Latest Blogs from SBS and Company LLP

    Blocked Credit on Free of Cost Supplies - The Gloomy Picture and a Glimmer of Hope

    Introduction:

    One of the objectives for implementation of GST in India is to ensure seamless flow of credit among business to shift the entire tax burden to ultimate consumers of the supply. In line with this objective, Section 16(1) of the CT Act[1] facilities input tax credit (‘ITC’/’Credit’) availment by a registered taxable person on all inward supply of goods or services that are used in the course or furtherance of his business. However, Section 17(5) blocks credit availment on certain inward supply of goods and services specified thereunder. Clause (h) of section 17(5) provides blocks credit on goods lost, stolen, destroyed, written off or disposed by way of gifts. The presence of this clause in section 17(5) coupled with the Revenue’s perception on the meaning of the term ‘gift’ let the taxpayers into defense. They are forced to forego credit on certain expenditure to avoid potential litigation. These expenditures include expenses incurred towards incentives and promotional schemes, promotional gift articles, dairies, pens etc., to promote brand name and expenses towards Corporate Social Responsibility (‘CSR’) Activities. In the humble opinion of the paper writers, credit is available on this expenditure and are not covered by section 17(5)(h). An attempt is made in this article to bring out the reasons why credit can be claimed on these expenditures.

    SBS Wiki E Journal Feb 2021

    In this edition, we bring you an article on the second part on the prevention of abusive strategy of thin capitalisation, which deals with various issues. The next article is on the eligibility of credit with respect to supplies which are made as part of promotion schemes and discharge of CSR obligations. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.

    Key Topics:

    GST

    • BLOCKED CREDIT ON FREE OF COST SUPPLIES— THE GLOOMY PICTURE AND A GLIMMER OF HOPE

    INCOME TAX

     Comprehensive Analysis of Service Tax & GST Implications on Mining Rights

    Introduction:

    At the time of introduction of negative list-based taxation under service tax law[1] effective from 01.07.2012, only selected services provided by Government are subject to service tax and the rest are covered under the negative list. With effect from 01.04.2016, the negative list contained in section 66D was amended to exclude all services provided by Government from negative list and to bring them under levy. Further, these services were subjected to reverse charge requiring the recipient to pay tax.

    Since then, applicability of service tax over royalty paid by mining companies to State Governments towards mineral rights has been a subject matter of debate.  The industry is of the view that royalty payable on mineral rights itself is in the nature of tax and service tax cannot be levied on such tax amount. The matter was examined by Rajasthan High Court in Udaipur Chambers of Commerce and Industry[2] and ruled the issue in favor of Revenue. The same has been challenged before the Supreme Court[3] which is pending for disposal.

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    Domestic Transfer Pricing - A Bird’s Eye View

    The concept of transfer pricing was introduced in the IT Act through Finance Act 2001 in order to make sure that appropriate amount of income is subject to tax in India and to curb the practice of tax avoidance. The Honourable Finance Minister in his budget speech for the year 2001 has stated as under:

    1. The presence of multinational enterprises in India and their ability to allocate profits in different jurisdictions by controlling prices in intra-group transactions has made the issue of transfer pricing a matter of serious concern. I had set up an Expert Group in November 1999 to examine the issues relating to transfer pricing. Their report has been received, proposing a detailed structure for transfer pricing legislation. Necessary legislative changes are being made in the Finance Bill based on these recommendation[1]

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    SBS Wiki E Journal Jan 2021

    In this edition, we bring you an article on indirect tax implications on mining rights. Majority of the readers would know that there was a reverse charge obligation on businesses for support services received from government. The tax authorities using this particular obligation has tried to fasten liabilities on mining rights taken by the businesses from the government. Whether a mining right can be called as a ‘tax’ or ‘consideration for service’ is currently pending before 9 member bench at Honourable Supreme Court. We have comprehensively discussed about the said issue pending the outcome of judgment.

    The next article is on domestic transfer pricing regulations. With the introduction of Section 115BAB, the said domestic transfer pricing regulations have come again to the surface. In this part, we have dealt with the basic overview of the domestic transfer pricing regulations and in the upcoming parts, we are going to take certain case studies for deliberation.

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