VCES Clarifications-11-12-2013

F. No. B1/19/2013-TRU (Pt.)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

(Tax Research Unit)

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New Delhi the 11th December, 2013

 To,

All Chief Commissioners of Central Excise/Service Tax

Director General Service Tax

All Commissioners of Central Excise/Service Tax

Madam/Sir,

Sub: The Service Tax Voluntary Compliance Encouragement Scheme – issues for clarification – reg

            The undersigned is directed to state that the  Board has issued clarifications on issues concerning various aspects of the VCES, vide circulars dated 13.05.2013, 8.08.2013 and 25.11.2013. A FAQ has also been issued on VCES.  However, certain instances have come to notice, as mentioned below, that the declarants under the VCES are still facing difficulties.

2.         In one instance, the Designated Authority has asked a declarant, who has "tax dues" only for a part of the period covered by the Scheme, to furnish an undertaking that he had no unpaid "tax dues" for the remaining period covered by the Scheme. However, the Scheme does not envisage furnishing of any such undertaking. A declarant may have tax dues only for a part period covered by the Scheme. In terms of the Scheme a declaration of tax dues has to be made in Form VCES-I, which includes an undertaking that the information given in the declaration is correct and complete. Therefore, the Designated Authority should not ask for any other undertaking or declaration beyond what has been prescribed in the Scheme or Rules made there under.

3.         In another instance, the Designated Authority has objected to the payment of the first tranche of 50%, payable by 31.12.2013, in installments. It is clarified that the Scheme only prescribes that the declarant would pay a minimum amount of 50% of the tax dues by 31.12.2013. Rest of the payment may be made by 30.6.2014, without any interest, and any amount remaining unpaid on 30.6.2014 shall be paid by 31.12.2014, with interest for the period of delay beyond 30.6.2014. There is no bar to pay these amounts in installments. For example a declarant may pay the 50% amount that he is required to pay by 31.12.2013 in more than one installment. Therefore, payment of 50% "tax dues" in lump-sum may not be insisted to.

4.         In some instances, it has been observed that the Designated Authority has raised frivolous/unnecessary queries as regards the veracity and the manner of calculation of tax dues. While the designated authority may cause arithmetical check as regards the correctness of computation of tax dues, the Scheme does not envisage investigation by the designated authority into the veracity of declaration. Only if the Commissioner has reason to believe that the declaration filed by the declarant is substantially false he may, for reasons to be recorded in writing, serve notice on the declarant requiring him to show cause why he should not pay the tax dues not paid or short-paid. 

Yours faithfully,

(S.Jayaprahasam)

Technical Officer (TRU)

Tel. No.: 2309 5547.

CAG Report on Trusts

Trusts evading taxes - Income Tax Department casual - CAG Fumes 

IN its Report No. 20 of 2013 submitted top Parliament, the CAG has come down heavily on the Income Tax Department for its laxity in dealing with Trusts - not all that charitable. It is a mandatory requirement for charitable trusts/Institutions (Trusts) to get registration under Act for claiming exemption. The CAG scrutinized 90,000 cases in which the Income Tax Department (ITD) granted registration and observed several mistakes, some of which are:

ITD granted registrations/approvals/notifications to the 799 Trusts without verifying necessary documents such as copy of the Trust Deed, proper clauses in the Trust Deed, audited accounts etc. ITD granted approvals/registrations/notifications in 457 cases in which there was no dissolution clause in the Trust Deed. ITD granted registrations/approvals/notifications to 73 Trusts having no PAN which is in contravention of the provisions of Act. ITD granted approvals /registrations In 60 cases Involving tax effect of 87.33 crore irregularly to Trusts whose objects were not charitable in nature. There was no correlation in granting or rejecting approvals/registrations among different authorities. ITD did not take action to cancel registration in three cases Involving tax effect of Rs. 4.94 crore. ITD granted registration/exemption in 161cases irregularly involving revenue impact oft 24.23 crore with retrospective effect contravening provisions contained in Act. There was a delay of more than 6 months to 24 months beyond stipulated period in granting approvals/registrations/notifications in 594 cases. The delay on the part of ITD resulted in deemed approval, to Trusts which were otherwise not eligible. ITD allowed irregular exemptions involving tax effect of 8.88 crore to 53 Trusts without granting registrations /approvals/notifications. ITD allowed exemptions In 72 cases Irregularly Involving tax effect of Rs. 8.88 crore despite rejection of registrations/approvals by the competent authority. ITD allowed exemptions in 9 cases irregularly u/s 10(23C) (iiia)/(iiiad) involving tax effect of 2.39 crore though the gross receipt exceeded one crore. ITD granted exemptions in 117 cases irregularly without submission of audit reports with the returns.

Credit Card-NPA

Date: Dec 20, 2013 Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Credit Card Accounts RBI/2013-14/414 DBOD.No.BP.BC.78/21.04.048/2013-14 December 20, 2013 The Chairman and Managing Director/ Chief Executive Officer of All Scheduled Commercial Banks Dear Sir, Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Credit Card Accounts Please refer to paragraph 2.1 of the Master Circular dated July 01, 2013 on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, wherein definitions of non-performing assets (NPAs) have been indicated. 2. In credit card accounts, the amount spent is billed to the card users through a monthly statement with a definite due date for repayment. Banks give an option to the card users to pay either the full amount or a fraction of it, i.e., minimum amount due, on the due date and roll-over the balance amount to the subsequent months' billing cycle. 3. It has come to our notice that there are divergent practices being followed by banks with regard to asset classification status of credit card accounts if minimum amount due is not paid on the specified due date. While some banks reckon the due date specified in the statement for payment of minimum amount due to determine the over-due status, some banks reckon the subsequent billing date to determine the over-due status of the minimum amount due. In order to bring in consistency and induce transparency, it is advised that a credit card account will be treated as non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the next statement date. The gap between two statements should not be more than a month. 4. Banks should follow this uniform method of determining over-due status for credit card accounts while reporting to credit information companies and for the purpose of levying of penal charges, viz. late payment charges, etc., if any. Yours faithfully, (Chandan Sinha) Principal Chief General Manager

CBDT on Safe Harbour Rules

Transfer Pricing: CBDT Issues Important Directives On Safe Harbour Rules

Pursuant to the Safe Harbour Rules in Rules 10TA to 10TG, the CBDT has issued a letter dated 20.12.2013 in which it has laid down important directives and clarifications on the manner in which the Safe Harbour Rules are meant to be implemented. The directives and clarifications are as follows:

 (i) AOs should carefully verify and provide to the CBDT in writing the details of all Form 3CEFA received by them relating to Safe Harbour Options;

(ii) There should be no confusion between Safe Harbour Option filed in paper format in Form 3CEFA and the Form 3CEB (detailing international transactions) which is filed electronically. The AO has to examine the form and decide within 2 months of the end of the month in which the option is filed as to whether to accept the Safe Harbour option or to make a reference to the TPO. If no action is action, the Safe Harbour option will be considered as having been accepted and it will remain valid for 5 years;

(iii) If there are minor defects in Form 3CEFA, the AO has to provide an opportunity to the taxpayer to rectify the same. However, the statutory time limit of 2 months provided in Rule 10TE (14)(i) cannot be exceeded;

(iv) The AO has to verify the eligibility of the assessee and the international transactions. Under Rule 10TF, the Safe Harbour Rules will not apply to a country notified in s. 94A (e.g. Cyprus);

(v) If the taxpayer has opted for Safe Harbour but has reported rates or margins less than the Safe Harbour rates or margins, the income has to be computed on the basis of the Safe Harbour rates or margins;

(vi) The Safe Harbour rates or margins are not a benchmark for cases not covered by the Safe Harbour Rules. In such cases, a regular transfer pricing audit should be carried out without regard to the Safe Harbour rates or margins.

RBI on NRI

Investments by persons resident outside India in tax free, secured, redeemable, non-convertible bonds - RBI Instructions

REGULATION No. 6 (2) of Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 imposes restrictions on person resident in India who have borrowed in Rupees from a person resident outside India to the effect that such borrowed funds cannot be used for any investment, whether by way of capital or otherwise, in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not, or for relending.

RBI has now decided to permit such resident entities / companies in India, authorised by the Government of India, to issue tax-free, secured, redeemable, non-convertible bonds in Rupees to persons resident outside India to use such borrowed funds for the following purposes:

(a) for on lending / re-lending to the infrastructure sector; and

(b) for keeping in fixed deposits with banks in India pending utilization by them for permissible end-uses.

Reserve Bank has since amended the Regulations accordingly through the Foreign Exchange Management (Borrowing and Lending in Rupees) (Amendment) Regulations , 2013, which have been notified, vide Notification No. FEMA.287/2013-RB dated September 17, 2013.

Regards,

VMVSR

FM-Stern Action-Service Tax Evaders

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Press Information Bureau
Government of India
Ministry of Finance

30-December-2013 12:34 IST

Press Statement of the Finance Secretary on VCES

There has been an overwhelming response to the VCES . In the last four days, we have received over 16,000 applications involving Rs. 1500 crores of service tax dues. Upto 29-12-2013 we have received over 40,000 declarations involving over Rs 5500 crores. This would broadly correspond to Rs 55,000 crores of services, which have escaped the tax net. I would like to remind all service providers, both registered and unregistered, that this scheme is open till 31-12-2013 only. There will be no extension of the scheme since the last date is laid down in the Finance Act. We are making every effort to help all declarants. Our offices have been open on Saturdays and this last weekend, even on Sunday. Seeing the response, we have decided that today , the 30th of December 2013, the offices will be open well beyond normal working hours , in order to attend to all those who come in to file their declarations . Tomorrow, the 31st December 2013, the offices will be open till midnight to facilitate acceptance of declarations.

Another special measure is that the Government has also extended banking hours in the designated branches , upto 6 pm on 31-12-2013. In addition, all Commissionerates have been advised to accept demand drafts/ pay orders submitted by declarants, under the Receipt Payment Rules.

It is hoped that with all these measures, the service providers would respond and avail the benefits of VCES. The declarants are once again reminded that they have to pay 50% of the declared tax dues by 31-12-2013, failing which they would be ineligible for the scheme.

I would like to advise that from 1st January, 2014, stern action will be taken against service tax evaders and the provisions in the Finance Act relating to arrest and prosecution will be enforced in right earnest.

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Amendment to Cenvat and CE Rules

We are pleased to share the following tax alert:

The CBEC has as amended the Central Excise Rules, 2002 and Cenvat credit Rules, 2004 in relation to procedures to be followed for availing cenvat credit on invoices issued by an importer vide  Notification No. 17/2013- CE(NT) and 18/2013- CE(NT) both dated 31.12.2013. The amendments would come into force w.e.f. 01.03.2014. The salient amendments are:

1. Registration is now made compulsory for importers issuing invoices on which CENVAT Credit can be taken.

2. An importer issuing cenvat table invoice is now made a "First Stage Dealer"

3. Other consequential amendments.

VCES Grand Success

Service Tax - VCES - A Grand Success - Excellent Performance by officers? 

THOUGH the Final figure is not yet officially out, the Government is said to have collected nearly 8000 Crores under the Voluntary Compliance Encouragement Scheme 2013. But you know what their target was? A measly 1050 Crores!

As per their "Results Framework Document" 2013-14 (RFD), if they collected 550 Crores in 2013-14, their performance is excellent.

What is RFD?

The Prime Minister approved the outline of a "Performance Monitoring and Evaluation System (PMES) for Government Departments". Under PMES, each department is required to prepare a Results-Framework Document (RFD).

An RFD provides a summary of the most important results that a department/ministry expects to achieve during the financial year. This document has two main purposes: (a) move the focus of the department from process-orientation to result-orientation, and (b) provide an objective and fair basis to evaluate department's overall performance at the end of the year.

So, our CBEC also sincerely prepared the RFD in which on page 9, they have shown VCES target for 2013-14 as Rs. 500 Crores and the projected value for 2014-15 as Rs. 550 Crores (maybe they hope to get some interest on delayed payments) - So, all they targeted was Rs. 1050 Crores. As with all Government statistics, which nobody perhaps reads, this report is also not without its contradictions. In page 9, their target for 2013-14 is Rs.500 Crores, while in page 4 it is 550 Crores - but what is after all 50 Crores when they have collected nearly 8000 Crores?

Thankfully, many of the officers were not aware the target as mentioned in the RFD - otherwise they would have closed the VCES counters much before the December 31 deadline.

ser

TDS STATEMENT LATE FEE U/s 234E CAN BE WAIVED ?

TDS STATEMENT LATE FEE U/s 234E CAN BE

TDS STATEMENT LATE FEE U/s 234E CAN BE WAIVED ? CA Rajesh Mehta Indore

One of the assessee had filed his tds statement for 1st quarter of F.Y. 2012-13 delayed by 260 days, he is in receipt of notice showing late fee of ` 200/- per day i.e. aggregate late fee of ` 52000/- for 260 days, regarding late fee on late filing of TDS statement. Provisions of Sec. 234E has been made applicable w.e.f. 1st July, 2012. It states that " Amount of late fee shall be paid before delivering a TDS statement", It means that any late fee should have been deposited just at the time of delivering  TDS statement and not later than this. The authorized TIN- NSDL centre which accepted the TDS statement also accepted these without late fee, as well as the software utility of the TDS department itself accepted these without late fee. Once the TDS statement has been accepted without late fee, then such late fee cannot be recovered later on. However this late fee cannot be waived even for any reasonable. As per provisions of Sec. 234E(4) late fee is applicable for "TDS statement which is to be delivered or caused to delivered for tax deducted at source or tax collected at source, as the case may be, on or after 1st July 2012". Late fee cannot be recovered for TDS statements which were due for F.Y. 2011-12 as well as TDS statement late fee cannot be recovered for F.Y. 2012-13, if not collected at the time of delivering TDS statement to the department. On the other hand it is also pertinent to note that the law has not made any person responsible, to deposit late fee, in case of default in depositing late fee alongwith tds statement, which can be inferred from the provisions of Sec. 204 of the act, which states as under:- "Sec. 204 of the act . For the purposes of [the oregoing provisions of this Chapter] and section 285, the expression "person responsible for paying" means—        i.       in the case of payments of income chargeable under the head "Salaries", other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof;       ii.       in the case of payments of income chargeable under the head "Interest on securities", other than payments made by or on behalf of the Central Government or the Government of a State, the local authority, corporation or company, including the principal officer thereof; [(iia) in the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the [authorised person] responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with [the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made thereunder;]      iii.       [in the case of credit, or, as the case may be, payment] of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof;      iv.       in the case of credit, or as the case may be, payment of any sum chargeable under the provisions of this Act made by or on behalf of the Central Government or the Government of a State, the drawing and disbursing officer or any other person, by whatever name called, responsible for crediting, or as the case may be, paying such sum.]" The section 204 specifically says that "for the purposes of Sec. 190 to Sec. 203 and for Sec. 285 of the act the following persons would be responsible" , so it is clear that for the purpose of Sec. 234E none of the person has been made responsible, therefore if any late fee is due and not deposited alongwith the tds statement none can be held responsible to deposit it. Demand of late fee cannot be raised also by way of processing of TDS statement, because provisions of Sec. 200A of the act does not cover default in payment of late fee, except any arithmetical error, or incorrect claim, or default in payment of interest, any tds payable or refundable etc. In view of the above it is my opinion that late fee cannot be recovered later on by way of any notice, neither notice of demand U/s 156 can be issued for this. Any querries and suggestions are welcome on this issue.

Clarification on Applicability of CPE hours requirement for the newly enrolled members

Clarification on Applicability of CPE hours requirement for the newly enrolled
members during the block of three years 1.1.2011 to 31.12.2013. - (09-12-2013)1.

As per the Statement on CPE a member is exempted only for the particular calendar year during which he gets his membership for the first time.2.  For Example: members enrolled at any point of time during the Calendar year 2011 (1st January-31st December, 2011) are exempted for the Calendar Year 2011. For the Calendar Years 2012 & 2013 they would be required to comply with proportionate CPE hours requirement. Members enrolled during the year 2011 with COP would be required to complete 60 CPE hours in the calendar year 2012 and 13. Out of 60 CPE hours, minimum 40 CPE hours should be under Structured Learning and 20 CPE hours under Structured/Unstructured Learning as per choice and Non-COP holders are required to complete 30 CPE hours under Structured/Unstructured Learning as per choice.3   members enrolled at any point of time during the Calendar year 2012 (1st January-31st December, 2012) are exempted for the Calendar Year 2012. For the Calendar Year 2013 they would be required to comply with proportionate CPE hours requirement. Members enrolled during the year 2012 with COP would be required to complete 30 CPE hours for the calendar year 2013. Out of 30 CPE hours minimum 20 CPE hours should be under Structured Learning and 10 CPE hours under Structured/Unstructured Learning as per choice and Non-COP holders are required to complete 15 CPE hours under Structured/Unstructured Learning as per choice for the calendar year 2013.4   members enrolled at any point of time during the Calendar year 2013 (1st January-31st December, 2013) whether holding COP or not are exempted for this block of three years (2011 to 2013)5.  ICAI’s CPE Advisory on Unstructured Learning and prescribed format for claiming Unstructured CPE Credit hours is available at URL:http://www.cpeicai.org/Advisory-Unstructured%20Learning%20Activities.pdf. 

Revision of Work Distribution-CBDT

CBDT revises work distribution in Foreign Tax and Research Tax division

REVISION OF WORK DISTRIBUTION IN FOREIGN TAX AND TAX RESEARCH (FT&TR) DIVISION UNDER CENTRAL BOARD OF DIRECT TAXES (CBDT)

OFFICE ORDER [F.NO.500/59/2003-FTD-I], DATED 6-12-2013

In partial modification of the office order No. 4/2003 dated 28th August, 2003 and 26th October, 2009, the work distribution in the Foreign Tax and Tax Research (FT&TR) Division under the Central Board of Direct Taxes (CBDT) is revised as under:-

Joint Secretary (FT&TR-I)

Joint Secretary (FT&TR-II)

1 Providing inputs on Policy issues relating to international Taxation, Transfer Pricing, Advanced Pricing Agreements, International tax Evasion and Avoidance and Exchange of Information in the work area related to JS (FT&TR-I), in consultation with JS(FT&TR-II). 2 All matters relating to Double Taxation Avoidance Agreements (DTAA) and Agreement for the Exchange of Information and Assistance in Collection of Taxes (AEI & ACT) with countries in the following geographical regions: a. North America including Caribbean Islands; and b. Europe 3 All matters relating to Exchange of Information in respect of countries in geographical regions referred to in serial no. 2 above. 4 All matters relating to FATCA and Automatic Exchange of Information (Including at the Global Forum on Transparency and Exchange of Information for Tax Purposes and OECD Working Party 10} 5 All matters relating to Mutual Agreement Procedures and bilateral Advance Pricing Agreements in respect of countries in geographical regions referred to in serial no 2 above. 6 All matters related to unilateral APAs. 7 All matters related to taxation in G20. 8 Coordination with OECD in work related to BEPS, including In CFA and Working Parties 1, 6, 10 and 11; In relation to Forum on Tax Administration Including FTA MAP Forum; Global Forum on Tax Treaties and Transfer Pricing. 9 All matters related to Central Direct Tax Advisory Committee and Tax Administrative Reforms Committee. 10 All matters relating to sections 94A, 95, 115A, 115AB, 115AC, 115BBA, Chapter XII-A, 195 and 230 of the Income-tax Act, 1961. 11 Any other matters relating to foreign tax that may be assigned by Chairperson, CBDT.

1 Providing inputs on Policy issues relating to International Taxation, Transfer Pricing, Advanced Pricing Agreements, International Tax Evasion and Avoidance and Exchange of Information in the work area related to JS (FT&TR-II) in consultation with JS (FT&TR-I), 2 All matters relating to DTAA and AEI & ACT with countries in the following geographical regions: a. Asia including Japan; b. Australia Including Pacific Islands; c. Africa; and d. South America 3 All matters relating to Exchange of Information in respect of countries in the geographical regions referred to in serial no 2 above. 4 All matters relating to Mutual Agreement Procedures and bilateral Advance Pricing Agreements in respect of countries in geographical regions referred to in serial no 2 above. 5 All matters relating to multilateral agencies including United Nations, BRICS, IBSA, SAARC, CATA, CIAT and Global Forum on Transparency and Exchange of Information for Tax Purposes (excluding issues relating to automatic exchange of information). 6 Coordination with OECD on issues relating to Global Relations, Training, Working Party 2, ITD, Tax and Crime, Tax and Development and Tax Inspectors without Borders, 7 Capacity building in developing countries through bilateral and multilateral arrangements and coordination of training on international taxation, transfer pricing and exchange of information with NADT and RTIs. 8 All matters relating to foreign training. 9 All matters related to Dispute Resolution Panels and Standing Committee on Parliament. 10 All matters relating to sections 6(2), 9, 10(15), 44B, 44BB, 44BBA, 44BBB, 44C, 44D, 44DDA, 44G, 44H, 90, 90A, 91, 163, 172, 173 and 174 of the Income-tax Act, 1961. 11 All matters related to FIPB. 12 Any other matters relating to foreign tax that may be assigned by Chairperson CBDT, and any other such matter not otherwise covered in the work area of JS(FT&TR-1).

2. This order is issued with the approval of Hon'ble Finance Minister.

3. This revised order comes into force with immediate effect.

IICA Vs ICAI

Amendment of Accounting Standards

Examination of various Rules and Accounting Standards under the Companies Act, 2013 is an ongoing process. Giving this information in written reply to a question in the Rajya Sabha today, Shri Sachin Pilot, Minister of Corporate Affairs, said that Accounting Standards are amended from time to time keeping in view the requirements of the situation. No amendment to the Standards is currently being considered. He also informed the House that the Indian Institute of Corporate Affairs, as part of its MOU with an agency had facilitated the release of a ready reckoner for acquainting stakeholders with various laws including the Companies Act, 1956.  -----------------------------

Changes in Excise Valuation

CE :- The Rule 8, 9, 10 of CEVR,2000 now covers the cases even where the part of excisable goods are captively consumed. Hence even in case of those partly captively consumed goods, the 110% clause shall be applicable. It is important to note that previously it covered only those cases where the whole of excisable goods were captively consumed.

Similarly amendment is also made in Rule 9 & 10 which governs the valuation in case of related parties / Interconnected Undertakings.

Cenvat credit was allowable to assessee even if supplier hadn't discharged its duty

Requirement of taking "reasonable steps" does not mean that assessee is required to verify from department whether duty stands paid by supplier because that would be practically impossible and would lead to transactions getting delayed; therefore, assessee is entitled to credit even if supplier has not paid duty to department

In the instant case the assessee took deemed Modvat credit benefit under Notification No. 58/97-CE(NT) on basis of invoices issued by supplier of inputs, but on verification it was found that supplier had not paid duty. The Department opined that since rule 57A(6) required the assessee to take all reasonable steps to ensure that duty had been paid, no credit could be allowed if duty had not been paid on inputs supplied.

The Supreme Court held in favour of assessee as under:

1) In this case supplier of inputs had given declaration indicating that excise duty had been paid on said inputs. Fact that supplier had not discharged duty was a lapse on part of seller; it was different and not a condition or rather a precondition postulated in Notification;

2) When there was a prescribed procedure and that had been duly followed by the assessee, it could not be said that the assessee had not taken reasonable steps as prescribed in notification;

3) Due care and caution were taken by the assessee and it was not stated by Department what further care and caution could have been taken. Requirement of "reasonable care" does not mean verification from department whether duty stands paid by supplier because that would be travelling beyond notification and practically impossible and would lead to transactions getting delayed;

4) Thus, the Assessee was entitled to deemed credit under the Notification No. 58/97-CE(NT). - Commissioner of Central Excise, Jalandhar v. Kay Kay Industries (2013) 38 taxmann.com 336 (SC)

Reduction of threshold limit for mandatory e-payment of service tax to Rupees One lakh from ten lakh

Reduction of threshold limit for mandatory e-payment of service tax to Rupees One lakh from ten lakh

NOTIFICATION NO

16/2013 - ST., Dated: November 22, 2013

In exercise of the powers conferred by sub-section (1) read with sub-section (2) of section 94 of the Finance Act, 1994 ( 32 of 1994), the Central Government hereby makes the following rules further to amend the Service Tax Rules, 1994, namely:-

1. (1) These rules may be called the Service Tax Third ( Amendment) Rules, 2013.

(2) They shall come into force on the 1 st day of January, 2014.

2. In the Service Tax Rules, 1994 , in rule 6, in sub-rule (2), in the proviso, for the words "rupees ten lakh" , the words "rupees one lakh" shall be substituted.

F.No : 137/116/2012- Service Tax

CBDT SOP on Defective Returns

CBDT Issues SOP For Handling E-filed Returns With Unpaid S. A. Tax

November 14th, 2013
Further to the letter dated 22.10.2013 regarding the processing of 1.46 lakh defective returns submitted for AY 2013-14 where the self-assessment tax is unpaid, the Directorate of Income-tax (Systems) has issued a letter dated 13.11.2013 setting out a detailed Standard Operating Procedure (SOP) for handling such E-filed Returns where self assessment tax is not paid

CBDT on Revenue Audit Objections

CBDT Revises Procedure For Dealing With Revenue Audit Objections

The CBDT has issued Instruction No. 16/ 2013 dated 31.10.2013 in which it has noted that despite a comprehensive procedure prescribed earlier for action at different stages of Revenue Audit objections, settlement track record is unsatisfactory and remedial action is delayed. It is also pointed out that there is a need to provide that Internal Audit should normally precede Revenue Audit. The CBDT has, therefore, decided to fine tune the procedure and strengthen the role of supervisory authorities so that quick and effective remedial action can be taken to prevent loss of revenue.

Guidelines for Appointment of Statutory Auditors in Bank-2013-14

Guidelines for Appointment of Statutory Auditors in Public Sector Banks

Based on the recommendations of a Working Group (WG) to review the norms for empanelment of statutory auditors for public sector banks and other related issues and after seeking the approval of GoI, it has been decided to revise the guidelines on appointment of statutory auditors in public sector banks with effect from the year 2013-14. The revised eligibility norms for empanelment of SCAs as prescribed by RBI in consultation with the WG have been indicated in Annex 1. The categorization/eligibility norms for empanelment of branch auditors which have been kept unchanged are indicated in Annex 2. The guidelines/instructions relating to the selection procedure to be followed for appointment of statutory auditors in PSBs and details thereof are furnished in Annex 3

CBDT on Cyprus

Finance Ministry Notifies Cyprus For Fraud / Tax Evasion Non-Compliance The Ministry of Finance has issued a Notification dated 1.11.2013 notifying Cyprus as a "notified jurisdictional area" u/s 94A of the Income-tax Act, 1961. The consequences of the Notification are draconian and are broadly the following: (i) All transactions with a person in Cyprus will have to meet the rigors of transfer pricing; (ii) A deduction in respect of any payment made to any financial institution in Cyrus and deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus is subject to specific conditions; (iii) Sum received from a person located in Cyprus is deemed to be the income of the assessee unless the assessee satisfactorily explains the source of such money in the hands of the payer; (iv) Payments to persons located in Cyprus is liable for TDS at 30 per cent

     Regards,

Supreme Court on Sec 271(1)(c)

Voluntary disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c)

UPREME COURT OF INDIA

MAK Data (P.) Ltd.

v.

Commissioner of Income-tax – II

OCTOBER  30, 2013 

Under Explanation 1 to s. 271(1)(c), voluntary disclosure of concealed income does not absolve assessee of s. 271(1)(c) penalty if the assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed

The assessee filed a return of income for AY 2004-05 declaring an income of Rs.16 lakhs. During the course of the assessment proceedings, the AO noticed certain documents comprising of share application forms, bank statements, blank share transfer deeds etc had been impounded in the course of s. 133A survey proceedings conducted in the case of the assessee's. The AO sought specific information regarding the documents from the assessee. In reply to the show-cause notice, the assessee made an offer to surrender Rs.40.74 lakhs with a view to avoid litigation and buy peace and to make an amicable settlement of the dispute. The AO assessed the said sum of Rs.40.74 lakhs to tax and levied penalty u/s 271(1)(c) for concealment of income and not furnishing true particulars. This was upheld by the CIT(A) though the Tribunal reversed it on the ground that the surrender was without admitting any concealment. On appeal by the department, the High Court (87 DTR 172 (Del)) reversed the Tribunal on the ground that as there was absolutely no explanation by the assessee for the concealed income of Rs.40.74 lakhs, the first part of clause (A) of Explanation 1 to s. 271(1)(c) is attracted. On appeal by the assessee to the Supreme Court HELD dismissing the appeal:

(i) The Tribunal has not properly understood or appreciated the scope of Explanation 1 to s. 271(1)(c). The AO shall not be carried away by the plea of the assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to s. 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise;

 
(ii) The assessee has only stated that he had surrendered the additional sum of Rs.40.74 lakhs with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. The statute does not recognize those types of defences under Explanation 1 to s. 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty;

(iii) On facts, the surrender of income is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements etc have been impounded in the course of survey proceedings u/s 133A conducted in the case of the assessee's sister concern. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income;

(iv) It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings u/s 271 read with s. 274 of the Act;

 
(v) The AO has to satisfy himself whether penalty proceedings be initiated or not during the course of the assessment proceedings. He is not required to record his satisfaction in a particular manner or reduce it into writing. The scope of s. 271(1)(c) has also been elaborately discussed by the Supreme Court in UOI vs. Dharmendra Textile Processors 306 ITR 277 (SC) and CIT vs. Atul Mohan Bindal 317 ITR 1 (SC). The principle laid down by this Court has been correctly followed by the Revenue and there is no illegality in the department initiating penalty proceedings in the instant case.

VCES Case Law

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CASE LAW ON VCES 2013

We are pleased to share with you the following tax alert:

Bombay High Court in the case of M/s. Verchaska Infotech private Ltd. vs. Union of India and ors. (WRIT PETITION NO.9920 OF 2013) has given a judgement on declaration made under VCES.

Background:
In this case the petitioner has challenged the notice dated 1 October 2013 issued by the Superintendent, Group X, Anti Evasion, Service Tax II, Mumbai (respondent No.2) under Section 87(b) of the Finance Act 1994. By the impugned notice dated 1 October 2013, the respondent No.2 has directed the petitioner bankers viz. Respondent Nos 5 to 8 banks not to allow any withdrawal from the account of the petitioner to the extent of Rs.1.22 crores as the same is due to the revenue from the petitioner.

Petitioner Contention

The petitioner has contested that part of the period i.e. April 2012 to Dec 2012 is covered by VCES 2013 and that they have already applied for the same on 10.10.2013 and thus 50% of the demand for that period is payable by 31^st December 2013.

Respondent Contention:

The Respondent department on the other hand has contested that the petitioner has made application under the Scheme on10 October 2013 and therefore, respondent would take a decision thereon by 10 November 2013. However, it is contended that till the petitioner's application is accepted, it cannot be exempted from its liability to pay the amount of the service tax which has admittedly not been paid. It is submitted that the petitioner has collected the service tax from its customers though the petitioner claims the benefit of Rs.60,40,684/as cenvat credit the same is subject to verification by the revenue.

Observation of the HC

The Hon'ble High Court while noting the above contentions has directed the petitioner to deposit Rs. 8 lacs being 50% of the amount payable by 31^st December 2013. The High Court also for the time being allowed the contention of the petitioner that they had a total amount of Rs. 60.40 lac as cenvat credit. The High Court also directed the petitioner to file an undertaking with the department that they would be discharging the service tax liability from the month of September 2013 onwards in accordance with law. Thus, both the above observations of the Court being fulfilled, the order for releasing the attachment of bank account would be operational. The Court also made it clear that this order would be valid only till a decision is taken on the application of settlement under VCES 2013.          

The copy of the order is attached for your ready reference..

Regards,

CA. VMV S RAO

 SOURCE

CA Ankit Kanodia|Partner - Tax & Regulatory

S.K.Kanodia & Associates|Chartered Accountants

39A, Jorapukur Square Lane(Behind Girish Park),

Room # 202, Kolkata- 700006, WB, INDIA.

L & T-Supreme Court Case

L&T judgment opens a Pandora's box

Early implementation of Goods and Services Tax can help do away with uncertainty of tax costs for the real estate sector

Recently, the larger Bench of the apex court in the case of L&T vs state of Karnataka, held that any agreement to sell immovable property entered into prior to construction would fall within the purview of the term 'works contract', allowing state governments the power to levy value-added tax (VAT) on such contracts.

This issue has been a hot debate since the Raheja Development apex court judgment in 2005, which was with respect to real estate transaction structures in south India, wherein the sale of land was separate from the sale of flats unlike in most other parts of India.

The issue was also hotly contested in recent years by the real estate sector in Maharashtra, and in 2012, the Bombay High Court ruled that such real estate transactions wherein an agreement to sell immovable property was entered into prior to construction is subject to levy of VAT as 'works contract'. In fact, in recent months, states like Haryana have sought to issue trade notices to bring under purview such agreements to sell immovable property, entered into prior to construction within the purview of VAT as 'works contract'.

The L&T judgment has considered both the above judgments in arriving at the conclusion that states have the power to levy VAT on such transactions as 'works contracts'.

In the facts of this case, the main object/substance of the tripartite agreement was to sell and convey fraction of land with a fully constructed apartment. At no point was the construction for and on behalf of the purchaser, the apartment was to be sold as an apartment and not as an aggregate of its component parts. Even in the Bombay High Court case of MCHI, the agreement for sale is an agreement to transfer immovable property with no element of works contract.

Facts and well settled arguments such as even if there is a construction activity undertaken by a developer, he does not construct on behalf of the apartment owner; the owner of the apartment has no say in conceptualising the project or any control; that the ownership of materials used in construction in such cases remain with developer; and, that the accretion to the goods happens in the hand of the developer, allude to the fact that such an activity cannot be treated as a works contract. The fact and settled arguments that in a conventional sale, property of goods gets transferred as intended by the parties while in a works contract property in goods are transferred through accretion, have all been negated in coming to the conclusion by the apex court.

The apex court observes that though the ultimate transaction between parties may be a sale of flat, it cannot be said that characteristics of works contract are not involved in such a transaction. Hence, when a contract comprises both - a works contract and transfer of immovable property - it does not denude it of its character of 'works contract' and that Article 366(29-A)(b)) contemplates situations where goods may not be transferred in the form of goods, but maybe transferred in some other form which can even be in the form of immovable property.

This apex court judgment would be a matter of intense debate for years and will have wide implications on real estate transactions across states. The judgment is a challenge for the real estate industry and would bring about a plethora of complications on the ground for an industry already reeling from a slowdown and high interest rates.

The judgment will result in VAT authorities looking for recoveries from the industry within applicable limitation period. Further, this judgment is likely to trigger new valuation issues as the court has held that only the value addition made post-execution of an 'agreement to sell' an under construction flat would be subject to levy of VAT giving rise to practical difficulties in implementing at the ground level. Like in the case of Maharashtra, a practical solution can be a composition scheme with lower tax incidence of one per cent, though this judgment can embolden states to fix higher composition rates. Further, in situations where possession has been handed over by the developers against full and final settlements, the taxes may have to borne by the developer. This highlights the challenges of a long-drawn process of litigation in the country, which can produce outcomes creating a huge amount of uncertainty of tax costs for the industry, which may not be possible to recover.

Now a sale of an apartment would suffer stamp duty and VAT, both levied by state along with service tax levied by the Centre, making such apartments more expensive. The early implementation of the goods and service tax can be the only solution to such multiplicity of taxes and we hope the polity at large is seized of its importance.

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