When I became a father :

October 2nd 2012 has become special for lifetime , as along with the Father of the Nation’s Birthday it’s a day when I became a father as well . I thought I could share some of my initial experiences of fatherhood and hence is this blog .

Since my childhood , my mom’s favorite phrase when I was not allowed to do something that I liked and use to get upset and angry, was “you will realise this only when you become a father” and now finally I became one.

I still remember way back in February 2012 when the news got confirmed, my first reaction , was age is catching up , you gonna be a father .

But slowly as the days passed , I could feel how blessed is the experience of motherhood as I was seeing my wife Chitra go through it and with each day I use to think and tell my mother that “you would have gone through the same when you had me “ and was seeking forgiveness for my unacceptable behavior . Its amazing to see the love , affection and care with which a mother brings her child to the world and it’s an ongoing process ever after I guess. I have always loved my parents the most , but I don’t take them for granted anymore as now I realise what they would have undergone in parenting.

I could also see that we had some wonderful people around (colleagues / friends and their families ), always giving us advises on what to do , how to do , whom to consult which helped us go through these 9 months without any major issues . Finally on October 1st night wherein I got the call from Kerala where I had dropped her in the 7th Month “ I feel the d day is tomorrow ” and I rushed in and till the moment I reached by her side early morning on 2nd October , I did not know what was happening around and felt more nervous than the professional Exams which has always been nightmarish .

On 2nd October in the evening , when the baby arrived the world had changed there were wishes and happiness all around and its one of the best days in my life and would remain so . When I first saw her outside the labour room , I saw a tiny little angel with her eyes closed may be trying to tell me Dad I have arrived…

Penalty under Service Tax

Penalty should not be imposed for if Assessee Paid service tax along with interest and late fee deposited before issue of Show Cause Notice

Saraswati Engineering v. CCCES (Cestat) – If the assessee has discharged the service tax liability on his own ascertainment or on the basis of ascertainment by the Central Excise officers and inform the Central Excise officer of payment of such service tax then, no notice under sub-section (1) in respect of the amount so paid shall be served. In the instant case, the assessee discharged the tax liability for the period April to September, 2007 in August 2007 and May 2008. Interest amounting to Rs. 10,049/- was paid on 05/05/2008. They had filed the return due on 25/10/2007 by 09/05/2008. They also paid the late fee of Rs. 2,000/- for the delayed filing of the return as per the instructions of the officer who received the return. The above conduct of the assessee make it abundantly clear that there was no wilful misstatement or suppression of fact on the part of the assessee. Therefore, the provisions of sub-section (3) of Section 73 is clearly attracted in the facts of the case and issuance of a show-cause notice for demand of service tax and imposition of penalties was not at all warranted.

CESTAT, MUMBAI BENCH

Saraswati Engineering

v.

Commissioner of Customs, Central Excise & Service Tax, Nagpur

ORDER NO. A/294/11/SMB/C-IV

APPEAL NO. ST/305/2009

JULY 20, 2011

ORDER

1. This appeal is directed against the Order-in-Appeal No: SR/195/NGP/2009 dated 07/09/2009 passed by the Commissioner of Customs & Central Excise (Appeals), Nagpur.

2. Briefly stated the facts of the case are as follows:

2.1 The appellant, K.G.K. Nair, proprietor of M/s. Saraswati Engineering, Gadchandur, Distt. Chandrapur is a small-scale contractor engaged in providing Maintenance and Repair Services and holds Service Tax Registration No. 263/MRS/CND/2003-04. During the period from April to September, 2007 the appellant provided the said services to M/s. Manikgarh Cement, Gadchandur. The value of the taxable service so provided amounted to Rs. 19,11,058/-. The service tax payable thereon amounted to Rs. 1,98,724/-. The appellant collected service tax from the recipient of the service but did not remit the same immediately to the credit of the Revenue. The appellant paid an amount of Rs. 83,820/- towards service tax on 21/08/2007 and paid the balance amount of Rs. 1,14,904/- on 05/05/2008. The appellant also discharged the interest amount of Rs. 10,049/- for the late payment of service tax. The appellant filed the service tax return for the said period on 09/05/2008 after a lapse of about 6 months and was directed to pay the late fee of Rs. 2,000/- for the delayed filing, which was also paid by the appellant.

2.2 The jurisdictional Assistant Commissioner issued a show-cause notice dated 20/10/2008 alleging non-payment of service tax for the said period and also proposing imposition of penalties under Sections 76, 77 and 78 of the Finance Act, 1994. The appellant did not file any reply to the show-cause notice. Therefore, the adjudicating authority passed an ex parte order dated 30/03/2009 wherein he confirmed the service tax amount of Rs. 1,98,724/-, interest on the said amount under Section 75 and imposed an equivalent amount of penalty both under Section 76 and under Section 78 of the Finance Act, 1994 and a further penalty of Rs. 1,000/- under Section 77.

2.3 The appellant-assessee filed an appeal before the Commissioner (Appeals) and submitted before the said authority that they had discharged the service tax liability and interest thereon much before the issue of the show-cause notice and had also filed the service tax return for the relevant period before the issuance of the notice. They also informed that they had also deposited late fee of Rs. 2,000/- for the delayed filing of the return and, therefore, they pleaded that as per the provisions of Section 73 of the Finance Act, 1994, no notice could have been issued against them for demanding service tax and also for imposition of penalties. Therefore, they prayed for setting aside the penalties imposed. However, the learned Commissioner (Appeals) did not consider their pleas and passed the impugned order upholding the confirmation of service tax and imposition of penalties and rejected the appeal completely.

2.4 The appellant is before me against the said order.

3. The learned advocate for the appellant submits that in spite of the submissions made before the lower appellate authority that in view of the provisions of sub-section (3) of Section 73, no notice could have been issued on the appellant and no penalty could have been imposed. The lower appellate authority did not consider this plea and merely confirmed the order of the lower adjudicating authority. When the show-cause notice itself is not maintainable in view of the above provisions of law, the orders of the adjudicating and appellate authorities are bad in law and not sustainable.

4. The learned SDR, on the other hand, reiterates the findings given by the lower authorities. However, he fairly concedes that the appellate authority has not given any finding on the pleas made by the appellant and, therefore, the matter be sent back to the lower appellate authority for reconsideration.

5. I have carefully considered the submissions. From the records it is seen that the appellant had discharged the service tax liability of Rs. 1,98,724/- along with interest thereon well before the issue of show-cause notice. They had also paid the late fee of Rs. 2,000/- for the delayed filing of the service tax return. In spite of this the department has chosen to issue a show-cause notice in October 2008. Sub-section (3) of Section 73 reads as follows:

“(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:

Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of “one year” referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation. – (1): For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this subsection and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

Explanation - (2) For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service-tax under this sub-section and interest thereon.”

6. A plain reading of the above provisions makes it abundantly clear that if the assessee has discharged the service tax liability on his own ascertainment or on the basis of ascertainment by the Central Excise officers and inform the Central Excise officer of payment of such service tax then, no notice under sub-section (1) in respect of the amount so paid shall be served. In the instant case, the assessee discharged the tax liability for the period April to September, 2007 in August 2007 and May 2008. Interest amounting to Rs. 10,049/- was paid on 05/05/2008. They had filed the return due on 25/10/2007 by 09/05/2008. They also paid the late fee of Rs. 2,000/- for the delayed filing of the return as per the instructions of the officer who received the return. The above conduct of the assessee make it abundantly clear that there was no wilful misstatement or suppression of fact on the part of the assessee. Therefore, the provisions of sub-section (3) of Section 73 is clearly attracted in the facts of the case and issuance of a show-cause notice for demand of service tax and imposition of penalties was not at all warranted.

7. Learned advocate is only challenging the imposition of penalties and not any other amount paid by his client. In view of the above legal provisions I hold that the imposition of penalties under Sections 76, 77 and 78 in this case was not at all warranted and therefore, I set aside the same. Thus the appeal is allowed with consequential relief, if any.

“Royalty” Still Not Taxable as DTAA prevails over the retro law.

Despite Retro Law By Finance Act 2012, “Royalty” Not Taxable as DTAA prevails

The assessee, a Mauritius company, made payment to Panamsat, USA, for hire of a “transponder satellite”. The AO held that the said hire charges constituted “royalty” and that the assessee ought to have deducted TDS u/s 195 and that as it had not done so, the amount was to be disallowed u/s 40(a)(ia). Before the Tribunal, the department argued that though as per Asia Satellite 332 ITR 340 (Del), the hire charges were not assessable as “royalty”, this verdict was no longer good law in view of the amendment to s. 9(1)(vi) by the Finance Act 2012 w.r.e.f. 1.4.1976 to provide that such hire charges shall be assessable as “royalty”. HELD by the Tribunal:

(i) In Asia Satellite 332 ITR 340 (Del) it was held that in order to constitute “royalty”, the payer must have the right to control the equipment. A payment for a standard service would not constitute “royalty” merely because equipment was used to render that service. A similar view was taken in Skycell Communications 251 ITR 53 (Mad). In De Beers (Kar) & Guy Carpenter (Del) it was held that to “make available” technical knowledge, mere provisions of service was not enough and the payer had to be enabled to perform services himself. The department’s argument that the amendments by the Finance Act, 2012 changes the position is not acceptable because there is no change in the DTAA between India and USA and the DTAA prevails where it is favourable to the assessee;

(ii) Even otherwise as the payment is made from one non-resident to another non-resident outside India on the basis of contract executed outside India, s. 195 will not apply as held in Vodafone International Holdings B.V. 341 ITR 1 (SC). As s. 195 did not apply, no disallowance can be made u/s 40(a)(i);

(iii) Further, as prior to the insertion of s. 40(a)(ia) in AY 2004-05, payments to a resident did not require TDS, under the non-discrimination clause in the DTAA, the disallowance u/s 40(a)(i) in the case of non-residents cannot be made as held in Herbalife International 101 ITD 450 (Del), Central Bank of India & Millennium Infocom Technologies 21 SOT 152 (Del).



Interest paid by PE of foreign bank to H.O. is deductible in hands of PE, same interest is not taxable in hands of H.O.

While interest paid by PE of foreign bank to H.O. is deductible in hands of PE, same interest is not taxable in hands of H.O.

The assessee, a Japanese bank, carrying on business through a PE in India, paid interest of Rs. 5 crores to its H.O. & other branches. The assessee, in computing the profits assessable to tax in India, claimed that while the interest received by the H.O. & other branches from the PE was not chargeable to tax in India on the principle that the PE & H.O. were one & the same entity, the PE was entitled to claim a deduction under Article 7 of the DTAA. The AO held that the PE & the H.O. were deemed to be separate entities and that while the interest received by the H.O. from the PE was taxable under Article 11, deduction for that interest could not be allowed to the PE u/s 40(a)(i) as it had failed to deduct TDS. The CIT (A) followed the verdict of the Special Bench in ABN Amro Bank 98 TTJ 295 (Kol) (partly affirmed in ABN AMRO 198 TM 376) and held that the interest was neither chargeable to tax nor allowable as a deduction. On appeal to the Tribunal, the matter was referred to a 5 Member Special Bench. HELD by the Special Bench:

(i) On the question whether the interest paid by the PE to the H.O. is deductible, while such interest is not deductible under the Act because the payer & payee are the same person, Article 7(2) and 7(3) of the DTAA & its Protocol makes it clear that for the purpose of computing the profits attributable to the PE in India, the PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for, inter alia, interest on moneys lent by the PE of a bank to its H.O.

(ii) On the question of taxability of the interest received by the H.O. from the PE, such interest is not taxable under the Act as both are, under the Act, the same person and not separate entities & one cannot make profit out of himself. The fiction created in Article 7(2) of the DTAA treating the PE as separate and independent entity does not extend to Article 11. Also, the interest paid by the PE is not interest paid in respect of debt claims forming part of the assets of the PE so as to attract Article 11(6). The DTAA, even assuming that it does create a liability, cannot be applied u/s 90(2) as it is contrary to the Act and less favourable to the assessee (Q whether the interest paid by the PE should be netted off against the interest received left open).