1May2010

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

3May2010

01.05.10 Workshop on Service Tax Branch Premises 6 HrsSaturday Delegate Fee: Rs. 500/- 09.30 am to 05.30 pm

For details please ref April Newsletter Page:18

12.05.10 Professional Hazards-Health Management for CAs, Branch Premises –Wednesday R. G. M. Urocare Team, 06.00 pm to 08.00 pm

(Dr. I R Ravish, Dr. Govardhan & Dr. Mohan),Urologists, Sagar Group of Hospitals, Blore

14.05.10 H.C.Khincha Endowment Lecture - Branch Premises –Friday by CA. N. Rangachary, Past Chairman, CBDT 06.00 pm to 08.00 pm

Programme in association with KSCAA

19.05.10 Time value of Money and Discounted Cash Flow Branch Premises 2 HrsWednesday CA. Tarun Kehair 06.00 pm to 08.00 pm

22.05.10 Key issues in Project & Infrastructure Financing Branch Premises 4 HrsSaturday CA. Paratapgiri Subramaniam 09.30 am to 01.30 pm

Delegate Fee: Rs. 250/-

24.05.10 to Workshop on TDS Branch Premises 20 Hrs28.05.10 Delegate Fee: Rs.1,000/- 04.00 pm to 08.00 pmMonday to Details at Page No: 22Friday

29.05.10 Role of CAs in Strategic HR and Branch Premises 4 HrsSaturday Corporate Governance 09.30 am to 01.30 pm

Mr.G. Ravishankar, Managing Director,ePeople HR Services Pvt Ltd, BangaloreDelegate Fee: Rs. 250/-

02.06.10 Taxability of Gifts Branch Premises 2 HrsWednesday CA. Naveen Khariwal 06.00 pm to 08.00 pm

09.06.10 Managing Foreign Exchange Exposure Branch Premises 2 HrsWednesday Dr. B. Raghavendra Rao, 06.00 pm to 08.00 pm

Professor, MATS Inst of Management, Bangalore

16.06.10 Practical issues on NGOs’ / Charitable Branch Premises 2 HrsWednesday Organisations’ Audit 06.00 pm to 08.00 pm

CA. Vittal Rao

CPE PROGRAMS - May / June 2010Date/Day Topic /Speaker Venue/Time CPE Credit

DISCLAIMER : The Bangalore Branch of ICAI is not in anyway responsible for the result of any action taken on the basis of the advertisementpublished in the newsletter. The members, however, bear in mind the provision of the code of ethics while responding to the advertisements. The views

and opinions expressed or implied in the Branch Newsletter are those of the authors and do not necessarily reflect those ofBangalore Branch of ICAI.

Note : High Tea at 5.30 pm for programmes at 6.00 pm at branch premises.

Advertisement Tariff for the Branch NewsletterColour full pageOutside back Rs. 20,000/-Inside front Rs. 15,000/-Inside back Rs. 15,000/-

Advt. material should reach us before 22nd of previous month.

Inside Black & WhiteFull page Rs. 10,000/-Half page Rs. 6,000/-Quarter page Rs. 3,000/-

Editor : CA. Shambhu Sharma H.

Sub Editor : CA. Prasad S.R.

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

TAX UPDATES MARCH 2010CA. Chythanya K.K., B.Com, FCA, LL.B, Advocate

VAT, CST, ENTRY TAX,PROFESSIONAL TAX

PARTS DIGESTED:

a) 2010 (68) KLJ Part 3

b) 28 VST - Part 3 & 4

c) 29 VST - Part 1

Reference/Description

2010 (68) Kar. L.J. (St.) 262:Karnataka Value Added Tax Act,2003 Notification No. KSA.CR. 165/09-10, dt. 22-2-2010 This notificationprovides with effect from the 1st dayof March, 2010 a TDS obligation ona dealer registered under the Act, whois a developer of any special economiczone or a unit located in any specialeconomic zone in the State, in respectof goods purchased by him fromanother dealer registered under thesaid Act and for which he is eligiblefor refund or deduction of tax paidunder Section 20(2) of the said Act.

2010 (68) Kar. L.J. (St.) 263:Notification No. KSA.CR. 228/08-09, dt. 31-12-2009 With reference tosection 53 (2) of the KVAT Act, whichprovides that the owner or person incharge of a goods vehicle or a boat,ship or similar vessel is required tocarry certain documents and theadjunct Rule 157(2)(a) whichprovides that the delivery note inForm VAT 505 may be obtained fromthe Local VAT officer/sub-officer, theaforesaid notification has been issuedto provide for the manner of acquiringthe said form electronically from 1stday of January, 2010 as follows:

(i) Every such dealer shall log on tothe website: http://vat.kar.nic.in/.

(ii) Using the username and passwordcommunicated to him byjurisdictional Local VAT Officer(LVO) or VAT Sub-Officer (VSO), heshall proceed to obtain the deliverynote following the instructionscontained in the website.

(iii) Each such delivery note wouldhave an automatically generatedunique number. In case, the dealer isunable to generate the delivery notein Form VAT 505 electronically in theplace of loading of goods, due to non-availability of internet or computerfacility he may still log on to thewebsite http://vat.kar.nic.in/, at aplace where such internet or computerfacility is available, feed the requireddetails and then obtain the deliverynote bearing the unique number. Thisunique number could then becommunicated to the place of loadingand a self-printed delivery note inForm VAT 505 may be used.However, the unique numberobtained shall be written on selfprinted delivery note in Form VAT505 in clear legible way.

(iv) Every such dealer shall obtain hisuser name and password from thejurisdictional LVO or VSO, if it is notcommunicated to him by the LVO orVSO.

(v) Every such dealer can view thereport of all the delivery notes inForm VAT 505 issued by him duringany given period for which a facilityprovided on the website: http://vat.kar.nic.in/, in the main menuunder the heading "Reports andHelp". In order to ensure that theelectronic issue of delivery note in

Form VAT 505 is not misused by anyunauthorized persons, the dealershall verify regularly such report ofissue of delivery notes in Form VAT505 to ascertain its genuineness andcorrectness. In case a dealer findsthat any delivery note in Form VAT505 recorded in his account is notissued by him, he shouldimmediately change his passwordand for any reason he is unable tochange the password report this factto the jurisdictional LVO or VSO inwriting. Further, such dealer shallalso inform the jurisdictional LVOor VSO within three days from thedate of issue of such delivery noteswhich he claims to be not issued byhim.

Explanation - Dealers who arealready required to obtain deliverynote in Form VAT 505 electronicallywould not be covered by thisnotification.

2010 (68) Kar. L.J. (St.) 264 : CentralSales Tax (Karnataka) Rules, 1957Notification No. KSA.CR. 248/08-09, dt. 10-3-2010 With regard to theconcessional rate of tax under section8(1) of the CST Act read with Rule12 of the CST(R&T) Rules and Rule6(aaaaa) of the CST(K) Rules, whichstates the requirements of Form C, theaforesaid notification has been issuedto provide as follows:

In exercise of the powers under sub-rule (aaaaa) of Rule 6 of the CentralSales Tax (Karnataka) Rules, 1957,considering it necessary to extend thefacility of obtaining of declaration inForm C electronically to all dealersregistered under the Central Sales TaxAct, 1956 with an option to obtain aprintout of such declaration at theplace of business, in supersession ofthe Notification No.KSA.CR.248/08-

5May2010

TAX UPDATES JANUARY 2010

09, dated 21st March, 2009 issuedunder the said sub-rule, it is herebynotified that with effect from 15th dayof March, 2010, every dealerregistered under the Central Sales TaxAct, 1956 shall make requisition fordeclaration in Form C and shall beissued the declaration sought in thefollowing manner:

1. Every such dealer shall log on tothe website http://vat.kar.nic.in/.

2. Using the user name and passwordcommunicated to him by this officeor from the jurisdictional Local VATOfficer (LVO) or VAT Sub-Officer(VSO), every such dealer shallproceed to file his request for issue ofdeclaration in Form C in such website.He shall also indicate in the websitehis option whether he would like toprint the form himself or would likethe LVO or VSO to print it.

3. The declarations in Form C soughtby the dealer would be approved bythe concerned LVO or VSO withinthree working days from the date ofhis successful request.

4. After such approval, the dealer canprint the declaration in Form C intriplicate on A4 size paper of not lessthan 75 gsm. Each declaration formso printed will have a unique numberassigned on it. After printing, thedealer can have the seal of theDepartment of Commercial Taxesaffixed by producing it before theLVO or VSO concerned.

5. In cases where the dealer has optedfor printing of the form by the LVOor VSO, the C Form declarationssought by the dealer would be printedby the LVO or VSO concerned.Subject to payment of the prescribedfee, such forms would be dispatchedto the dealer within three working

days from the day of his successfulrequest. Any dealer wishing to collectthe C Form declarations personallyshould indicate his preference forsuch mode of delivery at the time offilling in his request for their issue inthe website. Such dealer can collectthe declarations from thejurisdictional LVO or VSO on thefourth working day.

[2010] 29 VST 51 (Karn) HC JairamGranite Industries v. State ofKarnataka & another With regard tothe documents that are expected to becarried by the owner or person incharge of a goods vehicle or boatunder the Karnataka Sales Tax Actunder section 28A, the High Court ofKarnataka held that production ofphotocopies of documents on a dayafter the vehicle carrying goods waschecked was not sufficientcompliance with requirement of lawand that the photocopy was notsubstitute to the original.Consequently the High Court upheldthe levy of penalty under section28A(4) of the said Act.

INCOME TAX

PARTS DIGESTED:

a) 321 ITR - Part 3 to 5

b) 322 ITR - Part 1

c) 187 Taxman - Part 4

d) 123 ITD - Part 2 & 3

e) 128 TTJ - Part 3, 4 & 6

f) 41-B BCAJ - Part 6

Reference/Description

[2010] 321 ITR 178 (AAR) :DanaCorporation, In re The AAR in theinstant case held that if by theapplication of the provisions ofsection 45 r.w.s. 48 of the IT Act, theredoes not arise any income, then

section 92 (computation of incomehaving regard to the arm's lengthprice) does not come to the aid ofrevenue, even though the transactionis an international transaction. It wasfurther observed that section 92 wasnot an independent chargingprovision. The expression "incomearising" in the said section postulatesthat the income has arisen under thesubstantive charging provisions of theAct. The said "income" is not used ina sense wider than or different fromits scope and connotation elsewherein the Act. Section 92 was notintended to bring in a new head ofincome or to charge the tax on incomewhich was not otherwise chargeableunder the Act.

[2010] 321 ITR 324 (MP) : HC AllIndia Punjab National Bank Officers'Association v. Chairman-cum-Managing Director, Punjab NationalBank and Others. The MadhyaPradesh High Court in the instant caseupheld the calculation of perquisitefor the purpose of Rule 3(7)(i) of theIncome-tax Rules, wherein in theinstant case the loan given by theemployer was at a rate of interestlower than SBI lending rate and sothe difference between SBI lendingrate and rate paid by employee wastaken to be the perquisite for thepurpose of the said Rule.

[2010] 321 ITR 491 (All) : HCSmita Agrawal (Individual) v. CITand others In the instant case theAllahabad High Court in the matterof maintainability of stayapplication, following the law laiddown by the apex court in the caseof ITO v. M.K. Mohammed Kunhi[1969] 71 ITR 815 and a DivisionBench of the said court in PremPrakash Tripathi v. CIT [1994] 208

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May2010

ITR 461 observed that, the stayapplication was maintainable andthat the CIT (Appeals) has the powerto pass an interim order which hadto be considered judiciously inaccordance with law.

Further in the matter of disposing offthe stay application the High Courtwithout mincing words observed thatif there was some justification for notdeciding the stay application for sometime, it would be in the fitness ofthings that in such case, the assessingauthority, if it has received theinformation that the assessee hasapproached the appellate authority byfiling appeal along with the stayapplication which is pending, mustawait the recovery till the decision istaken by the appellate authority onsuch stay application. The High Courtin fact directed the Central Board ofDirect Taxes, New Delhi to look intothis aspect of the matter and, ifnecessary, to issue a circular to all theappellate authorities directing them todispose of stay applicationsexpeditiously and so long the stayapplication is not disposed of theAssessing Officer must be slow orreluctant in initiating recoveryprocess.

Welcome relief to the assessee alreadybesieged by the unnecessary hassle tofile petitions due to the incorrigibleattitude of the department insofar asnot accepting on most counts thegenuine methods by which theincome has been calculated.

[2010] 321 ITR 526 (Delhi): HC CITv. Batra Bhatta Company Withreference to the provisions of section147 of the IT Act wherein theassessing officer could re-open theassessment in a case where he 'hasreason to believe that any income

chargeable to tax has escapedassessment for any assessment year',the Delhi High Court held that wherein a case of sale of agricultural landthe assessing officer felt that itrequired much deeper scrutiny andmade roving enquiries and finallyfound no material to believeagricultural land sold by assessee wasa capital asset, the re-assessment wasnot justified.

[2010] 321 ITR (St.) 137 : Income-Tax (First Amendment) Rules, 2010Notification No.S.O.424(E), dated18th February, 2010 Vide powersunder section 295 (power to makeRules) of the IT Act the CBDT videthe said notification brought aboutcertain amendments to the Income-taxRules, 1962 and the amendments areto be effective from 01-04-2009. Theamendments incorporate thesubstitution of new Rules in place oferstwhile Rules 30, 31, 31A, 37CAand 37D and the insertion of a newRules 31AA and 37A.

[2010] 321 ITR (St.) 167: CIT v.Kinetics Technology (India) Ltd:S.L.P. (C) No. 6107 of 2006 In a casewhere the employer had not deductedtax at source on salary received by theemployee from another employer forwant of information, their LordshipsS.H. Kapadia and Aftab Alam JJ.,following 312 ITR 226, dismissed theDepartment's special leave petitionagainst the judgment dated July 27,2005 of the Delhi High Court in I.T.A.No. 541 of 2005 whereby the HighCourt dismissed the Department'sappeal from the order of the Tribunalcancelling the penalty. In effect it washeld that in view of section 192(2) ofthe IT Act, the responsibility was onthe employee receiving salary fromanother employer to furnish details

and as in the present case he had notdisclosed the details of the salaryreceived by him from the othercompany there was no responsibilityon the assessee-company to makedeductions in relation to such salaryand that the plea of reasonable causein failing to deduct tax deserved tobe allowed.

This is an interesting contrast toearlier position taken by the ApexCourt in Ely Lilly in 312 ITR 225.

[2010] 321 ITR (St.) 167 :CIT v. D.Edwin Prabhakar: SLP (C) No.15949 of 2009 In a case where theapplication for refund was madebelatedly their Lordships S.H.Kapadia and Aftab Alam JJ. dismissedthe Department's special leavepetition against the judgment datedJune 10, 2008 of the Karnataka HighCourt in W.A. No. 1548 of 2007. Ineffect the High Court on a writ appealby the Department had upheld theorder passed by the single judgeallowing the refund of tax deductedat source on an application filedbelatedly by the assessee anddirecting the Department to processthe return filed by the assessee withina period of four weeks. The SupremeCourt dismissed the special leavepetition since the amount involvedwas very marginal.

[2010] 321 ITR (St.) 174: C.B.D.T.Circulars Circular No. 3 of 2010,dated 2nd March,2010 Sub: TaxDeduction at Source on payment ofinterest on time deposits underSection 194A of the Income Tax Act,1961 by banks following Core-Branch Banking Solutions (CBS)software - reg.

1. As per provisions of section 194Aof the Income Tax Act 1961, incometax has to be deducted at source at the

7May2010

time of credit of interest income tothe account of the payee or at the timeof payment thereof in cash or by issueof a cheque or draft or by any othermode, at the rates in force if suchinterest amount exceeds specifiedlimit. Further, Explanation to section194A states that "for the purpose ofthis section, where any income byway of interest as aforesaid is creditedto any account, whether called'Interest payable account' or 'SuspenseAccount' or by any other name, in thebooks of account of the person liableto pay such income, such creditingshall be deemed to be credit of suchincome to the account of the payeeand the provisions of this section shallapply accordingly".

2. Representations have been receivedfrom Indian Banks Association (IBA)seeking clarification regardingdeduction of tax at source frompayment of interest on time depositsby banks using Core-Branch BankingSolutions (CBS) software. In case ofbanks using CBS software, interestpayable on time deposits is calculatedgenerally on daily basis or monthlybasis and is swept & parkedaccordingly in the provisioningaccount for the purposes of macro-monitoring only. However,constructive credit is given to thedepositor's / payee's account either atthe end of the financial year or atperiodic intervals as per practice ofthe bank or as per the depositor's /payee's requirement or on maturity oron encashment of time deposits;whichever is earlier.

3. The matter has been considered bythe Board. Explanation to section194A was introduced with effect from1.4.1987 by the Finance Act, 1987 toplug the loophole of avoiding

deduction of tax at source by creditinginterest in the books of accounts underaccounting heads 'interest payableaccount' or 'suspense account' insteadof to the depositor's / payee's account.Therefore, the Explanation is notmeant to apply in cases of bankswhere credit is made to provisioningaccount on daily/monthly basis for thepurposes of macro monitoring only bythe use of CBS software.

4. In view of the above position, it isclarified that since no constructivecredit to the depositor's / payee'saccount takes place while calculatinginterest on time deposits on daily ormonthly basis in the CBS softwareused by banks, tax need not bededucted at source on suchprovisioning of interest by banks forthe purposes of macro monitoringonly. In such cases, tax shall bededucted at source on accrual ofinterest at the end of financial year orat periodic intervals as per practice ofthe bank or as per the depositor's /payee's requirement or on maturity oron encashment of time deposits;whichever event takes place earlier;whenever the aggregate of amountsof interest income credited or paid orlikely to be credited or paid duringthe financial year by the banksexceeds the limits specified in section194A.

This is an interesting propositionand should now mean that month endprovisions made for reportingpurposes may not require TDS.

[2010] 322 ITR 20 (SC): ACITv. Elecon Engineering Co. Ltd Withreference to sections 36(1)(iii), 43A,Expln. 3 (prior to amendment in2002) of the IT Act in a case whereplant and machinery were purchasedbased on a loan taken in foreign

exchange to be repaid in instalments;the Apex Court held that the roll overpremium paid to bank to ensuredelivery of foreign exchange onstipulated dates at predetermined rateswas not admissible as interest oncapital borrowed for purposes ofbusiness and the same had to be addedto the capital cost for the purpose ofdepreciation.

[2010] 322 ITR 43 (Bom): CIT v.Lokmat Newspapers P. Ltd. Withreference to the Explanation undersection 73 of the IT Act, losses inspeculation business, the High Courtof Bombay observed that the saidexplanation postulated a situationwhere any part of the business of acompany consisted of the purchaseand sale of shares of othercompanies. The said explanation wasattracted in a situation wheresomething more than an isolatedtransaction involving sale andpurchase of shares was involved. TheCourt further observed that businesspostulates as systematic course ofactivity or dealing. Once therequirement of the said explanationwas satisfied i.e. where (i) theassessee is a company; and (ii) anypart of the business of the companyconsists in the purchase and sale ofshares of other companies, theconsequence which is envisaged inthe Explanation, as a fiction of law,is brought into existence. The saidlegal fiction was that the assessee isdeemed to be carrying on aspeculation business to the extent towhich the business consists of thepurchase and sale of such shares.

[2010] 322 ITR 80 (P&H): CIT v.Sidhartha Enterprises With referenceto section 271(1)(c) of the Act thePunjab & Haryana High Court in the

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

instant case distinguished thejudgement of the Apex Court in thecase of Dharmendra TextileProcessors (2008) 306 ITR 277. TheHigh Court observed that thejudgement of the Apex Court in theaforesaid case could not be read aslaying down that in every case whereparticulars of income are inaccurate,penalty must follow. It observed thatwhat had been stated in the referredcase is that qualitative differencebetween criminal liability undersection 276C and penalty undersection 271(1)(c) had to be kept inmind and that the approach adoptedto the trial of a criminal case neednot be adopted while considering thelevy of penalty. The concept ofpenalty had not undergone anychange and the same was imposableonly when there is some element ofdeliberate default and not a meremistake.

[2010] 322 ITR 125 (AAR): DassaultSystems K.K., In re With referenceto section 9(1)(vi) of the IT Act, inthe case of a non-resident where themarketing of the licensed softwareproduct was through an independentthird party reseller on a non-exclusivebasis and the said reseller could notbe treated as a permanentestablishment in India of the non-resident, the AAR held that the salein India was not of copyright in itemsresold and therefore the non-residentwas not liable to tax in India. In otherwords, the AAR held that it was a caseof sale of copyrighted articlecharacterised as goods and not a caseof copyrighted right.

[2010] 123 ITD (BN - v) Part 3(Bang.-ITAT): Sands AdvertisingCommunications Pvt. Ltd. v. Dy.CIT(TDS) The Bangalore Tribunal in the

instant case held that when anadvertising agency reimbursesadvertising charges to the accreditedadvertising agency for release of itsadvertisements in newspapers,provisions of section 194C would notapply.

[2010] 123 ITD 245 (Indore-ITAT):J.C. Bansal, Chief Engineer v. TaxRecovery Officer-2, Ujjain In a casewhere the license fee was paid by theassessee-licensee to the licensor forutilizing production facilitiesprovided at licensor's premises,including use of all facilities,utilities, machines, factory, officepremises, tools, equipments andresidential quarters with freedom tosub-let or under-let whole or part ofpremises to any other company, theIndore Tribunal held that since theright to enjoyment in entire propertyhad been created in favour of theassessee, licence fee paid by assesseewould fall within the definition of'rent' as per Explanation (i) to section194-I.

[2010] 128 TTJ (Del) 316: CaneDevelopment Council, Mawana v.CIT In the instant case the assessee-council was constituted under s. 5 ofU.P. Sugar Cane (Regulation ofSupply & Purchase) Act, 1953 toundertake programmes fordevelopment of cane varieties, caneseeds, sowing, fertilizers manures,etc. The assessee existed forcharitable purpose in the nature of"advancement of any other object ofgeneral public utility". It did not haveany power to levy contribution onsugar factories or cane growers" co-operative societies, the contributionswere levied under the said Act,though payable to the assessee-council. Further it did not charge any

fee for rendering services. The DelhiTribunal in the instant case withreference to charitable purpose vis-à-vis scope of proviso to s. 2(15) heldthat it could not be said that theassessee carried on any activity in thenature of trade, commerce orbusiness or rendered any service inrelation to trade, commerce orbusiness for a cess or fee. It wasfurther observed that, if one of theobjects was not "charitable purposes"within the meaning of s. 2(15) inview of the proviso thereof, the otherobjects if they were "charitablepurposes" within the meaning of s.2(15) the exemption as availableunder ss. 11 and 12 would still beavailable. The Tribunal also held thatthe denial of exemption to the asunder s. 11(1) in view of proviso tos. 2(15) was to be looked into at thetime of computation of income andnot at the time of grantingregistration under s. 12AA andtherefore the CIT had erred bywithdrawing the registration under s.12AA already granted to the assesseeafter accepting that its functions arefor "charitable purposes".

(2010) 41-B BCAJ 639 : (2010)TIOL 60 (ITAT-Mum) Cello Plast v.DCIT The Mumbai Tribunal in theinstant case with regard to Section54EC and on a reference to CircularNo. 142/9/2006 TPL, dated30.06.2006 held that non-availabilityof bonds qualifying for deduction u/s. 54EC was a reasonable cause fornot purchasing the bonds within thetime specified in s. 54EC. Since in theinstant case the assessee purchased thebonds as soon as the same wereavailable, it was eligible to claimdeduction u/s 54EC.

9May2010

RECENT JUDICIALPRONOUNCEMENTSIN INDIRECT TAXESCA. N.R. Badrinath, Grad C.W.A., F.C.A.,CA. Madhur Harlalka, B. Com., F.C.A.

SERVICE TAX

Cenvat Credit of Service Tax

� The matter under consideration inthe present case pertains to theavailability of credit on shortreceived inputs. The appellant hadshort received inputs, the credit inrespect of which was reversed bythe appellant after availing the same.No findings were recorded by thelower authorities in respect ofappellant’s contention that the creditavailed was already debited bythem. The matter was remanded tothe lower authorities on the fact ofnon recording of facts.

[Bajaj Tempo Ltd vs. Commissionerof C. Ex., Pune – I. 2010 (18) S.T.R95 (Tri. – Mumbai)]

� The present case involves a disputewhether the credit can be allowedin respect of inputs when the sameare not accompanied by an invoice.The department denied allowing thecredit in such case. However, sincethe appellants were able to producethe invoices, the matter wasremanded to the original authoritywith a direction to look into theinvoices, and if found genuine, toextend the credit.

[Bajaj Tempo Ltd vs. Commissionerof C. Ex., Pune – I. 2010 (18) S.T.R95 (Tri. – Mumbai)]

� The dispute under consideration inthe below mentioned case wasregarding whether extra copy ofinvoice can be considered as a

document for allowing credit. Theappellant was not able to produceeither the original invoice or theduplicate. However, extra copy ofinvoice was produced to avail thecredit. It was held that credit cannotbe extended on the basis of suchextra copy of invoice.

[Bajaj Tempo Ltd vs. Commissionerof C. Ex., Pune – I. 2010 (18) S.T.R95 (Tri. – Mumbai)]

� The issue for discussion in thepresent case was whether EventManagement Service can beconsidered as input service. Theappellant had availed eventmanagement service in connectionwith the celebration by employeeson expansion of plant and wasdesirous of availing credit on thesame. To substantiate that theactivity related to business and theexpenses therefore formed part ofthe assessable value, the appellantrelied upon High Court judgementsunder Income Tax on the plea thatservice tax also was a tax on valueaddition by rendering service.However, no profile of event wasproduced to substantiate that theevent was organised for salespromotion or advertisement andhence was not eligible for credit.[Hindustan Zinc Ltd. Vs.Commissioner of C. Ex., Jaipur –II. 2010 (18) S.T.R 33 (Tri. – Del)

� In the present case, the appellantwas engaged in the manufacture ofaerated water and was availing

cenvat credit. On the scrutiny ofrecords, it was revealed that theyhad availed credit on canteen &rent-a-cab services, which the lowerauthorities denied to allow & henceissued show cause notice proposingto recover credit of Rs. 1,93,135/-.The adjudicating authority & theCommissioner (Appeals) were alsoof the same opinion. However,based on the decision of theTribunal in the case of CCE,Mumbai-V vs. GTC Industries Ltd.2008 (12) S.T.R 468 (Tri. – LB) andCCE vs. Cable Corporation of IndiaLtd. 2008 (12) S.T.R 598 (Tri. –Mumbai), the appellant was allowedcredit in respect of canteen & rent-a-cab services. The impugned orderdenying credit was set aside.

[Hindustan Coca-Cola Beverages(P) Ltd. vs. C.C.E., Hyderabad.2010 (18) S.T.R 57 (Tri. – Bang)]

� The dispute in the present case isthat whether spanner supplied withthe motor vehicle can be consideredas inputs for the purpose of availingcredit. Credit was denied to theappellant on the ground that thespanner so supplied is not used inor in relation to the manufacture offinal goods. However, since thevalue of the spanner was includedin the value of the motor vehicle, itwas held that credit cannot bedenied.

[Bajaj Tempo Ltd vs. Commissionerof C. Ex., Pune – I. 2010 (18) S.T.R95 (Tri. – Mumbai)]

Demand

� The issue in the present case iswhether service tax can be levied ona service before it is considered asa taxable service. The appellant isengaged in the construction ofbuildings/ apartments as a sub

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

contractor to the main contractor.The services provided by theappellant were categorised as WorksContract and the department hadrecognised their activity under thesaid category with effect from 01/06/2007 as correct. Later it wasalleged that the appellant hadundertaken the service ofconstruction of commercialcomplex and residential complexfor their clients which were taxablewith effect from 10/09/2004 and asa result the appellant was asked topay service tax thereon. The JointCommissioner had confirmed thedemand along with interest and hadalso imposed penalty. However, itwas held that once the departmenthad recognised that the appellantwas rendering service under thecategory of works contract witheffect from 01/06/2007, service taxcannot be demanded on the sameactivity under the category ofconstruction of commercial orindustrial complex prior to theintroduction of works contract.Accordingly, the demand togetherwith the interest and penalties wasset aside.

[In Re: Creative Engineers. 2010(18) S.T.R 130 (Commr. Appeals)]

� The issue discussed in the presentcase is whether services rendered bya person situated outside territorialwaters of India is liable to servicetax. The appellant based in Russiaentered into an agreement with M/s. Jindal Vijayangar Steel Ltd(JVSL) at Bellary for providingtechnical assistance service whichcame under the category of‘Consulting Engineer’ by deputinghighly qualified specialists fromRussia. Since the appellants had nottaken the registration certificate and

not paid the service tax thereon, ashow cause notice was issueddemanding service tax along withinterest. The adjudicating authorityconfirmed the demand and alsoimposed penalty. Appeal made bythe appellant before ld.Commissioner (Appeals) wasrejected after a modification that thecomponent relating to income taxliability shall be deducted from thegross value. However, it was heldthat the services rendered beyondterritorial waters are not liable toservice tax as per C.B.E & CCircular No. 36/4/2001, dated 8/10/2001, considering the fact thatappellant was having office inforeign country.

[Amet ZLtd. vs. Commissioner ofService Tax, Mangalore. 2010 (18)S.T.R 27 (Tri. – Bang)]

� The issue in the present case waswhether Sovereign activity istaxable. The appellant is aMunicipal Corporation establishedunder the Karnataka MunicipalCorporation Act, 1976 who wascollecting Building Licence fee,Scrutiny fee and Completion Reportfee and the fees collected for the saidactivities was under the category of‘Technical Inspection andCertification services’ liable forservice tax. Hence a show causenotice was issued to the appellantdemanding service tax. The originaladjudicating authority not onlyconfirmed the same, but alsoimposed penalty on the grounds thatthe fees collected by the appellantare not statutory fees. However, itwas held that the activitiesperformed by the appellant are inthe nature of Sovereign activitieswhich are entitled to exemption asper C.B.E & C Circular No. 89/7/

2006-S.T. Building licence fee,scrutiny fee and completion reportfee are collected for dischargingstatutory function and hence nottaxable. When the activityundertaken and fees collected by theappellant is not taxable, category ofservice under which it falls becomesirrelevant. As a result the demanddoes not arise and consequently theimposition of interest and penaltyalso does not arise.

[In Re: Mysore City Corporation.2010 (18) S.T.R 127 (Commr.Appeals)]

Manpower Recruitment orSupply Agency Service

� The issue in the present case wasregarding whether ManpowerRecruitment or Supply AgencyService is taxable. The appellantsherein had entered into a contractwith M/s. Aspin Wall & Co. andCentral Warehousing Corporationfor rendering services of feedingsbags, filling bulk, stitching, shiftingback cargo, stacking, destalking,loading back cargo to trucks,transportation of goods within thepremises, etc., It was noticed by thelower authorities on a visit to thepremises that the appellants werealso supplying labourers in additionto providing the above services. Thelower authorities concluded that theservices rendered by the appellantwould come under ‘ManpowerRecruitment and Supply Agency’and having not discharged service taxliability, issued show cause notice.The appellant preferred an appealbefore the adjudicating authority onthe ground that the agreement was aworks contract and not for the supplyof labour and also the notice was hitby limitation. But the adjudicating

11May2010

authority confirmed the demandtogether with interest and imposedpenalty. However, it was held that thetenor of agreement and purchaseorders indicated that the agreementwas for execution of lump sum workand not for utilisation of services ofindividual and lump sum work notbeing covered under ManpowerRecruitment or Supply AgencyService, impugned orders demandingservice tax and penalty were set aside.

[Ritesh Enterprises vs. Commissionerof C. Ex., Bangalore. 2010 (18) S.T.R17 (Tri. – Bang)]

Refund/ Refund Claim

� The issue in the case cited belowrelates to refund of unutilised cenvatcredit of service tax on services usedby the appellant who was a 100%EOU and engaged in themanufacture and export of polishedgranite monuments, slabs and tilesand had cleared few of their finishedproducts to other 100% EOUs, fileda refund claim for unutilised cenvatcredit of input services in terms ofNotification No. 5/2006-C.E., dated14/03/2006 as per the provisions ofRule 5 of Cenvat Credit Rules,2004. The refund claim wassanctioned to the extent of exportturnover and the balance wasrejected on the ground thatclearance to other 100% EOUscannot be considered as exports andthe lower appellate authorityconfirmed the same. However, itwas held that rejection of the claimis not in order as clearances madeto 100% EOU is also to beconsidered as export as perTribunal’s decision in CCE, Suratvs. Shilpa Copper Wire Industries[2008 (226) E.L.T 228] and SanghiTextiles Ltd vs. CCE, Hyderabad

[2006 (206) E.L.T 854]. In light ofthe above decisions, refund ofunutilised credit was allowed andthe order denying the claim was setaside.

[Cauvery Stones Impex Pvt Ltd vs.Commissioner of C. Ex., Salem. 2010(18) S.T.R 73 (Tri. – Chennai)]

� The issue considered in the presentcase was refund of unutilised servicetax credit. The appellant is an EOUengaged in the manufacture andexport of granite slabs and tiles whohad filed a refund claim for theperiod from January, 2005 to March,2006 under Rule 5 of Cenvat CreditRules, 2004 for the refund ofunutilised cenvat credit of service taxpaid under Notification No. 5/2006-C.E (N.T). The adjudicatingauthority rejected the claim on thegrounds that refund is admissibleonly from 14/3/2006 as provided inthe said notification and not for theperiod prior to it. The learnedCommissioner (Appeals) upheld theorder-in-original. However, Tribunalin 2009 (14) S.T.R 809 (Tribunal)held that, refund in similarcircumstances is admissible as therule itself provides for such refundthough no notification has beenissued. Hence impugned order setaside.

[Glittek Granites Ltd vs.Commissioner of Customs,Bangalore. 2010 (18) S.T.R 45 (Tri.– Bang.)]

Stay/Dispensation of Pre-Deposit

� The issue in the present case isregarding waiver of pre-deposit ofservice tax, interest thereon andpenalty for the period prior to 1/6/2007. The appellants are engaged inconstruction of residential buildingsand are registered under commercial

or industrial service and constructionof complex services. Also theappellants had rendered various otherservices like Health and Fitness, RealEstate Agency, Maintenance orRepair without paying service tax.The appellants are registered andassessed to state VAT under ‘WorksContract’ for the transfer of goodsinvolved in construction ofcomplexes. Service tax authoritiesassessed construction of complexesto service tax for the period prior to1/6/2007. However, an activityforming part of works contract couldnot be taxed under a pre-existingcategory for the period prior to 1/6/2007 when works contract wasbrought under service tax.Construction of flats and sale of thesame does not involve any taxableservice. Consequently, any ancillaryactivity forming part of the mainactivity carried out under workscontract cannot also be subjected totax. Hence, complete waiver of pre-deposit of the adjudged dues and stayrecovery thereof wad ordered.

[Puravankara Projects Ltd vs.Commissioner of Service tax,Bangalore. 2010 (18) S.T.R 7 (Tri. –Bang)]

� The issue here pertains to thetaxability of Health and Fitnessservices. The appellants are engagedin construction of residentialbuildings with gym facility, chargesfor which are recovered from the flatowners. The consideration receivedfor construction of the gym is partof the price charged for the flatssold. Considering that Health andFitness service is taxable, theauthorities demanded the paymentof service tax, interest thereon andpenalty. However, it was observedthat Health and Fitness service

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May2010

means services such as sauna andsteam bath, Turkish bath, solarium,spas, slimming salons, gymnasium,yoga, meditation, etc,. whichattracts service tax. These facilitieswere owned by the flat owners andthe appellants were engaged inproviding only the gym facility anddid not merely rendered health andfitness service. Hence, the pre-deposit and adjudged dues werewaived off and the recoveryproceedings were stayed.

[Puravankara Projects Ltd vs.Commissioner of Service tax,Bangalore. 2010 (18) S.T.R 7 (Tri.– Bang)]

� The dispute to be resolved in thepreset case was whether re-imbursement of expenses ischargeable to service tax. Theappellants were engaged in theconstruction of residentialbuildings, who looked after themaintenance of the flats soconstructed till the flats weretransferred to the association ofowners of the flats by recovering theexpenses incurred for maintenancefrom the owners of the flat.Consequently, the authorities wereof the opinion that the appellantswere rendering maintenance orrepair services and demandedservice tax thereon. The appellantsclaimed that they bone fide reliedon CBEC circulars to substantiatethat reimbursable expenditure donot form part of taxable value. It washeld that the payments are in thenature of re-imbursement ofexpenditure and not in the formconsideration for the servicerendered. Hence, the demand wasset aside.

[Puravankara Projects Ltd vs.Commissioner of Service tax,

Bangalore. 2010 (18) S.T.R 7 (Tri.– Bang)]

Valuation

� The issue involved in this case isregarding the inclusion of theamount of discount received by theappellant from the electronic media.The authorities demanded servicetax together with interest thereonand penalty on the grounds that theappellant had not discharged servicetax liability on the commissionreceived from the advertisementmedia. The appellant gets a discountof 15% from the electronic mediaand pays 85% of the amountcharged by the media along withservice tax thereon. Theadjudicating authority has clearlyheld that the appellant is raising billsto the clients for the amount paidby them to the media (i.e. 85% ofthe advertising charges + service taxon 85%) plus their own commissionof 15% + service tax on 15%. It washeld that the appellant hasdischarged the service tax liabilityon the service charges collectedfrom clients. In such a case, theinclusion of 15% of the amountreceived as discount from electronicmedia into the value for dischargingservice tax liability is incorrect.Hence, pre-deposit of the amountsis waived and recovery thereofstayed till the disposal of appeal.

[Mudra Communication (P) Ltd vs.Commissioner of C. Ex., Calicut.2010 (18) S.T.R 48 (Tri. – Bang)]

� The issue in the present case relatesto the exclusion of cost of food fromthe taxable value of serviceprovided under convention service.The appellants paid service taxunder Mandap Keeper Service forthe period 20/12/2001 to 30/6/2003.

Later the commissioner found thatthe appellants actually had renderedConvention Services and whiledischarging service tax, hadexcluded value attributable to fooditems supplied to customers andNotification No. 12/2003-S.T dated20/6/2003 granted extension fromtax relatable to value of food onlywith effect from 1/7/2003. As aresult, service tax was short paid bythe appellant, the recovery of whichwas ordered by the commissionertogether with interest for delay inpayment and penalty for an equalamount. The appellant producedevidence for VAT having been paidon the value of food and beveragessought to be taxed underConvention Service and claimedthat once sales tax has already beendischarged on food, beverages, etc.they are not required to pay servicetax on the same value as per theTribunal’s decision in Sky GourmetPvt Ltd vs. Commissioner of Servicetax, Bangalore [2009 (14) S.T.R 777(Tri. – Bang)]. In light of the above,the impugned demand andconcomitant penalties were vacated.

[Daspalla Hotels Ltd vs.Commissioner of C. Ex.,Visakhapatnam. 2010 (18) S.T.R 75(Tri. – Bang)]

� The issue resolved in the presentcase is the inclusion of value of foodin the taxable value of service forthe levy of service tax. Theappellants are engaged in thebusiness of preparation and supplyof meals and snacks to variousairlines and registered under thecategory of Outdoor CateringServices. They were also engagedin packing and handling of food,loading and transportation of foodtrolleys, storage, handling and set

13May2010

up of catering equipments, etc. Theydischarged service tax liability onthe entire amounts collectedtowards handling charges, deliverycharges, hi-lift charges and bondhandling charges. However they didnot pay service tax on amountsrealised from provision of meals/food items and consequently theauthorities issued a show causenotice demanding the service tax,interest thereon and penalty. Theappellants contended that they hadpaid VAT on the sale of food items,and once VAT has been paid, then,simultaneously service tax cannotbe demanded as they are mutuallyexclusive as laid down in the caseof Imagic Creative Pvt Ltd vs. CCT[2008 (9) S.T.R 337 (S.C)]. Hencethe impugned demands of servicetax and penalties have been vacated.[LSG Sky Chefs (India) Pvt Ltd vs.Commissioner of Service Tax,Bangalore. 2010 (18) S.T.R 37 (Tri.– Bang)]

VALUE ADDED TAX

� The respondent here is a dealer ofTata vehicles who was issued creditnotes by the manufacturer TataMotors for defective parts of carsand other vehicles replaced by thedealer to the ultimate customers.The defective parts collected by thedealer were sent back to themanufacturer physically whoreplenished them or gave creditequal to the value of such replacednew parts. Later when such partswere sold to new customers, thedealer collected local tax, but whenthe same were replaced underwarranty, they were supplied free ofcost. The assessing authorityimposed tax on the value of creditnotes and also interest and penalty.

However, it was held that therelationship between the dealer andthe manufacturer was that ofprincipal to principal and notprincipal to agent and the dealermerely worked on behalf of themanufacturer in discharge of hiscontractual obligation under thewarranty agreement while replacingthe defective parts. Since title ofproperty in defective parts passedfrom the dealer to the customers freeof cost and not from dealer to themanufacturer, no taxable sale couldbe said to have taken place in thehands of the dealer and thetransaction between customer anddealer, dealer and manufacturer areindependent and not linked to eachother. Hence the credit notes givenby the manufacturer in discharge ofwarranty obligations to customerscould not be taxed in the hands ofthe dealer and consequently levy ofinterest and penalty is not justified.

[Commercial Tax Officer (Anti-Evasion), Jodhpur vs. MarudharaMotors. 2010 (29) VST 114 (Raj)]

� The petitioner was engaged indistribution of Yamaha motorcyclesand transported the vehicles fromFaridabad to Bangalore, which weredelivered to dealers. Freight chargeswere paid by the dealers in terms ofinvoice raised by the petitionerwhich had not been included in thetotal taxable turnover. The petitionercharged and collected VAT at 12.5%on the basic value of the goods andhence was issued notice under rule3(2) of the Karnataka Value AddedTax Rules, 2003 wherein it was saidthat the sale was ex-factory andtransport was arranged on behalf ofthe dealers after the sale. Theassessing officer held that thepetitioner had supplied goods at the

door-step of the dealer and hence,the effective sale had taken place atthe point of delivery of goods to thedealer and consequently raised ademand for the difference of tax onthe turnover which had escapedassessment. The petitioner failed toproduce any agreement entered intoby it with the dealers to indicate thatthe freight was not a part of the saleprice, or to prove that it had enteredinto separate contracts forundertaking the transportation ofvehicles, or that the risk of transitwas with the buyers and not withthe petitioner and that the deliverywas completed at the depot. It washeld that the assessing authority hadrightly included the freight chargesin the total taxable turnover and thereassessment was justified.

[Shekar Bhojana vs. State ofKarnataka. 2010 (29) VST 140(Karn)]

� The petitioner was carrying on thebusiness of providing andestablishing telecommunicationnetworks and entered intoagreements with ONGC and BHELfor installation of EPABX facilitieson rent. The petitioner purchased theequipment from Punjab andKarnataka as the same was notavailable with them. The assessingauthority passed an order levyingtax under section 3F of the U.P.Trade Tax Act in respect of theamount of rent received by hepetitioner in lieu of transfer of theright to use the equipment. Appealpreferred before the JointCommissioner and the Tribunal wasdismissed. On revision petition itwas held that the petitioner hadgiven ‘right to use’ EPABX systemsand the rent paid by ONGC/BHELwas towards the ‘transfer of right

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May2010

to use goods’ and not for ‘transferof property in goods’. The leaseagreements executed by thepetitioner and the purchase ordersplaced were connected with eachother. The lease agreementsexecuted by the petitioner withONGC/BHEL had actually resultedin the movement of goods fromPunjab and Karnataka to ONGC/BHEL and therefore constituted aninter-State sale under section 3 of theCentral Sales Tax Act. Accordinglythere is no question of levy of salestax thereon by the State Governmentunder the Trade Tax Act. Hence theorders of the assessing authority, firstappellate authority and the tribunalwere set aside.

[Telecommunication ConsultantsIndia Ltd vs. Commissioner ofCommercial Taxes, Uttarakhand.2010 (29) VST 265 (Uttara)]

� The appellant, a wholly owned

Government of India Company, wasthe contract manager foradministering specific contractsbetween the Department of Spaceand private parties for providing‘space segment capacity’ in thetransponders attached to the INSATsatellite. The appellant providedmarketing and contract services forhiring transponders on INSATsatellites and was registered underthe Karnataka Value Added Tax Act,2003. The Assistant Commissionerheld that the facility to use thetransponders was property,commercial in nature, goods andtherefore, the transaction was a‘deemed sale’ and consequentlypassed orders of assessment undersection 39 of the said act bringingto tax the turnover of rental receiptsfor lease of space segment capacityin the transponders. The assistantCommissioner also levied interestand penalty on the same and the writ

petitions filed by the appellant weredismissed by relegating theappellant to appeal before theauthorities. On appeals, it was heldthat there was a transfer of the rightto use the ‘leased capacity’ under thecontract between Department ofSpace and the customers, and theleased space segment capacity in thetransponder was ‘goods’ within themeaning of article 366(12) of theconstitution. It could not be said thatthere was no delivery of possessionof the ‘leased capacity’ to thecustomer as the same was to bemade available to the customers ona 24 hours or 7 days a week basis.The transaction was a ‘deemed sale’within the definition of sale underKVAT Act, 2003.

[Antrix Corporation Ltd vs. AssistantCommissioner of Commercial Taxes,Bangalore and Others. 2010 (29)VST 308 (Karn)]

COMPUTER ACCOUNTING & AUDITING TECHNIQUES (CAAT)CPE course offered by CIT, ICAI New Delhi and an initiative of Bangalore Branch of SIRC of ICAI

SYLLABUS OF CAAT COURSE

Title Total Hrs Theory Hands-on

(1) Introduction and

initiation to CAAT 1 1 0

(2) Windows XP/Vista 3 3 0

(3) Using MS Excel

as an audit tool 18 6 12

(4) RDBMS concepts 6 6 0

(5) MS Access 15 3 12

(6) Structured Query

Language (SQL) 15 3 12

(7) Data Analysis for Auditors

using CAAT tools 42 2 40

100 24 76

The course shall be conducted on eight week-ends of Saturday and Sunday between10 am and 6 pm at Bangalore BranchComputer Centre, No. 215/216, Sri SanjayTowers, II Floor, Nettakallappa Circle,Subbaramachetty Road, BasavanagudiBangalore 560004 (Telephone No. 26621434)commencing from 22nd May 2010. Theparticipation is restricted to 25 members.CPE credit 20 Hrs. Registration fee: Rs1500 payable to The Secretary ICAI DelhiCourse Fee: Rs. 6000 payable to BangaloreBranch of SIRC of ICAI.

Course co-ordinator :C.A H SHIVAKUMAR FCAe-mail : shivakumar.h@icai.org

Interested members may contactBangalore Branch for registrationsemail : blrregistrations@icai.org

15May2010

BUDGET PROPOSALS INSERVICE TAX – PART IICA. Rajesh Kumar T R, B Com, LL.B, FCA, DISA,CA. Chandra Shekar B D, B Com. LL.B, FCA, DISA

Pursuant to our discussion aboutbudget proposal in Union Budget2010-11 in the previous issue, weshall discuss the New Servicesproposed to be levied and changes inrespect of refund provisions.

The Finance Bill 2010 intends tointroduce eight additional servicesinto the tax net. These services wouldcome into effect from the notified dateafter the passing of bill and gettingthe presidential assent. They are listedas under:

a. Lottery or Game of chance service

b. Health services

c. Maintenance of medical recordsservice

d. Brand promotion service

e. Event Organization service

f. Electricity Exchanges service

g. Copyright service

h. Builder’s special service

a. Lottery or Game of chanceservice:

There was uncertainty whetherto consider lottery ticket as an‘actionable claim’ or ‘good’. Toovercome this, an attempt was madeto tax this activity by specificallyinserting an explanation under thedefinition of Business AuxiliaryService effective from 16.05.2008.However, the Supreme Court in caseof UOI vs. Martin Lottery AgenciesLtd. 2009 (014) STR 0593 (S.C.) hasexpressed the doubt as to whether theexplanation would suffice in asituation where there is possibility of2 views and this could be the reason

for introduction of this as a newservice. In order to overcome theanomaly, a new category is proposedby deleting the existing explanationto Business Auxiliary Services.

This service intends to tax theservices provided for promotion ormarketing or organizing the games ofchance, assisting in organizing thegames of chance in any manner. Thisservice intends to cover the services inrelation to lottery, bingo, lotto, or anyother name in what ever the form thesame are conducted, irrespective ofwhether the same is conducted throughinternet, or other electronic network.

b. Health services:

The exclusion of health sectorfrom service tax net was frequentlyquestioned in various congregations.The Finance Bill has proposed to taxonly a fraction of the health sector. Inthis regard, the taxable service meansservice provided by any hospital,nursing home or multi-specialtyclinic—

i. to an employee of any businessentity, in relation to health check-up or preventive care, where thepayment for such check-up orpreventive care is made by suchbusiness entity directly to suchhospital, nursing home or multi-specialty clinic; or

ii. to a person covered by healthinsurance scheme, for any healthcheck-up or treatment, where thepayment for such health check-upor treatment is made by theinsurance company directly to

such hospital, nursing home ormulti-specialty clinic;

Issues:

i. The term ‘hospital,’ ‘nursinghome’ and ‘multispeciality clinic’has not been defined under theservice tax.

ii. Ambiguity where in the a personunder the health insurance policywherein the services are providedby a hospital, nursing home ormultispeciality clinic and in suchcases the insurer pays for same istaxable. Whereas if it is not acashless policy and the person getsthe services from a hospital,nursing home or multispecialityclinic then the service would notbe taxable. How could the sameservice be taxed under one endand relaxed at the other endmerely dependent upon paymentmode? Would not it be against theArticle 14 of Constitution of India,Right to equality?

c. Maintenance of medical recordsservice:

This taxable service intends tocover service provided to anybusiness entity, by any other person,in relation to storing, keeping ormaintaining of medical records ofemployees of a business entity.

The nature of service could beclassified as an outsourcing activity,which would get covered under“Business Support Service”.

TRU letter states ‘World over,business organizations maintainmedical histories of their employeeswhich are used not only for medicalpurposes but also for finding thesuitability of a person for a particularjob or for promotion etc. Increasingly,this activity is being outsourced for aconsideration. Such records are either

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May2010

maintained by certain designatedhospitals or even by independentrecord keepers for a charge. Thisactivity is now being brought underservice tax.’

d. Promoting a Brand of goods,service, events, business entities,etc.

Under this, the taxable service isdefined to mean any service providedto any person, by any other person,through a business entity orotherwise, under a contract forpromotion or marketing of a brand ofgoods, service, event or endorsementof name, including a trade name, logoor house mark of a business entity byappearing in advertisement andpromotional event or carrying out anypromotional activity for such goods,service or event.

An Explanation has definedBrand for this purpose to includesymbol, monogram, label, signatureor invented words which indicateconnection with the said goods,service, event or business entity.

TRU letter states that ‘If thebrand name / house mark etc. ispromoted by a celebrity withoutreference to any specific product orservices etc., it is difficult to classifyit under BAS. Such activities, likemere establishing goodwill or addingvalue to a brand would fall under thisnewly introduced service.’

The service in relation topromoting or marketing or sale ofgoods is already covered under thecategory “Business AuxiliaryService”. But for difficulty inclassification pointed above, thisservice is proposed to be introduced.

e. Event Organization service

Under this category of service,taxable service is defined to mean any

service provided to any person, by anyother person, by granting the right orby permitting commercial use orexploitation of any event including anevent relating to art, entertainment,business, sports or marriage organisedby such other person.

TRU letter states that there arecertain personal rights such as rightto privacy, easement right, right tosecrecy. Companies and broadcastingagencies and video producers aregiven the right to capture these eventsfor commercial exploitation. Theproposed service seeks to tax suchpersons who commercially exploitsuch events. To name a few eventscould be cricket match, beautycontests, celebrity marriages, musicconcerts, etc.

f. Electricity Exchanges service

Under this category of service,taxable service is defined to mean anyservice provided by the electricityexchange in relation to trading,processing, clearing or settlement ofspot contracts, term ahead contracts,seasonal contracts, derivatives or anyother electricity related contract. Theservice provider should be an electricityexchange approved by CentralElectricity Regulatory Commission.

TRU letter states that Forwardcontracts are covered by the ForwardContract (Regulation) Act, 1952.Since Electricity exchanges are notcovered by Forward MarketRegulations, the proposed servicewants to tax the charges recovered forservices in relation to assisting,regulating, controlling the business oftrading, processing and settlementpertaining to sale or purchase ofelectricity by the associationsauthorized by Central ElectricityRegulatory Commission.

g. Copyright service

Taxable service means anyservice provided to any person, by anyother person, for—

(a) transferring temporarily; or

(b) permitting the use or enjoymentof,

any copyright defined in theCopyright Act, 1957, except the rightscovered under sub clause (a) of clause(1) of section 13 of the said Act viz.,Original literary, dramatic, musicaland artistic works. However,copyright in relation tocinematograph films and soundrecording would be taxable as they arenot specifically exempted.

The transfer of the copy rightfrom the producer of a movie to thedistributor may attract service taxunder this category of service. TheTRU circular clearly states that theprospective tax payer in this regardwould be companies distributingmusic, owners of copyright ofcinematographic films etc.

There is a possibility that thesame transaction could get coveredunder the local VAT laws as a transferof goods or right to use goods and thiswould lead to a similar litigation withthat of sale of software licenses on alater date. Hence, the terms andcondition of the contract would playa vital role.

h. Builder’s special service

Taxable service defines that anyservice provided to a buyer, by abuilder of a residential complex, or acommercial complex, or any otherperson authorised by such builder, forproviding preferential location ordevelopment of such complex butdoes not include services coveredunder sub-clauses (zzg), (zzq), (zzzh)and in relation to parking place.

17May2010

Explanation.—For the purposesof this sub-clause, ‘‘preferentiallocation’’ means any location havingextra advantage which attracts extrapayment over and above the basicsale price;’

TRU letter states that

a) prime/preferential locationcharges for allotting a flat/commercial space according tothe choice of the buyer (i.e.Direction- sea facing, park facing,corner flat; Floor-First floor, Topfloor, Vaastu- having the bed roomin a particular direction; Number-lucky numbers);

b) Internal or external developmentcharges which are collected fordeveloping/maintaining parks,laying of sewerage and waterpipelines, providing access roadsand common lighting etc;

(c) fire-fighting installation charges;and

(d) power back up charges etc.

Since these charges are in the

nature of service provided by thebuilder to the buyer of the propertyover and above the constructionservice, such charges are beingbrought under the new service.

Amendment to Notification No 5/2006

Refund of accumulated creditunder Rule 5 of Cenvat Credit Rules,2004 was always a matter oflitigation/dispute since the wordingsused in Rule 5 was ‘used in’ exportsbecause of which the departmentwould contend that there should bedirect nexus between the inputservices and the output services/goods. In order to give relaxationCBEC came out with a circular [No.120/1/2010 dated 19.02.2010].However the Rule and Notificationstill continued to have anomaly.

In the Finance Bill, there is aproposal to bring in retrospectiveamendment to Notification No. 5/2006-CE-(NT) wherein the words‘used in’ is replaced by ‘used in or inrelation’ as far as manufacturer and

‘used for providing’ as far as serviceprovider is concerned. However theanomaly continues in the Rule as thesame is not amended.

Further to the Notification No.5/2006 is amended prospectivelyfrom 27th February 2010, toincorporate a declaration format,which has to be certified by the personauthorized by the board of directorsor partner or proprietor in case theamount of refund is less than Rs. 5lakhs and; otherwise by the CharteredAccountant who audits the annualaccounts of the exporter for thepurpose of Companies Act, 1956 orIncome Tax Act, 1961.

Though the notification isamended to say any service used in orin relation to manufacture of goodsexported or used for providing outputservices exported, the declarationformat is so designed that there is a needto co-relate and establish nexus to claimrefund, which is again added burden orresponsibility on the exporter whointends to claim refund.

5-May-10 - Payment of Central Excise Duty for the month of April 2010.- Payment of Service Tax for the month of April 2010. (in case of persons other than individual,

proprietor & partnership firms)6-May-10 - E - Payment of Central Excise Duty & Service Tax for the month of April 2010.7-May-10 - Payment of Tax deducted &Tax collected for the month of April 2010.

- Deliver to the Commissioner, one copy of declaration received in Form 15 G & Form 15H in the monthof April 2010

10-May-10 - Filing of monthly returns of Central Excise for the month of April 2010.11-May-10 - Filing of Employee State Insurance Returns for the Second Half of the Year15-May-10 - Filing of VAT 120 under KVAT laws for the month of April 2010.

- Payment of Provident Fund for the month of April 2010.20-May-10 - Filing of VAT 100 under KVAT Laws for the month of April 2010.

- Payment of Professional Tax for the month of April 2010 for employees.21-May-10 - Payment of Employee State Insurance for the month of April 2010.25-May-10 Filing of Monthly returns of Provident Fund for the month of April 2010.30-May-10 - Filing of Annual Professional Tax Returns for FY 2009-10

- Filing of Annual Entry Tax Returns for FY 2009-10- Filing of Annual Luxury Tax Returns for FY 2009-10

31-May-10 - Last day for payment of TDS made on credit entries passed on last day of the financial year based onaccrual system of accounting.

Important Dates to remember during the month of May 2010

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

The provisions of the UnlawfulActivities (Prevention) Act,1967 wereamended in 2008, by inserting Section51A which was notified on 31.12.2008by the Govt. of India. Section 51A readsas under :-

“51A. For the prevention of, andfor coping with terrorist activities, theCentral Government shall have power to-

(a) freeze, seize or attach funds andother financial assets or economicresources held by, on behalf of or at thedirection of the individuals or entitiesListed in the Schedule to the Order, orany other person engaged in or suspectedto be engaged in terrorism;

(b) prohibit any individual or entityfrom making any funds, financial assetsor economic resources or related servicesavailable for the benefit of the individualsor entities Listed in the Schedule to theOrder or any other person engaged in orsuspected to be engaged in terrorism;

(c) prevent the entry into or thetransit through India of individuals Listedin the Schedule to the Order or any person

IMPLEMENTATION OF SECTION 51A OF UNLAWFULACTIVITIES (PREVENTION) ACT, 1967

engaged in or suspected to be engaged interrorism.”

In order to implement the provisionsof Sec. 51A effectively, the Ministry ofHome Affairs, Govt. of India requestedthe Ministry of Corporate Affairs to issuean appropriate order to ICAI,ICSI andICWAI to sensitize their members to theprovisions of Section 51A of UnlawfulActivities(Prevention ) Act, 1967.Accordingly the Ministry of CorporateAffairs vide its letter dated 22.03.2010(copy enclosed) asked the ICAI to adviseits members to act as per mandate of theMinistry of Home Affairs.

Accordingly, all members of ICAIare informed that as and when any membercome across any such fact which isconnected with the violation(s) ofprovision(s) of the Unlawful Activities(Prevention) Act, 1967, he must takeaction forthwith for the implementation ofSec 51A as per procedure laid down in theOffice Memorandum dated 22/02/2010issued by Ministry of Home Affairs,Government of India (copy of the Office

Memorandum dated 22/02/10 is enclosed).In other words, the members of

ICAI must ensure that in case any of theirclient match with the particulars ofdesignated individual / entity, as perOrder dated 08/07/2009,wherin the list ofsuch designated individuals / entities havebeen given (copy of the said order dated08/07/09 enclosed), they shallimmediately, not later than 24 hours fromthe time of finding out such client, informfull particulars to the Joint Secretary(IS.I), Ministry of Home Affairs, at FaxNo. 011- 23092569 and also convey overtelephone on 011-23092736. Theparticulars apart from being sent by postshould necessary be conveyed on e-mailid: isis@nic.in.

It is pertinent to mention that, besidesthe aforesaid, the Ministry of Home Affairshas separately issued an order dated 27/08/2009 to the regulators of the financialsectors, and to all the State Governmentsand UT Administrations, with regards toimmovable property (copy of the orderdated 27/08/09 enclosed).

[Note : Members may refer theWebsite of the Institute (www.icai.org) forthe contents of the enclosures]

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Require C.A. / Articled AssistantsCA FIRM WITH 6 PARTNERS

require

Committed Articled Assistants /PCC Candidates for our firm

Require Qualified/ Semi Qualified CAUrgently Require Qualified and Semi Qualified CA for our firm.

The Candidate should have exposure in

Corporate Audit, Direct and Indirect Taxation, Service tax, Internal AuditsInterested Students/ Candidates may send their detailed Resume/ Bio data to:

T.C.MEHTA & CO.Lakshmi Complex, No. 40, K.R.Road, Fort,

Bangalore-560002E-mail: tcmehta_co@rediffmail.com

Ph. 080-26701008/26709824

We offer attractive remuneration/ Compensation to deserving candidates Adv

t.

19May2010

IssueWhether an auditor of a SubsidiaryCompany can be a Director of itsHolding Company ?DecisionThe auditor of a Subsidiary Companycannot be a Director of its HoldingCompany, as it will affect theindependence of an auditorIssueWhether a practicing member canprint ISO mark in his professionalletterheads and other papers ?DecisionA member can get ISO 9001:2000certification, but he cannot use theexpression ISO certified on hisprofessional documents.IssueWhether a practicing member canform an HUF ?DecisionA practicing member cannot form anHUF to carry out business activities.IssueWhat is the meaning of expression“Director Simplicitor”?Decision“Director Simplicitor” shall beconstructed as ordinary / non-executive Director.IssueWhether members of ICAI practicingas an Advocate, can use CA Logo onhis professional stationary ?DecisionIt is not permissible, as it appears tobe unethical.IssueWhether a member in industry can

Code of Ethics for Members –Recent Decisions of the EthicalStandards BoardCompiled by CA. K. Raghu, B.Com, FCA

print his letterhead forcommunication with ICAI or anyother person ?DecisionIt is permissible, however suchmember using the designation of‘Chartered Accountant’ cannot useany other designation, whether inaddition or in substitution thereof.IssueWhether a CA Director of a Companyshould participate in a Board Meetingwhen the item relating to his client(s)is being considered by the Board ?DecisionBased on an ethical point of view, themember should withdraw himselffrom such a meeting.IssueWhether a member holdingCertificate of Practice can ownAgricultural Land and continueagricultural activity ?DecisionOwning Agricultural Land andcarrying out Agricultural activities bya member holding Certificate ofPractice is covered under activities“Permission Generally Granted”under Appendix (9) of the CharteredAccountants Regulations, 1988, andis, therefore permitted.IssueWhether a Chartered Accountant firmcan accept Branch Audit of a Bankwhen a partner has taken a loan fromany other Branch of the same bank ?DecisionIndependence of Auditors can neitherbe diluted nor any scope be left for

dilution in the perception ofstakeholders. The term ‘indebtedness‘must continue to be a qua an entityand not qua branch.IssueWhether a firm of CharteredAccountant can print special words‘celebrating 75 years in profession’ onthe letter heads and envelopes ?DecisionNo, as it will lead to the solicitationof professional work and result inviolation of clause (6) & (7) of Part 1of First Schedule to the CA Act, 1949.IssueWhether the CA Logo can be used onprofessional letter head as header forthe presentation material put beforethe prospective investors ?DecisionIt is not permissible as it amounts tosolicitation of professional work.IssuePrinting of Rotary visiting card andthe use of the designation (DistrictGovernor) therein ?DecisionThe member who is in practice cannotuse the designation of ‘DistrictGovernor’ in his Rotary visiting cardalong with the term ‘CharteredAccountant’.IssueWhether a member can take up themembership of Association of MutualFunds in India (AMFI) ?DecisionThe member may pursue such courseand become a member of theAssociation but he cannot registerwith it. This restriction will beapplicable to the members who areholding COP, whether part-time orfull- time.IssueWhether a Member or firm is allowedto design it’s own Logo? If not, canthe name of the firm/ 1st initial of the

20

Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

name of the firm be written in adifferent style ?DecisionThis kind of stylish Initials isprohibitive as it will deem to be alogo, since the logos have alreadybeen prohibited by the Council.IssueWhether a Member can get his firmlisted with a telephonic serviceprovider, if the service provider is notcharging anything for the listing ?DecisionMembers may avail the Just Dialservices within the guidelines laiddown by the Council.IssueWhether a member while conductingan Internal Audit of a client can alsodo accounting for the same client ?DecisionIt is prohibitive to undertake theassignments of Internal Audit of aclient and accounting simultaneously,being violative of the provisions ofthe ‘Guidance Note on Independenceof Auditors’.IssueWhether concurrent auditor of a bankcan also undertake quarterly reviewof the same Bank ?DecisionThe Concurrent Audit and theassignment of Quarterly review of the

same entity cannot be takensimultaneously, since ConcurrentAudit is in the nature of an internalaudit and the Quarterly review is inthe nature of a Statutory Audit. Amember cannot undertakesimultaneously since it is prohibitedunder the provisions of ‘GuidanceNote on Independence of Auditors’.IssueWhat role can a Statutory auditor andInternal auditor undertake fromamongst:- Tax Audit, Taxrepresentation, Consulting, Advisory,IFRS conversion, Sox Certification,designing of system, resource raising,day to day support to sourced businessprocesses ?Decision• Tax Audit and Sox Certification

can be done only by the Statutoryauditor

• Designing of internal controlsystems and day to day support tooutsourced business processes canbe done only by internal auditor.

• Tax Representation, Consultancy,Advisory, IFRS Conversion andresource raising can be done byboth.

IssueCan the Institute ban the Quotations/Bids invited from CharteredAccountants regarding empanelment

for Audit work by Govt. Companies/Organizations/ PSU’s/ Corporations?DecisionInstitute cannot interfere as the C AAmendment Act, 2006, hasspecifically allowed CharteredAccountants in practice to respond tothe tenders vide proviso(ii) to clause6 of Part I of schedule to the CharteredAccountants Act, 1949.IssueWhether Concurrent audit of one ofthe branches of a nationalized bankcan be accepted by an auditor who hasconducted statutory audit of 3different branches of the same bank?DecisionIn line with the principle of strictindependence as adopted in the earlierdecisions, it is not permissible toaccept Concurrent audit of one of thebranches of a nationalized bank whohas conducted Statutory audit of 3different branches of the same bank.IssueWhether internal auditor of an entitycan be appointed as Tax Consultantof the same entity for a particularyear?DecisionAn internal auditor of an entity maybe appointed as Tax Consultant of thesame entity for a particular year.

AN APPEAL TO THE MEMBERS

Request the Members to pass on this information to your clients.

Bangalore Branch of SIRC of ICAI will be launching by last week of June

the XIV Batch of the Course in Finance for Non Finance Executives (FNFE)under the aegis of Management Development Programmes.

The said course is a weekend course conducted only on Saturdays between 3.00pm and 7.00pm. The course is

targeted at the executives those who are not having any Commerce / Accounts background. Fee: Rs. 12,000/-

For further details contact Mrs. Rema Sujit or Mrs. Anuradha at Bangalore Branch on30563500/512/511 email: blrprogrammes@icai.org

21May2010

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Two Days National Conference for Members in IndustryOn International Financial Reporting Standards ( IFRS)

Organized by Hosted byCOMMITTEE FOR MEMBERS BANGALORE BRANCH

IN INDUSTRY OF ICAI OF SIRC OF ICAI

18th and 19th June 2010 at Hotel Le-Meridian, Bangalore

Friday - 18.06.2010

09.00 AM – Registration & Tea09.30 AM

09.30 AM – Inaugural Session10.00 AM

Technical Session I10.00 AM – Overview of IFRSs11.30 AM a. Global scenario

b. How and when?c. Impact

11:30 AM – Tea Break11:45 AM

Technical Session II11:45 AM – a. Presentation of Financial Statements01:15 PM b. Revenue recognition

c. Income Tax

01.15 PM – Lunch Break02.00 PM

Technical Session III02.00 PM – Share Based Payment and03.30 PM Employee Benefits Consolidation

03.30 PM – Tea Break03.45 PM

Technical Session IV03.45 PM – Intangible Assets, Accounting05.15 PM transaction in foreign

Currency segments – IFRS 8

12 CPEHours

Saturday - 19.06.2010

Technical Session V10.00 AM –11.30 AM Critical differences Indian GAAPs

and IFRSs with special focus on FairValue Accounting, business combina-tions and financial instrumentsa. Creative accountingb. Valuation & Fair valuec. Group concepts

11:30 AM –11:45 AM Tea Break

Technical Session VI11:45 AM – Role of CAs in industry as well as01:15 PM in Practice

a. What industry gains?b. What professionals achieve?c. What country and society gains?

01.15 PM – Lunch Break02.00 PM

Technical Session VII02.00 PM – Challenges on first time adoption in03.30 PM India

a. Applicabilityb. Business impactc. Implementation planning

03.30 PM – Tea Break03.45 PM

Technical Session VIII03.45 PM – Convergence Process in an5.15 PM organisatiom

a. Roadmapb. Problems likely to be faced and

answers thereofc. Areas that may have significant impact

Participation FeesRs. 3,000/- for Members

The cheque should be drawn in favour of

Bangalore Branch of SIRC of ICAI

For details Contact :

Ms. Roopashree, Tel: 3056 3513/500

email: blrregistrations@icai.org /

bangalore@icai.org

22

Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010

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WORKSHOP ON TDSExhaustive discussion on provisions,issues and relevant circulars(from 24.05.2010 to 28.05.2010 between 04.00pm & 08.00pm)

Date Particulars Speakers

24.05.2010 Introduction to TDS provisions. CA. Narendra J. JainMonday Issues pertaining to TDS on winnings from lottery

or crossword puzzle or horse race

Issues pertaining to TDS on interest and dividend CA. B. P. Sachin Kumar

25.05.2010 Issues pertaining to TDS on payments to CA. S. RamasubramanianTuesday contractors and rent

Issues pertaining to TDS on fees for professional or CA. D. S. Vivektechnical services and payment of compensation

26.05.2010 Issues pertaining to TDS on commission or CA. Naveen KhariwalWednesday brokerage, insurance commission and commission

on sale of lottery tickets

Issues pertaining to TDS on salaries CA. Vishnu Bagri

27.05.2010 Issues pertaining to TDS on payments to CA. Nitin KarveThursday non-residents Mumbai

28.05.2010 Requirement to furnish PAN and consequences CA. D. R. VenkateshFriday of failure to deduct or remit tax at source

TDS – Procedures on filing returns - efiling CA. Tarun Kumar Jain

CA. Shambhu Sharma H. CA. K. Babu CA. D. R. VenkateshChairman Secretary Coordinator – Workshop

Workshop Fee: Rs.1000/-, Cash / Cheque in favour of “Bangalore Branch of SIRC of ICAI”

Registration: Restricted to 250 members on first come first serve basis.

For further details, contact: Bangalore Branch of SIRC of ICAIMrs. Roopashree, Tel: 080-30563500 / 513, Email: blrregistrations@icai.org

20 CPEHours

Venue:Branch premises

His Excellency, the Governor ofKarnataka and the Chancellor ofMangalore UniversityShri H.R. Bharadwaj conferringHonorary Doctorate toCA. A.S. Vishnu Bharath forservices to the society & social service.

Congratulations

Balakrishnan Natarajanon being appointedPresident and Chairman of the

Board of Directors at the

ISACA-Silicon Valley Chapter, USAfor the year 2009-10.

23May2010

24

Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

May2010