Monday, August 31, 2009
Thursday, August 27, 2009
Admissibility of credit of Service Tax paid as recipient under section 66A of the Finance Act, 1994
Letter F.No.354/148/2009-TRU, dated 16-7-2009
Please refer to your letter F. No. LTU/MUM/CX/TECH/MISC/3/2008 dated 10 th July, 2009 wherein you have pointed out that while the list of duties/taxes mentioned under Rule 3 of the CENVAT Credit Rule, 2004 covers section 66 of the Finance Act 1994, it does not mention section 66A of the Finance Act. 1994. You have stated that Section 66A of the Finance Act refers to payment by recipient of service imported from abroad, under reverse charge method and, therefore, the absence of mention of this section, legally makes credit of such tax paid ineligible. It has also been mentioned that while Board's letter F.No.BI/4/2006-TRU dated 19th April, 2006 clarified that if such imported service is used as input for providing any taxable output service, the service tax paid on such service can be taken as input credit, CERA has taken objection in view of the absence of specific mention of section 66A as stated above.
2. The matter has been examined. The provisions under section 66A state that in case service is provided from abroad and received in India , such taxable service shall be treated as if the recipient had himself provided the service in India , and accordingly all the provisions of Chapter V of the Finance Act, 1994 would apply. Therefore, it is clear that section 66A is not a charging section by itself. In fact, it only creates a legal fiction to deem import of service as provision of service within India so that the provisions of Chapter V of the Finance Act, 1994 can be applied to. The charging section remains section 66 even for the service imported. In other words, the tax collected from the recipient in terms of Section 66A is also tax chargeable under section 66 of the Finance Act, 1994.
3. In view of the foregoing, it is clear that there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services.
4. The CERA objection on the subject may, therefore, be replied to accordingly.
Tuesday, August 25, 2009
Monday, August 24, 2009
Requirement of PAN for Insurance Products
Circular No. 028/IRDA/LIFE/PAN/Aug-2009, dated 18-8-2009
It was mandated vide Circular No.021/IRDA/LIFE/PAN/Jul-2009 dated 22.07.2009 that insurers shall collect PAN from all persons purchasing insurance policies with annualized premiums exceeding Rs. one lakh per policy.
- Many insurers have expressed difficulty in meeting with the deadline of 1st August, 2009 for implementing the above Circular and requested for an extension. Taking the representation of the insurers into consideration, the deadline for complying with the Circular is now extended to 01.09.2009.
- Representations have also been made that since certain categories of persons such as persons with only agricultural income, NRIs with no assessed income under the IT Act, 1961 etc are exempted from the requirement of PAN, the requirement of submitting PAN be waived in case of such persons. This request has been considered and it is now decided that insurers shall insist on PAN from all persons who are required to obtain the same under the provisions of IT Act, 1961. Insurers shall however collect a signed declaration from persons exempted from the requirement of PAN, stating the provisions of the IT Act under which they have been exempted.
- It has also been decided that in cases where a proposer has applied for PAN but has still not received the same, a copy of form 49A (application for PAN), duly acknowledged by the agency authorized to collect applications for PAN, can be accepted by insurers in lieu of PAN, with an undertaking from the proposer that the PAN shall be submitted as soon as it is received.
Unit Linked Products - Cap on Charges - Circular No.20/IRDA/Actl./ULIP/09-10 dated 22nd July, 2009
Circular No. 29/IRDA/Actl/ULIPs/2009-10, dated 20-8-2009
Vide reference cited, the Insurance Regulatory and Development Authority had specified caps on charges on all Unit Linked Insurance Products. Certain concerns were expressed by the industry on the circular and a meeting of the Life Insurers was held on 29 th July, 2009 to discuss all relevant concerns. Taking into account the discussions, the following clarifications are issued and consequently the circular referred is modified to the extent stated below.
- Mortality and Morbidity charges may be excluded in the calculation of the net yield for the purpose of the sub-para (a) of the penultimate paragraph of the reference cited;
- Within the overall cap prescribed in paragraph 5 of the reference cited, the Fund Management Charge shall not exceed 135 basis points irrespective of the tenor of the contract;
- No surrender charge can be levied by an insurer for policies surrendered from the 5 th policy year and thereafter and consequently the policyholder will be entitled to receive the full fund value on such surrender.
The circular No.20/IRDA/Actl./ULIP/09-10 dated 22 nd July, 2009 shall be complied with by all insurance companies with the above modifications.
Time bound disposal of various categories of applications
Instruction No. 33, dated 20-8-2009
As was decided earlier during one of the review meeting taken by Commerce Secretary on 3rd June 2008 regarding functioning of the Special Economic Zones, ‘Time Schedule’, as per attached annexure, is hereby prescribed for disposal of different applications in the Special Economic Zones.
2. It is requested that the same be followed strictly while disposing of various applications received from units/developers.
Category of Application
Prescribed Time limit for disposal (in days)
Issue of LoA excepting cases requiring approval of BoA.
For approval of all these activities, along with initial issuance of LoA - 15
Annual permission for sub-contracting
Allotment of Importer-Exporter Code number
Allotment of land/industrial sheds in the special Economic Zone
Registration - cum- Membership Certificate
Small Scale Industries Registration
Registration with Central Pollution Control Board
Building approval plan
Sales Tex Registration
Approval from inspectorate of factories
Pollution control clearance, wherever required
Amendment of LoA
Acceptance of Bond cum LUT
Renewal of Bond cum LUT
Permission for broad banding / diversification
Permission for Merger of Units
Permission for enhancement of production capacity
Permission for debonding / exit
Eligibility certificate for employment visa for technicians
Issue of Identity Card
Renewal of Identity Card
Permission for disposal of scrap/waste
Permission for change in name
Inter Unit Transfer
Permission for re-import
Permission for re-export
Permission for replacement / repair of goods
Authorization of softex form
Issue of GSP Certificate
Notification No. 26/2009-Service Tax, dated 19-8-2009
In exercise of the powers conferred by clauses (A) and (B) of section 113 of the Finance Act, 2009 (33 of 2009), the Central Government hereby appoints the 1st day of September, 2009, as the date on which the provisions of the said Act shall come into force.
Export of services (Amendment) Rules, 2009- Amendment in rule 3
Notification No. 25/2009-Service Tax, dated 19-8-2009
In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Export of Services Rules, 2005, namely :–
1. 1. (1) These rules may be called the, Export of Services (Amendment) Rules, 2009.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Export of Services Rules, 2005, in rule 3, for the Explanation the following Explanation shall be substituted, namely:–
"Explanation.-For the purposes of this rule "India" includes the installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India.";
Amendment to SEBI (DIP) Guidelines, 2000 - Rights Issue Process/Procedure
Circular No. CFD/DIL/DIP/38/2009/08/20, dated 20-8-2009
1. In exercise of the powers conferred under Section 11 read with Section 11A of the Securities and Exchange Board of India Act, 1992, in order to simplify the rights issue process as well as to make it more efficient and effective, it has been decided to amend the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as “the SEBI (DIP) Guidelines”).
2. The full text of amendments is given in Annexure I and the brief of amendments are as under:
2.1 Rationalisation of rights issue disclosure requirements:
2.1.1 Rights issues are further issuances of capital made by listed entities to existing shareholders. These shareholders are generally in possession of basic information about the issuer company and are generally updated on major developments in the company on a continuous basis.
2.1.2 In order to encourage listed companies to look at rights issues as a viable form of capital raising by reducing the overall cost of such issuances and also to make the process of such issues faster, it has been decided to rationalise the disclosure requirements for rights issues.
2.2 Applications Supported by Blocked Amount (ASBA) in rights issues:
2.2.1 SEBI, vide circular dated September 25, 2008, had enabled the facility of applying in rights issue through ASBA on a pilot basis.
2.2.2 It has now been decided to make ASBA applicable to all rights issues. ASBA will co-exist with the current process, wherein cheque/demand draft is used as a mode of payment. Since the web enabled interface of stock exchanges is now operational for the purpose of acceptance of the rights issue applications, self certified syndicate banks shall upload the application data in to the aforesaid interface of stock exchanges.
2.2.3 All applicants who desire to apply through ASBA should hold shares of the issuer company in a depository account.
2.2.4 The applicants shall indicate either in (i) in Part A of the composite application form of rights issue or (ii) in the plain paper application, as to whether they desire to avail of the ASBA option.
2.2.5 The ASBA process, from the time of submission of application by the applicants till transfer of shares in the depository account of the investors, as specified for book built public issues, shall be followed in the case of rights issues also. The role and responsibilities of self certified syndicate banks, stock exchanges, registrars and merchant bankers, as enumerated in the ASBA process for book built public issues, shall be applicable mutatis mutandis.
2.3 Utilisation of issue proceeds after finalization of the basis of allotment in the issue:
2.3.1 Clause 8.19 of the SEBI (DIP) Guidelines provides that in a rights issue, the issuer may utilise the issue proceeds collected after satisfying the designated stock exchange that minimum 90% subscription is received. In a public issue, in terms of section 73 of the Companies Act, 1956, the issuer company can access the issue proceeds only after allotment and listing is completed.
2.3.2 SEBI has reduced the time period taken for finalization of basis of allotment in the rights issues to 15 days from the earlier period of 42 days from the date of closure of the issue. In view of this, it has been decided to amend clause 8.19 of the SEBI (DIP) Guidelines to provide that the issuer company can utilize the issue proceeds only after the basis of allotment is finalized.
2.4.1 This circular shall be applicable as follows:
a. Amendments in Annexure-1 pertaining to rationalised disclosures for Rights Issues shall be applicable for all rights issues where draft letters of offer are filed with SEBI on or after the date of this circular;
b. All other amendments in Annexure-1 shall be applicable to:
i. all rights issues where draft letters of offer are filed with SEBI on or after the date of this circular;
ii. all rights issues where draft letters of offer have been filed with SEBI but no observations has been issued on them by SEBI; and iii. all rights issues where SEBI has issued observations but where the letter of offer is yet to be filed with the designated stock exchanges.
3. All registered merchant bankers are advised to ensure compliance with this circular including the amendments contained in Annexure I of this circular.
4. This circular and the entire text of the SEBI (DIP) Guidelines, including the amendments contained in Annexure I of this circular, are available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Issues and Listing”.
Monday, August 17, 2009
Extension of time limit for filing ITR-V form
The Central Board of Direct Taxes had, vide circular No.3/2009 dated 21.05.2009, allowed assessees who file their income tax returns in electronic form without digital signature to submit their verified ITR-V form, within a period of 30 days, thereafter. The ITR-V form was required to be sent to Post Bag No.1, Electronic City Post Office, Bengaluru, Karnataka-560100, by ordinary Post.
Wednesday, August 12, 2009
Special Economic Zones (Third Amendment) Rules, 2009 - Amendment in Chapter II, III, IV and VIII
Notification No. G.S.R. 562(E), dated 3-8-2009
In exercise of the powers conferred by section 55 of the Special Economic Zone Act, 2005 (28 of 2005), the Central Government hereby makes the following rules further to amend the Special Economic Zones Rules, 2006, namely:—
1. (1) These rules may be called the Special Economic Zones (Third Amendment) Rules, 2009.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Special Economic Zones Rules, 2006, (hereinafter referred to as the principal rules), Chapter II in rule 11, after sub-rule (11), the following sub-rule shall be inserted, namely:—
"(12) The Central Government may lay down guidelines for development, operation and maintenance of Special Economic Zones."
3. In the principal rules, in Chapter III, in rule 17, after sub-rule (2), the following sub-rule shall be inserted, namely:—
"(2A) The Approval Committee shall meet once in every fortnight on a fixed pre-determined day."
4. In the principal rules in Chapter IV, in rule 26, after the second proviso, the following provisos shall be inserted, namely:—
"Provided also that the Foreign Trade Policy restrictions on State Trading Enterprises shall not apply to Special Economic Zone Manufacturing Units:
Provided also that export of iron-ore shall be subject to the conditions as imposed by the Central Government."
5. In the principal rules, in Chapter IV, in rule 27, in sub-rule (9), after the first proviso, the following proviso shall be inserted, namely :—
"Provided further that the goods which are sent outside the Special Economic Zone for repairs are returned to the Special Economic Zone, within 180 days from the date of removal from the Special Economic Zone, under intimation to the specified officer. In case goods are sent out for replacement then on replaced goods, no Duty Entitlement Passbook Scheme, duty drawback or other export incentives shall be claimed for this purpose."
6. In the principal rules, in Chapter IV, in rule 39 for sub-rule (4) the following shall be substituted, namely :—
"Where any goods procured from Domestic Tariff Area under claim of drawback or Duty Entitlement Passbook Scheme credit or under any export promotion scheme are destroyed due to natural calamities, the zone unit shall be required to pay drawback or Duty Entitlement Passbook Scheme credit or any other export incentive claimed on such goods:
Provided that in case where the Unit has procured the goods from Domestic Tariff Area against payment of foreign exchange, the Unit shall not be liable to pay back drawback or Duty Entitlement Passbook Scheme credit or any export incentive claimed on such goods."
7. In the principal rules, in Chapter IV, for rule 40, the following rule shall be substituted, namely :—
"The movement of goods to and from non-processing area to a processing area and from one processing area of Special Economic Zone to a different processing area of the same Special Economic Zone shall be under serially numbered challans pre-authenticated by the owner or Managing Director or working partner or the company secretary or by any person duly authorised in this behalf by the unit or developer, as the case may be, and the challans shall contain complete description of goods."
8. In the principal rules, in Chapter IV, in rule 46, in sub-rule (8), for the proviso the following proviso shall be substituted, namely:—
"Provided that the items not sold abroad may be re-imported within a period of three hundred and sixty five days from the date of their export."
9. In the principal rules, in Chapter VIII, in rule 70, in sub-rule (2), after the proviso, the following proviso shall be inserted, namely:—
"The identity card shall be valid up to a period of . five years and shall be issued, in the format given in Form 'K', to the entrepreneurs and regular employees of the Units :
Provided that when any employee who has been issued an identity card ceases to be in employment of the Unit or Developer, the said identity card shall be surrendered forthwith and shall be deemed to be invalid from such date:
Provided further that when the Unit ceases to hold a valid Letter of Approval, all identity cards issued to the Entrepreneurs and employees of such Unit shall be deemed to be invalid and shall be surrendered forthwith"
[F. NO. C.2/3/2008-SEZ]
Interpretative circular under regulation 5 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 - Applicability of provisions of regulation 11 (2) thereof, as amended on October 30, 2008
Circular No. CFD/DCR/TO/Cir-01/2009/06/08, dated 6-8-2009
1. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “SAST Regulations”) were amended by SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2008 on October 30, 2008, whereby inter alia second proviso to sub-regulation (2) of Regulation 111 was inserted.
2. Subject to the conditions as specified in this newly inserted proviso, an acquirer (together with persons acting in concert with him), holding fifty five per cent (55 %) or more but less than seventy five per cent (75 %) of the shares or voting rights in a target company, may acquire (either by himself or through or with persons acting in concert with him) additional shares or voting rights entitling him up to five per cent (5 %) voting rights in the target company without making a public announcement under the SAST Regulations.
3. SEBI has been receiving representations from market participants / listed companies with respect to the interpretation of the proviso inserted by the aforesaid amendment. After examining these representations, it is hereby clarified that –
a. The acquisition, within the limit of five per cent (5%) under the second proviso to sub-regulation (2) of regulation 11, may be made by an acquirer who, together with persons acting in concert with him, holds fifty five per cent (55 %) or more but less than seventy five per cent (75 %) of the shares or voting rights in the target company ;
b. The acquirer together with persons acting in concert with him, holding shares or voting rights as specified at (a) above, may acquire additional shares or voting rights upto a maximum of five per cent (5 %) voting rights in the target company in one or more tranches, without any restriction on the time-frame within which the same can be acquired;
c. The aforesaid acquisition of five per cent (5 %) shall be calculated by aggregating all purchases, without netting the sales.
d. Consequent to such acquisition, the percentage of shareholding / voting rights of the acquirer, together with persons acting in concert with him, in the target company, shall not increase beyond seventy five per cent (75 %). This limit is applicable irrespective of the level of minimum public shareholding required to be maintained by the target company in terms of clause 40A of the Listing Agreement.
4. This circular is issued under regulation 5 of the SAST Regulations, read with section 11 of the Securities and Exchange Board of India Act, 1992, for removal of difficulties in the interpretation of the second proviso to sub-regulation (2) of regulation 11 of the SAST Regulations.
Saturday, August 01, 2009
Service tax on commission paid to Managing Director/Directors by the company
Circular No. 115/09/2009-ST, dated 31-7-2009
Below mentioned issues have been referred to the Board seeking clarifications,-
(i) applicability of service tax under ‘Business Auxiliary service’ on commission paid to Managing Director / Directors (whole time, or Independent) by the company,
(ii) applicability of service tax on Independent Directors who are part of the Board of Directors under ‘Management Consultant service’.
2. Both the matters have been examined by the Board and the clarifications are as under, -
(i) Some Companies make payments to Managing Director/Directors (Whole-time or Independent), terming the same as ‘Commissions’. The said amount paid by a company to their Managing Director/Directors (Whole-time or Independent) even if termed as commission, is not the ‘commission’ that is within the scope of business auxiliary service and hence service tax would not be leviable on such amount.
(ii) The Managing Director / Directors (Whole-time or Independent) being part of Board of Directors perform management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. The payments made by Companies, to Directors cannot be termed as payments for providing management consultancy service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not chargeable to service tax under the category ‘Management Consultancy service’. However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become chargeable to service tax.
3. In view of the above, it is clarified that remunerations paid to Managing Director / Directors of companies whether whole-time or independent when being compensated for their performance as Managing Director/Directors would not be liable to service tax.
Pending issues may be resolved in line with the above.