Audit initiated against service recipient cannot be a ground to reject VCES declaration of Assessee
Ovieya Builders Vs. Commissioner of Customs, Central Excise & Service Tax (Appeals), Coimbatore [(2015) 53 taxmann.com 26 (Madras)]
Ovieya Builders (the Petitioner) was engaged in the activities of construction and had carried certain construction works for M/s. Shobika Impex Private Limited (SIPL). An audit was conducted to the accounts of SIPL and pursuant to the said audit, the Department sent a letter dated March 7, 2013 to the Petitioner stating that during the course of audit of accounts of SIPL, it revealed that the Petitioner has neither taken out Service tax registration nor paid Service tax on the services provided by the Petitioner. Therefore, the Petitioner was advised to take Service tax registration and follow all the statutory procedures to pay Service tax, along with interest.
Vide letter dated March 8, 2013, the Petitioner admitted its Service tax liability and agreed to pay tax at the earliest. However, the Petitioner faced certain difficulties in getting registration due to which Service tax could not be deposited.
Thereafter, the Department issued a Show Cause Notice dated July 31, 2013 to the Petitioner demanding Service tax along with interest. The Petitioner submitted an interim reply dated September 18, 2013 informing the Department about their willingness to opt for Voluntary Compliance Encouragement Scheme ("VCES"). On December 24, 2013, the Petitioner filed a declaration under VCES which was rejected by the Department on the ground that audit was initiated before March 1, 2013 and accordingly in terms of Section 106(2) of the Finance Act, 2013, the Petitioner is not eligible to avail the benefit of VCES.
Being aggrieved, the Petitioner filed a Writ Petition before the Hon'ble High Court of Madras arguing that no audit had been initiated against them and objection, if any, had been raised against them was only on March 7, 2013 and not prior to that.
The Hon'ble High Court of Madras after observing that there was no audit initiated/ conducted against the Petitioner or in business premises of the Petitioner, held that:
- Audit of service recipient, SIPL is not relevant and the Petitioner was never put to notice before March 1, 2013;
- Even otherwise, the letter dated March 7, 2013 was an intimation and was neither initiation of audit nor communication of audit objection;
- Even assuming that it was an intimation of audit objection, yet communication on March 7, 2013 was much after cut-off date.
Therefore, the Order rejecting VCES to the Petitioner was set aside and the matter was remanded back for fresh consideration.
C K P Mandal Vs. Commissioner of Service Tax, Mumbai-II [2015-TIOL-98-CESTAT-MUM] C K P Mandal (the Appellant) is a Charitable Trust. It has two halls which are given on hire for various functions. On hire charges, the Appellant was paying Service tax under the category of Mandap keeper. The Appellant also received donations from caterers and
Limitation period U/s. 11B of Excise Act not applies if Service tax was not payable under law
C K P Mandal Vs. Commissioner of Service Tax, Mumbai-II [2015-TIOL-98-CESTAT-MUM]
C K P Mandal (the Appellant) is a Charitable Trust. It has two halls which are given on hire for various functions. On hire charges, the Appellant was paying Service tax under the category of Mandap keeper. The Appellant also received donations from caterers and decorators for permitting them to use the halls. The Department asked the Appellant to pay Service tax on the amount of donations received.
However, after a few rounds of litigation up to the Hon'ble High Court, it was held that donations received by Appellant from caterers are not leviable to Service tax. Pursuant to the High Court order, the Appellant filed two refund claims out of which refund claim of Rs. 47,029/- was sanctioned and the other of Rs. 71,759/- was rejected on the ground of time barred.
On appeal being filed to the Commissioner (Appeals), rejection of the refund claim was upheld. Being aggrieved, the Appellant filed an appeal before the Hon'ble CESTAT, Mumbai submitting the following:
- In respect of the sanctioned refund, no interest has been paid till date;
- As regards the refund which was held time barred, the Appellant requested for a copy of the Assessment Order in respect of the tax which they were persuaded to pay;
- The Hon'ble High Court of Karnataka in the case of Commissioner of Central Excise (Appeals), Bangalore vs. KVR Construction [2010-TIOL-89-HC-KAR-ST] has held that the limitation period under Section 11B of the Central Excise Act, 1944 ("the Excise Act") will not apply where Service tax is not payable under law.
As regards the refund of Rs. 47,029/- already sanctioned under Section 11B of the Excise Act, the Hon'ble CESTAT, Mumbai ordered interest to be paid under Section 11BB thereof. Further, as regards the refund rejected on the ground of being time barred, the Hon'ble Tribunal held as under:
- The Appellant requested for a copy of the Assessment Order in respect of the tax which they were persuaded to pay. Had they received the Assessment Order, they would have applied for refund within the limitation period under Section 11B of the Excise Act, as made applicable to Service tax vide Section 83 of the Finance Act, 1994;
- It has been held in various judgements that the time bar under Section 11B of the Excise Act will apply only if the demand has been made or paid as duty under the law;
- In the present case no such demand was made under law. Rather the tax which was collected was not payable in law and the Appellant was persuaded to pay the amount.
Therefore, the Appellant was held to be entitled to refund along with appropriate interest payable under law.
In this case, the ITAT ruled that extended credit period allowed to the Associated Enterprises ('AE') amounted to short term funding without interest and thus attracted TP adjustment on account of notional interest from such short term funding. TPO made adjustment considering interest rate @18.816% but DRP reduced it to 7%.
Full Judgments already been sent earlier.
Extended credit period to AE attracts TP adjustment
M/s Goldstar Jewellery Limited (ITAT Mumbai), Appeal No. 6570 of 2012 , Date of pronouncement- 14.01.2015
Context: The amendment made by Finance Act 2012 ('FA 2012′) by way of explanation to Sec. 92B w.r.e.f. 1 April 2002 included many transactions in the definition of international transaction for Transfer Pricing ('TP') purpose. In this case, the ITAT ruled that extended credit period allowed to the Associated Enterprises ('AE') amounted to short term funding without interest and thus attracted TP adjustment on account of notional interest from such short term funding. TPO made adjustment considering interest rate @18.816% but DRP reduced it to 7%.
In this case, the average collection period from different debtors of assessee was as under:
| Particulars | Non AE | AE | Delay in AE |
| Manufacturing of Jewellery | 125 days | 351 days | 226 days |
| Diamond Trading | 209 days | 332 days | 123 days |
Contentions of assessee
ñ Continuing debit balance or amount outstanding from the AE on account of delayed realization does not amount to an international transaction. Export is the only international transaction.
ñ Mercantile system of accounting followed thus immediate payment from debtor is not mandatory.
ñ As per company's policy, no interest is charged from debtors (either AE or Non-AE) on late payment.
ñ In the case of Nimbus Communications Ltd., Mumbai ITAT held in favour of assessee even though payment was received late from AE based in US due to bad economic conditions in US market.
ñ Interest income is associated only with the lending or borrowing of money and not in case of sale. [CIT Vs. Indo American Jewellery Ltd.(2014)]
ñ Only 18% sales to AE and rest 82% to Non AE, therefore no such benefit to AE.
ñ In any case, Arm's length interest should not exceed cost of capital of assessee.
Contentions of department
ñ Finance Act 2012 included capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business [expl. (i)(c)]
ñ Assessee took loan from financial institution on which it paid interest whereas no interest is charged from AE/Non AE for late payment.
ñ Deferred payment/receivable is covered by amendment made by FA 2012. Also confirmed in Logix Micro Systems Ltd Vs. ACIT.
ñ After retrospective amendment by FA 2012, case law of Nimbus Communications Ltd. and Indo American Jewellery Ltd. are irrelevant.
ñ As per agreement with AE, credit period is allowed only for 150 days. Inspite of that, TPO allowed 180 days as credit period for adjustment.
The ITAT, while upholding the view of the department, held as under:
ñ Extended credit period is covered by the amendment and thus it is an international transaction.
ñ Credit period allowed also depends upon price charged by assessee from buyer.
ñ Granting extended credit period is not an independent transaction but closely linked with international transaction being sale to AE. It cannot be treated as a transaction stand alone without considering main transaction of sale.
ñ Rule 10A(d) allows the aggregate and clubbing of closely linked transaction. The same is also supported by OECD guidelines.
ñ Lending rates should not be used for determining ALP as this is not a transaction of loan or advance to the AE but it is only an excess period allowed. Thus, arm's length interest should be the average cost of total fund available to the assessee.
Author's view: After insertion of explanation by FA 2012, any type of advance, payments or deferred payment or receivable is covered by 'International Transaction'. All assessees dealing with AE should be attentive w.r.t credit period allowed as per agreement and actual credit period.
Applications are invited from the tax lawyers of substantial standing and repute and with good academic credentials for the empanelment of Senior and Junior Standing Counsels for representing tax matters of the Income Tax Department in the High Court of Delhi and other fora.
Notice for Empanelment of Standing Counsels with Income Tax Department
Posted by CA Sandeep Kanoi
OFFICE OF THE
COMMISSIONER OF INCOME TAX (JUDICIAL)
ROOM NO. 162A, C.R.BUILDING, NEW DELHI-110002
TELEPHONE : 23705781
F. No. CIT(Judicial)/Empanel. of Counsels/2015/2014-15/1459 Dated : 21.01.2015
NOTICE FOR EMPANELMENT OF STANDING COUNSELS
Applications are invited from the tax lawyers of substantial standing and repute and with good academic credentials for the empanelment of Senior and Junior Standing Counsels for representing tax matters of the Income Tax Department in the High Court of Delhi and other fora.
2. The procedure of engagement, eligibility, the terms of engagement, fees payable etc and proforma Al & A2 as per Instruction No. 3 of 2012 dated 11.04.2012 of the CBDT can be accessed at http://www.incometaxindia.gov.in
3. The applications should be submitted in proforma A1 or A2 (as applicable) of Annexure-I to Instruction No. 3 of 2012 through Regd. Post or by hand addressed to Shri Hari Bhushan, Income Tax Officer (Judicial)-2 in Room No. 190. C R Building, I P Estate, New Delhi. All the documentary proofs as per Instruction No. 3/2012 should be submitted alongwith the application. The Standing Counsels who have either resigned earlier or whose empanelment has been terminated by this office for the reason of non-reporting to work or for any other reason, cannot apply. Canvassing in any form shall constitute a disqualification.
4. The existing Sr. Standing Counsels and Jr. Standing Counsels who wish to be empanelled for the term beyond 17.10 2015 also need to apply.
5. For the purpose of Para 2 of Annexure-I to Instruction No. 3/2012 of CBDT, the cutoff date for eligibility will be 01.01.2015.
6. The applications received earlier to this advertisement or received through any other channel or received after the due date are liable to be rejected. Applications, deficient in any respect, shall also be summarily rejected. For further clarification and information, please contact Shri Hari Bhushan, Income Tax Officer (Judicial)-2, New Delhi at Tel No. 23705781.
7. The last date for receipt of the applications is 09-02-2015 upto 5.00 PM.
8. A copy of this Notice is also available at the Department's website i.e. http://www.incometaxindia.gov.in/
( Vivek Kumar)
Addl. Commissioner of Income Tax
(Judicial), New Delhi.
We have been receiving queries whether remittance of salary outside India can be affected for employees on deputation to a group company in India and for employees of Limited Liability Partnership.
PFA
Banks should provide a clear, concise, one page key fact statement/fact sheet, as per prescribed format in Annex, to all individual borrowers at every stage of the loan processing as well as in case of any change in any terms and conditions. The same may also be included as a summary box to be displayed in the credit agreement.
pFA
A new scheme called 'Depository Receipts Scheme, 2014' (DR Scheme, 2014) for investments under ADR/GDR have been notified by the Central Government effective from December 15, 2014 which provides for repeal of extant guidelines for Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 except to the extent relating to foreign currency convertible bonds.
Salient features of 'Depository Receipts Scheme, 2014'
RBI/2014-15/421
A.P. (DIR Series) Circular No. 61
A.P. (DIR Series) Circular No. 61
January 22, 2015
To
All Category – I Authorised Dealer Banks
Madam / Sir,
Depository Receipts Scheme
Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (the Principal Regulations) notified by the Reserve Bank vide Notification No. FEMA. 20/2000-RB dated 3rd May 2000, as amended from time to time.
2. A new scheme called 'Depository Receipts Scheme, 2014' (DR Scheme, 2014) for investments under ADR/GDR have been notified by the Central Government effective from December 15, 2014 which provides for repeal of extant guidelines for Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 except to the extent relating to foreign currency convertible bonds.
- The salient features of the new scheme are:
- The securities in which a person resident outside India is allowed to invest under Schedule 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA. 20/2000-RB dated 3rd May 2000 shall be eligible securities for issue of Depository Receipts in terms of DR Scheme 2014;
- A person will be eligible to issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts as provided in DR Scheme 2014.
- The aggregate of eligible securities which may be issued or transferred to foreign depositories, along with eligible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible securities under the extant FEMA regulations, as amended from time to time.
- The eligible securities shall not be issued to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue of such securities to domestic investors under FEMA, 1999.
- It is to be noted that if the issuance of the depository receipts adds to the capital of a company, the issue of shares and utilisation of the proceeds shall have to comply with the relevant conditions laid down in the Regulations framed and Directions issued under FEMA, 1999.
- The domestic custodian shall report the issue/transfer of sponsored/unsponsored depository receipts as per DR Scheme 2014 in 'Form DRR' as given in Annex within 30 days of close of the issue/ program.
- AD Category – I banks may bring the contents of the circular to the notice of their customers/constituents concerned.
- Reserve Bank has since amended the Principal Regulations through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014 notified vide Notification No. FEMA.330/2014-RB dated December 15, 2014, c.f. G.S.R. No. 914(E) dated December 24, 2014.
- The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully
(B.P. Kanungo)
Principal Chief General Manager
Principal Chief General Manager
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