volume - x december 2015l message

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MANAGING COMMITTEE

VOLUME - X DECEMBER 2015l

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

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

INDEX

CA. Yash N Bhatt 99243 88339

CA. Viral K Shah 98243 62211

CA. Arpan Dodia 98983 83530

CA. Dhiren Parikh 93762 11099

CA. Abhishek Nagori 94260 75397

CA. Nayan Kothari 98244 33445

CA. Kejal Pandya 98259 77220

CA. Utpal Shah 98250 28960

CA. Hitesh Agrawal 99980 28737

Chairman

Vice-Chairman

Secretary

Treasurer

Ex-officio

Immediate Past Chairman

Committee Member &Study Circle Convener

Committee Member

Committee Member

EDITORIAL TEAM

CA. Yash Bhatt

CA. Hitesh Agrawal

CA. Jay Shah

CA. Sanjay Joshi

Forthcoming Events ... 02

Direct Tax Updates ... 03

GST an Update ... 04

3D ... 05

Indirect Tax Updates ... 08

Due Date Planner ... 10

PhotoFlash ... 11

THE INSTITUTE OF CHARTEREDACCOUNTANTS OF INDIA

Tel. :E-mail :

Web :

ICAI Bhawan, Post Box No. 7100,Indraprastha Marg, New Delhi - 110002.

+91 (11) [email protected]

www.icai.org

“ICAI Bhawan”, Kalali-Tandalja Road, Atladra,Vadodara - 390 012. +91 8511077115

+91 8511125959+91 (265) 2681115 / 2680593

[email protected]

BARODA BRANCH OF WIRC OF ICAI

M.:Chairman Mobile:

Telefax :E-mail:

Web :

WESTERN INDIA REGIONAL COUNCIL

Tel. :Email :

Web :

ICAI Tower, Plot no C-40, G BlockOpp MCA Ground, Bandra Kurla Complex,

Bandra (E), Mumbai - 400 051+022-33671400/33671500

[email protected]

The last month of calendar year is here and we are all taking stock of our goals for 2015,

the year gone by. Napoleon Hill once said, ‘‘Whatever the mind of man can conceive and

believe, it can achieve.” It is with this belief we can carry forward the incomplete targets

of this calendar year to the next one. The year 2015 was equally memorable for the

Branch and We the Managing Committee Team of Baroda once again stand committed to

deliver new to its members in the year 2016.

The month of November saw all of us celebrating Diwali with our family members with

full vigor. The 7 days practical workshop on Ind As- IFRS was a resounding success with

a participation of more than 90 members. Two days joint seminar on All Gujarat Tax

Convention was equally responded well. The members of Baroda Branch have celebrated

Diwali Milan at Branch along with their family and it was a joyous movement in the light of

colorful fire crackers.

As members have started enjoying the pleasant winter, the fever of the 25th Residential

Refresher Course at is also fast spreading and

approaching. As we have started receiving good registration, Members are requested to

register well in time as in view of capacity constraints, registration would have to be

limited. The details of the RRC are available on Baroda Branch Website.

The Managing Committee of the Baroda branch of WIRC of ICAI wishes you a merry

Christmas!!!!

the Gateway Hotel, Jodhpur

CA. Yash N. Bhatt

Chairman

Baroda Branch of WIRC of ICAI

2Don't cry because it's over, smile because it happened

Forthcoming EventsBranch Events

CPE 6

CPE 2

Day & Date :

Time :

Venue :

Fees :

Keynote address - 09.00 to 09.30 am

Shri Dhananjay Dwivedi,

Topics Speakers

Session I - Technical Session - 9.30 am to 10.30 am

Finance Analytics Prof. Sudhakar Challapalli

10.30 to 10.45 am - Tea break

Session II - Panel Discussion Session - 10.45 am to 12.30 pm

Mr. Aniket Likhite,

Session III - Technical Session - 12.30 to 01.00 pm

CA. Gaurav Garg,

1.00 to 2.00pm - Lunch Break & Networking

Session IV - Technical Session - 2.00 to 2.30 pm

Eminent speaker

Session V - Panel Discussion Session - 2.30 to 4.00 pm

Moderator:CA. Maulik Mehta,

Panelists:CA. Bhadresh Mehta,

CA. Nirav Thakkar,

CA. BhupeshPorwal,

Saturday, December 19, 2015

09.00 am to 06.00 pm(08.00 am to 09.00 am - registration and breakfast)

Vadodara, Gujarat

Rs. 900/- per participant

Eminent Speaker IAS, Secretary,Dept. Science and Technology, Govt. of Gujarat**

Different types of ChartRepresentationsApplication of Descriptive,Diagnostic Predictive andPrescriptive AnalyticsDifference Credit Analysts andData Analytics

Disruptive Technologies – Mumbaichanging the way business is done

Use of Information Technology in New DelhiWorkplace

Cloud ComputingInternet of Things (IOT)Mobile technologies

- Cyber security imperatives forthird line of defense

- Information Security –Addressing the new normal

Evolving role of CIO – fromCFO office

Team Infinity

CFO, Symphony Ltd.CFO,

Elite Core Technology Pvt Ltd.CFO,

Styrolution ABS (India) Ltd.

�

�

�

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ICAI National Convention on Information Technology

STUDY CIRCLE EVENT

Organizedby :

Hosted by :

Committee on Information Technology

Baroda Branch of WIRC of the ICAI

4.00 to 4.20 pm - Tea Break

Session VI - Technical Session - 4.20 to 5.50 pm

Mr. Sarit Bose

Objective:

Takeaway:

Big data and predictive analysis , Mumbai- Overview Challenges and

Technology

Convention provides awareness of opportunities available inInformation Technology and how IT innovations are changing the waybusiness is done.

The Convention will help par ticipants to gainunderstandingimpact of IT on business and industry, expert views onvarious aspects of subject including emerging technologies andconcepts.

** Subject to confirmation

For Further Details & Information - Please Contact

Committee on Information technologyPhone: 0120-3045996/3876869E-mail: [email protected], [email protected]

Day & Date :

Time :

Topic :

Faculty :

Venue :

Fees :

Day & Date :

Time :

Topic :

Faculty :

Mentor :

Venue :

Fees :

Day & Date :

Time :

Topic :

Faculty :

Mentor :

Venue :

Fees :

Tuesday, December 8, 2015

6:00 PM to 8:00 PM

Allied laws and professional opportunities:

• The Prevention of Money Laundering Act 2002

• The Black Money (Undisclosed Foreign Incomeand Assets) and Imposition of Tax Act, 2015

• The Foreign Exchange Management Act 1999

CA. Abhishek Nagori

Conference Room, ICAI Bhawan

Rs. 200/- (for Non-Members)


6:00 PM to 8:00 PM

Corporate Governance in Indian Context

CA. Amit Shah, GACL

CA. H.B. Patel, Executive Director (Finance) &CFO, GACL




6:00 PM to 8:00 PM

Case Laws on Business Deductions under theIncome Tax Act, 1961

CA. Prashant Upadhyay

CA. (Dr) Alok Shah




Be yourself; everyone else is already taken3

Direct Tax UpdatesWritten by CA. Narendra Hindocha

1. Simplification of Income-tax

Returns

2. Transfer fees received by a

Cooperative Society

3. Audit report for deduction not filed

with return

CA in INDIA.org. reported on 21st

November, 2015 that the government

is looking to further simplify forms for

filing income tax returns, to help

taxpayers fill them without seeking

help from experts, and the Revenue

Department has set up a committee in

this regard.

And my soul cried-Give me break for a

year, please. For every time the

Government simplifies the forms, it

gives nightmares to taxpayers and

professionals as it requires changes

in website and the softwares, creates

new problems and requires

professionals to spend time in

understanding and following new

rules which have little utility.

As regards the help from experts, I do

not see many experts nor do I see

many people filing their own returns

after many simplifications. I wonder

what problem the Government has

with the little help from experts which

is generally at reasonable cost.

I would also similarly say to the

Finance Minister-please do not make

avoidable changes in the Finance Bill.

In the case of CIT. vs. Prabhukunj Co-

op Hsg Soc Ltd., reported at 2015

Taxcorp (DT) 61499, the Gujarat High

Court held that premium received by

assessee-co-operative housing

society upon transfer of plot by its

outgoing member is not chargeable to

tax in the hands of society. The Court

applied the principles of mutuality.

The Supreme Court, in case of CIT. vs.

G.M. Knitting Industries(P) Ltd.,

reported at 376 ITR 456 allowed

additional depreciation claim even

where Form 3AA (i.e Accountant’s

repor t for claiming additional

depreciation) was not filed along-with

the return of income but during

assessment proceedings.

Before making reassessment, the

Assessing Officers are required to

deal with the assessee’s objections

and pass order only 4 weeks

thereafter as per directions in another

case by the Supreme Court. These

directions are often not followed and

objections are dealt with in a casual

manner, sometimes at the same time

as making assessment. The Bombay

High Court, in case of Godrej Agrovet

Ltd. vs. ACIT took a very serious view

of the matter and directed withdrawal

of the reassessment order and when

the Assessing Officer did not do so,

called the Officer to remain present (

apparently to bow down and give due

respect to the judicial dictates).

Section 206AA requires deduction of

tax at a minimum rate of 20% in case

the payee does not provide PA No. It

would appear unreasonable to apply

this rate as regards non-resident

payees but there are two views as to

whether it applies to a non-resident.

In case of Deputy Commissioner of

Income-tax v. Infosys BPO Ltd.

reported at [2015] 60 taxmann.com

465 (Bangalore - Trib.), it was held

that where assessee made royalty

payments to non-residents, since

benefit of DTAA was available to said

recipients, their TDS liability could not

be more than rate prescribed under

DTAA or Act whichever was lower.

Where Assessing Officer while

issuing intimation under section

200A, raised demand for TDS at

higher rate ignoring provisions of

DTAA, it was held that the order

travelled beyond jurisdiction of

Assessing Officer as per provisions of

4. Reassessment without dealing with

objections sufficiently in advance.

5. Application of Section 206AA to

non-residents

section 200A.

In the context of the provisions of

section 54G, the SUPREME COURT

in CIVIL APPEAL NOS. 5525-5526 OF

2005 in case of M/S Fibre Boards (P)

Ltd. Versus Commissioner Of Income

Tax held as under as regards two

matters:

-That on omission of Section 280ZA

a n d i t s r e - e n a c t m e n t w i t h

modification in Section 54G, Section

24 of the General Clauses Act would

apply, and the notification of 1967,

declaring Thane to be an urban area,

would be continued under and for the

purposes of Section 54A.

-That advances paid for the purpose

of purchase and/or acquisition of the

aforesaid assets would certainly

amount to utilization by the assessee

of the capital gains made by him for

the purpose of purchasing and/or

acquiring the aforesaid assets.

In this case, the Assessee completed

a part of project and obtained

completion certificate for that part

from Municipal Corporation. Such

certificate, which, for claiming

deduction under section 80IB(10)

should have been obtained on or

before 31-3-2008, was obtained on

10-10-2008, although architect of

project had given a completion

certificate prior to 31-3-2008 and

assessee had submitted application

to Municipal Authority along with such

certificate well in time on 25-3-2008.

It was held by High Court Of Bombay

in case of Commissioner of Income-

tax, Aurangabad v. Hindustan Samuh

Awas Ltd that the deduction was

allowable as the delay in issue of

certificate was not attributable to

assessee. Reported at [2015] 62

taxmann.com 175 (Bombay)/[2015]

377 ITR 150 (Bombay)

6. Effect of repealed provisions and

meaning of utilization for purchase

7. Deduction under section 80IB(10)

when completion certificate delayed


A room without books is like a body without a soul 4

GST an UpdateReviewed By CA. Anirudh Sonpal

A]

I. PAYMENT

II. REFUND

The Joint Committee on Business

Process for GST, formed under the

Empowered Committee of State

Finance Ministers has issued four

reports on:

1. GST Registration

2. GST Payment

3. GST Returns, and

4. Refund

The issues addressed in these reports

are primarily in the nature of

recommendations by the respective

committees.

S o m e h i g h l i g h t s o f t h e

recommendations of the Report on

GST Payment:

1.1 Electronic payment – unique 14 digit

Common Por tal Ident i f icat ion

Number(CPIN) for each challan;

1.2 Challan generated to be valid for 7

days for making payment;

1.3 GSTN to be the single –point interface

for challan generation;

1.4 The following three modes of

payments proposed:

1. Electronic Payment through

In t e r ne t Bank ing th rough

authorized banks and through

debit/credit cards,

2. Over the Counter(OTC) through

authorized bank – upto specified

limits; and

3. Payment through RTGS/NEFT

from any bank, including other

than the authorized banks.

1.5 S t a n d a r d i z e d a n d c o m m o n

accounting codes and common

challan form with auto-population

features;

1.6 Use of single challan and single

payment instrument;

S o m e h i g h l i g h t s o f t h e

recommendations of the Report on

GST Refund:

2.1 The following situations contemplated

where refund would arise:

1. Excess payment of tax due to

mistake or inadvertence,

2. Export of goods/services under

rebate or refund of accumulated

input credit,

3. F ina l izat ion of provis ional

assessment,

4. Refund of pre-deposits,

5. Input credit accumulations –

output being exempt or nil-rated;

inverted duty structure,

6. Year – end or volume based

incentivesprovided by supplier,

7. Tax refund for International Tourists,

etc.

1. Obtaining duty paid inputs and

claiming refund of tax at the time of

export of finished goods without

payment of duty, or

2. Obtaining duty paid inputs and availing

credit thereon and claiming rebate

after payment of taxes on finished

goods.

2.3 Simplified system suggested for

refund to exporter, including online

verification.

2.4 Refund of accumulated input credit on

account of accumulation of stock or

2.2 Two options to exporters:

capital goods may not be allowed.

2.5 One-year time period from the relevant

date recommended for filing of refund

claim; simplified form and electronic

refund application recommended.

2.6 Interest to be paid if refund not granted

within 90 days from the date of

system generated acknowledgement

of refund application within which

refund has to be paid.

2.7 GST law may provide for adjustment

of refund claim against confirmed

demands.

The Committee headed by the Chief

Economic Advisor on Possible Tax

Rates under GST has submitted its

report to the Finance Minister. The

highlights of the Executive Summary

of the Report:

1. The term Revenue Neutral Rate(RNR)

will refer to that single rate which

preserves the revenue at the

desired(current) levels. RNR will

depend on a number of assumptions

and imponderables. It will also depend

on the exemptions and the rates for

different commodities.

2. The RNR should be distinguished

from the Standard Rate, which would

apply to the majority of the goods and

services.

3. The Committee has recommended the

various rate options:

B]

Summary of Recommended Rate Options (in percent)

RNRRate on

precious metals

"Low"rate

(goods)

"Standard"rate

(goods andservices)

"High/Demerit"rate or

Non-GSTexcise (goods)

Preferred

Alternative

15

15.5

12

12

40

40

6

6

16.9

18.0

2

2

17.7

18.9

4

4

17.3

18.4

The rates are sum total of SGST and CGST.

4. The Committee has also recommended review of coverage of GST on Alcohol, Real

Estate, Petroleum and Electricity.


You only live once, but if you do it right, once is enough5

3-DWritten by CA. Abhay Desai

DOCTRINE OF PRIORITY OF CROWN’S

DUES

Lao Tzu said “The key to growth is the

introduction of higher dimensions of

consciousness into our awareness”.

Thinking about an issue only from one-

dimension may result in faulty action. This is

also true for indirect taxes. One has to think

from all points of view to get the best

answer. This column attempts to discuss

various issues pertaining to indirect taxes

from all the three dimensions i.e. Central

Excise, Service Tax & VAT.

1. When a dealer borrows money byoffering his asset as a security, acharge is created on the said assets infavour of the lender that may be afinancial institution or any othercreditor. Said charge is created bydeposit of title deeds in case ofimmovable property. In case ofmovable properties, mortgage iscreated by documentation. Sec. 100of Transfer of Property Act, 1882clearly envisages the creation ofcharge by ‘operation of law’ as well.When there is a default on payment oftax dues under the Central & StateActs as well as repayment to thelender by the dealer, question arisesabout the priority of dues at the time ofwinding up. Does the secured creditorget priority over the Government forrealizing the dues out of the saleproceeds of the assets of the dealerthat have been mortgaged with thatcreditor?

2. Doctrine of priority of crown’s duesprovides that when the claim of aprivate citizen and the Crown meet atthe same time, Crown will bepreferred. Hon. Supreme Court in thecase of Dena Bank v. BhikhabhaiPrabhudas Parekh & Co. [2000] 120STC 610 (SC) dealt extensively withthe doctrine of priority of Crown debts.In the said case, issue before the apexcourt was whether the dues underSec. 158 of the Karnataka Land

Revenue Act, which specificallyprovides that the claim of the StateGover nment to any moneysrecoverable under the provisions ofChapter XVI shall have precedenceover any other debt, demand or claimwhatsoever including in respect ofmortgage will have precedence overthe secured debt of the bank. It wasnoted that Halsbury, dealing withgeneral rights of the crown in relationto property, states that where theCrowns right and that of a subjectmeet at one and the same time, that ofthe Crown is in general preferred.Herbert Brown states that where thetitle of the king and the title of a subjectconcur, the king’s title must bepreferred. This common law doctrineof priority of States debts has beenrecognized by the High Courts of Indiaas applicable in British India before1950 and hence the doctrine has beentreated as law in force within themeaning of Ar ticle 372 (1) ofConstitution.

3. The principle of priority of Governmentdebts is founded on the rule ofnecessity and of public policy. Thebasic justification for the claim forpriority of state debts rests on the wellrecognized principle that the State isentitled to raise money by taxationbecause unless adequate revenue isreceived by the State, it would not beable to function as a sovereigngovernment at all. It is essential that asa sovereign, the State should be ableto discharge its primary governmentalfunctions and in order to be able todischarge such functions efficiently, itmust be in possession of necessaryfunds and this considerat ionemphasizes the necessity and thewisdom of conceding to the State, theright to claim priority in respect of itstax dues. (See M/s. Builders SupplyCorporation 1965 SCR (1) 289). In thesame case the Constitution Bench hasnoticed a consensus of judicialopinion that the arrears of tax due tothe State can claim priority overprivate debts and that this rule of

common law amounts to law in forcein the territory of British India at therelevant time within the meaning ofarticle 372 (1) of the Constitution ofIndia and therefore continues to be inforce thereafter. On the very principleon which the rule is founded, thepriority would be available only tosuch debts as are incurred by thesubjects of the Crown by reference tothe States sovereign power ofcompulsory exaction and would notextend to charges for commercialservices or obligation incurred by thesubjects to the State pursuant tocommercial transactions. Lordshipshave thus summed up the law asunder :-

a) There is a consensus of judicialopinion that the arrears of tax dueto the State can claim priority overprivate debts.

b) The common law doctrine aboutpriority of crown debts which wasrecognized by Indian High Courtsprior to 1950 constitutes law inforce within the meaning of Article372 (1) and continues to be inforce.

c) The basic justification for the claimfor priority of State debts is the ruleof necessity and the wisdom ofconceding to the State the right toclaim priority in respect of its taxdues.

d) The doctrine may not apply inrespect of debts due to the State ifthey are contracted by citizens inrelation to commercial activitieswhich may be undertaken by theState for achieving socio-economic good. In other words,where welfare State enters intocommercial fields which cannotbe regarded as an essential andintegral par t of the basicgovernment functions of the Stateand seeks to recover debts fromits debtors arising out of suchcommerc ia l ac t i v i t i es theapplicability of the doctrine ofpriority shall be open for


In three words I can sum up everything I've learned about life: it goes on 6

consideration.

4. The Constitution Bench decision hasbeen followed by three judges Benchin Collector of Aurangabad vs. CentralBank of India AIR 1967 SC 1831.However, the Crowns preferential rightto recovery of debts over othercreditors is confined to ordinary orunsecured creditors. The CommonLaw of England or the principles ofequity and good conscience (asapplicable to India) do not accord theCrown a preferential right for recoveryof its debts over a mortgagee orpledgee of goods or a securedcreditor. It is only in cases where theCrowns right and that of the subjectmeet at one and the same time that theCrown is in general preferred. Wherethe right of the subject is complete andperfect before that of the Kingcommences, the rule does not apply,for there is no point of time at whichthe two rights are at conflict, nor canthere be a question which of the twoought to prevail in a case where one,that of the subject, has prevailedalready. In Giles v. Grover 1832 131ER 563 it has been held that the Crownhas no precedence over a pledgee ofgoods. In Bank of Bihar v. State ofBihar & Ors. AIR 1971 SC 1210, theprinciple has been recognized by theHon. Supreme Court holding that therights of the pawnee who has partedwith money in favour of the pawnor onthe security of the goods cannot beextinguished even by lawful seizure ofgoods by making money available toother creditors of the pawnor withoutthe claim of the pawnee being firstfully satisfied.

5. In the case of Dena Bank v. BhikhabhaiPrabhudas Parekh & Co. [2000] 120STC 610 (SC) referred above , as Sec.158 of the Karnataka Land RevenueAct, specifically provides that theclaim of the State Government to anymoneys recoverable under theprovisions of Chapter XVI shall haveprecedence over any other debt,demand or claim whatsoeverincluding in respect of mortgage, it

was held that said Section not onlygives a statutory recognition to thedoctrine of States priority for recoveryof debts but also extends itsapplicability over private debtsforming subject matter of mortgage,judgment-decree, execution orattachment and the like. Hence it washeld that in view of specific provisionson the law, State dues will have priorityeven over the secured creditors.

6. The superiority of secured debt overGovernment dues was held in the caseof Bank of India v. Siriguppa Sugarsand Chemicals Ltd. (2007) 8 SCC353. In this case sugar was pledgedwith the bank and the CaneCommissioner sought to enforcedemand on behalf of the workmen.The Apex Court upheld the right of theappellate Bank over the pawed sugarhaving precedence over the claim ofCane Commissioner and that of theworkmen in view of absence ofspecific provisions creating a firstcharge.

7. Again question fell for considerationbefore Hon. Supreme Court in case ofUnion of India v. SICOM Ltd. [2009]147 Comp Cas 531 (SC), waswhether realization of excise duty willhave priority over secured debts offinancial corporations.Relying on theratio of decision of Dena Bank v.Bhikhabhai Prabhudas Parekh & Co.(supra), it was held that excise dueswill have no priority over securedcreditors as there is no specificprovisions under the Central ExciseAct which creates a first charge infavour of Central Government.

8. Hon. Madras High Court in case of M.Nagarajan v. Deputy Commercial TaxOfficer [2009] 25 VST 175 (Mad) hasheld that claim of State will sub-servethe claim of secured creditors in viewof Sec. 24 of TN General Sales Tax Actwhich does not create first charge onproperty.

9. From the above discussion followingprinciples can be established: (i)Arrears of tax due to the State can

claim priority over unsecured debts.(ii) The common law doctrine aboutpriority of crown debts/State debts isrecognized law in force within themeaning of article 372(1) of theConstitution of India. (iii) The doctrineof first charge/priority of the State overthe property will prevail over theprivate debts, which is an unsecureddebt, but such doctrine of firstcharge/priority over the propertycannot prevail over secured debts of aperson. (iv) In case a first charge iscreated by a legal fiction, State willhave priority even before the securedcreditors.

10. In view of above doctrine, fewlegislations have been amendedwherein by way of legal fiction;Government dues are accorded firstcharge over the assets of the dealer. Insuch scenario, as laid down by Hon.SC in case of Dena Bank v. BhikhabhaiPrabhudas Parekh & Co. [2000] 120STC 610 (SC), Government will havepriority over secured creditors.

11. Apex Court in the case of State Bank ofBikaner & Jaipur v. National Iron &Steel Rolling Corporation and Others[1995] 96 STC 612 (SC) held thatSection 11-AAAA of the RajasthanSales Tax Act, 1954 which creates afirst charge on the property of thedealer or any other person for anyamount of tax, penalty, interest, orother sum payable by a dealer or theother person under the Act, clearlygives priority to the statutory chargeover all other charges on the propertyincluding a mortgage. Where amortgage is created in respect of anyproperty, undoubtedly, an interest inthe property is carved out in favour ofthe mortgage. The mortgagor isentitled to redeem his property onpayment of the mortgage dues. Thisdoes not, however, mean that theproperty ceases to be the property ofthe mortgagor. The title to the propertyremains with the mor tgagor.Therefore, when a statutory firstcharge is created on the property ofthe mortgagor, the property subjected


No one can make you feel inferior without your consent7

to the first charge is the entire propertyof the mortagager. The interest of themortgage is not excluded from thefirst charge. The first charge,therefore, which is created undersection 11-AAAA of the RajasthanSales Tax Act, 1954, will operate onthe property as a whole and not onlyon the equity of redemption. A chargeis wider than a mortgage, it wouldcover within its ambit a mortgagealso. Therefore, when a first charge iscreated by operation of law over anyproper ty, that charge will haveprecedence over an exist ingmortgage. Hence it was held that theclaim of the sales tax department to bepaid their dues from out of theproceeds of sale of the respondent'sproperty took priority over the claim ofthe appellant-bank as mortgagee ofthe property in question.

12. Hon. Kerala High Court in case ofKerala State Industrial DevelopmentCorporation Ltd. V. Parisons MillingCo. Pvt. Ltd. and others [2007] 9 VST519 (Ker) has held that State has firstcharge over the properties of a dealerfor sales tax dues and has priority overState financial corporation or the bankto which the properties have beenmor tgaged in view of specificprovisions. Sale by the mortgagees isnot binding upon the State.

13. Hon. Supreme Court in case of Stateof Madhya Pradesh and another v.State Bank of Indore and others[2002] 126 STC 1 (SC) has held thatsection 33-C which created a firstcharge that prevailed over any chargethat might be in existence and shalloperate on all the charges which werein force when the section wasintroduced.

14. This brings us to second contentiousissue on the subject. When a borrowerfails to repay the money to the Bank,what the Bank can do for recoveringthe loan is to file a civil suit earlier. Weall know the issue of delay in renderingjustice in traditional civil courts andwith the inevitable delay, the Bankscould not recover its dues effectively

and it resulted in liquidity problems.Bank pays interest to the depositholders; however, the Banks could notmake money by using the deposits asthe recovery gets delayed frequently.This led the government to appointvarious committees for financialsector reforms. The concentrationwas on effective recovery by theBanks and Financial Institutions apartfrom other things.

15. Thus, a need was arisen to constitutespecial tribunals for recovery of debtsby the Banks and Financia lInstitutions. The Government thusenacted a law called “The Recovery ofDebts Due to Banks and FinancialInstitutions Act, 1993 (RDDBI Act)”under which Debt Recovery Tribunalswere constituted to recover dues bythe specified Banks and FinancialInstitutions. The RDDBI Act, 1993provides Banks and FinancialInstitutions to approach the DebtRecovery Tribunal by filing anapplication for recovering its due. Onlywhen the amount of due qualifiesunder the Act, the Banks and FinancialInstitutions could approach the DebtRecovery Tribunals under RDDBI Act,1993. When the Bank approaches theTribunal for recovery, then, theTribunal will look into the claim madeby the Bank in accordance with theprocedure prescribed under RDDBIAct, 1993 and finally passes anaward. The Bank can execute theaward.

16. Subsequent to enactment of RDDBIAct, Central Government has passed“ T h e S e c u r i t i z a t i o n a n dReconstruction of Financial Assetsand Enforcement of Security InterestAct, 2002 (SARFAESI Act)”. Theobjective of SARFAESI Act, 2002 is tocurtail the delay in the process ofadjudication between the Banks andits borrowers. The SAFAESI Act, 2002provides a procedure wherein theBank or Public Financial Institutionitself will adjudicate the debt. Onlyafter adjudication by the Bank, theborrower is given right to prefer an

appeal to the Debt Recovery Tribunalunder section 17 and further appeal tothe Debt Recovery Appeal Tribunalunder section 18.

17. Once a dealer has approached DRT,provisions of RDDBI Act will apply inview of Sec. 34 of RDDBI Act whichprovides that the provisions of this Actshall have effect notwithstandinganything inconsistent therewithcontained in any other law for the timebeing in force or in any instrumenthaving effect by virtue of any law otherthan this Act. Thus issue before us iswhether Sec. 34 of RDDI Act willoverride Sec. 48 of the GVAT Act thatcreates first charge over the propertyfor VAT dues and thus StateGovernment will have no priority oversecured creditors.

18. This issue was examined by Hon. SCin case of Central Bank of India v. Stateof Kerala and others [2009] 21 VST505 (SC) wherein it has held that thereis no provision in RDDBI Act, 1993and the SARFAESI Act, 2002 by whicha first charge has been created infavour of banks, financial institutionsor secured creditors qua the propertyof the borrower. Section 38C of theBombay Act and section 26B of theKerala Act also contain non-obstanteclauses and give statutory recognitionto the priority of the State's chargeover other debts. These sections andsimilar provisions contained in otherState legislations not only create a firstcharge on the property of the dealer orany other person liable to pay salestax, etc., but also give them overridingeffect over other laws. While enactingthe 1993 Act and the 2002 Act,Parliament was aware of the law laiddown by the Supreme Court whereinpriority of the State dues wasrecognized. If Parliament intended tocreate a first charge in favour ofbanks, financial institutions or othersecured creditors on the property ofthe borrower, then it would haveincorporated a provision like section529A of the Companies Act, 1956 orsection 11(2) of the Employees


Always forgive your enemies; nothing annoys them so much 8

Provident Funds and MiscellaneousProvisions Act, 1952 and ensured thatdues of banks, financial institutionsand other secured creditors shouldhave priority over the State's statutoryfirst charge in the matter of recovery ofthe dues of sales tax, etc. In theabsence of any specific provision tothat effect, it is not possible to readany conflict or inconsistency oroverlapping between the provisions ofthe 1993 Act and 2002 Act on the onehand and section 38C of the BombayAct and section 26B of the Kerala Acton the other and the non obstanteclauses contained in section 34(1) ofthe 1993 Act and section 35 of the2002 Act cannot be invoked fordeclaring that the first charge createdunder the State legislation will notoperate qua or affect the proceedingsin i t ia ted by banks, f inancia linstitutions and other securedcreditors for recovery of their dues orenforcement of security interest, asthe case may be.

19. It was held that a non-obstante clauseis generally incorporated in a statute togive overriding effect to a particularsection or the statute as a whole.While interpreting a non-obstanteclause, the court is required to find outthe extent to which the Legislatureintended to do so and the context inwhich the non obstante clause isused. Thus Sec. 48 of GVAT Act willoverride the provisions of RDDBI Act& SARFAESI Act.

20. Last issue connected with the abovesubject before us is the claims ofworkmen and secured creditorswhich are protected under theCompanies Act. Will that have priorityover the dues under the GVAT Act.Similar to Sec. 48 of GVAT Act, evenSec. 529A of erstwhile CompaniesAct, 1956 or Sec. 326 of CompaniesAct, 2013 contains a non-obstanteclause which provided that dues of theworkmen and secured creditor will befirst in priority. Sec. 529A will overrideSec. 530 of Companies Act thatprovides that all revenues, taxes,

cesses and rates due from thecompany to the Central or a StateGovernment or to a local authority willbe first priority.

21. Hon. Supreme Court in the case ofCentral Bank of India v. State of Keralaand others (Supra) has held thatprimary object of DRT Act is tofaci l i ta te creat ion of specia lmachinery for speedy recovery of thedues of the Banks and FinancialInstitutions while enactment ofSARFAESI Act is, inter alia, to facilitatehassle free enforcement of securityinterest for fast-track recovery ofdebts. There is however no express orimplied provisions under both thelegislations to create first charge infavour of financial institutions.Applying the rule of contextualinterpretation, Hon. SC held that thereis no conflict between the Central andState legislations. Accordingly firstcharge created by the State willoverride over the DRT Act orSARFAESI Act. The Supreme Courthas further observed that Parliamentwas aware of the law laid down by theSupreme Court wherein priority ofState dues has been recognized. IfParliament had intended to create firstcharge in favour of financiali n s t i t u t i o n s , i t w o u l d h a v eincorporated provisions to that effect.However the fact of the matter is thatno such provision has beenincorporated despite conferment ofextraordinary power upon securedcreditor to take possession anddispose of the assets withoutintervention of the Cour t. ThusParliament did not intend to givepriority to the dues of private securedcreditors over the sovereign debt ofthe State. The law is thus well settledthat dues secured by first chargeunder competent legislation wouldhave primacy over the contractualsecurity creation by the borrower infavour of financial institutions. Evenwithout prejudice to above, as notedby Hon. SC in case of Dena Bank v.Bhikhabhai Prabhudas Parekh & Co.

(Supra), if by way of legal fiction, firstcharge is created in favour of theGovernment; the same will become afirst priority even amongst securedcreditors. Hence in my view,provisions of Sec. 48 of GVAT Act willoverride the provisions of Sec. 529Aof the Companies Act, 1956 or Sec.326 of Companies Act, 2013.

22. Sec. 48 of GVAT Act provides that anyamount payable by a dealer or anyother person on account of tax,interest or penalty for which he isliable to pay to the Government shallbe a first charge on the property ofsuch dealer, or as the case may be,such person. In view of the abovediscussion on the decision of Hon. SCin case of Dena Bank v. BhikhabhaiPrabhudas Parekh & Co. (Supra) aswell as other cases, State will havefirst priority over the property of thedealer for the dues under GVAT/CSTAct.

Indirect Tax UpdatesWritten by CA. Manilal Parsiya

All about Swachh Bharat Cess (SBC)

Notification No. 21/2015-ST and 22/2015-

ST both dt. 06-11-2015

Notification No. 23/2015-ST dt. 12-11-

2015

Provide that Swach Bharat is a Cess which

shall be levied and collected in accordance

with the provisions of Chapter VI of the

Finance Act, 2015,called Swachh Bharat

Cess, as service tax on all the taxable

services at the rate of 0.5% of the value of

taxable service. The Central Government

has appointed 15th day of November, 2015

as the date from which provisions of

Swachh Bharat Cess will come into effect.

Swachh Bharat Cess is not leviable on

services which are fully exempt from

service tax or those covered under the

negative list of services.

Provides that taxable services, on which

service tax is leviable on a certain

percentage of value of taxable service, will

attract SBC on the same percentage of value

as provided in the notification No. 26/2012


9 To live is the rarest thing in the world. Most people exist, that is all

– ST, dated 20th June, 2012. So, this

notification would apply for SBC also in the

same manner as it applies for service tax.

For example, in the case of GTA, [Service

Tax + SBC]% would be (14% Service Tax +

0 . 5 % S B C ) X 3 0 % = 4 . 3 5 %

(4.20%+0.15%). The tax (Service Tax and

SBC) on services covered by Rule 2A, 2B or

2C of Service Tax (Determination of Value)

Rules, 2006, would be computed by

multiplying the value determined in

accordance with these respective rules with

[14% + 0.5%]. Therefore, effective rate of

Service Tax plus SBC in case of original

works and other than original works under

the works contract service would be 5.8%

[(14% + 0.5%) * 40%] and 10.15% [(14%

+ 0.5%)*70%] respectively. Similar, would

be the tax treatment for restaurant and

outdoor catering services.

Provides in case of reverse charge under

section 68(2) of the Finance Act, 1994, the

liability has been shifted from service

provider to the service recipient. As per

section 119 (5) of the Finance Act, 2015,

the provisions of Chapter V of the Finance

Act, 1994, and the rules made there under

are applicable to SBC also. Thus, the

reverse charge under section 68(2) of the

Finance Act, 1994, is made applicable to

SBC. In this context, to clarify, Government

has issued notification No. 24/2015-ST

dated 12th November, 2015 to provide that

reverse charge under noti f icat ion

No.30/2012-ST dated 20th June, 2012

shall be applicable for the purpose of levy of

Swachh Bharat Cess mutatis mutandis.

Provides that Sub-rule (7D) to rule 6 has

been inserted vide notification 25/2015-

Service Tax, dated 12th November, 2015 so

as to provide that the person liable for

paying the service tax under Sub-rule (7),

(7A), (7B) or (7C) of Rule 6 of Service Tax

Rules, shall have the option to pay SBC as

determined as per the following formula:-

Service Tax liability [calculated as per sub-

rule (7), (7A), (7B) or (7C)] X 0.5%/14%.


2015


2015

The option under this sub-rule once

exercised, shall apply uniformly in respect

of such services and shall not be changed

during a financial year under any

circumstances.

A separate accounting code has been

notified for payment of Swachh Bharat

Cess, as follows:

Swachh Bharat Cess 0044-00-506(Minor Head)

Tax Collection 00441493

Other Receipts 00441494

Penalties 00441496

Deduct Refunds 00441495

Additional Points – from Frequently Asked

Questions on Swachh Bharat Cess

SBC would be levied, charged, collected

and paid to Government independent of

service tax. This needs to be charged

separately on the invoice, accounted for

separately in the books of account and paid

separately under separate accounting code

which would be notified shortly. SBC may

be charged separately after service tax as a

different line item in invoice. It can be

accounted and treated similarly to

Education cesses.

SBC is not integrated in the Cenvat Credit

Chain. Therefore, credit of SBC cannot be

availed. Further, SBC cannot be paid by

utilizing credit of any other duty or tax.

As regards Point of Taxation, since this levy

has come for the first time, all services

Vide Circular No. 188/7/2015-ST

Whether SBC would be required to be

mentioned separately in invoice?

Whether SBC is a ‘Cess’ on tax’ and we

need to calculate SBC @ 0.50% on the

amount of service tax like we were earlier

doing for calculating Education Cess and

SHE Cess?

No, SBC is not a cess on Service Tax. SBC

shall be levied @ 0.5% on the value of

taxable services.

Whether Cenvat Credit of the SBC is

available?

What would be the point of taxation for

Swachh Bharat Cess?

(except those services which are in the

Negative List or are wholly exempt from

service tax) are being subjected to SBC for

the first time. SBC, therefore, is a new levy,

which was not in existence earlier. Hence,

rule 5 of the Point of Taxation Rules would be

applicable in this case. Therefore, in cases

where payment has been received and

invoice is raised before the service

becomes taxable, i.e. prior to 15th Nov,

2015, there is no lability of Swachh Bharat

Cess. In cases where payment has been

received before the service became taxable

and invoice is raised within 14 days, i.e.

upto 29th Nov, 2015, even then the service

tax liability does not arise. Swachh Bharat

Cess will be payable on services which are

provided on or after 15th Nov, 2015, invoice

in respect of which is issued on or after that

date and payment is also received on or

after that date. Swachh Bharat Cess will also

be payable where service is provided on or

after 15th Nov, 2015 but payment is

received prior to that date and invoice in

respect of such service is not issued by

29th Nov, 2015.

In respect of reverse charge mechanism,

SBC liability is determined in accordance

with Rule 7 of Point of Taxation Rules, as per

which, point of taxation is the date on which

consideration is paid to the service provider.

Thus, SBC liability in such case will be 0.5%

X Value of taxable service.

As SBC is not integrated in the Cenvat Credit

chain and reversal under Rule 6 is payment

of amount equal to 7% of the value of

exempted services, hence, reversal of SBC

is not required under Rule 6 of Cenvat Credit

Rules, 2004.

How would liability be determined in case

of reverse charge services where

services have been received prior to

15.11.2015 but consideration paid post

15.11.2015?

Does a person providing both exempted

and taxable service and reversing credit

@ 7% of value of exempted service under

Rule 6 of Cenvat Credit Rules, does he

need to reverse the SBC also?


We accept the love we think we deserve 10

Important Due Dates for December, 2015 Compiled by CA. Abhijit J. Kotecha

DATES COMPLIANCE PERIOD

06-Dec-15 Excise Duty E - Payment (for SSI as well as NON SSI) Nov.'15

E-Payment of Service Tax - Monthly & Quarterly Cases Nov.' 15

07-Dec-15 TDS / TCS payment Nov.' 15

09-Dec-15 VAT / CST E-Return - Monthly (For VAT or CST > Rs. 5,000/-) (with Stock Statement for July'15 to Sept.' 15) Sept.'15

10-Dec-15 Excise Returns - (Monthly Return by Large Units -ER-1 / Return by EOU - ER-2 / Monthly return of receipt &

consumption of each of Principal Inputs - ER-6, assessees required to submit ER-5 return) Nov.'15

14-Dec-15 VAT / CST E-return - Quarterly (Regular & Lump sum) (with Stock statement for April' 15 to Sept.' 15

for other than Lump sum) Q2 (F. Y.: 2015-16)

15-Dec-15 Advance Income Tax payment / E-payment - All Assessees Asst. Yr.: 2016-17

Payment of Professional Tax / PF & Return of Professional Tax Nov.' 15

21-Dec-15 ESIC Payment & Return Nov.'15

22-Dec-15 VAT / CST payment / E-payment Nov.' 15

25-Dec-15 PF Return Nov.' 15

30-Dec-15 VAT / CST E-Return - Monthly (For VAT or CST <= Rs. 5,000/-) Oct.'15

30-Dec-15 Filing Balance Sheet & Profit & Loss A/c. of Companies with ROC - (extended date) Fin. Yr.: 2014-15

E-Filing Annual Return of Companies (Earlier of: 60 days from AGM or 30/12/2015) - (extended date) Fin. Yr.: 2014-15

PHOTOFLASH


11 It is better to be hated for what you are than to be loved for what you are not

Training Programme for officials of NACEN, Vadodara on 23rd & 24th November 2015

All Gujarat Direct Tax Convention on Friday & Saturday, 27th & 28th November 2015

Intensive practical workshopon Ind AS – IFRS

CA. Manish Lukka

CA. Anirudh Sonpal

CA. Vishal ThakkarCA. Nirav Shah CA. Sandesh Mundra

CA. Keyur Dave (23 11 2015)

CA. Chintan Patel (24 11 2015)

CA. Sandesh Mundra (25 11 2015)

CA. Anand Banka (26 11 2015)

CA. Parag Kulkarni (27 11 2015)

CA. Kevin Daftary (28 11 2015)

CA. Vishal Doshi (28 11 2015)

CA. Ashwin Shah

CA. Milin Mehta

CA. Gautam Nayak

Dr. Girish Ahuja

CA. Mahesh Sarda

Dr. Hemant Antani


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12The fool doth think he is wise, but the wise man knows himself to be a fool

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