Applicability of CST/ VAT on E-Commerce Transactions:

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1 Applicability of CST/ VAT on E-Commerce Transactions: The business model of e-com firms is they provide a platform for enabling sellers of goods to be able to sell without boundaries of location across the Country and at times the world at large. E- Com companies may not engage in directly selling goods to end customers. There has been a lot of controversy surrounding the operations of online retailers in India such as Amazon and Flipkart. Normally, e-commerce company (e-com co) charges commission / delivery charges and undertakes to facilitate the transaction. They may in some cases perform packing and marketing / delivery of the goods to the final consumer directly or indirectly. The invoices are made by the independent sellers directly to the customers. The sellers could be keeping the goods stored in racks /shelves of the common warehouse of e-com companies in each State. The Commercial Taxes department in states such as Karnataka is not able to keep track of the on-line sales made and values at which goods are sold. They are questioning the registration being taken by more than 1 seller in the address of warehouses operated by the e-com companies. Also States are examining whether by reason of the fact that the sale completes in their State, they can collect the local taxes. The main objection of the States in an e commerce transaction comes when goods from outside the State are sold within the state is that they get nothing. As far as CST law is concerned, goods purchased online would be liable to CST ONLY where they move from one state to another as a consequence of sale. Therefore ONLY the originating State would get revenue. This is so even in case of Cash on delivery where the consumer may refuse the consignment. The Supreme Court has held that VPP is a CST sale. Some States such as Maharastra and Assam are examining how to collect Local Body Tax or Entry Tax on goods under e commerce. Legally this may not be possible as on date as long as there is no undervaluation of goods. In some States like Kerala they have as far back as 2004/5 identified that couriers who carry goods need to register and file online information before entry into the State. From 2011 this procedure has been pushed and now it is being insisted on. As CST/ VAT are leviable on sale of goods, the sustainability of VAT levy on E-com transaction are examined below: When is VAT levy attracted? The charging section 3 of K-VAT Act states the tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act. Therefore to be covered under the levy of K-VAT, there should be a sale of goods. KVAT is leviable on the sales within Karnataka. There has to be a transfer of property in goods for cash, deferred payment or other valuable consideration, by way of sale within the State by the registered dealer or dealer liable to be registered to attract VAT liability. Who is liable to pay VAT? The tax is levied on sale of goods within State by registered dealer or dealer liable to be registered.. As per Section 8 the 'agents' are also liable to pay tax. The tax is payable only by a person who is a dealer. Dealer is any person who carries on the business of buying, selling, supplying or distributing goods, directly or indirectly, for cash or for commission, remuneration or other valuable consideration. It also includes a casual dealer, commission agent, broker, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal. It also covers every person who acts as agent of a non-resident dealer. The agents effecting purchase or sale of taxable goods on behalf of any principal who is resident in Karnataka are liable to VAT on such transactions, even if the principal is not dealer or his turnover is less than the specified turnover for registration under KVAT Act. In respect of such transactions, the principal is not liable to pay VAT. This provision is not applicable to the commission agents acting as selling or buying commission agents on behalf of non-resident principals.

2 Though the transfer of property in goods does not take place from the e-com co. At same time, if ecommerce co is engaged in distributing or supplying, handling goods of merchant to the end consumer, then it could be considered to be dealer under VAT laws of State. In which case ecommerce co could be treated as a dealer to that extent. In such cases there maybe no liability to pay and therefore unless the Commercial taxes dept. wishes to monitor these transactions they may not insist on e com companies to register. Whether service tax is leviable on e-com companies? The Service tax is certainly applicable as they are marketing intermediaries providing/ facilitating sales. The transport facilitators and couriers could BOTH be liable as couriers and the 75% abatement may not be available as the transaction would be time sensitive and has door to door delivery built in. The amount charged by the logistic companies for warehousing would also be available to service tax. Service providers may examine the possibility of credit of excise duty/ CVD paid on the capital equipment such as rack, vehicles and other specialized inputs in addition to input services which they are presently availing. Way forward Instead of driving out investment, a possible measure to ensure better transparency and compliance could be to issue branch registration to dealers warehousing with e-com cos, and collection of applicable CST/ VAT on their transactions. The e-com firms could be required to disclose the information about all transactions done on their platform. State to be able to satisfy itself that all the transactions are covered as well as no undervaluation is taking place. By: Bharat Gosar REVISION OF SERVICE TAX RETURNS SERVICE TAX : There was no provision to file revised return in Service Tax law up to Rule 7B had been inserted in Service Tax Rules, 1994 vide Notification No. 01/2007-ST dated w.e.f , which provides for revision of returns. Rule 7B allows an assessee to rectify mistakes or omission and file revised return within 60 days from the date of filing of the original return. Rule 7B provides as follows - An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of60 [90 w.e.f ] days from the date of submission of the return under rule 7. Explanation: Where an assessee submits a revised return, the relevant date for the purpose of recovery of service tax if any, under section 73 of the Act shall be the date of submission of such revised return. This rule is effective from 1st March, The return Form ST-3 should also indicate whether it is an original return or a revised return. Time Period W.e.f , Rule 7B of Service Tax Rules, 1994 had been amended vide Notification No. 4/2008-ST dated to provide file for filing of revised return to correct mistake or omission within a period of 90 days instead of 60 days as stipulated prior to Thus, w.e.f , revised returns can be filed within a period of 90 days from the date of submission of original return. It may be noted that the period of 60 or 90 days shall be reckoned from the date of filing the return and not from the due date of filing the return. Also once a return has been filed before due date, it can be revised within 60 or 90 days as the case may be, on a date which may fall later than the last date of filing the returns. In such a case, there could be a question that whether prescribed late fee has to be remitted while furnishing the revised return. In absence of any provision to this effect, it is opined that late fees may not be applicable in case of revised returns. It has also been provided that where an assessee submits a revised return, the relevant date for the purpose of recovery of service tax under section 73 shall be the date of submission of revised return and not the date of

3 submission of original return. (1) In Ceolric Services v. CST, Bangalore 2011 (2) TMI CESTAT, BANGALORE, where service tax return was revised after a lapse of 11 months of filing original return and whereas Rule 7B of Service Tax Rules provides for 90 days time for such revision, it was held that considering the provisions of Rule 7C which provide for amount to be paid for delay in furnishing the revised return, revised return can not be ignored simply because same was filed after the period provided in Rule 7B. (2) In Zeus Infra Management (P.) Ltd v. CST, New Delhi [2014 (11) TMI CESTAT NEW DELHI], where assessee had filed a revised return after expiry of time-limit specified in Rule 7B and department said that adjudication could not be made on the basis of belated return, it was held that law has to operate for proper application to determine tax liability on facts settled. If facts and circumstances establish that there was proper discharge of tax liability and Cenvat credit was available in accordance with law and also those aspects were evident from record, there would be no difficulty to pass appropriate adjudication order. The Tribunal refrained from deciding whether authority should act on belated revised return or on original return and remanded the matter back for fresh decision. BELATED RETURNS IN SERVICE TAX Furnishing of Belated Returns (Rule 7C) Finance Act, 2007 had amended section 70(1) w.e.f for belated furnishing of service tax returns on payment of prescribed late fees which shall not exceed 2000 (Rs. 20,000 w.e.f as amended by the Finance Act, 2011). Simultaneously, section 94(2) had also been amended so as to empower the Central Government to make rules to prescribe the form, manner and frequency of service tax returns to be furnished and the prescription of late fees for delayed furnishing of returns by the assessees under section 70(1). Ministry of Finance (TRU) vide letter No. 334/1/2007-TRU dated explained the amendment as follows : At present filing of a return after the due date is treated as a violation and is liable for penal action. It is proposed to prescribe a specified amount of late fee linked to period of delay for filing of return after the due date. The assessee is required to pay the amount prescribed depending upon the period of delay. For this purpose, section 70(1) is being amended. After the proposed amendment in section 70(1) comes into force, appropriate rules will be notified indicating the conditions and the amount to be paid for delayed filing of return. Whereas late filing of returns under section 70 has been allowed by Finance Act, 2007, Notification No. 20/2007- ST dated has inserted new Rule 7C in Service Tax Rules, 1994 so as to provide for amount to be paid for delay in furnishing the prescribed return under section 70. Prescribed fees:prescribed late fee as per Rule 7C shall be as under - * Delay of 15 days (from the last due date) 500 * Delay of more than 15 days but up to days (from the last due date) * Delay of more than 30 days 1000 plus 100 per day (from the Last due date) of delay from the 31st day till the date of furnishing the return. W.e.f , Rule 7C empowers the Central Excise Officer to use his discretion to reduce or waive the penalty for delayed filing of return, where the gross amount of service tax payable is nil (Vide Notification No. 4/2008-ST, dated ). It may be noted that the Finance Act, 2011 had enhanced the amount of maximum late fee to 20,000. w.e.f Rule 7C stipulates that- (a) such payment of late fee is fixed and no discretion vests on lowering or enhancing of amount. (b) It is for the assessee to opt for the late fee payment made to avoid penal proceedings. (c) If the late fee amount as aforesaid is paid, penal provisions for delayed submission of return shall be deemed to be concluded and no penalty be levied. (d) The amount of late fee is linked to period of delay but the maximum amount is only 2000 irrespective of days of delay. (e) In case of pending proceedings, if the late fee is paid within 60 days from , such pending proceedings shall be deemed to be concluded.

4 Time Period W.e.f , Rule 7B of Service Tax Rules have been amended vide N. No. 4/2008-ST dated to provide file for filing of revised return to correct mistake or omission within a period of 90 days instead of 60 days as stipulated prior to Thus, w.e.f , revised returns can be filed within a period of 90 days from the date of submission of original return. Earning interest through leased vehicles - as interest on loan is exempted from ServiceTax in terms of sec. 67 & rule 6(2)(iv): MUMBAI : The appellant is non-banking Finance Company and engaged in the activity of providing services of hire purchase and financial leasing of commercial vehicles. The service provided by the applicant is having three components namely, Principal, Interest amount & Processing/Management fees. The applicant is paying service tax on processing/management fees of the service provided by them. They are not paying service tax on principal and interest. Revenue is of the view that as the applicant is engaged in financial leasing service, therefore, as per notification No. 4/2006-STdt , the applicant is entitled for 90% exemption of the interest charged by them and remaining 10% collected by them is includible in the taxable service. SCNs were issued and the demands were confirmed by the CST, Mumbai-I. Before the CESTAT the applicant submitted that as per decision of apex Court in Association of Leasing& Financial Service Companies vs. Union of India TIOL-87-SC-ST-LB SC-ST-LB.htm, the applicants are nothing but a company engaged in the business of financing loan and as per s. 67 of the Finance Act, 1994, interest on loan is not includible in taxable service. It is further submitted that in 2006, Service Tax Valuation Rules were introduced and as per Rule 6(2)(iv) of the said Rules, the interest on loan was not includible in taxable service. Therefore, the applicants are not required to pay service tax on interest component and, therefore, waiver of pre deposit be granted. he AR opposed this contention and submitted that as the applicant is engaged in the activity of financial leasing service, the demand raised and confirmed is proper and, therefore, the applicant should be directed to make pre deposit. The Bench observed Prima facie we do agree with the contention of the Ld. Counsel for the applicant that applicant is engaged in the activity of giving loan for earning interest through leasing the vehicles under financial leasing services. As per explanation to Section 67 of the Finance Act, 1994, interest on loan is exempted from service tax is not to be included in the taxable service and same has been followed by Rule 6 (2)(iv) of the Service Tax Valuation Rules, holding that the applicant has made a prima facie case, the requirement of pre deposit was waived and stay was granted from recovery of the adjudged dues. Make note: Notification. 4/2006-ST was rescinded by notification 34/2012-ST dated w.e.f and the ST Valuation Rules, 2006 came into being by notification12/2006-st dated INVOICES UNDER SERVICE TAX : Time period for raising an Invoice:Rule 4A states that every person providing taxable service, not later than fourteen days from the date of completion of such taxable service, or receipt of any payment towards the value of such taxable service whichever is earlier, shall issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorized by him in respect of such taxable service provided or to be provided and such invoice, bill or as the case may be, challan shall be serially numbered. Commissioner of Service tax, New Delhi had vide Trade Notice No. 15/ST/2011 dated clarified that as per Service Tax Rules, 1994, an invoice should be issued within a period of 14 days from the completion of the taxable services. The invoice needs to indicate inter-alia the value of service so completed. Thus, it is important to identify the service so completed. This would include not only the physical part of providing the service but also the

5 completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice. Such auxiliary activities could include activities like measurement, quality testing etc., which may be essential prerequisites for identification of completion of service. The test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. However, such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice. The above interpretation also applies to determination of the date of completion of provision of service in case of continuous supply of service. W.e.f , the time period for issuance of invoice has been increased from 14 days to 30 (thirty) days. For banks, financial institutions, non-banking finance companies etc. providing banking and other financial services, time period within which the invoice, bill or challan is to be issued shall be 45 (forty five) days. (Refer Notification No. 3/2012-ST, dated ). Contents of an Invoice : Rule 4A states that the Invoice shall contain the following - * (i) the name, address and the registration number of such person, * (ii) the name and address of the person receiving taxable service, * (iii) description, classification and value of taxable service provided or to be provided, and * (iv) the service tax payable thereon. In CCE, Surat-I v. Shree KhedutSahakariKhandUdyogMandli Ltd (12) TMI CESTAT AHMEDABAD, where insurance policy showed the amount of premium and amount of Service Tax paid and documents were serially numbered as insurance policy always has a serial number, it was held that such document showed all necessary details and complied with Rule 4A of Service Tax Rules, Consequently CENVAT credit was to be allowed. Life Insurance Policy Notices are not Invoices Vide Circular No. 166/1/2013-ST dated , CBEC has provided a clarification in respect of notices / reminders issued for life insurance policies to the effect that the reminder letters/ invoices for insurance policies not being invoices under Rule 4A of the Service Tax Rules, 1994 would not invite levy of Service Tax. Following are the extracts of circular This clarification is issued only for life insurance sector. It has been represented by life insurance companies that in terms of the practice followed, reminder notices / letters are being issued to the policy holders to pay renewal premiums. Such reminder notices only solicit furtherance of service which if accepted by policy holder by payment of premium results in a service. Clarification has been desired whether service tax needs to be paid on the basis of such reminders. The matter has been examined. Under the Point of Taxation Rules 2011, the point of taxation generally is the date of issue of invoice or receipt of payment whichever is earlier. The invoice mentioned refers to the invoices as issued under Rule 4A of the Service Tax Rules No tax point arises on account of such reminders. Thus it is clarified that reminder letters/notices for insurance policies not being invoices would not invite levy of service tax. In case of issuance of any invoice, point of taxation shall accordingly be determined." Goods Transport Agency In the case of provider of taxable service is a Goods Transport Agency, providing service to a customer, in relation to transport of goods by road in a goods carriage, an invoice, a bill or as the case may be, a challan shall include any document by whatever name called, which shall contain the details of the consignment note, number and date, gross weight of the consignment and also contain other information as required under this law. Rule 4B states that any Goods Transport Agency which provides service in relation to transport of goods by road in a goods carriage shall issue a consignment note to the customer. Where any taxable service in relation to transport of goods by road in a goods carriage is wholly exempted, the Goods Transport Agency, shall not be required to issue the consignment note. Consignment note means a document issued by Goods Transport Agency, against the receipt of goods for the purpose of transport of goods by road in a goods carriage which is serially numbered and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax, whether consignor, consignee or the Goods Transport Agency. Aircraft Operators

6 According to fourth proviso to Rule 4A of Service Tax Rules 1994, in case of aircraft operators providing the service of air transport of passengers, an invoice, bill or challan shall include an air ticket in any form and called by whatever name which may or may not contain the registration number of service provider, classification of taxable service received and address of service receiver but it must contain the other information in such documents as required in Rule 4A (vide Notification No. 39/2010-ST dated ). Continuous Services Where any payment towards the value of taxable service is not received, and such taxable service is provided continuously, for successive periods of time and the value of such taxable service is determined or payable periodically, an invoice, a bill or as the case may be, a challan shall be issued by a person providing such taxable service, not later than fourteen days, from the last day of the said period. Input Service Distributor Every input service distributor distributing credit of taxable services, shall, in respect of credit distributed, issue an invoice a bill, as the case may be, a challan signed by such person or a person authorised by him, for each of the recipient of the credit distributed, and such invoice bill or as the case may be, challan shall be serially numbered and shall contain the following namely - * (I ) the name, address and registration number of the person providing input services, and the serial number and date of invoice, bill or as the case may be, * (ii) the name and address of the said input service distributor, * (iii) the name and address of the recipient of the credit distributed, * (iv) the amount of the credit distributed. Input Service Distributor being a Banking Company In case the input service distributor is an office of a banking company, or a financial institution including a NBFC or any other body corporate or commercial concern, providing service to a customer, in relation to banking and other financial services an invoice, a bill or as the case may be, challan, shall include any document whatever name called whether or not serially numbered, but containing other information in such document as required under this law. Consignment Note No. Clarification on availing of Cenvat Credit: CBEC clarification regarding availment of Cenvat credit on Inputs/ Input Services after six months The CBEC vide Notification No. 21/2014-CE (NT), dated July 11, 2014 (Applicable w.e.f September 1, 2014) [ Notification No. 21 ], has amended Rule 4(1) and Rule 4(7) of the Cenvat Credit Rules, 2004 ( the Credit Rules ) to fix a time limit of six months from the date of issuance of any of the documents specified in Rule 9(1) thereof, for availment of the Cenvat Credit on Inputs and Input Services. The CBEC vide Circular No: 990/14/2014-CX-8 dated. November 19, 2014 ( the Circular ) has clarified that the purpose of the amendment made by Notification No. 21 is to ensure that after the issuance of a document under Rule 9(1) of the Credit Rules, Cenvat credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. The relevant text of the Circular is reproduced here in below: 2) Concerns have been expressed by trade that in view of above changes, the re-credit taken in following three situations may be hit by the time limit of six months prescribed: i. 3rd proviso to Rule 4(7) of CCR, 2004 prescribes that if the payment of value of input service and service tax payable is not made within three months of date of invoice, bill or challan, then the CENVAT Credit availed is required to be paid back by the manufacturer or service provider. Subsequently, when such payment of value of input service and service tax is made, the amount so paid back can be re-credited. ii. According to Rule 3(5B) of CCR, 2004, if the value of any input or capital goods before being put to use on which CENVAT Credit has been taken, is written off or such provisions made in Books of Account, the manufacturer or service provider is required to pay an amount equal to credit so taken. However, when the inputs or capital goods are subsequently used, the amount so paid can be re-credited in the account. iii. Rule 4(5)(a) of CCR, 2004 prescribes that in case inputs sent to job worker are not received back

7 within 180 days, the manufacturer or service provider is required to pay an amount equal to credit taken on such inputs in the first instance. However, when the inputs are subsequently received back from job worker, the amount so paid can be re-credited in the account. 3) The matter has been examined. The purpose of the amendment made by Notification No. 21/2014-CE (NT) dated is to ensure that after the issue of a document under sub-rule (1) of Rule 9, credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document. It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules. Other Open issues Not clarified:even though the CBEC has clarified non-applicability of six months time limit while availing re-credit in terms of the Credit Rules but, there are certain other issues still exists in this regard, which requires immediate attention of the Board: SSI Unit crossing Exemption limit: In terms of Rule 3(2) of the Credit Rules, a manufacturer or producer of final products is allowed to take Cenvat credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock, on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable. Issue: Where a manufacturer availing SSI exemption, crosses the exemption limit, whether transitional credit is available if the invoices under which the above category of inputs were purchased are beyond six months from the date of taking Cenvat credit? Cenvat credit on goods received after re-conditioning, repairs, etc.: Under Rule 16 of the Central Excise Rules, 2002, where any goods on which duty had been paid at the time of removal are brought to any factory for being remade, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if the goods are received as inputs under the Credit Rules and utilize the Cenvat credit according to the Credit Rules. Issue: Whether the newly added proviso to Rule 4(1) of the Credit Rules, which talks about inputs, would apply to Cenvat credit taken on finished goods received by the manufacturer in the factory beyond 6 moths of its removal from the factory? Invoices issued prior to September 1, 2014: Notification No. 21 amending Rule 4(1) and Rule 4(7) of the Credit Rules is effective from September 1, Issue: Whether the time limit of six months prescribed for availing Cenvat credit would apply to the invoices issued prior to September 1, 2014? We request esteemed readers to write back to us for any other related issue(s) pertaining to time limit of 6 months for availing Cenvat credit on Inputs and Input Services in the light of Notification No. 21 read with the Circular issued by the CBEC. By: Dr. SanjivAgarwal Complied by : ArvindDhanani Disclaimer The information contained in this message may be confidential. IF you are not the intended recipient, any use,interference with, disclosure or copying of this material is unauthorized and prohibited. Although this message and any attachments are believed to be free virus, no responsibility is accepted by signatory for any loss or damage arising in any way from receipt or use thereof. Messages to and from the company are mentioned for operational reasons and in accordance with lawful business.