India Budget 2012-13

The Union Budget 2012-13 was presented by Hon’ble Finance Minister on March 16th, 2012. A lot of changes have been enacted and others are awaiting legislative approval for their enactment. We have summarized the major changes as proposed / enacted by this Budget for your information and analysis.

Please find attached herewith the summary and analysis of Budget 2012 – 13. We trust that the publication shall be useful. For any kind of clarification in this regard, please feel free to contact us.

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Incomplete Building – neither Building nor urban Land

Incomplete flat would not constitute “Building” for the purpose of Wealth tax

In the case of  Shri Sanjay Krishna Hegde, Kolkata Vs. Assistant Commissioner of Wealth Tax, [W.T.A. No. 09/Kol/2009 – Assessment Year: 2001-2002 pronounced on 21.02.2012], the hon’ble Income tax Tribunal has held that an incomplete building of the assessee neither falls within the definition of a building, as contemplated under section 2(ea) of the Act, nor within the purview of “urban land” as excluded by Explanation 1(b) of the IT Act. 

The Court placed reliance on the case of CIT (Central), Ludhiana –vs.- Smt. Neena Jain reported in [2010] 230 CTR 554 (P&H), wherein it was observed by the Hon’ble Punjab and Haryana Court that the word “building” has to be interpreted to mean a completely built structure having a roof, dwelling place, walls, doors, windows, electric and sanitary fittings etc. If one or more such components are lacking, then it cannot possibly be said that the building is a complete structure for the purpose of section 2(ea) of the Act. 

Thus, allowing the appeal, the hon’ble kept the incomplete structure of the assesse outside the ambit of both “building” and “urban land”.

Union Budget 2012

The Union Budget of Government of India has been delayed because of elections in five states and shall be presented on March 16, four days after Parliament will begin its Budget session.

Extension of date of filing of Service Tax return for September 2011

In exercise of the powers conferred by Rule 7(4) of the Service Tax Rules 1994 read with notification No. 48/2011-Service Tax dated 19th October 2011, Central Board of Excise and Customs has extended the date of submission of half yearly return for the period April 2011 to September 2011 from 25th October 2011 to 26th December 2011.

Supreme Court stays recovery of Service Tax on Renting upto 30-09-11

Hon’ble Supreme Court has stayed the recovery of Service Tax on Renting Services in its order in the matter Special Leave to Appeal (Civil) No.27245/2011 (From the judgment and order dated 04/08/2011 in WP No.2238/2010 of The HIGH COURT OF BOMBAY).  Permission has been granted to the petitioners to file individual applications for interim relief.  However, the stay is effective for tax upto September 30, 2011 and not thereafter.  October 1, 2011 onwards all assessee including petitioner should deposit their service tax wihout waiting for the outcome on the matter.

Service Tax on Renting Services upheld by Delhi High Court

Delhi High Court has delivered its judgement upholding the constitutional validity of “Renting of immovable property service”.  The Hon’ble Larger Bench of the Delhi High Court while upholding the levy of service tax on renting of immovable property observed as under:�
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“(a) The provisions, namely, Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010, are intra vires the Constitution of India.

(b) The decision rendered in the first Home Solution case does not lay down the correct law as we have held that there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly overruled.

(c) The challenge to the amendment giving it retrospective effect is unsustainable and, accordingly, the same stands repelled and the retrospective amendment is declared as constitutionally valid.”

Thus, the Hon’ble Court has reversed its judgement on this issue and has alligned the position with other high courts. 

Ref:  WP(C) No.3398/2010

Home Solutions Retails (India) Ltd v UOI 

Online filing of Returns along with Annexure 2A & 2B

The Department has developed new software application to facilitate the dealers to file their returns on-line alongwith Annexure 2A & 2B.

• It is apprised that earlier though the returns were being filed on-line, but Annexure 2A & 2B were submitted alongwith the return in hard copy only. Now subsequent to development of this software application, it would be possible for the dealers to file their Annexure 2A & 2B on-line as well alongwith the on-line return.

• The software application has been made available on the department website for users to test upto 15.09.2011 and offer their suggestions/feedback to the department. The data entered into during trial period shall not be used for any purpose.

• The new software application will be made operational w.e.f. 20.09.2011. Department has made it mandatory for all monthly dealers to file their returns for the period August, 2011 through the new software application.

Guidelines for enforcement of Provision for Issuance of Tax Invoices by the Registered Dealers

Under the scheme the Department would authorize The Zonal Officers to further authorize in writing the ward Value Added Tax Officer (“VATO”) to visit the premises of registered dealers in order to monitor the compliance of Section 50 of DVAT Act,.

• VATO during their visit has been authorized to issue Notice under section 59 of the DVAT Act for inspection of records of the Dealer. If it is found that the dealer is not issuing invoices in confirmation to Section 50,of DVAT Act the VATO can assess the dealer under Section 33 of the DVAT Act for imposition of penalty.

• Further, if it is found that the Dealer is not at all issuing invoices, then VATO can proceed with invoking Section 89(4)(f) of DVAT Act. It is apprised that Section 89(4)(f) lays down that if a dealer without sufficient cause fails to issue invoices as required under Section 50, he shall, on conviction, be punished with imprisonment for a term which may extend to six months and with a fine.

• However, before doing so the Officer shall intimate the Dealer the option of compounding under Section 93 of the DVAT Act. It is apprised that under Section 93, the Commissioner can compound the offence of the dealer if the dealer pays a sum not exceeding Rs 50,000/- or a sum not exceeding three times the amount of tax which has been avoided, which ever is higher.

• Formats of various notices and orders have also been made part of the Circular.

The International Private Leased Circuit services received from abroad is chargeable to service tax under Business Support Services under the reverse charge mechanism.

• A clarification was sought from CBEC regarding chargeability of service tax on International Private Leased Circuit (IPLC) Services received by BPO/MNC’s from abroad under reverse charge mechanism.

• It is apprised that the said services are covered under Telecommunication services defined under section 65(105)(zzzx) of Finance Act, 1994 (“Act”) as any service provided or to be provided to any person, by the telegraph authority, in relation to telecommunication services.
• As per Section 65(105)(111) of the Act, “telegraph authority” has been defined as “the meaning assigned to it in clause (6) of section 3 of the Indian Telegraph Act, 1885 (13 of 1885) and includes a person who has been granted a license under the first proviso to sub-section (1) of section 4 of that Act.” Thus, service provider outside India does not qualify as telegraph authority
• Accordingly, the service provided by a service provider situated out of India does not fall within the ambit of taxable services of telecommunication Services
• However, CBEC has clarified that since the definition of Business Support Service (“BSS”) inter alia includes the above activity, thus, the same is taxable under the taxable category of BSS.
• BSS has been defined by section 105(104c) of the Act, as under:

              “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing”

               Analysis and foreseen implications:

• Even though there is no specific inclusion of leased circuit services within the definition of BSS, the inter alia inclusion has been based on the phrase”services provided in relation to business or commerce”.
• By this logic, any service provided in relation to business and not falling under any other taxable category is made taxable under the taxable category of BSS.
• Authorities are bound to follow this clarification and shall be applying the taxable category of BSS to all services supplied to business and commerce but not covered by any of the other taxable category

Mandatory to submit half yearly Service tax Returns

• Present Notification introduces Service Tax (Fourth Amendment) Rules, 2011 to amend Rule 7 of Service TaxRules, 1994.
• It is apprised earlier to the present Notification, E-filing of Service Tax Return was mandatory only for the assesses who have paid a total service tax of Rs 10 Lacs or more including the amount paid by utilization of Cenvat credit, in the preceding financial year.
• Vide the present notification, E-Filing of Half Yearly Service tax Return has been mad mandatory for all assesses w.e.f. 01^st October, 2011.