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VOL. XXIX No. 3
MARCH, 2012
A MONTHLY JOURNAL FOR CORPORATE EXECUTIVES & PROFESSIONALS
...
2012-13
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2. CHAIRMAN'S COMMUNIQUE
Dear All,
"Leadership is the process of keeping your vision and values before you and
aligning your life to be congruent with them.” – Stephen Covey
It was an exciting month to begin with. On witnessing
the enthusiasm of peer young friends, guidance by
elderly seniors and participation of one and all,
my hopes and desires soar greater heights. Yes, I
am equally aware of the challenges - be it relating
to infrastructure or servicing galloping number of
students or brand buiding framework at regional
level. I am reminded of the saying, “uneasy lies the
head that wears the crown”.
Well... challenges are gallore but I firmly believe,
challenges and opportunities go hand in hand.
Immediately after the WIRC Executive Committee
assumed charge effective 19th January this year,
we took stock of the situation and firmed up action
plan for the year 2012. Let me share broadly some
of the new activities / initiatives of WIRC so far this
year. To begin with, a high profile program at BSE International Conventional Hall was a motivation booster for
members, students, organisers, convenors and WIRO-staff. The program was graced inter alia by M/s. Ananta Barua,
Executive Director, SEBI,
P K Malhotra, Acting
Presiding Officer, SAT,
Ashish Chauhan, Dy. CEO,
BSE. Interaction with M/s.
Nesar Ahmad, President,
S N Ananthasubramanian,
Vice President, and N K
Jain, Secretary & CEO,
ICSI was added attraction.
Quality backgrounder
circulated to participants
was appreciated by one
and all. We are thankful
to BSE for supporting and
hosting this program.
We have increased the
professional development programs – both in quality and numbers. Study circle meeting started at Borivali received
overwhelming response. Study circles are now being conducted at 7 locations, viz. WIRO, Dadar, Andheri, Malad,
Borivali, Bhayander and Ghatkopar.
Republic day celebration coupled with blood donation
camp and free health check-up (ECG, sugar, BP and
general) emphasizes our focus on ‘health, sports & culture’
initiatives.
One of the significant milestone we achieved was
revamping ‘Focus’ – from "few pages" to "more than 50
pages" Journal for corporate executives & professionals.
The new ‘Focus’ with various value added features is being
well appreciated. Complements to the Focus editorial team Career
led by Mr. Amit Kumar Jain for putting thoughts into
action. I appeal members to contribute columns and also
help us secure sponsorships/ advertisements so that the
quality and content can be improved on a sustained basis.
Increasing number of students served with dedication and attention resulted in ‘zero waiting list’ for SIP / EDP.
Three new centres have been opened under the Public Private Partnership (PPP) model at Mumbai, Raipur and Vapi.
PPP centres are also proposed to be used as extended centres for exam forms, CC collection etc. Of course, these
initiatives need to be broad based and much more need to be accomplished in students’ servicing areas.

3. CHAIRMAN'S COMMUNIQUE (contd.)
Small steps towards brand building and
visibility of Institute included a press
conference organised by WIRC, which was
addressed by the President, Vice President,
Secretary & CEO, ICSI and the undersigned. ‘FOCUS’
Further, select WIRC programs were covered
by business dailies. We need to work a lot
more in this direction!
On a general note, the regulatory landscape
continues being dynamic and evolving. We
witnessed important changes in combination
norms of newly set in anti-trust law. Finally,
regulations were amended exempting group
mergers from CCI scrutiny – great relief
to corporates! On taxation front, some of
the important rulings were pronounced
including that on taxation of indirect
transfers (Vodafone case), slump sale with
negative networth and advance ruling on
taxation of buy back of shares of a wholly-
owned subsidiary by holding company. And
finally, the Union Budget was presented, ’
with various provisions – prospective
and retrospective! Some of the proposed
provisions like general anti avoidance
rules, taxation of indirect transfer of shares,
negative list for service tax and the like are
likely to have far reaching impact on Indian
economy.
I am sure, by the time you would be reading
this, you would have analysed the impact
of budget and ensuing challenges and
opportunities. We will continue to be in
touch over more and more updates and
developments. Meanwhile, do write at:
career
cschairman.wirc@gmail.com
Your suggestions and inputs would help
achieve the overall objectives towards our
theme of the year 2012 – “Educate, Empower
& Execute”.
Best Wishes,
Sincerely
Mahavir Lunawat
Chairman - ICSI-WIRC
March 16, 2012
i
March, 2012

4. FROM THE EDITOR
Dear Readers,
“Vision without action is a day dream,
Action without vision is a nightmare”
Q uite humbly I would like to acknowledge that we have started our
journey quite courageously with a just sense of integrity. Holding
the Office of Editor of Monthly Journal of largest Regional Council under
the dynamic leadership of our young, vibrant and inspiring Chairman,
Mr. Mahavir Lunawat, is really enthralling. Keeping the trust and confidence
reposed on us, we are making all efforts to enrich you with meaningful
contents. After coming out with the first issue and overwhelming response
from our members and guest columnists across the region, the responsibilities
get enhanced with the expectations. This time we have prepared a bouquet
of topics like New Opportunities in KPO industry etc. to indicate the new
avenues available for our members to explore.
To enhance the well established visibility of our profession we have also
started presenting FOCUS to different regulators like CLB, ROC, Sales tax
Department, Income Tax Department, Service Tax Department, Excise &
Custom etc in all the States of the Western Region.
FOCUS indeed is a knowledge bank which is growing day by day to enhance
the Academic treasure of the readers and can also be considered as an
effective medium for the companies / placement agencies which are looking
for Company Secretaries in Employment, as it hit directly to the target group
of people across the region alongwith brand building exercise. To increase
the placement opportunities and its wider publicity, I urge the members to
give more advertisements for vacancies of Company Secretaries in FOCUS.
It is not only a monthly journal but also a voice of WIRC covering news
and announcements and all concerned information of the entire region, and
together we can make it stronger and appealing.
Budget for the year 2012 is out now. Budget is always considered as a topic
which touches every individual whether professional or not and we tried our
best to present separate analysis of Direct and Indirect taxes and Impact of
budget on the overall economy.
CS Amit Kumar Jain
“Would you like me to give you a formula for success? It’s quite simple, really. Double your rate of
failure. You are thinking of failure as the enemy of success. But it isn’t at all. You can be discour-
aged by failure or you can learn from it, So go ahead and make mistakes. Make all you can. Because,
ii remember that's where you will find success.” - Thomas J. Watson
March, 2012

5. EDITORIAL ADVISORY BOARD CONTENTS
EDITOR : CS AMIT KUMAR JAIN MESSAGES
Chairman's Communique
MEMBERS : CS B RengaNAthan
From the Editor
CS Dr. D. K. Jain
CS Hemant Pandya LEGAL WORLD
CS Kaushik Jhaveri 1 Case Laws
CS M. G. Subramaniam
2 Circulars and Notifications
CS N. Hariharan
CS Rajkumar Adukia 3 Legal updates
CS R. Kalidas CORPORATE governance
CS S. D. Israni
4 Appointment and Cessation of Auditors
CS Suresh Vishwanathan
CS Yogesh Chande union budget 2012-13
6 Direct Taxes
EX-Officio : CS MAHAVIR LUNAWAT 8 Indirect Taxes
MEMBERS CS ragini chokshi
10 Service Tax
WIRC of ICSI Premises, 14 Outlook on Economy
No.13, 56 & 57, SEBI LAW & Capital market
Jolly Maker Chambers No.2,
Nariman Point, Mumbai - 400 021. 16 Offer for sale by promoters through stock exchange mechanism
Tel. No.: 22047604 / 22047580 18 Structured Products - An innovative instrument
Email: wiro@icsi.edu; sudipto.pal@icsi.edu
CORPORATE law
Monthly TARIFF for advertisement 20 Regularisation of Share Capital in a Company
in Focus OTHER EMERGING AREAS
Type Size Employment Non 23 India and the KPO Industry
Employment
Inside Front Cover Page 18 x 18 20,000 30,000 SOFT & COMMUNICATION SKILLS
Back Inner Cover Page 18 x 18 17,500 25,000 26 Listening Skills
Full Page (Colour) 18 x 18 15,000 20,000
Half Page (Colour) 12 x 18 10,000 12,000 DATES TO REMEMBER
Half Page (B&W) 12 x 18 8,000 10,000 27 Compliance Calendar
Quarter Page (Colour) 12 x 9 5,000 7,000
32 PDC Calendar
Principle Sponsorship* 18 x 18 1,00,000
Annual Contract : (1) Out of 12 issues you have to remit only NEWS & EVENTS
10 issue charges, i.e. 2 issues will be free. (2) *For Principle 33 News & Events at WIRC and Chapters
Sponsorship: Out of 12 issues you have to remit only 9 issue
charges (i.e. 3 issues will be free) – INR 9,00,000. HEALTH TIPS OF THE MONTH
38 Hypertension and Kidney Disease
Half Yearly Contract : (1) Out of 6 issues you have to remit
only 5 issue charges, i.e. 1 issue will be free. (2)* For principle OTHERS
Sponsorship: Out of 6 issues you have to remit only 5 issue
40 Media Coverage
charges, i.e. 1 issue will be free.
41 Miscellaneous
Term of Payment : Advance Payment in favour of ‘WIRC of
ICSI’ by way of a Cheque /Demand Draft payable at Mumbai
alongwith your release order / advertisement material.
Disclaimer
The ICSI is not in any way responsible for the result of any action taken on the basis of the advertisement published in the journal.
iii
March, 2012

7. LEGAL WORLD
Case Laws
CASE LAWS AT A GLANCE
CS Ajay Kumar, Practising Company Secretary, Mumbai
1. AMALGAMATION THERE IS NO QUORUM – SECTION 186
A Petition was filed by Petitioner i.e., transferee Where impractability for holding extraordinary general
company, seeking an order for amalgamation and meeting arises in a company having just two members,
a declaration to effect that it was binding on both one of whom is not available as his whereabouts have
transferee company and transferor company and also become unknown, even one member is competent to
on their respective shareholders and creditors. Reply call extraordinary general meeting and the Petitioner is
affidavit was filed by Regional Director, Ministry of entitled to a direction of the Company Law Board for
Corporate Affairs, pursuant to section 394A. Official calling the meeting in terms of section 186 – RANJEET
Liquidator also submitted his reply affidavit wherein KUMAR MISHRA V. CHINNMASTIKA ESTATES
it was stated that Transferee Company would continue (P.) LTD. [2011] 101 CLA 441 (CLB)
to exist and there would be no dissolution of company
consequent to sanction of scheme. 4. CAN MERE AVERMENT OF HOLDING SHARES
In such circumstances, it was only WITHOUT PROOF SHOWING PAYMENT
Transferor Company which was being HAVING BEEN MADE OF ALL CALLS
dissolved and amalgamated with IN RESPECT OF SHARES OFFERED BY
Petitioner. On facts, Petition seeking COMPANY ENTITLED PETITIONER TO
sanction of scheme of amalgamation FILE PETITION UNDER SECTION 397/398
was to be allowed with a direction to – SECTION 399 READ WITH SECTION
Petitioner that it would comply with all 397/398
statutory requirements in accordance One must be a member of the company and
with law. - NITIN LIFE SCIENCES have a right to apply under section 397/398
LTD. V. NITIN PHARMACEUTICALS in order to maintain a Petition under section
(P.) LTD. [2011] 108 SCL 67/11 335(HP) 399. A Petitioner fails to establish that he was
2. REGISTRATION OF CHARGES a member of the company as required under
Petitioners were directors of company section 399, the Petition filed by him is liable
“R” which had sold its machinery to to be dismissed, and a mere averment of
complainant/ Respondent Company holding certain shares in the Petition without
and sought financial assistance under filing any evidence would be nothing but a
hire purchase scheme. A complaint was misleading statement constituting abuse of
filed by Complainant Company alleging the process of Law. – SAMEER GOEL V.
that there was default in payment of hire charges and NIJINOY TRADING (P.) LTD. [2011] 101 CLA 428
Complainant Company invoked arbitration clause (CLB)
and obtained arbitration award, but while executing
5. SCHEME FILED BY MAJORITY OF SHAREHOLDER
award, it found that machinery was hypothecated with
WHERE CLAIMS OF SECURED CREDITORS
IDBI which had first charges over machinery. It was
alleged that Petitioners had fraudulently represented STAND SATISFIED OR ADJUDICATED – CAN
and deceived company that there was no charge over PETITION FOR REVIVAL BE CONTESTED ON
machinery and chartered accountant issued a no lien GROUND OF NON- FOLLOWING MANDATED
certificate. Petitioner filed instant Petition for quashing PROCEEDINGS IN SECTION 391/394 AND NOT
proceedings before Chief Metropolitan Magistrate DIRECTING SEPARATE MEETING TO BE HELD –
stating that under sections 125 and 126 charges were SECTION 391/394
already notified and complainant was deemed to
A scheme for revival of a sick company in liquidation is
have noticed such charges. Questions as to whether
filed by majority of shareholders themselves, and claims
complainant had knowledge of previous charge and
of secured creditors stand satisfied or adjudicated by
whether Petitioner had fraudulent intention for cheating
official liquidator, the Petition for revival cannot be
were matters for trial and, therefore, proceedings
contested on the ground that the procedure mandated in
were not to be interfered with and Petition was to be
sections 391 and 394 has not followed and meeting have
dismissed. M A SHIVAKUMARAN V. SUNDARAM
FINANCE LTD. [2011] 108 SCL 112/247 (MAD.) not been directed to be held, because such meetings are
unnecessary in such a case. – DABRIWALA STEELS
3. IMPRACTABILITY OF HOLDING – PETITION TO & ENGINEERING CO. LTD. (IN LIQUIDATION), IN
COMPANY LAW BOARD FOR DIRECTION TO RE., [2011] 101 CLA 62 (P & H)
ORDER MEETING TO BE CALLED EVEN THOUGH
“The successful always has a number of projects planned, to which he looks forward.
Anyone of them could change the course of his life overnight.” - Mark Caine
1
March, 2012

8. LEGAL WORLD
Circulars & Notifications
Circulars & Notifications
CS Piyush Bindal, Practising Company Secretary, Bhopal
SERVICE TAX conditions imposed by DGFT in the above notification
with immediate effect.
1. Toll in the nature of ‘user charge’ or ‘access fee’ paid
by roads users — regarding. 3. It is also requested to provide the details of all the
Circular No. 152/3 /2012-ST consignments of export of Cotton handed over to
Customs for export as of 2400 hrs. on 04-03-2012. This
Source: www.servicetax.gov.in report is required positively by 07-03-2012.
1. A representation has been received by the Board,
2. Ban on export of Cotton (Tariff Code 5201 and 5203)-
seeking clarification regarding leviability of service
regarding
tax on toll fee (hereinafter referred as ‘toll’) paid
Circular No. 07/2012-Customs
by users, for using the roads. The representation has
Source: www.cbec.gov.in
been examined.
1. Attention is invited to Board’s Circular No. 6/2012-Cus
2. Service tax is not leviable on toll paid by the users of
dated 06-03-2012 regarding imposition of ban on export
roads, including those roads constructed by a Special
of Cotton (TH 5201 and 5203) vide DGFT Notification
Purpose Vehicle (SPV) created under an agreement
No.102 (RE-2010)/2009-14 dated 05.03.2012.
between National Highway Authority of India (NHAI)
or a State Authority and the concessionaire (Public 2. In this regard DGFT has issued another Circular No.
Private Partnership Model, Build-Own/Operate- 58(RE-2010)/2009-14 dated 09-03-2012 to clarify that the
Transfer arrangement). ‘Tolls’ is a matter enumerated consignments of Cotton for which ‘Let Export Orders’
(serial number 59) in List-II (State List), in the Seventh have been issued by Customs authorities till 2400 hrs.
Schedule of the Constitution of India and the same is not on Sunday, 04-03-2012 will be outside the purview
covered by any of the taxable services at present. Tolls of the Notification No.102 (RE-2010)/2009-14 dated
collected under the PPP model by the SPV is collection 05.03.2012.
on own account and not on behalf of the person who has 3. Accordingly, Board desires that the field formations
made the land available for construction of the road. shall allow the export of consignments of Cotton (TH
3. However, if the SPV engages an independent entity 5201 and 5203) for which ‘Let Export Orders’ have
to collect toll from users on its behalf and a part of toll already been issued till 2400 hrs. on 04-03-2012.
collection is retained by that independent entity as 3. Ban on export of Cotton (Tariff Code 5201 and 5203) -
commission or is compensated in any other manner, regarding
service tax liability arises on such commission or Circular No. 08/2012-Customs
charges, under the Business Auxiliary Service [section Source: www.cbec.gov.in
65(105) (zzb) read with section 65(19) of the Finance Act, 1. Attention is invited to Board’s Circular No. 06/2012-
1994]. Cus dated 06-03-2012 and DGFT RE Notification No.102
4. Further, an SPV formed as a result of agreement between (RE-2010)/2009-14 dated 5th March, 2012 amending
NHAI or State Authority and the concessionaire under Notification no. 74(RE-2010)/2009-14 dated 12-09-2011
the BOT arrangement, cannot be considered as an imposing ban on export of cotton (Tariff code 5201 and
agent of the NHAI. Renting, leasing or licensing of 5203).
vacant land by the NHAI or State Authority to an SPV 2. DGFT vide Notification no. 106(RE-2010)/2009-14 dated
for construction of road and such construction do not 12th March, 2012 has withdrawn the earlier Notification
attract service tax. No. 102 imposing ban and now the export of Cotton
CUSTOMS is free subject to the condition “prior registration of
1. 1. Ban on export of Cotton (Tariff Code 5201 and Contract with DGFT”.
5203) - regarding 3. Considering the sensitivity of the issue the Board desires
Circular No.6/2012-Customs that the field formations should strictly monitor the
conditions imposed by DGFT in the above notification
Source: www.cbec.gov.in
with immediate effect.
1. Attention is invited to DGFT RE Notification No.102
(RE-2010)/2009-14 dated 5th March, 2012 amending CORPORATE LAW
Notification no. 74(RE-2010)/2009-14 dated 12-09-2011 1. Allotment of Director’s Identification Number (DIN)
imposing ban on export of cotton (Tariff code 5201 and under Companies Act, 1956.
5203). Accordingly – General Circular No. 4/2012
(i) Export of cotton [ITC(HS) Codes 5201 & 5203] has Source: www.mca.gov.in
been prohibited till further orders. In continuation of General Circular Nos. 32/2011 dated
(ii) Transitional arrangements will not be applicable 31.05.2011, 66/2011 dated 04.10.2011 and 70/2011 dated
for the export of cotton. 15/12/2011 on the subject cited above, The time for
filing form DIN-4 by DIN holders for furnishing PAN
(iii) Export against registration certificates already
and to update PAN details has been extended upto
issued will also not be allowed.
30.04.2012
2. Considering the sensitivity of the issue the Board desires
that the field formations should strictly monitor the 2. Registration of Companies or LLPs which have one of
“When you follow your bliss...doors will open where you would not have thought there would be doors;
and where there wouldn’t be a door for anyone else.” - Joseph Campbell
2
March, 2012

9. LEGAL WORLD
Circulars, Notifications & Legal Updates
their objects is to carry on the profession of Chartered shall incorporate the same only on production of in-
Accountant, Cost Accountant, Architect, Company principle approval/NOC from the concerned regulator/
Secretary etc. professional Institutes.
General Circular No. 2/2012 2. Further, in this connection, it is also stated that where
Source: www.mca.gov.in one of the objects is to carry on the business/profession
At the time of incorporation of companies where one of Architecture, then the concerned Registrar of
of the objects is to carry on the business of Banking, Companies/Registrar of LLP shall incorporate the same
Insurance or to practice the profession of Chartered only on production of in-principle approval/NOC from
Accountancy, Cost Accountancy & Company the concerned regulator.
Secretaries, then the concerned Registrar of Companies 3. This issues with the approval of CAM.
LEGAL UPDATES
Saagar Madan, Legal Practitioner, Mumbai
AMENDMENT TO SEBI (MUTUAL FUND) for refund and upon processing of the same the refund
REGULATIONS, 1996. request shall be approved or rejected.
Key Highlights • The refund of MCA21 fees is available in the following
• Amendment relating to Advertisement Code: cases:
a) Advertisement Code shall be amended and made ♦ Multiple Payments of Form 1, Form 5;
principle based as far as possible. ♦ Incorrect Payments; and
b) AMCs shall be responsible for the accuracy, ♦ Excess Payment
truthfulness, fairness of the advertisement THE MINISTRY OF CORPORATE AFFAIRS ALLOWS
c) The definition of advertisement shall be broadened FILING OF CONFLICTING RETURNS BY CONTESTING
to include all forms of communication that may PARTIES
influence investment decisions of any investor. Key Highlights
• Amendment relating to Investment Valuation Norms • It is allowed in some specific cases wherein it appears
(i.e. to provide fair valuation of securities / assets of that either there was lack of consent of the removed/
Mutual Fund schemes) changed director or due process of Law was not
a) AMC shall insure fair treatment to all investors. followed.
b) In case debt and money market securities are not • The company is required to mandatorily file the
traded on a particular valuation day then valuation attachment relating to cause of cessation along with
through amortization basis shall be restricted to Form 32 with the ROC concerned irrespective of the
securities having residual maturity of up to 60 days ground of cessation.
(currently 91 days), provided such valuation shall • Any Director is aggrieved with his cessation in the
be reflective of the realizable value/ fair value of company; he may file complaint in the Investor
the securities Complaint Form. On receipt of complaint, the ROC
COMPANY LAW BOARD REGULATIONS, 1991, concerned will examine the complaint and mark the
“Regulation 30 substituted”: company as having 'management dispute'.
Key Highlights: RAILWAYS EXTEND ADVANCE RESERVATION
• The record of a pending case shall be open, as of right, to PERIOD TO 120 DAYS
the inspection and supply of the certified copies thereof • The Ministry of Railways has decided to increase the
to the parties or their authorized representatives, on advance reservation period for booking reserved train
making an application in writing and on payment of a tickets from existing 90 days to 120 days on experimental
fee of fifty rupees per day for inspection of documents basis (excluding the date of journey) w.e.f. March 10,
of a case and ten rupees per page for supply of certified 2012.
copies of order or any other document respectively. THE TELECOM REGULATORY AUTHORITY OF INDIA
• A person, who is not a party to the proceedings, has, ACT, 1997 NOTIFIES MOBILE NUMBER PORTABILITY
however, no right to inspect or to obtain certified copies REGULATIONS, 2009
of the records of a pending case except with the consent Key Highlights
of the party who has filed the case or under the orders
of the Bench. • Mobile Number Portability has been launched all over
the country on 20th January 2011.
• After receipt of an application, the inspection shall
be allowed within a period of two working days and • All Cellular Mobile Telephone Service Providers and
certified copies shall be supplied within a period of Unified Access Service Providers, acting as Donor
three working days respectively. Operator, not to entertain any request from the
subscriber for cancellation or withdrawal of porting
THE MINISTRY OF CORPORATE AFFAIRS HAS request and not to reject a porting request except on
DECIDED TO REFUND THE STATUTORY FEES PAID the grounds mentioned under regulation 12 of the
FOR CERTAIN SERVICES regulations.
Key Highlights: • The service providers may issue necessary instructions
• For refund of fees wrongly paid by the stakeholder to all the concerned officials within Forty eight hours
while availing various services at MCA 21 new refund and submit compliance report of this Direction to the
e-Form needs to be filed by the stakeholder applying Authority within seven days.
Pity the man who inherits a million and isn’t a millionaire. Here’s what would be pitiful,if your income grew and you didn’t.
3
March, 2012

10. CORPORATE GOVERNANCE
Appointment and Cessation of Auditors
S. G. Gokhale, Advocate & Legal Advisor, Mumbai
This Article summarizes and analyses the provisions of the Companies Act, 1956, on the above subject and
highlights some of the misgivings prevailing at various levels.
1. APPOINTMENT (C) By Central Government
(A) By Board of Directors In the event the Auditors are not appointed /
(i) The first Auditors of the Company are required to reappointed at the AGM the Central Government
be appointed by the Board of Directors within one may appoint a person to fill the vacancy. There is an
month of the date of registration of the Company obligation cast on the Company of giving notice to the
and the Auditors so appointed hold the office until Central Government on arising such a situation. (Sec.
the conclusion of first annual general meeting 224(3) &(4)).
(AGM). (Sec. 224 (5)). There does not appear any provision in the Act to deal
(ii) In the event of a casual vacancy in the office of the with the situation, if the first Auditors are not appointed
Auditors (other than the casual vacancy caused or casual vacancy is not filled, either by the Board of
by resignation) the Board of Directors can fill such Directors or by the Company in general meeting as the
vacancy and the Auditors appointed to fill the case may be.
casual vacancy hold the office till the conclusion of 2. CESSATIONS
the next AGM. (Sec. 224 (6)). (A) By Disqualification
The possibility of arising casual vacancy (other By incurring the disqualification and thereby vacating
than on resignation), appears to be on account of the office, the Auditors cease to hold the office. (Sec.
death of the Auditors or incurring disqualification 226(5)).
and thereby vacating the office as contemplated (B) By Resignation
under Sec. 226(5).
The Auditors can resign from the Office at any time at
The resignation by the Auditors (whether the their sweet will. There is no specific provision providing
first Auditor or subsequent Auditors) is viewed for resignation. However, it is implied authority of every
differently in as much as the matter is expected person. The reference to the resignation is found in Sec.
to be taken up at the general meeting where the 224(6) dealing with the situation of vacancy caused by
issues resulting into resignation can come up for the resignation.
discussions. This is one of the ways of having (C) On expiry of the term
superintendence of the general body over the
The Auditors, appointed by any mode of appointment
management.
hold the office till the conclusion of the next AGM.
(B) By General Body. Therefore, the Auditors can be said to be ceasing to
(i) As a general rule, the Auditors are to be appointed hold the office with the conclusion of next AGM. If they
by the General Body at the AGM. (Sec. 224(1)),except are reappointed at the said AGM, a fresh term of office
the situations mentioned in (A) above. commences.
(ii) If the Board of Directors fails to appoint the first Sec. 225 provides for the special procedure either
Auditors, they can be appointed by the Company for appointment of Auditors at the AGM other than
in the general meeting. (proviso (b) to Sec. 224 (5)). retiring Auditors or providing for that retiring Auditors
(iii) The Company can at the general meeting appoint shall not be reappointed. This provision implies that
the first Auditors on removing the first Auditors the continuity in the office of the Auditors should be
appointed by the Board of Directors (proviso (a)to ensured as far as possible and it should not be left to the
Sec.224 (5)). sweet will of the management of the Company. It also
ensures that the Auditors cannot impose themselves on
(iv) In the event of a casual vacancy arising in the office
the Company forever.
of the Auditors by resignation, the same is to be
filled by the Company in general meeting. (Sec. (D) By Removal
224(6)). (i) The Auditors can be removed from the office before
The general meetings referred to in (ii), (iii) & (iv) the expiry of the term by the Company in general
above are not necessarily AGMs and to that extent meeting after obtaining previous approval of the
the same are exception to the general rule stated in Central Government. (Sec. 224(7)). This is subject to
(i) above which is warranted by the circumstances. exception as per (ii) below.
“The difference between a successful person and others is not a lack of strength,
not a lack of knowledge, but rather in a lack of will.” - Vincent T. Lombardi
4
March, 2012

11. CORPORATE GOVERNANCE
Appointment and Cessation of Auditors
(ii) The first Auditors appointed by the Board of
Directors can be removed by the Company at a
general meeting. (proviso (a) to Sec.224 (5)).
There is hardly any case where the authority under
Sec. 224(7) of granting approval for removal is
exercised by the Central Government. The said
authority is delegated to the Regional Director.
There do not appear any guidelines or procedure
laid down by the Central Government for
consideration of an application for approval for
removal of the Auditors.
It is pertinent to note that the provisions relating
to the removal of Auditors are at variance with the
general principle of Law that appointing authority
has an implied authority to remove. Though the
Auditors are appointed by the Company (whether
by the Board or the General Body) they can be
removed only with the previous approval by the
Government. The only exception is of first Auditors
appointed by the Board who can be removed at
general meeting. In this case also the authority to
remove is vested with the next higher authority. is misnomer in as much as upon expiry of the term
The said provisions are with a view to ensure the there is no question of resignation. The Companies are
independence of the Auditors having regard to the often found reporting that Auditors have “resigned”
object and purpose of an Audit. when in fact it is a case of not reappointing the Auditors
at the AGM on account of their unwillingness for
3. MISGIVINGS
reappointment.
In most cases the Companies and the Auditors are found
to be partners forever. However, there are situations (B) The change in Auditors pursuant to Sec. 225 is often
where separations do take place. The separations are loosely construed as removal, when the removal has the
essentially attributable to the frictions and discords. specific connotation under the Act.
There may be hardly a case of smooth and cordial (C) The clause 9 of The First Schedule to the Chartered
separation. In many cases, the separation culminates in Accountants Act, 1949 provides to the effect that non
disciplinary proceedings by the ICAI against incoming ascertainment by the newly appointed Auditors from the
Auditors at the instance of outgoing Auditors. Company the compliance of Sec. 225 of the Companies
Some of the misgivings about the separation found to be Act 1956 amounts to professional misconduct on the
prevailing at various levels are noted below. part of newly appointed Auditors. In practice, it is
(A) Before appointment of the Auditors, the Company noticed that the said clause is sought to be applied to
is required to obtain a written confirmation from the newly appointed Auditors in all situations, when in fact
Auditors about their eligibility and willingness. Many Sec.225 applies to a limited area as discussed above.
times it is decided by the Auditors not to continue in (D) Even if the Auditors do give formal resignation letter,
office for the next term onwards. The correct procedure they feel that they are removed, having regard to the
for this is to convey to the Company the un-willingness background/reasons for resignation. The managements
for re-appointment. However, in practice it is noticed also do feel that they have removed the Auditors
that resignation letter is given after signing the Auditor’s by obtaining resignation. There is no reason for the
report. If the resignation is construed as effective on the forthright Auditors to decline to resign if asked for. Once
date of signing Auditor’s report it would be a case of the resignation in plain terms is given there ought not to
casual vacancy in as much as there is a time gap between be any murmuring about it. It is open to the Companies
date of signing of Auditors Report and date of AGM. to take recourse either to Sec. 225 or Sec. 224 (7) in which
There does not appear any bar even to fill the casual situation the Auditors have adequate opportunity of
vacancy at the AGM, but the nature of appointment has representation or putting forth their views. This would
to be clarified in the annual report. If the resignation is be better option for the Auditors to face in the public
not construed as effective from date of signing Auditor’s interest.
report but effective after conclusion of AGM, the same
“The great successful men of the world have used their imagination, they think ahead and create their mental
picture in all its details, filling in here, adding a little there, altering this a bit and that a bit,
but steadily building - steadily building.” - Robert Collier 5
March, 2012

12. UNION BUDGET 2012-13
DIRECT TAXES: UNION BUDGET 2012-13
CA Rajkumar S. Adukia, Mumbai
The Union Budget 10AAwhose total income before profit linked deductions
2012-13 was presented exceeds 20 lacs.
by the Finance Minister
• 1% TDS on Sale of Immovable Property (other than
in the wake of a
agricultural land)
challenging business
environment and • TDS u/s 194J @ 10% introduced from 1-7-2012 on
weak global economic remuneration to non executive director
conditions. 2011-12
• W.e.f 1-7-2012, TCS @1% on Cash Sale>2lacs of jewellery
was described as the
and bullion irrespective of the fact whether buyer is a
“year of recovery,
manufacturer, trader or purchase is for personal use
interrupted.” With a
somber global outlook, • TDS @ 1% on Sale of minerals (coal, lignite, iron ore)
sustained slowdown in
Indian GDP growth, • Share premium exceeding fair market value to be treated
high inflation, elevated as income u/s 56(2).
deficits and low investor confidence, the current year has Other Changes:
been testing for the Indian economy. The good news is that,
while the GDP achieved of 6.9% was low as compared to • Proposed to amend section 68 of the Income Tax Act to
that of previous years, comparatively it still put India in the provide that the nature and source of any sum credited,
top five economies of the world. as share capital, share premium etc., in the books of a
closely held company shall be treated as explained only
The announced advance pricing agreement may help if the source of funds is also explained by the assessee
transfer pricing decisions and the USD 1 bn VC fund focused company in the hands of the resident shareholder.
on MSME is good for entrepreneurship.
• New section 271AB for Penalty on undisclosed income
The ‘GST’ which is now expected to be operational by found during the course of search (w.e.f 1-7-2012)
August 2012. We hope that this timeline is met as it would
certainly help address the multiple taxation issue faced by • Prosecution Provisions rationalized
the Industry currently. Corporate tax not being tinkered a) Special Courts to be constituted
with is the source of joy for private industry in general.
b) On tax evasion up to 25 lacs, imprisonment from 3
DIRECT TAXES months to 2 years
Tax Rates for AY 2013-14 for Individual/HUF/AOP, BOI,
Artificial Juridical Person
Up to 200000 NIL
2000001 to 500000 10%
5000001 to 1000000 20%
Above 1000000 30%
Exemption limit
Senior citizen (age of sixty years or more Rs. 250000
but less than eighty years)
Senior citizen (age of eighty + years) Rs. 500000
Surcharge NIL for all assesses except in respect of companies.
Tax Base widened
• AMT (Alternate Minimum Tax) @ 18.5% introduced
for all assesses claiming profit linked deduction under
Chapter VI-A under heading “Deduction in respect
of certain Incomes” and SEZ units under section
“You just can’t beat the person who won’t give up.” - Babe Ruth
6
March, 2012

13. UNION BUDGET 2012-13
Direct Taxes
• Relief given for Long Term Capital gain on transfer of
residential house if invested in SME.
• 50% deduction for Investment in Rajiv Gandhi Equity
Scheme up to Rs. 50000 for retail investors having annual
income less than 10 lacs.
• STT Rates on delivery based transactions reduced from
.125% to 0.10%
• Extension of sun set date for tax holiday for power sector
enhanced by one year u/s 80IA.
• Additional deduction of Rs 5000 allowed for Preventive
Health Check up u/s 80D.
• Deduction for saving account Interest up to Rs. 10000
(Sec 80TTA) is allowed.
• TDS provisions have been modified. section 201 being
amended to provide that payer shall not be assessee in
default if:
- payee has filed return u/s 139
- payee has taken such sum in computation of income
c) On tax evasion above 25 lacs, imprisonment from 6 - has paid tax due on income declared in return and
months to 7 years. certificate form chartered accountant is furnished by
(Earlier threshold limit was 1 lakh (fixed in 1976) payer
and and minimum imprisonment was 3M to 3 years)
• Time limit for passing order u/s 201 enhanced from 4
(Applicable w.e.f. 1-7-2012)
years to six years where TDS return is not filed u/s 201.
• Transfer pricing regulations to be applied to domestic
• 80-G Benefit to be applicable for donation exceeding
transactions between related parties u/s 40A, 10AA,
Rs. 10000 only if payment not made in cash.
80A, sections where reference made to 80 IA, if aggregate
amount of all such domestic transactions exceeds Rs. 5 • General Anti Avoidance Rule (GAAR) made applicable
crores. (w.e.f. AY 2013-14). to Impermissible avoidance arrangements where
• U/s 115A, interest income of nonresident from purpose is to obtain tax benefit.
Infrastructure Company reduced from 20% to 5%. Also Fiscal deficit remains a concern
TDS rate in such cases reduced to 5% u/s 194LC
The Union Budget FY2012-13, on the whole, was on expected
• Non resident non citizen sports person u/s 115BBA lines. It is neither populist nor reformist and adopted a
brought in parity with non resident non citizen middle path. It harmonized and raised the indirect taxes
entertainer under DTAA. rates and gave marginal relief to individual tax payers. Fiscal
deficit for 2012-13 is likely to slip to 5.5 per cent of GDP,
• Dividend received from any subsidiary in multi tier
higher than the government’s estimate. Bold expenditure
corporate structure to be reduced for paying DDT.
reform measures like petroleum price deregulation would
• Threshold limit of tax audit increased from 60 lakhs have brought lasting fiscal gains and made the deficit
rupees to one crore rupees in the Case of persons carrying reduction path more credible. The budget’s reliance on an
on business and from 15 lakhs rupees to 25 five lakhs optimistic growth projection and enhanced taxes to bring
rupees in the case of persons carrying on profession. the fiscal deficit down make it a bit shaky. The projected
higher borrowings will limit the reduction in interest rates.
• Advance Tax for Senior Citizen Exempted.
The Union Budget 2012 is a balanced one and has put forth
• Wealth Tax Exemption to residential house allotted by many provisions to improve macroeconomic environment
company (salary upto 10 lacs p.a) and strengthen domestic growth drivers.
“The world ain’t all sunshine and rainbows. It’s a very mean and nasty place and I don’t care how tough you are it will beat you to your knees
and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about
how hard you can get hit and keep moving forward.” - Rocky Balboa
7
March, 2012

14. UNION BUDGET 2012-13
Indirect Taxes Budget Highlights - 2012-13
CS V. S. Datey, Nashik
Budget 2012-13 and Finance Bill, 2012 was presented before limit. Any intimation to Superintendent is not required.
Parliament on 16th March 2012. Self-adjustment of excess credit is not allowed on
Provisions relating to increase in standard rate of excise duty account of reasons like interpretation of law, taxability,
from 10% to 12% has become effective from 17-3-2012 (i.e. classification, valuation or applicability of any exemption
midnight of 16th March 2012). notification.
Service tax rate will be 12% (from present 10%) w.e.f. • Whenever there is change in effective rate of service
1-4-2012. tax or service tax is taxed for the first time, the date of
Changes in Cenvat Credit Rules, Point of Taxation Rules and payment shall be date of credit in bank account (Rule
Service Tax Rules will become effective from 1-4-2012. Other 2A of Point of Taxation Rules] This is to avoid the ‘tax
changes will become effective after enactment of Finance planning’ of getting pre-dated cheques to show receipt
Act, 2012. of payment earlier. Of course, now, cheque is valid only
for three months and hence this planning cannot be
Changes relating to negative list on service tax will become indefinite]
effective from a date to be notified after enactment of Finance
Act, 2012. • Service tax payable on receipt basis by all individual
and partnership firms (including LLP) upto turnover
The changes are summarised below. of ` 50 lakhs, if turnover of taxable services in respect
1. Service Tax of previous year (of the total entity and not individual
• Negative list of services - At present, service tax is unit) was below ` 50 lakhs [Fourth proviso to Rule 6(1)
payable on specified 117 taxable services. Now, serviced of Service Tax Rules inserted w.e.f. 1-4-2012]
tax will be payable on all taxable services, except those • No penalty if service tax and interest on renting of
specified in the negative list and excluding those for immovable property is paid within six months from date
which exemption has been granted. The provision will of enactment of Finance Act, 2012.
be effective from date to be notified after enactment of • One year time limit for issuance of show cause notice
Finance Act, 2012. for demand of service tax being increased to 18 months
• Service tax rate increased from 10% to 12% w.e.f. 1-4- [proposed amendment to section 73(1)]
2012. Thus, total rate will be 12.3% w.e.f. 1-4-2012. • It is provided that while giving follow up notices on same
• Service tax on works contract serviced payable @ 4.80% grounds, the grounds as given in earlier notice need not
plus 3% education cess w.e.f. 1-4-2012 be repeated. Only tax due and reference to earlier notice
• Service tax on air transport payable @ 12% on 40%, is sufficient [proposed section 73(1A)]
subject to condition of non-availment of Cenvat credit • Provision for compounding of offences [proposed
on inputs or capital goods [This means Cenvat credit of amendment to section 94(2)]
input service is available] (Notification No. 6/2012-ST 2. Cenvat Credit Rules
dated 17-3-2012].
• All the amendments are effective from 1-4-2012, except
• Service tax on repairs of roads has been exempted with otherwise specified.
retrospective effect from 16-6-2005 [proposed insertion
of section 97 to Finance Act, 1994 vide Finance Bill, 2012] • Following services are excluded from definition of ‘input
service’ only so far as they relate to a motor vehicle,
• Management, maintenance or repair of non-commercial which is not a capital goods – (a) Renting of a cab (b)
Government building exempted w.e.f. 16-6-2005 till the Supply of tangible goods. However, these services will
new provision relating to negative list of services comes be eligible as ‘input services’ if used for provision of
into effect [proposed insertion of section 98 to Finance taxable services for which Cenvat credit of motor vehicle
Act, 1994 vide Finance Bill, 2012] is available as capital goods [rule 2(l) clause (B) amended
• Textile dyeing units can form an association or registered w.e.f. 1-4-2012]
cooperative society which is engaged in treatment and • Following services are excluded from definition of ‘input
recycling of effluents. The project is set up with financial service’, except when used by (a) a manufacturer of a
assistance from Government. Services provided by motor vehicle in respect of a motor vehicle manufactured
such association or registered cooperative society to by him or (b) provided by general insurance company
its members are exempt from service tax – Notification [as specified in section 65(105) of the Finance Act],
No. 42/2011-ST dated 25-7-2011 (The words ‘registered in respect of a motor vehicle insured or reinsured by
cooperative society’ have been added w.e.f. 17-3-2012). him - (a) General Insurance Services (b) Motor vehicle
This notification is being given retrospective effect from related service (earlier termed as Authorised Service
16-6-2005, vide clause 145 of Finance Bill, 2012. Station service) [rule 2(l) clause (BA) inserted w.e.f. 1-4-
• Service tax on rail transport of goods (other than in 2012]. Note - There seems to be clear drafting mistake.
containers) deferred till 1-7-2012. Till 1-4-2012, general insurance services were allowable
• Invoice can be issued within 30 days [present limit 14 in all cases except where used for motor vehicle related
days] Banking company or Financial Institution can services. Now, they are not eligible except in aforesaid
issue invoice within 45 days [Rule 4A of Service Tax cases. This does not seem to be intention at all.
Rules amended] • Rule 5 of Central Excise Rules amended to provide
• Adjustment of service tax under rule 6(4B) of Service Tax simplified method for refund of unutilised Cenvat credit
Rules of excess tax paid can be without any monetary on account of exports [It should be clarified that refund
“Don’t give up. There are too many nay-sayers out there who will try to discourage you.
Don’t listen to them. The only one who can make you give up is yourself.”
8
March, 2012

15. UNION BUDGET 2012-13
Indirect Taxes
provision applies only if assessee has excess Cenvat • Differential excise duty is not payable on duty paid
credit. Otherwise, department is likely to take a view goods lying at depot or branches
that in case of all exports, assessee cannot utilise Cenvat • Merit goods were subject to 5% duty. This rate has been
credit for DTA sales and must go for refund procedure increased to 6%.
only]. • Rate of 1% imposed on 130 items in 2011 Budget has been
• Cenvat Credit allowable on excise duty paid on motor increased to 2% w.e.f. 17-3-2012 (if assessee does not avail
vehicles (except under heading Nos. 8702, 8702, 8704, Cenvat credit). However, in case of coal, fertilisers all
8711 and their chassis) to manufacturers. The excluded goods falling under chapter 31 (except those clearly not
chapter heads are relating to motor vehicles for transport to be used as fertilisers), articles of jewellery and mobile
of 10 or more persons (including driver), motor cars, handsets and cellular phones (under heading 8517), the
station wagons, tor vehicles for transport of goods and rate of duty will continue to be 1%, if assessee does not
motor cycles. avail Cenvat credit.
• The Cenvat credit of excise duty paid motor vehicles • Excise duty on branded readymade garments, made-
covered under headings 8702, 8703, 8704 and 8711 up articles and textiles will be payable @ 12% on ‘tariff
and their chassis is available only to specified service value’. The tariff value will be 30% of Retail Sale Price
providers e.g. Courier, Tour operator, Rent-a-cab scheme (RSP) w.e.f. 17-3-2012 [At present, it is payable @ 10%
operator, Cargo Handling Agency, Goods Transport on 45% of RSP] [Notification No. 20/2001-CE(NT) dated
agency, Outdoor caterer and Pandal or shamiana 30-4-2001 amended]. Thus, effective rate will be 3.6% of
contractor as per earlier provisions RSP plus education cess i.e. total 3.708%.
• In effect, Cenvat credit is available only in respect of • In case of readymade garments, provision for return
excise duty paid on tractors, special purpose motor of goods for rectification simplified [Notification No.
vehicles, work trucks, bicycles, baby carriages and 31/2011-CE amended]
trailers and parts and accessories of all motor vehicles to • Excise duty introduced on unbranded gold jewellery.
the manufacturers. Duty is payable on 30% of transaction value as ‘tariff
• Removal of capital goods after use as second hand or value’. SSI exemption will be available, considering the
scrap - ‘Amount’ payable on basis of Cenvat credit taken ‘tariff value’ for calculating the limit of ` 4.50 crores
as reduced @ 2.5% per quarter or on transaction value, [proviso to para 2(vii) of SSI exemption Notification No.
whichever is higher [Rule 3(5A) as amended w.e.f. 17-3- 8/2003-CE(NT) dated 1-3-2003 as amended w.e.f. 17-3-
2012] 2012.
• The ‘amount’ payable under rule 6(3) [where assessee • Excise duty is not payable on articles of jewellery
is manufacturer of excisable as well as exempt goods or manufactured from previous metal or old jewellery
provider of taxable as well as exempt services] has been supplied by the retail customer [Notification No.
increased from 5% to 6% w.e.f. 1-4-2012. 9/2012-CE(NT) dated 17-3-2012] [The wording
• Restriction of 20% on Cenvat credit on insurance of notification is incorrect. The notification can be
company removed [Rule 6(3C) omitted w.e.f. 1-4-2012] interpreted to mean that in case of such jewellery, excise
• Cenvat Credit of special additional duty (SAD) of 4% duty is payable on full value including value of material
can be transferred from one unit to other unit of same supplied by customer.
manufacturer [Rule 10A of Cenvat Credit Rules w.e.f. • There is full exemption on all unbranded articles of
1-4-2012] precious metals (which is not ‘gold jewellery’)
• Interest is not payable on wrongly taken Cenvat credit • Duty on branded as well as unbranded silver jewelley
if it was not utilised [Rule 14 amended] (very sensible has been exempted.
amendment indeed) • Return under CE (Removal of Goods at Concessional
• Inputs or capital goods need not be brought in the Rate of Duty for manufacture of Excisable Goods) to be
premises of service provider [Even otherwise, this was filed on quarterly basis.
not a practical provision. Further, the word ‘premises’ 4. Customs
were never defined. Thus, any place where assessee • While calculating customs duty, the education cess (2%)
is providing service would be ‘premises’ of service and SAHE cess (1%) would be payable only once i.e.
provider]. after basic customs duty and CVD but before Special
• Input Service Provider to distribute credit on following CVD [w.e.f. 17-3-2012]
basis - (a) Credit of service tax attributable to wholly • Duty free allowance under Baggage Rules has been
exempted goods or exempted services shall not be increased from ` 25,000 to ` 35,000 for adult passengers
distributed (b) In case of service tax attributable to a of Indian origin and from ` 10,000 to ` 15,000 for children
particular unit - directly to that unit (c) In case of common upto 10 years of age [change w.e.f. 17-3-2012]
input services - on basis of turnover of each unit [Rule 7
of Cenvat Credit Rules overhauled] • Cenvat Credit of special additional duty (SAD) of 4%
can be transferred from one unit to other unit of same
• Cenvat Credit Reversal not required if exempted taxable manufacturer [Rule 10A of Cenvat Credit Rules w.e.f.
service provided to SEZ - retrospective amendment 1-4-2012]
w.e.f. 16-6-2005 [clause 144 of Finance Bill, 2012]]
• Importer of specified goods has to submit declaration
3. Central Excise where goods will be sold for first time after import and
• Standard Central Excise duty rate (except in case of VAT registration number [change w.e.f. 1-5-2012]
petroleum products) has been increased from 10% to • Provision is being made for ‘air freight station’ (like ICD
12% from 17-3-2012 (i.e. midnight of 16th March 2012) or CFS) (to be effective after enactment of Finance Bill,
[Notification No. 18/2003-CE dated 17-2-2012]. 2012]
“When I am asked to pay a price, I ask myself, “Is this end result really worth what I must give up to obtain it?
Will I in the end be truly happier…truly stronger…truly a better individual?”
When the answer is an unqualified YES, then I willingly pay the price.” - Thomas D. Willhite 9
March, 2012

16. UNION BUDGET 2012-13
SERVICE TAX KEY ASPECTS
CA Rajesh R Agrawal, Pune
The salient aspects of UNION BUDGET, 2012 on Service Tax SR# Service Existing Proposed CENVAT Credit
is spelt out below. The Government of India in the Union Taxable Taxable Applicability
Budget 2012 has made significant changes in the Service Tax
portion portion
Provisions including that of CENVAT Credit Rules, 2004.
(%) (%)
Rate Changes w.e.f. 1st April 2012: 4 Accommodation 50 60 Credits on input
in a hotel etc. services allowed
SR # Particulars (Scheme) Present Proposed Rate
Rate 5 Railways: goods 30 30 All credits will be
allowed
1 Normal 10 % 12 %
6 Railways: New Levy 30 All credits will be
passengers allowed
2 Works Contract Composition 4% 4.8%
Scheme Taxation of services:
Introduction of Negative List of Services (effective from a
3 Purchase & Sale of foreign Increase of 20% under
currency various slabs date to be notified after the enactment of the Finance Bill
2012).
4 Service in respect of Promotion & ` 6,000 ` 7,000 The Government have prescribed a detailed “Draft Guidance
marketing for lottery ` 9,000 ` 11,000 Paper- GPA” for better understanding of the new provisions
with questions and answers, which has been published with
5 CENVAT Reversal for exempted 5% 6%
Circular issued.
services under Rule 6(3) of CCR,
2004 A switch over shall be given effect by insertion of proposed
new sections, 65B, 66B, 66C, 66D, 66E and 66F Chapter V
6 Life Insurance Service 1.50% 3% on 1st year of the Finance Act, 1994 and ceasing of sections 65, 65A, 66,
(not entirely for risk cover) Gross premium and 66A but these ceasing sections will remain relevant in
1.50% on
respect of services provided prior to the coming into force of
Subsequent Year
premium the new provisions
The charging section will now be contained in section
7 Air transport of passengers Dual rate structure has been 66B and levies taxes on all services, other than those in
changed to standard rate of the negative list, provided or agreed to be provided in the
12% with abatement of 60%
taxable territory by one person to another.
in all classes
The word “service” which has been now defined in clause
Specific Abatements Proposed: (44) of the new section 65B will also cover “declared services“
The Government is proposing increase in taxable portion of in section 66E.
value with liberalization in input tax credits following the What is to be taxed under Service Tax has to be determined by
principle of neutrality of taxes. looking into negative list & declared services, which is a big
Changes proposed to be introduced in the abatements along shift in the way services are proposed to be taxed in future.
with the Negative List: This means that if any activity satisfies the characteristics of
The existing and new abatements shall be as follows: - service, it will be taxable, unless specified in the Negative
list.
SR# Service Existing Proposed CENVAT Credit Negative list of services proposed to include:
Taxable Taxable Applicability
o Trading of goods,
portion portion
(%) (%) o Any process amounting to manufacture or production of
goods (Whether under the Centralized Act or any State
1 Convention centre 60 70 All credits (except Act),
or Mandap with on inputs of chapter
catering 1 to 22 i.e. foods and
o Sale of space or time slots for advertisements other
than advertisement-broadcast by Radio or Television.
beverages)
2 Pandal or 70 70 This would include sale of space for advertisements in
Shamiana with Bill Boards, Public Places, Buildings, Conveyances, Cell
catering Phones, Automated Teller Machines, Internet etc.
3 Coastal shipping 75 50 No credits at present o Admission to entertainment events or access to
amusement facilities,
“Accept the challenges, so you may feel the exhilaration of victory.” - George S. Patton
10
March, 2012

17. UNION BUDGET 2012-13
Service Tax
o Transmission or distribution of electricity by an (Whether or not intoxicating) is supplied in any manner
electricity transmission or distribution utility, as a part of the activity.
o Pre-school and higher education including education as It is expected that present exemption Notifications will
a part of an approved vocational education course, be rescinded / modified / merged to limit the exemption
o Services by way of renting for residential purposes, Notification.
o All modes of transportation by rail (such as Metro, Point of Taxation Rules, 2011 (w.e.f. from 1 April 2012):
Mono-Rail etc.) other than first class and air-conditioned o Continuous supply of service amended to include any
coaches (including Metered Cabs, Radio Taxis or Auto service provided or to be provided on a recurrent basis,
Rickshaws etc.), for a period exceeding three months with the obligation
o Transport by Road (except a Goods Transport Agency for payment periodically or from time to time
Or Courier Agency), o Rule 6, in respect of continuous supply of service
o Toll charges, omitted and merged with Rules 3, 4 and 5 which deal
with situations covering a change in the effective rate of
o Services by the Government or A Local Authority tax and taxation of new services.
excluding certain specified services
o Rule 2A inserted to define the date of payment as the
o Services by the RBI earlier of the dates on which the payment is entered in
o By a foreign Diplomatic Mission located in India the books of accounts or credited to the bank account of
the person liable to pay tax except in certain specified
o Specified services in relation to Agriculture
cases
o Betting, Gambling or Lotteries,
o A new Rule 8A inserted as a residual rule, to ascertain
o Service by way of extending deposits or loans in so far the point of taxation by way of best judgment where the
as consideration is by way of interest/ discount and sale taxpayer is unable to submit the details regarding the
and purchase of foreign currency between banks and date of payment or date of invoice or both.
o Funeral, burial, crematorium or mortuary services Place of Provision of Services Rules, 2012:
including transportation of the deceased.
o The Government have released “Place of Provision of
Proposed Declared Services (Deeming Provision): Services Rules, 2012” for Comments and feedback for
To remove ambiguity, certain activities have been specifically the time being, which is covered by “Draft Guidance
defined by description as services and referred as Declared Paper-B (GPB).
Services under Section 66E, namely: - o The said new rules would replace the existing Export
o Renting of Immovable Property, of Services Rules, 2005 and the Taxation of Services
(Provided from Outside India and Received in India)
o Construction of a Complex, Building or Civil Structure, Rules, 2006.
including those intended for sale to a buyer,
o Criteria to determine the place of provision of service
o Temporary transfer or permitting the use or enjoyment proposed to be classified under the following heads: -
of any intellectual property right,
a. Location of the service receiver
o Development, design, programming, customization,
adaptation, upgrading, enhancement or implementation b. Place of performance of services (primarily involving
of information technology software (Sale of packaged services related to any goods)
or canned software is proposed to be treated as sale of
goods), c. Location of immovable property
o Agreeing to the obligation to refrain from an act, or to d. Place the where event is held (in the case of event
tolerate an act or a situation, or to do an act, related services)
o Transfer of goods by way of hiring, leasing, licensing o Where both the service provider as well as the
or in any such manner without transfer of right to use recipient are located within the taxable territory then
such goods (This entry would cover only activities notwithstanding any of the above criteria, the place of
representing the financing transaction in relation to provision of service is to be the location of the recipient
delivery of goods on hire purchase or on installment and of service
not actual delivery), o Special Rules proposed in respect of the following
o Activities in relation to delivery of goods on hire services: -
purchase or any system of payment by installments, a. Services provided by a banking company, or a
o Service portion in the execution of a Works Contract and financial institution, or a non-banking financial
company, to account holders
o Portion in an activity wherein goods, being food or
any other article of human consumption or any drink b. Telecommunication services provided to
subscribers
"There are three ingredients in the good life: learning, earning and yearning.” - Christopher Morley
11
March, 2012