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January 2017 Volume 3, Issue 11

FOCAL POINT Newsletter from Raju and Prasad Chartered Accountants

mailto:[email protected]

http://www.rajuandprasad.com/


Page 3 Raju and Prasad Chartered Accountants Page 1

Dear Reader,

Our editorial comments are on the upcoming budget

for 2017-18 and contains an analysis of what the government

earns and how it is spent.

This month we have covered Edible oils and Oil seeds in sequence

to other Agro Industries in industry review.

We have also included an article written by Mr. Krishna Kulkarni

explaining the model GST Law.

This is the season of migratory birds and photograph of month is

on Flamingoes.

Please give your views and also send this newsletter to your friends.

Regards

For Raju & Prasad

Chartered Accountants

M Siva Ram Prasad

Partner


Raju and Prasad Chartered Accountants Page 2

Contents Contents ............................................................................................................................................................. 2

Editorial ............................................................................................................................................................... 3

Union Budget ............................................................................................................................................................. 3

What we earn, where we spend ...................................................................................................................... 3 What are the Earnings? ........................................................................................................................................................................................ 3 What are the Expenditures? ............................................................................................................................................................................. 5

Industry Review ........................................................................................................................................... 7

Edible Oils and Oil Seeds ..................................................................................................................... 7 Variety of oil seeds ................................................................................................................................................................................................... 7 Production Process ................................................................................................................................................................................................... 8 Prospects ........................................................................................................................................................................................................................ 10 Programs and Policies .......................................................................................................................................................................................... 12 Issues and Challenges ......................................................................................................................................................................................... 14 National Mission on Oil Seeds and Oil Palm (NMOOP).............................................................................................................. 15

Goods and Service Tax .................................................................................................................... 17 Background .................................................................................................................................................................................................................. 17 What is GST and its Broad Impact ............................................................................................................................................................ 18 Avoidance of Double Taxation ...................................................................................................................................................................... 19 Taxing rights of the Centre and the State Governments made clear .......................................................................... 20 Scope restriction on levy of additional tax/cess ............................................................................................................................ 20 Benefits of GST in general ............................................................................................................................................................................... 20 Taxes that will be subsumed into GST .................................................................................................................................................. 21 Key takeaways of Model GST Law ............................................................................................................................................................. 21 Will GST be reality in April 2017 ................................................................................................................................................................. 24 Our View ......................................................................................................................................................................................................................... 24

Policy Watch ................................................................................................................................................. 25

Company Law .......................................................................................................................................................... 25 Commencement of section 248-252 of Companies Act, 2016 ........................................................................................ 25

RBI ................................................................................................................................................................................. 25 Rationalization of Merchant Discount Rate (MDR) for transactions upto ₹ 2000/- .......................................... 25

SEBI............................................................................................................................................................................... 26 Filing of Forms PAS-4 and PAS-5 in case of issuance of debt securities on private placement

basis………………………………………………………………………………………………………………………26

Verdicts ............................................................................................................................................................ 27

Direct Taxation ....................................................................................................................................................... 27

►►► PHOTOGRAPH OF THE MONTH ..................................................................................... 28


Page 3 Raju and Prasad Chartered Accountants Page 3

Editorial

Union Budget

What we earn, where we spend

he budget presentation is advanced by

one month by union government this year.

This is an Annual Financial statement

presenting the receipts and payments. By

advancing one month the statistics on

receipts may not be accurate to that extent.

The relieving feature that is going to be in the

union budget is the concept of capital and

revenue expenditure in terms of normal

accounting practices instead of plan and

non-plan expenditure.

Another new feature in the coming budget

would be merging the receipts and payments

of railways.

What are the Earnings?

The receipts for the union government include

Tax revenues, non-tax revenues and

T

Raju and Prasad Chartered Accountants


borrowings. Overall, if we see the composition

of receipts, a major portion is taxes under

various heads like Corporation Tax, Income

tax, Service Tax, Central Excise, Customs with

charge of cess like education cess, Krishi

Kalyan Cess, Luxury Tax. In addition different

Cesses administered by various departments

like Coal & Coke, Salt, Rubber, Research and

Development cess, etc.

Non-Tax revenue includes interest receipts,

dividend and profits, external grants etc.

The borrowings in the form of loans and

advances, issue of various bonds etc., form the

capital receipts of the government.

The Broad Analysis of Receipt Budget 2016-17 is given below.

S.No Receipts 2016-17 Budget (Rs. In crores)

Percentage of Total Receipts

A) REVENUE RECEIPTS

1) Total Tax Revenue 1630888 63.84%

2) Total Non-Tax Revenue 322921 12.64%

3) Total Revenue Receipts (1+2) 1953809 76.47%

B) CAPITAL RECEIPTS

4) Non-debt Receipts 67134 2.63%

5) Debt Receipts 520709 20.38%

6) Total Capital Receipts 587843 23.01%

7) DRAW-DOWN OF CASH BALANCE 13195 0.52%

8) Total Receipts[3+6+7) 2554847 100.00%

Source: Receipts Budget 2016-17

Out of the total receipts, around 64% account

for tax revenues shared by Corporate Tax 19%,

Income Tax 14%, Customs 9%, Excise 12%,

Service Tax by 9% and Taxes from Union

Territories by less than 1%. The state’s share in

total tax revenue is Rs. 5.70 lakh crores (35% of

total tax revenue and 22.32% of total receipts)

The relieving feature that is going to be in

the union budget is the concept of capital

and revenue expenditure in terms of

normal accounting practices instead of

plan and non-plan expenditure.



Balance of receipts is composed of 12.64% of

Non-tax revenues like dividend from Public

Sector Undertakings and Public Sector Banks,

disinvestments etc., and 23% of borrowings

and other liabilities.

What are the Expenditures?

The expenditure is divided into Non plan and

Plan expenditure. For the year 2016-17 total

expenditure (proposed) is Rs. 19.78 lakh crores

out of which Revenue expenditure is Rs.17.31

lakh crores and capital expenditure is Rs. 2.47

lakh crores. The capital expenditure is 12.5 % of

the total expenditure.

Table showing expenditure budget for the year 2016-17.

The non-plan revenue expenditure is divided

into interest payments (24.91%), pensions

(6.24%), general services (1.77%), social

services (1.62%), economic services (1.73%),

defence services (8.23%), subsidies (12.66%)

and others (9.95%).

The trend of receipts and expenditure show

that in spite of increase in receipts,

expenditure mainly goes to revenue

expenditure which is maintenance, salaries,

pensions, administration etc.

In case of Railways also much of the revenue

goes to meet the requirements of fuel,

establishment, maintenance etc., and leaving

little surplus for development.

S.No

Expenditure 2016-17 Budget (Rs. In crores)

Percentage of Total Expenditure

A) NON-PLAN EXPENDITURE

1) Total Revenue Non-Plan Expenditure 1327408 67.11%

2) Total Capital Non-Plan Expenditure 100642 5.09%

3) Total Non-Plan Expenditure 1428050 72.19%

B) PLAN EXPENDITURE

4) Total Revenue Plan Expenditure 403628 20.41%

5) Total Capital Plan Expenditure 146382 7.40%

6) Total - Plan Expenditure 550010 27.81%

7) Total Expenditure[3+6) 1978060 100.00%

Source: Expenditure Budget 2016-17

At least this Budget should focus on “Make in

India”.



In 2016-17 budget, total revenue receipts

include tax revenue of Rs. 16.3 lakh crores

which is 83.5% of total revenue receipts and

the remaining is non-tax revenue of Rs. 3.22

lakh crores. Out of the total receipts of Rs.

25.55 lakh crores including capital receipts, tax

revenue is working out to nearly 64%.

By analyzing expenditure trend over years,

expenditure on asset formation is low. In the

year 2015-16 the total expenditure was 17.90

lakh crores, out of which 15.37 lakh crores was

spent for revenue expenses and 2.53 lakh

crores is spent for asset formation which

accounts for 12.62% of total expenditure. Even

in 2016-17 the situation is more or less the same.

The trend over years is the same and if this

continues either asset formation will not grow

as per the requirements of growth or there will

be over dependence on private sector.

There are many Budget whispers regarding

reduction of taxes, low tax regime etc.

Contrary to this other gossips are short term

capital gain tax may be increased or tenure

for short term capital gains may be extended,

securities transaction tax may be increased,

cash transaction tax may be introduced etc.

The fact remains that the tax payer’s money is

going to maintain the revenue expenditure of

the government and any tax reduction will

hamper the functioning of the government.

Even if there is reduction of taxes in one

corner, the other corner will be taxed at a

higher rate to match the revenue. Ultimately

budget has become a balancing act rather

than a development oriented exercise. With

the slogan of level playing field and market

driven economy, country has become a level

playing field for other countries and driving the

market for others. At least this budget should

focus on “Make in India”.

- M SIVARAM PRASAD

The fact remains that the tax payer’s money is

going to maintain the revenue expenditure of

the government and any tax reduction will

hamper the functioning of the government.


Raju and Prasad Chartered Accountants Raju and Prasad Chartered Accountants Page 7

Industry Review

Edible Oils and Oil Seeds

Variety of oil seeds

il seed farming is one of the major

agriculture activities in the country. Most

of Indian food is cooked with oil. There are

number of oil seeds grown in different regions

depending on the soil conditions, rainfall and

other climatic conditions. Oil seeds are

broadly classified into vegetable oil seeds,

plantation seeds and tree borne oil seeds.

Major oil seeds grown are groundnut,

rapeseed, mustard, sesame, safflower,

soybean and sunflower.

The non-edible oil seeds are castor and Niger.

The coconut and palm fruits are fruit varieties

from which oil is extracted. There are other

varieties of seeds classified as tree borne oil

O



seeds which include olive, karanja, sal,

mahua, simarouba, jatropha, neem, wild

apricot, walnut, tung etc.

Oil from Palm fruit is of recent origin in India

and is being imported to meet our demand

and supply gap. Oil from rice bran, though is

not produced in significant quantity, it is

propagated as good for health due to its high

content of mono saturated fatty acids. Cotton

seed oil is another nontraditional oil which is

blended with other edible oils for human

consumption. The edible oils have nutritious

value if consumed moderately.

Table showing the Nutritional value of edible oils per 100 gms:

The oil seeds are grown in agricultural lands

and some of them are grown in forest and

non-forest areas, hilly terrains and desert

areas.

Production Process

Previously, the oil seeds were crushed into oil in

a primitive way with a grinding wheel pulled

by a bullock and extract oil leaving 8% to 10%

of oil remaining in the cake. Later solvent

extraction plants were extracting the

remaining oil. Presently the oils are extracted

by modern processing units with efficiency in

collecting the maximum oil.

Peanut

Oil

Sesame

Oil

Mustard

Oil

Sunflower

Oil

Safflower

Oil

Palm Oil

Energy 884 kcal 884 kcal 884kcal 884 kcal 517 kcal 884 kcal

Carbohydrates 0 gm 0 gm 0 gm 0 gm 34 gm 0 gm

Fats

i. Saturated

ii. Monounsaturate

d

iii. Polyunsaturated

17 gm

46 gm

32 gm

14.20 gm

39.70 gm

41.70 gm

12 gm

59 gm

21 gm

9.748 gm

83.594 gm

3.798 gm

3.7 gm

4.8 gm

28 gm

49 gm

37 gm

9 gm

Source: USDA Nutrient Database



The production of edible oil and its process

slightly varies for different agricultural produce

like vegetable seeds, cotton seeds,

groundnuts, palm oil and coconut oil.

In case of cotton seed oil additional process of

delinting and for ground nuts decortication

and in case of palm fruits kernel removal are

additional steps.

But the general process is to process the

material through expellers, after the material is

cleaned. The cleaned seeds are fed into

hullers and after the seeds are cracked, the

mixture of hulls and meats are passed though

reciprocated system. After this process the

meats are cooked in cookers or kettles and

fed into expellers and squeezed with pressure

which separate the oil from the meat. The oil is

separated and the cake is collected at the

bottom; this is unrefined oil. The oil cakes

collected at the bottom are passed through

solvent extraction plants where it is further fed

into extractor with low boiling petroleum

solvent called hexane, further hexane is

condensed to vapours of this solvent and

hexane is removed totally and the oil is

collected from the cake. After the solvent is

extracted from the cake, the cake is further

conditioned and packed.

Oil coming out from the oil mill and solvent

extraction plant will be processed further in

refineries for degumming, neutralization,

bleaching and deodorization. After this

process the oil is sent through homogenizer

and finally it is packed.



Prospects

The Indian edible oil industry is ranked as the

4th largest in the world after US, China and

Brazil, with a share of 10% in world production

of oil seeds. Still India is the largest importer of

edible oils.

As per Press Information Bureau release on 01-

01-2014 nearly 27 million hectares of land is

utilized for growing oil seeds, out of which 72%

is under rain fed agriculture. The oil seed

cultivation is approximately 13% of cropped

area and contributes to around 3% of gross

national product and 10% value of total

agricultural commodities. The consumption of

oil seeds is 32.06 million metric tonnes in 2015-

16. The percapita consumption is 17 kg per

annum which is low compared to world

average of 30 kg per annum. The demand is

likely to touch 20.4 million metric tonnes in

2017. The demand and supply gap is met by

imports mainly from Indonesia and Malaysia.

The prospects for this sector seem brighter as

per the forecast given by US Department of

Agriculture for the year 2016-17.

Oil seed production will increase from

130788 MMT in 2015-16 to 150457 MMT in

2016-17.

Consumption of oil will increase from 32060

MMT in 2015-16 to 34160 MMT in 2016-17.

Oil seed exports will increase from 684000 MT

in 2015-16 to 760000 MT in 2016-17.

In the last decade from 2005 to 2015, the

production of oil seeds has not shown much

increase. Whereas the import of oil has almost

three fold increase. The demand almost

doubled over a decade which accounts for

10% of average growth per annum.

Some of the major oil seeds which contribute

to about 88% of the total oil seeds production

are mustard, rape seed, soybean and

groundnut.



Table showing production of Edible Oilseeds and Edible Oils along with Import of Edible Oils:

Consumption of oils also vary from region to

region. Southern and western regions consume

groundnut oil, Eastern and Northern region

consume mustard-rapeseed oil. Coconut oil

and sesame oils are used more in Kerala and

South West Coast. The edible oil with modern

refining are blended with rice bran oil, safflower

oil and sunflower oils.

Consumption of blended oils is on the increase

among the urban population.

Year

Domestic Production

(‘000 tonnes)

Import of Edible Oils

(‘000 tonnes)

Total availability of Edible Oils

(‘000 tonnes) Edible

Oilseeds

Edible Oils

2005-06 27980 6906 4288 11194

2006-07 24290 5900 4269 10169

2007-08 29760 6964 4903 11867

2008-09 28160 6778 6714 13492

2009-10 24880 7946 8034 15980

2010-11 30479 9782 7242 17024

2011-12 29798 8957 9943 18900

2012-13 30943 9219 10605 19824

2013-14 32879 10080 10976 21056

2014-15 26675 8978 12731 21709

Source: Department of Food and Public Distribution



Table showing major producing states of different oil seeds

As per the above table oil seed production is

not spread in all states, only about 7 to 8 states

are contributing to the supply for the entire

country.

Programs and Policies

Three decades ago India was the largest

importer of edible oils in the world, importing

around half of the domestic requirement in the

1990s. The situation has not changed much

even now.

To solve the problem of edible oil supply

National Oil seed Development Project

(NODP) was started to give thrust for

development of oil seeds in 1984-85.

Technology mission on oil seeds was

launched in 1986 to increase productivity

with a moto of self-sufficiency in this field.

In 1991-92 Oil Palm Development Program

(OPDP) was commenced to encourage oil

palm cultivation.

Oilseed Major Producers

Soybean Madhya Pradesh (55.4%), Maharashtra (30.0%),

Rajasthan (9.8%), Others (4.8%)

Rapeseed-Mustard Rajasthan (46.2%), Haryana (12.2%), Madhya

Pradesh (12.0%), Uttar Pradesh (11.8%), West

Bengal (5.6%), Gujarat (4.9%), Others (7.3%)

Groundnut Gujarat (38.0%), Andhra Pradesh (16%), Tamil

Nadu (13.8%), Rajasthan (8.9%), Karnataka

(8.4%), Maharashtra (5.7%), Others (9.3%)

Sesame West Bengal (21.3%), Rajasthan (21.2%), Madhya

Pradesh (16.8%), Gujarat (14.1%), Uttar Pradesh

(7.6%), Andhra Pradesh (2.9%), Others (11.1%)

Sunflower Karnataka (37.3%), Andhra Pradesh (27.2%),

Maharashtra (14.6%), Punjab (4.4%), Bihar (3.9%),

Haryana (3.0%), Others (9.5%)

Source: Ministry of Agriculture, Govt. of India



Post liberalization era, the import of edible

oils was included in open general license to

meet the demand in the country.

However, this became a disincentive for

growth in oil seeds production.

Export of edible oils was banned in March

2008.

Ban on export of edible oils was relaxed on

castor oil, coconut oil, edible oil produced

from minor forest produce and organic

edible oils in February 2013.

Export of edible oils was allowed in

branded products up to 5 kg packs with

minimum export price of US $900 per MT in

February 2015.

Export in bulk of Rice Bran Oil was

permitted from 2015.

In September 2015 the import duties were

increased from 7.5% to 12.5% for crude oil

and 15% to 20% for refined edible oils.

National Mission on Oilseeds and Oil Palm

(NMOOP) was launched in January 2014

with an object of encouraging oil palm

cultivation in waste lands.

To prevent any shortage and for

regulating the price, Government has

imposed Stock Holding limits on edible oil

upto 30.09.2017.

The industry is also regulated by

Vegetable Oil Products (Regulation) order

1998, Edible Oil Packaging (Regulation)

order 1998, Solvent extracted Oil De-oiled

Meal and Edible Flour (Control) Order

1967.

Foreign Direct Investment is allowed upto

100% in vegetable oils, Vanaspati,

refineries and Palm oil plantation through

automatic route.



India also exports certain oils, oil meal and oil seeds like castor to other countries

Table showing exports of oilseeds, edible oils and fats and oil meals during the last five years:-

Issues and Challenges

The sector suffers because of small land

holdings for crops like oil palm cultivation.

The crops are basically grown in rain fed

areas and the quality of the oil seeds is

effected due to insufficient and untimely

rainfall.

The production of oil seeds is almost

stagnant during the last decade.

The sector is fragmented and is dependent

on weather and by farmers shifting crop

pattern for economic reasons.

Productivity of oil seeds in India is one of the

lowest in the world.

Oil meal exports face competition due to

expanding capacities of processing in

neighbouring countries which are Pakistan

and Bangladesh.

Year

(April-

March)

Oil Seeds Edible Oils and Fats Oilcake/Extraction

Qty. (lakh

MT)

Value (Rs.

crore)

Qty. (lakh

MT)

Value (Rs.

crore)

Qty. (lakh

MT)

Value (Rs.

crore)

2011-12 13.24 8279.32 4.97 390.79 74.41 68010.92

2012-13 9.90 7533.16 6.18 869.68 67.38 16270.79

2013-14 10.42 7933.00 5.84 779.58 68.32 16701.80

2014-15 13.97 10727.77 0.85 1073.00 39.70 7479.44

2015-16

(upto Oct)

5.07 4043.39 1.52 510.78 13.32 2326.48

Source: DGCIS



The cheaper imports and higher domestic

production costs coupled with inconsistent

supply of oil seeds force many processing

units to shut down.

Longer distance between the processing

units and actual raw material produced

areas make the quality and yield suffer in

case of rice bran oil, palm oil etc.

National Mission on Oil Seeds and

Oil Palm (NMOOP)

To tackle the sensitive edible oil production

and supply Government of India initiated

national Mission on Oil Seeds and Palm Oil

(NMOOP) in January 2014 with a grant of Rs.

32507 crores allocation in 12th Plan. The

strategy was to

Increase Seed Replacement Ratio with

focus on varietal replacement.

Increase irrigation coverage from 26%

to 36%.

Diversification of crop pattern from low

yielding oil seeds to higher yielding oil

seed crops.

Using fallow land after paddy and

potato crops for growing oil seeds.

Growing oil seeds in waste lands.

Improve methods of processing and

increase the availability of quality of

plants and encourage inter cropping

where plantation has gestation period.

The mission has three stages, 1st stage is aimed

at increasing production from 28.93 million

tonnes to 35.51 million tonnes in 12th plan and



productivity from 1081 kg per hectare to 1328

kg per hectare. 2nd stage is to bring oil palm

cultivation in additional 1025 lakh hectares

and productivity from 4927 kg per hectare to

15000 kg per hectare. 3rd stage is targeting

tree borne oil seed production increase from 9

lakh tonnes to 14 lakh tonnes.

With these efforts, let us expect the production

of edible oils will increase to meet the

increasing demand.



Goods and Service Tax

Background

oods and Services tax (“GST”) is a very

important and game changing indirect

tax reform introduced in the financial history of

India. The GST constitution amendment Bill is

now passed by both the Houses of Parliament

and ratified by Legislative Assemblies of 23

states and Union Territories (yet to be ratified

by 8 states) and has received the President’s

assent on 8th September 2016. The Central and

the State governments shall pass their

respective GST Acts to monitor CGST (Centre's

GST) and SGST (States' GST). The respective

acts were not tabled in the recently

concluded winter session of the parliament

and are expected to be tabled in the

upcoming session. GST is new to India but not

to other countries of the world. France is the

first country to introduce GST in 1954. GST is

prevalent in countries including Australia,

Canada, Hong Kong, Malaysia, New Zealand,

Singapore etc. Further, Singapore has lowest

G



GST @7% whereas, India is still struggling with

the idea of 4 tier rate structures.

GST is being introduced with the objective of

'one nation, one tax' and all the existing major

indirect taxes in India shall stand subsumed

into GST, by making the present ambiguous

structure extinct. GST is not simply a summation

of VAT plus service tax but is an improvement

over the previous system of VAT and disjointed

service tax. Due to the federal structure of

India, the two components of GST i.e. CGST

and SGST will be levied simultaneously by the

Centre and the States across the value chain.

Tax will be levied on every supply of Goods

and Services.

What is GST and its Broad Impact?

GST is an integrated tax on the supply of goods

and services, from the manufacturer to the

consumer. Credit for input taxes paid at each

stage will be available for set off in the

subsequent stage of value addition, which

makes it a tax only on value addition. The final

consumer of goods and services will bear only

the GST charged by the last dealer in the

supply chain, with set off benefits at all the

previous stages. From a broad and

macroeconomic perspective, the impact of

GST in the initial stages could be tumultuous.

However, the impact over the long run shall

definitely be favourable to all the stakeholders

be it the government, businesses or

consumers. It may have negative impact on

GDP growth in the short term as higher taxes

on services (which constitute largest share of

GDP) would affect consumption of services

and the businesses may not immediately pass

on the positive impact of lower taxes on goods

to consumers, thus restricting the growth in

consumption of goods. However, gains in

terms of higher productivity and ease of

compliance are expected in the long term

from a simplified, more efficient tax system

and the removal of interstate tax barriers. GST

is intended to merge 29 states into a single

market by integrating existing multiple taxes

thereby reducing cost of compliance,

facilitating ‘Ease of Doing Business in India’

and is expected to lift GDP by as much as 1%

point. The existing issues in the indirect tax

structure including multiple state and central

taxes, a complicated list of exemptions

leading to litigations and incomplete input

credit across different taxes and between



goods and services are expected to be

addressed by the introduction of GST.

Advantages of GST over present Indirect tax

structure

In a federal structure like ours, the centre and

states are assigned with their own powers

which has led to frequent hiccups in the

taxation regime because of the following

factors-

a) Taxes with different nomenclatures being

levied on different aspects of a single

transaction by the centre and the state

governments.

b) Lack of understanding between the centre

and the state governments with regard to

the distribution of taxes and violating the

taxing rights of each other.

c) Levy of additional tax/cess by using the

residuary power under Article 248 of the

Constitution of India (Ex: Recent levy of

Swacch Bharat Cess and Krishi Kalyan

Cess)

In GST regime, both the Central and State

governments would have the power to

simultaneously levy GST on supply of goods

and/or services. The very purpose of this move

is to solve the above stated issues inherent in

present taxation structure. GST brings in a

whole new perspective to the indirect taxation

in India resulting in various advantages, few of

them are discussed as under-

Avoidance of Double Taxation

In the present structure, double taxation is

evident at many instances of the life cycle of

a given good/ service, few of them are–

i) Levy of excise duty on manufacturing

aspect and sales tax on sales aspect of

goods.

ii) Levy of service tax and VAT on both

service component and sales component

of goods in case of

a. Works contract

b. Construction contract

c. Sale of food in restaurants

d. Outdoor catering

Supply of food/drinks to guests

residing in a hotel

GST plugs in the above discussed loophole of

double taxation, for instance, in GST regime,

there shall not be any tax levied on

manufacture thereby eliminating levy of

excise duty. The tax (CGST + SGST) levied shall

be on supply of goods/services unifying the

event of taxation i.e. on supply and not on

various aspects of the same transaction.

Further, Schedule II of the Model GST law refers

to the factors that determine ‘supply of

service’. Further, it provides that the services

enlisted below shall fall into the ambit of

definition of ‘supply of service’ for the

purposes of GST-



i) Works contract including transfer of

property in goods (whether as goods or

in some other form) involved in execution

of works contract

ii) Construction contracts

iii) Restaurant services

iv) Outdoor Catering

v) Supply of food/drinks to a person residing

in a hotel

Taxing rights of the Centre and the

State Governments made clear

Presently, there is dispute on account of

whether a particular levy imposed by the

Centre is within its powers or that it has usurped

the state’s rights, has led to ambiguity among

the taxpayers with regard to constitutional

validity of a particular levy. The dispute mainly

arises due to contradictory views expressed by

honourable courts with regard to the levy of a

specific tax on similar services. In GST, both the

Central Government and the State

Governments have been given the powers to

simultaneously levy the GST through Article

246A of the constitution and not through the

entries of three lists, thereby providing distinct

powers to both the governments and

facilitating predictable taxation in India.

Scope restriction on levy of

additional tax/cess

Article 248 of the Constitution of India gives

residuary powers to the Parliament to frame

laws with respect to any matter not

enumerated in the Concurrent List or the State

List. It is difficult to determine whether the

parliament has utilised its residuary powers

rationally and as a last resort and is legislatively

competent to make law. However, in GST

regime, this residuary power of the Parliament

has been made subject to Article 246A

overriding the residuary powers under Article

248. As a result, provisions of Article 246A would

apply on the levies proposed to be imposed

on goods and/or services covered in GST. It is

pertinent to note that, the Parliament cannot

resort to the residuary powers to make a law in

respect of goods and/or services covered

under GST.

Benefits of GST in general

The benefits of GST can be summarized

broadly as under –

a) For Business and Industry

i. Easy Compliance – A robust and

comprehensive IT System, Goods and

Services Network (GSTN) will be the

backbone of the GST regime in India.

All services such as registrations,

returns and payments would be

available to the taxpayers online.

ii. Uniformity of tax rates and structure –

GST regime will ensure that the indirect



tax rates and structure are uniform

across the country.

iii. Improved competitiveness –

Reduction in transaction costs would

lead to improved competition in the

trade and industry.

iv. Gain to manufacturers and exporters

– By subsuming major central and

state taxes in GST, free flow of input tax

credits and phasing out of Central

sales tax (CST) would reduce the cost

of locally produced goods and

services.

b) For Central and State Governments

i. Simple and easy to administer –Single

nationwide tax is simpler to administer

than multiple taxes.

ii. Better controls on leakage – GST will

improve the compliance among

taxpayers due to its inherent features

like seamless input credit etc. and

thereby giving improved revenues to

the exchequer.

c) For end consumer

i. No hidden taxes

ii. Relief in Overall tax burden

Taxes that will be subsumed into

GST

Central Taxes to be

Subsumed

State Taxes to be

subsumed

Central Excise Duty

(CENVAT)

State VAT / Sales tax

Additional duties of

excise

Central Sales Tax

Additional duties of

customs (CVD &

SAD)

Purchase tax

Service Tax Entertainment Tax

Excise duty levied

under Medicinal &

Toiletries

Preparation Act

Luxury tax

Surcharges & Cess Entry Tax (All forms)

Taxes on lottery,

betting & gambling

Surcharges & Cess

Key takeaways of Model GST Law

1) Threshold limit for registration – The law

mandates registration for a dealer if his

aggregate turnover in a financial year

exceeds Rs.9 lakhs. However, dealers

conducting business in any North Eastern

State are required to take registration if their

turnover exceeds Rs.4 lakhs.



2) Place of registration - The dealer has to take

registration in the State from where taxable

goods or services are supplied.

3) Migration of existing taxpayers to GST- Every

person already registered under extant law

will be issued a certificate of registration on

a provisional basis. This certificate shall be

valid for period of 6 months. Such person will

have to furnish the requisite information

within 6 months and on furnishing of such

information, final registration certificate

shall be granted by the Central/State

Government.

4) GST compliance rating score - Every

taxable person shall be assigned a GST

compliance rating score based on his

record of compliance with the provisions of

this Act. The GST compliance rating score

shall be updated at periodic intervals and

intimated to the taxable person and also

placed in the public domain.

5) Levy of Tax - The person registered under

this law is liable to pay tax if his aggregate

turnover in a financial year exceeds INR 10

lakhs. However, a dealer conducting

business in any of the North Eastern is

required to pay tax if his aggregate

turnover exceeds INR 5 lakhs. A negative list

has also been prescribed for transactions

and activities of Government and Local

Authorities which shall be exempt from GST

levy, like activities of issuance of passport,

visa, driving license, birth certificate or

death certificate, etc.

6) Taxable Event - The taxable event under

GST regime will be supply of goods or

services. Supply includes all forms of supply

of goods and/or services such as sale,

transfer, barter, exchange, license, rental,

lease or disposal made or agreed to be

made for a consideration. It also includes

importation of service, whether or not for a

consideration.

7) Point of taxation - CGST/SGST shall be

payable at the earliest of the following

dates, namely:

a) Date on which the goods are removed

for supply to the recipient (in case of

movable goods).

b) Date on which the goods are made

available to the recipient (in case of

immovable goods).

c) Date of issuing invoice by supplier; or

d) Date of receipt of payment by supplier;

or

e) Date on which recipient shows the

receipt of the goods in his books of

account.

8) TCS on online sales of goods or service -

Every e-commerce operator engaged in

facilitating the supply of any goods and/or

services (like Amazon, Flipkart, etc.) shall



collect tax at source at the time of credit or

at the time of payment whichever is earlier.

9) Valuation Rules - Such Rules shall apply to

the supply of goods and/or services under

the IGST/CGST/SGST Bill. Some of the

methods prescribed for valuation are given

hereunder

a) Transaction Value

b) Transaction value of goods or services

of like kind

c) Computed Value Method

d) Residual Method

10) Utilization of credit:

a) Utilization of IGST: The amount of input

tax credit on account of IGST available

in the electronic credit ledger of dealer

shall first be utilized towards payment of

IGST and the amount remaining, if any,

may be utilized towards the payment of

CGST and SGST, in that order.

b) Utilization of SGST: The amount of input

tax credit on account of SGST available

in the electronic credit ledger shall first

be utilized towards payment of SGST

and the amount remaining, if any, may

be utilized towards the payment of

IGST.

c) Utilization of CGST: The amount of input

tax credit on account of CGST

available in the electronic credit ledger

shall first be utilized towards payment of

CGST and the amount remaining, if any,

may be utilized towards the payment of

IGST.

Note: The input tax credit on account of CGST

shall not be available for payment of SGST.

11) Payment - Any tax, interest, penalty, fee,

etc., shall be paid via internet banking or by

using credit/debit cards or NEFT or RTGS. This

amount shall be credited to the electronic

cash ledger of dealer.

12) TDS - The Central or a State Government

may mandate certain departments (viz,

local authority, Govt. agencies) to deduct

tax at the rate of one percent on notified

goods or services, where the total value of

such supply, under a contract, exceeds INR

10 lakhs.

13) Refund - A person can claim refund of any

tax and interest by making an application

in that regard to the prescribed officer of

IGST/CGST/SGST. The application can be

made before the expiry of two years from

the relevant date as may be prescribed. It

has been provided that the limitation of two

years shall not apply where such tax or

interest or the amount has been paid under

protest.

14) Returns – Dealers / Service Providers shall be

required to furnish following returns. The

same will be discussed in detail in our

subsequent articles



a) Monthly Return

b) Return for Composition Scheme

c) TDS Return

d) Return for Input Service Distributor

e) First Return

f) Annual return

g) Final return

15) Transitional Provisions – Will be discussed in

depth in our subsequent articles

Will GST be reality in April 2017?

If one takes a reasonable view, the answer is

probably a big ‘No’. This is because the

Government has to frame the act and the

rules for the Centre and each of the State

Governments. Few issues between centre and

the states also have to be resolved amicably.

Though the Model GST Act, 2016 is passed, the

final enactment will certainly take

considerable time at the centre and the state

level. Hence, one can predict that 1st April

2018 may be a realistic date.

Our View

Pushing the much delayed indirect tax reform

is a welcome move. The government has to

continuously work towards realising the

expected benefits from the GST regime by

framing business friendly rules and guidelines

which indeed make the compliance easy and

in turn add to the tax exchequer by reducing

litigation. We believe that the proposed IT

infrastructure (GSTN) is robust enough to

accommodate large base of taxpayers

without any technical glitches.

We, at Raju and Prasad are looking forward to

release a series of articles covering various

aspects of GST through our newsletters/

emails. We invite comments/ suggestions/

queries from the readers and will strive to

clarify/ implement them in full spirit.

-KRISHNA KULKARNI

The government has to continuously work

towards realising the expected benefits from

the GST regime by framing business friendly

rules and guidelines which indeed make the

compliance easy and in turn add to the tax

exchequer by reducing litigation.



Policy Watch

Company Law

Commencement of section 248-252

of Companies Act, 2016

Ministry of corporate affairs vide notification

dated 26/12/2016 has notified that Section

248-252 which deal with powers of registrar to

remove name of the company from the

registrar of companies, effects of companies

notifies as dissolved, fraudulent application for

removal of name etc., shall come into force

from 26th December, 2016.

http://www.mca.gov.in/Ministry/pdf/Notific

atiion_28122016.pdf

RBI Rationalization of Merchant

Discount Rate (MDR) for

transactions upto ₹ 2000/-

RBI vide notification no. RBI/2016-17/184, in

order to facilitate wider acceptance of card

payments following the withdrawal of legal

tender characteristic of the old Rs.500/- and

Rs.1000/- notes, has rationalized the MDR for

transactions upto Rs.2000/- for a temporary

period. The new rates are 0.25% for a card

transaction value upto Rs.1000 and 0.5% for a

transaction value above Rs.1000/- and below

Rs.2000/-.

https://rbidocs.rbi.org.in/rdocs/notification/

PDFs/NOTI184186934442E944841914426D

7C29ABB22.PDF

Enhancement of daily limits for cash

withdrawal from ATMs.

RBI vide notification no. RBI/2016-17/213 dated

16thJanuary, 2017 has notified that the daily

withdrawal limits are increased from Rs.4500/-

to Rs.10000/- per day per card(within the

overall weekly limit of Rs. 24000/- per week)

and the limit of withdrawals from current

account are enhanced form Rs. 50000/- per

week to Rs. 100000/- per week.

http://www.mca.gov.in/Ministry/pdf/Notificatiion_28122016.pdf

http://www.mca.gov.in/Ministry/pdf/Notificatiion_28122016.pdf

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI184186934442E944841914426D7C29ABB22.PDF





https://rbidocs.rbi.org.in/rdocs/notification/

PDFs/CURRDBE74789AF9242E7B3C913EAFBADC396.PDF

Foreign Exchange Management

(Transfer or Issue of Security by a

Person Resident outside India)

(Fifteenth Amendment) Regulations,

2016.

RBI vide notification no. FEMA.377/2016-RB

dated 10th January, 2017 has made an

insertion to the existing regulation stating that

a person resident outside India (other than a

citizen of Pakistan or Bangladesh or an entity

incorporated in Pakistan or Bangladesh) may

purchase convertible notes issued by an

Indian startup company for an amount of Rs.

25 Lakhs or more in a single tranche and that

the company shall receive the amount of

consideration only by an inward remittance

through banking channels or by debit to the

NRE / FCNR (B) /Escrow account maintained

by the person concerned in accordance with

the Foreign Exchange Management (Deposit)

Regulations, 2016.

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NTF377F37181BC5130459C98E5E188

EC48E7F5.PDF

SEBI

Filing of Forms PAS-4 and PAS-5 in

case of issuance of debt securities

on private placement basis.

SEBI vide circular no.

SEBI/HO/IMD/DF1/CIR/P/2016/140 dated 23rd

December, 2017 has notified that the

companies, for the purpose of Section 42 of

Companies Act, 2013, shall make an offer or

invitation to subscribe for securities through a

private placement offer letter in Form PAS-4

and it shall maintain a complete record of

private placement offers in Form PAS-5. The

company shall also file a copy of such record

and the Form PAS-5 with the registrar and

where the company is listed, with SEBI within a

period of 30 days of circulation of private

placement offer letter.

http://www.sebi.gov.in/cms/sebi_data/atta

chdocs/1482490367327.pdf

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CURRDBE74789AF9242E7B3C913EAFBADC396.PDF



https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NTF377F37181BC5130459C98E5E188EC48E7F5.PDF



http://www.sebi.gov.in/cms/sebi_data/attachdocs/1482490367327.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1482490367327.pdf



Verdicts

Direct Taxation

Treatment of advances received by

a HUF by a closely held company as

deemed dividend.

-vide Supreme Court of India vide Gopal and Sons

(HUF) V. CIT

The Supreme Court of India vide Gopal and

Sons (HUF) V. CIT held that where a HUF

receives an advance or loan from a closely-

held company in which the Karta, who has a

substantial interest in the HUF (i.e. entitled to

20% or more of its income), is a shareholder,

such loan or advance is taxable in the hands

of the HUF as deemed dividend u/s 2(22)(e)

even if the HUF is not a registered shareholder

of the lending company.

https://www.taxmann.com/filecontent.aspx?Page=CASELAWS&id=1010100000001731

66&isxml=Y&search=&tophead=true&tophead=true

Annual value of property left vacant

throughout the year.

-vide High Court of Punjab and Hayana vide Sushma Singla V. Commissioner of Income Tax, Patiala.

The High Court of Punjab and Haryana vide

Sushma Singla V. Commissioner of Income Tax,

Patiala. held that where the assessee has

more than one property and one of the

properties is left vacant throughout the year,

the annual value of such property shall be

assessed under section 23(1) (a) and not

under section 23(1) (c) since the later deals

with the concept of real income and not

notional income (which is dealt under section

23(1) (a)).

https://www.taxmann.com/filecontent.aspx

?Page=CASELAWS&id=101010000000173021&isxml=Y&search=&tophead=true&tophead=true

Disclaimer Information in this Newsletter, charts, articles,

or any other statements regarding market or

any other financial information, is obtained

from the sources, which we feel reliable. We

do not warrant or guarantee the timeliness or

accuracy of the information. The reader shall

not take any decision based on the facts or

figures of the newsletter without professional

advice.

https://www.taxmann.com/filecontent.aspx?Page=CASELAWS&id=101010000000173166&isxml=Y&search=&tophead=true&tophead=true










►►► PHOTOGRAPH OF THE MONTH

Flamingoes at Sewri Mudflats, Mumbai.

- Clicked by M Siva Ram Prasad

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