During the week of 9th to 15th September 2024, several important notifications and circulars were issued across various domains. The Income Tax department outlined a Standard Operating Procedure for handling audit objections and emphasized the necessity of a draft assessment order prior to the final assessment, as ruled by the Delhi High Court. A campaign for Swachhata and pending matter disposal was also announced for October. In GST, clarifications were provided on the classification of advertising services for foreign clients and input tax credit availability for demo vehicles used by motor vehicle dealers. The place of supply for data hosting services was defined for services provided to overseas clients. Customs updates included changes in the rates for yellow peas, onions, and edible oils, while countervailing duties were imposed on imports from China and Vietnam. SEBI revised the use of securities funded through cash collateral for the Margin Trading Facility, and the DGFT removed the Minimum Export Price for onions and extended the import period for yellow peas. These updates reflect continued adjustments in tax compliance, trade policies, and financial regulations.
A. Income Tax
Standard Operating Procedure for Handling Internal Audit Objections: CBDT has issued guidelines for handling internal audit objections. These guidelines distinguish between major and minor audit objections and define the scope of audit, including reviewing previous cases, ensuring legal compliance, and identifying any discrepancies. All objections must be raised via the ITBA platform. The SOP also provides guidance on how to resolve disagreements between auditors and tax officers. (CBDT Instruction 02/2024, Dated 09/09/2024)
HC, It is mandatory to pass draft assessment order prior to passing of final order: Case of PCIT vs Sumitomo Corporation India (P) Ltd, Delhi HC Decision Dated 02nd September 2024. Delhi High Court held that passing of a draft assessment order as mandated under section 144C of the Income Tax Act is mandatory prior to passing of final assessment order. (Delhi HC Order Dated 02/09/2024)
Special Campaign 4.0 for Swachhata and disposal of pending matters from 2nd to 31st October, 2024: CBDT along with its subordinate offices are gearing up for the Special Campaign 4.0. (CBDT Press Release Dated 12/09/2024)
— The Department of Administrative Reforms and Public Grievances (DARPG) had issued guidelines for the implementation of Special Campaign 4.0 for Swachhata and minimizing pendency. The Preparatory Phase of the Campaign will start from 16th to 30th September 2024, to identify the targets. During the campaign period, the focus will be towards swachhata, digitization, inclusivity, improving office spaces, disposal of scrap, record weeding/preservation, mass activity, shramdan and plantation. (Deptt of ARPG Guidelines OM Dated 22/08/2024)
B. GST
Clarification in respect of advertising services provided to foreign clients: The advertising company in India, which enters into separate agreements, with the foreign client and with media owners, cannot be classified as an intermediary. The relationship is considered principal-to-principal, as the advertising company is supplying services directly to the foreign client. the place of supply in such cases is not to be determined based on the intermediary provisions under Section 13(8)(b).
— However, if an advertising company only facilitates the transactions between a foreign client and media owners, without actually providing the main service, it’s treated as an intermediary. In these situations, the place of supply will be where the advertising company is located in India, following Section 13(8)(b) of the IGST Act. (CGST Circular 230/2024, Dated 10/09/2024)
Clarification on availability of input tax credit in respect of demo vehicles used by authorized dealers of motor vehicles: As per Section 17(5)(a) of the CGST Act, ITC on motor vehicles for passenger transportation (with seating capacity not more than 13, including the driver) is restricted, unless the vehicle is used for, (i) Further supply (i.e., sale) of such motor vehicles; (ii) Passenger transportation; or (iii) Imparting driving training. It has been clarified that since demo vehicles are used to promote the sale of similar vehicles (further supply), ITC is allowed.
— If a dealer uses demo vehicles for purposes other than further supply, such as transporting staff, ITC is not allowed. If the dealer acts only as a service provider to the vehicle manufacturer (offering test drives without involvement in the sale), ITC is not allowed.
— If the demo vehicles are capitalised, ITC is still available on demo vehicles used for furthering the sale of motor vehicles, provided no depreciation is claimed on the tax component. However, when a capitalized demo vehicle is sold, the dealer must comply with Section 18(6) of the CGST Act, which requires payment of an amount based on the sale price. (CGST Circular 231/2024, Dated 10/09/2024)
Clarification on the Place of Supply for Data Hosting Services: Data hosting service providers in India are not considered intermediaries under Section 2(13) of the IGST Act. Their services are delivered directly to cloud computing companies on a principal-to-principal basis, rather than acting as intermediaries or brokers between the cloud companies and their end users. Therefore, the place of supply cannot be determined under Section 13(8)(b) of the IGST.
— Data hosting services provided by Indian service providers to overseas cloud computing companies are not considered to be in relation to goods “made available” by the cloud computing service providers. Even if some hardware is provided by the cloud computing companies, the data hosting provider manages the entire infrastructure. Therefore, the place of supply cannot be determined under Section 13(3)(a) of the IGST.
— The services offered by data hosting providers don’t directly involve immovable property, since they encompass a range of comprehensive services rather than just using physical premises. Therefore, the place of supply cannot be determined under Section 13(4) of the IGST.
— It is clarified that, the place of supply is determined as per the default provision of Section 13(2) of the IGST Act, which is the location of the recipient. For services provided to cloud computing providers outside India, the place of supply is considered to be outside India. Further, the supply of data hosting services by an Indian provider to an overseas cloud computing service provider can be classified as export of services, provided that other conditions under Section 2(6) of the IGST Act are fulfilled. (CGST Circular 232/2024, Dated 10/09/2024)
Clarification regarding regularization of refund of IGST availed in contravention of rule 96(10) of CGST Rules, 2017, in cases where the exporters had imported certain inputs without payment of integrated taxes and compensation cess: The rule 96(10) imposes a bar on claiming a refund of IGST paid on exports of goods or services if the benefits of certain concessional/exemption notifications have been availed on the inputs/raw materials that were imported or procured domestically.
— An explanation was inserted vide notification 16/2020 into sub-rule (10) of Rule 96, with retrospective effect from 23rd October 2017, which clarifies that if a registered person has paid IGST and compensation cess on inputs and only availed the exemption of Basic Customs Duty (BCD) under the said notifications, it would not be considered as availing the benefit of the exemption notifications. The explanation leads to a broader understanding that in cases where inputs were imported without payment of IGST and compensation cess initially, but the exporter subsequently pays the IGST and compensation cess on these inputs along with interest, it would be considered that the benefit of the exemption notifications has not been availed.
— It is clarified that if an exporter who initially imported inputs without paying IGST and compensation cess under the benefit of the said exemption notifications, later pays IGST and compensation cess along with interest, and gets the Bill of Entry reassessed through Customs authorities, then the refund of IGST paid on exports will not be considered in contravention of sub-rule (10) of Rule 96 of the CGST Rules. (CGST Circular 233/2024, Dated 10/09/2024)
HC, GST Act does not allow for transfer of proceedings from one proper officer to another without explicit legal provisions: Case of Stalwart Alloys India Private Ltd vs Union of India, Punjab & Haryana HC Judgement Dated 28th August 2024. The Court noted that these proceedings are judicial in nature and cannot be transferred administratively between officers or departments without proper legal provisions. The court found that the GST Act does not allow for the transfer of proceedings from one proper officer to another, and the proceedings initiated by the State Tax Officer should remain under their jurisdiction. (P&H HC Judgement Dated 28/08/2024)
C. Central Excise
No notification/ circular during the week.
D. Custom Duty
Changes in rates of Custom Duty: The notification extends the exemption for imports of yellow peas to bills of lading issued on or before December 31, 2024. Additionally, the notification imposes a new export duty of 20% on onions. It also updates the rates of Basic Customs Duty (BCD) and Agricultural Infrastructure Development Cess (AIDC) for import of crude and refined edible oils. (Custom Notification 43/2024 (T) Dated 13/09/2024)
Amendment to Courier Imports and Exports (Electronic Declaration and Processing) Regulations: The amendments primarily update clauses related to export promotion schemes. The import or export of goods under various schemes like Duty Drawback, Remission of Duties and Taxes on Exported Products (RoDTEP), and Rebate of State and Central Taxes and Levies (RoSCTL) are now exempt from certain regulations. It also specify that authorised couriers or agents, licensed under the Customs Brokers Licensing Regulations, 2018, must handle the electronic integrated declaration for such exports. (Custom Notification 60/2024 (NT) Dated 12/09/2024)
Fixation of Tariff Value of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver: CBDT notified the Tariff Values of Edible Oils, Brass Scrap, Areca Nut, Gold and Silver, which shall come into force w.e.f. 14th September 2024. (Custom Notification 61/2024 (NT) Dated 13/09/2024)
Countervailing Duty on Welded Stainless-Steel Pipes and Tubes exported from China and Vietnam: Countervailing Duty has been imposed on Welded Stainless-Steel Pipes and Tubes originated in or exported from China and Vietnam, and imported into India. It shall be applicable for a period of 5 years. (Custom Notification 04/2024 (CVD) Dated 10/09/2024)
Countervailing Duty on Altrazine Technical exported from China: Countervailing Duty has been imposed on Altrazine Technical originated in or exported from China and imported into India. It shall be applicable for a period of 5 years. (Custom Notification 05/2024 (CVD) Dated 11/09/2024)
Extending export related benefits for exports made through courier mode: The circular addresses the extension of export-related benefits for courier shipments. Due to limitations in the Express Cargo Clearance System (ECCS), payments for Duty Drawback, RoDTEP, and RoSCTL could not be processed for courier exports. To resolve this, the Indian Customs EDI System (ICES) will now be used at International Courier Terminals (ICTs) to process these benefits. The ICES offers features like scroll generation and integration with the Public Financial Management System (PFMS), enabling smooth payment processing. Authorised Couriers must file Shipping Bills claiming these benefits via ICEGATE, and custodians at ICTs must register on ICEGATE for handling goods registration. The physical logistics will remain at the courier terminals, but customs clearance will now be managed through ICES. (Custom Circular 15/2024 (NT) Dated 12/09/2024)
E. Directorate General of Foreign Trade (DGFT)
Amendment in Export policy Conditions of Onions: The Minimum Export Price (MEP) of USD 550 per Metric Ton (MT), previously applied to the export of onions, has been removed. The revised policy now allows the export of onions without the MEP constraint. (DGFT Notification 28/2024 dated 13/09/2024)
Extension in Import Period for Yellow Peas: The notification extends the import period for Yellow Peas. This extension allows Yellow Peas to be imported “Free” of Minimum Import Price (MIP) conditions and port restrictions, provided that the import consignments have a Bill of Lading issued on or before December 31, 2024. (DGFT Notification 29/2024 dated 15/09/2024)
Abeyance of Public Notice No. 05/2024 dated 27th May 2024: Keeping in view the representation of the Gem & Jewellery Export Promotion Council (GJEPC), Public Notice No. 05/2024 dated 27.05.2024 which was in abeyance till 15th September 2024, had been further kept in abeyance till 31st October 2024. (DGFT Public Notice 23/2024 dated 13/09/2024)
F. Securities and Exchange Board of India (SEBI)
Allowing securities funded through cash collateral as maintenance margin for Margin Trading Facility (MTF): The Master Circular on Stock Exchanges ad Clearing Corporations have been amended to allow securities funded through cash collateral to be used as maintenance margin for the Margin Trading Facility (MTF). The updated rule permits securities, specifically stocks or units of Equity ETFs, funded via cash collateral and used for MTF, to be treated separately for computing the funding amount. No commingling of securities is allowed. These changes aim to ease collateral requirements for investors and improve market functioning. (SEBI Circular Dated 11/09/2024)
Modifications in Guidelines for Business Continuity Plan (BCP) and Disaster Recovery (DR) of Market Infrastructure Institutions (MIIs): The key updates include the requirement for MIIs to maintain a Near Site (NS) alongside their Disaster Recovery Sites (DRS) to ensure minimal or zero data loss. SEBI has asked MIIs to collaborate and standardize the definition of ‘near zero data loss’. The revised guidelines emphasize that MIIs must ensure their Disaster Recovery Sites (DRS) are capable of running operations independently, with trained staff ready to manage operations at short notice. Moreover, MIIs must establish synchronous replication between Primary Data Centres (PDC) and NS to avoid data loss, while asynchronous replication is allowed between PDC, DRS, and NS. (SEBI Circular Dated 12/09/2024)
Optional mechanism for fee collection by SEBI registered Investment Advisers (IAs) and Research Analysts (RAs): SEBI has introduced an optional Centralized Fee Collection Mechanism (CeFCoM) for registered Investment Advisers (IAs) and Research Analysts (RAs). This mechanism aims to create a transparent and secure payment system for clients, ensuring that fees are paid solely to registered IAs and RAs. Though the mechanism is optional, it encourages IAs, RAs, and their clients to use the system for enhanced transparency. (SEBI Circular Dated 13/09/2024)
Reporting by Foreign Venture Capital Investors (FVCIs): SEBI revised the quarterly reporting format for FVCIs. The new reporting format, Annexure-1 of FVCI Regulations, covers general information, cumulative funds raised, and industry-wise investment details. Custodians are responsible for ensuring timely submission of the reports. (SEBI Circular Dated 13/09/2024)
Amendment to FVCI Regulations: The amendments expands the definition of a foreign venture capital investor to include entities incorporated in International Financial Services Centres (IFSC). Eligibility criteria have been clarified, requiring applicants to meet certain regulatory standards, and barring those from jurisdictions with insufficient anti-money laundering measures. The regulations also specify that FVCI certificates are permanent unless suspended, cancelled, or surrendered, and renewal fees must be paid every five years. (SEBI Notification Dated 04/09/2024)
Metropolitan Stock Exchange Recognition renewed for one year: SEBI renewed the recognition of the Metropolitan Stock Exchange of India Limited (MSE) under Section 4 of the Securities Contracts (Regulation) Act, 1956 for a one-year period. The recognition allows the exchange to continue operating contracts in securities. (SEBI Notification Dated 13/09/2024)
G. Ministry of Corporate Affairs (MCA)
Amendment to IEPF Accounting Rules: The amendments clarify the process for transferring securities to legal heirs and increase the minimum claim amount for filing a claim with the IEPF Authority. The rules now accept legal heir certificates issued by revenue authorities and require additional documentation, such as indemnity bonds and no objection certificates from other legal heirs. It also introduce a new requirement for companies to obtain insurance coverage for risks associated with verification reports. (MCA Notification Dated 09/09/2024)
Amendment to Companies Indian Accounting Standard Rules: The amendment include the introduction of new provisions related to leaseback transactions under Indian Accounting Standard (Ind AS) 116. It clarifies how seller-lessees should apply the right-of-use asset and lease liabilities, ensuring that gains or losses related to retained rights are not recognized, except under specific circumstances. The illustrative examples are provided to demonstrate the application of the revised rules, such as handling sale and leaseback transactions with both fixed and variable payments. (MCA Notification Dated 09/09/2024)
Amendment to Companies Compromises, Arrangements and Amalgamations Rules: The amendment focus on mergers or amalgamations involving a foreign holding company and its wholly-owned Indian subsidiary. The new sub-rule 5 of Rule 25A stipulates that both companies must obtain prior approval from the Reserve Bank of India (RBI) before proceeding. The Indian transferee company must comply with Section 233 of the Companies Act, 2013, and submit an application to the Central Government. It further clarifies that the required declaration under sub-rule (4) should be made when the application is submitted. (MCA Notification Dated 09/09/2024)
National Bank for Financing Infrastructure and Development as a Public Financial Institution (PFI): The Central Government has notified the “National Bank for Financing Infrastructure and Development” as a public financial institution (PFI) under sub-clause (v) of clause (72) of Section 2 of the Act. It grants the institution certain privileges and regulatory benefits that apply to PFIs, enabling it to play a significant role in infrastructure financing across India. (MCA Notification Dated 10/09/2024)
NFRA Penalizes CA Santosh Deshmukh for failure to meet requirements of Auditing Standards: The investigation was initiated following information from SEBI about financial irregularities at Sanwaria Consumer Limited (SCL) for FY 2017-18. CA Santosh Deshmukh, the engagement partner for the audit, failed to meet auditing standards, leading to significant misstatements. The key failures included improper verification of SCL’s inventory, resulting in an overvaluation of ₹18.93 crores in soya seed and ₹13.30 crores in paddy inventories. He also failed to audit related party transactions, impairment testing, and non-compliance with consolidation requirements under Indian Accounting Standards. NFRA imposed a fine of Rs 5 lakh and a one-year ban from auditing or performing related services for any company. (NFRA Order Dated 09/09/2024)
H. Insolvency and Bankruptcy Board of India (IBBI)
No Notification/ Circular during the week.
I. Reserve Bank of India (RBI)
No Notification/ Circular during the week.
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Disclaimer: The contents of this article are for informational purposes only. The user may refer to the relevant notification/ circular/ decisions issued by the respective authorities for specific interpretation and compliances related to a particular subject matter)
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