A recent deal between Jet Airways and Etihad Airways, valued at $379 million, forms part of the government's new policy to encourage foreign direct investment in India. It is hoped that the infusion of foreign direct investment into civil aviation will result in improvements to the economy, a growth in traffic at Indian airports and the creation of job opportunities.
The Mumbai Bench of the Income Tax Appellate Tribunal has held that an Indian branch of a US entity was not a dependent agent permanent establishment of its group entities. The tribunal held that the branch was not a dependent agent as it had no authority on behalf of the group, it maintained no stock of goods and the orders relating to indent sale were only introduced and liaised by the assessee, not secured by it.
The Kerala High Court recently dealt with the levy of value added tax (VAT) on the transfer of use of trademark under a franchise agreement, holding that royalty payments were not subject to VAT. The court noted that even while the franchise agreement was in force, the assessee could itself enter into concurrent franchise agreements with other parties; hence, the transaction failed the test of 'right to use' for the purposes of VAT.
The Kerala High Court recently struck down the levy of service tax on restaurants and hotels under the Finance Act. The petitioners had contended that the levy encroached on the exclusive domain of the state legislature to impose tax on the sale of goods and luxuries, while the department had contended that Parliament was competent to levy service tax on the service elements of hotels' and restaurants' activities.
The constitutional validity of the levy of service tax when temporarily transferring copyright, or permitting the use and enjoyment thereof, was recently challenged before the Madras High Court by way of a writ petition. The court appears to have adopted a narrow view of commercial exploitation of copyright by holding that assignments for a limited time and area do not qualify as a transfer of the right to use goods.
Several film producers, distributors, sub-distributors and exhibitors filed writ petitions challenging the constitutional validity of a circular which stated that revenue-sharing arrangements in the form of profit sharing are liable to service tax. The circular stated that the nature of each transaction determines the leviability of service tax. The Madras High Court recently held the circular to be proper and valid.
The Hyderabad Bench of the Income Tax Appellate Tribunal has held that payments received by an Indian branch from its US head office for providing software development and medical transcription services were taxable in India, as the Indian branch was rendering services of a commercial nature that had been outsourced by the US head office. The tribunal upheld the 10% mark-up on cost as reasonable.
A new notification has been issued governing the exemption or refund available in respect of services provided to a unit or developer in a special economic zone (a geographical region that has been designed for the purpose of exporting goods and providing employment). It is hoped that this amendment will prove comparatively beneficial and help to attract or retain special economic zone investment.
A petitioner recently filed a writ of mandamus arguing that the rights under a duty-free scrip issued under the foreign trade policy would accrue to the holder based on the date of its issuance, and that any subsequent change in the foreign trade policy (ie, after the issue of the scrip) would have no bearing on the rights granted thereunder. The Madras High Court agreed.
In India, the export of dual-use items and technologies is either prohibited or permitted under licence. Under the foreign trade policy, dual-use items are listed and prescribed as special chemicals, organisms, materials, equipment and technologies. The category which covers chemical and biomaterial manufacturing and handling equipment and facilities was recently amended to bring it in line with international prescriptions.
The Customs, Excise and Service Tax Appellate Tribunal recently considered the application of the special additional duty (SAD) levied under Section 3(5) of the Customs Tariff Act 1975. The tribunal equated the import of goods into India from outside India with the clearance of goods from a special economic zone to a domestic tariff area for the purpose of claiming an SAD refund, provided that the prescribed conditions are fulfilled.
The Customs, Excise and Service Tax Appellate Tribunal recently held that the provision of telecommunications services to a third party at the behest of the customer did not make the third party the service recipient. The tribunal upheld the appellant's claim that its services qualified as exports, as the payment for such services was received from the foreign network operators in convertible foreign exchange.
The Supreme Court recently concluded that mere non-payment of duty could not amount to collusion or wilful misstatement unless deliberately intended. The court also argued that the intention to evade duty must be proved by the party alleging the bad-faith intention. The case concerned whether an export-oriented unit should pay duty on the supply of furnace oil to, and the procurement of electricity from, its sister concern.