Legislation UpdatesNotificationsTaxation

With a view to bringing greater transparency in the functioning of the tax-administration and improvement in service delivery, almost all notices and orders of Income Tax Department are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (CBDT) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as “communication”) were found to have been issued manually, without maintaining a proper audit trail of such communication.

In order to prevent such instances and to maintain proper audit trail of all communication, the CBDT has, vide Circular No.19/2019 dated 14.08.2019 laid down parameters specifying the manner in which any communication issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person will be dealt with. All such communication issued on or after the 1st of October, 2019 shall carry a computer-generated Document Identification Number (DIN) duly quoted in the body of such communication.

CBDT has also specified exceptional circumstances where the communication may be issued manually but only after recording reasons in writing and with the prior written approval of the Chief Commissioner / Director General of Income-Tax concerned. In cases where manual communication is required to be issued, the reason for the issue of manual communication without DIN has to be specified alongwith the date of obtaining written approval of the Chief Commissioner / Director General of Income-Tax in a particular format. Any communication which is not in conformity with the prescribed guidelines shall be treated as invalid and shall be deemed to have never been issued. Further, CBDT has also laid down the timelines and procedure by which such communication issued manually will have to be regularised and intimated to the Principal Director General of Income-tax (Systems).

            In addition to the above, in all pending assessment proceedings, where notices were issued manually, prior to issuance of the above referred Circular, all such cases would be identified and the notices so sent would be uploaded on ITBA by 31st October, 2019.


[Source: PIB]

Press Release dt. 14-08-2019

Ministry of Finance

Case BriefsHigh Courts

Kerala High Court: Raja Vijayaraghavan V, J. allowed a civil writ petition filed by a company and directed release of its vehicles and goods that had been detained by the tax officer due to the expiry of its e-way bills.

Petitioner herein was a logistics company which was involved in the transportation of Maruti cars. Petitioner’s vehicle was obstructed, and on inspection, it was found that the validity of the e-way bills had expired. Hence, both – the vehicle and the goods – were detained. This had led to the filing of this writ petition seeking a certiorari quashing of notice issued under Section 129 of Goods and Services Tax Act, 2017 whereby his goods were seized; and sought a writ of mandamus directing the 1st respondent to release the goods by accepting a penalty of Rs 500.

The Court relied on the earlier judgment of a Division Bench  in Renji Lal Damodaran v. State Tax Officer (Order dated 06-08-2018 in WA No. 1640 of 2018) in which it was directed to release the goods of the appellant furnishing bank guarantee for tax and penalty found due and a bond for the value of goods in the form as prescribed under Rule 140(1) of the Central Goods and Services Tax Rules, 2017. So, applying the ratio of that judgment, the Court directed the respondent authorities to release the petitioner’s goods and vehicle on the execution of a bank guarantee for tax and penalty found due, and a bond for the value of goods in the form as prescribed under Rule 140(1) of the CGST Rules.

This petition was disposed of in the above terms.[OSL Logistics Private Ltd. v. Assistant State Tax Officer, 2019 SCC OnLine Ker 1554, decided on 14-05-2019]

Legislation UpdatesNotifications

Various representations have been received seeking clarification on issues raised with respect to tax treatment of sales promotion schemes under GST. To ensure uniformity in the implementation of the law across the field formations, the Board, in exercise of its powers conferred under Section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the said Act”) hereby clarifies the issues.

Some of the promotional schemes have been examined and clarification on the aspects of taxability, valuation, availability or otherwise of Input Tax Credit in the hands of the supplier (hereinafter referred to as the “ITC”) in relation to the said schemes are detailed hereunder:

A. Free samples and gifts:

(i) It is a common practice among certain sections of trade and industry, such as, pharmaceutical companies which often provide drug samples to their stockists, dealers, medical practitioners, etc. without charging any consideration. As per sub-clause (a) of sub-section (1) of Section 7 of the said Act, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Therefore, the goods or services or both which are supplied free of cost (without any consideration) shall not be treated as “supply” under GST (except in case of activities mentioned in Schedule I of the said Act). Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as „supply? under GST, except where the activity falls within the ambit of Schedule I of the said Act.

(ii) Further, clause (h) of sub-section (5) of Section 17 of the said Act provides that ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of “supply” on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

B. Buy one get one free offer:

(i) Sometimes, companies announce offers like ‘Buy One, Get One free’ For example, “buy one soap and get one soap free” or “Get one tooth brush free along with the purchase of tooth paste”. As per sub-clause (a) of sub-section (1) of Section 7 of the said Act, the goods or services which are supplied free of cost (without any consideration) shall not be treated as “supply? under GST (except in case of activities mentioned in Schedule I of the said Act). It may appear at first glance that in case of offers like “Buy One, Get One Free”, one item is being “supplied free of cost” without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.

(ii) Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of Section 8 of the said Act.

(iii) It is also clarified that ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.

C. Discounts including ‘Buy more, save more’ offers:

(i) Sometimes, the supplier offers staggered discount to his customers (increase in discount rate with an increase in purchase volume). For example- Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10,000/- and 30% discount for purchases above Rs. 20,000/-. Such discounts are shown on the invoice itself.

(ii) Some suppliers also offer periodic / year ending discounts to their stockists, etc. For example- Get an additional discount of 1% if you purchase 10000 pieces in a year, get additional discount of 2% if you purchase 15000 pieces in a year. Such discounts are established in terms of an agreement entered into at or before the time of supply though not shown on the invoice as the actual quantum of such discounts gets determined after the supply has been effected and generally at the year-end. In commercial parlance, such discounts are colloquially referred to as “volume discounts”. Such discounts are passed on by the supplier through credit notes.

(iii) It is clarified that discounts offered by the suppliers to customers (including staggered discount under “Buy more, save more? scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of Section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier.

(iv) It is further clarified that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts.

D. Secondary Discounts:

(i) These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, A supplies 10000 packets of biscuits to B at Rs 10 per packet. Afterwards, A re-values it at Rs 9 per packet. Subsequently, A issues credit note to B for Rs 1 per packet.

(ii) Provisions of sub-section (1) of Section 34 of the said Act provides as under:

“Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.”

(iii) Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of Section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of Section 15 of the said Act are not satisfied. It is hereby clarified that financial/commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of Section 15 of the said Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties.

(iv) It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of Section 15 of the said Act are not satisfied.

(v) In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of Section 15 of the said Act are satisfied.

(vi) There is no impact on availability or otherwise of ITC in the hands of the supplier in this case.

[Circular No. 92/11/2019-GST]

Ministry of Finance

Legislation UpdatesNotifications

Ministry of Finance has enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.  Shri Santosh Kumar Gangwar, Minister of State for Labour and Employment has expressed hope that this would benefit those employees of PSUs and other employees not covered by Payment of Gratuity Act, 1972 and has thanked the Finance Minister for enhancing the exemption limit.

The ceiling of Gratuity amount under the Payment of Gratuity Act, 1972 has been raised from time to time keeping in view over-all economic condition and employers capacity to pay and the salaries of the employees, which have been increased in private sector and in PSUs.  The latest such enhancement of ceiling of gratuity was made vide Government of India Notification dated 29-03-2018 under which the gratuity amount ceiling has been increased from Rs 10 lakhs to 20 lakhs w.e.f. 29-03-2018.

Ministry of Labour & Employment

Case BriefsTribunals/Commissions/Regulatory Bodies

National Anti-Profiteering Authority (NAA): The Coram of B.N. Sharma (Chairman), and J.C. Chauhan and R. Bhagyadevi (Technical Members) dismissed an application filed by Kerala State Screening Committee for being devoid of merit.

Respondent’s case was referred to the Standing committee on Anti-Profiteering (Standing Committee) by Kerala State Screening Committee alleging profiteering on the supply of trousers. It was alleged that respondent had indulged in profiteering in contravention of Section 171 of Central Goods and Services Tax Act, 2017 (CGST) by not passing on benefits of reduction in tax post implementation of the Goods and Services Tax. In this regard, the applicant placed reliance on two invoices issued by the respondent – invoice dated 29-04-2017 (pre-GST) and invoice dated 12-09-2017 (post-GST).

The Standing Committee, after examining the case, referred it to Directorate General of Anti-Profiteering (DGAP) for detailed investigations under Rule 129 (1) of CGST Rules, 2017. DGAP’s report stated that being exempt from central excise duty, ‘trousers’ only attracted fixed GST of 5 percent. Further, the rate of tax and base price of the product had remained the same in the pre-GST and post-GST period.

The Authority held that, on the basis of evidence on record, there was neither reduction in the rate of tax nor increase in per unit base price of the product. Hence, anti-profiteering provisions of Section 171 of the CGST Act were not attracted. In view thereof, the application was dismissed.[Kerala State Screening Committee v. Emke Silks & Garments (P) Ltd., 2019 SCC OnLine NAA 7, Order dated 11-02-2019]

NewsTreaties/Conventions/International Agreements

The Government of Republic of India and the Government of His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam signed an Agreement for the Exchange of Information and Assistance in Collection with respect to Taxes (TIEA) here today in New Delhi. The Agreement was signed by Mr. Pramod Chandra Mody, Chairman, Central Board of Direct Taxes (CBDT) on behalf of India and Dato Paduka Haji Sidek Ali, High Commissioner of Brunei Darussalam to India on behalf of Brunei Darussalam.

The Agreement enables the exchange of information, including banking and ownership information between the two countries for tax purposes. It is based on international standards of tax transparency and exchange of information and enables sharing of information on request as well as an automatic basis. The Agreement also provides for mutual assistance in collection of tax revenue claims between both countries.

The Agreement will enhance mutual co-operation between India and Brunei Darussalam by providing an effective framework for the exchange of information in tax matters which will help curb tax evasion and tax avoidance.

[Press Release dt. 28-02-2019]

Ministry of Finance

Conference/Seminars/LecturesLaw School News

Introduction: The Insolvency and Bankruptcy Code though provides for faster and definitive resolution to deal with distressed or failed businesses compare to erstwhile Sick Industrial and Companies Act, 1985 and the Companies Act, 1956 (now stands repealed), it does not address potential tax issues that may arise as a result of resolution plan*. (Rekha Bagry, Neelu Jalan, ‘Insolvency and the Tax Conundrum’, Tax Guru)  In other words, the transactions undertaken as a part of the resolution process under Insolvency and Bankruptcy Code, 2016 could result in taxes, and it may derange the deal financials, thus making the resolution process less efficient and effective. (Vishal Agarwal, Yashesh Asher, Sohail Manjiramani, ‘The Insolvency Code: Will Tax be a Problem’).

To know and understand these intricacies and bring ease to business, Symbiosis Law School, NOIDA in collaboration with Vaish Associates Advocates has organised Seminar on Insolvency and Bankruptcy Code, 2016 and Tax Implications upon Insolvency on July 28, 2018.

Resource Person: Ms. Kavita Jha, Partner, Vaish Associates, Advocates

Ms. Kavita Jha is a senior member of the Tax Group and has and has been associated with the Firm since 2003 when she moved her practice from the High Court of Calcutta to the High Court of Delhi. She has also been an Advocate-on-Record in the Supreme Court of India since June 2007 and specializes in tax litigation: income tax, VAT and sales tax as well as criminal law and arbitration.

Ms. Kavita has been an empanelled Advocate before the Supreme Court for the Union of India, the State of Maharashtra and other government agencies, in which capacity she has handled a multitude of tax, civil and criminal matters. She has also handled arbitration matters for various joint ventures and domestic companies in the energy and infrastructure sectors. She has also successfully facilitated dispute resolution through conciliation for other clients. Ms. Jha has also been appointed as Sole Arbitrator by Justice Dr. S. Muralidhar of the Delhi High Court in a dispute arising out of a property development agreement.

Ms. Kavita has participated in various legal seminars, workshops/seminars, conferences and lectures of national and inter-national repute on, inter alia, International Tax – International Fiscal Association, Arbitration and Alternate Dispute Resolution, Adoption law, Muslim Personal Law and Refugee Law. She has also been visiting Faculty in IMT, Ghaziabad for Corporate and Business Law in Calcutta and Delhi as well as honorary visiting Faculty in Symbiosis Law School, NOIDA.

Date & Time July 28, 2018: 09:00am – 12:00 noon

Venue: Seminar Hall, Third Floor, Academic Block, Symbiosis Law School, NOIDA

Contact Persons:

Dr. Meenakshi Kaul, Assistant Professor & Head, Training & Placement

Mr. Siddharth Kanojia, Assistant Professor & Head – Placement, Training and Placement

Ms. Pallavi Mishra, Assistant Professor & Head – Internship, Training and Placement

Email: hr@symlaw.edu.in

Business NewsNews

Historic tax reform, the Goods and Service Tax (GST), has resulted in formalization of economy and consequently information flow would eventually augment not only the Indirect Tax collections but also Direct Tax collections. In the past, the Centre had little data on small manufacturers and consumption because the excise was imposed only at the manufacturing stage while the States had little data on the activities of local firms outside their borders. Under the GST, there will be now seamless flow of availability of common set of data to both the Centre and the States making Direct and Indirect Tax collections more effective.

There are early signs of tax base expansion. Between June and July 2017, 6.6 lakh new agents, previously outside the tax net, sought GST registration. This is expected to rise consistently as the incentives for formalization increase. Entire Textile chain is now brought under tax net. Further, a segment of land and real estate transactions has also been brought into tax net “works contracts”, referring to housing that is being built. This in turn would allow for greater transparency and formalization of cement, steel and other sales which earlier tended to be outside the tax net. The formalization will occur because builder will need documentation of these input purchases to claim tax credit.

The introduction of GST, a common Indirect Tax for both the States as well as the Central Government with its end to end digitization of all processes, is the biggest reform measure which is already creating more jobs in formal sector and eliminating transactions which are not recorded earlier in the books of accounts and thus, were outside the tax net so far. GST is designed to bring about better tax compliance and transparency in tax system. It is putting a premium on honesty. It would make increasingly difficult for those (who are liable to pay tax) to remain outside the tax net.

A number of procedural changes have also been made since the roll-out of GST on 1st July, 2017 in order to simplify the processes. An extensive exercise was undertaken for tax payers education and facilitation by way of knowledge sharing, dissemination of information and replies to FAQs among others. Further, steps are also being undertaken for further simplification in order to facilitate the tax payers and to extend benefit to the customers.

Ministry of Finance

NewsTreaties/Conventions/International Agreements

A Protocol was signed to amend the existing Double Taxation Avoidance Agreement (DTAA) between India and Kuwait for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income. The said Protocol was entered into on 26-03-2018 and notified in the Official Gazette on 04-05-2018.

The Protocol updates the provisions in the DTAA for exchange of information as per international standards. Furthermore, it enables sharing of information received from Kuwait for tax purposes with other law enforcement agencies with authorisation of the competent authority of Kuwait and vice versa.

[Press Release no. 1531499]

Ministry of Finance

Case BriefsSupreme CourtTaxation

Supreme Court: Deciding on the issue that whether the State Government may deny the tax exemption which was promised earlier, the bench comprising of Dr. A.K Sikri and R. F. Nariman, JJ., was of the view that the non-exercise of the power to give exemption in certain taxes is in itself an arbitrary act. The Court also, while considering the principle of promissory estoppel, observed that promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved and it is enough that a party has acted upon the representation made.

A Government Order dated 11.07.1986 was issued by the State of Kerala, stating that tourism be declared “industry” and exemption from Building Tax levied by the Revenue Department was one of the concessions granted. The power to make exemption was granted by adding Section 3A to the Kerala Buildings Act, 1975, however the same was omitted in 1993.  In the present case, the appellants relying on a government order, constructed a hotel building in the year 1991 while reasonably assuming the rightful entitled tax exemption and the government had the statutory power to grant exemption from building tax. A discretionary power was to be exercised on facts under Section 3A of the Kerala Buildings Tax Act, 1975 as the said provision was in force at that time. The non issuance of such of a notification was an arbitrary act of government which must be remedied by applying the doctrine of promissory estoppel. The Court further held that no valid public interest exist which justifies the government’s resilience from its promise. The appellants are therefore entitled to exemption till the date of existence of such exemption provision in the statute and not thereafter. (Manuelsons Hotel v. State of Kerala, 2016 SCC OnLine SC 487, decided on 11.05.2016).

Case BriefsHigh Courts

Bombay High Court: Hearing an anticipatory bail application, a bench comprising of AB Chaudhary, J observed that to eradicate the cancer of corruption, taxpayers may resort to refuse to pay taxes by ‘non­ -cooperation movement’. The Court made these observations in a case relating to misappropriation and embezzlement of Rs. 385 crore meant for uplift of the ‘‘Matang’ community.

Terming corruption a ‘hydra headed monster’, the Court remarked  that it is high time the citizens  come together to tell their Governments that they have had enough. The Court asked how this huge amount of Rs. 385 crore will come back and further observed that for the last  two decades, corruption has become the order of the day and sordid state of affairs; whereas the taxpayers’ are merely looking at this grim situation. The Court asked whether the taxpayers pay the money to the Government for such kind of acrobatics being played.

The single bench further opined that  was surprising that the Unions of Central or State Government employees, whether politically affiliated or otherwise, make demonstrations for demanding  the application of VII Pay Commission, but they do not condemn, outcast or demonstrate against their counterpart bureaucracy indulging in corruption. On the contrary, they provide support. The Court finally dismissed the anticipatory bail application of the applicant. [Pralhad  vs. State of Maharashtra, 2016 SCC OnLine Bom 115, decided on 27-01-2016]

Case BriefsSupreme Court

Supreme Court: While considering the present issue that whether the pre-printed, non- transferrable vouchers printed by the name Sodexo Meal vouchers, can be levied with Local body tax (LBT), the division bench of A.K. Sikri and R.F. Nariman, JJ., setting aside the judgment of the Bombay High Court, held that the business that Sodexo Meal Vouchers are not ‘goods’ within the meaning of Section 2(25) of the Maharashtra Municipal Corporation Act, 1949 and, therefore, not liable for either Octroi or LBT.

The counsel for the appellant Jay Savla was vociferous in his submission that the vouchers were only a service which was provided by the appellant with no element of ‘goods’ involved in the transaction. On the other hand, the Bombay High Court , relying on the views expressed in Tata Consultancy Services v. State of Andhra Pradesh (2005) 1 SCC 308,  passed the Order that these vouchers are capable of being sold, paid, stored and possessed, thereby validating the levy of tax on the appellant for their business.

The Court on perusing the contentions and the concerned statutory provisions, observed that the High Court erred in interpreting the nature of the vouchers as the nature of their transactions does  not refer something that comes under the ambit of  ‘goods’, rather they are services as defined by law and thus levying the Octroi or local body taxes on them is unreasonable. The Court further observed that the High Court has not discussed and decided the issue correctly. The bench , thus, allowed the appeals and set aside the judgment of the High Court by holding that the vouchers are not ‘goods’ within the meaning of Section 2(25), and therefore, not liable for paying either Octroi or LBT. [Sodexo SVC India Private Ltd. v. State of Maharashtra,2015 SCC OnLine SC 1291, decided on 09.12.2015]