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Friday, January 2, 2026

Income Tax Judiciary No Black Money Liability When Assets Belong to Foreign Partner: ITAT Delhi

Income Tax- No Black Money Liability When Assets Belong to Foreign Partner: ITAT Delhi .....

ACIT Vs Deepak Jain (ITAT Delhi) ITAT Deletes ₹31.48 Crore Black Money Addition for Lack of Beneficial Ownership; No Black Money Liability When Assets Belong to Foreign Partner: ITAT Delhi; ITAT Delhi Quashes Black Money Additions Based on Nominee Shareholding; Penalties Under Black Money Act Unsustainable When Asset Ceased Before 2012–13; Tribunal Holds No Jurisdiction to Tax Non-Existent Foreign Assets Under BMA; Revenue Cannot Switch from Income Tax Act to BMA: ITAT Delhi Applies Doctrine of Election; ITAT Delhi Rules BMA Inapplicable to Defunct Foreign Companies and Accounts Closed Before 2015 The case involved cross-appeals filed by both the Revenue and the assessee under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) for Assessment Year 2018–19. The Assessing Officer (AO) had determined undisclosed foreign income and assets of ₹31.48 crore under Section 10(3) of the BMA, treating the assessee as the beneficial owner of two foreign companies—Alabama Assets Ltd. and Meadow Offshore Ltd., incorporated in the British Virgin Islands—and levied penalties under Sections 41 and 43. The Revenue appealed against the Commissioner of Income Tax (Appeals) [CIT(A)]’s order that reduced the addition to ₹3.14 lakh and deleted penalties, contending that the CIT(A) wrongly restricted the addition to the assessee’s nominal 1/1000 shareholding despite the AO’s finding that he was the beneficial owner of the companies’ entire bank deposits. The assessee appealed against the partial sustenance of addition and penalty, contending that the BMA could not apply retrospectively to companies and accounts that had ceased to exist years before the law came into force on 1 July 2015. The assessee maintained that both companies were struck off in 2010–2011, their bank accounts closed by 2010, and that all funds were invested by a UAE national, Mr. Alhammadi, under a joint venture for lighting projects in the Middle East. He claimed to have held only one share in each company as a nominee shareholder, with no capital contribution, control, or income. The AO, however, concluded that Alhammadi was merely a façade to conceal true ownership and made additions of the entire credits in the companies’ bank accounts, amounting to ₹31.48 crore, applying Rule 3 of the BMA Valuation Rules. Before the CIT(A), the assessee challenged the jurisdiction of the AO under Section 10(1) of the BMA, arguing that the information received from the International Consortium of Investigative Journalists (ICIJ) had already been investigated under the Income Tax Act (IT Act) since 2013, and that proceedings under the BMA were impermissible once action had been initiated under another statute. He also contended that the assessment was time-barred and violated natural justice. The CIT(A) upheld the jurisdictional validity but accepted the assessee’s contention that his ownership was only nominal. The CIT(A) restricted the addition to ₹3,14,855, representing 1/1000th of the total credits, and proportionately reduced the penalty under Section 41. The penalty under Section 43 was deleted, as the requirement to disclose foreign assets in return forms arose only from Assessment Year 2012–13, whereas the foreign entities and their accounts had ceased to exist prior to that period. During the proceedings, the AO had relied on information received under the Foreign Tax and Tax Research (FT&TR) Division of CBDT, which showed that the companies’ records were maintained in Singapore and were set up for investment purposes, not for lighting business. The AO further observed that the assessee failed to produce the Memorandum of Understanding (MOU) and its termination documents, despite being directed to do so. The assessee, however, relied on contemporaneous evidence and the affidavit of Mr. Alhammadi, notarized in the UAE, confirming that he had funded both companies entirely, that the assessee held one share merely as a nominee, and that after termination of the MOU in 2010, all assets and bank balances remained with him. The ITAT Delhi noted that these facts were supported by contemporaneous records, including incorporation documents, balance sheets, and the affidavit of Alhammadi found during a 2017 search. The Tribunal observed that the assessee had consistently stated, since the initial investigation in 2013, that he had not made any investment in the foreign companies and that the bank accounts were closed years before the BMA came into force. On examining the evidence, the ITAT held that the credits in the bank accounts of the foreign entities could not be treated as undisclosed foreign income or assets of the assessee, as the companies were distinct legal entities and the funds belonged to Alhammadi. The affidavit, balance sheets, and correspondence found during search had evidentiary value under Sections 132(4A) and 292C of the IT Act, creating a presumption of truth that was not rebutted by the Revenue. Importantly, the ITAT held that the BMA cannot be applied to foreign companies or bank accounts that had ceased to exist before 1 July 2015, the date on which the Act came into force. Further, once the Revenue had initiated and pursued proceedings under the Income Tax Act, it could not later invoke the BMA for the same facts under the doctrine of election. The Tribunal concluded that the entire addition under Section 10(3) of the BMA was unsustainable and directed its deletion. Consequently, penalties under Sections 41 and 43 were also set aside. In conclusion, the ITAT partly allowed the assessee’s appeals and dismissed all three appeals of the Revenue. The Tribunal held that the assessee could not be treated as the beneficial owner of the foreign bank deposits, as his role was only that of a nominee shareholder, and that the BMA had no retrospective application to assets or companies that no longer existed prior to its commencement. FULL TEXT OF THE ORDER OF ITAT DELHI These appeals are filed by the Revenue and Assessee against orders of the Ld. CIT(Appeals) in restricting the addition made by the Assessing Officer u/s 10(3) of Black Money (undisclosed and foreign income and assets) and Imposition of Tax Act, 2015 (BMA) and partly deleting the penalty levied u/s 41/43 of BMA, by the Revenue and the assessee challenged the order of the Ld. CIT(Appeals) in partly sustaining the addition and penalty under BMA. BMA No.01/D/2025, AY 2018-19 (Revenue Appeal): Revenue in its above appeal raised the following effective grounds: 1. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/-by stating that the addition should be restricted to proportionate amount of beneficial shareholding held by the assessee in both foreign companies, which is 1 by 1000 shares, and ignoring the finding of the AO that the entry of Sh. Alhammadi, U.A.E. is nothing but to cover up of whole investment of the assessee and the assessee is the beneficial owner of the deposits as appearing in the foreign bank accounts of the above stated entities. Accordingly, the entities and their bank accounts were solely operated by the assessee during the relevant period. 2. Whether on the facts and circumstances of the case and in law. Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/- as the assessee had not declared the foreign assets even after the opportunity provided by the Govt. of India before the promulgation of Black Money(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. 3. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law.” BMA No.02/D/2025, AY 2018-19 (Revenue Appeal): Revenue in its above appeal raised the following effective grounds: 1. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/- and thereby cancelling the penalty u/s 43 of the BMA by stating that the penalty is not applicable as the aggregate balance in one or more bank accounts does not exceed Rs.5,00,000/- at any time during the previous year, and ignoring the finding of the AO that the entry of Sh. Alhammadi, UAE is nothing but to cover up of whole investment of the assessee and the assessee is the beneficial owner of the deposits as appearing in the foreign bank accounts of the above stated entities. Accordingly, the entities and their bank accounts were solely operated by the assessee during the relevant period. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/- and thereby cancelling the penalty u/s 43 of the BMA by stating that the penalty as the assessee had not declared the foreign assets even after the opportunity provided by the Govt. of India before the promulgation of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. 3. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.” BMA No.03/D/2025, AY 2018-19 (Revenue Appeal): Revenue in its above appeal raised the following effective grounds: 1. “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/- and thereby limiting the penalty u/s 41 of the BMA to 3 times of tax of Rs.3,14,855/- by stating that the addition should be restricted to proportionate amount of beneficial shareholding held by the assessee in both foreign companies, which is 1 by 1000 shares, and ignoring the finding of the AO that the entry of Sh. Alhammadi, UAE is nothing but to cover up of whole investment of the assessee and the assessee is the beneficial owner of the deposits as appearing in the foreign bank accounts of the above stated entities. Accordingly, the entities and their bank accounts were solely operated by the assessee during the relevant period. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the addition of Rs.31,45,40,437/- and thereby limiting the penalty u/s 41 of the BMA to 3 times of tax of Rs.3,14,855/- as the assessee had not declared the foreign assets even after the opportunity provided by the Govt. of India before the promulgation of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. 3. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.” BMA No.06/D/2024, AY 2018-19 (Assessee Appeal): Assesseein its appealraised the following grounds: 1. “That the Ld. CIT(A) erred in facts and in law in not appreciating that the foreign entities in question were struck off in the year 2010 and 2011 as also the bank accounts in relation to the said entities being closed in the year 2009 and 2010, the provisions of the Black Money Act, being applicable from AY 2016-17 and onwards, the same cannot be applied retrospectively to assets having ceased to exist prior to the promulgation of the Act. 2. The Ld. CIT(A) erred in law and on facts in not recognizing that the AO assumed jurisdiction under Section 10(1) of the Black Money Act without satisfying the mandatory jurisdictional condition of “receipt of information” as prescribed under Section 10 of the Act. 3. The Ld. CIT(A) erred in law and on facts in not appreciating that when proceedings were initiated under IT Act, proceedings under BMA are prohibited in as much as since the appellant, in facts of the present case, was under investigation with tax authorities since 2013 and consequently was debarred from making declaration (one-time voluntary compliance) under section 59 of the BMA; proceedings, if any could have been initiated under the IT Act and not BMA. 4. Without Prejudice, even assuming that the tax authorities were in possession of valid information for the assumption of jurisdiction, the Ld. CIT(A) erred in law and on facts in not appreciating that the alleged information having come to the knowledge of the tax authorities in 2013, initiation of present proceedings after inordinate delay of 3.5 years from the promulgation of the Act on 01.07.2015, renders the present proceedings barred by limitation. 5. The Ld. CIT(A) erred in law and on facts in not appreciating that the undisclosed income sought to be brought to tax admittedly pertains year prior to the AY 2018-19, in relation to which the present proceedings are initiated, the Respondent is bringing the said undisclosed foreign income to tax in incorrect assessment year, warranting quashing of the proceedings. 6. The Ld. CIT(A) erred in law and on facts by not appreciating that critical information and documents essential for completing the assessment were not provided to the petitioner. Without prejudice to the fact that non-availability of said documents demonstrates that the AO lacked a valid basis to assume jurisdiction under Section 10(1) of the Black Money Act; even if such documents existed, their concealment violates natural justice, rendering the proceedings null and void. On Merits 7. That the Ld. CIT(A) erred in law and on facts in confirming the addition of undisclosed asset to the extent of Rs.3,14,855/- and not deleting the entire addition made by the AO holding that the “appellant was not able to conclusively establish the source of investment for acquiring that I share”. 8. The Ld. CIT(A) erred in law and on facts in not appreciating that the finding that “the appellant was not able to conclusively establish the source of investment for acquiring that I share” is contrary to his own findings that “that the statements recorded prior to the date of search under section 131 of the Act by the Investigation Wing as well as during the course of search u/s 132(4) of the Act, categorically established the version of the appellant that the aforesaid foreign companies were incorporated and owned by Mr. Alhammadi.” 9. The Ld. CIT(A) erred in law and on facts in not appreciating that the finding that “the appellant was not able to conclusively establish the source of investment for acquiring that I share” is also contrary to his own findings that “the appellant being a meagre shareholder, had no control or link with the source of investment in the foreign companies or utilization of fund, to be called beneficiary thereof.” 10. The Ld. CIT(A) erred in law and on facts in not appreciating that the finding that “the appellant was not able to conclusively establish the source of investment for acquiring that I share” is contrary to the facts on record which show that assets held by the companies were specifically earmarked as belonging to Mr. Alhammadi and at the time of closure of bank accounts funds were transferred / utilized at behest of Mr. Alhammadi without any benefit accruing to the appellant. 11. That Ld. CIT(A) erred in law and on facts in holding that the appellant was not able to conclusively establish the source of investment for acquiring that I share” withoutappreciating that in the facts of the case, it is well established thati) the appellant did not provide any consideration/investment into the company, ii) the appellant was only a nominal and negligible shareholder in the company, iii) the appellant was never in position to avail any benefit from the company, and iv) in the entire life cycle of the company, the appellant did not benefit from the aforesaid BVI entities, which is also not disputed the Ld CIT(A). 12. Each of the above grounds is independent and without prejudice to one another. The appellant craves leave to add, alter, amend or withdraw any ground or grounds of appeal at any time before or during the course of hearing of the appeal.” BMA No.07/D/2024, AY 2018-19 (Assessee Appeal): Assessee in its appeal raised the following grounds: 1. “That the Ld. CIT(A) erred in facts and in law in not appreciating that the order u/s 10 of the Black Money Law is bad in law in account of various jurisdictional infirmities raised by the Appellant during the course of the proceedings before Ld. AO and Ld. CIT(A), thus the proceedings u/s 41 being consequential is also bad in law. 2. That the Ld. CIT(A) erred in facts and in law in not appreciating that while Assessment u/s 10 was done by the ADIT, Faridabad and the penalty notices dated 23.03.2021 were also issued by the same officer, however, the notice dated 26.03.2021 and subsequent proceedings including the order u/s 41 of the Act are passed by ACIT, Central Range-7, Delhi, without notice of change in jurisdiction. 3. That the Ld. CIT(A) erred in law and on facts in confirming the addition of undisclosed asset to the extent of Rs.3,14,855/- and not deleting the entire addition made by the AO holding that the “appellant was not able to conclusively establish the source of investment for acquiring that I share”. 4. The Ld. CIT(A) erred in law and on facts in not appreciating that the finding of the CIT(A) in the order dated 18.10.2021, passed adjudicating the quantum appeal that “the appellant was not able to conclusively establish the source of investment for acquiring that I share” is contrary to the facts on record as also the own finding of the CIT(A), thus the proceedings u/s 41 being consequential is also based on erroneous finding of fact. 5. The Ld. CIT(A) erred in law and on facts in not appreciating that use of the word “may” in Section 41 clearly indicates that the imposition of such a penalty is not mandatory. The Assessing Officer would need to independent apply mind as to the addition made in the quantum order, justifying the imposition of penalty. 6. The Ld. CIT(A) erred in law and on facts in not appreciating that the underlying addition in the quantum order u/s 10(3) as also the addition sustained by the Ld.CIT(A), being based on mere estimation, penalty cannot be mechanically initiated and/or imposed.” 2. Brief facts are that the aforesaid appeals have been filed in connection with assessment order dated 01.08.2019 passed under section 10(3) of the Black Money (Undisclosed and Foreign Income and Assets) and Imposition of Tax Act, 2015 (hereinafter referred to as “the BMA”) assessing undisclosed foreign income/assets of the assessee at Rs.31,48,55,300/- and imposing penalties on that basis vide order dated 22.10.2024 and 23.10.2024 passed under section 41 and 43 of the BMA, respectively. 3. The facts containing list of dates and various events pertaining to these appeals are tabulated as under:- Date Particulars Page No. 2005 Memorandum of Understanding between the Assessee and Mr. Alhammadi, resident of UAE, for undertaking business of Lighting Solutions for Automobiles and Infrastructure in UAE and South East Asia. 15 05.07.2005 M/s Alabama Assets Ltd was incorporated, M/s Articorp Ltd. was appointedas nominee director on behalf of Mr. Alhammadi and the assessee. 90 29.08.2005 M/s Articorp Ltd resigned on 29.08.2005 and Execorp Ltd was appointed in its place. 29.08.2005 M/s Sharecorp was allotted 1 share of face value 1 USD as nominee share holder on behalf of the assessee 90 September, 2005 A sum of USD 200,000/- was remitted by the Alhammadi in the bank account of M/s Alabama Assets Ltd. as share capital. 19 30.09.2005 Mr. Alhammadi was sole appointed as Director of Alabama Assets Ltd. on the said date 999 shares of Alabama Assets Ltd. were allotted to Mr. Alhammadi. 90 18.08.2008 M/s Meadow Offshore Ltd. was incorporated. The bank account of the company was opened thereafter and the money in such bank account was infused by M/s Alabama Assets Ltd. as share capital Mr. Deepak Jain

Thursday, October 30, 2025

The property taken over by government without any valid legal contract with caretaker trustee cannot be compensated. Jammu Kashmir and Ladakh High Court

The judgment in LPA No. 228/2025 (Ms. Sabiya Tariq v. UT of J&K & Others) arises from a long-standing dispute over the management and control of the Kashmir Nursing Home, which was earlier managed by the Sher-i-Kashmir National Medical Institute Trust. This litigation marks the second round, following an earlier judgment in 2005 that upheld the government's action of taking over possession of the Nursing Home and dismissed the writ petition from the Trust and related parties.

### Background and Core Issues

- The central issue revolves around the legality of the government's 2003 order taking over the Kashmir Nursing Home. The Trust (respondent no. 2) originally operated the Nursing Home but was found unable to run it effectively, lacking the necessary expertise, staff, and resources.

- The previous litigation involved conflicting opinions within a Division Bench, and the matter was resolved by the Chief Justice, who dismissed the petition and validated the government's actions. The Chief Justice emphasized that public interest and service delivery were paramount, as the Trust’s lack of capacity and attempts to hand the property over to Ms. Sabiya Tariq (the current appellant) were not in accordance with the terms or objectives set by the original transfer and the Medical Council of India’s guidelines[1].

### Findings and Legal Reasoning

- The latest round of litigation (as per the 2025 pronouncement) essentially revisits the same facts and contentions, i.e., the legality of the State’s takeover and whether Ms. Sabiya Tariq or the Trust are entitled to regain management or compensation for investments made.

- The Court has maintained the position set in 2005, stressing that the principles of natural justice were not breached so as to demand interference, particularly since any opportunity for further representation would not serve the larger public interest given the urgency and public health aspect involved[1].

- The petitioner’s additional arguments about non-payment of compensation and breach of agreement were weighed against the substantial public investment and the Trust’s demonstrated incapacity to provide the intended services.

### Conclusion and Impact

- The Court reaffirmed the dismissal of claims by the Trust and Ms. Sabiya Tariq, underscoring that the State’s action was legal, in public interest, and consistent with administrative law and healthcare policy.

- The judgment highlights the need for private entities managing public health assets to demonstrate sustained capability, integrity, and adherence to public interest objectives.

- The outcome solidifies the precedence that where public health and public interest are at stake, government intervention is not only lawful but necessary, especially in cases of mismanagement or deviation from original purposes[1].

This case thus sets an important precedent on State intervention in trust-managed healthcare facilities, emphasizing effective service delivery over technical or private claims when the broader welfare is at risk[1].

Citations:

[1] MS. SABIYA TARIQ v. STATE OF JK AND ORS ( HEALTH DEPT.) https://www.casemine.com/judgement/in/68460e3483cc715f894aff81

[2] Jammu And Kashmir And Ladakh High Court Monthly Digest May 2024 https://www.livelaw.in/high-court/jammu-kashmir/jammu-and-kashmir-and-ladakh-high-court-monthly-digest-may-2024-259482

[3] Jammu & Kashmir And Ladakh High Court Quarterly Digest: July To September 2023 https://www.livelaw.in/high-court/jammu-kashmir/jammu-and-kashmir-and-ladakh-high-court-quarterly-digest-july-to-september-2023-241633

[4] Tariq Ahmad Sheikh vs Muzaffar Ahmad Dar & Ors https://www.latestlaws.com/judgements/jammu-and-kashmir-high-court/2021/august/2021-latest-caselaw-877-j-k-2

[5] Jammu & Kashmir And Ladakh High Court Half Yearly ... https://www.livelaw.in/top-stories/jammu-kashmir-high-court-latest-judgments-half-yearly-digest-2023-ladakh-234456

[6] 10th Oct 2025 some portion of Proceedings at Honorable ... https://www.facebook.com/JKNewsTribe/posts/10th-oct-2025-some-portion-of-proceedings-at-honorable-sc-viz-restoration-of-sta/789612180493424/

[7] Supreme Court Reinstates Two Assistant Professors At Sher-I ... https://www.verdictum.in/court-updates/supreme-court/sheikh-javeed-ahmad-anr-v-state-of-jk-ors-2025-insc-624-financial-support-employee-educational-advancement-contribute-employers-growth-1576404

[8] [PDF] Causelist 22-09-2025 - Jammu and Kashmir High Court http://jkhighcourt.nic.in/upload/causelist/sgr/2025/Sept/weeklycauselist_22092025/causelist_22092025_sgr.pdf

[9] THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH ... https://jkhighcourt.nic.in/upload/causelist/sgr/2025/Sept/weeklycauselist_22092025/entirelist_sgr.pdf

[10] [PDF] THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH ... https://jkhighcourt.nic.in/upload/causelist/sgr/2025/Sept/weeklycauselist_29092025/entirelist_sgr.pdf

[11] Jammu & Kashmir and Ladakh High Court https://jkhighcourt.nic.in/judgments_sci.php

[12] ADMISSION/ORDERS a) BEFORE NOTICE MATTERS https://jkhighcourt.nic.in/upload/causelist/sgr/2025/Oct/weeklycauselist_06102025/causelist_08102025.pdf

[13] [PDF] THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH ... https://jkhighcourt.nic.in/upload/causelist/sgr/2025/Aug/weeklycauselist_25082025/entirelist.pdf

[14] THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT SRINAGAR https://jkhighcourt.nic.in/doc/upload/causelist/sgr/2025/Feb/weeklycauselist_10022025/causelist_12022025.pdf

[15] Gazette No.30 dated 23rd October, 2025 https://rgp.jk.gov.in/pdf/GAZETTE%202014/2025/G.%20No.%20%2030%20%20%20%202025%20%20%20PDF.pdf

[16] [PDF] HIGH COURT OF DELHI : NEW DELHI https://delhihighcourt.nic.in/files/2025-08/cause-list/c_25082025.pdf

[17] HIGH COURT OF AZAD JAMMU AND KASHMIR 1. Writ ... https://ajkhighcourt.gok.pk/judgment_files/Ch__Tariq_Farooq_Vs_Azad_Govt_and_others.pdf

[18] THE J&K BOARD OF PROFESSIONAL ENTRANCE ... https://jkbopee.gov.in/(S(dkmoixs0k33fzk4lui1dzkhk))/Pdf/Downloader.ashx?nid=17250&type=n

[19] [PDF] THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH ... https://jkhighcourt.nic.in/upload/causelist/sgr/2025/Sept/weeklycauselist_22092025/entirelist.pdf

[20] Jammu & Kashmir And Ladakh High Court Monthly Digest https://www.livelaw.in/high-court/jammu-kashmir/jammu-and-kashmir-and-ladakh-high-court-monthly-digest-june-2025-296224

Monday, October 19, 2009

GST Information

The 13th Finance Commission, Government of India has created a Task Force (TF) to make recommendations on various issues relating to the design and implementation of Goods and Services Tax (GST) in India. The Task Force undertook the study for 18 months and submitted its report yesterday (December 15, 2009).

The following is the extract from the recommendations of the TF.

Need for GST

As the current methodology of taxation of goods and services is characterized as cascading and creates distortion, it is necessary to replace the existing indirect tax system by a new regime which would foster the achievement of the following objectives:

• The incidence of tax falls only on the domestic consumption;

• The efficiency and equity of the system is optimized;

• There should be no export of taxes across taxing jurisdictions;

• The Indian market should be integrated into a single common market;

• It enhances the cause of cooperative federalism.

Flawless GST

The TF has recommended a 'flawless' GST which will comprise the following elements:

• It should be a dual levy imposed concurrently by the Centre and the States, but independently to promote co-operative federalism;

• Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) should be levied on a common and identical base;

• The Centre and the States should adopt a consumption type GST viz, there should be no distinction between raw materials and capital goods in allowing input tax credit;

• The tax base should extend over all goods and services upto the final consumer point;

• There should be no classification between goods and services in law so as to ensure that there is no classification dispute;

• GST should be structured on the destination principle, which will result in shifting of tax base from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and service tax by zero rating. Consequently, revenues will accrue to the State in which the consumption tales place or is deemed to take place;

• Computation of CGST and SGST liability should be based on the invoice credit method i.e. allow credit for tax paid on all intermediate goods or services on the basis of invoices issued by the supplier;

• CGST and SGST should be credited to the accounts of the Centre and States separately.

• Taxes paid against CGST should be allowed to be taken as input tax credit (ITC) for the CGST and same principle for SGST. No cross utilization of ITC between CGST and SGST;

• Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods in the year in which they were acquired. Conversely, any kind of transfer of capital goods at a later stage should also attract GST liability like all other goods and services;

SIN Goods The TF has recommended a dual levy of GST and excise for SIN-goods and has also recommended no input credit for excise.[SIN-goods are goods whose consumption create negative externalities and for the purposes of this Report, collectively or severally, refer to emission fuels, tobacco goods and alcohol.] As far as industrial fuels are concerned, it would be subjected to GST (both CGST and SGST) with the benefit of input credit like any other intermediate goods. Amounts collected as taxes on SIN goods should not be subsumed either in CGST or SGST and both Centre and States should take steps to consolidate all taxes (other than proposed GST) on the SIN goods as a single levy termed as Central Excises and State Excises, respectively.

Exemptions The TF recommends no exemption from CGST or SGST ordinarily. However, if for some reason, the Centre and the State should draw up a common exemption, then it should be restricted to the following conditions:

(i) All public services of Government (Central, State and municipal/panchayat raj) including civil administration, health services and formal education services provided by Government schools and colleges, Defence, Para-military, Police, Intelligence and Government Departments. However, public services will not include Railways, Post and telegraph, other commercial departments, public sector enterprises, banks and insurance, health and education services;

(ii) Any service transactions between an employer and employee either as a service provider, recipient or vice-versa;

(iii) Any unprocessed food article which is covered under the public distribution system should be exempt regardless of the outlet through which it is sold;

(iv) Education services provided by non-Governmental schools and colleges; and

(v) Health services provided by non-Governmental agencies.

The current area based exemptions should not be continued in the GST framework Special Economic Zones – There should be no exemption for the developers of, or units in, the SEZ since the GST is designed to ensure that all producers and distributors are treated as complete pass through and zero-rated. Inter-state Transactions

• Unlike the recommendations made by the Empowered Committee, a couple of months back, the TF has recommended that all inter-state transactions in goods and services should be effectively zero-rated by adopting the modified bank model;

• Consignment sales and stock/branch transfers across states should be subject to treatment in the same manner as if it was a inter-state transaction in the nature of sale between two independent dealers;

• Functions of all state border check posts should be reduced to checking contrabands by setting up large scanners for trucks to pass through without any need for physical verification;

Cost of the scanners should be entirely borne by the Central Government.

• All check-posts should be jointly manned by both States so as to reduce the number of check-posts and enhance efficiency in the road movement of goods.

Modified Banking Model

• In the case of inter-state B2B supply, the seller in the origin State shall collect the SGST leviable on the transaction from the buyer in the Destination State as if the sale was within the origin State;

• Seller will issue an invoice to the buyer indicating the details of the transaction and his Business Identification Number (BIN);

• The seller shall use the input SGST for payment of the output SGST on both intra-state and inter-state transactions. To the extent total output SGST is in excess of the input SGST, the same shall be paid into any of the authorised bank in the prescribed manner.

• The buyer in the destination State shall make use of the SGST so paid in the State of origin for making payment of output SGST in the destination State.

• All registered dealers across the country shall pay the sum due as CGST and SGST to the credit of the Central Government and all other States within one week from the end of the month to which the sale transactions relate.

• The Central Government and State Governments shall jointly identify a nodal bank to receive the collection of CGST and SGST by collecting banks. The nodal bank will also receive all information relating to purchase and sale by registered dealers.

The nodal bank shall host the IT infrastructure, provide payment gateway to all banks in India and provide screen-based upload or file upload facility for receiving payment and transaction information.

• It would be mandatory for all registered dealers to make the payment electronically by furnishing Form No. GST-I, which would be a combined monthly payment and return form for all intra-state and inter-state transactions.

• As far as the registered dealer is concerned, he would be required to make a single payment of the aggregate of all sums due to the Centre and all other States. Even though he would have collected tax in the Origin State for inter-state transactions with buyers in a number of destination States, he can fulfil his obligation of directly remitting the tax so collected to all the destination states through a single payment made along with the electronic furnishing of Form No. GST-I.

• It would be mandatory for all registered dealers to make electronic payment of CGST and the SGST by electronically remitting it in to the RBI, SBI or any authorized bank.

• Detailed procedure has been prescribed for making payment of CGST and SGST;

• Input credit for GST would be available to the Buyer against that Invoice by using the combination of Seller BIN, Invoice Number, date of invoice and Amount of GST for that Invoice;

• All banks receiving payments from the registered dealers would be required to transfer the funds to the Nodal Bank on T+1 basis. The Nodal Bank in turn would credit the funds to the respective States.

The software can be designed in a manner which would have the capacity to allocate the amount paid by any registered dealer between the States on the basis of BIN of the buyer. The amounts so allocated can be automatically credited to the account of the destination States without any manual intervention. As a result, it would not be necessary to set up any clearing house mechanism whereby at any given point in time sums would be due to, or from, any other States. Therefore, the Destination State would not be dependent on any other State for collection of revenue.

• The Nodal Bank should be paid on per transaction record basis and the entire cost should be borne by the Central Government.

• Further, in case of any default, the administrative responsibility and control over the collection and recovery of SGST should vest in the origin State.

Threshold Limit

It is recommended that for the purpose of compliance cost and administrative feasibility, small dealers (including service providers) and manufacturers should be exempted if their aggregate turnover of all goods and services does not exceed Rs. 10 laks, with the option to register voluntarily to facilitate sales to other registered manufacturers/dealers, limit competitive distortions and avoid inequities. The threshold exemption limit should be uniform for both CGST and SGST and across States. Dealers with annual aggregate turnover of goods and services between Rs. 10 lakhs to Rs. 40 lakhs, may be allowed to opt for a compounded levy of 1%. Dealers of bullion, gold and silver jewellery etc., may be subject to the threshold exemption but without the ceiling of Rs. 40 lakhs, shall also be allowed to opt for the compounded levy of 1% each towards CGST and SGST. Existing exemption of upto Rs. 1.5 crores of turnover for small-scale industries should be continued under the GST framework.

Rate of tax

Unified single rate of tax is recommended. The rate of CGST and SGST on all non-SIN goods should be fixed at the single rate of 5% and 7% respectively. A formula based devolution of an amount equivalent to collection of SGST at 2%age points should be made to the third-tier of Government after appropriate Constitutional Amendment and the formula should be based on the recommendations of the State Finance Commission. Pending Constitutional Amendment, the collection from 7 percent SGST shall accrue to the State Government and devolution to the third-tier Government should continue to be made on the basis of the recommendations of the State Finance Commission. Both the Central and the State Governments may continue to levy taxes, in addition to the CGST and SGST, on the various non-SIN goods as at present. Subsuming of taxes The following Central taxes should be subsumed in the CGST:

(i) Central Excise Duty (including Additional Excise Duties);

(ii) Service Tax;

(iii) Additional Customs Duty (commonly referred to as 'CVD');

(iv) Surcharge and all cesses

The following State level taxes should be subsumed in the SGST:

(i) VAT/Sales tax (including purchase tax);

(ii) Entertainment tax (other than levied by local bodies);

(iii) Entry taxes not in lieu of Octroi;

(iv) Other Taxes and Duties (including Luxury Tax, Taxes on lottery, betting and gambling and all cesses and surcharges by States);

(v) Stamp duty;

(vi) Taxes on vehicles;

(vii) Taxes on Goods and Passengers;

(viii) Taxes and duties on electricity.

The TF has recommended that all entry and Octroi duties levied by the third tier of Government must be abolished. Power Sector

The TF has recommended that the power sector must form an integral part of comprehensive GST base in which both the Central and the State Governments would have concurrent jurisdiction and the tax regime for the power sector should the same as in the case of any other normal good. Article 278 and 288 of the Constitution should be amended to enable levy of GST on supply of electricity to Government at all levels like any other normal goods.

Real Estate Sector

The TF has recommended the integration of the real estate sector into the GST framework. There will be subsuming of stamp duty on immovable properties levied by the States and the new regime would comprise of the following elements:

• GST should apply for all newly constructed property (both residential and commercial). If it is self-used by the person who constructed it, the GST should be applied on the cost of construction and if it is sold or transferred, the GST should be applied on the consideration received at first transfer or sale. In both cases, credit should be allowed in respect of input tax paid on raw materials used in construction.

• Rental charges received (excluding imputed rental values) in respect of leasing of immovable property used for both residential and commercial purposes should be charged to GST. Input tax credit would be allowed only in respect of input tax paid on goods and services used for maintenance. No input tax credit should be allowed in respect of tax paid on construction or acquisition of the property or tax paid on improvements thereto.

• All secondary market transactions in immovable properties (whether constructed before or after the introduction of GST) should be liable to GST. However, if the property has been constructed after

the introduction of GST, the GST should be levied on the resale value and input tax credit should be allowed in respect of the GST paid upon construction or purchase of the property after making adjustment for inflation. If the property has been acquired by the seller before the introduction of GST, the GST should be levied on the difference between the sale price and the cost of acquisition and improvements thereto. In such cases, no input tax credit would be allowed.

• The adjustment for inflation may be made on the basis of the same inflation index as provided for the purposes of determination of capital gains under the Income-tax Act, 1961.

• The new regime will also be subject to the threshold exemption of Rs.10,00,000/- for small businesses thereby eliminating the problem of excessively large number of landlords seeking GST registration.

• Immovable property will also include land and, therefore, the new regime will also be applicable to land transactions. However, where land is used for construction of a property, it will be treated as an input. In such cases, the GST paid in respect of land will be allowed as input tax credit in the same manner as other inputs used in construction.

• The State Governments would continue to perform essential asset registry functions, and enforces property rights associated with them. These functions are comparable to those of a depository on the markets. The registration fees can be interpreted as user charges for these records keeping functions – which justify small charges. The imposition of large scale indirect taxes through registration and stamp duties constitutes a case of erroneous tax policy. Therefore, States may continue to levy a registration fee at a specific rate not exceeding Rs 1000 per transaction in immovable property, which is merely a user charge for the IT systems used in property registration.

Transport Services

• The tax on vehicles and the tax on goods and passengers levied by the State Governments should be subsumed in the GST;

All transport equipments and all forms of services for transportation of goods and services by railways, air, road and sea must form an integral part of the comprehensive GST base recommended by us over which both the Central and State Governments would have concurrent jurisdiction.

• The tax regime for the transport equipments and transport services should be the same as in the case of any other normal good.

Financial Services

After considering three alternative methods for levying GST on financial services: the exemption method, zero rating method and full taxation method, the TF has recommended that the consumption of financial services should be taxed on the basis of full taxation method.

Place of Supply Rules

The Place of supply is necessary to determine the point of taxation.

• All exports are zero-rated, which means that it is exempt with refund of input taxes;

• In respect of tangible goods, the sale of goods is taxable in the jurisdiction of the buyer;

• In respect of B2B transactions of supply of services and intangible property, the place where the recipient is located is taken into consideration;

• In respect of B2C transactions of supply of services and intangible property, the place of supply should be the State in which the supplier is located with variations;

• In respect of cross border transactions, Supplementary Rules are required to be framed.

Administration

(i) The Central Board of Excise & Customs (CBEC) shall be responsible for implementing the CGST and State Tax administrations will be separately responsible for implementing the SGST;

(ii) Tax administrative functions such as assessment, enforcement, scruity and audit should be undertaken by the CBEC in respect of CGST and by the State tax administration in respect of SGST;

(iii) All compliance and enforcement procedures under CGST and SGST should be uniform;

(iv) Central Government should establish a common IT infrastructure to serve the needs of both CGST and SGST;

(v) Units of taxation for the purposes of GST should be persons as defined under the Indian Income Tax Act;

(vi) For the purposes of CGST, all production units/branches located anywhere in the country will be treated as a single taxable entity eligible for CGST input credit across units/branches;

(vii) For the purposes of SGST, all production units/branches located anywhere within the State will be treated as a single taxable entity eligible for SGST input credit across units/branches in that State;

(viii) Payment of tax and transaction reporting should be made through a combined reporting statement in Form No. GST-1;

(ix) E-filing on a monthly basis must be made mandatory;

(x) Audit must be co-ordinated by both the Central and State Authorities to avoid simultaneous audit;

(xi) There should be a common Appellate Authority and Common Authority for Advance Ruling;

(xii) Best international practices should be embedded in CGST especially in respect of penalties and prosecution;

(xiii) No authority to have power of detention;

(xiv) Procedures for collection of both CGST and SGST should be uniform.

Council of Finance Ministers

• The Empowered Committee, on introduction of GST, should be transformed into a permanent constitutional body known as 'Council of Finance Ministers' comprising of Union Finance Minister and State Finance Ministers and the Union Finance Minister would be the Chairman of the Council;

• Initial design of GST should be approved by Chairman and 3/4th of the State Finance Ministers.

• Change in structure (base and rate) should be allowed to carry out only on approval by Chairman and 2/3rd of the State Ministers.

• In the event of crisis, the Member State or Centre can impose a surcharge subject to ex-post facto approval by Council within one month and further such surcharge shall remain in force for a period of one year.

• GST Compensation Fund under the administrative control of the Council of Ministers to be created and the Central can transfer a minimum sum of Rs. 6,000 crores per annum over the next five years (total of Rs. 30,000 crores) only if the States introduce 'flawless' GST as recommended and follow the roadmap.

• Any deviation by any State will attract penalty and the same will go to the Compensation Fund.

Implementation of GST

• GST implementation can be deferred for another period of 6 months and the new target date can be 1st October, 2010.

• Scheme for phased introduction of GST is also prescribed in case of political or economic reasons;

• If there is a trade-of between the time line and design of GST, the dilemma must be resolved in favour of design.

For further information on this topic please contact:

Srinagar:

M S ASSOCIATES

MALIK ANGAN FATEH KADAL

SRINAGAR 190001. J&K

PH. +91-9906612321

Email: shabir4@gmail.com

www.mshabir.blogspot.com

JAMMU:

JEWEL CHOWK, JAMMU

This publication by M S ASSOCIATES is to keep our clients and friends informed of new and important legal issues. It is intended to be informational only and does not constitute legal advice. Specialist advice should be sought regarding specific circumstance.

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