Monday, November 30, 2015

Valuation of DTA clearances of 'tea' by EOU to be valued as per Excise law: Apex Court

Central Excise: Where, as per exemption notification, DTA clearances by EOU are liable to excise duty equal to duty on clearances by non-EOUs, said DTA clearances are to be valued as per Central Excise Valuation rules.


a)     Assessee was a 100% EOU engaged in manufacture of instant tea. It cleared tea manufactured wholly out of indigenous raw materials, to its sister concerns in EOU.

b)   Since, as per Notifications 8/97 and 23/2003, said clearance of tea was liable duty equal to ‘excise duty’ and any excess was exempted, assessee valued said tea as per rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

c)    Department argued that since DTA clearances by EOU are liable to excise duty equal to ‘customs duty leviable’, tea was to be valued as per customs law.

d)   Tribunal decided in favour of assessee and aggrieved department filed civil appeal in Apex Court.

Apex Court decided in favour of Assessee as under:

1) There is no doubt that the duty of excise leviable under Section 3 would be on the basis of the value of like goods produced or manufactured outside India as determinable in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. However, the notification states that duty calculated on the said basis would only be payable to the extent of like goods manufactured in India by persons other than 100% EOUs.

2)    It is clear that in the absence of actual sales in the wholesale market, when goods are captively consumed and not sold, Rule 8 of the Central Excise Rules would have to be followed to determine what would be the amount equal to the duty of excise leviable on like goods.

3)   It is also clear that the said notification has been framed by the Central Government, in its wisdom, to levy only what is levied by way of excise duty on similar goods manufactured in India, on goods produced and sold by 100% EOUs in the domestic tariff area if they are produced from indigenous raw materials.

4)    Therefore, DTA clearances by assessee are rightly valued as per Central Excise Valuation rules. Appeal is, accordingly, dismissed - Commissioner of Central Excise v. Nestle India Ltd.
[2015] 63 312 (SC) 

Buy-back price to be disclosed even if promoter is exempt from public announcement under takeover code

SEBI: Where appellant-promotor bought back its shares from State Financial Institution, no public announcement was required as same is being protected under regulation 3 of the SEBI (SAST) Regulations, 1997, however, rate at which shares were bought back had to be disclosed.


a)    In respect of an acquisition which was in excess of 15% of the total shareholding of the Target Company, the appellant neither in the public announcement nor in the letter had disclosed the fact that he and his associates had already bought back the shares of the Haryana State Industrial Development Corporation Limited (‘HSIDC’).

b)   The appellant had vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulations 10, 11 and 12.

c)   Appellant had also issued post dated cheques towards the purchase consideration for the buy-back of equity of shares held by HSIDC in the Target company which were later on dishonoured.

d)    The appellant contended that the amount deposited with HSIDC via post-dated cheque was not in consideration for the buy-back of shares but were deposited by way of security for the buy-back obligation. Further, the appellant contented that cheques presented had been dishonoured on presentation, the transaction did not culminate in an acquisition.

The Supreme Court rules as under:

1)    Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that for such transaction a public announcement would not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act.

2)    Thus, the transaction between the Appellant and HSIDC would have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement.

3)   With regard to appellant’s contention on post-dated cheque, the Apex Court said the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case.

4)   At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant had subsequently shirked his responsibility and had tried to slither away from honouring the agreement, which he could not be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet.

5)    Under Regulation 2 clause (1) Sub-clause (a)- ‘acquisition’ means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition clarifies that the actual transfer need not be contemporaneous with the intended transfer and can be in future. - A.R. DAHIYA v. Securities Exchange Board of India [2015] 63 332 (SC) 

Thursday, November 26, 2015

SC draws distinction between exempted goods and exempted units for allowing input tax credit

CST & VAT: Rajasthan VAT-Assessee could claim input tax credit of raw material used in manufacturing of Asbestos Cement Sheets when assessee was specifically exempted from paying VAT due to exemption notification.


a)  Assessee was manufacturing Asbestos Cement Pressure Pipes and Asbestos Cement Sheets (A.C. Sheets). It had availed input tax credit (ITC) on purchase of raw material used in manufacturing of A.C. Sheets.

b)  Revenue disallowed such ITC on the ground that no tax was required to be paid by assessee due to exemption notification. However, the assessee was of the view that it was only exempted to pay duty by virtue of notification and goods manufactured by it were not exempted goods. Therefore, it was correct in claiming ITC.

c)  The High Court held in favour of assessee.Aggrieved-department filed the instant appeal.

The Apex Court held in favour of assessee as under:

1)   It was perceivable that the High Court had proceeded on foundation that there was distinction between the exempted units and exempted sales. If said distinction would be overlooked, it might lead to serious error in construction and application of taxing provisions.

2)  There is no doubt that distinction has to be drawn between exempted goods, which means complete exemption for the specified goods, and when the goods are taxable goods, but a transaction or a person is granted exemption. 

3)  When goods are exempt, there would be no taxable transactions or exemption to a taxable person. In other cases, goods might be taxable, but exemption could be given in respect of a taxable event, i.e., exemption to specified transactions from liability of tax or exemption to a taxable person, though the goods are taxable. Exemption with reference to taxable events or taxable persons would not exempt the goods as such, for a subsequent transaction or when the goods are sold or purchased by a non-specified person, the subsequent transaction or the taxable person would be liable to pay tax.

4)  Therefore, the appellant though exempted from payment of tax, subsequent transactions of sale of asbestos cement sheets would be taxable. As a logical corollary it follows that the VAT would have to be paid on the taxable goods in a subsequent transaction by the purchasing dealer.

5)  The denial of credit to assessee would lead assessee to a disadvantageous position as if subsequent sale is made by non-exempted dealer then it would suffer tax on entire sale consideration. It would make its products uncompetitive in spite of exemption notification. Thus, assessee had correctly claimed ITC. - Commercial Taxes Officer v. A Infrastructure Ltd. [2015] 63 307 (SC) 

Wednesday, November 25, 2015

Mumbai ITAT denies to treat news distributor of 'Reuters' as its PE in India


a)  The assessee was a tax resident of UK and it had worldwide business of providing news and financial information distributed through Reuters Global Network. In India, the assessee entered into distribution agreement with RIPL for distribution of news and information service. The assessee had also deputed one, 'S', as Bureau Chief of Bombay and he was in India during the relevant financial year.

b)  In the course of assessment, the Assessing Officer held that RIPL was to be treated as PE of assessee in India under Article 5(5) and also as service PE under India -UK DTAA.

c)  Thereafter, the AO taxed the entire 'distribution fee' on gross basis at the rate of 20 per cent under section 44D, read with section 115A. The DRP set aside objections raised by assessee.

The ITAT held in favour of assessee as under:

1)  The character of an Agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The qualified character of the agency is authorization to act on behalf of somebody else so much as to conclude the contracts. Here in this case, there was no such terms which could be borne out from the distribution agreement that RIPL was only acting on behalf of 'Reuters' or was in kind of dependent agent. It was completely an independent entity and the relationship between the assessee and RIPL was on principal-to-principal basis

2)  Even under Para 5 of Article 5 of India-UK DTAA, the foremost condition is that the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise. Herein activities of RIPL could not be said to be devoted wholly or almost wholly on behalf of the assessee as it was entering into contracts with the subscribers in India on independent basis and on principal-to-principal for earning and generating its revenues. It was not the case here that it was completely or wholly doing activity for 'Reuters' and earning income wholly from 'Reuters' only. Thus, the conditions laid down in Article 5(5) also does not fulfill.

3) Now coming to the second limb of the controversy as to whether there is a service PE within the scope and ambit of Article 5(2)(k)? There was no furnishing of services by the Bureau Chief to the RIPL which lead to earning of a distribution fee to the assessee. As per terms of agreement, the assessee was merely delivering Reuters services to the distributors. The Bureau Chief was only acting as a Chief reporter and Text Correspondent in India in the field of collection and dissemination of news.Thus, it cannot be held that the News Bureau Chief constitute a service PE in India. Accordingly, distribution fee received by assessee was not taxable as it did not have PE in India. - REUTERS LTD. v. DY. CIT(INTERNATIONAL TAXATION) [2015] 63 115 (Mumbai - Trib.)

Monday, November 23, 2015

Sec. 54(4) contemplates investment in house before due date of filing of belated return

When capital gains is utilized for purchase or construction of new asset before due date for furnishing return of belated return, assessee is entitled to claim deduction in respect of amount so utilized under section 54F.
The disputed issue is as under:
Whether Section 54 exemption would be available if capital gain is invested before due date of filing of belated return even if he no amount is deposited in capital gain account scheme before due date of filing of return under Section 139(1)

The Tribunal relied upon the judgment of co-ordinate bench of the ITAT, Bangalore in the case of Nipun Mehrotra [2008] 110 ITD 520 (BANG.) and held that if the sale consideration/capital gains is utilized for the purchase or construction of the new asset before the date of filing the return under Section 139(4), the assessee is entitled to exemption under Section 54F.  - ITO v. R. Srinivas [2015] 63 101 (Bangalore - Trib.)

Saturday, November 21, 2015

Govt. plans to phase out corporate tax exemptions and deductions

In order to simplify and bring more transparency in tax laws, the Finance Minister in his Budget Speech, 2015 had indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions.

Now Government had proposed to implement its decision in following manner:-

-  Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax payers.

-  The provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the Act will not be extended.

-  In case of tax incentives with no terminal date, a sunset date of 31.3.2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act.

- There will be no weighted deduction with effect from 01. 04.2017.

Friday, November 20, 2015

Booking rights of fictional property not to be deemed as transferable capital assets issue

Whether booking of a property which was neither in existence nor its building plan or specifications were approved from the Municipal Corporation would be treated as transferable capital assets?

The tribunal held as under:-

1)   Rights in property could be considered as transferable capital asset. However, for that purpose, there should be a property in existence or there should be a property which is likely and apparently coming into existence, e.g., if the construction of the flat is started and the flat is likely to come in existence. However, when there is no property in existence nor any definite process for its creation has started, no one get a transferable right or interest into such a fictional property which itself cannot be said to be even a “property”.

2)   In the instant case payment was made to the builder when neither the property was in existence nor its building plan or specifications were approved from the Municipal Corporation and neither any construction activity nor commencement of the project had started. Therefore, any gain arising on transfer of booking rights in such fictional property should be taxed under the head ‘income from other sources’ and not as capital gains - S. NARENDRAKUMAR & CO. V. DCIT [2015] 63 184 (Mumbai - Trib.)

Wednesday, November 18, 2015

8 things you would like to know about Swachh Bharat Cess

1. What is Swachh Bharat Cess?

The Hon’ble Finance Minister in his Budget speech 2015-16 had proposed levy of Swachh Bharat Cess. Such Cess was proposed for financing and promoting initiatives towards Swachh Bharat.

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.

Now "Swachh Bharat Cess” is effective from November 15, 2015, at the rate of 0.5% on all taxable services. Thus, rate of service tax will increase from 14% to 14.5%. Now we will have to shell out a bit more service-tax so that our country can become cleaner.

2. Whether Swachh Bharat Cess will be levied on services which are in negative list or are wholly exempt from service-tax?

Swachh Bharat Cess will be levied on all services expect those services which are in the Negative list or are wholly exempt from service-tax.

3. What should be the value of taxable services for computation of Swachh Bharat Cess?
The taxable value for the levy of Swachh Bharat Cess would be the same on which service-tax is levied.

As per Notification No. 23/2015 Swachh Bharat Cess of 0.5% would be levied on the abated value of taxable services.

Foreign tax credit should be given on tax liability computed under MAT provisions

The issue that was disputed in the instant case was as under:

“Whether relief under section 90 of Income-tax Act(‘the Act’) in respect of tax paid in a foreign country would be available while computing tax liability under as per provisions of MAT ?.”

The Tribunal held in favour of assessee as under:

1)   The Mumbai Tribunal in case of ACIT v. L&T Ltd. (in ITA No.4499/Mum/2008/ dated 22-04-2009) had held that once taxable income was determined either under the normal provisions of the Act or as per Sec 115JB, subsequent portion relating to rebate and set-off would be governed by the normal provision of the Act.

2)   There is no provision in the Act, debarring granting of credit for tax paid abroad in case income is computed under section 115JB. Thus, assessee could not be denied set off of tax relief under section 90 against the tax liability determined under section 115JB. - Dy.CIT v. Subex Technology Ltd. [2015] 63 124 (Bangalore - Trib.). 

Monday, November 16, 2015

No VAT on free supply of medicines; HC declares Sec. 15(5) of Bihar VAT Act as unconstitutional

CST & VAT: Bihar VAT - Patna High Court declares section 15(5) of Bihar Vat Act (which provides for levy of tax on basis of MRP) as unconstitutional.


a)   Assessee was engaged in business of manufacture and sale of medicines. It paid sales tax after claiming exemption in respect of medicines supplied free of cost to its dealers. The revenue, however, was of the view that such quantity of medicines supplied free of cost would be subject to tax in view of provisions of Section 15(5)(b) of Bihar VAT Act, 2005 (‘the Act’).

b)   Under the Scheme of the Act every dealer registered under the Act would be liable to pay tax on the sale and purchase made by him. Section 15(5) is in nature of exception to the general scheme of taxation and provides an option to certain class of registered dealers to pay in lieu of the tax payable by them, tax at the rate specified in Section 14, on the maximum retail price of such goods.

c)   The assessee objected to such levy on the ground such transaction would not amount to sale as there being no valuable consideration for supply of such extra quantity of medicines. Aggrieved-assessee filed the instant writ to challenge the validity of provisions of Section 15(5) of the Act and the Notification No. S.O. 47 dated 05.04.2006.

The High Court held in favour of assessee as under:

1) The Supreme Court in case of State of Rajasthan v. Rajasthan Chemist Association [2007] 2007 1766 (SC) held that notification to the extent it intends to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability of tax arises and is determined ex hypothesis is unsustainable on that basis.

2)  In view of aforesaid, the State legislature not being competent to provide for levy of tax on the first point of sale on the basis of MRP or any other notional value, there could be no question of the legislature providing for the same even by way of exercise of option by the dealer concerned.

3)   Thus, in light of aforesaid discussion sub-section (5) of Section 15 of the Act was to be declared as ultra vires. - Mapra Laboratories (P.) Ltd. v. Commercial Tax Officer - [2015] 63 91 (Patna)