Monday, 31 October 2011

Article on TP - Corporate guarantees for foreign buys may face tax - Source - Economic Times - 31 October 2011

CORPORATE TRENDS
Govt plans to bring corporate guarantees under tax net
31 Oct, 2011, 0510 hrs IST, MV Ramsurya & M Padmakshan, ET Bureau
MUMBAI: The government may impose tax on companies giving guarantees for overseas acquisitions, but its efforts to plug a loophole may upset corporates eager to snap up cheap foreign assets. The Income-Tax Department reasons that corporate guarantees are given at a cost.

Typically, a charge or fee is payable if a company gives a guarantee to unrelated parties. However, when such guarantees are given to an associated enterprise or a related party for the purpose of an acquisition, the parties involved make adjustments.


As a result of this adjustment, the charges payable on such guarantees, "become invisible," the authorities say leading to a loss of revenue for the government. "We have brought such (corporate) guarantees under the transfer pricing net of the Income-Tax Act," confirmed R N Dash, director-general (Transfer Pricing).


"We have identified a number of intangible transactions and corporate guarantees given to associated enterprises for acquiring companies abroad is one of them," he said, adding that the exercise will yield substantial revenue.


He didn't elaborate. The move will affect a lot of companies including some well-known names such as Tata Motors and Hindalco, an Aditya Birla group company. They may face a higher tax outgo as the tax department has included charges on the guarantees as part of its tax assessment.


The Tata Group did not comment for this story. An Aditya Birla Group spokesperson also declined to comment. The department's transfer pricing division is required to pass an order by October 31 for all such transactions done in 2008. If the draft order is uncontested by the concerned company, then it is included in the overall tax assessment for that company.


Typically, transfer pricing refers to the amount used when accounting for transfer of goods or services from one company to another in the same business group. Corporate guarantees have so far not been included in TP calculations. Companies had also liberally made use of them, especially when buying a large asset or a company overseas.


The way it works is as follows: A company floats an overseas special purpose vehicle (SPV) which raises money for completing the acquisition. Since the SPV does not have any asset or revenue stream it relies on a guarantee by the parent.


The tax department has now started to view the guarantees as a service provided by the parent to the international subsidiary which is making the acquisition. The charges payable for such guarantees are calculated and added to the income of the party concerned.


The move, aimed mainly to shore up dwindling tax collections, is likely to act as a deterrent for outbound acquisitions at a time when most large Indian corporates are targeting firms in the Europe and the US due to lower valuations.


The I-T department raised Rs 20,000 crore last year from transfer pricing and is aiming to generate at least 50% more in the current fiscal year. It has also brought in expenditure on brand building, under the transfer pricing net. In 2008, Indian companies did acquisitions worth $30.19 billion, spread over 836 deals, according to data sourced from Bloomberg.


Although this was lower than the $47.33 billion worth of transactions done in the previous year, 2008 was a time when significant transactions from India, including Hindalco's acquisition of Novelis and Tata Motors' buyout of Jaguar Land Rover, were completed.


According to Ketan Dalal, joint leader (tax and regulatory service) at PricewaterhouseCoopers, "Several new dimensions have emerged this year on the transfer pricing front and many of them are at variance with global practices. This casts a significant amount of uncertainty both for global and Indian multinationals," he added.


Vispi T Patel of Vispi T Patel & Associates said this would hamper the emerging Indian corporate who wants to go global by acquiring companies abroad. The transfer pricing cell of the I-T Department, which is pursuing this matter, feels that such "masking" of charges is done even when a foreign subsidiary is floated for the purpose of acquiring an international company or for raising working capital.


The department has levied a guarantee charge of 2.4% of the total loan amount taken for the acquisition, benchmarked on the commission typically charged by banks for providing guarantees. Industry executives said this charge is impractical as it would account for half of the cost of borrowing in 2008.


"Moreover, the guarantees charged by a bank is different from that issued by a parent company," said the group CFO of a Mumbai-based conglomerate which has done large international transactions in 2008.


"A parent company is a shareholder of the subsidiary. How can it be described as a service when it is for the growth of the group," he added.


Friday, 28 October 2011

Sub.: Taxes- Due Date Alert for the month November 2011


Dear All,

          Sub.: Taxes- Due Date Alert for the month November 2011

Your kind attention is invited to the table given below which contains the due date for Tax compliance in respect of TDS/TCS, IT/WT, ST/VAT on different dates during the month November 2011.

Sr No
Due Date
Related to
Compliance to be made
1
05.11.2011
(Saturday)
Service Tax
Payment of Service Tax for the Month of October 2011
2
07.11.2011
(Monday)
Bank Holiday for bakrid.  
TDS/TCS
(Income Tax)
·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of October 2011.

·        Deposit TDS from Salaries  deducted during the month of October 2011

•   Deposit TCS for collections made under section 206C including sale of scrap during the month of October 2011, if any

•    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of October 2011, if any
3
20.11.2011
(Sunday)
VAT
Payment of VAT & filing of monthly return for the month of October 2011
4
30.11.2011
(Wednesday)
Income Tax
Return filing online along with submission of Form 3CEB in the case, assessee is subject to transactions with AEs and TP study required.

10 Steps for Restructuring Risk Management Function


“Don't judge each day by the harvest you reap but by the seeds that you plant. “ – By Robert Louis Stevenson

Last decade altered the risk profile of the world. Look it from any lens - financial, technological, political, legal, reputation or physical – risks have increased for all organizations. The business rewards are higher of organizations who effectively manage risks.

Previous year’s Deloitte study on governance, risk and compliance showed that financial institutions with highly developed risk management function showed 23% better financial performance than their peers with skin-deep risk management functions. A strong risk and ethics culture facilitates more reliable reporting of financial and non-financial performance indicators thereby improves management functioning and strategic risk management. It improves staff engagement levels and enhances relationships with investors, regulators, customers, and other external parties.

These results indicate that the effort on developing risk management functions is worthwhile. Hence, to leverage the benefits companies need to restructure risk management function. I am sharing some ideas on the steps needed to restructure risk management functions.

1.   Get the right team on board

Selecting key risk management personnel is the single most important factor for an organization to form an effective risk management function. Risk managers must have technical expertise, business knowledge, emotional intelligence, psychological strength and strong personal values. Reason being risk managers are the charioteers of the organization. The CEO and management lead the organization to unchartered territories to win the battles in the markets. The risk managers ensure the safety of the senior management and organization. Their role requires them to constantly face adversity, be change agents, knowledge managers and principled role models. Hence, getting the right risk managers is crucial for success of the organization.

Neglecting this aspect can cause heavy damages to the organization. Risk managers have access to sensitive information. Hence, without the emotional intelligence and personal values, they can easily become deviant. Without the psychological strength to face adversity and strong consciousness, they may not inform various risks to senior management to save their own skin. Lastly, as risks are dramatically changing, without the technical expertise and knowledge, they may lead the management astray.

2.  Modify organization structure

At the global level, there is ongoing debate on the organization structure of risk management functions. Companies are focusing on integrating governance, risk management and compliance (GRC) functions. As per the KPMG Convergence report, 50% of the respondent organizations were spending 5% of annual revenue on GRC. However, interestingly cost is not the driver for integrations. As per the report – “44 percent cite overall business complexity, followed by a desire to reduce organizational risk exposure (37 percent) and improve corporate performance (32 percent).” This indicates that risk management organization structure has an impact on financial performance of the organization.

The first step as I have mentioned before, is to appoint a Chief Risk Officer (CRO) reporting to the CEO. However, the single step itself will not give substantial benefits. The function needs to cover strategic, tactical, operational, financial, reputational, political, legal and other risks. It should have a specialized team of business ethics managers, fraud investigators, internal auditors, compliance officers, information security personnel, physical security managers etc. The reporting lines need to be clear, and the control must not be with business heads. In case of global organizations, there should be matrix reporting to integrate with global initiatives.

3.   Clean up the mess

Charles Darwin had said – “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change”Since we base our identity on what we have done in the past, it is difficult to let go. However, it is difficult to run fast with old baggage. Elephants don’t dance; hence, we need to bring flexibility in the risk management organization. The first thing to do after getting the team and structure in place is to get rid of the redundant people, processes and technology.

This might sound harsh and ruthless; however, it is a necessity for making an agile organization. However, we need to stop adding organizational resources trying to inspire employees that avoid and inhibit change or processes and technology that is not giving adequate returns. Simply put, clean up the previous mess otherwise it will keep resurfacing and the new team will continuously spend time fire-fighting old issues. Do this by identifying all the facts, halting ongoing violations and preventing their reoccurrence in the future.

4.   Evaluate risk exposures

Dynamically changing internal and external risk landscape of organizations increases the risk exposures. Frequently, companies fail to identify emerging risks, as they have no previous exposures to it. For example, few companies still don’t have social media risks management plan or policy within the organization. The senior management dabbles in social media, and without guidelines, significant reputation risks exist.

Recent incidents have shown black swan incidents can trigger major disasters. However, organizations frequently calculate each risk exposure separately, rather than seeing the correlation between risks and assessing the collective impact.

Additionally, regulatory risks change due to multitude of new reforms, policies, and acts issued across countries. For example, the recently released UK Foreign Corrupt Practices Act affects all the subsidiary companies working in other geographies. Hence, compliance and legal functions need to evaluate the risk exposures on an ongoing basis.

Similarly, with new business strategies, strategic and operational risks change. Hence, before formulating a risk management strategy, it is important to identify various risk exposures.

5.   Assess various frameworks

While frameworks are not an end in itself, they do provide the means to achieve a desired state of risk management. Various frameworks of enterprise risk management (COSO:2004, ISO 31000, AN 4360:1999, OCEG Redbook 2.0 etc.) ensure a good starting point towards rebuilding the function. Depending on the industry, an organization can choose from a variety of frameworks (information security, data protection, and banking)  to model the risk management function.

Take care to customize the framework guidelines according to the organization requirements. Choose the best fit and/or combine a couple of them to form a best fit. Sometimes the mindset is that implementing a framework is only useful when certification is required to enhance business. However, this approach is incorrect.  

Risk managers can also use frameworks to benchmark the maturity level of the risk management function. Frameworks generally depict t best practices, hence provide a good roadmap for improving the function.

6.  Higher external consultants

Sometimes it is a good idea to hire external consultants, especially when revamping the function. The challenge of restructuring risk management function is that there is a high level of wariness amongst stakeholders if things have gone wrong before. The old risks management team may be viewed skeptically and the new risk managers don’t have the political and operational knowledge to be effective. They are also scared of giving the not so rosy picture to senior management as they haven’t had the time to develop strong relationships with them. This leaves all parties concerned attempting to wade through muddy waters.

External consultants besides have excellent technical knowledge are less involved in the politics of the organization. Hence, they are more independent and confident in presenting the bare facts. They are unlikely to face retaliation from business teams, as they are not part of the organization. Secondly, since they look at the scenario with fresh eyes they see the bigger picture better. Hence, it benefits the organization to smoothen the path of restructuring by seeking additional help and advice.

7.   Develop risk management strategy

I have written previously on criticality of forming a risk management strategy and I reiterate the importance here. Risk management functions are taking bottom up approach when presenting annual plans to senior management. For example, if the organization is having a balance scorecard performance appraisal system, the annual plan may be nothing more than the consolidation of balance scorecards.

This approach doesn’t give a strategic advantage to the organization. The business strategy and risk strategy are running parallel with major disconnect.

Risk managers need to prepare an annual strategy along with a long-term strategy for 3-5 years. The risk strategy has to be aligned and derived from the business strategy. Use strategy maps to monitor the performance of the strategy and revise it accordingly.

8.   Leverage technology

Putting experienced boots on the ground without relevant technology doesn’t give incremental returns on investment. Investing in GRC software adds value to the function and business. The Economist Intelligence Unit report “Too Big to Fail” states that 51% of the financial institutions participating in the survey increased investment in technology.

Secondly it says – “Just 40% of respondents say that their firm is effective at collecting, standardizing and storing data. Insufficient data is also seen as one of the key barriers to effective risk management after regulatory uncertainty and poor communication between departments.” Hence, efficient and effective risk management requires timely and relevant information and analysis for effective decision-making. Without technology, risk managers provide outdated qualitative information to management. It results in reactive rather than proactive risk management. Business intelligence tools – SAP Business Objects, IBM Cognos, etc. – give risk dashboards for business executive users. As data is apolitical, the dashboards help in accurate decision-making.

Moreover, the focus now is on building a risk and ethics culture within the organization. Traditionally formal classroom training programs were used. However, these have proved to be majorly ineffective as users fail to apply the concepts after leaving the classroom and revert to old habits within a few weeks. Studies have shown that employees are easily influenced when they participate in the process and have a continuous stream of information. Therefore, applying concepts of collective intelligence is beneficial. Organizations can have internal social networking sites, blogs and knowledge management systems. These allow employees to share knowledge, concerns and take ownership for managing their own department’s risks.

9.  Get business teams commitment

Sell, sell, and sell. Do as much internal selling as possible to get buy-in from the business teams. Get business executives talking about risk management through social networking sites, blogs, senior management messages, group discussions, step one meetings etc. Create a common language across the organization.

Studies have shown that people respond more strongly to risks – “when the consequences of those risks are available to them, such as from memory, from imagination, and from mass media. For example, if they witness a news item about a house fire, they are more likely to avoid the kind of behavior that they believe started the fire.” Hence, the more information business executives have regarding various risks the less prone they will be to taking unnecessary risks. Let them be the owners of transforming the risk culture within the organization. Risk managers just need to provide the guiding light.

10.   Formulate audit committee/ risk committee

In India, 90% of the companies are unlisted or privately held companies. The corporate governance norms of listed public companies do not apply to them. Hence, quite a few do not have focus on risk committees or formulate an audit committee. This becomes tricky situation as sometimes the private companies CEOs are managing bigger turnovers than listed companies are. If they have a team of technocrats running the business, the focus on risk management is limited. The problem becomes bigger in case of global organizations with subsidiaries in various geographies.

In such a scenario, it is a good idea to form risk and audit committees. The members may be board members and senior risk managers from other locations, if the organization is unwilling to have external members. The idea behind is that other locations senior managers will look at the information independently and share best practices at global level.

The board of directors and senior management though cannot delegate their risk oversight role completely do get better sources of information. As this keeps the internal teams on their toes, as they know that there are other risk experts looking at their work.

Closing thoughts

To progress, one has to change. Risk managers need to tackle the challenge of evolving risks hence need to transform rapidly. Their ability to adapt and transform themselves directly correlates to the organizations ability to manage risks. During change, a team is fragile and needs constant nourishment.  Hence, senior management support is needed for the change, not only by providing the budgets but also protecting their nascent growth.

References:

1. The convergence challenge Global survey into the integration of governance, risk and compliance February 2010 KPMG INTERNATIONAL

Enhancement in the features provided under TAN account by NSDL


This is with reference to the facilities available in your TAN account for requesting various files from the TIN central system. The procedure for online request of Consolidated TDS/TCS statements/ Form 16A/ Default file under the ‘TAN Account’ has been enhanced. Salient features of the new procedure are as follows:

You may request for Consolidated TDS/TCS statement, Form 16A as well as Default files for a given statement by verifying only once in a given session.
You may request Form 16A, for upto 10 selected PANs at a time.
There is a common download menu for the files requested.
Facility has been made available to request for consolidated TDS/TCS statement pertaining to FY 2005-06 onwards
Files requested will be available for download for a period of 30 calendar days.
In case you require any clarification, kindly contact TIN Call Center at Tel: 91-20-2721 8080.
Fax: 91-20-2721 8081.
Email ID: tin_returns @ nsdl.co.in

Tuesday, 25 October 2011

Happy Deepawli




New PAN Application Form 49AA for resident/non-resident Individual, LLP, Company, Firm, AOP, BOI


Income Tax Department has released a New PAN application Form No. 49AA for Individuals not being a citizen of India, LLP registered outside India, Company registered outside India, Firm formed or registered outside India, Association of persons(Trusts) formed outside India, Association of persons (other than Trusts) or body of individuals or local authority or artificial juridical person formed or any other entity (by whatever name called) registered outside India. Download the new Form 49AA and instruction to File Form No. 49AA and Form no. 49AA.
———————

INCOME-TAX (SEVENTH AMENDMENT) RULES, 2011 – AMENDMENT IN RULE 114 AND SUBSTITUTION OF FORM NO. 49A
NOTIFICATION NO. 56/2011 [F.NO. 133/48/2011-SO(TPL)], DATED 17-10-2011
In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—
1.(1) These rules may be called the Income-tax (7th Amendment) Rules, 2011.
(2) They shall come into force on the 1st day of November, 2011.
2. In the Income-tax Rules, 1962,-
 (A)  in rule 114,-
 (a)  in sub-rule (1), after the words, figures and letter “Form 49A”, the words, figures and letters, “or 49AA , as the case may be” shall be inserted:
 (b)  in sub-rule (3),—
  (i)  for the words “accounting year” wherever they occur, the words “financial year” shall be substituted;
 (ii)  after item (iii) the following item shall be inserted, namely:—
“(iv) in the case of a person who is entitled to receive any sum or income or amount , on which tax is deductible under Chapter XVII-B in any financial year, before the end of such financial year.”;
  (c)  in sub-rule (4), for the words “Table below shall be accompanied by documents mentioned in Column 3″ the words “Table below shall be filed in Forms mentioned in Column 3 and shall be accompanied by the documents mentioned in Column 4″ shall be inserted ;
 (d)  For the Table, the following Table shall be substituted, namely :—
TABLE

Sl. No.
Applicant
Form
Documents as proof of identity and address
(1)
(2)
(3)
(4)
1.
Individual who is a citizen of India
49A
(i) Proof of identity—
Copy of,-
(a) school leaving certificate; or
(b) matriculation certificate; or
(c) degree of a recognised educational institution; or
(d) depository account; or
(e) credit card; or
(f) bank account; or
(g) water bill; or
(h) ration card; or
(i) property tax assessment order; or
(j) passport; or
(k) voter identity card ; or
(l) driving licence; or
(m) certificate of identity signed by a Member of Parliament or Member  of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be.
In case of a person being a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of identity.
(ii) Proof of address—
Copy of,-
(a) electricity bill; or
(b) telephone bill; or
(c) depository account; or
(d) credit card; or
(e) bank account; or
(f) ration card; or
(g) employer certificate; or
(h) passport; or
(i) voter identity card; or
(j) property tax assessment order; or
(k) driving licence; or
(l) rent receipt; or
(m) certificate of address signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be.
Note 1: In case of a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of address.
Note 2: In case of an Indian citizen residing outside India, copy of Bank Account Statement in country of residence or copy of Non-resident External (NRE) bank account statements.
2.
Hindu undivided family
49A
(a) an affidavit by the karta of the Hindu Undivided Family stating the name, father’s name and address of all the coparceners on the date of application;
and
(b) copy of any document applicable in the case of an individual specified in serial number 1, in respect of karta of the Hindu undivided family, as proof of identity and address.
3.
Company registered in India
49A
copy of Certificate of Registration issued by the Registrar of Companies.
4.
Firm (including Limited Liability Partnership formed or registered in India
49A
(a) copy of Certificate of  Registration issued by the Registrar of Firms/Limited Liability Partnerships; or
(b) copy of Partnership Deed.
5.
Association of persons(Trusts) formed or registered in India
49A
(a) copy of trust deed; or
(b) copy of Certificate of Registration Number issued by Charity Commissioner.
6.
Association of persons (other than Trusts) or body of individuals or local authority or artificial juridical person formed or registered in India
49A
(a) copy of Agreement; or
(b) copy of Certificate of Registration Number issued by Charity Commissioner or Registrar of Co-operative Society or any other Competent Authority; or
(c) any other document originating from any Central Government  or  State Government  Department establishing Identity and, address of such person.
7.
Individuals not being a citizen of India
49AA
(i) Proof of identity :—
(a) copy of Passoort; or
(b) copy of person of Indian Origin card issued by the Government of India; or
(c) copy of Overseas Citizenship of India Card issued by Government of India; or
(d) copy of other national or citizenship Identification Number or Taxpayer Identification Number duly attested by “Apostille” (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located.
(ii) Proof of address:—
(a) copy of Passport; or
(b) copy of person of Indian Origin card issued by the Government of India; or
(c) copy of Overseas Citizenship of India Card issued by Government of India; or
(d) copy of other national or citizenship  Identification Number  or  Taxpayer Identification Number duly attested by “Apostille” (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(e) copy of bank account statement in country of residence; or
(f) copy of Non-resident External bank account statement in India; or
(g) copy of certificate of residence in India or Residential permit issued by the State Police Authority; or
(h) copy of the registration certificate issued by the Foreigner’s Registration Office showing Indian address; or
(i) copy of Visa granted and copy of appointment letter or contract from Indian Company and Certificate (in Original) of Indian Address issued by the employer.
8.
LLP registered outside India
49AA
(a) copy of Certificate of Registration issued in the country where the applicant is located, duly attested by ‘Apostille’ (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
9.
Company registered outside India
49AA
(a) copy of Certificate of Registration issued in the country where the applicant is located, duly attested by ‘Apostille’ (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
10.
Firm formed or registered outside India
49AA
(a) copy of Certificate of Registration issued in the country where the applicant is located, duly attested by ‘Apostille’ (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
11.
Association of persons(Trusts) formed outside India
49AA
(a) copy of Certificate of Registration issued in the country where the applicant is located, duly attested by ‘Apostille’ (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
12.
Association of persons (other than Trusts) or body of individuals or local authority or artificial juridical person formed or any other entity (by whatever name called) registered outside India
49AA
(a) copy of Certificate of Registration issued in the country where the applicant is located, duly attested by ‘Apostille’ (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located; or
(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.

 (B)  in Appendix-II. for Form 49A, the following Forms shall be substituted, namely:—
F.No.133 /48/2011 – SO (TPL)]
(ASHIS MOHANTY)
Under Secretary to the Government of India
Note. - The principal rules were published vide Notification No.S.O.969 (E), dated the 26th March, 1962 and last amended by Income-tax (6th Amendment) Rules, 2011 vide Notification S.O. No. 1497(E) dated 1st July, 2011.
Downloads

Sunday, 23 October 2011

Subject: Commercial construction/infrastructure development projects of road, airports, dams, tunnels etc, – levy of service tax on various service providers engaged / associated with such construction work – regarding;


Circular No. 147/16/2011 – Service Tax

   F. No. 137/57/2011 – Service Tax
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
****
New Delhi, 21st October 2011

To

Chief Commissioners of Central Excise & Customs (All)
Chief Commissioners of Central Excise (All)
Director General of Central Excise Intelligence
Director General of Audit & DGST
Commissioners of Service Tax (All)

Madam/Sir

Subject: Commercial construction/infrastructure development projects of road, airports, dams, tunnels etc, – levy of service tax on various service providers engaged / associated with such construction work – regarding;
**********

            Reference is invited to the Circular No. 138/07/2011 – Service Tax dated 06.05.2011 wherein it was clarified that the services provided by the subcontractors / consultants and other service providers to the Works Contract Service (WCS) provider in respect of construction of Dams, Tunnels, Road, Bridges etc. are classifiable as per Section 65 A of the Finance Act, 1994 under respective sub clauses (105) of Section 65 of the Finance Act and are chargeable to service tax accordingly. Clarification has been requested as to whether the exemption available to the Works Contract Service providers in respect of projects involving construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., is also available to the sub-contractors who provide Works Contract Service to these main contractors in relation to those very projects.

2.         The matter has been examined.  Vide the circular referred above, it was clarified that when the service provider is providing WCS service  in respect of projects involving construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc. and he in turn is receiving various services like Architect service, Consulting Engineer service, Construction of complex, Design service, Erection Commissioning or installation, Management, maintenance or repair etc., which are used by him in providing output service, then while exemption is available to the main contractor (as per Section 65 (zzzza) of the Finance Act) , as regards the services provided by its subcontractors, the same are distinctly classifiable under the respective sub-clauses of section 65 (105) of the Finance Act, as per their description and that their taxability shall be decided accordingly. It is thus apparent that just because the main contractor is providing the WCS service in respect of projects involving construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., it would not automatically lead to the classification of services being provided by the sub-contractor to the contractor as WCS. Rather, the classification would have to be independently done as per the rules and the taxability would get decided accordingly.

3.          However, it is also apparent that in case the services provided by the sub-contractors to the main contractor are independently classifiable under WCS, then they too will get the benefit of exemption so long as they are in relation to the infrastructure projects mentioned above.  Thus, it may happen that the main infrastructure projects of execution of works contract in respect of roads, airports, railways, transport terminals, bridges tunnels and dams, is sub-divided into several sub-projects and each such sub-project is assigned by the main contractor to the various sub-contractors. In such cases, if the sub-contractors are providing works contract service to the main contractor for completion of the main contract, then service tax is obviously not leviable on the works contract service provided by such sub-contractor. 

It is hoped that this clarifies the statutory position. The Circular may please be widely disseminated to the trade and field formations.

Yours faithfully

 (Deepankar Aron)
Director (Service Tax)
CBEC, New Delhi

Renting of Immovable Property - SC decision


2011-TIOL-104-SC-ST
IN THE SUPREME COURT OF INDIA
CIVIL APPEAL NO. 8390 OF 2011
(With appln(s) for impleadment and with prayer for interim relief)
WITH
Civil Appeal NO. 8391-8393 of 2011
(With prayer for interim relief and office report)
Civil Appeal NO. 8397 of 2011
(With appln(s) for continuation of interim relief and with prayer for interim relief and office report)
Civil Appeal NO. 8398 of 2011
(With appln(s) for continuation of interim relief and with prayer for interim relief and office report)
Civil Appeal NO. 8428 of 2011
(With appln(s) for permission to file addl.documents and with prayer for interim relief and office report)
RETAILERS ASSOCIATION OF INDIA
Vs
UNION OF INDIA &ORS
D K Jain And Anil R Dave JJ.,
Dated: October 14, 2011
Appellant Rep by: Mr. H.N. Salve, Sr. Adv. CA 8390/11, Mr. Mukul Rohtagi, Sr. Adv. CA 8391-8393/11 Dr. A.M. Singhvi, Sr. Adv. Mr. S. Ganesh, Sr. Adv. Mr. Mahesh Agarwal, Adv., Mr. Rishi Agarwal, Adv. Mr. E.C. Agrawala, Adv. Ms. Radhika Gautam, Adv. CA 8397/11 & Mr. M.P. Jha, Adv. CA 8398/11 Mr. Ameet Naik, Adv. Mr. Harshvardhan Jha, Adv. Mr. Adarsh Upadhyay, Adv. Mr. Gaurav Bhatia, Adv. Mr. Ram Ekbal Roy, Adv. Mr. Abhishek Chaudhary, Adv. Mr. Vatsal Shah, Adv. CA 8428/11 Ms. Vanita Bhargava, Adv. Mr. Ajay Bhargava, Adv. Mr. Susmit Pushkar, Adv. Mr. Nitin Mishra, Adv. Ms. Gauri, Adv.for M/S. Khaitan & Co., Advs. Mr. Prakash Shah, Adv. CA 8390/11 & rr. Mr. Jay Savla, Adv. 23 in CA 8397/11 Ms. Meenakshi Ogra, Adv. Ms. Renuka Sahu, Adv. Mr. Ashwani Kumar, Adv. Mr. C.A. Sundaram, Sr. Adv. Mr. Kavin Gulati, Adv. Ms. Ruby Singh Ahuja, Adv. Mr. Jatin Mongia, Adv. Ms. Lakshmi Ramachandran, Adv.for M/s. Karanjawala & Co., Advs.
Respondent Rep by: CA 8390/11 Mr. Vivek Tankha, ASG Mr. K. Swami, Adv. Mr. Manish Pushkarna, Adv. Mr. Rishabh Sancheti, Adv. Mr. Sumeet Sodhi, Adv. Mr. D Kumaran, Adv. Mr. Harsh Parashar, Adv. Mr. B.K. Prasad, Adv.
Service Tax on Renting - Retailers to pay half tax by March 2012 - Surety for the rest
ORDER
The learned Additional Solicitor General prays for time to file counter affidavit on behalf of the respondents. Let the needful be done within four weeks. Rejoinder affidavit, if necessary, may be filed within two weeks thereafter. Having regard to the issue and revenue involved, we expedite the hearing of the appeals.
C.A. No. 8390/2011 ­ M/s Retailers Association of India vs. Union of India & Ors.
Having heard learned counsel for the parties on the question of stay with regard to the arrears of servic tax due from the members of the appellant association prior to 30th September, 2011, we direct as follows:
(i) all members of the appellant association, namely, Retailers Association of India, who are before us, shall deposit with the concerned department 50% of the arrears towards the said tax within six months in three equated instalments, on or before 1st November,2011; 1st January 2012 and 1st March, 2012;
(ii) for the balance 50% all the members shall furnish a solvent surety to the satisfaction of the jurisdictional Commissioner;
(iii) theyshall file individual affidavits in this Court, within four weeks from today undertaking to pay the balance arrears of service tax, stayed in terms of this order, as may be directed by this Court at the time of final disposal of the appeal and
(iv) the successful party in this appeal shall been titled to interest on the amount stayed by this Court at such rate as may be directed at the time of final disposal of the appeal.
It is clarified that this interim order shall apply only in the case of those members of the association who were petitioners before the High Court in the writ petition giving rise to this appeal and who shall file the requisite affidavits within the aforesaid period of four weeks from today. We further direct that any default in deposit of any one of the instalments by the dates fixed above, would result in vacation of this stay order and it will be open to the department to recover the balance amount in accordance with law.
I.A. No. 3 for impleadment
Learned counsel for the applicant seeks leave to withdraw the application stating that the applicant would file a substantive petition. Accordingly, the application is dismissed as not pressed.
C.A. Nos.8391-8393/2011 ­Shoppers Stop Ltd. Etc. Etc. vs. Union of India & Ors Etc. Etc.
Being a member of the appellant-association in C.A. No. 8390/2011, no separate orders are called for in this appeal.
C.A. No. 8397/2011 ­- M/s Metro Shoes Ltd. & Anr. vs. Union of Inda & Ors.
C.A. No. 8398/2011 ­- M/s Major Brands (India) Pvt. Ltd.Vs. Union of India & Ors.
C.A. No. 8428/2011 – Cinemax India Ltd. Vs. Union of India & Ors.
Having heard learned counsel for the parties on the question of stay with regard to the arrears of service tax due from the appellants prior to 30th September, 2011, we direct as follows:
(i) all the appellants in each of the appeals, who are before us, shall deposit with the concerned department 50% of the arrears towards the said tax within six months in three equated instalments, on or before 1st November, 2011; 1st January 2012 and 1st March, 2012;
(ii) for the balance 50% each of the appellant in these appeals shall furnish a solvent surety to the satisfaction of the jurisdictional Commissioner;
(iii) they shall file affidavits in this Court, within four weeks from today undertaking to pay the balance arrears of service tax, stayed in terms of this order, as may be directed by this Court at the time of final disposal of the appeals and
(iv) the successful party in these appeals shall be entitled to interest on the amount stayed by this Court at such rate as may be directed at the time of final disposal of the appeals.
It is clarified that this interim order shall apply only in the case of the appellants who shall file the requisite affidavits within the aforesaid period off our weeks from today. We further direct that any default in deposit of any one of the instalments by the dates fixed above, would result in vacation of this stay order and it will be open to the department to recover the balance amount in accordance with law