25 Key Takeaways of Final GST Rules passed by GST Council

In its 14th meeting in Srinagar on 18th and 19th May,2017 the all-powerful GST council cleared seven rules pertaining to different aspects of GST. These rules relate to Registration, Input Tax Credit, Payment, Refund, Invoice, Valuation and Composition and have paved the way for the rollout of GST from July 1, 2017.

The key highlights of these final GST Rules are as follows:

1) PAN is mandatory for taking registration under GST. PAN will be validated by CBDT. After successful validation, registration will be granted.

2) Physical verification of place of business will not be conducted to grant registration under GST. But officer can do physical verification after granting of registration, if he is satisfied that it is necessary to do the same. He must upload verification report on GST Portal within 15 working days after verification.

3) Tax invoice in case of supply of taxable services must be issued within 30 days of date of supply of services. However, time limit for banking company, insurance company or financial institutions is 45 days.

4) Electronic Liability Register shall be maintained for each person liable to pay tax on the GST Portal.

5) A separate formula is prescribed for Maximum Refund in case of inverted duty structure, i.e., GST rate is higher on Inputs than on Output Supply.

6) The person eligible to take credit in respect of input of goods held in stock after registration is required to file a declaration on GST Portal that he is eligible for input tax credit within 30 days.

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F1 Circuit—A Fixed Place PE!

Thanks to the burgeoning fan base of various sporting events globally. Now several sporting bodies are organising various series across borders. However, tax policies of the nations are not so sweet for the taxpayers. This is more so because of the current global wave of preventing the unintended application of the tax provisions. The Supreme Court of India's decision in the case of Formula One World Championship Ltd. v. CIT1 is a perfect illustration wherein the Apex Court has given a new dimension to the concept of permanent establishment ("PE").

Exposure of a foreign company (F Co.) having PE in the source country has always been a contentious issue. India follows "source based taxation". Under source based taxation principle, income earned by a non-resident is taxed in the country in which such income has accrued or arisen, even by way of a deeming fiction.

In this article we will dwell upon the Supreme Court's ruling and also other rulings on similar issue on the existence of Fixed Place PE in India, more particularly as to whether F Co.'s presence for a short duration in a source State/country can be considered to its PE?

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Sale of business without transfer of trademark held as slump sale as buyer was in same line of business

The issue before the Tribunal was as under:

Whether sale of manufacturing unit by assessee without transferring his trademark could be held as slump sale?

The Tribunal held in favour of assessee as under:

1) The definition of slump sale' u/s 2(42C) read with the explanation (1) to sec. 2(19AA) of the Income-tax Act makes it clear that 'slump sale' means transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale.

2) In the instant case, assessee sold its manufacturing unit of edible oil as a going concern on slump sale basis to the buyer who was already in same line of business. Consideration was decided without assigning value to individual assets and liabilities.

3) Buyer of the manufacturing unit of the edible oil was already in the same business and wanted to sell the products manufactured from manufacturing unit in their own name and brand. They were not keen to buy the name/trade name/logos/trademark/ product name, etc., of the assessee, so, the assessee excluded the same from the transaction.

4) Therefore, mere exclusion of the said intangible assets could not in any way affect the slump sale of the manufacturing unit of assessee. - [2017] 81 taxmann.com 305 (Kolkata - Trib.)

28% GST on cinema halls, race clubs and 5% on economy class air travel

On May 18, 2017 the GST Council had finalised seven GST rules and GST rates on goods (1211 items approx). Today, the GST Council has finalised the GST rates on services. The key takeaways of 14th GST Council meeting are given hereunder:

1. GST rate will be 28% for race clubs, betting and cinema halls. Transport and Financial services will be taxed at 18%.

2. Economy class air travel and rail travel will attract 5% GST rate, but the business class air travel will attract higher rate of 12%.

3. No GST will be levied on hotels charging tariff below Rs 1,000 whereas the GST rate will be 18% for hotels with tariff in the range of Rs 2,500-5,000.

4. GST rate will be 5% for Cab operators like Ola and Uber.

5. Healthcare and Education Services have been exempted from GST. Services that are currently exempt would continue to be exempted under GST.

6. The tax rates for gold, bidis and cigarettes will be decided in next meeting to be held on June 3, 2017.

Mergers and acquisitions: The evolving Indian landscape

Just recently, the largest ever FDI transaction in India was announced, with the Russian government owned Rosneft and its partners acquiring Essar Oil for 13 billion USD. This is indeed a watershed moment for India and a re-validation of global faith in the potential and attractiveness of its economy. With FDI inflows into India already hitting a high in the last fiscal year, this marquee transaction will only provide a fillip to India’s already burgeoning M&A landscape.

There has been a spate of high-profile transactions in India in the last few years, whether domestic or international, and both inbound and outbound. With the government continually working towards reforms on all fronts, be it in its regulatory policies to attract foreign investors, providing an impetus to the manufacturing sector with Make in India, improving India’s Ease of Doing Business rankings, or providing solace to the much beleaguered infrastructure sector by paving the path for real estate investment trusts (REITs)/infrastructure investment trusts (InvITs), there is no looking back.

Ever since the Vodafone tax litigation took the Indian M&A landscape by storm in 2007, tax aspects surrounding any M&As in India came to the forefront—so much so that corporate have now started taking tax insurance to insulate themselves from the uncertainties and vagaries of interpretation of Indian tax laws. Of course, while the government is making strides in trying to deliver the comfort of certainty to the investor

community (such as by issuing clarifications on various aspects of indirect transfers), it is also tightening the screws on various fronts—the renegotiation of India’s tax treaties, the looming advent of General Anti- Avoidance Rules (GAAR) in 2017 and the adoption of Base Erosion and Profit Shifting (BEPS) action plans.

Click here to download PwC India’s Report on 'M&A'

Benefit of IDS wasn’t available even if search proceedings was initiated after launch of IDS

Facts:

a) The Central Government had come with an Income Declaration Scheme, 2016 (IDS) which was made effective from 1-6-2016 to 30-9-2016.

b) Assessee had faced proceedings under section 132, search warrant was issued and search was also carried out from 30-6-2016 to 2-7-2016. In the meantime before 30-9-2016, he applied for benefit of IDS.

c) Assessee contended that he was entitled to benefit of IDS since raid and search proceedings under section 132 were initiated after the launch of scheme.

d) Assessing Officer rejected the claim of assessee, aggreived-assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under:

1) Clause 196(e)(ii) to IDS provides that the provisions of this scheme shall not apply where a search has been conducted under section 132 or requisition has been made under section 132A or a survey has been carried out under Section 133A of the Incometax Act in a previous year.

2) It was a case where the Central Government had granted benefit of IDS only to the persons who were not covered under section 132 and other proceedings. If a particulars class had been debarred to opt for IDS, such person cannot avail the benefit in any circumstances even if search had been conducted after the launch of scheme.

3) The IDS will not override the provisions of the Income Tax Act and the scheme which has come by way of limited purpose cannot prevail over the Income Tax Act 

4) Therefore, even though search proceedings was inititated after the lauch of IDS, assessee won‘t be entitled for benefit of IDS. - [2017] 81 taxmann.com 213 (Rajasthan)

SAT lifts ban on Satyam’s Raju from accessing capital market

Whole Time Member of SEBI by impugned order had restrained Satyam Computer founder, Ramalinga Raju and his associates (appellants) from accessing securities market for 14 years and had directed appellants to disgorge unlawful gains arising on sale/pledge of Satyam’s shares.

Now, the Security Appellate Tribunal (SAT) has set aside the SEBI’s order from barring appellants from accessing capital market. Further, SAT has asked SEBI to pass fresh order on applicants’ punishment. [2017] 81 taxmann.com 201 (SAT - Mumbai)

Govt. notifies rules for depositing old Rs. 500 or Rs. 1000 notes confiscated on or before 30/12/2016

The Specified Bank Notes (Cessation of Liabilities) Act, 2017 provides for holding, transfer and receiving of old 500 and 1000 rupee notes as an offence. It provides for fine of Rs. 10,000/- or five times the cash held, whichever is higher on holding of more than 10 demonetized notes. It also ends the liability of RBI and the Central Government on the currency notes demonetized on 08-11-2016.

Now, Govt. notifies the Specified Bank Notes (Deposit of Confiscated Notes) Rules, 2017 which provides that if specified bank notes (i.e. old Rs. 500 or Rs. 1000 notes)have been confiscated or seized by a law enforcement agencies or produced before a court on or before the 30-12-2016. Such bank notes may be deposit in a bank account or exchange with legal tender at any office of the RBI or a nationalized bank if following conditions are satisfied:-

1) In case confiscated specified bank notes are returned by the court to a person who is a party in case pending before that court, then, the person shall be entitled to deposit or exchange such specified bank notes:-

a. The serial numbers of which have been noted by the law enforcement agency which confiscated or produced them before the court; and are mentioned in the direction of the court.

2) In case specified bank notes are placed in custody of any other person by an order of the court on or before the 30th day of December, 2016, then, the person shall be entitled to deposit or exchange such specified bank notes:-

a. The serial numbers of which have been noted by the law enforcement agency which confiscated or produced them before the court; and are mentioned in the direction of the court. 

3) In case specified bank notes are forfeited in favour of the Central Government or the State Government by an order of the court. The Government shall be entitled to deposit or exchange such specified bank notes - F. No. S-10/05/2017, dated 12-05-2017

Quoting of Aadhar number in return of income isn’t mandatory for non-residents and super senior citizens

The Finance Act, 2017 had inserted a new Section 139AA under the Income-tax Act, 1961 requiring every person to quote Aadhaar number in the return of income with effect from 1st day of July, 2017. If any person does not possess the Aadhaar Number but he had applied for the Aadhaar card then he can quote Enrolment ID of Aadhaar application Form in the ITR.

It may be noted that firms are also required to Quote Aadhaar number of their Partner/members in new ITR 5. Further, in case of trust Aadhaar number of Author(s) / Founder(s) / Trustee(s) / Manager(s), etc., are required to be specified in new ITR 7. However, the Central Government has issued a Notification No. 37, Dated 11/5/2017 whereby it has been notified that the provisions of section 139AA shall not apply to an individual who does not possess the Aadhaar number or the Enrolment ID and is:-

(i) residing in the States of Assam, Jammu and Kashmir and Meghalaya;

(ii) a non-resident as per the Income-tax Act, 1961;

(iii) of the age of 80 years or more at any time during the previous year, i.e., super senior citizen;

(iv) not a citizen of India.

Click here to view Notification No. 37, dated 11/5/2017

Retrospective amendment to limit exemption to CMA paper for 3 consequent attempt isn't arbitrary: HC

FACTS

The petitioner-individual, final year student of C.M.A. course, appeared in the final year examination conducted by the Institute and scored more than 60 % marks in the Business Valuation paper of Group IV but could not clear the other papers in the same group. The petitioner was granted with an exemption from appearing in the Business Valuation paper in the subsequent exams/attempts.

Thereafter, in May 2012 an amendment was carried out by the Institute in the Regulation 41(2) vide Cost and Works Accountants (Amendment) Regulations, 2012 and the said exemption was revoked. Thereafter, petitioner availed exemption for three consecutive terms and when he appeared for forth term, exemption had been denied to him.

The petitioner filed writ on ground that the Institute arbitrarily and mala fidely revoked the exemption granted to the petitioner from appearing in subsequent attempts.

The High Court held that:

An apparent reading of the Hindi and English version of the regulation show they are at variance, in as much as the Hindi version refers to the exemption being applicable to three consecutive years, whereas the English version depicts, the same is applicable to three consecutive terms.

In any case, the said plea would be of no help to the petitioner, inasmuch as it is not the  case of the petitioner that he is entitled to the benefit of exemption for a period of three years and not three consecutive terms and, hence it would not be necessary, to go into an issue as to which version would prevail. - [2017] 81 taxmann.com 7 (Delhi)