TIOL-DDT 1462 · 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 1462 </font><br>
08.10.2010 <br>
Friday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Continued Anti Dumping Duty on Velcro Tapes </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ANTI</strong> Dumping Duty on Narrow woven fabrics having pile weave, made up of manmade fibres (also known as hook and loop tape fasteners or Velcro tapes or fastening tape) originating in, or exported from, the People's Republic of China and Chinese Taipei, was imposed by <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2005/ctariff05_076.htm" target="_blank">Notification No. 76/2005- Customs, dated the 25th July, 2005</a></strong></em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2010/ctariff10_046.htm" target="_blank">Notification No. 46/2010- Customs, dated the 12th April, 2010</a></strong></em>, this was extended till February 13, 2011.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Designated Authority had recently recommended that the anti-dumping duty is required to be extended and modified. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the Government has freshly imposed anti-dumping duty on the product for another five years. </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2010/ctariff10_108.htm" target="_blank">Notification No. 108/2010 Dated: October 06, 2010</a> </font></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">And the Government Rescinds Wrong Notification</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> detailed above, the Anti Dumping Duty was imposed by Notification No. 76/2005 – cus. This Notification was amended by Notification No. 46/2010 – Cus to extend the duty till February 13. 2011. And now the Government in its wisdom has rescinded Notification No. 46/2010. Notification No. 46/2010 does not have an independent existence; it is only an amendment to Notification No. 76/2005 and has merged with the parent notification. What they should have rescinded was Notification No. 76/2005 –Cus, which unfortunately remains in the Statute with no real effect. </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2010/ctariff10_109.htm" target="_blank">Notification No. 109/2010 Dated: October 06, 2010 </a></font></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Goods Transport Operator Service - Time to bottle Ghost</font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">WITH</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> boring regularity, we have been writing about the ghost of Service Tax on GTO service for a short period from 11.7.1997 to 02.02.1998 which is still making rounds in the corridors of the Tribunal and the Courts. With the insertion of Section 71A vide Finance Act, 2003, the dispute did not die because there was no reference to Section 71A in Section 73 of the Finance Act, 1994. It was only in 2004 that Section 73 was totally redrafted. But when the law was fully made foolproof in 2004, the limitation factor started stepping in. Recently the Gujarat High Court </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-682-HC-AHM-ST.htm"><strong><em>2010-TIOL-682-HC-AHM-ST</em></strong></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> upheld
the CESTAT orders holding that the show cause notices issued after the Finance
Act, 2004 were time barred. Interestingly, the Larger Bench decision </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2010/2010-TIOL-1185-CESTAT-DEL-LB.htm"><em>2010-TIOL-1185-CESTAT-DEL-LB</em></a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> holding
that the demands were not barred by limitation has become per incurium . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Point to be noted is, is it worth taking the time of the Courts and Tribunals on this issue where the revenue involved would be negligible. Why can't the Government consider abolishing the tax by issuing a Notification under Section 11C as a goodwill gesture and making good economic sense? </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The Chinese Vodafone</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHILE</strong> the Vodafone issue was doing the rounds in the Indian Courts, China's State Administration of Taxation (SAT) solved the problem by issuing a retrospective Notification on December 10, 2009, making the Vodafone kind of deals taxable in China with effect from January 1, 2008. Perhaps the Chinese Tax Administration was watching the Indian case closely and came up with this retrospective Law. The Indian Income Tax authorities seem to be confident on getting their revenue through the existing Law. And retrospective legislation is not unique to India. </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">China's Notification No. 698 dated 10.12.2009, reads as, </font></strong></p>
<blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The equity transfer income mentioned in this notification refers to equity transfer income of Chinese resident enterprise shares from a non-resident enterprise. (Buying and selling Chinese resident enterprise shares listed on a stock exchange are not included). </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">2. If a withholding agent is unable to perform withholding obligations or does not pay according to the Law, the non-resident enterprise shall declare and pay corporate income tax with the relevant tax administration authority where the Chinese resident enterprise registered at (the authority who is in charge of the corporate income tax collection and management of the Chinese resident enterprise) within 7 days after the agreed share transfer date according to the equity transfer contract or agreement (if the transferor obtains income from the transfer in advance, then the date should be the actual date when the equity transfer income occurs). Non-resident enterprise that does not declare truthfully or /and pay their tax on time will be dealt with according to the relevant tax collection and management laws and regulations. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">3.</font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Equity transfer income refers to the difference between the equity transfer price and the actual share cost. The equity transfer price refers to the income the share transferor received which may be in the form of cash, non-monetary assets or equity. If the invested enterprise has undistributed profit or holds various after-tax funds, the amount from stockholders retained earnings that is transferred together with the equity from the transferor will not be deducted from the equity transfer price. The actual share cost refers to the actual investment amount paid by the transferor to the Chinese resident enterprise at the time it invested in the shares, or the actual equity transfer price paid to the original transferor at the time buying those transferred shares. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">4.</font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> When calculating the equity transfer income, the currency used when the non-resident enterprise invested in the Chinese resident enterprise or purchasing the equity from the original investor will be used to calculate the equity transfer price and the equity transfer cost price. If the same non-resident enterprise invested capital multiple times, the currency used in the first calculation will be used to calculate the equity transfer price and the equity cost price. The weighted average method will be used to calculate the equity cost price; if the currencies of each investment are not the same, the amount should be calculated in the currency used the first time with the exchange rate on the day that each investment occurred. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">5.</font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> When a foreign investor (the actual controlling party) transfers a Chinese resident enterprise equity indirectly, if the actual tax rate is lower than 12.5% in the country (region) where the transferred offshore holding company is located or the country (region) does not levy income tax to its resident on overseas income, then the enterprise needs to provide the following information to the tax administration authority where the Chinese resident enterprise is registered within 30 days after the signing of the equity transfer contract: </font></strong></p>
<blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">a. The equity transfer contract or agreement; </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">b. The relationships between the foreign investor and the offshore holding company on funds, management, procurement and marketing; </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">c. The offshore holding company's conditions on production, management, personnel, finance and property etc;</font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> d. The relationships between the offshore holding company and Chinese resident enterprise on funds, management, procurement and marketing; </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">e. The proof of a reasonable business purpose on setting up the offshore holding company by the foreign investor; </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">f. Other relevant information required by the taxation authority. </font></strong></p>
</blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">6.</font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> If a foreign investor (actual controlling party) transfers the equity in a Chinese resident enterprise equity indirectly via arrangements such as through the misuse of the corporate form without a reasonable business purpose to avoid corporate income tax liability, the relevant tax authority, after report for investigation from the State Administration of Taxation, holds the right to re-characterise the equity transfer deal according to the economic substance and ignore the existence of the offshore holding company used for the tax arrangement. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">7. If a non-resident enterprise transfers the equity in a Chinese resident enterprise to a related party and the transfer price is not in line with the arms length principle for the purpose of reducing taxable income, the relevant tax authority holds the right to make adjustment according to general practice. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">8. If a foreign investor (the actual controlling party) transfers the equity in several native or offshore holding companies' simultaneously, the Chinese resident enterprise whose equity is transferred should provide the whole transfer contract and supplementary contract to the relevant taxation authority. If there is no supplementary contract, the Chinese enterprise should provide detailed information on each transferred holding company to the relevant taxation authority, the transfer price for each native enterprise need to be clarified. If the price cannot be separated, the taxation authority holds the right to choose a reasonable approach to make adjustment to the transfer price. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">9. If a non-resident enterprise who has obtained equity transfer income is eligible for special tax treatment according to the special organization restructuring requirement (Tax No. 59 (2009)), the enterprise should submit information in writing that provide proof of meeting the whole requirement for record-keeping purpose to the relevant taxation authority and get approval from provincial taxation authority. </font></strong></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">10. Implementation of this notification starts on January 1, 2008. If you encounter any problem regarding implementation, please report to the State Administration of Taxation (International Taxation Division). </font></strong></p>
</blockquote>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Issued on December 10, 2009</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tax Laws are complicated everywhere and in China, they are written in Chinese and people will do business anywhere, even China, if there is money in it! The fact that Indian Laws are written in English does not make any difference. </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"> – Monday's cases</font></strong></font></strong></font></p>
<p><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">CESTAT</font></strong> </font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Cement cleared to construction industry in 50 kg bags not required to affix RSP eligible for benefit of exemption notification 4/2006-CE: High Court </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> construction activity has been considered as a service industry by the Finance Ministry. The two co-ordinate Benches have taken similar view. Under these circumstances, the Tribunal committed no illegality in holding that the construction industry is a service industry and the assessee had satisfied the other requirement of the Notification, they are entitled to the benefit under the Notification.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Sec 142( 2D ) - CIT fixes audit fees for special auditors - Appeal - Tribunal has no inherent power, cannot hear such appeal for lack of specific provision in I-T Act: ITAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the Bench is - Whether Revenue's order fixing the audit fees for special auditors is an appealable order. Whether Tribunal has inherent power to hear an appeal even in the absence of specific provisions for the same in the I-T Act. NO is the answer. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Repair and maintenance of Software - since Board's Circular 70/19/2003-ST, dated: December 17, 2003 was withdrawn only on 10.05.2007, maintenance of Software is not chargeable to Service Tax till 9.5.2007 – Prima facie case in favour – Pre-deposit waived and Stay granted: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> period involved in this case is 9.7.2004 to 30.4.2006 and at that time the applicant was aware of the Board's circular dated 17.12.2003 which was not withdrawn till 9.5.2007 and in the definition of maintenance service, clause (b) 'maintenance or repair of properties whether immovable or not' was substituted only with effect from 1.5.2006. The period involved in the case is 9.7.2004 to 30.4.2006, i.e. prior to the amendment of the definition. This period is also covered in the period involved in the case of Ruchi Infotech where the Tribunal granted unconditional stay. The Hon'ble Supreme Court in case of Tata Consultancy Services has held that software in canned form will be covered as goods. However, the Board's circular dated 17.12.2003 remained in force till 9.5.2007. The applicant has been able to make out a prima facie case in their favour. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong></font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend</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"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p>
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