PLANS FOR DERECOGNITION OF STP REGISTERATION AND WITHDRAWL OF TAX HOLIDAY
1) Vide certain internal guidelines the I Tax Department plans to derecognize any STP registeration granted by STPI - The department feels that STPI , which is a society under the Minisrty of Information Technolgy is not a competent authority to grant STP registeration and instead it should be the Inter Ministerial Standing Committee (IMSC)
EFFECT
2) Since the STPI is the single window for all STP registeration -and functions under the Ministry of Info Tech - the assessees would get adversely affected due to know fault of theirs.
3) The assessing officers are indicating that they will de recognize the STP registeration and therby withdraw the exemption u/s 10 A Tax Holiday - This would opne up a pandora's box- just like the 80 HHC issue.
DEPARTMENTAL STAND
4) The Itax contention is
a) that basing itself on the Gazette Notification No SO 243(E) dt 22.3.94 (refer e Chaturvedi and Pithisaria Pg 935 to 937) issued by the Ministry of Commerce when Tax Holiday u/s 10 A was allowed to STP units in 1994- that the registeration should be approved by the IMSC while in actuality the Society (STPI) is exercising the powers
b) The Department also feel that a Society cannot be delgated Statutory Obligation or Authority as they are not subject to consitutional or statutory discipline
c) It also feels that Society Reg Act 1860 - does not permit the host of activities currently being undertaken by the STPI
d) The Department is also basing its stand on certain opther Notification 294 Dt 30.8.91 Ministry of Industries (Deptt of Indutrial Development) & Sec 14 of the Industries (Development and Regulation ) Act 1951 read with Rule 10(2) of Licensing of India Undertaking Rules 1952 - to say that the IMSC sholud be the competent authority
POLICY
5) However vide Press Note No 5 dt 21.5.97 and No 9 dt 7.7.97 the powers seem to have been expressly granted to the STPI for registeration and regulation for all STP units- The Itax Deptt seems to be ignoring this
6) The Policy regulating the EOU/STP/ EHTP is given Chapter 6 of Handbook of Procedures forming part of EXIM Policy 2002-2007 ( earlier Chapter 9 of HOP of EXIM Policy 1997-2002)
Para 6.3.4.1 of Chapter 6 holds that STP/HTP complexes can be set up .. duly approved by the Inter Ministerial Standing Committee (IMSC) in the Ministry of Communication and Information Technology -
Further Para 6.3.7 of Chapter 6 further holds that (Letter of Permission )LOP/ LOI (Letter of Intent ) issued to EOU/EHTP/STP/BTP should be construed as a licence for all Purpose
The projects costing less than or equal to Rs.100 million , not involving any foreign equity participation are considered by Jurisdictional Director of STP,
The projects costing more than Rs.100 million, not involving any foreign equity participation are considered by Inter Ministerial Standing Committee (IMSC) on Software Technology Park (STP) scheme.
The projects involving foreign equity Non-resident Indians (NRI's) participation are considered by the Foreign Investment Proposal Board (FIPB)
However If the proposal is as per prescribed guidelines as specified in press note No. 5 dated 21.5.1997 of Ministry of Industry, as amended on 7.7.97, automatic approval is given within 15 days- SO IN MOST CASES THE REGISTERATION SHOULD BE GIVEN ON AN AUTOMATIC BASIS
CONCLUSION
If the registeration is derecognized then it will lead to a lot of hardship to the Assessee for no fault of theirs- The government has all along held that STPI is the single window clearance for setting up STPI - and a visit to any of the various STPI sites would bear this out - THe STPI site and offical documents all say that they are part of Government Of India-
NOW it is a question of one wing of the government questionning what another wing is doing - while the poor assessees would be caught in the cross fire.
ANY COMMENTS ? ANY FURTHER INPUTS ?ANY CLARIFICATIONS ? -
ADDENDUM
Press Note 5 dt 21.5.97 was issued because the Government wanted to simplify the procedure for granting approvals keeping inview the fast growing pace of the electronics sector _ and approvals were to be granted automatically by the STP/EHTP in 15 days time for most cases. As per Item No 6 of the press note No 5 dt 21.5.97 the cases approved under the automatic route under the delegated powers were to be submitted regularly to the IMSC for ratification at the next meeting of the IMSC
We can inference from this that once the registeration were granted they were in the normal course ratified by the IMSC. Secondly the letter issued by the STPI mentions " the Government is pleased to grant registeration " .
Now the I Tax deptt wants specific proof that the IMSC has in actuallity approved the registeration _ and wants the assessee to furnish the proof _ which means the assessees may have to reverto back to the STPI and request ask them to furnish proof that the registeration was ratified by the IMSC _ by way of copy of minutes of the said meeting of the IMSC where the registeration was approved or some other such document and if this not furnished then the ITax may withdraw the exemption
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