TIOL-DDT 1310 · 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 1310</font> <br>
03.03.2010 <br>
Wednesday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Retrospective Electric Shock to SEZs - Defies Laws of Physics but well within Laws of Taxation </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NORMALLY</strong> when you get into contact with a live wire, you get a shock at that very instance and that terrible experience remains with you for the rest of your life. But here is one shocker which defies the laws of physics and that shock is delivered by the Central Government to Special Economic Zones (‘SEZs') where the SEZs were administered an electric shock in this Budget with retrospective effect. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Provisions of SEZ Rules, 2006 with regard to surplus power: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of sub-rules (3) and (4) of Rule 47 of Special Economic Zones Rules, 2006, surplus power generated in a SEZ may be transferred to Domestic Tariff Area (‘DTA') on payment of duty on consumables and raw materials used for generation of power. Duty on sale of surplus power to the DTA shall be as provided for in the said Rule. Further, as per sub-rule (4) ibid, valuation and assessment of the goods cleared into DTA shall be made in accordance with the Customs Act, 1962 and the Rules made there under. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A brief recap on the history of customs levy on electrical energy: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the Customs Tariff Act, 1975, <em>‘electrical energy'</em> is classified under Chapter 2716 00 00. In the year 2008, by virtue of Clause 72 (i) of the Finance Bill, 2008 read with second schedule thereto and the declaration under the Provisional Collection of Taxes Act, 1931, a tariff rate of Rs. 2000 per 1000 kWh was fixed as basic customs duty (‘BCD') for ‘electrical energy' under Chapter 2716 00 00. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, by virtue of S. No. 573 of Notification No. 21/2002-Cus dated March 1, 2002 inserted vide an amending Notification No. 21/2008-Cus dated March 1, 2008, all goods falling under Chapter 2716 00 00 attracted ‘Nil' rate of BCD. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Cut to the Present: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Finance Bill, 2010, vide Clause 60 read with second schedule thereof, Notification No. 21/2002-Cus is proposed to be amended retrospectively from June 26, 2009, by substituting S. No. 573 and the entries relating thereto, with S. Nos. 573 and 573A and the related entries. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per this proposed amendment of S. No. 573, ‘electrical energy' falling under Heading 2716 00 00 removed from a SEZ into DTA or non-processing areas of Special Economic Zone (‘NPAs of SEZ') will attract a BCD of 16%. Further, in terms of S. No. 573A, all goods falling under Chapter 2716 00 00, other than those mentioned at S. No. 573, shall attract a BCD of ‘Nil', when imported into India . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Similarly in terms of S. No. 2 of second schedule ibid, Notification 20/2006-Cus is proposed to be amended retrospectively from June 26, 2009 whereby all goods falling under Chapter 2716 00 00 shall attract a ‘Nil' rate of additional duty of customs under Section 3(5) of Customs Tariff Act, 1975 (popularly known as ‘SAD'). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, in terms of Clause 60 of Finance Bill, 2010 Courts/Tribunals are barred from interfering with this levy and the Government shall recover the duties liable to be paid by the SEZs on the said ‘electrical energy' cleared to DTA or NPAs of SEZs with retrospective effect. The mechanism for recovery of duty for the past period may be probably revealed when Finance Bill, 2010 is enacted into law. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Effective date and rate of levy: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the provisions of Clause 60 read with second schedule of the Finance Bill, 2010 will come into effect only from the date of its enactment into law, the Central Government has issued Notification No. 25/2010-Cus exempting electrical energy under Chapter 2716 00 00 from BCD with an exception that this exemption shall not be applicable to electrical energy removed from SEZs to the DTA or NPAs of SEZs. Likewise, Notification No. 26/2010-Cus was issued to exempt electrical energy from the levy of SAD and this exemption is applicable even to SEZs. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These Notifications are operative with immediate effect and they shall remain in force till the provisions of Finance Bill, 2010 are enacted into law and the amendments proposed to Notifications <em>21/2002-Cus and 20/2006-Cus</em> take effect retrospectively. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It may be noted that there is no levy of additional customs duty under Section 3 (3) of Customs Tariff Act, 1975 (popularly known as ‘CVD') because ‘electrical energy' does not attract any excise duty in terms of Central Excise Tariff Act, 1985. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As a result of this budgetary exercise, all SEZs shall have to pay a BCD @ 16% on electrical energy which is removed from the SEZs to DTA or NPAs of SEZs with effect from June 26, 2009. However, the recovery mechanism for the past liability i.e. from June 26, 2009 till February 26, 2010 is yet to be notified while the new levy shall come into force by virtue of<em><strong> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2010/ctariff10_025.htm" target="_blank">Notification No.25/2010-Cus</a></strong></em> with effect from February 27, 2010. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As stated above, by virtue of Rule 47(4) of SEZ Rules, 2006, the valuation and assessment shall be in accordance with the provisions of Customs Act, 1962 and the Rules made thereunder. In effect, provisions of Section 14 of the Customs Act, 1962 read with Customs Valuation Rules, 2007 amongst others will be made applicable for computing the assessable value of electrical energy for levying customs duty. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DTA
clearance/clearance from processing area to non-processing area and duties
thereon </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the Guidelines for Power Generation, Transmission and Distribution in Special Economic Zone (SEZs), issued by the Department of Commerce vide <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=259&filename=sez/sez_notifications/power_guidelines_SEZs.htm" target="_blank">N.o P.6/3/2006-SEZ.1 dated 27th February, 2009</a></strong></em>, </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">In respect of power supplied from processing area to constituents in non-processing area or from processing area/ non processing area to DTA, it should be at such a price as agreed by the regulator and the unit. For such clearance, the quantity of duty shall be leviable at such rate as may <strong>be notified as customs tariff by the Department of Revenue</strong> on the advice of the Ministry of Power and the Ministry of Commerce, read with Section 30 of SEZ Act, 2005. Such power plants would ensure maintenance of separate meter for supply of power from processing to constituents in non processing area or from processing area to DTA and amount of power so supplied should be submitted to the Unit Approval Committee for every quarter. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was issued sometime in February 2009 and the revenue Department took the opportunity of the 2010 Budget to give this little retrospective shock to the SEZ power units. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Pranab Effect: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the regime of UPA-I, the erstwhile Commerce Minister had the habit of going to town announcing tax sops to EOUs/SEZs taking the erstwhile Finance Minister by surprise. Sir Winston Churchill once said, “A lie gets halfway around the world before the truth has a chance to get its pants on.” This quote aptly summed up the tussle for tax sops between the erstwhile Commerce Minister and the Finance Minister. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It appears things have changed dramatically in the current regime of UPA. The current Finance Minister, who is considered the de facto number 2 in the Union Cabinet, thought it wise to take the first lead and pre-empt any soppy moves from the Commerce Ministry by delivering a shocker punch to the Commerce Ministry's pet project viz., SEZs even before it could realise what struck them from the above (or rather below). </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And the Finance Minister made no mention of the shock in his budget speech. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income tax - TDS on payment of interest on time deposits by banks - CBDT Clarification </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> case of banks using CBS software, interest payable on time deposits is calculated generally on daily basis or monthly basis and is swept & parked accordingly in the provisioning account for the purposes of macro-monitoring only. However, constructive credit is given to the depositor's / payee's account either at the end of the financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever is earlier. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Banks have sought clarification regarding deduction of tax at source from payment of interest on time deposits by banks using Core-Branch Banking Solutions (CBS) software. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT has clarified that since no constructive credit to the depositor's / payee's account takes place while calculating interest on time deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest by banks for the purposes of macro monitoring only. In such cases, tax shall be deducted at source on accrual of interest at the end of financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever event takes place earlier; whenever the aggregate of amounts of interest income credited or paid or likely to be credited or paid during the financial year by the banks exceeds the limits specified in section 194A. </font></p>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2010/it10cir03.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT Circular No . 3/2010, Dated: March 2, 2010 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">External Commercial Borrowings (ECB) Policy - RBI reacts to Budget 2010 </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per the extant ECB policy, infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, exploration and refining. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As announced in para 54 of the Union Budget for the Year 2010-11, it has been decided to expand the definition of infrastructure sector, for the purpose of availing of ECB, to include “cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accordingly, the infrastructure sector would henceforth be defined to include (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=280&filename=notification/rbi/2009/rbi09cir038.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI Circular No. 38 Dated: March 2, 2010</font></strong></a></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>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"><strong><font color="#663399">WITH nothing but budget being important in last few days, we had held back many judicial decisions. We will resume them from tomorrow. But here is a case from Supreme Court which we cannot hold back till tomorrow. So here it is today. </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This case had a zigzag movement. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. AO held against the assessee </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. CIT(A) held in favour of the assessee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. ITAT held against the assessee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. High Court held in favour of the assessee </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Supreme Court held against the assessee. </font></p>
</blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong> </font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Exchange differences are required to be capitalized if liabilities are incurred for acquiring fixed asset, like plant and machinery: </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ACCORDING</strong> to Indian Accounting Standards by Dolphy D'Souza, roll over charges are indicative of the increase or decrease in the liability of the company in the next specified period, generally of six months. Roll over charges represent the difference arising on account of change in foreign exchange rates. Roll over charges paid/ received in respect of liabilities relating to the acquisition of fixed assets should be debited/ credited to the asset in respect of which liability was incurred. However, roll over charges not relating to fixed assets should be charged to the Profit & Loss Account. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See</strong> <strong>Breaking News.</strong> </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><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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