TIOL-DDT 721 · the untouched capture
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<p><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 721</font></b><font face="Verdana, Arial, Helvetica, sans-serif"><b><br>
17.10.2007<br>
Wednesday</b></font></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>SEZ amendments</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One of our most enlightened experts in the field, wrote to me yesterday,</font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government of India has brought in two major changes in the SEZ Rules by issuing a Notification No. G.S.R. 1744 (E), dated <st2:date
ls="trans" Month="10" Day="12" Year="2007" w:st="on">October 12, 2007</st2:date>. The first amendment is restricting the size of multiproduct SEZ with a minimum contiguous area of <st2:metricconverter
ProductID="1000 hectares" w:st="on">1000 hectares</st2:metricconverter> with a upper ceiling of <st2:metricconverter
ProductID="5000 hectares" w:st="on">5000 hectares</st2:metricconverter> and stipulating that 50% of this should be catered to processing area. The other significant amendment is deletion of a clause in Rule 18 which hitherto prohibited shifting of used plant and machinery to an SEZ. <b>Now with this deletion this transfer of used plant and machinery is allowed. This gives a tremendous opportunity for all the EOUs to migrate to SEZs.</b></font></p>
</blockquote>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Not exactly! First a look at the Amendments.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the SEZ Rules, Rule 5 (2)(a) has been amended to substitute,</font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>(a) A Special Economic Zones for multi-product shall have a contiguous area of one thousand hectare or more but not exceeding <st2:metricconverter
ProductID="5000 hectares" w:st="on">5000 hectares</st2:metricconverter> :</b></font></p>
</blockquote>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was earlier,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A Special Economic Zone for multi product shall have a contiguous area of one thousand hectares or more:</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So now there is an upper limit.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One of the provisos has also been amended </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Provided further that at least fifty per cent of the area shall be earmarked for developing the processing area.</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Earlier this was,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Provided also that as least thirty-five per cent of the area shall be earmarked for developing the processing area, which may be relaxed upto twenty-five per cent by the Central Government on recommendations of the Board for the reasons to be recorded in writing;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, now, 50% of the area shall be for developing the processing area.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Rule 18 (4)(g),<font color="#663399"> <b>No proposal shall be considered for:-</b> <b>(g) the use of any plant or machinery previously used for any purpose in Domestic Tariff Area.</b></font></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This sub clause (g) has now been omitted, prompting my friend to comment that, “This gives a tremendous opportunity for all the EOUs to migrate to SEZs.”</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the Commerce Ministry has explained this deletion.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry in its instructions explains,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">apprehensions had been expressed by the Department of Revenue regarding shifting of existing businesses to SEZs to avail of the direct tax exemption on the export income as per the provisions of Section 10AA of the Income Tax Act, 1961. Accordingly in August 2006, vide SEZ (First Amendment) Rules, 2006, Rule 18(4)(g) had been inserted which prohibited consideration of any proposals intending to use any Capital Goods which have been previously used in the DTA.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By Finance Act, 2007 Section 10AA(4) has been substituted as follows</font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">4) This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely: </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) it has begun or begins to manufacture or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, <st2:metricconverter ProductID="2006 in" w:st="on">2006 in</st2:metricconverter> any Special Economic Zone;</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence:</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Provided that this condition shall not apply in respect of any undertaking, being the Unit, which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) it is not formed by the transfer to a new business, of machinery or plant previously used for any purpose</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ As the provisions of Rule 18(4)(g) and the new sub-section (4) to Section 10AA were in conflict, vide SEZ(Second Amendment) Rules, 2007 dated 12th October, 2007, Rule 18(4)(g) has been deleted.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> ++ While adequate provisions exist in Section 10AA of the Income Tax Act, to deal with tax related issues in case of previously used Capital Goods, it is not intended that any shifting of existing businesses takes place to SEZs which would offer a comparatively superior infrastructural and procedural environment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Accordingly, in terms of the provisions of sub-section (8) of Section 15 of the Special Economic Zones Act, 2005 , it is prescribed that while granting any approval for setting up new units in any SEZ, the Approval Committee or the Development Commissioner, as the case may be, shall ensure that procurement of second hand capital goods shall be allowed only in terms of the provisions of sub-section (4) of Section 10AA read with Explanation 1 & 2 to sub-section (3) of Section 80IA of the Income Tax Act ,1961.</font>
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</p>
</blockquote>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So it's all cosmetic tinkering and no serious change. Too many ministries, too many Acts and too many arrogant bureaucrats really make life miserable for somebody who wants to invest his precious money.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=261&filename=sez/2nd2_sez_amendment.htm" target="_blank">NOTIFICATION NO. G.S.R. 1744(E), Dated : <st2:date ls="trans" Month="10" Day="12"
Year="2007" w:st="on">October 12, 2007</st2:date></a></u> <strong>and</strong> <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=260&filename=sez/sez_instructions/2006/sez06ins008.htm" target="_blank">INSTRUCTION NO 8 . in No. F.1/6/2006-SEZ Dated : <st2:date ls="trans" Month="10" Day="12"
Year="2007" w:st="on">October 12, 2007</st2:date></a></u><b><u><st2:date ls="trans" Month="10" Day="12"
Year="2007" w:st="on"></st2:date></u></b></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Guidelines for recognition of various Agencies and authorizing these agencies to issue Certificate of Origin</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT has notified the Guidelines for recognition of various Agencies and authorizing these agencies to issue Certificate of Origin. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Applicant Chamber of Commerce, Industry Associations etc. must be registered as a Company, a Society or a Trust under the relevant Act of the Government and should not have been set up for profit. Proprietorship / partnership firms shall not be entitled for this recognition</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) The applicant must have a minimum office space of <st2:metricconverter
ProductID="1000 Sq. ft" w:st="on">1000 Sq. ft</st2:metricconverter>.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) The applicant must have a minimum of 5 employees (excluding support in form of Group D employees) on its pay rolls. At least 2 of such employees should be technically qualified.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) The applicant seeking recognition should regularly be conducting export promotion activities and should present a proof of having conducted at least 3 events in one licensing year through some reputed agency of trade promotion.. </font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Guidelines for Inspections: </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) The inspection shall be carried out by at least an officer of the rank of FTDO / Asstt. DGFT who shall be assisted by at least another official.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) The inspection report will precisely cover all the details given in the application form and verify the same before recommending enlistment.</font></p>
<p align="justify" class=MsoListParagraphCxSpLast><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) The inspection report will give the details of the Agency about meeting the criteria for enlistment as given in the guidelines.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2007/dgft07pn068.htm" target="_blank">DGFT PN NO. 68 (RE– 2007)/2004-2009 Dated: October 12, 2007</a></u></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>No interim report by Sixth pay Commission</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commission clarifies that </font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Reports have appeared in a section of the media that the Sixth Central Pay Commission has submitted interim reports and some newspapers have even published replacement scales supposedly recommended by the Commission. It is clarified that <b>the Commission has not submitted any interim report or recommendations</b>. It may be recalled that the Commission was notified on <st2:date ls="trans" Month="10" Day="5" Year="2006" w:st="on">October 5, 2006</st2:date> and is expected to give its report within the stipulated time of eighteen months.</font></p>
</blockquote>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So they have time up to April 2008, which may even be extended. If it is extended by about six months, the Report may come sometime around October 2008 and that is too close to the next General Elections, if not held earlier. So all those Government employees who are eagerly waiting for the Pay Commission Report to plan their future may have to wait a little longer. </font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Kochi Customs find plastic waste</b> </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Customs officials found prohibited plastic waste mixed with waste paper in a <st2:country-region w:st="on">US</st2:country-region> container consignment, which arrived at <st2:place w:st="on"><st2:PlaceName
w:st="on">Cochin</st2:PlaceName> <st2:PlaceType w:st="on">Port</st2:PlaceType></st2:place> recently. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, no case has been registered or seizures made so far. Last year, customs had seized and sent back 12 consignments of plastic waste from <st2:place w:st="on"><st2:PlaceName
w:st="on">Cochin</st2:PlaceName> <st2:PlaceType w:st="on">Port.</st2:PlaceType></st2:place> </font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>From our Legal Corner – tomorrow's cases</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></font></b></font></strong></font></b></font></strong></font></b></font></strong></font></b></font></strong><b><b></b></b></font></b></font></strong></font></b></font></strong></font></b></font></strong></font></b></font></strong></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF0000">Customs <st2:stockticker w:st="on">CHA</st2:stockticker></font><st2:stockticker w:st="on"></st2:stockticker></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Customs - <st2:stockticker w:st="on">CHA</st2:stockticker> licence - Commissioner Chennai cannot suspend licence issued by Vizag Commissioner - Permission could be withdrawn after due process of law : CESTAT</font></b></font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>COMMISSIONER</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong>of Customs (Port - Import), Chennai suspended the operation of <ST2:STOCKTICKER u1:st="on"><st2:stockticker w:st="on">CHA</ST2:STOCKTICKER></st2:stockticker> Licence issued by the Commissioner of Customs, <ST2:PLACE u1:st="on"><ST2:CITY u1:st="on"><st2:City
w:st="on"><st2:place w:st="on">Visakhapatnam</ST2:CITY>.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><ST2:PLACE u1:st="on"></st2:place> Tthe reasons stated by the Commissioner for suspending the operation of the <st2:stockticker w:st="on">CHA</st2:stockticker> licence are not supported by the indisputable facts of the case <b><font color="#663399">and the Commissioner's order cannot be sustained for a moment.</font></b> </font></p>
<p align="justify" ><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Central Excise</b></font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Refund, rebate and drawback - too many SCNs and conflicting orders - Bombay HC remands case to Tribunal</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">THE</font> </b>petitioner filed a refund claim on 30/3/2004 claiming refund of Rs.5,45,942/-. By a show cause notice dated 16/6/2004 the Dy. Commissioner of Central Excise, Ichalkaranji called upon the petitioner to show cause as to why the refund claim of Rs.5,27,396/- out of Rs.5,45,942/- should not be rejected as time barred. By a corrigendum dated 3rd September, 2004 an additional ground was added to the show cause notice dated 16/6/2004 and the petitioner was called upon to show cause as to why the refund claim should not be rejected under Rule 5 of the Cenvat Credit Rules, <st2:metricconverter ProductID="2000 in"
w:st="on">2000 in</st2:metricconverter> view of the fact that the petitioner had availed drawback/Rebate. By an order dated 29th October, 2004 the adjudicating authority sanctioned refund of Rs.18,546/- and rejected the claim in the sum of Rs.5,27,396/-.</font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Income Tax </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Bonus shares received by Trust cannot be said to be funds invested - Device of piercing the veil of legal entity of a <st2:stockticker w:st="on">HUF</st2:stockticker> to find out person in actual control of its functioning is unknown to this branch of tax law : Delhi HC</font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Unknown beneficiaries of a Trust?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A question before the Tribunal was whether these trustees were holding the shares for the beneficiaries. The Tribunal then proceeded to answer this question by holding that the beneficiaries were known and therefore it cannot be said that the trustees were holding the shares beneficially for them.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"A transfer cannot be made directly to an unborn person, for the definition of transfer in section 5 is limited to living persons. Such transfer can only be made by the machinery of trusts. Possibly, to express this distinction, the expression "for the benefit of" has been used, since the trustees, being the transferees, hold the property for the benefit of the unborn person."</font></p>
<p align="justify" ><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Service Tax - Advertising Service - Incentive received from media, not taxable : Tribunal</font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>THE</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b> </b>appellants were covered under the category of advertising agencies. The Audit found that they had collected incentives from M/s. <st2:PersonName
w:st="on"><st1:GivenName w:st="on">Malayala <st1:Sn w:st="on">Manorama</st2:PersonName>. The Revenue has considered these receipts as extra commission and had proceeded to recover Service Tax on these amounts by invoking larger period. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellants pleaded before the original authority that they had not billed nor collected the amount of RS. 6, 52, 27,619/- from the clients and this cannot be taken as the value of the taxable services provided by the agency. They had also stated that the broadcasters gave agency commission through trade discount on percentage basis at 15%.</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>See our columns tomorrow for the judgements</u></b></font></p>
<p align="justify" ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow 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></font></p>
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