1.

Income Tax Act 1961 (Most relevant to KSEB Limited)

1.1 : Income Tax Rates (applicable for Assessment Year 2016-17)

Net Income range (For Net Income range (For Net Income Range (For Income Tax
resident senior citizen) super senior citizen) all other individuals) Rates

Up to Rs. 3,00,000 Up to Rs. 5,00,000 Up to Rs. 2,50,000 Nil

Rs. 3,00,001-5,00,000 Rs. 2,50,001-5,00,000 10%

Rs. 5,00,001-10,00,000 Rs. 5,00,001-10,00,000 Rs. 5,00,001-10,00,000 20%

Above Rs. 10,00,000 Above Rs. 10,00,000 Above Rs. 10,00,000 30%

Senior citizen is one who is 60 years or more at any time during the previous year but not
more than 80 years on the last day of the previous year. Super senior citizen is one who is 80
years or more at any time during the previous year. Education cess at 2% and Secondary and
higher education cess at 1% of income-tax is applicable.

1.2 : Tax deducted at Source (TDS) – Other than Salary

1.2.1 : Rates for TDS

Section Description Cut off Company/ Individu If no

firm / co- al / HUF PAN
Amount
op. Society (%) (%)
(%)

Interest payable by banks 10,000/- 10 10 20

194 A
Interest payable by others 5,000/- 10 10 20

Payment to Contractors – 30,000/- 2 1 20

Single payment
194 C
Aggregate during the FY 1,00,000/- 2 1 20

194 H Commission / Brokerage 15,000/- 5 5 20

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 Rent – others 1,80,000/- 10 10 20

194 I
Rent – Plant & Machinery or 1,80,000/- 2 2 20
equipment

194 IA Consideration for transfer of Rs.50,00,000/- 1 1 20

immovable property other
than agricultural land.

194 J Fees for Professional or 30,000/- 10 10 20

technical services

194 LA Compensation on 2,50,000/- 10 10 20

compulsory acquisition of (Upto 31/05/16 -
Rs.2 Lakhs)
immovable property

# No cess and surcharge on Basic TDS rates given above on payment made to Residents

1.2.2 : Income Tax and Service Tax

If Service tax is levied separately on bills or invoices, tax is to be deducted on the total
amount of the invoice excluding the service tax amount. (Circular No. 1/2014
[F.No.275/59/2012-IT(B)], dated 13-1-2014)

1.2.3 : Section 194A - Interest Income other than interest on securities

Provisions of this Section shall not apply to interest credited or paid to a banking
company or co-operative Society engaged in banking or a Financial Corporation or LIC, or
UTI, or company or co-operative society carrying on insurance business or any other notified
institution, association or body.

Interest payable by KSEB on security deposits of consumers, delay in payment of

gratuity, delay in payment of tree cutting compensation or any other compensation will come
under this section.

Vide Notification S.O. 3489 [No.170 (F.No.12/164/68-ITCC/ITJ)] dated 22-10-1970, the

following persons are exempted from the applicability of Section 194A of the Act -

 any corporation established by a Central, State or Provincial Act;

 any company in which all the shares are held (whether singly or taken together) by the
Government or the Reserve Bank of India or a Corporation owned by that Bank; and

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  any undertaking or body, including a society registered under the Societies
Registration Act, 1860 (21 of 1860), financed wholly by the Government.

Thus interest paid on security deposits of the above categories of consumers will not
attract TDS u/s 194A.

1.2.4 : Section 194C - Payment To Contractor and Sub-Contractor

Any person responsible for paying any sum to any resident contractor for carrying out
any work (including supply of labor for carrying out any work) in pursuance of a contract,
shall at the time of payment or at the time of credit, whichever is earlier deduct tax at the
prescribed rate.

Work shall not include manufacturing or supplying a product according to the

requirement or specification of a customer by using raw material purchased from a person
other than such a customer, as such a contract is a contract for sale.

This will, however, not apply to a contract (e.g. a construction contract), which does
not entail manufacture or supply of an article or thing.

Cut off amount: If the credit raised in the books or the payment in pursuance of the
contract does not exceed Rs.30,000/-, no deduction has to be made at source. However, if the
aggregate of all amounts paid/credited in a Financial Year or likely to be
paid/credited exceeds Rs. 1,00,000/- (Rs.75,000/- upto 31-05-2016), then tax at source is to
be deducted from all contracts.

No deduction is to be made for sum credited/paid to a contractor/sub contractor in

transport business, during the course of business of plying/hiring/ leasing of goods carriages
on furnishing PAN to the payer/deductor, if such contractor owns ten or less goods carriage at
any time during the previous year and furnishes a declaration to that effect. Parties making
payment without TDS (as the contractor quoted the PAN) is required to intimate the PAN
details to the Income Tax Department in the prescribed format.

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Illustrations:

Contract Value
Contracts
Contractor A Contractor B Contractor C Contractor D

I 9,000/- 25,000/- 9,000/- 30,000/-

II 9,000/- 25,000/- 9,000/- 0

III 9,000/- 25,000/- 9,000/- 0

IV 9,000/- 30,000/- 40,000/- 0

Contractor A:

No tax has to be deducted as the Contract price of a single contract does not exceed
Rs.30,000/-, and the total amount on all contracts taken together in a single year does not
exceed Rs. 1,00,000/-.

Contractor B:

No tax needs to be deducted at the time of payment under contract I, II and III.

But when payment is made under Contract IV, Tax has to be deducted for the earlier
payments also, as the total amount paid to the contractor exceeds Rs. 1,00,000/- in the
Financial Year.

Amount payable to contractor under Contract IV : Rs. 30,000/-

Less: TDS @ 1% or 2% * on Rs. 1,05,000/-

(Value of all payments made during the year) : Rs. 1,050/- or Rs. 2,100/-
---------------------------------------

Net amount payable to contractor : Rs. 28,950/- or Rs. 27,900/-

=======================

* Depending on the legal status of Contractor.

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Contractor C:

No tax need to be deducted at the time of payment under contract I, II and III.

When payment is made under Contract IV, Tax has to be deducted from this payment
only, as the amount paid to the contractor under this contract exceeds Rs. 30,000/-.

Amount payable to contractor under Contract IV : Rs. 40,000/-

Less : TDS @ 1% on Rs. 40,000/- * : Rs. 400/- or Rs. 800/-

-------------------------------------
Net amount payable to contractor : Rs. 39,600/- or Rs. 39,200/-
======================

* Depending on the legal status of Contractor.

Contractor D:

No tax need to be deducted at the time of payment under contract I, as the amount paid to
the contractor under this contract does not exceed Rs. 30,000/-.

1.2.5 : Rent (Section 194I):

TDS on Rent is liable to be deducted by the person making the payment if the total
amount to be paid during the year exceeds Rs. 1,80,000 p.a. This limit of Rs. 1,80,000 p.a. is
per taxpayer. So in case, there are 2 co-owners of an asset, this limit would apply for each co-
owner i.e. TDS on Rent is liable to be deducted if payment to each co-owner exceeds Rs.
1,80,000 p.a., provided payment is made individually or in joint name.

Important provisions of Section 194 I are -

 If building is let out with furniture & fittings & rent is payable under two separate
agreements, composite rent is subject to tax.

 TDS is applicable to non-refundable deposit made by tenant.

 If refundable deposit is paid, no TDS to be done; but if deposit carries interest, TDS
on interest will be governed by Sec 194A.

 If municipal taxes, ground rent etc. are borne by tenant, no TDS on such sum is
required.

 No TDS, if payee is Government or local or Statutory authorities referred to in

Section 10(20A)/10(20).

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  No TDS or TDS at lower rate, if payee furnishes a certificate in Form 15A.

 Enabling of Filing of Form 15G/15H for rental payments: Upon self declaration in
Form No 15G/15H, to the effect that the tax on his estimated total income of the
previous year in which such income is to be included in computing his total income
will be nil, no tax will be deducted on rental payments u/s 194I provided the rent paid
to the payee does not exceed the maximum amount not chargeable to income tax
(Rs.2,50,000/-).

CBDT has issued detailed guidelines vide Notification No. 07/2016 dt 04-05-2016,
prescribing the procedures for processing of the Form No. 15G/15H produced by the receiver
of Rent. Copy of the Circular is attached as Annexure VII to this Hand Book.

1.2.6 : Section 194IA: Consideration for transfer of immovable property other than
agricultural land:

Tax should be deducted at source from the amount paid to the seller/transferor, who is
a resident, of Immovable Property (other than rural agricultural land) where the total
consideration paid or payable is more than Rs 50,00,000/-.

Tax shall be deducted at the time of payment or at the time of giving credit to the
transferor, whichever is earlier.

If payment is made in installments then it shall be deducted at each installment and

deposited after each one.

1.2.6.1 : Rate of TDS

The current rate is 1% of consideration amount if the seller or transfer furnishes the
PAN details. In case PAN details are not furnished the rate exceeds to 20%.

1.2.6.2 : Time Limit for Deposit

TDS on property is required to be deposited with income tax authorities within 30

days from end of month in which TDS was deducted.

1.2.6.3 : Documents to Be Filed

Form 26QB which is a challan cum statement has to be filled online furnishing all the
details related to property while making payments with respect to purchase of property
exceeding 50 lakhs. The details include amount of consideration, names and address of
transferor/s/transferee, property address, PAN details, date and amount of deduction and

17
deposit of TDS etc. The buyer additionally is also required to furnish TDS certificate in Form
16B within 15 days of furnishing Form 26QB and this form should be sent to the transferor/s.

1.2.6.4 : Joint Ownership of Property

In case of joint ownership of property, the upper limit of Rs. 50 lakhs is to be

determined on property basis and not on value to individual basis irrespective of number of
co-owners. For example, F, I, N jointly own a property, value of which for individual owner
is 20 lakhs each. In this case, though the individual price is less than the upper limit, but the
aggregate value exceeds 50 lakhs, which makes this transaction eligible for Section 194 IA.

1.2.6.5 : Exception to the section

Section 194IA is not applicable if payment is made to Non Resident. The above
transactions come under the purview of section 195 of the Income tax Act. Hence, upper limit
is not applicable here. Also, TDS here will be deducted as per rate prescribed chapter XVIIB
or 20%+EC+SHEC (whichever is higher) on the gross sale consideration, unless Nil or lower
rate TDS Certificate is obtained from the Assessing Officer. Surcharge @ 10% will be
applicable if amount paid exceeds Rs. 1crore.

Definitions:

 “Immovable Property” means any land (other than agricultural land) or any building or
part of a building. Example; Shop, Godown, theater etc.

 “Agriculture land” means agricultural land in India, not being land situated in any area
referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2 i.e.

 It is situated within the jurisdiction of municipality which has population of not less
than 10000; or

 It is situated in any area mentioned below:

Aerial Distance from Municipal Limits Population as per last Census

Within 2 Kms >10,000 but <= 1,00,000

Within 6 Kms >1,00,000 but <=10,00,000

Within 8 Kms >10,00,000

Where any residential building is constructed in an agricultural land, such land cannot
be treated as agricultural land, and tax has to be deducted under this Section.

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1.2.7 : Fees for Professional or technical services (Section 194J):

Professional services means services rendered by a person in the course of carrying on

legal, medical, engineering or architectural profession or the profession of accountancy or
technical consultancy or interior decoration or advertising or such other notified profession.

Fees for technical services means any consideration (including any lump sum
consideration) for the rendering of any managerial, technical or consultancy services
(including the provision of services of technical or other personnel) but does not include
consideration for any construction, assembly, mining or like project undertaken by the
recipient or consideration which would be income of the recipient chargeable under the head
“Salaries”.

1.2.8 : 194C and 194J – Comparison:

The application of section 194C or 194J depends upon the facts of the case and nature of
agreement between the contracting parties.

Section 194C mainly aims to provide for the tax deduction on transactions involving
composite contract. Where the contractor has to work as per specifications provided by
KSEB, apart from its specialisation in executing such kind of work, Section 194C will be
applicable.

For example, in a contract to repair the machinery, though there is some technical skill or
some sophisticated machinery used by contractor, as the repair is carried out as per
specifications provided by the KSEBL, TDS as per section 194C will be applicable.
Similarly, Line maintenance works, sub-station maintenance work, AMC, etc. are liable to
TDS u/s 194C.

In case of contracts involving application of acquiring or using technical know-how

provided or made available by a human element, they are Technical services liable to TDS u/s
194J. For example, Testing and Inspection of machines, Soil Testing, etc are treated as
Technical Services.

1.2.9 : Compensation on acquisition of certain immovable property (Sec.194LA)

Where any person is paying to a resident any sum which is in the nature of compensation,
enhanced compensation, consideration or enhanced consideration on account of compulsory
acquisition of any immovable property (other than agricultural land) under any law, then
deduction of tax at source @ 10% on such sum is to be done at the time of payment or by

19
issue of a cheque/draft or by any other mode, which ever is earlier. Deduction is to be done
where the aggregate amount of such payment during the F.Y. exceeds Rs. 2,50,000/- (Rs. 2
Lakhs upto and including 31-05-2016).

1.2.10 : Exemption from TDS (Section 196):

No TDS on any sum payable to – (i) Government; (ii) RBI; (iii) a corporation
established by or under a central act which is under any law for the time being in force,
exempt from income tax on its income.

1.2.11 : Shifting of TDS liability:

The statutory responsibility of TDS cast on a party to the agreement cannot be shifted
by any agreement between the parties.

1.3 : Tax Deducted at Source - Salary:

The TDS on salary may be computed on estimated income of the employee under
Salaries after obtaining the details of the proposed tax savings investment to be made by the
employee under Chapter VIA, and proof of such investment may be obtained from the
employee in all cases, as provided in CBDT Circular No.8/2013 dt.10.10.2013. TDS@20%
will be applicable in case the employee is not having PAN.

With effect from 01-04-2016, where the taxable income of an individual is less than
Rs.5,00,000/-, a rebate of Rs.5,000/- will be given under Section 87A of the Act.

For computation of taxable income under Salary, Valuation of perquisites may be

done as per Rule 3 of Income Tax Rules as under :

1.3.1 : Valuation of Perquisites:

1.3.1.1 : House Rent Allowance(HRA) [Section 10(13A)]

The least of the following is exempt:-

 HRA received by the employee in respect of the period during which rental
accommodation is occupied by the employee during the previous year; or

 50%/40% of salary where residential house is situated in metro/non metro city

respectively.

 Excess of rent paid over 10% of salary.

Salary for this purpose means Basic plus DA (if terms of employment so provide).

20
 For giving exemption under HRA allowance, rent receipts and PAN of landlord (in
case rent payments exceed Rs.10,000 pm) may be obtained.

1.3.1.2 : Medical Reimbursement:

It is fully exempt in respect of reimbursement of actual expenditure incurred by

employee on his or his family member’s medical treatment:

- in any hospital maintained by the Government or any local authority or in a hospital

approved by the Government for medical treatment for its employees; or

- In respect of prescribed diseases or ailments in hospitals approved by the Chief

Commissioner (Rule 3A of Income Tax Rules).

In other cases, the maximum exemption available is, for reimbursements supported by bills
upto a maximum of Rs. 15,000/- in the previous year.

1.3.1.2.1 : Prescribed diseases or ailments - Rule 3A of Income Tax Rules:

For the purpose of reimbursement, the prescribed diseases or ailments shall be the
following, namely :—

(a) cancer;

(b) tuberculosis;

(c) acquired immunity deficiency syndrome;

disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system,
(d) central nervous system, urinary system, liver, gall bladder, digestive system, endocrine
glands or the skin, requiring surgical operation;

(e) ailment or disease of the eye, ear, nose or throat, requiring surgical operation;

fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical
(f)
operation or orthopaedic treatment;

gynaecological or obstetric ailment or disease requiring surgical operation, caesarean

(g)
operation or laperoscopic intervention;

ailment or disease of the organs mentioned at (d), requiring medical treatment in a

(h)
hospital for at least three continuous days;

(i) gynaecological or obstetric ailment or disease requiring medical treatment in a hospital

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 for at least three continuous days;

(j) burn injuries requiring medical treatment in a hospital for at least three continuous days;

mental disorder - neurotic or psychotic - requiring medical treatment in a hospital for at

(k)
least three continuous days;

drug addiction requiring medical treatment in a hospital for at least seven continuous
(l)
days;

anaphylectic shocks including insulin shocks, drug reactions and other allergic
(m) manifestations requiring medical treatment in a hospital for at least three continuous
days.

1.3.1.3 : Conveyance Allowance

It is an allowance granted to meet the expenditure incurred on conveyance in

performance of duties of an office or employment of profit, provided that free conveyance is
not provided by the employer. Expenditure incurred on journey from residence to office and
back to residence shall not be treated as expenditure incurred on conveyance in performance
of official duties.

It is exempt to the extent of actual amount received or the amount spent for the
performance of the duties of an office or employment of profit, whichever is less.

1.3.1.4 : Rent free accommodation or accommodation provided at Concessional Rent.

Accommodation provided as rent-free or at concessional rate may be owned by the

employer or taken on lease or rent by the employer, furnished or unfurnished.

1.3.1.4.1 : Unfurnished Accommodation:

Nature of Provided in a city Provided in a city Provided in a city having

Accommodation having population having population population less 10 Lakhs
exceeding 25 Lakhs >10 Lakhs, but not
exceeding 25 Lakhs

Owned by Employer 15% of Salary 10% of Salary 7.50% of Salary

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 Lower of – Lower of – Lower of –
Leased / Rented by - Actual Lease Rent / - Actual Lease Rent / - Actual Lease Rent /
the Employer Rent paid or payable; Rent paid or payable; Rent paid or payable;
- 15% of Salary - 15% of Salary - 15% of Salary

Salary for this purpose means Basic Pay, DA and other taxable allowances, but exclude
retirement benefits.

1.3.1.4.2 : Furnished Accommodation:

In case of furnished accommodation, the value arrived at as per above calculation will be
increased by 10% of cost of furniture or hire charges paid for the furniture.

In all the above cases, the value of the perquisite would be reduced by the rent, if any,
actually paid by the employee.

1.3.1.4.3 : Exempted accommodation

The accommodation provided by the employer shall be a tax free perquisite if the
accommodation is provided to an employee working at -

 a mining site; or

 an onshore oil exploration site;

 or a project execution site;

 or a dam site;

 or a power generation site;

 or an offshore site, which being of a temporary nature and having plinth area not
exceeding 800 Sq.ft. is located not less than 8 Kms away from the local limits of any
municipality or contonment board or is located in a remote area.

1.3.1.4.4 : Occupying more than one accommodation:

Where, on account of his transfer from one place to another, the employee is provided
with accommodation at the new place of posting while retaining the accommodation at the
other place, the value of perquisite shall be determined with reference to only on such
accommodation which has the lower value (as determined according to the above provisions)
for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for
both such accommodations.

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1.3.1.5 : Gratuity [Section 10(10)]

In case of Government employee, it is fully exempt from tax.

In case of non-government employee covered by Payment of Gratuity Act, 1972 it is

exempt from tax up to the least of the following:-

➢ 15 days' salary for each year of service or part thereof exceeding six months(i.e.,
15/26*last drawn salary*completed year of service or part thereof exceeding 6
months), or

➢ Rs. 10 lakhs, or

➢ Gratuity actually received

1.3.1.6 : Leave Encashment [Section 10(10AA)]

Leave encashment while in service is taxable.

It is fully exempt in the case of Government Employees, at the time of retirement.

In other cases, leave encashment at the time of retirement is exempt from tax to the
extent of least of the following: -

➢ Amount actually received at the time of retirement

➢ Rs. 3 lakhs

➢ 10 months average salary

➢ Cash equivalent of leave salary in respect of the period of earned leave at the
credit of the employee at the time of retirement, but it cannot exceed 30 days
of average salary for every completed year of service.

Average salary for the above purpose means average salary drawn during 10 months
immediately preceding retirement.

Chief Engineer (HRM), vide letter No. HRM/IT/TELS/2015-16 dt 30-05-2015, issued

detailed procedure to be followed for taxation of Terminal Leave Surrender of retired
employees of KSEBL (Annexure I).

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1.3.1.7 : Commutation of Pension [Section 10(10A)(i)]

It is fully exempt in the case of Government employees or employees of local authority

or a corporation established by a Central, State or Provincial Act.

In other cases, commuted value of pension is exempt to the following:

 If gratuity is not received by the employee at the time of retirement, commuted value
of half of pension which he is normally entitled to receive: or

 If gratuity is also received, commuted value of 1/3 of pension which he is normally

entitled to receive.

In case of KSEBL, commuted value of 1/3 of pension is exempt.

Example:

Suppose Pension of an employee is arrived at - Rs.25,000/-

As per the Rule, the employee commutes 40% of his Pension.

His commuted value of Pension will be – 25,000 x 40% x 11.10, i.e. Rs. 1,11,000/-

Taxable value of Commutation will be -

Actual commuted pension : Rs. 1,11,000

Less : Commuted value of 1/3 of Pension

25,000 x 1/3 x 11.10 : Rs. 92,500

Taxable Income (from Commuted Pension) : Rs. 18,500

1.3.2 : Deduction from Salary:

1.3.2.1 : Profession Tax: Professional Tax levied by State Government (Under Section 16) is
deductible from salary.

1.3.2.2 : Deductions under Chapter VIA

Deductions allowed under Chapter VI-A i.e., Sections 80C to 80U, cannot exceed
gross total income of an assessee excluding short term capital gains under section 111A and
any long term capital gains.

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1.3.2.2.1 : Section 80C: Specified Investments -

Available to - Individual or an HUF.

Deduction - Up to a maximum of Rs 1,50,000/-

The following are some of the investments / expenses for which deduction u/s 80C is
available:

1. Contribution to approved Superannuation fund/PPF/RPF/Statutory PF.

2. Payment of life insurance premium. It is allowed on premium paid on self, spouse and
children even if they are not dependent.

3. Unit linked Insurance policy of UTI/LIC Mutual fund Dhanraksha.

4. Subscriptions to NSCs specified by the central government.

5. Principal part of loan taken for acquiring Residential House Property; provided that
the house should not be transferred within 5 years. Loan for land cost for residential
house is also qualified.

6. Notified annuity plan of LIC or of any other approved insurer.

7. Units or notified pension fund by UTI or approved mutual fund.

8. Tuition fees (not including donation or development fees) towards full-time education
including play-school activities, pre-nursery & nursery classes, of any 2 children of an
individual, paid to University, College or School in India.

9. Post Office Term Deposit for a period exceeding 5 Years.

10. Any sum deposited in Senior Citizen Savings Scheme.

11. Term deposit with scheduled bank for a period of not less than 5 years as per scheme
notified by Central Government.

12. Investing in units of notified mutual fund investing in approved public companies
engaged in infrastructure facility or power sector.

1.3.2.2.2 : Section 80CCC: Pension Plans of Insurance Companies -

Payments made to LIC or to any other approved insurer under an approved pension plan
is admissible for deduction under this section. The pension plan policy should be for
individual himself out of his taxable income. The deduction is least of the amount paid or Rs.
1,00,000/-.

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1.3.2.2.3 : Section 80CCD: Notified Pension Scheme -

Contribution made by the assessee and by employer to a Notified Pension Scheme is

admissible for deduction under this section. The deduction shall be equal to the amount
contributed by the assessee and/or by the employer, not exceeding 10% of his salary (basic +
dearness allowance). Even a self-employed person can claim this deduction which will be
restricted to 10% of gross total income.

The total deduction available to an assessee under sections 80C, 80CCC & 80CCD is
restricted to Rs. 1,50,000 per annum (Section 80CCE). Employer's contribution to Notified
Pension Scheme under section 80CCD is not a part of the limit of Rs. 1,50,000.

Additional deduction of Rs.50,000/- is allowed in respect of Employee's contribution to

National Pension Scheme.

1.3.2.2.4 : Section 80CCG: Rajiv Gandhi Equity Savings Scheme -

Under this scheme, any new retail equity investors can invest up to Rs.50,000 in listed
shares and mutual funds and claim income tax deduction on 50% of the amount invested in
the year of investment, under Section 80 CCG of the Income Tax Act.

A resident, who earn less than Rs 12 lakh a year, is eligible for investing under the Rajiv
Gandhi Equity Savings Scheme (RGESS).

The benefit under RGESS shall be available for investments made in the three
consecutive Assessment Years, beginning with the Assessment Year in which the deduction is
first claimed by an investor.

This is over and above the Rs 1.50 lakh limit under Section 80 C.

1.3.2.2.5 : Section 80D: Medical Insurance Premiums -

Quantum of deduction is the aggregate of -

 Premium towards policies on self, spouse and children, subject to a maximum of

Rs.25,000/-;

 Premium towards non-senior citizen parents, whether dependent or not, subject to a

maximum of Rs.25,000/-;

 If insured person is a senior citizen parent, additional deduction of Rs.5,000/- is

available;

This deduction is in addition to Rs.1,50,000 allowed under Section 80C.

27
 From AY 2013-14, within the existing limit, a deduction of upto Rs.5,000 for
preventive health check-up is available.

Payment of insurance premium should be paid by any mode other than cash.

1.3.2.2.6 : 80DD: Rehabilitation of Handicapped dependent relative -

Deduction of Rs. 75,000/- in respect of -

a) Expenditure incurred on medical treatment,(including nursing), training and

rehabilitation of a handicapped dependant relative.

b) Payment or deposit to specified scheme for maintenance of dependant

handicapped relative.

Further, if the dependent is a person with severe disability a deduction of Rs.1,25,000/-

shall be available under this section.

The handicapped dependent should be a dependent relative suffering a permanent

disability (including blindness) or mentally retarded, as certified by a specified physician or
psychiatrist.

Dependant, in the case of an individual, means the spouse, children, parents, brothers and
sisters of the individual or any of them.

1.3.2.2.7 : Section 80DDB : Deduction in respect of Medical Treatment, etc

Deduction is allowed to resident individual in respect of expenditure actually during the

PY incurred for the medical treatment of specified disease or ailment as specified in the rules
11DD for himself or a dependent relative.

Deduction under this section shall be available to the extent of Rs.40,000/- or the amount
actually paid, whichever is less.

In case of senior citizens, a deduction upto Rs.60,000/- shall be available under this
Section. In case of very senior citizens, the deduction shall be upto Rs.80,000/-.

For availing the deduction, the assessee has to furnish the prescription for such medical
treatment from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or
such other specialist, as prescribed in Rule 11DD.

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1.3.2.2.8 : Interest on loan taken for higher education (Section 80E):

The entire interest actually paid during the year on the education loan taken from any
financial institution or approved charitable institution for the purpose of pursuing higher
education pursued after passing the senior secondary exam or its equivalent from any school,
board or university recognised by the Central or State Government or local authority will be
allowed as deduction for an individual.

The loan should be taken by the individual claiming deduction, for the sole purpose of
higher education, either for the individual, spouse or children. The deduction is available for a
total of eight years or till the principal and interest amount have been repaid, whichever
comes earlier. This eight years would include the year in which the loan repayment starts and
seven years following this year.

The benefit under section 80E is over and above the tax benefits under section 80C.

1.3.2.2.9 : Donations to certain funds, charitable institutions etc(section 80G):

In respect of Section 80G, no deduction should be allowed by the employer from the
salary income in respect of any donations made for charitable purposes.

The tax relief on such donations as admissible u/s 80G will have to be claimed by the
taxpayer in the return of income.

However, employer, on due verification, may allow donations to the following bodies to
the extent of 50% of the contribution:

(a) The Jawaharlal Nehru Memorial Fund,

(b) The Prime Minister’s Drought Relief Fund,

(c) The Indira Gandhi Memorial Trust,

(d) The Rajiv Gandhi Foundation

and to the following bodies to the extent of 100% of the contribution:

(a) The National Defence Fund/the PM’s National Relief Fund,

(b) The Prime Minister’s Armenia Earthquake Relief Fund,

(c) The Africa (Public Contribution-India) Fund,

(d) The National Foundation for Communal Harmony,

29
 (e) The Chief Minister’s Earthquake Relief Fund, Maharashtra,

(f) The National Blood Transfusion Council,

(g) The State Blood Transfusion Council,

(h) The Army Central Welfare Fund,

(i) The Indian Naval Benevolent Fund,

(j) The National Children’s Fund,

(k) The Air Force Central Welfare Fund,

(l) The Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996,

(m) The National Illness Assistance Fund,

(n) The CM’s Relief Fund or Lieutenant Governor’s Relief Fund, in respect of any State
or Union Territory,

(o) The University or educational institution of national eminence approved by the

prescribed authority,

(p) The National Sports Fund to be set up by the Central Government,

(q) The National Cultural Fund set up by the Central Government,

(r) The Fund for Technology Development and Application set up by the Central
Government

(s) The national trust for welfare of persons with autism, cerebral palsy mental
retardation and multiple disabilities.

1.3.2.2.10 : Contribution made by an individual to political party (Section 80GGC):

Any contribution made by an individual to a political party (registered under section 29A
of the Representation of the People Act, 1951) is fully deductible under Section 80GGC of
the Income Tax Act, provided the payment is made by any mode other than cash.

1.3.2.2.11 : Income by way of Interest on Savings account (Section 80 TTA):

Deduction is available to an individual, up to a maximum of Rs.10,000/-, in respect of

interest on deposits in savings account (not time deposits) with a bank, co-operative society
engaged in carrying on the business of banking or post office.

30
1.3.2.2.12 : Employee suffering from permanent disabilities (Section 80 U):

Deduction of Rs. 75,000/- is available to an individual who suffers from a physical

disability (including blindness) or mental retardation. Further, in case of individuals with
severe disability a deduction of Rs.1,25,000/- is permissible. The tax payer has to furnish a
copy of certificate issued by the medical authority.

1.3.3 : Tax Benefit on Home Loan ( Interest amount):

Where a loan is taken for purchase/ construction/ repair/ renewal/ reconstruction of a

residential house property, interest paid on the loan is allowed as deduction under section 24.

The employee has to furnish before the Disbursement Officer a certificate from the
person to whom any interest is payable on the borrowed capital specifying the amount of
interest payable. In case a new loan is taken to repay the earlier loan, then the certificate
should also show the details of Principal and Interest of the loan so repaid.

1.3.3.1 : Condition: Purchase/construction should be completed within 5 years (upto AY

2017-18 – 3 Years) from the end of the FY in which the capital was borrowed. Hence it is
necessary for the Disbursing Officer to have the completion certificate of the house property
against which deduction is claimed either from the builder or through self-declaration from
the employee.

1.3.3.2 : Limit:

1. In case of self occupied property, Rs.2,00,000/-

2. If the house is not occupied due to employment in another place, the house will be
considered self occupied, and the amount of deduction allowed shall be Rs.2,00,000/-.

3. In case of let out property, no maximum limit.

4. Where loan is taken for repair/renewal/reconstruction, maximum limit is Rs. 30,000/-

5. If the loan is taken before April 1, 1999, the maximum limit is Rs.30,000/-.

1.3.3.3 : Interest during Pre-construction period:

Pre-construction period is the period from the date of disbursement of first instalment of
loan, till the 31st March immediately preceding the date of completion of construction.

When the building is under construction, the borrower may be paid depending on the
stages of construction. The actual loan repayment will start only when the entire loan amount
is disbursed to the borrower. During the period of partial disbursements, borrower will have

31
to pay pre-EMIs. Only the interest accrued on the disbursed money is paid during pre-
construction.

Tax deduction for the interest for pre-construction period, can be availed only after the
construction of the building has been completed. Once the construction is completed, the total
pre-construction interest paid is aggregated and is allowed as a deduction in 5 equal
instalments beginning from the year in which the construction is completed.

All interest payable in respect of the year during which the construction is completed,
(including interest payable for the period during which the construction was still to be
completed in that year) is deductible under Section 24.

Illustration:

Loan taken during January 2012 and Construction completed in June 2013. The Pre-
construction period is January 2012 to March 2013.

Interest during pre-construction period: Rs.1,00,000/-

This can be claimed as deduction in 5 equal instalments (1,00,000 / 5 = Rs.20,000/-)

commencing from FY 2013-14.

1.3.3.4: Additional deduction in respect of interest on loan taken for residential house
property (Section 80EE):

The maximum deduction allowable under this section shall be Rs.50,000/-. This shall be
over and above the deduction available under Section 24 of Rs.2 Lakhs. This deduction shall
be available w.e.f. 01-04-2016.

The deduction shall be subject to the following conditions, namely:—

i) the loan has been sanctioned by the financial institution during the FY 2016-17;

ii) the amount of loan sanctioned for acquisition of the residential house property does not
exceed Rs.35 Lakhs;

iii) the value of residential house property does not exceed Rs.50 Lakh;

iv) the assessee does not own any residential house property on the date of sanction of loan.

Where a deduction under this section is allowed for any interest on loan, deduction shall
not be allowed in respect of such interest under any other provision of this Act for the same or
any other assessment year.

32
1.4 : Relief when salary received in arrears:

Relief u/s 89(1) is available to an employee when he receives salary in advance or in

arrear or when in one financial year, he receives salary of more than 12 months.

Relief u/s 89(1) can be granted at the time of TDS by employers in the following conditions:

 If the employee is a Government Servant.

 He is employee in a (a) PSU, (b) Company, (c) Cooperative Society, (d) Local
Authority,(e) University, (f) Institution or Body.

The employee may furnish to the person responsible for making payment, such
particulars in Form 10E (read with Rule 21 AA) which should be duly verified by him.
Thereupon the Person responsible for making payment is required to compute the relief u/s
89(1) on the basis of such particulars and take into account this relief while making tax
deduction u/s 192.

1.5 : Information regarding Income under any other head:

A taxpayer may furnish particulars of income under any head other than "Salaries"
(not being a loss under any such head other than the loss under the head ― Income from
house property) received by the taxpayer for the same financial year and of any tax deducted
at source thereon. The particulars may be furnished in a simple statement, which is properly
signed and verified by the taxpayer. The Disbursing Officer can take into account any loss
only under the head ―Income from house property. Loss under any other head cannot be
considered for calculating the amount of tax to be deducted.

1.6: Furnishing details of claims to the Employer:

With effect from FY 2016-17, the employee shall furnish to the employer, a statement in
Form No. 12BB, showing the amount of claims along with evidence or particulars of claims
from the Salary Income, for the purpose of estimating his/her income and computing the tax
deduction at source.

33
1.6.1: Details of evidence/particulars required to be furnished along with Form 12BB

Sl No. Nature of Claims Evidence or Particulars

(1) (2) (3)

1 House Rent Allowance Name, address and PAN of the

landlord/landlords where the
aggregate rent paid during the
previous year exceeds Rs.1
Lakh

2 Leave travel concession assistance Evidence of expenditure

3 Deduction of interest under the head “Income from Name, address and PAN of the
house property” lender

4 Deduction under Chapter VI-A Evidence of investment or

expenditure

1.6.2: While filing Quarterly Return in Form No. 24Q, Employer has to enter the
following details:

 In case of House Rent Allowance claim:- Name and PAN of the landlord if
aggregate payment during the previous year exceeds Rupees One Lakh;

 In case of deduction of interest under the head “Income from House property”:–
Name and PAN of the lender (if available)

1.7 : Tax Collection at source (Section 206C):

Tax has to be collected at source by every person, who is a seller of any of the following
6 items, from the buyer of such goods, at the following percentage of the amount payable by
the buyer to the seller : -

Sl No. Description Rate (%)

(i) Alcoholic liquor 1%

(ii) Tendu leaves 5%

(iii) Timber obtained under forest lease 2.5%

(iv) Timber obtained by any other mode (other than under a forest 2.5%
lease)

34
 (v) Any other forest produce not being Timber or tendu leaves 2.5%

(vi) Scrap 1%

(vii) Sale of motor vehicle of the value exceeding Rs.10 lakh in 1%

cash or by the issue of a cheque or draft or by any other mode

Sale in cash of any goods (other than bullion & jewellery) 1%

exceeding Rs.2,00,000/-

Providing of any service (other than payments on which TDS 1%

provisions are already applicable) exceeding Rs. 2 Lakhs

1.8 : Time and mode of remittance of TDS to Government account:

All sums deducted by way of TDS / TCS shall be paid to the credit of the Central
Government, on or before seven days from the end of the month in which the deduction is
due. Where tax is due in March, it has to be deposited on or before 30th April.

1.8.1 : When deduction is due:

1.8.1.1 : TDS on payments other than Salary to the employee:

All sums deducted by way of TCS or TDS other than on payment of salary to
employees, the obligation to deduct tax arises at the time of credit or payment, whichever is
earlier.

1.8.1.2 : TDS on payment of Salary (section 192):

At the time of actual payment of salary to the employee.

The above provisions may be explained with the following Table:

Nature of Due for the Paid on Tax Due on Due Date Relevant Relevant AY
Payment Month for payment FY

Pension Feb – 2016 02-02-2016 Feb – 2016 07-03-2016 2015-16 2016-17

Pension Mar - 2016 02-03-2016 Mar - 2016 30-04-2016 2015-16 2016-17

Salary Feb – 2016 01-03-2016 Mar - 2016 30-04-2016 2015-16 2016-17

Salary Mar - 2016 01-04-2016 Apr - 2016 07-05-2016 2016-17 2017-18

35
1.8.2 : Non-remittance or short remittance of Tax deducted :

In case, tax is not deducted, interest @1% p.m. or part of the month is leviable, from
the date tax was deductible to the date on which such tax is deducted.

In case, tax deducted is not remitted within due date, interest @1.50% p.m. or part of the
month is leviable from the date of deduction of tax to the date on which it is actually
remitted.

As per Rule 30(6)(ii), where tax is to be deposited by a Company, the amount

deducted shall be electronically remitted into the Reserve Bank of India or the State Bank of
India or any authorised bank accompanied by an electronic income-tax challan.

1.9 : TDS / TCS Returns:

The TDS/TCS Returns are to be filed quarterly. Due Dates for filing of Quarterly Returns
are given below:

Period Due Date for TDS Return Due Date for TCS Return
filing filing

Q 1 : April to June July 31st July 15th

Q 2 : July to September October 31st October 15th

Q 3 : October to December January 31st January 15th

Q 4 : January to March May 31st May 15th

1.10 : Preparation of TDS Certificate:

1.10.1 : Form No. 16 (for income tax deductions from salary) :

TDS Certificate in Form No 16 has two parts viz Part A and Part B (Annexure). Part A
contains details of tax deduction and deposit and Part B (Annexure) contains details of
income.

As per Circular No: 04/2013 dated 17.04.2013, Part-A of Form-16 which is a statement
of Income Tax deducted from the salary of an employee has to be generated only through
TRACES Portal (https://www.tdscpc.gov.in/) of income tax department. In other words, Part-
A of Form-16 prepared manually is not valid.

36
 However, Part-B of Form-16 which is the statement of income of an employee can be
prepared by employers themselves.

1.10.2 : Form No. 16A (for income tax deductions from income other than salary) :

As per Circular No. 03/2011 dated 13.05.2011 and Circular No. 01/2012 dated
09.04.2012, issuing TDS certificate in Form No. 16A after generating and downloading the
same from “TRACES Portal” is mandatory. In other words, manually prepared Form-16A is
not valid.

1.11 : Penal Provisions under TDS:

 In case, TDS Returns are not filed within the due date, penalty @ Rs.200/- per day
will be levied by the Department.

 Certificate of TDS Form 16A is to be furnished within fifteen (15) days from the due
date for furnishing the quarterly return of TDS. In case of delay, a sum of Rs.100/- for
every day during which the failure continues.

 Certificate of TDS Form 16 is to be furnished before 31 st of May of the financial year

immediately following the Financial Year for which the income was paid and Tax was
deducted. In case of delay, a sum of Rs.100/- for every day during which the failure
continues.

1.12 Filing of Return of Income by individual:

An individual, whose income without claiming deduction under Sections 80C to

80U, exceeds the amount of exempted slab (Resident Super Senior Citizen – Rs. 5 Lakhs,
Resident Senior Citizen – Rs.3 Lakhs, Others – Rs. 2.50 Lakhs), are under statutory
obligation to file return of income.

1.13 Filing of Revised Returns:

Proper care should be taken to ensure that only correct details are entered in the
TDS/TCS Quarterly Returns. It is noted that, in some offices, PAN Number of the deductee
(employee, contractor or payee) is not correctly entered, resulting in non-availability of credit
to the actual beneficiary. It also results in the credit going to some other assessees, on whom
the Income Tax Department may, due to this wrong credit, levy additional tax and interest. If
any office comes to know about such mistakes, it will be the responsibility of the officer
responsible for filing TDS/TCS Returns, to ensure that such mistakes are rectified within a
week by filing revised returns.

37
 2. Service Tax provisions (Most relevant to KSEBL)

2.1 : INTRODUCTION

The Service Tax was introduced for the first time in India in 1994. Service Tax is
applicable on all the taxable services rendered in India (except Jammu and Kashmir)-whether
to an Indian or foreign client. Since Service tax is recently introduced act there are very few
decided cases/judgments from where we can have guidance.

With effect from 01.07.2012, service tax became applicable on all services except those
mentioned either in the Negative List or in the Mega Exemption Notification. The new
changes are a paradigm shift from the existing system where only services of specified
descriptions are subjected to tax. In the new system all services, except those specified in the
negative list, are subject to taxation.

2.2 : Rates of Service Tax:

a) Basic Service Tax Rate : 14.00%

b) Swachh Bharat Cess (SBC) : 00.50% (w.e.f. 15-11-2015)

c) Krishi Kalyan Cess (KKC) : 00.50% (w.e.f. 01-06-2016)

Total : 15.00%

As regards Point of Taxation, since this levy has come for the first time, SBC & KKC
are new levies, which was not in existence earlier. Hence, Rule 5 of the Point of Taxation
Rules would be applicable in this case. In case of person liable to remit service tax under
reverse charge mechanism, Rule 7 will be applicable [Rule 5 and Rule 7 explained in
Annexure II].

2.3 : Effect of revesting of Board into a limited company.

The only difference in applicability of Service Tax provisions before and after 31 st
October 2013, i.e., the date of transfer of Board into a limited company, is the applicability of
reverse charge mechanism.

Before the date of transfer, status of Kerala State Electricity Board being that of a
Government Department, reverse charge mechanism was not applicable. After the date,

38
being a limited company, it became applicable on work contract services provided by
Individuals, Firms, etc.

A lot of queries were raised from field offices on the applicability of service tax
provisions on the services awarded / provided during the period of vesting with Government
and revesting into a Government company. Some services were awarded before vesting of
Board into Government, but services were provided or payment made during the period
when the Board was functioning as part of Government of Kerala or after revesting into a
Government company.

The person who has to bear the service tax liability has to be decided in each case. A
statement detailing the different situations and the person who has to bear the Service tax
liability is attached as Annexure III.

2.4 : Services provided by KSEB:

2.4.1 : Transmission and distribution of Electricity:

According to Section 66 D (k) of Finance Act, 1994, Service by way of transmission

or distribution of electricity by an electricity transmission or distribution utility is exempt
from Service Tax. Exemption is available only for services provided by a distribution or
transmission utility.

2.4.2 : Renting of Distribution Poles of KSEBL:

KSEB Ltd is liable to charge Service Tax on Pole Rentals from Cable TV Operators.

2.4.3 : Renting of immovable property by KSEB Ltd:

Renting of immovable properties by KSEB Ltd is taxable under Service Tax provisions.
The Service Tax is payable on the amount of rent after deducting the property tax.

Renting of the following kinds of immovable properties are exempt from service tax.

➢ Renting of vacant land, with or without a structure incidental to its use, relating to
agriculture.

➢ Rent of residential dwelling for use as residence.

Also renting of immovable properties to educational institutions is exempt under Sl. No.
9(b) of Notification No. 25/2012-ST dated 20-06-2012.

Renting of all other immovable properties would be taxable unless covered by an

exemption. Thus renting of commercial complexes by KSEB will be a taxable service.

39
2.4.4 : Rent/Hire charges of movable properties:

Renting of movable properties including machinery, equipment & appliances for use
without transferring right or possession and effective control of such machinery, equipment &
appliances is taxable under right to use of tangible goods services. Hence the hiring out of
Crane Lift, etc by KSEB Ltd is a taxable service.

2.4.5 : Supervision Charges/overhead charges:

The service provided by KSEBL to consumers is in relation to distribution of

electricity, which is an exempt service. KSEBL is not providing any technical consultancy
service to consumers. Installation of transformers, laying of distribution lines, etc., are under
taken for providing the service of distribution of electricity. As per Electricity Supply Act,
KSEBL is recovering the cost incurred for providing the service of distribution of electricity.
Being a government organisation, in order to ensure recovery of the cost, KSEBL, as
approved by KERC, is collecting the estimated cost as pre-deposit. At the end of actual
execution, the difference in amount collected and the expenditure incurred is passed on to the
consumers.

As the ownership of assets created out of such deposit work is with KSEBL, the
creation of assets does not amount to any service provided to consumers. The supervision
charges collected by KSEBL are only reimbursement of expenses incurred for providing the
main service (i.e., distribution of electricity).

As supervision charges collected is reimbursement of expenses incurred for providing

the main service, as per Rule 5(1) of Service Tax (Determination of Value) Rules 2006, it has
to be added to the cost of services (i.e., distribution of electricity). As distribution of
electricity is an exempt service, no service tax need to be remitted on the supervision charges
collected from consumers.

Based on the above, the view taken by the Board is that KSEBL is not liable to remit
any service tax on supervision charges collected from consumers.

2.4.6: Input Credit Claim for set off against output tax payable as above:

The company is eligible for taking credit for the service tax paid on input services for
rendering the above output services. Input services for the above may include service tax on
payments to sub-contractors, payment to consultants, payment for hire charges for
transportation of goods, insurance payments, etc. Each ARU has to ensure that bills towards
input services where service tax is paid is having the service tax registration number of the

40
 payee aand the description of service is clearly mentioned. A service tax input register is to
be maintained in the prescribed format.

Note: Since Board is yet to take a final decision on whether credit for input service is to be
taken considering the detailed procedural formalities, the units may not take credit for the
input services as stated above till a final direction is received from the Board.

2.5 : Reverse Charge Mechanism – Full or Partial:

According to Notification No.30/2012-ST dt 20-06-2012, in respect of specified

services, the liability to remit service tax is on the recipient of service. The following are the
services received by KSEBL on which the applicable service tax has to be remitted by
KSEBL, fully or partially.

% of service tax
% of service
Sl Category of payable by the
Description of Service tax payable by
No. Service Provider person providing
KSEBL
service

Services provided or agreed to

be provided by a goods transport
1 agency in respect All 100% Nil
of transportation of goods by
road

Firm of advocates
Services provided or agreed to
or an Individual
2 be provided by way of legal 100% Nil
advocate other than
services
Senior Advocate

Services provided or agreed to

be provided by Government or
local authority excluding- (1)
renting of immovable property,
3 --- 100% Nil
and (2) services specified in sub-
clauses (i), (ii) and (iii) of clause
(a) of section 66D of the Finance
Act, 1994

Services provided or agreed to

be provided by way of renting of Individual, HUF
a motor vehicle designed to or partnership firm,
4 carry passengers on abated value whether registered 100% Nil
to any person who is not or not, including
engaged in the similar line of AoPs
business

5 - do - Body Corporate Nil 100%

6 Services provided or agreed to Individual, HUF 50% 50%

be provided by way of renting of or partnership firm,

41
 a motor vehicle designed to
carry passengers on non abated whether registered
value to any person who is not or not, including
engaged in the similar line of AoPs
business

7 - do - Body Corporate Nil 100%

Individual, HUF
Services provided or agreed to
or partnership firm,
be provided by way of supply of
8 whether registered 100% Nil
manpower, including security
or not, including
services, for any purpose
AoPs

9 - do - Body Corporate Nil 100%

Individual, HUF
Services provided or agreed to or partnership firm,
10 be provided in service portion in whether registered 50% 50%
execution of works contract or not, including
AoPs

11 - do - Body Corporate Nil 100%

Any taxable services provided or

agreed to be provided by any
person who is located in a non-
12 All 100% Nil
taxable territory and received by
any person located in the taxable
territory

2.6 : Point of Taxation:

As per Point of Taxation Rules 2011, point of taxation in respect of a service is the time
when the taxable service is deemed to have been provided, and liability to service tax arises.
In respect of services rendered by the non-residents, Rule 3 will be applicable and the
services are taxable when the same are debited in the books of account of KSEBL or payment
whichever is earlier.

A statement detailing the different situations and the point of taxation in each situation
is attached as Annexure II.

It may be noted that, as per Rule 7 of Point of Taxation Rules, the point of taxation in
respect of the persons required to pay tax as recipients of service shall be the date on which
payment is made to the service provider or the first day that occurs immediately after a
period of 3 months from the date of invoice, whichever is earlier. Thus, where payment is not
made to a contractor within 3 months of the date of Invoice, KSEBL is liable to remit the

42
applicable service tax on the work by the 5th of the month (in case of e-payment, by 6 th of the
month) immediately following the month in which the period of three months is completed.
However, payment for the month of March is required to be made by 31st of March itself.
Hence the ARU officers are requested to take care to ensure that the bills for works are
submitted within the time limit of three months of the date of Invoice, and to ensure timely
remittance of service tax without penalty.

2.7 : Mega Exemptions :

Vide Notification No. 25/2012-ST dt 20-06-2012, certain services are exempted from the
whole of service tax leviable thereon under Section 66B of the Finance Act 1994, few of
which are as under:

 Services provided to the United Nations or a specified international organization;

 Services provided to the Government, a local authority or a governmental authority by

way of construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation, or alteration of –

1. a historical monument, archaeological site or remains of national importance,

archaeological excavation, or antiquity specified under the Ancient Monuments
and Archaeological Sites and Remains Act, 1958 (24 of 1958);

2. canal, dam or other irrigation works;

3. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage
treatment or disposal.

 Services provided by way of construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance, renovation, or alteration of –

1. a road, bridge, tunnel, or terminal for road transportation for use by general
public;

2. a civil structure or any other original works pertaining to a scheme under

Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

3. a building owned by an entity registered under section 12 AAof the Income tax
Act, 1961(43 of 1961)and meant predominantly for religious use by general
public;

4. a pollution control or effluent treatment plant, except located as a part of a factory;

43
 5. a structure meant for funeral, burial or cremation of deceased.

 Services provided to the Government, a local authority or a Governmental authority

by way of construction, etc. (w.e.f. 01-03-2016 to 31-03-2020)

 Services by way of construction, erection, commissioning, or installation of original

works pertaining to-

1. railways, excluding monorail or metro;

2. a single residential unit otherwise than as a part of a residential complex;

3. low- cost houses up to a carpet area of 60 square meters per house in a housing
project approved by competent authority empowered under the ‘Scheme of
Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban
Poverty Alleviation, Government of India;

4. post- harvest storage infrastructure for agricultural produce including a cold

storages for such purposes; or

5. mechanized food grain handling system, machinery or equipment for units

processing agricultural produce as food stuff excluding alcoholic beverages.

6. monorail or metro, where the contract is entered prior to 01st March 2016;

7. airport or port, where the contract is entered prior to 01-03-2015 and the service is
provided on or before 31st March 2020.

 Exemption for the services provided by Government/local authority for amount not
exceeding Rs.5,000/- (w.e.f. 13-04-2016).

 Exemption for fines or liquidated damages to the Government or the local authority
(w.e.f. 13-04-2013).

2.8 : Abatement Provisions:

Vide Notification No. 26/2012-ST dt 20-06-2012, certain deductions, called

abatements, are allowed on the taxable value of specified services. The services, taxable
portion and the conditions for abatement, which are applicable to the functioning of KSEBL
is given below:

44
Sl Taxable % of
Description of Taxable Service Conditions
No. service

Services of goods transport agency in

1 30% No CENVAT Credit availed
relation to transportation of goods.

Renting of any motor vehicle designed

2 40% - do -
to carry passengers

2.9 : Service Tax on reimbursement of expenses:

The definition of consideration as per Explanation for clause (a) to Section 67 has
been substituted (vide Finance Act 2015) to provide that:

“consideration” includes:

6. any amount that is payable for the taxable services provided or to be provided;

7. any reimbursable expenditure or cost incurred by the service provider and

charged, in the course of providing or agreeing to provide a taxable service, except
in such circumstances, and subject to such conditions, as may be prescribed;

8. any amount retained by the lottery distributor or selling agent from gross sale
amount of lottery ticket in addition to the fee or commission, if any, or, as the case
may be, the discount received, that is to say, the difference in the face value of
lottery ticket and the price at which the distributor or selling agent gets such
ticket.

Thus, service tax liability has to be calculated by including the out of pocket expenses
incurred by service provider and recouped by the service recipient, in the transaction value.
Where such expenses are incurred directly by the service recipient, it should not be included
in transaction value.

2.10 : Service Tax claim by Contractor:

As per General Conditions of Contract in KSEBL, the prices quoted by the

contractor shall indicate all freight and Insurance charges, duties and taxes etc. which may
become payable by the contractor under existing laws or rules of the country of origin or
supply during the course of execution of the contract. The ruling rates of taxes/duties as
applicable shall be stated in bid. In the absence of specific stipulation to the contrary in the
bids, it will be assumed that the prices quoted are inclusive of all such taxes, duties,

45
unloading charges etc. Any subsequent claim of the contractor towards taxes and duties will
not be allowed.

2.11 : Types of Services availed by KSEBL:

The following are the main services, availed by KSEBL:

1) Work contract services;

2) Legal Services;

3) Man power supply including security services;

4) Goods Transport Agency Services;

5) Renting of Vehicle for passenger transportation;

6) Services provided by Directors.

2.11.1 : Work Contract Services

2.11.1.1 : Meaning:

Work contract is defined by Section 65B(54) of Finance Act 1994 as “a contract

wherein transfer of property in goods involved in the execution of such contract is leviable to
tax as sale of goods and such contract is for the purpose of carrying out construction,
erection, commissioning, installation, completion, fitting out, repair, maintenance,
renovation, alteration of any movable or immovable property or for carrying out any other
similar activity or part thereof in relation to such property”.

In KSEBL, the following contracts are coming under Work contract services-

 Turnkey Contracts;

 Annual Maintenance Contracts, involving replacement of defective materials/parts;

 Civil or other maintenance work, where materials are supplied by the contractor.

The following contracts are not coming under Work contract services –

(t) Works executed departmentally;

(u) Labour contracts with departmental issue of materials, like distribution line
maintenance works, etc

Where work contract Services are provided by Individual, HUF or partnership firm,
whether registered or not, including Association of Persons to KSEBL, 50% of Service Tax

46
 liability has to be discharged by KSEBL. In other cases, the service tax liability has to be
discharged by the service provider, i.e., the contractor.

2.11.1.2 : Calculation of Taxable value of Work Contract Service:

There are two options:

(e) Where the value of materials and labour in the contract is identifiable

(f) Where the value of materials and labour in the contract is not identifiable

2.11.1.2.1: Value of materials and labour in the contract and invoice is

identifiable

Gross amount charged for the works contract XXXX

less the value of property in goods transferred in the execution XXX

of the said works contract (i.e., value of materials used in the

work contracts)

less VAT or Sales Tax on the materials transferred XXX

Value of service portion in the execution of a works contract XXX

Value of works contract service shall include -

i) labour charges for execution of the works;

ii) amount paid to a sub-contractor for labour and services;

iii) charges for planning, designing and architect’s fees;

iv) charges for obtaining on hire or otherwise, machinery and tools used for the

execution of the works contract;

v) cost of consumables such as water, electricity, fuel used in the execution of the

works Contract;

vi) cost of establishment of the contractor relatable to supply of labour and services;

vii) other similar expenses relatable to supply of labour and services; and

viii) profit earned by the service provider relatable to supply of labour and services;

47
Example:

Value of materials used in the contract : Rs. 10,00,000/-

VAT charged on the materials : Rs. 1,35,000/-

Consumables used : Rs. 25,000/-

Value of Labour portion : Rs. 8,00,000/-

Total Contract Value : Rs. 19,60,000/-

Service Tax Liability:

Total Contract Value : Rs. 19,60,000/-

Less: Value of Materials used : Rs. 10,00,000/-

VAT on the materials : Rs. 1,35,000/-

-------------------------
Value for Service Tax : Rs. 8,25,000/-

Service Tax @ 14% : Rs. 1,15,500/-

If the service provider is an individual, HUF or partnership firm, whether registered or

not, including association of persons, the liability to remit Service Tax shall be -

KSEB Limited : 50% of Tax, i.e. Rs. 57,750/-

Service Provider : 50% of Tax, i.e. Rs. 57,750/-

In case the service provider is a limited company or a corporation, service provider

shall remit the Service Tax.

2.11.1.2.2 : Value of materials and labour in the contract is not identifiable

Where the materials and labour involved in the contract is not identifiable (e.g.,
AMC Contracts), the following method may be applied for calculating the Service Portion of
total contract:

Sl No. Description % of total amount charged for

the Work Contract

1 Original works, i.e. 40%

- all new constructions,
- all types of additions and alterations to abandoned or
damaged structures on land that are required to make

48
 them workable;
- erection, commissioning or installation of plant,
machinery or equipment or structures, whether pre-
fabricated or otherwise.

2 Other Work Contracts 70%

Total amount charged for the work is calculated as below:

Gross amount charged by the Contractor

XXXXX

Add:
Fair market value of departmental issues, in or in relation to the
execution of the works contract XXX

Less:
Amount recovered from contractor for such departmental
supply of goods or services XXX

Less:
VAT or Sales Tax levied thereon XX

Total amount charged for Work Contract XXXXX

In works contract services, where both service provider and service recipient is the
persons liable to pay tax, the service recipient has the option of choosing the valuation
method as per choice, independent of valuation method adopted by the provider of service.

Even if the service provider is availing SSI exemption under Service Tax, KSEB Ltd has
to remit 50% of Service Tax under reverse charge.

Example:

The manner of arriving at the ‘total amount charged’ is explained with the help of the
following example pertaining to works contract for execution of ‘original works’.

(a) Gross amount of contract (incl. Departmental issues) : Rs. 95,00,000

(b) Amount charged by KSEB Ltd for Deptl Issues : Rs. 10,00,000

(c) Total amount paid to Contractor (a-b) : Rs. 85,00,000

(d) Value of service portion(40% of (c) in case of original works) : Rs. 34,00,000

(e) Service Tax @ 14% on (d) : Rs. 4,76,000

49
 If the service provider is an individual, HUF or partnership firm, whether registered
or not, including association of persons, the liability to remit Service Tax shall be -

KSEB Limited: 50 % of Tax, i.e. Rs.2,38,000/-

Service Provider: 50% of Tax, i.e. Rs.2,38,000/-

In case the service provider is a limited company or a corporation, service provider

shall remit the Service Tax.

2.11.2 : Legal Services:

In respect of legal services provided by Advocates, the liability for remittance of

service tax is on KSEBL. While calculating the value for service tax calculation, any out of
pocket expenses (like traveling, typing charges, etc) incurred by the advocate and recovered
from KSEBL through Invoice has to be added to the cost of service. Where such expenses
are incurred by KSEBL directly, no need to added them to arrive at the cost of service.

2.11.3 : Man Power Supply including Security Services:

According to Rule 2(1)(g) of the Service tax Rules 1994, supply of Manpower means
“supply of manpower, temporarily or otherwise, to another person to work under his
superintendence or control”.

In order to treat a service as Manpower supply service, the payment to be made by the
company to the contractor should be related to the number of labourers supplied during a
specific period, and not to the quantum of work carried out.

Services rendered to KSEBL by various contractors, which involve utilization of

manpower:

2.11.3.1 : Security Services: Security services provided to KSEBL will come under the
category of manpower supply services.

2.11.3.2 : Shift operators: Shift operators engaged to carry out the works in sub stations,
generating stations, etc will come under man power supply services.

2.11.3.3 : Office Clerks / cleaning staff: Individuals engaged to carryout the office works /
cleaning works of KSEBL offices will not come under the category of Manpower supply
services. It may be noted that in a manpower supply agreement, there should be three parties,
i.e., the provider of service (contractor), receiver of service (employer) and the manpower
supplied (labour). In case of self-service, the agreement is for execution of the work by the

50
contractor himself.

Thus, such works are not coming under manpower supply services, and KSEBL is not
liable for remittance of service tax on such services. But the term “supply of manpower”
should not be used in the terms of agreement.

2.11.3.4 : Meter Readers: Awarding of Meter reading works, is not a man-power supply
service, as the payment to the contractor is related to the quantum of work carried out (i.e.,
number of readings taken) and not related to the number of labourers supplied.

2.11.3.5 : Distribution maintenance works: Award of works related to Distribution line

maintenance like clearing of line touchings, Distribution line installation or maintenance, etc
will not come under man-power supply services, as the contractor did not supply manpower
or charge for labour provided on man-day basis or man-hour basis and carried out work as a
contractor employing its own labour.

2.11.3.6 : Legal Decisions on Manpower Supply Contracts:

In an important judgement of CESTAT in the case of M/s. Shri Bileshwar Khand

Udyog Sahakari Mandali Limited Vs. CCE [(2013) 36 Taxmann.com 8 (Ahmedabad –
CESTAT)], it was concluded that work carried out on lump sum basis does not amount to
manpower supply services, and is not chargeable to service tax under that service.

The Tribunal held, in the above case, as under:

Invoices raised by assessee showed that assessee was charging lump sum amount of Rs.
300/- per metric tonne for help provided by it for cutting, loading and unloading of
sugarcane from fields of farmers.

In view of decision in K. Damodarareddy v. CCE (2010) 25 STT 69 (Bang.-Cestat) and in

Ritesh Enterprises v. CCE (2010) 24 STT 283 (Bang-Cestat), prima facie, such work
carried out on lump sum basis could not be categorized as ‘manpower supply
services’.

Relying on the above decisions of CESTAT, it can be concluded that the above
contracts are not coming under the category of manpower supply services.

2.11.4 : Goods Transport Agency Services:

In respect of services provided or agreed to be provided by a goods transport agency

in respect of transportation of goods by road, the service tax shall be payable on 30% of
amount paid to Goods Transport Agency.

51
 Mere transportation of the goods in a Motor Vehicle is not the service provided by a
Goods Transport Agency. A Goods Transport Agency in term of its definition under section
65(50b) provides service in relation to transportation of goods under a consignment note.

According to Rule 4B of Service Tax Rules 1994, “consignment note” means a

document, issued by a goods transport agency against the receipt of goods for the purpose of
transport of goods by road in a goods carriage, which is serially numbered, and contains the
name of the consignor and consignee, registration number of the goods carriage in which the
goods are transported, details of the goods transported, details of the place of origin and
destination, person liable for paying service tax whether consignor, consignee or the goods
transport agency.

The fortnightly bills cannot be treated as consignment notes, as a consignment note

issued by Goods Transport Agency represent its liability to transport the consignment handed
over to it to the destination and deliver the same to the consignee and merely a bill issued for
transportation of goods cannot be treated as Consignment Note.

The transportation of goods by individual truck owners without issue of consignment

notes, challans, etc. as prescribed in rule 4B of the Service Tax Rules, would be simple
transportation and not the service of Goods Transport Agency which involves not only
undertaking the transportation of the goods handed over to it but also undertaking delivery of
the goods to the consignee and also temporary storage of the goods till delivery. When the
transports did not issue consignment notes or Challans or any documents containing the
particular as prescribed in Rule 4B of the Service Tax Rules, 1994, the Transporters cannot be
called 'Goods Transport Agency' and, hence, in these cases, the service of transportation of
goods provided by the transporters would not be covered by section 65(105)(zzp).

2.11.5 : Renting of Vehicle for passenger transportation:

As per Notification No. 30/2012-ST Dated 20/06/2012, taxable services by way of

renting of a motor vehicle designed to carry passengers to any person who is not in the
similar line of business, provided or agreed to be provided by any individual, Hindu
Undivided Family or partnership firm, whether registered or not, including association of
persons, located in the taxable territory, to a business entity registered as body corporate,
located in the taxable territory, is liable for service tax in the following manner:

52
 Percentage of
Sl. No. in Percentage of service
service tax
the Description of Service tax payable by the
payable by service
Notification service recipient
provider

In respect of services provided or agreed to be

provided by way of renting of a motor vehicle
7(a) designed to carry passengers on abated value to Nil 100%
any person who is not engaged in the similar line
of business

In respect of services provided or agreed to be

provided by way of renting of a motor vehicle
7(b) designed to carry passengers on non-abated value 50% 50%
to any person who is not engaged in the similar
line of business

Based on the above, the provisions of reverse charge is as given below:

If the service provider has not charged service tax in his invoice and has not availed
Situation-1: any CENVAT Credit - (Sr.No.7a of Notification No. 30/2012-ST Dated 20/06/2012)

Action: The service receiver is liable to pay service tax on 40% of the value (abated) charged
in the invoice by the service provider.

Situation-2: If the service provider has charged service tax in his invoice and has availed any
CENVAT Credit - (Sr.No.7b of Notification No. 30/2012-ST Dated 20/06/2012)

Action: The service provider should charge service tax on 50% of the value (non-abated) and
balance 50% will be payable by the service receiver.

In view of the above, it is advisable though not mandatory for the service receiver to
get a declaration on each invoice regarding availment / non availment of credit on inputs,
capital goods and input services. This will help the service receiver to decide the quantum of
liability payable by him under reverse charge.

2.11.6 : Services provided by Directors:

The Services provided, or agreed to be provided, by a director of the KSEBL to

KSEBL is taxable in the hands of the KSEBL. However, payments made to directors in
pursuance of employment contract/terms are not covered for this purpose. Accordingly
payments such as sitting fees, commission, reimbursement of travel expenses, etc., paid to
non-employee Directors are taxable in the hands of KSEBL. 100% of Service Tax is to be
paid by KSEBL.

53
2.12 : Budget allocation for incurring Service Tax Expenditure:

As per the accounting system in KSEBL, the cost of an item of service or material
includes the taxes and duties levied or remitted for providing the service or supplying the
material. Thus when service tax is applicable for a particular item of service, the tax so
remitted shall be added to the cost of service, and the total amount including service tax shall
be booked under the respective account code.

There is no need for accounting the service tax in a separate account head, and the
question of allocating separate Budget sanction for the service tax payment does not arise.

2.13 : Registration under Service Tax:

All ARUs of KSEBL should take new registration under Service Tax, even though they
are having registration under erstwhile Board, using the PAN of KSEBL (AAECK2277N).
Necessary categories of services should be registered to cover services rendered as well as
received in respect of which service tax is to be paid by KSEBL.

The existing registration under Board should be cancelled, and till cancellation, “Nil”
Return has to be filed.

2.14 : Payment of Service Tax:

Service tax is to be paid (e-payment mode only for KSEBL) on a monthly basis, by
the 5th of the following month (in case of e-payment, by 6 th of the month) immediately
following the respective month. However, payment for the month of March is required to be
made by 31st March itself. Each ARU has to take registration and pay the tax and file the
returns within the prescribed time limit.

2.15 : Interest for delay in or non-payment of Service Tax:

6. In situations of collection of any amount as service tax but failing to pay the amount
so collected to the credit of the Central Government on or before the date on which
such payment becomes due - 24% p.a

7. Other than in situations covered above – 15% p.a.

Service tax (including interest, penalty, refund) is to be rounded off to the nearest
rupee. 50 paise or more should be rounded off to the next rupee and less than 50 paise should
be ignored.

Any person, who has collected any sum on account of service tax, is under obligation

54
to pay the same to the Government. He cannot retain the sum so collected with him by
contending that service tax is not payable.

2.16 : Refund of Service Tax:

Where an assessee has issued an invoice, or received any payment, against a service to
be provided which is not so provided by him either wholly or partially for any reason, or
where the amount of invoice is renegotiated due to deficient provision of service, or any
terms contained in a contract, the assessee may take credit of such excess service tax paid by
him, if the assessee:-

13. has refunded the payment or part thereof, so received for the service provided, to the
person from whom it was received; or

14. has issued a credit note for the value of the service not so provided, to the person to
whom such an invoice has been issued.

2.17 : Provisional payment:

The assessee can opt for provisional payment of service tax in case he is not able to
correctly estimate the tax liability. In such a situation he may request in writing to the
jurisdictional Assistant / Deputy Commissioner for the same.

2.18 : Service Tax Returns:

2.18.1 : Half yearly Returns:

Every assessee is required to submit a half yearly return in Form ST.3 electronically
along with proof of payment of tax. For the purpose of filing returns half year is counted from
April to September and October to March. An assessee has to file “Nil Return” if there is no
taxable transaction during a return period. The half yearly return is required to be filed by the
25th of the month following a particular half-year.

An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a

mistake or omission, within a period of ninety days from the date of submission of the return
under rule.

2.18.2 : Annual Information Returns:

As per Service Tax and Central Excise (furnishing of Annual Information Return) Rules
2016, with effect from FY 2015-16, persons mentioned u/s 15A of the Central Excise Act,
1944 has to submit an Annual Information Return for the financial year to which the return

55
 relates, by 30th November of the succeeding financial year in the prescribed manner. As on
date, only two categories of persons has been prescribed for filing the annual information
return which are officers of RBI and officers of State Electricity Board/Electricity
Distribution or Transmission Companies.

An assessee who has filed the annual return by the due date may submit a revised
return within a period of one month from the date of submission of the said annual return.

Where the annual return is filed by the assessee after the due date, the assessee shall
pay to the credit of the Central Government, an amount calculated at the rate of Rs.100/day
for the period of delay in filing of such return, subject to a maximum of Rs.20,000/-.

2.18.3 : Procedure for e-filing of returns: For e-filing of Service Tax Returns, an assessee
has to login to www.aces.gov.in and register there. Detailed instructions are given in the site
for registration process and e-filing.

2.19 : Replying to the details called for by the Service Tax Department:

According to Section 77(1)(c) of Finance Act 1994, (1) Any person, who fails to—

➢ furnish information called by an officer in accordance with the provisions of this Chapter or
rules made thereunder; or
➢ produce documents called for by a Central Excise Officer in accordance with the provisions
of this Chapter or rules made thereunder; or

➢ appear before the Central Excise Officer, when issued with a summon for appearance to give
evidence or to produce a document in an inquiry,
shall be liable to a penalty which may extend to Rs.10,000/- or Rs.200/- for every day during
which such failure continues, whichever is higher, starting with the first day after the due
date, till the date of actual compliance.
Thus, it is the duty of every officer of KSEBL to furnish the details called for by any
office of Central Excise / Service Tax to furnish the details called for by them.
2.20 : General:
➢ All the offices of KSEB Ltd are instructed to ensure the legal status of the contractor,
whenever any work is awarded, and apply the service tax provisions accordingly. The
Tender Conditions should invariably contain the Service Tax Provisions.
➢ Whenever taxable services are provided by KSEB Ltd., applicable service tax may
also be billed.

56
 3. Kerala Value Added Tax provisions

(Most relevant to KSEB Limited)

3.1 : Rates of tax on sale of goods (Section 6):

VAT has to be collected at the rates specified for the item in different schedules to the
Kerala Value Added Tax Act 2003. In the case of goods not falling under any of the
schedules, tax has to be collected at the rate of 14.5% at all points of sale of such goods
within the State.

The tax rates applicable to different categories of items are given below:

Sl No. Schedule Number or Description of Goods Rate of Tax (%)

1 Items included in First Schedule Exempted

2 Items included in Second Schedule 1%

3 Items included in Third Schedule 5%

Items included in Fourth Schedule (Petroleum

4 Outside VAT provisions
Products, Foreign Liquor. Ganja and Opium)

In the case of transfer of the right to use any

5 goods for any purpose whether or not for a 5%
specified period, at all points of such transfer

In the case of goods not falling under any of the

6 14.50%
schedules [Section 6(1)(d)]

In the case of transfer of goods involved in the At the rates specified for such
7 execution of works contract where transfer is in goods in the respective
the form of goods schedules

In the case of transfer of goods involved in the

8 execution of Works contract where transfer is not 14.50%
in the form of goods, but in other forms

57
3.2 : Work Contracts:

3.2.1 : Introduction:

According to Section 2(lv) of the Act, “Works contract” includes any agreement for
carrying out for cash or for deferred payment or other valuable consideration the
construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection,
installation, modification or commissioning of any movable or immovable property.

According to Explanation IV to Section 2(xliii) of the Act, a transfer of property in

goods (whether as goods or in some other form) involved in the execution of a works contract
shall be deemed to be a sale. Thus VAT has to be collected on materials involved in work
contract, depending on the place of occurrence of sale. If it is an interstate sale, VAT
provisions are not applicable, only CST applies.

3.2.2 : Deduction of Tax at Source:

Unlike in other sales, the materials involved in a work contract may not be
identifiable at a later stage. Thus, in order to safeguard the interest of revenue, the concept of
WCT, similar to TDS in Income Tax or reverse charge mechanism in service tax, is
introduced.

3.2.3 : Applicability

According to Section 10 of the Act, Every awarder shall deduct from every payment,
including advance payment, made by him to any works contractor liable to pay tax under
section 6, in relation to any works contract awarded, the tax payable by the contractor in
respect of such contract under that section, whether the transfer of goods involved in the
execution of works contract is in the form of goods or not, and remit it to Government, in the
prescribed manner, on or before the twentieth day of the month succeeding the month in
which such deduction is made. Every such awarder shall also file such return as may be
prescribed.

No amount shall be deducted as WCT,

 if there is no transfer of goods involved in the execution of the works contract; or

 the goods which are transferred in the execution of the works contract are only those
falling under the First Schedule; or

 where the payment relates to that portion of a contract which relates to transfer of goods
involved in the execution of works contract other than those executed in the state.

58
 If Separate Work order and supply order are placed, and the applicable VAT has been
collected on supply portion.

Use of consumables like welding rods, cleaning materials, gas, electricity, etc is not
considered as transfer of materials.

3.2.4 : Exemption from TDS and rates of TDS:

 The work contractor has to furnish a certificate in Form No. 1EE (showing the tax to
be deducted from payments to the contractor) from the Commercial Taxes
Department, showing the tax to be recovered from the contract amount. Based on the
Certificate, no tax will be deducted or will be deducted at a rate specified therein.

 Where the contractor produces no such Certificate, work contract tax has to be
recovered as follows:

1. Where the contractor is registered under Kerala VAT, @ 8% of amount paid.

2. In respect of unregistered contractor, @ 10% of amount paid.

Examples on Work Contract Tax:

Annual Maintenance Contract for 3 years @ Rs.1,00,000/-

Work Contract Tax to be deducted shall be –

Total amount of contract : Rs. 1,00,000

Where, the contractor produces Form No. 1EE, tax shall be deducted as instructed by
the Commercial Taxes Department.

Where Form No.1EE is not produced, tax to be deducted

- If the contractor is registered under KVAT,

@ 8% of Contract value : Rs. 8,000

- If the contractor is not registered under KVAT,

@ 10% of Contract value : Rs. 10,000

59
Civil work contract for Rs.10,00,000/-

Work Contract Tax to be deducted shall be –

Total amount of contract : Rs. 10,00,000

Where, the contractor produces Form No. 1EE, tax shall be deducted as instructed by the
Commercial Taxes Department.

Where Form No.1EE is not produced, tax to be deducted

- If the contractor is registered under KVAT,

@ 8% of Contract value : Rs. 80,000

- If the contractor is not registered under KVAT,

@ 10% of Contract value : Rs. 1,00,000

3.2.5 : Valuation under works contracts (applicable ONLY to the Contractor):

3.2.5.1 : Where value of goods transferred is identifiable:

Tax shall be calculated on the value of materials transferred by the Contractor.

3.2.5.2 : Where value of goods transferred, included in the contract, is not identifiable:

Where the actual turnover in relation to a works contract is not ascertainable, the total
turnover in respect of such works contract shall be computed after deducting labour and other
charges as given in the Table below from the total amount of contract.

Sl. No Type of works contract Labour or other charges as a

Percentage of the value of
the works contract
1 Electrical Contracts 20

2 All structural contracts 30

3 Sanitary contracts 20

4 Tyre re-treading contract 50

5 Dyeing and Textile Printing contracts 50

6 Sculptural contracts or contracts relating to Arts 70

Refrigeration, air conditioning or other

7 machinery, rolling shutters, cranes installation 15
contracts

60
 8 Installation of plant and machinery 15

9 Laying of pipes 20

10 Installation of elevators (lifts) and escalators 15

11 Installation of air conditioners and air Coolers 10

Fixing of marble slabs, polished granite stones

12 25
and tiles (other than mosaic tiles).

13 Annual maintenance contract 50

14 All other contracts 25

While passing the bills for payment, it has to be ensured that tax is collected by the
contractor at the correct rates, by applying the above provisions.

3.3 : Work contract tax on inter state contracts:

If the Contractor dispatches goods from his state to the State of the Contractee
(Customer) under a works contract, it is an interstate Works contract in the hands of such
Contractor subject to levy of CST, which is collected by the state of dispatch.

The proviso to Rule 42(2) of Kerala Value Added Tax Rules, 2005, states that no
amount shall be deducted under sub section (1) of section 10 if there is no transfer of goods
involved in the execution of the works contract or the goods which are transferred in the
execution of the works contract are only those falling under the First Schedule or where the
payment relates to that portion of a contract which relates to transfer of goods involved in the
execution of works contract other than those executed in the state.

Thus, provisions of TDS under KVAT Act do not apply to the supply portion in an
Interstate Work Contract. TDS is to be deducted only in the local works contracts where the
Contractor has charged VAT/Composition Tax.

Example:
Contract for supply and installation of Machinery at Substation:
Materials cost : Rs. 1,00,000.00
Installation Charges : Rs. 10,000.00
No WCT, as all materials are interstate transfers.
Suppose, Local materials used for installation : Rs. 1,000.00
WCT has to be recovered on Rs.11,000/-, being installation charges and local materials.

61
3.4 : Issue of TDS Certificates:

Where an awarder deducts tax from the payment due to any contractor, he shall issue
a certificate to such contractor in Form No.20 F and the contractor shall issue a certificate in
Form No. 20G to the awarder.

3.5 : Filing of returns:-

3.5.1 : Monthly Challan cum return by traders (Form No.10):

(a) Every dealer whose annual tax liability for On or before the 15th day of the month
the preceding year was Rs.10 Lakhs or more following the return period

(b) Every dealer whose annual tax liability for On or before the 20th day of the month
the preceding year was above Rs.2 Lakhs but following the return period
below Rs.10 Lakhs

(b) Any other dealer On or before the 25th day of the month
following the return period

3.5.2 : Annual Returns by traders:

Annual returns have to be filed on or before 30 th April of subsequent year, failure to

which penalty of Rs.10,000/- will be levied.

3.6 : Renewal of Registration:

KVAT and CST Registration has to be renewed every year, along with the prescribed fee, on
or before 30th day of April of the year for which the renewal of registration is sought. The
dealers would be able to submit their monthly returns only if the registration is renewed
online.

3.7 : Penalty for late remittance:

Where VAT collected is not remitted within the due date prescribed, interest will be
levied @1% p.m for first two months, and thereafter @ 3% p.m.

62
 4. Central Sales Tax provisions

(Most Relevant to KSEB Limited)

4.1 : Introduction

As far as Kerala State Electricity Board Limited is concerned, we are not making any
interstate sales, we are making inter state purchases only, Thus, the provisions of Central
Sales Tax Act 1956 and Central Sales Tax (Kerala) Rules, 1957, related to inter-state Sales are
not applicable to KSEBL.

The provisions of the Act related to inter-state purchases are explained below:

4.2 : Rates of tax on sales in the course of inter-State trade or commerce (Section 8):

Every dealer, who in the course of inter-State trade or commerce, sells to a

registered dealer shall be liable to pay tax under this Act, which shall be two per cent, of his
turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate
State under the Sales Tax Law of that State, whichever is lower.

There is no prescribed format for Invoice to be raised under CST Act. Tax Invoice is
the name used under Local VAT Act. The inter-state dealer is free to use commercial Invoice
for inter-state transactions.

4.3 : Conditions for availing concessional rate:

 The goods so purchased shall be of the class or classes specified in the Certificate of
Registration of the purchasing dealer.

 The goods purchased are being intended for

- re-sale by him; or

- use by him in the manufacture of processing of goods for sale; or

- use by him in the telecommunications network; or

- use in mining; or

- use in the generation or distribution of electricity or any other form of power;

 Purchasing dealer has to issue Form C to the selling dealer.

63
 Where any of the above conditions are not met, tax shall be levied at the rate applicable to
the sale or purchase of such goods inside the State of seller under the sales tax law of that
State.

4.4 : Inter State purchase – Documents required:

4.4.1: E-Declaration in Form 8F: E-Declaration is the facility available to the

consignor/consignee/ transporter to declare the details of consignments in a vehicle, well in
advance, before it reaches Kerala State Boundaries. Any one who transports the consignment
can declare the consignment through e-consignment declaration.

It may be noted the commercial taxes department allows the transporter/consignee of

goods to submit online e-declaration by login to “ www.keralataxes.gov.in”. It is not
necessary for the transporter/consignee to have registration under KVAT.

Thus, instead of generating the Form 8F by KSEBL, the supplier may be instructed to
generate e-declaration in Form 8F directly from the commercial taxes website.

4.4.2 : Form C: In order to avail concessional rate of CST@2%, the Purchasing office
should issue Form-C (Quarterly) to the supplier.

Form C will be issued against

- Direct interstate purchase by KSEB

- In transit sale during the course of execution of interstate work contracts.

Before purchasing anything inter-state against issue of C-Form, it must be ensured

that the particular item is included in the CST Registration of the office making interstate
purchase.

4.5 : Inter-state Sale or purchase (Section 3)

A Sale or purchase of goods shall be deemed to take place in the course of inter-state
trade or commerce if the sale or purchase-

- Occasions the movement of goods from one State to another; or

- is effected by a transfer of documents of title to the goods during their movement

from one State to another.

Where the movement of goods commences and terminates in the same State, it shall
not be deemed to be a movement of goods from one State to another by reason merely of the

64
fact that in the course of such movement the goods pass through the territory of any other
State.

4.6 : In-transit Sales:

According to Section 6(2) of the Act, when goods are in movement from one state to
other in pursuance a contract of sale, then any subsequent sale effected by transfer of
documents during such movement shall be exempt from CST.

Example:

A of Mumbai (First Seller) has sold goods to B of Chennai (first buyer). The goods
are dispatched by lorry and L.R. is taken out by A (Mumbai) where in A is consignor and B
(Chennai) is consignee. If before taking delivery from transporter, B decides to sell his goods
to KSEBL, he can simply endorse the L.R. in name of KSEBL and the sale will be complete.
This is the second or subsequent interstate sale in the course of same movement.

In this case A must have charged 2% CST in his bill. Being a second interstate sale
effected by B to KSEBL, B is equally liable to pay CST on above transaction. However, as
per Central Sales Tax Act, the subsequent sale is given exemption, subject to production of
given forms.

In above example, the sale by B to KSEBL will be exempt if B of Chennai produces

before his assessing authority Form EI issued by A of Mumbai and Form ‘C’ issued by
KSEBL.

In case of in-transit purchase, the responsibility of KSEBL is limited to issue of Form-

C to the first buyer (B).

4.7 : Issue of C-Form in case of an Interstate Purchase:

If there is movement of goods from one State to another in pursuance of an agreement

to execute a works contract, it is an interstate sale, and the seller is liable to Central Sales Tax.
In such a case, KSEBL is liable to issue C-Form to the contractor, and not to the supplier of
the materials.

65
 5. Construction Workers' Welfare Fund Cess provisions

(Most Relevant to KSEB Limited)

5.1 : Introduction:

The Central Acts or Rules framed for administration of the Fund:

1. The Building & Other Construction Workers’ Welfare Cess Act 1996

2. Building and Other Construction Workers (Regulation of Employment and

Conditions of Service) Act, 1996

3. The Building and Other Construction Workers' Welfare Cess Rules 1998

The Building & Other Construction Workers’ Welfare Cess Act 1996 is intended to
provide for the levy and collection of a Cess on the cost of construction incurred by
employers with a view to augmenting the resources of the Building and Other Construction
Workers’ Welfare Boards constituted under the Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) Act, 1996 to undertake social security
schemes and welfare measures for building and other construction workers.

Provisions of the Act relating to Welfare Fund Cess:

5.2 : Levy and Collection of Cess:

According to Section 3 of the Building and Other Construction Workers' Welfare Cess
Act 1996, there shall be levied and collected a Cess for the purposes of the Building and
Other Construction Workers (Regulation of Employment and Conditions of Service) Act,
1996, at such rate not exceeding two percent- but not less than one per cent. of the cost of
construction incurred by an employer, as the Central Government may, by notification in the
Official Gazette, from time to time specify. At present, the rate of Cess is 1% of the cost of
construction incurred.

According to Section 3 of Building and Other Construction Workers Welfare Cess Rules
1996, cost of construction shall include all expenditure incurred by an employer in
connection with building or other construction work.

66
5.3 : Building or other construction work:

According to Section 2(1)(d) of the Building and Other Construction Workers

(Regulation of Employment and Conditions of Service) Act, “ building or other construction
work" means the construction, alteration, repairs, maintenance or demolition, of or, in relation
to, buildings, streets, roads, railways, tramways, airfields, irrigation, drainage, embankment
and navigation works, flood control works (including storm water drainage works),
generation, transmission and distribution of power, water works (including channels for
distribution of water), oil and gas installations, electric lines, wireless, radio; television,
telephone, telegraph and overseas communications, dams, canals, reservoirs, watercourses,
tunnels, bridges, viaducts, aquaducts, pipelines, towers, cooling towers, transmission
towers and such other work as may be specified in this behalf by the appropriate
Government, by notification but does not include any building or other construction work to
which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of
1952), apply;”

5.4 : Contractor:

According to Section 2(1)(g) of of The Building and Other Construction Workers'

(Regulation of Employment and Conditions of Service) Act 1996, Contractor means a person
who undertakes to produce a given result for any establishment, other than a mere supply of
goods or articles of manufacture, by the employment of building workers or who supplies
building workers for any work of the establishment; and includes a sub contractor.

5.5 : Employer:

According to Section 2(1)(i) of The Building and Other Construction Workers'

(Regulation of Employment and Conditions of Service) Act 1996, “Employer", in relation to
an establishment, means the owner thereof, and includes,-

(I) in relation to a building or other construction work carried on by or under the

authority of any department of the Government, directly without any contractor, the
authority specified in this behalf, or where no authority is specified, the head of the
department;

67
 (ii) in relation to a building or other construction work carried on by or on behalf of a
local authority or other establishment, directly without any contractor, the chief
executive officer of that authority or establishment;

(iii) in relation to a building or other construction work carried on by or though a

contractor, or by the employment of building workers supplied by a contractor, the
contractor;

5.6 : Applicability of Welfare Fund Cess on contracts undertaken by PSUs, etc

As The Building and Other Construction Workers' (Regulation of Employment and

Conditions of Service) Act 1996, does not exclude the PSUs/Government companies from the
definition of “contractor”, even if the contract is undertaken by such PSUs, etc., the
provisions of Construction Workers Welfare Cess are applicable.

According to Section 2(1)(i)(i) of The Building and Other Construction Workers'

(Regulation of Employment and Conditions of Service) Act 1996, in relation to a building or
other construction work of a Government or of a public sector undertaking, the Government
or PSU has to deduct Cess from the payment to a contractor.

As per the definition, the term “employer” includes, in relation to a building or other
construction work carried on by or on behalf of a local authority or other establishment,
directly without any contractor, the chief executive officer of that authority or establishment,
Cess has to be remitted even in cases the work is carried out by the local authority or other
establishment directly.

Thus Kerala State Electricity Board Ltd has to recover Construction Workers’ Welfare
Cess from every payment to contractors (including PSUs, etc) carrying out the building or
other construction works.

KSEBL has to remit Cess on construction work carried out directly by KSEBL, without
engaging any contractor.

68
 6. Central Excise Provisions
(Most Relevant to KSEB Limited)

6.1: Job works - Introduction

The industries depends on outsiders support for many things like testing, processing on
raw material etc., for completing/semi completing the manufacturing process. The activities
undertaken by small/medium industries on raw material/semi-finished as per the directions of
principal manufacturer are known as job work, the person/industry undertake job work is
commonly known as job worker. Many a time, the job worker may be more efficient both in
terms of the quality and cost as compared to the main manufacturer due to pursuance of core
competencies.

6.2: Meaning of Job work

According to Explanation-I to Notification No.214/86 dt 25-03-1986 and under Rule
2(n) of the Cenvat Credit Rules, 2004,

"job work" means processing or working upon of raw material or semi-finished goods
supplied to the job worker, so as to complete a part or whole of the process resulting in the
manufacture or finishing of an article or any operation which is essential for aforesaid process
and the expression "job worker" shall be construed accordingly.

Since excise duty is on ‘manufacture’, duty liability arises only when the goods are
manufactured during job work. If the process undertaken by the job worker amounts to
manufacture as per the definition or decided case laws, the job worker would be liable to pay
duty of excise on the goods so manufactured unless the principal manufacturer who has
supplied him the goods for job work, furnishes a declaration under Notification 214/86 dated
25.03.1986 which exempts goods manufactured by a job worker from duty of excise provided
the said goods after job work are returned to the principal or cleared for export or cleared for
home consumption on payment of duty of excise. Where the goods are returned to the
principal, the principal should either clear it on payment of duty or use it in his manufacturing
process which should result in a dutiable product being manufactured. The declaration as
stated above should be given to the Assistant Commissioner of Central Excise who has
jurisdiction over the factory of the job worker.

69
6.3: Provisions for Exemption to job work under Notification No.214/86

Normally, if assessee is engaged in manufacturer on job work basis, he has to pay duty
on material cost plus job charged.

As per Notification No.214/86, exemption has been provided for manufacture on job
work. Raw material as well as semi-finished d goods can be sent out for job work. The
exemption is available even if job worker manufacture an intermediate product. Raw material
supplier has to give declaration to AC having jurisdiction over the factory of job worker that
he will be liable for excise duty. All final products are eligible under this notification.

It has been held that there is no duty liability on the job worker when material is sent
under Cenvat provision or under 214/86-CE. Raw material as well as semi-finished goods can
be sent out for job work. The exemption is available even if the job worker manufactures an
intermediate product.

Additional or minor items by job worker would not detract it being a job work. If some
negligible raw material is used by job worker, it will still be job worker, if such use is only
incidental nature. Notification No.214/86-CE does not prohibit a job worker from utilizing
other inputs in addition to raw material received by him and recover charges therefore from
the principal manufacturer.

6.4: Provisions related to Removal of goods for Job Work

The inputs/capital goods can be removed as such or after partial processing to job
worker for further processing, testing, repairs, reconditioning, or for manufacture of
intermediate goods necessary for manufacture of final products or any other purpose without
any duty payment.

After carrying out the operation/test/repair etc., the goods should be returned to the
factory or premises of supplier within 180 days. If these are not received back within 180
days of their being sent out, manufacturer/ service provider should pay an ‘amount’
equivalent to Cenvat credit attributable to inputs/ capital goods. Payment can be through
Cenvat credit or P LA. If the inputs/ capital goods come back after 180 days , then
manufacturer/service provider can again take Cenvat credit of duty reversed by him. If part of
goods is received back 180 days, the obligation for debiting the credit shall arise only in
respect of Cenvat credit attributable to that part which is not received within 180 days.

70
6.5: Documentation in different situations :

Direct dispatch of inputs to job worker: It is advisable that even when goods are sent
directly to job worker’s place, a delivery challan should be prepared by manufacturer for
control purpose. The delivery challan should clearly state that goods have been sent directly
to job worker’s place by the supplier. The manufacturer can avail Cenvat credit only after all
inputs are received after job work.

Returning of goods by job worker: Goods should be returned by job worker under his own
challan, giving reference to challan of the manufacturer who has sent the inputs/capital
goods. Goods can be returned by job worker in piece-meal under different challans on
different dates.

71
 7. Provisions of Customs Act
(Most Relevant to KSEB Limited)

7.1: Project Imports – Customs Duty Rates

Vide Notification No. 12/2012 dt 17-03-2012, the Government of India has fixed the customs
duty and Additional duty of Customs for the following items used in power Industry, subject
to certain conditions.

Sl. Chapter or Description of goods Standar Additiona Conditio

No. Heading or d rate l duty n No. as
in sub- rate per the
the heading or Notificat
notif tariff item ion
icati
on

(1) (2) (3) (4) (5) (6)

350 84 or any Goods specified in the list given below (List 10 of 5% - 39

other the notification) required for use in high voltage
Chapter power transmission project

351 Any Parts and components of the goods specified in 5% 6% 5 and 69

Chapter the list given below (List 10 of the notification)
required for use in high voltage power
transmission project

369 84 or any All goods, for renovation or modernisation of a 5% - 50

Chapter power generation plant (other than captive power
generation plant)

506 9801 Goods required for-

(i) ..............

(ii) ..............

(iii) ..............

(iv) power generation projects including gas 5% - -

turbine power projects (excluding captive

72
 power plants set up by projects engaged in
activities other than in power generation)

(v) barge mounted power plants;

5% - -
(vi) power transmission, sub-transmission or
5% - -
distribution projects;

507 9801 Goods required for setting up of any Mega Power Nil Nil 93
Project, so certified by an officer not below the
rank of a Joint Secretary to the Government of
India in the Ministry of Power, that is to say,

 thermal power plant of a capacity of

700MW or more, located in the States of
Jammu and Kashmir, Sikkim, Arunachal
Pradesh, Assam, Meghalaya, Manipur,
Mizoram, Nagaland and Tripura; or

 a thermal power plant of a capacity of

1000MW or more, located in States other
than those specified in (a); or

 a hydel power plant of a capacity of

350MW or more, located in the States of
Jammu and Kashmir, Sikkim, Arunachal
Pradesh, Assam, Meghalaya, Manipur,
Mizoram, Nagaland and Tripura; or

 a hydel power plant of a capacity of

500MW or more, located in States other
than those specified in clause (c)

“–” appearing in column (5) means additional duty equal to duty of excise leviable on the
goods as per the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) read with
any other notifications issued under sub-section (1) of section 5A of the Central Excise Act,
1944 (1 of 1944), for the time being in force.

73
7.2: Conditions for availing concessional Customs Duty Rates

Condition No. Conditions

as per the
Notification

5 If the importer follows the procedure set out in the Customs (Import of Goods at
Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.

39 If,-

(i) (a) in the case of Central Power Sector Undertakings, the Chairman of the
concerned Undertaking or an officer authorized by him certifies that the
power transmission project has been approved and an officer not below the
rank of the Deputy Secretary to the Government of India in the Ministry of
Power recommends, in each case, the grant of the aforesaid exemption to
the goods for such project;
(b) in other cases, an officer not below the rank of the Chief Engineer of the
concerned Power Transmission Board or Corporation in a State certifies that
such power transmission project has been approved and an officer not
below the rank of the Secretary in a State Government concerned dealing
with the subject of power or electricity recommends, in each case, the grant
of the aforesaid exemption to the goods for such project;

(ii) in all cases, the importer furnishes an undertaking to the Deputy

Commissioner of Customs or the Assistant Commissioner of Customs, as the
case may be, to the effect that the said goods shall be used for the purpose
specified above and in the event of his failure to use the goods for power
transmission, he shall pay an amount equal to the difference between the duty
leviable on the said imported goods but for the exemption under this
notification and that already paid at the time of importation.

50
If,-
(i) in the case of a power plant (except a nuclear power plant),-
(a) in the case of Central Power Sector Undertakings, the Chairman of the
concerned Undertaking or an officer authorized by him certifies that the

74
 scheme for renovation or modernization as the case may be, of such power
plant, has been approved and an officer not below the rank of a Deputy
Secretary to the Government of India in the Ministry of Power recommends,
in each case, the grant of the aforesaid exemption to the goods for such
scheme;
(b) in other cases, an officer not below the rank of the Chief Engineer of the
concerned State Electricity Board or State Power Utility certifies that the
scheme for renovation or modernization, as the case may be, of such power
plant, has been approved and an officer not below the rank of a Secretary in
the State Government concerned dealing with the subject of power or
electricity recommends, in each case, the grant of the aforesaid exemption
to the goods for such scheme;
(ii) in the case of nuclear power plant, an officer not below the rank of a Deputy
Secretary to the Government of India in the Department of Atomic Energy
certifies the scheme for renovation or modernization as the case may be, of
such power plant, has been approved and recommends the grant of the
aforesaid exemption to the goods for such scheme; and
(iii) in all cases, the importer furnishes an undertaking to the Deputy
Commissioner of Customs or the Assistant Commissioner of Customs, as the
case may be, to the effect that the said goods shall be used for the purpose
specified above and in the event of his failure to use the goods for the
renovation or modernization of the said power generation plant, he shall pay
an amount equal to the difference between the duty leviable on the said
imported goods but for the exemption under this notification and that already
paid at the time of importation.

69 If the importer, at the time of import, is registered with the Indian Renewable
Energy Development Agency or any State Nodal Agency notified for the purpose
by the Ministry of New and Renewable Energy, Government of India, for Central
Financial Assistance.

93 If an officer not below the rank of a Joint Secretary to the Government of India in
the Ministry of Power certifies that:-
(i) the power purchasing State has constituted the Regulatory Commission with
full powers to fix tariffs;
(ii) the power purchasing states shall undertake to carry out distribution reforms
as laid down by Ministry of Power.

75
 (a) in case of imports for a project for which certificate regarding Mega
Power Project status issued by an officer not below the rank of Joint
Secretary to the Government of India in the Ministry of Power is
provisional, the importer furnishes a security in the form of a Fixed
deposit Receipt from any Scheduled Bank for a term of thirty six
months or more in the name of the President of India for an amount
equal to the duty of customs payable on such imports but for this
exemption, to the Deputy Commissioner of Customs or Assistant
Commissioner of Customs, as the case may be, at the time of
importation and if the importer fails to furnish the final mega power
status certificate within a period of thirty six months from the date of
importation, the said security shall be appropriated towards duty of
customs payable on such imports but for this exemption.
(b) In the case of imports by a Central Public Sector Undertaking, the
quantity, total value, description and specifications of the imported
goods are certified by the Chairman and Managing Director of the said
Central Public Sector Undertaking; and
(c) In the case of imports by a Private Sector Project, the quantity, total
value, description and specifications of the imported goods are
certified by the Chief Executive Officer of such project.

7.3: List 10 of the Notification No. 12/2012 dt 17-03-2012

 765 KV Transformers;
 765 KV Reactor;
 765 KV Circuit Breaker;
 765 KV Isolators;
 765 KV Current Transformer;
 765 KV Capacity Voltage Transformer;
 765 KV Surge Arrestors;
 INVAR/ACSS Conductor for high temperature application;
 765 KV Polymer Long Rod Insulators
 Emergency Restoration System (ERS) for extra-high voltage transmission Line;
 Overhead Optical Ground Wire (OPGW), including hardware and accessories such
as Vibration Damper, Joint Box, Suspension and tenslon clamps;

76
 High Voltage DC Divider and CT;
 High Voltage DC Reactor;
 High TRV Circuit Breaker for High Voltage DC application;
 Protective Spark Gap and Damping Equipment for Thyristor Controlled Series
Compensator (TCSC)/ Fixed Series Compensator (FSC);
 Thyristor Controlled Series Compensator (TCSC)/Fixed Series Compensator
(FSC) MOV for Series Compensation;
 Optical Current Transformer;
 400 KV Extra High Voltage Cables;
 Gas Insulated Switchgear equipment for 220 KV and above;
 Thermo Vision Camera;
 On-line Puncture insulator detector;
 Hot line Kits and Tools for transmission line live maintenance;
 Hot line washing equipment for insulators.

77
Annexure I :

78
79
Annexure II: Service Tax - Point of Taxation Rules 2011

Rule 3 : Normal Rule for Point of Taxation

Date of entry in
Service Date of books of accounts
Point of Taxation
provided on Invoice or credit to bank
a/c
Invoiced within 30 days of
01/04/2015 15/04/2015 30/04/2015 15/04/2015
providing service, No Advance

Invoiced within 30 days of

providing service, Advance 01/04/2015 15/04/2015 15/03/2015 15/03/2015
received

Invoiced after 30 days of

providing service - No Advance
01/04/2015 03/05/2015 31/05/2015 30/04/2015

Invoiced after 30 days of

providing service - Advance 01/04/2015 03/05/2015 15/03/2015 15/03/2015
received before providing service

Invoiced after 30 days of

providing service - Advance
received after providing service,
01/04/2015 03/05/2015 15/04/2015 15/04/2015
but before date of Invoice

Rule 4 : Determination of point of taxation in case of change in effective rate of tax

Service Date of Date of

Situations provided Invoice Payment Point of Taxation

Before change After change After change Date of payment or Date of Invoice
1 in rate in rate of Tax in rate of Tax whichever is earlier

Before change Before change After change

2 in rate in rate in rate of Tax Date of Invoice

Before change After change Before

3 in rate in rate of Tax change in rate Date of payment

After change in Before change After change

4 rate of Tax in rate in rate of Tax Date of payment

After change in Before change Before Date of payment or Date of Invoice

5 rate of Tax in rate change in rate whichever is earlier

After change in After change Before

6 rate of Tax in rate of Tax change in rate Date of Invoice

80
Rule 5 : Where a service is taxed for the first time, then,-

(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such
invoice before such service became taxable.
(b) no tax shall be payable if the payment has been received before the service becomes taxable and
invoice has been issued within fourteen days of the date when the service is taxed for the first time.

Rule 7 : Determination of point of taxation in case of specified services or persons

(Reverse Charge)
The point of taxation in respect of the persons required to pay tax as recipients of service shall be -

i) the date on which payment is made to the service recipient;

ii) the first day that occurs immediately after a period of 3 months from the date of invoice
whichever is earlier

Thus, advance payments to the service providers covered under the Reverse Charge
Mechanism will result in service tax liability.

Where there is change in the liability or extent of liability of a person required to pay tax as
recipient of service, in case service has been provided and the invoice issued before the date of such
change, but payment has not been made as on such date, the point of taxation shall be the date of
issuance of invoice

Point of Taxation Criteria -

Earlier of
Date on which
3 months of Date payment is Point of
Date of Invoice of Invoice made Taxation

01/11/2015 01/02/2016 20/11/2015 20/11/2015

16/11/2015 16/02/2016 20/11/2015 20/11/2015

01/07/2015 01/10/2015 14/11/2015 01/10/2015

01/07/2015 01/10/2015 20/11/2015 01/10/2015

81
Point of taxation under reverse Charge Mechanism, where there is change in the
liability or extent of liability of tax

Situations Service Provided Date of Invoice Date of Applicable Rate of Tax

Payment

1 Before Change in After change in After change in Prevailing on the date of

Rate rate of tax rate of tax Payment

2 Before Change in Before Change in After change in Prevailing on the date of

Rate Rate rate of tax Invoice

3 Before Change in After change in Before Change Prevailing on the date of

Rate rate of tax in Rate Payment

4 After change in Before Change in After change in Prevailing on the date of

rate of tax Rate rate of tax Payment

5 After change in Before Change in Before Change Prevailing on the date of

rate of tax Rate in Rate Payment

6 After change in After change in Before Change Prevailing on the date of

rate of tax rate of tax in Rate Payment

82
Annexure III : Service Tax Liability in different situations
Payment
Date of Type of Payment during : 01-
before 01-07- Payment after 31-10-2013
Quotation Quote 07-2012 to 31-10-2013
2012

Service Tax liability to Share of Contractor to be

be borne by Service remitted by him -
Provider - if Service Reimbursement on production of
No Service Tax documentary evidence of
Before 01-07- Tax shown separately,
All Inclusive Liability for payment
2012 reimbursed on
both parties
production of
documentary evidence Share of KSEB to be remitted by
of payment KSEB. No recovery from
Contractor

Share of Contractor to be
Service Tax to be remitted by him -
remitted by Service Reimbursement on production of
No Service Tax Provider - can claim documentary evidence of
Before 01-07-
Taxes Extra Liability for reimbursement on payment
2012
both parties production of
documentary evidence Share of KSEB to be remitted by
of payment KSEB. No recovery from
Contractor
Service Tax Liability to
be borne by Service Share of Contractor to be borne
Provider. if Service Tax by him - No reimbursement
During : 01-07-
shown separately,
2012 to 31-10- All Inclusive ---
reimbursed on
2013 Share of KSEB to be recovered
production of
documentary evidence from Contractor
of payment
Share of Contractor to be
Service Tax to be remitted by him -
remitted by Service Reimbursement on production of
During : 01-07- Provider - can claim documentary evidence of
2012 to 31-10- Taxes Extra --- reimbursement on payment
2013 production of
documentary evidence Share of KSEB to be remitted by
of payment KSEB. No recovery from
Contractor

Share of Contrator to be borne by

After 31-10- him - No reimbursement
All Inclusive --- ---
2013
Share of KSEB to be remitted by
KSEB.

Share of Contrator to be remitted

by him - Reimbursement on
production of documentary
After 31-10-
Taxes Extra --- --- evidence
2013
Share of KSEB to be remitted by
KSEB.

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Annexure IV: Service Tax – Clarifications issued to Field Offices:

 Whether reverse charge mechanism is applicable on courier services?

Courier services are not covered under Notification No.30/2012-ST dt 20-06-
2012. Therefore reverse charge mechanism is not applicable on such services. It is the
service provider (Courier Agency) who is liable to collect and remit service tax.

 Whether making bore holes in tunnel line for ascertaining the rock level and finding out
the soil parameters as part of Pallivasal Extension Scheme – Geographical exploration,
is a Work contract Service?

As transfer of property in taxable goods is not involved in the execution of the

subject work, the work does not fall under the category of works contract.

 Whether Service Tax is to be collected on amount collected as supervision charges from

consumers for effecting service connections?

Nature of transaction:
The service provided by KSEBL is distribution of Electricity, which is exempt
under Section 66D(k) of Finance Act 1994. For providing the service, the KSEBL has
to use infrastructure facilities like transformers, new distribution lines, etc. In case such
infrastructure facilities are not available for providing service connection, KSEBL has
to create such facilities.

In exercise of the Powers conferred by Sec. 50 read with Sec. 181 of the
Electricity Act, 2003 (Central Act 36 of 2003), the Kerala State Electricity Regulatory
Commission has notified the Kerala Electricity Supply Code 2014. As per
Sec.32,33,36,37 and 49 of the above regulations the licensees has to recover certain
expenditure for providing the electrical connection based on the cost data approved by
the commission. Accordingly KSEBL is recovering the cost of providing service
connection from the consumers.

The assets required for providing the service may be created either by KSEBL
itself or by the consumer and transferred to KSEBL. In both situations, in order to
ensure the quality of asset, the supervision by KSEBL technicians is required and the
cost incurred for such supervision is recovered from the consumers. The ownership of
assets so created is with KSEBL.

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 Where such assets are created by KSEBL, the cost incurred for creating the asset
is recouped from consumers. For recovery of the administrative cost of technicians, a
fixed percentage (10%) of estimated cost of the asset is charged as “Supervision
Charges”.

Where the assets are created by the consumers, for recovery of the
administrative cost of technicians, “Supervision Charges” at a fixed percentage (10%)
of estimated cost of the asset is charged.

The above supervision charges is only an item included in calculating the total
cost of services as notified by KSERC and the entire calculated amount is being
collected from consumers as work deposit amount.

The total deposit amount collected is being accounted as Deposit from

Consumers. While calculating the depreciation on fixed assets for Income Tax
purposes, the deposit amount is deducted from the cost of fixed assets and depreciation
is calculated on the balance amount.

In the present situation, the service provided to consumers is distribution of

electricity, which is an exempt service. KSEBL is not providing any technical
consultancy service to consumers. Installation of transformers, laying of distribution
lines, etc., are under taken for providing the service.

As per Electricity Supply Act, KSEBL is recovering the cost incurred for
providing the service of distribution of electricity. Being a government organisation, in
order to ensure recovery of the cost, KSEBL, as approved by KERC, is collecting the
estimated cost as pre-deposit. At the end of actual execution, the difference in amount
collected and the expenditure incurred is passed on to the consumers.

As the ownership of assets created out of such deposit work is with KSEBL, the
creation of assets does not amount to any service provided to consumers. The
supervision charges collected by KSEBL are only reimbursement of expenses incurred
for providing the service (i.e., distribution of electricity).

As supervision charges collected is reimbursement of expenses incurred for

providing the main service, as per Rule 5(1) of Service Tax (Determination of Value)
Rules 2006, it has to be added to the cost of services (i.e., distribution of electricity). As
distribution of electricity is an exempt service, no service tax need to be remitted on the
supervision charges collected from consumers.

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 Based on the above, KSEBL is not liable to remit any service tax on supervision
charges collected from consumers.

➢ Whether Service Tax to be collected on interest for delayed payment of any service
Invoice (e.g., Pole Rent)?

No. In terms of Rule 6(2)(iv) of Service Tax (Determination of Value) Rules

2006, interest on delayed payment of any consideration for the provision of services or
sale of property, whether moveable or immoveable, is excluded from the value of
taxable service. Thus service tax not to be levied on interest for delayed payments of
any service Invoice, like Pole Rent.

➢ What is the time limit for remitting of Service Tax on Pole Rent collected in advance?

According to Explanation to Rule 3 of Point of Taxation Rules 2011, whenever

any advance by whatever name known, is received by the service provider towards the
provision of taxable service, the point of taxation shall be the date of receipt of each
such advance. Thus, service tax on any advance payment shall be remitted in the
succeeding month itself.

86
 Annexure V: VAT & CST - Clarifications issued to Field Offices
➢ Whether digging of Bore well is a work contract under KVAT Act?
Digging of bore-well is a mechanical process and the driller while driving the
bore brings out earth and form the bore-well at the desired depth. If, in the
construction of bore-well, contractor is required to make construction involving
supply of materials and even installation of motor, it will become a Work contract and
tax has to be deducted at Source.

➢ Whether while calculating VAT, the transportation, loading and unloading charges
incurred after the removal of finished products (e.g., PSC Poles) from the factory is to
be included?
According to Section 2(xliv) of Kerala Value Added Tax Act, 2003 “Sale
price” means the amount of valuable consideration received or receivable by a dealer
for the sale of any goods less any sum allowed as cash discount, according to the
practice normally prevailing in the trade, but inclusive of any sum charged for
anything done by the dealer in respect of the goods or services at the time of or
before delivery thereof, excise duty, special excise duty or any other duty or taxes
except the tax imposed under this Act.

From the definition, it is clear that turnover means the aggregate amount for
which goods are sold and shall include any sums charged for anything done by the
dealer in respect of the goods sold at the time of or before the delivery thereof. When
the transfer of title in the goods is to be at the place of buyer then all charges
incidental thereto like transport of goods, installation charges and other expenditures
etc. incurred by the seller would become part of amount for which the goods are sold
by the seller to the buyer.

If the transfer of title of goods is done at the place of seller then the subsequent
charges for transporting goods, installation and other expenditure do not form part of
amount for which the goods are sold.

Further, if the sale agreement entered with the buyer specifies an obligation on
the part of the seller to transport the goods as incidental to the sale then the same
becomes part of the amount for which the goods are sold. This view is supported by
various decisions of Karnataka High court such as Prakash Retail Ltd Vs. DCCT
[(2014) 68 VST 392], APCO Concrete Block and Allied Products v. DCCT [(2011) 44

87
 VST 312].

For supply of PSC Poles at various Electrical Circles of KSEBL, the transfer
of title to goods is effected at KSEB sites, ad therefore, transportation, loading and
unloading charges collected by the seller has to be included in the taxable value for
computation of VAT.

➢ Whether while calculating CST, the transportation, loading and unloading charges
incurred after the removal of finished products (PSC Poles) from the factory is to be
included?
According to Section 2(h) of Central Sales Tax Act 1956, Sale price means the
amount payable to a dealer as consideration for the sale of any goods, less any sum
allowed as cash discount according to the practice normally prevailing in the trade,
but inclusive of any sum charged for anything done by the dealer in respect of the
goods at the time of or before the delivery thereof other than the cost of freight or
delivery or the cost of installation in cases where such cost is separately charged.

Thus transportation, loading and unloading charges collected by suppliers are

not included in transaction value for calculating CST.

➢ KVAT Rate for Used Meters sold as Scrap?

There is VAT Rates specified for waste and scrap of Copper, Nickel,
Aluminium, Tin, Lead, etc in the Kerala VAT Schedules. It does not specify any rate
for used meters sold as scrap. Thus, it will be subject to VAT at the maximum rate
(i.e.14.5%).

➢ Whether scrap can be sold interstate against C-Form?

According to Section 4(2) of Central Sales Tax Act 1956, a sale or purchase of goods
shall be deemed to take place inside a state, if the goods are within the State -
1) In the case of specific or ascertained goods, at the time the contract of sale is made;
and
2) in the case of unascertained or future goods, at the time of their appropriation to the
contract of sale by the seller or by the buyer whether assent of the other party is prior
or subsequent to such appropriation.
As the sale of scrap is effected at the offices of KSEBL, and ownership is passed
on at that place itself, it does not amount to Inter-state sale and thus issue of C-form
does not arise.

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➢ KVAT rates applicable to Teak wood Pole Scrap and RCC/PSC Pole Scrap:
As Teak wood Pole Scrap and RCC/PSC Pole Scrap are not specified in
Second or Third Schedules to the Act, VAT has to be collected at the rates specified in
Section 6(1)(d) of the Act (i.e., at present, 14.50%).

The similar issue was taken up with the Commissioner of Commercial Taxes. Vide
letter No. C1-34563/13/Tx dt 01-01-2014 of Commissioner of Commercial Taxes,
Thiruvananthapuram, it was clarified that Teakwood Pole Scrap is taxed at 14.50%.

➢ Whether Distribution Line works under RGGVY scheme liable to deduction of Work
Contract Tax?
According to Section 10(1) of KVAT Act 2003, every awarder shall deduct
from every payment, including advance payment, made by him to any works
contractor liable to pay tax under section 6, in relation to any works contract awarded,
the tax payable by the contractor in respect of such contract under that section,
whether the transfer of goods involved in the execution of works contract is in the
form of goods or not, and remit it to Government, in the prescribed manner, on or
before the fifth day of the month succeeding the month in which such deduction is
made. Therefore, in order to deduct tax at source, there should be some transfer of
taxable goods whether in the form of goods or not, by the contractor.

If the materials required for the work is issued by KSEBL and the contractor is
doing only labour portion, such contracts does not attract work contract tax.

89
Annexure VI: Form No. 12BB under Income Tax Act:

INCOME-TAX RULES, 1962

FORM NO.12BB
( See rule 26C)

Statement showing particulars of claims by an employee for deduction of

tax under section 192

1. Name and address of the employee:

2. Permanent Account Number of the employee:
3. Financial year:

Details of Claims and evidence thereof

Sl No. Nature of Claim Amount (Rs.) Evidence / Particulars

(1) (2) (3) (4)
House Rent Allowance:

(i) Rent paid to the landlord

(ii) Name of the landlord

(iii) Address of the landlord

1
(iv) Permanent Account Number of
the landlord
Note: Permanent Account Number shall
be furnished if the aggregate rent paid
during the previous year exceeds one lakh
rupees

2 Leave travel concessions or assistance

Deduction of interest on borrowing:

(i) Interest payable/paid to the lender
(ii) Name of the lender
(iii) Address of the lender
3 (iv) Permanent Account Number of
the lender
(a) Financial Institutions (if available)
(b) Employer (if available)
(c) Others

90
 Deduction under Chapter VI-A

(A) Section 80C,80CCC and 80CCD

(i) Section 80C
(a) .................
(b) .................
(c) .................
(d) .................
(e) .................
(f) .................
4 (g) .................
(ii) Section 80CCC
(iii) Section 80CCD
(B) Other sections (e.g. 80E, 80G,
80TTA,etc.) under Chapter VI-A.
(i) Section...................
(ii) Section...................
(iii) Section..................
(iv) Section...................
(v) Section...................
Verification

I,........................................, son/daughter of................................................ do hereby

certify that the information given above is complete and correct.

Place....................................................

Date..................................................... (Signature of the employee)

Designation ......................................... Full Name:..................

91
Annexure VII: CBDT Notification No. 07/2016 dt 04-05-2016 – Guidelines for
processing the Form No. 15G/15H :

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93