Double the compensationfor GST- Claim States

States are demanding that Central government double 

the compensation proposed by the Finance Commission 

to implement the already delayed Goods and Services 

Tax as the “Grand Bargain’’ is leading to stiffer demands.

The Empowered Committee of State Finance Ministers is set to demand a compensation of Rs 1-lakh crore to adopt the GST, which is seen as the biggest ever tax reform in the nation which may also lead to a fall in revenues for some states.

The committee will take up the issue with the Finance Minister Mr Pranab Mukherjee in early April, one of the members of the committee said.

The government has been negotiating with the states to implement the GST as it attempts to do away with the anomalies prevailing in the current structure where goods and various services are taxed more than once by state and central government agencies. To avoid the “tax-on-tax’’, states are seeking more funds from the central government as the implementation may lead to lower tax revenues for them. The tax which was supposed to take effect April, 2010, is delayed by a year due to disagreements.

The central government had accepted the 13th Finance Commission recommendations on revenue sharing with states, which the states said “ignored’’ their demands. It suggested paying of Rs 50,000 crores to states to agree for GST. The implementation of the tax requires co-operation from states as it involves amending laws.

The Committee will also ask the finance minister to change the amortisation schedule of the compensation, the person said. The April-meeting will also be the first one with Mr Mukherjee after the commission report.

“Some states have raised fresh demands for a higher compensation. Accordingly, we are planning to make a case for that,” Asim Dasgupta, the chairman of the Empowered Committee of the State Finance Ministers told recently. The Committee had earlier sought Rs 80,000 crores.

He had said the Commission’s suggestion to peg compensation at Rs 50,000 crore “was largely insufficient”.

Mr Dasgupta, who is also West Bengal’s finance minister, believes that bulk of the compensation should be available to the state governments in the first two years of the proposed GST regime instead of equated annual payment over five years.

“We are requesting disbursement of a significant chunk of the compensation in the first couple of years since that is the time when the impact is felt the most,’’ he had said.

http://businessfinanceindia.blogspot.com/

Tremendous relief to the Indian service exporters.

 

Budget 2010 has brought tremendous relief to the Indian service exporters. Various positive amendments have been introduced in the Budget 2010, which should make exporters’ lives a lot easier, at least on the service tax front.

The primary reason is the simplification of the Export of Service Rules (Export Rules). The Export Rules prescribe the conditions to determine when a service qualifies as exports. When the Export Rules were initially introduced in March 2005, they provided for two conditions to determine whether a service qualifies as exports.

The first condition was that the service should be in relation to an immovable property located outside India; or the service should be performed fully or partly outside India; or the service recipient should be located outside India. Of these, the condition which applied to a particular service was specified in the Export Rules. The second condition was that the consideration for the service should be received in convertible foreign currency.

However, in April 2006, the Export Rules were amended to provide an additional condition for a service to qualify as exports — that the service should be ‘delivered and used outside India’. What constituted ‘delivered and used outside India’ has been a matter of considerable litigation. In the context of services, which are inherently intangible in nature there was complete lack of clarity on the meaning of these terms.

In order to simplify the Export Rules, the condition of ‘service delivered outside India’ was replaced with the condition of ‘service provided from India’ in March 2007. While this partially reduced the confusion, litigation regarding the term ‘use of service outside India’ continued. In order to resolve this, the Central Board of Excise and Customs (CBEC) by a circular issued in February 2009, clarified that the meaning of the term ‘used outside India’ should be understood in the context of the characteristic of the particular category under theExport Rules in which that service falls. 

By this interpretation, given that the term ‘use’ has to be interpreted in light of the other conditions prescribed for a service to qualify as ‘exports’, the condition of ‘use outside India’ became redundant. Though, it seemed that theexport circular would bring some hope to the Indian service exporter, it did not last long, since the Delhi High Court rejected a stay application filed by Microsoft in this regard.

With the deletion of the conditions of ‘provided from India’ and ‘used outside India’ from the Export Rules, the finance minister has sought to address all controversy arising in this regard. This amendment in the Export Rules is expected to minimise litigation on the aspect whether a service qualifies as exports. Hence, this is an extremely welcome move for service exporters from India.

The second reason for the cheer is that Budget 2010 has also sought to simplify the procedure for verification and grant of export refunds. The service tax legislation provides for refund of service tax paid on input services used in relation to export of services.

However, till date minimal service tax refunds have been granted by the service tax authorities and typically refund claims are rejected on the basis of a very technical interpretation that the input services are not ‘used in’ export of services.

This basis of rejection has been sought to be addressed with the Budget 2010, which provides that in order to qualify for a refund, it is not essential that the input service should be ‘used in’ export of service, but it is sufficient if the input service is ‘used for’ export of service. This technical amendment has been made on a retrospective basis and is a welcome step in resolving past disputes and in minimising disputes for future refund claims.

The third reason is that Budget 2010 has sought to amend the procedure to expedite processing of refund claims, which has been a significant pain area forthe service exporters. In the past, for processing of the refund claims the service tax authorities seek to verify all input services, that have been included in the refund claim. In most cases such verification can take weeks for a single monthly refund claim of a large service exporter. In order to expedite the processing of refund claims and avoid the detailed verification of the refund claims, it has been provided that a declaration is required to be filed by the assessee with the jurisdictional authorities, duly certified by the statutory/ tax auditor of the exporter. By this amendment a recent clarification issued by the CBEC, has been introduced in the legislation itself.

This step should aid in processing of future refund claims on an expedited basis.

Overall the Budget 2010 has provided enough reasons for the Indian service exporter to cheer. The only hope is that these will be implemented in spirit by the authorities at the ground level.

http://businessfinanceindia.blogspot.com/

GST - No clear picture till dadate

For everyone who expected Budget 2010 to lay out the roadmap for goods and services tax (GST) rollout, there was much disappointment. Not only did the Finance Minister Pranab Mukherjee sound cautiously optimistic about April 2011 rollout, there was very little in form of explicit steps in that direction other than alignment of rates for goods and ces as well as expansion of the ambit of service tax.

It can be argued that if the government was serious about April 2011 rollout of GST, it should have introduced a comprehensive list of services for taxation, rather than continuing with a piece-meal approach of adding a few more services to the list like the previous years.

A comprehensive list of services is critical for implementation of GST. It can also be argued that when GST is at the threshold, government should not have tinkered with the rate or given more exemptions. The changes to levy of central excise are seen reminiscent of the pre-liberalisation era by some economists — when government acceded to demands of various business lobbies.

But everything is not as simple as it appears. Revenue was a major consideration this year, and so it was necessary to raise rates. The increase in excise rate and expansion of service tax list, together with improved buoyancy, will yield the government additional revenues of Rs 40,000 crore over revised estimates.

A major criticism of the budget is the number of exemption that has been given — leading many to believe that distortions have increased. But therevenue department had its reason for this: exemptions in many of these cases will actually be revenue positive for the government for it would serve to curb fake claims by manufacturers. 

A case in example is mentha products, where the Central Board of Excise and Customs (CBEC) found manufacturers in National Capital Region claiming refund of taxes for goods supposedly sent to tax free zones such as Jammu & Kashmir. In reality, there would be no such transfers or it may be far too small.

Revenue department’s objective of expanding the list of taxable services was to prepare people for a scenario when most services would be taxable. For instance, if India were to adopt international definition, then all economic activity that is not supply of goods would amount to supply of service, and most of them should be taxable.

The question that arises then is why did the government not opt for a comprehensive list of services for taxation. Finance minister stopped short of explaining why he did not exercise that option. The reason, it emerges, is that there is no consensus within therevenue department on whether it should opt for a negative or a positive comprehensive list. 

Many countries prefer a negative list for ease of administration but both kind of lists have their merits and problems. Opting for positive list would require the tax authorities to create an exhaustive list to ensure all services that need to be taxed are included in a code with appropriate description akin to harmonised system of nomenclature for goods. The trouble with positive lists is that they can give rise to disputes between tax authorities and service providers.

In the case of a negative list, the revenue department can say all services other than the exempt ones would be subject to tax. The trouble with a negative list is that governments may overlook some sensitive services that need to be exempted. In any case, both kind of lists need to be updated on a regular basis, the positive list more frequently as new services emerge.

Extending the scope of service tax on real estate and renting, CBEC insists, was again a measured move towards GST — in the medium-term the government expects to replace most taxes on real estate transactions with GST, as recommended by the Thirteenth Finance Commission. Such move is also necessary to enable builders can claim credit on taxes paid on inputs such as cement and steel.

So where does the plan to migrate to GST stand? The Centre and the empowered committee of state finance ministers continue to be at loggerheads over several issues particularly the threshold for Central and State GST.

The empowered committee wants the threshold at the Centre for goods to continue at Rs 1.5 crore and for services at a suitable high level (meaning higher than the prevalent Rs 10 lakh), while thethreshold at the states is to be Rs 10 lakh. This is unacceptable to the Centre. It wants a common threshold of Rs 10 lakh for both goods and services at both the central and state level to enable a suitable low revenue neutral rate of tax. It argues that small businesses will prefer to pay GST rather than opt for compounding schemes to allow their customers (B2B transactions) to claim for taxes paid on inputs.

What is however reassuring is that there is a sense of urgency at the Centre to rollout GST by April 2011 — its primary concern being to ensure the deal is sewn up before West Bengal Assembly elections. This is because Asim Dasgupta is seen as the man who can bring states on board for GST rollout. There is now no certainty that the Left will formthe government once again, and no other state finance minister inspires the same level of confidence as Mr Dasgupta. 

http://businessfinanceindia.blogspot.com/

Committee for Vanishing Companies

The Government has informed Lok Sabha that a 

Coordination and Monitoring Committee (CMC), 

co- chaired by Secretary, Ministry of Corporate 

Affairs and Chairman, Securities and Exchange Board of India (SEBI) 

has been set up to look into issues relating to companies that had come 

out with public issues and vanished and to monitor the progress 

of action taken against such vanishing companies and their promoters. 

Specific criteria have been adopted by CMC for 

identification of such vanishing companies.

In reply to a question Shri Salman Khirshid, Minister for

Corporate Affairs, informed the House that out of the 

companies that came out with Initial Public Offer (IPO) d

uring 1992 to 2005, a total of 238 companies were identified 

as vanishing companies.

With the continuous efforts of the Ministry/ CMC, 

117 companies have been traced back, resulting in the

number of vanishing companies being reduced to 121. 

Prosecutions have been filed against 112 vanishing 

companies and their promoters/directors under 

various provisions of the Companies Act, 1956 and 

First Information Reports (FIRs) have also been filed 

against Promoters/ Directors of 112 vanishing companies 

under Indian Penal Code (IPC). 35 directors were 

arrested and later released on bail. 

The House was informed that the field offices are pursuing

the prosecution cases in the respective courts.

IT-Refund-49lakhs pending

Mar 10, 2010

The government today said around 

49 lakh cases of income tax refunds are

pending with the revenue department.



“Total number of pending refund returns (up to
January 2010 is 49 lakh. The statutory time limit
to process the return and issue refund in financial
year 2009-10 is March, 31, 2011,” minister of state
for finance SS Palanimanickam informed the
Rajya Sabha in a written reply.

Normally after receipt of returns, processing of returns
and issuance of refund is completed in due course,
he said, addding however, difficulties are encountered in
some cases due to various reasons like wrong PAN,
illegible recording of address, incorrect particulars about
bank account etc.

Pointing out that processing of refund is a continuous
process, he said, the returns received during 2008-09
would be processed by March 31, 2010.