseofBrownandSharpeInc.taxpayer)vCIT,wasconcernedwithPEtriggeronaccountoftheactivitiesofitsLOinIndiaundertheIndia-USDoubleTaxationAvoidanceAgreement(DTAA).Basedonfacts,theHCheldthattheLOwasinvolvedinactivitiesthattraversedmarketingandsalespromotionofthetaxpayerinIndia.ItalsoheldthattheemployeesoftheLOwereeligibleforsubstantialincentives,basedonthenumberofordersreceivedthroughtheLO,andtherefore,thesalespromotionandmarketingactivitiescarriedoutbytheLOdidnotqualifyaspreparatoryorauxiliaryinnature.APEwastherebyconstitutedinIndiaundertheIndia-USADTAA.TheissueofcomputationofprofitsattributabletosuchPE,

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basedontheprovisionsoftheDTAA,wasrestoredtothetaxauthorities.

InthecaseofConsultingEngineersCorporation(IndiaBranch)[TS-660-ITAT-2014(DEL)],theUStaxpayer,engagedinrenderingtechnicalconsultancyservices,hadabranchoffice(BO)inIndia.TheBOwasengagedinpreparationofdrawings,designsandstructuralcalculationsbyengaginghighlytechnicalandskilledprofessionals.ObservingthattheBO’sactivitiesconstitutedthemainpurposeofthetaxpayer’sbusiness,theTribunalrejectedthetaxpayer’sargumentthatitwasmerelyassisting its main business by conducting preparatory or auxiliaryactivities.Accordingly,theTribunalheldthatthePEoftheUStaxpayerwascreatedinIndiaandconfirmedits“foreigncompany”status,despiteitsUSHeadOfficebeingafirm,sinceundertheITL,any“bodycorporate”incorporatedoutsideIndiaistobetreatedasa“company.”

Other significant rulings

Delhi HC rules 50% as benchmark to evaluate “substantial value” on taxation of indirect transfers

InthecaseofCopalResearchLtd.,Mauritius[TS-509-HC-2014(Del)],thesharesofIndiaentitiesweretransferredbythetaxpayer.TheDelhiHCruledthattherequirementof“substantialvalue”for‘”indirecttransferprovision”wasmetiftheunderlyingvalueofIndianassetsexceeded50%ofthetotalvalueoftheoverseasentityandthatwheretheunderlyingvaluewaslessthan50%,thereshouldbenotaxliability.Itheldthatwithregardtothefactsofthecase,thecorporateveilofMauritiuscompaniescouldnotbepiercedbecausetheyhadindependentcorporatepersonalitiesandbusinesspurposesanddidnotconstituteadeviceforavoidingIndiantax.

(For more details, please refer EY Alert dated 28 August 2014.)

Sourcing support activities carried on by a foreign company entitled to “purchase exclusion” provision

TheKarnatakaHC,inthecaseofMondialOrientLtd.[TS-518-HC-2014(Kar)],ruledthattheexclusionprovidedintheITLforpurchaseofmerchandiseforthepurposeofexportoutofIndiawasavailableforthesourcingsupportactivitiesofthetaxpayerinIndia.TheHCheldthatthe

taxpayer’sactivitiesinassistingforeignbuyerstopurchaseofmerchandisefromIndianmanufacturers/supplierswouldfallunderthepurchaseexclusionprovision,andthataccordingly,thetaxpayer’sincomewasnottaxableundertheITLinIndia.

(For more details, please refer EY Alert dated 26 August 2014)

Depreciation on Non-Compete Fees

TheKarnatakaHC,inthecaseofCITvIngersollRandInternationalInd.Ltd.[ITANo.452of2013(KarnatakaHC)],heldthatnon-competerightacquiredasapartofbusinessacquisitionforconsiderationisavaluablerightpursuanttowhichthepayeracquiresabundleofrightsincludingrighttorestricttherecipientfromparticipatinginabusinessand/orsolicitingorinfluencingclientsorcustomersoftheexistingbusiness,whichconfersamonopolyonacquirertorunitsbusinesswithoutcompetition.Furthermore,non-competerightisacommercialorbusinessright,similartopatentorcopyrightwhichenablestheTaxpayertocarryonbusinesssmoothlyagainstrivals,inamoreefficientmannertotheexclusionofothers.Hence,theHCacceptedtheTaxpayer’sclaimthatnon-competeisabusinessorcommercialrightwithinthescopeof‘intangibleasset’entitledtodepreciation.

Bombay HC rules on tax WDV of asset in the hands of transferee pursuant to amalgamation under court sanctioned scheme

InthecaseofRhone-Poulene(India)Ltd.vCIT[TS-504-HC-2014(Bom)],anIndianbranchofaforeigncompanywasamalgamatedwiththeTaxpayerundercourtsanctionedschemepursuanttowhichtheTaxpayeracquiredassetsandliabilitiesoftheIndianbranch.TheHCheldthatthevalueasstatedintheamalgamationscheme(i.e.originalcostlessbookdepreciation)shouldbetheWDVofdepreciableassetsinthehandsoftheTaxpayer.TheHCrejectedTaxAuthority’scontentionthattheWDVoftheassetsneedstobedeterminedbyreckoningnotionaltaxdepreciationallowancefromtheoriginalcostaswellastheTaxpayer’scontentionthattheoriginalcostofassetsneedstobeadoptedasWDV.

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No remission of liability on settlement of deferred sales tax liability at net present value (NPV)

AbenefitobtainedonremissionorcessationofatradingliabilityistaxableasbusinessincomeunderaspecificprovisionoftheITL.TheKarnatakaHC,inthecaseofMcDowell&Co.Ltd.(TS-621-HC-2014(Kar)],ruledthatsettlementofdeferredsalestaxliability,atNPVoftheliability,isnottaxableunderthisprovision.ThisisbecauseprepaymentatNPVdoesnotresultinanybenefitforthetaxpayersince,aspertherelevantsalestaxstatutepermittingprepayment,theentireliabilitytopaysuchsalestax/loanwasdeemedtobedischargedonsuchpre-payment.Inabsenceofanybenefitconferredonthetaxpayer,thetaxpayerwasnotliabletopayanytaxunderthisprovision.

(For more details, please refer EY Alert dated 10 October 2014.)

Deduction disallowance and deduction neutrality on application of non-discrimination article of tax treaties

TheDelhiTribunal,inthecaseofMitsubishiCorporationIndiaPvt.Ltd.[TS-647-ITAT-2014(Del)],ruledonapplicationofthenon-discriminationclauseoftheIndia-JapanDTAA.Itnotedthatpaymentsmadetoresidents,withoutdeductionoftaxatsource,weredeductibleifrecipientsincludedtheseintheirreturnsofincome,paidtaxonthese,etc.Onasimilaranalogy,theDelhiTribunalheldthatthepaymentsmadebytheTaxpayertoNRs,withoutdeductionoftaxatsource,shouldalsobeallowed.

(For more details, please refer EY Alert dated 3 November 2014)

License fee income not to be deferred

TheDelhiHC,inthecaseofNewHollandTractors(India)Pvt.Ltd.v.CIT[TS-611-HC-2014(Del)],heldthatlicensefeesreceivedinrespectofprovisionoftechnologywastaxableintheyearofreceipt.Thiswasbecausethetechnologyinquestionwasalreadyprovidedtothelicensee.Itheldthattheincomefromthelicensefeecouldnotbedeferredovertheperiodofusagebythelicenseeanditcouldnotbetermedasan”advance”intheabsenceofanyfurtherobligationofthelicensorremainingunperformed.

Taxpayer eligible for interest on refund arising out of excess taxes paid “mistakenly”

IncaseofChetanN.ShahvCIT[TS-613-HC-2014(Bom)],theBombayHCruledthatoncerefundofexcesstaxeshadbeengranted,interestonrefundbecomesconsequential.RelyingontheSC’srulinginthecaseoftheUnionofIndiavTataChemicalsLtd.[2014]43taxmann.com240(SC),theHCheldthatevenintheabsenceofanystatutoryprovision,wherevermoneywasreceivedbyapartyexeaquo,itoughttorefundedandtherighttointerestfollows.

“Deposits” from sister concern not covered under the provisions of deemed dividend

TheAllahabadHC,theincaseofCITvAtulEngineeringUdyog[TS-609-HC-2014(All)],explainedthedifferencebetweena“loan”anda“deposit”andheldthatdepositsreceivedfromasisterconcerninthenormalcourseofbusinesswerenotcoveredundertheprovisionsfordeemeddividends.TheHCexplainedthatdepositsweregenerallymadeattheinstanceofandforthebenefitofthegiver,whereasinthecaseofaloan,fundswereadvancedattheinstanceofandforthebenefitoftheborrower.Itheldthatwhileloansreceivedfromasisterconcerncameunderthepurviewofdeemeddividendprovisions,depositsforbusinesspurposesdidnot.

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18 Tax Digest

Some key issues on which Special Leave Petitions (SLPs) were dismissed by the SC

Citation Particulars Ruling of HC

CentricaIndiaOffshorePvtLtdv.CIT[TS-642-SC-2014]

TaxpayerpreferredanSLPagainstDelhiHC’srulingthatsecondmentofemployeesfromoverseasgroupentitiestoIndiantaxpayercreatedPE.

• Basedonthefacts,theHCheldthatemployeessecondedbyoverseasgroupentitiestothetaxpayerinIndiadidnotbecomeitsemployees,butcontinuedtoremainemployeesofthegroupentitiesduringtheirsecondmentperiod.Accordingly,thearrangementinvolvedrenditionofservicesbytheoverseasgroupentities.

• Furthermore,itheldthatpaymentsfromthetaxpayertothegroupentitiesforsuchserviceswouldberegardedasFeesforTechnicalServices(FTS)/FeesforIncludedServices(FIS)undertheITLaswellasundertherelevantDTAAs.

• TheHCconcludedthattheoverseasgroupcreatedaservicePEinIndiaundertheapplicableDTAAsbyvirtueofservicesrenderedthroughitsassigneesinIndia.

(For more details on HC’s ruling, please refer to EY Alert dated 2 May 2014.)

CITvEnamSecuritiesPvt.Ltd.

[TS-563-SC-2014]

TheRevenuepreferredanSLPagainstBombayHC’srulingallowingindexationonredemptionofnon-cumulativeredeemablepreferenceshares.

• TheHCruledthatnon-cumulativepreferencesharesareeligibleforindexation-relatedbenefitsandthatpreferencesharescannotberegardedasbondsordebenturesonlybecauseoftheirfixedholdingperiodandfixedrateofreturn.

WintacLtdvCIT

[TS-593-SC-2014]

ThetaxpayerpreferredanSLPagainstKarnatakaHC’srulingthatgainontransferofknow-howwastobetaxedascapitalgainandexcessoftheforfeitureamountreceivedoncancellationoftheagreementovertheagreedamountwastaxableasrevenuereceipt.

• Thetaxpayercontendedthattheentireamountforfeitedoncancellationofsaleofbusinessagreementwasacapitalreceiptandnottaxable.Inanothertransaction,thetaxpayercontendedthattheamountreceivedontransferofknow-howwasacapitalreceiptandnotliabletotax.

• TheKarnatakaHC,relyingontheMadrasHC’sdecisioninthecaseofIndoTechElectricCompany,heldthattechnicalknow-howwasanintangibleassetthatwaseligiblefordepreciationundertheITL,andtherefore,receiptontransferofknow-howwascapitalreceipttaxableascapitalgain.

• Ontheissueoftheforfeitedamount,theHCheldthattheexcessamountforfeitedoncancellationofsaleofthebusinessagreementoveragreeddamagesaretaxableasrevenuereceipt.

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19 Tax Digest

Recent decisions on taxation of royalty/FTS paymentsSummarizedbelowaresomedecisionstakenontaxationonroyaltyandFTSandalsoconsideredrelevantDTAAprovisions:

Case law Payment description Ruling

AMDResearch&DevelopmentCenterIndiaPvt.Ltd.vDCIT[TS-649-ITAT-2014(Hyd)]

HyderabadITAT

India-CanadaDTAA

Paymentsmadetooverseasparentcompanyforsoftwareandengineeringservices

• TheTribunalobservedthatserviceswererenderedbyanIndependentServiceProvider(ISP)pursuanttoacontractwiththeCanadianparentcompanyandthatthebenefitoftheservicesoftheISPwasnotavailedbythetaxpayerdirectlyandexclusively.AllproprietaryrightstotheinnovationsandworkproductsoftheISPbelongedtotheparentcompany.

• TheTribunalruledthatthepaymentmadebythetaxpayertotheparentcompanywasnotpurelyreimbursementofexpenses,butconstitutedpaymentforservicesavailed,i.e.,engineeringservices,whichwereinthenatureofFISandthereforetaxableinIndiaaccordingtotheITLaswellastheIndia-CanadaDTAA.

(For more details, please refer to EY Alert dated 3 November 2014.)

DITvPanalfaAutoelektrikLtd.[TS-587-HC-2014(Del)]

DelhiHC

Section9(1)(vii)ofITL

ExportcommissionforNRtoprocureexportorders

• Export-relatedcommissionpaidtoarrangeexportsandrecoveryofpaymentsdoesnotconstituteFTS.

• TheHCnotedthatservicesrenderedbyanNRwerenotmanagerial,technicalorconsultancyandthereforeoutsidethescopeoftheFTS.

AgenceFrancePressev.ADIT[TS-583-ITAT-2014(Del)]

DelhiITAT

India-FranceDTAA

Receiptforuseofnewsreportandphotographs

• TheTribunalreferredtotheCopyrightAct,1957forthemeaningoftheterm“copyrightofliteracy,artisticwork”providedinArticle13oftheDTAA,andheldthatnewsreportsandphotographshaveamodicumofcreativityinvolvingconsiderableskill,laborandcapitalandthereisacopyrightonsuchnewsitems/newsstories.

• TheTribunalruledthatpaymentsreceivedbythetaxpayerfromIndiannewsagenciesforuseofnewsreportsandphotographsconstitute“copyrightofliteracy,artisticwork”andfallunderthedefinitionofroyaltyaccordingtotheDTAA.

ITOvAntraxTechnologiesPvt.Ltd.[TS-715-ITAT-2013(Bang)]

BangaloreITAT

Paymentforpurchaseofproductservicemanual

• Thetaxpayerimportedtheservicemanualsofproductsimportedandsoldbyit.

• TheTribunaldistinguishedbetweenacopyrightandacopyrightedarticleandheldthataproductservicemanualisacopyrightedarticle,whichcanbeusedbyanyonewhopurchasesitwithoutanyrestrictiononhisorherrighttouseortransferit.

• Thetribunalheldthatpaymentmadeforpurchaseofservicemanualswasnotinthenatureofroyalty.

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Case law Payment description Ruling

Dr.Reddy’sResearchFoundationvDCIT[TS-683-ITAT-2014(Hyd)]

HyderabadITAT

India-UKDTAA

India-NetherlandDTAA

Paymentforpre-clinicalresearchtocontractresearchorganization

• TheTribunalruledthatpaymentmadebythetaxpayertoUKandDutchcompaniestoconductpre-clinicalresearchareFTS.

• TheTribunaldistinguishedDr.Reddy’sLabcase[ITA.Nos.867and868/Hyd/2003],sincetheagreementforresearchwaswithanindependentresearchorganizationinthecase.However,thecaseagreementwaswithacontractresearchorganizationwhereinallrightsoverpatents,secretknowledge,etc.,obtainedduringresearchwerewiththetaxpayer.

CITv.VanOordACZEquipmentBV[TS-695-HC-2014(Mad)]

MadrasHC

India-NetherlandsDTAA

Considerationreceivedforhiringdredgers

• TheHCruledthattheconsiderationreceivedbythetaxpayeronhiringoutdredgerstoitsIndiansisterconcernwasnotroyalty.

• TheHCnotedthatpaymentmadeforuseortherighttouseanyindustrial,commercialorscientificequipmentwasexcludedfromthescopeofroyaltyundertheIndia-NetherlandsDTAA.

• TheHCalsorejectedtheTaxAuthority’scontentionontheconstitutionoftheinstallationofPEintheabsenceofthetaxpayer’scontroloverthedredgers.

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Treaty connections

India’s first DTAA with Bhutan effective from 1 April 2015

TheIndia-BhutanDTAA(signedon4March2013)wasenteredon17July2014.TheDTAAwillbeeffectivefrom1April2015inIndia.TheDTAAprovidesformaximumwithholdingratesof10%ondividends,interests,royaltiesandfeesfortechnicalservices.ItalsoincludesprovisionsforExchangeofInformation(EOI)andassistanceincollectionoftaxesandaLimitationofBenefits(LOB)clause,whichdeniesDTAAbenefitsifitsaffairshavebeenarrangedinsuchamannerasifthiswasthemainpurposeoroneofthemainpurposestoavailthebenefitsoftheDTAA.

(Source: Notification No. 42/2014 [F.NO.503/4/2004-FTD-II], dated 5 September 2014)

India’s first DTAA with Columbia effective from 1 April 2015 in India

TheIndia-ColumbiaDTAA(signedon13May2011)wasenteredon7July2014.TheDTAAwillbeeffectivefrom1April2015inIndia.ItincludesaLimitationofBenefits(LOB)clausethatdeniesthebenefitsoftheDTAAifthemainpurposeoroneofthemainpurposesofthecreationofanenterpriseistoavailthebenefitsoftheDTAA.TheDTAAalsoincludesprovisionsforEOIandhelpincollectionoftaxes.

(Source: Notification No. 44/2014 [F.NO.501/3/99-FTD-II]/SO 2465(E), dated 23 September 2014)

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Tax Information Exchange Agreements (TIEA) updates

India enters TIEA with St. Kitts and Nevis

On13November2014,India,St.KittsandNevissignedanexchangeofinformationagreementrelatingtotaxmatters.

(Source: IBFD)

India-San Marino TIEA entered in India from 29 August 2014

TheGovernmentsignedaTIEAwiththeGovernmentoftheRepublicofSanMarinoforexchangeofinformationrelatingtotaxmatterson19December2013.TheTIEAwasenteredinIndiafrom29August2014andisthereforeeffectiveforrequestsmadefromthisdate.

(Source: IBFD)

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OECD updates — BEPS special

OECD releases highly anticipated output of BEPS Action Plan for 2014

On16September2014,theOrganisationforEconomicCo-operationandDevelopment(OECD)releasedaseriesofdeliverablesthataddresssevenofthefocusareasinitsActionPlanonBaseErosionandProfitShifting(BEPS).Thedocumentspublishedconsistofabriefexplanatorystatement,finalreportsonAction1(DigitalEconomy)andAction15(MultilateralInstrument),aninterimreportonAction5(HarmfulTaxPractices),andreportswithagreedondraftrecommendationsonAction2(HybridMismatchArrangements),Action6(TreatyAbuse),Action8(TransferPricingforIntangibles)andAction13(TransferPricingDocumentationandCountry-by-CountryReporting).

(Formoredetails,refertoEY’sGlobalAlertdated18September2014.)

Report on tax-related challenges faced in the digital economy under Action 1

Thedocumentaddressingthetax-challengesfacedinthedigitaleconomy,Action1—2014Deliverables—largelyfollowsthediscussiondraft(dated24March2014)anddoesnotrecommendanyspecificmeasurestoaddressissuesfacedinthedigitaleconomy.Thereportacknowledgesthatspecialrules,designedexclusivelyforthedigitaleconomy,wouldprovetobeunworkable.Atthesametime,itidentifiesthekeyfeaturesof“new”businessmodelsinthedigitaleconomythatmayexacerbatetheBEPSriskaswellasthebroaderdirectandindirecttax-relatedchallengesfacedinthedigitaleconomy.ThereportconcludeswiththecommentthatsuchBEPSrisksandtax-relatedchallengesshouldbetakenintoaccountandaddressedthroughtheotherfocusareasoftheBEPSproject.


Action 2 on hybrid mismatch arrangements

ThereportonAction2,titledNeutralisingtheEffectsofHybridMismatchArrangements,consistsoftwoparts,whichproviderecommendationsfordomesticlawandtreaty-relatedprovisions.Thefirstpartmakesrecommendationsfordomesticrulestoaddressmismatches,whichgenerallyconsistofmultipledeductionsforasingleexpense,deductionsinonecountrywithoutcorrespondinginclusionofincomeinanotherorgenerationofmultipleforeigntaxcreditsfortheamountofforeigntaxpaid.ThesecondpartoftheHybridMismatchReportdescribeschangesmadeintheOECDModelTaxConventiontoensurethathybridinstrumentsandentitiesdonotbenefitundulyfromthetreaty’sprovisionsandcoordinate between recommendations on domestic law andtaxtreaty-relatedprovisions.


Interim report on Action 5 on countering harmful tax practices

Thereport,titledCounteringHarmfulTaxPracticesMoreEffectively,TakingintoAccountTransparencyandSubstance,reflectstheconsensusontheimportanceofrequirementsrelatingtoappropriate“substantialactivity”inpreferentialregimesandontheneedforincreasedtransparency,includingmandatoryspontaneousexchangeofinformationonrulingsonpreferentialregimes.Thereportdescribesaframeworkforspontaneousexchangeofrulings,whichwereplannedtobeimplementedbeforetheendof2014.Inaddition,asubstantialactivityisbeingdevelopedforIntellectualProperty(IP)regimesandisexpectedtobecompletedbySeptember2015.


http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-highly-anticipated-2014-output-of-BEPS-Action-Plan

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-highly-anticipated-2014-output-of-BEPS-Action-Plan

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-issues-report-on-the-tax-challenges-of-the-digital-economy-under-Action-1

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-issues-report-on-the-tax-challenges-of-the-digital-economy-under-Action-1

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action%C2%A02-on-hybrid-mismatch-arrangements

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action%C2%A02-on-hybrid-mismatch-arrangements

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-interim-report-under-BEPS-Action-5-on-countering-harmful-tax-practices

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-interim-report-under-BEPS-Action-5-on-countering-harmful-tax-practices

24 Tax Digest Home

Report under BEPS Action 6 on preventing abuse of treaty and a public discussion draft on follow-up work on this abuse

Thereport,titledPreventingGrantingofTreatyBenefitsinInappropriateCircumstances,wasreleasedon16September2014.Itincludesproposedtaxtreatyprovisionsandrelatedcommentary,togetherwithproposeddomesticlaw-relatedprovisionstoaddressinappropriategrantingoftreatybenefitsandotherpotentialtreatyabusescenarios.Therecommendationsmadeinthereportincludeincorporationofanti-abuserulesintaxtreaties,e.g.,anLOBprovisionthatissimilartothosefoundinUStaxtreatiesaswellasageneralanti-abuserule,basedonaprincipalpurposetestsuchasthe“mainpurpose”testsfoundintheUK’staxtreaties.ThereportindicatesthattheprovisionsoftheproposedOECDModelTaxConventionandCommentaryshouldbeconsideredasdrafts,sincefurtherworkisneededwithrespecttotheprovisionsandcommentaryinthetreaty.Accordingtothereport,thefinalversionwillbereleasedinSeptember2015.

(Formoredetailsonthereport,refertoEY’sGlobalAlertdated24September2014.)

On21November2014,theOECDreleasedadiscussiondraftonareporttitledFollowUpWorkonBEPSAction6:PreventingTreatyAbuse(theDraft).TheDraftdescribesthefollow-upworktheOECDintendstoundertakewithrespecttotheprovisionselaboratedonintheLOB,inparticularinrelationtoCollectiveInvestmentVehicles(CIVs)andNon-CIVfunds,thePrincipalPurposeTest(PPT)andotherissuespertainingtothenewtreatytie-breakerruleproposed,treatmentofpermanentestablishmentsin“third”countriesandinteractionbetweentaxtreatiesanddomesticanti-abuserules.WrittencommentsshouldbesubmittedtotheOECDonorbefore9January2015.TheOECDhasindicateditsintentiontohaveapublicconsultationontheDraftandthecommentsreceivedon22January2015.

(FormoredetailsontheDraft,refertoEY’sGlobalAlertdated26November2014.)

Updated guidance on the transfer pricing aspects of intangibles under BEPS Action 8

TheReporttitled,GuidanceonTransferPricingAspectsofIntangiblescontainsrevisedstandardsfortransferpricingofintangiblesandadditionalstandardswithrespecttocomparabilityandtransferpricing(TP)methods.ThefirstpartoftheReportcontainsamendmentsrelatingtotheTPtreatmentoflocationsavingsandotherlocaladvantagefeatures.ThesecondpartoftheReportprovidesforabroaddefinitionofintangibles,profitsfromintangiblestobeallocatedinlinewithvaluecreation,developmentofvaluation rules and updated guidance on cost contribution agreements.Thispartofthe2014GuidanceremainsindraftbecauseoftheinteractionsbetweenthisworkandtheworktocomeonotherTPelementsoftheBEPSprojectandwillbefinalizedinconnectionwiththe2015BEPSworkonrisk,“recharacterization”andhardtovalueintangibles.

(Formoredetails,referEY’sGlobalAlertdated21September2014.)

Report under BEPS Action 13 on TP Documentation and Country-by-Country (CbC) Reporting

TheReport,releasedonAction13containsrevisedstandardsforTPdocumentationandatemplateforCbCreporting,bothofwhichwillbeincludedintheOECDTPGuidelines.TheCbCreportingtemplaterequiresmultinationalenterprises(MNEs)toreporttheamountofrevenue(relatedandunrelatedparty),profits,IncomeTaxpaidandtaxesaccrued,employees,statedcapitalandretainedearnings,andannualtangibleassetstheyhaveineachtaxjurisdictioninwhichtheydobusiness.Inaddition,MNEsarealsorequiredtoidentifyeachentitywithintheirgroups,whicharedoingbusinessinaparticulartaxjurisdiction,andtodetailthebusinessactivitieseachentity.ThisinformationistobemadeavailabletothetaxauthoritiesinalljurisdictionsinwhichanMNEoperates.TheOECDwillworkfurtheronimplementationandtheapproachtobeadoptedtofileamasterfileandCbCreportoverthenextfewmonths.Itisexpectedthatguidancewillbeprovidedonthisinearly2015.


http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-6-on-preventing-treaty-abuse

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-6-on-preventing-treaty-abuse

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-public-discussion-draft-on-follow-up-work-on-treaty-abuse-under-BEPS-Action-6

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-public-discussion-draft-on-follow-up-work-on-treaty-abuse-under-BEPS-Action-6

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-issues-updated-guidance-under-BEPS-Action-8-on-transfer-pricing-aspects-of-intangibles

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-issues-updated-guidance-under-BEPS-Action-8-on-transfer-pricing-aspects-of-intangibles

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-13-on-Transfer-Pricing-Documentation-and-Country-by-Country-Reporting

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-13-on-Transfer-Pricing-Documentation-and-Country-by-Country-Reporting

25 Tax Digest

Report on BEPS Action 15 on feasibility of developing multilateral instrument to amend bilateral tax treaties

Thereport,titledDevelopingaMultilateralInstrumenttoModifyBilateralTaxTreaties,examinesthedesirabilityandfeasibilityofamultilateralinstrumentasawayofimplementingtreaty-basedmeasuresdevelopedunderotherBEPSActions.Drawingontheanalysesofexpertsinpublicinternationallawandtaxation,thereportconcludesbyemphasizingthatamultilateralinstrumentisdesirableandfeasible,citingfacilitationofswiftimplementationofmeasuresrequiredunderthetreatyandtheincreasedconsistencyofoutcomes.ItrecommendsthatanInternationalConference,whichshouldbeopentoallinterestedcountriestohelpthemdevelopandnegotiatethecontentofthemultilateralinstrument,shouldbeconvenedin2015.ItisproposedthatthemandateoftheInternationalConferenceislimitedinitsscopetotwoyearsbyfocusingontreaty-relatedBEPSoutputonceitisfinalized.


OECD releases discussion draft on prevention of artificial avoidance of PE status under BEPS Action 7

TheOECDreleasedadiscussiondraftonAction7onartificialavoidanceofpermanentestablishment(PE)statusunderitsActionPlanonBEPSon31October2014.Thedocument,titledPreventingArtificialAvoidanceofPEStatus,provides14proposedoptionsforaddressingarrangementsenteredbytaxpayersthatraiseOECD-relatedconcernsaboutpotentialartificialavoidanceofPEstatus.TheoptionsgenerallyreducethePEthresholdandtightenexceptionstoPEstatussetforthinArticle5oftheOECDModelTaxConventionandrelatedcommentary.Inparticular,theseoptionsaddressthePEstandardrelatingto“commissionaire”andsimilararrangements,modifythepreparatoryandauxiliaryexceptiontothePEstatusandaddressthePEthresholdforinsurance.TheOECDhasinvitedcommentsonthisdiscussiondraftbefore9January2015.IthasalsoindicateditsintentionofhavingapublicconsultationontheDraftandcommentsreceivedon21January2015.

(Formoredetails,refertoEY’sGlobalAlertdated4November2014.)

Home

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-15-on-feasibility-of-developing-multilateral-instrument-to-amend-bilateral-tax-treaties

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-report-under-BEPS-Action-15-on-feasibility-of-developing-multilateral-instrument-to-amend-bilateral-tax-treaties

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-discussion-draft-on-preventing-artificial-avoidance-of-PE-status-under-BEPS-Action-7

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--OECD-releases-discussion-draft-on-preventing-artificial-avoidance-of-PE-status-under-BEPS-Action-7

26 Tax Digest

Tax happenings across the border

Brisbane G-20 Communiqué highlights new developments in a range of global tax issues

TheleadersofG-20countriesmetatasummitinBrisbane,Australia,on15–16November2014.Attheconclusionofthemeeting,acommuniquéwasissued.Thisdetailedtheagreementsreachedandactionsdecidedonduringtherunuptoandthecourseofthesummit.TheproceedingsofthemeetingreconfirmedG-20countries’commitmenttothebroadpolicyprinciplesoftheBEPSProjectandtheirendorsementoftheCommonReportingStandardforautomaticandquickexchangeoftax-relatedinformationonareciprocalbasis,inadditiontoothermeasurestoaddresserosionofthebase.


UK and Germany agreement on joint proposal on preferential IP regimes

On11November2014,theUKandtheGermanGovernmentspublishedtheirjointproposaltoadvancenegotiationsonnewrulesonpreferentialIPregimeswithinG20andOECDBEPSprojects.TheproposalwillbetakenforwardinOECDdiscussions.TherecommendationsarenotspecifictotheUKregime,butareintendedtofacilitatediscussionsonacceptableparametersforpreferentialIPregimesingeneral.Theproposalseekstoachieveabalancebetweentheabilitiesof“maintainingcountries”tooffertaxbenefitsfordevelopmentofintellectualpropertyandpreventionofmisuseofsuchbenefits.Itacceleratesthe”nexus”approachoutlinedintheOECD’sinterimreportonBEPSAction5toensurethatsubstantialactivityisundertakeninajurisdictionimplementingthepreferentialIPregime,butseekstohighlightthecommercialrealitiesofinvestmentonresearchanddevelopment(R&D)bybusinesses.


The Netherlands announces limited amendment in its “innovation box” regimeOn11November2014,theNetherland’sStateSecretaryofFinanceannouncedanupcomingamendmentmadetothecountry’sinnovationboxregimetopreventaninternationalmismatchwhenIPistransferredfromaPEtotheheadoffice.Inaddition,questionswereraisedintheParliamentregardingthefutureoftheinnovationboxregime,basedontherecentnewsonanagreementbetweentheUKandGermanyonamendingtheUK’spatentboxregime.Thischangewillcomeintointoforceon1January2015.


Spain to strengthen CFC rules

TheBillamendingtheSpanishCorporateIncomeTax(CIT)Law,whichisexpectedtobeenactedbeforetheendoftheyear,andwhichifpassedwillapplyasof1January2015,strengthensthecurrentrulesgoverningControlledForeignCompanies(CFCs).Theproposedregime(statedinthepreambleoftheBill)isinlinewiththeOECD’sBEPSproject,whichhastwomainpurposes—(i)toavoidtransferofprofitsoutsideSpainmerelyfortaxreasonsand(ii)tosetlimitsonthescopeofthenewrulesgoverningtheSpanishparticipationexemptionregimeondividendsandcapitalgains.


Home

http://www.ey.com/GL/en/Services/Tax/International-Tax/EY-alert-Brisbane-g-20-communique-highlights-new-developments-on-a-range-of-global-tax-issues

http://www.ey.com/GL/en/Services/Tax/International-Tax/EY-alert-Brisbane-g-20-communique-highlights-new-developments-on-a-range-of-global-tax-issues

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--UK-and-Germany-agree-to-joint-proposal-on-preferential-intellectual-property-regimes

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--UK-and-Germany-agree-to-joint-proposal-on-preferential-intellectual-property-regimes

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--The-Netherlands-announces-limited-amendment-of-its-innovation-box-regime

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--The-Netherlands-announces-limited-amendment-of-its-innovation-box-regime

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Spain-proposes-to-strengthen-CFC-rules

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Spain-proposes-to-strengthen-CFC-rules

27 Tax Digest

Germany considers proposal for new anti-hybrid rule and other amendments

On24October2014,theFinanceCommitteeoftheGermanStateCouncil(Bundesrat–theGermanUpperHouse)approvedarecommendationtoincludeseveralmeasures,includinganewanti-hybridrule,inacurrentlyongoinglegislativeprocess.Themeasuresincludeananti-hybridrulethatwouldnegateadeductionsothatanexpenseisnotincludedasincomeinthetaxablebaseofadirectorindirectrecipientorisexemptatthelevelofthedirectorindirectrecipientduetoamismatchinthedebtvequityclassificationofthelegalconstructunderlyingthepayment.Furthermore,expensesaretobeonlydeductibletotheextentthattheydonotreducethetaxablebasisinanothercountry.TheproposedrulewillapplyforallthefiscalyearsaftertheofficialpublicationdateofthefinalizedAct.Therefore,ifitbecomesalawaspartofthecurrentlegislativeproposal,itcouldstillapplytocalendaryeartaxpayersin2014.


Ireland publishes draft legislation phasing out “Double Irish”

On14October2014,theIrishMinisterforFinanceannouncedtheGovernment’splanstoenhancetheIrishIPregimeandphaseoutthesocalled“DoubleIrish.”On23October,theproposedlegislation,givingeffecttophasingoutoftheDoubleIrishwaspublished.CorporateresidencerulesaretobeamendedsuchthatallcompaniesincorporatedinIrelandwillberegardedasIrishtaxresidentsandthereforebeingsubjecttoIrishtaxesontheirglobalincomeandgains.Wheninforce,thisrulewillnotregardacompanyincorporatedinIrelandasataxresidentifoneofthecountry’staxtreatiesmandatestreatmentoftheentityasaforeignresident.Nothinginthisproposalaltersthecurrentposition,wherebycompanies(Irishorforeign),whicharecentrallymanagedandcontrolledinIreland,willcontinuetoberegardedasIrishtaxresidentsintheabsenceoftheapplicationofan“override”inoneofIreland’staxtreaties.

(Formoredetails,refertoEY’sGlobalAlertdated14October2014and23October2014.)

Uruguay offers exemption from tax for activities performed by multinational companies’ shared service centers

On1September2014,Uruguay’sMinistryofEconomyandFinanceissuedadecree,whichmandatedthatcertainactivitiesperformedbythesharedservicecentersofmultinationalcompanieswouldbeeligibleforexemptionfromsometaxes.However,itstipulatedthatasharedservicecentershouldbethesubsidiaryofamultinationalgroupthatprovidesservicestoitsrelatedparties.Theexemptionswillonlyapplytothefollowingactivities:

Advice(includingtechnicalassistanceservices)providedinrelationtoactivitiesdeveloped,goodslocatedorrightseconomicallyexploitedoutsideofUruguay

Data-processingservicesrelatedtoactivitiesdeveloped,goodslocatedorrightseconomicallyexploitedoutsideofUruguay

Inallcases,benefitsaretobeonlyderivedfromservicesthatareobtainedoutsideUruguayandcertainspecifiedrequirementsaretobesatisfiedforsuchservicecenterstoqualifyforexemptions

(Formoredetails,refertoEY’sGlobalAlertdated14October2014and8September2014.)

Home

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Germany-considers-proposal-for-new-anti-hybrid-rule-and-other-amendments

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Germany-considers-proposal-for-new-anti-hybrid-rule-and-other-amendments

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Ireland-announces-improvements-to-IP-regime-and-phasing-out-of--double-Irish

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Ireland-announces-improvements-to-IP-regime-and-phasing-out-of--double-Irish

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Uruguay-offers-certain-tax-exemptions-for-activities-performed-by-multinational-companies-shared-service-centers

http://www.ey.com/GL/en/Services/Tax/International-Tax/Alert--Uruguay-offers-certain-tax-exemptions-for-activities-performed-by-multinational-companies-shared-service-centers

28 Tax Digest

From the Tax Gatherer’s desk

Home

Central Board of Direct Taxes (CBDT)

CBDT issues internal guidelines on implementation of a non-adversarial tax regime

AsmuchemphasizedbyIndia’sPrimeMinisterandFinanceMinisterinrecenttimes,theCBDThas,inaseriousattempttoimplementanon-adversarialtaxregime,issued“internal”guidelinestotheTaxAuthority,consolidatingvariousinstructionsissuedinthepastandlayingemphasisoncertainaspectsoftaxpayer-friendlymeasuresthatneedtobetaken.Mostimportantly,theguidelinesmandatethatemployeesfollowtheinstructionsscrupulously,failingwhichdisciplinaryactionmaybeinitiatedagainstthem.

(For more details, refer to EY’s Global Alert dated 14 October 2014 and 8 September 2014.)

(Source: CBDT Instruction dated 7 November 2014)

CBDT sets up a committee to deal with retroactive “indirect transfer” taxation

TheCBDThassetupacommitteetodecideoncasesrelatingtotheprovisionsoftheITLon“indirecttransfer.”TheTaxAuthorityneedstorefertoandobtainthepriorapprovalofthecommitteeforalltransactionsof“indirecttransfer”priorto1April2012,onwhichnoactionwasinitiatedason28August2014.Thecommitteewillprovideanopportunitytotaxpayerstopresenttheircasesandwillendeavortotakeadecisionwithin60days.TheTaxAuthorityshouldproceedinaccordancewiththedirectionsofthecommittee.

(Source: F. No. 149/141/2014-TPL dated 28 August 2014)


CBDT circular on automatic approval for foreign currency borrowings to avail reduced withholding tax rate

TheFinance(No.2)Act2014amendedsection194LCoftheITL(i.e.,interestonforeigncurrencyloanspaidbyIndiancompanies)witheffectfrom1October2014,toprovideforaconcessionalrateofwithholdingtaxforborrowingsthroughlong-termbonds.TheapprovaloftheCentralGovernmentisrequiredoncertainaspectsoftheborrowing.

Inordertoavoidplacingacompliance-relatedburdenonborrowers/issuersofbonds,theCBDThasprovidedforautomaticapprovalbeinggrantedbytheCentralGovernment.Thiswillsatisfycertainconditionsincludingthefollowing:

• AbondissueshouldcomplywithExternalCommercialBorrowings(ECB)regulationsissuedbytheReserveBankofIndia(RBI).

• Thetermofthebondshouldhaveanoriginalmaturitytermofthreeyearsormore.

Furthermore,theCBDThasprovidedforautomaticapprovalofinterestrateswithinallin-costceilingsspecifiedunderECB’sregulations.

(Source: Circular No. 15/2014 (F.NO.133/50/2014-TPL) dated 17 October 2014)


29 Tax Digest

Depreciation on windmills extended to 80%

AsemphasizedbytheFinanceMinisterinhisBudgetSpeech,whilemovingtheFinance(No.2)Bill,2014,therateofdepreciationonwindmillsandanyspecialdevices,including electric generators and pumps running on wind energy,installedonorafter1April2014,isincreasedto80%.

(Source: Notification No. 43/2014 [F.NO.152/1/2013-TPL]/SO 2399(E), dated 16 September 2014)

Relaxation of manpower threshold in SEZ units

TheCBDThasissuedaCircular(No.12/2014),dated18thJuly2014,toclarifythatmeretransferorre-deploymentofexistingtechnicalmanpowerfromanexistingunittoanewSEZunitinthefirstyearofcommencementofabusinesswillnotbeconstruedassplittinguporreconstructionofanexistingbusiness,providedthenumberoftechnicallyqualifiedemployeestransferreddoesnotexceed20%ofthetotaltechnicalmanpowerengagedindevelopingsoftwareatanypointoftimeinagivenyearinthenewunit.TheCBDThasnowextendedthethresholdto50%ofthetotaltechnicalmanpowerinsuchaunit.However,alltheunitsofataxpayerwouldbeconsideredcompliantifthenetadditionoftechnicalmanpowerinitsnewunitisatleast50%ofitstotaltechnicalmanpowerinalloftheseunits.

(Source: Circular No. 14/2014 [F.NO.178/84/2012-ITA.I], dated 8 October 2014)

(For the earlier Circular No. 12/2014, refer to Tax Digest, September 2014 edition.)

Home

30 Tax Digest

Indirect Tax

Home

Service tax

High Court, Kerala

Levy of Service tax on services provided by AC restaurants and services by hotels, guest house etc., in relation to providing of accommodation, held to be unconstitutional by the Kerala High Court

FinanceAct,1994;infavorofassessees

TheassesseeswereengagedinthebusinessofrunningACrestaurantsandhadalicensetoservealcoholicbeverages.TheassesseesfiledawritappealchallengingthevalidityofSection65(105)oftheFinanceAct,1994sub-clauses:(zzzzv)–ServicesprovidedbyanACrestaurant,withalicensetoserveliquor;(zzzzw)-Servicesprovidedbyahotel,inn,guesthouseetc.whileprovidingaccommodationforacontinuousperiodoflessthanthreemonths(InsertedvidetheFinanceAct,2011).Inthewritpetition,thesinglejudgeheldthatthematterscoveredinthesaidsub-clausesofSection65(105)wereenumeratedinEntries54and62oftheStateListandhence,theParliamentdidnothavethelegislativecompetencetolevytaxthereon.Aggrieved,theRevenuewentintoappealagainstthedecisionofthesinglejudge.TheissuetobedecidedbytheDivisionBenchwaswhethertheParliamenthadthelegislativecompetencetolevyServicetaxonservicesprovidedbyACrestaurants,withalicensetoserveliquorandontheservicesprovidedbyhotels,innsetc.inrelationtoaccommodationforashortterm.

TheDivisionBenchupheldthedecisionofthesinglejudgeandconfirmedthatlevyofServicetaxonsupplyoffoodandbeveragesinanACrestaurantandonaccommodationinhotels,innsetc.undersub-clauses(zzzzv)and(zzzzw)ofSection65(105)isunconstitutional.Onlythestateshavethelegislativecompetencetoimposetaxas,postthe46thamendmentsuchtransactionsweredeemedtobeasaleandtheConstitutionconferredauthorityuponthestatestotaxthewholeconsiderationreceivedbythepersonforsupplyingfoodandbeverages.TheKeralaHighCourthasdifferedfromthedecisionoftheBombayHighCourtinthecaseofIndianHotelsandRestaurantAssociation&Anr.v.UoI&Others;2014-TIOL-498-HC-MUM-STwhereinthelevyofServicetaxontheservicesrenderedbyrestaurantsunderclause(zzzzv)ofsection65(105)oftheFinanceAct,

1994washeldtobeconstitutionallyvalid.InarecentStayorderpassedbytheTelanganaandAndhraPradeshHighCourtsonthesameissue,theHChasstayedthecoerciverecoveryofServicetaxonsupplyoffoodanddrinksinabar.

UoI & Others v. Kerala Bar Hotels Association & Ors; TS-501-HC-2014-(KER)-ST

High Court, Allahabad

Services of seconded employees not taxable under manpower recruitment or supply agency category — High Court upholds CESTAT’s decision as being in accordance with law

FinanceAct,1994;infavorofassessee

TheassesseeisapartofagroupofcompaniessituatedintheUS,theUKandSingapore,amongothercountries.InthecourseofitsIndianbusinessoperations,theassesseehadobtainedservicesofexpatriateemployeesfromitsgroupcompany(directly)orbytransferofemployeesandhadmadecertainpaymentstooverseasgroupcompaniesduringFYs2006–07to2010–11.ThedisputearosewhenRevenueallegedthattheentireremittancemadebytheassesseetotheoverseasgroupcompaniespertainingtosuchemployeesconstitutedastaxableservices,underthecategoryofmanpowerrecruitmentorsupplyagency(MRSA)services.Paymentsweremadebytheassesseefor—(i)Remittancestoitsgroupcompaniestowardreimbursementsofsocialsecurityandotherbenefitsthatwerepayabletotheaccountsofexpatriateemployeesaccordingtolawsoftheforeignjurisdiction;(ii)ProvidentfundcontributionsforsecondedemployeesinIndia;(iii)Taxdeductedfromsalariespayabletotheexpatriateemployeesonthebasisoftheirtotalincome.IntheimpugnedadjudicationordersuchreimbursementsinrespectofsecondedemployeeswereheldliabletoServicetaxandaccordingly,theassesseewasrequiredtopaytaxunderreversechargemechanism.Beingaggrieved,theassesseefiledanappealbeforetheDelhiCESTAT.TheDelhiCESTATallowedtheappealinfavorofassessee.TheRevenuebeingaggrievedfiledanappealbeforetheHon’bleAllahabadHighCourt(HC)againsttheCESTAT’sdecision.

31 Tax Digest Home

TheRevenuecontendedthattheTribunalhascommittedanerrorinapplyingtheratioofthejudgementinthecaseofVolkswagenIndiaPvt.Ltd.v.CCE;2014(34)STR135(Tri.-Mumbai).

TheHCheldthatpaymentsmadebyanIndianentityinrespectofservicesofexpatriateemployees,obtainedfromitsgroupcompany(directly)orbytransferofemployeescannotfallwithinthepurviewofMRSAservices,sincetheRevenuehadshownnobasiswhatsoeverforholdingthattheinstanttransactionfulfilledcriticalrequirementsstipulatedin(erstwhile)Section65(105)clause(k)oftheFinanceAct,1994.TheHCdismissingtheRevenue’sappealupheldtheDelhiCESTAT’sdecisioninbeinginaccordancewithlaw.

CCEv.ComputerSciencesCorporationIndiaPvt.Ltd.;2014-TIOL-1896-HC-ALL-ST

High Court, Kerala

HC upholds Service tax on conversion of overseas remittances into rupees

FinanceAct,1994;infavorofassessee

Whiledismissingawritpetitionfiledbytheassessee,amanufacturerandexporterofproductssuchasdoormatsandfloorcoverings,theHCcommentedthatitdidnotfindanyillegalityinlevyingthetax,sinceconversionofforeigncurrencyisaserviceprovidedbybanks.TheassesseehadfiledacaseagainsttheUnionBankofIndiaandrevenueauthorities,arguingthatitwasnotliabletopaythetaxonforeigncurrencyremittedtoIndia,andifatall,taxwastobelevied;itshouldbeonthegrosschargeleviedbythebankfortheservicerendered.Theassesseehadsoughttostopthebankfromlevyingthetaxandalsoaskedforarefundonthemoneyalreadydeducted.

TheCourtheldthatthedifferencethatthebankearnswhilebuyingcurrencyatareducedratefromthemarketandconvertingitatReserveBankofIndiaratescanbeconsideredforchargingServicetax.Furthermore,itwasheldthatServicetaxcanbeleviedonthefeesandcommissionschargedbybanksforconvertingoverseasremittancesintorupees.

Palm Fibre (India) Pvt. Ltd. v. Union Bank of India; 2014-VIL-239-KER-ST

CESTAT, Mumbai

Inbound deputation not necessarily manpower supply

FinanceAct,1994;infavorofassessee;staygranted

RevenueallegedthatMRSAserviceswerebeingreceivedbytheassesseesandtheywereliabletopayServicetaxunderthereversechargemechanism.Accordingtotheimpugneddemand,acertainportionoftheamountwasalreadypaid/depositedbytheassessee.Beingaggrieved,theassesseeapproachedtheTribunalrequestingwaiverofbalancepre-depositsandgrantofstay.

Onscrutinyoftheagreement,theTribunalobservedthattheemployeeswerehiredonaprincipal-to-principalbasiswhentheforeignentitydeputedtheemployeeswiththeassessees.Theirsalarieswerebeingpaiddirectlytotheemployeesbytheassessees,andtheywerealsoretainingfullcontroloversuchemployees.Giventhisscenario,theTribunalheldthatprima facie services received by assesseesdidnotfallunderthecategoryofMRSAservicesandtheamountsalreadypaidbythemweresufficientaspre-deposit.Therefore,theywaivedanyfurtherrequirementofpre-depositofthebalanceServicetax,interestorpenaltyduringthependencyoftheappeal.

Halliburton Technology (I) Pvt. Ltd. v. CCE; 2014-TIOL-2290-CESTAT-MUM

CESTAT, Mumbai

Royalty paid for a copyrighted image not taxable under Intellectual Property Right (IPR) services

FinanceAct,1994andCopyrightAct,1957;infavorofassessee

Theassesseewaspermittedtousevisualimages,propertyinnameandlikenessofthelegendarymartialartist,BruceLeeintheirmobilegames,afterpaymentofconsideration(bywayofroyalty)totheforeignserviceprovider.RevenuewasoftheviewthatsuchconsiderationwouldbeliabletoServicetaxaspropertyreceivedvideBruceLee’simageswouldfallunderIPRservices,onareversechargebasisw.e.f.18April2006.TheassesseecontendedthatthepropertyofvisualimagescomeunderthecategoryofcopyrightsasdefinedintheCopyrightActandIPRservices

32 Tax Digest

specificallyexcludedcopyrightsfromwithinitspurview.W.e.f.1June2007,Servicetaxwasbeingpaidbytheassesseeonroyaltypaymentsunderthe“Developmentandsupplyofmobilecontentservice”.

TheTribunalacceptingtheassessee’sarguments,heldthatthepropertyembodiedinvisualimageswouldfallsquarelywithinthedefinitionofcopyrightsasenvisagedbytheCopyrightAct(i.e.,asartisticworkdefinedinSec.14(b)oftheCopyrightAct,1957).Itobservedthatevenifitistreatedasacomputerprogram,suchpropertyembodiedinvisualimageswouldcontinuetofallundercopyright,sincecopyrightisspecificallyexcludedfromtheIPRservice.Therefore,theroyaltyforuseofthe“BruceLee”imagesinmobilegameswasheldtobenottaxableunderIPRservices.

Indiagames Ltd v. Commissioner of Service Tax; TS-452-Tribunal-2014(Mum)-ST

CESTAT, Mumbai

Separate contracts for supply of equipment and for erection and commissioning services is one single composite contract and liable to Service tax as works contract service

FinanceAct,1994andWorksContract(CompositionSchemeforPaymentofServiceTax)Rules,2007

TheassesseewasengagedinthebusinessofgenerationofelectricityandintendedtosetupapowerplantinIndia.Theturnkeyprojecttosetupapowerplantwassplitintotwocontracts,oneforsupplyofgoodsandanotherforerectionandcommissioningservices.ThecontractswereawardedbytheassesseetoanoverseasentityanditsIndianauthorizedrepresentative,respectively.TheissuedealtwithinthiscasebytheTribunalwaswhetherServicetaxisliabletobepaidunderreversechargebasisonpaymentsmadetotheoverseasentity.RevenuetreatedthatthetotalworkwasaturnkeyprojectandstatedthatitwascoveredunderworkscontractservicemakingtheassesseeliabletopayServicetaxonsuchservicesunderreversechargebasis(i.e.,Servicetax@4%ontotalamountofthecontractundercompositionscheme).TheTribunalreiteratingtheSC’sobservationsinthecaseofIshikawajima-HarimaHeavyIndusLtd.v.

DirectorofIncomeTax;2007(6)STR(SC)heldthatbothcontractsmustbereadtogetherinlightoftheintentionofthepartiesandaccordinglytreatedthemasonesinglecompositecontractliableforServicetaxasWorksContractservice.ItalsoheldthatcompositionschemeforpaymentofServicetaxonworkscontractservicesisoptionalinnatureandcannotbethrustontheassessee.

Gupta Energy Pvt Ltd v. CCE, Nagpur; TS-410-Tribunal-2014-ST

CESTAT, Mumbai

When no Service tax was payable but the amount paid, whether by way of tax/interest, it was to be treated as deposit and held as refundable

Infavorofassessee

TheassesseisadistributorforBSNLPrepaidCellularservicesetc.,andwasregisteredwithServicetaxdepartmentunderthecategoryofFranchiseservice.PursuanttotheissuanceofaShowCauseNotice,theyhaddepositedanamount,whichincludedaninterestportiontoo.Whilethetaxandinterestweredeposited,theassesseepreferredanappealbeforetheCommissioner(Appeals),whichallowedtheappealintheirfavor,adjudgingthattheyweretradersofSIMcards,hadpaidSalesTaxonsuchtransactionsandaccordingly,noServicetaxbecamepayablebythem.Accordingly,theassesseeappliedforarefundoftheentireamount.However,theAssistantCommissionerwhileadjudicatingtherefundclaim,onscrutinyfoundthattherewasamismatchbetweentheactualtax/interestpaidchallansandtheimpugnedordercalculationsandtherefore,rejectedtheassessee’srefundclaim.Beingaggrieved,theassesseepreferredanappealbeforetheCommissioner(Appeals).However,thisappealwasdismissedonthegroundthattheissuewastimebarred.Thereafter,theassesseeapproachedtheTribunal,contendingthatsincenoServiceTaxwaspayablebythem,whateveramountsthatweredepositedbythem,shouldbetreatedasdepositandberefundedtothem.TheHon’bleTribunal,agreeingwiththeassessee’scontention,directedtheadjudicatingauthoritytorefundtheamounttothemandheld,thattheadjudicatingauthorityhaderredinrejectingtheirrefundclaimonthegroundofmismatch.

Roshan R Jaiswal v. CCE; 2014-TIOL-2308-CESTAT-MUM

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CESTAT, Kolkata

Interest on bill discounting facility is exempt from Service tax and interest earned on overdraft and cash credit facility would attract CENVAT credit reversal

FinanceAct,199;CENVATCreditRules,2004;matterremanded

TheassesseeisaPublicSectorUndertakingbank,engagedintheprovisionoflendingservicesaswellasbilldiscountingfacilities,whichwerecoveredunderthescopeofbankingandotherfinancialservices.TheRevenueraisedademandforServicetaxoninterestinrelationtobilldiscountingfacilityandalsosoughttorecoveranamountunderRule6(3A)ofCENVATCreditRules,2004(CCR)onthegroundsthatinterestonoverdraft(OD)andcashcredit(CC)facilitiesshouldbeincludedintheexemptedturnoveraccordingtotheformulaprescribedinRule6(3A).TheTribunalrejectedthecontentionoftheassesseethatdiscountingofbillsisakintoloansandheldthatservicesoflendingandthatofbill discounting are considered as separate services under thedefinitionofbankingandotherfinancialservicesandshouldbetreateddifferentlyforpurposesofServicetax.TheTribunalfurtherheldthat,eventhoughthevalueofinterestonbilldiscountingfacilitycannotbeexcludedfromthevalueoftaxableserviceunderSection67oftheFinanceAct,1994(upto18April2006)andRule6(2)oftheServiceTax(DeterminationofValue)Rules,2006(w.e.f.19April2006),itwouldstillbeexemptfromlevyofServicetaxbyvirtueofNotificationNo.29/2004-STdated22September2004.TheTribunalacceptedtheargumentadvancedbytheassesseeandheldthataccordingtothefirstpartofthesaidNotification,thesubjectsfortheexemptionfromServicetaxareODfacility,CCfacilityorbilldiscountingfacilityandtheobjectsarevalueequivalenttointerestordiscount,asthecasemaybe,i.e.,asperthecircumstances.Therefore,thevalueofinterestaswellasdiscountinconnectionwithprovidingtheservicesofODfacility,CCfacilityorbilldiscountingfacilitywouldbeexemptedfromServicetaxunderSection66oftheFinanceAct,1994.Asregardsthesecondissue,theTribunalrejectedthecontentionoftheassessee

thatRule6(3)wouldbeattractedonlywhentheentiretaxableservice,i.e.,bankingandotherfinancialservicesisexemptedandnotwhenfewservicesmentionedunderthesaidcategoryareexempted.TheTribunalheldthatsincethedefinitionof“exemptedservices”underSection2(e)oftheCCRalsoincludedservices,whichareexemptunderSection66oftheFinanceAct,1994,interestonCCandODfacility,whichisexemptedfromServicetaxvideNotification29/2004,wouldalsobecoveredunderthescopeofexemptedservices.Hence,itwasheldthattheinterestonODandCCfacilityshouldbeconsideredwhilecomputingtheexemptedturnoverunderRule6(3A)oftheCCR.

UCO Bank, Kolkata v. Commissioner of Service tax, Kolkata; TS-439-Tribunal-2014-ST

CESTAT, Delhi

Commitment Charges held as taxable

FinanceAct,1994;infavoroftherevenue

TheassesseeisinvolvedinthebusinessofprovidingfinanceforhousingandurbandevelopmentandisregisteredwiththeDepartmentunderthecategoryofbankingandotherfinancialservicesandpayingServiceTaxontheservicesprovidedbythem.Theassesseewaschargingcommitmentchargesontheamountofloansanctionedbutnotdrawnbythecustomer.Thecommitmentchargesarechargesimposedontheclientwhodecidesnottodrawtheamountofloanthathasbeenattheirdisposal.Thesechargesarebasicallytocompensateforthelossofinterestthatthebankwouldhaveearnedifthecustomerhaddrawnmoneyfromtheloanaccount.Suchchargesarerelatedtolendingthemoneytotheclientandinordertogivelimit/overdraftfacility,thebankkeepsfundsavailableforthesame.Itwassubmittedthatallthesechargeswereinthenatureofpenaltyfordenying/receivingservices,whichhavealreadybeenagreedbetweentheclientandtheBank.RevenuereferredtothecaseofHousingandDevelopmentCorporationLtd.(HUDCO)v.CommissionerofServiceTax;2012(26)S.T.R.531(Tri.-Ahmd)whereinithasbeen

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heldthatjustbecauseperiodhasbeencalculatedbasedon outstanding loan amount and interest rate prevalent at thattime,itwillnotchangetheservicechargestointerest.

Single-memberbenchoftheTribunal,followingtheearlierdecisioninthecaseofHUDCO,observedthatthisisintegrallyconnectedtotheserviceoflendingandistaxableassuch.Itwasheldthatundersuchcircumstances,itisevidentthatsuchchargesareintegrallyconnectedwiththelending,whichisataxableservice.Therefore,commitmentchargescannotbeseparatedfromlendingserviceandarechargeabletoServicetax.TheServicetaxamountwasrecoverablefromtheassesseeandtheTribunalheldthattherewasnoreasontointerferewiththeorderoftheCommissioner(A)thathadconfirmedtheServicetaxdemand.However,itmaybenotedthattheHUDCOcasehasbeendistinguishedonfactsingrantingstayinacaseofAndhraPradeshStateFinancialCorporationrecentlybytheBangalorebenchoftheCESTAT(2members)basedonthefactualscenarionarratedinthesaidHUDCOorder.

Punjab National Bank v. CCE; 2014-TIOL-2080-CESTAT-DEL

CESTAT, Mumbai

Service tax prima facie inapplicable on the amounts retained by assessee-Bank whilst advancing loans through Clearing Corporation of India (CCIL)

FinanceAct1994;infavorofassessee

Theassesseebanks,i.e.,HDFCBankLtd.andICICIPrudentialInsuranceCoLtd.soughtwaiverofpre-depositwithrespecttothedemandsraisedbytheRevenue.TheassesseebanksareinthebusinessoflendingandborrowingbusinessanddischargeServicetaxunderthecategoryofbankingandotherfinancialservices.TheyhadafinancearrangementagainstgovernmentsecuritiesheldbytheClearingCorporationofIndia(CCIL)—whichhascollateralborrowingandlendingobligation.Theissuerelatedtotransactionsretainedaschargesbythelenderforprovidingloantotheborrower.ItwasheldbytheTribunalthattransactionofcollateralborrowingandlending amounts to giving loans and advances against securities;therefore,amountretainedconstitutes“interestonloan”.NoServicetaxisleviableondiscountingof

accountsreceivableintermsofNotificationNo.29/2004-ST,whereinsuchdiscountconstituteinterestforlendingmoneyandnota“commission”.Similarly,penalinterestrecovered,pertainingtodelayofadvancegiventoclients,formspartofinterestonloan,notliabletoServicetax.TheTribunalhasheldthatServicetaxisnotpayableonamountretainedbyBankwhileadvancingloanthroughCCIL.Suchtransactionsofcollateralborrowingandlendingamountsto giving loans and advances against securities and therefore,theamountretainedconstitutes“interestonloan”.Itwaivedoffpre-depositofentireamountofServicetax,interestandpenalties.

HDFC Bank Ltd v. CCE; TS-535-Tribunal-2014-ST

CESTAT, Mumbai

Marketing and technical support services provided by Indian entity to overseas entity treated as “export of services” under the erstwhile ”Export of Service Rules, 2005” — as held by the larger bench of CESTAT

FinanceAct,1994;erstwhileExportofServiceRules,2005;infavorofassessee

Therulingdealswiththeissuewhetherservicesprovidedtoprincipalsbased/situatedoutsideIndia(MicrosoftSingapore)tomarkettheirproductswithintheIndianterritorybyMicrosoftCorporationIndiaPvt.Ltd.(MicrosoftIndia)wouldqualifyasexportofserviceundertheerstwhile“ExportofServicesRules,2005”(ExportRules).Intheinstantcase,MicrosoftIndiahadbeencontractuallyengagedbyMicrosoftSingaporetoprovidesupportforexpandingreachoflatter’sofferingswithintheIndianmarket.MicrosoftIndiaclaimedthesaidservicesasexport,whichwasdisputedbyRevenueauthoritiesanddemandwasconfirmedagainstMicrosoftIndia.IntheappealfiledbyMicrosoftIndia,beforethedivisionbenchoftheCESTAT,thetwomembersexpresseddivergentviews,therebygivingrisetotheneedtoreferthemattertothethirdmember,whoheldthatthemarketingoperationsdonebyMicrosoftIndiacannotbesaidtobeatthebehestofanyIndiancustomer.TheservicebeingprovidedmayormaynotresultinanysalesoftheproductinIndiansoil.TheservicesarebeingprovidedbyMicrosoftIndiatoMicrosoftSingaporeandtobeusedbythematSingapore;

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maybeforthepurposeofthesaleoftheirproductinIndia,havetobeheldasexportofservices.TheThirdMemberalsoplacedrelianceintheruling,GapInternationalSourcing(India)Pvt.Ltd.;2014-TIOL-465-CESTAT-Delwhereinanidenticalissue,itwasheldthatservicesofidentifyingIndiancustomers,forprocurementofvariousgoodsonbehestofforeignentityistheserviceprovidedtoaforeignentityandsuchserviceprovidedbyapersoninIndia is consumed and used by a person abroad is treated asexports.

Microsoft Corporation India Pvt. Ltd. v. CST, New Delhi; 2014-VIL-231-CESTAT-DEL-ST-LB

CESTAT, Mumbai

Collection of export proceeds by local Bank (in light of the arrangement between Indian Bank and its overseas branch), not an import of services from the assessee’s standpoint

FinanceAct,1994;waiverofpre-depositandstaygranted

Theassesseemanufacturedtextileproductsandexportedgoodstotheirforeignbuyer.Inthisregard,theassesseehandedoverbillsforcollectionofexportproceedstoStandardCharteredBank’sbranchinMumbai.StandardCharteredBankundertookcollectionofexportproceedsthroughtheirofficeintheUKwhichretainedapartoftheamounttowardcollectioncharges.TheRevenuecontendedthatServicetaxshouldbepayableontheamountretainedbytheUKbranchofStandardCharteredBankonareversechargebasisunderSec.66AoftheFinanceAct.TheTribunalobservedthatthecontractforcollectionisbetweentheassesseeandtheMumbaibranchoftheStandardCharteredBank.ItheldthatsinceboththeserviceproviderandservicerecipientaresituatedinIndia,therewasnoimportofserviceinvolved.ItstatedthathowStandardCharteredBankinMumbaimakesarrangementforcollectionisnotthebusinessoftheassesseeandnoraretheyconcernedwithit.Giventhis,theassesseewasgrantedstayandwavierofpre-deposit.

Raymond Ltd v. Commissioner of Service Tax; 2014 (11) TMI 794 - CESTAT Mumbai - Service Tax

CESTAT, Chennai

Bill discounting in the course of sale/purchase not taxable under banking and other financial services

FinanceAct,1994;waiverofpre-depositandstaygranted

Theassesseeisadealerofautomobileproductsanditssupplierextendedthemwithbilldiscounts,duetoitsprompt/speedypayments.TheadjudicatingauthorityallegedthatServicetaxwouldbeapplicableonsuchbilldiscountingaccordingtothedefinitionofbankingandotherfinancialservices.TheTribunaldisagreeingwiththeRevenue’scontentionheldthatthebilldiscountingwasundertakenduringthecourseofsaleofgoodsbetweenthebuyerandsellerandprima facie,noServicetaxwasleviable.Giventhis,assessee’spleaofwaiverofpre-depositoftheentireamountoftaxalongwithinterestandpenaltyandstayapplicationwasallowedbytheTribunal.

Surin Automotive Pvt. Ltd. v. Commissioner of Central Excise (ST) Chennai; 2014 (11) TMI 832 - CESTAT CHENNAI - Service Tax

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CENVAT credit/Central Excise

High Court, Madras

Dues payable to Excise Department do not have any precedence over the right of a secured creditor

DecidedagainsttheRevenue

ItisasettledlegalpositionthatduespayabletotheCentralExciseDepartmentdonothaveanyprecedenceovertherightofasecuredcreditor.TheHCobservedthatthesecuredcreditorhereincameintothepicturepursuanttovariousdeedsofassignmentexecutedintheirfavor.Therefore,theHCstatedthattheonlyremedyavailabletotheCentralExciseDepartmentwastoapproachtheOfficialLiquidatorandplacetheirclaimsbeforetheOfficialLiquidator.ItdirectedtheDepartmentthattheclaimcanbeadjudicatedbytheOfficialLiquidator,whointurncanissuenoticetodefaultersaswellastothesecuredcreditorandadjudicatethematter.Insuchcircumstances,itwasheldthattheduespayabletotheCentralExciseDepartmentdonothaveanyprecedenceovertherightofasecuredcreditor.Inaparallelrulingwithasimilarfactpattern,inthecaseofStateBankofIndiav.TheAssistantCommissioner,CentralExciseandServiceTaxandOthers;2014-TIOL-1355-HC-ALL-CXitwasheldthattheExcisedepartmentdoesnothaveanypreferentialchargeoverrecovery.

CCE, Madurai v. BVV. Paper Industries Ltd.; 2014 (11) TMI 623 - Madras High Court - Central Excise

High Court, Uttarakhand

Credit on wastage during manufacture of exempt goods held to be ineligible, “actual removal” test irrelevant

CentralExciseAct,1944,CENVATCreditRules,2004;infavorofassessee

RevenueisinchallengeagainsttheTribunal’sorderfavoringtheassessee.ThesubstantialquestionoflawthatwastobedecidedwaswhetherCENVATCreditattributabletothequantityofinput(Molasses)usedin,orinrelationtomanufactureofexemptedfinalproduct(RectifiedSpirit,attractingzerorateofdutyandwhichwasreportedaswastage/storageloss)willnotberequiredtobereversed

accordingtoRule6,Sub-Rule3para(a)(i)]ofCENVATCreditRules,2004(CCR).

TheHCupheldtheCommissioner’sfindingsthatCENVATcreditattributabletoquantityofinputusedformanufactureofexemptedfinalproduct,reportedaswastage/storageloss,isreversibleasperRule6(1)ofCCR.Itrejectedassessee’scontentionthatthereisnoquestionofcreditreversal,asRule6(3)ofCCRcontemplatedreversalonlyatthestageofactualremovalofgoods.TheHCfurtherobservedthatmerelybecausegoodsarenotcleared(forthereasonthatitcannotbecleared)doesnotmeanthatthemanufacturedidnottakeplace.

CCE v. Bazpur Cooperative Sugar Factory Ltd; TS-532-HC-2014 (UTI)-EXC

High Court, Bombay

Refund claim cannot be adjudged in the absence of personal hearing: serious prejudice caused by the relevant authority

Infavorofassessee

Theassessee’srefundapplicationsclaimingCENVATcredithadbeendeniedbytheDepartmentwithoutgivingthemapersonalhearingbyanimpugnedorder.Beingaggrieved,theassesseechallengingtheimpugnedorderfiledawritpetitionbeforetheHC.Theimpugnedorder,passedbytheDepartment,statesthattheauthoritywasawarethattheyhaddispensedwiththerequirementofprovidingtheassesseeapersonalhearingasthelawimposedatime-limitforprocessingtherefundclaims,andintheirview,grantingofapersonalhearingwouldhavedelayedtheproceedings.TheDepartmentevenreferredtoseveralordersandjudgmentsofvariouscourtsoflawtosubstantiatetheirviewinthisregard.Theassesseeapprehendedthatincasesuchaviewwerefollowedinfuturecases,dispensingoffwiththeaforesaidrequirementofapersonalhearing(whichistheassessee’sfundamentalandbasicrightinanadjudicationproceedings),itcouldbecomeageneralrule.TheHCobservedthatwhenanofficerisawareoftherequirementofgivingapersonalhearingbeforeanadverseorderispassed,then,theimpugnedordershowseitheranuncalledfororundueenthusiasm,whichcouldalsobesafelytermedas

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arrogance.TheHCheldthattheydonotapproveofsuchahastycourseand,therefore,proceededtoquashandsetasidetheimpugnedorder.Furthermore,theHCheldthattherefundclaimoftheassesseewillnowbedecidedinaccordancewiththelawmeaningthereby,afterhearingtheassessees,gavethemanopportunityofproducingtherelevantmaterialandareasonedorderwillthereafterbepassedbytheauthorityanduninfluencedbytheearlieraction.Allcontentionsonmeritsoftheclaimofrefundarekeptopen.TheHCalsostatedthattheirinstantorderanddirectionstherein,didnotmeanthattheyhadadjudicatedtheclaimofrefundandthattheauthoritiesareobligedtograntit.

General Mills India Pvt. Ltd. v. Union of India; 2014-TIOL-1630-HC-MUM-ST

High Court, Karnataka

Benefit of Rule 6(6)(1) extended to the goods cleared to a “developer” of a Special Economic Zone for their authorized operations - 2008 amendment construed as retrospective in nature

SpecialEconomicZonesAct,2005,CENVATCreditRules,2004;infavorofassessee

TheHCheldthattheamendmenttoRule6(6)byNotificationNo.50/2008-CEdated31December2008didnotprovideforanyreversalincaseofclearancestoSEZdeveloperswasclarificatoryinnatureandtherefore,retrospective.Priortothisamendment,accordingtotheRule6(6)(i),thebenefitofnon-reversal/maintenanceofseparateinventorywasextendedwhentheexcisablegoodswereclearedtoa“unit”inanSEZ.Thesaidbenefitwasnotextendedwhentheexcisablegoodsremovedwithoutpaymentofdutyorclearedtoa“developer”ofaspecialeconomiczonefortheirauthorizedoperation.However,inexerciseofpowersconferredbySection37oftheCentralExciseAct,1944andSection94oftheFinanceAct,1994,theCentralGovernmentamendedtheCENVATCreditRules,2004byissueoftheNotificationNo.50/2008-CE.Therefore,from31December2008,i.e.,thedateoftheNotification,thesaidbenefitwasalsoextendedtoexcisablegoodsclearedtoa“developer”ofaspecialeconomiczonefortheirauthorizedoperation.

ItwasheldthattheParliamenthadenactedtheSpecialEconomicZonesAct,2005(SEZAct)toprovidefortheestablishment,developmentandmanagementoftheSEZsforthepromotionofexportsandformattersconnectedtherewith,orincidentalthereto.Thoughthedefinitionoftheword“export”intheSEZAct,insection2(m)includedsupplyofgoodstoa“Unit”or”Developer”,inclause(i)ofsub-rule(6)ofrule6oftheCENVATCreditRules,2004theword“Developer”wasconspicuouslymissingandonly”unit“wasincludedbeforethe2008amendment.ItisinthatcontexttheaforesaidamendmentbyNotificationNo.50/2008CE(NT)wasbroughtin,toclarifythedoubt.ItisclearthatthesaidamendmenthastobeconstruedasretrospectiveinnatureandthebenefitofRule6(6)(1)asamendedin2008hastobeextendedtothegoodsclearedtoa“developer”ofaSEZfortheirauthorizedoperations.Therefore,theRevenue’sappealwasdismissedandthematterwasdecidedinfavoroftheassessee.AsimilarviewwasexpressedinUnionofIndiav.SteelAuthorityofIndiaLtd.;2013(297)ELT166(Chattisgarh)whereintheamendmentwasalsoheldtoberetrospective.

Commissioner of Central Excise & Service Tax, Large Taxpayers Unit v. Fosroc Chemicals (India) (P.) Ltd; [2014] 50 taxmann.com 389 (Karnataka)

CESTAT, New Delhi

Excise duty on promotional expenses incurred by dealers

CentralExciseAct,1944;pre-depositordered

Theassesseesellsmotorvehiclesandpartsthereoftodealersforonwardsalestocustomers.TheassesseedischargesExcisedutyonthe“transactionvalue”ofsuchmotorvehicles/sparepartssoldtodealers.►Theassesseeprovideddealershipmargintotherespectivedealersforvehiclessoldbydealers,overandabove,theassessablevalueandtaxesasdeclaredintheinvoices.►Variouspromotionalandincentiveschemessuchascorporatediscounts,freeinsuranceetc.arelaunchedbydealersfortheircustomerstopromotethesaleofvehicles.Thedealersrecoveredtheadditionalamountfromtheultimatebuyersas“handlingcharges”.Thedealershipagreementbetweentheassesseeandthedealerswereheldtobealegallyenforceableagreement.Itrequiredthedealersto

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followthepromotionalschemesdevisedbytheassessee.TherearevariousSCdecisionswhereinithasbeenheldthatwhenthemanufacturerdoesnothaveanenforceablelegalrightagainstthedealer,thenanyexpensesincurredbythedealeragainstsucharighthavetobeincludedintheassessablevalue.

►Promotionaldiscountisgivenbasedontheunderstandingbetweentheassesseeandthedealersinrelationtotheactivityofsaleandasanexpenditureonbehalfoftheassesseeanditisregulatedthroughthedealers’margin.Thediscountbornebythedealersisalsocompensatedthroughthehandlingchargescollectedbydealersfromultimatecustomers,indirectlyenablingtheassesseetoundervaluethevehicleswhiledeliveringthesametodealers.

►Accordingly,suchpromotionaldiscountswillconstituteindirectconsiderationreceivedbytheassesseeinrelationtotheclearanceofmanufacturedvehicles.Currently,theassesseehasbeenorderedtopre-depositCentralExciseduty.

Maruti Suzuki India Ltd v. CCE; 2014-TIOL-2072-CESTAT-DEL

CESTAT, Mumbai

Services availed at the end of the bottlers who manufacture beverages out of supplied concentrates are prima facie not CENVATable

CentralExciseAct,1944;CENVATCreditRules,2004;pre-depositordered

Theassesseemanufacturednon-alcoholicbeveragebaseandmixtureofchemicals(concentrates)andsoldsuchconcentratestobottlersauthorizedbyCocoColaCompanyUSA.Theyinturnmanufacturedbeveragesfromtheseconcentratesandsoldthesametocustomersunderbrandname/trademarketownedbytheCocoColaCompany,USA.Intheinstantcase,theassesseehasavailedCENVATcreditonvariousservicesprovidedbydifferentserviceprovidersatthebottlers’end.Assesseeandbottler’shaveseparatebusinessentitieswithseparateCentralExciseRegistrations.Formajorityoftheservices,itwasfoundthereisnonexusbetweentheservicerenderedandthebusinesscarriedonbytheassessee,especially,whenthe

relationshipbetweentheassesseeandthebottlerwasonaprincipal-to-principalbasis.

TheMumbaiCESTATheldthatitcouldnotignorethefactthatRule2(l)oftheCENVATCreditRules,2004discussedservicesusedbythemanufacturerinrelationtothemanufactureoftheirownfinalproducts.Thefinalproductsoftheassesseewereconcentratesandtheservicesinquestionthatwererenderedinthepremisesofbottlerswhereintherewasarequirementonqualitycontrolmethodscouldnotbesaidtobeusedinthemanufactureofproductsoftheassessee,toallowCENVATcredittotheassessee.Incaseoftheserviceofverificationofrefrigerators/deeprefrigeratorsatthepremisesofretailersforstoringbeverages,sincethebeverageswerenotthefinalproductoftheassesse,thereappearedtobenonexuswiththemanufactureofconcentratesbytheassessee.Prima faciecreditofServiceTaxdidnotappeartobeadmissibleincasesofmangopulptesting,sincethereishardlyanyconnectionbetweenthemanufactureoftheconcentrateandthetestingofthemangopulpsuppliedbyathirdpartydirectlytothebottlingplant.

Coca Cola India Pvt. Ltd. v. CCE; 2014-TIOL-2275-CESTAT-MUM

CESTAT, Ahmedabad

CENVAT credit prior to registration admissible

CentralExciseAct,1944;CENVATCreditRules,2004;infavorofassessee

Theassesseereceivedcapitalgoodsandinputserviceswhilesettingupitsfactory.ItavailedCENVATcreditforthesamebeforeobtainingtheregistrationasmanufacturersfromCentralExciseauthorities.TheCentralExciseauthoritiesarguedthatassesseescannotavailCENVATcreditwithoutobtainingregistrationandsincenomanufacturingactivitieshadcommenced.Statingthatthiswastootechnicalagroundtodenycredit,whichisotherwiseadmissible,theAhmedabadCESTATheldthattheassesseecouldavailcreditofExcisedutypaidoncapitalgoodsreceivedatthetimeofsettingupoffactoryandinputservicesusedforerection,installationandcommissioningofsuchcapitalgoods.Itopinedthatwithoutsettingupthefactory,theassesseewouldbe

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unabletomanufacturetheexcisablegoods.Further,itwasnotdisputedthattheassesseehadpaidappropriateExcisedutyonclearanceofgoodsfromthefactoryafterobtainingtherequisiteregistration.Additionally,theAhmedabadCESTATplacedhighrelianceonthecaseofmPortalIndiaWirelessSolutionsPvt.Ltd.v.CCE,Bangalore;2012(286)ELT639(Trib).Therefore,itwasobservedthattheassesseewillnotbedeniedbenefituntilandunlesstherewasaspecificprovisioninthelawprescribingmandatoryregistrationforavailingsuchbenefit.Giventhis,itwasheldthattheassesseehadrightlyavailedCENVATcreditoncapitalgoodsandinputservicesreceivedbeforeobtainingtheregistration.

Beico Industries Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Vapi; 2014 (36) STR 551 (Tri)

CESTAT, Ahmedabad

Availing CENVAT credit on advertising services related to exempted goods disallowed

CentralExciseAct,1944;CENVATCreditRules,2004;infavorofrevenue

Theassessee,ParleAgroPvt.Ltd.,Silvassaareengagedinthemanufactureofnon-alcoholicbeveragesbase(NABB)orsoftdrinkconcentrateandavailedCENVATcreditofadvertisingservicesunderInputServiceDistributorinvoicesfortheServicetaxpaidonfinishedgoods.TheRevenuecontendedthattheNABBconcentrateisusedinthemanufactureofFrooti,Appyetc.,whicharefullyexemptedfrompaymentofCentralExcisedutyaccordingtoNotificationNo.3/2006-CEdated1March2006andtherefore,CENVATcreditofadvertisingservicesavailedwithrespecttoexemptedgoodscannotbeavailed.TherelevantpointforconsiderationwaswhetherServicetaxcreditwillbeavailabletotheassesseesforavailingadvertisementserviceswithrespecttoexemptedproducts.Suchcreditshouldnotbepertainingtoinputs/inputservicesusedinthemanufactureofexemptedgoods.

TheTribunalheldthattheassesseecouldnotavailCENVATcreditofadvertisementservicesavailedwithrespecttoexemptedfinishedproducts”Frooti”and‘”Appy”,simplybecausecostspertainingtoadvertisementexpensesareincludedintheassessablevalueofNABB

concentrateiftheendproductsforwhichservicesareavailedwerefullyexempted.Furthermore,theyplacedrelianceonthedecisionofECOFIndustriesPvt.Ltd.v.CCE;2009(10)TMI171-CESTAT-Bangalore,whereinitwasheldthatthereareonlytworestrictionsregardingthedistributionofthecredit.ThefirstrestrictionisthatthecreditshouldnotexceedtheamountofServiceTaxpaidandthesecondrestrictionisthatthecreditshouldnotbeattributabletoservicesusedinmanufactureofexemptedgoodsorprovidingexemptedservices.Therearenootherrestrictionsundertherules.TheTribunal,intheinstantcaseheldthat,assuch,restrictingthedistributionofServicetaxcreditinamannerthathasbeendonebytheimpugnedorderofthelowerappellateauthority(originalauthorityhadapprovedofsuchdistribution)cannotbeupheld.IncasetheDepartmentwantstoplacesuchrestrictionasissoughttobeplacedinthecase,theruleisrequiredtobeamended.ProceduralirregularitiescanbeignoredwhileallowingCENVATCreditbutsuchcreditshouldnotbepertainingtoinputs/inputservicesusedinthemanufactureofexemptedgoods.TheTribunalwasoftheviewthattheassessewasnotentitledtoavailCENVATCreditofAdvertisementservicesavailedwithrespecttoexemptedfinishedproducts”Frooti”and”Appy”.SimplyincludingthecostofadvertisementexpensesintheassessablevalueofNABBconcentratedidnotmakealltheCENVATcreditadmissibleifendproductsforwhichservicesarebeingavailedwerefullyexempted.Therefore,thematterwasdecidedagainsttheassesseeintheinstantcase.

Parle Agro Pvt. Ltd. v. CCE Vapi; 2014 (11) TMI 115 - CESTAT AHMEDABAD

CESTAT, Mumbai

CENVAT reversal formula as prescribed in Rule 6(3A) of the CENVAT Credit Rules, 2004 upheld on total input services and not only on common input services

CentralExciseAct,1944;CENVATCreditRules,2004;infavorofrevenue,pre-depositordered

Theassesseeisamanufacturerofexcisablegoods,providerofoutputservicesandalsoundertakestradingactivities.ItavailedCENVATcreditinrespectofinputservices,whichweresolelyusedeitherinthemanufacture

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40 Tax Digest

ofexcisablegoodsorprovisionoftaxableoutputservices.Furthermore,theassesseeavailedCENVATcreditinrespectofcommoninputservices,whichwereusedinthemanufactureofexcisablegoodsandprovisionoftaxableaswellasexemptedoutputservices,asseparatemaintenanceofrecordswasnotpossibleforsuchinputservices.AtthetimeofmakingreversalasrequiredunderRule6(3)oftheCENVATCreditRules,2004(CCR),theassesseeconsideredonlytheCENVATcreditattributabletocommoninputservicesandappliedtheformulaasprescribedintheRule6(3A)(c)(iii)(formula)oftheCCR.Theissuedealtwithininstantcasewaswhethertheformula,asprescribedforreversalofCENVATcredit,shouldbeappliedtototalCENVATcredittakenoninputservicesreceivedbytheassesseeoritshouldbeonlyappliedtoCENVATcreditoncommoninputservicesusedinmanufactureofdutiable/exemptedgoodsandprovisionoftaxable/exemptedoutputservices.

TheTribunalagreedwiththecontentionoftheRevenueandheldthattheformuladenotestotalCENVATcredittakenoninputservicesduringthefinancialyearandnottheCENVATcredittakenoncommoninputservices.TheTribunalheldthatitisawellsettledlegalpositionthatnowordscanbeaddedorremovedwhileinterpretingthestatute.Hence,ifinterpretationofanyprovisionofthestatuteisresultinginanomaloussituation,thentheonlyremedyistoamendtheprovisionsofthestatute.TheTribunalruledinfavorofRevenueanddirectedtheassesseetomakepre-deposit,stayedtherecoveryofbalancedues,holdingthattheformulashouldbeappliedonthevalueoftotalCENVATcredittakenoninputservices.

Thyssenkrupp Industries (I) Pvt. Ltd. v. CCE; 2014-TIOL-1825-CESTAT-MUM

CESTAT, Mumbai

Credit relating to manufacture in Pune non-utilizable against property in Mumbai

CENVATCreditRules,2004;pre-depositdirected;interestand penalty waived

TheassesseesaremanufacturersofchemicalsandhadavailedCENVATcreditforvariousinputservices.Theinput services inter aliaincludedlegalservices,customhouseagentservices,repairandmaintenanceservicesetc.,whichwereusedinrelationtomanufacturingactivityattheirPunefactory.Theassesseehadconstructedanimmovableproperty,whichwasrentedoutandServicetaxwasleviableonsuchrentundertheRentingofimmovablepropertyservice.TheassesseeutilizedtheinputservicesreceivedatitsPunefactorytodischargetheirServicetaxliability,w.r.ttherentedpropertyinMumbai.Therevenueissuedashowcausenotice,denyingtheutitlizationofsuchCENVATcreditallegingthatsuchinputserviceshadnonexuswiththerenditionofoutputserviceofimmovablepropertyrenting.

TheTribunaldisallowedCENVATcreditutilizationofinputservicesavailedatitsfactoryinPunetowardsdispensingServicetaxliabilityonrentingofimmovablepropertylocatedinMumbai.TheTribunalopinedthatthebasicprinciplethatCENVATcreditmustberecalled,whereincreditcanbeavailedonlywhenthereisnexusbetweeninput/inputservicesandoutput/outputservices.ItheldthataccordingtoRule3ofCENVATCreditRules,creditcanbetakenonlyinrespectofinput/inputservicesthatwerebeingusedformanufactureofoutput/outputservice.Absentprima faciecase,directspre-depositofentiredemandallowingwaiverofinterestandpenaltiesandstayonrecoveryduringpendingappealonduecompliance.

Dai Ichi Karkaria v. CCE; TS-451-Tribunal-2014-ST

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41 Tax Digest

Customs

High Court, Gujarat

Vessels and other floating structures imported into India for breaking not liable to CVD

CustomsTariffAct,1975,CentralExciseTariffAct,1985;infavorofassessee

AccordingtotheHC,additionaldutyofCustoms(CVD)willnotbeleviedonvesselsandotherfloatingstructuresclassifiedunderHeading8908ofCentralExciseTariff,thathavebeenimportedintoIndiaforbreaking,TheSCjudgment,inthecaseofHyderabadIndustries;(1999)108ELT321hadheldthattheCentralExcisedutyandCVDcanbeleviedonlyifthearticlehascomeintoexistenceasaresultofproductionormanufacturebutnototherwise.TheGujaratHC,relyingonthisrulingheldthatvesselsandotherfloatingstructuresimportedintoIndiaforbreakingwerethusnotliabletoCVD.

Shivam Engineering Company v. UOI; 2014-TIOL-1563-HC-AHM-CUS

High Court, Bombay

Finalization of provisionally assessed bills of entry - natural justice to be followed

CustomsAct,1962;infavorofassessee

TheBombayHChasheldthattheprinciplesofnaturaljusticeincludingissuanceofspeakingorderunderSection17(5)oftheCustomsAct,1962arerequiredtobefollowedincaseswhereprovisionallyassessedbillsofentryarefinalizedcontrarytotheclaimoftheassessee.ObjectionofthedepartmentthatSection17(5)willnotbeapplicableintheinstantcasewhereassessmentwasmadeprovisionalunderSection18(1)andbeingfinalizedunderSection18(2)washeldbytheHCtobeunsustainable.Earlier,Customsauthoritiesfinalizedprovisionallyassessedbillsofentrybyendorsementandraiseddutydemandbywayofaletterfollowedbyademandnotice.

Zuari Agro Chemicals Ltd v. UOI; 2014 (307) ELT 874 (Bom)

High Court, Madras

Show cause notice (SCN) issued with pre determined conclusions and closed mind is not valid

CustomsBrokersLicensingRegulations,2013;infavorofassessee

TheassesseehasfiledawritpetitionchallengingtheSCNissuedunderRegulation20(1)oftheCustomsBrokersLicensingRegulations,2013.ThemaingroundonwhichtheimpugnednoticeischallengedisthatthecontentsoftheSCNdiscloseapre-conceivedandclosedmind.Uptoparagraph7,theSCNcontainedthenarrationoffactsrelatingtoinvestigationconducted,theevidencerecordedinthecourseofenquiry,etc.,thereafter,inparagraph9,thedepartmenthadrecordedaseriesoffindings.Thesefindingswereheldtobeverycategoricalinnature,withoutleavinganyscopefortheassesseetoexplainthesame.Eventhedepartmenthadassertedthataclearprima faciecasehasbeenmadeoutagainsttheassesseeandthatiftheassesseewasallowedtocontinuetooperate,itwouldbedetrimentaltointerestsoftheRevenue.Inlightofthecategoricalassertionsandfindingsinthenoticeitself,theHCheldthatnousefulpurposewouldbeservedinaskingthepetitionertosubmitareplytotheSCN.AtthatstageoftheSCN,theRevenueshouldhaveanopenmind.Ifthedepartment’smindisclosedwithpredeterminedconclusions,therequirementofgivinganopportunitytoshowcausewouldbecomenugatory.TheHon’bleHighCourtreliedonthecaseofSBQSteelsLtd.v.CommissionerofCustoms,CentralExciseandSalesTax,Guntur[2014(300)ELT185(AP)+2012-TIOL-1106-HC-AP-CX],whereintheHon’bleAndhraPradeshHighCourttookexceptioneventouseofthewords“itisclear”intheSCN.RelyingonthedecisionoftheSBQSteelsLtd.case,theHCallowedthewritpetitionandsetasidetheSCNwiththelibertytoissuefreshSCN,keepingtheobjectofissuingSCNinmind.

Bharat Marine Co. v. The Commissioner of Customs; 2014-TIOL-1703-HC-MAD-CUS

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42 Tax Digest

High Court, Madras

High Court permits provisional release of prohibited second hand machine, subject to eventual adjudication

CustomsAct,1962,ForeignTrade(DevelopmentandRegulation)Act,1992;HazardousWaste(Management,HandlingandTransboundary)Rules,2008;infavorofassessee

Theassesseeimportedaconsignmentof129packagesofoldandusedDigitalMultifunctionPrintandCopyingMachinesofvariousmodelsbasis(goods)adeclaredvalueunderaninvoicealongwithaBillofEntry.Onarrival,thegoodswereexaminedbytheCustomsApprovedCharteredEngineersinthepresenceofcustomsofficers.Theexaminationreportsubmittedbythemallegedthattheappraisedvaluewashigherthantheoriginallydeclared(includingCIF)value.Revenuedidnotpermittheclearance,evenafterthereportoftheCharteredEngineersandtherefore,theassesseemadearepresentationtotheadjudicatingauthorityindicatingthattheyarepreparedtoaccepttheenhancementofvalue.However,theassesseedidnotreceiveanyresponse.Therefore,theassesseefiledawritpetitionseekingissuanceofaWritofMandamustodirecttheRevenuetoassessandpermittheclearanceofgoods,formingthesubjectmatteroftheBillofEntry,uponpaymentofapplicabledutiesofcustoms.

TheMadrasHighCourtallowedtheassessee’swritofmandamus,permittingassessmentandprovisionallyreleasedthegoods(i.e.,secondhandDigitalMultifunctionPrintandCopyingMachines,whichisaprohibiteditem),subjecttoeventualadjudication.TheCourtruledthatprohibitedgoodscanbeimportedsubjecttoconditions,uponfulfilmentofwhich,goodsceasetobeprohibitedandautomaticallybecomenon-prohibitedgoods.TheyheldthatthereisnobaronreleaseofrestrictedgoodseitherunderSection125ofCustomsActorunderSection11(9)ofForeignTrade(DevelopmentandRegulation)Act,uponpaymentoffine(inlieuofconfiscation/redemptioncharges).Furthermore,importofsuchhazardouswastewithoutCentralGovernment’spermissionwasdeemedtobeillegalunderHazardousMaterialRulesandsuchwastecanbeorderedtobere-exported.However,theHCheldthatsincetherewasnoactioninitiatedbytheMinistryofEnvironmentandForestsunderHazardousWasteRules

directingre-exportofgoods,theDepartment’srefusaltopermitprovisionalreleasewasnotinaccordancewithlaw.

City Office Equipments; TS-467-HC-2014(MAD)-CUST

CESTAT, Mumbai

No liability on EOU utilizing imported inputs in R&D activity

CustomsAct,1962;infavorofassessee

Theassesseea100%ExportOrientedUnit(EOU),importedrawmaterialwithoutpaymentofdutyformanufactureofvaccine.TheRevenuedeniedthebenefitonthegroundthattherawmaterialisnotusedforthemanufactureoffinalproductbutusedforR&Dactivities.TheassesseearguedthatforsuchmanufactureofvaccinesitconductedregularR&D.PlacingrelianceonadecisioninthecaseoftheTribunalinthecaseofCCE,Hyderabadv.Dr.ReddyLaboratoriesLtd.;2010(253)ELT316—whichhadheldthatpartoftherawmaterialwereusedforR&Dactivityanditwastherefore,essentialformanufactureofhumanvaccines.TheTribunalacceptedandfoundmeritinthecontentionoftheassesseethatinthesecircumstanceswithoutR&DmanufacturingprocesscannotbeundertakenandcompletedproperlybytheEOU.Itwastherefore,heldthatnodutyisliabletobepaidinrespectofinputsimportedbytheEOU.

Serum Institute of India Ltd. v. Commissioner, 2014-TIOL-1887-CESTAT-MUM

CESTAT, Chennai

Ruling on “related party” valuation — Tribunal reduces “profit” loading on imports from 10% to 1%

CustomsValuation(DeterminationofValueofImportedGoods)Rules,2007;infavorofassessee

TheassesseeisregisteredwithSoftwareTechnologyParkofIndia(STPI)fordevelopmentofsoftwareandInformationTechnologyEnabledSoftwareandexportthereof.TheCustomsSpecialValuationBranch,Chennairegisteredacasetodeterminetherelationshipandvaluationofimportsmadefromtheirrelatedsupplier.After

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43 Tax Digest

dueprocess,DeputyCommissioner(Customs),SVB,heldthatassesseeandGoogleInc.,USAarerelatedpartiesintermsofRule2(2)ofCustomsValuationImportRulesandrejectedthedeclaredinvoicepriceforimportsmadeduring2006–08.Oneofthekeyissuesofdisputewas”profitloading”,forwhichtheTribunalheldthatthelowerauthoritieshadnotbroughtoutanyreasonsforarrivingatthequantumat10%towardsprofitmargin.ItnotedthatGoogleInc.,USAhadsetupaffiliatedcompaniesin various countries and as a global policy and taking intoaccounttherequirementofITinfrastructureforsoftwaredevelopmentofsuchaffiliatedcompanies,ithadenteredvariouspurchaseagreementswithvendorsforprocurementofequipmentatacompetitiveprice.TheTribunalobservedthatGoogleInc.,USAwasnottradingingoodsbutinfactprocuredthegoodsgloballyforsupplytotheiraffiliatedgroupcompanieslocatedacrosstheworld.Inordertomaintainthestandardandqualityoftheequipment,uniformityinpricesandtomaintaincontinuousavailabilityofgoods,theprocurementwascentralizedbythesupplier,i.e.GoogleInc.,USA.TheTribunalfurthernotedthatGoogleInc.,USAhadnotsuppliedthegoodstothirdpartiesotherthanaffiliatesatahigherprice.Hence,itwasevidentthatgoodssuppliedtoassesseewerenotformakinganyprofit.Inviewoftheabove,theTribunalmodifiedtheSVBorder.ConsideringthefactthattheimporterwasanSTPIunitimportinggoodsfordevelopmentofsoftwareforexport,theloadingwasreducedfrom10%to1%.

GoogleIndiaPvtLtdv.CommissionerofCustoms(SVB);TS-458-Tribunal-2014(CHNY)-CUST-GoogleIndia-FinalOrderno.40635/2014dated29September2014

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44 Tax Digest

VAT/CST


Sale of “demo cars” will not be eligible for concessional rate of VAT applicable to sale of “used cars”

KarnatakaValueAddedTaxAct,2003;staygranted

Theassesseeisanauthorizeddealerengagedinthesaleofvehiclesofthemanufacturer.Theassesseehadpurchasedvehicles(knownas“democars”)fromthemanufacturerforthepurposeofdemonstrationandtestdrive.Onthevehiclesbecomingobsolete,theassesseewouldsellthesecarstocustomersasusedcars.TheassesseesoldthesevehiclesatconcessionalrateofVATof4%takingbenefitoftheNotificationNo.FD300CSL2005dated24October2005issuedbytheSalesTaxDepartmentofKarnataka.TheassessingofficerdisallowedtheconcessionalrateofVATavailedbytheassesseeholdingthattherateapplicabletosaleofdemocarsshouldbe12.5%.

TheissuebeforetheHCwaswhethertheassesseewouldbeentitledtotheconcessionalrateofVATonsaleofdemocars.TheHCconfirmedtherevieworderoftheTribunalandheldthatthebenefitofconcessionalrateofVATisnotapplicabletosaleofdemocar.TheHChasreliedontheNotificationNo.FD115CSL2007(7)Bangaloredated30March2007whereinitwasclarifiedthatadealerengagedinpurchaseandsaleof“usedcars”isentitledtoconcessionalrateofVAT.RelyingontheNotificationdated24October2005,theHCheldthatthesaidNotificationappliestoacasewhereadealerpurchasesausedcarandsellsuchacar.Ithasnoapplicationtoacasewherethedealerpurchasesacarfromthemanufacturer.TheHCfurtherobservedthat,inthegivencase,theassesseehadpurchasedbrandnewcarsfromthemanufacturerandusedthesamefordemonstrationpurposeinsteadofsellingthesametothecustomer.Ifsuchcarissubsequentlysoldtoacustomer,itwillnotbeacaseofpurchaseandsaleofusedcars.

Mandovi Motors Pvt. Ltd. v. The State of Karnataka; 2014-VIL-329-KAR


Principle of Ejusdem generis cannot be applied to broaden legislature’s intention

KarnatakaValueAddedTaxAct,2003;infavorofassessee

TheassesseeisengagedinthemanufactureandsaleofinsecticidessuchasG.K.aerosol,Hitaerosol,HitRatandHitLine.TheissuebeforetheKarnatakaHCwaswhetherproducts,HitRatandHitLineweretobeconsideredasMosquitorepellant,tobetaxableat12.5%oraninsecticidetaxableat4%.TheHCobservedthatitisclearthat,mosquitorepellantsincludingdevices,partsandaccessorieswerenottobetreatedaspartofinsecticidesandithadanindependententry.Theproductsusedforkillingflying/crawlinginsectsnot”mosquitorepellants”,heldtobenottaxableat12.5%butatareducedrateof4%.Accordingly,theHCdismissedtheRevenue’srevisionpetition.

State of Karnataka v. Godrej Consumer Products Ltd; TS-457-HC-2014(KAR)-VAT

High Court, Rajasthan

Burden to prove that a certain item is eligible to tax is always on the revenue

RajasthanSalesTaxAct,1994;infavoroftheassessee

Theissuewaswhethertheproduct”KeoKarpinbabyoil”wasclassifiableasmedicinesorcosmetics;andtherefore,eligibletotaxat6%advaloremasapplicabletomedicinesoratincreasedrateof12%advaloremforcosmeticsundertheerstwhileRajasthanSalesTaxAct,1994regime.TheHCheldthattheburdentoprovethatacertainitemiseligibletotaxandshouldfallunderaspecifiedtaxableentryisalwaysontheRevenue.Intheinstantcase,basisthechemicalcompositionofKeoKarpinbabyoil,whichincludedmedicines(suchasIsopropylMyristateetc.)establishedthefactthatitwasadrugwithinthemeaningofthetermsundertheDrugsandCosmeticsAct,1940.Therefore,dismissingtheRevenue’sappeal,theHCobservedthatitisamedicine/drugandnotacosmeticandthusliabletobetaxed@6%advalorem.

Commercial Tax Officer Special Circle v. Dey’s Medical Stores, Ltd; 2014-VIL-310-RAJ

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45 Tax Digest

Tribunal, Maharashtra

Build Operate Transfer (BOT) project undertaken for construction of road under a concessionaire agreement, for a consideration in the form of right to collect toll, is works contract

Maharashtra—WorksContractAct,1989

TheassesseeenteredanagreementwiththeGovernmentofMaharashtraforcarryingoutimprovementstoroadsonBOTbasis.Accordingtotheagreement,theassesseewasrequiredtocompletetheconstructionworkwithinaperiodofninemonths,atitsowncost.Inreturn,theStateGovernmentawardedtherighttocollecttollfromtheusersoftheroad,duringtheconcessionperiodofeightyears.Aftercompletionofthisperiod,theprojectwasrequiredtobehandedovertotheGovernmentfreeofcost.TheassesseehadexecutedLeaseDeedwiththeStateGovernmentforanominalrent.TheissuebeforetheTribunalwaswhetherthecontractundertakenbytheassesseeon(BOTbasiscouldbesaidtobeworkscontractandwhethertheassesseecanbeconstruedasa“dealer”incontextoftheprovisionsoftheMaharashtraSalesTaxonTransferofPropertyinGoodsInvolvedinExecutionofWorksContract(Re-enactedAct),1989(WorksContractAct,1989).TheappealwaspreferredbeforetheMaharashtraSalesTaxTribunalagainsttheorderpassedbytheCommissionerofSalesTaxtreatingtheassesseeasadealerwithinthemeaningoftheWorksContractAct,1989onthegroundthatthecontracttakenupbytheassesseeamountstoworkscontractandaccordingly,raisedthesalestaxdemand.ItwasheldthattheBOTprojectundertakenbytheassesseewouldamounttoworkscontract,placingrelianceontheSCdecisionsinthecasesofKoneElevatorsIndiaPvtLtdv.StateofTamilNadu&Others;2014-VIL-12-SC-CBandLarsen&ToubroLtd&Othersv.StateofKarnataka&Others;2013-VIL-03-SC-LB.Itwasalsoheldthattheassesseewouldbecoveredunderthedefinitionof“dealer”undertheWorksContractAct.

Ashoka Infrastructures v. State of Maharashtra; 2014-VIL-12-MSTT

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46 Tax Digest

Key statutory updates

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Service tax

• Central Board of Customs and Excise (CBEC) issues clarification regarding mandatory pre-deposit provisions

CBECCircularaddressesissuessuchasthequantumofpre-deposit,adjustmentofpaymentmadeduringinvestigation,recoveryproceedings,refundofpre-depositandalsoprovidesforcertainmodalitiestobefollowedbythetaxpayeraswellastheadjudicatingauthorityinthisregard.

Provisionsrelatingtomandatorypre-depositpaymentsasapre-requisiteforfilingfirst-stageandsecond-levelappealsunderCustoms,CentralExciseandServicetaxwereintroducedintheFinanceAct(No.2),2014effectivefromthedateofitsenactment,i.e.,6August2014.

Circular No. 984/ 08/2014-CX dated 16 September 2014

• Circular on Service tax applicability in case of joint ventures (JVs)

CBECreaffirmsthesettledlegalpositionthatservices provided by unincorporated associations orbodyofpersonstoitsmembersandviceversaarewithintheambitofServicetax.Inadditiontoservicetransactionsingeneral,betweenaJVanditsmembersormembersinterse,theCircularspecificallydealswithtaxabilityofunderlyingservicetransactionsasreciprocationofcashcalls,capitalcontributionsbyJVmembers.Furthermore,CBECadvisesitsauthoritiestocarefullyexamineapplicabilityofServicetaxwithreferencetospecificterms/clauseswithineachJVagreement.

Circular No. 179/05/2014 – ST dated 24 September 2014

• Circular clarifying services provided by Indian banks/entities acting as agents to off-shore Money Transfer Service Operators attracts Service tax

CBECclarifiesthatcommission,feeorchargesforservicesprovidedbyIndianbanks/entitiesactingasagentsorsub-agentswouldattractServicetax.

CircularNo.180/06/2014–STdated14October2014

Central Excise duty/CENVAT credit

• Instructions in light of SC decision regarding sales tax incentive scheme in the case of Super Synotex India Ltd; 2014-TIOL-19-SC-SX

TheCBECinstructedofficerstoapplytheSCdecisioninSuperSynotexIndiaLtd.whilecompletingassessments.TheSCrulingpertainedtotransactionvaluecomputationafterJuly2000withrespecttosalestaxbeingretainedundertheStateincentivescheme.Ithaddecidedontheissueofabatementofsalestax—whereintheassesseewasallowedtoretain75%ofsalestaxcollectedfrombuyerandwasrequiredtodepositonlyremaining25%withthestategovernmentaccordingtothestateincentivescheme.

File No. 6/8/2014-CX.1 dated 17 September 2014

• Circular regarding determination of “place of removal” in CENVAT Credit Rules, 2004 (CCR)

TheCBEChasclarifiedthatwhereverCENVATcreditisavailableuptotheplaceofremoval,thedefinitionof“placeofremoval”asnowprovidedintheCCRwouldapplyirrespectiveofthenatureofdutyofassessment.

Withrespecttodeterminationof”placeofremoval”,ithasbeenclarifiedthatplacewherethesalehastakenplaceorwhenthepropertyingoodspassesfromthesellertothebuyeristherelevantconsiderationtodeterminetheplaceofremoval.Therefore,CBEChasreiteratedthattheplaceofremovalneedstobeascertainedintermsofprovisionsofCentralExciseAct,1944readwithprovisionsoftheSaleofGoodsAct,1930;whereasinclusionoftransportcharges,paymentofinsuranceoronewhobearstheriskarenotrelevantconsiderationsinthisregard.

Circular No. 988/12/2014-CX dated 20 October, 2014

• Instructions regarding instances found when assessees have submitted rebate claims by splitting up the amounts to avoid a pre-audit investigation

TheCBECdirectsclubbingofrebateclaimsartificiallysplitbelowINR0.5milliontoavoidpre-audit.Instanceswerefoundwhereinsplittingupofrebateclaims(tokeepitbelowINR0.5millionforeachclaim)bysome

47 Tax Digest Home

assesseestoavoidpre-auditinvestigationhadtakenplace.TheCBECinstructstherebatesanctioningauthoritiesthattheymayorderapre-auditbyclubbingsuchclaimswheresuchclaimsareartificiallysplitandtheremaybeaneedforapre-audit.Furthermore,theCBECdirectsthatsuchexerciseofpowerswillbediscretionaryandusedmoreasanexceptionthanrule.

File No. 206/05/2014-CX.6 dated 3 November 2014

• Instructions directing Department that HC ruling in the case of Bharti Airtel wherein CENVAT credit on Tower Parts and pre-fabricated buildings is disallowed, is followed

File No. 267/60/2014-CX.8 dated 11 November 2014

• CBEC clarifies issues regarding availment of CENVAT credit after six months

CircularclarifiesthatrestrictionregardingavailmentofCENVATcreditoninputsandinputserviceswithinsixmonthsfromthedateofdocumentspecifiedunderrule9ofCENVATCreditRules,2004willbeapplicableonavailmentofCENVATcreditforthefirsttimeandthesamewillnotbeapplicableonre-availmentduringthefollowingcircumstances:

• ReversalofCENVATcreditatthetimeofwriteoffthevalueofinputandre-availmentofthesameatthetimeofuseofthesaidinputs[Rule3(5B)],

• ReversalofCENVATCreditoninputclearedtojobworkerifthesameisnotreceivedbackwithin180daysandre-availmentofsaidCENVATcreditonreceiptoftheprocessedgoods[Rule4(5)]

• ReversalofCENVATcreditoninputservicesifpaymentisnotmadetotheserviceproviderwithinthreemonthsandre-availmentofthesameatthetimeofmakingpaymenttotheserviceprovider[Rule4(7)],

Circular No. 990/14/2014-CX-8 dated 19 November 2014

Customs

• The Central Government notifies ”Modinagar, Ghaziabad district“ as Inland Container Depot for unloading/loading of imported/export goods; amends Notification No. 12/97-Cus.

Notification No. 86/2014-Cus (NT) dated18 September2014

• The Central Government extends customs duty exemption on goods required for Airborne Early Warning and Control (AEW&C) System Programme of Ministry of Defence till 5 October 2014 subject to stipulated conditions. Earlier, exemption was available up to 5 April 2014.

Notification No. 27/2014-Cus dated 18 September 2014

• Seeks to amend notification No 12/2012-Customs dated 17/03/2012 [condition number 100 of the ANNEXURE] to extend the time period to furnish the utilization certificate from the jurisdictional AC/DC of Central Excise from six months to twelve months.

Notification No. 30/2014-Cus dated 20 October 2014

• CBEC extends time period for furnishing utilization certificate from jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise from six months to twelve months on import of Liquefied Natural Gas (LNG) and Natural Gas (NG) for generation of electrical energy; amends Condition No. 100 in Notification No. 12/2012-Cus.

Notification No. 30/2014-Cus dated 20 October 2014

• CBEC notifies detailed procedure for valuation/assessment of iron ore, fines and pellet exports, following reports of change in properties of iron ore during transit.

DeclaredvalueofexportgoodstobescrutinizedintermsofprovisionsofRule14ofCustomsValuation(DeterminationofValueofExportGoods)Rules,2007andshippingbillmaybeprovisionallyassessed.CustomsHousestomonitorreceiptofBankRealizationCertificatesforcomparisonwithfinalinvoicessubmittedbyexportertosatisfyaccuracyofassessedvalues.

Circular No. 12/2014-Cus dated 17 November 2014

48 Tax Digest Home

• RevisedDrawbackDutyRates

TheMinistryofFinancehasnotifiedrevisionofAllIndustryRates(AIR)ofDutyDrawback,w.e.f.22November2014.Someofthekeyamendmentsareasfollows:

• ►Severalentriesrationalizedbymergingthemattherespectivefourdigitlevelorundertherespectiveresiduarysub-heading”others”.Tariffitemnumbershaveseenachangeinmanycases.

• Ithasbeenexplicitlymentionedthatwhereaclaimfordutydrawbackisfiledwithrespecttotheallindustryrate(AIR)ofDutyDrawbackSchedule,anapplicationforfixationofbrandrateofDutyDrawbackunderRule7oftheCustom,CentralExciseDutiesandServiceTaxDrawbackRules,1995,willnotbeadmissible.

• ThetenureoftheDrawbackCommitteeconstitutedbytheCentralGovernmenthasbeenextendedwithaviewoftradefacilitation.

• Theresiduaryratesofdutydrawbackhavebeenchangedfrom1%(composite)and0.3%(Customs)to1%(composite)and0.15(Customs),respectively.Furthermore,theexistingresiduaryratesof1.3%and1.7%havebeenincreasedto1.4%and1.9%,respectively,withsomeexceptions.

• DutyDrawbackwillnotexceedanamountcalculatedbyapplyingtheadvaloremrateofdrawbackto1.5timestheARE-1valueincaseofprojectexportswhereinthedrawbackcaphasnotbeenspecifiedintheDrawbackSchedule.

• VehiclesofChapter87oftheDrawbackSchedulewillcomprisecompletelybuiltunitorcompletelyknockeddown(CKD)unitofsemiknockeddown(SKD)unit.

Notification no. 110/2014-Customs (NT) dated 17 November 2014 and Circular No. 13/2014 dated 18 November 2014

• Anti-dumpingduty(ADD)Notifications

CentralGovernmentimposesADDonthefollowingitems:

• Importof“electricalinsulatorsofglassorceramics/porcelain,whetherassembledorunassembled”exportedfromChinaPRforsixmonths.

Notification No. 40/2014-Cus (ADD) dated 16 September 2014

• Importsofsulphurblack,originatinginorexportedfromPeople’sRepublicofChinaforaperiodoffiveyearswithimmediateeffect.


• Onimportof”DiclofenacSodium”fromPeople’sRepublicofChinaatUSD2715/MTforaperiodoffiveyears.

Notification No. 44/2014-Cus (ADD) dated 21 November 2014

• Importof”RecordableDVDs”fromPeople’sRepublicofChina,HongKongandChineseTaipeiatUS$36.67per1,000piecesforaperiodoffiveyears.

Notification No. 45/2014-Cus (ADD) dated 21 November 2014

• Central Government extends ADD on the following items:

• Importof“FlexibleSlabstockPolyol”fromChinaPR,RepublicofKoreaandChineseTaipeitill30August2015.


• Importsof”phenol“fromChineseTaipeiandtheUSforaperiodoffiveyearsw.e.f.impositiondateofprovisionalduty,i.e.,16May2014.DutyshouldbepaidinIndiancurrencyatarateofexchangeasnotifiedbytheGovernment.


49 Tax Digest Home

Foreign Trade Policy 2009-2014

• DGFTnotifiesFormANF3B1toclaimbenefitofServedFromIndiaScheme(SFIS)forNetForeignExchangeEarningintheyear2013–14.ExistingFormANF3Btobefiledforclaimingbenefitsupto2012–13.

Public Notice No.71 (RE 2013) / 2009-14 dated 30 September 2014

Special Economic Zones (SEZ)

• Harmonizationofrules,formatsandfeesinallSEZsforobtainingthefollowing:

• CommerceMinistryharmonizesRules,formats,feesacrossallSEZs.

• StandardizesformatforutilizationofgoodsbyDevelopers/Co-Developers(CertificateofCharteredEngineer),LeaseDeed,AnnualPerformanceReportandinformationrequiredforLetterofApproval(LoA)renewal.

File No. D.12/25/2012-SEZ dated 28 October 2014

• Digitizationofapplications/permissionstobemadebySEZDeveloperandUnits

• ►CommerceMinistrycallsfordigitizationofapplications/permissionsforSEZunits/developersw.e.f.1November2014.Aspartof”EaseofDoingBusiness“initiativeofDepartmentofCommerce(DoC),thefollowingtransactionswereidentifiedbyDoCasimportantapplicationsmadebySEZdevelopersandunitstoDevelopmentCommissioner’sofficeandDoCforvariousApprovals/intimations/reporting.DoChadrequestedNDMLtodevelopanddeployonlinesubmissionprocessforthesame.

• ►Applicationsinter aliaincludeapprovalforauthorizedoperations,quarterly/halfyearlyreturns,grantofexitpermission(inprincipleapproval)fromSEZScheme.TheywillbereceivedthroughmoduledevelopedbyNSDL.

• ►Fordeveloper:

1. ExtensionofthevalidityperiodofFormalLoA(FormC1)

2. Extensionofthevalidityperiodofin-principleLoA(FormC2)

3. Approvalofauthorizedoperations(FormC7)

4. Quarterly/halfyearlyreturns(FormE)

5. Approvalofjob-work(sub-contracting)

• Forunits:

1. ApplicationforsettingupunitsinSEZs

2. ApplicationforrenewalofLoA

3. RequestforextensionofLoA

4. AnnualPerformanceReport(APR)

5. Intimationofjewelryexhibitionsabroad

6. Permissionofjewelryexhibitionsabroad

7. PermissionforsettingupaDR/BCPcentrebyITunits

8. PermissionformovementofdatabackuptapebyITunits

9. Applicationforgrantofexitpermission(in-principleapproval)fromSEZ?scheme

10.Approvalofjob-work(sub-contracting)

11.Intimationofdateofcommencementofproduction

12.Grievanceform(thisisavailableforallentities)

• Theaforesaidprocesseshavecommencedfrom1November2014andarelikelytobereviewedinthefirstweekofDecember,2014.

File No. D.12/25/2012-SEZ dated 28 October 2014

50 Tax Digest Home

• ►Procedure of service tax refund/exemption to SEZ

• ►FinanceMinistryissuesclarificationonprocedureforupfrontservicetaxexemptiontoSEZunits/developersunderNotificationNo.12/2013.

• ►SEZunitsanddeveloperscanroutetheirapplicationforissuanceofauthorizationbyDepartmentthroughspecifiedofficerofSEZinsteadofsubmittingdirectlytotheDepartment.

• ►Furthermore,theycanalsoroutequarterlystatementinFormA-3throughspecifiedofficerinSEZ.

File No.B1/6/2013-TRU dated 25 November 2014

VAT/CST

Haryana

• ProvisionforAmnestyschemeforrecoveringoldarrearsoftaxduesfortheperiodpriorto1April,2014hasbeenintroducedunderHaryanaVATAct.

Notification No. Leg.35/2014 dated 2 September 2014

Delhi

• DelhiGovernmentclarifiesthatObjectionHearingAuthoritiescanimposepre-conditionondealerstodepositareasonableamountoutofthedisputedamountbeforeentertaininganobjection,pertainingtotaxperiodsonlyafter1October2011.

Circular No. 10 of 2014-15 dated 3 September 2014

Maharashtra

• Providinge-paymentfacilityforProfessionTax,LuxuryTaxandSugarcanePurchaseTaxthroughGovernmentReceiptAccountingSystem(GRAS).

Trade Circular No. 16T of 2014 dated 17 September 2014

• MaharashtraGovernmentexplainssalientfeaturesof”RetailersCompositionScheme”tobeintroducedw.e.f.1October2014.SuchSchemeenvisagescompositiontaxpayable@1%[email protected]%oftaxablegoodsturnover.

TradeCircularNo.17Tof2014dated20September2014

• ExtensionofSpecialAmnestyScheme2013upto31March2015

Trade Circular No. 19T of 2014 dated 11 November 2014

• MaharashtraCirculardiscussesthefilingofreturnsaccordingtoCentralSalesTaxAct,1956.Theearlierexemptionthatwasgrantedtotheassesseefornon-filingofreturnswhentherewerenointer-Statesales.Thisconcessionhasbeenwithdrawnandrevised.

Trade Circular No. 20 T of 2014 Dated 25 November, 2014

51 Tax Digest Home

Kerala

• KeralaGovernmentnotifiesKeralaValueAddedTax(Amendment)Ordinance,2014withimmediateeffect.Workscontractorimportinggoodsfromotherstates/countrymayoptforcompositiontaxpaymentat7%ofthecontractamount(earlier6%).However,whereworkscontractwasawardedbytheKeralaGovernment,KeralaWaterAuthorityorLocalAuthorities,taxwillbepayableat5%(earlier4%).Moreoveranyotherworkscontractorcanoptforpaymentofcompositiontaxat4%ofthecontractamount(earlier3%).

Notification No. 24/2014 dated 8 October 2014

Miscellaneous

Tax Administration Reform Commission submits its second report

• AftersubmittingitsfirstreportinJune2014,theTaxAdministrationReformCommission(TARC),headedbyDr.ParthasarathiShome,submitteditssecondreporttotheGovernmenton26September2014.

• Initsfirstreport,TARChadprovidedsuggestionsmainlyconcerningreviewoftaxpayerservices,structureandgovernance,disputeresolution,Information&CommunicationTechnology(ICT).

• Thesecondreportmainlyaddressestwoimportantaspectsoftaxadministration,suchas,“capacitybuildingofIndianCustomsdepartment”and“dataandinformationexchange”.Inthewakeofincreasingglobalisationandsteadygrowthofinternationaltradeandtofacilitatethechangingsupplychaindynamics,TARChassuggestedaneedfortheIndianCustomstomoveawayfromthetraditionalapproachtowardamoreproactiveandwholesomecompliancemanagementsystem.ThereporthasalsohighlightedvariousbestpracticesfollowedinCustomsadministrationacrosstheglobe.

52 Tax Digest

Foreign direct investment

Regulatory

Home

Liberalization in construction development sector

TheUnionCabinethadon29October2014,issuedapressreleaseproposingamendmentsintheexistingFDIpolicyinconstructiondevelopmentsector.Furthertothepressrelease,theDIPPhasissuedaPressnoteNo10of2014dated3December2014formallyrevisingtheFDIpolicyinconstructiondevelopmentsector.TherevisedFDIpolicyinrespectofconstructiondevelopmentsectorthusstandsasunder:

Minimum area requirement

• Theterm“servicedhousingplot”isreplacedwith“servicedplot”pavingawayforFDIindevelopmentofserviced commercial plots

• Therequirementofminimumareatobedevelopedincaseofservicedplotshasbeendispensed.Thereisnominimumlandarearequirementfordevelopmentofservicedplots.

• Inrespectofconstructionprojects,requirementofminimumbuilt-upareaof50,000sq.m.hasbeenreducedtominimumfloorareaof20,000sq.m.

• Acertificateconfirmingthefloorareashallbesufficientandsuchcertificateshouldbeissuedbyanarchitectempaneledbyanyauthoritywhichisauthorizedtosanctionthebuildingplan.Floorareashallbeasdefinedbythelocallaws/regulationsoftherelevantstates.

Minimum capitalization requirements

• Minimumcapitalizationrequirementforwhollyownedsubsidiary(WOS)hasbeenreducedtoUS$5millionand,hence,ithasbeenmadeuniformforbothWOSandjointventureswithIndianpartners.

• Theinvestmenthastobebroughtinwithinsixmonthsofcommencementofproject.Commencementofprojecthasbeendefinedasthedateofapprovalofbuildingplan/layoutplanbytherelevantstatutoryauthority.

• Subsequenttranchesofinvestmentcanbebroughtupto10yearsfromthedateofcommencementoftheprojectorbeforecompletionoftheproject,whicheverisearlier;

Repatriation of investment

• ►Investorispermittedtoexitoncompletionoftheprojectorafterdevelopmentoftrunkinfrastructurei.e.roads,watersupply,streetlighting,drainageandsewerage.

• ►IthasbeenclarifiedthatapprovalofForeignInvestmentPromotionBoard(FIPB)willberequiredforrepatriationofFDIortransferofstakefromoneNRinvestortoanotherNRtinvestor,beforecompletionofproject.

Affordable housing

• ►Anyprojectwhichhasallocated30%oftotalprojectcostforlow-costaffordablehousingwouldnotberequiredtocomplywithconditionspertainingtominimumareaandminimumcapitalizationnorms;

• ►“AffordableHousingProject”hasbeendefinedasprojectusingatleast40%oftheFAR/FSIfordwellingunitoffloorareaofnotmorethan140sq.m.Further,ithasbeenprovidedthatoutoftotalFAR/FSIreservedforaffordablehousing,atleastone-fourthshouldbeforhousesoffloorareaofnotmorethan60sq.m.

Other amendments

• ►Aspertherevisedpolicy,InvesteeCompanyispermittedtosellonly“developedplots”.Developedplotshavebeendefinedtomeanplotswheretrunkinfrastructurehasbeenmadeavailable.

• ►Conditionrequiringdevelopmentof50%ofprojectwithinaperiodoffiveyearsfromthedateofobtainingstatutoryclearanceshasnowbeenremoved;

• ►Ithasnowbeenclarifiedthat100%FDIisallowedincompletedprojectsforoperationandmanagementoftownships,mall/shoppingcomplexesandbusinesscenters;

• ►ResponsibilityforobtainingallstatutoryapprovalsbytheinvestorhasalsobeendroppedandtheonusisnowshiftedtotheIndianinvesteecompany.

Source: Press Note No. 10 (2014 series) issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry

53 Tax Digest Home

Reserve Bank of India

Routing of funds raised overseas back to India

TheRBIhasissuedacircularputtingacurbonthepracticeofroutingthefundsraisedoverseas(backedbyassets/guaranteeofIndiangroupentities)backtoIndia.ThefundssoraisedarechannelizedbacktoIndiathroughsubscriptionofRupeebondsorsimilarotherinstrumentsfloatedbyIndiangroupentity(ies).

ThecircularreleasedbytheRBIinvitesattentiontotheextantregulatoryframeworkundertheForeignExchangeManagementAct(FEMA)relatedtoECB,issuanceofguarantees,andoverseasdirectinvestmentfromIndia.TheRBIhasobservedthatsomeIndiancompaniesareaccessingtheoverseasmarketfordebtfundsthroughoverseasholding/associate/subsidiary/groupcompanies.Furthermore,ithasalsobeenreportedbytheRBIthatsuchborrowingsareraisedatratesexceedingtheceilingapplicableintermsofextantFEMAregulationsandthatthefundssoraisedareroutedtoIndiancompanies,whichaccountsforsole/majoroperationsofthegroup.Differentmodalities/structuresareresortedtoforchannelingsuchfundsforIndianoperationsincludinginvestmentinrupeebondsfloatedbytheIndiancompany.

Accordingly,onareviewofthematterinlightoftheexistingregulatoryframework,RBIhasclarifiedasunder:

(i)IndiancompaniesortheirAuthorizeddealer(AD)Category–Ibanksarenotallowedtoissueanydirector indirect guarantee or create any contingent liability orofferanysecurityinanyformforsuchborrowingsbytheiroverseasholding/associate/subsidiary/groupcompaniesexceptforthepurposesexplicitlypermittedinrelevantRegulations.

(ii)Furthermore,fundsraisedabroadbyoverseasholding/associate/subsidiary/groupcompaniesofIndiancompanieswithsupportoftheIndiancompaniesortheirADCategory–Ibanksasmentionedat(i)abovecannotbeusedinIndiaunlessitconformstothegeneralorspecificpermissiongrantedunderrelevantRegulations.

(iii)IndiancompaniesortheirADCategory–Ibanksusingorestablishingstructures,whichcontravenetheabovewillrenderthemselvesliableforpenalactionasprescribedunderFEMA,1999.

Source: A.P. (DIR Series) Circular No. 41 dated 25 November 2014

Parking of ECB proceeds in term deposits in India

TheRBIhaspermittedADbankstoalloweligibleECBborrowerstoinvestECBproceeds(bothundertheautomaticandapprovalroutes)intermdepositswithADbanksinIndiaforamaximumperiodofsixmonthspendingutilizationforpermittedenduses.Thefacilitywillbewiththefollowingconditions:

• Theapplicableguidelinesoneligibleborrower,recognizedlender,averagematurityperiod,all-in-cost,permittedendusesetc.,shouldbecompliedwith.

• Nochargeinanyformshouldbecreatedonsuchtermdeposits.

• Suchtermdepositsshouldbeexclusivelyinthenameoftheborrower.

• Suchtermdepositscanbeliquidatedasandwhenrequired.

Source: RBI/2014-15/309 A.P. (DIR Series) Circular No. 39 dated 21 November 2014

Time limit for realization of export proceeds

TheRBIhasreviewedthepolicyforperiodofrealizationandrepatriationofexportproceedsandspecifiedaperiodofninemonthsforthispurposeforallexportersincludingunitsinSpecialEconomicZones(SEZs),statusholderexporters,EOUs,unitsinElectronicHardwareTechnologyParks(EHTPs),STPsandBio-TechnologyParks(BTPs).

Priortothiscircular,realizationperiodforunitsinSEZs,statusholderexporters,EOUs,unitsinEHTPs,STPsandBTPswas12months.Furthermore,realizationperiodforthegoodsexportedtoawarehouseestablishedoutsideIndiawouldcontinuetobe15monthsfromthedateofshipmentofgoods.

Source: RBI/2014-15/306 A.P. (DIR Series) Circular No. 37 dated 20 November 2014

54 Tax Digest Home

Delegation of powers relating to compounding of certain contraventions under FEMA from Central office to Regional office of the concerned defaulting company

• ►CurrentlydelayedfilingofformFCTRSpertainingtotransferofsharesfromaresidenttoNRandvice-versaisrequiredtobecompoundedbyRBIcompoundingcellat,CentralofficeMumbai.TheRBIhasnowdelegatedthepowersrelatingtocompoundingoftheabovetoRegionalofficesoftheRBIspecifictothefollowingregulations:

Sr. No FEMA regulation Brief description of contravention

1 Regulation10A(b)(i)readwithparagraph10ofScheduleItoFEMA20/2000-RBdated3May2000

DelayinsubmissionofformFC-TRSontransferofsharesfromResidentto NR

2 Regulation10B(2)readwithparagraph10ofScheduleItoFEMA20/2000-RBdated3May2000

DelayinsubmissionofformFC-TRSontransferofsharesfromNRtoResident

3 Regulation4ofFEMA20/2000RBdated3May2000

Takingonrecordtransferofsharesbyinvesteecompany,intheabsenceofcertifiedformFC-TRS.

• ►AllregionalofficescancompoundaforesaidcontraventionswithoutanylimitexceptKochiandPanajiregionaloffices,whichcancompoundtheabovecontraventionsforamountofcontraventionbelowINR10million.ContraventionsofthisamountandoverandaboveandallothercontraventionsunderthejurisdictionofKochiandPanajiwillcontinuetobecompoundedatCellforEffectiveImplementationofFEMA(CEFA),Mumbai,ashitherto.

• ►Moreover,furthertoCircularNo.23dated2September2014,theRBIhaddelegatedpowersofcompounding relating to delay in reporting inward remittance,delayinfilingformFCGPR,issueofshares/refundofshareapplicationbeyond180daysetc.Accordingly,theFED,COCell,NewDelhiofficearenowauthorizedtocompoundthecontraventionsasunder:

Sr. No FEMA regulation Brief description of contravention

1 FEMA7/2000-RB,dated3May2000

Contraventions relating to acquisitionandtransferofimmovablepropertyoutside India


Contraventions relating to acquisitionandtransferofimmovablepropertyin India

3 Regulation22ofFEMA20/2000-RBdated 3May2000

Contraventions relating toestablishmentinIndiaofBranchoffice,LiaisonOfficeorprojectoffice


ContraventionsfallingunderForeignExchangeManagement(Deposit)

Source: A.P. (DIR Series) Circular No.36 dated 16 October 2014

Importers can book forward contracts up to 100% of eligible limits to hedge currency risk

TheRBIhasallowedresidentimporterstobookforwardcontractstohedgethecurrencyfluctuationriskbasedonpastperformanceupto100%oftheeligiblelimit.Thepreviouslimitwas50%oftheeligiblelimit.

Theeligiblelimitiscomputedasanaverageofthepreviousthreefinancialyears’importturnoverorthepreviousyear’sactualimportturnover,whicheverishigher.

Importers,whohavealreadybookedcontractsuptopreviouslimitof50%inthecurrentfinancialyear,willbeeligiblefordifferencearisingoutofenhancedlimits.

Source: RBI/2014-15/250 A. P. (DIR Series) Circular No.34 dated 30 September 2014

55 Tax Digest Home

Issue of equity shares under FDI scheme against legitimate dues

TheRBIhasallowedissueofequitysharesagainstanyfundspayablebytheinvesteecompany,remittanceofwhichdoesnotrequirepriorpermissionoftheGoIorRBIunderFEMA,1999subjecttocompliancewithextantFDIguidelinesonpricingetc.andapplicabletaxlaws.Conversiontoequityinsuchcaseshouldbenetofapplicabletaxes.

Tillnow,Indiancompaniescanissueshares/convertibledebenturestopersonsresidentoutsideIndiaforotherthancashconsiderationssuchaslump-sumtechnicalknow-howfee,royaltyfee,ExternalCommercialBorrowings(ECBs)andimportpayablesofcapitalgoodsbyunitsinSEZssubjecttocertainconditionssuchasentryroute,sectoralcap,pricingguidelinesandcompliancewiththeapplicabletaxlaws.

Source: RBI/2014-15/234 A.P. (DIR Series) Circular No.31 dated 17 September 2014

ECBs in Indian Rupees

WithaviewtoprovidingincreasedflexibilityforstructuringofECBarrangements,theRBIhasdecidedthatalltypesofrecognisedNRECBlenders(earlieritwaslimitedtoforeignequityholders)mayextendloansinIndianRupeessubjecttofollowingconditions:

(i)ThelendershouldmobilizeIndianRupeesthroughswapsundertakenwithanADCategory-IbankinIndia.

(ii)TheECBcontractshouldcomplywithallotherconditionsapplicabletotheautomaticandapprovalroutesasthecasemaybe.

(iii)Theall-in-costofsuchECBsshouldbecommensuratewithprevailingmarketconditions.

IthasfurtherbeenstatedthatforthepurposeofexecutingswapsforECBsdenominatedinIndianRupees,therecognizedECBlendermaysetuparepresentativeofficeinIndiafollowingtheprescribedlaiddownprocess.ThehedgingarrangementforECBsdenominatedinIndianRupeesextendedbyNRequity-holderswillcontinuetobegovernedbyexistingprovisionsascontainedinAP(DIRSeries)CircularNo.63dated29December2011.


Shifting of three divisions of Foreign Exchange Department to FED CO Cell at New Delhi

TheRBIhasshiftedallcasesrelatingtoForeignInvestmentDivision(FID)suchasliaison/branch/projectOffice(LO/BO/PO)Division,NonResidentForeignAccountDivision(NRFAD)andImmovableProperty(IP)DivisiontoNewDelhiunderFEDCOCell(CentralOfficeCell)witheffectfrom15July2014.


Revision in monetary limits for adjudication of cases by Directorate of Enforcement

MinistryofFinancevideNotificationS.O.1246(E)dated30May2012hadappointedvariousofficersoftheDirectorateofenforcementasadjudicatingauthoritiestoholdaninquiryforthepurposeofadjudicationunderSection13ofFEMA,involvinganyamountasspecifiedinthetablebelow.Theamounthasnowbeenrevisedasunder:

Sr. No

Designation of officers

Existing monetary limit

Revised monetary limit

1 Directorateofenforcement/Special Directorateofenforcement

Cases involving amountexceedingINR50million

Cases involving amountexceedingINR100million

2 AdditionalDirectorateofenforcement

Cases involving amountexceedingINR30millionanduptoINR50million


3 JointDirectorateofenforcement



4 DeputyDirectorateofenforcement



5 AssistantDirectorateofenforcement

Cases involving amount not exceedingINR5million

Cases involving amount not exceedingINR10million

Source: Ministry of Finance S.O. 2564 (E) dated 30 September 2014

56 Tax Digest

Revised regulatory framework for NBFCs

TheRBIhasissuedtherevisedregulatoryFrameworkforNBFCswithaviewtostreamliningtheregulationsforthesaidsector.

Therationalebehindtherevisedframework,asexplainedbytheRBI,istoharmonizetheregulationsacrossdeposittakingNBFCsandNBFCswithlargeassetsizesandtosomeextentbringtheminlinewiththeregulationsapplicabletobanks.Theintentofthenewframeworkistocreatealevelplayingfieldthatdoesnotundulyfavorordisfavoranyinstitution.

Thekeyamendmentsarecapturedhere-under:

• ►RequirementofminimumNetOwnedFund(NOF)ofINR20million-WithaviewtostrengthenthefinancialsectorandconsideringtheincreasingcomplexitiesofservicesofferedbyNBFCs,itwillnowbemandatoryforallNBFCstoattainaminimumNOFofINR20millionby31March2017,accordingtothefollowingmilestones:

• INR10millionby31March2016;and

• INR20millionby31March2017.

• ►RevisioninthresholdtodefinesystemicallyimportantNBFCtoassetsizeofINR5000millionfromINR1000million

• ►MultipleNBFCsthatarepartofacorporategrouporfloatedbycommonsetofpromoterswillnotbeviewed on standalone basis

• ►CreditconcentrationnormsforAssetFinanceCompany(AFCs)tobeinlinewithotherNBFCs

Source: RBI/2014-15/299 DNBR (PD) CC.No.002/03.10.001/2014-15 dated 10 November 2014

Non-banking financial companies (NBFC)

Home

57 Tax Digest

Amendments to Clause 49 of the equity listing agreement (effective from 1 October 2014)

TheSEBIhasintroducedcertainamendmentstoclause35Band49ofequitylistingagreementsvidecircularNo.CIR/CFD/POLICYCELL/2/2014dated

17April2014.However,duetovariousconcernsraisedbystakeholdersinimplementingtheamendments,theSEBIhas,inordertofacilitatethelistedcompaniestoensurecompliancewiththeprovisionsoftherevisedClause49,decidedtomakecertainamendmentstoClause49.Thesaidamendmentswouldbeapplicablewitheffectfrom1October2014exceptClause49(II)(A)(1).

Someoftheamendmentsarecapturedinbriefhere-under:

a. Applicability of Clause 49 TheClause49oftheListingAgreementwillbeapplicabletoallcompanieswhoseequitysharesarelistedonarecognizedstockexchange.However,certainclassesofcompaniesarecurrentlybeingexemptedfromthecompliancewiththeprovisionsofClause49,e.g.,companies,whichhavepaidupequitysharecapitalnotexceedingINR100millionandNetWorthnotexceedingINR250million,asonthelastdayofthepreviousfinancialyear;andcompanieswhoseequitysharecapitalislistedexclusivelyontheSMEandSME-ITPPlatforms.

b. Composition of board of directors —nofurtherchangesmadeafterthoseintroducedby17April2014circular.Therevisedclausehasbeenmadeapplicablefrom1April2015.

c. Amendments in respect of maximum tenure of independent directors — theprovisionsofCompaniesAct,2013inthisrespectneedstobecomplied

Source: SEBI CIR/CFD/POLICY CELL/7/2014 dated 15 September 2014

SEBI’s board meeting held on 19 November 2014

SEBIinitsboardmeetingheldon19November2014has,inter-alia,takenthefollowingimportantdecisions:

(i)IntroductionofnewSEBI(InsiderTrading)Regulations,2014aligninginsidertradingnormswithinternationalpracticesandclarifyingtheanomalies;

(ii)ConversionofListingAgreementsforalltypesoflistedsecuritiesintoSEBI(ListingObligationsandDisclosureRequirements)Regulations,2014

(iii)AmendmenttoSEBI(Delisting)Regulationswhichprovidesforthechangeinthethreshold,timelines,offerpriceetc.

(iv)AmendmentinSEBI(MutualFunds)Regulations,1996

(v)GrantingsingleregistrationtoDepositoryParticipants

(vi)Noticeforsettlementofcertainadministrativeandcivilproceedings

Source: SEBI press release - PR No. 130/2014 dated 19 November 2014

Securities and Exchange Board of India (SEBI)

Home

58 Tax Digest

Click on the links provided below to access some of our recently published articles.

In the press

Home

1st100Days:AccheDinForTaxPolicy?SudhirKapadia,CNBC–TheFirm

MakingI-TscrutinylessdiscretionarySunilKapadia,TheFinancialExpress

NewPFrulemaylowertake-homepaySonuIyer,BusinessStandard

Indianrealestatesector–ChannelizingcapitaltoabrighterfutureAjitKrishnan,HindustanTimes–Estatessupplement

India’sblackmoneySudhirKapadia,TheWallStreetJournal

ChangesinEPFSchemecouldaffectyouAlokAgrawal,HinduBusinessLine

ForeignTradePolicyshouldliveuptoexporters’expectationNileshVasa,ETOnline

AnIndia-USagreementwillalsofavourablyimpactthecostofemploymentforbothsetsofemployersSonuIyer,Mint

PenalconsequencesforcetaxpayerstoreportdealsthatarenottaxableVijayIyer,BusinessStandard

CleaningupwiththeGSTSatyaPoddar,BusinessStandard

VodafoneHCOrder:BoostForMakeInIndiaCampaign?VijayIyer,BusinessStandard

GSTonpetroproducts:reconsiderzero-ratingSatyaPoddarandShaliniMathur,TheFinancialExpress

ITAct:SCSettlesTheDustOnRetrospectiveInterpretationPravatJena,CNBC–TheFirm

OECDBEPSReports:AnIndianPerspectiveRajendraNayak,CNBC–TheFirm

RevisedSchemesForSocialSecurityInIndiaSurabhiMarwah,CNBC–TheFirm

MorecompliancerequirementsforwealthtaxpayersSurabhiMarwah,TheFinancialExpress

http://www.ey.com/IN/en/Newsroom/News-releases/EY-1st-100-days-acche-din-for-tax-policy

http://www.ey.com/IN/en/Newsroom/News-releases/EY-making-i-t-scrutiny-less-discretionary

http://www.ey.com/IN/en/Newsroom/News-releases/EY-new-pf-rule-may-lower-take-home-pay

http://www.ey.com/IN/en/Newsroom/News-releases/EY-indian-real-estate-sector-channelizing-capital-to-a-brighter-future

http://www.ey.com/IN/en/Newsroom/News-releases/EY-indias-black-money

http://www.ey.com/IN/en/Newsroom/News-releases/EY-changes-in-epf-scheme-could-affect-you

http://www.ey.com/IN/en/Newsroom/News-releases/EY-foreign-trade-policy-should-live-up-to-exporters-expectation

http://www.ey.com/IN/en/Newsroom/News-releases/EY-an-india-us-agreement-will-also-favourably-impact-the-cost-of-employment-for-both-sets-of-employers

http://www.ey.com/IN/en/Newsroom/News-releases/EY-an-india-us-agreement-will-also-favourably-impact-the-cost-of-employment-for-both-sets-of-employers

http://www.ey.com/IN/en/Newsroom/News-releases/EY-penal-consequences-force-taxpayers-to-report-deals-that-are-not-taxable

http://www.ey.com/IN/en/Newsroom/News-releases/EY-taxation-of-land-and-liquor-essential-for-swachh-gst

http://www.ey.com/IN/en/Newsroom/News-releases/EY-vodafone-hc-order-boost-for-make-in-india-campaign

http://www.ey.com/IN/en/Newsroom/News-releases/EY-gst-on-petro-products-reconsider-zero-rating

http://www.ey.com/IN/en/Newsroom/News-releases/EY-it-act-sc-settles-the-dust-on-retrospective-interpretation

http://www.ey.com/IN/en/Newsroom/News-releases/EY-oecd-beps-reports-an-indian-perspective

http://www.ey.com/IN/en/Newsroom/News-releases/EY-revised-schemes-for-social-security-In-india

http://www.ey.com/IN/en/Newsroom/News-releases/EY-more-compliance-requirements-for-wealth-tax-payers

59 Tax Digest

Direct Tax

Compilation of Tax Alerts

S. No. Title Date of the alert Citation/Notification/Circular

1. GlobalTaxAlert-Indiareleases2013-14AnnualReportcoveringtransferpricingandinternationaltaxdevelopments

6September2014 AnnualreportreleasedbyMinistryofFinanceprovidinganaccountofvarious activities undertaken and certainkeystatisticsforFY2013-14

2. RajasthanStampAct 18September2014

SomeleyamendmentsinRajasthanStampActfromtheperspectiveofcorporatemergers&acquisitionsandrestructuring.

3. CBDTCircularonthresholdlimitfortransferoftechnicalmanpowertonewSEZunitforavailingprofit-linkeddeduction

10October2014 CBDTCircularNo.14of2014dated8October2014

4. KarnatakaHighCourtrulesnoremissionofliabilityonsettlementofdeferredsalestaxliabilityatnetpresent value

10October2014 CITv.McDowell&CoLtd. [TS-621-HC-2014(KAR)]

5. Relatedpartytransactions(RPTs)–KeralaHighCourtgrantsinjunctionorderontransferofsubsidiaries

10October2014 PTLEnterprisesLtd

6. BreakingNews-BombayHCrulesontheapplicabilityofTPprovisionstoissueofsharestoassociated enterprises

10October2014 VodafoneIndiaServicesPvt.Ltd

7. GlobalTaxAlert-BombayHighCourtrulesonapplicabilityoftransferpricingprovisionstoissueofsharestoassociatedenterprises

16October2014 [TS-308-HC-2014(BOM)-TP-VodafoneIndiaServices]

8. CBDTCircularonautomaticapprovalforforeigncurrencyborrowingstoavaillowerwithholdingtaxrate

22October2014 CBDTCircularNo.15of2014dt.17October2014

9. ITATexplainstaxaspectsofprivatespecificordiscretionary trusts

27October2014 IndiaAdvantageFund–VII[ITANo.178/Bang/2012]

10. GlobalTaxAlert-BangladeshTransferPricingregulations

31October2014 BangladeshFinanceAct2014

11. HyderabadITATrulesthatpaymentstoparentcompanyfortechnicalservicesandsoftwareprocuredfromathirdpartyisnotreimbursement

3November2014 AMDResearch&DevelopmentCenterIndiav.DCIT[TS-649-ITAT-2014(HYD)]

12. DelhiTribunalrulesondeductiondisallowanceanddeductionneutralityonapplicationofnon-discriminationarticleoftaxtreaties

3November2014 MitsubishiCorporationIndiaPvt.Ltd.v.DCIT[TS-647-ITAT-2014(DEL)]

13. HRandtaxalert-PaymentsofIndiansocialsecuritybenefitstoInternationalWorkers

6November2014 CircularbyPFauthoritiesclarifyingtheprocedureforpayingsocialSecuritybenefits

14. CBDTissuesinternalguidelinestowardsachievinganon-adversarialtaxregime

10November2014

CBDTissuesinternalguidelinestoTaxAuthority

Home

http://www.ey.com/Publication/vwLUAssets/2014G_CM4702_TP_India__releases_2013_14/$FILE/2014G_CM4702_TP_India_%20releases_2013_14.pdf



http://www.ey.com/Publication/vwLUAssets/TT_Alert_dt_18_9_2014/$FILE/TT_Alert_dt_18_9_2014.pdf

http://www.ey.com/Publication/vwLUAssets/CBDT_Circular_on_threshold_limit_for_transfer_of_technical_manpower_to_new_SEZ_unit_for_availing_profit_linked_deduction/%24FILE/CBDT_Circular_on_threshold_limit_for_transfer_of_technical_manpower_to_new_SEZ_unit_for_availing_profit_linked_deduction.pdf



http://www.ey.com/Publication/vwLUAssets/Karnataka_High_Court_rules_no_remission_of_liability_on_settlement_of_deferred_sales_tax_liability_at_net_present_avalue/$FILE/Karnataka_High_Court_rules_no_remission_of_liability_on_settlement_of_deferred_sales_tax_liability_at_net_present_avalue.pdf



http://www.ey.com/Publication/vwLUAssets/TT_Alert_related_party_transaction/$FILE/TT_Alert_related_party_transaction.pdf



http://www.ey.com/Publication/vwLUAssets/Bombay_HC_rules_on_share_valuation-Vodafone_India/$FILE/Bombay_HC_rules_on_share_valuation-Vodafone_India.pdf



http://www.ey.com/Publication/vwLUAssets/TP_Bombay_HC_rules_on_TP_prov/$FILE/TP_Bombay_HC_rules_on_TP_prov.pdf



http://www.ey.com/Publication/vwLUAssets/CBDT_circular_FC_borrowings/$FILE/CBDT_circular_FC_borrowings.pdf



http://www.ey.com/Publication/vwLUAssets/India_advantage_fund/$FILE/India_advantage_fund.pdf

http://www.ey.com/Publication/vwLUAssets/India_advantage_fund/$FILE/India_advantage_fund.pdf

http://www.ey.com/Publication/vwLUAssets/Bangladesh_TP/$FILE/Bangladesh_TP.pdf

http://www.ey.com/Publication/vwLUAssets/Bangladesh_TP/$FILE/Bangladesh_TP.pdf

http://www.ey.com/Publication/vwLUAssets/AMD_alert/$FILE/AMD_alert.pdf



http://www.ey.com/Publication/vwLUAssets/Delhi_Tribunal_rules_on_deduction_disallowance_and_deduction_neutrality_on_application_of_non_discrimination_article_of_tax_treaties/$FILE/Delhi_Tribunal_rules_on_deduction_disallowance_and_deduction_neutrality_on_application_of_non_discrimination_article_of_tax_treaties.pdf



http://www.ey.com/Publication/vwLUAssets/HR_Tax_Alert_Nov_2014/$FILE/HR_Tax_Alert_Nov_2014.pdf

http://www.ey.com/Publication/vwLUAssets/HR_Tax_Alert_Nov_2014/$FILE/HR_Tax_Alert_Nov_2014.pdf

http://www.ey.com/Publication/vwLUAssets/non_adversarial/$FILE/non_adversarial.pdf

http://www.ey.com/Publication/vwLUAssets/non_adversarial/$FILE/non_adversarial.pdf

60 Tax Digest


15. MumbaiTribunalrulesontaxationofoffshoreunaccounted money

12November2014

MohanManojDhupeliav.DCIT [TS-678-ITAT-2014(Mum)]

16. BombayHighCourtdeniesdepreciationontheroadconstructedunderBOTarrangement

13November2014

NorthKarnatakaExpresswayLtd.v.CIT[TS-679-HC-2014(BOM)]

17. DelhiHCquashesCBDTCircularonwithholdingoftaxoninterestaccruingonCourtdepositswithbanks

13November2014

UCOBankv.UnionofIndia&Others[TS-680-HC-2014(DEL)]

18. MumbaiTribunalregardsinstallationandcommissioningofsuppliedequipmentas“assembly”services,nottaxableasfeesfortechnicalservices

17November2014

ITOv.-BennetColeman&Co.Ltd. [TS-684-ITAT-2014(Mum)]

19. DelhiHighCourtrulestollroadsconstructedunderBOTarrangementas“building”(Moradabad)

18November2014

MoradabadTollRoadv.ACIT [TS-681-HC-2014(DEL)]

20. DelhiHCrulespaymenttowardslivetelecastisnot“royalty

1December2014 CITv.DelhiRaceClub [TS-713-HC-2014(DEL)]

21. HyderabadTribunalreaffirmsthedistinctionbetweenuseofcopyrightrightandcopyrightedarticle

1December2014 ADITv.BartronicsIndiaLtd. [TS-712-ITAT-2014(HYD)]

22. GovernmentofIndianotifiesclassofresidenttaxpayerseligibletoseekAdvanceRuling

1December2014 GOINotificationNo.73/2014dated28November2014

23. HighLevelCommitteeconstitutedtointeractwithtradeandIndustryandtobringinclarityontaxlaws

5December2014 GoIsetupHighLevelCommittee

24. KarnatakaHCrulesdiscountallowedtodistributorsforprepaidSIMcardsandrechargevouchersnotliableforwithholdingascommissionorbrokerage

5December2014 BhartiAirtelv.DCIT

Home

http://www.ey.com/Publication/vwLUAssets/Mumbai_Tribunal_rules_on_taxation_of_offshore_unaccounted_money/$FILE/Mumbai_Tribunal_rules_on_taxation_of_offshore_unaccounted_money.pdf

http://www.ey.com/Publication/vwLUAssets/Mumbai_Tribunal_rules_on_taxation_of_offshore_unaccounted_money/$FILE/Mumbai_Tribunal_rules_on_taxation_of_offshore_unaccounted_money.pdf

http://www.ey.com/Publication/vwLUAssets/Bombay_High_Court_denies_depreciation_on_the_road_constructed_under_BOT_arrangement/$FILE/Bombay_High_Court_denies_depreciation_on_the_road_constructed_under_BOT_arrangement%20.pdf

http://www.ey.com/Publication/vwLUAssets/Bombay_High_Court_denies_depreciation_on_the_road_constructed_under_BOT_arrangement/$FILE/Bombay_High_Court_denies_depreciation_on_the_road_constructed_under_BOT_arrangement%20.pdf

http://www.ey.com/Publication/vwLUAssets/Alert_HC_quashes_Cirular/$FILE/Alert_HC_quashes_Cirular.pdf



http://www.ey.com/Publication/vwLUAssets/Mumbai_Tribunal_regards_installation/$FILE/Mumbai_Tribunal_regards_installation.pdf




http://www.ey.com/Publication/vwLUAssets/moradabad_alert/$FILE/moradabad_alert.pdf

http://www.ey.com/Publication/vwLUAssets/moradabad_alert/$FILE/moradabad_alert.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_Delhi_race_club/$FILE/Tax_Alert_Delhi_race_club.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_Delhi_race_club/$FILE/Tax_Alert_Delhi_race_club.pdf

http://www.ey.com/Publication/vwLUAssets/Hyd_alert/$FILE/Hyd_alert.pdf



http://www.ey.com/Publication/vwLUAssets/Government_of_India_notifies_class_of_resident_taxpayers_eligible_to_seek_Advance_Ruling/$FILE/Government_of_India_notifies_class_of_resident_taxpayers_eligible_to_seek_Advance_Ruling.pdf

http://www.ey.com/Publication/vwLUAssets/Government_of_India_notifies_class_of_resident_taxpayers_eligible_to_seek_Advance_Ruling/$FILE/Government_of_India_notifies_class_of_resident_taxpayers_eligible_to_seek_Advance_Ruling.pdf

http://www.ey.com/Publication/vwLUAssets/High_Level_Committee_constituted_to_interact_with_trade_and_Industry_and_to_bring_in_clarity_on_tax_laws/$FILE/High_Level_Committee_constituted_to_interact_with_trade_and_Industry_and_to_bring_in_clarity_on_tax_laws.pdf



http://www.ey.com/Publication/vwLUAssets/Karnataka_HC_rules_discount_allowed_to_distributors_for_prepaid_SIM_cards/%24FILE/Karnataka_HC_rules_discount_allowed_to_distributors_for_prepaid_SIM_cards.pdf



61 Tax Digest

Indirect Tax


1. CBEC’sclarificatorycircularonmandatorypre-deposit provisions

17September2014

CircularNo.984/08/2014-CXdated16September2014issuedbytheCentralBoardofExciseandCustoms(CBEC)

2. Tribunalrulingholdingseparatecontractsforsupplyofgoodsandservicesasonesinglecompositecontractliabletoservicetaxunderworks contract

19September2014

GuptaEnergyPvt.Ltd.v.CommissionerofCustomsandCentralExcise,Nagpur [TS-410-Tribunal-2014-ST]

3. BombayHCononsiteservicesprovidedbyforeignsubsidiariespriorto27February2010cannotbeconsideredasexportandrefundofCENVATcreditnotavailableinrespectofthesame

19September2014

[TS-415-HC-2014(BOM)-ST]

4. KarnatakaHCRulingonretrospectiveapplicationofamendment in CCR

23September2014

CommissionerofCentralExcise&Servicetaxvs.FosrocChemicals(India)Pvt.Ltd.&Ors.[2014(9)TMI633]

5. BangaloreCESTATdecidesonvariousissuesrelatingtorefundunderRule5ofCENVATCreditRules,2004throughcommoninterimorderinbatchofappeals

24September2014

VariousissuesrelatingtorefundunderRule5ofCENVATCreditRules,

6. CBECcircularonservicetaxapplicabilityincaseofJointVenture

26September2014

CircularNo.179/5/2014-STdated24September,2014issuedbytheTaxResearchUnit(TRU)oftheCentralBoardofExciseandCustoms(CBEC)

7. SecondreportofTaxAdministrationReformCommission,

29September2014

SecondreportsubmittedbyDr.ParthasarathiShomeon26September2014

8. InterestonbilldiscountingfacilityisexemptfromServicetaxandinterestearnedonoverdraftandcashcreditfacilitywouldattractCENVATcreditreversal

6October2014 UCOBank,Kolkatav.CommissionerofServicetax,Kolkata[TS-439-Tribunal-2014-ST]

9. CESTATorderdisposingstayapplicationandholdingthatCENVATreversalformulaprescribedinRule6(3A)ofCENVATCreditRulesshouldbeapplied on total input services

10October2014 ThyssenkruppIndustries(I)Pvt.Ltd.V.CommissionerofCentralExcise,Pune[2014-TIOL-1825-CESTAT-MUM].

10. GSTNewsAlert 14October2014 KeyGSTupdates

11. CBECcircularclarifyingservicesprovidedbyIndianbanks/entitiesactingasagentstooff-shoreMoneyTransferServiceOperatorsattractsServicetax

16October2014 CircularNumber180/06/2014–STdated14October2014(Circular)issuedbytheTaxResearchUnit(TRU)oftheCentralBoardofExciseandCustoms(CBEC)

Home

http://www.ey.com/Publication/vwLUAssets/Alert_Clarification_on_mandatory_pre_deposit/$FILE/Alert_Clarification_on_mandatory_pre_deposit.pdf

http://www.ey.com/Publication/vwLUAssets/Alert_Clarification_on_mandatory_pre_deposit/$FILE/Alert_Clarification_on_mandatory_pre_deposit.pdf

http://www.ey.com/Publication/vwLUAssets/IDT_Alert_Mumbai_Tribunal/$FILE/IDT_Alert_Mumbai_Tribunal.pd




http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_Bom_HC_decision/$FILE/Tax_Alert_on_Bom_HC_decision.pdf




http://www.ey.com/Publication/vwLUAssets/Tax_Alert_Amendment_in_CCR/$FILE/Tax_Alert_Amendment_in_CCR.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_Amendment_in_CCR/$FILE/Tax_Alert_Amendment_in_CCR.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_Bangalore_CESTAT_Rule_5_Refund_order/$FILE/Tax_Alert_on_Bangalore_CESTAT_Rule_5_Refund_order.pdf




http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_CBEC_circular_on_ST_/$FILE/Tax_Alert_on_CBEC_circular_on_ST_.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_CBEC_circular_on_ST_/$FILE/Tax_Alert_on_CBEC_circular_on_ST_.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_TARC_2nd_Report/$FILE/Tax_Alert_TARC_2nd_Report.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_TARC_2nd_Report/$FILE/Tax_Alert_TARC_2nd_Report.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_UCO_Bank_case/$FILE/Tax_Alert_UCO_Bank_case.pdf




http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_Thyssenkrupp_case/$FILE/Tax_Alert_on_Thyssenkrupp_case.pdf




http://www.ey.com/Publication/vwLUAssets/Tax__Alert_on_GST_News/$FILE/Tax_%20Alert_on_GST_News.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_CBEC_MTSO/$FILE/Tax_Alert_CBEC_MTSO.pdf



62 Tax Digest


12. ServicesofsecondedemployeesnottaxableunderManpowerRecruitmentorSupplyAgencycategory-HighCourtupholdsCESTAT’sdecision

6November2014

CommissionerofCentralExcisev.Computer Sciences Corporation India Pvt.Ltd.[2014-TIOL-1896-HC-ALL-ST]

13. LevyofServicetaxonservicesprovidedbyACrestaurantsandhotelsheldtobeunconstitutionalbyKeralaHC

7November2014

UnionofIndia(&Others)v.KeralaBarHotelsAssociation&Others [TS-501-HC-2014(KER)-ST]

14. GSTNewsAlert 12November2014

KeyGSTupdates

15. KarnatakaHCjudgmentonVATonsaleofdemocars

13November2014

MandoviMotorsv.StateofKarnataka[2014-VIL-329-KAR]

16. MaharashtraSalesTaxTribunalrulesBOTProjectforroadconstructiontobeWorksContract

18November2014

AshokaInfrastructuresv.StateofMaharashtra[2014-VIL-12-MSTT]

17. CBECclarifiesthattimelimitofsixmonthsapplicableforCENVATavailmentdoesnotapplytore-creditofsuchCENVAT

20November2014

CircularNo990-14-2014-CX-8dated19November2014

18. GSTNewsAlert 29November2014

KeyGSTupdates

Home

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_CSCIPL_HC_Judgement/$FILE/Tax_Alert_CSCIPL_HC_Judgement.pdf



http://www.ey.com/Publication/vwLUAssets/Tax_Alert_Kerala_HC_SRT_on_Restaurant_service/$FILE/Tax_Alert_Kerala_HC_SRT_on_Restaurant_service.pdf



http://www.ey.com/Publication/vwLUAssets/GST_News_Alert_Nov_14/$FILE/GST_News_Alert_Nov_14.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_VAT_rate_on_sale_of_Demo_cars/$FILE/Tax_Alert_VAT_rate_on_sale_of_Demo_cars.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_VAT_rate_on_sale_of_Demo_cars/$FILE/Tax_Alert_VAT_rate_on_sale_of_Demo_cars.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_BOT_project_Ashoka_Infrastructure/$FILE/Tax_Alert_BOT_project_Ashoka_Infrastructure.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_BOT_project_Ashoka_Infrastructure/$FILE/Tax_Alert_BOT_project_Ashoka_Infrastructure.pdf

http://www.ey.com/Publication/vwLUAssets/Tax_Alert_on_CBEC_clarification_on_re_credit/$FILE/Tax_Alert_on_CBEC_clarification_on_re_credit.pdf



http://www.ey.com/Publication/vwLUAssets/GST_News_Alert_29_Nov_14/$FILE/GST_News_Alert_29_Nov_14.pdf

63 Tax Digest

Regulatory

Home|Previous


1. Guidelines issued by Securities and ExchangeBoardofIndiaforregulatingResearchAnalysts

10September2014

SEBIissuedaconsultationpaperanddraftSEBI(ResearchAnalyst)Regulations,2013

2. Amendmentsclause49ofthelistingagreement

1October2014 SEBICircularNoCIR/CFD/POLICYCELL/7/2014issuedonSeptember15,2014

3. Liberalizationinconstructiondevelopment sector

31October2014 RecentamendmentsproposedbyUnionCabinetwithrespecttoamendments/relaxationsinFDIpolicy

4. SecuritiesandExchangeBoardofIndia(ShareBasedEmployeeBenefits)Regulations,2014notifiedon28October2014

31October2014 SEBI(ShareBasedEmployeeBenefits)Regulations,2014notifiedbySEBIon28October2014

5. RevisedregulatoryFrameworkforNon-bankingFinanceCompanies

19November2014

RevisedregulatoryframeworkforNBFCissuedbyRBIon10November2014

6. KeyamendmentsapprovedbySEBIinitsmeetingbasedonthepressreleaseof19November2014

21November2014

SignificantamendmentsapprovedbySEBIBoardmeetingheldon19November2014

7. Liberalizationinconstructiondevelopment sector

4December2014 DIPPPressnote10of2014

http://www.ey.com/Publication/vwLUAssets/EY_Alert_SEBI_Research_Analysts_Regulations/$FILE/EY_Alert_SEBI_Research_Analysts_Regulations.pdf



http://www.ey.com/Publication/vwLUAssets/EY__Alert_on_revised_SEBI/$FILE/EY_%20Alert_on_revised_SEBI.pdf

http://www.ey.com/Publication/vwLUAssets/EY__Alert_on_revised_SEBI/$FILE/EY_%20Alert_on_revised_SEBI.pdf

http://www.ey.com/Publication/vwLUAssets/EY_Regulatory_Alert_Liberalization_in_construction_development_sector/$FILE/EY_Regulatory_Alert_Liberalization_in_construction_development_sector.pdf

http://www.ey.com/Publication/vwLUAssets/EY_Regulatory_Alert_Liberalization_in_construction_development_sector/$FILE/EY_Regulatory_Alert_Liberalization_in_construction_development_sector.pdf

http://www.ey.com/Publication/vwLUAssets/EY_Regulatory_Alert_Securities_and_Exchange_Board_of_India/$FILE/EY_Regulatory_Alert_Securities_and_Exchange_Board_of_India%20.pdf




http://www.ey.com/Publication/vwLUAssets/EY_Alert_Revised_Regulatory_Framework_for_NBFCs/$FILE/EY_Alert_Revised_Regulatory_Framework_for_NBFCs.pdf

http://www.ey.com/Publication/vwLUAssets/EY_Alert_Revised_Regulatory_Framework_for_NBFCs/$FILE/EY_Alert_Revised_Regulatory_Framework_for_NBFCs.pdf

http://www.ey.com/Publication/vwLUAssets/Transaction_tax_alert_Press_Release_SEBI_board_meeting/$FILE/Transaction_tax_alert_Press_Release_SEBI_board_meeting.pdf <http://www.ey.com/Publication/vwLUAssets/Transaction_tax_alert_Press_Release_SEBI_board_meeting/%24FILE/Transaction_tax_alert_Press_Release_SEBI_board_meeting.pdf>



http://www.ey.com/Publication/vwLUAssets/Regulatory_Alert_Press_note_10_of_2014/$FILE/Regulatory_Alert_Press_note_10_of_2014.pdf

http://www.ey.com/Publication/vwLUAssets/Regulatory_Alert_Press_note_10_of_2014/$FILE/Regulatory_Alert_Press_note_10_of_2014.pdf

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Tax Digest (11 December 2014)