Budget 2013 Wirc

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BUDGET 2013
An Analytical Overview
PREFACE
As soon as the Budget proposals are announced by the Finance Minister, the
entre country goes into overdrive for analysing the proposals and the impact
they would have on the economy, stock markets, industry, trade and the
common man. Our profession is no exception. Therefore, at WIRC we have
always strived to provide the most lucid analysis as soon as possible for the
beneft of our fraternity, their clients and the people at large.
This year the Budget proposals have been kept limited considering the
economic situaton, politcal compulsions, etc. The Finance Minister has done
some tght manoeuvring to rein in the fscal defcit, harness infaton and give
some impetus to industry and investments.
We are pleased to give an analytical overview of the Budget proposals and
would like to thank all the contributors for their painstaking eforts in giving us
their analysis in such a short tme.
We trust that you will fnd the publicaton useful as a handy guide for beter
understanding of the Budget proposals.
CA. Shrut Shah CA. Hardik Shah
Chairperson, Direct Tax Commitee of Chairman, Indirect Tax Commitee of
WIRC of ICAI WIRC of ICAI
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FOREWORD
The last one year has featured internal as well as external infuences having
afected the economy and hampered the growth. Amidst the slowdown, high
inflation and ballooning current account deficit, the Finance Minister has
had to tread very carefully to lighten the economic burden of the country
while paintng an encouraging and balanced picture to atract investors, both
domestc & foreign.
Economic actvity is expected to be given a boost through higher allocaton
(29.4%) towards plan expenditure and increased outlays for social
infrastructure, educaton, rural development, health and urban development.
The Finance Minister has also emphasized on the development of the youth
and empowerment of women, feeling it to be the need of the hour.
The Finance Minister has tried to adopt a carrot and stick approach while
trying to get the economy back on track. Taking on the challenge of fiscal
deficit headlong the budget aims for fiscal consolidation by curtailing
Government expenditure, limitng fuel subsidy, re-looking at disinvestment
opportunities apart from other measures. Certain direct tax proposals are
intended to be methods of increasing the tax-GDP ratio by augmenting
tax revenues. The imposition of surcharge on the super-rich, increase in
surcharge for the corporate sector, impositon of Commodites Transacton Tax
on non-agri commodites are some such measures.
However, incentve for the manufacturing sector in the form of an investment
allowance of 15% for new plant and machinery exceeding Rs 100 crore
is a welcome move. Proposal for continuation of concession on Dividend
Distributon Tax for dividends from foreign subsidiaries and onward removal
of cascading efect of tax thereon may help to promote repatriaton of more
funds to India.
On the one hand, The Finance Minister has seemed to show a sofer stance
by introducing the Service Tax Voluntary Compliance Encouragement Scheme,
where as on the other hand, the stringent provisions of increased penalty
and imprisonment gives the message that non-compliances will be seen very
seriously.
I sincerely thank Chairperson of Direct Tax Committee, CA. Shruti Shah
and Chairman of Indirect Tax Committee, CA. Hardik Shah for their
efforts in compiling this publication in a short time. I also thank and
acknowledge the untring commitment and immense contributon made by
CA. A. R. Krishnan, CA. S. S. Gupta, CA. Ketan Ved, CA. Paras Savla,
CA. N. C. Hegde and CA. Sanjeev Lalan in preparing this publicaton.
I wish all the members a successful and prosperous new fnancial year!
CA. Mangesh Kinare
Chairman, WIRC of ICAI
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INDEX
Sr. No. Partculars Page Nos.
Foreword ...................................................................................................... i
Preface ..................................................................................................... ii
DIRECT TAXES
I. Rates of Tax ....................................................................................1
II. Individual Taxaton ..........................................................................9
III. Corporate Taxaton .......................................................................12
IV. Ant Avoidance Provisions ............................................................18
V. Procedural Provisions ...................................................................22
VI. Agricultural Income & Land ..........................................................27
VII. Other Major Amendments ...........................................................28
INDIRECT TAXES
I. CUSTOMS DUTY ........................................................................................... 32
II. CENTRAL EXCISE & CENVAT CREDIT RULES ................................................. 36
III. SERVICE TAX ................................................................................................. 39
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Unless otherwise specifcally mentoned, the amendments proposed are
efectve from the Assessment Year (A.Y.) 2014-2015 and are, therefore,
applicable to income arising on or afer 1st April, 2013. Specifc menton
is made at the relevant places, when the efectve date of the proposed
amendment is other than A.Y. 2014-15. Reference to the existng provisions
means the provisions of the Income-tax Act, 1961 (Act) prior to the
amendments proposed in the Finance Bill, 2013 (Bill). Any reference to
sectons, unless otherwise stated, is to the sectons of the Act.
I. RATES OF TAX
1. The following changes have been proposed in the Bill in the rates of
tax.
No change in individual tax slab rates. However individual
earning gross total income up to ` 5,00,000 is entitled for
rebate of ` 2,000 or tax amount, whichever is lower.
Surcharge has been introduced applicable to Individual, HUF,
AOP, BOI, AJP, Firm, Local Authority, Co-operative society
earning gross income exceeding ` 10 crores.
Surcharge on companies raised
Domestc Company
a. Total Income upto ` 1 crore Nil
b. Total Income exceeding ` 1 crore but
upto ` 10 crore 5%
c. Total Income exceeding ` 10 Crore 10%
Other than Domestc Company
Total Income up to ` 1 crore Nil
Total Income exceeding `1 crore
but upto ` 10 crore 2%
Total Income exceeding ` 10 Crore 5%
FINANCE BILL, 2013
DIRECT TAX
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Basic exempton limit for each kind of assessee is as under:
Sr. Persons Amount (`)
No.
1. Individuals, including women (other 2,00,000
than Senior Citzen / Very Senior
Citzen) HUF, BOI, AOP, Artfcial
juridical person (other than society,
local Authority)
2. Senior Citzen (Age from 60 but 2,50,000
less than 80 years)
3. Very Senior Citzen (Age 80 years 5,00,000
and above)
As a relief to marginal tax payer, it is proposed to introduce
new secton 87A providing rebate of ` 2,000 or tax amount,
whichever is lower. Relief is available to the tax payer whose
total income is not exceeding ` 5,00,000.
There is no change in
tax rates for Firms, Domestic Companies, Company
other than Domestic Company and Co-operative
Societes (other than due to levy of surcharge);
educatonal cess, secondary and higher secondary cess
and its applicability;
the rate of Dividend Distribution Tax (DDT) (other
than due to levy of surcharge);
the rate of Minimum Alternate Tax (MAT) (other than
due to levy of surcharge).
Concessional rate of tax of 15% levied on dividend income
received from a foreign subsidiary company extended for
dividends received upto 31st March, 2014.
There is no change in Wealth Tax threshold limit and rate of
tax.
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Rate of Securites Transacton Tax in sale of a unit of equity
oriented fund reduced to 0.001% from 0.1% and sale of
futures from 0.017% to 0.01%.
Commodity Transaction Tax has been introduced @ 0.01%
on sale of Commodity Derivatve, other than on agricultural
commodity derivatve.
2. The proposed income-tax rates (including surcharge at the rate
applicable, educational cess @ 2% and secondary and higher
secondary cess @ 1%) for A.Y. 2014-15 have been given in Table 1.
These rates are applicable on income earned during the period 1
April 2013 to 31st March, 2014.
3. The rates of Dividend Distribution Tax, Securities Transaction Tax,
Commodites Transacton Tax and Wealth Tax are given in Table 2.
TABLE 1
Threshold Tax Rates
Partculars Limit for
Surcharge Without With
Surcharge Surcharge
Individuals, HUF, AOP & BOI ` 1,00,00,000
Up to ` 2,00,000 NIL NIL
` 2,00,001 ` 2,50,000* 10.3000% 11.3300%
` 2,50,001 ` 5,00,000** 10.3000% 11.3300%
` 5,00,001 ` 10,00,000 20.6000% 22.6600%
` 10,00,001 ` 1,00,00,000 30.9000% 33.9900%
` 1,00,00,000 and above N.A. 33.9900%
Alternate Minimum Tax
#
` 1,00,00,000 19.0550% 20.9605%
* Nil Tax Rate in case the assessee is resident aged 60 years and above but
below age of 80 years.
** Nil Tax Rate in case the assessee is resident and above the age of 80 years.
Resident individual is enttle to claim rebate up to ` 2,000 or tax amount,
whichever is lower.

#
Applicable in case of individuals, HUF, AOP and BOI having adjusted total
income equal to or exceeding ` 20,00,000 and where a deducton is claimed
under sectons 80H to 80TTA (except 80P) and secton 10AA.
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Limited Liability Partnership
Normal tax ` 1,00,00,000 30.9000% 33.9900%
Alternate Minimum Tax
#
` 1,00,00,000 19.0550% 20.9605%
#
Applicable in case of partnership frms where a deducton is claimed
under sectons 80H to 80TTA (except 80P) and secton 10AA.
Domestc company
Normal Tax ` 1,00,00,000 30.9000 % 32.4450%
` 10,00,00,000 N.A. 33.9900%
Minimum Alternate Tax ` 1,00,00,000 19.0550% 20.0078%
` 10,00,00,000 N.A. 20.9605%
Company other than
Domestc company
Normal Tax ` 1,00,00,000 41.2000% 42.0240%
` 10,00,00,000 N.A. 43.2600%
Minimum Alternate Tax ` 1,00,00,000 19.0550% 19.4361%
` 10,00,00,000 N.A. 20.0078%
Local Authority ` 1,00,00,000 30.9000% 33.9900%
Co-operatve Society ` 1,00,00,000
Up to ` 10,000 10.3000% 11.3300%
` 10,001 ` 20,000 20.6000% 22.6600%
` 20,001 ` 1,00,00,000 30.9000% 33.9900%
` 1,00,00,000 onwards N.A. 33.9900%
STCG on listed Security
Individuals, HUF, ` 1,00,00,000 15.4500 % 16.9950%
AOP & BOI
Partnership Firm ` 1,00,00,000 15.4500 % 16.9950%
Domestc Company ` 1,00,00,000 15.4500 % 16.2225%
` 10,00,00,000 N.A. 16.9950%
Company other than ` 1,00,00,000 15.4500% 15.7590%
Domestc Company ` 10,00,00,000 N.A. 16.2225%
TABLE 1
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LTCG*
Individuals, HUF, AOP, & BOI ` 1,00,00,000 20.6000% 22.6600%
Partnership Firm ` 1,00,00,000 20.6000% 22.6600%
Domestc company ` 1,00,00,000 20.6000% 21.6300%
` 10,00,00,000 N.A. 22.6600%
Company other than ` 1,00,00,000 20.6000% 21.0120%
Domestc Company ` 10,00,00,000 N.A. 21.6300%
*Other than LTCG arising on sale of listed securites (which are sold
otherwise then on stock exchange) which, at the opton of the tax payer,
can be taxed at a concessional tax rate of 10% (ignoring the indexaton
beneft).
TABLE 2
Partculars Tax Rates
Dividend Distributon Tax
By Domestc Company 16.9950%
By Money Market Mutual Fund or Liquid fund
For income distributed to Individual/HUF 28.3250%
For income distributed to others 33.9900 %
By other Money Market
Mutual Fund or Liquid fund
For income distributed to 13.5187% &
individuals / HUF 28.325% -
w.e.f. 1
st
June, 2013
For income distributed to others 33.9900 %
By a Mutual Fund under Infrastructure Debt Fund Scheme
For income distributed to non-residents / 5.6650% - w.e.f
Foreign Company 1
st
June, 2013
Note: Equity Linked Mutual Fund contnues to be exempt from DDT
Buy Back of Shares 22.6600% w.e.f.
1
st
June, 2013
TABLE 1
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Securites Transacton Tax Up to 31st From STT to be
May 2013 1st June 2013 paid by
Delivery based purchase of 0.1% N.A. Purchaser
an Equity Share in
Company or Unit of an
equity oriented fund
Delivery based purchase N.A. 0.1% Purchaser
of an Equity Share
in Company
Delivery based sale of 0.1% N.A. Seller
an Equity Share in
Company or Unit of
an equity
oriented fund
Delivery based sale N.A. 0.1% Seller
of an Equity
Share in Company
Delivery based sale 0.1% 0.001% Seller
of Unit of an
Equity Oriented Fund
Non-Delivery based 0.025% 0.025% Seller
sale of an Equity
Share in Company or
Unit of an Equity
Oriented Fund
Derivatves-Optons 0.017% 0.017% Seller
Sale of an opton in 0.125% 0.125% Purchaser
securites where
opton is exercised
Derivatves - Futures 0.017% 0.010% Seller
Repurchase of Units 0.250% 0.001% Seller
of an Equity
Oriented Fund by
a Mutual Fund
Sale of an unlisted 0.2% 0.2% Seller
Equity Shares under
an ofer for sale
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Commodites Transacton Rate of Tax To be paid
Tax by
Sale of commodity 0.01% (applicable from Seller
derivatves, traded in the date to be
recognised associatons notfed)
(Other than
Agricultural commodity
derivatves)
Wealth Tax Rate of Tax Threshold limit
For every individual, HUF 1% ` 30,00,000
and Company (other than
Secton 25 Companies)
Tax on income distributed to unit holders
4. Rate of tax on an income distributed to individual & HUF by a fund
other than money market mutual fund or a liquid fund has been
raised to 25% from existng 12.5%.
5. Income received by the non-resident from infrastructural debt fund
is chargeable to tax at the concessional rate of tax of 5%. It is now
proposed to extend concessional rate to income distributed by a
mutual fund under an Infrastructure debt scheme. Currently rate of
tax on income distributed by a mutual fund under an Infrastructure
debt scheme is 12.5% or 30% as the case may be. However, the new
proviso states that when any income is distributed by the Mutual
Fund under an Infrastructure debt scheme, the mutual fund would
be liable to pay additonal income tax @ 5% on such distributon. The
above amendment is proposed to take efect from 1st June, 2013.
Taxability of royalty or fees for technical services
6. In terms of secton 115A of the Act, royalty or fees for technical
services received by a non-resident pursuant to an agreement
entered in to on or afer 1st June, 2005 is taxable at the rate of 10%.
7. The Bill proposes to amend the said secton 115A to provide that
any amount in the nature of royalty or fees for technical services
received by a non-resident on or afer 1st April, 2014 in pursuance of
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an agreement entered in to afer 31st March, 1976 will be taxable at
the rate of 25%.
8. It may, however, be noted that in spite of this proposed amendment,
if the rate for taxaton of royalty or fees for technical services
under the relevant DTAA is lower than 25% then the applicable rate
will be that lower rate.
Commodity Transacton Tax
9. Chapter VII of the Finance Bill 2013 introduces new levy in the form
of Commodity Transacton Tax (CTT). Brief features of CTT are
Taxable Transaction: Sale of commodity derivatives in respect of
commodities other than agricultural commodities on recognised
association. No tax is levied on sale of agricultural commodity
derivatve and currency derivatve.
CTT rate: 0.01% on sale value of commodity derivative (non-
agricultural commodity)
CTT paid by: Seller
Collection and payment of STT: It is provided that CTT would be
collected by the recognised associaton from the seller and paid to
the credit of Central Government within 7 days from end of calendar
month in which it is collected.
Other procedure: Chapter also provides for other procedural
requirements like furnishing of return, assessment, rectfcaton of
mistake, levy of interest & penalty on delayed payments, penalty for
non-fling of return, non-compliance of notce, applicability of certain
provisions of Income-tax Act, 1961, appeals, prosecuton etc.
Date of Applicability: From the date of notfcaton
It has been also provided that CTT would be allowed as deducton
u/s 36(xvi) while computing income arising out of commodity
derivatve transactons under the head Profts and gains of business
and profession.
Similar provisions were also sought to be introduced by Finance Bill,
2008, but were dropped at the tme of passage of the Bill. Then rate
of CTT proposed was 0.017%.
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II. INDIVIDUAL TAXATION
Assigned Keyman Insurance Policies
10. As per clause (10D) of section 10 amount received under a life
insurance policy, other than Keyman insurance cover, is exempt
on fulfilment of certain conditions. There was an anomaly in the
provisions in respect of sums received on maturity of such assigned
Keyman insurance policies by the Keyman concerned. It is now
proposed to amend the Explanation-1 to the said clause w.e.f.
1st April, 2013, to provide that even a policy which is assigned, with
or without consideraton, shall contnue to mean Keyman insurance
policy. Thus, any sum received by an assignee in respect of such
assigned Keyman insurance policy, whether for consideraton or not,
shall not be exempt from tax. In efect the Delhi High Court decisions
in CIT vs. Rajan Nanda [(2012) 349 ITR 8 (Del)] and Escort Heart
Insttute & Research Centre vs. CIT [(2013) 30 taxmann.com 4] are
proposed to be overruled by the amendment.
Immovable property received for inadequate consideraton
11. Presently as per the provisions of secton 56(2)(vii)(b) any immovable
property, the stamp duty value of which is less than ffy thousand
rupees, which is received without consideraton is taxable. However,
if the property is received for inadequate consideration, same
has held to be not coming within the purview of this provision.
In order to bring the immovable property received for inadequate
consideration within the purview of this section, it is proposed
to replace clause (b) by a new clause. The effect of proposed
amendment shall be that receipt of any immovable property for a
consideraton which is less than the stamp duty value by an amount
exceeding ffy thousand rupees, then the diference in stamp duty
value and consideraton paid shall be considered to be income under
secton 56(2)(vii).
12. It is also proposed to provide that where the date of an agreement
fixing the value of consideration for the transfer of the asset and
date of registraton of the transfer of the asset are not same, the
stamp duty value may be taken as on the date of the agreement for
transfer and not as on the date of the registraton of such transfer.
This exception shall apply only in those cases where amount of
consideraton or part thereof for the transfer has been received by
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any mode other than cash on or before the date of the agreement
for transfer of asset. These provisions are similar to that introduced
in Secton 43CA.
13. It is surprising to note that adequate safeguards as contained in
sub-sectons (2) and (3) of secton 50C are not provided in case of
this provision.
Premium on life lnsurance policies for persons with disabilites or disease
14. Under the existng provisions of clause (10D) of secton 10, any sum
received under a life insurance policy is exempt if the premium for
any of years during the term of the policy does not exceed ten per
cent of the capital sum assured. However, in respect of policies
for persons with disabilities or suffering from disease, the annual
premium amount is generally higher. Thus, in respect of following
class of persons the said limit of premium being ten per cent of
capital sum assured is being proposed to be increased to ffeen per
cent for policies issued on or afer 1st April, 2013
(i) persons with disabilites or a person with severe disabilites as
referred to in secton 80U or
(ii) sufering from disease or ailment specifed in rule 11DD made
under secton 80DDB.
The premium on such policy was also not eligible for deduction
under secton 80C. Now, as per amendment proposed in sub-secton
(3A) to section 80C, on similar lines such policies issued after
1st April, 2013 shall also be eligible for deducton under secton 80C.
Extension of beneft for contributons made to health schemes
15. It is proposed to amend section 80D so as to allow the benefit
of deduction of amount not exceeding ` 15,000/- in respect of
any payment or contributon made by the assessee to such other
schemes as may be notfed by the Central Government.
Deducton in respect of interest on loan for acquiring residental house
property
16. A new secton 80EE is proposed to be inserted with a view to provide
additonal beneft for frst tme home buyers in respect of interest
payment on loan taken from any fnancial insttuton for residental
house property.
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17. It is proposed to provide a deducton of not more than ` 1 lakh in
respect of interest payable on loan taken (sanctoned amount not to
exceed ` 25 lakhs) by an individual from any fnancial insttuton for
the purpose of acquisiton of a residental house property, the value
of which does not exceed ` 40 lakhs. Further, in case, where such
interest payment is less than ` 1 lakh in the previous year ending
on 31st March, 2014, i.e. A.Y. 2014-15, the balance amount shall be
allowed as deducton in A.Y. 2015-16.
18. In order to avail the above deducton, the individual assessee should
not own any residental house on the date of sancton of loan.
19. Sub-section (4) of section 80EE provides that, where a deduction
for any interest is allowed under section 80EE(1), deduction shall
not be allowed on such interest under any other provisions of the
Act for the same or subsequent assessment year. In the explanatory
memorandum it is clarified that Keeping in view the need for
affordable housing, an additional benefit for first-home buyers is
proposed. Before this clarifcaton the background of deducton
available under secton 24 is also given. Thus, it would mean that to
the extent of deducton available under secton 80EE, no deducton
can be claimed under secton 24 and not that beneft of secton 24
shall be lost in respect of balance porton of interest over and above
one lakh rupees.
20. While under sub-secton (5) defnes the terms fnancial insttuton
and housing fnance company are defned, there is no reference to
housing fnance company in any of the preceding sub-sectons!
Rajiv Gandhi Equity Savings Scheme
21. As per the present provisions of secton 80CCG, a resident individual,
being a frst tme retail investor and whose total income during the
previous year does not exceed ten lakh rupees, is eligible to claim a
deducton of ffy per cent up to maximum of twenty fve thousand
rupees in the year of investment, subject to satisfaction of other
conditons. This deducton is available only once, i.e. in the year in
which investment is made for the frst tme.
22. As per amendments proposed, the beneft under the said secton
is proposed to be extended to investment in listed units of an
equity oriented fund defned in secton 10(38). Further, the beneft
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of this secton is proposed to be extended over a period of three
consecutive assessment years beginning with assessment year in
which investment is frst made. Also, the conditon as to limit of total
income of the individual investor in the year in which investment is
made is proposed to be enhanced to twelve lakh rupees from ten
lakh rupees, by amending clause (i) of sub-secton (3).
III. CORPORATE TAXATION
Investment in new assets by manufacturing company
23. A new secton 32AC is proposed to be inserted to allow deducton
of a sum equal to ffeen per cent of the actual cost of new assets
acquired and installed after the 31st March, 2013 but before
1st April, 2015 if the aggregate amount of actual cost of such new
assets exceeds one hundred crore. This deduction is available to
an assessee which is a company and engaged in manufacture or
producton of any artcle or thing. This deducton is available for two
years as under
(a) for assessment year commencing on 1st April, 2014, of a sum
equal to ffeen per cent of the actual cost of assets acquired
and installed after 31st March, 2013 but before 1st April,
2014, if the aggregate investment exceeds rupees one hundred
crore; and
(b) for assessment year commencing on 1st April, 2015, of a sum
equal to ffeen per cent of the actual cost of assets acquired
and installed after 31st March, 2013 but before 1st April,
2014, as reduced by deduction allowed, if any, as per (a)
above.
24. If any new asset is sold or otherwise transferred within a period of
five years after installation, then deduction allowed on such new
asset shall be deemed to the income of the year in which such
new asset is sold or otherwise transferred as per the proposed
sub-section (2) to section 32AC. The issues that would arise here
is whether the whole of deducton will be withdrawn or deducton
allowed in respect of new asset that is sold or transferred shall only
be withdrawn, especially in a case where the actual cost of new
asset sold or transferred leads to a situaton that the actual cost of
new assets in aggregate in the year of acquisiton and installaton
falls below the threshold limit of rupees one hundred crore. It is also
interestng to note that the secton does not specify the conditon of
put to use for claim of deducton and it would sufce if the new
assets are acquired and installed.
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25. The deducton shall not be withdrawn under secton 32AC(2) where
the new asset is sold or otherwise transferred in connecton with the
amalgamaton or demerger within a period of fve years. However,
the conditons of sub-secton (2) shall apply to the amalgamated or
resultng company, as the case may be, as it would have applied to
the amalgamatng company or demerged company as specifed in
secton 32AC(3).
26. This deducton would be available even if such assets are acquired
and installed in more than one manufacturing business by the same
company assessee if the aggregate value of actual cost of investment
exceeds one hundred crore rupees.
27. As per sub-section (4) for the purpose of section 32AC, the new
assets shall mean any new plant and machinery (other than ship or
aircraf), other than the following
(i) any plant or machinery which was earlier used either within
or outside India by any other person;
(ii) any plant or machinery installed in any ofce premises or any
residental accommodaton including guest house;
(iii) any office appliances including computers or computer
sofwares;
(iv) any vehicle; or
(v) any plant or machinery in respect of which hundred per cent
deduction is allowed, whether by way of depreciation or
otherwise, in computng income under the head Profts and
gains of business or profession of any previous year.
28. It should be noted that actual cost has been defined under
sub-secton (1) to secton 43 and therefore actual cost of new assets
would have to be computed in accordance with the said provision.
Disallowances in case of State Government Undertaking
29. There have been disputes in respect of assessments of some State
Government Undertakings regarding deductbility of certain privilege
fee, licence fee, royalty, etc., levied or charged by State Government
exclusively on its undertakings. In some cases orders have been
issued to the efect that surplus arising to such undertakings shall
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vest with State Government. As a result it has been claimed that
such income by way of surplus is not subject to tax.
30. Secton 40 is proposed to be amended, to disallow certain payments
made by State Government Undertakings to State Government,
by insertng a new sub-clause (iib) in clause (a). Thus, payment of
royalty, licence fee, service fee, privilege fee, service charge or any
other fee or charge, by whatever name called, which is exclusively
levied on or which appropriated, directly or indirectly from a State
Government Undertaking by the State Government will be now
disallowable.
31. An explanaton is also proposed to be inserted to the said sub-clause
to defne a State Government Undertaking.
Extension of the sunset date under secton 80IA for the power sector
32. Presently under secton 80IA(4)(iv), a deducton of profts and gains
is allowed to an undertaking, if it
(a) is set up in any part of India for the generaton or generaton
and distributon of power, if it begins to generate power at
any tme between 1st April, 1993 to 31st March, 2013;
(b) starts transmission or distribution by laying a network of
new transmission or distributon lines at any tme between
1st April, 1999 to 31st March, 2013;
(c) undertakes substantial renovation and modernisation of
existng network of transmission or distributon lines at any
tme between 1st April, 2004 to 31st March, 2013.
It is proposed to provide further time to the undertakings to
commence the above actvity, to avail the deducton. Accordingly the
terminal date for availing beneft is extended upto 31st March, 2014
for the above enttes.
Deducton of additonal wages
33. Under the existing provisions of section 80JJAA a deduction of
amount equal to thirty per cent of additional wages paid to the
new regular workmen employed in any previous year by an Indian
company in its industrial undertaking engaged in manufacture of
producton of artcle or thing. This deducton is available for three
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assessment years, including the assessment year in which such
employment is provided. Also, no deduction is available if the
industrial undertaking is formed by splitting up or reconstruction
of an existng undertaking or amalgamaton with another industrial
undertaking.
34. It is now proposed to substtute sub-secton (1) of the said secton
to restrict the benefit of deduction to profits and gains derived
from the manufacture of goods in a factory instead of any industrial
undertaking engaged in manufacture or production of article or
thing. Further, the computaton of additonal wages will be reckoned
with employment provided in factory only and not all the workmen
employed by the assessee company.
35. Further, clause (a) of sub-secton (2) is also proposed to be amended
and the deduction shall not be allowed if the factory is hived off
or transferred from another existng entty or acquired by assessee
company as a result of amalgamaton with another company.
36. The reference to the word undertaking wherever it occurs in the
explanaton, is proposed to be substtuted by factory and it is also
proposed to insert clause (iv) to the explanaton to defne factory as
per secton 2(m) of the Factories Act, 1948.
37. The proposed amendment is to overcome decision of Bangalore
Bench of ITAT in ACIT vs. Texas Instruments (India) (P.) Ltd. [(2008)
115 TTJ 976 (URO)].
Additonal Income-tax on buy-back of unlisted shares
38. Under the existng provisions of Income-tax Act, gains on buy-back
of shares are chargeable to tax under the head capital gains under
section 46A. In the explanatory memorandum it is stated that
unlisted companies, as part of tax avoidance scheme, are resortng
to buy-back of shares instead of payment of dividends in order to
avoid payment of tax by way of dividend distribution tax (DDT),
partcularly where the capital gains arising to the shareholders are
either not chargeable to tax or are taxable at a lower rate. To curb
such practce, a new Chapter XII-DA is proposed to be inserted w.e.f.
1st June, 2013 to provide for taxaton of any amount of distributed
income by a domestic company on buy-back of shares, which are
not listed on a recognised stock exchange, from a shareholder. The
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company shall be liable to pay additonal income-tax at the rate of
twenty per cent on the distributed income.
39. As per the explanation to sub-section (1) it is proposed to define
buy-back to mean purchase by a company of its own shares in
accordance with provisions of section 72A of the Companies Act,
1956. The term distributed income is proposed to be defned to
mean the consideraton paid by the company on buy-back of shares
as reduced by the amount which was received by the company
on issue of such shares. Thus, a company shall have to compute
distributed income in respect of such shares, which are ofered for
buy-back, by taking in to account the amount which was received
for every issue, if shares that are ofered for buy-back were issued
at diferent point of tme at diferent issue price.
40. The additonal income-tax on such buy-back of shares shall have to
be deposited within fourteen days from the date of payment of any
consideraton to the shareholder. In case of delay in deposit of tax,
simple interest at the rate of one per cent shall be payable for every
month or part thereof on amount of tax not deposited tll the tme
such tax is deposited as per proposed secton 115QB. Secton 115QC
proposes to treat any principal ofcer, of a domestc company, as an
ofcer in default for failure to deposit the tax as per provisions of
secton 115QA and all the provisions relatng to collecton of recovery
of tax shall apply accordingly.
41. Further, it is also proposed to insert clause (34A) in section 10
to exempt any income received by a shareholder on account of
buy-back of unlisted shares which have been taxed under the
provisions of secton 115QA. This provision shall come into efect
from 1st April, 2014.
TDS on payment of interest to non-resident by Indian Company
42. The secton 194LC provides concessional rate of deducton of tax at
source @ 5%. Concessional rate is available in respect of interest
on money borrowed by an Indian company in foreign currency
and such borrowing is either under a loan agreement or by way of
issue of long-term infrastructure bonds, as approved by the Central
Government.
43. It is now proposed to extend the same beneft to investment made
through a designated bank account in rupee denominated long term
infrastructure bonds. Designated account means an account in a
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bank where foreign currency is deposited for subscribing long term
infrastructure bonds of specifed company. The above amendment is
proposed to take efect from 1
st
June 2013.
Tax on dividends received from a foreign subsidiary
44. Concessional rate of tax of 15% levied on dividend income received
from a foreign subsidiary company extended for dividends received
upto 31st March, 2014.
Removal of cascading efect of DDT
45. Secton 115-O of the Act provides that dividend declared distributed
or paid by a domestic company will be subjected to a Dividend
Distribution Tax [DDT] at the rate of 15%. It also provides that
DDT will not be payable by a company on the dividends received by
it from its domestc subsidiary company [wherein the 1
st
mentoned
company holds more than half in the nominal value of equity shares]
if the subsidiary has paid DDT, thereby removing cascading efect of
DDT in case of a domestc subsidiary company.
46. The Bill proposes to remove the cascading effect in respect of
dividends received by a domestc company from its foreign subsidiary
[where the domestc company holds more than half in the nominal
value of equity shares] by providing that dividends received by
a domestic company from its foreign subsidiary, which has been
subjected to tax at the rate of 15% under secton 115BBD, shall not
be subjected to DDT under Secton 115-O of the Act.
Amount eligible for deducton as bad debts in case of banks
47. As per clause (a) of secton 36(1)(viia) in computng business income,
of certain categories of banks specifed therein, deducton is available
for provision of bad and doubtul debts up to the limit of 7.5 per
cent of the gross total income (before deducton under this clause
or chapter VIA) and 10 per cent of aggregate average advance made
by the rural branches of such banks. The limit, in case of banks
incorporated outside India referred to in secton 36(1)(viia)(b) and
fnancial insttuton referred to in secton 36(1)(viia)(c), is 5 per cent
of the total income (before claiming deducton under this clause or
chapter VIA).
48. The courts have accepted the propositon that where two separate
provisions for bad debts are maintained for rural and urban advances
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and if the actual write-off relates to urban advances then same
cannot be set-of against provision for bad debts of rural advances.
It has been held that provisions of sectons 36(1)(vii) and 36(1)(viia)
are distinct and independent items of deductions and operate in
their respectve felds [Catholic Syrian Bank Ltd. vs. CIT (2012) 343
ITR 270 (SC)].
49. To overcome the above judicial interpretation explanation 2 is
proposed to be inserted to clarify that for the purposes of proviso
to clause (vii) of secton 36(1) and clause (v) of secton 36(2), the
account referred to therein shall be only one account in respect of
provision for bad and doubtul debts under clause (viia) and such
account shall relate to all types of advances, including advances
made by rural branches.
Exempton to Natonal Financial Holdings Company Limited
50. Natonal Financial Holdings Company Limited (NFHCL) is a company
wholly owned by the Central Government and was incorporated to
succeed the Specifed Undertaking of Unit Trust of India, which itself
was a successor to erstwhile Unit Trust of India. In secton 10 a new
clause (49) is proposed to be inserted to grant exempton in respect
of any income of NFHCL.
IV. ANTI-AVOIDANCE PROVISIONS
Taxaton of immovable propertes held as stock-in-trade
51. Presently full value of consideraton on transfer of any asset, being
land or building or both, is taken as per the value adopted for
such transfer by any authority of State Government for purpose of
payment of stamp duty, as per secton 50C. The said secton has no
applicability in respect of transfer of immovable property which is
held as stock-in-trade by an assessee [K.R. Palanisamy vs. UOI (2008)
306 ITR 61 (Mad), CIT-II vs. Kan Constructon and Colonizers (P.) Ltd.
(2012) 208 Taxman 478 (All)].
52. A new secton 43CA is being proposed to be inserted in Chapter IV-D
Profts and gains of business or profession. As per the proposed
section where the consideration received or accruing as a result
of an asset (other than a capital asset), being land or building or
both, is less than the value adopted for stamp duty purpose by an
authority of State Government, then the value so adopted for stamp
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duty purpose shall be deemed to be the value of the consideraton
received or accruing as a result of such transfer for computng profts
and gains.
53. As per section 43CA(2), the remedies provided for reference to
Valuation Officer and treatment of value of stamp duty authority
as final, where Valuation Officers value exceeds the stamp duty
valuaton, as contained in sub-sectons (2) and (3) secton 50C, can
also be availed in matters falling within the purview of proposed
secton 43CA.
54. It is also proposed to provide that where the date of an agreement
fixing the value of consideration for the transfer of the asset and
date of registraton of the transfer of the asset are not same, the
stamp duty value may be taken as on the date of the agreement for
transfer and not as on the date of the registraton of such transfer.
This exception shall apply only in those cases where amount of
consideraton or part thereof for the transfer has been received by
any mode other than cash on or before the date of the agreement
for transfer of asset.
TDS on payment for transfer of immovable property
55. It is proposed to introduce a new section 194IA to provide for
deducton of tax at source on payment of consideraton for transfer
of immovable property (excluding agricultural land) by resident in
cases other than compulsory acquisiton. The proposed new secton
provides that every transferee, at the tme of making payment or
creditng any sum by way of consideraton for transfer of immovable
property, shall deduct tax at the rate of 1% of such sum, if the
consideration paid or payable for the transfer of such property is
` 50,00,000 or more. Immovable property means land other than
agricultural land or whole / part of the building.
56. Similar provision were also sought to be introduced by Finance Bill
2012, but was dropped at the tme of passage of the Bill. The above
amendment is proposed to take efect from 1
st
June 2013.
Cash contribution to any political party or electoral trust ineligible for
deducton
57. Presently deducton is available for any contributon made, to any
politcal party or electoral trust, by an Indian company or any person
(other than local authority or artificial juridical person wholly or
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partly funded by the Government) under sectons 80GGB or 80GGC
respectively. A proviso is being proposed to be inserted in both
the sections to deny the benefit of deduction in respect of any
contribution made by way of cash to a political party or electoral
trust.
General Ant Avoidance Rule
58. The General Anti Avoidance Rule (GAAR) was introduced in the
Income-tax Act by the Finance Act, 2012. These provisions were
to come in to force with efect from 1st April, 2014. A number of
representations were received against the provisions relating to
GAAR. Accordingly, an Expert Commitee was consttuted with broad
terms of reference for fnalising the GAAR guidelines and to prepare
a road map for implementaton thereof.
The major recommendations of the Expert Committee have been
accepted. Necessary amendments have been proposed in the GAAR
provisions to give effect to the recommendations. Some of these
are
It is proposed to make the GAAR provisions efectve from the
Assessment Year 2016-2017.
It is proposed that the arrangement will be held to be an
impermissible avoidance arrangement only if the main
purpose of the arrangement is to obtain a tax beneft. This is
against the current provision providing that it should be the
main purpose or one of the main purposes.
The factors like, period or time for which the arrangement
had existed, the fact of payment of taxes by the assessee, and
the fact that an exit route was provided by the arrangement,
would be relevant but not sufcient to determine whether the
arrangement is an impermissible avoidance arrangement. The
current provisions which provided that these factors would not
be relevant is proposed to be amended accordingly.
An additonal conditon has been proposed to be incorporated
to provide that an arrangement shall also be deemed to be
lacking commercial substance, if it does not have a signifcant
efect upon the business risks, or net cash fows of any party
to the arrangement apart from any efect atributable to the
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tax beneft that would be obtained but for the applicaton of
Chapter X-A.
The Approving Panel shall consist of a Chairperson who is or
has been a Judge of a High Court; one Member of the Indian
Revenue Service not below the rank of Chief Commissioner
of Income-tax; and one Member who shall be an academic
or scholar having special knowledge of maters such as direct
taxes, business accounts and internatonal trade practces. The
current provision that the Approving Panel shall consist of not
less than three members being income-tax authorites and an
ofcer of the Indian Legal Service is proposed to be amended
accordingly.
The directons issued by the Approving Panel shall be binding
on the assessee as well as the income-tax authorities and
no appeal against such directions can be made under the
provisions of the Act. The current provisions providing that
the directon of the Approving Panel will be binding only on
the Assessing Officer have been proposed to be amended
accordingly.
The Central Government may constitute one or more
Approving Panels as may be necessary and the term of the
Approving Panel shall be ordinarily for one year and may be
extended from tme to tme up to a period of three years.
The two separate defnitons in the current provisions, namely,
associated person and connected person will be combined
and there will be only one inclusive provision defining a
connected person.
59. Consequential amendments are also proposed in other sections
relatng to procedural maters of implementng GAAR. These changes
were made by the Finance Act, 2012 and were to be made efectve
from 1st April, 2013, however, the same are now proposed to be
made efectve from 1st April, 2016.
60. Some important recommendatons of the Commitee which have not
found a place in the GAAR Regime proposed are
While determining whether an arrangement is an
impermissible avoidance arrangement, it shall be ensured that
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the same income is not taxed twice in the hands of the same
tax payer in the same year or in diferent assessment years.
Investments made before 30st August, 2010, the date of
introduction of the Direct Taxes Code, Bill, 2010 shall be
grandfathered.
GAAR will not apply to such FIIs that choose not to take
any benefit under the Treaty. GAAR will also not apply to
non-resident investors in FIIs.
A monetary threshold of ` 3 crore of tax benefits in the
arrangement will be provided.
Where a part of the arrangement is an impermissible
avoidance arrangement, GAAR will be restricted to the tax
consequence of that part which is impermissible and not to
the whole arrangement.
Where GAAR and Specific Anti-Avoidance Rules are both
in force, only one of them will apply to a given case, and
guidelines will be made regarding the applicability of one or
the other.
V. PROCEDURAL PROVISIONS
Defectve return
61. Explanaton to Secton 139(9) provides list of case when return of
income shall be regarded as defectve. It is now proposed that return
of income would be treated as defectve in case assesse does not
pay self-assessment tax along with interest on or before due date of
furnishing the return of income. The above amendment is proposed
to take efect from 1st June, 2013.
Special Audit
62. During the course of assessment, Assessing Ofcer having regard to
the nature and complexity of the accounts of the assesse can direct
assessee to get its accounts audited. Special audit can be ordered by
the Assessing Ofcer irrespectve of the fact whether accounts are
previously audited or not.
63. There has been long drawn litgaton when accounts are subject to
special audit. In majority of the cases Courts have ruled in favour
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of the assesse. It is now proposed that besides complexity of the
accounts and interest of revenue, special audit can be initiated
having regard to following:
a. Volume of the accounts,
b. Doubts about correctness of the accounts,
c. Multplicity of transactons in accounts,
d. Specialised nature of business.
The above amendment is proposed to take efect from 1st June, 2013.
Electronic fling of Wealth-tax returns
64. Return of wealth till date is mandatorily required to be filed in
paper form, along with specified documents. It is now proposed
to introduce new section 14A empowering Board to notify class
or classes of persons who can file return of wealth which is not
accompanied by statements, receipts, certificates, audit reports,
reports of registered valuer or any other documents, which are
otherwise under any other provisions of Wealth-tax Act. It is also
proposed to introduce new secton 14B empowering Board to notfy
class or classes of persons who would be mandatorily required to fle
return of wealth electronically without any documents.
65. It also provided that such assessee would be required to submit the
documents on demand made by the Assessing Ofcer. Consequental
amendments in the secton 46 power to make rules by the Board,
are also proposed. The above amendment is proposed to take efect
from 1st June, 2013.
Tax due for the purpose of recovery
66. Sectons 167C and 179 provide that, where tax due from a limited
liability partnership (LLP)/private company cannot be recovered,
then the partner/director (who was the partner/director of such LLP/
private company during the previous year to which tax due relates)
shall be jointly and severally liable for payment of such tax, unless he
proves that the non-recovery of tax cannot be atributed to any gross
neglect, misfeasance or breach of duty on his part. These provisions
are intended to recover outstanding demand under the Act from a
LLP/private company from the partners/directors of such LLP/private
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company in certain cases. The Delhi High Court in the case of Sanjay
Ghai [(2012) 26 taxmann.com 203] has interpreted the phrase tax
due used in section 179 to hold that it does not include penalty,
interest and other sum payable under the Act. Similar view has also
been taken by Gujarat High Court in Maganbhai Hansrajbhai Patel
vs. ACIT [(2012) 211 Taxman 386].
67. Explanaton is proposed to be inserted in sectons 167C and 179 to
bring within the ambit of expression tax due penalty, interest or
any other sum payable under the Act. These amendments will take
efect from 1st June, 2013.
Extension of tme for approval of recognised provident fund
68. Rule 4 in Part A of Schedule IV to the Act lays down conditions
which are required to be fulflled by the provident fund to receive
or retain the status of Recognised Provident Fund. Clause (ea)
requires provident fund to apply to the Employees Provident Fund
Organisaton to obtain exempton under secton 17 of the Employees
Provident Funds and Miscellaneous Provisions Act, 1952.
69. Rule 3 of Part A of Schedule IV provides that in a case where
recogniton to any provident fund has been accorded on or before
the 31st March, 2006 and such provident fund does not satsfy the
conditons set out in clause (ea) of rule 4, the recogniton to such
fund shall be withdrawn, if such fund does not satsfy, on or before
the 31st March, 2013, the conditons set out in the said clause and
any other conditon as specifed by the Board.
70. In order to provide tme to Employees Provident Fund Organisaton
for processing the application, due date of 31st March, 2013 has
been extended to 31st March, 2014.
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Annual Informaton Return
71. Under secton 285BA specifed person are required to furnish Annual
Informaton Return (AIR) in respect of specifed transactons. Secton
271FA provide for penalty in case of non-fling of AIR returns. It is
proposed to replace existng secton to provide penalty as under
Event Penalty
Failure to furnish return within ` 100 per day
prescribed tme limit u/s. 285BA(2)
Failure to furnish return within period ` 500 per day (from
specifed in notce issued u/s 285BA(5) the date of expiry of
the period specifed in
the notce)
Tax Residency Certfcate
72. The Finance Act, 2012 amended the provisions of section 90 and
secton 90A of the Act to make the submission of a Tax Residency
Certificate [TRC] containing prescribed particulars compulsory
for non-residents assessees to avail benefts under the applicable
Double Tax Avoidance Agreement [DTAA].
73. It is now proposed to amend the said secton 90 and secton 90A of
the Act to provide that the submission of the TRC is a necessary but
not a sufcient conditon for claiming benefts under the applicable
DTAA.
74. This position was mentioned in the memorandum explaining the
provisions in the Finance Bill, 2012 but has now been given statutory
force by incorporatng it in the secton 90 and secton 90 of the Act.
This amendment is proposed to be made retrospectively and will
apply from the Assessment Year 2013-2014.
75. This particular amendment has created a great furore amongst
stakeholders and apprehensions have been cast that it will give huge
discreton in the hands of the tax authorites who can simply ignore
the TRC and deny DTAA benefts to the tax payers.
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76. The Finance Minister in a subsequent statement has clarifed that
appropriate clarifcatons will be considered to the Finance Bill to
ensure that
IT Department not to go beyond TRC and queston taxpayers;
CBDT Circular 789 on Indo-Mauritus Treaty stll in force.
Period of limitaton for completon of assessments & reassessments
77. Section 153 of the Act inter-alia provides that the period
commencing from the date on which the AO directs the assessee
to get his accounts audited under secton 142 (2A) and ending with
the last date on which the assessee is required to furnish a report of
such audit, is to be excluded while computng the period of limitaton
for the purposes of assessment or reassessment.
78. It is proposed to amend this provision to provide that the following
shall be excluded while computng the period of limitaton
period commencing from the date on which the AO directs the
assessee to get his accounts audited and ending with the last
date on which the assessee is required to furnish a report of
such audit; or
where such directon is challenged before a court, ending with
the date on which the order setting aside such direction is
received by the Commissioner.
79. Similarly, the said secton 153 inter-alia also provides for exclusion
of the period commencing from the date on which a reference for
exchange of informaton is made by an authority competent under
an agreement referred to in secton 90 or secton 90A and ending
with the date on which the information so requested is received
by the Commissioner or a period of one year, whichever is less, in
computng the period of limitaton.
80. This too is proposed to be amended to provide that the period
commencing from the date on which a reference or first of the
references for exchange of information is made by an authority
competent under an agreement referred to in secton 90 or secton
90A and ending with the date on which the informaton requested is
last received by the Commissioner or a period of one year, whichever
is less, shall be excluded in computng the period of limitaton.
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81. Similar amendments are also proposed in secton 153B of the Act
relating to the time limit for completion of a search assessment.
These amendments will take efect from 1st June, 2013.
Applicaton of assets seized during search
82. Under the present provisions of secton 132B, adjustment of seized
assets against any existng liabilites is permited. The courts have
held that advance tax liability is also an existng liability [Pandurang
Dayaram Talmale (2004) 187 CTR 625 (Bom), Shri Ram S. Sarda vs.
Dy. CIT (2012) 17 taxmann.com 23 (Rajkot)]. It is felt that the said
view is not in consonance with the legislatve intent and to overcome
this, new Explanaton 2 is proposed to be inserted w.e.f. 1st June,
2013. Accordingly, it is proposed to explain that existng liability shall
not include advance tax payable in accordance with the provisions of
Chaper XVII-C.
VI. AGRICULTURAL INCOME & LAND
Amendment in Defniton of Capital Asset
83. Presently from the definition of Capital Asset under clause
(14) of section 2, there is an exclusion provided in respect
of agricultural land, subject to fulflment of certain specifed
conditions. The conditions are that, such land should not
be situated within the jurisdiction of municipality or a
cantonment board having populaton of 10,000 or more as per
last published census fgures or should not be situated within
8 kilometres of such municipalities or cantonment board,
which the Central Government may notfy.
84. In CIT vs. Madhukumar N. (HUF) [(2012) 208 Taxman 394
(Kar)] it has been held that apart from locaton of the land, a
notfcaton from the Central Government is also required to
treat an agricultural land as urban land. It is now proposed to
do away with the requirement of notfcaton of urban areas
and a land shall not be considered to be agricultural land if it
is situated within such distance, measured aerially, in following
circumstances
two kilometres if the populaton of such municipality or
cantonment board is between 10,000 to 1,00,000;
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6 kilometres if the populaton of such municipality or
cantonment board is between 1,00,000 to 10,00,000;
8 kilometres if the populaton of such municipality or
cantonment board is above 10,00,000;
Courts have that distance to be measured as per the road
distance and not as per the straight line distance on a
horizontal plain. [CIT v. Lal Singh [2010] 325 ITR 588 (PUNJ &
HAR), Laukik Developers v. DCIT [2007] 108 TTJ 364 (MUM)]
It is further explained that the population means the
populaton according to the last preceding census of which
the relevant fgures have been published before the frst day
of the previous year.
85. Similar provisions are introduced in sub-clause (c) of clause 1A
of section 2 which defines agricultural income. As per the said
clause income derived from any building situated on or within the
immediate vicinity of agricultural land and used as a dwelling house,
or as a store house, or other out building then such income is
considered as agricultural income. As per the proposed amendment
any income derived from any building situated on or within vicinity
of agricultural land shall not be considered as agricultural income if
it falls within the jurisdicton of municipality or cantonment board or
within the distances as mentoned in (84) above.
86. Amendments on similar lines, as mentoned in (84) above, are also
proposed in the defniton of urban land in secton 2 of the Wealth-
tax Act, 1957.
VII. OTHER MAJOR AMENDMENTS
Deducton for donatons to Natonal Childrens Fund
87. It is proposed to extend the beneft of 100% deducton under secton
80G(1)(i) in respect of donatons made to Natonal Childrens Fund
referred to in clause (iiib) of sub-secton (2) of secton 80G, since it
is also a Fund of natonal importance.
Taxaton of Securitsaton Trusts and its investors
88. In section 10, a new clause (23DA) is proposed to be introduced
to exempt any income of a securitisation trust from the activity
of securitisation. The terms securitisation and securitisation trust
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are defined under regulations 2(1)(f) and 2(1)(u), respectively,
of SEBI (Public Offer & Listing of Securitised Debt Instruments)
Regulations, 2008 made under SEBI Act, 2002 and SCRA, 1956.
Further, securitsaton of standard assets, as per guidelines issued by
RBI, shall also qualify for the beneft under this clause.
89. A new Chapter XII-EA containing special provisions relatng to tax
on distributed income by Securitisation Trusts, is proposed to be
inserted to provide for taxaton of any amount of income distributed
by securitisation trust to its investors. As per section 161(1A), in
case of a trust, if its income consists of or includes profts and gains
of business then income of such trust is chargeable at maximum
marginal rate in the hands of the trust. In explanatory memorandum
it is clarified that special purpose entities set up in the form of
trust to undertake securitisation activities were facing problem
due to absence of special dispensation in respect of taxation,
partcularly when the investors were persons which are exempt from
taxaton, e.g. Mutual Funds. As per proposed secton 115TA(1) the
securitsaton trust shall be liable to pay additonal income-tax on
income distributed to benefciaries as under
(i) 25% if the benefciary is an individual or a Hindu undivided
family;
(ii) 30% in case the benefciary is any other person;
It is also provided that, provisions of sub-secton (1) shall not apply
if the distributon of income is to a person in whose case income,
irrespectve of its nature and source, is not chargeable to tax. The
securitsaton trust shall not be allowed deducton under any other
provisions in respect of the income which has been charged to tax
under sub-secton (1).
90. The tax payable under sub-secton (1) has to be deposited within
14 days from date of distribution or payment of such income. If
tax is not paid within the time provided then simple interest at
the rate of 1% per month or part thereof shall be paid for the
delay as per provisions of section 115TB. Further a prescribed
statement, verifed in prescribed manner will have to fled before
15th September in each year giving details of income distributed in
the previous year, tax paid thereon and such other details as may
be prescribed.
91. As per section 115TC it is also proposed to consider the person
responsible for payment of income of the securitisation trust will
DIRECT TAXES
30
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be deemed to be assessee in default, in respect of tax remaining
unpaid and all the provisions of the Income-tax Act for collecton and
recovery shall apply accordingly.
92. Further, it is also proposed that any income received from a
securitisation trust by an investor by way of distribution shall be
exempt from tax under clause (35A) of secton 10.
Pass through status to certain Alternatve Investment Funds
93. As per the existng provisions of secton 10(23FB) any income of a
venture capital company (VCC) or a venture capital fund (VCF) from
investment in venture capital undertaking (VCU) is exempt. The
income accruing or arising or received by a person out of investment
made in VCC or VCF shall be taxable in the same manner as if such
person had made direct investment in the VCU as per secton 115U.
The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF
Regulations) have replaced the SEBI (VCF) Regulations, 1996 and
in order to provide benefit of the pass through status to entities
registered under AIF Regulatons explanaton to sub-clause (23FB)
is proposed to be replaced. This amendment shall take efect from
1st April, 2013 and shall apply to A.Y. 2013-14.
94. As per proposed clause (a) of the new explanaton, VCC shall mean
a company
(A) has been granted a certificate of registration, before
21st May, 2012, as a VCF under SEBI (VCF) Regulatons, 1996
or
(B) has been granted a certfcate of registraton as VCF as sub-
category I AIF and is regulated under SEBI (AIF) Regulatons,
2012 and which fulfls the following conditons, viz.
(i) it is not listed on a recognised stock exchange;
(ii) it has invested not less than two-thirds of its investble
funds in unlisted equity shares or equity linked
instruments of VCU; and
(iii) it has not invested in any VCU in which its director
or a substantial shareholder (beneficially holding ten
per cent of equity shares) holds, either individually or
collectvely, equity shares in excess of ffeen per cent
of the paid-up equity share capital of such VCU.
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95. As per proposed clause (b) of the new explanaton, VCF shall mean
a fund
(A) Operating under a trust deed registered under Registration
Act, 1908, which
(I) has been granted a certificate of registration, before
21st May, 2012, as a VCF under SEBI (VCF) Regulatons,
1996 or
(II) has been granted a certfcate of registraton as VCF as
a sub-category I AIF under SEBI (AIR) Regulatons, 2012
and fulfls the following conditons, viz.
(i) it has invested not less than two-third of its
investble funds in unlisted equity shares or equity
linked instruments of VCU;
(ii) it has not invested in any VCU in which its
trustee or the setler holds, either individually or
collectvely, equity shares in excess of ffeen per
cent of the paid-up equity share capital of such
VCU; and
(iii) the units, if any, issued by it are not listed in any
recognised stock exchange;
or
(B) Operatng as a venture capital scheme made by the UTI.
Exempton to income of Investor Protecton Fund of depositories
96. A new sub-section (23ED) is being proposed to be introduced
to exempt any income, by way of contribution received from a
depository (as defned under secton 2(1)(e) of SEBI Act, 1992), of
Investor Protecton Fund set up in accordance with the regulatons
made under the SEBI Act, 1992 and the Depositories Act, 1996, by a
depository as the Central Government may notfy in this behalf.
It is also provided that where any amount standing to the credit of
the Fund, which is not charged to income-tax during any previous
year, is shared either wholly or in part with a depository, then whole
of such sum shall be deemed to be the income of the year in which
it is so shared and shall be chargeable to income-tax.
I. CUSTOMS DUTY
I) Changes in efectve rate of Basic Customs Duty with efect from
1-3-2013
The following are the prominent amendments in rate of basic
customs dutes:
Sr. Chapter Descripton of Efectve rate (in %)
No. heading goods
tll from
28-2-2013 1-3-2013
1. 27011200 Bituminous coal 5 2
2. 27011920 Steam coal Nil 2
2. 7103 Pre-forms of 10 2
precious and
semi-precious
metals
2. 84, 85 or Additonal 20 7.5 5
90 machinery
specifed in list
29 of
notfcaton
12/2012-Cus
for leather
and footwear
industry
3. 8444 to All Goods 7.5 5
8449 (Machinery &
parts thereof
used in
textle sector)
4. 5002 Raw Silk 5 15
(not thrown)
5. 85 Integrated 5 10
Decoder
Receiver
(Set Top Box)
INDIRECT TAXES
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CUSTOMS DUTY
Sr. Chapter Descripton ofq Efectve rate (in %)
No. heading goods
tll from
28-2-2013 1-3-2013
6. 8903 Yachts and 10 25
other vessel
for pleasure
or sport;
rowing boats
and canoes
II) Other amendments efectve from 1-3-2013
(a) Period of consumption/installation of parts or testing
equipment has been extended to 1 year from 3 months in
respect of exempton to maintenance, repair and overhauling
of aircraf parts under notfcaton 12/2012 (Sr. No. 448). The
said exempton has been extended to MRO of private category
of aircrafs and MRO of parts of aircrafs also.
(b) Notification No. 9/2012 providing exemption to customs
duty on re-import of cut and polished diamonds has been
amended to provide that a variance of not exceeding 0.01
mm in height and circumference and variance not exceeding
1 percent in weight will be allowed for re-import of cut and
polished diamonds.
(c) Notfcaton 14/2013 has been notfed to provide exempton
from whole of duty to trophy when imported into India
by National Sports Federation or registered Sports Body
organising the internatonal tournament including world cup.
III) Changes efectve from Enactment of Finance Act, 2013
(a) Section 47 has been amended to reduce the period for
payment of customs dutes from 5 days to 2 days (excluding
holidays) from the date of receipt of duly assessed bill of
entry. The interest will be leviable at rate of 15% on payment
of duty afer 2 working days.
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(b) Secton 28E has been amended to enable existng importer
and exporter to apply for advance ruling for any new business
of import or export proposed to be undertaken by them.
(c) Secton 30 and Secton 41 are being amended to provide for
electronic fling of Import General Manifest/Export General
Manifest and to give power to Commissioner to allow
the delivery of such manifest in any other manner where
electronic fling is not feasible.
(d) Secton 49 has been amended to provide a tme limit of 30
days for storage of goods in a warehouse pending clearance
and power has been given to Commissioner to extend the
period of storage for a further period not exceeding 30 days
at a tme.
(e) Secton 69 is being amended to allow export of warehoused
goods by post on the basis of the label or declaration
accompanying the goods.
(f) Secton 104 is being amended to provide for certain specifc
offences like as evasion or attempted evasion of duty
exceeding ` 50 lakh, fraudulently availing of or attempt to
avail of drawback or any exempton from duty provided under
this Act, if the amount of drawback or exempton from duty
exceeds ` 50 lakh, etc. as non-bailable.
(g) Monetary limit for the Single Bench of the Tribunal to hear
and dispose of appeals from Secton 129C is being increased
from ` 10 lakhs to ` 50 lakhs.
(h) Section 129B will be amended to provide for extension of
stay order after expiry of 180 days and to limit the power
of extension of stay up to a total period of 365 days. The
provisions further provide for automatc vacaton of the stay
order if the appeal is pending afer 365 days of the stay order.
(i) Clause (d) has been inserted in secton 142(1) to provide for
recovery from a person from whom money is due or who
holds money for or on account of the defaulter. Thus recovery
provisions have been introduced to recover the amount
from person other than the defaulter. Any other person shall
CUSTOMS DUTY
34
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include banks, insurer, debtors, etc. The person to whom
notce under secton 142 is issued will be treated as defaulter
if he fails to make payment of such amount.
(j) Secton 147 has been amended to make agents of the owner,
importer or exporter of any goods responsible for making
correct self-assessment.
(k) Secton 135 is being amended to increase monetary limit of
certain ofences from ` 30 lakh to ` 50 lakh.
(l) Secton 144 is being amended to provide for non-payment of
duty on any sample of goods which is consumed or destroyed
during the course of testng or examinaton.
(m) Sections 146 & 146A seeks to change the nomenclature of
customs house agents to customs brokers and to disqualify
persons who are convicted of an ofence under the Finance
Act, 1994 to act as an authorised representatve.
IV) Amendment in levy of Export Duty
(a) The export duty on Bauxite (natural) not calcined or calcined,
unprocessed Iimente at rate of 10% and on upgraded Iimenite
at rate of 5% is levied vide notification 15/2013- Cus dated
1-3-2013.
(b) Retrospectve exempton from levy of export duty is proposed
to be provided for export of flat rolled products of iron or
non-alloy steel, plated or coated with zinc w.e.f. 1
st
March
2011.
V) Amendment in Baggage Rules,1998
W.e.f. 1-3-2013, the duty free limits to bring jewellery without
payment of duty for an Indian passenger, who has been residing
abroad for over one year and a person who is transferring his
residence to India has been increased up to an aggregate value of
` 50,000/- in case of a gentleman passenger and ` 100,000/- in case
of a lady passenger.
CUSTOMS DUTY
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II. CENTRAL EXCISE & CENVAT CREDIT RULES
A. Changes with immediate efect (i.e. from 1-3-2013)
I. Increase and Decrease in duty
Sr. Product Old Rate New Rate
No. upto w.e.f.
28-2-2013 1-3-2013
1 a. Mobiles handsets 1% 6%
incl. cellular of
Retail Sales price
of more than
` 2,000/.
2 Silver produced or NIL 4%
manufactured during
the process of zinc or
lead smeltng startng
from the stage of
zinc or lead ore or
concentrate.
3. Marble slabs and ` 30/ per ` 60/ per
tles sq. meter. sq. meter.
II. Exemptons extended:
1. Exemption has been extended to readymade garments
and made ups falling under chapters 61, 62 ad 63 (except
Laminated Jute Bags falling under 6305, 6309 00 00 and 6310)
on conditon that no CENVAT is availed on inputs used in the
manufacture of such goods. Exempton is optonal and unit
has an opton to avail the CENVAT credit and pay duty at the
applicable rates.
2. Excise duty on goods falling under chapters 61, 62 & 63 made
from coton has been reduced 6% provided the said goods do
not contain any other textle material.
3. Full exemption from excise duty is being provided on hand
made carpets and carpets and other textle foor coverings of
coir or jute, whether or not handmade.
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CENTRAL EXCISE & CENVAT CREDIT RULES
4. Exemption is extended vide notification no. 7/2013-CE; to
goods manufactured and captively consumed within the
factory of manufacture for units in Utranchal and Himachal
Pradesh availing the area based exemption under Not
49/2003-CE and 50/2003-CE.
III. Changes in Third Schedule of the Excise Tarif and valuaton under
MRP based assessment
Branded Ayurvedic medicaments and medicaments of Unani, Siddha,
Homeopathic or bio-chemic system are now brought under the Third
Schedule of the Excise Tarif and get covered under secton 2(f)(iii)
of the Central Excise Act, 1944. Such goods are also brought under
MRP based assessment with abatement of 35% of MRP.
IV. Changes in Central Excise Rules, 2002
Provisions of Rule 7(5) are now amended to provide that such
amount shall be refunded along with the interest as provided in
Secton 11BB of the Act from three months of the applicaton fled
for such refund.
V. Changes in CENVAT Credit Rules, 2004
Explanation has been added after the proviso to Rule 3(5B) to
provide for recovery of amounts payable on removal of inputs/
capital goods (under Rule 3(5)) or removal of capital goods afer use
(Rule 3(5A)) or writing off the value of inputs/capital goods (Rule
3(5B)). The said recovery will be in the manner provided under Rule
14 of CENVAT Credit Rules, 2004.
B. List of changes proposed in the Finance Bill (to be efectve from
enactment):
1. The provision of secton 9 of Central Excise Act, 1944 is being
amended to increase the monetary limit from rupees thirty
lakhs to rupees fifty lakhs in offences which are liable for
punishment of imprisonment with a term of seven years with
fne.
2. Amendments are being made to treat the ofences relatng to
evasion of payment of and contraventon in relaton to credit
of duty allowed to be utlised towards the payment of excise
37
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duty above ` 50 lakhs as cognizable and non-bailable ofence
and to treat all other ofences will non-cognizable.
3. A new sub-secton (2) to secton 11 is proposed to be inserted
to provide the central excise officers with the power to
recover the duty from any other person who holds any sum
belonging to the assessee. Thus the power has been given to
recover the amount from the banks, post ofce, debtors of the
assessee in default.
4. A new sub-secton (7A) is proposed to be inserted in secton
11A to provide that a periodical show cause notce containing
the same allegations may be served by way of a statement
containing details of duty not/short levied or not/short paid
provided the ground relied upon in subsequent period are
same as mentoned in earlier notce.
5. Amendments are being made to include any new business of
producton or manufacture proposed to be undertaken by the
existng producer or manufacturer as a applicant eligible for
advance ruling.
6. The scope of admissibility for advance ruling has been
expanded to include credit of service tax paid or deemed
to have been paid on input services vide amendment to
sub-secton (2) of secton 23C.
7. Section 35C will be amended to provide for extension of
stay order after expiry of 180 days and to limit the power
of extension of stay up to a total period of 365 days. The
provisions further provide for automatc vacaton of the stay
order if the appeal is pending afer 365 days of the stay order.
8. Secton 35D is being amended to enhance the monetary limit
of the Single Bench of the Tribunal to hear and dispose of
appeals from ten lakhs rupees to ffy lakhs rupees.
9. Section 37C is being amended to specify additional modes
such as speed post with proof of delivery or through courier
approved by the Central Board of Excise & Customs for the
service of decisions, orders, summons and other specified
documents to the assessee.
CENTRAL EXCISE & CENVAT CREDIT RULES
38
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III. SERVICE TAX
1. PREAMBLE
1.1 The Finance Bill, 2013 (Bill) has proposed to make certain changes
in Chapter V of the Finance Act, 1994 (Act), the law governing
service tax, which are effective on the enactment of the Bill.
Signifcant changes include the impositon of personal penaltes on
directors and ofcials of a company for specifed contraventons and
introducton of power to arrest. In additon to the above, the Central
Government has also issued notfcatons making some changes in
abatements and exemptons. Some of the notfcatons are efectve
from 1-3-2013 and some from 1-4-2013. However, the efectve rate
of service tax has been maintained at 12.36% (i.e. 12% service tax
+ 2% educaton cess + 1% secondary and higher educaton cess).
2. CHANGES EFFECTIVE FROM 1-3-2013
2.1 Abatement in respect of construction of commercial/residential
complex services reduced from 75% to 70% except in case of
residential units having 2000 sq. ft or less carpet area or where
amount charged is less than ` 1 crore.
2.1.1 Constructon of a complex, building, civil structure or part thereof
intended for sale to a buyer wholly or partly, except where entre
consideration is received after the issuance of a completion
certificate by the competent authorities, is a declared service
[Secton 66E (b)].
2.1.2 The Central Government had in respect of such services provided an
abatement of 75% of the gross amount charged for such services
vide its notification no. 26/2012 ST dated 20-6-2012 subject to
fulflment of the following conditons
(i) no credit in respect of duties paid on input goods used for
providing taxable service has been taken;
(ii) the value of land has been included in the gross amount
charged/recovered from the buyer.
(iii) the gross amount charged shall include fair market value
of all goods and services that are supplied by the service
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SERVICE TAX
recipient to the service provider for providing such service as
reduced by
(a) any amount that is charged by him to the service
provider towards such goods and services supplied by
him,
(b) any VAT or Sales tax levied.
2.1.3 The above abatement of 75% has now vide Notfcaton No. 2/2013
ST dated 1-3-2013 been reduced to 70% except in two cases where
it will contnue to be 75% viz.,
(i) Constructon of residental unit having carpet area of 2000 sq.
f or less;
(ii) Constructon of residental unit where gross amount charged
is less than ` 1 crore.
2.1.4 Thus the rate of tax in respect of construction services w. e. f.
1-3-2013 would be as follows:
Sl. Constructon service in respect of Efectve Rate of Tax
No. (including cess)
1 Residental units with carpet area 3.09%
of 2000 sq. f or less (irrespectve (25% of 12.36%)
of the value of consideraton)
2 Residental units where gross 3.09%
amount charged is less than (25% of 12.36%)
` 1 crore (irrespectve
of the area)
3 Complex, building, civil 3.708%
structure or part thereof not (30% of 12.36%)
covered under the above two
categories
2.2 Advance Ruling Mechanism extended to resident public limited
companies.
2.2.1 Chapter VA of the Finance Act, 1994 (sectons 96A to 98) provides
for Advance Ruling mechanism in service tax. Under the existing
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SERVICE TAX
provisions, the advance ruling can be obtained only in relaton to
services proposed to be provided by
(i) (a) a non-resident setting up a joint venture in India in
collaboraton with a non-resident/resident; or
(b) a resident setting up a joint venture in India in
collaboraton with a non-resident; or
(c) wholly owned Indian subsidiary company, of which the
holding company is a foreign company.
(ii) a joint venture in India wherein one or more participant /
partner/equity holder having substantial interest in the
venture is a non-resident.
(iii) any such class or category of residents notfed by the Central
Government.
2.2.2 Pursuant to the powers mentoned in para 2.1(iii) above, the Central
Government has notfed public sector companies w.e.f. 20-8-2009.
Now the Central Government has vide Notification No. 4/2013
ST dated 1-3-2013 notified resident public limited companies as
eligible to avail the beneft of advance ruling. Resident Public Limited
Company would mean
(i) a public company as per section 3(1)(iv) of the Companies
Act, 1956 including a private company which is deemed to
be public company under secton 43A of the Companies Act,
1956; and
(ii) the said company is resident as per Income-tax Act, 1961
i.e. it is an Indian company or a company whose control and
management of afairs is situated wholly in India.
3. CHANGES EFFECTIVE FROM 1-4-2013
3.1 Changes in Mega Exempton Notfcaton
3.1.1. The Central Government had issued a Mega exempton Notfcaton
No. 25/2012 ST dated 20-6-2012 last year conferring several
exemptons. There are some changes to the exemptons made vide
Notfcaton No. 3/2013 dated 1-3-2013 as explained below.
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3.2 Exemptons withdrawn
(i) Entry no. 9: Exemption in respect of Auxiliary educational
services and renting of immovable property services
provided by an educatonal insttuton in respect of educaton
exempted from service tax.
N.B: However such services provided to such educational
insttuton would contnue to be exempt.
(ii) Entry no. 20: Transportaton by rail or vessel from one place
in India to another of the following goods
(a) petroleum or petroleum products;
(b) postal mail or mail bags; and
(c) household efects.
(iii) Entry no. 24: Vehicle parking services to general public.
(iv) Entry no. 25: Services provided to government, a local
authority or governmental authority by way of repair or
maintenance of an aircraf.
(v) Clause 2(k)(v) r.w. entries 4 & 34 (b) of Clause 1: Exempton
in respect of certain specifed charitable actvites viz., enttes
registered u/s. 12AA of the Income tax Act, 1961, that are
advancing an object of general public utlity up to ` 25 lakh
in a fnancial year in respect of
(a) services provided by them; and
(b) services received from an overseas service provider.
N.B: Exempton in respect of the charitable actvites mentoned in
Clause 2(k)(i) to (iv) would contnue.
3.3 Exempton curtailed
(vi) Entry no. 15: Exempton to temporary transfer or permitng
the use or enjoyment of copyright relatng to cinematographic
flms has been restricted only to cases where such transfer
or permission is for the purpose of exhibition of films in a
cinema hall/theatre. Thus, temporary transfer/permitng the
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use of copyright in cinematograph flms not for the purpose
of exhibiton of flms in a cinema hall/cinema theatre would
be liable for service tax.
3.4 Exempton modifed
(vii) Entry No. 19 - Services provided by Restaurants/eatng joints/
mess: Presently, restaurants/eatng joints/mess serving food
or beverages are liable to pay service tax if they have both
(a) the facility of air-conditoning or central air-heatng in
any part of the establishment at any tme during the
year; and
(b) a licence to serve alcoholic beverages.
The Government has amended Entry 19 to dispense with the
conditon of liquor licence. Thus, restaurants etc., will be liable
to pay service tax if they have air-conditoning or central air
heatng in any part of the establishment at any tme during
the year.
3.5 Exempton expanded
(viii) Entry No. 21 Road transport: Presently, road transportaton
in a goods carriage of fruits, vegetables, eggs, milk, food grains
or pulses are exempt. This exempton is sought to be recast
to expand its scope and exempt the road transportation in
respect of the following products:
(a) agricultural produce;
(b) foodstuff including flours, tea, coffee, jaggery, sugar,
milk products, salt and edible oil, excluding alcoholic
beverages;
(c) chemical fertlizers and oilcakes;
(d) registered newspapers or magazines; and
(e) relief materials for victims of natural or man-made
disasters;
(f) defence equipments
N.B.: The existng exemptons in the said entry would contnue
viz., consignment of single goods carriage for ` 1,500 or less
and consignment for a single consignee for ` 750 or less.
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4. CHANGES EFFECTIVE FROM THE DATE OF ENACTMENT OF BILL
4.1 Changes in the Negatve List
4.1.1 The following changes are proposed in the negatve list:
(i) Agriculture: Presently, in respect of testng services, only seed
testng is under the negatve list. The Bill seeks to delete the
word seed in the relevant entry under the negatve list. As
a result all testing activities directly related to agriculture
or agriculture produce like soil testng, animal feed testng,
testing of samples from plants or animals, for pests and
disease causing microbes, etc., would be covered under the
negatve list.
(ii) Process amounting to manufacture: Processes on which
duties of excise are leviable under Medicinal and Toilet
Preparations (Excise Duties) Act, 1955 [which were earlier
exempted
1
prior to 1-7-2012 under the category of Business
Auxiliary Services] are now proposed to be covered under
negatve list.
(iii) Vocatonal Educaton: The courses recognised as approved
vocatonal educaton courses covered under negatve list is
proposed to be amended to:
(a) include courses run by an industrial training insttute
or an industrial training centre affiliated to the State
Council for Vocatonal Training.
(b) exclude courses run by an institute affiliated to the
Natonal Skill Development Corporaton set up by the
Government of India.
4.2 Show cause notce invoking extended period would survive for the
normal period even if extended period held inapplicable due to lack
of intent to evade.
4.2.1 In cases where a show cause notce triggers the extended period of
limitaton on the allegaton of an intent to evade payment of duty/
tax, and an appellate authority holds that there is no intent to evade,
1 Notfcaton no. 32/2009-ST dated 1-9-2009
SERVICE TAX
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an issue arises whether the show cause notce fails completely or
survives at least to the extent of the normal period of limitation
(presently 18 months for service tax). In Ahmedabad Manufacturing
& Calico Printing Co. Ltd. vs. UOI (1993) 63 ELT 601 (SC); CCE vs.
Hindustan Safety Glass Works Ltd. (1995) 77 ELT 40 (SC); and UoI
vs. Maheshwari Woollen Mills (1998) 97 ELT 220 (SC), the Honble
Supreme Court held that the demands could be quashed only to
the extent of the extended period of limitation and not for the
normal period. However, in T.N. Dadha Pharmaceutcals v. Collector
of Central Excise (2003) 152 ELT 251 (SC), the entire notice was
quashed, i.e. notice even for the normal period was quashed. To
resolve this confict, the Finance Act, 2011 had inserted sub-secton
(9) to Section 11A of Central Excise Act, 1944 w.e.f. 8.4.2011 to
provide that if a show cause notice is issued invoking extended
period of limitation and the appellate authority, tribunal or court
found that the extended period is not applicable due to lack of intent
to evade etc., the Central Excise Ofcer shall determine the duty/tax
payable for the normal period as if the show cause notce was issued
for the normal period of limitaton. Thus the demand for the normal
period would survive. The Bill now proposes to insert a similar
provision in the service tax law by providing a new sub-secton (2A)
in secton 73 of the Act on the lines of the excise law.
4.3 Appeals to Tribunal Condonaton of delay in case of appeals by
assessee
4.3.1 The power of the Tribunal to condone delays in fling an appeal by an
assessee appears to have been inadvertently deleted by the Finance
Act, 2012 when the tme limit for fling an appeal before the Tribunal
by the department u/s. 86 against the order of the CCE or CCE(A),
was increased from 3 months to 4 months. The Bill seeks to restore
the power.
4.4 Penalty for failure to register restricted to ` 10,000/- [Secton 77]
4.4.1. Presently, the penalty for failure to register within due date is the
higher of
(i) ` 10,000/- or
(ii) ` 200 per day during which the default contnues.
SERVICE TAX
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The Bill has now proposed to restrict the maximum amount of
penalty for the above failure to ` 10,000/-.
4.5 Financial penalty on directors, managers, secretary or other
ofcers in charge of the company for certain contraventons by the
company.
4.5.1. The Finance Act, 2011 w.e.f. 8.4.2011 had made Secton 9AA of the
Central Excise Act applicable to service tax. This provision provides
that if an ofence is commited by a company (which includes a frm),
the persons liable to be proceeded against and punished are:
(a) the company;
(b) every person, who at the time the offence was committed,
was in charge of, and was responsible to, the company for
the conduct of the business except where he proves that the
ofence was commited without his knowledge or that he had
exercised all due diligence to prevent the commission of such
ofence; and
(c) any director (who in relation to a firm means a partner),
manager, secretary or other officer of the company with
whose consent or connivance or because of neglect
atributable to whom the ofence has been commited.
4.5.2. The Bill has now proposed to introduce a new section 78A (in
addition to the above) for imposing a financial penalty upto
` 1,00,000/- on directors, managers, secretary or other officers
incharge of the company for specifed contraventons commited by
a company namely :
(a) evasion of service tax; or
(b) issuance of invoice, bill or challan without provision of taxable
services contravening the provisions of the Act or the Rules
made thereunder
2
;
(c) availment and utlisaton of credit of taxes/duty without actual
receipt of taxable service or excisable goods either fully or
partally in violaton of the Act or Credit Rules;
2. Thus issuing invoice for monies received in advance towards taxable service
to be provided would not be a contraventon.
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(d) failure to pay to the Government any amount collected as
service tax beyond a period of six months from the date on
which such payment became due.
The aforesaid persons would be liable if
(i) at the tme of such contraventon they were in charge of, and
responsible to, the company for the conduct of business; and
(ii) they were knowingly concerned with such contraventon.
4.5.3. In this regard, it may be noted that for the contraventons mentoned
in (a), (c), and (d) of para 4.5.2, such persons may also be prosecuted
in additon to sufering a fnancial penalty under the above proposed
secton [secton 89 of the Act r.w. s. 9AA of the Central Excise Act]
4.5.4. Further, in absence of a corresponding amendment in s. 80 of the
Act, the defence of reasonable cause u/s. 80 would not be available
to the impositon of penalty under the above proposed secton.
4.6 Failure to pay tax collected beyond 6 months maximum
imprisonment increased from 3 years to 7 years.
4.6.1. Presently, failure to pay to the Government any amount collected as
service tax beyond a period of six months from the date on which
such payment became due is a punishable ofence. The quantum of
punishment for this ofence is proposed to be increased as follows:
Sl. Ofence Present Proposed
No. Punishment Punishment by way
by way of of imprisonment
imprisonment
1. For amounts up to Up to 1 year Up to 1 year
` 50 lakh
2. Where amount From 6 months From 6 months
exceeds up to 3 years up to 7 years
` 50 lakh
3. Second and From 6 months Upto 7 years
subsequent up to 3 years
ofence
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4.7 Cognizance of ofences and power to arrest [Sectons 90 and 91]
4.7.1. The Bill seeks to introduce provisions relatng to arrest of persons for
ofences under the Act. These provisions are summarised below:
(i) Ofences are divided into two categories
(a) Cognizable offences i.e. where the person can be
arrested without warrant; and
(b) Non-cognizable offences [i.e. offences other than (a)
above].
(ii) Failure to pay tax collected beyond 6 months from due date
where the amount exceeds ` 50 lakh is the only cognizable
ofence. All other punishable ofences (viz., knowingly evading
service tax, availing bogus credits, supplying false informaton,
etc.) are non-cognizable ofences.
(iii) If the Commissioner of Central Excise has reason to believe
that any person has commited an ofence u/s. 89 of the Act
where the amount exceeds ` 50 lakh he may, by general or
special order, authorise any ofcer of Central Excise, not below
the rank of Superintendent of Central Excise, to arrest such
person.
(iv) Where a person is arrested for any cognizable offence [see
point (ii) above], every ofcer authorised to arrest a person
shall, inform such person of the grounds of arrest and produce
him before a magistrate within 24 hours.
(v) In the case of a non-cognizable and bailable offence, the
Assistant/Deputy Commissioner, shall, for the purpose of
releasing an arrested person on bail or otherwise, have the
same powers and be subject to the same provisions as an
officer in charge of a police station has, and is subject to,
under secton 436 of the Code of Criminal Procedure, 1973
(CrPC). Secton 436 of CrPC provides for the cases where
bail maybe taken.
(vi) All arrests shall be carried out in accordance with the
provisions of the CrPC relatng to arrests.
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5. RETROSPECTIVE EXEMPTION
(Efectve on enactment of the Bill)
5.1 Retrospectve exempton is being extended to the Indian Railways on
the service tax leviable on various taxable services provided by them
during the period prior to the 1st day of July 2012, to the extent
show cause notces have been issued upto the 28th day of February
2013.
6. SERVICE TAX VOLUNTARY COMPLIANCE
ENCOURAGEMENT SCHEME, 2013
(Efectve on enactment of the Bill)
6.1. Introducton
6.1.1. In order to encourage voluntary compliance, the Central Government
has proposed to introduce a one tme amnesty scheme called the
Service tax Voluntary Compliance Encouragement Scheme, 2013.
Under the scheme any person can declare their past tax dues and
pay the same in the manner prescribed whereupon such person
would be eligible for certain immunites including penalty, interest
etc. This scheme will be operational from the date on which the
Finance Bill, 2013 receives the assent of the President. The salient
features of this scheme are explained below.
6.2. Tax dues eligible for declaraton
6.2.1. The tax dues which a person is enttled to declare under the scheme
are :
(i) Any service tax (including cess) due and payable;
(ii) Any service tax collected from the service recipient in excess
of what is due and paid to the Government;
(iii) Amount collected as service tax from any person (though not
required to be collected) for the period 1
st
October, 2007 to
31
st
December, 2012 and which is remaining unpaid as on
1
st
March, 2013.
6.2.2. Tax dues would exclude
(i) Tax dues in respect of which a show cause notce or an order
is issued or made before 1-3-2013 u/ss. 72, 73 or 73A of the
Act.
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(ii) Tax dues pertaining to issues for a period where a show
cause notce or order has been issued for a previous period.
(iii) Tax dues disclosed in the return but not paid.
6.3. Procedure
6.3.1. Assessee has to make a declaration in a prescribed form on or
before 31
st
December, 2013 to the designated authority (a person
to be notified by the Commissioner) who shall acknowledge the
declaraton.
6.3.2. The declarant has to pay not less than 50% of his declared tax
dues on or before 31
st
December, 2013. The balance tax dues are
to be paid on or before 30
th
June, 2014. If the declarant fails to pay
the balance dues by 30
th
June, 2014 he will have to pay the same
along with interest (computed from 1
st
July, 2014) on or before
31
st
December, 2014.
6.3.3. On payment of the declared tax dues, the declarant has to furnish
the details of payment along with the acknowledged copy of the
declaraton to the designated authority whereafer the designated
authority shall issue an acknowledgement of discharge of such tax
dues to the declarant in the prescribed form.
6.4. Immunity
6.4.1. The declarant to whom the designated authority has issued an
acknowledgement of discharge of such tax dues shall get immunity
from penalty, interest or any proceedings under the Act.
6.5. Powers of the department to reject the declaraton or to queston
the declaraton
6.5.1. Where a declaration is made by the assessee against whom any
inquiry or investigation has been initiated (by way of search,
summons, requisition of documents, etc.) or an audit has been
initiated and is pending as on 1
st
March, 2013, the designated
authority shall by an order, for reasons recorded in writng, reject
the declaraton.
6.5.2. Where the Commissioner of Central Excise has reasons to believe
that the declaraton made by the assessee was substantally false, he
may serve a notce on the declarant in respect of such declaraton
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requiring him to show cause as to why he should not pay the tax
dues not paid/short paid. However, no such notce can be issued
after the expiry of 1 year from the date of filing the declaration.
The notces mentoned above shall be governed by the provisions of
sectons 73/73A of the Act.
6.6. Consequences
6.6.1. The matters that are concluded under this scheme shall not be
reopened by any authority or court.
6.6.2. The tax dues paid in pursuance of the declaration are not
refundable and if the assessee fails to pay any declared tax dues, the
same shall be recovered u/s. 87 of the Act.
7. CONCLUSION
This year the Bill has introduced the Jail
The assessees in anguish shall Wail
Being caught by Tigers Tail
The only hope is the Bail!
SERVICE TAX
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