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Capital Gains – Complete Guide

Capital gains was first introduced in 1946 and was in operation only for a short period, that is, in respect of capital gains which arose during the period from 1st April, 1946 to 31st March, 1948. Later it was modified and reintroduced for the purpose of alleviating economic inequalities by the then Finance Minister Shri T.T. Krishnamachari in November 1956 by imposing a tax on capital gains made on or after the 1st April, 1956.

Capital gains is one of the import sources of income under the income tax law. In case of income from salaries, house property, business or profession or other sources where a reasonable understanding of the provisions is sufficient to arrive at income from these heads. However, for computing income from capital gains, a thorough understanding of the provisions is essential:

  • Amalgamation [Section 2(1B)];
  • Capital asset [Section 2(14)];
  • Demerger [Section 2(19AA];
  • Demerged Company [Section 2(19AAA];
  • Fair Market Value [Section 2(22b)];
  • Long Term Capital Asset [Section 2(29A)];
  • Long Term Capital Gain [Section 2(29B)];
  • Resulting Company [Section 2(41A)];
  • Short Term Capital Asset [Section 2(42A)];
  • Short Term Capital Gain [Section 2(42B)];
  • Slump Sale [Section 2(42C)];
  • Transfer [Section 2(47)];
  • Zero Coupon Bonds [Section 2(48)]; etc.

The provisions of Income Tax Act or Rules has not covered various types of transactions that are taking place recently. In such cases apart provisions of income tax law, we need to have understanding of latest judgements.

Formulae of capital gain = Capital Asset x Transfer:

Chargeability of a transaction to capital gains as per section 45(1) arises only on its conformity to the above formulae. That means, the asset transferred [Section 2(47)] is a capital asset [section 2(14)] which results into capital gains under section 45.

Note: Amalgamation and demerger are special cases and are to be dealt separately.

Transactions not regarded as transfer: Section 47 of the Income Tax Act provides for certain transaction though transfers, but not regarded as transfers chargeable under section 45(1).

Year of chargeability: Capital gains is chargeable to tax in the previous year in which the capital asset has been transferred. The exception or the special cases where the chargeability or its payment differs to some other previous years are provided in section 45(1A), section 45(2) and section 45(5).

Type of capital assets: There are two types of capital assets. They are:

  • Short Term capital asset; and
  • Long Term capital asset.

The gain / Loss on transfer of a short term capital asset is treated in the income tax law as short term capital gain. Which is chargeable to tax at normal rates except in case of listed securities and chargeable to tax at a special rate of 15% as per section 111A. In same manner the gain / loss on transfer of a long term capital asset is treated as long term capital gain. Which is chargeable to tax at special rate of 20% as per section 112.

The inputs required for computation of capital gains. The below important information is required for computation of capital gains:

  1. Cost of acquisition [Section 48];
  2. Cost of improvement [Section 48];
  3. Period of holding [Section 2(42A)] for the purpose of indexation of long term capital asset;
  4. Indexed cost of acquisition [Section 48];
  5. Indexed cost of improvement [Section 48];
  6. Full value of consideration [Section 49] read with section 50C / section 50D;
  7. The amount of exemptions u/s 10 and deduction as per sections 54 to 54H, if any.

Real estate transactions

There are no vivid provisions in the income tax law to deal with development agreements entered by the land owners with the developers of properties. Sub-clause (v) of section 2(47) just says “any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882”.

Though land owner transferred only certain share of land to the developer, it is in practice by the tax payers to consider total extent of land as transfer and landowner’s share of superstructure value (that is going to build) as per stamp value authority on the date of development agreement, as full value of consideration. It is good to exchequer, if this practice is voluntary and taxpayers made the payment consciously. Such mode of computation is presented by tax authorities to the tax practitioner who in turn insist upon their clientele to comply accordingly. This computation is very unfair upon the tax payers as they compelled to pay tax though they do not receive any money. As no money received by the taxpayers, they have no opportunity to avail the benefits under sections 54 to 54H.

The reason for this anomaly is because of the capital gains provisions of the income tax law are incomprehensive to deal with. The law does not provide for what extent of land amounts to transfer i.e. share allocated to developer or total extent of land. Also, there is no clarity on full value consideration, whether share of superstructure value or land value (both as per stamp value authority). Considering superstructure value is punitive step upon the tax payer. This lacuna is unnoticed for the past several years. Hope its rectification in the years to come.

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Refund of SAD

Refund of SAD

The intention of levying Special Additional Duty (‘SAD’) of Customs also known as Counter Value Duty (‘CVD’) U/s 3(5) of the Custom Tariff Act is to encourage domestic market and counter balance local sales tax/ Value Added Tax (‘VAT’) leviable on like products at the time of sale , which would have been levied if procured from domestic market.

However, where the imported goods are subsequently resold, exemption from 4% additional duty is provided in the form of refund vide Custom Notification No. 102/2007 dated 14.09.07, provided the conditions prescribed in the said notification is fulfilled.

The following conditions are required to be fulfilled:

1) all the applicable duties including additional duty has been paid at the time of import by importer;

2) at the time of issuing invoice, importer shall specifically indicate in invoice that no credit of additional duty shall be admissible;

3) the importer shall file refund claim of the said additional duty of customs paid on the imported goods with the jurisdictional customs officer;

4) the importer shall pay appropriate sales tax or VAT on sale of the said goods;

5) the importer shall, inter alia, provide copies of the following documents along with the refund claim:

(i) document evidencing payment of the said additional duty;

(ii) invoices of sale of the imported goods in respect of which refund of the said additional   duty is claimed;

(iii) documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.

Procedure and clarification for claiming refund has been given in Circular No. 06/2008 Cus dated 28.04.2008 and Circular No. 16/2008 dated 13.10.2008 read with Notification No. 102/2007 Cus dated 14.09.2007.

Check list for filing refund application

S.No Particulars
1. Refund Application
2. Calculation/ Working sheet
3. Original Bill of Entry
4. Original TR-6 Challan
5. Copy of Import invoice/ packing list
6. Original Sales Invoices with declaration mentioning that no additional duty has been passed on
7. True copy of VAT/ CST challan and return
8. Authority letter
9. Ledger Account

Points to be cautious:

  1. Time limit for filing refund claim is one year from the date of payment of the additional duty of Customs. In view of the above, importer should be specific in filing refund claim within the stipulated time else the refund amount would lapse.
  2. Amount of SAD refund shall be restricted proportionate to sales made (quantity wise) and appropriate sales tax or VAT has been paid. Hence unsold stock would not be eligible for refund.
  3. The importer can file monthly claim irrespective of number of bill of entries. Single claim against a particular bill of entry is allowed and whereas refund claim for part quantity is not allowed except where necessary at the end of one year.
  4. One of the condition,inter-alia,requires that invoice should contain a declaration that no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible. In the absence of which, department rejecting the claim cannot be ruled out.
  5. Certificate from a statutory auditor / CA who certifies the final accounts, correlating VAT paymentvis-a-vis4% SAD amount and unjust enrichment. A certificate from any independent Chartered Accountant would not be acceptable.
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A study on income declaration scheme 2016

A study on income declaration scheme 2016

The scheme is basically brought as a last opportunity to declare black money and the wealth to see a black money free economy in our country in the coming time. The scheme proposes reasonable taxation of 45 % which is only 15 % more than the highest slab prevailing in the country. The rules and regulations of the scheme is yet to come out and the success of the scheme mostly depends on the practical point of view of aspirant, immunity warranty, friendly behavior of the department, the role of advisors and the consultants, set of FAQ covering all types of assessee having different asset class and standing etc and the practical workability from each level. The submission here may be summarized as under:

  • HIGHLIGHTS OF THE SCHEME
  • OBSERVATIONS ON THE SCHEME
  • LIKELY PROBLEMS
  • DOUBTS OF THE ASPIRANT OF THE SCHEME
  • SUGGESTIONS

Read More

Highlights of India-Mauritius DTAA amendment

 

 

  1. On 10thMay 2016, the Government of India has issued a press releaseannouncing the Protocol for amendment of the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains between India and Mauritius (DTAA). This protocol was signed by both the countries on 10th May 2016 at Port Louis, Mauritius. This amendment follows on Finance Minister Arun Jaitely’s announcement in the budget for 2016-14 to implement General Anti Avoidance Rules (GAAR) from April 1, 2017.

 

A brief Glimpse of Amendment in DTAA with  Mauritius is as follows:

Q1. What was the reason to amend tax treaty (DTAA) with Mauritius?

  • Any Capital Gains arising in Mauritius were not taxed
  • This made an attractive “post box address” for foreign investors to route investments into India
  • Indians with a intention of avoiding taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through “round tripping”.

 

Q2. When was the amendment made?

10th May 2016

 

Q3. What is the essences of the amendment?

Taxing a transaction “based on the source” rather than “based on residence” (Part of BEPS initiative)

 

Q4. What are the major amendments • Taxing of capital gains (CG) arising to a Mauritian resident from sale of share of a company resident in India.

  • If Such shares are acquired on or after 1stApril 2017
  • Shares acquired upto 31stMarch 2017, are ‘grandfathered’ meaning, any sale of such shares in future are tax-protected i.e. not taxed and its effect is prospective.
  • Taxed at 50% of reduced tax rate on CG arising between 01/4/2017 and 31/03/2019 on investment made on or after 1stApril 2017, subject to Limitation of Benefits (LoB)
  • LoB mentions the Mauritian companies have to spend expenditure of more than INR 27 Lakhs in preceding 12 months, if not spend then CG taxed at full rate.
  • LoB applies till 31stMarch 2019, thereon CG is taxed at full rate

 

 

Q5. What are the impacts of amendment?

  • Surge in investments in India until 31stMarch 2017, to take advantage of ‘grandfathering’ window.
  • The window period will give sufficient time to investors to plan their investment structures.

 

Q6. What are the limitations of amendment?

  • Applicable only to ‘shares’ of a company in India. Does not apply to other financial instruments (FI)such as debentures, derivatives, Interest in LLP etc., these FI can go without taxing.
  • No clarity on issue of shares by Indian company after April 2017, in pursuant to transactions such as right issues, bonus issue etc.
  • No clarity on impact of amendment on India-Singapore treaty, since tax on CG under the two treaties are co-terminus
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Know Everything about Filing of Advance Ruling under Central Excise Act,1944

INTRODUCTION AUTHORITY FOR ADVANCE RULINGS CENTRAL EXCISE

Advance rulings enable foreign investors to know in advance into certainty their indirect tax duty liability on production and manufacture of goods in India.2. Relevant provisions for obtaining an advance ruling are contained in Chapter IIIA in the Central Excise Act, 1944;

2.1. The Central Excise (Advance Rulings) Rules, 2002 notified vide notification Nos. 28/2002-C.E. (N.T.) dated 23rd August, 2002 and amended vide notification Nos. 59/2003-C.E. (N.T.) dated 23rd July, 2003 and notification Nos. 16/2007-C.E. (N.T.) dated 6th March, 2007 provide for the format to be used for filing application.

2.2. Procedure Regulations of the Authority (AARUL CESTAT) have also been notified vide notification No. 1/2005-AAR dated 7th Jan., 2005.

  1. The scheme of Advance Rulings allows a non-resident investor setting up a joint venture in India in collaboration with a non-resident or a resident; or a resident setting up a joint venture in India in collaboration with a non-resident; or a wholly owned subsidiary Indian company, of which the holding company is a foreign company; or a joint venture in India; or a resident falling within any such class or category of persons as notified by the Government of India in this behalf , to seek in advance, a ruling from the Authority for Advance Rulings.
    Advance rulings can be sought in respect of –

(a) Classification of goods under the Central Excise Tariff Act, 1985;

(b) Principles of valuation under the Central Excise Act, 1944;

(c) Applicability, of notifications issued in respect of duties under the Central Excise Act, 1944 and Central Excise Tariff Act, 1985 and any duty chargeable under any other law for the time being in force in the same manner as duty of Central Excise leviable under the Central Excise Act.

(d) Admissibility of input-tax credit under Central Excise law.

(e) Determination of the liability to pay duties of excise on any goods under this Act.

  1. The relevant provisions are as follows;-

PROVISIONS OF CENTRAL EXCISE ACT, 1944 ON ADVANCE RULINGS

CHAPTER IIIA OF CENTRAL EXCISE ACT, 1944

ADVANCE RULINGS

SECTION 23A.Definitions. In this Chapter, unless the context otherwise requires, –

(a) activity means production or manufacture of goods and includes any new business of production or manufacture proposed to be undertaken by the existing producer or manufacturer, as the case may be;

(b) advance ruling means the determination, by the authority of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity proposed to be undertaken, by the applicant;

(c) applicant means –

(i) (a) a non-resident setting up a joint venture in India in collaboration with a non-resident or a resident; or

(b) a resident setting up a joint venture in India in collaboration with a non-resident; or

(c) a wholly owned subsidiary Indian company, of which the holding company is a foreign company, or which, as the case may be, proposes to undertake any business activity in India;

(ii)a joint venture in India; or

(iii) a resident falling within any such class or category of persons, as the Central Government may, by notification in the Official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 23C;

Explanation. For the purposes of this clause, joint venture in means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders is a non-resident having substantial interest in such arrangement.

(d)application means an application made to the Authority under sub-section (1) of section 23C;

(e) Authority means the Authority for Advance Rulings, constituted under sub-section (1), or authorised by the Central Government under sub-section (2A), of section 28F of the Customs Act, 1962 (52 of 1962)];

(f)non-resident, Indian company and foreign company shall have the meanings respectively assigned to them in clauses (30), (26) and (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961).

SECTION 23B.Vacancies, etc., not to invalidate proceedings. No proceeding before, or pronouncement of advance ruling by, the Authority under this Chapter shall be questioned or shall be invalid on the ground merely of the existence of any vacancy or defect in the constitution of the Authority.

SECTION 23C.Application for advance ruling. (1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner as may be prescribed, stating the question on which the advance ruling is sought.

(2)The question on which the advance ruling is sought shall be in respect of, –

(a)classification of any goods under the Central Excise Tariff Act, 1985 (5 of 1986);

(b) applicability of a notification issued under sub-section (1) of section 5A having a bearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act;

(d) notifications issued, in respect of duties of excise under this Act, the Central Excise Tariff Act, 1985 (5 of 1986) and any duty chargeable under any other law for the time being in force in the same manner as duty of excise leviable under this Act;

(e) admissibility of credit of service tax paid or deemed to have been paid on input service or excise duty paid or deemed to have been paid on the goods used in or in relation to the manufacture of the excisable goods.

(f) determination of the liability to pay duties of excise on any goods under this Act.

(3)The application shall be made in quadruplicate and be accompanied by a fee of two thousand five hundred rupees.

(4)An applicant may withdraw an application within thirty days from the date of the application.

SECTION 23D.Procedure on receipt of application. (1) On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Commissioner of Central Excise and, if necessary, call upon him to furnish the relevant records :

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Commissioner of Central Excise.

(2)The Authority may, after examining the application and the records called for, by order, either allow or reject the application :

Provided that the Authority shall not allow the application where the question raised in the application is, –

(a)already pending in the applicants case before any Central Excise Officer, the Appellate Tribunal or any Court;

(b)the same as in a matter already decided by the Appellate Tribunal or any Court :

Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard :

Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

(3)A copy of every order made under sub-section (2) shall be sent to the applicant and to the Commissioner of Central Excise.

(4)Where an application is allowed under sub-section (2), the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority, pronounce its advance ruling on the question specified in the application.

(5)On a request received from the applicant, the Authority shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard, either in person or through a duly authorised representative.

Explanation. – For the purposes of this sub-section, authorised representative shall have the meaning assigned to it in sub-section (2) of section 35Q.

(6)The Authority shall pronounce its advance ruling in writing within ninety days of the receipt of application.

(7)A copy of the advance ruling pronounced by the Authority, duly signed by the Members and certified in the prescribed manner shall be sent to the applicant and to the Commissioner of Central Excise, as soon as may be, after such pronouncement.

SECTION 23E.Applicability of advance ruling. (1) The advance ruling pronounced by the Authority under section 23D shall be binding only –

(a)on the applicant who had sought it;

(b)in respect of any matter referred to in sub-section (2) of section 23C;

(c)on the Commissioner of Central Excise, and the Central Excise authorities subordinate to him, in respect of the applicant.

(2)The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.

SECTION 23F.Advance ruling to be void in certain circumstances. (1) Where the Authority finds, on a representation made to it by the Commissioner of Central Excise or otherwise, that an advance ruling pronounced by it under sub-section (6) of section 23-D has been obtained by the applicant by fraud or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of this Act shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order under this sub-section) to the applicant as if such advance ruling had never been made.

(2)A copy of the order made under sub-section (1) shall be sent to the applicant and the Commissioner of Central Excise.

SECTION 23G.Powers of Authority. (1) The Authority shall, for the purpose of exercising its powers regarding discovery and inspection, enforcing the attendance of any person and examining him on oath, issuing commissions and compelling production of books of account and other records, have all the powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908).

(2)The Authority shall be deemed to be a civil court for the purposes of section 195, but not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974), and every proceeding before the Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code (45 of 1860).

SECTION 23H.Procedure of Authority. The Authority shall, subject to the provisions of this Chapter, have power to regulate its own procedure in all matters arising out of the exercise of its powers under this Act.

MINISTRY OF FINANCE
(Department of Revenue)

Notification No.28/2002-Central Excise (NT)
New Delhi, the 23rd August,2002

CENTRAL EXCISE (ADVANCE RULINGS) RULES, 2002

G.S.R.594 (E).- In exercise of the powers conferred under Section 37 read with sub-sections (1) and (3) of section 23C, sub-section (7) of section 23D of the Central Excise Act, 1944 (1 of 1944), the Central Government hereby makes the following rules, namely :

  1. Short , extent and commencement .

(1)These rules may be called the Central Excise (Advance Rulings) Rules, 2002.

(2)They extend to the whole of India

(3)They shall come into force on the date of their publication in the Official Gazette.

  1. Definitions- In these rules, unless the context otherwise requires,-

(a) “Act” means the Central Excise Act, 1944 (1 of 1944).

(b) Authority means the Authority for Advance Rulings(Central Excise, Customs and Service Tax) constituted under section 28F of the Customs Act, 1962 (52 of 1962).

(c) Form -Application for Advance Rulings (Central Excise) means the form appended to these rules.

(a) “Act” means the Central Excise Act, 1944 (1 of 1944).

(b) “??Authority” means the Authority for Advance Rulings(Central Excise, Customs and Service Tax) constituted under section 28F of the Customs Act, 1962 (52 of 1962).

(c) “Form -Application for Advance Rulings (Central Excise)’?? means the form appended to these rules.

(d) Words and expressions used and not defined herein but defined in the Act shall have the meanings respectively assigned to them in the Act.

3.Form and manner of application.

(1) An application for obtaining an advance ruling under sub-section(1) of section 23C of the Act shall be made in Form Application for Advance Rulings (Central Excise).

(2) The application referred to in sub-rule (1), the verification contained therein and all relevant documents accompanying such application shall be signed,-

(a) in the case of an individual, by the individual himself, or where the individual is absent from India, by the individual concerned or by some person duly authorized by him in this behalf; and where the individual is a minor or is mentally incapacitated from attending to his affairs, by his guardian or by any other person competent to act on his behalf;

(b) in the case of Hindu undivided family, by the Karta of that family and, where the Karta is absent from India or is mentally incapacitated from attending his affairs, by any other adult member of that family;

(c) in the case of company or local authority, by the principal officer thereof authorized by the company or the local authority, as the case may be, for such purpose;

(d) in the case of a firm, by any partner thereof, not being a minor;

(e) in the case of an association, by any member of the association or the principal officer thereof; and

(f) in the case of any other person, by that person or some person competent to act on his behalf.

(3) Every application shall be filed in quadruplicate and shall be accompanied by a fee of two thousand five hundred rupees.

4.Certification of copies of the advance rulings pronounced by the Authority A copy of the advance ruling pronounced by the Authority for Advance Rulings and duly signed by the Members to be sent to each of the applicant and to the Commissioner of Central Excise, under sub-section (7) of section 23D of the Act shall be certified to be true copy of its original by the Commissioner, Authority for Advance Rulings, or any other officer duly authorized by the Commissioner, Authority for Advance Rulings, as the case may be.

FORM- AAR (CE-I)

[Application for Advance Ruling (Central Excise)]

(See rule 3 of the Central Excise (Advance Rulings) Rules, 2002)

BEFORE THE AUTHORITY FOR ADVANCE RULINGS

(CENTRAL EXCISE, CUSTOMS AND SERVICE TAX)

NEW DELHI

(Form of application for seeking Advance Ruling under section 23C of the Central Excise Act,1944)

Application No.of.

1. Details of Applicant  
  (i) Full name  
(ii) Complete address  
(iii) Telephone number( with STD/ISD code)  
(iv) Fax number (with STD/ISD code)  
(v) E-mail address  
(vi) Postal address ( to be provided if different from (ii) above)  
2. Status of the Applicant(Tick whichever is applicable)  
i. (i) a non-resident setting up a joint venture in India in collaboration with,-  
ii. (a) a non-resident; or  
iii. (b) with a resident;  
iv. (ii) a resident setting up a joint venture in India in collaboration with a non-resident;  
v. (iii) a wholly owned subsidiary Indian company, of which the holding company is a foreign company;  
vi. (iv) a joint venture in India;  
  viii. (v) a resident falling within any such class or category of persons, as the Central Government may, by notification in the Official Gazette, specify in this behalf(mention notification number).  
3. Basis for claim as a proposed joint venture [ref. 2(i) & (ii) above] (furnish copy of following).  
  (a) Memorandum of Understanding; or  
  (b) Letter of Intent; or  
  (c) Articles of Association etc.; or  
  (d) Any other document.  
4. Details of proposed joint venture  
  (i) Full name  
  (ii) Complete address  
  (iii) Telephone number( with STD/ISD code)  
  (iv) Fax number (with STD/ISD code)  
  (v) E-mail address  
  (vi) Postal address( to be filled if different from (ii) above)  
5. Details of resident/non-resident party other than the applicant forming the Joint Venture  
  (i) Full name  
  (ii) Complete address  
  (iii) Telephone number( with STD/ISD code)  
  (iv) Fax number (with STD/ISD code)  
  (v) E-mail address  
  (vi) Postal address( to be filled if different from (ii) above)  
6. In case of a wholly owned Indian Subsidiary Company furnish the following details:-  
A. (i) Name of Foreign holding company  
(ii) Complete address  
(iii) Telephone number( with STD/ISD code)  
(iv) Fax number (with STD/ISD code)  
(v) E-mail address  
(vi) Postal address ( to be provided if different from (ii) above)  
B. Percentage of Foreign holding in the Indian Subsidiary Company.  
7. In case of a joint venture [ref. 2(iv) above]  
  (i) The persons forming the joint venture/ constitution of joint venture.  
  (ii) Status of constituent persons, i.e. resident/non-resident.  
  (iii) Existing activities if any.  
8. Nature of activity proposed to be undertaken.  
9. Present status of activity.  
10. Registration number of the applicant as mentioned at serial number 1 under rule 9 of the Central Excise Rules, 2002 (if any).  
11. Permanent Account Number (Income Tax) of the applicant (if any).  
12. Question of Law or fact on which Advance Ruling required (Tick whichever is applicable and provide details against ticked item):-  
  (i) classification of goods under the Central Excise Tariff Act, 1985( 5 of 1986);  
  (ii) applicability of a notification issued under sub-section (1) of section 5A of the Central Excise Act,1944, having a bearing on the rate of duty;  
  (iii) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act;  
  (iv) notifications issued, in respect of duties of excise under the Central Excise Act,1944, the Central Excise Tariff Act, 1985 and any duty chargeable under any other law for the time being in force in the same manner as duty of excise leviable under this Act;  
  (v) admissibility of credit of excise duty paid or deemed to have been paid on the goods in or in relation to the manufacture of the excisable goods (CENVAT);  
  (vi) determination of liability to pay duties of excise under this Act.  
13. Statement of relevant facts having a bearing on the question(s) raised.  
14. Statement containing the applicants interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicants view point and submissions on issues on which the advance ruling is sought).  
15. Whether the question(s) raised is pending in the applicants case before any officer of Central Excise, Appellate Tribunal or any Court of Law? If so, provide details.  
16. Whether a similar matter as raised in the question(s) by the applicant has already been decided by the Appellate Tribunal or any Court?  
17. Concerned Commissioner(s) of Central Excise having jurisdiction in respect of the question referred at serial number 12.  
18. List of documents/statement attached, (attach the list on a separate sheet, if necessary.  
19. Particulars of account payee demand draft enclosed with the application  

 

(Applicants signature)

VERIFICATION

I, ____________________ (name in full and in block letters), son/daughter/wife of ___________________ do hereby solemnly declare that to the best of my knowledge and belief what is stated above and in the annexure(s), including the documents are correct. I am making this application in my capacity as ___________________ (designation) and that I am competent to make this application and verify it.

  1. I also declare that the question (s) on which the advance ruling is sought is/are not pending in my case before any Central Excise Authority, Appellate Tribunal or any Court.
  2. Verified this.day..of.200 at .

(Applicants signature)

ANNEXURE I

Statement of the relevant facts having a bearing on the question(s) on which the advance ruling is required

Place ..

Date

(Applicants signature)

ANNEXURE II

Statement containing the applicant”s interpretation of law and/or facts, as the case may be, in respect of the questions(s) on which advance ruling is required

Place ..

Date

(Applicants signature)

Notes:

1. The application must be filled in English or Hindi, in quadruplicate.
2. The application must be accompanied by an account payee demand draft of Indian Rupees two thousand five hundred drawn in favour of Authority for Advance Rulings(Central Excise, Customs & Service Tax), payable at New Delhi. Particulars of the draft should be entered in the column pertaining to item number 19.
3. The number and year of receipt of the application will be filled in by the office of the Authority for Advance Rulings.
4. If the space provided for answering any item in the application is found insufficient, separate sheets may be used for this purpose. Each sheet must be signed at the bottom by the applicant.
5. In reply to item number 2 the applicant must state its status i.e. whether an individual, Hindu undivided family firm, company, firm association of persons, wholly owned subsidiary, Joint Venture or any other person.
6. For item number 5, the reply must be given in the context of the provisions regarding “residence” in India, non resident, Indian Company, and Foreign Company as per the Income Tax Act, 1961(43 of 1961).
7. In reply to item number 9, the applicant must state the present status of the business activity in respect of which advance ruling has been sought i.e. the stage to which it has progressed.
8. Regarding item number 12, the question(s) should be based on the activity proposed to be under taken; hypothetical questions will not be entertained.
9. In respect of item number 13, the applicant must state in detail the relevant facts and also disclose the nature of proposed activity and the likely date and purpose of the proposed activity(s). Relevant facts reflected in document submitted along with the application must be included in the statement of facts and not merely incorporated by reference.
10. For item number 14, the applicant must clearly state his interpretation of law or facts in respect of the question(s) on which the advance ruling is being sought.
11. The application, the verification appended thereto, the Annexures to the application and the statements and documents accompanying the Annexures 1 and 2 must be signed on each page by the applicant.
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Updates on Key Features of Insolvency and Bankruptcy Code 2016

Introduction of Insolvency and Bankruptcy Code 2016 (hereinafter referred to as IB Code 2016) is welcome step and need of hour being part of ease of doing business in India.  It will boost lengthy winding up process and reduce the time and good exit option in case business could not get success.  In present scenario, winding up of a Company is next to difficult and took 10-15 years time and still the Company could not be dissolved and during this long period nobody virtually could get anything, the asset lost its significance and even if something is realized the secured creditor gets something and unsecured creditors, employees and others get nothing…

There are many laws and avenues are available with the lender but because of lot of legal hassles and lack of administrative machinery and implementation, winding up of corporate is not a success in India.  Under the provisions of Companies Act, 1956 procedure is lengthy and time consuming and not successful because of piling of winding up cases with the Official Liquidator. Sick Industrial Companies Act is also failure because of its slow administration and non revival of industry/ies.   In Debt Recovery Tribunals, due to high number of cases pile up in Courts, justice is delayed.  The provisions of SARFAESI are strict and draconian in nature but the lenders are not frequently using the provisions to acquire the assets of the borrower. Further, the unsecured creditors cannot approach SARFAESI.

There is no specific law in India which declares the borrower and its promoters as bankrupt.  However, there is law of insolvency and bankruptcy i.e. Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 the provisions of which have now become obsolete, hence same is repealed by IB Code 2016.  There are specific provisions of bankruptcy for individuals and partners of unregistered bodies as specified in Part III which specifies the procedure for declaration of individual as bankrupt in case of default and also specifies the provisions of penalty e.g. disqualification to act as director and prohibited from creating any charge as specified in clause 141 but similar kind of provisions of missing for corporate debtor.  The Code is silent and fails to specify the circumstances in which corporate debtor is considered as bankrupt.  There should also be some restrictions on promoters of defaulter corporate debtors.

I am of the view that still IB Code 2016 is a good achievement whereby consolidating the winding up and insolvency laws for individuals and corporate both.  The introduction of IB Code may also boost the confidence of foreign investor, bankers/FIs and other lenders in speedy recovery of its dues/NPAs.  In case, Code is implemented in its true spirit and sense, the default cases would also be reduced.

Key Features of new IB Code 2016 are as under:

  • Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process for which he is required to deliver a demand notice in such manner as may be prescribed. The corporate debtor is required to reply within 10 days of receipt of demand notice and on expiry of 10 days in case payment is not received, the Adjudicating Authority may pass orders for initiating corporate insolvency resolution process.
  • The insolvency resolution process should be completed within 180 days which may be extended up to 270 days.[clause 12]
  • Under Fast Track Corporate Insolvency resolution process, completion time is 90 days. The corporate under Fast Track are covered whose asset and income are below a prescribed level that may be prescribed by the Central Government [clause 56]
  • Insolvency professionals and agencies
    • Licensed insolvency professionals (IPs)
      • The role of IPs will control the assets of the debtor during the process.
    • Licensed insolvency agencies
      • The role of Agencies to regulate IPs and these Agencies will conduct examination to enroll IPs and enforce a code of conduct for their functioning.
    • Information utilities
      • The role of Information Utilities is to collect, collate and disseminate financial information related to a debtor. This will include a record of debt, assets and liabilities of corporate debtor.
    • All these agencies have to get registration with Insolvency and Bankruptcy Board of India (Board). The Board will work as regulator for above Insolvency professionals and agencies. These insolvency professionals are required to report to the Board.
    • In case resolution plan is not successful within said 180/270 days and/or within 90 days, the Adjudicating authority appoints the Liquidator i.e. resolution professional who assumes all the powers of Board of Directors and has got all the powers to sold the assets of the corporate debtor. Public announcement is made stating that the corporate debtor is in liquidation. Thereafter, the Liquidator starts process to realize all such assets and then distribute the proceeds for payment of creditors in the following preference:[clause 33]
    • Fee of insolvency professional and cost relating to resolution process;
    • Workmen dues and secured creditors;
    • Employee wages and dues of preceding one year;
    • Unsecured creditors’
    • Government dues
    • Remaining secured creditors i.e. interest, penal interest etc. if they enforce their collateral;
    • Shareholders …[as per clause 53]
    • Subject to section 52, when a liquidation order has been passed, no suit or other legal proceedings shall be instituted by or against the corporate debtor. ..[Clause 33(5)]
    • The Liquidator shall also form an estate of the assets which includes all immovable and movable assets of corporate debtor. [clause 36]
    • The Liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of commencement of the liquidation process and thereafter verifies the same within such time as may be prescribed… [clause 37 and 38]
    • The Liquidator has right to accept or reject the claim in whole or in part as the case may be. [clause 40]
    • On completion of liquidation process, the Liquidator shall make application to Adjudicating Authority and the Authority in turn shall make an order for dissolution of the corporate debtor.
    • There are two Adjudicating e. National Company aw Tribunal which will adjudicate cases of Corporate, LLPs and (ii) Debt Recovery Tribunal which will adjudicate cases of individuals and partnership firms; NCLT/DRT shall such powers to dispose of application or disputes, if any, corporate debtor, corporate person or appeal of any order of the Board.[clause 60 and 61]
    • No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered, or under, this Code… [clause 231]
    • No suit, prosecution or other legal proceedings shall lie against the Govt. or any officer or Insolvency professional or liquidator for acts done in good faith under this Code. [clause 233]
    • The implementation of liquidation can be extended to assets in abroad and for this Central Government may enter into an agreement with the Govt. of any country outside India for enforcing the provisions of this Code [clause 234]
    • The code also creates Insolvency and Bankruptcy Fund for the purposes of insolvency resolution, liquidation and bankruptcy of persons under this Code.
    • Voluntary Liquidation – a Corporate person who intends to liquidate itself voluntarily and solvent and able to pay its debts and subject to passing of special resolution by its members can appoint Liquidator and starts the liquidation proceedings voluntarily. .[clause 59]
    • Offences –Where any officer of corporate debtor immediately preceding twelve month willfully concealed any property or destroyed, mutilated or falsified accounts, such officer shall be punishable with imprisonment for a period of three years which may extend to five years or with fine of Rs.one lakh which may extend to Rs.one crore. Similar kind of offences are there for willful omission and who destroys, mutilate, alters or falsifies any books or records. [Clause 68 to 75].
    • Deficiencies in the Code
    • It is surprising that the Code has specified time frame work for resolution process, fast track process, giving of notice, confirmation of creditors etc. as mentioned hereinabove but the Code is silent in how much time the Liquidator will complete its process of liquidation. There is also no time frame within which the Liquidator will report final verdict to Adjudicating Authority.  The Code specifies time of 180 days which may extend to 270 days for resolution process but when Liquidator is appointed, no such time frame is given within which he has to complete his job.  The Govt. should review this point and appropriate amendment be made in the code.
    • There should be provision for declaring the corporate debtor who are unable to pay its debts as bankrupt and consequently its directors and promoters should be disqualified to act as directors and some restrictions as the Government deems fit and proper may be imposed.
    • There is no such framework for corporate debtors whose cases are already registered with High Court or SICA or other agencies where Liquidator has already been appointed, for transfer or for shifting of such cases under new Code, no such option is given in the Code.
    • The secured creditors may not prefer to appoint resolution insolvency liquidator, as under SARFAESI they have option to get speedy recovery than this Code and more so under SARFAESI they can get higher amount of recovery.

Conclusion 

The Government should further review the Code and suitable amendments be made to remove the deficiencies mentioned hereinabove.

Overall, the introduction of IB Code 2016 is a good step in right direction under ease of doing business in India and will boost the confidence of lender, foreign companies and creditors at large.

 

Disclaimer:  This document is being furnished for your information and awareness.  The opinion expressed herein is entirely those of the author.  The author makes every effort to use reliable and comprehensive information, but do not represent that the contents of the Article are accurate or complete.

 

http://www.professionalservices.in,

Service Tax Abatement Rate Chart from 1st June 2016

Abatement in Service Tax was First Introduced Vide Principal Notification No. 26/2012-Service Tax, dated 20th June 2012 and subsequently been amended vide Notification No. 2/2013 – Service Tax, dated the 1st March, 2013Notification No. 9/2013 – Service Tax, Dated: May 8, 2013Notification No. 08/2014 – Service Tax Dated-11th July, 2014 , Notification No. 8/2015-ST, Dated: March 01, 2015,, Notification No. 13/2015-ST, Dated: May 19, 2015 Notification No. 8/2015-ST, Dated: March 01, 2015.

Vide Union Budget 2016 government has made several changes to Service Tax Abatement Provisions and Abatement rates. Some of the changes were applicable from 01.04.2016 and some were applicable from 01.06.2016. in this Article we have compiled the abatement rate on Table Services, Taxable Value and Tax Rate after applying the abatement  as applicable from 01.06.2016

Service Tax Abatement Rate Chart as Applicable from 01.06.2016 updated with Changes Made Vide Budget 2016   and after imposition of Krishi Kalyan Cess (KKC), for  ready reference of our readers

Table

Sl. No. Description of taxable service Percentage Net Tax Rate % wef 01.06.2016 Conditions
Taxable Value Abatement
(1) (2) (3) (4) (5) (6)
1 Services in relation to financial leasing including hire purchase (Refer Note-1) 10 90 1.50% Nil.
2 Transport of goods by rail 30 70 4.50% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004
2A Transport of goods in containers by rail by any person other than Indian Railway

(Entry inserted vide NN 8/2016-ST dated 01.03.2016 w.e.f 01.04.2016)

40 60 6% CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004
3 Transport of passengers, with or without accompanied belongings by rail 30 70 4.50% i) CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

ii) Cenvat credit on input  services shall be allowed

4 Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises (Refer Note-2) 70 30 10.50% (i) CENVAT credit on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
5 Transport of passengers by air, with or without accompanied belongings in CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
(i) economy class 40 60 6%
(ii) other than economy class 60 40 9%
6 Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. 60 40 9% Same as above.
7 Services of goods transport agency in relation to transportation of goods other than used household goods 30 70 4.50% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service providerunder the provisions of the CENVAT Credit Rules, 2004.
7A Services of goods transport agency in
relation to transportation of used household
goods.(Entry inserted vide NN 8/2016-ST dated 01.03.2016  )
40 60 6% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has
not been taken by the service provider under the rovisions of the CENVAT Credit Rules, 2004.
8 Services provided by a foreman of chit fund in relation to chit

(Entry inserted vide NN 8/2016-ST dated 01.03.2016 w.e.f. 01.04.2016, earlier omitted vide NN 08/2015-ST dated 01.03.2015.)

70 30 10.50% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004
9 Renting of motor cab 40 60 6% (i) CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004;

(ii) CENVAT credit on input service of renting of motorcab has been taken under the provisions of the CENVAT Credit Rules, 2004, in the following manner:

(a) Full CENVAT credit of such input service received from a person who is paying service tax on forty percent of the value; or

(b) Up to forty percent CENVAT credit of such input service received from a person who is paying service tax on full value;

(iii) CENVAT credit on input services other than those specified in (ii) above, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

9A Transport of passengers, with or without accompanied belongings, by-

a. a contract carriage other than motorcab.

b. a radio taxi.

c.  a stage carriage

(Also refer Note-5)

40 60 6% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
10 Transport of goods in a vessel  30 70 4.50% CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
11 Services by a tour operator in relation to,-

(i) a tour, only for the purpose of arranging or booking accommodation for any person

(Refer Note-4)

10 90 1.50% (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit
Rules, 2004.(ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.(iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation.
(ii) tours other than (i) above 30 70 4.50% (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour and the amount charged in the bill is the gross amount charged for such a tour.

NN 8/2016-ST dated 01.03.2016 w.e.f. 01.04.2016: Abatement rates in respect of services by a tour operator in relation to a tour other than (i) has been rationalised from 75% (package tour) and 60% (others) to 70%. Consequently, the category of “package tour” stands deleted w.e.f. 01.04.2016
12. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent
authority (Also Refer Note-3)
30 70 4.5% (i) CENVAT credit on inputs used for providing the taxable service has not been  taken under the provisions  of the CENVAT Credit Rules, 2004.

(ii) The value of land is  included in the amount  charged from the service  receiver.

Effective from 01.04.2016, a uniform abatement at the rate of 70% is prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions.

 

 

Note-1 For the purposes of exemption at Serial number 1 –

(i) The amount charged shall be an amount, forming or representing as interest, i.e. the difference between the installments paid towards repayment of the lease amount and the principal amount contained in such installments;

(ii) the exemption shall not apply to an amount, other than an amount forming or representing as interest, charged by the service provider such as lease management fee, processing fee, documentation charges and administrative fee, which shall be added to the amount calculated in terms of (i) above.

Note-2. For the purposes of exemption at Serial number 4 –

The amount charged shall be the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink (whether or not intoxicating) and whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider, if any; and

(ii) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Note-3. For the purposes of exemption at Serial number 12 –

The amount charged shall be the sum total of the amount charged for the service including the fair market value of all goods and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider, if any; and

(ii) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Note-4 “tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours,

Note-5 For the purposes of exemption at Serial number 9, the amount charged shall be the sum total of the amount charged for the service including the fair market value of all goods (including fuel) and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract.

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.