Tax DigestQuarterly newsletterSeptember 2017

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We are pleased to present the September 2017 edition of EY’s quarterly newsletter Tax Digest, which summarizes significant tax and regulatory developments during the July to September 2017 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. The “In the press” section 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

Dear readers,

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Direct tax

• Verdicts!

• Significant Supreme Court (SC) rulings

• SC rules business of bottling liquefied petroleum gas is eligible for profit linked incentives

• SC rules use of know-how obtained while setting up new manufacturing unit is capital expenditure

• Rulings on Minimum Alternate Tax (MAT)

• Gujarat High Court reconciles distinction between provision and write off of bad debt for MAT purposes

• Delhi Tribunal Special Bench confirms non-applicability of expense disallowance methodology to MAT

• Rulings on subsidy taxation

• Delhi HC holds sales tax subsidy is taxable as revenue receipt

• Mumbai Tribunal rules conditional grant is not to be reduced from the cost of the asset

• Rulings on capital gains taxation

• Sale of shares of Indian company cannot be equated to sale of an immovable property situated in India

• Bombay HC allows exemption on gains on sale of shares of an Indian company under India-Mauritius tax treaty

• Other Significant Decisions

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• Delhi HC upholds weighted R&D deduction for recognized in-house R&D facility from the date prior to recognition and approval

• Karnataka HC holds legal expenses incurred to defend mining lease is deductible revenue expenditure

• Salary received by NR in Non-Resident External (NRE) account for services rendered outside India is non-taxable in India

• Patna HC quashes prosecution basis reasonable cause and delay in initiation of prosecution

• Chhattisgarh HC rules on carry forward of losses when loss return is filed after the due date for filing tax returns

• Madras HC upholds addition of share capital as taxpayer failed to establish contributors’ credit-worthiness

• Bombay HC rules gains from foreign currency fluctuations is taxable in India even if it arises from exempt royalty and interest transactions

• Delhi Tribunal rejects depreciation claim on government approvals and non-compete fees

• Delhi Tribunal upholds taxation in the hands of taxpayer on share capital received by taxpayer’s overseas subsidiary from unrelated investor

• Chennai Tribunal invokes non-discrimination clause of tax treaties to delete disallowance of expense

• Is there a Permanent Establishment (PE)?

• Bangalore Tribunal rules on constitution of service PE for services rendered virtually as well as physically

• Unless liaison office (LO) is used for business or trading activity in India, LO does not qualify as PE

• Mumbai Tribunal rules independent agent in India does not create PE of foreign entity

• Recent decisions on taxation of royalty/fees for technical services (FTS) payments

• Some key issues where Special Leave Petitions (SLPs) were admitted by SC

• From the tax gatherer’s desk

• Central Government notifies the transactions of listed equity shares as not eligible for long-term capital gains exemption

• Central Board of Direct Taxes (CBDT) notifies cost inflation index for tax year 2017-18 with tax year 2001-02 as new base year

• CBDT clarifies trade advances are not “deemed dividend”

• CBDT issues final rules prescribing methodology for determining FMV of unquoted shares

• CBDT issues clarifications to compute book profit for MAT levy for Ind AS companies

• CBDT notifies rules and form for deduction of tax on rent payment exceeding INR 50,000

• Central government notifies exclusions from section introduced for prohibition of cash receipts

• CBDT clarifies no withholding tax on GST component in relation to services

• CBDT invites public comments on the application of income tax provisions to first-time POEM resident foreign companies

• CBDT issues rules for implementing secondary transfer pricing (TP) adjustment provision

• CBDT issues amended safe harbor rules on TP for international transactions

• India notifies Multilateral Competent Authority Agreement (MCAA)

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• Optional reporting of details of one foreign bank account by NR in refund cases

• Treaty updates

• Protocol to tax treaty between India and Portugal signed

• Memorandum of Cooperation (MoC) between BRICS countries signed

• Happenings across the border

• Organisation for Economic Co-operation and Development (OECD) releases draft changes to be incorporated in 2017 update to OECD Model Tax Convention

• OECD releases 2017 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

• G20 leaders’ communiqué demonstrates continued support on tax issues, highlights new developments

• OECD, United Nations (UN), International Monetary Fund (IMF) and World Bank (WB) issue toolkit for addressing difficulties in accessing comparable data for TP analysis

• OECD, UN, IMF and WB release discussion draft on taxation of offshore indirect transfers

• OECD BEPS updates

• OECD releases report on branch mismatch arrangements

• OECD releases update of guidance on the implementation of CbCR

• 70 countries, including India, signed Multilateral Convention (MLI) to implement tax treaty related measures to prevent BEPS

• OECD releases revised discussion drafts on profit splits and attribution of profits to PEs

Indirect tax• Case laws

• Customs duty

• High Court, Madras

• Bank guarantee is in the form of security, limitation period not applicable to restitution

• CA certificate and balance sheet not primary documents to rebut unjust enrichment presumption

• Foreign trade policy

• High Court, Ahmedabad

• Recovery of CST reimbursement on inter-EOU procurements after seven years not permissible

• Central Excise

• High Court, Madras

• The HC allows CENVAT credit on structural supporting plant and machinery; to be qualified as capital goods and inputs

• CENVAT credit allowed to be transferred under Rule 10 on relocation of factory to another site

• HC allows manufacturer to claim CENVAT credit against supplementary invoice and TR-6 Challan

• Tribunal, Kolkata

• The Tribunal upholds MRP-based valuation for mono-cartons containing sachets

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• CENVAT credit

• Tribunal, Mumbai

• Credit eligible to Indian arm, for services by overseas entity, when assessee is the same

• Service tax

• Supreme Court

• Writ can be dismissed on ground of four-year delay in case the confirmed demand is not challenged

• High Court, Kerala

• Exchange of secondhand cars is “sale”; cannot be treated as business auxiliary services

• High Court, Madras

• Commissioner (Appeals) empowered to remand service tax assessment; Central Excise law restriction inapplicable

• Tribunal, Mumbai

• Revenue cannot dispute input services admissibility without issuing SCN while processing refund

• Value Added Tax/Central Sales Tax

• High Court, Gujarat

• The HC upholds CST exemption on milk sold through consignment agents

• The pre-condition of payment of self-assessed tax for generating C-form is illegal

• High Court, Delhi

• Exemption has been granted for treating demo car as capital goods of automobile dealer

• Maharashtra Sales Tax Tribunal, Mumbai

• The movement of goods from mother warehouse to carrying and forwarding agents (CFAs) is considered as branch transfer in the absence of inextricable link between dispatch of goods and purchase order of customer

Key statutory updates

• Customs duty

• Foreign Trade Policy 2015–20 (FTP)

• Central Excise

• Service tax

• Value Added Tax (VAT)/Central Sales Tax (CST)

• Goods and Services Tax (GST)

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Regulatory

• Foreign Exchange Management Act (FEMA) 1999

• Reserve Bank of India (RBI) revises the framework for issuance of rupee denominated bonds (RDBs)

• Foreign direct investment (FDI) policy

• Department of Industrial Policy & Promotion (DIPP) issues the consolidated FDI policy circular of 2017

• DIPP issues the standard operating procedure (SOP) for processing FDI proposals

In the press

Compilation of alerts

• Direct tax

• Indirect tax

• Regulatory

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What’s new Useful links

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All about GST in India

Budget Connect 2017

Upcoming webcasts

Digital Tax Webcast series – Technology for the tax

function

Permanent establishments: where to draw the line?

India Tax Insights magazine – issue 11

Tax Insights magazine

Tax Library

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Tax Insights LinkedIn Group

Indian Tax Insights Blog

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Verdicts!

SC rulings

SC rules business of bottling liquefied petroleum gas is eligible for profit-linked incentive

In the case of Taxpayer Ltd. [TS-314-SC-2017], the issue before the SC was whether bottling of liquefied petroleum gas (LPG) is a process which amounts to “production” or “manufacture” for the purposes of certain profit linked provisions under the ITL1. The tax authority had denied the profit linked incentive to the taxpayer, by contending that LPG was produced and manufactured in refineries and there was no change in the chemical composition or other properties of the gas in the activity of filling the cylinder carried out by the taxpayer.

The SC noted that LPG obtained from the refinery is not usable for domestic purposes unless it is converted into LPG by a complex technical process in the taxpayers’ plants. The SC held that the word “production” has a wider connotation in comparison to “manufacture,” and any activity that brings a commercially new product into existence constitutes production. The SC held that the process of bottling of LPG by the taxpayer, even if is not a process of manufacturing, would fall within the expression of “production” as per the ITL, since the process renders LPG capable of being marketed as a domestic kitchen fuel and thereby makes it a viable commercial product. The SC ruled in favor of the taxpayer and held that the taxpayer was eligible for the profit-linked incentives under the ITL.

SC rules use of know-how obtained while setting up new manufacturing unit is capital expenditure

In the case of Honda SIEL Cars Ltd [Civil Appeal No. 4918 of 2017 & Ors], the issue before the SC was whether fees paid for obtaining the use of technical know-how for manufacture of products while setting up a new manufacturing unit is capital or revenue expenditure. The taxpayer, a joint venture between a Japanese company (J Co) and an Indian company, entered into a technical collaboration agreement (know-how agreement) with J Co.

This know-how agreement granted the taxpayer a right to access technical know-how (know-how), which enabled the taxpayer to manufacture and sell automobile cars under a brand belonging to J Co and licensed to the taxpayer. The taxpayer had the right to use the know-how for a limited period of 10 years and there was no outright transfer of the know-how to the taxpayer.

The SC made a distinction between a situation where the use of know-how has been obtained in the course of establishing a new unit while setting up a new business and a situation where a taxpayer is already engaged in the manufacturing business and obtains the use of know-how relating to new products in the course of such existing business. The SC observed that there is no fixed test or rule of thumb for determining the issue and in the current case, fees paid were not only for the use of the know-how but also for complete assistance for establishment of plant, machinery etc. Accordingly, the main object of the know-how agreement was to set up the taxpayer’s business with new manufacturing plant. Hence, the SC held that although use of the know-how was for a limited period, the fees paid for such use constitute capital expenditure.

(For further details, please click here for our alert dated 13 June 2017)

Rulings on Minimum Alternate Tax (MAT)

Gujarat High Court reconciles distinction between provision and write off of bad debt for MAT purposes

In the case of Vodafone Essar Gujarat Ltd [TS-330-HC-2017(GUJ)], the issue before the Larger Bench (LB) of Gujarat HC was the upward adjustment to book profit with regard to provision for bad and doubtful debts under MAT provisions. The Division Bench (DB) of Gujarat HC referred the issue to LB in light of an apparent conflict between two earlier DB rulings of Gujarat HC in the cases of CIT v Deepak Nitrite Ltd 2 (Deepak Nitrite ruling) and CIT v. Indian Petrochemicals Corporation Ltd3 (IPCL ruling). On a review of the backdrop in which the upward adjustment for “provision” for diminution in value of asset

Direct tax

1These provisions provided for profit linked incentives, if the taxpayer derived profits or gains from industrial undertakings, through manufacture or production of articles or things (S.80HH, 80I,80IA, 80IB)2Tax Appeal No. 1918/2009 order dated 17 August 20113Tax Appeal No. 1773/2008 and connected appeals order dated 19 July 2016

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was retroactively introduced in MAT computation and distinction between “provision” and “write off” of bad debt as explained by Supreme Court (SC) to permit deduction for write off of bad debts in normal computation, the LB held that there was no conflict between Deepak Nitrite and IPCL rulings

The LB held that upward adjustment under the MAT provisions is triggered if the debit to profit and loss account (P&L) is in nature of “provision.” But it is not triggered if the debit to P&L is in the nature of “write off.” In other words, besides debiting P&L, if the taxpayer simultaneously obliterates the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and shows it as the net of provision so made, the taxpayer is entitled to bad debt deduction under the MAT provisions. The LB held that it is not necessary for the taxpayer to close the debtor’s account, for claiming the deduction.

(For further details, please click here for our alert dated 14 August 2017)

Delhi Tribunal Special Bench confirms non-applicability of expense disallowance methodology to MAT

In the case of Vireet Investment Pvt. Ltd. [ ITA No. 502/Del/2012], the issues before the Special Bench (SB) of the Delhi Tribunal were: a) whether the disallowable expense computation mechanism of Section (S.) 14A4 of the ITL for computing expenditure incurred in relation to exempt income would extend to MAT while determining the “book profit” and (b) whether investments on which no exempt income is earned during the relevant tax year should be included in the disallowance computation.

On the first issue relating to MAT, the SB held that while expenditure relatable to income that is exempt under both normal and MAT computation, needs to be added to book profit, the computation mechanism of S. 14A disallowance relevant to normal computation cannot be applied while computing book profit under MAT provisions. The MAT disallowance has to be based on expenditure debited to P&L. On the second issue relating to normal tax computation, the SB relied on Delhi HC rulings in

cases of Holcim India Pvt. Ltd. [272 CTR 282 (Del)] and Cheminvest Ltd. [378 ITR 33 (Del)] which had held that disallowance under S.14A does not apply to investments on which no exempt income is earned during the tax year under reference and held that such investments should also be excluded while computing disallowance as per the normative methodology prescribed in the Income Tax Rules.

(For further details, please click here for our alert dated 5 July 2017)

Rulings on subsidy taxation

Delhi HC holds sales tax subsidy is taxable as revenue receipt

In the case of Taxpayer Ltd. [TS-276-HC-2017(DEL)], the issue before the Delhi HC was whether the sales tax subsidy received by the taxpayer was to be treated as capital receipt or revenue receipt under the ITL. In this case, the taxpayer was entitled to retain the amounts collected from customers toward sales tax for a number of years, to the extent of 100% of capital expenditure incurred by it for setting up its industrial units in an industrially backward area. The taxpayer relied on the SC ruling in the case of Ponni Sugars5 [306 ITR 392, SC] and contended that the subsidy was received to assist the taxpayer in setting up a new unit in an industrially backward area and recoup the capital expenditure and hence the subsidy should be treated as capital expenditure, not chargeable to tax. The HC noted that the taxpayer had the flexibility to use the subsidy for any purpose, i.e., either for capital or revenue expenditure. The HC held that policy makers, while granting the subsidy, had envisioned greater profitability as an incentive for investors to expand units in the backward area and hence the subsidy was revenue in nature. The HC also distinguished the SC ruling in the case of Ponni Sugars (supra) by holding that, unlike in the case of Ponni Sugars, there was no condition in the present case that the subsidy had to be used for a capital expenditure.

4S.14A provides that, for the purposes of computing total income under Chapter IV of the ITL, no deduction shall be allowed in respect of expenditure incurred by a taxpayer, in relation to exempt income 5SC in the case of Ponni Sugars had held that subsidy received was capital in nature, since the object of the subsidy was to recoup capital expenditure.

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Mumbai Tribunal rules conditional grant is not to be reduced from the cost of the asset

In the case of Spectrum Coal & Power Ltd. [TS-341-ITAT-2017(Mum)], the issue before the Mumbai Tribunal was whether conditional grant received by the taxpayer was to be reduced from the cost of the asset as per a specific provision of the ITL6 for the purpose of computing tax depreciation. In this case, the taxpayer had received INR99.7 million from the US Agency for International Development (USAID) through ICICI under the Program for Acceleration of Commercial Energy Research (PACER), which was adjusted against the investment in plant and machinery made during relevant tax year in the books of account. However, the cost of plant and machinery was not reduced to this extent while calculating the cost of the asset for computing tax depreciation. The grant given through ICICI was a conditional grant as the taxpayer was required to repay 2% of the gross annual sales of the coal beneficiated in the proposed commercial project, subject to the condition that the repayment amount will not to exceed 200% of conditional grant.

The Tribunal held that the amount received by the taxpayer was a conditional grant and the amount received was more in the nature of a financial arrangement, since the taxpayer was liable to pay the amount back and the taxpayer had already paid back INR2 million to ICICI, hence the amount received could not be considered as a subsidy grant. The Tribunal also noted that the amount received by the taxpayer was received toward PACER and not towards the cost of any specific asset. The Tribunal also held that the US is a sovereign and cannot be considered as the central government or state government or any authority established by any law in India to trigger the specific provision of the ITL. The Tribunal ruled in favor of the taxpayer and held that the amount received as conditional grant, need not be reduced from the cost of the asset for the purpose of computing tax depreciation.

Rulings on capital gains taxation

Sale of shares of Indian company cannot be equated to sale of an immovable property situated in India

In case of Taxpayer BV [TS-246-HC-2017(AP)], a Dutch company, sold shares of an Indian company to a Singaporean entity. The Indian company was in business of developing, maintaining and operating an industrial park in India. The taxpayer claimed such gains on sale of such shares as exempt under the residuary clause of the capital gains article of the India-Netherlands tax treaty. However, the tax authority relied on definition of immovable property under certain provisions of ITL7 to contend that shares of Indian company partook of character of immovable property under provisions of ITL and the gains earned on sale of shares of Indian company were taxable under ITL as well as under tax treaty.

The Andhra Pradesh HC held that the contention of the tax authority was erroneous and contrary to legal position settled by SC in case of Vodafone International Holdings BV8. The HC accepted the contention of the taxpayer and held that alienation of shares of an Indian company would be covered under the residuary clause of the capital gains article and accordingly would be exempt from tax in India.

Bombay HC allows exemption on gains on sale of shares of an Indian company under India-Mauritius tax treaty

In case of Taxpayer Ltd. [TS-308-HC-2017(BOM)], , a Mauritius Company, applied for an advance ruling to the Authority for Advance Rulings (AAR) to ascertain whether capital gains arising to a Mauritius company on transfer of shares of an Indian company to another Indian company are exempt by virtue of the capital gains article of the India-Mauritius tax treaty. The AAR ruled in favor of the taxpayer. Aggrieved, the tax authority filed a writ petition with the Bombay HC.

6Explanation 10 to S.43(1) of ITL provides that where a portion of the cost of an asset acquired by the taxpayer has been met directly or indirectly by the Central Government or a state government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimburse-ment , then such cost relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset7Certain provision of ITL define “immovable property” in a wide manner to include modern form of holding property by way of any rights in or with respect to any land or building including a building which is to be constructed arising from any transaction (whether by way of becoming member of, or acquiring shares in, a co-operative society, company or other AOP or by way of any agreement or any arrangement of whatever nature ) not being a transaction by way of sale, exchange or lease of such land, building of part of building8341 ITR 1

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The tax authorities contended that the taxpayer company was a shell company created only to take advantage of the India-Mauritius tax treaty. Further, they submitted that this is a fit case of abuse of tax treaty and it amounts to treaty shopping and such treaty shopping is undesirable since it frustrates the spirit of the treaty.

The Bombay HC rejected the contentions of the tax authorities due to the following reasons:

• The taxpayer held a business license issued by the Financial Services Authority of Mauritius.

• The taxpayer had also been issued a tax residency certificate in Mauritius.

• The taxpayer held the shares of Indian company for 13 years prior to selling it to another Indian company, which suggests the bona fide nature of the taxpayer.

The Bombay HC dismissed the writ petition filed by the tax authorities and upheld the AAR ruling.

Other significant decisions

Delhi HC upholds weighted R&D deduction for recognized in-house R&D facility from the date prior to recognition and approval

In the case of Maruti Suzuki India Ltd. [TS-320-HC-2017(DEL)], the issue before the Delhi HC was the effective date from which weighted deduction for research and development (R&D) expenditure incurred on an in-house R&D facility “recognized” and “approved” by the Department of Scientific and Industrial Research (DSIR) can be claimed. The taxpayer had intimated DSIR on 30 March 2011, much before the set-up of the facility, and had sought “recognition” and “approval” for the facility as per the guidelines laid down by DSIR. DSIR granted “approval” to the facility on 2 February 2015 with effect from 1 April 2013. DSIR had not granted “approval” for the expenditure incurred by the taxpayer on the facility in the tax year 2010-2011. The HC held that it was incorrect on DSIR’s part to deny “approval” for qualifying expenditure incurred in tax year 2010-11 on the ground that the “approval” for the facility was effective from tax year 2013-14. The HC held that for availing the benefit of weighted R&D deduction, neither the date of recognition nor the cut-off date mentioned in DSIR certificate nor even the date of DSIR approval is relevant. What is relevant is the acknowledgement of DSIR in the form of DSIR recognition

and hence the HC allowed the taxpayer’s writ petition to direct DSIR to grant “approval” for qualifying expenditure incurred from tax year 2010-11.

(For further details, please click here for our alert dated 8 August 2017)

Karnataka HC holds legal expenses incurred to defend mining lease is deductible revenue expenditure

In the case of B Kumara Gowda [TS-297-HC-2017(KAR)], the issue before the Karnataka HC was whether the legal expenses incurred by the taxpayer to defend its mining lease was deductible as revenue expenditure under the ITL. In this case, the taxpayer had obtained mining lease from the Karnataka government, which was challenged by certain companies, by filing a writ petition, seeking quashing of the mining lease granted to the taxpayer. The taxpayer had incurred certain legal expenditure to defend the grant of mining lease. The Karnataka HC noted that the expenditure incurred by the taxpayer was not incurred to acquire a mining lease or to get rid of a defect in the title, but instead was incurred to protect its business interests. The Karnataka HC relied on various SC rulings9 and held that since the taxpayer did not bring into existence any asset or create any capital asset, the legal expenditure incurred by the taxpayer would be revenue expenditure and therefore would be deductible under ITL.

Salary received by NR in Non-Resident External (NRE) account for services rendered outside India is non-taxable in India

In the case of Sumana Bandyopadhyay [TS-281-HC-2017(CAL)], the taxpayer — a marine engineer — earned salary from two foreign employers for rendering services outside India. Such salary was credited in the NRE account of the taxpayer. While the tax authority contended that such salary was taxable in India, the taxpayer contended that such salary cannot be taxed under ITL merely on the ground that salary was received in an Indian bank account.

9Dalmia Jain and Co Ltd. [81 ITR 754 (SC)], Jaganmohan Rao [ 75 ITR 373 (SC)], Mangalore Ganesh Beedi Works [2015-TIOL-241-SC-IT], Assam Bengal Cement [ AIR 1955 SC 89]

The Calcutta HC held that this issue was squarely covered by Karnataka HC’s decision in case of Prahlad Vijendra Rao10 wherein it was held that salary earned by an NR for services rendered outside India cannot be said to be deemed to accrue or arise in India. Further, the Calcutta HC also observed that the Ministry of Finance (MoF) has recently issued a circular11 clarifying that salary accrued to a NR seafarer for services rendered outside India on a foreign ship shall not be taxable in India merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.

Patna HC quashes prosecution basis reasonable cause and delay in initiation of prosecution

In the case of Sonali Autos Private Ltd. [TS-312-HC-2017(PAT)], the issue before the Patna HC was whether prosecution proceedings could be initiated against the taxpayer and its directors after a period of three years from the date of deposit of taxes, for failure to deposit taxes which were withheld due to the oversight of the accountant. Patna HC quashed the prosecution proceedings on the premise that initiation of prosecution after a period of three years from the date of deposit of taxes, is contrary to the instructions12 issued by the CBDT. Further, the Patna HC considered it an oversight on the part of the accountant of the taxpayer and a reasonable cause for not depositing the tax within time, exonerating the taxpayer and its directors from prosecution.

Chhattisgarh HC rules on carry forward of losses when loss returns is filed after the due date for filing tax return

In the case of Chhattisgarh State Civil Supplies Corporation Ltd [TS-261-HC-2017(CHAT)], the issue before the Chhattisgarh HC was whether the ITL prevents taxpayers from claiming set off and carry forward of losses if the loss return is filed after the due date specified for filing

the original return. The HC noted that the ITL itself permits filing of return within the extended time beyond the due date and that alternatively, taxpayers can also approach CBDT for condonation of delay in filing return as per a circular13 where such a delay is due to genuine hardship. Based on these aspects, the HC held that the embargo provided in the ITL on the right to carry forward losses linked to the filing of loss return on time is not a straightjacket one which can be applied without reference to different provisions that extend the time for filing return. The HC thus set aside orders of appellate authorities and remitted back the matter to the tax authority for fresh consideration, after giving sufficient opportunity to the taxpayer to make application to CBDT for condonation of delay in filing loss return.

(For further details, please click here for our alert dated 7 July 2017)

Madras HC upholds addition of share capital as taxpayer failed to establish contributors’ credit-worthiness

In the case of B.R. Petrochem Pvt. Ltd. [TS-253-HC-2017(MAD)], the issue before the Madras HC was whether unexplained share capital contribution could be added to the income of the taxpayer as per a specific provision14 of the ITL since the taxpayer had failed to establish the credit-worthiness of the contributors to the share capital. The Delhi HC noted that the taxpayer had only established the identity of the contributors, but had failed to establish the credit worthiness of the contributors as well as the genuineness of the transaction. The HC noted that payments were made in cash by the contributors for which there were no receipts and majority of the contributions were by persons of insignificant means and who were not assessed to tax. The HC held that the taxpayer had failed to establish the genuineness of the cash contributions as well as the capacity of the persons to have made such contributions and hence the HC upheld the addition of share capital contribution made under the specific provision of the ITL.

10TS-5806-HC-2010(KARNATAKA)11Circular No. 13/2017.12CBDT had issued an Instruction in the year 1980 which provided that prosecution for failure to deposit taxes which have been withheld, should not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government.13Circular 9 of 2015 dated 9 June 201514The specific provision of ITL (S.68) provides that if any sum is credited to the books of the taxpayer and the taxpayer fails provide an explanation for the nature and the source of such amount, such amount will be treated as income of the taxpayer

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Tax Digest13

Bombay HC rules gains from foreign currency fluctuations is taxable in India even if it arises from exempt royalty and interest transactions

In 84 taxmann.com 61, (case of Taxpayer Ltd.), the taxpayer earned royalty and interest income from a Malaysian entity. Such income was accounted in its books on accrual basis and was accepted as exempt under India-Malaysia tax treaty15. In the tax year under consideration, the amount of royalty/interest due was repatriated to India; however, due to the difference in exchange rate, the receipt value in Indian currency was more than what was earlier accounted for. The taxpayer contended that the exchange difference should be treated as part of royalty and interest income and accordingly, it would be exempt from tax as per India-Malaysia tax treaty.

The Bombay HC held that the foreign exchange gain could not be attributed to royalty/interest income since it is a separate source of income arising from a subsequent transaction. Further, the Bombay HC relied on Indian accounting standards16 and the SC decision in case of Woodward Governor India17 to hold that any benefit derived on account of currency fluctuation after the year of accrual is to be considered as income/expense in the period in which they arise. It was concluded that gains on exchange fluctuation was an extra income which would be subject to tax in the year in which it was received.

Delhi Tribunal rejects depreciation claim on government approvals and non-compete fees

In the case of Pitney Bowes India (P) Ltd. [TS-208-ITAT-2017(DEL)], the issue before the Tribunal was allowance of depreciation claim on certain government approvals and non-compete fees in terms of the provisions of ITL that permit depreciation on “intangible assets.” The taxpayer is a subsidiary of a US company (US Co). Prior to formation of the taxpayer, the US Co had authorized another company, KOAL, to distribute and sell products of the US Co in India and, in respect thereof, KOAL had obtained approvals from

the regulatory authorities (government approvals). After the taxpayer was formed, the taxpayer acquired KOAL’s business by way of a slump sale. After the acquisition, the taxpayer allocated the slump purchase price on the basis of the valuation report and assigned values, inter alia, to the government approvals and non-compete fees, and claimed depreciation thereon by classifying them as “intangible assets.”

The Tribunal rejected the depreciation claim on both the items and furthermore rejected the taxpayer’s alternative claim of classifying them as “goodwill.” The Tribunal held that the government approvals were specific to the US Co’s products and were not assigned to the taxpayer. In fact, the taxpayer had to obtain fresh approval post the acquisition. On non-compete fees, the Tribunal followed the jurisdictional Delhi High Court (HC) ruling in the case of Sharp Business System [254 CTR 233], in which it had taken an adverse view on allowance of depreciation on non-compete fees. On the taxpayer’s alternative claim of depreciation on goodwill, the Tribunal, on principle, held that depreciation was admissible on excess of slump sale consideration over tangible assets, the government approvals, non-compete fees and adjustment of liabilities taken over.

(For further details, please click here for our alert dated 7 June 2017)

Delhi Tribunal upholds taxation in the hands of taxpayer on share capital received by taxpayer’s overseas subsidiary from unrelated investor

In the case of New Delhi Television Ltd [TS-283-ITAT-2017(DEL)], the issue before the Delhi Tribunal was whether the amount received by taxpayer’s subsidiary as share capital, should be taxed as income in the hands of the taxpayer under a specific provision18 of the ITL. In this case, the taxpayer’s step down overseas subsidiary

15Treaty signed between India and Malaysia in the year 1976. This DTAA was terminated in the year 200416AS-1117312 ITR 25418As per the specific anti-abuse provision under the ITL (s.69A), if taxpayer is found to be the owner of any money, jewelry or other valuable article and the same is not recorded in its books of accounts and taxpayer fails to offer any/ satisfactory explanation about the nature or source of acquisition to the tax authority, then such money, jewelry or other valuable article shall be deemed to be the income of the taxpayer

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received funding from an external investor as share capital. But the taxpayer’s group pocketed the amount through a series of transactions entered in quick succession between different overseas entities of the taxpayer’s group in a complex structure.

Taking note of the complexity of the structure, a series of transactions in quick succession, the taxpayer’s inability to demonstrate business rationale for such transactions, the involvement of a low-tax jurisdiction and the discovery of incriminating correspondence between the taxpayer and its tax advisor, the Tribunal concluded that the entire transaction was a sham transaction involving abuse of corporate legal form to disguise what, in substance, was an income receipt by the taxpayer company. The Tribunal disregarded the legal form of the transaction and concluded that the amount received by overseas subsidiary actually belonged to the taxpayer and thus sustained addition of the amount in hands of the taxpayer as unexplained investment under specific provision of the ITL.

Chennai Tribunal invokes non-discrimination clause of tax treaties to delete disallowance of expense

In case of Cooper Standard Automotive India Pvt. Ltd [TS-311-ITAT-2017(CHNY)], the taxpayer, an Indian entity paid certain professional charges and corporate maintenance charges to the UK and German entities and withheld taxes on such payment. However, such withholding taxes were deposited with the government only during the subsequent tax year. The tax authority disallowed the deduction of such payments in the hands of the Indian entity on the ground that withholding taxes were not deposited with the Government within time limit prescribed in the ITL.

In the tax year concerned19, the ITL20 provided for disallowance of payments made to an NR where taxes are not withheld at the time of remittance. However, a similar payment to a resident does not result in disallowance in the event of failure to withhold taxes21. The taxpayer contended that such difference in tax treatment results

in discrimination, which is not allowed by the non-discrimination clause of India’s tax treaty with the UK and Germany. In this regard, the taxpayer relied on Delhi Tribunal decision’s in case of Millennium Infocom Technologies Ltd.22, which held that such provision under ITL that disallows only payments made to NRs is discriminatory under expense deductibility clause of tax treaties.

The Chennai Tribunal held that the issue was squarely covered by the Delhi Tribunal’s decision (supra) and accordingly the disallowance would not be applicable in the case of the taxpayer.

Is there a Permanent Establishment (PE)?

Bangalore Tribunal rules on constitution of service PE for services rendered virtually as well as physically

In this case23, the taxpayer (a tax resident of the UAE) entered into a service agreement with its group entity in India (ICo) to provide managerial and consultancy services. These services were rendered either by the taxpayer’s employees visiting India or remotely from outside India through email, phone calls, video conferencing etc. The issue before the Bangalore Tribunal was on the taxability of the consideration received by the taxpayer for rendering of such managerial and consultancy services to ICo under the India-UAE tax treaty.

The taxpayer contended that the income was in the nature of fees for technical services (FTS). However, in the absence of an FTS provision under the DTAA, the said income should be classified under the “Other Income” Article of the tax treaty, as per which it cannot be taxed in India in the absence of taxpayer’s PE in India.

19Tax year 2002-0320Section 40(a)(i) of the ITL21S. 40(a)(i) was subsequently amended by the Finance (No. 2) Act, 2004, w.e.f. 1st April, 2005 to include such disallowance of payments made to residents on failure to withhold taxes 22[2009] 117 ITD 11423TS-256-ITAT-2017(BANG)]

15 Tax Digest

Considering the facts of the case, the Tribunal held that it is not a case of “rendering any services” but mere sharing of specialist knowledge, skill etc., thereby qualifying as “royalty” income under the ITL as well as the tax treaty and, thus, liable to source taxation in India. However, notwithstanding its conclusion on the characterization of income as “royalty,” the Tribunal analyzed the constitution of a service PE, assuming that the income was FTS in nature, and not royalty income.

The Tribunal ruled that the literal interpretation of the service PE provision under the tax treaty does not require physical presence of the employees in India, as the services can be easily provided remotely (via emails, phone, video conferencing etc.). The only prerequisite is that the services should be rendered through the employees and such services should continue beyond the nine-month threshold. The Tribunal, therefore, held that since the threshold of the service duration remotely, as well as physically, was satisfied in the present case, the taxpayer created a service PE in India, irrespective of the fact that physical presence of its employees in India was only for 25 days during the given year.

(For further details, please click here for our alert dated 12 July 2017)

Unless liaison office (LO) is used for business or trading activity in India, LO does not qualify as PE

In case of Taxpayer . Ltd. [TS-310-HC-2017(DEL)], a Japanese company, was working on two power projects in India during the relevant tax year for which two project offices (POs) were set up in India. Along with such POs, the taxpayer also had an LO in India that facilitated in finding new purchasers and sellers of goods and merchandise for taxpayer’s overseas entities. While the taxpayer offered the income earned from its POs to tax in India, it did not offer any income in respect of its LO activities on the ground that the LO merely provided information to the overseas offices and the taxpayer did not carry on any trading, commercial or industrial activity in India from such LO.

During the assessment proceedings, the taxpayer’s accounts manager informed the tax authority that some portion of the telephone expenses recorded in the books of POs was attributable to the LO. Further, he also informed that a single person was managing the activities of both the LO as well as the PO. Considering such facts, the tax authority concluded that the LO is not totally separated from the project operations of the taxpayer. The tax authority contended that the LO’s activities during the relevant tax year created a PE in India and the income directly or indirectly attributable to such LO was taxable in India.

The Delhi HC held that mere presence of office, factory, workshop etc. was not enough to create a fixed place PE. In order to claim that LO qualified as fixed place PE under the India- Japan tax treaty, the tax authority needs to prove that the LO was “a fixed place of business through which the business of an enterprise is wholly or partly carried out.” The HC stated that merely keeping books of accounts, apportioning some portion of telephone expenses to LO or having a common manager for LO and POs was not sufficient to conclude that LO was being used to carry on the business. The Delhi HC observed that the Reserve Bank of India (RBI) had accepted the functioning of taxpayer’s LO activities for over three decades and that taxpayer was adhering to the conditions imposed by RBI, one of which was to not carry any business or trading activity in the LO. Accordingly, in absence of any business activities by LO in India, it was concluded that LO could not be regarded as PE in India.

Mumbai Tribunal rules independent agent in India does not create PE of foreign entity

In this case24, the taxpayer, a Dutch company, was wholly owned subsidiary of Star Limited, a Hong Kong company (HK Co), which in turn was a subsidiary of Star Television Limited (ICo). The taxpayer was granted exclusive right for sale of advertising time in India on channels of Star

24[TS-340-ITAT-2017(Mum)

16 Tax Digest

TV Network. The taxpayer entered into an agreement with another Indian group entity (Star India) to procure business from Indian advertisers on a commission of 15% of receipts from such business. The diagrammatic representation of the facts are as under:

The taxpayer relied on the administrative circular No. 742 of 1996 under ITL (the Circular), which states that income of foreign telecasting companies that do not have any PE in India shall be computed by adopting a presumptive profit rate of 10% of the gross receipts or the income offered to tax in the return of income by such companies, whichever is higher. Such presumptive profits/income is subject to tax at the prescribed rate. The taxpayer, based on the above-mentioned circular offered for tax at 10% in the absence of any PE in India.

On the other hand, the tax authority contended that the income received by the taxpayer should be taxed in the hands of HK Co as the taxpayer was a conduit company set up only to take benefit of the favorable tax treaty with the Netherlands. While assessing such income in the hands of the taxpayer, the tax authority claimed that the benefit of the Circular should not be available to the taxpayer since it is not a telecasting or broadcasting company.

The following two issues were raised before the Mumbai Tribunal:

• Whether services rendered by Star India created an agency PE of the taxpayer in India?

• Whether the taxpayer was eligible to claim benefit under the Circular?

Based on the agreement between the taxpayer and Star India, the Mumbai Tribunal noted that:

• Star India had to solicit the advertisement at the rates fixed by the taxpayer

• Star India could not enter in to any agreement with any client independently

• Even after agreement, the taxpayer was the final and deciding authority on the fate of the advertisement

• Star India was to receive fix percentage of the invoiced amount as commission

• Star India was free to carry out any other business

• Star India had no power to bind the taxpayer in any legal obligation

Based on these points, the Tribunal held that Star India qualifies an independent agent under the India-Netherlands tax treaty, acting in its ordinary course of business and its activities were not wholly or exclusively devoted to the taxpayer. Thus, it was held that the taxpayer did not have an agency PE in India. Further, it was noted that the remuneration paid to Star India was at 15%, which was as per the norms of the industry and was at arm’s length. It is a settled position that where the Indian agent is remunerated on an arm’s length basis by the foreign principal, there would not be any further attribution of profits in the hands of the foreign principal.

Further, the Tribunal observed that in case of past assessments, the tax authority had referred to the Circular for computing taxes and hence the taxpayer has already accepted applicability of the Circular. Since there was no difference in the facts for the earlier tax years and this year, it was held that the benefit of the Indian circular should be available to the taxpayer.

ICo

HKCo

Taxpayer

Star India

India

Hong Kong

TheN etherlands

100%

Agreement to procure advertisements

17 Tax Digest

Recent decisions on taxation of royalty/fees for technical services (FTS) paymentsSummarized below are some decisions on royalty and FTS, also considering relevant treaty provisions:

Name of decision Description of payment Ruling

Oncology Services Ltd.

(2017) (165 ITD 277) (Ahd.)

India–Germany tax treaty

Payment for sharing standard operating procedures (SOPs), access to database, email server, hardware and software

• The taxpayer remitted an amount to a Germany entity (G Co) for the purpose of sharing SOPs, access to database, email server, hardware and software without withholding any taxes.

• The taxpayer contended that such payments qualified as business profits in the hands of G Co and since G Co did not have a PE in India, such amount was not taxable in India. Also, the taxpayer stated that G Co permitted the use of its logo and brand name free of cost or financial obligation.

• The tax authority contended that the payment to G Co was for name, goodwill and market reputation, which constitutes as royalty under ITL as well as the tax treaty and the taxpayer was obligated to withhold taxes on such payments.

• Considering the facts, the Ahmedabad Tribunal made following observations:

• The SOPs are matured validated standard procedures that have been developed by G Co over a period of time and approved by regulatory bodies.

• The taxpayer was allowed only to view SOPs and not make any changes in them.

• Access to the database and allied activities such as harmonization of software systems, policy and process, are only incidental to this main object of sharing the SOPs and cannot thus be viewed in isolation.

• Based on the above, it was concluded that sharing of SOPs amounts to sharing of industrial, commercial and scientific experiences basis and hence qualify as royalty under tax treaty

McKinsey Knowledge Center India Pvt. Ltd.

[TS-288-ITAT-2017(DEL)]

India- Singapore tax treaty

Payment for accessing database

• The taxpayer, engaged in business of export of computer software, paid fees to a Singaporean company (S Co) for accessing database and downloading readily available information without withholding any taxes.

• The tax authority urged that the payment was in the nature of royalty under ITL and the tax treaty and the taxpayer was obligated to withhold taxes on such payments.

• Considering the facts, the Delhi Tribunal made the following observations:

• The data consisted of general information about the share market that is neither relating to S Co’s own experience nor is it secret or divulged information and the payments were for merely accessing the database.

• The taxpayer had not exploited any copyrighted information and did not acquire any license to that effect.

• The taxpayer was not allowed to exploit the database commercially under the agreement.

• Based on the above, it was concluded that the taxpayer only received access to copyrighted material and there was no use of copyright and hence, the payment did not fall within the purview of royalty under the India- Singapore tax treaty.

18 Tax Digest

Name of decision Description of payment Ruling

I.T.C. Limited

[TS-274-HC-2017(DEL)]

In the context of royalty definition in ITL

Rent paid for use of airport lounge

• The taxpayer had entered into a license agreement with the Airport Authority of India (AAI) to operate an executive lounge in the airport premises for the benefit of transit passengers of all operating airlines.

• Under the agreement, the taxpayer paid the following:

• Royalty for being granted license to operate the executive lounge

• Licensee fee for space allotted for operating the lounge premises

• The taxpayer contended that the entire payment qualifies as royalty and hence, taxes were withheld at rates applicable thereto. However, the tax authority contended that such payment qualifies as rent for use of space belonging to AAI.

• During the relevant tax years, withholding rate on royalty was lower than withholding rate on rental payments, hence there was a short deduction by the taxpayer25.

• The Delhi HC applied the test of dominant purpose and observed that it was not possible to operate the lounge without the actual use of the space, thus the payment was predominantly for use of space.

• Further, the Delhi HC stated the payment for the use of space is inseparable from the payment of royalty for the right to operate the lounge.

• Accordingly, applying the ratio of Japan Airlines Co. Ltd. (377 ITR 372), it was held that the entire payment by the taxpayer to AAI falls within the definition of “rent” under provisions of ITL.

[TS-263-ITAT-2017] [Bang

India-US tax treaty

Amount received for sale of software license to Indian customers and for implementation and consultation for maintenance of such software

• The taxpayer, a US company, sold customized software license to certain Indian customers. Under the same agreement, it also provided services related to included implementation and consultation for maintenance of such software.

• On sale of software:

• The taxpayer contended that sale of license of software does not qualify as “royalty” under the India-US tax treaty since the consideration was paid for acquiring copyrighted material and not for any right to use such copyright.

• However, the Bangalore Tribunal relied on its jurisdictional Karnataka HC decision in case of Samsung Electronics Ltd.26 wherein it was held that payment for acquiring license for software falls within the definition of royalty under ITA as well as the India-US tax treaty.

• The Tribunal stated that being a sub-ordinate authority, it is bound by the judgment passed by Karnataka HC.

• On implementation and consultation services:

• The taxpayer contended that the implementation and consulting charges were received as part of sale of software and are essentially linked to such sale. Hence, such amount does not qualify as FTS under the India-US tax treaty.

• The Bangalore Tribunal observed that services rendered were as per customer-specific requirements and for the effective use of the customized software licensed to Indian customers.

• Accordingly, it was concluded that such services are ancillary and subsidiary to the software supplied and hence, they qualify as FTS under the India-US tax treaty

25During the relevant tax year, withholding rate on royalty was 5% and withholding rate on rental payments made to non-individuals was 20%26(2011) (345 ITR 494)

19 Tax Digest

Name of decision Description of payment Ruling

Emulex Design & Manufacturing Corporation

[TS-294-ITAT-2017(Bang)]

India-US tax treaty

Amount received by the US parent from its Indian subsidiary in pursuance of a secondment agreement

• The taxpayer, a US company, entered into an agreement with its Indian subsidiary (ICo) for secondment of an employee whereby ICo. reimbursed the salary, bonus and other perquisites of such employee to the taxpayer.

• The taxpayer urged that the amount received was pure reimbursement of salary cost. Further, it was also contended the nature of services rendered by such employee was managerial and hence does not fall within the definition of FTS under India-US tax treaty

• However, the tax authority contended that the service rendered by the employee to ICo was purely technical in nature and hence, qualifies as FTS under ITL as well as the India- US tax treaty

• The Bangalore Tribunal observed that the employee was assigned to ICo for rendering service of his specialized skill, expertise, experience and capabilities to perform specific project.

• Hence, it was concluded that the secondment was not for providing general managerial or administrative service but for rendering specialized, specific skill and expert service in the field of technology

• Accordingly, the Bangalore Tribunal held that such payments qualifies as FTS under the India-US tax treaty.

Some key issues where special leave petitions (SLPs) were admitted by SC

Citation Particulars Ruling of HC

(2017) (244 Taxman 56) (SC)

Revenue preferred SLP against Delhi HC’s order wherein it was held that PO of the taxpayer engaged in fabrication and installation of petroleum platforms, pipelines and other equipment under a contract in India does not constitute a PE in India under the India-UAE tax treaty

• The taxpayer entered into a contract with an Indian enterprise for installation of petroleum platforms, submarine pipelines and pipeline coating at various sites. While activities relating to survey, installation and commissioning were carried out in India, the platforms were designed, engineered and fabricated overseas.

• Based on the facts, Delhi HC held that the PO of the taxpayer in India was a mere communication link and had no role to play in the execution of the contract. Therefore, the activities of the PO were preparatory and auxiliary in nature.

• The HC also ruled on various aspects of the construction of the PE clause of the tax treaty such as start date for installation of PE, activities to be considered in determining duration threshold, etc.

• The survey work carried out by independent sub-contractor could not be included for determining the PE threshold as the taxpayer was not involved in it.

• Accordingly, the taxpayer was held not to have a fixed place PE in India according to provisions of the India-UAE tax treaty.

Refer to the March 2016 edition of EY’s Tax Digest for details of the HC ruling.

20 Tax Digest

Central Government notifies the transactions of listed equity shares as not eligible for long-term capital gains exemption

The Central Government issued a Notification dated 5 June 2017 under Section 10(38) of ITL (Section). The Section provides that any capital gains arising from transfer of listed equity shares held for a period of more than 12 months is not taxable if the sale is subject to Securities Transaction Tax (STT). In order to deal with the menace of routing unaccounted income through capital gains exemption, Finance Act 2017 amended the Section to curtail benefit of capital gains exemption. After the amendment, the exemption for the purpose of computation of capital gains will not be available if the shares are acquired on or after 1 October 2004 and such acquisition was not chargeable to STT. As per the amendment, the Central Government was empowered to notify the transactions that will continue to be exempt under the Section and not be hit by the amendment.

The notification27 provides a negative list of transactions in respect of which the benefit of capital gains exemption will not be available under the Section. Alongside the negative list, the notification also provides carve outs to insulate the genuine acquisitions for which exemption may continue to exist. Broadly, the notification provides the following negative list:

1. Acquisition of existing listed equity shares which are not frequently traded on a registered stock exchange (RSE) by way of preferential issue,

2. acquisition of existing listed equity shares otherwise than through an RSE and

3. acquisition of unlisted equity shares during the period between the delisting and the day immediately preceding the re-listing of such shares on the RSE.

(Source: Notification No. SO 1789 (E), dated 5 June 2017)

(For further details, please click here for our alert dated 6 June 2017)

Central Board of Direct Taxes (CBDT) notifies cost inflation index for tax year 2017-18 with tax year 2001-02 as new base year

ITL provides for inflationary adjustment to cost of acquisition of long-term capital assets while computing capital gains arising from transfer of such assets. The inflationary adjustment is made by substituting the indexed cost of acquisition in lieu of the actual cost of acquisition. Prior to an amendment by the Finance Act 2017, the indexed cost of acquisition referred to the cost of acquisition, adjusted proportionately with the Cost Inflation Index (CII) for the year of transfer to the year in which the asset was first held by a taxpayer or FY 1981-82, whichever is later. Pursuant to the amendment by the Finance Act 2017, CBDT has issued a Notification dated 5 June 2017 for computing the “indexed cost of acquisition” in case of long-term capital gains that has shifted the base date from 1 April 1981 to 1 April 2001. Accordingly, the new CII for financial year (FY) 2001-02 is 100 and the CII for FY 2017-18 is 272. The notification is beneficial to taxpayers who hold capital assets acquired prior to 1 April 2001. By virtue of the shift of the base date from 1 April 1981 to 1 April 2001, such taxpayers will not be required to pay tax on the fair value appreciation till 1 April 2001.

(Source: CBDT Notification No. 44/2017 dated 5 June 2017)

(For further details, please click here for our alert dated 8 June 2017)

CBDT clarifies trade advances are not “deemed dividend”

ITL contain an inclusive definition of “dividend,” which, in addition to payments made by a company conventionally understood as “dividend” as an anti-abuse measure, also includes payment of an advance or a loan made by a closely held company to its shareholder28 or to a concern in which such shareholder has a substantial interest (deemed dividend provision). However, any loan or advance made by a company in the ordinary course of its business, where lending is a substantial part of business of the company, is not treated as dividend. In light of the deemed dividend provision, disputes arose between taxpayers and the tax authority on whether trade advances given by a company in its ordinary course of business for commercial purpose can be deemed as dividend.

From the Tax Gatherer’s Desk

27This Notification is applicable with effect from 1 April 2018 and accordingly shall apply from Tax Year (TY) 2017-18 onwards. 28Being a beneficial owner of shares holding not less than 10% of the voting power

21 Tax Digest

In this regard, CBDT has issued a circular that clarifies that trade advances in the nature of commercial transactions will not be deemed as dividend under the deemed dividend provision of ITL. The circular accepts similar views taken by various HCs in favor of taxpayers wherein the HCs held that the amounts advanced for business transaction do not fall within the ambit of the deemed dividend provision. The circular further directs the tax authority not to file any further appeals on this issue and to withdraw or not press appeals already filed by the tax authority.

(Source: CBDT Circular No. 19/2017, dated 12 June 2017)

(For further details, please click here for our alert dated 14 June 2017)

CBDT issues final rules prescribing methodology for determining fair market value (FMV) of unquoted shares

Vide a notification dated 12 July 2017, CBDT has issued final rules for determining the FMV of unquoted shares for the purpose of new provisions inserted by the Finance Act 2017 to curb abusive practices resulting in the avoidance of capital gains tax on transfer of shares. According to the provisions, transfer of shares at less than the FMV triggers taxation of shortfall in the hands of both the transferor and the transferee, with effect from 1 April 2017.

The final rules substitute the existing valuation rules for unquoted equity shares and shall apply for taxation in the hands of the transferor (capital gains tax) as well as the transferee (gift taxation) if the transfer or acquisition of shares is at less than the FMV determined as per the Rules. The Rules seek to determine the FMV of unquoted equity shares of the company by adopting an independent fair valuation of jewelry, artistic work, immovable property and shares and securities held by such company, while all other assets and liabilities of such company would continue to be valued at book value as per the existing rule. Further, the Rules also provide that FMV of unquoted preference shares would be the price such preference shares would fetch in the open market for which the taxpayer may obtain valuation report from merchant banker29 or an accountant30.

(Source: CBDT Notification No. 61/ 2017/ F. No. 149/ 136/ 2014 –TPL, dated 12 July 2017)

(For further details, please click here for our alert dated 13 July 2017)

CBDT issues clarifications to compute book profit for MAT levy for Ind AS companies

After the amendments made to MAT provisions, vide the Finance Act 2017, to provide a framework for application to Ind-AS companies, various stakeholders made representations to CBDT to clarify apprehensions on items giving rise to double taxation and/or hardships for the taxpayer companies. CBDT referred these issues to the MAT Ind-AS Committee31 (Committee) which had originally conceptualized the MAT framework for companies converging to Ind-AS. The Committee recommended that CBDT should issue certain clarifications by way of frequently asked questions (FAQs) and also recommended supplemental amendments to the MAT provisions in the next budget. CBDT has accepted the Committee’s recommendations regarding issuance of clarifications and has, accordingly, issued a circular that clarifies 14 issues by way of FAQs. The clarifications contained in the circular are mainly intended to clear the air on possible adjustments that may result in duplicated taxation and to relieve hardships for taxpayers. Some of the FAQs for instance are start point for book profit computation (FAQ 2), reference date for calculating the “transition amount” (FAQ 3) and reversal of proposed dividend for preceding FY (reported under IGAAP) not subject to MAT (FAQ 4). The proposed retroactive amendment seeks to include amounts credited/debited to “other equity” (barring certain exceptions) postdate of transition in “book profit.”

(Source: CBDT Circular No. 24/2017 dated 25 July 2017)

(For further details, please click here for our alert dated 26 July 2017)

CBDT notifies rules and form for deduction of tax on rent payment exceeding INR50,000

CBDT has issued a notification, notifying the rules (new rules) for withholding tax on rent payment exceeding INR50,000 to a resident by an individual or Hindu

29Merchant banker means Category I merchant banker registered with Securities and Exchange Board of India established under Section 3 of Securities and Exchange Board of India Act, 199230Accountant means a chartered accountant, as defined under the Chartered Accountant Act, who holds a valid certificate of practice and fulfils certain conditions as prescribed under the provisions of the31Committee constituted by CBDT that comprises senior officials from the Tax Authority and independent professionals.

22 Tax Digest

Undivided Family (HUF). Prior to the amendment by the Finance Act 2017, ITL required any person liable to pay rent to residents for use of any land/building exceeding an annual amount of INR180,000 to withhold tax at the rate of 10%. However, individuals and HUF who are not liable to tax audit under ITL were excluded from the obligation of withholding tax. In order to widen the scope of withholding tax, Finance Act 2017 has introduced a new provision in ITL to provide that individuals or HUF (other than those liable for tax audit under ITL) responsible for paying to a resident, on or after 1 June 2017, any income by way of rent exceeding INR50,000 for a month or part of month during the tax year shall deduct an amount equal to 5% of such income as income tax thereon.

In order to harmonize the new provision with the existing rules, CBDT has amended the existing rules to provide for the time and mode of payment of tax deducted at source to the Central Government account as well as the manner in which the certificate of tax deducted at source and the statement of deduction of tax are to be furnished by the payer.

(Source: CBDT Notification No. 48/2017/F. No. 370 142/16/2017 – TPL, dated 8 June 2017)

(For further details, please click here for our alert dated 12 June 2017)

Central Government notifies exclusions from section introduced for prohibition of cash receipts

Finance Act 2017 had introduced S. 269ST32 (Section) to restrict receipt in excess of INR2 lakh by modes other than prescribed banking channels. Receipt of any amount in contravention of the Section, without a reasonable cause, is liable to a penalty of a sum equal to the amount of such receipt. In deference to powers conferred under the Section, the Central Government had earlier issued a notification dated 5 April 2017, which clarified that the Section will not apply to withdrawal of cash from banks, co-operative banks or a post office savings banks.

The Central Government has now issued another notification dated 3 July 2017 that prescribes another list of exceptions under S.269ST. The list includes

receipts (a) by business correspondent (BC) on behalf of banking companies or co-operative banks, (b) by white label automated teller machine operators (WLAOs) from retail outlet sources on behalf of banking companies or co-operative banks, (c) by issuers of pre-paid payment instruments from agents, (d) by credit card companies and (e) receipt of cash award instituted in public interest by the Central Government or state governments.

(Source: Central Government Notification no. 57/2017, dated 3 July 2017)

(For further details, please click here for our alert dated 5 July 2017)

CBDT clarifies no withholding tax on GST component in relation to services

CBDT, through Circular No. 1/2014 dated 13 January 2014, had relaxed income tax withholding on the service tax component on all payments to residents. The Government had recently introduced a comprehensive GST law to replace the multiple indirect tax levies, including service tax, from 1 July 2017. An issue had arisen whether withholding was required on GST component of the payment made to residents. CBDT has clarified vide Circular No. 23/2017 dated 19 July 2017 that wherever in terms of a contract between the payer and the payee the component of GST on services is separately indicated in the invoice, the income tax on payments to residents is to be withheld without including such “GST on services” component. The 2017 Circular is applicable not only to new agreements entered on or after 1 July 2017 but also to existing agreements or contracts entered into prior to 1 July 2017 and clarifies that any reference to “service tax” therein should be treated as reference to “GST on services” from 1 July 2017 onward till the expiry of such agreements or contracts.

(Source: CBDT Circular No. 23/2017 dated 19 July 2017)

(For further details, please click here for our alert dated 20 July 2017)

32The Section provides exceptions to receipts by Government, banking company, post office savings bank or co-operative bank and such persons/receipts as may be notified by the Central Government (CG).

23 Tax Digest

CBDT invites public comments on the application of income tax provisions to first-time Place of Effective Management (POEM) resident foreign companies

Pursuant to an amendment in ITL, from tax year commencing on 1 April 2016, a foreign company is treated as a resident of India if its POEM during a given year is in India, as compared to the earlier test of the entire “control and management” being in India. The insertion of the revised residence rule had resulted in concerns on certain issues in the application of ITL to a foreign company that is treated as a POEM resident of India.

Acknowledging these concerns, the Finance Act 2016 introduced an enabling provision in ITL granting a right to the Central Government to notify exceptions, modifications or adaptation (EMAs) subject to which provisions of ITL will apply to a POEM-resident foreign company. Pursuant to this, CBDT has issued a draft notification dated 15 June 2017 explaining certain practical aspects of the EMAs applicable to such foreign companies. The draft notification, once finalized, will be effective from 1 April 2017.

In essence, the draft notification provides for the following:

1. Adoption of written down value or unabsorbed losses and depreciation as per the tax records of the jurisdiction where the foreign company is assessed and as per the books of account where the foreign company is not assessed

2. Availability of double taxation relief at par with residents

3. Conversion rate for values expressed in foreign currency to be as per extant IT rules

4. Manner of determination of the tax year aligned to the Indian tax year if the POEM-resident foreign company follows a different accounting year

It also clarifies that while a foreign company is treated as a resident, all transactions of such foreign company with other person or entity are not to be altered by virtue of change in its residency. In the absence of any specific dispensation, the draft notification may reinforce certain obligations on POEM-resident foreign companies by treating them at par with a resident such as:

• Withholding compliance at par with a resident except compliance with such obligation as applicable to a foreign company in case where more than one withholding provision applies to the foreign company as also a resident

• Application of all provisions of ITL as are applicable to a foreign company in addition to the provisions that apply to residents (e.g., higher rate of tax as applicable to a foreign company)

(For further details, please click here for our alert dated 16 June 2017)

CBDT issues rules for implementing secondary transfer pricing (TP) adjustment provision

India’s Finance Act, 2017 introduced “secondary TP adjustment” provisions in ITL to ensure that profit allocation between the associated enterprises (AEs) is consistent with the primary TP adjustment made in India. Primary TP adjustment is defined to mean determination of the transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the taxpayer.

Under the secondary adjustment provision, if the primary adjustment is not repatriated to India within a prescribed time, the amount not repatriated would be deemed to be an advance made by the taxpayer to such AE and interest would be charged on the advance in the manner prescribed.

CBDT, through a notification dated 15 June 2017, has issued rules to support the implementation of the provision by prescribing the time limit for repatriation and the method of computing the interest. While generally providing a 90-day time limit for repatriation, the rules require charging an annual interest beyond the prescribed period until the advance is settled. The notification also clarifies that the secondary TP adjustment provision is applicable from FY 2016-17 onward and would apply only where the quantum of primary TP adjustment is in excess of INR10 million.

(For further details, please click here for EY Global alert dated 21 June 2017)

24 Tax Digest

CBDT issues amended safe harbor rules on TP for international transactions

CBDT issued TP safe harbor rules on 18 September 2013, applicable for five years beginning from FY 2012-13 to FY 2016-17.

On 7 June 2017, CBDT issued notification 46/2017 amending the safe harbor rules by extending the applicability to an additional category of international transaction as well as revising the applicable price/margins that would be accepted as arm’s length. The safe harbor provisions are now extended up to FY2018-19 with certain modifications in thresholds for the eligible international transactions.

For FY2016-17, the taxpayer has the option to opt for the safe harbors under the old rules or the amended rules, whichever is more beneficial. As per the amended rules, a new category of international transaction for “receipt of low value-adding intra-group services” has been added.

In general, the amended rules seek to make the safe harbor rules more attractive for eligible taxpayers with the objective of reducing TP litigation. Further, CBDT has also issued revised form for application for opting for safe harbor w.e.f. 1 April 2017 to give effect to revised safe harbor rules.33

(For further details, please click here for our alert dated 14 June 2017)

India notifies Multilateral Competent Authority Agreement (MCAA)

MCAA is an agreement that enables for automatic exchange of Country-by-Country Reports (CbCR) between countries. India, being a party to the Convention on Mutual Administrative Assistance in Tax Matters, had signed the MCAA on 12 May 2016, at Beijing, China. Further, on 20 July 2017, India notified the said agreement. The text of MCAA is attached as an annexure to this Notification.

Source: Notification No. 75/ 2017 dated 20 July 2017

Optional reporting of details of one foreign bank account by NR in refund cases

Income tax refund generated on processing of return of income is currently credited by the tax department directly to the bank accounts of the taxpayers. For this purpose, availability of the detail of bank accounts in which the refund is to be credited is a precondition for the direct credit of refund in the bank accounts. However, NRs were facing difficulties in getting refund as they do not have a bank account in India and there was no column in the return of income for reporting details of foreign bank account by NR for this purpose.

In view of this, CBDT has informed that a facility has been provided in the software utility of income tax returns for reporting of details of bank account by NRs who do not have a bank account in India and who are claiming income-tax refund. Further, CBDT has also informed the following:

33Notification No 62/ 2017 dated 18 July 2017

Particulars ClarificationsNRs who are not claiming refund

Not required to furnish details of their foreign bank account in the return of incomeNRs claiming refund but

having a bank account in India

NRs claiming refund but not having bank account in India

Optional reporting of details of one foreign bank account

Source: CBDT press release dated 24 July 2017

25 Tax Digest

Protocol to tax treaty between India and Portugal signed

On 24 June 2017, India and Portugal signed a protocol in Portugal amending the India-Portugal income tax treaty (1998).

Source: IBFD

Memorandum of Cooperation (MoC) between BRICS countries signed

On 27 July 2017, the tax authorities of the BRICS countries (Brazil, Russia, India, China and South Africa), signed an MoC in Hangzhou. The signing of the MoC was announced by way of a joint communiqué. The MoC will help to strengthen multilateral tax cooperation between the BRICS countries in order to improve tax compliance and protect tax bases.

Prior to signing of the MoC, the Ministry of Finance of India issued a press release stating that the Union Cabinet has given its approval for signing of the MoC in respect of tax matters between India and revenue administrations of BRICS countries.

Source: IBFD and PIB press release dated 19 July 2017

Treaty Updates

26 Tax Digest

Organisation for Economic Co-operation and Development (OECD) releases draft changes to be incorporated in 2017 update to OECD Model Tax Convention

On 11 July 2017, OECD released the draft contents of the 2017 update to the OECD Model Tax Convention.

The 2017 update is primarily comprised of changes to the OECD Model Tax Convention (MTC) and Commentary that have been approved as part of the BEPS Package. However, it also contains changes resulting from follow-up work on the treaty-related BEPS measures, including changes resulting from the negotiation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, and changes related to the commentary on permanent establishments and the international shipping provision, which were under review prior to the BEPS project. Changes and additions will also be made to the observations, reservations and positions to the MTC of OECD member countries and non-member economies. These changes and additions are in the process of being formulated and will be included in the final version of the 2017 update.

For further details, please click here for EY Global alert dated 28 July 2017.

OECD releases 2017 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

On 10 July 2017, OECD released the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG). The 2017 edition of the OECD TPG mainly reflects a consolidation of the changes resulting from the OECD/G20 BEPS Project. It also contains the revised guidance on safe harbors and a number of other consistency changes to produce this consolidated version of the OECD TPG.

For further details, please click here for EY Global alert dated 14 July 2017.

G20 leaders’ communiqué demonstrates continued support on tax issues, highlights new developments

On 8 July 2017, the G20 leaders issued a communiqué at the conclusion of their Summit in Hamburg, Germany. In advance of the Summit, OECD issued a report to G20 leaders, updating progress in key areas of OECD/G20 tax work, including movement toward the automatic exchange of information between tax authorities and implementation of key measures to address perceived tax avoidance by multinational companies.

It was clear before the start of the Summit that the key focal points would be trade issues and climate change. Even though these indeed turned out to be the core elements of discussions, the communiqué showed sustained support for the direction already taken in the tax area, confirming continuous commitment to the implementation of the BEPS outputs, a growing focus on the work by the OECD on the taxation of the digital economy, and continued strong support for the work on enhanced tax transparency and tax certainty.

Although no tax “blacklisting” took place this time due to important progress having been made by jurisdictions previously identified by the OECD as “non-cooperative,” the option of blacklisting and associated defensive measures was left open for 2018.

For further details, please click here for EY Global alert dated 10 July 2017.

Happenings across the border

27 Tax Digest

OECD, United Nations (UN), International Monetary Fund (IMF) and World Bank (WB) issue toolkit for addressing difficulties in accessing comparable data for TP analysis

On 22 June 2017, the “Platform for Collaboration on Tax” — a joint effort of OECD, UN, IMF and WB Group — released a toolkit designed to help developing countries address the lack of “comparables” for TP analyses and better understand mineral product pricing practices. However, the toolkit goes beyond a narrow examination of how to deal with a lack of local comparables data; instead, the toolkit’s aim is to help ensure greater practical implementation of TP regimes that apply the arm’s length principle in accordance with the realities faced by many developing countries, including limited information availability and administrative capacity. The toolkit builds on the work performed and comments received on the discussion draft issued on 24 January 2017. The delivery of the Toolkit coincides with the third meeting of the Inclusive Framework on BEPS, held in the Netherlands on 21–22 June 2017, and demonstrates the commitment of the platform to work together to tackle a wide range of pressing tax issues.

For further details, please click here for EY Global alert dated 6 July 2017.

OECD, UN, IMF and WB release discussion draft on taxation of offshore indirect transfers

On 1 August 2017, the “Platform for Collaboration on Tax” — a joint effort of OECD, UN, IMF and WB Group — released a draft toolkit for discussion purposes in relation to “offshore indirect transfers” of shares that derive value from immovable assets. The release of this toolkit seems to be due to various restructuring arrangements carried out by MNEs in a manner to avoid tax indirectly leading to loss of tax revenue internationally.

The toolkit outlines that offshore indirect transfer has become a relatively common practice for taxpayers trying to minimize their tax burden, and is an increasingly critical tax issue. The toolkit also highlights that there is no unifying principle on how to treat these transactions, and the issue remains unaddressed in the OECD/G20 BEPS project.

This draft toolkit, “The Taxation of Offshore Indirect Transfers – A Toolkit,” examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasizes on industries in developing countries, and considers the current standards in the OECD and the UN MTC, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

For further details, please click here.

OECD BEPS updates:

OECD releases report on branch mismatch arrangements

On 27 July 2017, OECD released a report on “Neutralising the Effects of Branch Mismatch Arrangements” as part of the follow-up work under BEPS Action 2 (Neutralising the effects of hybrid mismatch arrangements). According to the report, branch mismatches occur where the residence jurisdiction (i.e., the jurisdiction in which the enterprise is tax resident) and a branch jurisdiction (i.e., the jurisdiction in which the branch is located) take a different view on the allocation of income and expenditure between the branch and head office, including situations where the branch jurisdiction does not treat the taxpayer as having a taxable presence in that jurisdiction.

The report identifies and analyzes five basic types of branch mismatch arrangements giving rise to three following mismatch outcomes, namely, deduction/no inclusion, double deduction, and indirect deduction/ no inclusion. The five basic types of branch mismatches in the report are (a) disregarded branch structures, (b) diverted branch payments, (c) deemed branch payments, (d) double deduction branch payments, and (e) imported branch mismatches. The report includes a series of recommendations to neutralize the mismatch outcomes of such basic types of branch mismatch arrangements.

For further details, please click here for EY Global alert dated 1 August 2017.

28 Tax Digest

OECD releases update of Guidance on the Implementation of CbCR

On 18 July 2017, OECD released an updated version of its Guidance on the Implementation of CbCR. This update addresses two new questions:

1. Whether aggregated or consolidated data should be reported where there is more than one constituent entity in a jurisdiction

2. The treatment of an entity owned and/or operated by more than one unrelated MNE groups, such as joint ventures

For further details, please click here for EY Global alert dated 19 July 2017.

70 countries, including India, signed Multilateral Convention (MLI) to implement tax treaty related measures to prevent BEPS

On 7 June 2017, 68 jurisdictions34, including India, signed the MLI to implement tax treaty related measures to prevent BEPS during a signing ceremony hosted by OECD in Paris. Thereafter, two more countries35 have also signed the MLI. Currently, seven other jurisdictions36 have expressed their intent to sign the MLI in the near future.

The MLI is designed to allow modifications to tax treaties between two or more parties to implement BEPS changes relating to the following actions –

• Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements)

• Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances)

• Action 7 (Preventing the Artificial Avoidance of PE Status)

• Action 14 (Making Dispute Resolution Mechanisms More Effective)

At the time of signature, signatories submitted a list of their tax treaties in force that they designated as Covered Tax Agreements (CTAs), i.e., to be amended through the MLI.

Together with the list of CTAs, signatories also submitted a preliminary list of their reservations and notifications (MLI positions) in respect of the various provisions of the MLI. The definitive MLI positions for each jurisdiction will be provided upon the deposit of its instrument of ratification, acceptance or approval of the MLI. The OECD has published on its website the list of signatories and country-specific files containing an overview of the CTAs and reservations and notifications as filed by those countries. Further, OECD has also released a MLI matching database (beta version) which makes projections on how the MLI modifies a specific CTA by matching information from Signatories. The database enables users to select two contracting jurisdictions from the drop-down menu and identify if the relevant tax treaty is a CTA and also check the impact of MLI provisions on the CTA.

At this stage, it is expected that over 1,100 tax treaties will be modified based on matching the specific provisions that jurisdictions wish to add or change within the CTAs nominated by the signatories. Both the number of jurisdictions and the number of CTAs designated are anticipated to grow over time.

At the time of signature, India submitted a list of 93 tax treaties entered into by India and other jurisdictions that India would like to designate as CTAs together with the list its MLI positions in respect of the various provisions of the MLI.

For further details, please click here for EY Global alert dated 7 June 2017 and

click here EY Global alert dated 6 July 2017.

34Andorra, Argentina, Armenia, Australia, Austria, Belgium, Bulgaria, Burkina Faso, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Gabon, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Monaco, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, San Marino, Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and Uruguay.35Mauritius and Cameroon36Côte d’Ivoire, Estonia, Jamaica, Lebanon, Nigeria, Panama, Tunisia

29 Tax Digest

OECD releases revised discussion drafts on profits splits and attribution of profits to PEs

On 22 June 2017, OECD released discussion drafts on the revised guidance on profit splits (BEPS Action 10) and the additional guidance on the attribution of profits to PEs (BEPS Action 7).

The discussion draft titled “BEPS Action 10: Revised Guidance on Profit Splits” deals with the clarification and strengthening of the guidance on the transactional profit split method (PSM) and sets out the text of the proposed revised guidance on the application of this method.

The discussion draft titled “BEPS Action 7: Additional Guidance on the Attribution of Profits to Permanent Establishments” (PE Discussion Draft) provides additional guidance on the attribution of profits to PEs arising from the Extended Dependent Agent Rule suggested in BEPS Action 7 (Article 5(5)) and with respect to PEs arising from the changes in exemption clause of the MTC (Article 5(4)), including the anti-fragmentation rule.

The Profit Split and PE Discussion Drafts build on the work performed and comments received on the respective discussion drafts that were issued on 4 July 2016. The proposed guidance in the Profit Split Discussion Draft does not represent a consensus view of the OECD’s Committee on Fiscal Affairs nor of the Inclusive Framework on BEPS and does not include an announcement for a public consultation.

The guidance provided in the PE Discussion Draft represents a consensus view of the OECD’s Committee on Fiscal Affairs and the Inclusive Framework on BEPS. The OECD intends to hold a public consultation on the PE Discussion Draft in November 2017.

For further details, please click here for EY Global alert dated 22 June 2017.

30 Tax Digest

High Court, Madras

Bank guarantee is in the form of security, limitation period not applicable to restitution

Customs Act, 1962; in favor of assessee

The assessee imported various capital goods and accessories under the Export Promotion Capital Goods (EPCG) Scheme. Accordingly, having regard to the said scheme, clearances were allowed at a concessional rate of duty of 15% subject to the conditions specified in the Custom’s Notification No. 110/95, dated 05 June 1995. Accordingly, the assessee executed three bank guarantees of different amounts as well as bonds. The assessee submitted the documents evidencing completion of export obligation within the stipulated period of five years. However, the assessee did not submit the Export Obligation Discharge Certificate (EODC) to the concerned authority, i.e., the Joint Director General for Foreign Trade (JDGFT).

Three show cause notices (SCN) were issued and Revenue invoked the three bank guarantees furnished by the assessee pending the adjudication of the said SCNs. The assessee had filed applications with JDGFT to obtain EODC and these were submitted to Revenue after their issuance by JDGFT.

The Commissioner (Appeals) rejected the appeals on the ground that the refund claims had not been preferred within the period of limitation, which is one year.

Aggrieved by the order of the Commissioner (Appeals), the assessee preferred the appeal before the Tribunal, which held that the encashment of bank guarantee on account of non-production of the EODCs by the assessee could not be termed as realization of import duty from the assessee for failure to fulfil export obligation. The amount realized by Revenue, by way of encashment of bank guarantee, was not duty and consequently, provisions of Section 27 of the Act were not applicable. The Tribunal relied on the judgment of the Supreme Court (SC) in Oswal Agro Mills Ltd. v. Assistant Collector of Central Excise, Ludhiana [1994 (70) E.L.T. 48 (S.C.)].

Aggrieved by the Tribunal’s order, Revenue preferred the appeal before the High Court (HC).

Revenue argued that the bank guarantee was encashed toward the duty amount as requisite documents were not furnished by the assessee and relied on various judgments in this regard.

The assessee has largely relied upon the judgment of the Tribunal in resisting the appeals filed by Revenue.

The HC observed that the assessee not only fulfilled the export obligation well within the timeframe but also furnished all documents in that behalf. The delay with regard to the submissions of EODC could not be attributed to the assessee, as the assessee had taken requisite steps immediately after fulfilment of the export obligation by furnishing other relevant documents that would have demonstrated that the export obligation in point of fact stood fulfilled. The EODC also relates back to the date when the import was made.

The HC referred several rulings, including the SC ruling (supra) wherein it was held that the nature of the amount deposited has to be borne in mind. If the amount deposited is toward security, once the assessee succeeds, he or she is entitled to seek restitution.

Thus, the HC held that as the bank guarantee is furnished in the form of a security toward the fulfilment of an obligation, the encashment of bank guarantee cannot be treated as realization of duty and therefore the limitation period is not applicable.

Commissioner of Customs (Airport) Air Cargo Complex, Chennai v. Lucas TVS Ltd. and Anr. [TS-173-HC-2017(MAD)-CUST]

High Court, Madras

CA certificate and balance sheet not primary documents to rebut unjust enrichment presumption

Customs Act, 1962; in favor of Revenue

The assessee had imported knitted apparels after paying countervailing duty (CVD) at 16%. The assessee had paid the duty by mistake, as the apparels imported by it attract 4% or 8% CVD. The assessee requested the Assistant Commissioner of Customs to reassess the duty. Since there was a refusal to do so, the assessee approached the HC, whereupon an order was passed directing reassessment.

Case Laws

Indirect taxCustoms

31 Tax Digest

Accordingly, the officer sanctioned the refund but it was issued with a direction to credit the amount to Consumer Welfare Fund.

Aggrieved by the order, the assessee approached Commissioner (Appeals) and the Tribunal but did not succeed. Therefore, the assessee filed an appeal before HC.

The assessee argued that along with the Chartered Accountant’s certificate, the balance sheet for the relevant period and the ledger account had also been furnished to the officer. As the evidence is placed on record, the burden for proving unjust enrichment has been shifted to Revenue.

Revenue submitted that the certificate, balance sheet and ledgers cannot be treated as primary evidence. The primary documents, which included sales invoice, had not been placed on record by the assessee despite being given several opportunities to do so.

The HC noted that as per Section 28D of Customs Act, 1962, every person who has paid duty on any goods shall be deemed to have passed on the full incidence of duty to the buyer unless the contrary is proved by them.

The HC observed that the Chartered Accountant’s certificate, the balance sheet and the ledger account by themselves did not disturb the statutory presumption, as these are not primary documents, which would capture the transactions that the assessee may have entered into with its customers. The primary evidence would be the sales invoice that would get generated every time a transaction was entered into between the assessee and its customers.

The HC relied on several rulings and stated that it is well settled that the transaction adverted to in a ledger or in a balance sheet can only, at best, be a secondary evidence. The primary evidence would be the underlying documents, such as bills and sales invoices. In so far as the entries in the books of accounts and ledgers are concerned, they do not get proved by themselves; even those entries require proof.

The HC further stated that once the primary evidence is furnished, only then will the burden of proof shift from the assessee to Revenue.

The HC noticed that the opening paragraph of the Chartered Accountant’s certificate seems to indicate that the books of accounts and the relevant supporting documents have been verified. The HC noticed that if that was the position, then why could the assessee not produce the relevant invoices,

i.e., supporting documents, before the Tribunal despite the opportunity having been given in that behalf.

The HC also stated that the division bench in the case of Commissioner of Customs (Exports), Chennai v. BPL Ltd. [2010 (259) E.L.T. 526 (Mad.)] had also taken a similar view.

Hence, the HC held that the certificate from the Chartered Accountant, P&L and balance sheet are not conclusive evidence to establish that there will be no unjust enrichment if the refunded amount is paid to the assessee.

Shoppers Stop Ltd. v. Commissioner of Customs (Export) [TS-199-HC-2017(MAD)-CUST]

Foreign Trade Policy

High Court, Ahmedabad

Recovery of CST reimbursement on inter-EOU procurements after seven years not permissible

Foreign Trade Policy, 2004-09; in favor of assessee

The assessee was engaged in manufacturing various chemicals for export. It had its manufacturing unit in the Kandla Special Economic Zone (SEZ). For the said activity, the assessee purchases raw materials from a domestic tariff area (DTA) or from other export oriented units (EOU). During 2006 to 2008, the assessee had claimed Central Sales Tax (CST) reimbursement on purchases made including from manufacturing units situated in EOU. Revenue granted such claims and reimbursed CST component. However, in 2013, Revenue took a stand and opined that as the definition of “DTA” in FTP excludes SEZ and EOU, sale from one EOU to another would not qualify for CST reimbursement. Due to this, in 2015, an SCN was issued contending that the assessee had not refunded the amount of INR55.75 lakh that was erroneously paid by Revenue. In reply to the SCN, the assessee denied Revenue’s contention that CST reimbursement was granted erroneously.

Relying on the circular issued by the Government of India dated 11 April 2014, Revenue passed order-in-original confirming refund of CST wrongly reimbursed and also imposed a penalty. Being aggrieved by the order, the assessee filed a writ petition before the HC challenging the said circular and order-in-original.

32 Tax Digest

Para 6.11 of FTP explains, “Supplies from the DTA to EOU/EHTP/STP/BTP units shall be eligible for relevant entitlements under chapter 8 of FTP besides discharge of export obligation, if any, on the supplier.” Therefore, the HC observed that two clauses (a) and (b) of Para 6.11 specifically deal with the supplies made by a DTA to an EOU or other similar units such as electronic hardware technology park (EHTP) and software technology park (STP). However, sub-clause (i) of clause (c) provides for reimbursement of CST on goods manufactured in India and sub-clause (ii) provides for exemption from payment of Central Excise Duty on goods procured from DTA.

Accordingly, the HC noticed that the language used in clauses (a), (b) and (c), in general, was not made limited to the supplies from a DTA unit. It was specifically provided in the policy wherever the intention was to limit the benefit of an EOU on procurement made from a DTA unit. It must be understood that clause (c) would govern the goods purchased by an EOU unit from any unit as long as the condition of goods being manufactured in India is satisfied. Therefore, the HC held that FTP did not limit the benefit of CST reimbursement as it did not use any expression that it would be confined to a sale by a DTA unit. The HC further relied on the ruling in the case of Hospira Health Care India Pvt. Ltd. vs. Development Commissioner, MEPZ Special Economic Zone & Heous and Ors. [(2016) 4 MLJ 179 = TS-167-HC-2017(MAD)-FTP]. and it was held that demand for refund of reimbursement benefits was in conflict with para 6.11 of FTP. It was observed that, “Even otherwise, the Hand Book of Procedures and in particular Appendix-14-I-I contained therein nowhere aims to lay down any policy but prescribes the procedure to be followed for reimbursement of CST.” While para 2 of the Appendix restricted the CST reimbursement on purchases made by an EOU from a DTA unit, the HC opined that such restriction ran counter to the terms of FTP itself and ultra vires the powers of DGFT. It was further noted that under the procedure for claiming CST reimbursement in terms of FTP 2015–20, the Government itself has recognized the benefit of CST reimbursement on purchases made by an EOU from another EOU. Moreover, the reimbursements of 2006–08 were sought to be recovered in 2015. It was not the case of Revenue that assessee was responsible for any

misrepresentation or misstatement of facts that resulted in such erroneous reimbursements being granted and it came to the notice of Revenue later. That being the position, it was not possible for Revenue to make recoveries after an unduly long period of time of more than 7 years without any explanation for such delayed action.

In view of the above, the HC allowed the assessee’s petition by quashing the order-in-original and said circular and disposed of the petition.

Asahi Songwon Colors Ltd and others v. Union of India & others, Kolkata [TS-196-HC-2017(GUJ)-FTP]

Central Excise

High Court, Madras

The HC allows CENVAT credit on structural supporting plant and machinery; to be qualified as capital goods and inputs

Central Excise Act, 1994; in favor of assessee

The assessee was a manufacturer of sugar, molasses, rectified spirit, extra neutral alcohol, ethanol, denatured ethyl alcohol and fuel oil. Revenue was of the view that the credit availed on HR plates, MS channels and MS joints (structurals), which are used as supporting structures to keep in position the distillation machinery and evaporator, fall under Chapter 72 and are not covered by the definition of capital goods as provided in Rule 2 of CENVAT Credit Rules, 2002 (CCR 2002). Thus, demand was raised and confirmed against the assessee. The assessee preferred an appeal before Commissioner (appeals), who ruled in its favor. However, the Tribunal overturned this decision and an appeal was filed before HC.

The assessee contended that the structurals that were used to support the plant and machinery, which in turn were used in the manufacture of the final product, were components and/or accessories of capital goods and the structural and/or cement and iron and steel would, alternatively, fall within the ambit and scope of Rule 2 (K), r/w, Explanation 2 to CCR 2002. On the contrary, Revenue contended that structurals come within the ambit and scope of chapter 72 and cannot be considered

33 Tax Digest

as components or accessories of capital goods. Further, it contended that structurals that were used to support and position plant and machinery would fall within the definition of input based on the “user test principle” enunciated in case of CCE v. Rajasthan Spinning and Weaving Mills Ltd.

The HC referring to the ratio of Supreme Court in Saraswathi Sugar Mills Ltd. and Rajasthan Spinning and Weaving Mills Ltd. stated that as long as it is shown that “component” and/or “accessory” is an integral part of capital goods, which, in turn fall within the scope and ambit of Rule 2(a)(A)(i) of CCR 2002, they would qualify as “capital goods.” Further, the amendment in explanation 2 to Rule 2(K) excluding structural, cement, angle etc. from the definition of “input” is not clarificatory and would operate prospectively w.e.f. 7 July 2009. The HC observed that the Finance Minister’s speech cannot control the meaning of the words used in Notification No. 16/2009 as it uses a generic expression “to clarify,” which when read with the first part stating that it would have effect “immediately” only fortifies the view that the amendment was configured to operate from the date of its publication and not retrospectively. Thus, the HC held that whether the user test is applied or the test that they are an integral part of the capital goods is applied, the assessee should get the benefit of CENVAT credit, as they fall within the scope and ambit of both Rules 2 (a) (A) and 2(K).

Thiru Arooran Sugar & Anr v. Commissioner of Central Excise, Triuchirapali &Anr; [TS-182-HC-2017 (MAD)-EXC]

High Court, Madras

CENVAT credit allowed to be transferred under Rule 10 on relocation of factory to another site

Central Excise Act, 1944; in favor of assessee

The assessee was a manufacturer of workstation chairs. It had obtained a registration certificate for its manufacturing unit; however, the unit was closed on 31 March 2010 and the certificate was surrendered. An application was made by the assessee as per Rule 10 of the CENVAT Credit Rules, 2004 (CCR 2004) to transfer the unutilized credit at its Bangalore unit. Revenue rejected

the application. The assessee taking recourse to Rule 5 of CCR 2004 applied for refund of the unutilized CENVAT credit. However, the refund application was also rejected by Revenue. The assessee filed an appeal before the Tribunal. The consideration before the Tribunal was whether the assessee could be allowed to transfer the CENVAT credit lying unutilized in the Bangalore unit. It allowed the appeal and an order was passed against Revenue. Being aggrieved, Revenue filed an appeal before HC.

Revenue contended that the provisions of Rule 10 of CCR 2004 were misinterpreted. It submitted that Rule 10 is applicable where there is a transfer either on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of a factory due to a joint venture being put into operation and it cannot be carried out in cases where the unit is completely shut down and the registration certificate is surrendered.

The HC pursuant to Rule 10 of CCR 2004, observed that sub-rule (1) provides that a situation where transfer of CENVAT credit is available to the manufacturer is when the manufacturer of final products “shifts” its factory to another site. The word “shift” will include a situation where a unit located at one place shuts down and thereafter is relocated to another place. The HC also stated that the purpose behind the rule is, broadly, to enable an assessee to use unutilized CENVAT credit. Thus, the HC upheld the order of the Tribunal and allowed to transfer the CENVAT credit under Rule 10 of CCR 2004 to the assessee.

The Commissioner of Central Excise v. Featherlite Products Pvt. Ltd.; [TS-171-HC-2017(MAD)-EXC]

High Court, Madras

High court allows manufacturer to claim CENVAT credit against supplementary invoice and TR-6 Challan

Central Excise Act, 1944; in favor of assessee

The assesse is a manufacturer of pig iron, steel bars and rods, flats etc. It had taken input services of manpower recruitment and supply agency (service provider). The service provider was not registered with the Excise Department but it raised an invoice, which included a service tax element. The concerned authority initiated a case against the service provider. During scrutiny of ER-1 monthly returns, Revenue discovered that the assessee had

34 Tax Digest

availed CENVAT credit on the basis of the invoices issued by the said service provider. The assessee had also availed banking and financial services from a banking company, which was located outside India. The service tax was paid on a reverse charge mechanism (RCM) basis. CENVAT credit was availed on the basis of the TR-6 Challan, which according to Revenue was not an eligible document under Rule 9(1)(b) of CCR 2004. An SCN was served on the assessee for wrong availment of CENVAT credit based on ineligible documents and utilizing it for the payment of Excise Duty on its final product in terms of Rule 14 of CCR 2004 r/w Section 11A of Central Excise Act, 1944 (CEA). Order–in-original was passed and the demand was confirmed. Aggrieved by the order, the assessee filed an appeal before the Tribunal. The Tribunal disposed of the both the appeals in favor of the assessee by common order. Aggrieved by the order of the Tribunal, Revenue filed an appeal before HC.

Revenue contended that in case of receipt of manpower and recruitment services by the assessee from the service provider, credit was taken after an offence case was registered against the service provider by the department. In case of banking and financial services where service tax was paid by the assessee on RCM basis, the TR-6 Challan was not an eligible document under Rule 9 (1) (b) of CCR 2004 to claim the CENVAT credit. The assessee contended that Rule 9(1)(b) of CCR 2004 is applicable in situations where supplementary invoice (based on which credit was taken) is issued by the manufacturer or importer of inputs or capital goods. Rule 9(1)(b) would not apply to a provider of input services. It pertains only to additional duty, which becomes recoverable on account of fraud, collusion or any willful misstatement etc. Explanation appended to Rule 9(1)(b) would not apply to the remaining clauses of Rule 9(1), which include clauses (e), (f) and (g) — a challan of service tax paid; an invoice, a bill or challan issued by a provider of input service; and an invoice, bill or challan issued by an input service distributor respectively.

The HC observed that Rule 9(1)(b) enables availment of CENVAT credit against supplementary invoices issued by a manufacturer or importer of inputs/capital goods and there is no reference about input service provider.

The explanation appended only seeks clarity that supplementary invoice would also include challan. Thus, documents included in clauses (e), (f) and (g) of Rule 9 (1) would not be governed by the said explanation. The HC allowed CENVAT credit on the basis of supplementary invoice issued by service provider and the TR-6 Challan and rejected Revenue’s appeal.

The Commissioner of Central Excise, Salem v. JSW Steels Ltd. And Anr; [TS-213-HC-2017(MAD)-ST]

Tribunal, Kolkata

The Tribunal upholds MRP-based valuation for mono-cartons containing sachets

Central Excise Act, 1944; in favor of assessee

The assessee was a manufacturer inter alia of powder hair dye (PHD), liable to Central Excise Duty under Central Excise Tariff heading 3305. PHD is packed in sachets of 3 gm and 6–8 such sachets are put in a mono-carton. The sachets as well as mono-cartons have printed MRP. The department held a view that the appellants were wrongly discharging duty by valuing the product under Section 4A whereas duty should have been discharged under Section 4 under normal transaction value. Order- in- original was passed against the assessee. Aggrieved by the order, the assessee filed an appeal before CESTAT. CESTAT was of the view that the issue needs to be referred to the Legal Metrology Department (LMD) of the respective states for their opinion with reference to the applicability of the Standards of Weight and Measures Act, 1976 or Legal Metrology Act, 2009 and respective rules made thereunder. Hence, the matter was remanded back to the adjudicating authority.

The assessee approached the LMD of the Central Government and two different state governments (Sikkim and West Bengal). The department opined that fewer than 10 retail packages and 6 or 8 sachets in mono-carton

35 Tax Digest

should be considered as a retail package.. The adjudicating authority did not consider these opinions submitted by the assessee and held that mono-cartons were required to be assessed u/s 4. The demand was recomputed in terms thereof. Hence, the assessee approached CESTAT against these de-novo adjudication orders.

The assessee contended and apprised the LMD’s opinion before the Tribunal. It also stated that it had area-based exemption, so the whole issue was revenue neutral. Revenue contended that reference to multi-piece packs would have no relevance for excise assessment and only individual retail packs and sachets capable of being sold in retail could be considered as primary package for excise purpose.

After hearing both the sides, the Tribunal has noted the clarifications issued by LMD and Directorate of Legal Metrology, Govt. of West Bengal, which state that a mono-carton containing 6 or 8 sachets is a retail package if it satisfies all mandatory requirements as provided under Rule 6 of said the Rules and the clarification issued by the Center is binding on state authorities respectively. The conclusion drawn by AA regarding the non-applicability of Legal Metrology provisions without examining the clarification provided by LMD, was not proper and sustainable. Further, it stated that the entire exercise would be revenue neutral as the assessee was operating under area-based exemption and was eligible for refund of duty paid. Thus, the Tribunal upheld the MRP valuation of mono cartons containing 6/8 PHD sachets u/s 4A as “retail packages,” instead of transaction value based u/s 4 of Act and the order was passed in favor of assesse.

Godrej Consumer Products Ltd v. CCE&ST, Sillguri; [TS-208-CESTAT-2017-EXC]

CENVAT credit

Tribunal, Mumbai

Credit eligible to Indian arm, for services by overseas entity, when assessee is the same

Finance Act, 1994; in favor of assessee

The assessee (MSM Singapore) provides broadcasting services from Singapore. It also obtained service tax registration in India (MSM India) in 2012. MSM India does not have any physical establishment in India for provision of broadcasting services. Channels such as SET, Max, SAB and Pix are uplinked from Singapore by MSM Singapore and are clown-linked in India as well as many other countries for viewing by general public. Advertisements recorded in videotapes by advertising agencies and programs/serials recorded in videotapes by or on behalf of the sponsor are procured from India and sent to MSM Singapore for use in the channels that are to be broadcasted. MSM India does not have any person as employee or otherwise in India and also does not maintain any books of accounts pertaining to its activities in India. MSM India discharges service tax on the amount received as subscription and advertising income. Service tax is discharged by using funds made available by MSM Singapore in NRO account as well as CENVAT credit taken by MSM India. MSM India has taken major amount as CENVAT credit of service tax on services provided by BCCI. BCCI and MSM Singapore entered into an agreement according to which MSM Singapore had to pay rights fee to BCCI. Prior to 2012, BCCI was raising invoice on MSM Singapore. However, after MSM obtained service tax registration in India, in 2012, BCCI raised invoices on MSM India. The payment was made by MSM India from funds in the NRO a/c of MSM Singapore.

Revenue denied the CENVAT credit to MSM India on the ground that the output services were provided by MSM Singapore. Since no output services were provided by MSM India, they were not entitled to availment of CENVAT credit.

36 Tax Digest

The assessee argued that MSM India and MSM Singapore were not different entities. MSM Singapore has taken the registration in India in the name of MSM Singapore only. Further, as per the definition of “location” of service provider, the premises where a services provider has obtained registration shall be its location. Since the assessee was granted registration for certain premises located in Mumbai, the assessee from Mumbai location would be deemed to be the service provider, irrespective of whether the services were provided from that premises or from other premises. At the time of application for registration, the assessee had set out reasons for registration and stated that the assessee would be paying tax on distribution and ad-sales revenue and claim input service credit. The department had issued registration after being satisfied that the assessee was providing services in India.

The Tribunal observed that MSM India and MSM Singapore were the same entity. Thus, the service provider is the same entity even though service was provided from a different location. Further, Revenue, after knowing the facts, granted registration to the appellant, enabling it to pay service tax on services provided by MSM Singapore.

Thus, it was held that once registration was granted and service tax was collected, consequent CENVAT credit could not be denied.

MSM Satellite (Singapore) Pte. Ltd and others v. The Principal Commissioner, Service Tax [2017-TIOL-1413-CESTAT-MUM]

Service Tax

Supreme Court

Writ can be dismissed on ground of four-year delay in case the confirmed demand is not challenged

Finance Act, 1994; partly in favor of assessee

The assessee paid commission to an overseas agent for the period prior to March 2006 but did not pay service tax on such commission paid. An SCN was served in 2007 for non-payment of service tax under reverse charge on “commission paid to overseas agents” under “Business Auxiliary Service.” Thereafter, the order, confirming the

demand of service tax, was passed in 2008. , The said demand was not challenged immediately by the assessee by filing statutory appeal, which was available.

A writ petition was filed by the assessee before the HC in March 2012 but was dismissed since it was filed four years after the demand was confirmed. Aggrieved by the decision of HC, the appellant filed a civil appeal before the SC.

The assessee, as an explanation for the delayed approach to the court, stated that it was aware about numerous other litigations pending from 2007 onward by various parties who were under genuine and bona fide belief that they were not liable to pay service tax. However, the appellant was unable to file a statutory appeal before the Departmental Appellate Authorities as the file had been misplaced due to a change of the managerial setup in the organization.

The assessee contended that in other litigations, it was held that service tax was not payable in the absence of an appropriate provision at the relevant time and it became payable only w.e.f. 18 April 2006 when Section 66A was inserted in the Finance Act, as a charging section. This was clarified by circular no. F. No. 276/8/2009-CX8A, dated 26 September 2011 issued by the Ministry of Finance. Thereafter, the appellant had filed the writ petition in March 2012.

The SC observed that as the appellant had not challenged the demand and was merely sitting on the fence, watching the proceedings in other similar cases, the decision in those cases cannot furnish any cause of action to the appellant to file the writ petition. The Ministry of Finance had issued the circular after the legality of such demand of service tax was determined. However, in such a scenario, the assessee can succeed only if its case gets covered by the four corners of such circular. It was clear from the aforesaid circular that the Government had decided not to press for payment of service tax in “pending disputes.” Thus, the circular would not apply to those cases which were already over and were not pending on that date. As the assessee’s case was not pending on that date, this circular would not come to the aid of the assessee.

The SC noted that the legal position was settled that service tax was not payable for the period in question. This legal position is not confined to only those who approached

37 Tax Digest

the Court but is a declaration of law. It can be treated as judgment in rem. The SC relied on the case of Arvind Kumar Srivastava & Ors. [(2015) 1 SCC 347] and stated that though the service tax levied for the period in question was paid by the assessee, liability on account of penalty and interest was also fastened upon the assesse. When the assessee approached belatedly, it may not be entitled to refund of service tax already paid but at the same time, the assessee should not be called upon to pay any interest and penalty levied on a tax that was not payable at all in law.

Shoeline v Commissioner of Service Tax and others [2017-TIOL-289-SC-ST]

High Court, Kerala

Exchange of secondhand cars is “sale”; cannot be treated as “Business Auxiliary Services”

Finance Act, 1994; in favor of assessee

The assessee was an authorized dealer for cars manufactured by Maruti Udyog Ltd. The assessee also dealt in pre-owned or used cars. Whenever a prospective purchaser opted to exchange his or her used car with a new one, he or she needed to pay the difference amount to the dealer. From the used-car owner, the dealer took signatures in blank Form-29 (sale letter) and Form-30 (transfer letter) prescribed under the Motor Vehicle Rules. It also collected all the old documents such as registration certificate from the owner. However, in the records of the Transport Department, the ownership remained unchanged. The dealer then gave a facelift to the used vehicle, refurbished it and made it saleable. Eventually, it sold the refurbished used-car to another person and transferred the documents of the previous owner to the new owner.

Revenue contended that since the vehicle ownership remained with the original owner till it was transferred to the prospective buyer, the dealer was only a custodian of the vehicle. The dealer only helped the owner of the used vehicle to find a purchaser. The repair and refurbishment of the vehicle was done with a view to getting more margin, though the price of the used vehicle vis-à-vis

its owner remained fixed. Unless the used vehicle was sold or transferred in the manner provided under the Motor Vehicles Act, it cannot be said that there was a valid sale. Revenue argued that the difference between the sale price of old cars and purchase price of new ones was consideration for “Business Auxiliary Services” and imposed duty demand.

On the other hand, the assessee contended that it purchased used vehicles from its owner, used its expertise to refurbish the vehicle, made it more marketable and eventually sold for a margin. The original owner had nothing to do with the market fluctuations, as sometimes the dealer may have to sell the used vehicle at a lower price than it has paid to the owner. The transaction was reflected as “sale” in its books of accounts.

The HC noted that the Motor Vehicles Act does not aim to control the sale or transferability of a motor vehicle. Rather, the Act aims at regulating a motor vehicle on the road, not off the road. As the motor vehicle is movable property, the transfer of its ownership is governed by the Sale of Goods Act. Registration was not a precondition for sale of a vehicle, and was important only if the vehicle was sought to be used.

Thus, the HC held that the transaction of exchange of old cars was a sale and the dealer could not be said to be an agent. The consideration received could not be taxed under service tax as “Business Auxiliary Services.”

Commissioner of Central Excise, Customs and Service tax v. Sai Service Station Ltd [TS-180-HC-2017(KER)-ST]

High Court, Madras

Commissioner (Appeals) empowered to remand service tax assessment; Central Excise law restriction inapplicable

Finance Act, 1994; in favor of Revenue

In the present case, the Commissioner (Appeals) had confirmed the demand of tax, interest and penalty made by the Joint Commissioner of Central Excise and remanded the matter to the Joint Commissioner for the limited purpose of examining the threshold limit and granting appropriate relief. The assessee filed a writ petition to HC, arguing that Commissioner (Appeals) had no power to remand the matter to the adjudicating authority.

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The assessee submitted that Section 85 of the Finance Act 1994 dealt with appeals to the Commissioner of Central Excise (Appeals). As per Section 85(4), Commissioner (Appeals) shall hear and determine the appeal and, subject to the provisions of Chapter V of the Finance Act, pass orders as he thinks fit and such order would include an order enhancing the service tax, interest or penalty. Further, as per Section 85(5), Commissioner (Appeals) shall exercise the same powers and follow the same procedure as he exercises and follows in hearing the appeals and making orders under the CEA.

Therefore, the Commissioner while hearing the appeals, should follow procedure in terms of the Section 35A of the CEA. Section 35A(3) of the CEA earlier provided for a power to remand the matter to the adjudicating authority, but this power was specifically deleted by amendment through Finance Act 2001. Reliance was also placed on SC’s decision in the case of MIL India Ltd. [2007 (210) ELT 188 (SC)], wherein it was noted that power of remand by Commissioner (Appeals) was taken away by amendment in Section 35A.

Revenue argued that power to annul the decision includes power to set aside the decision and remand the matter to the authority below for fresh decision. It relied on the decision of the SC in the case of Union of India v. Umesh Dhaimode [1998 (98) ELT 584 (SC)] and also referred to the meaning of the word “annul” in Black’s Law Dictionary.

The HC observed that Section 85 (5) does not specifically state that the provisions of Section 35A of the CEA had to be read into the provisions of the Finance Act. Further, Section 83 of the Finance Act, which enumerated the sections under the CEA that would apply to matters relating to service tax, did not include Section 35A. This was a clear indication that the said provision could not be superimposed into Section 85 of the Finance Act. Section 85(5) only speaks about the procedure to be followed while hearing the appeal and making orders and the procedures to be followed under the CEA.

The SC noted that Section 85(4) provides the manner in which the Commissioner (Appeals) shall hear and determine an appeal, and it only states that he can pass orders as he thinks deem fit. This provision was in paramateria to Section 128 (2) of the Customs Act, which was considered by the SC in Union of India v. Umesh

Dhaimode (supra), and it was held that the said provisions would include the power to remand.

Thus, the HC held that Commissioner (Appeals) has the powers to pass orders as he thinks fit and such orders will also include an order of remand. The amendment to Section 35A(3) in 2001 does not in any manner impact the power of the Commissioner of Central Excise (Appeals) while dealing with an order passed under the Finance Act.

A.S. Babu Sah Designs and others v. The Commissioner of Central Excise (Appeals-1) and others [TS-227-HC-2017(MAD)-ST]

Tribunal, Mumbai

Revenue cannot dispute input services admissibility without issuing SCN while processing refund

Finance Act, 1994; in favor of assessee

The assessee provided taxable output service under the category “Business Auxiliary Service” and “Maintenance and Repair Services” and was availing CENVAT credit of various input services. The assessee also exported services. It was entitled to refund of accumulated CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004. Accordingly, the assessee had filed various refund claims.

Revenue rejected some refund claims on the ground that there was no nexus between “input service” and “output services.”

The assessee submitted that all the services on which CENVAT credit was availed were input services and were used in providing output service. Further, the assessee argued that no SCN had been issued for denial of CENVAT credit. Therefore, the refund could not be rejected.

The Tribunal held that since no SCN had been issued disputing the admissibility of input service, the proposal for rejection of refund claim on this ground could not be sustained.

B.A. Continnum Pvt. Ltd v Commissioner of Service tax [TS-187-CESTAT-2017-ST]

39 Tax Digest

Value Added Tax/Central Sales Tax

High Court, Gujarat

The HC upholds CST exemption on milk sold through consignment agents

CST Act, 1956; in favor of assessee

The assessee was carrying on dairy business on a consignment basis through various commission agents/consignees in Gujarat who lifted the goods from the factory at Gujarat to sell them in Silvassa/Daman. The consignment agents would deposit an advance with the assessee and transport such goods to sellers in Silvassa/Daman. It would obtain “F forms,” which in turn would be submitted to the assesse. The assessee would produce such forms before the prescribed authority to support its claim that the goods moved from one state to another. Since the goods were sold at Daman and Silvassa, which had a holiday period declared by the Central Government, tax exemption was sought by the assesse.

Revenue disputed that sales through consignment agent were local transactions and not inter-state sales and therefore would not be eligible for exemption under Section 6A of the CST Act. Further, the consignment agreement required consignees to remit the sale proceeds immediately after effecting the sales and provided that consignees could sell the goods on cash or credit basis at their own risk. The sale in fact occurred at the diary and was therefore a local sales, assessable to tax. In the absence of any accounts produced to substantiate the nature of sale by the consignee agents, it should be presumed that the sale took place at a local level and not inter-state.

It was contended by the assessee that mere provision in the agreement of remission of sales proceeds in advance and lifting of the goods by consignees at the dairy and subsequent exposure to such goods at their own risk could not render such sale local. The advance receipt would not tantamount to payment of consideration in advance. The consignment agents had lifted goods on behalf of the principal, for sale at Silvassa/Daman.

The Tribunal observed that a provision regarding remission of sale proceeds by consignee immediately after assigning sales would not lead to a conclusion that the relationship between the assessee and the agent was that of vendor and vendee. The transaction would not merely become local sales transaction by virtue of this clause in the agreement. The Tribunal noted that goods were dispatched in other states through regular transport carriers. The L/R shows the name of the assessee as the “consignor of the goods.” Commission agents are shown as the consignee and when transporters deliver the goods to them, the commission agents put their signatures on the transport receipts for having received the goods. Therefore, it was incorrect to say that the goods have been delivered to the consignee as agent at the assessee’s factory. The Tribunal also observed that advance payment was incorrectly equated as the sale price of the goods. The Tribunal finally noted that the transaction had three essential ingredients of an inter-state transaction: (i) there was an implied stipulation in the contract regarding inter-state movement of goods, (ii) the goods did actually move from one state to another and (iii) the sale concluded in another state.

The HC upheld the order of the Tribunal, which allowed tax exemption u/s 6A of CST Act on the basis of having three essential ingredients of an inter-state transaction.

State of Gujarat v. Ahmedabad Jila Sahkari Doodh Utpadak Sangh Ltd.; TS-223-HC-2017 (Guj) – VAT

The pre-condition of payment of self-assessed tax for generating C-form is illegal

Gujarat VAT Act, 2003; in favor of assessee

The assessee was registered under Gujarat VAT/CST laws. When assessee tried to generate C form on the department’s portal, the system did not permit it because the assessee had not deposited tax with the Government.

Revenue submitted that the department had switched over from manual filling of returns and issuance of C forms to a computerized system. Since the assessee had not discharged its tax liabilities, it was not allowed to generate C form. The circular dated November 16, 2009 was abundantly clear in this regard.

40 Tax Digest

The HC observed that reduced rate of tax can be levied on a selling dealer in case of inter-state sale in terms of Section 8(1) of the CST Act, provided a declaration is furnished by purchasing dealer as provided in Section 8(4). Any rules framed as per Section 13 of the CST Act cannot be inconsistent with provisions of acts or rules of the Central Government and should be framed to carry out the purposes of the Act. A circular issued in the form of executive instruction cannot take shape of a statute. The conditions of discharge of tax liability are to be checked by the statutory provision. It would not be possible to provide such a mode of tax recovery by making it a pre-condition for generation of C forms.

Accordingly, the HC held that circular dated 16 November 2009 not allowing assessee to generate C form online on grounds of non-payment of self-assessed tax under Gujarat VAT Act is illegal.

Manan Autolink Pvt. Ltd. v. State of Gujarat and others; TS-202-HC-2017 (Guj)-VAT

High Court, Delhi

Exemption has been granted for treating demo car as capital goods of automobile dealer

Delhi VAT Act, 2004; in favor of assessee

The assessee was engaged in trading of new cars and their spares. The specific car was purchased in the name of the assessee for business purpose and used as a demo car. Input tax credit (ITC) was not claimed and later on, the said car was sold. The VAT liability was not discharged by the assessee considering that sale of such car was covered under Section 6(3) of the Delhi Value Added Tax Act (DVAT). Section 6(3) states that where dealers sell capital goods that they have used since the time of purchase exclusively for purposes other than making non-taxed sale of goods and they have not claimed a tax credit in respect of such capital goods under Section 9, the sale of such capital goods shall be exempt from tax.

Revenue disputed that the exemption is not available under Section 6(3) and tax is payable on the disposal of the said demo car, as the dealer is not in the business of trading of cars but in commodities other than cars. Further, in the returns filed, the capital goods figure was mentioned as zero. The failure by the appellant to disclose the full and correct particulars in the particular columns of the Returns disentitled it to relief under Section 6(3) of the DVAT Act. Also, the assessee had not submitted that the reliance placed by appellant in the matter of Anand Decors v. Commissioner of Trade taxes, New Delhi, was distinguishable since none of the dealers traded in cars but in commodities other than cars. The appeal filed before the VAT Appellate Tribunal was also rejected.

The HC observed that whether the main business of the assessee is dealing in cars or some other business in order for goods purchased in the assessee’s own name and used for the purposes of assessee’s business to be treated as capital goods is not distinguishable. It was natural for the assesse, being a dealer selling new cars, to purchase some cars in its own name for use as demo cars. The prospective customers might like to test drive or inspect a demo car before making an informed choice of purchasing a new car. The fact that these cars were purchased by the assessee in its own name clearly indicated that the assessee intended to use them as demo cars and therefore would be entitled to treat them as capital goods.

The HC held that the four conditions — (i) sale of capital goods, (ii) the said capital goods have been used by the dealer from the time of purchase till sale, (iii) the purpose for which the capital goods were used should be for making sale of taxable goods or taxable goods and non-taxable goods and (iv) the dealer should not have taken tax credit in respect of such capital goods under Section 9 — as laid down in the matter of Anand Decors (supra) were fulfilled. Therefore, the assessee would be eligible to sell the goods without payment of VAT under Section 6(3).

Triumph Motors v. Commissioner of Value Added Tax; 2017-VIL-412-DEL

41 Tax Digest

Maharashtra Sales Tax Tribunal, Mumbai

The movement of goods from mother warehouse to carrying and forwarding agents (CFAs) is considered as branch transfer in the absence of inextricable link between dispatch of goods and purchase order of customer

CST Act, 1956; in favor of assessee

The assessee was a manufacturer and wholesaler of lubricating oil, greases and break fluids etc. under Maharashtra VAT laws and operated via stock transfer of goods through CFA/branches in different states. During the course of assessment, the assessing authority disallowed the claim against “F form” and considered the transfer to the assessee’s branches as inter-state sales and raised CST liability.

Revenue contended that movement of goods from the mother warehouse of the appellant to CFAs was in pursuance of pre-existing purchase orders. Accordingly, the transaction should be taxable as inter-state sale under Section 3(a) of CST Act.

The Tribunal observed that the sale did not take place in the course of interstate trade as the movement of goods was not occasioned in compliance of the pre-existing orders received from customers. The stocking of goods at the warehouse is generated to fulfil the anticipated customer demand of the future as reflected in the demand forecast. The customer is mentioned at the time of delivery from CFAs and not at the time of dispatch of goods from the mother warehouse. Goods are sent to CFAs for replenishment of CFA inventory and they are put into the stream of trade and not in the stream of sale. Considering that the goods sold by the assessee are standard and they are sold in large quantities throughout India, the appellant has a large network of distributors and CFAs and he has developed a software for generating purchase orders on the basis of historical data. There is no inextricable link between movements of goods and purchase order. Therefore, it was held that the transaction is in the nature of branch transfer and not inter-state sale.

Castrol India Ltd. v. The State of Maharashtra; 2017-VIL-15-TRB

42 Tax Digest

Customs duty

• CBEC notifies Valmikinagar in West Champaran District, Bihar, as a Land Customs Station

CBEC has amended Notification no. 63/94-Customs (NT) dated 21 November 1994 and notified Valmikinagar in West Champaran District, Bihar, as a Land Customs Station for the clearance of all goods or any class of goods imported or exported by land for the road connecting Valmikinagar and Triveni Bazar in Nepal.

Notification No. 50/2017-Customs (NT), dated 24 May 2017

• CBEC notifies the India–Malaysia Comprehensive Economic Cooperation Agreement (Bilateral Safeguard Measures) Rules, 2017

CBEC has notified the India–Malaysia Comprehensive Economic Cooperation Agreement (Bilateral Safeguard Measures) Rules, 2017 prescribing the duties of Director General, investigation provisions and bilateral safeguard measures.

Notification No. 55/2017-Customs (NT), dated 21 June 2017

• CBEC notifies Kannur International Airport as a customs airport

CBEC has amended Notification no. 61/94-Customs (NT) dated 21 November 1994 and notified Kannur International Airport as a customs airport for unloading of imported goods and loading of export goods or any class of such goods.

Notification No. 56/2017-Customs (NT), dated 23 June 2017

• CBEC amends the Drawback Rules, 1995 to align them with GST provisions

In case where the amount or rate of drawback has not been determined or the amount or rate determined is low, the exporter of goods may apply to the Principal Commissioner of Customs or Commissioner of Customs, having jurisdiction over the place of export, for determination of the amount or rate of drawback.

Place of export is defined as a customs station or any other place appointed for loading of export goods under Section 7 of the Customs Act, 1962 (52 of 1962) from where the exporter has exported the goods or intends to export the goods in respect of which determination of amount or rate of drawback is sought.

Earlier, the application needed to be submitted to Principal Commissioner/Commissioner of Central Excise or Principal Commissioner/Commissioner of Customs having jurisdiction over the manufacturing unit of manufacturer exporter or supporting manufacturer.

Notification No. 58/2017-Customs (NT), dated 29 June 2017

• CBEC notifies the new Shipping Bill and Bill of Export (Form) Regulations, 2017

CBEC has notified the Shipping Bill and Bill of Export (Form) Regulations, 2017 in supersession of the 1991 Regulations, prescribing the specifications of shipping bill and bill of export. It has provided the formats of shipping bill for export of goods under various scenarios. This is to align the export procedure with the provisions of GST law.

Notification No. 60/2017-Customs (NT), dated 29 June 2017

• CBEC notifies Village Bhambholi, Pune, and Valayankulam Village, Madurai, as inland container depots

CBEC has amended Notification no. 12/97-Customs (NT) dated 2 April 1997 and notified Village Bhambholi, Pune, and Valayankulam Village, Madurai, as inland container depots for unloading of imported goods and loading of export goods.

Notification No. 64/2017-Customs (NT), dated 30 June 2017

Key statutory updates

43 Tax Digest

• CBEC amends the Bill of Entry (Forms) Regulations, 1976

CBEC has amended the Bill of Entry (Forms) Regulations, 1976 prescribing revised formats of bill of entry for home consumption, ex-bond clearance and warehousing. This is to align the formats with the provisions of GST law.

Notification No. 65/2017-Customs (NT), dated 30 June 2017

• CBEC amends the Courier Imports and Exports (Clearance) Regulations, 1998

CBEC has amended the Courier Imports and Exports (Clearance) Regulations, 1998 prescribing revised formats of courier bill of entry and courier shipping bill. This is to align the formats with the provisions of GST law.

Notification No. 66/2017-Customs (NT), dated 30 June 2017

• CBEC amends the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010

CBEC has amended the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 prescribing revised formats of courier bill of entry and courier shipping bill. This is to align the formats with the provisions of GST law.

Notification No. 67/2017-Customs (NT), dated 30 June 2017

• CBEC notifies the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017

CBEC has notified the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 in supersession of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016.

The benefit has been extended to service providers as well.

Further, the power conferred in erstwhile rules to Deputy Commissioner or Assistant Commissioner of Central Excise has now been conferred to Deputy Commissioner or Assistant Commissioner of Customs having jurisdiction over the premises where the imported goods shall be put to use for manufacture of goods or for rendering output service.

Notification No. 68/2017-Customs (NT), dated 30 June 2017

• CBEC amends drawback provisions to align the same with GST

CBEC has amended Notification No. 131/2016 – Customs (NT) dated 31 October 2016, to provide that an exporter, while claiming the drawback at the applicable rates and cap, needs to make a declaration that no input tax credit of CGST or IGST has been availed on the input/input services or no refund of IGST paid on exports shall be claimed, as the case may be. Further, the exporter has to declare that no CENVAT credit of input/ input services pertaining to the goods exported has been carried forward as CGST credit.

Notification No. 73/2017-Customs (NT), dated 26 July 2017

• CBEC notifies the India-Korea Comprehensive Economic Partnership Agreement (Bilateral Safeguard Measures) Rules, 2017

CBEC has notified the India-Korea Comprehensive Economic Partnership Agreement (Bilateral Safeguard Measures) Rules, 2017 prescribing the duties of Director General, investigation provisions and bilateral safeguard measures.

Notification No. 77/2017-Customs (NT), dated 4 August 2017

44 Tax Digest

• CBEC notifies classes of importers who are mandatorily required to make e-payment of customs duty

The following classes of importers are mandatorily required to make e-payment of customs duty:

• Importer registered under Authorised Economic Operator Programme

• Importer paying customs duty of INR10,000 or more per bill of entry (earlier the limit was INR1 lakh or more per bill of entry)

Notification No. 80/2017-Customs (NT), dated 17 August 2017

Notifications – Customs (Tariff)

• CBEC expands the scope of export of goods for computation of entitlement under the Target Plus Scheme

CBEC has amended Notification No. 73/2006 dated 10 July 2006 to provide that for the period 1 April 2005 to 19 February 2006, exports of ores and concentrates, cereals, sugar and crude or petroleum oil and crude/ petroleum based products shall be included in the calculation of export performance or for the computation of entitlement under the Target Plus Scheme.

Export of such goods made with effect from 20 February 2006 shall not be included in the calculation of export performance or for the computation of entitlement.

Notification No. 22/2017-Customs dated 31 May 2017

• The Taxation Laws (Amendment) Act, 2017 comes into force w.e.f. 1 July 2017

The Central Government has appointed the 1st day of July, 2017 as the date on which all the provisions of the said Act shall come into force.

Notification No. 25/2017-Customs dated 28 June 2017

• CBEC amends customs exemption notifications for various export promotion schemes

CBEC has amended 90 customs exemption notifications to restrict the exemption provided in such notifications to CVD and SAD only. Such exemption will not be available to IGST and Compensation Cess.

The notifications provided exemptions in cases relating to import of capital goods under the Export Promotion Capital Goods scheme, material imported against advance license, imports under passbook scheme, imports against duty credit scripts etc.

Notification No. 26/2017-Customs dated 28 June 2017

• CBEC withdraws exemption provided to bona fide gifts imported by post or air freight

CBEC has rescinded Notification No. 171/1993 dated 16 September 1993, which exempted customs duty levied on bona fide gifts that are exempted from any prohibition in respect of the import thereof under the Foreign Trade (Development and Regulation) Act, 1992 and either imported by a courier as defined in the Courier Imports (Clearance) Regulations, 1995 or falling under heading 98.04 of the First Schedule to the Customs Tariff Act, 1975 (CTA).

Notification No. 27/2017-Customs dated 30 June 2017

• CBEC withdraws exemption provided to freight on goods imported in containers for transhipment to the Inland Container Depot

CBEC has rescinded Notification No. 151/1982 dated 14 May 1982, which exempted customs duty levied on the freight incurred on movement from the port of entry to the Inland Container Depot and the handling charges incurred at the Inland Container Depot in respect of goods imported in containers for transhipment to the Inland Container Depot.

Notification No. 28/2017-Customs dated 30 June 2017

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• CBEC exempts basic customs duty (BCD) on certain items for instructional purpose

CBEC has exempted specimens, models, wall pictures and diagrams for instructional purposes from the whole of the duty of customs leviable thereon that is specified in the said First Schedule.

Notification No. 29/2017-Customs dated 30 June 2017

• CBEC exempts BCD on motion pictures, music and gaming software

CBEC has restricted the exemption provided on import of motion pictures, music and gaming software for use on gaming consoles printed or recorded on media only to the extent of BCD. IGST will be leviable on the value specified. Earlier, CVD and SAD exemptions were also provided on such imports.

Notification No. 30/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on re-import of unclaimed postal articles

CBEC has exempted the contents of postal articles that were originally posted in India and did not leave the custody of the post office at any time since their original posting, when imported into India on return to the post offices in India as unclaimed, refused or redirected, from the levy of BCD as well as IGST. However, the exemption will not be provided if duty drawback was obtained when such articles were exported.

Earlier, the exemption was provided from the levy of BCD and the duties levied under Section 3 of CTA.

Notification No. 31/2017-Customs dated 30 June 2017

• CBEC exempts BCD on works of art and books, being antiques of an age exceeding 100 years

CBEC has exempted works of art created abroad by Indian artists and sculptors, whether imported on the return of such artists or sculptors to India or imported by such artists or sculptors subsequent to their return to India, and books being antiques of an age exceeding 100 years from the levy of BCD subject to the condition specified.

Notification No. 32/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on import of challenge cups and trophies won by defense units

CBEC has exempted import of challenge cups and trophies won by defense units in certain cases from the levy of BCD as well as IGST.

Earlier, the exemption was provided from the levy of BCD and the duties levied under Section 3 of CTA.

Notification No. 33/2017-Customs dated 30 June 2017

• CBEC exempts BCD on import of tags, labels and bags imported for fixing on articles meant for export

CBEC has exempted tags or labels (whether made of paper, cloth or plastic) and printed bags (whether made of polythene, polypropylene, PVC, high molecular or high density polyethylene) when imported for fixing on articles for export or for the packaging of such articles subject to the conditions specified in the notification.

Notification No. 34/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on import of aviation turbine fuel

CBEC has exempted import of aviation turbine fuel in the tanks of the aircrafts of an Indian airline or of the Indian Air Force from the levy of BCD as well as IGST subject to the conditions specified in the notification.

Notification No. 35/2017-Customs dated 30 June 2017

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• CBEC exempts BCD, IGST and Compensation Cess on import of certain items by the Vice-President of India

CBEC has exempted certain articles when imported or purchased out of bond by the Vice-President of India on appointment or during his or her tenure of office, from the levy of BCD, IGST and Compensation Cess.

Notification No. 36/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on imports relating to defense and internal security forces

CBEC has exempted import of certain articles relating to defense and internal security forces, such as medals, decorations, personal effects of the persons in duty out of India and bona fide gifts from donors etc., from the levy of BCD and IGST subject to the conditions specified in the notification.

Notification No. 37/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on re-imports of engines and parts of aircraft

CBEC has exempted engines and parts of aircraft when re-imported into India after having been exported, from the levy of BCD and IGST. However, customs duty is payable on the cost of repair, if any (which includes the charges paid for the material as well as for labor, insurance and freight).

Notification No. 38/2017-Customs dated 30 June 2017

• CBEC extends IGST exemption to imports by diplomats, trade representatives etc.

CBEC has amended Notification No. 3/ 1957, which provides exemption of BCD and duties levied under CTA on imports by diplomats, trade representatives etc.

Vide this notification, exemption of duties levied under CTA is withdrawn and IGST exemption is provided.

Notification No. 39/2017-Customs dated 30 June 2017

• CBEC exempts BCD on import of certain goods from Bhutan and China

CBEC has exempted goods of Bhutanese or Indian origin imported from Bhutan and goat skin, sheep skin, horses etc. imported from China from the levy of BCD.

Notification No. 40/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on import of challenge cups, trophies, medals and prizes etc. won by Indian players

CBEC has exempted import of challenge cups, trophies, medals and prizes etc. won by Indian players in certain cases from the levy of BCD as well as IGST subject to the conditions specified in the notification.

Notification No. 41/2017-Customs dated 30 June 2017

• CBEC allows SAD refund on goods sold under GST regime

CBEC has allowed refund of SAD paid on imports of goods prior to 1 July 2017 that are subsequently sold after 1 July, 2017 levying CGST and SGST/CGST and UTGST/IGST.

Notification No. 42/2017-Customs dated 30 June 2017

• CBEC amends various customs exemption notifications to align them with GST

CBEC has amended 26 customs exemption notifications to align them with GST. The exemptions, which were earlier provided from the duties levied under Section 3 of CTA, are now provided from the levy of IGST.

The notifications provided exemptions in cases relating to import of gifts received by ministers/public servants, goods temporarily imported for scientific research, goods imported by Red Cross society, goods imported for repairs etc.

Notification No. 43/2017-Customs dated 30 June 2017

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• CBEC amends exemption notifications relating to free articles supplied by charitable organizations etc.

CBEC has amended exemption notifications relating to re-import of personal private property, articles supplied free under warranty, free gifts, donations by charitable organizations etc.

The exemption earlier available from the levy of duties levied under Section 3 of CTA is not extended to IGST. Therefore, IGST will be payable on import of such goods.

However, in case of re-import of personal private property under Notification No. 174/1966, exemption from IGST is available.

Notification No. 44/2017-Customs dated 30 June 2017

• CBEC exempts re-import of goods exported under duty drawback, rebate of duty or bond

CBEC has exempted re-import of goods exported under duty drawback, rebate of duty or bond from the levy of BCD, CVD, SAD, IGST and Compensation Cess.

However, the duty drawback or refund of IGST claimed or IGST not paid under bond needs to be paid at the time of import.

Notification No. 45, 46 and 47/2017-Customs dated 30 June 2017

• CBEC exempts BCD and IGST on re-import of catering cabin equipment etc. by Indian Airlines

CBEC has exempted BCD and IGST leviable on re-importation of catering cabin equipment and food and drink by the aircrafts of the Indian Airlines Corporation from foreign flights subject to the conditions specified in the notification.

Notification No. 48/2017-Customs dated 30 June 2017

• CBEC amends Notification No. 12/2012—Customs to align with GST

CBEC has amended Notification No. 12/2012—Customs dated 17 March 2012 and provided IGST exemption to the goods notified in the said notification.

Notification No. 50/2017-Customs dated 30 June 2017

• CBEC exempts Education Cess and Secondary and Higher Education Cess on IGST and Compensation Cess on import of goods

CBEC has exempted Education Cess and Secondary and Higher Education Cess leviable on IGST and Compensation Cess component at the time of import of goods into India.

Notification No. 54 and 55/2017-Customs dated 30 June 2017

• CBEC withdraws CVD and SAD exemption provided to goods imported by post or air

CBEC has rescinded Notification No. 318/1976—Customs, which exempted import of all dutiable articles intended for personal use by post or air from the levy of duties under Section 3 of CTA. Therefore, import of such goods will now attract IGST along with BCD.

Notification No. 62/2017-Customs dated 1 July 2017

• CBEC exempts IGST on import of goods by an SEZ unit/developer

CBEC has exempted the IGST payable on import of goods by a unit or a developer in an SEZ for authorized operations.

BCD is already exempted on goods imported by an SEZ unit or developer.

Notification No. 64/2017-Customs dated 5 July 2017

• CBEC exempts BCD and IGST levied on machinery temporarily imported

CBEC has exempted (to the extent of percentage prescribed) BCD and IGST leviable on machinery, equipment or tools falling under Chapters 84, 85 and 90 or any other chapter of the First Schedule to CTA, imported temporarily for execution of a contract subject to the conditions prescribed in the notification.

Notification No. 72/2017-Customs dated 16 August 2017

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Foreign Trade Policy

Notifications and public notice

• Amendment in Para 3.24 (j) of Chapter 3 of FTP dealing with duty drawback or any other export incentive under any export promotion scheme

Status holders shall be entitled to export freely exportable items (excluding gems and jewelry, articles of gold and precious metals) on free-of-cost basis for export promotion subject to an annual limit of INR1 crore or 2% of average annual export realization during preceding three licensing years, whichever is lower.

For export of pharma products by pharmaceutical companies, the annual limit would be 2% of the average annual export realization during the preceding three licensing years. In case of supplies of pharmaceutical products, vaccines and lifesaving drugs to health programs of international agencies such as the UN, WHO andPAHO and Government health programs, the annual limit shall be up to 8% of the average annual export realization during the preceding three licensing years. Such free-of-cost supplies shall not be entitled to Duty Drawback or any other export incentive under any export promotion scheme.

Notification No. 23/2015-2020, dated 23 August 2017

Public Notice No. 18/2015-2020, dated 23 August 2017

Trade notice

• Constitution of GST Facilitation Cell

For the smooth and successful rollout of GST w.e.f. 1 July 2017, it was decided to constitute a “GST Facilitation Cell” in the DGFT headquarters and all regional offices of DGFT to serve as the first point of contact for addressing any issues regarding GST in respect of FTP.

Similarly, all regional authorities were advised to constitute a “GST Facilitation Cell” for addressing GST-related issues in respect of FTP.

Trade Notice No. 8/2017, dated 08 June 2017

• Changes in Import Export Code (IEC) due to introduction of GST

Permanent Account Number (PAN) based 10-digit numerical IEC allotted by DGFT is essential to undertake import/export transactions. With the proposed introduction of GST, persons liable for registration will be allotted a 15-digit GSTIN. DGFT had plans to replace the existing IEC with GSTIN. Since it is not mandatory for certain classes of persons to apply for GSTIN, it has been decided to use PAN-based alpha-numeric IEC in place of the existing IEC.

New applicants will be allotted PAN-based alpha-numeric IEC, whereas existing bearers of IEC will be migrated to the new system and allotted new IEC.

Trade Notice No. 9/2017, dated 12 June 2017

• Constitution of helpdesk for GST issues related to FTP

In continuance of Trade Notice No. 8/2017 dated 8 June 2017, it has been decided to constitute a GST helpdesk in DGFT headquarters to reply to queries on GST related to FTP.

Trade Notice No. 10/2017, dated 14 June 2017

• Important FTP provisions in the context of the implementation of GST regime have been made applicable w.e.f. 1 July 2017

General provision:

“Central Excise Authority” used in FTP and Foreign Trade Procedures 2015–20 should be read as “Jurisdictional Customs Authority.”

Chapter 3:

The duty credit scrips cannot be used for payment of IGST and GST compensation cess in imports, and CGST, SGST, IGST and GST compensation cess for domestic procurement.

Chapters 4 and 5:

Under the GST regime, exemption from payment of IGST and Compensation Cess would not be available for imports under Advance Authorisations. Importers are required to pay IGST and take input tax credit as applicable under GST Rules.

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Chapter 6:

Imports by EOU/EHTP/STP/BTP:

EOUs are allowed duty free import of goods for their authorized operations. Such import of goods will not attract customs duty vide Notification no. 52/2003 – Customs. However, such goods will attract IGST and Compensation Cess under the GST regime. Taxes paid on imports will be available as ITC.

Further, EOUs will not get ab initio exemptions in case of domestic procurement of goods. CGST/SGST/IGST/UTGST will be required to be paid by EOUs and thereafter they can avail ITC on it.

Chapter 7:

The benefits under FTP that existed till the date of operationalization of GST will be available to the supplies made to different deemed exports.

Advance Authorization benefits will be available for supplies made after the date of operationalization of GST. However, duty exemptions under Advance Authorization would be limited to exemption from basic customs duty only.

Deemed export drawback benefits would be limited to refund of basic custom duty only.

Trade Notice No. 11/2017, dated 30 June 2017

• Time limit for obtaining BIS license import of gold dore has been extended

The time period for obtaining BIS registration has been extended by one year and accordingly, refineries holding authorization from DGFT for importing gold dore may obtain BIS registration/license latest by 31 May 2018. With effect from 1 June 2018, only those applications will be considered for grant of authorization for import of gold dore where the applicant refinery holds a valid license from BIS.

Trade Notice No. 14/2015-2020, dated 24 August 2017

Central Excise

Notifications (Non-Tariff)

• Adjudication of SCN: Power delegated to Chief Commissioners

The Central Government has directed that w.e.f. a date to be notified, the powers exercisable by the Central Board of Excise and Customs under rule 3 of the Central Excise Rules, 2002 and Rule 3 of the Service Tax Rules, 1994 may be exercised by the Principal Chief Commissioner of Central Excise and Service Tax or the Chief Commissioner of Central Excise and Service Tax for the purpose of assignment of adjudication of notices to show cause issued under the provisions of the CEA or the Finance Act, 1994, to the Central Excise Officers subordinate to them.

Notification 14/2017-CX (NT), dated 9 June 2017

• CENVAT Credit Rules, 2004: Third amendment of 2017

The Central Government has amended Rule 4(7) of the CENVAT Credit Rules, 2004 to provide that unavailed CENVAT credit in respect of services provided by the Government, local authority or any other person by way of assignment of the right to use any natural resource on the day immediately preceding the appointed day, i.e., the date on which the provisions of the Central Goods and Services tax Act, 2017 shall come into force, may be availed of in full on the very day.

Notification No. 15/2017-CX (NT), dated 12 June 2017

• Notification No 12/2017-CX (NT): Provisions to come into force on 22 June 2017

The Central Government has appointed 22 June 2017 as the date on which the provisions of the Notification No. 12/2017-CX (NT), dated 9 June 2017, shall come into force. By Notification No. 12/2017-CX(NT),

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the CBEC has w.e.f. a date to be notified, appointed Principal Chief Commissioners, Chief Commissioners, Principal Commissioners, Commissioners of Central Excise and Service Tax, Commissioners of Central Excise and Service Tax (Appeals), Commissioner of Central Excise and Service tax (Audit) and any other officer of the Central Excise Department as Central Excise Officers, with all the powers under the CEA, 1994 and the rules thereunder and Chapter-V of the Finance Act, 1994 and the rules made thereunder, with respect to the jurisdiction specified in the notification issued under Rule 3 of the Central Excise Rules, 2002.

Notification No. 16/2017-CX (NT), dated 19 June 2017

• Notification No. 13/2017-CX (NT): Provisions to come into force on 22 June 2017

The Central Government has appointed 22 June 2017 as the date on which the provisions of Notification No. 13/2017-CX (NT), dated 9 June 2017, shall come into force. By Notification No. 13/2017-CX(NT), dated 9 June 2017, the CBEC has notified territorial jurisdiction of Principal Chief Commissioners, Chief Commissioners, Principal Commissioners, Commissioners of Central Excise and Service Tax, Commissioners of Central Excise and Service Tax (Appeals), Commissioner of Central Excise and Service tax (Audit) and the Central Excise Officers subordinate to them w.e.f. a date to be notified.

Notification No. 17/2017-CX (NT), dated 19 June 2017

• Central Excise Rules, 2017: Notified

In supersession of the Central Excise Rules, 2002, except as respects things done or omitted to be done before such supersession, the Central Government has notified the Central Excise Rules, 2017 w.e.f. 1 July 2017.

Notification No. 19/2017-CX (NT), dated 30 June 2017

• New CENVAT Credit Rules, 2017: Notified

In supersession of the CENVAT Credit Rules, 2004 except as respects things done or omitted to be done before such supersession, the Central Government has notified new CENVAT Credit Rules, 2017.

Notification No. 20/2017-CX (NT), dated 30 June 2017

• New Central Excise Rules, 2017: Notified

The Central Government has directed a manufacturer registered under the CEA to evidence payment of Excise Duty specified in the First Schedule of the Central Excise Tariff Act, 1985, paid on goods manufactured and cleared by it under a cover of an invoice dated before 1 July 2017. Such a manufacturer may issue a document called Credit Transfer Document (CTD) to a person (dealer) who was not registered under the CEA but is registered under the CGST Act and is in possession of such manufactured goods held in stock on such date, subject to such limitations, conditions and procedures as specified in the notification.

Notification No. 21/2017-CX (NT), dated 30 June 2017

• Production capacity based duty under Central Excise Section 3A (Compounded Levy Scheme)

The Central Government has rescinded Notifications No. 29/2008-CX(NT) dated 1 July 2008; 30/2008-CX(NT) dated 1 July 2008; 30/2008-CX(NT) dated 1 July 2008; 10/2010-CX(NT) dated 27 February 2010; 11/2010-CX(NT) dated 27 February 2010; and 17/2010-CX(NT) dated 13 April 2010, except as respect to things done or omitted to be done before such rescission.

Notification No. 22/2017-CX (NT), dated 18 July 2017

• CENVAT Credit Rules, 2017: Forms E.R-1 and E.R-3 amended

In supersession of Notification No. 16/2011-CX (NT), dated 18 July 2011, CBEC while removing reference to large taxpayer unit (LTU) and incorporating

51 Tax Digest

reference to GST, has specified revised Form E.R-1 for monthly return for production and removal of goods and other details such as duty paid and CENVAT credit taken/utilized for the purpose of Rule 12 of the Central Excise Rules, 2012 and Rule 11 of the CENVAT Credit Rules, 2017

Notification No. 23/2017-CX (NT), dated 9 August 2017

• CENVAT Credit Rules, 2017: Form E.R-2 amended

In supersession of the Notification No. 24/2008-CX (NT), dated 23 May 2008, CBEC has specified revised Form E.R.-2 monthly return in respect of goods manufactured, cleared and receipt of inputs and capital goods, etc. for 100% EOUs for the purpose of Rule 23(3) of the Central Excise Rules, 2017, and Rule 11(5) of the CENVAT Credit Rules, 2017.

Notification No. 24/2017-CX (NT) dated 09 August 2017

• Exports to Bhutan under bond allowed against payment in Indian rupees

CBEC has amended Notification No. 45/2001-C. E. (NT), dated 26 June 2001, by inserting Explanation- II to the effect that payment for goods exported to Bhutan may be received in Indian rupees and such payment shall be deemed to be in freely convertible currency.

Notification No. 25/2017-CX (NT) dated 16 August 2017

Central Excise - Notifications (Tariff)

• Goods falling under the Fourth Schedule to the CEA exempted by the Central Government

The Central Government has exempted all goods falling under the Fourth Schedule to the CEA when supplied to the UN or an international organization for their official use from the whole of the duty of excise leviable. The notifications shall come into force w.e.f. 1 July 2017.

Notification No. 10/2017-CX, dated 30 June 2017

• Central Excise Notification 12/2012 superseded

Central Government exempts the excisable goods specified in Fourth Schedule to the Excise Act, as specified in the notification. This notification shall come into force with effect from 1 July 2017.

Notification No. 11/2017-CX, dated 30 June 2017

• CBEC seeks to exempt Excise Duty on goods manufactured on or before 30 June 2017 but not cleared from the factory of production before 1 July 2017

The Central Government has exempted all excisable goods (except petroleum crude, high-speed diesel, motor spirit [commonly known as petrol], natural gas, aviation turbine fuel, tobacco and tobacco products) from the whole of the duty of excise leviable under the Central Excise subject to certain conditions, i.e., the goods should have been manufactured on or before 30 June 2017 but not cleared from the factory of production before the 1 July 2017 and the appropriate CGST, SGST, UTGST and IGST shall be payable on goods, if cleared on or after 1 July 2017.

Notification No. 12/2017-CX dated 30 June 2017

• Notification 64/95-CX: Superseded

In suppression of Notification No. 64/95-Central Excise, dated 16 March 1995, the Central Government has exempted all goods specified in the notification, and falling under the Fourth Schedule to the said Act, subject to the conditions specified, from the whole of the duty of excise leviable.

Notification 13/2017-CX dated 30 June 2017

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• Amendment to various Central Excise Exemption notifications relating to Export Promotion Schemes under Central Excise Tariff Notification.

Amendments have been made in various notifications: 34/2006–C. E., dated 14 June 2006; 29/2012–C. E., dated 9 July 2012; 30/2012–C. E., dated 9 July 2012; 32/2012-Central Excise, dated 9 July 2012; 2/2013- Central Excise, dated 18 February 2013; 3/2013-Central Excise, dated 18 February 2013; 14/2013-Central Excise, dated 18 April 2013; 18/2015-Central Excise, dated 1 April 2015; 20/2015-Central Excise, dated 8 April 2015; and 21/2015-Central Excise dated 8 April 2015- Central Excise.

Notification No. 17/2017-CXdated 30 June 2017

• Exemption provided to all goods mentioned in the Seventh Schedule to the Finance Act, 2005 from whole of the additional duties of excise leviable

In supersession of Notification No. 6/2005 –C. E. dated 1 March 2005, except as respect to things done or omitted to be done before such supersession, the Central Government has exempted all goods specified in the Seventh Schedule to the said Finance Act, 2005 from the whole of the additional duty of excise leviable thereon.

Notification No. 18/2017-CX dated 01 July 2017

• Notification No .16/2010: Central Excise rescinded

The Central Government has rescinded Notification No. 16/2010-CX dated 27 February 2010, which specified the rate of Excise Duty leviable under Section 3A of the CEA on chewing tobacco and branded manufactured tobacco.

Notification No. 19/2017-CX, dated 01 July 2017

• Motor spirit (petrol) and high-speed diesel oil: Amendment to Notification No. 28/2002-CX

Consequent to the implementation of GST w.e.f. 1 July 2017, the Central Government has amended Notification No. 28/2002-CX, dated 13 May 2002.

Notification No. 20/2017-CX, dated 3 July 2017

• Area-based exemption Notification Nos. 56/2002-CX, 57/2002-CX, 49/2003-CX, 50/2003-CX, 20/2007-CX and 1/2010-CX rescinded

The Central Government has rescinded area-based exemption notifications 56/2002-CX, dated 14 November 2002; 57/2002-CX dated 14 November 2002; 49/2003-CX dated 10 June 2003; 50/2003-CX dated 10 June 2003; 20/2007-CX dated 25 April 2007; and 1/2010-CX dated 6 February 2010, except as respects things done or omitted to be done before such rescission.

Notification No. 21/2017-CX, dated 18 July 2017

Central Excise - Circulars

• Handling of legacy work of LTUs: GST regime

As the concept of state-wise registration applies in the GST regime, CBEC, proposing to wind up LTUs in the new regime, has issued directions to address issues relating to transition.

Circular No. 1056/05/2017-CX, dated 29 June 2017

• Printed workbooks, exercise books etc. under erstwhile Central Excise tariff Act, 1985

In compliance with the directions issued by the Hon’ble HC of Delhi to examine the matter of classification of printed workbooks, exercise books, children’s drawing books, etc. and to dispose of representations received from the trade, the CBEC has clarified that such books are appropriately classifiable under Chapter Heading 4903 of the act.

Circular No. 1057/06/2017-CX, dated 7 July 2017

• Requirement of submitting bank certificate evidencing receipt of payment in freely convertible currency for export to Bhutan for specified hydroelectric projects

CBEC has issued a clarification that payment conditions as per Notification No. 45/2001-CX(NT), dated 26 June 2001 relating to currency with regard to export of commodities to Bhutan for specified hydroelectric projects shall be considered to have been discharged in cases where payment has been received in Indian currency through the banking channel.

Circular No. 1058/07/2017-CX, dated 16 August 2017

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Service tax

Notification

• Due date prescribed for filing service tax return for period ended June 2017

CBEC has prescribed 15 August 2017 as the due date for filing service tax return for the period 1 April 2017 to 30 June 2017. The revised return for the said period can be submitted within 45 days from the date of submission of the original return.

Notification No. 18/2017-ST, dated 22 June 2017

Value Added Tax (VAT)/ Central Sales Tax (CST)

Notifications

Karnataka

• E-way bill provisions notified

• E-way bill is required for movement of specified commodities in relation to supply or for reasons other than supply or due to inward supply from outside states or from un-registered persons, where value exceeds INR50,000.

• Separate e-way bills have to be generated for each vehicle when goods covered by a single invoice are carried in more than one vehicle. The consolidated value and description of all such commodities may be entered in case of more than one commodity in an invoice.

• In case of transport of goods covered by multiple invoices, in the same vehicle, the total value and quantity thereof covered by all such invoices shall be uploaded. Where registered persons do not have a computer, they can enter information through their own mobile phones using the m-waybill facility.

Notification No. FD 47 CSL 2017, dated 5 July 2017

VAT - Circular

Maharashtra

• Clarification regarding TDS on works contract executed prior to 30 June 2017 for which payments are made on or after 1 July 2017

Sale of goods as per VAT shall be deemed to have taken place at the time of transfer of property or possession or incorporation of goods in the course of execution of any works contract whether or not there is receipt of valuable consideration. Therefore, notified persons shall deduct tax deducted at source (TDS) out of the amount payable by them to contractors in respect of any works contract executed up to 30 June 2017 for which payments are made on or after 01 July 2017.

Trade Circular No. 32 T of 2017, dated 21 July 2017

• Refund of security deposit upon deemed cancellation of registration

The Maharashtra Government has laid down the scheme for refund of security deposit by dealers at the time of seeking voluntary registration in cases where dealers have not effected sale of any specified goods during the year 2016-17. The refund shall be granted within sixty (60) days from date of application subject to the following conditions:

• Filling of all returns up to the date of deemed cancellation of registration along with tax payment

• Fulfilment of conditions contained in Rule 60A of MVAT rules, 2005

• Non-application for revocation of cancellation of registration

Trade Circular No. 34 T of 2017, dated 3 August 2017

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• Amendment in composition scheme for builders and developers

The State Government has amended the composition scheme introduced vide notification dated 9 July 2010 for dealers undertaking the construction of flats, dwellings or building or premises and their transfer in pursuance of an agreement along with land or interest underlying the land, in terms of Section 42(3A) of MVAT Act, with effect from 1 April 2010.

The key features are as follows:

• The developer is required to pay 1% tax of the amount received (as advance or otherwise) toward the booking of the aforesaid property.

• The link between payment of tax and registration of an agreement has been done away with.

• The tax so computed to be paid on or before 30 June 2017 and the payment received are to be disclosed as turnover of sales in the return for the month of June 2017, if the agreement is not registered on or before 31 May 2017.

• Whether the agreement to sale is registered or not, on or after the 1 June 2017 the tax so computed is required to be paid on or before the 21st day of the succeeding month in which the payment is received and the amount so received needs to be disclosed as turnover of sales in the return for the said period.

Trade Circular No. 18 T of 2017, dated 31 May 2017

Telangana

• Extension in periodicity of assessments and limit for annual statements

The time limit for deemed, best judgement and scrutiny assessment and revision has been increased from four years to six years. VAT dealers with turnover of more than INR50 lakh will be required to furnish annual consolidated statements of turnovers certified by Chartered Accountants or sales tax practitioners.

G.O. Telangana Ordinance No. 2 of 2017, dated 17 June 2017

Goods and Services Tax (GST)

Notifications - Central Tax (CT) - (Non-rate)

• Specified provisions of Central Goods and Services Tax Act, 2017 (CGST Act) come into force

The notification brings certain sections of the CGST Act, effective from 22 June 2017. It includes the date from where CGST will come into force, definitions, types of officers, their appointments and powers under the Act, composition levy, provision related to registration, migration of existing taxpayers, common portal and power of the Government to make rules.

Notification No. 1/2017 – CT, dated 19 June 2017

• Hierarchy of GST officers declared

Vide the said notification, CBEC has declared the hierarchy of officers including appellate and audit-related officers along with their territorial jurisdiction. In the absence of the mention of an effective date in the notification, the date of publication of notification in the official gazette, i.e., 19 June 2017, will be the effective date of notification.

Notification No. 2/2017 – CT, dated 19 June 2017

• CGST Rules, 2017 notified

Vide the notification, CBEC has issued the CGST Rules, 2017 (CGST Rules) and made them effective from 22 June 2017. It consists of rules and formats of forms relating to composition and registration.

Notification No. 3/2017 – CT, dated 19 June 2017

• Government notifies common GST electronic portal

The Government has notified www.gst.gov.in as the Common Goods and Services Tax Electronic Portal for facilitating registration, payment of tax, furnishing of returns, computation and settlement of integrated tax and e-way bill.

The notification will be effective from 22 June 2017.

Notification No. 4/2017 – CT, dated 19 June 2017

• Exemption from registration where supplier is exclusively involved in supply of goods/services where liability to discharge tax is on the recipient

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The notification exempts those persons from registration under CGST Act if they are exclusively engaged in supply of goods or services where the tax liability needs to be discharged by the recipient of goods or services under reverse charge basis.

The notification will be effective from 22 June 2017.

Notification No. 5/2017 – CT, dated 19 June 2017

• Modes of verification/authentication of documents to be submitted to Revenue

Rule 26 of the CGST Rules requires that all applications, including replies, if any, to the notices, returns, appeals or any other document, be submitted under the provisions of these rules electronically with a digital signature certificate or through e-signature or verified by any other mode of signature.

Accordingly, the notification issued by CBEC notifies Aadhaar-based electronic verification code and bank account based one-time password as modes of verification. It further provides that such verification shall be done within two days of furnishing the documents.

The notification will be effective from 22 June 2017.

Notification No. 6/2017 – CT, dated 19 June 2017

• Amendment to CGST Rules

The notification amends CGST Rules issued under Notification No. 3/2017 – CT, dated 19 June 2017. The amendments pertain to registration, viz., issuance of registration certificate, grant of registration to non-resident taxable person, amendment of registration, cancellation of registration in certain cases etc.

The notification will be effective from 22 June 2017.

Notification No. 7/2017 – CT, dated 27 June 2017

• Turnover limit to opt for composition scheme

The notification provides for a turnover of limit of INR75 lakh to opt for the composition scheme where the supplier of goods or services is located in any part of India except the Northeastern states and the state of Himachal Pradesh.

For the Northeastern states and the state of Himachal Pradesh, turnover the limit has been notified as INR 50 lakh.

The composition scheme will not be applicable to manufacturers of ice cream and other edible ice, whether or not containing cocoa, pan masala and tobacco and manufactured tobacco substitutes.

Since the effective date has not been mentioned in the notification, the effective date will be the date on which it got published in the Official Gazette, i.e., 27 June 2017.

Notification No. 8/2017 – CT, dated 27 June 2017

• Effective date for other provisions of the CGST Act

Notification issued whereby provisions of the CGST Act — except the ones specified in the said notification such as matching, reversal and reclaim of input tax credit and in Notification No. 1/2017 – CT, dated 19 June 2017, such as types of officers, their appointments and powers under the Act, composition levy, provision related to registration, migration of existing tax payers and common portal — will be effective from 1 July 2017.

Notification No. 9/2017 – CT, dated 28 June 2017

• CGST Rules have been amended

CGST Rules have been amended by introducing rules on Determination of Value of Supply, Input Tax Credit, Tax Invoice, Debit and Credit Note, Accounts and Records, Returns, Payment of Tax, Refund, Assessment and Audit, Advance Ruling, Appeals and Revision, Transitional Provisions and Anti-profiteering. Rules on e-way bill have not been framed as the supporting system has not been developed. Formats of forms related to the above rules have also been introduced.

Notification will be effective from 1 July 2017.

Notification No. 10/2017 – CT, dated 28 June 2017

• Amendments related to modes of verification of submissions to Revenue

The notification was issued to substitute clause (ii) of Notification No. 6/2017 – CT, dated 19 June 2017, whereby the bank account based one- time password

56 Tax Digest

mode of verification for issuance of documents has been replaced by (i) electronic verification code generated through net banking login on the common portal and (ii) electronic verification code generated on the common portal.

Notification will be effective retrospectively, i.e., w.e.f. 22 June 2017.

Notification No. 11/2017 – CT, dated 28 June 2017

• Requirement to specify HSN code(s) in tax invoice

The notification specifies the turnover-based rules for specifying the number of digits of HSN code on the tax invoice that will be raised by the supplier of goods or services. Accordingly, a supplier having annual turnover up to INR1.5 crore in the preceding year will not be required to specify the HSN code of the goods and/or service supplied. Where the annual turnover is more than INR1.5 crore but does not exceed INR5 crore, the supplier will have to mention the first two digits of the HSN code of the goods or services supplied. In any other case, the supplier has to mention the first four four digits of the HSN code.

Effective date of notification is 1 July 2017.

Notification No. 12/2017 – CT, dated 28 June 2017

• Rate of interest for delayed payment and refund

Vide the notification which came into force w.e.f. 1 July 2017, CBEC has specified the rate of interest payable by the assessee where there is a delay in discharging output GST lability, excess or undue claim of ITC, or excess or undue reduction in output tax liability. The notification also specifies the rate of interest on refund payable by Revenue.

Notification No. 13/2017 – CT, dated 28 June 2017

• Appointment of officers

CBEC, vide this notification (effective from 1 July 2017), has appointed officers in the Directorate General of GST Intelligence, Directorate General of GST and Directorate General of Audit as Central Tax Officers and vested them with all the powers under the CGST Act and the Integrated GST Act, 2017 (IGST Act) and the rules made thereunder, throughout the territory of India.

Notification No. 14/2017 – CT, dated 1 July 2017

• Amendment to CGST Rules

CBCE, vide the notification, has further amended some of the provisions of the CGST Rules, such as the manner of reversal of credit under special circumstances and refund of integrated tax paid on goods exported from India. The effective date of the notification is 1 July 2017.

Notification No. 15/2017 – CT, dated 1 July 2017

• Conditions and safeguards in relation to export without payment of IGST and submission of letter of undertaking

Vide the notification, CBEC has specified the conditions and safeguards for registered persons who intend to supply goods or services for export without payment of integrated tax by furnishing a letter of undertaking in place of a bond.

Notification No. 16/2017 – CT, dated 7 July 2017

• Further amendment to CGST Rules

The notification has been issued to make amendments in the CGST Rules. These amendments include amendments in relation to migration of persons registered under the existing law.

Different effective dates have been notified for different provisions.

Notification No. 17/2017 – CT, dated 27 July 2017

• Extension of the date to furnish details of outward supplies for July 2017 and August 2017

This notification has been issued to extend the time limit for furnishing the details of outward supplies in Form GSTR-1. Details of outward supplies for the month of July 2017 are required to be filed during 1 September 2017 to 5 September 2017, whereas details for the month of August 2017 are required to be filed between 16 September 2017 and 20 September 2017.

The effective date of the notification is 8 August 2017.

Notification No. 18/2017 – CT, dated 8 August 2017

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• Extension of the date to furnish details of inward supplies for July 2017 and August 2017

This notification has been issued to extend the time limit for furnishing the details of inward supplies in Form GSTR-2. Details of inward supplies for the month of July 2017 are required to be filed during 6 September 2017 to 10 September 2017, whereas for the month of August 2017, details are required to be filed between 21 September 2017 and 25 September 2017.

The effective date of the notification is 8 August 2017.

Notification No. 19/2017 – CT, dated 8 August 2017

• Extension of the date to furnish monthly returns

This notification has been issued to extend the time limit for furnishing the return in Form GSTR-3. Returns for the month of July 2017 may be filed during 11 September 2017 to 15 September 2017, whereas returns for the month of August 2017 are required to be filed between 26 September 2017 and 30 September 2017.

The effective date of the notification is 8 August 2017.

Notification No. 20/2017 – CT, dated 8 August 2017

• Dates for submission of return in Form GSTR-3B for the month of July 2017 and August 2017

This notification has been issued for furnishing the return in Form GSTR-3B. The said form pertaining to July 2017 needs to be filed on 20 August 2017, whereas the form for the month of August 2017 is required to be filed on 20 September 2017.

The effective date of the notification is 8 August 2017.

Notification No. 21/2017 – CT, dated 8 August 2017

• Further amendment to CGST Rules

CBEC has issued the notification to amend some of the provisions of the CGST Rules. The amended provisions include furnishing of details of stock etc. under composition levy and the manner of claiming

credit in special circumstances. Unless otherwise stated, provisions of the notification will be effective from the date of its publication in the Official Gazette.

Notification No. 22/2017 – CT, dated 17 August 2017

• Conditions for furnishing return in Form GSTR-3B

Vide the notification, CBEC has specified the conditions for furnishing the return in Form GSTR-3B electronically through the common portal for the month of July 2017 for such class of registered persons as mentioned in the table.

The notification will be effective from the date of its publication in the Official Gazette.

Notification No. 23/2017 – CT, dated 17 August 2017

• Extension granted for filing Form GSTR-3B

After taking into account GST Network related system / technical issues faced by the stakeholders across the country while filing returns in Form GSTR-3B, CBEC has issued the said notification and extended the last date of furnishing of return.

Notification No. 24/2017 – CT, dated 21 August 2017

• Extension granted for furnishing returns

Vide the notification, time limit for furnishing returns for the month of July 2017 by a person supplying online information and database access or retrieval (OIDAR) services from a place outside India to a non-taxable online recipient has been extended till 15 September 2017.

Notification No. 25/2017 – CT dated 28 August 2017

• Extension granted to file return by ISD

Vide the notification, the last day to file return for July 2017 has been extended to 8 September 2017, whereas the last day to file such return for August 2017 has been extended to 23 September 2017.

Notification No. 26/2017 – CT dated 28 August 2017

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Notification - Central Tax (Rate)

• Scheduled rate for supply of goods or services notified

The Central Government has issued the notification to specify the rate of the central tax as under:

• 2.5% in respect of goods specified in Schedule I

• 6% in respect of goods specified in Schedule II

• 9% in respect of goods specified in Schedule III

• 14% in respect of goods specified in Schedule IV

• 1.5% in respect of goods specified in Schedule V

• 0.125% in respect of goods specified in Schedule VI

Notification No. 1/2017-CX (Rate), dated 28 June 2017

• Exemption granted on supply of identified goods

Vide the notification, the Central Government has exempted certain goods specified in the notification from levy of central tax such as live animals, meat, live trees and other plants, fruits and vegetables.

Notification No. 2/2017-CX (Rate), dated 28 June 2017

• Exempting supply of goods in excess of 2.5%

The notification exempts goods specified in the list attached to the notification from central tax in excess of 2.5% subject to fulfilment of the conditions specified therein. These goods are primarily in connection with petroleum operations.

Notification No. 3/2017-CX (Rate), dated 28 June 2017

• Goods notified to discharge CGST liability under reverse charge

The notification lists out the description of goods whereby the liability to discharge central tax liability has been cast on the recipient of supply of goods under reverse charge.

Notification No. 4/2017-CX (Rate), dated 28 June 2017

• Goods notified where no refund of unutilized ITC allowed under inverted duty structure

The notification lists out goods in respect of which no refund of unutilized ITC shall be allowed, where the credit gets accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such goods (other than nil rated or fully exempt supplies).

Notification No. 5/2017-CX (Rate), dated 28 June 2017

• Payment of CGST under RCM not required for receipt of supply up to INR5,000 from unregistered suppliers

Vide the notification, the Central Government has exempted intra-state supplies of goods or services or both received by a registered person from any supplier who is not registered from the whole of the central tax leviable thereon under Section 9(4) of the CGST Act, 2017.

However, the exemption prescribed above will not be applicable where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the suppliers, who are or are not registered, exceeds INR5,000 in a day.

The notification will be effective from 1 July 2017.

Notification No. 8/2017-CX (Rate), dated 28 June 2017

• Exemption from CGST granted for supplies by an unregistered person to a person required to deduct tax at source under Section 51 of the CGST Act

The notification exempts intra-state supplies of goods or services or both from central tax where such supplies are undertaken by an unregistered supplier to a person who is required to deduct tax at source under Section 51 of the CGST Act and also who is required to register itself exclusively under Section 24(vi) of the CGST Act.

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• Exemption granted to supply of second hand goods

The notification exempts persons registered under the provisions of the CGST Act, 2017 from discharging central tax under reverse charge where such registered persons receive supplies of second-hand goods from unregistered persons.

The notification will be effective from 1 July 2017.

Notification No. 10/2017-CX (Rate), dated 28 June 2017

• CGST rate on intra-state supply of identified services has been prescribed

Vide the notification, the Central Government has notified central tax that shall be levied on the intra-state supply of services.

Services include construction services, distributive trade services, accommodation, food and beverage service, transport service, gas and electricity distribution services, services in retail trade, accommodation and food and beverage services.

The notification will be effective from 1 July 2017.

Notification No. 11/2017-CX (Rate), dated 28 June 2017

• Exemption has been granted on intra-state supply of services

The notification specifies certain services the intra-state supply of which has been exempted from central tax subject to the fulfilment of the conditions specified in the said notification.

It includes supply of services by the Central Government, state governments, union territory or local authority; transport of passengers; services by a hotel, inn, guesthouse, club etc.; and services by way of residential dwelling for use as residence etc.

The notification will be effective from 1 July 2017.

Notification No. 12/2017-CX (Rate), dated 28 June 2017

• Categories of supply of services notified in relation to discharging CGST under reverse charge

Section 9(3) of the CGST Act, 2017 empowers the Central Government to notify certain services where central tax will be discharged under the reverse charge basis by the recipient of such services. Accordingly, the notification has been issued and notified nine services, including services by goods transport agencies, an individual advocate including a senior advocate or a firm of advocates and an arbitral tribunal.

The notification will be effective from 1 July 2017.

Notification No. 13/2017-CX (Rate), dated 28 June 2017

• Supplies undertaken by public authority not to be treated as supply of goods or service

Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution have been notified as activities or transactions undertaken by the Central Government or state government or any local authority in which they are engaged as the public authority and shall be treated neither as a supply of goods nor as a supply of service.

The notification will be effective from 1 July 2017.

Notification No. 14/2017-CX (Rate), dated 28 June 2017

• Non-refund of unutilized input tax credit

It has been notified that no refund of unutilized input tax credit shall be allowed in case of supply of service in relation to construction of a complex, building, civil structure or a part thereof.

The notification will be effective from 1 July 2017.

Notification No. 15/2017-CX (Rate), dated 28 June 2017

• Government notifies person entitled to claim refund of taxes paid on notified supplies

Section 55 of the CGST Act, 2017 requires the Government by notification to specify persons who shall, subject to such conditions and restrictions as may be prescribed, be entitled to claim refund of taxes paid on the notified supplies of goods or services or both received by them.

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Accordingly, the UN or a specified international organization and foreign diplomatic mission or consular post in India or diplomatic agents or career consular officers posted therein have been notified subject to the fulfilment of conditions specified therein.

The notification will be effective from 1 July 2017.

Notification No. 16/2017-CX (Rate), dated 28 June 2017

• Notification identifies categories of intra-state supply of services where central tax will be paid by the electronic commerce operator

Services such as transportation of passengers by a radio-taxi, motorcab, maxicab and motorcycle have been notified whereby the liability to pay central tax has been cast upon the electronic commerce operator.

Notification No. 17/2017-CX (Rate), dated 28 June 2017

• Amendment in rate of central tax on provision of identified intra-state supply of services

Notification No. 11/2017-CX (Rate), dated 28 June 2017 has reduced the rate of central tax on intra-state supply of identified services. It includes composite supply of works contract, construction services etc.

Notification No. 20/2017-CX (Rate), dated 22 August 2017

• Extension of exemption granted from levy of central tax to additional services

Notification No. 12/2017-CX (Rate), dated 28 June 2017, has extended the exemption granted on intra-state supply of services.

Notification No. 21/2017-CX (Rate), dated 22 August 2017

• Extension of exemption granted from levy of central tax to additional services

Notification No. 13/2017-CX (Rate), dated 28 June 2017, prescribes categories of services where central tax needs to be discharged under the reverse charge basis. Vide Notification No. 21/2017-CX (Rate), title of supplier of service has been changed to “Goods Transport Agency (GTA)” who has not paid central tax at the rate of 6%.

Further, a clause has been inserted whereby limited liability partnerships will be considered as partnership firms or firms.

Notification No. 22/2017-CX (Rate), dated 22 August 2017

• House-keeping service has been included in services where the liability to pay central tax is cast upon electronic commerce operator

Notification No. 17/2017-CX (Rate) has been amended by incorporating one more category of service, viz., services by way of house-keeping, such as plumbing and carpentering, where the electronic commerce operator is liable to discharge the central tax liability and the suppliers of such housing-keeping services are not required to register themselves under Section 22(1) of the CGST Act, 2017.

Notification No. 23/2017-CX (Rate), dated 22 August 2017

Circulars - Central Tax

• Issues related to furnishing of a bond/LUT for exports

The circular clarifies that provision under Rule 96A of CGST Rules read with Circular no. 26/2017-Customs, dated 1 July 2017 clarifies the procedure that needs to be followed for export of goods from 1 July 2017.

Taking into account practical difficulty in furnishing a

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bond/LUT to Jurisdictional Commissioner, the Board has granted permission to furnish it to Jurisdictional Deputy/Assistant Commissioner.

Circular No. 2/2/2017, dated 4 July 2017

• Issues related to bond/LUT for exports without payment of IGST

The circular clarifies that as a general rule, it is mandatory for an exporter of goods or services to furnish a bond/LUT if such an exporter opts for non-payment of IGST on export.

Exporters other than the ones specified in Notification No. 16/2017-CX, dated 1 July 2017, will have to furnish a bond instead of an LUT. The bond needs to be furnished on non-judicial stamp paper.

Further, authorities may ask for a bank guarantee along with the bond, and the decision will be based on track record of an exporter.

Circular No. 4/4/2017, dated 7 July 2017

• Clarification on issues related to furnishing of bond/LUT for export

The circular has been issued to clarify various issues raised by trade and industry. The circular deals with the eligibility to export under LUT, form for LUT, time for acceptance of LUT/bond, purchases from a manufacturer and form CT-1, transactions with EOUs, forward inward remittance in Indian rupee, bank guarantee, jurisdictional officer, documents for LUT and applicability of circulars on bond/LUTs.

Circular No. 5/5/2017, dated 11 August 2017

• Issue related to classification and GST rate on lottery tickets

Supply of lottery has been defined as goods under the CGST Act and a code has also been allotted. It was represented to the Government that the lottery classified as goods has been allotted a code under services resulting in difficulty in filing return or depositing tax in time.

In this connection, the Government has clarified that the classification indicated in the relevant notification

for lottery means “any chapter” of the First Schedule to the Customs Tariff Act, 1975 and tax on lottery should be paid accordingly at prescribed rates.

Circular No. 06/2017 – dated 27 August 2017

Notifications - Integrated Tax (Non-rate)

• Specified provisions of IGST Act come into force

The said notification seeks to bring certain sections of the IGST Act into force w.e.f. 22 June 2017. Provisions pertaining to registration, definitions, power of the Government to make rules, and appointment of officers have been made effective from 22 June 2017.

Notification No. 1/2017 – Integrated Tax, dated 19 June 2017

• Empowerment to grant registration in case of online information and database access or retrieval (OIDAR) services

The said notification empowers the Principal Commissioner of Central Tax, Bengaluru West, and all the officers subordinate to him as officers to grant registration in case of OIDAR services provided or agreed to be provided by a person located in a non-taxable territory and received by a non-taxable online recipient.

Notification No. 2/2017 – Integrated Tax, dated 19 June 2017

• Certain sections of IGST Act to be effective from 1 July 2017

All the sections of IGST Act inter alia appointment of officers, levy and collection, place of supply of goods or services, except Section 15 dealing with refund of IGST to international tourists, have been notified to be effective from 1 July 2017.

Notification No. 3/2017 – Integrated Tax, dated 28 June 2017

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• CGST Rules applicable to IGST in respect of provisions mentioned under Section 20 of IGST Act, 2017

Provisions of CGST Act and rules relating to scope of supply, input tax credit, registration, accounts and records, tax deduction at source etc. will be applicable to IGST Act.

Notification No. 4/2017 – Integrated Tax, dated 29 June 2017

• Harmonised System of Nomenclature (HSN) code to be mentioned on invoices

Taxpayers whose turnover is above INR1.5 crore but below INR5 crore shall use a two-digit code and the taxpayers whose turnover is INR5 crore and above shall use a four-digit code. Taxpayers whose turnover is below INR1.5 crore are not required to mention the HSN code in their invoices.

Notification No. 5/2017 – Integrated Tax, dated 28 June 2017

• CBEC has notified fixed rate of interest under various circumstances:

Notifications - Integrated Tax (Rate)

• The Ministry of Finance (MoF) has notified the rate of IGST for inter-state supply of goods.

Sr. no.

Nature of levy of interest Rate of interest

1. Delay in payment of tax 18%

2. Excess or undue claim of ITC under Section 42(10) of CGST Act, leading to an increase in the output tax liability of the recipient in his return

24%

3. Excess or undue reduction in output tax liability under Section 43(10) of CGST Act, leading to an increase in output tax liability of the supplier in his return

24%

4. Interest payable on refund in respect of appeal beyond 60 days from the date of application

6%

5. Interest payable on delay payment of refund beyond 60 days from the date of application

6%

6. Refund arising out of order passed by Adjudicating /Appellate Authority beyond 60 days from the date of application

9%

Notification No. 6/2017 – Integrated Tax, dated 28 June 2017

Sr. no. Goods specified in schedule

Rate of tax

1. Schedule I 5%

2. Schedule II 12%

3. Schedule III 18%

4. Schedule IV 28%

5. Schedule V 3%

6. Schedule VI 0.25%

Notification No. 1/2017 – Integrated Tax (Rate), dated 28 June 2017

• The MoF has notified certain goods that are exempted from payment of IGST

The goods include meat and edible offal — fresh, chilled or frozen (other than frozen and put up in unit container) — live fish, curd, lassi, butter milk, chena, paneer, (other than put up in unit containers and bearing a registered brand name), potatoes, tomatoes (fresh or chilled), dates, figs, pineapples, guavas, mangoes, khadi yarn, firewood or fuel wood etc.

Notification No. 2/2017 – Integrated Tax (Rate), dated 28 June 2017

• The MoF has notified goods on which concessional rate of GST will apply subject to the fulfilment of relevant conditions annexed to the notification

The said notification provides for a concessional rate of IGST at 5% on inter-state supply made for authorized operations against an essentially certificate.

Notification No. 3/2017 – Integrated Tax (Rate), dated 28 June 2017

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• Reverse charge on certain specified goods under Section 5(3) of IGST Act

The said notification notifies goods in respect of which IGST shall be payable under the reverse charge mechanism and includes goods such as cashew nuts, bidi, tobacco leaves, silk yarn and supply of lottery.

Notification No. 4 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Supplies of goods in respect of which no refund of unutilized input tax credit (ITC) shall be allowed

The said notification provides a list of goods (other than nil rated or fully exempt supplies) on which refund of accumulated ITC due to inverted duty structure (i.e., rate of tax on inputs being higher than the rate of tax on the output supplies) shall not be available.

Notification No. 5 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Refund of 50% of IGST on supplies to Canteen Stores Department (CSD) under Section 20 of IGST Act

The notification provides for refund of 50% of IGST paid by the CSD on its procurement for the purposes of subsequent supply of such goods to the Unit Run Canteens of the CSD or the authorized customers of the CSD.

Notification No. 6 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Exemptions from IGST supplies by the CSD to Unit Run Canteens and supplies by the CSD/Unit Run Canteens to authorized customers under Section 6(1) of IGST Act

Exemptions from IGST have been granted to:

1. Supply of goods by CSD to Unit Run Canteens

2. Supply of goods by the CSD to authorized customers of the CSD

3. Supply of goods by Unit Run Canteens to authorized customers

Notification No. 7 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Rate of IGST on inter-state supply of services has been notified

Services such as construction service, GTA, financial and related services, real estate services and telecommunication services have been notified with the IGST rate thereon.

Notification No. 8 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Notification has been issued exempting certain services from levy of IGST

Supply of services such as services by the Central Government, state governments, local authority or governmental authority by way of activity in relation to any function entrusted to a municipality under article 243W of the Constitution, renting of immovable property for residential purpose, services by Reserve Bank of India and services by a veterinary clinic in relation to health care of animals or birds have been notified as exempt from levy of IGST.

Notification No. 9 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Reverse charge on certain specified services under Section 5(3) of IGST Act

The said notification notifies services in respect of which IGST shall be payable under the reverse charge mechanism. The services include legal services from advocates, GTA services, services by insurance agent, sponsorship services etc.

Notification No. 10 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Supplies that shall be treated neither as supply of goods nor a supply of services under IGST Act

Services by way of an activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution shall be treated neither as supply of goods nor as supply of services.

Notification No. 11 /2017 – Integrated Tax (Rate), dated 28 June 2017

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• Notified supplies not eligible for refund of unutilized ITC under IGST Act

The said notification provides that refund of unutilized ITC shall not be available in respect of services, viz., “Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.”

Notification No. 12 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Notified supplies not eligible for refund of unutilized ITC under IGST Act

Section 55 of CGST Act requires the Government by notification to specify persons who shall, subject to such conditions and restrictions as may be prescribed, be entitled to claim a refund of the taxes paid on the notified supplies of goods or services or both received by them.

Accordingly, the UN or a specified international organization and foreign diplomatic mission or consular post in India or diplomatic agents or career consular officers posted therein have been notified as eligible to claim refund subject to the fulfilment of conditions specified in the notification.

Notification No. 13/2017 – Integrated Tax (Rate), dated 28 June 2017

• The MoF has notified specific categories of services supplied through an ecommerce operator on which tax shall be paid by the operator

1. Transportation of passengers by a radio-taxi, motorcab, maxicab and motorcycle

2. Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, in cases where the supplier’s turnover is up INR20 lakh (INR10 lakh if located in special category states)

Notification No. 14 /2017 – Integrated Tax (Rate), dated 28 June 2017

• Exemption granted from IGST in relation to all goods or services or both imported by a unit or a developer in an SEZ

Exemption from IGST has been granted on all the goods or service or both imported by a unit or a developer in an SEZ from the whole of IGST leviable under Section 3(7) of the Customs Tariff Act, 1975.

Notification No. 15 /2017 – Integrated Tax (Rate), dated 30 June 2017

• Exemption granted to services imported by a unit or a developer in an SEZ

The said notification exempts services imported by a unit or a developer in an SEZ for authorized operations, from the whole of the integrated tax leviable thereon under Section 5 of IGST Act.

Notification No. 18 /2017 – Integrated Tax (Rate), dated 5 July 2017

• The MoF notifies revised GST rates for certain services subject to the fulfilment of the conditions annexed in the notification

The rate of tax on works contract services has been reduced from 18% to 12%; for GTA and rent-a-cab service, an option has been provided to pay GST at 12% and claim full ITC; job work services for textile and textile products would be taxed at 5%; and admission to planetariums has been reduced from 28% to 18%.

Notification No. 20 /2017 – Integrated Tax (Rate), dated 22 August 2017

• Notification issued to amend RCM provisions in relation to GTA service and an explanation inserted for LLPs

Service recipients will be exempt from paying GST under reverse charge where GTA service providers have opted to pay tax at 12% under the forward charge basis. Further, LLPs formed and registered under the provisions of the Limited Liability Partnership Act, 2008 shall be considered as partnership firms or firms for the purpose of reverse charge provisions.

Notification No. 22 /2017 – Integrated Tax (Rate), dated 22 August 2017

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• The MoF seeks to amend Notification No. 14/2017- IGST by inserting an entry wherein e-commerce operators are liable to pay tax

E-commerce operators will be liable to pay tax for house-keeping services, such as plumbing and carpentering, supplied through an e-commerce operator, where the aggregate turnover of the person supplying such services does not exceed the prescribed threshold (INR20 lakh or INR10 lakh, as the case may be).

Notification No. 23 /2017 – Integrated Tax (Rate), dated 22 August 2017

Circulars - Integrated Tax

• Clarification issued on inter-state movement of various modes of conveyance carrying goods or passengers for repairs and maintenance

Interstate movement of various modes of conveyances between two different registrations of the same entity (distinct persons) as specified in Section 25(4) of CGST Act will not be treated as supply and consequently IGST will not apply on such supply.

However, the applicable CGST/SGST/IGST, as the case may be, shall be leviable on repairs and maintenance done for such conveyance.

Circular No. 1/1/2017 – IGST, dated 7 July 2017

Notification - Union Territory Tax (Non-rate)

• Specified provisions of Union Territory Goods and Services Tax Act, 2017 brought into force

Certain provisions of the Union Territory Goods and Services Tax Act, 2017 (UTGST Act) have been brought into force with effect from 22 June 2017. These include preliminary and administration provisions along with the provisions relating to the migration of existing taxpayers, application of the provisions of CGST Act and the power of the Government to make rules.

Notification No. 1/2017 – Union Territory Tax (UT), dated 21 June 2017

• Turnover limit to opt for composition scheme

The notification provides for a turnover limit of INR75 lakh to opt for the composition scheme where the supplier of goods or services is located in a union territory.

The composition scheme will not be applicable for manufacturers of ice cream and other edible ice, whether or not containing cocoa, pan masala and tobacco and manufactured tobacco substitutes.

Notification No. 2/2017 – UT, dated 27 June 2017

• Effective date for other provisions of UTGST Act

A notification has been issued whereby all provisions of UTGST Act except as specified in Notification No. 1/2017 – UT, dated 21 June 2017, will be effective from 1 July 2017.

Notification No. 3/2017 – UT, dated 28 June 2017

Notification - Union Territory Tax (Rate)

• Scheduled rate for supply of goods or services notified

The Central Government has issued a notification to specify the rate of union territory tax as under:

• 2.5% in respect of goods specified in Schedule I

• 6% in respect of goods specified in Schedule II

• 9% in respect of goods specified in Schedule III

• 14% in respect of goods specified in Schedule IV

• 1.5% in respect of goods specified in Schedule V

• 0.125% in respect of goods specified in Schedule VI

Notification No. 1/2017-UT (Rate), dated 28 June 2017

• Exemption granted on supply of identified goods

The Central Government has exempted certain goods specified in the notification from levy of central tax, e.g., live animals, meat, live trees and other plants, fruits and vegetables.

Notification No. 2/2017-UT (Rate), dated 28 June 2017

66 Tax Digest

• Exempting supply of goods in excess of 2.5%

The notification exempts goods specified in the list attached to the notification from union territory tax in excess of 2.5% subject to the fulfilment of the conditions specified therein.

Notification No. 3/2017-UT (Rate), dated 28 June 2017

• Goods notified for which UTGST liability is to be discharged under reverse charge

The notification lists out a description of the goods for which the liability to discharge union territory tax liability has been cast on the recipient of supply of goods under reverse charge.

Notification No. 4/2017-UT (Rate), dated 28 June 2017

• Goods notified for which no refund of unutilized ITC allowed under inverted duty structure

The notification lists out goods in respect of which no refund of unutilized ITC shall be allowed, where the credit gets accumulated on account of the rate of tax on inputs being higher than the rate of tax on the output supplies of such goods (other than nil rated or fully exempt supplies).

Notification No. 5/2017-UT (Rate), dated 28 June 2017

• Payment of UTGST under RCM not required for receipt of supply up to INR5,000 from unregistered suppliers

The Central Government has exempted intra-state supplies of goods or services or both received by a registered person from any supplier who is not registered from the whole of the central tax leviable thereon under Section 9(4) of CGST Act.

However, the exemption prescribed above will not be applicable where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds INR5,000 in a day.

The notification will be effective from 1 July 2017.

Notification No. 8/2017-UT (Rate), dated 28 June 2017

• Exemption from UTGST granted for supplies by unregistered person to a person required to deduct tax at source under Section 51 of CGST Act

The notification exempts intra-state supplies of goods or services or both from union territory tax where such supplies are undertaken by an unregistered supplier to a person who is required to deduct tax at source under Section 51 of CGST Act and also required to register himself exclusively under Section 24 (vi) of CGST Act.

The notification will be effective from 1 July 2017.

Notification No. 9/2017-UT (Rate), dated 28 June 2017

Notification - Compensation Cess

• Goods and Services Tax (Compensation to States) Act, 2017 made effective from 1 July 2017

The Central Government has appointed 1 July 2017 as the date on which all the provisions of the said act shall come into force.

Notification No. 1/2017- Goods and Service Tax Compensation, dated 28 June 2017

• Rates of compensation cess on supply of specified goods notified

The Government has notified the rate of cess that shall be levied on intra-state supplies or inter-state supplies of such goods as specified therein. It includes goods such as tobacco, aerated waters and cigarettes.

The notification will be effective from 1 July 2017.

Notification No. 1/2017- Goods and Service Tax Compensation Cess (Rate), dated 28 June 2017

67 Tax Digest

• Rates of compensation cess on supply of specified services notified

Compensation cess will be levied on services by way of transfer of the right to use any goods or transfer of right in goods or of undivided share in goods without the transfer of title thereof. The rate of cess will be the same as the applicable rate of cess on supply of similar goods.

The notification will be effective from 1 July 2017.

Notification No. 2/2017- Goods and Service Tax Compensation Cess (Rates) dated 28 June 2017

• Increase in rates of compensation cess on cigarettes

The Central Government has increased the ad hoc compensation cess amount payable basis per thousand cigarettes besides 5% compensation cess on cigarettes containing tobacco, other than filter cigarettes, filter cigarettes of various lengths and other cigarettes effective from 01 July 2017.

Notification No. 3/2017- Goods and Service Tax Compensation Cess (Rates) dated 18 July 2017

• Exemptions on intra-state supply of second-hand goods

Intra-state supplies of second-hand goods by an unregistered supplier to a registered person dealing in buying and selling of second-hand goods and who pays tax on the value of outward supply of such second-hand goods as determined under sub-rule (5) of rule 32 of the Central Goods and Services Tax Rules, 2017 have been exempt from compensation cess. This amendment is effective from 18 July 2017.

Notification No. 4/2017- Goods and Service Tax Compensation Cess (Rates) dated 20 July 2017

Circular - Compensation Cess

• Clarification regarding applicability of Section 16 of IGST Act relating to zero rated supply for the purpose of compensation cess on exports

It is clarified that provisions of Section 16 of IGST Act relating to zero rated supply will apply mutatis mutandis for the purpose of compensation cess (wherever applicable), that is:

• Exporter will be eligible for refund of compensation cess paid on goods exported by him

• No compensation cess will be charged on goods exported by an exporter under bond and he will be eligible for refund of ITC of the compensation cess relating to goods exported.

Circular No. 1/2017-Compensation Cess dated 26 July 2017

68 Tax Digest

Foreign Exchange Management Act (FEMA) 1999

RegulatoryReserve Bank of India (RBI) revises the framework for issuance of rupee denominated bonds (RDBs)

The RBI has revised the RDBs guidelines and henceforth all proposals/applications for issuance of RDBs are now processed by the RBI at Central Office, Mumbai, under the approval route. Further, the revised provisions in respect of maturity period, all-in-cost ceiling and recognized lenders (investors) of RDBs are as under:

• Maturity period: Minimum original maturity period for Masala Bonds raised up to US$50 million equivalent in INR per FY should be three years and for bonds raised above US$50 million equivalent in INR per FY should be five years. Earlier, RDB could have been issued with a three-year maturity irrespective of the amount.

• All-in-cost ceiling: The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity, which was earlier as per the prevailing market conditions.

• Recognized investors: Earlier, there was no restrictions on parent/group company subscribing to RDBs. However, as per the revised guidelines, related party is not allowed to subscribe to RDBs.

Source: A. P. (DIR Series) Circular No. 47 dated 07 June 2017

69 Tax Digest

FDI policy

Department of Industrial Policy & Promotion (DIPP) issues the consolidated FDI policy circular of 2017

DIPP has released the consolidated FDI policy circular of 2017 (New FDI Policy), which is effective from 28 August 2017. The New FDI Policy supersedes the consolidated FDI policy of 2016 and consolidates all the press notes issued by the DIPP during the year. The key changes and clarifications brought in the FDI regime through the New FDI Policy are set out below:

• FDI in LLPs: The erstwhile FDI policy was silent with respect to conversion of an FDI funded LLP into a company. The New FDI Policy allows conversion of an FDI funded LLP into a company under the automatic route.

• Downstream investment intimation: The New FDI Policy requires the intimation for downstream investments to be made to the RBI and the Foreign Investment Facilitation portal (FIFP) instead of the Secretariat of Industrial Assistance, DIPP, and the erstwhile Foreign Investment Promotion Board within the stipulated time period limit.

• FDI in Single Brand Retail Trading (SBRT): In terms of the erstwhile FDI policy, proposals involving foreign investments beyond 51% in SBRT entities required sourcing of 30% of the value of goods purchased from India. However, in case of products that have “state-of-the-art” and “cutting-edge technology” and where local sourcing is not possible, this requirement has been relaxed for the initial three years from the commencement of business, i.e., opening of the first store. What constitutes “state-of-the-art” and “cutting-edge technology” is not defined and hence creates challenges. Under the New FDI Policy, it has been decided that a committee under the chairmanship of Secretary, DIPP, with representatives from the NITI Aayog, the concerned administrative ministry and independent technical expert(s) on the subject will examine the claim and determine the products getting qualified under “state-of-the-art” and “cutting edge” technology, and proposals would be decided on the basis of their recommendations.

• FDI in e-commerce: In terms of the erstwhile FDI policy, an e-commerce entity is not permitted to sell more than 25% of the sales value affected through its marketplace from a single vendor or their group companies. In this regard, the New FDI Policy clarifies that the 25% of sales value must be computed per financial year.

• Fresh approval for additional FDI: Under the erstwhile FDI policy, proposals for sectors under the government approval route and involving foreign equity inflow of more than INR50 billion were also considered by the Cabinet Committee on Economic Affairs (CCEA). The New FDI Policy clarifies that if an entity under the government approval route receives additional foreign investment up to a cumulative amount of INR50 billion, then fresh approval of the Government/competent authority is not required when the additional foreign investment is into the same entity within an approved foreign equity percentage or into a wholly owned subsidiary.

• The term “FDI-linked performance conditions”: In terms of the erstwhile FDI policy, FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions. The New FDI Policy clarifies that “FDI-linked performance conditions” would mean “sector-specific conditions.”

• FDI in start-ups: The New FDI Policy lists start-ups as a separate section and enlists the provisions wherein start-ups can issue equity or equity-linked instruments or debt instruments to foreign venture capital investors (FVCIs) against the receipt of foreign remittance. Additionally, start-ups can issue convertible notes to persons resident outside India subject to certain conditions. However, a start-up engaged in a sector where foreign investment requires government approval may issue convertible notes to a non-residents only with the approval of the Government.

Source: Consolidated FDI Policy circular of 2017 dated 28 August 2017

70 Tax Digest

DIPP issues the standard operating procedure (SOP) for processing FDI proposals

DIPP has issued SOP for processing FDI proposals/activities requiring government approval after the abolishment of the Foreign Investment Promotion Board (FIPB). The key highlights of the SOP issued are as under:

S. no. Administrative ministry/department Sector/activity

1 Ministry of Mines Mining

2 Department of Defence Production, Ministry of Defence Defence

3 Ministry of Home Affairs • Manufacturing of small arms

• Private security agencies

• Investments from Pakistan and Bangladesh

4 Ministry of Information and Broadcasting • Broadcasting

• Print media

5 Ministry of Civil Aviation Civil aviation

6 Department of Space Satellites

7 Department of Telecommunications, Ministry of Communications

Telecom

8 DIPP, Ministry of Commerce & Industry • Trading (single and multi-brand and food products retailing)

• Issue of equity shares against import of capital goods/machinery/equipment (excluding second-hand machinery)

• Issue of equity shares against pre-operative/pre-incorporation expenses (including payments of rent etc.)

• Proposals by NRI/EOUs requiring government approval

9 Department of Economic Affairs, Ministry of Finance • Financial services requiring approval

• Foreign investment into a core investment company/investing company

10 Department of Financial Services, Ministry of Finance Banking (public and private)

11 Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers

Pharmaceuticals

• All applications pending on the FIPB portal as on the date of abolition of FIPB would be transferred to the concerned administrative ministry/department by the DIPP immediately upon receipt.

• Government approval for foreign investments in relation to the following sectors/activities will be considered by the following ministries/departments:

71 Tax Digest

• Proposals for foreign investment in sectors/activities requiring prior government approval would be filed online on FIFP.

• In case of digitally signed applications, the applicant is not required to submit any physical copy with the competent authority. In respect of the applications that are not digitally signed, DIPP would inform the

S. no. Action points Specific time period

1 Dissemination of investment proposal by DIPP to the concerned ministry/department 2 days

2 Initial scrutiny of the proposal and documents attached therewith, and seeking relevant additional information/documents from the applicant

5 days

3 Time limit for submission of clarification by DIPP on specific issues of the FDI policy 1 week

4 Time limit for submission of comments by consulted ministry/department/RBI/any other stakeholder

2 weeks

5 Time limit for submission of comments by the Ministry of Home Affairs on proposals requiring security clearance

4 weeks

6 Time limit for approval on proposals by the competent authority for grant of approval 6 weeks

7 Department of Telecommunications, Ministry of Communications 2 weeks

Proposals not requiring security clearance

Proposal requiring security clearance

applicant through online communication to submit one signed physical copy of the proposal to the competent authority. The applicant would be required to submit the signed physical copy of the application within five days of such communication from DIPP.

• The broad timelines prescribed for processing FDI proposals are enlisted below:

• Additional time of two weeks will be given to DIPP for consideration of those proposals that are proposed for rejection or where additional conditions that are not provided in the FDI policy are proposed to be imposed by the competent authority.

• In case of proposals involving total foreign equity inflow of more than INR5,000 crore, the competent authority shall place them for consideration of the CCEA within the above timelines. After the receipt of the decision of the CCEA, the approval letter shall be issued within 1 week.

• In respect of sectors/activities that are currently under the automatic route but required prior government approval earlier as per the extant policy during the relevant period, the concerned administrative ministry/department would be the competitive authority for grant of post facto approval for foreign

investment. In respect of applications where there is a doubt on which the concerned administrative ministry/department is, DIPP shall identify the administrative ministry/department where the application will be processed for decision.

• The following sectors require clearance from the Ministry of Home Affairs: Broadcasting, telecommunication, satellites (establishment and operation), private security agencies, defense, civil aviation, and mining and mineral separation of titanium-bearing minerals and ores, its value addition and integrated activities, and investments from Pakistan and Bangladesh.

• To monitor the pendency of the proposals with the Government, DIPP will convene joint quarterly review meetings, which will be co-chaired by the Secretary, DIPP, and Secretary, Department of Economic Affairs.

Source: Memorandum No. 1/8/2016-FC-1 dated 29 June 2017

72 Tax Digest

True measure of India’s tax reform will be its contribution to growth and competitiveness

Mark A Weinberger, The Economic Times

Simple, yet complex tax regime seeks to integrate business transactions

Sudhir Kapadia, The Economic Times

Good that GST rates for products & industries do not hurl any unpleasant surprises

Abhishek Jain, Economic Times Website

Does your tax function need a makeover? Here’s how technology can help

Jitesh Bansal, The Financial Express

Foreign assignments: Here’s how to avoid double social security liability

Amarpal Chadha, The Financial Express

GST: a race against time

Harishanker Subramaniam, Mint

Not all will be ready on day1 but process has begun

Bipin Sapra, Economic Times Website

The new POEM notification - Striking the right chord with foreign Cos?

Rajendra Nayak, Taxsutra

Tax World abuzz with OECD’s historic MLI signing

Rajendra Nayak, Taxsutra

Manufacturing sector needs to prepare for good and bad of GST

Gyanendra Tripathi, Business Today

GST: Dealing with GST’s unfinished business

VS Krishnan, Hindu Business Line

GST set to free India from complex indirect tax laws

Heetesh Veera, DNA

GST rollout: This is what we need for a seamless transition

Uday Pimprikar, Business Standard

GST rollout: How the new tax impacts you and why you should care

Bipin Sapra, Business Standard

Manufacturing sector needs to be prepared for good and bad of GST

Gyanendra Tripathi, Business Today Website

How GST will affect your wallet?

Gyanendra Tripathi, Business Today Website

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

In the pressGST set to free India from complex indirect tax laws

Heetesh Veera, DNA

How the new tax impacts you and why you should care

Bipin Sapra, Business Standard

Dealing with GST’s unfinished business

VS Krishnan- The Hindu Business Line

GST rollout: This is what we need for a seamless transition

Uday Pimprikar, Business Standard

GAAR, GST can impact your compensation

Shuddhasattwa Ghosh, Business Standard

Wind of change, but some grey clouds linger

Abhishek Jain, Economic Times Website

GST -Compliance Issues

Abhishek Jain, Business World

Aadhaar, PAN linking: How it can be done in easy steps

Dinesh Agarwal, Financial Express Website

Income Tax Return last date for Assessment Year 2017-18: From tax filing requirement to e-verification of ITR, here’s all you need to know about filing tax return

Puneet Gupta, Financial Express Website

Virtual Service PE - will it be a new reality?

Hiten Shah, Taxsutra

Rented out your house? Here’s how to calculate income from house property for tax purpose

Shalini Jain, Economic Times Website

Income Tax efiling: Here’s what you need to disclose now in tax return forms for Financial Year 2016-17

Puneet Gupta, Financial Express Website

Form 26AS: What is it and how does it help in filing income tax return?

Shalini Jain, Economic Times Website

Tax Policy of India @ 75

Sudhir Kapadia, Business Standard

Beware of phishing emails from fake I-T dept ids

Amarpal Chadha, The Financial Express

Who has to report foreign assets in Indian income tax return and how to do it

Shalini Jain, Economic Times Website

How GST shall impact a common man’s budget

Bipin Sapra, Economic Times

73 Tax Digest

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

1 Central Government notifies the transactions of listed equity shares not eligible for Long Term capital gains exemption

6 June 2017 Notification No. SO 1789(E) dated 5 June 2017

2 Delhi Tribunal rejects depreciation claim on government approvals and non-compete fees

7 June 2017 Pitney Bowes India P Ltd. v DCIT [TS-208-ITAT-2017(DEL)]

3 CBDT notifies cost inflation index for tax year 2017-18 with tax year 2001-02 as new base year

8 June 2017CBDT Notification 44/2017 dated 5 June 2017

4 Global Tax Alert - 68 jurisdictions sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS

8 June 2017 68 jurisdictions sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS during a ceremony hosted by OECD in Paris

5 Flash News - Amended safe harbor rules on transfer pricing for international transactions issued

8 June 2017 CBDT Notification 46/2017 dated 7 June 2017

6 India signs Multilateral Instrument and releases provisional list of reservations and notifications

9 June 2017 India signs the Multilateral Instrument on 7 June 2017

7 CBDT notifies rules and form for deduction of tax on rent payment exceeding INR50,000

12 June 2017 CBDT Notification 48/2017 dated 8 June 2017

8 SC rules use of know-how obtained while setting up new manufacturing unit is capital expenditure

13 June 2017 Honda Siel Cars India Ltd. v. CIT[TS-218-SC-2017]

9 CBDT Press Release clarifies on Supreme Court ruling on constitutional validity of Aadhaar-Permanent Account Number (PAN)

13 June 2017 CBDT Press release dated 10 June 2017

10 Global Tax Alert - Indian TA issues amended safe harbor rules on TP for international transactions

14 June 2017 CBDT Notification 46/2017 dated 7 June 2017

11 CBDT clarifies trade advances are not “deemed dividend”

14 June 2017 CBDT Circular No. 19/2017 dated 12 June 2017

Direct Tax

Compilation of Tax Alerts

(Click on the hyperlinks to the title to access the alerts)

74 Tax Digest

12 CBDT invites public comments on the application of income tax provisions to first-time POEM resident foreign companies

16 June 2017 CBDT Draft Notification dated 15 June 2017

13 Flash News - Rules for implementing secondary transfer pricing adjustment

17 June 2017 CBDT Notification dated 15 June 2017

14 Global Tax Alert: India Tax Authority issues rules for implementing secondary transfer pricing adjustment provision

22 June 2017 CBDT Notification dated 15 June 2017

15 PAS Alert - New clarification by the Provident Fund Office on the definition of International Worker as applicable for Indian employees

24 June 2017 Employees’ Provident Fund Organisation circular dated 23 June 2017

16 Flash News: CBDT amends Income-tax Rules providing for Aadhaar-PAN linking provisions

30 June 2017 CBDT Notification 56 dated 27 June 2017.

17 PAS Alert: Revision in the Certificate of Coverage application form to be issued under a Social Security Agreement

3 July 2017 Employees’ Provident Fund Organisation circular dated 30 June 2017

18 Central Government (CG) notifies exclusions from section introduced for prohibition of cash receipt; CBDT clarifies the applicability of the section for NBFCs

5 July 2017 CG’s Notification no. 57/2017 dated 3 July 2017CBDT Circular 22 of 2017 dated 3 July 2017

19 Special Bench confirms non-applicability of expense disallowance methodology under Rule 8D to Minimum Alternate Tax

5 July 2017 ITA No.502/Del/2012 dated 16 June 2017Vireet Investment Pvt. Ltd. v. ACIT

20 Flash news - Mauritius signs Multilateral Instrument (MLI) excluding India in its provisional list of treaties

6 July 2017 Mauritius signs MLI on 5 July 2017

21 Chhattisgarh High Court rules on carry forward of losses when loss return is filed after the due date for filing tax return

7 July 2017 Chhattisgarh State Civil Supplies Corporation v. CIT TS-261-HC-2017(CHAT)

22 Bangalore Tribunal rules on constitution of service PE for services rendered virtually as well as physically

12 July 2017 ABB FZ LLC v. DCIT[TS-256-ITAT-2017(BANG)]

23 Central Board of Direct Taxes issues final rules prescribing methodology for determining fair market value of unquoted shares

13 July 2017 CBDT Notification 61 dated 12 July 2017.

75 Tax Digest

24 CBDT clarifies no withholding tax on GST component in relation to services

20 July 2017 CBDT Circular No 23/2017 dated 19 July 2017.

25 Indian tax administration issues clarifications to compute book profit for MAT levy for Ind-AS companies

26 July 2017 CBDT Circular No 24/2017 dated 25 July 2017 and Press Release dated 25 July 2017.

26 Flash News - Return filing due date extended to 5 August 2017; Requirement of Aadhaar-PAN linking relaxed for e-filing ROI

31 July 2017 CBDT Press Release dated 31 July 2017

27 Delhi High Court upholds weighted R&D deduction for recognized in-house R&D facility from the date prior to recognition and approval

8 August 2017 Maruti Suzuki India Ltd. v. Union of India & Anr[TS-320-HC-2017(DEL)]

28 CBDT provides relief to Foreign Portfolio Investors from investor diversification conditions specified in the safe harbor regime for onshore management of offshore funds

8 August 2017 CBDT Notifications 77 & 78 dated 3 August 2017

29 Larger Bench of Gujarat High Court reconciles distinction between “provision” and “write off” of bad debt for MAT purposes

14 August 2017 CIT v. Vodafone Essar Gujarat Ltd.[TS-330-HC-2017(GUJ)]

30 Global Tax Alert - OECD, UN, IMF and World Bank issue toolkit for difficulties in accessing comparable data for TP analysis

28 August 2017 Toolkit designed and released on 22 June 2017 by the Platform for Collaboration on Tax

31 Flash News: CBDT extends due date for Aadhaar-PAN linking to 31 December 2017 and due date for filing tax audit returns and other audit reports to 31 October 2017

1 September 2017

CBDT orders dated 31 August 2017

32 PAS Alert : Clarification from Provident Fund Office - Provident Fund withdrawal to Japanese employees who have left India

8 September 2017

Clarification from EPFO vide circular dated 1 September 2017

33 PAS Alert - Provident Fund office launches new online process for application of Certificate of Coverage

12 September 2017

Launch of an online system for the generation of Certificate of Coverage by the EPFO

76 Tax Digest

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

1 CBEC releases final return rules, GST rate schedule for certain goods and IGST exemption list as approved by GST Council

5 June 2017 GST Council’s 15th meeting held on 3 June 2017

2 CBEC releases four Rules approved by GST Council and issues Notifications under Central and Integrated GST

21 June 2017 Rules finalized by GST Counsel in its 17th meeting held on 18 June 2017

3 GST Council reduces rates for certain supplies and approves rules on e-way bill

8 August 2017 GST Council’s 20th meeting held on 5 August 2017

4 CBEC provides clarifications on issues related to furnishing of bond/letter of undertaking for exports

17 August 2017 CBEC Circular 5/5/2017-GST dated 11 August 2017

5 Time limit for filing Form GSTR-3B extended for taxpayers claiming transitional credit

18 August 2017 Press release dated 17 August 2017 issued by Government

6 Government issues notifications for revision of GST rates on certain goods and services

23 August 2017 Notifications No. 20/2017, 21/2017, 22/2017, 23/2017 issued by the Government

7 HC holds restriction imposed under CENVAT credit rules for utilization of CENVAT credit as ultra vires of Rule 3(1)

24 August 2017 Gujarat High Court ruling dated 28 July 2017 dealing with the constitutional validity of first proviso to Rule 3(4) of CCR, 2004

8 Government issues revised rules on E-way bills

7 September 2017

Notification No.27/2017 - Central Tax, dated 30 August 2017

Indirect Tax

77 Tax Digest

Regulatory

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

1. Department of Economic Affairs releases framework providing for way forward after abolition of Foreign Investment

7 June 2017 Framework issued by Department of Economic Affairs on 5 June 2017

2. Consolidated FDI Policy of 2017 29 August 2017 Consolidated FDI policy issued by Government of India on 28 August 2017

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