Cess Applicable on ST

Circular No. 160/11/2012-ST

F.No.334/1/2012-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

(Tax Research Unit)

*****

Room No. 153, North Block,

New Delhi, 29^th June, 2012.

To

            Chief Commissioners of Customs and Central Excise (All)

            Chief Commissioners of Central Excise & Service Tax (All)

            Directors General of Service Tax/Central Excise Intelligence/Audit

            Commissioners of Central Excise & Service Tax (All)

            Commissioners of Service Tax (All)

            Commissioners of Customs and Central Excise (All)

           

Madam/Sir,

Subject: Applicability of provisions of the Finance Act, 2004 relating to education cess and the Finance Act, 2007 relating to secondary and higher education cess– regarding.        

            There has been some doubt regarding the applicability of provisions of the Finance Act, 2004 relating to education cess and the Finance Act, 2007 relating to secondary and higher education cess as the concerned Acts make reference to section 66 of the Finance Act, 1994, which shall cease to have effect from July 1, 2012.  In this connection, as also in general, you may kindly refer to the sub-section (1) of section 8 of the General Clauses Act, 1897 which reads as under:

"Where this Act, or any Central Act or Regulation made after reference to the commencement of this Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as references to the provisions so re-enacted."

            Thus any reference to section 66 of the Finance Act, 1994 shall be construed as reference to the newly re-enacted provision i.e. section 66B of the same Act.  Despite the stated position of law, the matter has been settled by the issue of Removal of Difficulties Order No. 2/2012 dated 29.06.2012.

2. This circular may be communicated to the field formations and service tax assessees through Public Notice/Trade Notice. Hindi version would follow.

Yours faithfully,

(S. Jayaprahasam)

Technical Officer (TRU)

Tel/Fax: 011-23092037

Form 23B- Fee Payable to ROC

Form 23B

Every statutory auditor appointed by the company in the Annual General Meeting under section 224(1) of the Companies Act, 1956 in this form has to intimate whether he has accepted the appointment or not to the concerned Registrar of Companies, , within 30 days of the intimation received from the company by the auditor.

Earlier, the form was filed free of cost, but now it has to be filed through MCA 21, as per the fees mentioned in Schedule X of the Companies Act, 1956 

IndianCAs: Shocking News (No cap likely on audit firms’ clients in Cos Bill)

 

The big four audit firms can breathe easy as the Ministry of Corporate Affairs (MCA) has decided there will be no cap on the number of companies an audit firm can take on as clients.

A source in the government told The Indian Express that the ministry has decided to drop the recomendation of the Parliamentary Standing Committee on Finance to restrict the number of companies beyond which audit firms shall not be auditors.

It is also likely to retain the current definition of listed companies instead of the narrower definition of listing suggested by the the committee, viz. an alteration to include a reference to equities and in the case of debt, of having been issued to public.

The current definition instead makes no such distinction and says a company is listed if any of its securities, equity or debt are traded in a stock exchange.

The broader definition has helped the government in the case of Sahara debentures for instance as they were treated as listed and hence under the purview of Sebi. Despite the changes the ministry is hopeful the amended Companies Bill would be able to sail through in the monsoon session.

On auditors, the standing committee in its report on the Bill, under Clause 141 (3), has suggested that the government should prescribe the number of companies beyond which a person shall not be appointed as an auditor. But the cap will run through for the number of companies an individual auditor can service, the source said.

For this purpose the ministry is expected to circulate a Cabinet note on the Bill by the end of this week after making the changes from the standing committee report.

Shared by - Vivek Khurana <khuranavivekca@yahoo.com>

| Ashwin Nagar | FCA and SAP-Finance & Consolidations |

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IndianCAs: Framework for audit of Gram Panchayat accounts by CAs [1 Attachment]

 

[Attachment(s) from Ashwin Nagar included below]

Useful information shared by Irani Sarosh.

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Subject: Draft Framework for audit of Gram Panchayat accounts by CAs

Dear Convenors / Dy. Convenors,

Our study circle founder member, Arun Anandagiri and myself had the opportunity to meet the Union Minister for Rural Development, Shri Jairam Ramesh on Tuesday in New Delhi.

During the course of our meeting he discussed the important role that Chartered Accountants could play in proper implementation of one of the flagship schemes of the Government - National Rural Employment Guarantee Scheme (NREGA). He shared with us the draft framework that is being put into place for audits to be conducted by CA's to enforce transparency and accountability at the gram panchayat level in regard to the MGNREGA expenditures, that run into lakhs of crores of rupees. The selection of CA's for this initiative is supposed to be completed before March 2013. Further the CA's are supposed to commence the certification process from May 2013 and submit all the Reports by end July 2013. The indicative check list of the audit and the Certificate format is attached herewith.

We are of the opinion that our profession should rise to this challenge and truly show that we are "Partners in National Building." Hope you find the same useful and circulate it among members at large.

Regards,
Irani Sarosh.

Dy. Convenor

Pune West Study Circle

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Attachment(s) from Ashwin Nagar

1 of 1 File(s)

draft_framwork_AC_audit_ca.pdf

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CLARIFICATION ON SERVICE TAX ON REMITTANCES

CLARIFICATION ON SERVICE TAX ON REMITTANCES

CIRCULAR NO. 163/14/2012-ST, DATED 10-7-2012

Concerns have been expressed in various forums regarding the leviability of service tax on the remittance of foreign currency in India from overseas.

2. The matter has been examined and it is clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas. In the negative list regime, 'service' has been defined in clause (44) of section 65B of the Finance Act 1994, as amended, which excludes transaction in money. As the amount of remittance comprises money, the activity does not comprise a 'service' and thus not subjected to service tax.

3. In case any fee or conversion charges are levied for sending such money, they are also not liable to service tax as the person sending the money and the company conducting the remittance are located outside India. In terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax.

4. It is further clarified that even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax as the place of provision of such service shall be the location of the recipient of the service,i.e. outside India, in terms of Rule 3 of the Place of Provision of Services Rules, 2012.

5. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/ Trade Notice.

SEBI on Audit Report

SEBI ON AUDIT REPORTS

The SEBI has decided to introduce a mechanism to process qualified annual audit reports filed by the listed entities with stock exchanges and annual audit reports where accounting irregularities are pointed out by Financial Reporting Review Board of the Institute of Chartered Accountants of India (ICAI-FRRB). The listed entities would be required to file annual audit reports to the stock exchanges along with the applicable forms and after preliminary scrutiny, exchanges will refer these reports to the Qualified Audit Report Review Committee set up by SEBI. In cases where the qualifications are significant and explanation of the company is unsatisfactory, the same would be referred to the ICAI-FRRB. If ICAI-FRRB opines that the qualification is justified, SEBI may mandate a restatement of the accounts of the company and requires the company to inform the same to the shareholders by making the announcement to stock exchanges. 

No More Cess from July 1, 2012

No More Cess from July 1, 2012?

JUNE 26, 2012

By K Vaitheeswaran, Advocate

A careful reading of the various provisions/notifications ushering in the new negative list based concept of service tax indicates that there are many pitfalls which are likely to cause difficulties for the Government.

Section 91 of the Finance Act (No.2) Act, 2004 levied education cess at the rate of 2% and Section 95 reads as under:

The Education Cess levied under Section 91 in the case of all services which are taxable services shall be a tax (in this Section referred to as The Education Cess on taxable service) at the rate of 2% calculated on the tax which is levied under Section 66 of the Finance Act, 1994 (32 of 1994).

A plain reading of Finance Act, 2004 indicates that education cess of 2% was levied on the service tax payable under Section 66.

Section 136 of the Finance Act, 2007 imposed Secondary and Higher Education Cess and as per Section 140, the cess was at the rate of 1% calculated on the tax which is levied and collected under Section 66 of the Finance Act, 1994 (32 of 1994).

The Central Government vide Notification No.22/2012 dated 05.06.2012 appointed 01.07.2012 as the date from which the provision of Section 66 of the Finance Act, 1994 ceases to apply except as respects thinks done or omitted to be done before the said Section 66 so ceases to apply. Section 66 ceases to exist from 01.07.2012 and Section 66B which is the new charging section for the levy of service tax is effective from 01.07.2012.

Section 66B reads as under:

"There shall be levied a tax (hereinafter referred to as the service tax) at the rate of 12% on the value of all services other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed."

Finance Act, 2012 has not made any amendment to Section 95 of the Finance Act, 2004 and Section 140 of the Finance Act, 2007 so as to enable the levy of Education Cess and Secondary and Higher Education Cess payable on service tax levied under Section 66B of the Finance Act, 2012.

Therefore when service tax as a tax is levied only under Section 66B, it may not be possible to levy education cess at 2% and secondary education cess at 1% which is a cess on a tax referred to in Section 66. With due respect, the Removal of Difficulty Order cannot be a solution since the cess is levied under Finance Act, 2004 and Finance Act, 2007 and has no connection to Section 66B introduced by Finance Act, 2012.

IT Circular on Arrear Demand

Print

Press Information Bureau
Government of India
Ministry of Corporate Affairs

21-June-2012 16:34 IST

CCI issues order against Cement Manufacturers, Imposes penalty of more than six thousand crores on 11 Cement companies

The Competition Commission of India has found cement manufacturers in violation of the provisions of the Competition Act, 2002 which deals with anticompetitive agreements including Cartels. The order was passed pursuant to investigation carried out by the Director General upon information filed by Builders Association of India. The Commission has imposed penalty on 11 Cement Manufacturers named in the information @0.5 times of their profit for the year 2009-10 and 2010-11. The penalty amount so worked out amounts to more than Six thousand Crores. The Commission has also imposed penalty on the Cement Manufacturers Association.

The Cement Manufacturers upon whom the penalty has been imposed are ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements now merged with Ultratech Cements, JK Cements, India Cements, Madras Cements, Century Cements,   Binani Cements, Lafarge India and Jaypee Cements.

While imposing penalty, the Commission has considered the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market. The Commission has found that the cement companies have not utilised the available capacity so as to reduce supplies and raise prices in times of higher demand. The Commission has also observed that the act of these Cement Companies in limiting and controlling supplies in the market and determining prices through an anti-competitive agreement is not only detrimental to the cause of the consumers but also to the whole economy since cement is a crucial input in construction and infrastructure industry vital for economic development of the country.

The contravening Cement Manufacturers had been directed to deposit the penalty amount within 90 days.  They have also been directed to 'cease and desist' from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market.

CMA has been asked to disengage and disassociate itself from collecting wholesale and retail prices through the member cement companies and also from circulating the details on production and dispatches of cement companies to its members.

The order of CCI has been passed in r/o case no.29 of 2010 and a copy of the order has been uploaded on the website of CCI at http://www.cci.gov.in/

RC/JR

CCI Order on Cement Companies

Print

Press Information Bureau
Government of India
Ministry of Corporate Affairs

21-June-2012 16:34 IST

CCI issues order against Cement Manufacturers, Imposes penalty of more than six thousand crores on 11 Cement companies

The Competition Commission of India has found cement manufacturers in violation of the provisions of the Competition Act, 2002 which deals with anticompetitive agreements including Cartels. The order was passed pursuant to investigation carried out by the Director General upon information filed by Builders Association of India. The Commission has imposed penalty on 11 Cement Manufacturers named in the information @0.5 times of their profit for the year 2009-10 and 2010-11. The penalty amount so worked out amounts to more than Six thousand Crores. The Commission has also imposed penalty on the Cement Manufacturers Association.

The Cement Manufacturers upon whom the penalty has been imposed are ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements now merged with Ultratech Cements, JK Cements, India Cements, Madras Cements, Century Cements,   Binani Cements, Lafarge India and Jaypee Cements.

While imposing penalty, the Commission has considered the parallel and coordinated behaviour of cement companies on price, dispatch and supplies in the market. The Commission has found that the cement companies have not utilised the available capacity so as to reduce supplies and raise prices in times of higher demand. The Commission has also observed that the act of these Cement Companies in limiting and controlling supplies in the market and determining prices through an anti-competitive agreement is not only detrimental to the cause of the consumers but also to the whole economy since cement is a crucial input in construction and infrastructure industry vital for economic development of the country.

The contravening Cement Manufacturers had been directed to deposit the penalty amount within 90 days.  They have also been directed to 'cease and desist' from indulging in any activity relating to agreement, understanding or arrangement on prices, production and supply of cement in the market.

CMA has been asked to disengage and disassociate itself from collecting wholesale and retail prices through the member cement companies and also from circulating the details on production and dispatches of cement companies to its members.

The order of CCI has been passed in r/o case no.29 of 2010 and a copy of the order has been uploaded on the website of CCI at http://www.cci.gov.in/

RC/JR

NO PAN-NO TI- NO TDS

IT : Karnataka HC reads down section 206AA to make it inapplicable to persons whose income is below taxable limit

• Section 206AA makes it conditional for every person who wishes to have a transaction in bank/FIs including small investors/depositors (i.e., investors/depositors with income below taxable limit) to invariably have a PAN. This runs counter to section 139A according to which such persons need not have a PAN.

• Section 206AA hinders and discourages such small investors from coming forward to invest their money for secured reasons and their secured future. This is also not desirable for country's economy.

• Further section 206AA is unreasonable as it invalidates Form 15G which does not mention PAN.

• Section 206AA which overrides section 139A is discriminatory against small investors . Section 139A has withstood scrutiny of Article 14 of the Constitution for reasonableness.

• In the result, section 206AA read down and made inapplicable to those with incomes below taxable limits. Banks and FIs not to insist on PAN for opening accounts of below taxable limit income-earners.

Negative List-01-07-2012

Ministry of Finance04-June, 2012 13:25 IST

FM asks CBEC Officials to Make their best Efforts to Mobilise Resources to meet the Targets of Indirect Tax Collections for 2012-13

Following is the text of the Speech delivered by the Union Finance Minister, Shri Pranab Mukherjee at the Annual Conference of Chief Commissioners and Directors General of Customs, Central Excise and Service Tax here today:- "I am very happy to be here at this Annual Conference of Chief Commissioners and Director Generals of Central Board of Excise and Customs (CBEC). Let me begin by congratulating the officers and staff of the Department for your spirited performance in tax collections in the year 2011-12. Despite a slowdown in growth and the duty cuts effected on petroleum products in June 2011, the indirect tax collection of Rs. 3,92,781 crore (excluding cess) is only marginally short of the Revised Estimates of Rs. 3,94,000 crore in 2011-12. 2. The target for indirect tax collections in 2012-13 has been placed at Rs.4,99,694 crore. It is a growth of over 27 per cent. This target has been fixed keeping in view the increase in central excise and service rate from 10 to 12 per cent the observed buoyancy in service tax collections. I am confident that the department would leave no stone unturned in ensuring that the targets for the current year are not only met but handsomely exceeded.  3. A strong indirect tax administration is fundamental to the development of a nation's economy. Government's fiscal measure, by way of reduced rates of excise and customs duties, significantly dented revenue collections in the recent past. It was an unavoidable necessity to steer the economy out of the economic slowdown. The Indian economy registered a healthy growth of 8.4 per cent in 2009-10 and 2010-11. However, renewed global uncertainty, emanating mostly from the Euro zone area affected domestic business sentiments in 2011-12. A tight monetary policy directed at taming inflationary pressures in the economy also came in the way of consolidating this recovery. GDP growth in 2011-12 has slowed significantly to just 6.5 per cent. This has been disappointing. Like for most parts of the world, the second round of global uncertainty and the slowdown has come rather quickly on the heels of the previous one, with practically no headroom for running a proactive fiscal policy. 4. Nevertheless, there are some positives for the Indian economy as we look forward. The interest rate cycle has been reversed; mining sector growth has turned around, progress has been made on fuel linkage for coal based power projects; there is a turnaround in the quarterly investment growth rate, which had been negative in the preceding quarters of 2011-12; a normal south west monsoon has been predicted for 2012-13 and there has been a rapid decline in international oil prices in recent weeks. Further, there are no major adverse results on corporate performance in the last quarter of 2011-12. All these factors should help in the recovery of domestic growth momentum.  5. The challenges before your department today are multi-faceted. At a general level, there is an urgent need to reverse the declining trend in tax- GDP ratio by augmenting tax collections. This ratio was nearly 12 per cent in 2007-08 but has dropped to around10.5 per cent in 2011-12. There is scope for improving tax administration by leveraging technology and facilitating a congenial public interface, where required, through appropriate training and capacity building.   6. The ever increasing demands from trade and industry for faster clearance of import-export cargo, prompt payment of refunds and drawback claims, timely resolution of difficulties faced by the taxpayers etc. has to be balanced with the need for improved tax revenue mobilization. The important task before you is to ensure timely collection of all legitimate tax dues, without, of course, unduly burdening the assessee. You must sharpen your audit skills and conduct intelligent scrutiny of assessees' records to bring to the kitty any tax that might have escaped assessment and to detect frauds which are often intelligently planned and meticulously executed. 7. While the need for trade facilitation and tax payers' satisfaction cannot be over-emphasized, any mala fide and corrupt practice to evade payment of legitimate dues, needs to be handled as per established procedure of law. You must also ensure that your actions do not hinder the smooth conduct of any bona fide activity of an honest and law-abiding tax payer and do not, in any way, add to their legitimate compliance cost. You should strive to build a transparent and hassle-free tax regime where the assessee voluntarily complies with the statutory requirements and dreads any breach of regulatory provisions and procedures. 8. I am particularly happy to note the buoyancy in Service Tax collection in 2011-12 which, at Rs. 97,389 crore, far exceeded the Budget Estimate of Rs.82,000 crore. The rate of Service Tax has been enhanced to 12 per cent in the Union Budget, 2012 in order to gradually move towards a unified GST regime. A 'Negative List' approach for taxation of services is being introduced in the current fiscal. Under the new approach, all services except those in the 'Negative List' or otherwise exempted, would come into the tax net. The new system will come into effect from 1st July, 2012. The new comprehensive approach to taxation of services is a shining piece of tax reform, preparatory to the introduction of GST. In a nutshell, the comprehensive approach to taxation of services implies larger tax base with limited number of exemptions. On the Central Excise side the standard rate of excise duty has been increased from 10 to 12 per cent in the Finance Bill, 2012. These changes are likely to help the Department in garnering additional tax revenue.  9. Central Board of Excise & Customs is celebrating 50 years of the Customs Act, 1962. The Department has consistently strived to put in place a transparent and efficient system of indirect tax administration. It has evolved through in-house innovations and adoption of international best practices. The facilitation measures introduced recently include a trust-based system of self assessment of Customs duty by the importers and exporters coupled with a Risk Management System (RMS) to identify risky consignments for assessment and examination by the Customs officer. This is expected to substantially raise the level of facilitation of imported consignments. I am confident that these measures will encourage voluntary compliance and reduced transaction costs. Our long term goal should be to achieve the global standard for time taken to clear the goods at port, airport and land customs stations. 10. I am aware of the recent advances made by your department in harnessing information technology in indirect tax administration by way of e-payment of taxes, e-filing of returns, electronic credit of refund and drawback amounts directly to the assessees' bank account. Apart from undertaking a pilot project for developing a common portal for GST with the Centre and 11 States, the Government has also approved a proposal to set up a Special Purpose Vehicle (SPV) for GST called GSTN to implement and maintain the IT infrastructure required for a smooth roll-out of GST.  11. Smuggling of FICN, narcotics and psychotropic substances, illicit export of flora and fauna; antiques and other prohibited goods pose a grave threat to our economy. Commercial frauds perpetuated to evade payment of legitimate duty are another area of growing concern. To enable you to deal with these concerns effectively the initiatives taken to improve the infrastructural and technological capabilities at your command need to be rapidly implemented.   12. Customs Overseas Intelligence Network (COIN) of CBEC in various countries plays an important role in exchange of information related to cross border transactions. The existing nine COIN offices are contributing substantially to support the functioning of DRI. Ministry of External Affairs has agreed for creation of two more COIN posts in China to further expand the network. The enlarged network will add to the operational capacity of Directorate of Revenue Intelligence of CBEC. 13. Capacity building needs to be accorded a high priority so that we are able to build a team of dedicated and motivated workforce to respond to the challenges confronting the department. The issues related to human resource development should be given priority, and necessary steps to promote an administration with a humane face earnestly pursued. You all at the senior level cannot remain insensitive to the genuine concerns of your workforce, be it the legitimate demand for a timely promotion or holding of DPCs or timely sanction of annual increments, or payment of retirement benefits.  14. I urge you all to put in your best efforts to augment the tax collections and remain firmly committed to providing an efficient, responsive and tax payer friendly administration. I understand that CBEC has constituted four Breakaway Groups for in depth examination of some of the current issues that need the immediate attention of the department. I expect each one of you to contribute actively to the deliberations, brain-storm collectively to find out solutions to the problems thrown up by these groups and draw road maps for future course of action. I am sure, your active participation, enthusiasm and insight will make this Conference a resounding success.  15. I would conclude by reiterating what I said in my Budget Speech for 2012. A number of global and domestic factors militated against the growth that had revived in the last two years. But India has thrived under challenges and India will do so now…….Whether or not today's announcements make tomorrow morning's headlines matters little, as long as they help in shaping the headlines that describes India a decade from now. I look forward to the outcomes of this conference." ******** DSM/GN  (Release ID :84665)

Highlights of Amendments in Service Tax (Determination of Value) Rules, 2006

Highlights of Amendments in Service Tax (Determination of Value) Rules, 2006

Vide notification no. 24/2012 ST dated 6-6-2012, CBEC has amended the provision relation to determination of value of Taxable Services in certain circumstances as follows:

Service Tax (Determination of Value) Rules, 2006 [As amended is available on http://www.taxmanagementindia.com]

Substitution of Rule 2A:- To prescribe

• First option to pay service tax on Value of services after deducting value of goods from the gross value.
• Second option to pay service tax at composite rate
  • Pay ST on 40% value of original work
  • Pay ST on 70% value of maintenance or repair or reconditioning or restoration or servicing of any goods
  • Pay ST on 60% value of all other works contract

Amendment to Rule 2B:- Reference to clause (zm) and (zzk) deleted, as not required after introduction of negative list.

Insertion of new Rule 2C:- To prescribe rate of composition in case of activity at a restaurant or as outdoor catering as:

• Pay ST on 40% value in case of Restaurant.
• Pay ST on 60% value in case of Outdoor Catering.

Amendment to Rule 3:- Relating to the provisions where value is not ascertainable.

Amendment to Rule 5:- Relating to Inclusion in or exclusion from value of certain expenditure or costs, reference to clause (zzzx) removed.

Amendment to Rule 6:- Cases in which the commission, costs, etc., will be included or excluded:

• amount realised as demurrage related to taxable services shall be included.
• interest on delayed payment shall be excluded.
• taxes levied by any Government on any passenger travelling by air shall be excluded.
• accidental damages due to unforeseen actions not relatable to the provision of service shall be excluded.
• subsidies and grants disbursed by the Government, not directly affecting the value of service shall be excluded.

Deletion of Rule 7:- This rule was to prescribe Actual consideration to be the value of taxable service provided from outside India.

Service Tax (Determination of Value) Rules, 2006 [As amended]

About the Author: -
Surender Gupta
313, Chanakya Complex b-10, subhash chowk Laxmi nagar - Vikas Marg Delhi - 110092 India

Reverse Charge – Practical Issues, Invoice & Cenvat

Reverse Charge – Practical Issues, Invoice & Cenvat

Service tax legislation has been amended vigorously by Finance Act, 2012. One such amendment relates to the increase in number of services that shall be subject to reverse charge mechanism. The intention behind such restructuring is that it has been noticed that a number of registrants collect the tax but do not pay the same to the Department. This is a serious loss of the revenue even though the compliant section at the recipient end is often not benefitted. To ensure proper collection, while not inconveniencing small business, a new scheme is proposed to be introduced.

To give effect to this new reverse charge mechanism, some changes are being proposed: firstly, a proviso is being added to sub-section (2) of section 68 and both the service provider and service receiver will be considered as persons liable to pay the tax on notified taxable services and to the extent specified against each one of them.

This article intends to discuss few practical issues that are relevant for trade, commerce & industry and are as below:

1. What are services covered under reverse charge?
2. What are proportions of service tax payable by SP & SR?
3. How to compute taxes?
4. How to raise an Invoice?
5. How shall the Cenvat be utilised?
6. If SP claims benefit of Rs. 10Lacs exemption, will the SR be liable to pay taxes?
7. If SR is small entity / below Rs. 10 Lacs, Is it still liable?

• Whether SR is required to be registered under service tax?
• Whether SR needs to file service tax returns?
• When can SR claim Cenvat of tax paid under reverse charge?

1. If either SP or SR defaults, whether the other is liable to pay?
2. Treatment when advance is received?
3. A.    Services covered under reverse charge (Not. 15/2012 – ST)

S.No	Service	By (SP)	To (SR)
1	Insurance	Insurance agent	Any Person
2	Goods Transport by Road	GTA	a)     Factory b)    Society c)     Cooperative Society d)    Dealer under excise e)     Body corporate f)      Any partnership firm
3	Sponsorship	Any Person	a)       Body corporate b)       Partnership firm in taxable territory
4	Any service	Arbitral tribunal Individual Advocate Support service provided or agreed to be provided by Government or local authority	Any business entity in taxable territory
5	Renting or hiring any motor vehicle designed to carry passenger	a)     Individual b)    HUF c)     Proprietorship firm d)    Partnership firm e)     AOP	a)     Company b)    business entity registered as body corporate located in the taxable territory
6	Works Contract Service	a)     Individual b)    HUF c)     Proprietorship firm d)    Partnership firm e)     AOP	a)     Company b)    business entity registered as body corporate located in the taxable territory
7	Supply of manpower for any purpose	a)     Individual b)    HUF c)     Proprietorship firm d)    Partnership firm e)     AOP	a)     Company b)    business entity registered as body corporate located in the taxable territory
8	Any service	Any person in non taxable territory	Any person in taxable territory

1. B.    Proportions of service tax Attributable to SP & SR (Not 15/2012 -  ST)

S.No	Service	SP	SR
1	Insurance	Nil	100%
2	Goods Transport by Road	Nil	100%
3	Sponsorship	Nil	100%
4	Any service by tribunal/advocates etc	Nil	100%
5	In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value.	Nil	100%
	In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.	60%	40%
6	Works Contract Service	50%	50%
7	Supply of manpower for any purpose	25%	75%
8	Import of service	Nil	100%

1. C.     Computing taxes

Example: Say A is SP and B is SR such that they fall under reverse charge and ratio applicable is 25-75 for SP & SR respectively. Say an invoice of 15 Lacs (excluding tax) has been raised on 1^st August, 2012. For the given facts the computation of service tax shall be as under:

	Particulars	Amount (in Rs)
	Invoice Value (excluding tax)	15,00,000/-
	Service Tax  ( Total Service tax) @ 12.36% (A)	1,85,400/-
	Total Value	16,85,400/-
	Less: Tax Attributable to service receiver and to be borne by SR himself (75% of (A))	1,39,050/-
	Amount Payable by SR to SP	15,46,350/-
	ST payable by SR	1,39,050/-
	ST payable by SP	46,350/-

Against ST payable the Cenvat available with respective parties can be utilised subject to Cenvat credit rules, 2004.

1. D.    Raising service invoice

Above mentioned table shall be our reference point to discuss raising a service invoice. In this case the total service payable i.e. Rs. 1, 85,400/- needs to be disclosed. In addition to that service tax attributable to service receiver i.e. Rs. 1,39,050/- shall be disclosed on invoice so that the SR knows the amount of service tax that is required to be paid by him. 

1. E.     Availing and Utilisation of cenvat

The SP shall utilise the the Cenvat of input, input services and capital goods as and when available as per Cenvat credit rules. There exists an issue regarding when the Cenvat for SR is available in regard to Service tax paid under reverse charge.

Say for example, the invoice is dated 29^th August while the payment is made by SR to SP on 28^th September, 2012 then in this case whether the Cenvat of tax paid under reverse charge shall be available and to utilised in payment of 5^th September, 2012 or 5^th October, 2012.

In my opinion, the Cenvat in above case shall be utilisable in payment to be made dated 5^th October, 2012. The view finds its support in board clarification No. 345/1/2008 TRU – dated 27.6.2008 wherein it is clarified for the purpose of import of service that service tax paid under Section 66A is available as "input credit" under CENVAT Credit Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service. The same principle shall apply for cases of reverse charge other than import of services. Though board might come up with clarification soon on this issue.

1. F.     SP eligible for benefit of Rs. 10Lacs exemption

In case say that the SP is eligible for benefit of threshold exemption of Rs. 10 Lacs then whether the SR is still liable to pay his share of taxes or will he also be not liable to pay any taxes. If the SP is claiming exemption for threshold benefit, fundamentally the service tax is exempt. Reverse charge should be seen as just a collecting mechanism of service tax and not the levying event. In this case SR shall not be liable to pay any taxes and invoice issued by the service provider shall be free from any service tax aspect.

1. G.    SR eligible for benefit of Rs. 10Lacs exemption

This will create maximum pain. Even if service receiver is below 10 Lacs or small entity covered incidentally in reverse charge, it needs to get registered under service tax and shall be liable to pay taxes under reverse charge as service receiver. Cenvat cannot be utilised against this payment so it shall be an explicit cash outflow. Further once the tax is paid under reverse charge the same can be utilised as Cenvat subject to Cenvat credit rules.

1. H.    SP / SR defaults in paying taxes – Repercussions

It is clarified by board that the liability of the two persons is for respective amounts and is not influenced by compliance or the lack of it by the other side. Hence if either party defaults, there shall be no repercussion for the other party. Service provider is allowed Cenvat credit of tax paid by him on inputs and input services. The respective portions have been attempted such that the credits available will be well below the amount required to be paid by such persons. In extreme situations the small service provider is also being allowed the refund of unutilized Cenvat credit if any, available with him. Suitable changes will be made in Cenvat Credit Rules, to this effect.

1. I.       Treatment of Advance received

In Practical case a lot of times SR has to pay advance to SP. In Works contract industry, mobilisation advance is very frequent. As per existing POT rules, this advance is liable to service tax, and the situations that exist become very complicated and tedious. To explain this assume the contract below:

	Particulars	Amount (In Rs)
	Total Contract Value (Contract executed on 1st July,2012)	20,00,000/-
	Payment Terms - 20% Advance on 31st July (4,00,000/-) -  80% on completion of service i.e. 31st December,2012
	Reverse charge ratios applicable	25 – 75 (SP : SR)

In this case 4,00,000/- can be including taxes / excluding tax as per the nature of contract. The result shall be such that might create interpersonal liability between SR & SP after adjusting taxes, which can become undesirable to either of parties. The computations of taxes become highly tedious and much beyond the reach of small entities who cannot afford compliance cost.

1. J.       Conclusion

The intention behind such restructuring is that it has been noticed that a number of registrants collect the tax but do not pay the same to the Department. This is a serious loss of the revenue even though the compliant section at the recipient end is often not benefitted. To ensure proper collection, while not inconveniencing small business, a new scheme is proposed to be introduced.

But not expectedly, it creates tedious situation for the assessee specially the service receiver. Moreover, fundamentally to say making SR liable to pay taxes is remedy to beat unjust enrichment by SP is not correct because even there might be cases where SR himself does not pay taxes. Also, board should release a dedicated clarification on this issue to cover all the practical cases so that comfort can be instilled in trade & Commerce.

About the Author:

Author is practicing Chartered Accountant in New Delhi and specialising in Indirect taxes , Corporate Laws and Management Advisory. He can be reached at +91-9811653975 or Ankitgulgulia@gmail.com.

DISCLAIMER: This article is provided purely for your information only and you should check other information sources before taking any action based on any of the content in this article. Neither the authors nor website hosting the article make any warranty as to the quality or currency of the information contained in any of the site's articles.

About the Author: -
CA.Ankit Gulgulia
Delhi Delhi - 110007 India

Finance Act 2012

Dear All,

The Finance Bill, 2012 has  been enacted and has become  Finance Act,
2012 w.e.f. 28.05.2012 ( Act No 23 of 2012 ) with president's assent
and all statutory provisions has applicable w.e.f. 28.05.2012 except
the provisions of negative list which will be applicable after
issuance of the Notifications which are expected around June 1, 2012.
In all liklihood, the other provisions may be made applicable from
July 1, 2012.

FM on IT Retrospective Amendments

Print

Press Information Bureau
Government of India
Ministry of Finance

30-May-2012 15:38 IST

Statement of Union Finance Minister, Shri Pranab Mukherjee Regarding Issues of Retrospective Amendment and Transfer Pricing

On the issue of retrospective amendment, Union Finance Minister, Shri Pranab Mukherjee has said that he had given a commitment in the Parliament with regard to retrospective amendments that CBDT will issue a policy circular to clarify that in cases where assessment proceedings have become final before first day of April, 2012; such cases shall not be reopened. Now CBDT has issued a circular in this regard, the Finance Minister has stated.

Regarding the issue of Advisory Group relating to transfer pricing and International taxation, the Finance Minister has said that he has constituted an advisory group to resolve various issues in the area of transfer pricing and International taxation. The group has held its first meeting on 25th May 2012 and on advice of group and NASSCOM, the Finance Minister has approved issue of a circular to avoid multilevel TDS on software u/s194J.This will remove hardship in case of software distributors.


*****

SS/SL

Press Information Bureau
Government of India
Ministry of Finance

30-May-2012 15:38 IST

Statement of Union Finance Minister, Shri Pranab Mukherjee Regarding Issues of Retrospective Amendment and Transfer Pricing

On the issue of retrospective amendment, Union Finance Minister, Shri Pranab Mukherjee has said that he had given a commitment in the Parliament with regard to retrospective amendments that CBDT will issue a policy circular to clarify that in cases where assessment proceedings have become final before first day of April, 2012; such cases shall not be reopened. Now CBDT has issued a circular in this regard, the Finance Minister has stated.

Regarding the issue of Advisory Group relating to transfer pricing and International taxation, the Finance Minister has said that he has constituted an advisory group to resolve various issues in the area of transfer pricing and International taxation. The group has held its first meeting on 25th May 2012 and on advice of group and NASSCOM, the Finance Minister has approved issue of a circular to avoid multilevel TDS on software u/s194J.This will remove hardship in case of software distributors.


*****

SS/SL

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ODI Online

Overseas Direct Investments by Indian Party - Online Reporting of Overseas Direct Investment in Form ODI

A.P. (DIR Series 2011-12) Circular No. 131, dated 31-5-2012

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to A.P. (DIR Series) Circular No. 36, dated February 24, 2010, wherein ADs were advised about the operationalisation of the online reporting system of Overseas Direct Investments (ODI) with effect from March 2, 2010. The system, inter alia enables online generation of the Unique Identification Number (UIN).

2. Under the online reporting system, AD Category-I banks could generate the UIN online under the automatic route. However, reporting of subsequent remittances under the automatic route as well as the approval route was to be done online in Part II of form ODI, only after receipt of the letter from the Reserve Bank confirming the UIN.

3. It has now been decided to communicate the UIN in respect of cases under the Automatic Route to the ADs/Indian Party through an auto generated e-mail to the email-id made available by the AD/Indian Party. Accordingly, with effect from June 1, 2012 (Friday), the auto generated e-mail, giving the details of UIN allotted to the JV/WOS under the automatic route, shall be treated as confirmation of allotment of UIN, and no separate letter shall be issued by the Reserve Bank to the Indian party and AD Category - I bank confirming the allotment of UIN.

4. It may also be noted that the subsequent remittances under the automatic route and remittances under the approval route are to be reported online in Part II of form ODI, only after receipt of the e-mail communication/confirmation conveying the UIN.

5. The applications in form ODI for overseas direct investment under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the online reporting of Part I of the Form as contemplated in A.P. (DIR Series) Circular No. 36, dated February 24, 2010.

6. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. The directions contained in this Circular have been issued under section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.