Critical Tax Issues

8/3/2019 Critical Tax Issues

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T & D CONCLAVE

CRITICAL TAX ISSUES


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Level Playing field for domestic manufacturersThe cost disadvantage 14%

Sales tax/ VAT, Entry tax/ Octroi, Higher financing cost; Low customs duty NIL (for Mega Projects) and 5% for (Project

Import)

lack of quality infrastructure

dependence on foreign sources for critical raw material and

components.

(CoS) in July 2010 suggested similar duty structure as applicable for non-

mega projects be made applicable to Mega/Ultra Mega Power projects.

Arun Maira Committee recommended 10% BCD, 4% SAD

Suggestion:Customs Duty @ 10%, CVD @ NIL SAD @ 4%

Simultaneously Excise exemption Suitable measures like price preference to domestic manufacturers under the

Mega Power Policy, for cost-plus as well as tariff based power projects.


3/23

Interest on differential Excise Duty - Supplementary Invoices

Delay due to delay in publishing applicable indices

In some cases, even prices published by foreign agencies

like LME

Certain Customers insists on prior approval of PV factors

before raising invoices

SC Judgment in SKF case

Suggestion:

Rule 7(4) may be amended to read as THE MONTH IN WHICH

Duty is determined instead ofTHE MONTH FOR WHICH


4/23

Exemption to steel & cement used in Mega/Ultra MegaPower Projects

Exemption to goods falling under CHAPTER 98.01

(S. No 400 of Customs Notification No 21/2002)

Hence no exemption to steel and cement.

Suggestion:

Should be amended to read as goods falling under

any chapter. (The language used in notification 06/2006

CE at S.No 91 is any chapter)


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Supply to Solar Power Projects

The manufacturer of such goods to furnish an undertaking to Excise

authorities that (Notification 15/2010-CE dated 27.02.2010 -

(a) The said goods shall be used only in the said project or facility and not

for any other use; and

(b) In the event of failure to observe conditions above, the manufacturer

shall pay the duty

no direct control of the manufacturer in execution of projects & uses ofmaterial.

Further, in case of any failure in fulfillment of the above conditions,

supplier liable for penalties.

Manufacturer to pay 5% towards Input credit availed.

Suggestion: Purchaser being the beneficiary of duty exemption, the liability should be on

him to use it in as per the requirement of the statutory condition.

The rule (6) of Cenvat credit rules 2004 should be amended suitably so that no

Cenvat reversal is required for these projects


6/23

Inverted Duty Structure on Insulators

Basic duty on all Insulators (chapter 8546 and 8547)is 7.5%

Major imported components like metal parts,

hardwares etc. attract 10% basic duty

The metal parts consist of MCI / SGI casting

component (chapter 7325)

Suggestion:

Customs Duty on inputs under Chapter 7325 used formanufacture of Insulators be reduced to 5%


7/23

Service Tax on Power Projects

Infrastructure projects like roads, airports, railways,transport terminals, bridges, tunnels and dams are

exempt from levy of service tax

Suggestion:

Similar exemption be granted to service provided for

construction of power projects


8/23

CST/VAT exemption to Mega POWER PROJECTS Imports exempt from CST/VAT

Domestic supplies attract CST @ 2% and VAT from 5% to 14.5%.State Governments advised to exempt supplies to Mega Power Plants from Sales Tax

and other local levies.( OM issued by the MoP - F. No. A-108/98-IPC-I dated

31.05.1999-Clause 2),

Accordingly, the Sales Tax, Local Levies and Octroi on domestically manufactured

capital goods, not to be considered for evaluation of bids, irrespective of the fact

whether the State Governments provide exemptions or not.

However, many customers not accepting this de-loading principle (regarding Sales

Tax, Local Levies & Octroi) and evaluate bids taking these levies, including CST, into

account.

Suggestion:Mega /Ultra Mega Power Projects should be mandatorily exempted from CST/ VAT.

CST exemption should be provided in the CST Act itself.Alternately, CST/VAT component, should be excluded for the purpose of bid

evaluation.


9/23

EXEMPTION FROM C FORMS

Previously States had powers to exempt specified sales/class ofsales/class of dealers from submitting C Form before amendment

to CST Act in May 2002.

States using these powers exempted certain class of dealers from

specified sales from C forms submission

Suggestion:

The facility of exempting submission of C forms may be restored

back to the respective state governments as before amendment in

2002


10/23

Supply of goods to SEZs - BOIs

As per existing provisions:Exemption for SEZs from CST for manufactured goods

against Form I

However no provision, not even machinery provision,

for exemption from CST for supplies effected fromvendors directly to SEZs.

However exemption provision exist for vendor supplies

against physical exports

Customers insisting on modalities not prescribed under

CST Law.

CST Act needs amendment


11/23

Provisions of CST ActSection 8. Rates of tax on sales in the course of inter-State trade

or commerce.

(6) Notwithstanding anything contained in this section, no tax

under this Act shall be payable by any dealer in respect of sale of

any goods made by such dealer, in the course of inter-State trade

or commerce, to a registered dealer for the purpose of

manufacture, production, processing, assembling, repairing,

reconditioning, reengineering, packaging or for use as trading or

packing material or packing accessories in an unit located in any

special economic zone, if such registered dealer has beenauthorized to establish such unit by the authority specified by the

Central Government in this behalf.


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Provision of CST Act

Section 8.

(8) The provisions of sub-section (6) and (7) shall not apply to any

sale of goods made in the course of inter-State trade or commerce

unless the dealer selling such goods furnishes to the authority

referred to in sub-section (6) a declaration in the prescribed manner

on the prescribed form obtained from the authority referred to in sub-

section (5), duly filled in and signed by the registered dealer to

whom such goods are sold.


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Summary of main/Charging section

What is exempt under sub-section (6) is the sale by a dealer

to a registered dealer for setting up a unit located in any

Special Economic Zone or for development, operation and

maintenance of Special Economic Zone by the developer of

Special Economic Zone.


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Requirements to avail exemption under CST Act

Exemption can be claimed only by the dealer selling the goods whohas to furnish to his tax authority Form-I obtained from the

specified authority which should be duly filled in and signed by

the registered dealer (SEZ unit) to whom such goods are sold.

In those cases where there are two sales, as in the case of vendor

supplies, it cannot be said that the vendors of bought out items

had sold the goods to a registered dealer in the Special Economic

Zone.


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SEZ provisions

Section 26 (1). Exemptions, drawbacks and concessions toevery Developer and entrepreneur.

(g) exemption from the levy of taxes on the sale or purchase

of goods other than newspapers under the Central Sales TaxAct, 1956 if such goods are meant to carry on the authorised

operations by the Developer or entrepreneur.


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SEZ provisions

Rule 10. Permission for procurement of items.

Provided further that exemptions, drawbacks and

concessions on the goods and services allowed to a Developer or

Co-developer, as the case may be, shall also be available to thecontractors including sub-contractors appointed by such

Developer or Co-developer, and all the documents in such cases

shall bear the name of the Developer or Co-developer along with the

contractor or sub-contractor and these shall be filed jointly in the

name of the Developer or Co-developer and the contractor or sub-contractor, as the case may be.


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Can Rules override the provisions of Act?

Settled position of law is that a rule cannot override the substantive

provisions of an enactment.

Since, SEZ Act does not provide for exemption to sub-

contractor, can Rules expand the scope of exemption?

The CST Act dealing with inter-State sales, does not provide forsuch exemption for supplies made by the sub-contractors/sub vendors

similar to physical imports [Sec 5(3)].

The authorities administering the CST Act would be bound by

the provisions of the CST Act and would not go beyond what is

provided in the said Act to grant exemption to sub-contractors.


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Can Rules override the provisions of Act? Some of the judgments

The basis of the statutory power conferred by the Statute cannot be

transgressed by the rule making authority. The rule making authority has noplenary power. It has to act within the limits of the power granted to it

(Bimal Chandra Banerjee v. State of Madhya Pradesh AIR 1971 SC 517)

The Rules, therefore, cannot be so framed which do not carry out the purpose

of the chapter and cannot be in conflict with the same (Laghu Udyog Bharti v.

UOI 2006 (2) STR 276 SC)

Delegated legislation must be read in the context of the primary/legislative

Act and not the vice-versa - In case of a conflict between a substantive

provision of an Act and delegated legislation, the former shall prevail

( ITW Signode India Ltd. v. Collector of central excise 2003 (158) E.L.T. 403

(S.C.)

Other similar judgments: Chief Commissioner v. Kishan Goyal (1982) 50 STC 1 (Del) (F.B.);State of Tamil Nadu v. E.I.D. Parry (India) (1998) 109 STC 146 at 165 (Mad.); Rallis India Ltd. v.

State of A.P. (1980) 45 STC 456 (S.C.); The S.T.O. v. H. Farid Ahmed & Sons (1975) 36 STC 567

(S.C.); Sales Tax Officer v. Abraham (1967) 20 STC 367 (S.C.)


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SEZ provisions

Section 51. Act to have overriding effect.

The provisions of this Act shall have effect

notwithstanding anything inconsistent therewith

contained in any other law for the time being in forceor in any instrument having effect by virtue of any law

other than this Act.


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Can exemption be assumed under CST Act?

When a language is plain and unambiguous and admits of only onemeaning no question of construction of a statute arises, for the Act

speaks for itself. When the words of a statute are clear, plain or

unambiguous, i.e., they are reasonably susceptible to only one

meaning, courts are bound to give effect to that meaning irrespective

of consequences. If the words used are capable of more than one

construction, only then it would be open to the courts to adopt any other

hypothetical construction on the ground that such construction is more

consistent with the alleged object and policy of the Act. The spirit of the

law may well be an elusive and unsafe guide and the supposed spirit

can certainly be not given effect to in opposition to the plain language

of the sections of the Act- Orient Paper & Industries Ltd. Vs. State of

M.P. and others (and a transfer petition) [2006] 148 STC 0649

[SUPREME COURT OF INDIA]


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Can exemption be assumed under CST Act?

"The Act in question is a taxing statute and, therefore, must beinterpreted as it reads, with no additions and no subtractions, on the

ground of legislative intendmentor otherwise." -Vikrant Tyres Ltd. Vs.

First Income-tax Officer, Mysore [2002] 127 STC 0005 [SUPREME

COURT]

"In interpreting a taxing statute, equitable considerations are entirely

out of place. Nor can taxing statutes be interpreted on any

presumptions or assumptions. The Court must look squarely at the

words of the statute and interpret them. It must interpret a taxing

statute in the light of what is clearly expressed: it cannot imply

anything which is not expressed; it cannot import provisions in the

statutes so as to supply any assumed deficiency" - Commissioner of

Sales Tax, U.P. Vs Modi Sugar Mills Ltd.[1961] 012 STC 0182

[SUPREME COURT OF INDIA]


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What about Transit Sale ?

Section 6 (2)- No such subsequent sale exempt unless selling

dealer furnishes to his tax authorities

- Certificate in E1/EII [Rule 12 (4)]

- Declaration in Form C [Rule 12 (1)]

Can SEZ unit issue Form C Yes as per Clarification by Maharashtra commissioner to L&T

dated 9th June 2008.

- Further such SEZ is registered under CST/VAT Acts of

respective States


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THANK YOU

Suraj Prakash AGM (Fin Ind. Taxation)BHEL, New DelhiMember IEEMA Economic & Taxation Committee

Documents

Critical Tax Issues