Tax Digest

September 2015

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Dear readers,We are pleased to present the September 2015 edition of EY’s quarterly newsletter, Tax Digest, which summarizes significant tax and regulatory developments during the July to September quarter.

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

We hope you find this edition, both timely and insightful.

Best regards, EY Tax Update team

Contents

Direct taxVerdicts

Reported decisions supported by our Litigation team

• Delhi High Court (HC) restores ITAT’s power to extend stay beyond 365 days

Significant Supreme Court rulings

• Activities inextricably linked with prospecting, extraction or production of mineral oil excluded from the definition of fees for technical services

• Aircraft landing and parking charges are not “rent” for withholding tax purposes

• Expenditure not deductible unless specifically provided under mineral oil exploration contract

• Building leased out to subsidiary not eligible for wealth tax exemption

Decisions on profit-linked deductions

• ITAT denies fresh five year 100% profit deduction to new units undertaking substantial expansion

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• Transfer of existing employees to new software unit does not trigger violation of formative condition of incentive provision

Rulings on tax withholding

• P&H HC disallows expenditure for non-withholding of taxes

• Tax withholding not required until the payees are identifiable and amount is quantifiable

• “Non-discrimination” relief for not withholding taxes, not affected by restrictive covenant of Article 9 dealing with TP adjustment

• Penalty for delay in deposit of taxes withheld is leviable even though it is paid voluntarily prior to issue of demand notice

• Subsequent extension of limitation period cannot be applied to past cases for which time limit had already elapsed

• Excess amount refunded by builder upon cancellation of flat-booking not interest

• Treaty rate prevails over punitive tax rate under ITL, even in the absence of a Permanent Account Number (PAN)

• Payment by advertising company to hoarding contractor is sub-contract, not rent

Expenditure deductibility

• HC rules on deduction of unpaid electricity duty collected as an agent of Government

• Weighted deduction for DSIR approved R&D expenditure cannot be disallowed

• Excise duty paid on behalf of contract manufacture is deductible as business expenditure

Issues on capital gains

• Surrender of Floor Area Ratio amounts to transfer, liable to capital gain tax

• Purchase of shares from employees is an admissible expenditure in computing capital gains on sale of business undertaking

• Mumbai ITAT rules exempt capital gains not liable to MAT despite credit to profit and loss account

Ruling specific to NRs

• HC excludes stay extension caused by circumstances beyond an individual’s control, while determining residency in India

Other significant rulings

• Allahabad HC lays down guidelines for granting stay of demand

• Assessment proceedings qualify to be “pending” where order is passed but not served

• Addition to income cannot be made solely on the basis of entry in tax credit statement

• Rectification application based on subsequent HC ruling is valid

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

Recent decisions on taxation of royalty/FTS payments

From the Tax Gatherer’s desk

• Ministry of Finance (MoF) releases Annual Report

• CBDT notifies Cost Inflation Index (CII) for financial year 2015–16

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• Black Money Act: CBDT releases FAQs on one-time compliance window and prescribes procedure and valuation mechanism for undisclosed overseas assets prescribed

India’s initiatives on Tax Transparency

• India joins the Multilateral Competent Authority Agreement (MCAA) to facilitate standardized Automatic Exchange of Information (AEOI)

• India signs Inter-Governmental Agreement with the US to implement Foreign Account

• CBDT notifies Income-tax (11th Amendment) Rules, 2015 for furnishing statement of reportable accounts to comply with FATCA and Common Reporting Standard (CRS)

Treaty Updates

• India and Mauritius reach tentative understanding on revised tax treaty

• Revision to treaty between India and Korea signed

Happenings across the border

• Saudi Arabian tax authorities introduce Virtual Service PE concept

• Hong Kong enacts law to exempt private equity funds from Profits Tax

• Australian Tax Office issues new guidelines on tax corporate governance

• Update on the proposed introduction of corporate taxation in the UAE

• US Treasury Department proposes revisions to US model tax treaty to address US tax base erosion

OECD BEPS updates

• OECD issues two new reports on the implementation of the CRS, updates global voluntary disclosure publication

• OECD releases revised discussion draft on follow up work on treaty abuse under BEPS Action 6

• OECD releases revised discussion draft on preventing artificial avoidance of PE status under BEPS Action 7

Indirect taxCase lawsCustoms duty

• Countervailing duty cannot be levied on imports if Excise duty on domestic manufacture is exempt

• Depreciation method according to Circular is a reasonable method for valuation of second-hand capital goods

• Interest on refund is payable after three months from the date of application for refund of Customs duty

• Penalty cannot be waived in case of confiscation of goods

Excise duty

• Cash discount has to be taken into account in arriving at the “price” for the purpose of valuation of goods under Central Excise

• Valuation according to “best judgment assessment” for goods captively consumed in execution of turnkey projects

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• Mounting of “water purification and filteration system” on a base frame amounts to manufacture as it results into a new and different commodity

• Rebate of Automobile Cess including Education Cess (EC) and Secondary and Higher Education Cess (SHEC) thereon, on export of vehicles admissible, being a part of Excise duty

• Printed forms which are not for general use are not “marketable”, and hence, the activity is not manufacture

Service Tax

• Service tax not leviable on transportation of goods from mother vessel to jetty onshore as it is a part of import transaction

• Wharfage charges collected by Gujarat Maritime Board are not taxable under the category of ”Port Services”

• Commission received by distributors on mutual fund distribution not liable to Service tax under category of “Business Auxiliary Service”

• Excess service tax paid inadvertently was merely a deposit and could not be treated as payment of Service tax for the purpose of Section 11B of Central Excise Act, 1944

• Service of downloading images from website is taxable under the service category of “Online information and Database access or Retrieval service”

• Reimbursement of salary and social security amounts to foreign associate not liable to Service tax under “Manpower Recruitment and Supply Agency Service”

CENVAT Credit

• CENVAT credit admissible in respect of Service tax paid on lease rentals and civil construction services used for setting up of a factory prior to 1 April 2011

• CENVAT credit allowed on outward transportation of goods even after 1 April 2008 where the goods are delivered at the destination of the buyer

• CENVAT credit in respect of “Air Travel Agent” service in relation to travel of company’s personnel for business purposes, admissible

• CENVAT credit admissible on inputs and capital goods used in the R&D and Quality Control laboratory as it is essential for manufacture of finished goods

VAT/CST

• Refund should not be ordered by the HC when the assessment order has reached finality

• Retrospective cancellation of registration of the selling dealer cannot deprive the purchasing dealer of its right to claim input tax credit

• Value of immovable property and any other thing done prior to the date of entering into the agreement of sale is to be excluded while computing VAT on value of goods transferred in the course of execution of works contract

• VAT leviable on the value of set top boxes (STBs) supplied in connection with the provision of Direct-To- Home services

• In the absence of any inextricable link between the import and sale to Indian customers, the transaction cannot be considered to be a sale in the course of import. Back-to-back contract by itself does not establish and prove that it is a sale in the course of import

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Key statutory updates

• Service tax

• Central Excise Duty

• Customs

• ► Special Economic Zones

• Foreign Trade Policy 2015-20

• Notification/Circulars

• Trade Notices

• Public Notices

• VAT

Regulatory Foreign Exchange Management Act (FEMA) 1999

• Amendments in Employee Stock Option Plan (ESOP) provisions under Foreign Direct Investment (FDI) regulations

Foreign Direct Investment Policy Department of Industrial Policy and Promotion

• Introduction of composite caps for simplification of FDI policy

• Clarification on FDI Policy on single brand retail trading

Reserve Bank of India

• Introduction of FC-TRS reporting through e-Biz platform

• Clarification on foreign investment made by FPI in security receipts issued by the asset reconstruction company

• Liberalization in respect of export factoring by authorized dealer (AD) banks on non-recourse basis

• Clarification in respect of investment in companies engaged in tobacco related activities

• Issuance of annual master circulars by RBI on various matters

• Further extension in scheme of raising External Commercial Borrowing (ECB) for low-cost affordable housing projects and for civil aviation

In the press

Compilation of alerts

• Direct Tax

• Indirect Tax

• Regulatory

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What’s new Useful links

(Click to navigate)

For insightful articles, interviews and thought leaderships to aid business leaders: India Tax Insights

Global compliance and reporting: Why EY

For the latest tax insights for business leaders, read our quarterly magazine: T Magazine

Tax insights Linkedin group

Indian Tax Insights Blog

Tax Insights magazine

Goods and Service Tax

Budget Connect 2015

Tax Library

www.ey.com

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Verdicts

Direct taxReported decisions supported by our Litigation team

Delhi High Court (HC) restores ITAT’s power to extend stay beyond 365 days

According to the existing provisions of Income Tax Laws (ITL) as amended by Finance Act 2008, Income Tax Appellate Tribunal (ITAT) has the power to extend the stay of recovery proceedings up to 365 days. However, where the appeal is not disposed of within the period of 365 days, the stay order stands vacated even if the delay in disposing of the appeal is not attributable to the taxpayer.

In case of Pepsi Foods Pvt. Ltd. vs. DCIT [TS-281-HC-2015(Del)], the Delhi HC held that where the delay in disposing the appeal is not attributable to the taxpayer, the ITAT has the power to grant extension of stay beyond 365 days in deserving cases. The HC also ruled that the insertion of the expression – “even if the delay in disposing of the appeal is not attributable to the Taxpayer”– by virtue of the Finance Act, 2008, discriminates between well behaved taxpayers and those who cause delay in appeal proceedings and hence violates Article 14 of the Constitution of India. The said expression, therefore, needs to be struck down.

Significant Supreme Court rulings

Activities inextricably linked with prospecting, extraction or production of mineral oil excluded from the definition of fees for technical services (FTS)

In case of Oil and Natural Gas Corporation Ltd. [TS-363-SC-2015], the taxpayer was treated as a “representative assessee” on behalf of various nonresident companies (FCos) with which the taxpayer had entered into separate agreements for availing diverse services. The services rendered by FCos to the taxpayer included various services, such as provision of personnel with expertise and experience in operation and management of an oil rig, engineering and technical support, processing of seismic data, consultancy and training service, analysis of data, geological and feasibility study, inspection and repair service etc.

The Supreme Court (SC) held that the services rendered by FCos were inextricably linked with prospecting, extraction or production of mineral oil and, hence, were mining and related/ancillary services, to get excluded from the definition of FTS as provided under the ITL. Accordingly, FCos will be governed by the provisions of presumptive taxation under the ITL.

(For more details, please refer EY Alert dated 3 July 2015)

Aircraft landing and parking charges are not “rent” for withholding tax purposes

The SC, in the case of Japan Airlines Co. Ltd. v. CIT [Civil Appeal No. 9875 of 2013], held that payments made by airlines to the Airports Authority of India for landing and parking charges of aircrafts do not constitute “rent” despite the wide definition of the term “rent” for withholding purposes under the ITL. The SC acknowledged that “rent” is defined widely in the ITL, as compared to the common parlance meaning of the term, in so much as it not only covers payment made for the use of, inter alia, land under a lease, sub-lease or tenancy but also payment made under any agreement or arrangement for the “use” of land.

Nevertheless, landing and parking charges do not constitute “rent” as they are not paid merely for “use” of airport land but as a consideration for diverse services/facilities such as ground safety services, runway lighting, runway maintenance, passenger handling etc., according to internationally accepted standards. The SC emphasized that characterizing such payment as “rent” merely because there is an incidental use of land will be a simplistic and naive approach divorced from the reality and substance of the arrangement.

(For more details, please refer EY Alert dated 7 August 2015)

Expenditure not deductible unless specifically provided under mineral oil exploration contract

In the case of Joshi Technologies International Inc v. UOI & Ors. [TS-270-SC-2015], the SC disallowed the taxpayer’s claim of expenditure in respect of oil-exploration contract entered with Ministry of Petroleum and Natural Gas. The SC observed that the ITL provision requires that the Product Sharing Contract (PSC) must contain a specific clause to allow the deduction. Furthermore, allowance of such

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claim in earlier years cannot create an estoppel against law. The SC also did not accept taxpayer’s contention that non-inclusion of specific clause in PSC amounts to discrimination against taxpayer vis-a-vis other contractors where the clause is present.

Building leased out to subsidiary not eligible for wealth tax exemption

In case of Kapri International (P) Ltd v. Commissioner of Wealth Tax [TS-344-SC-2015], the SC denied wealth tax exemption for part of its factory building that was let out to its subsidiary. The SC noted that the taxpayer and its subsidiary are two distinct corporate entities that are carrying out their own businesses and are separately assessed. Therefore, part of the factory building used by the subsidiary, though used for dyeing garments for the taxpayer, cannot be said to be used by the taxpayer for its “own business” and hence not eligible for exemption under the provisions of Wealth Tax Act.

Decisions on profit-linked deductions

ITAT denies fresh five year 100% profit deduction to new units undertaking substantial expansion

There always existed an ambiguity on whether taxpayers setting up new units can make a fresh claim of tax holiday @ 100% for five years by undertaking substantial expansion during the qualifying period. This is because there is no express prohibition in relevant deduction provision for grant of such benefit.

In a group of cases, with the case of Hycron Electronics v. ITO [ITA No. 798/Chd/2012] as the lead matter, Chennai ITAT denied a fresh five-year profit-linked incentive deduction of 100% to a new industrial unit set up in specified areas in North Indian states on or after 7 January 2003 where such unit undertook substantial expansion before 1 April 2012. After a comprehensive analysis of the scheme of package incentives granted by the Government of India (GoI) , Circular No. 7/2003 dated 5 September 2003 issued by the Central Board of Direct Taxes (CBDT), the ITAT held that, considering the overall context of relevant provisions of the ITL and a harmonious construction of all sub-sections, a new unit set up on or after 7 January 2003 is entitled to 100% deduction for the

first five years and 25% (30% for corporate taxpayers) for the next five years. Although the same provision provides for a similar profit-linked deduction for a unit, which undertakes substantial expansion between 7 January 2003 and 31 March 2012, this benefit can be availed only by units, which existed prior to 7 January 2003 and cannot be availed by new units set up after 7 January 2003.

(For more details, please refer EY Alert dated 3 June 2015)

Transfer of existing employees to new software unit does not trigger violation of formative condition of incentive provision

In case of iGate Computer Systems Ltd. [TS-317-ITAT-2015(Pun)], certain old employees were transferred to new units in the year of formation. The Pune ITAT held that that the new unit was not formed by splitting up or reconstruction of an existing unit and hence, was eligible for claiming deduction of profits earned. The new unit satisfied the conditions of deduction provision of the ITL. Furthermore, the threshold of 50% of new employees to be employed in the new unit mandated under CBDT Circular No. 14/2014 was fulfilled by the taxpayer. However, while arriving at the above conclusion, the ITAT also noted that since the mandate of employing minimum 50% new employees in the new unit was not part of main provision, the taxpayer cannot be regarded to be under legal obligation to comply with the requirement of CBDT Circular.

Rulings on tax withholding

P&H HC disallows expenditure for non-withholding of taxes

In case of P.M.S Diesels & Ors v. CIT [TS-346-HC-2015(P&H), Punjab and Haryana HC (P&H HC) confirmed disallowance of expenditure due to non-withholding of taxes. The taxpayer relied on Allahabad HC’s ruling in case of CIT v. Vector Shipping Services (P) Ltd. [(2013)262 CTR(All)545], which held that, for disallowing expenses for non-withholding of taxes, amount should be “payable” and not “paid” by the end of the year. Thereafter, revenue’s Special Leave Petition (SLP) was dismissed by the SC.

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Considering this, the P&H HC did not accept the view taken by the Allahabad HC. Furthermore, the SLP was dismissed in limine without giving any reasons and, hence, it cannot be said that there has been a declaration of the law by the SC.

Tax withholding not required until the payees are identifiable and amount is quantifiable

In case of Dishnet Wireless Ltd. [TS-409-ITAT-2015(Chny)], the Chennai ITAT held that provision made in books on best estimate basis, in compliance with Accounting Standard – 29, for future dismantling and site restoration work on the premises acquired on long-term lease to install telecommunication equipment did not attract tax withholding, since the identity of payees and exact amount payable was not known. With regards to year-end expense provision towards services availed from various vendors for new subscriber verification and value-added services such as daily horoscopes, astrology, songs, wall paper downloads, cricket scores etc., the ITAT held that withholding will be triggered if the payees are identifiable and amount payable is quantifiable. The ITAT remanded the matter back to the tax authority to examine the facts and determine withholding obligation.

(For more details, please refer EY Alert dated 27 July 2015)

“Non-discrimination” relief for not withholding taxes, not affected by restrictive covenant of Article 9 dealing with TP adjustment

The Delhi ITAT in case of Mitsubishi Corporation India Pvt. Ltd. v. DCIT [TS-296-ITAT-2015(DEL)] held that the taxpayer was not liable to withhold taxes on purchases made from its nonresident (NR) associated enterprise (AE) by virtue of the “non-discrimination” clause in Article 24 of India–Japan Double Taxation Avoidance Agreement (DTAA). The restrictive clause in Article 24, which restricts applicability of the non-discrimination clause to cases covered by Article 9 (dealing with arms’ length adjustment for AEs), is limited to its content alone and does not completely override the operation of non-discrimination clause. Since in the instant case, disallowance for non-withholding of tax was independent of computation of total income pursuant to any transfer pricing (TP) adjustment,

taxpayer was entitled to invoke Article 24(3) of the DTAA. Article 24 read with Article 9 of DTAA does not permit deletion of enhancement of income due to TP adjustment, but permits deletion of enhancement of income due to non-withholding of tax.

Penalty for delay in deposit of taxes withheld is leviable even though it is paid voluntarily prior to issue of demand notice

In case of Reliance Industries Ltd. [TS-413-HC-2015(Bom)], the Bombay HC held that levy of penalty is justifiable for delay in deposit of withheld taxes even though it was deposited by the taxpayer before any notice determining the amount, or declaring the taxpayer to be in default, was issued by the tax authority. The HC rejected the taxpayer’s stand of financial difficulties and held that financial difficulties cannot be a justifiable reason to withhold tax from the amount paid and not paying it to the revenue. The HC also rejected taxpayer’s contention that the penalty proceedings were without jurisdiction in absence of a separate speaking order declaring the assesse as assesse-in-default. The HC noted that the delay in paying taxes withheld was not disputed, which made the taxpayer as “assesse-in-default” and thus, the need for issue of a notice and/or passing of an order for determining that the taxpayer is in default or deemed to be in default will not arise.

Subsequent extension of limitation period cannot be applied to past cases for which time limit had already elapsed

In the case of Oracle India Pvt. Ltd. v. DCIT [TS-406-HC-2015(Del)], the Delhi HC quashed the notice, holding taxpayer in default, issued under the extended limitation period under Finance (No. 2) Act 2014. In this case, the time limit to pass an order holding taxpayer in default had elapsed on 31 March 2011 under the relevant provision of the ITL as it then existed. The tax authority, however, initiated proceedings and made assessment at a later date based on the amendment introduced vide Finance (No. 2) Act, 2014, whereby the limitation to treat a taxpayer in default was increased to seven years. The HC quashed the

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notice and held that the proceedings, which had attained finality cannot be revived on the basis of a subsequent amendment, unless the legislature specifically made a retrospective amendment to that effect.

Excess amount refunded by builder upon cancellation of flat-booking not interest

In case of Beacon Projects Pvt. Ltd. v. CIT [TS-361-HC-2015(Ker)], the Kerala HC held that excess amount refunded by the taxpayer builder to original purchasers upon cancellation of construction agreement is not in the nature of interest and, accordingly, no taxes are required to be withheld from the payment. The amount refunded to the purchasers represents consideration that the purchasers paid toward undivided share in the property and also the cost of construction of the apartment. This work of construction was entrusted to the taxpayer. This relationship is not a debtor-creditor relationship nor is such payment in discharge of any pre-existing obligation. Hence, it cannot be termed as interest as defined under the provisions of the ITL.

Treaty rate prevails over punitive tax rate under ITL, even in the absence of a Permanent Account Number (PAN)

In case of DCIT v. Infosys BPO Ltd. [TS-408-ITAT-2015(Bang)], Bangalore ITAT referred to Pune ITAT ruling in case of Serum Institute of India Ltd. [TS-158-ITAT-2015(PUN)] and ruled that provisions of tax withholding should be read along with the machinery provisions of computing the tax liability. Therefore, there is no scope for withholding of tax at punitive rates under the provisions of the ITL when the benefit of DTAA is available. In any case, the scope of tax withholding cannot be more than the tax liability under DTAA. Furthermore, application of tax rate of 20% and ignoring the provisions of DTAA is a debatable issue. It is neither an arithmetical error nor an incorrect claim apparent from any information in the statement. Hence the assessment is not correct.

Payment by advertising company to hoarding contractor is sub-contract, not rent

In case of Madison Communication Pvt. Ltd. v. DCIT [TS-870-ITAT-2015(Mum)], the taxpayer, an advertising company, made payment for display of clients’

advertisement on hoarding/board and withheld taxes treating it as works contract. The tax authority contended that the said payment is in the nature of rent, since it was made for hiring the hoarding sites. The Mumbai ITAT noted that the taxpayer did not hire any space for putting up the hoarding. The prime responsibility of payment of rent of the sites is of the hoarding contractor and not of the taxpayer. The taxpayer had merely subcontracted the work for putting up hoardings to hoarding contractors. Accordingly, the ITAT ruled that same should qualify as a work contract under the tax withholding provisions of the ITL and not rent.

Expenditure deductibility

HC rules on deduction of unpaid electricity duty collected as an agent of Government

In the case of CESC Ltd. [TS-295-HC-2015(Cal)], the taxpayer was engaged in the business of generation and distribution of electricity. The issue before the HC was whether deduction for unpaid electricity duty payable to the state Government by the taxpayer, was covered by a specific provision in the ITL, which permits deduction for ”tax, duty, cess or fee, by whatever name called, under any law for the time being in force” on actual payment thereof. The HC held that, according to applicable state law, the primary and absolute liability to pay electricity duty was on the consumers of energy and not on the taxpayer, which merely acted as an agent of the state Government. The special provision of the ITL would apply only in a case when payment was to be made to the state Government in the capacity of the state as a sovereign and not when the taxpayer had collected money as an agent and the payment to the state Government was in its capacity as a principal. Since the taxpayer had merely acted as an agent of the state Government, the special provision of the ITL would not apply to the taxpayer. The HC also held that electricity duty collected as an agent of the state Government would not constitute part of the trading receipt of the taxpayer and, consequently, would not be income of the taxpayer.

(For more details, please refer EY Alert dated 30 May 2015)

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Weighted deduction for DSIR approved R&D expenditure cannot be disallowed

In the case of Tejas Networks Ltd. v. DCIT [TS-395-HC-2015(Kar)], the Karnataka HC ruled that the approval of R&D expenditure for “in-house” R&D facility has been entrusted to Department of Scientific and Industrial Research (DSIR) under the ITL and the tax authority has no jurisdiction to assess the expenditure claim. In case, the tax authority has any reservation on approval granted by DSIR, it should approach the apex tax administrative body, i.e., the CBDT, which would thereafter, resolve the same with DSIR.

The HC also ruled that since the tax authority, in the present case, by disallowing R&D expenditure approved by DSIR had exceeded its jurisdiction, the taxpayer could directly approach the HC by filing a writ petition even though the Taxpayer had an alternate appellate remedy before the ITAT.

(For more details, please refer EY Alert dated 24 July 2015)

Excise duty paid on behalf of contract manufacture is deductible as business expenditure

In case of Tupperware India Pvt. Ltd. v. CIT [TS-288-HC-2015(Del)], the Delhi HC allowed deduction of Additional Excise duty paid by the taxpayer on plastic moulds on behalf of contract manufacturers. The Additional Excise duty was levied on contract manufacturers pursuant to Custom & Central Excise Settlement Commission order on revaluation of moulds. This was discharged by the taxpayer. Even if the taxpayer were not to pay the Excise duty directly, it would have been required to pay it indirectly as increased prices to the contract manufacturer. Accordingly, the HC concluded that the said Excise duty was paid for the purpose of business and hence, is a deductible expenditure.

Issues on capital gains

Surrender of Floor Area Ratio amounts to transfer, liable to capital gain tax

In case of CIT v. Dinesh D. Ranka [TS-372-HC-2015(Kar)], Karnataka HC held that surrender of Floor Area Ratio (FAR) relating to land in favor of developer for construction of flats, amounts to transfer under the provisions of ITL and hence, is liable to capital gains tax. The HC rejected taxpayer’s contention that FAR is not a capital asset and hence, amount received upon surrender of FAR is a non-taxable capital receipt. The right to construct additional stories on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt. The HC further held that surrender of FAR amounts to relinquishment of taxpayer’s rights over the FAR and hence covered under the purview of “transfer”.

Purchase of shares from employees is an admissible expenditure in computing capital gains on sale of business undertaking

In case of Nitrex Chemicals India Ltd. [TS-455-ITAT-2015(DEL)], the taxpayer entered an agreement with a buyer to sell its business undertaking. As a part of the agreement, the taxpayer was to purchase shares from its employees through the Employees Stock Option Plan (ESOP) trust. The ITAT, observed that the amount paid by the taxpayer to the ESOP trust was necessary and a pre-condition to the slump sale agreement. The amount was non-recoverable and ultimately a contractual liability of the taxpayer. Therefore, it was wholly and exclusively for the purpose of effecting the transfer and could be claimed as an expense while computing capital gains.

Mumbai ITAT rules exempt capital gains not liable to MAT despite credit to Profit and Loss (P&L) account

The Mumbai ITAT, in the case of Shivalik Venture Pvt. Ltd. [60 taxmann.com 314 (2015)], held that the taxpayer had expressly stated in the Notes to Accounts that the exempt capital gains arising on transfer of capital assets to its wholly owned subsidiary company (WOS) are not includible in the ”book profit”. The Notes form an integral part of the P&L and, hence, even though the P&L reflects credit of

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capital gains, when read along with the Notes, the exempt capital gains stand excluded therefrom. Consequently, the net profit to be adopted for Minimum Alternate Tax (MAT) purposes is the net profit without inclusion of exempt capital gains. The Mumbai ITAT distinguished ruling of the Special Bench of the Hyderabad ITAT in case of Rain Commodities [40 SOT 265 (Hyd) (SB)], wherein it was held that exempt capital gains credited to the P&L are liable to MAT in the absence of any specific downward adjustment in the MAT provision.

(For more details, please refer EY Alert dated 21 August 2015)

Rulings specific to NRs

HC excludes stay extension caused by circumstances beyond an individual’s control, while determining residency in India

In case of CIT v. Suresh Nanda [TS-321-HC-2015(Del)], the Delhi HC held that the taxpayer should be considered as NR in India under the provisions of the ITL even though his stay exceeded 182 days. The HC noted that the taxpayer’s stay was under compulsion due to wrongful impounding of passport. The passport impounding order was later on invalidated as without authority of law. Relying on the SC ruling in case of JH Gotla and CWS (India) Ltd. [(1985) 156 ITR 323], the HC held that provisions relating to determination of the residency in India should be interpreted liberally as a literal interpretation of the provision will lead to unjust, unfair or absurd consequences. If the record discloses material that the stay (to qualify as resident of India) lacked volition and was compelled by external circumstances beyond the individual’s control, she or he should not be treated as a resident of India. The HC also clarified that this should not be treated as a thumb rule to the effect that each period of involuntary stay must invariably be excluded.

Other significant rulings

Allahabad HC lays down guidelines for granting stay of demand

In case of Jalan Jee Polytex Ltd. v. ACIT [TS-355-HC-2015(All), Allahabad HC provided guidelines for stay of recovery proceedings. The HC held that mere filing of

appeal does not stay recovery proceedings suo motu. To avail stay of demand, taxpayer will have to make out a case by furnishing details such as (i) Assessment history of the case (ii) taxpayer’s conduct and cooperation with the tax authority (iii) Points raised in Appeal (iv) chances of recovery in the event of dismissal of Appeal (v) the hardship that would be caused by persistent demand of the tax authority and (vi) any other relevant circumstances.

Assessment proceedings qualify to be ‘pending’ where order is passed but not served

In case of CIT v. Settlement Commission and Rasiklal Kantilal & Co [TS-308-HC-2015(Bom)], Bombay HC held that where assessment order was issued/passed by the tax authority but was not served on the taxpayer on the date of settlement application, the assessment proceedings can be said to be “pending” and hence, taxpayer was eligible to apply to the settlement commission.

Addition to income cannot be made solely on the basis of entry in tax credit statement

In case of Vikram Manibhai Mehta v. ITO [TA-471-ITAT-2015(Mum)], Mumbai ITATl held that addition on account of interest income cannot be made to income of taxpayer merely because it is being reflected in the tax credit statement (Form 26AS) of the taxpayer. The ITATl observed that the said interest income was, in fact, earned by the Hindu Undivided Family (HUF) status of the taxpayer. The deductor had inadvertently quoted taxpayer’s PAN in individual status instead of the HUF status while filing tax withholding statement. The taxpayer had already filed return of income in HUF status duly disclosing the above said interest income. The ITAT rejected tax authority’s contention that income should be assessed in the taxpayer’s PAN only as the tax credit is given in the hands of the taxpayer. The ITAT referred to the SC ruling in case of Ch. Atchaiah [218 ITR 239 (1966) wherein it was held that the tax authority can and must, tax the right person and the right person alone. The “right person” is meant to be the person who is liable to be taxed, according to law, with respect to a particular income. The ITAT, therefore, held that since the said income has rightly been disclosed in the tax return of HUF, it cannot again be taxed in the hands of the taxpayer in his individual capacity.

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Rectification application based on subsequent HC ruling is valid

In case of Jigna Construction v. ITO [TS-392-ITAT-2015(Ahd)], the taxpayer’s rectification application was rejected by the tax authority. During regular assessment, the tax authority had disallowed certain expenditure since the tax withheld on the same was deposited after the dates specified in the ITL. Subsequently, the taxpayer filed a rectification application based on the Gujarat HC ruling in case of CIT V. Omprakash R Chaudhury & Others (ITA No. 412 of 2013) wherein it was held that the amendment made to tax withholding provisions vide Finance Act 2010 is clarificatory and has to be applied retrospectively w.e.f. 1 April 2005. According to the amended provision no disallowance is to be made where the withheld taxes are deposited before the due date of filing the tax return.

The ITAT held that declining rectification application was contrary to the law settled by jurisdictional HC. A law laid down by the HC binds the lower judicial authorities. Furthermore, relying on the ruling of Madras HC in the case of Mettur Chemical and Industrial Corporation Ltd v. CIT [(1977) 110 ITR 822 (Mad)], ITAT ruled in favor of the taxpayer and held that the orders of the lower judicial authorities can be rectified on the basis of subsequent binding judicial precedents.

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

Citation Particulars Ruling of HC

CIT v. Sandvik Chokshi Ltd.

[TS-468-SC-2015]

Tax authority preferred an SLP against Gujarat HC’s order rejecting tax authority’s power to determine actual cost of asset for the purpose of determining depreciation

• The Taxpayer acquired an undertaking as a going concern on slump sale basis for a lump sum consideration without bifurcating consideration against individual asset.

• Tax authority contended that in absence of any amount mentioned in the agreement against each individual asset, value of assets individually cannot be ascertained.

• Tax authority, therefore, determined actual cost of the individual assets for the purpose of depreciation under the provision of ITL, which empowers the tax authority to determine actual cost of asset if the tax authority is satisfied that the main purpose of the asset transfer was reduction of income-tax liability.

• HC observed that tax authority did not suspect the slump sale and the consideration. Therefore, mere factum of respondent-taxpayer not having paid consideration for acquiring individual assets cannot be construed as illusory or colorable.

• HC further noted that at the time of transfer of assets, the taxpayer had no income for it to reduce its tax liabilities by way of such transfer. Hence, in this case, tax authority could not exercise its power to determine actual cost of asset.

CIT vs. Nirma Credit & Capital Ltd.

[TS-467-SC-2015]

Tax authority preferred an SLP against Gujarat HC’s order allowing deduction for utilization of amount withdrawn from investment deposit account toward term loans repayment.

• Tax authority denied taxpayer’s deduction claim, for deposit into investment deposit account, based on the argument that the amount withdrawn from the said deposit account was not utilized for the purpose of assets specified in the ITL, but used for making repayment of loan against trucks and tankers and against the security of plant and machinery.

• HC observed that under the relevant provision of the ITL, investment deposit may be utilized for repayment of principal amount of specified term loan and the purpose of term loans is not elaborated further.

• HC further noted that the said deduction provision was inserted to boost production in industry and thus unless it is impossible to do so, the provision of law should be interpreted in such a way that it encourages the growth of the industry as envisaged in long-term financial policy.

• HC thus allowed the claim of taxpayer.

16 Tax Digest

Recent decisions on taxation of Royalty/FTS paymentsSummarized below are some decisions on Royalty and FTS, also considering relevant DTAA provisions:

Case law Payment description Ruling

SkillSoft Ireland Ltd. [TS-429-AAR-2015]

AAR

India-Ireland DTAA

Receipt on sale of e-learning module • Taxpayer provided e-learning content.

• Taxpayer sold its e-learning courses to its Indian distributor, SkillSoft Software Services India Pvt. Ltd. on principal-to-principal basis, which in turn sold the product to Indian customers in its own name. The Indian end-users are granted non-exclusive, non-transferable license to use and access of the e-learning course.

• Authority for Advance Rulings (AAR) ruled that e-learning courses consist of software through which course content is delivered to end-customer and hence, the same would qualify as “literary work” under the definition of royalty provided under India-Ireland DTAA.

• The right to use the confidential information embedded in the form of computer software program itself constitute royalty under DTAA.

ABB Inc v. DDIT

[TS-386-ITAT-2-15(Bang)]

Bangalore ITAT

India-Finland DTAA

Receipts for providing business support services to AEs

• Taxpayer, a US company was engaged in providing business development, market services and other support services to its AEs in India.

• ITAT held that these services are not taxable as FTS under Article 12 of India-Finland treaty in absence of “make available”.

• ITAT further held that even if Indian AEs constitute Dependent Agent Permanent Establishment (DAPE) of the taxpayer in India, it will have no taxable profits to be taxed in the hands of the taxpayer in the absence of the finding that the DAPE has been paid lower remuneration than arm’s length remuneration.

Bharti Hexacom Ltd. v. ITO

[TS-333-ITAT-2015(Jpr)]

Jaipur ITAT

Roaming charges to other telecom operators

• Taxpayer was a telecommunication service provider engaged in the business of providing cellular mobile telephone services in Rajasthan.

• ITAT held that roaming charges does not amount to FTS in absence of human intervention.

• ITAT observed that for providing roaming facility, installation/ setting up/repairing/servicing/ maintenance capacity augmentation require human intervention but after completing this process, mere interconnection between operators was automatic and did not require any human intervention.

17 Tax Digest

Case law Payment description Ruling

Outotec GmbH v. DDIT

[TS-349-ITAT-2015(Kol)]

Kolkata ITAT

Sale of equipment, designs and drawings

• Taxpayer, a German company, was engaged in the business of providing innovative and environmentally sound solutions to customers in metals and minerals processing industry.

• ITAT, based on facts,

• ruled that income from sale of equipment, the property in which it stood transferred outside India, was offshore and, hence, was not taxable in India.

• Furthermore, on facts, drawings and designs supplied by the taxpayer to Indian customers for the purpose of setting up of plants, are to be characterized as sale of product outside India and not “Royalty” and, hence, not taxable under the provisions of the DTAA and the ITL.

(For more details, please refer EY Alert dated 30 June 2015)

CIT v. Grup Ism P. Ltd

[TS-306-HC-2015(Del)]

Delhi HC

India-UAE DTAA

Payment for liaison/solicitation services

• Taxpayer entered a contract with two UAE entities wherein one of the NR acted as an agent of the taxpayer for co-ordinating with various authorities in Abu Dhabi in relation to the project management consultancy awarded to the taxpayer and other NR solicited business for the taxpayer in various parts of the world except India.

• In relation to the payments made to the UAE entities, the taxpayer did not withhold any taxes since the same were not in the nature of consultancy charges and therefore, not taxable as FTS in India.

• The HC agreed with the taxpayer and held that consultancy services would mean something akin to advisory services. The services in question would not fall within the scope of FTS.

• The HC further held that Article 14 of the India-UAE DTAA dealing with “Independent Personal Services” applies to a company as well. Accordingly, income of the UAE entity should be taxable only in the UAE.

Idea Cellular Ltd. v. ADIT

[TS-325-ITAT-2015(Mum)]

Mumbai ITAT

Fees for arranging loan facility • Taxpayer paid “arranger fees” to HSBC Hong Kong (Arranger).

• The role of the Arranger was to liaise with the lender and to procure the loan for the borrower as well as to negotiate the terms and conditions of the facility with the lender on behalf of the borrower.

• ITAT held that these services cannot be classified as FTS under the provisions of ITL since the services of arranging of a loan cannot be equated with lending of managerial services at all. Moreover, it is not in the nature of “consultancy services” because, arranger did not provide any advisory or counselling services.

18 Tax Digest

Case law Payment description Ruling

ITO v Nokia India Pvt. Ltd.

[TS-378-ITAT-2015(Del)]

Delhi ITAT

Erstwhile India-Finland DTAA

Payment for reviewing design/drawings prepared by the contractor

• Taxpayer entered into an agreement with a Finnish company (FCo) for the purpose of reviewing design and construction plans for its upcoming manufacturing plant in Chennai, to ensure that Nokia’s global standards for the manufacturing facility are met.

• ITAT, based on facts, held that the services provided by FCo does not meet the requirement of make available and hence, is not FTS according to Article 13 of the DTAA.

• ITAT also held that the services rendered by FCo are restricted to review of design, drawings, cost estimates etc., prepared and developed by the contractor of the taxpayer. FCo was not responsible for preparation of any design, diagram etc., for the taxpayer and accordingly the services provided did not involve “development and transfer of technical plan or design” to constitute FTS under the DTAA.

DIT v. Lufthansa Cargo India

[TS-299-HC-2015(Del)]

Delhi HC

Payment for overhaul repairs to aircraft outside India

• Taxpayer was engaged in wet leasing of aircraft to foreign companies on international routes only.

• The HC held that the overhauling repairs of aircraft amount to technical services due to the level of technical competencies and ability required. It could not be equated with normal machinery repair.

• However, the HC held that since such services were utilized for the purpose of earning income outside India, it would get covered by the source rule exclusion and hence, not taxable in India under the provisions of ITL.

Measurement Technology Ltd.

[TS-430-AAR-2015]

AAR

India UK DTAA

Management and procurement services

• According to a service agreement, Group Operations Director of the applicant (a UK company) provided certain management and procurement services to its wholly owned subsidiary in India through telephone calls, e-mails, occasional visits to India (not exceeding 30 days in a year).

• The AAR held that these services were routine managerial activities and could not be classified as technical or consultancy services. Furthermore, in the absence of “make available” criteria being met, the services did not fall under the purview of FTS definition under the DTAA.

• ITAT also ruled that such services would not amount to Royalty since they do not lead to creation of any intellectual property.

19 Tax Digest

Case law Payment description Ruling

IMG Media Ltd. v. DDIT

[TS-483-ITAT-2015(Mum)]

Mumbai ITAT

India-UK DTAA

Fees received for capturing and delivering live audio and visual coverage of cricket matches

• Taxpayer, a UK company, entered into an agreement with Board of Control for Cricket in India (BCCI) wherein the taxpayer produced live audio and visual coverage (feeds) and delivered the same to the broadcasters, who are called licensees.

• The Tribunal noted the production of “program content” by using technical expertise is altogether different from the provision of technology itself. It does not satisfy the make available condition and accordingly the payment does not qualify as FTS under the DTAA.

• ITAT also held that the said fees do not amount to Royalty since BCCI become the owner of the program content produced by the taxpayer and the taxpayer did not retain any rights on them, once it is delivered to the BCCI.

20 Tax Digest

From the Tax Gatherer’s Desk

Ministry of Finance (MoF) releases Annual Report

India’s MoF recently released its Annual Report, which accounted for various activities undertaken by the MoF and certain key statistics relating to taxation for the tax year 2014–15. The Report indicates that the quantum of TP adjustments undertaken by Indian Tax Authorities in FY14–15 declined by nearly 20% as compared to the previous year, even though there was a sharp increase in the number of cases that were audited. The Report also throws light on India’s engagement with the Organisation for Economic Co-operation and Development (OECD)/G20 countries on the Base Erosion and Profit Shifting (BEPS) initiative and various other aspects in relation to tax transparency and tax administration. The Report confirms that India is actively participating in the meetings of focus groups and working parties in finalizing the BEPS deliverables. The Report also focuses on India’s expanding tax treaty network.

(Refer, EY Alert dated 21 May 2015)

CBDT notifies Cost Inflation Index (CII) for financial year 2015–16

Under the ITL, the cost of acquisition of certain capital assets is allowed to be indexed according to the inflation index notified by the CBDT for the respective financial year while computing capital gains tax. Accordingly, the CBDT has notified that CII for financial year 2015–16 is 1081.

(Source: Notification No. 60 /2015/F.No.142/10/2015-TPL], dated 24 July 2015)

Black Money Act: CBDT releases FAQs on one-time compliance window and prescribes procedure and valuation mechanism for undisclosed overseas assets prescribed

CBDT has released a circular containing CBDT’s clarifications on frequently asked-questions (FAQs) format relating to a one-time compliance window for undisclosed foreign assets under the provisions of The Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 (BMA). The CBDT also issued explanatory notes relating to one-time tax compliance for undisclosed foreign income and assets. The BMA has come into

effect from 1 July 2015 and applies to persons who are residents of India (other than not ordinarily residents). Considering the stringent nature of provisions, BMA offers one-time compliance window for a limited period as an opportunity for taxpayers to come clean and voluntarily disclose overseas undisclosed assets relating to tax year prior to 2015–16. Under this facility, once the taxpayer pays tax at 30% on value of the undisclosed foreign assets and an equal amount of penalty, the taxpayer is provided immunity from any other consequences under the Act. This one-time compliance window is available for a short period wherein the declarant will need to furnish declaration of undisclosed overseas assets to the tax authority by 30 September 2015 and pay taxes and penalty thereon by 31 December 2015.

The CBDT also seeks to clarify, by way of answers to 32 questions, various issues in relation to the scope of this scheme. The clarifications deal with issues, such as who qualifies for disclosure, which assets may get covered by the disclosure, basis and quantum of value of such disclosure, immunity available in respect of disclosed amount, etc. The Circular also deals with concerns about the scope of immunity from prosecution under other laws, as well as its impact of failure to make disclosures as part of regular income tax returns.

(Source: Circular No. 12 of 2015 dated 2 July 2015 and Circular No. 13 of 2015)

(Refer, EY Alerts dated 4 July 2015 and 7 July 2015)

India’s initiatives on Tax Transparency

India joins the Multilateral Competent Authority Agreement (MCAA) to facilitate standardized Automatic Exchange of Information (AEOI)

The need to exchange relevant information in bulk, freely and automatically, to address the problem of offshore tax evasion and avoidance has been acknowledged internationally. India, as a matter of policy and as a non-OECD G20 member and representative, is fully supportive of the various initiatives on tax transparency, including AEOI. Furthermore, as part of this commitment, India has joined the MCAA on AEOI on 3 June 2015 taking the total

21 Tax Digest

number of countries/jurisdictions agreeing to exchange information automatically in accordance with MCAA to 61. This would enable India to meet its commitment to be an “early adopter” committed to exchange information automatically by 2017.

(Refer, EY Alert dated 5 June 2015)

India signs Inter-Governmental Agreement with the US to implement Foreign Account

To enable financial institutions in India to comply with Foreign Account Tax Compliance Act (FATCA), the GoI signed an Inter-Governmental Agreement (IGA) with the Government of US on 9 July 2015. In addition to IGA, a memorandum of understanding is also signed between the GoI and the Government of US with respect to certain terms used in the IGA for compliance with FATCA. The India IGA comes into force on the date of India’s written notification to the US that India has completed its necessary internal procedures for enforcing the India IGA. India proposes to complete internal procedures at the earliest with a goal to have the India IGA enter into force on 30 September 2015. To comply with FATCA, the financial institutions in India will have to amend their Know Your Client Procedures and would be required to update their IT infrastructure in a manner that would capture the information that needs to be shared/reported.

(Refer, EY Alert dated 21 July 2015)

CBDT notifies Income-tax (11th Amendment) Rules, 2015 for furnishing statement of reportable accounts to comply with FATCA and Common Reporting Standard (CRS)

To implement India IGA and MCAA, necessary amendments were made to Section 285BA of the ITL. In exercise of the power conferred by Section 285BA of the ITL, GoI notified the Income-tax (11th Amendment) Rules, 2015 (Rules) to provide for registration of persons, due diligence procedures and maintenance and reporting of information by financial institutions in India. Rule 114F defines various terms such as financial asset, financial account, excluded accounts, participating and non-participating financial institutions, etc. Rule 114G prescribes information to be maintained and reported by the reporting financial institution such as name, address, taxpayer identification number, date and place of birth etc. Furthermore, Rule 114H specifies due diligence procedure for identifying reportable account and various forms. Alongwith the Rules, the notification has also prescribed Form No. 61B - Statement of Reportable Account under the relevant ITL.

(Refer, EY Alert dated 24 August 2015)

22 Tax Digest

Treaty Updates

India and Mauritius reach tentative understanding on revised tax treaty

According to media reports, India and Mauritius have reached a tentative understanding on a revised tax treaty. While there is no formal announcement as yet from the two Governments on this development, it has been reported that the revised tax treaty is expected to contain a “Limitation of Benefit” provision, which could potentially deny benefits of the tax treaty to cases involving treaty abuse. It has also been reported that the revised tax treaty could provide for a more beneficial rate for taxing interest income earned by a Mauritius tax resident from investment in Indian debt instruments. It is likely that the Indian authorities may seek to have an improved provision for “exchange of information” in the revised tax treaty.

(Refer, EY Alert dated 9 July 2015)

Revision to treaty between India and Korea signed

On 18 May 2015, India and Korea signed a revision to update the India-Korea (Rep.) DTAA (1985). According to the CBDT’s press release dated 6 may 2015, the revised DTAA provides for source based taxation of capital gains, provisions for making adjustments to profits of AEs on the basis of arm's length principle, provides for residence-based taxation of shipping income, provisions for service PE, and rationalization of tax rates in the articles on dividends, interest and royalties and FTS. The revised DTAA further incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities and incorporates limitation of benefits provisions, to ensure that the benefits of the DTAA are availed of by genuine residents of both countries.

(Source: IBFD)

23 Tax Digest

Happenings across the border

Saudi Arabian tax authorities introduce Virtual Service PE concept

Saudi Arabia’s Department of Zakat and Income Tax (DZIT) recently changed its approach to the interpretation of the PE concept with respect to services rendered by NRs in Saudi Arabia. DZIT has introduced the concept of a “Virtual Service PE,” which may result in the denial of the withholding tax relief claimed by NRs under the applicable DTAAs of Saudi Arabia. DZIT’s new approach is not in line with Saudi Arabia’s Income Tax Law and the PE concept outlined in the DTAAs concluded by Saudi Arabia, as well as the OECD and the United Nations (UN) Model Conventions. Nevertheless, it will likely affect most multinational enterprises, which have concluded or plan to conclude service arrangements with customers in Saudi Arabia. Taxpayers should carefully consider the matter in advance, taking into account the wordings of tax indemnity clauses and other provisions of service agreements.

(Source link)

Hong Kong enacts law to exempt private equity funds from Profits Tax

On 17 July 2015, the Hong Kong Inland Revenue (Amendment) Bill 2015 (the Bill), which sought to extend the current Profits Tax exemption for offshore funds to private equity funds (PE funds), was enacted. This law will apply to relevant transactions occurring on or after 1 April 2015. The provisions of this law will generally enable a PE fund to invest in overseas private companies without exposing itself to tax in Hong Kong.

Under this law, any gains generated by a special purpose vehicle company (SPV) from the disposal of a private company, referred to as an excepted private company (EPC), and will be exempt from tax in Hong Kong at the SPV level. This allows PE funds to use a Hong Kong incorporated company as a vehicle for holding their offshore investment and will facilitate Hong Kong’s development as a holding company jurisdiction. It however, remains to be seen whether an SPV, ultimately partially or wholly owned by a non-Hong Kong resident PE fund, formed solely for the purposes of holding and administering from Hong Kong an EPC, will create enough “substance” in order to claim treaty benefits.

(Source link)

Australian Tax Office issues new guidelines on tax corporate governance

On 20 July 2015, the Australian Tax Office (ATO) publically released a new Tax Risk Management and Governance Guide (the ATO Guide) making the ATO’s expectations for tax corporate governance explicit, emphasizing the importance of the involvement of company boards and directors in managing tax risk, and introducing new concepts for taxpayers to operationalize tax corporate governance. Corporate governance and associated controls are a factor in the ATO’s risk rating of taxpayers, and are considered in the context of compliance activities relating to taxpayers. In this regard, the ATO Guide requires corporate taxpayers and boards to actively manage tax risk and ensure that they have robust processes in place.

(Source link)

Update on the proposed introduction of corporate taxation in the UAE

On 30 June 2015, the United Arab Emirates (UAE) Ministry of Finance (MOF) published its 2014 Annual Report (Report). One of the initiatives outlined in the Report is the establishment of a tax system within the UAE by creating a tax department to collect and implement federal taxes. In line with this initiative, the Report indicated that the MOF’s corporate tax policy has been approved by the UAE Cabinet, a corporate tax law has been drafted and a common value added tax (VAT) law framework for Gulf Cooperation Council (GCC) countries has also been drafted.

A related media report provides that while the authorities are still in the process of evaluating the social and economic impact of these proposed laws, it is expected that these draft laws will be finalized in the third quarter of this year, according to His Excellency Al Khouri. However, there has been no statement on the proposed tax rate(s) or as to when these laws are expected to take effect. Based on the Report, the MOF is considering the introduction of corporate tax in the UAE to meet its objective of developing and ensuring the sustainability of the Federal Government’s financial resources.

(Source link)

24 Tax Digest

US Treasury Department proposes revisions to US model tax treaty to address US tax base erosion

On 20 May 2015, the US Treasury Department released proposed revisions to the US Model Income Tax Convention (the US Model), which was last updated in 2006, to address certain concerns with the erosion of the US tax base in light of changes in the international tax environment. The revisions include provisions that would:

• Deny treaty benefits for dividends and certain deductible payments made by a domestic corporation, treated as an expatriated entity during the 10 years following the completion of the inversion transaction

• Deny treaty benefits to certain income items benefiting from a “special tax regime” in the beneficial owner’s country of residence

• Tighten the “triangular provision” that would deny treaty benefits when certain income is attributable to a PE outside the beneficial owner’s country of residence (e.g., deny treaty benefits for income attributable to a US branch that does not give rise to a PE under the relevant tax treaty)

• Make certain modifications to the limitation-on-benefits article, including adding a “derivative benefits test” and a base erosion prong to the “subsidiary of a publicly traded company” test

The Treasury Department issued technical explanations for proposed revisions, except for those to the limitation-on-benefits article, and has requested comments on proposed revisions.

(Source link)

25 Tax Digest

OECD BEPS updates

OECD issues two new reports on the implementation of the CRS, updates global voluntary disclosure publication

On 7 August 2015, the OECD released two new reports to help jurisdictions and financial institutions implement CRS, a global standard for automatic exchange of financial account information. In addition, the OECD released a publication, which provides an up-to-date review of voluntary disclosure programs in 47 jurisdictions. The CRS reports are specifically aimed toward government stakeholders, but will be of interest to all financial institutions in order to understand how CRS may potentially be implemented into local law. In particular, the CRS Implementation Handbook provides more details on several key issues including data protection and security, the possibility that implementation may vary by jurisdiction and the potential for using a single FATCA and CRS reporting system.

(Source link)

OECD releases revised discussion draft on follow up work on treaty abuse under BEPS Action 6

On 22 May 2015, the OECD released a revised discussion draft in connection with the follow-up work on Action 6 on the prevention of treaty abuse under the BEPS Action Plan. The document titled, BEPS Action 6: Preventing Treaty Abuse (the Revised Discussion Draft or the Revised Draft) describes proposals developed by the OECD after the issuance of first discussion draft on 21 November 2014. The Discussion Draft identified 20 different issues to be addressed as part of the OECD’s follow-up work on its report on Preventing the Granting of Treaty Benefits in Inappropriate Circumstances. Specifically, the Discussion Draft highlighted issues with respect to the proposed limitation on benefits provision, in particular regarding the treaty entitlement of collective investment vehicles (CIVs) and Non-CIV funds; the proposed general anti-abuse rule based on a principal purpose test; and other issues involving the proposed new treaty tie-breaker rule, the treatment of PEs in third countries, and the interaction between tax treaties and domestic anti-abuse rules. As with other BEPS discussion drafts, the Revised Draft includes the caveat that the views and proposals do not

represent consensus views of the OECD’s Committee on Fiscal Affairs or its subsidiary bodies. The OECD has indicated its intention to produce a final report on the recommendations under Action 6 by September 2015.

(Source link)

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

On 15 May 2015, the OECD released a revised discussion draft in connection with Action 7 on the artificial avoidance of PE status under its Action Plan on BEPS. The document titled BEPS Action 7: Preventing Artificial Avoidance of PE Status (the Revised Discussion Draft or Revised Draft) substantially refines the initial discussion draft on Action 7, which was released by the OECD on 31 October 2014 (the Initial Discussion Draft or Initial Draft). The Initial Discussion Draft sought comments on 14 proposed options for modifying the definition of PE under Article 5 of the OECD Model Tax Convention on Income and on Capital (the Model Convention), which generally would lower the PE threshold and tighten the exceptions to PE status. The Revised Draft contains a specific proposal to modify Paragraphs (4), (5) and (6) of Article 5 to address each focus area. In addition, the Revised Draft contains proposed amendments to the existing commentary accompanying the Model Convention. Discussion Draft states that it does not represent the consensus view of the OECD’s Committee on Fiscal Affairs or its subsidiary bodies and seeks comments on its proposals. The OECD has indicated that it does not intend to hold a public consultation on the Revised Draft.

(Source link)

26 Tax Digest

Case Laws

Indirect TaxCustoms Duty

Supreme Court

Countervailing duty cannot be levied on imports if Excise duty on domestic manufacture is exempt

Customs Tariff Act, 1975; in favor of assessee

The assessee is carrying out the business of importing and exporting shawls and scarves. It imports shawls and scarves from Nepal. On this import, the revenue authorities contended that the assessee is liable for payment of additional duty (also known as countervailing duty) imposed under Section 3 of the Customs Tariff Act, 1975. The assessee resisted the additional duty on the ground that locally manufactured goods of similar nature, namely, shawls and scarves are exempt from payment of Excise duty on unbranded goods and when similar unbranded goods produced in India do not incur any liability of payment of Excise duty, there is no question of payment of additional duty under Section 3 of the Customs Tariff Act.

It was further contended that additional duty can be imposed on an imported article to counterbalance the Excise duty leviable on the like article made indigenously, or on the indigenous raw materials, components or ingredients, which go into the making of the like indigenous article.

The SC held that section 3(1) of the Customs Tariff Act, 1975 is an independent, charging section and that, the ”additional duty”, which it speaks of, is not a Customs duty but is a countervailing duty. The purpose of countervailing duty is to protect the domestic market from unhealthy competition. Once there is no Excise duty on such goods produced domestically, the question of levying the additional duty in the form of giving such a protection does not arise at all. Therefore, the SC held that the appellant is not liable to pay any additional duty under Section 3 of the Customs Tariff Act, 1975 and allowed refund of additional duty paid.

Ahujasons Shawlwale (P) Ltd. v. Commissioner of Customs [2015 (319) ELT 573 (SC)]

Supreme Court

Depreciation method according to Circular is a reasonable method for valuation of second-hand capital goods

Customs Act, 1962, Customs Valuation (Determination of Price of Imported Goods) Rules, 1988; in favor of revenue

The assessee is a public sector undertaking of the State of Uttar Pradesh and has been undertaking construction projects in India and outside India. For a contract awarded to the assessee in Iraq, it had purchased certain equipment/machinery of foreign origin. After the project in Iraq was over, these machineries were sent to Nepal and thereafter, to India. When the machinery was brought to India, the valuation was ascertained by employing a Chartered Engineer. The assessee, on the said value, applied the formula of depreciation for a period of three years for which it was used in Nepal.

Revenue contended that, since no sale was involved, the value of the machinery had to be fixed by applying depreciation method in terms of Circular No. 493/124/86-CUS dated 19 November 1987. This Circular provides for the rate of depreciation that has to be applied in the first year, second year, third year and onwards etc.

The SC held that in the instant case it is only transfer of the goods from Iraq to Nepal and Nepal to India. Since there was no sale, therefore, the question of determination of transaction value did not arise. According to section 14 (1) of the Customs Act, 1962, valuation of imported goods is to be arrived at by ascertaining the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of import or export. In those cases, where it is not possible to determine the price at which such goods are ordinarily sold or offered for sale, Rule 8 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 provides for residual method and stipulates that the value will be determined using reasonable means consistent with the principles and general provisions of the said Rules.

One of the reasonable methods consistent with the principles of valuation will be the depreciation method. A Circular dated 19 November 1987 was issued to ensure that in employing the method of depreciation

27 Tax Digest

the authorities do not take divergent views and apply a uniform method. This has been rightly relied upon by the revenue authorities. Therefore, the exercise adopted by the assessee for valuation of equipment was erroneous.

U P State Bridge Corporation Ltd v. Commissioner of Customs [2015-TIOL-144-SC-CUS]

High Court, Karnataka

Interest on refund is payable after three months from the date of application for refund of Customs duty

Customs Act, 1962; in favor of assessee

The assessee had imported certain items and cleared the same on payment of Customs duty. Later, the assessee realized that the goods, which were imported, were exempt from Customs duty under Notification dated 2 June 1998. Accordingly, the assessee filed an application for refund of Customs duty on 24 December 1998 under Section 27 of the Customs Act, 1962. The SC allowed the refund by its order dated 21 February 2011. Accordingly, the Assistant Commissioner of Customs, granted refund vide order dated 13 April 2011, but refused to pay interest on the ground that the refund was given within three months from the date of SC order. On an appeal by the assessee, the Tribunal held that the assessee was entitled to interest from 24 March 1999 (which is three months after the date of application for refund) to 13 April 2011. Aggrieved by the same, Revenue filed an appeal before the HC.

The HC held that interest would be payable from the date of application for refund if the amount is not refunded within three months from the date of the application. It cannot be interpreted that the liability to pay interest would be from the date of the order of the Tribunal or the Court. Accordingly, it held that interest will be paid from 24 March 1999 till the actual date of the payment. It further held that Revenue will be liable to pay additional interest at the rate of 9% per annum (besides the notified interest) on the amount, which is found liable for payment as on 13 April 2011, till its actual payment, being the compensation for hardship and litigation cost incurred by the respondent.

Commissioner of Customs v. Pfizer Products India Pvt. Ltd. [2015-TIOL-1958-HC-KAR-CUS]

High Court, Madras

Penalty cannot be waived in case of confiscation of goods

Customs Act, 1962; in favor of revenue

The assessee filed a Bill of Entry for clearance of certain goods declared as “Hot mix plant Batch type with electronic controls and bag type filter arrangement 160TPH”. On examination of the imported goods, the Commissioner of Customs held that the goods imported by the assessee were screen drum, electrical cabinets, geared motors and conveyor belts, bearings etc. They were only components of complete hot mix plant and not a complete hot mix plant. The revenue authorities consequently, denied exemption from duty and ordered confiscation of goods with an option to redeem the same on payment of fine of INR500,000 and imposed penalty of INR100,000.

The HC held that on plain reading of Section 112 of the Customs Act, 1962, it is clear that once confiscation is ordered, levy of penalty is automatic. On examination of imported goods, import documents and the correspondences between the importer, the supplier and the local representative, the Commissioner came to the conclusion that the importer misdeclared the goods. Furthermore, it is admitted by the importer that the goods imported are certain components of the hot mix plant and not a complete plant. Since the respondent has misdeclared the goods as hot mix plant, the Commissioner came to the conclusion to confiscate the goods. Once confiscation is ordered, penalty is automatic.

Commissioner of Customs (Import) v. Patel Engineering Ltd. [2015-TIOL-845-HC-MAD-CUS]

Excise Duty

Supreme Court

Cash discount has to be taken into account in arriving at the “price” for the purpose of valuation of goods under Central Excise

Central Excise Act, 1944; in favor of assessee

The assessee is engaged in the manufacture of excisable goods, namely filter elements, inserts, cartridges and components. For effecting stock transfers, the assessee

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filed excise declarations claiming deduction towards Sales tax, cash discount and volume discount on Excise duty payable to arrive at the assessable value under Section 4 of the Central Excise and Salt Act, 1944. The question before the SC was whether the cash discount had to be deducted from the price for arriving at the assessable value for the purpose of Excise Duty.

The appellant argued that Section 4 of the Central Excise and Salt Act, 1944 as amended in 2000, has made no change in the situation qua cash discount as it obtained under the old Section 4 and therefore, cash discount has to be allowed.

Revenue contended that the introduction of “transaction value” into the amended Section 4 makes a world of difference and that only what is actually paid is to be looked at for the purpose of valuation of the appellant’s goods. If it is found that what is “actually paid” is not the discounted price, then the transaction value cannot possibly include cash discount.

The SC held that Section 4 as amended introduces the concept of “transaction value” so that on each removal of excisable goods, the “transaction value” of such goods becomes determinable. “Transaction value” as defined in Section 4(3)(d) has to be read along with the expression “for delivery at the time and place of removal”. The expression “actually paid or payable for the goods, when sold” only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of “transaction value” is therefore, the agreed contractual price. Furthermore, the expression “when sold” is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are a subject matter of an agreement of sale. Therefore, it is clear that “cash discount” has to be taken into account in arriving at “price”, since the price after cash discount has been agreed between the parties.

Purolator India Ltd. v. Commissioner of Central Excise [2015-TIOL-193-SC-CX]

Supreme Court

Valuation according to “best judgment assessment” for goods captively consumed in execution of turnkey projects

Central Excise Act, 1944, Central Excise Valuation Rules, 1975; in favor of assessee

The assessee manufactures smoke detectors and sells them in loose condition and as a part of turnkey projects. No separate values are recovered for the sale of these goods and its price forms part of an overall consideration mentioned for such turnkey contracts. The issue before the SC was regarding the valuation under Central Excise of smoke detectors sold as a part of turnkey projects where no separate amounts are recovered.

The SC held that Section 4(1)(a) of the Central Excise Act, 1944 is not applicable as the normal prices of smoke detectors consumed in the execution of works contract is not ascertainable. Section 4(1)(a) values goods at prices at which such goods are ordinarily sold by the assessee to a buyer and where the assessee and the buyer are not related to each other and the price is the sole consideration for the sale. Therefore, the applicable section is section 4(1)(b), which mentions that where normal price of the goods is not ascertainable, the price has to be ascertained according to the Central Excise (Valuation) Rules, 1975.

On perusal of the Valuation Rules, it observed that Rule 4 would be applicable only in cases where the value of “such goods”, which are sold by the assessee for delivery at any other time nearest to the time of the removal of the goods under the assessment, appears to be reasonable to the concerned officer. In the present case, the goods would not fall within the description “such goods” as sold to the other buyers in loose form when they are used captively by the assesse in the turnkey projects. Accordingly, Rule 7 dealing with best judgment assessment shall apply as none of the preceding rules apply to the case in hand.

UTC Fire and Security India Ltd v. Commissioner of Central Excise [TS-316-SC-2015]

29 Tax Digest

Supreme Court

Mounting of “water purification and filteration system” on a base frame amounts to manufacture as it results into a new and different commodity

Central Excise Act, 1944; in favor of revenue

In the present case, the question before the SC was whether the activity of mounting of “water purification and filteration system” (WPFS) on a base frame carried out by the assessee amounts to manufacture or not.

Revenue contended that assembly of the components resulted into a new product known as WPFS with different name and character and it amounted to “manufacture” as per Section 2(f) of the Central Excise Act, 1944 and, therefore, appellant was liable to pay Excise duty. The assessee argued that the job of assembling filter housing cartridges, UV units, timer, mounting plate, screw and tubings and fittings on a base plate did not amount to manufacture of any new product.

The SC noted that a fact finding is arrived at by all three lower authorities that the activity undertaken by the appellant amounts to “manufacture” within the meaning of Section 2(f) of the Central Excise Act, 1944, since the end result of the process or activity resulted in a new and commercially different commodity known as water purification and filtration system.

Poonam Spark P L v. Commissioner of Central Excise [2015-TIOL-158-SC-CX]

High Court, Karnataka

Rebate of Automobile Cess including Education Cess (EC) and Secondary and Higher Education Cess (SHEC) thereon, on export of vehicles admissible, being a part of Excise duty

Central Excise Rules, 2002; in favor of assessee

The assessee (petitioner) is engaged in manufacture of motor cycles/two wheelers. It manufactured the vehicles at their Mysore plant and cleared them on payment of duty to their Hosur plant from where they were exported. The petitioner filed a rebate claim under Rule 18 of the Central Excise Rules, 2002 (CER) pertaining to rebate of duty in respect of the duty paid on clearance of the goods, which came to be exported from Hosur plant.

Revenue contended that Automobile Cess and EC and SHEC on such Automobile Cess are not specified duties according to Notification No. 19/2004 Central Excise (NT) (w.r.t. grant of rebate of Excise duty paid on goods exported to any country other than Nepal and Bhutan) and hence, the petitioner is not entitled for rebate of the same.

The HC held that the expression “duty” used in Rule 18 of CER would include such of those duties levied under Section 3 of the Central Excise Act, 1944, which includes the Cess defined under Rule 2(c) of Automobile Cess Rules, 1984. Automobile Cess has been collected as a duty of excise in terms of the provisions of Central Excise Act. Therefore, Automobile Cess and EC and SHEC levied thereon, though not expressly specified under the notification dated 6 September 2004, would be covered within the phrase “duty”. The HC, relying on Banswara Syntex Ltd. v. UOI [2007-TIOL-553-HC-RAJ-CX] held that Automobile Cess is a duty of excise and thus, rebate claimed by petitioner is admissible.

TVS Motor Corporation Ltd. v. UOI [2015-TIOL-1478-HC-KAR-CX]

Mumbai Tribunal

Printed forms which are not for general use are not “marketable”, and hence, the activity is not manufacture

Central Excise Act, 1944; in favor of assessee

The assessee is engaged in printing various forms such as hospital form, leave application form, reservation form application, form for passes etc. The forms are used by the Central Railway for their own day-to-day functioning as captive use. Revenue alleged that Central Railway printing press is engaged in manufacture of excisable goods, i.e., registers, account books, various forms, order books, receipt books, letter pad, memorandum pads and similar articles and are classified under Chapter tariff heading 4820.10 and it attracts duty. The products are commercially known in the market and hence, marketable and liable to excise duty.

The assessee contended that the product is of printing industries and correctly classifiable under Chapter 4901, which attracts nil rate of duty. Furthermore, the goods are not for sale as they are used for captive consumption and, hence, it is not marketable.

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The Tribunal, relying upon ratio spelt out in various rulings, held that products in question are in the nature of various blank printed forms, and not registers, books and pads and, therefore, they are not classifiable under Chapter 48. Furthermore, the product being of printing industries, the same is classifiable under Chapter 49 and hence, not liable to Excise duty. The printed forms contained details related to and for the purpose of various day-to-day functions of Central Railway. These products are indeed used in-house by Central Railway. The product is not useful for any other person other than Central Railway. The Tribunal also held that the product is not marketable because the same is neither capable of being bought and sold nor is commercially known as marketable. It further held that since Revenue failed to discharge burden as regards “marketability” of product, assessee’s claim that, goods not “marketable” must be accepted.

Dy Chief Manager, Central Railway v. Commissioner of Central Excise [TS-245-CESTAT-2015-EXC]

Service Tax

Supreme Court

Service tax not leviable on transportation of goods from mother vessel to jetty onshore as it is a part of import transaction

Finance Act, 1994; in favor of assessee

In the present case, the SC confirmed the decision taken by the Tribunal in the case of United Shippers v. CCE [2014-TIOL-2500-CESTAT-MUM].

Earlier, the Tribunal had held that any service in respect of cargo handling can take place only after the customs transaction is completed. Therefore, the question of levying Service tax in case of transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to Customs duty. This was evident from the fact that Section 14 of the Customs Act, 1962 relating to determination of value of imported goods for the purposes of levy of Customs duty and the Customs Valuation Rules, 2007 were amended (w.e.f 10 October 2007) to specifically include barge charges and handling charges in the transaction value of the imported goods.

It further held that in a composite contract for transportation services and cargo handling services, which provides for separate rates for these activities, Service tax cannot be levied under a single category of cargo handling service, by treating transportation as subordinate to cargo handling. Moreover, coastal transportation of goods was not taxable prior to July 2009 as it is well settled that new entry cannot be subjected to levy under an existing entry unless carved out therefrom.

Commissioner of Central Excise v. United Shippers Ltd. [2015-TIOL-172-ST-LB]

Supreme Court

Wharfage charges collected by Gujarat Maritime Board are not taxable under the category of ”Port Services”

Finance Act, 1994; in favor of assessee

The assessee, Gujarat Maritime Board (GMB), administers and operates minor ports in Gujarat. GMB entered an agreement with Larsen & Toubro, which ultimately became Ultratech Cement Ltd. (UCL) whereby a licence was granted to UCL to construct and use a jetty for landing of goods and raw materials manufactured by UCL in their cement factory, which was situated close to the said jetty.

Revenue alleged that Service tax was payable on wharfage charges collected by GMB as owner of the jetty under the taxable category of “Port Services” and also for providing a space for landing of goods from vessels, which are allowed to berth there. GMB contended that wharfage charges were only a measure to calculate licence fee and in terms of the agreement there is no Service rendered to UCL and, therefore, no Service tax could be collected.

The SC, upholding the Tribunal’s order, held that the agreement makes it clear that it is the duty of UCL to maintain the jetty in good order and condition during the tenure of the agreement. Furthermore, UCL is required to provide certain services including dredging, navigation, water supply etc. This makes it clear that during the recent agreement it is not GMB but UCL who keeps the said jetty in such condition so that it is capable of enabling vessels to berth alongside it to load and unload goods. Therefore, there is no service rendered by GMB to UCL. So far as the direct berthing facilities provided for captive cargo is concerned, the lease rent charged for use of the

31 Tax Digest

waterfront also does not include any service in relation to a vessel or goods and cannot be described as “Port Services”. In view of this, the SC concluded that the amount collected from UCL as “wharfage charges” by GMB for maintenance of jetty including dredging is not taxable as “Port Services”.

Commissioner of Central Excise v. Gujarat Maritime Board [2015-TIOL-155-SC-ST]

Supreme Court

Commission received by distributors on mutual fund distribution not liable to Service tax under category of “Business Auxiliary Service”

Finance Act, 1994; in favor of assessee

The issue before the SC was whether the commission received by distributors on mutual fund distribution was liable to Service tax under the category of “Business Auxiliary Services” in terms of Circular dated 5 November 2003 read with Notification No. 13/2003-ST dated 20 June 2003.

Notification No 13/2003 granted exemption to services provided by a commission agent under “Business Auxiliary Services”. Circular dated 5 November 2003 clarified that the commission received by distributors on mutual fund distribution would be liable to Service tax as it would not fall within the expression “Business Auxiliary Services”.

The said Circular was quashed by the HC in the impugned judgment on the ground that it amounts to foreclosing discretion or judgment that may be exercised by the quasi-judicial authority while deciding a particular lis under particular circumstances. Hence, the HC held that such clarification was illegal, contrary to proviso to Section 37B(a) of Central Excise Act, 1944, which categorically states that such kind of circulars cannot be issued. In view of this, the SC upheld the HC’s decision finding no error in the impugned judgment and held that commission received by distributors on mutual fund distribution was not liable to Service tax under the category of “Business Auxiliary Services”.

Union of India & Ors v. Karvy Stock Broking Ltd. [2015-TIOL-170-SC-ST]

32 Tax Digest

High Court, Kerala

Excess service tax paid inadvertently was merely a deposit and could not be treated as payment of Service tax for the purpose of Section 11B of Central Excise Act, 1944

Finance Act, 1994; in favor of assessee

The assessee (petitioner) is engaged in providing retail financial services such as share brokering, marketing of initial public offer (IPO) of companies and mutual funds, corporate advisory services etc. The petitioner had provided services to Bank of Muscat SAOG located outside India and the payment for the same was received by the petitioner in convertible foreign exchange. Accordingly, it qualified as export of service. However, the petitioner had erroneously discharged Service tax on the same. Accordingly, it filed a refund claim for the amount of Service tax paid erroneously. The refund claim was rejected on the grounds of limitation in terms of Section 11B of Central Excise Act, 1944 as it was filed after one year from the date of receipt of payment.

The HC held that the levy was purely due to mistake of fact in understanding the law. The petitioner assumed that the transaction, for which it has paid tax, is covered under the law. In that view, it has no color of tax for the purpose of levy by the Revenue. The distinguishing feature for attracting the provisions under Section 11B is that the levy should have the color of validity when it was paid and only consequent upon interpretation of law or adjudication, the levy is liable to be ordered as refund. In the present case, levy is not in accordance with the provisions of the Service tax and therefore, such payment cannot be taken as a payment made relatable to Section 11B of the Central Excise Act, 1944. Accordingly, the refund was allowed.

Geojit BNP Paribas Financial Services Ltd. v. Commissioner of Central Excise Customs and Service Tax [2015-TIOL-1602-HC-KERALA-ST]

Mumbai Tribunal

Service of downloading images from website is taxable under the service category of “Online information and Database access or Retrieval service”

Finance Act, 1994; in favor of revenue

The assessee has a website wherein the viewer is allowed to view photographs free of cost. However, data can be downloaded for a fee and only after entering into an agreement with the assessee and agreeing with the terms and conditions. Revenue authorities are of the view that the services provided by the appellant would be covered under the category of “Online information and Database access or Retrieval service” in as much as they are storing data on website and recovering fees for allowing downloading of data.

The assessee contended that when there is a specific restriction for downloading of the image or photograph, it would mean that the said services would not get categorized under “Online information and Database access or Retrieval service”. Furthermore, the appellant has got copyright over the photographs, which are displayed in the website.

The Tribunal held that the assessee’s client has an access to the image or photograph, which the client wants to download for the purposes of placing an ad or for research. This can be done so only through the computer network. Furthermore, the information or data contained in the website may have a copyright, but when this information is only available on the website for accessing and subsequent downloading, the copyright on the said images becomes incidental, and the main activity is making information available for retrieval. Accordingly, services provided by the assessee would be covered under the category of “Online information and Database access or Retrieval service”.

Photolibrary India Pvt. Ltd. v. Commissioner of Sales Tax [2015-TIOL-1013-CESTAT-MUM]

Mumbai Tribunal

Reimbursement of salary and social security amounts to foreign associate not liable to Service tax under “Manpower Recruitment and Supply Agency Service”

Finance Act, 1994; in favor of assessee

The assessee company reimbursed certain amount to its foreign associate company towards salary and social security amount of the employees of the foreign company working for the assessee company in India. Revenue issued show cause notice (SCN) alleging that the assessee was

33 Tax Digest

liable to pay Service tax under reverse charge mechanism under the category of “Manpower Recruitment or Supply Agency Services”.

The assessee, referring to various clauses of the agreement entered with the foreign associate, claimed that Tax Deducted at Source (TDS) and provident fund amounts were deducted from the salaries of the employees evidencing that such employees were working for the assessee. The Tribunal observed that paying social security amounts of the employees means that the assessee discharges its obligation toward its employees. Furthermore, the sole obligation of the foreign associate is to depute employees and the said obligation ceases on actual deputation of the employees. The deputed employees work on the same terms as the assessee’s own employees and therefore, deputed employees are on the rolls of the assessee. Accordingly, the Tribunal held that reimbursements made to foreign associate are not liable to Service tax under the category of “Manpower Recruitment or Supply Agency Services”.

Lear Automotive India Pvt. Ltd. v. CCE [2015-TIOL-851-CESTAT-MUM]

CENVAT Credit

High Court, Punjab & Haryana

CENVAT credit admissible in respect of Service tax paid on lease rentals and civil construction services used for setting up of a factory prior to 1 April 2011

CENVAT Credit Rules, 2004; in favor of assessee

The assessee manufactures metal sheet components for motor vehicles and supplies the same to Maruti Udyog Ltd., which uses the same for manufacturing automobiles. The assessee availed CENVAT credit of Service tax paid on civil work of constructing a plant/factory in the premises, and for rental of the immovable property leased by them on which the plant was erected.

The revenue contended that the said services were not eligible for CENVAT credit and, accordingly, issued SCN for recovery of the credit along with interest and penalty.

The HC held that Section 2(l) of CENVAT Credit Rules, 2004 (CCR) which defines “input services” can be divided into two parts namely the “means” part and the “includes” part and that the present case would fall under both the parts of the definition as the phraseology is wide enough to cover the said services. The land was taken on lease to construct the factory. The factory was constructed to manufacture the final product. The land and the factory were required directly and in any event indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. However,

34 Tax Digest

for the factory, the final product could not have been manufactured and the factory needed to be constructed on land.

The definition of “input service” also specifically includes the services used in relation to setting up of a factory. The definition of input services was amended from 1 April 2011, as a result of which, services used for setting up a factory were deleted from the “includes” part. The HC relied on the judgment in the case of Coca Cola India Pvt. Ltd. v. Commissioner of Central Excise[2009 (242) ELT 168(BOM)] and allowed CENVAT credit of Service tax paid on civil work of constructing a plant/factory, and for rental of the immovable property leased by them on which the plant was erected.

Commissioner of Central Excise v. Bellsonica Auto Components India Pvt. Ltd. [TS-374-HC-2015-P&H-ST]

High Court, Karnataka

CENVAT credit allowed on outward transportation of goods even after 1 April 2008 where the goods are delivered at the destination of the buyer

CENVAT Credit Rules, 2004; in favor of assessee

The assessee manufactures and sells cement. According to the assessee, sale of cement was made at the destination of the buyer and hence, the assessee should be entitled to CENVAT credit on input service on transportation of cement. The definition of “input service” according to Rule 2(l) of CCR was amended by which the words “clearance of final products, up to the place of removal”, was substituted by “clearance of final products, from the place of removal”. A Circular dated 20 October 2014 was issued, which clarified the meaning of “place of removal” in the definition of “input service”. According to the Circular, relevant consideration to determine the place of removal was the place where sale has taken place or when the property in goods passes from the seller to the buyer. In view of the change in definition of input service provided in Rule 2(l) of CCR w.e.f. 1 April 2008 the Tribunal granted the benefit of CENVAT credit to the assessee for the period up to 31 March 2008 but has denied the same from 1 April 2008 onward.

The question before the HC was whether the Tribunal was correct in disallowing CENVAT credit of Service tax paid on goods transport agency service, which is availed by the manufacturer on outward transport from the place of removal for the period after 31 March 2008 subsequent to the amendment of definition of “input service” under rule 2(l)(ii) of CENVAT Credit Rules.

The HC held that as long as sale of the goods is finalized at the destination, which is the door step of the buyer, the change in definition of “input service” which came into effect from 1 April 2008 would not make any difference. A perusal of the invoice makes it clear that the goods were to be delivered and sale completed at the address of the buyer and no additional charge was levied by the assessee for such delivery. Therefore, it is clear that the sale was completed only when the goods were received by the buyer. Furthermore, title of the goods had passed on from the seller to buyer only at the place of destination, which is the address of the buyer. As such, the buyer had no right over the goods till they were delivered. In view of the above facts, the HC held that the assessee will be entitled to the benefit of CENVAT credit of Service tax paid on outward transportation of goods even after 1 April 2008.

Madras Cements Ltd. v. Commissioner of Central Excise [2015-TIOL-1682-HC-KAR-CX]

Mumbai Tribunal

CENVAT credit in respect of “Air Travel Agent” service in relation to travel of company’s personnel for business purposes, admissible

CENVAT Credit Rules, 2004; in favor of assessee

The issue before the Tribunal was whether assessee was eligible to avail CENVAT credit on “Air Travel Agent” service.

The assessee argued that Air Travel Agent expenses are incurred for traveling, by the company’s personnel, to different locations in relation to work at site and their headquarters where output services are being rendered. Air Travel Agent services have been procured for issue of tickets in the name of personnel of the assessee company. The bills for the services are in the name of the company.

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The bills contained the name of the personnel who has traveled for business purposes of the assessee company. It was further stated that the traveling is for business purposes and CENVAT Credit is eligible on the input service of Air Travel Agent.

The Tribunal held that business of the assessee being mainly works contract, wherein the works are situated at different places, the personnel are required to travel for business purposes between various work sites and Head Office. Although the bills are raised in the name of the company, the traveling tickets are in the name of the personnel, as the company being an artificial judicial person, cannot travel itself as it exists only on paper in the eyes of law. It is only the personnel of the company, who travel for the business of the company and the CENVAT Credit in respect of Air Travel Agent service should be allowed.

Commissioner of Central Excise v. Sunil Hi Tech Engineers Ltd. [TS-309-CESTAT-2015-ST]

Ahmedabad Tribunal

CENVAT credit admissible on inputs and capital goods used in the R&D and Quality Control laboratory as it is essential for manufacture of finished goods

CENVAT Credit Rules, 2004; in favor of assessee

The assessee manufactured test batches of certain goods falling under Chapter 39 of the Central Excise Tariff Act, 1985. Certain tests were carried out on injection moulding machine and the tests were matched with the samples supplied by the customers. The resultant samples manufactured and tested were sent to customers for approval, post which, regular batches were manufactured and supplied to the customers. Accordingly, assessee had taken CENVAT Credit on inputs and capital goods used in the Research and Development (R&D) and Quality Control laboratory, which is situated inside the factory premises. The revenue argued that R &D machinery for tests of samples and input used in R&D laboratory cannot be considered as used in the manufacture or in relation to manufacture of excisable goods.

Therefore, the issue in the present case was whether the assessee was entitled to avail CENVAT Credit on inputs and capital goods used exclusively in the R&D and Quality Control laboratory situated inside the factory premises.

The Tribunal observed that the assessee was using the laboratory for carrying out tests regarding the necessary color texture to the plastic granule according to specifications and requirements of the customers, to match global norms and also for developing new products for the customers etc. The assessee will have to meet the specifications of the customers, before the products are manufactured and cleared on payment of duty, by suitable tests and norm fixation. Such an activity in R&D and Quality Control laboratory is essential for manufacture of finished goods and has to be held as in relation to manufacture of excisable goods and will be eligible for CENVAT Credit under CCR.

Sabic Innovative Plastics India Pvt. Ltd. v. Commissioner of Central Excise & Service [TS-396-CESTAT-2015-EXC]

VAT/CST

Supreme Court

Refund should not be ordered by the HC when the assessment order has reached finality

Haryana General Sales Tax Act, 1973; in favor of revenue

In the present case, the assessing authority had completed the assessment and passed an ex-parte order raising an additional demand. After the receipt of the aforesaid assessment order the respondent moved an application for rectification of the assessment order and claimed that there was no tax payable but claimed refund of the tax deducted at source. The assessing authority rejected the application for rectification of assessment order on the ground that the rectification can be done only of a clerical or arithmetical mistake apparent from the records and it has to be done within two years of passing of the assessment order.

Later on, the assessee filed a Writ Petition before the HC requesting refund of the tax paid. The HC observed that the respondent had filed an application for rectification of the assessment order within the time prescribed under the Act. It was the duty of the assessing authority to have considered the said application within a reasonable time and the assessing authority could not have rejected the

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application of the respondent for rectification only on the ground of delay. The HC further observed that the assessment order passed by the assessing authority has attained finality. Despite this, the HC directed the refund of the tax paid.

The SC held that, the HC should not have passed the order of refund as the assessment order passed by the assessing authority had attained finality. It is only when a rectification of application is considered and decided by the assessing authority then the respondent would be entitled for refund of the tax paid. In view of the above, the SC set aside the judgment and order passed by the HC. It further directed the assessing authority to consider the application filed by the assessee and pass appropriate order accordingly.

Bharat Construction Corporation v. Excise and Taxation Commissioner [2015-TIOL-134-SC-CT]

High Court, Gujarat

Retrospective cancellation of registration of the selling dealer cannot deprive the purchasing dealer of its right to claim input tax credit

Gujarat Value Added Tax Act, 2003; in favor of assessee

The assessee had purchased certain goods from different sellers who were registered under the provisions of the Gujarat VAT Act. The assessing authority imposed tax along with interest and penalty on the ground that registration of the seller who had sold the goods to the assessee has been cancelled with retrospective effect. The assessee challenged the same by way of filing an appeal. The Tribunal partly allowed the appeal preferred by the assessee and the interest and penalty were waived.

The question before the HC was whether the Tribunal erred in deleting the levy of interest and penalty merely because assessee had excess input credit adjustable against tax demand.

The HC held that the Tribunal has committed no error in removing the interest as well as penalty imposed upon the assessee. It further held that it is an undisputed fact that when the assessee had purchased the goods from the dealer/seller, the assessee was registered under the provisions of the Gujarat VAT Act. Subsequently, its registration has been cancelled. Therefore, the assessee

37 Tax Digest

cannot be deprived of its right of getting credit of input tax available under the provisions of VAT Act. The HC placed reliance on the decision of State of Maharashtra v. Suresh Trading Company [109 STC 439] wherein the SC held that, whatever may be the effect of a retrospective cancellation of registration certificate upon the selling dealer, it cannot have any effect upon any person who has acted upon the strength of a registration certificate when the registration was current.

State of Gujarat v. Delta Rubber and Plastics Products [2015-TIOL-1835-HC-AHM-VAT]

High Court, Punjab & Haryana

Value of immovable property and any other thing done prior to the date of entering into the agreement of sale is to be excluded while computing VAT on value of goods transferred in the course of execution of works contract

Punjab Value Added Tax Act, 2005; in favor of assessee

A writ petition was filed before the HC wherein the issue involved was whether the value of immovable property and any other thing done prior to the date of entering into the agreement of sale is to be excluded, in order to compute VAT on value of goods transferred in the course of execution of works contract.

The HC dismissed the writ petition placing reliance in the case of CHD Developers Ltd., Karnal v. State of Haryana & Ors. [2015-TIOL-1521-HC-P&H-VAT] wherein Division Bench of the Punjab & Haryana High Court held that in case the provisions of law are seeking to charge Sales tax on any amount other than the value of goods transferred in the course of execution of works contract, the provisions would be ultra vires the Constitution of India. The tax is to be computed on a value not exceeding the value of transfer of property in goods on and after the date of entering into agreement for sale with the buyers. Where “deductive method” has been prescribed under the rules for ascertaining the taxable turnover, ordinarily it should include a residuary clause in consonance with the mandate of law to cover all situations, which can be envisaged.

Essentially, the value of immovable property and any other thing done prior to the date of entering of the agreement of sale is to be excluded from the agreement value. Furthermore, VAT is to be directed on the value of the goods at the time of incorporation and it should not purport to tax the transfer of immovable property.

Manchanda and Manchanda Builders Pvt. Ltd. v. State of Haryana and Others [2015-TIOL-1752-HC-P&H-VAT]

High Court, Tripura

VAT leviable on the value of set top boxes (STBs) supplied in connection with the provision of Direct-To- Home services

Tripura Value Added Tax Act, 2004; in favor of revenue

The issue before the Tripura HC was whether VAT will be leviable on the value of STBs provided to the customers in connection with the provision of Direct-To-Home services. The HC observed that the assessee had not sold the STBs to the customers. However, there can be no manner of doubt that the right to use these goods, i.e., the STBs, has been transferred to the customers. It further observed that in today’s world, nothing is given free of cost. The cost of such STB is obviously included in the activation charges and/or the monthly subscription. The HC observed that the main issue, therefore, was whether the contract can be easily divided and the value of the goods can be ascertained with exactitude. The HC thus held that as far as the present case is concerned the State is assessing the tax solely on the basis of the value of STBs as given in the books of account of the petitioners. The assessee had claimed depreciation etc., on these STBs. The value of the goods was easily separable and discernible and the state had full authority to levy VAT on the sale part of the transaction, i.e., the value of the STBs. Therefore, it was held that VAT will be levied on the value of the STBs supplied by the assessee.

Bharti Telemedia Ltd. v. State of Tripura [2015-VIL-227-TRI]

38 Tax Digest

Maharashtra Sales Tax Tribunal

In the absence of any inextricable link between the import and sale to Indian customers, the transaction cannot be considered to be a sale in the course of import. Back-to-back contract by itself does not establish and prove that it is a sale in the course of import

Central Sales Tax Act, 1956; in favor of revenue

The assessee placed back-to-back orders on its foreign vendors for purchases of the goods ordered by Indian customers. The goods were being cleared by the customers themselves, such that the Bills of Entry (BoE) were also being filed in the name of such customers. The dispute before the Maharashtra Sales Tax Tribunal was whether the transaction qualified as a sale in the course of import. The Tribunal held that on the basis of the design of the transaction, it cannot be said that the purchase orders placed by Indian customers on the assessee occasioned such imports under the first limb of Section 5(2) of Central Sales Tax Act, 1956 (CST Act). It was also held that the sale was not effected by transfer of document of title to the goods before the goods had crossed the customs frontier of India under the second limb of Section 5(2) of the CST Act. The Tribunal noted that the goods were not being purchased according to any specific order with particular customer in India and that the goods were not exclusively manufactured according to the drawings, specification and design supplied by the customers, but were general goods for which there were more than one customer in India. It was further observed that the assessee was a sole distributor and the relationship between foreign suppliers and the assessee was on a principal-to-principal basis. The Tribunal concluded that back-to-back contracts by themselves do not establish and prove that the first limb of Section 5(2) is attracted and hence, it cannot be considered as a sale in the course of import.

Avdel India Pvt. Ltd. v. State of Maharashtra [2015-VIL-17-MSTT]

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Key statutory updates

Service tax

Circular clarifying rate of Service tax on restaurant service

The Central Board of Customs and Excise (CBEC) has clarified that with the increase in the applicable rate of Service tax from 12.36% (including EC and SHEC) to 14% with effect from 1 June 2015, the effective rate of restaurant service having the facility of air-conditioning or central air heating has increased from 4.9% to 5.6% of the total amount charged.

Circular No. 184/03/2015-ST dated 3 June 2015

Circular on detailed manual scrutiny of Service tax returns

CBEC has laid down revised guidelines for detailed scrutiny of Service tax returns, with effect from 1 August 2015. It would be conducted in respect of those assessees whose total Service tax paid (Cash + CENVAT) for the financial year 2014–15 is below INR5 million. However, on the direction of the Chief Commissioner, scrutiny of the returns can be made for an assessee whose total Service tax paid exceed INR 50 lakhs, but in no case such assessee can be subject to both audit and manual scrutiny. The scrutiny will be done on yearly basis, by combining two half-yearly Service tax returns so that reconciliation with Income Tax Return (ITR) is possible. CBEC also prescribes the procedures to be followed for selection of returns based on certain risk parameters, methodology and documentation of findings by department officers.

Circular No. 185/04/2015-ST dated 30 June 2015

Clarification relating to waiver of issuance of SCN and conclusion of proceedings in Service tax and Central Excise

• CBEC clarifies that SCN can be oral and the representation against it also oral, if an assessee pays tax/duty, interest and penalty equal to 15% of the tax/duty and makes a request in writing that SCN may not be issued to him, in respect of cases involving extended period of limitation.

• CBEC has also clarified that, proceedings will be deemed to be concluded, in cases not involving fraud,

suppression of facts etc. if an assessee pays the tax along with interest, either before or within 30 days of issuance of SCN.

F.No.137/46/2015-ST dated 18 August 2015

Central Excise Duty

Amendment to Notification 30/2004-CE dated 9 July 2004

CBEC vide Notification no. 34/2015-CE substitutes the earlier condition by providing that, the excisable goods should be manufactured from input on which appropriate duty of excise or CVD has been paid. Furthermore, no credit of such excise duty or CVD on inputs has been taken by the manufacturer of the goods (and not the buyer of such goods).

CBEC further clarified vide Notification No. 37/2015-CE, that appropriate duty or appropriate additional duty includes zero duty or concessional duty, whether or not read with any relevant exemption notification

Notification No. 34/2015-CE dated 17 July 2015 and Notification No. 37/2015-CE dated 21 July 2015

Amendment to Notification 1/2011-CE dated 1 March 2011

CBEC vide Notification no. 35/2015-CE amends the condition given in Notification no. 1/2011 by mentioning that, in order to avail the exemption, excisable goods should be manufactured from inputs or by utilizing input services on which appropriate Excise duty or CVD or service tax has been paid. Furthermore, no credit of such Excise duty or CVD or Service tax is taken by the manufacturer of the goods (and not the buyer of such goods), under the provisions of CCR.

CBEC further clarified vide Notification No. 38/2015-CE, that appropriate duty or appropriate additional duty or appropriate service tax includes Nil duty/Service tax or concessional duty/service tax, whether or not read with any relevant exemption notification.

Notification No. 35/2015-CE dated 17 July 2015 and Notification No. 38/2015-CE dated 21 July 2015

40 Tax Digest

Amendment to Notification 12/2012-CE dated 17 March 2012

CBEC vide Notification no. 36/2015-CE amends condition no 16, 20, 25 and 52A of the Notification no. 12/2012-CE.

CBEC vide Notification no. 39/2015-CE clarified with respect to the amendments vide Notification no. 36/2015-CE that appropriate duty or appropriate additional duty or appropriate service tax includes Nil duty/Service tax or concessional duty/service tax, whether or not read with any relevant exemption notification.

Notification No. 36/2015-CE dated 17 July 2015 and Notification No. 39/2015-CE dated 21 July 2015

Notification regarding digitally signed invoices in Central Excise and Service Tax.

CBEC specifies the following conditions, safeguards and procedures for issue of invoices, preserving records in electronic format and authentication of records and invoices by digital signatures.

• Assessee will use Class 2 or Class 3 Digital Signature Certificate issued by the Certifying Authority in India.

• Assessee will intimate the required details to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise at least 15 days in advance.

• Assessee will maintain separate electronic records for each factory or each service tax registration

• Assessee will, on request by an officer, produce specified records in the electronic form and invoices through e-mail or on a specified storage device in an electronically readable format for verification

• An officer, during an enquiry, investigation or audit, may direct an assessee to furnish printouts of the records in electronic form and invoices

• Assessee will maintain backup of records in electronic form for a period of 5 years.

Notification No. 18/2015-CENT dated 6 July 2015

Clarification in the TRU issued by the Ministry of Finance, on verification of digitally signed invoices and documents

Para 3 of the TRU Clarification letter, issued by the Ministry of Finance, prescribes the procedure for verification of digitally signed invoices and documents. Assessee will provide access to the web link of the company or forward the digitally signed invoice or document by e-mail on requisition by the Central Excise Officer for verification.

Contents of the digitally signed documents/invoice can be verified as under:

• Automatic pop-up of message, once digitally signed invoice is opened in a pdf format for the first time, to validate who has signed the document

• Document modification history to provide the information as to whether the document has been modified or not, post signing of the document

• Access to key information from the signature panel and acceptance of signer post verification of necessary particulars

• TRU Clarification - F. No. 224/44/20140-CX.6 dated 6 July 2015

Customs

Central Government notifies that Principal Director General of Directorate of Revenue Intelligence (DRI) may exercise powers of CBEC under Section 4 and 5 of Customs Act, 1962 for appointing officers for adjudication of cases investigated by the Directorate

Notification No. 60/2015-Cus (NT) dated 4 June 2015

Circular regarding guidelines for Principal Director General

CBEC issues guidelines pursuant to delegation of power vide Notification no. 60/2015 Cus (NT). Additional Director General (ADG), DRI will be assigned cases involving duty and seizure value of INR50 million or more, cases of overvaluation and existing cases with erstwhile Commissioner. Jurisdictional Commissioner of Customs should be assigned cases with more than one Customs

41 Tax Digest

Commissionerate on the basis of maximum duty evaded. However, cases made by Commissionerates or DRI wherein the adjudicating officer is ranked below ADG, DRI will continue to be dealt by CBEC.

Circular No. 18/2015-Cus dated 9 June 2015

Notification extending Customs duty exemptions — amends Notification No.12/2012-Cus dated 17 March 2012

CBEC extends Customs duty exemption on import of capital goods, raw material and consumables by all ship repair units. Moreover, it deletes the requirement of registration with Director General of Shipping.

Notification No. 43/2015-Cus dated 4 August 2015

Amendment to Authorized Economic Operator (AEO) scheme

CBEC extends the validity of the AEO certificate from 3 years to 5 years or for such further period as extended by DGICCE subject to yearly review of the same by AEO Program Manager.

Circular No. 21/2015-Cus dated 19 August 2015

Anti-dumping duty (ADD) notifications

The Central Government imposes ADD on the following items:

• Import of acrylic fiber originating in or exported from Korea RP and Thailand for a period of five years

Notification No. 27/2015-Cus (ADD) dated 1 June 2015

• Import of Hot Rolled Flat Products of Stainless Steel of ASTM Grade 304 with all its variants originating in, or exported from People’s Republic of China, the Republic of Korea and Malaysia for a period of five years.

Notification No. 28/2015-Cus (ADD) dated 5 June 2015

• Import of Vitamin E, originating in or exported from the People’s Republic of China for a period of five years

Notification No. 29/2015-Cus (ADD) dated 10 June 2015

• Import of Nylon Tyre Cord Fabric, originating in or exported from the People’s Republic of China for a period of five years

Notification No. 30/2015-Cus (ADD) dated 12 June 2015

• Import of steel and fiber glass measuring tapes and their parts and components, originating in or exported from the People’s Republic of China for a period of five years

Notification No. 31/2015-Cus (ADD) dated 9 July 2015

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• Import of Phenol, originating in or exported from South Africa for a period of five years

Notification No. 32/2015-Cus (ADD) dated 10 July 2015

• Import of Compact Fluorescent Lamps (CFL), originating in or exported from the People’s Republic of China for a period of five years.

Notification No. 34/2015-Cus (ADD) dated 28 July 2015

• Import of Vitamin C, originating in or exported from the People’s Republic of China for a period of five years.

Notification No. 38/2015-Cus (ADD) dated 6 August 2015

• Import of flax or linen fabric having flax content of more than 50%, originating in or exported from the People’s Republic of China and Hong Kong for a period of five years

Notification No. 39/2015-Cus (ADD) dated 12 August 2015

• Import of Potassium Carbonate, originating in or exported from Taiwan and Korea RP for a period of five years

Notification No. 40/2015-Cus (ADD) dated 12 August 2015

• Import of Diketopyrrolo Pyrrole Pigment Red 254 (DPP Red 254), originating in or exported from the People’s Republic of China and Switzerland for a period of five years

Notification No. 41/2015-Cus (ADD) dated 17 August 2015

• Import of caustic soda, originating in or exported from China PR and Korea RP for a period of five years

Notification No. 42/2015-Cus (ADD) dated 18 August 2015

• Import of Phosphoric Acid of all grades and all concentration (excluding Agriculture or Fertilizer grade) from Korea RP for 5 years

Notification No. 45/2015-Cus (ADD) dated 24 August 2015

Special Economic Zones (SEZs)

Digitalization of applications/permissions by SEZ units/developers

Ministry of Commerce digitalizes more applications/permissions for SEZ developers/units w.e.f. 1 July 2015.

For developers, applications inter alia for

• Change of SEZ sector (Form C3)

• Addition/deletion of land in notified SEZ (Form C4/C5)

• De-notification of notified SEZ (Form C6) and

• Form I for CST exemption

For units, applications inter alia for

• Issuance of Importer exporter Code (IEC)

• Issuance of Registration-Cum-Membership Certificate and

• Approval of list of services would have to be submitted online

Moreover, no manual interface may be allowed from said date w.r.t. applications already identified and conveyed vide Circular dated 28 October 2014.

Circular No. 12/25/2012-SEZ (Pt) dated 30 June 2015

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Foreign Trade Policy (FTP)

Notification/Circulars

Amendment in “Para 3.24 (j) Privileges of Status Holders” and Para 2.84 of Chapter 2 of HBP 2015–20

Ministry of Commerce limits entitlement of Status Holders to export freely exportable items on free of cost basis to INR1 million or 2% of average annual export realisation during preceding three licensing years, whichever is lower, with immediate effect.

Notification No. 9/2015-2020 and Public Notice No. 18/2015-20 dated 4 June 2015

Circular revising Handbook of Procedures (HBP) – amendments in the EOU/ EHTP/ STP/ BTP Schemes

Pursuant to reduction of turnover limit from INR150 million to INR100 million and above in preceding financial year for an EOU/STP/EHTP/BTP unit to avail fast track clearance, CBEC makes corresponding amendments in Circular No. 17/2006-Cus allowing import basis pre-authenticated procurement certificate and Circular No. 19/2007-Cus, which waives physical verification of imported/indigenously procured duty-free goods before re-warehousing.

Circular No. 19/2015-Cus dated 9 June 2015

Directorate General of Foreign Trade (DGFT) clarifies that supply of a service by units located in DTA to SEZ units are ineligible for rewards under Service Exports from India Scheme (SEIS)

Policy Circular No. 1/2015-2020 dated 11 June 2015

Clarification regarding clearance of goods after expiry of Nominated Agency Certificate

DGFT clarifies that ships would be eligible for clearance regardless of actual date of arrival of consignment in India, if importer has valid Nominated Agency Certificate on date of import, i.e., date of shipment/dispatch of goods from supplying country, as evidenced by bills of lading.

Policy Circular No. 2/2015-2020 dated 12 June 2015

Insertion of new Para 4.49A on Special Notified Zone (SNZ) in FTP 2015–2020

DGFT notifies provision of import, auction/sale and re-export of rough diamonds in SNZ.

Notification No. 11/2015-2020 dated 15 June 2015

CBEC revises the list of export categories/sectors ineligible for duty credit scrip entitlement under Merchandise Exports from India Scheme (MEIS)

Accordingly, items restricted for export under Schedule-2 of Export Policy in ITC (HS), sugar of all types and forms, export of milk and milk products, and meat and products thereof unless specifically notified in Appendix 3B, will be ineligible. Moreover, items prohibited for export under Schedule-2 of Export Policy are also excluded from the Scheme. This amends Notification No. 24/2015-Cus dated 8 April 2015.

Notification No. 38/2015-Cus dated 15 June 2015

Trade notices

Release of Mobile Application for DGFT-related services

As a part of trade facilitation, DGFT has now developed a mobile application, which has been released for the Android platform, to provide various trade-related information in electronic format in addition to the current website of the DGFT.

Trade Notice No. 6/2015 dated 29 June 2015

Online payment facility for application fees through credit/debit cards

DGFT has launched online payment facility for application of fees toward various schemes of FTP, through credit/debit cards and electronic fund transfer from 53 banks. This is a crucial step toward paperless and 24x7 online functioning environment.

Trade Notice No. 7/2015 dated 9 July 2015

Public notices

DGFT amends several provisions of HBP of FTP 2015-2020, including those relating to Advance authorization and EPCG Schemes as well as deemed exports w.e.f. 1 April 2015

• Amends Para 4.38 relating to “Clubbing of Advance Authorizations,” thereby

1. Disallowing clubbing in respect of authorizations issued on or before 31 March 2009,

2. Allowing clubbing of only such authorizations, which have been issued within 36 months from

44 Tax Digest

date of issue of earliest authorization, in case of issuance before 5 June 2012, and

3. In case of issuance after 5 June 5 2012, authorizations issued within 18 months

• Further amends Para 4.42 relating to ”Export Obligation Period and its extension”, thereby restricting period of extension to 12 months (6 + 6) subject to payment of composition fee, from date of expiry of EO period of advance authorization;

• Amending Para 7.02(c) (Criteria for claiming deemed export benefits), DGFT states that since supply of goods to EPCG authorization holder is not exempted from Terminal Excise duty (TED) payment, claim for TED refund may be made to concerned Regional Authority (RA), according to invalidation letter.

Public Notice No. 16/2015-2020 dated 4 June 2015

DGFT issues corrigendum to Public Notice No.16 dated 4 June 2015

DGFT amends Para 4.38 (viii) (b) and (c) pertaining to clubbing of advance authorizations, to align it with para 4.38(viii) (a) and para 4.42(c) pertaining to export obligation. Accordingly, in case of second extension of authorization, composition fee will be charged at 0.5% per month of FOB value of exports made, w.e.f. 1 April 2015

Public Notice No. 20/2015-2020 dated 9 June 2015

DGFT notifies amendments to the HBP of FTP 2015–20, in order to facilitate transitional arrangements with respect to filing of applications and validity of Status Holder Certificate w.e.f. 1 April 2015

Public Notice No. 17/2015-2020 dated 4 June 2015

DGFT inserts Para 2.54A in HBP of FTP 2015–20

DGFT notifies procedure for importing certain categories of processed metallic scrap, at designated ports having Scanner/Radiological Detection Equipments (RDEs). Moreover, inserts 3 new Appendices 2G-1, 2H-1 and 2N-1.

• Appendix 2G-1 prescribes the list of the designated Customs ports having RDEs

• Appendix 2H-1 prescribes the format of Pre-Shipment Inspection Certificate to be issued by Inspecting Agency/Scrap Yard

• Appendix 2N-1 prescribes the format of self-declaration cum legal undertaking

Public Notice No. 23/2015-2020 dated 30 June 2015

DGFT amends areas of operation of 35 Pre-shipment Inspection Agencies (PSIAs) as prescribed under appendix 2G of the Appendices and Aayat Niyat Forms of FTP 2015-20.

Public Notice No. 24/2015-2020 dated 2 July 2015

Enlistment under Appendix 2E- Agencies Authorized to issue Certificate of Origin (Non-Preferential).

DGFT authorizes the following agencies to issue Certificate of Origin (non-preferential)

• Federation of Kutch Industries Associations, Gujarat

• Indian Merchants’ Chamber, New Delhi

• M/s National Chamber of Industries & Commerce, Uttar Pradesh

Public Notice No. 25/2015-2020 dated 6 July 2015

DGFT notifies additions/amendments in Table 1 (containing list of Country Groups) and Table 2 [containing ITC (HS) codewise list of products with reward rates] of Appendix 3B under the MEIS.

Public Notice No. 27/2015-2020 dated 14 July 2015

Corrigendum to Public Notice No. 27 dated 14 July 2015

DGFT notifies corrections in Table 2 of Appendix 3B under the MEIS, pertaining to rate of rewards w.r.t. exports to countries ,e.g., Japan, Sri Lanka and Bangladesh.

Public Notice No. 28/2015-2020 dated 16 July 2015

Amendment in Para 3.05 of HBP of FTP 2015–20

DGFT provides facility for exporters to continue to file applications for benefits under Chapter 3 schemes of earlier FTPs, according to the procedures prescribed in corresponding HBPs.

Public Notice No. 29/2015-2020 dated 4 August 2015

45 Tax Digest

DGFT further clarifies the procedure for filing applications under MEIS and SEIS by units located in SEZs and EOUs

Public Notice No. 30/2015-2020 dated 26 August 2015

VAT

Andhra Pradesh

• Every VAT dealer is required to submit details of invoices of purchases and sales effected from/to VAT dealers before filing their monthly returns.

Circular No. CCT Ref No.A I(1)/26/2014 dated 17 June 2015

Assam

• Online facility has been introduced for issuance of Form ‘C’ and ‘F’. This has been made mandatory for interstate purchases/stock transfers made from 1 April 2015.

Circular No. 6/2015 No.CT/COMP49/2013/7 dated 4 June 2015

Delhi

• Delhi Government issues instructions regarding processing of VAT refunds and directs officers to record certifications for approval of refund above INR1 million.

Circular No.12 of 2015-16 dated 10 June 2015

• Delhi Government notifies Return for dealers engaged in e-commerce through web portals with immediate effect. The Notification prescribes as follows:

• All persons engaged in such transactions must enrol on the Department portal and file basic information in Form EC-I.

• Return should be filed on quarterly basis in Form EC-II and EC-III by 10th day of a month following relevant quarter.

• Return for a particular quarter can be revised by end of next quarter

Notification No.F.3 (515)/Policy/VAT/2015/330-41 dated 26 June 2015

Maharashtra

• Online facility for payment of Entry tax has been introduced. Procedure for submission of returns after making e-payment of said tax through payment gateway of any of 17 nationalized banks has also been notified.

Trade Circular No.9T of 2015 dated 1 July 2015

• The Maharashtra Government concludes that VAT can be levied on transfer of right to use goods of intangible nature even if it is transferred to multiple users.

Trade Circular No.11T of 2015 dated 13 July 2015

Tamil Nadu

• Tamil Nadu Authority for Clarification and Advance Ruling clarifies that sale of electrical goods to SEZ Unit for execution of Works Contract is exempted from tax.

ACAAR No. 15/2014-15 dated 22 June 2015

• Tamil Nadu Authority for Clarification and Advance Ruling clarifies that sale of steel to SEZ Unit for execution of Works Contract is exempted from tax.

ACAAR No. 13/2014-15 dated 14 July 2015

46 Tax Digest

RegulatoryForeign Exchange Management Act (FEMA) 1999

1. Amendments in Employee Stock Option Plan (ESOP) provisions under Foreign Direct Investment (FDI) regulations

The RBI has reviewed and amended the FDI regulations (Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000) in respect of issuance of ESOP/Sweat equity shares.

The definitions of ESOP and sweat equity shares have been inserted under the definition section of the said FDI regulations. These terms have now been defined exclusively as under:

• Employees’ stock option means the option given to directors, officers or employees of a company or of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe to the shares of the company at a future date at a pre-determined price.

• Sweat equity shares means such equity shares as issued by a company to its directors or employees at a discount or for consideration other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name it is called.

The above definitions are inserted for the first time and are more specific now. The sweat equity shares were not part of this regulation earlier and have been defined for the first time and reflects as under in the amended ESOP regulation, i.e., regulation 8 of the FDI regulations:

• Regulation 8 (1) - An Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that:

a. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the GoI under the Companies Act,

2013, as the case may be;

b. The “employee’s stock option”/sweat equity shares issued to NR employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company

c. Issue of “employee’s stock option”/sweat equity shares in a company where foreign investment is under the approval route will require prior approval of the Foreign Investment Promotion Board (FIPB) of the GoI

d. Issue of “employee’s stock option”/sweat equity shares under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan will require prior approval of the FIPB of the GoI

• Regulation 8(2): The Reserve Bank of India (RBI) may require the company issuing “employees’ stock option” and/or “sweat equity shares” to submit such reports and at such frequency as it may consider necessary.

It is specifically stated now, inter-alia, that the event of issue of such stock options /sweat equity shares itself will require a prior FIPB approval in case the company, which is issuing such options/sweat equity shares are under the approval route.

Source: Notification No. FEMA.344/2015 RB dated 11 June 2015 (effective from the same date) read with A.P. (DIR Series) Circular No.4 dated 16 July , 2015.

Foreign Direct Investment Policy

Department of Industrial Policy and Promotion (DIPP)

1. Introduction of composite caps for simplification of FDI policy

The DIPP has issued important clarifications in relation to composite caps in FDI Policy vide Press Note No. 8 (2015 series) dated 30 July 2015. The said Press Note clarifies as under:

47 Tax Digest

• Total foreign investment (direct and indirect) and the aggregate Foreign Institutional Investors (FII)/Foreign Portfolio Investors(FPI)/Qualified Foreign Investor (QFI) investment, individually or in conjunction with an entity will not exceed sectoral cap prescribed for a particular sector.

• Portfolio investment, up to aggregate foreign investment level of 49% or sectoral/statutory cap, whichever is lower, will not be subject to either government approval or compliance of sectoral conditions, provided such investment does not result in transfer of ownership and/or control of Indian entities from resident Indian citizens to NR entities.

• It is specifically clarified that there are no sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in the securities market and power exchanges.

• In the defence sector, where sectoral cap of 49% is prescribed, portfolio investment by FPI/FIIs/NRIs/QFIs and investments by Foreign Venture Capital Investors (FVCIs) together will continue to be restricted to 24% of the total equity of the investee/joint venture company.

• In the banking-private sector, where sectoral cap is 74%, FII/FPI/QFI investment limits will continue to be within 49% of the total paid up capital of the company.

The above clarification is issued without prejudice to other conditions of the extant FDI policy on the sector.

Source: Press Note 8 issued by DIPP as on 30 July 2015

2. Clarification on FDI Policy on single brand retail trading

DIPP has issued few important clarifications in relation to FDI Policy on single brand trading wherein it has clarified that:

• A NR entity or entities can undertake single brand retail trading business through one or more wholly owned subsidiaries or joint ventures in India;

• Single brand retail trading, as provided in the FDI Policy, 2015, equally applies to Indian brands.

The above clarification is issued without prejudice to other conditions of the extant FDI policy on the sector.

Source: Clarifications issued by DIPP as on 7 July 2015

Reserve Bank of India (RBI)

1. Introduction of FC-TRS reporting through e-Biz platform

The RBI has, in order to ease the reporting of FDI transactions, enabled online filing of the Foreign Currency Transfer of Shares (FCTRS) returns on e-Biz portal. The FCTRS services will be operational on the e-Biz portal from 24 August 2015 and will be an additional facility while the manual system of reporting as prescribed by the RBI would continue.

Source: A.P. (DIR series) Circular No. 9 dated 21 August 2015

2. Clarification on foreign investment made by FPI in security receipts issued by the asset reconstruction company

The RBI has earlier clarified that all future investments by a FPI in corporate bonds (within the limit prescribed for investment in corporate bonds) will be made with a minimum maturity of three years. In this regard, the RBI has now clarified on the applicability of these directions on investment made by FPIs in security receipts (SRs) issued by Asset Reconstruction Companies (ARCs) stating that the restriction of minimum maturity will not be applicable in this case. However, investment in SRs will be within the overall limit prescribed for corporate debt from time to time, which is currently capped at US$51b.

All other existing conditions for investment by FPIs in the debt market will remain unchanged.

Source: A.P. (DIR series) Circular No. 6 dated 16 July 2015

3. Liberalization in respect of export factoring by authorized dealer (AD) banks on non-recourse basis

The RBI has, in order to facilitate exports, permitted AD banks to provide “export factoring” services to exporters on a “non-recourse” basis to enable the exporters to

48 Tax Digest

improve their cash flow and meet their working capital requirements. AD banks may enter into such arrangements subject to following key conditions:

• AD banks to make their own decision to enter into export factoring arrangement on non-recourse basis ensuring that client is not over financed.

• AD bank (being the export factor) should have an arrangement with import factor for credit evaluation and collection of payment.

• Notation should be made on the invoice that importer has to make payment to the import factor.

• After factoring, export factor may close bills and report same in Export Data Processing and Monitoring System (EDPMS) of RBI after factoring.

• Export factor should ensure Know-Your-Customer (KYC) and due diligence on the exporter.

Source: A.P. (DIR series) Circular No. 5 dated 16 July 2015

4. Clarification in respect of investment in companies engaged in tobacco-related activities

In terms of existing regulations on FDI under Foreign Exchange Management Act, 1999, FDI is prohibited in manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

In respect of the said activities under this sector, the RBI has clarified that the prohibition applies only to manufacturing of the products mentioned therein and FDI in other activities relating to these products including wholesale cash and carry, retail trading, will be governed by the sectoral restrictions laid down in the FDI policy framed by the DIPP and as stated in the Schedule 1 of FDI regulations.

Source: A.P. (DIR Series) Circular No.2 dated 3 July 2015

5. Issuance of annual master circulars by RBI on various matters

As part of its annual exercise, the RBI has issued a series of master circulars during July. All the Master Circulars have been updated to capture all the amendments announced by RBI till 30 June 2015. The significant changes may be

noted as under:

• Master Circular on Establishment of Liaison Office(LO)/Branch Office(BO)/Project office — removal of tax NoC requirement.

The requirement of providing a “No-objection/Tax Clearance Certificate (NOC) from Income-Tax authority for the remittance/s” along with other documents while applying for closure of LO/BO has been removed from the latest master circular dated 1 July 2015.

• Master Circular on Miscellaneous Remittances from India – Facilities for Residents- No capital account remittance under Liberalized Remittance Scheme (LRS) from bank borrowed funds

It is specifically provided that banks should not be extending any kind of credit facilities to resident individuals to facilitate capital account remittances under the Scheme (LRS) . Earlier it was general in respect of all remittances, which is now made specific in respect of “capital account” remittances only. Therefore, remittance of funds under LRS for capital account purposes can only be through self-generated funds and cannot be leveraged from domestic banks.

• Master Circular on Remittance Facilities for NRIs /Persons of Indian Origin/Foreign Nationals – remittance facilities for students studying abroad

In respect of the remittance facilities available to students studying abroad (treated as NRIs) it has now been provided that as NRs, they will be eligible to receive remittances from India up to (i) limits prescribed under the LRS, which would include remittances from close relatives in India towards maintenance and remittances for their studies (earlier it was limited to US$ 100,000 and now extended up to LRS limit of US$ 250,000). However, for the

49 Tax Digest

purpose of studies, the limits will be as demanded by the university abroad; and (ii) US$1m per financial year, out of sale proceeds of assets/balances in their non-resident ordinary (NRO) account maintained with an AD bank in India.

Source: RBI’s Master Circulars

6. Further extension in scheme of raising External Commercial Borrowing (ECB) for low-cost affordable housing projects and for civil aviation• In respect of civil aviation sector: In terms of

existing ECB regulations, ECB can be raised by airline companies for working capital as a permissible end-use (under the approval route) subject to specified conditions. The scheme was extended initially till 31 December 2013 and thereafter till 31 March 2015. On a review, it has been decided that the above scheme will continue till 31 March 2016 with the same terms and conditions.

Source: A.P. (DIR Series) Circular No. 108 dated 11 June 2015

• In respect of affordable housing projects: In terms of existing ECB regulations, ECB can be raised by eligible borrowers, for low-cost affordable housing projects, under the approval route. On a review, it has been decided that the aforementioned scheme will continue for the financial year 2015–16 with the same terms and conditions.

Source: A.P. (DIR Series) Circular No. 109 dated 11 June 2015

50 Tax Digest

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

In the pressTax rate of just 10% to replace existing structureSatya Poddar, ET website

Deciphering A ‘Range’ Of Transfer Pricing IssuesKeyur Shah, CNBC website

GST: still not a lost causeSatya Poddar, Business Standard

Black Money Law – getting the basics right Surabhi Marwah, Moneycontrol.com

Understanding the provisions of advance taxJyoti Vason, Moneycontrol.com

Losses could help maximize your tax benefits Rama Karmakar, NDTV Profit website

Income tax return filing – the finer details Aditya Mohani, Moneycontrol.com

New tax return forms may increase complianceAnand Dhelia, NDTV Profit website

GST: A mixed bag for small units Abhishek Jain, Financial Express

Simplified I-T forms relief for expatriate employees Amarpal Chadha, Business Standard

Making NDA’s economic initiatives work DK Srivastava, Financial Express

New ITR form favors taxpayersRama Karmakar, Financial Chronicle

51 Tax Digest

Direct Tax

Compilation of Tax Alerts

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

1 Mumbai Tribunal rules on set off of long-term capital loss on sale of STT paid equity shares

18 June 2015 Raptakos Brett & Co. Ltd. v.. DCIT [TS-326-ITAT-2015(Mum)]

2 SEBI notifies processes/disclosure requirements under the Share Based Employee Benefits regulations

25 June 2015 SEBI has issued circular prescribing processes/disclosure requirements under the SEBI (Share Based Employee Benefits) Regulations, 2014 on 16 June 2015

3 CBDT notifies ITR forms for Individuals and HUF Taxpayers 26 June 2015 CBDT Notification No. 41/2015 dated 15 April 2015 and Notification No. 49/2015 dated 22 June 2015

4 Kolkata Tribunal rules on offshore supply of equipment, designs and drawings

30 June 2015 Outotec GmbH v. DDIT [TS-349-ITAT-2015]

5 SC rules on presumptive taxation; activities inextricably linked with prospecting, extraction or production of mineral oil eligible for presumptive taxation

3 July 2015 Oil & Natural Gas Corporation Ltd. v. CIT [TS-363-SC-2015]

6 Black Money – One-time Compliance window procedure and valuation mechanism for undisclosed overseas assets prescribed

4 July 2015 CBDT Circular 12 of 2015 dt. 2 July 2015 & CBDT Notification G.S.R. 529 (E) dt. 2 July 2015

7 Black money – CBDT releases FAQs on one-time compliance window

8 July 2015 CBDT Circular No. 13 of 2015

8 India and Mauritius reach tentative understanding on revised tax treaty

9 July 2015 Recent media reports which indicate that India and Mauritius have reached a tentative understanding on a revised tax treaty

9 CBDT notifies procedure for e-filing of income tax returns by generating EVC

16 July 2015 CBDT Notification No. 2/2015 dated 13 July 2015

10 India signs the Inter-Governmental Agreement with the United States of America to implement Foreign Account Tax Compliance Act to promote transparency on tax matters

21 July 2015 Inter-Governmental Agreement entered into between Government of India and

the Government of US

11 Social Security Agreement between India and Austria to come into force with effect from 1 July 2015

23 July 2015 Key features of the agreement between India and Austria

52 Tax Digest

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

12 Karnataka High Court rules Tax Authority cannot disallow weighted deduction for R&D expenditure approved by DSIR

24 July 2015 Tejas Networks Ltd. v. DCIT [TS-395-HC-2015(KAR)]

13 Chennai Tribunal rules on tax withholding obligation on provision for site restoration, year-end expense provisions and roaming charges

27 July 2015 Dishnet Wireless Ltd. v. DCIT [TS-409-ITAT-2015(CHNY)]

14 Social Security Agreement between India and Canada to come into force with effect from 1 August 2015

30 July 2015 Benefits of SSA between India and Canada coming into force from 1 August 2015.

15 CBDT notifies ITR Forms for Company/ Firms/ LLP/ Trusts and others

5 August 2015 Amendments made to the ITR Forms for tax year 2014-15, vide CBDT Notification No. 61/2015 dated 29 July 2015

16 Supreme Court rules aircraft landing and parking charges are not “rent” for withholding tax purposes

7 August 2015 Japan Airlines Co Ltd. v. CIT [TS-436-SC-2015]

17 Annual audit of Private Provident Fund Trusts 18 August 2015 Indian PF Head Office’s instructions to Regional Offices

18 Tribunal on exempt capital gains not liable to MAT 21 August 2015 Shivalik Venture Pvt. Ltd. v. DCIT

[ITA No.2008/Mum/2012]/(2015) 60 taxmann.com 314 (Mum – Trib)

19 CBDT notifies Income-tax (11th Amendment) Rules, 2015 for furnishing statement of reportable accounts as per section 285BA of the Income-tax Act, 1961

24 August 2015 Central Government notified the Income-tax (11th Amendment) Rules, 2015

20 SC rules clubbing provisions inapplicable to income arising to trust created for benefit of minors which is deferred beyond period of minority

28 August 2015 Kapoor Chand v. ACIT [TS–479–SC–2015]

53 Tax Digest

Indirect Tax

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

1 GST News Alert 18 June 2015 Key GST updates based on newspaper/online media reports

2 CBEC issues revised guidelines for detailed scrutiny of Service tax returns w.e.f 1 August 2015

9 July 2015 CBEC Circular no. 185/4/2015-Service Tax dated 30 June 2015

3 Maharashtra Trade Circular re-emphasizes the levy of VAT on transfer of right to use intangibles in case of multiple users, based on the decision of the Bombay High Court

14 July 2015 Trade Circular No. 11T of 2015 dated 13 July 2015 issued by the Commissioner of Sales Tax, Maharashtra

4 Government issues Notifications to restrict benefit in respect of CVD exemption for certain goods under exemption notifications, to domestic manufacturers

23 July 2015 Central Excise Notification Nos. 34/2015, 35/2015 and 36/2015 dated 17 July 2015

5 GST News Alert : Report of the Select Committee tabled in the Rajya Sabha

24 July 2015 Key recommendations/observations of the Select Committee

6 Amendments to the Modified Special Incentive Package Scheme notified

8 August 2015 Modified Special Incentive Package Scheme (M-SIPS) vide Notification no. 27(35)/2013-IPHW dated 3 August 2015

7 SC confirms mutuality of interest as a pre-requisite to constitute a related party transaction for the purpose of CE Valuation

13 August 2015 Goodyear South Asia Tyres P Ltd. v. CCE [TS-388-SC-2015]

8 Delhi Tribunal (Larger Bench) rules that interchange fees and merchant establishment discounts earned in respect of credit card transactions not subject to Service tax prior to May 2006

19 August 2015 Standard Chartered Bank and Others v. CST [TS-423-CESTAT-2015]

9 CBEC clarification on waiver of SCN, conclusion of ST/CE proceedings

21 August 2015 CBEC Instruction No. F.No.137/46/2015-Service Tax dated 18 August 2015

10 Supreme Court rules that no Service tax shall be levied on the service element in composite works contracts prior to 1 June 2007

21 August 2015 CCE v. Larsen & Toubro [TS-SC-2015-ST]

11 CESTAT rules that licence fees shall be included in the assessable value of commercial import of packaged software under Customs Act, 1962

27 August 2015 Atul Kaushik, Krishnan Dhawan v. Commissioner of Customs (Export) [2015-TIOL-1766-CESTAT-DEL]

54 Tax Digest

Regulatory

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

1 SEBI board approves the proposal for regulatory framework for for Re-classification of Promoters as Public

4 July 2015 Press Release dated 23 June 2015

2 Amendments to regulations relating to combinations introduced on 3 July 2015 by CCI

8 July 2015 Amendments to the Competition Commission of India (Procedure in regard to transaction of business relating to combinations)

Regulations, 2011 announced via press release dated 3 July 2015

3 Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015

14 July 2015 Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015 issued by RBI on 9 July 2015

4 GoI issues Press note 8 (2015 series) introducing composite caps in FDI policy

1 August 2015 Press Note 8 of 2015 issued by the Department of Industrial Policy and Promotion (Ministry of Commerce &

Industry), Government of India notifying amendments in the Consolidated FDI policy circular

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