Sunday, November 23, 2014

Authorities to take expeditious steps to sanction refunds


Authorities to take expeditious steps to sanction refunds – Order marked to the Finance Minister for consideration

We are sharing with you an important judgement of the Hon’ble Mumbai CESTAT, in the case of Vodafone (I) Ltd. Vs. Commissioner of Service Tax, Mumbai-I [2014-TIOL-2263-CESTAT-MUM] on following issue:

Issue:

Whether the Authorities be allowed to cause unnecessary delay in sanctioning of refunds?

Facts & background:

In the instant case, the Stay application filed by the Revenue against the Order-In-Appeal (“OIA”) was dismissed by the Hon’ble CESTAT, Mumbai on July 14, 2014 by observing that the issue had already been decided against the Revenue and the Lower Appellate Authority had merely followed the Tribunal's Order.

Thereafter, Vodafone (I) Ltd. (“the Applicant”), filed an application under Rule 41 of the CESTAT Procedure Rules, 1982 for implementing the Order of the Hon’ble Tribunal inasmuch as to direct Revenue to sanction rebate/ refund to them.

During the pendency of this application, the appeal filed by the Revenue against the OIA was dismissed on August 21, 2014 and the Hon’ble Tribunal directed the Jurisdictional Asst. Commissioner to dispose of the refund/ rebate claim within a period of one month from the date of receipt of that Order.

When the matter concerning this application came up for hearing on September 23, 2014, the learned Additional Commissioner informed the Bench that the Order was received by the Department only on September 16, 2014 and there was no time for implementation. On the next occasion i.e. on October 27, 2014, the learned Additional Commissioner submitted a report dated October 22, 2014 of the Commissioner of Service Tax, Mumbai - III , mentioning that although the Pune Commissionerate had sanctioned the refund pursuant to the Order dated March 12, 2013 of the Hon’ble Tribunal, the Commissioner of Service Tax-I, Mumbai is of the view that it is not compulsory to follow the view taken by Pune Commissionerate and that the Department's case is having merit and that stay be granted. Thereafter on October 28, 2014, the learned Additional Commissioner submitted a letter dated October 28, 2014 wherein Shri S.K. Singh, OSD of Central Board of Excise and Customs [“the CBEC or “the Board”] (Judicial Cell) stated that the Board is considering filing a Civil Appeal against the order of the Hon’ble Tribunal dated August 21, 2014.

As the Hon’ble Tribunal was not satisfied with the action taken by the Department, therefore, another report was called, enquiring the steps taken by the Department to implement the Order of the Tribunal.

When the matter was heard recently in the Tribunal, a report was received by the Bench from the Commissioner of Service tax, Mumbai - III enclosing a letter addressed to the Applicant seeking certain documents (challans, invoices & FIRC copies) to scrutinize the refund claim of the Applicant also from unjust enrichment angle. Further Two months' time was also sought to implement the Order of the Tribunal.

The Applicant took strong objection to this report and submitted that issue of unjust enrichment had already been considered in detail in the OIA and all the relevant documents are available on record and have been considered by the Lower Authorities earlier.

In these circumstances, the Applicant prayed to the Hon’ble Tribunal that disciplinary action against the erring officials be initiated.

Held: 

The Hon’ble CESTAT, Mumbai after observing that there is no consistency in the view taken by the Departmental officers and moreover after clear direction to the concerned officer to dispose of the refund/ rebate claim within one month, no steps were taken to implement the Order of this tribunal till October 28, 2014 and no explanation is given for that, held that in these circumstances, the conduct of the concerned official is not appreciated but in the interest of justice, the time of 15 days is granted to the learned Commissioner of Service tax, Mumbai - III to dispose of the refund claim failing which the tribunal shall be constrained to initiate contempt of court proceedings against the erring officials.

Further, considering that the claim is having a bearing of interest on the amount of refund, it was further held by the Hon’ble Tribunal that the Authorities have to take expeditious steps to sanction the refund claim keeping in mind that the interest is to be paid from the kitty of the general public.

The Hon’ble Tribunal further ordered that the copy of this order be sent to the Chairman, CBEC, Secretary (Rev), the Ministry of Finance and the Hon'ble Finance Minister for necessary consideration.

Point to Note:

Its uphill task to get refund from the Department and leave question of interest on delay of refund granted. Further, why the Officers do not adhere to the instructions of the CBEC is a big question and is there any accountability/ responsibility for non-adherence of the same.

Recently, the CBEC has issued Instruction F. No. 201/01/2014-CX.6 dated June 26, 2014 (“the Instruction”), for all the Commissioners to follow judicial discipline in the matters relating to refund though it is not followed at the Adjudication level.

The CBEC vide the Instruction, invited attention to the order of the Hon’ble High Court of Gujarat (“the HC”) in the case of E.I. Dupont India Pvt. Ltd. [2013-TIOL-1172-HC-AHM-CX]. In this case, E.I. Dupont had filed an appeal before the HC against rejection of a refund claim on an issue which had earlier been decided by the HC against the Revenue, though in a matter relating to a different assessee. Thus for deciding the refund, a binding precedent judgment existed. However, thebinding precedent was not followed, which led to litigation before the HC to which it took a serious view.

The CBEC noted that on the subject of refund, where the Department has gone in appeal, a Circular No. 695/11/2003-CX dated February 24, 2003 (“the Circular”) already existed in this regard and had the Circular been followed in the instant case, unnecessary litigation as well as adverse observation of the HC could have been avoided.

Therefore, the CBEC has directed the Adjudicating Authorities to peruse the judgment of the HC in the case of E.I. Dupont India Pvt. Ltd. (supra) for complete understanding of the issues involved and directions of the HC to follow judicial discipline. Further, the officers have also been directed to peruse the judgement of the Hon’ble Supreme Court in Union of India Vs. Kamlakshi Finance Corporation Ltd. [2002-TIOL-484-SC-CX-LB] which is an authoritative pronouncement on the issue and which has also been cited by the HC.

Moreover, the CBEC wanted the Commissioners to bring the contents of the Instruction to the notice of all Adjudicating Authorities under their jurisdiction with directions to follow the same scrupulously.

Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Flat No. 34B, Ground Floor, Pocket - 1, Mayur Vihar, Phase - I,  Delhi – 110091, India 
Desktel: +91-11-22757595/ 42427056 Mobile: +91 9810604563

Taxes paid on or after Match 1, 2013 would be eligible for VCES even if paid before May 10, 2013


Taxes paid on or after Match 1, 2013 would be eligible for VCES even if paid before May 10, 2013 – Circular taking contrary view held invalid

We are sharing with you an important judgement of the Hon’ble Gujarat High Court, in the case of Sadguru Construction Co. Vs. Union of India [(2014) 51 taxmann.com 3 (Gujarat)]on following issue:

Issue:

In the light of Circular dated August 8, 2013, whether taxes paid on or after Match 1, 2013 would be eligible for Voluntary Compliance Encouragement Service (“VCES”or “the Scheme”) even if paid before May 10, 2013?

Facts & background: 

Sadguru Construction Co. (“the Petitioner”) is a partnership firm engaged in the business of construction. On March 8, 2013, preventive officers of the Service Tax Department conducted inquiry at the premises of the Petitioner regarding unpaid Service tax dues. Various post-dated cheques were taken from the Appellant (under duress). Against such post-dated cheques, during the period between March 9, 2013 to April 15, 2013, the Petitioner deposited total sum of Rs. 35.51 lakhs with the Department.

On August 24, 2013, the Petitioner filed a declaration under VCES declaring tax dues of Rs. 44 lakhs. Thereafter, the Petitioner filed a revised declaration on December 30, 2013 with revised tax dues of Rs. 46 lakhs. This amount included the sum of Rs. 35.51 lakhs deposited between March 9, 2013 to April 15, 2013. The Department, relying upon following extract of Circular No. 170/5/2013-ST, dated August 8, 2013 (“the Circular”),sought to reject VCES declaration to the extent of Rs. 35.51 lakhs(“Impugned amount”) arguing that these amounts were deposited before May 10, 2013 when the Scheme was promulgated and therefore, declaration of amount could not be a declaration under the Scheme:

“…..If any “tax dues” have been paid prior to the enactment of the scheme, any liability of interest or penalty thereon shall be adjudicated as per the provisions of Chapter V of the Finance Act, 1994 and paid accordingly….”

Thereafter, the Designated Authority acknowledged the declaration of the Petitioner only to the extent of tax dues to the tune of Rs. 10.50 lakhs and rejected the Impugned amount. Being aggrieved, the Petitioner filed a petition before the Hon’ble High Court of Gujarat.

Held:

The Hon’ble High Court of Gujarat, after analysing provisions of Section 105 and Section 106 of the Finance Act, 2013, held as under:

  • Combined reading of Section 106 with Section 105(1)(e) of the Finance Act, 2013 would make it clear that the position of a declarant vis-a-vis his Service tax dues would have to be ascertained as on March 1, 2013. Accordingly, arrear of tax which could be declared in such declaration would be the Service tax due or payable for the period between October 1, 2007 to December 31, 2012 and which sum is not paid before March 1, 2013;
  • It is well settled in law that an authority cannot, through a circular or clarification, override the provisions of the Statute. If the clarification thus runs counter to the statutory provision, the same would be invalid;

Hence, the Designated Authority was directed to issue a fresh acknowledgement or amend the acknowledgement forwarded to the Petitioner so as to include the said additional sum of Rs.31.51 lakhs as tax dues declared.

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards.

Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Flat No. 34B, Ground Floor, Pocket - 1, Mayur Vihar, Phase - I, Delhi – 110091, India 
Desktel: +91-11-22757595/ 42427056 Mobile: +91 9810604563

Saturday, November 22, 2014

Credit Card in the name of RBI : RBI cautions Once More


The Reserve Bank of India today issued one more alert to the public about the newest form of fraud perpetrated in its name - a credit card issued by fraudsters in the name of the Reserve Bank. Explaining the modus operandi, the Reserve Bank stated that the gullible member of the public is sent a credit card which allows withdrawal of money up to a certain limit, albeit a small sum, from a bank account. Having gained the confidence of the victim thus, the fraudster gets him to deposit a huge sum of money in the same bank account. Once the money is deposited, the card stops working and that would also be the last time the holder of the card (victim) would hear from the fraudster.

Warning against such efforts, the Reserve Bank has reiterated that as India’s central bank, it does not carry out any business with an individual, whether through savings bank account, current bank account, credit card, debit card, online banking services or receiving and holding funds in foreign exchange or any other form of banking services. The Reserve Bank has listed out the other kind of prevalent frauds, such as:


  • Fictitious offers of large sum of money/lottery winnings by email or through phone calls by posing as RBI official.
  • Fake Reserve Bank website for online transactions
  • Luring members of public to secure their bank accounts against such frauds by asking them to share the bank account details, including user id/password, through an email or by clicking on a link given in email.
  • Offer of employment in the Reserve Bank through email

The Reserve Bank has also stated that fictitious offers are also made in the name of other public institutions, such as, International Monetary Fund (IMF), Income Tax authorities, Customs authorities or public figures like Governor, Dr. Raghuram Rajan or other senior RBI officials. 

The Reserve Bank has pointed out that once the moneys are paid in fraudsters’ accounts, there are remote chances of the members of public recovering the moneys.

The Reserve Bank has once again cautioned members of public that falling prey to such offers can result in compromising one’s own crucial personal information that may be misused to cause direct financial and other loss to them. They, in their own interest, should refrain from responding to such offers in any manner. Rather, they should immediately lodge a complaint with Cyber Crime branch of the Police, the contact details of which are available in the Reserve Bank’s press release issued earlier (Complain to Local Police/Cyber Crime Authorities against Fictitious Offers of Money from Abroad).

Alpana Killawala
Principal Chief General Manager
Press Release: 2014-2015/1046

Friday, November 21, 2014

Charges levied for non-maintenance of minimum balance in Savings Bank Account wef 01.04.2015


Earlier, RBI recommended that banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to Basic Savings Bank Deposit Accounts and restore the services when the balances improve to the minimum required level. 

Later on Damodaran Committee on customer service in banks recommended that penal charges may be applied by bank  on minimum balance but banks should inform the customer immediately on the balance in the account breaching minimum balance and the applicable penal charges for not maintaining the balance by SMS/Email/letter. Further, the penal charges levied should be in proportion to the shortfall observed’.

Now RBI has accepted the Damodaran committee report and has allowed banks to levy penalty charges on-maintenance of minimum balance in Savings Bank Account wef 01.04.2015 subject to conditions given below.

Levy of penal charges on non-maintenance of minimum balances in savings bank accounts


1. Please refer to our circular DBOD.Dir.BC.53/13.10.00/2002-03 dated December 26, 2002 on ‘Minimum Balance in Savings Bank Accounts’ advising banks to inform customers, in a transparent manner, regarding the requirement of minimum balance in savings bank account and levy of penal charges for non-maintenance of the same at the time of opening the account.

2. In this connection, a reference is invited to paragraph 30 of Part B of First Bi-monthly Monetary Policy Statement, 2014-15 announced on April 1, 2014, regarding ‘Developmental and Regulatory Policies’ proposing certain measures towards consumer protection. One of the proposals contained therein was that banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to Basic Savings Bank Deposit Accounts and restore the services when the balances improve to the minimum required level. A reference is also invited to the recommendations of Damodaran Committee on customer service in banks which, inter-alia, recommended that ‘banks should inform the customer immediately on the balance in the account breaching minimum balance and the applicable penal charges for not maintaining the balance by SMS/Email/letter. Further, the penal charges levied should be in proportion to the shortfall observed’.

3. The policy announcement has been reviewed after extensive consultation with banks. Consequent to these deliberations and after taking into consideration the recommendation of Damodaran Committee, it has been decided that while levying charges for non-maintenance of minimum balance in savings bank account, banks shall adhere to the additional guidelines given in Annex. The guidelines come into effect from April 1, 2015.

4. These guidelines should be brought to the notice of all customers apart from being disclosed on the bank’s website.

5. In the meantime, all banks are advised to take immediate steps to update customer information so as to facilitate sending alerts through electronic modes (SMSs/emails etc) for effective implementation of the guidelines.

Yours faithfully

(Lily Vadera)
Chief General Manager

RBI/2014-15/308
DBR.Dir.BC.No.47/13.03.00/2014-15
November 20, 2014
All Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir/Madam
Levy of penal charges on non-maintenance of minimum balances in savings bank accounts
Please refer to our circular DBOD.Dir.BC.53/13.10.00/2002-03 dated December 26, 2002 on ‘Minimum Balance in Savings Bank Accounts’ advising banks to inform customers, in a transparent manner, regarding the requirement of minimum balance in savings bank account and levy of penal charges for non-maintenance of the same at the time of opening the account.
2. In this connection, a reference is invited to paragraph 30 of Part B of First Bi-monthly Monetary Policy Statement, 2014-15 announced on April 1, 2014, regarding ‘Developmental and Regulatory Policies’ proposing certain measures towards consumer protection. One of the proposals contained therein was that banks should not take undue advantage of customer difficulty or inattention. Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to Basic Savings Bank Deposit Accounts and restore the services when the balances improve to the minimum required level. A reference is also invited to the recommendations of Damodaran Committee on customer service in banks which, inter-alia, recommended that ‘banks should inform the customer immediately on the balance in the account breaching minimum balance and the applicable penal charges for not maintaining the balance by SMS/Email/letter. Further, the penal charges levied should be in proportion to the shortfall observed’.
3. The policy announcement has been reviewed after extensive consultation with banks. Consequent to these deliberations and after taking into consideration the recommendation of Damodaran Committee, it has been decided that while levying charges for non-maintenance of minimum balance in savings bank account, banks shall adhere to the additional guidelines given in Annex.(given above) The guidelines come into effect from April 1, 2015.
4. These guidelines should be brought to the notice of all customers apart from being disclosed on the bank’s website.
5. In the meantime, all banks are advised to take immediate steps to update customer information so as to facilitate sending alerts through electronic modes (SMSs/emails etc) for effective implementation of the guidelines.
Yours faithfully
(Lily Vadera)
Chief General ManagerRBI/2014-15/308
DBR.Dir.BC.No.47/13.03.00/2014-15
November 20, 2014
All Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir/Madam

Acquisition/Transfer of Immovable property – Payment of taxes


RBI/2014-15/307
A.P. (DIR Series) Circular No. 38
November 20, 2014

To
All Category – I Authorised Dealer Banks

Madam/ Sir,

Acquisition/Transfer of Immovable property – Payment of taxes

Attention of Authorised Dealers in Foreign Exchange is invited to Foreign Exchange Management (Acquisition and Transfer of immovable property in India) Regulations, 2000 notified vide Notification No. FEMA 21 /2000-RB dated 3rd May 2000 as amended from time to time.

2. It has been observed that doubts persist in the members of public regarding requirement of payment of taxes while undertaking property transactions under these regulations.

3. In this connection, it is clarified that transactions involving acquisition of immovable property under these regulations shall be subject to the applicable tax laws in India.

4. Reserve Bank has since amended the Principal Regulations through the Foreign Exchange Management (Acquisition and Transfer of immovable property in India) (Amendment) Regulations, 2014 notified vide Notification No. FEMA.321/2014-RB dated September 26, 2014(given below) c.f. G.S.R. No.733(E) dated October 17, 2014.

5. Authorised Dealers may bring the content of this circular to the notice of their constituents concerned.

6. The directions contained in this circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully

(C D Srinivasan)
Chief General Manager

Wednesday, November 19, 2014

CBEC clarification regarding availment of Cenvat credit on Inputs/ Input Services after six months


Background:

The CBEC vide Notification No. 21/2014-CE (NT), dated July 11, 2014 (Applicable w.e.f September 1, 2014) [“Notification No. 21”], has amended Rule 4(1) and Rule 4(7) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) to fix a time limit of six months from the date of issuance of any of the documents specified in Rule 9(1) thereof, for availment of the Cenvat Credit on Inputs and Input Services.

Clarification by the CBEC:

The CBEC vide Circular No: 990/14/2014-CX-8 dated. November 19, 2014 (“the Circular”) has clarified that the purpose of the amendment made by Notification No. 21 is to ensure that after the issuance of a document under Rule 9(1) of the Credit Rules, Cenvat credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. The relevant text of the Circular is reproduced here in below:

“2. Concerns have been expressed by trade that in view of above changes, the re-credit taken in following three situations may be hit by the time limit of six months prescribed: 

  • i. 3rd proviso to Rule 4(7) of CCR, 2004 prescribes that if the payment of value of input service and service tax payable is not made within three months of date of invoice, bill or challan, then the CENVAT Credit availed is required to be paid back by the manufacturer or service provider. Subsequently, when such payment of value of input service and service tax is made, the amount so paid back can be re-credited. 
  • ii. According to Rule 3(5B) of CCR, 2004, if the value of any input or capital goods before being put to use on which CENVAT Credit has been taken, is written off or such provisions made in Books of Account, the manufacturer or service provider is required to pay an amount equal to credit so taken. However, when the inputs or capital goods are subsequently used, the amount so paid can be re-credited in the account. 
  • iii. Rule 4(5)(a) of CCR, 2004 prescribes that in case inputs sent to job worker are not received back within 180 days, the manufacturer or service provider is required to pay an amount equal to credit taken on such inputs in the first instance. However, when the inputs are subsequently received back from job worker, the amount so paid can be re-credited in the account. 

3. The matter has been examined. The purpose of the amendment made by Notification No. 21/2014-CE (NT) dated 11.07.2014 is to ensure that after the issue of a document under sub-rule (1) of Rule 9, credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document. It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules.” 

Other Open issues – Not clarified:

Even though the CBEC has clarified non-applicability of six months time limit while availing re-credit in terms of the Credit Rules but, there are certain other issues still exists in this regard, which requires immediate attention of the Board:

(i) SSI Unit crossing Exemption limit: In terms of Rule 3(2) of the Credit Rules, a manufacturer or producer of final products is allowed to take Cenvat credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock, on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.

Issue: Where a manufacturer availing SSI exemption, crosses the exemption limit, whether transitional credit is available if the invoices under which the above category of inputs were purchased are beyond six months from the date of taking Cenvat credit?

(ii) Cenvat credit on goods received after re-conditioning, repairs, etc.: Under Rule 16 of the Central Excise Rules, 2002, where any goods on which duty had been paid at the time of removal are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if the goods are received as inputs under the Credit Rules and utilize the Cenvat credit according to the Credit Rules.

Issue: Whether the newly added proviso to Rule 4(1) of the Credit Rules, which talks about inputs, would apply to Cenvat credit taken on finished goods received by the manufacturer in the factory beyond 6 months of its removal from the factory?

(iii) Invoices issued prior to September 1, 2014: Notification No. 21 amending Rule 4(1) and Rule 4(7) of the Credit Rules is effective from September 1, 2014.

Issue: Whether the time limit of six months prescribed for availing Cenvat credit would apply to the invoices issued prior to September 1, 2014? 

We request esteemed readers to write back to us for any other related issue(s) pertaining to time limit of 6 months for availing Cenvat credit on Inputs and Input Services in the light of Notification No. 21 read with the Circular issued by the CBEC.

Bimal Jain
FCA, FCS, LLB, B.Com (Hons) Flat No. 34B, Ground Floor, Pocket - 1, 
Mayur Vihar, Phase - I, Delhi – 110091, India  Desktel: +91-11-22757595/ 42427056
Mobile: +91 9810604563 Email: bimaljain@hotmail.com Web: www.a2ztaxcorp.com

KVP relaunched ,Main Features of New KVP Scheme


Finance minister Arun Jaitley relaunched Kisan Vikas Patra (KVP) the small savings scheme on 18 November that was discontinued earlier.The product is being relaunched to provide an easy instrument of saving to those who don’t have access to other such instruments and have to, therefore, go with cash or buy gold and silver. The finance minister had stated in the budget in July that he wanted to re-introduce the product. “KVP has been reintroduced to give direction to the money lying idle in the bank or in form of cash, both banked and unbanked savings,” reiterated Jaitley at the launch in New Delhi. He also said that domestic savings rate had fallen to below 30% and hence it was important to encourage domestic savings. 

What is KVP? Should you invest? Read on to find the answers.

  1. Denomination of Certificates.—The Kisan Vikas Patra shall be issued in denominations of Rs. 1,000/-, Rs. 5,000/-, Rs.10,000/- and Rs. 50,000/-.
  2. Amount invested in KVP shall be doubled in 100 months.
  3. Maturity period is 100 month.
  4. These can be purchased in single or Joint Name.
  5. KVP can be purchased from POST office.Banks shall also be allowed the KVP in future.
  6. It can be purchased in cash or by Local Cheque.Further you can buy through post office saving account also.
  7. Certificate can be transferred from One post office to another post office or one Bank Branch to another bank Branch.
  8. This is not a bearer document and can not be transferred merely by physical delivery.
  9. Certificate can be transferred from one person to another person after one year from date of purchase.
  10. These certificate can be pledged after one year from date of purchase.
  11. Duplicate certificate can also be requested if original is lost.
  12. Nomination facility is also available.
  13. Post maturity interest shall be paid at post office saving bank rate calculate as simple interest.
  14. Original certificate is to be presented to encash the certificate on maturity.
  15. Encashment can be requested only at the post office branch where originally certificate purchased or where transferred later on.
  16. The certificate can not be encashed before maturity except in few exceptions .Further interest @ post office saving bank interest shall be paid if encashment is requested before two and half years from date of purchase.Further ,if encashment is requested after 2.5 years then maturity amount will be paid as per table given at sr no 17 in the notification.
  17. Interest earned on KVP is taxable in the hand of recipient.
  18. For investment amount more than 50000 ,pan number is also to be supplied .
  19. Product is not available Online.
  20. 80C deduction available on KVP.(however new issue is yet to be notified)

Small Savings Schemes Which are Simple, Safe and Easy to Access Kisan Vikas Patra Scheme Relaunched


The Union Finance Minister Shri Arun Jaitley asks the people to increase their domestic savings and invest the same in small savings schemes like Kisan Vikas Patras (KVPs). He said that money invested therein is being used for undertaking various development activities in the country for the benefit of the people at large. The Finance Minister said that in last few years due to slower rate of economic growth, the rate of domestic savings had come below 30 % while it had once touched the peak of 36.8%. He stressed the urgent need for raising the domestic rate of savings. The Union Finance Minister Shri Arun Jaitley said that the people need to be careful from privately run ponzi schemes which are both unsafe and risky even though offering little higher rate of interest. He said that this many times also results in loss of their hard earned income. He said that they may rather go for the Government run small savings schemes which are safe, simple and easy to access.. The Finance Minister said that on the other hand, in order to attract the small savings of the people, the Government should bring-out from time to time attractive small savings schemes befitting the needs of different sections of society especially the poor people. He said that these schemes should not only be simple and safe but also give best possible returns to the people on their investment. He said this is one of the reasons that’s why we have re-launched the Kisan Vikas Patras (KVPs) today. He said that this would also give a direction to bank and unbank savings of the people This scheme is open to everyone including the farmers.

The Finance Minister Shri Arun Jaitley was speaking after re-launching the Kisan Vikas Patra (KVP) scheme at a function here today. He said that investment in KVP would become double in 100 months. He hoped that those who want to increase their savings and get good returns on the same, would make best use of the KVP. He said that this will not only help the investors but also the society at large He said that initially this scheme would be operated through post offices but later would be operated through banks as well. He distributed the Certificates to various persons including Ms Santosh who was the First woman to buy KVP and Shri Har Prakash, the first man to buy KVP among others on this occasion. 

Earlier speaking on the occasion Shri Ravi Shankar Prasad, Union Minister for Communication and IT said that saving money is part of our habit and culture. He said that we need a financial instrument which is safe to attract the savings of the people. He said that there is a special attachment to KVPs especially of the poor people and farmers. He said that it is not only an instrument of savings but the farmers have also an emotional attachment with it. He said that he doesn’t understand why this scheme was discontinued .He said that he is happy that Postal Department and small savings are linked together for years. He said that there are more than 30 crore 8 lakh postal account holders in the country and more than 60 small saving schemes are being operated through the Postal Department. He said that there are more than 1.54 thousand postal centres in the country which can be best suited for implementing the programmes relating to financial inclusion especially in rural areas. He further added that there is a need for Postal Department to reincarnate itself in a new format to meet the changing needs of the people at large. 

Shri Rajiv Mehrishi, Finance Secretary, Ms. Kavita, Secretary, Department of Posts, Shri Rajat Bhargava, Joint Secretary (Budget), Department of Economic Affairs (DEA),Ministry of Finance and other senior officers of the Ministry of Finance and Department of Posts and National Small Savings Organizations were also present among others on this occasion.

Monday, November 17, 2014

All about TDS on Rent under section 194-I


The person (not being an Individual or HUF) who is responsible for paying any income to resident by way of rent is liable to deduct tax at source in case the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to payee exceeds Rs. 1,80,000/-. Individuals and /or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source. The limit of Rs. 1,20,000/- was enhanced to Rs. 1,80,000/- w.e.f. 1.7.2010.

Saturday, November 15, 2014

Service tax on Restaurants and Hotels


We are sharing with you an important judgment of Division Bench of the Hon’ble Kerala High Court in the case of Union of India and Others Vs. Kerala Bar Hotels Association and Others [2014-TIOL-1913-HC-KERALA-ST] on the following issue:

Issue:

Whether levy of Service tax on Restaurants under Section 65(105)(zzzzv) of the Finance Act, 1994 (“the Finance Act”) and on Hotel accommodation under Section 65(105)(zzzzw) of the Finance Act constitutionally valid?

Facts and background:

The Hon’ble High Court of Kerala (“Kerala HC”) in the case of Kerala Classified Hotels and Resorts Association and others Vs. Union of India and others [2013-TIOL-533-HC-KERALA-ST] held that levy of Service tax on Restaurants and hotels is beyond legislative competence of Parliament. It was declared that sub-clauses (zzzzv) and (zzzzw) to Section 65(105) of the Finance Act, 1994 (“the Finance Act”) as amended by the Finance Act, 2011 is beyond the legislative competence of the Parliament as the said sub-clauses are covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule. The Kerala HC also allowed refund of Service tax paid by the Petitioners in the stated case. Being aggrieved, the Department filed a Writ Appeal before the Division Bench of the Kerala HC.

The Department placed reliance on the subsequent decision of the Hon’ble High Court of Bombay (“Bombay HC”) in the case of Indian Hotels and Restaurant Association and others Vs. Union of India and others [2014-TIOL-498-HC-MUM-ST] wherein the Bombay HC gave contrary judgment denying the decision of the Kerala HC, stated supra and upheld the constitutional validity of levy of Service tax on AC Bar Restaurants. It was held by the Bombay HC that:
 
  • Service tax or tax on a service, which is made taxable by the Finance Act, is a completely distinct tax. It should not be and cannot be equated with a tax on sale or purchase of goods; 
  • The Parliament cannot be said to have transgressed upon the power of the State Legislature to impose a tax on sale or purchase of goods vide Entry 54 of List II. The taxing power of the Parliament and traceable to Article 248 of the Constitution of India read with Entry 97 of List I of the Seventh Schedule of the Constitution enable it to impose a Service tax.
Held:

Recently, the Division Bench of Kerala HC disposed of the Writ Appeal filed by the Department against the Single Judge’s Order and emphatically endorsed the view of the Single Judge and distinguished the Bombay HC order.

The Division Bench of Kerala HC held as under:


Service Tax on Restaurants under sub-clause (zzzzv) of Section 65(105) of the Finance Act:
  • After the Constitution (46th Amendment), the Restaurant activity is deemed as sale of goods and it cannot be said that it is an activity of service. When the said activity is deemed to be a sale of the food and other articles of human consumption, by a constitutional definition, tax on the said activity can be imposed only by the States in view of Entry 54 in List II of the Seventh Schedule;
  • Since the whole of the consideration received by a Restaurant owner for supply of food and other articles of the human consumption, including the service part of the transaction, is exigible to tax by the State by virtue of the constitutional definition, it is not open to the Union to characterise the same transaction as a service for imposition and levy of Service tax;
  • Evidently, Section 65(105)(zzzzv) of the Finance Act is a matter enumerated in Entry 54 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter.
Service Tax on Hotel accommodation under sub-clause (zzzzw) of Section 65(105) of the Finance Act:

  • The Constitution Bench of the Apex Court in Godfrey Philips India Ltd Vs. State of U.P. [2005-TIOL-10-SC-LT-CB], held that the word ‘luxuries’ in Entry 62 of List II means the activity of enjoyment of or indulgence in something which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society;
  • It is not disputed that invoking Entry 62 of List II, the State legislature had enacted the Kerala Tax on Luxuries and as per the terms of the said statute, the State Government is levying tax on matters covered by Section 65(105)(zzzzw) of the Finance Act;
  • Thus, the matter covered by Section 65(105)(zzzzw) of the Finance Act, is a matter enumerated in Entry 62 of List II of Seventh Schedule and the States alone have the legislative competence to enact any law imposing tax on the said matter.
Accordingly, the Division Bench of the Kerala HC dismissed the Writ Appeal filed by the Department.

Point to note:

Effective from July 1, 2012, there is paradigm shift in taxation of services under the Negative list regime, as definition of all taxable category of services are rescinded and new definition of taxable service in general provided with the chargeable Section 66B of the Finance Act. In this regard, Section 65B(44) of the Finance Act which provides definition of the term ‘Service’ includes declared services but excludes deemed sale of goods covered under Article 366(29A) of the Constitution from the ambit of Service tax. 

Further, in terms of Clause (i) of Section 66E of the Finance Act, service portion in an activity wherein goods, being food or other articles of human consumption or any drink is supplied in any manner as a part of the activity is a declared service. Thus it implies that service provided by Restaurant is a declared service chargeable to Service tax.

As regards, the manner of determination of service portion in such an activity, Rule 2C of Service Tax (Determination of Value) Rules, 2006 (“the Valuation Rules”) inserted vide Notification No. 24/2012-ST dated June 6, 2012 (effective from July 1, 2012) [“Notification No. 24”] provides that a person engaged in AC Restaurant services, wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner at a Restaurant, shall charge Service tax on 40% of the total gross amount charged excluding VAT/ Sales tax, if any, levied thereon.

In this regard, the Hon’ble High Court of Uttarakhand (“the Uttarakhand HC”) in the case of Valley Hotel & Resorts Vs. Commissioner of Commercial Tax, Dehradun [2014-TIOL-600-HC-UKHAND-VAT] has recently held that VAT can be imposed on sale of goods and not on services by holding that:

  • VAT can be imposed on sale of goods and not on service. Service can be taxed as per the Service tax laws; 
  • Therefore, where element of service has been so declared and made chargeable to service tax in terms of the Valuation Rules vide Notification No. 24, no VAT can be imposed thereon. 
Further, the Hon’ble Chhattisgarh High Court (“Chhattisgarh HC”) in the case of Hotel East Park & Another Vs. Union of India & Others [2014 (5) TMI 652 - CHHATTISGARH HIGH COURT], while upholding the Constitutional validity of Section 66E(i) of the Finance Act, held that: 

  • Article 366(29A)(f) of the Constitution does not indicate that the service part is subsumed in the sale of the food, it rather separates sale of food and drinks from service. 
  • On the other hand, Section 65B(44) as well Section 66E(i) of the Finance Act only charges Service tax on the service portion only and not on the sale part. 
But, at the same time, concern was raised on unnecessary double taxation burden on the consumers by Restaurants charging VAT on 100% of the bill value including 40% which has already suffered Service tax. Accordingly, the Chhattisgarh HC recommended the State Government to issue a clarification/ direction in this regard and to ensure that the consumers are not doubly taxed over the same amount.

Therefore, it is quite interesting to see how legal jurisprudence will settle down on issue of levying Service tax on services provided or agreed to be provided by AC Restaurants, which is likely to become even more debated issue in time to come. 

Look forward that Goods and Services Tax (GST) is going to resolve all these double taxation issues.

Bimal Jain
FCA, FCS, LLB, B.Com (Hons.) Flat No. 34B, Ground Floor, Pocket-1, Mayur Vihar, Phase–I, Delhi – 110091 Desktel: +91-11-22757595/42427056 Mobile: +91 9810604563

Bank FDR limit Increased to 150000 under section 80C


[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, 

PART–II, SECTION 3, SUB‐SECTION (ii)] 

GOVERNMENT OF INDIA 

MINISTRY OF FINANCE 

DEPARTMENT OF REVENUE 

(CENTRAL BOARD OF DIRECT TAXES) 

Notification 

New Delhi, the 13th November, 2014. 

(INCOME‐TAX) 

S.O. 2906(E).In exercise of the powers conferred by clause (xxi) of sub‐section (2) of  section 80C of the Income‐tax Act, 1961 (43 of 1961), the Central Government hereby  makes the following amendments to the the Bank Term Deposit Scheme, 2006, namely:‐ 

1. (1) This scheme may be called the Bank Term Deposit (Amendment) Scheme, 2014. 

(2) It shall come into force on the date of its publication in the Official Gazette. 

2. In the Bank Term Deposit Scheme, 2006, in para 3, in clause (1), for the words “one  lakh rupees” ,the words “one hundred and fifty thousand rupees” shall be substituted. 

[[Notification No. 63/2014, F.No.142/09/2014‐TPL] 

(Raman Chopra) 
Director (TPL‐II) 

Note: The principal Scheme was published in the Gazette of India, Extraordinary, Part II,  Section 3, Sub‐section (ii),vide number S.O. 1220(E) dated the 28th  July,2006  and  subsequently amended by notification number S.O. 2127(E), dated 13th December 2007.

The Feature of the scheme are given below

  1. The scheme is meant for individuals and Hindu Undivided Families (HUFs) for deposit in a scheduled bank up to a maximum limit of Rs. 1 lakh(Now 1.5 lakh as notified above). 
  2. This deduction for the deposit is subject to the over-all ceiling of Rs. 1.5 lakh along with other deductions already available under Sec. 80C. 
  3. Joint deposits are also permitted, but the eligibility for deduction will be only to the first holder.
  4.  It is further clarified that the maturity period is five years, with the money being locked up for this period without right to encashment prior to the date of maturity. 
  5. Interest on the term deposit is fixed by the scheduled bank from time to time, so that there is likely to be variation as between banks and at different points of time at the prevailing rate on the date of acceptance of such deposit. 
  6. It is further made clear that the interest income is not tax exempt. 
  7. Interest is taxable on accrual basis or receipt basis according to the regular method of accounting followed by the investor-assessee. 
  8. Tax is required to be deducted at source, if the interest income exceeds Rs. 10,000.(read more about tds here) 
  9. Deduction of tax at source is avoided by filing a self-declaration in Form 15G or 15H, as the case may be, if the investor has no liability to tax. 
  10. The scheme is open not merely to public sector banks, but also to all scheduled banks. 
  11. An individual can hold deposit either in his individual capacity or as the karta of HUF. Since individuals and HUF are two different persons under the income-tax law, it follows that the ceiling of Rs.1 lakh should be separately applicable. 
  12. The nomination facility is also permissible, with right to such nomination made available at any time during the term of the deposit, but before maturity. 
  13. Deposit by a minor is not prohibited, but there will be no right of nomination in such cases. 
  14. Minor can be a joint-holder with an adult. 
  15. The deposit under the scheme has to be in the prescribed form with the fixed deposit receipt bearing Permanent Account Number (PAN) and signature of the assessee along with the name and address and other particulars as may be required by the bank. 
  16. Inter-branch transfer of the deposit is possible. 
  17. There is a specific bar under Rule 9 of the scheme against a pledge of the deposit to secure loans or to have it accepted as security. 
  18. The power to relax the operations of any of the provisions in the scheme has been reserved by the Central Government under Clause 16 of the scheme to the extent that such relaxation is not inconsistent with the provisions of the Income-tax Act.