The Cochin Chamber conducted the 4^thAnnual Dr. A.P.J Abdul Kalam Memorial Lecture on Friday the 12^th of October at Hotel Abad Plaza, Ernakulam.

This Lecture is an annual event held by the Chamber wherein Guest Speakers who have had some degree of interaction with the late President are invited to share their experiences with Dr. Kalam and the impact that Dr. Kalam’s principles have had in their lives. Following the demise of Dr. Kalam, in the year 2015, the Chamber initiated this Annual Lecture Series to celebrate his life – one of India’s greatest sons. Through this event the Chamber hopes to inspire the business community to be part of the transformation process of making India into a principled and inclusive developed nation.

The Inaugural Lecture was delivered by Mr. Srijan Pal Singh, a close associate of Dr. Kalam. In the year 2016, Mr. P.M. Nair I.A.S (Retd.) who was Secretary to the late President between 2002 and 2007 delivered the Lecture. Last year, the Speaker was Mr. Hormis Tharakan, Former Chief of the Research and Analysis Wing (RAW).

This year, the Guest Speaker was Dr. Namperumalsamy, Chairman –Emeritus, Aravind Eyecare System, Madurai a Padmashree  recipient. The event was attended by the CEOs and representatives of various organizations based in and around Cochin. Students from various colleges in Cochin also attended the programme.

Supreme Court holds that 100% deduction under section 80-IC cannot be claimed after initial five years, even if substantial expansion takes place within ten year block

In a recent decision, the Supreme Court (SC) held that 100% deduction under section 80-IC of the Income-tax Act, 1961 (Act) cannot be claimed beyond five years, even if a substantial expansion is undertaken after initial period of five years. The deduction shall be restricted at the rate of 25%/30% (as the case may be) for the next five years. It held that taxpayers who had availed deductions at the rate of 100% for the first five AYs on the ground that they had set up a manufacturing unit as prescribed under sub-section (2) of 80-IC of the Act, could not start claiming deductions at the rate of 100% again for next five AYs even if they were undertaking “substantial expansions.”

PwC comments: The controversy on the claim of deduction under section 80-IC at the rate of 100% after the initial five AYs on undertaking substantial expansion is now settled. After availing deduction for a period of five AYs at 100% of such profits and gains from the eligible “units,” the taxpayer would be entitled to deduction for the remaining five AYs at 25% only (30% for companies), and not at 100%, irrespective of any substantial expansion.

CBDT mandates conduct of all assessments through e-proceeding facility, carves-out certain exceptions

The Central Board of Direct Taxes (CBDT) partially modifying its earlier instruction, has now issued an instruction directing that all the assessments required to be framed under section 143(3) of the Income-tax Act, 1961 (the Act) in financial year (FY) 2018-19 shall be conducted electronically through the e-proceeding facility.

The instruction carves out seven exceptions where “e-proceeding” shall not be mandatory. Further, it lists four situations where personal hearing may take place, despite conducting assessment through e-proceeding facility.

PwC comments: CBDT’s step to mandate e-proceedings is a welcome move. CBDT has expressed its view that manual proceedings should be conducted only in certain situations, while all other tax proceeding in connection with assessment under section 143(3) to be carried out electronically. In some cases, an approval is to be obtained from higher officials for conducting the manual proceedings. This is a step to ensure that recourse to manual mode is taken only in genuine cases.

A pragmatic approach has been followed to list out situations where a personal hearing is necessitated. One has to also take note that when a show cause notice contemplating any adverse view is issued to the taxpayer, a request for personal hearing can be made through the e-filing account only.

Financial, legal and risk management services not covered within the meaning of FIS under the India-USA tax treaty

In a recent decision, the Kerala High Court (HC) has held that management services such as (i) management decision making, (ii) financial decision making, (iii) legal matters and public relation activities, (iv) treasury services and (v) risk management services provided by a non-resident would not be covered within the meaning of “fees for included services” (FIS), as defined under Article 12 of the Double Taxation Avoidance Agreement (tax treaty) entered into between India and USA. The HC has held that the mere fact that the provision of a service may require technical input by the service provider does not per se mean that the technical knowledge, skills, etc., are made available to the person availing such services.

PwC comments: The decision reaffirms the position that the mere provision of general support and routine advisory services related to finance, management and legal matters by a non-resident will not be considered as “making available” technical knowledge or skill to the taxpayer. This decision also reaffirms that technology would be considered “made available” only when the person acquiring the service is enabled to apply the same to its business.

Tribunal holds that provisions of section 56(2)(viib) not applicable where the company had only closely related shareholders and there was no possibility of unaccounted money being involved

The Chennai bench of the Income-tax Appellate Tribunal (Tribunal) lifted the corporate veil in case of a company having shareholders who were relatives to hold that the provisions of section 56(2)(viib) of the Income-tax Act, 1961 (Act) are not attracted on subscription to shares by existing shareholders at a substantial premium, provided the genuineness of the source of investment is not in dispute.

PwC comments: This ruling will ease implementation of group restructuring/ restructuring of capital of companies having shareholders who are relatives, unless there is a question about the genuineness of source of investment.

CBIC amends CGST rules, notifies formats of annual return and issues various clarifications 

Major amendments to the CGST Rules

• Proceedings for cancellation of registration due to non-filing of returns can now be dropped if all pending returns are filed and tax dues paid along with interest and late fees.
• Input tax credit (ITC) can be claimed if the invoice/debit note contains the details of at least the amount of tax charged, description of goods or services, total value of supply, GSTIN of the supplier and recipient, and place of supply in case of inter-State supply.
• Definition of adjusted total turnover to compute the amount of eligible refund of accumulated ITC for zero-rated supplies has been amended to bring it in line with the definition of zero-rated turnover of services, and remove an internal inconsistency between accrual and cash based details.

• Refund of IGST paid on export of goods is restricted if exporter has imported goods without payment of IGST by availing benefits under customs duty, i.e. advance authorization, EPCG, EOU/STPI etc. The restriction is with retrospective effect from 23^rd Oct’17. Previously, such restrictions were applicable only if supplier to exporter had availed aforementioned benefits on the supplies made to the exporter.
• In case of imported goods, person in-charge of a conveyance will now need to carry a copy of the bill of entry filed by the importer & indicate number & date of bill of entry in Part A of Form GST EWB-01.
• The format of annual return notified in Form GSTR-9 and Form GSTR-9A for normal and composition taxpayers respectively. This is a much awaited development.

Supply of services by principal to agent and vice versa without consideration is outside the ambit of scope of entry I of Schedule I, and therefore in the absence of any consideration, it cannot be treated as supply

Further, the key ingredient for determining an agency relationship under GST would be whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent (in his own name) or not, and vice versa in case of procurements on behalf of principal. In other words, the important criteria is whether or not the agent has the authority to transfer or receive the title of the goods on behalf of the principal, thus contractually binding the principal.

Recovery of Arrears of Legacy Central Tax Laws

It was earlier clarified that the recovery of arrears arising from legacy central laws (e.g. excise, service tax, etc.) shall be made as central tax liability, and can be paid by utilizing the balance available in credit or cash ledger. Since the GSTN portal did not allow such liability under the legacy laws to be recorded, the taxpayers can alternatively reverse the erroneously availed CENVAT credit or inadmissible transition credit through Table 4(B)(2) of Form GSTR 3B. The applicable interest and penalty should be paid through entry in column 9 of Table 6.1 of Form GSTR 3B.

Clarifications relating to refunds

• For claiming refund on exports, instead of submission of input invoices, copy of Form GSTR 2A of the claimant for period for which refund is claimed has to be submitted. The authorities may call for invoice, only where assessee has claimed credit but the same is not reflected in Form GSTR 2A due to various reasons. The assessee is also required to submit the details of the invoices on the basis of which ITC had been availed during the period for which the refund is being claimed in prescribed format (Annexure A)
• For claiming refund of ITC, amount equal to the refund claim has to be debited in the credit ledger. The order, in which the amount need to be debited from respective tax credit ledger is prescribed for all the refund claims filed after this circular. For previous claims, no adverse view to be taken by the authorities if this order was not followed.
• For rejection of refund claim due to ineligibility of credit, amount would be re-credited in the credit ledger & notice to disallow such credit would be issued. For rejection of refund claim due to any other reason, amount of ITC would be re-credited in the credit ledger after receipt of undertaking from assessee that no appeal would be filed, or if an appeal is filed, the re-credit will not occur until it is finally decided against the assessee.
• • It has been clarified that restriction under rule 96(10) of the CGST Rules on claiming refund of IGST paid on import of goods applies only to those purchasers/importers who are directly purchasing/importing supplies on which the benefit of specified notifications is availed. Once refund claim is sanctioned, any error in such order should be appealed against by the sanctioning authority. The disbursement should not, however, be withheld.
  • In case of any deficiency in the refund claim filed, a deficiency memo is to be issued and the amount of credit already debited would be re-credited. Further, the refund would have to be filed afresh. Show cause notices are not required to be issued where the deficiency memo is issued.

GST Audit format notified

GST rules are amended to notify the GST audit report format and reconciliation statement in Form GSTR 9C.

TDS/ TCS provisions notified effective 1^st Oct’18

• Provisions of section 51 of the CGST Act, 2017 relating to TDS, are made effective from 1 October, 2018 for the following class of persons:
  – A department or establishment of the Central Government/State Government;
  – Local authority;
  – Governmental agencies;
  – An authority/ board or any other body –
  • set up by an Act of Parliament or a State Legislature; or
  • established by any Government, with 51% or more participation by way of equity or control, to carry out any function.- Society established by the Central Government/ the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);
    – Public sector undertakings.
  • Provisions of section 52 of the CGST Act, 2017 relating to TCS by e-commerce operators, are made effective from 1 Oct’18

PwC Comments: The extension of compliance due dates is a welcome step, allowing the businesses an opportunity to fulfil their pending filing obligations without any penal consequences. The release of GST Audit report format was much awaited and would now enable businesses to commence the audit process. The information sought for and the audit report has to be provided GSTIN-wise, and multi-location entities have to quickly collate the various information sought for GSTIN-wise considering the timeline for submission of the report by 31 December (this date is not extended as of now). The industry was hoping for introduction of TDS and TCS from the beginning of the next financial year, so as to avoid overlap, reduce mid-year transitions and also complete other pending compliance obligations

Dematerialization of securities – unlisted public companies

The Ministry of Corporate Affairs in its drive to enhance transparency, investor protection and corporate governance, has notified Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018. In accordance with the said rules, unlisted public companies need to dematerialize its existing securities and ensure that further issue of securities and transfers are only in dematerialized form. The major benefits that will be available to unlisted companies on dematerialization are as follows:

• Elimination of risk of duplication, theft, fraud and loss with respect to physical share certificates.
• Enhancement of transparency in ownership, preventing mal-practices, such as benami shareholding, back dated issuance of shares/ transfers.
• Exemption from payment of stamp duty on transfer.
• Ease in transfer and pledge of securities.

Dematerialization of existing securities

Unlisted public companies can facilitate the dematerialization of their existing securities by:

• Applying to a depository as per the provisions of the Depositories Act, 1996;
• Securing International Security Identification Number (ISIN) for each type of security; and
• Informing all its existing security holders about such facility.

Impact on further issue of securities by the company

Every unlisted public company needs to ensure that all its securities are dematerialized in accordance with the Depositories Act, 1996 prior to making any of the following offers:

• Issue of securities;
• Buy-back of securities;
• Issue of bonus shares; and
• Rights issue.

Clarifications relating to e-way bill for storing goods in transporter’s godown state that

• Goods in movement, including when they are stored in the transporter’s godown prior to delivery, would always be accompanied by a valid e-way bill.
• Transporter’s godown should be declared as additional place of business by the consignee, if its goods are stored there. Accordingly, transportation under e-waybill would be treated to be concluded once the goods have reached the transporter’s godown.
• The movement from transporter’s godown to any other premises of recipient would also attract relevant provisions of e-way bill rules.
• The transporter would be required to maintain accounts and records as a warehouse keeper. The recipient taxpayer would also be responsible for maintaining relevant accounts and records, including for goods stored at the transporter’s godown.

PwC Comments: The clarifications issued would help the industry resolve certain ambiguities and computational anomalies (e.g. for refund claims). The industry would have expected that the retrospective amendment pertaining to denial of refund of IGST paid on export of goods should have been made on a prospective basis. The release of annual return formats is an important development and would enable the industry to commence preparations for identifying various data points needed for the annual return. However, the additional compliances for transporter’s warehouses will increase compliances, especially for the e-commerce sector.

CBIC extends compliance due dates in some cases, notifies format of GST audit report and notifies effective date of TDS/ TCS provisions under GST Act

Impact on security holder intending to transfer/ subscribe to securities

A security holder of an unlisted public company, who intends to transfer its securities on or after 02 October, 2018 needs to dematerialize such securities before transfer.

Also, security holders who intend to subscribe to the securities of an unlisted public company on or after such date shall ensure that all his existing securities in the respective company are dematerialized before such subscription (by way of private placement, bonus shares, rights offer).

Compliance requirements

Every unlisted public company who have dematerialized their securities must comply with the following compliance requirements:

• Make timely payment of fees (admission as well as annual) and maintain a security deposit of at least two years’ fees, as per agreement executed with the following:
  – Depository;
  – Registrar to an issue; and
  – Share transfer agent.
• Comply with regulations, guidelines /circulars, issued by SEBI or Depository from time to time.
• Audit Report provided under regulation 55A of the SEBI (Depositories and Participants) Regulations, 1996 to be submitted on a half-yearly basis to the registrar, under whose jurisdiction the registered office of the company is situated.
• Unlisted public companies that have defaulted in compliance requirements shall not offer any securities or buyback, or issue any bonus or right shares until the payment to depositories or registrar to an issue or share transfer agent are made

Single Master Form – Reporting of foreign investment in India – User manual

In line with the procedure laid down by the Reserve Bank of India (RBI) in its circular dated 07 June, 2018 for the introduction of the Entity Master Form (EMF) (effective from 28 June, 2018) and Single Master Form (SMF) for reporting foreign investment, the RBI has implemented the second module, namely SMF for reporting of foreign investment in India. (Please refer to our news alerts dated 08 June 2018 and 29 June 2018 for the previous RBI circulars.)

The SMF has been now made effective from 01 September, 2018 for filing of the following five forms:

• Form FC-GPR – For issue of capital instruments by an Indian company to a person residing outside India (PROI) (including reporting of receipt of share application money that was reported in erstwhile Form ARF).
• Form FC-TRS – For transfer of capital instruments between a person resident in India and a PROI.
• Form LLP-I – For foreign direct investment in limited liability partnership (LLP) through capital contribution and profit share.
• Form LLP-II – For disinvestment/ transfer of capital contribution and profit share in LLP.
• Form CN – For issue or transfer of convertible notes.

With effect from 01 September, 2018 all new filings for the above five forms have to be made in SMF only. The other four forms mentioned in the RBI circular dated 07 June, 2018 namely, ESOP, DI, InVi and DRR, will be made available subsequently.

RBI has issued a user manual containing step-by-step instructions for data entry in the SMF.

Further, RBI has also enabled registration for those companies who missed the deadline for registration for EMF. Those companies that could not register within the stipulated time period may register for the entity master with effect from 01 September, 2018. However, they shall be required to provide the reasons for not registering within the time period along with the prescribed authority letter.

Apart from the above, the user manual also provides detailed guidance to Authorized Dealer Banks (AD Banks) to process the forms. AD Banks would have five working days for approving or rejecting the form or sending it to RBI. {Please click here to access the link to the user manual}.

Ever since the devastating floods that hit Kerala in August, we have been waking up to the news of post flood relief operations and campaigns all over Kerala. It has been raining campaigns on and off the social media ranging from ’Justice for Pranay’, Kudumbashree’s dress collection campaign, the ones launched on twitter like the  #DoForKerala by ‘Anbodu Kochi’ –a group of friends that came together for a noble cause, #KeralaFloods, #KeralaFlood Relief etc. The campaigning spirit is still far from over. Amongst this entire buzz, Kochi has had its fair share of campaigns but there is one amongst them that we personally feel is unique and noteworthy and that is “Chekutty”.

The ‘Chekutty Doll’ is an initiative by social entrepreneurs Lakshmi Menon and Gopinath Parayil,” Chekutty is a doll that is upcycled from the Chendamangalam handloom sarees that were damaged during the Kerala floods. According to the Chendamangalam Weavers Association, 80% of the revenue generated by the weavers usually comes from the annual Onam sales. After the deluge, the Chendamangalam weavers were left with a huge heap of soiled garments that couldn’t be salvaged in any way.

It is at this juncture that Lakshmi Menon who is also the founder of Pure Living, an organization that recycles waste materials, came up with the idea of making dolls from these soiled clothes. Thus the ‘Chekutty Doll’ was born. In making these dolls, each piece of textile is chlorinated and boiled in water to disinfect it and make it safe for use. UNder normal circumstances the average cost of a Chendamangalam handloom saree is  around Rs. 1,300/-. Lakshmi Menon found that around 350 of these dolls could be made from one sari and priced each of them at Rs. 25. This initiative has caught everyone’s imagination and the proceeds of the sales will go to Chendamangalam Handloom Weavers’ Cooperative Society. Gopinath Parayil who is the founder of Blue Beyond and cofounder of ‘Chekutty’ said that even before the sales had begun, they were flooded with bulk orders from all over the world.

Today marks a week since the Diesel Electric Multiple Unit (DEMU) Train service commenced operations between Ernakulam South Station and the Harbor Terminus on Willingdon Island. The three coach DEMU Train has been shuttling between these two stations twice a day, both during the peak rush hours. The Cochin Chamber while cautiously optimistic about this new venture, opted to wait for a week to understand and see if the ridership on this service would increase and if it would be really useful to the common man. Sadly this does not seem to be the case.

The Harbor Terminus at the Willingdon Island was renovated about a year ago with the idea to revamp passenger Train and Cargo Train movements between the Island and the City. The idea in theory seemed promising but in practice it has turned out to be an unviable initiative. Although the Chamber understands the efforts made by the Government in this regard, we would like to point out that the DEMU Service, which has been operating for the past week now, has failed to attract sufficient passengers and is plying with a minimum number of people on board.