Decision taken by FM on Indirect Tax Related Issues or Disputes
Decisions Taken On Indirect Tax Issues by the Forum Chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister for Exchange of Views Between Industry Groups and Government on Tax Related Issues or Tax Related Disputes
In July 2013, the Union Finance Minister Shri P.Chidambaram constituted a Forum for exchange of views between industry groups and Government on tax related issues or tax related disputes. The Forum is chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister and supported by officers of the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC). The Forum has heard various industry groups and associations during August – September 2013 and the issues raised by them are being brought to the notice of the Finance Minister.
On the indirect tax side, the Union Finance Minister Shri P.Chidambaram has taken the following decisions so far with respect to IT, reinsurance and manufacturing sectors:
1. Pending Service Tax refunds/rebates for export of services –
Issue: The prescribed procedure demands documents from other departments, particularly matching of FIRCs with export invoices by banks, on which the taxpayer does not have control.
Decision: Instruction has been issued to the field formation on 04.09.2013 for acceptance of self-certification submitted by the claimant for refund claim under notification 5/2006-Central Excise dated 14.03.2006.
Issue: Problems are being faced in establishing nexus of input services with exports.
Decision: The procedure for calculating the refund on the basis of the ratio of export turnover to total turnover that was introduced in 2012 will be applied for pending refund cases. Instructions will be issued accordingly.
2. Liability of payment on removal of Capital Goods after use –
Issue: The amendment in CENVAT Credit Rules, 2004, w.e.f. 1st April 2012, to provide for liability for payment on removal of capital goods, whether as capital goods (on the basis of depreciation at the rate of 2.5% per quarter), or as waste and scrap, whichever was higher, was causing hardship to the assessees as the amended rules assumed shelf life of 10 years for capital goods that often tended to have a shorter shelf life. Industry had suggested that the reversal of input tax credit should be based on the transaction value of the scrap or waste.
Decision: An amendment has been carried out vide Notification No. 12/2013-CE(NT) dated 27th September, 2013, allowing reversal of credit on transaction value basis if capital goods are cleared as waste and scrap.
3. Distribution of CENVAT Credit by Input Service Distributor –
Issue: The industry represented that the amendment in Rule 7 of the CENVAT Credit Rules in 2012 imposing additional conditions in relation to distribution of credit, was leading to practical difficulties and errors, which in turn, would result in undue disputes and litigation with the Department. They suggested that CENVAT Credit Rules 2004 should be amended appropriately to allow distribution of eligible input credit of the service tax by the input service distributors to any unit of the entity so long as the unit to which credit is getting distributed is manufacturing dutiable goods or providing taxable output services.
Decision: A draft amendment in Rule to mitigate the problem would be placed in public domain by 17/12/2013 seeking comments of stakeholders within 10 days. The same will be finalized by 31/12/2013.
4. Clarification in respect of Central Excise Notification No.33/2012 –
Issue: Industry represented that, though vide the aforementioned notification Government has permitted use of Status Holder Incentive Scheme (SHIS) Scrip to be utilized for payment of excise duty while procuring domestic machines, the Notification is being treated as an 'exemption notification' in the some field offices and demand notices are being issued to units clearing the consignments under this Scheme.
Decision: To clarify the position, necessary Circular 973/07/2013/CX dated 4.9.2013 has been issued whereby no reversal of credit is required in cases specified therein.
5. CENVAT Credit on endorsed bill of entry –
Issue: The earlier practice of endorsement of Bill of Entry by customs officer to an importer has since been dispensed with. This has led to ambiguity as to the mechanism by which CENVAT credit would be available to a subsequent manufacturer receiving the imported goods.
Decision: A process is being designed to get the importers to register with the Department, who may then more easily pass on the CENVAT credit of CVD to a manufacturer. The new mechanism will be in place by 31/12/2013.
6. Valuation of goods sold at a price below the cost of production –
Issue: Hon'ble Supreme Court has in a recent decision in the case of CCE, Mumbai vs. Fiat India (P) Ltd. held that where products are sold at considerable losses for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty. Pursuant to this decision field authorities are asking assessees to furnish cost data of various products for past years.
Decision: The modality of implementation of the decision of the Hon'ble Supreme Court is under consideration of a committee of Chief Commissioners. The Circular in this regard will be issued by 15/01/2014.
7. Service tax in respect of services provided by reinsurance agents –
Issue: Industry raised the issue of liability to service tax on brokerage paid by foreign reinsurers to Indian reinsurance agents for placement of reinsurance business with them. The business is organized in such a way that the reinsurance premium including brokerage for reinsurance is paid to the broker. This premium, net of brokerage, is passed on by the broker to the reinsurer. It was explained that service tax was paid on composite amount including reinsurance premium and brokerage paid to the broker as well as separately charged on the brokerage, which resulted in double taxation.
Decision: Department will seek inputs from the insurance industry to ascertain whether there is double taxation of the brokerage paid to reinsurance agents, and issue circular, if necessary, for mitigation of double taxation, if any.
CBI arrest a JCIT and ITO in bribery case
The Central Bureau of Investigation has arrested a Joint Commissioner of Income Tax (IRS:2003 Batch), Bhubaneswar and an Income Tax Officer, Ward-1, Dhenkanal (Odisha) in a bribery case of Rs.Five Lakh.
A case U/s 120-B IPC and Section 7 of PC Act was registered against a Joint Commissioner, Income Tax, Bhubaneswar and an ITO, Ward-1, Dhenkanal on a complaint. It was alleged in the complaint that the premises of Complainant were raided on 29.10.2013 by the Joint Commissioner, Income Tax, Bhubaneswar and Income Tax Officer, Ward-I, Dhenkanal and they initiated income tax proceedings. The Complainant further alleged that both the accused, in conspiracy with each other, demanded Rs.30 Lakh to close the income tax proceedings initiated against him & his wife. The Complainant expressed his inability to pay such a huge amount & on bargaining, both the accused allegedly agreed to accept Rs.10 lakh as bribe from him in two equal instalments through ITO to close the income tax proceedings initiated against the Complainant. First instalment of Rs.5 lakh was to be delivered to Shri Narayan Nayak, ITO at his office premises.
CBI laid a trap and the ITO was arrested while demanding & accepting a bribe of Rs.Five Lakh from the Complainant.
Searches were conducted at the official & residential premises of both the accused. The search at the premises of ITO lead to recovery of documents relating to the income tax proceedings; documents of four-storeyed well-furnished building at Bomikhal, Bhubaneswar; one double storeyed house at Cuttack; one plot in Sapur, Bhubaneswar; one plot at his native near Tirtol, Jagatsinghpur and nine bank accounts in his own name & family members. The search at the premises of the Joint Commissioner of Income Tax lead to recovery of certain documents relating to the income tax proceedings; more than a lakh of rupees; a bunch of misc. papers pertaining to bank account details and other expenditures. The documents are being scrutinised for further investigation.
The arrested accused are being produced in the Designated Court at Bhubaneswar.
CBI Press Release
New Delhi , 17.12.2013
New Delhi , 17.12.2013
Inviting Suggestions on import of power generating equipment under EPCG scheme
Trade Notice No. 08/2013, dated 17th December, 2013
Subject: Inviting Suggestions on import of power generating equipment under EPCG scheme
Notification No. 7 dated 18.4.2013 disallows import of captive power plants and power generator sets under Export Promotion Capital Goods (EPCG) scheme with effect from 18th April 2013.
2. Representations have been received from trade and industry that uninterrupted supply of quality power at competitive rates is essential for production activities and maintaining export competitiveness. Import of capital goods under EPCG scheme at concessional duty reduces the overall cost of setting up of a power plant which in turn reduces the cost of power and ensures uninterrupted power supply. Their representation, accordingly, pleads for import of power generating equipment under the EPCG scheme.
3. Views/suggestions/comments on the request contained in para 2 above are solicited. While submitting such feed-back, care may be taken also to suggest how to count fulfillment of Export Obligation because the resultant product of such capital good, i.e. 'power' is mostly not exportable per-se. Similarly, how a common service provider installing power equipments would fulfill Export Obligation may also be conveyed. One suggestion is to take into account the imputed value of power in the export products of the respective EPCG authorisation holders while calculating the EO.
4. All stakeholders are requested to give their feed-back /suggestion preferably through e-mail addressed to the undersigned as soon as possible but not later than by Monday, the 6th January, 2014.
(Akash Taneja)
Joint Director General of Foreign Trade
Email: akash.taneja@nic.in
Tel: 011-23061562-217
Framework for Revitalising Distressed Assets in the Economy
RBI releases Discussion Paper on Framework for Revitalising Distressed Assets in the Economy
The Reserve Bank of India today released on its website a Discussion Paper on 'Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy'. Comments on the Discussion Paper may be sent to the Principal Chief General Manager, Reserve Bank of India, Department of Banking Operations and Development, Central Office, 12th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400 001 or emailed by January 1, 2014.
The Discussion Paper outlines a corrective action plan that will incentivize early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. The main proposals in the Discussion Paper are summarised below:
Summary of Proposals
- Early formation of a lenders' committee with timelines to agree to a plan for resolution.
- Incentives for lenders to agree collectively and quickly to a plan – better regulatory treatment of stressed assets if a resolution plan is underway, accelerated provisioning if no agreement can be reached.
- Improvement in current restructuring process: Independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors.
- More expensive future borrowing for borrowers who do not co-operate with lenders in resolution.
- More liberal regulatory treatment of asset sales
- Lender can spread loss on sale over two years provided loss is fully disclosed.
- Takeout financing/refinancing possible over a longer period and will not be construed as restructuring.
- Leveraged buyouts will be allowed for specialised entities for acquisition of 'stressed companies'.
- Steps to enable better functioning of Asset Reconstruction Companies mooted.
- Sector-specific Companies/Private equity firms encouraged to play active role in stressed assets market.
Background
With the slowdown of the Indian economy, a number of companies/projects are under stress. As a result, the Indian banking system has seen increase in NPAs and restructured accounts during the recent years. Not only do financially distressed assets produce less than economically possible, they also deteriorate quickly in value. Therefore, there is a need to ensure that the banking system recognises financial distress early, takes prompt steps to resolve it, and ensures fair recovery for lenders and investors. 'Improving the system's ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery' has been indicated by the Governor, RBI as one of the five pillars on which Reserve Bank's developmental measures will be built for improving the financial system over the next few quarters. This Discussion Paper is a step in that direction.
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