DTC- CASE FOR REMOVING EXEMPTIONS AND DEDUCTIONS

Huge amount of revenue is lost to the exchequer by way of tax  exemptions  and  deductions,  which  aggregated  to  more  than  Rs.1,50,000  crores. The  Department  have  submitted  that  the  revenue foregone  in  respect of  corporate  income  tax during  the  year  2009-10 increased to Rs. 79,554 crores, while the same for personal income tax was  Rs.  40,929  crores.         Revenue  foregone  on  account  of  direct  tax incentives / deduction given to export promotion schemes etc. amounted to a whopping Rs. 30,000 crores and more during this period.  Facts are so  evident  that  it  requires  no  over-stating  that  tax  concessions  and exemptions  provided  in  general  have  been  huge  and   phenomenal, amounting to more than half of the total direct tax collections in 2009-10. If the aggregate exemptions in both direct and indirect taxes is taken into account, it works out to a massive Rs. 5,02,299 crore (2009-10), which is almost 80% of the total revenue collections.  Such exemptions have been increasing, leaving an adverse impact upon revenue buoyancy.

International Tax Practices incorporated in DTC

Residence   of    company    to    be    based    on    Place    of    effective management

 Place of effective management‘ is an internationally recognized concept for   determination  of  residence  of  a  company  incorporated  in  a  foreign jurisdiction.       Most of our tax treaties recognize the concept of ‗place of effective management‘ for determination of residence of a company as a tie-breaker rule for avoidance of double taxation. It is an internationally accepted principle that the place of effective management is the place where  key management and commercial decisions that are necessary for the conduct of the entity‘s business as a whole are, in substance, made.

Structural Comparison of DTC

Income Tax Act comprises 23 Chapters,656 sections, 14 schedules
Wealth tax Act comprises 8 chapters and 47 sections
DTC 2010 comprises 22 chapters, 319 clauses, 22 schedules

Salient Features of DTC

            The  salient  features  of  the  code  are  as follows:

(i)         It consolidates and integrates all direct tax laws and replaces both the Income  Tax  Act,  1961  and  the  Wealth  Tax  Act,  1957  by  a  single legislation.

(ii)        It  simplifies  the  language  of  the  legislation.  The  use  of  direct,  active speech,  expressing  only  a  single  point  through  one  sub-section  and rearranging the provisions into a rational structure will assist a lay person to understand the provisions of the Direct Taxes Code (DTC).

Why Income Tax Act being replaced with DTC

As per Note given by Ministery of Finance to Standing Committee on Finance and presented  on 9-3-2012 in 49th report of Committee:
The Income-tax Act, 1961, has been subjected to numerous amendments since its  passage fifty years ago. It has been considerably revised, not less than thirty-four times, by amendment Acts besides the amendments carried out through the annual  Finance Acts. These amendments were necessitated by policy changes due to the changing economic environment,      increasing sophistication of commerce, increase in international  transactions  as  a  result  of  globalization,  development  of information technology, attempts to minimize tax avoidance and in order to clarify the statute in relation to judicial decisions. As a result of all these amendments, the basic structure of the Income-tax Act has been  over burdened  and  its  language  has  become  complex.  In  particular,  the numerous amendments have rendered the Act difficult to decipher by the average   tax-payer.  The  Wealth-tax  Act,  1957  has  also  witnessed amendments.

Refund under VAT(Section 18,39,40,41 Form 29,30,30A 30B to 30D)

United nations and Constituent Agencies

Schedule G Organizations (United nations and its constituent agencies) are entitled to

§refund of tax paid for Goods purchased in the state

§On every single purchase

§From a taxable person or registered person

§Exceeding Rs. 5000

§Excluding Tax Amount

§On Application in Form 29A

§Certificate from head of the organization that goods are purchased for use in official functioning of organization to be furnished

§Note; Refund is allowable even if tax not paid

§Refund is allowable even for purchases from registered person

Taxation of New Pension Scheme

New pension scheme was intiated by PFDRA(Pension Fund Regulatory and development authority). NPS has been extended to all the citizens of India from 1-5-2009

New pension scheme is applicable to new entrants to government service or any other employer. As per the scheme, it is mandatory for persons entering service on or after January 1, 2004, to contribute 10 percent of salary every month towards notified pension account. A matching contribution is required to be made by the employer to said account. The tex treatment under the new scheme is as follow --

Penalty u/s 51 can not be levied for mere non reporting at ICC barrier

Mere statement of driver is not enough to impose penalty where transaction not reported at barrier but other wise goods are accompanied by genuine documents
Pandey Steel Industries (PVAT-Tri) 18 STM 353

No penalty u/s 51 for issue of vat invoice instead of retail invoice

PVAT 2005 does not provide any penalty for issuing vat invoice in place of retail invoice. Further if goods are loaded from one place although are shown to be purchased from some other place, it does not prove mens rea
Pooja Steel and Allied Indisutries (PVAT -TRI) 18 STM 251

Medical Equipment under warranty not reported at ICC

Held that since goods are highly sophisticated medical equipment for which payment made through a/c payee cheque and goods were duly recorded in books and under 2 year warranty. No penalty u/s 51 leviable
Medical Diagnostic P Ltd 18 STM 248(PVAT TRI)

Supply of food stuff by school is not Sale

If main activity is imparting education and not business, any incidental activity like supply of food stuff would not constitute business. Hence it will not be covered by "Sale"

Scholars Home Senior Secondary School 18 STM 328 (HC- Uttrakhand)

RC Charges not includible in Sale

Obligation to obtain RC is upon buyer. Facilitation of RC by seller is in nature of service rendered by Seller. Charges therefore recovered by seller can not form part of turnover of seller. RC charges therefore do not fall under " amount charged by seller in respect of goods at the time or before the delivery there of"
Sehgal Autoriders P Ld (Bom) 18 STM 285 

Hire Purchase or Installment Sale

§Sale Price shall be valuable consideration payable to a person for such delivery.

§The amount of interest shall be reduced as per Rule 15.

§Further as per ETC order dated 5.10.10, in case M/s. Aay Pee Industries, hire charges on shuttering material shall be taxable @ 12.5% because they are not declared goods. Taxable turnover shall be the amount of hire charges. Against C forms tax on hire charges shall be 2%

Sale by partnership Firm having same partners

§When one firm transfers goods to another firm and both the firms have identical partners, the transfer does not amount to sale (Moni parsad Singh 39 STC 131 CAL.)

§However if the shares of the partners are different, the transaction amounts to sale

   (Punjab Oil Mills 1992 PHT 377 Pb. Tri)

Sale price

As per section 2(zg) , sale price means :

•The amount of valuable consideration received or receivable by a

  person for any sale made

• including any sum charged on account of

a) freight

b) Storage       

c) demurrage

d) Insurance

e) Any sum charged for anything done by the person in respect

                of goods- At the time of  OR

                            - Before the delivery there for

ITC on gas cylinders

 ITC on Gas Cylinders is not admissible as packing material because Item no. 202 read with Entry no. 58 relating to packing material does not cover containers of iron and steel.
  Further since gas cylinders are not sold and are only provided on returnable basis, no ITC is admissible because for claiming ITC goods must be used for sale or in manufacturing, processing, packing of taxable goods for sale as per section 13.
 Further held that appellant company stands aggrieved because ITC denied to its consumers and is entitled to make application u/s 85.
(IOC PVAT TRI 2009 13STM 458

ITC on Used Transformer Oil

Used Transformer oil shall remain petroleum product
Bhakra Beas Management 2007 10 STM 109

ITC on Diesel

 As per order u/s.85 dtd. 12-04-2006 in case of Malwa Cotton Spinning Mills, ITC on diesel used in generation of electric power is not eligible for ITC.
 However, the above decision was challenged before PVAT tribunal. As per decision of PVAT tribunal rendered on 24-05-2006, 10 STM 219, diesel used in generation of electric power used in captive consumption for manufacturing taxable items held to be eligible for ITC
 Further , the rectification application made by department before tribunal has been rejected on 29-01-2009 on the ground that decision is correct and needs no rectification
 As per Supreme Court order in Rajasthan Texchem Ltd 10 STM 358, diesel used in running generator set for production of ultimate product can only be termed as raw material and not otherwise
 As per Allahabad High Court in Goel India, Moradabad, 11 STM 286 Diesel oil and other oils used for running generator sets would be entitled to be treated as part of manufacturing process.
 As per decision of Punjab and Haryana High Court delivered on 24.08.2010, ITC on diesel is not allowable, because specific provision over rules general provision.

ITC on promotional Items

No ITC allowable on promotional items like iron, wrist watches, T-shirts, Bags, which are offered as gift along sale of main product
L.G. Electronics 2006 STM 655 Del-VAT

ITC for person who has applied for TIN

Where a person has applied for R.C. and is granted R.C. w.e.f. date of his application shall be treated as registered person
A.V. Patiala Biscuits Manufacturing Pvt. Ltd.
1977 39 STC 381

TRANSPORTATION OF GOODS Section 51, Rule 63 to Rule 70

Establishment of Check Posts and ICC (1)
• If with a view to prevent or check – avoidance or Evasion f tax under this Act
• State Government, considers it necessary so to do
• It may by notification
• Direct for establishment of check post or ICC or both
• At such place or places, as may be specified in the notification.

An inclusive definition is a definition of expansion.

 The Supreme Court has held that the words used in an inclusive definition denote extension and they cannot be treated as restricted in any sense. When inclusive definition is dealt with, it would be inappropriate to put a restrictive interpretation upon terms of wider denomination. The word 'includes' is an inclusive definition and expands the meaning. [See for instance, Corporation of the City of Nagpur v. Its employees AIR 1960 SC 675, Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar AIR 1974 SC 1728 and Doypack Systems (P.) Ltd. v. Union of India AIR 1988 SC 782
When words of expansion are used, it is justified to fall back upon the rule of ejusdem generis not Noscitur a sociis

AAR can justifiably entertain its discretion not to allow the application under section 245R(2) where application made 4 years after transaction in question entered into

In Red Hat India (P.) Ltd.,

[2012] 18 taxmann.com 259 (AAR - New Delhi) (3-2-2012)
• As an authority constituted under a statute, Authority for Advance Rulings may have a jurisdiction to decline a ruling even when one of these clauses in the proviso is not attracted or one of them is not strictly satisfied

• The Authority can justifiably exercise its discretion not to allow the application under section 245R(2) of the Act on the ground that the applicant has not approached this Authority with reasonable diligence and has approached it only more than four years after the transaction giving rise to the application was entered into and even assessments for two years were already completed