Articals that are worth reading

Allowability Of Expenditure Incurred By Pharma Companies On Medical Conferences.

23 Jul,2018

Recently the Delhi high Court in Bostom Scientific India (p) Ltd.v.Asst.CIT 2017 Tax Pub (DT) 3985  (Del –HC) has give it’s verdict regarding allowability of expenditure incurred by pharma companies on sponsoring medical conference  in and outside India. The learned  author analyses the impugned issue in the light of this recent verdict.


           It is general practice  of pharma companies to sponsor and conduct medical conferences  in & outside  India and for this purpose these companies also make arrangements  for travel and accommodation  of doctors  attending the conferences. In a recent past, a serious  controversy  arose as regards allowability  of expenditure  incurred b pharma  companies for organising such conferences. These expenditure  incurred by pharma  companies  for organising such conference.these expenditure are claimed  to be allowable as business expenditure for being incurred for  business purpose, however, the department tends to disallow  the same by invoking Explanation 1 to section 37 (1).

  1. Explanation 1 to section 37(1) disallow illegal expenditure

              The Finance  (No. 2) Act, 1998 has inserted an Explanation to section 37(1), with  retrospective  effect from 1-4-1962, so as to clarify  that any expenditure incurred by an assessee for any purpose which is an offence or which is  prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect  of such expenditure.

  1. Nature of expenses incurred  by pharma companies

             The pharma companies incr expenditure to sponso and conduct doctors’  conferences , to distribute  its product amongst  doctors  as free   samples, to give  gift  articles to  doctors ,  etc. These expenditure  are classified as advertisement  and sales promotion  expenditure and claimed  to be  allowable on the ground of being incurred wholly and  exclusively for  the  business purposes.

  1. CBDT’s clarification as regards allowability of expenses incurred in providing freebies to medical  practioner

              The  Medical council of India in excersise  of its statutory powers amended the Indian medical Council  (Professional Conduct, Etiquette  and  Ethics) Reguations, 2002 (the Regulations ) on 10-12-2009  imposing a prohibition on the medical practitioner & their professional associations   from taking  any  gift  travel facility , hospitality, cash of monetary  grant from the pharmaceutical  and allied health sector  industries.

            Section  37(1) of the Income Tax Act provides for deduction  of any revenue  expenditure   (other  than those failing under sections  30 to 36) from the  business Income  if such expenses is laid out/expended  wholly or exclusively  for the purpose  of business income if such expense  is laid out/expended wholly or exclusively for  the  purpose  of business or  profession. However,the explanation  appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose  which  is either an offence  or prohibited  by law.

          Thus the  of any expense incurred in providing above  mentioned  or similar freebies in violation  of the provisions of Indian  medical Council (Professional  Conduct Etiquette  and  Ethics ) Regulations, 2002 shall  be inadmissible  under  section  37(1)  of the Income Tax  Act  beingan expense  prohibtited by the law. This disallowance shall be made in the  hands of such pharmaceutical  or  allied health sector  industries  or other  assessee  which has provided aforesaid freebies  and claimed  it as a deductable  expense in it’s  accounts  against  income.

           It is also clarified  that the  sum equivalent to value of freebies enjoyed  by the aforesaid  medical  practitioner  or  professional  associatiosns  is also  taxable  as business  income  or income  from the other sources, as teh case may be,depending  on the facts  of each case.The assessing officers of such  medical practitioner  or professional  associations  should  examine the same and take an appropriate action.

             However,the Indian  Medical  Council (Professional  Conduct, Etiquette and Ethics) Regulations,2002 which  has been amended on 10-12-2009 prohibits  medical practitioners and their professional  associations  from  taking any  gift, travel  facility, hospitality, cash  or monetary  grant from the  pharmaceutical and allied health sector industries.

                Thus, the expenditure incurred on freebies are disallowed on the ground of being incurred  in violation of the provision  of Indian medical  Council ( Professional  Conduct, Etiquette  and Ethics) Regulations, 2002.- circular  No. 5/2012,dt.1-8-2012.

  1. Judical  controversy as regards allowability  of expenditure  incurred  by pharma companies

           In live Healthcare  Ltd.  v. DCIT (2016) 161 ITD  63 (Mum),the Mumbai  Bench  of the Tribunal  held that the expenditure on foreign travel and  accomdation  of doctors  and their  spouses was incurred  with  the  intent and the objective of profiteering form the  distribution  and entertainment that had a direct nexus with promoting  the sales  and profitability which made such expenditure violative  of the provisions of  the said regulations  of 2002.It held that the expenditure was incurred  to seek favours  from the doctors  by way of recommendation of  the company’s  product  which  was an illegal gratification ,was against public  policy,was unethical  and was prohibited  by law. Accordingly,the expenditure in question was liable for disallowance.

          However  in PHL Parma (p)  Ltd. v. ACIT (2017) 163 ITD 10(Mum),the decision  was given in favour  of the assessee by observing that the  code  of conduct has meant  to be followed  and adhered to by the medical practironers and doctors  alone and  did  not apply in any manner to pharmaceutical companies. The  Indian  Medical Council did not  have any jurisdiction  nor had any authority upon the pharmaceutical companies and could not have  prohibited  such  companies  in conduct of  their  business. The  CBDT in issuing  Circular  No. 5, dt.  1-8-2012 had  enlarged the scope of the said Regulations by  applying  it to the pharmaceutical  companies without any enabling  provisions to do so. Further  the circular in any  case could not be reckoned retrospectively  i.e., it could not be applied  before the date of its issue, i.e.,  on 1-8-2012.

            Thus the expenditure  incurred by the assessee  company was in the nature  of sales and  business  promotion  and was to be allowed; the gift articles bore the logo of the assessee and could not be held to the freebies,the free samples proved  the  efficacy of the products  of the  products  of the company and again were not in violation of the said Regulations  framed  by the Medical Council  of India.

  1. Applicability of CBDT Circular No. 5/2012

             In Syncom Foundations  (I) Ltd.  ( IT  PPEAL Nos. 6429  & 6428  (Mum) of 2012, it was observed  that CBDT circular  would not be applicable in the assessment years 2010-11  and 2011-12 as it  was introduced  w.e.f. 1-8-2012. Similarly  it was held in UCB India  (P)  Ltd.v. ITO (IT Appeal No. 6681 (Mum) of 2013, dt 13-5-2016), that the CBDT circular colud not have a retrospective  effect.

  1. Recent decision of delhi High Court in Boston Scientific India (P) Ptd.’s  case

               In Boston Scientific  India (P) Ltd v. Asstt. CIT 2017 Tax Pub (DT) 3985 (Del-HC), the assessing  officer on the specific heads of ‘advertisement and business promotion’  and travel related expenses ‘ made the following  disallowances :

            (i) Expenditure  of Rs. 13,14,548  was stated  to be  constituting freebies provided to medical  consultants and other doctors, disallowable   in view of Explanation  1 to section  37(1) of the Act , read with CBDT Circular No.  5/2012, dt.1-8-2012.

            (ii) Expenditure of Rs  19,06,000 incurred on conducting  seminars conventions, meetings, etc., for the purpose of Appellant’s business.

This  was disallowed  on the ground that details  were scanty, despite ample opportunity being given  to the assessee .

             (iii) Expenditure  of Rs  8,00,000  incurred  on sponsorship  for organizing conference/seminor. This was disallowed on the ground that the payment was made after the event had place.

On appeal before ITAT , it was held that as the assessee  had incurred expenses in the garb of marketing  the cardiac machine, onus  was upon the assessee to prove that the expenses incurred did not  violate any law that may be applicable. The burden lies uopon the assessee which has not been discharged  by evidences/materials.  Merely by placing the bills of payments, the travel details, the hotel details , where the doctors  were stationed , and the seminars / conferences  that were actually attended by such doctors. Assessee had also not demonstrated  that the doctors by participating  in such conferences and accepting the hospitality  extendedby it (the assessee ) have not contravened any MCI Regulations.

          The High Court ,however, said that the ITAT placed an unfair burden on the assessee to prove that the above expenses was incurred  bona fide for the  business  purpose of the assessee. The assessee had placed before the ITAT  all the relevant details thereby discharging the initial  onus. Thereafter,it was  open to the Revenue  to prove to the contrary . It was not possible for the assesee  to show  that  doctors “actually  delivered  any lectures, attented any meetings for, providing training  courses and seminars for assessee, etc.      

            As regards  other disallowances, it was held that since the ITAT proceeded on  and conjectures and failed to deal with  the contentions of the assessee in that regard , it is only fair that the ITAT  considers the entire appeal of the assessee  on merits afresh.

            Thus, the High Court rendered decision in favour  of assessee and against  the revenue and  all the contentions of the  assessee raised  in the appeal before the ITAT  would be considered afresh.

    8. Conclusion

       The decision of the Delhi High Court has provided some rays of hope in favour of Pharmaceutical Companies for doctors. If relief is  provided, it wil be of great  help in sharing  and upgrading  knowledge in the field of medical science and ultimately whole mankind would  get benefitted therefrom.

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Can Accommodation Services Be An Inter-state Supply.

23 Jul,2018

Accommodation services are under the purview of tax net since a long time It was a handsome source  of revenue under service tax law and the legacy is continuing in refined manner,even under GST  law.


                    Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive  list regime.The same is carried forward in the GST law also.Under GST law there is classification  of services  and  accordingly  accomdation services have been classified into the  various categories according to the practice  prevailing in the industry.

2. Classification

                   Accommodation  services have been classified under HSN/SAC 9963 wherein the further classification ia as under.


Service Tariff Code (HSN/SAC)

Description of Service



Room or unit accomdation  services provided by Hotels, INN,Guest House , club, etc



Camp Site Services



Recreational an vocational camp services



Room or unit accomdation  services for students in student residences



Room or unit accomdation  services provided by Hotels, Capms, Paying Guests, etc.



Other room or unit accomdation services not specified else where




3.Nature of supply

                 Accommodation services are generally provided at the premises used for providing  accomdation services. Since the GST is destination based consumption  tax, therefore, the place of supply of accomdation  services  is  the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before  reaching  at the conlusion we need to understand  the relevantprovisions of the GST law.

             The relevant provisions of law determaining  the nature of services  are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.

             According to setion 8(2) of the IGST Act,2017  supply of  services where the  location  of the supplier and the place  of  supply of services are in the same  State  or the same Union  territory  shall be  treated as intra-state supply.

            According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home  stay , club or campsite, by whatever  name called  and including  a house boat or any other vessel shall be the location  at which the immovable property  or boat or vessel, as the case may be, is located or intended to be located.      

             Thus, on a combined reading  of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.      

4.Whether accomdation services can be an inter-State  supply

             Although by referring  to the provisions cited above,  it can be  inferred that the  basic philosophy of implematon of destination   based consumption tax goes in line of taxing accommodation  services as intra-State  supply. Howeve, the following provisions of IGST Act,2017 are worth noting-

(a)Provisio to section 8(2) : The said provision reads as –“the  intra-State supply of services shall not include supply of services shall not include  supply of services to or by a Special Economic Zone developer or a Special Economic  Zone unit”.   

(b) Section 7(5)  (b) : Supply of goods or services or both to or by a Special Economic Zone developer  or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the  course of inter –State trade or commerce.

The direct implication of the above provisions on accomdation services is that the said services  if provided to any unit in SEZ shall not be considered  as intra-State supply. In other words, it shall be considered  as inter –State  supply.


 Hence, it can be fairly concluded that the accommodation services when provided to any unit in SEZ or by unit in SEZ evolves a concept divergent  to the basic intent of the GST  law of taxing  the services  on consumption  basis.Now  the question that flashes in the minds  is the need of such  a provision. The purpose  of introduction  of such provison can be  understood  with the provisions of section  16 of the IGST Act, 2017

         Implication  of sections  7(5), 8(2) and 16 of the IGST Act, 2017

        The implication of sections 16  and 8(2) can be understood i two parts. In one part the supplier of services  is outside the SEZ and in other part the supplier of services is in the SEZ. The impact on both the transaction shall be different.

(i) Supply to SEZ – Zero- rated supply

             Accordingly to section 16 of  the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely :- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic  Zone developer  or  a   Special  Economic Zone  unit.

            The provision stated in section 16 clearly mandates  that the accommodation services provided to SEZ developer  or to a unit in SEZ shall be treated as zero-rated supply.  To put it differently, the  same shall be considered  at par with export of services. Thus, such services shall fall under zero –rated supply under GST law  and shall be eligible for benefits attributed to zero rated supplies including refund of  taxes paid on the relevant , services,subject  to the other provisionsof GST law.

(ii) Supply by SEZ-Inter-State-supply

                            On a close reading of section 8(2)  and section 16 as mentioned above, it can be inferred that accomdation services provided by the unit  in SEZ to any person  outside SEZ shall be treated  as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State  supply and IGST shall be considered  as inter –State supply and IGST shall be chargeable on the same.

(iii) Supply within  SEZ–Zero–rated supply        

                            Since in case of supply within SEZ the recipient shall always  be in SEZ, therefore, such  supply shall always fall within the meaning  of zero-rated supply.Hence,supplies within SEZ shall be eligible for benefits at par with the benefits available to zero –rated supply.

5. Conclusion 

          Accomdation services are generally taxed as intra-state supply, however the law  contains the relevant provisions for  treating the same as inter-state supply also. Thus, before reaching at any conclusion about the place of supply, it is essential to refer the lwa as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.

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Anti-Profiteering Measure Under GST-An Overview

23 Jul,2018

The learned author attempts to make an overview of anti-Profiteering measure introduced under the GST regime and the scope of powers of National Anti- Profiteering Authority.

  1. Anti- Profiteering measure- Meaning

          It is fundamental  spirit of an indirect tax regime  that reduction in rate of tax any supply of goods  or services or the benefit by input tax  credit should have been passed on to the recipient by way of commensurate reduction in prices. However, it has been the experience of many countries  that when GST  was introduced there has been a marked increase in inflation and the prices of the commodities. This happended  in spite of the availability of the tax credit right from the production stage to the final  consumtion stage which should have actually  reduced the final prices.

This was obviously  happening because the supplier was not  passing on the benefit to the consumer and thereby  indulging in illegal profiteering.  

    With the introduction of GST regime in india, National Anti- Profiteering Authority has been constituted central Government to examine whether input  tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price o fthr goods or services or both supplied by him,this is to ensure that thecosumer is protected from arbitrary price increase  in the name of GST.

      2.Statutory provisions 

                   The statutory provision relating to anti- Profiteering measure are enshrined under section 171of the CGT Act.Rules  123 to 133 of the CGST Rules,2017 deal with provision in  respect of constitution of the National Anti- Profiteering Authority  and scope of its powers.

         As per  sub–section  (1) of section 171 of the CGST /SGST  Act, any reduction in rate tax on any supply of goods or services or the benefit  of input tax credit shall be passed on to the recipient by way  of commensurate  reduction in prices.

        As per sub- section  (2) of section 171, the Central Government may, on  recommendation of the Council, by notification, constitute  an Authority, or empower an existing Authority constituted under any law for the time being force, to examine whether input tax credits availed by any registreted person  or the reduction in the tax rate have actually resulted in a commensure reduction in the price of the goods or services or both supplied by him.

               It is  clear from the above that when input tax credit is availed  of by an registered person, the amount of tax is excluded from the purchase price or cost the goods and the input tax credit is used for discharge of output tax on outward supply. The Authority constituted under sub-section  (2) of section 171 is required to examine  that input tax  credits  availed by any registered person results in a  commensurate reduction in the price of the goods or services or b both supplies by him.

              The Authority is also required to ensure that any reduction in the tax rate  must result in a   commensurate  reduction in the price of the goods or services or b both supplies by him.

        3. Constitution of Authority

          The National Anti- Profiteering  Authority shall be a five-member committee  consisting of a Chairman  who holds or has held a post equivalent  in rank to a Secretary to the Government  of India ; and four technical Members who are or have been  Commissioners of State  tax  or central  tax or have held an  equivalent  post under existing laws.

          The Additional shall cease to exist after the expiry of two years from the date on which the Chairman enters upon his office unless the Council recommends otherwise.

     4.Power to determine the methodology and procedure

           The Authority can determine the methodology and procedure for determination as to whether the reduction in the rate of tax on the suppy of goods or services or the benefit by way of commensurate reduction in prices.

     5.Duties of  Authority

          As per  rule 127 of the CGst Rules, the Authority would have the following duties:

        (i) to determine whether any reduction in the rate of t axo any supply of goods o services or the benefits of input tax has been passed o to the               recipient by way of commensurate reduction in prices;

       (ii) to identify the registered person who has not passedon the benefit of reduction in the rate of tax on supply of goods or services or the                      benefit of input tax credit to the recipient  by way of   commensurate reduction in prices;

       (iii) to order;

             (a) Reduction in prices

             (b) Return to the recipient  , an amount equivalent to the amount not passed  on by way of commensurate reduction in prices along with                        interest at the rate of eighteen per cent. Fromthe date of collection of the higher amount  till the  date of  the return of such amount or                        recovery  of the amount or recovery of the amount not returned, as the case maybe, in case the eligible person  does not claim return                      of the amount or is not identifiable, and deposite the same in the  Consumer Welffare Fund;

            (c) Imposition of penalty; and

            (d) Cancellation of registration.

   (vi)   to furnish a performance report to the Council by the 10th of the close each quarter.

    6. Application to the Authority

            According to sub-rule 128, the Standing Committee shall within a period of two months from the date of the receipt of a written application froman interested party or from  a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima-facie evidence to  support the claim of goods or to the recipient by way of commensurate reduction in prices.

     All  applications from interested parties on issues of local nature shall first be examined by the State level Screening  Committee constituted in each State by the State Government consisting  of an officer of the State Government to be nominated by the Commissioner, and an officer of the Central Government to be nominated by the Chief Commissioner.

   7. Initiation and conduct of proceeding 

          In terms of sub-rule  (1) or  rule  129, if the Standing Committee is satisfied  that there is a prima-facie evidence to show that the supplier has not passed on the benefit of reduction in the rate of tax on thesupply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices , it shall refer the matter to the Director General of Safeguards for a detailed  investigation

        In terms of sub-rule  (3)  of rule 129, if the Director  General of Safeguards shall conduct

investigation  and  collect evidence necessary to determine undue profiteering and before initiation of the investigation,issue a notice to the  interested parties (and to such other persons as deemed fit for a fair enquiry into the matter) containing, inter alia, information on the following, namely:-

            (a) The description  of the goods or services in respect of which the proceedings have been initiated;

            (b) Summary of the statement  of facts on which the allegations are based; and

            (c) The time limit allowed  to the interested  parties and other persons who may have information related  to the proceedings for furnishing                     their reply.

       The evidence or information presented to the Director General of Safeguards by one interested party can be made available  to the other   interested parties  participating in the proceedings in the proceedings. The evidence provided will be  kept confidential  and the provisions of section 11 of the Right to Infomration  Act,2005, shall  apply mutatis to the disclose of any information which is provided on a confidential basis.

       The Director General of Safeguards can seek opinion of any other agency or statutory  authorities  in the discharge  of his duties. The Director Genearal of Safeguards,or an officer authorised by him will have the power to summon any person necessary either to give evidence or to produce a document or any other thing. He will also have same powers as that of a civil court and every such inquiry will be a judicial proceeding.

       The Director General of   Safeguards will complete the investigation within a period of three months  for reasons to be  recorded  in writing as allowed by the Standing committee and, upon completion of the investigation, furnish to the Authority, a report  of its findings along with the relevant records.

  8. Confidentiality  of information

          For the purpose of ensure confidentiality of information, it has been provided  that notwithstanding anything contained in sub-rules  (3) and (5) of rule  129 and sub-rule (2) of rule 133, the provisions of section 11 of the Right to Information  Act, 2005, shall apply mutatis mutandis   to the disclosure of any information which is provided on a confidential  basis.

         It is also provided under sub-section  (2) of section  130  that the Director General of Safeguards may requie the parties providing information on confedential basis  to furnish non-confidential summary   thereof and if in the opinion of the party providing  such information, the said information cannot be summarised, such party may submit to the Director General of Safeguards  a statement of reasons as to why summarisation  is not possible.

  9. Cooperation with other agencies or statutory authorities

        As per rule 131 of the CGST Rules, where the Directors General of Safeguards deems fit, he may seek opinion of any  other agency or statutory.

        Authorities in the discharge  of his duties.

  10. Power to summon persons to give evidence and produce  documents

           In terms of sub-rule 132,the Director General of Safeguards, or an officer authorised by him in this behalf,shall  be deemed to be the proper officer  to exercise the power to summon any person  whose attendance  he considers necessary either to give evidence  or to produce a document or any inquiry in the same manner, as provided in the case of a Civil Procedure,1908.

           Every such inquiry referred  to in sub-rule  (1)  shall be deemed  to be a judicial proceedings within the meaning  of sections  193 and 228 of the Indian Penal Code.

   11. Order of the Authority

       As per  sub-rule  (1)  of the CGST Rules, the Authority shall (after  granting  an opportunity of hearing to the interested  parties if so requested) within a period of three months  from the date of the receipt  of the report from the Director General  of Safeguards determaine whether a register person has passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit  of input tax credit  to the recipient by way of commensurate reduction in prices. 

       If the Members  of the Authority differ in opinion  on any point, the point shall be decided according  to the  opinion of the majority.

       Where the Authority determines that a registered  person has not passed on the benefit  of the reduction in the rate of tax credit to the recipient  by way of commensurate reduction in prices, the benefit  of input tax  credit  to the recipient by way of commensurate  reduction  in prices, the Authority may order-

     (a) Reduction in prices;

     (b) Return to the recipient, an amount  equivalent to the amount not  passed on by way of commensurate reduction  in prices along with interested at the rate of eighteen percent. from  the date of collection of the higher  amount  till the date of the return of such amount or recovery of the of amount including interest not returned, as the case may be, in case the eligible person does not claim return  of the amount or is not identifiable, and depositing the same in the Fund refered to in section 57;

     (c) Imposition of penalty as specified  under the Act ; and

     (d) Cancellation of registered under the Act.

          Any order passed by the Authority shall be immediately complied with by the registered person failing which action shall be initiated to recover the amount in accordance  with the provisions of the Integrated Goods and service Tax Act  or the Central  Goods and Services Tax Act or the Union territory Goods and Services Tax Act of the respective States , as  the case may be.

     The Authority can  direct any authority of central  tax,State tax or Union territory tax to monitor the impletion  of the order passed by it.

  12. Decision to be taken by the majority

        As per rule 134 CGST Rules, if the Members of the Authority differ in opinion on any point, shall be decided according to the  opinion of the majority.

 13. Compliance by the registered person

       In terms  of rule  135 of the CGST Rules, any order passed by the Authority shall be immediately  complied with by the registered person failing which action shall be initiated to recover  the amount in accordance with the provisions of the Integrated  Goods and Services Tax Act or the State goods and Services Tax Act of the respective States, as the case may be.

 14. Summing up

         Anti-profiteering measures are globally Accepted policies which are implemented by various  countries for controlling temporary inflationary prices of goods and services  during the transition  phase of implementation of GST. Anti-profiteering measure are adopted for providing benefit of GST to the consumers in terms of reduced prices and curbing more profit margins to the businessmen sought to be earned due to rise in prices of goods and services resulting inflation in country. 

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