88 Webinars held by various Zones from 1-7-2020 to 16-8-2020
Chairman at Various Webinars
Shri S. R. CA. H. M. Singhvi, CA. Anil Garg, Shri Ganesh Dr. Ashok Saraf, Dr. K. Shivaram Wadhwa, Adv., Jaipur - 21-7-2020 Indore - 22-7-2020 Purohit, Sr. Adv., Guwahati - Sr. Adv., Mumbai - New Delhi Sr. Adv., Jabalpur - 24-7-2020 25-7-2020 20-7-2020 23-7-2020
Dr. M. V. K. Moorthy, Hon'ble Mr. Justice Dr. M. V. K. Moorthy, CA. H. L. Madan, Dr. K. Shivaram, Adv., Hyderabad - J. K. Ranka (Retd.), Adv., Hyderabad - New Delhi - Sr. Adv., Mumbai - 25-7-2020 Jaipur - 26-7-2020 8-8-2020 9-8-2020 16-8-2020 Speakers at Various Webinars
CA. Annapurna Srikanth Shri Kapil Goel, Adv., Shri V. P. Gupta, Adv., Shri Ajay R. Singh, Adv., CA. Dhinal Shah, CA. Rajesh Mehta, - 1-7-2020 New Delhi - 20-7-2020 New Delhi - 21-7-2020 Mumbai - 22-7-2020 Ahmedabad - 23-7-2020 Indore - 24-7-2020
CA. Paresh P. Shah, CA. Hetal N. Shah, CA. Bharat Sachdev, Shri N. P. Jain, Adv., CA. Deepabali Das, CA. A. K. Srivastava, Mumbai - 25-7-2020 Bengaluru - 25-7-2020 Thane - 25-7-2020 Kolkata - 26-7-2020 Tumakuru - 8-8-2020 New Delhi - 8-8-2020
Shri N. P. Jain, Adv., CA. Unnikrishnan M., CA. Sriram K., CA. (Dr.) Girish Ahuja, Smt. Nikita R. Badheka, Shri Samir Jani, Kolkata - 8-8-2020 Trivandrum - 9-8-2020 Hyderabad - 9-8-2020 New Delhi - 16-8-2020 National President Secretary General
2 C O N T E N T S
Pg. 5 From the Editorial Board — Dr. M. V. K. Moorthy
Pg. 7 President's Communique — Nikita R. Badheka
Pg. 11 PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung — Paresh P. Shah
Pg. 19 Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB — Anilkumar Shah
Pg. 32 Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? — Rohit Kapoor
Pg. 37 The Battle of The “Taxes”? — Piyush Baid
Pg. 43 Stare Decisis — Vinayak Patkar
Pg. 48 Taxability of Plots under GST — Pradeep K. Mittal
Pg. 55 GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 — Mukul Gupta, Prateek Gupta & Akshi Narula
Pg. 73 Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts — Sandeep Goyal & Aanchal Goyal
Pg. 80 Digest of Advance Rulings Under GST — S. S. Satyanarayana
AIFTPJ - 491 AIFTP Journal August 2020 3 All India Federation of Tax Practitioners 215, Rewa Chambers, 31, New Marine Lines, Mumbai 400 020. • Tel.: 22006342/43, 49706343 • E-mail: [email protected] • Website: www.aiftponline.org
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4 AIFTP Journal August 2020 AIFTPJ - 492 From the Editorial Board
Dr. M. V. K. Moorthy, Advocate, Supreme Court
AIFTP – A NEW FACE The year 2020 has experience a changed outlook for Societies, Trusts as also Clubs incorporated under the respective statutes with the pronouncement of a celebrated and encomious decision of the Hon’ble Supreme Court by a Three Judge Bench. This decision obviously and indisputably impacted the liability to service tax as also income tax at the hands of the entities mentioned supra. This is how I have perceived a new look or face for the glorious federation in regard to its liability under the present GST regime as also the Income Tax under Income Tax Act,1961. To pen down further lines as a fortiori to my view are indispensable to be narrated. On 11th November 1976 the All India Federation of Tax Practitioners, herein after for brevity called AIFTP was incepted in the presence of towering personalities in Judiciary, Legal Profession as well as Accountancy. As is known to everyone, The stalwarts, a Treo namely Justice JC Shah of the Supreme Court, a renowned Jurist A Nani Palkiwala and a national reputed charted accountant N. C. Mehta and objects for which federation was founded as premier association of multi color fabric namely Advocates, Chartered Accountants, Tax Practitioners, Company Secretaries and Cost and Management Accountants, are laudable. It is thus a Unique organization with an inclusive concept. However AIFTP was registered under the provisions of Societies Act, 1860 and also under the provisions of Bombay Public Trust Acts, in 1996. Being public trust, AIFTP has been claiming exemption from payment of Income Tax by virtue of proceedings of exemption in terms of 12 of Income Tax Act. Service Tax for the first time was administrated in our country through Finance Act, 1994 and on the basis of the expansion of tax net, in respect of the amounts collected towards delegate fee in connection with organizing National Tax Conferences as well as National Tax Conventions. The federation was also required to take out a centralized registration for the purpose of payment of service tax. AIFTP is designed to function through five zones comprising of different states falling within the respective regions. While the taxation liability at the hands of federation stood on the lines explained above there has been a well textured revolution in indirect taxation by way of emergence of Goods and Service Tax Law on 01-07-2017.
AIFTPJ - 493 AIFTP Journal August 2020 5 | From the Editorial Board |
However even under GST regime, AIFTP has taken out registration under the Act and also been paying tax on the transactions of supposed supply of services to its enrolled members in large number and handsome of non members. Though the federation by virtue of registration under two different enactments, claimed the status of the society as well as a public trust at the same time and as already explained above in the status of registered trust, exemption from Income Tax was being claimed. At any point of time before the decision of Supreme Court by a Three Judge Bench in the case of State of West Bengal and Others Versus Calcutta Club Limited was pronounced and reported, the Doctrine of Mutuality Interest between the federation and its members, it was never considered to put forth a claim of exemption either from service tax or for that matter GST. It is well known fact, that federation is “for the members of profession, of the members and finally by the members”. Therefore as a matter of fact, a valid and justifiable claim of exemption from tax ought to have been put forth and maintained. However the reason behind perhaps might be payment of tax by virtue of collection from the members and other participants, despite a big rate of tax that ultimately impacted potentially the aspect of determination of delegate fees. Be that as it may, not being troubled to the discharge of liability, AIFTP comprising of professionals, a section of elite of the society, shall at least now consider as its duty to implement the principles of Law evolved by the Judiciary especially in the recent decision of three judge bench of Supreme Court as enshrined in Article 141 of the Constitution of India. Therefore let us keep aside the point of payment of GST on collection basis and employ all best and concerted efforts to give a new face to the organization with a beneficial share to the members that would in the final analysis slice down delegate fee at a reduced competitive cost. For this purpose through this editorial contribution, I would honestly suggest to the management to take up the issue with the Union Government including GST Council that would serve the members at large and there are considerable number of personalities to take care of the plea of federation for a positive and fruitful decision. JAI HIND
Dr. M. V. K. Moorthy, Member, Editorial Board mom
6 AIFTP Journal August 2020 AIFTPJ - 494 President's Communique
Nikita R. Badheka, Advocate
Dear Members, Battle with Covid-19 is on - Please do not miss to take utmost care - Although we all are looking forward to being active again as opening ups are being announced by individual State Governments, I am afraid we can’t afford to reduce the precautions which we must continue to follow strictly. I say so because it deeply saddens me to inform my dear members that an active secretary of South Zone Adv Shri M. A. Prakash succumbed to the Covid-19 on 23rd August 2020. One of the most active secretary of the Zone, whom many of you may have seen during the South Zone programmes. I am informed there are two or three more members of our Association who have left us for heavenly abode fighting Covid-19 battle. I am extremely sorry to inform that Mrs Pratima, wife of our regular column writer and Associate editor Shri C. B. Thakkar (Bombay) left for heavenly abode after fighting the battle against Covid-19, for more than one and half month on 18th August 2020. We pray Almighty to bestow eternal peace to the departed souls. Our deepest condolences to near and dear ones. We pray God to give their families strength to bear this irreparable loss. It is therefore extremely important for each of us, not for our own self but also for our near and dear ones that we continue to strictly follow the Government guidelines of wearing three ply face mask, washing hands frequently, maintaining 6 feet distance (Even when you meet your friends) and avoiding public crowded places. The hearings with any authority including appellate authorities can now be held through virtual mode. We will have to accept virtual mode of hearing as a way of life for many more months to come. The concept of Mutuality & Federation - The Editorial of this month is written by our Past President Shri M. V. K. Moorthy who has in a lucid language explained the application of the recent Larger Bench decision of Supreme Court in case of Calcutta Club to the Federation. The Committee is appointed to look into this aspect and we would shortly be making detailed representation to the Finance Minister & GST Council to clarify the stand of the Government in this aspect. We may have to challenge the provisions before High Court if the situation so demands. Faceless Assessment – a new step forward Recently the Hon’ble Prime Minister Shri Narendra Modi launched a platform for transparent taxation system and theme of honouring the honest.
AIFTPJ - 495 AIFTP Journal August 2020 7 | President's Communique|
The faceless assessment, faceless appeal and taxpayer charter are announced as a way forward. The hon’ble Prime Minister also announced that there would be no intrusive and survey action by the field officer. Only investigation wing and TDS wing can carry on the investigation, that too, after approval by the officer of the level of Chief Commissioner or above. The selection would be through the system. Implementation of this system would mean abolition of territorial jurisdiction. There will be no physical interface with the jurisdiction officer. Gone would be the days of frequent visits to the Income Tax Office. A very welcome step. However, the Income Tax Department will have to ensure that the proceedings are not abruptly closed for want of time and the assessees are given more than one E-hearing if the situation so demand. The original system of target based assessment and applauding the officer who created heavy demand (especially the demands which cannot stand the test of law) should be stopped immediately. We, as taxpayers and the tax consultants, are fully aware of the paper demand raised by some of the officers only to meet the target. The entire system formulated by this announcement appears to be very attractive. Especially the tax payers charter has specifically declared the commitment by the Income Tax Depart to the public at large, especially tax payers. They are directed to be fair, courteous and give reasonable treatment and professional assistance in all dealings to the tax payers. The tax payers are presumed to be honest unless there is reason to believe otherwise. For the first time, the Department is directed not to disclose any information provided by the taxpayer unless authorized by law and the officials are going to be held accountable for their action in implementing the citizen charter. While the commitment to the taxpayers is declared, the charter also specify what is expected from the taxpayer. The taxpayer is expected to be honest and complied. The most important expectation is that taxpayers should know what information and submission are made by his authorized representative. The taxpayer is also expected to be aware of his compliance obligation under the tax law and seek the help of the Department if needed apart from making regular tax payment and maintaining accurate record. Both faceless assessment and faceless appeal look attractive; however, as pointed out earlier, neither side should take advantage of the system. What is required is the change of mindset on both sides and an honest attempt by both sides, i.e., the authorities and the taxpayers, to implement and put in practice the system announced by the Prime Minister. This is the first taxpayer charter conceptualized by the taxpayer-friendly Government. However, in past we had citizen charter which remained a decorative piece in paper. The benevolent scheme and the system announced by the Government are at times made complicated by inserting numerous rules and formalities. Let’s hope we do not see the same fate of the scheme this time. In my personal opinion, the power of the officer passing hurried order at the fag end of the time- barring period should also be kept under rein. Such officers should be treated as erring officers. The power of rectification has remained untouchable for majority of the matters on account of the phrase “mistake apparent on record”. This phrase and the power of rectification have been viewed and interpreted differently by different Courts under different circumstances. In my opinion, a liberal approach is required so that just and fair treatment is meted out to the taxpayers. Many a times the submissions made on record are either considered or summarily dismissed by the concerned authorities without any reason. The order without reason should also be subjected to the scope of
8 AIFTP Journal August 2020 AIFTPJ - 496 rectification if the material, documents, evidence are already on record without detailed arguments. Non-consideration of the material on record should invite investigation of the officer. It is only when stern actions are taken against erring officers and dishonest taxpayers then the real object of the present scheme would be implemented. The department has been honouring the honest taxpayers; however, the medium level and smaller taxpayers who are honest and paying regularly the tax liability, in my opinion, deserve to be appreciated. The show cause notices issued so far at times had no base, nor they could prima facie stand the test of law, nonetheless the taxpayer has to go through rigmarole of filing appeal, second appeal etc. The Courts normally refuse to entertain writs at this juncture. This is creating a bad image and undue harassment to the genuine taxpayer. I sincerely hope we see a golden era where the taxpayer community increases many fold and the administrator behave in just, fair professional manner. While the taxpayer charter has taken care of the honest citizen, a very important suggestion, I would like to make is to give the social security pension to the taxpayer above 65 years of age, based on the amount of tax they have paid over years and may continue to pay. It would be a noble feature where the taxpayer would have greater incentive to pay due tax during their young age itself as they are assured of some return out of the said tax paid throughout their peak of their earning, in their old age. This would ensure due compliance by all citizens who are covered by the tax bracket. Representation for Indirect Taxation The Indirect Tax Representation Committee headed by Shri H L Madan is preparing a pre-budget memorandum to be submitted to the Hon’ble Finance Minister and GST Council. I request all the members to give their valuable suggestions and inputs my e mail to our Head Office so that we can make a meaningful representation. ([email protected] ) Activities of the Federation This would be perhaps the last month when we would be sending the e-journal to the subscribers. On account of lockdown and partial opening up, the Post Office which has been taking delivery of our journal has not been able to accept our journal for delivery. We hope in the month of September we would be able to deliver the hard copy of the journal. Meanwhile, may I request the members who have not paid the subscription so far, to renew their subscription at the earliest. I also invite the new members to subscribe for the journal as the journal gives them opportunity to keep themselves updated on Direct and Indirect Taxes as also to read the articles of the members from all over India. This would obviously widen the horizon and the views of the tax consultants of different parts of the country can be appreciated and applied by a member. Meanwhile, the Federation continues to hold free Webinars in the interest of the members. I am happy to inform that we would be soon crossing a century of webinars which have provided us the opportunity to make the presence of the Federation felt by the tax consultants in the remotest rural area of the Country. The zones have been able to reach to more than 500 members at a time, normally, to achieve our moto of spreading knowledge and education.
AIFTPJ - 497 AIFTP Journal August 2020 9 I must congratulate the Central Zone, Chairman Shri Vinay Jolly and his team, Vice President Shri Rajesh Mehta and ever enthusiastic senior member Shri Pankaj Ghiya to have maximum webinars with maximum participation. They have completed the certificate course of GST. The North Zone is going to start the certificate course on GST on 25th August 2020. The West Zone Chairman Shri Bhaskar Patel has announced a two-day National Conference, with free registration to all the members. I request all the members to join for a unique experience as for the first time ever the Principal Chief Commissioner of Income Tax NeAC, Dr. Pushpinder Puniha and the Joint Secretary, Government of India, Shri Kamlesh C. Varshney have agreed to be part of the active panellists for a session on ‘Faceless Assessment’’ charting a road map for a painless tax regime and seamless tax regime and compliance” along with renowned international tax expert Shri Mukesh Patel and our past president Sr. Adv. Shri Ganesh Purohit. The other subjects are also of prime importance for day-to-day practice of Direct and Indirect Tax. The North zone under the able leadership of Shri Asim Zafar is planning a two day NTC on 2nd and 3rd October 2020. The Central zone is planning a two-day National Tax Conference on 31st October and 1st November 2020. Dear Members, kindly continue to attend all our programs to enrich your knowledge. Let me appreciate that the inputs and the queries raised by the participants also help in enhancing and enriching the deliveries by the faculties. In my opinion, active participation by the delegates is the most important aspect for success of any programme. For all our future programmes kindly visit our website www.afiftponline.org. Stay safe, stay Blessed.
Nikita R. Badheka National President, AIFTP mom
10 AIFTP Journal August 2020 AIFTPJ - 498 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung CA Paresh P. Shah
1. Introduction in India, or that accrues or arises or is The determination of Indian tax liability of deemed to accrue or arise in India. a foreign enterprise has been a contentious 2.3 Section 9(1)(i) of the Act inter alia states and litigious matter under the Indian tax that income shall be deemed to accrue law regime. One of the issues involved or arise in India if it accrues or arises, is the determination of whether a foreign whether directly or indirectly, through enterprise is conducting its business in or from any ‘business connection’ in India through a permanent establishment India. The definition of Business (‘PE’), and the resultant Indian tax liability connection under the Act is continuously of the enterprise. Many foreign enterprises a subject matter of expansion and now have been involved in litigation with the it also includes a new phrase called Indian tax authorities over this issue since Significant Economic Presence. However, many years. This article briefly covers, in international tax treaties, the term by way of background, the concept and Permanent Establishment (PE) is a widely definition of PE and thereafter analyses the used concept used to determine the right most recent Supreme Court judgment in of the source country, i.e., to tax the the case of Samsung Heavy Industries Co. profits of a non-resident from a business Ltd. carried on by such non-resident in the source country. Nevertheless, the PE shall 2. Overview of PE be liable to be taxed in the source country 2.1 The general principle of taxation is that only to the extent of its business profits a person, who is resident of a country, which are attributable to such PE. The Tax would normally be taxable on its global payer has the choice to apply the Business income. However, as a rule of exception Connection test as is available under the to this general principle, a person may Act while comparing it with Permanent also be taxed in the country of source i.e., Establishment provision available under the place where the business of a person the applicable Tax treaty. is carried on, though he may be a resident of another country. 2.4 In the context of the Transfer Pricing Provisions as per section 92F(iiia) of the 2.2 Section 5 of the Income-tax Act, 1961 (‘the Act, ‘Permanent Establishment’ includes Act’) provides that a non-resident shall be a fixed place of business through which liable to income-tax only on the income, the business of the enterprise is wholly that is received or deemed to be received or partly carried on. This is similar to
AIFTPJ - 499 AIFTP Journal August 2020 11 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
the definition as found in most of the Convention are given here under for Treaty whereas Sec 9 while dealing with convenience: the general attribution rule employs the Business Connection test which is more 5.1 For the purposes of this Convention, the wider than the test of PE as laid down term “permanent establishment” means under the Tax Treaty. a fixed place of business through which the business of an enterprise is wholly 2.5 Further, as per section 90 of the Act, or partly carried on. the Central Government has the power to enter into an agreement with other 5.2 The term “permanent establishment” country for avoidance of double taxation includes especially: or for the exchange of the information or a) a place of management; for recovery of Income Tax under this act (‘DTAA’ or ‘Tax Treaty’). b) a branch; Also, as per section 90(2) of the Act, if c) an office; the DTAA provisions are more beneficial d) a factory; to a Tax Payer than the provisions of the Act, then he may choose to apply DTAA e) a workshop, and provisions. Therefore, the provisions of DTAA will supersede the provisions of the f) a mine, an oil or gas well, a Act to the extent they are more beneficial quarry or any other place of to the assessee. extraction of natural resources. In these DTAA agreements, the broad 5.3 A building site or construction or definition of Permanent Establishment installation project constitutes a has been elucidated and most of India’s permanent establishment only if it lasts agreements have adopted the definition of more than twelve months. OECD’s Model Tax Convention on Income 5.4 Notwithstanding the preceding and on Capital. provisions of this Article, the term 2.6 Article 5 of both the “Organisation for “permanent establishment” shall be Economic Co-operation and Development deemed not to include: (OECD) Model Tax Convention” and the a) the use of facilities solely for the “United Nations Model Double Taxation purpose of storage, display or Convention (UN Model)” defines the delivery of goods or merchandise term PE, and this definition has been belonging to the enterprise; adopted by countries globally in their tax treaties. The main purpose of tax treaties b) the maintenance of a stock of is to encourage international trade and goods or merchandise belonging commerce by avoiding double taxation, to the enterprise solely for the eliminating tax avoidance and providing purpose of storage, display or certainty by clearly delineating the taxing delivery; rights of each jurisdiction. c) the maintenance of a stock of 2.7 Definition of PE: goods or merchandise belonging to the enterprise solely for the Relevant extracts of the definition of purpose of processing by another PE as per Article 5 of OECD Model enterprise;
12 AIFTP Journal August 2020 AIFTPJ - 500 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
d) the maintenance of a fixed place of employees or other personnel business solely for the purpose of engaged by the enterprise purchasing goods or merchandise for such purpose, but only if or of collecting information, for the activities of that nature continue enterprise; (for the same or a connected project) within a Contracting e) the maintenance of a fixed place of State for a period or periods business solely for the purpose of aggregating more than 183 carrying on, for the enterprise, any days in any 12-month period other activity; commencing or ending in the f) the maintenance of a fixed place of fiscal year concerned. business solely for any combination of It may be noted that usually, in most activities mentioned in subparagraphs treaties, the provisions relating to Service a) to e), PE are included in Article 5(2) itself. provided that such activity or, in the It may be noted that Article 5(2) starts case of subparagraph f), the overall with the words “The term ‘permanent activity of the fixed place of business, is establishment’ includes especially” and of a preparatory or auxiliary character. then goes on to list various types of fixed places of business and also includes the 2.8 Concept of Service PE: supervisory nature of activities or the 2.8.1 The concept of Service PE was first furnishing of services through employees inserted in the U.N. Model Tax without actively specifying whether such Convention in 1980 under which services PE requires fixed place or not. provided by a non-resident may give 2.8.3 Thus, the issue often arises is whether rise to a PE. This concept has led to a Service PE requires a fixed place of controversy whether a Service PE requires business and whether it requires physical a fixed place of business in the source presence of employees. The controversy country. India’s tax treaties e.g. with UK, emanates due to interpretation of whether USA also provide for clauses relating to Article 5(1), which defines PE as a fixed Service PE. place of business in the source country 2.8.2 The relevant Article 5(3) of the U.N. Model is independent of Article 5(2) although is given below: Article 5(2) uses the words “includes especially” while providing for inclusions 3. The term “permanent establishment” to the definition of PE. also encompasses: In the case of ABB FZ-LLC [(2017) (a) A building site, a construction, 83 taxmann.com 86], the Tribunal assembly or installation project observed that Article 5(2) of the India- or supervisory activities in UAE Tax treaty broadened the scope connection therewith, but only of Article 5(2). Therefore, Article 5(2) if such site, project or activities was not a prerequisite to fulfilling the last more than six months; requirement of Article 5(1), as Article 5(2) is independent of Article 5(1) and the (b) The furnishing of services, condition of fixed place of business is not including consultancy services, attached. Accordingly, it determined that by an enterprise through
AIFTPJ - 501 AIFTP Journal August 2020 13 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
ABB FZ had a Service PE and held that in the source country. However, with the presence of employees is not required advances in technology, the concept of a in the source country for a Service PE to fixed base seems to be out of touch with exist. The rationale behind the Tribunal’s today’s business practices and hence there decision appears to be contrary to the is a discerning trend amongst various concept of tax neutrality between a sale jurisdictions to move towards taxing of of goods and provision of services. Profit such digital or electronic services. Recent arising from a transaction that involves a E.U. proposals to tax the income of U.S.- simple sale of goods from a non-resident based digital companies, such as Amazon is not taxable in the source country in and Google, reflect a similar approach. the absence of a PE of such non-resident seller. By similar reasoning, services 2.9 Dependant Agency PE and Independent performed outside India for an Indian Agency PE: resident should also be free of tax in India, 2.9.1 A Dependent Agency PE (‘DAPE’) is if only to preserve similar treatment for created when an enterprise resident of sales and services. a contracting state becomes taxable in The Johannesburg Tax Court also reached another host country on its business a similar conclusion in AB LLC and BD profit, if it is represented by an agent Holdings LLC v. Commr. SARS, [(13276) in the host country, and the agent has 2015 ZATC 2] when it observed that, by and habitually exercises an authority to using the phrase “includes especially”, conclude the contract. The provisions the drafters of the treaty intended that the relating to DAPE are stipulated in Article factors referred to in Article 5(2)(k) of the 5(5) of the OECD Model. Article 6(6), U.S. – South Africa Tax treaty be made which deals with Independent Agent, part of the definition referred to in Article states that Article 5(5) shall not apply 5(1); otherwise, they would not have used where the person acting in a Contracting the words “includes especially.” The Tax State on behalf of an enterprise of Court, therefore held that the contents of the other Contracting State carries on Article 5(2)(k) must be read as an integral business in the first-mentioned State as part of Article 5(1). an independent agent and acts for the enterprise in the ordinary course of that Based on this analysis, an enterprise business. becomes liable for taxation in the non- resident country as soon as its activities 2.9.2 When determining the profit attributable fall within the ambit of Article 5(2)(k). to the DAPE, it would logically follow There is no need to examine whether a that if the DAPE is paid for its services fixed place of business exists under Article equivalent to what would have been 5(1). payable to an Independent agent, then no further attribution of income or profits 2.8.4 To conclude, the Service PE clause was may be required to be made on the DAPE. first inserted in the U.N. Model Tax However, jurisprudence and OECD Convention in 1980 when electronic commentary in this regard differs with commerce was unheard of. It is therefore this interpretation. understandable that the drafters did not intend to impose tax on services 2.9.3 In the case of Set Satellite (Singapore) provided there was no physical presence [2007 106 ITD 175 Mum], it was observed that in respect of the DAPE, the issue to
14 AIFTP Journal August 2020 AIFTPJ - 502 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
be addressed is one of determining the Arrangements and Similar Strategies” profits of the non-resident enterprise and “Artificial Avoidance of Permanent which are attributable to its dependent Establishment Status through the Specific agent PE in the host country (i.e., as a Activity Exemptions” respectively. The result of activities carried out by the Government of India, on 6th June 2017, dependent agent enterprise on the non- has provided the provisional list of resident enterprise's behalf). For this expected reservations and notification situation, Article 7 will be the relevant pursuant to Article 28(7) and 29(4) of article. Further, the quantum of that the MLI, and India has accepted certain profit is limited to the business profits provisions of Articles 12 and 13 of the attributable to global trading operations MLI. performed through the PE in the host country. Accordingly, in order to attribute 3. Supreme Court Judgment in the profits to the DAPE, the arms’ length principle as per the authorized OECD case of DIT-II New Delhi Vs approach involving a FAR analysis i.e. Samsung Heavy Industries Co. functions undertaken, assets used and Ltd. [DIT New Delhi Vs Samsung risks assumed should be followed. (Civil Appeal No. 12183 of 2016)] 2.10 PE and BEPS Action Plan & MLI: 3.1 This recent judgment of July 2020 is concerned with the preparatory or 2.10.1 As part of the OECD/G20 Base Erosion auxiliary activities exception to permanent and Profit Shifting (BEPS) Project, the establishment, otherwise known as the OECD has published in Oct. 2015 its specific activity exemption. The case final report on Action Plan 7 “Preventing involves the India – Korea DTAA. the artificial avoidance of permanent establishment status” (BEPS Report). As per Article 7(1) the said DTAA, the Action Plan 7 contains changes to business profits of such enterprise would the definition of PE to prevent its generally be taxable only in Korea, artificial circumvention, e.g., such as unless the enterprise engages in business arrangements through which taxpayers through a PE situated in India. In such a replace subsidiaries that traditionally case, the profits of enterprise would be acted as distributors, by commissionnaire taxable in India as well. However, only arrangements, with a resulting shift of that portion of the profits which can be profits out of the country from where the attributed to the Indian PE may be taxed sales took place, without a substantive in India. For this, the Indian Revenue has change in the functions performed in that to first establish that there is a PE of the country. enterprise in India. Facts of the case 2.10.2 Action Plan 15 provides an analysis of 3.2 legal issues related to the development 3.2.1 In 2006, the Oil and Natural Gas of a multilateral instrument (MLI) Corporation, a state-owned enterprise to enable countries to streamline the of the government of India, awarded implementation of the BEPS treaty a turnkey contract to a consortium measures. Accordingly, Article 12 and comprising of Samsung Heavy Industries Article 13 of the MLI deal with “Artificial (‘Samsung’), a company incorporated in Avoidance of Permanent Establishment South Korea, and an Indian company. Status through Commissionnaire
AIFTPJ - 503 AIFTP Journal August 2020 15 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
3.2.2 The scope of the contract was to carry of the revenues allegedly earned outside out work, inter alia, of surveys, design, India as the profit attributable to the engineering, procurement, fabrication, permanent establishment in India. The installation and modification at existing order of the assessing officer was upheld facilities, and start-up and commissioning by the Dispute Resolution Panel. of the entire facilities covered under the Tax Tribunal ruling Vasai East Development Project. 3.4 3.2.3 Samsung set up a project office in Mumbai 3.4.1 In appeal by Samsung, the tribunal relied to act as a communication channel with on an application that was submitted by the Oil and Natural Gas Corporation Samsung to the Reserve Bank of India for for the project. Pre-engineering, survey, the registration of the project office. The engineering, procurement, and fabrication application referred to a board resolution activities took place abroad. of the company for opening the project office in India, which stated that “the 3.2.4 Samsung ’s India income tax return company hereby open one project office declared a loss in relation to its activities in Mumbai, India for coordination and carried out in India. execution of Vasai East Development Project”. The tribunal held that it was Assessment Officer’s findings 3.3 clear from the board resolution that the 3.3.1 The assessing tax officer issued a show project office was opened for coordination cause notice, alleging that Samsung’s and execution of the project. It then held offshore supply and services should be that the project office was a fixed place of taxed in India as they were attributable business of Samsung Heavy Industries in to a permanent establishment in India. India. According to the assessing officer, the 3.4.2 Samsung argued that even if there was project office was involved in the core a permanent establishment, the activities activity of execution of the project the of the permanent establishment met the designing or fabrication of materials and test of preparatory or auxiliary activities therefore was a permanent establishment in Article 5.4. The tribunal rejected this of Samsung in India within the meaning argument, stating that the onus of proving of Article 5.1 of the India-Korea DTAA. that the activities were preparatory or 3.3.2 Samsung argued that the offshore supply auxiliary was on Samsung and that it and services were not attributable to brought no material on record to prove the permanent establishment in India as this fact. the project office was acting as a mere Samsung produced the accounts of communication channel and therefore the project office to demonstrate that was used merely for preparatory and there was no expenditure related to auxiliary activities which are specific the execution of the project. Samsung exempt activities. also demonstrated that only two people 3.3.3 However, the assessing officer alleged worked in the project office, neither of that the project in question was a single, whom was qualified to perform any indivisible “turnkey” project which could core activity of Samsung. The tribunal not be split up and, therefore, the entire rejected these arguments, stating that the profit from the project should be taxable accounts were in the hands of Samsung in India and accordingly attributed 25% and that the mere mode of maintaining
16 AIFTP Journal August 2020 AIFTPJ - 504 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
the accounts alone cannot determine the modification of existing facilities for Oil character of a permanent establishment. and Natural Gas Corporation above”. 3.4.3 The tax tribunal, however, remanded the The Supreme Court stated that the matter back to the tax officer to reconsider findings of the tribunal were perverse to the deemed profit of 25% attributed by the the extent of its conclusion that the project tax officer to the permanent establishment. office was involved in the core activity of The tribunal found that there was execution of the project and that merely insufficient information on record to maintaining accounts cannot determine ascertain the extent of business activities the character of permanent establishment. carried on by Samsung Heavy Industries through the project office. 3.6.4 The Supreme Court thus concluded that the activities performed by the project 3.5 High Court ruling office were of auxiliary nature as the project office acted as a communication The Uttarakhand High Court allowed the channel between Samsung and ONGC. appeal only on the question of whether In deriving the above conclusions, the the tax officer used an arbitrary profit Supreme Court relied on its rulings in rate of 25% without examining whether Morgan Stanley & Co. Inc. and E-Funds it was attributed to the activities of the IT Solutions, Inc., where, depending on permanent establishment. According to the specific facts of the case, certain back the High Court, neither the tax officer nor office and support functions were held the tribunal made any effort to bring on not to give rise to a fixed place permanent record any evidence to justify this figure. establishment. Supreme Court ruling 3.6 3.7 Key takeaways 3.6.1 In appeal by the tax department in the 3.7.1 In addition to the current judgment in Supreme Court, the tax department the case of Samsung, there have been again argued that the project office was quite a few landmark judgments on the connected with Samsung’s core business. matter of fixed place PE viz. DIT Mumbai 3.6.2 However, Samsung reiterated that the v. Morgan Stanley & Co. (2007) 292 ITR Mumbai project office consisted of only 416, CIT v. Hyundai Heavy Industries Co. two employees, neither of whom had Ltd. (2007) 7 SCC 422, Ishikawajma-Harima any technical qualifications to execute the Heavy Industries Ltd. v. DIT Mumbai (2007) project. Further, the project office accounts 3 SCC 481 and ADIT New Delhi v. E-Funds demonstrated that it had not incurred any IT Solution Inc. (2018) 13 SCC 294. expenditure for execution of the project. 3.7.2 A reading of the aforesaid judgments 3.6.3 The Supreme Court relied on the makes it clear that when it comes to board resolution enclosed with the “fixed place” permanent establishments application to the Reserve Bank of India under DTAAs, the deciding factors are as for the registration of the project office, follows: which stated that the project office was a) The condition precedent for established for coordinating and executing applicability of Article 5(1) of the “delivery of documents in connection DTAA and the ascertainment of with construction of offshore platform a “permanent establishment” is
AIFTPJ - 505 AIFTP Journal August 2020 17 | PERMANENT ESTABLISHMENT – Analysis of Supreme Court Judgment in the case of Samsung |
that it should be an establishment The reliance by the Supreme Court on “through which the business of the Reserve Bank of India permission is a an enterprise” is wholly or partly significant development in jurisprudence carried on. relating to the interpretation of permanent establishment. Both of the above rulings b) The profits of the foreign enterprise demonstrate that assessees having a are taxable only where the said project office or liaison office should enterprise carries on its core perform activities within the realm of the business through a permanent permission of the Reserve Bank of India. establishment. 3.7.4 The rulings also highlight the importance c) The maintenance of a fixed place of of a taxpayer’s ability to demonstrate, business which is of a preparatory through appropriate documentation, or auxiliary character in the trade that activities performed by it are or business of the enterprise would indeed preparatory or auxiliary. Also, not be considered to be a permanent the Supreme Court reiterated that the establishment under Article 5. onus of proving that a taxpayer has a d) It is only so much of the profits of permanent establishment in India is on the enterprise that may be taxed in the tax authorities and not the taxpayer. the other State as is attributable to that permanent establishment. 4. Conclusion and Post MLI position 3.7.3 The current ruling of Samsung as well India and Korea has adopted an option the ruling in UAE Exchange Center A as provided in Article 13 dealing demonstrates that the test of ‘preparatory with the specified activities that do not or auxiliary’ activities is very factual. constitute PE and fact pattern of this In this case of Samsung, the Supreme case does not even trigger application of Court relied on the Reserve Bank of the anti-fragmentation rules and hence India registration and the accounts of the there is no avoidance of the PE through project office to determine the scope of the specific exemption activities. In view of activities of the project office. Even in the the above the decision the case will not UAE Exchange Center case, the Supreme be impacted by the MLI as the activities of Court relied on permission granted by the Samsung is limited to the one covered the Reserve Bank of India (among others) in the exempted activities. in concluding that the activities of UAE mom Exchange Center’s liaison office in India were ‘preparatory or auxiliary.’
18 AIFTP Journal August 2020 AIFTPJ - 506 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB CA Anilkumar Shah
1. Relevant sections in brief 2(24)(xviii) assistance in the form of 1.1 Voluntary contributions are made taxable a subsidy or grant or cash incentive vide the definition of income under or duty drawback or waiver or Section 2(24) (iia) which reads as under- concession or reimbursement (by whatever name called) by the 2(24)(iia) Voluntary contributions received Central Government or a State by a trust created wholly or partly for Government or any authority or charitable or religious purposes or by an body or agency in cash or kind to institution established wholly or partly the assessee other than,— for such purposes or by an association or institution referred to in clause (21) (a) the subsidy or grant or or clause (23), or by a fund or trust or reimbursement which is institution referred to in sub-clause (iv) taken into account for or sub-clause (v) or by any university or determination of the actual other educational institution referred to in cost of the asset in accordance sub-clause (iiiad) or sub-clause (vi) or by with the provisions of any hospital or other institution referred Explanation 10 to clause (1) of to in sub-clause (iiiae) or sub-clause (via) section 43; or of clause (23C) of section 10 or by an (b) the subsidy or grant by the electoral trust. Central Government for the Explanation — For the purposes of this purpose of the corpus of a sub-clause, "trust" includes any other legal trust or institution established obligation. by the Central Government or a State Government, as the Apparently this covers the donations to case may be; the corpus fund also. 2) Section 11(1)(d) contains a specific 1.2 However, exceptions are carved out for provision as follows- [inserted by donations to corpus fund which are as Finance Act 1989 w. e. f. 1-4-1989] follows- Income from property held for 1) Section 2(24)(xviii) refers to charitable or religious purposes. assistance from Govt. but excludes the same towards corpus 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not
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be included in the total in minds of some ITOs income of the previous year regarding the provision of the person in receipt of the against the accumulation income— of income in excess of 25%, contained in s. 11(1) (d) income in the form of of the IT Act. It may be voluntary contributions clarified that the provisions made with a specific in s. 11(1), prohibiting direction that they accumulation of income in shall form part of the excess of 25% apply only corpus of the trust or to the income derived from institution. property held under trust, 3) Section 12 (1) [Originally Sec.12 but such restrictions are not only which was numbered sub applicable to capital receipts. section (1) by Finance Act 2000 The donations received by w.e.f.1-4-2001] reads along with its a charitable trust from the heading as follows – members of the public, being capital receipts, cannot be Income of trusts or institutions from regarded as income of contributions. the trust. Accordingly, the 12. (1) Any voluntary donations received by the contributions received trust should be excluded from by a trust created wholly the income of the trust for the for charitable or religious purpose of calculating the purposes or by an institution accumulation limit of 25% established wholly for except in cases covered by s. such purposes (not being 12(2) of the Act. contributions made with a 2. The above position will also specific direction that they be clear from s. 12(2) of the shall form part of the corpus IT Act, which specifically of the trust or institution) provides that contributions shall for the purposes of made to a charitable trust section 11 be deemed to be by another trust, to which income derived from property the provisions of s. 11 apply, held under trust wholly should in the hands of the for charitable or religious trustee, be deemed to be purposes and the provisions income derived from property of that section and section 13 for the purposes of s. 11. shall apply accordingly. Such contributions should, 4) There is an old clarificatory Circular of course, be included in the No. F. NO. 20/10/67-IT(AI) DT. 1st total income of the receiving MAY, 1967 as follows- trust for the purpose of applying the limit of 25% 1. There appears to be certain under s. 11(1) of the IT Act. amount of misconception
20 AIFTP Journal August 2020 AIFTPJ - 508 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
2. The issue of donors who have given specific direction to Although the law and the clarificatory circular accumulate interest on corpus fund donated by provides that the donations to the corpus of a them in respect of interest added to the corpus trust is a capital receipt and hence not taxable, during the relevant year, period specified by the Dept. tries to tax the voluntary contributions them etc. and evidences supporting the same. or donations to the corpus of a trust especially The AO added the same to income and taxed. the donations to the trusts which are not registered under section 12A/AA. 3.1 The first appeal before CIT(A) The CIT(A) gave consolidated order dt. The donations to the corpus fund have been 02/02/2016 in favour of the trust and allowed held as exempt being a capital receipt and hence both the items as exempt. In the well-reasoned not taxable. order passed by learned CIT(A), crux of the reason given was – There are practically umpteen number of cases reported in this matter with many facets covered I carefully examined the captioned issue. On a plain in each one in the matter right from what is reading of section 12 of the Act, it is obvious that voluntary contribution deciding even when it any voluntary contribution which is made with a is not expressly conveyed by written direction specific direction that it shall form part of the corpus by the donor, and going to the extent of treating of the trust would not be deemed to be income even the income earned on the corpus fund also derived from the property held by the trust and it exempt treating it as part of the corpus. But, the cannot be treated as income of the receiving trust matter of trusts not registered under the Act for the purpose of section 11(1)(d) as well. When the remained controversial at least for the Dept. voluntary contribution made with a specific direction that it shall form part of the corpus of the trust itself There is an old judgment of Hon. Supreme cannot be treated as income both u/s 11 and u/s Court in the case of R. B. Shreeram Religeous 12 then how the interest earned on such voluntary and Charitable Trust (1988) 233 ITR 53. A contribution kept in term deposits with banks could detailed discussion is made on the issue of be treated as income of the trust. corpus donations and various High Court decisions are considered. However, while In the reasons the CIT(A) also explained that dismissing the appeal it did not specifically the corpus fund by way of fixed deposits is address the issue of corpus donations and has property held in trust and income earned till the not made any categorical statement to deviate time the fund is actually used is also exempt. He from those High Court decisions and thus left relied on the following judgments in holding the the issue open. assessee eligible for the said exemption- CIT v. Vanchi Trust & Another (127 ITR 227) (Ker) 3. The case of Mata Amrithanandamayi Math CIT v. Sthanakvasi Vardhanman Vanik Jain Sangh First case is of a trust called Mata (260 ITR 366(Guj)) Amrithanandamayi Math, for the assessment CIT v. Haryana CM Relief Fund (309 ITR 275 years 2007-08 to 2009-10 and 2012-13. The trust (P&H)) received donations of ` 6,99,89,712 over a period and earned interest of ` 37.76 crores and both CIT v. Punjab Energy Development Agency (323 were claimed exempt. The letters from donors ITR 463 (P&H)) were submitted with details like total number
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In one of the grounds the Dept. contended that, 3.2 Second appeal before Hon. ITAT Cochin Dept. went in appeal before the Hon. ITAT Intention of the donor can be restricted only to Cochin. which upheld the order of the CIT(A) the amount of corpus donations made and not the and answered specific grounds taken by the income earned thereon. There is no such restriction Dept. in negative as follows- in the Income Tax Act whatsoever and therefore that ground is also not sustainable. Unless the income is 6.4 In the Grounds of Appeal, in point 2(a), the received in a particular year, it cannot be applied. Department has taken a stand that neither The interest from corpus deposits is also taken the the intention of the donor nor the objects of corpus fund and hence the assessee had rightly the trust will be fulfilled since both the capital excluded the interest income on Term Deposits with and interest will not be applied for the objects Bank which were accrued but not due. This is being of the trust in the interest of beneficiaries and consistently followed by the assessee. continue to remain unutilised perpetually. This argument is incorrect since the mandate The CIT(A)’s reason against the said contention is for specific number of years for which period was – alone the interest gets added to the corpus. In ITO v. Shrisachyaya Mataji Trust Osian, Jodhpur Thereafter the interest on such corpus becomes ITA No.538/Jodh/2013, dated 09/05/2014, the available for the objects of the trust. Therefore, Jodhpur bench of ITAT held that if a voluntary this argument of the department is incorrect. contribution is made with a specific direction, it 6.5 In Ground 2(b) the department has taken a shall be treated as capital of the trust for carrying stand that there is no provision under the on its charitable or religious activities. Then such an Income Tax Act which exempts interest income falls under section 11(1)(d) as is not liable income out of deposits made out of the corpus to tax. If the intention of the donor is to give that donations u/s 11(1)(d) of the IT Act. In the money to a trust to keep in trust the account in case of the assessee: the issue is not with deposit and utilise the income therefrom for carrying regard to exempting interest income out of on a particular activity, it satisfies the definition part the deposits made of corpus funds, but the of the corpus. The assessee would be entitled to the question is whether the interest earned on benefit of exemptions from payment of tax. such corpus donations kept as deposits with The CIT(A)’s conclusions were as follows- a specific mandate to accrue the interest on the principal, would not amount to the corpus i) The interest got added on to the deposit itself by virtue of an overriding title created as by virtue of specific directions to do so and a result of the mandate. both the principal and interest continuously remained with the bank. 6.6 In Ground 2 (c), the department has taken a ground that intention of the donor can ii) The income does not reach the hands of the be restricted only to the amount of corpus assessee as it gets added on to the deposit. In donations made and not the income earned other words, income should actually be earned thereon. There is no such restriction in the and cannot be due from, which is a notional Income Tax Act whatsoever and therefore income and cannot be actually spent for that ground is also not sustainable. Unless charitable purposes. the income is received in a particular year, it iii) It is not the case of the AO that the assessee cannot be applied. The interest from corpus had failed to bring out documentary evidence deposits is also taken to the corpus fund and for donations received and mandate given. All hence the assessee had rightly excluded the these were verified by the AO. interest income on Term Deposits with Bank
22 AIFTP Journal August 2020 AIFTPJ - 510 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
which were accrued but not due. This is being After considering the facts, the Hon. High Court consistently followed by the assessee. ruled as follows- 6.7 In ITO v. Shrisachyaya Mataji Trust Osian, We are of the view that the question that is framed Jodhpur ITA No.538/Jodh/2013, dated has to be answered in the light of Section 11(1)(d) of 09/05/2014, the Jodhpur bench of ITAT held the Act. A reading of Section 11 shows that subject that if a voluntary contribution is made with a to the provisions of Sections 62 and 63, the incomes specific direction, it shall be treated as capital enumerated therein shall not be included in the total of the trust for carrying on its charitable or income of the previous year of the person in receipt religious activities. Then such an income falls of the income. The person in receipt of the income, under section 11(1)(d) as is not liable to tax. insofar as these cases are concerned, is the respondent If the intention of the donor is to give that assessee. One of the income that is enumerated money to a trust to keep in trust the account in clause (d) of sub-Section (1) of the Section is in deposit and utilise the income therefrom for the income in the form of voluntary contributions carrying on a particular activity, it satisfies made with a specific direction that they shall form the definition part of the corpus. The assessee part of the corpus of the trust or institution. The would be entitled to the benefit of exemptions fact that the donors had instructed that the interest from payment of tax. earned shall be added to the corpus of the trust is undisputed. If that be so, the interest earned on the 7. In view of the aforesaid reasoning and the contributions already made by the donors would judicial pronouncements, we hold that the also partake the character of income in the form CIT(A)'s order is correct and in accordance of voluntary contributions made with a specific with law no interference is called for. It is direction that they shall form part of the corpus of ordered accordingly. the trust. If that be so, conclusion is irresistible that ACIT v. Mata Amrithanandamayi Math, (2016) the Tribunal has rightly held that the interest earned 48 CCH 0503 Cochin Trib, ITA No 185 to 188/ would qualify for exemption under Section 11(1)(d) Coch/2016 of the Income Tax Act. CIT (Exemption) v. Mata Amrithanandamayi Math 3.3 Appeal before Hon. High Court of Kerala Amritapuri, (2017) 99 CCH 0449 KerHC The common questions of law framed for the consideration of the Court were the following: 3.4 SLP before Hon. Supreme Court 1. Whether the ITAT has erred on facts and Dept. further went before Hon. Apex Court law in treating the interest on corpus with a SLP and after condoning the delay and funds received by the assessee as corpus hearing, Hon. Court dismissed the SLP saying donations u/s. 11(1)(d) of the IT Act, to that- be exempt from Income Tax while section We do not find any ground to interfere with the 11(1)(d) covers donations with specific impugned order(s). direction that they shall form part of corpus and not interest thereon since it CIT (Exemption) v. Mata Amrithanandamayi Math will result in exemption to interest in Amritapuri, (2018) 102 CCH 0050 ISCC, (2018) 256 perpetuity defeating the legislative intent? TAXMAN 0062 (SC), dt. 14-5-2018 2. Whether voluntary contributions received In Kunhayammed and others v. State of Kerala and by a trust with specific direction that they Another 2000 AIR (SC) 2587 – Hon. Apex Court shall form part of the corpus includes has ruled about effects of dismissal of SLP that interest accruing/credited on deposits from above donations?
AIFTPJ - 511 AIFTP Journal August 2020 23 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
An order refusing special leave to appeal may the Hon. High Court order, but without a stay be a non-speaking order or a speaking one. to the HC order. In either case it does not attract the doctrine of merger. An order refusing special leave to The High Court order available on its portal is a appeal does not stand substituted in place of the very short and reads as follows- order under challenge. All that it means is that The respondent/assessee is admittedly a Charitable Court was not inclined to exercise its discretion Organisation which is a trust registered under so as to allow the appeal being filed. the Indian Trust Act which has also been granted Although dismissal of SLP does not amount to registration under the Income Tax Act w. e. f. a binding precedent as the same is under article 1.4.2003. The assessee received certain donations 136 and not under article 141, as per general towards its corpus which had been deposited in rules for interpretation, it might be taken as the bank and the money was admittedly spent for the affirmation of the High Court’s views on acquiring land for construction of a college. In these merits of the case. There is no reason to dilute circumstances, we are of the opinion that the CIT(A) the binding nature of precedents in such cases. as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital (Refer Interpretation of Taxing Statutes, published receipt and not revenue receipt chargeable to tax. No by AIFTP, December 2005 first edition, page 158) question of law arises. Dismissed. For AY 2002-03, Dept. took a view before 4. The case of Basanti Devi and the Hon. ITAT that the aforesaid High Court Chakkhanlal Garg Educational order is under challenge before the Hon’ble Trust Supreme Court by way of a SLP filed by the Department. But, Hon. ITAT did not agree 4.1 DIT (Exemption) v. Basanti Devi and saying, “this, however, is not premise enough to Chakkhanlal Garg Educational Trust- allow the Department’s appeal, particularly when Civil appeal disposed. the High Court order has not been shown to have The appeal in this case is under article 141 in been stayed.” a SLP with Civil and is disposed of. Briefly the case is as under- Hon. ITAT allowed the appeal on 19-1-2011, respectfully following the High The assessee trust received a sum of Court decision(supra) in the assessee’s own ` 1,06,55,343/-, as infrastructure fund. Holding case for assessment year 2003-04, and rejected that this amount was not allowable as a the grievance of the Department and held as deduction u/s 11 of the I.T. Act, the AO brought follows- it to tax for AY 2002-03 in a reopened case. The assessee received certain donations towards Before this, the ITAT had decided the matter in its corpus which had been deposited in the favour of the assessee’s own case for AY 2003-04 bank and the money was admittedly spent for on the same issue, confirming the CIT(A)’s order acquiring land for construction of a college. In in favour of assessee and against the AO. these circumstances, are of the opinion that the By the time the case for AY 2002-03 came CIT(A) as well as ITAT rightly concluded that before the ITAT, the Hon. Delhi High Court the donations received towards corpus of the had already upheld the matter in favour of the trust would be capital receipt and not revenue assessee on 23-9-2009 (ITA no. 927/2009) and receipt chargeable to tax. No question of law Dept. had filed a SLP before Hon. Apex court arises. Dismissed. which had granted leave to file appeal against
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Hon. Apex Court has dismissed the appeal on Hon. Supreme Court has exhaustively dealt with 17-9-2018. the issue of whether the CBDT circulars in the matter operate retrospectively and in the course (CA No. 002201/2013, SLP (C) CC No.004610/2013, has analysed the Instruction No.3 of 2011 dated SLP (C) No.010535/2013, all regd. on 4-3-2013 and 9.2.2011 and the National Litigation Policy in disposed on 17-9-2018). the case of 4.2 The disposal is due to increase in DIT v. S.R.M.B. Dairy Farming Pvt. Ltd. (2018) monetary limits by CBDT to file appeal 400 ITR 0009 (SC) dt.27-11-2017. The order reads as - “Delay, if any, is condoned. Leave granted. In these appeals, the tax effect Hon. Apex court has quoted CIT & JCIT v. Ranka & is less than ` 1,00,00,000 (` One core) and are Ranka, (2013) 352 ITR 0121, and stated that – covered by the Circular of CBDT. These appeals are, 11. We consider it appropriate to refer to some accordingly, dismissed.” of the observations in the judgment of the This is a little twist in the matter. The SC has Karnataka High Court, which have our disposed of the appeals as an effect of increase imprimatur, as under: in monetary limits of filing appeals by the “22. The Government has formulated the Revenue vide CBDT circular No. 3/2018, of National Litigation Policy with a 11-7-2018. Hence, the binding effect needs to be view to ensure conduct of responsible examined. by the Central Government and Para 2 and 11 of the circular reads as under- urges every State Government to evolve similar policies. Its aim is to 2. It is clarified that an appeal should not be filed transform Government into an efficient merely because the tax effect in a case exceeds and responsible litigant. “Efficient the monetary limits prescribed above. Filing of litigant” means ensuring that good appeal in such cases is to be decided on merits cases are won and bad cases are of the case. not needlessly persevered with. The litigation should not be resorted to for 11. The monetary limits specified in para 3 the sake of litigating. The Government above shall not apply to writ matters and must cease to be a compulsive litigant. Direct tax matters other than Income tax. The philosophy, “that matters should Filing of appeals in other Direct tax matters be left to the courts for ultimate shall continue to be governed by relevant decision”, has to be discarded. The provisions of statute and rules. Further, in easy approach, “Let the court decide,” cases where the tax effect is not quantifiable or must be eschewed and condemned. The not involved, such as the case of registration of purpose underlying this policy is also trusts or institutions under section 12A/12AA to reduce the Government litigation of the IT Act, 1961 etc., filing of appeal shall in courts so that valuable court time not be governed by the limits specified in para would be spent in resolving other 3 above and decision to file appeals in such pending cases, so as to achieve the cases may be taken on merits of a particular goal in the National Legal Mission to case. reduce average pendency time from The circular clearly states that the decision to file 15 years to 3 years. All pending cases appeals in cases having important matters is to involving the Government has to be be decided on merits. reviewed with the intention of filtering frivolous and vexatious matters from
AIFTPJ - 513 AIFTP Journal August 2020 25 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
the meritorious one. Panels have to compelled in the policy. But, the binding be set up to implement categorization, nature needs to be examined by experts in the review such cases, to identify cases, constitution and civil laws and comments on the which can be withdrawn. These include same are welcome. cases which are covered by decisions of courts and the cases which are found 5. Donations held towards corpus without merit. Such cases have to be withdrawn. This must be done in a when not expressly stated by time bound fashion. donors At this juncture, it is proper to refer the Hon. Supreme court has also quoted in para 10 decisions clarifying as to what constitutes the of the judgment, the National Litigation Policy donations to corpus especially when it is not and the para of Review of Pending cases reads expressly conveyed by the donors. as under- 5.1 If the receipts issued to the donors clearly Review of pending cases mention that they were given towards (A) All pending cases involving the Government corpus, then it had to be construed that will be reviewed. This due diligence process the contributions were made with a shall involve drawing upon statistics of all specific direction that they shall form part pending matters which shall be provided for of the corpus - N. A. Ramachandra Raja by all Government departments (including Charity Trust v. First ITO (1985) 14 ITD 230 public sector undertakings). The Office of the (Mad. Trib.); Meherangarh Museum Trust v. Attorney General and the Solicitor General Asstt. CIT (2014) 48 taxmann.com129 (Jodh. shall also be responsible for reviewing all Trib) pending cases and filtering frivolous and 5.2 If the trust deed clearly provides that vexatious matters from the meritorious ones. donations received by trustees shall be (B) Cases will be grouped and categorized. The deemed to be accretions to the trust and practice of grouping should be introduced imposes an obligation on the trustees to whereby cases should be assigned a particular hold such donations as part of the corpus number of identity according to the subject of the trust, then contributions could be and statute involved. In fact, further sub- received only towards corpus of the trust grouping will also be attempted. To facilitate - Hakmuddin Mulla Hasanbhai Singaporewala this process, standard forms must be devised Charitable Trust v. 5th ITO [1985] 23 TTJ 43 which lawyers have to fill up at the time (Bom. Trib.) of filing of cases. Panels will be set up to 5.3 If the intention of the donor is to give that implement categorization, review such cases to money to a trust which will keep it in identify cases which can be withdrawn. These trust account in deposit and the income include cases which are covered by decisions from the same is utilised for carrying on a of courts and cases which are found without particular activity, it satisfies the definition merit withdrawn. This must be done in a time part of the corpus - DIT v. Sri Ramakrishna bound fashion. Seva Ashrama [2012] 18 taxmann.com 37, It is obvious that the dismissal of appeal 205 Taxman 26 (Kar.) by Hon. Supreme Court in the case under 5.4 Donations received towards ‘Building discussion must have been done after Fund’ and ‘Kayami Fund’ (Permanent considering the merits of the matter as Fund) were held to be towards corpus -
26 AIFTP Journal August 2020 AIFTPJ - 514 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
ITO v. Satya Kabir Sahabani Gadi [1994] 50 donation - CIT v. Indore Table Tennis Trust TTJ501 (Ahd. Trib.) [1997] 92 Taxman 199 (MP) 5.5 Contribution received towards specific purpose of construction of Wadi was 6. Donations towards corpus held to be forming part of corpus - CIT are exempt even if there is no v. Sthanakvasi Vardhman Vanik Jain Sangh registration under sec. 12A/AA [2003] 131 Taxman 270 (Guj) with different facts – 5.6 Voluntary contributions made by the It is worth considering various cases which had donors with a specific direction that they different issues and facts, but ultimately the were made towards construction of a donations are held exempt. building in the premises of the assessee for its use - St. Ann's Home for the Aged v. 6.1 DCIT v. Nasik Gymkhana, (2001) 72 TTJ ITO [1980] 10 TTJ 144 (Bang. Trib.) 0467, (Pune) AY 1984-85 This is an interesting case. The trust had 5.7 No specific letter was received from received donations from unidentified donors the donors that the donations were which was not attributed to the corpus. Towards corpus. However, the counter Donations attributed to the corpus by shop foil of receipts showed that they were owners belonging to the assessee, proved not received for construction of temple and voluntarily made as they were allotted extended Dharamshala. The Tribunal held that the area in consideration. Hon. ITAT observed as preamble to the trust deed, directions under- of the donors and the contents of the receipts showed that the donations could Accordingly, such donations, though not voluntarily be treated as corpus donations - Shri Vasu made, are held as capital receipts and consequently, Pujiya Jain Derasar Pedhi v. ITO [1991] cannot be considered as income of the trust. Even 39TTJ337 (JP. Trib.) assuming for the sake of convenience that such donations were made voluntarily, as contended by 5.8 Although the receipts indicated that the counsel for the assessee, the same cannot be the donations were received towards held as income since such donations were, given corpus, in some cases the donors had towards corpus of the trust. The receipts issued by not specifically stated that the donations the trust clearly show that donations were received were towards corpus. The donations towards buildings reserve and general maintenance were utilized towards the objects of the fund. The receipts are duly signed by the donors. trust to establish a technical institution. All the donations received were transferred to this The Tribunal held that the donations fund. Further, there is nothing on the record to were a part of the corpus - ITO v. Sardar suggest that this fund was not used for construction Vallabhbhai Education Society [2012] 26 of building. Later on, all the donors have certified taxmann.com 174 (Ahd. Trib.) (TM) that such donations were given towards corpus of the trust. No adverse inference can be drawn from 5.9 Donation received towards purchase the fact that receipts were issued by one person and investment in Sidha Land Project or the fact that the amount was given towards which was a capital project was a corpus building fund was printed on the receipts. There donation - Dharma Pratishthanam v. ITO is sufficient material to hold that donations were [1985] 11 ITD40 (Delhi- Trib.) towards corpus of the trust. Hence, such donation 5.10 Donation towards construction of cannot be considered as income of the assessee. The stadium for indoor games was a corpus legal contention of the Departmental Representative
AIFTPJ - 515 AIFTP Journal August 2020 27 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB | that prior to 1st April, 1989, donations towards exemption contained in sub-s. (1) of s. 12 would be corpus were not exempt is without force. prior to clearly attracted, even assuming that these receipts 1st April, 1989, the donations towards corpus were constituted the income of the assessee and not the exempt under s. 2(24)(iia) itself. Therefore, this corpus thereof. Moreover, these contributions could contention of the Revenue is rejected. never be regarded as income derived by the assessee- trust from property. Accordingly, the entire income 6.2 CIT v. Trustees of Visha Nima Charity contribution received by the assessee trust was Trust, (1982) 138 ITR 0564 (Bom HC) - AY exempt. 1965-66 One of the clauses of the deed of Trust Amount received by assessee trust from sale of authorised the trustees to invite and receive charity show tickets and advertisement in souvenir or without such invitation, receive voluntary were from voluntary contributions, exempt under contributions from any person and that all such s. 12(1). contributions shall be treated as forming part of This judgment is referred to in many other the Trust fund. The assessee organised a charity orders & judgments. show and invited advertisements in souvenirs which brought a net receipt of ` 96,771 which 6.3 CIT v. Sri Durga Nimishamba Trust, was transferred to the trust fund or corpus. The (2011) 79 CCH 0890 KarHC – AY – Not amount collected was used for the payment of mentioned the price of the ownership flats purchased by Tribunal had set out decision on which Appellate the assessee. The ITO took the view that the said Commissioner relied on to come to conclusion that income was income from property held under contribution made towards corpus fund could not a trust wholly for charitable purposes, which be treated as income for purpose of levying of tax— would have been exempt from tax under the Even if that corpus fund was misused it could not terms of s. 11(1)(a) if applied to such purposes, be treated as income and income tax levied—Only but since it was accumulated for application to course was to seek for cancellation of registration such purposes it was held that exemption was granted u/s 12A of Act—In that view of matter court available only to the extent of 25% thereof and did not saw any merit in this appeal—Application after granting the same he brought the balance for condonation of delay was dismissed, as cause to tax. Hon. High Court held as under- shown do not constitute sufficient cause under The object of the Trust was to have a permanent section 5 of Limitation Act—Revenue’s appeal home for providing shelter for a short duration dismissed. which was in the nature of general public charity. It This Karnataka HC has settled that even if there is hardly likely that on the facts and circumstances is misuse of corpus fund, still the same cannot of the case and taking into account the nature of the be taxed but the course open is to cancel the Trust, the persons to whom the appeal for tickets registration u/s 12A/12AA. and advertisements was issued and other relevant factors, any one would have given an advertisement 6.4 ITO v. Gaudiya Granth Anuved Trust, in this souvenir for any purpose other than the (2014) 65 SOT 0137 (Agra) ((URO)) – AY charity and as a voluntary contribution and the 2007-08 same can be said about the persons who must have The question arises whether such corpus purchased the tickets for the said show. In these donation is taxable as income or not even in circumstances the contributions made by way of the cases in which the trust is not registered tickets and for advertisements should, on the facts u/s 12AA because for those trusts which are and circumstances of this case, be regarded as merely registered u/s 12AA, exemption to corpus voluntary contributions and in view of this the donation has been provided as per provision of
28 AIFTP Journal August 2020 AIFTPJ - 516 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB | section 11(1)(d). Corpus donation being in the view of this clear finding, it is not possible to hold nature of capital receipt are not chargeable to that they are to be assessed as income of the assessees. income Tax. We, therefore, hold that the assessment of the corpus donations cannot be supported. The ITAT AM delivering the order further observed that, This order is invariably referred to in many orders/judgments. Similar view is expressed in I have also come across another decision of Hon’ble the following orders/judgments- ITAT, Kolkatta in case of Shri Shankar Bhagwan Estate v. ITO dated 13.01.1997 reported in (1997) 6.5 CIT v. Pentafour Software Employees’ 61 ITD 196 (Cal) in which, the taxability of corpus Welfare Foundation, (2019) 418 ITR 427 donation has been examined in the light of section (Mad HC) – 12 read section 2(24(iia) of the Income Tax Act AY 1998-99, 1999-2000 & 2002-03 and in this decision, it has been held as under :-“So far as section 2(24)(iia) is concerned, this section 43. The assessee filed appeal before the CIT(A), has to be read in the context of the introduction of who held that the amounts paid by the the present section 12 it is significant that section businessmen towards advertisements could not 2(24)(iia) was inserted with effect from 01.04.1973 be considered as "donations". On appeal to the simultaneously with the present section 12, both Tribunal, the Tribunal following the judgment of which were introduced from the said date by the of the Bombay High Court in CIT v. Trustees Finance Act, 1972. Section 12 makes it clear by the of Visha Nima Charity Trust (1982) 28 CTR words appearing in parenthesis that contributions (Bom) 227: (1982) 138 ITR 564 (Bom), held made with a specific direction that they shall from that the amounts received by the society could part of the corpus of the trust or institution shall not be treated as "trading receipts" and they not be considered as income of the trust. The Board’s were mere voluntary contributions. Further, Circular no. 108 dated 20.03.1973 is extracted at the Tribunal confirmed the finding recorded page 1277 of Vol. I of Sampat Iyengar’s Law of by the authorities that the society was not Income tax, 9th Edn. In which the inter-relation a charitable institution. When the matter between section 12 and section 2(24) has been was carried on appeal to the Bombay High brought out. Gifts made with clear directions that Court, the question referred was whether they shall form part of the corpus of the religious the Tribunal was correct in holding that the endowment can never be considered as income. In the amount received by way of advertising charges case of R.B. Shreeram Religious and Charitable Trust are voluntary contributions or donations v. CIT (1988) 172 ITR 373/39 taxman 28 it was and are not trading receipts. After taking held by the Bombay High Court that even ignoring note of s.2(24) of the Act, it was held that the amendment to section 12, which means that even the assessee society has been held as not a before the words appearing to parenthesis in the charitable institution and it is not also one of present section 12, it cannot be held that voluntary the institutions which are satisfied under s. contributors specifically received towards the corpus 2(24) of the Act which are treated as "income" of the trust may be brought to tax. The aforesaid within the meaning of s. 2(24) of the Act and decision was followed by the Bombay High Court therefore, voluntary contributions received in the case of CIT v. Trustees of Kasturbai Scindia by the assessee society cannot be treated as Commission Trust (1991) 189 ITR 5/57 taxman 38. "income" or "trading receipts". This decision The position after the amendment is a forori. In the applies with full force in support of the present cases the Assessing Officer on evidence has assessee herein and the Revenue is not able accepted the facts that all the donations have been to put forth any submission to dislodge such received towards the corpus of the endowments. In conclusion.
AIFTPJ - 517 AIFTP Journal August 2020 29 | Issues in Corpus Donation to Charitable Trust not Registered u/s. 12A/12AA/12AB |
6.6 Bank of India Retired Employees Medical without going into the amended provisions of Assistance Trust v. ITO (Exemption) the Act and hence were not applicable to the (2018) 196 TTJ 0706 (Mumbai)-AY 2012-13 case. In this case the trust was registered with the Hon. ITAT has discussed the provisions in Charity Commissioner. It was for the object of detail, rejected the ld. DR’s contentions, and still not for the benefit of the general public, but was concluded that – solely dedicated for the welfare of the retired employees of the bank, and the same could not The Corpus-specific-voluntary contributions are be held as a charitable trust as contemplated outside the taxation in case of an unregistered Trust u/s 2(15). It had received voluntary contribution u/s.12/12A/12AA of the Act too. From this point of towards corpus of the trust. The AO added the view, and for this reason, the decision of the CIT(A) donation to income and taxed. CIT(A) confirmed in granting relief to assessee does not call for any the addition. But Hon. ITAT allowed the same as interferences. Accordingly, grounds of appeal raised exempt being capital receipt. by the Revenue are dismissed.
6.7 Chandraprabhu Jain v. ACIT, (2016) 47 7. Registration u/s 12A/AA CCH 0650 MumTrib, AY 2011-12 To make the discussion complete, at least a brief In this case the trust’s registration copy was mention about the amendment in Sec. 12A(2) is not traceable, hence it applied for copy of necessary. These are held to be retrospective. registration u/s 12A/AA but there was no Thus, once the registration is granted, the same communication from the authority. For want is held effective retrospectively. Following cases of the registration certificate the AO denied give an interesting insight in the issue- the exemption to corpus donations and taxed at maximum marginal rate. CIT(A) upheld the 1) Shree Bhanushali Mitra Mandal Trust v. ITO, AO’s order but reduced the rate of tax to normal (2016) 47 CCH 0197 AhdTrib – AY 2011-12 rate, object being a public trust. 2) Punjab Educational Society v. ITO, (2018) ITAT allowed the claim of the trust and held 192 TTJ 0037 (Asr) ((UO))- AY 2011-12 the corpus donations as capital receipt. In 3) ITO v. M/s. Shri Vishwakalyan Jivraksha the process it has discussed various decisions Pratishthan, 2013/PN/2014, dt. 22-07-2016 - holding the corpus donations as capital receipt AY 2011-12 and exempt from tax. 4) Shree Halar Deshodhharak P.Pu. 6.8 ITO v. Serum Institute of India Research Vijammrusurji Smarak Trust v. ITO Foundation, (2018) 195 TTJ 0820 (Pune), (Exemption), ITA.No.2494/Ahd/2015 - AY AY 2005-06 2008-09 In this case the issues in corpus donations are exhaustively discussed. This case was a Finance Act 2020 has made many changes second round of appeal in assessee’s case before in taxation of trusts and one of them is Hon. ITAT for the same year. Provisions of amendments in Sec. 12A. Sec. 2(24)(iia), 11 and 56(2) are discussed and The existing proviso to Sec.12A(2) which is position after amendment in 1989. The ld. DR interpreted in the foregoing cases is amended had argued that the cases hitherto decided and is now a second proviso. However, the by various authorities merely held the corpus contents are kept as it is except that the new donations as capital receipt, being for the period Sec.12AB is also mentioned along with 12AA. prior to the amendments and were decided
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In my personal view, this has not disturbed the 8. Conclusion view already settled in the issue. To avoid any controversy, it is better – I may quote the observation of Hon. ITAT - to obtain a letter from the donor with Ahemdabad in the case of Shree Halar specific direction that the donation is Deshodhharak case referred above. In that towards corpus of the trust; case Hon. ITAT Ahmedabad has quoted the order of Hon. ITAT Kolkata in the case of Sree - issue the receipt specifically conveying Sree Ramkrishna Samity v. CIT, (2016) 156 ITD that the donation is accepted towards 0646 (Kolkata), and one paragraph especially in corpus of the trust; and respect of interpretation which worth quoting - entries in the books of account must be as follows – correctly reflecting the donation towards We also hold that though equity and taxation are corpus; often strangers, attempts should be made that these - preferably have a clause in trust deed to do not remain always so and if a construction accept the donations towards corpus. results in equity rather than in injustice, then such construction should be preferred to the literal Philanthropy in taxation of trusts is getting construction. It is only elementary that a statutory complicated day by day due to various reasons provision is to be interpreted “ut res magis valeat on both sides of the table. quam pereat”, i.e. to make it workable rather than John Rockefeller once said, "The best redundant. Applying this legal maxim, it would be philanthropy is constantly in search of the just and fair to hold that the amendment in section finalities — a search for a cause, an attempt to 12A is brought in the statute to confer benefit of cure evils at their source." Based on Rockefeller’s exemption u/s 11 of the Act on the genuine trusts quote, I may say in the matter that, philanthropy which had not changed its objectives and had carried in taxation, at least in India, is also in search of on the same charitable objects in the past as well as finality constantly. in the current year based on which the registration u/s.12AA is granted……. mom
AIFTPJ - 519 AIFTP Journal August 2020 31 | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147?
CA Rohit Kapoor
This article endeavours to the interpret the provisions should be read as a “whole” and compulsory issue of notice under section 143(2) as such they exist, and there is no necessity in case of “Section 153A- Assessment in case of of reading them down or providing casus search and requisition”/“Section 153C Assessment omissus. Where the search is conducted, there of income of other person” or where assessment is a mandate on the Assessing Officer (A.O) is framed “under section-147 Income escaping to issue notice calling for return of all six/ assessment”of the Income Tax Act, 1961. It has extended period commencing from assessment forever been a conflict as to how the section years preceding the current assessment year must be interpreted, in order to decide whether in which search was executed. Thereafter, the the procedure of regular assessment i.e. issuing first proviso casts a duty on him to assess or notice under section 143(2) has to be followed reassess the total income in respect of each in the proceeding under section 153A or under assessment year. Whereas, Reassessment under section 147. This article tries to decode the section 147 is another distinguished weapon mixed opinions of the court with regard to which empowers the Assessing Officer to whether it is the compulsory to issue notice u/s assess, reassess or recompute income which has 143(2) before completing an assessment under escaped assessment. section 153A or under section 147. The author, based on thorough analysis of Section 153A and II Issue of notice under section Section 147 and keeping in view the language of the both the section and the interpretations 143(2) is not compulsory where attached to it by the Judiciary, have tried to assessment is completed under resolve the conflict. section 153A/153C 1. Every clause of a section should be I. Introduction construed with reference to the context This research paper mainly discusses the and other clauses thereof, so that, the various interpretations given by the Courts construction to be put on a particular with respect to issue of notice under section provision makes a consistent enactment 143(2) in case where assessment is completed of the whole statue. The section 153A under section 153A or under section 147 of the starts with non obstante clause and it Income Tax Act, 1961 (hereinafter referred to as pertinent to mention that section 139 is Act). Further, it talks about the importance of one of the sections which is covered in the a notice being issued to the assessee when any notwithstanding clause. The notice under assessments are to be made, with the purpose section 143(2) is required to be issued of finalizing the assessment or otherwise. Thus, when return has been furnished under
32 AIFTP Journal August 2020 AIFTPJ - 520 | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? |
section 139 or in response to notice under Section 142, sub sections (2) and (3) of section 142(1). In the case of section 153A, Section 143, Section 144 and Section the section 139 has specifically been kept 145 shall, so far as may be, apply. The aside. The words "so far as may be" in law laid down in Hotel Blue Moon, is clause (a) of sub section (1) of Section thus not applicable to the facts of the 153A could not be interpreted that the present situation of 153A and 153C. This issue of notice under Section 143(2) was decision has been followed by various mandatory in case of assessment under tribunals and courts and has decided Section 153A. The use of the words, "so the matter in the favour of assessee. But far as may be" cannot be stretched to the the decision as given by the Apex courts extent of mandatory issue of notice under only applicable in the context of section Section 143(2). It is noted, a specific notice 158BC and not in the context of section is required to be issued under Clause 153A and 153C. Therefore, the said issue (a) of sub-section (1) of Section 153A is highly debatable, and it is not correct calling upon the persons searched or to rely straightway upon the decisions as requisitioned to file return. That being so, given by some courts that the notice u/s notice under Section 143(2) could not be 143(2) is necessary for proceedings u/s contemplated compulsory for assessment 153A/153C.2 under Section 153A. The same view has been affirmed by various court1 1.2 The provisions of section 143(2) of the Act did not give option to make an 1.1 However in view of the decision of the assessment under Section 143(3) but Honourable Supreme Court in case of make it obligatory to comply with these Hotel Blue moon in 321 ITR 362 has held provisions before making assessment that omission on the part of the assessing under section 143(3) or section 144 as the authority to issue notice under section case may be. However, the assessment 143(2) cannot be a procedural irregularity of the “search year” has to be completed and the same is not curable and, therefore, u/s 143(3) or u/s 144, and issue of notice the requirement of notice under section u/s 143(2) is mandatory for that year. The 143(2) cannot be dispensed with. It is to same view has been purported by many be noted that the above said judgment courts.3 It is important to note that non was in the context of Section 158BC. issuance of notice is not a curable defect Clause (b) of Section 158BC expressly by following the provisions of section provides that "the AO shall proceed to 292BB4 determine the undisclosed income of the block period in the manner laid down 2. The provisions of section 143(2) are not in section 158BB and the provisions of applicable in case of assessment under
1 Ashok Chaddha v. ITO [2011] 337 ITR 399/[2012] 20 taxmann.com 387 (Delhi) (Para No.7). Tarsem Singla v. DCIT, Central Circle-III, Ludhiana [2017] 81 taxmann.com 347 (P & H) (par 9). Roshan Lal Verma v. DCIT, Central Circle-II, Faridabad [2018] (6) TMI 1462 - ITAT DELHI (par 9). 2 [2010] 188 Taxman 113 (SC)-Supreme Court of India - ACIT v. Hotel Blue Moon [2010](1) TMI 1184 - ITAT Indore M/S. S. K. Jain, Smt. Rekha Jain and others [2010] (2) TMI 690 - ITAT, Indore DCIT, Circle 1 (1), Ujjain v. Sushil Kumar Jain Yogeshwar Goel (ITAT Delhi) 3 2017 (8) TMI 80 - Allahabad High Court- CIT (Central) Kanpur v. Sri Moins Iqbal 2012 (8) TMI 1053 - ITAT Pune - Akbani Salim Abdul Gaffar v. DCIT, Central Circle, Kolhapur 4 [2019] 108 taxmann.com 183 (SC) CIT v. Laxman Das Khandelwal.
AIFTPJ - 521 AIFTP Journal August 2020 33 | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? |
section 153A or 153C and the same gets The AO of “other person” will frame clear by the language as referred in section assessment U/s 153C for Assessment 153C (2). The section 153C comes into year 12-13 to A.Y 2017-18. However, the play where a search is carried out u/s. assessment for A.Y. 2018-19 will be made 132 of the IT Act on person, various assets under section 143(3). The “other Person” and documents may be found and seized has furnished return for A.Y. 2018-19 or requisition is made u/s. 132A. It is on 20.09.2018. The practical problem in possible that several of “assets/documents" this case is that time period for service may not actually belong/relates to the of notice under section 143(2) has been "person searched" but may belong to such expired (i.e. 30.09.2019) whereas the "other person". In that case, provisions of books were handed over to the AO on section 153C gets attracted which clearly 10.10.2019. The legislature has covered this provides that proceedings as prescribed possible situation by introducing 153C (2). in section 153A will be initiated against The relevant extract of section 153C(2) is such "other person" if conditions as laid as under: - down in section 153C are satisfied. That such "assets/documents" belongs to or (2) Where books of account or documents relates to the person other than " searched or assets seized or requisitioned as person". The same shall be handed over to referred to in sub-section (1) has or the AO having jurisdiction of such“other have been received by the Assessing person”. Now, AO (having jurisdiction) Officer having jurisdiction over such has to be satisfied that "assets/documents" other person after the due date for seized or requisitioned have a bearing on furnishing the return of income for the the determination of the total income of assessment year relevant to the previous such “other person”. Then only the AO year in which search is conducted (having jurisdiction) can proceed under under section 132 or requisition is section 153C against such “other person” made under section 132A and in in the manner provided u/s. 153A. The respect of such assessment year— legislative has designed section 153C(2) a) no return of income has been (a) to (c) to cover possible situation furnished by such other person related to “search year”, where no notice and no notice under sub-section in terms of Section 143(2) has been issued (1) of section 142 has been to the “other person”, and the time as issued to him, or provided in law u/s 143(2) has expired by the time AO of “other person ‘receives the b) a return of income has been papers from the AO of “searched party”. furnished by such other person In that case assessment for that year can but no notice under sub-section be done in the manner provided in section (2) of section 143 has been 153A. The assessment of that particular served and limitation of serving year will be completed without issuing the notice under sub-section (2) notice u/s 143(2). The simple notice will be of section 143 has expired, or enough to complete the assessment. c) assessment or reassessment, 3. For instance, the search took place on if any, has been made before 24.05.2017 and the documents related the date of receiving the books to F.Y 2017-18 has been handed over to of account or documents or the AO of “other person” on 10.10.2019. assets seized or requisitioned
34 AIFTP Journal August 2020 AIFTPJ - 522 | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? |
by the Assessing Officer having author opinion and keeping in view the jurisdiction over such other above analysis, it can be concluded that person, such Assessing Officer issuing of notice under section 143(2) shall issue the notice and assess is not mandatory requirement for the or reassess total income of such years for which notice under section other person of such assessment 153A/153C was issued and even in case year in in the manner provided of situation covered u/s 153C(2). The use in section 153A.] of the words, "so far as may be" cannot be stretched to the extent of mandatory In the given case as far as the pending issue of notice under Section 143(2). assessment year is concerned, the return Therefore, notice under Section 143(2) was filed on 20.09.2018. No notice in could be not be contemplated compulsory terms of Section 143(2) can be issued to for assessments to be made under Section the assessee, as the time provided by law 153A/153C. (i.e. 30.09.2019) has been expired by the time its AO received the papers (i.e. on 10.10.2019) from the AO of the “searched III. Whether Issue of notice under party”. Notice issued, necessarily, in section 143(2) is compulsory terms of Section 153C (2) had to be in where assessment is made under the light of the satisfaction that the books section 147 ? of account or materials seized relates 1. There has been always litigation on the to “other person”. The assessment for issue that whether the notice u/s 143(2) such assessment year shall be made is compulsory where the assessment in the manner as provided in section has been framed u/s 147 in response 153A. Therefore, the said assessment to the return filed u/s 148. The notice shall be valid even if no notice under u/s 148 requires an assessee to file the section 143(2) was served. This section return within the stipulated period as makes it clear that notice under section mentioned in the notice. It is evident that 143(2) is not compulsory to be issued for section 148 specifically provides that all framing assessment under section 153A. the provisions of Act shall be applicable It is pertinent to mention here that the in respect of return of income u/s 148 language used in section 153C(2) is “assess as if the same was return furnished u/s or reassess total income of such other person of 139. But by only taking this argument, such assessment year in the manner provided the litigation will not stop. It is therefore in section 153A.”. By using such language necessary to go to the roots of the section it has been cleared that there is no need to decide this issue. In this regard, kind for issue of notice u/s 143(2) in case of attention is required to be drawn towards search proceedings. first and second provisos to section 148 4. Conclusion that provides the time limit for issuance of notice u/s 143(2) on the basis of date The issue whether notice u/s 143(2) of filing return of income u/s 148. The is mandatory in case of six years or said amendment was made as many extended period as per section 153A/153C courts have held that assessment under is highly debatable. But as per the section 147 is invalid5 if the notice under
5 Raj Kumar Chawla v. ITO [2005] 94 ITD 1 (Delhi)(SB)]
AIFTPJ - 523 AIFTP Journal August 2020 35 | Whether Notice u/s. 143(2) is a Preliminary Requirement for Valid Assessments u/s 153A/153C or 147? |
section 143(2) is not served within 12 shelter by applying provisions of section months from the end of the month in 292BB that the assessee has participated which return under section 148 was in the proceedings and therefore filed. To cure such defect, the law has assessment/reassessment made u/s 147 been amended retrospectively. Two new without issue of notice u/s 143(2) will be provisos to sub-section (1) have been valid. The same position has been cleared inserted retrospectively with effect from by recent judgement by the Apex Court 1-10-1991. As per the said amendment, all in the case of [2019] 108 taxmann.com 183 the notices which were issued after the (SC) CIT v. Laxman Das Khandelwal that period as mentioned in section 143(2) shall complete absence of notice under section be deemed to be valid notice. Further, an 143(2) is not a curable defect by under explanation has been inserted, with effect section 292BB. The notice u/s 143(2) must from 1-10-2005 in section 148(1) so as to have emanated from department and it clarify that the provisions of the aforesaid is only infirmities in manner of service of provisos shall not apply in relation to notice that section seeks to cure and it is any return which has been furnished on not intended to cure complete absence of or after 1-10-2005 in response to a notice notice itself. served under section 148(1). 1.3 Conclusion 1.1 Thus, so far as returns furnished on Keeping in view the above analysis, it can or after 1-10-2005 are concerned, the be concluded that issue of notice under pre-amendment law will apply and the section 143(2) is mandatory requirement notices will have to be served within a before completion of assessment u/s period of 12/6 months specified in section 147. Thus, it is not discretionary rather 143(2). Thus, it is not discretionary rather mandatory for an assessing officer to mandatory for an assessing officer to issue notice u/s 143(2) once the return issue notice u/s 143(2) once the return of income is filed by assessee in response of income is filed by assessee. The only to the notice u/s 148. The failure to issue relaxation in the case of re assessment is notice is not a curable defect and will that notice u/s 143(2) can be issued at make whole assessment/reassessment any time before the expiry of time limit invalid. Therefore, requirement of issue for completing assessment/ re assessment notice u/s 143(2) cannot be dispensed and the same would be deemed as valid with in case of assessment/reassessment notice. framed under section 147. The same gets 1.2 Therefore, the completion of the support from the decisions of various 6 assessment/reassessment proceedings courts. without issue of notice u/s 143(2) will (Disclaimer: Views of Author are personal, and can make the whole assessment without be reached at [email protected]) jurisdiction. The department cannot take
6 [2016] 74 taxmann.com 239 (Kerala)- High Court of Kerala - Travancore Diagnostics (P.) Ltd [2015] 64 taxmann.com 22- Delhi High Court - PCIT-08 v. Shri Jai Shiv Shankar Traders Pvt. Ltd. [2010] 192 Taxman 197 (Allahabad)- High Court of Allahabad - CIT v. Rajeev Sharma [2012] 25 taxmann.com 341- Madras High Court - Sapthagiri Finance & Investments v. ITO, Kandhipuram [2019] (7) TMI 751 - Gujarat High Court - PCIT v. Jignesh Bhagwandas Patel [2018] (11) TMI 874 - Rajasthan Hgh Court - PCIT, Jaipur-III, Jaipur v. Kamla Devi Sharma mom
36 AIFTP Journal August 2020 AIFTPJ - 524 | The Battle of The “Taxes”? |
The Battle of The “Taxes”? Piyush Baid, FCCA (London)
With profound regret to lack of a better attempt to bring a systemic change in the way alternative to Simon Beaufoy of the 2017 classic commerce was being and was to be conducted between Bobby Riggs and Billie Jean King globally. for titular adaptation, in the current context, it impresses on the impost vigilant mind that From the processes arising, about the “fin de the revenues of jurisdictions at large are now siècle” jurisdictions started reconfiguration engaged in what can be effectively termed as a of the base framework of the OECD:OCDE prelude to of no less than the Star Wars classic and after much deliberation, subsequent to “The Empire Strikes Back”. the OECD:OCDE conference in Turku in 1997, came up with the Ottawa Taxation Framework From the middle 1990’s academics (a particular 1998, which emphasised more particularly on mention to Prof Arvid Aage Skaar and his the application of traditional income tax laws classic “Permanent Establishment: Erosion of and guiding principles to tax cross border a Tax Treaty Principle” ) and forward thinking ecommerce transactions as well as traditional practitioners alike had been propagating the transactions. advent of the e-commerce juggernaut and in particular the impact of the same on its 2008, brought to fore events that would cause capacity to hit ability of source countries to tax a seismic cataclysm to the propositions in the transactions within their jurisdictions. Ottawa Taxation Framework 1998. Sovereigns ran huge fiscal deficits trying to shore up The essential paradigm that followed was that their respective economies. Governments lost companies based physically in a totally different revenue steadily owing to contagion caused legal and residential jurisdiction could bypass by the financial sector seeping into traditional the taxation system of source countries and still business and individual incomes alike, with provide goods and services in those countries. witness of a gradual but exponential increase The common critical question arising out of such in e-commerce activity picking up. Despite flow of business was to “how bring such cross substantial co-ordinated efforts by the G20 border transactions within the ambit of taxes?”. and OECD:OCDE nations it became clear by 2013 that there had to be a paradigm shift The Westminster Principle (Inland Revenue in the ways tax policies were designed. The Commissioners v. Duke of Westminster, problem was more exacerbated by the fact http://www.bailii.org/uk/cases/ that the existing framework was not only UKHL/1935/4.html) elicited by Lord Tomlin woefully inadequate to address the aggressive of the High Court of Justice in England, tax planning of digital and semi digital MNE notwithstanding, it was clear that there was an but also fell short at addressing concerns of
AIFTPJ - 525 AIFTP Journal August 2020 37 | The Battle of The “Taxes”? | source countries to which goods and services not radically different the structure of the South were supplied via digital platforms. It follows African Taxation system needs to be in sync that the most glamourous of the lot, the FAANG with proposed legislation in counterparts. (Facebook, Amazon, Apple, Netflix, Google) were found to be the forerunners in matters For the Indian scenario, India has advocated of aggressive tax planning. Your attention is the its own strategy to counter the reduction invited to the following video of Public Accounts of the resulting tax base on account of Committee Hearing (12/11/2012) on Taxation of digitalisation by incorporating changes in the Multinational Corporations, witnesses: Matt Brittin Finance Act 2018. In the G20 meeting at Osaka (CEO, Google UK), Troy Alstead (Global CFO, in June 2019, India advocated that its approach Starbucks), Andrew Cecil (Director Public Policy, (equalisation levy and proposed Tax Collected Amazon) (http://www.parliamentlive.tv/main/ at Source) be adopted by the OECD:OCDE player.aspx?meetingId=11764) p a r t i c u l a r l y as a possible resolution of the digitisation intriguing as well as raising some important quagmire(https://pib.gov.in/PressReleasePage. issues camouflaged within the parameters of aspx?PRID=1573765 ). morality. Chairperson British MP Margaret Ukraine has as of June 2020 amended its Hodge very clearly outlines “We are not tax laws via the Tax Bill 1210 to bring into accusing you of being illegal, we are accusing alignment with the BEPS project and has you of being immoral.” It could be gauged introduced CFC aspects into its domestic therefore that it was only a matter of time before legislation. “morality” was translated into “legality”. Events such as outlined above have led to a At this point the author would invite a knock-on effect by sovereign governments to act reading of Millar, Historical View of the English in order to protect their own interests in revenue Government (1789) bk. ii, chap. 7, and of the North by means of either significant economic presence Caorlina Law Review Vol 23 Number 3, of a tests, withholding taxes, transaction taxes (e.g., perspective of circumstances in which morality equalization levies and digital services taxes), translates effectively into legality. (https:// and minimum taxes (e.g., diverted profits taxes) scholarship.law.unc.edu/cgi/viewcontent.cg (Walter Hellerstein, Jurisdiction to Tax Income and i?article=1651&context=nclr&hx0 03E;). The Consumption in the New Economy: A Theoretical underlying intentions being very clear, and as and Comparative Perspective, Georgia Law Review famously attributed to Denis Healey, former (2003)). Imperatively, sovereigns now under UK Chancellor of the Exchequer who once said significant financial and political pressure are “The difference between tax avoidance and tax finding it a compulsion under nationalism to evasion is the thickness of a prison wall.”, the go it alone and adopt means to protect their dimensions of the wall getting blurry with MNE revenue. (Desperate times, desperate measures) tax avoidance schemes. Discussing a few of the measures becomes Authors Riley Carpenter and Shaun Parsons imperative (Wilson, Amy & Carpenter, Riley & Parsons, Shaun. (2016) in The effect of electronic commerce 1) Economic Presence Tests: Significant on the erosion of tax bases – Developing appropriate economic presence tests either qualitative taxation laws in South Africa) have argued that or quantitative offer as of the date of there needs to be an overhaul of taxing systems publication a good view of taxation around the globe in order to meet the taxation of revenue on source. Academics like challenges in particular caused by the ecosystem Arvid Aage Skaar, Luc Hinnekens, etc around and parallel to the FAANG, and while argue in favour of the economic presence
38 AIFTP Journal August 2020 AIFTPJ - 526 | The Battle of The “Taxes”? |
tests. Stimulatingly, in 2013 there was Effectiveness of the afore is again an attempt by the French authorities to subject to private international law tax revenue attributed to social media interpretations. The US-Canada tax treaty platforms even though none of them had automates the application of a services any presence in any territorial jurisdiction PE with the 183 days rule. (However, see governed by France(https://convention-s. Tech Mahindra vs Commissioner of Taxation fr/wp-content/uploads/2014/06/ 20 ITLR 70(Australia) and Satyam Computer Taxation_Digital_Economy_Jan2013_ Services Ltd vs Commisioner of Taxation France.pdf). In a characteristically 21 ITLR 274 (Australia) and some conflict amusing case in the Tax Tribunals in in Mistubishi Corporation India Pvt Ltd vs India it was held that social media Deputy Commissioner of Income Tax Circle profiles of employees could be a trigger 6(1), New Delhi ITA 5042/DEL/11(India)) for determination of a permanent establishment (GE Energy Parts v. Addl The author is of the opinion that Director of Income Tax). In a way it might Quantitative Significant Economic be argued there is a general trend towards Presence tests might be a possible solution dilution/modification of the permanent to the quagmire considering that private establishment principle (Article 5 of the international law has generally been in OECD/UN Model convention). Whether favour of “there is no equity about tax”. MLI alone would be sufficient to dilute 2) Withholding Taxes: Yariv Brauner the said, is a fact that would unravel in and Andres Baez in their research the coming times. There are some other paper argue in favour of a globally Quantitative Economic Presence tests standardized withholding tax rate of being proposed like GAAR and SAAR 10% on all transactions impacted by rules being automatically applicable on base erosion movements in favour of above a certain threshold. source jurisdictions. The alternatives to The OECD:OCDE came up with a report nexus based and election are left open, titled OECD:OCDE/G20 Base Erosion in opposition to the IBFD position of and Profit Shifting Project, Tax Challenges nexus based solution being superior to the Arising from Digitalisation – Interim withholding tax regimen. Report 2018 (https://www.oecd.org/ctp/ (https://www.ibfd.org/sites/ibfd.org/ tax-challenges-arising-from-digitalisation- files/content/WithholdingTaxesintheSer interim-report- 9789264293083-en.htm), viceofBEPSAction1-whitepaper.pdf ). For in which it has taken into account the uninitiated reader a reading (Richard the significant dilution proposed by L. Doernberg, Electronic Commerce and sovereign jurisdictions of Article 5 of International Tax Sharing, 16 TAX NOTES the OECD:OCDE model convention (The INT’L 1013) is also recommended on PE principle) (Similar to the UN model Doernberg’s arguments on imposition of convention) . In particular mention has withholding taxes on electronic commerce been made in pages of the significant resulting transactions. Some countries modification of the PE principle with have actually incorporated a broadened respect to Israel (Significant Economic definition of their parameters of SAAS, Presence), Slovak Republic(fixed place (Software As A Service), sharing of music of business or digital platforms) and and content (http://www.ifa-luxembourg. India(Significant Economic Presence). lu/download/237/withholding-tax-
AIFTPJ - 527 AIFTP Journal August 2020 39 | The Battle of The “Taxes”? |
in-the-era-of-beps-civs-and- digital- Low Taxed Income) and the Tax Cuts economy-presentation-report-30112017. and Jobs Act in the United States for pdf ) for example Greece and Malaysia. Outbound Foreign Investment and Withholding taxation on Collective other versions of diverted profits Investment Vehicles(CIV) is again a taxes for Inbound Foreign Investment. controversial topic and Luxembourg Australia has imposed the Multinational wherein most of these vehicles are Anti Avoidance Law; India has very situated has implemented withholding recently imposed a TCS on outbound tax treaties with many counterparts. ODI transactions. CFC rules in many The problem is exacerbated further jurisdictions have been made to identify by the fact that some of the CIV’s are the ultimate beneficiary and hence tax treated as fiscally transparent entities passive foreign income on the ultimate in Luxembourg and not so in other beneficiary. The case of the GILTI and jurisdictions. the TCJA in the United States deserve a mention since FAANG are situated in the 3) Transaction Taxes: Although we are not United States and its brings into its fold anymore living in the era of infamy of the the CFC regime and applies corporate tax “bit” tax, transactional taxes have become on the excess of shareholders CFC income very important especially in jurisdictions over and above the returned Income. where FAANG and “clone” business models have significant presence. And 5) Measures for countering “gig economy”: in thus current Covid -19, scenario the A recent paradigm is now witnessed impact of FAANG on supply chain has whereby focus of jurisdictions is now been undoubtedly universal. France and targeted at “gig” operations rather than Hungary take the pole as far as imposition the long term employment market. In of transaction taxes are concerned, for fact, countries are slowly opening up to example in France the turnover tax the “gig” labour market in which there governs the delivery of online content in is a demand based employment rather accordance with its proposal to tax online than long term contractual obligations of content. In Hungary the online delivery employment of labour. OECD:OCDE has of advertisements is taxes according of very recent in the month of July 2020 to its targeted demographic. India and come up with model rules with respect to Italy have very recently introduced their the “gig” economy (https://www.oecd. own versions of the equalisation levy org/ctp/exchange-of-tax-information/ for bring under the tax fold transactions model- rules-for-reporting-by-platform- by MNE who do not have a permanent operators-with-respect-to-sellers-in- establishment (with a baseline threshold). the- sharing-and-gig-economy.pdf). For The author although admits it would instance, the Baltic states(Lithuania, be interesting to see how the economics Latvia, Estonia) have been at the forefront of operation work out in cases of UBER of pushing for the nomadic gig economy and “clones”. The United Kingdom has for expats, and the Nordic countries are the Digital Services Tax which came into evaluating a similar proposition. How and operation on 1st of April 2020. where does the PE and the value addition principle for taxation apply in such a 4) Threshold Taxes: Jurisdictions over the case.? In such cases its relatively easy for world are attempting to make models a person to have a nomadic jurisdiction similar to the GILTI (Global Intangible
40 AIFTP Journal August 2020 AIFTPJ - 528 | The Battle of The “Taxes”? |
less approach, while in particular cases the who are providing benefits of economies of person still might be liable depending on scale while not engaging in aggressive tax his nationality. India for its part has as of planning. The paradigm to make a jurisdiction this year introduced a hybrid residence- more lucrative by providing for tax benefits is nationality based taxation system wherein overtaken by attempts to garner a bigger chunk a “stateless” person would be taxed as of the pie. An indirect implication of this entire an Indian citizen and would be liable for scenario is the additional burden of statutory taxes in India(Finance Bill 2020, Insertion compliance put on firms both MNE’s and alike. of Section 6(1A) into the Income Tax Act 1961.). The United States has a citizenship Another challenge posed despite the stated based approach to taxing worldwide objectives of the OECD:OCDE 2015 BEPS report, income of Citizens (Cook v. Tait, 265 U.S. is that the current system of taxation is geared 47 (1924)) and doesn’t apply the residence towards taxation of value addition and not as at notion IRC 1. Norway applies the source. So will it involve a complete overhaul? quantitative test method for determination Also pertinently, even in the current system of residence status. where there is a limited “gig” economy, there is no homogenous definition of value addition. Undoubtedly the afore five considerations of taxes denigrate basic principles of both Capital The Indian construct is defined u/s 9 of Import Neutrality and Capital Export Neutrality the Income Tax Act 1961 and has to be read (on which most jurisdictions are supposed in conjunction with Bilateral treaties more to be based), and are rather tending towards particularly with reference to Articles 5 & 7 in National Neutrality as a matter of International the general form and also reference to BEPS Tax Policy. As a consequence, it seems that the article 7 with particular emphasis on artificial market for cross border trade and transactions avoidance of PE status. Courts in India have would be leading to a blurring of tax treatments generally leaned towards interpretation of and also distorting an already set paradigm Articles on the Bilateral framework. Guiding of income classification. Tax planning would principles being provided by the Vienna engage in a far more complicated scenario and Convention on the Law of Treaties subsequent countries would be vying for their “fair” share to the landmark in Ram Jethmalani v. Union Of of revenue and MNE’s would have to re-align India (Writ Petition (Civil) No. 176 Of 2009). It their tax strategies including that of Hybrid might be noted that India although has not Mismatches. This could also potentially lead ratified the convention, adjudicative law in India to a scenario where tax offsets are relegated to has nonetheless used the guiding principles such a level that this in itself leads to a trade therefrom. Courts have also on occasion had the barrier (see discussion on gig economy supra) instance to go beyond the define treaty and the to sharing of resources. International double Act to render adjudicative law. (ABB FZ, LLC taxation avoidance is the result of almost a v. Deputy Commissioner of Income Tax I.T (TP) century of hard work and negotiations since the http://www.kluwertaxblog.com/wp-content/ days of 1920’s compromise, and any disruption uploads/sites/59/2017/08/Bangalore-Tribunal- would likely have a spiralling effect, which Ruling.pdf). could be totally unwarranted. Private International Law assumes significance Governments developing their own taxation as countries might be prone to adopt a frameworks and presenting them on an particular manner of interpretation of principles international arena unilaterally would lead to of international taxation to suit their own needs an unfair playing field at the cost of MNE’s and hence might create a no win scenario for
AIFTPJ - 529 AIFTP Journal August 2020 41 | The Battle of The “Taxes”? | the business as such(see ABB FZ LLC supra). nations is possibly the only way forward in The apparent conflicts in the Dell Products the interest of business as well as growth of cases, wherein in one jurisdiction since Dell revenue of jurisdictions. The way forward Products Norway was accorded not a PE since from value addition to source would pave did not have authority to bind the principle the way to reducing harmful tax conflict and and in the other case it was deemed a PE on also juridical double taxation, which would be totally different grounds. (See Spain vs. Dell, undoubtedly harmful to business in the short June 2016, Supreme Court, Case No. 1475/2016 run and revenue in the long run as competition and Dell Products v. Staten v/Skatt ost, Case HR- intensifies all around the globe. The OECD/ 2011-02245-A, See also France vs Zimmer Ltd CE UN model double taxation convention and 31/03/2020 304715) the BEPS 2.0 framework particularly that on Pillar 1 (Although the United State posed Academics like Cockfield (Reforming the some objections on Pillar 1 especially with Permanent Establishment Principle through a reference to GILTI and TCJA) although have a Quantitative Economic Presence Test, 38 CAN. consensus of almost 129 countries (excepting BUS. L. J. 400 (2003)) argue in favour of notably the United States), the way forward Quantitative Economic Presence Permanent into multilateralism and nationalism in taxes at Establishment test for MNE’s on a worldwide least is challenging and fraught with interesting basis, so that the hitherto sacrosanct principles negotiations and trade deals. of Capital Export and Capital Import Neutrality be kept sacrosanct. Although there are some mom arguments in favour of Qualitative tests (See South Dakota vs Wayfair Inc 138 S.Ct. 2080 (2018) which overturned the ruling in Quill Corp. v. North Dakota (1992), See also Direct Marketing Ass'n v. Brohl particularly the commentary by Justice Kennedy) , by and large the administration of such a test could lead to a administrative nightmare and overhauling the established frameworks under the Convention on Mutual Administrative Assistance in Tax Matters. There has to be made a fine distinction between MNE’s operating on a bigger scale who are actually able to hurt revenue jurisdictions materially and MNE’s operating on a much smaller scale who don’t have a material impact on revenue. Primarily owing to the fact that significant exercise on the latter might not be in favour of smaller business and start-ups who would anyway be constrained by resources for application. And secondarily conducting such a costly exercise might not provide a favourable cost benefit exercise for Revenue. An incremental change in fiscal as well as international tax policy of the comity of
42 AIFTP Journal August 2020 AIFTPJ - 530 | Stare Decisis |
Stare Decisis Vinayak Patkar, Advocate
1. The Gujarat High Court in the case of Para 20 - VKC footsteps India Pvt.Ltd. v. Union Of India, Judgment dated 24.07.2020 has ‘(a) the law declared by the Supreme Court declared Explanation (a) to the Rule 89 being binding on all courts in India, (5) of the CGST Rules, which denied the the decisions of the Supreme Court are refund of “un-utilized input tax” paid binding on all courts, except, however, on “input services “ as part of “input the Supreme Court itself which is free tax credit” accumulated on account of to review the same and depart from inverted duty structure, as ultra vires the its earlier opinion if the situation so provision of Section 54 (3) of the CG ST warrants. What is a binding is, of Act, 2017. The said Explanation (a) to the course, the ratio of the decision and not Rule 89 (5) has been read down to the every expression found therein. extent that Explanation (a) which defined (b) The decisions of the High Court are “Net input tax credit” to mean “input tax binding on the subordinate Courts credit” only. and authorities or Tribunal’s under 2. A view is being expressed that the its superintendence throughout the judgment of the Gujarat High Court, territories in relation to which it declaring the parliamentary law exercises jurisdiction. It does not extend unconstitutional, is a binding precedent beyond its territorial jurisdiction. all over India and all the State (c) The position in regard to the binding Governments, Tribunals and High Courts nature of the decisions of a High Court should follow the same. The author of this on different Benches of the same court article, with due respect, begs to differ may be summed up as follows: from this view for the reasons stated below. (i) a single judge of High Court is bound by the decision of another 3. Late Dr. B.P. Saraf , Hon’ble Judge of the single judge or a Division Bench Bombay High Court, as he then was, of the same High Court. It had lucidly explained the law of binding would be judicial impropriety precedents in the case of The Commissioner to ignore that decision. Judicial of Income Tax v. Thana Electricity Supply comity demands that a binding Limited, (1994) 206 ITR 727. The Court’s decision to which his attention observations are reproduced below : had been drawn should neither be ignored nor overlooked. If
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he does not find himself in will go counter to the very doctrine of stare agreement with the same, the decisis and also the various decisions of the proper procedure is to refer the Supreme Court which have interpreted the binding decision and direct the scope and ambit thereof. The fact that there is papers to be placed before the only one decision of any one High Court on a Chief Justice to enable him to particular point or that a number of different constitute a larger Bench to High Courts have taken identical views in examine the question (see Food that regard is not at all relevant for that Corporation of India v. Yadav purpose. Whatsoever maybe the conclusion, Engineer and Contractor, (1982) the decisions cannot have the force of binding 2SCC499; precedent on other High Courts or on any subordinate courts or Tribunals within their (ii) A Division Bench of a High jurisdiction. That status is reserved only for Court should follow the decision the decisions of the Supreme Court which are of another Division Bench of binding on all courts in the country by virtue equal strength or a full Bench of Article 141 of the Constitution. of the same High Court. If one Division Bench differs from 4. The law of Stare Decisis thus explained another Division Bench of the in Thana Electricity has not yet been same High Court, it should refer overruled by the Supreme Court or the case to a larger Bench. contradicted by any judgment of our own High Court. However, the holders of (iii) Where there are conflicting other view say that the Supreme Court in decisions of courts of coordinate their lordships’ judgment in Kusum Ingots jurisdiction, the later decision is & Alloys Ltd. v. Union of India (2004) 6 to be preferred if reached after SCC254 in clear terms stated that an order full consideration of the earlier passed on a writ petition questioning decisions. the constitutionality of a parliamentary (d) The decision of one High Court is Act, whether interim or final, keeping in neither binding precedent for another view the provisions contained in Article High Court nor for courts or Tribunals 226 (2) of the Constitution would have outside its own territorial jurisdiction. effect throughout the territory of India. It is well settled that the decision of In other words, a support is being drawn a High Court will have the force of from the judgment of the apex court in binding precedent only in the State Kusum Ingots for the proposition that or territories on which the court has judgment of the Gujarat High Court in jurisdiction. In other States or outside VKC Footsteps declaring the Explanation the territorial jurisdiction of that (a) to Rule 89(5) as ultra vires the Section High Court it may, at best, have only 54(3) of the CGST Act is binding on State persuasive effect. of Maharashtra and also on Bombay High Court. By no amount of stretching of the doctrine of stare decisis, can judgements of one High 5. To examine the correctness of this Court be given the status of a binding proposition, we will have to see whether precedent so far as other High Courts or the observations of the Supreme Court Courts or Tribunals within their territorial really convey that the declaration of jurisdiction are concerned. Any such attempt provision of Union law by one High Court
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as unconstitutional binds the other High 7. Article 226 (1) of the Constitution Court. For that purpose, we will have to empowers the High Court to issue read para 21 and 22 of the said judgement directions, orders or writs to any person together: including government within it’s territorial jurisdiction. Article 226 (2) ‘21. A parliamentary legislation when it says that such power can be exercised receives the assent of the President of even if the seat of the government or India and is published in the Official the residence of the person against Gazette, unless specifically excluded, whom the writ is issued is not in the will apply to the entire territory of territorial jurisdiction of the said High India. If passing of legislation gives Court. However, the cause of action ( rise to a cause of action, a writ petition right to sue ) for the exercise of such questioning the constitutionality thereof power should arise within the territorial can be filed in any High Court of the jurisdiction of such High Court. Article country. It is not so done because a 226 (2) does not say anything further. cause of action will arise only when Neither the observations of the Supreme the provisions of the Act or some of Court in Kusum Ingots say that the order them which were implemented shall passed by the High Court has binding give rise to civil or evil consequences effect on the High Courts in other parts to the petitioner. A writ court, it is of the country nor article 226 (2) of the well settled, would not determine a Constitution can be construed to mean so. constitutional question in a vacuum. 8. Article 141 of the Constitution specifically The court must have the requisite 22. states that the law declared by the territorial jurisdiction. An order Supreme Court shall be binding on all passed on a writ petition questioning Courts within the territory of India. If the constitutionality of a parliamentary the makers of the Constitution wanted keeping Act, whether interim or final the law declared by any High Court to in view the provisions contained be binding on other High Courts then in clause (2) of Article 226 of the they would have provided for the same Constitution of India, will have effect in similar manner. They have not said throughout the territory of India subject so and therefore the judgment of High of course to the applicability of the Act.’ Court having binding effect on other High (Highlight by us). Courts is out of question. 6. Thus so read, both the paragraphs only 9. Even otherwise, these observations of convey that the parliamentary legislation the Supreme Court in Kusum Ingots are has applicability all over India and neither Ratio decidendi of that judgment consequently the writ petition challenging nor Obiter dicta. These are only casual the constitutionality thereof can be filed in observations of the Supreme Court. In any High Court in India. The High Court Kusum Ingots, the question that arose for in which the petition is so filed must have consideration before the Supreme Court the requisite territorial jurisdiction and was whether the seat of the parliament or the order passed by it will have effect all the legislature of a State would be relevant over India. However, such effect would factor for determining the territorial be subject to the power granted to the jurisdiction of High Court to entertain High Court under article 226 (2) of the a writ petition under article 226 of the Constitution of India.
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Constitution. In that case, the appellant Constitution and the location of cause of had a registered office at Mumbai. It action, though partial. obtained a loan from the Bhopal branch of State bank of India. The bank issued 11. Hon’ble Bombay High Court in a notice for repayment of the said loan Thana Electricity has reproduced the from Bhopal purported to be in terms observations of Justice Chagla C.J. in of the provisions of the Securitisation the case of Mohandas Issardas v. A.N. and Reconstruction of Financial Assets Sattanathan, AIR 1955 113. The Court in and Enforcement of Security Interest that judgment explained the distinction Act, 2002. Questioning the vires of the between Ratio decidendi , Obiter dicta said Act, a writ petition was filed before and casual observations in the following the Delhi High Court by the appellant manner: which was dismissed on the ground (Para 31 & 32) of lack of territorial jurisdiction. The only submission made on behalf of the “------an obiter dictum is an expression of appellant before the High Court as also opinion on a point which is not necessary before the Supreme Court was that as the for the decision of a case. This very definition constitutionality of a parliamentary Act draws a clear distinction between a point was in question, the High Court of Delhi which is necessary for the determination of the had the requisite jurisdiction to entertain case and a point which is not necessary for the the writ petition. The Supreme Court determination of the case. But in both cases held that a writ petition questioning the points must arise for the determination of the constitutionality of a parliamentary Act Tribunal. Two questions may arise before a shall not be maintainable in the High court for its determination. The court may Court of Delhi only because the seat of determine both although only one of them may the union of India is in Delhi. It was so be necessary for the ultimate decision of the held because the Court in that case found case. The question which was necessary for the that there was no cause of action at Delhi. determination of the case would be the ‘ratio While delivering the judgment the Court decidendi’ ; the opinion of the Tribunal on the made observations on the effect of an question which was not necessary to decide order passed by the High Court on writ the case would be only an obit dictum.------petition wherein the constitutionality of It cannot be suggested that the doctrine of the Union law was challenged, however obiter dicta was so far extended as to make whether such effect is persuasive or the courts bound by any and every expression binding for other High Courts was never of opinion either of the Privy Council or of for determination. the Supreme Court, whether the question did or did not arise for the determination of the 10. In fact, the Supreme Court later on in higher judicial authority.-----. the case of Ambica Industries (2007) 6 SCC 769 observed that the decision 12. The observations of the Supreme Court in of High Court shall be binding only the case of The Commissioner of Income Tax on the authorities which are within v. Sun Engineering Works (P) Ltd. (1992) 4 it’s jurisdiction and it will only be of SCC 363 may also be seen: (Para 39) persuasive value on the authorities ‘It is neither desirable nor permissible to pick functioning under a different jurisdiction. out a word or a sentence from the judgement This decision was also rendered of this Court, divorced from the context of the considering Article 226(2) of the question under consideration and treat it to
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be the complete ‘law’ declared by this Court. 14. Hon’ble Bombay High Court has followed The judgement must be read as a whole and the above referred Full Bench decision the observations from the judgement had to in Kamlesh Kumar in another matter, be considered in the light of the questions namely, M.H.A.D.A. v. P.V. Anturkar, 2009 which were before this Court. A decision of (3) Mh. L.J. and held that the observations this Court takes it’s colour from the questions of the Supreme Court in the case of involved in the case in which it is rendered Devraju Pillai v. Sellayya Pillai (1987) 1 SCC and while applying the decision to a later case, 61 were only casual observations. the courts must carefully try to ascertain the true principle laid down by the decision of this 15. As aforesaid, in Kusum Ingots, the court and not to pick out words or sentences question of the judgment of one High from the judgement, divorced from the context Court on the constitutionality of the of the questions under consideration by this provision of parliamentary Act, whether Court, to support their reasoning. In Madhav has binding effect or persuasive effect Rao Scindia v. Union of India (1971) 1 SCC was never before the Supreme Court 85 this Court cautioned : and therefore any observations made by the Court on the effect are neither ‘it is not proper to regard a word, a clause or ratio decidendi nor obiter dicta and a sentence occurring in the judgement of the are only casual observations having no Supreme Court, divorced from its content as precedential value. containing a full exposition of the law on a question when the question did not even fall mom to be answered in that judgement.’ 13. The Full Bench of the Bombay High Court in the case of Kamlesh Kumar Ishwardas Patel v. Union of India and Others, W.P. No.284 of 1994 dated 26.08.1994 has explained the law relating to ratio Valuation of Land, Building and Machines & decidendi and Obiter dicta in the Equipment for; following manner : Fair Value Measurement as per Indian Accounting Standards (Ind AS) ‘ --- what is binding under the provisions of Realisable value under IBBI Regulations, 2016 article 141 of the Constitution of India, is the law declared by the Supreme Court. If there Value as on 1st April, 2001 for Capital Gains Tax is clear enunciation or declaration of law, the Useful Life as per Companies Act, 2013 same would be binding even though such a Impairment Studies declaration of law was not strictly necessary Expert Witness and Litigation Support Valuation for disposal of the case or the declaration Use our supportable value opinion provided by a of law is not followed by actual application team of Govt. Registered Valuers and Chartered thereof in the case in question. The law Engineers, declared as well as applied in a particular Best MULYANKAN Consultants Ltd. decision becomes ratio decidendi of the case 1st Floor, “ADITYA” Building, while a mere declaration of law, even though Junction of N.S. Phadke Marg and Telli Galli, Opp. Flyover Apartment, Andheri (East), solemn and thoroughly reasoned, without Mumbai – 400 069. application thereof is branded as obiter TELEFAX: 2684 1836, 2684 1839 E-mail: [email protected] and [email protected] dictum.’ Website: www.mulyankan.com
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Taxability of Plots under GST Pradeep K. Mittal, Advocate
As per Section 9 of CGST Act, GST shall be is attached to the earth, but not standing payable on supply of goods or supply or both. timber, standing crops or grass” Section 2(52) defines goods to mean as “every kind of moveable property”. Section 2(102) 4: Section 2(6) of Registration Act also define define “service” mean anything other than “immoveable property” “goods”. Therefore, it is necessary to understand “immovable property” includes land, the meaning of words “moveable property”. The buildilngs, hereditary allowances, rights to moveble property has been defined in Section ways, lights, ferries, fisheries or any other 2(11) of Sales of Goods Act, 1930. benefits to arise out of land, and things 2: The term immoveable property has attached to the earth, or permanently not been defined under CGST Act, fastened to anything which is attached 2017. Hence, we have to fall back to the earth, but not standing timber, upon the definition as given in various growing crops nor grass. enactments namely - Section 3(26) of 5: The Hon’ble Supreme court in C.I.T. General Clauses Act define “immoveable Andhra Pradesh v. Taj Mahal Hotel, property”:- MANU/SC/0239/1971 has observed (26) "immovable property" shall that “considering the scope of meaning "where a word include land, benefits to arise out of of the word 'plant', held, is not defined in a statute, it must be land, and things attached to the earth, construed in its popular sense. or permanently fastened to anything Therefore, attached to the earth; the word “land” as appearing in Clause 5 of Schedule III has to be understood 3: Section 2(z) of Real Estate (Regulation & in popular sense – and interpretational Development) Act, 2016 (hereinafter called solace could be drawn from Land RERA) define Acquisition Act as well. “immoveable property” includes land, 6: The Clause 5 of Schedule III attached to buildings, rights of ways, lights or CGST Act reads as under:- any other benefits arising out of land and things attached to the earth or 5. Sale of land and, subject to Clause (b) permanently fastned to anything, which of paragraph 5 of Schedule II, sale of building.
*Advocate Past Central Council Member, the ICSI
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7: In view of the fact that in Clause 5 of The Dictionary of English Law [1959 edn., Schedule III, the word appearing is Vol. 2, p. 1053 by Earl Jowitt] LAND, in “Land” and not “immoveable property” its restrained sense, means soil, but in and, therefore, we have to understand the its legal acceptation it is a generic term, meaning and scope of the word “Land”. comprehending every species of ground, Unfortunately, the land has not been soil or earth, whatsoever, as meadows, defined in CGST Act and consequently we pastures, woods, moors, waters, marshes, have to look to (i) either popular meaning furze, and heath; it includes also houses, as has been held in CIT v. Taj Mahal Hotel mills, castles, and other buildings; for (Supra) or as defined under other laws viz with the conveyance of the land, the (i) Land Acquisition Act, 1894 (ii) Bombay structures upon it pass also. And besides Land Revenue Act, 1879. an indefinite extent upwards, it extends downwards to the globe's centre, hence 8: Section 3(a) of Land Acquisition Act,1894, the maxim, Cujus est solum ejus est usque the expression “land” include benefits that ad caelum et ad inferos; or, more curtly arise out of land and things attached to expressed, Cujus est solum ejus est altum earth or permanently fastened to anything (Co. Litt. 4-a). which is attached to the earth. Likewise, Section 3(4) of Bombay Land Revenue Words and Phrases Judicially Defined (By Code, 1879 define “land” includes benefits Roland Burrows-Vol. III, 1944 edn., p. 206) to arise out of land and things attached The word "land" would be variously to the earth or permanently fastened to understood by different persons. To a anything attached to the earth. farmer the word "land" would not mean 9: The Supreme Court, while interpreting his farm buildings; to a lawyer the word the word “land” as appearing in Land would include everything that was upon Acquisition Act, in Municipal Corporation the land fixed immovable upon it. Smith of Greater Bombay vs. The Indian Oil v. Richmond per Lord Halsbury, L.C., at Corporation Ltd: MANU/SC/0171/1991 p. 448. has held as under:- The Law Lexicon The question then is whether it is The word "land" is a comprehensive a land? Indisputably the definition of term, including standing trees, buildings, 'land' also is of an inclusive definition. fences, stones, and waters, as well as the Its accompaniments are land which is earth we stand on. Standing trees must being built upon or is built upon or be regarded as part and parcel of the covered with water; benefits to arise land in which they are rooted and from out of land; things attached to the earth which they draw their support. or permanently fastened to anything attached to the earth and rights created by 11: It would also be beneficial to understand legislative enactment over any street. the meaning and scope of “immoveable 10: The Hon’ble Supreme Court in the case property” as interpreted in various of State of Maharashtra Vs. Reliance judgments of Hon’ble Supreme Court. Industries Ltd.: MANU/SC/1186/2017, 12: While interpreting the word “immoveable has noted the following definitions of land property” in Ananda Behra Vs. State given in various legal dictionaries. of Orissa: MANU/SC/0018/1955, the
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Supreme Court has held that a “profit a The subject matter of a profit a prendre, prendre” is a benefit arising out land and namely the substance which the owner of that in view of Clause (26) of Section 3 of the right is by virtue of the right entitled the General Clauses Act, it is immovable to take, may consist of animals, including property within the meaning of the fish and fowl, which are on the land, or of Transfer of Property Act. Now question vegetable matter growing or deposited on arises what is the meaning of words the land by some agency other than that “profit a prendre”. of man, or of any part of the soil itself, including mineral accretions to the soil 13 The Supreme Court in State of Orissa Vs. by natural forces. The right may extend Titaghur Paper Mills Company Limited to the taking of the whole of such animal : MANU/SC/0325/1985, while, relying or vegetable matters or merely a part upon Halsbury”s Law of England, defined of them. Rights have been established “profit a prendre” in the following as profits a prendre to take acorns and words:- beech mast, brakes, fern, heather and 115. The meaning and nature of a “profit litter, thorns, turf and peat, boughs a prendre” have been thus described and branches of growing trees, rushes, in Halsbury's Laws of England, Fourth freshwater fish, stone, sand and shingle Edition, Volume 14, paragraphs 240 to 242 from the seashore and ice from a canal; at pages 115 to 117: 240. Meaning of 'profit also the right of pasture and of shooting a prendre' pheasants. There is, however, no right to take seacoal from the foreshore. The right A profit a prendre is a right to take to take animals ferae naturae while they something off another person's land. It are upon the soil belongs to the owner may be more fully defined as a right to of the soil, who may grant to others as a enter another's land to take some profit profit a prendre a right to come and take of the soil, or a portion of the soil itself, them by a grant of hunting, shooting, for the use of the owner of the right. fowling and so forth. The term 'profit a prendre' is used in contradistinction to the term 'profit a 116: A profit a prendre is a servitude for prendre', which signified a benefit which it burdens the land or rather a person's had' to be rendered by the possessor of ownership of land by separating from land after it had come into his possession. the rest certain portions or fragments of A profit a prendre is a servitude. the right of ownership to be enjoyed by persons other than the owner of the thing 241. Profit a prendre as an interest in land. itself (see Jowitt's Dictionary of English A profit a prendre is an interest in land Law, Second Edition, Volume 2, page and for this reason any disposition of it 1640. under the heading "Servitude"). must be in writing. A profit a prendre "Servitude" is a wider term and includes which gives a right to participate in a both easements and profits a prendre portion only of some specified produce of (see Halsbury's Laws of England, Fourth the land is just as much an interest in the Edition, Volume 14, paragraph 3, page 4). land as a right to take the whole of that 14: In view of the above discussions, various produce.... 242. What may be taken as a activities such as laying down (i) water profit a prendre. pipe lines (ii) storm water pipelines (iii) sewer lines (iv) electric poles permanently
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fastned to the earth (iv) development of 17: The Constitution Bench of Hon’ble parks; (v) play ground (vi) installation of Supreme Court in Ananda Behera and Ors. underground pipes for gas, oil and water, vs. The State of Orissa: MANU/SC/0018/1955 in my view, would fall within the realm of has defined “immoveable property” in the “ profit a prendre” following words:- 15: The Supreme Court in State of Orissa Section 3(26) of the General Clauses Vs. Titaghur Paper Mills Company Act defines "immovable property" as Limited MANU/SC/0325/1985, defined including benefits that arise out of the “immoveable property” as appearing in land. The Transfer of Property Act does General Clauses Act:- not define the term except to say that immovable property does not include Clause (26) of Section 3 of the General standing timber, growing crops or grass. Clauses Act, 1897, defines "immovable As fish do not come under that category property" as including inter alia "benefit the definition in the General Clauses to arise out of land". The definition of Act applies and as a profit a prendre is "immovable property" in Clause (f) of regarded as a benefit arising out of land Section 2 of the Registration Act 1908, it follows that it is Immovable property illustrates a benefit to arise out of land. within the meaning of the Transfer of 16: Further, in Titaghar Papers Mills Ltd Property Act. (supra), the court has held that what 18: The Supreme Court in State of Orissa and constitutes benefits arising out of land Ors. vs. Titaghur Paper Mills Company have been summarized in Mulla on “The Limited: MANU/SC/0325/1985, has Transfer of Property Act, 1882", and it observed as under:- would be pertinent to reproduce the whole of passage. The passage (at pages Thus, while trees rooted in the earth 16-17 of the Fifth Edition) is as follows: are immovable property as being things attached to the earth by reason of the A 'benefit to arise out of land' is an definition of the term "immovable interest in land and therefore immovable property" given in the General Clauses property. The Registration Act, however, Act, the Orissa General Clauses Act expressly includes as immovable and the Registration Act, read with the property benefits to arise out of land, definition of the expression "attached here diary allowances, rights of way to the earth" given in the Transfer of lights, ferries and fisheries'. The definition Property Act. of immovable property in the General Clauses Act applies to this Act. The 19: The Supreme Court in Sunil Siddharth following have been held to be immovable vs. CIT MANU/SC/0164/1985, while property: varashasan or annual allowance considering the expression "Transfer of charged on land; a right to collect dues Property", has observed as follows: at a fair held on a plot of land; a hat or market; a right to possession and "In its general sense, the expression management of a saranjam; a malikana; a "Transfer of Property" connotes the right to collect rent or jana: a life interest passing of rights in the property from in the income of immovable property; a one person to another. In one case there right of way; a ferry; and a fishery; a lease may be a passing of the entire bundle of land. of rights from the transferor to the transferee. (emphasis supplied).
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20: We may also see as to whether grant of only by a registered instrument and development right would fall in Clause an agreement of sale does not create 2(a) of Schedule II of CGST Act or not? any interest or charge on its subject Schedule II deems certain specified matter. transaction as supply of goods or services. Entry No.2(a) deems any lease, tenancy, 16: We therefore reiterate that easement, license to occupy land as immovable property can be legally supply of services. and lawfully transferred/conveyed only by a registered deed of 21: Clause 2(a) of Schedule-II speaks of mere conveyance. Transactions of the permission to occupy land and enjoy nature of 'GPA sales' or 'SA/GPA/ the same as supply of services – without WILL transfers' do not convey title ownership rights. However, when there and do not amount to transfer, nor is complete and full transfer, alienation can they be recognized or valid or divesting of all ownership rights, title mode of transfer of immoveable and interest in the immoveable property property. by way of execution of Registered Sale Deed or Registered Conveyance Deed or 23: The Hon’ble Bombay High Court in Title Deeds, this transaction, in my firm Sadoday Builders Private Ltd. and Ors. v. The view, shall not fall under Entry No.2(a) of Jt. Charity Comm.: MANU/MH/0791/2011, Schedule II, as there would a permanent has observed as under:- transfer, alienation and/or disposal of From these judgments, what appears immoveable property. is that a benefit arising from the 22: The Hon’ble Supreme Court in a landmark land is immovable property. FSI/ judgment in the case of Suraj Lamp and TDR being a benefit arising from the Industries Pvt. Ltd. vs. State of Haryana land, consequently must be held to be MANU/SC/1222/2011 has held that the immovable property and an Agreement land, building or civil structure and other for use of TDR consequently can immoveable property could be transferred be specifically enforced, unless it is by way of execution of Registered Sale established that compensation in money Deed/Conveyance Deed. The following would be an adequate relief." observations were made. 24: The Hon’ble Tribunal in DLF Commercial 12: Any contract of sale (agreement to Projects Corporations v. Commissioner sell) which is not a registered deed of Service Tax, Gurugram (22.05.2019 - of conveyance (deed of sale) would CESTAT - Chandigarh) : MANU/ fall short of the requirements of CJ/0032/2019, has observed as under:- Sections 54 and 55 of Transfer of As the Hon'ble High Court observed Property Act and will not confer in the case of Sadoday Builders Private any title nor transfer any interest Ltd. and Ors. (supra) that transferable in an immovable property (except development right is immovable property, to the limited right granted under therefore, the transfer of development Section 53A of Transfer of Property rights in the case in hand is termed as Act). Section 54 of Transfer of immovable property in terms of Section 3 Property Act enacts that sale of (26) of General Clauses Act, 1897 and no immoveable property can be made service tax is payable as per the exclusion
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in terms of Section 65B(44) of the Finance those facilities would also be convyed Act, 1994. to the plot-holder, a registered deed of documents would be necessary and hence, 25: In view of the above discussions, the the value addition is required to form part various activities partake the character of total consideration shown in the Sale of “development rights” in view of the Deed or Conveyance Deed or Title Deed judgment of Hon’ble Bombay High which is registered under Section 17 of Court and Hon’ble Tribunal, held to be Indian Registration Act. benefits arising out of land. It would be noticed that even the definition of land, as 28: Can we perceive a situation whether given in Section 3(a) of Land Acquisition Clause 5 Schedule III would cover Act, inter-alia, says that the land would or encompass only raw land and not include the benefits arising out of land. developed plot of land ?. The various activities such as laying down (i) pipe lines (ii) storm water pipelines (iii) 29: The AAA of Karnataka, Gujarat, Madhya sewer lines (iv) electric poles permanently Pradesh have held that development of fastned to the earth (iv) development of land and selling it as plots is essentially parks; (v) play ground (vi) installation a supply of service and hence these of underground pipes for gas, oil and transactions are taxable. water would fall in the realm of land. a) M/s Satyaja Infratech (AAA Guj. Hence, all developmental activities are, 20.9.2019) in my humble view, benefits arising out of land and consequently fall in Clause 5 b) M/s Maarq Spaces (P) Ltd (AAA Kar of Schedule III and hence NO supply and 30.9.2019) resultantly not taxable. On the lighter side, c) M/s Vidit Builders (AAA MP girl with or without jewellery would still 6.1.2020) be bride at the time of marriage – land be it raw land or developed land, would still d) Sh Dipesh Anil Kumar Naik(AAR Guj be land only and its character would not 19.5.2020) change. 30: How, Ld AAA decided the cases in totally 26 In my view, sale of plot is akin to sale biased and prejudiced mannter. The of land and activities like road laying, classic case is AAA Gujarat in M/s Satyaja drainage works, electricity supply Infratech dated 20.9.2019 2020-TIOL-80-AAR facilities are incidental to development GST wherein it has been held that the and does not change character of land. entire sale consideration i.e. 100% of the The utilities, road and parks are not plot value would be taxable. Can 100% supplied to the purchaser of plot but consideration which is inclusive of value surrendered to the Public Authority/ of land would be subject to tax – answer Municipal Corporation and rights therein is BIG NO. are vested in the public authority. 31: The Clause 5 of Schedule III to CGST 27: By vitue of aforesaid judgments, all Act “ Sale of land and, subject to Clause other facilities which had been installed, (b) of paragraph 5 of Schedule II, sale erected and commissioned over the of building” shall neither be treated as open un-developed land, so as to supply of good nor supply of services. make it “developed plot” and title to The development rights are akin to the
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benefits arising out of land and hence Conveyance Deed etc upon receipt outside the purview of taxation by virtue of sale consideration. Since, it is self of Schedule-III to CGST Act. In my view, service, no GST would be payable. the Clause 5 of Schedule III would cover all activities that are directly and closely b): To appoint either one or more connected to the purchase and sale of than one contractors to undertake land including all activities in connection various developmental activities. with the development of plots. Therefore, The contractors would be raising all other connected activities (which are taxable invoices. part of developmental activities) which c): The Developer can avail ITC of tax are incidental or ancillary to the main so paid on the taxable invoices of activities connected with the development contractors. of land would be outside the purview of supply of either goods and services. d): After development, the Developer will have to raise (i) Bill towards 32: Notwithstanding the above, yet as a sale of developed land/plot (ii) bundant caution, if it is decided to Taxable Invoice for proportionate pay tax, the following route could be development charges which were followed:- incurred in the whole project a): The Developer to carry out all and charge GST and pay to the developmental activities himself Government after claiming ITC and develop the plots out of land of tax so paid on the invoices of and sell the developed plots upon contractors. execution of registered Sale Deed/ mom
Publications for sale
Sr. Rate (`) No. Name of Publication Edition Members Non- Courier Members Charges 1. GAAR General Anti-Avoidance Rules Dec., 2019 640.00 720.00 100.00 2. 311 – Frequently Asked Questions on Survey – Dec., 2018 600.00 675.00 100.00 Direct Taxes 3. Income Tax Appellate Tribunal – A Fine Balance Dec., 2017 1,000.00 1,050.00 100.00 – Law, Practice, Procedure and Conventions – Frequently Asked Questions
Notes: 1. The above publications are available for sale; those who desire to buy may contact the office of the Federation. 2. Local/Outstation members not collecting from office are requested to add courier charges, as mentioned above. 3. Please draw Cheque/Draft in favour of “All India Federation of Tax Practitioners” payable at Mumbai.
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GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19
Mukul Gupta, Prateek Gupta & Akshi Narula, Advocates
The outbreak of COVID-19 has resulted a surge 1.1. PROCEDURE FOR EXPORT OF PPE in the demand for relevant medical supplies and MEDICAL COVERALLS NOTIFIED prevention material/services, such as sanitizers, Trade Notice No. 17/2020-21 dated 29.06.20201 disinfectants, PPE kits, protective masks, issued by the Directorate General of Foreign protective spectacles, rubbing alcohol, gloves, Trade (hereinafter referred to as ‘DGFT’) infrared thermometers, ventilators, fumigation restricts the export of PPE medical coveralls services etc. Goods and Services Tax (hereinafter for COVID-19 (hereinafter referred to as ‘the referred to as ‘GST’) on masks, sanitizers, Product’) and fixes the export quota of 50 lakh gloves, PPE kits and some other key COVID-19 Product Units per month. It notifies the online medical supplies may fall either under the 5% application procedure through DGFT’s ECOM or 12% or 18% GST slabs due to some valid system for Export authorizations and criteria for controversies about their classification based on export of the aforementioned commodity. This their contents and usage in accordance to the is as follows: accepted principles of classification of goods and services. The present pandemic has also led to a • Export of only 50 lakh units of the Product trail of amendments, relief measures and other shall be allowed monthly. changes directed at regulating the foreign trade • Exporters to apply online through DGFT’s and associated matters. The analysis of such ECOM system for Export authorizations measures and changes in brief as well as some controversies shall provide the reader an insight • Only applications for export of the on the possible widespread effects needing Product filed from 1st to 3rd day of each reconsideration of earlier understanding. month to be considered for monthly quota. 1. TRADE FACILITATION • Approvals/allocations to be done by 10th of every month in accordance with CUSTOMS LAW Handbook of Procedures. The following are the major amendments which have been introduced in effect to the outbreak of • Validity of Export License will be for 3 COVID-19 intending at regulating & providing months only. relief to the business keeping into consideration Further, the requirements/eligibility criteria the requirement of the current situation. for issuance of Export license for exporting the
1. http://dgft.gov.in/sites/default/files/TradeNotice17_0.pdf
AIFTPJ - 543 AIFTP Journal August 2020 55 | GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 | products along with documents to be submitted S. HSN DESCRIPTION OF along with online application have been laid as No. GOODS follows: 1. 9018 or Artificial respiration • The applicant shall be a manufacturer of 9019 or other therapeutic the Product. respiration apparatus (Ventilators) • Applicant is to submit copy of Testing/ Accreditation of the Product issued to him 2. 63 or any Face masks and surgical from laboratories notified/recognized by Chapter masks the Ministry of Textiles. 3. 62 or any Personal protection Chapter equipment (PPE) • Applicant to either submit copy of importing country’s PPEs medical 4. 30, 38 or COVID-19 testing kits coveralls Standards Certificate obtained by any chapter it or copy of Bureau of Indian Standards 5. Any Inputs for the manufacture Certificate obtained by it, if importing chapter of above items country does not insist in a Standard The importer however should follow the Certificate. procedure set out in the Customs (Import of • Applicant to submit a Chartered Goods at Concessional Rate of Duty) Rules, 2017 Engineer’s certificate certifying that fabrics used in the Product were 1.3. OTHER EXEMPTIONS manufactured in India. The DGFT in another relief measure by way of Trade Notice No. 62/2012-2020 dated 06.04.20203 • Copy of Applicant firm’s IEC. directed that where imports taking place under a Free Trade Agreement, have claimed • Only one application per IEC will be preferential treatment but original hard copy of considered during a month Certificate of Origin on account of disruptions • Copy of Purchase Order/Invoice caused by COVID-19 pandemic cannot be produced or only a digitally signed copy or • All documents to be duly self-attested by unsigned copy of the certificate may be accessed authorized person of the firm. and cleared provisionally. 1.2. DUTY EXEMPTIONS The final assessment may however be done The Department has exempted the levy of subsequently on submission of the original customs duty and health cess on medical certificate by the importer. Also, the revenue equipment to combat COVID-19 pandemic by may be secured through undertaking and virtue of Notification No. 20/2020-Cus dated appropriate security. April 9, 2020 upto 30.09.2020.2 The following goods are covered by the exemption notification:
2. https://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-act/notifications/notfns-2020/cs-tarr2020/cs20-2020.pdf. 3. https://www.cbic.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2020/Circular-No-18-2020.pdf
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2. CONTROVERSIAL ISSUES AS 2.1.1. Masks used for medical purposes and for PER HSN Code vis-à-vis GST other than medical purposes RATE ON SOME ITEMS OF In India, masks can be broadly divided into 4 types, on the basis of their physical features. EXTENSIVE USE AGAINST These are: COVID-19 i. Masks with detachable filters or with a GOODS AND SERVICES TAX LAW mechanical part; 2.1. ISSUES RELATED TO CLASSIFICATION ii. Masks without a detachable filter or a The pandemic has led to introduction of new mechanical part; products and services in the market. Additional iii. Masks made of cellulose paper or felt or facilities for manufacture of such products have non woven fabric; and also been resorted to by several ventures as their new business lines. After detailed research and iv. Textile masks including designer masks analysis of Harmonized System Nomenclature which have now formed a part of the suit (hereinafter referred to as ‘HSN’) as updated sets. till 2017 by World Customs Organization, we have prepared and enclosed the table providing Further, the World Health Organisation in various important products, their description, its 2016 Guidelines on Personal Protective HSN Code, relevant rate notification and its Equipment (hereinafter referred as ‘PPE’) recommended technical specifications for item number as well as the GST tax rate in 4 accordance to the prescribed Schedule under the surgical mask. Guidance Flyer issued by GST law. The possible notifications and relevant WHO recommends Advanced masks (Surgical entries have been incorporated with our brief masks for single use only & N95 masks) for health workers or those in contact with COVID comments for easier understanding and brief 5 analysis of the most appropriate applicable 19 patients or COVID patients themselves . classification and GST rate on the specifically While, homemade masks of cloth have been described product. The difference of opinion recommended for people not suffering from regarding the categorization of some items has medical conditions or having breathing emerged due to very complicated structure of difficulties. Guidelines prescribing the use of PPE in different settings have also been issued the classification entry which is really difficult 6 to comprehend. The issues of classification have by the Ministry of Health and Family Welfare. already started surfacing as being raised by the There has however, emerged another category investigating agencies of the GST Departments. of face masks with replaceable filters. The There have been contrasting views regarding following columns (I) and (II) state the the classification of N95 Mask whether would competing entries for classification of the be suitable under Heading 9018 or 9020 of the aforementioned Mask: Harmonized System of Nomenclature.
4. https://apps.who.int/iris/bitstream/handle/10665/251426/9789241549721-eng.pdf?sequence=1&ua=1 5. https://www.who.int/docs/default-source/searo/bangladesh/2019-ncov/home-made-maskiv.pdf?sfvrsn=a5f05f58_8 6. https://www.mohfw.gov.in/pdf/GuidelinesonrationaluseofPersonalProtectiveEquipment.pdf
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I II HSN 9018 9020 Rate 12% 12% Text Instruments and Appliances used in Medical, Other breathing appliances and gas Surgical, Dental or Veterinary Sciences, masks, Excluding Protective Masks Including Scientigraphic Apparatus, Other having neither Mechanical Parts nor Electromedical Apparatus and Sight -Testing Replaceable Filters Instruments
Our View: Heading 9020 constitutes of two major categories of ‘Other Breathing Appliances’ and ‘Gas Masks’ but at the same time excludes the protective masks which do not have mechanical parts or replaceable filters. Hence a protective mask of the category having replaceable filters shall be classified within the Heading 9020 and shall attract a GST rate of 12%. The second part of the heading containing exclusion of protective masks having neither mechanical parts nor replaceable filters creates a complexity and needs a clearer consideration of the facts of each case in order to classify a mask under the heading 9020 or 9018. Further, the third category of ‘textile mask’ is classifiable under Heading 6307.90 depending upon the ‘sale value’ of the mask as a textile article. A textile mask with a sale value below ` 1000/- piece shall attract a rate of 5%. On the other hand, a textile mask with a sale value exceeding ` 1000/- piece shall attract a rate of 12%.
2.1.2. Face Shields majorly used for medical purposes A constituent of the ‘Personal Protective Equipment’ is a plastic face shield with headgear providing good visibility to both the wearer and the patient with an adjustable band attached firmly around the head. It aims to protect the facial area from exposure to airborne particles containing virus that may be expelled by another person. The following are the competing entries:
I II HSN 9018 3926.90 Rate 12% 18% Text Instruments and Appliances used in Medical, Other articles of plastics and articles of Surgical, Dental or Veterinary Sciences, other materials of headings 3901 to 3914 Including Scientigraphic Apparatus, Other [other than bangles of plastic, plastic Electromedical Apparatus and Sight -Testing beads and feeding bottles] Instruments
Our View: Face Shields as have been described above, are being majorly used for ‘medical’ purposes and the same shall qualify as an ‘instrument and appliance’ classifiable under Heading 9018, sub-heading ‘Other’ with HSN 9018 99 with applicable rate of 12%.
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The possible contrary view has emerged based prevail. The entry for classification of a specially on the two rulings rendered by the United States designed item based on its specific use is a CROSS Rulings7 where under both the rulings, it better categorization being a nearer entry. has been held that such face shields brought into U.S. shall have a classification under Heading 2.1.3. Mechanical Sprayer including battery/ 3926.90 attracting a rate of 18% holding that they power operated used in fumigation “would be considered articles of plastic, and A battery/power operated mechanical sprayer as they are not more specifically provided for usually works when user slides the locking elsewhere.” The said view makes the impugned button to the unlocked position, which enables product susceptible to challenge and leviable to the trigger button. When the user presses the a higher rate. trigger button, the motor is activated, which bring the water, water-based sanitizers or The latter entry is however expansive and disinfectants up the suction hose via the pump according to the general rules of interpretation, to the spray chamber. a specific entry over a general entry shall
I II III HSN 8424 8424.89 84131910 Rate 12% 18% 5% Text Sprinklers; drip irrigation Mechanical appliances (whether or Pumps for Liquids, system including laterals; not hand-operated) for projecting, whether or not fitted mechanical sprayers dispersing or spraying liquids or with a measuring powders; fire extinguishers, whether device, Liquid or not charged; spray guns and Elevators similar appliances; steam or sand blasting machines and similar jet -- Other projecting machines --- Hand Pumps [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers]
Our View: The article ‘battery/power operated mechanical sprayer’ clearly falls within the Heading of ‘Mechanical Sprayers’ under 8424 subjecting the same to a rate of 12%. A specific entry reading ‘mechanical sprayers’ has been listed thereunder. However, a contrary view might be taken claiming a classification under the heading 8424.89 attracting a higher rate of 18% under the heading ‘Mechanical Appliances’. A careful consideration of the physical characteristics of the impugned product is required as to whether the product shall constitute a ‘sprayer’ or ‘gun’ or ‘appliance’.
7. Number N311621 concerning classification of face shields imported from the United Kingdom dated May 13, 2020 and Number G89437 concerning classification of face shields imported from South Korea dated April 11, 2001.
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A pump or a liquid elevator on the other hand The Director General of Goods and Services shall be classifiable under Heading 8413.19.10 Tax vide its (internal) communication dated attracting a rate of 5%. Similarly, gun sprayer June 16, 2020 relating to evasion of GST in has been specifically stated under Heading respect to Alcohol based - Hand Sanitizers 8424.89. (as used in ‘WCO Classification’) has stated that some manufacturers of the product are 2.1.4. Hand Sanitizers classifying product under wrong tariff heading Most controversial item concerning the 3004 attracting a rate of 12% while the product classification issue is ‘sanitizer’. The specification shall attract a rate of 18% under Heading 3808. as per WHO note on Handrub Formulations mentions the ingredients: Ethanol, Isopropyl The most competitive entries under which Alcohol, Hydrogen Peroxide and Glycerol. a sanitizers or disinfectants could fall are as The majority of the formulation contains either follows: Ethanol or Isopropyl Alcohol.8
I II III IV V HSN 3004 3401 3402 3808 3824 Rate 12% 18% 28% 18% 18% Text Medicaments Soap, Organic Organic surface- Insecticides, Prepared for therapeutic surface-active active agents rodenticides, binders for or prophylactic products and (other than soap); fungicides, foundry uses, put up in preparations surface-active herbicides, moulds or measured doses for washing preparations, antisprouting cores; chemical or in forms the skin, in washing products and products and or packings the form of preparations plant-growth preparations of for retail sale, liquid or cream (including regulators, the chemical or including and put up auxiliary washing disinfectants allied industries Ayurvedic, for retail sale, preparations) and similar (including Unani, whether or and cleaning product those consisting homoeopathic not containing preparations, of mixtures siddha or Bio- soap whether or not of natural chemic systems containing soap, products), medicaments, other than those of not elsewhere put up for retail heading 3401 specified or sale included Notes to HSN Code Chapter 34 Note 2 of Chapter Note while defining ‘soap’ for 3401 states that Products containing abrasive powders remain classified in heading 3401 only if in the form of bars, cakes or moulded pieces or shapes. In other forms they are to be classified in heading 3405 as "scouring powders and similar preparations". Note 3 defining ‘organic surface-active agents" are products which when mixed with water at a concentration of 0.5% at 20oC and left to stand for one hour at the same temperature: give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; and reduce the surface tension of water 4.5 X 10-2 N/m (45 dyne/Cm) or less.
8. https://www.who.int/publications/i/item/guide-to-local-production-who-recommended-handrub-formulations
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Our View: sanitizer comprising of the active ingredient, a) Heading 3004 ethyl alcohol (62% of the total product), the The Heading 3004 primarily deals with remainder of the hand sanitizer comprising of ‘Medicaments’ and states its properties water, isopropyl alcohol, glycerin, fragrance, thereafter. The present commodity does not propylene glycol, and aloe barbadensis leaf largely fulfill the basic criteria as has been set juice. by the heading 3004, probably the classification If we go by the view as supported by US CROSS adopted by some of the manufacturers needs Rulings NY N311037 and NY N304365 wherein serious reconsideration. a similar issue relating to classification of hand The HSN classification 3004 could only sanitizer was raised before the authority then be attracted for sanitizer because of its unfortunately the appropriate Heading for characteristic being “prophylactic” which means classification of hand Sanitizers is 3824 attracting measures designed to prevent the occurrence of a rate of 18%. an adverse event, a disease or its dissemination. However, the analysis of the same is to be For the purpose of the correct classification of made taking into consideration the chemical the product, many other accepted principles of constitution, intended use and by applying other classification needs to be examined in depth. relevant tests for determination of appropriate classification of the product. The products falling b) Heading 3824 under same family is an important consideration The classification HSN 3824 is a general category for attracting the particular classification, by this for chemical products which do not fall in any criteria the questioned product must fall in 3808 other classification. covering “Insecticides, rodenticides, fungicides, A view has been taken by the US CROSS herbicides, antisprouting products and plant- Rulings in NY N3110379 where it has been held growth regulators, disinfectants and similar that the sanitizer made of Alcohol from Rum product”. Distillated 70 % v/v, to be used in antimicrobial applications such as hand sanitizing and also c) Heading 3402 containing distilled water, hydrogen peroxide, Heading 3402 concerns “Organic surface- glycerin and isopropyl myristate shall be active agents (other than soap); surface-active classified under Heading 3824 i.e. “Prepared preparations, washing preparations (including binders for foundry molds or cores; chemical auxiliary washing preparations) and cleaning products and preparations of the chemical or preparations, whether or not containing soap, allied industries (including those consisting of other than those of heading 3401.” mixtures of natural products), not elsewhere If the product sanitizer could be characterized specified or included: Other: Other: Other: as per its contents as an organic substance Other: Other: Other.” then such sanitizer may fall in 3402, but in A similar view has been taken by NY N30436510 accordance to the principle of use of the wherein the product constituted of a liquid product, the nearest entry is 3808 which
9. Concerning the tariff classification of Hand Sanitizer from Netherlands dated April 7, 2020. 10. Concerning the tariff classification of Hand Sanitizer from China dated May 21, 2019.
AIFTPJ - 549 AIFTP Journal August 2020 61 | GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 | could appropriately be used for deciding 18%, so there is not much to debate on its the applicable rate of tax under GST being a classification for the present purposes. consumption based tax collection system. The classification of the good is dependent The appropriate Heading for classification of upon the chemical properties of the product. hand Sanitizers is 3808 attracting GST rate of The rules of classification have relied on 18%. Hand sanitizers fall under the category: chemical composition and reactions and hence, ‘Insecticides, rodenticides, fungicides, herbicides, a reference to chemical composition is also a antisprouting products and plant-growth prerequisite to the classification of the product. regulators, disinfectants’ and shall qualify as ‘similar product’ as per the same family of 2.1.6. Protective Garments generally known as consumable products as well as for the reason the Personal Protective Equipment (PPE) that they possess similar properties to the genus WCO Classification provides for the following of products covered in the category. Headings which may be perused for classification of the said product: 2.1.5. Disinfectant Disinfectants with constitutions of alcohol, i. 3926.20: Protective unisex garments benzalkonium chloride solution or peroxyacids, made of plastic sheeting, textile reinforced or other disinfectants are common in use in plastics or textile backed plastics present times. ii. 4015.90: Protective unisex garments made of rubber sheeting… Our View: ‘Disinfectant’ is specifically mentioned under iii. 4818.50: Paper or cellulose garments Chapter Heading 3808 attracting a rate of iv. Other Sub headings of Chapter 62, which can be discussed as follows:
I II III HSN C 6210.10 6210.50 6210.50 Rate 5% or 12% 5% or 12% 5% or 12% Text Protective garments for Other protective garments of Unisex protective surgical/medical use made textiles and rubberised textile garments made of up of felt or nonwovens fabrics or woven fabrics that rubberized textile fabrics whether or not impregnated, are impregnated, coated, coated, covered or laminated covered or laminated (fabrics (fabrics of heading 56.02 or of headings 59.03, 59.06 or 56.03).This includes spun- 59.07). bonded garments.
Our View: While a distinction on the basis of the broad heads may be done depending on the properties of the protective garment, the most closely related heading under Chapter 62 is the Heading 6210.10 i.e. Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02 or 56.03).This includes spun- bonded garments.
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As per Wikipedia, Felt has been defined as with plastics or embedded in plastics will be "Felt is a non-woven textile. It is made by classifiable under the Heading 3926.20 with an compressing and matting fibres together until applicable rate of 18%. they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth 2.1.7. Gloves including surgical rubber gloves known. Felt has been used in many cultures as and others a material for clothing, footwear, rugs and even Gloves, full fingered are being commonly used tents." for prevention from the spread of the disease. They are made by using varied materials The reason for the above conclusion is that ranging from plastic, rubber, textile, etc. A in major cases, the use of the commodity is differentiation on the basis of material used to ‘surgical’ or ‘medical’ and that the material used manufacture the product and the purpose of for making the protective garment is made of manufacturing them has been made. ‘felt or nonwovens whether or not impregnated, coated, covered or laminated’. The following are the competing Headings for undertaking the process of classification of the PPE made from plastic sheeting other than felts product: impregnated, coated, covered or laminated
I II III IV V HSN 3926.20 4015.11 4015.19 6116.10 6216 Rate 18% 12% 18% 5% or 12% 5% or 12% Text Other articles Surgical Articles of Knitted or Textile Gloves of plastics and rubber apparel and crocheted that are not articles of other gloves or clothing gloves which knitted or materials of medical accessories have been crocheted headings 3901 examination (including impregnated to 3914 [other rubber gloves, mittens or covered than bangles of gloves and mitts), for with plastics or plastic, plastic all purposes, rubber beads and of vulcanised feeding bottles] rubber other than hard rubber [other than Surgical gloves]
Our View: An intricate analysis of the properties of the material used to manufacture the product and those specified in the description of the product is required to ascertain the correct classification of the product. The intended use of the product in light of the destination based tax collection system read with the principles used in the classification process are needed to be relied upon. The most commonly used type: Rubber gloves shall be classifiable as ‘Surgical rubber gloves’ attracting a lower rate of 12% or shall constitute an ‘article of apparel and clothing accessories’ attracting a rate of 18% shall depends upon the very facts of each case.
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2.1.8. UV Disinfectant Boxes i. Provision for thermal scanning, handwash, UV Disinfectant boxes and similar appliances sanitizer will be made available at all usually contain a component emitting ultraviolet entry and exit points and common areas (UV) rays/light to disinfect documents, medical ii. Frequent sanitisation of entire office, instruments, articles, etc. and are in common common facilities and all points which use in work places and hospitals to sanitize the come into human contact. inputs. iii. Wearing of face cover is compulsory in all Our View: work places and adequate provision of the The most closely related Heading to the same should be made impugned product is Heading 8543.70.99 i.e. “Electrical machines and apparatus, having iv. Employees showing any symptoms of individual functions, not specified or included COVID 19 should be immediately sent elsewhere in this Chapter.” The present Entry for checkup in nearby medical hospitals/ is of a residuary and general nature attracting a clinics. rate of 18% under the rate notification. v. Arrangement for transport facilities It is hence iterated herein that UV disinfectant to be ensured with social distancing process is also commonly used in medical wherever public/private transport is establishments for disinfecting of medical not feasible instruments, etc. but UV Disinfectant boxes vi. Intensive communication and training on does not find any specific mention in Chapter 90 good hygiene practices shall be taken up which contains Medical or Surgical Instruments and Apparatus. Standard Operating Procedures12 for offices, factories, workplaces and establishments has 2.2. AVAILABILITY OF INPUT TAX CREDIT been prescribed to be as follows: 2.2.1. Handwash, sanitizer, masks etc. provided to the employees by the employer i. All workplaces to have adequate measures In the series of inadvertent event of spreading for temperature screening and provide of corona virus turning into pandemic, the sanitizers at convenient places Prime Minister under Sections 6 and 10 of the ii. All organisations to sanitise their Disaster Management Act, 2005 declared the workplaces between shifts. pandemic as a ‘national disaster’, followed by the national lockdown as per Order dated iii. All areas in the premises to be disinfected 24.03.2020 under the Act. The Ministry of Home iv. For workers coming- from outside, special Affairs thereafter issued guidelines11 which have transportation facility to be arranged been updated from time to time to prescribe without any dependency on public National Directives for COVID-19 Management. transport These include special directions for Work Places, which are as follows:
11. https://www.mha.gov.in/sites/default/files/MHAOrderextension_1752020_0.pdf; https://www.mha.gov.in/sites/ default/files/MHA%20Order%20Dt.%201.5.2020%20to%20extend%20Lockdown%20period%20for%202%20weeks%20 w.e.f.%204.5.2020%20with%20new%20guidelines.pdf 12. https://www.mha.gov.in/sites/default/files/MHA%20order%20dt%2015.04.2020%2C%20with%20Revised%20 Consolidated%20Guidelines_compressed%20%283%29.pdf
64 AIFTP Journal August 2020 AIFTPJ - 552 | GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 | v. Medical insurance for workers to be made constitute a taxable service. It was observed mandatory before the Advance Ruling Authority that there is an involvement of ‘consideration’ Hence, in light of the above laws, the ‘work as has been defined under Section 2(31) of places’ are required to fulfill the above the CGST Act, 2017 and that such provision mentioned conditions. A failure to comply of food shall fall within the meaning of with any of the above shall on the other ‘business’ as has been defined under Section hand attract penal measures as imposed by 2(17)(b) of the CGST Act, 2017. State laws. Hence, a compliance of the above provisions is necessary for carrying on the • CCE v. Brakes India Ltd. 2018 (11) TMI business i.e. such activities by virtue of the 1748 above laws is in course or furtherance of The issue before the Madras High Court was business. Moreover, to instil confidence in the whether an activity carries out in compliance employee's to work together at workplace all of statutory requirement under a particular these products are necessary otherwise the Act alone would make the said activity/ work cannot be possible adhering the social service as input service under Rule 2(l) of distancing norm to fight COVID-19. the CENVAT Credit Rules, 2004 especially Section 16 of the Central Goods and Services when such service/activity has no nexus in or Tax Act, 2017, prescribes the eligibility for integral connection to the manufacture of final taking credit. Section 17(5) however specifies a product. It was held that when the employer list of supplies in respect of which such credit spends money to maintain factory premises shall not be available. The list blocks credit in in an eco-friendly manner based upon the respect of the following: directives issued by the Statutory Authorities, the tax paid on such services would form part i. Under clause (b), Food and beverages of the costs of the final product, that the same would fall within the ambit of ‘input services’ ii. Under clause (b), life insurance and and that the assessee is entitled to claim the health insurance. benefit. iii. Under clause (h), goods lost, stolen, destroyed, written off or disposed of by • CCE v. Stanzen Toyotetsu India (P.) Ltd. way of gift or free samples. 2011 (4) TMI 201 It was held that credit on Outdoor catering In addition to the above, the following cases services, transportation charges, rent-a- shall also be referred in order to determine the cab scheme and Group Health Insurance correct position in relation to the availability shall be available. It was held that it is clear of credit on the supplies on which such credit from the definition any service used by the on input has been blocked. manufacturer whether directly or indirectly in or in relation to the manufacture of final • In Re: Caltech Polymers Pvt. Ltd. 2018 (10) TMI 1313 –AAR Kerala products constitutes input service. If the The present application was filed with the credit is availed by the manufacturer, then issue of whether the food expenses for canteen the said service should have been utilized by services recovered from the employee without the manufacturer directly or indirectly in or in any profit margin would be liable to GST. The relation to the manufacture of final products Appellate Authority held that the activity or used in relation to activities relating to would constitute a ‘supply’ and would business - merely because these services are
AIFTPJ - 553 AIFTP Journal August 2020 65 | GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 | not expressly mentioned in the definition of production and sustainability of the input service it cannot be said that they do not company would be at stake if such constitute input service and the assessee is not activity is not treated as ‘business’ entitled to the benefit of CENVAT credit. activity.
Our View: • The Kerala Authority for Advance Considering the unique and challenging Rulings in an application filed by circumstances to protect human beings from Polycab Wires Pvt. Ltd. 2019-VIL-100- the virus by introduction of the new law to AAR, the applicant had distributed fight the COVID pandemic, the business are electrical goods to people affected entitled to undertake certain compulsory by the flood in Kerala in discharge activities which were not prevalent before the of the applicant’s CSR obligations. It COVID scenario. The circumstances however was hence adjudicated that the goods have found a mention in the previous excise were distributed on free basis without regime wherein the credit was available in collecting any money. Such distribution cases an activity which was compulsory shall amount to ‘disposal by way of gift’ to be undertaken by a law. The same has and no ITC shall be available as per been asserted by the Appellate Authority for Section 17(5)(h). Advance Rulings under the New GST regime In a similar context to that of the mandatory as well. So, the direct expenses for such fight CSR activities by law, while the erstwhile to protect the business interests including regime provides for credit, the AAR denies all stakeholders are legitimate expenses in the same by invoking the specific provision of furtherance of business and thus the ITC Section 17(5) concerning blocked credit. would be eligible on all such inward supplies, as mandated by the law. The tussle on whether an obligation imposed by introduction of a law to the effect amounts 2.2.2. CSR Expenditure to a supply in the course or furtherance of • The Mumbai Bench of CESTAT in the business is yet to reach the Courts. It points at case of Essel Propack v. Commissioner the blatant denial of the right available to the [2018-TIOL-3257-CESTAT-Mumbai] held taxpayer to avail ITC. that Corporate Social Responsibility (hereinafter referred to as CSR) is 3. CONCLUDING REMARKS not in the nature of charity and is The present circumstances of pandemic are directly connected with the principal once a lifetime challenge, so the situation manufacturing activity of the needs to be tackled with exceptional thinking company which is largely dependent and innovative actions. The issues of on smooth supply of raw materials. classification or categorization of products and The Bench held that contribution services needs to be re-invented considering towards Social Responsibility is a the distinctive facts and circumstances. The mandatory requirement for public GST law needs to be uniquely interpreted sector undertakings and has also considering the crucial need to protect the been made obligatory for the private human race both from the ill-effects of sector. CENVAT credit was allowed to deteriorating health and economy. the appellant for the reason that the
66 AIFTP Journal August 2020 AIFTPJ - 554 | GST Implications & Classification Intricacies on Items and Services used in Fight Against COVID-19 |
CLASSIFICATION OF GOODS & SERVICES USED MAJORLY IN COVID ERA Compiled & Presented by Mukul Gupta - Senior Partner & Counsel, Prateek Gupta – Partner & Counsel and Akshi Narula – Associate Lawyer At Sharnam Legal S. NOTIFICATION HSN/ Entry DESCRIPTION OF GOODS/ RATE GST Schedule- No. NUMBER SAC SERVICES OF TAX Rate NO. 1 PERSONAL PROTECTIVE EQUIPMENT (PPE) KIT Protective garments for surgical/medical use made up of felt or nonwovens whether or not impregnated, coated, covered or laminated (fabrics of heading 56.02-felt, whether or not impregnated, coated, covered or laminated as well as 56.03-non-wovens, whether or not impregnated, coated, covered or laminated).This includes spun-bonded garments. As per Wikipedia, Felt has been defined "Felt is a non woven textile. It is made by compressing and matting fibres together until they connect to form a sturdy fabric. Felt has a long history and is the oldest form of cloth known. Felt has been used in many cultures as a material for clothing, footwear, rugs and even tents." 1.1 Notification No.1/2017- 223 Articles of apparel and clothing 5% Schedule I – Central Tax (Rate) dated accessories, not knitted or crocheted, 2.5% 28th June, 2017 of sale value not exceeding Rs. 1000 per piece 6210.10 1.2 Notification No.1/2017- 170 Articles of apparel and clothing 12% Schedule II – 6% Central Tax (Rate) dated accessories, not knitted or crocheted, 28th June, 2017 of sale value exceeding ₹ 1000 per piece 2 OTHER PROTECTIVE GARMENTS OF TEXTILES AND RUBBERISED TEXTILE FABRICS OR WOVEN FABRICS THAT ARE IMPREGNATED, COATED, COVERED OR LAMINATED (FABRICS OF HEADINGS 59.03, 59.06 or 59.07). Example: a unisex full body woven suit impregnated with plastics would be classified under 6210.50 ‑ Other women’s or girls’ garments" 2.1 Notification No.1/2017- 223 Articles of apparel and clothing 5% Schedule I – 2.5% Central Tax (Rate) dated accessories, not knitted or crocheted, 28th June, 2017 dated 28th 6210.20 of sale value not exceeding Rs. 1000 June, 2017 6210.30 per piece 2.2 Notification No.1/2017- 6210.40 170 Articles of apparel and clothing 12% Schedule II – 6% Central Tax (Rate) dated 6210.50 accessories, not knitted or crocheted, 28th June, 2017 of sale value exceeding Rs. 1000 per piece 3 PROTECTIVE GARMENTS MADE FROM PLASTIC SHEETING OTHER THAN FELTS IMPREGNATED, COATED, COVERED OR LAMINATED WITH PLASTICS OR EMBEDDED IN PLASTICS 3.1 Notification No.1/2017- 3926.20 111 Other articles of plastics and articles 18% Schedule III – 9% Central Tax (Rate) dated of other materials of headings 28th June, 2017 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles] 4 N95 MASKS: Available in variety of categories/models with or without detachable filters or mechanical parts as per the requirement of the situation under which the mask should be scientifically used. 4.1 Notification No.1/2017- 9018.00 218 Instruments And Appliances Used 12% Schedule II – 6% Central Tax (Rate) dated In Medical, Surgical, Dental Or 28th June, 2017 Veterinary Sciences , Including Scientigraphic Apparatus, Other Electromedical Apparatus And Sight -Testing Instruments 4.2 Notification No.1/2017- 9020.00 220 Other Breathing Appliances And 12% Schedule II – 6% Central Tax (Rate) dated Gas Masks , Excluding Protective 28th June, 2017 Masks Having Neither Mechanical Parts Nor Replaceable Filters
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5 TEXTILE MASKS INCLUDING DESIGNER MASKS : Textile face masks,without a replaceable filter or mechanical parts, including surgical masks and disposable face- masks made of non-woven textiles. 5.1 Notification No.1/2017- 224 Other made up textile articles, sets, 5% Schedule I – 2.5% Central Tax (Rate) of sale value not exceeding Rs. 1000 Substituted vide per piece Notification No. 14/2019-Central Tax (Rate) dated 30-09-2019 w.e.f. 01- 10-2019 6307.90 5.2 Notification No.1/2017- 171 Other made up textile articles, sets 12% Schedule II – 6% Central Tax (Rate) of sale value exceeding Rs. 1000 per Substituted vide piece [ other than Worn clothing and Notification No. 41/2017 other worn articles; rags] dated 14-11-2017, w.e.f. 15- 11-2017 6 CELLULOSE/PAPER MASKS 6.1 Notification No.1/2017- 4818.50 153 Toilet paper and similar paper, 18% Schedule III – 9% Central Tax (Rate) dated cellulose wadding or webs of 28th June, 2017 cellulose fibres, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, table cloths, serviettes, napkins for babies, tampons, bed sheets and similar household, sanitary or hospital articles, articles of apparel and clothing accessories, or paper pulp, paper, cellulose wadding or webs of cellulose fibres 7 PLASTIC FACE SHIELD (covering more than the eye area) 7.1 Notification No.1/2017- 3926.20 111 Other articles of plastics and articles 18% Schedule III – 9% Central Tax (Rate) vide of other materials of headings Notification No. 41/2017 3901 to 3914 [other than bangles of dated 14-11-2017, w.e.f. 15- plastic, plastic beads and feeding 11-2017 Rate of tax reduced bottles] from 28% to 18% 8 PROTECTIVE SPECTACLES 8.1 Notification No.1/2017- 9004.90 178 Spectacles, corrective [other than 12% Schedule II – 6% Central Tax (Rate) dated goggles for correcting vision] 28th June, 2017 9 MEDICAL VENTILATORS (artificial respiration apparatus) Provides mechanical ventilation by moving breathable air into and out of the lungs. 9.1 Notification No.1/2017- 9019.20 219 Mechano-therapy appliances; 12% Schedule II – 6% Central Tax (Rate) dated massage apparatus; psychological 28th June, 2017 aptitude-testing apparatus; ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus
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10 SOAP, PAPER SOAP 10.1 Notification No.1/2017- 3401.00 61 Soap; organic surface-active 18% Schedule III – 9% Central Tax (Rate) dated products and preparations for 28th June, 2017 use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; organic surface active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap; paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent 11 HAND SANITIZER 11.1 Notification No.1/2017- 3808.00 87 Insecticides, rodenticides, 18% Schedule III – 9% Central Tax (Rate) dated fungicides, herbicides, anti- 28th June, 2017 sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II] 12 TRIGGER SPRAYER used for Fumigation/sterlisation of the surface and area. 12.1 Notification No.1/2017- 8424.89 325 Mechanical appliances (whether or 18% Schedule III – 9% Central Tax (Rate) not hand-operated) for projecting, Substituted vide dispersing or spraying liquids or Notification No. 06/2018 powders; fire extinguishers, whether dated 25.01.2018 or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers] 13 PUMP DISPENSER used for Fumigation/sterlisation of the surface and area. 13.1 Notification No.1/2017- 8424.89 325 Mechanical appliances (whether or 18% Schedule III – 9% Central Tax (Rate) not hand-operated) for projecting, Substituted vide dispersing or spraying liquids or Notification No. 06/2018 powders; fire extinguishers, whether dated 25.01.2018 or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines [other than sprinklers; drip irrigation systems including laterals; mechanical sprayer; Nozzles for drip irrigation equipment or nozzles for sprinklers] 14 MECHANICAL SPRAYER including battery/power operated and those used in fumigation/sterlisation of the surface and area. 14.1 Inserted vide Notification 8424.00 195B Mechanical Sprayer 12% Schedule II – 6% No. 6/2018 Dated 25-01- 2018
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15 STEAM SANITIZER: Medical, surgical or laboratory sterlizers, function by steam or boiling water 15.1 Notification No.1/2017- 8419.20 320 Machinery, plant or laboratory 18% Schedule III – 9% Central Tax (Rate) dated equipment, whether or not 28th June, 2017 substituted electrically heated (excluding vide Notification No. furnaces, ovens and other 41/2017 Dated 14-11-2017 equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters,non-electric other than Solar water heater and system 16 OTHER DISINFECTANT PREPARATIONS put up in forms or packings for retail sale such as rubs and wipes impregnated with alcohol or other disinfectants 16.1 Notification No.1/2017- 3808.94 87 Insecticides, rodenticides, 18% Schedule III – 9% Central Tax (Rate) dated fungicides, herbicides, anti- 28th June, 2017 sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II] 17 HYDROGEN PEROXIDE in bulk, Bulk H202 whether or not with solidified with urea 17.1 Notification No.1/2017- 2847.00 58 Medicinal grade hydrogen peroxide 12% Schedule II – 6% Central Tax (Rate) dated 28th June, 2017 18 HYDROGEN PEROXIDE presented as a medicament H2O2 put up for internal or external use as a medicine, including as an antiseptic for the skin. Only covered here if in measured doses or in forms or packings for retail sale (including directly to hospitals) for such use 18.1 Notification No.1/2017- 3004.90 63 Medicaments (excluding goods 12% Schedule II – 6% Central Tax (Rate) dated of heading 30.02, 30.05 or 30.06) 28th June, 2017 consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail saleadministration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Bio-chemic systems medicaments, put up for retail sale
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19 HYDROGEN PEROXIDE put up in disinfectant preparations for cleaning surfaces H2o2 put up as cleaning solutions for surfaces or apparatus. 19.1 Notification No.1/2017- 3808.94 87 Insecticides, rodenticides, 18% Schedule III – 9% Central Tax (Rate) dated fungicides, herbicides, anti- 28th June, 2017 sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II] 20 OTHER CHEMICAL DISINFECTANTS put up in forms of packings for retail sale as disinfectants or as disinfectant preparations, containing alcohol, benzalkonium chloride solution or peroxyacids, or other disinfectants 20.1 Notification No.1/2017- 3808.94 87 Insecticides, rodenticides, 18% Schedule III – 9% Central Tax (Rate) dated fungicides, herbicides, anti- 28th June, 2017 sprouting products and plant- growth regulators, disinfectants and similar products [other than bio-pesticides mentioned against S. No. 78A of schedule -II] 21 PLASTIC GLOVES 21.1 Notification No.1/2017- 3926.20 111 Other articles of plastics and articles 18% Schedule III – 9% Central Tax (Rate) dated of other materials of headings 28th June, 2017 3901 to 3914 [other than bangles of plastic, plastic beads and feeding bottles] 22 SURGICAL RUBBER GLOVES 22.1 Notification No.1/2017- 4015.11 85 Surgical rubber gloves or medical 12% Schedule II – 6% Central Tax (Rate) dated examination rubber gloves 28th June, 2017 23 OTHER THAN SURGICAL RUBBER GLOVES 23.1 Notification No.1/2017- 4015.19 85 Articles of apparel and clothing 18% Schedule III – 9% Central Tax (Rate) dated accessories (including gloves, 28th June, 2017 mittens and mitts), for all purposes, of vulcanised rubber other than hard rubber [other than Surgical gloves] 24 KNITTED OR CROCHETED GLOVES WHICH HAVE BEEN IMPREGNATED OR COVERED WITH PLASTICS OR RUBBER 24.1 Notification No.1/2017- 6116.10 222 Article of apparel and clothing 5% Schedule I – Central Tax (Rate) dated accessories or cap/topi, knitted 2.5% 28th June, 2017 or crocheted, of sale value not exceeding Rs 1000 per piece 24.2 Notification No.1/2017- 6116.10 169 Articles of apparel and clothing 12% Schedule II – 6% Central Tax (Rate) dated accessories, knitted or crocheted, 28th June, 2017 of sale value exceeding Rs. 1000 per piece 25 TEXTILE GLOVES THAT ARE NOT KNITTED OR CROCHETED 25.1 Notification No.1/2017- 6216.00 222 Article of apparel and clothing 5% Schedule I – Central Tax (Rate) dated accessories or cap/topi, knitted 2.5% 28th June, 2017 or crocheted, of sale value not exceeding Rs 1000 per piece 25.2 Notification No.1/2017- 6216.00 169 Articles of apparel and clothing 12% Schedule II – 6% Central Tax (Rate) dated accessories, knitted or crocheted, 28th June, 2017 of sale value exceeding Rs. 1000 per piece
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26 DISPOSABLE HEAD NET 26.1 Notification No.1/2017- 6505.00 171B Other headgear, knitted or 18% Schedule III – 9% Central Tax (Rate) dated crocheted, or made up from lace, 28th June, 2017 felt or other textile fabric, in the piece (but not in strips), whether or not lined or trimmed; hair-nets of any material, whether or not lined or trimmed 27 SHOE COVERS 27.1 Notification No.1/2017- 6307.90 224 Other made up textile articles, sets, 5% Schedule I – 2.5% Central Tax (Rate) dated of sale value not exceeding Rs. 1000 28th June, 2017 per piece 27.2 Notification No.1/2017- 171 Other made up textile articles, sets 12% Schedule II – 6% Central Tax (Rate) dated of sale value exceeding Rs. 1000 per 28th June, 2017 piece [ other than Worn clothing and other worn articles; rags] 28 UV DISINFECTANT BOXES 28.1 Notification No.1/2017- 8543.70. 394 Electrical machines and apparatus, 18% Schedule III – 9% Central Tax (Rate) dated 99 having individual functions, not 28th June, 2017 specified or included elsewhere in this Chapter Comment: UV disinfectant process is also used in medical establishments for disinfecting of medical instruments, etc. but UV Disinfectant boxes does not find any specific mention in Chapter 90 which contains medical or surgical instruments and apparatus. 29 TEST KITS/Instruments and Apparatus used in Diagnostic Test - Diagnostic reagents based on polymerase chain reaction (PCR) nucleic acid test. 29.1 Notification No.1/2017- 3822.00 80 All diagnostic kits and reagents 12% Schedule II – 6% Central Tax (Rate) dated 28th June, 2017 30 SWAB & VIRAL TRANSPORT MEDIUM SET 30.1 Notification No. 3006.10 65 Pharmaceutical goods specified 12% Schedule II - 6% 11/2017-Central Tax (Rate) in Note 4 to this Chapter [i.e. dated 28th June, 2017 Sterile surgical catgut, similar sterile suture materials (including sterile absorbable surgical or dental yarns) and sterile tissue adhesives for surgical wound closure; sterile laminaria and sterile laminaria tents; sterile absorbable surgical or dental haemostatics; sterile surgical or denatal adhesion barriers, whether or not absorbable; Waste pharmaceuticals] [other than contraceptives] 31 FUMIGATION SERVICES 31.1 Notification No. 9983.00 21 (ii) Other professional, technical 18% Schedule III – 9% 11/2017-Central Tax (Rate) and business services other than (i) dated 28th June, 2017 and (ia) above and serial number 38 below. Comment: The physical/chemical features, use of the product/service i.e. the actual facts and circumstances of the case shall be the ultimate determinants of the correct classification of the product. The appropriate classification of a product/service might differ from the list provided. mom
72 AIFTP Journal August 2020 AIFTPJ - 560 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts Sandeep Goyal & Aanchal Goyal, Advocates
HIGH COURTS fully by the respondent in view of the aforesaid amended rule. Section 54(3) of CGST Act GUJARAT HIGH COURT provides for refund of any unutilized input VKC Footsteps India (P) Ltd. tax credit and the said provision specifies the quantum of refund which includes credit availed v. on input services apart from inputs. A circular Union of India & Ors. No.79/53/2018 dated 31.12.2018 was issued [J.B. Pardiwala & Bhargav D. Karia, JJ] by the Govt. revising the formula to calculate refund on account of inverted duty structure. Special Civil Application No.2792 of 2019 This formula excluded input services from the Date of Decision: July 24, 2020 scope of net ITC for computation of refund which violates the provision Section 54(3) of Refund—Inverted duty Structure—Vires of the Act. Rule 89(5) of CGST Rules,2017— Refund of ITC on ‘input services’ denied by respondent By prescribing the formula in Rule 89(5) of the in view of Rule 89(5) of the Rules—Said rule rules, exclusion of tax paid on ‘input service’ excludes ITC on input services as apart from as part of the refund of unutilized input tax Inputs used—Rule held to be contrary to credit is contrary to provisions of subsection section 54(3) of the Act as the said provision 3 of section 54 of the CGST Act. Analyzing permits ITC on ‘any’ unutilised ITC—Rule the provisions of the Act and Rules, keeping held to be ultra vires the section 54(3) of in mind the scheme and object of the Act, the the Act—Respondent directed to refund the intent of the government by framing the rule accumulated ITC on input services also. restricting the statutory provision cannot be the A writ has been filed for declaring Rule-89(5) of intent of law as interpreted in the circular dated CGST Rule, 2017 as ultra vires to the extent it 31.12.2018 so as to deny refund on input services denies refund of ITC related to Input Service in as part of refund of unutilized ITC. Therefore, case of inverted duty structure. explanation (a) to Rule-89(5) which denies the refund of unutilized ITC paid on Input Services The petitioner receives input services on as part of ITC accumulated is ultra vires the payment of GST in course of its business and provision of Sec.54 of the CGST Act. Therefore, avails ITC of GST paid thereon. The input and respondents are directed to allow the claim input services attract GST rate of about 18% of refund made by petitioners considering which is higher than rate of tax paid on outward unutilized ITC of input services for claiming supply of goods. Thus the unutilized credit refund under Sub-section 3 of 54 of the Act. is accumulated which is not being refunded
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HIGH COURT FOR THE STATE OF registered post; the Commissioner should CHHATTISGARH have given reasons of rejection. Hence, the matter is remitted back to the Commissioner for Dhamtari Krishi Kendra passing a fresh order, keeping in mind that the v. petitioner has produced certain documents of Union of India & Ors. his being unable to submit forms electronically. The Commissioner may refer the matter to [P. SAM KOSHY, J] GST Council for its recommendations. The WRIT PETITION NO.70 of 2019 Commissioner shall take a decision at the earliest. Date of Decision: July 17, 2020 KERELA HIGH COURT Technical Glitch—TRAN 1 & TRAN 2— Inability to submit the forms due to technical Devices Distributors glitch—Direction sought from High court v. to respondents for considering the same— Rejection on grounds that no evidence The Assistant State Tax Officer given showing submission within time [A.K. Jayasankaran Nambiar, J] and facing technical glitch—Writ filed— Held—Contentions raised in earlier round of WP No 14969 of 2020 litigation ought to have been considered by Date of Decision: July 23, 2020 department—Complaint regarding failure to submit lodged at petitioner’s end well within Detention of goods—Goods in transit covered time—Manual returns and registered post sent with proper documents—Detention on grounds in this regard—Absence of reasoned order that invoices furnished not consecutively by department—matter remitted back for numbered—Transportation of other goods reconsideration keeping in mind documents under the invoices falling in between those proving the contentions of petitioner on record invoices suspected—Held goods in question Submission of TRAN-1 and TRAN-2 was done covered with proper documents—Suspicion a day before the last date of filing but failed of other goods being transported without due to technical glitch. Though a direction information no ground for detaining the goods was sought from High Court to the authorities in question u/s 129 of the GST Act—writ to consider the records and documents of the allowed— petitioner for filing of returns, the Commissioner The goods in transit were detained for the refused the grant of permission to submit reason that the invoices furnished were not TRAN-1 and TRAN-2 on the ground that the consecutively numbered for three invoices. It petitioner had failed to produce any evidence was suspected that the invoices in between to show that he tried to submit the forms within the sets of invoices might have been used for the stipulated period and that he faced technical transportation of other goods that were not glitch. The petitioner thus approached the brought to the notice of department. A writ is High Court. It is held that the respondents filed in this regard should have considered the contentions of Held that such a doubt cannot be a justification the petitioner earlier. Considering the timely for detention u/s 129 of the GST Act, especially complaint filed by the petitioner i.e. a day when the goods were covered with an e- way before the last date of filing , manual filing bill and invoice. In any case the doubt here done shortly within a period of one month was about the goods that could have been in addition to sending returns through
74 AIFTP Journal August 2020 AIFTPJ - 562 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts | transported and not about the goods that are R/ Special Civil Application No. 22211 of 2019 detained actually. Allowing the writ, the goods Date of Decision: February 26, 2020 are ordered to be released. Detention of goods—Show cause notice TRIPURA HIGH COURT issued u/s 130 of CGST Act, 2017 silent about Kalpana Stores discrepancy of goods and conveyance— Notice served to driver of conveyance—Writ v. applications filed for quashing of notice and State of Tripura & Ors. release of goods—Permission to file application before concerned authority for provisional [CJ Akil Kureshi and Arindam Lodh, JJ] release of goods and conveyance granted— WP No 729/2019 Also, applicants to file reply for discharge of the said notice—writ disposed of Date of Decision: December 17, 2019 A detention notice in form GST MOV-10 was Natural Justice—Detention of goods—Goods issued u/s 130 of CGST Act thereby detaining in transit seized—Tax and penalty imposed both goods and the vehicle. The show cause by passing mere ‘order of demand of tax and notice was silent about the discrepancy penalty’ instead of assessment order—No noticed on physical verification of goods and opportunity of hearing given before confirming conveyance. Moreover, the said notice was the demand—Writ entertained since impugned issued to the driver of the vehicle instead order was in breach of provisions of law— of owner of goods. Disposing off the Writ- Impugned order quashed— applications filed for quashing of notice and The goods in transit were detained and tax and for release of goods, the Hon’ble court has penalty was imposed by the officer. The goods permitted the writ applicants to prefer an were released upon payment. A writ is filed on application addressed to the authority concerned the ground that the said tax with penalty was u/s 67(6) of the Act for provisional release of imposed without affording an opportunity of goods and conveyance. Regarding challenge hearing to the petitioner. to the show cause notice, it is held that the applicants shall file a reply and make good his Disapproving the action of authorities, it is held case that the impugned notice deserves to be that the impugned order is not an assessment discharged. order of petitioner’s tax liability but a mere order of demand of tax and penalty. Such order GUJARAT HIGH COURT has to be confirmed after giving an opportunity Cera Sanitaryware Limited of hearing to the petitioner. The order is in breach of subsections 3 and 4 of section 129 v. of the GST Act, 2017. Therefore, despite there State of Gujarat & Anr. being an appellate remedy, present petition is entertained and the impugned order is quashed. [J.B. Pardiwala,J] Civil Application No. 8050 of 2020 GUJARAT HIGH COURT Date of Decision: July 14, 2020 Sawariya Traders Writ—Maintainability of—notice of intimation v. issued u/s 74(5) of GST Act, 2017—writ filed State of Gujarat for quashing of—writ not maintainable against [J.B. Pardiwala and Bhargav D. Karia, JJ] such notice of intimation—applicant entitled
AIFTPJ - 563 AIFTP Journal August 2020 75 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts | to ignore it till further issuance of show cause It is held that in such a case the refund notice application would be presumed to be complete Where the writ applicant seeks issuance of in all respects in accordance with Rule 89 of writ against the notice of intimation issued in CGST/DGST Rules. Permitting the respondent form GST DRC-01A u/s 74(5) of the Act by to process the refund application beyond the respondent, the Hon’ble High court has the statutory time limes as provided under held that such a challenge is not maintainable Rule 90 of CGST Rules shall mean rejection of in law. It may be ignored by the applicant till petitioner’s initial application for refund and further show cause notice is served u/s 74(1) that would require filing of fresh application of the Act. When further notice is served under after rectifying the alleged deficiencies. In section 74(1), the applicant would be given such an eventuality the petitioner’s right to opportunity of hearing before his actual liability seek refund would be delayed and its right to is determined. claim interest from the relevant date of filing of original application for refund would also be IN THE HIGH COURT OF DELHI impaired. Jian International The respondent has lost right to point out v. any deficiency at this stage. Therefore, refund alongwith the interest shall be payable within 2 Commissioner of Delhi Goods and Service weeks as per law. Tax [Manmohan and Sanjeev Narula, JJ.] HIGH COURT OF ORISSA WP NO.4205 OF 2020 AMIT BERIWAL Date of Decision: July 22, 2020 v. Refund—Zero rated supply—Application STATE OF ODISHA filed for refund u/s 54 of Delhi GST Act, 2017 [S.K. PANIGRAHI, J.] alongwith interest on zero rated supply of goods—Application neither acknowledged BLAP NO. 2217 OF 2020 nor deficiencies pointed out within the Date of Decision: July 27, 2020 stipulated period as required u/r 90 of GST Rules— Held—Application to be presumed Bail—Bogus ITC—Arrest against offence as complete—Permitting rectification after punishable u/s 132 of GST act, 2017—Bail statutory timelines period would mean fresh application filed—Threat of tampering filing thereby sabotaging petitioner’s right to evidence—Two accused still at large—Huge claim interest from the relevant date of filing— amount of fake ITC involved involving many A writ is filed seeking direction to the fake identities—Court cannot lose sight of respondent to grant refund claimed under impact of such activity on economy—Efforts of Section 54 of the Delhi GST Act, 2017 alongwith government to collect tax cannot be permitted interest. It is contended by the petitioner that to be sabotaged by such criminals—bail denied it had filed an application for refund claimed A bail application is filed against the arrest on account of zero rated supply of goods and made being accused of an offence punishable services which was neither acknowledged by the under Section 132 of OGST Act, 2017. The respondent within the stipulated time period nor petitioner is accused of engaging in fabricating any deficiency was pointed out within a period fake invoices without supply of physical goods of 15 days from date of filing, as required under to other existing and non-existing firms thereby Rule 90 of the DGST Rules. enabling the recipients to avail and utilize the
76 AIFTP Journal August 2020 AIFTPJ - 564 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts |
ITC while discharging tax liabilities. On search Rs.225 Cr. The revenue is contesting against and inspection by the State authorities it was the grant of bail to the petitioner. The petitioner found that no business is being conducted at has alleged that no clandestine purchase is the declared place of business, no transport possible as purchases are done from government documents to show actual supply of goods, no companies or from traders registered under GST warehouses to stock such goods, no equipments Act, 2017. It is contended that their statements to measure were available in the premises. were recorded under threat and pressure. The tax evasion was presumed by the Department Out of the four accused, two are still evading due to delay in paper work and submissions of arrest. The GST fraud committed is having huge invoices on account of COVID-19 and complete ramification on the revenue collected by State lock down pursuant thereto. and there is a possibility that the accused may tamper the evidence. Considering nature and gravity of the allegations made and the specific evidence These complications created by the collected in respect of these allegations, unscrupulous fraudsters could lead to arrest of elaborate discussion of which would not be apt innocent traders. The Government officials are as it may adversely affect the interest of either doing their best to ensure tax collection. Their party, specific facts put forth by appellant, the efforts cannot be permitted to be sabotaged by Court is granting bail subject to furnishing of such criminals who prey on public exchequer. bond with separate sureties. The increasing numbers of fraud in respect of ITC are alarming and a system needs to TELANGANA HIGH COURT be devised to ensure that ITC is not misused. Hence, the court is not inclined to release Mallemaala Entertainments (P) Ltd. the petitioner on bail at this stage. The bail v. application is dismissed. Deputy Commercial Tax Officer MADHYA PRADESH HIGH COURT [M.S. Ramachandra Rao, J] AMIT BOTHRA Writ Petition No.10862 of 2020 v. Date of Decision: 30:07.2020 STATE OF MP Assessment—Amalgamation of X and Y— [Virender Singh, J] Assessment proceedings to be dropped against X for the period when X and Y stood MCRC No.21628/2020 amalgamated— Date of Decision: July 27, 2020 Natural Justice—show cause notice served Bail—Clandestine manufacturing—evasion without mentioning date is against the rules of GST—search conducted—confessional of natural justice statement alleged to have been taken under After the two companies MAPL and MEPL were threat—nature and allegation and specific amalgamated a show cause notice was issued evidence collected considered—facts put forth by first respondent proposing to levy tax for by applicant taken into account—bail granted inter-State sales effected by MAPL for the period As per revenue the petitioner was indulging subsequent to the period when amalgamation in clandestine clearance of Pan Masala without was brought into effect. The petitioner stated not payment of GST and that they had confessed having received it. to evasion of GST payment to the tune of
AIFTPJ - 565 AIFTP Journal August 2020 77 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts |
No date of the show cause notice given to providing the assessee to absolve itself from the MAPL nor did the petitioner receive it. This arrears. The question that arose was that if such leads to violation of Natural Justice. The application could be rejected on the ground that amalgamated companies ought to be assessed an appeal was intended by the State from the in the name of the petitioner with whom it order of the 1st Appellate Authority. is merged. Thirdly it is observed that the assessment is alive before the 2nd respondent. The rejection was based on a circular of the Tax Hence writ petition is allowed with permission Department which was held to traverse beyond to the 2nd respondent to issue a show cause the statutory provisions by the single Ld. Judge. notice to the petitioner for the period concerned An appeal is filed by the State against the said and the petitioner may file objections to the said order. notice including plea of bar of limitation. It is held there is no requirement of a specific provision that requires the State to withdraw KERALA HIGH COURT the appeal filed since the settlement arrived at State Tax Officer, The Commissioner of on the basis of statutory provision is binding Commercial Taxes on the department. If revenue proceedings are already initiated, they have to be withdrawn v. when the matter is settled under 31 A. The State Village International School, K.K.S. appeals would be rendered infructuous on a Reekumar settlement arrived at under Sec.31A as it is an inevitable consequence of deposits of amount [K. Vinod Chandran & T.R. Ravi, JJ] determined under Sub-section of the amnesty W.A. NO.573 OF 2020 scheme. There is no power given to the State to reject an application. Date of Decision: July 21, 2020 Rejection of application—Amnesty scheme— The circular was issued in contemplation of Whether application can be rejected on cases where appeals have been filed by the State grounds of appeal intended by state from the wherein the requirement is to make settlement order of first appellate authority—Held—No on basis of demand raised on the original requirement of a specific provision for the assessment order. Such a provision is absent in state to withdraw the appeal filed as settlement the scheme. The appeals are thus rejected. based on statutory provision binding on the MADRAS HIGH COURT department—cases where revenue proceedings already initiated, proceedings have to be P.R. Mani Electronics withdrawn on settlement under section 31 v. A of KGST Act as it would be render them infructuous on deposits made by assessee— Union of India & Others No power to state to reject the application [A.P. Sahi, C.J. & Senthil Kumar Rama and requirement under subsection 7—circular Moorthy, JJ] stating where appeal already filed by state, settlement would be based on original W.P. No.8890 of 2020 assessment order is regarded to be issued in Date of Decision: July 13, 2020 absence of any such provision in the scheme In this case the petitioner had filed an Vires—Rule 117 of CGST Rules, 2017—Govt is application under the Amnesty scheme empowered to make rules u/s 164 of the Act— introduced by Sec.31A of Kerala VAT Act, 2003 Insertion of words ’within such time’ in S 140
78 AIFTP Journal August 2020 AIFTPJ - 566 | Latest Judgments on GST and Indirect Taxes from Supreme Court and High Courts | of CGST Act, 2017 after amendment prescribes Rule 117 was framed whereby a time limit was the time limit without relying on generic of s fixed for submitting the said form. By inserting 164—therefore, rule 117 is intra vires Sec 140 words, “within such time” in Sec.140 with of CGST Act— retrospective effect the time limit is prescribed Scope of Rule 117—ITC is not a property but without relying entirely on the generic section a concession given to assessee which can be 164, therefore, Rule 117 is intra vires Sec.140 of availed only with prescribed conditions— the CGST Act. Extending time limit of the said Rule does not The ITC is not a property of the petitioner mean there is no time limit for availing ITC— but has to be construed as a concession and Section 16 of CGST Act is indicative of the cannot be availed without complying with legislative intent of prescribing the time the conditions prescribed. The fact that the limit for availing ITC—Against the statutory time limit may be extended under certain backdrop , the time limit for availing ITC circumstances specified in Rule 117 including is compelling which otherwise would make Rule 117A does not mean that there is no time it unworkable—Meaning of word ‘shall’ in limit for transitioning credit. section 16 of CGST Act is peremptory which makes the provision mandatory— Keeping the statutory backdrop in mind in reference to section 16 of CGST Act and section Rule 117 makes it obligatory for the GST 19 of TNVAT Act, in the context of transactional TRAN 1 to be filed electronically and not ITC, the case for time limit is compelling and through hard copy—thus writ is dismissed disregarding the time limit and permitting a The validity of Rule 117 of the CGST Rules, 2017 party to avail transactional ITC in perpetuity is challenged on the ground that it is ultra vires would render the provision unworkable. Sec.140 of the CGST Act, 2017. The petitioner had submitted its returns in form of hard copy In Sec.16(4) of the CGST Act , the word “Shall” of Form GST TRAN-1 two days later after the used is peremptory. Thus the object and purpose last date of electronic filing due to inability to of Sec.140 warrants the necessity to be finite. log into the portal. No response was received The time limit is therefore, mandatory and not with regard to entitlement to transactional directory. ITC. The petitioner has contended that the ITC is in the nature of property and it cannot be Lastly the Form GST TRAN-1 is required to be deprived of it. It is also contended that Rule 117 filed electronically and not manually as specified is directory and not mandatory. in Rule-117, therefore, the respondents cannot be directed to permit the petitioner to file to Form U/s 164 the Govt. has the power to makes rules GST TRAN-1 and claim the transactional ITC, to give effect to the provisions of the Act and unless any dispensation are granted by the Tax also confer retrospective effect to the rules. Authorities. mom
AIFTPJ - 567 AIFTP Journal August 2020 79 | Digest of Advance Rulings Under GST | Digest of Advance Rulings Under GST
S. S. Satyanarayana, Tax Practitioner
1. Banner Printing The applicant has raised the following Facts : The Applicant is in business of flex Questions raised before the Authority: Whether banner printing. The applicant gets image supply of print on flex is classifiable as supply done on computer software from customers for of goods or services? If yes, whether falls under different sizes and print the same on flex (HSN HSN 4911 under entry no 132 of Schedule II 3921) as flex banners and deliver the same to its of Notification No. 1/2017- CTR? If answer to customers. At times, the applicant is required question 2 is yes, whether supply of print on to provide design and charge the customer for flex noncommercial purpose is also classifiable consolidate value of design and print; and bill under HSN 4911 under entry no. 132 of them for composite supply value. These flex Schedule II of Notification No. 1/2017-CTR? banners are used for both commercial and non- Observations & Findings : The applicant in commercial purposes such as birthday, marriage the instant case is engaged in supply of printed and political purpose. flex material and the raw materials of the goods The applicant purchases flex material, inks in questions are completely procured by the etc., for delivery of flex banners. Certain applicant himself. Immaterial of the fact that customers provide design to be printed on whether the content is supplied by the customer the flex banner. On customer requirement, the or it is designed by the applicant himself applicant provides design services also and basing on the requirement of the customer, Print the same on flex banner and charge as the applicant transfers the title in the goods consolidate supply of flex banner. The applicant i.e., printed material on flex to the customer as charges customer on per sq., feet basis on size defined under Section 7 of CGST Act, 2017 read of flex banner printed by them. The customer with Schedule -II Sl.No.1 (a) of CGST Act, 2017. does provide design, size and specification of Further, the supply of print on flex is classifiable matter to be printed and does not provide any vide Notification No. 1/2017 - Central Tax (Rate) material. All the material i.e., flex, ink, etc., are dated 28-6-2017 under Sl. No.132 under HSN procured by applicant only. In pre-GST regime code 4911 and attracts tax rate of 12%. Further, the applicant paid tax under works contract on the same has been clarified in detail vide the value of material only. clarification issued under F.No.354/263/2017 The applicant had filed an application in -TRU, Dated 20th October, 2017 in Circular No. form GST ARA-01, Dated 4-6-2019, by paying 1l-11-2017-GST. required amount of fee for seeking Advance Ruling : The supply of print on flex is classified Ruling on the following issues', as mentioned under Goods only as per Section 7 of CGST Act, below.
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2017 read with Schedule -II Sl. No.1 (a) of CGST owned by the Government of Andhra Pradesh. Act, 2017. It is classifiable vide Notification When a copy of Audited Annual Accounts of No. 1/2017 - Central Tax (Rate) dated 28-6- M/s APSPDCL and APEPDCL are examined, 2017 under Sl. No.132 Chapter/Heading/ it is evident from the schedule of Equity Share Sub-Heading/Tariff item 4911 and attracts tax Capital of the Annual Statement that 100% share rate of 12%. Supply of print on flex used for capital is held by the Government of Andhra non-commercial purpose does not change the Pradesh in the name of Honourable Governor classification per se and attracts same rate of tax of Andhra Pradesh. Thus, based on the above as mentioned above. facts, it is concluded that the Government of Andhra Pradesh is having full control over the [[2020] 117 taxmann.com 919 (AAR - ANDHRA APSPDCL and APEPDCL and they are covered PRADESH) - Sree & Co.] under the definition of Government Entities.
2. Government Contracts : For all the civil works, where materials such as Facts : The applicant entered in to contract with sand, metal, gravel etc., are involved, the rates APEPDCL relating to “Supply and erection of are inclusive of seigniorage charges as fixed 11No.s 33/11KV Indoor Sub stations and their by the Competent Authority of Government connected lines in Z2 Division of Visakhapatnam of AP and the same will be recovered from the circle on turkey basis.” The applicant entered in contract bills for remittance to the Government. to contract with APEPDCL relating to Supply Materials such as Power Transformers, 100 and Erection of 33KV Inter linking lines in Sqmm Conductor & Station Transformer will be Srikakulam, Vizag and Vizianagaram District supplied by department. In some agreements all Turnkey Basis. The applicant entered in to the materials are in Contractor's scope. Now the contract with APSPDCL, relating to “System works under discussion have been undertaken improvement project works for erection of 2 nos to execute/Implement various schemes for 33/11kv GIS indoor sub stations at Vijayawada constructing sub stations, providing bore wells, and 1 no. at 33/11kv GIS Indoor Sub-station at erection of lines and required conductors etc. Guntur and their connected lines on semi turkey Moreover, the above works undertaken by basis under IPDS Scheme”. APSPDCL and APEPDCL are for business purpose and the benefit of concessional Rate The applicant seeks advance ruling, whether of 12% (6% under Central tax and 6% State APSPDCL & APEPDCL is a Government tax) as per notification is NOT available to the authority/ Government Entity or not? What is applicant. the applicable rate of GST on work agreement Ruling : entered into with the APSPDCL & APEPDCL? The applicable rate of tax is 18% for the services referred by the Applicant as per entry Observations & Findings : The Government no. (ii) of S.No.3 of the table of Notification No. of India vide Notification Number 12/2017 11/2017 -Central Tax (Rate), Dated: 28th June - Central Tax (Rate), dated: 28th June 2017 2017. notified the rate of GST applicable on supply of services. Under this notification for heading The value of materials recovered on cost 9954 the applicable rate of GST is 9%. The recovery basis by the Contractees from the R.A. said Notification was amended through Rate bills issued by the applicant is includible in the Notification Numbers, 20/2017, 24/2017, taxable value of supply in terms of Section 15(2) 31/2017, 46/2017 and 01/2018. (b) of the CGST Act, 2017. The Applicant Contractees i.e. APSPDCL and [2020 (7) TMI 405 – AAR, Andhra Pradesh - M/S. AEPDCL are Government Companies i.e. wholly GVS Projects P Ltd.]
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3. Taxable supply should be classified as principal supply and the Facts : The applicant is a company engaged classification of the same cannot differ from the in conducting chit auctions. They register the original supply. Hence the additional amount members and conduct auction in respect of each charged on delayed payment shall be taxed chit each month. The company will be collecting as per original supply i.e. supply of financial subscriptions from members by dividing the and related services. It is classified under SI. prize money with number of members. The No 15 of Heading 9971 Financial and related applicant is collecting the foreman commission services, GST @12% as per Notification No. @5% from the amount to be distributed to 8/2017-Integrated Tax (Rate) dated, the 28th the member taking the prize money. The GST June, 2017 as amended from time to time. is paid on the foreman commission @12%. [2020 (7) TMI 447 – AAR, Andhra Pradesh – The applicant is responsible to pay the prize Ushabala Chits P Ltd.] money by due date to the winner of auction. However, many a time, the subscribers fail to deposit subscriptions by the specified date. The 4. Place of Supply : applicant charges interest/penalty by whatever Facts : The applicant is a registered name called, from the members paying the proprietorship firm deals in supply of goods as subscriptions belatedly. The interest /penalty well as provides services. The applicant received has no element of services except that it is in an order for Fixing of Air conditioner & VRV auction in money inasmuch as it is collected as system in Goa for a client (Recipient) registered a part of subscription for delay. outside Goa but not registered in Goa. Although the applicant sought ruling on many issues, only The applicant raised the questions, whether the one issue could be dealt by this authority for interest/penalty collected for delay in payment issuing Ruling and that is whether supply made of monthly subscription by the members forms a by applicant from Goa on behalf of third person supply under GST? IIf the said interest/penalty who is not in the taxable territory of Goa to a is a supply, what is the classification and rate of place in Goa is to be taxed as Interstate Supply duty applicable on the said supply? or Intra State Supply. Observations & Findings : The GST Act 2017 Observations & Findings : To determine the mentioned the value of supply, vide Section 15 classification of any supply as Interstate Supply (2). or Intra State Supply, two ingredients are relied “shall include-(d)- interest or late fee or penalty upon and these are location of the supplier and for delayed payment of any consideration for any place of supply. In the instant case, as said by supply”; the applicant, location of the supplier is Goa, place of supply will be outside Goa as per It is clear from the simple reading of 15(2)(d) section 10(1)(b) of the IGST Act since, goods are that the interest, late fee or penalty charged supplied on behalf of a registered person outside from customer shall be added to the transaction Goa to a place in Goa. value and hence shall be taxable at the rate at which such goods/ services are taxable or in Section 10(1)(b) of IGST Act is reproduced as other words the classification of interest, late “where the goods are delivered by the supplier fee or penalty cannot be different from the to a recipient or any other person on the classification of goods or services. direction of a third person, whether acting as an agent or otherwise, before or during movement Ruling : The additional amount being charged of goods, either by way of transfer of documents in delay of payment by whatever name called of title to the goods or otherwise, it shall be
82 AIFTP Journal August 2020 AIFTPJ - 570 | Digest of Advance Rulings Under GST | deemed that the said third person has received applies in their case and therefore, the Subject the goods and the place of supply of such goods Services being Pure Services, provided by the shall be the principal place of business of such applicant to the various Municipal Corporations person.” and Councils are in relation to aforesaid functions entrusted to the said local authority Ruling : The nature of supply made by the and exempt from GST. applicant is to be treated as a supply of goods in the course of interstate trade or commerce and Ruling : Mapping services provided to tax is to be charged accordingly. Municipal Corporation for planning of land use are ‘pure services’, exempt from GST. [2020 (7) TMI 311 – AAR, Goa – High Tech Refrigeration and Air Conditioning Industries] [[2020] 117 taxmann.com 749 (AAR - MAHARASHTRA) - Core Project Engineers & 5. Exempted supply : Consultants (P.) Ltd.] Facts : The Applicant, is providing Mapping Services to various Municipal Corporation 6. Long Term Lease : & Councils. The main aim behind doing the Facts : That the Rail land Development authority map making activity is to identify unpermitted (RLDA), a statutory authority under Ministry construction areas. The Applicant has submitted of Railway, Government of India -I, issued a that the services provided by them are Pure request for which was publicized by RLDA Labour Services, provided to Government or for grant of lease for residential & commercial Local authority or a Governmental authority development along with development of by way of an activity in relation to any function financial infrastructure for 99 years. entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function The Applicant company has entered into a entrusted to a Municipality under article 243W long term Lease Agreement of 99 years with of the Constitution. RLDA for undertaking residential & commercial development along with development of Observations & Findings : We find that the financial infrastructure. The Applicant Company applicant's main query is whether in view of paid a sum in parts as Security deposit which, in the submissions made, the services supplied case of breach is refundable after forfeiting the by them would be covered under clauses (1) & bid security deposited separately for both the (2) of Twelfth Schedule of Article 243W? and Plots as per the terms of the lease agreement. thus exempt under Entry No. 3 of Notification The issue to be examined in the present case no. 12/2017-Central Tax (Rate) dated 28-6-2018. is whether the amount paid prior to 29-3- We find that the Services are provided by the 2019 in pursuance to the lease agreement of 99 applicant are in relation to Urban planning years executed on 8-11-2019 are exempt from including town planning and Planning of land- levy of GST in view of the Notification No. use and construction of buildings in as much as 04/2019-Central tax(rate) dated 29-3-2019 or all the said activities help the local authorities to Notification No. 12/2017-Central Tax(rate) dated do Town Planning, Urban Planning & Control 28-6-2017? or not; the Land use by the general public. We find that Observations & Findings : the Services supplied by them are covered under While examining Article 243W of the Constitution, as functions the functions of RLDA, we find that it is a entrusted to Municipality. Hence the provisions statutory authority constituted under the as per SI. No. 3 of the Notification No. 12/2017 Railways Act, 2005 with obligation, inter alia of - Central Tax (Rate) dated 28-6-2017 as amended development on Railway land for commercial
AIFTPJ - 571 AIFTP Journal August 2020 83 | Digest of Advance Rulings Under GST | use, entrusted to it by the Central Government supply, erection, testing and commissioning for the purpose of generating revenue by non- of materials/equipments for providing rural tariff measures. We observe that in background electricity infrastructure made to AVVNL would of its function, especially of generating revenue, be taxable at the rate of 12% in terms of Sr. No. RLDA is leasing the parcels of land and thus 3(vi)(a) of the Notification No. 11/2017- Central it is a rental or leasing service of land for Tax (Rate) dated 28-6-2017 as amended w.e.f. commercial function. In a way, it is clear from 25-1-2018? facts that RLDA is supplying rental or leasing Observations & Findings : service involving own land. The said service is It is observed that classifiable under HSN 997212 'rental or leasing all the five conditions prescribed implicitly services involving own or leased non-residential by Entry No. 3(vi)(a) of the Notification No. property'. 11/2017 - Central Tax (Rate) dated 28-6-2017 are satisfied by the applicant except one, viz. Serial No. 5A of Notification 13/2017- Central that the activity is meant predominantly to Tax (Rate) dated 28-6-2017 (as amended) be used other than commerce, industry, or provides that 'supply of renting of immovable any other business or profession. Thus, work property' made by Central Government to a undertaken by the applicant as per Contract registered entity is taxable under RCM i.e. the RGGW/TN-13 for AVVNL, Ajmer by way of recipient of service is liable to pay GST. supply of material/equipment and erection, testing & commissioning of supplied material/ Ruling : Land given on lease for 99 years for equipment is though a Composite Supply of residential development by statutory body is Works Contract but the same is not covered leviable to GST under RCM. under the Entry No. 3(vi)(a) of the Notification [[2020] 117 taxmann.com 797 (AAR- No. 11/2017 - Central Tax (Rate) dated 28-6-2017 RAJASTHAN) - Hazari Bagh Builders (P.) Ltd.] (as amended). Ruling : The work undertaken by the applicant 7. Composite supply : as per Contract RGGVY/TN- 13 (encompassing Facts : The Applicant has received work both work orders) is a Composite supply of orders from Ajmer Vidyut Vitran Nigam Ltd. Works Contract and is not covered under Entry (AVVNL) through tender process. AVVNL is a No. 3(vi)(a) of the Notification No. 11/2017- company incorporated by Govt. of Rajasthan Central Tax (Rate) dated 28-6-2017 (as amended) for distribution of electricity in various parts of as consequentially are not eligible to be taxed Ajmer district. Work undertaken by applicant at lower rate of 12% and hence are liable to be as per contract along with two work orders taxed @18%. involves (a) supply of materials/equipments and (b) erection, testing and commissioning of [[2020] 117 taxmann.com 702 (AAR- materials/equipments supplied in building of RAJASTHAN) - ARG Electricals (P.) Ltd.] rural electricity infrastructure. 8. Supply of food to hospitals : The applicant sought ruling on whether the Facts : The Applicant is engaged in supplying contract entered into with AVVNL as per the food and beverages at the canteen of their work orders combine of supply, erection, testing customers. The Applicant himself does not and commissioning of materials/equipments for get paid for by the consumers of the food providing rural electricity infrastructure qualifies and beverages. The Recipient of the services as a supply for work contract under section are hospitals who enter into contract with the 2(119) of the CGST Act? If Yes, whether such applicant. The charges are received from the
84 AIFTP Journal August 2020 AIFTPJ - 572 | Digest of Advance Rulings Under GST | hospitals on monthly basis on the coupons was amended vide Notification No. 27/2018. In collected. In short, it is deciphered that the terms of the above amendment, from 01.10.2019, Applicant is vested with management of the the supply of food by the applicant to hospitals canteen facilities. fall under entry no. (ii) of S. No. 7 of Not. No. 11/2017 - State Tax (Rate), issued in G.O.Ms No. The applicant sought the ruling, whether Food 110, Revenue (CT-II) Department, Dt. 29-06-2017 supplied to Hospitals i.e. Government Hospital, and is subject to 5% GST with the condition of Private Hospitals and Autonomous Bodies on non-availability of input tax credit. outsourcing basis, GST is chargeable? If GST is chargeable what is the tax rate? If no GST Ruling : For the period from 01.07.2017 to 26- is chargeable on the Supply of food, the GST 07-2018 – 18%. For the period from 27.07.2018 already paid by the Hospitals and remitted to onwards – 5%. Provided that credit of input Government is recoverable from their future tax charged on goods and services used in bills? supplying the service has not been taken. Observations & Findings : The Notification No. [2020 (8) TMI 104 – AAR, Telangana – Navneeth 13/2018 - State Tax (Rate), issued in G.O.Ms No. Kumar Talla] 171, Revenue (CT-II) Department, Dt. 20-08-2018 mom
1st E-Publication of All India Federation of Tax Practitioners Now available in Downloadable Format
Subject – Vivad Se Vishwas Act, 2020
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AIFTPJ - 573 AIFTP Journal August 2020 85 Office Bearers at NEC Meeting held on 16-8-2020
Smt. Nikita R. Badheka, Shri M. Srinivasa Rao, Shri Samir S. Jani, Shri Chirag S. Parekh, National President Dy. President Secretary General Treasurer Past Presidents at NEC Meeting on 16-8-2020
Shri P. C. Dr. K. Shri M. L. Shri J. D. Dr. M. V. K. Smt. Prem Shri Ganesh Dr. Ashok Joshi, Shivaram, Patodi, Nankani, Moorthy, Lata Bansal, Purohit, Saraf, Mumbai Mumbai Kota Mumbai Hyderabad New Delhi Jabalpur Guwahati National Executive Committee Meeting - 16-8-2020
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