Postal Registration No.THC/05/2014-2016 Salute to …cosia.org.in/pdfs/tisa/2014-08-tisa.pdfPostal...

Postal Registration No.THC/05/2014-2016Volume No.V.Issue No.VIII Dated 07.08.2014

5, U.K. Industrial Est, Behind Durian, 2nd Pokhran Road, Thane

Salute to Engineers & Indian Railway

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2 (7th Aug.‘14) cosia.org.in

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Union Budget Interactive Session

The first Budget of Modi Government was presented by Hon’ble Finance Minister Shri. Arun Jaitley on 10th July 2014 . An Interactive Session on this subject was arranged by COSIA & TSSIA jointly. Shri Sandeep Parikh, Vice President of TSSIA welcomed the audience and speakers on the occasion. Dr. Chandrahas Deshpande, Eminent Economist, opined that the Budget Indicates the line of open policy of the new Government. According to him, the said budget was a trailer as it is actually for next half year. The said budget provides for more participation of private sector in infrastructure, he added. Shri. Sanjay Panse, Financial Expert, explained the announcements made for the MSME sector . He particularly pointed out that the provision of venture fund for the new entrepreneur is welcome move. He appealed to convert the business in the corporate sector in order to get more benefits and grow. Shri. Ravi Mulchandani, C.A., explained the various amendments proposed in the Income Tax Act .

Shri. Sanjay Dwivedi, Advocate , explained the various amendments in Central Excise and Service Tax.

At the end the Shri. P.S Agwan Hon. Gen. Secretary of COSIA proposed a vote of thanks.

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1. International Background of Evaluation Revaluation of Tiny & Micro Sector. We are passing through a very complex and uncertain situation with regard to our economical growth and for the betterment of our generation. At a time when a new economic and social order is taking shape throughout the world, our country also cannot ignore this situation. We do not have the desired skills and necessary guidance. Our educational system is also inadequate. We have limited capitals and other resources for the proper growth of our production units. History also stands in our way and we have yet to develop the culture of entrepreneurial ‐ ship. • Pressure of the World Organization In such a situation, we have to try best available ways for Nation Building and to create a most respectable status for our country in the world. Efforts are made by developing countries not to provide proper opportunities to under developed Nation their respective right to grow and flourish under one pretext or the other. They have created continuous hurdles in their growth and restrained their freedom to grow fast. International Organization like W.T.O , IMF, WORLD BANK etc. are few such organization which have always been able to create better atmosphere for developed countries and declined the scope of growth of under developed and developing countries . • Need to eliminate disparities in the Society. It will be in the proper context to recall that the anarchist who shot Archduke Franz Ferdinand of Austria and his wife on a visit to the Bosnian Capital, Sarajevo, on 28 June 1914 may have thought he was simply striking a blow in a regional struggle over power and autonomy. That would indeed have been a reasonable interpretation at the time. Only later it was possible to interpret this event in a rather different context that of the struggle between old empires and new that generated two world wars during the ensuing four decades. The narration is only to appraise that the society will not like disparities to prevail longer and

social approach has to be changed to help those who can shape their better living standards and growth. 2) Planned efforts for Development of SSI Sector. Gandhi Ji was of the firm opinion that National economy can only be shaped with dignity and on fundamental strength by developing small units and Village Enterprises. The young generation can be persuaded and attracted to start their own small manufacturing enterprise to enhance their self ‐ respect and living standard. He was of the opinion that it will help to restructure the new social order and respectable society and develop awareness among masses to be partner of National dignity & economic well‐being. Some 422

Industrial Estates in different districts in the Country were established for multi products. They had a great start and an excellent performance in early years. Respective agencies for assistance to SSI units were established. Slowly and slowly all the support system started that time but subsequently lost their relevance and importance.

3) Conspiracy to eliminate Tiny Sector Uruguay Round gave birth to WTO (World Trade Organization) and it simultaneously defined REFORM as takeover of the economic asset of a country by more powerful one. In fact, the WTO gave to itself powers, which had always been in the realm of Sovereign States with support from the highly developed industrial countries, the multinationals got into third act to undermine the Small Scale and Tiny Industries, which have great potential for job creation and speedy growth of our economy.

So with agriculture, the WTO came down heavily on countries with small farms if they choose to provide subsidy to the farmers. The massive subsidies the US gave to its farmers to enable them dump their produce did not bother it.

4) Russian President’s views for due support to weaker section We cannot ignore the warning of Russian President

Action Plan for growth of Tiny & Micro Enterprises By B.L. Beheti ‐ Secretary General , Indian Federation of Tiny Enterprises

Article Industry & Business

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Vladimir Putin on Sunday the 9th June 2007, who called for practical steps to redraw the world economic order to reflect the growing role of fast developing and emerging nations. He told an economic forum in St. Petersburg that many Global trade and financial institutions tailored to meet the interest of a few key economics. He said it will not be effective and suggested for a regional groupings as an alternative. He told the gathering of foreign officials and top executives that 60% of the world GDP was produced outside the G7 that comprises US, France, Germany, Britain, Japan, Italy & Canada. Mr. Putin further warned that interest of stable economic development demand the creation of a new architecture of internationals economics relations based on trust and mutually beneficial integration. Mr. Putin has pledged to stop the G8 from turning into club of “fat cats” and expresses his anxiety that principle international investment was not applied fairly in practice. 5) Importance of Tiny units in whole world. In a report , the World Bank have admitted that in most developing economics the overall trade & industrial policy framework tends to discriminate in favour of larger firms. Tiny & Micro Enterprises have higher efficiency and superior ability in serving particular market. It is stated that in the Republic of Korea for example small firms employing fewer than 50 workers were the most efficient. In a study of the Sierra Leone revealed that small firms were consistently more efficient than larger firms were. 6) Indian situation need Economical Agenda as per its necessity. In spite of the facts developed nations of the world including Japan. Taiwan and many ore believe in replacement of labour by capital and elimination of manual operation by automated operation. This is advantageous for developed countries with problem of labour shortage, but we cannot be persuaded by this approach. We have unemployed and unused force in such a magnitude that we have to be honest to provide them job opportunities in production for national stability.

A few years back one of our Defence Minister visited china and asked Prime Minster of China, Wen Jia Bao of the challenges before his Government. His response was first, the colossal unemployment that had to be tackled.

Second vast regional disparities to be overcome and third farmers and other rural masses who were still to be touched by development had to be taken care of. He also said that each of these is a big challenge and if not overcome any of them could create problems , which

could have serious consequences to the Nations stability. 7) A new approach for development of Tiny/Micro Enterprise This is not easy to overcome the problem, constraint and hurdles to uplift the economy and help the masses to achieve their aspirations in a nations where we suffer from a dire shortage of Officers and

delivery staff (Police, Judges, Teachers, Paramedics, Doctors and Maintenance staff) combined with a vast access of clerks, messengers and chaprasis. These class III & IV workers as they are called account for over 90 %. For enforcement of contract, which is fundamental to business. India ranks 173. Enforcement requires 56 procedurals and 1420 days in India. The truth is that India has far more red tape effective tax is an astonishing 81% of gross profit in India. Business in India makes 56 payments; the effective tax is an astonishing 81% of gross profit in India. The truth is that India has far more red tape then other countries; red tape leads to corruption and distorts people character. According to the World Bank’s ‘Doing Business ‘database, it takes 89 days to start a small business in India while it takes two days in Australia or Canada. There is more entry procedure in India, each procedure is a point of contact with an Official, each contact is an opportunity to extract bribe. In India it also takes longer to register a property, enforce a contract and close a business. One economist rightly emphasized ‘tat ordinary human lives should not have to be so cruel and humiliating. Is it not possible to be more honest, fair and kind in our relationship? Some of our misery is the result of the way the State treats us. Can we not reduce at least some of the grief that public officials inflict on us. Let’s focus on reforming our Institution, cutting red tape and become a good place to do business. 8) Intentions and motives need proper examination with regards to framing of the MSMED Act 2006 The Hon’ble Apex Court has warned in recent matter and asked the Central Govt. that you announce a policy without having full data. It means you play the game deciding to frame the rules there of later. It seems the

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situation is not different in formation of MSMED Act 2006. We urge the Central Govt. to correct its stand and review the entire Act and take into consideration all data and give due importance to Tiny/Micro Units for their growth. The present set up of national board for Micro, Small& Medium Enterprises need to be reconstituted and reshaped. Maximum numbers should be from Tiny & Micro Enterprise, so that this sector can plan for better working and growth. Officials who are responsible for execution of policies of the board and they should be accountable and their responsibilities to be fixed. 9 )Need for enforcing constitutional obligation and enforce the concept of equality and egalitarian The commitment of our forefathers while adopting the Constitution for its citizens was that society should emerge with dignity and self respect. It must get opportunities to participate in development activities and get scope to uplift their living standard. “The constitution is clear and it asserted that the more affluent and the privileged among beneficiaries had to be kept out of its purview in taking advantages, otherwise the concept of equality and egalitarian society will collapse.” These are the observations of Hon’ble Apex Court. We find that a class of people with convenience of few effective and influential persons in authority has continuously managed to get all advantages earmarked for Tiny Sector.

It is beyond any one’s imagination that why micro, small and medium enterprises were clubbed together when there exists about 6 crore enterprises in the entire MSME sector of which 99% belong to enterprises whose investment is below Rs. 5 lacs in plant & machinery. We hardly understand why this segment has not been given proper attention and importance for its improvement and without logic and reasoning; the investment of this sector has been enhanced to Rs. 25 lacs in Plant & Machinery, thus diluting the entire support system and legal protection of the units in the sector having an investment up to Rs. 10 lacs.

Even the investment in plant and machinery in the SSI Sector as per national average is hardly Rs. 7 lacs, the reason to enhance the limit of investment in SSI sector up to Rs. 5 Crore is unwanted and totally unfair. It seems the limit of SSI Sectors has been enhanced in the Act with motives to give advantage to a negligible few and thus deprive the 99% of the enterprises in tiny sector. Similarly it has no logic to club medium

enterprises with MSME whose investment limit is up to Rs. 10 Crore.

10) Procurement Polices overcome inherent disadvantages to tiny and micro enterprises To overcome the inherent disadvantages, internationally the MSEs particularly the Tiny & Micro Sector Enterprises are provided governmental support through targeted benefits/facilities such as earmarking of a specific percentage of government procurement for exclusive purchase from MSEs and assistance in market development, export promotion, etc. For instance, in the USA, the Small Business Administration assigns annual growth for procurement by Federal Departments, in consultation with them, for ensuring compliance of the legislated minimum procurement of 23%from small business. There is a need for Government support in the form of a Public Procurement Policy to provide MSEs the opportunity to obtain a share of Government procurement with a view to increase the market share of these enterprises. Although no firm figures are available, some estimates indicate an annual Government (including PSUs) procurement in India of over Rs. 170,000 crore of which the share of MSEs is around 4‐5% only. A suitable mechanism is evolved to promote marketing outlets specializing in marketing the products manufactured by the tiny sector. The new single business law called the ‘Basic Law for Small Enterprises’ should be enacted. 11) Access to adequate and timely credit at a reasonable cost is the most critical problems faced by tiny and micro enterprise The problems faced by this sector for access to bank credit, access to capital, technology, skill, market, etc. are quite unique to the nature of the sector. These concern several institutions and departments of the Government. There is, therefore, a need for a Tiny & Micro Enterprises Sector perspective in the functioning of such institutions and departments. Some of the major bottlenecks impeding the growth of this sector.

Access to adequate and timely credit at a reasonable cost is the most critical problems faced by this sector. The major reason for this has been the high risk perception among the banks about this sector and the high transaction for loan appraisal. While the quantum of advances from the public sector banks (PSBs) to the MSMEs has increased over the years in absolute terms, from Rs. 46,045 crore in March 2000 to Rs. 1,85,208 Crore in March 22009, the share of the credit to the

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MSE sector in the Net Bank Credit (NBC) has declined from 12.5% to 10.9% during the same period. Similarly, there has been a decline in the share of Tiny & Micro Sector as percentage of NBC from 7.8% in March 2000 to 4.9% in March 2009 and at present the share of Tiny and Micro have further gone down to minus 2% by financial institution. 12) Urgent steps need to be taken for growth of Tiny & Micro Enterprises. i)Need for constitution of a permanent National Commission on enterprises in Tiny, Micro & Unorganized plus informal sector.

i) Setting of a National Fund for Unorganized Sector including Tiny & Micro Enterprises.

Ii) The present Office of Development Commissioner (MSME) need to be reconstituted for effective implementation and planning of the Tiny & Micro Sector.

Iii) Tiny & Micro Enterprises need representation on Nationalized Banks. So that due attention can be given for financial needs of this sector.

iv) Representation on Autonomous Bodies related to MSME Sector of the Tiny & Micro Enterprises.

v) The Institutional Support to Tiny & Micro Enterprises in our country is the only hope for better living and a respectable economic and social order.

vi) Inspector Raj must be abolished.

vii) Tiny & Micro Enterprises should be exempted from all Tax burdens for their growth. 13) Alarming situation to create better economic and social order to shape a respectable society and the democracy Sunday Times of July 28, 2013 has warned that income divide between rich and poor growing rapidly and the Govt. policies are helping the affluent. It has further stated that widening divide will create more uncomfortable situation. It has further said that even rural inflation is much higher than cities. These stark findings emerge from a comparison of data on household spending patterns for 1999‐2000 and 2011‐12 that was collected by the National Sample Survey Organisation. Consumption spending all possible expenditure done by an individual in a household on all aspects of life is the closest measure of incomes

available in the country. 14) Constitutional guarantee for an enterprise in Tiny & Micro Sector for each household. We feel the best way of our planning and sustainable growth for longer period for the society will be that we

should ensure in our constitution a guarantee for each household in our country for an enterprise in Tiny & Micro Sector, so that they can have an opportunity to save their social & economic order and necessary intuitional support for a glorious society and country. We have to ensure them for better products, technology, regular supply of raw material, marketing support, timely an adequate financial

assistance at affordable rate. This can engage the largest population of our country in production. As per available statics there exists 6 crore enterprises in Tiny & Micro sector and its provide better living to 30 crore population. This sector contributes 50% in production, 48% in export and 60% in employment .If complete and sincere attention is given for its proper a planned growth. Our country can be the strongest economy of the world and convert this nation a living paradise. We have been insisting for last 66 years that Indian democracy should emerge as a best model of governance for world at large and on occasions we have been able to inspire under developed and developing nation to improve their living standards and attain a glorious and respectable status in the international community. We feel the only remedy is to develop tiny and micro enterprises in India to create better confidence, inspiration among our existing entrepreneur and new generations. So that they can be partner of our new economic and social order with inclusive growth.

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Is it enough to simply have a job, an office or organization to work in, and get a cheque at the end of the week? Not anymore. A workplace however larger or small has to be driven by efficiency and achievement that manifests itself in the form of tangible result for the organization, and is rewarding for the employee. Less productive inputs and lower efficiency levels are bound to affect the business and jeopardize its sustainability and survival.

Employee productivity is a major concern for employers and lower productivity cannot be blamed on the employee entirely.

•A lot of it has to do with the environment at the work place, and the work conditions along with a series of factors that define the work culture. •Employee talent is a valuable asset for a company or organization, and it needs to be tapped to its fullest by keeping the employees motivated to perform and deliver the results they are qualified for and capable of. •Employers may often believe that once they have recruited the best talent in the field, the results will inevitably follow. Not necessarily, If you look beneath the surface to see the environment this talent works in.

A few factors that can help to improve the employee productivity at the workplace are: 1. Accountability Every employee needs to be well aware that he is accountable for his actions and decisions, and he can neither pass the buck or pass the blame to someone else.

•This will help him work more meticulously,

•Take cautious rather than reckless decisions, and not take advantage of his place, position or relationship with his superiors.

2. Follow up Employers often set targets and feel their job is done. • No, every target or milestone set needs to be followed up as well to see if the progress is sufficient and if not; whether any interim measures can be taken

before it is too late to salvage a situation.

• It also keeps the employee on track, ensuring there is consistent effort throughout the lifetime of the project.

3.Manage the work force but avoid micromanagement It is well known that a large pool of employees does

need to be managed, provided direction and given assistance. But with this they must also be trusted, given freedom to operate in their style and adopt measures which they think are the best of deliver results.

•This freedom to act as they deem fit helps to keep them encouraged, motivated and happy in the belief that they are trusted.

•Micro management is a human tendency but one that is detrimental to achievement, since it makes mere puppets out to employees, who are expected to toe the boss’ line and not think for themselves.

•Employees need to think for themselves, analyze the consequences of every decision or action to be able to given their best to their jobs. And the employers must make it possible for their workers to do so.

4. Encourage, motivate, reward and recognize The employer must ensure that on his part he always has words of encouragement for his staff. Encouraging them helps them move forward and do even better, and makes the worker feel happy. Innovative ways of motivating them spurs them even more. For example, holidays or conferences paid for by the company have been found to motivate employees immensely.

•Rewarding the hard work put in by employees makes them continue to work in the same fashion, and if the employee feels that his work is not appreciated in words or in material terms, he may gradually stop doing so, since he may feel that others working less are given the same too, so he need not work more.

•Rewards, and other ways of keeping employees happy makes them feel that their effort is being recognized

Article Management

10 WAYS to Improve Productivity at the Workplace

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Article and that they are needed by the company.

•Without these, they may soon start looking for greener pastures and new jobs.

5. Reach out to employees by seeking them out Every employee loves to feel he has the ears of the management who will recognize him and listen to what he says. Display of inter personal skills in which the boss appears humane and one of them, rather than a larger than life, distant figure, helps to have employees warm up to him and feel happy working for him.

•A bit or effort to reach out helps them all do better.

•If this extends beyond the work place it may prove to be even more encouraging to increase employee productivity. •6. Demand realistic targets Employers need to set realistic goals that are within the limits of achievement. While an aggressive employer may want his people to outstretch themselves to achieve farfetched goals, it may also burn them out.

7. Team work Team work always helps in increasing workplace productivity since there is more input in the form of more ideas and minds at work. Working alone is not always the happiest situation either, especially in the field. Successful team building and working together is bound to bring out the best out of the employees who may also then compete with each other ensuring the business is the winner.

8. Ensure that people enjoy their work The best performing employee is the happy employee, and the employer has to find ways of making his people happy. Besides working conditions and the work culture implemented, he has to devise ways of making the work seem challenging and interesting rather than mundane

and boring. 9. Break the monotony and rotate While employers assign tasks according to an employee’s core competence, even the task they are best at, can make an employee bored and his work seem monotonous.

•This monotony can be broken with rotation and giving people new tasks and exposure to other divisions.

•This adds their learning and helps them get a holistic view of the business.

10. Tools and equipment to raise productivity Finally, the workplace must have the best machinery, devices and equipment that yield error free results in the minimum possible time. Efficient electronic equipment with no connectivity issues and breakdowns will help to save precious time. They should take place of paper work, and yield fast results. Some of these include:

It this extends beyond the work place it may prove to be even: •Smart phones, Laptops, Tablet computers.

•Latest applications and software that offers quick connectivity and access.

•Digital recorders‐ these help to record thoughts and new ideas when they strike, when no paper is available and the fear is of forgetting the idea.

•Bluetooth to stay connected personal digital assistants or PDA’s, GPS to stay on track on the road.

Thus the idea is to have devices that enhance efficiency and subsequently productivity at the work place. The devices help to reduce the response time, improve customer service and cutting costs, all imperative for workplace productivity.

[Source : Productivity News, June ‐ 2014 Vol.51 No.4 ]

Attention Exporters The Thane Small Scale Industries Association has been authorized to issue Certificate of Origin [Non Preferential] by the Govt. of India. These Certificates are issued to the non members of Thane Small Scale Industries Association, whether large or medium or mercantile exporter. The Exporters are requested to take services from Thane Small Scale Industries Association in getting their Certificate of Origin.

For more details please contact Shri. Eknath Sonawane at TSSIA House, Thane ‐4.

Phone No. 022‐25820429 / 25822493 Email : [email protected]

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Hon. Finance Minister Shri Arun Jaitley presented the 1st Budget of Modi Government on 10th July 2014 . Vital announcements for Industry are as below .

Industry •The eBiz platform aims to create a business and investor friendly ecosystem in India by making all business and investment related clearances and compliances available on a 24x7 single portal, with an integrated payment gateway. All Central Government Departments and Ministries will integrate their services with the eBiz platform on priority by 31 December this year. A National Industrial Corridor Authority, with its headquarters in Pune, is being set up to coordinate the development of the industrial corridors, with smart cities linked to transport connectivity, which will be the cornerstone of the strategy to drive India’s growth in manufacturing and urbanization. I have provided an initial corpus of `100 crore for this purpose. •The Amritsar Kolkata Industrial master planning will be completed expeditiously for the establishment of industrial smart cities in seven States of India. The master planning of three new smart cities in the Chennai‐Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka will also be completed. •The perspective plan for the Bengaluru Mumbai Economic corridor (BMEC) and Vizag‐Chennai corridor would be completed with the provision for 20 new industrial clusters. •Kakinada, its adjoining area and the port will be developed as the key drivers of economic growth in the region with a special focus on hardware manufacturing. •Exports cannot be exponentially increased unless the states play a very active role in export promotion by providing good infrastructure and full facilitation. It will be our endeavor to engage with the states to take India’s exports to a higher growth trajectory. It is proposed to establish an Export promotion Mission to bring all stakeholders under one umbrella.

Special Economic Zones •The Government is committed to revive the Special Economic Zones (SEZs) and make them effective instruments of industrial production, economic growth,

export promotion and employment generation. For achieving this, effective steps would be undertaken to operationalize the Special Economic Zones, to revive the investors’ interest to develop better infrastructure and to

effectively and efficiently use the available unutilized land.

Micro, Small and Medium Enterprises sector • SMEs form the backbone of our Economy. They account for a large portion of our industrial output and employment. The bulk of service sector enterprises are also SMEs. Most of these SMEs are Own Account Enterprises. Most importantly a majority of these enterprises are owned or run by SCs, STs and OBCs.

Financing to this sector is of critical importance, particularly as it benefits the weakest sections. There is need to examine the financial architecture for this sector. I propose to appoint a committee with representatives from the Finance Ministry, Ministry of MSME, RBI to give concrete suggestions in three months.

•Promotion of entrepreneurship and start‐up Companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start‐up capital by way of equity to be brought in by the promoters. In order to create a conducive eco‐system for the venture capital in the MSME sector it is proposed to establish a `10,000 crore fund to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start‐up companies. •To establish technology centre network to promote innovation, entrepreneurship and agro‐industry, I propose to set up a fund with a corpus of `200 crore. •The definition of MSME will be reviewed to provide for a higher capital ceiling. A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery will also be put in place. •Entrepreneur friendly legal bankruptcy framework will also be developed for SMEs to enable easy exit. A nationwide “District level Incubation and Accelerator Programme” would be taken up for incubation of new ideas and providing necessary support for accelerating entrepreneurship.

Hon. Shri Arun Jaitely Union Finance Minister

Industry in Budget speech

Union Budget 2014-15

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Financial Year – 2014‐ 2015 Assessment Year 2015 ‐ 2016

I] GENERAL RATES OF TAXES The proposed rates of Income Tax are as under, i.e.

a) i) INDIVIDUAL, (OTHER THAN SENIOR CITIZEN & VERY SENIOR CITIZEN)

ii) HUF & AOP/BOI b) INDIVIDUAL, BEING A SENIOR CITIZEN & RESIDENT

IN INDIA

c) INDIVIDUAL, BEING A VERY SENIOR CITIZEN & RESIDENT IN INDI •‘Senior Citizen’ means an individual who is of the age of 60 (sixty) years or more but less than 80 (Eighty) years at any time during the relevant financial year.

•‘Very Senior Citizen’ means an individual who is of the age of 80 (Eighty) years or more at any time during the relevant financial year.

•Surcharge: At the rate of 10% on income tax is payable in case of a person, whose total income exceeds Rs. One Crore.

•Education Cess @ 2% and Secondary & Higher Education Cess @ 1%(Total 3%) on income tax and surcharge (wherever applicable) is payable in all the above cases. •Rebate Of Rs.2,000/‐ For Individual Having Total Income up to Rs.5,00,000/‐ An individual, resident in India, whose income does not exceeds Rs.5,00,000/‐ will be entitled for a rebate for an amount of tax payable or Rs.2,000/‐ whichever is less.

PARTNERSHIP FIRM/LIMITED RATE OF TAX LIABILITY PARTNERSHIP Firm/LLP 30%

•Surcharge: At the rate of 10% on income tax is payable by a Partnership Firm/LLP having income exceeding Rs. One Crore . •Education Cess @ 2% and Secondary & Higher Education Cess @ 1%(Total 3%) on income tax and surcharge (wherever applicable) is payable by the firm/LLP.

f) COMPANY RATE OF TAX Domestic Company : 30% Foreign Company : 40% •In case of Domestic Company surcharge @ 5% of the tax is payable, if income exceeds Rupees One Crore, but does not exceeds Rupees Ten Crores. If the income exceeds Rupees Ten Crores, surcharge is payable @10%.

•In case of Foreign Company surcharge @ 2% of the tax is payable, if income exceeds Rupees One Crore, but does not exceeds Rupees Ten Crores. If the income exceeds Rupees Ten Crores, surcharge is payable @5%.

•Education Cess @ 2% and Secondary & Higher Education Cess @ 1%(Total 3%) on income tax and surcharge (wherever applicable) is payable by the

Important Amendments proposed in the Income Tax

INCOME SLAB RATE OF TAX

upto Rs. 2,50,000/‐ Nil

Rs. 2,50,001/‐ to Rs.5,00,000/ 10 %

Rs. 5,00,001‐ to Rs.10,00,000/‐ 20%

Above Rs.10,00,000/‐ 30 %


Upto Rs.3,00,000/‐ Nil

Rs.3,00,001/‐ to Rs.5,00,000/‐ 10 %

Rs. 5,00,001‐ to Rs.10,00,000/‐ 20%

Above Rs.10,00,000/‐ 30 %


Upto Rs.5,00,000/‐ Nil

Rs. 5,00,001‐ to Rs.10,00,000/‐ 20% Above

Above Rs.10,00,000/‐ 30 %


upto Rs. 10,000/‐ 10%

Rs. 10,001/‐ to Rs.20,000/ 20 %

Above Rs.20000/‐ 30 %

Union Budget

Shri Ravi Mulchandani, C.A., Expert in Direct Taxes

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Companies. g) CO‐OPERATIVE SOCIETIES

•Surcharge: At the rate of 10% on income tax is payable by a Co‐operative Society having income exceeding Rs. One Crore. • Education Cess @ 2% and Secondary & Higher Education Cess @ 1%(Total 3%) on income tax and surcharge (wherever applicable) is payable by the Co‐operative Societies. II] Interest on Housing Loan The deduction for Interest on Housing Loan in respect of one Self Occupied Property has been increased to Rs.2,00,000/‐ from Rs.1,50,000/‐.

III] Deduction under Section 80c (i.e. Deduction for Investment in PF, PPF, LIP, NSC, repayment of Housing Loan Etc.) The deduction U/Sec 80C has been increased to Rs.1,50,000/‐ from Rs.1,00,000/‐

Also the limit for investment in Public Provident Fund (PPF) Amount has been increased to Rs.1,50,000/‐ from Rs.1,00,000/‐. IV] Tax Deduction at Source (TDS) Tax Deduction at Source (TDS) On Amounts Received Under A Life Insurance Policy (Effective from 1st October, 2014) (Sec.194‐Da) 1) Any person responsible for paying to a resident •Any sum under a life insurance policy including bonus on such policy (other than the amounts which are exempt u/s. 10(10D). •shall deduct tax, @ 2% of such sum •if the amount of such payment or aggregate amounts of such payments is Rs.1 lakh or more.

V] Taxation of Charitable Trusts and Institutions A)Curbing the Interplay of the General Exemptions Contained In Section 10 Vis‐A‐Vis, the Special and Specific Exemptions Contained In Sections 11 To 13 Where a trust or an institution has been granted registration for purposes of availing exemption U/Sec 11, then such trust or institution cannot claim any exemption under section 10.

Similarly, entities which have been notified for claiming benefit of exemption U/Sec 10 (23C), would not be entitled to claim any benefit of exemption under other provision of Section 10.

B) Depreciation on Assets Not To Be Considered As Application of Income Under Section 11 & Sec 10(23C), the deduction or

allowance by way of depreciation in respect of asset, (the acquisition of which has already been claimed as an application of income) shall not be claimed as application of income.

C) Powers of Cancellation of Registration of the Trust or Institution in Certain Cases The Commissioner of Income Tax can cancel the registration of trust or institution if it is found that – a. the activities of a trust or institution are not genuine or; b. the activities are not being carried out in accordance with objects of the trust or institution; c. its income does not enure for the benefit of general public; d.it is for benefit of any particular religious community or caste; e.any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc; or f.its funds are invested in prohibited modes.

D) Applicability of Benefit of Section 11 & 12 to Earlier Years (i.e. The Years Prior to the Year in Which Registration is Granted At present a trust or an institution can claim exemption under sections 11 and 12 only after registration under Section 12AA has been granted. It is proposed that in case where a trust or institution has been granted registration under sec. 12AA of the Act, the benefits of Sec 11 & 12 shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.

VI] Business Income Related Provisions A) Additional Deduction for Acquisition & Installation of New Plant or Machinery By Manufacturing Company

•Applicable to an assessee, being a company, which is engaged in the business of manufacture of an article or thing. •If such company invests a sum exceeding Rs.25 Crores in new assets (i.e. plant & machinery) during any financial year. •Such company shall be allowed a deduction of 15% of the actual cost of new assets acquired & installed during

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the financial year, for the financial year in which such investment is made. •This deduction will be available from F.Y. 2014‐15 (i.e. for A.Y. 2015‐16) to F.Y. 2016‐17 (i.e. for A.Y. 2017‐18)

A) Expenditure on Activities Related to Corporate Social Responsibility (CSR) are not Eligible for education Expenditure incurred by an company on the activities related to corporate social responsibility referred to in Section 135 of the Companies Act, 2013 will not be eligible for deduction while computing the business income of such company.

B) Rationalization of Provisions Relating To Disallowance of Expenditure Due To Non‐Compliance with the Tax Deduction at Source (TDS) Provisions

a. For TDS on payments made to Non‐Residents As per the proposed amendment, if the TDS is paid on or before the due date specified for filing the return of income, the corresponding expenditure shall not be disallowed.

b. For TDS on payments made to Residents •At present if TDS is not deducted or paid on payment made to a resident being payment in the nature of any interest, commission , brokerage, rent, royalties, fee for technical services, and contract payment. the entire expenditure is not allowable as an eligible deduction

•As per the proposed amendment, only 30% of such expenditure will not be allowable as an eligible deduction. However, henceforth, the said disallowance provision shall be applicable to ‘ANY SUM PAYABLE TO A RESIDENT’ and not only to the nature of payments as mentioned above.

C) DEEMED INCOME IN CASE OF TRANSPORTERS (i.e. An assessee who is engaged in the business of plying, hiring or leasing Goods Carriages and not owning more than 10 goods carriages at any time during the previous year) At present the transporters could offer the presumptive income in case of Heavy Goods Vehicles @ Rs.5,000/‐ per month per vehicle and in case of a Vehicle other than a Heavy Goods Vehicle @ Rs.4,500./‐ per month, per vehicle.

As per the proposed amendment the said presumptive income shall be Rs.7500/‐ for every month or part of a month per Vehicle for all types of goods carriages. D) Deduction In Respect of Capital Expenditure on Specialized Business (Sec 35ad Of The Act)

The deduction U/Sec 35AD of the Act, in respect of whole of any expenditure of Capital Nature (other than expenditure on land, goodwill and financial instrument) incurred wholly & exclusively for the purpose of the specified business will also be available for the following business, i.e. a) laying and operating a slurry pipeline for the transportation of iron ore and b) setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guidelines.

VII] Capital Gains Related Provisions A] Compensation Received In Interim Order If any person receives compensation in pursuance of interim order of Courts, Tribunal or other authority, the same shall be chargeable under the head “Capital Gains” only in that year in which the final order of such Court, Tribunal or other authority is made.

B] Transfer of Government Security If an non‐resident transfers to another non‐resident outside India any Government Security carrying a periodic payment of interest, through an intermediary dealing in settlement of securities, such transfer will not be subject to Capital Gains in India.

C] Deduction U/Sec 54 & U/Sec 54f shall be available only for one Residential House in India If an Individual or HUF has earned Long Term Capital Gains on Sale of a residential house or sale of any other asset, and if he makes investment in another residential house, he is entitled to deduction U/Sec 54 or U/Sec 54F (subject to fulfillment of certain conditions specified under the respective sections).

However, as per the proposed amendment, the deduction under sec 54 & under sec.54F shall be available only for ‘ONE RESIDENTIAL HOUSE PURCHASED OR CONSTRUCTED IN INDIA’

D] Deduction U/Sec 54ec for Investment in Capital Gains Tax Savings Bonds The deduction U/s.54EC at present is available for investment in Capital Gains Tax Savings Bonds issued by ‘REC Ltd’ and ‘NHAI’. The said deduction is available against the Long Term Capital Gains. The limit for deduction u/s 54EC is Rs.50,00,000/‐. As per the proposed amendment, the deduction cannot exceed Rs.50,00,000/‐ in respect of transfer of one or more capital assets in an year, even if the investment

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exceeding Rs.50,00,000/‐ is split & made during two financial years, though within the period of six months of transfer of the capital asset.

E] Units of Debt Oriented Mutual Fund & Unlisted Security The units of Mutual Funds (other than an equity oriented fund) & an unlisted security (for eg the shares of companies which are not listed on an recognized stock exchange) will be considered as LONG TERM CAPITAL ASSET only if the same are held for a period exceeding 36 months.

F] Tax on Long Term Capital gains on units of Mutual Fund As present, inter alia if the tax payable on LTCG on transfer of Units of mutual fund exceeds 10%, of the amount of Capital Gains before allowing for indexation adjustment, the excess is being ignored.

However, as per the proposed amendment the said beneficial computation will not be available in case of units, which means that in case of units, the LTCG will be subject to tax @20% after availing the indexation benefit.

VIII] Income from Other Sources 1)Amount or Advance Received Forfeited to be treated as Income If during the course of negotiations of transfer of a Capital Asset. any advance or money received is forfeited and the negotiations do not result in transfer of such capital assets then such amount received or forfeited will be considered as income of the assessee.

IX] OTHER PROVISIONS A) Acceptance and Repayment of Loan or Deposit If the Loan or Deposit exceeding Rs.20,000/‐ are accepted and/or repaid by ‘use of Electronic Clearing System (ECS) through a bank account’ (apart from accepting and/or repaying by way of account payee cheque or account payee bank draft, acceptable till now), the same will be considered as complying with the provisions & shall not attract penalty, which is otherwise 100% of the amount accepted and/or repaid in violation of the prescribed provisions.

B) Dividend and Income Distribution Tax (Applicable W.E.F. 1‐10‐2014) : The domestic companies pay Dividend Distribution Tax @ 15% on any amounts declared, distributed, or paid by way of dividends to its shareholders. As per the proposed amendment, the amount of distributable income and the dividends

received by the unit holder of a mutual fund or shareholders of a domestic company will have to be grossed up for the purpose of computing the dividend or income distribution tax. As a result, the effective rate of dividend distribution tax will increase to 19.994% from 16.995%.

C) Power of Survey For Verifying Compliance Of Tax Deduction At Source (TDS) & Tax Collection At Source (TCS) Provisions An income tax authority for verifying whether the tax has been deducted or collected at source in accordance with the provisions of the Act, may enter any office or place where business or profession is carried on. Such income tax authority has the power to inspect the books of account or other documents as he may require & which may be available at such place. He can also ask for such information as he may require.

D) Provisions Relating To Business Trust Business Trust Means (A Trust Registered As an Infrastructure Investment Trust or a Real Estate Investment Trust) •The units of which are required to be listed on a recognized stock exchange and notified by the Central Government in this behalf. •The listed units of a business trust, which will be traded on a recognized stock exchange would be subject to Securities Transaction Tax (STT) & would be on par with the taxability of Capital Gains on sale of equity shares of a company i.e. Long Term Capital Gain would be exempt & Short Term Capital Gain would attract 15% tax. •If the business trust makes payment of interest component of income distributed to non‐resident unit holders, it will deduct TDS @ 5% & if the same is distributed to a resident unit holder, the TDS will be @ 10%. •The dividend component of the income distributed by the trust to unit holders will be exempt from tax. •The Capital Gains earned by the trust and distributed. The component of distributed income attributable to Capital Gains would be exempt in the hands of the unit holder.

E) Reference by Assessing officer to Valuation Officer • for the purpose of assessment or re‐assessment •the Assessing Officer may make a reference to a Valuation Officer •to estimate the value, including the fair market value, of any asset, property or investment •The Valuation Officer shall estimate the value after

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taking into account evidence provided by the assessee and any other evidence gathered by him •The Valuation Officer shall send a copy of the report to the Assessing Officer as well as to the assessee within a period of six months from the end of the month in which a reference is made to him •The Assessing Officer after receiving the report & after giving the assessee an opportunity of being heard may take into account such report in making the assessment NOTE: These are some of the amendments proposed by Finance (No.2) Bill, 2014. Besides there are also other

amendments which are related to certain specific assessees. Besides there are also procedural amendments in respect of different provisions.

The above proposed amendments are stated in brief. Before applying or relying on any beneficiary provisions, please read the provisions carefully, as for availing such benefits, certain conditions may have to be fulfilled/satisfied. Also one will have to wait for the Finance Act, 2014 for considering the exact amendments carried out in the Income Tax Act, 1961.

1. The Union Budget for 2014‐15 was presented on 10th July 2014 . So far as C. Excise & Service Tax laws are concerned, there are very few changes this year. We bring to your notice, some of the important changes that may be of immediate relevance to you. This note is not exhaustive, but we have included everything, which, in our opinion, would be of immediate relevance to our clients & friends. The note is of very general nature. The annexure to this note points out to some provisions relevant to specific clients. Since they were not of general relevance to all, I have not discussed it in the main note. You may please mail all your doubts & queries at [email protected]. We shall send a separate note on changes made in Service Tax law.

2. The general rate of duty remains 12% + 2% + 1% except in case of most of the goods of Chapter 84, 85 & 87 where the rate of duty of 10% + 2% + 1% is applicable.

3. SSI Exemption: There is no change in the SSI exemption. There is no amendment to the notification 08/2003‐CE.

4. Goods supplied against International Competitive Bidding There is an exemption to the goods supplied against ICB (Sr. No.336 of Notification No.12/2012‐CE). In case of Sangam Structurals Ltd. v. CCE, Allahabad, the Hon'ble Tribunal held that the exemption is available only to the manufacturer who had himself was the successful bidder in ICB. Now it has been clarified that exemption is also available to sub‐contractors for manufacture and supply of goods for or on behalf of the main contractor (who has won the bid for the project

through ICB) for execution of the said project.

5. CENVAT Credit: (a) Time Limit for taking Credit: With effect from 01/09/2014 we would not be eligible to take credit against a document if the document is older than six months. Thus, for example, if an invoice was issued on

01/04/2014 then credit must be taken latest by 30/09/2014 (technically 01/10/2014). Since the provision would become effective from 01/09/2014, it is suggested that wherever we have kept credits on hold, we must take them within July and August, 2014. Following two issues may be noted:

• In case the credit is to be distributed through ISD, the bar of six months would be on the office which distributes the credit. Once the office has taken the credit within six months, it can certainly distribute it later. However, it would be prudent to complete the distribution and subsequent availment of credit at factory too, within six months so that we are not required to argue and explain this to the officers.

•In case the credit is sought to be taken under rule 16 of C. Excise Rules, 2002 a problem may arise if the invoice is older than six months. It is expected that the government would make appropriate amendment or issue clarification on this aspect.

•The time limit won’t apply to credit of ‘Capital Goods’. It is still recommended that the credit of first 50% may be taken within 6 months. (b) Credit on Input Services: The general provision is that we can avail Cenvat Credit on input services immediately after receiving the document (invoice,

Union Budget

Amendments in Indirect Taxes Shri Sanjay Dwivedi, Advocate & Consultant,

C. Excise , Service Tax, Customs & Foreign Trade,

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Union Budget

challan etc.). However, we should note the following restrictions:

• If we do not make payment to the service provider within three months of the date of invoice, we will have to reverse the credit taken. Off course, we subsequently make the payment, we again become entitled to take the credit. However, the rule says such re‐credit would be subject to other provisions of the rules. We should especially take note of the following

i. The three month is to be counted from the date of the invoice/ bill etc. It is not the date of receipt of the document by us, but the date of the document itself.

ii. Even for the purpose of taking re‐credit, the bar of six months would apply. Thus, if a document was issued on say 05th July 2014 one can take credit immediately on receiving the document. If he does not make payment by 05th October, 2014 they he should reverse the credit. He can take the credit back if he makes payment up to 05th January. But he cannot take credit thereafter even if the full payment is made.

•Where there is full reverse charge (i.e. where full amount of tax is payable by the service receiver): Earlier the law allowed us credit only if (a) we have paid the value to the service provider, and (b) Tax to the government. Now the first condition is waived. Thus, we can avail credit after we have paid the tax.

• Partial Reverse Charge (i.e. where a portion of the tax is to be paid by the service provider and balance by the service receiver directly to the government): We can avail credit only after we pay (a) value + tax to the service provider, and (b) our share of tax to the government.

6. Central Excise Valuation Rules: In CCE, Mumbai v/s. Fiat India Pvt. Ltd. the company had sold UNO model cars below cost, in order to compete and penetrate the market. It has paid duty on the price at which it actually sold the goods. The department alleged undervaluation and demanded duty on a higher value (cost + a notional margin of profit). The matter was decided by Tribunal in favour of Fiat. However, on appeal by the department, the Supreme Court reversed the decision. The court effectively held that reducing price for penetrating the market is itself an additional consideration. Taking a cue, the C. Excise officers started raising the issue at various places in the country. Really, this was not the intention of the government. Now, a proviso has been inserted in the rule 6 so as to overcome the judgment.

Thus, even if the goods are sold below cost, the duty would be payable only on the price charged to the customer.

7. Payment of Duty (a) With effect from 01.10.14, every assessee has to pay duty electronically. If one still wants to pay duty by presenting cheques or cash in bank, then he will need prior permission of the Deputy/Assistant Commissioner.

(b) Default in paying duty: Rule 8(3A) of C. Excise Rules, 2002 has created sufficient hardship and litigations. This has now been amended. Provision existing till the budget day: If an assessee defaulted in paying duty by the due date, he was required to pay it along with interest. However, if the default exceeded 30 days, then in respect of all subsequent clearances:

• The duty was required to be paid consignment wise i.e. before the goods were removed from the factory. Thus, the manufacturer lost the facility of paying duty at the end of the month/ quarter. • Moreover, he was debarred from utilizing Cenvat Credit. Thus, the above duty was to be paid through PLA. There were cases where though the manufacturer had defaulted beyond 30 days, it continued to pay duty by utilizing Cenvat Credit. In such cases, the department issued notices demanding the duty through PLA. Moreover, since the duty was discharged through Cenvat Credit a/c, the department considered even such payment to be a default and raised demand for duty on all subsequent clearances. Very huge liabilities piled up in this manner.

The Tribunals took a view that the department cannot demand the duty through PLA and that the payment by utilizing Cenvat Credit was a good payment1. Position after the budget: The rule now says that if the assessee fails to make payment of duty declared as payable in the return within one month from the due date he would be liable to pay penalty @ 1% per month on such duty not paid for each month or part thereof calculated from due date for the period during which such failure continues. Please note that •This penalty is in addition to the interest payable on the duty. •One has to pay the duty ‘declared as payable’ in the return. If we erroneously declare a higher amount of duty, officers can play mischief and force us to go into litigation.

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8. Duty Structure for DTA clearances made by EOU There is a slight change in the duty structure. The notification 23/2003‐CE has been amended to grant exemption from: • Education Cess (customs component) •Sec. Education Cess (customs component) Cess on the CVD had already been exempted in the previous year. Thus, effectively there would be levy of cess only once (at the end of the structure). The new structure would be as under:

9. Advance Ruling: The scheme of Advance Ruling is extended to Resident Private Limited Companies. Thus, companies registered in India can now approach the authority for obtaining binding rulings on legal issues.

10. Third Party Information: Provisions have been made to ask third parties (such as Income Tax Authorities, Sales Tax/VAT Authorities, State Electricity Boards etc.) to file returns with the C. Excise department. This would help the government to identify the tax evaders. The details of the information called for in the returns have not yet been notified. However, this will be something similar to what Income Tax department is already doing.

11. Provisions relating to Appeal: Till now, we were required to deposit the whole of the duty, interest & penalty before filing appeals. However, the appellate authorities had discretion to waive such pre‐deposits. Therefore, it was the norm to file appeals along with stay applications. The stay applications were to be heard first and the authorities used to decide whether complete or partial waiver should be granted. There were further provisions stating that the stay granted by Tribunal would lapse within six months. The Tribunal’s used to liberally grant extension beyond six months. In the last year, another provision was inserted which sought to curtail power of the Tribunal to grant extension beyond six months. In effect a stay was to be operative only for six months and extension for further six months could be granted. Thereafter the department was let loose to recover the dues. To say the least, the provision was draconian. The system has been modified. The provisions are as under:

a. Now, pre‐deposit is mandatory for filing appeals. b. We will have to deposit 7.5% of the duty demanded or penalty imposed or both at the first stage of appeal (whether it is before Commissioner (Appeals) or the Tribunal). c. Another 10% of duty demanded or penalty imposed

or both at the second stage of appeal before Hon’ble Tribunal; d. The maximum amount of pre‐deposit would be Rs.10 crores. e. No appeal will be entertained by these authorities unless the aforesaid amounts are paid; f. The above provisions would not apply to the stay applications already filed with these authorities. There is a sort of unfair discrimination in the amount of pre‐deposit. The amount of pre‐deposit would be substantially lower (less than half) if the original order was passed by Commissioner. If the original order is passed by a lower officer, the total amount to be deposited for taking the case to the Tribunal would be 17.5%. Whereas if the original order is passed by a lower officer, the amount of pre‐deposit would be only 7.5%. We all know that orders of adjudicating authorities as well as of Commissioner (Appeals) are routinely unfair and wrong and get reversed at the level of Tribunal. Therefore, no pre‐deposit should have been required before Commissioner (Appeals).

g. Provisos to the extent that the disposal of appeal within 180 days of the date of stay order; vacation of the stay order and extending the validity of stay order have been deleted;

h. Tribunal had a discretion to refuse to admit an appeal if the amount involved was within Rs. 50,000/‐. Now, the limit has been revised to Rs.2,00,000/‐.

********

Union Budget

Duty component Explanation

Basic customs duty (BCD) Full rate or concessional rate (as eligible)

Value for CVD (A+B) Assessable value + BCD

CVD equivalent to central excise duty Currently 12%

Educational Cess on CVD 2% Exempted

Sec. and Higher Educational Cess 1% Exempted

Customs Educational cess 2% Exempted

Customs Sec & higher educational cess 1%

Exempted

SAD @ 4% Payable only if VAT is exempted

Total Duty This is the total duty payable under Sec 3 of C. Excise Act

Ed. Cess 2% (payable on the total duty above)

Sec. & Higher Ed. Cess 1%

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Report

Tax Administration Reforms Commission 1st Report

Recommendations In what follows, the TARC lists its main recommendations in the full belief that they can be instituted if the willpower exists at the top policy level. Such changes have occurred in other countries including the one that bequeathed India her prevailing bureaucratic structure that has seen its best days and has outlived itself. It is now time to confront what is bad and change it for the better to reflect the expectations of India’s new and future generations that have the desire to work and be productive rather than facing and combating high costs of compliance. Only recommendations that are desirable and doable along these lines are listed below. Also, the recommendations should be considered as a package and not on a pick‐and‐choose mode. That would not work; it would be better to set aside the recommendations in toto and reconsider them at a future date when India may be ultimately ready to make serious changes that are needed but is not up to facing them as of now.

4.a Customer focus A taxpayer is the entity that approaches the tax administration and thus comprises the latter’s customer. Yet the prevailing treatment of the taxpayer by the tax administration requires much to be improved in reflection of global practice. Customer Focus reform therefore is the first need. It comprises Chapter II and the first set of recommendations

The TARC recommends that:

•There should be a dedicated organisation for delivery of taxpayer services with customer focus for each of the Boards. There should be an exclusive Member in each Board for the taxpayer services. The taxpayer services vertical under each Board would be headed by an officer of the rank of Principal Chief Commissioner, who would be responsible for delivery of taxpayer services. This implies dedicated resources and personnel for this vertical. (Section II.6.c) •Taxpayer service delivery will be located under one umbrella for large taxpayers, i.e., the CBDT and CBEC will jointly function for large taxpayers through Principal DG (LBS). For other taxpayers, i.e., medium and small, the operations of the CBDT and CBEC will continue in separate chains. (Section II.6.c) •Officers and staff at all levels of tax administration

should be trained for customer orientation. Further for people posted in this vertical, the training in customer focus need to be more specialized and intensive. This training should be appropriate to the areas in which such officers are deployed such as customer relationship, measurement of customer satisfaction, taxpayer education, etc. (Section II.6.a •In line with the international practice of spending 10‐15 per cent of the administration’s budget, a minimum of 10 per cent of the tax administration’s budget must be spent on taxpayer services. At least 10 per cent of the budget for tax administration should be allocated and spent for ICT‐based taxpayer services. (Section II.6.a) •Sufficient funds must be allocated to conduct customer research including, in particular, on customer surveys. (Section II.6.b) •In redressing taxpayer grievances, the decision of the Ombudsman should be binding on tax officers. To bring independence and effectiveness to the office of the Ombudsman, nongovernment professionals should also be inducted in the post. (Section II.6.b) •Pre‐filled tax returns should be provided to all individuals. The taxpayer will have the option to accept the tax return as it is or modify it. In either event, the filing process would be completed with the submission of the tax return electronically. (Section II.6.b) •There is an urgent need to revisit the present citizen’s charter to make it more meaningful and customer focused. The citizen’s charter should be renamed the taxpayer’s charter to focus on all categories of taxpayers. (Section II.6.c) •There should be regular stakeholder consultations on the issues of tax disagreements and tax law changes. The Commission recommends a permanent body for stakeholder engagement. The recent experience of the Forum through which many issues were resolved between stakeholders and the tax departments should become a continuing activity. (Section II.6.b) •There should be a system for online tracking of dak/grievances/applications for refund etc. It should be made mandatory to receive all dak through a central system generating a unique id. The ASK software implemented by CBDT provides such a mechanism in a limited manner. This needs to be extended to all offices. The functionality to enable the taxpayer to track the status of his application/grievance online should be

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Report added to the ASK system. Similar system for online receipt of application should be enabled on the indirect tax side. (Section II.6.c) •Continuous benchmarking of the tax administration, particularly in relation to delivery of taxpayer services, with that of other tax administrations should be done to highlight the area of focus. (Section II.6.c)

• 4.b Structure and Governance As the customer faces and enters the tax administration, how well s/he is treated and how smoothly his job is accomplished is dependent on the structure and governance of the tax administration. This therefore comprises the second area of reform. For example, TARC found the lack of synergy between the two tax departments even for LTUs despite their establishment in 2006 to be a telling reflection of the administration’s lackadaisical approach to installed policy. Structural reform is therefore recommended using LTUs as the anchor for which common functions need to be immediately consolidated for the two tax departments. Many other structure and governance from deep within are also needed if operations are to be rationalized. Structure and Governance comprises Chapter III and the next set of recommendations.


•The two Boards must embark on selective convergences immediately to achieve better tax governance, and, in next five years, move towards a unified management structure with a common Board for both direct and indirect taxes, called the Central Board of Direct and Indirect Taxes. For a unified management structure, apart from the common Board, the functions that can easily support the framework would be in the areas of human resource management and vigilance, finance, ICT, infrastructure and logistics, and compliance verification. (Section III.4.e) •The convergence can begin for large business segment by setting up of a large business service (LBS) which will be integrated and operated jointly by both the Boards. This will be taxpayer segmentation by the tax administration, and joining LBS will not at the option of the taxpayer. All the core tax functions will be managed jointly by officers of both the Boards. (Section III.4.b) •The tax administration needs to have greater functional and financial autonomy and independence from governmental structures, given their special needs. (Section III.7) •The post of revenue secretary should be abolished. The

present functions of the Department of Revenue should be allocated to the two Boards. This would empower the tax departments to carry out their assigned responsibilities efficiently. (Section III.7) •A Governing Council, headed by chairperson of the two Boards, by rotation, and with participation from outside the Government, should be set up at the apex level to oversee the functioning of the two Boards. (Section III.4.c) •An Independent Evaluation Office (IEO) should be set up. Its main work would be to monitor the performance of the tax administration, promote accountability, evaluate the impact of tax policies and assess all factors that affect tax administration. IEO will report to the Governing Council so as to ensure its independence. (Section III.4.c) •A Tax Council should be set up to develop a common tax policy, analysis and legislation for both direct and indirect taxes. The council will be headed by the Chief Economic Adviser of the Ministry of Finance. (Section III.4.d) •Common Tax Policy and Analysis (TPA) unit comprising tax administrators, economists, and other specialists such as statisticians, tax law experts, operation research specialists and social researchers should be set up for both Boards. The existing TPL in CBDT and TRU in CBEC should be subsumed in the common TPA. TPA will report to the Tax Council through the concerned member of each Board. TPA will be responsible for all three major components of tax policy formulation – policy development, technical analysis, and statutory drafting. (Section III.4.d) •Each rule, regulation and other tax policy measure such as exemptions should be reviewed periodically to see whether they remain relevant to the contemporary socio‐economic conditions and meet the changing requirements. For this, a robust process should be institutionalized. As a first step, a thorough review of the existing rules, regulations and notifications should be undertaken. Going forward, it should be a standard practice to build sunset clause in each rule, regulation and notification. (Section III.4.d) •The present Boards are not aligned to various needs nor are they geared to respond to emerging and future challenges in an effective and efficacious manner. Keeping that in mind, the two Boards should be expanded to have ten Members, apart from the Chairperson. (Sections III.5) •The two Boards would be responsible only for policy dimensions of tax administration, while the directorates

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under them would be responsible for operations in the field formations. These directorates would have a vertical and horizontal alignment with functions, and would interact with each other in a matrix‐like structure of responsibilities and accountability. (Section III.5) •The field formations are currently organized to handle all key functions in a particular geographic region. In order to bring about a functional orientation, field offices will need to be restructured along the core functions of taxpayer services, compliance, audit, dispute management, enforcement and recovery, etc. (Section III.5) •A functional orientation would promote specialization in the respective area of tax administration. For these reasons, specialization should be encouraged by selecting suitable officers and providing them sufficient tenures to develop specialized knowledge in key sectors. (Section III.5.d) •A common approach for developing robust and comprehensive enterprise risk management framework should be adopted by the two Boards. This should be approved by the Governing Council to bring coherence. (Section III.5.a.i) •There should be one Knowledge, Analysis and Intelligence (KAI) centre for both the Boards and its role should be recognized and used for policy and operational effectiveness. (Section III.6)

• 4. c People Function Another area that does not compare internationally is that of HRD or the People function. Staff are not empowered to take independent or correct decisions for fear of retribution and vigilance, the exclusive objective being to “protect the revenue”. They are made to collect revenue irrespective of the condition of the macro‐economy that should indicate how much tax may be correctly collected. They therefore tend to make decisions well knowing that a tax demand or dispute will not pass the test of judicial processes. At the same time they are subjected to promotion, training, transfer, and leave policy that are fundamentally non‐reflective of global practice. At the same time, senior management is subservient to the top Revenue official who, over the years, is imported from another Union Service that has no direct link to revenue or taxation. The overall outcome is a subdued tax administration that is far from dynamic. Indeed, over recent years it has acquired the notoriety of corruption. Empowering the staff, or People Function, comprises Chapter IV and TARC makes several significant recommendations

towards empowerment.


•Both the departments should shift all their key operations to the digital platform so that performance can be reliably measured. (Section IV.3.d) •A system of limited departmental competitive examinations should be introduced by earmarking 33 per cent of the vacancies in the promotions quota in Group B as well as Group A, so that relatively more meritorious and younger officers in the feeder grades can get a fast track in promotions. (Section IV.3.c) •Recruitment needs to be made on the basis of carefully drawn recruitment plans that balance the short and long term needs and career aspirations of officers. (Section IV.3.c) •Provision should be made for lateral entry of experts in key roles and specialized areas. While they may be on contract for 5 years, subject to their suitability and willingness they should be able to integrate with the organization at the end of the contract period. (Section IV.3.c) •The CBEC needs to develop a human resource management system, as has been done by the CBDT; collaboration and knowledge exchange between the two DGs (HRD) will enable CBEC to get such a system going in shorter time. (Section IV.3.b) •A comprehensive performance management system needs to be set up for both tax administrations by revisiting and reconstructing the RFD. (Section IV.3.d) •Key performance indicators, detailing the performance areas, objectives, key initiatives, performance indicators and performance targets, should be arrived at using the Balanced Scorecard methodology. (Section IV.3.d) •The performance appraisal process needs to be made more wholesome and reliable by making it more open and by introducing a mid‐year review. (Section IV.3.d) •The tax administrations should extend the performance appraisal system to elements of 360° appraisal to include feedback from subordinates. (Section IV.3.d) •The outcome of discussions during the performance appraisal process should result in the superior taking responsibility for juniors by putting in place an improvement plan to overcome their weaknesses. (Section IV.3.d) •Performance needs to be recognized through non‐pecuniary measures such as giving important assignments in chosen areas of work or specialization. (Section IV.3.d)

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•To facilitate renewal of talent and professional growth, officers should be allowed to move outside the departments for defined periods of time. (Section IV.3.d) • The career of IRS officers should be divided into three phases: ⇒The first 9‐10 years should be spent rotating through different functional areas to gain familiarity ⇒The next 8‐9 years should be in two or more specialist areas ⇒Persons showing the ability for top leadership will go into the third phase and constitute the pool from which selection will be made for top positions (Section IV.3.d) •A common assessment centre for the two Boards needs to be set up by the people function to make a thorough, all round assessment of officers at the first transition point. (Section IV.3.d) •In view of a different promotion system being recommended, the UPSC should be consulted for exempting these promotions in the IRS from their purview like some other services, e.g., the Indian Foreign Service, Indian Railway Services and Indian Audit and Accounts Services are exempted. However, if the UPSC is willing to be associated with the altered promotion scheme, that option should be considered. (Section IV.3.d) •A formal mentorship programme may be set up, with carefully selected mentors. (SectionIV.3.d) •The transfer and posting policy should be recast to promote specialization and accommodation of individuals’ choices in professional growth and should bring about predictability, stability and certainty to placements. Personal difficulties of officers should receive due consideration. (Section IV.3.e) •DGs (HRD) should assist the Boards in transfers and postings and they should be member secretaries of the placement committees. The administration section should have no role to play. (Section IV.3.e) •Learning and development should occupy a central place in people advancement and all officers must undergo a minimum 10 days of training every year. (Section IV.3.f) •NADT and NACEN infrastructure should be substantially upgraded and the academies need to keep themselves updated in terms of the contemporariness of course content, pedagogy and use of ICT in training and they should be treated on par with LBSNAA. Their budgets should match the stipulation of the National Training Policy, i.e., 2.5 per cent of the salary budget of the departments should be earmarked for training and

should be treated as plan expenditure. (Section IV.3.f) •More emphasis in training needs to be given on customer focus and value education. (Section IV.3.f) •A code of ethics needs to be developed, congruent with the values in the vision and mission statement. (Section IV.4.a) •There should be more proactive approach to preventive vigilance. (Section IV.4.b) •The provisions of Rule 56(j) of the Fundamental Rules should be effectively utilized for weeding out officers who are inefficient or of doubtful integrity. The criterion for review should be changed to completion of 20 years of service. (Section IV.3.d) •CVC should have a Member who has been an officer of either of the IRSs and there should at least one Joint Secretary/Additional Secretary level officer posted in the secretariat of CVC. (Section IV.4) •No cognizance should be taken of anonymous complaint as laid down in the existing DoPT instruction. (Section IV.4.d)

• 4.d Dispute Management

The lack of accountability in the system is represented by infructuous demands raised by the tax administration with impunity as well as massive escalation, non‐resolution and non recovery of such demands by global standards. Getting a handle on dispute management is crucial for retrieving stakeholder confidence and for saving much needed staff and financial resources of the tax administration. Dispute Management comprises Chapter V and includes a set of recommendations.


•For clarity in law and procedures, a process based on best practices outlined in Section V.4.b should be followed. (Section V.4.b) •Retrospective amendment should be avoided as a principle. (Section V.3.e •Fundamental approach should be collaborative and solution oriented. (Section V.3.d) •Both the Boards must immediately launch a special drive for review and liquidation of cases currently clogging the system by setting up dedicated task forces for that purpose. •The review and liquidation should be completed within one year and the objective should be to decide all cases pending in departmental channels for longer than a year as on the start date of the action plan. (Section V.6) •Dispute management should be a functionally independent structure with adequate infrastructural

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support. (Section V.4.a) •Officers posted in the dispute vertical must receive adequate induction training and on‐the job training on areas. (Section V.4.a) •To minimize the potential for disputes, clear and lucid interpretative statements on contentious issues should be issued regularly. These would be binding on the tax department. (Section V.4.b) •The current practice of raising demands irrespective of merits should be discontinued. Call book in CBEC should be abolished. (Section V.4.b) •The process of pre‐dispute consultation before issuing a tax demand notice should be put into practice.(Section V.4.b) •Disputes must get resolved in time as the times lines as mentioned for decisions in the respective enactments. The law should also prescribe the consequences of not adhering to the time lines, which would be that the case in question would lapse in favour of the taxpayer. (Section V.5) •Ordinarily appeal should not be filed against appeals of Commissioner (Appeals), except where the orders are ex‐facie perverse. (Section V.5) • The present structure of Commissioner (Appeals) should be changed to two forums, namely, single Commissioner (Appeals) and 3‐member Commissioner (Appeals) panel. If the case is not decided within the prescribed time frame, the taxpayer’s appeal would be deemed to have been allowed. (Section V.5) • The DRP in income tax should be made full‐time panels. Their mandate should be expanded to include corporate cases of resident cases as well. Same mechanism should be introduced in indirect taxes also, where collegium of three Commissioners would be deciding complex cases involving extended period of limitation, related party transactions and taxability of services. (Section V.4.e) • There should be DRP for indirect taxes also, on the same lines as in the I‐T Act and in conjunction with the recommendation made above. (Section V.4.e) • The jurisdiction of AAR should be made available for domestic cases also. More benches of AAR should be established at Mumbai, Bangalore, Chennai and Kolkata, with the principal bench at Delhi. (Section V.4.c) •The Settlement Commission should act as part of taxpayer services, and be made available to the taxpayer to settle disputes at any stage. There should also be an increase in the number of benches of the Settlement Commission. It should be manned by serving officers to enhance its accountability. (Section V.5)

• Appeals to high courts and the Supreme Court should only be on a substantial question of law. (Section V.5) • Authorized representatives from the departments should be carefully selected and given sufficient incentives and necessary infrastructural support to perform their duties effectively. They should also be given specialized training before they are asked to appear for the department. The administration of the DR function should also be in the dispute management vertical. (Section V.5) •On disposal of a case by Supreme Court/High Court and if the judgment is accepted by the Department, an instruction should be issued to all authorities to withdraw appeal in any pending case involving the same issue. (Section V.6)

• 4 e. Key Internal Processes There are several internal processes in the tax administration with respect to management of PAN, consolidated filing of returns of different taxes, assessment, timely refunds, risk‐based scrutiny and others that cannot be ignored. Such Key Internal Processes comprise Chapter VI and associated recommendations are made.

The TARC recommends that: • Registration • The present permanent account number (PAN) should be developed as a common business identification number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO. A better regulatory system should be put in place to enhance its robustness and reliability. • Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilization of credit is permitted between central excise and service tax under the CENVAT credit rules. • It is necessary to provide for de‐registration, cancellation or surrender of registration numbers and PAN. ♦ Tax payments • Banks should be left to authorize their branches to collect taxes, and the present process of selection of banks needs to be purely standards‐based and transparent. •Payment gateways should be increased for better customer convenience. ♦ Filing of tax returns • I‐T returns should also include wealth tax return so

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that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru. •The disclosures in the return should include a brief mention of the issues on which there has been an on‐going litigation between the tax administration and the taxpayer, and should indicate the factual and legal position adopted while computing taxable income for a year. This is to protect taxpayers from allegation of non‐disclosure, suppression, escapement of income, etc., which often results in the initiation of penal provisions. • Taxpayers should give information on their compliance experience at the time of filing returns; this information should be used to improve taxpayer service bringing in customer focus. •Territorial jurisdiction should be dispensed with and industry‐based assessment should be introduced in line with recommendations in Chapter III of this report. The CBEC should set up centralized processing units in line with the CPC, Bengaluru, and CPC‐TDS at Ghaziabad for processing central excise and service tax returns. •There should be a common return for excise and service tax. •The CBEC should set up an e‐portal and all invoices should be issued from that portal. This portal should be linked and made compatible with SAP ERP systems, which a majority of the companies use for their own invoicing. E‐invoice would simplify credit/refund procedures, which would become automatic.

♦ Scrutiny in direct taxes and audit in indirect taxes •Hearing in all tax cases by personal presence should be avoided, and data can be sought through an e‐system. The taxpayer can upload the data on the e‐system. Personal hearing should be sought only in complex cases. •There should be specialization in scrutiny/audit work as recommended in Chapters III and IV of the report. Capability should be developed through training and re‐training. The two Boards should also develop a standard audit protocol, with clear emphasis that the AOs must follow the principles of natural justice and respect the taxpayer rights to privacy and dignity. • Audit Commissionerates in the CBEC should undertake integrated audit covering central excise and service tax together and the onsite customs post clearance audit (OSPCA) in case of accredited clients (ACP), as the records and books to be verified are common to all the taxes administered by the CBEC. In major cities where

exclusive Central Excise or Service Tax Commissionerates are functional, the audit function should be assigned to a specific Audit Commissionerate for carrying out integrated audit of customs, central excise and service tax. • Joint audits should be undertaken by field formations of the CBDT and the CBEC to shorten the examination processes and reduce costs, both the for tax administration and for taxpayers. This may require a change in procedures for the CBDT as at present, the I‐T Act does not have a provision for open audit as is done in indirect taxes. •Broad‐based selection filters for the risk assessment matrix should be put in place. There is also a need to set up a standard operating procedure which recognizes the iterative method, testing them ex‐post, to develop effective and efficacious parameters for the risk assessment matrix.

♦ Tax deducted at source • The insistence on manual filing of TDS certificates before AO for verification of refunds claim should be done away with. •The tax deductor’s duties and obligations in terms of making information compliance and also depositing the deducted amount is onerous and they are not compensated for that. Therefore, some compensation for them should be considered. This can be in terms of a small commission to be deducted as business expenses by them to fulfil their obligations. • The CPC‐TDS should allow correction in the name of the deductees to avoid multiple submissions of TDS forms. Even a single error requires the deductor to submit the entire return afresh. The process of uploading the entire file for one or two corrections is cumbersome and disproportionate to the gravity of the error. This adversely impacts taxpayer services. Subject to the required checks and validations, there is a need to widen the scope of online error rectification service. • A passbook scheme for TDS may be adopted with some safeguards. Once TDS is deducted from a payment, TDS should get credited to the taxpayer’s account. This should be like an account with running balance, to be utilized by the taxpayer at his option to set off his tax liabilities. • To assist small and marginal tax deductors in preparing and filing their TDS returns, either existing tax return preparers or a separate system of TDS return preparers should be initiated with more training and a better remuneration structure than at present.

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♦ Refunds •Refunds should be issued within a strict time frame. There should be a separate budgetary head for refund of direct tax and indirect taxes in the annual budget out of which refunds should be issued so that there is transparency. Adequate allocation should be made by the government under this head. • Refunds sanctioned should be paid along with the applicable interest automatically as is done in the case of income tax and not on demand by the taxpayers. As in the case of direct taxes and customs duty drawback, the refund and interest payment should be directly credited to the bank account of the taxpayer. • The rate of interest on refunds should be the same as the interest charged by the tax department. This would ensure equity between the two interests and would not disadvantage the taxpayer unduly. • Refunds arising after a favourable appeal should be paid in time or the tax payer should be allowed to set‐off the advance tax liability or self‐assessment tax liability of subsequent years against the refunds due. • The test to determine whether there is unjust enrichment in indirect taxes should be limited to cases of refunds where there is direct passing on of amounts claimed as refunds. In any other situation, this concept should not be applied. • Refund claim subjected to pre‐audit verification should be issued within a specified time. The post‐audit verification of refund claim should be risk‐based. • An easier and simplified scheme should be introduced for service exporters. The entire refund filing and processing mechanism should be online.

♦ Foreign tax credit •The CBDT should come out with clear FTC guidelines, which should also cover the timing differences between different tax jurisdictions. •Tax collections ⇒ There should be a separate vertical for tax collection as recommended in Chapter III of this report. To improve the efficiency of debt collection activities, both the Boards should work on setting up risk assessment models to compute risk scores for each new tax debt case that reflects the likelihood of the taxpayer paying their debt based on objective criteria. ⇒ Stay of demand information should be uploaded electronically on the central server of the departments so that tax collectors can have system generated prior intimations regarding the expiry of stay orders. ⇒ The power to write off dues should be raised at

different levels of the organization and made uniform for both direct and indirect taxes. Full powers should be vested in the respective Principal DGs in charge of recovery in the respective Boards. Write off should be done in concurrence with the CFO at the headquarters level and his nominee at the regional/zonal level.

♦ Related party transactions •Both Boards should frame detailed documentation requirements for transfer pricing as well as custom valuation, keeping in view that such documentation should be reasonable, to bring certainty and predictability for the taxpayers. •There is a need to align the process in India with global best practices and to do away with the current process. With self‐assessment in place, import transactions should only be subjected to post‐clearance audit. Valuation risks would be an important component of the risk matrix for audit selection.

♦ Trade and business facilitation •As a trade facilitation measure, on‐site post clearance audit should be developed fully to enable Indian customs to move closer to international best practices. Intervention in the cargo clearance should be made on the basis of a risk matrix. •Documentation requirements for non‐resident taxpayers for a certificate under Section 197 of the I‐T Act should be well‐publicized. The taxpayer should be told a priori the time that will be taken for the issue of the certificate. That time period should be reasonable. A certificate issued in an earlier year from any other tax office in India to an assessee/payer should be attached with other documentation. There should also be a facility for electronic filing of these papers so that the need for the physical presence of the taxpayer is, to the extent possible, obviated. •The system of E‐invoicing similar to that prevalent in most Latin American countries should be introduced. Using this system a taxpayer should generate an electronic invoice through the Department’s system. Sufficient preparation and consultation with the industry and trade associations should be done before introducing this system.

♦ Enforcement Administration • There should be a dedicated structure for prosecution matters for more focused attention to this important area so that the unexploited potential for creating deterrence against tax evasion is realized. •The working of the Directorate of Intelligence and

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Criminal Investigation should be ICT based and should be given a good complement of personnel and other resources to make it realize the potential. • Non‐profit sector CBDT needs to put in the public domain a national database of the non‐profit sector to bring transparency. • Manual of tax departments Departmental manuals should be annually updated and put up on the website for easy downloading by both taxpayers and tax officers.

♦4.f. Information and Communication Technology ICT constitutes the backbone of a modern tax administration. India has made progress in this area. Nevertheless there are caveats that have to be recognized and corrected so that the system could meaningfully move forward to enable quicker processes, automatic correction of errors and inconsistencies, upgrading of software and hardware, convergence of ICT functions of the two tax departments. Information and Communication Technology and recommendations thereof comprise Chapter VII.

The TARC recommends that: •For full realization of the potential of ICT, it must get embedded in the DNA of the organization. Both the design of policies and implementation should make full use of ICT (Section VII.3.a) • The leadership must ensure that where systems are available, employees should not have the option to work in a paper environment (Section VII.3.a) •Both Boards must commit themselves to achieve a fully digitized environment and work towards comprehensive ICT system(s) in which everyone from the top leader to the last person on the frontline works in a digital environment (Section VII.3.a) •The Boards must regularly use maturity frameworks to assess their ICT maturity and map out the path towards greater maturity (Section VII.3.a) • Automation should follow business process re‐engineering to avoid the danger of getting trapped in an outdated mode of governance (Section VII.3.a) • All decisions should be taken with ICT compatibility in mind. Similarly, all legislation should be ICT‐compatible (Section VII.3.b) • The Boards must create structures and processes to enhance working relationships between business owners and DG (Systems) to ensure that ICT initiatives are aligned with business needs, priorities and

capabilities (Section VII.3.b and d) • Boards should adopt a robust ICT governance framework and practices, and rigorous programme and project management frameworks (Section VII.3.b) • Project planning and approvals must include the required number and quality of human resources (Section VII.1.b) •Movement of personnel should have a linkage with project implementation and there should be a process of knowledge transfer (Section VII.1.b) • A service oriented architecture and approach should be adopted to promote integrated systems, greater “value for money” and customer focus (Section VII.3.b) • HR policies must be aligned with the need for specialization and officers should be allowed to grow in the areas in which they specialize. Routine transfers should be avoided (Section VII.3.d) • Special training for officers in key areas of ICT should be arranged for officers of DG (Systems) (Section VII.3.e •DG (Systems) should ensure proper training for operational staff at the roll out of any new application (Section VII.3.e) • DG (Systems) should have authority and funding to depute officers for specialized courses, seminars and events and engage with professional networks and academic institutions (Section VII.3.e) •The discussions for data sharing between CBDT and CBEC should be speeded up and sharing must begin quickly (Section VII.4) •A shared knowledge, analysis and intelligence centre, headed by an expert professional, should be set up for advanced data analytics and research. The SPV can support it by providing the platform, tools and technologies, and expertise (Section VII.4) • A common special purpose vehicle (SPV) should be set up for servicing the ICT needs of the Boards (Section VII.5.a) • It should be incorporated as a company with limited liability under the Companies Act and should have a private ownership of 51 per cent and government ownership of at least 26 per cent. It should have operational independence and institutional flexibility even as government retains strategic control (Section VII.5.c) • The SPV should preferably have a net worth of around Rs.300 crore. This will ensure that the SPV is well‐capitalized, can hire the best people at competitive salaries, and invest adequately in infrastructure to manage large‐scale national projects. • The relationship between the departments and the

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SPV should be a complementary one. The tax administration would develop an overall strategy with the ICT inputs provided by the DG (Systems). The SPV will develop the ICT strategy within the framework of the overall strategy, which will be approved by the Boards. The DG (Systems) of the two Boards will continue to exist, and will perform more strategic roles and be the Boards’ interface with the SPV (Section VII.5.e) • It should aim to be financially self‐sustaining through an appropriate business model (Section VII.5.f)

• It should be operationally aligned and maintain relationships with the concerned entities in DG (Systems) to ensure effective ICT service delivery (Section VII.5.h) •The Boards, DG (Systems) and the SPV together should work out the plan for the transformation to “digital by default” status. The plan should begin with a visioning exercise to define the end state and should be programme, as opposed to project, oriented.

[Source: TARC 1st Report Executive Summery]

Government of India Ministry of Commerce & Industry Department of Industrial Policy & Promotion

Press Note No.5 ( 2014 series) STREAMING THE PROCEDURE FOR GRANT OF INDUSTRIAL LICENCES

Excise Law Update

Guidelines for Extension of validity of Industrial License.

Note: ‐ These guidelines are applicable for extension of validity of Industrial license in cases where the license holder has not commenced production of the items within three years of issue of license.

(i) The application for extension of license should be submitted to the concerned Administrative Ministry, 60 days prior to the expiry of the three years period or otherwise specified for commencement of commercial production. In case the application is not received in time, justification for late application shall have to be submitted along with the application.

(ii) At the time of applying for grant of extension of validity of license the condition and status of the firm should be same as mentioned in the Industrial License issued to the firm. Thus any amendment, viz. change in the name of the company, increases/ changes in license capacity, alteration or change in the premises, part shifting etc. should have been endorsed in the License.

(iii) Applicant’s request should be forwarded to Ministry of Home Affairs* and concerned State Government and after seeking comments of these agencies, case should be considered for Extension of validity. MHA may be consulted only if there is change in Board of Directors/ key personnel. (iv) Applicant should meet following conditions at the

time of applying of extension. a. Land should have been acquired, either under ownership or on lease for minimum period of 30 years. b. The construction on the projects should have commenced (a certificate from appropriate local body viz. Municipal Corporation) may be provided in this regard. c. Orders for plant and machinery for the project should have been placed.

(v) Cases involving transfer, suspension or cancellation of license in the intervening period shall not be considered for extension.

(vi) Renewal of License would be allowed for a period of two years. Any industrial License, wherein commercial production has not started within a period of five years of issue of license, will be treated as automatically lapsed.

(vii) The applicants fulfilling the above guidelines may be granted extension of industrial License with the approval of concerned Joint Secretary of the Administrative Ministry without referring the application to Licensing Committee.

[*Applicable in case of applicant for extension of validity of industrial License in Defence and Explosive sector]

Shubhra Singh Joint secretary to the Government of India

[Source: DIPP File No 2(13)/2012‐IL Dated 2nd, 2014

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Court Ruling

Cenvat credit ‐ Inputs used by job worker in manufacture of goods removed without of duty – Credit not deniable.

Refund – Excise Section 11 B not applicable for payment, under Cenvat Rule 6.

Excise

The Madras High Court Bench comprising Hon’ble Ms. Justice Chitra Venkataraman and Hon’ble Mr. Justice T.S. Sivagnanam on 6‐12‐2013 dismissed the Civil Miscellaneous Appeal No. 1490 of 2008 filed by Commissioner of Central Excise, Chennai – IV against the CESTAT Final Order 1172/2007, dated 19‐9‐2007 as reported in 2007(218) E.L.T. 703 (Tri‐ Chennai) ( Hwashin Automotive India Pvt. Ltd. v. Commissioner). While dismissing the appeal, the High Court passed the following judgment.

“The questions raised in the Civil Miscellaneous Appeal at the instance of Revenue are as follow:

“1. Whether in the facts and circumstances of the case, the second respondent Appellate Tribunal is right in holding that the first respondent is entitled to Cenvat credit on the inputs used in the manufacture of exempted goods and which are cleared without payment of duty on job work basis under Notification 214/86‐C.E., dated 25‐3‐1986?

2. Whether on the facts and circumstances of the case the second respondent CESTAT is right in applying the ration of judgment in the case of Sterlite Industires (I) Ltd. v. Commissioner of Central Excise, Pune, 2005 (183) E.L.T. 353 (Tri.‐LB) where the facts involved are entirely distinct and different from the facts of the case on hand and so when the said decision has not reached finality?”

3. The learned counsel appearing for the first respondent produced before this court an unreported decision in C.M.A No. 1568 of 2006, dated 18‐7‐2013,

wherein a similar question raised by the Revenue was answered against the Revenue following the decisions of the Bombay High Court reported in 2009 (244) E.L.T. A89 – Commissioner v. Sterlite Industries (I) Limited as well as the Punjab and Haryana High court reported in 2012 (26) S.T.R. 488 – Commissioner of Central Excise, Ludhiana v. Jainsons Wool Coombers Ltd., which were based on the decision of the Apex Court reported in 2004 (171) E.L.T. 145‐ Escorts Limited v. Commissioner of Central Excise , Delhi.

4. Following the said decision, the questions raised in this appeal stand answered against the Revenue. The Civil Miscellaneous Appeal stands dismissed. No costs.”

The Appellate Tribunal in its impugned order had held that common inputs were used in manufacture of dutiable and exempted goods. Goods were cleared on payment of duty and job worked goods were cleared without payment of duty. Larger Bench decision in case of Sterlite Industries (I) Ltd. v. Commissioner [ 2005 (183) E.L.T. 353 (Tri‐LB)] holding that job worker are entitled to credit on inputs used in manufacture of goods cleared by it without payment of duty , is applicable . Payment of amount under Rule 6 of Cenvat Credit Rules, 2002/2004 is not required and refund is thereof admissible . Impugned amount not being duty, Section 11b of Central Excise Act, 1944 is not applicable. Unjust enrichment is not attracted as amount was not collected from customers. Impunged order is not sustainable.

[Source E.L.T. 2th June 2014]

Non‐Receipt of TISA

TISA is posted on 8th of every month. This has to reach upto 15th of every month by the subscribers. It is posted on the Address communicated to us by the subscribers. The subscribers and members are requested to get‐in‐touch with the local post office for the Non‐Receipt of the TISA with a information to COSIA. COSIA may send another copy if available with it. Your cooperation is solicited.

Eknath Sonawane, Executive Secretary

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2014 (303) E.L.T. 589 (Tri.‐ Del.) IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI

[COURT NO. III] Ms. Archana Wadhwa, Member (J) and Shri Rakesh Kumar, Member (T)

PRISMA ELECTRONICS Versus

COMMISSIONER OF CENTRAL EXCISE, NOIDA Final Order Nos. A/58458‐58461/2013‐EX(DB), dated 28.11.2013 in Appeal Nos. E/1615‐1618/2009 –EX(DB)

Valuation (Central Excise) ‐ Sale through related person –Effect of, on assessment –HELD: Where the sale is through related person and the goods are specified goods in terms of Section 4A of Central Excise Act, 1944, it is Section 4A ibid that would be attracted for the purpose of assessment and not Section 4 ibid – On facts, denial of Section 4A ibid assessment to appellant who was clearing goods (colour TV sets) to related person by paying duty on the maximum retail price, not proper –Sections 4 and 4A ibid. [paras 5,6] Appeals allowed [Order per : Archana Wadhwa, Member (J) (for the Bench)].‐ All the appeals are being disposed of by a common order as they arise out of same impugned order of Commissioner vide which he has confirmed demands against M/s. Prisma Electronics and has imposed penalties on the other appellants.

2. After hearing both sides, we note that M/s. Prisma Electronics is engaged in the manufacture of colour Television sets. The same were being cleared by them to M/s. Dixon Technology (India) Pvt. Ltd. by paying duty on the maximum retail price of Rs. 2,740 per piece in terms of Section 4A of Central Excise Act, after availing the admissible abatements. M/s. Dixon Technology (India) Pvt. Ltd. were further selling the said colour TV sets to M/s. Elecot, Tamil Nadu Government Enterprises, which were further distributing the said Televisions free of cost to various people.

3. The dispute in the present appeal relates to the legal issue as to whether the clearance of colour TV sets by M/s. Prisma Electronics by paying duty under Section 4A of the Act was appropriate or they were required to discharge duty liability in terms of Section 4 of Central Excise Act. Revenue by entertaining a view that since M/s. Dixon Technology (India) Pvt. Ltd. were related parties to M/s. Prisma Electronics and as entire 100% sales were being made to M/s. Dixon Technology (India) Pvt.

Ltd., it is the provisions of Section 4 which would get attracted. Accordingly, demand stand raised and confirmed on the basis of Section 4 of the Central Excise Act.

4. After hearing both sides, we find that there is no dispute about the MRP affixed on the colour TV sets which is Rs. 2740.40 per piece. The said MRP was adopted by M/s. Dixon Technology (India) Pvt. Ltd. for further sale of the Televisions to M/s. Elecot. As such, it is not a case where the MRP was subsequently enhanced in the hands of buyers. 5. The Commissioner sole reason for adhering to the provisions of Section 4 in preference to Section 4A is that M/s. Dixon Technology (India) Pvt. Ltd. is a related party to M/s. Prisma Electronics. We find that identical legal dispute was the subject matter of the Larger Bench decision in the case of Indica Laboratories Pvt. Ltd. v. CCE [2007 (213) E.L.T. 20 (Tri. –LB)] wherein after taking note of the entire legal provisions, it was held that the sale through related person is not relevant for the purpose of assessment under Section 4A inasmuch as Section 4A(2) of the Central Excise Act starts with non obstante clause –“notwithstanding anything contained in Section 4”.

As such, the Larger Bench observed that even where the sale is through related person and the goods are specified goods in terms of [Section] 4A, it is Section 4A which would be attracted for the purpose of assessment.

6 In view of the above declaration of law by the Larger Bench and in view of the fact that this is sole reason adopted by the Commissioner for denial of Section 4A assessment, we set aside the impugned order and allow all the four appeals with consequential relief to the appellants.

(Dictated and ronounced in the open Court)

[Source: Excise Law Times dated 26.05.2014]

Court Ruling Excise

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Refund – Export of Services – Rejection of claim for failure to fulfill conditions under Rule 3(2) of Export of Services Rules , 2005 – HELD : Location of service receiver sufficient to determine whether service is an export of service – Service receiver located abroad – Therefore, assessee required to show actual realization of amount for services rendered and payment of Service Tax by providing documentary evidence – On perusal of debit notes, impugned requirements fulfilled – Assessee eligible for refund – Section 11B of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994‐ Rule 3(2) of Export of Service Rules, 2005. [para 4] Refund – Unjust enrichment – Export of service – Claim similar to rebate therefore unjust enrichment clause inapplicable – Debit notes clearly showing non‐collection of Service Tax‐ FIRCs amount tallying with debit notes – Assessee eligible for refund sanctioned – Section 11B of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act 1994. [para 4]

Appeal rejected [Order]. – The respondent who is rendering taxable services under the categories of business auxiliary service, consulting engineer and transport of goods by road services. The respondents claimed refund of Rs. 6, 64,886/‐ being 2014] COMMR. OF. S.T., BANGALORE v. WIENERBERGER BRICK INDUSTRIES PVT. LTD. the Service Tax paid on 4‐7‐2008 as commission received on sales and marketing of goods manufactured abroad and sold to Indian customers. The goods were manufactured by the sister companies of the respondent. Taking a view that the respondent had not fulfilled the conditions under Rule 3(2) of Export of Services Rules, proceedings were initiated for rejecting claim. The original authority rejected the refund claim on three grounds: 1. There was no agreement/ contract with the foreign principal to establish the nature of services so

provided. 2.In the absence of export invoices, whether noticee had provided the service and whether they have received the commission could not be ascertained. 3.The respondent failed to submit any

concrete evidence or document to establish that they have not passed on the burden of Service Tax to their customers. On an appeal filed by the respondent, the impugned order was passed whereby the appeal was allowed and Revenue is in appeal aggrieved by this order.

3. The learned Adl. Commissioner (AR) vehemently argued that the respondents are not eligible for the refund claim at all since there was no linkage between the debit notes and the services rendered; there was no link between the debits notes and the amount received; there was no agreement or contract to show the nature of service rendered. The respondent did not furnish any proof to show that they had not passed on the burden of Service Tax to their foreign principals; that the respondents did not produce export invoices.

4. The learned advocate on behalf of the respondents would submit that all these points have been considered in the impugned order and dealt with. The question of unjust enrichment does not arise in this case since the tax was paid subsequently and immediately after realizing that the same is not due, refund claim was filed. Further Chartered Accountant’s certificate was also produced to show the nature of services rendered and also to show that there was no unjust enrichment. The debit notes contained the essential details which are required and were verified by the learned Commissioner (Appeals) and he was satisfied. Further, the appellant had produced foreign remittance certificate which shows the consideration in foreign currency for the service rendered, conversion rate, amount received and the certificate also show the

Court Ruling Service Tax 2014 (34) S.T.R. 860 (Tri.‐ Bang.)

IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE Shri B.S.V. Murthy, Member (T) COMMR. OF S.T., BANGALORE

Versus WIENERBERGER BRICK INDUSTRIES PVT. LTD

Final Order No. 25319/2013/dated 23‐4‐2013 in Appeal No. E/204/2011

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Export, Import Management, Marketing, Self‐Employment, ISO 9000 and also in Personality Development, Stress Management by Omkar Therapy.

Contact: Vaishali Kulkarni.

Tel.: (R) 25825688, Fax: 25822249. Mobile: 9821245820

SAMARTH MANAGEMENT SOLUTIONS Excise & Service Tax Registration,

Cera Audits, Attending Show‐Cause‐Notice, Hearing, Filing of ST & Excise Returns, etc.

Contact Person : Priya Joshi Mob. No. 9819225870/8097841839

Email: [email protected]

Classifieds

Mr. V. Venkatraman Excise Consultant

Shop No. 3, Shree Sai Appts., Behind Dany’s Comp.,

Karvalo Nagar, Thane – 400 606 Contact : 25827722/25810419

EPABX Specialist in:

Accord, Crystal, NEC & Panasonic Systems. Access Control, Building Intercom System, CCTV &

Security System, Digital Epabox Systems Calculus Business Machines Shri. Rakesh Shirgaonkar

Mob. : 9821308924

purpose for which the payment was received.

5. I have considered the submissions made by both sides. The learned counsel for the respondent showed me samples of debit notes and FIRC’s . On going through the same, I find myself in agreement with the learned Commissioner (Appeals) who has also come to the conclusion that the debit notes comply with the requirement of invoices and there is proper linkage for realizing all the amounts. In fact, the Rules provided for the details to be contained invoices and the name of the document is not relevant. Further the Rules also provide in the case of assesses who availed Cenvat credit on the basis of documents containing certain deficiencies, the deficiencies in the invoices can ignored. In this case what is required to be examined is whether the service rendered by the respondent was a taxable service or not and if it was taxable, whether it was really exported or not. The original adjudicating authority himself admitted that as per the Board’s Circular 111/5/2009‐S.T. , dated 24‐2‐2009, the location of the service receiver and not the place of performance is the relevant factor. In this case there is no dispute that the service receiver was located abroad. Once it is established that location of service receiver is sufficient for determining whether service was export of service and the service receiver was located abroad, the only requirement for assessee to get the refund should be to show that he had actually realized the amount for the

services rendered by providing documentary evidence and he has actually paid the Service Tax. These two requirements have been fulfilled when we go through the debit notes, FIRCs and the CA certificates. As regards unjust enrichment, even as per the provisions of Section 11B of the Central Excise Act, in case of rebate in respect of exported goods, this need not be examined. The claim of the appellant is similar to rebate. Only the name has not been mentioned since the claim has been made on the ground of export of service. Therefore, unjust enrichment clause itself may not be applicable. In any case, as observed by the learned Commissioner (Appeals), in this case, the Chartered Accountant’s certificate produced by the respondent serves the purpose. Further, from the debit notes it is quite clear that no Service Tax was charged and therefore the collection of Service Tax apparently has not been made. FIRCs amount tallies with the debit note. Under these circumstances it cannot be stated that the appellants have charged Service Tax. Even though several decisions were cited by the learned counsel to support his submissions, the same had not been discussed since, I have reached the conclusion independently that the respondents are eligible for refund which has been sanctioned. Accordingly the appeal filed by the Revenue is found to be without any merits and accordingly is rejected.

(Pronounced and dictated in open Court) [Source : Service Tax Review dated 15th June 2014]

Court Ruling

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PRESS NOTE Clarification issued by the Legal Metrology Division of the Department of Consumer Affair regarding verification & stamping of weights & measures used for any intermediatery processes in the industries during industrial production under the Legal Metrology Act, 2009: Press Note dated 6th May,2014

The Ministry of Food Processing Industry had taken up the issue of annual verification of weight & measures in food processing industry as per the law in force. On the issue, the Legal Metrology Division of the Department of Consumer Affair have issued a circular on 11th April 2014 to the Controller of Legal Metrology in all States/UTs clarifying that the weights and measures used for any transaction and for protection shall only be verified and stamped as required under Section 24(1) of the Legal Metrology Act, 2009. The Controllers of Legal Metrology have been advised to direct the enforcement officers to verify and stamp only those weights and measures which are covered under the ‘Transaction’ and ‘Protection’ as defined in Section 2(u) and Section 2(k) of the Act (ibid) respectively. Section 24(1) of the Legal Metrology Act, 2009 states that:

“24. Verification and stamping of weight or measure: (1) Every person having any weight or measure in his possession, custody or control in circumstances indicating that such weight or measure is being, or is intended or is likely to be, used by him in any transaction or for protection, shall, before putting such weight or measure into such use, have such weight or measure verified at such place and during such hours as the Controller may, by general or special order, specify in this behalf, on payment of such fees as may be prescribed.” Where the words transaction and protection are defined under Section 2(u) and Section 2(k) of the said Act as follows: “2 (u) “transaction” means,‐ (i) any contract, whether for sale, purchase, exchange or any other purpose, or (ii) any assessment of royalty, toll, duty or other dues, or (iii) the assessment of any work done, wages due or services rendered ; 2 (k) “protection” means the utilization of reading obtained from any weight or measure, for the purpose of determining any step which is required to be taken to safeguard the well‐being of any human being or animal, or to protect any commodity, vegetation or thing, whether individually or collectively;” In view of the aforesaid provisions in the Act, the weights and measures used for any transaction and for protection shall only be verified and stamped. The Controllers of Legal Metrology of all states/ UTs have been, accordingly, advised to direct the enforcement officers not to insist for the verification of weights and measures used for any intermediatery processes in the industries during industrial production, as these weights and measures do not affect the quantity delivered to the consumers and are not used for any transaction. *****

No verification of weights and measures for any intermediatery processes in the industries during industrial production.

COSSIA Success

In order to get the final product (commodity) raw materials are required to be measured in the intermediatery processes by the industries. For the said purpose weights and measures are used by the entrepreneurs. Though these weights and measures has nothing to do with the final quantity of the product, there was insistence on the industries to get verified such weights and measures from the department of weights and measures. In fact this is a sort of legal harassment providing for corruption and mal practices.

Nearly for a decade, COSSIA was pursuing this matter with the Ministry of Consumers Affairs, Ministry of MSME, Ministry of Commerce and Industry and Ministry

of Food Processing requesting to exempt from verification the weights and measures which are used for intermediately processes .

A Press Note to this effect has been issued by the Legal Metrology Division, Govt. of India

clarifying and directing the enforcement officers not to insist for the verification of weights and measures used for any intermediatery processes in the industries during industrial production, as these weights and measures do not affect the quantity delivered to the consumers and are not used for any transaction. Thus , COSSIA efforts has brought desired results . Find below the said Press Note of Govt. of India.

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marazI ivaBaaga

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25@ Flashback .

The COSIA Adarsh Entrepreneur Award is being constituted in the year 200910 the sole criteria of which is, “running a small industry successfully with profit but without any

corrupt practices.”

This itself distinguishes this Award from other Awards for industries which neglects the aspect of morality in life. Ample Awards are presented to the MSMEs on the criteria of technology, innovation, import substitution, exports and so on but not on the solid base of moral values.

In fact, any business is just a part of life and not the life itself. Everybody speaks for malpractices in life but very few dare to live the life on principles and do every activity including business on principles and moral values. To spread the message that business

can be successfully run with the adoption of principles and to form an army of such entrepreneurs in the country and also to salute such entrepreneurs for their services to the nation, COSIA Adarsh Entrepreneur Award is a way forward for a clean and transparent society as such.

The First COSIA Adarsh Entrepreneur Award was presented to Shri. Suresh Hundre, CMD of M/s. Polyhydron Pvt. Ltd. of Belgaum [Karnataka] at the hands of Hon’ble Shri.Narendra Chapalgaonkar, Ex. Justice of Mumbai High Court on the occasion of 18th Annual General Meeting. Thereafter, in last two years Shri. A. J. Singh, Executive Director of M/s.Tynor Orthotics Pvt. Ltd. of Mohali [Punjab]and Shri. Dharmu Vanjani, CEO of M/s. S. S. Natu Plastics & Metal Pvt. Ltd. & Proprietor of Paras Industries of Thane [Maharashtra] had been honoured with this Award.

The 1st COSIA Adarsh Entrepreneur Award is being presented to Shri. Suresh Hundre at the hands of Ex. Justice Hon’ble Shri. Narendra Chapalgoankar in the august presence of Shri. M. Narendra, currently CMD of Indian Overseas Bank. Also seen in the picture Dr. M.R. Khambete, COSIA‐President, Mrs. Hundre and Shri. P.S. Agwan, Hon. General Secretary of COSIA.

COSIA’S Distinguished Award

(7th Aug.‘14) TISA 35 cosia.org.in

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