24.04.2014
Thursday
HOW to treat the expenditure incurred on development and construction of infrastructural facilities like roads/highways on Build-Operate-Transfer ('BOT') basis with right to collect toll?
This is an issue which is leading to mega disputes, what with several such BOT projects with the attendant toll collections springing up all over the place in the recent past.
Now, the question is whether under Income Tax, such expenditure:
1. is entitled for depreciation under section 32(1)(ii) of the Act or
2. the same can be amortized by treating it as an allowable business expenditure under the relevant provisions of the Income-tax Act.
In such projects, the developer ('assessee'), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. In returns-of- income, assessees are generally claiming depreciation on such capitalized expenditure treating it as an 'intangible asset' in terms of section 32(1)(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the taxpayer which is an essential condition for claiming depreciation and further right to collect toll does not fall in any of the categories of 'intangible assets' specified in sub-clause(ii) of sub-section (1) of section 32 of the Act.
Board feels that the present provisions of the Act do not allow claim of depreciation on Toll ways due to non-fulfilment of ownership criteria in such cases.
The Supreme Court had in Madras Industrial Investment Corporation Ltd. vs. CIT reported in 2002-TIOL-290-SC-IT-LB allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period.
So, the Board clarifies that:-
1. The cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act.
2. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility.
3. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration maybe deducted from the initial cost of infrastructure facility of roads /highways and the cost 'so reduced' shall be amortized equally over the remaining period of toll concessionaire agreement.
Board also clarifies that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement.
CBDT Circular No. 09 /2014, Dated: April 23 2014
Service Tax Rebate Appeal Lies to Tribunal and not Government - High Court
THE Central Excise appellate mechanism was/is a very complicated maze which is beyond the comprehension of high profile lawyers, wise judges of the High Courts, even wiser judges of the Supreme Court and the wisest of them all i the all knowing Inspector of Central Excise whose erudition gets the stamp of approval of all the wise officers of the Department. But of course the assessee is expected to be a master on the subject.
We are not sure where to go in appeal against an interim order of the Commissioner(A) or for that matter whether we can go in appeal at all. In many cases we are not sure whether the appeal is before the High Court or Supreme Court. From the same order of the CESTAT, one party went to his High Court and got the CESTAT order quashed while another party went to his High Court and his High Court dismissed the appeal on the ground that it had no jurisdiction i the appeal had to be filed in the Supreme Court.
There is also a little known appellate channel - the Government as Revision Authority.
Under Section 35EE of the Central Excise Act, in respect of orders passed by Commissioner(A) relating to transit loss, rebate or export without payment of duty, the appeal lies to the Central Government i the Revision Authority.
So in case of a dispute on rebate under Central Excise, against an order of the COMMISSIONER(A), the appeal is with the Revision Authority.
What about Service Tax?
As per Section 83 of the Finance Act, 1994, certain sections of the Central Excise Act are made applicable so far as may be, in relation to service tax as they apply in relation to a duty excise.
Section 35EE is one such section made applicable to Service Tax. But this has been made applicable only with effect from 28.05.2012 by Finance Act 2012.
As per Section 86 of the Finance Act 1994, an appeal can be made to the CESTAT against an order passed by the Commissioner(A).
Is there a conflict between Section 83 and Section 86? Which one would prevail? In Service Tax rebate matters where should one go in appeal i to the Tribunal or the Revision Authority?
Under Central Excise, Section 35B bars an appeal to the Tribunal in respect of transit loss, rebate or export without payment of duty; but there is no such bar under Service Tax.
The Delhi High Court recently solved this problem.
In an appeal before it, the Tribunal had held that a specific reference of Section 35EE (of the Central Excise Act) precluded an appeal under Section 86, and that the remedy available to the assessee was a revision to the Central Government.
The High Court held: it is held that the amendment to Section 83 by making a specific reference to Section 35EE of the Central Excise Act, did not make any difference to the nature of jurisdiction exercisable by the CESTAT under Section 86; it continued to possess jurisdiction to decide on matters pertaining to rebate and refund. For this reason, the question of law is answered in favour of the assessee/appellant and against the revenue.
While the High Court was ruling that the Tribunal was empowered to hear appeal on Service Tax refund/rebate, the Mumbai Bench of the CESTAT in a recent order held:
We find that Section 35EE is in respect of revision by Central Government under the Central Excise Act. In Sec. 83 of the Finance Act, the provisions of Sec.35EE of the Central Excise Act were included amending thereby revision lies to the Central Government whereas as per Sec.86, it covers appear to the Appellate Tribunal.
There was specific provision which provides that the Tribunal shall exercise the same powers and follow the same procedure as it exercises and follows in hearing the appeal and making orders under the Central Excise Act. We find that as per Sec.35B of the central Excise Act, the Tribunal has no jurisdiction to hear the appeal filed against the order passed by the Commissioner(Appeals) in respect of the rebate claim. We find force in the contention of the Revenue that the appeal is not maintainable.
So, the Tribunal sent the appeal to the Revision Authority. But as per the High Court order, the Tribunal is competent to hear the appeal. Now, will it come back? Should the party go to another High Court to get the case back to the Tribunal?
But why do we need this parallel Revision Authority who is a Commissioner sitting in appeal over orders passed by another Commissioner, sometimes even senior to him? Can't we simply abolish this post and make all orders of the Commissioner(A) appealable to the Tribunal?
Please see 2014-TIOL-560-HC-DEL-ST + 2014-TIOL-629-CESTAT-MUM
Arvind Kejriwal Wins TIME 100 Readers' Poll
ARVIND KEJRIWAL the former IRS officer who is the David taking on the Goliath of Indian Politics in the biggest Democratic exercise has won the readers' poll for the 2014 TIME 100, TIME Magazine's annual list of people who influenced the world this past year for better or worse. And sure enough our own Modi is a distant second.
Figuring in the top 100 but way behind our Kejriwal and Modi are Vladimir Putin, Barack Obama, Rahul Gandhi and Bill Gates.
It's our Birthday - We are Fourteen
FOURTEEN years is not a long time in history but today we are so much taken for granted as if we have always been there. And that itself is a great tribute!
This is your portal and you have a responsibility. When we are right keep us right and when we are wrong make us right.
Jurisprudentiol - Friday's cases
 Service Tax
Commercial Training or Coaching Centre Appellant providing computer training but certificate was issued by Maharashtra State Board of Vocational Examination - as per the definition the only exclusion is in respect of institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law Demand upheld, however penalties set aside as appellants were under bona fide belief that they are not liable to ST: CESTAT
TWO appeals have been filed - one against a confirmed demand and the other against rejection of a refund claim.
Brief facts of the case are that SCNs were issued to the appellants raising demand of service tax on the ground that the appellants are providing commercial training and coaching services. For the period July, 2004 to March, 2005 the appellants paid service tax as per the direction of the Revenue and subsequently filed a refund claim on the ground that they were not providing any taxable service. Since this refund has been rejected by the lower authorities the appellant is before the CESTAT. There is also another appeal, as mentioned, against an order confirming a ST demand on the same issue.
It is submitted that the appellants are an Institute providing computer training which is recognized by Maharashtra State Board of Vocational Examination and hence excluded from the purview of taxable services. They rely upon the certificate issued by the Maharashtra State Board of Vocational Examination and which is counter-signed by the appellants. Inasmuch as the appellants were providing training course which is recognized by law, the demand is not sustainable, submitted the appellant. They place reliance on the decision of Delhi High Court in Indian Institute of Aircraft Engineering vs. UOI 2013-TIOL-430-HC-DEL-ST to support of their contention.
Income Tax
Whether if assessee is a notified entity and its assets and properties are attached by a Special Court, it is still liable to pay interest under Ss234A, B & C - YES: Bombay High Court
THE assessee is is a company. It was submitted on behalf of the assessee that the only issue involved in this appeal was not covered by the Judgment of the Division Bench of HC 2012-TIOL-243-HC-MUM-IT.This Judgment was relied upon and it was submitted that the point was covered by the same in favour of the Revenue. It was also submitted that both the questions were answered in favour of the Revenue and the Tribunal's order was set aside. It was further submitted that the Division Bench rendering the judgment in "Divine Holdings Pvt. Ltd." had failed to consider several judgments of SC and the orders of HC taking a view that when the assets and properties of the assessee were attached by operation of Statute, then, liability to pay tax will not arise. There was nothing by which the assessee can be said to be in default enabling the Department to levy interest on the assessee. It was submitted that the properties being statutorily attached and permission to deal with the same was sought from the Special Court but the same was rejected, that the assessee was prevented from discharging the liability, if any, to pay the advance tax. Thus, this was a case where an act of the Court had caused prejudice to the assessee.
The issues before the Bench are - Whether if the assessee is a notified entity and its assets and properties are attached by a Special Court, it is still liable to pay interest under Ss234A, B & C and Whether merely because certain aspects were not considered or that relevant provisions were not brought to the notice of the Court, it is enough to ignore and brush aside a binding precedent. And the verdict goes in favour of the assessee.
Customs
Any requirement with respect to registration has to be in terms of the Project Import Regulations or the Foreign Trade Policy as it stood at the relevant point of time Importer eligible for benefit of concessional rate of duty under Project import: CESTAT
NHAVA SHEVA Port Trust (NSPT) now known as JNPT awarded a contract dated 15/12/1986 to M/s. Samsung Co. Ltd., South Korea for setting up the NSPT Port Project. In the said contract, NSPT has been termed as the 'Employer' and M/s. Samsung Co. Ltd. as the 'Contractor'.
Pursuant to the said contract, M/s. Samsung Co. Ltd. imported Container Handling Equipment and spares for NSPT Project between 1988 and 1990. However, before clearance of the goods, it sought to avail itself of the project import benefit under the Projects Imports Regulations, 1986. Accordingly, it applied for registration of the Contract to the then Assistant Collector of Customs Project Cell, New Custom House, Bombay vide its letter dated 12/09/1988.
The Asstt. Collrregistered the said contract provisionally subject to production of a recommendatory letter for duty concession from the concerned Sponsoring Authority, namely the Ministry of Surface Transport.
The goods were cleared under heading 98.01 of the Customs Tariff on payment of concessional rate of duty. Customs duties were paid by NSPT (as per the terms of the contract) for expeditious clearance of the goods.
See our Columns Tomorrow for the judgements
Until Tomorrow with more DDT
Have a nice day.
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