TIOL-DDT 1215 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1215 </font><br>
14.10.2009 <br>
Wednesday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Amazon Tax </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> 1992, the U.S. Supreme Court in <em>Quill Corp. v. North Dakota </em> exempted out-of-state retailers from collecting sales tax in out-of-state transactions, i.e. where they sold goods to residents of a state where the retailer had no physical presence such as a store, office, or warehouse. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
April 2008, New York sought to overcome the <em>Quill </em>decision when
it approved a new tax as part of its 2008-09 state budget which contained
a “Commission-Agreement” provision
requiring out-of-state online retailers to collect New York state sales tax
if the retailer uses independent contractors or other New York residents
to solicit sales in excess of USD 10,000 from New York residents. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The law had an immediate impact on large online retailers like Seattle-based Amazon.com, which previously did not have to collect sales tax in New York because they did not have a physical presence in the state. Amazon and many other retailers have affiliate linking programs that enable other websites to maintain a link to the online retailer's site for incentives. Under Amazon's affiliate program, which Amazon considers a marketing arrangement, when a customer links to Amazon.com from the affiliate website, that affiliate receives a commission on the customer's purchases. Amazon has “thousands” of these affiliates in New York. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">New York tax officials contended that Amazon.com's affiliate program makes it subject to the commission-agreement provision of the new tax law, forcing Amazon to collect sales tax on transactions with New York residents. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now this tax is referred to as “Amazon tax.” The Supreme Court of the State of New York dismissed Amazon's suit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now other States are following suit. (no pun intended) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The US tax Foundation states, </font></p>
<blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The "Amazon tax" is just the latest in a series of efforts to eliminate the long-standing "physical presence" standard and replace it with a nebulous, arbitrary standard of "economic presence." Businesses throughout our nation's history could always ply their trade across state lines. Today, with new technologies, even the smallest businesses can more easily reach across geographical borders to sell their products and services in all fifty states. If such sales can now expose these businesses to tax compliance and liability risks in states where they merely have customers, they will be less likely to expand their reach into those states. </font></strong></p>
</blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Similar situations are bound to arise in India in our proposed GST as well as our existing VAT. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Limitation under US Income tax laws </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You think Indian Laws are draconian? Look at the US provisions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Normally IRS has three years:</font> </strong>The Federal Statute of limitation runs for three years after the return is filed. If there is more than 25% understatement of gross income, the IRS gets another three years. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Sometimes, it is forever for the IRS: </font></strong> If a return is not filed or a fraudulent return is filed, this is the tax equivalent of murder and the statute of limitations never runs out. The IRS has no time limit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A leading US tax lawyer advises, “If you file electronically, keep all the electronic data, plus a hard copy of your return. (Incidentally, I do not advise clients to file electronically until the tax law mandates it.)” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The poor backward Americans! </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What are unique features of Indian economy that distinguish it from other EMEs ? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">First, our growth is driven by domestic demand – both consumption and investment. Consumption and saving are well balanced. In India, the share of private final consumption expenditure in GDP is around 55 per cent. Our savings rate is 37.7 per cent and investment rate is 39.1 per cent. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Second, we have twin deficits – fiscal as well as current account deficit. We were on a path of fiscal consolidation before the crisis, but got off track because of the counter cyclical spending necessitated by the crisis. Unlike major EMEs , which are running current account surpluses, we have recorded deficits on the current account. Although current account deficits have been modest, the deficit reached a high of 2.6 per cent of GDP in 2008-09 but is expected to moderate during 2009-10. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Third, given the right balance between domestic consumption and saving on the one hand, and infrastructural bottlenecks in major areas (such as power, roads, urban infrastructure as also social infrastructure) on the other, India is essentially a supply-constrained economy. Just before the crisis, such supply concerns led to a view that there might be overheating in the economy. Generally, weak external demand has led to some externally induced cyclical slowdown. However, as the global economy recovers, supply constraints are again expected to be binding. </font></p>
<p align="right"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>[ RBI Governor Subba Rao] </em></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>The five concerns </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Governor Subba Rao continues:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633"> </font>First Concern: Exit from Accommodative Monetary Policy: Growth vs. Inflation: </strong>While there is broad agreement that we need to exit from the present excessively accommodative monetary and fiscal policies, there is less agreement on when and how we should exit. There are incipient signs of recovery. Industrial production has picked up in the past couple of months, but export growth remains negative. Business confidence surveys suggest recovery from the troughs touched a year ago although the confidence levels remain below the earlier peaks. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Second Concern: Management of Large and Volatile Capital Flows: </strong>Major central banks – such as the US Fed, the ECB , the BoE – have flushed their financial systems with unprecedented amount of liquidity. Till the first quarter of 2009, this liquidity was finding its way back to the central banks as excess reserves because of risk aversion. . Risk appetite is now returning. There are signs of recovery in portfolio investments to the EMEs . For instance, portfolio investments by FIIs in the Indian equity market amounted to US$ 13.6 billion in the period April 1-September 18, 2009 as against outflows of US$ 5.2 billion in the corresponding period of 2008 reflecting a turnaround of almost US$ 19 billion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Third Concern: De-clogging Monetary Transmission Mechanism:</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong>Following the collapse of Lehman Brothers, the global economic outlook deteriorated sharply, and the Indian economy got impacted by the contagion through all the channels – the financial channel, the real channel and the confidence channel. The Reserve Bank's crisis response included, like in the case of other central banks, both conventional and unconventional measures. These factors, which impeded monetary transmission, were in play even before the crisis. A definite task going forward will be to address the impediments to monetary transmission. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Fourth Concern: Fiscal Stimulus - Withdrawal and Quality of Adjustment: </strong>Like in other economies, fiscal stimulus measures and weakening of economic activity have led to substantial increase in our fiscal deficits. The Central Government's fiscal deficit is budgeted to jump from 2.7 per cent of GDP in 2007-08 to 6.8 per cent in 2009-10; the combined fiscal deficit of the Centre and the states is expected to increase from 4.2 per cent of GDP to 10.2 per cent over the same period. These deficits are large and need to be rolled back. What is the scope for adjustment? What lesson does our past experience offer? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We need to work seriously on expenditure compression. This is going to be politically challenging both at the Centre and in the States, but it needs to be done regardless. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Fifth Concern: Financial Stability, Financial Inclusion and Growth: </strong>Given the enormity of the crisis, financial sector regulation is being tightened under the aegis of international bodies such as the BCBS and FSB. There are proposals that would raise the reserve requirement of banks. New regulations for liquidity requirements are also going to be in place. There are also proposals to require banks to hold government securities. Many of these measures are necessary. But we need to recognise that all such proposals will have the impact of increasing the banks' funding costs which will translate into higher lending rates. How will banks react to such higher costs? Will this lead to an erosion of banks' social responsibility towards the poorer and other needy segments of the society? In economies such as India, a large part of population remains financially excluded. We will need to ensure that efforts at financial inclusion do not get negated by the ongoing tightening of the regulatory regime. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It needs to be recognized that after a crisis, with the benefit of hindsight, all conservative policies appear justified. But excessive conservatism in order to be prepared to ride out a potential crisis could thwart growth and financial innovation. The question is what price are we willing to pay, in other words, what potential benefits are we willing to give up, in order to prevent a black swan event? Experience shows that managing this challenge, that is to determine how much to tighten and when, is more a question of good judgement rather than analytical skill. This judgement skill is the one that central banks, especially in developing countries such as India, need to hone as they simultaneously pursue the objectives of growth and financial stability. </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Thursday's cases</font></strong></font></strong></font></p>
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sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" 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color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>When the issue is pending before High Court and Larger Bench of CESTAT, penalty cannot be demanded from assessee moreso since no mens rea established – CESTAT rejects Revenue appeal. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS </strong> is a Revenue appeal contending that when the duty demand is confirmed against the assessee, the penalty under section 11AC is mandatory. Inasmuch as the waiver and reduction of penalty by the Commissioner (Appeals) is not proper in law, the Revenue is before the CESTAT. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Sec 194H - Vodafone pushes pre-paid and post-paid SIM Cards through distributors - deducts TDS on commission paid on post-paid but treats pre-paid as sale of good and margins offered on MRP - Once it is held that SIM cards are only to facilitate rendering of service, it cannot treated as sale, and assessee is liable to TDS even on margins which are nothing but commissions: ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR </strong> the global telecom giant Vodafone, Indian income tax is evidently turning out to be a real Waterloo! Its all meticulous tax planning does not seem to working in its favour. Netizens are well aware of Rs 10,000 Crore capital gains tax liability raised by the Revenue on its share-transfer deal. Here comes another blow where the Tribunal has held that the Vodafone Essar Cellular Ltd is liable to TDS u/s 194H on the margins offered to distributors for pushing pre-paid SIM Cards to ultimate consumers. The assessee has been deducting tax at source in the case of commission paid on distribution of post-paid SIM Cards but it had entered into a different kind of agreement with its distributors for distributing pre-paid SIM Cards whereby it has been providing the SIM to distributors at a discount from the MRP and has not been deducting TDS by treating the same as a sale of goods. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Redemption - Section 125 of the Act permits authority to redeem goods on payment of fine either to owner or persons in possession. – High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Once the goods were freely importable, it is immaterial as to who first sought to import the goods as long as the goods were cleared according to law. Whatever may be the transaction between M/s Leela Scottish Lace P. Ltd. and the three persons who had subsequently cleared the goods, the previous antecedents to evade customs duty, if any, would be irrelevant as long as the goods were finally cleared by the said three persons by payment of duty. Section 125 of the Act permits the authority to redeem the goods on payment of fine either to the owner or the persons in possession. </font></p>
<p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p>
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