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    ManualsService Tax
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    ManualsService Tax
    Whether issuance of SCN under section 73 is mandatory to fix the liability of the assessee? Whether ...
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    SCN requirement: absence of a show-cause notice prevents imposition of service tax and interest under revision.
    Issuance of a show-cause notice under the demand provision is a prerequisite to fix service tax and interest; where only a penalty notice was issued under the penalty regime, the revisional authority cannot validly pass an order demanding service tax with interest because the penalty notice cannot substitute for a demand-stage show-cause notice.
    ManualsService Tax
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    Right to be heard required before finalising provisional assessment; taxpayer must be told grounds and allowed to respond.
    An assessing authority must inform the taxpayer of the specific grounds for proposed enhanced liability and afford a meaningful opportunity to meet those grounds before finalising a provisional assessment, as a baseline requirement of natural justice in assessment proceedings.
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    Provisional assessment appeals permitted where statute and rules authorize provisional determinations, allowing aggrieved parties to prefer appeals.
    Provisional assessments are authorized by the Act and Rules, and an aggrieved party retains the right to appeal against such provisional assessments; the provisional nature does not by itself preclude preferring appeals under the applicable appellate procedure.
    ManualsService Tax
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    Non-filing of memorandum for provisional assessment is a procedural omission and does not negate provisional assessment.
    Non filing of the memorandum in Form ST 3A does not by itself negate the existence of a provisional assessment; the form serves to supply date wise details to enable the proper officer to make an accurate final assessment, and omission of that statement does not preclude that assessments were provisional, especially where the taxpayer later requests and the proper officer completes a final assessment.
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    Best judgment assessment must be reasoned, not arbitrary; it requires material support and more than mere guesswork.
    A best-judgement assessment allows limited estimation but the assessing officer must make an honest, fair and reasoned estimate and cannot act wholly arbitrarily; technical rules of evidence are relaxed but the assessment must be based on more than mere suspicion or pure guesswork and should be supported by adequate material rather than unsupported conjecture.
    ManualsService Tax
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    Best judgment assessment: courts may not substitute their own estimate if the assessing authority's basis has reasonable nexus.
    Assessment based on accounts is proper where books are genuine and substantially correct, with only minor adjustments; a best judgment assessment is used when accounts are unreliable and the authority estimates liability using available accounts, other information and surrounding circumstances. Courts reviewing a best judgment assessment must first confirm that rejection of accounts was justified and then assess whether the estimating basis has a reasonable nexus to the estimated turnover; if so, the authority's bona fide estimate should not be displaced.
    ManualsService Tax
    What is the meaning of Assessment? What is the meaning of Assessee?
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    Assessment in service tax: scope includes self assessment, reassessment, provisional and best judgement modes and interest determination.
    Assessment for service tax includes self-assessment, reassessment, provisional assessment, best judgement assessment and any order where tax assessed is nil; it also includes determination of interest on assessed or reassessed tax. "Assessee" means a person liable to pay the tax and includes the person's agent.
    ManualsService Tax
    What is the relevance of self declaration given at the end of service tax return regarding to self a...
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    Untrue self-declaration in tax return corroborates suppression and can trigger penalty under self-assessment procedures.
    An untrue declaration in a service tax return asserting that tax has been paid corroborates suppression and attracts penalty; absence of a bona fide statement on the return or with the return renders the declaration faulty and imputes liability under the self-assessment procedure.
    ManualsService Tax
    Whether records can be preserved in electronic form? if yes, what procedure is need to be followed f...
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    Electronic preservation of records permitted subject to every page being authenticated by digital signature and prescribed safeguards.
    Preservation of records in electronic form is permitted provided each page of the record is authenticated by a digital signature, and the Board may prescribe further conditions, safeguards and procedures for maintaining digitally signed records.
    ManualsService Tax
    What will be treatment in case of partial reverse charge if service provider is covered under SSI ex...
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    Partial reverse charge: provider exempt under SSI does not pay; service receiver still liable for receiver's portion of tax.
    Where a service falls under partial reverse charge and the provider is covered by the SSI exemption and not liable to pay service tax, the provider's obligation to pay its share is eliminated while the service receiver remains independently liable to pay the receiver's portion under the reverse charge mechanism.
    ManualsService Tax
    What changes have been made in services by way of supply of manpower for any purpose or security ser...
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    Reverse charge liability now places full service tax responsibility on the service recipient for manpower and security services.
    W.e.f. notification no. 07/2015-ST the services by way of supply of manpower for any purpose and security services have been placed under a full reverse charge mechanism, making the service recipient exclusively liable to discharge the entire service tax; the earlier partial reverse charge split between recipient and service provider has been removed.
    ManualsService Tax
    What is the meaning of Partial reverse charge? Which services are covered under partial reverse char...
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    Partial reverse charge: service tax liability split between provider and recipient; third-party payers allowed under notification
    A scheme of partial reverse charge allocates service tax between provider and recipient by notifying services and the share payable by the recipient, the provider paying the remainder. As at 01/04/2015 the notification covers renting of passenger motor vehicles to persons not in the same business and the service portion of works contracts. The framework also allows liability to be placed on persons other than provider or recipient, for example a representative of an aggregator, where so notified.
    ManualsService Tax
    What is the meaning of aggregator? Who is liable in the case of aggregator? What will be if aggregat...
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    Aggregator liability: platform owners bear service tax responsibility, with representatives appointed if no taxable territory presence.
    An "aggregator" is the owner manager of a web based application enabling customers to connect with service providers under the aggregator's brand; the aggregator is the person liable for paying service tax for services involving the aggregator. If the aggregator lacks physical presence in the taxable territory, a person representing the aggregator in that territory is liable; if there is neither presence nor representative, the aggregator must appoint a person in the territory who will be liable to pay service tax.
    ManualsService Tax
    How the exemption under this notification will be calculated if the service provider has more than o...
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    Aggregate value rule: combined turnover across services and premises determines small service provider exemption; co-owners assessed individually.
    Exemption is applied to the aggregate value of all taxable services provided from all premises by a provider, and eligibility is determined by aggregating previous year turnover across all premises; where premises are co-owned, each co-owner may claim the exemption separately if, on individual assessment, their aggregate taxable services fall within the threshold.
    ManualsService Tax
    Whether Small service provider exemption is available to those persons who are covered under reverse...
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    Reverse charge excludes recipients from small service provider exemption when they are liable to pay service tax.
    The Small service provider exemption does not extend to persons liable to pay service tax as service recipients under the Reverse Charge Mechanism; values of taxable services for which tax is payable by such person under sub-section (2) of section 68 read with the Service Tax Rules are excluded from the notification's exemption.
    ManualsService Tax
    Whether service provider has the option of not availing the exemption under this notification?
    Show AI Summary
    Option to decline small-provider exemption allows service providers to pay service tax and claim CENVAT credit from that date.
    Service providers may elect during a financial year to forego the small-provider value-based exemption and pay service tax, but the election is irrevocable for that financial year. Upon electing to pay service tax, the provider may avail CENVAT credit only for inputs or input services received on or after the date service tax payments commence and used for taxable services for which service tax is payable.
    ManualsService Tax
    Whether service provided under own brand name or trade name is entitled to the exemption under notif...
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    Brand name usage and service tax exemption: services under own brand remain eligible; exclusion covers use of another's brand.
    Exemption for small service providers applies when services are provided under the provider's own brand name or trade name; the notification excludes only taxable services provided under a brand or trade name of another person, whether registered or not.
    ManualsService Tax
    What are the consequences if registration is not granted with in 7 days of the application? Is there...
    Show AI Summary
    Deemed registration applies when the local superintendent delays issuance, but not to centralized registration by the Commissioner.
    Failure of the Superintendent of Central Excise to issue Form ST-2 within seven days triggers deemed registration; that deeming provision applies only to registrations by the Superintendent and not to centralized registrations granted by the Commissioner, where no statutory time limit exists. Registration must nevertheless be granted within a reasonable time, and administrative circulars treating seven days as reasonable impose directory guidance and accountability but do not create deemed registration for the Commissioner.
    ManualsService Tax
    Whether Registration of service tax can be refused ? Whether Service tax authorities can issue regis...
    Show AI Summary
    Registration refusal prohibited: complete service tax applications must be accepted and authorities cannot register suo moto.
    A complete and properly filled application in Form ST-1 and/or ST-2 must be accepted; there is no statutory power under the Finance Act, 1994 or the Service Tax Rules, 1994 for the Superintendent or the Commissioner to refuse registration, nor to grant registration suo moto. Registration is confined to the category specified in the application, and non-alignment with the correct category may attract recovery or penal proceedings.
    ManualsService Tax
    Is it mandatory to surrender/ cancel the registration certificate after ceasing to provide taxable s...
    Show AI Summary
    Surrender of service tax registration required on cessation of taxable services; cancellation follows after dues are cleared and documents submitted.
    Surrender of the registration certificate is mandatory upon cessation of taxable services and must be submitted to the Superintendent, who ensures all dues are paid before cancelling registration. No prescribed format exists; a simple application is acceptable. A trade notice lists common reasons for surrender and requires an application and undertaking, copies of recent ST-3 returns (up to six), profit & loss accounts and balance sheets (up to three years) or income tax returns or bank statements if unavailable, and disclosure of pending show-cause notices, confirmed demands, court cases and audits; waiver of penalty may be applied where returns were not filed but turnover is below the exemption limit.

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      Rationalisation of provision of transfer of capital asset to partner on dissolution or reconstitution

      1 February, 2021

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      Budget 2021-22 + FINANCE Bill, 2021

      Rationalisation of provision of transfer of capital asset to partner on dissolution or reconstitution

      The existing provisions of section 45 of the Act inter alia, provides that any profits or gains arising from the transfer of a capital asset shall be chargeable to income-tax under the head Capital gains and shall be deemed to be the income of the previous year in which such transfer takes place. Further sub-section (4) of the said section, provides that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society)or otherwise, shall be chargeable to tax as the income of such firm or other association of persons or body of individuals of the previous year in which the said transfer takes place. Further, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration for the purposes of section 48.

      In this regard, it has been noticed that there is uncertainty regarding applicability of provisions of aforesaid sub-section to a situation where assets are revalued or self- generated assets are recorded in the books of accounts and payment is made to partner or member which is in excess of his capital contribution.

      Hence, it is proposed to substitute the existing sub-section (4) of section 45 of the Act with a new sub-section (4) and also insert a new sub-section (4A) to this section.

      New proposed sub-section (4) of section 45 of the Act applies in a case where a specified person who receives during the previous year any capital asset at the time of dissolution or reconstitution of the specified entity. The capital asset represents the balance in the capital account of such specified person in the books of the specified entity at the time of its dissolution or reconstitution. In this situation, the profit and gains arising from the receipt of such capital asset by the specified person shall be chargeable to income-tax as income of the specified entity under the head “capital gains” and shall be deemed to be the income of such specified entity of the previous year in which the capital asset was received by the specified person. For the purposes of section 48 of the Act, the fair market value of the capital asset on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. The balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset.

      New proposed section sub-section (4A) of section 45 of the Act applies in a case where a specified person receives during the previous year any money or other asset at the time of dissolution or reconstitution of the specified entity. The money or other asset is required to be in excess of the balance in the capital account of such specified person in the books of accounts of the specified entity at the time of its dissolution or reconstitution. In this situation, the profits or gains arising from the receipt of such money or other asset by the specified person shall be chargeable to income-tax as income of the specified entity under the head "Capital gains" and shall be deemed to be the income of such specified entity of the previous year in which the money or other asset was received by the specified person. For the purposes of section 48 of the Act,

      • value of the money or the fair market value of other asset on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset; and

      • the balance in the capital account of the specified person in the books of accounts of the specified entity at the time of its dissolution or reconstitution shall be deemed to be the cost of acquisition.

      The balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account increase in the capital account of the specified person due to revaluation of any asset or due to self- generated goodwill or any other self-generated asset.

      For the purposes of these two sub-sections,-

      • specified person” is proposed to be defined as a person who is partner of a firm or member of other association of persons or body of individuals (not being a company or a cooperative society), in any previous year;

      • “specified entity” is proposed to be defined as a firm or other association of persons or body of individuals (not being a company or a cooperative society);and

      • “self-generated goodwill” and “self –generated assets” are proposed to be defined as goodwill or asset, as the case may be, which has been acquired without incurring any cost for purchase or which has been generated during the course of the business or profession.

      Consequential amendment is also proposed in section 48 of the Act to provide that in case of specified entity, the amount included in the total income of such specified entity under sub-section (4A) of section 45 which is attributable to the capital asset being transferred, shall be reduced from the full value of the consideration to compute income charged under the head “capital gains”. This is to be calculated in the manner to be prescribed later. This is to mitigate the double taxation which may have happened but for this provision in a situation where an asset which was revalued and for which income under the proposed sub-section (4A) of section 45 of the Act was brought to tax is transferred subsequently by the specified entity.

      These amendments will be effective from the 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

      [Clauses 14 and 16]

       

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      Budget 2021-22 + FINANCE Bill, 2021

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      ActsIncome Tax
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