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NOVEMBER 2013

Tax & Regulatory

India Tax Konnect

Editorial

Contents
International tax	

2

Corporate Tax	

2

Mergers ...
2

International tax

Notifications/Circulars/Press releases
Central Board of Direct Taxes notifies the rules for
applicat...
3

Corporate tax

the order of Tribunal in favor of taxpayer for some assessment
years but filed appeal with the High Cour...
4

held that the decision in the case of Sandvik Asia has been
misquoted and misinterpreted by the taxpayer and also by
th...
5

Mergers and
acquisitions
Decisions
Date of Acquisition for claiming depreciation
The taxpayer acquired/received importe...
6

Transfer Pricing
Decisions
Delhi Tribunal held that the taxpayer activities of a trading
intermediary (commonly referre...
7

Indirect tax

Service Tax - Decisions
Provisions of Special Economic Zone Act, 2005 to override
service tax provisions
...
8

•	 Services provided in relation to serving of food or beverages
by a restaurant, eating joint or mess.
Order No. 1/1/2...
9

Notification No.F
.7(433)/Policy-II/VAT/2012/PF/ 817-828, dated
23 September 2013
The due dates for filing of returns i...
10

Punjab
•	 A public notice has been issued prescribing the procedure
for payment of advance VAT:

Personal taxation

--...
11

Civil Aviation may be granted TLP for a period of seven days
free of cost.
b.	Sailors who arrive by ship and have to l...
KPMG in India
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India Tax Konnect - November 2013

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KPMG India Tax Konnect - November 2013 deals with recent tax and regulatory developments

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India Tax Konnect - November 2013

  1. 1. NOVEMBER 2013 Tax & Regulatory India Tax Konnect Editorial Contents International tax 2 Corporate Tax 2 Mergers and acquisitions 5 Transfer Pricing 6 Indirect tax 7 Personal taxation 10 As per the Reserve Bank of India’s recent policy statement the wholesale price index inflation rose in September for the fourth month in succession. The depreciation of rupee depreciation prices of manufactured products is acting, along with elevated food and fuel inflation, to offset possible disinflationary effects of low growth. The index of industrial production grew by 0.6 percent in August 2013 as against 2.6 percent in July 2013 and 2.0 percent in August 2012. This is due to contraction in manufacturing (which accounts for more than 75 percent of the index), though significant improvement was recorded by the electricity sector. The three-judges bench of the Supreme Court in the case of Gujarat Fluoro Chemicals Ltd. has held that it is only interest provided under Section 244A of the Income-tax Act, 1961 (the Act) which may be claimed by the taxpayer and no other interest on such statutory interest would be available. The Supreme Court held that the decision in the case of Sandvik Asia Ltd. has been misquoted and misinterpreted by the taxpayer and also by the Revenue Authorities. The misinterpretation is that the Revenue Authorities are obliged to pay interest on interest in the event of their failure to refund the interest payable within the statutory period. The Bangalore Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Novo Nordisk India Pvt. Ltd. held that expenditure incurred by an Indian company on issue of shares of a foreign parent company under an Employee Stock Option Plan (ESOP) is allowable as revenue expenditure. The Tribunal observed that the expenditure is not capital in nature since it was incurred to compensate employees for continuity of service. Accordingly, it would be allowed as revenue expenditure. The Delhi High Court in the case of Cairn UK Holdings Limited held that non-resident sellers are eligible for a lower rate of 10 percent on capital gains arising on the sale of listed shares, under Section 112(1) of the Act. The High Court also held that applicability of the second proviso to Section 48 of the Act to the seller is not a prerequisite for applying the beneficial rate of 10 percent under Section 112 of the Act. The Mumbai Tribunal in the case of Citicorp Finance (India) Limited held that tax credit cannot be denied to the taxpayer even if Tax Deducted at Source (TDS) Certificate is not available with the taxpayer or TDS entry is not shown in computer generated Form 26AS. The Tribunal held that the tax department was required to give TDS credit, once a valid TDS certificate has been produced or where the deductor had not issued TDS certificates, on the basis of evidence produced by the taxpayer for deduction of tax and on the basis of an indemnity bond. On the transfer pricing front, the Hyderabad Tribunal in the case of IJM (India) Infrastructure Ltd. held that transactions between the taxpayer and its related parties having a Permanent Establishment (PE) in India are transactions between two ‘resident’ entities and cannot be termed an ‘international transaction’. We at KPMG would like to keep you informed of the developments on the tax and regulatory front and its implications on the way you do business in India. We would be delighted to receive your suggestions on ways to make this Konnect more relevant.
  2. 2. 2 International tax Notifications/Circulars/Press releases Central Board of Direct Taxes notifies the rules for application of General Anti Avoidance Rules The Central Board of Direct Taxes (CBDT) vide Notification No. 75/2013, dated 23 September 2013 has notified the rules relating to the application of General Anti Avoidance Rules (GAAR) provisions. The salient features of the rules are: • The provisions of GAAR shall not apply to: a. An arrangement where the tax benefit arising to all the parties to the arrangement in the relevant assessment year does not exceed INR 30 million in aggregate; b. A foreign institutional investor in certain cases; Decisions Non-residents entitled to benefit of 10 percent tax rate on long-term capital gains on listed securities The taxpayer, a company registered in Scotland, sold shares of an Indian company which was listed on the Bombay Stock Exchange to a Malaysian company by way of an off-market sale. The taxpayer computed long-term capital gains as per the first proviso to Section 48 of the Act. The taxpayer approached the Authority for Advance Rulings (AAR) for deciding on whether the lower tax rate of 10 percent would be applicable for computing the tax payable on long-term capital gains earned by the taxpayer. The AAR held that the lower rate of 10 percent was available only if the second proviso to Section 48 of the Act was applicable while computing the gains. As the second proviso to Section 48 of the Act was not applicable to the taxpayer, the lower rate of tax of 10 percent was not available to the taxpayer. The taxpayer carried the matter to the Delhi High Court (High Court). The question before the High Court was whether the long-term capital gains arising to the taxpayer on sale of shares in the Indian company would be taxable at the rate of 10 percent. Based on the facts of the case and the arguments, the High Court, among other things, observed and held as follows: • The proviso to Section 112(1) of the Act does not state that an assessee who avails the benefits of the first proviso to Section 48 of the Act is not entitled to the benefit of the lower rate of tax at 10 percent. Also, the benefit cannot be denied because the second proviso to Section 48 of the Act is not applicable. • If the Legislature wanted to deny the benefit of the lower rate of tax, it would have been specifically stipulated. • Accordingly, the taxpayer was entitled to apply the lower rate of tax at 10 percent on the long-term capital gains. Cairn UK Holdings Limited [Writ Petition (Civil) No. 6752/2012 (Delhi High Court)] c. A non-resident person who has investment by way of offshore derivative instruments or otherwise, directly or indirectly, in a FII; and d. Any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of investment made before 30 August 2010. • Without prejudice to (d) above, the provisions of GAAR shall apply to tax benefit, obtained from an arrangement, on or after 1 April 2015. • Where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only. • The mechanism for reference of cases for application for GAAR and time limits has also been provided. Notification No. 75/2013, dated 23 September 2013
  3. 3. 3 Corporate tax the order of Tribunal in favor of taxpayer for some assessment years but filed appeal with the High Court for other years. It was held that the Revenue cannot be permitted to ‘flip-flop’ on an issue and it ought to let the matter rest rather than spend the taxpayers’ money in pursuing litigation for the sake of it. Further it was also observed that in the subsequent accounting year, the taxpayer did make imports and did derive benefits under the advance licence and the DEPB and paid tax thereon and hence it is not as if the Revenue has been deprived of any tax. Even the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. CIT v. Excel Industries Ltd. [TS-506-SC-2013] Decisions Advance license benefit and duty entitlement pass book benefits taxable in the year in which these are actually utilised by the taxpayer, not in the year of receipt The taxpayer was entitled to the benefit of making duty free imports of raw materials obtained through advance licenses and a duty entitlement pass book (DEPB) issued against export obligations. The taxpayer maintained its books on mercantile basis. For AY 2003-04, the taxpayer claimed deduction of INR 1.257 million under the head ‘advance license benefit receivable’ and a deduction in respect of ‘DEPB benefit receivable’. These benefits were related to entitlement to ‘import duty free’ raw material under the relevant EXIM policy by way of reduction from raw material consumption. The taxpayer excluded the aforesaid amounts from its total income since they could not be said to have accrued until imports were made and the raw material consumed. Rejecting the taxpayer’s claim, the AO held that the benefit of an entitlement to make duty free imports of raw materials obtained through advance licenses and DEPB, against export obligations was income in the year in which the exports are made and not in the year in which the duty free imports were made and consumed by the taxpayer. The Commissioner of Income-tax (Appeals) [CIT(A)] and the Tribunal ruled in favor of the taxpayer relying on the taxpayer’s own Tribunal decision of earlier years. The Bombay High Court also declined to admit the Revenue’s appeal. Aggrieved by this, the Revenue went to appeal before the Supreme Court. The Supreme Court held that advance license benefit and DEPB benefits are taxable in the year in which these are actually utilised by the taxpayer i.e. in the year of imports and not in the year of export. The incometax cannot be levied on ‘hypothetical’ income. Furthermore, the Supreme Court has applied the three tests laid down by various Supreme Court decisions, namely, whether the income accrued to the taxpayer is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the taxpayer even without any imports having been made; and the probability or improbability of realisation of the benefits by the taxpayer has to be considered from a realistic and practical point of view. It was also observed that the Revenue has accepted Conflicting Decisions in connection with interest under Section 244A, on the amount of interest on refund delayed Recently, the Delhi High Court in the case of India Trade Promotion Organisation v. CIT [TS-454-HC-2013(DEL)] analysed the provisions of Section 244A and observed that the Section starts with the expression ‘where refund of any amount becomes due and payable…’, and hence these words imply a much wider and broader meaning, and the expression ‘any amount’ would cover in its ambit even the interest element which has accrued as is payable on the date of refund. The High Court further relying on the decision of Madhya Pradesh High Court in the case of CIT v. HEG Limited [2009] 310 ITR 341 (MP)], which had held that the expression ‘any amount’ would include the amount refundable plus the interest due and payable on the tax amount refunded. The same case was also carried to Supreme Court (189 taxman 335), wherein the Supreme Court clarified that when a refund order is issued, this should include the interest payable on the amount, which is refunded and if the refund does not include interest due, it would be liable to pay interest on such shortfall of interest. The High Court also held that if the AO/Revenue is allowed to pay only the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, it would amount to granting premium to a non-compliance of law. However, subsequently the three judge bench of the Supreme Court, in the case of CIT vs. Gujarat Fluro Chemicals (SLP No. 11406 of 2008), held that a taxpayer is not entitled to receive interest on the interest due on tax refund. In this case the matter was originally dealt with by the division bench of the Supreme Court (before referring it to the larger bench). It was observed by the division bench that in the case of Sandvik Asia Ltd. vs. CIT [2006] 150 Taxman 591 (SC), the interest was ordered on the basis of equity. Since there is nothing in the provisions of Section 214 of the Act providing for payment of interest on excess payment of advance tax, the order passed in Sandvik Asia was not correct. Accordingly, the matter was referred to the larger bench of the Supreme Court. The larger bench of the Supreme Court held that it is only interest provided under Section 244A of the Act which may be claimed by the taxpayer and no other interest on such statutory interest would be available. The Supreme Court
  4. 4. 4 held that the decision in the case of Sandvik Asia has been misquoted and misinterpreted by the taxpayer and also by the Revenue Authorities. The misinterpretation is that the Revenue Authorities are obliged to pay interest on interest in the event of its failure to refund the interest payable within the statutory period. The Supreme Court also observed that the decision in the case of Sandvik Asia was based on the specific facts of the case in that there was an inordinate delay on the part of the tax department in refunding a certain amount which included the statutory interest, and it was directed to pay compensation for this and not interest on interest due on the tax refund. India Trade Promotion Organisation v. CIT [TS-454-HC2013(DEL)] CIT v. Gujarat Fluro Chemicals (SLP No. 11406 of 2008) Note: The Supreme Court in the case of Gujarat Fluro Chemicals was dealing with interest under Section 214 of the Act wherein the words ‘any amount becomes due and payable’ are missing and hence while dealing with interest under Section 244A of the Act, the decision in the case of HEG Limited would be more relevant. Expenditure incurred by an Indian company on issue of shares of foreign parent company under an ESOP is allowable as revenue expenditure The taxpayer is a wholly-owned subsidiary of Novo Nordisk A/S, Denmark (Denmark Parent) engaged in the marketing and distribution of healthcare products. The Denmark Parent had a scheme called NNAS Global Share Programme, 2005 (ESOP) by virtue of which the employees of the taxpayer company would be entitled to opt to purchase shares of the Denmark Parent at a price less than market price. Under the ESOP the Denmark Parent would allot shares during January, February, 2006. The employees will not be entitled to sell the shares so allotted until the end of 2008. Furthermore, the difference between the purchase price of the shares and the average market price of the shares during the purchase offer period was recharged by the Denmark Parent to the taxpayer. For AY 2006-07 the taxpayer filed its ROI claiming ESOP , recharge cost of INR 15.2 million as deductible expense, being the expenses actually incurred by the taxpayer. However, such expenses were disallowed by the AO and by the CIT(A). benefits under Section 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of five years. In AY 1994-95, the taxpayer computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as Section 10B conferred ‘exemption’ for the profits of the EOU, the said brought forward depreciation could not be set off from the profits of the EOU but was available to be set off against income from other sources. It was also claimed that the profits had to be computed on a commercial basis. The AO accepted the claim though the CIT revised his order under Section 263 and directed that the exemption be computed after set-off. On appeal by the taxpayer, the Tribunal reversed the order of the CIT. On appeal by the department, the High Court reversed the order of the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable under Section 10B of the Act. The Supreme Court dismissed the appeal stating it to be devoid of any merit. Himatsingka Seide Ltd. v. CIT [TS-516-SC-2013] TDS credit will be available, based on evidence produced, even if no TDS certificate is available or no TDS entry is found in the system of the tax department During the year under consideration, the taxpayer claimed total TDS of INR 215.2 million. However, the AO gave TDS credit only of INR 119 million. The CIT(A) held that the taxpayer has to submit all TDS certificates and the AO needs to verify them. Accordingly, the AO may allow TDS credit based on the original challans available on record or based on the details of such TDS available on the computer system of the tax department. The issue before the Tribunal was whether the TDS credit can be given if a TDS certificate is not available with the taxpayer or entry is not shown in Form 26AS. Unabsorbed depreciation (and business loss) of the same unit brought forward from earlier years has to be set off against the profits before computing exempt profits under Section 10A/10B of the Act The Mumbai Tribunal relying on the decision of Bombay High Court in the case of Yashpal Sawhney v. ACIT [2007] 293 ITR 539 (Bom) held that even if the deductor had not issued a TDS certificate, the claim of the taxpayer has to be considered on the basis of evidence produced for deduction of tax at source as the tax department was empowered to recover the tax from the person responsible for deduction of tax if he or she had not deducted tax or after deducting failed to deposit with the Central Government. Further reliance was also placed on the decision of the Delhi High Court in the case of Court On Its Own Motion v. CIT [2013] 352 ITR 273 (Del), wherein the High Court directed the tax department to give TDS credit to the taxpayer, where the deductor had failed to upload the correct details in Form 26AS on the basis of evidence produced before the tax department. The tax department was required to give TDS credit once a valid TDS certificate had been produced or where the deductor had not issued TDS certificates, on the basis of evidence produced by the taxpayer for deduction of tax and on the basis of indemnity bond. Accordingly, the Tribunal modified the order of the CIT(A) and directed the AO to give TDS credit on the basis of evidence produced by the taxpayer for deduction of tax at source. The taxpayer set up a 100 percent Export Oriented Unit (EOU) in AY 1988-89. For want of profits it did not claim Citicorp Finance (India) Limited v. ACIT (ITA No. 8532/ Mum/2011 dated 13 September 2013) The Bangalore Tribunal relied on the decision of Mumbai Tribunal in the case of DCIT v. Accenture Services Pvt. Ltd. (ITA 4540/Mum/2008) and allowed the claim of the taxpayer. The Tribunal also relied on the decision of the Bangalore Special Bench in the case of Biocon Ltd. v. DCIT [2013] 35 taxmann.com 335 (Bang) (SB). Further relying on the Supreme Court decision in the case of Sassoon J. David & Co. (P) Ltd. v. CIT [1979] 118 ITR 261 (SC), it was held that just because the foreign parent company was benefited the expenditure cannot be rejected. Novo Nordisk India Pvt. Ltd. v. DCIT [TS-524-ITAT-2013(Bang)]
  5. 5. 5 Mergers and acquisitions Decisions Date of Acquisition for claiming depreciation The taxpayer acquired/received imported cars pursuant to merger of other companies. The appointed date of merger was 1 April 2004. The taxpayer claimed depreciation on such imported cars since the cars were acquired from appointed date of amalgamation i.e. on 1 April 2004. The AO contended that the motor cars were acquired by the merging/transferor companies between 1 March 1975 and 31 March 2001 and therefore under clause (a) of proviso to section 32(1) of the Act, the taxpayer is not eligible to claim depreciation on such imported cars. The CIT(A) upheld the contention of AO, but the Tribunal accepted the plea of the taxpayer. Before the High Court the department had claimed that merger/ amalgamation is not a transfer as defined u/s. 2(47). The High Court held that (i) Merger can be a mode of acquisition of asset (ii) Shares issued were consideration for transfer of assets (iii) the taxpayer was not owner of such cars prior to 1 April 2004 and (iv) the Legislature has treated amalgamation as transfer and has specifically provided, computation of the actual cost of the assets transferred upon amalgamation. High Court held that since the taxpayer acquitted the imported cars after 1 April 2001, clause (a) of proviso to section 32(1) of the Act was not applicable and the taxpayer was entitled to claim depreciation on the imported cars. CIT v. Mira Exim Ltd. [2013] 38 taxmann.com 50 (Del) Grant received by a subsidiary from its holding company to recoup losses is not taxable as revenue receipt under the Act The taxpayer, a Government company, is a wholly owned subsidiary of State Trading Corporation (STC). The taxpayer received INR 2.5 million as grant from STC to recoup losses incurred by the taxpayer. The taxpayer claimed that grant received was not taxable since it is a capital receipt. However the AO held that the payment as trade receipt and bought the same to tax. The taxpayer received the amount from its holding company and not from a third party or a public authority. It was not on account of any trade or a commercial transaction. The intention and purpose behind the said payment was to secure and protect the capital investment made by STC in the taxpayer therefore it can be classified as a gift or a capital grant and does not partake character of trading receipts. Therefore, the High Court held that grant received from holding company for recouping losses of it’s subsidiary is not taxable as revenue receipt under the Act. CIT v. Handicrafts & Handlooms Exports Corporation of India Ltd. [ITA 3 of 2013 decided on 5 September 2013 (Del)] Circulars/Notifications/Press Releases Unlisted Indian Companies allowed listing and raising capital abroad Ministry of Finance issued a press release with respect to allowing unlisted companies to list and raise capital abroad, on a pilot basis for a period of two years, without being listed in India. At present, unlisted companies that are incorporated in India are not allowed to directly list in overseas markets without prior or simultaneous listing in Indian markets. It has now been decided that on fulfilling stipulated conditions, unlisted companies may be allowed to raise capital abroad without prior or simultaneous listing in Indian markets. Subsequent to the press note, Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) (Amendment) Scheme, 2013, is notified. The amendment include deletion of requirement of listing in India as a precondition for unlisted company to get listed abroad and insertion of conditions to be followed by such unlisted company. The Ministry of Finance - Press Release dated 27 September, 2013. NOTIFICATION NO.GSR 684(E) [F .NO.4/13/2012-ECB], DATED 11-10-2013
  6. 6. 6 Transfer Pricing Decisions Delhi Tribunal held that the taxpayer activities of a trading intermediary (commonly referred as ‘Sogo Shosha’ in Japanese context) are akin to a trader and not a service provider The taxpayer is a wholly-owned subsidiary of Mitsubishi Corporation (MC) Japan, which is one of Japan’s leading ‘Sogo Shosha’ or general trading companies. The taxpayer was engaged in import of products from associated enterprises and further resale. The taxpayer took a position that it effectively acts as a provider of support services to the ‘Sogo Shosha’ activities of MC Japan. The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) were of the view that the transactions in question were trading transactions. The TPO adopted Operating Profit/Total Cost as the Profit Level Indicator to review the arm’s length nature of transactions, wherein the total cost was computed including cost of goods sold. The Tribunal upheld the findings of the tax department. It held that both purchases and sales made by the taxpayer are recorded in its books of account. The title in the goods is held by the taxpayer for some time and that the transactions were done on a principal to principal basis. Such activity cannot be bracketed with that of a commission agent or a broker. Thus, the activities in question are akin to trading activities. The Tribunal further held that the comparables in this case have not been selected keeping in view the functional profile of a trading entity. Based thereon, the Tribunal set aside the issue to the file of the AO for fresh adjudication in accordance with law. Mitsubishi Corporation India Private Ltd. v. ACIT [(ITA No 5147/ Del/2010) Assessment Year 2006-07] Hyderabad Tribunal held that transactions between the taxpayer and its related parties having a PE in India are transactions between two ‘resident’ entities and cannot be termed as ‘international transaction’ The taxpayer is promoted by IJMII Mauritius (IJMII), which, in turn, is a wholly-owned subsidiary of IJM Corporation Berhad, Malaysia (IJM Malaysia). During the financial year 2007-08, the taxpayer secured sub-contracts from the following related parties: • IJM Corporation Berhard, Malaysia Project office, situated at New Delhi, a PE in India. • Joint venture with IJMII, an Association of Persons (AOP) in India. • Joint venture with National Building Construction Co. Ltd (NBCC) and VRM, an AOP in India. The taxpayer out of abundant caution reported these transactions in Form No. 3CEB. The TPO rejected the TP study and the various submissions made by the taxpayer and determined the arm’s length price at INR 1049.5 million. The Tribunal held that the transaction between the taxpayer and PE and the transactions with the joint venture with IJMII do not fall within the ambit of international transactions as defined in the Act for the following reasons: Transactions with PE • The PE has a place of business in India by virtue of its registration under the provisions of Section 592 of the Companies Act, 1956. • POA executed by the Principal Company in favour of the Director, resident in India, to manage the branch operations in India clearly goes to establish beyond doubt the fact that the entire control and management in relation to operations in India is situated in India only. Therefore, the PE should be treated as resident in India. • Under the provisions of the India-Malaysia tax treaty, a PE is treated as a separate legal entity, independent of its foreign principal enterprise. Therefore, the PE should be treated as resident in India, the business profits attributable to PE being taxable in India and all business decisions relating to PE being entered and concluded in India. Transactions with Joint Venture with IJMII • The joint venture is formed in India by an agreement between the respective parties and assessed to tax as an AOP As defined under Section 6(2) of the Income-tax Act, . an AOP is said to be resident in India in any previous year except where during that year the control and management of its affairs is situated wholly outside India. • Since the transactions were between two resident entities there was no possibility of shifting of profits outside India or erosion of the country’s tax base. IJM (India) Infrastructure Ltd. v. ACIT [ITA No. 1814/Hyd/2012, Assessment Year 2008-09]
  7. 7. 7 Indirect tax Service Tax - Decisions Provisions of Special Economic Zone Act, 2005 to override service tax provisions IIn the present case, the taxpayer was engaged in provision of manpower supply services to Reliance Petroleum Ltd., Jamnagar, a unit situated in a Special Economic Zone (SEZ). The service tax authorities alleged that the taxpayer was required to discharge service tax and follow the refund procedure as prescribed under Notification No.09/2009-ST, dated 3 March 2009 (the Notification). The taxpayer among other things contested that the provisions of the SEZ Act have overriding effect over provisions which are inconsistent in any other law and therefore, the taxpayer was not required to discharge service tax and follow refund procedure. The Ahmedabad Tribunal held that the Notification issued under service tax laws have been issued only to operationalise the exemption/immunity available to a SEZ unit under the SEZ Act. Accordingly, service tax is not required to be paid. Reliance Port & Terminals Limited v. CCE [2013-TIOL -1473CESTAT-AHM] Notifications/Circulars/Press releases Circular for clarification pertaining to restaurant services With respect to services provided by restaurants, the Central Board of Excise and Customs (CBEC) has clarified the following: • In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the services provided in the air-conditioned restaurant will be liable to service tax and the services provided in a non-air-conditioned restaurant will not be liable to service tax and will be treated as exempt service. • In a hotel, if services are provided by a specified restaurant in other areas for example swimming pool or an open area attached to the restaurant, this would also be liable to service tax. Circular for clarification on exemption for services relating to education Vide the Mega Exemption Notification certain services such as renting of immovable property and auxiliary education services provided to educational institutions are exempt. The term ‘auxiliary education services’ was defined in the said Notification to include activities such as the provision of content, training, services for which educational institutions ordinarily outsource. However, given the manner in which the said term was worded, there was an ambiguity as to what extent this exemption can be applied to services not specifically listed in this definition. The CBEC has now issued a Circular clarifying that all the services relating to education are exempt from service tax levy as ‘auxiliary education services’. This includes services such as hostels, housekeeping, security, canteen services, which per se are not covered under the definition of ‘auxiliary education services’. Circular No. 172/7/2013-ST, dated 19 September 2013 Guidelines issued for arrest and bail In the Union Budget 2013, certain arrest provisions were introduced / modified under the service tax law, which were effective from 10 May 2013. The Government has recently issued certain guidelines for arrest and bail in relation to punishable offences, which include: • In cases where a person has collected any amount exceeding INR 50 lakhs as service tax but fails to pay this to the credit of Central Government, the arrested person must be produced before the magistrate without unnecessary delay, in a maximum of 24 hours; • A Central Excise officer, not below the rank of Superintendent of Central Excise, can carry out an arrest on being authorised by the Commissioner of Central Excise for such arrest; • There are certain modalities that should be complied with at the time of arrest and pursuant to arrest, such as that a medical examination should be conducted by a medical officer in the service of the Central or State Government, and reasonable care of the health and safety of the arrested person; • The bail conditions should be informed in writing to the nominated person of the person arrested, and the arrested person should also be allowed to talk to its nominated person. Circular No. 171/6/2013–ST, dated 17 September 2013 Service tax exemption for certain services provided to persons in the State of Uttarakhand The Central Government has exempted the following services from service tax levy which are provided to any person in the State of Uttarakhand, for the period 17 September 2013 to 31 March 2014: • Services by way of renting of a room in a hotel, inn, guest house, club, campsite or other commercial place meant for residential or lodging purposes; and
  8. 8. 8 • Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess. Order No. 1/1/2013–ST, dated 17 September 2013 Central Excise - Decisions Value of brought out parts supplied directly by the vendors to customer’s premises is not includible in the assessable value, in the case the plant is fabricated by a third party In the present case, the taxpayer entered into a contract for supply of nitrogen/oxygen plant. The taxpayer manufactured a few parts and supplied them to the customer’s premises on payment of required excise duty on such parts. The other parts required for fabrication of the nitrogen plant were supplied by the vendors directly to the customer’s premises and a third party vendor fabricated the plant at the customer’s premises by using the parts supplied by the taxpayer and the other vendors. However, the Central Excise authorities included the value of bought out parts (from the vendors) in the assessable value of the parts supplied by the taxpayer and accordingly, demanded excise duty on the basis that the taxpayer has received the order for the supply of the entire plant. The Mumbai Tribunal held that even though the customers have issued the purchase orders for supply of the entire plant, the taxpayer had supplied only a few parts manufactured by them and the remaining items were directly supplied by the vendor to the customer’s site. The plant has been erected at the site by assembling the parts supplied by the taxpayer and the purchased items. The taxpayer never supplied the plant completely. Therefore, the value of bought out items are not includible in the assessable value as they are neither spare parts nor accessories to the items manufactured by the taxpayer. Dalal Mckenna Private Limited and Others v. CCE [2013-TIOL 1469-CESTAT-MUM] Notifications/Circulars/Press Release Duty payable on capital goods cleared as waste and scrap – Rule amended With effect from 27 September 2013, Rule 3(5A) of the CENVAT Credit Rules, 2004 has been amended. Consequently, in the case the capital goods on which CENVAT Credit has been availed is cleared as waste and scrap, the manufacturer is required to pay an amount equal to the duty payable on the transaction value. Therefore, the option of paying an amount equal to CENVAT Credit taken on capital goods reduced by the prescribed percentage points is no longer available in the case the capital goods are cleared as waste and scrap. The issue involved was whether the charges collected by the petitioner for activation of the card from the subscribers will be liable to VAT. The petitioner, a registered dealer, provides Consumer Premises Equipment (CPE) including STB, SIM Cards, dishes, LNB, cables, connectors and clips and ties free of cost to the subscriber and recovers fees for activation of the card through which the Direct-to-Home (DTH) services are provided. The assessing authority imposed VAT at the rate of 13.5 percent on the amount collected by the petitioner from the subscribers for activation of the card. Allowing the petition, the Uttar Pradesh High Court held that the AO has passed the impugned order without considering the ratio laid down in the case of M/s Idea Mobile Communication Limited vs. CCE [2011-12-SCC-608] wherein it was held by the Apex Court that on activation of the SIM card, VAT is not leviable as service tax is already being paid by the subscribers. Further, the CPE is neither sold by the petitioner nor is any rent being recovered by the petitioner from the subscriber. Hence, the impugned order has been set aside and the matter has been remanded to the AO to pass a fresh assessment order. Sun Direct TV Pvt. Ltd. v. State of UP (2013-NTN-52-373-All HC) Turnover of the dealer would be an aggregate of rentals received or receivable during a financial year and not for the entire lease term The issue involved was whether the aggregate of rentals payable for the entire lease term or the aggregate of rentals received or receivable during the financial year should form part of the turnover for the month when the vehicle was delivered to the lessee. The appellant entered into an agreement for lease of vehicles. The assessing authority held that the amount to be paid for the entire term of the lease shall be included as turnover for the month when the vehicle was delivered to the lessee. The dealer filed an appeal against the said order which was dismissed by the Joint Commissioner and also by the Tribunal. Allowing the appeal the Haryana High Court held that in terms of the Haryana VAT laws, ‘tax period’ means a period of time usually a month, quarter or a year. Furthermore, ‘turnover’ is the aggregate of goods sold by a dealer during a tax period. In the present case, since the return filed by the dealer is on a yearly basis, the tax period would be a financial year and hence, the turnover would be lease rentals for the financial year and not for the entire lease term. GE Capital Transportation Financial Services Ltd. v. State of Haryana and Another (2013-63-VST-329-P&H) Notification No. 12/2003-CE (NT) dated 27 September 2013 Notifications/Circulars/Press releases VAT/CST - Decisions Delhi Charging fees for activation of card for providing Directto-Home services from the subscribers is identical to the activation of a SIM card The requirement for filing a stock statement in Form Stock-1 online for the stock available as on 31 March 2013 has been withdrawn with immediate effect.
  9. 9. 9 Notification No.F .7(433)/Policy-II/VAT/2012/PF/ 817-828, dated 23 September 2013 The due dates for filing of returns in Form DVAT-16 and Form DVAT-17 (composition tax return) along with the related annexures and hard copy of acknowledgement in Form DVAT56 for the second quarter of FY 2013-2014 has been extended from 25 October 2013 for online submission and 28 October 2013 for hard copy submission to the following dates: S. no Type of dealer based on their GTO of FY 2012-13 Last date for filing of online return Last date for filing of hard copy 1 Less than INR 1 crore 25 November 2013 28 November 2013 2 Equal to or more than INR 1 crore but less than INR 10 crores 20 November 2013 22 November 2013 3 Equal to or more than INR 10 crores 11 November 2013 18 November 2013 Circular No. 18 of 2013-14 F .No. (420)/VAT/Policy/2011/857-863 dated 1 October 2013 Orissa In the case of submission of false or forged documents or waybills by the driver or the person-in-charge of every vehicle or carrier of goods, penalty would be imposable in addition to the tax which would be equal to five times the tax leviable on such goods or 20 percent of the value of the goods, whichever is higher. Circular No. 19539/CT III (I) 38/09 dated 19 September 2013 Uttar Pradesh The key amendments made in the Uttar Pradesh VAT Act are listed below: -- The rate of reversal for ITC towards the stock transfers will be the rate applicable under Section 8(1) of the Central Sales Tax Act i.e. 2 percent instead of the prevailing rate of 4 percent. -- The Permanent Account Number allotted under the Income-tax Act should be mentioned on the monthly or quarterly return also. -- Powers have been given to the Commissioner to notify the website for entering the contents of the Transport Memo i.e. Form 21 and contents of the declaration i.e. Form 38. -- A taxable dealer who carries out business during part of the assessment year shall submit an ‘Annexure of Consolidated Details ‘instead of ‘Annual Return’, within such time and manner as may be prescribed. Notification no N0.1039 (2)/79-V-1-13-1(Ka)16/2013 dated 26th September 2013
  10. 10. 10 Punjab • A public notice has been issued prescribing the procedure for payment of advance VAT: Personal taxation -- If a dealer frequently imports goods in to the State, they may deposit a lump sum of advance tax in the office of Additional Excise and Taxation Commissioner (AETC) through challan in Form VAT 2 under the subhead ‘advance tax’ (0040-00-111-01). -- On submission of such challan at an AETC office, the AETC office will immediately enter the advance tax amount into the credit of the dealer in the computer system. -- Thereafter whenever the dealer presents any goods at any Information Collection Centre, the system will automatically work out the advance tax due and deduct that amount from the lump sum already deposited by the dealer. The dealer/driver will be given a receipt showing the advance tax deducted on account of that import. Public Notice dated 4 October 2013 West Bengal With effect from 25 April 2013, the maximum VAT rate leviable on goods listed in Schedule D such as chewing tobacco and air-conditioners has been increased from 30 percent to 35 percent. Notification no.1393-L dated 11 September 2013 Decisions/ Notification/ Circular/ Press releases/ Publications Employees’ Provident Fund Organisation directs its field offices to ensure proper compliance in respect of contractor employees The compliance of contractor employees under the Employees’ Provident Funds & Miscellaneous Provision Act (EPF Act), 1952 has long been a matter of concern for companies. Employees’ Provident Fund Organisation (EPFO) has directed its officers to collect the details of personnel engaged through the various agencies and contractors by Government Departments and other private sector establishments to ensure proper compliance. The EPFO has reiterated that the ultimate responsibility for compliance for employees engaged through contractor employees remains with the principal employer. Therefore it may be worthwhile for organisations covered under the EPF Act to monitor and ensure that proper compliances are been made for employees engaged through a contractor. Ministry of Home Affairs issues detailed instructions on the granting of Temporary Landing Permits and visa to crew of airlines, chartered flights and ships The Government of India, Ministry of Home Affairs has issued detailed instructions on grant of business visa and Temporary Landing Permit (TLP) facility to crew of airlines, chartered flights, ships and the like. Airline, shipping, charter flight and travel companies may take note of the below instructions. This will enable them to plan the application for a business visa and make the best use of TLP facility. The key instructions are as follows: Scheduled Airlines and Ships a. Crew of scheduled/unscheduled flights operated by scheduled airlines/operators as approved by the Ministry of
  11. 11. 11 Civil Aviation may be granted TLP for a period of seven days free of cost. b. Sailors who arrive by ship and have to leave India either by another ship or by flight may be granted TLP for a period of seven days free of cost. Non - Scheduled Airlines TLP a. Crew of non-scheduled airlines and chartered flights operated by such airlines may be issued TLP in exceptional or emergent situations. b. Crew other than foreign nationals from specified countries of non-scheduled airlines operating VIP flights, cargo flights and flights of leading businesspeople may also be granted TLP . c. Crew other than foreign nationals from specified countries of non-scheduled airlines aboard tourist charter flights may also be granted TLP provided the visa application, itinerary, etc, are submitted by the travel agency to the Indian FRRO/ FRO, 72 hours in advance. d. In all the above cases, the Directorate General of Civil Aviation shall intimate clearances for the non-scheduled flights to the Bureau of Immigration and concerned Director General (Police) well before arrival of the flight along with the information on crew having no valid visa. e. Fee of USD 40 per person shall be charged for the grant of TLP to the crew of the flights operated by non-scheduled airlines. Business visa a. Crew of non-scheduled airlines and chartered flights of such airlines will have to apply for business visas in the case they are not eligible for TLP in paragraphs (a), (b) and (c) above. b. The business visa shall be generally granted by the concerned Indian Mission/Post within three days of submission of the application. c. In the case the applicant is from any specified country, grant of visa may take additional time. The business visa shall be endorsed on the passport and not on the crew member certificate.
  12. 12. KPMG in India Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad – 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Contact us Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Kochi 4/F Palal Towers , M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Punit Shah Co-Head of Tax T: +91 (22) 3090 2681 E: punitshah@kpmg.com Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block – EP & GP Sector V , Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3058 5764/65 Fax: +91 20 3058 5775 Hiten Kotak Co-Head of Tax T: +91 (22) 3090 2702 E: hiten@kpmg.com Girish Vanvari Co-Head of Tax T: +91 (22) 3090 1910 E: gvanvari@kpmg.com www.kpmg.com/in Latest insights and updates are now available on the KPMG India app. Scan the QR code below to download the app on your smart device. Google Play | App Store The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks or trademarks of KPMG International. Printed in India

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