Finance Ministry - Report of Parthasarathi Shome Commitee on Tax Related Issues and Tax Related Disputes

Dated: 17-December, 2013

  

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 by31/12/2013.

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 by15/01/2014.

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.

CDBT Extends Due Date for Advance Tax to December 17

F. No.385/8/2013-IT(B)

Government of India

Ministry of Finance

Department of Revenue

 

Central Board of Direct Taxes

North Block, IT-Budget Division New Delhi,

 

Dated: 13.12.2013

 

Order under Section 119(2)(a) of the Income-tax Act 1961

 

In exercise of power conferred under sec 119(2)(a) of the Income-tax Act, 1961, the Central Board of Direct Taxes has decided to extend the last date of payment of the December Quarter Installment of Advance Tax for the Financial year 2013-14, from 15th December 2013 to 17th December 2013 for all the assessees, Corporate and other than Corporates.

Service tax Return filing Due date extended to 10th September 2013

F.No.137/99/2011-Service Tax

Government of India

Ministry of Finance 

Department of Revenue 

Central Board of Excise & Customs

New Delhi, 

dated the 30th August, 2013 

 Order No: 4/2013-Service Tax 

In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the Form ST-3 for the period from 1st October 2012 to 31st March 2013, from 31st August, 2013 to 10th September, 2013. 

The circumstances of a special nature, which have given rise to this extension of time, are as follows:

" Difficulties have been faced by assessees in uploading the offline utilities". 

 Himani Bhayana 

 Under Secretary (Service Tax) 

 Central Board of Excise and Customs

Due date for filing IT Return Extended to 5th August

Press Release: Ministry of Finance

31-July, 2013

 

As a Measure of Taxpayers Convenience, Last Date of Filing of Returns Extended to 5th August, 2013

 

There is an unprecedented surge in number of returns being e-filed during this year. 92.03 lakh returns have been e-filed up to 30th July, 2013 which is 46.8 % higher than the returns e-filed during the corresponding period of the last fiscal year.

 

Due to large number of taxpayers accessing e-filing website on due date of filing, some cases of taxpayers not being able to access the e-filing portal have been reported. These problems are primarily due to network constrains of the local internet service providers (ISPs).

 

However, as a measure of taxpayers convenience, it has been decided to extend the due date of filing of returns from 31st July, 2013 to 5th August, 2013.

 

Taxpayers are requested to avail of this extension of time and file their returns after paying due taxes.

 

DSM/RS/ka

(Release ID :97495)

 

Foreign acquisitions can't be taxed locally, rules tribunal

A recent ruling by the Hyderabad income tax tribunal regarding taxation norms of Indian companies investing in their foreign counterparts has come as a big boost to India Inc's arguements. The corporate world has been trying to prove a point, debating, that transfer pricing rulesare not applicable to transactions that don't lead to a rise in income.

A host of Indian companies led by the Tatas and Birla-owned Hindalco are facing transfer pricing-based tax demand for giving loan guarantees to their foreign subsidiaries for acquisitions abroad and investments in foreign arms. Besides, many international companies like Shell are also fighting the department’s argument that shares issued by local subsidiaries at a lower valuation should be tax in India.

The ITAT order dated May 31st this year was in the case of Vijay Electricals which was slapped with a tax demand notice by the tax authorities for investing Rs 21 crore in its three subsidiaries overseas. The tax department called the investments as an “international transaction.”

Tax lawyers say this ruling assumes significance in view of the recent controversy following tax department’s action in applying transfer pricing in several cases to issue of fresh shares by Indian subsidiaries to their overseas parents and seeking to tax the differential amount and/or notional interest thereon in the hands of the company issuing the shares.  

“The tribunal has reaffirmed an important principle that only transactions which give rise to some income are subject to transfer pricing provisions.  If this principle is followed, transfer pricing should not apply to a fresh issue of shares to an associated enterprises, as no income arises from such an issue of shares,” according to tax advisory firm, BMR Advisor’s communication to its clients.

During the hearing before the tribunal, the company argued that as the investment made in a foreign subsidiary is not an international transaction as per section 92B of the Act and, thus, there was no requirement of filing a separate report to the department.  Besides, the company said, the transaction was not one of sale involving computation of income and giving rise to an international transaction contemplated under the Income Tax Act.

It further argued the transfer pricing provisions are applicable only when there is income chargeable to tax arising from the transaction, which was not the case for the taxpayer. The Tribunal agreed with the company and asked the tax authorities to withdraw the tax demand.

But lawyers say the Indian companies need not rejoice now as the tax department is expected to file a petition against the ITAT order in the high court.

Source: Business Standard

COST INFLATION INDEX FOR FINANCIAL YEAR 2013-14 IS 939

COST INFLATION INDEX FOR FINANCIAL YEAR 2013-14

NOTIFICATION NO. 40/2013 [F. NO. 142/7/2013-TPL]/SO 1464(E), DATED 6-6-2013

In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, number S.O. 709 (E), dated the 20th August, 1998, namely:—

In the said notification, in the Table, after serial number 32 and the entries relating thereto, the following serial number and entries shall be inserted, namely :-

 

Sl. No.	Financial Year	Cost Inflation Index
(1)	(2)	(3)
"33	2013-14	939"

 

Due date for filing Service Tax Return for the 2nd half year of FY 2012-13 notified

Govt has notified the due date for filing service tax return for the second half year of 2012-13 as 31st August 2013. The notification is given below:

F.No.137/99/2011-Service Tax

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

New Delhi, dated the 23rd April, 2013

Order No: 03/2013-Service Tax

             In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the  Form ST-3, for the period from 1st October 2012 to 31st March 2013, from 25th April, 2013 to  31st August, 2013.

            The circumstances of a special nature, which have given rise to this extension of time, are as follows: 

      “The Form ST-3, for the period from 1st October 2012 to 31st March 2013, is expected to be available on ACES around 31st of July, 2013”.

Himani Bhayana

Under Secretary (Service Tax)

Central Board of Excise and Customs

Tax returns must report assets from FY13 as govt closes in on rich evaders

People sitting on huge assets but paying little income tax may have reason to worry. In an ambitious bid to counter tax evasion, the government has decided to introduce a new income tax return form effective financial year 2012-13, that will require individuals to disclose all their assets and liabilities, rather than just annual income from various sources. The new return, therefore, will be a comprehensive balance sheet of assets and liabilities, disclosing ownership of houses, jewellery, urban land, motor cars and other personal effects such as yachts and aircraft, along with outstanding debt.

The idea is to extend the scope of tax return to include information that is in the domain of wealth tax — a levy that has poor compliance history in the country. The department wants to zero in on individuals, mainly traders and businessmen, who disclose modest income, but own fancy SUVs, houses at posh locations and other assets that clearly do not agree with the reported income. Rich farmers who don’t report taxable income, other than agriculture income might escape the new reporting norm also, as farm income is not taxable, analysts say.

At present, the requirement for individuals and Hindu Undivided Families to pay a wealth tax of 1% on ‘net wealth’ (total assets minus debt) above Rs. 30 lakh and file wealth tax returns is not strictly complied with. The country reported a wealth tax collection of just Rs. 866 crore in 2012-13, way below the budget estimate of Rs.1,244 crore, itself a shadow of what independent analysts have estimated this tax’s potential to be.

Tax experts say there are many assessees who disclose a modest income, but have substantially high unreported or indirectly held net wealth, the funding source of which will have to be explained once the proposed changes in the IT return comes into force. Compliance in IT return filing has been much more than in wealth tax return filings, making the short-staffed revenue department tap the new format for gathering information on assets.

Suppose an assessee declares only one house in a particular year and shows two in the next, the department could ask him to explain the source of income for the second house, explained Sunil Shah, direct taxes partner, Deloitte. “It will not be infeasible for the department to call for such information as it would readily be available with assessees. It would help the department in the assessment process,” said Shah.

Individuals who stay in their own house, the value of which may have gone up in the recent real estate boom, will not necessarily have to report its current market value as they have the option to declare the value of the house applicable in the year they came to own it. Schedule three of the Wealth Tax Act gives guidance on valuation of assets.

Reporting of assets in the IT return will, however, help the department in profiling an assessee accurately and ask relevant questions if his or her assets are disproportionate to the known sources of income, said Amit Maheshwari, partner, Ashok Maheshwary & Associates. “It could also form the basis for seeking an explanation on why wealth tax return has not been filed in case the net assets are more than the threshold limit. This is another measure aimed to check tax evasion and boost tax collections,” said Maheshwari.

The move is in line with the revenue department’s recent combing of large credit card transactions, investments in mutual funds and bonds and cases of very high spending to question certain individuals’ apparently understated income. Last year, the government had made it compulsory for tax payers to disclose all their overseas assets in the IT return. With revenue buoyancy being hit by the economic slowdown, exploring all avenues to expand the taxpayer base is critical to increase tax inflows.

The requirement of reporting assets in the IT return will put pressure on assessees to declare an income that agrees with his or her assets, explained Prashant Khatore, tax partner, Ernst & Young.

(Source: http://www.financialexpress.com/news/tax-returns-must-report-assets-from-fy13-as-govt-closes-in-on-rich-evaders/1109481/1)

Time limit for filing Service tax returns extended again!

CBEC extends the last date of filing of ST 3 return for the period July-September, 2012 from 15th to 30th April, 2013. For CBEC's Order No 2/2013-ServiceTax dated 12-4-2013

 

F.No.l37/99/2011-ServiceTax

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

New Delhi,

 

Dated the 12th April 2013

 

ORDER

 

NO: 2/2013-Service Tax

 

In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the Form ST-3 for the period from 1st July 2012 to 30th September 2012, from 15th April, 2013 to 30th April, 2013.

 

The circumstances of a special nature, which have given rise to this extension of time, are as follows:

 

"Assessees have represented about difficulties in filing returns. While this aspect is being attended to, there should not be any delay and inconvenience to the assessees."

 

Himani Bhayana

Under Secretary (Service Tax)

Central Board of Excise and Customs

Budget 2013: Decoding key concepts and jargon from FM's speech - The Economic Times

Budget 2013: Decoding key concepts and jargon from FM's speech - The Economic Times:

'via Blog this'