Tax DigestQuarterly newsletterDecember 2017

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We are pleased to present the December 2017 edition of EY’s quarterly newsletter, Tax Digest, which summarizes significant tax and regulatory developments during the October to December quarter.

This newsletter is designed as a ready reckoner and covers landmark tax judgments, updates 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 for tax professionals.

We hope you find this edition timely and insightful.

Best regards,EY Tax Update team

Dear readers,

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Direct tax

• Verdicts!

• Significant Supreme Court (SC) rulings

• SC upholds taxation of fees earned for mobilization of rigs under presumptive taxation provision; explains interplay with charging provisions

• SC rules loans/advances given to a concern are taxable as deemed dividend in the hands of shareholder

• SC rules depreciation is mandatory for claiming profit-linked incentive

• SC rules no “transfer” results for capital gains taxation without registration of joint development agreement (JDA)

• SC rules assessment cannot be concluded on the amalgamating company after the amalgamation

• Rulings on profit-linked incentives

• Gujarat HC upholds simultaneous profit-linked deduction to developer and operation and maintenance (O&M) operator of infrastructure facility

• Karnataka HC rules incidental interest income earned by the taxpayer is eligible for profit-linked export incentive deduction

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• Other significant rulings

• J&K HC rules contract receipts of a JV result in diversion of income to JV members; receipt not an income of the JV

• Gujarat HC holds premature redemption of debt instrument with back-ended return is permissible tax planning

• Madras HC confirms export commission paid to NR through Indian agent is taxable in India

• Ahmedabad SB rules self-assessment tax paid subsequently by filing a revised return does not exonerate penalty for default committed in original return

• Bangalore Tribunal holds income from sub-licensing of patent as business income

• Bangalore Tribunal rules routing management charges as reimbursement through holding company cannot absolve the taxpayer’s withholding obligation

• Bangalore Tribunal upholds deemed dividend taxation for disguised transaction

• Is there a permanent establishment (PE)?

• SC rules outsourcing of services by US company to its Indian affiliate does not constitute a PE

• Bangalore Tribunal rules no service PE by considering only solar days of services rendered in India; rejects virtual PE application in the absence of services rendered virtually

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

• From the tax gatherer’s desk

• CBDT releases final rules on Country-by-Country (CbC) reporting and Master File implementation

• MoU signed between Ministry of Corporate Affairs (MCA) and CBDT for real-time and regular exchange of information

• CBDT constitutes multi-agency group to monitor Paradise Paper investigations

• CBDT specifies procedure for taxes to be withheld on interest paid to the capital gains account scheme of a deceased depositor

• CBDT issues POEM clarification for operations carried on through regional headquarters

• CBDT issues clarification on indirect transfer provisions under the income tax laws in case of redemption of share or interest outside India

• Government sets up task force for drafting a new direct tax legislation

• Treaty updates

• Treaty between India and Kenya enters into force

• Protocol to treaty between India and New Zealand enters into force

• Happenings across the border

• OECD Council approves 2017 Update to the Model Convention (MC) and Commentary; India’s positions on the Update

• UN releases handbook on issues for protecting tax base in developing countries

• OECD updates transfer pricing country profiles reflecting transfer pricing legislation and practices

• On digital economy (DE)

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• European Union (EU) discusses development of new digital taxation rules

• United Nations (UN) releases discussion note on the DE

• OECD releases public comments and holds public consultation on the tax challenges of digitalization

• OECD BEPS updates

• OECD releases additional guidance on CbC reporting

• OECD releases progress report on preferential regimes under BEPS Action 5

Indirect tax

• Case laws

• Customs duty

• High Court, Mumbai

• No CVD on imported transformer oil when excise duty is exempt

• High Court, Gujarat

• Interest payable by revenue on long delayed refund of redemption fine after Tribunal order

• Foreign trade policy

• High Court, Gujarat

• Composite order passed by authority having elements within as well as outside its jurisdiction is bad in law

• Central excise

• Supreme Court

• Cess is a surcharge and not leviable if excise duty is exempted from levy

• High Court, Gujarat

• Challenge to vires of Section 4A of Central Excise Act fails; free physician samples to be taxed under Section 4 and not under Section 4A

• Tribunal, Mumbai

• Supply to merchant exporter is treated as exports, excludible from SSI threshold

• CENVAT credit

• Tribunal, Chandigarh

• Professional indemnity insurance cover against legal damages held to be an “input service” for consultants

• Service tax

• High Court, Delhi

• Rule 6A of Service Tax Rules declared invalid, services provided to foreign tourists where consideration is received in foreign convertible currency would not be amenable to ST

• Tribunal, Mumbai

• Online e-sell auctions held to be an e-commerce activity and not online database access or retrieval services

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• CENVAT credit availment toward manufacturing cannot debar exemption for factory space renting

• Airline’s Indian branch not “recipient” of OIDAR services from overseas computer reservation system (CRS) or global distribution system (GDS) operators

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

• High Court, Madras

• Interstate movement of goods constituting interstate sale need not be in the original form

• High Court, Delhi

• Bonafide purchaser is eligible to avail input tax credit (ITC) on purchases without confirming deposit of tax in the government treasury by the selling dealer

• High Court, Gujarat

• Refund granted on provisional basis may be recovered based on outcome of regular assessment

• Key statutory updates

• Customs duty

• Foreign Trade Policy 2015–20 (FTP)

• Service tax

• VAT/CST

• Goods and Services Tax (GST)

Regulatory

• Foreign Exchange Management Act (FEMA) 1999

• RBI issues single revised notification, i.e., Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017

• RBI relaxes norms for auditor certificate in relation to annual filing under overseas direct investments (ODI)

• RBI excludes issuance of rupee denominated bonds (RDBs) from the limit of FPI in corporate debt securities

• Authorized dealer (AD) banks to generate Electronic Bank Realisation Certificate (eBRC)

• Foreign direct investment policy

• DIPP amends the standard operating procedures (SOP) for processing FDI proposals

In the press

Compilation of alerts

• Direct tax

• Indirect tax

• Regulatory

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All about GST in India

Tax Technology Guide

Economy Watch

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Digital Tax Webcast series – Technology for the tax

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Permanent establishments: where to draw the line?

India Tax Insights magazine – issue 11

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Indian Tax Insights Blog

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Verdicts!

Significant Supreme Court (SC) rulingsSC upholds taxation of fees earned for mobilization of rigs under presumptive taxation provision; explains interplay with charging provisions

In the case of TS-480-SC-2017, the issue before the SC was whether mobilization fees should be regarded as taxable under the presumptive taxation provisions of the Income Tax Laws (ITL). In this decision, the SC considered a fact pattern of a taxpayer, a non-resident (NR) who had entered into a contract with Indian oil exploration companies for supply of drilling unit for carrying out oil exploration activities in India. Under the contract, the taxpayer also earned mobilization fees for movement of drilling unit from a foreign country to an offshore site in India. The issue before the SC was whether such mobilization fees was liable to tax in India under presumptive taxation provisions of ITL.

In the presumptive taxation provision under consideration, the taxable income is presumed at 10% of specified receipts in case of an NR engaged in the business of provision of services or facilities in connection with or supply of plant and machinery on hire to be used in prospecting, extraction or production of mineral oil. The receipts covered under this provision are specified in two limbs as follows:

• The first limb covers amounts paid or payable (whether in or out of India) on account of the provision of specified services in connection with the business of prospecting, extraction or production of mineral oil in India.

• The second limb covers amounts received or deemed to be received in India on account of provision of specified services in connection with the business of prospecting, extraction or production of mineral oil outside India

The SC held that mobilization fees were taxable under ITL since it formed part of an indivisible contract wherein the taxpayer received a fixed amount as fees regardless of actual expenses. While coming to this conclusion, the SC disagreed with the reasoning provided by underlying High Court to the effect that the charging provisions are not attracted to the cases of presumptive taxation. After considering the scheme and text of presumptive taxation provisions, the SC held that the taxpayer’s argument that such provisions were only computation provision was also not entirely correct. The SC held that provisions of presumptive taxation represent a special scheme of taxation that overrides the general computational provisions. It deems certain receipts to be “profits and gains of business” and hence, it has to be read in conjunction with charging provisions in a manner that a receipt coming within the scope of presumptive taxation can be considered to be within the scope of charging provision.

In the present case, mobilization fees are covered within the scope of presumptive taxation since they represent amount paid or payable on account of the provision of services and facilities in connection with, or supply of, plant and machinery on hire used, or to be used, in the prospecting for or extraction or production of mineral oils in India. Hence, such receipt is also covered by charging provisions. Accordingly, the SC held mobilization fees to be taxable under the presumptive taxation provision of the ITL, which deems 10% of the gross amount as “profits and gains of business.”

SC rules loans/advances given to a concern are taxable as deemed dividend in the hands of shareholder

In a batch of various cases including Madhur Housing and Development Company [TS-462-SC-2017], with the lead case being that of Ankitech Pvt. Ltd.1, the issue before the SC was whether loans/advances received by a concern from a closely held company (CHC), the shareholder of which has a substantial interest in the concern, can be taxed as deemed dividend in the hands of the concern under the

Direct tax

12011-TIOL-290-HC-DEL-IT

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provisions of the ITL or is to be taxed in the hands of the shareholder of such CHC. The ITL provides for deemed dividend taxation in respect of payment by a CHC by way of advances or loans given to (a) a beneficial shareholder holding not less than 10% of the voting rights in such company or (b) any concern in which such shareholder (viz, holding 10% or more voting power) is a member or a partner and such shareholder has a substantial interest (20% or more) in the said concern.

The SC affirmed the ruling of the Delhi HC in the case of Ankitech Pvt. Ltd. (supra) where the HC had ruled that advances/loans received by a concern from a CHC should not be taxable in the hands of the concern but in the hands of the shareholder of the CHC. The SC observed that the HC has laid down the correct construction of deemed dividend provision under the ITL.

(For further details, please click here for our alert dated 17 October 2017)

SC rules depreciation is mandatory for claiming profit-linked incentive

In the case of Plastibends India Ltd. [TS-450-SC-2017], the issue before the SC was whether depreciation had to be considered for calculation of profits under a profit-linked incentive2 when the taxpayer had not claimed such depreciation (as per extant law) while computing the gross total income from which such deduction is to be allowed. The case pertained to a past year when, unlike the present law, it was not mandatory to claim depreciation allowance in the computation of gross total income.

In this case, the taxpayer had not claimed depreciation while computing gross total income by relying on the SC decision in the case of Mahendra Mills 3, where the SC had held that it was the choice of the taxpayer whether to claim or not to claim depreciation. Consequently, the taxpayer also claimed deduction from gross total income under the profit-linked incentive scheme without reducing depreciation allowance.

However, the SC held that the Mahendra Mills decision was rendered in the context of computation of depreciation for computing business profits and that decision cannot be applied for computing profits under the profit-linked

incentive. The SC further held that any device adopted to inflate the profits of an eligible business for claiming a higher profit-linked incentive had to be rejected and held that the taxpayer could not claim deduction under the profit-linked incentive without claiming depreciation despite the fact that it had not claimed depreciation while computing gross total income. Due to an amendment in law with effect from the tax year 2001, depreciation allowance is mandatory in computing gross total income and hence a similar issue is unlikely to arise under the present law.

SC rules no “transfer” results for capital gains taxation without registration of joint development agreement (JDA)

In a bunch of appeals, with the lead matter being the case of Balbir Singh Maini [TS-444-SC-2017], the issue before the SC was in relation to taxation of capital gains on transfer of immovable property under an unregistered JDA. In this case, under an unregistered JDA between a co-operative housing society and the taxpayer who was a member of the said society and the developer, certain plots of land were put up for development against consideration in money as also by way of allotment of flats, free of cost to members. After the payment of two instalments, the developer defaulted in the payment of the balance instalments, which resulted in the termination of the JDA. The tax authority assessed the taxpayer to capital gains tax in the year in which the JDA was executed with reference to the entire amount, including the amount receivable by the member.

Capital gains in relation to immoveable property are taxable in the year in which the transfer of asset takes place. The ITL defines the word “transfer” widely to include any transaction that allows possession of any property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of Transfer of Property Act (TOPA provision). Further, by virtue of an amendment in the year 2001, the TOPA provision was made applicable to an agreement that is registered with the authority.

2Section 80-IA of the ITL provides for profit linked incentive for profits derived by an industrial undertaking3243 ITR 56

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The SC noted that the TOPA provision will apply to a contract that is registered. An unregistered agreement has no legal effect and is not enforceable in law. Basis this, the SC held that since the JDA was not registered, the contract was not covered by the TOPA provision and, consequently, there was no transfer of immovable property for tax purposes within the extended definition of “transfer.” Further, the SC held that no capital gains were chargeable to tax for the reason that no income accrued or arose to the taxpayer, as the transaction of JDA did not materialize. The SC also observed that mere presence of the right to receive income unaccompanied by corresponding debt in favor of the taxpayer results in hypothetical income and not real income.

(For further details, please click here for our alert dated 9 October 2017)

SC rules assessment cannot be concluded on the amalgamating company after the amalgamation

In the case of Spice Infotainment Ltd. [TS-504-SC-2017], the taxpayer filed its return of income for tax year 2001-02 and stood amalgamated with another Indian company (I Co), w.e.f. 1 July 2003. The tax authority selected the taxpayer’s return for assessment and concluded the assessment in the name of the taxpayer on 28 March 2005. The issue before the SC was whether the tax authority can issue the assessment order on a non-existing entity, i.e., the taxpayer, as it was already amalgamated with I Co on 1 July 2003 and was thus a non-existent entity.

The SC upheld the order of the Delhi HC in which the HC had held that the assessment order could not be issued in the name of the taxpayer, that is, the amalgamating company that is non-existent as on the date of issuance of the assessment order. The Delhi HC held that once the amalgamation is given effect to even if the taxpayer had filed its returns in its own name before the date

of amalgamation, it became incumbent for the tax authority to substitute the name of the successor (i.e. the amalgamated company) in place of the taxpayer for issuing orders under ITL. The HC had also held that an assessment order passed in the name of a taxpayer that is a non-existent entity would be void and result in jurisdictional defect as there cannot be an assessment against a dead person, which could be cured as a procedural defect by invoking a specific provision of the ITL.

Rulings on profit-linked incentives

Gujarat HC upholds simultaneous profit-linked deduction to developer and operation and maintenance (O&M) operator of infrastructure facility

In the case of Nila Baurat Engineering Ltd. [ITA No. 807 of 2017], the taxpayer had developed a new toll road and transferred the right to collect toll as well as the obligation of O&M to a third party for an annual lump sum consideration, irrespective of the actual toll collection. A proviso to the profit-linked deduction provision of the ITL specifies that where a developer transfers an infrastructure facility for the purpose of O&M on the developer’s behalf in accordance with the agreement with a statutory authority, the profit-linked deduction shall apply to the transferee as if the transferee is the eligible taxpayer under the provision and the deduction would be available to such transferee for the unexpired period during which the transferor would have been entitled had the transfer not taken place.

The Gujarat HC held that the developer of an infrastructure facility is eligible to claim a profit-linked deduction in respect of income earned from a development activity even in the case where the infrastructure facility is transferred to a third party for O&M under a separate agreement. The HC held that the proviso does not deprive the developer of the benefit of the deduction after the facility is transferred for O&M purpose but the profits shall be split between the

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developer and the O&M operator. Hence, the taxpayer, as a developer, was eligible to claim a deduction for profits earned from the development activity represented by an annual lump sum consideration whereas the O&M operator was also eligible to claim a profit-linked deduction from the profits earned from the O&M activity after reducing the annual lump sum consideration.

(For further details, please click here for our alert dated 2 November 2017)

Karnataka HC rules incidental interest income earned by the taxpayer is eligible for profit-linked export incentive deduction

In the case of Hewlett Packard Global Ltd. [ITA No. 812 of 2017; order dated 30 October 2017], the issue before the Full Bench (FB) of the Karnataka HC was whether interest income earned on short-term bank deposit and loans advanced to staff are eligible under Section 10A/10B (export incentive provisions) of Chapter III of the ITL. The matter was decided by the FB of the HC in view of the conflicting views expressed by two Divisional Benches (DB) of the Karnataka HC.

The FB of the HC distinguished the various judicial precedents relied on by the tax authority (which dealt with income-linked deduction under the ITL), which took a view against the taxpayer, and the FB held that interest income earned by the taxpayer on bank deposits and loans advanced to staff are eligible for deduction under the export incentive provision of the ITL on account of following:

• Export incentive provisions in Chapter III are a complete code in themselves and are not comparable with those provisions of Chapter VI-A of the ITL considered in the rulings of various HCs.

• Export incentive provisions need a purposive interpretation and need to be interpreted liberally.

• Interest income earned forms an integral part of an export business and cannot be delinked from profits derived from the undertaking engaged in export.

(For further details, please click here for our alert dated 2 November 2017)

Other significant rulings:

J&K HC rules that contract receipts of a JV result in diversion of income to JV members; receipt not an income of the JV

In the case of Soma TRG Joint Venture [TS-405-HC-2017(J&K)], the issue before the Jammu and Kashmir HC was whether the contract revenue received by a joint venture (JV) accrues as income in its hands or whether it results in diversion of income at source from the JV to the JV members. The HC noted that the JV was set up merely to enable one of its members to bid for a contract and the entire contract was executed by the JV members at their own cost. The JV did not carry out any activity in relation to the contract. Basis these facts, the HC held that there was a diversion of income at source and the contract revenue received by the JV was not an income in its hands.

In this case, the HC was also called upon to decide independently whether the payment made by the JV to its members represented an expenditure of the JV, which can be disallowed in computing income on the basis that no tax was withheld by the JV. The HC held that the case was covered by an amendment to the ITL that provides that there will not be any disallowance of expense in the hands of the payer on failure to withhold taxes if the recipient of income offers such income to tax. In the facts of the case, the JV members had offered their share of income from the contract to tax, hence the HC held that disallowance of expense was unwarranted in the hands of the JV.

(For further details, please click here for our alert dated 21 September 2017)

Gujarat HC holds premature redemption of debt instrument with back-ended return is permissible tax planning

In this case, the taxpayer was an Indian company. The issue before the Gujarat HC was tax deductibility of premium paid on premature redemption of debentures classified as “special purpose notes” (SPNs) under a specific provision of the ITL, which grants a deduction for interest in respect of capital borrowed for the purposes of business. The tax authority sought to disallow premium on various grounds, the primary objection being that the entire exercise of the

issue of SPNs — which involved subscription predominantly by family members and entities belonging to the promoter group (Promoter Group), the announcement of premature redemption with prior approval from SPN holders after 3 years, the sale of SPNs by Promoter Group to banks and financial institutions (FIs) and premature redemption thereof by the taxpayer — was a colorable transaction devoid of business purpose to avoid tax.

The HC allowed the deduction by holding that the entire scheme was motivated by a genuine requirement of funds for the taxpayer’s new project, executed in a transparent manner and, hence, it can only be seen as a clever but permissible tax planning and not a sham or colourable device. The HC held that there is always a line, though not always clear, between legitimate tax planning and a sham or bogus device to defeat a genuine claim of the tax authority. The HC also upheld the principle that a taxpayer is free to raise funds required for its business in the form and manner of their choice. Further, a common decision by all members of the Promoter Group as per an option available to all shareholders, in general, is not indicative of any hidden design.

(For further details, please click here for our alert dated 1 November 2017)

Madras HC confirms export commission paid to NR through Indian agent is taxable in India

In case of Fathima Harris [TS-390-HC-2017(MAD)], the taxpayer, an Indian entity, entered into a contract with a Hong Kong (HK) entity for procuring of export orders outside India. The payment for such procurement service was made to the Indian agent of the HK entity and such amount was received in India.

The taxpayer contended that such export commission was not taxable in India and accordingly did not withhold taxes on such payment. On the other hand, the tax authority argued that commission payment was received by an agent

in India and hence was taxable in India. Accordingly, since the taxpayer had failed to withhold taxes on such payment, the commission expense was disallowed in the hands of the taxpayer.

The Madras HC noted that the commission had actually been received in India and no details were forthcoming to establish that the Indian agent had received it for onward transmission to HK. Further, the HC clarified that the Central Board of Direct Taxes (CBDT) circular relied upon by the taxpayer — which stated that if commission to a foreign agent is directly remitted abroad, it is not taxable in India — was not applicable in this case. Accordingly, it was held that the payment for export commission received in India by an Indian agent is taxable in India. The taxpayer, failing to withhold taxes on such payment, was rightly denied deduction of the expense.

Ahmedabad SB rules self-assessment tax paid subsequently by filing a revised return does not exonerate penalty for default committed in original return

In the case of Claris Life Sciences Limited [[TS-431-ITAT-2017(Ahd)], the issue before the Special Bench (SB) of the Ahmedabad Tribunal was whether the taxpayer was liable to a penalty under the ITL for default in the payment of self-assessment tax while filing a return of income, which was subsequently paid while filing a revised return of income. The SB held that the penalty provision was triggered on default committed by a taxpayer at the time of filing of original return under the ITL and cannot be rectified by subsequently filing a revised return. The SB noted the proposition that the revised return supersedes and replaces the original return but held that the substitution is only to the extent of assessment of income and not for all legal purposes, including levy of penalty. The SB also held that the provisions of the ITL are clear that liability of penalty for non-payment of taxes cannot be avoided merely for the reason that taxes had been paid before the levy of penalty.

(For further details, please click here for our alert dated 3 October 2017)

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Bangalore Tribunal holds income from sub-licensing of patent as business income

In this case [TS-513-ITAT-2017(Bang)], one of the issues before the Bangalore Tribunal was whether the income earned by the taxpayer, an Indian company, from sub-licensing of patented technology could be classified as “business income’ or “capital gains income.” The taxpayer’s parent company had granted a license for the use of patented technology to the taxpayer. The taxpayer, in turn, had sub-licensed the right to use patented technology to another company in Iran (F Co). The taxpayer received lump-sum fees and royalty, which it claimed to be a capital gain. The taxpayer contended that it had developed certain know-how, data and experience with the patented technology over a period of time and hence the transfer of the said technology and know how to F Co resulted in capital gain and not business income.

The Tribunal held that transfer of capital asset results in cessation of the transferor’s ownership or right in the property and vesting of such rights in the hands of the transferee. However in the present case, the taxpayer was vested with the right to use the patented technical know-how/technology under the license agreement with the parent company and the subsequent sublicensing to F Co merely constituted sharing of the said right with F Co and not transfer of the taxpayer’s right to F Co. The taxpayer, by virtue of this sub-license, did not extinguish its right to use the said technology but it merely shared the technology with F Co. Accordingly, the present case is not a case of transfer of any capital asset giving rise to capital gains. The Tribunal upheld the order of the First Appellate Authority and held that the income received by the taxpayer was in the nature of business income.

Bangalore Tribunal rules routing management charges as reimbursement through holding company cannot absolve the taxpayer’s withholding obligation

In the case of Tungabhadra Steel Products Ltd. [TS-485-ITAT-2017(Bang)], the taxpayer paid its holding company management charges without withholding taxes as required under a specific4 provision of the ITL. The First Appellate Authority held that the payment of management fees was in the nature of reimbursement of expenses incurred by the holding company on behalf of the taxpayer and hence withholding was not applicable.

The Bangalore Tribunal held that even if the payment was on account of reimbursement of expenses incurred by the holding company, the provisions requiring withholding cannot be circumvented by a modus operandi of payment being routed through the holding company. Once the nature of payment clearly attracts the withholding provision, the mode of payment will not change the obligation of the taxpayer to withhold tax. If this modus operandi is allowed, then the withholding provisions can be circumvented in each and every case by making the payment through an intermediary and not directly to the party. Hence the Tribunal held that the taxpayer was required to withhold tax on the management fee and in default thereof, was liable as assessee-in-default.

Bangalore Tribunal upholds deemed dividend taxation for disguised transaction

In the case of Hemanth Kumar Bothra [TS-495-ITAT-2017(Bang)], the taxpayer had entered into a memorandum of understanding (MOU) for the sale of property and the taxpayer had received an advance from an Indian company (I Co), which was a CHC and in which the taxpayer had 55% of the shareholding. Subsequently, due to a fall in the market value of the property, the board of I Co decided against acquiring the property and consequently, the taxpayer returned the advance. The tax authority contended that the advance received by the taxpayer would be taxable as deemed dividend under a specific provision5 of the ITL.

4Section 194J of ITL requires withholding on payment of FTS; FTS includes payment for managerial services5The ITL provides for deemed dividend taxation in respect of payment by a CHC by way of advances or loans given to (a) a beneficial shareholder holding not less than 10% of the voting rights in such company or (b) any concern in which such shareholder (viz., holding 10% or more voting power) is a member or a partner and has a substantial interest (20% or more) in the said concern.

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On the basis of the facts that (a) the taxpayer had himself signed on behalf of I Co (purchaser) and for himself (seller), (b) the authenticity of the MOU could also not be verified as it was not registered with the registering authority and (c) the taxpayer did not produce any documentary evidence for fall in the price of the property, the Tribunal upheld the taxation of advance received by the taxpayer as deemed dividend under the ITL.

Is there a PE?

SC rules outsourcing of services by US company to its Indian affiliate does not constitute a PE

In the case of e-Funds IT Solutions Inc. and others [TS-469-SC-2017], the issue before SC was whether outsourcing of services to an Indian affiliate results in a PE in India for the taxpayers under the India-US tax treaty. On the facts of the case, the SC ruled in favor of the taxpayers and held that there exists no PE in India either by way of fixed place PE, service PE or agency PE under the tax treaty.

The SC placed reliance on its earlier decision in the case of Formula One World Championship Ltd6 to hold that there was no fixed place in India that was at the disposal of the taxpayers to trigger fixed place PE. Furthermore, it observed that no part of the main business and revenue-earning activity of the taxpayers was carried on through the Indian affiliate, which rendered only back office and support services. The SC held that no service PE was constituted as no services were rendered by the taxpayers to any customers in India.

The SC also concurred with the underlying HC decision that there was no agency PE as the Indian affiliate was never authorized to nor exercised any authority to conclude contracts on behalf of the taxpayers. By relying on its ruling in the case of Morgan Stanley7, the SC upheld that where the Indian affiliate is remunerated at an arm’s length price that is offered to tax in India, no further profits can be attributed even if there exists a PE in India. The SC also agreed with the HC that mutual agreement procedures (MAP) for earlier years cannot be considered as a precedent for subsequent years’ taxation.

(For further details, please click here for our alert dated 25 October 2017)

Bangalore Tribunal rules no service PE by considering only solar days of services rendered in India; rejects virtual PE application in the absence of services rendered virtually

In the case of TS-451-ITAT-2017(Bang), the issue before the Bangalore Tribunal was on the taxability of income of a company resident in Saudi Arabia (Taxpayer) for rendering services in India through its employees under the India-Saudi Arabia Tax Treaty. In this case, the engineers spent more than 360 man-days individually, but their collective stay in India was 90 solar/calendar days only.

Placing reliance on the Mumbai Tribunal’s decision in Clifford Chance v. DCIT, the Tribunal ruled that for the purpose of computation of threshold for service PE, solar days/calendar days need to be considered, not man-days. In the present case, as the presence of the Taxpayer’s engineers in India was for less than 182 days (i.e., only 90 solar days), there was no service PE created under the tax treaty. The Tribunal rejected the tax authority’s position of counting the presence of employees on a man-day basis.

6[2017] 394 ITR 80 (SC)7[2007] 292 ITR 416 (SC)

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The Tribunal also observed that the Taxpayer did not render any other service in virtual mode and all the services were rendered by the engineers who were physically present in India. The Tribunal rejected the tax authority’s reference to TS-256-ITAT-2017(BANG)] and stated that it distinguishable on facts as in the present case, payment was made only for the services rendered through the engineers in India and no service was rendered through virtual modes such as email, internet and video conferencing.

Furthermore, it was held that in the absence of the “Fees for Technical Services” Article in the tax treaty, income shall be covered under the “Other Income” Article, which confers the taxing right only to Saudi Arabia.

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

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

Name of decision Description of payment Ruling

APM Terminals Management BV

[TS-386-ITAT-2017(Mum)]

ITL and India- Netherlands (NL) tax treaty

Consultancy fees paid pursuant to supply of equipment

• The taxpayer, a Dutch company, entered into a “main sale agreement” (MSA) with a Chinese company (CCo) under which it was agreed that any group entity of the taxpayer wanting to buy a crane would buy it from CCo. CCo would pay consultancy fees to the taxpayer toward the sale of cranes.

• During the relevant tax year, an Indian group company of the taxpayer entered into a “specific purchase contract” (SPC) with CCo for the purchase of cranes.

• Pursuant to such sale, CCo was required to pay consultancy fees to the taxpayer under the MSA.

• The tax authority contended that such consultancy fees were taxable in India since the payment was made pursuant to the sale of the crane to an Indian group company of the taxpayer.

• The Mumbai Tribunal observed that services were rendered outside India to an NR (CCo) and were utilized in manufacturing the cranes outside India, i.e., in China. Thus, consultancy fees received by the taxpayer from CCo for rendering services outside India cannot be taxable in India under the ITL.

• With respect to the FTS Article of the India- NL tax treaty, the Tribunal observed that the make available clause was not satisfied8. Hence, it was held that payment did not qualify as FTS under the India- NL tax treaty.

8Make available clause in FTS Article of India-NL tax treaty provides that payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.

15 Tax Digest

CBDT releases final rules on Country-by-Country (CbC) reporting and Master File implementation

The Indian Government, through the Finance Act, 2016, introduced provisions for additional transfer pricing documentation and CbC Reporting to implement the recommendations contained in the Organisation of Economic Commerce and Development (OECD) Base Erosion and Profit sharing (BEPS) report on Action 139. These provisions were expected to be followed by detailed rules for implementation. Accordingly, on 6 October 2017, the CBDT issued draft rules for CbC reporting and the furnishing of the Master File for public comments.

Following the submission of public comments from various industry stakeholders, on 31 October 2017, the CBDT issued the final rules for CbC reporting and the furnishing of the master file (Final Rules). The Final Rules contain a few administrative changes and clarifications. The key highlights of the Final Rules are:

• The contents of the Master File and the CbC report are largely in line with the recommendations specified in Action 13 barring a few additional requirements for the Master File.

• A monetary threshold, based on cumulative conditions of consolidated revenue and the value of international transactions, is prescribed for maintenance of the Master File, while the threshold for CbC reporting is in line with the OECD recommendation.

• Filing of the Master File and CbC report would be made electronically in accordance with the specification to be prescribed by the designated authorities who are also responsible for evolving and implementing appropriate security, archival and retrieval policies.

• The due date for the first year, i.e., financial year (FY) 2016-17, Master File compliance, as well as for CbC reporting, has been extended to 31 March 2018. For subsequent FYs, the Master File and CbC report need to be filed on or before the due date for filing the income tax return.

• A notification regarding the details of the parent entity or the alternate reporting entity (which files CbC report) needs to be filed for every constituent entity resident in India (if its parent entity is not resident in India) at least two months prior to the due date for filing an income tax return. For FY 2016-17, such due date would be on or before 31 January 2018.

(Click here for EY global alert dated 6 November 2017)

MoU signed between Ministry of Corporate Affairs (MCA) and CBDT for real-time and regular exchange of information

As part of the endeavor of the Government of India to curb the menace of shell companies, money laundering and black money in the country, an MoU for the exchange of information was signed on 6 September 2017 between the MCA and the CBDT.

The MCA vide Press Information Bureau (dated 14 September 2017) (MCA Press Release) has provided brief contents of the MoU. The salient features of the MoU as understood from the MCA press release are as under:

• Data exchange under the MoU would be bilateral between the MCA and the CBDT in the form of:

• Real-time exchange of information and data: The MoU provides a list of items, illustratively, income tax returns, statement of financial transactions, financial statements filed with the registrar, statement of allotment of shares etc.

• Sharing of any information (available in their respective database) on request by either the MCA or the CBDT for the purpose of carrying out scrutiny, inspection etc. under their respective laws

• Information exchange to pertain to both Indian corporates and foreign companies operating in India

• The MCA and the CBDT to ensure seamless PAN-CIN (Corporate Identity Number) and PAN-DIN (Director Identity Number) linkage for regulatory purpose

• The MoU comes into force from 6 September 2017

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=170769

From the Tax Gatherer’s Desk

9Click here to refer EY alert on TP proposals in Budget 2016

16 Tax Digest

CBDT constitutes multi-agency group to monitor Paradise Paper investigations

Recently, a cache of 13.4 million documents named “Paradise Papers” has been exposed by the International Consortium of Investigative Journalists (ICIJ). News reports indicate that out of 180 countries represented in the data of offshore entities held by different nationalities, India ranks 19th in terms of number of names.

In a recent press release dated 6 November 2017, the CBDT directed that investigations in cases of Paradise Papers will be monitored through a reconstituted multi-agency group, headed by the chairman of the CBDT and having representatives from the CBDT, Enforcement Directorate and Financial Intelligence Unit. The investigation units of the tax authority have been alerted to take note of revelations for immediate appropriate action. It has been reported that many cases of offshore entities are already under investigation on fast track. As soon as further information surfaces, swift action as per law will follow.

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=173268

CBDT specifies procedure for taxes to be withheld on interest paid to the capital gains account scheme of a deceased depositor

In computing the capital gains chargeable to tax under the ITL, the capital gains arising from the transfer of capital assets (such as property used for residence, land and shares) are exempted to the extent of the investment being made by the taxpayer within the specified period in certain assets. Until appropriation or utilization of capital gains for the specified investments, the ITL requires such amount to be deposited in the Capital Gains Account Scheme, 1988 (Scheme) with banks on or before the due date of filing the return of income and utilized as per the provisions of the Scheme. The Scheme allows an interest on such deposits at the specified rates, which is subject to tax withholding compliance.

CBDT has issued a notification clarifying the manner in which taxes are to be withheld on interest under the Scheme when the depositor is deceased. According to the notification, where interest income on the deposits made under the Scheme has accrued up to the period of the death of the depositor, the taxes should be withheld in the name of the deceased depositor and for the interest

income accruing for the period after the death of the depositor, the taxes should be withheld in the name of the legal heir of the deceased depositor.

(Source: CBDT Notification No. 8/2017 dated 13 September 2017)

(For further details, please click here for our alert dated 15 September 2017)

CBDT issues place of effective management (POEM) clarification for operations carried on through regional headquarters

As per the ITL, a foreign company is treated as a resident of India if its POEM in a given year is in India. CBDT had, vide a circular dated 24 January 2017, issued guidelines for determination of POEM of foreign companies in India (Guidelines). The Guidelines provide that the determination of POEM should primarily be based on whether or not a company has “active business outside India” (ABOI). For companies that satisfy the ABOI test, POEM is deemed to be outside India if the majority of the board meetings are held outside India unless facts suggest that the board of directors (BOD) is not the de facto decision-making authority. Furthermore, the Guidelines provide that merely because the BOD follows the general and objective principles of the global policy of the group laid down by the parent entity in the fields of payroll functions, accounting, human resource (HR) functions, IT infrastructure and network platforms, supply chain functions and routine banking operational procedures, it would not constitute a case of the BOD of companies standing aside.

CBDT, has, vide a circular dated 23 October 2017 (Circular), reiterated that in case of multinational companies (MNCs), the operation of the regional headquarters (RHQ) for the subsidiaries/group companies in the region will not trigger POEM of the overseas group/subsidiary companies provided the RHQ operates within the general and objective principles of the global policy of the group in the fields as mentioned in the Guidelines. The Circular further provides that in cases where the above clarification is found to be used for abusive/aggressive tax planning, the provisions of General Anti-avoidance Rules (GAAR) under the ITL may apply.

(Source: CBDT Circular dated 23 October 2017)

(For further details, please click here for our alert dated 24 October 2017)

17 Tax Digest

CBDT issues clarification on indirect transfer provisions under the ITL in case of redemption of share or interest outside India

The indirect transfer (IDT) provisions were introduced under the ITL vide the Finance Act, 2012 (FA 2012), with retrospective effect from 1 April 1961, to tax gains arising from the transfer of share or interest in a foreign company or foreign entity whose value is derived, directly or indirectly, “substantially” from assets located in India. Furthermore, in 2017, the IDT provisions granted an exemption, with effect from 1 April 2015, to certain categories of foreign portfolio investors (FPIs) investing in India.

Concerns were expressed by several stakeholders that on account of the IDT provisions, non-resident investment funds investing in India suffered multiple taxations of the same income at the time of subsequent redemption or buyback at the offshore level. Following such representations, CBDT issued a circular clarifying that the IDT provisions will not apply to income accruing or arising to a non-resident on account of redemption or buyback of share/interest held indirectly in specified funds in India (being a venture capital fund or a venture capital company or a Category I or II Alternative Investment Fund) if such income accrues or arises from or in consequence of transfer of shares or securities held in India by the specified funds and such income is chargeable to tax in India in the hands of the specified funds.

(Source: CBDT Circular No. 28/2017 dated 7 November 2017)

(For further details, please click here for our alert dated 10 November 2017)

Government sets up task force for drafting a new direct tax legislation

The Government has set up a task force, which consists of 6 members, to draft a new direct tax law in consonance with the economic needs of India.

The Terms of Reference of the Task Force are to draft an appropriate direct tax legislation keeping in view:

1. The direct tax system prevalent in various countries

2. The international best practices

3. The economic needs of the country

4. Any other matter connected thereto

The Task Force shall submit its report to the Government within six months.

(Source: CBDT Press release dated 22 November 2017)

18 Tax Digest

Treaty between India and Kenya enters into force

On 30 August 2017, the India-Kenya Tax Treaty (2016) entered into force. This treaty applies from 1 January 2018 for withholding tax matters and 1 January 2017 for other tax matters in Kenya, and from 1 April 2018 for India.

Source: IBFD

Protocol to treaty between India and New Zealand enters into force

The protocol to the India-New Zealand Tax Treaty (1986), which was signed on 26 October 2016, entered into force on 7 September 2017.

Source: IBFD

Treaty Updates

19 Tax Digest

OECD Council approves 2017 Update to the Model Convention (MC) and Commentary; India’s positions on the Update

On 21 November 2017, OECD approved the contents of the 2017 Update to the OECD MC and Commentary. The 2017 Update largely contains changes that were agreed as part of the BEPS project and the follow-up work thereon. In addition, it includes certain other changes to the OECD Model that were previously released for comments and were not developed as part of the work on the treaty-related BEPS measures (e.g., changes to Article 5, Article 8 etc.). Like the previous updates, the 2017 Update contains various positions of the OECD and non-OECD member countries, including those of India. The inclusion of the positions of non-member countries has been done with an intent to give them the flexibility, like member countries, to identify the areas where they are unable to agree with the text of an Article of the OECD MC or with an interpretation given in the Commentary. In this way, the non-member countries could be expected to associate themselves with the development of the OECD Model. Accordingly, the positions of the non-member countries reflect their views on the text of the OECD MC and the Commentary thereon.

India’s positions to the 2017 Update are mainly on Article 5 on PE, MAP and on certain other miscellaneous provisions such as the tie-breaker rule for non-individuals, tax treaty eligibility for transparent entities etc.

• On PE, India has expressed positions favoring broad application of agency PE provisions, disposal test, home office as PE, short duration activity to create a PE and stricter application of specific activity exemption. Interestingly, India has also expressed its intent to deem a PE in digital arrangements based on significant economic presence, including where such presence is due to a website.

• In respect of MAP, India has reiterated its stand on non-adoption of mandatory binding arbitration. Further, India has deleted its earlier reservation that MAP access cannot be provided in transfer pricing (TP) cases in the absence of Article 9(2) in a tax treaty for corresponding adjustments10. India has also

deviated from the OECD Model in certain cases. For instance, on MAP, India has observed that undefined terms in a tax treaty are to be understood as per the law existing in the state applying the tax treaty and cannot be defined by competent authorities under MAP. India has also observed that a MAP application can be made by a taxpayer only in cases where it is certain that the action of the tax authority will result in taxation not in accordance with the tax treaty.

India’s positions serve as guides to taxpayers on the likely approach of the Indian tax administration, and also as a broad outline of India’s tax treaty policy to countries which seek to negotiate a tax treaty with India. Countries’ positions to the OECD MC and Commentary are unilateral positions by the individual countries and are not legally binding on the tax administration or taxpayers in respect of a tax treaty interpretation.

(Click here for EY alert dated 28 November 2017)

UN releases handbook on issues for protecting tax base in developing countries

On 28 August 2017, the UN released the second edition of the handbook to take into account the final outputs of the OECD BEPS project as well as other latest developments in international tax. The handbook discusses various OECD BEPS recommendations in detail on diverse OECD BEPS Actions, viz., Action 1 (Digital Economy), Action 2 (Hybrid Mismatch Arrangements), Action 4 (Limiting interest deductions), Action 6 (Preventing tax treaty abuse) and Action 7 (Preventing avoidance of permanent establishment status).

The handbook also includes the UN’s view on the feasibility and applicability of the BEPS recommendations for developing countries and possible measures that developing countries may adopt to meet their objectives. In addition, the handbook covers a separate discussion on capital gains, taxation of services, tax incentives and transparency/disclosures and there are also separate chapters that deal with base eroding payments of rent and royalties and GAAR.

Happenings across the border

10Recently, the Indian administration CBDT has also released a press release specifying that MAP access will be provided in TP cases, even in cases where the relevant treaty does not have a provision similar to Article 9(2) of OECD MC.

20 Tax Digest

The handbook reflects the inputs and feedback received from developing countries. Further, it is intended to serve as a tool for tax officials/policy makers in developing countries to assess and implement the most suitable options for protecting and broadening their tax base, as well as effectively engage and participate in the ongoing policy discussions in this area.

Source: http://www.un.org/esa/ffd/publications/handbook-tax-base-second-edition.html

OECD updates transfer pricing country profiles reflecting transfer pricing legislation and practices

On 6 November 2017, the OECD published updated versions of transfer pricing country profiles (TPCP), reflecting the current transfer pricing legislation and practices of 31 participating countries. The country profiles contain up-to-date and harmonized information on key aspects of transfer pricing legislation, provided by countries themselves.

The newly updated profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. The information contained in the TPCP is intended to clearly reflect the current state of countries’ legislation and to indicate to what extent their rules follow the OECD Transfer Pricing Guidelines. The information was provided by countries themselves in response to a questionnaire so as to achieve the highest degree of accuracy.

Source: http://www.oecd.org/tax/transfer-pricing/oecd-updates-transfer-pricing-country-profiles-reflecting-transfer-pricing-legislation-and-practices.htm

On digital economy (DE)

European Union (EU) discusses development of new digital taxation rules

On 16 September 2017, the finance and economic affairs Ministers of the EU member states discussed the challenges of the existing tax rules in the digital world economy at their informal Economic and Financial Affairs Council (ECOFIN) meeting in Tallinn, Estonia.

Subsequently, on 21 September 2017, the European Commission (EC) made a formal announcement of the aforesaid EU agenda to ensure that DE is taxed coherently across the EU consistent with the EU philosophy of a single market and a fair tax system that provides certainty to businesses and prevents new tax loopholes. The report notes the growth of the DE after 2006 to 2017 in the EU, while also noting that the effective tax rate of digital companies in the EU is estimated to be half that of traditional brick and motor companies. The EC acknowledges that patchwork unilateral measures by individual EU member states will create new obstacles and loopholes in the single market. Hence, the aim is to develop a coherent and coordinated EU approach to taxing the DE.

Further, on 26 October 2017, the EC launched a consultation on the fair taxation of the DE. The aim of the consultation is to help the EC in defining an approach to the taxation of the DE. The consultation, which will close on 3 January 2018, takes the form of a questionnaire. The contributions to the consultation and a report on the feedback received will be published in the first quarter of 2018.

(Click here for our global alert dated 19 September 2017 and here for EY global alert dated 6 November 2017)

21 Tax Digest

United Nations (UN) releases discussion note on the digitalized economy

The UN Committee of Experts on International Cooperation in Tax Matters released a discussion note titled “The digitalized economy: selected issues of potential relevance to developing countries” in October 2017. Key highlights from this discussion note are as under:

• Unilateral measures, by countries such as Australia, China, France, India, Israel, Italy and the UK are being adopted due to the lack of a common framework to regulate the allocation of taxing rights between countries.

• Variety of uncoordinated measures implemented, within the existing framework, to tax the DE are unlikely to provide a long-term satisfactory solution.

• Unilateral measures while being of benefit to some may be of detriment, in particular to those who are most fragile and least developed.

• Digital way of doing business might lead countries to reinterpret or modify existing concept of PE under UN MC.

• Developing countries may want to debate the issue under the aegis of the UN, even if discussed in other forums.

Source: http://www.un.org/esa/ffd/events/event/fifteenth-session-tax.html

OECD releases public comments and holds public consultation on the tax challenges of digitalization

On 22 September 2017, OECD requested public comments on certain aspects, namely, the impact of digitalization on business models and value creation, existing tax policy developments and the implementation of BEPS measures and guidance, as well as the range of potential tax options available to deal with the broader direct tax challenges raised by digitalization.

On 25 October 2017, the OECD published, on its website, the comments received on the request for input on the tax challenges of digitalization. Subsequently, on 1 November 2017, a public consultation on the tax challenges of digitalization was held by the OECD at the University of California, Berkeley, where various stakeholders, who had provided their comments on the OECD questionnaire, were invited to voice their comments/concerns at the public platform.

(Click here for our global alert dated 6 November 2017)

OECD BEPS updates:

OECD releases additional guidance on CbC reporting

In September 2017, the OECD’s Inclusive Framework on BEPS released the following additional guidance to give greater certainty to tax administrations and multinational enterprise (MNE) groups on the implementation and operation of CbC reporting (BEPS Action 13).

• Update to existing Guidance on the implementation of CbC reporting:

The Guidance has been updated to addresses three new issues:

1. The definition of revenues (adding to the definition already provided in the April 2017 updated version of the Guidance)

2. The treatment of MNE groups with a short accounting period

3. The treatment of the amount of income tax accrued and income tax paid

• Guidance for tax administrations on the appropriate use of the information contained in CbC reports:

This includes guidance on the meaning of “appropriate use,” the consequences of non-compliance with the appropriate use condition and approaches that may be used by tax administrations to ensure the appropriate use of CbC reporting information.

22 Tax Digest

• CbC Reporting: Handbook on Effective Implementation:

This Handbook is a practical guide to the key elements that countries need to keep in mind when introducing CbC reporting in line with the Action 13 minimum standard. The report includes guidance on technical issues related to the filing, exchange and use of CbC reports, as well as on practical matters that tax authority will need to address.

• CbC Reporting: Handbook on Effective Tax Risk Assessment:

In this Handbook, the OECD sets out guidance on how each tax authority receiving CbC reports and transfer pricing master and local file documentation under Action 13 BEPS Action Plan may wish to consider using this information within their tax risk assessment programs, the types of risk assessment tests they may wish to consider utilizing, the challenges of the effective use of CbC reports for tax risk management, and how to use CbC report alongside data from other sources. This Handbook sets out a number of ways in which tax authority may wish to consider testing for tax risks using the Action 13 data, which will be of particular interest to MNEs, who may wish to consider how the identification of such risk indicators may be embedded into their own pre-submission risk assurance processes.

(Click here for our global alert dated 7 September 2017 and here for our global alert dated 3 October 2017)

OECD releases progress report on preferential regimes under BEPS Action 5

After the publication of the BEPS Action 5 Report in October 2015, the Forum on Harmful Tax Practices (FHTP) has reviewed compliance of 164 preferential regimes with the BEPS Action 5 minimum standard. On 16 October 2017, the OECD released the Harmful Tax Practices – 2017 Progress Report on Preferential Regimes (the Progress Report), which includes the results of the review of these regimes.

The purpose of this document is to provide an update to the 2015 BEPS Action 5 report and to report the results of the review of all Inclusive Framework members’ preferential tax regimes that have been identified. Further, to assist and support the consistent and swift implementation of BEPS Action 5, the Progress Report also contains guidance on preferential tax regimes, timelines for amending regimes and recommendations on monitoring certain features of preferential regimes.

This report states that the patent box regime introduced in India by Finance Act, 2016 11 is not harmful and complies with the requirements of BEPS Action 5.

(Click here for our global alert dated 18 October 2017)

11 Please click here to refer our India Tax Insights edition

23 Tax Digest

High Court (HC), Bombay

No CVD on imported transformer oil when excise duty is exempt

Customs Act, 1962; in favor of assessee

The assessee imported transformer oil for use in the manufacture of transformers and paid basic customs duty (BCD) and auxiliary duty on the same. However, the Customs Authorities assessed additional duty under subSection (1) of Section 3 of the Customs Tariff Act, 1975 (CTA) at INR 1000/per KL and additional duty under subSection (3) of Section 3 of the CTA. The assessee preferred writ petition to the HC to quash and set aside the assessment order to the extent to which the additional duty is made payable under subSection (1) of Section 3 of the CTA while accepting the duty under subSection (3) of Section 3 of the CTA.

The assessee submitted that since transformer oil has been exempted from levy of excise duty by Notification no. 75/84-CE dated 01 March1984, the additional duty under subSection (1) of Section 3 of the CTA is not payable. The intention of the legislature behind levy of additional duty under subSection (1) of Section 3 of the CTA is to protect indigenous manufacturers.

However, the revenue contended that the benefit of the said notification will not be available as the assesse is not involved in the manufacture of transformer oil.

The HC placed reliance on the decision of Supreme Court (SC) in case of Khandelwal Metal & Engineering Works v. Union of India [2002-TIOL-372-SC-Cus- LB] wherein it was held that subSection (1) of Section 3 of the CTA does not require that the imported article should be such which is capable of being produced or manufactured in India. The assumption has to be that the article imported into India can be manufactured in India and upon that basis, the duty has to be determined under subSection (1) of Section 3 of the CTA. Thus, if goods of class-A are imported and if excise duty is not payable on the goods manufactured in India of that class, there is no question of levy of additional duty under subSection (1) of Section 3.

HC further observed that the revenue does not dispute the fact that the exemption notification dated 01 March 1984

will apply to the transformer oil imported by the assesse and their only contention is that as the assessee is not manufacturing transformer oil in India and therefore, the exemption is not applicable.

HC noted that the provision of Section 3 is enacted to safeguard the interests of the manufactures in India and the provision for levy of additional duty on the imported articles is to counterbalance the excise duty leviable on like articles made indigenously.

Thus, HC held that if the manufactures in India are not liable to pay duty on the goods, then on import of such goods the additional duty under subSection (1) of Section 3 of the CTA cannot be levied.

Apar Ltd.& Ors. V. Union of India & Anr. [2017-TIOL-2167-HC-MUM-CUS]

High Court, Gujarat

Interest payable by revenue on long delayed refund of redemption fine after Tribunal order

Customs Act, 1962; in favor of assessee

The assessee is in the business of export of basmati rice. The revenue disputed the description of the goods and therefore, did not permit the export. By an order dated 25 May 2012, the Commissioner of Customs confiscated the goods but, offered redemption fine of INR10 lakh and imposed penalties of INR10 lakh each on the company and its director. The assessee challenged this order before the Tribunal. In the meantime, the assessee deposited the sums of INR10 lakh of redemption fine and furnished bank guarantees to cover the penalty component. Tribunal, by judgment dated 19 February 2013, held reversed the order of the commissioner and also set aside the redemption fines and penalty.

The assessee wrote to the revenue for release of the amount deposited as redemption fine on multiple occasions but received no response. Eventually the assessee filed the present petition on or around 23 April 2016 before the Gujarat HC. However, before the adjudication of the petition, the revenue, on 12 July 2016 refunded the sum of INR10 lakh pursuant to an Order in Original (O-I-O) dated 15 July 2016. However, the order did not provide for any interest thereon. The bank guarantee was released by the revenue on 29 August 2016.

Case Laws

Indirect taxCustoms

24 Tax Digest

Thus, in view of the facts above, the main prayer of the assessee for refund of sum of INR10 lakh and release of the bank guarantees does not survive. However, the assessee pleaded for interest on both the sums.

The revenue opposed the petition contending that there is no provision contained in the Customs Act, 1962 for granting interest under such circumstances. Further, the revenue had preferred/appeals before HC against the judgment of the Tribunal and some of the appeals are still pending. The revenue also relied on the SC Decision in case of Union of India & Ors. V. E. Merck (India) [(1998) 9 SCC 412] to contend that no interest should be paid.

HC observed that the facts in the case referred by the revenue are different from the facts in the present case and therefore, the ratio laid by the SC cannot be applied.

HC stated that on reversal of the order of the commissioner by the CESTAT, the assessee became entitled to refund of INR10 lakh and release of bank guarantee. It is open for the revenue to challenge the said judgment before a higher forum but it cannot avoid implementation of the Tribunal order without a stay being granted. Though the assessee reminded the revenue on multiple occasions, the amount was not refunded for over three years.

Thus, HC has held that the revenue is required to pay interest on the sum of INR10 lakh deposited by the petitioners as redemption fine at the rate of 8% per annum from the completion of three months from the date of judgment of the Tribunal till actual payment of the refund. Further, HC did not direct any interest on the bank guarantee component since the petitioners were not made to deposit the same with the revenue.

HRMM Argo Overseas Pvt. Ltd. & Anr. V. Union of India & Anr. [TS-351-HC-2017(GUJ)-CUST]

Foreign trade policy

High Court, Gujarat

Composite order passed by authority having elements within as well as outside its jurisdiction is bad in law

Foreign Trade (Development & Regulation) Act, 1992; in favor of revenue

The assessee is engaged in various manufacturing and import-export activities. The assessee applied for scripts under Duty Free Credit Entitlement (DFCE) Scheme, under which the exporter would receive 10% credit entitlement which could be used for import of goods without payment of duty with actual user condition. Consequently, 21 scripts aggregating to INR211.61 crore was issued to the assessee.

The Assistant Director General of Foreign Trade (DGFT), under the instructions of Jt. DGFT issued a show-cause notice (SCN) pointing out that the scripts were obtained fraudulently by misstating the facts. The SCN required cancellation of such scripts and levy of penalty. Upon resistance of the SCN by assessee, the Jt. DGFT dropped the proceedings.

However, the DGFT issued a SCN proposing to take the Jt. DGFT’s order in revision. The premises taken were that Jt. DGFT lacked pecuniary jurisdiction to adjudicate since his powers did not exceed the monetary limit of INR25 crore set out in notification dated 13 June 2013 and the order suffered from various infirmities. DGFT set aside Jt. DGFT order and remanded the case to the competent authority for de-novo adjudication.

The assessee challenged this order before the HC. The assessee submitted that the provisions relating to cancellation of scripts and levy of penalty are covered u/s 9(4) and 11(2) respectively. The monetary limit prescribed in the notification is in relation to penalty only and covers the cases of authorizations and not scripts. Therefore, Jt. DGFT was authorized to rule on the issue and since the penalty u/s 11(2) was only consequential, his order did not lack jurisdiction.

25 Tax Digest

Revenue contended that the SCN was composite. The questions of cancellation of license u/s 9(4) and imposition of penalty u/s 11(2) were closely interlinked. Therefore, when the Jt. DGFT did not have jurisdiction to decide the question of penalty, he ought to have transferred the entire proceedings before the competent authority.

HC observed that the DFCE scripts would also be in the nature of an authorization issued for import of goods. Merely because such scripts are not separately mentioned in the Notification would not mean that the case would not be covered thereby. In the absence of the scrip, it would not be open for the assessee to make duty free imports of such goods. Therefore, in essence, the scripts were in the nature of authorization.

HC further observed that there is no pecuniary limitation in exercising powers u/s 9(4). Under notification dated 13 July 2013, the limit of exercising powers of Jt. DGFT were fixed at INR25 crore where the value of goods or services or technology covered by the authorization issued. Thus, the Jt. DGFT could not have adjudicated the question of penalty where the value of the goods or service or technology covered by the authorization exceeded INR25 crore. This pecuniary limit therefore, would take the present matter out of the purview of the Jt. DGFT.

HC noticed that Jt. DGFT did not lack the jurisdiction insofar as the question of cancellation of license under Section 9(4) is concerned but he did rule on the question of imposition of penalty under Section 11(2) of the Act which is outside his jurisdiction. The notice issued was a composite notice. The issue of cancellation of license and imposition of penalty were closely interlinked. Jt. DGFT could not have and, he in fact had not severed the notice into a part which he could adjudicate upon and one which he could not.

Therefore, HC has held that DGFT has committed no error in quashing the order passed by Jt. DGFT.

Adani Enterprises Ltd. v. Union of India [2017-TIOL-2338-HC-AHM-CUS]

Central excise

Supreme Court

Cess is a surcharge and not leviable if excise duty is exempted from levy

Central Excise Act, 1944; in favor of assessee

The assesse has set up its factory in Assam and was availing benefit of area based exemption under Central Excise under Notification No. 20/2007–CE dated 25 April 2007. The said notification provided that the assessee would be entitled to refund of duty paid other than the duty paid by way utilization of CENVAT credit under the CENVAT Credit Rules, 2004. The assessee had paid excise duty and Education Cess (EC) while clearing the goods and claimed refund of duty and cess paid in cash. The assessee was denied the refund of cess by the assessing officer. He challenged the order before Commissioner (Appeals) but the same was dismissed. The order of the commissioner has been upheld by the Tribunal. Aggrieved by the order of Tribunal, the assessee preferred an appeal before the SC.

The assessee contended that the EC is in the nature of surcharge and in the absence of the primary tax (i.e., excise), the question of payment of any surcharge thereupon would not arise. The assessee referred to Circular No. 134/3/211/ST dated 8 April 2011 issued by the excise department amply clarifying that since the EC is levied and collected as percentage of service tax, no EC would be payable when and wherever service tax is nil by virtue of exemption. He also argued that in the scenario where there are two divergent views and two possible interpretations, one that is in favor of the assessee should be followed.

The assessee has relied upon the Rajasthan HC judgment in the case of Banswara Syntex Ltd. v. Union of India [2007 (216) ELT 16 (Raj.)] and Delhi Tribunal judgment in the case of Cyrus Surfactants Pvt. Ltd. v. CCE, Jammu [2007 (215) ELT 55 (Tri.-Del.)].

26 Tax Digest

The revenue argued that the exemption notification exempts only the excise duty. It emphasized the fact that excise duty is payable under the Excise Act (EA), EC and higher EC are payable under the Finance Act, 2004. The exemption notification which is issued under Section 5A of the EA could exempt only the excise duty payable under the said statute and not EC which is payable under a different statute. Revenue relied on the Delhi Tribunal judgment in the case of CCE Jammu v. Jindal Drugs Ltd. [2011 (267) ELT 653 (Tri.-Del.)].

The SC referred a Central Board of Excise and Customs (CBEC) Circular dated 10 August 2004 clarifying EC is part of excise duty. The SC also referred a circular dated 8 April 2011 mentioning that the policy intention of the Government is to exempt EC in addition to service tax where “whole of service tax” stands exempted. The SC observed that on reading of these two circulars, the aspect that emerges is that the Government itself has taken the position that where whole of excise duty or service tax is exempted, even the EC as well as Secondary and Higher EC would not be payable. These circulars are binding on the department.

The SC noticed that Section 93 of the Finance Act, 2004, which levies EC, makes it clear that this EC is payable on excisable goods. Sub-Section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those related to refunds and duties etc., shall as far as may be applied in relation to levy and collection of EC on excisable goods. The SC inferred that a conjoint reading of all these provisions suggests that there cannot be any surcharge when the basic duty itself is nil.

Therefore, the SC has held that the assessee is entitled to refund of EC and Higher EC, which was paid along with excise duty once the excise duty itself was exempted from levy.

SRD Nutrients Pvt. Ltd.v. CCE Guwahati

[TS-339-SC-2017-EXC]

High Court, Gujarat

Challenge to vires of Section 4A of Central Excise Act fails; free physician samples to be taxed under Section 4 and not under Section 4A

Central Excise Act, 1944; partly in favor of assessee

The assessee is engaged in the business of manufacture of patent or proprietary medicaments, which are excisable goods. The Central Government notified patent or proprietary medicaments for the purpose of Section 4A of the Central Excise Act, 1944 and provided abatement at the rate of 35% w.e.f. 7 January 2005. The petitioner challenged the vires of Section 4A of the Central Excise Act, 1944. The assessee also challenged the levy of excise duty under Section 4A on free samples provided to the doctors.

The petitioners contended that that the duty of excise can be levied only on manufacturing costs and manufacturing profit. The retail sale price fixed by the manufacturer would take into account a number of factors and post manufacturing and clearance costs. These would be the transportation, storage, insurance, damage and other similar costs; government duties; and the profit margins of successive distributors till the medicine is ultimately sold to the consumer. By charging duty of excise on such valuation, the statutory provision breaches the basic principle of charging excise duty on manufacturing costs and manufacturing profit and partakes the character of sales tax, which is not within the purview of the Union Legislature.

The petitioner submitted that the free samples do not carry Maximum Retail Price (MRP) and as required under Clause (ix) of sub-rule (1) to Rule 96 of the Drugs and Cosmetics Rules, 1945, the containers of such medicines would carry a print of “Physician’s sample-Not to be sold.” Thus, as free samples provided to the doctors are not for sale in the market, duty under Section 4A cannot be levied.

Revenue opposed the petitions contending that Section 4A of the Act is not outside the legislative competence of the Union Legislature. It merely shifts the basis for computing the value of the goods for collecting excise duty of specified goods. In a number of commodities, the companies do not manufacture goods themselves but outsource manufacturing activity to small-scale manufacturers. In such cases, the duty is levied on the value in the hands of

27 Tax Digest

job workers, which would not include the element of other post-manufacturing expenses. It was for this reason that the said provision was enacted. The legislature has also provided for abatement at the rate to be notified by the Central Government. This would offset the duties and taxes that would form part of the retail sale price.

Revenue relied on the circular dated 25 April 2005 issued by CBEC, in which it was clarified that valuation of samples that are distributed free as part of the marketing strategy as gifts or donations should be done under Rule 4 of the Valuation Rules of 2000. Therefore, the duty on clearances of such free samples would be levied under Section 4A of the Act but the valuation would have to be done as provided under the Valuation Rules of 2000.

The HC noticed that the term “transactional value” was defined as to mean the price actually paid or payable for the goods, when sold, and would include, in addition to the amount charged as price, any amount that the buyer is liable to pay to or on behalf of the assessee, by reason of, or in connection with the sale, whether payable at any other time including any amount charged for advertising or publicity, marketing and selling, organization expenses, storage, outward handling, servicing, warranty, commission or any other matter, but excluding the amount of duty of excise, sales tax and other taxes, if any, actually paid or payable on such goods.

The HC noticed that what Section 4A of the Act does is to collect duty not on the basis of transaction value but on the basis of MRP less the abatement. The concept of transaction value itself took within its sweep not only the price actually paid or payable for the goods when sold but also the additional charges that the buyer is liable to pay on behalf of the assessee in connection with the sale, including charges for advertising, publicity, marketing, selling, organization expenses, storage, outward handling, servicing warrant, commission or any other matter but excluding the amount of excise duties, sales tax and other taxes. The contention of the counsel for the petitioners that the formula provided under Section 4A of charging duty on the basis of MRP thus takes into account several costs that are not related to the manufacturing cost and manufacturing profit, therefore, cannot be accepted without further attention.

The HC observed the free samples provided to the doctors do not carry any retail sale price. Under sub-Section (1) of Section 4A itself, the Central Government can notify goods in relation to which, under the provisions of the Standards of Weights and Measures Act or the rules made thereunder, it is necessary to declare on the package the retail sale price of such goods. On the contrary, the free samples provided to the doctors contain necessary declaration required under the law that the samples are free of charge and are not for sale in the market. The very first requirement of sub Section (1) of Section 4A of the Act in such a case fails. Further, the said Valuation Rules of 2000 would not apply to a case covered under Section 4A of the Act.

Therefore, the HC held that the levy of duty under Section 4A of the Act is within the legislative competence of the Union Parliament and excise duty on the doctors’ free samples can be levied only under Section 4 of the Act and not under Section 4A.

The HC also clarified that this declaration by itself would not entitle the petitioners and other similarly situated manufacturers to refund automatically and if any applications are filed, they would be decided in accordance with the law.

Tuton Pharmaceuticals v. Union of India [2017-TIOL-2270-HC-AHM-CX]

28 Tax Digest

Tribunal, Mumbai

Supply to merchant exporter is treated as exports, excludible from SSI threshold

Central Excise Act, 1944, in favor of assessee

The assessee is engaged in the manufacture of stainless steel utensils, kitchenware and cutlery articles. The assessee is availing the SSI exemption. It supplies goods to merchant exporters in addition to the clearances made to domestic buyers. The assessee has not included the clearance value in respect of supply made to merchant exporter, treating it as export clearance. The assessee submitted Form 14B/Form H issued by the merchant exporter along with export documents of merchant exporter. The adjudicating authority, however, did not accept the contention of the assessee on the ground that the performa invoice issued by the merchant exporter was dated before the date of clearance of goods and the goods should have been exported directly.

The assessee referred to Circular No. 648/39/2000-CX dated 25 July 2002 and submitted that in case of non-registered small scale units, for clearances for export through merchant exporter, Form 14B/Form H is acceptable as proof of export. The assessee also submitted that the exporter had to submit documents such as proforma invoice and bill of landing even before the arrival of goods to the port and, therefore, merely because the merchant exporters invoice is pre-dated, it cannot be rejected as proof of export.

Revenue argued that supplies made against Form 14B/Form H were permissible only when the goods were exported directly by the manufacturer.

The Tribunal noted that the circular referred by the assessee allows small scale units to export their goods either directly or through a merchant exporter and Form 14B/Form H is acceptable as proof of export. Since the goods had been exported through a merchant exporter, the condition of the circular that export should be through merchant exporters or directly from the unit itself stood fulfilled.

The Tribunal observed that in case of exports through merchant exporters, the manufacturer does not have any locus standi as the goods are first purchased by the merchant exporter and thereafter the merchant exporter completed all the procedures such as preparation and filing of documents for export with the customs authorities. Hence, the assumption of revenue that the goods should have been exported directly from the assessee’s manufacturing units is misleading of the clarification given in circular.

Therefore, the Tribunal held that if the supplies made by the assessee could be co-related with the details in Form H/Form 14B, they ought to be accepted as proof of export and neither could any duty be demanded on such clearance nor could it be includible in the aggregate clearance value of exempted goods under the SSI exemption.

Bhalaria Metal Craft Pvt. Ltd & Anr. v. CCE, Thane-II [TS-276-CESTAT-2017-EXC]

CENVAT credit

Tribunal, Chandigarh

Professional indemnity insurance cover against legal damages held to be an “input service” for consultants

CENVAT Credit Rules, 2004; in favour of Assessee

The assessee is registered under service tax as a provider of “management or business consultant service.” Accordingly, the assessee had filed various refund claims. It had filed refund claims under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No.27/12-CE(NT) dated 18 June 2012. One of the services for which the refund claim was rejected by the original adjudicating authority was in relation to the professional indemnity insurance service. Aggrieved from the order of the adjudicating authority, the appellant filed an appeal before the First Appellate Authority. The First Appellate Authority allowed the claim of the assessee, aggrieved from which, the revenue filed an appeal before the Tribunal.

29 Tax Digest

Revenue contended that the definition of “input service” was revised after 1 April 2011 and the revised definition did not have words “the activity relating to business.” It was contended that in order to qualify as input service, a service should be used either for providing an output service or in relation to the activity mentioned in rule 2(l) (ii) of CENVAT Credit Rules, 2004. Professional indemnity insurance service was not covered under either the main definition of “input service” or by inclusive part. Further, CENVAT credit was available only to those services that were used during provision of service, before delivering them to the recipient and not thereafter. The impugned service was used only when there was a professional mistake or negligence on the part of the employees.

The Tribunal noted that refund was allowed for general insurance service for employees, equipments and property, for insuring the company against unforeseen circumstances. On the same analogy, the professional indemnity insurance service has to be viewed in the context of providing consultancy or other professional services, where the assessee has to safeguard itself against unforeseen legal damages or costs due to negligence or other bonafide mistakes of the employees or partners. Hence, the professional indemnity insurance service is an essential ingredient of providing the output service and has a direct nexus with the providing of output service. Further, as the insurance cover is not meant for personal use or private consumption of any employee, it does not fall in the exclusion clause of the definition of the input service. On the argument of revenue that the service is used when output service is complete, the Tribunal observed that commission for such service is paid in the beginning and it provides continuous assurance to the assessee throughout the process of delivery of output service. Even though the need for its use may come after the output service is delivered, the genesis for its use lies in the assurance it provides while service is being delivered. Hence, it is erroneous to say that the service is provided only after output service is delivered.

Thus, the Tribunal allowed refund to the assessee.

Commissioner of Service tax, Delhi-IV v Ernst And Young Associates LLP; 2017-TIOL-4017-CESTAT-CHD

Service Tax

High Court, Delhi

Rule 6A of Service Tax Rules declared invalid; services provided to foreign tourists where consideration is received in foreign convertible currency would not be amenable to service tax

Finance Act, 1994; in favor of petitioner

The members of the petitioner are Indian tour operators, engaged in the business of arranging tours for foreign tourists visiting India as well as neighboring countries. Entire payment for the package tour is received in convertible foreign exchange. Rule 6A of Service Tax Rules, 1994 (STR) relating to “export of services” lists down conditions when a service shall be treated as export of service. One of the conditions is that the place of provision of service should be outside India. As tour operator services are in nature of intermediary services, the place of provision of service as per Rule 9 of the Place of Provision of Service Rules, 2012 (PoPS) would be the location of the service provider. Thus, services provided to foreign tourists both inside India and outside India have been brought within the ambit of service tax by virtue of the combined operation of Rule 6A (1) and (2) of STR and Rule 9 of PoPS. Although the payment was received in convertible foreign exchange, the members of the petitioner did not get the benefit of exports as the place of provision of service was treated to be in India.

A writ petition was filed seeking declaration that Rule 6A of STR was ultra vires the Finance Act, 1994 (FA). The validity of Section 94 (2) (f) of the FA was also challenged on the ground that it gives unguided and uncontrolled power to the Central Government to frame rules regarding “provisions for determining export of taxable services.”

The HC observed that a collective reading of Section 66B read with Section 64 (1) and Section 65B (52) of the FA makes it clear that service tax is leviable only on services provided or agreed to be provided in the “taxable territory.” The ultimate result is that a service rendered outside the taxable territory of India would not be a “taxable service” for the purposes of the FA. Entire Chapter V of the FA applies only to taxable services and taxable services are those provided in the taxable territory.

30 Tax Digest

Rule 6A of STR was a piece of delegated legislation, made by the Central Government in exercise of the powers under Section 94(1) read with Section 94 (2)(f) of the FA. Section 94(2)(f) empowers the Central Government to make rules for “determining” when export of “taxable services” can be said to take place. It does not empower the Central Government to determine whether there can be an export of non-taxable services, viz., services provided outside the taxable territory. Section 94(2)(hhh) also permits making rules regarding the “date for determination of rate of service tax” and “place of provision of taxable service.” It does not provide for making rules on the determination of taxability of a service.

Subjecting certain types of services to tax is an essential legislative function. In this case, since the FA envisages Chapter V applying only to taxable services, bringing non-taxable services within the ambit of service tax is impermissible. Rule 6A(1)(d) of the STR treats even services provided outside the taxable territory, i.e., where the PoPS is outside India, as an export of “taxable” service. Since such service by virtue of Section 66B read with Section 65(51) and (52) read with Section 64(1) and (3) of the FA is not amenable to service tax in the first place, and is therefore not a “taxable” service, Rule 6A is ultra vires the FA. Even Section 94(2)(hh) of the FA permits the Central Government to determine when there would be an export of “taxable service” and not “non-taxable service.” Something that is impermissible under the FA cannot, by means of the rules made thereunder, be brought within the ambit of service tax.

Since tour operator services are intermediary services and under Rule 9 of the PoPS, 2012, the place of provision of service is the location of the service provider. Packaged tour services provided by an Indian tour operator to a foreign tourist will, notwithstanding that some part of it is provided outside India, be treated as services provided in India. As a result, no Indian tour operator can expect the service rendered by them to a foreign tourist to be considered as an “export of service” under Rule 6A as they will never be able to meet the requirement of Rule 6A(1)(d) of the STR.

Thus, under a combination of Rule 6A of the STR and Rule 9 of the PoPS, 2012, something that is non-taxable under the FA is sought to be brought to tax. The legal fiction of treating services rendered outside India to be services rendered in India cannot be introduced by way of rules. That too would partake the character of an essential legislative function, which cannot be delegated to the Central Government. In fact, such services cannot be brought to tax without amending Section 64 (3) of the FA. Thus, not only Rule 6A of the STR but also Section 94(2)(f) of the FA would be unconstitutional if it were to be interpreted to permit determination of export of even non-taxable services .Thus, the HC held that Rule 6A(1) read with Rule 6A(2) of the STR, insofar as it seeks to describe export of tour operator services to include non-taxable services provided by tour operators, is ultra vires the FA and in particular Section 94(2)(f) of the FA and is, therefore, invalid. Thus, services provided by Indian tour operators to foreign tourists during the period 1 July 2012 to 1 July 2017, which has been paid for in convertible foreign exchange would not be amenable to service tax. It was further observed that if as a result of this judgment any service tax becomes refundable, the claim for refund will be processed and paid in terms of the extent provisions of the FA read with the Central Excise Act, 1944 and the rules thereunder.

Indian Association of Tour Operators v. Union of India and anr; 2017-TIOL-1715-HC-DEL-ST

Tribunal, Mumbai

Online e-sell auctions held to be an e-commerce activity and not online database access or retrieval services

Finance Act, 1994; in favor of assessee

The assessee is engaged in the business of conducting online e-sell auctions for various commodities such as mild steel (MS)/stainless steel (SS) for a commercial consideration. Revenue demanded service tax, contending that the assessee was providing business online database access or retrieval services (OIDAR) services. The original authority confirmed the demand but the Commissioner (Appeals) allowed the assessee’s appeal.

31 Tax Digest

The assessee submitted that it was only engaged in providing a platform for facilitating e-commerce trading facility and subscription/membership fee was being recovered only for purpose of providing access to the trading floor through a login ID/password and not for the purpose of providing access to any online information or database. Circular No. B11/1/01-TRU dated 09 July 2001 clarifies that e-commerce transactions are not leviable to service tax under the head of OIDAR services.

The Tribunal observed that the assesse was running a website through which interested steel manufacturers or traders were able to trade. The assessee was buying and selling steel products of various steel manufacturers or traders. The buyers of the goods did not access any information or data online on the assessee’s site but were only interested in the sale and purchase of the steel products. The assessee got a margin with regard to such trading. Hence, the service of the assessee was clearly of e-commerce in respect of steel products and not OIDAR services. The Tribunal also relied on the SC judgement in the case of All India Federation of Tax Practices (2007-TIOL-149-SC-ST) where it was observed that no service tax was leviable on e-commerce as there was no database access.

Commissioner of Service tax, Mumbai v. Click For Steel Services Ltd; 2017-TIOL-3262-CESTAT-MUM

Tribunal, Mumbai

CENVAT credit availment toward manufacturing cannot debar exemption for factory space renting

Finance Act, 1994; in favor of assessee

The assessee is engaged in the manufacture of excisable goods. It had rented out open space in the factory premises during the period 2007-08 and 2008-09.

As per revenue, the assessee was liable to pay service tax on renting of leased-out immovable property and was not eligible for exemption under Notification No. 6/2005-ST dated 1 March 2015. Further, as per revenue, assessee had violated the said notification, on the ground that it had availed CENVAT credit on capital goods and inputs received during the stated period.

The assessee submitted that renting of open space of the factory premises had no connection with the manufacturing unit. The CENVAT credit availed was in respect of inputs or capital goods used in relation to the manufacture of its final product in the factory. Therefore, there was no violation of Notification No. 06/2005-ST. Further, the value of rent was well within the exemption limit in each financial year, and hence no service tax was payable.

The Tribunal analyzed Notification No. 06/2005-ST, and observed that as per clause (iii) of para 2 of the said notification, the provider of taxable service was not entitled to avail CENVAT credit on capital goods received in the premises of such taxable service provider. The Tribunal further noted that in the present case, the assessee was a service provider only in respect of rented premises and no capital goods were received and used on which the credit was availed . It was observed that clause (iii) of the said Notification was not violated. The Tribunal observed that the availment of CENVAT credit in respect of input, input service or capital goods by the appellant only in relation to the manufacturing activity would not debar an assessee from availing the exemption for their service of renting of immovable property. The excisable activity in the manufacturing unit and the service related to renting of immoveable property were two distinct activities and therefore, availment of CENVAT credit in relation to manufacturing activity cannot be applied to the service of renting of immovable property. Thus, the Tribunal ruled in favour of the assessee.

Girna Organics Pvt Ltd v. Commissioner of Central Excise and Service; 2017-TIOL-2602-CESTAT-MUM

32 Tax Digest

Tribunal, Mumbai

Airline’s Indian branch not “recipient” of OIDAR services from overseas computer reservation system (CRS) or global distribution system (GDS) operators

Finance Act, 1994; in favor of assessee

The assessee is an airline of the Republic of Korea and has an establishment in India to provide ticketing and cargo facilities to customers besides operating through authorized agents. The system, which contains complete details of “seat inventory” of the airline, is made available to travel agents through the sole interface of CRS or GDS. The consideration for providing this facility available to the agents is met by the airline.

Revenue contended that the assessee operating in India was the recipient of OIDAR services, which is taxable under Section 65 (105)(zh) of the FA, 1994.

The assessee contended that they were not the recipients of the service in the terms of the contract, under functional compulsion or as payer of consideration. Also, the beneficiaries of the OIDAR service were not the assessee but the travel agents. They also relied on the decisions in the case of Qatar Airways, Emirates (2016-TIOL-1263-CESTAT-MUM), which relied on an earlier decision in the case of British Airways (2014-TIOL-979-CESTAT-DEL) and the decision in the case of Paul Merchants Ltd. – (2012-TIOL-1877-CESTAT-DEL) to assert that they cannot be held to be the recipient of such service.

The Tribunal observed that the attempt in the present dispute was to hold the Indian branch of a foreign entity liable to tax on consideration paid to an overseas entity arising from a contractual relationship of the foreign headquarters of the appellant with CRS/GDS operators outside the country. The thread of the provider-recipient relationship as interpreted by the Tribunal in the several decisions was unwavering and constant. It was further noted that the decision of the Tribunal in British Airways (supra) had been appealed before the SC. But in the absence of any stay order, the Tribunal had no choice but to remain on the path already trodden.

Korean Air v Commissioner of Service tax-I, Mumbai; 2017-TIOL-3332-CESTAT-MUM

Value Added Tax/Central Sales Tax

High Court, Madras

Interstate movement of goods constituting interstate sale need not be in the original form

Tamil Nadu GST Act, 1959; in favor of assessee

The assessee, a contractor, procured iron sheets/hot rolled (HR) coils from a vendor located outside Tamil Nadu. The said sheets were dispatched by the vendor to a sub-contractor appointed by the assessee for conversion into spiral pipes and thereafter, theywere dispatched to the assessee. Referring to the provision of Section 3B of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act), the assessing authority divided the said transaction into two parts: First, procurement and subsequent movement of iron sheets/HR coils from the premises of the vendor located outside the state of Tamil Nadu to the premises of the sub-contractor appointed by the assessee in the state of Tamil Nadu and second, movement of spiral pipes made up from such iron sheets/HR coils by such sub-contractor to the assessee, where both are located in the state of Tamil Nadu. The assessing authority classified the second part of the transaction as an intra-state movement of goods and levied tax under the TNGST Act for the assessment years 2004-04 and 2004-05 respectively.

The assessee filed an appeal before the First Appellate Authority, which upheld the order of the original authority. Therefore, the assessee filed an appeal before the Tribunal, which decided in favor of the assessee. Hence, revenue filed the present tax case revision petition before the HC to decide the issue whether the entire chain/series of transaction constituted interstate sale.

Revenue contended that the Tribunal had erred in allowing the exemption treating the transfer of property of steel and steel spiral pipe as one and the same. Further, it was contended that the interstate movement got terminated as soon as conversion took place and the state of Tamil Nadu was the appropriate state to levy tax on the transaction taking place immediately after the termination of inter-state movement. In support of its contentions, revenue relied on the decision of the Tamil Nadu Taxation Special Tribunal reported in (2003) 131 STC 334.

33 Tax Digest

The assessee, in support its contention of interstate sale transaction, relied on the ruling in the case of the State of Tamil Nadu v. Sun Paper Mill Ltd. [2009 (23) VST 191 (Mad.)] dealing with a similar issue.

The HC referred to the definition in Section 3 of the Central Sales Tax Act, 1956, which determines when a sale or purchase of goods can be said to take place in the course of interstate trade or commerce and the observations noted by the Tribunal. The Tribunal inter-alia observed that the one of the materials passed in the works contract and the property in the materials passed in the importing state do not in any way effect the inter-state character of the transaction as such purchases were made based on the contract awarded by the contractee.

Further, the HC relied on the decision of the Division Bench of the Madras HC in the case of Sun Paper Mill (supra) having similar facts. There, it was held that because of conversion, it cannot be held that there is no movement of goods. Goods undergoing a change are not relevant for the purpose of determining interstate sale under Section 3(a) of the CST Act. It is not for the revenue to suggest that the goods must reach as it is.

Based on the above ruling, the Tax Case (Revision) has been decided in favor of the assessee.

The State of Tamil Nadu v. IVRCL Infrastructure and Projects Ltd. [2017-VIL-566-MAD]

High Court, Delhi

Bonafide purchaser is eligible to avail input tax credit (ITC) on purchases without confirming deposit of tax in the Government treasury by the selling dealer

Delhi Value Added Tax Act, 2004; in favor of assessee

The assessees were registered as “dealers” under the provision of the Delhi VAT Act, 2004 (DVAT Act) and purchased inputs from registered suppliers in the regular course of business and availed ITC thereon against tax invoices.

In case of the first assessee, the selling dealer could not pay the VAT collected from some of its purchasing dealers for the month of June 2012 as a fire in its office premises resulted in loss of records. In case of the second assessee, the ITC availed was disallowed by the assessing authority as they treated the selling dealer as “suspicious” and asked the purchasing dealer to pay tax on such purchases made for the period 2013-14 and 2014-15. Thus, the second assessee paid VAT twice on the same transaction.

The assessing authority disallowed ITC availed by the assesses by relying on Section 9(2)(g) of the DVAT Act, which permits availment of ITC to the purchasing dealer on its purchases provided the tax collected from such purchasing dealer has been deposited by the selling dealer with the Government exchequer. Further, it casts responsibility on the purchasing dealer to confirm that the tax so collected is deposited with revenue. If any transaction is identified wherein the purchasing dealer has claimed ITC but the said amount of tax has not been deposited by the selling dealer, then ITC claimed by the purchasing can be disallowed by the assessing authority.

The issue raised before the HC by way of a writ petition was whether this provision infringes Article 14 of the Constitution by failing to distinguish between selling and purchasing dealers, and also between bona fide purchasing dealers and those dealers who are not so. Another issue was whether revenue could invoke Section 9(2)(g) of the DVAT Act to penalize a bona fide purchasing dealer for the failure of a selling dealer to submit the requisite records proving the genuineness of the transaction.

Section 40A empowers revenue to identify fraudulent transactions and in spite of such powers, disallowing ITC availed by an innocent purchasing dealer or asking them to pay the VAT again results in treating “guilty purchasers” and “innocent purchasers” at par and is unfair for the purchasing dealer and thus results in violation of Article 14 of the Constitution. Further, a purchasing dealer does not have any control over the selling dealer in so far as depositing the VAT paid by the purchasing dealer. Also, revenue has many avenues to collect the tax unpaid by

34 Tax Digest

the selling dealer like forfeiture of security deposit and recovery of tax as arrears of land revenue. Additionally, the word “dealer” should be understood to mean selling dealer and not purchasing dealer when the provision casts the responsibility to deposit tax. Lastly, it was submitted that interpretation of Section 9(2)(g) of the DVAT Act has to be in consonance with the object and purpose of the DVAT Act.

It was submitted by revenue that arbitrariness cannot be a ground for challenging the statute as being violative of Article 14 of the Constitution and mere hardship caused by the impossibility of compliance of the provision cannot be a ground for striking down a statute. It was further submitted, placing reliance on the SC ruling in the case of State of Madhya Pradesh v. Kohli Brothers (2012) 6 SCC 312 and R.K. Garg v. Union of India (1981) 4 SCC 675, that where a fiscal statute was being challenged, greater leeway had to be given to the legislature and there had to be a presumption of soundness of the legislative policy and hence, the court should not question legislative wisdom in such matters. Additionally, the revenue referred to a similar provision under Maharashtra VAT Act and relied on the Bombay HC ruling in the case of Mahalaxmi Cotton Ginning Pressing and Oil Industries v. State of Maharashtra (2012) 51 VST 1 (Bom.), which upheld such provision.

The Delhi HC could not accept a provision that casts responsibility on the purchasing dealer to confirm deposit of VAT collected by the selling dealer when revenue already has a mechanism in place to identify defaulters. The HC agreed that Section 9(2)(g) of the DVAT Act places an onerous burden on a bona fide purchasing dealer.

The HC further observed that there is some uncertainty on the issue of whether a law can be struck down only on the ground of arbitrariness under Article 14 of the Constitution and thus the Court decided not to examine it further in deciding the writ petitions.

Commenting on revenue’s reliance on the Bombay HC decision in the case of Mahalaxmi Cotton Ginning Pressing and Oil industries, the HC observed that Section 48(5) of the MVAT Act is not an exact replica of Section 9(2)(g) of the DVAT Act and thus the HC decided not to rely on the said ruling while deciding the writ petition.

Finally, the Delhi HC, while deciding the petitions in favor of the assessees, held that the expression “dealer or class of dealers” occurring in Section 9(2)(g) of the DVAT Act should be interpreted as not to include a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who issue tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions. Unless the expression “dealer or class of dealers” in Section 9(2)(g) is “read down” in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution. Thus, revenue is precluded from invoking Section 9(2)(g) of the DVAT Act to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. It further opined that the revenue has to take appropriate actions against the defaulting selling dealer and not against the purchasing dealer.

On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi and Ors. [2017-VIL-544-DEL]

High Court, Gujarat

Refund granted on provisional basis may be recovered based on outcome of regular assessment

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

The assessee, a company incorporated under the Companies Act and registered under the Gujarat Value Added Tax Act, 2003 (GVAT Act), is engaged in manufacturing and weaving of cotton.

Pursuant to the textile policy framed by the Gujarat Government, a notification dated 11 October 2013 had been issued, authorizing the Commissioner to grant refund to an eligible unit, of the amount of tax separately charged by a registered selling dealer while purchasing taxable goods, subject to the fulfilment of prescribed conditions. Accordingly, the assessee was granted an eligibility certificate for the period September 2013 to September 2017 for the total incentive amount of INR1,143.24 lakh for the period specified therein. Basis the certificate, the assessee filed refund applications for granting provisional refund.

35 Tax Digest

Provisional refund was granted to the assesse vide order dated 26 November 2016. However, a notice dated 20 March 2017 was issued to the assessee whereby clarification was sought on whether it had made any purchases from the dealers who are enjoying eligibility certificate under the said notification dated 11 October 2013 and whether with respect to such purchases, the assessee had claimed refund or not.

In response to the notice, the assessee contained that condition no. 19 of the notification has been fulfilled by it and submitted that whether the dealers of the assessee are also entitled to exemption and whether they themselves had paid the tax or not would not be within the knowledge of the petitioner.

The original authority did not accept the explanation provided by the assessee and contended that the assessee had purchased goods from dealers who themselves were eligible under the said scheme and hence, there was a breach of condition no. 19. Accordingly, an order was passed requiring assessee to deposit back the refund amount along with interest.

The assessee filed the present special civil applications before the HC challenging the order disallowing the refunds provisionally granted and directing their repayment with interest.

The assessee submitted that condition no. 19 nowhere provides that the eligible unit would not be granted refund on purchases made from another eligible unit. It only limits the refund to the extent of the tax actually paid by a registered dealer. Further, it was submitted that once a provisional refund is granted, it could be distributed only under final assessment under the provisions of the GVAT Act.

Revenue submitted that the scheme of exemption is to be read as a whole and the intention of it was never to grant refund of tax that was not paid to the Government. Revenue further submitted that the refund granted to the assesssee was merely on provisional verification of the documents, and after further scrutiny, it was found that refund was not due to the petitioner.

The Gujrat HC referred the entire scheme and arrived at the opinion that condition no. 19, which is a non-obstensive clause, is to be read in conjunction with the

entire scheme and not in isolation. It also held that the whole intention, as is manifested in the notification, was to limit the benefit of refund to the extent of tax already paid in the Government revenue. The purpose would frustrate if the refund is granted to an eligible unit on the purchases made by it from another unit that was also eligible for refund of tax.

However, taking into account the provision of sub-Section (4) of Section 37 of the GVAT Act, the Gujrat HC accepted the contention of the assesse that once a provisional refund is granted, it could be disturbed only under final assessment and concluded that there cannot be a standalone assessment of a refund claim in isolation, keeping the rest of the return unassessed. By keeping aside the impugned orders, the Gujrat HC specified that the assessing authority may recover the refund once the whole assessment for the related period is decided.

Minaxi Textile Ltd. v. Deputy Commissioner of Commercial Tax [2017-VIL-537-GUJ]

36 Tax Digest

Customs

Notifications

• CBEC passes the Customs and Central Excise Duties Drawback Rules, 2017

CBEC has notified the Customs and Central Excise Duties Drawback Rules, 2017 in supersession of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. The changes include amendment in the definition of “drawback” to provide for drawback of Customs and Central Excise duties excluding integrated tax and compensation cess levied under Section 3 of the Customs Tariff Act, 1975 on any imported materials or excisable materials used in the manufacture of goods exported. Further, references to input services and service tax have been omitted.

Notification No. 88/2017-Customs (NT) dated 21 September 2017

• CBEC notifies the all industry rates (AIRs) of duty drawback schedule

The Central Government has revised AIRs of drawback vide Notification No. 89/2017-Customs (N.T.) dated 21.9.2017 with effect from 1 October 2017.

Notification No. 89/2017-Customs (NT) dated 21 September 2017

• Customs Valuation Rules for import of goods have been amended

The Customs Valuation (Determination of Value of imported Gods) Rules, 2007 have been amended to introduce the definition of “place of importation.” Further, Rule 10, which deals with the inclusion or exclusion of costs and services in the “transaction value” of imported goods, which is the value to be considered for assessment of customs duty, has been amended to include the costs incurred up to the place of importation and bring clarity in respect of certain costs.

Notification No. 91/2017-Customs (NT) dated 26 September 2017

• Appointment of Kapashera, New Delhi, as air freight station

CBEC has appointed Kapashera, New Delhi, as an air freight station for the unloading of imported goods and the loading of export goods.

Notification No. 100/2017-Customs (NT) dated 27 October 2017

• CBEC exempts specified goods imported into India for the purpose of organizing FIFA U-17 World Cup India, 2017

CBEC has exempted specified goods imported into India for the purpose of organizing FIFA U-17 World Cup India 2017, from the levy of basic custom duty (BCD), subject to specified conditions.

Notification No. 75/2017-Customs dated 13 September 2017

• CBEC further exempts specified goods from the levy of BCD and IGST

CBEC has amended Notification 50/2017-Customs dated 30 June 2017 to provide for exemption from levy of BCD and Integrated Goods and Services Tax (IGST) to specified goods such as medicines/drugs/vaccines supplied free by the United Nations International Children’s Emergency Fund (UNICEF), Red Cross or an international organization; import of gold by specified banks and specified public sector units; rigs and ancillary items imported for oil or gas exploration and production taken on lease by the importer for use after import; and bonafide gifts imported by post or air up to cost insurance freight(CIF) value limit of INR5000, subject to specified conditions mentioned therein.

Notification No. 77/2017-Customs dated 13 September 2017

• CBEC exempts goods imported by export oriented units (EOUs)

CBEC has exempted goods imported by EOUs from the levy of GST and compensation cess.

Notification No. 78/2017-Customs dated 13 September 2017

Key statutory updates

37 Tax Digest

• CBEC extends customs duty exemption to 25 drugs and medicines

CBEC has extended customs duty exemption to import of 25 drugs and medicines for supply under the patient assistance program run by specified pharmaceutical companies by an amendment to Notification No. 16/2017-Cus dated 20 April 2017.

Notification No. 83/2017-Customs dated 31 October 2017

• CBEC further exempts specified goods from the levy of BCD and IGST

CBEC has amended Notification 50/2017-Customs dated 30 June 2017 to provide for exemption from levy of BCD and IGST to lifesaving drugs/medicines for personal use, supplied free of cost by an overseas supplier subject to specified conditions, and also exempted levy of IGST on goods imported on lease.

Notification No. 85/2017-Customs dated 14 November 2017

• CBEC exempts specified sports goods when imported by eminent sportsperson

CBEC has exempted specified sports goods when imported by eminent sports persons subject to conditions mentioned therein.

Notification No. 86/2017-Customs dated 14 November 2017

Foreign Trade Policy

Notifications

• DGFT amends Foreign Trade Policy (FTP) provisions to align with Goods and Services Tax (GST) provisions

DGFT amends various provisions of FTP 2015-20 to align them with GST provisions. The amendments include exemption from GST on imports and domestic procurements by advance authorization and Export Promotion Capital Goods (EPCG) authorization holders. The amendments also include deemed export status and benefits extended to EOUs, software technology park (STP) units etc.

Notification No. 33/2015-20 dated 13 October 2017

• Addition of Krishnapatnam port for import of new vehicles

DGFT has amended the Import Policy Condition 2 to Chapter 87 of Indian Trade Clarification (Harmonized System of Coding) [ITC(HS)] 2017, Schedule 1 (Import Policy) to include Krishnapatnam port in the existing list of 14 ports/inland container depots through which import of new vehicles is permitted under policy condition 2(II) (d) of Chapter 87 of ITC (HS) 2017, Schedule 1 (Import Policy).

Notification No. 36/2015-20 dated 20 October 2017

Trade notice

• DGFT establishes “Contact@DGFT” service as a single point contact for all foreign trade related issues

DGFT has activated the “Contact@DGFT” system on the DGFT website as a single point contact for resolving all foreign trade related issues. Exporters/Importers are requested to use this facility for resolution of foreign trade related issues either directly concerning DGFT (headquarters or regional offices) or concerning other agencies of the Central or state governments.

A reference number will be issued for each request so that the status of action taken can be tracked.

Trade Notice No. 17/2015-20 dated 6 September 2017

38 Tax Digest

Public notice

• Re-export of capital goods for repairs imported under EPCG scheme

DGFT has amended Para 5.25 of Handbook of Procedures 2015-20 to provide that capital goods imported under the EPCG Scheme may be re-exported for repairs abroad within three years from the date of clearance by customs of such goods, with permission of regional authorities (RA)/customs authority. The duty component on the expenditure incurred on the repairs as well as the insurance and the freight shall be taken into account for re-fixation of the export obligation.

Public Notice No. 29/2015-20 dated 9 October 2017

• Extension of validity period of duty credit scripts

The validity period of duty credit scripts issued under chapter 3 of FTP is being increased from 18 to 24 months for scripts issued with effect from 1 January 2016.

Public Notice No. 33/2015-20 dated 23 October 2017

• One-time relaxation for export obligation period (EOP) extension and clubbing of Advance Authorisations

One-time relaxation has been provided for clubbing of Advance Authorisations issued during FTP 2002-07 and FTP 2004-09. Further, similar relaxation is provided for extension of EOP of Advance authorizations issued under FTP 2002-07, FTP 2004-2009 and Advance Authorisations issued prior to 5 June 2012 under FTP 2009-14. The last date for submission of such application shall be 31 March 2018.

No clubbing/extension shall be permitted in respect of Authorisations where a misrepresentation/fraud has come to the notice of the RA. Further, no clubbing/extension of Authorisations shall be permitted where an EO discharge certificate/redemption letter has already been issued or adjudication orders have already been passed by the RA/customs authority.

Public Notice No. 34/2015-20 dated 25 October 2017

• One-time condonation of time period in respect of obtaining block-wise extension in EOP under EPCG Scheme

As a one-time measure to relax the procedure for obtaining blockwise extension in EOP under EPCG scheme, DGFT has decided that the RAs concerned may consider the requests for block-wise EOP extension for the requests already submitted but submitted beyond the time on the payment of an additional composition fee of INR5000 in addition to the payment of regular composition fee as applicable. The RA may also consider the requests that may be received up to 31 March 2018 under this facility. This facility is for EPCG authorizations issued from 1 September 2004.

This facility would not be available in respect of the following cases:

1. Where the issue is under investigation/adjudicated by an RA/customs authority/any other investigating agency

2. Where the EPCG committee has rejected such extension requests

Public Notice No. 35/2015-20 dated 25 October 2017

• One-time condonation of time period in respect of obtaining extension in EOP under EPCG Scheme

As a one-time measure in relaxation of procedure for obtaining extension in EOP, DGFT has decided that RAs may consider requests for obtaining extension in EOP where requests are received as per the prescribed procedure but have not been considered due to non-submission within the prescribed period, on payment of additional composition fee of INR5,000 per authorization. Under the facility, RAs may also consider requests that may be received up to 31 March 2018.

39 Tax Digest

This facility would not be available in the following cases:

1. Where the EPCG authorization is under investigation/adjudicated by an RA/customs authority/any other investigating agency

2. Where the EPCG committee has rejected such extension requests

3. For EPCG authorizations issued prior to 1 September 2004

4. Where the installation certificate has not been submitted

Public Notice No. 36/2015-20 dated 25 October 2017

• Acceptance of installation certificate under EPCG scheme wherein installation certificate is submitted beyond 18 month

DGFT has decided to relax the procedure for acceptance of installation certificate by an EPCG authorization holder and allow a one-time condonation. The RAs concerned may accept the installation certificate submitted beyond the time limit on payment of penalty of INR5,000 per authorization to the RA, subject to the following:

1. The capital goods have been installed within a period of 18 months from the date of imports but the installation certificate has been submitted to the RA beyond 18 months from the date of import

2. The authorization holder submits to the RA bonafide reasons for delay in the submission of the installation certificate

3. The installation certificate is submitted to the RA on or before 31 March 2018.

4. The EPCG authorization is not under investigation/adjudicated by an RA/customs authority/any other investigating agency

Public Notice No. 37/2015-20 dated 25 October 2017

Service tax

Notification

• CBEC clarifies certain transitional issues arising with respect to payment of service tax after 30 June 2017

There were instances where services were availed and consideration was paid prior to

1 July 2017 but the tax had been discharged under reverse charge on 5/6 July 2017.

Since CENVAT credit of such service tax paid was available only after the payment of tax, clarity was sought by trade and industry on disclosure of such credit in Form ST-3 and Form GST TRAN-1.

The CBEC has clarified that such credit should be disclosed in Part I of Form ST-3 and linked entries should be made in Part H of the said return. If the return has already been filed, these details should be disclosed in the revised return, which can be filed within 45 days from the date of filing the original return. Further, all ST-3 returns for the period April 2017 to June 2017 filed up to 31 August 2017 shall be deemed to have been filed on 31 August 2017. Once details of such credit are disclosed in ST-3, the assessee may proceed to fill the details in Form GST TRAN-1.

Where assessees are required to pay service tax on or after 1 July 2017 as a consequence of detection of evasion, they may obtain registration under the category of “non assessee registration” and make payment of such tax.

Circular No. 207/5/2017-ST dated 28 September 2017

40 Tax Digest

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

VAT - Notification

Maharashtra

• Abolishing check posts

The government of Maharashtra had issued a notification no. VAT. 1514/CR 30/Taxation-1, dated 23 May 2014, for the establishment of check posts and erection of barriers in the state of Maharashtra and at the specified places along the state border.

Vide the notification dated 13 October 2017, the government has rescinded the above notification with effect from 1 July 2017, the date when the GST law became effective.

Notification No. VAT 1517/CR-173/Taxation -1 dated 13 October 2017

VAT - Circular

Maharashtra

• Clarification regarding interstate purchases against C Form for period starting from 1 July 2017

In view of the Constitution (One Hundred and First Amendment) Act, 2016 dated 8 September 2016, the Central Government has amended the Central Sales Tax Act, 1956 vide Taxation Laws (Amendment) Act, 2017 (18 of 2017) dated 4 May 2017. The definition of “goods” has been amended to confine itself to the items constitutionally kept outside the purview of GST, i.e., alcoholic liquor for human consumption and other five petroleum products, viz., petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

Accordingly, it has been clarified that with effect from 1 July 2017, Form C can be issued for resale or manufacture of goods enumerated above and their use in telecommunication network or mining or generation or distribution of electricity or any other form of power.

Trade Circular No.47T of 2017 dated 17 November 2017.

Goods and Services Tax (GST)

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

• Late fee waived for late filing of Form GSTR-3B for the months of July, August and September 2017

The Central Government has waived the late fee payable for all registered persons who had failed to furnish the return in Form GSTR-3B for the months of July, August and September, 2017 by the due dates.

Notification Nos. 28 /2017–CT dated 1 September 2017 and 50/2017-CT dated 24 October 2017

• Exemption from obtaining registration granted to a casual taxable person making taxable supplies of handicraft goods

Casual taxable persons making taxable supplies of handicraft goods where the aggregate value of such supplies (computed on all-India basis) does not exceed INR20 lakh (INR10 lakh for special category states, other than J&K) shall be exempted from obtaining registration under the CGST Act. Such persons shall obtain Permanent Account Number (PAN) and generate e-way bill as provided by Rule 138 of the CGST Rules.

The notification also provides the list of handicraft goods with Harmonized System of Nomenclature code (HSN code) for which exemption is available.

Further, the above exemption shall be available to such persons making inter-state supplies of handicraft goods and are availing the benefit of Notification No. 8/2017-IT, dated 14 September 2017.

Notification No. 32/2017–CT dated 15 September 2017

• Section 51 of the CGST Act, 2017 for tax deducted at source (TDS) has been notified

The Central Government has made Section 51 of the CGST Act, 2017, which deals with TDS, effective from 18th September 2017 for the notified category of persons (e.g., society established by the Central Government or the state government or a local

41 Tax Digest

authority under the Societies Registration Act, 1860 or Public Sector Undertakings etc.). However, the said persons are liable to deduct TDS from a date to be notified later.

Notification No. 33/2017–CT dated 15 September 2017

• Filing of Form GSTR-3B extended for the period August 2017 to March 2018

The Central Government has provided for filing of Form 3B for the period August 2017 to March 2018 and prescribed the due dates. Form 3B is required to be filed before the 20th of the next month.

Notification Nos. 35/2017–CT dated 15 September 2017 and 56/2017-CT dated 15 November 2017

• Extension of facility of letter of undertaking to all exporters

The Central Government has specified conditions and safeguards for furnishing a letter of undertaking (LUT) in place of a bond by a registered person who intends to supply goods or services for export without payment of integrated tax.

The notification allows a registered person making zero-rated supplies to furnish an LUT instead of a bond subject to the condition that the person has not been prosecuted for any offence under GST or any of the earlier laws in a case where the amount of tax evaded exceeds INR2.5 crore.

The notification further specifies the persons with whom the power of execution of LUT will vest.

It further provides that if the registered person fails to pay the tax due along with interest in case of non-fulfilment of export conditions as per Rule 96A(1), the facility of LUT will be deemed to have been withdrawn. It can be restored once the payment of tax along with interest is made.

Provisions specified in the notification will apply to zero-rated supply of goods or services made by a registered person (including an SEZ developer/unit to an SEZ developer/unit without payment of integrated tax.

Notification No. 37 /2017–CT dated 4 October 2017

• Cross-empowerment to state tax officers for processing and grant of refund

Officers appointed under the respective State Goods and Services Tax Act (SGST Act) or Union Territory Goods and Services Tax Act (UTGST Act) are authorized to be the proper officers for the purpose of sanction of refund.

Notification No. 39 /2017–CT dated 13 October 2017

• Amendment to the CGST Rules

The Central Government has amended the Central Goods and Services Tax Rules (CGST Rules). The amendment inter alia includes insertion of Rule 46A, which allows a registered person supplying taxable as well as exempted goods or services to an unregistered person to issue a single invoice-cum-bill of supply.

Notification No. 45/2017–CT dated 13 October 2017

• Extension in turnover limit for composition levy

Notification No. 8/2017-CT relating to composition levy has been amended. Vide the amendment, the turnover limit has been extended from INR75 lakh to INR1 crore for states other than the specified states. The said limit has been extended from INR50 lakh to INR75 lakh in case of the specified states.

Notification No. 46/2017–CT dated 13 October 2017

• Amendment to the CGST Rules

The Central Government has amended the CGST Rules. Rule 89 deals with the application for refund of tax, interest, penalty, fees or any other amount. The third proviso of Rule 89(1) has been inserted to provide that in case of deemed exports, the application for refund can be filed either by the recipient of the deemed export supplies or by the supplier of the deemed export supplies in cases where the recipient does not avail ITC on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.

Notification No. 47/2017–CT dated 18 October 2017

42 Tax Digest

• Certain supplies of goods notified as deemed exports

The Central Government has notified certain supplies of goods as deemed exports, viz., supply of goods by a registered person against Advance Authorization, supply of capital goods by a registered person against EPCG authorization, supply of goods by a registered person to EOU and supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 against advance authorization.

Notification No. 48/2017–CT, dated 18 October 2017

• Evidence for claiming refund by the supplier of deemed export supplies has been specified

The Central Government has specified the documents that are required to be furnished by the supplier of deemed export for claiming refund of GST paid on such supplies.

The documents include acknowledgment issued by the jurisdictional tax officer of the Advance Authorization/EPCG holder that the deemed export supplies have been received by the said holder, or a copy of the tax invoice issued by the supplier that has been signed by the recipient acknowledging receipt of deemed export supplies and an undertaking by the recipient of deemed export supplies that he or she (i) has not availed ITC of the GST paid on such supplies, and (ii) will not file a refund claim and such claim may be filed by the supplier.

Notification No. 49/2017–CT dated 18 October 2017

• Extension of the due date for filing Form GST ITC-01

The Central Government has extended the time limit for making a declaration in Form GST ITC-01 by registered persons who have become eligible during the months of July, August and September 2017 to the effect that they are eligible to avail ITC under sub-Section (1) of Section 18 of the said Act, till 30 November 2017.

Notification No. 52/2017–CT dated 28 October 2017

• Amendment to the CGST Rules

The Central Government has amended the CGST

Rules. The amendment, inter alia, incudes insertion of an Explanation to Rule 43 that clarifies that for the purpose of Rule 42 and Rule 43, the aggregate value of exempt supplies shall exclude the value of supply of services having place of supply in Nepal or Bhutan against payment in Indian rupees.

Notification No. 55/2017–CT dated 15 November 2017

• Form GSTR-1 to be furnished quarterly for taxpayers with aggregate turnover up to INR1.5 crore

The Central Government has provided that persons having aggregate turnover up to INR1.5 crore are required to file Form GSTR-1 on a quarterly basis and the due dates are as under:

Notification No. 57/2017–CT dated 15 November 2017

• Due dates notified for filing Form GSTR-1 for taxpayers having aggregate turnover of more than INR1.5 crore

The Central Government has notified the due dates for filing Form GSTR-1 for taxpayers whose aggregate turnover exceeds INR1.5 crore.

Notification No. 58/2017–CT dated 15 November 2017

Sr. No. Quarter Due date

1 July—September 2017

31 December 2017

2 October—December, 2017

15 February 2018

3 January—March 2018

30 April 2018

Sr. No. Month Due date

1 July—October, 2017 31 December 2017

2 November 2017 10 January 2018

3 December 2017 10 February 2018

4 January 2018 10 March 2018

5 February 2018 10 April 2018

6 March 2018 10 May 2018

43 Tax Digest

• Due date for filing Form GSTR-4 extended

The Central Government has extended the time limit for filing Form GSTR-4 by a composite dealer for the quarter July 2017 to September 2017, till 24 December 2017.

Notification No. 59/2017–CT dated 15 November 2017

• Due date for filing Form GSTR-5 extended

The Central Government has extended the time limit for filing Form GSTR-5 by a non-resident taxable person for the months of July, August, September and October 2017 till 11 December 2017.

Notification No. 60/2017–CT dated 15 November 2017

• Due date for filing Form GSTR-5A extended

The Central Government has extended the time limit for filing Form GSTR-5 for the months of July, August, September and October 2017 by a person supplying online information and database access or retrieval services from a place outside India to a non-taxable online recipient, till 15 December 2017.

Notification No. 61/2017–CT dated 15 November 2017

• Due date for filing Form GSTR-6 extended

The Central Government has extended the time limit for filing Form GSTR-6 by an input service distributor for the month of July 2017, till 31 December 2017.

Notification No. 62/2017–CT dated 15 November 2017

• Due date for filing Form GST ITC-04 extended

The Central Government has extended the time limit for filing Form GST-ITC-04 till 31 December 2017.

Notification No. 63/2017–CT dated 15 November 2017

• Late fee for delayed filing of Form GSTR-3B from October 2017 onward reduced

The Central Government has reduced the amount of late fee payable for a delay in filing Form GSTR-3B from October 2017 onward from INR200 per day (INR100 each under the CGST and SGST Acts) to INR50 per day (INR25 each under the CGST and SGST Acts).

Further, where the central tax payable is nil, the late fee for delayed filing has been reduced to INR20 per day (INR10 each under the CGST and SGST Acts).

Notification No. 64/2017–CT dated 15 November 2017

• Exemption to suppliers of services providing the services through an e-commerce platform from obtaining compulsory registration

The Central Government has exempted persons making supplies of services other than supplies specified under Section 9 (5) of the CGST Act through an electronic commerce operator who is required to collect tax at source and having aggregate turnover not exceeding an amount of INR20 lakh in a financial year (INR10 Lakh in case of special category states) from obtaining compulsory registration.

Notification No. 65/2017–CT dated 15 November 2017

• Exemption from payment of GST on receipt of advance against supply of goods

The Central Government has exempted all registered persons who did not opt for the composition scheme from payment of GST on receipt of advance in respect of supply of goods. GST will be payable at the time of invoicing.

Earlier, the waiver from paying tax on advance was restricted to a registered person having an annual turnover not exceeding INR1.50 crore in the preceding financial year or likely to be less than INR1.50 crore in the year of registration vide Notification No. 40/2017 dated 13 October 2017.

Notification No. 66/2017–CT, dated 15 November 2017

44 Tax Digest

Notification - Central Tax (Rate)

• Tax on admission to FIFA U-17 World Cup 2017 exempted

The Central Government has exempted services by way of right to admission to the events organized under FIFA U-17 World Cup 2017 from GST.

Notification No. 25/201-CT (Rate) dated 21 September 2017

• Certain supplies to Nuclear Power Corporation of India Ltd (NPCIL) exempted

Intra-state supply of heavy water and nuclear fuels falling in chapter 28 of the First Schedule to the Customs Tariff Act, 1975 by the Department of Atomic Energy to the NPCIL has been exempted from the whole of the central tax.

Notification No. 26/2017- CT (Rate) dated 21 September 2017

• Supply of services associated with transit cargo to Nepal and Bhutan exempted

Supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries) has been exempted.

Notification No. 30/2017- CT (Rate) dated 29 September 2017

• Services provided by the members of the Overseeing Committee to the Reserve Bank of India taxable under RCM

Services provided by the members of the Overseeing Committee to the Reserve Bank of India shall be taxed under reverse charge mechanism (RCM).

Notification No. 33/2017- CT (Rate) dated 13 October 2017

• Central tax rate prescribed on the leasing of motor vehicles procured prior to 1 July 2017

Leasing of vehicles purchased and leased prior to 1 July, 2017 would attract GST at a rate equal to 65%

of the applicable GST rate (including Compensation Cess). Such vehicles when sold shall also attract GST at rate equal to 65% of the applicable GST rate (including Compensation Cess).

These rates would apply for a period of three years effective from 1 July 2017.

Notification No. 37/2017- CT (Rate) dated 13 October 2017

• Exemption granted from payment of tax under reverse charge till 31 March 2018

The payment of tax under RCM by a registered person when procuring goods or services or both from an unregistered person will be exempt till 31 March 2018.

Prior to the amendment, such exemption was restricted to purchases from one or more unregistered persons to the extent of INR5,000 per day.

Notification No. 38/2017- CT (Rate) dated 13 October 2017

• Reduction in GST rates on food preparations distributed to economically weaker Sections of the society

GST rate on food preparations been reduced in cases where they are put up in unit containers and intended for free distribution to economically weaker Sections of the society under a program duly approved by the central government or any state government.

Subject to the condition that the supplier of such food preparations should produce a certificate within a period of five months from an officer not below the rank of the Deputy Secretary to the government of India or the Deputy Secretary to the state government or the Deputy Secretary in the union territory concerned.

Notification No. 39/2017- CT (Rate) dated 18 October 2017

45 Tax Digest

• CGST rate reduced to 0.05% for supply of goods by a registered supplier to a registered recipient for export

The rate of central tax has been reduced to 0.05% for supply of goods by a registered supplier to a registered recipient for export subject to fulfilment of specified conditions.

The registered supplier shall not be eligible for the above mentioned exemption if the registered recipient fails to export the said goods within a period of 90 days from the date of issue of tax invoice.

Notification No. 40/2017- CT (Rate) dated 23 October 2017

• CGST rate amended for restaurants

Services in restaurants, irrespective of air conditioned or otherwise (except those provided in hotels having room tariff of INR 7500 or above per unit per day), will be taxed at 2.5% without ITC.

Restaurants in hotels having room tariff of INR 7500 or above per unit per day will attract GST of 9% with full ITC.

Notification No. 46/2017- CT (Rate) dated 14 November 2017

CGST circulars:

• Clarification on issues related to furnishing of bond/ LUT for exports

The circular has been issued to clarify the difficulties faced by the exporters. It deals with the eligibility to export under LUT, validity of LUT, form for bond/LUT, documents for LUT, time for acceptance of LUT/bond, bank guarantee, clarification on running bond, sealing by officers, purchases from manufacturer and form CT-1, transactions with EOUs, realization of export proceeds in Indian rupee and jurisdictional authority.

Circular No. 8/8/2017-CGST dated 4 October 2017

• Clarification on issues where goods are moved within the state or from the state of registration to another state for supply on approval basis

Goods that are taken for supply on approval basis can be moved from the place of business of the registered supplier to another place within the same state or to a place outside the state on a delivery challan along with the e-way bill wherever applicable and the invoice may be issued at the time of delivery of goods. For this purpose, the person carrying the goods for such supply can carry the invoice book with them so that they can issue the invoice once the supply is fructified.

It is further clarified that all such supplies, where the supplier carries goods from one state to another and supplies them in a different state, will be inter-state supplies and attract integrated tax.

Circular No. 10/10/2017-CGST dated 18 October 2017

• Clarification on taxability of printing contracts

The circular clarifies that where only content for books, pamphlets, brochures, annual reports and the like is supplied by publisher or person who owns the usage rights to intangible inputs, while physical inputs including paper belong to the printer, supply of printing (of content supplied by recipient) is principal supply and therefore, would constitute “supply of service” falling under Heading 9989 of the Services Classification Scheme.

On the other hand, in case of supply of envelopes, letter cards, printed boxes, tissues, napkins etc. printed with design/logo provided by recipient of goods, predominant supply is that of goods and printing of content (supplied by recipient) is ancillary to principal supply of goods. Therefore, such supplies would constitute “supply of goods” falling under respective headings of Chapter 48 or 49 of Customs Tariff.

Circular No. 11/11/2017-CGST dated 20 October 2017

46 Tax Digest

• Clarification of classification of cut pieces of fabric under GST

Mere cutting and packing of fabrics into pieces of different lengths from bundles or thans does not change the nature of these goods and such pieces of fabrics would continue to be classifiable under the respective heading as the fabric and attract the 5% GST rate.

Circular No. 13/13/2017-CGST dated 27 October 2017

• Procedure regarding procurement of supplies of goods from a domestic tariff area (DTA) by an export-oriented unit (EOU)/electronic hardware technology park (EHTP) unit/STP unit/bio-technology park (BTP) unit

CBEC has issued a circular prescribing the procedure for procurement of supplies from a DTA by an EOU and units located in an EHTP, STP or BTP.

Circular No. 14/14/2017-CGST dated 6 November 2017

• Clarification regarding applicability of GST and availability of ITC in respect of certain services

CBEC has issued a circular and clarified the issue regarding the applicability of GST and availability of ITC in respect of certain services, viz., warehousing of agricultural products, interstate transfer of aircraft engines, parts and accessories, for use by their own airlines, supply of general insurance policies to the persons specified therein, including employees of state government.

Circular No. 16/16/2017-CGST dated 15 November 2017

• Manual filing and processing of refund claims in respect of zero-rated supplies

The circular clarifies procedural issues in relation to manual filing and processing of refund claims in respect of zero-rated supplies.

Circular No. 17/17/2017-CGSTdated 15 November 2017

• Clarification on inter-state movement of rigs, tools and spares, and all goods on wheels (such as cranes)

The circular clarifies that inter-state movement of rigs, tools and spares, and all goods on wheels (such as cranes), except in cases where movement thereof is for further supply of the same goods, shall be treated “neither as a supply of goods or supply of service” and consequently, no GST would be applicable.

Further, the circular reiterates that applicable CGST/SGST/IGST, as the case may be, is leviable on repairs and maintenance done for such goods.

Circular No. 21/21/2017-CGST dated 22 November 2017

Orders–CGST

• CGST (Removal of Difficulties) Order, 2017

The order has been passed to remove difficulties in implementing the provisions of the composition scheme.

If a person supplies goods and/or services referred to in clause (b) of paragraph 6 of Schedule II of CGST Act (restaurant services) and also supplies any exempt services including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, the said person shall not be ineligible for the composition scheme under Section 10 subject to the fulfilment of all other conditions specified therein.

In computing the aggregate turnover to determine its eligibility for composition scheme, value of supply of exempt services shall not be taken into account.

Order No. 01/2017-CGST dated 13 October 2017

• Time limit extended for intimation of details of stock held on the date preceding the date from which the option for composition levy is exercised in Form GST CMP-03

The period for intimation of details of stock held on the date preceding the date from which the option to pay tax under Section 10 of the Act is exercised in Form GST CMP-03 has been extended till 30 November 2017.

Order No.05/2017-CGST dated 28 October 2017

47 Tax Digest

• Time limit extended for submitting application in Form GST REG-26

The period for submitting application in Form GST REG-26 electronically has been extended till 31 December 2017.

Order No.06/2017-CGST dated 28 October 2017

• Time limit extended for submitting the declaration in Form GST TRAN-1

The period for submitting a declaration in Form GST TRAN-1 has been extended till 27 December 2017.

Order No. 10/2017-CGSTdated 15 November 2017

Notifications-Integrated Tax (Non-Rate)

• Exemption to job-workers making inter-state supply of services to a registered person from obtaining compulsory registration

Exemption from obtaining registration under GST has been provided to job workers making inter-state supply of services to a registered person. However, this exemption shall not be applicable where the job-worker is liable to take registration based on turnover threshold or voluntarily takes registration and also to the job-worker making supply of service in relation to jewelers, goldsmiths, silversmiths’ wares and other specified articles.

Notification No. 7/2017–Integrated Tax dated 14 September 2017

• Exemption to a person making inter-state taxable supplies of handicraft goods from obtaining compulsory registration

Persons making inter-state supplies of handicraft goods where the aggregate value of such supplies (computed on all-India basis) does not exceed INR20 lakh (INR10 lakh for special category states, other than J&K) are exempted from obtaining registration under the GST Act. They shall be required to obtain PAN and generate e-way bill as per normal provisions.

Notification No. 8/2017 – Integrated Tax dated 14 September 2017

• CBEC exempts persons making inter-state supplies of taxable services from registration under Section 23(2) of CGST Act, 2017

CBEC vide a notification has specified that persons making inter-state supplies of taxable services and having a turnover computed on a pan-India basis not exceeding INR20 lakh (INR10 lakh for special category states other than J&K) in a financial year are exempted from obtaining registration under IGST Act.

Notification No. 10/2017–Integrated Tax dated 13 October 2017

• Manner has been prescribed for determining the value attributable to different states or union territories, in case of supply of advertisement services to Central Government, state government, a statutory body or local authority

A detailed manner for determining the value attributable to different states or union territories for supply of advertisement services in newspapers and publications, on printed material such as pamphlets, leaflets, diaries, calendars and t-shirts, hoardings other than trains, on back of utility bills of oil and gas companies, radio stations, television channels, cinema halls, internet, etc., has been prescribed in the said notification.

Notification No. 12/2017–Integrated Tax dated 15 November 2017

Notifications-Integrated Tax (Rate)

• Ministry of Finance (MoF) has notified revised the rate of IGST on specified supplies of works contract services

The IGST rate for services provided to the Central Government, state government, union territory, a local authority or a governmental authority in respect of specified works contract services has been revised to 12%.

Notification No. 24/2017–Integrated Tax (Rate) dated 21 September 2017

48 Tax Digest

• Exempts tax on admission to FIFA U-17 World Cup

Services by way of right to admission to events organized under FIFA U-17 World Cup 2017 shall attract “nil” rate of GST.

Notification No. 25/2017–Integrated Tax (Rate) dated 21 September 2017

• MoF exempts supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries)

Supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries) is exempted from IGST.

Notification No. 31/2017 – Integrated Tax (Rate) dated 29 September 2017

• MoF exempts inter-state supply of goods or services received from unregistered person

The said notification exempts inter-state supply of goods or services received by a registered person from any unregistered supplier from the whole of IGST payable thereon. The exemption contained in this notification will be applicable till 31 March 2018.

Notification No. 32/2017 – Integrated Tax (Rate) dated 13 October 2017

• MoF amends Notification no. 9/2017 – Integrated Tax (Rate) by specifying certain services to be exempt

Exemption has been provided to the services such as:

1. Supply of services by a government entity to Central Government, state government, union territory, local authority or any person specified by central government, state government, union territory or local authority against consideration received from Central Government, state government, union territory or local authority, in the form of grants

2. Services by way of access to a road or a bridge on payment of annuity

Notification No. 33/2017 – Integrated Tax (Rate) dated 13 October 2017

• MoF amends Notification no. 4/2017– Integrated Tax (Rate) in relation to reverse charge on certain goods supplied by the Government

The said notification provides that when goods such as vehicles, seized and confiscated goods, old and used goods, waste and scrap are supplied by Central Government, state government, union territory or a local authority to any registered person, then such registered person will be required to pay tax under RCM.

Notification No. 37/2017 – Integrated Tax (Rate) dated 13 October 2017

• Concessional tax rate on supply of motor vehicles purchased prior to 1 July 2017

Motor vehicles purchased by a lessor prior to 1 July 2017 and supplied on lease before 1 July 2017 would attract tax at 65% of integrated tax applicable otherwise on such goods under Notification No. 1/2017- Integrated Tax (Rate) dated, 28 June 2017. Sale of vehicles by a registered person who had procured the vehicles prior to 1 July 2017 and has not availed any input tax credits of central excise duty, VAT or any other taxes paid on motor vehicles, would also attract tax at 65% of applicable IGST on such goods. The concessional rates would be applicable till 1 July 2020.

Notification No. 38/2017 – Integrated Tax (Rate) dated 13 October 2017

• Reduction of IGST rate on food preparations intended for free distribution to economically weaker Sections of the society under a program duly approved by the Government

Food preparations put up in unit containers and intended for free distribution to economically weaker Sections of the society under a program duly approved by the Central Government or any state government will attract an IGST rate of 5% subject to the fulfilment of specified conditions.

Notification No. 40/2017 – Integrated Tax (Rate) dated 18 October 2017

49 Tax Digest

• IGST at rate of 0.1% on inter-state supply of taxable goods by a registered supplier to a registered recipient for exports

The Government has exempted inter-state supply of taxable goods by a registered supplier to a registered recipient for export, from so much of the integrated tax leviable as is in excess of the amount calculated at the rate of 0.1%, subject to the fulfilment of certain prescribed conditions, such as:

1. Registered supplier shall supply the goods to the registered recipient on tax invoice

2. Registered recipient shall export the said goods within a period of 90 days from the date of issuance of tax invoice by registered supplier

3. Registered recipient shall indicate GSTIN of registered supplier and said tax invoice number should be mentioned by recipient, i.e., exporter in shipping bill/bill of export

4. Registered recipient shall be registered with EPC/commodity board recognized by the Department of Commerce

5. After export of goods, the recipient exporter must provide a copy of the shipping bill/bill of export along with proof of export general manifest/export report having been filed to the supplier as well as his jurisdictional tax officer

The registered supplier shall not be eligible for the said exemption if the registered recipient fails to export goods within 90 days from date of issue of the tax invoice.

Notification No. 41/2017 – Integrated Tax (Rate) dated 23 October 2017

• No IGST on supply of services to Nepal and Bhutan against payment in INR

The Government has exempted IGST on inter-state supply of services to Nepal and Bhutan against payment in INR.

Notification No. 42/2017 – Integrated Tax (Rate) dated 27 October 2017

• Amendment in the definition of “registered brand name”

The definition of “registered brand name” in Notification no.1/2017 – Integrated Tax (Rate) has been amended to include the brands that are registered after 15 May 2017. As per the earlier definition, only brands that were registered as on 15 May 2017 were treated as registered brand names.

Notification No. 43/2017 – Integrated Tax (Rate) dated 14 November 2017

• No refund of unutilized ITC on certain fabrics

The said notification provides that refund of unutilized ITC in respect of fabrics such as knotted netting of twine, cordage or rope, made up fishing nets and other made up nets, of textile materials, corduroy fabrics shall not be available.

Notification No. 46 /2017 – Integrated Tax (Rate) dated 14 November 2017

• GST rate amended for restaurants

Services in restaurants, irrespective of air conditioned or otherwise (except those provided in hotels having room tariff of INR7,500 or above per unit per day), will be taxed at 5% without ITC.

Restaurants in hotels having room tariff of INR7,500 or above per unit per day will attract IGST of 18% with full ITC.

Notification No. 48 /2017 – Integrated Tax (Rate) dated 14 November 2017

Circulars - Integrated Tax

• Clarification on supply of satellite launch services by ANTRIX Corporation Ltd.

Place of supply of satellite launch services supplied by ANTRIX Corporation Ltd. to international customers would be outside India in terms of Section 13(9) of the IGST Act, 2017 and such supply that meets the requirements of Section 2(6) of the IGST Act, would constitute export of service and shall be treated as zero rate in accordance of Section 16 of the IGST Act, 2017.

50 Tax Digest

However, where satellite launch service is provided by ANTRIX Corporation Ltd. to a person located in India, the place of supply of satellite launch service would be governed by Section 12(8) of the IGST Act and would be taxable under the CGST Act, UTGST Act or IGST Act as the case may be.

Circular No. 2/1/2017 – IGST dated 27 September 2017

Notification - Union Territory Tax (Non-rate)

• Increase in turnover limit to opt for Composition Scheme

The notification provides for increase in the turnover limit to INR1 crore instead of INR75 lakh to opt for Composition Scheme.

Notification No. 16/2017 – Union Territory Tax (UT) dated 13 October 2017

• Notifications issued under the CGST Act are extended to the UTGST Act

The said notification provides that subject to provisions of the Union Territory Goods Service Tax (UTGST) Act, 2017 and the rules made thereunder, the notifications issued under the Central Goods and Services Tax Act (CGST), 2017 relating to the subjects referred in Section 21 of the UTGST Act are automatically extended to the UTGST Act. The notification is effective from 22 June 2017.

Notification No. 17/2017 – UT, dated 13 October 2017

Notification - Union Territory Tax (Rate)

• MoF has notified revised rate of UTGST on specified supplies of works contract services

The UTGST rate for services provided to the Central Government, state government, union territory, a local authority or a governmental authority in respect of specified works contract services has been revised to 6%.

Notification No. 24/2017 – UT (Rate) dated 21 September 2017

• Exempts tax on admission to FIFA U-17 World Cup

Services by way of right to admission to events organized under FIFA U-17 World Cup 2017 shall attract “nil” rate of UTGST.

Notification No. 25/2017 – UT (Rate) dated 21 September 2017

• MoF exempts supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries)

Supply of services associated with transit cargo to Nepal and Bhutan (landlocked countries) has been exempted from UTGST.

Notification No. 30/2017 –UT (Rate) dated 29 September 2017

• MoF amends notification no. 12/2017 – UT (Rate) by specifying certain services to be exempt

Exemption has been provided to services such as:

1. Supply of services by a government entity to Central Government, state government, union territory, local authority or any person specified by central government, state government, union territory or local authority against consideration received from central government, state government, union territory or local authority, in the form of grants

2. Services by way of access to a road or a bridge on payment of annuity

Notification No. 32/2017 – UT (Rate) dated 13 October 2017

• MoF amends Notification no. 4/2017 – UT (Rate) in relation to reverse charge on certain goods supplied by the Government

The said notification provides that when goods such as vehicles, seized and confiscated goods, old and used goods, waste and scrap are supplied by Central Government, state government, union territory or a local authority to any registered person, then such registered person will be required to pay tax under RCM.

Notification No. 36/2017 – UT (Rate) dated 13 October 2017

51 Tax Digest

• Concessional tax rate on supply of motor vehicles purchased prior to 1 July 2017

Motor vehicles purchased by a lesser prior to 1 July 2017 and supplied on lease before 1 July 2017 would attract tax at 65% of the union territory tax applicable otherwise on such goods under Notification No. 1/2017- Integrated Tax (Rate) dated 28 June 2017. Sale of vehicles by a registered person who had procured the vehicle prior to 1 July 2017 and has not availed any input tax credits of central excise duty, VAT or any other taxes paid on motor vehicles, would also attract tax at 65% of applicable UTGST on such goods. The concessional rates would be applicable till 1 July 2020.

Notification No. 37 /2017 – UT (Rate) dated 13 October 2017

• MoF exempts intra-state supply of goods or services received from unregistered person

The said notification exempts intra-state supply of goods or services received by a registered person from any unregistered supplier from the whole of UTGST payable thereon. The exemption contained in this notification will be applicable till 31 March 2018.

Notification No. 38/2017 – UT (Rate) dated 13 October 2017

• Reduction of UTGST rate on food preparations intended for free distribution to economically weaker Sections of the society under a program duly approved by the Government

Food preparations put up in unit containers and intended for free distribution to economically weaker Sections of the society under a program duly approved by the Central Government or any state government will attract a UTGST rate of 2.5% subject to the fulfilment of conditions specified.

Notification No. 39/2017 – UT (Rate) dated 18 October 2017

• UTGST at the rate of 0.05% on intra-state supply of taxable goods by a registered supplier to a registered recipient for exports

The Central Government has exempted intra-state supply of taxable goods by a registered supplier to

a registered recipient for export from so much of the union territory tax leviable as is in excess of the amount calculated at the rate of 0.05%, subject to the fulfilment of certain prescribed conditions, such as:

1. Registered supplier shall supply the goods to the registered recipient on tax invoice

2. Registered recipient shall export the said goods within a period of 90 days from the date of issuance of tax invoice by registered supplier

3. Registered recipient shall indicate the GSTIN of the registered supplier and the said tax invoice number should be mentioned by the recipient, i.e., the exporter, in the shipping bill/bill of export

4. Registered recipient shall be registered with Export Promotion Council/commodity board recognized by the Department of Commerce

5. After export of goods, the recipient exporter must provide a copy of shipping bill/bill of export along with proof of export general manifest/export report having been filed to the supplier as well as the jurisdictional tax officer

The registered supplier shall not be eligible for the said exemption if the registered recipient fails to export goods within 90 days from the date of issue of tax invoice.

Notification No. 40/2017 – UT (Rate) dated 23 October 2017

• Amendment in the definition of “registered brand name”

The definition of “registered brand name” in Notification no.1/2017-UT (Rate) has been amended to include brands that are registered after 15 May 2017. As per the earlier definition, only brands that were registered as on 15 May 2017 were treated as registered brand names.

Notification No. 41/2017 – UT (Rate) dated 14 November 2017

52 Tax Digest

• No refund of unutilized ITC shall be allowed on certain fabrics

The said notification provides that refund of unutilized ITC in respect of fabrics such as knotted netting of twine, cordage or rope made up fishing nets and other made-up nets, textile materials or corduroy fabrics shall not be available.

Notification No. 44/2017 – UT (Rate) dated 14 November 2017

• GST rate amended for restaurants

Services in restaurants, irrespective of air conditioned or otherwise (except those provided in hotels having room tariff of INR7,500 or above per unit per day), will be taxed at 2.5% without ITC.

Restaurants in hotels having room tariff of INR7,500 or above per unit per day will attract GST of 9% with full ITC.

Notification No. 46/2017 – UT (Rate) dated 14 November 2017

Order–Union Territory Tax

• Order has been issued to remove difficulties in implementing provisions of the Composition Scheme

It has been clarified that if a person supplies restaurant service and also supplies any exempt services, including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, the said person shall not be ineligible for the Composition Scheme, subject to the fulfilment of all other conditions specified therein.

It is further clarified that in computing the aggregate turnover in order to determine the eligibility for the Composition Scheme, the value of supply of any exempt services, including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.

Order No. 01/2017- Union Territory Tax dated 13 October 2017

53 Tax Digest

Notification-Compensation Cess

• Notifications–Compensation Cess (Rate)

MoF issues notification prescribing hike in compensation cess on motor vehicles with effect from 11 September 2017

The revised rate of compensation cess are as under:

HSN code Description of goods Tax rate

8703 40,

8703 60

Motor vehicles with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion:

a. Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles

b. Three-wheeled vehicles

c. Motor vehicles of engine capacity not exceeding 1200 cc and of length not exceeding 4000m

d. Motor vehicles other than those mentioned at (a), (b) and (c) above

Nil

Nil

Nil

15%

8703 50,

8703 70

Motor vehicles with both compression-ignition internal combustion piston engine [diesel or semi-diesel] and electric motor as motors for propulsion:

a. Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles

b. Three-wheeled vehicles

c. Motor vehicles of engine capacity not exceeding 1,500 cc and of length not exceeding 4,000m

d. Motor vehicles other than those mentioned at (a), (b) and (c) above

Nil

Nil

Nil

15%

8703 – Entry 52

Motor vehicles of engine capacity not exceeding 1,500 cc 17%

8703 – Entry 52A

Motor vehicles of engine capacity exceeding 1500 cc other than motor vehicles specified against entry at S. No 52B

20%

8703 – Entry 52B

Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles

Explanation: For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4,000 mm and having ground clearance of 170 mm and above

22%

Notification No. 05/2017 – Compensation Cess (Rate) dated 11 September 2017

54 Tax Digest

Foreign Exchange Management Act (FEMA) 1999

Regulatory1. Reserve Bank of India issues single

revised notification, i.e., Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017

In order to build on investor-friendly regulatory climate and to facilitate ease of doing business in India, the RBI has simplified and issued a consolidated regulation dealing with foreign investments in India, i.e., Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (commonly known as FEMA 20 (R)) dated 7 November 2017, replacing the earlier Notification No. 20 dated 3 May 2000 dealing with FDI in Indian companies and limited liability partnership (LLP) and Foreign Exchange Management (Investment in Firm or Proprietary Concern in India) Regulations, 2000 (commonly known as FEMA 24) dated 3 May 2000 dealing with investments in firms or proprietary concerns in India. The key features of the revised notification, i.e. FEMA 20(R), are discussed below:

a. Amendment in definitions:• The definitions of “capital,” “debenture,”

“preference shares” and “warrants” have been consolidated under the term “capital instruments”

“Capital instruments” have been defined as equity shares (including partly paid-up shares), fully compulsorily and mandatorily convertible debentures and preference shares, share warrants and all non-convertible/optionally convertible/partially convertible preference shares and debentures issued on or before 30 April 2007 and 7 June 2007, respectively, till their original maturity. All capital instruments can contain an optionality clause without any option or right to exit at an assured price.

• Certain terms such as “FDI,” “foreign portfolio investment (FPI)” and “FDI linked performance conditions” have now been defined under the revised Notification.

b. FDI and FPI in Indian listed companies• In order to align with the Securities and

Exchange Board of India (SEBI) guidelines, the RBI has clarified that a person resident outside India can invest either under the FDI or the FPI route.

• Now onward, all foreign investments by foreign institutional investors (FIIs), qualified foreign investors (QFIs) and non-residents in listed companies below 10% will be considered as FPI.

• Any past FDI that is reduced below the 10% limit in the future will continue to be considered as investment under the FDI route and not as investment under the FPI route.

c. Issue of capital instruments• In order to align with the provisions of the

Companies Act, 2013, the RBI has amended the time period for allotment of capital instruments from the erstwhile 180 days to 60 days from the date of receipt of application money.

• In case of any refund of application money, it can be remitted back within 75 days (earlier 180 days) from the date of its receipt.

• A person resident outside India is permitted to purchase the shares of a listed Indian companies out of the dividend payable by the Indian investee company in which the non-resident has acquired and continues to hold control, provided the right to receive the dividend is established and the dividend amount has been credited to a specially designated non-resident rupee account for acquisition of shares on the stock exchange in India.

d. Transfer of capital instruments• Formerly, a non-resident Indian (NRI)/overseas

citizen of India (OCI) could transfer capital instruments only to another NRI/OCI and Indian residents under the automatic route. The RBI has permitted NRIs to transfer, by way of sale, capital instruments (held on repatriation or non-repatriation basis) even to non-residents under the automatic route, subject to sectoral restrictions.

55 Tax Digest

• An NRI/OCI, holding capital instruments on a repatriation basis can now transfer those capital instruments by way of gift to a non-resident, subject to sectoral restrictions.

• Previously, only the transfer by way of sale/gift of capital instrument of an Indian company by one non-resident to another non-resident was covered under general permission. Now, RBI has also permitted the transfer of capital instruments to a non-resident, pursuant to liquidation, merger, de-merger and amalgamation of companies incorporated outside India under general permission.

• Earlier, a non-resident could only pledge shares of listed Indian companies in favor of a non-banking financial company (NBFC) registered with the RBI. The RBI has now permitted the pledge of shares of an unlisted Indian company by its Indian subsidiary companies for securing credit facilities under the automatic route.

e. Reporting amendments:• In case of transfer of shares on a deferred

payment arrangement, the resident transferor/transferee must file Form FC-TRS within 60 days from the date of receipt of each tranche of payment.

• The transfer of capital instruments from an NRI (held on non-repatriation basis) to a non-resident has to be reported by filing Form FC-TRS.

• An Indian company has to intimate the Secretariat of Industrial Assistance (SIA) and Department of Industrial Policy and Promotion (DIPP) by filing Form DI within 30 days of making the downstream investment. However, the RBI still needs to align the revised regulations with the recently issued Consolidated FDI Policy on 28 August 2017 whereby such intimation must also be made to the RBI and on the Foreign Investment Facilitation Portal.

• Earlier, in case of unlisted entities, valuation reports had to be certified only by a Chartered Accountant or a SEBI-registered merchant banker. Now, a valuation report determining the fair value of capital instruments can also be certified by a practicing Cost Accountant.

• Any delay in reporting of foreign investments will now be liable for payment of late submission fee. This may obviate the need to undergo the time-consuming compounding process to regularize such contraventions.

f. Other clarificatory amendments:• It has been specifically clarified that any resident

shareholding where beneficial interest is held by a non-resident shall be reckoned as FDI.

• Any allotment of shares under the employee stock option (ESOP) scheme to a non-resident individual will be considered as a non-repatriable investment if the underlying options were issued/granted by the Indian company when the said individual was an Indian resident.

Source: Notification No. FEMA 20(R)/2017-RB dated 7 November 2017

2. RBI relaxes norms for auditor certificate in relation to annual filing under overseas direct investments (ODI)

Earlier, the statutory auditors of the Indian party were required to certify that “the un-audited annual accounts of the joint venture(JV)/wholly owned subsidiary(WOS) reflect the true and fair picture of the affairs of the JV/WOS” where the law of the host country does not mandatorily require auditing of the books of account of JV/WOS for the purpose of filing an annual performance report (APR) as a mandatory requirement under ODI guidelines.

56 Tax Digest

The RBI has now clarified that the statutory auditors of the Indian party will certify that the law of the host country does not mandatorily require auditing of the books of accounts of JV/WOS and the figures in the APR are as per the un-audited accounts of the overseas JV/WOS. However, the said exemption from filing the APR based on unaudited balance sheets will not be available in respect of a JV/WOS in a country/jurisdiction that is either under the observation of the Financial Action Task Force (FATF) or in respect of which enhanced due diligence is recommended by the FATF or any other country/jurisdiction as prescribed by the RBI.

Source: FEMA Notification No. 369/2017-RB dated 14 November 2017

3. RBI excludes issuance of rupee denominated bonds (RDBs) from the limit of FPI in corporate debt securities

The RBI has made certain amendments for the issuance of RDBs in order to align the norms with the ECB guidelines:

• The issuance of RDBs will no longer form a part of the limit for FPI investments in corporate bonds. They will form a part of the ECBs and will be monitored accordingly with effect from 03 October 2017.

• The amount of INR440.01 billion arising from shifting of RDBs will be released for FPI investment in corporate bonds.

• The reporting of RDBs will continue as per the extant ECB norms.

Source: A.P. (DIR Series) Circular No. 06 and A.P. (DIR Series) Circular No. 05 dated 22 September 2017

4. Authorized dealer (AD) banks to generate Electronic Bank Realisation Certificate (eBRC)

The RBI has directed AD banks to update the Export Data Processing and Monitoring System (EDPMS) with data of export proceeds on “as and when realised basis” and, with effect from 16 October 2017, generate eBRC only from the data available in the EDPMS in order to ensure consistency of data in the EDPMS and consolidated eBRC.

Source: A. P. (DIR Series) Circular No. 04 dated 15 September 2017

57 Tax Digest

FDI policy

5. DIPP amends the standard operating procedures (SOP) for processing FDI proposals

DIPP has amended the SOP issued on 29 June 2017 wherein all the FDI proposals once submitted before the concerned administrative ministry/department were required to be forwarded to the Ministry of External Affairs (MEA) and the Department of Revenue (DoR) for information and comments within the stipulated time period.

In this regard, DIPP has removed the requirement of forwarding all the FDI proposals to the DoR.

Source: Notification No. 1/8/2016-FC-I dated 10 October 2017

58 Tax Digest

Aadhaar card, PAN card linking

Puneet Gupta, Financial Express

GST: The first 100 days

Harishanker Subramaniam , Livemint

Working abroad? Now get EPFO certificate of coverage online to escape social security contribution

Puneet Gupta , The Economic Times Wealth

GST: How tax professionals can tap the digital goldmine

Rahul Patni , Livemint.comvch

GST-hit small units need more help

VS Krishnan, HINDU BUSINESS LINE

GST – A Reboot

Harishanker Subramaniam, Bloomberg Quint

GST overhaul: responding to stakeholders

Harishanker Subramaniam, Livemint

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In the press

59 Tax Digest

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

1. PAS Alert : Clarification from Provident Fund Office - Provident Fund withdrawal to Japanese employees who have left India

8 September 2017

Circular issued by EPFO on 1 September 2017

2 PAS Alert : Provident Fund office launches new online process for application of Certificate of Coverage

12 September 2017

User manual issued by EPFO detailing steps to be followed while applying for Certificate of Coverage.

3 CBDT specifies procedure for taxes to be withheld on interest paid to capital gains account scheme of a deceased depositor

15 September 2017

CBDT Notification No. 8/2017 dated 13 September 2017

4 CBDT issues draft notification for insertion of a rule for voluntary disclosure of estimated current year’s income, tax payments and advance tax liability

20 September 2017

CBDT draft notification dated 20 September 2017

5 J&K HC rules that contract receipts of a JV result in diversion of income to JV members; receipt not an income of the JV

21 September 2017

Soma TRG Joint Venture v. Commissioner of Income tax

[TS-405-HC-2017(J&K)]

6 SB rules self-assessment tax paid subsequently by filing a revised return does not exonerate penalty for default committed in original return

3 October 2017 Claris Life Sciences Ltd. v. DCIT

[TS-431-ITAT-2017(Ahd)]

7 PAS Alert - Provident Fund office issues compliance guidelines for employers maintaining Private Provident Fund Trusts

5 October 2017 Circular issued by EPFO on 29 September 2017

8 Flash News - India tax administration releases draft rules in respect of Country-by Country reporting and Master File for public comments

6 October 2017 Draft rules on CbC issued by CBDT on 6 October 2017

9 PAS Alert - Frequently Asked Questions released by the Provident Fund office on its Inspection Policy

9 October 2017 FAQs issued by EPFO on 5 October 2017

10 Absent registration of Joint Development Agreement, no “transfer” results for capital gains taxation

9 October 2017 Commissioner of Income-tax v. Balbir Singh Maini [TS-444-SC-2017]

11 Flash News : Aadhaar-based e-sign facility for Provident Fund Portal

10 October 2017 Circular issued by EPFO on Aadhaar-based e-sign facility

Direct Tax

Compilation of Tax Alerts

(Click on the hyperlinks to the title to access the alerts)

60 Tax Digest

12 Global Tax Alert - Indian Tax Administration releases draft rules on Country-by-Country reporting and Master File implementation for public comments

11 October 2017 Draft Rules released for public comments by Indian tax administration

13 Bangalore Tribunal rules no service PE by considering only solar days of services rendered in India; rejects virtual PE application in the absence of services rendered virtually

16 October 2017 [TS-451-ITAT-2017(Bang)]

14 Apex Court rules loans/advances given to a concern is taxable as deemed dividend in the hands of shareholder

17 October 2017 CIT v. Madhur Housing and Development Company and Others[TS-462-SC-2017]

15 CBDT issues POEM clarification for operations carried on through regional headquarters

24 October 2017 CBDT Circular No. 25 of 2017 dated 23 October 2017

16 SC rules outsourcing of services by US company to its Indian affiliate does not constitute a PE

25 October 2017 E Funds IT Solutions Inc. and othersSLP No. 27494 of 2017

17 Gujarat High Court holds premature redemption of debt instrument with back-ended return is a permissible tax planning

1 November 2017

Nirma Ltd. v. ACIT[TS-478-HC-2017(Guj)]

18 Gujarat High Court upholds simultaneous profit-linked deduction to developer and O&M operator of infrastructure facility

2 November 2017

CIT v. Nila Baurat Engineering Ltd.[Tax Appeal No. 807 of 2017]

19 Full Bench of Karnataka HC rules incidental interest income earned by the Taxpayer is eligible for export incentive scheme deduction

2 November 2017

CIT v. Hewlett Packard Global Ltd.[ITA No. 812 of 2017]

20 Indian Tax Administration releases final rules on Country-by-Country reporting and Master File implementation

4 November 2017

Final rules issued by Indian tax administration on 31 October 2017

21 Global Tax Alert - Indian Tax Administration releases final rules on Country-by-Country reporting and Master File implementation

7 November 2017

Final rules issued by Indian tax administration on 31 October 2017

22 Delhi HC substantially dilutes ICDS by striking down to the extent of conflict with binding judicial precedents

9 November 2017

The Chamber of Tax Consultants & Anr v. Union of India & others[W.P.(C) 5595/2017 & CM APL 23467/2017]

61 Tax Digest

23 Indian Administration issues clarification on non-applicability of indirect transfer provisions to redemption or buyback of shares/interest in multi-tier investment structures

10 November 2017

CBDT Circular 28/2017 dated 7 November 2017

24 CBDT issues draft notification specifying conditions for conversion of Indian BO of foreign bank into Indian subsidiary company

21 November 2017

CBDT Draft Notification dated 17 November 2017

25 PAS Alert - Recent digital initiatives by the Provident Fund office

27 November 2017

Multiple digital initiatives issued by EPFO in the past few months vide various circulars

26 India’s positions on the 2017 Update to the OECD Model Convention and Commentary

28 November 2017

The key changes to India’s positions in the 2017 Update

27 SC allows advance deposit of excise duty in PLA as deduction on actual payment

28 November 2017

CIT v. Modipon Ltd.[TS-548-SC-2017]

28 Global Tax Alert - Indian Tax Administration relaxes norms for MAP and bilateral APAs

6 December 2017

CBDT Press release dated 27 November 2017

62 Tax Digest

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

1 Government issues revised rules on E-way bills

7 September 2017

CBEC Notification No.27/2017 - Central Tax, dated 30 August 2017

2 GST Council extends due date of filing returns for July 2017 and recommends changes in rates and other provisions under GST

12 September 2017

Key decisions taken on the 21st meeting of GST council held on 9 September 2017

3 CBEC notifies persons required to deduct tax at source under GST and commences registration process

18 September 2017

CBEC Notification dated 15 September 2017

4 HC allows exporter holding Advance Authorization to import without payment of IGST

19 September 2017

[TS-255-HC-2017(DEL)-NT]

5 Nil GST on branded cereals, pulses etc. if enforceable right on brand name is foregone

21 September 2017

Press Release dated 20 September 2017

6 Government issues corrigendum to provide clarity on legal services under GST

27 September 2017

Corrigendum dated 25 September 2017

7 CBEC clarifies on availment of transitional credit arising from payment of Service tax under reverse charge after 30 June 2017

29 September 2017

CBEC clarificatory Circular No. 207/5/2017-Service Tax, dated 28 September 2017

8 CBEC extends LUT facility in respect of all zero-rated supplies

5 October 2017 CBEC Circular dated 4 October 2017CBEC Notification dated 4 October 2017

9 GST News Alert - Council recommends further rationalization of GST rates and addresses concerns of SMEs, Exporters

8 October 2017 Key decisions taken on the 22nd meeting of GST council held on 6 October 2017

10 CBEC prescribes guidelines for claiming refund of IGST paid on export of goods

12 October 2017 CBEC internal instruction dated 9 October 2017

11 Government announces budgetary support scheme in lieu of excise duty exemption refund schemes to units in J&K, Uttarakhand, Himachal Pradesh and North-Eastern states

12 October 2017 Ministry of Commerce and Industry notification dated 5 October 2017

12 Notifications issued exempting IGST and Compensation cess on imports against EPCG/Advance Authorization and refund of IGST for deemed exports

24 October 2017 CBEC Notifications No. 47/2017, 48/2017, 49/2017 dated 18 October 2017 and 78 & 79/2017 dated 13 October 2017

13 Mumbai Tribunal allows refund of Service tax on rent paid by the Duty Free Shops to Airport Authorities

26 October 2017 [2017 (10) TMI 405-CESTAT MUMBAI]

Indirect Tax

63 Tax Digest

14 Supreme Court upholds constitutional validity of entry tax on goods imported from outside India

3 November 2017

State of Kerala v. Fr William Fernandez and others [TS-296-SC-2017-VAT]

15 High Court upholds constitutional validity of Gujarat VAT provision treating merging entities as distinct persons till the date of order approving the merger

3 November 2017

Indus Towers Ltd. v. State of Gujarat[TS-251-HC-2017(GUJ)-VAT]

16 CBEC prescribes procedure for procurement of supplies by EOUs from DTA

8 November 2017

CBEC Circular No. 14/14/2017-GST dated 6 November 2017

17 Council recommends further changes in tax rates, compliance and other provisions of GST

11 November 2017

Key decisions taken on the 23rd meeting of GST council held on 10 November 2017

18 Supreme Court rules reduction of input tax credit under two separate provisions of Gujarat VAT

16 November 2017

[2017-VIL-34-SC]

19 CBEC issues Notifications giving effect to the recommendations made by GST Council

17 November 2017

CBEC’s Central Tax (Rate) NotificationNo. 41 - 47/2017 all dated 14 November 2017 and Central Tax (Non-Rate) NotificationNo. 55 –66/2017 – Central Tax, all dated 15 November 2017

20 CBEC clarifies levy of IGST on sale of imported goods stored in a bonded warehouse

29 November 2017

CBEC Circular No. 46/2017-Customs dated 24 November 2017

64 Tax Digest

Regulatory

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

1. Reserve Bank of India issues Master Directions for regulating Peer to Peer Lending Platforms in India

9 October 2017 RBI’s Master Directions dated 4 October 2017

2. RBI issues Master Directions on issuance and operation of PPIs

10 November 2017 Master Directions on issuance and operation of PPIs issued by RBI on 11 October 2017\

3. Revised Notification issued by RBI for Foreign Investments in India

14 November 2017 RBI Notification No. FEMA.20(R)/ 2017-RB dated 7 November 2017

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