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Service Tax – Appellant acted as a subcontractor to M/s. Projects Ltd. As per the agreement, the assessee was required to construct electrical substations for Tadipudi Lift Irrigation Scheme on turnkey basis – Exemption under Notification No.45/2010ST - Period involved is 2005-06 to 2009-10 – HELD - The Notification No.45/2010-ST provides exemption to all taxable services relating to transmission and distribution of electricity by a person to another person during the relevant period covered by the proceedings. It is not limited only to taxable service of transmission by the transmission company as observed by the learned original adjudicating authority. Prima facie, I find that appellant is eligible for the benefit of Notification and therefore the appeal could have been heard without insisting on pre-deposit. Accordingly, the impugned order is set aside and the matter is remanded to the Commissioner (A) with a request to hear the appeal without insisting on any pre-deposit

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  • HC dismisses writ, Assessing Officer justified in disallowing zero rating benefit and in turn input tax credit (ITC) in case of works contract executed for SEZ unit / developer or its contractors / sub-contractors;
  • Circular No. 9 of 2013 dated July 24, 2013 barring zero rating benefit to works contract executed for SEZs neither contrary / ultra vires the provisions of Tamil Nadu VAT Act nor violative of Art 14 of Constitution; Scheme of SEZ Act, Tamil Nadu SEZ (Special Provision) Act and Rules thereunder makes position clear that such benefit is intended to SEZ unit for 'authorised operations', which essentially is ‘export’ activity for which approval has been granted; Rejects assessee’s contention that any 'sale' effected to SEZ unit will include ‘deemed sale’, in line with definition of ‘sale’ u/s 2(33) of TNVAT Act and in terms of Art. 366(29A)(b) of Constitution; Assessee's submission that Sec 18(2) of TNVAT Act inapplicable to Sec 18(1)(ii) amounts to rewriting of statutory provisions, which is unacceptable; Sec 18(1)(ii) provides that sale of goods to registered dealer located in SEZ shall be zero rated and eligible for ITC / refund, while Sec 18(2) deals with entitlement of ITC refund against exported goods; Both Central & State SEZ Acts as well as TNVAT Act operate in different fields, exemption provided in Sec 12 of TNSEZ Act not akin to benefit granted u/s 18 of TNVAT Act; Observes, “There is a marked distinction between “exemption” and “credit”.....Section 12(1) is an enabling provision to be implemented by the State Government prescribing the manner and terms and conditions subject to which exemption be granted.....Therefore, the contention raised by the petitioners, that the benefit of exemption automatically flows from Section 12 is an incorrect submission”; Distinguishes Gujarat HC’s Torrent Energy Ltd. ruling, however, deletes penalty while granting assessee liberty to appeal in accordance with TNVAT Act provisions : Madras HC
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No service tax payable by Cooperative Housing Societies as “club or association” on maintenance charges collected from members inter alia towards repairs, beautification and security, u/s 65(25a) r/w Sec 65(105)(zzze) of Finance Act; Rejects Revenue contention that exclusion clause of Sec 65(25a) refers only to bodies which are established or constituted under a Statute and not bodies which are formed and registered under a Statute; Present dispute has been subject matter of various judgments, and no more res integra; Gujarat HC in Sports Club of Gujarat held that so far Sec 65(25a), Sec 65(105)(zzze) and Sec 66 purport to levy service tax i.r.o. services purportedly provided by club to its members, are ultra vires; Similarly, Jharkhand HC in Ranchi Club held that in view of mutuality, if club provides any service to its members in any form, then it’s not a service by one to another as foundational facts of existence of two legal entities in such transaction is missing : Mumbai Tribunal
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Posted by on in Service Tax
Supreme Court: Service Tax – Appellant is engaged in preparation of ready mix concrete (RMC) - While carrying out such dominant objects other ancillary and incidental activities were also carried out - Selling RMC for delivery at the site – Taxable Service – Tribunal order in favour of assessee - Revenue appeal dismissed against Tribunal order dismissed by Apex Court
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CESTAT stays full recovery of service tax demand of Rs. 65 Cr on 38 agreements between assessee and foreign companies for services of erection, commissioning, installation of equipment, sales promotion, marketing; Adjudicating Authority’s action of confirming demand under ‘Erection, Commissioning and Installation Service’ by extrapolating findings based on perusal of only 5 contracts not legally sustainable, when assessee demonstrated that some contracts were for sale of goods; Rejects Revenue’s contention that no sale involved absent mention of sales tax on invoices, observes, "whether the transaction involved sale is to be determined on the basis of the nature of transaction and not whether the sales tax had been paid on it . . . merely because somebody evaded sales-tax, it would not mean that the transaction would not be a sale, even if, it satisfied the definition of sale"; Relies on Modi-Mundipharma Pvt. Ltd ratio to observe that transfer of ‘right to fabricate products’ not taxable since service not liable to tax during relevant period, notwithstanding the fact that payment continued after service becoming taxable; As regards charges paid to overseas entities for maintenance of software, CESTAT finds force in assessee contention that since service performed & consumed outside India, prima facie there is no ‘import’ : Delhi Tribunal
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Goods and Service Tax Continued......... )

In the construction sector, there are several contractors operating in multiple states. As a result there could be several transfers which normally take place between one site to another. Presently most of such transfers take place under the branch transfer route. However as far as GST is concerned, there is no clarity on Branch Transfers and supply to self. GST is levied by Centre/State through a separate statute on all transactions of goods and services made for a consideration.

If we analyse the current scenario, in Service tax definition it is specifically mentioned that Service tax will be levied on services rendered for another person. In case of VAT, the tax is levied only when the property is transferred to another person hence, intra-firm transfer is not covered in tax levy.  But under GST, ‘all transactions’ includes any intra-firm transfers also. Hence, it would be a negative aspect of GST implementations. However tax planning on situs of sale can be done. In case of an organization having branches all over country, it would be feasible now to plan the branch on which payment booking should be done in case of works contract service as no Input credit loss or additional procedural requirement in form of CST compliance would required to be made. Hence, situs of sale can be used as a tool for tax planning.

Raodmap to GST – To implement GST, full restructuring of present tax system needs to be done. We can have a better picture of it with the help of following chart –

How exactly GST would work..?

As GST will involve three elements –

  1. CGST – Central Goods and Service tax
  2. SGST – State Goods and Service tax
  3. IGST – Integrated goods and service tax

Lets understand the credit mechainism in brief -

  • CGST can be set off against CGST
  • SGST can be set off against SGST
  • CGST cannot be used for set off against SGST and vice versa.

But IGST credit will be allowed against SGST. Lets take an illustration for the same –

  • Maharashtra seller selling to Karnataka buyer for Rs.1,00,000/-. IGST payable assuming an 8% rate is Rs.8,000/-. Rs.8,000/- can be paid by adjusting

–     Inter-State purchases (IGST) Rs.3,000/- / Local purchases (CGST) Rs.1,500/- / Local purchases (SGST) Rs.1,500/-

  • Since dealer has used SGST of Maharashtra to the extent of Rs.1,500/-, Centre has to transfer Rs.1,500/- to Maharashtra Government. IGST of Rs.8,000/- is availed as credit by Karnataka buyer. Karnataka dealer sells the goods at Rs.2,00,000/- attracting CGST of say Rs.16,000/- and SGST of Rs.16,000/-.  If IGST of Rs.8,000/- is used to pay the SGST then Karnataka Government has to transfer Rs.8,000/- to the Centre.
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One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) -- is all set to integrate State economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, etc, thus avoiding multiple layers of taxation that currently exist in India. But just what is GST all about and how will it impact works contracts in India is a matter of anxiety for all of us in the construction sector.

GST is proposed to have a separate tax rate schedule for goods and services both at Central and respective state level. As long as a singular element is being sold, say either goods or service, it will not pose a problem, but wherever there are composite supplies, it will pose a problem of tax calculation as well as jurisdiction. For e.g. since both the central and state governments are expected to be sharing powers over taxation of goods and services simultaneously, both may choose to have different tax rate structures for goods as well as services. The matters will get further complicated if states also have multiple rate structures for services depending on which services are majorly consumed within a particular state. Now composite transactions could take various forms:-

a)      One good sold with another good

b)      One service sold with another service

c)      One good sold with another service

Under all the above scenarios, if the different taxable elements are identified to have different tax rate structures, it would be a dilemma, when it comes to choosing rate at which final tax payment has to be made. The GST regime could propose either of the solutions to the above issues:-

a)      Identifying the dominant nature of the transaction to choose the rate

b)      Suggest deemed splitting of such transactions and charge to tax different elements at applicable rates

c)      Recommend a separate rate schedule for such composite supplies

d)      Apply highest rate to the total mix

e)      Even give multiple options to the tax payers to deal with such issues

Besides above, GST is supposed to be a consumption based tax. That is the jurisdiction, where the actual consumption would take place, will have the right to collect the taxes on the said transaction. If there are multiple elements in a supply, is there a possibility that the different states stake claim to the different elements. Just a hypothetical assumption, but real life tends to subsume all such assumptions and convert them into reality.

Now, ignoring the complexities of situs, except for the solution proposed at c) above, the problems of composite supplies shall continue to bring in complexity in the new GST regime. I would infact go a step ahead and say that the level of complexities may actually end up being on a higher side going by my past professional experience.
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CESTAT allows 67% abatement benefit under Notification No. 1/2006-ST towards material supplied under “Erection, Commissioning & Installation” service contract; Rejects Revenue contention that change of classification to “Works Contract Service” on customer’s insistence contrary to Rule 3(3) of Composition Scheme and abatement ineligible due to input credit availment; Assessee never changed classification of service and continued to pay tax at full rate on 33% of gross amount, hence Revenue’s claim only an assumption without any basis; Further, relies on coordinate bench ruling in Gammon India to reject Revenue contention that installation activity a ‘pure service’ and supply of material under separate work order only incidental in nature; Allows benefit of Composition Scheme on contracts entered post introduction of “works contract service” w.e.f June 2007 by relying on CBEC Circulars in this regard  : Mumbai Tribunal
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CBDT has ordered an Income Tax department investigation against a number of real estate developers who were recently shown by an investigative portal to be willing to accept alleged black money in property transactions.

The apex authority of the I-T department has asked its investigation units across the country to furnish to it reports of any action or probe conducted against the groups named by the portal in the past and in case such an action has not been done, the Central Board of Direct Taxes has ordered the same to be initiated.

“The CBDT has asked the investigation units of the I-T department that all these reports should reach it by the first fortnight of December,” a senior official said.

The investigation done by portal Cobrapost.com included many developers from the national capital region and those from other parts of the country including Mumbai. While releasing the transcripts and video recordings of its investigation at a press conference here, the portal said that executives from these companies, including some CEOs and CMDs, were ready to accept anywhere between 10-80 per cent of the property value in black money. These 35 real estate companies under scanner are spread across the national capital, Uttar Pradesh, Haryana, Rajasthan, West Bengal, Andhra Pradesh, Maharashtra and Karnataka.

While some companies had out rightly rejected the allegations that they accept black money in their property transactions, a few others had said that they have already taken action against the concerned executives.

The portal said that most of these executives expressed willingness to accept money abroad through hawala channels, including in Dubai, Bangkok, Singapore and the US. The findings of this investigation, named ‘Operation Black Ninja’, have come at a time when the government is making all efforts to bring back unaccounted money stashed by citizens abroad.
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HC allows writ, quashes tax demand on profit retained by works contractor under Kerala VAT Act & Rules; Entire works sub-contracted by assessee for execution and material transferred directly from sub-contractor to contractee / awarder; Absent sale of material by works contractor – assessee, no taxable event can be said to have occurred under the Act; Relies on SC’s 2008 ruling in Larsen & Toubro Ltd, wherein it was observed “work executed by a sub-contractor, results in a single transaction and not multiple transactions….if the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to article 366(29A)(b) of the Constitution”; Directs Revenue to either refund tax amount paid under protest or grant credit to assessee for future periods  : Kerala HC
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  • Kabeerdas
    Kabeerdas says #
    Dear Sir, I am Kabeerdas, my doubt is kerala's vat,service tax exemption% ofworks contract service. Pls. give me a reply as earl
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