TMI Tax Updates - e-Newsletter
January 7, 2012
Case Laws in this Newsletter:
Income Tax
Service Tax
TMI SMS
Articles
By: DEVKUMAR KOTHARI
Summary: The article explains various legal terms and phrases commonly used in legal contexts. It provides definitions and examples for each term, such as "a fortiori," meaning an argument from stronger reason, and "ab initio," referring to something invalid from the beginning. Other terms include "accord and satisfaction," an agreement to release an obligation, "act of God," an event caused by natural forces, and "ad hoc," a solution for a specific purpose. The article also covers concepts like "ad idem," mutual agreement in contracts, "adverse possession," and "affidavit," a sworn written statement, among others.
News
Summary: The import of sensitive items in India from April to October 2011 totaled Rs. 57,399 crores, marking a 41.8% increase from Rs. 40,486 crores in the same period the previous year. These imports accounted for 4.6% of total gross imports. While imports of milk, milk products, and food grains declined, there was a significant rise in imports of edible oil, automobiles, fruits, vegetables, and other items. Edible oil imports surged due to increased crude palm oil imports. Notably, imports from countries like Indonesia, China, and Malaysia increased, while those from Myanmar, Brazil, and Australia decreased.
Summary: The Ministry of Finance clarified that interest rates on small savings schemes, except for the Public Provident Fund (PPF), are fixed at the time of investment and will not change until maturity. This clarification responds to media reports suggesting that these rates are floating and subject to changes based on government securities' yields. Changes in interest rates will only apply to new investments made during the period of revision. For PPF accounts, however, the interest rate is set annually and applies to all accounts. This policy was effective from December 1, 2011.
Summary: The Central Processing Centre in Bangalore has been criticized for sending tax notices for minimal amounts, such as Rs. 1, causing hardship to taxpayers. While the Income Tax Department does not issue refunds for amounts under Rs. 100, it has been clarified that these communications are not demand notices but part of a transparency initiative. Taxpayers are informed of arrears to allow corrections if needed. The department encourages taxpayers to report inaccuracies, and demands under Rs. 100 are not enforced but adjusted against future refunds. This effort aims to improve demand management and database accuracy.
Summary: The Finance Minister highlighted the necessity for new financial instruments like credit enhancement to boost infrastructure project financing. A pilot transaction under the Credit Enhancement Scheme, led by the Indian Infrastructure Finance Company Limited (IIFCL), was launched to support this initiative. The scheme aims to develop the infrastructure bond market by attracting investors such as insurance companies and pension funds, thereby freeing up bank capital for new projects. An MoU was signed between IIFCL, LIC, and major public sector banks to streamline funding for infrastructure projects. The initiative also involves collaboration with the Asian Development Bank for credit rating enhancement.
Summary: The Union Finance Minister announced the launch of a Pilot Credit Enhancement Scheme at the IIFCL Foundation Day, highlighting the company's role in infrastructure financing since its inception in 2006. IIFCL has sanctioned significant funding for infrastructure projects, focusing on public-private partnerships. The scheme aims to address the challenge of long-term resource availability by attracting funds from insurance and pension sectors, enhancing the infrastructure bond market, and freeing up bank credit for new projects. A memorandum of understanding involving major public sector banks and financial institutions will facilitate the financial closure of viable infrastructure projects.
Summary: The Union Finance Minister addressed the 9th India-Saudi Arabia Joint Commission Meeting, emphasizing the importance of strengthening economic ties and expanding trade beyond petroleum products. The meeting reviewed progress since the Riyadh Declaration and set ambitious future cooperation targets. The Minister highlighted the potential for joint ventures, especially in hydrocarbons, and the need for investment in Indian infrastructure. He acknowledged the significant Indian expatriate community in Saudi Arabia and proposed a Memorandum of Understanding on labor and employment. The establishment of a $750 million India-Saudi Arabia Investment Fund was prioritized to support mutual economic growth.
Summary: The Wholesale Price Index (WPI) for primary articles in India increased by 0.1% to 197.6 for the week ending December 24, 2011. The annual inflation rate for primary articles was 0.10%, down from 2.70% the previous week. Within this category, food articles saw a 0.2% decrease due to lower prices for items like jowar and vegetables, while non-food articles rose by 0.6% with increases in prices for soyabean and raw jute. The fuel and power index remained unchanged at 172.7, with an annual inflation rate of 14.60%, slightly up from 14.37% the previous week.
Notifications
DGFT
1.
93 (RE-2010)/2009-2014 - dated
6-1-2012
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FTP
Amendment in Appendix-3 to Schedule-2 of ITC(HS) Classification of Export and Import Items,2009-14-regarding supply of SCOMET Items from DTA to SEZ.
Summary: The notification amends Appendix-3 to Schedule-2 of the ITC(HS) Classification of Export and Import Items, 2009-14, regarding SCOMET items. It states that no export permission is needed for supplying SCOMET items from the Domestic Tariff Area (DTA) to Special Economic Zones (SEZ). Suppliers must report these supplies to the SEZ Development Commissioner within one week, and an annual report must be submitted by the Development Commissioner to the SCOMET Cell by May 15 each year. However, export permission is still required for exporting SCOMET items from SEZ to other countries.
Circulars / Instructions / Orders
Service Tax
1.
15/2011-ST - dated
15-11-2011
Section 69 of the Finance Act, 1994 - Registration - Conversion of temporary based registration (STC) into PAN based registration.
Summary: The circular addresses the conversion of temporary Service Tax Code (STC) registrations to Permanent Account Number (PAN) based registrations as per Section 69 of the Finance Act, 1994. It mandates that all service tax assessees with temporary registrations must apply for PAN-based registration within one month. Approximately 167 assessees in the Shillong Central Excise and Service Tax Commissionerate have not yet converted their registrations. Assessees must submit a PAN copy for verification. Temporary registrations will be invalidated after one month, and associations are urged to publicize this notice among their members.
FEMA
2.
64 - dated
5-1-2012
External Commercial Borrowings (ECB).
Summary: The circular addresses changes to the External Commercial Borrowings (ECB) policy, increasing the borrowing limit for eligible borrowers under the automatic route to USD 750 million per financial year. It specifies revised average maturity guidelines: a minimum of three years for ECBs up to USD 20 million and five years for amounts above USD 20 million up to USD 750 million. It allows eligible borrowers to raise Foreign Currency Convertible Bonds (FCCBs) up to USD 750 million, with certain sector-specific caps. Existing policies on eligible borrowers, recognized lenders, and other aspects remain unchanged, with necessary regulatory amendments to follow.
DGFT
3.
89 (RE-2010)/2009-2014 - dated
6-1-2012
Allocation of 10,000 MTs of white sugar for the year 2011-12 (October, 2011- September, 2012) for export to EU under CXL Quota.
Summary: The Directorate General of Foreign Trade has allocated 10,000 metric tonnes of white sugar for export to the European Union under the CXL Quota for the period from October 2011 to September 2012. The designated agency for this export is the Indian Sugar Exim Corporation Limited, based in New Delhi. The export requires a certificate of origin as per EU Regulation (EC) No. 891/2009, and the necessary documents, including the GSP Certificate and EUR Form, must be processed by the Export Inspection Agency and endorsed by Customs at the port of shipment.
4.
90 (RE-2010)/2009-2014 - dated
6-1-2012
Export of 8,300 MTs of Raw Cane Sugar to USA under Tariff Rate Quota.
Summary: The Government of India, through the Ministry of Commerce & Industry, has allocated 8,300 metric tons of raw cane sugar for export to the USA under the Tariff Rate Quota for the US fiscal year 2012. This export will be managed by Indian Sugar Exim Corporation Ltd. The existing procedures for preferential sugar export to the USA, including the issuance of GSP certificates and other required certifications, will remain in effect. This allocation was initially designated for white sugar but was amended to raw cane sugar as per a subsequent public notice.
Customs
5.
01/2012 - dated
5-1-2012
Refund of 4% Additional Duty of Customs (4% CVD) in terms of Notification No. 102/2007-Customs dated 14.09.2001-regarding.
Summary: The circular addresses amendments to Circular No. 18/2010-Customs regarding the refund of a 4% Additional Duty of Customs (CVD). Initially, only Chartered Accountants could certify that the duty burden was not passed to buyers, but representations have led to the inclusion of Cost Accountants as well. The Board acknowledges the hardship faced by importers using Cost Accountants for VAT audits and amends the circular to allow Statutory Auditors, Cost Accountants, and Chartered Accountants to issue the necessary certification for the refund process. Public notices are advised to inform the trade and industry of these changes.
Highlights / Catch Notes
Income Tax
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Software Payment Deemed 'Royalty' u/s 9(1)(vi) of Income Tax Act for Technical Knowledge Sharing.
Case-Laws - HC : Payment for software - payment made in that regard would constitute 'royalty' for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act..... - HC
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Gifts under 'Sales Promotion and Publicity' not considered trade schemes per section 115WB(2)(O) of Income Tax Act.
Case-Laws - AT : FBT - gift - 'Sales Promotion and Publicity' - the expenditure on gifts could not be treated as trade scheme or for promotion of company's product as per clause O of sub-section 2 of section 115WB..... - AT
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Charitable Trusts Must Specify Specific Purposes for Income Accumulation u/s 11(2) of the Income Tax Act.
Case-Laws - AT : Charitable Trust- voluntary accumulations - the charitable trust cannot list all its objects as purposes for accumulation of income under section 11(2)..... - AT
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Section 40A(2)(b) Disallowances Overturned: AO Failed to Prove Excessive Payments Beyond Fair Market Value.
Case-Laws - AT : Disallowances u/s 40A(2)(b) of the Income-tax Act, 1961 - AO being unable to establish the excessiveness or unreasonableness of the payments made by the assessee, when compared with the fair market value of the services rendered by them, the disallowances made were not warranted...... - AT
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Section 11(2) Doesn't Limit Section 11(1) of Income Tax Act; Accumulated Income Under 15% Unaffected.
Case-Laws - AT : The provisions contained in section 11(2) do not in any manner restrict the operation of section 11(1) of the IT Act and the accumulated income, which was less than 15 per cent of the total income.... - AT
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Court Rules Tax Exemption Valid for Non-UGC Recognized Western Music School u/s 10(23C) of Income Tax Act.
Case-Laws - HC : Exemption u/s 10(23C) – Merely on the ground that petitioner is not recognized by the UGC or any Board constituted by the Government of India for imparting formal education in the field of western music and that petitioner is not itself awarding any certificate or degree to the students, it cannot be said that it does not qualify to be an educational institution... - HC
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Court Upholds Penalty for Not Keeping Financial Records; Ignorance of Tax Laws Not a Valid Defense u/s 271(1)(c).
Case-Laws - HC : Penalty u/s 271(1)(c) - Though he is an individual and he is not expected to maintain accounts showing the current assets and liabilities, income etc., his explanation that he was innocent and he was not aware of the legal requirement cannot be accepted.... - HC
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Interest u/s 201(1A) Not a Penalty; Assessee Still "In Default" for Tax Deduction Failures.
Case-Laws - HC : The payment of interest under Section 201(1A) is not penal. Even though default was unintentional, still assessee would be deemed as “assessee in default..... - HC
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Rent Arrears for 2000-01 Not Allocable to 1996-2000 for Tax Purposes.
Case-Laws - HC : Income from House property - the arrears of rent received in the assessment year 2000-01 could not be spread over the previous years, i.e., 1996-97 to 1999-2000.... - HC
Customs
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Certificates for 4% Additional Duty of Customs Refunds Can Be Issued by Cost or Chartered Accountants.
Circulars : Refund of 4% Additional Duty of Customs (4% CVD) - 'Cost Accountants' in addition to 'Chartered Accountants' authorized to issue certificate.
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Customs Regulations: Importing Commercial Quantities as Baggage Prohibited; Subject to Different Rules and No Exemptions.
Case-Laws - CGOVT : Import of good (in commercial quantity) through banafide baggage is not permissible - It cannot be constituted as bonafide baggage... - CGOVT
DGFT
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Exporting 8,300 Metric Tons of White Sugar to US Under Tariff Rate Quota, per DGFT Circular No. 90.
Circulars : Export of 8,300 MTs of white sugar to USA under Tariff Rate Quota. - Cir. No. 90 (RE-2010)/2009-2014 Dated: January 6, 2012
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India Allocates 10,000 Metric Tons of White Sugar for EU Export Under CXL Quota per DGFT Circular No. 89.
Circulars : Allocation of 10,000 MTs of white sugar for the year 2011-12 (October, 2011- September, 2012) for export to EU under CXL Quota. - Cir. No. 89 (RE-2010)/2009-2014 Dated: January 6, 2012
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DGFT Amends ITC(HS) Schedule-2: New Rules for SCOMET Item Transfers from DTA to SEZ Effective January 6, 2012 (HS.
Notifications : Amendment in Appendix-3 to Schedule-2 of ITC(HS) Classification of Export and Import Items,2009-14-regarding supply of SCOMET Items from DTA to SEZ. - Ntf. No. 93 (RE-2010)/2009-2014 Dated: January 6, 2012 - DGFT
FEMA
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New ECB Guidelines: Compliance, Permissible End-Uses, and Approval Process Under FEMA for Cross-Border Borrowing.
Circulars : External Commercial Borrowings (ECB). - Cir. No. 64 Dated: January 5, 2012
Service Tax
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Finance Act 1994: Convert Temporary Service Tax Registrations to PAN-Based for Better Compliance, as per Circular No. 15/2011-ST.
Circulars : Section 69 of the Finance Act, 1994 - Registration - Conversion of temporary based registration (STC) into PAN based registration. - Cir. No. 15/2011-ST Dated: November 15, 2011
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Training Officers Isn't "Management Consultancy" Service under Law.
Case-Laws - AT : Just imparting training in certain areas to the Officers of certain organizations does not amount to rendering the service of "Management Consultancy" either directly or indirectly to that organization. .... - AT
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Refund of Service Tax Must Include Education Cess; Rejection Unwarranted When Service Tax is Exempt and NIL.
Case-Laws - AT : Refund of service tax to include education cess - Education Cess is levied and collected as percentage of service tax, when and wherever service tax is NIL by virtue of exemption, Education Cess would also be NIL. - refund of cess can not be rejected.... - AT
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Cenvat Credit Covers Insurance for Loss of Profit as Part of 'Activities Relating to Business' in Input Services.
Case-Laws - AT : Cenvat credit on inputs services - the insurance policy to cover loss of profit would come within the expression for 'activities relating to business' in the inclusive limp of the definition of input services.... - AT
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Cenvat credit not applicable for security services; excluded from "factory" definition under Cenvat Rules, similar to salt pans.
Case-Laws - AT : Cenvat credit on inputs - Security services are area specific services - the specific exclusion salt pan from the definition of the term factory which definition is applicable to the Cenvat Rules, the security services which are area specific cannot be treated as input services.... - AT
Central Excise
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Export Unit Overpaid Duties, Claims Refund; Unjust Enrichment Rule Not Applicable, Refund Pursued Without Restrictions.
Case-Laws - AT : Payment of higher duty by an 100% EHTP at the instance of department - claim of refund - provision of unjust enrichment not applicable.... - AT
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Refund Claim Period Starts When Credit is Unusable: Rule 5 CCR & Section 11B Central Excise Act.
Case-Laws - AT : Refund of accumulated credit - Rule 5 of CCR - period of 1 year for the purpose of limitation under Section 11B of Central Excise Act, 1944 has to be counted from the date on which final conclusion is reached that the credit cannot be utilized..... - AT
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Manufacturer's Nil Duty Claim Denied: Power Used in Water Lifting Deemed Part of Manufacturing Process.
Case-Laws - AT : Manufacturer claimed nil rate of duty on the ground that the same are manufactured without the aid of power - Water is lifted to the water tank with the aid of power and the water so lifted is further used in the manufacture of final product - held that the goods are manufactured with the aid of power .... - AT
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Cenvat Credit Denied on Uncertified Photocopy of Bill of Entry; Original Triplicate Copy Loss Must Be Verified.
Case-Laws - AT : Duty paying documents - cenvat credit is not available on photocopy of the bill of entry when the same has been taken without certifying by the Asstt. Commissioner about loss of the original triplicate copy of the bill of entry.... - AT
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Pleasure Vessel Classification Defaults to Rule 3(c) When Not Covered by Rule 3(a) or 3(b.
Case-Laws - AT : Classification of pleasure vessel – under Rule 3(c) when the goods cannot be classified by reference to Rule 3 (a) & (b) they shall be classified under heading which occurs last in the numerical order among those which equally merit consideration .... - AT
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Suo Moto Re-Credit Not Allowed for CENVAT; Refunds Must Be Filed u/s 11B for Excess Duty.
Case-Laws - AT : Suo moto re-credit after reversal of cenvat credit - suo moto refund of excess or twice paid duty cannot be taken and all types of refund claims to have been filed under Section 11B .... - AT
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Rule 6(3)(b) CCR: Inapplicable to Inevitable Waste or Duty-Exempt By-Products.
Case-Laws - AT : Rule 6(3)(b) of CCR are not applicable in the case of arising inevitable waste or bye-product fully exempt from duty .... - AT
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Duty Payments Directed by Preventive Officers Are Considered Under Protest, One-Year Limitation Period Not Applicable.
Case-Laws - AT : CE - Payment of duty on the directions of the preventive officers held as paid under protest – period of limitation of one year is not applicable .... - AT
Case Laws:
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Income Tax
-
2011 (12) TMI 146
Maintainability of appeal against levy of interest u/s 234A, 234B, 234C – adjustment of cash seized against advance tax liability – date from which adjustment would be effective – adjustment of cash seized from third party against the liability of the assessee - Held that:- Charging of interest under section 234A, 234B, and 234C is very much part and parcel of assessment proceedings and is an order against the assessee to which the assessee denies his liability to be assessed. Therefore, appeal against charging of interest under those sections is maintainable as in the case of an assessment order. The liability to pay the advance-tax constitutes a part of existing liability as per section 132B(1)(i). As per section 132B, the seized assets to be applied to the discharge of existing liabilities. Thus, the cash seized during the course of search is required to be adjusted against taxes due including advance-tax for the purpose of computation of interest u/s 234A, 234B and 234C. The adjustment towards the advance-tax would be from the date when it was seized. Further, cash seized from third party was found to be the cash of the assessee and this fact is not disputed therby, it is adjustable against the demand created on the assessee. Decided in favor of assessee.
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2011 (12) TMI 145
Preemptive purchase by the Central Government u/s 269 UD (1) – alleged undervaluation of property - cost of construction of flat to be received in lieu of consideration taken and its fair market value ignored while valuing property resulting in undervaluation – Petitioners agreed to give possession of the subject property on compliance with the obligations of the Transferee under the Agreement by Appropriate Authority - Appropriate Authority has not tendered the payment to the owners and amount was deposited by the Central Government in the P.D. Account of Appropriate Authority prior to the passing of the impugned orders - Difference in total consideration valued and as stated in order to be payable to transferor - Held that:- By ignoring fair market value of flat during valuation, there was an inherent flaw in the valuation of the said property by the Valuation Officer. Appropriate Authority has mechanically accepted the valuation and on this count alone the impugned orders would stand vitiated. Further Section 269 UF (1) stipulates consideration for such purchase, an amount equal to the amount of the apparent consideration. There was complete non application of mind on the part of the Appropriate Authority in stating in the impugned order that the amount payable was Rs.18,68,430/ when the apparent consideration was admittedly Rs.25,14,480/. Quantum of deposit is invalid Moreover, neither dispute was to title of property nor to the persons who should receive the payment, thereby, conditions mentioned in 269UG(2) and 269UG(3) are not satisfied which permit the Central Government to deposit the purchase price with the Appropriate Authority (instead of tender to the owners). Therefore, the deposit made in the P.D. account of the Appropriate Authority by the Central Government was impermissible and not in accordance with law. In view of the failure on the part of the Appropriate Authority to tender the apparent consideration within the period set out in Section 269UG of the Act, it has to be held that the order passed under Section 269UD(1) of the Act stood abrogated and the property is revested to the Petitioners. - Decided in favor of assessee.
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2011 (12) TMI 142
Imposition of interest u/s 201(1A) – Imposition of penalty u/s 221 - Assessee in default - assessee under a bona-fide belief not deducted/not paid the tax at source in respect of the reimbursements for expenses to its employees – Held that:- The payment of interest under Section 201(1A) is not penal. Even though default was unintentional, still assessee would be deemed as “assessee in default. There is, therefore, no question of waiver of such interest on the basis that the default was not intentional or on any other basis. The question of ‘good and sufficient reasons’ only arises on consideration of proviso to Section 201(1) which negate the possibility of imposition of penalty under Section 221 if the Assessing Officer is satisfied that the person liable had good and sufficient reasons to not deduct and pay the tax in question. Thus, in view of proviso to Section 201(1) no penalty can be imposed on the assessee under Section 221 . The matter is remanded to to the assessing officer for the limited purpose of computing the exact quantum of default and the interest payable under Section 201(1A) of the said Act. - Decided partly in favor of Revenue.
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Service Tax
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2011 (12) TMI 141
Section 66A of the Finance Act, 1994 - liability for period prior to 18.04.06 - Held that:- The order of the Commissioner revising the order of the original authority to demand service tax for the period prior to 17.04.2006 on the recipient of the services in India in the facts and circumstances are not justified in view of the judgment of the High Court in the case of Indian National Shipowners Association Vs. Union of India (2008 - TMI - 32013 - High Court Of Bombay) as conveyed by the Board to the field formations vide Circular dated 26.09.2011 - Decided in favor of assessee.
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