TIOL-DDT 1034 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=utf-8"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><font color="#663399" size="3">TIOL-DDT 1034</font><br/>19.01.2009<br/>Monday</strong></font></p> <p align="center"><strong><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif" size="2"> Notification 45/2005- Cus and SEZ clearances</font></strong></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Notification no. 45/2005- Cus. Dated 16.05.2005 exempts all goods produced or manufactured in a SEZ and brought to any other place in India, from the whole of the additional duty of customs leviable thereon under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975).</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">The proviso to the notification mentions that the exemption shall not be applicable if such goods, when sold in domestic tariff area, are exempted by the State Government from payment of sales tax or value added tax.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">We received the following queries from a netizen in this regard suggesting that we carry it in <strong>DDT </strong>and elicit response from the readers.</font></p> <blockquote><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">1. As per a Memorandum of Understanding signed between the Tamil Nadu State government and the SEZ, payment of Sales tax/VAT has been deferred for a period of 10 years. Will this deferred payment be considered as an exemption necessitating payment of Additional duty of Customs by denying exemption under notification 45/2005- Cus?</font></p><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">2. In the above scenario, can this exemption be also extended in case Central Sales Tax is paid when sales are made in the Domestic Tariff Area? Admittedly, CST is an Inter State Sales Tax.</font></p></blockquote> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Another SEZ issue in the making?</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>DDT </strong>sent this to a couple of our experts and they opined-</font></p> <blockquote><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">1. The deferment scheme is not an exemption. The manufacturers collect the Sales Tax, but only deposit with the State Govt after a certain period of time. So there is no problem in claiming the exemption under Notn 45/2005 Cus . In case of inter-state sales also, the exemption can be claimed as inter-state sales are treated as zero rated sales as per AP VAT Act Sec 2 (47) (but not exempted sales)</font></p><blockquote><p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><em><strong>(47) 'Zero rated sales' for the purpose of the Act, means a sale of goods in the course of inter-State trade or commerce, exports to outside the territory of India including sales in the course of export and sale of goods to any unit located in Special Economic Zone as may be notified.</strong></em></font></p></blockquote></blockquote> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">But, in the TN VAT Act there is a little difference. The relevant Section reads as:</font></p> <blockquote><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">18. (1) The following shall be zero rate sale for the purpose of this Act, and shall be eligible for input tax credit or refund of the amount of the tax paid on the purchase of goods specified in the First Schedule including capital goods, by a registered dealer in the State, subject to such restrictions and conditions as may be prescribed:-</font></p></blockquote> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">(i) A sale as specified under sub-section (1) or (3) of section 5 of the Central Sales Tax Act, 1956;</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Sub section (1) and (3) of the CST deals with only export of goods.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Hence the inter - state sales are not defined as zero rate sales in TN VAT Act. At the same time the inter-state sales are also not exempted. As per the definition given under Section 2(20),</font></p> <blockquote><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">(20) "exempted goods" means the goods falling under the Fourth Schedule and goods exempted by the Government, by notification, from time to time.</font></p></blockquote> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">So, the inter-state sales are neither Zero rate goods nor exempted goods under TN Vat Act.</font></p> <blockquote><p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><em><font color="#ff6633">2. </font></em><font color="#ff6633">Deferred payment of Sales Tax/VAT being only a concession offered by the State Government for a fixed period of time, it cannot be regarded as an exemption from levy of Sales Tax/VAT to come under the purview of the proviso to Notification 45/2005- Cus as amended. Therefore, in my view, in such instances of deferred payment of Sales Tax/VAT offered by the State Government, SEZ units can avail the benefit of this exemption notification.</font></strong></font></p><p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Though, CST is a central levy, administration, collection and levy (including providing exemptions) is with the State Governments. So payment of CST for inter-state movement of goods from an SEZ unit to a customer located in another State in DTA is good enough to claim the benefit of this exemption notification. But, when a State Government offers exemption from VAT then it also naturally exempts them from paying CST or even offers deferred payment of CST along with VAT.</strong></font></p></blockquote> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Certainly, our men in white uniform manning the SEZs (if at all they are wearing any uniform), will raise an issue once this gets publicized through our <strong>DDT</strong>. I am not sure if it is already an issue, but it sure will get publicity. Good for the consultant fraternity. Big bucks.</font></p> <p align="center"><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Import Policy – Carbon Black, Seamless Tubes/Pipes and Bumpers and parts - FREE</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">Government has changed the Import Policy for Carbon Black, Seamless Tubes/Pipes and Bumpers and parts to be <strong>FREE</strong> instead of <strong>RESTRICTED</strong>. However for Carbon Black with CIF value of Rs.80,000 /- PMT and above, the Import Policy will be <em>Restricted</em>.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><a href="https://taxindiaonline.com/RC2/print_subcat.php?subCatDisp_Id=45&filename=notification/dgft/2008/dgft08not081.htm" target="_blank">DGFT Notification NO. 81(RE-2008)/ 2004-2009, Dated: January 16, 2009</a></strong></font></p> <p align="center"><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>FTP - Appendix 22A and AN 4G amended</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">The DGFT has amended Appendix 22A related to "Bank Certificate of Exports and Realisation ( BRC )" and the ANF 4G related to " DEPB application form"</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2008/dgft08pn131.htm" target="_blank">DGFT Public Notice NO. 131 (RE-2008)/2004-2009 Dated: January 13, 2009</a></strong></font></p> <p align="center"><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Export Obligation Period – DGFT amends HOP</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">As per para 2.22 of the HOP, “ Fulfillment Period of EO under an Advance Authorisation shall commence from Authorisation issue date.”; Now this is changed to, “Fulfillment period of EO under Advance Authorisation shall commence from Authorisation issue date, <strong>unless otherwise specified</strong>.” </font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">The following condition is deleted,</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">“Facility of extension of EOP shall not be allowed in case of Advance Authorisation wherein import of penicillin and its salts (ITC( HS) Code No.29411010 ) and 6- APA (ITC(HS) Code No.29411050) have been allowed as an input and also for import of spices and tea. RA shall make an endorsement in Advance Authorisation to this effect.”</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">New Export Obligation Period is fixed for Spices, Drugs, Pencillin, Tea and Coconut Oil.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">A new Appendix 30A is added in the HBP v1.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2008/dgft08pn135.htm" target="_blank">DGFT Public Notice NO. 135 (RE-2008)/2004-2009 Dated: January 15, 2009</a></strong></font></p> <p align="center"><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Anti Dumping Duty on Melamine – extended before lapse</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">The Anti Dumping Duty on Melamine originating in, or exported from, the People's Republic of China, imposed <em>vide </em> Notification No. 107/2004-CUSTOMS, dated the 16th November, 2004, would have lapsed on 1st April 2009. Now this is extended till 1st October, 2009.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2">This time around, the Board has issued the extension nearly two and a half months before the demise. Good Work indeed.</font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2009/ctariff09_006.htm" target="_blank">Notification No. 6/2009-Customs Dated: January 15, 2009</a></strong></font></p> <p align="center"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><font color="#006600">Jurispruden</font><font color="#ff6633" size="5">tiol</font><font color="#006600">– Tomorrow's cases</font></strong></font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong><strong><strong><strong><strong><strong><strong><b><img align="left" alt="Legal Corner Icon" border="0" height="84" hspace="5" src="https://taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" width="100"/></b></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Customs</strong></font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Exemption to Goods required for setting up of Mega Power Project - captive coal mine, dedicated coal transportation facility, dedicated water intake and pumping system, not eligible; dedicated power evacuation system eligible - AAR</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>THE</strong> electricity generated will not and cannot be stored from its generation till the point of interconnection to the transmission network of Power Grid Corporation or any other transmission company and that it is technically impossible to store electricity after generation. In view of this factual position, which is not in dispute, it is clear that power evacuation system must be legitimately treated as a part of the inter-state power plant.</font></p> <p align="justify"><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Income Tax</strong></font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Assessee is a foreign bank - runs NRI desk at overseas branches - claims deduction of expenses - Sec 44 C has no application to such expenses; assessee violates Security Contracts Act - sets off losses against gains - since losses emanate from illegal transactions entered into books, they are allowable deduction: ITAT</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>CLAIMING</strong> deduction for expenses incurred for overseas branches of an Indian tax resident is a tricky business. What makes it particularly complicated is the general nature of the services offered. Like in this case the assessee is a bank and runs NRI desk at its various branches in different country. The fact that other Asians also avail services of such a desk, should Revenue allow deduction of expenses u/s 37. Is Sec 44C related to 'Head Office Expenses' applicable in such a case? Having examined the nature of business and the lack of evidence supporting the arguments of the Revenue, the Tribunal has held that since the expenses were wholly and exclusively incurred for the business purposes of the Indian business of the bank, Sec 44C will have no applicability to such a situation. Mere book entries are not very important for determining the correctly assessed income of the assessee. The claim can be made through 'computation of income' route as well.</font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>Indo-German DTAA - assessee earns royalty and fee for technical services from own subsidiaries in India - merely because subsidiaries conduct business with guidance of non-resident, it does not mean that foreign co can be deemed to have a PE in form of own subsidiaries; A non-resident Co having a PE in India by itself does not lead to taxability: ITAT</strong></font></p> <p align="justify"><font face="Verdana, Arial, Helvetica, sans-serif" size="2"><strong>IN</strong> the domain of international taxation, the concept of PE relishes a prime position. A PE owes its existence to a compromise between the residence rule and source rule of taxation. It constitutes the happy abode for the foreign enterprise abroad. The nucleus of PE in the source country consists of a fixed place of business of foreign enterprise and its business activities. In a situation like this case, if a foreign enterprise does not have a PE in the source jurisdiction but does have a subsidiary, can its subsidiary be treated as a PE?</font></p> <p align="justify"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif" size="2">See our columns Tomorrow for the judgements</font></strong></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2">Until Tomorrow with more <strong>DDT</strong></font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2">Have a nice Day.</font></p> <p align="justify"><font color="#ff6633" face="Verdana, Arial, Helvetica, sans-serif" size="2">Mail your comments to</font><font face="Verdana, Arial, Helvetica, sans-serif" size="2"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p> </body> </html>