Jodhpur seminar 2012


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Jodhpur seminar 2012

  1. 1. Company Secretary The Visionary Professional & Value Added Service Provider A Presentation by Dr. Sanjiv Agarwal FCA, FCS, ACIS (UK)Jodhpur 1 April 2012 1
  2. 2. CS : The Visionary Professional &Value Added Service Provider Company SecretaryCompanySecretary  Secretary of company  Principal officer  Key Management Personnel  Eyes & ears of Board  A visionary professional  A true professional – doing things right and doing the right things 2
  3. 3. CS : The Visionary Professional &Value Added Service ProviderAttributes of a good Secretary: Changing role Compliance to business solution provider Promoter / share holder oriented to stakeholder’s welfare Value driven – 360o value addition Company Law to versatile knowledge and multi tasking Change victim to change agent New qualification - Values and ethics 3
  4. 4. CS : The Visionary Professional &Value Added Service Provider New Role for C.S.ExpandingExceedingExcellingE. E. E(The fine picture) 4
  5. 5. CS : The Visionary Professional &Value Added Service ProviderEssentials of Professionalism Personal & Professional Effectiveness Emotional Intelligence Administrative Competencies Communication and Active Listening Conflict Resolution and Positive Discipline Planning and Setting Priorities and Performance Management Mentoring and Coaching Team Building Professional Best Practices 5
  6. 6. CS : The Visionary Professional &Value Added Service ProviderExpectations from a C. S. be a versatile and strategic resource to company / industry wealth creation, fund management and business management ethical practices in dealing with external world / stakeholders good governance in place CSR, sustainability and inclusive growth. Follow core values 6
  7. 7. CS : The Visionary Professional &Value Added Service Provider Core Valuesa belief followed in personal / professional lifea way of lifecore values include• Integrity – inner sense of wholeness, strength• Ethics – moral character, sense of right or wrong• Reliability – assurance of quality and commitment• Ownership – responsibility, accountability and empowerment• Being stakeholder centric – most valued constituency 7
  8. 8. CS : The Visionary Professional &Value Added Service ProviderNew areas of Engagement Intellectual Property Rights Banking and Insurance Foreign trade and foreign exchange management Rehabilitation and reconstruction of sick companies FDI and other foreign investments Merchant banking services Registrar and transfer agent services Telecom laws and regulations Electricity laws and regulations 8
  9. 9. CS : The Visionary Professional &Value Added Service ProviderNew areas of Engagement Taxation – Direct and Indirect Taxes Investment banking Securitization and asset reconstruction Mergers and acquisitions Limited Liability Partnerships Labour laws Environmental laws Cooperative societies NGO’s Education 9
  10. 10. CS : The Visionary Professional & Value Added Service ProviderFuture Opportunities NCLT Competition law Insolvency law Rehabilitation and revival of sick companies Valuation IT and cyber laws Private equity KPOs and LPOs Infrastructure and real estate 10
  11. 11. CS : The Visionary Professional &Value Added Service Provider Challengesskills like decision making / leadership / team workexpertise in new areas of –  governance  sustainability  value based businessUnlisted companies and SME sector.Services to non corporate entities – Trusts, NGO’s, SME sector, banks,autonomous bodies etc.New areas – environmental laws, cyber laws, IPR, Taxation, Capital market,arbitration, Legal drafting, Risk management, competition lawCorporate mishaps and fraudsCompetition – Local / globalTechnological changes 11
  12. 12. Service Tax in IndiaIntroduced in India in 1994 as a simple, modest tax withjust three services.Service tax – an indirect tax.Approach to Service Tax – Selective as againstcomprehensive one .Desirable from revenue, equity and economic view point.Governed by Finance Act, 1994 and a dozen of rules.Legislative dependence on other laws.Jurisdictional application.Scattered and heterogeneous large mass of serviceproviders as well as wide spectrum of services. 12
  13. 13. Brief Overview of Services / Service Tax Share of Services in GDP Agric ult ure 19% S e rvic e S e c t or 59% Indust ry 22% GDP CO MPO SITIO N IN MARCH, 2012 13
  14. 14. Share of services in GDP tracked Year % of GDP 1950 15 1970 33 1980 36 1994 40 1995 41 2000 47 2005 53 2010 57 2011 59In 2011-12, services have grown by 9.6% which is morethan GDP growth rate 14
  15. 15. Growth of Service TaxYear No. of Rs. (in crores) Services1994 3 4072001 26 26122005* 72 141992008 103 513012010 112 580002011 120 680002012 120 950002013 All 126000(B) 15
  16. 16. Legal Validity of Service TaxArticle 246 of Constitution  Distribution of legislative powers between Union and State Legislatures with reference to lists under VII Schedule  List I Union Parliament has exclusive power to legislate specified matters  List II State legislature has exclusive powers to legislate specified matters  List III Concurrent power to both, Union and State legislatures for specified matters 16
  17. 17. Service tax – Some Interesting FactsPresent contribution of services to GDP- 59 percentTotal tax collection in India is Rs. 9.32 lakh crore of which Rs. 3.97 lakhcrore is indirect tax. (42%)Current share of service tax to total indirect taxes is 31percent at Rs. 95000croreAssessees expected to be around 8 lakh.Top contributions from tele-communication general insurance, stockbrokers, banking, courier, ports and consulting engineers .C.S. Profession contributes about Rs 35 croreOver 8000 cases pending > 5 years“The Avoidance of taxes is the only intellectual pursuit that still carriesany reward – J.M. Keynes" 17
  18. 18. Service Tax : Reforms & IssuesThreshold exemption limitNo levy of service tax on export of servicesInter sectoral creditCentralised registrationE payment and e filingSelf adjustment of excess service taxFiling of belated returns.Revision of service tax returnsComposition scheme for works contractsExemption and refund to ExportersValuation of servicesPoint of Taxation RulesReverse charge 18
  19. 19. Classification / Consolidation of Services Classification of Taxable ServicesSection 65AW.e.f. 14.05.2003Where any taxable service is classifiable in more than one category,category of service to be selected as under- Service which gives most specific description of service to be preferred over general description- In case of a composite service where specific description based classification is not possible, look for essential character of service.- If neither could be done, service to be classified under category which appears first amonst the probable categories under section 65(105) 19
  20. 20. Classification / Consolidation of ServicesHow to do it- Decision to be made on question of facts and law- Bothe form and substance of the transaction are to be taken into account- Guiding principle is to identify the essential features of transaction- Method of charging does not in itself determine whether the service provided is a single service or multiple services- Scope of coverage of individual services should be interpreted strictly in accordance with statutory provision . 20
  21. 21. Classification / Consolidation of ServicesThere are about ten services where overlapping in classification exist andthere is no scientist on this earth (except Excise Officer) who can do theclassification with confidence.Mandap / event / convention/ catering /Club;CA/CS/CWA/ management consultant;Consulting engineer/ technical & scientific consultancy / repair &maintenance/ erection, commissioning;IPR/ Franchise/ business auxiliary services / licensed production agreementsManagement consultancy/ banking services (mergers & acquisitions)Business auxiliary and business support servicesCHA and Cargo handling servicesCourier & GTA services 21
  22. 22. Classification / Consolidation of Services- Consolidation of services - need of the day- Telecommunication services 6 services merged – telephone, pager, leased circuit, telegraph, telex and facsimile services- Interpretational issues- For clarity to services provider and tax administration- Broad groups could be insurance, construction, advertisement & business promotion, banking & financial services , business support, communication and transportation- Opportunity to rationalize services – now or 2011 or never? 22
  23. 23. Registration (Form ST-1, ST-2) • Within 30 days from the date on which service tax is levied on any service or within 30 days of commencement of business by the assessee whichever is later. [Rule 4(1)] • In case of registration of non-resident, refer rule (6). • Centralised registration — same as in rule 4(1) or as decided by the service provider [Rule 4(2)]• Registration of specified categories of persons, i.e., service receivers and input services distributors is required under Service Tax (Registration of Specified Categories ofPersons) Rules, 2005, w.e.f. 16-6-2005. 23
  24. 24. Payable by individuals, proprietary concerns, partnership firms:Payable on amounts Due date (W.e.f.received during the quarter (upto 31-3-2005) 1-4-2005)1st April to 30th June 25th July 5th July1st July to 30th September 25th October 5th October1st October to 31st December 25th January 5th January1st January to 31st March 31st March 31st MarchPayable by persons other than individuals, proprietary concerns,partnership firms , LLPs:Payable on amounts Due date (W.e.f.received during the quarter (upto 31-3-2005) 1-4-2005)April 25th May 5th MayMay 25th June 5th JuneJune 25th July 5th JulyJuly 25th August 5th August----- 24
  25. 25. January 25th February 5th February February 25th March 5th March March 31st March 31st March e-paymentWhere electronic payment of service tax is required to be made, the last dateof payment shall be sixth (6th) day of the month, instead of fifth day. e-payments made upto 8 pm of the day shall be considered to have been paidon that day. 25
  26. 26. Rates of Service Tax as per Section 66Period Tax Rate (%) Education Cess (%)1-7-1994 to 13-5-2003 5 (five) —14-5-2003 to 9-9-2004 8 (eight) —10-9-2004 to 17-4-2006 10 (ten) 2 (two)(Effective tax rate including education cess is 10.2 per cent w.e.f. 10.9.2004)18-4-2006 to 10-4-2007 12 (twelve) 2 (two)and w.e.f. 1.4.2012(Effective tax rate including education cess is 12.24 per cent w.e.f. 18-4-2006).11-5-2007 to 23-2-2009 12 (twelve) 2 (two) 1 (one) Secondary & Higher Education Cess(Effective tax rate including education cess and secondary & higher education shall be 12.36per cent w.e.f. 11-5-2007).w.e.f. 24-2-2009 10 (ten) 2 (two) 1 (one) Secondary & Higher Education Cess(Effective tax rate including education cess and secondary and higher educationcess shall be 10.30 per cent w.e.f. 24-2-2009. 26
  27. 27. Returns (Form ST-3, ST-3A)2For the half year: To be filed by1st April to 30th September 25th October1st October to 31st March 25th April Notes: (1) For delayed filing of returns, late fee is payable as prescribed in Rule 7C of the Service Tax Rules, 1994. (1) Return can be revised within sixty days (90 days w.e.f. 1-3-2008) from the date of submission of return under rule 7. (2) First return should be accompanied by list of records and booms of account maintained by the assessee. 27
  28. 28. Valuation Rules Service tax ( Determination of Value ) Rules, 2006Manner of determination of Taxable Value (Rule 3) Taxable Value where Consideration is not wholly or partly in Money Value of taxable service is determined in cases where consideration is not wholly or partly in money terms, i.e., part of it is in cash and part of it is otherwise than for cash. In such cases, value of taxable service shall be equivalent to the gross amount charged by service provider in ordinary course of trade and gross amount charged will be the sole consideration. While the money consideration would be on actuals and can be determined without any problem, there may be some subjectivity in ascertaining the value where consideration is not in money but in kind of some money equivalent value. 28
  29. 29. Valuation RulesTaxable Value where Consideration is not ascertainableWhere the taxable services provided are for aconsideration in money term but such consideration orvalue is not ascertainable, the value of such servicesshall be determined by service provider as equivalentmoney value of such consideration which shall in nocase be less than the cost of providing such taxableservice.Rejection of value (Rule 5)Rule 5 provides powers to Central Excise Officer toreject the valuation done under Rule (3) 29
  30. 30. Books of Accounts and DocumentsSalient Features for Service Tax No separate records prescribed. Books as maintained by assessee to be accepted [Rule 5(1)] List of books of accounts to be furnished to Department with first Service Tax Return [Rule 5(2)] Records to be preserved for a period of 5 years [Rule 5(3)] Records to be made available for inspection and examination [Rule 5(4)] 30
  31. 31. Books of Accounts and DocumentsMandatory issuance of invoice, bill or challan [Rule 4A]Element of service tax to be shown separately [Section12A of Central Excise Act]Documents and accounts to be kept for receipt andconsumption of input services, Cenvat credit taken etc.[Rule 9 of Cenvat Credit Rules] 31
  32. 32. Books of Accounts and DocumentsService Tax InvoiceInvoice should contain the following payment details – Fees or service charges Reimbursement of expenses, if any Material or goods sold, if any Service tax on value of service [Fees + RE, if applicable] Excise Duty, if applicable Sales tax / VAT on sales Education cess on service tax / excise duty 32
  33. 33. Areas of Non Compliance- Incorrect exemption.- Incorrect availment / utilisation of Cenvat credit for payment of service tax on input service.- Non payment of service tax on services rendered by foreigners- Non levy of service tax on services rendered by domestic service providers – telecom , clearing & forwarding , equipment leasing , business auxiliary , ports, interior decoration , broadcasting etc.- Short levy of service tax.- Unregistered service providers (777) identified in only four services.- 22 % of due returns not submitted .- Ineffective scrutiny of returns.- Suppression of taxable value .- Delayed adjudication .- Internal audit was not effective in detection of evasion / short payment of service tax- Only few search and seizure made on very limited scale. 33
  34. 34. Company Secretary’s ServicesWho is practicing company secretary As per Section 65(85), practising company secretary has been defined to mean a person who is a member of the Institute of Company Secretaries of India, New Delhi and is holding a certificate of practice granted under the Company Secretaries Act, 1980 and includes any concern engaged in rendering the services in the field of Company would include : (i) practising company secretaries (ii) practising associate or fellow members (iii) practising individuals or firms. 34
  35. 35. Company Secretary’s ServicesTo be treated as a practising company secretary the following basic tests must be satisfied—(i) He must be a person;(ii) He must be a member of the Institute to which he belongs (ICSI);(iii) He must hold a certificate of practice granted by the Institute;(iv) In case of firm of company secretaries, it must be a concern engaged in rendering services in the field of company secretaryship. 35
  36. 36. Company Secretary’s ServicesSection 65(105)(u) defines ‘taxable service’ as under — “taxable service” means any service provided or to be provided to any person by a practising Company Secretary in his professional capacity in any manner.Taxable service should be—(i) provided (includes to be provided) to a client (any person w.e.f. 16-5- 2008);(ii) provided (includes to be provided) in the professional capacity;(iii)provided in any manner;(iv)not be any exempted service for company secretaries. 36
  37. 37. Company Secretary’s ServicesTaxable Services include Services relating to profession of company secretaries in relation to any company. Performing services in relation to the promotion, forming incorporation, amalgamation, reconstruction, re-organisation or winding up of companies. Services relating to : (i) authorised representative of a company with respect to filing, registering presenting, attesting or verifying any documents, by or on behalf of companies/clients (ii) share transfer agent (iii) issue house (iv) share broker (v) secretarial auditor or consultant (vi) issuing certificates for client companies : (a) on corporate matters and consultancy services (b) on other professional matters. (vii) corporate advisory services (viii) professional services or assistance on matters of principal or detail relating to practice as C.S. (ix) Other services as permitted by ICSI. 37
  38. 38. Budget 2012-13 Changes in Service TaxObjective to widen tax baseEffects to harmonise Central Excise and Service Tax for eventualgoal of transition to goods and service tax (GST). A study group tobe setup.Introduction of negative list approach in service tax (17 broadcategories of negative services announced) and tax all servicesexcept those in negative list34 services placed in exempted services category vide NotificationNo 12/2012-ST.Finance Act, 1994 provisions trimmed by reducing definitions andnumber of taxable services, almost reduced by 40% in size. 38
  39. 39. Budget 2012-13 Changes in Service TaxIntroduction of common simplified registration form and commonone page return form for Central Excise and Service Tax to be filedon monthly/ quarterly basisRevision Application Authority and Settlement Commissionprovisions made applicable to service tax.Place of supply rules being introduced to determine location wherea service shall be deemed to be provided. Consequently, Export ofServices Rules and Rules for Import of Services shall be withdrawn .Simplification of export refundsProportionate reverse charge mechanism to be introducedAmendments proposed in Service Tax Rules, Cenvat Credit Rules ,Valuation Rules and Point of Taxation Rules 39
  40. 40. Budget 2012-13 Changes in Service TaxOption of deferred payment allowed to all service providers upto Rs50 lakh turnover rather than to specified services .Limited Liability Partnership (LLPs) to be considered as firmRate of service tax increased from 10% to 12% w.e.f. 1.4.2012Consequent upon change in service tax rates, there is change ofservice tax rate in composition scheme and specified rates w.e.f.1.4.2012 Time limit for appeal by assessees to Commissioner (Appeals)reduced from 3 months to 2 monthsPenalty wavier for arrears paid within specified time in respect ofrenting of immovable property service.Retrospective exemption to road repairs and repairs etc of noncommercial 40
  41. 41. Goods & Services Tax (GST)Nature of GST GST is a comprehensive value added tax on goods and services It is collected on value added at each stage of sale or purchase in the supply chain No differentiation between Goods and Services as GST is levied at each stage in the supply chain Seamless input tax credit throughout the supply chain At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer All sectors are taxed with very few exceptions / exemptions Full tax credits on inputs – 100 % set off GST exists in over 140 countries . In most countries of the world, a single VAT exists which covers both goods and services. Typically it is a single rate VAT but two - three rate VAT systems are also prevalent. Standard GST rate in most countries range between 15-20 percent Canada and Brazil alone have a dual VAT India has also adopted a dual VAT i.e. a Central VAT and a State VAT – with independent goods & services taxes. 41
  42. 42. Goods & Services Tax (GST)GST Principles Uniform treatment of goods and services with goods and services tax (GST) Re focusing the entire tax system on two taxes- Income tax and GST Removal of all barriers to the movement of goods and services across the country to achieve unified common market Corresponding removal of retrogatory taxes that retard economic growth- transaction taxes, stamp duties, levies etc. Reduction in number of taxmen – two for firms, one for individuals and resultant elimination of administrative overheads and corruption . Tax information network (TIN) to be fully used for tax administration Coordination between policies and politics 42
  43. 43. Goods & Services Tax (GST)Why is GST preferred? A simple tax structure with only one or two rates of taxes Uniform single tax across the supply chain Reduced transaction cost in the hands of the tax payers Increased tax collections due to wider tax base and better compliance Improvement in international cost competitiveness of indigenous goods and services. Enhancement in efficiency in manufacture and distribution due to economies of scale GST encourages an unbiased tax structure that is neutral to business processes, business models, organization structure, product substitutes and geographical locations “The world hates change yet it is the only thing that has brought progress” – Charles F Kettaing 43
  44. 44. Goods & Services Tax (GST)Moving Towards a Dual GST Agreement by Empowered Committee to roll out dual VAT to adopt GST at centre and states- a landmark decision GST to cover centre, UTs and 35 states . Very little known about design, structure, base, rates, administration and implementation at this stage (to be announced on 20 December,2007) Dual GST- perhaps best feasible solution for preserving state’s fiscal autonomy while harmonizing tax system. Present tax rates of 16% Excise or 12% state VAT not indicative of revenue neutral rates due to multiplicity of taxes and narrow coverage. Rates to be low as high rates would reduce compliance- estimation of RNR is crucial 44
  45. 45. Goods & Services Tax (GST)Moving Towards a Dual GST GST must be comprehensive to cover all goods and service except few as recommended As a step forward, unified excise rates are expected in next budget GST should be levied at uniform single rate (alcohol , tobacco, petroleum products may have special rates to have lower rates) States should have freedom to fix rates with stipulation of floor price to avoid competition. Multiple rates do not serve the objective, add to compliance costs, increase non compliance and evasion and create administrative complexity . Mechanism to resolve inter state and centre state disputes. Enforcement of GST 45
  46. 46. Goods & Services Tax (GST)GST will replace various taxesIt is proposed that CGST will subsume the following taxes- Central excise duties, additional excise duties, excise duties under Medicinal and Toilet Preparation Act, Service tax Additional customs duty (CUD) and Special additional Customs Duty (SAD) Surcharge CessThe SGST is expected to subsume the following state taxes- Value added tax( or sales tax) Entertainment tax Luxury tax Tax on lottery, betting and gambling State cess/ surcharge.The state governments are finding it difficult to arrive at consensus on following taxes tobe subsumed in GST- purchase tax octroi duty tax on alcoholic beverages (country liquor / IMFL) tax on petroleum products tax on tobacco items 46
  47. 47. Goods & Services Tax (GST)Indian Version of Goods and Service Tax (GST)- Present focus on generating consensus on its design- Empowered committee working on - finalizing structure of GST - modalities of expeditious implementation- Likely to be introduced in ??- Automation of Central Excise and Service Tax (ACES) rolled out- Computerization of Commercial taxes in states approved 47
  48. 48. Service Tax: Gateway to new Professional Opportunities Professional Practice Advance Ruling Employment with Areas Representation Corporates- dealing with (planning, compliances) Indirect taxes Advisory Professional Representation Services Opportunities in in Tribunals / Service Tax Courts Client Retainerships for Knowledge Management Compliances GST awareness & Training 48
  49. 49. Service Tax: Gateway to new Professional Opportunities ROLE OF PROFESSIONALS UNDER SERVICE TAXServices to the Government Services to Service Providers Timely and correct Proper classification of feedback on provisions taxable services of law (Section 65A) Compliance of Law Help in understanding & Procedures law and its correct interpretation Dissemination of Knowledge information to management & training assessees Knowledge sharing Tax Planning , with revenue officials Due Diligence Help in tax collection Representation before Appellate Authorities Service tax audit GST preparedness 49
  50. 50. Service Tax: Gateway to new Professional Opportunities New tax, new assessees, new opportunities Opportunities arising out of ignorance of law, lack of knowledge, poor compliance (leading to penalties etc.) frequent amendments in law and rules, large assessee base and heterogeneous group of assessees. Opportunities to grow because of –  Large number of services covered  Enough scope for expansion of tax net  Rate of tax is higher, yet an upward revision is likely- higher the rate, larger the evasion.Service tax and GST are the tax of future and lot of opportunities can be explored in service tax, especially by young professionals 50
  51. 51. Service Tax: Gateway to new Professional Opportunities Role in classification of services Opportunities in interpretation of provisions Emerging opportunities-  Advisory and consulting services  Tax planning issues  Interpretation of law  Contesting cases on behalf of client  Knowledge dissemination- corporate presentations / training of client’s personnel.Every crossroad is a choice to play safe or be brave- take a road that your conscience tells 51
  52. 52. Humour in Service Tax Tax Reforms or Question of Survival Tax Payer’s Daily PrayerOh God! Give us enough strength, support and capacity to bear and payIncome tax, Wealth tax, Service tax, Excise duty, Customs duty,Octroi, Stamp duty and local tax, Surcharge, Education cess and Levies, Professional tax, Turnover tax, Property tax, House tax, FBT, STT,MAT and VAT, Road tax, Passenger tax, and toll tax, ESI,PF andbonus.And - - - - GST Besides provide some thing extra for bribes, corruption, donation,charity, and beggarsbut please God, don’t forget to leave some time and money for us sothat we can do some business. 52
  53. 53. A person should not be too honest. Straight trees are cut first andHonest people are screwed first. - Chanakya THANK YOU FOR YOUR PRECIOUS TIME AND ATTENTION Dr. Sanjiv Agarwal FCA, FCS, Jaipur Visit us at: 53