Amazing Cases in Excise Duty

AMENDMENTS FOR NOV-2011 CA VISHAL BHATTAD

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LATEST AMENDMENTS

RELEVANT NOTIFICATIONNotification No. 10/2010 CE (NT) dated 27.02.2010 has notified the chewing tobacco falling undertariff item 2403 99 10 of the First Schedule to the Central Excise Tariff Act, 1985 manufactured withthe aid of packing machine and packed in pouches for the purposes of section 3A of the CentralExcise Act, 1944. Therefore, the duty on the said products would be charged on the basis of capacityof production.

Notification No. 26/2009 CE (NT) dated 18.11.2009 has exempted the assessee who manufacturesthe biris without the aid of machines (falling under tariff item 2403 10 31) from the submission ofAnnual Installed Capacity Statement.

LATEST CIRCULARS

Circular No. 927/17/2010-CX., dated 24-6-2010

Subject: Whether process of pickling and oiling would amount to manufacture

Clarification: As per ASM Metal Reference Book, Third Edition page 65 “Pickling is removing surfaceoxides from metals by chemical or electro chemical reaction” and pickle means “the chemical removalof surface oxides (scale) and other contaminants such as dirt from metal by immersion in an aqueousacid solution.”Therefore it can be said that the process of pickling is only a chemical cleaning process to removescales and dirt from the metal by immersion in chemical solution and does not result in emergence ofany new commercially different commodity.

Since in the present case no new product emerges as a result of the process of pickling it will notamount to manufacture.

Therefore it is clarified that mere undertaking the process of oiling and pickling as preparatory steps donot amount to manufacture.

BASIC CONCEPTS



NEW CASE LAWS

Mehta & Co. [2011] 264 ELT 481 (SC)

Facts: M/s. Mehta & Company, Mumbai (the “assessee”) are engagedin the business of interior decoration. The assessee providescomposite services including woodwork, furniture items etc. Theyentered into an agreement with M/s. Adyar Gate Hotel Ltd (now M/s.Welcome Group) for carrying out the renovation of the existingstructure in their hotel.Assessee has Manufacture of furniture atcustomer’s site. like chairs, beds, tables, desks, etc.,

Department issued SCN on contention that the assessee manufactured movable goods like chairs,beds, tables, desks, etc.,covered under different chapter headings at the customer’s site andremoved them without payment of proper duty.Assessee Argued that Furniture is an Immovable property & attached to the wall hence not subjectDuty.

Issue: whether the items like chairs, beds, tables, desks, etc., affixed to the ground could be said tobe immoveable assets and not liable to excise duty?

Decision: Furniture refers to desk, table and chairs, etc. and is different from fixtures that are attached toearth/ground/walls. Furniture cannot be regarded as immovable property.

Thus the items which are ordinarily immovable or which ordinarily cannot be removedwithout cannibalizing e.g. storage units, running counters, over- head unit, rear and side unit, wall unit,pantry unit, kitchen unit and other items which are ordinarily immovable or cannot beremoved without Cannibalizing are not furniture. However, items like tables, desks, chairsetc. are furniture and hence excisable.

Therefore, furniture manufactured at customer's site is movable and is liable to excise duty.

Medley Pharmaceuticals Ltd. [2011] (SC)

Issue: Whether physician samples distributed to medicalpractitioner as free samples, are goods under excise?

Decision: Even though Drugs and Cosmetics Act, 1940 bars thesale of physicians' samples, however, exciseability of a product isnot dependent on its salability. Excise duty is a levy on production or manufacture and is payablewhether or not the goods are sold. Further, such prohibition onsale of physicians' samples under Drugs Act doesn't also affectthe marketability of such samples : marketability doesn't requireactual sale, it is capability of being bought and sold.Even otherwise, restrictions under Drugs Act cannot affect imposition of excise duty under the CentralExcise Act thereby causing loss of revenue.Therefore, physicians' samples are liable to excise duty.

YEAR 2011

The items like chairs,beds, tables, desks,etc., manufacture atclient site & affixed tothe ground could besaid to be moveableassets and liable toexcise duty.

physician samplesdistributed tomedicalpractitioner asfree samples ismarketable &goods liable toExcise duty



Note: What is Physician samples‟?Some pharmaceutical companies, distributes physician samples to medical practitioners, which servesthe company as a marketing tool.As per the drugs and cosmetic rules, the physician samples of patent and proprietary medicines arestatutorily prohibited from being sold.It is also held in the said rules that the word ―Physicians sample – Not to be sold‖ requires to be printed.

Usha Rectifier Corpn. (I) Ltd. [2011] (SC)

The assessee is a manufacturer of electrical & electronicequipments. He made testing equipments in the course ofmanufacture and used it captively for testing of final productsmanufactured by it.The Department demanded excise duty on such testingequipments. The assessee denied the liability contendingthat:1) assembly of testing equipments from various parts and

components bought from outsideis purely for R& D anddidn't amount to manufacture.

2) After completion of research, the testing equipment willbe disassembled

3) even if manufacture was involved, the testingequipments were not marketable; and since they werenot removed outside the factory, hence, they were notliable to excise duty.

Issue: Whether the Testing equipments manufactured instead of importing the same & usedcaptively is Marketable and Liable to excise duty?Decision: assembly of various parts and components so as to make testing equipments therefrom,having different name, character and use, amount to manufacture.

The assessee had stated in its Balance Sheet that it had fabricated the testing equipments itselfwith a view to avoid import thereof so as to save foreign exchange. This statement in the BalanceSheet proved that the testing equipments were marketable, as they could be bought and sold in themarket.

Once the assessee has themselves made admission in their own Balance sheet, he now cannot turnaround and make submission which are contrary to their own admission.

As per Explanation to Rule 5 of the Central Excise Rules, 2002, the issue of excisable goods forcaptive use amounts to 'removal' for the purposes of levy of excise duty.

Hence, the testing equipments were liable to excise duty.

Testing equipmentsmanufacturedinstead of importingthe same & usedcaptively -Marketable andLiable to excise duty



Orissa Bridge & Construction Corporation Ltd. (2011) (SC)

The assessee is buying angle iron, MS Plates, MS Sheets,HR Sheets from the open market, the same are cut intospecific sizes. They are further bent and welded at thecut/bent end to give the desired shape result into shutteringplates, vertical props and Derricks. Further holes in someitems are made by drilling machine. The adjudicatingauthority has held that such activity to be a manufacturingactivity by observing that the raw material no longercontinues to be in that form or shape after conversion.Plates and sheets, which are the starting materials, gettransformed into various products shuttering plates, verticalprops and Derricks, which are having a distinct name,identity, character and use.

Issue Involved:Ø Whether the fabrication of shuttering plates, vertical props and Derricks made from Steel

angle, MS plates, MS sheets and pipes amount to manufacture?Ø Whether Shuttering plates, Vertical props and Derricks are marketable products so as to

become chargeable to excise duty?

Decision:

Ø The plates and sheets which are starting materials get transformed into various products which arehaving distinct name, identity, character and use.

Ø The sheets, plates or angle irons cannot be used as shuttering plates for the reason of which they arespecifically transformed into new product.

Ø Thus the fabrication of shuttering plates, vertical props and Derricks made from Steel angle, MSplates, MS sheets and pipes amount to manufacture & are marketable product & liable to ExciseDuty.

The fabrication ofshuttering plates, verticalprops and Derricks madefrom Steel angle, MSplates, MS sheets and pipesamount to manufacture &are marketable product &liable to Excise Duty



Shital International [2010] (SC)

FactsØ The assessee, engaged in the manufacture of knitted pile

fabrics as well as knitted hosiery fabrics of man-made fibres,cleared such goods at NIL rate of duty claiming such goods tobe “unprocessed knitted or crocheted fabrics”.

Ø The Department contended that the said goods were not‘unprocessed’ and, therefore, he benefit of exemption/Nil ratewas not available to them.

The assesse contended that the processes carried by it viz. “shearing and back-coating” didn’tamount to manufacture and, therefore, the impugned products were not liable to excise duty.

Statutory provisionsnote 4 of Chapter 60 of CETA

In relation to products referred to in this Chapter(knitted Fabrics), bleaching, mercerising, dyeing,printing, waterproofing, shrink-proofing, tentering, heat-setting, crease-resistant, organdieprocessing or any other process or any one or more of these processes shall amount to‘manufacture’.

ISSUE: Whether the processes of shearing and back-coating carried on by the assesse amountsto manufacture or not?

Decision:Ø The processes falling under ‘any other process’ must take their colour from the process of

bleaching, dyeing, printing, shrink-proofing, tendering, heat-setting, crease-resistant processing,specifically mentioned in the note. When a grey fabric is subjected to any of these process, apermanent or lasting change is brought about in the fabric.

Ø Whereas, in this case, it has been found that neither shearing nor back-coating brings about anypermanent or lasting change in the knitted pile fabric manufactured by the assesse by cardingand knitting.

Ø The processes of shearing or back-coating are not of the same nature as other processesmentioned in the said chapter Note and therefore, fall outside the scope and ambit of “any otherprocess.”

Hence, the processes of shearing and back-coating carried on by the assesse didn’t amount tomanufacture and, therefore, the assesse was not liable to pay any excise duty.

Note: Meaning of Carding, knitting & etc

a) Carding : Firstly, the fibre/synthetic waste/mixed fibre and waste is fed into the carding machine which opens the compressedmaterial and after loosening the same, sliver is made.

b) Knitting : Thereafter, the carded sliver plus yarn is inserted into the loops of the circular knitting machines and the fabric ismade.

c) Shearing : The next process is on the back-coating machine where the cloth is sheared, polished and the pile is kept to therequired level.

d) Back-coating : The final process is on the back coating machine where the back coating is done and fur is ready. Then, it ismeasured on semiautomatic measuring table and the rolls are made which are ready for show in the Excise Bond room and forsale.”

YEAR 2010

The processes ofshearing andback-coatingcarried on by theassesse amountsto manufactureor not



Nicholas Piramal India Ltd. CCEx. [2010] 260 (SC)FactsThe assessee was engaged in the manufacture of Vitamin A in afinished and marketable form, which was cleared on payment ofexcise duty. The assessee was also engaged in the manufactureof animal feed supplements, which was exempt .During theintermediate stage of manufacture of vitamin A, a crude VitaminA ("Vitamin A Acetate Crude" and "Vitamin A Palmitate")emerges.The assessee consumed "crude Vitamin A Acetate” in themanufacture of animal feed supplements.Department demanded excise duty on such "crude Vitamin A" used for manufacture of animal feedsupplements. Assessee contended that crude Vitamin A was not marketable, as it had a shelf-life of2-3 days only; further, it was unstable if it was not stored in sub-zero degree centigrade.

Decision

Ø Intermediate products, even if captively consumed and not actually sold, are liable to levy of excise duty ifthey satisfy the test of both manufacture and marketability. Marketability of a product is essentially a questionof fact The orders passed by Departmental Authorities clearly demonstrated that the crude Vitamin A wascommercially known and was capable of being marketed.

Ø The facts that the assessee had chosen not to sell the crude Vitamin A did not mean that the same was notcapable of being marketed. Had theassessee not used the crude Vitamin A, they would have had to buy thesame from the market to manufacture and sell the Animal Feed Supplement This clearly shows that amarketable product emerges.

Short shelf-life cannot be equated with no shelf-life and would not mean that it cannot be marketed. A shelf-life of 2 to3 days is sufficiently long enough for a product to be commercially marketed. Shelf-life of a product would not be arelevant factor to test the marketability of a product unless it is shown that the product has absolutely no shelf-life orthe shelf-life of the product is such that it is not capable of being brought or sold during that shelf-life.

"Vitamin APalmitate

Rawmaterial

Vitamin AAcetate Crude

Vitamin A

Animalfeedsupplements

Consumed

Consumed

Dutiable

Exempt

Officer

Issued SCN fordemanding duty

Exempt Under N/N 67/95

"Vitamin APalmitate

Crude Vitamin A whichwas captively consumedwas commerciallyknown and was capableof being marketed,hence liable forpayment of excise duty



TARPAULIN INTERNATIONAL 2010 (S.C.)(VVIMP)

Brief Facts: Assessee is carrying on the business of producing andselling ‘tarpaulin made-ups’. The ‘tarpaulin made-ups’ are made fromtarpaulin cloth by cutting the cloth into various sizes and stitched andeye-lets are fitted.

Department is contended that, the “made-ups” prepared by means ofcutting, stitching and fixing of eye-lets amounts to manufacture andhence, they are exigible to duty under the Central Excise Act.

The Assessee states that the process of mere cutting, stitching and putting eyelets does notamount to manufacture and hence, the department cannot levy Excise Duty on tarpaulin made-ups.

Issue: whether the process like cutting, stitching and fixing of eye-lets on tarpaulin made-upsamounts to manufacture?

Decision:The process does not bring into existence a new and distinct product with total transformation in theoriginal commodity.

The original material used i.e., the tarpaulin, is still called tarpaulin made-ups even after undergoing thesaid process.

Hence, it cannot be said that the process is a manufacturing process.

The process of stitching and fixing eyelets would not amount to manufacturing process, sincetarpaulin after stitching and eyeleting continues to be only cotton fabrics. The purpose of fixingeyelets is not to change the fabrics, even though there is value addition.To sum up, the conversion of Tarpaulin into Tarpaulin made-ups would not amount to manufacture.Therefore, there can be no levy of Central Excise duty on the tarpaulin made-ups.

The process likecutting, stitchingand fixing of eye-lets on tarpaulinmade-ups doesnot amounts tomanufacture



Bata India Limited-2010 (S.C.)

Brief Facts: Assessee is a well known manufacturer of foot wear.During the process of manufacturing of foot wear various chemicals /rubbers / solvents etc. are mixed together and a thin layer of suchmixed materials is unvulcanised fabric sandwiched. UnvulcanisedFabric sandwiched is later cut and stitched according to theassessee's requirements and in-process materials are used as shoe-uppers in the foot wear. Such fabrics are also at same times sent to jobworkers for stitching purposes only and the fabric sandwiched withthe mixed materials are inputs of the intermediate stage during thecourse of manufacture of footwear.

Vulcanisation of the foot wear takes place only after completing the entire process to render it afinished product as footwear.Collector of Central Excise held unvulcanised sandwiched fabric/double textured fabrics aremarketable products fulfilling the requirement of the definition of excisable goods attracting thelevy of central excise duty under the Act(Vulcanisation =Process of treating rubber or rubberlike materials with sulphur at great heat toimprove elasticity and strength or to harden them)Issue: Whether unvulcanised sandwiched fabric assembly produced in the Assessee's factory andcaptively consumed can be termed as ‘goods’ and can be classified as "rubberized cotton fabrics”.Decision :F product in question is used as an intermediate product, goes to make the component for the final

productF Burden to show that the product in question is marketed or capable of being bought or sold in the

market so as to attract duty is entirely on the Revenue.

F Revenue has not produced any material before the court to show that the product is either beenmarketed or capable of being marketed but expressed its opinion unsupported by any relevantmaterials.

F Mere fact that the product in question was entrusted outside for some job work such as stitching isnot an indication to show that the product is commercially distinct or marketable product

F Hence, Given product is not excisable

Unvulcanisedsandwiched fabricassemblyproduced in theAssessee'sfactory is not iscommerciallydistinct ormarketableproduct.



TIKITAR INDUSTRIES 2010 (S.C.)Issue:(i) Whether the conversion of ‘Straight Grade Bitumen’ not ‘Blown Grade Bitumen’

amounts to manufacture or not.

Decision: it was held that the process of converting straight grade bitumen into blown gradebitumen through Oxidation, known as blowing process, does not amount to manufacture andtherefore, exempted from payment of Excise duty.

Solid & Correct Engg. Works -2010 (S.C.)

Brief Facts: M/s Solid and Correct Engineering Works &other three sister concern are partnership concernsengaged in the manufacture of parts and components forroad and civil construction machinery and equipmentslike Asphalt Drum/Hot Mix Plants and Asphalt PaverMachine etc.M/s Solidmec Equipments Ltd. the fifth unit (with which we are concerned in the present appeals)is a marketing company advertises its (aforesaid sister concerns) product and undertakescontracts for supplying, erection, commissioning which result in manufacture of AsphaltDrum/Hot Mix Plants at the sites of customer by using components purchased from aforesaidsister concern.Solidmec also provides after sale services relating thereto.Department issued the show cause notice alleged that the process of assembly of the parts andcomponents at the site provided by the customer was tantamount to manufacture of AsphaltBatch Mix, Drum Mix/Hot Mix plants as a distinct product with a new name, quality, usage andcharacter emerged out of the said process. This Asphalt Drum/Hot Mix Plants became exigible toCentral Excise duty.Assessee Contention: Such plants (Asphalt Drum/Hot Mix) have to be permanently embedded inearth as it required to be fixed to a foundation that is 1 and ½ ft. deep for the sake of stability ofthe plant which causes heavy vibrations while in operation. Thus, the setting up of the plant isresult into immovable property and not subject to excise duty.

Issue: Whether setting up of an Asphalt Drum Mix Plant by using duty paid components istantamount to manufacture of excisable goods within the meaning of Section 2(d) of the CentralExcise Act, 1944?Decision: the expression “attached to the earth” has three distinct dimensions, viz.

(a) rooted in the earth as in the case of trees and shrubs

(b) imbedded in the earth as in the case of walls or buildings or

(c) attached to what is imbedded for the permanent beneficial enjoyment of that to which it is attached.

Attachment of the plant in question with the help of nuts and bolts to a foundation not more than 1½ feetdeep intended to provide stability to the working of the plant and prevent vibration/wobble free operationdoes not qualify for being described as attached to the earth under any one of the three clauses extractedabove.

An attachment of this kind without the necessary intent of making the same permanent cannot, in ouropinion, constitute permanent fixing, embedding or attachment in the sense that would make the machinea part and parcel of the earth permanently.Hence setting up of an Asphalt Drum Mix Plant at customer site by using duty paid componentstantamount to manufacture of movable property and subject Excise duty.

Asphalt Drum Mix Plant byusing duty paidcomponents is tantamountto manufacture ofMOVABLE GOODS.



Bemcee Ltd. - 2010 (S.C.)Issue: Whether slitting/shearing of steel coils to produce sheets constitutes ‘manufacture’ for thepurpose of levy of Central Excise Duty

Decision: slitting/shearing of steel coils does not amount to manufacture as the description asflat rolled products was continuing even when tariff sub-heading changed following width ofproduct. since the identity of the product remained unchanged even with change of classification,activity causing such a change does not amount to manufacture.

SONY MUSIC ENTERTAINMENT (I) PVT. LTD-2010 (H.C.)(VVIMP)

Brief facts: The assessee imported recorded audio and videodiscs packed in boxes of 50. After receipt of the material in itsfactory, it packed each individual disc in transparent plastic casesknown as jewel boxes, an inlay card containing the details of thecontent of the compact disc was also placed in the jewel box. Thewhole was then shrink wrapped. The assessee thereupon soldsuch packed compact discs in wholesale.

Department contention Assesses responseThe processes undertaken by the assessee in regard to the compactdiscs amounted to manufacture as the packed compact discs werenot marketable without being packed in the jewel box & they wouldotherwise be subject to damage and that the insertion of the inlaycard was also essential because without it the customer would notbe aware of the identity of the compact disc or the nature of itscontents The Department also cited the provisions of Note 6 to Section XVI ofthe tariff that conversion of an unfinished or incomplete product intoa complete finished product amounts to manufacture.

Pack the compact discsand sell them and suchpacking did not amount tomanufacture.

Issue: “Whether the activity of packing imported Compact discs in a jewel box along with inlaycard would amount to manufacture under Section 2(f) of the Central Excise Act, 1944?”

Held: Assessee received was compact discs containing data reproducible as music or visual images orboth. What it sold was nothing other than such discs, Even though packed in a box and containing detailsof the contents of each disc. It is therefore not possible to say that an article that is new and different from the commodity that theassessee imported has emerged as a result of the treatment that was imparted to the imported article atthe assessee’s hands. It continued to be a compact disc.The fact that the value addition to the compact disc does not result in the conclusion that there ismanufacture.Note 6 to Section XVI of the tariff provides that in respect of goods covered by that section, conversionof an article which is incomplete or unfinished but having the essential character of a finished article into acomplete finished article shall amount to manufacture.It clearly does not apply for given case. Those compact discs were complete and finished. They could beplayed by any person in order to listen to the sound and view the images that they contained. They wereimported in finished and complete form. The mere packing of these discs has no bearing on the factthat they were imported complete and finished.

Thus, the activity of packing imported Compact discs in a jewel box along with inlay card wouldnot amount to manufacture under Section 2(f) of the Central Excise Act, 1944

The activity of packingimported Compactdiscs in a jewel boxalong with inlay cardwould not amount tomanufacture.



Amendment in INTEREST RATESection/Rule Particulars Old Rate New rateRule 8 ofCER,2002

Payment of duty after due date 13% p.a. 18% p.a.

Rule 7 ofCER,2002

Provisional Assessement.(for payment ofdifferential duty after Final Assessment)

13% p.a. 18% p.a.

Rule 19 ofCER,2002

If Export Cancelled and Goods Diverted for HomeConsumption.

13% p.a. 18% p.a.

Sec 11AB Interest of duty short levied or non levied or etc. 13% p.a. 18% p.a.Sec 11DD Amount recovered from buyer in excess 15% p.a. 15% p.a.(No

change)

LATEST AMENDMENTS

Rule 4 of Central Excise Rules, 20021. Every person who produces or manufactures any excisable goods, or who stores such goods in

a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or underany other law, and no excisable goods, on which any duty is payable, shall be removed withoutpayment of duty from any place, where they are produced or manufactured, or from awarehouse, unless otherwise provided

[Ready-made Garments Manufactured on Job work Basis] (Inserted in F.A. 2011)

(1A) Notwithstanding anything contained in sub-rule (1), every person who gets

Ø the goods, falling under Chapter 61 or 62 or 63 of the First Schedule to the CETA,

Ø produced or manufactured on his account on job work,

shall pay the duty leviable on such goods, at such time and in such manner as is provided underthese rules, as if such goods have been manufactured by such person.

Provided that such person may authorize the job worker to pay the duty leviable on such goods onhis behalf and the job worker so authorized may undertake to discharge all liabilities and comply withall the provisions of these rules.

Explanation. - For the purposes of this sub-rule, the expression “job worker” means a person

Ø engaged in manufacture, or undertaking any process on behalf and under the instructions ofsuch person for manufacturing,

Ø from any inputs or goods supplied by such person or by any other person authorized by suchperson

Ø so as to complete a part or whole of the process resulting ultimately in the manufacture of goodsfalling under Chapters 61 or 62 or 63 of the First Schedule to the Tariff Act, and the term “jobwork” shall be construed accordingly.

CENTRAL EXCISE RULES, 2002



IMPLICATION OF AMENDMENTIt is the practice in the garment and made up industry for brand owners to have goods manufacturedfrom several job-workers. The brand owners may or may not, themselves, possess any manufacturingfacility.

By virtue of the aforesaid amendment, in case of ready-made garments and made-up articles oftextiles manufactured on job-work basis, liability to pay duty is on the merchant manufacturer (personon whose behalf the goods are manufactured by job-workers) and not on the job-workers.

Hence, the job-worker is exempt from payment of duty if the merchant manufacturer pays the duty.

Further, merchant manufacturer would be required to register his private store-room or warehouse inwhich inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law.

Comment: It was observed by S.C. in Ujjagar Prints Ltd that raw material supplier is not themanufacturer. Job worker manufacturing the goods under his control & supervision shall be treated asmanufacturer for the purpose of excise and hence, shall be liable for payment of excise duty.

But aforesaid amendment overrules this decision for goods falling under chapter 61 or 62 or 63 of theFirst Schedule to CETA. Thus for these category of goods Raw material Supplier (also called principalmanufacturer)

Shall deemed to be the real manufacturer of goods.

Let us understand with the help following Chart

Goods under Central Excise Tariff Act(CETA) manufactured through job work

Chapter 61 -Articles of apparel and clothingaccessories, knitted or crochetedChapter 62 -Articles of apparel and clothingaccessories, not knitted or crochetedChapter 63 -Other made up textile articles, sets, wornclothing and worn textile articles, rags

As per Rule 4(1) Everyperson who producesor manufactures(i.e.Job worker) anyexcisable goods, shallpay the duty leviable onsuch goods

Goods other thanthose falling underchapter 61,62,63.

As per Ujjagar PrintsLtd case Job workeris manufacturer

As per Rule 4(1A) Raw material supplier shall betreated as manufacturer & liable for payment ofduty

Exception:Provided that Raw material supplier mayauthorize the job worker to pay the duty leviableon such goods on his behalf and the job workerso authorized may undertake to discharge allliabilities and comply with all the provisions ofthese rules.



Exemption from Registration in case of mines engaged in production/manufacture ofspecified goods – Notification No. 10/2011(Centralised Registration Facility in Excise)

Every mine engaged in the production/manufacture of following goods is exempt from obtaining registrationwhere the producer/manufacturer of such goods has a centralized billing/accounting system in respect of suchgoods produced by different mines and opts for registering only the premises or office from where suchcentralized billing or accounting is done:

Ø Coal, briquettes, Ovoids and similar solid fuels manufactured from coal [Chapter heading 2701]

Ø Lignite, whether or not agglomerated, excluding jet [Chapter heading 2702]

Ø Peat (including peat litter), whether or not agglomerated [Chapter heading 2703]

Ø Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated; retort carbon[Chapter heading 2704]

Ø Tar distilled from coal, from lignite or from peat and other mineral tars, whether or notdehydrated or partially distilled, including reconstituted tars [Chapter heading 2706]

E- PAYMENT

Rule Prior to amendment Amendment made by NotificationNo. 04/2010-CE (NT) dated19.02.2010

Third provisoto rule 8(1)

An assessee was required todeposit the excise dutyelectronically through internetbanking if he had paid the total dutyof Rs. 50 lakh or more (includingthe amount of duty paid byutilisation of CENVAT credit) in thepreceding financial year

An assessee shall deposit the excise dutyelectronically through internet banking ifhe has paid the total duty of Rs. 10 lakh ormore (including the amount of duty paid byutilisation of CENVAT credit) in thepreceding financial year.

Clarification : Thus limit of 50 lakhsreduced to 10 lakh

Example: Previous year 2009-2010Payment through PLA Rs 6 lakhCredit utilized Rs 5 lakh

Total payment of duty including the amountof duty paid by utilisation of CENVAT creditis Rs 11 lakh. Hence all payment for currentFinancial 2010-11 is electronically.



DUE DATE OF PAYMENT-SSI

Rule Prior to amendment Amendment made by the NotificationNo. 5/2010-CE (NT) dated 27.02.2010

Rule 8(1) Payment of duty in case of SSI

Period: Monthly

Due date of paymentE-payment- 16th of next MonthOther- 15th of next Month

In the case of goods removedduring the month of March: bythe 31st day of March.

Payment of duty in case of SSI

Period: Quarterly

Due date of paymentE-payment- 6th of next Month followingquarterOther- 5th of next Month following quarter

In the case of goods removed during thequarter ended in March: by the 31st day ofMarch.

Comment: Above relaxation is available to aunit whose aggregate value of clearances didnot exceed Rs. 400 lakh in the precedingfinancial year regardless of whether he actuallyclaims it or opts to pay duty.Further, the said relaxation is available to anSSI unit for the entire financial year even if itcrosses the limit of Rs.150 lakh (aggregatevalue of clearances) in the current financialyear.

RETURN –SSIRule Prior to amendment Amendment made by the Notification

No. 5/2010-CE (NT) dated 27.02.2010Rule 12(1) Return in case of SSI

Period: Quarterly

Due date of Return

within 20 days after the close ofthe quarter to which the returnrelates

Return in case of SSIPeriod: QuarterlyDue date of Return

Within 10 days after the close of the quarter towhich the return relates.

Comment: Above relaxation is available to aunit whose aggregate value of clearances didnot exceed Rs. 400 lakh in the precedingfinancial year regardless of whether he actuallyclaims it or opts to pay duty.Further, the said relaxation is available to anSSI unit for the entire financial year even if itcrosses the limit of Rs. 150 lakh (aggregatevalue of clearances) in the current financialyear.



E- RETURN

SUMMARY:E-Returns & declaration under Central Excise

CENTRAL EXCISE RULES,2002Rule Assessee Period Form Due date CONDITION FOR MANDATORY E-

RETURN OR DELARATION12(1) Assessee Monthly

ReturnER-1 10th of the

followingmonth

Assessee who has paid total duty of Rs.10 lakh or more including the amount ofduty paid by utilization of CENVAT creditin the preceding financial year.Clarification : thus limit of 50 lakhsreduced to 10 lakh

Example: previous year 2009-2010Payment through pla Rs 6 lakhCredit utilized Rs 5 lakh

Total payment of duty including theamount of duty paid by utilisation ofcenvat credit is Rs 11 lakh. Hence allpayment for current financial 2010-11 iselectronically.

12(1) SSIs QuarterlyReturn

ER-3 10th of the nextmonthfollowing thequarter

12(2) AnnualFinancialInformationstatement

yearly ER-4 30 Nov of thesucceedingyear

17(3) 100 % EOUfor removalsmade inDTA

MonthlyReturn

ER-2 10th of thefollowingmonth

CENVAT CREDIT RULES,20049(2) All assessee

(submissionof Monthlyreturn onPrincipalInputs)

Monthly ER-6 10th of thefollowingmonth

where a manufacturer of final productshas paid total duty of rupees ten lakhor more including the amount of dutypaid by utilization of CENVAT credit inthe preceding financial year

9A(1)CCR

All assessee(who havepaid Exciseduty of Rs. 1Crore ormore)YearlyDeclaration

AnnualInformation onprincipalinputs

ER-5 30 April ofthesucceedingyear



Pre-authentication of invoices dispensed withRule Prior to amendment AmendmentRule 11(5) Each foil of the invoice had to be pre-

authenticated by the assessee-i.e. Byowner, working partner, managingdirector or the company secretary or anyperson duly authorized for this purpose,before being brought to use.

The rule 11(5) has been omitted.

Therefore, for the purpose of proceduralsimplification, pre-authentication of invoices isnot required now.

Export of exempted goods under Bond not allowed (Notification No.24/2010-C.E. (N.T.), dated 26-5-2010)In the said notification No. 42/2001, in Paragraph 1, after Condition (iii), the following Conditionshall be inserted namely:- “(iv) that export of excisable goods which are chargeable to nil rate of duty or arewholly exempted from payment of duty, other than goods cleared by a hundred per centexport oriented undertaking, shall not be allowed under this notification”

Significance of amendment:It was observed by H.C. in Repro India Ltd-2009 that if nil rated or exempted goods can be exportedunder bond & if such goods exported under bond then manufacturer is eligible to take Cenvat credit ofInput used in such goods and also no need to pay 5% of value of exempted goods under rule 6(3) forcommon inputs.

To nullify the effect of this decision Central Govt. has introduced above said condition in the notification.Thus after this amendment nil rated or exempted goods cannot be exported under bond & benefit ofrule 6(6) of Cenvat credit rules, 2004 is not available. i.e. Manufacturer is not eligible to take Cenvatcredit of Input used in such goods and also require to pay 5% of value of exempted goods under rule6(3) for common inputs is Such goods are exported outside India.



LATEST AMENDMENTS

Circular No. 923/13/2010-CX, dated 19-5-2010 [VV IMP] Valuation — Cost of return fare not includible

Subject: Clarification regarding inclusion of cost of return fare of vehicles in assessablevalue.Clarification: the clarification issued by the Board vide circular no. 634/34/2002-CX dated1st July 2002 as amended & it is clarified that cost of return fare of vehicles is notrequired to be added for determining value.

Circular No. 936/26/2010 –CXSubject: Inclusion of After Sale Service and Pre-delivery Inspection Charges in the assessablevalue.Clarification: the larger bench of CESTAT in the case of Maruti Udyog Ltd has now held that Pre-delivery Inspection charges and After-sale Service charges collected by the dealers are to be includedin the assessable value under Section 4 of the Central Excise Act, 1944.

Circular No. 915/05/2010-CX dated 19.02.2010Valuation of free samples of the product assessed on the basis of MRP

Circular No. 813/10/2005-CX dated 25.4.2005 clarifies that in the case of free samples, the valueshould be determined under rule 4.

The CBEC has now clarified in respect of the free samples of the products covered under MRP basedassessment that the valuation of these samples shall also be done under rule 4 of the valuation rulesby taking into consideration the deemed value under section 4A(1) notwithstanding the non availabilityof normal price under section 4(1)(a) of the Act.

EXCISE VALUATION



NEW CASE LAWS

Kwality Ice Cream Co. [2010] (SC)FactsThe assessee, a manufacturer of ice cream, entered into anagreement for the sale of the entire production to M/s. BBLILand, later, with HLL, for marketing. Under the terms of theagreement, -

(i) the assessee was to exclusively source and produceproducts for BBLIL/HLL;

(ii) the products were to be manufactured and produced inaccordance with the specifications, contained in tileagreement and reasons for change, if any, in raw materialwill be intimated by the assessee to BBLIL/HLL andapproved list of suppliers of material will be intimated byBBLIL/HLL;

(iii) price was to be fixed based on a formula agreed to between the parties;(iv) BBLIL/HLL could ask the assessee to close down any factory and relocate it elsewhere as

per logistic and other commercial considerations and if the assessee decided not to acceptBBLIL/HLL's suggestion, BBLIL/HLL could purchase from other parties and they would bedischarged of obligations to the assessee in respect of exclusive sourcing and minimumguaranteed volumes.

(v) BBLIL/HLL was to make interest-free deposits of 2.75 crores to the assessee.The Department contended that, in view of the aforesaid terms of the agreement, M/s. BBLIL/HLLexercised full control over the assessee and was 'related person' and the transaction value wasliable to be rejected.

The assessee claimed that M/s. BBLIL/HLL was not 'related person'; the entire transaction was onprincipal to principal basis and the price was the sole consideration for sale.

QuestionWhether the assessee and M/s. BBLIL/HLL were ‘related persons’.DecisionØ As per section 4(3)(b)(iv), persons shall be deemed to be "related" if they are so associated that

they have interest, directly or indirectly, in the business of each other.

Ø M/s. BBLIL/HLL couldn't compel the assessee to close down the factory or move it from its currentlocation; the only effect of assessee not accepting the suggestion was that BBLIL/HLL will berelieved of its obligations under the sourcing agreement. This provision of the agreement providedfor a circumstance when agreement could come to an end. It didn't show any control by M/s.BBLIL/HLL.

Ø The deposits of Rs.2.75 crores from BBLIL/HLL were taken by the assessee as a matter ofcommercial expediency and as a trade practice.

Ø Certain interdependence and reciprocity beyond the relationship of either a distributor ormanufacturer is required so as to consider as to whether the parties are 'related persons'. In thiscase, the relationship between the assessee and BBLIL/HLL was one sided and each one of themdidn't have interest'direct or indirect, in the business of each other.

Hence, the assessee and BBLIL/HLL were not 'related persons'. The transaction between themwas of the nature of principal to principal and the price was the sole consideration for the sale ofgoods.

YEAR 2010

Interest-free depositon account ofcommercialexpediency notamounts toadditionalconsideration totreat as relatedperson



Makson Confectionery [2010] (SC)Facts: The assessee used to manufacture 'Eclairs'/'MaxCaramel' brand chocolate/toffee, which was cleared inpacks/jars containing about 100 pieces of 'Eclairs'/'MaxCaramel'. Chocolates/toffees were notified u/s 4A.Assessee discharged duty on transaction value underSec 4, while the Department demanded RSP-based dutyu/ s 4A.Legal provision: As per section 4A “The CentralGovernment may, by notification in the Official Gazette,specify any goods, in relation to which it is required, underthe provisions of the Standards of Weights and MeasuresAct, 1976 ) or the rules made thereunder or under any otherlaw for the time being in force, to declare on the packagethereof the retail sale price of such goods, then value shallbe determined under section 4A.

Decision: S.C. observed that, as per SWM Rules, a package containing 10 or more than 10 retailpackages is defined as 'wholesale package' and there is no need to declare retail sale price on awholesale package. Further, the packs/jars containing 'Eclairs'/'Max Caramel' were not intended for retailsale to consumers.Therefore, there was no need to declare RSP on the packs/jars containing 100 'Eclairs'/'MaxCaramel'. Accordingly, the packs/jars were assessable u/s 4 at transaction value; not u/s 4A onthe basis of RSP.

There was no need todeclare RSP on thepacks/jars containing 100'Eclairs'/'MaxCaramel'(Wholesalepackage). Accordingly, thepacks/jars were assessableu/s 4 at transaction value;not u/s 4A on the basis ofRSP.



XEROGRAPHIC LTD. 2010 (S.C.)Brief Facts: Assessee was engaged in the manufacture of PlainPaper Copier Machines with the Trade mark “Ricoh Murphy”. Hewas selling its products through two other related companies viz.M/s. Murphy (India) Limited and M/s. Mecotronics (P) Limited.Department alleged that the assessee was evading excise duty byunder-valuing the goods. The assessee and the afore-mentionedtwo companies were “related persons” within the meaning ofSection 4(3)(b) of the Act and therefore the transaction between theassessee on the one hand and the two aforementioned companieson the other were not on principal to principal basis.Assessee contended that contract with abovementioned companies is on principal to principalbasis

Decision: Since the finding that M/s. Murphy (India) Limited and M/s. Mecotronics (P) Limited are“related persons” to the assessee within the meaning of Section 4(3)(b) .

The department failed to show the existence of any extra commercial consideration in fixing the normalprice between the assessee and the distributors-aforementioned two companies.

Department has also failed to show that the price at which the goods were sold to the “related persons”was not the normal price at which the goods were being sold through any other distributor or dealer orwas less than the market price at which it was being sold in the market or that there was any extracommercial consideration in fixing the normal value.

Hence normal price between Assessee and aforementioned two companies is acceptable.

MARUTI SUZUKI INDIA LTD. 2010 (Tri. - LB)(IMP)Brief Facts: The M/s. Maruti Udyog Limited (MUL) is amanufacturer of automobiles. They sell the automobilesproduced by them to dealers at ex-factory prices. Theyalso fix maximum selling price for re-sale of the productsin retail to customers. The dealers cannot exceed thosemaximum selling prices while selling the automobiles toretail buyers.

The dealership agreement also specified the commission which the dealer shall receive fromcustomers. The dealership agreement also stipulates the services which a dealer shall render tothe buyer. Clause 39 under Article 9 (servicing) of the dealership agreement states as under :-“PDI and after sales service. - The Dealer shall ensure that the pre-delivery inspection and after-sales service for Vehicles are carried out fully and efficiently in accordance with the requirementsand policies of the Company established from time to time & consideration from same can betaken by dealer from buyer.Department contended that that the amount of Rs. 850/- collected by dealer from the buyer onaccount of PDI, was built by M/s. MUL into the “dealer’s margin/commission”, which, coupledwith ‘ex-show room price’, and that this evinced that the PDI charges were collected by thedealer on behalf of M/s. MUL. On the basis of these facts, the department alleged that the PDIcharges, formed the part of ‘transaction value’ as defined in Section 4(3)(d) of the Central ExciseAct, 1944. M/s. MUL, in this regard, have contended that though the amount of PDI was fixed, orincreased/decreased periodically by them, in order to have a uniformity amongst all dealers, andthey acted as arbitrator in case of dispute between dealers in this regard, yet the fact is that the

Price betweenAssessee andbuyers is onprincipal toprincipal basis.Hence Normal priceis the value ofgoods.

Any amount collected by thedealer towards pre-deliveryinspection or after saleservices from the buyer of thegoods on the behalf ofmanufacturer is includible invalue of goods sold bymanufacturer to dealer.



amount in question was neither received by M/s. MUL, nor the dealers were ever instructed totransmit that amount to M/s. MUL.

Issue: “Whether the charges towards pre-delivery inspection and after-sale-service by dealersfrom buyers of the cars are to be included in the assessable value of cars in the light of thedefinition of “transaction value” given in Section 4(3)(d) of the Central Excise Act, 1944?”

Decision : Apparently, the transaction value does not merely include the amount paid to the assesseetowards price but also includes any amount a buyer is liable to pay by reason of or in connection with thesale of the goods, including any amount paid on behalf of assessee(MUL) to the dealer.

Transaction value would include the amount paid by the buyer of vehicle to the dealer in pursuance ofthe contract between the dealer and the assessee in relation to or connection with the sale of thevehicles and such payment may be in the course of sale or even after sale.

The theory of “flow back of consideration or part thereof is not confined to direct monetary benefit to theassessee in connection with the sale of vehicles but rejuvenated to include consideration integrallyconnected with post sale obligations also and indirect benefit received in the course of or on account ofsale as well as subsequent to the sale pursuant to any service rendered by dealer under the contractwith the manufacturer relating to the sale of the vehicles in view of meaning of transaction value asincorporated in to the provisions of Section 4(3)(d).

If one peruses the definition clause of the expression “transaction value”, it refers to “any amount thatbuyer is liable to pay”. Only restriction that has been imposed is that such payment should be “by reasonof or in connection with the sale” on such goods. Thus reason of sale and inter connection thereto areessential elements to contribute for assessable value.

Being so, any amount collected by the dealer towards pre-delivery inspection or after saleservices from the buyer of the goods under the understanding between the manufacturer and thedealer or forming part of the activity of sale promotion of the goods would be a payment on behalfof the assessee(MUL) to the dealer by the buyer of vehicle, and hence, it would form part of theassessable value of such goods.

However, in relation to the Assessee, it would be an indirect consideration received by the assessee inrelation to the clearance of the product manufactured by him.

MUL Dealer

Condition: Dealer obliged toprovide pre-delivery Inspectionconsideration from same can betaken by dealer from buyer.

BuyerS.P. 500000 S.P. 600000

Dealer has collectedRs 850 as PDI



LATEST AMENDMENTS-2010

100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR SSIRule Prior to amendment Amendment made by the

Notification No. 6/2010-CE (NT)dated 27.02.2010

Rule 4(2)(a) ofCenvat CreditRule,2004

CENVAT credit in respect of capitalgoods could be taken only for anamount not exceeding 50% of theduty paid on such capital goods inthe year of receipt of such capitalgoods in the factory (in case ofboth SSIs and non-SSIs)

Third proviso to rule 4(2)(a) has been insertedwhich provides as follows:-

An assessee eligible to avail SSI exemptionregardless of whether he actually claims it oropts to pay duty is allowed to take theCENVAT credit in respect of capital goodsfor the whole amount of the duty paid onsuch capital goods in the same financialyear.

Relaxation from brand name restriction under the SSI exemption scheme extended to allpacking materials - Notification No. 24/2010SSI exemption is available in case the specified goods are in the nature of packing materials and aremeant for use as packing material by or on behalf of the person whose brand name they bear even ifthey bear the brand name of others. “Packing material” includes labels ofall kinds

SSI EXEMPTION



NEW CASE LAWS

M/S ACE Auto Co. Ltd. [2011] (SC) (M. IMP)Facts:The assessee, a manufacturer of clutchplates& pressure plate for motor vehicles.Assesee used the symbol of ‘TATA’ & clear suchgoods under the brand name "TATA ACE" intothe Market.The assessee had claimed SSI-exemption, whichwas denied by the Department contending thatsince the assessee had used the brand-name ofother person "TATA" (along with its own brand"ACE" to make it "TATA ACE"), hence, it was noteligible for SSI-exemption.Issue: Wheter SSI exemption is available toassessee?Decision:It was held that,Notification No. 8/2003-CE bars exemption if an assessee uses anotherperson's brand name or trade name with the intention of indicating a connection between the assessee'sgoods and such other person.

However, if the assessee is able to show that there was no such intention or that the user of the brandname was entirely fortuitous, it would be entitled to the benefit of exemption. The object of SSI-exemption is to grant benefits only to those industries which other do not have advantage of brand ortrade name.

In this case, the brand name "TATA" didn't belong to assessee. Further, by using the said brand name,the assessee had not only intended to indicate a connection between the goods manufactured by themand TATA Company, but also the quality of their products as that of a product of TATA Company.Hence, the assessee was not entitled to the benefit of SSI-exemption notification.

YEAR 2011

Assesee using the symbol of‘TATA’on clutch plates&pressure plate along ownBrand name ‘ACE ‘& clearsuch goods into the Marketis not eligible for ssiexemption



Parle Bisleri Pvt. Ltd. v. CCEx. [2011] 263 ELT 15 (SC)The assessee used to manufacture soft-drink flavours, whichwere assigned code names viz. G-44T, L-33A, etc. It availedthe benefit of SSI-exemption and cleared goods to itssubsidiary M/s. Parle Exports Ltd. (PEL).M/s. PEL used to manufacture Non-Alcoholic Beverages Base(NABB) out of flavours supplied by the assessee and alsoused to manufacture the same flavours as the assessee. M/s.PEL also claimed SSI-exemption.The aforesaid flavours manufactured by the assessee with thecode names given by M/ s. PEL.The Department contended that since the assessee cleared flavours in the "code names"belonging to M/s. PEL (i.e. brand name of other person), hence, it was not entitled to SSI-exemption. Further, it was argued that both the companies (assessee and its subsidiary M/ s. PEL)had the same effective financial control and management and were, therefore, one company andtheir clearances were liable to be clubbed for determining SSI-exemption.Decision: It was held that, -

Ø Clubbing of clearances :The directors of the two companies: assessee and M/s. PEL were same. M/s. PEL had advanced Rs1 crores to assessee for purchase of raw material. The flavours being manufactured by the assesseewere developed by M/s. PEL at their R&D Lab.

This points out to that fact that both the companies were created as separate legal entitieswith a view to avail of the SSI-exemption. In reality, both of them had same effective financial controland management control. Hence, the clearances of both the companies were liable to be clubbed fordetermining the eligibility to SSI-exemption.

Ø Code names were 'brand names':Code names, used on the flavours cleared by the assessee, belonged to M/s. PEL. The codes wereused to identify the flavours and they indicated a connection in the course of trade between theflavours and M/s. PEL. The franchisers were purchasing the flavours by referring to the code names.Hence, the code names were 'brand names' within the meaning of SSI-exemption notification.

Therefore, the assessee and M/s. PEL were not entitled to SSI-exemption.

Some effectivefinancial control andmanagementbetween twocompanies -Clearances to beclubbed for SSI-exemption



UNISON ELECTRONICS PVT LTD-2009 (S.C.)Brief Facts: Assessee manufacture ice-cream makers coolerand Popcorn makers and avail of the benefit of SSIExemption Notification and sell ice cream maker in theirown brand name “CREMICA” and sell the same to differentcustomers including United Tele Shopping (in short UTS’)and Tele Shopping Network (in short ‘TSN’) .In respect of sale to UTS & TSN the goods were beingexamined by the Supervisors of these customers beforedispatch from their factory and stickers bearing UTS/TSNwere being affixed and these sticker bear the words“Checked Sl. No. Do not remove this sticker”.DEPARTMENT CONTENTIONThe words UTS and TSN as brand name belonging to other and has disallowed the benefit of smallscale exemption notification.Assessee has submitted that the words UTS and TSN are not brand names but are theabbreviations of the name of the marketing companies which does not amount to use of the brandname.DECISION:In fact it is apparent from the sticker that these goods have been specially packed for TSN/UTS. The useof words TSN/UTS clearly indicates a connection in the course of trade between the goods manufacturedby the Assessee and TSN/UTS. Thus the use of these words on the packaging of their product clearlyfalls within the definition of brand name as given in the SSI Notification. We are, therefore, of the viewthat the assessee is using the brand name of another person which makes them ineligible for theSSI exemption notification.

United Tele Shopping (inshort UTS’) and TeleShopping Network (in short‘TSN’) sticker on thepackage is the brand nameof another person whichmakes them ineligible forthe SSI exemptionnotification.



Circular No. 929/19/2010-CX., dated 29-6-2010Subject: Classification of Polyester Staple Fibre manufactured out of PET scrap and waste bottles.

Dispute: It has been brought to the notice of the Board that divergent practices are being adopted inrespect of classification of the “Polyester Staple Fibre” manufactured out of PET scrap and wastebottles. Whereas in some jurisdictions the said product has been classified under the Chapter 39 asarticle of plastic, in other jurisdictions the same has been classified under Chapter Heading 55032000as textile material.

Clarification:Thus manmade fibre can be obtained either starting from monomers or from polymers itself. Theprocess of manufacture is not determinative of the classification of the manufactured product. What isessential for determining the classification is the nature of the end product and the marketunderstanding of the said end product. In the present case there appears to be no dispute with regardto the nature and commercial understanding of the product viz Polyester Staple Fibre.

Thus the product under consideration is nothing but a textile material and hence will be classified astextile material under Tariff Item 5503 20 00 and not as article of plastic in Chapter 39.

To ensure uniformity in the manner of classification of the Polyester Staple Fibre obtained from PETscrap and waste bottles it is clarified that this product is correctly classifiable under heading 55032000.

CLASSIFICATION OF GOODS



NEW CASE LAWS

Xerox India Ltd. [2010] (SC)FactsThe assessee has imported Xerox Regal 5799, Xerox WorkCentre XD100 and Xerox work Centre XDl55df.The assessee contended that the imported machines wereMulti-Functional Machines performing the functions ofprinters, fax machine, copier and/or scanner and therefore,required to be classified as Printers in Automatic DataProcessing Machine (ADD) under Tariff Heading 8471.60.

The Department opined that aforesaid machines require to beclassified under Heading 8479.79 (Residual Heading).Statutory provisionsHeading Description of heading84.71 Automatic data processing machines and units thereof. (magnetic or optical readers,

machines for transcribing data on to data media in coded form and machines forprocessing such data not elsewhere specified or included.)

Ø 8471.60. Inputs or output units whether or not containing storage units in thesame housing,

84.79 Machines and mechanical appliances having individual functions not specified orincluded elsewhere in this Chapter.

Decision: Product shall be classified under heading 8471.60 as Automatic Data ProcessingMachineRule 3(b) provides the composite goods shall be classified as if they consisted of the material orcomponent which gives them their essential character.Xerox Regal 5799 has about 85% of the its total parts and components along with manufacturing costallocated to printing, while the same is 74% in case of Xerox XD155df model. This clearly shows that theprinting function emerges as the principal function and gives the Multi-Functional Machines its essentialcharacter. Printers are classifiable under Heading 8471.60, therefore, multi functional machines alsobecome classifiable under Heading 8471.60.

YEAR 2010

The printing functionemerges as theprincipal function andgives the Multi-Functional Machinesits essential character.Therefore, multifunctional machinesalso becomeclassifiable underHeading 8471



N.I. SYSTEMS (INDIA) P. LTD. 2010 (S.C.)( VV IMP)

Brief Facts: Assessee imports various products from its Holding Company and supplies the sameto its customers in India. The products were computer based instrumentation products. Theimporter filed 64 bills of entries. The importer claimed the items to be computers and/or parts ofcomputer & grouped the items in accordance with similar/identical functions broadly under CTH8471, 8473 and other headings falling under Chapter 84. Broadly, the importer categorized theimported items as follows:(i) PXI Controllers.(ii) Input/Output Modules (also known as Modem or Control/Adaptor Units).(iii) Signal Converters.(iv) Chassis and its parts.On verification of the technical data (including the catalogue and the webcast of the importer),Department observed that the subject goods were not structurally designed to function as acomputer.

Department contentions Assessee ContentionE Subject goods were not structurally

designed to function as a computer.

E The embedded controllers may perform allfunctions of a CPU but,it is controllers arenot CPUs.

E the subject goods stood manufactured for aspecial purpose and that purpose was eithermeasurement or control for industrial use &not as ADP Machines. .

E the test of common parlance then thesubject goods are measuring/controllinginstruments

E the importer stated that they use real-timeoperating systems (software) and not thestandard operating systems such asMicrosoft Windows.

E In the circumstances, the department hasbroadly classified embedded Controllers,Programmable Automation Controllers(“PACs”), Data Acquisition Boards, DigitalInput-Output Boards, PXI Chassis etc.under Chapter 90.

E The department has rejected theclassification sought by the importer underCTH 8471.

E imported items cannot perform any specificfunction unless the end-users have anappropriate programming software.

E just because the imported items were to be usedwith measuring instruments, it cannot be saidthat such items are to be classified underChapter 90.

E PXI controller, I.O. modules and signalconverters are all varieties of ADP Machines.They all run on operating systems like linux,windows etc.

E an ADP Machine requires various types ofinterface boards/units which are required to beinstalled in it and connected to sensors so thattemperature, voltage and pressure can bereceived by the interface boards/units andconverted into digital signals and then sent toADPM processing.

E it is the sensor which measures the real worldphenomena as ADPM cannot interface by itselfdirectly with the sensors.

E as the PXI controller satisfies the requirement offree programmability, storing and processing ofprogrammes, performance and arithmeticalcomputation and execution of programmes, thePXI controller qualifies as ADP Machine in termsof Chapter Note 5(A) to Chapter 84 of CustomsTariff.



Legal provision: Chapter 90 includes measuring and checking instruments and apparatus; parts andaccessories thereof

Decision: (i) PXI Controllers.PACs/Programmable Process Controllers are parts and accessories of a system/instrument which aresuitable for use solely or mainly with a number of machines, instruments, apparatus of the same Heading,i.e., 9032 like sensors, thermostats etc. In our view, PACs/Programmable Process Controllers importedby the assessee herein are suitable for use principally with Industrial Process Control Equipment likesensors, thermostats etc. which measures temperature, process etc. Therefore, they are correctlyclassifiable as a part of the said machine, instrument or apparatus. The principle function of controllers isto execute control algorithm for real time monitoring and for controlling devices, processes or systems. Assuch, a PAC/PPC is a part of an industrial process control equipment/system and accordingly suchcontrollers are classifiable as a part of instrument or apparatus under chapter 90

I.O. Modules and ChassisWe may say that the primary function of I.O. Modules (Boards) is to function as a part of measuring andcontrol System. It is for this reason that such Modules are required to be classified as parts andaccessories of regulating and measuring System. For this purpose, it is necessary to examine each of theimported items apart from Controllers in order to see whether the hardware coupled with the pre-installedsoftware gives it a definite identity and function. From the catalogue and technological write-ups we findthat each and every I.O. Module imported by the assessee is configured with a sensor at one end. Thisaspect is very important.

For the aforestated reasons, we are of the view that the imported goods were rightly classified by theDepartment under Chapter 90. We are also of the view that the Department was right in classifying theI.O. Modules and Chassis as parts and accessories of Automatic Regulating or Controlling Instrumentsand Apparatus in terms of CTH 9032.90.00.

L.M.L. Ltd. v CC [2010]- S.C.Brief Facts: Assessee imported CD ROMs containing images ofdrawings and designs of engineering goods.The assessee claimed classification under heading 4906, or,heading 4911 , or, as Information Technology Software , or asCD ROM, where exemption is given from duty.The Department, the Commissioner (Appeals) and Tribunalclassified the same under heading 8524.39 (Recorded CDROMs, liable to duty).

Legal provisions:Ø Heading 49.06 : Plans and drawings for architectural, engineering, industrial, commercial

topographical or similar purposes, being original drawn by hand; handwritten texts;

Ø Heading 49.11: Other printed matter, including printed pictures and photographs.

Ø 8524 : Records, tapes and other recorded media for sound or other similarly recordedphenomena, including matrices and masters for the production of records.

DecisionØ Heading 49.06. covers only those plans / drawings / designs, which are “originals drawn by

hands”. The drawings and designs, in this case, were not “originals drawn by hands” but wereimages of drawings and designs, which have been loaded on a CD ROM.

Ø Not covered by 49.11 : This heading covers “other printed matter” not covered under precedingheadings of Chapter 49. In general, this heading is intended to cover : goods executed in paper”.

CD ROMs containingimages of drawings anddesigns of engineeringgoods classified the sameunder heading 8524.39(Recorded CD ROMs, liableto duty).



The drawings and designs recorded on a CD ROM cannot be regarded as “printed matter”.

Ø Since, in this case, the import was not of the bare CD, but, of drawings and designs contained inthe CD, hence, the said exemptions means for bare CDs could not be available.

Ø Not “Information Technology Software”. A software is a computer program, which enables thecomputer or the hardware to function. The drawings and designs of engineering goods recordedon a CD ROM could not be regarded as a “computer program” or “instructions” meant forfunctioning of computer hardware.

Ø Classification of technical products by lower authorities not to be rejected unless patentlywrong. Since the classification by the lower authorities and Tribunal is correct, hence, CDROMs containing images of drawings and designs of engineering goods classified thesame under heading 8524.39 (Recorded CD ROMs, liable to duty).



Amendments in the Central Excise Act, 1944

Penalty not to be imposed in case of voluntary payment of duty and interest before issuance ofshow cause notice [Explanation 3 to section 11A(2B)] [VV IMP]

Explanation 3 to section 11A(2B)(voluntary payment of duty) inserted by the Finance Act, 2010 clarifiesthat no penalty under any of the provisions of this Act or the rules made there under shall be imposedin case the duty short paid and interest thereon is paid under section 11A(2B) before service of theshow cause notice.

LATEST CIRCULARS

Circular No. 922/12/2010-CX., dated 18-5-2010

Subject :Power of adjudication of Central Excise Officers.

Central Excise Officers Powers of Adjudication

(Amount of duty involved)

Superintendents UptoRs. 1 Lakh

(excluding cases which involve excisability of a product,classification, eligibility of exemption, valuation and casesinvolving suppression of facts, fraud etc.)

Deputy/Assistant Commissioners Up to Rs. 5 lakhs(except the cases whereSuperintendents are empowered to adjudicate).

Joint Commissioners Above Rs. 5 lakhs and up to Rs. 50 lakhs

Additional Commissioners Above Rs. 20 lakhs and up to Rs. 50 lakhs

Commissioners Without limit

Circular No. 898/18/2009-CX dated 15-9-2009 ( Mostexpected)Subject: Benefit of reduced penalty under provisos to Section 11AC - Whether alsoavailable at appeal stage.Issue: A case has been brought to the notice of the Board wherein a Commissioner (Appeals) hadallowed the benefit of proviso to Section 11AC of the Central Excise Act, 1944 to pay penalty at thereduced rate of 25% within 30 days of the communication of the Order-in-Appeal. Commissioner(Appeals) has read Section 11AC and Section 35F together to arrive at the aforesaid decision.Board View: The matter has been examined. The provisions relating to reduction of penalty to 25%are contained in proviso (1) to (4) of Section 11AC.Interms of proviso (1) and (2), a penalty imposedunder Section 11AC can be reduced to 25% on fulfillment of following conditions.(i) Duty determined under Section 11A(2) and interest payable thereon has been paid within 30

days.

DEMAND & REFUND



(ii) The said period of 30 days is calculated from the date of communication of the order passed by aCentral Excise Officer determining the duty.

(iii) The reduced 25% penalty is also paid within 30 days of the date of communication of the orderpassed by the Central Excise Officer.

From the above it is clear that in order to avail the benefit of 25% penalty, the duty, interest and penaltyare required to be paid within 30 days of communication of the order passed by the adjudicatingauthority. Further, the reading of proviso would also support this interpretation because the said provisostipulate that wherever duty amount is increased at any appellate stage, in that case in order to availthe benefit of 25% penalty, the assessee is required to pay differential amount within 30 days of thepassing of the order by the appellate authority. A combined reading of the entire proviso would,therefore, make it clear that the benefit of 25% penalty is applicable only when the assessee has paidduty, interest and the reduced penalty within 30 days of communication of the order passed by theadjudicating authority. However, if the penalty amount is increased at the appellate stage, in that casethe 25% of differential amount of penalty can be paid within 30 days of communication of said appellateorder. Therefore, the view taken by the Commissioner (Appeals) is not as per the provision oflaw.

Conclusion: Therefore, when the assessee does not pay theduty & interest within 30 days of order of adjudicatingorder, even if such duty is paid within 30 days of theappellate order upholding the demand, the benefit ofreduced penalty of 25% shall not be available.

NEW CASE LAWS

HANS STEEL ROLLING MILL[2011](SC)The Assessee is engaged in the manufacture of iron andsteel products. Assessee Co. has opted for compoundedlevy(under Rule 15).In a particular period, it failed to payexcise duty. Department issued SCN for recovery of dutyunder Section 11A.Assessee argued that SCN issued by department undersection 11A is invalid in law because recovery of dutyunder compounded levy scheme is governed by specificprovision of scheme & not under Section 11A.

Issue: whether the provisions of Section 11A of the Central Excise Act, 1944 are applicable to therecovery of amounts due under the compound levy scheme?

Decision: Held that

1. Compounded levy scheme is a comprehensive scheme in itself and general provisions of sec 11A inthe Act cannot prevail over specific provision.

2. Hence provision of section 11A is not applicable to compounded levy scheme.

YEAR 2011

The provisions of Section11A of the Central ExciseAct, 1944 are not applicableto the recovery of amountsdue under the compoundlevy scheme



NIRMAL PRODUCTS (2010) (Tri)

Issue: whether SCN/ORDER/SUMMON can be served by courier?

Legal provision: SECTION 37C. Service of decisions, orders, summons, etc.Any decision or order passed or any summons or notices issued under this Act or the rules made

thereunder, shall be served, -1. by tendering the decision, order, summons or notice, or sending it by registered post with

acknowledgment due, to the person for whom it is intended or his authorised agent, if any;2. if the decision, order, summons or notice cannot be served in the manner provided in clause (a), by

affixing a copy thereof to some conspicuous part of the factory or warehouse or other place ofbusiness or usual place of residence of the person for whom such decision, order, summons ornotice, as the case may be, is intended;

3. if the decision, order, summons or notice cannot be served in the manner provided in clauses (a)and (b), by affixing a copy thereof on the notice board of the officer or authority who or whichpassed such decision or order or issued such summons or notice.

Decision: Section 37C has made provision for service of decision, order, summons or notices issued bythe Department by registered post with acknowledgement due.Public authorities cannot act beyond the modality prescribed by law. If they act beyond the scope of law ,they are said to have not exercised the Authority in accordance with law. We do not approve the modalityof dispatch of order-in-original by courier when law does not prescribe such modality for service.Law does not permit Department to approve the courier service to deliver the order-in-original.

Hence any SCN/ORDER/SUMMON served by courier is invalid in law.

International Auto ltd – 2010 (S.C.) (IMP)Brief Facts:Assessee supplied auto parts to their customersmanufacturers of motor vehicles, who determined the pricesof auto parts having regard to the cost of raw material,manufacturing cost, profit margin, etc. and placed orderswith the assessee.Since price difference arose between the price on the date ofremoval and the enhanced price at which the goods stoodultimately sold. Assessee paid differential duty pertaining tothe price rise.Department issued a show-cause notice proposing to levy interest on the differential duty, paid bythe assessee, under Section 11AB of the Central Excise Act, 1944.Assessee contended that in the present case was not a case of short-levy or non-levy of the goodsremoved by the assessee calling for recovery under Section 11A of the Act, hence, this was not acase for charging of interest under Section 11AB of the Act.

Legal provision:Section 11A(2B)voluntary paymentProvides that the assessee in default may, before the notice can make payment of the unpaid duty on thebasis of his own ascertainment or as ascertained by a Central Excise Officer and inform the Central ExciseOfficer in writing about the payment made by him and in that event he would not be given the demandnotice.But Explanation to this makes it expressly clear that such payment would not be exempt from interestchargeable under Section 11AB, that is, for the period from the first date of the month succeeding themonth in which the duty ought to have been paid till the date of payment of the duty.Section 11ABthat states where any duty of excise has not been levied or paid or has been short levied orshort paid or erroneously refunded, the person who has paid the duty voluntarily under section 11A(2B)shall, in addition to the duty, be liable to pay interest.

Interest under section11AB is leviable onvoluntary delayed ordeferred payment of dutyfor whatever reasons.

YEAR 2010

Serving of SCN bycourier is invalidin law



Decision: It is to be noted that the assessee was able to demand from its customers the balance of the higher pricesby virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the goodscarried a higher value and those were cleared, on short payment of duty. The differential duty was paidonly later when the assessee issued supplementary invoices to its customers demanding the balanceamounts. Seen thus it was clearly a case of short payment of duty though indeed completely unintendedand without any element of deceit etc. The payment of differential duty thus clearly came under sub-section(2B) of Section 11A and attracted levy of interest under Section 11AB of the Act.It is thus to be seen interest is leviable on delayed or deferred payment of duty for whateverreasons.

Hero Cycles Ltd. – 2010 (S.C) (IMP)Brief Facts: The Assessee imported goods and paid customs duties thereon. The goodsimportedby the assessee are fully exempt from payment of Central Excise duty and consequentlyno additional duty of customs under Section 3 of the Customs Tariff Act, 1975 is payable on thegoods.The Assessee however, contended that inadvertently and under a bona fide mistake they did notclaim exemption under the aforesaid notifications in respect of some Bills of entry. The Department assessed all the Bills of Entry without extending the benefit of the aboveNotifications.The Assessee cleared the goods imported by them on payment of additional duty under Section 3of the Customs Tariff Act, 1975.The Assessee realizing their mistake, that no additional duty is payable on the import of bicycleparts claims refund to department. The assessee did not take the credit of the said additional dutyof customs paid on the imported goods.Department rejected the refund claim on the ground that the importer has not challenged the finalassessment order in appeal.

Decision: In our opinion It is duty department to assess the goods and impose duty according to law.The fact that the assessee has paid the duty under mistake of law and or in the instant case by oversightcannot result in being assessed to duty which was otherwise not payable. In our opinion, this will be acase of manifest injustice and on the face of it erroneous.If we order to the department for amendment in original order then it was not a case of violation ofprinciples of natural justice or fairplay or violation of any fundamental rights and the mere existence ofalternative remedy does not act as bar for Court in exercising extraordinary jurisdiction which depend oncircumstances of the case.We will have to issue directions to the Department to amend the original order of assessment. In so far asthe claim for refund is concerned, that would only arise after the order is amended.



NEW CASE LAWS

AMCHONG TEA ESTATE 2010 (S.C.)Brief Facts:The assessee has challenged the order dated 9-7-2003passed by the Deputy Commissioner, Central Excise, by filing an appealbefore the Commissioner (Appeals). The said appeal was filed on 6-10-2004 and by an order dated 15-10-2004, the Commissioner (Appeals)rejected the application filed by the petitioner seeking condonation ofdelay on the ground that the appeal is barred under the provisions ofSection 35 of the Central Excise Act.

The aforesaid order of the Commissioner (Appeals) was challenged before the learned Single Judgeof the Gauhati High Court. By an order dated 3-6-2008, the learned Single Judge held that sufficientground is not made out for condonation of delay, even assuming that such a power is vested on theCommissioner (Appeals) to condone delay beyond a period of 30 days. The said order of the learnedSingle Judge was challenged by assessee before the Division Bench of the High Court, whichdismissed the appeal holding that the Commissioner (Appeals) did not have the power andjurisdiction to condone such delay beyond a maximum period of 30 days after expiry of the earlier60 days as contemplated in the said provisions.Assessee had filed before Supreme Court.

Decision:The proviso to sub-section (1) of Section 35 makes the position crystal clear that the Appellate Authority hasno power to condone the delay beyond the period of 30 days and that the language used makes theposition clear that the Legislature intended to entertain the appeal by condoning the delay only upto the 30days and not 60 days.We find no error in the judgment and order of the High Court.

APPEAL, REVIEW & RIVISION

YEAR 2010

Commissioner(Appeals) cannotcondone thedelay beyondperiod of 30 days.



Scope of cases, in respect of which an application can bemade to Settlement Commission, expanded

Prior to amendment Amendment made by Finance Act,2010

EXCISESection 32E

Earlier, section 32E(1) provided thatapplications for the settlement ofcases could not be admitted in caseswhere an assessee admitted short-levy for goods in respect of which hehad not maintained proper recordsin his daily stock register (i.e.cases of misdeclaration, clandestineremoval etc.).

He admits Short levy on account ofmisclassification, under-valuation,inapplicability of exemption notification orCenvat credit or otherwise and any suchapplication shall be disposed of in the manner

Comment: Now, the scope of the cases which maybe admitted to the Settlement Commission hasbeen expanded. Finance Act, 2010 has lifted theprohibition on filing of applications for thesettlement of cases where an assessee admitsshort-levy for goods in respect of which he has notmaintained proper records in his daily stock register(i.e. cases of misdeclaration, clandestine removaletc.is allowed).

CUSTOMSSEC127(B)

Earlier, section 127B(1) providedthat applications for the settlement ofcases could not be admitted in caseswhere assessee admitted short levyin respect of the goods which werenot included in the Bill of entry orShipping Bill, as the case may be.

He admits short levy on account ofmisclassification, under-valuation orinapplicability of exemption notification orotherwise and such application shall bedisposed of in the manner hereinafter provided

Comment: Now, the scope of the cases whichmay be admitted to the Settlement Commission hasbeen expanded. Finance Act, 2010 has lifted theprohibition on filing of applications for thesettlement of cases where assessee admits shortlevy in respect of the goods which were notincluded in the Bill of entry or Shipping Bill, as thecase may be.

Settlement Commission



Extension of time-limit for passing an order of settlementallowed

Prior to amendment Amendment made by FinanceAct, 2010

EXCISESec 32F

The time-limit for passing the settlementorder is nine months from the last day ofthe month in which the application wasmade [Section 32F(6)]. Earlier, noextension in the said time-limit wasallowed.

The proviso added to the said sub-section provides that the 9 month periodmay be extended, for reasons to berecorded in writing, by the SettlementCommission for a further period notexceeding 3 months.

CUSTOMSSEC 127C

Assessee entitled to apply for settlement more than oncePrior toamendment

Amendment made by Finance Act, 2010

EXCISE

Section 32O

Earlier, as per section 32-O, the assessee wasallowed to apply forsettlement under section32E not more than once.

Now, amended section 32-O reads as under:- Where(i) an order of settlement passed as provides for the

imposition of a penalty on the person who made theapplication for settlement, on the ground of concealment ofparticulars of his duty liability or

(ii) after the passing of an order of settlement in relation to acase, such person is convicted of any offence under this Act inrelation to that case or(iii) The case of such person is sent back to the Central Excise

Officer having jurisdiction by the Settlement Commissionthen, he shall not be entitled to apply for settlement undersection 32E in relation to any other matter.

Comment: The said section has been amended so as toprovide that now the assessee can apply for settlement morethan once if does not fall under above specified cases.

CUSTOMS

section 127L

Earlier, as per section 127,the assessee was allowedto apply for settlementunder section 127B notmore than once.

Where, - (i) an order of settlement passed provides for the imposition

of a penalty on the applicant on the ground ofconcealment of particulars of his duty liability; or

(ii) after the passing of an order of settlement in relation to acase, such person is convicted of any offence under thisAct in relation to that case; or

(iii) the case of such person is sent back to the proper officerby the Settlement Commission then such person shallnot be entitled to apply for settlement under section 127Bin relation to any other matter.



NEW CASE LAWSQualimax Electronics Pvt. Ltd. [2010] (H.C.)The assessee filed an application for settlement on 8-1-2011,while an adjudication order dated 24-12-2010 passed in respect ofthe said matter was received by assessee after 8-1-2011 (i.e. afterfiling of application for settlement). The Department contendedsince the case was not "pending" on the date of filing ofapplication, as the adjudication order was passed before the dateof filing of application for settlement, hence, the said applicationwas not maintainable.

Decision: Held that ,the adjudication order was passed on 24-12-2010. The same was despatched bythe Department on 31-12-2010, while it was received by the assessee after 8-1-2011. Receipt ofadjudication is order not relevant for the settlement of case;when the order has been passed (dated and signed) and the same has been sent to the assessee so asto be out of control of the adjudicating authority, the same ceases to be "pending" before theadjudicating authority. The adjudication became complete and effective on 31-12-2010, when the orderleft the hands of adjudicating authority.Since the matter was not "pending" on 8-1-2011, hence, no application for settlement could be filed inrespect thereof.Therefore, the said application was not maintainable.

UOI v/s Customs & Excise Settlement Commission – 2010 (VVIMP)Brief Facts:-Department issued show cause notice for recoveryof duty drawback with interest, by contending that saiddrawback to have been obtained fraudulently by exporting“Solvent Mixture” which do not qualify for duty drawback underCustoms and Central Excise Duties and Service Tax DrawbackRules, 1995. Assessee instead of responding to the showcause notice, preferred to file an application before thesettlement Commission under Section 127-B(1) of the CustomsAct, 1962 for settlement of the case.On being noticed, the Department contended that cases ofrecovery of duty drawback do not fall within the definition of‘case’ stipulated under Section 127-A(b) of the Act forsettlement.

Issue: whether the settlement commission had jurisdiction to deal with the question of recovery of dutydrawback under Section 127-A(b) of the Act.

Decision:- As per Section 127-A(b) ‘case’ means as “any’ proceeding under this Act or any other act ofthe levy, assessment and collection of customs duty. A proceeding for recovery of drawback of dutiescould be treated as a “case” as defined in the Act and that application before the Settlement Commissionwas very much maintainable in accordance with law.“duty drawback” is nothing but a remission of duty on account of the statutory provisions in the Act andscheme framed by the Government of India. Under these circumstances, the duty drawback or claim forduty drawback is nothing but a claim for refund of duty may be as per the statutory scheme framed by theGovernment of India or in exercise of statutory powers under the provisions of the Act.

We, thus, hold that the Settlement Commission had jurisdiction to deal with the questionrelating to the recovery of drawback erroneously paid by the Revenue.

SettlementCommission hadjurisdiction to dealwith the questionrelating to therecovery of drawbackerroneously paid bythe Revenue

Application forSettlement of casesafter passing theAdjudication order isnot maintainable



AUSTRALIAN FOODS LTD.- 2010 (H.C.)Brief Facts:-The assessee is manufacturer of ‘Cookies’. Cookiesis notified under Section 4A for MRP base valuation. He alsomanufacture ‘dough’ the main ingredient used in themanufacture of their final product ‘cookies’ and the product‘Dough’ is also liable to duty. Assessee was clearing theproduct ‘dough’, without payment of duty, to theirfranchisee/outlets.The assessee’s unit was visited by the officers of the CentralExcise Department & on scrutiny of the records it was foundthatAssessee was clearing the product ‘dough’, without payment ofduty, to their franchisee/outlets.Assessee also has cleared their final products viz. ‘cookies’ toM/s. Taj Group of Hotels; M/s. GRT Grand Hotels, M/s. JetAirways etc. in bulk based on specific contract with each of theparties & have done the valuation under section 4A (RSP-Abatement).

Department issued the show cause notice to the assessee for demanding Excise duty on Doughand also seeking valuation of cookies cleared to Hotels.Airways & etc. in bulk u/s 4 of Act asTransaction value.Without giving any explanation to this show-cause notice, the assessee straight away approachedthe Settlement commission. By the time the assessee has paid the duties regarding the doughclearance and the important question that was left for consideration before the SettlementCommission was ‘whether the assessee is entitled to claim benefits under Section 4-A of theCentral Excise Act, on clearance cookies made to Hotels & etc.?

Settlement commission held that the value should be determined u/s 4A of the Act as claimed bythe assessee. Hence demand in that regard was dropped.Department claimed that the settlement commission did not have the jurisdiction to decide thematter of valuation directly relating to assessesment & Hence, said order was bad in Law.

Decision:Settlement Commission does not have the power to decide question of Law: As per section 32Eassessee may approach the Settlement Commission, before adjudication to settle the case, disclosing hisduty liability which has not been disclosed by him before the Central Excise Officer. But, it nowhereprovides that the assessee could approach the Settlement Commission, regarding a disputed question,particularly regarding a disputed question of fact and law as to the applicability of whether Section 4 orSection 4-A of the Central Excise Act.Applicability of whether Section 4 or Section 4-A of the Central Excise Act is out of the jurisdiction of theSettlement Commission, since it has not been vested with the power to decide such a question of directassessment. By such an act, the Settlement Commission has usurped the jurisdiction of the adjudicatingauthorities and the order of settlement commission is bad in law.

Cookies cleared to Hotels/Airways were assessable u/s 4 at transaction value :Since thecookies had been cleared in bulk to institutional consumers viz hotels airway etc.,even if MRP is declaredon such clearance, there was no requirement under the provisions of the Standards of Weights andMeasures Act or the Rules made thereunder to declare on the package the retail sale price on suchgoods.Consequently, Section 4A could not apply to such clearance & the said goods were liable to beassessed u/s 4 of the Act at the transaction value.

1. Settlementcomission does nothave the power todecide question ofLaw:

2. Cookies clearedto Hotels/Airwayswere assessable u/s4 at transactionvalue



Amendment in FINANCE ACT, 1994

SECTION 65

Definition of Business Entity is introduced under section 6565(19b) “Business entity”“business entity” includes an association of persons, body of individuals, company or firm but does notinclude an individual.

SECTION 73

Penalty not to be imposed in case of voluntary payment ofduty and interest before issuance of show cause notice[Explanation 2 to section 73(3)]Explanation 2 to section 73(3)(voluntary payment of service tax) inserted by the Finance Act, 2010clarifies that no penalty under any of the provisions of this Act or the rules made there under shall beimposed in respect of payment of service tax under this sub-section and interest thereon.

SECTION 75Increase in Interest Rate

Sec/Rule Particulars Old Rate New RateSec 73B Excess collection of S.T. 13% p.a. 18% p.a.Sec 75 Interest on delay payment of

service Tax13% p.a. 18% p.a.

SERVICE TAX



Extension of scope of India Notification No. 14/2010-S.T.,dated 27-2-2010the Central Government hereby extends the provisions of Chapter V of the Finance Act, 1994 , to theareas specified in column (2) of the Table below, in the continental shelf and exclusive economic zoneof India for the purposes as mentioned in column (3) of the said Table :-

Sl. No. The areas in the Continental Shelfand the Exclusive Economic Zone of

India

Purpose

(1) (2) (3)1. Whole of continental shelf and

exclusive economic zone of IndiaAny service provided for all activities pertaining toconstruction of installations, structures and vessels forthe purposes of prospecting or extraction or productionof mineral oil and natural gas and supply thereof.

2. The installations, structures andvessels within the continental shelf andthe exclusive economic zone of India,constructed for the purposes ofprospecting or extraction or productionof mineral oil and natural gas

Any service provided or to be provided by or to suchinstallations, structures and vessels and for supply ofany goods connected with the said activity.

Territorialwater (12NM)

Contiguouszone(24NM)

Indian exclusiveeconomic zone(200 NM)

Installations, structures andvessels

1) Installations, structures andvessels the purposes of prospectingof mineral oil and natural gas andsupply thereof2) Any service to such installation

S.T. is payable

1) Installation of wind mill

S.T. is not payable



Amendment in Service Tax Rule, 1994Rule 6(2)

E- PAYMENTRule Prior to amendment Amendment made by Notification

No. 1/2010-S.T., dated 19-2-2010proviso to rule6(2)

An assessee was required to depositthe service tax electronically throughinternet banking if he had paid thetotal duty of Rs. 50 lakh or more(including the amount of duty paid byutilisation of CENVAT credit) in thepreceding financial year

An assessee shall deposit the service taxelectronically through internet banking if hehas paid the total duty of Rs. 10 lakh or more(including the amount of service tax paid byutilisation of CENVAT credit) in the precedingfinancial year.Clarification : Thus limit of 50 lakhs reduced to10 lakh

Rule 6(4A)

Self Adjustment of Service Tax paid in excess

The Limit of Rs 100000 adjustment per month/quarter has been increased to Rs 200000.

Rule 6(6A)

Recovery procedure in case of non payment of Self Assessed Tax

Where an amount of service tax payable has been self-assessed (under section 70(1) ), but not paid,either in full or part, the same, shall be recoverable alongwith interest in the manner prescribed undersection 87 of the Act.Comment: Provision of Section 87 is similar to provision of Sec 11A of Central Excise Act, 1944

Rule 7(2)

E- RETURN

Rule Prior to amendment Amendment made by Notification No.1/2010-S.T., dated 19-2-2010

proviso to rule7(2)

The facility of e-filing ofreturns was earlier optionalfor the assessees.

Electronic filing of returns mandatory for theassessee who has paid total duty of Rs. 10 lakh ormore including the amount of service tax paid byutilization of CENVAT credit in the precedingfinancial year.

Rule 4AAir ticket to be considered as valid Invoice under Rule 4AIn the Service Tax Rules, 1994, in rule 4A(1), after the fourth proviso, the following proviso shall beinserted, namely:-“Provided that in case the provider of taxable service is aircraft operator providing the service of airtransport of passenger, an invoice, a bill or as the case may be, challan shall include ticket in any formby whatever name called and whether or not containing registration number of the service provider,classification of the service received and address of the service receiver but containing otherinformation in such documents as required under this sub-rule.”



AMENDMENT IN THE SERVICE TAX (DETERMINATION OFVALUE) RULES, 2006

RULE 5(1)Inclusion in or exclusion from value of certain expenditure or costs.

1. Where any expenditure or costs are incurred by the service provider in the course ofproviding taxable service,

2. all such expenditure or costs shall be treated as consideration for the taxable serviceprovided or to be provided and

3. shall be included in the value for the purpose of charging service tax on the said service.

Explanation (Inserted in year 2011)- For the removal of doubts, it ishereby clarified that for the Telecommunication service (Sec65(105)(zzzx) the value of the taxable service shall be the gross amountpaid by the person to whom telecom service is provided by the telegraphauthority.

Comment: Board has clarified thatin case of service provided by way of recharge coupons or prepaidcards or the like, the value shall be the gross amount charged from the subscriber or the ultimate user ofthe service and not the amount paid by the distributor or any such intermediary to the telegraph Authority.

Example

Rule 6(2)

Statutory taxes levied by any Government on air passenger to be excluded from the value ofservice (Notification No. 15/2010-S.T. dated 27-2-2010]Rule 6(2) enumerates the exclusions from the value of taxable services. The said Notification providesthat the statutory taxes charged by any Government (including foreign Governments, where a passengerdisembarks) on air passenger would be excluded from taxable value for the purpose of levy of servicetax under the ‘air passenger transport service’. Such charges would be eligible for exemption only if theyare shown separately on the ticket/the invoice for such ticket.

Significance of amendmentClarification by Board:The taxes on transport of passengers travelling by air were in operation in thepast. These were not in the nature of service tax but operated through separate legislations. Inland AirTravel Tax [@ 15%] was levied on domestic travel in 1989. Foreign Travel Tax [@ Rs. 500 per trip,except to neighboring countries for which the rate was Rs. 150 per trip] was levied on internationaltravel in 1979. These taxes were withdrawn in the interim Budget 2004. In 2006, tax was imposed oninternational air travel by a passenger embarking in India and travelling in higher [other than economy]classes. This tax continues.

IDEA CellularLtd

Distributor Telephoneuser

Printed price Rs 200

Value for IdeaCellular Ltd isRs 200

Recharge couponsold for Rs 200Recharge coupon

sold for Rs 180



Construction of Residential Complex service65(105)(zzzh)

F.A.2010Alteration or expansion in the scope of existing services

The following Explanation shall be inserted, namely:“Explanation.—For the purposes of this sub-clause, construction of a complex which isintendedfor sale, wholly or partly, by a builder or any person authorised by the builder before, during orafter construction (except in cases for which no sum is received from or on behalf of theprospective buyer by the builder or a person authorised by the builder before the grant ofcompletion certificate by the authority competent to issue such certificate under any law for thetime being in force) shall be deemed to be service provided by the builder to the buyer;”

Significance of amendment in construction activityIn order to achieve the legislative intent and bring in parity in tax treatment, an Explanation is beinginserted to provide that unless the entire payment for the property is paid by the prospective buyer oron his behalf after the completion of construction (including its certification by the local authorities), theactivity of construction would be deemed to be a taxable service provided by thebuilder/promoter/developer to the prospective buyer and the Service tax would be charged accordingly.This would only expand the scope of the existing service, which otherwise remain unchanged.Considering the practical difficulties, the scope of the phrase ‘authority competent’ to issue completioncertificate has been widened by issuing an order for removal of difficulty (Refer M.F. (D.R) Order No.1/2010 dated 22nd June 2010). Completion certificate issued by an architect or chartered engineer orlicensed surveyor can be now taken to determine the service tax liability.

EXEMPTIONS

4. ABATEMENT FROM VALUE: Notification No. 1/2006-S.T.

SECTION SERVICE cost of land has not beenseparately recovered from thebuyer.

cost of land has beenseparately recoveredfrom the buyer.

TAXABLEVALUE

ABATEMENT TAXABLEVALUE

ABATEMENT

65(105)(zzzh)

Construction ofComplex (Builder tobuyer)

25% 75% 33% 67%



2) Construction of complex –Exemption if provided to Jawaharlal Nehru National UrbanRenewal Mission and Rajiv AwaasYojana, [Notification No. 28/2010-S.T., dated 22-6-2010]

The Central Government hereby exempts the taxable service of construction of complex referred to Sec65(105(zzzh) of the Finance Act,when provided to Jawaharlal Nehru National Urban RenewalMission and Rajiv AwaasYojana,from the whole of the service tax leviable thereon under section 66of the Finance Act.

Significance of amendment

Clarification by Board:Exemption has been provided for construction of residential complex service,when the same is rendered as part of Jawaharlal Nehru National Urban Renewal Mission (JNNURM)and Rajiv AwaasYojana (Refer Notification No. 28/2010-Service Tax, dated 22nd June 2010). Theseare flagship schemes of the Government of India to provide shelter for the poor and the disadvantagedand hence taxable service of construction of complex in the context of these two development schemeshave been kept out of the ambit of service tax.



Commercial or industrial constructionSection65(105)(zzq))

F.A.2010

Alteration or expansion in the scope of existing services1) for the words “commercial or industrial construction service”, the words“commercial or

industrial construction” shall be substituted.

2) the following Explanation shall be inserted, namely:

“Explanation—For the purposes of this sub-clause, the construction of a new building whichis intended for sale, wholly or partly, by a builder or any person authorised by the builderbefore, during or after construction (except in cases for which no sum is received from or onbehalf of the prospective buyer by the builder or the person authorised by the builder beforegrant of completion certificate by the authority competent to issue such certificate under anylaw for the time being in force) shall be deemed to be service provided by the builder to thebuyer”

EXEMPTIONS

3) ABATEMENT FROM VALUE: Notification No. 1/2006-S.T.

2) Exemption when provided wholly within the port or other port for certainactivities [Notification No. 38/2010-S.T, dated 28-6-2010]

The Central Government hereby exempts the taxable service of commercial or industrialconstruction referred in 65(105)(zzq) of the Finance Act, when provided wholly within the port orother port, for construction, repair, alteration and renovation of wharves, quays, docks, stages,jetties, piers and railways, from the whole of service tax leviable thereon under section 66 of theFinance Act.

3) Exemption when provided wholly within the airport [Notification No.42/2010-S.T., dated 28-6-2010]

Central Government hereby exempts the taxable service of commercial or industrial constructionreferred to in Sec 65(105)(zzq) of the Finance Act, when provided wholly within the airport, from thewhole of service tax leviable thereon under section 66 of the Finance Act.

SECTION SERVICE cost of land has notbeen separatelyrecovered from thebuyer.

cost of land has beenseparately recovered fromthe buyer.

TAXABLEVALUE

ABATEMENT TAXABLEVALUE

ABATEMENT

65(105)(zzzh)

Commercial &Industrialconstruction.(Builder to buyer)

25% 75% 33% 67%



Works Contract service[section 65 (105) (zzzza)]

Works contract (Composition scheme for payment of Service tax) Rules,2007

Rule 3(2A)(newly inserted by N/N 1/2011)The CENVAT credit of tax paid on taxable services

1. Erection,commissioning and installation services (Sec65(105) (zzd))2. Commercial or Industrial construction(Sec65(105) (zzq))3. Construction of Residential complex (Sec65(105) (zzd))shall be available only to the extent of 40% of the service tax paid when such tax has beenpaid on the full value of the service after availing CENVAT credit on inputs.

Significance of amendmentIf service provider opts for Works Contract Composition scheme then he is not eligible to take credit ofduties or cess paid on inputs used in or in relation to works contract. However Service provider iseligible to take entire credit on Input Service.A clever device is used by works contractor to take credit of inputs, instead of purchasing inputs directlyif he outsources any of above 3 services to sub contractor who is using inputs and subcontractor rendersuch service without opting for 1/2006(i.e. S.T. paid on full value of contract by availing the credit ofinputs) then works contractor gets entire credit service tax paid by subcontractor. Thus works contractorcan indirectly avail the cenvat credit on inputs while availing composition scheme. In order to plug thislacuna, new sub rule 2A has been introduced.

Let us discuss with help of chartIf Service provider opts for Works Contract Composition scheme then eligibility of Cenvat creditas fallows

EXEMPTIONS

Input

CenvatCredit Notavailable

Cenvat Creditavailable

Input Service Capital Goods

If Input Service provider providingfollowing services· Erection, commissioning and

installation service· Commercial or Industrial construction· Construction of Residential complex

If Input Serviceproviderproviding otherservices.

If Input Service provider (forabove 3 services) paid service taxon the full value of the serviceafter availing CENVAT credit oninputs

If Input Serviceprovider (for above 3services) paid servicetax under abatementscheme 1/2006

100% CenvatCredit is available

Cenvat Credit available only tothe extent of 40% .

100% Cenvat Credit isavailable



Exemption to construction of residential complex and finishing and completion services theretofor specified projects[Notification No. 6/2011-S.T., dated 1-3-2011]

The C.G. hereby exempts the taxable service of execution of a works contract when provided for thepurpose of carrying out,-1. construction of new residential complex or part thereof; or2. completion and finishing services of new residential complex or part thereof,

under Jawaharlal Nehru National Urban Renewal Mission and Rajiv AwaasYojana, from the whole ofthe service tax leviable thereon under section 66 of the Finance Act.

‘Transport of goods by rail service’[section 65 (105) (zzp)]

EXEMPTION 1) Exemption to transport of goods by rail by government railways excluding transport ofcontainerized goods by others[Notification No. 33/2009-S.T., dated 1-9-2009]The Central Governmenthereby exempts the taxable service provided to any person in relation totransport of goods by rail, from the whole of the service tax leviable thereon under section 66 of theFinance Act,Provided, nothing contained in this notification shall apply to any service provided or to beprovided, by any person other than government railway, in relation to transport of goods incontainers by rail.Aforesaid exemption is extended upto 31 Dec 2011.

Summary:

Service provider Mode of railtransport

Taxability orexemption

Govt Railway Containerized Cargo Exempt upto 31st Dec 2011

Non Containerized Cargo Exempt upto 31st Dec 2011

Private railway(only oneoperator in India ‘Pipavavrailway corporationLtd’.(PRCL)

Containerized Cargo Taxable

Non Containerized Cargo Exempt upto 31st Dec 2011

2) Transportation of goods outside India (Notification No.8/2011)

The taxable services transport of goods by rail provided to any person located in India, when the goodsare transported from a place located outside India to a final destination which is also outside India,exempt from the whole of service tax leviable thereon under section 66 of the Finance Act.



‘Transport of goods by road service (GTA)’

EXEMPTIONS

1) Transportation of goods outside India (Notification No.8/2011)The taxable services transport of goods by road provided to any person located in India, when thegoods are transported from a place located outside India to a final destination which is also outsideIndia, exempt from the whole of service tax leviable thereon under section 66 of the Finance Act.

2) Food grains and pulses included in the list of items eligible for exemption whentransported by road

Particular Prior toamendment

Amendment made by theNotification No. 4/2010-ST dated27.02.2010

Goodstransportagency

At present, transportof fruits, vegetable,eggs or milk by roadby a goods transportagency is exemptfrom service tax.

The scope of exemption has been enhancedby including food grains and pulses in theaforesaid list of exempted goods.

Thus now exemption is available on transportof fruits, vegetable, eggs or milk food grainsand pulses

‘Transport of goods by Air service ’[section 65 (105) (zzn)]

EXEMPTIONS

1) Transportation of goods outside India (Notification No.8/2011)The taxable services transport of goods by rail provided to any person located in India, when the goodsare transported from a place located outside India to a final destination which is also outside India,exempt from the whole of service tax leviable thereon under section 66 of the Finance Act.

2) Exemption – Freight included in value under section 14 of the Customs Act, 1962 for paymentof Customs duty. (Notification No. 9/2011)

The taxable services in relation to transport of goods by exempt from service tax leviable under section66 of the Finance Act to the extent so much of the value as is equal to the amount of air freight includedin the value determined under section 14 of the Customs Act, 1962 or the rules made there under forthe purpose of charging customs dutiesLet us take exampleXyz co. Imported goods by Air FOB 10,00,000.Service tax payable by Aircraft Co. on Air Freightas fallowsCase Actual

FreightIncurred

Freight to be included in the valueunder Section 14 of Customs Actread with Rule 10(2)

Exemption UnderService Tax

Freight amount onwhich service tax ispayable

Case-I 180000 Actual or 20% of FOB whichever islower. i.e. Rs 180000

Rs 180000 NIL

Case-II 250000 Actual or 20% of FOB whichever islower. i.e. Rs 200000

Rs 200000 Rs 50000



Transport of coastal goods (transport of goods throughnational water way/inland water service)

[section 65 (105) (zzzzl)]E/N 1/2006 amended- Abatement Abatement allowed – 75%Taxable value- 25 %

‘Air Passenger Transport Service’[section 65 (105) (zzzo)]

Alteration or expansion in the scope of existing servicesThe scope of the taxable service ‘Air Passenger Transport Service’ is being expanded toincludedomestic journeys, and international journeys in any class.

EXEMPTIONS

EXEMPTION PROVIDING EFFECTIVE RATE FOR DOMESTIC JOURNEY IN ANY CLASS ANDINTERNATIONAL JOURNEY IN ECONOMY CLASS W.E.F. 1-7-010 [Notification No. 26/2010-S.T.,dated 22-6-2010]the Central Government hereby exempts the Travel by Air services from so much of service tax as is inexcess of,-

1. 10% of the gross value of the ticket or Rs 150 per journey, whichever is less, for passengerstravelling in economy class, within India;

2. 10% of the gross value of the ticket or Rs 750 per journey, whichever is less, for passengersembarking in India for an international journey in economy class :

Provided that this exemption shall not apply in cases where the credit of duty paid on inputs used forproviding such taxable service has been taken under the provisions of the CENVAT Credit Rules,2004;Explanation, - For the purposes of this notification, economy class in an aircraft means, —

· where there is more than one class of travel, the class attracting the lowest standard fare; or

· where there is only one class of travel, that class.

Comment: Generally, service tax has to be paid at the rate of service tax applicable on the value oftaxable services. However, in case of air passenger transportation, through a specific exemptionnotification, the value based levy of service tax has been departed with and the Government hasintroduced a flat amount of service tax irrespective of the value of the air ticket. The following tablesummarises the applicability of service tax in such cases:

Nature of Transport Originating Class Amt. Payableupto 1.4.2011

Amt Payable after1.4.2011

International Transport From India Economy 500 per journey 750 per journeyInternational Transport From India Other 10.30% of gross

value10.30% of gross value

Domestic Transport From India Economy 100 per journey 150 per journeyDomestic Transport From India Others 100 per journey 10.30% of gross valueInternational Transport Outside India Economy Not Applicable Not LiableInternational Transport Outside India Others Not Applicable Not Liable



Exemption to in-transit international passenger and other specified persons w.e.f. 1-7-2010[Notification No. 25/2010-S.T., dated 22-6-2010]Air Transport of following person has been exempted from service Tax

(i) a person who has arrived at a customs airport from a place outside India and is intransit through India, provided that he does not pass through immigration and does not leavecustoms area and continues his journey to a place outside India; and(ii)a person employed or engaged by the aircraft operator in any capacity on board the aircraft;

Airport Services [Sec 65 (105) (zzm)]

Port Services [section65 (105) (zn)]

Other Port Services[section 65 (105)(zzl)]

Alteration or expansion in the scope of existing servicesThe definitions of the taxable services, namely the ‘Airport Services’, the ‘Port Services’ and the‘Other Port Services’ are being amended to provide that,-

(a) all services provided entirely within the airport/port premises would fall under theseservices; and

(b) an authorization from the airport/port authority would not be a precondition for taxingthese services.

Exemption for some services provided within a port or an airport[Notification No. 31/2010-S.T., dated 22-6-2010]

The Central Government hereby exempts the following services when provided within a port or anairport: -(i) Repair of ships or boats or vessels belonging to the Government of India including Navy or Coast

Guard or Customs but does not include Government owned Public Sector Undertakings.(ii) Repair of ships or boats or vessels where such process of repair amounts to ‘manufacture’ and

has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944.(iii) Supply of water.(iv) Supply of electricity.(v) Treatment of persons by a dispensary, hospital, nursing home or multi-specialty clinic (except

cosmetic or plastic surgery service).(vi) Services provided by a school or centre to provide formal education other than those services

provided by commercial coaching or training centre.(vii) Services provided by fire service agencies.(viii)Pollution control services.



Airport Service/Port Services — Exemption to specified services providedwithin airport or port w.e.f. 1-7-2010 [Notification No. 41/2010-S.T., dated 28-6-2010]Central Government hereby exempts the following services when provided wholly within theport or other port or airport namely :-

(i) taxable service provided by a cargo handling agency in relation to, agricultural produce ofgoods intended to be stored in a cold storage;

(ii) taxable service provided by storage or warehouse keeper in relation to storage andwarehousing of agricultural produce or any service provided for storage of or any serviceprovided by a cold storage;

(iii) taxable service in relation to transport of export goods in an aircraft by an aircraft operator;(iv) taxable service of site formation and clearance, excavation and earthmoving and

demolition and such other similar activities.Exemption to construction, repair, alteration and renovation of wharves quays, docks,stages, jetties, piers and railways within port w.e.f. 1-7-2010[Notification No. 38/2010-S.T., dated 28-6-2010]Central Government hereby exempts the taxable service of commercial or industrial construction whenprovided wholly within the port or other port, for construction, repair, alteration and renovation ofwharves, quays, docks, stages, jetties, piers and railways, from the whole of service tax leviablethereon under section 66 of the Finance Act.

Abatements Under E/N 1/2006 is available to specified services to continue whenprovided wholly within a port/Airport

Description of taxable service Conditions TAXABLE VALUE ABATEMENT

1) Commercial or industrialconstruction service providedwholly within a port/Airport

Same as above 33% 67%

2) Construction of residentialcomplex. provided whollywithin a port/Airport

1. The gross amount charged shallinclude the value of goods andmaterials supplied

33% 67%

3) Erection, commissioning orinstallation provided whollywithin a port/Airport

The bill amount shall include thevalue of the plant, machinery,equipment,structure, parts andany other material sold duringthe course of service.

33% 67%

4) Renting of a cab providedwholly within a port/Airport

- 40% 60%

5) Transport of goods incontainers by rail providedwholly within a port/Airport

30% 70%

6) Goods transport agency providedwholly within a port/Airport

25% 75%



Works Contract service — Exemption to services provided wholly withinairport[Notification No. 10/2011-S.T., dated 1-3-2011]

The Central Government hereby exempts services provided in relation to the execution of works contract,when provided wholly within an airport from the whole of service tax leviable thereon under section 66 ofthe Finance Act.

Works Contract service — Exemption to specified services provided wholly within port orother port [Notification No. 11/2011-S.T., dated 1-3-2011]

The Central Government hereby exempts services provided in relation to the execution of workscontract,when provided wholly within the port or other port, for construction, repair, alteration andrenovation of wharves, quays, docks, stages, jetties, piers and railways from the whole of service taxleviable thereon under section 66 of the Finance Act.

‘Banking & Financial services’[section 65 (105) ]

PURCHASE OR SALE OF FOREIGN CURRENCY, INCLUDING MONEY CHANGING,

Following two options are available for payment ofservice tax

Rule 2B S.T. (Determination of value) RulesDetermination of value of service in relation to moneychanging. Subject to the provisions of section 67, the value of taxable as it pertains to purchase or sale of foreigncurrency, including money changing, shall be determined by the service provider in the followingmanner:-

For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to thedifference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI)reference rate for that currency at that time, multiplied by the total units of currency.

Example I: US$1000 are sold by a customer at the rate of Rupees 45 per US$. RBI reference rate for US$ is Rupees 45.50 for that day.

Option 1- Determine the value of serviceunder Rule 2B S.T.(Determination of value) RulesANDPay Service Tax @ 10.3% of suchvalue

Option 2- Pay Service Tax underComposition scheme as perRULE 6(7B) OF S.T. RULES1994

or



The taxable value shall be Rupees 500.

Example II: INR70000 is changed into Great Britain Pound (GBP) and the exchange rateoffered is Rupees 70, thereby giving GBP 1000.

RBI reference rate for that day for GBP is Rupees 69.

The taxable value shall be Rupees 1000.

Provided that in case where the RBI reference rate for a currency is not available, the value shall be 1%of the gross amount of Indian Rupees provided or received, by the person changing the money.Provided further that in case where neither of the currencies exchanged is Indian Rupee, the value shallbe equal to 1% of the lesser of the two amounts the person changing the money would have received byconverting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI

Example:Foreigncurrency tobe Exchange

$ 100 Euro 1000 GBP 10000 F.C. 100000 Converting 1000Euro into 1250Doller

ExchangeRate

Rate 1$ = Rs45.50

Rate Euro= Rs 57

Rate GBP =Rs 70

Rate 1(F.C.)= Rs 8

Buy Rate 1$ = Rs45.50Sale Rate 1Euro=Rs57

RBI Rate Rate 1$ = Rs42.50

Rate 1$ =Rs 55

Rate 1$ =Rs 69

Notavailable

Buy Rate 1$ = Rs42.50Sale Rate 1Euro=Rs55

Value underRule 2B

Service TaxRate

[(Rs45.50-Rs42.50)x 100]=Rs 300

10.3%

[(Rs 57-Rs55)x 1000]= Rs 2000

10.3%

[(Rs 70-Rs69)x 10000]= Rs 10000

10.3%

1%(100000x8)= Rs 8000

10.3%

1% of lower offollowing

a) 42.50 x 1250b) 55 x 1000

Value= 531.25

10.3%

Service Tax Rs 30.9 Rs 206 Rs 1030 Rs 824 Rs 54.72



FOREIGN EXCHANGE BROKING RULE 6(7B) OF S.T. RULES 1994The person liable to pay service tax in relation to purchase or sale of foreign currency, including moneychanging, provided by a foreign exchange broker, including an authorised dealer in foreign exchange oran authorized money changer, referred to in sub-clauses (zm) and (zzk) of clause (105) of section 65 ofthe Act, shall have the option to pay an amount calculated at the following rate towards discharge of hisservice tax liability instead of paying service tax at the rate specified in section 66 (i.e. 10%) of ChapterV of the Act, namely:

(a) 0.1% of the gross amount of currency exchanged for an amount upto rupees 100,000, subjectto the minimum amount of rupees 25; and

(b) Rs 100 and 0.05 % of the gross amount of currency exchanged for an amount of rupeesexceeding rupees 100,000 and upto rupees 10,00,000; and

(c) Rs 550 and 0.01 % of the gross amount of currency exchanged for an amount of rupeesexceeding 10,00,000, subject to maximum amount of rupees 5000:

Provided that the person providing the service shall exercise such option for a financial year andsuch option shall not be withdrawn during the remaining part of that financial year.

Example: Exchange Rate 1$ = 45.50

Foreigncurrency tobe Exchange

$ 100 $ 1000 $ 10000 $100000 $ 1500000

Gross valuein Rs.

Rs 4550 Rs 45500 Rs 455000 Rs 4550000 Rs 68250000

0.1%(4550)= Rs 4.55

OR

Rs 25

Whicheveris higher

0.1%(45500)= Rs 45.5

OR

Rs 25

Whicheveris higher

Rs 100 +0.05%(455000-100000)= Rs 277.5

Rs 550 +0.01%(4550000-1000000)= Rs 905

Rs 550 +0.01%(68250000-1000000)= Rs 7275

subject tomaximumamount of rupees5000

Service Tax Rs 20 Rs 45.5 Rs 277.5 Rs 905 Rs 5000

Note: on above service tax ed. Cess 3% also payable



Renting of immovable property[section 65 (105) (zzzz)]

Alteration or expansion in the scope of existing servicesAmendments are being made in the definition of the taxable service ‘Renting of immovable property’to,-

(i) provide explicitly that the activity of ‘renting’ itself is a taxable service. This change is being givenretrospective effect from 1-6-2007; and

(ii) provide that renting of vacant land, where the agreement or contract between the lessor and lesseeprovides for undertaking construction of buildings or structures on such land for furtherance ofbusiness or commerce during the tenure of the lease, shall be subjected to service tax.

Significance of amendmentClarification by Board: This service was introduced in 2007 with a view to tax the commercial useof immovable property hired on rent. The tax on rent paid is available as input credit if the commercialactivity involves provision of taxable service or manufacture of dutiable goods. However, the Hon’bleHigh court of Delhi in its order dated 18-4-2009 in the case of Home Solutions Retail India Ltd. & Othersv. UOI has struck down this levy by observing that the renting of immovable property for use in thecourse of furtherance of business or commerce does not involve any value addition and therefore,cannot be regarded as service. Apart from the revenue loss caused to the exchequer, the judgment hasplaced the landlords in a very precarious situation. In view of this judgment, the commercial tenantshave stopped them reimbursing the tax element. However, the landlords are receiving regular demandnotices from the department issued to protect government’s revenue for the interim period.

In order to clarify the legislative intent and also bring in certainty in tax liability therelevant definition of taxable service is being amended to clarify that the activity of renting of immovableproperty per se would also constitute a taxable service under the relevant clause. This amendment isbeing given retrospective effect from 1-6-2007.

Renting of vacant landUnder the definition of taxable service pertaining to renting of immovable

property, the renting of vacant land used for agriculture, farming, forestry, animal husbandry, mining,education, sports, circus, entertainment and parking purposes, is excluded from the purview of servicetax. Further, ‘vacant land’, whether or not having facilities clearly incidental to the use of such vacantland has also been excluded from the tax net.

It has been reported that in many states, the local industrial corporations or PSUs oreven private organizations rent vacant land on a long term leases with an explicit understanding thatlessee would construct factory or commercial building on that land. In such cases the ownership of theland is not transferred to the lessee and thus it is a service provided by the lessor to the lessee. Thesituation is similar to renting out a constructed structure for commercial purposes except that at the timeof executing the lease agreement the land is in a vacant state and that later the lessee constructscommercial structure thereon after executing the lease deed. Such lease agreements escape servicetax because of the exclusion mentioned above.

Suitable amendment in the definition of taxable service relating to renting toimmovable property is being made so as to provide that tax would be charged on rent of a vacant landif there is an agreement or contract between the lessor and lessee that a construction on such land is tobe undertaken for furtherance of business or commerce during the tenure of the lease.



Management, maintenance or repair[section 65 (105) (zzg)]

Exemption from Service Tax to management, maintenance or repair of roads[Notification No. 24/2009-S.T., dated 27-7-2009]The Central Government hereby exempts the taxable service provided to any person by any otherperson in relation to management, maintenance or repair of road ,bridges, tunnels, dams, airports,railways and transport terminals, from the whole of the service tax leviable thereon under section 66 ofthe said Finance Act.

Erection, commissioning and installation

Exemption of the taxable service erection, commissioning and installation[Notification No. 12/2010-S.T., dated 27-2-2010]

Exemption of the taxable service erection, commissioning and installation in relation to the followingfrom the whole of the service tax, namely :-(i) erection, commissioning or installation of mechanised food grain handling systems;

(ii) erection, commissioning or installation of equipment for setting up or substantial expansion of coldstorage;

(iii) installation and commissioning of machinery or equipment for initial setting up or substantialexpansion of units for processing agricultural, apiary, horticultural, dairy, poultry, aquatic andmarine products and meat.



Amendment to Export of Service Rules, 2005

Re-categorization of certain services

Taxable Services Export of Services Rule, 2005 Taxation of services (providedfrom outside India & received inIndia)Rule, 2006

Prior toamendment

AfterAmendment

Prior toamendment

AfterAmendment

Preferential Locationservices

Rule 3(1)(iii)(Recipient basecategory)

Rule 3(1)(i)(Immovableproperty basecategory)

Rule 3(iii)(Recipient basecategory)

Rule 3(i)(Immovableproperty basecategory)

· Tecnicle testing andanalysis service

· Transport of goods byAir service

· Transport of goods byRail service

· Transport of goods byRoad service(GTA)

· Opinion Poll Service

Rule 3(1)(ii)(Performance basecategory)




· Rail Travel Agent· Health check up service




Rule 3(1)(ii)(Performancebase category)

· Credit rating Agencyservice

· Market Research agencyservice





· Chartered AccountantServices

· Cost AccountantServices

· ‘Company Secretary’sServices’







IMPORTANT BOARD CIRCULARSNotification No. 48/2010-S.T., dated 8-9-2010Circular No. 130/12/2010 – ST

Subject: Powers of adjudication of Central Excise Officers in Service Tax casesThe revised monetary limits are as follows:

AUDIT OF SERVICE TAX ASSESSEE- FREQUENCY NORMS

Director General of Audit,New Delhi has published Service Tax Audit Manual, 2010. As per the guidelines,frequency of Audit of taxpayers would be as per Following norms:

S.NO. Taxpayer with S.T. payment (cash + Cenvat) To be Audited1 Above Rs 3 crores (Mandatory Units) Every year2 Between Rs 1 Core and Rs 3 Cores Once every two year3 Between Rs 25 lakhs and Rs 1 Core Once every five year4 Upto Rs 25 lakhs 2% of taxpayers to be audited every year.

Circular No.127/09/2010

Subject: whether donations and grants-in-aid received from different sources by a charitableFoundation imparting free livelihood training to the poor and marginalized youth, will be treated as‘consideration’ received for such training and subjected to service tax under ‘commercial training orcoaching service’.Clarification: The important point here is regarding the presence or absence of a link between‘consideration’ and taxable service. It is a settled legal position that unless the link or nexus betweenthe amount and the taxable activity can be established, the amount cannot be subjected to service tax.Donation or grant-in-aid is not specifically meant for a person receiving such training or to the specificactivity, but is in general meant for the charitable cause championed by the registered Foundation.Between the provider of donation/grant and the trainee there is no relationship other than universalhumanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-in-aid isnot linked to specific trainee or training.

Sr.No.

Central Excise Officer Amount of service tax or CENVATcredit specified in a notice for thepurpose of adjudication under Section83A

(1) (2) (3)(1) Superintendent of Central Excise Not exceeding Rs.1 lakh(excluding the cases

relating to taxability of services or valuation ofservices and cases involving extended period oflimitation.)

(2) Assistant Commissioner of CentralExcise or Deputy Commissioner ofCentral Excise

Not exceeding Rs. 5 lakhs (except cases whereSuperintendents are empowered to adjudicate.)

(3) Joint Commissioner of Central Excise Above Rs. 5 lakhs but not exceeding Rs. 50 lakhs

(4) Additional Commissioner of CentralExcise

Above Rs.20 lakhs but not exceeding Rs. 50 lakhs

(5) Commissioner of Central Excise Without limit.



Circular No. 120/2/2010-ST dated 16.04.2010

Container detention charges not liable to service tax

Meaning of container detention chargesContainer detention charges are imposed by shipping companies for marine containers kept beyond thepre-determined period and not returned to the designated location within that period.

Service tax liability on container detention chargesContainer detention charges are actually the ‘penal rent’ for retaining the containers beyond the pre-determined period.

The retention of the container beyond the pre-determined period is not a ‘business auxiliary service’because:-

• it is not a service provided on behalf of the client

• it is not an infrastructural support in the business of either the shipping lines or the customer

Therefore, the amount collected as ‘detention charges’ is not chargeable to service tax.



Exemption with respect to Services provided to developer(or) units of SEZ – Notification No. 17/2011

Eligibility for exemptionThe taxable services received by any of the following are eligible for exemption under thisnotificationUnits located in SEZDevelopers of SEZ for the Authorized operations

Manner of Exemption:Specified services received and used for authorised operationsare wholly consumed within the SEZ

where the specified services received and used for authorised operations are wholly consumedwithin the SEZ, the provider of such services or the receiver of such services on reverse chargebasis, as the case may be, has the option not to pay the service tax ab initio instead of the Unit or



Developer claiming exemption by way of refund in terms of this notification. (DirectExemption -Don’t pay at all)

Specified services received and used for authorised operationsare not wholly consumed within the SEZ

Specified services received and used for authorised operations are partially consumed withinthe SEZ & partially outside the SEZ then exemption shall be provided only by way of refundof service tax paid on the specified services received for the authorised operations in a SEZ

Restriction an amount of Refund in case specified services are not wholly consumed within SEZ

Where,

Ø then refund shall be restricted to the extent of ratio of export turnover to the totalturnover for the given period for which the claim related i.e.,

=

Conditions to be fulfilled

(a) Approval of Services: The developer or units of SEZ shall (as are required in relationto the authorized operations in the SEZ), (hereinafter referred to as the specifiedservices);

(b) Submission of Declaration as to no operation outside SEZ: The developer or SEZUnit who does not own or carru out any business other than SEZ operations shall furnisha declaration to that effect [Form A -1);

(c) Actually paid the Service Tax: The developer or units of SEZ claiming the exemptionhas on the specified services;

(d) Non-availment of Cenvat Credit: of service tax paid on the specified services used inrelation to the authorized operations in the SEZ under the Cenvat Credit Rules, 2004;

(e) Proper Accounts: The developer or SEZ Unit shall for which exemption is claimed

1) Registration requirement: For the purpose of claiming that refund, Developer shallfirst file a Declaration (in prescribed form) with its jurisdictional AC/DC. The to it (within7 days of receipt of Declaration).

Filling of refund claim: The [no form Prescribed] shall be submitted to AC/DC

- from the end of the month to service provider (AC/DC may extend this period)

Documents to be attached: The refund claim shall be accompanied by the followingdocuments, namely:

a) An approved copy of the list of specified services required in relation to theauthorized operations in SEZ;

b) Documenmts for having paid the service tax;

A declaration by the Developer / SEZ Unit to the effect that such service is received by him in relationto Authorized operations in SEZ.

Max Refund =ST paid on specifiedservices used for SEZAuthorized operationsshared with DTA unit forthe period

Max Refund =ST paid on specifiedservices used for SEZAuthorized operationsshared with DTA unit forthe period

Export Turnover of SEZunit for the period

Total Turnover for theperiod



IMPORTANT CASE LAWS

Association of Leasing & Financial Service Companies [2010](SC) (vvimp)

Issue: Whether levy of Service Tax by CentralGovt. on Finance lease/ Hire purchase isconstitutionally valid even though suchtransactions are already subject to VAT underDeemed sale{Article 366(29A)}?

Decision:Article 366(29A) of Constitution defining 'deemed sale' is essentially sales tax specific and expands salestax base by taxing mere delivery on hire purchase as deemed sale. However, the Parliament continues tohave the power to levy service tax on same transactions.Equipment leasing and hire purchase finance are activities of long term financing and are facilities/financial services falling within Banking and Other Financial Services. Hence, they are liable to servicetax.Under ENTRY NO.54 of List II to the constitution of India State legislature is competent to impose tax onsale and tax on aspect of services not being relatable to any entry in the state list. Hence C.G is euallycompetent to levy service tax under ENTRY NO. 97 of List-I.

Valuation: Amount received as principal by the lessor is not the consideration for services rendered.However, valuation of taxable services based on income earned by lessor by way of finance/ interestcharges in addition to the management fees or documentation charges, etc. is valid, as such charges aretreatable as consideration for service. Exemption from Service tax to financial leasing services includingequipment leasing and hire-purchase on taxable value comprising of 90% of the amount representing asinterest provided under Notification No. 4/2006-S.T. further takes care of all aspects.

BSBK Pvt. Ltd. (2010) (TRI)Will the service provided by way of “advice,consultancy or technical assistance” in the caseof turnkey contracts attract service tax and canthese turnkey contracts be vivisected?

Decision: Constitution has allowed the vivisection ofindivisible contracts in order to find out goods component andvalue thereof.

Therefore, the remnant part of the contract may beattributable to the scope of service tax under the provisions ofthe Finance Act, 1994.

It inferred that turnkey contracts can be vivisected and discernible service elements involved thereincan be segregated and classifiable as well as valued for levy of service tax under the Finance Act, 1994provided such services are taxable services as defined by that Act and

Depending on the facts and circumstance of each case, services by way of advice, consultancy ortechnical assistance in the case of turnkey contract shall attract service tax liability.

Levy of Service Tax byCentral Govt. on Financelease/ Hire purchase isconstitutionally valid eventhough such transactions arealready subject to VATunder Deemed sale

“Advice, consultancy ortechnical assistance” inthe case of turnkeycontracts attract servicetax and these turnkeycontracts can bevivisected.



Indian Railways Catering & Tourism Corporation (IRCTC) Ltd.[2010] (H.C.)Facts: The assessee supplied food and beverages onboard the trains. While the State-VAT authoritiesdemanded VAT; the assessee had paid service taxunder 'Outdoor Catering service' and challenged thelevy of VAT.

Issue: whether supply of food and beverages on board thetrain is subject to levy of VAT or Service tax?

Decision: Held that,Ø Catering contract is covered under 'deemed sale'. {Article 366(29A)}Ø The providing of food, snacks and water to passengers on board in the trains is different from

Outdoor Catering service; the assessee or passengers have no choice of articles served asthe same are supplied as per menu fixed by the Railway Board.

Ø Thus, no element of service is involved except heating and serving the cooked food; and suchservice element in providing food is incidental and bare minimum required for selling the food andbeverages.

Ø selling the food and beverages is in dominant position than service of heating and serving the cookedfood.

Ø The contract, in this case, is neither for providing any service nor is there any composite contract ofgoods & services.

Ø There was transfer of goods by the assessee for consideration and the property in goods had passedto Railways. The transaction was purely of sale of goods. Hence, there could be no levy ofservice tax.

IDEA MOBILE COMMUNICATION LTD-2010 (H.C.)ISSUE: whether the value of SIM cards sold by theassessee (on which sale tax is paid)to their mobilesubscribers is to be included in taxable serviceunder Section 65(105)(zzzx) (telecommunicationservice) of the Finance Act, 1994 or it is taxable assale of goods under the Sales Tax Act.

Decision:1) SIM card is a computer chip having it's own SIM number on which telephone number can beactivated. SIM card is a device through which customer gets connection from the mobile tower. In otherwords, unless it is activated, service provider cannot give service connection to the customer.

2) SIM cards are considered as part & parcel of service provided. SIM card has no intrinsic value orpurpose other than use in mobile phone for receiving mobile telephone service from the serviceprovider.Thus the Dominant position in the transaction is to provide service & not the saleof material i.e. SIM card.

3) Consequently, we hold that the value of SIM card supplied by the assessee forms part of taxableservice on which service tax is payable by the assessee.

4) Even if sale tax is wrongly paid that would affect the responsibility of payment of service tax. If sale taxis wrongly remitted & paid, it is for them to claim refund.

The value of SIM cardsupplied by the assesseeforms part of taxableservice on which servicetax is payable by theassessee.

Supply of food and beverages onboard is purely of sale of goods.Hence, only VAT is levible & thereis no levy of service tax.



CUSTOMS ACT, 1962Recent Board CircularsCircular No. 11/2010 (VV IMP)

Issue: Whether the assessable value of the warehoused goods which are sold beforebeing cleared for home consumption should be taken as the price at which the originalimporter has sold the goods, before a Bill of Entry for home consumption is filed?Clarification: With effect from 10.10.2007, section 14 of the Customs Act has been amended toprovide that the value of the imported goods shall be the transaction value of goods.

Definition of Transaction value: The price actually paid or payable for the goods when sold for exportto India for delivery at the time and place of importation.In the instant case, the goods are sold after being warehoused, therefore, it cannot be said that exportof goods is not complete and thus the sale of warehoused goods cannot be considered a sale forexport to India. Hence, the price at which the imported goods are sold after warehousing them in Indiadoes not qualify to be the transaction value as per section 14.In this case also, the sale of imported goods made after warehousing cannot be considered tohave been made in the course of international trade and hence, the price at which such sale takesplace cannot be the assessable value in terms of erstwhile section 14.

Circular No. 34/2010

Issue: Whether Refund of Spl. CVD (ACD 3(5)) paid on their purchases is available tomanufacturers availing full exemption on final products

Clarification: Special CVD is one of the duties specified under sub-rule (1) of rule 3 of the CENVATCredit Rules, 2004. Credit of this duty, when paid on inputs (imported) used in or in relation to themanufacture of excisable goods, is available.This credit can be used for payment of duty on the final product. Hence a textile manufacturer who optsto pay excise duty on his final product can avail of CENVAT credit of 4% Special CVD paid on hisinputs.But this benefit obviously cannot be extended to a manufacturer who opts to avail of fullexemption (and hence not pay excise duty) on his final product. Further, if the imported inputs on which 4% Special CVD has been paid are used by such amanufacturer for the manufacture of final products, the benefit of exemption (by way of refund) underNotification would also not be available.

Circular No. 7/2010-Cus., dated 23-3-2010

Subject: Recovery of drawback amount on the portion of the FOB value of export notrealized by the exporter but compensated by ECGC -

Clarification: Since the Drawback scheme is governed by the provisions of the Customs Act, 1962and the Rules made there under which clearly provide that drawback should be recovered if sale proceedshave not been realized. Hence, Drawback' would not be payable in cases where export proceeds have notbeen realised in accordance with the provisions of the Foreign Exchange Management Act, 1999 even ifthe claim has been settled by ECGC or realisation waived by RBI. Action should be taken for recoveryof drawback amount in such cases.



LATEST CASE LAWS

SBEC Sugar Ltd. [2011] (SC) (VVIMP)FactsØ The assesse imported certain capital goods / machines

for use in manufacture of sugar. the assesse got themcleared in warehouse.

Ø He failed to clear the goods within permittedwarehousing period & the assesse-importer’s applicationfor extension of the warehousing period was not allowed.

Ø Subsequently, on 1-4-1997, the capital goods used foragro-based industries (like, sugar) were exempted fromexcise duty under Export Promotion Capital Goods(EPCG) Scheme and a license thereunder was issued tothe assesse.

Ø Customs officer issued SCN u/s 72 asking importer to pay duty with interest & Demandorder is raised

On 21-1-1998, the assesse filed bill of entry for ex-bond clearance for home consumption of suchgoods lying in the warehouse claiming exemption from duty under the EPCG Scheme.Department argued that on expiry of warehousing period, the subjected goods are treated to havebeen improperly removed u/s 72 from the warehouse.Thus at the time of filing Bill of Entry theduty is payable along with Interest.Assessee argued that since the goods had been cleared u/s 68 by filing bill of entry, hence, theprovisions of section 72 of the Act were not applicable. The relevant for determining rate of dutywas as determined u/s 15(1)(b). It was also argued that since no duty was payable, hence, nointerest could be charged.

Decision section 72 : If the goods are cleared from the warehouse after the expiry of the permitted warehousingperiod (s) or permitted extension thereof, the goods are deemed to have been improperly removed u/s72(1) (b)

Ø Section 61: Warehousing is permissible for a limited period as provided u/s 61. However, section61(2) provides for the levy of interest, if goods remain in the warehouse beyond period (s) providedtherein regardless of whether the goods remain in the warehouse by reason of extension orotherwise.

Ø Section 15(1)(b) providing for relevant date of determining rate of duty as the date of filing of ex-bond bill of entry for home consumption, applies only if the goods are cleared from the warehouse u/s68 i.e. within the permitted warehousing period or permitted extension thereof.

Ø If the goods are cleared from the warehouse after the expiry of the permitted warehousingperiod (s) or permitted extension thereof, the goods are deemed to have been improperlyremoved with the consequence that the rate of duty has to computed with reference to therate applicable on the date of expiry of the permitted warehousing period(s) or permittedextension thereof. Therefore, the rate of duty prevalent on 1.1.1997 was applicable to the saidgoods.

Ø EPCG Scheme : Even otherwise, exemption under EPCG Scheme was available only in respect of

YEAR 2011

If the goods are clearedfrom the warehouse afterthe expiry of thepermitted warehousingperiod then it is deemedto have been improperlyremoved & duty rateapplicable on the date ofexpiry of the permittedwarehousing period



goods cleared u/s 68 of the Act; and not in respect of goods deemed to have been improperlyremoved u/s 72. If exemption is made available to deemed improper removals u/s 72, then, it wouldrender section 72 nugatory and would result in EPCG becoming an amnesty scheme to defaulters.

Hence, the assesse-importer was liable to full duty along with interest and other charges, etc.

Decorative Laminates (I) Pvt. Ltd. 2010FACTS: Decorative laminates imported resinimpregnated paper and plywood for the purpose ofmanufacture of furniture. The said goods werewarehoused from the date of its import. It sought anextension of the warehousing period which was grantedby the authorities.However, even after the expiry of the said date, it did not remove the goods from thewarehouse. Subsequently, the assessee applied for remission of duty under section 23 ofthe Customs Act, 1962 on the ground that the said goods had become unfit for use onaccount of non-availability of orders for clearance.

ISSUE: Whether remission of duty is permissible under section 23 of the Customs Act,1962 when the remission application is filed after the expiry of the warehousing period(including extended warehousing period ?Decision: Section 23 of the Act states that only when the imported goods have been lost ordestroyed at any time before clearance for home consumption, the application for remission of duty canbe considered.

Therefore the expression “at any time before clearance for home consumption” wouldmean the time period as per the initial order during which the goods are ware housed or before the expiryof the extended date for clearance and not any period after the lapse of the afore said periods. The saidexpression cannot extend to a period after the lapse of the extended period merely because theassessee has not cleared the goods within the stipulated time.

Having regard to the facts of the present case, wherein even during the extendedperiod, the goods were not cleared for home consumption and the fact that since the goods were notremoved for home consumption they continued to be in the warehouse, even after the expiry of thewarehousing period, it would be a case of goods improperly removed from the warehouse as per Section72(1)(b) read with Section 71 of the Act. We have to hold that in the instant case, the circumstances made out under Section 23of the Customs Act are not applicable to the present case since the destruction of the goods or loss ofthe goods has not occurred in the instant case before the clearance for home consumption within themeaning of that section.

Hence no remission is available on imported goods destroyed in warehouse.

No remission under Sec23 is available onimported goodsdestroyed in warehouseafter extension period.



M. Ambalal & Co. [2010] (SC)FactsØ The assessee-importer imported rough diamonds

without a valid import licence.Ø On search & seizure Department recovered large

quantity of imported rough diamonds without avalid import licence. Thus, the customsauthorities confiscated such "smuggled roughdiamonds" u/s 111(d) of the Act (Le. import inviolation of a prohibition).

Ø The customs authorities demanded import duty and penalty and also gave anoption to redeem the goods on payment of redemption fine.

The assessee-importer agreed to pay redemption fine and penalty but contended thatsince import of rough diamonds was exempt, no duty could be demanded on smuggledrough diamonds.Department denied the benefit of exemption by contending that benefit of exemptioncannot be claimed in respect smuggled goods. Exemption benefit is available only inrespect of goods legally imported.

Issue: Whether smuggled goods is eligible for benefit of exemption as Imported goods?

DecisionØ Any import of goods of which importation is prohibited by law,cannot be valid import under the Act. Goods

so imported cannot therefore, be treated to be lawfully "imported goods" within the definition of"imported goods" in Section 2(25) of the Act.

Ø According Sec 2(25) Imported goods means any goods brought into India from a place outside Indiabut does not include that goods which have been cleared for Home consumption.It is necessary thatthis definition is to be read along with Sec 111 & Sec 112 of the Act.

Ø The benefit of the exemption envisaged is for those goods that are imported. The exemptionis ' available only in accordance with the terms and conditions of the exemption notification.'Smuggledgoods' do not come within the definition of 'imported goods' for the purpose of theexemption notification, for the reason, both the expressions: imported goods and smuggledgoods, are separately defined in the Customs Act and 'smuggled goods' cannot be read withinthe definition of 'imported goods' for the purpose of the Act and it would be contrary to thepurpose of exemption notifications to accord the benefit meant for imported goods onsmuggled goods. The exemption is for imported goods; not for smuggled goods.

Therefore, the assessee was not entitled to the benefit of the exemption notification.

Smuggled goods shallnot be treated asImported goods noteligible for exemption.



PRABHU DAYAL PREM CHAND 2010 (S.C.)Brief Facts: The assessee filed two Bills of Entry forclearance of Brass Scrap and Copper Scrap as per ISRIgrade “Honey” and Birth/Cliff” respectively. The Bills ofEntry were assessed at the declared invoice value, viz.,CIF US $ 1100 and US $ 1300 PMT respectively. Afterinspection, the goods were cleared on payment ofcustoms duty assessed.Subsequently, on the basis of the information receivedfrom the London Metal Exchange, (for short, “the LME”)to the effect that the price of the said metals in the LMEas on the date of import was more than the price declaredby the assessee.Department had issued SCN for demand of additionalduty by contending that the LME bulletin is a trueindicator of current international prices of metals.The assessee contended that they were not confronted with any contemporaneousmaterial relied upon by the revenue for enhancing the price declared by them in the billsof entry.

Decision: Even though there is a reference to contemporaneous import in the order passed by theDepartment no material regarding such import has been placed before us or made available by theDepartment at any point of time. Therefore, assessment in this case has to be taken as having beenmade purely on the basis of LME Bulletin without any corroborative evidence of imports at or near thatprice which is not permissible under law.Hence Transaction value declared by assessee is acceptable.

Pernod Ricard India (P) Ltd. [2010] (SC)Brief Facts: The assessee-importer was a wholly ownedsubsidiary of M/s. SCL, Canada. It imported Concentrateof Alcoholic Beverages (CAB) from M/s. JESSL, anotherwholly owned subsidiary of M/s. SCL.Since the import was made from a related person, hence,the Department rejected the transaction value declaredby the assessee and assessed the goods under Rule 5 ofthe Customs Import Valuation Rules, 2007 at thetransaction value of the ‘similar goods’.

The Tribunal upheld valuation as per the said Rule 5, but, gave directions to apply Rule 5after accounting for differences in commercial levels and quantity and allowing adiscount of 20% from the value of similar goods. The assessee went in appeal before theSupreme Court.

DecisionØ The transaction value of similar goods can be taken, subject to adjustment to take account of the

difference attributable to commercial level or to the quantity or both and such adjustments shouldbe made on the basis of ‘demonstrated evidence’.

Adjustment to transactionvalue of similar goodsshould be based ondemonstrated evidence. Inabsence thereof, theadjustment is invalid.

Assessmentpurely on thebasis of LMEBulletin withoutany corroborativeevidence ofimports at or nearthat price is notpermissible underlaw.



Ø The Tribunal had granted the adjustment (i.e. discount / deduction) of 20% from the value ofsimilar goods on the ground that the imports made by the assessee were higher in quantity danthe comparable imports of the similar goods. The grant of discount, in case of larger imports, is anormal commercial practice. However, there was no demonstrated evidence to allow such 20%discount. In absence of any demonstrated evidence, the adjustment was invalid.

Ø Accordingly, the Tribunal decision’s was set aside.



Atherton Engineering Co. Pvt. Ltd. - 2010 (H.C.)Brief Facts: Assessee imported artemia cyst (brineshrimp eggs). It classified it as ‘prawn feed’ under the heading2309 which includes products used as animal feed. However,the Department contended that this product was classifiableunder the heading 0511.99 which refers to other products inthe category of non edible animal products. In reply, theimporter pleaded that these imported cysts contained littleorganisms/embryos which later became larva that prawns feedon. Therefore, according to them, the nature and character ofthis product was not changed by nurturing or incubation. Youare required to examine whether the contention of theDepartment is justified in in law.

Held: Court held that it was the use of the product that had to be considered in the instant case. Ifa product undergoes some change after importation till the time it is actually used, it is immaterial,provided it remains the same product and it is used for the purpose specified in the classification.Therefore, in the instant case, it examined whether the nature and character of the product remainedthe same.

The Court opined that if the embryo within the egg was incubated in controlled temperature andunder hydration, a larva was born. This larva did not assume the character of any different product.Its nature and characteristics were same as the product or organism which was within the egg.

Hence, the Court held that the said product should be classified as feeding materials for prawnsunder the heading 2309. These embryos might not be proper prawn feed at the time of importationbut could become so, after incubation.The contention of the Department is not justified in law.

ESSAR STEEL LIMITED-2010 (H.C.)Issue: Whether Export duty is payable goods which arecleared from DTA unit to the SEZ.?

Held: There is no provision in the SEZ Act, 2005 for levy ofexport duty on supplies made by a DTA unit to the SEZ. In casegood s cleared from DTA (Domestic tariff area) to SEZ, then saidgoods are deemed to exported under SEZ Act., but such deemedexport only for allowing export benefit to the seller and not for levyof export duty under Sec 12 of customs Act,1962

As per sec 12 of customs Act, 1962 liability of customs duty arises only in case where goods are exportedfrom India

Section 2(18) defines export to mean taking out of India to a place outside India.Thus section 12 cannot be applied to goods which are cleared from DTA unit to the SEZ.Hence, no Export duty is payable goods which are cleared from DTA unit to the SEZ.

Artemia cyst (brine shrimpeggs) should be classifiedas feeding materials forprawns under the heading2309. These embryos mightnot be proper prawn feed atthe time of importation butcould become so, afterincubation.

Clearance from DTA unit tothe SEZ only for allowingexport benefits to seller andfor levy of export duty underSec 12 of customs Act.Hence, no Export duty ispayable goods which arecleared from DTA unit to theSEZ.



AMENDMENTS IN DRAWBACK RULES

NOTIFICATIONS [Notification No. 48/2010 Cus. (N.T.) dated 17.06.2010]

1. Extension of time period for filing drawback claim under rule 5 of the Re-export ofImported Goods (Drawback of Customs Duties) Rules, 1995

Proviso to rule 5(1) of the Re-export of Imported Goods (Drawback of Customs Duties) Rules,1995 has been substituted with a new proviso. Rule 5(1) provides that a claim for drawbackshall be filed within three months from the date on which an order permitting clearance andloading of goods for exportation is made by proper officer of customs.

The new proviso lays down that the said period of three months may be extended by a periodof three months by Assistant/Deputy Commissioner on an application accompanied with a feesof 1% of the FOB value of exports or ` 1000/- whichever is less and a further period of sixmonths by Commissioner of Customs/Commissioner of Customs and Central Excise on anapplication accompanied with a fees of 2% of the FOB value or ` 2000/- whichever is less.

2. Amendments in the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995

(a) Change in time periods available under rules 6, 7, 15 and 16A

Following amendments have been made in the Customs, Central Excise Duties and Service TaxDrawback Rules, 1995:

(i) The time period for the following has been extended from sixty days to threemonths:

making an application( For Brand Rate) to the Commissioner of Central Excise/Commissionerof Customs and Central Excise for determination of the amount or rate of drawback [Rule 6-BRAND TATE].

(i) making an application( For special Brand Rate) to the Commissioner of CentralExcise/Commissioner of Customs and Central Excise for determination of the amount orrate of drawback where the amount or rate of drawback is low [Rule 7 –Special brand rate].

Further, the aforesaid periods of three months may be extended by a period of threemonths by Assistant/Deputy Commissioner on an application accompanied with a feesof 1% of the FOB value of exports or ` 1000/- whichever is less and a further period ofsix months by Commissioner of Central Excise/Commissioner of Customs and CentralExcise on an application accompanied with a fees of 2% of the FOB value or ` 2000/-whichever is less.

(ii) The extended period of nine months for filing a supplementary claim under rule 15 will nowbe available on making an application accompanied with a fees of 1% of the FOB value ofexports or ` 1000/- whichever is less. Further, the said period may be extended by sixmonths by Commissioner of Customs/Commissioner of Customs and Central Excise on anapplication accompanied with a fees of 2% of the FOB value or ` 2000/- whichever is less[Rule 15].

(iii) The time period available to an exporter for producing evidence of realisation of exportproceeds, where the drawback has been recovered by the Government due to non-realisation of the export proceeds by the exporter, has been reduced from one year to threemonths from the date of realisation of sale proceeds provided the sale proceeds have beenrealised within the period permitted by the Reserve Bank of India [Rule 16A].



Further, the aforesaid period of three months may be extended by a period of nine monthsby Commissioner of Customs/Commissioner of Customs and Central Excise on anapplication accompanied with a fees of 1% of the FOB value of exports or ` 1000/-whichever is less.

[Notification No. 49/2010 Cus. (N.T.) dated 17.06.2010]

(b) In case of non-realization of sale proceeds within prescribed time, drawback not to berecovered under specified circumstances/conditions [Rule 16A]

Prior to Amendment

The drawback granted to an exporter or a person authorised by him shall be recovered fromhim if the sale proceeds in respect of such export goods have not been realised in India withinthe period allowed under the Foreign Exchange Management Act, 1999, including anyextension of such period [Sub-rule (1) of rule 16A].

Amendment made by Notification No. 30/2011-Cus. (N.T.) dated 11-4-2011

Sub-rule (1) has been amended to provide that such drawback shall not be recovered undercircumstances or conditions specified in sub-rule (5). Further, sub-rule (5) provides as follows-

Where sale proceeds are not realised by an exporter within the period allowed under theForeign Exchange Management Act, 1999, but such non-realisation of sale proceeds iscompensated by the Export Credit Guarantee Corporation of India Ltd. under an insurancecover and the Reserve Bank of India writes off the requirement of realisation of sale proceeds onmerits and the exporter produces a certificate from the concerned Foreign Mission of Indiaabout the fact of non-recovery of sale proceeds from the buyer, the amount of drawback paid tothe exporter or the claimant shall not be recovered.



Applicability of indirect taxes on packaged/cannedsoftware ( For sake of reading)

Meaning of packaged or canned software

“Packaged software or canned software” means a software developed to meet the needs ofvariety of users, and which is intended for sale or capable of being sold off the shelf e.g.Window 2007, M.S. office, Norton Antivirus Etc.

Customised Software: built as per requirements of customers to suit there specific need. Alsocalled Tailor made software.

Assessment of packaged/cannedsoftware

Where affixation of Retail Sale Price (RSP) ismandatory

(i) Excise duty

MRP based valuation of the packaged orcanned software

Packaged or canned software is to be valuedon the basis of MRP* under section 4A of theCentral Excise Act, 1944 for the purpose ofcharging excise duty.

An abatement of 15% of retail sale price isallowed while arriving at the assessable value.Note: such retail sale price declared will be combined values of thesoftware and licenses (right to use) [clarified vide circular no. 15/2011-cus. Dated 18.03.2011].

(ii) Custom duty (CVD)

Valued on the basis of MRP under section 4Aof the Central Excise Act, 1944

(iii) Service tax

Exemption to packaged/canned softwarefrom service tax on specified taxable servicewhen excise/customs duty is paid

Where affixation of Retail Sale Price (RSP) is notmandatory

(i) Excise duty

Exclusion of consideration for transfer of right touse such packaged/canned software from theassessable value

Such packaged/ canned software, on whichaffixation of retail sale price is not required underthe Standards of Weights and Measures Act, 1976,the assessment would be based on the valuedetermined under section 4 of the Central ExciseAct, 1944. Further, the excise duty will be chargedonly on the value, excluding the valuerepresenting consideration for transfer of right touse such packaged/canned software.

(ii) Custom duty (CVD)

Valued on the basis of T.V under section 4 of theCentral Excise Act, 1944

(iii) Service tax

Service tax would be charged under the categoryof information technology software service on thevalue representing consideration for transfer ofright (license fees) to use such packaged/cannedsoftware.

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