T & D CONCLAVE

CRITICAL TAX ISSUES

Level Playing field for domestic manufacturers

The cost disadvantage 14% Sales tax/ VAT, Entry tax/ Octroi, Higher financing cost; Low customs duty NIL (for Mega Projects) and 5% for (Project Import) lack of quality infrastructure dependence on foreign sources for critical raw material and components. (CoS) in July 2010 suggested similar duty structure as applicable for nonmega projects be made applicable to Mega/Ultra Mega Power projects. Arun Maira Committee recommended 10% BCD, 4% SAD

Suggestion:
Customs Duty @ 10%, CVD @ NIL SAD @ 4% Simultaneously Excise exemption Suitable measures like price preference to domestic manufacturers under the Mega Power Policy, for cost-plus as well as tariff based power projects.

Interest on differential Excise Duty - Supplementary Invoices

Delay due to delay in publishing applicable indices In some cases, even prices published by foreign agencies like LME Certain Customers insists on prior approval of PV factors before raising invoices SC Judgment in SKF case
Suggestion:
Rule 7(4) may be amended to read as THE MONTH IN WHICH Duty is determined instead of THE MONTH FOR WHICH

Exemption to steel & cement used in Mega/Ultra Mega Power Projects

Exemption to goods falling under CHAPTER 98.01 (S. No 400 of Customs Notification No 21/2002) Hence no exemption to steel and cement.
Suggestion:

Should be amended to read as goods falling under any chapter. (The language used in notification 06/2006 CE at S.No 91 is any chapter)

Supply to Solar Power Projects

The manufacturer of such goods to furnish an undertaking to Excise authorities that (Notification 15/2010-CE dated 27.02.2010 (a) The said goods shall be used only in the said project or facility and not for any other use; and (b) In the event of failure to observe conditions above, the manufacturer shall pay the duty no direct control of the manufacturer in execution of projects & uses of material. Further, in case of any failure in fulfillment of the above conditions, supplier liable for penalties. Manufacturer to pay 5% towards Input credit availed.

Suggestion:
Purchaser being the beneficiary of duty exemption, the liability should be on him to use it in as per the requirement of the statutory condition. The rule (6) of Cenvat credit rules 2004 should be amended suitably so that no Cenvat reversal is required for these projects

Inverted Duty Structure on Insulators Basic duty on all Insulators (chapter 8546 and 8547) is 7.5% Major imported components like metal parts, hardwares etc. attract 10% basic duty The metal parts consist of MCI / SGI casting component (chapter 7325)
Suggestion:

Customs Duty on inputs under Chapter 7325 used for manufacture of Insulators be reduced to 5%

Service Tax on Power Projects

Infrastructure projects like roads, airports, railways, transport terminals, bridges, tunnels and dams are exempt from levy of service tax Suggestion:

Similar exemption be granted to service provided for construction of power projects

CST/VAT exemption to Mega POWER PROJECTS

Imports exempt from CST/VAT Domestic supplies attract CST @ 2% and VAT from 5% to 14.5%. State Governments advised to exempt supplies to Mega Power Plants from Sales Tax and other local levies.( OM issued by the MoP - F. No. A-108/98-IPC-I dated 31.05.1999-Clause 2), Accordingly, the Sales Tax, Local Levies and Octroi on domestically manufactured capital goods, not to be considered for evaluation of bids, irrespective of the fact whether the State Governments provide exemptions or not. However, many customers not accepting this de-loading principle (regarding Sales Tax, Local Levies & Octroi) and evaluate bids taking these levies, including CST, into account. Suggestion: Mega /Ultra Mega Power Projects should be mandatorily exempted from CST/ VAT. CST exemption should be provided in the CST Act itself. Alternately, CST/VAT component, should be excluded for the purpose of bid evaluation.

EXEMPTION FROM C FORMS

Previously States had powers to exempt specified sales/class of sales/class of dealers from submitting C Form before amendment to CST Act in May 2002. States using these powers exempted certain class of dealers from specified sales from C forms submission Suggestion: The facility of exempting submission of C forms may be restored back to the respective state governments as before amendment in 2002

Supply of goods to SEZs - BOIs As per existing provisions: Exemption for SEZs from CST for manufactured goods against Form I However no provision, not even machinery provision, for exemption from CST for supplies effected from vendors directly to SEZs. However exemption provision exist for vendor supplies against physical exports Customers insisting on modalities not prescribed under CST Law. CST Act needs amendment

Provisions of CST Act Section 8. Rates of tax on sales in the course of inter-State trade or commerce. (6) Notwithstanding anything contained in this section, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of inter-State trade or commerce, to a registered dealer for the purpose of manufacture, production, processing, assembling, repairing, reconditioning, reengineering, packaging or for use as trading or packing material or packing accessories in an unit located in any special economic zone, if such registered dealer has been authorized to establish such unit by the authority specified by the Central Government in this behalf.

Provision of CST Act Section 8. (8) The provisions of sub-section (6) and (7) shall not apply to any sale of goods made in the course of inter-State trade or commerce unless the dealer selling such goods furnishes to the authority referred to in sub-section (6) a declaration in the prescribed manner on the prescribed form obtained from the authority referred to in subsection (5), duly filled in and signed by the registered dealer to whom such goods are sold.

Summary of main/Charging section

What is exempt under sub-section (6) is the sale by a dealer to a registered dealer for setting up a unit located in any Special Economic Zone or for development, operation and maintenance of Special Economic Zone by the developer of Special Economic Zone.

Requirements to avail exemption under CST Act Exemption can be claimed only by the dealer selling the goods who has to furnish to his tax authority Form-I obtained from the specified authority which should be duly filled in and signed by the registered dealer (SEZ unit) to whom such goods are sold. In those cases where there are two sales, as in the case of vendor supplies, it cannot be said that the vendors of bought out items had sold the goods to a registered dealer in the Special Economic Zone.

SEZ provisions

Section 26 (1). Exemptions, drawbacks and concessions to every Developer and entrepreneur. (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.

SEZ provisions
Rule 10. Permission for procurement of items. Provided further that exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-developer, as the case may be, shall also be available to the contractors including sub-contractors appointed by such Developer or Co-developer, and all the documents in such cases shall bear the name of the Developer or Co-developer along with the contractor or sub-contractor and these shall be filed jointly in the name of the Developer or Co-developer and the contractor or subcontractor, as the case may be.

Can Rules override the provisions of Act?

Settled position of law is that a rule cannot override the substantive
provisions of an enactment. Since, SEZ Act does not provide for exemption to subcontractor, can Rules expand the scope of exemption? The CST Act dealing with inter-State sales, does not provide for such exemption for supplies made by the sub-contractors/sub vendors similar to physical imports [Sec 5(3)].

The authorities administering the CST Act would be bound by the provisions of the CST Act and would not go beyond what is provided in the said Act to grant exemption to sub-contractors.

Can Rules override the provisions of Act? Some of the judgments

The basis of the statutory power conferred by the Statute cannot be transgressed by the rule making authority. The rule making authority has no plenary power. It has to act within the limits of the power granted to it (Bimal Chandra Banerjee v. State of Madhya Pradesh AIR 1971 SC 517) The Rules, therefore, cannot be so framed which do not carry out the purpose of the chapter and cannot be in conflict with the same (Laghu Udyog Bharti v. UOI 2006 (2) STR 276 SC) Delegated legislation must be read in the context of the primary/legislative Act and not the vice-versa - In case of a conflict between a substantive provision of an Act and delegated legislation, the former shall prevail (ITW Signode India Ltd. v. Collector of central excise 2003 (158) E.L.T. 403 (S.C.)
Other similar judgments: Chief Commissioner v. Kishan Goyal (1982) 50 STC 1 (Del) (F.B.);
State of Tamil Nadu v. E.I.D. Parry (India) (1998) 109 STC 146 at 165 (Mad.); Rallis India Ltd. v. State of A.P. (1980) 45 STC 456 (S.C.); The S.T.O. v. H. Farid Ahmed & Sons (1975) 36 STC 567 (S.C.); Sales Tax Officer v. Abraham (1967) 20 STC 367 (S.C.)

SEZ provisions Section 51. Act to have overriding effect.

The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

Can exemption be assumed under CST Act?

When a language is plain and unambiguous and admits of only one meaning no question of construction of a statute arises, for the Act speaks for itself. When the words of a statute are clear, plain or unambiguous, i.e., they are reasonably susceptible to only one meaning, courts are bound to give effect to that meaning irrespective of consequences. If the words used are capable of more than one construction, only then it would be open to the courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. The spirit of the law may well be an elusive and unsafe guide and the supposed spirit can certainly be not given effect to in opposition to the plain language of the sections of the Act - Orient Paper & Industries Ltd. Vs. State of M.P. and others (and a transfer petition) [2006] 148 STC 0649 [SUPREME COURT OF INDIA]

Can exemption be assumed under CST Act?

"The Act in question is a taxing statute and, therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise." -Vikrant Tyres Ltd. Vs. First Income-tax Officer, Mysore [2002] 127 STC 0005 [SUPREME COURT] "In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency" - Commissioner of Sales Tax, U.P. Vs Modi Sugar Mills Ltd.[1961] 012 STC 0182 [SUPREME COURT OF INDIA]

What about Transit Sale ?

Section 6 (2)- No such subsequent sale exempt unless selling dealer furnishes to his tax authorities - Certificate in E1/EII [Rule 12 (4)] - Declaration in Form C [Rule 12 (1)] Can SEZ unit issue Form C Yes as per Clarification by Maharashtra commissioner to L&T dated 9th June 2008. - Further such SEZ is registered under CST/VAT Acts of respective States

THANK YOU

Suraj Prakash AGM (Fin Ind. Taxation) BHEL, New Delhi

Member IEEMA Economic & Taxation Committee