Stay on Service Tax under Reverse Charge on Legal Services by Delhi High Court

Service tax on legal services provided by an advocate (whether individual or firm) to any business entity has been imposed vide the Finance Act, 2012 under reverse charge mechanism wherein service recipient is liable to deposit service tax on fees paid to advocates.

Depositing Service Tax under wrong Category does not mean that Service Tax Liability to be discharged again

In the case of Katrina Kaif vs. Commissioner of Service Tax Mumbai - I, the Hon’ble CESTAT (Mumbai Bench) vide order no. A/670/2012/CSTB/C-I, Appeal No. ST/387/2011, dated 09.10.2012 {2012(12) TMI 579- CESTAT- MUMBAI} has held that merely by paying service tax liability under wrong head does not mean that service tax liability has not been discharged and has to be deposited again in correct category. Further, the Hon’ble CESTAT has also clarified that the assessee means a person who is liable to pay service tax and includes his agent.

In this case, Katrina Kaif appointed M/s Matrix India Entertainment Consultants (P) Limited as her agent to receive amount of consideration for promotion of the product and to discharge the service tax liability on her behalf.

Matrix has discharged the service tax liability under the category of “Advertisement Agency Service” under which the agent was registered with the service tax department. Whereas, the department alleged that the category in which the assessee, Katrina Kaif, was liable to pay was “Business Auxiliary Services”. The Adjudicating authority further alleged that the assessee has to discharge again the service tax liability under Business Auxiliary Service.

In this regard the Hon’ble CESTAT has clarified that depositing service tax under wrong category does not mean that Matrix has not duly paid the service tax on behalf of the appellant, Ms. Katrina Kaif.

Hence, even if service tax has been deposited in wrong category, the adjudicating authority in no case can demand service tax again under the correct category.

New Guidelines for Issue of Commercial Paper (CP)

The RBI issued some guidelines on issue of Commercial Paper on 01.01.2013. Some of its salient features are:

Eligibility for issue of CP: Companies, PDs and FIs are permitted to raise short term resources through CP within the umbrella limits.

A company would be eligible to issue CP if it meets the following criteria:

1.       Tangible net worth as per the latest audited balance sheet is not less than Rs. 4 crore;

2.       Has been sanctioned working capital limit by banks or FIs; and

3.       The borrower account of the company is classified as a Standard Asset by the financing bank/ institution.          

Issue of CP – Credit enhancement, limits, etc.

·         CP shall be issued as a ‘stand-alone’ product. Further, it would not be obligatory in any manner on the part of the banks and FIs to provide stand-by facility to the issuers of CP. 

·         Banks and FIs may, based on their commercial judgment, subject to the prudential norms as applicable to them, with the specific approval of their respective Boards, choose to provide stand-by assistance/ credit, back-stop facility etc. by way of credit enhancement for a CP issue.

·         Non-bank entities (including corporates) may provide unconditional and irrevocable guarantee for credit enhancement for CP issue, provided: 

1.       the issuer fulfills the eligibility criteria prescribed for issuance of CP;

2.       the guarantor has a credit rating at least one notch higher than the issuer given by an approved CRA; and

3.       the offer document for CP properly discloses the net worth of the guarantor company, the names of the companies to which the guarantor has issued similar guarantees, the extent of the guarantees offered by the guarantor company, and the conditions under which the guarantee will be invoked. 

4.       The aggregate amount of CP that can be issued by an issuer shall at all times be within the limit as approved by its Board of Directors or the quantum indicated by the CRA for the specified rating, whichever is lower. 

5.       Banks and FIs shall have the flexibility to fix working capital limits, duly taking into account the resource pattern of company’s financing, including CP. 

6.       An issue of CP by an FI shall be within the overall umbrella limit prescribed in the Master Circular on Resource Raising Norms for FIs, issued by the Reserve Bank of India, Department of Banking Operations and Development, as prescribed/updated from time-to-time.

7.       The total amount of CP proposed to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription. CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. 

8.       Every issue of CP, and every renewal of a CP, shall be treated as a fresh issue.

Form of the Instrument, mode of issuance and redemption

Form

1.       CP shall be issued in the form of a promissory note (as specified in Schedule I to these Directions) and held in physical form or in a dematerialized form through any of the depositories approved by and registered with SEBI, provided that all RBI regulated entities can  deal in and hold CP only in dematerialized form through such depositories.

2.       Fresh investments by all RBI-regulated entities shall be only in dematerialized form.

3.       CP shall be issued in denominations of 5 lakh and multiples thereof. The amount invested by a single investor should not be less than 5 lakh (face value).

4.       CP shall be issued at a discount to face value as may be determined by the issuer.

5.       No issuer shall have the issue of CP underwritten or co-accepted.

6.       Options (call/put) are not permitted on CP.

Tenor

1.       CP shall be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. 

2.       The maturity date of the CP shall not go beyond the date up to which the credit rating of the issuer is valid.

Procedure for Issuance

1.       Every issuer must appoint an IPA for issuance of CP.

2.       The issuer should disclose to the potential investors, its latest financial position as per the standard market practice.

3.       After the exchange of confirmation of the deal between the investor and the issuer, the issuer shall arrange for crediting the CP to the Demat account of the investor with the depository through the IPA.

4.       The issuer shall give to the investor a copy of IPA certificate to the effect that the issuer has a valid agreement with the IPA and documents are in order (Schedule II).

Rating Requirement

Eligible issuers shall obtain credit rating for issuance of CP from any one of the SEBI registered CRAs. The minimum credit rating shall be ‘A3’ as per rating symbol and definition prescribed by SEBI. The issuers shall ensure at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review. 

Basic Introduction to Companies Bill, 2012

The Companies Bill, 2012 was passed by Lok Sabha on the 18th of December 2012. The following are a few highlights from the same.

The objectives kept in mind while drafting the Companies Bill were:

·         Protecting the interests of Employees and Small Investors

·         Voluntary adoption of Social Welfare Schemes

·         Clearing cumbersome procedures and making India an attractive and safe destination for Investment

Differences between the Companies Bill, 2012 and the Companies Act, 1956:

·         Introduction of “One Person Company” concept

·         More powers conferred upon the Serious Fraud Investigation Office (SFIO) to tackle issues of corporate frauds.

·         Setting up of special courts for speedy trials, thereby assuring quick relief to investors.

·         Corporate Social Responsibility mandated through a statutory provision. The Companies Bill is said to make CSR spending compulsory for companies that meet certain criteria.

·         Annual ratification of appointment of Auditors for 5 years, i.e. every company will be required to mandatorily obtain the consent of its shareholders every year in order to continue with its auditors.

·         Limits the number of companies an auditor can serve to 20, while also increasing the criminal liability of auditors.

·         New Clause has been inserted related to offence of falsely inducing banks for obtaining credit.

·         Companies are allowed to have only two layers of subsidiaries for investment.

·         Companies are encouraged to create Employees’ Welfare Fund

·         Whistle Blower policies and Class Action Suites are other areas brought into light.

Corporate Social Responsibility Provisions in the Companies Bill, 2012

The Companies Bill, 2012 has brought certain requirements related to Corporate Social Responsibility which have to be met by all companies which meet the specified criteria.

Relevant Provision: Clause 135

Applicability: Every company which meets any of the following criteria:

(1)    Net worth of Rs. 500 crore or more

(2)    Turnover of Rs. 1000 crore or more

(3)    Net profit of Rs. 5 crore or more

during any financial year shall.

Corporate Social Responsibility Committee of the Board:

(1)    Composition:

a.       Minimum 3 Directors

b.      At least 1 Independent Director

(2)    Disclosure:

The Board's Report under section 134(3) shall disclose the composition of the Corporate Social Responsibility Committee.

(3)    Duties:

a.       Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

b.      Recommend the amount of expenditure to be incurred on these activities;

c.       Periodic monitoring of the CSR Policy of the company

Duties of the Board of Directors:

The Board of Directors shall:

a.       After taking into account the recommendations made by the CSR Committee, approve the CSR Policy for the company;

b.      Disclose contents of such Policy in its report and also place it on the company's website in such manner as may be prescribed;

c.       Ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

d.      Ensure that the company spends, in every financial year, at least 2 percent of the average Net Profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy:

i.        Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

ii.      Provided further that if the company fails to spend such amount, the Board shall, in its report under section 134(3)(o), specify the reasons for not spending the amount.

Activities as mentioned in Schedule VII:

The following activities may be included by companies in their CSR Policy:

(i)                  Eradicating extreme hunger and poverty;

(ii)                Promotion of education;

(iii)               Promoting gender equality and empowering women;

(iv)              Reducing child mortality and improving maternal health;

(v)                Combating HIV, AIDS, malaria and other diseases;

(vi)              Ensuring environmental sustainability;

(vii)             Employment enhancing vocational skills;

(viii)           Social business projects;

(ix)              Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

(x)                Such other matters as may be prescribed.

Note: “Average Net Profit” shall be calculated in accordance with the provisions of section 198.

Service Tax Registrations after 01.07.12 to be amended

According to Circular No 165/16/2012 ST dated 20-11-2012 the pre-July system of service-wise registration has been restored by CBEC.

New registrations: Applicants are required to indicate the service(s) from out of the 120 categories listed in the Circular. Further, Service-wise Accounting Codes have also been allotted for payment of tax, other receipt-interest and penalty (which are available for quick reference on our website casahuja.com).

The Service Tax Registration Certificate in ST-2 will display the list of services for which the assessee is registered along with the new Accounting Codes.

Existing registrants: The assessees who had registered with the Service Tax Department after 01.07.2012 under the 'Other than in the Negative List' (OTNL) category should amend the taxable service details now and opt for relevant descriptions from the list of 120 services. After approval by the departmental officer, a new Registration Certificate in ST-2 will be issued online displaying the list of services chosen by the assessee along with the new Accounting Codes.

The existing registration number will remain unchanged.

Pending amendment applications: For all applications which have been filed and are pending for change, the description of services to OTNL category will be rejected by the departmental officers in view of the above mentioned circular. 

Statutory Compliance Calendar January 2013

Date	Statutory Act	Applicable Form	Obligation
05/01/2013	Service Tax	Challan No.GAR-7	Payment of Service Tax for quarter ending December by individuals, proprietary and partnership firms, and for the month ending December by companies (6th for e- payment)
07/01/2013	Income Tax	Challan 281	Payment of TDS for month of December
07/01/2013	Income Tax	Form No. 15G, 15H, 27C	Submission of forms received in December to IT Commissioner.
10/01/2013	Excise	ER-1	Return for Non SSI assessees for December.
10/01/2013	Excise	ER-6	Return by units paying duty >1 crore (CENVAT +PLA) for December.
10/01/2013	Excise	ER-2	Return for EOUs for December.
15/01/2013	DVAT	DVAT 20	Deposit of DVAT TDS for December.
15/01/2013	Provident Fund	Electronic Challan Cum Return(ECR)	E-Payment of PF for December (Cheques to be cleared by 20th)
15/01/2013	Income Tax	Return No. 24Q, 26Q, 27EQ & 27Q	TDS returns for December quarter for non-govt. deductors & TCS returns for all deductors
21/01/2013	ESI	ESI Challan	Payment of ESI for December.
21/01/2013	DVAT	DVAT 20 & Central	Deposit of VAT and CST for December (tax period being a month), and also by quarterly dealers liable to pay tax above 1 lac in previous FY or in current FY, and for quarter ending December (tax period being a quarter; e-payment compulsory).
22/01/2013	DVAT	DVAT 43	Issue of DVAT Certificate for deduction made in December.
25/01/2013	DVAT	Form 16 and CST 1	E Return of VAT for month/quarter ended December.
28/01/2013	DVAT	Form 16 & 1/Form 17 & Ack.	Physical Return of VAT and CST for December month/ quarter.
28/01/2013	DVAT	Audited Accounts	Filing of audited accounts for FY 2011-12 for Tax Audit cases
28/01/2013	DVAT	DVAT 48	Return of TDS for December quarter in DVAT 48
30/01/2013	Income Tax	Form 16A/27D	Issue of TDS/TCS certificates for quarter ended December
31/01/2013	MCA - ROC	Form I-XBRL and Form A-XBRL	Filing of Cost Audit Report and Compliance Report in XBRL for FY 2011-12