TIOL-DDT 569 · the untouched capture
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<html> <head> <meta http-equiv=Content-Type content="text/html; charset=windows-1252"> <title>Taxindiaonline's DDT 402</title> </head> <body> <p align="justify"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 569</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><br> 09.03.2007<br> Friday</b></font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>IS DISTRIBUTION OF LIQUOR TAXABLE UNDER ‘BAS’?</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">My good friend and a famous columnist in our portal, Santosh Hatwar, sent us this intaxicating proposal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the major liquor producing and consuming states in southern <st1:country-region><st1:place>India</st1:place></st1:country-region> have put in place a state owned distribution company for IMFL. They procure the liquor from distilleries from within the state and across the country by floating tenders and distribute them to the licensees through their depots. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will this activity of procurement of liquor and distributing through the depots to the licensees amount to a service and if so is this service coming into the ambit of taxable services enlisted in Section 65 of Finance Act 1994?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This activity of the state owned liquor trading companies may come into the ambit of the taxable service head ‘Business Auxiliary Services’ (“BAS”). There is a possibility of classifying this activity under clauses (i) and (vi) of the definition of BAS. The two clauses referred to above are as follows:</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“ …. (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or”…..</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“…. (vi) provision of service on behalf of the client: or”….</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The definition in clause (i) covers the activities of the trading companies and these trading companies are liable to service tax. But there are two potential issues involved in this transaction which may be stumbling blocks for the service tax department: (i) the value of taxable service for the trading company and (ii) whether the manufacturer of IMFL is a client of the trading company.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For solving these two riddles they have to look at the nature of contracts entered into by the trading company with the manufacturers on the one hand and the licensees on the other. However, if the service tax authorities overcome these stumbling blocks then they can expect a huge bonanza for the exchequer and the Hon’ble FM will be mighty pleased with this intaxicating boost to the revenue coffers from the liquor trade. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Some time back we had carried an article on the Service Taxability of bottling liquor. With drugs, liquor and horse racing all attracted to the tax net, is taxation all about vices? </font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Be responsible to society and don’t ask for exemptions – FM</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finance Minister P. Chidambaram yesterday reminded India Inc of its responsibility towards society and asked it to give less priority to seeking fiscal exemptions. He saidcorporate <st1:country-region><st1:place>India</st1:place></st1:country-region> needs to address the glaring concerns of society such as no access to water, community toilets, electricity, sanitation, education and health. He emphasised that growth of agriculture would not only be beneficial in sustaining the country's booming growth, but would also have a positive impact on the corporate turnover. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“I have yet to hear the corporate world better render their corporate social responsibility towards those whose lot continues to suffer and it is in view of this, the budget for 2007-08 has given much higher allocations to agriculture, education, health etc,' Chidambaram said in a meeting organised by the Associated Chambers of Commerce and Industry (Assocham). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The FM said that the main challenge facing <st1:country-region><st1:place>India</st1:place></st1:country-region> today was that its growth was not all-inclusive and the vulnerable section of society was not able to reap benefits of an economy that was growing at almost nine percent. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He reiterated that issues such as fringe benefit tax (FBT), dividend distribution tax (DDT), service tax, double taxation could be addressed between finance ministry officials and representatives of the industry. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>'There is no country and institutions of excellence, be it the US, UK, EU, IMF, Asian Development Bank which has not reserved a table for India in view of its growing economic strength in the world and therefore India's growth prospects look even bullish and brighter but we have to share it with the poor and poorer to integrate them with the mainstream,'</b> he added.</font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>35,000 Crores of unaccounted wealth – IT and ED officials yet to recover – from shock. </b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The PIB clarified, A news items has been flashed in some sections of the electronic and print media that a search by the Income Tax department at the premises of a trader in horses in Pune has led to detection of 10 Swiss bank accounts involving substantial amounts. It is confirmed that a search was conducted by the Income Tax department at Mumbai and Pune on a person associated with stud farm and horse race about two months back and indications of certain foreign accounts were found during the search. At this stage it is not possible to confirm the quantum of evasion as the matter is still under investigation. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This, as they say, is the tip of the ice berg. But this stud farm owner could be richer than all your rich Indians including poor Narayan Murthy, Anil Ambani or the DLF chief – and all of it in black! The man is said to be in the business of horse-trading, export-import, and financing but has over 35000 Crores stashed away. Initial investigations reveal that the money stashed in Swiss bank and other illegal accounts may run into several thousand billion, and this could just be the tip of the iceberg. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This could well be the largest unearthing of hidden wealth in the country. The unaccounted wealth unearthed by income tax officials does not include his "accounted "assets. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is believed that he is a major player in the international hawala. It seems that a large chunk of his unaccounted wealth has come from the hawala circuit.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He hails from <st1:City><st1:place>Hyderabad</st1:place></st1:City> and is a prominent businessman based in Pune, where he runs a thriving horse breeding stud farm. He also owns properties worth thousands of billion in Pune, Mumbai, <st1:City>Hyderabad</st1:City> and <st1:City><st1:place>Bangalore</st1:place></st1:City>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apart, from being a prominent businessman and a well know name on Pune and Mumbai derby-circuits, he also owns a stud farm dealing with pure-breed horses. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter is still under investigation with the Central Bureau of Investigation (CBI) and the Research and Analysis Wing (RAW) have been roped in.</font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>In spite of the Gods – <st1:place><st1:country-region>India</st1:country-region></st1:place> is tops!</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The C.I.A. has projected that <st1:place><st1:country-region>India</st1:country-region></st1:place> will become, within the decade, the fourth most powerful country in the world. Yet, the Indian government, beset by twenty-four party coalitions, is “fragmented and often incoherent”; fewer than forty million of <st1:place><st1:country-region>India</st1:country-region></st1:place>’s citizens have “formal” employment and pay any income tax; and three hundred million people—more than a quarter of the population—live in poverty.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These are the contradictions of the subcontinent with a mixture of respect, bemusement, and exasperation by Edward Luce in his book <b>In spite of the Gods</b>. He traverses vast amounts of territory, and supplements personal encounters—he meets corrupt officials, aggrieved diplomats, Hindu-nationalist adherents of “biofuturology”—with exhaustive economic data. Look at the following facts:-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. <st1:country-region>India</st1:country-region> is poised to become the world's third largest economy within a generation, outstripping <st1:place><st1:country-region>Japan</st1:country-region></st1:place>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. It will surpass <st1:country-region>China</st1:country-region> in population by 2032 and will have more English speakers than the <st1:place><st1:country-region>United States</st1:country-region></st1:place> by 2050.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The booming tech sector employs no more than one million of <st1:place><st1:country-region>India</st1:country-region></st1:place>'s 1.1 billion people.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Only 35 million people, in fact, have formal enough jobs to pay taxes, while three-quarters of the country lives in extreme deprivation in <st1:place><st1:country-region>India</st1:country-region></st1:place>'s 600,000 villages.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Yet amid all these extremes exists the world's largest experiment in representative democracy--and a largely successful one, despite bureaucracies riddled with horrifying corruption.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. <st1:country-region>India</st1:country-region> is an economic rival to the <st1:country-region>U.S.</st1:country-region> in an entirely different sense than <st1:place><st1:country-region>China</st1:country-region></st1:place> is.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. There is nothing in <st1:country-region>India</st1:country-region> like the manufacturing capacity of <st1:place><st1:country-region>China</st1:country-region></st1:place>, despite the huge potential labour force.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. An inept system of public education leaves most Indians illiterate and unskilled.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. Yet at the other extreme, the middle class produces ten times as many engineering students a year as the <st1:place><st1:country-region>United States</st1:country-region></st1:place>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10. Notwithstanding its future as a major competitor in a globalized economy, American leaders have been encouraging <st1:country-region>India</st1:country-region>'s rise, even welcoming it into the nuclear energy club, hoping to balance <st1:country-region>China</st1:country-region>'s influence in <st1:place>Asia</st1:place>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11. <st1:country-region>India</st1:country-region> still has only 84 television sets per 1,000 people (<st1:country-region>America</st1:country-region> has 938); 7.2 personal computers for every thousand people (<st1:country-region>Australia</st1:country-region> has 564.5); and the internet reaches only 2 per cent (<st1:place><st1:country-region>Malaysia</st1:country-region></st1:place>'s figure is 34 per cent).</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">12. While becoming an important political and economic force, it has remained 'an intensely religious, spiritual and, in some ways, superstitious society'.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">13. Only about 35 million Indians pay income tax.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">14. In a country as complex as <st1:place><st1:country-region>India</st1:country-region></st1:place>, figures do not always tell the whole story, but at least they hardly ever lie. For instance, even in 2006, almost 300 million Indians can never be sure where their next meal will come from. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>15.</b><st1:country-region><st1:place><b>India</b></st1:place></st1:country-region><b> has huge opportunities as well as tremendous challenges that make the future "hers to lose”.</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What is your budget all about Mr. PC? </strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT </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></span></font></p> </body> </html>