K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT

‘VENKATAGIRI’

Flat No.8/3 & 8/4, Ground Floor,

No.8 (Old No.9), Sivaprakasam Street,

T. Nagar, Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bengaluru – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mail : vaithilegal@yahoo.co.in / vaithilegal@gmail.com

www.vaithilegal.com

“There is no significant loss or gain in my indirect tax proposals. – para 181 of FM Speech on 01.02.2017

This entire presentation is linked with English, Hindi and Tamil Film Titles for

the purpose of creativity and humor and has no connection with the film or its contents.

2016-2017 (Budget Estimates

(Rs. in Crores)

2016-2017 (Revised Budget

Estimates (Rs. in Crores)

2017-2018 (Budget Estimates

(Rs. in Crores)

Corporation Tax 493923.55 493923.50 538755.73

Taxes on income 353173.68 353173.70 441255.27

Customs 230000.00 217000.00 245000.00

Excise 318669.50 387368.58 406900.00

Service Tax 231000.00 247500.00 275000.00

Swach Bharath Cess 10000.00 12500.00 13300.00

Krishi Kalyan Cess 5000.00 7000.00 8800.00

Infrastructure Cess 3000.00 4000.00 4050.00

If GST is on track and is to be implemented from 01.07.2017, how correct are the estimates for excise, customs and service tax for the whole year?

Assuming, the numbers are estimates based on existing assessees, without any change in the rate or levy, how can service tax increase by Rs.30,000 crores.

Any process amounting to manufacture or production of goods found place in the Negative List through Section 66D(f) from 01.07.2012.

Finance Act, 2015, w.e.f. 01.06.2015 substituted Section 66D(f) to provide for services by way of carrying out any process amounting to manufacture of production of goods excluding alcoholic liquor for human consumption.

Finance Bill, 2017 seeks to omit Section 66D(f). When the Finance Bill, 2017 receives the assent of the

President, any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption would be exempt from service tax under Entry 30, Notification No.25/2012.

Process amounting to manufacture or production of goods means a process on which duties of excise are leviable under Section 3 of the Central Excise Act, 1944 or the Medicinal and Toilet Preparation (Excise Duties) Act, 1955 or any process amounting to manufacture of opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force.

Intoxicating liquors, that is to say, the productions, manufacture, possession, transport, purchase and sale of intoxicating liquors’ falls under Entry 8 of the State List.

The Delhi High Court in the case of Carlsberg India Pvt. Ltd. Vs. UoI has held that

A manufacturing activity undertaken by an entity for itself cannot be said to be a service provided to anyone and definitely not to itself.

Activity of manufacture by the brand-owner who is also a license holder cannot be said to be liable to service tax.

Where manufacture of liquor for human consumption is not manufactured by license holder but by another entity holding the license and the cost of manufacture is reimbursed by the brand-owner, there is a service.

Manufacture of alcohol for human consumption on a contract basis has to be viewed as services rendered by one party to another and liable to service tax.

Power can be traced to Entry 97, Union List and does not fall within the State List.

Entry 51, State List envisages manufacture liquor for consumption but does not contemplate a situation of manufacture of liquor by one person or entity for another.

Taxable event is manufacture under Entry 51 which attracts State excise duty.

However when it is manufacture for another, in pith and substance, it is a service performed by one for another and does not fall under Entry 51 of the State List.

Does the amendment intend to cover plain manufacture of alcohol in addition to contract manufacture?

If that is the intention it would run counter to Entry 51, State List. Manufacture of excisable goods other than alcohol for human

consumption moves from Negative List to Exemption List. Manufacture is now considered as an exempted service. Rule 6 of the Cenvat Credit Rules and Rule 2(e) of the Cenvat Credit

Rules? Can a manufacturer discharging excise duty be considered as

providing exempt services for the purpose of cenvat credit? Unintended consequences?

Authority for Advance Ruling was introduced for the first time in the Income Tax Act by Finance Act, 1993 through Chapter XIX-B as a facility for non-residents to obtain advance ruling.

Advance Ruling for Indirect Taxes was introduced in Excise and Customs in 1999.

The provisions were extended to Service Tax in May 2003. The scope was widened to cover wholly owned subsidiaries,

public sectors, resident public limited company, private limited company and finally to firms, LLPs and even sole proprietors.

All applications pending before AAR (Central Excise, Customs and Service Tax) to be transferred to the AAR constituted under Section 245-O of the Income Tax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President.

Member of IRS (Customs and Excise) qualified to be a Member of Board shall be the Revenue Member of the AAR.

Increase in free from Rs.2,500 to Rs.10,000/-. Changes in time limit for the AAR to pronounce order.

“The sovereign right of the Government to undertake retrospective legislation is unquestionable. However, this power has to be exercised with extreme caution and judiciousness keeping in mind the impact of each such measure on the economy and the overall investment climate. This Government will not ordinarily bring about any change retrospectively which creates a fresh liability.”

FM’s Speech on 10.07.2014 – Para 10.

Nullification of the decision of the Delhi High Court in Suresh Kumar Bansal. The Delhi High Court in the landmark judgment of Suresh Kumar Bansal Vs.

Union of India (2016) 43 STR 3 has set aside the explanation introduced by Finance Act, 2010 to Section 65(105)(zzzh) in the context of construction of complex on the ground that the levy itself would fail if it does not provide for a mechanism to ascertain the value of the service component which is the subject of the levy. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure of tax that is the value of services which are charged to service tax. The Delhi High Court applied the principles laid down by the Supreme Court in the case of Govind Saran Ganga Saran Vs. CST (1985) 155 ITR 144; Mathuram Agrawal Vs. State of MP (1999) 8 SCC 667 and CIT Vs. B.C. Srinivasa Shetty (1981) 2 SCC 460.

Section 128 of the Finance Bill, 2017 seeks to amend the Valuation Rules with retrospective effect from 01.07.2010.

Any action taken or done at any time during the period specified in column 4 of the Sixth Schedule relating to the provisions as amended shall be deemed to be and deemed always to have been for all purposes as validly and effectively taken or done as if the amendment made by sub-section (1) had been in force at all material times.

Attempt to identify value of service element by excluding value of goods and land or undivided share of land as the case may be.

If the value cannot be determined and the gross amount include value of goods as well as value of land or undivided share of land, service tax on 25% of the gross amount subject to non-availment of cenvat credit and benefit under Notification No.12/2013 for the period 01.07.2010 to 30.06.2012.

Similar amendments for subsequent period including identification of 30% as the value from 01.03.2013 onwards.

Notification No.1/2006 and Notification No.26/2012 abatements now form part of the Valuation Rules.

Section 128(3) provides that Central Government shall have and shall be deemed to have the power to make Rules with retrospective effect as if the Central Government had the power to make Rules under Section 94 retrospectively at all material times.

Whether Section 128 of the Finance Bill can be considered as a validating amendment? Section 38A of the Central Excise Act. Positions taken based on Sureshkumar Bansal ? Whether retrospective amendment is correctly worded ? Whether categorization of the activity as works contract indicates death of the concept of

‘construction of complex’ ? When measure of tax is relevant, would levy of service tax on restaurants be valid given the

fact that there is no adequate mechanism for identifying the value of services is the question.

Rule 2C of the Service Tax Valuation Rules, presumes the value to be 40% without an alternate option of identification of actual value of services.

Can it be said that an arbitrary value without an option of ascertained value runs counter to the ratio laid down by the Supreme Court in the case of Wipro Ltd. Vs. AC (2015) 319 ELT 177 in the context of Customs Valuation?

Service tax exemption to taxable services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government, w.e.f. 02.02.2017.

Section 105 of the Finance Bill, 2017 seeks to provide retrospective exemption in respect of the aforesaid services for the period 10.09.2004 to 01.02.2016.

Upfront payment by way of premium or development charge to State Government Industrial Development Corporations for long term lease of industrial plots.

Questions arose as to whether the amounts constitute consideration towards renting of immoveable property.

Notices issued to various corporations. Demands raised by the corporation on licensees for service tax for the

past period. Views expressed by professionals that lump sum amount does not

constitute rent based on decisions such as Panbari Tea Co. Ltd., Sindhurani Chaudhrani.

Divergent views on the same issue in the context of Section 194-I.

Allahabad High Court in the case of Greater Noida Industrial Development Authority Vs. CCE (2015) 40 STR 95 held that we may not enter into the issue as to whether premium paid along with rent should form part of the total consideration for levy of service tax or not. If the Tribunal had held that only rent charged be considered for service tax it will not mean that the Tribunal has held that part of the same transaction was taxable and part of it was not taxable. The Tribunal has rightly held that for computation consideration should be confined to periodical rent.

Section 104 of the Finance Bill, 2017 provides that no service tax is leviable from 01.06.2007 to 21.09.2016 on one time upfront amount (premium, salami, cost price, development charge or by whatever name called) in respect of taxable service provided or agreed to be provided by a State Government Industrial Development Corporation or Undertaking to industrial units by way of grant of long term lease of 30 years or more.

From 22.09.2016, exemption is available in terms of Notification No. 41/2016.

Existing exemption for specified courses of IIM expanded. Originally exemption available for 2 year full time residential PG

Programme in management. Now even such courses which are non-residential are exempt. Service tax exemption in respect of services provided to the Government

by way of transfer of passengers by air embarking or terminating in the airport under regional connectivity scheme against consideration in the form of viability gap funding.

Exemption for 1 year from the date of commencement of operations of airport under the regional connectivity scheme as notified by the Ministry of Civil Aviation.

BCD, CVD, SAD and ED exemption in respect of

Micro ATMs as per standard version 1.5.1

Fingerprint reader / scanner

Iris scanner

Miniaturized POS card reader for mPOS (other than mobile phone or tablet computers)

Parts and components for manufacture of these devices are also exempted subject to actual user condition.

POS devices and all goods for manufacture of POS devices subject to actual user condition exempt from excise duty.

BCD on LNG reduced from 5% to 2.5%. BCD reduced from 5% to NIL on solar tempered glass for manufacture of solar panels,

cells, etc. subject to actual user conditions. Postal parcel packets and letters of CIF value not more than Rs.1,000/- per consignment

exempted from BCD, CVD and SAD. Concessional excise duty of 6% for various items required for initial setting up of fuel cell

based system for generation of power for demonstration purposes subject to condition. ED on motor vehicles falling under 8702 90 21, 90 22, 90 28 and 90 29 reduced from 29%

to 12.5% retrospectively from 01.01.2017. From 11.01.2017, Entry 277A, Notification No.12/2012 provides for 12.5% duty.

Articles of silver excluded from scope of CVD exemption under Notification No.12/2012. BCD on cashew nut roasted, salted or roasted and salted increased from 30% to 45% by

increasing the tariff rate from 30% to 45% w.e.f. 02.02.2017. 15% effective export duty on other aluminium ores and concentrates falling under 2606

00 90 w.e.f. 02.02.2017. Excise exemption for solar tempered glass used for manufacture of solar cells, solar

power equipment, etc. is withdrawn and duty imposed at 6%. Duty on parts for manufacture of these items reduced from 12.5% to 6%.

Additional duty of excise on cigarettes under FA2005 (known as ‘health cess’) increased

Excise duty on tobacco products increased. Duty on handmade paper rolled biris and machine made

paper rolled biris increased. AED on jarda scented tobacco, gutkha and chewing tobacco

increased. AED on pan masala and unmanufactured tobacco increased. Excise duty payable under compounded levy scheme in

respect of these products modified accordingly.

The person in-charge of a conveyance that enters India from any place outside India or any other person as may be specified shall deliver to the proper officer

Passenger and crew arrival manifest before the arrival of an aircraft or vessel

Passenger and crew arrival manifest upon the arrival of a vehicle

Passenger name record information of arriving passengers

Passenger name record information means records prepared by an operator of aircraft / vessel / vehicle or his authorised agent for each journey booked by or on behalf of any passenger.

Penalty not exceeding Rs. 50,ooo for violation. Similar provisions for conveyance that departs from India to a place

outside India.

Importer is required to present bill of entry before the end of the next day following the day (excluding holidays) on which the aircraft or vessel or vehicle arrives at the customs station where the goods are to be cleared – Amendment to Section 46

Availability of information and data for filing of bill of entry?

Impact on customs brokers. Bill of entry requires data from import manifest such as

rotation number, line number, receipt of carrier etc.

Importer shall pay the import duty On the date of presentation of bill of entry in the case of self

assessment or

Within one day (excluding holidays) from the date on which the bill of entry is returned by the proper office for payment of duty in the case of assessment, re-assessment or provisional assessment.

By such due date as may be specified in the case of deferred payment.

Non-payment within time would attract interest Earlier provisions provided for payment within two days

Transportation of goods by vessel – Changes prior to budget. Notification Nos. 02 to 04 of 2017 w.e.f. 22.01.2017. A Japanese car manufacturer enters into a global arrangement with a

Japanese Liner. Cars move from Japan to India by sea. Agent of the Japanese Liner in India files the IGM and issues DO under

Section 29 read with Section 148 of the Customs Act, 1962. Agent of the Japanese Liner in India is required to pay service tax under

reverse charge mechanism on the ocean freight. How to determine ocean freight amount in a CIF transaction between

supplier and customer? How to determine freight element when an agent of a feeder vessel files

IGM for the entire journey?

Section 17(3) of the Customs Act Proposed Section 17(3)

For verification of self assessment under sub-Section (2), the proper officer may require the importer, exporter or any other person to produce any contract, broker’s note, insurance policy, catalogue or other document whereby the duty leviable on the imported goods or export goods as the case may be can be ascertained and furnish any information required for such ascertainment which is in his power to produce or furnish and thereupon the importer, exporter or such other person shall produce such document or furnish such information.

For verification of self assessment under sub-Section (2), the proper officer may require the importer, exporter or any other person to produce any document or information, whereby the duty leviable on the imported goods or export goods as the case may be can be ascertained and thereupon the importer, exporter or such other person shall produce such document or furnish such information.

Concept of ‘importer on record’ Companies provide services to foreign companies who do not

have a base in India in order to take care of their supply chain in India; delivering the goods when the customer wants.

Goods are warehoused and then cleared as and when required. Beneficial owner means any person on whose behalf the goods are

being imported or exported or who exercises effective control over the goods being imported or exported.

Importer / exporter include beneficial owner. VAT?

Section 7 amended whereby certain post offices alone shall be considered as foreign post offices for clearance of goods.

Section 7 amended whereby certain places shall be identified as international courier terminals for clearance of goods.

Definition of customs station amended to include foreign post office and international courier terminals.

If international courier terminal is considered as a customs station in terms of Section 2(13), what would be the impact on Section 2(ab) of the CST Act?

Can there be a high sea sale of goods imported by courier? Can there be a document of title that can be transferred?

Research and Development Cess Act, 1986 proposed to be repealed w.e.f. 01.04.2017

R&D Cess at the rate of 5% has been discharged on Import of technology

Service tax relief by adjusting the 5% paid but resulting in lower cenvat credit

After enactment of Finance Act, 2017, exemption from service tax under Notification No.14/2012 amount equivalent to cess payable under R&D Cess Act will no longer be available

Service tax would be payable in full if applicable and credit will be available in full if eligible

The Tribunal in the case of HPCL Vs. CC (2015) 328 ELT 490 had held that where excess payment of duty has been made due to incorrect assessment, refund under Section 27 can be filed. CA certificate must explain how incidence of duty was not passed on to the buyer showing cost structure etc.

Section 27 of the Customs Act amended whereby unjust enrichment would not apply where there is excess payment of duty Which is evident from the bill of entry in case of self assessed bill of

entry

Duty actually payable is reflected in the reassessed bill of entry in the case of reassessment

Karnataka High Court in the case of CC Vs. Hewlette Packard India Sales Ltd. has held that prior permission is not required for transfer of credit.

Gujarat High Court in the case of Hindustan Coco Cola Beverages has held that on merger, unutilised cenvat credit gets automatically transferred to the amalgamated company and there is no necessity to file a refund claim.

Rule 10(4) inserted to Cenvat Credit Rules, to provide that transfer of cenvat credit shall be allowed within a period of 3 months from the date of receipt of application by the DC or AC

Extension for a further period not exceeding 6 months by the principal commissioner or commissioner

Rule 21 of Central Excise Rules amended to provide that the authority shall decide on remission of duty within a period of 3 months from the date of receipt of application by the DC or AC

Extension for a further period not exceeding 6 months by a higher authority

Explanation defining ‘value’ for the purpose of Rule 6(3) and 6(3A) amended.

Clause (e) to explanation provides that value shall not include value of services by way of extending deposits / loans / advances where consideration is represented by way of interest or discount.

Proviso added to this clause to provide that the said clause shall not apply to a banking company and a financial institution including a NBFC engaged in providing services by way of extending deposits / loans or advances.

The effect of the amendment is that interest or discount will also have to be considered as value of exempted services for applying the formula.

Option to reverse 50% of cenvat on input and input services under Rule 6(3B)

It is my privilege to inform this august house that the GST Council has finalized its recommendation on almost all the issues based on consensus and after spirited debates and discussions. The preparation of IT systems for GST is also on schedule. The extensive reach out efforts to trade and industry for GST will start from 1st April 2017 to make them aware of the new taxation system.” – para 178

“Centre through the Central Board of Excise and Customs shall continue to strive to achieve the goal of implementation of GST as per Schedule without compromising the spirit of cooperative federalism. Implementation of GST is likely to bring more taxes both to Central and State Government because of widening of tax net. I have preferred not to make many changes in the current regime of excise and service tax because the same are to be replaced by GST soon.” – para 179

As on date there is no legislation The June Model Law went through major changes in November

and still under discussions Pressure to migrate by referring to a non-existent Section 166 Can a business take a decision on registering various locations

when it has not yet taken a decision with reference to retaining or closing the location?

Can a service provider migrate and identify additional places in different States when the business model itself could shift to an IGST mode?

Is the industry ready? Is the administration solution viable?

Input Tax Credit contingent upon Possession of tax invoice / debit note/supplementary invoice or such other

prescribed document Receipt of goods and or services Tax charged in respect of supply and has been actually paid to the credit

of the appropriate government either in cash or through utilization of admissible input tax credit

Furnishing of return Time Limits

Supplier and recipient should match their outward and inward supply. Input credit for inward supply that matches with corresponding output

supply would be finally accepted and communicated. If there are discrepancies, they would be communicated. If not rectified, it shall become the output liability of the recipient.

Model law uses the term ‘prescribed’ in 262 places indicating a complex maze of Rules.

Model law uses the term ‘recommendation’ of the GST Council at 38 places indicating a massive set of notifications which would make the law very complicated.

Notifications under Section 3(4) based on recommendation of GST Council. Place of supply Time of supply 29 State + 7UT GST Laws and Rules CGST Law and Rules IGST Law and Rules Multiple returns A service provider who files two returns in a year is expected to go online and

provide data 37 times in a year. If TDS is applicable, it becomes 49 times in a year.

Is Indian trade ready for such technology based frequent data uploads with complexities of mismatch, loss of credit, downtime, power shortage and slow speeds.

IGST as a vehicle for movement of credit Elimination of tax as a cost Elimination of unwarranted business structures Equitable levy of tax across the supply chain Possible elimination of goods Vs. services dispute Freedom to source goods from any location Better credits Credits for traders and dealers in respect of services Better investment climate Higher compliance Increase in transparency

K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT

‘VENKATAGIRI’

Flat No.8/3 & 8/4, Ground Floor,

No.8 (Old No.9), Sivaprakasam Street,

T. Nagar, Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com

www.vaithilegal.com