Newsletter november 2015 - - issue no.2

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© 2015 K. Vaitheeswaran Page | 1
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Tax Quest
An e-newsletter from
K. VAITHEESWARAN & CO.
Advocates & Tax Consultants
Chennai, India.
November 2015
Issue No.2
CONTENTS
INCOME TAX…………………… 2
SERVICE TAX……………………3
EXCISE …………………………. 4
CUSTOMS……………………….. 5
VAT………………………………5
CENVAT CREDIT…………………6
COMPETITION LAW………………7
COMPANY LAW…………………...7
GST CORNER…………………….8

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INCOME TAX – INTERNATIONAL TAXATION
Transfer Pricing – Comparable - IT
The Bangalore Bench of the Tribunal in the case of iPass India Pvt. Ltd. Vs. ITO (2015 – TII –
397 – ITAT – Bang – TP) has held that a software development service provider cannot be
compared to a software product company, for the purpose of determining ALP in an international
transaction. Further, a captive service provider cannot be compared to an entity owning
significant intellectual property rights; intangibles; having significant research and development
activities and brand attributable profits.
Transfer Pricing Assessments – CBDT Instruction
The CBDT has issued Instruction No.15/2015 dated 16.10.2015 replacing the earlier instruction
issued in 2003 in order to provide guidance to the Assessing Officers and Transfer Pricing
Officer in connection with transfer pricing assessments. The instruction covers various aspects
such as reference to transfer pricing officer; role of transfer pricing officer; role of assessing
officer after determination of ALP; maintenance of data base; and applicability of instructions.
Foreign Tax Credit claimed at the time of assessment
The Karnataka High Court in the case of Wipro Ltd. Vs. DCIT [TS-565-HC-2015-KAR] has
reversed the ITAT decision and has allowed foreign tax credit on a portion of Section 10A
income. The Company had claimed credit of taxes paid outside India in relation to income
eligible for deduction under Section 10A, during the course of assessment and not in the returns.
The Assessing Officer denied the benefit on the ground that the claim was not made in the return
or revised return and that foreign tax credit cannot be allowed as the income was exempt under
Section 10A. The Karnataka High Court held that income under Section 10A is chargeable to
tax under Section 4 and is includable in the total income under Section 5 but no tax is charged
because of the exemption given under Section 10A for a period of 10 years. Merely because an
exemption has been given it does not mean that the Assessee is not liable to tax. The exemption
has the effect of suspending the collection of tax for a period of 10 years. Assessment is nothing
but another name for adjustment of the tax liability to accord with the taxable event in the
particular tax payer’s case. Claim made during assessment cannot be rejected on the ground
that it was not claimed in the return or on the ground that a revised return was not filed.
INCOME TAX – TDS
Landing and Parking Charges
The Supreme Court in the case of Japan Airlines Company Limited Vs. CIT (2015) 377 ITR
372 has held that the charges fixed for landing and take-off services as well as for parking of
aircraft were not for ‘use of land’. The charges are for services and facilities which include
providing air traffic services, ground safety services, aeronautical communication facilities, etc.
The charges cannot be treated as ‘rent’ for the purpose of Section 194 I. The Supreme Court

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affirmed the decision of the Madras High Court in the case of Singapore Airlines and reversed
the decision of the Delhi High Court in the cases of Japan Airlines and United Airlines.
Applicability of Section 194 LA to Certificate of Development Rights (CDR)
The Karnataka High Court in the case of CIT Vs. BBMP (TS-596-HC-2015-Kar) has held that
Section 194 LA would apply only in case of payment as consideration on account of compulsory
acquisition of any immovable property. Where land is voluntarily surrendered by the land owner
for which CDRs are issued, Section 194 LA is not applicable. Provisions of deducting tax at
source and paying it over to the Government on behalf of the recipient of payment is in the
nature of vicarious liability. Where there is no quantification of the sum payable in terms of
money or any actual payment in monetary terms, it would not be fair to burden a person with the
obligation of deducting tax at source and exposing him to the consequence of such default.
SERVICE TAX
Constitutional Validity of amendment made by Finance Act 2015 in the context of lotteries:
The Division Bench of the Sikkim High Court in the case of Future Gaming and Hotel Services
Private Limited Vs. Union of India (TS-564-HC-2015) has struck down the Explanation 2 to
Section 65B(44) introduced by Finance Act, 2015 in the context of promotion/ marketing of
lottery tickets. The Court has held that the activity carried out by the Petitioners in relation to
promotion of marketing, organising, selling of lottery or facilitating in organising lottery of any
kind in any other manner, would clearly not fall within the meaning of ‘service’ as provided
under Clause (44) of Section 65B as the two essential elements (a) that the activity should be
carried out by a person for another and (b) that such activity should be for a consideration, are
unmistakably lacking. The Court also held that since the selling and marketing agents purchase
the tickets from the Petitioners/ Distributors as goods on payment of price, it cannot be
considered as a service.
Renting of immovable property – Notional interest on security deposit
The Mumbai Bench of the Tribunal in the case of Murli Realtors Pvt. Ltd. & Others Vs. CCE
(2015) 84 VST 536 has held that notional interest on interest-free security deposit cannot be
added to the rent agreed upon between the parties for the purpose of levy of service tax on
renting of immovable property. The Tribunal held that the security deposit was not a
consideration for leasing the property.
Swachh Bharat Cess
Swachh Bharat Cess at an effective rate of 0.5% on the value of taxable services has come into
force from 15.11.2015. Swachh Bharat Cess is a separate levy which has to be shown separately
in the invoice; accounted separately and paid through a separate accounting code. As on date,
cenvat credit cannot be used to pay this cess.

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Refund Claims of Exporters – CBEC Circular dated 10.11.2015
The Board has issued Circular No. 187/6/2015 – ST dated 10.11.2015 in the context of speedy
disposal of refund claims of exporters of services under Rule 5 of the Cenvat Credit Rules. The
key features are given below:
(i) Scheme is applicable to exporters of services whose refund claims under Rule 5 of the
Cenvat Credit Rules have been filed on or before 31.03.2015 and has not been disposed
on the date of issue of Circular.
(ii) Disposal means sanction or denial either in whole or in part through an adjudication
order.
(iii) In addition to the documents already filed with the refund application, the applicant
should furnish a certificate from the statutory auditor for companies and from a Chartered
Accountant for assesses who are not companies and an undertaking in the format
specified in the Circular.
(iv) On receipt of these documents, the jurisdictional Assistant Commissioner or Deputy
Commissioner shall issue a dated acknowledgement and make a provisional payment of
80% of the amount claimed as refund, within 5 working days of the receipt of the
documents.
(v) After making the payment, the jurisdictional Assistant Commissioner or Deputy
Commissioner shall undertake checking the correctness of the refund claim in terms of
the relevant notification and in case, a part of the amount claimed is inadmissible, show
cause notice can be issued.
CENTRAL EXCISE
Inclusion of freight in value when transfer of property in goods passes to the buyer at the
time of delivery
In the case of CCE Vs. Roofit Industries Ltd. (2015) 319 ELT 221 the manufacturer was
clearing goods from the factory and the agreement contemplated delivery of the goods at the
place of the buyer. The terms and conditions indicated that supply was accepted only at the place
of delivery. Price of the goods was inclusive of cost of material, excise duty, loading,
transportation, transit risk and unloading charges. Even transit damage and breakage was to the
assessee’s account. Ownership remained with the assessee till delivery. 100% payment was to
be made only after receipt and verification of material. The Supreme Court on these facts held
that sale of goods did not take place at the factory gate of the assessee but only at the place of the
buyer on delivery. Expenses incurred upto that stage has to be included in value.

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Ready Mix Concrete or Concrete Mix ?
The Supreme Court in the case of Larsen & Toubro Ltd. Vs. CCE vide judgment dated
06.10.2015 in the context of Notification No.4/1997, C.E. which provided for exemption from
excise duty in respect of “Concrete mix manufactured at the site of construction for use in
construction work at such site” has held that
(i) It is the process of mixing the concrete that differentiates between Concrete Mix (CM)
and Ready Mix Concrete (RMC).
(ii) RMC and CM are different and the exemption Notification exempts only CM.
(iii) It is only the process that would determine whether the produce could be termed as CM
or RMC.
(iv) RMC is an expression now well understood in the market and used to refer to a
commodity bought and sold with clearly distinguishable features and characteristics as
regards the plant and machinery required to be set up for its manufacture and the
manufacturing process involved as well as its own properties and the manner of delivery.
(v) The earlier decision of the Supreme Court in the case of Simplex Infrastructures has not
discussed whether RMC is different from CM.
CUSTOMS
Loading / Unloading handling charges – whether 1% should be mandatorily added even if
actual charges are ascertainable
The Supreme Court in the case of Wipro Ltd. Vs. ACC (2015) 319 ELT 177 has read down the
provision which provided for mandatory addition of 1% of FOB value towards cost of loading /
unloading and handling charges, and has held that the said clause can apply only when the
actual charges are not ascertainable. The Court held that addition of charges on fictional basis
even where the actual cost paid was available was violative of Section 14 of the Customs Act.
The provision is arbitrary with no nexus and contrary to the objective of Section 14 and violative
of Article 14 of the Constitution of India.
VAT
Sale of repossessed assets by a Bank:
The Madras High Court in the case of HDFC Bank Ltd. vide its judgment dated 12.08.2015 in
TC (Revision) Nos.64 to 67 of 2015 has held as under:-
(i) It is true that in a hypothecation the ownership remains with the person creating the
hypothecation but a bank which advances facilities enters into a hypothecation agreement
which has clauses empowering the bank to repossess the vehicle in the event of default
and also to bring the vehicle to sale through public auction or by private negotiation
without even involving the owner of the vehicle.

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(ii) The sale by the banks and the financial institutions are in the nature of compulsory sales
for realization of debts and to say that banks sell hypothecated goods only as agents of
the owners may not be true completely.
(iii) The contingency is referred to in Explanation-III to the definition of ‘dealer’ under the
Tamil Nadu VAT Act is exhaustive and all sales whether by way of auction or otherwise
directly through an agent either for cash or for deferred payment or for any other valuable
consideration are covered. Explanation III covers even the sale of unclaimed goods. If
sale of unclaimed goods can be included within the purview of Explanation III, the
distinction sought to be drawn between a statutory right of sale and a contractual right of
sale, cannot stand.
Authors Note:
The principle of revenue neutrality was not raised before the Court. On the very same issue viz.
VAT on sale of repossessed assets, an appeal against the Calcutta High Court Judgment in the
case of ICICI Bank is pending before the Supreme Court.
CENVAT CREDIT
Cenvat Credit - Sales Commission
The Mumbai Bench of the Tribunal in the case of Maharashtra Seamless Ltd. Vs. CCE (2015)
TS 491 CESTAT has held that cenvat credit can be availed on the commission paid to agents for
‘sales promotion’ under Business Auxiliary Services for the period 2007-08 to 2011-12. Cenvat
credit was denied on the ground that ‘sales commission agent service’ cannot be considered as a
service used directly or indirectly in or in relation to manufacture of final products and clearance
of final products from the place of removal and that the activity was more of ‘sales’ and not
‘sales promotion’. The Tribunal relying on the co-ordinate Bench decision of Birla Corporation
Ltd. Vs. CCE (2014) 35 STR 977 and the CBEC Circular No. 943/04/2011 dated 29.04.2011
distinguished the Gujarat High Court decision in the case of CCE Vs. Cadila Healthcare Ltd.
(2013) 30 STR 3 and held that activities such as actively approaching new clients, putting
advertisements, giving diaries and calendars would clearly be termed as ‘sales promotion’ and
not merely ‘sales’.
Cenvat Credit - Loss during manufacture
The Madras High Court in the case of Rupa & Co. Vs. CESTAT (2015) TIOL 2125 while
granting cenvat credit on loss of inputs during the manufacturing process has held that the
expression 'inputs of such finished product' contained in finished products' cannot be looked at
theoretically with its semantics. It has to be understood in the context of what a manufacturing
process is. If there is no dispute about the fact that every manufacturing process would
automatically result in some kind of a loss such as evaporation, creation of by-products, etc., the
total quantity of inputs that went into the making of the finished product represents the inputs of
such products in entirety. To say that what is contained in finished product is only a quantity of
all the inputs of the same weight as that of the finished product would presuppose that all
manufacturing processes would never have an inherent loss in the process of manufacture. The

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Court held that the Tribunal was not justified in disallowing incidental manufacturing loss and
held that the appellant is entitled to and as such is allowed credit on entire quantity and value of
inputs consumed in making of finished goods including inherent percentage of manufacturing
loss.
Amendment to Cenvat Credit Rules
Notification No. 22/2015-CE (NT) dated 29.10.2015 has amended the Cenvat Credit Rules in
order to provide that the credit of Education Cess and Secondary and Higher Education Cess
paid on inputs or capital goods received in the premises of the service provider on or after
01.06.2015 can be utilized for payment of service tax on any output service.
Credit of 50% Education Cess and Secondary and Higher Education Cess paid on capital goods
received in the premises of the service provider in the Finance Year 2014-2015 can be utilized
for payment of service tax on any output service.
Credit of Education Cess and Secondary and Higher Education Cess paid on input service in
respect of which invoice / bill / challan etc. is received by the service provider on or after
01.06.2015 can be utilized for payment of service tax on any output service.
COMPETITION LAW
Re-transmission of Channels
The Competition Commission of India in the case of Makkal Tholai Thodarbu Kuzhumam Vs.
Tamil Nadu Arasu Cable TV Corporation has held that re-transmission of cables through cable
TV network is a separate relevant product market. There are different mechanisms for
transmitting and re-transmitting signals such as terrestrial, cable, DTH, HITS, IPTV and Mobile
TV. These platforms cannot be treated as similar and can be divided in different markets based
on economic affordability.
COMPANY LAW
(i) Annual Return in Form MGT-7 substituted through Companies (Management and
Administration) Third Amendment Rules, 2015.
(ii) MCA has relaxed the additional fee payable on forms AOC-4 and AOC-4 XBRL upto
30th November, 2015. The additional fee requirement for MGT-7 E-Form is also relaxed
for all such forms filed till 30th November, 2015, wherever additional fee is applicable –
General Circular No.14/2015 dated 28.10.2015.

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GST CORNER
(i) Ministry of Finance has released Joint Committee Reports on Business Processes for
GST containing proposals relevant to refund, registration and payment. Comments have
been called for from the public.
(ii) Shri K.M.Mani has resigned as Chairman of the Empowered Group of State Finance
Ministers on GST and a meeting of the State Finance Ministers is scheduled on 20th
November 2015, to discuss the model GST Law as well as IGST Legislation – Press
Reports.
***
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