think differently act perfectly · 19.12.09 & cpe conference hotel the lalit ashok 20.12.09 for...

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Think Differently Act Perfectly

December2009

PROGRAMMES - A BIRDS - EYE VIEW - December 2009

Date/Day Topic /Speaker Venue/Time CPE Credit

Sub Editors : CA. S.N. Ravindranath

CA. T.R. Venkatesh Babu

The Branch does not accept any responsibility for the views expressed in Articles / Contributions / Advertisements published in this News Letter.

Note :High Tea for Programmes at Branch Premises at 5.30 pm.

Advertisement Tariff for the Branch NewsletterColour full pageOutside back Rs. 20,000/-Inside front Rs. 15,000/-Inside back Rs. 15,000/-

Advt. material should reach us before 22nd of previous month.

Inside Black & WhiteFull page Rs. 10,000/-Half page Rs. 6,000/-Quarter page Rs. 3,000/-

2 Hrs.

4 Hrs.

12Hrs.

2 Hrs.

2 Hrs.

2 Hrs.

01.12.09 Registration & Return under Service Tax Branch PremisesTuesday CA. Chandrasekar B D 06.00 pm to 08.00 pm

07.12.09 to Workshop on “Aspects relating to Real Estate Branch Premises11.12.09 and Construction Industry” 04.00 pm to 08.00 pmMonday to For details refer page no. 12Friday Delegate Fee : For Members: Rs. 1000/-

Non Member: Rs 2000/-08.12.09 Rebate & Refund under Service Tax Branch PremisesTuesday Mr. R. Dakshinamurthy 06.00 pm to 08.00 pm

10.12.09 Important Aspects of KVAT Audit(Form VAT -240) Sri Bhagawan MahaveerThursday CA. Annapurna Kabra Jain College Auditorium

CA. Supriya Vaz Next to Bangalore Stock ExchangeDelegate Fee: Rs 200/- 05.00 pm to 08.00 pm

12.12.09 Introduction to GST, Industry expectations Branch PremisesSaturday & Critical review of White paper 09.00 am to 01.00 pm

CA S Balakrishnan, Mr. T.G. Rama Krishnan &CA S VenkataramaniDelegate Fee: Rs 250/-

12.12.09 Condolence Meeting for Untimely Demise of Branch PremisesSaturday Past President of ICAI CA. Rahul Roy 05.00 pm

12.12.09 Recent Karnataka High Court Decision u/s 195 of Branch PremisesSaturday Income Tax Act 1961 & withdrawal of 06.00 pm to 08.00 pm

Cir. No. 23/1969

15.12.09 Business Auxiliary Service, Business Support Service, Branch PremisesTuesday & Renting of immovable property services 06.00 pm to 08.00 pm

CA Naveen Rajpurohit17.12.09 Construction Contract, Site Formation and Clearance, Branch PremisesThursday Excavation & Earthmoving and Demolition Services 06.00 pm to 08.00 pm

& Works ContractCA Sudhir V S

19.12.09 & CPE Conference Hotel The Lalit Ashok20.12.09 For details refer at Back inside cover Kumara Krupa, High GroundsSaturday & Delegate Fee For Members: Rs.1750/-Sunday Non Member: Rs. 2500/-22.12.09 Movement related services viz., Goods Transport Bangalore PremisesTuesday Agency, Tour operator, Rent-a-cab service, etc., 06.00 pm to 08.00 pm

CA Bhanu Murthy

24.12.09 Depreciation – concepts and case studies Sri Bhagawan MahaveerThursday CA. Narendra Jain Jain College Auditorium

Delegate Fee: Rs 200/- Next to Bangalore Stock Exchange05.00 pm to 08.00 pm

29.12.09 Information Technology Software Service, Branch PremisesTuesday Management, Maintenance or Repair services 06.00 pm to 08.00 pm

for goods, equipment or propertiesCA Deepak Jain

20 Hrs.

3 Hrs.

2 Hrs.

2 Hrs.

3 Hrs.

The world is full of willing people, some willing to work, the rest willing to let them.

2 Hrs.

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

December2009

TAX UPDATES OCTOBER 2009Chythanya K.K., B.com, FCA, LL.B., Advocate

Reference / Description

2009 (67) Kar. L.J. 241 (Tri.) (DB) HC : M.S. Penna Cement Industries Limited, Bellary v. State of KarnatakaThemere fact that the credit note issued, for discount allowed as per the regular practice or in accordance with terms of contract, isnot in conformity with the rules prescribed for the same, is not a bar to claim the deduction under the Act, which the dealer is

lawfully entitled to.In this case, the credit note issued by the dealer, for the discount allowed on the sale, did not contain theparticulars as stipulated under section 30 of the KVAT Act, 2003 read with Rules 31 and 32 of KVAT Rules, 2005. It was observedby the Tribunal that, non-compliance with the Rule which required the dealer to show the amount of discount allowed in respect

of any tax invoice or bill of sale in the credit note which was issued in respect of the relevant sale, does not authorise thedisallowance of the amount of discount as an item of deduction from total turnover on ground of non-compliance with Rule.Application of such a requirement in determining the taxable turnover is bad in law, when in fact the required particulars of

discount are forthcoming from books of account maintained by dealer. The right of dealer to exclude amounts of discountcovered by credit notes issued to customers within six months from date of sale, in computing taxable turnover, is a right underthe Act, and the Rule cannot nullify that right on such a technical ground. The Tribunal quashed the best judgment assessment

order passed without excluding amount of discount from taxable turnover, the order of penalty and notice demanding interest.

2009 (67) Kar. L.J. 328 (Tri.) (DB) HC : Nandini Concrete Products, Bangalore South v. State of KarnatakaWithrespect to purchases made from an URD, the credit on account of purchase tax is available to the dealer when the aforesaid items

of purchase are put to use by the said dealer, as envisaged under section 11(8) of the KVAT Act. In the instant case, the claim ofthe assessee in respect of rebate on taxes paid on the URD purchases (sand and jelly) was disallowed by the assessing authority onground that, he had not discharged his liability to pay purchase tax while submitting monthly returns from unregistered dealer.

The Tribunal observed that such a disallowance was not proper when in fact as envisaged under section 11(8) the aforesaid goodswere used in manufacture of final product, viz., cement concrete blocks, in month of purchase itself and hence the assessee wasentitled to input tax rebate in same month. Therefore the matter was remitted to Assessing Authority for the limited purpose of

ascertaining if in fact the said goods were consumed in the manufacture of the final product.

2009 (67) Kar. L.J. 341 (DB) HC : Bates India Private Limited (Formerly Known as M/s. Clarion AdvertisingServices Limited), Bangalore v. State of KarnatakaThe assessee in the course of executing a contract for providing service

of advertisement and publicity was supplying to his customers, booklets, brouchers, calendars, diaries, visiting cards, etc. asper their orders, after getting them printed from printers who were registered as dealers under the Sales Tax Act. Further theassessee was collecting charges for such supplies along with charges for services, from the customer. It was observed that since

the activity of the assessee as provider of service also involved the sale of goods, he had to register himself as a “dealer” underthe Sales Tax Act. Further it was observed that though the printed materials supplied by him to his customers as part ofproviding service had already suffered sales tax when he bought the same from his printers, he was liable to include turnover

relating to such supplies in his taxable turnover and pay turnover tax under the Sales Tax Act. It was concluded that the revenuewas therefore right in demanding turnover tax on such sale. It may be noted that in a more or less identical matter, the Hon.Delhi HC in the case of Commissioner, VAT, Trade & Taxes Department v. International Travel House Limited has held that:”Wherethe sale is distinctly discernible in the transaction i.e., the contracts are by intention of the parties severable so that there areseparate values with respect to goods and services, only then one cannot deny the legislative competence of the State to levysales tax on the value of the goods. This, however, does not allow the State to entrench upon the Union List and tax servicesby including the cost of such services in the value of goods. Even in the composite contracts which are by legal fiction deemedto be divisible under Article 366(29A), the value of the goods involved in the execution of the whole transaction cannot beassessed to sales tax.”It was further observed by the High Court that:”Since the contract in question was one of composite

VAT, CST, ENTRY TAX, PROFESSIONAL TAXPARTS DIGESTED:a) 2009 14 KCTJ - Part 7b) 2009 (67) KLJ - Part 10c) 25 VST – Part 2 to 6

No one can build his security upon the nobleness of another person.

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December2009

contract of sale of goods and services, clearly, it was not permissible for the State Legislature by applying DVAT Act to taxcomposite contracts comprising of both goods and services. Not only the contracts cannot be artificially split up so as to enablethe sale element to be taxed, further, the States cannot treat the contract as only a contract of sale of goods and tax the wholevalue of the transaction as a sale of goods. Since the parties have not intended the contract to be mutilated/severable inasmuchas no different values are specified in the subject contract towards goods value separately and the value of services separately,it is not permissible by the DVAT Act to impose sales tax on the whole transaction value because that would amount to theState to entrench upon the Union List and tax services by including the cost of such services in the value of thegoods.”Considering divergent views, it is high time some clarification is brought out in respect of transactionswhich will have both goods as well as service elements as the problem is likely to persist till introduction of GST.

[2009] 25 VST 165 (Ker) HC : Cinzac Technical Services v. State of KeralaIn a case of manufacture against orders,the sale would no doubt be a pre-arranged one. In this case the question raised pertains to the disallowance of exemption claimedu/s.6(2) of the CST Act,1956 in respect of sale of a boiler, manufactured outside the State, to an industry in Kerala.The petitioner

admitted that E1 form obtained from the consignor is produced by the petitioner and C form issued by the ultimate consumer isalso produced by them. Therefore, the first transaction is accounted as an inter-State sale between the consignor and the petitioner.The next question addressed was whether the second transaction between petitioner and the buyer is an inter-State sale under

section 6(2). The fact was that the LR obtained by the consignor contained the address of the ultimate purchaser and therefore itwas clear that the subsequent sale was a pre-arranged one between the petitioner and the ultimate purchaser. Boiler is equipmentmanufactured against orders and necessarily manufacturer should be informed about the requirements of the customer. In the

first place, the concept of sale of goods in transit cannot be applied to supply of equipment of this type which is made to orderfor the customer. The petitioner obviously acted as an agent or as a dealer in between manufacturer and ultimate consumer. Sincethe petitioner had no agency, it is a case of purchase and sale which in the absence of proof of a second inter-State sale under

section 6(2) has to be necessarily assessed as a local sale under the KGST.With due respect it is submitted that E1 sale doesnot bar a predetermined sale and the aforesaid decision requires reconsideration.

[2009] 25 VST 505 (All) HC : Commissioner, Trade Tax, U.P. v. Gulshan Sugar and Chemicals Ltd. Plant and

machinery permanently attached to the earth are not movable property and hence they are not goods. Relying on the decisionof the Division Bench of the same court, in the case of Swarup Vegetable Products Industries Ltd. v. State of U.P. [1998] UPTC336, it was observed in the instant case that tax under section 3F read with section 2 (d) can be levied under the U.P. Trade Tax

Act only on the turnover of movable property.

INCOME TAX

Reference / Descriptio

[2009] 317 ITR 351 (All) HC : CIT and another v. Kailash Chandra Deepak KumarIn this case, the assessee hadsupplied pulses worth Rs. 1,02,957 to ‘B’ on various dates, which substantiated that the amounts were advanced towardsfuture supply of goods. It was held by the Tribunal that the provisions of section 269SS were not applicable in a case where

amounts are advanced towards future supply of goods.

[2009] 317 ITR (AT) 196 (Amritsar) : DCIT v. Satish Aggarwal and Co.A contract for hiring of trucks is not

equivalent to entering into a contract for carrying out any work, as defined under Explanation III to section 194C. The hired

trucks were used for personal use. Hence it was observed by the Tribunal that the aforesaid Explanation cannot apply to a

situation not amounting to a contract for carrying out any work.

[2009] 317 ITR (AT) 234 (Cochin) : Vodafone Essar Cellular Ltd. v. ACITIn the instant case, the assessee was

providing cellular mobile telephone services through a network of distributors, for pre-paid SIM cards and other products.

The essence of contract between assessee and distributors was in the nature of service. The distributors were akin to linking

agents in the chain of delivery of services to consumers. The margin enjoyed by distributors was in the nature of commission.

The transaction being in the nature of principal to agent and not principal to principal and hence assessee was liable to deduct

tax at source under section 194H of the Act.

a) 317 ITR – Part 3 to 5

b) 318 ITR - Part 1

c) 183 Taxman – Part 4 & 5

d) 184 Taxman – Part 1 to 3

e) 120 ITD – 5 to 9

f) 125 TTJ –Part 2 to 5

The human brain is unique in that it is the only container ofwhich it can be said that the more you put into it, the more it will hold.

g) 28 CAPJ – Part (1 & 2), 2 & 3

h) 41-B BCAJ – Part 2

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December2009

[2009] 318 ITR 1 (Mad) HC : V. Akilandeswari v. CCIT In a case where there was sufficient reason for non-payment of

advance tax on time, the levy of interest was set aside. In this case, the assessee was a minor during the relevant assessment years.

Her father had died and her mother who was subsequently looking after the business was a housewife unfamiliar with tax

matters. However, during the subsequent years, the entire amount of tax and some extra amount were paid voluntarily. It was

observed by the Madras High Court that there was sufficient reason for non-payment of advance tax on time and hence set aside

the interest levied. (Ref - CBDT Circular No. 400/234/95-IT (B), dt. 23-5-1996 & Income Tax Act, 1961, ss. 234A, 234B, 234C).

[2009] 318 ITR 100 (P&H) HC : CIT v. Kings ExportsExpenditure incurred for export business cannot be held to be

incurred for earning income which does not form part of total income and disallowance cannot be made for claim of bad debts

under section 36(1)(vii). In this case the assessee had claimed deduction under section 80HHC, and so the claim for bad debts

written off under section 36(1)(vii) was disallowed under section 14A by the assessing officer on the ground that the expenditure

was not incurred for earning income forming part of total income of the assessee. It was observed by the High Court that such

a disallowance cannot be made, wherein the concept of income not forming part of total income was dealt with under section

10 and not section 80HHC.

[2009] 184 Taxman 39 (SC) : CIT v. NHK Japan Broadcasting Corpn. In this case, the assessee is a Japanese

Organization set up for transmission of news and broadcasting. The assessing officer included ‘citizen tax’ as a part of income

of expatriates employed by assessee in India on the ground that it was an amount paid by assessee to its employees. However,

such a tax is a statutory levy in Japan on its citizens.The Hon. Supreme Court opined that the CIT(A) ought to have examined

the scope of the Japanese Law, namely, ‘Citizens Individual Inhabitant Tax Act’. In the letter of appointment issued to the

employees, there was a mention to the effect that deductions as per the applicable laws in India and Japan would be made.

The relevant clause of the appointment letter read as under:”Your emoluments shall be subject to deduction of taxes as per

applicable laws and the Tax liability on host country (India) shall be borne by NHK Japan Broadcasting Corporation.”Analysing

the said clause the Apex court felt that the emoluments paid by the assessee were subject to deduction of tax as per applicable

laws and the levy of the Citizen Tax has an overriding charge on the salary income. Citizen Tax is a statutory levy in Japan on the

Japanese Citizens constituting an overriding charge. If it is an overriding charge then of course it would not be a part of the

total income of the employees.

[2009] 184 Taxman 41 (SC) : ACIT, New Delhi v. HCL Technologies Ltd. In the instant case the High Court on finding

that the Transfer Pricing Officer (TPO) had proposed to make adjustment in arm’s length price without giving an opportunity of

personal hearing to assessee, remitted the matter back to TPO for giving an opportunity of hearing to assessee. The Department

however filed an instant petition against said order. It was observed by the High Court that it would be in the interest of both

sides to resort to the Dispute Resolution Panel under section 144C (inserted by Budget of 2009).

[2009] 184 Taxman 52 (Bom) HC : Ghai Construction v. State of MaharashtraIn the instant case, the assessee is

an individual carrying on business as a sole proprietor. It was held that, it is necessary to comply with provisions of section 44AB

only in respect of his business income and not in respect of his other income.In the words of the High Court:”The language of

section 44AB is clear. The requirement of compulsory audit is only in respect of the business carried on by the person and not

in respect of his income from other sources.”

[2009] 184 Taxman 59 (All) HC : Smita Agrawal (Ind.) v. CIT With respect to the power of the Commissioner(Appeals)

and judicious application of mind in considering a stay application, it was observed by the Allahabad High Court as follows:

”We are well aware, and have no reason to doubt that while considering stay application the authority concerned would

exercise his power judiciously and after applying its mind to various aspects of the matter should pass order but that would not

confer jurisdiction upon the authority concerned to sit tight and choose not to pass any order whatsoever on the stay

application.”Further the court observed as follows:”We have no manner of doubt that the stay application is maintainable and

CIT (A) do possess power to pass an interim order which he has to consider judiciously in accordance with law.”The Court

relied on the law laid down by the Apex Court in the case of ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 and a decision

of the Division Bench of the same Court in Prem Prakash Tripathi v. CIT [1994] 208 ITR 461.It is interesting to note that in

the aforesaid decision, the right of the Commissioner (Appeals) to hear matters of stay has been recognized

although there is no express provision in the Act dealing with the same.

Discipline is the bridge between goals and accomplishment.

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December2009

Recent judicial pronouncements in Indirect TaxesN.R. Badrinath, Grad C.W.A., F.C.A., Madhur Harlalka, B. Com., F.C.A.

CENTRAL EXCISE■■■■■ SSI Exemption

Maintenance of accounts of various units by a single personand at one office is not a ground for justifying clubbing. Ifdifference firms operated with its own machinery in separatepremises leased from appellant, clubbing their clearancescannot be justified. A single security guard was in charge ofsecurity of all units in no way contributed to a finding thatclearances of these units could be clubbed. Mutuality ofinterest, financial integrity among various units and unit ofcontrol are sine qua non for clubbing of clearance of unitsinvolved. Units engaged in production and transactionsassessed to sales tax and income tax, hence entitled to beconsidered as independent units in their own right. [TechnoDevice Vs. Commissioner of Central Excise, Chennai 2009 (243)E.L.T. 79 (Tri. – Chennai)]

■■■■■ Refund/Refund Claim of CENVAT credit by 100%EOU100% EOU is entitled to take CENVAT credit of the

duty paid on inputs procured indigenously and when theyare not in a position to utilise the same, they are entitled for benefit of refund of the same under CENVAT CreditRules, 2004.

The relevant facts of the case are that the respondent is a100% EOU engaged in the manufacture of parts of agricultureand farm equipment which are chargeable to ‘Nil’ rate of dutyby Central Excise Tariff Act, 1985. The respondent filed forthree refund claims with the Assistant Commissioner ofCustoms, Bangalore under Rule 5 of the CENVAT CreditRules, 2004, being the unutilised credit availed by therespondent in respect of certain inputs used in the manufactureand export of their final product. The said refund claimswere, however, rejected by the Assistant Commissioner,Customs, on the ground that the respondent was noteligible for the availment and utilisation of CENVAT CreditRules, 2004, as their final product was not chargeable to anyduty under the Central Excise Tariff Act, 1985. However, thecourt rejected the appeal, relying upon the reasoning given inan earlier Final Order Nos. 1305 & 1306/2007, dated 14th

November 2007 which had upheld the respondent’s contentionand had allowed the appeal. [Commissioner of Customs,Bangalore Vs. ANZ International 2009 (243) E.L.T. 40(Karnataka High Court)]

■■■■■ Wholesale packaging of goods covered underWeights and Measures ActRequirement of maximum retail price (‘MRP’) on wholesale

packages, containing 10 retail packages bearing the MRP.

The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate,to have it make some difference that you have lived and lived well.”

Packages covered by Rule 29 of Standards of Weights andMeasures (Packaged Commodities) Rules, 1977 would beoutside the purview of retail sale as under that Rule retail pricesnot required to be mentioned on the package. No requirementfor wholesale package in question to mention the MRP. [ITCLtd. Vs. State NCT of Delhi 2009 (243) E.L.T. 24 (Delhi HighCourt)]

■■■■■ Valuation - MRP Based valuation of CombinationPacksThe product shampoo combined along with face wash gel

was given free. Submission of Revenue that the activityamounting to manufacture, Standards of Weights andMeasures Act, 1976 applicable and cost of goods given freeto be included in total MRP. It was undisputed that face washgel was supplied free and product shampoo covered underSection 4A of Central Excise Act, 1944. Provisions of Standardsof Weights and Measures Act, 1976 applicable. No duty liabilityon face wash gel supplied free as product combined withanother product and cleared under one retail sale price. Theappeal was rejected. [Commissioner of C. Ex., Bangalore –IIIVs. Himalaya Drug Company 2009 (243) E.L.T. 101 (Tri. –Bangalore)]

SERVICE TAX■■■■■ CENVAT Credit of Service TaxCourier Charges – The appellant was seeking waiver of pre-deposit and grant of stay against recovery of CENVAT creditof Rs.2,06,32,909/- with interest and penalty of Rs.10,000/-imposed upon them in the impugned order.

The Commissioner had disallowed the CENVAT creditof Service Tax paid on courier service charges paid towardsgoods exported by air. Held, that so long as place of deliveryconsidered to be buyer’s premises and property in case topass only at buyer’s premises, credit of Service tax paidon outward transport admissible. Prime facie case made outand pre-deposit of entire amount of Service tax, penalty andinterest waived. [Cadila Healthcare Limited Vs. Commissionerof C. Ex., Ahmedabad – I 2009 (16) S.T.R.. 325(Tri. – Ahmedabad)]

Insurance, repairs, AMC charges – The assessee wasengaged in manufacture & export of coffee powder and wasclaiming CENVAT credit of service tax on insurance premium,repairs of vehicles, AMC charges on telecom and couriercharges. The revenue, aggrieved by such order passed by lowerauthorities in favour of the assessee, appeared before thetribunal for disallowance of such CENVAT credit of Servicetax. On careful reading and consideration of the facts, it wasagreed that the services have been received or rendered only

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December2009

Character cannot be developed in ease and quiet. Only through experience of trial andsuffering can the soul be strengthened, ambition inspired, and success achieved.”

in relation to the manufacture of final products. In view ofthis, since the issue is squarely covered by the ratio of thedecision of Tribunal and Larger Bench, the impugned orderwas upheld and the appeal filed by the revenue was rejected.[Commissioner of C. Ex. & Cus., Guntur Vs. CCL Products (India)Limited 2009 (16) S.T.R.. 305 (Tri. – Bangalore)]

Pollution Control – The assessee belongs to the cementindustry and has spent on pollution control measures likecleaning / maintenance of garden / trees / plantation, etc.Accordingly, the assessee is claiming the CENVAT credit ofService tax on such expenditure relating it to theirmanufacturing activity, as held by the Apex Court in the caseof Indian Farmers Fertiliser Co-operative Limited vs. CCE,Ahmedabad. However, the adjudicating authorities disallowedthe credit and confirmed the same along with interest inaddition to imposing equal penalty holding that the abovementioned service could not be considered as input servicesas the same were not used in or in relation to manufacture offinal product. Aggrieved by the above order, the appellant hascome up with pre-sent appeals along with stay petitions.Following the Apex Court decision in the above mentionedcase, in place of equipments/devices, in the instant case,services such as cleaning/maintenance of garden/trees,plantation etc. are used to control the pollution created bythe industry and thus the same could be considered as inputservices which are used in relation to the manufacture of finalproduct, viz. cement. Accordingly, held the said services areused in relation to the manufacture of final product, viz.Cement and hence same are considered as input service forthe appellant. [In Re: Ultratech Cement Limited 2009 (16) S.T.R..362 (Commissioner Appeals, Pune - II)]

Outward transport – The assessee sends goods to thecustomers on FOR destination basis i.e. the property of goodsvests in the name of seller till it reaches the destination.Accordingly, the assessee is claiming the CENVAT credit ofService tax on tax paid on outward transportation of the goods.However, the adjudicating authorities not only disallowed thecredits but also confirmed the demands along with interestand imposed penalty. The Commissioner held that, since inthe instant case, it is the responsibility of the appellants todeliver the goods at the customers end as per the contract, itcan safely be concluded that the property in the goods weretransferred only at the customers end and thus, as per thedefinition of Section 4 of the Central Excise Act, 1944 readwith the Board’s clarification, the ‘place of removal’ in thepresent issue is the ‘customers end’. Therefore, the Servicetax paid on outward transportation service would be availableas credit to the appellant. As the appellant has succeeded onmerits, the question of interest confirmed and penalty imposedalso do not survice. [In Re: Suyash Castings Private Limited2009 (16) S.T.R.. 357 (Commissioner Appeals, Pune - II)]

Commission expenses – The application for waiver of pre-deposit of Service tax of Rs.17,54,838/- together with interestand penalty of Rs.10,000/- was as a prima facie case had

been made out by the applicants on the ground that theywere entitled to credit of Service tax paid on commission toM/s. Adhunik Corporation for procuring contract for supplyof manufactured as well as bought out goods to M/s. DalmiaCement, based upon the prima facie reading of Rule 2(1) whichholds that credit is admissible inter alia on activity related tobusiness and, prima facie, business of trading is also a businessactivity. Pre-deposit is, therefore, waived and recovery stayedpending the appeal. [F.L. Smidth Limited Vs. Commissioner ofC. Ex., Trichy 2009 (16) S.T.R.. 322 (Tri. – Chennai)]

Freight on containers used for packing the final product– The issue before the appellate authority was regarding theadmissibility of CENVAT credit of Rs.56,077/- availed of Servicetax paid on freight for empty containers called for export duringthe period July, 2005 to January, 2006. The credit wasdisallowed by the adjudicating authority who also imposed apenalty of Rs.10,000/- upon the assessee; however, thedemand was set aside by the Commissioner (Appeals). Hedlthat the containers are used for packing the final products;therefore, they can be treated as inputs used by themanufacturer in or in relation to the manufacture of finalproducts, although final products are manufactured prior tobeing packed in containers, containers are used in relation tothe manufacture thereof. Credit of Service tax paid on freightfor containers called for export of goods is admissible to therespondents, and hence upheld the impugned order andrejected the appeal. [Commissioner of Central Excise, Jaipur –II Vs. Nitin Spinners Limited 2009 (16) S.T.R.. 323 (Tri. – Delhi)]

Tour Operator – The assessee belongs to the cement industryand has availed the CENVAT credit of Service tax on paymentmade to tour operator, as held by the Tribunal in case of CCEvs. Cable Corporation of India Limited. However, theadjudicating authorities disallowed the credit holding that theabove mentioned service could not be considered as inputservices as the same were not used in or in relation tomanufacture of final product. Held that tour operators serviceused by the appellant is also an input service used in relationto business activity and accordingly held that the appellant iseligible to avail credit as input service. [In Re: Ultratech CementLimited 2009 (16) S.T.R.. 362 (Commissioner Appeals, Pune - II)]

■■■■■ Import of servicesAppellate Authority had the issue before him that whether

appellant is liable to pay service tax on the commission paid tothe person / party who has no business establishment in Indiaand providing taxable services to them (Indian Company) beingservice receiver. Learned counsel submits that soon after thedifficulties in Laghu Udyog case was pointed out by Hon’bleSupreme Court, the Government brought out an amendmentinserting Section 66A into the Finance Act, 1994 to conferpower on the Central Government to make rule for adeclaration of service recipient to be liable to pay Service tax.Such an amendment conferring power on the CentralGovernment was enacted in 2006 to come into force w.e.f.18th April 2006. The case of the appellant is from January 2005

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December2009

Look at a day when you are supremely satisfied at the end. It’s not a daywhen you lounge around doing nothing; it’s when you’ve had everything to do, and you’ve done it.”

to March 2006. Therefore, he submits that recovery of theService tax from the service recipient prior to 18th April 2006 isnot permissible in view of judgement in Indian NationalShipowners Association vs. Union of India. Accordingly, therevenue has no case to bring the appellant to the fold of thelaw. [Dimensional Stone Vs. Commissioner of Central Excise,Jaipur 2009 (16) S.T.R.. 313 (Tri. – Delhi)]

■■■■■ Valuation – Renting of hotel rooms with gardenThe appellants were running a hotel which had two gardens

adjacent to it. The appellants were not disputing payment ofService tax when gardens are rented out as Mandaps. Thehotel is separately registered and only in a year, 16 times hotelrooms and garden were simultaneously rented out. It was theappellant’s case that Service tax is not leviable on that portionof the realisation which is attributed to the renting of the hotelrooms.

Held, that a prima facie view was taken at the stay stagethat the appellants are not liable to pay Service tax in respectof the charges recovered for renting of the hotel. The onlysubmission by the Revenue is that the cited decision in thecase of Rajmahal Hotel (supra) supports the Revenue’s case.However, the said decision only authorises levy of Service taxon renting of halls attached to the hotel but not in respect ofrenting of the hotel rooms. Held that the prima facie viewtaken by the Tribunal earlier and set aside the impugned orderand allow the appeal. [Merwara Estates Vs. Commissioner ofCentral Excise, Jaipur 2009 (16) S.T.R.. 268 (Tri. – Delhi)]

■■■■■ Refund of pre-depositThe issue for determination in the appeal was whether

the bar of unjust enrichment is attracted against the respondentherein who sought refund of pre-deposit made by them duringthe pendency of the appeal before the lower appellateauthority. Even if amount ordered to be deposited is treatedas duty in the face of finding of Commissioner (Appeals) thatamount was paid subsequent to clearance of goods byassessee, which finding has not been challenged by Revenuein its appeal before Tribunal. Burden of showing that incidenceof duty has not been passed on to customer has beendischarged by assessee. Refund allowed and appeal rejected –Section 11B of Central Excise Act, 1944. [Commissioner ofCentral Excise, Pune – I Vs. SAM Industries 2009 (16) S.T.R..382 (Tri. – Mumbai)]

■■■■■ New Service – Taxability before relevant dateSince service can be classifiable under two different

categories, classification under more specific heading to bepreferred. Introduction of new service by carrying out fromearlier service does not mean new service will not be taxableunder any other category earlier. Service regarding intellectualproperty introduced from 10th September 2004; but not meanthe same not covered under other category before – Section65A and 66 of Finance Act, 1994. [Kopran Limited Vs.Commissioner of Central Excise, Raigad 2009 (16) S.T.R.. 279(Tri. – Mumbai)]

VALUE ADDED TAX■■■■■ Composite contract involving both service and

sale of goodsThe respondent was hiring Maruti Omni Cabs to a

Company for transit of goods. The Appellate Tribunal heldthat the assessee in hiring Maruti Omni cabs to a companywas providing services only and did not transfer any right touse the goods for the purpose of levy of tax under the DelhiValue Added Tax Act, 2004. The respondent was already payingtax on services under the Finance Act, 1994. On appeal: Held,dismissing the appeal, that only where the sale is distinctlydiscernible in the transaction, i.e., the contracts are by intentionof the parties severable so that there are separate values withrespect to goods and services, can one not deny the legislativecompetence of the State to levy sales tax on the value of thegoods. This, however, does not allow the State to entrenchupon the Union List and tax services by including the cost ofsuch services in the value of goods. To avoid that overlapping,and more particularly in view of the legislative history behindarticle 366(29A) a composite contract involving both servicesand sale of goods should be treated as a contract of servicesassessable to tax under the Finance Act, 1994 as the same hasbeen defined and included therein. Therefore it was notpermissible for the State Legislature to tax the transactionbetween the assessee and the Company by applying ValueAdded Tax Act. [Commissioner, VAT, Trade and TaxesDepartment. Vs. International Travel House Limited [2009] 25VST 653 (Delhi High Court)]

A Reputed CA Firm requires

1. Junior Audit Assistants –

PE – II /PCC, computer literate

having 0-1 years experience and

2. Audit Assistants pursuing

CA Final, Computer literate,

having 2-5 years experience.

Interested candidates may please

mail your resumes to:

[email protected]

or contact us at 080-25567578 /

25514771/ 25362429 Adv

t.

10


December2009

Valuation in the tax perspective is a mechanism to identifythe base for applying the rate of tax to determine the tax

payable wherever the statute requires to compute tax basedon value. Though Valuation is not a new concept, as it alreadyexists under central excise or customs law, but valuation ofservice would be totally different ball game.

Under Central Excise and Customs, there could be issuespertaining to transaction between related parties, involvingsubsidy, price support incentives, agency, etc. Howevercomparing to the valuation of services valuation of goodswould be easier as they are tangible in nature whereas theservices are intangible in nature. This can be understood byan example, if you can visit a doctor who charges Rs 50/- pervisit and if you go to another doctor the charges could be Rs500/- per visit, it could vary based on experience, qualification,goodwill etc. There could be many more considerations whichcould form part of a service industry. Valuing each of the factorslike experience may be difficult task.

Sec 67 of the Finance Act, 1994 deals with valuation oftaxable services. It provides that the gross amount charged forthe services provided or to be provided shall be chargeableto service tax as long as the amount is the total considerationcharged. The gross amount charged shall for taxable serviceincludes any amount received towards the taxable servicewhether before, during or after provision of such service.

If the service tax is not collected from the customer separatelythen it is assumed that the amount charged is inclusive of servicetax. Say you have charged an amount of Rs 1 lakh for serviceprovided and service tax is not charged then the net value oftaxable service shall be Rs. 90,662/- (100000*100/110.3).

In a case where in the service transaction is for a considerationnot fully in money i.e to state that if partly consisting of money,then the value shall be monetary value plus the value of non-monetary consideration received/receivable.

In a case where the value of service cannot be ascertainedthen value would be has to be as per the prescribed rules i.e theassessee would have to refer the Service Tax (Determination ofValue) Rules, 2006 to ascertain the value. Further also in termsof Sub-section (4) of Section 67, while determining the value oftaxable services, the provisions of the said Rules has to beconsidered. The Essence of the Service Tax (Determination ofValue) Rules, 2006 are discussed in the subsequent paragraphs

Where consideration is not wholly or partlyconsisting of money

Rule (3) covers this aspect. As per the said provision, wherethe consideration received is not wholly or partly in consisting

SERVICE TAX – SERIES – PART – V

Valuation Under Service Tax

By CA Rajesh Kumar T R, B Com, LLb, FCA & DISA & CA Chandra Shekar B D, B Com. LLb, FCA, DISA

of money, the taxable value has to be computed in thefollowing manner

a. The Taxable value would be gross amount charged by theservice provider to provide similar service to any otherperson in the ordinary course of trade being a soleconsideration.

b. If it cannot be so determined, then, equal money value ofthe consideration received. But such money value shouldnot be less than the cost of providing services.

Though the provision mentions that where considerationis not wholly or partly in money, it is essential to note thatthere should be consideration for the service and instead ofgiving the consideration in money, the same should be givenin the form other than money.

If the services are provided without consideration, in otherwords services provided for free or charity, there is noconsideration for such services. In such case in the opinion ofthe paper writers, there is no consideration the valuation setout in this provision would not be applicable. Therefore noservice tax is payable on the same.

However Rule 4 empowers the Central Excise Officer to makeenquiry into correctness of such value, issue notice if wants tore-determine the value after giving opportunity of hearing.

Inclusion and exclusion of cost and expenditure(Reimbursements)

With regard to costs or expenditure incurred in the courseof providing taxable services but not the consideration for thetaxable services, which in the common understanding termedas ‘REIMBURSEMENTS’ always the revenue authorities wantedto be included in the taxable value as Section 67 used theterm ‘gross amount’. But the provision was clear to say that“gross amount charged for such service” that means chargedfor taxable service. Since Reimbursement is not the amountcharged for the services but recovering back the expenditurewhere the obligation was upon the service receiver to providebut incurred by the service provider, the same cannot be saidto be amount charged for taxable service. On this proposition,reimbursements was not includable.

Now as per Rule 5 of the Valuation rules introduced from18-04-2006, which states, where any expenditure or costs areincurred by the service provider in the course of providingtaxable service, all such expenditure or costs shall be treatedas consideration for the taxable service provided or to beprovided and shall be included in the value for the purpose ofcharging service tax on the said service. Deduction forreimbursement of expenses shall not be allowed unless the

You can become blind by seeing each day as a similar one. Each day is a different one,each day brings a miracle of its own. It’s just a matter of paying attention to this miracle.”

11


December2009

service provider shall incurs such expenditure as a pure agentand further fulfills the specified conditions.

“Pure agent” means a person who –

• Enters into a contractual agreement with the recipient ofservice to act as his pure agent to incur expenditure orcosts in the course of providing taxable service

• Neither intends to hold nor holds any title to the goods orservices so procured or provided as pure agent of therecipient of service

• Does not use such goods or services so procured and

• Receives only the actual amount incurred to procure suchgoods or services

The specified conditions for allowing deduction ofexpenditure incurred by pure agent are as follows:

1. Service provider has to act as a pure agent of recipient ofservice while making payment to third party for the goodsor services procured.

2. Service receiver to receive and use the goods or servicesprocured by the service provider on his behalf.

3. Service receiver to be liable to make payment to the thirdparty.

4. Service receiver to authorize the service provider to makepayment on his behalf.

5. Service receiver to know that the goods and services, forwhich payment has been made by the service provider,shall be provided by the third party.

6. The payment made by the service provider on behalf of therecipient of service is to be separately indicated in the invoiceissued by the service provider to the recipient of service.

7. The service provider recovers from the recipient of serviceonly such amount as has been paid by him to the third party.

8. The goods and services procured by the service provider fromthird party as a pure agent of the recipient of service are inaddition to the services he provides on his own account.

Firstly in the view of the paper writers, this rule itself isultra vires Section 67, as Section 67(4) clearly says subject tosub-section (1), (2) & (3) of Section 67. It clearly says that thevalue shall be ‘Gross Amount charged for such services’ Sincereimbursements are not charged for services, the same cannotbe said to be part of taxable value. Till date no legal decisionis rendered in this context.

Even otherwise it appears that law is expecting somethingwhich is almost impossible to satisfy all the 8 conditions.

Specific Inclusions and Exclusions:Rule 6 provides for certain specific inclusions as well as

exclusions with regard to the amount charged for the services.Inclusion are as under-

1. Commission or brokerage charged by a broker on the saleor purchase of securities including the commission orbrokerage paid by the stock broker to any sub broker;

2. Adjustments made by the telegraph authority from anydeposits made by the subscriber at the time of application

from telephone connection or pager or facsimile ortelegraph or telex or for leased circuits;

3. The amount of premium charged by the insurer from thepolicy holder;

4. Commission received by the air travel agent from the policyholder;

5. Commission, fee or any sum received by an actuary, orintermediary or insurance intermediary or insurance agentfrom the insurer;

6. The reimbursement received by the authorized servicestation, from manufacturer for carrying out any service ofany motor car, light motor vehicle or two wheeled motorvehicle manufactured by such manufacturer;

7. Commission or any amount received by the rail travel agentfrom the railways or the customer;

8. Remuneration or commission, by whatever name called,paid to such agent by the client engaging such agent forthe services provided by a clearing and forwardingoperations in any manner; and

9. Commission, fee or any other sum, by whatever namecalled, paid to such agent by the insurer appointing suchagent in relation to insurance auxiliary services providedby an insurance agent.

Further it says the Value of taxable service shall exclude-

1. Initial deposit made by the subscriber at the time ofapplication for telephone connection or pager or fax ortelegraph or telex or for leased circuit;

2. Airfare collected by air travel agent in respect of serviceprovided by him;

3. Railfare collected by rail travel agent in respect of serviceprovided by him;

4. Interest on Loans

Associate enterprisesIn case of Associated enterprises explanation was added

with effect from 10-5-2008, whrein it is provided that thedefinition of gross value would include any book adjustmentany amount debited or credited to any account whether calledas suspense account or by other name, in the books of accountof a person of a person liable to pay service tax, where thetransaction of taxable service is with any associate enterprise.

Value of Taxable service from outside IndiaIn case of service which are received from outside India into

India, the value of service shall be the amount of actualconsideration charged for the service provided or to be provided.

In case of services being rendered which are partly fromoutside India and partly performed in India which is in the natureof performance based category service of the Taxation of Services(Provided from Outside India Received in India) Rules, 2006 thenthe total value of consideration paid by the recipient for suchservices shall be value for the purpose of service tax valuation.

The valuation with regard to works contract and issuesshall be continued in the next issue.

Every day you spend drifting away from your goals is a waste not only of that day,but also of the additional day it takes to regain lost ground”.

12


December2009

Fee can be paid throughCash / Cheque drawn in favor of

“Bangalore Branchof SIRC of ICAI”

Renowned & Expertfaculty members will beconducting the sessions.

Workshop on“Aspects relating to Real Estate and Construction Industry”

For Further Detailscontact the Branch onTel: 30563500/512/513

Email: [email protected]/[email protected]

Website: icai-bangalore.org

Venue : Branch Premises

Timing : 4.00 pm to 8.00 pm

Delegate Fee :

Members - Rs. 1000/-

Non-Members - Rs. 2000/-

07th to 11th December 2009

CPE

20 hrs

Important Dates to remember during the month of December 2009

5-Dec-09 - Payment of Central Excise Duty for the month of November 2009.- Payment of Service Tax for the month of November 2009. (in case of persons other than individual,

proprietor & partnership firms)7-Dec-09 - Payment of TDS Deducted & TCS collected, in the month of November 2009.10-Dec-09 - Filing of monthy returns of Central Excise for the month of November 2009.15-Dec-09 - Payment of Third Installment of Advance Tax in case of Companies

- Payment of Third Installment of Fringe Benefit Tax in case of Companies- Payment of Second Installment of Advance Tax in case of Non-corporate assessees- Payment of Provident Fund for the month of November 2009.- Payment of Second Installment of Fringe Benefit Tax in case of Non-corporate assessees- Filing of VAT 120 under KVAT Laws for the month of November 2009.

20-Dec-09 - Filing of VAT 100 under KVAT Laws for the month of November 2009.- Payment of Professional Tax for the month of November, 2009.

21-Dec-09 - Payment of ESI for the month of November 2009.25-Dec-09 Filing of Monthly returns of Provident Fund for the month of November 2009.31-Dec-09 - Filing of VAT 240 under KVAT Laws for the year ending 31st march 2009.

Few things are impossible to diligence and skill. Great works are performed not by strength, but perseverance.

Date Topic Speaker

07/12/2009 Inauguration & Key Note Address CA. NCS RaghavanMonday Bangalore

4:00 PM - Overview of Real Estate CA. P K Narayanan8:00 PM Development Bangalore

Accounts for construction CA. Vikas OstwalContracts – AS 7 BangaloreRecognition of revenue by realestate Developers - AS 9 Vs AS 7

08/12/2009 Service Tax on Mr. B G Chidananda UrsTuesday - Construction of Complex Advocate4:00 PM - - Commercial or industrial Bangalore8:00 PM construction service

- Renting of immovable property

09/12/2009 Tax related issues CA. Padamchand KhinchaWednesday Bangalore

4:00 PM - Stamp Duty and Registration Mr. Arvind Raghavan8:00 PM (Latest Amendments) Bangalore

10/12/2009 - Income from Capital Gains and CA. Ashok RaghavanThursday treatment of Immovable property Bangalore4:00 PM - as stock in trade

8:00 PM - Income from House Property CA. Vijay Raja Vs Income from Business Bangalore

11/12/2009 - Various Issues relating to CA. L SridharFriday Works Contract Bangalore

4:00 PM - - Panel Discussion and8:00 PM Question hour

13


December2009

BANGALORE BRANCH OF SIRC OFTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

“ICAI BHAWAN” No. 16/0, MILLERS TANK BED AREA, BANGALORE 560052

NOTICE OF SPECIAL GENERAL MEETINGNOTICE is hereby given that the special General Meeting of the Members of the Bangalore Branch of Southern India RegionalCouncil of The Institute of Chartered Accountants of India will be held on 8th Jan, 2010 at 5.00 PM at S. NarayanAuditorium, Institute Premises, ICAI Bhawan, # 16/0, Millers Tank Bed Area, Bangalore 560052.

AGENDA1. To elect Eight Members to the Managing Committee for the term 2010-2013

By order of the Managing Committee

sd/-Place: Bangalore CA. T.R. Venkatesh BabuDate: 01.12.09 Secretary

Relevant Directions of the Central Council regarding Election to Managing Committee is reproduced here under:

Every member of the Institute whose name has been borne on the Branch Register immediately six months prior to the dateof election i.e., 08 July 2009 shall be eligible to vote and / or stand for election to the Managing Committee of the branch to

which he belongs: Provided that a member who is in default as regards payment of his annual membership and / or RegionalCouncil fee shall not be eligible to stand for election.

Any member desirous of standing for election shall submit a nomination, to the Returning Officer, duly signed by the candidateand by the proposer and seconder (both of whom shall be person entitled to vote in the election); so as to reach the said

Returning Officer at least 10 days prior to the Special General Meeting at which the election is to take place. The names ofthe candidate shall be circulated to the members of the branch at least three days prior to the said Special General Meeting,

In accordance with the Directions of the Central Council regarding functioning of the Branches of Regional Council, theManaging Committee of the Bangalore Branch of Southern India Regional Council of The Institute of Chartered Accountants

is pleased to notify the following dates for the election of members of the Managing Committee of Branch for the term2010-2013.

Last date and time for receipt of nomination Saturday, 26th December 2009, 6.00 PM

Last date and time for withdrawal of nominations Tuesday, 29th December 2009, 6.00 PM

Date and time of polling Friday 8th January 2010, 5 PM to 8 PM

Date of declaration of results Friday 8th January 2010

No. of members to be elected to the Managing Committee 8 (Eight Only)

Venue Bangalore Branch of SIRC of ICAI“ICAI Bhawan”, # 16/0, Millers Tank Bed Area,Bangalore-560052.

The nominations as per enclosed from along with Demand Draft of Rs. 25/- drawn in favour of “BANGALORE BRANCH OFSIRC OF ICAI” should be forwarded to The Returning Officer.

Whose address is given below:

The Returning OfficerM/s. K.P. Rao & Co.Chartered Accountants“Poornima”25, State Bank Road, Bangalore - 560001

Ph: 080-25587385/25586814

14


December2009

FORM OF NOMINATION OF CANDIDATE FOR ELECTION TO THE MANAGING COMMITTEE OF

BANGALORE BRANCH OF SIRC OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

FOR THE TERM 2010-13

We, the undersigned members of The Institute of Chartered Accountants of India, belonging to the Bangalore

Branch of SIRC not being in arrears this day in respect of our Annual Membership Fee for the current year and

being members qualified to vote in the Election of Managing Committee Members to the BANGALORE BRANCH

of ICAI of the Southern Region do hereby nominate CA. ................................................................who is a

Member of the Institute and is eligible to vote in the said election as candidate for the election to be held on

8th January’2010.

Signature of the proposer : Signature of the Seconder

Name in Full : Name in Full

Membership No: Membership No

Address: Address

Dated this the ......................................Day of December 2009.

I, ........................................being a member of the Institute whose name is entered in the list of members of

the branch eligible to vote, belonging to the BANGALORE BRANCH OF SIRC not being in arrears this day in

respect of my Annual Membership Fee for the current year agree to stand for the election to the Managing

Committee of the Bangalore Branch of the Southern India Regional Council to be held on .............................

January, 2010.

I am herewith enclosing a Demand Draft for Rs. ........................(..................................) bearing no ........................

Dated ........................ drawn on.....................................in favour of The Bangalore Branch of SIRC of ICAI

payable at Bangalore.

............................................................

Signature of the Candidate

Name in Full .......................................................................................................................................................

Membership no...................................................................................... Phone no...........................................

Address ...........................................................................................................................................................

Dated this the ...................... Day of December 2009

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