ITAT to decide on tax cases within three months

HC directs ITAT to decide on tax cases within three months

MUMBAI: Corporate taxpayers can now hope for speedy justice. The Bombay High Court has set aside an order of the Income Tax

Appellate Tribunal

(ITAT) on the ground that the tribunal took four months to deliver the order. Delivering the order, a division bench comprising Justice VC Daga and Justice S Radhakrishnan observed that justice delayed is justice denied, but justice withheld is even worse. Observing that often orders are passed four to 10 months after the tax cases have been heard, the court issued a guideline to the ITAT asking it not to take more than three months to give an order. The division bench also directed ITAT that its order should be self-containing and reasoned. HC gave this order on an appeal filed by Shivsagar Veg Restaurant. The appeal was based on the inordinate delay by ITAT in giving out the order. The taxpayer also alleged non-application of mind as the order did not furnish reasons in detail, did not discuss the issues raised by the taxpayer and did not cite the case laws. The HC said that since ITAT is the final authority on facts, the tribunal is required to appreciate the evidence, consider the reasons of the authorities below and assign its own reasons as to why it disagreed with the findings of the authority below. This would help the HC, where appeals are filed on questions of law, to have a clearer understanding of the issues that come up before it, the division bench said. “Merely because the tribunal happens to be an appellate authority, it does not get the right to brush aside reasons or the findings recorded by the first authority or the lower appellate authority. It has to examine the validity of the reasons and findings recorded,” the bench added. K Shivram, who appeared for Shivsagar Veg Restaurant told ET: “ITAT president Vimal Gandhi had issued detailed guidelines (on speedy clearance) to ITAT members sometime ago. However, those guidelines are not being followed by the ITAT members.”

Rent -a -Cab is Input Service

Whether Rent-a-cab service used for bringing employees to work in the factory for manufacture goods is eligible Input Service for the purpose of Cenvat Credit.


The answer is yes.
While referring the meaning of Input Service assigned to rule 2(l) of the Cenvat Credit Rules, 2004, honorable tribunal has held that:
"From the above definition, it is very clear that the input services besides being used in or in relation to the manufacture of final products and clearances of final products from the place of removal includes a plethora of other services such as service used in relation to setting up, modernization, renovation or repairs of factory, premises of provider of input service or an office relating to such factory or premises, advertisement or sales, activities of business, accounting, auditing, financing, recruitment, quality control, training and coaching etc. and therefore its scope is much larger than being used directly or indirectly in relation to manufacture. The decision cited by Revenue are therefore not relevant as those decisions have not considered the inclusive part of input service as defined under rule 2(l) of Cenvat Credit Rules and these decisions have only considered the term in or in relation to the manufacture. Since Rent-a-Cab service is used for bringing employees to work in the factory for manufacture of goods it has to be considered as being used indirectly in relation to the manufacture or as part of business activity for promoting the business as any facility given to the employees will result in greater efficiency and promotion of business."

Refund of Service Tax paid in excess wrongly

Service Tax paid in excess wrongly - Can department refuse to refund the same?
Where it is found that that service tax has been paid in excess wrongly - department should refund the same on making an application for refund the same.
In the instant case, CESTAT has refused to allow the claim of refund on the ground that
"…..that since the assessee had not challenged the assessment order, the claim of refund cannot be entertained, so as to indirectly challenge the assessment order, without filing statutory appeal, against the assessment order. It was also found, that in the case in hand, the order is appelable and no appeal having been filed, the claim of refund has no merit, and the appeal was dismissed."
In this matter, Honorable High Court of Rajasthan held that:"At the outset, it may be observed, that under the scheme of things, starting from Section 73 onwards it is clear, that the assessee himself is to deposit service tax in form ST-3, there is no provision for assessment. Passing of assessment order is contemplated only in cases where the notice is issued under Section 73, and it is found, that service tax is not levied or paid, or has been short levied or short paid etc. In that view of the matter, the very basis/reasonings given by the learned Tribunal, simply have no legs to stand. Admittedly, the appeal under Section 85 lies against a specific order of the concerned authority in Form ST-4, which requires to disclose, designation and address of the officer passing the decision or order appealed against, and the date of decision or order, so also the date of communication of the decision or order appealed against to the appellant. Admittedly, when no order capable of being appealed against, had ever been passed, it cannot be said that the assessee could file appeal against the assessment order, and not having so filed appeal he cannot lay the claim of refund. Thus, the order of the Tribunal cannot sustain."

Overseas securities

Overseas securities pricing gets easier
Publication:Economic Times Delhi;
Date:Nov 28, 2008;
Section:EFM;
Page Number:7

Our Bureau NEW DELHI THE government on Thursday loosened rules covering the pricing of securities issued overseas by Indian companies in a move which is seen helping corporates and underwriters in difficult stock market conditions. The finance ministry said it has changed the rules so that companies can price their overseas securities to reflect the most recent value of their shares in the local market: it will now be at least an average of the highest and lowest price of the share in the two weeks preceding the decision to raise capital abroad. Earlier, it was the average share price covering the preceding two months or six months, with the higher of the two prices being the floor price for the overseas issue. The new regulation covers shares issued by Indian companies in the US and Europe as well as convertible bonds denominated in a foreign currency. Overseas investors have pulled out a record $13.5 billion from Indian stocks so far this year, causing the benchmark Sensex index on the Bombay Stock Exchange to drop by 56%. This contrasts with the sharp rise in stock prices last year, when foreign investors bought a record $17.2 billion. Introducing more market-driven rules will help generate greater interest among underwriters, besides helping the companies, the head of the Indian unit of top European bank said. Underwriters pay the share issuer in advance and assume the risk of selling the securities to investors for a profit. Another rule which required share issuers to not count the 30 days preceding the decision to raise capital has been scrapped. Aimed mainly to prevent price manipulation in the domestic market, the rule is seen as not relevant in a bearish market

Solve issues on taxability of AEs

Solve issues on taxability of AEs
Vivek Mishra UNDERthe service tax law, the liability to pay service tax arises on collection of service charges. Therefore, accrual of income or recording of book entries were not relevant for service tax purposes. However, through the amendments introduced by the Finance Act, 2008, it has been provided that for transactions between associated enterprises (AEs), the liability to pay service tax will arise on accrual or collection basis, whichever is earlier. This amendment is apparently an anti-avoidance measure. It seeks to cover transactions between AEs wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognised as revenue/expenditure in the statement of profit and loss account. The concept of AE has been borrowed from the transfer pricing provisions under the Income Tax Act. These provisions broadly provide that two entities would qualify as AEs if one entity is managed or controlled by the other or if the two entities are under common control or management. Further, the amendments to the service tax rules provide that in case of transactions between AEs, payment received for the taxable service would include any amount debited or credited to any account in the books of account of a person liable to pay service tax. This would have a significant impact on the cash flow of the AE providing the taxable services. Take this example. Company X and company Y are AEs. X provides taxable services to Y in June 2008 worth Rs 1 million and passes an entry debiting Y for this amount on July 1 2008. The amount is received by X on November 1 2008. Prior to this amendment, X would have been liable to pay tax on this amount by 5 December 2008. However, as a result of the amendment, X is liable to pay service tax on Rs 1 million by 5 August 2008, the due date for payment of service tax for July 2008. Further, this would set back the cash flow of X as it would need to deposit service tax on Rs 1 million without having collected such amount from Y. The amendment has ostensibly been introduced as an anti-avoidance measure. However, the amendment has created certain ambiguities in the operation of service tax provisions which should be clarified at the earliest to avoid unnecessary litigation. Some of these ambiguities are discussed below. 1. One of the conditions to qualify as export of services under the Export of Service Rules, 2005 is that payment for the service should have been received in convertible foreign currency. Now, in case of export of services between AE, the liability to pay service tax has been shifted from collections to accrual basis. At the time of such accrual, the service may not qualify as export as the payment for the service has not been received. Thus, the issue that arises is whether on such accrual the Indian entity would be required to pay service tax and subsequently on receipt of payment initiate refund proceeding to recover output service tax paid or whether such accrual would be treated as a receipt of convertible foreign currency for the purpose of export rules. 2. With regard to accrual entries made in relation to AE, would the Indian entity be required to pay service tax on the opening balance in the account of the AE as on 10 May 2008 or does this amendment apply only to accrual entries made post 10 May 2008. As per the Cenvat Credit Rules, 2004 credit of service tax paid on input services is available only if the value of input service and service tax has been paid. Given that in case of import of taxable service from an AE, service tax is payable on an accrual basis, an issue that arises is whether the Indian enterprise would be permitted to avail credit of service tax paid on such input service imported though the payment for the value of input service has not been made. Provisions permitting a service provider to adjust excess service tax deposited, where the service charges and service tax thereon is refunded to the service recipient, will not be applicable since there will be no refund of these amounts in case the tax is paid on accrual basis. So, the introduction of the deeming fiction in relation to AE has resulted in various anomalies which should be clarified at the earliest to avoid unnecessary litigation.

norms for SEZs eased

Social infrastructure norms for SEZs eased

New Delhi: In a move that would help developers of special economic zones, particularly of IT/ITeS SEZs, enhance the commercial viability of projects, the government has allowed them to build more and larger housing facilities, offices and other required social infrastructure in the ‘non-processing area’ and avail tax benefits for it.
Half the total area of each SEZ comprises the non-processing area that houses only social amenities, while the other half is the processing area where industrial units are located.
The ceilings on housing and office space in the non-processing area of SEZs were imposed to prevent SEZs from becoming a pure-play realty business. But the curbs were affecting the commercial viability of SEZs, according to the commerce ministry.
The ministry had even mooted amendments to the rules saying developers should be permitted to build over and above the ceiling limits, but by forgoing the tax and duty exemptions for such extra constructions.
After several rounds of inter-ministerial deliberations and Empowered Group of Ministers (EGoM) meetings in August and October this year, the government has now decided that the Board of Approval (BoA) for SEZs can approve the construction of social amenities according to the enlarged overall ceilings in each category of social infrastructure. As per the new norms, developers would even be able to claim the duty drawback, and benefits of tax exemption or concessions, sources said.
However, there are some riders. Construction of social amenities as per the relaxed norms would be permitted only in a phased manner and would depend on the employment generation, increased focus on exports and building of infrastructure in the area housing industrial units.
Besides, the BoA will apply the new norms on a case-by-case basis, depending on the location of the zone and the projected number of employees. Earlier, due to the differences between the commerce and finance ministries on the easing of such norms, the government had asked Delhi Development Authority (DDA) for its expert opinion to help in arriving at a consensus.
As per the suggestions of the DDA, the overall ceilings in each category will be revised upwards in proportion with the available area of land and the floor area ratio as well as the norms prescribed by the local town planning authorities.
The ceiling on social amenities has been causing problems to SEZ developers. For instance, an IT/ITeS SEZ, with a minimum area of 10 hectares, could allocate only...

10,000 square metres (sq m) for housing and 1,000 sq m for office space. Since most IT/ITeS SEZ have around 15,000-20,000 employees, they would need much more floor area than these limits.
The scene was no different for sector specific (with a minimum area of 100 hectares) and multi-product SEZs (minimum area of 1,000 hectares). While sector specific SEZs could allocate only a maximum of 750,000 sq.m (or 7,500 units) of housing space and 50,000 sq m of office space, for multi-product SEZs it was 25 lakh sq m (or 25,000 units) for housing and 200,000 sq m for office space.
“If all the employees of SEZ were to be settled inside the zone, then the permitted floor area for housing and other facilities should be much higher. These ceilings on the number and size of social amenities are limiting factors. Many employees who cannot be accommodated inside the zone will settle outside, creating a burden on the existing housing and infrastructure facilities,” a representative of the Export Promotion Council for EOUs and SEZs Panel for SEZ Developers.
The commerce ministry had said the curbs on social amenities would prevent developers from fully using the permissible construction on the SEZ land as per individual state policies. More over, such restrictions would also result in higher prices of the available built up space, the ministry had said.
But the revenue department had objected to allowing developers to build social amenities (like entertainment and recreational facilities, shopping malls, hotels, business and residential complexes, hospitals and educational institutions) in excess of what is permitted. The department had said removal of these restrictions would lead to increased real estate development activities in SEZs, which are mainly meant for boosting exports and generating employment....

disclose info on processing fees

Banks must disclose info on processing fees: RBI

Mumbai, Nov. 26
The Reserve Bank of India has asked all banks/ financial institutions to ensure that all information relating to charges/fees for processing are always disclosed in the loan application forms.
Further, banks must inform ‘all-in-cost’ to the customer to enable him compare the rates charged with other sources of finance.
Under its guidelines on ‘Fair Practices Code for Lenders — Disclosing all information relating to processing fees / charges,’ the RBI said, loan application forms should include information about the fees/charges, if any, payable for processing; the amount of such fees refundable in the case of non-acceptance of application; pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.
The RBI’s directive comes in the wake of it coming across some banks levying, in addition to a processing fee, certain charges which are not initially disclosed to the borrower.

warrant conversion norm

RBI to ease warrant conversion norm
NEW DELHI: Companies looking to raise funds from foreign investors by way of convertible warrants may soon be allowed to issue shares against these
instruments at any time up to 18 months, under a relaxation of rules being considered by the Reserve Bank of India (RBI). Convertible warrants are loans that are subsequently exchanged for shares on pre-agreed terms. Like an option, a warrant gives its holder or buyer the choice to purchase a fixed quantity of shares of the issuing company at an agreed price at or before a future date. The central bank had, last December, made it mandatory for companies to issue shares within 180 days of receiving money from foreign investors. Its move was aimed at plugging a loophole in foreign exchange regulations which was being misused by mainly real estate companies. RBI’s decision, however, created confusion for companies that planned to issue convertible warrants. This is because the stock market
regulator Sebi’s guidelines allowed warrants to be converted into shares in 18 months. Some companies had requested the finance ministry to clarify the rules following the RBI order. The finance ministry has written to the central bank asking it to make an exception in the case of convertible warrants, a ministry official said, adding the central bank was expected to issue a clarification. “The matter requires clarification. In fact, the government or RBI should come out with separate guidelines dealing with the issue,” said Punit Shah, executive director, tax and regulatory services for PricewaterhouseCoopers’ financial services practice. Mr Shah said clear rules on the conversion of warrants into shares were absent under current foreign direct investment (FDI) regulations or under Foreign Exchange Management Act (FEMA) rules. The RBI move was primarily aimed at plugging a loophole in the FEMA regulations being misused by real estate firms to raise funds abroad when the government’s rules clearly barred real estate companies from raising foreign debt.

guidelines for smaller exchanges

Sebi to unveil guidelines for smaller exchanges in Dec
Chandigarh: The guidelines and procedures for setting up of smaller exchanges to cater the financial requirement of small and medium enterprises are being given final touches by the Sebi and are likely to be announced towards middle of December 2008 to actively provide alternate finance window.
Addressing the Assocham Conference on “Financing the Future Giants” on Wednesday in Chandigarh, T C Nair, wholetime member, Sebi said in the initial phase, three-four licences will be provided to the companies who have the net worth income of Rs100 crore.
He said the BSE and NSE have evinced their desire to set up such exchanges and the objective would be to mobilise resources from the public on the lines of the Alternate Investment Market (AIM) set up in London.
Nair further said, “The downswing in the stock market is an high opportunity for the investors and there was no reason to have panic. In last October, there were 1,100 FIIs operating in India which had raised to 1,500 FIIs in October 2008. It is true that they have withdrawn their money to meet their global requirements, yet keeping in view the strong fundamentals of the Indian economy, the stock markets are bound to be recovering sooner than later.”
However, he said the biggest threat due to global meltdown is to the small and medium enterprises whose contribution has been as high as 47% of the manufacturing sector and 8% of the progress are truly innovative.

Job Working Activity

Service Tax on Job Working Activity
November 27, 2008

For the purpose of "Business Auxiliary Service" the definition of section 65(19)(v) of Finance Act, 1994 (Service Tax) provides that an activity of "production or processing of goods for, or on behalf of, the client" is a taxable activity. However an activity which is amounting to manufacture within the meaning of section 2(f) of Central Excise Act, 1944 is excluded from the scope of service tax under "Business Auxiliary Service"
There is a wide confusion over applicability and taxability of job working activity because, there is wide gap in different interpretation of provisions of the provisions of service tax relating to Job working activity under Business Auxiliary Service.
It happens in generally that a principle who buys excise duty paid material (goods) and send the same to job worker for further processing. Many times the activity undertaken by the job worker is not amounting to manufacture.
In the present case the job worker was engaged in the following FBE Coating activities:
The process of FBE coating undertaken by the appellant is as under:
(a) Duty paid bars received from the customers, are cleaned in Short Blasting Machine using steel shot of abrasives.
(b) Bars are heated to around 220 to 240 C in induction heater.
(c) Epoxy powder is sprayed over the heated bars by Electrostatic Spray guns housed inside the Coating Booth.
(d) Epoxy powder on contact with hot bars melts and fuses with the shot blasted heated bar surface making a strong corrosion protection bond with bars.
(e) Bars are then cooled in a free flowing water quench tunnel.
(f) Thereafter Coated Bars are inspected to check quality of Coating and then dispatched back to the respective customers.
The FBE coated bars are returned to their customers and used in civil construction job like construction of dams, bridges, canals, channels, pipelines etc. The said coating is essentially carried out on the bars for the purpose of protecting them from corrosion.
After hearing the arguments and analyzing the provisions in details with reference to amendments made in the provisions with effect from June 2005, honorable CESTAT held that:
"…..In the present case, the appellant is a company having expertise in the FBE coating and are professional in the fields. Their services are being used by the main contractors in furtherance of providing their service to the State Road Development Corporation Ltd. As such, the said main contractors instead of themselves doing the job of epoxy coating are getting the same done from the appellants by utilizing their services.
….Having discussed the various issues in the preceding paragraphs, we hold that the appellants are liable to pay service tax in respect of the activity undertaken by them during the relevant period."
However, having the facts of the case, CESTAT gave the following reliefs to the appellant:
1 Benefit of Cenvat credit as per Cenvat Credit Rules, 2004 allowed on inputs and input services.
2 Penalty is waived by invoking the provisions of section 80