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3CASC BULLETIN, APRIL 2018

EDITORIAL

Revenue Targets – CreativeInterpretation of Law?

There is always an area for improvementand only a push towards that can makeone attain the targets. This seems to bethe basis for making the AssessingOfficer to collect more taxes as the yearcomes to an end. It is said thatunrealistic targets have been set at thehighest level year after year and thenofficers are allotted targets to achieve.This has been common for almost adecade now. However, of late there isfollow up as well as pressure on theAssessing Officer to attain the same. Inthe last couple of months the AssessingOfficers have been made to move aroundto attain the targets both on demandsraised in the just completed assessmentsas well as in the front of advance taxcollection. Now to attain the target theAssessing Officer have startedconducting surveys under variousnomenclature like recovery survey,advance tax Collection Survey, etc.,which is not envisaged in the IncomeTax Act. It is not that there are comingwithout authorisation but the said

authorisation seems to be withoutapplication of mind. Innovate ideas arebeing used by the Department to makethe assessee fall in line like informing anassessee that in case one does not file areturn the assets / properties will beattached, survey will be conducted, etc.According to the media reports theDepartment has decided to target thecompanies which have opted for theBuy Back option after the Income TaxAct was amended in 2016 to taxdividend in the hands of the Assesseeswho have received the same in excess ofRs. 10 Lakhs. The corporates havecarried out the Shares Buy Back and theamount involved is around Rs. 83000Crores and this seems to be thetriggering point to tax the same undersome context or the other, forgetting thefact an assessee can carry out taxplanning within the framework of law.What prohibited is ‘Tax Evasion’ and not‘Tax Avoidance’? Similarly when theAssessing Officer comes to conclusionthat there is excess or shortage of Stockduring the survey proceedings, theAssessing Officer wants to invoke antiavoidance provisions and tax such


income at the highest rate so that thetargets are achieved quickly. Theassessees have to be more vigilant whilegiving the statement during the Surveyproceedings else pay more taxes or facelitigation. Now it is not only theprofessionals but also the assessees haveto updated with law as well as equipwith communication skills.

Appeal

With the digital era in vogue and withall kind of shortcuts communications invogue, it is prime time we inculcate inour staff and article assistants thewriting skills and communication skills.Hence, we request all the members toencourage them to venture into writing

articles on technical subjects which wemay carry in this bulletin understudent’s corner.

Members are requested to attend theprograms conducted by CASC and arealso requested to send their suggestionsand / or value additions to the servicesprovided by CASC including thisBulletin. The same can be sent by hardcopy to the office of the CASC oremailed to [email protected] or anyof the Members on the ManagementCommittee.

For and on behalf of Editorial Board

CA. Uttamchand Jain

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“EXCEL TIPS”By CA. Dungar Chand U

Price : Rs. 200/-

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DISCLAIMERThe contents of this Monthly Bulletin are solely for informational purpose. Itneither constitutes professional advice nor a formal recommendation. Whiledue care has been taken in assimilating the write-ups of all the authors. Neitherthe respective authors nor the Chartered Accountants Study Circle acceptsany liabilities for any loss or damage of any kind. No part of this MonthlyBulletin should be distributed or copied (except for personal, non-commercialuse) without express written permission of Chartered Accountants Study Circle.

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RECENT JUDGMENTS IN VAT AND CSTRefund: When the refund of the input taxcredit (ITC) reversed u/s 19(2)(v) of theTNVAT Act (reversal of 3% of ITC forsales with C form) was preferred relyingon the ratio of the rulings in the case ofM/s.Everest Industries Limited, V. TheState of Tamil Nadu, and another inW.P.No.7969 of 2014 dated 06.02.2017 therespondent rejected the claim of refundand the Court held that the State haspreferred an appeal as against thedecision in the said case of M/s.EverestIndustries Limited and the Hon’bleDivision Bench has entertained the writappeal and granted an order of interimstay and hence as of now the petitionercannot pursue its application for refundbased on the decision of the learned SingleJudge in the case of M/s.EverestIndustries Limited. AUTOCOMINDUSTRIES. Vs. AssistantCommissioner (CT) AmbatturAssessment Circle [2017](MAD)W.Ps.W.P.Nos.32653 and 32654 of 2017DATED: 15.12.2017

Form H: When there is no mention aboutthe requirement to file form H undersection 5(3) of the Central Sales tax Act,1956 in the revision notice the AO oughtnot to have raised any demand for thenon-receipt of form H. Tvl.Harin BioTech International Pvt Ltd.,Vs. TheCommercial Tax Officer, Palacode.

CA. V.V. SAMPATHKUMAR(MAD) [2017] W.P.No.31982 of 2017DATED: 11.12.2017

Opportunity: The petitioner is aggrievedby the assessment order dated 14.10.2016passed under the Central Enactment forthe year 2014-15 as the Assessing Officercompleted the assessment on the groundof non-cooperation of the assessee in theassessment proceedings. The petitionerdid not respond to the revision noticeissued by the respondent nor producedexport documents. For the first time, thedocuments relating to export sales areproduced before this Court and it issubmitted that those documents shouldbe considered. But, this Court cannotexamine those documents and it is for thedealer to produce the same before theAO, which the petitioner is willing to do.Further, considering the fact that theimpugned order was passed on 14.10.2016and till date, the respondent is not ableto recover any tax or penalty as quantifiedin the impugned order, this Court is


inclined to grant one opportunity to thepetitioner, however, subject to a conditionthat the petitioner to pay 15% of thedisputed tax within three weeks from thedate of receipt of a copy of this order. Ifthe petitioner complies with the saidcondition, they will be entitled to treat theimpugned order as a show cause noticeand submit their objections within aperiod of seven days therefrom. Onreceipt of the objections, the respondentshall afford an opportunity of personalhearing to the petitioner, peruse all thedocuments and redo the assessment inaccordance with law. It is needless to addthat the benefit of this order will notensure to the petitioner if the petitionerfails to comply with the condition ofpayment of 15% of the disputed taxwithin the time stipulated.

Tvl.Unitek Hydraulics, rep.by Vs TheCommercial Tax Officer, GanapathyCircle, Coimbatore.(Mad) [2017] WritPetition No.31613 of 2017 Dated:06.12.2017

Exemption: A person, claiming exemptionon payment to sub-contractors, has toproduce evidence that such amount wasaccounted for by the sub-contractors andfurnished the same in the monthly returnsbefore the respective Assessing Officers asper Rule 8(5)(c) of TNVAT Rules 2007. Thepetitioner submitted their objectionsdated 07.8.2015 to the notice dated

11.7.2015. Again, the first respondent sentanother notice to the petitioner dated30.9.2016. Once again, the petitioner senttheir reply dated 15.12.2016, which showsthat it is a very detailed objection. Thefirst respondent did not consider theobjections in a proper perspective norassigned any reasons as to why they arenot acceptable. With regard to the firstissue, the first respondent stated that inrespect of the proposal for rejecting theclaim of exemption on payments to sub-contractors, the dealers are not able tofurnish details in complete shape and thatthe proposal has been properly made.With these the court observed that timeand again, this Court is pointing out thatan order devoid of reasons is liable to beset aside referring to the decisions ofthe Hon’ble Supreme Court in thecases of (i) Siemens Engineering andManufacturing Co. of India Ltd. Vs.Union of India [reported in AIR 1976 SC1785]; (ii) Ravi Yashwant Bhoir VsCollector [reported in 2012 (4) SCC 407];and (iii) Orient Paper Mills Limited Vs.Union of India [reported in 1978 (2) ELTJ. 345; and the decision of this Court inthe case of Floor Fixers Vs. CTO[W.P.Nos.20364 to 20366 of 2016 dated02.8.2016].Tvl.Shandong Teijun ElectricPower Engineering Company Limited VsThe Commercial Tax Officer,Chidambaram-1.(Mad) [2017]Writ Petition Nos.31276 & 31277 of 2017Dated : 04.12.2017


Turnover CST or Local ?: The assessingofficer had no materials sufficient enoughto hold that the dealer had under theguise of effecting sales of dhalls to theregistered dealer in Chennai had in realityeffected interstate sales and evaded taxunder the Central Sales Tax Act, 1956. Onthe other hand, the assessee had bydocumentary evidence established thatthese disputed transactions were pureand simple sales to a registered dealer inChennai. Hence, the Court held that theturnover could not be assessed to taxunder the Central Sales Act, 1956 as hasbeen rightly held by the learned FirstAppellate Authority, The State of TamilNadu Vs Tvl. Gothai Dal TradersMannargudi.(Mad) [2017] Tax Case (R)Nos.56 and 58 of 2017 DATED: 22/11/2017

Duplicate of Forms: The respondent filedduplicate Form F for Rs.1,39,299/- sincethe original copy of the Form F was lostby the respondent. Our Hon’ble HighCourt of M.P in the case of 83 STC 116held that the filing of ‘Duplicate’ part andForm C instead of the original wassufficient compliance with the provisionsof Section 8 (4) of Central Sales Act, 1956Act and Rules 12 (1) of Central Sales TaxAct, 1956 (Registration and Turnover)Rules to get benefit of concessional rateof tax under Section 8 (1) of Central SalesTax Act, 1956. Though the citation isrelated to C Form, Form F also comes

under Central Sales Tax Act, 1956 andRules. Further, the Rule 10 (2) CST (TamilNadu) Rules 1957 also permitted to fileduplicate Form if the original is lost. Sothere is no wrong in filing duplicate FormF for availing concessional rate of tax bythe respondent. Hence, the filing ofduplicate Form F is sufficient compliancecomplying the Rules. Joint Commissioner(CT) Chennai (North) Division Vs. Tvl.India Rosin Industries(Mad) [2017] TaxCase (Revision) No.66 of 2017 DATED:13.12.2017

Natural Justice: It is seen that whilemaking the deemed assessment undersection 22(2) of the Act, the respondenthas made an addition. In fact, thepetitioner has to be partly blamedbecause of wrong mention of thecommittee code. Even if it is so, beforemaking any addition, the respondentshould have put the petitioner on notice.Therefore, there has been violation ofprinciples of natural justice to that extent.For the above the Court inclined toentertain the writ petition and issueappropriate direction. However, theCourt was not inclined to set aside theimpugned proceedings, but directed thepetitioner to treat the impugnedproceedings as a show cause notice andsubmit their objections within a periodof15 days from the date of receipt of acopy of this order. On receipt of theobjections, the respondent shall afford an


opportunity of personal hearing and re-do the assessment on merits and inaccordance with law. M/s.ModineThermal Systems (P) Ltd., Vs. TheAssistant Commissioner (CT),Sriperumbudur Assessment Circle(Mad)[2017] W.P.No.31517 of 2017 DATED:08.12.2017

Stock transfer: In respect of claim ofexemption for stock transfer was an issueit was argued that merely because thegoods were disposed of on the same day,in the same vehicle, at the recipient end,would not by itself be a reason todisbelieve the transaction as a stocktransfer. In this regard, reference wasmade to the decision of the Hon’bleDivision Bench of this Court in the caseof THE STATE OF TAMIL NADU.REP.BY THE DEPUTY COMMISSIONER(CT) v. KALPANA LAMPCOMPONENTS (PVT) LTD., [Tax CaseNos.548 and 549 of 1985 dt. 24.01.2001],wherein the Hon’ble Division Bench heldthat the Tribunal has concluded that therewas no contract pursuant to which thegoods had moved to destinations outsidethe State and that in fact the goods weremoved as stock transfers from theassessee’s factory to the branch officeoutside the State. Stating so, the Court setaside the tax demands and remanded thematter back to the AO. M/s.ChandraTextiles Ltd., Vs Commercial Tax Officer,

Peelamedu (North) Circle, Coimbatoreand others. (Mad)[2017] W.P.No.2465 of2005 DATED: 17.01.2018

Input Tax Credit: Pre-revisional noticewas issued on 06.07.2015 and the onlyproposal in the notice was with regard tothe inter-state sales against “C” forms and“C” forms having not been availed, therespondent proposed to revise theturnover and tax the transactions. Thiswas followed by another pre-revisionalnotice dated 15.09.2015, where also, therewas only such proposal with regard to thenon-production of “C” Forms. Thepetitioner, on receipt of the notice,produced “C” Forms and the respondentwhile considering the explanation offeredby the petitioner and the “C” Forms,verified the same and found it to becorrect and allowed concessional rate oftax. However, sought to reverse theInput Tax Credit [ITC] u/s.19[2][v] and19[5][a] of the TNVAT Act, 2006. In theabsence of any proposal in the show causenotice, this could not have been done bythe respondent, even assuming that he hassome material to do so. The AssistantCommissioner (complaint),vs. BlessedStars,(Mad) [2018] (WA.Nos.208 & 209 of2018).Blessed Stars Clean Rooms P. Ltd(WA.No.210 of 2018) DATED: 25.01.2018

(The author is a Chennai based CharteredAccountant. He can be reached [email protected])

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CASE LAWS - SERVICE TAX

1 . E X E M P T I O N U N D E RNOTIFICATION NO.24/2009-STDT.27.7.2009 FOR RAILWAYSEXTENDS TO EACH AND EVERYASPECT OF RAILWAYINCLUDING ROLLING STOCKSTATIONS, OFFICES,WAREHOUSES, WHARVES,WORKSHOPS, FACTORIES – NOTDENIABLE WHEN ASSESSEEPROVIDES MAINTENANCESERVICE FOR INVERTORSFITTEDIN AC COACHES

In Autometer Alliance Ltd. V. CCE,Lucknow, 2018 (9) GSTL90 (Tri.-All.),the appellant was providing thesaid services to the railways as well asbreak down maintenance agreements/contracts with Indian Railways andaccordingly, undertook maintenancefor 25 KVA invertors fitted in ACCoaches and claiming exemptionunder Notification No.24/2009-STdated 27.07.2009 as amended byNotification No.54/2010-ST dated21.10.2010 pertaining to managementand repair of roads, bridges, tunnels,dams, airports, railways and transportterminals, which was denied by theadjudicating authority, against whichfurther appeal was filed with theTribunal which observed as under:-

1. The adjudicating authority denied theexemption by holding that the wordsmanagement, maintenance or repair ofroads are not entitled to exemption inrespect of bridges, tunnels and damsairports, railways and transportterminals is used.

2. The term “railway” includes each andevery respect of the railway includingall rolling stock stations, offices,warehouses, wharves, workshops,factories, etc.

3. Consequent to the above, the appellantshall be entitled to benefit of theNotification No.24/2009 dated 27/07/2009 as amended by NotificationNo.54/2010-ST dated 21/10/2010.

Hence, the appeal was allowed and theimpugned order set aside.

2. AUTHORISED SERVICE STATION– SALE OF EXTENDEDWARRANTY ON BEHALF OFMANUFACTURERS FOR WHICH

CA. VIJAY ANAND


CONSIDERATION IS RECEIVEDFROM MANUFACTURER – NOTCOVERED UNDER AUTHORISEDSERVICE STATION

In Sagar Automobiles V. CST,Bangalore-I, 2018 (9) GSTL 103 (Tri.-Bang.), the appellants are anAuthorized Service Station for M/s.Maruti Udyog Limited. During thecourse of their business they have alsosold extended warranty facility(coupons) to the vehicle buyers onbehalf of the manufacturer (MarutiUdyog). The extended warrantyfacilitates the owner of the vehicle toavail warranty on motor vehicle for aperiod beyond normal warranty. Suchextended warranty coupons areprovided to the owners on payment ofa fixed consideration, as decided byM/s.Maruti Udyog. The appellantsreceive a part of that money as theircommission from Maruti Udyog. Theadjudicating authority confirmed thedemand on the total value of extendedwarranty coupon, sold by the appellantto the car owners under the heading“Authorized Service Station”, whichwas sustained by the Commissioner(Appeals). On further appeal, theTribunal observed as under:-

1. The original authority held that theappellants collected extendedwarranty amount on behalf of M/s.Maruti and the said consideration isliable to be taxed as authorized servicestation category.

2. This finding is misdirected as theappellant is not providing service ofauthorized station to Maruti, as acustomer. Services by authorizedservice station is always to a customerwho brings in his vehicle for anyservice or repair in any manner. It isapparent that it is not Maruti who isbringing in any vehicle any service orrepair as a customer, so that theactivity can be brought underAuthorised Service Station.

3. Consequently, the services renderedby the appellant to Maruti as a clientin the present arrangement cannot becovered in the above mentioned taxentry.

Hence, the appeal was allowed withconsequential relief.

3. COMPOSITE SERVICE –TRANSPORTATION OFLIMESTONE OVER LONGDISTANCE BY TRUCKSINCLUDING LOADING – TO BEQUALIFIED UNDERTRANSACTION OF GOODS ANDNOT UNDER CARGOHANDLINGSERVICE


In ACE Construction Mines andMineral Coop. Society V. CCE, Jaipur-II 2018(9) GSTL 107 (Tri. - Del.), theappellant is a registered cooperativesociety who is registered for servicetax under “goods transport agencyservices”. The appellants have enteredinto an agreement with M/s.Rajasthan State Mines and MineralsLimited, Jodhpur for providingservices of loading limestone gittiesinto trucks, transportation fromSonu Landstone Mines-I & II toJaisalmer Railway Station, unloadingthe same at railway plots, stackingand then loading these gitties intorailway wagons. The adjudicatingauthority confirmed the demand under“cargo handling service” for theperiod 16-8-2002 to 17-9-2004, againstwhich further appeal was filed in theTribunal which observed as under:-

1. A perusal of the agreement and thetender makes it clear that the contractis essentially for transportation andincidentally for loading oftransported cargo into the railwaywagons, for which the preconditionwas that the tenderer should be a fleetoperator with minimum of 50 trucks.

2. The agreement provides for detailedbreak-up of rates for each of theactivities to be undertaken by theappellant wherein out of agreedpayment of Rs.73/- PMT for a

composite cycle of activities, Rs.68/-is towards transportation oflimestone over a distance of 112 kms,Re.0.50 is for stacking, Rs.4.50 is formechanized loading of stackedlimestone on to the railwaywagons. A plain reading of theserate schedules will show that theessence of the contract is fortransportation of limestone over along distance.

3. Board Circular dated 1-8-2002 whileclarifying the valuation aspect ofcargo handling services clarifiedthat the measure of tax is the grossamount charged by the cargohandling agency from the customer.If the bill indicates the amountcharged for cargo handling andtransportation separately on actualbasis, then tax would be leviableonly on the cargo handling charges.

4. Board Circulardated 29-2-2008clarified the application of Section 65Aand stated that classification of acomposite service should be madebased on the service which gives theessential character to the activity.There is a need to determine whethera given transaction is the onecontaining main and ancillary elementor the one containing multiple andseparate measurable elements. In thecase of transaction containing ameasure of ancillary elements,


classification is to be determined basedon the essential features or thedominant element of the transaction.

5. The Tribunal, in Hira Industries Ltd V.CCE, Raipur 2012 (28) S.T.R.23 (Tri.-Del). , on the issue of the classificationof service rendered by thetransport contractors isTransportation of Goods or CargoHandling Service, observed that itcannot be considered thattransportation is for the purpose ofloading and unloading but thecontrary is true and that loading andunloading is for transportation andthat any person dealing with thesituation perceives the services asone for transportation and not forloading and unloading.


4. CONSIDERATION RECEIVEDFROM EMPLOYEES FORDISTRIBUTION OF TV SIGNALSFROM MSO BY CABLE OPERATOR– CONST INCURRED BY THESERVICE PROVIDER TOWARDSTHE PROVISION OF SUCHSERVICES - NOT TO BEINCLUDED

In West Coast Paper Mills V. CCE &ST., Mangalore, 2018 (9) GSTL 195(Tri.-Bang), the appellants receivedtelevision signals from the Multi-System Operator (MSO) anddistributed the same to its employeesfor which they have collectedconsideration from the employees. Thedispute is one the valuation whereinthe adjudicating authority confirmedthe demand by including the costincurred by the service provider aspart of the taxable value by on accountof the fact that appellants incurredmuch higher expenditure in receivingthe signal from MSO whereas theyhave collected much lesser amount forthe same service rendered by them totheir employees. On appeal, theTribunal observed as under:-

1. Revenue relied on the provisions ofRule 5 of the valuation rules to holdthat the cost incurred by the serviceprovider should form part of thevalue.

2. There is no evidence for theproceedings before the lowerauthorities that other than thisconsideration, any amount in any formhas been received by the appellant forproviding such service.

3. The inference based finding that theappellants benefitted through suchwelfare measures by increasedproductivity cannot be considered forpurpose of Section 67.


4. The quantification of non-monetaryconsideration should be based onspecific and tangible evidence. In thepresent case, there is no non-monetaryconsideration or any extra payment bythe employees which can be added tothe taxable value.

5. The appellants received signal sanddistributed the same. Thereisnoallegation that such consideration hasbeen specifically under-stated. In theabsence of such evidence, there is noscope for varying the taxable value.


5. ISSUE OF SMART CARD FORVEHICLE REGISTRATIONDISPOSED BY THE GOVT. BYSTATUTORY FUNCTION OF THEROAD TRANSPORT AUTHORITY –NOT LIABLE FOR SERVICE TAX

In CCE, Indore V. Virgo Softech Ltd.,2018 (9) GSTL 274 (Tri.- Del.),therespondents are engaged inpreparing SOC-VRC (smart card)for vehicle registration by the RoadTransport Authorities, Governmentof Maharashtra and have entered intoan agreement with M/s.RosmertaTechnologies Ltd. The Governmentof Maharashtra entered into anagreement with M/s.Shonkhtoimplement the smart card project for

vehicle registration.M/s.Shonkhfurther assigned this work, in terms ofanother agreement, to M/s.Rosmerta.The respondents were paid Rs.60/-percard for their service in assisting theissue of smart cards to the applicants.The adjudicating authority droppedthe demand against the respondents totax under business auxiliary service,against which revenue appeals werefiled before the Tribunal, whichobserved as under:-

On departmental appeal, the Tribunalobserved as under:

1. The main objection is thatin anarrangement between two privateparties there is no question ofdischarging sovereign or statutoryfunction.

2. Although the respondents are notexecuting the full project forGovernment of Maharashtra, theirwork is directly linked to thepreparation of smart cards which areessential to fulfill the statutory workof Government of Maharashtra.

3. The analysis of factual and legalposition by the Original Authoritycannot be faulted. The respondentwere put to tax liability under sub-clause (vi) of Section 65(19) dealingwith Business Auxiliary Service whichtaxes provision of service on behalf of


the client. The allegation is thatM/s.Shonkh is a service provider toGOM who is a client; M/s.Shonkh areproviding services to the applicantsof smart card on behalf of Governmentof Maharashtra.

4. Following the similar reasoning theallegation is that the respondent isproviding service to M/s.Rosmertawho is a client of the respondentand the respondent are providingservices to M/s.Shonkh and GOM onbehalf of their client namely M/s.Rosmerta.

5. The whole assertion of revenue iscontrived without any appreciationof the facts involved in the case as theapplicant for such smart card cannot beconsidered as a client to be coveredunder tax entry of ‘business auxiliaryservices’.

6. The registration of vehicle is astatutory obligation and non-compliance will attract penalconsequences. GOM is implementingsuch statutory provision.

7. The fee for issuing such card is fixedin terms of motor vehicle regulationsand as noted by the Original Authorityon payment of such fee only theprocess of preparation of smart cardcan be initiated. The fact that theGovernment has outsourced some

part of the work and paid certainconsideration for such outsourcedwork does not take away the meritthat the whole process of issue ofsmart card for applicant is statutoryfunction which only the GovernmentRoad Transport Authority can do.

8. There is no scope for the applicationof clause (vi) of Section 65(19) in thepresent case.

9. In the case of CCE, Bhopal v. SmartChip Limited- 2015 (39) S.T.R. 197(M.P.), the High Court held that theactivities of the appellant withreference to service centers indifferent offices of the transportdepartment cannot be taxed underBusiness Auxiliary Service.

Hence, the departmental appeal wasrejected.

6. REFUND UNDER RULE 5 OFCENVAT CREDIT RULES –SANCTIONED BY THE ASSISTANTCOMMISSIONER –DEPARTMENTAL CHALLENGE ASTO THE JURISDICTION OF THEPROPER OFFICER ALLOWED BYWAY OF REMAND BY THECOMMISSIONER – APPEALS –NOT SUSTAINABLE

In VIT Consultancy Pvt. Ltd. V. CST,Chennai-I, 2018(9) GSTL286 (Tri.-Chennai), the appellant was granted


refund of accumulated credit used inthe export of services under rule 5 ofthe Cenvat Credit Rules, 2004, whichset aside by the Commissioner(Appeals) during appeal on account ofthe fact that the AssistantCommissioner who sanctioned refunddid not have jurisdiction over theappellants. On further appeal beforethe Tribunal, it was observed asunder:-

On further appeal, the tribunal observedas under:

1. There is no dispute about the facts andnor about legal issue and theappellant’s entitlement to the refundof the accumulated Cenvat credit.The only ground on which theCommissioner (Appeals) has set asidethe order of the lower authoritysanctioning refund is that the officerwas not having jurisdiction in asmuch has the refund should have beenfiled with Commissionerate-III.

2. In the absence of any dispute aboutlegality of the refund claim or aboutappellant’s entitlement to the same,the setting aside by the Commissioner(Appeals) was not justified as in casethe officer who sanctioned the refundclaim was not having jurisdictionover the appellant, it was for him toreturn the papers back to theassessee for proper filing or to

transfer the same to the correctCommissionerate.

3. Yet, the Commissioner (Appeals) setaside the order instead of remandingthe matter to be re-adjudicated by theproper officer.

Hence, the appeal was allowed.

7. SMS AGGREGATOR SERVICESPROVIDED ON INSTRUCTIONSFROM OVRESEAS ENTITIES FORWHICH CONVERTIBLE FOREIGNEXCHANGE – CLAIM OF EXPORTAND REFUND UNDER RULE 5 OFTHE CENVAT CREDIT RULES –NOT DENIABLE

In CST.Mumbai-VI V. GupshupTechnology India Pvt. Ltd. 2018(9)GSTL 305(Tri.-Mumbai), therespondent is engaged in providingservices under the category of BusinessSupport Service (BSS). They providethe SMS Aggregator services to M/sFacebook under an agreement forwhich the bills were raised to M/sFacebook, Ireland and the amount wasreceived in convertible foreigncurrency. They filed four refundapplications towards refund ofunutilized cenvat credit of inputservices used for export of services interms of Rule 5 of Cenvat CreditRules,2004 which was rejected by theadjudicating authority but allowed by


the Commissioner (Appeals). Ondepartmental appeal, the tribunalobserved as under:

1. The respondent is providing BusinessSupport Services and are registeredfor the same under Service Tax lawsand, in terms of Services with M/sFacebook Ireland, they have toprovide the service to M/s Facebookwhich is in the nature of aggregator ofSMS to the Indian subscribers of M/sFacebook Ireland. The Respondent isliable to provide the SMS Aggregatorservice to M/s Facebook i.eApplication programming Interface(API) connected with Facebook Server.The Respondent is working ondirections and Instructions ofFacebook.

2. Facebook initiates the transmission ofSMS from their server located outsideIndia through Respondents APIconnectivity and respondent providesthe services to M/s Facebook bysending or receiving SMS tosubscribers of Facebook located inIndia. The Respondent is thus workingas aggregator/ facilitator of all SMSseither originating from Facebook orsubscribers of Facebook to transmitbetween them as per direction anddiscretion of Facebook.

3. Respondent neither interacts with thesubscribers of the Facebook nor has

any connection/ relation/ concern withthe said subscribers. They are barredfrom any relation with the subscribersof Facebook.

4. Respondent is getting paid byFacebook based upon the number ofSMS messages successfully transmittedthrough Respondents network. It alsoprovides the fees based upon the“Billable Message Length”, “UnicodeMessage, Undelivered Message whichwould not be chargeable, Long Codesfees etc. It provides the fee structurebased upon nature of message. In sumand substance the Respondent isrendering services to M/s Facebookand getting fees for services providedin each month.

5. Revenue has viewed the services asbeing provided in India on the groundthat since the actual service recipienti.e the subscribers whose SMSs arebeing sent or received are located inIndia and the Respondent is alsolocated in India, hence it is not anExport of Service and not liable forrefund of cenvat on Input Services.

6. Revenue’s arguments cannot besustained due to the following:-

a. Services are not provided to anyIndian Subscriber by the Respondent.The Respondent has no connection/interaction or relation with the Indian


subscribers of Facebook. The servicesare provided under the terms andconditions of the agreement madebetween M/s.Facebook Ireland andthe Respondent. The Respondent is notcharging any service charges or partthereof from the Indian subscribers.

b. CBEC in its education guide Para 5.3.3has clarified that the person who isobliged to make payment to theService provider is Service Recipient.In the present case it is not only thepayment for services but even goingfurther it is service agreement betweenthe Respondent and M/s.FacebookIreland which specifically provides forterms and conditions of services to berendered under the instructions of M/s.Facebook.

c. There is no contractual agreementbetween the subscribers of Facebookand Respondent. The fee is charged toFacebook. The Respondent has nocontrol over the SMSs to be sent orreceived. The subscriber of Facebookare not even aware the existence ofRespondent and the type of servicesrendered by the Respondent. It isexpressly stated in the agreement thatthe respondent will not charge any feeto, make any offer to otherwisecommunicate with any subscriber inconnection with the service or thisagreement.

d. It is absolutely clear from the natureof services and agreement thereforthat the respondent cannot be treatedas service provider to subscribers ofFacebook. Trade Notice No. 20/13-14-S.T.-1 dt.10.02.2014 issued byCommissioner, Service Tax, Mumbaiwith reference to services provided byForeign Bank clearly states that incase of services provided by theForeign bank cannot be labeled ashaving been provided to importer orexporter as for a person to be treatedas recipient of service, it is necessarythat he should know who the serviceprovider is and there should be anagreement to provide service, whichmay be oral or written.

e. The importer and exporter does noteven know who the service provideris, as they are not aware of the identityof the foreign banks which would beproviding services. Exporter orimporter in India does not have anyformal or informal agreement with theforeign bank. Importer or exporter inIndia does not even know the quantumof charges which the foreign bankwould be recovering. Therefore, it isclear that services provided by theforeign bank to the bank in India.

f. The above analogy is also applicable tothe present transactions as thesubscribers are not even aware of the


existence of the Respondent and theirrole in services provided by Facebook.The Respondent and the subscribersare not into contractual agreement.There is no consideration flowing tothe Respondent from such subscribers.The Respondent is working under thedirections/instructions and discretionof Facebook.

g. The subscribers are dependent uponFacebook for receipt/delivery of theirSMSs.

8. Consequent to the above, it would bean export of service, relying on thedecision in M/s Paul Merchants Ltd. V.CCE, Chandigarh 2013 (29) S.T.R. 257(Tribunal).

9. Furthermore, proviso to Rule 3 of thePlace of Provision of Service Rules,2012 states that in case location of theservice provider is not available in theordinary course of business, the placeof the provision shall be the locationof the provider of Service. As per Rule2(i) of the said Rules the “Location ofService Provider” is the location of hisbusiness establishment.

10. In the instant case there is no disputeabout the facts that the servicerecipient is Facebook which is locatedoutside India and thus its location is

available. Hence the Indian subscribersof Facebook cannot be termed as“Service Recipient”.

11. Further more, even if the revenueconsidered the services of Respondentas having not been rendered tooutside taxable territory, it shouldhave issued demand notice to theRespondent for service tax on billsraised by them to M/s Facebook.Having chosen not to do so, therevenue accepts that the services hasbeen rendered to party situatedoutside India being falling under thecategory of “Export of Service” andis not taxable.

12. Arising out of the above, the rejectionof claim under consideration is notcorrect. There is no dispute about thefact that the consideration of servicewas received from M/s Facebook inconvertible Foreign Exchangeconsequent to which the refund claimunder Rule 5 of Cenvat Credit Rules,2004 is admissible to the respondent.

Hence, the tribunal do not find anymerit in the departmental appeal anddismissed the same.

(The author is a Chennai based CharteredAccountant. He can be reached at reached [email protected])



PROSECUTION UNDER THE INCOME TAX ACT : A CLOSER LOOK

1. INTRODUCTION:

In the previous article published in thisbulletin, a general view of Prosecution asunder the Income Tax act was given. Thisarticle and a few subsequent ones seek toprovide further analysis on each aspect ofprosecution.

The levy of Prosecution has been, tillrecently, invoked sparingly with moreemphasis on wilful attempts to evadetaxation and on cases with large amountsinvolved. However, with the Governmenthas since changed the way prosecution isbeing handled.

The Government have introduced manyschemes such as the Income DisclosureSchemes and others to try andreintroduce the unpaid tax money backinto the system and which have been verygenerous in granting amnesty to theoffenders from prosecution proceedings.

However now that those schemes haveexpired, the Government is crackingdown on offenders with renewed vigor.Thus the levy of prosecution is being usedmuch more “liberally” than before.

This is made all the more worrying whenone considers the complicated proceduresto be followed for prosecutionproceedings. Given that Offences underthe Income tax act are Civil in nature andthe Prosecution is Criminal in nature, thusit caused confusion to the extent of

applicability of the Provisions of the Codeof Criminal Procedure and other Acts ina Prosecution case initiated by the IncomeTax Department or the steps to be takento try and avoid Prosecution once thesame has been initiated.

2. EVIDENCE ACT:

The Provisions of the Evidence Act forma crucial and core part of the prosecutionproceedings. Importance is placed onChapter V of the Indian Evidence act andalso on sections 61 to 65B as well as thesections 73, 74, 78, 80, 81A, 84, 86 and 90.

Special note must be given to thetreatment of Documents. Documents asevidence are admissible as either primaryor secondary evidence. Primary evidencecomposes of oral accounts of the originalevidence, the testimony of witnessesrecorded by the courts, originaldocuments or items produced in thecourt. Secondary evidences consist ofreports of the original documents, copiesetc.

CA B. RAMANA KUMAR & Mr. S. HARISH KUMAR


Generally speaking, only primaryevidences are accepted with secondaryevidences being considered in only uponthe fulfilments of the conditions stated inSection 65(a) to 65(g) as follows.

a. In cases where the Original is shownto be available but the person havingpossession is unavailable or out ofreach but is bound to produce it or ifthe person after receiving notice u/s 66still does not produce it.

b. In cases where the existence, conditionor content of the original have beenproven to have been admitted inwriting by the person against whom itis proved.

c. In cases where the originals have beenlost/destroyed and the party offeringits content cannot produce it on timedue to no fault of their own.

d. In cases where the original is of thenature that it cannot be easilymovable.

e. In cases where the original is a publicdocument within the meaning ofsection 74.

f. In cases where certified copies of theOriginal is allowed to be submitted bythe Evidence Act or any law in force.

g. In cases where the original consists ofnumerous accounts or similardocuments that cannot be convenientlyexamined by the court. However, thisfact the copy must prove is the generalresult of the entire collection.

With reference to the above, any secondaryevidence with regards to the content ofdocuments may be admissible in the caseof (a), (c) and (d). Written evidence isadmissible in the case of (b). However onlycertified evidences shall be allowed in thecase of (e) and (f). With regards to (g) aperson who has examined the documentsand is competent to do the same shall issuea general result of his findings which shallbe admissible.

3. BURDEN OF PROOF(SECTION101,103,110 AND 114)

As per normal procedure, the burden ofproof in a Prosecution case shall fall uponthe Authority who makes the allegation/accuses the Assessee of a crime.Notwithstanding the same, the burden ofproof shall always lay on the authoritymaking the accusation unless the lawspecifically provides otherwise.

This exception becomes applicable withregards to culpable mental state becauseas per the provisions of Section 278E of theIncome Tax Act, with regards to culpablemental state. It shall be assumed that sucha mental state is present and it shall be upto the accused to disprove the same.

Normally the concept of mensrea isapplicable to criminal jurisprudence as nooffence can be committed unintentionally.Thus the principle of a Guilty mind isessential for criminal proceedings with thecourts placing the burden of proof uponthe prosecution side for the reason beingthat the tenant ‘innocent until proven


guilty’ is as central pillar followed by theIndian Courts.

However as per section 278E of the IncomeTax Act, when the department launchesprosecution proceedings against anassessee, while the department is stillbound by the burden of proof, it ishowever not required to also establish thepresence of culpable mental state, as theburden falls upon the assessee to disprovethe same.

4. PRESUMPTIONS OF THE COURT

It is to be noted that the court is allowedto make presumptions of the existence ofany facts which the court feels would havelogically and realistically occurred or havelikely to have happened. However, itshould be said that the court has to considerthe natural course of events, human conductand the nature and circumstances beforemaking such presumptions in relation tothe facts of a particular case.

The Courts have the authority to presumethat every document submitted as acertified copy before it to be genuine solong as it is in accordance with the law andis admissible as evidence, signed by acertifying authority. The court shall alsopresume that the authority who signs thesaid document shall also be the officialcharacter which they claim to be.

The Court may make a similar presumptionof genuineness with regards to thefollowing:

a. Documents produced as record ofEvidences.

b. Gazettes, newspapers etc.

c. Gazettes in electronic form.

d. Documents admissible in Englandwithout proof of seal or signature.

e. Maps and plans made by planningauthorities.

f. Collection of Laws and reports ofdecisions.

g. Powers-of-attorneys/VAKALATS etc.

h. Digital signature certificates

i. Certified copies of foreign judicialrecords.

j. Others.

5. CONCLUSIONThe Procedures of Prosecution are timeconsuming, complex and has the potentialto cause great hardship to the Assessee aseven if he is found not guilty, the manyfactors such as the costs involved, themental pressure and other issues shall takea great toll on the health and financial wellbeing of the Assessee.

Thus it is with a ray of hope that theAssessee, in addition to the normalchannels, has been given a chance atmultiple stages to try and discharge hisresponsibility and be acquitted from thesaid proceedings. More on this shall bemade available on the next article to bepublished on this publication.

(The author Ramana Kumar is a Chennai basedChartered Account cum Advocate and Mr. SHarish Kumar is an Advocate. They can bereached at reached at [email protected]&[email protected])

mailto:@ovopaxlegal.com&[email protected])


ENCUMBRANCES THAT REDUCE CAPITAL GAINS - CA. Louis Dominic

Legal background:

Where the court finds that LegislativeStatutes are either silent or ambiguous,Judges have the authority and duty toresolve the issues on the style ofreasoning inherited from English legalsystem or Judge made laws, also knownas Common Law Principles. This is anextension of ‘stare decisis’, which meansthat when court has once laid down aprinciple of law as applicable to a certainstate of facts, it will adhere to thatprinciple, and apply it to all future cases,where facts are substantially the same.These Common Law Principles arefollowed by Judiciary in most countries.The Income tax Act, 1961, left open to thecourts to apply one such Common Lawprinciple, ‘diversion of income byoverriding title’ in appropriate cases.Courts have entertained, considered anddecided the question either waydepending on the facts and circumstancesof each case. Refreshing our knowledgeon the subject is the need of the hour!

Title to a property:

In the legal sense of the term, title is a‘right’ or ‘a bundle of rights’ over aproperty, either movable or immovable,

or whether tangible or intangible. Theword ‘right’ includes subordinate rightsto possession, enjoyment etc. Theaggregate of these subordinate rightscoupled with right to convey a propertymake up absolute ownership. The titleremains absolute as long as the right toconvey together with the subordinaterights vests with the owner of theproperty. Even if a charge is createdeither by the act of the parties oroperation of law involving transfer of oneor more of the subordinate rights,without transferring interest in theproperty, the title remains with theowner. Thus, where stock in trade ishypothecated to secure a loan from bank,the right to sell the stock remains albeitthe subordinate rights are subject torestrictions. Similarly, a general chargecreated by a statute does not take awaythe right of possession, enjoyment andright to sell. The SC held that the chargecreated u/s 74 of the Estate Duty Act(since repealed), did not take away anyof the rights of the legal heir inheritingthe estate of the deceased. On thecontrary, the legal heir became absoluteowner of the properties of the deceasedand the charge had not altered theownership right. The question is when anoverriding title is created.


Overriding title:

Charge v. Mortgage: Transfer of PropertyAct defines a charge, in respect ofimmovable property, thus: “Whereimmovable property of one person is, byact of parties or operation of law, madesecurity for the payment of money toanother, and the transaction does notamount to a mortgage, the latter personis said to have a charge on the property.”S. 58 of the said Act defines a mortgage:“A mortgage is the transfer of an interestin specific immovable property for thepurpose of security the payment of moneyadvanced or to be advanced by way ofloan, existing or future debt orperformance of an agreement which maygive rise to a pecuniary liability.” S.73 (c)of the Act states that the claim of themortgagee shall prevail against all otherclaims except those of prior circumstances,and may be enforced notwithstanding thatthe principal amount has not become due.

Analyzing the above provisions, theSupreme Court observed: “A chargediffers from a mortgage in the sense thatin a mortgage there is transfer of interestin the property mortgaged, while in acharge no interest is created in theproperty charged, so as to reduce the fullownership to limited ownership. While acharge can be created by act of parties oroperation of law, a mortgage can be

created by act of parties. A charge is thusa wider term as it includes a mortgage, inthat every mortgage is a charge, but everycharge is not a mortgage.”

The Act recognizes five kinds ofmortgages viz. simple mortgage,mortgage by conditional sale, usufructuarymortgage,English mortgage, andmortgage by deposit of title deeds, andanomalous mortgage. In all types ofmortgages, the mortgagor binds himselfpersonally to pay the mortgage-money,and agrees that in the event of his failingto repay according to the contract, themortgagee shall have a right to cause themortgaged property to be sold.

Thus, in a charge there is no transfer ofinterest in the property and it cannotcreate an overriding title. In a mortgagethere is transfer of interest and themortgagee, depending on the terms ofcontract, gets an overriding title to selland recover the debt due. Mortgagor’sinterest in the property is limited to theextent of interest mortgaged under acontract to the mortgagee. The position ofa guarantor, who mortgages his propertyas security to the mortgagee is that ofprincipal debtor and the guarantor createan overriding title in the mortgagedproperty to and in favour of themortgagee.


Mortgage of movable: Neither theTransfer of Property Act nor the ContractAct deals with mortgage of movable.Delivery of possession is not necessary tocreate mortgage on movable.Hypothecation of movable creates anequitable charge on the propertymortgaged. Shares are movable propertyand it can be pledged by deposit of sharecertificate, which is only a pledge. Whereshares are mortgaged, a blank transferdocument is executed in addition todeposit of share certificates. A mortgageas above will create an overriding title tothe mortgagee and a pledge may not.

A mortgagee of movable property isentitled to a decree for sale of mortgagedproperty as in the case of immovableproperty. However, a mortgagee, if inpossession of mortgaged property, has aright to sell the property withoutintervention of court, if after proper noticethe mortgagor fails to repay the mortgage-money. If the mortgagor sells themortgaged property to an innocent buyerwithout notice to the mortgagee,Common Law Equity protects the buyer.

The following rules emerge from theabove discussion:

(a) It is the pith and substance of atransaction and not thenomenclature used in the title of thedocument that decides the truenature of the document – whether itis a charge or mortgage or pledge orhypothecation. Banks title thedocument as hypothecation;nevertheless, borrower deposit thetitle deeds and the hypothecation isregistered and the banker is givenpower to sell the propertymortgaged if there is failure to payinterest or repay the debt in termsof the contract. All the essence ofmortgage is there but titled ashypothecation.

(b) Where under a contract, themortgagee has right to sell themortgaged property, with orwithout subordinate rights, in caseof default, law creates an overridingtitle on the mortgaged property tothe mortgagee.

(c) When an overriding title is created,there is transfer of interest in theproperty to the extent of mortgage-debt and the interest of the originalowner is limited to the remainderonly, until the mortgage debt isrepaid in full.


Diversion of income:

It can safely be said not all overridingtitle effect diversion of income, thoughthere is transfer of an interest in thesubject property by the mortgagor infavour of mortgagee to secure a debt. Noone can make a profit out of himself. Onthe same analogy, in a self-createdmortgage, a mortgagor cannot acquirenew interest in the mortgaged property byclearing off of mortgage-debt created byhim as the interest in the property wasalready acquired by him. For example,one may raise a mortgage loan tocomplete construction of his property,which is mortgaged and subsequentrepayment of the debt is only applicationof income. Even if he sells the property toclear off of the mortgage-debt, still it isonly application of income and it canhardly result in diversion of income[Madras HC 127 ITR 715 FB affirmed bySC 227 ITR 240].

On the other hand, where a mortgage wascreated by the previous owner during hislifetime and the same was subsisting onthe date of his death, the successorobtained only the mortgagors’ interest inthe property and by discharging themortgage debt he acquired themortgagee’s interest in the property and,therefore, the amount paid to clear off themortgage was the cost of acquisition to get

absolute ownership right in the property,which was deductible as cost of acquisitionunder section 48 of the Income tax Act[Gujarat HC 197 ITR 123 approved by SC227 ITR 222].

In the case of RM. Arunachalam [227 ITR222 SC] it was argued that the chargecreated u/s 74 (1) of the Estate Duty Actdiverted the estate to the exchequer to theextent of tax liability on the estate and thecourt rejected the claim. But, the questionwhether estate duty paid would be costof acquiring full ownership in theproperties of the estate or perfecting thetitle, which could have been deductible u/s 48, was not raised and accordingly notanswered by the court. However, SCquoted the following from LordChancellor Loreburn in Winans v.Attorney General (2) [1910] AC 27 (HL):“Legacy and succession duties fall uponthe benefits received by the survivors ontheir accession upon death. Estate dutyfalls upon the property passing upon adeath, apart from its destination.” Thisreasoning answers all questions.

Diversion at source:

An assessee stood guarantee forrepayment of a loan taken by an industrialconcern from a financial corporation andhad also mortgaged certain propertybelonging to her in favour of the


corporation. The mortgage deed clearlyshowed that the financial corporation hadan absolute right to sell the mortgagedproperty in the event of failure to repaythe loan amount. The guarantor was in thesame position as debtor. Thus, thefinancial corporation had an overridingtitle over the property of the guarantor.Upon failure to repay by the debtor, thecorporation acted in exercise of the rightsarising out of a contract with theguarantor besides rights of the mortgageeu/s 73 of the Transfer of Property Act, andsold and appropriated the entire saleproceeds towards the debt due. She hadnil value of equity of redemption as theindustrial concern was not in a position toreimburse her. In these peculiarcircumstances of the case, the Kerala HCin CIT v. Thressiamma Abraham (No: 1)[227 ITR 802] held: “The corporation hadacted in exercise of the overriding title inits favour. The undisputed factual matrixin the context showed that the assesseereceived not a pie as a result of transferunder consideration. There could not havebeen any income to the assessee much lesscapital gains.” In other words the incomegot diverted at source by an overridingtitle and as the assessee did not receive apie and had no equity of redemption, thesale consideration was taken to be nil.

In another instance, during lifetime of adeceased, he purchased a property and

the investment was considered asunexplained in his assessment, resulting inhuge tax demand. The Tax RecoveryOfficer attached the property and broughtit in auction sale. At this point the legalheir sold the property and the purchaserpaid the arrears of tax directly to thecredit of the Government, which wasclearly recited in the document. Incomputing the capital gain in the hands ofthe legal heir, the tax debt was allowedas a deduction. In this case, there wastransfer of interest to the exchequer byvirtue of the attachment of the propertyunder tax recovery proceedings and thelegal heir could not have transferred fullownership without discharging the taxdebt and acquiring the remainder interestin the property.

Insolvency and Bankruptcy Code (IBC):

In a recent case, invoking its right underSARFAESI Act, 2002, a mortgagee-bankissued possession notice, took symbolicpossession of secured assets and issuedauction notice for sale of assets of theguarantor, who was the promoter of thecompany. On appeal NCLAT held: “Fromthe IBC provisions, it is clear thatresolution plan, if approved by thecommittee of creditors and if the samemeets the requirements as referred to insub-section (2) of section 30 and onceapproved by the adjudicating authority, is


not only binding on the corporate debtor;but also its employees, members,creditors, guarantors and otherstakeholders involved in the resolutionplan, including personal guarantors.” Ineffect the NCLAT held that themoratorium on sale of secured assetswould apply to guarantor’s assets also.Earlier IBC (Amendment) ordinance waspromulgated on November 23, 2017,following which willful defaulters werebarred from submitting resolution plan.The Amendment made further provisionsto specify certain additional requirementsfor submission and consideration ofresolution plan before its approval bycommittee of creditors.

Final word is to come from SC. Till then,IBC suspends, under appropriatecircumstances, the right of mortgagee tosell mortgaged property under CommonLaw Equity, Transfer of property Act andSARFAESI Act. The news is thatGovernment may seek to ease relatedparty norms of IBC to ensure law is notoverly restrictive reducing the amount thatbanks can recoup. Further news is that theIBBI (Insolvency and Bankruptcy Board ofIndia) and RBI have signed a MOU foreffective implementation of the IBC andthe Rules through a quick and efficientresolution process, subject to limitationsimposed by applicable laws.

Conclusion:

In a case of inheritance of mortgage-debt,the facts of the casemust point to (a)transfer of an interest in the subjectproperty, (b) mortgagee’s prevailinginterest in the property over themortgagor, (c) mortgagee’s right to sellthe property either under a contract orunder section 73 (c) of the Transfer ofProperty Act or any other law for the timebeing in force and (d) mortgagee’s rightto appropriate the property or proceedsthereof in preference to the mortgagorand other unsecured creditors, to provediversion of income by overriding title. Ina case of guarantee, besides the above, theextent of equity of redemption availableto the mortgagor is to be proved, as thededuction excludes reimbursement, if any.In the case of Sovereign debt inherited, aspecific charge, having the essence of amortgage on the property under therelevant provisions of law, and paymentof the Sovereign debt is to acquireremainder interest to get absoluteownership of the property, needs to beestablished. The whole question revolvesaround the attendant circumstances ofeach case that makes it horizontal orvertical.

(The author is a Chennai based CharteredAccountant. He can be reached [email protected])



POWERS OF NCLT AND NCLAT

CS. S. DHANAPAL

National Company Law Tribunal (NCLT/Tribunal) is a quasi-judicial body which has been set up under the provisions of theCompanies Act, 2013 to exercise and discharge such powers andfunctions as are, or may be, conferred on it by or under theCompanies Act, 2013 or any other law for the time being in force.Accordingly, NCLT may be granted powers and functions not onlyunder Companies Act, 2013 but also under any other law in force.

National Company Law Appellate Tribunal (NCLAT/AppellateTribunal), as the name suggests, is an appellate tribunal for hearing appeals against theorders of the NCLT.

National Company Law Tribunal and the National Company Law Appellate Tribunal havebeen recognized as adjudicating authority / appellate authority not only under theCompanies Act, 2013 but also under various other legislations. Instead of setting updifferent tribunals, various legislations have been recognizing NCLT and NCLAT as theTribunals to exercise jurisdiction over matters contained in those legislations. Accordingly,the scope of the powers of the NCLT and NCLT are not restricted to the CompaniesAct, 2013 but spread to other legislations also.

A. POWERS OF NCLT UNDER COMPANIES ACT, 2013

Section Number

Description Effective Date of Notification

Earlier exercised by

Sec. 2(41) Proviso

To permit a company to follow different financial year 01.04.2014 New Matter

Sec. 7 (7)

To deregistera Company incorporated by false representation or fraudulent action

Except clause (c) and (d) – 01.06.2016Clause (c) and (d) – 15.12.2016

New Matter

Sec. 8(9) Winding up of Sec. 8 Companies 0 restriction on transfer of remaining assets

15.12.2016 New Matter

deregister a rporated b


Section Number Description Effective Date of

Notification Earlier

exercised by

Sec. 14 (1) To conversion a public company into a private company. 01.06.2016 Central

Government Sec. 48(2) To cancel variation of rights 15.12.2016 High Court

Sec. 55 (3)

To issue further redeemable preference shares to redeem existing shares or pay dividend thereon


Sec. 55(3)Proviso

Redemption of preference shares where consent for further issue not received


Sec. 56(4) Prohibition on delivery of security certificates 01.04.2014 New Matter

Sec. 58 (5) Appeal against refusal of registration of shares. 12.09.2013 High Court

Sec. 59(2) Appeal for rectification of register of member. 12.09.2013 Company

Law Board Sec. 59(3) Suspension of voting rights 12.09.2013 New Matter

Sec. 59(4) Direction to company/depository to rectify register and records 12.09.2013 New Matter

Sec.61(1)(b) proviso

Consolidation and division of shares which results in change in voting percentage of shareholders

01.06.2016 Company Law Board

Sec. 62 (4)

Appeal against order of Govt. fixing terms and conditions for conversion of debentures and shares.


Sec. 66 (1) Reduction of share capital 15.12.2016 High Court

Sec. 71 (9)

To impose restriction on Company from incurring further liabilities on application by Debenture-trustee.


Sec. 71 (10) Redemption of debenture in the event of failure on part of company.


Sec. 73 (4) Repayment of deposit or interest in the event of failure on part of company.





exercised by

Sec. 74 (2) To allow further time as considered reasonable to the company to repay deposits.


Sec. 97 (1) Direction for calling of Annual General meeting. 01.06.2016 New Matter

Sec. 98 (1) Direction for calling of general meeting of company other than annual general meeting


Sec. 119 (4)

Direction for immediate inspection of minute’s books or directing a copy thereof be sent forthwith to person requiring it.


Sec. 125(3) Utilization of IEPF for reimbursement of legal expenses 07.09.2016 New Matter

Sec. 130 (1)

Re-opening of books of account on application made by any person other than Central Government, Income Tax authorities, SEBI or any other statutory regulatory body or authority.


Sec. 131 (1) Revision of financial statement or Board’s report on application of company


Sec. 140 (4) Not sending the copy of representation of auditor to the members.

01.04.2014 Second proviso to sub-section 4 – 01.06.2016

Company Law Board

Sec. 140 (5) Change of auditor for fraud. 01.06.2016 New Matter

Sec. 169 (4) Not sending copies of representation of director 01.06.2016 Company

Law Board

Sec. 210(2)

Investigation into company affairs on report of ROC, resolution of members or in public interest





exercised by

Sec. 213 Investigation into company affairs in other cases 01.06.2016 Company

Law Board

Sec. 216 (2) Investigation into membership of company 01.06.2016 Company

Law Board

Sec. 218 (1) To approve action proposed against employee during investigation

01.06.2016 High Court

Sec. 218 (3) Appeal in relation to action proposed against employee during investigation


Sec. 222 (1) Imposition of restrictions on securities. 01.06.2016 Company

Law Board

Sec. 224 (2) Winding up in pursuance of inspector’s report 15.12.2016 New Matter

Sec. 224(5) Disgorgement of assets, property etc. and personal liability for fraud


Sec. 230 (1) Meetings of Creditor / Members in connection with compromise or arrangement


Sec. 230(9) Dispense with meeting in connection with compromise or arrangement


Sec. 231(1) To enforce compromise or arrangement 15.12.2016 High Court

Sec. 232(1) Meetings of Creditor / Members in connection with merger or amalgamation


Sec. 233(6) Fast Track Merger 15.12.2016 New Matter

Sec. 234 Cross Border mergers and amalgamations 13.04.2017 New Matter

Sec. 235 (2) Application by dissenting shareholders 15.12.2016 New Matter

Sec. 237(4)

Appeal against assessment of compensation in relation to amalgamation of companies by Central Government in public interest.





exercised by

Sec. 238 (2) Appeal against order of Registrar refusing to register any circular 15.12.2016 New Matter

Sec. 241 (1), (2) Oppression and mismanagement. 01.06.2016 Company

Law Board

Sec. 242 (4) Regulating the conduct of company. 01.06.2016 Company

Law Board

Sec. 243 (1) (b)

Appointment as Managing Director 01.06.2016 Company

Law Board

Sec. 244 (1) Waiver of requirement specified in clause (a) or (b) of Sec. 244 (1) 01.06.2016 New Matter

Sec. 245 Class action suits 01.06.2016 New Matter

Sec. 252 Appeal or application under sub-section (1) and sub-section (3) of section 252.


Sec. 270(1) and 271 Winding up of a Company 15.12.2016 High Court

Sec. 373 To permit initiation of suits during winding up 15.12.2016 High Court

Sec. 375(3) Winding up of an unregistered company 15.12.2016 High Court

Sec. 441 Compounding of certain offences. 01.06.2016 Company Law Board

Sec. 459 To accord approval subject to conditions 12.09.2013 Company

Law Board

Sec. 238 (2) Appeal against order of Registrar refusing to register any circular 15.12.2016 New Matter

Sec. 241 (1), (2) Oppression and mismanagement. 01.06.2016 Company

Law Board

Sec. 242 (4) Regulating the conduct of company. 01.06.2016 Company

Law Board


B. POWERS OF NCLT UNDER LIMITED LIABILITY PARTNERSHIP ACT, 2008

Section Number Matter entrusted Power of NCLT to pass order

Sec. 31

Whistle Blowing The Tribunal may reduce or waive any penalty leviable against any partner or employee of a limited liability partnership, if it is satisfied that such partner or employee of a limited liability partnership has provided useful information during investigation of such limited liability partnership; or where such information leads to such limited liability partnership being convicted under this Act or any other Act.

Sec. 41

Enforcement of duty to make returns etc.

If any limited liability partnership is in default in complying with any provisions of the LLP Act relating to filing of any form with the ROC or resubmitting any form already filed, the Tribunal may, on application by the Registrar, make an order directing that limited liability partnership or its designated partners or its partners to make good the default within such time as specified in the order.

Sec. 43 Investigation of the affairs of limited liability partnership

The NCLT may by order declare that the affairs of the limited liability partnership ought to be investigated

Sec. 51 and 64

Winding up of limited liability partnership

The Central Government may make an application to the Tribunal for winding up of a limited liability partnership on the ground that it is just and equitable that it should be wound up

Sec. 60, 61, 62

Compromise or arrangement of limited liability partnership

NCLT may order Compromise or arrangement of limited liability partnership and other matters incidental thereto


Section Number Power of NCLT to pass order

Section 45QA

Where a non-banking financial company has failed to repay and deposit or part thereof in accordance with the terms and conditions of such deposit, the NCLT, may, if it is satisfied, either on its own motion or on an application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the non-banking financial company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order.

C. POWERS OF NCLT UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Section Number

(under Part II)

Description Effective Date of

Notification

Earlier exercised by

Sec. 4 to 32 Insolvency Resolution Process for Corporate Persons (Companies and LLPs)


Sec. 33 to 54 Liquidation of Corporate Persons (Companies and LLPs)

15.12.2016 High Court under Companies Act, 2013

Sec. 55 to 58

Fast Track Insolvency Resolution Process for Corporate Persons (Companies and LLPs)


Sec. 59 Voluntary Liquidation 01.04.2017 High Court under Companies Act, 2013

D. POWERS OF NCLT UNDER RESERVE BANK OF INDIA ACT, 1934


E. POWERS OF NCLAT

(The author is a Chennai based Company Secretary. He can be reached at [email protected])

Name of Legislation under which power is exercised Power granted by

Under Competition Act, 2002

The Finance Act, 2017 has made amendments to the Competition Act, 2002 and the Companies Act, 2013 notifying NCLAT as the Appellate Tribunal to hear and dispose of appeals against any direction, decision or order referred to in section 53N of the Competition Act, 2002 in accordance with the provisions of that Act.

Under Companies Act, 2013

NCLAT has been constituted under Section 410 of the Companies Act, 2013 to hear appeals the orders of the NCLT. Further, the Companies (Amendment) Act, 2017 has recognized NCLAT as the Appellate Tribunal for hearing appeals against orders passed by the National Financial Reporting Authority. These provisions of Companies (Amendment) Act, 2017 are yet to be notified to come into force.

Under Limited Liability Partnership Act, 2008

NCLT has certain powers under the Limited Liability Partnership Act, 2008, as are stated above. NCLAT is recognized as the Appellate Authority for hearing appeals against orders of NCLT passed under the Limited Liability Partnership Act, 2008 by virtue of Section 72 of the said Act.

Under Insolvency and Bankruptcy Code, 2016

NCLT has been recognized as the Adjudicating Authority for Part II of the Insolvency and Bankruptcy Code, 2016 to deal with matters relating to insolvency resolution process and liquidation of corporate persons (Companies and LLPs), as are stated above. NCLAT is recognized as the Appellate Authority for hearing appeals against orders of NCLT passed under the Insolvency and Bankruptcy Code, 2016.



REIMBURSABLE EXPENDITURE - INPUT TAX CREDIT TO BE REVERSED

CA. RAJENDRA KUMAR P

The value of supply of goods or servicesis the transaction value. It is a commonpractice when services are provided,certain expenditure incurred by thesupplier for the service is claimed asreimbursable expenditure. Rule 33 ofCGST rules provides that expenditure orcost incurred by a supplier as a pureagent of the recipient of supply shall beexcluded from the value of supply.

Since the value of the expenditure orcost reimbursed is to be excluded fromthe taxable value, the same shall notsuffer GST. As per clause (ii) of Rule 33an invoice have to be raised by the pureagent to the supplier for raising a claimon the recipient for such reimbursableexpenditure or cost.

Section 2(66) of CGST Act, 2017 definesthe term invoice

Invoice or tax invoice means the tax invoicereferred to in section 31

Hence a tax invoice as per section 31read with Rule 46 of CGST Rules, 2017has to be raised. The issue that ariseshere is whether input tax credit reversalunder rule 42 of CGST rules is

mandatory. Whether the reimbursedexpenditure or cost is an exemptsupply?

Section 2(47) of CGST Act defines theterm exempt supply

Exempt supply means supply of any goodsor services or both which attracts nil rateof tax or which may be wholly exempt fromtax under section 11, or under section 6 ofthe IGST Act, and includes non-taxablesupply.

The said definition of exempt supplyends with “includes Non-taxablesupply”. Section 2(78) of CGST Actdefines the term “Non-taxable supply”.

Non-taxable supply means a supply ofgoods or services or both which is notleviable to tax under the CGST or under theIGST Act.


When expenditure or cost is reimbursedto a supplier in his capacity as a pureagent, the said value does not suffer tax.This value merits inclusion in “Non-taxable supply”. Hence it appears inputtax credit reversal as per rule 42 ofCGST rules becomes mandatory.

The expenditure or costs incurred by asupplier as a pure agent of the recipientof supply forms part of the value ofinvoice raised by the supplier of servicewhereas the value of reimbursableexpenditure is a disbursement and notpart of value of supply, therefore whilefilling up Form GSTR-1 it can be shownunder Exempt Intra-State supplies toregistered person. Pure agent services asdiscussed above are exempt supply asthe said value does not suffer tax.Therefore input tax credit reversal as perrule 42 of CGST rules appearsmandatory.

As per CBEC FAQs(2nd edition updatedon 1st January 2018) chapter 26 dealswith “Pure agent concept in GST”.Under the head Exclusion from valueitis stated that “Expenditure incurred aspure agent becomes relevant, when itcomes to determining the value of supplyfor levy of GST. The valuation rules

provides that expenditure incurred aspure agent, will be excluded from valueof supply, and thus also from aggregateturnover”.

As per section 2(6) of CGST Act, 2017“Aggregate turnover” means the aggregatevalue of all taxable supplies (excluding thevalue of inward supplies on which tax ispayable by a person on reverse chargebasis), exempt supplies, exports of goods orservices or both and inter-State supplies ofpersons having the same PermanentAccount Number, to be computed on allIndia basis but excludes central tax, Statetax, Union territory tax, integrated tax andcess.

Thus aggregate turnover includesexempt supply. As discussed aboveexempt supply includes non-taxablesupply. In such a scenario exclusion ofexpenditure or cost incurred as pureagent from aggregate turnover may notbe correct. The Government may clarifyto this effect and issue a detailed circularto set at rest any future litigation in thisregard.

(The author is a Chennai based CharteredAccountant. He can be [email protected])



EXCEL TIPS

Duplicates

Excel has "Remove Duplicates" feature which quickly finds andremoves duplicate records from a list (or rows from a table).This is a great feature especially when we're dealing with areally large data list especially where several different peopledo the data entry and there should not be any duplicaterecords (such as client lists, personnel files, and the like).

CA DUNGAR CHAND U JAIN

The above feature helps only to remove duplicates but does not help in identifying thesame.

To identify or find the same can be done using Conditional Formatting.

Identify or Find Duplicate Data Using Conditional Formatting

To identify or find duplicated data within a list or table can be time-consuming and error-prone. To make this task easier, we can use Conditional Formatting.


For example, a data with a range of $A$1:$G$26. Select the top-left cell, A1, and drag itover and down to H26. It is important that A1 be the active cell in your selection, sodon't drag from G26 to A1.

Select Format Conditional Formatting... and Select "New Rule…"

In the Conditional Formatting dialog box, select "Use a Formula to determine which cellsto format"


In the field "Format values where this formula is true", enter the following code:

=COUNTIF($A$1:$G$26,A1)>1

Click the Format tab followed by the Fill tab, and select a colour you want to apply tovisually identify duplicate data. Click OK to return to the Conditional Formatting dialogbox and click OK again to apply the formatting.

All those cells containing duplicate data shall be highlighted in the colour we chose,making it much easier to grab duplicate data and take further course of action to delete,move, or alter it as we may deem it appropriate.


Note : It is important to note that as A1 was the active cell in your selection, the celladdress is a relative reference and is not absolute (unlike your table of data,$A$1:$G$26).

By using conditional formatting in this way, Excel automatically knows to use the correctcell as the COUNTIF criterion. By this we mean that the conditional formatting formulain cell A1 will read as follows:

=COUNTIF($A$1:$G$26,A1)>1

while in cell A2, it will read:

=COUNTIF($A$1:$G$26,A2)>1 in cell A3, it will read:

=COUNTIF($A$1:$G$26,A3)>1 and so forth.

(The author is a Madurai based Chartered Accountant. He can be reached [email protected])



GST E-WAY BILL

What is E-Way bill (EWB)?

EWB is an electronically generated document evidencing themovement of goods. It is required to be carried by a person incharge of the conveyance.

Objectives

One e-waybill for movement of the goods throughout thecountry

Hassle free movement of goods for transporters throughout the country

CA. DEBASIS NAYAK &CA. DIVYA RAMESH

Controlling the tax evasion

No need for Transit Pass in any state

Easier verification of the e-way bill by officers with complete details

Features of ewaybillgst.gov.in

Creating own masters – Customers, Suppliers, Products

Monitoring the EWBs generated by the Company and for the Company

Generating GSTR-1 from the EWBs

Alert through SMS

When is EWB required to be generated?

EWB shall be generated if consignment value (value including tax) exceeds fifty thousandrupees and the movement of goods are:-

In relation to supply;

For a reason other than supply;

Due to inward supply form unregistered dealer;


Further, it has been provided that where goods are sent by a principal located in oneState to a job worker located in any other State / UT, the EWB shall be generated by theprincipal irrespective of the value of the consignment. Also, where handicraft goods aretransported from one State / UT to another by a person who has been exempted fromthe requirement of obtaining registration, the EWB shall be generated by the said personirrespective of the value of the consignment.

No maximum time limit prescribed to raise an EWB from the date of invoice.

When EWB is not required?

EWB is not required to be generated in following cases:-

Where the goods to be moved are specified goods e.g. Vegetables, fruits, freshmeat etc.

Where goods are movement is through Non-motorized conveyance

Where consignment value is less than INR 50,000 except for inter-state JWmovement

Where goods are moved from port/airport/air cargo complex and land customstation to an ICD or a CFS for clearance by custom

Where the goods being transported are alcoholic liquor, petroleum crude, highspeed diesel, petrol etc.

Where the goods being transported are not treated as supply under Schedule IIIof the CGST Act

Where the goods are transported under customs bond

Where the goods are in transit cargo from or to Nepal / Bhutan

Where empty cargo containers are being transported

Where the goods are being transported up to a distance of 20 km from the placeof business of the consignor to a weighbridge or back (Delivery challan adequate)


Forms under the CGST Rules

Appointed Date

EWB applicable from 1st April, 2018 for inter-state supply and from 1st June (in a phasedout manner) for intra-state supply.

EWB forms

It is important to note the format of the EWB before understanding the further provisions.The Form GST EWB - 01 and GST EWB - 02 have been reproduced below :

Form GST EWB - 01

E-Way Bill No. :

E-Way Bill date :

Generator :

Valid from :

Valid until :

Form No. Description

GST EWB – 01 EWB

GST EWB – 02 Consolidated EWB

GST EWB -03 Verification Report.

GST EWB -04 Report of Detention

GST INV–1 Generation of Invoice Reference Number


Part A

Part B

GSTIN of supplier

Place of dispatch

GSTIN of Recipient

Place of Delivery

Document Number

Document Date

Value of Goods

HSN Code

Reason for Transportation

Vehicle Number for Road

Transport Document Number/Defence Vehicle No./ Temporary Vehicle Registration No./Nepal or Bhutan Vehicle Registration No.

Note:

- HSN Code - minimum 2 digit if PY turnover is up to 5 crores, 4 digit if PY turnoverexceeds 5 crores

- Reason for transportation shall be chosen from:

Supply, Export or Import, Job Work, SKD or CKD, Recipient not known, Line Sales,Sales Return, Exhibition or fairs, For own use, Others


Form GST EWB - 02

Consolidated E-Way Bill

Consolidated E-Way Bill No. :

Consolidated E-Way Bill Date :

Generator :

Vehicle Number :

Relevant pointers for EWB

No. of e-way bills

E way bill number:

The registered person who causes movement of Goods (could be the supplier or the recipient of goods) to fill Part A prior to such movement.

If the e-way is not generated by the supplier or recipient and the goods are handed over to a transporter for transportation by road, transporter to fill Form EWB – 01 (upon an authorization received from the registered person).

If goods transported by an unregistered supplier to a registered recipient, the registered recipient shall generate the EWB.

The supplier or recipient, who has furnished information in Part A shall may assign EWB number to another registered person or enrolled transporter for updating Part B.

Supplier (if EWB generated by recipient) or recipient (if EWB generated by supplier) shall communicate acceptance or rejection of the consignment covered. Deemed to be accepted if no action taken for 72 hours (or if the goods have reached before such time).


Option available for transport of goods below 50000 andunregistered suppliers to generate e way Bill.

If goods to be transported are supplied through an e-commerce operator or courier agency, the information in Part A may be filled by such e-com operator or courier agency upon an authorization received from the consignor

Where the goods are transported by railways, the railways shall not deliver the goods unless the EWB required is produced at the time of delivery

Part B not applicable for a distance less than 50 Km within the State

Part B for transshipment – details to be updated by the person who has filled Part A before effecting such transfer

Upon generation of EWB, a unique EWB number (EBN) shall be made available to supplier, recipient and transporter (EBN is valid for a period of 15 days for updating Part B)

An EWB generated once can be cancelled within 24 Hours (cannot be cancelled if it has been verified in transit)

Validity of EWB is 1 Day for every 100 Kms

QR code is provided in the EWB to facilitate quick verification

The facility of generation, cancellation, updation and assignment of EWB to be made available through SMS to all stakeholders

Consolidated EWB (Form GST EWB – 02) for aggregating of Consignment if all are covered with individual “Valid” EWB

The information in Part A would be made available to the registered supplier for updating his Form GSTR 1

Bill to, ship to columns are available in the EWB form

EWB is required even if the goods are being purchased and moved by the consumer to his destination himself if value is more than 50,000. He can get the EWB generated from the tax payer or supplier, based on the bill or invoice issued. Or the consumer can enroll and log in as the “citizen” and generate the EWB.

Option available for transport of goods below Rs.50,000/- and unregisteredsuppliers to generate e way Bill.


Special Situations

Multiple consignment in one conveyance

GST EWB - 01 to be generated for each consignment.

Consolidated GST EWB -02 to be generated

Transporter to generate GST EWB 01

When no GST EWB 01 is generated by Consignor/Consignee

Value of goods carried in the conveyance exceeds Rs.50,000/-

To also generate GST EWB 02 (Consolidated)

Validity

If time limit could not be adhered to, another e way bill to be generated by updating

Part B

S.No Distance Validity Period

1 Upto 100 km One day in cases other than Over Dimensional Cargo (ODC)

2 For every 100 km or part thereof One additional day in cases other than ODC

3 One day in case of ODC

4 For every 20 km or part thereof One additional day in case of ODC

Upto 20 km


Registration

Registered GST Taxpayers can register in the EWB Portal (ewaybillgst.gov.in) usingGSTIN

Unregistered Persons/ Transporters can enroll in the EWB System by providingtheir PAN and Aadhaar

Various Modes of Generating EWB

- Web (Online)

- Android App - The IMEI of the phone and the registered mobile number has tobe given

- SMS based (through registered Mobile Number)

- Excel based upload is provided for bulk generation

Documents required to be carried by person in-charge of conveyance

The person in charge of a conveyance by road shall carry:

- Invoice or bill of supply or delivery challan, bill of entry as the case may be

- A copy of the EWB in physical form or the EWB number in electronic form ormapped to a RFID embedded on the conveyance (Rule 138A)

A registered person may obtain an Invoice Reference Number (IRN) from the commonportal by uploading a tax invoice issued by him in FORM GST INV-1 and producethe same for verification by the proper officer in lieu of the tax invoice and suchnumber shall be valid for a period of thirty days from the date of uploading.

Where the registered person uploads the invoice as above, the information in Part Aof FORM GST EWB-01 shall be auto-populated by the common portal on the basisof the information furnished in FORM GST INV-1.


Action point for transporters

The EWB has to be generated before the goods are transported and the relevantdocuments to be carried along (EWB can be in electronic form)

A new EWB will have to be generated whenever the mode of Transport of aConsignment is changed. Transportation details (Part B) can be updated anynumber of times within validity period using the option “update vehicle number”)

For one EWB multiple modes of transportation can be updated – e.g. First Ship,then air and road

Part-B can be entered by the transporter assigned in the EWB or generator himself.But the assigned transporter cannot re-assign to some other transporter to updatePart-B on the EWB system

When more than one consignment is transported across the state borders, EWBNo; should be generated and mentioned in the CEWB on the common portal

EWB generated for goods not transported must be cancelled within 24 Hours

If the Recipient c7ancels the order while the goods are in transit, new EWB to begenerated

To know what are the EWBs assigned to a transporter, he may go to the “Reports”section on the portal, or go to “Update vehicle number” and select “GeneratorGSTIN” and enter taxpayer GSTIN who is likely to assign EWB to him

Number of EWBs

One Consignment – one document – one EWB

One invoice – multiple consignments with multiple challans – multiple EWBs

Conclusion

After missing the February 1 deadline the Government appears to have taken varioussteps for the system to work. The Government has also amended the Rules and issuedclarification for few open issues based on the earlier law. We are hoping for a seamlessfunction of the e-way bill portal from April 1, 2018

(The authors are Chennai based Chartered Accountants. They can be reached [email protected]& [email protected])

mailto:[email protected]&



BUDGET 2018: PMLA - GOVERNMENT'S MAGIC WANDAGAINST LAUNDERERS OF ILLEGAL MONEY

[Reproduced with permission from lawstreetindia.com]February 16,2018

SUDARSHAN RANGAN(Advocate)

1. PreludeMoney laundering is not mere siphoning of funds or black money,money laundering arises when money earned through illegitimatemeans is camouflaged to bring it as earned/originated throughlegitimate source. In order to curb this practice, The Prevention ofMoney Laundering Act, 2002 (‘PMLA’) was enacted pursuant tothe United Nations Political Declaration, where the declarationwas called upon to the member states to adopt national moneylaundering legislation and thereby penalise person convertingillegal money to a legal money. Accordingly, the PMLA was enactedin India to curb the growing menace of money-laundering andalso confiscate properties obtained through the tainted and laundered money. Even thoughthe PMLA legislation is in vogue for more than a decade, it has remained innocuouslargely and has not served its desire purpose.

However, the current Government has been really vociferous against black money etc.and accordingly has been taking lot of initiatives to crackdown the illegal money holdersas well those who have converted/camouflaged the illegal money into legal money. Inorder to walk its talk, the Government is taking measures to give more teeth to the PMLAthereby making it an effective tool to curb this endemic menace. There were some significantamendments made to the PMLA during the last budget 2017. Those amendments wereindeed loud and signalled to the money launderers that the Government is on the prowlto hunt the launderers who convert illegal earnings to legal earnings. In this article, wewill look at the major amendment proposals made under the PMLA during Union Budget2018.

2. Proposed AmendmentsA. Proceeds of Crime – DefinitionExisting: ”Proceeds of Crime” as defined under Section 2(1)(u) [1]is the backbone of thePMLA legislation. The property under the money laundering offence gets triggered whenthe tainted property falls under the said definition. The said section was amended in 2015to expand the scope of the definition of proceeds of crime to include wherein any propertyor its value derived out of a criminal activity is not restricted only to the specific propertybut also to a property equivalent in value held within the country.


Proposal : The said definition is now amended to give a wider ambit to include value ofspecific property equivalent in value held outside the country as well. For example, if aperson in India is being labelled for having proceeds of crime in a country outside India,then in such a scenario, his property situated in India shall be attached even though it maynot have a relation to the proceeds of crime. The current proposal has extended the ambit,wherein the authorities can now proceed against such property equivalent to proceeds tocrime held outside the country also.

B. Scheduled offence – Inclusion of offence under Companies ActExisting: For a money laundering offence to happen, proceeds of crime is imperative andproceeds of crime can arise only if the tainted property is derived as a result of a criminalactivity relating to a scheduled offence. The scheduled offence is defined under Section2(1)(y) of the Act wherein offences mentioned to the Schedule of PMLA (Part A, B&C)approximately offences under thirty odd legislations shall be treated as scheduledoffence. It is worth to mention here that offence under Companies Act, Income Tax Act,Foreign Exchange Management Act are not part of the scheduled offence. Thereby any taxevasion made shall not qualify as an offence under the PMLA.

Proposal: The current budget has now included an offence under Section 447 of theCompanies Act, 2013 -Punishment of fraud, whereby any person who is accused forcorporate fraud under Section 447 of the Companies Act 2013, shall be treated as scheduledoffence and accordingly PMLA provisions can be enforced upon the said person.

C. Leniency of bail provision to less serious PMLA casesExisting: Section 45 of the PMLA has very onerous provisions pertaining to bail, whereinit provides that offences under the PMLA are cognizable and non-bailable. Further noperson shall be released on bail or bond unless there is a reasonable ground to believe thatthe accused is not guilty of offence. However, for minors under the age of 16 years,woman and persons who are sick/infirm the Special Court may grant bail.

Proposal: With the bail provisions being very strict owing to the fact that Section 45 ofPMLA overrides the Code of Criminal Procedure 1973, the accused be provided innocencetill guilty shall not be applicable to PMLA and thereby grant of a bail becomes an ardenttask. Therefore, considering the fact that said provisions are too harsh, amendment hasbeen proposed to Section 45 wherein limit of Rupees one crore shall allow court to applybail provisions more leniently to less serious PMLA cases.

D. Leniency for restoration of property attached during trialExisting: Section 8 of PMLA mentions about the procedure for adjudication of a complaintunder Section 5 of PMLA. Further if the Special Court on conclusion of the trial, finds thatoffence under money laundering has been committed then it shall order for confiscationof the property to the Central Government. If the Special Court reaches the conclusion


that the offence has not taken place, it shall order release of such property to the personentitled to receive it.

Proposal: Therefore, from the above, PMLA provisions allow distribution of confiscatedproperty to the rightful claimants, only after the trial is complete. In order to providesome leeway for the accused, present amendment allows Special Court, if it thinks fit, toconsider the claims of the claimants for the purposes of restoration of such properties evenduring trial. This will help accused, who might be innocent to get the property back at thetime of trial so as to avoid undue hardship.

E. Attachment of property -Administration measuresExisting: Section 5(1) of the PMLA gives powers to the authorities to attach propertiessuspected to be involved in Money Laundering. Therefore, if the authorities have reasonto believe (recorded in writing) that based on the material in possession, the taintedproperty can be provisionally attached for a period of 180 days.

Proposal: Based on the above, every order of provisional attachment passed by an officerof Enforcement Directorate shall cease to have effect after 180 days from the date of theprovisional attachment order, unless confirmed by the Adjudicating Authority under PMLAwithin that period. The section is proposed to be amended to include the period of stay inthis time limit of 180 days and also further period of not more than 30 days to take care ofdelays if any in communication of judicial orders.

3. EpilogueMoney laundering is a global menace, which is evident from the fact that in the recentpast, we have witnessed many leaks in the form of Panama paper Leak, Paradise paperleak etc. and the amount of illegal money slashed abroad. Many countries have identifiednecessary steps to curtail, prevent and stop the laundering. India has been taking significantsteps on this endemic menace in the recent past. PMLA legislation is indeed a magic wandfor the Government to use against the launderers/perpetrators of illegal money. The currentbudget proposals do give significant impetus for the nodal agency the Financial IntelligenceUnit to proceed against the accused launderers. It would be interesting to watch as to howthese are effectively being used and more importantly disseminate the information torelevant intelligence/ law enforcement agencies in a time bound manner to take effectivemeasures against the money launderers.

One would hope that the PMLA legislation completely launders the endemic illegal moneymenace.

[1]”proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a

result of criminal activity relating to a scheduled offence or the value of any such property 2[or where suchproperty is taken or held outside the country, then the property equivalent in value held within the country];


PENALTIES AND PROSECUTIONUNDER THE INCOME TAX ACT, 1961

CA. R. KrishnanFCA, DISA, Alleppey

A.PENALTIES

Background and Overview

Penal provisions in any statute are intended to have deterrenteffect for non-compliances. The penal provisions under theIncome tax Act, 1961 (‘the Act‘) are no exception to this rule.

Laws enacted by the parliament as well as State Legislatures are

meant for strict adherence by the public. The laws in vogue in India are countless. Ina country with a very vast population and sizeable segment of them being illiterateand semi-literate, instances of flagrant violation of laws is perhaps the highest in India.Fiscal laws are to be enforced strictly, as otherwise the Government will be deprivedof valuable revenue thus hampering developmental activities and programmes.

The Act casts numerous obligations on tax payers like tax deduction at source, taxcollection at source, payment of advance tax, payment of self-assessment tax, filingof income tax returns, statement of tax deducted/collected at source, obtaining PAN/TAN, obtaining various approvals or being eligible for exemptions and deductions andthe like. Such requirements are in fact numerous. Consequently, penal provisions todeal with cases of failure to discharge such obligations are also numerous.

The penal provisions of the Act are not only complex and cumbersome, but undergofrequent amendments – invariably by the annual Finance Acts. Apart from the levyof penalty, certain offences like concealment of income, furnishing of inaccurateparticulars of income deliberately etc. attract criminal prosecution.


From time to time, the perception of the lawmakers undergo change leading totinkering of penal provisions with the expectation that the change would bring desiredresults by way of compliance besides minimization of litigation in interpreting thoseprovisions at various judicial forums.

While ideally, a thorough knowledge of the penal provisions is a must for the taxpayers, tax administrators, tax practitioners, tax advisers and others concerned, inview of the frequent changes in law and the enormous judicial pronouncements onpenalties, it becomes extremely difficult to master the topic.

Penalty is levied over and above the amount of any tax or interest payable by theassessee and thus, penalty is distinct and different from the tax payable. Penaltyproceedings, however are a part of the assessment proceedings. The authorityconcerned is entitled to levy penalty only if he is satisfied in the course of anyproceedings under the Act, that a person has been found guilty of any default incomplying with the provisions of the Act. If the order of the penalty is set aside inappeal on the ground that the assessee was not given a reasonable opportunity ofbeing heard, the Assessing Officer would be entitled to levy a penalty again afterrectifying the mistakes in the proceedings. The penalty to be levied on an assessee isto be based upon the law as it stood at the time the default was committed and notthe law as it stands in the financial year for which the assessment is made.

In addition to penalty, the Finance Act 2017 has inserted a new section 234F,providing for levy of ‘fee’ for default in furnishing return of income. The fee payableshall depend on the total income of the assessee.

The various sections prescribe the minimum and the maximum penalty that can belevied in certain cases though the Principal Commissioner or Commissioner isempowered to waive or reduce the penalty in some cases. The authority concernedhas been given the discretion to levy or not to levy a penalty. But if a penalty is levied,it cannot be less than the prescribed minimum nor can it exceed the maximumamount prescribed by the Act. The quantum of penalty levied by a lower authoritycan be modified by a higher authority on appeal, reference of revision.


The various defaults in respect of which penalty can be levied under the Act arediscussed as follows:Sections Provision Quantum of Penalty 140 A(3)

Failure to pay wholly or in part the self assessment tax or interest or all under section 140A(1)

Penalty amount as imposed by the Officer, but cannot exceed equivalent amount of tax and/or interest payable.

221(1)

Default in making payment of tax.

Penalty amount as imposed by the Officer but cannot exceed tax in arrears

234E Failure to file statement within time as prescribed u/s 200(3) or 206C(3)

Chargeable at Rs.200 per day of default until date of filing, but the penalty amount cannot exceed the amount of tax in arrears.

234F Failure to file Income Tax Return before the due date as prescribed u/s 139(1)

A fee of Rs.5,000/- payable , if the return is furnished after the due date but on or before the 31st day of December of the assessment year. A fee of Rs.10,000/- is payable in any other case. However, in a case where the total income does not exceed Rs.5,00,000/-, the fee amount shall not exceed Rs.1,000/-.(Applicable from AY 2018-19)

271 271(1)(b)

Failure to furnish, comply withnotices, concealment of income etc. Failure to comply with a notice u/s 142(1) or u/s 143(2) of failure to comply with a direction u/s 142(2A)

Penalty of Rs.10,000/- for each failure. (However penalty shall not be levied in relation to any assessment for the A.Y commencing on or after the 1st day of April, 2017.)

271(1)(c)

Concealment of particulars of income or furnishing of inaccurate particulars of income.

1) Maximum Penalty of 300% of tax sought to be evaded 2) Minimum Penalty of 100% of tax sought to be evaded. (However, the above penalty shall not be levied to and in relation to any assessment for the A.Y commencing on or after the 1st day of April, 2017)

Failure to furnish,comply with notices,concealment of incomeetc.Failure to comply with anotice u/s 142(1) or u/s143(2) of failure tocomply with a directionu/s 142(2A)


Sections Provision Quantum of Penalty 271(4) Distribution of profits

by registered firm otherwise than in accordance with partnership deed and as a result of which partner has returned income below the real income.

Not exceeding 150 per cent of difference between tax on partner's income assessed and tax on income returned, in addition to tax payable (The above penalty shall not be levied to and in relation to any assessment for the A.Y commencing on or after the 1st day of April, 2017.)

271A

Failure to keep, maintain, or retain books of account, documents, etc., as required under section 44AA

Penalty of Rs.25,000/

271AA(1) • Failure to keep and maintain information and documents in respect of international transactions or specified domestic transactions as required by section 92D(1) or 92D(2) • Failure to report such transactions. • Maintaining or furnishing incorrect information or documents.

Penalty of 2% of value of each international transaction / or specified domestic transaction entered into.

271AA(2) Failure to furnish information and document as required u/s 92D(4)

Penalty of Rs.5,00,000/-

271AAA Where search has been initiated before 1-7-2012 and undisclosed income found.

Penalty @ 10% of undisclosed income.

Penalty of Rs. 25,000/-


Sections Provision Quantum of Penalty

271AAB Where search has been initiated on or after 1-7-2012 and undisclosed income found.

1) Penalty of 10% of undisclosed income (If the assessee admits the undisclosed income at the time of search and substantiates the manner in which it was derived and on or before the specified date pays the tax, together with interest thereon and furnishes the return of income for the specified previous year declaring such undisclosed income.) 2) Penalty of 20% of undisclosed income (If the assessee does not admit the undisclosed income, at the time search and on or before the specified date declares such income in the return of income furnished for the specified previous year and pays the tax, together with interest thereon.) 3) Penalty of 60% of undisclosed income (In cases where the previous two options are not applicable.ie, when added to the assessment)

271AAC Where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year.

Penalty of 10% of the tax payable under clause (i) of sub section (1) of section 115BBE However, penalty cannot be levied if the following conditions are satisfied. 1. The income from unexplained source has been included by assessee in ROI u/s 139 2. Tax in accordance with the provisions of Section 115BBE has been paid on or before the end of the relevant previous year

271B Failure to get accounts audited or furnish a report of audit as required u/s 44AB.

One-half per cent of total sales, turnover or gross receipts, as the case may be or Rs. 1,50,000, whichever is less. Rs. 1,50,000/- whichever is less.


Sections Provision Quantum of Penalty 271BA Failure to furnish report

u/s 92E Penalty of Rs.1,00,000/

271BB Failure to subscribe any amount to units issued under scheme referred to in section 88A(1).

Penalty at 20% of such amount.

271C Failure to deduct tax at source, wholly or partly, under sections 192 to 196D (Chapter XVII-B) or failure to pay wholly or partly tax u/s 115-O(2) or second proviso to section 194B.

Penalty of an amount equal to tax not deducted or paid.

271CA Failure to collect tax at source as required under Chapter XVII-B.

Penalty is levied at an amount equal to tax not collected.

271D Taking or accepting any loan or deposit or specified sum in contravention of the provisions of Section 269SS.

Amount equal to loan or deposit or specified sum so taken or accepted.

271DA Failure to comply with provisions of section 269ST

Amount equal to the sum taken or accepted. (Penalty cannot be imposed if there is proof of sufficient reason for the contravention.)

271E Repayment of any loan or deposit or specified advance otherwise than in accordance with provision of Section 269T.

Amount equal to loan or deposit or specified advance so repaid

271F Failure to furnish return as required by section 139(1) or by its provisos before the end of the relevant assessment year

Penalty of Rs.5,000/ Penalty of Rs.5,000/-



Sections Provision Quantum of Penalty 271FA

• Failure to furnish statement of financial transactions or reportable account within the time prescribed u/s 285BA (2)

• Failure to furnish statement of financial transaction or reportable account within the time prescribed u/s 285BA(5)

• A sum of Rs.100 for every day during which failure continues

• A sum of Rs.500 for every day during

which failure continues.

271FAA Furnishing inaccurate statement of financial transactions or reportable account.

Penalty of Rs.50,000/-

271FAB Failure to furnish within the prescribed time, a statement or any information or document as required u/s 9A(5) by an eligible investment fund.

Penalty of Rs.5,00,000/- (Leviable by the income tax authority prescribed u/s 9A(5))

271G Failure to furnish any information or document as required by section 92D(3)

Penalty at 2% of the value of the international transaction/specified domestic transaction for each failure.

271GA

Section 285A provides for reporting by an Indian concern if: 1) Shares or interest in a foreign company or entity derive substantial value, conditions are satisfied: directly or indirectly, from assets located in India and 2) Such foreign company or entity holds such assets in India in such cases, the Indian entity shall furnish the prescribed information.

1) A sum equal to 2% of value of transaction in respect of which such failure has taken place, if such transaction had effect of transferring directly or indirectly.

2) A sum of Rs. 5,000/- in any other case.

A sum of Rs.100/- for every day duringwhich failure continues

A sum of Rs.500/- for every day duringwhich failure continues.


Sections Provision Quantum of Penalty 271GB(1)

Non furnishing of the report by any reporting entity which is obligated to furnish Country-by-Country report as required under section 286(2).

Penalty of Rs.5,000/- per day upto 30 days and Rs.15,000/- per day beyond 30 days.

271 GB(2) Failure to produce the information and documents within the period allowed under section 271GB(6)

Rs. 5,000/- for every day during which the failure continues.

271 GB(3) Failure to furnish report or failure to produce information/documents under section 286 even after serving order under section 271GB(1) or 271GB(2)

Penalty at Rs. 50,000 for every day for which such failure continues beginning from the date of serving such order.

271GB(4) Failure to inform about inaccuracy in report furnished under section 286(2) or furnishing of inaccurate information or document in response to notice issued u/s 286(6).


271H

Failure to deliver/cause to be delivered a statement within the time prescribed in section 200(3) or the proviso to section 206C(3), or furnishing incorrect information in the statement (TDS/TCS statements)

W.e.f. 1-10-2014 Assessing Officer may direct payment of penalty. Penalty shall not be less than Rs. 10,000 but may extend to Rs. 1,00,000 (No penalty would be leviable if the person proves that after paying tax deducted or collected along with the fee under section 234E and interest, if any, to the credit of Central Government, he had delivered or caused to be delivered the TDS/TCS statements before the expiry of one year from the time prescribed for delivering or causing to be delivered such statements)

Penalty at Rs. 50,000/- for every day forwhich such failure continues beginningfrom the date of serving such order.

W.e.f. 1-10-2014 Assessing Officer maydirect payment of penalty. Penalty shallnot be less than Rs. 10,000/- but mayextend to Rs. 1,00,000/-


Sections Provision Quantum of Penalty 271 -I As per section 195(6) of the Act,

any person responsible for paying to a non-resident or to a foreign company, any sum (whether or not chargeable to tax), shall furnish the information relating to such payment in Form 15CA and 15CB. Penalty shall be levied in case of any failure or furnishing inaccurate information.

Penalty is set at Rs.1,00,000/

271 J

Furnishing of incorrect information in reports or certificates furnished by an accountant, merchant banker or registered valuer.

Rs.10,000/- for each such default or failure (Penalty leviable by Assessing Officer or CIT (Appeals), who, in the course of proceedings under the Act, find that the accountant, merchant banker or registered valuer has furnished incorrect information in reports or certificates).

272A (1)

• Failure to answer questions, sign statements, furnish information, return or statements , allow inspection etc

• Failure to comply with a notice under sub section (1) of section 142 or sub section (2) of section 143 or failure to comply with a direction issued under sub section (2A) of section 142

• Failure to give evidence or produce books of accounts etc in compliance with summons u/s 131(1)

Penalty of Rs. 10,000 for each failure/default

Penalty of Rs. 10,000/- for eachfailure/default

Penalty is set at Rs.1,00,000/-


Sections Provision Quantum of Penalty 272A (2)

Failure to • Furnish requisite information in

respect of securities as required u/s 94(6),

• Give notice of discontinuance of business or profession as required under section 176(3),

• Furnish in due time returns, statements or certificates, deliver declaration, allow inspection, etc., u/ss

• 133, 134, 139(4A), 139(4C), 192(2C),197A, 203, 206, 206C, 206C(1A) and 285B,

• Deduct and pay tax u/s 226(2) • File a copy of the prescribed

statement within the time specified in section 200(3) or the proviso to section 206C(3)

(up to 1-7-2012) • File the prescribed statement

within the time specified in section 206A(1)

• Failure to deliver or cause to be delivered a statement u/s 200(2A) or Section 206C (3A) within prescribed time.

Penalty is at a sum of Rs.100/- for every day during which the failure continues. In respect of penalty for failure, in relation to a declaration mentioned in section 197A,a certificate as required by section 203 and return u/s 206 and 206C and statement under section 200(2A) or section 200(3) or proviso to section 206C(3) or section 206C(3A), penalty shall not exceed amount of tax deductible or collectible.

272AA(1) Failure to comply with section 133B

Penalty not exceeding Rs.1,000/-

272B Failure to comply with provisions of section 139A/139A(5)(c)/(5A)/(5C)

Penalty of Rs. 10,000/-


Sections Provision Quantum of Penalty

272 BB(1) Failure to comply with section 203A

Penalty of Rs. 10,000/- for each failure/default

272BB(1A) Quoting false tax deduction account number / tax collection account number /tax deduction and collection account number in challans / certificates /statements / documents referred to in section 203A(2)


272BBB Failure to comply with the provisions of section 206CA.


273

False estimate of, or failure to pay, advance tax.

1. Has failed to furnish under clause (a) of sub section (1) of section 209A a statement of the advance tax payable.

2. Has failed to furnish a

statement of the advance tax payable in accordance with provisions of clause (a) of sub- section (1) of section 209A.

i) Not less than 10% but shall not exceed one and half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVII-C fall short of –

a) Seventy –five per cent of the assessed tax as defined in sub –section (5) of section 201, or

b) The amount which would have been payable by way of advance tax if the assessee had furnished a correct and complete statement in accordance with the provisions of clause (a) of sub section (1) of section 209A whichever is lower.

ii) Shall not be less than 10% but shall not exceed one and a half times of 75% of the assessed tax as defined in sub-section (5) of the section 201.

To be continued in next month Bulletin…