Amended Delhi VAT Act – An insight into

Delhi Value Added Tax Act, 2005 has been amended by Delhi Value Added Tax (2nd Amendment) Act, 2015. Now, Government of Delhi got powers to increase VAT upto 30% on petrol, liquor, aerated drinks etc.Following are the changes in DVAT Act effective from July 15, 2015:

Rates of Tax

Certain petroleum products, liquor, tabacco, gutkha, aerated drinks and some other items are mentioned in fourth Schedule of DVAT Act. Items mentioned in fourth Schedule are taxable at flat rate of 20%. Now VAT rate on such items can be increased to 30% as an upper cap of 30% has been prescribed for such items.

Post Sale Discounts

Earlier discounts or incentives offered by seller after issuance of invoice (through credit notes) was adjusted in output tax liability. As per the amended provision now such post sale discounts cannot be adjusted in output tax liability. Similarly, the purchaser need not reduce its input tax credit arising on account of such post sale discount. Further, seller-dealer is also debarred from issuing credit note to purchaser for such post-sale discounts.

Cancellation of Registration

Now dealers need not surrender their registration certificate while applying for cancellation of registration. Similarly, dealers whose registration are otherwise cancelled need not surrender their registration certificate. Further amendment also does away with requirement of levying penalty on dealers who failed to surrender their registration certificate. Provision which constitutes non-surrendering of registration certificate as an offence has also been omitted.

Refund

Earlier commissioner could demand security within 15 days from the date on which return was filed or refund claim was made. Now this time-limit has been enhanced to 45 days.

Penalties

Now penalties for certain defaults has been reduced, which is prescribed hereunder:

(1) Section 86(5) – for failure to file information under Section 21(1) for amendment in registration

Old Penalty – Rs. 500 per day subject to maximum penalty of Rs. 10,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 10,000

(2) Section 86(6) – Failure to apply cancellation of registration due to closure of business under Section 22(2)

Old Penalty – Rs. 1,000 per day subject to maximum penalty of Rs. 25,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 25,000

(3) Section 86(6) – for failure to surrender certificate of registration under Section 22(7)

Old Penalty - Rs. 1,000 per day subject to maximum penalty of Rs. 25,000

New Penalty – No penalty as this provision is now omitted

(4) Section 86(9) – for failure to file of returns and documents, etc.

Old Penalty – Rs. 500 per day subject to maximum of Rs. 50,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 50,000

(5) Section 86(16) – for failure to issue tax invoice under Section 50

Old Penalty – No Penalty

New Penalty – Higher of Rs. 5000 or 20% of tax deficiency

Service provider can't ask revenue to recover taxes from service-recipient even if recipient agrees to pay Service Tax

Undoubtedly, service tax burden can be transferred by contractual arrangement to other party; but, on that account, assessee cannot ask revenue (except under reverse charge) to recover tax dues from a third party or to wait for discharge of liability by assessee till it has recovered amount from its customers (i.e., service recipients).

Facts :

1) The assessee, Delhi Transport Corporation (DTC), entered into contracts with agencies (contractors/advertisers) providing space to such parties for display of advertisements on bus-queue shelters and time-keeping booths.

2) The agreement provided that it shall be the responsibility of the contractor/advertiser to pay advertisement tax or any other taxes directly to the concerned authority in addition to the quoted license fee.

3) Assessee didn’t pay service tax to the department as it, by way of contract, casted responsibility on the contractor/advertiser to pay the same. However, service tax was also not paid by the contractor/advertiser.

4) The Department raised demand of service tax on assessee under 'Sale of Advertising Space or Time Services'.

The High Court held in favour of revenue as under :

a) Though assessee's services were taxable, but the service tax burden could have been transferred by way of a contract.

b) The ruling of Supreme Court in the case of Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 35 STT 664/21 taxmann.com 20 cannot detract from the fact that in terms of the statutory provisions it is the assessee which is to discharge the liability towards the revenue on account of service tax. Undoubtedly, the service tax burden can be transferred by contractual arrangement to the other party. But, on account of such contractual arrangement, the assessee cannot ask the revenue to recover the tax dues from a third party or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors.

c) Hence, demand was confirmed with interestas contractor/advertiser didn’t pay the service tax to the Department, though they were contractually liable to pay the same - (2015) 59 taxmann.com 51 (Delhi).

RBI issues FAQs on Forex facilities and 'Liberalised Remittance Scheme' for residents

Are you planning to travel abroad and you are not sure how much foreign exchange can you buy when travelling on private visits to country outside India? You are not sure as how much foreign currency can be carried in cash for travelling abroad? You want to know how much Indian currency can be brought in while coming into India?  

Now RBI has released FAQs in respect of Forex facilities including Liberalized Remittance Scheme for general guidance and to answer these type of queries. Certain FAQs are highlighted as under:

Q.   How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?

For private visits abroad, other than to Nepal and Bhutan, any resident can obtain foreign exchange upto an aggregate amount of USD 2,50,000, from an Authorised Dealer or Full-Fledged Money Changers (FFMCs), in any one financial year, irrespective of the number of visits undertaken during the year.

This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual has already remitted any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for travelling purpose for such individual would be reduced from USD 250,000 by the amount so remitted.

Q.   How much foreign currency can be carried in cash for travel abroad?

Country of travel                                                           Limit of Forex

              i.        Travelers proceeding to Iraq and Libya           Upto USD 5000

             ii.        Travelers proceeding to Islamic republic         Upto USD 25000

            iii.        For Haj/Umrah pilgrimage                             USD 250, 000 or specified limit.

           iv.        Others                                                     Upto USD 3000 and balance in bank draft

Q. How much Indian currency can be brought in while coming into India?

Returning from                    Limit of Forex

              i.        Nepal/Bhutan                Upto USD 25,000 in Denomination not exceeding of Rs. 100

             ii.        Others                         Upto USD 25,000

            iii.        Pakistan/ Bangladesh     Upto USD 10,000 per person

  Q.   What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?

 Under the LRS, all resident individuals, including minors, are allowed to freely remit upto USD  2,50,000 in financial year for any permissible current or capital account transaction or a  combination of both.

 Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in  Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000  only. If an individual has remitted any amount under LRS in a financial year, then the applicable l  limit for such individual would be reduced from USD 250,000 by the amount so remitted. In case  of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural  guardian.

CBEC unveils procedure for maintenance of electronic records and their authentication by digital signature

The Hon’ble Finance Minister in his budget speech for 2015-16 announced that Central Excise and Service Tax assessees will be allowed to issue digitally signed invoices and to maintain electronic records. Requisite amendments were done in Central Excise Rules, 2002 and Service Tax Rules, 1994. Further, CBEC had been given power to specify conditions, safeguards and procedure to be followed by an assessee for using digitally signed invoices and for preserving digitally signed records.

Finally, CBEC has laid down the system for issue of invoices, preserving records in electronic form and authentication of records and invoices by digital signatures. The system is as follows:

1) Assessee who opts to maintain records in electronic form having more than one factory or service tax registration shall maintain separate electronic records for each factory or each service tax registration.

2) Assessee shall use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority in India.

3) Assessee proposing to use digital signature shall intimate following details to jurisdictional Deputy Commissioner/Assistant Commissioner (“authority”), at least fifteen days in advance:

a) name, e-mail id, office address and designation of the person authorised to use the digital signature certificate;

b) name of the Certifying Authority;

c) date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the said Authority

4) Assessee already using digital signature shall intimate to authority the above details within fifteen days of issue of this notification, i.e., July 21, 2015.

5) Any change in details shall also be intimated to authority within fifteen days of such change.

6) Assessee shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain to.

7) On request by a Central Excise Office, assessee shall produce the specified records in electronic form and invoices through e-mail or on a specified storage device in an electronically readable format for verification of the authenticity of the document. The officer shall specify the request for such records and invoices in the letter or e-mail.

8) During enquiry/investigation/audit, a Central Excise Officer may direct an assessee to furnish printouts of the records in electronic form and invoices and may retain printouts of such records and invoices after verifying the correctness of the same in electronic format. The officer may also request assessee or his authorized representative to sign print outs of such records in electronic form –Notification No 18/2015-Central Excise (N.T.) Dated July 6, 2015.

CBEC also issued instructions to its officers explaining features of above system and laid down procedures for verification of digitally signed invoices and documents vide F. No. 224/44/2014-CX-6 Dated July 6, 2015.

Compliance window under Black Money Act – An insight into

The Hon’ble Finance Minister in his budget speech for 2015-16 had proposed introduction of Black Money Bill in the Parliament. The Bill was passed by the Parliament in its budget session. The Bill received the assent of the President on May 26, 2015 and it became the law. It is to be called as “The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015” (“the Black Money Act”). It has been clarified by the Government that such Black Money Act would be applicable from July 1, 2015.

The Black Money Act provides for 30% tax on the value of undisclosed foreign income or assets with a penalty equivalent to three times of tax so computed. It further provides for prosecution of up to 10 years in case of willful attempt to evade tax on foreign income or assets held outside India.

The Black Money Act provides for compliance window, i.e., one-time opportunity for taxpayers to voluntarily disclose the undisclosed foreign income or assets. Declaration under compliance window can be made during the period from July 1, 2015 to September 30, 2015.Any person who opts for this compliance window shall be liable to pay reduced penalty of 100% of tax and would also get immunity from prosecution. Such taxes and penalty are required to be paid by declarant on or before December 31, 2015.

However, a person will not be eligible to obtain benefit of compliance window if any information regarding undisclosed foreign asset or income has been received by Government on or before June 30, 2015. Thus, taxpayers on HSBC list might be denied benefit of compliance window.

Declaration shall be void and shall be deemed to have never been made if the declarant –

a) Fails to pay the entire amount of tax and penalty on or before December 31, 2015, or

b) Where the declaration has been made by misrepresentation or suppression of facts or information.

Where the declaration is held to be void for any of aforesaid reasons, then declarant would be liable to pay penalty three times of tax and will also be liable for prosecution.

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Cost of additions or improvements on habitable house is also eligible for sec. 54F relief

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F

Facts

a)  Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.

b)  The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.

c)  Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court

The High Court held in favour of assessee as under-

1)  As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".

2)  In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.

3)  On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.

4)  The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.

5)  Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption- Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka)

Illegally encroached land is not a capital asset; profit arising on its sale is taxable as income from other source

Property illegally encroached by assessee would not be considered as 'Capital asset' under section 2(14) and, consequently, gain arising from transfer of such property could not be assessed as capital gain but as income from other sources.

Facts:

a)      The assessee had shown long-term capital gain from sale of unauthorisedly encroached school land for which he had no title/right.

b)      The Assessing Officer held there was no capital assest owned by assessee as he did not have legal right or title over the asset and, therefore, the income declared was not chargeable under section 45 but under section 56 as income from other sources.

c)      On appeal, CIT (A) reversed the findings of AO. Aggrieved with the CIT(A) order, revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of revenue as under:

1)   The assessee pleaded that the definition of capital asset under Section 2(14) has used words property of 'any kind' and it is not necessary that it should be lawfully acquired property. This proposition could not be accepted because the legislature in its wisdom has used this word for lawful property only.

2)      If the plea of the assessee was allowed, then any person will encroach upon a Government land by showing the same in his balance sheet and shall claim capital gains, which is not permissible.

3)    Under the charging section of capital gains, the crucial requirements are that there must be a transfer and such transfer must be of a capital asset. The primary school land was encroached upon/illegally occupied by the assessee and there was no transfer of any capital asset.

4)      Capital gains under section 45 accrue only if there is a sale or any transfer of the capital asset. But in the instant case, there was no transfer as such the assessee encroached upon the school land. Accordingly, the said land could not be called as capital asset owned by assessee.

5)     Since it was nota case of sale or transfer of capital asset, there was no question of capital gains. Hence, profit arising on sale of encroached land would be taxable as income from other source.- ITO v Bhagwan T. Fatnani[2015] 58 taxmann.com 227 (Mumbai - Trib.)

Uniform allowance paid to employees isn’t exempt if no dress code has been specified for employees

No exemption under section 10(14) shall be granted in respect of uniform allowance paid to employees if there was no dress code and the employees were free to wear any dress.

Facts

a)  Assessee paid uniform allowance to its employees. The allowance so paid was claimed as deduction under Section 10(14) and not included in the salary of the employees for the purpose of deduction of tax at source under Section 192;

b)  The Assessing Officer disallowed the claim and included the allowance for purpose of deduction of tax at source;

c)  CIT(A) affirmed the disallowance.

The Tribunal held in favour of revenue as under:

1)  The following two conditions must be satisfied to avail exemption under Section 10(14):

a)  the allowance should be given to meet expenses incurred for performance of official duties;

b)  the expenditure must be actually incurred.

2)  In the instant case, the assessee was unable to satisfy any of the conditions as there was no dress code for the employees and they were free to wear any dress;

3)  Therefore, allowance could not be said to be granted to meet the expenses incurred for official purposes. Further, assessee was unable to establish that the expenditure was actually incurred;

4)  Hence, uniform allowance paid to employees must be included in their salary for the purpose of deduction of tax at source under Section 192 - Facets Polishing Works (P.) Ltd. v. ITO [2015] 58 taxmann.com 373 (Ahmedabad - Trib.)

Auditor's certificate can't be a substitute for TP study to benchmark international transaction

Facts:

a)    Assessee reimbursed certain costs and expenses to its associated enterprises (‘AEs’) for coordination and liaison works.

b)   Transfer Pricing Officers (TPO) determined the ALP of transactions relating to “reimbursement of Head office overheads” as NIL.

c)    The assessee argued that he had claimed expenditure as per the certificate issued by auditors which spelled out Head office overheads as a percentage of revenues.

d)  TPO rejected the claim of assessee and made additions, which was further confirmed by CIT(A). Aggrieved-assessee filed the instant appeal before Tribunal. 

Tribunal held in favour of Revenue as under:

1)      Assessee had not conducted any transfer pricing study forbenchmarkingof head officer expenditure. He had benchmarked this transaction on basis of certificate issued by the auditors.

2)    Under transfer pricing study, what is required to be seen is whether any other independent entity would have charged or the independent entity receiving the services would have paid to the extent that were charged by the AEs.

3)      This kind of study had not been carried out by the assessee as he was under the impression that the certificate issued by the auditors would satisfy the tests of Transfer Pricing study.

4)   In transfer pricing study, what is required to be done is to validate the claimwith an external comparable. Certificate issued by the auditors only spelled out the percentage of overheads over the revenue and, hence, it was only a factual aspect of internal figures.

5)     Accordingly,certificate issued by auditorscould not be used as a substitute for Transfer Pricing study to benchmark international transaction. - Metro Tunneling Group v. JCIT- [2015] 58 taxmann.com 372 (Mumbai - Trib.)

Mumbai ITAT interprets Article 5 of India-Singapore DTAA to decide constitution of installation PE in India

Facts:

a)  The assessee was tax resident of Singapore. It had undertaken installation and construction activity in respect of certain projects. The DRP held that the presence of assessee in India in excess of90 days constitutes PE in India under Article 5(6) of India-Singapore DTAA (‘treaty’).

b) The Ld. Counsel of assessee submitted that assessee was purely into installation and construction activity, which would clearly fall within Article 5(3) of treaty. Thus, activities of assessee would not constitute PE due to its presence in India for less than 183 days under Article 5(3) of DTAA.

The Tribunal held in favour of assessee as under:

1)  Article 5(3) of DTAA provides that -

“A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any financial year.”

2)  Article 5(6) of DTAA provides that -

“An enterprise shall be deemed to have a permanent establishment in a contracting State if it furnishes services , other than services referred to in paragraphs 4 and 5 of this Article and technical services as define in Article 12, within a contracting State through employees or other personnel, but only if…..

…..”

3)  Article 5(3) is a specific provision dealing with ‘Service PE’, on account of construction, installation or assembly project. Service PE would constitute if project continues for a period of more than 183 days in any fiscal year. WhereasArticle 5(6) envisages that, if an enterprise is “furnishing services” in the contracting State through its employees for a period of 90 days or more, then it is deemed to have Service PE, except for the services referred to in paras 4 and 5.

4)  The threshold period under Article 5(6) is 90 days and more; if such activities are carried out for a related enterprise, then threshold period is more than 30 days. The Article 5(6) explicitly provides that it applies to “services” other than those covered by Articles 5(4) and 5(5), however, the said article is silent as regards its relationship with Article 5(3). Thus, Article 5(6) covers various services which are not covered by paras 4 and 5 of article 5 and technical services as defined in Article 12.

5)  In contradistinction, para 3 of article 5 is very specific and, therefore, such specific activities cannot be read into para 6 of article 5. There cannot be overlapping of activities carried out within the ambit of Article 5(3) and furnishing of services as stated in Article 5(6). Both should be read independent of each other, or else there would be no requirement of enshrining separate provisions.

6)  If the activities related to construction or installation are specifically covered under Article 5(3), then one need not to go in for Article 5(6). Thus, the activity of the assessee which is purely installation services has to be scrutinized under Article 5(3) only and not under Article 5(6). - Kreuz Subsea Pte. Ltd vs DDIT - 58 taxmann.com 371