Notifications and Recent Caselaws summary in Indirect Taxes in India

 Service TAX

Notifications/Circulars     

Ø   Seed testing and all ancillary activities thereto are not liable to Service tax – CBEC clarifies

It came to the notice of the CBEC that certain field formations have taken a view that all activities incidental to seed testing are leviable to Service tax and only the activity in so far it relates to actual testing has been exempted in the Negative List.

After elaborate interpretation of the words in the Statute, the CBEC vide Circular No. 189/8/2015-Service Tax dated November 26, 2015 has issued clarification that all testing and ancillary activities to testing such as seed certification, technical inspection, technical testing, analysis, tagging of seeds, rendered during testing of seeds, are covered within the meaning of ‘testing’ as mentioned in sub-clause (i) of clause (d) of Section 66D of the Finance Act. Therefore, such services are not liable to Service tax under Section 66B of the Finance Act.

RECENT CASE LAWS

 Ø  

Amendments in CUSTOMS ACT in Budget 2014

A. General
1) Baggage Rules are being amended to,-
(i) raise the free baggage allowance from Rs.35,000 to Rs.45,000.
(ii) reduce the duty free allowance of cigarettes from 200 to 100, of cigars from 50 to 25 and of tobacco from 250 gms to 125 gms.

B. Proposals involving changes in rates of duty:
I. AGRICULTURE/AGRO PROCESSING/PLANTATION SECTOR:
1) Description of the product “sun dried dark seedless raisins” in notification No.12/2012-Customs, dated 17.03.2012, which attracts concessional Basic Customs Duty of 30% is being changed to “dark seedless raisins”.
2) Full exemption from customs duty is being granted to de-oiled soya extract, groundnut oil cake/oil cake meal, sunflower oil cake/oil cake meal, canola oil cake/oil cake meal, mustard oil cake/oil cake meal, rice bran/rice bran oil cake and palm kernel cake, up to 31.12.2014.

II. CHEMICALS AND PETROCHEMICALS
1) Basic Customs duty on reformate is being reduced from 10% to 2.5%. Basic Customs duty on propane, ethane, ethylene, propylene, butadiene is being reduced from 5% to 2.5%.
2) Basic Customs Duty on ortho-xylene is being reduced from 5% to 2.5%.
3) Basic Customs Duty on denatured ethyl alcohol and methyl alcohol is being reduced from 7.5% to 5%.
4) Basic Customs Duty on crude naphthalene is being reduced from 10% to 5%.
5) Basic Customs Duty on fatty acids, crude palm stearin, RBD and other palm stearin and specified industrial grade crude oils is being reduced from 7.5% to Nil for manufacture of soaps and oleochemicals subject to actual user condition.
Basic Customs Duty is also being reduced on crude glycerine from 12.5% to 7.5% in general and from 12.5% to Nil for manufacture of soaps subject to actual user condition.

III. ENERGY SECTOR
1) The duty structure on non-agglomerated coal of various types is being rationalized at 2.5% BCD and 2% CVD. Accordingly, the BCD on Coking coal is being increased from NIL to 2.5% and on steam coal and bituminous coal from
2% to 2.5%. The BCD on anthracite coal and other coal is being reduced from 5% to 2.5%. The CVD on Anthracite coal, Coking coal and other Coal is being reduced from 6% to 2%.
2) Basic Customs Duty on metallurgical coke is being increased from Nil to 2.5%.
3) Exemption from Basic Customs Duty is being granted on re-gasified LNG for supply to Pakistan.
4) Liquefied Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gases (LPG) imported by the Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited or Bharat Petroleum
Corporation Limited, for supply to Non-Domestic Exempted Category (NDEC) customers is being fully exempted retrospectively w.e.f. 08.02.2013.

IV. TEXTILES:
1) The duty free entitlement for import of trimmings & embellishments used by the readymade textile garment sector for manufacture of garments for export is being increased from 3% to 5%.
2) Non-fusible embroidery motifs or prints are being included in the list of items eligible to be imported duty free for manufacture of garments for export.
3) The list of specified goods required by handicraft manufacturer-exporters is being expanded by including wire rolls so as to provide Customs Duty exemption on import by handicraft manufacturer-exporters.
4) Fusible embroidery motifs or prints, anti-theft devices, pin bullets for packing, plastic tag bullets, metal tabs, bows, ring and slider hand rings are being included in the list of items eligible to be imported duty free for  manufacture of handloom made ups or cotton made ups or manmade made ups for export.
5) Specified goods imported for use in the manufacture of textile garments for export are fully exempt from BCD and CVD subject to the condition that the manufacturer produces an entitlement certificate from the Apparel Export Promotion Council. In addition, Indian Silk Export Promotion Council (ISEPC) is being authorised to issue entitlement certificate.
6) Basic Customs Duty on raw materials for manufacture of spandex yarn viz. Polytetramethylene ether glycol (PT MEG) and Diphenylmethane 4,4 di-isocyanate (MDI) is being reduced from 5% to Nil.

V. METALS:
1) Basic Customs Duty on stainless steel flat products (CTH 7219 and 7220) is being increased from 5% to 7.5%
2) The BCD on ships imported for breaking up is being reduced from 5% to 2.5%.
3) Export duty on bauxite is being increased from 10% to 20% .
4) Basic Customs Duty on coal tar pitch is being reduced from 10% to 5%.
5) Basic Customs Duty on battery waste and battery scrap is being reduced from 10% to 5%
6) Basic Customs Duty on steel grade limestone and steel grade dolomite is being reduced from 5% to 2.5%.

VI. PRECIOUS METALS:
1) Basic Customs Duty on half-cut or broken diamonds is being increased from NIL to 2.5% and on cut & polished diamonds and colored gemstones from 2% to 2.5%.
2) Full exemption from Basic Customs Duty is being granted to pre-forms of precious and semi-precious stones.
3) The variation level and the parameter of measurement in respect of re-import of cut and polished diamonds after certification/grading from a foreign laboratory/agency are being increased as a trade facilitation measure.

VII. ELECTRONICS/HARDWARE:
1) Basic Customs Duty on LCD and LED TV panels of below 19 inches is being reduced from 10% to NIL.
2) Basic Customs Duty is being exempted on specified parts of LCD and LED panels for TVs.
3) Basic Customs Duty on colour picture tubes for manufacture of cathode ray TVs is being reduced from 10% to NIL.
4) Basic Customs Duty on specified telecommunication products not covered under the ITA (Information Technology Agreement) is being increased from NIL to 10%.
5) Special Additional Duty (SAD) on all inputs/components used in the manufacture of Personal Computers (laptops/ desktops) and tablet computers is being exempted, subject to actual user condition.
6) Education cess and Secondary and Higher Education (SHE) cess is being levied on imported electronic products.
7) Full exemption from Special Additional Duty (SAD) is being provided on specified inputs (PVC sheet & Ribbon) used in the manufacture of smart cards.
8) Basic Customs Duty is being reduced from 7.5% to NIL on E-Book readers.
9) CVD exemption on portable X-ray machine / system is being withdrawn.

VIII. RENEWABLE ENERGY:
1) Basic Customs Duty is being reduced from 10% to 5% on forged steel rings used in the manufacture of bearings of wind operated electricity generators.
2) Full exemption from Special Additional Duty is being provided on parts and components required for the manufacture of wind operated electricity generators.
3) Basic customs duty on machinery, equipments, etc. required for setting up of solar energy production projects is being reduced to 5%.
4) Full exemption from Basic Customs Duty is being provided on specified raw materials used in the manufacture of solar backsheet and EVA sheet.
5) Full exemption from Basic Customs Duty is being provided on flat copper wire used in the manufacture of PV ribbons (tinned copper interconnect) for solar PV cells/modules.
6) Concessional customs duty of 5% is being provided on machinery, equipments, etc. required for setting up of compressed biogas plant (Bio-CNG).

IX. CAPITAL GOODS/INFRASTRUCTURE:
1) It is being clarified that road construction machinery imported duty free can be sold within 5 years of importation subject to payment of customs duty on depreciated value and that individual constituents of the consortium whose names appear in the contract can import goods without payment of duty.
2) State Governments concerned are being notified as sponsoring authority for Metro Rail Projects covered under the Project Import Regulations, 1986.
3) Plants & Equipment imported prior to 2008 for use in projects financed by the UN or an international organization, which hitherto could not be transferred / sold / re-exported out of the project site, are now being allowed to be transferred / sold / re-exported from the project site.
4) The requirement of certification by Ministry of Road Transport (or NHAI) for availing of customs duty exemption on specified goods required for construction of roads is being done away with. 
5) Director (Electrical) is being authorized to issue the requisite certificate to enable Delhi Metro Rail Corporation to avail of Nil BCD and Nil CVD benefits in respect of their Phase-1 and Phase-2 projects instead of Director (Rolling Stock,
Electrical & Signalling) at present.

X. HEALTH
1) Full exemption from customs duty is being provided for HIV/AIDS drugs and diagnostic kits imported under National AIDS Control Programme (NACP) funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM).

XI. SECURITY AND STRATEGIC PURPOSES:
1) Full exemption from Basic customs Duty is being provided to goods imported by National Technical Research Organisation (NTRO).
2) Full exemption of customs duty is being provided on security fibre, security threads and M-feature imported by Bank Note Paper Mill India Private Limited (BNPMIPL), Mysore. Full exemption from BCD and CVD is also being provided for raw materials required for manufacture of security threads and security fibre subject to actual user condition.
3) The scope of exemption notification No.39/96-Customs dated 23.07.1996 [S.No.7] granting full exemption from BCD and CVD on goods imported for use in the manufacture of aircrafts for the Ministry of Defence is being clarified to the effect that the exemption is available to all materials in any form and articles thereof, subject to the overall condition that they conform to aeronautical specification accompanied with certificate of conformance/release note/airworthiness certificate for development.

XII. AIRCRAFTS & SHIPS:
1) It is being clarified that aircraft engines and parts thereof are eligible for duty exemption when imported for servicing, repair or maintenance of aircrafts used for scheduled operations.

XIII. MISCELLANEOUS:
1) Tariff item 3903 19 90 is being deleted from notification No.10/2008-Customs, [India-Singapore Comprehensive Economic Co-operation Agreement (CECA)]. As a result, Basic Customs Duty on Polystyrene (other than moulding
powder) is being increased from 1.15% to 7.5%.
2) Basic Customs Duty is being reduced from 5% to 2.5% on electrolysers and their parts/spares required by caustic soda or caustic potash units and membranes and their parts/spares required by industrial plants based on membrane cell technology. The BCD on other spares (other than membranes and parts thereof) is also being reduced from 7.5% to 2.5%.
3) A provision is being made for refund of Customs duty paid at the time of import of scientific and technical instruments, apparatus, etc. by public funded and other research institutions, subject to submission of a certificate of registration from the Department of Scientific & Industrial Research (DSIR).
4) Section 8B of the Customs Tariff Act, 1975 is being amended so as to provide for levy of safeguard duty on inputs/raw materials imported by an EOU and cleared into DTA as such or are used in the manufacture of final products & cleared into DTA.

Indian Budget 2014 highlights

INCOME TAX
Individual tax exemption limit for individual raised to 2,50,000

Senior citizen basic exemption limit raised to Rs. 3,00,000

Sec 80C limit raised from 1 Lac to 1.50 lacs.

Deduction of Housing Loan interest raised from 1.5 lacs to 2 Lacs

No change in surcharge

Cess continues @3%

Advance rulings extended to residents as well!

Investment in mf 36months is long term capital gain. Tax @20%

CUSTOMS & EXCISE :
Lcd led tvs basic customs duty 10% to nil

Baggage rules Limit raised 35to45k

Solar sheet exempt from excise.

Cigarette excise from 11% to 72%

Gist of important tax caselaws

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX

SECTION 2(24)

INCOME - DEFINITION OF

Value of benefit or perquisites : Where assessee was director of a company and said company had undertaken work of procuring land for 'DLF' and in this process assessee also acquired certain land in his individual capacity, it could not be said that assessee had derived any benefit from above company so as to attract provisions of section 2(24)(iv) - S. Narayan Reddy v. Deputy Commissioner of Income-tax, Central Circle -6, Hyderabad (2014) 42 taxmann.com 127 (Hyderabad - Trib.)     SECTION 5 INCOME - ACCRUAL OF Post dated cheque : Where assessee as per memorandum of understanding entered into with one 'S' on 27-6-2007 had invested an amount of Rs. 2 crores in real estate business of 'S' and on completion of venture he would be eligible for a profit of Rs. 5 crores and as a security he received from 'S' post dated cheques for Rs. 7 crores, Assessing Officer was wrong in taxing profit of Rs. 5 crores in hands of assessee - S. Narayan Reddy v. Deputy Commissioner of Income-tax, Central Circle -6, Hyderabad (2014) 42 taxmann.com 127 (Hyderabad - Trib.)       SECTION 69B UNDISCLOSED INVESTMENTS Immovable property : Where Assessing Officer on basis of a letter seized from premises of one 'C' made certain addition in income of assessee, since 'C' clarified position that said letter had no relation whatsoever with assessee, there was no scope for making any addition in hands of assessee - S. Narayan Reddy v. Deputy Commissioner of Income-tax, Central Circle -6, Hyderabad (2014) 42 taxmann.com 127 (Hyderabad - Trib.)     SECTION 158BB BLOCK ASSESSMENT IN SEARCH CASES - UNDISCLOSED INCOME, COMPUTATION OF Material collected prior to search : In course of block assessment proceedings, Assessing Officer could not make addition to assessee's taxable income on basis of material collected during a survey conducted prior to search proceedings - Deputy Commissioner of Income-tax, Lucknow v. Dr. Lalit Verma (2014) 42 taxmann.com 136 (Allahabad)       CUSTOMS ACT SECTION 114A PENALTY - FOR EVASION OF DUTY/TAX Interest and penalty can be levied even if assessee has paid duty prior to issuance of show-cause notice - Commissioner of Customs v. American Power Conversion (India) (P.) Ltd. (2014) 42 taxmann.com 238 (Karnataka)

BUDGET HIGHLIGHTS 2013

The King’s Speech

Hinting towards global economic slowdown of growth rate of 3.2%; the FM cited towards a tough Budget. On the contrary he also mentioned that currently India is the only country behind China and Indonesia when it comes to growth rate throughout the world. And if continued to grow at projected rate, only China will grow faster than India.

The FM brought up his biggest concern of Current Account Deficit i.e. the difference between the income and expenditure of the country. This is mainly because of heavy imports of oil, coal and love for gold. And the only way to counter this deficit is to attract foreign investment via FII, FDI or ECB (External Commercial Borrowings).  Thus he highlighted on the aspect of good governance stating that “Doing business in India must be seen as easy, friendly and mutually beneficial.” Investment is done only when there is lack of doubt and ambiguity. Thus, the FM maintained and repetitively insisted on stable tax rates, clear communication of policies and laws and avoiding hurdles of regulatory and administrative burdens.

                                FM during the allocation of budgets touched on 3 main areas which in his opinion require very high attention, and thus touching the hearts of many viz. Woman empowerment, Youth empowerment and Poor empowerment.                                                                                                                                         

Direct Taxes

·        Currently the tax to GDP ratio is 5.5% which was once 11.9% in 2007-08. Thus tax collection needs to be increased.

Corporate Taxes

Basic tax rate and education cess rate remain unchanged.

·        Surcharge

§  Domestic Companies : Surcharge at the rate of 5% whose income is more than ` 1 crore (` 10 million)

-          Surcharge at the rate of 10% whose income is more than ` 10 crore

§  Foreign Companies : Surcharge increased from 2% to 5%

§  Increase in surcharge from 5% to 10% on Dividend Distribution Tax

·        Investment Allowance

Manufacturers are encouraged to invest in Plant and Machinery. Additional 15% depreciation to company which invests more than 100 crore in P&M between 01.04.2013 to 31.03.2015

·         Loophole of avoiding dividend distribution tax by way of buy back of share blocked. TDS proposed at the rate of 20% for buy back of shares by unlisted companies

·         TDS rate on payments by way of Royalty and fees for technical services to non-residents increased from 10% to 25%.

·         The ‘eligible date’ for power sector projects increased from 31.3.13 to  31.3.14

·         Securitisation Trust exempted from tax. Tax to be levied only at the time of distribution of income. Tax @30% for companies and @25% for Individuals/HUF

Personal Taxes

·         No changes in personal tax slabs; because even small increase in basic exemption limit will result in escape of lakhs of taxpayers from the tax net

·         Still, bare benefit is given to taxpayers who are within the tax bracket of `2 lacs to `5 lacs. These taxpayers will get a ‘tax credit’ i.e. direct reduction in tax of `2,000. The tax credit is estimated to benefit 1.8 crore taxpayers

·         Home Loan benefit :

-          First home buyers who avail home loan in FY 2013-14 up to `25 lacs will get an additional deduction of interest of `1,00,000

-          This is over and above the existing limit of `1.5 lacs

-          If the limit is not fully utilized, the balance may be carried forward in FY 2014-15

·         Surcharge is back for super rich:

Citing only 42,800 persons have reported per year income more than `1 crore recently, Surcharge to be levied at the rate of 10% on income above `1 crore.

Indirect Taxes

·         The indirect tax to GDP ratio has fallen down to 4.4% which is reason for concern for the FM. In none of the large developing countries the ratio is so low

·         Basic rates remain the same, i.e. Excise duty at 12%, Service tax at 12% and Customs duty at 10%

Custom Duty

·         Period of concession to specified parts of electric and hybrid vehicles extended to 31.3.15 to boost environment friendly vehicle manufacturing

·         Duty reduced from 7.5% to 5% on machinery used in manufacture of leather and leather goods

·         Reduced from 10% to 2% on pre-forms of precious and semi-precious stones

·         Duty on de-oiled rice bran oil cake totally withdrawn

·         Duty on set top boxes increased from 5% to 10% to boost domestic production

·         On raw silk imports, increased from 5% to 15%

·         Motor Vehicles from 75% to 100%, Motor cycles of engine capacity of 800cc or more from 60% to 75% and Yachts and similar vessels from 10% to 25%

                                 

·         Duty-free limit of import of jewellery like Gold increased to `50,000 for male passenger and `100,000 in case of female passenger

Excise Duty

·         Ships and vessels, handmade carpets, cotton fabric exempted from excise duty

·         Duty increased by 18% on cigarettes, cigars, cheroots and cigarillos

·         SUVs other than registered as taxis will now bear excise duty of 30% instead of 27%

·         Duty on Marble doubled from `30/sq.mtr to `60/sq.mtr.

·         Mobile phones pricing more than 2,000/- will now bear 6% duty

Service Tax

·         Like stated earlier in his speech the importance of stable tax regime the negative list introduced last year has not been tampered much. Only 2 services are added to the negative list viz. Vocational courses offered by institutes affiliated to State Council of Vocational Training and Testing activities relating to agri produce.

·         Service tax to be levied on all  Air conditioned restaurants unlike before

·         FM mentioned that around 17 lacs Service tax payers are registered with the Government, but only 7 lacs of them file their Returns and thus it is important to motivate such service tax payers as it is administratively not feasible to identify and collect taxes from such defaulters. Thus, the Service tax Voluntary Compliance Encouragement Scheme has been introduced where from 01.10.2007 defaulters can file their returns and pay due taxes. Interest, penalty and other consequences will be waived

·         Abatement reduced from 75% to 70% for homes/flats having carpet area of more than 2,000sqft

Other Highlights of the Budget

·         TDS at the rate of 1% on sale of immovable property above 50 lacs. Agricultural land excluded.

·         India’s first of women, by women, for women Public Sector Bank to be opened

·         Nirbhaya Fund to be setup for women safety and empowerment

·         Small and Micro Enterprises (SMEs) to get extended benefit for 3 years even after reaching at higher category

·         Commodity Transaction Tax (CTT) introduced on non-agri products at the rate of 0.01%

·         Transfer Pricing safe harbor rules to be declared in near future

·         General Anti Avoidance Rule (GAAR) postponed to April 2016 in modified version assured of preserving its basic purpose

·         Direct Tax Code (DTC) based on Best International Practice to be introduced soon

·         Goods and Service Tax (GST) to be implemented soon hoping for unanimous consent of State Governments

Quotable Quotes

·         “Hope inspires courage.”  In light of convergence to GST with support of State Finance Ministers

·         “Any economist will tell us what India can become. We are the tenth largest economy in the world. We can become the eighth, or perhaps the seventh largest by 2017. By 2025, we could become a $ 5 trillion economy, and among the top five in the world. What we will become depends on us and on the choices that we make. Swami Vivekananda, whose 150th birth anniversary we celebrate this year, told the people: “All the strength and succour you want is within yourself. Therefore, make your own future.”

·         What clearly eye discerns as right, with steadfast will And mind unslumbering, that should man fulfill

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