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Tax Amicus: May 2014

In a recent decision, the Delhi High Court has held that business support services provided by foreign company through seconded employees to Indian subsidiary constituted ‘fees for technical services’ (FTS) and such services also create foreign company’s Service PE in India. The article covered in this issue analyses the law laid down by the Court and its implications, with respect to secondment. In another article, departmental clarification on leviability of service tax on construction of buildings/flats partly completed as on 1-7-2010 is viewed by the author as not tenable and will increase the woes of the real estate / construction sector.

The Central Excise Section begins with Ratio Decidendi column which includes order of CESTAT holding that there cannot be any presumption of sale being on FOR destination basis just because customer of the assessee wanted the supply at their premises. The Tribunal in this case held the freight up to the buyer’s premises as not includible. This column also summarises another order of the Tribunal wherein it was held that floor sweepings emerging during the manufacture of biscuits are wastes and hence, no duty is required to be paid on such floor sweepings even if they fetch some price in the market. Another interesting case covered pertains to order holding that activity of putting warranty stickers and pasting chassis number on imported DVD/ VCD players or multiplayers which were already in packed form and bearing MRP stickers, does not amount to manufacture under Central Excise law.

The Customs portion brings a major decision of Delhi High Court according to which there is no time-limit for claiming refund of Special CVD or Special Additional Duty (SAD) under Notification No. 102/2007-Cus., and the amending Notification No. 93/2008-Cus., was read down by the Court. Extending certain benefit to EOUs, the Gujarat High Court has held that permission once granted to an EOU cannot be curtailed later on to cut down the period of permission and this order is also covered in this section. Unjust enrichment would not be applicable where the disputed amount was deposited prior to adjudication of demand and adjusted against confirmed demand, but the demand was subsequently set aside, as per the order of Ahmedabad Bench of CESTAT. This order is also highlighted in this issue of Tax Amicus.

Service Tax cases discussed in this issue includes Gujarat High Court order relating to the amnesty scheme (Voluntary Compliance Encouragement Scheme or VCES) wherein the court has held that amount paid after 1-3-2013 but prior to 10-5-2013 can form part of declaration. This issue discusses an order of the Tribunal holding that refund cannot be denied because of late filing of bank realisation certificate and proof of payment by the exporter when there was no dispute on fact of exports. Discount in the form of early payment incentive was held as not liable to service tax and readers may go through this issue to find out more on this order.

Amendments to Madhya Pradesh VAT Act and Haryana VAT Act are reported under Value Added Tax (VAT) Section of this issue. In a landmark order, the Constitution Bench of the Supreme Court has held that “the dominant nature test”, “overwhelming component test” and “the degree of labour and service test” are not applicable in case of works contracts falling under clause (29A)(b) of Article 366 of the Constitution of India. This order in the context of contract for supply and installation of lifts whether amounts to works Contract is discussed in this issue.

Income Tax Section contains summary of ITAT order holding that Profit Split Method (PSM) should be regarded as the most appropriate method in cases of highly integrated and interrelated controlled transactions. This issue also discusses order of the ITAT to the effect that erection activities in the impugned case related to sale of complex machinery, the charges for which would be embedded in the cost of machines and would not be assessable to tax in India whether embedded in the purchase price or charged separately.

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