LAW OF Taxation PDF

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MODEL ANSWERS TAXATION 1. Residential status of assessee under IT Act ? Income tax is imposed on the basis of duration of residence of assessee in India. Citizenship is not precondition for liability to Income Tax. Subject of IT is person, depending on his residence in India and not citizens. The ex...

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The authority granting a certificate of registration may, on application by the dealer to whom it has been granted, order the refund of any amount or part thereof deposited by the dealer by way of security if it is not required for the purposes of this Act.] Any person aggrieved by an order passed may, within thirty days of the service of the order on him, but after furnishing the security, prefer, in such form and manner as may be prescribed, an appeal against such order to such authority as may be prescribed: Provided that the appellate authority may, for sufficient cause, permit such person to present the appeal— (a) after the expiry of the said period of thirty days; or (b) without furnishing the whole or any part of such security.] (3-I) The procedure to be followed in hearing any appeal and the fees payable in respect of such appeals shall be such as may be prescribed.] The order passed by the appellate authority in any appeal shall be final.] A certificate of registration granted under this section may— be either on the application of the dealer to whom it has been granted or, where no such application has been made, after due notice to the dealer, be amended by the authority granting it if he is satisfied that by reason of the registered dealer having changed the name, place or nature of his business or the class or classes of goods in which he carries on business or for any other reason the certificate of registration granted to him requires to be amended; or be cancelled by the authority granting it where he is satisfied, after due notice to the dealer to whom it has been granted, that he has ceased to carry on business [or has ceased to exist or has failed without sufficient cause, to comply with an order provisions has failed to pay any tax or penalty payable under this Act], or in the case of a dealer registered has ceased to be liable to pay tax under the sales tax law of the appropriate State or for any other sufficient reason.] b.A registered dealer may apply in the prescribed manner not later than six months before the end of a year to the authority which granted his certificate of registration for the cancellation of such registration, and the authority shall, unless the dealer is liable to pay tax under this Act, cancel the registration accordingly, and where he does so, the cancellation shall take effect from the end of the year. ---------------------------------------------------------------------------------------------------------------------

6.

Salient features of Service Tax ?

Service tax is a tax levied by Central Government of India on services provided or to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any other person made so liable. It is an indirect tax wherein the service provider collects the tax on services from service receiver and pays the same to government of India. 1. Scope: It is leviable on taxable services ‘provided’ or ‘to be provided’ by a service provider. The services ‘to be provided’ in future are taxed only if payment in its respect is received in advance. Two separate persons required Payment to employees not covered: For charge of service tax, it is necessary that the service provider and service recipient should be two separate persons acting on ‘principal to principal basis’. Services provided by an employee to his employer are not covered service tax and, therefore, salaries or allowances paid to them cannot be charged to service tax. 2. Rate: It is leviable @ 12% of the value of taxable services. Education Cess @ 2% and Secondary and Higher Education Cess @ 1 % are chargeable on the amount of service tax, thus, making the effective rate of service tax at 12.36% of the value of taxable service. 3. Taxable services: Service tax is leviable only on the taxable services. Taxable services mean the services taxable under section 65(105) of the Finance Act, 1994. 4. Value: For the levy of the service tax, the value shall be computed in accordance with section 67 read with Service Tax (Determination of Value) Rules, 2006. 5. Free services not taxable : No service tax is leviable upon the services provided free of cost. 6. Payment of service tax : The person providing the service (i.e. the service provider) has to pay service tax in such manner and within such period as is prescribed in the Service Tax Rules, 1994. The service tax is to be paid only on the receipt of payment towards the value of taxable services. 7.

Procedures:

Provisions have

been made for registration,

assessment including

self

assessment, rectifications, revisions, appeals and penalties on the service provider. 8. CENVAT credit: The credit of service tax and excise duty across goods and services is allowable in accordance with the CENVAT Credit Rules, 2004. Accordingly, output service

provider (i.e. provider of any taxable service) can avail credit not only of the service tax paid on any input service consumed for rendering any output service but also of the excise duty paid on any inputs and capital goods used for rendering output service. CENVAT credit so availed can be utilized for payment of service tax on taxable output service. 9. Services provided by an unincorporated association/body to its members also taxable [Explanation to Sec. 65] : ‘Taxable service’ includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration. Hence, the services (falling under any category of taxable service) provided or to be provided by any unincorporated association/body to member thereof shall be liable to service tax. This provision is an exception to the ‘principle of mutuality’. 10. Performance of statutory activities/duties, not ’service’: An activity performed by a sovereign /public authority under provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such entities. 11. Import/Export of services: While import of services is chargeable to tax u/s 66A, the export of services has been made exempt from tax. Import/export provisions are discussed separately. --------------------------------------------------------------------------------------------------------------------7. Valuation of goods under Customs Act The rates of customs duties leviable on imported goods (& export items in certain cases) are either specific or on ad valorem basis or at times specific cum ad valorem. When customs duties are levied at ad valorem rates, i.e., depending upon its value, it becomes essential to lay down in the law itself the broad guidelines for such valuation to avoid arbitrariness and to ensure that there is uniformity in approach at different Customs formations. Section 14 of the Customs Act, 1962 lays down the basis for valuation of import & export goods in the country. Tariff Value: The Central Government has been empowered to fix values, under sub-section (2) of Section 14 of the Customs Act, 1962 for any product which are called Tariff Values. If tariff values are fixed for any goods, ad valorem duties are to be calculated with reference to such tariff values. The

tariff values may be fixed for any class of imported or export goods having regard to the trend of value of such or like goods and the same has to be notified in the official gazette. Recently tariff values have been fixed in respect of import of Crude Palm Oil, RBD Palm Oil, RBD Palmolein under Notification No.36/2001-CUS (N.T.), dated 3.8.2001 and for RBD Crude Palmolein under Notification No. 40/2001-CUS (N.T.) dated 28.08.2001. Valuation of Imported/Export Goods where no Tariff Values fixed: Section 2(41) of the Customs Act, 1962 defines ‘Value’ in relation to any goods to mean the value thereof determined in accordance with the provisions of sub-section (1) of Section 14 thereof. Sub-section (1) of Section 14 in turn states that when a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be: "the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale". As far as export goods are concerned, provisions of sub-section (1) of Section 14 provide a complete code of valuation by itself. On the other hand, for imported goods, as per sub-section (1A) of Section 14, the value is required to be determined in accordance with rules made in the Customs Valuation (Determination of Price of Imported Goods) Rules,. The provisions of sub-section (1) of Section 14 follow the provisions contained in Article VII of GATT. The Customs Valuation Rules, closely follow the WTO Customs Valuation Agreement to implement Article VII of GATT. The methods of valuation prescribed therein are of a hierarchical order. The importer is required to truthfully declare the value in the B/E and also provide a copy of the invoice and file a valuation declaration in the prescribed form to facilitate correct and expeditious determination of value for assessment purposes. Methods of Valuation:

According to the Customs Valuation Rules, 1988, the Customs Value should normally be the "Transaction Value", i.e., the price actually paid or payable after adjustment by Valuation Factors (see below) and subject to (a) Compliance with the Valuation Conditions (see below) and (b) Customs authorities being satisfied with the truth and accuracy of the Declared Value. Transaction Value: Rule 3(i) of the Customs Valuation Rules, 1988 states that the value of imported goods shall be the transaction value. Rule 4(i) thereof states that the transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9. The price actually paid or payable is the total payment made or to be made by the buyer to the seller or for the benefit of the seller for the imported goods. It includes all payments made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. If objective and quantifiable data do not exist with regard to the Valuation Factors, if the Valuation Conditions are not fulfilled, or if Customs authorities have doubts concerning the truth or accuracy of the declared value in terms of Rule 10A of the Customs Valuation Rules, valuation has to be carried out by another method in the following hierarchical order: 

Comparative Value Method – Comparison with Transaction Value of Identical goods (Rule 5);

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Comparative Value Method – Comparison with Transaction Value of Similar goods (Rule 6);

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Deductive Value Method – Based on sale price in the importing country (Rule 7); Computed Value Method – Based on cost of materials, fabrication and profit in the country of production (Rule 7A);

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Fallback Method – Based on previous methods with greater flexibility (Rule 8).

VALUATION FACTORS:

Valuation Factors are the various elements which must be taken into account by addition (Dutiable factors) to the extent these are shown to be not already included in the price actually paid or payable or deduction (Non-dutiable factors) from the total price incurred in determining the Customs Value, for assessment purposes. Dutiable Factors: 

Commissions and brokerage, except buying commissions;

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The cost of containers which are treated as being one for Customs purposes with the goods in question;

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The cost of packing whether for labour or materials;

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The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable:-

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material, components, parts and similar items incorporated in the imported goods;tools, dies, moulds and similar items

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engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of imported goods;

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Royalties and license fees related to goods being valued that the buyer must pay either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;

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The value of any part of the proceeds of any subsequent resale, disposal or use of the goods that accrues directly or indirectly to the seller;

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Advance payments;

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Freight charges up to the place of importation;

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Loading, unloading and handling charges associated with transporting the goods;

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Insurance.

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Non-dutiable Factors:

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The following charges provided they are separately declared in the commercial invoice:-

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Interest charges for deferred payment;

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Post-importation charges (e.g. inland transportation charges, installation or erection charges, etc.);

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Duties and taxes payable in the importing country.

Cases where transaction value may be rejected: The transaction value may not be accepted for customs valuation in the following categories of cases as provided in Rule 4(2):(a) If there are restrictions on use or disposition of the goods by the buyer. However, the transaction value not to be rejected on this ground if restrictions: (i) are imposed by law or public authorities in India; (ii) limit geographical area of resale; (iii) do not affect the value of the goods substantially. (b) If the sale or price is subject to a Condition or consideration for which a Value cannot be determined. However, conditions or considerations relating to production or marketing of the goods shall not result in rejection. (c) If part of the proceeds of the subsequent resale, disposal or use of the goods accrues to the

seller, unless an adjustment can be made as per valuation factors. (d) Buyer and seller are related; unless it is established by the importer that – (i) The relationship has not influenced the price; (ii) The importer demonstrates that the price closely approximates one of the test values. The transaction price declared can also be rejected in terms of Rule 10A, when the proper customs officer has reasons to doubt the truth or accuracy of the value declared & if even after furnishing of further information/documents or other evidence produced, proper officer is not satisfied & has reasonable doubts about the value declared. Rights of appeal: The principles of natural justice are also required to be followed in valuation matters. When the Customs authorities do not accept the declared value and re-determine the Customs value, the importer or his representative is required to be given a written notice normally and even a personal hearing. An adjudication order giving in detail the basis of determination of the value can be obtained if the importer is aggrieved with the re-determination of value. Under the Customs Act, 1962, an importer can appeal against a decision on valuation to the Commissioner (Appeal) in the first instance. A second appeal lies to the Tribunal consisting of administrative and judicial members. A third appeal lies to the Supreme Court of India. The importer is informed regarding his rights of appeal by each of the adjudicating and appellate authorities. Provisional clearance of imported goods: 15. Section 18 of the Customs Act, 1962 and Customs (provisional duty assessment regulation), 1963 [M.F. (D.R.) Notification No.181-Cus., dated 13th July, 1963], allows an importer to provisionally clear the imported goods from Customs pending final determination of value by giving a guarantee in the form of surety, security deposit or bank guarantee. Valuation of Imported goods in case of related party transaction:

Sub-rule 2 of Rule 2 of Customs Valuation Rules, 1988 has enumerated the persons who shall be deemed to be "related". Sub-Rule 3 of Rule 4 provides that where buyer and seller are related, the transaction value can be accepted if the examination of circumstances of the sale of the imported goods indicate that the relationship did not influence the price or if the importer demonstrates that the declared value of the goods being valued, closely approximately to one of the test values namely transaction value of identical/similar goods, deductive value for identical/similar goods or computed value for identical/similar goods ascertained at or about the same time. The related party transactions are examined by Special Valuation Branches located at four major Custom Houses namely Mumbai, Calcutta, Chennai & Delhi. The guidelines for examination of the circumstances of the sale of the imported goods in case of related parties have been laid down vide Ministry’s Circular No.11/2001-Cus., dated 23.2.2001. The circular provides a questionnaire to be filed up and a list of documents to be furnished and the same could be studied for ensuring timely action by concerned importers so that finalisation of provisional assessments is expedited.

8.Short note a. Wealth tax The tax levied by the government on a person’s personal net wealth or capital is called wealth tax. Net wealth is the net value of a person’s assets. The Wealth Tax Act 1957 lays down the rules governing wealth tax in India. It applies to three kinds of assessees viz. Individuals, HUFs and companies. Personal assets refer to an assessee’s land (urban), house, car, boats and yachts, aircrafts, precious metals in various forms like jewellery, furniture etc. The government abolished wealth tax as announced in the budget 2015. In its stead, the government decided to increase the surcharge levied on the ‘super rich’ class by 2% to 12%. Super rich are persons with incomes of Rs.1 crore or higher and companies that earn Rs.10 crores or higher. The abolition was a move to do away with high costs of collection and also to

simplify the existing tax structure thereby discouraging tax evasion. It was a form of direct tax payable by individuals/entities on their wealth. Wealth tax has been abolished (w.e.f April 1, 2016 for wealth held as on March 31, 2016) by the central government, as announced by the finance minister, in his budget speech, in March, this year. Super rich taxpayers, therefore, need not file their wealth returns for the financial year 2015-16 Some of the main objectives cited by experts behind the wealth tax abolished are 

Focus on more governance and less government: Finance minister, during his budget speech, cited the lack of ease of doing business as one of the reasons for abolishing the wealth tax. Also, by abolishing wealth tax, government has reduced the scope of some taxpayers taking undue advantage of the loopholes in the wealth tax act.

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Simplification of tax procedures: According to experts, Indian tax laws are, by and large, very complex and therefore, prone to litigations. Government wants to simplify procedures for easier tracking and enhance transparency.

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Incurs high collection costs but provides low yield: In a country with inc...