CAduniya.com : CA India Blog

On the basis of the discussions between the Empowered Committee (EC) of State Finance Ministers and the Union Finance Minister regarding the compensation package, the Government of India, Ministry of Finance, Department of Revenue has issued a notification on 30th May, 2008 to bring into effect from 1st June, 2008 the new reduced rate of CST of 2 per cent on inter-State sales of goods. The notification of new CST rate of 2 per cent in place of earlier 3 per cent is in accordance with the announcement made by the Union Finance Minister in his budget speech in Parliament in February 2008 that the rate of Central Sales Tax would be reduced.

The rate of CST on inter-State sale of goods to registered dealers (against Form-C) shall now be the lower of 2 per cent and the rate of VAT or State Sales Tax applicable. This reduction forms a part of the roadmap for phasing out CST completely by 31st March, 2010 in preparation of introducing Goods & Services Tax (GST), the roadmap for which is being worked out by the EC of State Finance Ministers together with the Union Finance Ministry.

The Central Government and the Empowered Committee of State Finance Ministers have further agreed that the compensation for revenue loss to the States in any year arising from the lowering of CST will be limited to the proportionate loss based on the actual collection of CST in the relevant year.

INTERNET LAW - Do Outsourcing Companies Constitute Permanent Establishment in India? June, 05th 2008 Supreme Court of India ruled on the issue of whether foreign companies with business process outsourcing companies in India were deemed to have permanent establishment for taxation purposes. European and United States companies are increasingly opting for business process outsourcing companies (BPO) in India. Reduction on production costs is the main reason for this corporate shift. Besides, India is an English speaker nation with high quality professionals in information technology and accounting. It is fair to say that India is to corporate services as China is to manufacturing. Thus far since India follows the corporate establishment principles for taxation purposes, the obvious question for any foreign company is what is my company’s tax liability for BPOs in India? Are those BPOs creating permanent establishment for my foreign company? These questions were answered by the India Supreme Court ruling in DIT v. Morgan Stanley & Co. Even though the ruling on DIT v. Morgan Stanley and Co., [(2007) 292 ITR 416 (SC)] is rendered for the specific facts the case posted, this Indian Supreme Court decision is extremely important for any foreign company holding BPOs in India. This case rules on how Indian tax authorities may tax BPO companies and whether BPO companies constitute permanent establishment.