The Supreme Court recently held that, for the purpose of central excise duty, royalty charges payable by distributors and copyright owners to artists and production houses should not be included in the assessable value of compact discs (CDs) which had been duplicated by workers using master CDs supplied to them.
Among other things, proposed amendments to the Finance Act will increase the rate of service tax from 12.36% to 14%, which is in line with the government's objective to introduce goods and services tax in April 2016. Other legislative changes include changes to the negative list, the introduction of the Swachh Bharat cess and amendments to the Service Tax Rules.
The importance of the introduction of goods and services tax (GST) was effectively demonstrated in the finance minister's recent speech, which highlighted that – along with a revamped direct tax regime – GST will bring greater transparency and investments. As such, it is expected to be a game-changing tax reform. The minister also announced that a political agreement to pass the bill which will enact the GST regime has been reached.
The various laws on the principal taxes which will be replaced by the goods and services tax (GST) regime provide exemptions and concessions from GST. Although under the GST regime exemptions are distortionary and affect the free flow of tax credits, some of these are expected to continue, at least until their sunset clauses expire. This update provides insight into the impact of the new regime in relation to different types of exemption.
Under the current taxation system, businesses face two issues with regard to credits – the inability to avail of credits for all taxes paid on sourcing and the accumulation of credits. The credit mechanism under the goods and service regime is therefore a key issue for businesses as, in theory, it should facilitate the transfer of all credits, allowing tax to be passed on to the consumer without any cascading.
Under the proposed goods and services tax (GST) regime, the intrastate GST model has been accepted for interstate transactions. Within this model, the central government has the right to levy intrastate GST at a rate likely to be equivalent to the applicable state GST rate and central GST rate. One significant advantage of the interstate GST model is that the input tax credit chain will be uninterrupted for interstate transactions.
The 122nd Constitution Amendment Bill 2014 was introduced in order to facilitate the introduction of goods and services tax (GST), stop the cascading effect of taxes and create a common national market for goods and services. The introduction of GST will be a game changer for the industry and it is expected to remedy various inefficiencies and defects in the current indirect tax regime.
Although, under the indirect tax regime, various central and state levies are triggered by distinct taxes, under the new goods and services tax (GST) regime, these taxes will likely be subsumed into a single tax trigger – supply. Closely linked to the taxable event of supply are the rules governing the place of supply, which will determine not only whether a given transaction is subject to GST, but also which state can lay claim to state GST.
The high court recently considered whether excise tax can be imposed on unmarketable products, holding that products which are manufactured but ultimately unmarketable do not incur excise duty. Meanwhile, the Tax Tribunal recently considered whether the sale of goods to builders/developers qualifies as an institutional sale, answering this question in the affirmative.
The finance minister recently proposed a bill which will give union territories and states the power to introduce a goods and services tax. The introduction of the bill is a welcome step towards achieving a fully fledged and harmonised goods and services tax system. The National Democratic Alliance government aims to introduce the new tax by April 2016.
In a recent tribunal case, the Indian Revenue Service demanded service tax from an assessee under the reverse charge mechanism, as it considered the arrangement between the assessee and owners of offshore supply vessels to be a tangible goods service. The tribunal had to determine, among other things, whether the arrangement fell under a proviso to Rule 3(iii) of the Import Rules.
In a recent case, an assessee purchased compressed natural gas from Mahanagar Gas Limited (MGL) for further sale to its dealers, providing space for MGL to install machinery and equipment. Revenue alleged that the assessee had provided marketing services to MGL; hence the commission earned by the assessee was taxable as a business auxiliary service. However, the tribunal ruled out the applicability of service tax.
The Delhi High Court recently held that gains arising from the sale of a share of a company incorporated overseas, which derives less than 50% of its value from assets situated in India, is not taxable under Section 9(1)(i) of the Income Tax Act 1961, read with Explanation 5 thereto. This decision has defined the term 'substantial' to be at a threshold of 50%.
In a recent decision, the Delhi High Court held that the mere presence of multiple entities in joint execution of an agreement does not constitute an 'association of persons' and thus cannot be taxed as a separate taxable entity. The court emphatically rejected, among other things, the Income Tax Department's stance that creation of a consortium by joint executors is sufficient to discard the separate taxable status of the entities.
The Supreme Court recently ruled on the criteria for determining whether a contract is a works contract or a sales contract. The decision will help to resolve a significant amount of pending litigation and will have a significant financial impact on the elevator industry.
In furtherance of the final safe harbour rules issued by the Central Board of Direct Taxes in September 2013, the board has now issued a letter in which it put forth certain significant directives and clarifications regarding the implementation of the safe harbour rules. Although the letter is insufficient to clarify all the issues pertaining to safe harbour, it is a welcome step by the government.
The Bombay High Court recently considered a challenge to an assessment order by a petitioner on the grounds that the order was given in violation of the remand order of the Income Tax Appellate Tribunal. The assessment order was further challenged on the grounds that the principles of natural justice had been violated, as the assessee had been given less than 24 hours to respond to the notice requiring it to prove its eligibility.
The Madras High Court recently considered whether import and interstate lease transactions were subject to tax if the lease agreements for such transactions were entered into before the provision enabling the government to levy tax on such transactions was introduced. The court ruled that all lease rentals realised after the amendment to the act would attract tax, irrespective of the date of the lease agreement.
A circular issued by the Central Board of Excise and Customs states that credit for service tax paid on the transportation up to a place of sale would be admissible if it could be established by the claimant that the sale and the transfer of property in goods occurred at the place at hand. However, following an amendment to the Credit Rules, the application of this tax has been under dispute. Several courts have set out their views.
The Customs, Excise and Service Tax Appellate Tribunal recently determined the applicability of service tax in relation to Sodexo meal vouchers sold by the appellant under the taxing entry for business auxiliary services. The tribunal argued that the tax should apply as the restrictions imposed on employees redeeming the vouchers were tantamount to promotion of the goods and services of the appellant's affiliates.