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ICAI-ICAI Requests Members to Share Hardship Being Faced with Regard to TDS Returns.
February, 21st 2012

It is an established principle of law that an activity should suffer tax only once, either as goods or as service. The industry and trade presently is confused as to whether the Government considers software as goods (subject to VAT) or as service (and subject to service tax). "This clarity is fundamental in order to ensure that the tax payers can comply with the provisions of the relevant laws, and also pass on the incidence of appropriate tax down to the customer," says FICCI in its pre-budget memorandum to the government.

To treat software transactions (irrespective of whether these relate to customized or packaged software) both as goods and service is neither practical nor legally tenable. Multiple levies cannot be the intention of the legislature. It cannot also be a policy of the Government to collect revenues without the authority of law by expecting the trade and industry to continue their practice of charging taxes applicable to goods as well as services on the same transaction. It is therefore submitted that the Department provides a clarification whether Packaged Software should be considered as goods or service and if the same is considered as Service, directions should be issued to State VAT authorities to exclude levy of VAT on software transaction.

It is submitted that like other services (Viz. erection, commissioning or installation and construction service), the Computer industry (management, maintenance or repair service in respect of computers) should be allowed an abatement on the Contract value and the service tax be paid only on balance.

Safe Harbour Rules under Transfer Pricing for the IT Industry need to be notified at the earliest. This will help in reducing litigation and disputes, and thus ease the compliance burden for taxpayers as well as reduce administrative work for the tax department.

Clarity needs to be provided on the 'Place of Effective Management' definition in the proposed Direct Tax Code (DTC) which is to be used for determining the tax residency of a foreign corporation. The current definition provides a lot of scope for ambiguity and therefore, litigation. The definition states a foreign corporation will be resident in India if the Place of Effective Management is located in India at any time in the year. It further clarifies that the Place of Effective Management would be a place where the Board of Directors or its executive directors make their decisions, or the place where executive directors or officers of the company perform their functions and make commercial or strategic decisions. The definition does not specify what would be meant by `commercial or strategic decisions'.

Clarify transitional provisions under Goods & Services Tax (GST), specifically CENVAT credit to be carried forward into the GST regime, and eligibility and process for refund of unutilized credit.

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