9th residential study course on service tax & vat b. gabhawalla ... we have great pleasure to...

BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY

9th Residential Study Course on

SERVICE TAX & VAT

Friday to Sunday 19th - 21st June, 2015Leonia Resort, Hyderabad

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Managing Committee 2014-2015

PresidentNitin P. Shingala

Vice PresidentRaman H. Jokhakar

Hon. Joint SecretariesNarayan R. Pasari

Sunil B. Gabhawalla

TreasurerMukesh G. Trivedi

Members

Abhay R. Mehta

Anil D. Doshi

Bharatkumar K. Oza

Chetan M. Shah

Jagdish T. Punjabi

Jayant M. Thakur

Jayesh M. Gandhi

Jayraj S. Sheth

Krishna Kumar S. Jhunjhunwala

Manish P. Sampat

Narayan K. Varma

Nandita P. Parekh

Naushad A. Panjwani

Saurabh P. Shah

Sonalee A. Godbole

Suhas S. Paranjpe

Bombay Chartered Accountants’ Society

Indirect Taxes & Allied Laws Committee

ChairmanGovind G. Goyal

Ex-OfficioNitin P. Shingala

Raman H. Jokhakar

ConvenorsMandar U. Telang

Ravi A. Shah Suhas S. Paranjpe

MembersA. R. Krishnan

Amar N. ShuklaAshit K. ShahBakul B. Mody

Bharat M. ShemlaniBharatkumar K. Oza

Bhavna G. DoshiChandrakant B. Thakar

Chirag B. MehtaHasmukh H. Kamdar

Janak K. VaghaniJayraj S. Sheth

Kanu S. ChokshiNaresh K. ShethParind A. Mehta

Pranay H. MarfatiaPuloma D. DalalRajiv J. Luthia

Rajkamal R. ShahSagar N. Shah

Samir L. KapadiaSanjay M. Dhariwal

Santosh M. JainSaurabh P. Shah

Sunil B. GabhawallaSurendra S. GuptaUday V. SathayeUdayan Chokshi

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Message

We have great pleasure to welcome you to the 9th Residential Study Course on Service Tax & VAT, being organized by Indirect Taxes and Allied Laws Committee of Bombay Chartered Accountants’ Society, from 19th June to 21st June, 2015 at Leonia Resort, Hyderabad.

This paper book, being presented to you, contains four well researched papers contributed by eminent faculty. We are thankful to our paper writers for kindly accepting our invitation and taking time to share their knowledge and experience.

We wish to acknowledge the efforts put in by the conveners and members of Indirect Taxes and Allied Laws Committee who have made this course possible and of course you the participants for joining this course to make it so successful. We are confident that this residential study course will be an enriching and fulfilling experience.

While every effort has been made to take care of the smallest of details, we would be happy to receive your feedback and suggestions for improvements so that future courses can be still better.

Nitin P. Shingala Govind G. GoyalPresident Chairman

Indirect Taxes and Allied Laws CommitteeDated 10th June, 2015

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ABOUT BCASBombay Chartered Accountants’ Society (BCAS) is the oldest voluntary association established over 66 years ago on 6th July, 1949 as a non-profit organisation to serve the profession of chartered accountancy. Today, it has nearly 7,000 members subscribers from across the country and overseas. BCAS through its diversified high quality educational activities ensures that its members keep pace with the challenges of time. Through these ongoing professional educational events on contemporary subjects of importance, the BCAS achieves its vision of disseminating knowledge and harnessing talent.

OUR VISIONBCAS shall be principle-centred and learning oriented organisation to promote quality service and excellence in the profession of Chartered Accountancy and shall be proactive to change.

BCAS shall harness talent of and disseminate knowledge to members, build skills and networks amongst them and encourage them to adhere to highest ethical standards and professional integrity.

BCAS shall provide to students an environment conducive to the pursuit of knowledge and encourage them to achieve their potential to become complete Chartered Accountants. BCAS shall also conduct citizens’ education programmes.

BCAS shall be a catalyst for bringing out better and more effective Government policies and laws for clean and efficient administration and governance.

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9th Residential Study Course on Service Tax & VAT

Friday to Sunday 19th June to 21st June 2015 Venue: Leonia Resort, Hyderabad

Subjects & Paper Writers

Papers for Discussion

Case Studies on Taxation of Services

(With reference to Valuation, Exemptions, Point of Taxation and Place of Supply Rules)

Adv. S. Thirumalai

Case Studies on CENVAT Credit Adv. L. Badrinarayanan

Service Tax & VAT on IT, IT Enabled Services and E-commerce Transactions

Adv. K. Vaitheeswaran

Papers for Presentation

Controversies in Service Tax – Burning Issues under Indirect Taxes

Adv. J. K. Mittal

GST – Recent Developments and Expectations CA Jayraj Sheth

Group Leaders

1 2 3

Case Studies on Taxation of Services

(Valuation, Exemptions, POT & POS)

Case Studies on CENVAT Credit

Service Tax & VAT on IT, IT Enabled Services and

E-commerce Transactions

Adv. S. Thirumalai Adv. L. Badrinarayanan Adv. K. Vaitheeswaran

Friday, 19th June 2015 Saturday, 20th June 2015 Sunday, 21st June 2015

Abhishek Doshi Leena Talathi Jayesh Gogri

Mandar Telang Nilesh Suchak Pranav Mehta

Sudhir V. S. Sanjay Burad Samir Kapadia

Virendra Parwal Srikant Shenoy Vikram Mehta

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9th Residential Study Course on Service Tax & VATFriday to Sunday 19th June to 21st June 2015

Venue: Leonia Resort, Hyderabad

PROGRAMME SCHEDULEFriday, 19th June, 2015

12.00 noon onwards : Welcome & Check-in12.30 to 02.00 pm : Lunch03.30 to 05.30 pm : Group Discussion (Paper I) “Case Studies on Taxation of Services” (With reference to Valuation, Exemptions, Point of Taxation and Place of Supply Rules)05.30 to 06.00 pm : High-tea06.15 to 08.30 pm : General Assembly – 1. Inaugural Session: 2. Presentation of paper and reply to queries by Paper Writer: Advocate S. Thirumalai8.30 to 10.00 pm : Dinner

Saturday, 20th June, 2015

07.30 to 08.15 am : Breakfast08.30 to 10.30 am : Group Discussion (Paper II) – “Case Studies on CENVAT Credit”10.45 to 01.45 pm : General Assembly – 1. Presentation of Paper IV by: Advocate J. K. Mittal “Controversies in Service Tax” 2. Presentation of Paper and reply to queries by Paper Writer: Advocate L. Badrinarayanan01.45 to 02.30 pm : Lunch03.00 to 08.00 pm : In-house Programs/sports08.30 to 10.00 pm : Dinner

Sunday, 21st June, 2015

07.30 to 08.15 am : Breakfast

08.30 to 10.30 am : Group Discussion (Paper III) –

“Service Tax & VAT on IT, IT Enabled Services and E-commerce Transactions”

10.45 to 01.45 pm : General Assembly –

1. Presentation of Paper V by: CA Jayraj Sheth

“GST – Recent Developments and Expectations”

2. Presentation of Paper and reply to queries by

Paper Writer: Advocate K. Vaitheeswaran

01.45 to 02.30 pm : Lunch

3.00 pm : Vidai

Note: Leonia Holistic Destination, Bommaraspet, Shameerpet, Ranga Reddy District, Hyderabad 500 078, India. Phone: +91-40-6640 0000.

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Our Faculty

Adv. S. Thirumalai

With over four decades of professional experience in general management and tax consulting/tax litigation, he has worked with a large MNC in India holding senior Board level positions including a stint at its headquarters in U.K. He is presently an independent director on the Board of Directors of the Company. He joined Deloitte as a tax partner in Hyderabad office in April 2001 heading the National Indirect tax practice. From July 2008 till March 31, 2015 he was Senior Advisor on Indirect tax matters for Deloitte based in Hyderabad (India) and heading the National Litigation Practice.

He was a direct recruit officer at the Reserve Bank of India/Unit Trust of India. With his extensive experience in industry and consulting has assisted numerous domestic and multinational companies including large PSU’s in planning and structuring for business issues and in representation before various authorities and judicial forums..

Presently he is an independent practitioner in the field of indirect taxation representing clients before various departmental and judicial forums. He is a frequent speaker on taxation and general management issues and has represented Chambers of Commerce in Governmental Committee on Revenue Reforms including introduction of VAT. He has presented several papers at National and International Conferences. He is on the guest faculty for the Institute of Chartered Accountants of India in the area of indirect taxation and was the faculty at the financial statement analysis workshop for Senior Customs, Central Excise and Service tax officers held at Vigyan Bhavan, New Delhi and faculty at the NACEN Hyderabad for IRS probationers. He is also a visiting faculty for several Management Institutions. He was President of the Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry. Presently, he is an advisor on its Indirect tax Committee and also represents the Federation on the Zonal Advisory Committee for Customs, Central Excise and Service tax.

He is a graduate in Law and a Fellow member of the Institute of Chartered Accountants of India (ICAI), Fellow member of the Institute of Company Secretaries of India and also a Certificated Associate of the Indian Institute of Bankers. He is an alumni of the Harvard Business School, Boston., MA (USA) and has attended the Advanced Management Program.

His special attainments: stood first in his graduate degree in Commerce from the Loyola College, Madras University; first among the students of the Southern Region of the ICAI who appeared for the Intermediate examination and secured the Merit Scholarship of the ICAI and in the final ICAI examination was awarded the A. F. Ferguson’s prize for the best paper in auditing besides being placed on the Merit list of the ICAI. He was awarded the N. C. Sengupta’s prize for the highest aggregate marks in the CAIIB examination.

E-mail: [email protected]

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Adv. Jai Kumar Mittal

Adv. J. K. Mittal, a law graduate from Delhi University, is a practicing Advocate in the Supreme Court and High Court in various fields of law. Service tax is one of the favourite fields of his practice. He is a Fellow Member of The Institute of Chartered Accountants of India as well as The Institute of Company Secretaries of India. He has also cleared the Post-Qualification Course of the Institute of Chartered Accountants of India in Management Accountancy.

Adv. Mittal is associated with indirect taxes, particularly with service tax law for many years now. He is co-chairman of the National Council on Indirect Taxes, ASSOCHAM, New Delhi.

In the past, he has been Chairman of Indirect Taxes Committee of the P.H.D. Chamber of Commerce and Industry (PHDCCI), New Delhi, Convenor of the Excise and Customs Study Group and Advisor for the Service Tax Study Group of Northern India Regional Council of ICAI. He has also been a part of various committees of the Northern India Regional Council of ICSI, besides being a member of the Committee constituted by the Ministry of Finance, Government of India, to look into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency.

Adv. Mittal is a member of the Supreme Court Bar Association and has been honoured by them on the occasion of Law Day consecutively since year 2006. Adv. Mittal has been honoured by the Delhi High Court Bar Association in August 2014. Adv. Mittal has been conferred an award for exemplary contribution for the cause of the profession by the NIRC of ICAI as well as by ICSI. Apart from above, he has also been the recipient of the Best

Adv. L. Badri Narayanan,

Partner, Laksmikumran & Sridhran, Mumbai

Adv. Badri Narayanan is a litigator practising at the firm in the area of tax, intellectual property and regulatory laws. His practice has focused on advocacy practice for services and technology companies before the Bombay High Court, Tribunals and quasi-judicial authorities.

Adv. Narayanan has particular experience in Goods & Service Tax (GST) laws and has been involved in counselling companies on key issues concerning supply chain. He has expertise in E-commerce and has advised some of the largest E-commerce companies on collaboration and operations in India to comply with regulatory, tax and intellectual property laws. In the area of software, Adv. Narayanan has handled a variety of issues including protection of software in India, shrink-wrap and click-wrap contracts, introduction of new licensing models for distribution of software, open source software, taxability of software in India and transfer pricing and customs valuation studies.

Prior to joining the firm, Mr. Narayanan practised as an intellectual property lawyer in the United States and has drafted and negotiated intellectual property licensing and cross-licensing arrangements. He has also been involved in several patent litigation matters in the United States.

Adv. Narayanan holds Bachelor’s Degree in Physics from St. Stephen’s College, University of Delhi, Law Degree from the University of London and Master’s Degree in Law from the Cornell Law School. He is admitted to practice in India and New York and is a qualified patent agent in India.

Email: [email protected]

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CA Jayraj S. Sheth, Partner, Tax & Regulatory Services Ernst & Young LLP, Mumbai

CA Jayraj Sheth is a Partner in the indirect tax vertical of Ernst & Young LLP, Mumbai. Before joining Ernst & Young LLP, he was Senior Vice President at Reliance Industries Ltd. He headed Indirect Tax function at Reliance Retail Limited for four years. For three years, he was Head of Indirect Taxation-cum-Financial Controller for Reliance Jio Group of Companies, which have embarked on providing state of the art 4G Tele communication Services.

His prior stints include being a Director in the Indirect Tax Function of BSR & Co. (associate Firm of KPMG International), Mumbai and being a partner of M/s. B. S. Mehta & Co., Chartered Accountants.

He is a Fellow Member of the Institute of Chartered Accountants of India (16th Rank in Inter C.A.). He is also a Bachelor of General Laws and a Graduate of Commerce.

He has more than 28 years of professional and business experience. He has worked in the fields of direct and indirect taxes and corporate laws. He also has considerable experience in corporate restructuring, business/share valuations etc.

During the past 14 years, he has worked extensively in indirect taxes viz. Service tax, VAT, Excise duty and Customs duty. He has handled assignments involving advisory, compliance and litigation work in these areas as well as the areas of SEZ and Foreign Trade Policy.

He was Chairman of Indirect Taxation Committee of Indian Merchants’ Chamber during the year 2010-11 and has been an active member of this Committee for the past five years. He is also a member of the Managing Committee of Bombay Chartered Accountants’ Society.

CA Jayraj Sheth has regularly been interacting with the tax authorities during the course of meetings of Chambers of Commerce and Industry, Workshops, Seminars and other related work.

He is regularly delivering lectures on Indirect Taxes at various Meetings / Seminars / Workshops organized by various trade / industry / professional bodies like the Institute of Chartered Accountants of India, Bombay Chartered Accountants’ Society, CII, Indian Merchants’ Chamber and Bombay Chamber of Commerce & Industry.

E-mail: [email protected]

Study Group award for the Excise and Customs Study Group from the NIRC of ICAI. He was selected as the best participant of the Secretarial Modular Training Programme (SMTP) of the NIRC of ICSI.

Over the years, Adv. Mittal has authored several books on service tax and has also prepared the background material for a number of important conferences & seminars on the subject. Adv. Mittal has also authored first book on GST –“Introduction to GST”. He has addressed many conferences, seminars and workshops organised by various professional bodies, chambers of commerce and trade associations all over India. He has always been active in interacting with senior government officials at various levels, making representations and raising issues on important matters.

Email: [email protected]

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Mr. K. Vaitheeswaran, Advocate & Tax Consultant

After completing his B.L. from Madras Law College, Mr. Vaitheeswarn enrolled as an Advocate in 1990. He is Grad C.W.A. from The Institute of Cost & Works Accountants of India and has also passed the Final Examinations conducted by The Institute of Company Secretaries of India.

He joined the offices of M/s. Subbaraya Iyer, Padmanabhan and Ramamani in the year 1990 and became a partner in 1998. Started own legal practice based in Chennai with office in Bangalore from 2000 and is currently providing advisory as well as litigation services across the country in the areas of

(i) Direct Taxes including International Taxation;

(ii) Excise, Customs, Service Tax, VAT and Sales Tax.

(iii) Company Law

(iv) FEMA and FDI

(v) Arbitration.

He also specializes in negotiation and drafting of international and domestic contracts in different verticals such as technology, aviation, hospitality, telecom, infrastructure and real estate.

He has over 25 years of experience in handling matters of Multinationals, Major Corporates all over India in advisory capacity as well as through appearance before Appellate Authorities, Tribunals and Courts in Corporate Law and Tax matters.

Domain Expert on Direct and Indirect Tax in the country handling variety of issues arising all over the country he has held several position at various associations and currently, he is

(i) Member of the General Committee Madras Chamber of Commerce and Industry;

(ii) Member South India Council, Indo-American Chamber of Commerce;

(iii) Member Finance and Taxation Committee CII, Southern Region

(iv) Chairman of the Expert Committee on Indirect Taxes, Madras Chamber of Commerce and Industry;

(v) Member Company Law Committee Madras Chamber of Commerce and Industry;

(vi) Head of the Working Group on GST, CII, Southern Region

(vii) Member, Taxation Committee, Indo-American Chamber of Commerce, Chennai Chapter.

(viii) Member Taxation Committee, FICCI.

(ix) Member of the Editorial Board of Consolidated Commercial Digest.

(x) Member, Regional Advisory Committee, Service Tax Commissionerate, Chennai.

He has authored many books such as:-

(i) VAT IN INDIA – 2005

(ii) CENVAT - Demystified for Professionals – 2008

(iii) Handbook on Indirect Taxes for CA final students – Running 19th Edition

He has addressed numerous seminars, conferences and delivered lectures on various subjects such as GST, VAT, Service Tax, Excise, Customs, Income Tax, Companies Act, 2013 and FEMA in various programs organized by CII, MCCI, ICAI, ICSI, IACC, HCC, SICC, across the country.

E-mails: [email protected], [email protected]

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9th Residential Study Course on Service Tax & VATFriday 19th June to Sunday 21st June 2015

Venue: Leonia, Hyderabad

List of Participants

Sr. No.

Name of the Member CityGroups

E-mailDay 1 Day 2 Day 3

1 Abhishek P. Doshi Rajkot A A A [email protected]

2 Abhishek R. Mahawar Raipur B C D [email protected]

3 Ajay K. Bikkinelly Secunderabad C D A [email protected]

4 Ajay Singhal Raipur D B C [email protected]

5 Alok Kumar Pansari Mumbai A C D [email protected]

6 Alpa Dhanak Hyderabad A C A [email protected]

7 Amish J. Khandhar Ahmedabad C D B [email protected]

8 Amitabh J. Khemka Mumbai D B A [email protected]

9 Ankit A. Joshi Mumbai A B C [email protected]

10 Ankit Nagda Mumbai D C A [email protected]

11 Archit Agarwal Mumbai C D A [email protected]

12 Arvind K. P. Coimbatore D C A [email protected]

13 Ashish M. Chaudhary Gurgaon A B C [email protected]

14 Ashit K. Shah Mumbai B D A [email protected]

15 Atul R. Mathuria Mumbai C C B [email protected]

16 B. Murali Krishna Vijayawada D A C [email protected]

17 Bharat M. Shemlani Mumbai C A C [email protected]

18 Bharatkumar K. Oza Mumbai B B C [email protected]

19 Bhavin S. Mehta Mumbai C D A [email protected]

20 Biju Chandran Chennai C C B [email protected]

21 Bishan R. Shah Ahmedabad B C B [email protected]

22 Ch. Seshagiri Rao Secunderabad C B D [email protected]

23 Chandrakumar L. Baldota Solapur A A C [email protected]

24 Chetan R Parakh Pune B A C [email protected]

25 Chirag B. Mehta Mumbai C B A [email protected]

26 Chirag H. Vejani Mumbai D C B [email protected]

27 Daviender S. Nagpal New Delhi A C D [email protected]

28 Deepak H. Thakkar Mumbai A A C [email protected]

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Sr. No.



29 Deven B. Shah Mumbai C A B [email protected]

30 Devendra Kataria Kota D C A [email protected]

31 Divya Subramanian Mumbai C A D [email protected]

32 Durga Prasad Knv Hyderabad A A B [email protected]

33 Eswaraiah Kakarla Hyderabad B B C [email protected]

34 G. Yashvanth Chennai C A D [email protected]

35 Ganesh Prabhu Balakumar Chennai D C A [email protected]

36 Gaurav Thakkar Visakhapatnam A A D [email protected]

37 Girish Raman Mumbai B B B [email protected]

38 Govind G. Goyal Mumbai C C B [email protected]

39 H. K. Anandraj Nahar Chennai D D C [email protected]

40 Haresh V. Kagrana Mumbai A C B [email protected]

41 Harsha Vardhan Sri Hyderabad B B A

42 Hem M. Chhajed Ahmedabad D D B [email protected]

43 Hemakshi Jain Mumbai B C B [email protected]

44 Hemang R. Shah Mumbai B D C [email protected]

45 Hemant R. Shethia Mumbai C D B [email protected]

46 Hemanth H. Bhandari Chennai D C B [email protected]

47 Hemantkumar V. Shah Mumbai A D B [email protected]

48 Hukam Singh Ghaziabad B D A [email protected]

49 Jalpesh K. Vora Mumbai C A D [email protected]

50 Jatin Harjai Jaipur D B A [email protected]

51 Jayesh M. Gogri Mumbai A A A [email protected]

52 Jayesh P. Doshi Jalgaon B B D [email protected]

53 Jayesh Ramanlal Shah Mumbai C C B [email protected]

54 Jinit R. Shah Mumbai D C B [email protected]

55 Jitendra D. Patel Thane A D B [email protected]

56 Jitendra Kumar Pulavarthy Hyderabad D B A [email protected]

57 Karnvel Ashar Pune B B D [email protected]

58 Ketan M. Mamania Mumbai C D A [email protected]

59 Keval S. Shah Mumbai D A B [email protected]

60 Leena A. Talathi Mumbai A A A [email protected]

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Sr. No.



61 Leena Doshi Mumbai C A D [email protected]

62 M. N. Reddy Hyderabad B A C [email protected]

63 Mahendra Kumar Jain Vijayawada C A B [email protected]

64 Mallikarjuna . Kondapaneni Hyderabad D C A [email protected]

65 Mandar U. Telang Mumbai B B B [email protected]

66 Manindar Kakarla Hyderabad B C D [email protected]

67 Manish R. Gadia Mumbai A A D [email protected]

68 Manmohan R. Sharma Mumbai D B C [email protected]

69 Manoj Chauhan Mumbai B C B [email protected]

70 Manthan Patni Pune B C D [email protected]

71 Mehul Jivani Mumbai C C D [email protected]

72 Minaxi V. Doshi Mumbai D D C [email protected]

73 Mohan Babu Chennai A C B [email protected]

74 Mohanan Ananthan Ernakulam A A C [email protected]

75 Naresh K. Sheth Mumbai A B C [email protected]

76 Neelesh V. Vithlani Hyderabad C D A [email protected]

77 Nidhi Mapuskar Mumbai D A B [email protected]

78 Nilesh V. Suchak Ahmedabad B B B [email protected]

79 Nitesh J. Jain Ahmedabad B D C [email protected]

80 Nitin Goyal Gurgaon C D B

81 Nitin M. Furia Mumbai D B C [email protected]

82 Omprakash D. Bihani Mumbai A B D [email protected]

83 Padam Kumar Jain Raipur A B D [email protected]

84 Parag G. Mehta Mumbai C C A [email protected]

85 Parind A. Mehta Mumbai D D D [email protected]

86 Parita D. Shah Mumbai B D B [email protected]

87 Payal R. Shah Mumbai B A C [email protected]

88 Pinninti Mohana Rao Hyderabad C B D [email protected]

89 Pramod P. Jain Thane D C B [email protected]

90 Pranav P. Mehta Mumbai B B B [email protected]

91 Praveen K. Shetty Mangalore B C D [email protected]

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Sr. No.



92 Pravin R. Dhandharia Ahmedabad C A D [email protected]

93 Premal H. Gandhi Mumbai D A C [email protected]

94 Rahul Lakhwani Jaipur A A B [email protected]

95 Rahul R. Gabhawala Varanasi B B A [email protected]

96 Rajdatta S. Oak Thane C B A [email protected]

97 Rajesh G. Dasija Mumbai D D A [email protected]

98 Rajesh M. Agrawal Chhattisgarh A C B [email protected]

99 Rajesh Shridhar Godse Dombivali B D A [email protected]

100 Rajeshkumar P. Jain Mumbai C A D [email protected]

101 Rajiv J. Luthia Mumbai D D D [email protected]

102 Rajiv M. Rao Mumbai A D A [email protected]

103 Rajiv Pandey Jaipur B C D [email protected]

104 Rajkamal R. Shah Mumbai B B B [email protected]

105 Ramachandra Rao Tadepalli Hyderabad D C D [email protected]

106 Raman Jokhakar Mumbai B C A [email protected]

107 Ramesh Vangala Hyderabad B C D [email protected]

108 Ranjitsingh A. Rajput Thane A C B [email protected]

109 Rashmin S. Vaja Ahmedabad D B A [email protected]

110 Rishit M. Bagadia Ahmedabad A A B [email protected]

111 Sai Baba Nalla Secunderabad B D A [email protected]

112 Samba Murthy Pachchalla Secunderabad C A B [email protected]

113 Samir L. Kapadia Mumbai C C C [email protected]

114 Sanjay Kumar Agarwal Raigad A B D [email protected]

115 Sanjay M. Dhariwal Bangalore D D C [email protected]

116 Sanjaykumar S. Burad Nashik C C C [email protected]

117 Santosh M. Jain Mumbai D D C [email protected]

118 Saurabh P. Shah Mumbai A D C [email protected]

119 Shaileen V. Dalal Mumbai B B C [email protected]

120 Shailesh P. Sheth Mumbai C C C [email protected]

121 Shekhar M. Kulkarni Thane A D C [email protected]

122 Shital J. Gosalia Mumbai C B D [email protected]

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Sr. No.



123 Shrenik A. Shah Mumbai B B A [email protected]

124 Sivadas Chettoor Palakkad C A B [email protected]

125 Smita D. Thakkar Mumbai D B C [email protected]

126 Sreenivasa Rao Guduru Hyderabad A B D [email protected]

127 Srikant S. Shenoy Mumbai D D D [email protected]

128 Srinivas Mohan H. Erra Kakinada C D A [email protected]

129 Sudhir V. S. Hyderabad C C C [email protected]

130 Suhas P. Bora Pune A A D [email protected]

131 Suhas S. Paranjpe Mumbai B A C [email protected]

132 Sumit Kedia Chennai C A B [email protected]

133 Sunil B. Gabhawalla Mumbai A A A [email protected]

134 Sunil Kumar R. Chennai A D C [email protected]

135 Swapna Rupala Secunderabad B D C [email protected]

136 T. Srinivasa Rao Visakhapatnam C B D [email protected]

137 Uday V. Sathaye Mumbai D A B [email protected]

138 Usha Kadam Mumbai A B D [email protected]

139 Vaibhav Kisanlal Jajoo Ahmedabad B A C [email protected]

140 Varun Rathi Secunderabad C A D [email protected]

141 Velayudham P. Manavalan Chennai D C A [email protected]

142 Vijay Anand Viswanath Chennai A B D [email protected]

143 Vijaya B. Alaram Hyderabad B D A [email protected]

144 Vikram D. Mehta Mumbai D D D [email protected]

145 Vinay Gandhi Billapati Anakapalle D B A [email protected]

146 Vipulchandra H. Mehta Mumbai A B C [email protected]

147 Virendra Parwal Jaipur D D D [email protected]

148 Yaramosu Hanumantha Rao Hyderabad C B A [email protected]

149 Yash D. Parmar Mumbai D A C [email protected]

150 Yash Dhadda Jaipur A D B [email protected]

151 Yogesh K. Katariya Pune B A C [email protected]

xvi

From the Archive

1ST RESIDENTIAL STUDY COURSE ON SERVICE TAX

Dates: 6th to 8th April, 2007 Venue: Hotel Usha Ascot, Matheran

No. of Participants: 106

President: Himanshu V. Kishnadwala Chairman: Dilip V. Lakhani

Co-Chairman: Govind G. Goyal

Convenors: Anup P. Shah, Raman H. Jokhakar and Sunil B. Gabhawalla

Topics Paper Writers

Papers for Group Discussion

Import and Export of Services CA Jayraj Sheth

CENVAT Credit Mechanism for Service providers Adv. Vipin Jain

Valuation of Taxable Services CA Puloma Dalal


Impact of VAT on Service Tax : Some Issues CA Parind A. Mehta

Real Estate Transaction Service Tax Implications CA Sunil B. Gabhawalla

2ND RESIDENTIAL STUDY COURSE ON SERVICE TAX

Dates: 7th to 9th December, 2007 Venue: Treasure Island Resort, Lonavala


President: Rajesh S. Kothari Chairman: Pranay H. Marfatia

Co-Chairman: Govind G. Goyal

Convenors: Raman Jokhakar, Shardul D. Shah and Sunil B. Gabhawalla



Service Tax & VAT on Composite Transactions Adv. P. K. Sahu

Service Tax on Financial Services CA Sunil Kothare

Case Studies in Service Tax CA A. R. Krishnan


Service Tax on Cross Border Transaction Rohan Shah, Solicitor

Applicability of excise provisions and propositions on Service tax CA S. S. Gupta

xvii

3RD RESIDENTIAL STUDY COURSE ON SERVICE TAX

Dates: 6th to 8th March, 2009 Venue: Treat Resort, Silvassa


President: Anil Sathe Chairman: Pranay H. Marfatia

Convenors: Raman H. Jokhakar, Satish B. Kanodia and Toral C. Mathuria



Recent issues in CENVAT Credit Rules Service Tax Perspective CA Bakul B. Mody

Case Studies on Information Technology & Software Services – VAT & Service tax perspective


Case Studies in Service Tax Adv. V. Raghuraman


Adjudication and Appellate Procedure in Service Tax Adv. Naresh S. Thacker Adv. Karthik Sundaram

Service Tax Compliance – Putting Systems & Procedures in Place CA Nihal Kothari

4TH RESIDENTIAL STUDY COURSE ON SERVICE TAX

Dates: 2nd to 4th July, 2010 Venue: Silent Hill Resort, Manor, Palghar


President: Ameet N. Patel Chairman: Pranay H. Marfatia

Convenors: Suhas S. Paranjpe and Toral C. Mathuria



Case Studies on Works Contracts Adv. V. Sridharan

Case Studies on Refunds & Rebates Adv. M. H. Patil

Case Studies on the Topics other than Above Adv. K. S. Ravi Shankar


GST – Way Forward Adv. Santosh Dalvi

SEZ – Indirect Tax Issues Adv. Prasad Paranjpe

xviii

5TH RESIDENTIAL STUDY COURSE ON SERVICE TAX & VAT

Dates: 24th to 26th June, 2011 Venue: The Corinthians, Pune


President: Mayur B. Nayak Chairman: Govind G. Goyal

Convenors: Sunil B. Gabhawalla, Toral N. Mehta and Suhas S. Paranjpe



Recent Amendments to CENVAT Credit Rules & Impact thereof Adv. Shailesh Sheth

Indirect Tax Issues in Media & Entertainment Industry CA Parind Mehta

Controversies in Service Tax - Case Studies Adv. G. Shivadass


Dual Taxation and Levy of Service Tax on Hotels & Restaurants CA S. S. Gupta

Practice in Service Tax – Some Musings CA A. R. Krishnan


Dates: 22nd to 24th June, 2012 Venue: Rio Resort, Arpora, Goa


President: Deepak R. Shah Chairman: Govind G. Goyal

Convenors: Santosh M. Jain, Sunil B. Gabhawalla and Suhas S. Paranjpe



Negative List based Taxation of Services, Concept Definitions, Exclusions, Exemptions and Valuation

CA Sunil Gabhawalla

Sale versus Service – Overlap of VAT and Service Tax Adv. P. K. Sahu

Case Studies on Point of Taxation Rules, 2011 CA A. R. Krishnan

Indirect Tax issues in Real Estate Industry – Case Studies Adv. K. Vaitheeswaran

Paper for Presentation

Analysis of Place of Provision of Services Rules CA A. R. Krishnan

xix


Dates: 14th to 16th June, 2013 Venue: Express Inn, Nashik


President: Deepak R. Shah Chairman: Govind G. Goyal

Convenors: Sunil B. Gabhawalla, Suhas S. Paranjpe and Santosh M. Jain



Case Studies on CENVAT Credit Rules Adv. Bharat Raichandani

Case Studies on Negative List and Reverse Charge Mechanism under Service Tax (and Rules of Interpretation)

CA S. S. Gupta

Case Studies – Indirect Taxes on Hospitality Industry (Hotels, Restaurants, Caterers, etc.)

CA Parind Mehta


Implications of Service Tax on Logistic Sector Adv. Prasad Paranjpe

Power to Arrest, Offences, Prosecution and Recoveries under Service Tax law

CA Girish Raman


Dates: 13th to 15th June, 2014 Venue: Khanvel Resort, Silvassa


President: Naushad A. Panjwani Chairman: Govind G. Goyal

Convenors: Mandar U. Telang, Suhas S. Paranjpe, Sunil B. Gabhawalla



Service Tax on Cross Border Transactions Adv. Kaustuv Sen

Critical Issues in Taxation of Works Contracts – Service Tax and VAT

Sr. Adv. N. Venkataraman

Case Studies in Valuation of Taxable Services (including bundled services)

Adv. V. Raghuraman


Landmark Judgments (Indian and European Courts): laying down important concepts and Principles in Indirect Taxation

Sr. Adv. V. Sridharan

Intangibles – Indirect Taxes Issues CA Bhavna Doshi

xx

Topics Paper Writer Page No.

1. Case Studies on Taxation of Services Shri S. Thirumalai Advocate

1-40

2. Case Studies on CENVAT Credit Shri L. Badri Narayanan Advocate

41-46

3. Service Tax & VAT on IT, IT Enabled Services and E-commerce Transactions

Shri K. Vaitheeswaran Advocate

47-50

4. Controversies in Service Tax – Burning Issues under Indirect Taxes

Shri J. K. Mittal Advocate

51-60

Contents

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VALUATION UNDER SERVICE TAX

IntroductionService tax in terms of the Finance Act, 1994 is levied at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. Accordingly, once the taxability of any service is established the next step is to determine the value of the service for purpose of levy of tax. Therefore, value of service provided is relevant for determining the amount of service tax payable when a taxable service is provided by one person to another.

Valuation of services unlike in the case of tangible property cannot be determined based on physical attributes and quality alone. As a logical concomitant, the Central Government introduced provisions governing valuation of taxable services for charging Service. Section 67 of the Finance Act, 1994 and Service Tax (Determination of Value) Rules, 2006 {‘Valuation Rules’} provide the basis to determine the value of taxable services under different circumstances.

Analysis of Section 67 and Valuation RulesIn terms of Section 67(1)(i) of the Act, in case provision of service is for consideration in money, then the value of taxable service shall be the gross amount charged by the service provider for such service provided or agreed to be provided by him.

The term ‘consideration’ has been defined in Explanation (a) of Section 67 to include any amount that is payable for the taxable services provided or to be provided. However, vide the Finance Bill 2015, the term consideration has been amended to also include within its ambit “any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed” and “any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket” (amendment to be effective from the date of enactment of the Finance Bill).

Further, ‘Gross amount charged’ has been defined in Explanation (c) of Section 67 to include payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

As per section 67(i)(ii) of the Act, where the consideration received is not wholly or partly consisting of money the value of taxable service shall be the equivalent money value of such consideration.

Case Studies on Taxation of Services (Valuation, Exemptions, POT & POPS)

Adv. S. Thirumalai


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However, there may be several situations wherein it may be difficult to determine the consideration received by service provider for provision of a service. Such situations can arise on account of several factors such as consideration of service being embedded in the total amount received as consideration for a composite activity involving elements of provisions of service and element of sale of goods or consideration for service being included in the gross amount charged for a particular transaction or consideration of service being wholly or partly in the nature of non-monetary consideration.

The methodology to determine value for purpose tax has been prescribed under Service Tax (Determination of Value) Rules 2006. These rules inter-alia contain provisions in respect of the following situations:

• Determination of value of service portion involved in execution of works contract.

• Determination of value of service in relation to money changing.

• Determination of value of service portion involved in supply of food and any other article of human consumption or any drinks in a restaurant or as outdoor catering.

• Determination of value where such value is not ascertainable.

• There are provisions that specify certain expenditures or costs that are incurred by the service provider which have to be included or excluded for purpose of determination of value.

• Further the rules also specify certain items by way of commission or costs that are received by the service provider that have to be included or excluded while arriving at the taxable value

In addition to above, certain specific provisions has been made in Rule 6 of the Service Tax Rules, 1994 whereby simplified compounded mechanism/scheme have been laid down for determination of value of taxable services in specified situations subject to certain conditions for example in respect of services of booking of tickets for air travel provided by an air travel agent, etc.

Valuation of Service portion involved in execution of Works contractThe manner of determining the value of service portion in works contracts has been prescribed vide Rule 2A of the Valuation Rules which is as follows:

• Where actual value of goods transferred in the execution of works contract is available with the Company (Identification Method)

Value of service = Gross amount charged for the works contract (excluding value added tax charged) less actual value of property in goods transferred in the execution of the works contract.

• In other cases (Abatement method):

Type of Works contract Taxable turnover as percentage of total amount

Original works 40% of the Total Amount (‘TA’)

Other work contracts not included above, including contracts for (i) Maintenance or repair or reconditioning or restoration or servicing of any goods; or

70% of the TA

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Type of Works contract Taxable turnover as percentage of total amount

(ii) Maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property

In this regard, it would be pertinent to note that under Explanation 1 to Rule 2A of the Valuation Rules, the following terms have been defined as:

“Original works” means—(i) all new constructions;

(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise

“Total amount” means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services, if any; and

(ii) the value added tax or sales tax, if any, levied thereon.

It is also provided in the rules that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles [Proviso to Explanation 1 of Rule 2A of STDVR];

Under both the methods discussed above, the service provider is barred from taking any CENVAT credit on inputs used in relation to such works contract. However, CENVAT credit of input services and Capital goods would be still available to such service provider.

Determination of Value of service in relation to Money ChangingRule 2B of Valuation Rules inserted w.e.f. 1st April, 2011 providing for determination of value of service in relation to money changing :—

• In case of currency which is exchanged from or to Indian Rupee, value of taxable service shall be the difference between buying/selling rate & RBI reference rate for the currency for that day multiplied by total units of currency exchanged.

For example if US$ 1,000 are sold by a customer @ ` 45 per US$ and RBI reference rate for US$ is ` 45.50 then the taxable value shall be ` 500 (1,000 x 0.50).

• Where RBI reference rate is not available for a currency, value of taxable service shall be 1% of the gross amount of Indian Rupee provided or received.


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• Where services are not for exchange of Indian Rupee, value of taxable service shall be equal to 1% of the lower of two amounts, the person changing the money would have received by converting both the currencies into Indian Rupee at the RBI reference rate of that day.

Valuation of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor cateringIn terms of Article 366(29A) of the Constitution of India supply of any goods, being food or any other article of human consumption or any drink (whether or not intoxicating) in any manner as part of a service for cash, deferred payment or other valuable consideration is deemed to be a sale of such goods. Such a service therefore cannot be treated as service to the extent of the value of goods so supplied. The remaining portion however constitutes a service.

For valuation of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering, Rule 2C has been inserted in the Valuation Rules by the amendment rules of 2012 effective July 1, 2012.In terms of the said rule value of the service portion shall be determined in the following manner-

Value of service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner

Taxable turnover as percentage of total amount

In a restaurant 40% of the Total Amount (‘TA’)

As part of outdoor catering 60% of the TA

As per Explanation 1 to the said Rule 2C, ‘Total amount’ (referred to in the second column of the table above) means “the sum total of gross amount charged and the fair market value of all goods and services supplied by the service receiver in or in relation to the supply of food or any other article of human consumption or any drink (whether or not intoxicating), under the same contract or any other contract, less (i) the amount charged for such goods or services provided by the service receiver; and (ii) the value added tax or sales tax, if any, levied to the extent they form part of the gross amount or the total amount, as the case may be”.

Further, the aforesaid Rule 2C of the Valuation Rules would apply only in cases of restaurants and outdoor catering. For valuation of service portion where such supplies are made in any other premises like hotel, convention centre, club, pandal, shamiana or any place specially arranged for organising a function, an abatement of 30% from the total value has been provided for the purpose of payment of service tax videNotification No. 26/2012-ST dated June 20, 2012.

Manner of determining the value of non-monetary considerationAs per clause (ii) of sub-section (1) of section 67 of the Act where the consideration received is not wholly or partly consisting of money the value of taxable service shall be the equivalent money value of such consideration. If the same is not ascertainable then the value of such consideration is determined under clause (iii) of section 67 read with Rule 3 of the Service Tax (Determination of the Value) Rules 2006 as follows:

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• On the basis of gross amount charged for similar service provided to other person in the ordinary course of trade;

• Where value cannot be so determined, the equivalent money value of such consideration, not less than the cost of provision of service.

Rejection of Value by the DepartmentWhere the Officer is satisfied that the value has not been determined in accordance with the provisions of this Act or the Rules, he can issue a Show Cause Notice to the assessee to show cause as to why the value should not be as per amount stated in such notice as per Rule 4 of Service Tax (Determination of Value) Rules 2006. The assessee is to be given reasonable opportunity of being heard before the Officer can proceed with the task of determining the value in accordance with the provisions of the Act and the Rules.

What is the expenditure or costs that are to be included in the value of taxable services as per Rule 5 of the Valuation Rules?As per Rule 5 any expenditure or cost that are incurred by the service provider in the course of providing taxable services are treated as consideration for taxable service provided or agreed to be provided and shall be included in the value for the purpose of charging Service Tax on the said service.

However, Explanation to sub-rule (1) of Rule 5 clarifies that for the value of telecommunication services shall be the gross amount paid by the person to whom the service is actually provided (i.e. the subscriber).

Which costs or expenditure is to be excluded from the value of taxable service as per Rule 5?As per sub-rule (2) of Rule 5 the expenditure or cost incurred by the service provider as a pure agent of the recipient of the service shall be excluded from the value of taxable service if all the following conditions are satisfied:

• The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

• The recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

• The recipient of service is liable to make payment to the third party;

• The recipient of service authorises the service provider to make payment on his behalf;

• The recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

• The payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

• The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and


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• The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Pure agent has been defined in Explanation to sub-rule 2 of Rule (5) of the Valuation Rules as a person who

– Enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

– Neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

– Does not use such goods or services so procured; and

– Receives only the actual amount incurred to procure such goods or services.

Cases in which the commission, etc., will be included or excludedRule 6 of the Valuation Rules deals with specific situation where certain commission or costs received by the service provider would be included as part of the taxable service.

Inclusions– The commission or brokerage charged by a broker on the sale or purchase of securities

including the commission or brokerage paid by the stock-broker to any sub-broker;

– The adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

– The amount of premium charged by the insurer from the policy holder;

– The commission received by the air travel agent from the airline;

– The commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

– The reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;

– The commission or any amount received by the rail travel agent from the Railways or the customer;

– The remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner;

– The commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent; and

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– The amount realized as demurrage or by any other name whatever called for the provision of service beyond the period originally contracted or in any other manner relatable to the provision of service.

Exclusions– Initial deposit made by the subscriber at the time of application for telephone connection or

pager or facsimile (FAX) or telegraph or telex or for leased circuit;

– The airfare collected by air travel agent in respect of service provided by him;

– The rail fare collected by [rail travel agent] in respect of service provided by him;

– Interest on delayed payment of any consideration for the provision of services or sale of property, whether move able or immove able;

– The taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger;

– Accidental damages due to unforeseen action not relatable to the provision of service;

– Subsidies or grants disbursed by the Government, not in the nature of directly influencing the value of service

Valuation under Service Tax: Problems and Case studies

1. Pass through costs• As per the Agreements between ABC and Clients (in India or outside India), ABC

engages the sub-contractors in India who will be the investigators to conduct the clinical trials on human participants. These investigators may be doctors or hospitals whose responsibilities are to conduct the trials in accordance with the protocol or ABC instructions.

• The services are generally in the nature of support services to the clients for undertaking the clinical trials of various phases and ABC assist the clients to obtain the necessary approval for conducting those studies, take up the supervision / co-ordination with the sponsor’s project team, assist to prepare the study feasibility questionnaire, provide quality assurance services, data management.

• ABC charges pass through costs such as travel cost, investigators meeting expenses, communication expenses, licence cost, investigators grants etc. on actual basis to their clients incurred during the project time for providing the clinical research services in terms of agreement entered with Indian and Overseas clients.

• ABC pays service tax on the professional fees received both in respect of overseas and domestic clients

Issues Whether the costs incurred/ pass through costs by the ABC in terms of various agreements

entered with Indian and Overseas customers is subject to service tax or not, as these are pass


8

through costs incurred towards the provisions of professional services and same is recovered from time-to-time during the project in terms of agreements?

Analysis and Discussion• Expenses incurred by the service provider can generally be classified as expenses which

the service provider incurs:

On his own in providing the taxable services. For example, printing and stationery charges incurred by the management consultant at his office in the course of providing the services

On behalf of the service recipient in the course of providing the taxable service. For example, customs duty, port charges, EDI expenses incurred by Customs House Agent

Whether the aforesaid expenses are to be included so as to arrive at the ‘gross value charged’ for the purpose of payment of service tax?

• In terms of Rule 5, all expenditure and costs incurred by the service provider in the course of providing taxable service shall be treated as consideration for the taxable service provided and included in the value for the purpose of charging Service Tax

• Any payment made on behalf for the recipient of service and accordingly recovered separately does not constitute a charge so as to fall within the expression “costs and expenses incurred by the service provider”

• The Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. (2012 – TIOL – 966 – HC – DEL – ST) on a harmonious reading of the charging provisions i.e. Sections 66 and 67 of the Finance Act, it is clear that nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. It was also held that Service Tax (Determination of Value) Rules, 2006 are repugnant to the provisions of the Finance Act, 1994, as they purport to include expenditure and costs in the value of taxable service and go far beyond the charging sections and may also result in double taxation

• Section 67 of the Finance Act with respect to valuation of services has been amended to include all reimbursable expenditure or cost incurred and charged by the service provider.

2. A mining company engages contractors for over burden removal towards the activity of extraction of ores from the soil. The contract terms envisage that the contractor should provide all the equipment required and also the diesel to run such equipment where required. Under the contract terms explosives and detonators required for the said activity though a restricted item in terms of safety requirements and certification has to be supplied by the contractor. Alternatively the aforesaid items such as diesel and explosives/detonators will be supplied by the mining company and is not the contractor’s responsibility.

Running bills are submitted at the agreed rates by the contractors based on the productivity and other parameters as laid down and certified in terms of the contract and at pre-fixed rates. As stated above the pre-fixed rates could be either with the cost of diesel and explosives/

9


detonators expressed in terms unit rate for cubic meter of material removed or excluding such cost of diesel and explosives.

The department has taken a view that the mining company has adopted the device of excluding the cost of diesel and explosives/detonators to reduce the incidence of service tax on such supplies by entering into contracts where the rate per cubic meter of material removed does not include cost of such diesel and explosives/detonators The position taken is that the diesel and explosives/detonators are essential for the performance of the activity and without this the said over burden removal cannot be undertaken. The claim of the mining company is that explosives and detonators being controlled items will have to be necessarily supplied by them and cannot be procured in the open market by the contractors in the normal course. The liability to service tax will have to be strictly on the terms of the contract and there is nothing in this to invoke the provision of similar services under the service tax valuation rules.

Analysis & Discussion• Provision of service for a consideration not wholly or partly in terms of money/

consideration not ascertainable:

For consideration received partly in money, service tax is payable on the fair value of non-monetary consideration, which is equivalent to the money value of such consideration

If the same is not ascertainable, value of such consideration shall be determined as per Section 67(iii) read with Rule 3

• The Larger Bench of the Tribunal in Bhayanna Builders [2013-TIOL-1331-CESTAT-DEL-LB] has defined the scope of the expression ‘gross amount charged’ -

The issue that had come up for consideration was whether the value of materials supplied free of cost by the service recipient and used for providing construction service, should be included in the gross amount charged by the service provider for the purpose of valuation

The Larger Bench held that for the purposes of Rule 3, non-monetary consideration must be a consideration accruing to the benefit of the service provider from the recipient and for the service provided

Issue: Whether the value of free items also would include in value of service irrespective of the same

being specifically discussed in the contract or not?

3. Agreement between ABC and a contractor for a works contract involving

• Installation/ commissioning service,

• Supply of materials, and

• Perform annual maintenance services


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As part of such installation/commissioning work, ABC supplies certain materials/capital assets to the contractor that are consumed/used in the execution of the work, by the contractor. Post completion of the contract, the capital assets are returned by the contractor to ABC.

The contract clearly specifies separate consideration for supply of materials, services and composite works. The price quoted by the contractor in the Letter of Acceptance indicates that the consideration is exclusive of Service Tax but inclusive of all other taxes including VAT.

The contractor raises invoices for the activities undertaken, in the following manner:

• Bill for services

• Bill for supplies made by the contractor to ABC in relation to the contract

• Composite billing for indivisible activities, involving supply of both materials and services

Points to ponder• Whether a single contract entered into with the contractor could be bifurcated as a

contract for service, contract for supplies and a composite contract?

• Valuation mechanism for the computation of service tax in the given situation?

• Determination of whether the value of materials (used and consumed in the contract), supplied by ABC to the contractor, would be includible in the taxable value, for the purpose of determination of the service tax liability?

• Determination of whether the value of capital assets (used in the contract and returned to ABC post-use), supplied by ABC to the contractor, would be includible in the taxable value for the purpose of determination of the service tax liability?

EXEMPTED FROM LEVY OF SERVICE TAX — SECTOR WISE ANALYSIS

Previously there was a levy of tax, called the service tax on specified list of services listed and updated from time-to-time. The levy of service tax was restricted to only such services that were notified as taxable services.

With effect from 2012, there has been a magnanimous drift in the mode of taxability of services. The word service was defined and service tax was to be levied on all services other than those specifically listed as exempted from the levy. Therefore, which previously was a selective tax regime rose to a comprehensive levy.

‘Service’ in terms of Section 65B(44) in the Finance Act, 2012, was defined as—

“Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

a. an activity which constitutes merely,––

i. A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

ii. Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

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iii. A transaction in money or actionable claim.

b. A provision of service by an employee to the employer in the course of or in relation to his employment;

c. Fees taken in any Court or tribunal established under any law for the time being in force.”

The Mega Exemption Notification i.e. Notification No. 25/2012-ST dated June 20, 2012 issued by the CBEC and updated from time to time lists out those services specifically exempted from the levy of service tax. A brief discussion on such exempted services are herein below -

1. Healthcare Sector Health care services by a clinical establishment, an authorised medical practitioner or

para-medics;

Services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation;

Services by a veterinary clinic;

Charitable activities rendered and import of services by an entity registered under Section 12AA of the Income Tax Act, 1961.

Charitable activities include public health by way of –

Care or counselling of terminally ill persons or persons with severe physical or mental disability, persons afflicted with HIV or AIDS, or persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

Public awareness of preventive health, family planning or prevention of HIV infection.

2. Education Sector Services by way of training or coaching in recreational activities relating to arts, culture

or sports

Services provided by an educational institution, where the educational services are exempt from the levy of service tax

Following services provided to an educational institution, where the educational services are exempt from the levy of service tax –

Transportation of students, faculty and staff;

Catering, including any mid-day meals;

Security or cleaning or house-keeping services;

Services relating to admission to, or conduct of examination

Services provided by National Skill Development Corporation, Sector Skill Council or other approved associates.


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Charitable activities rendered and import of services by an entity registered under Section 12AA of the Income-tax Act, 1961.

Charitable activities include advancement of educational programmes or skill development relating to –

Abandoned, orphaned or homeless children;

Physically or mentally abused and traumatized persons;

Prisoners; or

Persons over the age of 65 years residing in a rural area;

3. Copyright Services Services provided by way of temporary transfer or permitting the use or enjoyment of a

copyright –

Covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or

Of cinematograph films for exhibition in a cinema hall or cinema theatre;

4. Hospitality Sector Services by a hotel, inn, guest house, club or campsite, by whatever name called, for

residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent;

Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.

5. Transport Services5.1. Services provided by transportation of the following goods–

a. Agricultural produce;

b. Milk, salt and food grain including flours, pulses and rice;

c. Chemical fertilizer, organic manure and oil cakes;

d. Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

e. Newspaper or magazines registered with the Registrar of Newspapers;

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f. Defence or military equipment’s;

g. Cotton, ginned or baled.

Additional exemptions for a GTA

h. Goods where gross amount charged on a consignment transported in a single goods carriage does not exceed INR 1500; or

i. Goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed INR 750.

5.2. Passenger transportation services –

Air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal;

Non-airconditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire; or;

Ropeway, cable car or aerial tramway

5.3. Services by giving on hire:

To a State transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

To a goods transport agency, a means of transportation of goods.

6. Job work (Agriculture, Jewellery, Manufacturing process) Carrying out an intermediate production process as job work in relation to –

Agriculture, printing or textile processing;

Cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals;

Any goods excluding alcoholic liquors for human consumption on which appropriate duty is payable by the principal manufacturer; or

Processes of electroplating, zinc plating, anodising, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines up to an aggregate value of taxable service of the specified processes of 150 lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded 150 lakh rupees during the preceding financial year.

7. Entertainment/ Entrance fee: Services by way of admission to museum, national park, wildlife sanctuary, tiger reserve

or zoo.


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Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members

Services by way of right to admission to —

Exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet;

Recognised sporting event;

8. Erection/ Construction/ Maintenance/ Repair/ Renovation Services: To Government or local authority – in relation to construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance of a historical monument or archeological site; canal, dam or other irrigation works; pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii) sewerage treatment or disposal.

In relation to road, bridge, tunnel or terminal for road transportation for use by general public; building owned by an entity registered under Section 12AA of the Income Tax Act; pollution control or effluent treatment plant, except located as a part of a factory; or crematorium.

In relation to original works pertaining to:

a. Railways;

b. Single residential unit otherwise as a part of a residential complex;

c. Low-cost houses in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

d. Post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or

e. Mechansed food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.

9. Other Exemptions Exemption by way of business exhibitions held outside India

Exemption to services provided to Government, a local/ governmental authority by way of water supply, sanitation, solid waste management, slum improvement

Exemption to services provided by operators of Common Bio-Medical Waste Treatment Facility to a Clinical establishment

Exemption to services provided to United Nations or specified International Organisations

Exemption to all services provided by Technology Business Incubator (TBI) and Science & Technology Entrepreneurship Park

Exemption to property tax paid from “Renting of Immovable Property Services”

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Exemption to entity registered under Section 12AA of the Income-tax Act, 1961 by way of charitable activities

Exemption to service provided by arbitral tribunal or an individual advocate to a person other than a business entity with a turnover exceeding rupees ten lakhs in preceding financial year

Exemption to sub-contractors providing services to contractors providing works contract service which is exempt

Exemption to service provided by way of sponsorship to specified sporting events.

Exemption to services by way of collecting or providing news by an independent journalist, Press trust of India or United News of India.

Case StudyXYZ is an aggregator of healthcare services. It enters into arrangements with various service providers and offers such services to end-users. The following are the modes in which XYZ operates —

• XYZ will book orders from end-users for diagnostic services, receive payment from them and in turn get these services performed by various service providers (diagnostic centers).

• The diagnostic centres render the services to the customers of XYZ and provide the reports.

• XYZ enters into such arrangements with multiple diagnostic centres, the engagement between XYZ and the diagnostic centers is on a principal to principal basis.

Given the above scenario, would XYZ be eligible to claim exemption from payment of Service Tax as a provider of health care service in terms of Sl. No. 2 to Mega Exemption Notification No.25/2012-ST dated June 20, 2012?

POINT OF TAXATION RULES

1. POINT OF TAXATION RULES, 2011 – NOTIFICATION No. 18/2011-ST DATED 1-3-20111.1. The Point of Taxation Rules, 2011 (referred to as “POT”) were notified initially vide Notification

No. 18/2011-ST dated 1-3-2011 and subsequently amended by Notification No. 25/2011-ST dated 31-3-2011. The basic rule for determining the point of taxation is embodied under Rule 3. This Rule as originally introduced during the Budget 2011 was significantly amended subsequently. The table below illustrates the difference between the Rule before and after its amendment:

Rule(s) Amended

Notification No. 18/2011-ST 1-3-2011


Rule 3- Determination of Point of Taxation

For the purposes of these rules, unless otherwise stated, “point of taxation” shall be determined in the following manner, namely:

For the purposes of these rules, unless otherwise provided, ‘point of taxation’ shall be:


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Rule(s) Amended



(a) a provision of service shall be treated as having taken place at the time when service is provided or to be provided; and

(b) if, before the time specified in clause (a), the person providing the service issues an invoice or receives a payment, the service shall, to the extent covered by the invoice or the payment made thereof, be deemed to have been provided at the time the invoice was issued or the payment was received, as the case may be, whichever is earlier.

Explanation 1.— For the purposes of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

Explanation 2.— For the purposes of this rule, in respect of services taxable under section 66A of the Act, the point of taxation under clause (b) shall be the date on which the invoice is received, or the payment is made, as the case may be, whichever is earlier.

(a) the time when the invoice for the service provided or to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion.

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Explanation.— For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

1.2. The original Rule 3 dealt with the determination of point of taxation in the following manner:

A. Provision of service shall be treated as having taken place at the time when service is provided or to be provided;

B. If, before the time specified the person providing service issues an invoice or receives a payment, the service shall, to the extent covered by the invoice or the payment made thereof, be deemed to have been provided at the time the invoice was issued or the payment was received, as the case may be, whichever is earlier

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1.3. Rule 3 in its present form can be summarised as below:

Description Point of Taxation - (Earliest Incidence)

Where invoice is issued within the prescribed period as under Rule 4A of the Service Tax Rules, 1994 (i.e. within 30 days from the completition of service)

Date of Invoice

Where Invoice is not issued within such prescribed time from the date of completion of provision of service (i.e. beyond 30 days)

• Date of completion of provision of service; or

• Date of payment

Advance received before service Date of receipt of advance payment

Invoice is issued before rendering of service Date of Invoice

2. Continuous supply of service2.1. The phrase ‘continuous supply of service’ has been defined under Rule 2(c) as extracted below:

“continuous supply of service” means any service which is provided, or agreed to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time-to-time or where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition;

2.2. Earlier the provision for continuous supply of service was incorporated in Rule 6. Effective from 1-4-2012 this was inserted by way of a proviso to Rule 3.

2.3. The table below illustrates the difference between the provisions for determining the POT for continuous supply of service before and after its amendment:

Rule Notification 18/2011-ST (as amended by Notification No. 25/2011-ST)

Point of Taxation (Amendment) Rules, 2012

Determination of Point of Taxation in case of continuous supply of service

Rule 6

Notwithstanding anything contained in rules 3, 4 or 8, in case of continuous supply of service, the `point of taxation’ shall be:

(a) the time when the invoice for the service provided or to be provided is issued:

Provided that where the invoice is not issued within fourteen days of the completion of the provision of the service, the point of taxation shall be date of such completion.

Rule 3

In case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to the service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;


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Rule Notification 18/2011-ST (as amended by Notification No. 25/2011-ST)

Point of Taxation (Amendment) Rules, 2012

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

Explanation 1.— For the purpose of this rule, where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the service receiver to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.

Explanation 2.— For the purpose of this rule, wherever any advance, by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.”.

Explanation.— For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

2.4. The following services have been notified as continuous supply of services1 irrespective of whether they conform to the definition of ‘continuous supply of services’ defined under Rule 2(c) of the Rules —

Telecommunication Service

Service portion in the execution of Works contract

2.5. The point of taxation in case of continuous supply of service is summarised in the table below:

Description Point of Taxation – Earliest incidence

Invoice issued within prescribed period of 30 days from the date of completion of provision of service

Date of Invoice or Date of Payment

Invoice not issued within prescribed period of 30 days from the date of completion of provision of service

Date of completion of continuous service or Date of Payment

1. Rule2(c)ofPointofTaxationRule,2011readwithNotificationNo.28/2011-STdated1stApril,2011amendedvide NotificationNo.38/2012-STdated20thJune,2012.

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Description Point of Taxation – Earliest incidence

Advance received before service Date of receipt of advance payment

Invoicing before rendering of service Date of invoice raised or Date of payment received

2.6. The term ‘completion’ of provision of service has not been defined in the Rules This had given rise to a few questions particularly where it was practically not possible to issue invoices within the period prescribed under Rule 4A of the Rules since the exact date of completion of service could not be identified with precision. For example, after the task of providing the service is physically accomplished, certain other formalities may be required to be completed from the client’s end before an invoice could be issued. In such case, it leads to difficulties in determining the actual date of completion of service.

2.7. The Board, vide Circular No. 144/13/2011-ST dated 18-7-2011 while clarifying “Completion of Service” stated that the test for determination of whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. The Circular also clarified that the activities do not include flimsy or irrelevant grounds for delay in issuance of invoice. Such a caveat may lead to dispute as to what would constitute flimsy or irrelevant grounds for such delay in the issuance of the invoice. The department may treat some activities flimsy or irrelevant for preparation of invoice which in the opinion of service provider may be crucial for preparation of invoice.

3. Determination of point of taxation in case of change in effective rate of tax3.1. Rule 4 deals with the determination of point of taxation when there is a change in the effective

rate of tax in relation to a taxable service. The provision has been extracted for ease of reference.

Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of tax in respect of a service, shall be determined in the following manner, namely:-

(a) in case a taxable service has been provided before the change in effective rate of tax,-

(i) where the invoice for the same has been issued and the payment received after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii) where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or

(iii) where the payment is also received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment;

(b) in case a taxable service has been provided after the change in effective rate of tax,-

(i) where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or


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(ii) where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii) where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice.

3.2. Further, “change in effective rate of tax” is defined under Rule 2(ba) to include “a change in the portion of value on which tax is payable in terms of a notification issued in the Official Gazette under the provisions of the Act, or rules made thereunder.

3.3. The table below summarises when the taxable service is provided before the change in the effective rate of tax.

Issue of Invoice Receipt of Payment Point of Taxation

After change of effective Rate After change in effective rate of tax

Date of Payment or Date of invoice, whichever is earlier

Prior to change in effective rate of tax

After change in effective rate of tax

Date of Invoice



Date of Payment

3.4. The table below summarises when the taxable service is provided after the change in the effective rate of tax.

Issue of Invoice Receipt of Payment Point of Taxation

Prior to change of effective Rate


Date of payment



Date of Payment or Date of invoice, whichever is earlier



Date of Invoice

4. Payment of tax in case of new services4.1. Rule 5 deals with the payment of taxes where a service is taxed for the first time. In terms of

the said Rule, where a service is taxed for the first time, no service tax is payable

• in case invoice as well as payment are received against such invoice before such service became taxable

• in case payment is received before such service became taxable and the service provider has issued invoice within 14 days from the date when the service is taxed for the first time. There is no change in time limit for raising of invoice to 30/45 days in this provision as found in Rule 4A of the STR,1994.

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5. Point of Taxation in case of specified services or persons5.1. Point of Taxation shall be the date on which payment is received or made, as the case may be,

in respect of

• Services covered under Rule 3(1) of Export of Service Rules, 2005. However in case payment is not received within the period specified by RBI, the Point of Taxation shall be as if this rule does not exist. (The said services are not covered under rule 7 of the Point of Taxation Rules, 2011 w.e.f. 1st April, 2012)

• Services notified u/s.68(2) of the Finance Act, 1994 for purpose of reverse charge mechanism. However in case payments are not made within a period of 3 months from the date of invoice, the point of taxation shall be the date immediately following the said period of 3 months.

• Individual, proprietorship or partnership firms providing taxable services of

o Chartered Accountant service

o Cost Accountant Service

o Company Secretary Service

o Architect Service

o Interior Decorator Service

o Legal Consultancy Service

o Scientific and Technical Consultancy Service

o Consulting Engineer Service

(The aforesaid said services are no more covered under rule 7 of the Point of Taxation Rules, 2011 w.e.f. 1st April, 2012. However, corresponding amendment in Service Tax Rules, 1994 is made w.e.f. 1st April, 2012 to provide for small service provider to discharge service tax on receipt basis i.e. 4th proviso to Rule 6(1) is inserted whereby individuals and partnership firms whose aggregate value of taxable services provided from all the registered premises is ` 50 Lakhs or less in the previous financial year are provided an option to pay service tax on receipt basis in respect of value of taxable services provided or to be provided upto ` 50 Lakhs in current financial year.)

• In case of associated enterprises where the person providing the service is located outside India, the Point of Taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. Further, the term ‘associated enterprises’ has been defined under Section 65B(13) of the Finance Act and assigned the meaning provided to the term under Section 92A of the Income Tax Act, 1961.


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5.2. Point of Taxation shall be the date on which payment is received or made, as the case may be, in respect of

Description of specified services or person

Point of Taxation earliest incidence

Services covered under Export of Service Rules, 2005

Date on which payment is received (In case the payment not received within time stipulated by Reserve Bank of India, point of taxation would be determined as if the Rule does not exist)

(effective only up to March 31, 2012)

Service recipient required to pay service tax (domestic as well as Import of service)

Date of payment (If payment not made within three months from the date of invoice, point of taxation would be the date immediately following the said period of 3 months

Import of service from Associated Enterprise

Date of debit/credit in books of person liable to pay service tax or Date of Payment whichever is earlier

6. RULE 8 – POINT OF TAXATION – COPYRIGHTS, ROYALTIES, TRADEMARKS, PATENTS, ETC.

6.1. The Point of taxation with respect to royalties and payments pertaining to copyrights, trademarks, designs or patents, where –

• The whole amount of consideration is not ascertainable at the time of provision of such service; and

• Subsequent use of such benefits by any person other than the provider of servicer would give rise to any payments to such service providers,

shall be the date on which each of such payments are made or date of issue of the invoice whichever is earlier.

7. Transitional Provisions7.1. Rule 9 of the Rules deals with the Transitional provisions relating to invoices which were issued

up to 30th June, 2011 and service completed on or before 30th June, 2011. The Rule 9 is extracted below for reference.

Rule 9. Transitional Provisions.- Nothing contained in this sub-rule shall be applicable,—

(i) where the provision of service is completed; or

(ii) where invoices are issued

prior to the date on which these rules come into force.

Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued up to the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be.”

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7.2. It is further clarified that the transitional provisions will apply to all invoices issued before 31-3-2011 in so far as it concerns the taxpayers who switch over to the new rules on 1-4-2011. Those assessees who opt to shift to the new rules on 1-7-2011 would have similar protection in respect of invoices issued before the date of switch over to the new rules. The benefit has also been extended to services when provision has been completed before 1-4-2011 or 1-7-2011, as the case may be. It is also clarified that the payments received before the new rules come into force do not require any transitional provisions as they are already required to pay tax on payment basis.

7.3. Further, a new Rule 10 has been inserted from October 1, 2014 to provide that “not with standing anything contained in the first proviso to rule 7, if the invoice in respect of a service, for which point of taxation is determinable under rule 7 has been issued before the 1st day of October, 2014 but payment has not been made as on the said day, the point of taxation shall

a) If payment is made within a period of six months of the date of invoice, be the date on which payment is made

b) If payment is not made within a period of six months of the date of invoice, be determined as if rule 7 and this rule do not exist”

Point of Taxation Rules: Problems and Case studies1. Comagency India Ltd. desires to know the point of taxation in case of Indent commission paid/

received where invoice has been raised prior to 1st October, 2014, and payment is received/ made after 1st October, 2014. This question arises in the context of the Notification No. 14/2014 – ST dated 11th July, 2014 (Effective from 1st October 2014), and involves the scope of the expression ‘intermediary’ which shall also include a person who arranges or facilitates supply of goods between two or more persons (i.e. an indenting agent).

Query: In view of the above change in the scope of ‘intermediary services’, Comagency would invite

comments with respect to two scenarios, whereby Comagency acts as a service provider and also where, Comagency acts as a service receiver.

Analysis & Discussion • Comagency India acts as an agent for transactions in sale of products between

Comagency Singapore and respective customers in India of Comagency Singapore.

• Point of Taxation Rules, 2011 (‘POTR’) prescribe the point of time when a service shall be deemed to have been provided and hence, the point of time when service tax on the same is required to be paid.

• Rule 3 of POTR states that unless otherwise provided in any other rules, ‘point of taxation’ shall be determined as per Rule 3. Accordingly, in the present case it is essential to analyse whether Comagency India gets covered under other rules prescribed in POTR to determine the point of taxation with respect to intermediary services.


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• Rule 4 of POTR deals with the determination of point of taxation in case of change in effective rate of tax. The “change in effective rate of tax” has been defined in clause (ba) of rule 2 of POTR to include a change in the portion of value on which tax is payable.

• Rule 5 of POTR deals with the payment of tax in case of new services. Rule 5 of POTR states that, where a service is taxed for the first time, then no tax shall be payable in the following cases:

• Invoice has been issued and the payment received against such invoice before such service became taxable;

• Payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.

• The question to be decided is whether the change in taxability that arises on account of change in Place of Provision of Service Rules, 2012 by virtue of Notfn. No. 14/2014-S.T (ibid) would constitute a change in ”effective rate of tax” within the meaning of the expression as defined. The taxability arises on account of change in place of provision of service owing to a change in definition of “intermediary” and therefore could it be said that there is no change in effective rate of tax. The CBEC has issued a circular No. 158/9/2012 - ST, dated May 8, 2012 giving certain illustrations to decide when there is a change in effective rate of tax.

In the facts of the present case can it be said that the intermediary service shall qualify as “new service”?

The place of provision of the agency services (with respect to supply of goods) has been amended i.e. in terms of Rule 9 of the POT Rules i.e. with effect from October 1, 2014 the said services would be deemed to have been rendered within the taxable territory of India even in cases where they are for the benefit of service recipients located outside India.

Whether it can be argued that the invoice for the said service has been raised prior to October 1, 2014 therefore the point of taxation of the said service would be determined in terms of Rule 3 of the POT Rules i.e. point of taxation is before October 1, 2014?

And whether it would be correct to contend that the POT, in the present case, being prior to October 1, 2014 the same is not taxable in India in terms of Rule 9 of the POPS Rules but would be deemed as export of service in terms of Rule 3 of the POPS Rules?

Comagency as a recipient of service With effect from 1st October, 2014, services are received by Comagency India from Comagency

Pakistan, wherein Pakistan acts as an agent for transactions in products between Comagency India and respective customers outside India. This shall not qualify as an intermediary service as per Rule 9 of Place of Provision of Service Rules, 2012 since location of service provider is outside India. Hence, with effect from 1st October, 2014, the services provided by Pakistan to India shall not be subject to service tax. What would be the position with regard to POTR in the second scenario?

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2. Excellent Data Management Services Ltd. (EDMS) is a company registered under the Companies Act’ 1956 and engaged in provision of services to its clients in Telecommunication, Banking, E-Governance etc.

Issues under consideration• Whether the company is liable to pay service tax on the revenue which is accounted

in “Profit & Loss Account” as “Work-in-progress”. Though services have been provided invoices for the same could not be issued as clients have not confirmed the quantum of such services and have also not confirmed quality of such services (Accuracy level, Turnaround time etc.)

• As per the contract entered into with various clients, the company is expected to maintain certain level of accuracy and Turnaround Time (‘TAT’).

• To raise invoice on its customers, the company needs to obtain written confirmation from its clients on total quantity of “Accepted forms” and accuracy level and TAT achieved.

• As per Generally Accepted Accounting Principles (‘GAAP’), revenue and cost should be recognised on matching principle. As certain operating and administrative expenses are incurred by the company towards provision of services, in the financial statement the same are accounted as “Work-in-progress”.

• “Whether mere accounting of part of the revenue in the Profit & Loss Account could constitute completion of service so as to attract “Point of Taxation” even through certain incidental activities (acceptance of services by clients) are yet to be completed”

3. Avery Club Ltd., (which is a trade body) providing services to its members has a clause in the Articles of Association which reads as follows: Every ordinary member shall pay an annual subscription at the following rates as applicable for each category:

— Associate Member.........

— Affiliate Member....

— Company Member........

— Small Scale Industry......

— Firm and Individuals.......

Every member shall be liable to pay in advance the annual subscription on or before the day of March 31 for the ensuing year.

Provided that such members who pay the subscription after March 31 but before April 30 shall be entitled to vote at the ensuing Annual General Meeting but not be eligible to contest, propose or second a candidate for election to the Managing Committee

If the member continues default in payment of his yearly subscription by the due dates as aforesaid a reminder shall be sent to such defaulter and if payment is not received within one month thereafter the Managing Committee shall have the power to remove the name of such defaulting member from the Register of Members.


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Query: What should be the POT with regard to the following in the above context and when should the

invoice be issued in each of the cases keeping in view the default cases:

Advance received for the ensuing year before April 1

Payments received during April 1 to April 30

Treatment in respect of defaulting member who does not pay after issue of notice on say May 7

It needs to be examined whether the said consideration being membership fee collected by an association from its members, would be exempt from the levy of service tax - ‘principle of mutuality’?

PLACE OF PROVISION OF SERVICE RULES, 2012

IntroductionPlace of Provision of Service Rules, 2012 (POPS Rules) have been notified to take effect from July 1, 2012 vide Notification No. 19/2012-S.T. dated 5-6-2012 and the rules have been notified vide Notification No. 28/2012-ST dated 20-6-2012

Objective of the Rules• To aid the implementation of Negative Services List.

• To gradually build the supporting framework for Goods and Services Tax (‘GST’)

• Consolidates and replaces Export of Services Rules, 2005; and Taxation of Services (Provided from outside India and received in India) Rules, 2006.

Overview of the Rules• Though Rules were introduced to replace the earlier Export and Import of Service Rules, the

Rules drawing power from Section 66C of the Finance Act, 1994 were to independently interpret whether or not a service was rendered in the taxable territory of India.

• These rules are primarily meant for persons who deal in cross-border services. They will also be equally applicable for those who have operations with suppliers or customers in the state of Jammu and Kashmir. The rules will be equally relevant for determining services that are wholly consumed within a SEZ, to avail the outright exemption.

• The hierarchy of the Rules is that, the rule that occur later should be preferred to the ones earlier when there is a question of equality of application of the Rules based on the test prescribed.

• Some services which were earlier covered under place of performance, such as market research agency, opinion poll, internet café, survey and exploration will no longer be covered under this criteria.

• The Rules would focus on destination (jurisdiction) based consumption for taxation.

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• Under the Rules the power of Government to notify certain services has been retained and this is to alleviate any double taxation in a foreign territory or even case of non-taxation. This is an anti-evasion measure.

Transformation from the Export and Import of Service Rules to Place of Provision of Service Rules

Before POPS Rules After POPS Rules.

A. “Export of Service” means:

All services whose place of provision of service is located in the taxable territory will be taxable in India.

i. Service Recipient located outside India.

ii. Payment of such service is received in foreign currency.

B. “Import of Services” means:

i. Service Provider is outside India

ii. Service Recipient is in India

iii. Service provided must qualify as import under the Rules

1. Place of Provision of Service Rules, 2012 The applicability of service tax with respect to a taxable service shall be determined based

on the place of provision of such service as prescribed in terms of the Place of Provision of Services Rules, 2012 (“POPS Rules”), brought into force with effect from 1st July, 2012. The POPS Rules comprise 14 Rules which lay down the specific principles for determining the place of provision of services.

The POPS Rules are summarised as under:

Rule Description Rule Description

Rule 3 to determine the place of provision of service generally

Rule 9 to determine the place of provision in case of specified services including intermediary services

Rule 4 to determine the place in case of performance based services

Rule 10 to determine the place of provision in relation to transportation of good

Rule 5 to determine the place of service in case of services related to immovable property

Rule 11 to determine the place of provision in case of passenger transport services

Rule 6 to determine the place in case of services relating to events

Rule 12 to determine the place in relation to services provided on board conveyances


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Rule Description Rule Description

Rule 7 to determine the place in case of part performance of a service at different locations

Rule 13 to notify description of services or circumstances for certain purposes

Rule 8 to determine the place of provision where service provider and receiver is located in the taxable territory

Rule 14 where the provision of a service is determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration

1.1. Rule 3 of the POPS Rules (General Rule)1.1.1. The place of provision is:

• Location of the service receiver, generally.

• Location of the service provider only WHEN the location of the service receiver is not available in the ordinary course of business.

1.1.2. The location of service provider or the receiver becomes crucial in determining the taxable jurisdiction. This will be very significant when GST comes into place with state Governments getting the power and jurisdiction to levy and collect tax. Thus POPS Rules are a stepping stone towards implementation of GST.

1.1.3. From a taxpayer’s perspective, clarity over taxable jurisdiction becomes very relevant for registration formalities, filing of returns, refund claims etc. Further, the taxability of any cross-border transactions would be determined only based upon the place of provision of service as determined by the rules.

1.2. Location of the Service Provider/ Service Recipient• Rule 2(h) and 2(i) of POPS Rules define “location of the service provider” and “location

of the service receiver” respectively.

• The location for both can be determined by applying the following steps sequentially:

• The premises of the service provider/receiver for which only one registration has been obtained (centralised or otherwise)

• Where registration has not been obtained—

Location of business establishment.

Location of fixed establishment if not business establishment.

Location of establishment which is most directly concerned with the provision of service when service is at more than one establishment.

Usual place of residence of the service provider/receiver when any of the above does not apply.

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1.3. Step-wise application of the POPS Rules — The following steps need to be followed sequentially to determine the place of provision of service along with taxability of a service:

• Step 1: Examine whether the service that is provided is exempted under the Negative List.

• Step 2: Determine the specific rule that would apply for the transaction. In cases where more than one rule applies, the rule which comes later should be considered.

• Step 3: Determine the place of provision in terms of the aforesaid rule.

• Step 4: If the place of provision of such service is in taxable territory, tax is payable. Otherwise, service tax would not be applicable.

Where the place of provision of service is in India —• Step 5: If the service provider is located in the taxable territory, service tax as applicable

on the transaction would be payable by the service provider.

• Step 6: If the service provider is located outside India and the service receiver is located in the taxable territory, the recipient of such service would be liable to discharge the service tax on reverse charge basis.

1.4. Snap-shot of the liability to discharge service tax based on the POPS Rules Under POPS Rules person liable to pay tax generally is the service provider and in certain

exceptional cases it is the service receiver. [Rule 2(m)]

Taxable Territory

ABC Service Provider

XYZ Service Provider

DEF Receiver

PQR Receiver

Non-taxable Territory

From ABC DEF; no service tax. From ABC PQR; ABC will be liable to pay Service Tax. From XYZ PQR; PQR will be liable to pay.

PLACE OF PROVISION OF SERVICE RULES (SPECIFIC CASES)

Sl. No. Category of Services

1. Performance based services. (Rule 4)

2. Services Related to immovable property. (Rule 5)


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Sl. No. Category of Services

3. Services related to events. (Rule 6)

4. Services provided at more than one locations. (Rule 7)

5. Services where provider and receiver are both located in taxable territory. (Rule 8)

6. Specified Services. (Rule 9)

7. Goods Transportation Services. (Rule 10)

8. Passenger Transport Services. (Rule 11)

9. Services provided on board of conveyance. (Rule 12)

1.5. Performance based services – Rule 4 of the POPS Rules1.5.1. The place of provision of service shall be where services are actually performed in the case of

the following services:

where goods have to be made available to the service provider by the receiver. (except in case of electronic provision of service; where goods are situated at the time of such provision.)

where services are provided in conjunction with the supply of goods under another contract by the service provider.

Where service is provided entirely or predominantly in the ordinary course of business in the presence of the receiver or his representative.

1.5.2. Proviso to Rule 4 of the POPS Rules has been amended effective from October 1, 2014 wherein it is provided that when any goods are temporarily imported into India only for the purpose of repairs post which they would be re-exported without being put to use in India, such service would not be covered under Rule 4 of the POPS Rules. (Previously equipment imported for re-conditioning or re-engineering were also covered under the proviso. Therefore, effective from October 1, 2014 the said exemption is restricted to repairs alone)

Illustration 1: A foreign music troupe undertaking a tour in four Indian cities, obtains the services of an Indian

cargo handling firm to move its sound and other music equipment between the four cities. The place of provision of service is in the taxable territory, notwithstanding the location of the receiver.

Illustration 2: An IT company in India provides service to an IT company established in Singapore

electronically. The place of provision of service is Singapore. It will remain the same even if the Singapore company had a business establishment in India.

1.5.3. Services which entirely or predominantly would require the physical presence of the service recipient (Personal security service, internet café service, health and fitness services, etc.) would also be covered under the said Rule.

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1.6. Service in connection with immovable property – Rule 5 of the POPS Rules• For services provided directly in relation to an immovable property.

• Place of provision in such cases is where the immovable property is located.

• The definition of “immovable property” as defined in The General Clauses Act, 1897 will be applicable.

1.6.1. Criteria to determine tax applicability under Rule 4 of the POPS

• Service is physically performed or agreed to be performed on a specific immovable property.

• Service directly enhances the value or affects the nature of an immovable property.

• Determination of the title of a property, real estate services in relation to the actual or proposed acquisition.

Examples: Services provided towards construction

Repair maintenance

Renting

Legal services provided to the owner of the property as a result of a will but NOT in case when a general opinion is given on taxation implications of arising out of a sale of such property.

1.6.2. Services not land-related: The place of provision of ancillary services though may indirectly apply to immovable property, Rule 5 of the POPS Rules may not apply—

• When there is an indirect connection with the immovable property OR;

• If the service is only an incidental component of a more comprehensive supply of services.

Examples: Interior designer hired by a retail chain to design the common décor of all its

stores in India - Because the service is not land-related even though the service pertains to designing the interiors of an immovable property.

Repair and maintenance of machinery which is not permanently installed- Because this is a service related to goods.

1.7. SERVICE IN RELATION TO EVENTS – RULE 6 OF THE POPS RULES

1.7.1. This Rule provides for determination of the place of provision of services provided by way of Admission to; or Organization; of

• Cultural, Artistic, Sporting, Educational, Entertainment, Celebration, Conference, Fair, Exhibition;or


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• Any other similar event; and

• Services ancillary to such admission or organization

Therefore, the Place of provision will be the place where the event is held.

For instance, a management school located in USA organizes a road show in Mumbai for prospective students. Any service provided by an event manager, or the right to entry (participation fee for prospective students, say) will be taxable in India.

1.7.2. Services Ancillary to Admission – For example, services of hiring any specific equipment to enjoy the event at the venue is an example of service that is ancillary to admission. However, services such a courier agency used for distribution of entry tickets is a service that is not ancillary to admission.

1.8. Services rendered at different location – Rule 7 of the POPS Rules1.8.1. Under Rule 7, if any of the service mentioned in Rule 4, 5 or 6 is provided at more than one

location, which includes at least one location within the taxable territory then the place of provision of such service would beat that location in the taxable territory where the greatest provision of the service is provided.

1.8.2. For instance, an Indian firm provides a ‘technical inspection and certification service’ for a newly developed product of an overseas firm (say, for a newly launched motorbike which has to meet emission standards in different states or countries). The testing is carried out in:

Maharashtra (20%) Kerala (25%) and Colombo (55%).

For the service that is provided within the taxable territory, the place of provision of service is Kerala i.e. where greatest proportion of the service is provided.

1.8.3. However, Rule 7 of POPS Rules is subject to Potential Challenges –

• Rule 7 is applicable only in cases where any service under Rules 4, 5 or 6 is provided.

• There is a very thin line which distinguishes between a service performed at different locations and distinct services performed at different locations.

• A literal as well as a purposive interpretation of the Rule would indicate that this Rule would be applicable in cases where the service provided is performed partly in different places and not distinct and separate services provided at different locations.

Such contradictions and ambiguity may arise in cases where the event-management companies organize a main event in different cities. What becomes crucial is whether sub-events performed at different cities are interpreted as parts of the main event or separate events altogether.

1.9. Service provider and Service Recipient both located in the taxable territory – Rule 8 of the POPS Rules

1.9.1. In case the location of both the service provider and the service recipient is in the taxable territory then the place of provision is the location of the service recipient.

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1.9.2. For instance, a helicopter of Pawan Hans Ltd. (India based) develops a technical snag in Nepal. Engineers are deputed, by Hindustan Aeronautics Ltd. Bangalore, to undertake repairs at the site in Nepal. But for this rule, Rule 4, sub-rule (1) would apply in this case and the place of provision of service would be Nepal i.e. outside the taxable territory.

However, by application of Rule 8 since the service provider and the service receiver are both located in the taxable territory the place of provision of this service will be within the taxable territory.

1.10. Place of provision of specified services – Rule 9 of the POPS Rules1.10.1. Though generally the place of provision of service is destination based, in certain specified

services, the place of provision of service is the location of the service provider.

1.10.2. The specified services listed under Rule 9 of the POPS Rules are:

i. Banking services by banking company, FI and NBFC’s to account holders.

ii. Online Information and Database access or retrieval services.

iii. Intermediary Services.

iv. Services consisting of hiring all means of transport other than –

Aircrafts; and

Vessels except yachts, up to a period of one month

1.10.3. Services rendered by a Banking Company/FI and a NBFC -

• Services provided by a banking company, a financial institution or an NBFC to its account holder is covered by Rule 9. An Account has been defined under Rule 2 of the Rules and it means an account that bears an interest to the depositor.

• Services linked to opening of bank accounts, other services such as telegraphic transfer, mail transfer, electronic transfer etc. would constitute services rendered in the ordinary course of the business.

• Foreign exchange services, merchant banking services, asset management service etc. will not amount to services rendered in the ordinary course of business and thus it will be covered under any other Rule but Rule 9.

1.10.4. Online Information & Database Access

• These are essentially services delivered over the internet or an electronic network which relies on the internet or similar network for their provision. These services are that they are completely automated services and require minimum human intervention.

• Examples of Online Information & Database Services

o Web-based services providing trade statistics, matrimonial services, social networking sites, subscriptions of online newspapers and journals.


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o Web-based services providing access or download of digital content.But e-commerce transactions like sale or purchase of goods/articles over the internet, telecommunication service provided over internet etc. does not amount to “online information and database access or retrieval services”.

1.10.5. Intermediary Services

• An intermediary is a person who arranges or facilitates a supply of goods, or a provision of service or both between two persons without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time:

i. The supply between the principal and the third party; and

ii. The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.

• Criteria for determining the existence of an intermediary service -

o Nature & Value (No alteration; authorization from the principal; may allow to negotiate price, knowledge of the principal about the material parts of the transaction.)

o Separation of the value (The value of an intermediary’s service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price).

o Identity & Title (The service provided by the intermediary on behalf of the principal is clearly identifiable)

• In accordance with the above guiding principles, services provided by the following persons will qualify as ‘intermediary services:

o Travel Agent (any mode of travel)

o Tour Operator

o Commission agent for a service

o Recovery Agent

1.10.6. Hiring of means of transport:

• In cases of hiring of Motorcars, bus, etc. for a period up to one month, the place of provision of such services would be the location of the provider of service.

• For instance, if a Company A provides a service of hiring of a fleet of cars to another company on an annual contract. Company A is located in New Delhi. Service Recipient Company is located in Hyderabad.

This Rule will not be applicable as the contract is for more than a month which is contrary to the pre-condition mentioned in the Rule.

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1.11. Transportation of goods services – Rule 10 of the POPS Rules

1.11.1. The place of provision of service in case of transportation of goods (other than by way of mail or courier) would be the place of destination of such goods. For example, A consignment of crystal ware is consigned from Paris to New Delhi, the place of provision of service is New Delhi.

1.11.2. The place of provision of service in cases of goods transport agency however, is the location of the person liable to pay such tax.

1.12. Transport of passengers services – Rule 11 of the POPS Rules

1.12.1. The place of provision of service for passenger transportation is the place where the passenger embarks on the conveyance of the continuous journey.

1.12.2. “Continuous journey” is defined as a journey for which:

• A single ticket has been issued for the entire journey.

• More than one ticket or invoice has been issued for the journey, by one service provider, or by an agent on behalf of more than one service provider, at the same time and there is no scheduled stopover in the journey.

1.12.3. Therefore to determine the place of provision of service two instances are possible:

When one single ticket is issued.

When more than one ticket is issued.

SINGLE TICKET

Sl. No.

Journey Place of Provision

Taxability

1. Mumbai-Delhi Mumbai Since Mumbai is the only place of embarkation.

2. Mumbai-Delhi-Mumbai Mumbai Mumbai being the place of embarkation where the continuous journey begins.

3. Delhi-London-New York– London-New York

Delhi New Delhi because it is the place of embarkation of the continuous journey with a single ticket for the entire journey.

MORE THAN ONE TICKET

Sl. No.

Journey Place of Provision Taxability

1. a. Delhi-Bangkok-Delhi For (a), Delhi is the place of provision of service.

Journey (a) is taxable in India since the place of provision is in the taxable territory.b. B a n g k o k - B a l i -

BangkokFor (b), Bangkok.


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Sl. No.

Journey Place of Provision Taxability

2. a. Delhi-New York-Delhi For (a), it is Delhi. Only Journey (a) is taxable since the place of provision is in the taxable territory.

b. New York-Boston-New York

For (b), it is New York.

1.13. On-board Conveyance – Rule 12 of the POPS Rules• Any service provided on board a conveyance (aircraft, vessel, rail or roadways bus)

would be covered under Rule 12.

• Those services must be intended to be consumed wholly or substantially while on board.

• The services must be provided against a specific charge not supplied as a part of the fare.

• The place of provision of such services will be at the first scheduled point of departure.

Illustration:o A is travelling from Mumbai to Delhi in a flight. The airline provides movie-on-demand

service while on board. The place of provision will be Mumbai.

o However if A takes a flight from Bangkok to Delhi and then to Kolkata and the same service is provided then the place of provision of service is Bangkok and that is not taxable as it is outside the taxable territory.

1.14. Export of Service For a taxable service to qualify as Export of services, the conditions prescribed in terms of Rule

6A of the Service Tax Rules, 1994 are required to be complied with which are mentioned below:

• Location of the service provider should be in the taxable territory

• Location of the service recipient should be outside India

• Service should not be specified in Section 66D

• Place of provision of service should be outside India

• The payment for such service is to be received in convertible foreign exchange

• The Service provider and recipient should not be mere establishments of a distinct person

Once the services qualify as ‘exports’, such services can be exported without payment of service tax and further, the service provider shall be able to take CENVAT credit on the input services used in providing such exported services and can also claim refund under Rule 5 of the CENVAT Credit Rules, 2004 in case where the service provider is unable to utilize such credit against other domestic service tax liability.

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Place of Provision of Services Rules, 2012: Problems and Case studies

Case 1: Pharma Industry (R&D activities)Neem India Pharmaceutical proposes to start the following activities at their R & D Unit :

1. Formulation Development;

2. Method Development, method validation and method transfer; and

3. Stability analysis

1. In formulation development Active ingredient is identified and supplied by OVERSEAS SERVICE RECIPIENT and the scope of development involves the process of combining a suitable excipient with the identified API to obtain a formulation with the desired characteristics and quality. OVERSEAS SERVICE RECIPIENT provides information on the dosage form, patient age, dosage and timelines for the particular formulation which is to be developed. The local development team identifies the possible excipients and other compounds required for the formulation development and place an order. The API and excipient will normally be provided by OVERSEAS SERVICE RECIPIENT and some compounds will be sourced locally or from overseas from third party vendors. The output is sent in the form of a formulation development report. This is a technical document on the process/formula of developing the formulation. This does not involve any clinical or commercial manufacturing from Indian site. The material received are either analysed, converted to formulation or destroyed without further distribution.

2. Method development refers to the analytical procedures of developing standard methods for testing critical parameters of drug products (formulations) or drug substances (APIs). The parameters refer to characteristics such as moisture, assay, degradation compounds, dissolution, level of trace materials etc. The objective of method development is to create standard testing procedures for each of the parameter. OVERSEAS SERVICE RECIPIENT will determine the analytical parameters for which method is to be developed and validated. Batches of sample materials and compounds are received and then analyzed by the specialist team. This leads to developing standard methods and their validation that can be employed for testing the product parameters and defining the acceptance ranges for the product parameters. The output is a method development and validation study which documents the technique and steps for the testing methods that are developed and the acceptance criteria. This is sent electronically to the service recipient.

3. Stability study refers to testing various parameters of drug substances and drug products for determining the shelf life of the product under various conditions such as humidity, temperature, light, etc. Preparation of stability assessment protocol is led by analytical project leader at OVERSEAS SERVICE RECIPIENT along with analytical expert locally. The product parameters that are to be tested (as mentioned above), as per validated methods. Some of the methods for testing are provided by OVERSEAS SERVICE RECIPIENT. The test results are collated for samples drawn at different times over several months. Intermediate reports and final reports are prepared and sent to OVERSEAS SERVICE RECIPIENT.

The issue is whether service tax is applicable on the proposed services to the overseas recipient by Neem India in terms of Place of Provision of Services Rules, 2012 read with Service Tax Rules, 1994?


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For an activity to be subject to service tax in terms of the Finance Act, 1994, the following will have to be fulfilled:

• The activity must be “Service” (Section 65B(44) of the Act) or specifically mentioned as a “Declared Service” (Section 66E of the Act).

• The activity shall not be covered under the Negative list (Section 66D of the Act) or exempted (exemption notifications).

• Place of provision of service as per the Place of Provision of Services Rules, 2012 (POPS Rules) should be in the taxable territory (“taxable territory” basically refers to “India” (Sec. 65B(52))

Rule 14 of POPS Rules - The Rule that occurs later in order under the POPS Rules shall be given preference, as against any other rule which may appear equally relevant.

Rule 3 of the POPS Rules (General rule) – place of provision of service is the place of the service recipient.

Rule 4 of the POPS Rules –

• Goods are actually made available to the service provider.

• The provisioning of the service is not possible without the physical presence of goods.

Case 2: Services vide Global agreementsCo. XYZ, located in New York, has a subsidiary Co. PQR in India, which provides IT support services to XYZ towards fulfilment of XYZ’s terms with Co. MNO, also in New York, under a global agreement.

MNO has operations in India through its subsidiary, Co. RST, which supports the IT software services of MNO. PQR is required to provide manpower to RST for work in India under the supervision of RST. PQR procures manpower from “MPS” and supplies them to RST. PQR receives consideration in convertible foreign exchange from XYZ which includes consideration towards supply of manpower in India.

• Examine whether the services will qualify as “export” since PQR receives consideration, including consideration towards the supply of manpower, from XYZ in convertible foreign exchange?

• Is the supply of manpower by PQR to XYZ naturally bundled?

Discussion & AnalysisPQR renders IT support services to its foreign parent Co. XYZ. The Co. XYZ in turns bills Co. MNO in terms of its global agreement.

Taxability of bundled of Services (Section 66F(3) of the Act) –

• If various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of single service which gives such bundle its essential character;

• If various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax.

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Transactions –

PQR rendering IT support to Co. XYZ (services ultimately for Co. MNO) billed to Co. XYZ

PQR supplies manpower to RST (Indian company) and bills its parent Co. XYZ –

• Payment in convertible foreign exchange.

• Manpower supply, is rendered as part of the global agreement entered into between Co. XYZ and Co. MNO.

Case 3: Repair ServicesXYZ Ltd, an Indian company sends a corrupted hard disk to ABC Inc., Singapore for recovery of data/information. ABC Inc. on receipt of the corrupted disk recovers the information saves the data in a new hard disk and sends the new disk to XY Ltd. Consideration is charged for recovery of data and new hard disk.

The essential characteristic of a service to be covered under Rule 4 of the POPS Rules –

• Goods temporarily come into the physical possession or control of the service provider,

• Without the physical possession of goods, the service cannot be rendered.

Example of services are repair, reconditioning, or any other work on goods (not amounting to manufacture), storage and warehousing, courier service, cargo handling service (loading, unloading, packing or unpacking of cargo), technical testing/inspection/certification/ analysis of goods, dry cleaning, etc. (Para 5.4.1. of the Educational guide)

Determine whether the above services would fall under the purview of –• Rule 4, performance based – as the disk was physically made available to the service

provider; Or

• Rule 3, default rules – as the intention is to obtain the recovered data and not the repair of corrupted hard disk.

qq


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1. M/s. XYZ are inter alia engaged in manufacturing and supplying of lifts. It also provides the erection installation and commissioning services. The contract with the end customer is indivisible works contract for supply of lift as well as for provision of services. It procures raw material on payment of excise duty for manufacture of the lifts and avails CENVAT credit thereof. It pays excise duty on the assessable value of the lift at the time of clearance from the factory. However, certain parts/components of the lifts are not manufactured by XYZ and directly bought from the market and supplied directly at the site. It receives Input services which are common for manufacture of goods as well bought out goods. It also receives storage services for storing the bought out items.

It pays services tax treating the contract as works contract. It is availing CENVAT Credit on all the above input services on the ground that the only activity of XYZ is manufacture of goods and provision of works contract services. However, the auditors objected to the above practice. The CFO of the above company seeks your opinion on the following issues:-

(a) Whether the company is entitled to the entire CENVAT Credit of input services?

(b) With respect to bought out goods, whether the company is engaged in trading activity & warrants reversal of CENVAT credit, even though the same is in relation to execution of the works contract?

(c) Whether the company is entitled to avail CENVAT credit on the storage services received for storage of bought out goods and if yes, to what extent?

(d) Whether the formula prescribed in Rule 6(3) of the CENVAT Credit Rules, 2004 shall be applicable?

(e) How would the value of exempted services if any shall be determined?

2. AtomInsurance,acompanywithitsheadofficeinPune,providesgeneral insuranceservicesall across India, including the in the State of Jammu & Kashmir. The company was not paying any output service tax on the policies issued in the state of Jammu and Kashmir as the services provided in the state of Jammu and Kashmir is exempted from payment of service tax in terms of section 64 of the Finance Act, 1994. It was also providing other services which was exemptedfrompaymentofservicetaxbywayofnotificationi.e.cropinsuranceetc.Itreceivesvarious input services which are common for taxable services provided, services provided in J&K and also for providing various exempted services. The company was following Rule 6(3) of the CENVAT Credit Rules, 2004 for reversal of CENVAT Credit. The formula for such reversal reads as under:-

Reversal of CENVAT Credit =Total CENVAT Credit X Exempted turnover/Total turnover While reversing the CENVAT credit the company had not considered the J&K turnover either as exempted turnover or total turnover. The company had relied on the Rule 1 of the CENVAT Credit Rules, 2004 for arriving at such conclusion which reads as under:

Case Studies on CENVAT Credit

Adv. L. Badri Narayanan


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“Rule 1. Short title, extent and commencement.…. Provided that nothing contained in these rules relating to availment and utilisation of credit of

service tax shall apply to the State of Jammu and Kashmir.”

Department issued show cause notice to the company interalia including the J&K turnover in the both numerator as well as denominator in the formula and then reversal of CENVAT credit. In the facts and circumstance of the above case, following substantial questions raises for your consideration.

(a) At the outset whether the company is entitled to avail CENVAT credit pertaining to J&K as CENVAT Credit does not extend to J&K?

(b) WhethertheservicesprovidedinJ&Kwillbecoveredbythedefinitionoftheexemptedservice as per Rule 2(e) of the CENVAT Credit, Rules, 2004.

(c) If the company is entitled to take the CENVAT credit as mentioned in sr. no.(a) above whether the reversal is to be made without including J&K turnover. In, other words whether the stand of the company in not including the J&K turnover both in numerator as well as denominator is correct?

(d) Any other ground which the company can take to defend their case before the department?

3. M/s. MODI limited is inter alia engaged in the business of leasing of power plant and management and operation thereof. MODI limited had entered into an agreement with AMIT Limited for lease of some of the individual equipment required for the power plant, rest of the items were provided by AMIT limited. In terms of the agreement MODI limited had also undertaken to set up the plant. On the very same day another agreement was entered into wherein MODI limited undertook to provide operation and maintenance services of the very same power plant to AMIT limited.

MODI Limited had received lease charges from the AMIT limited on which MODI limited discharged sales tax/ VAT treating the transfer of equipment as transfer of right to use goods.

Further, on the repair and maintenance charges MODI limited was discharging service tax liability under the category of consulting engineer services.

During the course of setting up of the plant, various equipment had been embedded to earth to run the power plant smoothly. MODI limited had received various input services for setting up of the power plant and took credit thereof.

During the course of Audit, Service Tax department raised an objection inter alia denying the CENVAT Credit on the input services received for setting up of the plant.

(a) What could be the possible grounds for denial of CENVAT credit?

(b) Whether the company is entitled for CENVAT Credit?

(c) Thecompanyalsowant to takeastandthatat thefirst instance, itwasnot liable topay any service tax on the operation and maintenance service either under the taxable category of “consulting engineer service” or under maintenance or repair service and hence credit taken is as good as tax not required to be paid. Is there any substance in this argument?

4. Cars Inc. is a manufacturer of cars in India. It also trades in imported cars. It was paying appropriate excise duty on clearance of the car manufactured by them. On the cars imported

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by them they have also paid the appropriate countervailing duties. It used input services forbothmanufacturingandtrading.Theseservices includedaccounting,auditing,financing,advertisement or sales promotion, market research, storage up to the place or removal, etc. It took CENVAT credit for these services treating the same as activity relating to business. The periodinvolvedwaspriorto1.4.2011i.e.priortoamendmenttodefinitionofexemptedservices(Rule 2(e) of the CENVAT Credit Rules, 2004 treating the trading as “exempted services”.

Questions:(a) Whether trading would be considered as an “exempted service” before 1-4-2011?

(b) If trading is not considered as exempted service prior to 1-4-2011 whether CENVAT credit can still be denied.

(c) If trading is considered to be exempted service, what should be the value of trading service?

(d) Whether the valuation method introduced in Rule 6 (3) of the CENVAT Credit rules, 2004 w.e.f. 1-4-2011 treating the margin or 10 % of the goods sold whichever is higher as value of trading services can be applied for the period prior to 1-4-2011.

(e) How will the value of trading services be determined in accordance with the new valuation method? Whether the expenses incurred for procurement of the bought out goods for eg. CHA services etc. are not to be taken in to account while calculating the cost of the goods sold?

(f) What should be the objective of reversal of CENVAT credit of the services used in provision of taxable and exempted service? Whether the formula prescribed in Rule 6(3) achieves the above objective?

(g) Whether, the formula prescribed in Rule 6(3) leads to distortion in values. Whether, CVD paid on import of the car is also to be taken in to account for reversal purposes.

(h) What should be the ideal formula for reversal of CENVAT Credit?

5. Giftswala is running a loyalty rewards system. There are four parties to the entire arrangement. There are the retailers who sell their primary goods at full price and also issue reward points in accordance with the value of the items bought. Giftswala maintains a directory of the reward points which have been issued to the customers. The retailers pay Giftswala for each point issued. Then there are the suppliers who give their items at discounted rates or for free to the above-mentioned customers in (I) lieu of the points which have been earned. They might also provide services in exchange of points. For the discounts, the suppliers are paid by Giftswala.

ThustheretailersbenefitfromthearrangementbygettingpaidbyGiftswalaandalso,gettingtoclear their excess stock. Also while coming to avail their points, the customers might buy certain other itemsatfullpriceaswell.Thecustomersbenefitastheygetcertainitemsandservicesat lower price.

Giftswala pays the suppliers so that they may give the discounted items and rewards to the customers and the loyalty rewards system can function. Giftswala is legally liable to pay the suppliers for the discounted items and rewards given to the customers.

Questions:(a) Who is the recipient of the services of the secondary service provider? i.e. Whether the

supply made by the secondary suppliers is to the customer or to Giftswala (who actually pays for it)?


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6. PureManureisamanufacturerofexcisablegoods.Itusedsomeservicesfortheconstructionof an Ammonia Storage tank in its premises. It paid service tax for the services it utilized in the construction of the tank. It claimed CENVAT credit for the same. However, the service tax department issued show cause notice denying CENVAT credit on the ground that the services are not received in factory. The SCN also alleges that the tank becomes immovable and hence creditchainsnapsthere, therefore theCENVAT isnotadmissible.Puremanureseeksyouropinion on admissibility of CENVAT Credit?

7. Keshav Ltd. manufactures goods and also provides services. It also undertakes trading activities. The credit taken by Keshav can be categorized in the following;-

(a) Those used exclusively for the manufacture of excisable goods.

(b) Those used exclusively for the rendering of taxable output services

(c) Common input services used for the manufacture of dutiable goods, taxable output services and exempted output services.

Keshav Ltd. was availing full CENVAT credit with respect to categories (a) and (b). However, with respect to third category Keshav Ltd. was availing CENVAT credit proportionality. Rule 6(3A) of the CENVAT Credit Rules, 2004 prescribes the Formula for reversal of CENVAT Credit. The same reads as under:-

Credittobereversed=PXM/N;wherein

• P=TotalCENVATcredittakenoninputservices

• M = Total value of exempted goods manufactured and exempted services provided

• N = Total value of taxable and exempted services provided plus the total value of dutiable and exempted goods manufactured

However,KeshavhadconsideredonlythevalueofcommonCENVATcreditasvalueof‘P’andnot the entire CENVAT Credit as prescribed in the Rule.

Questions:1. Whether the view of the company to apply the formula only on the value of the common

CENVAT credit service is correct?

2. What objective should be kept in mind while prescribing the formula for reversal of CENVAT credit? Whether the formula prescribed in Rule 6(3A) achieves the purpose?

8. ABCisaCharteredAccountancyandManagementConsultancyfirm.Alltheservicesprovidedbythefirmaretaxableexceptfewserviceswhereinthesameisexemptedbywayofnotification.Theexemptionnotificationalsoprovidesforfulfilmentofcertainconditionsforthepurposeofclaimingthebenefitofexemptionnotification.IfABCdoesnotpayservicetaxontheexemptedservicesthenCENVATcreditavailedbythefirmwouldbesubjecttoreversalofCENVATCreditin terms of Rule 6 of the CENVATCreditRules,2004.Therefore,thefirmisexploringanoptiontopayservicetaxonall theservicesprovidedbythefirmincludingtheservicesexemptedbywayofnotification.Thefirmseeksyourexpertopinionofthefollowingpoints:-

(a) Whether the firm can pay the service tax on the services exempted by way of notification?

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(b) If the company chooses to pay service tax on all the services whether the company is not required to make any reversal in terms of Rule 6(3) of the CENVAT credit Rules, 2004?

(c) Whatwillbethepositionifthenotificationexemptstheservicesunconditionally?

(d) Whether section 5(A)1(A) of the Central Excise Act has any implication in the present case which provides that in case of unconditionally exempted products excise duty cannot be paid?

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Case Study No. 1Q-Soft India Ltd. is a wholly owned subsidiary of Q-Soft Pte., Singapore and has expertise in the field of software. The Company provides software consultancy services; advisory services in the field of information technology to its subsidiary as well as other companies located outside India. Services are provided from Indian locations. In the second segment the company also provides training services and for this purpose, IT professionals travel to different locations outside India and the billing is in dollars. The company also follows a business model where a lump sum amount is received covering software advisory; software consultancy and training. In the lump sum model, the training is done in the Indian locations and the employees of the foreign clients travel down to India to be trained. Advise on service tax.

Case Study No. 2Oh. Yeah Bank, Mumbai has developed banking software called as ‘CHEQ’ and enters into agreements with banks located outside India and the software is licensed on payment of license fees. Amounts are charged separately for license and support. The support is provided through telephone calls or through emails for 85% of the customers. For 15% of the customers, if there is an issue the customer tries to solve the problem through the system itself and the system would indicate the issue. This diagnosis would be sent as a screenshot to India and the problem would be replicated in the model bank replication of the software available in India. The software that is supplied is not returned in any manner to India and OYB does not access or download the software. Based on the screenshot the problem is replicated in the model bank and a solution is developed as a patch which is sent to the client as a system update. Automatically the same system upgrade is made available to all other clients. Advise on service tax implications.

Case Study No. 3Amla Technologies Pvt. Ltd. is a distributor appointed by a multi-national IT product leader selling products under the brand name ‘gooseberry’. Software licenses are imported through the medium of internet by Amla Technologies and sold to IT companies in India through the medium of internet. At the time of import, service tax has not been discharged. However, when the licenses are sold online to customers in India, the Company has discharged service tax on the sale price which includes its margins. The Department is of the view that service tax is payable at the time of import. In case, the Company decides to discharge service tax now, whether CENVAT credit can be availed. Advise on Service Tax and CENVAT Credit.

Case Study No. 4Touch Me Not Tax Services Ltd. (TMN) is engaged in providing back office services to Touch Me Not LLP, USA. The services are in the nature of preparation of tax returns, calculation of tax liabilities, drafting of extension requests, analyzing client financial statements in connection with returns and the services are performed through a unit registered as a STPI unit under the Foreign Trade Policy. The entire services are rendered using computers which have been leased out by the US Company.

Service Tax & VAT on IT, IT Enabled Services and E-commerce Transactions – Case Studies



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The Department is of the view that the services have been performed in India based on the Place of Provision of Service Rules and hence liable to service tax. The Department is also of the view that the rentals for the computers are also liable to service tax. Advise.

Case Study No. 5M/s. Jadugar 7D Ltd. is engaged in providing IT enabled services involving restoration of video and audio content and uses specialized software for this purpose. The process involved is given below:

(i) The content i.e. the audio and video is received as film and sound negatives, LTO tapes, hard disks, tapes (DigiBeta-`DB’).

(ii) The content received in physical format is scanned and digitized and transferred to Server Storage.

(iii) The content in Server Storage is segregated as individual frames.

(iv) The frames are allocated to analyzing and estimation team to see what restoration has to be done.

(v) Using software tools each frame is cleaned of all scratches, pinholes, tears, jitter.

(vi) The restored image is checked for quality and the same is sent either as a tape or a disk or as an internet file.

Each and every image is digitally corrected to remove the scratches blemish, pinholes, jitters etc., to render as clean an image as possible. A corresponding restoration is done to the sound track also to render a clear sound track. Restoration is undertaken in STPI Unit, which is duly registered under the Foreign Trade Policy. The content originally made available is scraped after digitization. In some cases the digitized content itself is sent as a file.

The Company also has a division where computer graphics / visual effects. For example if the film hero is fighting 20 anti-social elements, at the time of shooting the hero is suspended from various metal wires and the film is shot with the hero moving around in the air and knocking the anti-social elements with the help of the suspended wires. At the lab using IT all the metal wires and springs are erased and after enhancement the visual would indicate the hero flying in the air and knocking the anti-social elements.

The Department relies upon Rule 4(a) of the POP Rules, and is of the view that since the services have been performed in Hyderabad service tax is applicable. The APVAT authorities are of the view that creation of visual effects is a works contract liable to VAT. Advise.

Case Study No. 6M/s. Royal Television is engaged in the production of mega serials and produced a popular TV Serial called as ‘rona hi rona’. The serial is on air for the last 5 years and the story is yet to develop. The TV channel broadcasting the serial has granted an extension for another 5 years. Broadcasting fees is paid by Royal Television for telecasting the serial and the channel charges service tax. For every episode four minutes of free commercial time (FCT) is given by the channel to Royal Television. Royal Television sells the FCT to advertising agencies and discharges applicable service tax. The VAT authorities are of the view that the FCT is goods and liable to VAT. Advise.

Case Study No. 7Tech Developers Limited was engaged by clients for developing software as per specifications. The software so developed would belong to the customer and Tech Developers will not have any right or

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claim on the software developed. The VAT authorities are of the view that Tech Developers are engaged in execution of a works contract. The Company is discharging service tax. Advice.

Case Study No. 8VirtualMall.com is a website which displays products of all types, ranges and varieties. The membership is free and the members can purchase any commodity listed as available with the prices as declared. When an item is ordered, options are available for payment through credit card or online transfer or cash on delivery. Virtual Mall Ltd. has its head office at Mumbai and has leased out huge warehouses across the country including Kerala. The various vendors of the products have registered the Kerala warehouse as their additional place of business and have declared them as such in their VAT registrations. When a customer in Kerala orders a mobile phone, the employees of VirtualMall.com pack the phone in a special cover with all accessories; affix the invoice of the phone vendor with VAT; courier the phone to the customer. The packing has the logo and brand of VirtualMall.com. The Kerala VAT authorities are of the view that VirtualMall.com is also liable to pay VAT since they have facilitated the supply and thereby have become a dealer. Virtualmall.com discharges service tax on the fulfilment charges (packing activity). Advise.

Case Study No. 9Trolley.com is a website owned and operated by Trolley India Ltd., having its registered office in Maharashtra. The Company is a wholly owned subsidiary of Trolley Inc. USA. The server of Trolley India Ltd. is located in California. Mr. GG, a Mumbai based Chartered Accountant, is participating in a 3 days tax conference in Hyderabad. Mr. GG has given his Mumbai address to the website for the purpose of shopping. He orders a latest music CD and specifies the address for delivery as the Hotel in which he is staying in Hyderabad for the conference. The order is processed and based on the delivery address the music CD is couriered from the Hyderabad warehouse to Mr. GG at his hotel. The cover has an invoice having the logo of Trolley.com and the invoice refers to the seller’s name and address in Mumbai; customer’s address as Hyderabad and the declaration states that applicable MVAT has been discharged. Advise on tax implications.

Case Study No. 10Yellowcabs.com is owned by M/s. Yellow Cabs Pte. Ltd. Singapore and does not have any office in India. Through their representatives, who are basically marketing consultants, car owners in India are induced to join the Yellow Cabs network. When a car owner joins the network, he will have to affix the Yellow Cabs logo and is given a device which is hooked on to the GPRS network. Any customer can download the App and through the App book a cab. Payment can be made directly to the cab driver or it can be prepaid through a Yellow Wallet mechanism (e-payment). The cab owners have the advantage of avoiding idling time since the nearest cab is identified by the customer through the system and both parties are connected by a back office call center located in Philippines. Advise on service tax applicability. What would happen if Yellow Cabs does not appoint any representative in India?

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Tax laws burdensome in India and doing business in India remains difficult and processes in the country are “complicated” and “burdensome” as per the statement of the Honda Global Chairman carried out in Times of India, dated 13-09-2014. Economic Minister of Japan, Mr. Isomata Akoo, on 4th September 2014 in New Delhi, said In india - “Lack of Simple & Uniform Indirect Tax System”. There are three major issues which remain contentious and lead to litigations and Indian indirect taxes laws are treated as most complex. (1) Inquiry, investigations, audit, summons, search, etc. in mechanical way. (2) No Tax Assessments procedure and adjudications are not judicious (3) Too much and excessive delegated legislations and frequent changes. The issues herein referred to appears to be simple, but these are the real and contentious issues, which make indirect taxes more complex.

1. Issuance of summons in mechanical way: Issuance of summons by officers have become a fashion in indirect tax administration, and despite CBEC/MOF conceded this fact in their instruction dated 26-02-2007 [F. No. 137/39/2007-CX.-4] that “summons are being issued in a routine manner”, which causes, “mental stress & embarrassment and instills fear in the minds of receiver”, still there is no respite at all. In fact, this is almost use as a tool to harass the senior officers of the companies and it will not be untrue to say that it has breed immense corruption. There is no instance has come to the notice, when MOF has taken any action against errant officers who abuse such powers. As such there is perhaps no practice to look into this aspect at all. Whereas for the same set of assessee, such practice is unknown for them while dealing with Income Tax Department. Surprisingly, large number of assesses received summons many times every year from several wings of the service tax and excise departments, even PSUs, MNCs and Govt. Authorities are no exception to this practice of the Excise and Service Tax Department. The Board just to assuage the taxpayer issued instruction F. No. 207/07/2014-CX-6, dated 20-01-2015 wherein earlier instruction dated 26-02-2007 is reiterated. Therefore, it is surprising that on the one hand, the Board has recognised in the instruction dated 20-01-2015 that instances as came to the knowledge that the summons are being issued in a routine manner to call documents and despite already issued instruction in the year 2007, but the Board/MOF did not take any action against their own officers those who violate the mandate/instruction issued by the Board.

2. Search under Excise and Service Tax: There appears to be free hand to conduct search just to satisfy the ego of the officers and to harass the assessee. It has been seen that after conducting search, even summon are being issued to know the business nature of the company which is searched, which obviously indicate that search is only motivated as the first principle of search that entire modus operandi of the assessee must be known to the Department before the search is ordered to be conducted. While conducting search, even documents maintained in normal course of business are being taken like balance-sheet, service tax return, excise return, which as per the manual issued by the Department should not be seized. Further, one unique thing under excise & service tax department is that once search in conducted, inquiry continue for the future period, which never happened under income tax, as search is for the past period and not for the future. However, officer continue to issue summons and other communication and ask to submit records for the future period as well i.e. records

Controversies/ Contentious/ Burning issues under Indirect Tax Laws in India

Adv. J. K. Mittal


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for the period subsequent the date of search. It is also surprising that even after conducting search, inquiry continue for couple of years by making it as roving inquiry by calling time and again records. It is also surprising that while search need to be conducted to seize the records which is ‘secreted’, but once search is conducted how the officers asked the assessee to submit records. And if the records were to be called and submitted by the assessee then why search is conducted. The act and deed of the officers are found to be contradicting their stand. Such types of cases need to be monitored at the highest level but unlike under income tax, in indirect taxes, search is left at the junior level officers without any monitoring system, how the power is being abused.

3. Inquiry/investigation for last 5 years without any judicious or application of mind by multiple wings of the Department: This is hard fact that central excise and service tax officers across the country are issuing inquiry letter or summons, etc. to assessees seeking voluminous records for the past 5 years by various wings of the Department, and this practice is prevalent and pervasive almost in all commissionerates. It is also hard fact that multiple inquiries/ investigations of same assessee for the same period by different wings like by divisions/ ranges, anti-evasions, preventive wing, audit wing, different units of DGCEI, as well as by different commissionerates. Such inquiry/ investigation letters/ communications do not refer the provisions under which such power is being exercised except in case of summons. It appears that Chief Commissioners or Board Members do not monitor such inquiry and investigations and oblivious to this fact. This is despite the fact that the same very assessees have been assessed by the same Department and subjected to inquiry and investigations & search and audit by Department for the same very period. One of Apex Chamber of Commerce (ASSOCHAM) of the country has in the year 2014 highlighted the same, by issuing large scale advertisement in various leading newspapers, with wish list of budget. By this, one can gauge the magnitude of problem and the adverse consequence of the same for conducting business in India. Despite this is well known to officers at all level in the Ministry of Finance, no remedial steps have ever been taken in this direction.

4. Conducting Audit by the Department officers in routine way, without any legal sanction: In Delhi, Mumbai Kolkata and some other parts of the country, it is frequently seen that the Central Excise and Service Tax Department issues a pre-printed mechanical letters with large number of forms/ performas which is not even prescribed under any law, in the name of conducting audit. Such letters are issued to all types of assessees, small or big, private or a public sectors, individual or a company, but department letter contents/size requirements remain same and informations are sought generally for the last 5 years, irrespective of nature of business and type of assessee or his turnover etc. One can gauge how ruthless the Department is with the assessees. On one hand, the Government has taken steps by making use of technology and made e-filing of return compulsory, yet the information sought through these letters invariably includes copies of the service tax returns, which assessees have already filed online with the Department, which the Departmental officer can easily see on their computer. But, the officers demand hard copies of last 5 years same return filed online by the assessee, which defeats the very purpose of introduction of filing of online returns and ‘go-green’ principle to avoid use of papers. All this being done on the basis of provisions of Rule 5A(2) of the Service Tax Rules, 1994/Rule 22 of Central Excise Rules, 2002 and internal audit manual of the Department. However, the Delhi High Court recently by judgment dated 04 August 2014 in W.P.(C) 3774/2013 in the matter of Travelite (India) vs. UOI & Ors. reported in 2014 (35) STR 653 (Del.) struck down rule 5A(2) empowering audit by CAG as well as by Service Tax Department, as is ultra-vires the rule making power. The High Court also held that Service Tax Audit Manual, 2011 has no statutory force. It has been understood that now CBEC, after the said decision, has given new name to audit by terming it as ‘verification’ and ‘audit officers’ renamed as ‘verification

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officers’, to do the same task. The Government in the meantime also issued Notification No. 23/2014-ST, dated 05-12-2014 and substituted the said the Rule 5A(2) of Service Tax Rules, 1994 with a new Rule sub-rule (2) of Rule 5A of Service Tax Rules, 1994, which is more or less on the same lines as it was earlier. The said sub-rule (2) of Rule 5A along with clause (k) of sub-section (2) read with sub-section (1) of section 94, as amended by the Finance (No. 2) Act, 2014 also challenged before the Delhi High Court in the matter of Mega Cabs Pvt. Ltd. filed writ petition (C) No. 5192/2015, wherein by order dated 22.05.2015 Notice to Central Government has been issued on the validity of new provisions of Audit under service tax.

5. Conducting Audit by the CAG officers without any authority of law: The Comptroller and Auditor General of India (CAG) is a Constitutional authority and have power to conduct the audit of the Government’s accounts or the accounts of the Government Company and has no authority under the law to conduct audit of the private enterprises. But, the officers of Comptroller & Audit General of India (CAG) directly communicating to the private enterprises, which schedule of audit to be conducted for the last many years and also visit the assessee’s premises for conducting audit of Service Tax and Central Excise Assessees, those are private enterprises like private or public limited companies. All this being done on the basis of provisions of Rule 5A(2) of the Service Tax Rules, 1994/ Rule 22 of Central Excise Rules, 2002. The CAG officers also take shelter of Section 16 CAG (DPC) Act, 1971, whereas such provisions have no applicability to private enterprises. This has led to serious resentment among members of trade and industry as this practice has been followed all around the country without any check lead to frivolous demands and unnecessary litigation across country. However, when the Delhi High Court in Travelite (India) vs. UOI &Ors. reported in 2014 (35) STR 653 (Del.) strike down rule 5A(2) empowering audit by CAG as well as by Service Tax Department, as is ultra-vires the rule making power, now the CAG refer section 16 of C&AG (DPC) Act, 1971 for conducting audit of private enterprises, whereas provisions of said section 16 does not empower C&AG to conduct audit of private enterprises, as held by the Honorable Calcutta High Court in SKP Securities Ltd. vs. Dy. Director (RA-IDT) & Ors reported in 2013 (29) STR 337 (Cal.) and quashed the letter issued by C&AG/CERA wing for conducting audit. In the said judgment, while considering the provisions of section 16 of C&AG (DPC Act), 1971, the Hon’ble High Court held that “Mr. J. K. Mittal appearing on behalf of the petitioner submitted, and in my view, rightly that there is no provision in the CAG Act which enables the Comptroller and Auditor General of India to audit the accounts of a non-government company which is not operated out of the funds of the Union of India or any State Government or any Union Territory or any entity owned and/or financed by them”. It was further held that “As rightly argued by Mr. Mittal, there is no provision in Chapter V of the Finance Act, 1994 or for that matter in the CAG Act which empowers the CAG to audit the accounts of an assessee which is a non Government company, not in receipt of aid or assistance from any government or government entity.” The Supreme Court in the case of Association of Unified Tele Services Providers and Others vs. UOI in Civil Appeal No. 4591/2014 and 4592/2014 by judgment dated 17-04-2014 held that CAG only for limited purposes of ascertaining whether Union is getting its legitimate share by way of revenue sharing, as the spectrum is a natural resources, belong to the people and State. In the aforesaid judgment since nature resources were allotted on revenue sharing basis, and to ascertain whether the State its getting its right share or not, to that extend, it was held that CAG has power to examine the records of the telecom operators (service provider). Therefore, said judgment cannot be applied or construct in way that CAG has a right to conduct audit of every private enterprises. The law laid down in the aforesaid judgment of SKP securities (supra) neither altered nor stayed by the Higher Court. Further, in the context audit of service tax assesse, in the matter of A.C.L Education Centre (P) Ltd. vs. Union of India 2014 (33) STR 609 (All.), it was held that “In case of Government Autonomous Body, the function of the


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audit has been assigned to the Comptroller of Auditor General of India.” Therefore, power of C&AG to conduct audit is not extended to private enterprises but to Government companies only. Therefore, CAG office has no jurisdiction, whatsoever, to conduct the audit in respect of private enterprises. The Division Bench of the Gujarat High Court in the case of Sadbhav Engineering Limited vs. Union of India and others in Special Civil Application No. 14928/2014 after hearing parties by order dated 03-12-2014 has restraint Comptroller & Auditor General of India to conduct audit of service tax and passed a detail order by taking note of judgment of various High Court & Supreme Court including after considering the supreme court decision in the case of Unified Tele Services Providers and Others (supra).

6. Adjudication procedure: This is hard fact that adjudication procedure at the Departmental level for indirect taxes disputes is a sham/cloak and entire machinery has almost collapsed. Even at a glance of the many orders passed, indicates that orders appear to be outsourced to juniors officers and merely bear the signatures of adjudicating authority, which has generated huge litigations at all levels, which has choked the higher forums/courts and consequently the members of industry have lost confidence in the indirect taxes administration and they have to suffer for several years of litigations, which could be avoided. Officers, in almost every case refuse to give hearing proceedings. Signatures of assessee and/or legal representative are obtained on hearing sheets on which almost standard lines are written – ‘submissions reiterated’ and hearing is concluded in routine fashion in few minutes and as such there is absent of ‘fair hearing’. In most of cases, submissions of assessee are hardly considered and orders are merely reproduction of allegations in Show Cause Notice. There is no time limit for passing the orders by the officers even after hearing, though recently by the amendment made by the Finance (No.2 ) Act, 2014 in sub-section (4B) of section 73, it has been specified that where it is possible to do so, show cause notice issued for normal period should be adjudicate within six months period and extended period notice should be decided within one year from the date of said show cause notice, but even after said amendment, show cause notices are not being decided, as past notices are pending for years. In 100% cases, officers after hearing, reserve the orders and orders are being passed mostly after several months from the date of conducting hearing and sometimes orders are never been passed by the officers even after hearing. The reasons for the same can obviously be understood. This has been conceded by CBEC/MOF in Circular No. 732/48/2003-CX dated 05-08-2003 [F. No. 208/17/2003-CX.6] by recording that “often there is delay in issue of Adjudication/Appellate orders”, and directed that “to communicate the decision immediately or within a reasonable time of 5 days.” But, there has not been even a single instance, when any order has been passed forthwith or within 5 days of hearing in terms of said CBEC/MOF Circular No. 732/48/2003-CX dated 05-08-2003 [F. No. 208/17/2003-CX.6]. Therefore, despite these admitted facts, the situation has become bad to worst and such instruction is being flouted. Thus, there is proven defiance of the specific instruction issued by Board/MOF. Most of the cases, orders are being passed even without considering submissions of the assessees and ignoring the law settled by higher forum/courts, which further leads to multiple round of litigations. There seems to be no quality check of the orders passed by the officers and the officers have no lest of passing deliberately wrong orders with ulterior motive. There appears to be no zeal on the part of Government to change this system, which gives impression that it has been deliberately created to suit the vested interest people and corrupts officers. All these have led to increase in frivolous litigations, loss of confidence of members of trade &industry in the entire system of indirect tax administration.

7. Tax demand and penalty by same proceedings by one order: Unlike under Income Tax, in the Central Excise and Service Tax, assessment/adjudication for tax determination and penalty proceedings are simultaneously done and penalty are invariably imposed merely on account of confirmation of tax demands without independently analysis of the reason for imposition of

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penalty. In Spandana Spoorthy Financial Ltd. vs. C.C.C.Ex. & ST, Hyderabad-IV 2014 (35) STR 183 (AP) held that “2. According to us, when the appeal is admitted for hearing and the order of the assessment is under scrutiny, unless the order of assessment reaches its finality, the question of initiation of penalty proceeding does not and cannot arise.” It appears that there in inherent deficiency in the procedure adopted by the Government in dealing with indirect taxes cases, which should have been reviewed longtime back. In income tax, tax assessment proceedings are always independent and penalty proceedings are taken up only after the assessment proceedings.

8. Show Cause Notices: A large number of Show Cause Notices demanding huge amount of taxes are being issued not only in mechanical manner but also deliberately by abusing the powers, knowing that assessees have to spend about 10 to 20 years in litigation to overcome such bogus disputes. Such show cause notices even surprisingly bear the signatures of senior officers of the rank of Additional Commissioner/ Commissioner. Show cause notices are issued on the ground of suppression as a matter of routine rather in exception cases and there is no accountability ever fixed of the officers for making such vague and fallacious allegations, which lead to unnecessary allegations. Now-a-days in service tax, the Department is using section 72 as a tool to issue such frivolous and exaggerated demands, which lead to unnecessary litigations, choking the entire legal system and putting assesse into hardship.

9. Double or multiple assessments: It is settled principle of law there cannot be double assessment for the same period and for same assessee. However, this principle has not been followed in indirect taxes and as a matter of practice, there are multiple proceedings and assessment orders are being passed for the same assessee covering same period on different aspects.

10. Fresh Registration, amendments or Surrendering registration: Taking Registration, surrendering registration or seeking amendments in the same, under service tax, despite online system, is a nightmare in India. Despite CBEC/MOF conceded this fact in their instruction dated 03-09-2007 [Dy. No. 294/Com(ST)/2007] that “Delay in grant of registration not only affects the business of the taxpayers adversely, but also dissuades the potential taxpayers from taking registrations and complying with the service tax laws”, but still there is no respite at all. Rather, Service Tax Commissioner, Delhi issued Trade Notice No Trade Notice No. 16/ST/2012, dated 18-6-2012 prescribing long list of documents and procedure for taking registration and seeking amendment in the registration, which is not even prescribed and envisaged under the law of the land and made registration process cumbersome. Thus, the potential and existing taxpayers are facing problems at threshold level. Whereas obtaining PAN under income tax is quite simple. Similarly, Mumbai Service Tax Commissionerate-I has issued Trade Notice No. 18/2013-S.T., dated 19-12-2013 prescribing long list of documents and procedure for surrendering registration, which is not even prescribed and envisaged under the law of the land, thus, making the procedure of surrendering registration very cumbersome. In the Budget 2015-16, the Hon’ble FM announced that registration shall be granted within 2 days, however, it is only applicable for single premises registration, but time period for granting registration still 7 days in sub-rule (5) of Rule 4. Thus, on filing of application on ACES, registration shall be granted within 2 days, which is trust based registration. Further, even said registration is also liable for cancellation unless long list of documents as prescribed in order No. 1/2015 – ST, dated 28-02-2015 is submitted within 15 days of filing the registration application.

11. Ambiguity created in filing return as per old law: The Parliament changes the law w.e.f. 01-07-2012 by introducing different taxation system of levying service tax in India by abrogating earlier provisions of law which provide long list of provisions for about 120 taxable services. In fact, due to change in law from 1st July 2012, CBEC/MOF in the Circular No. 161/12/2012-ST,


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dated 06-07-2012 [(F. No. 341/21/2012-TRU)] only one code was specified instead of different code for 120 services existed earlier for payment of service tax. However, this relief, though granted by Parliament, vanished soon, firstly, when CBEC/MOF Circular No. 165/16/2012-ST, dated 20-11-2012 [(F. No. 341/21/2012-TRU)] was issued making mandatory for payment of service tax under service specific accounting codes under old provisions of service tax, which were specifically abandoned by the Parliament. Secondly, when CBEC/MOF further issued Notification No. 48/2012-ST, dated 30-11-2012 making mandatory for seeking registration separately service wise as per the old provisions, which no more exist under statute book. Thirdly, when another Notification No. 1/2013-ST, dated 22-2-2013 was issued by CBEC/MOF making return as per services specific as per the old provisions, which have already been rescinded by the Parliament. This happens only in India, where even when Parliament has changed the law, yet, officers have audacity to restore the old law by issuing circulars and Notifications, which run counter to the policy and law made by Parliament. Which obviously is ensuring that running of business in India can never be an easy task? Worst is that, this matter had been brought to the notice of every one in Ministry of Finance including then FM, including by Apex Industry Body by putting strong reservation on such circular/notifications contrary to law, as it is not only legally incorrect but also lead to practical difficult to follow but also it would generate multiple litigations, however, nothing happened. It means the Government does not listen or bother about such glaring instances of law violations.

12. Assessment under Central Excise and Service Tax on the discretion of officers: For passing adjudication orders under service tax, time lime has been prescribed by the Finance Act, 2014 i.e. within 6 months to one year from the date of issuance of show cause notice, whereas in the Central Excise such provisions were made in the year 2010 in Section 11A. However, adjudication orders in such time need to be done only when it is possible to do so, without specifying any criteria, thus giving entire discretion in the hands of assessing officers. Whereas it is a matter of record that the adjudication are not being done for years together on the whims and fancies of the officers and cases are picked up by the officers as per his discretion, without following the system so the oldest cases are decided first. Thus, the system have not made any check and balances on the officers who abuse their powers and does not make assessment in time bound manner and harass the assessees, this has result into huge corrupt practices and avoidable litigations. The system should be transparent and accountability has to be fixed on the officers. Whereas, in the income tax, there is concept of time barring assessment, therefore, if the order is passed after expiry of time limit prescribed under the law, it shall be nullity, similarly provisions need to be made under the indirect taxes law also.

13. Multiple Taxation is way of life in India: lead to litigations, higher transactions cost & impacting business growth in India: Why only India has controversial and complex taxation system by having multiplicity of taxes on the same transaction, which has fueled up unnecessary litigations yet remain unresolved and lead to high transaction cost and adversely impacting business growth in India? India has unique system of taxation of many transactions, which does not prevail in any part of the world, which are listed under Article 366(29A) of the Constitution of India [vide Forty-sixth Constitutional Amendment], which are treated as deemed sale, and subject to State Taxation, like tax on works contract, right to use of goods, delivery of goods hire purchase, supply of food in restaurant etc., Similarly, in India software has been subject to tax under VAT and service tax and even excise duty and customs duty also, and India has witnesse huge litigations on the same. However, of lately, on all such transactions, service tax has been levied by the Central Government. Thus, such transactions now are being subject to both State and Central Taxation. The controversy is two folds viz. first, whether such transactions could be subject to both taxation as sale of goods as well as services and second, what is the value which could be subject to VAT under State Tax and what is the value which

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could be subject to Service Tax under the Central Act. Generally, Courts have ruled that both levies are valid, however, what value to be considered under VAT and Service Tax still be matter of controversy. In practice, substantial part of the value is being taxed under both taxes i.e. same transactions is being taxed under VAT and service tax and in this process of same value is being subject to both taxes, which perceived to be double taxation of same transactions. Despite these peculiar kind of disputes and litigations, the Government has never appears to be taken any proactive role and the citizen and the assessees have been left in lurch. The Government of India has kept clause (29A) from Article 366 of the Constitution of India, even while implementing GST by moving a constitutional amendment bill in Parliament. Therefore, unless the problem and its consequences are rightly and deeply understood, as the distinction between ‘goods’ and ‘service’ would continue even after implementation of GST, people would continue to suffer with this multiple taxation and huge litigations even under GST.

14. Too much and excessive delegated legislations and frequent changes: Indirect Taxes in India also suffer from vice of excessive delegation. In fact there is no substantive provision at all in many cases and entire things are governed by delegated legislations with frequent changes at the sweet will without any policy guidelines. Like CENVAT Credit is governed by Rules, whereas it is a complete code in itself, without having any substantive provisions in the Act. Similarly, the Export of Services is also governed by Rules and conflict with Foreign Trade Policy, without having any substantive provisions in the Act. There are other such instances such as Place of provisions of Service, Point of Taxation, which are governed by Rules rather than substantive provisions under the Act. SEZ exemption Notification under service tax is not only conflict with SEZ Act, but for the last several years, almost every years a new notification is issued for exemption under service tax for service provided to SEZ units or developers. This makes law uncertain, ambiguous and result into large number of litigations.

15. Appeal before Supreme Court against Tribunal Orders instead before High Court: Under the present scheme, appeal under the indirect taxes (Excise, Customs and Service Tax) appeal against the Tribunal lies before Supreme Court even for the dispute related to whether excise duty or service tax attract on goods or service, whereas under other statutes like under Income Tax Act, appeal against the Tribunal order lies before High Court. Therefore, such provisions of law as amended by the Finance (No. 2) Act, 2014 has no justification at all. Firstly, assessee across the country, after the Tribunal order has to move mandatory to the Supreme Court which is not convenient for every assessee and ofcourse a costly affair also. Secondly, assessee finds it convenient to approach to the High Court within their jurisdictional against the Tribunal order. Thirdly, it will lead to the filing of large number of cases in the Supreme Court and it will delay in getting the Justice. It is pertinent to mention here that after the abolition of provisions related to hear classification/ valuation dispute by special bench of the Tribunal by three members, section 35L has no relevancy. Therefore, provisions should be amended to provide that against every order of Tribunal appeal should lies to jurisdictional High Court.

16. Imposition of interest up to 30% p.a. (from 18%) for delay in payment of service tax [vide Notification No. 12/2014-ST, dated 11-07-2014]: With effect from 1 October 2014, service tax assessee has to pay interest at the rate of 30% per annum for delay in payment of tax beyond one year and at the rate of 20% per annum delay beyond six-month and up to one year and at the rate of 18% interest per annum delay below six-months. Moreover, delay in payment of tax also attract separate penalty. Such a high rate of interest is unwarranted and unjustified. Whereas delay in deciding cases by Tribunal/court, cannot be attributed to the assessee, because of such delay, if the assessee loose the case, he has to bear such higher rate of 30% p.a. interest which cannot be seen any part of the world. Even, for delay in payment of Central Excise Duty or Income Tax do not attract such high rate of interest. It is surprising that


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show cause notice issues by the Department are not being decided years together. Similarly, it has also been seen departments issues show cause notice belatedly, even many years after search or inquiry. Then why assessee has to suffer such a higher rate of interest for the delay on the part of the Department. Moreover, interest is always compensatory in nature, but here rate of interest up to 30% which shows it is penal in nature. It is also surprising that by the Finance Act, 2015, penalty provisions have been liberalized and penalty amount under section 76% is only up to 10%, whereas earlier it was up to 100%, similarly penalty for deliberate evasion of service tax could only up to 15% if assessees pays tax with interest within 30 days of service tax notice, whereas earlier such penalty was up to 200%. Therefore there is no justification for higher rate of interest, which is penal in nature and if it is challenged in the court, it is likely to be struck down as arbitrary and penal in nature.

17. Mandatory Pre-deposit: Mandatory pre-deposit for filling an appeal is a bane for honest tax payers as original adjudication authority has not proved to be fair to the assessee which is evident from the fact that 85% of the cases at the appellate level decided in the favour of the assessee. As per the amendment made by the Finance (No. 2) Act, 2014, assessee under the Customs, Central Excise and Service Tax have to make mandatory deposit of 7.5% / 10% (with a cap of 10 crores) of the demand and penalty before filing an appeal before the Commissioner (Appeals) or to the Tribunal. It is well-known practice within the Central Excise and Service Tax Department to blindly confirm the demand against the assessee, by passing mechanical and perverse orders deliberately ignoring the precedents and settle position of law. As such due to such a poor state of affairs of adjudication within the Indirect Tax Department, which is unchecked, has not only breed corruption, harassments, but also increase litigations at all level. Officers make frivolous cases against entrepreneurs and start frivolous and vexatious inquiry/ investigations. Therefore, because of such mandatory deposit provisions, honest tax payers have to suffer as even after paying such deposits, still there case is not going to be decided for many years due to lack of infrastructure for handling indirect taxes litigations in this country. Thus, such provisions have created great hardship to the honest taxpayers and will further increase litigations and corruption in the Department. However, such provision is boon to tax evaders as after paying 10%, they will enjoy for many years, as their case turn may not likely to come for another 10 years or so with present pendency in the Tribunal and by the time such taxpayers will not be traceable by the Department and ultimately no recovery could be made from them. The Hon’ble Delhi High Court by judgment dated 19-05-2015 in WP (C) 1334/2015 in the matter of Pepsi Food Pvt. Ltd vs. ACIT & Anr. Struck down the provisions under Income Tax Act taking away the power of the Tribunal to extend the stay even in those case if the delay in disposing the appeal is not attributable to the assessee, by holding that such a provisions violative of Article 14 of the Constitution and has no nexus or connection with the object sought to be achieved.

Conclusions: In India, indirect taxes have unique issues as compared to direct taxes. These issues need to be addressed at the earliest, which would make the environment business friendly, and reduce unnecessary litigations, reduce transaction cost and will have positive impact on business growth in India. As the GST is on the anvil, therefore, it is high time that Government should make sweeping changes and overhaul its entire indirect taxes systems to make it assessee friendly.

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