Why is Maharashtra States Businessmen's mood OFF? It's due to issues of MVAT SETOFF.
CA Umesh Sharma
Arjuna (Fictional Character): Krishna, businessmen of Maharashtra State are facing a question, whether they should purchase goods from Maharashtra or not? It seems that due to provisions of MVAT Setoff carrying out business in Maharashtra has become difficult. Dear Krishna, please tell, what is this "SETOFF"?Krishna (Fictional Character): Arjuna, Sales tax department grants set off, if goods are purchased from Maharashtra by registered dealers of the state. For e.g. If registered dealer Mr. "A" (Purchasing Dealer) has purchased goods from Mr. "B" (Selling dealer) then "A" can avail set off of Sale Tax paid on purchases. If B has sold goods worth Rs. 1,00,000/- and levied sales tax @ 12.5% of Rs. 12,500/- and Tax Invoice of Rs. 1,12,500/- is given then "A" can avail the set off of Rs. 12,500/-. If "A" further sales these goods for Rs. 1,50,000/- then it levies sales tax @12.5% of Rs. 18,750/- on it. While paying sales tax, "A" will reduce Rs. 12,500 from Rs. 18,750/- and will pay net tax liability of Rs. 6,250/- to the state government. Thereby "A" and "B" both carry the business in the State. It's so simple, then what is problem in it?
Arjuna: Krishna, availing setoff has become difficult due to the other provisions of sales tax law as interpreted by the sales tax department.
Krishna: Arjuna, as give in above example, "A" has made the payment of purchases to "B". As per MVAT provisions, afterwards "A" will have to mention TIN and other details in the return and in Annexure J 2 for purchases made from "B". Similarly "B" will have to mention TIN and other details in the return and in Annexure J 1 of the sales made to "A". If these and other provisions are followed then set off can be availed.
Arjuna: Krishna, as stated in above example if "B" does not pay taxes or makes errors, then set off availed by "A" is disallowed without any mistake of "A" and he is required to pay taxes, interest and penalty also? Which is absurd.
Krishna: Arjuna, you asked correct question. "A"(buyer) and "B" (seller) are registered with sales tax department. Therefore responsibilityof proper implementation, administration of the tax laws and final assessment of tax of dealersis of the department. If "A" and "B" decided to enter into bogus purchases and sale transactions, then set off of "A" may be disallowed and tax is collected from him, if tax is not collected from "B". However this is may be correct in bogus transactions only, to safe guard the revenue of state government.
Arjuna: Krishna, now if, sales tax department has collected taxes from "A" without granting set off and also collected taxes from "B" then department is collecting taxes two times on one transaction. Is this not a contradiction or illegal?
Krishna: Arjuna, Sales tax department in the Bombay High Court has filed a affidavit in the case of Mahalaxmi Cotton Ginning, that if taxes are collected from both parties then "A" will be given refund. Further Honorable State Finance Minister while delivering 2014 budget speech, has stated that in such cases, refund will be given faster. However, it is also true that, how "A" will come to know that "B" has paid the taxes or not. As per today's computerized system of Sales tax department, the dealer has not been provided with such a mechanism.
Arjuna: It seems that in such cases as per law, taxes should have been collected from "B" first.
Krishna: Arjuna, correctly said. Sales tax department cannot collect taxes on same thing twice. In these cases taxes should be collected from "B" first and "B" should be assessed and asked to pay taxes forcefully. If all the recovery proceedings fails then, at the end if taxes were not collected from "B" then only it should be collected from "A". This seems to be logical.
Arjuna: Krishna, this may be correct for bogus purchases. But now if "B" made any technical error then also set off of "A" is disallowed and taxes are collected from "A". What are these circumstances or parameters issued by department of disallowance of setoff?
Krishna: Arjuna, for disallowing set off department is using following parameters:
1. If TIN of "B" (Seller) is not seen in the computer system of sales tax department 2. If TIN of "B" is cancelled 3. If "B" has not filed returns 4. If "B" is a specific composition dealer. 5. If "B" has shown all tax free sales in the return. 6. If "B" has given wrong incorrect information in Annexure J 1, etc.
Due to these technical mistakes of "B"( seller) the "A" (Buyer) should not be penalized. Sales tax department should get rectified the mistakes from "B" and collect taxes from "B" subject to compliance of laws as discussed earlier.
Arjuna: It means responsibility of following tax laws by seller should not be given to purchaser.
Krishna: Due to this if, goods are purchased from Maharashtra State, then after some years if, seller have made mistake then purchaser is penalized. This is not correct. Mistake of one and other have to suffer for it. It seems that it's beneficial to purchase from other states, instead of purchasing from Maharashtra State. Because on the goods purchased from Maharashtra, when the "atom bomb" of set off of goods purchased will explode no one knows. No one takes the guarantee of following tax laws by seller, while purchasing goods in business world. In business there is no guarantee of many goods, then how one should obtain the guarantee of seller.
Arjuna: Krishna, on one hand there are strict laws for availing set off and afterwards refund is not received. In these situations how businessman in Maharashtra should do his business?
Krishna: Yes Arjuna, firstly refund is not received from years. Refund means excess set off remained after adjusting sales tax collected. As refund is not issued, it is as good as benefit of set off is not given to dealer. Further, disallowing set off means punishment for purchasing goods from Maharashtra. If businessman purchases goods from other states, then set off will not be allowed of Central Sales Tax, and there will not be refund to such dealer. Even if CST is cost to dealer, the Cost of disallowance of setoff or refund is unbearable. But he will be relieved from the unnecessary responsibility casted on him under MVAT as discussed above.
Arjuna: On one side state government gives incentives to business to come in Maharashtra and on other side there such problems for businesses. It's not a business friendly?
Krishna: In Maharashtra, if facilities are given to business, then only financial growth will take place. Further the Honorable State Finance Minister considering the above situation has given a statement in the budget speech of 2014. While reducing VAT on cotton from 5% to 2% he stated that, "the funds of the businessman preparing yarn from the cotton is blocked in the refund, further purchase of cotton from other states is increasing, therefore they are reducing tax rate on cotton." Government should collect taxes smoothly like "Honey bee", it collects honey from the flower without hurting to flowers. However due to such tax provisions, it seems that government in putting honest taxpayer in trouble. In the Tax policy of government, tax follower should not be penalized, rather he should be saved. In the recent case of TCS Company, Honorable Supreme Court has also stated that "government should collect taxes with interest and should give refund with interest. No one's money should not be misused, it may be of government or taxpayer". All citizens of country should follow tax laws and pay taxes, they should not do transaction, by which government's revenue suffer. Tax policies of Governments, should be equal to all tax payers as well as to tax authorities.
Power point presentation on New Tax Audit forms
CA Prakash B Thakkar
Practical Difficulties – Where audit is already completed but report is not uploaded, report will be required to be prepared under new format. E.g. Listed Companies, PSUs, Banks, Insurance companies etc.
The existing Form No. 3CA, Form No. 3CB and Form No. 3CD have been substituted vide Notification No.33 dated 25/07/2014 with immediate effect. Taxpayers and CAs are advised to await the release of the new schema and utility to submit in the newly notified aforementioned Forms. Taxpayers and CAs are advised that any upload using the old Forms will not be valid even for previous AYs in view of the notification of CBDT. The new schema and updated utility for e-Filing of the same will be deployed shortly.
CBDT has released the Utility on Tax Audit on 20.08.2014- Download Revised Utility for Tax Audit Report for AY 2014-15 and further extended the due date for filing of tax audit report to 30.11.2014- Due date for filing Tax Audit Report for AY 2014-15 extended to 30.11.2014
Impact on Your Brand – Employing Differently Abled People
Recently I came to know about KFC's venture to employ Hearing-impaired employees to run a restaurant in Pakistan. I just happened to see the video and I was touched to the core of my heart. What a profound idea. Then I searched on internet about related news and found two such news items as follows. I tried to discuss benefits and impact on Brand Image of the company. (Internal Brand Image and external Brand Image)
- Retail outlets hiring Differently-Abled
http://www.thehindubusinessline.com/marketing/retail-outlets-hiring-differentlyabled/article4013456.ece
- KFC Restaurant run by Hearing Impaired Employees- http://www.workersforjesus.com/dfi/s-259.htm
- Can And Able – http://expressindia.indianexpress.com/story_print.php?storyId=882955
The articles mentioned above had mention of several other such retailers that has already employed or are in the process of employing differently abled persons.
Let's discuss some of the consequences of employing such techniques apart from economic benefits to the organization.
- Customer Reaction: Customers and the society will see the company as a socio-responsible company and will have a respect towards them.
- Image/Brand building: Because of reason discussed in point 1, it creates a good brand name in the minds of society and future (probable) customers.
- Employee Engagement: In countries like India, if the employer gives importance to differently abled people and employs them, certainly the employee engagement comes naturally. Productivity sores.
- Reduced Employee Turnover: High employee engagement will result in low employee turnover ratio for the reasons mentioned in point 3.
- Reduced Training Cost of Employees: Once the employee turnover goes down, it will result in reduction in training time per year and will result in cost saving for the company.
Internal Brand Building:
One important concept and advantage I want to discuss here and which I feel is relevant to discuss is about Internal Brand Building. By internal Brand Image, I mean image in the eyes of your employees. How your own employees see your organization. When we are busy creating a Brand Image in front of the whole world, it's even more important to create a good Brand Image in the eyes of your employees. This is even more challenging because you can fool the whole world, but you cannot fool your employees, they will truly know who you really are (they are sitting there working whole day, so mind it you cannot fool them). That's why it's even more difficult to build internal brand image.
To speak my own mind, if I would have been an employee of such organization that employs differently abled people, the image of my company in my eyes will certainly improve and I will see the employer as an employer stands apart from the crowd. I will see that it's not ordinary organization, it's extra ordinary. If I am proud of my organization, I will work enthusiastically and I will be more engaged in work and my dedication and loyalty for my organization will improve. This will certainly result in financial benefits to my organization.
Financial Benefits: Obviously, in the long run, the company employing differently abled people will benefit financially because of all the reasons discussed in the above paras. Especially because of Brand Image in front of customers and in the eyes of your employees.
My Question to such organizations: My question to such organization is that when they will be making such extra profits/financial benefits out of using such tactics and techniques, are they giving back to the society or employees a part of such benefits received. Are they giving the salaries and remuneration to differently abled employees at par with other employees? Or they are just giving them opportunities at below-par remuneration?
The question is posed because of lack of my deep research on the salary data from KFC or organizations that employ differently abled people. But, I came across an article which states that "Salary of The remuneration of a differently-abled working person is commensurate with the job profile." As told to Indian Express by General Manager (Human Resources), Lemon Tree Hotels.
http://expressindia.indianexpress.com/story_print.php?storyId=882955
Conclusion: To conclude, there are only benefits to employing this strategy of HR to employ differently abled people in the organization. Even if there are any drawbacks, they are temporary and the benefits are long term. This measure will not cost the company anything extra because of reasons discussed in the above pages. Every organization should be encouraged to think on this line and build a better workplace.
I hope we will build a better corporate arena with measures like this and make the world proud to have such organizations. I respect them all. Good Job, keep it up and we are with you.
What is the duty of Chartered Accountant community? If you are convinced of the advantages as discussed above, I request that it should be conveyed to your clients so that we can create a positive change in the society. If this article results in employment of at least 10 differently abled people, I will feel it was worth bringing it into paper.
(Written by CA Rajesh Pabari, suggestions and feedback are welcome email – carajeshpabari@gmail.com or WhatsApp me on +919022780919)
RBI amends norms for lending against shares by Systemically Important NBFCs
Vijaya Agarwala
Introduction: Reserve Bank of India (RBI) vide its notification dated August 21, 2014[1] has come up with amendment in norms for regulating lending against shares by (NBFC-SI), i.e. (NBFCs having a net worth of 100 crores or more) effective from Thursday, the 21st of August, 2014. Currently, loan against shares by NBFCs is not regulated by any specific guidelines apart from general prudential norms applicable to all NBFCs. The same is however, a part of lending and investment policies of NBFCs which ensures internal control for maintaining Loan to Value (LTV) ratio being risk assessment ratio that financial institutions and other lenders observe before approving a mortgage. Evaluation of high LTV is usually viewed as high risk involved and vice-versa.
Security cover for loan against shares
Currently, loan against shares is extended by NBFCs by way of:
(a) either on pledge of such securities
(b) transfer of securities or
(c) obtaining power of attorney of such shares and securities.
In the event of any default in repayment by the borrower, the lender NBFC exercises lien on the securities and offloads the same in the market. This results in volatility in the market. Moreover, non- reporting of shares pledged also exposes the securities to NBFCs.
Amendment vide the Notification:
Observance of LTV has always been an internal practice based on prudence; however, the notification puts a ceiling whereby NBFC-SIs shall be required to maintain a LTV ratio of 50 percent. This means that henceforth NBFC-Sis are prohibited from lending more than 50% of the value of shares pledged.
Besides this, NBFC-SIs are now permitted to only Group – 1 securities as collateral in the event the borrowed amount exceeds Rs. 5 lakh. The securities having mean impact cost of less than or equal to 1 and having traded on atleast 80% (+/-5%) of the days for the previous eighteen months, have been categorized as Group 1[2] by SEBI vide its circular dated March 11, 2013. This means such shares the price of which does not move more than 1 percent up or down when a block of those shares worth Rs. 5 lakh are bought or sold.
Reporting under the Notification:
Further, NBFC-SI, shall report on-line to stock exchanges, information on the shares pledged in their favour, by borrowers for availing loans. The format and mode of reporting has been put on the relevant stock exchanges and can be viewed at http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9180&Mode=0#A1
Take on the Notification:
The amendment has been introduced in order to have control over the volatility in the market due to sudden sale of securities by NBFCs in event of default. Moreover, disclosure requirements have been introduced for transparency and information purpose. However, restriction on type of securities may result in the fall of eligible securities for availing loan. This may affect both borrowings and lending. Surely there is an additional compliance burden on NBFC-SIs.
[1] http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9180&Mode=0
[2] http://www.sebi.gov.in/cms/sebi_data/commondocs/anncir1_p.pdf
(Author is associated with Vinod Kothari & Co. and can be reached at vijaya@vinodkothari.com)
__._,_.___
No comments:
Post a Comment