TIOL-DDT 2420
21.08.2014
Thursday

WITH the meeting of the State Finance Ministers not reaching a consensus, it is heard that the Centre plans to go ahead with a Central GST and the States to follow soon with their State GST. But don't we already have a Central GST?

After the meeting yesterday, the Chairman of the Empowered Committee, Abdul Rahim Rather, who is the Finance Minister of Jammu & Kashmir, said that the threshold limit for general category States will be Rs. 10 lakh, while it will be Rs. 5 lakh for special category and North Eastern States.

He said that it was decided to recommend to the Central Government that for threshold of Rs. 1.5 crore, the Centre will not interfere in assessment, audit, and other matters. It will be left exclusively to States. He said that about Rs 13,000 crore worth of compensation up to 2010 is pending, while amount for 2011-12, 2012-13 and 2013-14 is yet to be calculated.

States want GST compensation structure to be part of the Constitution (Amendment) Bill. GST seems to be a mirage in the hot deserts of Indian politics.

Customs duty -adhoc exemption - instructions

AS per Section 25(2) of the Customs Act, if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty, under circumstances of an exceptional nature to be stated in such order, any goods on which duty is leviable.

Thus, each case has to be examined on merit, keeping in mind, the aspect of "public interest", "the exceptional nature of the circumstances" warranting duty exemption, and the general policy adopted in the past.

Board had in Circular no. 49/2003 -Customs dated 10th June, 2003 issued guidelines for granting exemption under the section.

As per the guidelines,

++ Payment of Customs duty cannot be viewed as a dispensable expenditure, and there should be no need to seek adhoc exemption from payment of Customs duty on goods meant for the normal functional requirements of the Central Police Organizations, State Police Organizations, and Para-military forces.

++ Similarly adhoc exemption from Customs duty will not be considered for import of goods made by Central/State Governments, autonomous bodies, Municipalities, and public sector undertakings as part of the schemes or projects implemented by them.

But these instructions are not kept in mind while requesting for adhoc exemption. Board gets a number of requests from Ministries, State Governments, Autonomous Bodies, Municipalities and Public Sector Undertakings for customs duty exemption on various items meant for normal functional requirement or for various projects implemented by them, even without specifying as to why they could not provide budgetary allocation for payment of Customs duty.

So Board had in Circular no. 10/2007 -Customs dated 13th February, 2007 directed that such requests for exemption in such cases should not be forwarded and to make necessary budgetary provisions for payment of Customs duty along with the cost of the imported goods.

Now, after seven years, CBEC has issued fresh instructions as per which:

1. Imports made by Central/State Governments, Municipalities, public sector undertakings and autonomous bodies will not be considered for adhoc exemption. All such agencies are expected to make budgetary provisions for payment of customs duty along with the cost of the imported goods. However, an exception could be considered in cases where such agencies are recipients of imported goods as grants from foreign Governments/foreign organizations.

2. Exemptions could also be considered in respect of cases recommended by the Secretary, Ministry of External Affairs for reasons of furthering India's foreign relations. While recommending any such case, Ministry of External Affairs shall state why the exemption is in national interest.

3. Cases of re-import of artefacts and memorabilia representing India's historical, cultural and art heritage intended for public exhibition, could also be considered for exemption, subject to recommendation for duty exemption by the Secretary, Ministry of Culture, Government of India.

4. Cases of import required for treatment of individuals, who are suffering from life threatening diseases, could be considered on case-to-case basis. Such cases will be examined from the point of view of the nature of the medical condition and financial circumstances of the applicant.

5. Import of goods meant for relief and rehabilitation of people affected by natural disasters and epidemics could be considered for exemption subject to fulfilling certain conditions:

6. Import of medical or surgical instruments and apparatus by charitable hospitals could be considered for exemption of duty subject to certain conditions:

MONITORING OF ADHOC EXEMPTION ORDERS (AEO)

An undertaking to comply with the conditions mentioned in the AEO shall be given by the applicant before the Commissioner of Customs at the port of import for claiming benefit of exemption under the order at the time of clearance. The said Commissioner of Customs shall send copies of documents pertaining to the import, such as the Bills of Entry, Invoices, etc. along with a copy of the said undertaking to the Commissioner of Central Excise having jurisdiction over the site of utilization of the goods or the location of the applicant, as specified in the AEO, within fifteen days of the clearance of the items exempted by the order.

The applicant shall intimate the said jurisdictional Commissioner of Central Excise, as soon as possible, and not later than seven days from the date of Customs clearance of the goods, of the site of utilization of the exempted items, and also furnish any other information that the said Commissioner may require for verifying the compliance of the conditions of the order. The Commissioner of Central Excise shall, within three months of the clearance of the items exempted by the order, verify the compliance with the conditions of the order and send a report to the Commissioner of Customs of the port of import. The verification report shall be sent so as to reach the Commissioner of Customs not later than six months of the issuance of the order.

CBEC Circular No. 9/2014 -Cus., Dated: August 19, 2014

Tax Audit Report Already Submitted will be valid - CBDT

CBDT has clarified that that the tax audit report under section 44AB of the Act filed during the period from 1st April, 2014 to 24th July, 2014 in the pre-revised Forms shall be treated as valid tax audit report furnished under section 44AB of the Act.

CBDT has also extended the due date for obtaining and furnishing of the report of audit under section 44AB of the Act for Assessment Year 2014-15 in case of assessees who are not required to furnish report under section 92E of the Act from 30th day of September, 2014 to 30th November, 2014.

The new formats of tax audit reports namely Form No.3CA, 3CB and 3CD have been notified through Notification no. 33/2014 on 25/7/2014 with immediate effect. With regard to the same, certain genuine concerns were brought to the notice of the Finance Minister, Revenue Secretary, and Chairman, CBDT by the Institute of Chartered Accountants of India (ICAI).

ICAI has suggested:

1.The new formats of tax audit reports be made effective from the Assessment Year 2015-16 and not Assessment Year 2014-15. Alternatively, the due date for furnishing tax audit reports for the Assessment Year 2014-15 may be extended to 30th November, 2014.

2. That appropriate clarification be issued with regard to the position of the tax audit reports e-filed during 01.04.2014 to 24.07.2014 relating to Assessment Year 2014-15.

Reasons:

a.The Internationally accepted Standard on Auditing-700 has not been considered.

b. The audit of 50% of the taxpayers like listed companies, PSUs, Banks, Insurance Companies have already been completed and the financial statements are published. Only, the audit reports are pending for uploading in the e-filing portal.

c. The notification has been issued just two months before the last date of furnishing tax audit report and the schema for the same is not yet made available. This will cause undue hardship to both the taxpayer and the auditors.

The Board seems to have considered the ICAI representation favourably and promptly.

CBDT Order under Section 119 of the Income-tax Act, 1961 , Dated: August 20, 2014

Redemption fine is an allowable expenditure

THE question before the Delhi High Court in a Revenue appeal was "Whether the Income-tax Appellate Tribunal was justified in holding that the sum of Rs.45 lacs paid by the assessee to the Customs authorities on account of redemption fine was an allowable expenditure u/s 37 of the Income Tax Act?"

The counsel for the Revenue submitted that the expenditure in question would be barred under the Explanation to Section 37 as redemption fine was paid by way of penalty and as per Section 111(d) of the Customs Act the goods in question were prohibited goods.

The explanation reads -

Explanation- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

The High Court while dismissing the Revenue appeal observed -

++ The requirement of Explanation is that payment in form of expenditure should not be made for the purpose, which is prohibited by law.

++ The fault or defect in the REP licence was not attributable to the respondent-assessee as the licenses were issued to India Craft. The respondent-assessee was not to be blamed and had not indulged in any offence or incurred any expenditure for the purpose, which was prohibited by law.

++ The respondent-assessee had to pay redemption fine in order to save and protect themselves and in terms of the order passed by the Supreme Court they had received the balance consideration from the auction proceeds.

++ In fact, the respondent-assessee had only received the net amount after adjustment of the redemption fine.

See 2014-TIOL-1374-HC-DEL-IT.

Also see 2011-TIOL-540-HC-MP-IT where the High Court held that ransom money paid to kidnappers for release of a whole time Director was an allowable deduction u/s 37(1) of the Act.

NDPS Judge suspended for staring at lady staff

THE presiding judge of the NDPS Court in Mumbai was suspended after a preliminary inquiry found substance in the complaint by a staff member about his "inappropriate behaviour". The complainant had alleged that the judge used to stare at her quite often in an offensive manner. During the preliminary inquiry, the allegation made by the complainant was corroborated by other employees.

Jurisprudentiol - Friday's cases

Service Tax

Appellant providing services to Maharashtra Knowledge Corporation Ltd. - M/s MKCL is providing Information Technology Literacy Course MS-CIT to make learner IT literate - BAS services are exempt since they come within clause (d) of the exemption Notification 14/2004-ST: CESTAT

THE appellant is engaged in providing services to M/s Maharashtra Knowledge Corporation Ltd. (MKCL) in relation to -

a) Promotion or marketing of services provided by MKCL;

b) Services incidental or auxiliary to the activity of promotion or marketing such as evaluation or development of prospective customer or vendor, public relation services, management or supervision on service activity;

c) Sale of services of MKCL.

Income Tax

Whether if money is routed indirectly from firm to assessee's account in garb of gifts, same is to be taxed in hands of donor as unexplained income - YES: High Court

THE assessee, an individual, is a partner in the Firm namely M/s Agrawal Fashion; another partner was the brother of the assessee namely, Shri Surendra Behari Agrawal. The assessee had two minor sons namely, Rajat Agrawal and Rohit Agrawal. While doing the scrutiny, the A.O. observed that the assessee had taken the loan of Rs. 21,00,000/- each from his minor sons through their mother namely, Smt. Meenu Agrawal, wife of the assessee. The AO observed that the amount was given to Shri Surendra Bihari Agrawal, brother of the assessee on his retirement from the firm, out of which a cheque of Rs. 53 lacs was given to him. It was alleged that a sum of Rs. 11 lacs was given to each minor child of the assessee by their uncle Shri Surendra Bihari Agrawal. The minor children had given the gifts to father through mother. Thus, the total loan of Rs. 42 lacs was received by the assessee from his minor children. The A.O. found the said gifts was bogus and made the addition of Rs. 42,00,000/-, which was confirmed by CIT(A). However, the Tribunal had accepted the gifts as genuine and deleted the addition.

The issues before the Bench are -Whether if the assessee has not availed opportunity of being heard as provided by the A.O, the burden shifts on the assessee to prove its bonafide on the basis of the statement made by the donor and whether in case the money is routed indirectly from the firm to the assessee's account under the garb of the gifts, the same is taxable in the hands of donor as unexplained income. And the verdict goes against the assessee.

Customs

100% EOU - Warehousing facility - Application for extension of warehousing period - Can be made even after the warehousing period is over: CESTAT

APPLICATION for extension of warehousing period - Can be made even after the warehousing period is over - Proceedings culminating in demand of duty and penalty without taking a decision on the application, held unfair and not justified - Impugned order set aside remanding matter for fresh adjudication in accordance with due process of law - Authority further directed to defreeze appellant's account.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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