Presentation to the Ministry of Finance, Department of Revenue – Pre budget Suggestions Union...

Presentation to the Ministry of Finance,

Department of Revenue – Pre budget

Suggestions Union Budget 2013-2014 -

Construction Industry

03 December 20121 Budget Suggestions-Construction Sector

PRE – BUDGET MEMORANDUM3rd December 2012



Direct Taxes Income Tax

Indirect Taxes Central Excise Service Tax Customs Central Sales Tax

03 December 2012Budget Suggestions-Construction Sector 3


Direct Taxes – Income Tax


Sr. No.

Issues Suggestions

1 Section 40 A (2) (b)

Introduction of Transfer Pricing provisions to domestic transaction

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 The provision needs to be withdrawn b).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 alsoii)Only Direct subsidiaries or step down subsidiaries.

2 Section 115 JC

Applicability of alternate minimum tax on persons other than corporate assessees.

This provision may be dropped or at least project specific AOP / Joint Ventures should be excluded from AMT.

3 Section 115 JB

a)Double taxation of AOP / Integrated Joint Venture profits under MAT u/s 115 JB.

Insertion of a new clause to exclude profit / loss of AOP from book profit – Duplication.

PRE –GET MEMORANDUM3rd December 2012



Sr. No.

Issues Suggestions

b) Higher rate of MAT to Corporates Should be brought down to 7.5%

c) Unavailability of DTAA benefit. ( Section 90 / 115 JB)

The overriding impact of Sec. 115 JB should be excluding Sec. 90 (2) of the Income Tax Act.

4 Section 206AA

Mandatory requirements of obtaining PAN u/s 206 AA by foreign parties. Increases cost on Indian entities due to grossing up.

Should be dispended and compliance may be called through quarterly return and related information.

5 Section 194 C

TDS deduction @ source u/s 194C and blockage of funds

Corporate entities above particular threshold limit of capital contribution may be excluded

6 Section 67A / 70 / 86

Lack of clarity on availability of set off of loss of AOP in the hands of members.

Due to divergent views, clarity for allowability of losses in the hands of members to be provided.




Sr. No.

Issues Suggestions

7 Section 72 A

a)Unavailability of carry forward and set off of business loss to the construction industry for merger/amalgamation.

Sec. 72A should be amended and be made applicable to all businesses and not restricted for only industrial undertaking.

b) Unavailability of carrying back the losses

Losses should be allowed to be carried back up to 3 assessment years.

8 Section 32

Lack of clarity for availability of depreciation or amortization for PPP/BOT projects

Asset constructed for PPP/BOT project may be clarified as “intangible asset” entitling depreciation @ 25%.

9 Section 32 (iia)

Unavailability of initial depreciation to construction sector.

Benefit should be extended in view of Capital intensive nature




Sr. No.

Issues Suggestions

10 Ambiguity for adjusting Toll revenue against construction of additional bridge / lanes.

Toll Revenue for existing bridge / road should be allowed to be adjusted from construction of new bridge or additional lanes.

11 Section 14A

Disallowance u/s 14A r.w.r. 8D of the Act

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.

12 Section 9

Treatment of Computer Software and other payment as royalty.

Application of such amendment should be prospective.




Sr. No.

Issues Suggestions

13 Section 80 IA

a)Unavailability of deduction u/s 80IA to construction / developer.

Benefit may be reinstated

b) Benefit to be extended to Road Widening projects.

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.

c) Benefit may be extended to Limited Liability Partnership (LLP)

80 IA benefit is presently available only to a Company. Benefit may be extended to LLP

14 Section 44AD

Limit for payment of Income Tax by civil contractors under Section 44AD to be enhanced to Rs 2,00,00,000

The present limit of Rs 60,00,000 may be enhanced.


INDIRECT TAX



Indirect Taxes – Central Excise


Sr. No.

Issues Suggestions

1 Proposal for duty exemption Notification:

Unavailability of Excise Duty exemption for supply of goods to Nuclear Power Projects.

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.

2 Amendment to Sr.No.206 of Not.No.12/ 2012-C.E. dated 17.3.12:

Goods (fabricated at site) which are to be used for Captive consumption, when sent for job work do not have 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.


Indirect Taxes – Central Excise


Sr. No.

Issues Suggestions

3 Amendment to Sr.No.233 of Not.No.12/2012 dated 17.3.2012:

Unavailability of Excise exemption for following stages / units of water supply Project: :Water pumping station;Water storage facility;Pipeline for delivery of water

The Excise exemption which is presently available only for water treatment plant may be extended to all stages / units of water supply Project.

4 Clarification to Sr.No.144 of Not.No.12/ 2012-C.E. dated 17.3.2012:

Ambiguity for Excise exemption on concrete mix manufactured at site.

“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


Sr. No.

Issues Suggestions

1 Amendment to Sr. No. 12 (c ) of Not. No.25/2012-S.T. dated 20.6.2012:.

Restriction of exemption for construction of civil structure predominantly used by Educational / Clinical or an Art & Cultural establishment. - To Government, Local authority or Governmental authority.

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.

2 Amendment to Sr. No. 12 (d ) of Not. No.25/2012-S.T. dated 20.6.2012:.

Restriction of exemption for construction of canal, dam or other irrigation work - only to Government or local authority or a governmental authority. .

Exemption benefit should be extended to all entities engaged in such work or at least to State/Central Government Enterprises / Undertakings.

Alternatively benefit should be atleast continued for ongoing contracts.




Sr. No.

Issues Suggestions

3 Amendment to Sr. No. 12 (e ) of Not. No.25/2012-S.T. dated 20.6.2012:.

Restriction of exemption for construction of Pipeline, Conduit or Plant for Drinking water, Water Treatment Plant, Sewerage Plant. - only to Government or local authority or a governmental authority. .

Exemption benefit should be extended to all entities engaged in such work or at least to State/Central Government Enterprises / Undertakings.

Alternatively benefit should be continued for ongoing contracts.

4 Amendment to Sr. No. 13 (a) of Not. No.25/2012-S.T. dated 20.6.2012:.

Sr.No.13 (a) Restriction of exemption for construction of road, bridge, tunnel, terminal - if it is used for general public.

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 01/07/2012




Sr. No.

Issues Suggestions

5 Amendment to Sr. No. 14 (a) of Not. No.25/2012-S.T. dated 20.6.2012:.

Sr. No.14 (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.

Similar to Mega exemption provided under Sr. No. 12 & 13 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.

6 Amendment to Sr. No. 14 (b) of Not. No.25/2012-S.T. dated 20.6.2012:.

Sr.No.14 (b) - Exemption is available only for single residential unit of a residential complex.

Exemption may be restored up to 12 dwelling units in the complex as allowed earlier..

7 Exemption for construction of Power projects

Unavailability of exemption to construction of Power projects

Construction services provided to Hydro / Thermal / Nuclear Power projects may be exempted from purview of Service Tax.




Sr. No.

Issues Suggestions

8 Proposal for exemption Notification: Site formation, excavation etc finds no specific mention for exemption.

Site formation, clearance, excavation, earthmoving and demolition should continue to get exemption without which exemption granted for road, bridge etc. would be not viable.

9 Amendment to Sr. No. 12 (f) of Not. No.25/2012-S.T. dated 20.6.2012:.Unavailability of exemption for construction of residential quarters for staff other than employees of Government authorities.

Exemption may be restored as there cannot be service to self.

10 Amendment to Not.No.30/2012-S.T. dated 20.6.2012:Difficulty in implementing the partial Reverse Charge Mechanism from discharge of tax and accounting.

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.




Sr. No.

Issues Suggestions

11 Rule 6 (A) of Not.No.36/2012-S.T. dated 20.6.2012 (Export of Services)

Disqualification from export of service for non receipt of consideration in foreign convertible currency for project executed in neighboring countries.

The requirement of receipt in foreign exchange may be dispended for export of service to neighboring countries like Nepal, Bhutan, Sri Lanka etc.

12 Clarification to service provided within SEZ:

Late receipt of A-1 Form and doubt in availability of Service Tax exemption for services provided in SEZ by sub-contractors.

To overcome administrative difficulties for late receipt of A1 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.




Sr. No.

Issues Suggestions

13 Amendment to Cenvat Credit Rules, 2004: Applicability of Reverse Charge Mechanism to AOP / Un-integrated JV’s and lapse of Cenvat Credit.

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 50% 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.

14 Amendment to Sec.72A of Finance Act, 1994: Increase burden of special audit over and above other audits.

Provision be deleted since trade is already overburdened with other audits, monthly returns and compliances etc.

15 Amendment to Rule 2A of Not. No.24/2012-S.T. dated 6.6.2012: - Determination of value of service portion in the execution of a works contract

Lack of clarity on option to follow Service Tax discharging method for payment of Service Tax for Works Contract.

A clarification may be issued for availability of such option i.e., either assessment option or Fixed percentage method as was existing prior to 01/07/2012.




Sr. No.

Issues Suggestions

16 Clarification to Sr. No.(h) of Negative List: Ambiguity on payment of Service Tax on receipt of annuity / grant or user fee under BOT projects.

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.

17 Amendment to Sr, No.13 of Not. No25/2012-S.T. dated 20.6.2012: Exclusion of management of road from the Mega Exemption.

The erstwhile exemption for management of road is missing though erection, construction maintenance, repair of road continues to get such exemption.

18 Amendment to Sr. No. 6(x) of Service Tax (Determination of Value) Rules, 2006 (Ref Not No 24 / 2012 dated 6.6.2012)Possible applicability of Service Tax in payment of demurrage penalty, liquidated damages.

Since these payments are not towards rendering any service but for not rendering service in time, same should be clarified to be outside purview of Service Tax.




Sr. No.

Issues Suggestions

19 Amendment to Not.No.28/2012-S.T. dated 20.6.2012: Ambiguity in POPS Rules.

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 definition of location of service provider / receiver.

b) Rule 14 of POPS Rules should be amended to suggest that, rule which is specific, would prevail over applicability of general rule. Similar to provisions of Sec 65A earlier applicable.

20 Clarification to Cenvat Credit Rules, 2004:

Denial of Cenvat Credit on Capital Goods used in taxable and non taxable project.

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.

21 Clarification to Sr. No.(h) of Negative List: Ambiguity on Service Tax exemption for collection of toll charges

Toll collection is a statutory levy, same should be exempt from levy of Service Tax irrespective of the entity which recovers toll.




Sr. No.

Issues Suggestions

22 Clarification to Sl No 29 (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.

Clarification required exempting services provided by sub-contractor with regard to following services listed in Mega exemption :-a)Sl No 12 – Services provided to Government / local authority / Governmental authority by way of construction, erection , commissioning etc.b)Sl No 13 – Services provided in relation to construction of road, bridge etc.c)Sl No 14 – Services provided in relation to construction of Railway, Airport, Port etc.




Sr. No.

Issues Suggestions

23 Amendment to Rule 2 (h)(a) & 2 (i) (a) - Place of Provision of Services Rules (POPS) 2012 – 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)

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 or by virtue of definition of location or business establishment of service Provider / Receiver. The POPS cannot take away the Situs of Service provided by merely on the basis of Centralized registration / Business establishments.


Additional Point on Service Tax Clarification required from CBEC on the Non-taxability of Contracts of all

nature rendered by Contractors for organisation or Institution established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and Not for furtherance of profit or non-taxable. This will include the services providing for Civic amenities.

We refer the CBEC Circular No. 80/10 dated 17.9.2004.

Purpose:

Though the intention of the government is very clear about giving exemptions, field formation is taking different view for the period from 1.6.2007 which creates confusion for the industry.


Indirect Taxes – Customs


Sr. No.

Issues Suggestions

1 Amendment to Sr. No.512 of Not.No.12/2012-Cus. dated 17.03.2012: Unavailability of exemption to drinking water supply projects as available for Water supply project for agriculture and industrial use.

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.

2 Amendment to Customs Not. No.152/84-Cus. dated 15.5.1984: Restriction for import of goods from Bhutan used for project imported in Bhutan otherwise than India.

Goods should be allowed to be imported from Bhutan used in projects, without requiring prior approval from CBEC.

3 Amendment to Sr. No.368 List 16 of Not. No.12/2012-Cus. dated 17.03.2012:Unavailability of exemption on import of tunnel form work, loaders and excavators in some cases.

Item No.22 may be reworded to read as: Item No.22, Loaders, 23 – Excavators, 24- 3 Stage crusher, 25- Drilling Jumbo, 26 – Shortcrete machine and 27 – Tunnel Formwork.

4 Amendment to Condition No.4 of Circular No 49/2011 dated 4.11.2011: Restriction on use of auxiliary equipments

Auxiliary equipment may be allowed to be withdrawn from project under CTH9801 after obtaining project completion certificate.


Indirect Taxes – Customs


Sr. No.

Issues Suggestions

5 Proposal for Duty Exemption :Unavailability of exemption for equipment for tunneling work in Hydro, underground storage of water supply project & underground metro railway projects.

As allowed for road project, considering importance of these projects, exemption be granted to various tunneling and excavation and lining equipment.

6 Amendment to Condition No.9 of Sr. No.368 of Notification No.12/2102-Cus. dated 17.03.2012:

Difficulties for availing exemption by the sub contractor without name being included in the Concession Agreement Not. No. 21/20122 CUS.

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.

7 Proposal for Duty Exemption :Excessive Custom Duty on Cement and Steel for construction of Projects / Highways / Roads.

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


Sr. No.

Issues Suggestions

1 “F” Form

Compulsion for obtaining Form ‘F’ for Branch Transfer of equipments, plant etc.

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.

2 “C” Form benefit to Plant & Machinery

Unavailability of ‘C’ Form benefit for purchase of Plant & Machinery to Construction Industry

Similar to manufacturing sector benefit of ‘C’ Form be extended to Construction Industry as well.


Central Sales Tax


Sr. No.

Issues Suggestions

3 “C” Form – Procedural difficulties

Difficulties in obtaining ‘C’ Form within end of next quarter.

a) Instead of issue of ‘C” Form a self declaration along with 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 along with invoice / delivery challan.

c) Responsibility may be jointly fixed on buyer to issue ‘C’ Form within stipulated time.

4 “ I “ Form – SEZ Developer

Unavailability of Form ‘I’ benefit to developer to SEZ unit.

The benefit of Form ‘I’ should be extended to developer and to SEZ unit apart from registered dealers.



Thank you

Presentation to the Ministry of Finance, Department of Revenue – Pre budget Suggestions Union...

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