Stocks

26 November 2015

Service Tax Refund Under Service Tax

Where an assessee has paid service tax to the Central Government in respect of taxable service not provided by him, for any reason, the assessee may adjust the excess service tax so paid by him calculated on a pro rata basis against the service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received. (up to 1.4.2011)
W.e.f. 1.4.2011. it has also been provided that when an invoice has been issued or a payment received for a service which is not subsequently provided, the assessee may take the credit of the service tax earlier paid when the amount has been refunded by him to the recipient or by the issue of credit note, as the case may be.

In CCE, Jaipur v. Vinayak Agrotech Ltd. 2012 (5) TMI 524 - CESTAT, NEW DELHI, where assessee was liable to pay duty and same was collected from customers and realization of that duty was not required to be paid due to eligibility of SSI exemption and assessee returned the duty so collected to customers by way of credit notes, it was held that assessee in such a case did not collect any duty from customers representing it as excess duty. Therefore, that amount was not liable to be recovered under Section 11Bof Central Excise Act, 1944. Hence, it was held that unjust enrichment was not applicable.
In CCE, Vadodara v. Apollo Tyres Ltd. 2012 (12) TMI 798 - CESTAT AHMEDABAD, where by mistake, duty was discharged in excess and seller has issued credit note to buyer for such excess duty, it was held that it could be said that burden of duty was not passed to any other person. Hence, seller could claim refund of such excess duty.

Rule 6(4A)
Where an assessee has paid excess service tax for a month or quarter, the assessee may adjust such excess in the subsequent month or quarter subject to the following conditions:
  1. It is not due to interpretation of law, classification (omitted w.e.f. 1-7-2012), valuation and applicability of exemption notification.
  2. An assessee registered under rule 4(2) on account of delayed receipt may adjust without monetary limit.
  3. Other than the above, maximum of Rs. one lakh can be adjusted in a month or quarter and intimated to jurisdictional central excise officer. (w.e.f. 1.4.2011, Rs. Two lakh) w.e.f. 1-4-2012, unlimited amounts of permissible adjustments shall be allowed subject to Rule 6(4B).
Rule 6(1)
Service tax is payable on value of taxable services received. If no payments are received, there is no need to pay service tax. However, with Point of Taxation Rules, 2011 w.e.f. 1-4-2011, Service Tax shall be payable on accrual basis.

19 November 2015

High Court sets aside penalty on ‘Flipkart’ for effecting sales without registering under Kerala VAT Act

Flipkart Internet (P.) Ltd. vs. State of Kerala [2015] 62 taxmann.com 387  

CST & VAT: Kerala VAT- ‘Flipkart’ is merely facilitating sales, purchase and delivery of goods, it can’t be considered as dealer of goods under Kerala VAT Act.

Facts

  •   ‘Flipkart’ (assessee), being an online service provider facilitating sales or purchases, was registered under service tax law. Notice was issued to ‘Flipkart’ under Kerala VAT Act (KVAT) for neither registering as a dealer nor filing returns. Accordingly, penalty was levied on it for such default.
  • 'Flipkart’ argued that it was only a service provider which was not engaged in business of sale or purchase of goods. It merely facilitated transactions of sale or purchase through its online portal and made arrangements for the delivery of goods. Therefore, the provisions of KVAT Act were not applicable to it.

The High Court held as under:

  • The tenor of notice gave ample implication that the department had made up its mind to impose penalty on assessee without any supported reasons. It did not consider the contentions of assessee that the said transactions were inter-State sales. These sales transactions were effected by sellers who were registered on online portal of ‘Flipkart’ and all sales were inter-State sales on which tax had been paid by seller under the CST Act.
  • The contention of department that the online portal could be seen as an intangible shop was legally flawed because it is well settled that the situs of a sale is wholly irrelevant to a determination of the issue of whether a sale is inter-State sale or not.
  • The department had imposed penalty on ‘Flipkart’ due to non-filing of returns and due to its failure to maintain true and correct accounts. However, there was no indication in notice as to why the ‘Flipkart’ was to be considered as a dealer and why said transaction was to be treated as local sales against inter-State sales.
  • The department has proceeded against the assessee without first having ascertained whether these transactions would come under the coverage of Act. The matter must be first referred to the concerned Assessing Officers before invoking penal provisions since no tax can be levied except by authority of law.

17 November 2015

FREQUENTLY ASKED QUESTIONS (FAQs) ON SWACHH BHARAT CESS

FREQUENTLY ASKED QUESTIONS (FAQs) ON SWACHH BHARAT CESS (SBC)
PRESS RELEASE, DATED 16-11-2015
Background:
Chapter VI (Section 119) of the Finance Act 2015 contains provisions for levy and collection of Swachh Bharat Cess (SBC). Now the Government has announced 15th November, 2015 as the date from which the provisions of Section 119 would come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers). Simultaneously, Government has also notified levy of Swachh Bharat Cess at the rate of 0.5% on all taxable services. Effectively, the rate of SBC would be 0.5% and new rate of service tax plus SBC would be 14.5%. As such SBC translates into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives.
In this context, the relevant Chapter of the Finance Act, 2015 is reproduced below:-
"CHAPTER VI
SWACHH BHARAT CESS
119. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.
(3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.
(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.
(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made thereunder, as the case may be."
On this issue, Hon'ble FM in his speech for Budget 2015-16 has stated as under:-
"10. The third is 'Swachh Bharat' which we have been able to transform into a movement to regenerate India. I can speak of, for example, the 50 lakh toilets already constructed in 2014-15, and I can also assure the Members of this august House that we will indeed attain the target of building six crore toilets. But, Madam, Swachh Bharat is not only a programme of hygiene and cleanliness but, at a deeper level, a programme for preventive health care, and building awareness."
"123. ----It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat."
Q.1 What is Swachh Bharat Cess (SBC)?
Ans. It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015,called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service.

Q.2 What is the date of implementation of SBC?
Ans. The Central Government has appointed 15th day of November, 2015 as the date from which provisions of Swachh Bharat Cess will come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers).

Q.3 Whether SBC would be leviable on exempted services and services in the negative list?
Ans. Swachh Bharat Cess is not leviable on services which are fully exempt from service tax or those covered under the negative list of services.

Q.4 Why has SBC been imposed?
Ans. SBC has been imposed for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

Q. 5 Where will the money collected under SBC go?
Ans. Proceeds of the SBC will be credited to the Consolidated Fund of India, and the Central Government may, after due appropriation made by Parliament, utilise such sums of money of the SBC for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

Q.6 How will the SBC be calculated?
Ans. SBC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the same taxable value as service tax.

Q. 7 Whether SBC would be required to be mentioned separately in invoice?
Ans. SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly. SBC may be charged separately after service tax as a different line item in invoice. It can be accounted and treated similarly to Education cesses.

Q. 8 Whether separate accounting code will be there for Swachh Bharat Cess?
Ans. Yes, for payment of Swachh Bharat Cess, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-
Swachh Bharat Cess (Minor Head) Tax Collection Other Receipts Penalties Deduct Refunds
0044-00-506 00441493 00441494 00441496 00441495
 
Q. 9 What would be effective rate of service tax and SBC post introduction of SBC?
Ans. Effective rate of service tax plus SBC, post introduction of SBC, would be [14% + 0.5%].
 
Q.10 Whether SBC is a 'Cess' on tax' and we need to calculate SBC @ 0.50% on the amount of service tax like we were earlier doing for calculating Education Cess and SHE Cess?
Ans. No, SBC is not a cess on Service Tax. SBC shall be levied @ 0.5% on the value of taxable services.
 
Q. 11 Whether SBC is levied on all or selected services?
Ans. The Central Government was empowered to impose SBC either on all or some of the taxable services. Vide notification No 22/2015-ST dated 6-11-2015, Government has notified that SBC shall be applicable on all taxable services except services which are either fully exempt from service tax under any notification issued under section 93(1) of the Finance Act, 1994 or are otherwise not leviable to service tax under section 66B of the Finance Act, 1994.
 
Q.12 How will the SBC be calculated for services under reverse charge mechanism?
Ans. In case of reverse charge under section 68(2) of the Finance Act, 1994, the liability has been shifted from service provider to the service recipient. As per section 119 (5) of the Finance Act, 2015, the provisions of Chapter V of the Finance Act, 1994, and the rules made thereunder are applicable to SBC also. Thus, the reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC. In this context, to clarify, Government has issued notification No. 24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swachh Bharat Cess mutatis mutandis.
 
Q.13 How will SBC be calculated for services where abatement is allowed?
Ans. Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value as provided in the notification No. 26/2012-Service Tax, dated 20th June, 2012. So, this notification would apply for SBC also in the same manner as it applies for service tax.
For example, in the case of GTA, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X 30% = 4.35% (4.20%+0.15%)
 
Q.14 Whether Cenvat Credit of the SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax.
 
Q.15 What would be the point of taxation for Swachh Bharat Cess?
Ans. As regards Point of Taxation, since this levy has come for the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC for the first time. SBC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules would be applicable in this case. Therefore, in cases where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In cases where payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.
 
Q.16 How would the tax (Service Tax and SBC) be calculated on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006.?
Ans. The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and 10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for restaurant and outdoor catering services.
 
Q.17 How would the tax be calculated on restaurant services covered under Service Tax (Determination of Value) Rules, 2006.?
Ans. Swachh Bharat Cess would be calculated on the value arrived at in accordance with the Service Tax (Determination of Value) Rules, 2006. For example, the effective Swachh Bharat Cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% of the total amount, i.e, 0.2% of the total amount. The cumulative service tax and Swachh Bharat Cess liability would be [14% ST + 0.5% SBC] of 40% of the total amount, i.e., 5.8% of the total amount charged.
 
Q.18 Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents)
Ans. Sub-rule (7D) to rule 6 has been inserted vide notification 25/2015-Service Tax, dated 12th November, 2015 so as to provide that the person liable for paying the service tax under sub-rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay SBC as determined as per the following formula:-Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%
The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.
 
Q. 19 How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?
Ans. In respect of reverse charge mechanism, SBC liability is determined in accordance with Rule 7 of Point of Taxation Rules, as per which, point of taxation is the date on which consideration is paid to the service provider. Thus, SBC liability in such case will be 0.5% X Value of taxable service.
 
Q.20 Does a person providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules, does he need to reverse the SBC also?
Ans. As SBC is not integrated in the Cenvat Credit chain and reversal under Rule 6 is payment of amount equal to 7% of the value of exempted services, hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.

1 November 2015

Annual Return on Foreign Liabilities and Assets (FLA Return) – Reporting by Limited Liability Partnerships (LLPs)

A.P. (DIR Series) Circular No. 22 dated October 21, 2015

In order to capture the statistics relating to Foreign Direct Investments (FDI), both inward and outward, by Limited Liabilities Partnerships (LLPs) in India, it has been decided that henceforth, all LLPs that have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) as well as in the current year, shall submit the FLA return to the Reserve Bank of India by July 15 every year, in the format as prescribed in the A.P (DIR Series) Circular No. 145 dated June 18, 2014. Since, LLPs do not have 21-Digit CIN (Corporate Identity Number), they are advised to enter ‘A99999AA9999LLP999999’ against CIN in the FLA Return. 
Reserve Bank has since amended the subject Regulations accordingly through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventh Amendment) Regulations, 2015 which have been notified through Notification No. FEMA.351/2015-RB dated September 30, 2015, vide G.S.R. No. 745(E) dated September 30, 2015.

29 September 2015

Age of 70 years isn’t an automatic mid-stream disqualification for Managing Director

SRIDHAR SUNDARARAJAN V. ULTRAMARINE & PIGMENTS LTD. (2015) TAXMAN.COM 249 (BOMBAY HIGH COURT) 

Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure


Issue :
On 1st April 2014, the Companies Act, 2013 (“the 2013 Act”) was brought into force. It introduced a new clause in Section 196(3)(a) of the 2013 Act that apparently sets a lower and upper age limit of 21 years and 70 years Respectively, on the appointments and ‘continued employment’ of Managing Directors, Whole Time Directors and Managers.


The issue in the instant case was whether there would be a mid-stream disqualification for Managing Director on attaining age of 70 years? , i.e., Whether section 196(3)(a) interrupts an appointment of any Managing Director made prior to the coming into force of the 2013 Act, if such Managing Director crosses the age of 70 years during the term of his appointment?


The High Court held as under :
  • Under Companies Act, 1956, there was no ‘discontinuance’ of Managing Directorship at the age of 70; the section applied only to his appointment and reappointment. Sections 269(2) and 267 of the 1956 Act are now sought to be merged in Section 196(3), and also further modified (to eliminate the previous regime of Central Government’s approval). It shows that the age of 70 years was never an automatic mid-stream disqualification even under the 1956 Act. It only required a certain precautionary measure at the commencement of the term, i.e., at the time of appointment (or reappointment), i.e., a special resolution.
  • There is nothing to suggest that the rationale behind this has in any way changed in the 2013 Act. It cannot be constructed that with the advent of the 2013 Act, every Managing Director at age 70 must, as it were, step down the bus.
  • The only conclusion that one can draw is that the word ‘continue’ is correctly used in its strict sense in relation to clauses (b), (c) and (d) of Section 196(3), i.e., as a cessation eo instante on the occurrence of any of the events those sub-clauses contemplate, but in the context of Section 196(3)(a), it means, and can only mean ‘appointment’ and ‘reappointment’.
  • Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure.
  • There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3)(a). All that Section 196(3)(a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed.

RBI cuts repo rate by 50 bps

RBI in a surprise move cut repo rate by 50 bps due to lower than expected inflation. This will put pressure on banks to cut base rates by at least 30 bps immediately. It is expected of banks to announce base rate cuts over the next 1-2days. The focus of the governor’s speech was on transmission of policy rates and reiterated that he would like banks to compute rates based on marginal cost. He also said that the government should also help in making it easier for banks to transmit policy rate cuts by various ways such as cutting rates on small savings. NBFCs with a high proportion of borrowings from banks will benefit from base rate cuts by banks.

Key measures
  • RBI cut the repo rate by 50bps. Bond yields have corrected from 7.8% in end June to 7.6% currently. Banks will have the benefit of booking mark to market gains on their AFS bond books following the fall in yields. That benefit will be offset by pressure on banks to cut base rates.
  • PNB, BOI, Union and Axis have more leeway to cut base rates compared to SBI and BoB as SBI and BoB banks have a lower duration AFS portfolio. RBI expects banks to transmit monetary policy rate cuts of 125 bps since Jan 2015. Banks have cut base rates by 30 bps on an average. It is believed that there will be pressure on them to cut by at least 50-60bps more. As such, bond gains may not be enough to wipe out the negative impact of base rate cuts for most banks.
  • RBI has announced reduction in SLR by 0.25% every quarter to 19% by March 2017 from the current 21.5%.
  • The securities that banks can hold under HTM (Held to Maturity) have been reduced to 21.5% from current 22%. After this cut the proportion of HTM has been aligned to the level of SLR which is also 21.5%. The lower proportion of HTM will be positive for banks in the current environment of falling rates as banks will have a higher proportion of securities which they will mark to market. From now on HTM and SLR will move in tandem.
  • RBI has now mandated banks to disclose divergences from RBI norms that RBI auditors find in banks’ accounts on asset / NPL classification and provisioning. These divergences have to be reported in notes to accounts where they exceed a specified threshold. Separate guidelines will be issued later. So banks will have to disclose where RBI has found flaws in their NPL classification and income recognition – this will be an important disclosure and will have an impact on stock prices.
  • RBI has said that they will lower risk weights on affordable housing loans to individuals. Detailed guidelines will be issued later. This is positive for housing financiers that have a large proportion of affordable housing loans – LICHF, HDFC, SBI, ICICI Bank (in that order). It is not known if RBI changes its definition of affordable housing. Currently for the purpose of risk weights, all housing loans upto Rs2M with LTV of 90% or less qualify for a low 50% risk weight. For loans above Rs2M, a risk weight of 50% is allowed only if the LTV is 80% or less. (Notably the definition of affordable housing for the purpose of issuing SLR/priority is different from the definition used while calculating risk weights. For the purpose of issuing long term bonds, RBI defines affordable housing as loans of Rs4M in non-metro towns with value of property not exceeding Rs5M and Rs5M in metros with value of property not exceeding Rs6.5M). We do not know which definition RBI will use for these guidelines but most likely the former.

19 September 2015

Private companies can take loan from relatives of its directors

The Companies (Acceptance of Deposits) Rules, 1975 allowed private companies to borrow any loan or to accept deposits from directors, shareholders and relatives of directors. However, the Companies Act, 2013 restricted private companies from accepting deposits from relative of directors. Now, MCA has made an amendment to the Companies (Acceptance of Deposits) Rules, 2014 (‘Deposit Rules’). Amendments have been made to allow private companies to accept deposits from relative of its directors subject to condition that:
The relative of the director of the private company from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report