Pre-Budget proposal of construction sector for 0-7 8 9 0 7 Direct Taxes Income Tax Introduction of Transfer Pricing provisions to domestic transaction Applicability of alternate minimum tax on persons other than corporate assessees. Unavailability of initial depreciation to construction sector. Mandatory requirements of obtaining PAN u/s 0 AA by foreign parties. Increases cost on Indian entities due to grossing up. TDS deduction @ source u/s 9C and blockage of funds Lack of clarity on availability of loss AOP in the hands of members. Double taxation of AOP / Integrated Joint Venture profits under MAT u/s JB. Unavailability of carrying back the losses Unavailability of carry forward and set off of business loss to the construction industry for merger/amalgamation. Lack of clarity for availability of depreciation or amortization for PPP/BOT projects. Ambiguity for adjusting Toll revenue against construction of additional bridge / lanes. Disallowance u/s A r.w.r. 8D of the Act Treatment of Computer Software and other payment as royalty. Higher rate of MAT to Corporates Unavailability of DTAA benefit. Unavailability of deduction u/s 80IA to construction / developer. a) The provision needs to be withdrawn b) Alternatively, clarification to be issued whether such provisions would apply : i) to transaction on Revenue account or Capital Account also ii) Only Direct subsidiaries or step down subsidiaries. This provision may be dropped or atleast project specific AOP / Joint Ventures should be excluded from AMT. Benefit should be extended. Should be dispended and compliance may be called through quarterly return and related information. Corporate entities above particular threshold limit of capital contribution may be excluded Due to divergent views, clarity for allowability of losses in the hands of members to be provided. Insertion of a new clause to exclude profit / loss of AOP from book profit - Duplication. Losses should be allowed to be carried back upto assessment years. Sec. 7A should be amended and be made applicable to all businesses and not restricted for only industrial undertaking. Asset constructed for PPP/BOT project may be treated as intangible asset entitling depreciation @ %. Toll Revenue for existing bridge / road should be allowed to be adjusted from construction of new bridge or additional lanes. a) Investment Company or SPVs should be excluded from computation of "investment" for rule 8D b) Disallowance may be restricted towards only those investment which have actually earned exempt income during the year. Application of such amendment should be prospective. Should be brought down to 7.% The overriding impact of Sec. JB should be excluding Sec. 90 ( of the Income Tax Act). a) Benefit may be reinstated
8 9 0 80 IA benefit to be extended to Road Widening projects. 80 IA benefit to be extended to Limited Liability Partnership (LLP) Limit for payment of Income Tax by civil contractors under Section AD to be enhanced to Rs,00,00,000 Since Road widening projects are in essence "New facility" - Clarification may be issued for Inclusion of "Road widening projects" as New infrastructure facility for availing exemption under 80 IA. 80 IA benefit is presently available only to a Company. Benefit may be extended to LLP The present limit of Rs 0,00,000 may be enhanced. Indirect Taxes - Central Excise Proposal for duty exemption Notification: Unavailability of Excise Duty benefit for supply of goods to Nuclear Power Projects. Amendment to 0 of Not./ 0- C.E. dated 7..: Goods sent for job work which are to be used for Captive consumption do not have Excise Duty exemption. Amendment to of Not./0 dated 7..0: Unavailability of Excise exemption for water supply Project:. Clarification to of Not./ 0- C.E. dated 7..0: Ambiguity for Excise exemption on concrete mix manufactured at site. Presently deemed export benefit is available only for supply of Capital Goods. All goods supplied to Nuclear Power Projects should be entitled to Excise Duty exemption. All goods fabricated at site and used in construction work are exempt from Excise. Any such goods sent out for testing, galvanizing should also be clarified to enjoy such exemption. The Excise exemption which is presently available only for water treatment plant may be extended to all Units of water supply Project. Site should be given liberal meaning for manufacture of concrete mix to be used in construction project as given for prefabricated structures. Indirect Taxes - Service Tax Amendment to following s of Not. /0-S.T. dated 0..0:. ('c) Exemption for construction of civil structure predominantly used by Educational / Clinical or an Art & Cultural establishment. (d) Restriction of exemption for construction of canal, dam or other irrigation work to only Government or local authority or a governmental authority.. (e) Unavailability of exemption for Pipeline, Conduit or Plant for Drinking water, Water Treatment Plant, Sewage Plant. Presently the exemption is allowed only to Government, Local authority. Or Governmental authority. It should be extended to all entities who are carrying out these activities not for the purpose of profit. Exemption benefit should be extended to all entities engaged in such work or atleast to State/ Central Government Enterprises / Undertakings. Alternatively benefit should be atleast continued for ongoing contracts. Exemption benefit should be extended to all entities engaged in such work or atleast to State/ Central Government Enterprises /
7 8 9 0 (a) Restriction of exemption for construction of road, bridge, tunnel, terminal if it is used for general public. (a) Mega exemption in relation to Airport, Port or Railways does not include completion, fitting out, repair, maintenance, renovation or alteration as is available under other mega exemption. (b) Exemption is available for single residential unit only in a residential complex. Proposal for exemption Notification: Site formation, excavation etc finds no specific mention for exemption. (f) Unavailability of exemption for construction of residential quarters for staff other than employees of Government authorities. Amendment to Not.0/0-S.T. dated 0..0: Difficulty in implementing the partial Reverse Charge Mechanism from discharge of tax and accounting. Rule (A) of Not./0-S.T. dated 0..0: Disqualification from export of service for non receipt of consideration in foreign convertible currency for project executed in neighboring countries. Clarification to service provided within SEZ: Late receipt of A- Form and doubt in availability of Service Tax exemption for services provided in SEZ by sub-contractors. Amendment to Cenvat Credit Rules, 00: Applicability of Reverse Charge Mechanism to AOP / Un-integrated JV's and lapse of Cenvat Credit. Amendment to Sec.7A of Finance Act, 99: Increase burden of special audit over and above other audits. Undertakings. Alternatively benefit should be continued for ongoing contracts. a) Construction of road, bridge, tunnel are part of infrastructure projects. Hence: b) The benefit should be extended based on nature of activity as all such infrastructure projects are effectively for general public use. c) Alternatively benefit should be continued for ongoing contract post 0/07/0 Similar to Mega exemption provided under & for canal, dam, irrigation work, road, bridge etc. other service like completion, fitting out, repair, maintenance, renovation or alteration etc should also be included for exemption. Exemption may be restored upto dwelling units in the complex as allowed earlier.. Site formation, clearance, excavation, earthmoving and demolition should continue to get exemption without which exemption granted for road, bridge etc. would be not viable. Exemption may be restored as there cannot be service to self. The responsibility of payment of Service Tax liability should be kept either with the service provider or service receiver fully for supply of manpower, works contract services, security service etc. The requirement of receipt in foreign exchange may be dispended for export of service to neighboring countries like Nepal, Bhutan, Sri Lanka etc. To overcome administrative difficulties for late receipt of A Form, same should have effect retrospectively though issued late. Also benefit of exemption should be clarified to be available to Sub-Contractors working in SEZ and undertaking similar jobs. JV's should be excluded from applicability of Reverse Charge Mechanism as projects specific JV's will be left with huge Cenvat Credit to be used as 0% of the Service Tax liability will be deposited be service receiver whereas service tax charged by subcontractor will be available as credit in the hands of JV. Provision be deleted since trade is already overburdened with other audits, monthly returns and compliances etc.
7 8 9 0 Indirect Taxes - Service Tax Amendment to Not. /0-S.T. dated..0: Lack of clarity on option to follow Service Tax discharging method for payment of Service Tax for Works Contract. Clarification to (h) of Negative List: Ambiguity on payment of Service Tax on receipt of annuity / grant or user fee under BOT projects. Amendment to Sr, of Not. No/0-S.T. dated 0..0: Exclusion of management of road from the Mega Exemption. Amendment to (x) of Service Tax (Determination of Value) Rules, 00 Possible applicability of Service Tax in payment of demurrage penalty, liquidated damages. Amendment to Not.8/0-S.T. dated 0..0: Ambiguity in POPS Rules. Clarification to Cenvat Credit Rules, 00: Denial of Cenvat Credit on Capital Goods used in taxable and non taxable project. Clarification to (h) of Negative List: Ambiguity on Service Tax exemption for collection of toll charges. Clarification to Sl No 9 (sub clause- h) of Mega Exemption Suitable clarification is required to the effect that when sub-contractor is providing pure services to main contractor, the same would also be exempt from service tax. Amendment to Rule (h)(a) & (i) (a) - Place of Provision of Services Rules (POPS) 0 - For services carried out in Non Taxable territory ( J & K) Ambiguity in the definitions of location of Service Provider / Receiver as well as other rules of Place of Provision (POPS) rules with regard to services provided to a Non- Taxable Territory ( say J & K) A clarification may be issued for availability of such option i.e., either assessment option or composition option as was existing prior to 0/07/0. For construction of BOT projects consideration is paid by way of toll fee or annuity. Clarification may be issued that apart from toll/access fee, annuity/ grant or user fee is also not liable to Service Tax. The erstwhile exemption for management of road is missing though erection, construction maintenance, repair of road continues to get such exemption. Since these payment are not towards rendering any service but for not rendering service in time, same should be clarified to be outside purview of Service Tax. a) Rule 8 of POPS Rules may be suitably amended to clarify that projects executed in non-taxable territory i.e. J&K would not become taxable by virtue of obtaining centralized registration by assessee. b) Rule should be amended to suggest that rule which is specific would prevail over applicability of general rule. Similar to provisions of Sec A earlier applicable. Clarification may be issued on Cenvat on Capital Goods to be allowed to be utilized in the year of use of relevant Capital Goods in taxable projects instead of judging in the year of purchase alone. Toll collection is a statutory levy, same should be exempt from levy of Service Tax irrespective of the entity which recovers toll. Clarification required exempting services provided by sub-contractor with regard to following services listed in Mega exemption :- a) Sl No - Services provided to Government / Governmental authority b) Sl No - Services provided in relation to construction of road, bridge etc. c) Sl No - Services provided in relation to construction of Railway, Airport, Port etc Relevant Rules may adequately be amended so as to exclude Non-Taxable territory from the ambit of service tax, because Service Tax is consumption based tax and the principal cannot be different for the holder of centralized registration The POPS cannot take away the Situs of Service provided by merely on the basis of Centralized registration / Business establishments.
Indirect Taxes - Customs Amendment to of Not./0- Cus. dated 7.0.0: Unavailability of exemption to drinking water supply projects as available for Water supply project for agriculture and industrial use. Amendment to Customs Not. /8-Cus. dated..98: Restriction for import of goods from Bhutan used for project imported in Bhutan otherwise than India. Amendment to 8 List of Not. / 0-Cus. dated 7.0.0: Unavailability of exemption on import of tunnel form work, loaders and excavators in some cases. Unavailability of exemption for equipment for tunneling work in Hydro, underground storage of water supply project & underground metro railway projects. Amendment to Condition 9 of 8 of Notification /0-Cus. dated 7.0.0: Difficulties for availing exemption to the sub contractor without name being included in the Concession Agreement Not. /0 CUS. Excessive Custom Duty on Cement and Steel for construction of Highways. Compulsion for obtaining Form 'F' for Branch Transfer of equipments, plant etc. Unavailability of 'C' Form benefit for purchase of Plant & Machinery to Construction Industry Difficulties in obtaining 'C' Form within end of next quarter. Unavailability of Form 'I' benefit to developer to SEZ unit. Contraversy raised by certain States in accepting the statutory nature of inter-state transaction meant for works contract by treating it as intra-state. The exemption should be available for all stages of water supply projects consisting of water pumping stations, water treatment plant, water storage facility and pipeline for delivery of water instead of one of the stages i.e. Water treatment plant. Goods should be allowed to be imported from Bhutan used in projects, without requiring prior approval from CBSE. Item may be reworded to read as: Item, Loaders, - Excavators, - Stage crusher, - Drilling Jumbo, - Shortcrete machine and 7 - Tunnel Formwork. As allowed for road project, considering importance of these projects, exemption be granted to various tunneling and excavation and lining equipment. Since sub contractors are finalized post award of contracts, the condition that sub contractors name should be included in concession agreement should be dispended with. Import duty on steel bars & rods and cement be allowed at NIL customs duty without levy of SAD and CVD for the Construction industry. Central Sales Tax a) For goods such as Plant & Machinery, Tools etc. which are not intended for sale, requirement of Form 'F' may be dispended with. b) Apart from Form 'F' alternate mechanism / documentation substantiating movement of stock transfer should be permitted as was available earlier. Similar to manufacturing sector benefit of 'C' Form be extended to Construction Industry as well. a) Instead of issue of 'C" Form a self declaration alongwith relevant TIN references may be provided in a self declaration for movement of goods. b) Alternatively copy of attested 'CST' Registration Certificate reflecting inclusion of relevant goods may be provided alongwith a invoice / delivery challan. c) Responsibility may be jointly fixed on buyer to issue 'C' Form within stipulated time. The benefit of Form 'I' should be extended to developer and to SEZ unit apart from registered dealers. Explanation- to Section-() of CST Act 9 Consignment note be drawn directly in favour of ultimate consignee instead of the immediate intermediary, such transaction shall be deemed to be the sales in the course of inter-state sales for the purpose of section () of the Act.