TIOL-DDT 2928
12 09 2016
Monday

IN DDT 2313 13.03.2014, we asked:

IT appears that Construction service has always been a complex matter to understand. While the service has seen a record number of disputes on various issues till 01.07.2012, even after the introduction of negative list, the uncertainties remain. As per Notification No 26/2012 ST dated 20.06.2012 (Sl No 12), service tax is payable on 25% or 30% of the value subject to certain conditions. Apparently, the abatement of 75% or 70% allowed is towards the value of materials used in the service as there will be transfer of property in construction service. From 01.07.2012, service tax is payable on works contracts in respect of original works on 40% of the value of the contract (Rule 2A(ii) of Service Tax - Determination of value Rules, 2006). In majority of cases, the tax payable under Notification No 26/2012 ST will be less than the tax payable under Rule 2A(ii). It appears the department is raising demand notices for the differential tax in such cases where the tax is paid under Notification No 26/2012 ST. This raises some fundamental questions which perhaps the Board should address:

1. Can a builder of residential complex not pay service tax by availing abatement under Notification No 26/2012 ST if the service is works contract?

2. If not, what is the reason? If all works contracts are to be taxed only under Rule 2A, where is the need for entry No 12 in 26/2012 ST? Can Board explain with illustration what are the cases covered under Notification No 26/2012 ST?

3. Is it not a fact that the abatement of 75% or 70% allowed under Notification No 26/2012 ST is towards transfer of property in goods while rendering construction service? If not, what does this 70% or 75% abatement represent?

During interaction with the Ashok Lahiri Committee in early 2015, TIOL made the following submission on behalf of the Trade:

Problem faced by construction industry:

Sl No 12 (a) of Notification No 26/2012 ST provides abatement of 75% for construction of specified residential units. If Rs 100/- is charged, the tax at the present rate of 12.36% payable on Rs 25/- (after abatement) would work out to 12.36*25 = 3.09%

All these constructions invariably involve transfer of property in goods and they are executed as works contracts. As per Rule 2A(ii)(A) of the Service Tax (Determination of Value) Rules, 2006, service tax is payable on 40% of the value. At 12.36%, on Rs 40/- the effective tax rate is 4.944.

So, same service attracts two different rates, one at 3.09% and the other at 4.944% - Assessees paying 3.09% are issued with demand notices by applying 4.944%. When two rates are applicable, Board should clear the confusion and clarify which rate is to be adopted.

All our efforts to get a clarification on this issue failed and just when we have given up on this and kept our fingers crossed waiting for judicial decision on this dispute, the good news came in.

The Board has reacted and clarified this as a reply to the Chief Commissioner of Customs and Central Excise, Visakhapatnam Zone, in the matter of representation by the Visakha Apartment Builders Association.

The good Board has clarified:

Considering the fact that construction of a complex, building, civil structure etc is a works contract, which involves not only transfer of property in goods, but also in immovable property, a higher abatement from the amount charged for providing such service has been provided under Notification No 1/2006 for the period from 01.07.2010 to 30.06.2012 and under Notification No 26/2012 for the period with effect from 01.07.2012.

It can be seen from Sections 65(105)(zzzh) and 65(105)(zzzza) for the period from 01.07.2010 to 30.06.2012 and Sections 66E(b) and 66E(h) of the Finance Act, 1994 for the period with effect from 01.07.2012, that Sections 65(105)(zzzh) and 66E(b) of the Finance Act, 1994 provide a more specific description of the activity of the applicant than the definition of Works Contract in Section 65(105)(zzzza) and Section 66E(h) of the Finance Act, 1994. Therefore, in terms of Section 65(A)(2)(a) for the period from 01.07.2010 to 30.06.2012 and Section 65 F (with effect from 01.07.2012), the services by way of construction of complex, building, civil structure etc is eligible for abatement as provided in Notification No 1/2006 ST (Sl No 10(a)) for the period from 01.07.2010 to 30.06.2012 and Notification No 26/2012 ST (Sl No 12) for the period post 01.07.2012, subject to fulfilment of the conditions prescribed therein.

The wait was worth it and it is now advantage assessee.

But why should such an important clarification be addressed only to the Chief Commissioner of Visakhapatnam and not to all Chief Commissioners? Why was the clarification not issued as a Circular? Is the benefit restricted only to builders in Visakhapatnam and is it confidential? Certainly the Board is aware that there is construction activity in other parts of the country too!

F.No. 332/22/2015-TRU dated 05.09.2016

Enter GST - First Step to GST Council

NOW that the Constitution Amendment to bring in GST is a fact, the next step in the long journey is to notify the date from which the provisions of the Amendment Act are made effective.

As per Section 1(2) of the Constitution Amendment Act 2016, It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the commencement of that provision.

Thus, even though the constitution is amended, the provisions will come into force only when the Central Government notifies them.

In exercise of this power to notify, the Government has notified that Section 12 will come into effect from today - 12th September 2016.

Section 12 starts with - "The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council."

So, the GST Council has to be constituted within sixty days from today - before 11th November 2016. What will happen if it is not so constituted?

Ministry of Finance Notification dated September 10 2016

Taxation Laws (Amendment) Act, 2016

IN the hullaballoo of GST an important tax legislation which received the assent of the President on 8th September went unnoticed. This Act amended the Income Tax Act and the First Schedule to the Customs Tariff Act.

Income Tax Act:

1. Definition of 'demerger': The definition of the term "demerger" contained in clause (19AA) of section 2 of the Income-tax Act did not include in its scope, the splitting up or the reconstruction of a company, which ceased to be a public sector company as a result of transfer of its shares by the Government, into separate companies, even if such split up or reconstruction has been made to give effect to the conditions attached to the transfer of shares by the Government. With a view to facilitate the splitting up or the reconstruction of erstwhile public sector companies and to give effect to the conditions attached to the transfer of shares by the Government, the scope of definition of the term "demerger" has been expanded.

2. Section 80JJAA: in the case of certain assessees, in computing profits and gains derived from business, deduction is allowed of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year for the specified period, subject to the fulfillment of certain specified conditions. One of the conditions provides that the employee should be employed for a period of not less than two hundred and forty days during the previous year. In view of the seasonal nature of the business of manufacturing of apparel, the period of employment of an employee who is employed in this business is reduced from two hundred and forty days to one hundred and fifty days during the previous year. Section 80JJAA is so amended.

Customs Tariff Act First Schedule:

Imports of marble blocks/slabs and granite blocks/slabs are subject to a combination of non-tariff measures, namely, Quantitative Restriction (QR) and Minimum Import Price (MIP) and tariff measure, that is, customs duty at the rate of 10% levied under the First Schedule to the Customs Tariff Act, The present tariff rate of customs duty under the First Schedule as well as the effective rate for marble and travertine blocks/slabs and granite blocks/slabs is 10%. In order to have a greater flexibility in terms of tariffs, the First Schedule to the Customs Tariff Act is amended to increase the tariff rate of customs duty from 10% to the WTO bound rate of 40% on all goods falling under specified tariff items including goods, namely, rough marble and travertine blocks/slabs and granite blocks/slabs.

The Tariff Rate, though fixed at the maximum of 40%, the effective rate is continued at 10% by Notification No. 48/2016-Cus, dated September 08 2016.

Taxation Laws (Amendment) Act, 2016 in force from 8th September 2016

Central Excise - Exemption to Articles of goldsmiths' - Condition Imposed

AS per Sl. No. 192 of the Table to Notification No. 12/2012-CE, dated 17.03.2012,

(I) Articles of Goldsmiths' or silversmiths' wares of precious metal or of metal clad with precious metal, not bearing a brand name;

(II) Strips, wires, sheets, plates and foils of gold, used in the manufacture of articles of jewellery and parts thereof;

(III) Precious and semi-precious stones, synthetic stones and pearls.

are exempted unconditionally.

Now a new condition is stipulated for (I) and (II) above as:

If the said excisable goods are manufactured from inputs or capital goods or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66B of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004.

Explanation.- For the purposes of this condition appropriate duty or appropriate additional duty or appropriate service tax includes nil duty or nil service tax or concessional duty or concessional service tax, whether or not read with any relevant exemption notification for the time being in force.

This notification has a complicated purpose which I am not explaining in this longish DDT, suffice it to say, the purpose seems to be to impose a CVD of 12.5% on the import of gold articles

Notification No. 34/2016-CE., Dated: September 08 2016

Income Tax - Due Date for Filing Return Extended

THE last date for making declarations under the Income Declaration Scheme 2016 is 30th September, 2016 which coincides with the last date of filing Income-tax returns by the tax payers whose accounts are audited and who are required to furnish the returns of income for Assessment Year 2016-17 by 30th September, 2016 as per provisions of section 139 (1) of Income tax Act, 1961.

In order to remove inconvenience and to facilitate ease of compliance, the Central Board of Direct Taxes, has extended the 'due-date' for furnishing such returns of Income from 30th September, 2016 to 17th October, 2016, in case of tax payers throughout India.

CBDT F.No.225/195/2016-ITA-II., Dated: September 09 2016

FTP - Amendment in import policy of Urea

GOVERNMENT has amended the Import Policy of Urea under ITC (HS) code 3102 1000 of Chapter 31 of ITC (HS), 2012 - Schedule - 1 (Import Policy). Import of Industrial Urea / Technical Grade Urea (TGU) shall be free.

Notification No. 26/2015-2020., Dated: September 09 2016

FTP - Pre-Shipment Inspection Agency

DGFT has included M/s. Melt Enterprises. Ltd., UK for issuing Pre-shipment Inspection Certificates for a period of 3 years as per provision of Para 2.55(e) of HBP, 2015-20 from 9th September 2016.

Further, it is stipulated that M/s. Asia Inspection Agency Co. Ltd., Thailand approved as PSIA vide Public Notice No. 15/2015-2020 dated 31.05.2016 may carry out inspections with only the following two instruments, Radcomm 200125 & 200126 which are approved for carrying out inspections and not as stated in the Public Notice No. 15/2015-2020 dated 31.05.2016.

DGFT Public Notice No. 31/2015-2020., Dated: September 09 2016

IB, retired Customs Officers arrested for trying to rob gold

IT is reported that the Howrah Police arrested an IB officer and two retired Customs officers for trying to rob about 5 kgs of gold from a courier agency employee. They created a scene as if they were conducting a search and threatened that they would arrest the employee, but their luck ran out and the Howrah Police reached the spot and arrested the fake raiding party.

Tomorrow is a holiday   - Eid Mubarak

Until wednesday with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in