Applicability of provisions of Chapter III of Companies Act, 2013 to issue of FCCBs & FCBs
General Circular No. 43/2014
Dated: 13th November, 2014
Dated: 13th November, 2014
Subject: Issue of Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Bonds (FCBs) – Clarification regarding applicability of provisions of Chapter III of the Companies Act, 2013.
The Ministry has been receiving references from stakeholders seeking clarity on applicability of provisions of Chapter III of the Companies Act, 2013 (Act) to the issue of Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Bonds (FCBs) by Indian companies exclusively to persons resident outside India in accordance with applicable sectoral regulatory provisions.
2. The matter has been examined in the Ministry in consultation with Ministry of Finance and SEBI. The issue of FCCBs and FCBs by companies is regulated by the Ministry of Finance's regulations contained in Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) Scheme, 1993 (Scheme) and Reserve Bank of India through its various directions/regulations. It is, accordingly, clarified that unless otherwise provided in the said Scheme or the directions/regulations issued by Reserve Bank of India, provisions of Chapter III of the Act shall not apply to an issue of a FCCB or FCB made exclusively to persons resident outside India in accordance with the above mentioned regulations.
3. This issues with the approval of the competent authority.
4. No. 1/21/2013-CL-V
Yours faithfully,
(K S arayanan)
Assistant Director (Policy)
(K S arayanan)
Assistant Director (Policy)
No demand can be made against Assessee merely because Assessee had admitted the same
No demand can be made against the Assessee applying the principle of estoppel only because the Assessee had admitted the Service tax liability
Commissioner, Customs and Central Excise, Meerut-I Vs.RS. Travels [2014 (10) TMI 817 - UTTARAKHAND HIGH COURT]
In the instant case, the Revenue has filed an appeal before the Hon'ble High Court of Uttarakhand raising the question of principle of estoppel in law relating to the taxability of RS. Travels("the Assessee") on the basis that services were being rendered under the rent-a-cab scheme ("impugned activity") and the Assessee had admitted its Service tax liability.Whereas the Hon'ble High Court of Uttarakhand on August 6, 2014 has decided that impugned activity is not taxable in the case of Commissioner, Customs & Central Excise Vs. Sachin Malhotra, Raj Kumar Taneja, M/s. Shiva Travels [2014 (10) TMI 816 - UTTARAKHAND HIGH COURT]("Shiva Travels case").
The Revenue de-linked Shiva Travels case from the present case on the basis of the fact that the Assessee had effected payments and also filed affidavits to the effect that he will be paying the balance of the amount.
However, the Assessee relied upon the judgment of the Hon'ble Apex Court in the case of Dunlop India Ltd. Vs. Union of India and others[(1976) 2 SCC 241] and Mafatlal Industries Ltd. and others Vs. Union of India and others [(1997) 5 SCC 536] and submitted that the amounts were paid under compulsion.
At the outset, the Hon'ble High Court observed that when there is only a contract of hire and there is no renting of the cab, there is no question of the Assessee being assessed in respect of services rendered in connection with rent–a-cab service as there is no renting at all.
It was further held by the Hon'ble High Court that Article 265 of the Constitution of India mandates that no tax can be levied or collected except as provided by law. Accordingly, mere fact that the Assessee had made some payments and also made promise to make further payments cannot be used against our refusing to interfere with the impugned order.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
In terms of Section 73(3) of the Finance Act,when the Service tax liability was discharged along with interest before issuance of SCN, no penalty would be imposable on the Appellant.
Penalty not imposable when the Service tax liability was discharged along with interest before issuance of Show Cause Notice
Bipco Industries (Tools) Pvt. Ltd. Vs. Commissioner of C. EX. & ST., Daman [2014 (10) TMI 768 - CESTAT AHMEDABAD]
Bipco Industries (Tools) Pvt. Ltd. ("the Appellant") was informed about the short payment of Service tax by the Jurisdictional Range Officer on September3, 2007. The Appellant duly complied with the same by discharging the said Service tax liability by cheque dated September 29, 2009. Further, the Appellant also informed the Jurisdictional Range Office about the payment of Service tax liability along with interest.
Thereafter, a Show Cause Notice ("SCN") was issued to the Appellant on September 14, 2010 imposing penalty upon the Appellant under Section 76 of the Finance Act, 1994 ("the Finance Act") which was further confirmed by the Commissioner (Appeals) by mentioning in its order that the SCN was issued to the Appellant on September 14, 2009 instead of September 14, 2010 ("impugned order"). Being aggrieved, the Appellant preferred an appeal before the Hon'ble CESTAT, Ahmedabad contesting the amount of penalty.
The Hon'ble CESTAT, Ahmedabad observed that the impugned order has factually recorded incorrect date of SCN as September 14, 2009 instead of September 14, 2010 and held that in terms of Section 73(3) of the Finance Act,when the Service tax liability was discharged along with interest before issuance of SCN, no penalty would be imposable on the Appellant.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
CHENNAI, NOV 14, 2014: THE issues before the Bench are - Whether in case a loan was taken from friend and repayment of the same was made in cash within the same financial year, it can be assumed that such taking of loan is for business exigency and it is not a case of undisclosed income and Whether the genuineness of the transaction to meet the immediate necessity can be accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B. And the verdict goes in favour of the assessee.
Facts of the case
The assessee, an individual, is engaged in the business of civil construction. It had filed its return of income for AY 2006-07, in which the assessee had debited various expenses like, payment of accounting charges, etc. According to AO, the assessee had to deduct TDS u/s 194J before making payment to the payee. It was claimed by the assessee that he was a labour supervisor and consequent to the sincere and dedicated work, he was awarded labour contract by his clients. He had no resources to finance the construction and hence he resorted to take loans from friends at time of emergency, particularly on Saturdays when labour payments had to be made. He also made certain payments in cash with regard to purchase of civil construction material and for accounting purposes without deducting TDS. AO disallowed the accounting charges paid u/s 40(a)(ia) and added the entire amount u/s 68 and imposed penalty u/s 271D and 271E. On appeal, CIT(A) confirmed the order of AO.
On further appeal, Tribunal allowed the appeals filed by the assessee - both in respect of quantum as well as penalty. Tribunal decided the quantum appeal holding that the payment made towards accounting charges to the site accountants was wrongly disallowed under Section 40a(ia) and it was not covered under Section 194J. The Tribunal held that the explanation of the assessee that Section 40a(ia) was introduced during the assessment year in question and the assesse's plea of bona fide mistake and impression that it will apply only for the next assessment year was accepted primarily on the ground that the assessee has admitted this amount as income and paid tax thereon and there is no loss to the Revenue and further more, the confusion in the mind of the assessee was justified on account of the fact that the provision was introduced from 01.04.2006. Hence, the Tribunal ordered deletion of this addition in the income. Insofar as the payment made to the Hardware company in cash, the Tribunal noticed that out of the total payment of Rs.41,53,008/-, a sum of Rs.74,647/- alone stands paid in cash and consequently, the Tribunal ordered deletion of the addition of Rs.14,647/- made u/s 40A(3). Insofar as taking loans from friends were concerned, the Tribunal reversed the findings of AO and that of CIT(A) that it should be added as an undisclosed income and concluded that the evidence given by the assessee in support of such short term loan within the assessment year was supported by individual affidavits of the persons from whom the amount was borrowed. The Tribunal observed that AO declined to look into those affidavits for paucity of time and summarily rejected the evidence, as not acceptable. The Tribunal found that AO did not deal with the explanation given by the assessee, which was based on individual affidavit of the persons from whom the money was borrowed, duly notarised. The Tribunal, however, gave credence to those statements made on oath and held that it was the duty of the Officer to examine the same before any decision is taken on the correctness or otherwise of the deposition made in the affidavit. Placing reliance on the decision reported in the case of Mehta Parikh & Co., reported in 30 ITR 181, the Tribunal decided the quantum appeal in favour of the assessee. Against which, the Revenue has not chosen to file any appeal. Tribunal also allowed the appeals filed by the assessee with regard to the penalty levied under Section 271D and 271E of the Income Tax Act.
Held that,
++ Tribunal, in both the cases, has taken note of the explanation given by the assessee before the authorities below that he has engaged in the construction business and he has started from scratch; that he did not have the financial capacity to undertake huge projects and therefore he had to go for short term cash borrowings from friends and known persons, which were repaid within the same assessment year and therefore, there was no need to reflect the same in the books of accounts; nevertheless the cause for taking this loan was on account of the need to pay the workers on weekends, namely, on Saturdays and Sundays on which date, there was no possibility of immediately accessing the bank. The exigency which forces the assessee to make such payment has been accepted and extracted in the order of the Tribunal. We find much force in such explanation, considering the nature of business and also taking note of the fact that the assessee is not a big time civil construction contractor. The Tribunal primarily was of the view that the loans taken in these cases were genuine and the exigency that arose out of the business was a cause for taking such loan. Since in the quantum appeal, the Tribunal found that the assessee was bona fide in such transaction, the Tribunal in exercise of power u/s 273B, considering the reasonable cause submitted by the assessee, thought it fit to set aside the entire penalty by accepting the explanation given by the assessee. No doubt, the decisions relied upon by the Tribunal reported in CIT Vs. Standard Brands ltd.2006-TIOL-217-HC-DEL-IT and 246 ITR 571 (Diwan Enterprises Vs. CIT) may not be applicable to the facts of the present case, as we are not concerned with the case falling u/s 68 where initiation of proceedings u/s 269SS would become meaningless. Here is a case where the loan taken from friends and repayment of the same in cash. The reason that taking of loan is found to be genuine and the same is for business exigency, it is not a case of undisclosed income. If the assessee had not given a reasonable cause, then certainly the initiation of proceedings for violation of 269SS and 269T would be justified. We find in the present case the reasonable cause for not levying penalty exists and the Tribunal was justified in allowing the assesse's appeal. On facts, the Tribunal has clearly held in the quantum appeal there was a bona fide on the part of the assessee and as a consequence finding reasonable cause, thought it fit to delete the entire penalty. We find no ground to interfere with the order of the Tribunal. The assessee has shown the receipt of cash and repayment of the same due to business exigency and that would amount to reasonable cause. The genuineness of the transaction to meet the immediate necessity was accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B. Hence, we find no question of law much less any substantial question of law arises for consideration in the above appeals. In the result, both the Tax Case (Appeals) stand dismissed. No costs. Consequently, M.P.No.1 of 2014 is also dismissed.
Service tax on Restaurants & Hotels; States alone have power to impose tax-Kerala HC
Division Bench of Kerala High Court struck down Service tax on Restaurants and Hotels, held that only States alone have power to impose tax
Union of India and Others Vs. Kerala Bar Hotels Association and Others [2014-TIOL-1913-HC-KERALA-ST]
The Hon'ble High Court of Kerala ("Kerala HC") in the case of Kerala Classified Hotels and Resorts Association and others Vs. Union of India and others [2013-TIOL-533-HC-KERALA-ST]held that levy of Service Tax on Restaurants and hotels is beyond legislative competence of Parliament. It was declared that sub-clauses (zzzzv) and (zzzzw) to Section 65(105) of the Finance Act, 1994 ("the Finance Act") as amended by the Finance Act, 2011 is beyond the legislative competence of the Parliament as the said sub-clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule. The Court also allowed refund of Service tax paid by the Petitioners in the stated case. Being aggrieved, the Department filed a Writ Appeal before the Division Bench of the Kerala HC.
The Department placed reliance on the subsequent decision of the Hon'ble High Court of Bombay ("Bombay HC") in the case of Indian Hotels and Restaurant Association and others Vs. Union of India and others [2014-TIOL-498-HC-MUM-ST]wherein the BombayHC gave contrary judgment denying the decision of the Kerala HC and upheld the constitutional validity of levy of Service tax on AC Bar Restaurants. It was held by the Bombay HC that:
- Service tax or tax on a service, which is made taxable by the Finance Act, is a completely distinct tax. It should not be and cannot be equated with a tax on sale or purchase of goods;
- The Parliament cannot be said to have transgressed upon the power of the State Legislature to impose a tax on sale or purchase of goods vide Entry 54 of List II. The taxing power of the Parliament and traceable to Article 248 of the Constitution of India read with Entry 97 of List I of the Seventh Schedule of the Constitution enable it to impose a Service tax.
Recently, the Division Bench of Kerala HC disposed of the Writ Appeal filed by the Department against the Single Judge'sOrder and emphatically endorsed the view of the Single Judge and distinguished the Bombay HC order.
The Division Bench of Kerala HC held as under:
Service Tax on restaurants under sub-clause (zzzzv) of Section 65(105) of the Finance Act:
- After the Constitution (46thAmendment), the Restaurant activity is deemed as sale of goods and it cannot be said that it is an activity of service. When the said activity is deemed to be a sale of the food and other articles of human consumption, by a constitutional definition, tax on the said activity can be imposed only by the States in view of Entry 54 in List II of the Seventh Schedule;
- Since the whole of the consideration received by a Restaurant owner for supply of food and other articles of the human consumption, including the service part of the transaction, is exigible to tax by the State by virtue of the constitutional definition, it is not open to the Union to characterise the same transaction as a service for imposition and levy of Service tax;
- Evidently, Section 65(105)(zzzzv) of the Finance Act is a matter enumerated in Entry 54 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter.
Service Tax on Hotel accommodation under sub-clause (zzzzw) of Section 65(105) of the Finance Act:
- The Constitution Bench of the Apex Court in Godfrey Philips India Ltd Vs. State of U.P. [2005-TIOL-10-SC-LT-CB], held that the word 'luxuries'in Entry 62 of List II means the activity of enjoyment of or indulgence in something which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society;
- It is not disputed that invoking Entry 62 of List II, the State legislature had enacted the Kerala Tax on Luxuries and as per the terms of the said statute, the State Government is levying tax on matters covered by Section 65(105)(zzzzw) of the Finance Act;
- Thus, the matter covered by Section 65(105)(zzzzv) of the Finance Act, is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter.
Accordingly, the Division Bench of the Kerala HC dismissed the Writ Appeal filed by the Department.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
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