Transcript DUAL GST AND LEGAL ASPECTS

by
K. VAITHEESWARAN
ADVOCATE & TAX CONSULTANT
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Indirect tax proposals are estimated to
generate Rs.46,500 crores.
Significant number of changes in rate,
exemption structure, etc.
No attempt to address pending issues raised
by chambers of commerce.
Usual dosage of retrospective amendments.
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Excise duty rates for non-petroleum products
increased from 8% to 10%.
Cement attracts duty of 10% if the RSP
exceeds Rs.190/- per 50 kg bag or Rs.3800/per tonne.
Increase of duty by 2% for large cars, multiutility vehicles and sports utility vehicles and
tobacco products.
Clean energy cess on coal lignite and peat
produced in India.
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Exemption for supari, menthol by-products,
toy balloons, articles of bedding made of
quilt.
Goods supplied to mega power products
exempted.
Re.1 per litre on petrol and diesel.
4% duty on corrugated boxes and cottons.
Amendments to SSI notifications.
4% on umbrellas, umbrella parts.
Umbrella exempted in Budget 1989
Exemption withdrawn in Budget 1994
Umbrellas exempted in Budget 1997
Umbrellas taxed through Budget 2002
Umbrellas were exempt from excise duty Budget
2003.
 Umbrellas attracted 16% duty in Budget 2006.
 Duty on umbrellas reduced to 8% in Budget
2007.
 Duty reduced to 4% in Budget 2010.
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In relation to products of headings 6802
and 6810, the process of cutting or sawing
or sizing or polishing or any other process,
for converting of stone blocks into slabs or
tiles, shall amount to “manufacture”.’;
Amendment nullifies decision of the
Tribunal at the stage of stay in the case of
Oriental Trimex Ltd.
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Parts, components and assemblies of
automobiles is replaced with parts,
components and assemblies of vehicles
including chassis fitted with engines falling
under Chapter 87 excluding vehicles
under 8712, 8713, 8715 and 8716.
Rates of abatements revised for certain
products.
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Settlement commission scope to be widened.
No penalty if excise duty and interest paid
before issue of Show Cause Notice in cases
which do not involve fraud, etc.
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Peak rate unchanged
5% basic customs duty on crude petroleum.
Increase from 2.5% to 7.5% in respect of petrol and
high speed diesel.
Increase from 5% to 10% in respect of other
specified petroleum products.
Fueling inflation ?
Exemptions in respect of certain products from 4%
duty under Sec. 3(5) of the Customs Tariff Act.
Project import status for monorail, coal storage,
mechanised handling systems in warehouses.
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CVD on MRP basis for goods falling under
Medicinal and Toilet Preparations (Excise
Duty) Act.
Increase in rate of duty in respect of precious
metals.
Electrical energy supplied from SEZ to DTA
and non-processing areas of DTA would
attract duty of 16% with retrospective
effect from 26.06.2009.
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Goods imported in pre-packaged form and
intended for re-sale exempt from 4% duty
subject to law requiring declaration of MRP.
Exemption also extended to mobile phones,
watches and readymade garments from 4%
duty.
For all other goods exemption in the form of
refund in terms of Notification No.1/2007 is
retained.
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Service tax rates unchanged
FM had the option of covering all other
services and chose not to exercise the option.
Service tax proposals are expected to
generate Rs.3,000 crores.
8 new services proposed.
Sec. 65(105)(zzzzo) proposes to tax hospitals,
nursing homes or multispecialty clinics when
health checkup or preventive care is provided to
an employee of a business entity.
 Payment must be made directly to the hospital,
etc. by the business entity.
 Service tax also applicable where hospital or
nursing home or multispecialty scheme
provide services to a person covered by a
health insurance scheme for any health
checkup or treatment where the payment is
made by the insurance company directly.
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Finance Act, 2009 imposed service tax on plastic
and cosmetic surgery.
 Finance Bill, 2010 has far reaching proposals for
the health care industry.
 Task Force has recommended that health care
should not be taxed even under GST.
 Cost of health care will go up.
 Administrative chaos since payment by
patient would not be taxed whereas payment
by insurance company would be taxable.
 Income tax issues in employee taxation.
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Sec. 65(105)(zzzzn) proposes to tax services
for promotion, organizing or in any other
manner assisting in-organizing games of
chance, including lottery, bingo or lotto
whether or not conducted through internet
or other electronic networks.
Explanation to BAS definition inserted by
Finance Act, 2008 deleted.
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Sec. 65(105)(zzzzp) seeks to tax services
provided to any business entity by any other
person in relation to storing, keeping or
maintaining of medical records of employees
of a business entity.
Sec. 65(105)(zzzzq) seeks to tax promotion or
marketing of a brand of goods, service, event
or endorsement of name including a trade
name, logo or house mark of a business entity
by appearing in advertisement and
promotional events or carrying out promotional
activity.
 Service is taxable whether provided to a
business entity or otherwise under a contract.
 Taxation of brand ambassadors.
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Celebrity endorsements
Team endorsements
Applicability of Business Auxiliary Service
Payments to celebrities who are based outside
India.
Endorsements in films ?
Brand ambassadors used by Governments ?
What is the difference between ‘mere acting’
and ‘endorsement’ ?
Asin acting in Hayagriva and Asin appearing in
Miranda advertisements.
Sec. 65(105)(zzzzr) proposes to tax granting the
right or permitting the commercial use or
exploitation of any event relating to art,
entertainment, business, sports or marriage
organized by such other person.
 Personal rights (right to privacy, easement right,
right to secrecy) when given for exploitation is
taxed.
 Corporate sponsored cricket match or concert;
film award events, celebrity marriages, beauty
contests.
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Generally these rights are given to companies or
broadcasting agencies and video producers.
‘Parattu Vizha’
Film release functions or preview shows or audio
release
IPL
Vijay TV telecasting celebrity marriages
Endiran audio release function ?
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Sec. 65(105)(zzzzs) seeks to tax an electricity
exchange by whatever name called approved
by the Central Electricity Regulatory
Commission under the Electricity Act, 2003 in
relation to trading, processing, clearing or
settlement of spot contracts, term ahead
contracts, seasonal contracts or any other
electricity related contracts.
Assessee is the electricity exchange
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Sec. 65(105)(zzzzt) seeks to tax temporary transfer or
permitting use or enjoyment of any copyright other than
original literary dramatic, musical and artistic work.
Copyrights of cinematographic films and sound recordings
are getting taxed.
Film producers who give this rights temporarily for a
consideration is taxable.
Royalty payments on imported and indigenously produced
films given by the producer to the distributor is taxable.
Companies distributing music, owners of copyrights and
films would be taxable.
Individual artists, composers and performers will not be taxable
as their copyrights falls under Sec. 13(a) of the Copyright Act.
 The Madras High Court in the case of A.V.Meiyappan Vs.
Commissioner of Commercial Taxes (1967) 20 STC 115 has
held that the term ‘goods’ include copyright and upheld by
Supreme Court in Joint Commercial Tax Officer Vs. Smt.
Pankajammal (1991) 80 STC 391.
 In terms of G.O.No.Ms No. 61 dated 31.03.2000 –
Notification No.II(1)/CT/22(e-2)/2000, exemption is available
in respect of tax payable by any dealer under Section 3 A of
the TNGST Act on the right to use exposed cinematograph
films (feature films).
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Sec. 65(105)(zzzzu) proposes to tax services provided
or to be provided to a buyer of a residential or a
commercial complex or any other person
authorised by such builder for providing
preferential location or development of such
complex.
 Charges for ‘next to mall, beach facing, east facing,
vastu enabled, preferred floor, preferred door
number’ will be taxable.
 Charges for development charges for parks, pipelines,
access, common lighting, backup power, fire fighting,
etc. taxable.
 Parking space specifically excluded.
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Amendment to specifically provide that all
services provides entirely within the port or
airport would fall under the respective port
services or airport services.
Sec. 65A has no application to any service
when the same is rendered wholly within the
port or airport.
Litigation in the past.
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Sec. 65(105)(zzzo) is proposed to be amended to expand
the levy to all types of air travel in scheduled or nonscheduled air transport.
Tax is on the air craft operator.
Originally only international journey and that too business
class or first class was taxed.
Possible exemptions and abatements after enactment of
law.
Air travel to become costlier.
Cenvat credit for passenger ?
Cenvat credit for aircraft operator ?
Airlines is a loss making business world over and Indian
companies are going through a very rough patch.
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Sec. 65(105)(zzzze) being amended in order to provide
for tax on software services whether or not used in the
course or furtherance of business or commerce.
Definition of Sponsorship Services amended.
Sports sponsorship is also taxable.
Auctioneer services amended to provide that there
will not be any tax only when Government property is
auctioned.
Amendment to ULIP service to provide that value
shall be actual amount charged by insurer for
management of funds or maximum amount of fund
management charges fixed by IRDA whichever is
higher.
The word ‘service’ stands omitted from
Sec.65(105)(zzq) – commercial or industrial
construction.
 Construction / construction of a complex
intended for sale by the builder before or during
or after construction or shall be deemed to be a
service provided by the builder to the buyer
 Concept of ‘self-service’, legislatively nullified.
 No service tax if entire payment for the
property is paid by the buyer only after
completion of the construction including
certification by the local authorities.
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Amendment in the form of an insertion of
explanation to the definition of taxable
service pertaining to construction of complex
/commercial construction.
No amendment to works contract service.
Circular No.108.
Amendment is prospective.
Impact for the past period ?
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Taxes charged by Governments on air passenger.
Commissioning installation of mechanized food grain handling systems,
equipment for coal storage, machinery equipment for processing of
agricultural, apiary, horticultural, diary, poultry, aquatic, marine or meat
products.
Packaged IT software, pre-packed in retail packages for single use
provided excise duty or customs duty has been paid on the entire
amount received from the buyer.
GTA exemption to food grains and pulses.
Indian News Agencies under BAS and online database services.
Central and State seed testing laboratories and agencies.
Transmission of electricity – Notification No.11/2010.
Mandap services shifted to first category.
Chartered Accountant, Cost Accountant, Company
Secretary services shifted to third category.
 Rule 3(2)(a) is deleted. (This condition provided that
service must be provided from India and used outside India)
 India includes the installations, structures and vessels
located in the Continental Shelf of India and Exclusive
Economic Zone of India for the purposes of
prospecting or extraction or production of mineral
oil and natural gas and supply thereof.
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Finance Act, 2009
Issue of product oriented exemptions
Specific abatement
Withdrawal of all Notifications
Notification exempting Government Railways –
No.33/2009 dated 01.09.2009.
 Notification No.7/2010 dated 27.02.2010 has
rescinded Notification No.33/2009.
 Notification No.8/2010 provides for product
oriented exemption.
 Notification No.9/2010 provides for
abatement.
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While formulating them, I have been guided by
the principles of sound tax administration as
embodied in the following words of Kautilya –
thus a wise collector shall conduct the work of
revenue collection in a manner that production
and consumption should not be injuriously
affected; financial prosperity depends upon
public prosperity; abundance of harvest and
prosperity or commerce among other things.
Para 117 of the Finance Minister’s speech
Finance Bill 2010 proposes to amend Sec.65(105)(zzzz) in
order to provide the renting or any other services in relation
to renting is taxable.
 An attempt to nullify Delhi High Court decision when the
matter is even pending before the Supreme Court.
 Vacant land given for construction where the structure at a
latter stage is used for furtherance of business or commerce
is also taxable.
 Amendment is with retrospective effect from 01.06.2007.
 Validation amendment through Sec.76 of the Finance Bill.
Also facilitates recovery of interest and penalty or fine or
other charges which may not have been collected.
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Sec. 65(105)(zzc) dealing with commercial training or
coaching service is proposed to be amended with
retrospective effect from 01.07.2003.
 The Explanation provides that the commercial
training or coaching centre shall include any centre or
institute by whatever name called whether training or
coaching is imparted for consideration, whether or
not it is registered as a trust or society, etc. and
carrying on activity with or without profit motive.
 A number of Tribunal judgments nullified with
retrospective effect.
 How will the institute now recover the tax from the
students for the past period ?
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Amendments to Rule 3(5) dealing with removal of
capital goods after being used.
SSI can take the entire duty on capital goods as credit
in the first year itself.
Jigs, fixtures, etc. can be removed to the location of
another manufacturer for production of goods.
Proportionate credit reversal formula can be applied
for the past period if case is pending. Retrospective
amendments to various Rules to provide relief.
Amendments to Rule 15 as a measure of
harmonization.
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I have been informed that the Empowered Committee of State
Finance Ministers has made considerable progress in preparing the
roadmap and the design of the GST. Officials from the Central
Government have also been associated in this exercise. I am glad to
inform the House that, through their collaborative efforts, they have
reached an agreement on the basic structure in keeping with the
principles of fiscal federalism enshrined in the Constitution. I
compliment the Empowered Committee of State Finance Ministers
for their untiring efforts. The broad contour of the GST Model is that
it will be a dual GST comprising of a Central GST and a State GST.
The Centre and the States will each legislate, levy and administer the
Central GST and State GST, respectively. I will reinforce the Central
Government’s catalytic role to facilitate the introduction of GST by
1st April, 2010 after due consultations with all stakeholders. (Para
85 of the Finance Minister Shri Pranab Mukherji’s speech on
06.07.2009)
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On Goods and Services Tax, we have been focusing on
generating a wide consensus on its design. In November, 2009
the Empowered Committee of the State Finance Ministers
placed the first discussion paper on GST in the public domain.
The Thirteenth Finance Commission has also made a number of
significant recommendations relating to GST, which will
contribute to the ongoing discussions. We are actively engaged
with the Empowered Committee to finalise the structure of
GST as well as the modalities of its expeditious
implementation. It will be my earnest endeavour to introduce
GST along with the DTC in April, 2011. – Para 26 of the
Finance Minister Mr. Pranab Mukherji’s speech on
26.02.2010