TIOL-DDT 2915
23 08 2016
Tuesday

DDT 2895 25 07 2016 highlighted a Service Tax issue raised by the Rajasthan Chief Minister Vasundhara Raje. She had informed the Union Finance Minister that notices have been issued by field officers under Central Excise Commissioner, Jodhpur region to the contractors who have been awarded work orders by Public Health and Engineering Department (PHED) for tubewell construction and related activities. PHED officials have also been sent letters by Central Excise asking them to provide lists of service providers. She said issue of notices have resulted in serious consternation among the PHED contractors. The Chief Minister said levying service tax on an essential state government function would simply mean a lumpsum transfer of funds from the state government kitty to the central government which shall affect the financial management of the state exchequer.

She requested the Finance Minister that a clarificatory notification be issued at the earliest applied with retrospective effect, unambiguously stating that boring/construction of tubewells etc. are covered under the exemption under Clause 12 and Clause 25; and the various activities such as construction, erection, installation etc. mentioned in the 2012 notification issued by Ministry of Finance, Govt. of India u/s 66B of the Finance Act, 1994 are only indicative.

She was obviously referring to Notification No. 25/2012-ST, dated 20.06.2012.

The CBEC has reacted - fast enough.

CBEC observes:

Exemption is available to the following services provided to the Government, a local authority or a governmental authority, by way of-

(a) construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply (ii) water treatment, and

(b) water supply -

"water supply" is a general phrase. Basically it will involve providing users, access to a source of water. The source may be natural or artificial like tanks, wells, tube wells etc. Providing users access to such a source will involve construction of the source (if artificial) and the transmission of water to the user. It will involve activities like drilling, laying of pipes, valves, gauges etc, fitting of motors, testing etc, so as to eventually result in the supply of water. Similarly, the word plant has to be understood and interpreted with reference to the context. A plant for water supply need not necessarily involve a huge assembly of machinery and apparatus.

And the Board clarifies:

The exemption under the entries at Serial No. 12(e) and 25(a) of notification 25/2012-Service Tax dated 20-6-2012, will cover a wide range of activities/services provided to a government, a local authority or a governmental authority and will include the activity of construction of tube wells.

Well done, Board - you have given a clarification that hopefully doesn't need further interpretation. And the Rajasthan Chief Minister has obviously done her home work well - she got exactly what she asked for.

It pays to be precise and clear when you ask the Central Government for favours/clarifications. It may also help if you are a ruling party Chief Minister.

CBEC Circular No. 199/09/2016-Service Tax., Dated August 22 2016

Customs - Provisional Assessment - Board Guidelines - ease of Doing Business

AS per the Customs (Provisional Duty Assessment) Regulations 2011, when provisional assessment is ordered, the assessee (importer or exporter) is required to

1. Deposit about 20% of the differential duty

2. Execute a bond

3. Provide surety or security or both, for the bond as deemed fit by the Proper Officer.

Now Board has taken some strong decisions:

1. Insofar as the requirement of obtaining a 20% deposit of the duty provisionally assessed, the Board has decided that this condition be dispensed, particularly, as it necessitates following the procedure of refunds in cases where final assessment is in favour of the importer. Such requirements add to the transaction costs, lead to delays in clearance and detract from the ease of doing business.

2. Acceptance of a surety requires making an evaluation of the underlying asset value or of the net worth of the person executing the same. This poses difficulties to the importers as well as administrative challenges to the Department in valuing sureties. Therefore, the Board has decided that the requirement of security needs to be met by either obtaining a bank guarantee or a cash deposit, as convenient to the importer, and that no sureties shall be obtained.

3. The Customs (Provisional Duty Assessment) Regulations 2011 is rescinded.

Board has issued fresh guidelines for provisional assessment.

Wherever, duty is to be assessed provisionally, the importer shall:

(a) for the purposes of undertaking to pay on demand the deficiency, if any, between the duty as may be finally assessed and the duty provisionally assessed, execute a bond in the prescribed form (enclosed); and

(b) furnish such security for the payment of the duty deficiency, as indicated in the Circular.

The security to be obtained shall be in the form of a bank guarantee or a cash deposit, as convenient to the importer.

Board clarifies that the amount of security shall be determined on the basis of duty differential and not the CIF value of goods and that provisional assessments under section 18 are to be carried out with respect to cases where the duty is in dispute. Cases relating to execution of a bond or undertaking specified as a condition to a notification or those requiring compliance of conditions under allied Acts are not to be provisionally assessed under section 18 of the Customs Act.

CBEC Circular No. 38/2016-Customs., Dated August 22 2016

Notification No. 113/2016-Customs (N.T.), Dated: August 22, 2016

Declare Measurement in Customs Documents

THE Commissioner of Customs, NHAVA SHEVA-III informs that in terms of the Legal Metrology Act, 2009 and the instructions issued by the Board vide Circular No. 51/2003 dated 18.06.2003, it is mandatory for all importers, Exporters and Customs Brokers to declare the measurement (weight, volume, length, area etc.) both in the Bill of Entry and Shipping Bill in the units of measurement as approved under the Legal Metrology Act only.

JN Customs Public Notice No. 112/2016., Dated: August 22 2016

The Medals, Rewards & the Tax

WHILE returning from the Rio Olympics, P. V. Sindhu and Sakshi Malik brought home 2 medals - a silver in badminton and bronze in free-style wrestling respectively.

Everyone is happy and one-upmanship between the States, politicians, PSUs & private individuals/companies is clearly evident.

These are the cash rewards (as being widely reported) that the medal winners would be purportedly getting for their meritorious efforts -

PV Sindhu - Rs 25.61 crore*

•  Rs 5 crore from the Telangana government

•  Rs 3 crore from the Andhra Pradesh government

•  Rs 2 crore from the Delhi government

•  Rs 2 crore: broken into Rs 50 lakhs each from the Haryana and MP governments, the sports ministry and the Badminton Association of India

•  Rs 75 lakh from Bharat Petroleum

•  Rs 50 lakh from Dubai-based Indian businessman Mukkattu Sebastian

•  Rs 30 lakh from the Indian Olympic Association

•  Rs 5 lakh from the AIFF (All India Football Federation)

•  Rs 1.01 lakh from Salman Khan.

•  Two house plots valued at 5 crore each from the AP and Telangana Governments.

•  Two acre land from a film star valued at 2 crore

Sakshi Malik - Rs 5.16 crore*

•  Rs 2.5 crore from the Haryana government

•  Rs 1 crore from the Delhi government

•  Rs 60 lakh from the railway ministry

•  Rs 50 lakh from Dubai-based Indian businessman Mukkattu Sebastian

•  Rs 30 lakh from the Union sports ministry

•  Rs 20 lakh from the Indian Olympic Association

•  Rs 5 lakhs from the AIFF

•  Rs 1.01 lakh from Salman Khan

* updated as on 21st August 2016

Whether these amounts would attract Income Tax?

It was not easy going for Abhinav Bindra, the first person in the history of independent India to have won the Olympic Gold Medal in the 10m Air Rifle event. He had to take the battle to the ITAT to shoot down the demand. See 2013-TIOL-656-ITAT-DEL in DDT 2158

Thankfully, the CBDT realized the furore its actions could cause and so came out with a tax exemption. See DDT 2282 for an answer.

But what about the medal won - does it attract Customs duty?

To know its fate, please see DDT 1062.

Customs AC Gets the Olympic Silver Medal

CUSTOMS Assistant Commissioner JVS Chakravarthy with the Olympic Silver Medal, PV Sindhu and Gopichand.

The Air Customs officers of Hyderabad Airport yesterday greeted Olympic Silver Medalist PV Sindhu and Dronacharya P. Gopichand as they landed at the airport with the Olympic glory.

Assistant Commissioner JVS Chakravarthy and his staff with Sindhu and Gopichand.

CBEC Chief to Meet Senior Officers today

THE CBEC Chairman is meeting all his Chief Commissioners and DG, DRI and DG, DGCEI to discuss "legal issues"

CBEC F.No.275/27/2013-CX 8A., Dated: August 22 2016

What is Revenue

THE Indian Accounting Standard (Ind AS 18) para 7 defines 'Revenue' as the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

Revenue includes only the gross inflows of economic benefits received and receivable by the entity on its own account. Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. Therefore, they are excluded from revenue. Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.

The Institute of Chartered Accountants of India has clarified that:

1. Excise duty is a liability of the manufacturer which forms part of the cost of production, irrespective whether the goods are sold or not. Therefore, recovery of excise duty flows to the entity on its own account and the same should be included in the amount of revenue. Since the revenue is the gross amount including excise duty, in the statement of profit and loss prepared under Ind AS, the excise duty should be reflected as an expense.

2. Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. Therefore, they are excluded from revenue. Since service tax collected represents the amount collected on behalf of a third party, viz., the government, revenue should be net of service tax collected.

The Future

A group of probationers of 66th (2014) Batch of the Indian Revenue Service (Customs & Central Excise) called on the President of India, yesterday (August 22, 2016) at Rashtrapati Bhavan.

Until Tomorrow with more DDT

Have a nice day.

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