CATEGORISATION OF INCOME FROM SECURITIES

Categorisation of Income from Securities

Untitled5AIn India, there are two heads in which generally income from securities is recognised-

  • Capital Gain
  • Profit and Gains from Business or Profession.

Rates of Taxes for above mentioned Heads-

HEAD NATURE RATE OF TAX
Capital Gain Long Term 20%
Long Term (Shares)* Exempt
Short Term 30%
Short Term (111A)* 15%
PGBP All 30%

*Share which are listed in Recognised Stock Exchange.

Generally, investors intend to tax their income under head Capital Gain than PGBP, because it attracts around half tax than business income. Consequently litigations arise between assessee and income tax authorities due to contradictory views regarding income of assessee.

Here are some generally accepted rules are given, considering which decisions are made-

Basis on which Decision of Courts is made whether income from Investments is treated under Capital Gain or under PGBP-

  • Whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or were incidental to it.
  • The nature and quantity of the commodity purchased and resold – if the commodity purchased is in very large quantity, it could tend to eliminate the possibility of investment for personal use, possession or enjoyment.
  • The repetition of the transaction.
  • Investment was out of borrowed funds or from own fund.
  • All shares purchased were not sold and rather held for quite a number of days.
  • Intention behind Investment.
  • Whether Investments are made for gain of fluctuation in prices or mere for dividend income.

If any of former condition is satisfied, then it is treated under the head PGBP.

A person is allowed to invest in securities through two DMAT Accounts, in which he/she has to specify its nature, i.e, for cc or for personal purpose (Capital Gain).

Case Laws behind this Concept-

Venkata Swami Naidu & Co.v.CIT [1959] 35 ITR 594

Supreme Court was dealing with a question whether the excess sum realized on the sale of certain plots was assessable as income from an adventure in the nature of business. The Supreme Court held that in deciding the character of such transaction, several factors were relevant.

The Supreme Court in this case also discussed the test of intention. It held that in cases where the purchase has been made solely and exclusively with the intention of resale at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such intention is a relevant factor and unless it is off-set by the presence of other factors, it would raise a strong presumption that a transaction is an adventure in the nature of trade.

Mohammad & Co.v.CIT [1977] 107 ITR 637

In this case, Gujarat High Court observed that a stock-in-trade is something in which a trader or a business man deals, whereas his capital asset is something with which he deals. According to the High Court one of the indicators for deciding as to what is stock-in-trade is whether a particular assessee is buying or selling the goods or commodity or whether he has merely invested his money with a view to earning further income or with a view to carrying on his other business. It was further held by the High Court that the distinction between stock-in-trade and investment is that of selling outright in the course of the business activity and deriving income from exploitation of one’s own assets.

Rohit Anand v. CIT [2010] 327 ITR 445 (DELHI)

Tribunal observed that the assessee invested in shares and treated shares as investment in his books of account; thus, intention was manifested by treatment given to such investment that the investment was out of own fund and not from borrowed funds, that the investment was not rotated frequently; the total number of transactions were very few; all shares purchased were not sold and rather held for quite number of days. The assessee held also earned huge dividend income from such shares. The Assessing Officer, merely because the total volume of transactions was substantial, was guided to hold the income as business income.

However, he failed to recognise that the volume of transactions included the appreciation in shares also and such appreciation had been offered for tax.

Hence, the Tribunal was justified in holding that respondent-assessee was not a trader in stock but only a investor and further his income on sale of shares was capital gain and not business income.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances;Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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AMENDMENT IN RULE 25 OF HARYANA VAT RULES 2003

Rule 25 of Haryana VAT Rules 2003, amended so as to exclude the cost of land in case of valuation of builder/developerUntitled213

The case of Punjab and Haryana High Court in CHD​ ​Developers v. State of Haryana & Ors.​ (TS-147-HC-2015(P&H)-VAT​)​ where Rule 25 of Haryana VAT Rules was challenged on the premise that levy of VAT on value of land was ultra vires the powers of State Legislature.

Earlier in the Haryana VAT Rules 2003, Rule 25 only provides for deduction on account of labour and other service charges in case of works contractor, and no deduction was available to the developer/builders of Haryana on account of cost of land.

However, on 23rd July, vide notification no. 19/ST-1/H.A.6/2003/S.60/2015, HVAT amendment rules have been issued, and rule 25 has been amended thoroughly. These rules have come up with a retrospective effect from 17/05/2010.

Vide these amended rules, it has been made clear that in case of builder/developer, where land is also transferred along with other property in goods, the deduction of 25% (in case books are not maintained, standard deduction is allowed in place of deducing the actual values of service portion) shall be allowed after deducting the cost of land.

The amended rule 25, also provides methods of determining the cost of land, the summary of the same is provided herewith-

Cost of land shall be highest of the following-

  • Where separate conveyance/sale deed of the land has been executed between the developer and the intended purchaser, the consideration amount of land stated in that deed; or
  • Where separate conveyance/sale deed of the land has not been executed for transfer of land between the developer and the intended purchaser and transfer of land is mentioned in the conveyance deed of the constructed unit, then the value of land in the value of composite works contract shall be determined on the basis of notified circle rates of land prevailing at the time of execution of agreement between the developer and the intended purchaser
  • In case the cost of land is not ascertainable as above, then the same shall be calculated @ 40% of the total value of contract, in case of commercial construction and 25% in other cases.
  • If only a part of the total area to be constructed is being transferred, the charges towards the cost of land shall be calculated on a prorate basis through the following formula:
  • Proportionate super area multiplied by Value of land as determined in this sub rule divided by Total plot area multiplied by Floor Area Ratio

For details, you may refer the Notification no. 19/ST-1/H.A.6/2003/S.60/2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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UPDATE OF CENTRAL EXCISE ACT, 1944

Provisions of mandatory Pre-deposit under Section 35 of the Central Excise Act, 1944 are not ultra-virus or unconstitutional

Untitled4ARecently, the Allahabad High Court in the case of Ganesh Yadav Vs. Union of India, Allahabad, 2015 (39) S.T.R. 177 (All.) has distinguished the Kerala High Court decision in the case of Muthoot Finance Ltd. v Union Of India (2015 (320) E.L.T. 51 (Ker.) and Andhra Pradesh High Court decision in the case of K. Rama Mohanarao v Union Of India (2015-TIOL-511-HC-AP-CX) on the issue of mandatory pre-deposit under section 35F for the appeals filed after 6 August, 2014 pertaining to cases initiated prior to the said date.

The Hon’ble Allahabad High Court in this case has dealt with the two issues which have been tabulated as under:

Issues raised by the Petitioner in the Writ Decision held by Hon’ble Allahabad High Court
The Petitioner sought the High Court to declare the amendment to the provisions of Section 35F as ultra vires and unconstitutional. As a first principle of law, a right of appeal is a statutory right and it is open to the legislature which confers a remedy of an appeal to condition the appeal subject to compliance with conditions. Parliament has stepped in by providing a requirement of a deposit of 7.5% in the case of a First Appellate remedy before the Commissioner (Appeals) or to the Tribunal. The requirement of a deposit of 10% is in the case of an appeal to the Tribunal against an order of the Commissioner (Appeals). This requirement cannot be regarded or held as being arbitrary or as violative of Article 14.
That the amended provisions of Section 35 of the Act are not applicable, as the Show Cause Notice was issued prior to the amendment of the Section.

Parliament while substituting the provisions of Section 35F of the Central Excise Act, 1944 by Finance Act (No.2) of 2014, has laid down that the Tribunal or the Commissioner (Appeals) “shall not entertain any appeal” unless the appellant has deposited the duty or, as the case may be, a penalty to the stipulated extent. These words in Section 35F of the Act would indicate that on and after the enforcement of the provision of Section 35F of the Act, as amended, an appellant has to deposit the duty and penalty as stipulated and unless the appellant were to do so, the Tribunal shall not entertain any appeal. This provision would, therefore, indicate that it would apply to all appeals which would be filed on and from the date of the enforcement of Section 35F of the Act.

The second proviso is a clear indicator that Parliament has exempted the requirement of complying with the pre-deposit as mandated by Section 35F(1) of the Act as amended only in the case of those stay applications and appeals which were pending before any appellate authority prior to the commencement of Finance (No.2) Act 2014. Consequently, both by virtue of the opening words of Section 35F(1) of the Act as well as by the second proviso to the provision, it is clear that appeals which are filed on and after the enforcement of the amended provision on 6 August 2014 shall be governed by the requirement of pre-deposit as stipulated therein.

The High Court has relied on the decision of the Supreme Court in Shyam Kishore (supra) which states that the High Court has the power to dispense with the requirement of pre-deposit in an appropriate case under Article 226 of the Constitution. Further, it is pertinent to mention that this power of the High Court under Article 226 is not taken away by the Finance (No. 2) Act, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact :info@carajput.com or call at 9555555480

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HIGHLIGHT ON RVAT

Putting Safety barriers on National Highway are relatable to “roads”, hence exemption under RVAT available

Untitled7Recently, on 9th July 2015 Rajasthan High Court in the case of Commercial Taxes Officer vsPenar Industries Ltd (TS-333-HC-2015(RAJ)-VAT) held that exemption applicable to “execution of works contracts relating to buildings, bridges, roads and canals” under Rajasthan Sales Tax Act, also extends to fixing profile safety steel barriers at hazardous locations on National Highway, as the same are relatable to roads itself.

The major issue before Rajasthan HC in this case was whether fixing and providing of Works Profile Safety Barrier on a National Highway would be part and parcel of ‘road’, so as to avail exemption applicable to “execution of works contract relating to buildings, bridges, roads and canals”.

Assessee, Penar Industries Ltd, was awarded contract by Rajasthan State Bridge Construction Corporation Ltd., Jaipur (RSBCCL) for fixing of Works-Profile Safety Barrier at Toll Plaza, NH-8. On an application, Assistant Commissioner granted certificate of exemption in Form ST-2, directing that fixing of Works Profile Safety Barrier at Toll Plaza, NH-8 would entail exemption fee @ 1% with 12% surcharge and same was required to be paid by assessee. However, Assessing Officer (AO), denied the exemption on the ground that fixing and providing of Works Profile Safety Barrier could not be said to be relating to roads but these were safety steel barriers which could be used for other purposes. On an appeal, DC(A) allowed assessee’s claim. Revenue filed an appeal before the Tax Board, who also held in favour of assessee. Aggrieved thereby, Revenue filed an appeal before HC.

HC observed that, as per Notification dated April 28, 1993, Exemption fee @1% was chargeable on ‘entire work related to Roads and notification stated that exemption fee was to be charged @1%, relating to safety work of road. HC further stated that, though providing and fixing, may be at Toll Plaza but it is certainly part of a road. Further, the word ‘Road’ as per Chambers Dictionary means ‘A Highway, A roadway, A way of approach’. HC observed that merely putting concrete, grit, cannot be said to be a road and as in the present case which is related to National Highway, safety measures are to be taken and they are a part and parcel of roads.

HC further stated that on National Highway heavy vehicles such as Trucks, Trailers etc. also travel and safety measures are to be taken to avoid accidents, hence, assessee was awarded contract of fixing safety barrier which was used for safety purposes. Further, developing or constructing a road includes not only putting concrete, grit, coal tar, etc. but also many more things and includes everything relating to road. HC observed that “The expression such as “arising out of“ or “in respect of the” or “in connection with” or “in relation to” or “in consequence of” or “concerning” or “relating to” the contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope).”

Accordingly, Rajasthan High Court held that, assessee was eligible for exemption and rejected Revenue’s appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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DETAILS ABOUT SUPPORT SERVICES OF BUSINESS OR COMMERCE UNDER SERVICES TAX

DETAILS ABOUT SUPPORT SERVICES OF BUSINESS OR COMMERCE UNDER SERVICES TAX

Untitled22“Support Services of Business or Commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

Explanation —For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;

        (Section 65(104c) of the Finance Act, 1994.

“Taxable Service” means any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner;

(Section 65 (105) (zzzq) of the Finance Act, 1994)

Rate of Tax & Accounting Code:

Rate of Tax Accounting Code
Service Tax 10% of the value of services 00440366
Education Cess 2% of the service tax payable 00440298
Secondary and Higher Education cess 1% of the service tax payable. 00440426
Other –Penalty/interest As levied or applicable 00440367

                  (Rate of tax is effective from 24.02.2009.)

Classification of Taxable Services:

(1)  The classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65;

(2) When for any reason, a taxable service is prima facie, classifiable under two  or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:-

(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;

(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;

(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merits consideration.

     (Section 65A of Finance Act, 1994)

Valuation of taxable services for charging Service tax

(1)  Service tax chargeable on any taxable service with reference to its value shall,—

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

Explanation.—For the purposes of this section,—

(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;

(b) “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;

(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and ‘book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

    (Section 67 of Finance Act, 1994)

Inclusion in or Exclusion from value of certain expenditure or cost:

    (1)      Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

[Rule 5(1) of Service Tax (Determination of Value) Rules,2006)]

   (2)    The expenditure or costs incurred by the service provider as a pure agent of the recipient of service shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(i)        The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii)       The recipient of service receives and uses the goods or services so procured by the service provider in his capacity as  pure agent of the recipient of service;

(iii)      The recipient of service is liable to make payment to the third party;

(iv)      The recipient of service authorizes the service provider to make payment on his behalf;

(v)       The recipient of service knows that the goods and services for which payment has been made by the  service provider shall be provided by the  third party;

(vi)      The payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii)     The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii)      The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

                    [Rule 5(2) of Service Tax (Determination of Value) Rules, 2006)]

(G)    Exemption & Exclusion:

  1. Exemption to Small Scale Service Providers:

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts taxable services of aggregate value not exceeding Ten lakh* rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

       (i) Taxable services provided by a person under a brand name or trade name,

           whether registered or not, of another person; or

      (ii) Such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

  1. The exemption contained in this notification shall apply subject to the following

conditions, namely:-

   (i) The provider of taxable service has the option not to avail the exemption contained in this notification and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;

   (ii) The provider of taxable service shall not avail the CENVAT credit of service tax paid on any input services, under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 (herein after referred to as the said rules), used for providing the said taxable service, for which exemption from payment of service tax under this notification is availed of;

   (iii) The provider of taxable service shall not avail the CENVAT credit under rule 3 of the said rules, on capital goods received in the premises of provider of such taxable service during the period in which the service provider avails exemption from payment of service tax under this notification;

   (iv) The provider of taxable service shall avail the CENVAT credit only on such inputs or input services received, on or after the date on which the service provider starts paying service tax, and used for the provision of taxable services for which service tax is payable;

   (v) The provider of taxable service who starts availing exemption under this notification shall be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in respect of such inputs lying in stock or in process on the date on which the provider of taxable service starts availing exemption under this notification;

   (vi) The balance of CENVAT credit lying unutilised in the account of the taxable service provider after deducting the amount referred to in sub-paragraph (v), if any, shall not be utilised in terms of provision under sub-rule (4) of rule 3 of the said rules and shall lapse on the day such service provider starts availing the exemption under this notification;

   (vii) Where a taxable service provider provides one or more taxable services from one or more premises, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each

premises or each services; and

   (viii) The aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed rupees *ten lakhs in the preceding financial year.

  1. For the purposes of determining aggregate value not exceeding ten*lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency under section 67 for which the person liable for paying service tax is as specified under subsection (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994, shall not be taken into account.

Explanation.- For the purposes of this notification,-

(A) “Brand name” or “trade name” means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person;

(B) “Aggregate value not exceeding *ten lakh rupees means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to ten lakh rupees but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon under section 66 of the said Finance Act under any other notification.

  1. This notification shall come into force on the 1st day of April, 2005.

[Notification No. 6/2005-ST, dated 1-3-2005. *Amended by Notfn.No. 8/2008-ST dated 01.03.2008]

  1. Services to UN Agencies

Services provided to United Nations or an International Organizations are exempt.

[Notification No. 16/2002-ST, dated 2-8-2002]

  1. Export of service: Any service which is taxable under clause 105 of Section 65 may be exported without payment of service tax.

(Rule 4 of Export of Services Rules, 2005)

  1. Exemption to services provided to a developer of SEZ or a unit of SEZ:

Exempts the taxable services specified in clause (105) of section 65 of the said Finance Act, which are provided in relation to the authorized operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the service tax leviable thereon under section 66 of the said Finance Act subject to certain conditions. (Refer notification for details)

{Notification No. 09/2009ST dated 03.03.2009 (Prior to 03.03.2009 Notfn.No4/2004-ST dated 31.03.2004)}

  1. Exemption to value of goods & material sold by service provider:  In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.

 (Notification No. 12/2003-ST dated 20.06.2003 effective from 01.07.2003)

  1. Exemption to taxable services provided by TBI and STEP:  All taxable services, provided by a Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Govt. of India from the whole of the service tax leviablethereon subject tio certain conditions and procedures. (Refer notification for details)

(Notification No.09/2007 ST dated 01.03.2007)

  1. Exemption to taxable services provided by entrepreneurs located within the premises of TBI or STEP:  All taxable services, provided by an entrepreneur located  within the premises of a Technology Business Incubator  (TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by the  National Science and technology  Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Govt. of India  from the whole of the service tax  leviable thereon subject  to certain conditions and procedures. (Refer notification for details)

(Notification No.10/2007 ST dated 01.03.2007)

  1. Exemption to services provided to Foreign Diplomatic Missions or Consular Post in India:  All services provided by any person, for the official use of a Foreign Diplomatic Mission or Consular Post in India are exempted from service tax subject to certain conditions and procedures. (Refer notification for details)

(Notification No. 33/2007-ST dated 23.05.2007)

  1. Exemption to services provided for personal use of a family member of Diplomatic Agent or Career Consular Officers posted in Foreign Diplomatic Mission/Consular Post in India:   All services provided by any person, for personal use of family member of Diplomatic Agents or Career Consular officers posted in a Foreign Diplomatic Mission or Consular Post in India are exempted from service tax subject to certain conditions and procedures. (Refer notification for details)(Notification No. 34/2007-ST dated 23.05.2007.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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CORPORATE HIGHLIGHT OF THE FIRST WEEK OF AUGUST

INSTRUCTIONS REGARDING MAINTENANCE OF RECORDS IN ELECTRONIC FORM AND AUTHENTICATION OF RECORDS BY DIGITAL SIGNATURE–MANNER OF VERIFICATION-REG.

Untitled37AKind attention is invited to sub-rule (5) of rule 10 of Central Excise Rules, 2002, inserted vide Notification No. 8/2015-CE (N.T.) dated 01.03.2015 and sub-rule (5) of rule 5 of the Service Tax Rules, 1994 inserted vide notification no. 5/2015-Service Tax dated 01.03.2015. As per the provisions of these sub-rules, the assessees may opt to maintain records in electronic form and authenticate the same by digital signatures subject to conditions, safeguards and procedures prescribed by the Board. Attention is also invited to sub-rule (9) of rule 11 of CER, 2002, and sub-rule (2) of rule 4(C) of the Service Tax Rules, 1994 inserted by the same notifications. As per the provisions of these rules, the assessees may exercise the option to issue invoices authenticated by digital signatures. Subsequently, Board vide Notification No. 18/2015-C.E.(N.T.) dated 6th July, 2015 has prescribed conditions, safeguards and procedures for preserving records in electronic form and authentication of records by digital signatures.

1. The salient features of the Notification No. 18/2015-C.E. (N.T.) dated 6th July, 2015 are:-

A) Every assessee proposing to use digital signature shall use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority in India.

B) Every assessee proposing to use digital signatures shall intimate the details such as name, e-mail id, office address and designation of the person authorized to use the digital signature certificate, name of the Certifying Authority, date of issue of Digital Certificate and validity of the digital signature etc., to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise at least 15 days in advance. In case of any change in the details submitted to the jurisdictional Deputy Commissioner or Assistant Commissioner, complete details shall be submitted afresh within 15 days of such change. Assessees already using digital signature shall intimate the above details within 15 days of issue of the notification.

C) Every assessee opting to maintain records in electronic form, who has more than one factory or service tax registration, shall maintain separate electronic records for each factory or each service tax registration.

D) A Central Excise Officer, during an enquiry, investigation or audit, in accordance with the provisions of section 14 of the Central Excise Act, 1944 and as made applicable to Service Tax as per the provisions contained in section 83 of the Finance Act, 1994, may direct an assessee to furnish printouts of the records in electronic form and invoices and may resume printouts of such records and invoices after verifying the correctness of the same in electronic format; and after the print outs of such records in electronic form have been signed by the assessee or any other person authorized by the assessee in this regard, if so requested by such Central Excise Officer.

2. Following procedures are hereby prescribed for verification of digitally signed invoices and documents:

The process for verifying digitally signed documents or invoices requires a computer system with internet connection. Digitally signed invoices or documents either in PDF format or the hard copy of invoices and documents may contain a web link where the documents or invoices are stored by the assessee, which can be accessed using this web link for verification. Assessee shall either provide access to the web link of the company for verification or forward the digitally signed invoice or document by e-mail on requisition by the Central Excise Officer for verification.

3. The contents of a digitally signed document or invoice can be verified as follows:

Automatic pop-up of message once a digitally signed invoice is opened for the first time

i. Whenever a document/ invoice containing a valid digital signature is opened in a pdf format, a pop up will automatically appear on the computer screen indicating the manner in which the digital signature of the person, who has signed the document, can be validated.

ii. This pop-up would generally contain the messages “At least one signature has problems” and “Signature Panel”.

iii. Digital signature can be validated by clicking on the signature box, which has message “validity unknown” with a “?” stamp, generally appearing on the bottom right corner of the invoice.

iv. This pop up will not appear where the sender creates only an image of the digital signature instead of digitally signing the invoice or document. Such an invoice or document will not be a valid digitally signed invoice or document.

Document modification history

Once the signature box on digitally signed invoice or document is clicked, a window bearing title ‘signature validation status’ will appear to provide document modification history. This window will provide the information as to whether the document has been modified or not post signing of the document.

A tab bearing the title “Signature Properties” shall also appear on the same window and this tab once clicked, a window bearing the title “Signature Properties” will appear.

Access to key information from the signature panel and acceptance of signer post verification of necessary particulars

The next step is to click “show signers’ certificate” option which appears on the “Signature Properties” window. By doing so, various tabs will provide key information about the signer, validity and authenticity of the digital signature certificate, details about the agency that has issued the digital certificate, details about the certificate granted to such issuing agency etc.

After verifying various particulars (the name of the holder of the digital signature, the validity of the signature and details of issuance of the document) and being satisfied with the authenticity of the document, the Central Excise Officer may add the certificate in question to its list of trusted certificates by clicking the “trust” tab on the menu. By clicking ‘Add to trusted identities’ the signer gets added as a trusted source and the process of verification is thus complete.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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HIGHLIGHT ON USE OF DIGITAL SIGNATURE

Use of Digital Signature and Maintenance of Electronic Records under Central Excise & Service Tax

Untitled32Government of India has in the recent past launched its dream initiative of ‘Digital India’ which promises to integrate the government departments and the people of India ensuring that the government services are made available to citizens electronically and thereby increasing the work efficiency and reducing the paperwork. In order to implement the said initiative, steps were taken by the Central Board of Excise and Customs Central Excise in the union budget 2015 wherein Notification No. 8/2015-CENT was issued to provide that:

The records may be preserved in electronic form and every page of the record so preserved shall be authenticated by means of a digital signature.

An invoice issued by a manufacturer may be authenticated by means of a digital signature.

Provided that where the duplicate copy of the invoice meant for transporter is digitally signed, a hard copy of the duplicate copy of the invoice meant for transporter and self attested by the manufacturer shall be used for transport of goods”

Similar amendment was also introduced in the Service Tax Rules, 1994 vide Notification No. 5/2015-ST. Further it was informed that the board may, by notification, specify the conditions, safeguards and procedures to be followed by an assessee preserving digitally signed records or issuing digitally signed invoices.

In order to give effect to the above amendments, CBEC has recently issued a notification No. 18/2015 CE NT dated 06.07.2015 providing the conditions, safeguards and procedures to be complied. This article is intended to provide the insights of the said conditions and its practical applicability as explained below:

Type of Digital Signature Certificate (DSC) to be obtained

Every assessee proposing to use digital signature shall use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority in India.

Prior intimation to AC/DC

2) Every assessee proposing to use digital signatures shall intimate the following details to the jurisdictional AC/DC,at least 15 in advance:

  1. Name, e-mail id, office address and designation of the person authorized to use the digital signature certificate;
  2. Name of the Certifying Authority;
  3. Date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the said Authority

Intimation of change in details

In case of any change in the details submitted to the jurisdictional AC/DC, complete details shall be submitted afresh within 15 days of such change.

Intimation even if already using digital signature

Every assessee already using digital signature shall intimate to the jurisdictional AC/DC, the above details within 15 days of issue of this notification.

Although Central excise and service tax law has now explicitly provided for the use of digital signature/maintenance of electronic records but the same was followed by many assesses even before the existence of the said amendment, as digital signature/digital maintenance of records were given legal validity under section 4 of Information technology act, 2000 which overrides all other laws.

For all such assesses already using digital signatures, it is advised to intimate at the earliest, even though the last date of intimation (i.e. July 21, 2015) has already elapsed. This intimation is only required for the assesses already using digital signatures. It is not required for assesses already using electronic records.

Separate electronic records for each registration

It is specified that every assessee opting to maintain electronic records having more than one factory or service tax registration then shall maintain separate electronic records for each factory or each service tax registration.

In this regard, following must be noted:

Separate Daily Stock Accounts in electronic form must be maintained for each factory;

Separate output tax computations, CENVAT register must be maintained for each registered premises;

This requirement is only for electronic maintenance of records and not for digital signatures, therefore single digital signature shall suffice even for multiple registrations of the same assessee.

Submission of electronic records through e-mail or electronic storage device

Every assessee opting to maintain records in electronic form, shall on request by a Central Excise Officer in a letter or e-mail, produce the electronic records/invoices through e-mail or on a specified storage device in an electronically readable format for verification of the authenticity of the document.

Since, submission of records to central excise officers through e-mail is valid therefore, further acknowledgement from the department confirming the receipt of information may not be required unless a bounce back mail is received intimating the non-delivery of such e-mail. However, in case information is submitted in a specified storage device, then in order to safeguard the self interest it is advised to specifically obtain the acknowledgement of receipt on a letter head duly stamped and signed by the respective departmental officer clearly specifying the confirming the receipt of the information in electronic form.

Print-outs of the electronic records to be submitted during audit, investigation etc.

Central Excise Officer may during an enquiry, investigation or audit, under the provision of Central excise or service tax law may request an assessee to furnish duly signed printouts of the records in electronic form.

Preservation of e-records for a period of 5 years

Every assessee opting to maintain records in electronic form shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 9555555480

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