Weekly Round-up on Tax & Corporate Laws | 23rd to 28th Aug

This weekly newsletter analytically summarizes the key stories reported at taxmann.com during the previous week from August 23rd to August 28th 2021, namely:

(a) CCI imposes a penalty of Rs. 200 crores on ‘Maruti Suzuki’ for restricting discounts by dealers;

(b) Madras High Court dismissed the request of a Tamil actor for interest waiver as conditions of Section 220(2A) were not complied with;

(c) Delhi Govt. notifies Medical Oxygen Production Promotion Policy of Delhi, 2021; allows 100% reimbursement of SGST;

(d) Gujarat AAR ruled that no GST can be levied on canteen charges collected by the employer from employees for payment to the service provider;

(e) Resolution plan approved by CoC is binding on all stakeholders, and commercial decision of CoC can’t be interfered with; and

(f) MCA issues FAQs on Corporate Social Responsibility.

1. A penalty of Rs. 200 crores imposed on ‘Maruti Suzuki’ for restricting discounts by dealers: CCI

In this significant case, the Competition Commission of India imposed a fine of Rs. 200 crores on India’s largest car manufacturer Maruti Suzuki India Ltd (MSIL), for its discount control policy enforced on dealers.

Brief Facts

The Commission suo-motu took up the case after receiving an anonymous an email from a claimed MSIL dealer alleging that MSIL’s sales policy is contrary to consumers’ interests and the terms of the Competition Act, 2002.

The informant claimed that MSIL dealers in the West-2 Region (Maharashtra State outside of Mumbai and Goa) were not allowed to give their clients discounts beyond those stipulated by MSIL in the announced “consumer offer.” It was claimed that a penalty was levied upon the dealer by MSIL, where a dealer was found giving extra discounts.

The informant alleged that where a dealer of MSIL was found to be giving discounts other than those permitted, MSIL would send the dealer an email imposing a penalty, depending on the number of incidents found against that dealer in a particular financial year (‘FY’). The penalty was required to be paid in cheque.

The Commission directed the Director General (DG) to conduct a preliminary inquiry in the matter and submit a report. Following an investigation, it was discovered that MSIL had directed its dealers not to provide consumers discounts above what MSIL had mandated. MSIL also hired Mystery Shopping Agents (MSA) to carry out the Discount Control Policy.

The CCI then considered whether it would constitute a violation of the Competition Act’s requirements. It referred to Section 3(4) of the Act in this regard.

The CCI observed that “Resale Price Maintenance (RPM) as defined under Explanation (e) to Section 3(4) of the Act includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged,”

“RPM can prevent effective competition both at the intra-brand level as well as at the inter-brand level. When a minimum RPM is imposed by the manufacturer upon the distributors, the distributors are prevented from decreasing the sale prices beyond the imposed limit. In other words, the mechanism does not allow the distributors to compete effectively on price. As such, stifling intra-brand competition results in higher prices for consumers,” said CCI

The CCI held that MSIL entered into an agreement with its dealers across India for imposition of Discount Control Policy amounting to RPM and monitored same by appointing MSAs.

The CCI observed that MSIL enforced its Discount Control Policy through the imposition of penalties, which resulted in an appreciable adverse effect on competition within India, thereby committing contravention of provisions of Section 3(4)(e), read with Section 3(1).

And, therefore, the CCI imposed the fine under Section 27(b) of the Competition Act and directed MSIL to “cease and desist” from following its discount control policy which penalized dealers and individuals for giving an extra discount.

Read the Ruling

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2. Interest waiver can’t be granted unless the assessee fulfills conditions mentioned under section 220(2A)

The Madras High Court has refused to grant a waiver of interest to the assessee as he failed to fulfill the mandatory conditions prescribed under Section 220(2A). Section 220(2A) sets out three conditions required to be cumulatively satisfied to avail benefit of interest waiver.

Facts

Assessee-R.S. Suriya was a professional Cine Actor and regularly filing returns of income. The assessee filed an application through his authorized Chartered Accountants seeking a waiver of interest. The assessee stated that he had fully co-operated during the appellate proceedings and further provided all the necessary details as required by Assessing Officer (AO). Thus, he was eligible for the waiver of interest under section 220(2A).

However, revenue rejected the assessee’s request for a grant of interest waiver. Aggrieved-assessee filed the writ petition before the Madras High Court.

Ruling

The Madras High court held that interest charged under Section 220(2) is not a penalty but is compensation. Such compensatory interest is prescribed to make good the financial loss that occurred to the dept. due to delay in payment on advance tax or tax on demand.

The PCCIT, CCIT, PCIT, or CIT may reduce or waive the amount of interest if he is satisfied with the three conditions stipulated in section 220(2A). The three conditions stipulated under section 220(2A) are:

(a) Payment of such interest has caused or would cause genuine hardship to the assessee;

(b) Default in payment of the amount on which interest has been paid or was payable was due to circumstances beyond the control of assessee; and

(c) The assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

The above three conditions for waiver of interest are to be fulfilled cumulatively. However, it was found that the assessee had never paid the demands in time for both assessment years, i.e., 2007-08 and 2008-09.

Further, the observation made in the assessment order had revealed that the assessee had not furnished any reasons that default in the payment of interest was beyond the control of the assessee.

When the assessment proceedings for both the assessment years 2007-08 and 2009-10 were completed on 30.12.2011, it was not clear why the assessee had not paid these demands. At least the assessee would have paid these demands after giving effect to the CIT(A) order dated 27-09-2013.

Furthermore, regarding co-operation in assessment, it was found that consequent to search notice dated 09-03-2011 calling for the return of income within 45 days, the assessee furnished return on 15-07-2011. The other incidents were also recorded to establish that the petitioner assessee had not cooperated to complete the Income-tax proceedings.

Thus, it can be concluded that the assessee had not established all the three conditions stipulated in the provisions for the purpose of grant of a waiver of interest.

Read the Ruling

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3. Delhi Govt. notifies Medical Oxygen Production Promotion Policy of Delhi-2021
Cabinet decision No. 3026 Dated 03.08.2021 (F-03/10/GAD/CN/2021/dsgadiii/2814-2823)

In the wake of the Covid-19 pandemic, the Delhi Government has introduced ‘Medical Oxygen Production Promotion Policy of Delhi – 2021’ to promote the production of Medical Oxygen to meet any crisis/medical emergency in the future.

The policy aims to increase the production of oxygen by setting up either new manufacturing enterprises or by expanding the production capacity of existing units and facilitating the storage and transportation of Medical Oxygen.

Among other benefits, the applicant would be eligible for 100% reimbursement of gross SGST within a month of Commissioning of the plant.

Read Notification

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4. No GST on employees’ portion of canteen charges collected by the employer for payment to the service provider: AAR Gujarat

The Factories Act, 1948 mandates for maintaining and providing the canteen facility for the employees/workers where the number of workers employed in a factory exceeds 250.

In this regard, an employer can either provide such facility on its own or it can be outsourced to the third-party caterers. As a general practice, the companies outsource the requirement to the third-party caterers wherein the caterers provide canteen services within the employer’s factory.

In this Advance Ruling, the Gujarat Authority of Advance Ruling (‘AAR’) held that Input Tax Credit (‘ITC’) of GST paid on the canteen facility provided by the applicant to its employees under Factories Act, 1948, would not be available.

As per Section 17(5)(b) of the CGST Act, 2017, ITC on food and beverages, outdoor catering, etc. is not available. However, it would be available where the same is used in making outward supply (same category of supply or as an element of a taxable composite or mixed supply). Further, the proviso given after the sub-clause (iii) allows the registered person to claim ITC where such goods or services are mandatorily required to be provided under any law.

The AAR observed that sub-clause (i) ends with colon (:) and is followed by a proviso, and this proviso ends with a semicolon (;). Therefore, sub-clause (i) is to be read independently of Section 17(5)(b)(iii) and proviso given after it. The proviso given after sub-clause (iii) is not connected to the sub-clause (i) and same cannot be read with the later.

The AAR further held that GST would not be leviable on the amount representing the employees’ portion of canteen charges which is collected by the employer and paid to the Canteen service provider.

Read the Ruling

5. Resolution plan approved by CoC is binding on all stakeholders, and commercial decision of CoC can’t be interfered with

In the instant case of Deputy Commissioner, CGST Kalol, Gujarat v. Gopala Polyplast Ltd [2021] 129 taxmann.com 312 (NCLAT- New Delhi), during the Corporate Insolvency Resolution Process (CIRP) of the respondent, appellant-operational creditor on behalf of CGST, ‘Department of Goods and Services Tax’ had filed a claim of outstanding GST dues recoverable from the corporate debtor.

The appellant stated that the claim was admitted to the extent of a sum. However, the Resolution Plan approved by the Committee of Creditors had made provision of a meager sum as full and final settlement of the dues of the appellant. The Adjudicating Authority (NCLT), by impugned order, approved the Resolution Plan.

On appeal, the appellant stated that the amount approved for the appellant-operational creditor was too insufficient considering the outstanding claim. The appellant, thus, submitted that the Resolution Plan as approved was required to be interfered with.

Dismissing the appeal, the Appellate Tribunal observed that the Resolution Plan approved is binding on the Central Government, State Government, any local authority, Guarantors, and other stakeholders. Sufficiency or insufficiency of the amount is a matter of the Commercial Division of the Committee of Creditors. It would not be appropriate on the part of the Appellate Tribunal to interfere in the same. As such, the appeal did not make out any ground to admit the same.

Read the Ruling

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6. MCA issues FAQs on Corporate Social Responsibility

In response to various amendments in section 135 of the Companies Act, 2013 and CSR Rules, the Ministry of Corporate Affairs has issued Frequently Asked Questions (FAQs) that supersede all the previous General Circulars/ Clarifications on the subject matter.

The primary rationale behind the amendments in CSR Rules is to improve the disclosure requirements by simplifying the various compliances. It has bought significant changes in carrying out CSR activities by Indian companies. Resultantly, various doubts have been raised by the stakeholders on the implementation of amendments. Thus, it becomes essential to address those concerns. To aid the stakeholders in understanding the new concepts and changes, the Ministry has issued FAQs whereby an effort has been made to address stakeholders’ concerns.

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The set of FAQs on CSR issued by the Ministry incorporates the following provisions:

(a) Applicability of CSR;

(b) CSR Framework;

(c) CSR Expenditure;

(d) CSR Activities;

(e) CSR implementation;

(f) Treatment of CSR expenditure;

(g) CSR reporting;

(h) Disclosures required for CSR.

Read the story

Also Read: The Uncertainty Encircling ITC Availment on Corporate Social Responsibility

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