ACCOUNTING, REGULATORY & Vol 32

September, 2019
www.bdo.in
TAX NEWSLETTER

TABLE OF CONTENTS

Accounting Updates 01

Regulatory Updates 04

Tax Updates

Direct Tax 10

Transfer Pricing 14

Indirect Tax 15

BDO India Newsletter

01 BDO India Newsletter
ACCOUNTING UPDATES
INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (“ICAI”)
EAC Opinion – Disclosure of Government Grant
Facts of the case
A company (hereinafter referred to as ‘the company’) is
engaged in the business of manufacturing high-end
stainless-steel castings and high precision metal
components for its customers across the globe.
The company had received two grants from the
Government of India. Below are details with regard to
Grant II.
Grant II - In the F.Y. 2017-18, the company entered into an
agreement with the Global Innovation and Technology
Alliance (GITA) on behalf of Department of Heavy Industry
(DHI). The total cost of the project mentioned above was
51 crores out of which 41 crores would be spent by the
company and balance 10 crores would be granted by DHI.
The querist has also explained some of the clauses of
Memorandum of Understanding (MoU) between Global
Innovation Technology Alliance (GITA) and the company as
follows:
▪ A two-year lock-in period will be allowed from the date
of approval of completion of the Project(s) before
opening up the Intellectual Property Rights (IPR)
▪ Once the IPR comes to public domain after the initial
lock-in period, the issue of licensing and royalty will be
finalised jointly by the DHI & GITA and the company. In
this regard, the querist has clarified that since IPR will
be with the company, there is no sharing of license fee
or royalty with DHI/ GITA. DHI and GITA will jointly
finalise the licensing fee or royalty; and this is more
from the perspective of right pricing of license fee or
royalty, and nothing else.
▪ DHI would be free to use the IPR. However, DHI/GITA
cannot use or request usage of any of resources for
initial lock-in period of 2 years but it is also reiterated
that the use or request for use of resources by DHI/
GITA are intended for any ancillary purpose of
development, scientific purposes or demonstration only
and not for commercial purposes; and also that the title
and possession of all such developments or resources
shall remain with the company only.
▪ In the event of any liquidation or bankruptcy
proceedings or any threatened distress action against
the company or any of its assets, plants, machineries,
fixtures and equipment procured for the purpose of the
Project out of or with support of Grant in aid
shall be outside such proceedings and the GOI may
assume the control and management of the company
in respect of the concerned project(s) and appoint
any of its officer or authorised representative to run
the Project(s).”
With regard to classification and presentation of the
government Grant II, the management believes that the
grant received is not in the nature of financial obligation
as no repayment is expected in case of such grants by
the Government body. The classification of such grants
as ‘liabilities’ shall not be a fair representation of the
intention behind the disbursement of such grants.
Further under Ind AS, the classification and presentation
of the grants received in the nature of promoter’s
contribution has not been dealt with; therefore, the
company intends to disclose the same as a mezzanine,
different line item, between ‘equity’ and ‘other non-
current liabilities’.
Query:
The classification and presentation of the government
grant (Grant II) received under Indian Accounting
Standards (Ind ASs) for which no repayment obligation
has been imposed by the concerned Government body.
Points taken into consideration:
The Committee notes that the issue raised by the querist
relates to classification and presentation of government
grant (Grant II) under Indian Accounting Standards (Ind
AS) notified under the Companies (Indian Accounting
Standards) Rules, 2015 (hereinafter referred to as ‘the
Rules’).
The Committee notes from the MoU that the basic
objective of the Government behind providing funds is
the development and commercialisation of ‘Titanium
Casting with Ceramic Shelling Technology’.
Presentation and Disclosure requirements under Indian
Accounting Standard 20 ‘Accounting for Government
Grants and Disclosure of Government Assistance’ (IndAS
20), states that:
“Grants related to assets are government grants whose
primary condition is that an entity qualifying for them
should purchase, construct or otherwise acquire long-
term assets. Subsidiary conditions may also be attached
restricting the type or location of the assets or the
periods during which they are to be acquired or held.
02 BDO India Newsletter
ACCOUNTING UPDATES
Grants related to income are government grants other than
those related to assets.”
“24. Government grants related to assets, including non-
monetary grants at fair value, shall be presented in the
balance sheet by setting up the grant as deferred income.”
“26 The grant set up as deferred income is recognised in
profit or loss on a systematic basis over the useful life of
the asset.”
With regard to the classification and presentation of
government grant in the extant case, without examining its
nature as that related to assets or related to income under
Ind AS 20, the Committee notes the following paragraphs of
Ind AS 20:
“14 Those in support of the capital approach argue as
follows:
(a) government grants are a financing device and should be
dealt with as such in the balance sheet rather than be
recognised in profit or loss to offset the items of expense
that they finance. Because no repayment is expected, such
grants should be recognised outside profit or loss.
(b) it is inappropriate to recognise government grants in
profit or loss, because they are not earned but represent an
incentive provided by government without related costs.
“15 Arguments in support of the income approach are as
follows:
(a) because government grants are receipts from a source
other than shareholders, they should not be recognised
directly in equity but should be recognised in profit or loss
in appropriate periods.
(b) government grants are rarely gratuitous. The entity
earns them through compliance with their conditions and
meeting the envisaged obligations. They should therefore
be recognised in profit or loss over the periods in which the
entity recognises as expenses the related costs for which
the grant is intended to compensate.
(c) because income and other taxes are expenses, it is
logical to deal also with government grants, which are an
extension of fiscal policies, in profit or loss.”
The Committee further notes that Ind AS 20, while
requiring to recognise all government grants in the
statement of profit and loss on a systematic basis over
the periods in which the entity recognises as expenses
the related costs for which the grant is intended to
compensate, does not recognise ‘Capital Approach’ and
is based on ‘Income Approach’.
Further, the Committee notes the definition of ‘liability’
as per the Framework for the Preparation and
Presentation of Financial Statements in accordance with
Indian Accounting Standards.
The grant is deferred/amortised over the period of
fulfilment of obligations related to the grant, for
example, incurrence of expenses. Accordingly, the
unamortised portion of the grant represents unfulfilled
obligation, the settlement of which is expected to result
in outflow of resources in future and therefore, in the
view of the Committee, it meets the definition of
liability
Opinion:
On the basis of the above, the Committee is of the
opinion that the government grant (Grant II) in the
extant case should be classified and presented under the
head ‘Non-current Liabilities’ and ‘Current Liabilities’ in
the balance sheet considering the requirements of
Schedule III to the Companies Act, 2013 and IndAS 1,
‘Presentation of Financial Statements’ and not as a
separate line item between ‘equity’ and ‘other non-
current liabilities’ till the same is recognised in the
statement of profit and loss on a systematic basis over
the periods in which the company will recognise as
expenses the related costs for which the grant is
intended to compensate.
03 BDO India Newsletter

REGULATORY UPDATES
SECURITIES EXCHANGE BOARD OF INDIA (“SEBI”)

Regulations issued by SEBI

SEBI vide notifications dated July 29, 2019 has issued the
following amendment regulations:
Amendment Regulation Major Amendments
The amendments pertain to
SEBI (Listing Obligations
compliances in relation to
and Disclosure
corporate governance
Requirements) (Fourth
provisions for listed entities
Amendment)
which have issued shares
Regulations, 2019
with Superior Rights (SRs)
The term ‘shares’ has been
SEBI (Buy Back of
extended to include equity encumbrance if the combined encumbrance by the promoter
Securities) (Amendment)
shares having superior voting along with PACs is equal to or exceeds
Regulations, 2019
rights ▪ 50% of their shareholding in the company or
The term ‘shares’ has been
SEBI (Delisting of Equity ▪ 20% of the total share capital of the company
extended to include equity
Shares) (Amendment) in the prescribed format provided within two working days
shares having superior voting
Regulations, 2019 from the creation of such encumbrance
rights
On every instance when an additional encumbrance is created
Certain shareholders shall be
over and above the abovementioned limits, additional
exempted from the disclosure for every such increase is mandatory
obligation to make an open
If existing encumbrances are greater than the above limits, as
offer on 30th September 2019, the Promoter shall adhere to the
SEBI (Substantial ▪ The meaning of the term additional disclosure requirements by 04th October 2019
Acquisition of Shares ‘encumbrance’ has been The disclosures shall be communicated in the prescribed
and Takeovers) (Second extended format to every stock exchange where the stocks are listed and
Amendment) to the listed company
▪ The promoter of every
Regulations, 2019. The recognized stock exchanges shall maintain and separately
target company shall
disseminate the list of such companies along with details of
make declaration on a encumbrance and reasons for encumbrance, on their websites
yearly basis regarding
The listed company shall also disclose such details within two
encumbrances made by working days of receipt of such disclosure
him
Circular dated 9th August 2019: Securities and Exchange Board
Circular dated 7th August 2019: Additional disclosure of India (International Financial Services Centers) Guidelines,
requirements for encumbrance by promoter of listed 2015- Permissible investments by Alternative Investment Funds
companies (AIF) operating in IFSC
For bringing in greater transparency regarding reasons for
encumbrance, particularly when significant shareholding by As per the existing SEBI (IFSC) Guidelines, 2015, an AIF in IFSC
promoter along with persons acting in concert (‘PACs’) with can invest in the following:
him is encumbered, SEBI has prescribed additional ▪ Securities which are listed in IFSC
disclosure requirements
▪ Securities issued by companies incorporated in IFSC
These disclosure requirements are over and above the
disclosure requirements provided by SEBI in Circular dated ▪ Securities issued by companies incorporated in India or
05th August 2015 Promoters shall disclose the reason for companies belonging to foreign jurisdiction
04 BDO India Newsletter
REGULATORY UPDATES
However, basis consultations with the stakeholders, SEBI
has issued a circular on 9th August 2019 to harmonize the
permissible investments by AIFs incorporated in IFSC with
the domestic AIFs as per SEBI (Alternative Investment
Funds) Regulations, 2012
As a result, in addition to the existing list of permissible
investments, an AIF in IFSC can also invest in the following:
▪ Limited Liability Partnership
▪ Real Estate Investment Trusts
▪ Infrastructure Investment Trust
▪ Derivatives
▪ Complex or Structured Projects
▪ Goods received in delivery against physical settlement
of commodity derivatives
▪ Special Purpose Vehicles
Circular dated 19th
August 2019: Non-compliance with
certain provisions of SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018 (“ICDR Regulations”)
For non-compliance with certain provisions of ICDR
Regulations, stock exchanges shall impose fines on the
listed entities as under:
A fine of ₹ 20,000 per day of non-compliance till the date
of compliance would be imposed if there is delay in
completion of a bonus issue within the prescribed time as
follows
▪ Within 15 days from the date of approval of the issue by
its board of directors in cases where shareholders’
approval for capitalization of profits or reserves for
making the bonus issue is not required
▪ Within 2 months from the date of the meeting of its
board of directors wherein the decision to announce
bonus issue was taken subject to shareholders’ approval
in cases where issuer is required to seek shareholders’
approval for capitalization of profits or reserves for
making the bonus issue
Further:
The approvals for the listing and trading of promoters’
bonus shares may be granted by the Stock Exchange, only
after payment of the requisite fine by the listed entity
However, the approvals for the listing and trading of bonus
shares allotted to persons other than the promoter(s) may
be granted in the interest of the investors, subject to
compliance with other requirements
A fine of ₹ 20,000 per day of non-compliance till the date
of compliance would be imposed if:
▪ Listed entities do not complete the conversion of
convertible securities and allotting the shares, within 18
months from the date of allotment of convertible
securities
▪ The issuer makes an application for listing, from the date
of allotment within such period as may be specified by
SEBI to one or more recognized stock exchange
▪ Listed entities do not make an application for trading
approval to the stock exchange within seven working days
from the date of grant of listing approval by the stock
exchange
The amount of fine realized as per the above structure shall
continue to be credited to the “Investor Protection Fund” of
the concerned stock exchange
The recognized stock exchange shall disseminate on their
website the names of non-compliant listed entities that are
liable to pay fine for non-compliance, the amount of fine
imposed, details of fines received, etc.
The recognized stock exchange shall issue notices to the non-
compliant listed entities to ensure compliance and collect
fine as per this circular within 15 days from the date of such
notice
If any non-compliant listed entity fails to pay the fine, the
recognized stock exchange may initiate appropriate
enforcement action
MINISTRY OF CORPORATE AFFAIRS (“MCA”)
Clarification under section 232(6) of the Companies Act, 2013
(‘CA2013’)
MCA vide its circular dated 21st August 2019 has provided
clarification with respect to ‘appointed date’ which provides
the much-needed clarification for interpreting the provisions
of Section 232(6) of the CA2013. The clarification has been
given on whether the ‘acquisition date’ as stated in IND-AS
103 (Business Combinations) would refer to ‘appointed date’
referred to in section 232(6)
Section 232(6) of the CA2013 is an enabling provision to allow
the companies to decide upon an 'appointed date' from which
the scheme filed as per section 230-232 of the CA2013 shall
come into force. MCA held that such date may be a specific
calendar date or may be tied to the occurrence of an event
or fulfilment of any preconditions agreed upon by the
parties, relevant to the scheme. Also, the 'appointed date'
identified under the scheme shall be deemed to be the
'acquisition date' and date of transfer of control for the
05 BDO India Newsletter

REGULATORY UPDATES
purpose of conforming to accounting standards (including limited by shares to issue equity shares with differential
IND-AS 103) rights as to dividend, voting or otherwise. The amended rules
have substituted the following conditions:
Commencement Notification of the Companies
(Amendment) Act, 2019 Rule 4(1)(c): The voting power in respect of shares with
differential rights of the company shall not exceed seventy-
MCA vide circular dated 14th August 2019 has stated that
four per cent (previously twenty-six per cent) of total voting
the Central Government has appointed 15th August 2019 as
power (previously total post issue paid up equity share
the date from which the following sections of the CA2013
capital) including voting power in respect of equity shares
shall come into force. These sections have been amended
with differential rights issued at any point of time
vide Companies (Amendment) Act, 2019
Rule 4(1)(d): Previously the company was required to have a
Section Particulars consistent track record of distributable profits during the
26 Matters to be stated in the Prospectus past three financial years, the said rule has now been
Public Offer of Securities to be in omitted
29
Dematerialised Format Rule 18(7): Creation of Debenture Redemption Reserve
Civil Liability for mis-statements in
35 (‘DRR’) for the purpose of redemption of debentures
prospectus
▪ No DRR is required for both public as well as privately
Investigation of significant beneficial owners
90 placed debentures for all Indian Financial Institutions
of the Company
Constitution of National Financial Reporting regulated by Reserve Bank of India (‘RBI’) and Banking
132 Companies (listed)
Authority
Investigation into affairs of Company by ▪ For other Financial Institutions within the meaning of
212
Serious Fraud Investigation Office section 2(72) of the CA2013, DRR provisions shall be
Application to Tribunal for relief in cases of applicable as they apply to Non-Banking Finance
241
Oppression etc. Companies registered with RBI
242 Powers of Tribunal ▪ No DRR required for both public as well as privately
Consequence of termination or modification placed debentures for listed NBFCs registered with RBI
243
of certain agreements under section 45- IA of the RBI Act, 1934 and for Housing
272 Petition for Winding Up
Finance Companies registered with National Housing Bank
Provisions relating to filing of applications,
398 and other listed companies
documents, inspection, etc., in electric form
▪ No DRR is required for privately placed debentures in case
Companies (Incorporation) Seventh Amendment Rules, 2019 of unlisted NBFCs registered with the RBI under section
MCA vide its circular dated 28th August 2019 has introduced 45- IA of the RBI Act, 1934 and for Housing Finance
Companies (Incorporation) Seventh Amendment Rules, 2019 Companies registered with National Housing Bank
to amend Companies (Incorporation) Rules, 2014 ▪ For other unlisted companies DRR shall be ten percent of
The existing Form RD-1 (Form for filing application to the value of the outstanding debentures
Regional Director) and Form RD GNL-5 (Form for filing FOREIGN EXCHANGE MANAGEMENT ACT (“FEMA”)
addendum for rectification of defects or incompleteness)
have been amended Foreign Exchange Management (Deposit) (Amendment)
Regulations, 2019 – Acceptance of Deposits by issue of
Companies (Share Capital and Debenture) Amendment Commercial Papers
Rules, 2019
RBI vide circular dated 16th August 2019 has introduced
MCA vide its circular dated 16th August 2019 has introduced Foreign Exchange Management (Deposit) (Amendment)
Companies (Share Capital and Debenture) Amendment Regulations 2019 to amend the Foreign Exchange
Rules, 2019 to amend the Companies (Share Capital and Management (Deposit) Regulations, 2016
Debentures) Rules, 2014 Regulation 6 (3) of the above regulation states that an Indian
Rule 4 states the prescribed conditions for companies company may accept deposits by
06 BDO India Newsletter
REGULATORY UPDATES
However, basis consultations with the stakeholders, SEBI
has issued a circular on 9th August 2019 to harmonize the
permissible investments by AIFs incorporated in IFSC with
the domestic AIFs as per SEBI (Alternative Investment
Funds) Regulations, 2012
As a result, in addition to the existing list of permissible
investments, an AIF in IFSC can also invest in the following:
▪ Limited Liability Partnership
▪ Real Estate Investment Trusts
▪ Infrastructure Investment Trust
▪ Derivatives
▪ Complex or Structured Projects
▪ Goods received in delivery against physical settlement
of commodity derivatives
▪ Special Purpose Vehicles
Circular dated 19th August 2019: Non-compliance with
certain provisions of SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018 (“ICDR Regulations”)
For non-compliance with certain provisions of ICDR
Regulations, stock exchanges shall impose fines on the
listed entities as under:
A fine of ₹ 20,000 per day of non-compliance till the date
of compliance would be imposed if there is delay in
completion of a bonus issue within the prescribed time as
follows
▪ Within 15 days from the date of approval of the issue by
its board of directors in cases where shareholders’
approval for capitalization of profits or reserves for
making the bonus issue is not required
▪ Within 2 months from the date of the meeting of its
board of directors wherein the decision to announce
bonus issue was taken subject to shareholders’ approval
in cases where issuer is required to seek shareholders’
approval for capitalization of profits or reserves for
making the bonus issue
Further:
The approvals for the listing and trading of promoters’
bonus shares may be granted by the Stock Exchange, only
after payment of the requisite fine by the listed entity
However, the approvals for the listing and trading of bonus
shares allotted to persons other than the promoter(s) may
be granted in the interest of the investors, subject to
compliance with other requirements
A fine of ₹ 20,000 per day of non-compliance till the date
of compliance would be imposed if:
▪ Listed entities do not complete the conversion of
convertible securities and allotting the shares, within 18
months from the date of allotment of convertible
securities
▪ The issuer makes an application for listing, from the date
of allotment within such period as may be specified by
SEBI to one or more recognized stock exchange
▪ Listed entities do not make an application for trading
approval to the stock exchange within seven working days
from the date of grant of listing approval by the stock
exchange
The amount of fine realized as per the above structure shall
continue to be credited to the “Investor Protection Fund” of
the concerned stock exchange
The recognized stock exchange shall disseminate on their
website the names of non-compliant listed entities that are
liable to pay fine for non-compliance, the amount of fine
imposed, details of fines received, etc.
The recognized stock exchange shall issue notices to the non-
compliant listed entities to ensure compliance and collect
fine as per this circular within 15 days from the date of such
notice
If any non-compliant listed entity fails to pay the fine, the
recognized stock exchange may initiate appropriate
enforcement action
MINISTRY OF CORPORATE AFFAIRS (“MCA”)
Clarification under section 232(6) of the Companies Act, 2013
(‘CA2013’)
MCA vide its circular dated 21st August 2019 has provided
clarification with respect to ‘appointed date’ which provides
the much-needed clarification for interpreting the provisions
of Section 232(6) of the CA2013. The clarification has been
given on whether the ‘acquisition date’ as stated in IND-AS
103 (Business Combinations) would refer to ‘appointed date’
referred to in section 232(6)
Section 232(6) of the CA2013 is an enabling provision to allow
the companies to decide upon an 'appointed date' from which
the scheme filed as per section 230-232 of the CA2013 shall
come into force. MCA held that such date may be a specific
calendar date or may be tied to the occurrence of an event
or fulfilment of any preconditions agreed upon by the
parties, relevant to the scheme. Also, the 'appointed date'
identified under the scheme shall be deemed to be the
'acquisition date' and date of transfer of control for the
07 BDO India Newsletter
REGULATORY UPDATES
purpose of conforming to accounting standards (including
IND-AS 103) issue of Commercial Paper to a NRI or a person
of Indian origin or a FPI registered with the SEBI subject to
following conditions:
▪ the issue is in compliance with the prescribed norms
regarding acceptance of deposits by issue of
Commercial Paper,
▪ payment for issue of Commercial Paper is received from
outside India through banking channels or out of funds
held in a deposit account maintained by a NRI or a
Person of Indian Origin
▪ the amount invested in Commercial Paper shall be
neither repatriable outside India nor transferable
The above sub regulation has been deleted in the amended
regulations, since it brought inconsistency with the
following statutory provisions / regulations relating
Commercial Papers:
▪ Companies (Acceptance of Deposits), Rules 2014, which
excludes any amount received against issue of, inter
alia, CPs from definition of deposits,
▪ Section 45 U(b) of RBI Act, 1934 which describes CP as
one of the Money Market Instruments
▪ Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations,
2017 which allow investments in CPs issued by the
Indian Companies
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (“IBBI”)
Applicability of the IBBI (Liquidation Process) (Amendment)
Regulations, 2019 notified on 25th July 2019
IBBI pursuant to its order dated 26th August 2019 stated
that the IBBI (Liquidation Process) (Amendment)
Regulations, 2019 notified on 25th July 2019 shall not be
applicable to the liquidation processes which had
commenced before 25th July 2019 since the stakeholders
have expressed a difficulty in applying the Amendment
Regulations to liquidation processes which commenced
before 25th July 2019.
Therefore, the IBBI (Liquidation Process) (Amendment)
Regulations, 2019 shall be applicable only to liquidation
processes that have commenced on or after 25th July 2019
Valuation under the Insolvency and Bankruptcy Code, 2016
(‘IBC, 2016’): Appointment of Registered Valuer
IBBI pursuant to its order dated 13th August 2019 has
restated that appointment of any person other than
registered with the IBBI under the Companies (Registered
Valuers and Valuation) Rules, 2017) on or after 1st February
2019 to conduct any valuation required under the Insolvency
and Bankruptcy Code or any rules thereunder, would be
considered as illegal and violation of the circular issued by
IBBI on 17th October 2018, in this regard
Further, payment as fee or otherwise, to any person, other
than a ‘registered valuer’ for any valuation, shall not form
part of the insolvency resolution process costs or liquidation
cost
The Insolvency and Bankruptcy Code (‘IBC’) (Amendment)
Act, 2019
IBBI pursuant to its order dated 6th August 2019 has amended
the Insolvency and Bankruptcy Code (Amendment) Act, 2019
The amendment contains the following:
▪ Clarification in the definition of Resolution Plan to include
for provisions for the restructuring of the corporate
debtor, including by way of merger, amalgamation and
demerger
▪ Provision for failure on part of adjudicating authority to
ascertain the existence of default and pass an order
within 14 days subject to reasons recorded in writing
▪ Limit for completion of corporate insolvency resolution
process (‘CIRP’) within 330 days including any extension.
Further, existing CIRP under extension shall be completed
within a period of 90 days from 6th August 2019
▪ Overriding the rule of voting as per each creditor by the
representative, for the purpose of Section 21A (6A) other
than cases covered by Section 12A, voting by
representative shall be based on majority of the voting
share represented by the authorized representative
▪ Change in the minimum amount mentioned in the
resolution plan for payment of debts of operational
creditors
▪ Resolution plan approved by adjudicating authority shall
inter-alia now be binding on Central Government, any
State Government or any local authority to whom a debt
in respect of the payment of dues arising under any law
for the time being in force, such as authorities to whom
statutory dues are owed
▪ Clarification to say that committee of creditors may
decide to liquidate the corporate debtor anytime
between its composition and approval of resolution plan
08 BDO India Newsletter
REGULATORY UPDATES
Filing of Forms for the purpose of monitoring CIRPs and
performance of Insolvency Professionals (‘IPs’) under the
IBC, 2016 and the regulations made thereunder
IBBI pursuant to its order 14th August 2019 has issued a
circular which highlights the following major objectives of
IBC, 2016:
▪ Resolution
▪ Maximization of the value of the organizations
▪ Promoting Entrepreneurship
The Circular clarifies that IBC, 2016 has assigned specific
responsibilities to an IP for its implementation and
realization of its objectives
IBC, 2016 has provided for monitoring of IPs performances
and directed the IBBI and the Insolvency Professional
Agency (‘IPA’) to monitor performance of IPs, and collect,
maintain and disseminate information and records relating
to insolvency and bankruptcy processes
Further, IBC, 2016 requires the IBBI to perform the
following functions, among others:
▪ monitor the performance of IPs and pass any direction
as may be required for compliance of the provisions of
the IBC, 2016 and the regulations issued thereunder
▪ call for any information and records from the IPs
▪ collect and maintain records relating to insolvency and
bankruptcy cases and disseminate information relating
to such cases
▪ maintain websites and such other universally accessible
repositories of electronic information
▪ issue necessary guidelines to the IPs and
▪ conduct periodic study, research and audit of the
functioning and performance of the IPs
IBC, 2016 casts obligations on IPs to forward / submit the
certain prescribed information and records relating to CIRP
to the IBBI
In order to facilitate submission of records and information
by IPs to the IBBI as well as for monitoring of the processes
and performance of IPs, a set of Forms were devised in
consultation with stakeholders and the IPAs, in pursuance
of the mandate and in synchronization with the provisions
in the IBC, 2016. These Forms were put out in public
domain on 27th April 2018 and the comments received have
been considered. These Forms have since been finalized in
consultation with the IPAs. An overview of these forms has
been provided in the circular which specifies the period
and scope covered, the timeline within which such forms are
required to be filed along with the details of persons who are
required to file such forms
IBBI has developed, in consultation with the IPAs, an
electronic platform for filing of the Forms above said. The
said platform is hosted on the website of the IBBI at
https://www.ibbi.gov.in. It is open for filings from 16th
September 2019
IP shall file electronically:
▪ Forms along with relevant information and records, which
have become due on or before 15th September 2019 in
respect of all CIRPs, both closed and ongoing, conducted
by him, by 30th September 2019 and
▪ Forms along with relevant information and records, which
will become due on or after 16th September 2019 in
respect of CIRPs conducted by him, by the timelines as
specified in the circular
IP shall be liable to action permissible under this Circular
along with applicable provisions of the IBC, 2016 and the
Regulations made thereunder for:
▪ failure to file a form along with relevant information and
records
▪ inaccurate and incomplete information and/or records
filed in or along with a form and
▪ delay in filing
Failure to file a form along with relevant information and
records includes refusal to issue or renew authorization for
assignment
Lastly, timely filing of complete and accurate information
along with information and records is the sole responsibility
of the IP
The circular further states that an IPA shall:
▪ monitor filings by its members and based on the same,
take action against the member who fails to file a form
along with relevant information and records when it is
due
▪ scrutinize at least 10% of Forms, filed by its members in a
month, selected on random basis and based on the same,
take action against the member for any inaccurate or
incomplete information and records filed along with a
form and non-compliances with the IBC, 2016 and the
Regulations made thereunder, as observed from the
information and records filed along with a Form and
▪ submit a quarterly summary report in respect of the
09 BDO India Newsletter

REGULATORY UPDATES

above to the IBBI within 15 days of the close of quarter

MINISTRY OF LAW AND JUSTICE

The Banning of Unregulated Deposit Schemes Act, 2019

The Ministry of Law and Justice vide notification dated July
31, 2019 has notified the “The Banning of Unregulated
Deposit Scheme Act, 2019”. The Act shall be deemed to
have come into force on February 21, 2019. This act has
been enacted to provide a comprehensive mechanism to
ban the unregulated deposit schemes, other than deposits
taken in the ordinary course of business, and to protect the
interest of depositors and for matters connected therewith
or incidental thereto.
10 BDO India Newsletter

TAX UPDATES
Direct Tax
CIRCULARS/ NOTIFICATIONS/PRESS RELEASE
Multilateral Instrument notified by India
India, being an active member of the BEPS project, was
part of the first set of 68 countries who signed the MLI in
June 2017. On 9 August, 2019, the Finance Ministry of the
Government of India notified the MLI. With this India joins
the likes of Australia, Netherlands, Singapore, UK who have
notified the MLI. Once the MLI enters into effect, it is likely
that 93 of India’s tax treaties could undergo a change. Our
detailed alert in this regard can be accessed at:
https://www.bdo.in/en-gb/insights/alerts-updates/tax-
alert-multilateral-instrument-notified-by-india
[Notification No. SO 2887(E) [NOTIFICATION NO.
57/2019/F.NO. 500/71/2015-FTD-I], dated 09 August pass the eligibility test is that the turnover of the start-up
2019] entity should not have exceeded INR 250 mn in the fiscal year
Protocol amending Double Taxation Avoidance Agreement for claiming deduction. As per Department for Promotion of
(DTAA) with Spain notified Industry and Internal Trade (DPIIT) notification dated 19
February 2019, an entity shall be considered as a start-up if
Government of India has notified the protocol amending entity’s turnover for any of the fiscal years since
DTAA with Spain. Some of the significant amendments incorporation/registration has not exceeded INR 1 bn.
brought by the protocol include: amendment in Article 10 Confusion was created by some media report claiming
(Associated Enterprises), substitution of Article 28 discrepancy that the I-T law was yet to reflect DPIIT's higher
(Exchange on Information), insertion of Article 28A turnover threshold of INR 1 bn. CBDT said that there was no
(assistance in collection of taxes) and Article 28B contradiction in DPIIT's notification and Section 80-IAC of the
(Limitation of Benefit). IT Act. CBDT clarified that in para 3 of the said notification,
[Notification No. 58/2019/F. No. 503/02/1986-FTD-I it has clearly been mentioned that a start-up shall be eligible
dated 27 August 2019] to apply for the certificate from the Inter-Ministerial Board of
Certification for claiming deduction under Section 80-IAC of
Central Board of Direct Taxes (CBDT) simplifies the process
the IT Act, only if the start-up fulfils the conditions specified
of assessment in respect of start-up entities
in sub-clause (i) and sub-clause (ii) of the Explanation of
The CBDT has come across instances where substantial Section 80-IAC. Therefore, the turnover limit for eligibility for
additions under section 56(2)(viib) of the Income Tax deduction under section 80-IAC of the IT Act, as per the
Act,1961 (the IT Act)are being made by the Tax Officers. DPIIT's notification is INR 25 mn.
To mitigate the hardships faced by the start-up companies,
[CBDT Press Release dated 22 August 2019]
the CBDT has recently issued clarification on the procedure
to be adopted by the Tax Officers in the assessment of Consolidated circular for assessments of start-up entities
start-up companies.
The Finance Minister has made a series of announcements in
Our detailed alert in this regard can be accessed at:
her Budget Speech of 2019 and subsequently on 23 August
https://www.bdo.in/en-gb/insights/alerts-updates/tax-
alert-clarification-with-respect-to-assessment-of-startup- 2019 with an intention to provide hassle-free tax environment
companies to the start-up community. To give effect to these
[Press Release dated 10 August 2019 read with Circular announcements, the CBDT has issued various
F.NO. 173/354/2019-ITA-1 dated 09 August 2019] circulars/clarifications on various dates. To bring all the
announcements at one place, the CBDT has issued Circular No.
Clarification on eligibility of small start-ups to avail tax
22/2019 dated 30 August 2019 consolidated all the start-up
holidays
related circulars issued recently.
Section 80-IAC of the IT Act provides deduction for 100% of
income of an eligible start-up for 3 years out of 7 years [CBDT Press Release dated 30 August 2019 read with CBDT
from the year of its incorporation. One of the conditions to Circular No.22/2019 dated 30 August 2019]
11 BDO India Newsletter
TAX UPDATES
Direct Tax
Clarification on applicability of tax deduction at source on
cash withdrawals
With the intention of discouraging cash transactions and
move towards cashless economy, the Finance (No. 2) Act,
2019 has inserted a new section 194N to the IT Act. The
section provides for tax deduction at source (TDS) @ 2%
from cash payments by a banking company or cooperative
bank or post office, in excess of INR 10 mn in aggregate
made during the year, to any person from one or more
accounts maintained with it by the recipient. CBDT
clarified that section 194N has come into effect from 01
September 2019. Accordingly, any cash withdrawal prior to
01 September 2019 will not be subjected to the TDS under
section 194N of the Act. However, since the threshold of
INR 10 mn is with respect to the previous year, the
calculation of amount of cash withdrawal for triggering
deduction under section 194N of the Act shall be
considered from 01 April 2019.
[CBDT Press Release dated 30 August 2019]
Enhancement of monetary limits for filing of appeals by the
Tax Department
In line with the Governments objective of reducing
litigation, the Central Board of Direct Taxes (CBDT) has
been deciding monetary limits for the Revenue to file
Income tax appeals. Monetary limit for filing appeal before
Tax Tribunals / High Courts / Supreme Court has been
further enhanced. Our detailed alert in this regard can be
accessed at:
https://www.bdo.in/en-gb/insights/alerts-updates/tax-
alert-revised-monetary-limit-for-filing-appeals-to-be-
applicable-to-pending-appeals-as-well
[CBDT Press Release dated 08 August 2019 read with
Circular No. 17/2019 [F.NO. 279/MISC.142/2007-
ITJ(PT.)], dated 08 August 2019]
Tax return’s disclosure requirement for foreign
directorship/foreign assets relaxed
In Circular No. 18/2019 dated 08 August 2019, the CBDT
clarified that a non-resident or resident but not ordinarily
resident, while filing his Indian tax return is required to
disclose details of his directorship in a foreign company
even where it does not have any income accruing or arising
in India. Upon representations being received, in the recent
circular, the CBDT has relaxed the said requirement for
disclosing foreign directorship / foreign assets. Our
detailed alert in this regard can be accessed at:
https://www.bdo.in/en-gb/insights/alerts-updates/tax-alert-
tax-return%E2%80%99s-disclosure-requirement-for-foreign-
directorship-foreign-assets-relaxed
[Circular No. 21/2019 [F.NO. 370142/1/2019-TPL (PT.-1)],
dated 27 August 2019]
Quoting of Document Identification Number (DIN) in all the
communication issued by Tax Department
CBDT observed that there have been instances wherein
notices, order, summons, letter and any other
correspondence that are issued by the income tax authorities
(IT Authorities) have not been electronically generated on
Income Tax Business Application (ITBA) platform. Thus,
resulting into absence of audit trail of such communication. In
order to plug this, recently, the CBDT has issued Circular No.
19/2019 dated 14 August 2019 providing that quoting of DIN
on the body of communication is a mandatory requirement
(unless covered by exceptional circumstances) for all the
communications (sent on or after 01 October 2019) issued by
any IT Authorities to the taxpayer or any other person.
[CBDT Press Release dated 14 August 2019 read with
Circular No. 19/ 2019 [F.NO. 225/95/2019-ITA.II], dated
14 August 2019]
JUDICIAL UPDATES
High Court: Indian Revenue cannot tax permanent
establishment of a Japanese entity at rate higher than the tax
rate applicable to an Indian Company
Taxpayer, a permanent establishment (PE) of Japanese
banking company, was assessed as a foreign company for the
fiscal year 1990-91. The tax officer taxed the income earned
by the PE at 65%, as then applicable to a foreign company.
Taxpayer contended that by virtue of section 90(2) of the IT
Act and Article 24(2) of the India-Japan tax treaty, the PE of
a Japanese entity in India cannot be charged at a tax rate
higher than tax rate applicable to an Indian entity carrying on
the same activities. However, the Tax Tribunal upheld the
view of tax officer.
On further appeal, the Calcutta High Court, on reading Article
24(2) of the India-Japan tax treaty, observed that if a bank of
either country had a PE in the other country then such PE in
the other country would be subjected to tax at a rate not less
favourable than the tax applicable to banking companies in
such other country. Further, in view of section 90(2) of the IT
12 BDO India Newsletter
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Direct Tax
Act, the provisions shall apply to a PE of a Japanese entity
in India to the extent they are more beneficial to that
taxpayer. Hence, it held that by virtue of clause 24(2) of
India-Japan tax treaty ad statutory recognition thereof in
section 90(2) of the IT Act, the PE of a Japanese entity
could not have been charged to tax at a rate higher than
comparable Indian taxpayer carrying on the same activities.
Accordingly, Calcutta High Court held that the Tax Tribunal
was incorrect in holding that the rate of tax applicable to
the taxpayer was 65%. It also held that the Tribunal should
have held the rate applicable to the taxpayer was such rate
as applicable to a domestic company carrying on similar
activities.
[Bank of Tokyo Mitsubishi Ltd vs Commissioner of
Income Tax, ITR No. 39 of 1998 (Calcutta High Court)]
Non issuance of notice under section 143(2) of the IT Act
cannot be cured by section 292BB of the IT Act
Revenue Authorities conducted search and seizure
operations under section 132 of the IT Act on taxpayer.
Post the search, Taxpayer filed his tax return for fiscal year
2009-10. The Tax Audit was completed by the Tax Officer
under section 143(3) read with section 153D of the IT Act.
The Tax Officer made additions towards unexplained cash,
jewellery, hundies and cash receipts. The First Appellate
Authority gave partial relief. In the appeal before the Tax
Tribunal, the Taxpayer contended that in absence of notice
under section 143(2) of the IT Act, the tax officer did not
have jurisdiction to pass order under section 143(3) of the
IT Act. The Tax Tribunal, relying on Supreme Court decision
in the case of Hotel Blue Moon1 upheld the Taxpayer’s
contention. The High Court dismissed the appeal on the
ground that there was no substantial question of law for
consideration.
Hence, the matter went before the Supreme Court. The
Supreme Court held that while Section 292BB of the IT Act
cures the infirmities in the manner of service of notice, it
does not save from complete absence of notice. For section
292BB of the IT Act to apply, the notice must have
emanated from the Revenue Authorities.
[Commissioner of Income Tax vs Laxman Das
Khandelwal, Civil Appeal Nos. 6261, 6262 of 2019
(Supreme Court)]
No Capital Gains apply even when existing Company takes
over Partnership Firm
The Taxpayer acquired two partnership firms as well as
1 ACIT vs. Hotel Blue Moon (2010) 321 ITR 362 (Supra)
technical know-how and trademark from both the firms. The
Tax Officer sought to compute capital gains arising from sale
of partnership firm to the taxpayer, in the hands of the
Taxpayer (being successor of these Firms). The Taxpayer
contended that as the conditions prescribed in section 47(xiii)
of the IT Act were satisfied, the gains arising from succession
should not be taxable. However, the Tax officer treated the
gains as taxable on following grounds:
▪ existing company succeeded the firms,
▪ there was change in the constitution of the firms
immediately before the date of succession by introducing
new partners
▪ the condition of partners becoming shareholders in the
company in the same proportion as their capital account
stood in the firms was not fulfilled since valuation of
technical know-how and trademark as determined by the
firms has been made nil.
Further, the Tax Officer treated the value of trademark and
technical know-how as NIL and thereby rejected taxpayer’s
depreciation claim on the basis of following:
▪ the valuation of technical know-how and trademark was
valued at nil value in the case of the firm M/s. Neptune
Equipment Co in the scrutiny assessment framed under
section 143(3) of the IT Act.
▪ The taxpayer and the partnership firm acquired by it are
engaged in the same kind of business and having common
partners/shareholders belonging to the same family since
the inception of the business. As such, the taxpayer and
the firms started the same business activities since the
dates when these entities came into existence.
▪ There was no distinction between the machinery
manufactured b the taxpayer vis-à-vis by the partnership
firm
▪ Both the taxpayer and the firm are using the same logo of
“Neptune”
▪ Both the taxpayer and the firms are operating from the
same premises
▪ The valuation of determined of the firms is based on the
highly inflated figures of sales and presumption of certain
expenses, a surplus of cash.
▪ The word ‘Neptune’ cannot fetch any goodwill by the
partnership firms. It is because the same word is used by
 13 BDO India Newsletter

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the taxpayer as well.
On appeal, First Appellate Authority granted the relief to the
Taxpayer. On further appeal by Revenue Authorities, the Tax
Tribunal affirmed the decision of the first appellate authority
and held that even there is no requirement under section
47(xiii) of the IT Act that the partnership firms should be
converted into a company. Even an existing company can also
acquire the partnership firm in the manner as laid out in section
47(xiii) of the IT Act.
Further, with respect to taxpayer’s depreciation claim on
trademark and technical know-how, it observed that that:
▪ the Taxpayer had incurred a cost by issuing shares to the
partners of the partnership firms against the acquisition of
the businesses.
▪ The value of the intangible assets was based on the valuation
report furnished by the qualified chartered accountant that
was not disbelieved by the tax officer.
▪ Mumbai Tribunal in the case of DCIT vs. Suyash Laboratories
Ltd. (65 taxmann.com 217) held that the depreciation on the
revalued assets could not be disallowed in the hands of the
taxpayer if acquired in the manner specified under section
47(xiii) of the IT Act
▪ All the conditions as specified in section 47(xiii) of the IT Act
has duly complied.
Hence, the Tax Tribunal held that the taxpayer cannot be
denied Company’s depreciation claim.
[ACIT vs M/s Neptune Industries Ltd, ITA No. 2701/AHD/2011
(Ahmedabad ITAT)]
14 BDO India Newsletter

TAX UPDATES
Transfer Pricing
JUDICIAL UPDATES
Segmental information reliability for tax independent of
segmental reporting requirement under AS 17
The taxpayer is engaged in the business of manufacture and
trading of printing inks and allied products. During the
year, the taxpayer benchmarked the transaction relying
upon the segmental data of its manufacturing and trading
segment. The segmental data is forming part of taxpayer’s
transfer pricing study report. The lower tax authority
contended that the segmental data was not backed by
rational basis and that it did not form part of the financial
statements as well. Accordingly, the tax authority rejected
the segmental adopted by the taxpayer and benchmarked
the transactions using external TNMM. The higher tax
authority upheld the contention of the lower tax authority. Margin Method (TNMM) as method for computing arm’s
Aggrieved, the taxpayer preferred an appeal before the Tax length price for its manufacturing and installation segment
Tribunal. In earlier years taxpayer had benchmarked the and selected comparable companies out of which lower
aforesaid transactions using entity level benchmarking tax, authority rejected certain companies citing that those
which was rejected by the revenue stating that companies were facing declining revenues and incurring
transactions with AE formed a minimal percentage of the losses. Aggrieved by the order of the lower tax authorities
overall business. Instead the revenue drew up segmental the Taxpayer filed an appeal in Tax Tribunal. After hearing
accounts. The taxpayer further submitted that each arguments of lower tax authority, Tax Tribunal passed its
activity, function or transaction whether in the nature of judgement, stating that the comparables can be included
trading or in the nature of manufacture has its own distinct since the whole industry was going through a downward
FAR analysis and therefore each activity should be trend and the comparables were functionally similar. The
benchmarked independently. The Tax Tribunal held that Tax Tribunal noted “A reading of the TPO’s order does not
the international transactions related to press chemicals indicate any other reason than the incurring of continuous
purchased for trading has no relation with purchase of raw losses or facing decline in revenues for the last three
material and export of printing inks and hence is separate years” for rejection of the companies as comparables. Tax
and distinct transaction requiring independent analysis and Tribunal relied on the Delhi High Court ruling of
that a particular segment reporting or non-reporting based Chryscapitals Investments Advisors (I) P.Ltd. and held that
on AS 17 cannot be held as conclusive for reliability of “in the absence of any dissimilarity as to the functions
segmental prepared for the tax purposes. performed, assets utilized and risks undertaken, mere loss
DIC India Limited [TS-820-ITAT-2019(Kol)-TP] making or decline in revenues cannot be a ground to reject
the otherwise comparable companies from the set of
Persistent losses not a reason for excluding company as a comparables”.
comparable if company is functionally similar
Nokia Siemens Network India P LTD [TS-733-HC-
Taxpayer is engaged in the business of manufacturing and
2019(DEL)-TP]
trading telecom products. Taxpayer used Transactional Net
15 BDO India Newsletter
TAX UPDATES
Indirect Tax
GOODS & SERVICE TAX
Judicial Updates
High Court allows interim stay for recovery of ITC based on
the mismatch between GSTR-2A and GSTR-3B
▪ Royal Sundaram General Insurance Company Limited
(‘Taxpayer’) filed a Writ petition before Hon’ble Andhra
Pradesh High Court, challenging the recovery of excess ITC
(by the revenue authorities) under section 74 of CGST Act
& APGST Act due to mismatch between GSTR-2A & GSTR-
3B.
▪ The taxpayer’s FORM GSTR - 2A did not reflect the actual
amount of ITC as the suppliers did
▪ not update the details in FORM GSTR – 1 filed by them;
however appropriate ITC has been declared in FORM GSTR
- 3B filed by the taxpayer.
▪ The taxpayer submitted that the recovery/demand is
illegal & premature as forms GSTR-2 & form GSTR-3 were
suspended vide press release dated May 4, 2018 and these
are not even operational.
▪ Further, the demand is made under section 41 & 42 of the
Act. The relevant rule applicable is Rule 69 which provides
for reconciliation of details after furnishing of returns in
form GSTR-3. In the absence of the prescribed forms GSTR
-2 and GSTR-3, the reconciliation of ITC as envisaged
under Section 41 and 42 of Act, read with Rule 69, is not
warranted.
▪ The press release prescribed that any mis-match must be
addressed by the supplier first, and that the recipient
must be approached only in exceptional circumstances
(such as closure of supplier’s business, etc.). The taxpayer
further argued that the instant case did not fall within the
exceptional circumstances, as described in the said GST
Press Release.
▪ Demand for reversal of ITC is wholly baseless as it equates
Form GSTR-3B to a 'valid return'* provided u/s 39(1) and
calls for matching of ITC as prescribed under various
provisions of CGST Act read with CGST Rules, which is not
in line with provisions as enumerated under Section 41 and
42 read with Rule 69.
▪ Accordingly, the Hon’ble High Court granted interim stay
of proceedings till the disposal of the case.
Comments
It is also relevant to note the decision of Hon’ble Gujarat
High Court in the case of AAP AND Co., Chartered Accountants
through Authorised Partner vs. Union of India & 3 others,
R/Special Civil Application No:18962 of 2018 dated June 24,
2019, wherein it was held that the return in Form GSTR-3B
is only a temporary stop-gap arrangement till due date of
filing the return in Form GSTR-3 is notified. Notifications
are being issued from time to time extending the due date
of filing of the return in Form GSTR-3, i.e. return required
to be filed under Section 39 of the CGST Act. The Gujrat
High Court also stated that notification no:10/2017 Central
Tax dated June 28, 2017 which introduced mandatory filing
of the return in Form GSTR-3B stated that it is a return in
lieu of Form GSTR-3. However, the Government, on realising
this mistake that the return in Form GSTR-3B is not
intended to be in lieu of Form GSTR-3, rectified it
retrospectively vide notification no.17/2017 Central Tax
dated July 27, 2017 and omitted the reference to return in
Form GSTR-3B being return in lieu of Form GSTR-3. Hence,
Form GSTR-3B is not the monthly return contemplated
under the provisions of Section 39 of the CGST Act and the
Para 3 of the Press Release dated 18 October 2018 is
contrary to the provisions of Section 16(4) read with Section
39(1) of the CGST Act in turn read with Rule 61 of the CGST
Rules.
[Andhra Pradesh High Court-Royal Sundaram General
Insurance Company Limited Vs. Assistant Commissioner
(ST) & 5 Ors. dated August 29, 2019]
High Court allows interim stay for provisional assessment of
levy of ‘Social Welfare Surcharge’ (SWS) for imports under
MEIS
▪ Dalmia Cement (Bharath) Limited (‘Taxpayer’) imported
petroleum coke by using the valid MEIS scrips without
paying the Basic Customs Duty (BCD), availing the
benefit provided in the notification no.24/2015-Cus
dated April 08, 2015.
▪ The Bill of Entry (BOE) was filed electronically through
16 BDO India Newsletter
TAX UPDATES
Indirect Tax
the Customs EDI gateway (ICEGATE) portal where the
duty payable is automatically calculated by the system
and the system does not provide exemption from SWS,
where the BCD is exempted. Revenue contended SWS
has to be paid either by way of cash or debit in the
scrips. Thus, the taxpayer is forced to pay INR 6.7 Mn
under protest and the taxpayer preferred statutory
appeals against the said assessment.
▪ Since regular imports were made, the taxpayer
approached the revenue seeking exemption from SWS
citing various judgements such as SRD Nutrients Private
Limited vs. Commissioner of Central Excise, Guwahati
(2017 (11) TMI 655 - SUPREME COURT) and Bajaj Auto
Limited vs. Union of India and Ors (2019 (3) TMI 1427 -
SUPREME COURT).
▪ However, revenue replied that the matter is referred to
CBIC and cannot take a stand before it is decided by the
appellate authority and assessment will continue in the
same manner.
▪ Pursuant to this, the taxpayer filed a Writ before the
Hon’ble High Court praying that the revenue’s direction
to follow the existing practice till the time of
clarification by CBIC is ex-facie bad in law, when on
merits, issue is settled in favour of taxpayer by binding
judgments of both High Court & Supreme Court.
▪ The issues are already resolved in the context of DEPB
Scheme which is pari materia to present MEIS scheme,
wherein education cesses were exempted, when the
BCD is exempted. This is categorically stated in the SRD
Nutrients Private Limited (Supra) case law.
▪ Further the taxpayer submitted that the issue cannot be
termed as a ‘policy’ as this is a pure legal issue and the
error in EDI system cannot be taken as a basis to deny
the exemption to the taxpayer which is legally
available.
▪ Based on the above, the taxpayer prayed granting of
stay for finalisation of provisional assessment.
▪ The Hon’ble satisfied that sufficient cause is shown in
the case to grant stay for a limited period and
accordingly allowed the Writ.
BDO Comments
The levy of Social Welfare Charge was enacted through
clause 108 of Finance Bill 2018, which provides a duty of
customs called SWS @ 10% on the aggregate duties of
customs levied at the time of import. Therefore, it is
relevant to analyse, what shall be the “value of custom
duty” when such payment is made by way of debiting MEIS
scrips. Bombay High Court in the case of Reliance Industries
Limited Vs. Commissioner of Customs (2015(322)
ELT121(Bom) and Supreme court in the case of Kedia
Overseas Limited [2015 (326) ELT A.191(SC)] has held that in
the case of imports under the DEPB Scheme, which are fully
exempt, the customs duty is nil. Consequently, the cess
specified at the rate of 2% of the Customs duty in relative
terms, becomes nil for exempted DEPB imports.
Accordingly, the Courts held that no education cess is
leviable on such imports. The above judgments are
pronounced in the context of DEPB scheme (and not
MEIS/SEIS schemes), one may have to keep this mind while
taking any position.
[Andhra Pradesh High Court-Dalmia Cement (Bharath)
Limited Vs. Union of India Dated September 03, 2019]
ADVANCE RULINGS
ITC on inward supplies relating to in-house hospital
maintained for providing medical care to the individuals
who are the employees and pensioners, is not eligible
▪ M/s. Chennai Port Trust (‘Taxpayer’) is engaged in supply
of port services and incidental supply of goods like
disposal of discarded assets. The taxpayer sought clarity
on the eligibility of ITC on the following inward supplies:
Sl.
Supply
No.
1 Medical and diagnostic equipment
Medical apparatus & instruments, consumables
2 & disposable items and other machinery
installed in the in-house hospital
Spares for the medical and diagnostic
equipment, medical apparatus & instruments
3
and other machinery installed in the in-house
hospital
Repairing services of medical and diagnostic
equipment, medical apparatus & instruments
4
and other machinery installed in the in-house
hospital
▪ The taxpayer is maintaining an in-house hospital within
its port premises for providing health and medical care
exclusively to its employees and pensioners. Provision of
free medical care is mandatory as per:
− Chennai Port Trust Employees (Contributory Outdoor
and Indoor Medical Benefit After Retirement)
 17 BDO India Newsletter
TAX UPDATES
Indirect Tax
− Regulations, 1989
− Chennai Port Trust Employees (Medical Attendance in the
Trust’s Hospital and reimbursement of Hospital Charges)
Regulations, 1994
▪ The taxpayer submitted the following points before the
Authority for Advance Ruling (AAR):
− The hospital is only a cost-centre and no services are
provided by this in-house hospital for any consideration.
− The medicines are given to the employee free of cost and
the medicinal equipment are used to render health
benefits to the employees, which are part of the package
to the employee.
▪ The department advanced the following arguments:
− Providing medical services by using equipment to their
employees and pensioners are not part of their business
activity and such provision is being done only under
service rules.
− The ITC on inward purchases of medicines are not
eligible since these medicines are supplied without
consideration, i.e., free supply.
▪ The AAR observed that the goods and services are used for
providing medical care to the individuals who are the
employees and pensioners of the taxpayer. Therefore, they
are in effect used for personal consumption of the
employees, pensioners and dependents, which is covered
under section 17(5)(g) of CGST as well as SGST Acts.
Accordingly, the AAR held that, the credit of the above
tabulated supplies would not be an eligible to the taxpayer.
BDO Comments
It is relevant to note that as per proviso to Section 17(5)(b), the
input tax credit in respect of such goods or services or both
shall be available, where it is obligatory for an employer to
provide the same to its employees under any law for the time
being in force, w.e.f February 1, 2019.
[AAR-Tamil Nadu-M/s Chennai Part Trust-Order No.
32/AAR/2019 dated July 25, 2019]
Whether transportation services undertaken to deliver food
along with supply of food would be taxable as a composite
supply
▪ M/s. Christy Fried Gram Industry (‘Taxpayer’), is engaged in
manufacture and supply of Complementary Weaning Food
containing amylase activity to the Department of Integrated
Child Development Services, Government of Tamil Nadu.
▪ The above products are distributed free to the economically
weaker sections of the society under a programme duly
approved by the State Government and Central
government. A conditional lower GST rate of CGST @
2.5% and SGST @ 2.5% is available on the supply, on
production of certificate from officer not below the rank
of Deputy Secretary of the Government.
▪ Taxpayer has been transporting these food items through
goods carriage vehicle owned by them. The unit price
fixed for the complementary Weaning Foods includes the
transport charges as per the agreement entered with the
Department of Integrated Child Development Services.
Hence, taxpayer is collecting transport charges for the
delivery of complementary weaning foods to the
Anganwadi centres.
▪ Based on the above background, the taxpayer has raised
the following questions before the AAR as to-
− The rate of GST applicable for transportation of
goods?
− Whether the transportation services would come
under ‘Goods Transport Agency’ (GTA) service or not?
− Whether GST would be applicable when the supply of
goods & transportation services provided to an
unregistered person?
− Whether it will qualify as a composite supply, if
separate invoices are raised for goods &
transportation of goods?
▪ The taxpayer submitted that in respect of transportation
of these food items, they are of view that supply of
goods and transport service are integral parts, even
though invoices are raised separately for goods and
transportation charges. Hence, this transaction will be
covered under composite supply and rate of GST
applicable for goods will be applicable for transportation
charges.
▪ Taxpayer further stated that the tender itself specifies
that the transportation charges are included in price and
specified in agreement. However, they have been
invoicing separately for food and transportation charges
with GST @ 5%. They stated that it would be a
'composite supply' with principal supply of goods as
‘food’ and tax rate should be 5% as per notification
no.39/2017 dated October 18, 2017.
▪ Serial No. 9(iii) of notification no.11/2017 –Central Tax
(Rate) dated June 28, 2017 has defined GTA as any
person who provides service in relation to transport of
goods by road and issues consignment note, by whatever
 18 BDO India Newsletter
TAX UPDATES
Indirect Tax
name called and specified the rate of Central Tax at 2.5%
(and State Tax of 2.5%) where ITC is not taken for the
services of GTA in relation to transportation of goods.
▪ Section 2(30) of the CGST/TNGST Act 2017, defines
composite supply as-
▪ ‘composite supply’ means a supply made by a taxable person
to a recipient consisting of two or more taxable supplies of
goods or services or both, or any combination thereof, which
are naturally bundled and supplied in conjunction with each
other in the ordinary course of business, one of which is a
principal supplier.
▪ Thus, it would be liable to taxed as a composite supply.
▪ The department submitted that the supply of goods and
transportation of goods will not fall under the category of
"Composite Supply" as it is not a naturally bundled service,
since the service of the transportation of goods, carried-out
by the taxpayer in this case, can be provided by any other
person, i.e., by a consignor or consignee or by a GTA other
than the consignor or consignee.
▪ AAR observed that bid price for the contract clearly
mentioned that charges on transportation, shall be indicated
separately as follows: - (i) from factory to project level and
(ii) Project to centre level. For evaluation, transportation
charges will be included with price of goods. This shows that
specific transport charges are not collectable by the seller.
▪ If the taxpayer engaged an external transport service
provider, the tax would be payable by the taxpayer only.
▪ As per agreement entered by the taxpayer with government,
the transportation charges, if any, are included in unit price
of goods. Therefore, no separate transport or freight charges
is collectable from the Government.
▪ Evaluation of price is including cost of inland transportation
for delivery of goods to destination. Para 39 of bid document
specifies that payment will be made only after confirmation
of delivery and verification of stock entry certificate at each
centre.
▪ Para 40 states that the supplier shall not assign or sub-let
the allotted work in whole or in part. The taxpayer cannot
assign or sub-let any portion of the contract whether it is
manufacturing or delivery. Accordingly, the taxpayer has
been transporting these products through goods carriage
vehicle owned by them.
▪ It is seen from the invoices raised, that the taxpayer has not
been paid at the actual transportation charges to the
destination but a fixed cost towards transportation as per
the agreement irrespective of the place of supply. Thus, the
taxpayer effects the supply of the product at the
designated centre for a single fixed price as per the
contract.
▪ There are two supplies in the case at hand, one for
supply of goods and other for supply of services of
transporting the goods to the specified ICDS centres.
Both these supplies are taxable supplies for a
consideration. To decide whether these two taxable
supplies are naturally bundled, the contract/agreement
is to be examined.
▪ In this case, the recipient ICDS department intends to
serve nutritious weaning food to children through the
ICDS/Anganwadi centres all over the State. They could
have procured the food from one supplier, aggregate all
and then again distribute to each of these centres using
their own resources or a third-party contractor for the
same. However, in order to ensure quality and supply of
food within prescribed time limits, they have chosen to
keep the responsibility of the delivery to the supplier of
the food himself.
▪ In this case, it eliminates further agreements and more
importantly, ensures timely delivery of fresh and quality
food. This would also give them the flexibility to get the
right quantity to each centre at the time of
requirement. Accordingly, the bid document clearly
indicates that the bidder shall have the responsibility to
deliver the specified quantities to all the centres. The
bid price is also made inclusive of a fixed transportation
charge instead of an actual basis. The taxpayer is also
prohibited from assigning or assigning any part of the
contract including the delivery to a third party.
▪ Therefore, in this case the supply of 'Complementary
Weaning Food Containing Amylase Activity' is naturally
bundled with the delivery at the designated centres as
specified as per the bid and agreement and hence, this is
a composite supply as per Section 2(30) of the
CGST/TNGST Act 20I7.
▪ In this event of it being a composite supply, the question
of whether transportation of the food products is a
‘Goods Transport Agency' supply does not arise, as once
it is a composite supply there is no question of splitting
and examining each of the taxable supplies separately.
In light of the above, it was held that the tax rate
applicable to the food products is the rate of tax for this
composite supply.
[AAR-Tamil Nadu-M/s Christy Fried Gram Industry-Order
No. 36/ARA/2019 dated July 26, 2019]
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