TIOL-DDT 1729 · 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=iso-8859-1"> </head> <body> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1729</font><br> 09.11.2011<br> Wednesday </strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax - Construction Service - Confusion Spreads - Commissioner Clarifies </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> you will remember, the Finance Act 2010 added this explanation to Section 65(105)(zzzh) </font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Explanation. - For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;" </font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This had been challenged and the Bombay High Court had granted an interim relief – </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-526-HC-MUM-ST.htm" target="_blank">2010-TIOL-526-HC-MUM-ST</a></strong>.</font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 01.10.2011, the DNA Newspaper carried a report as follows: </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/mchi.jpg" alt="Legal Corner Icon" width="165" height="133" hspace="5" border="0" align="left"><strong><font color="#FF6633">Service tax relief for real estate</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax officials Sushil Solanki, Commissioner Service Tax, Mumbai I and Wilson Hangshing, Commissioner Service Tax, Mumbai II met the MCHI team representing the developer community, to explain the implications of the recent High Court order on the issue. The Court ruled that realty developers would not have to pay the service tax, but they need to get their books assessed. MCHI expressed its happiness at the clarification and clearing the confusion among developers. The discussion is part of the MCHI initiative towards the welfare of developers so that they can serve society better.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since then, we have been getting many calls and mails asking us to clarify the issue. We are told that DNA had carried a correction to the above report, but somehow, while the original report spread like wildfire, the correction went unnoticed.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As the confusion was spreading fast to several parts of the country, thanks to the modern communication systems, <strong>TIOL</strong> contacted the Mumbai–I Service Tax Commissioner Sushil Solanki, who was very helpful and readily clarified the issue. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He issued the following clarification: </font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A meeting was held with members of MCHI (Maharashtra Chamber of Housing Industry) to explain to them the service tax provisions with regard to construction activities. It was attended by good number of representatives of builders and developers. Following legal position was clarified by us in the meeting.?</font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>++ Mumbai High Court has issued interim order in July 2010 <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2010/2010-TIOL-526-HC-MUM-ST.htm" target="_blank"><font size="1">(2010-TIOL-526-HC-MUM-ST)</font></a></strong> on the petition of MCHI that "no coercive steps shall be taken against the petitioners for recovery of service tax in relation to the provisions in question, but it is clarified that assessments may proceed in accordance with law”. By a subsequent order, the petitioners were allowed to deposit service tax with the high court. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ In the meeting, it was clarified that even though there is stay against recovery of service tax but all service providers must take registration and file service tax return in time. In case of failure to file return, department may initiate investigations for issue of show cause notices and extended period would be available to the department. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It was also clarified that it is in their interest to collect service tax and pay to Government or to the court, because in case the petition is decided against them, they would be saddled with huge liability. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It was also clarified that stay order of court is available only to the person who has been admitted as petitioner by the court and not to others. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Issues like taxability in case of redevelopment and SRA project was also explained. </font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, the DNA newspaper reported wrongly that I have clarified that builders are not required to pay taxes in view of High Court order. When I came to know about the misreporting, immediately MCHI was contacted as they had issued the press release earlier. MCHI issued correction report to the newspaper and it was clarified that builders are required to deposit service tax to the Court, they should also get registered and get their records assessed. The corrected report was published too. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It is also brought to your knowledge that said case is still pending before High Court </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Well, that was only a storm in the teacup after all! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">TIOL is grateful to Commissioner Solanki for readily giving the clarification. </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Applicability of Exchange Rate For Calculation of Composition Fee - DGFT Clarifies </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>case of any shortfall in value, authorization holder is required to deposit an amount equal to 1% shortfall in FOB value in Indian Rupee. Clarification has been sought on the exchange rate applicable for determination of shortfall in Export Obligation. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT now clarifies that the “Basis of calculation of exchange rate would be the date of issue of authorization”. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2010/dgft10cir045.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Policy Circular No. 45/(RE-2010)/2009-14 Dated: November 8, 2011 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Message Exchange Between DGFT and Customs - When Not Operational? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DGFT</strong> receives requests from exporters/importers about non-appearance of details of authorizations issued by DGFT on Custom's server leading to delays in registration/export and import clearances. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Message exchange between DGFT and Customs is operational only in respect of Advance Authorization (on and after 01.04.2009), Export Promotion Capital Goods (on and after 01.04.2009), Duty Free Import Authorization (on and after 13.10.2011) and DEPB (which is on EDI mode for almost 6 years). Only these authorizations are therefore available for ‘on-line' verification. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT clarifies that other authorizations i.e. Annual Advance Authorization, Annual EPCG, SHIS, restricted/SCOMET import/export authorization, Chapter 3 Reward Scheme are yet to be covered under message exchange with customs. Therefore, these authorizations need to be registered / operated by customs on <strong>production of physical copy of authorization only with no ‘on-line' verification.</strong> </font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2010/dgft10cir046.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Policy Circular No. 46/(RE-2010)/2009-14 Dated: November 8, 2011 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax - PE - Shops on Ships in international traffic – Which Country will tax? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IF</strong> an enterprise of State A owns a shop on a ship registered in State B and the ship travels between several countries including States A and B, in which country may the income from the shop be taxed? In the example, it may be assumed that enterprise is not associated to the enterprise operating the ship. Could it be argued that there is a PE on the ship (and if so in which country would the PE be situated)? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether and in which circumstances the home office of a resident employee of a foreign company could be considered to be a permanent establishment of the foreign company? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can a farm be a permanent establishment? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These and several other interesting questions are raised in a public draft for additions and changes to the Commentary on the OECD Model Tax Convention. Article 5 (Permanent Establishment) of the OECD Model Tax Convention includes the definition of the treaty concept of permanent establishment, which is primarily used for the purpose of the allocation of taxing rights when an enterprise of one State derives business profits from another State. Despite the long history of the concept of permanent establishment, its practical application raises a number of issues.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">India's CBDT proposes to send its comments on the OECD draft and invites comments from all officers of the Department by 02.12.2011. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=67&filename=notification/cbdt/2011/Order_OECD.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT F. No. 500/507/2004-FTD-1(pt) Dated: November 8, 2011 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Member Posts - Applications Invited </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SOME</strong> posts of Members in the CBEC are to fall vacant in the next financial year and the Government has invited applications from officers with high professional merit and excellence and an impeccable reputation of integrity. The eligible officers who are not interested in applying for these posts are also required to inform that they are not interested. Applications should reach the Revenue department through CBEC by 30.11.2011. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will a few more ladies make it to the Board, which already has three lady Members? </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/sernews/order/Vacancy_member_cbec.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DOR F. No. A.12026/15/2011-AD.1 Dated: October 21 2011 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Vigilance Awarness Week? - Income Tax Department Drops ‘e' </font></strong></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/Vigilance_Awarness.jpg" alt="Legal Corner Icon" width="300" height="190" hspace="5" border="0" align="center"></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PLEASE</strong> see the banner above of the Income Tax Department's Vigilance Awareness Week. They have spelt awareness as awarness; the ‘e' is missing after ‘r'. </font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a></a><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"> – Friday's cases</font></strong></font></strong></font></p> <p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs</font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Suspension of CHA license - Final notice not issued even after lapse of time stipulated in Board's Circular 9/2010 dated 08.04.2010 – No indication of any time frame within which Revenue would issue such notice - Since employees are out of work, CHA allowed to function with certain restrictions: CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant, a CHA licensee was charged with violation of CHALR, 2004 resulting in suspension of the license on 19.07.2010 which was confirmed by the Commissioner of Customs in his order dated 25.10.2010 resulting in this appeal before CESTAT. The main ground on which the suspension was confirmed by the Commissioner was that the appellant lent their CHA licence to unauthorized persons for monetary consideration even without knowing the actual exports, which is a mandatory condition of Regulation 12 of CHALR, 2004. </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">Whether income from unsold flats of builder, given on rent, is to be treated as income from house property or income from business - Income from house property, rules Calcutta HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE</strong> is a property developer and builder. Assessee constructed a building in which there were some unsold flats which were appearing as stock-in-trade under the current assets and were meant for sale. Costs of these unsold flats were Rs.26.09 lacs and the rental income of Rs.49.00 lacs from these flats were shown under the head ‘operating income'. Assessee had shown the rental income under the head “income from house property” and, thus, claimed statutory reduction of 1/5th on account of repair from annual letting out value. AO stated that in the wealth tax proceedings, the assessee had considered the unsold flats as stock in trade and not assets for the purpose of wealth tax. </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">Activity of supplying labour for harvesting & transportation of sugarcane from farmer's fields to sugar factory – No prima facie case for full waiver of pre-deposit - Pre-deposit of Rs. 7.5 lakhs ordered: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant, a charitable trust formed under Bombay Public Trust Act, 1950, was solely created for the welfare and social cause of sugarcane growers/farmers. They were engaged in the activity of ‘harvesting & transportation of sugar cane' from farmer's fields to sugar factory by engaging sub-contractors. The department issued show cause notice to the appellants demanding service tax under the head ‘manpower recruitment and supply agency's service'. </font></p> <p align="justify"><font size="3"><strong><font color="#FF0000" face="Verdana, Arial, Helvetica, sans-serif">Tomorrow is a Holiday.</font></strong></font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Friday for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Friday with more <strong>DDT</strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Time </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"><strong>vijaywrite@taxindiaonline.com</strong></a></font></p> </body> </html>