By: CA VINOD PARAKH JAIN - VPJ classesvpjclasses.com/study/IDT Nov 14 Amendments.pdf2 Complied by:...

1 Complied by: CA Vinod Parakh Jain, Classes at: Hindi Bhawan(ITO) Delhi. Cnct :07503630594, 8130713615 web site: www. vpjclasses.com

By: CA VINOD PARAKH JAIN

CA FINAL IDT

AMENDMENTS

MODULE

Applicable for Nov. 2014 exams


When We started our Journey, It was a great challenge for us to Prove that CA

Final Advance Audit Subject can be completed in such a short span of 22 classes

and not being a CRASH COURSE and subject to 100% Satisfaction. And the

UTMOST delivering Results.

We at VPJ classes have proved the same in such a short span of Time.


REASON FOR LOW SCORE IN AUDIT

A student reads 4 LINES. REMEMBERS 3 LINES, WRITES 2 LINES and IS ABLE TO EXPLAIN 1 LINE. And if he reads just one or 2 lines. How much he will be able to write, he can himself imagine…………….. ICAI study Material is of 1100 pages. Reading of Study Material is the only way of passing CA examination. Study Material and Practice Manual of ICAI are prepared by the Group of Professionals following an authentic and systematic process. Many of the students are MISSING THE CHANCE OF BECOMING CA because of Audit in the First Group. By understanding the constraint of time for students, We at VPJ Classes have tried to cover all the Topics of ICAI Material in Concise way. Audit though one of the core subject of CA Final- is given less importance by the students and is left for doing at the last moment which results in High Failure Rate. Lets us understand the reasons for High Failure Rate: Selective Study: Students try to do selective studies, again getting into the Traps. There are many areas where students do not have through knowledge like Stock Market, NBFC, Mutual Fund, Bank Audit , Insurance. But try to use knowledge of other subject while writing answers in Audit CA Final Paper. Since audit is core domain of chartered accountants, hence it is expected from the CA Final students to have expert knowledge in the field of audit. Generally students leave the Topics of Bank Audit , Insurance where Questions from these Topics are very easy and they can score good marks. Whereas they try to do other topics where it is difficult to score because Questions of Expert level are asked. Use of Other Subject Knowledge in Topics of NBFC, Mutual funds. False Assumption: Students are being led into belief that ICAI answers are wrong. This is the biggest blunders which a student does. ICAI suggested answers are prepared by BOARD of Studies comprising of esteemed faculties with practical industry experience from across the country. So statement like ICAI answers are wrong are misleading the students and ruining the career of students. Hit and Trial Approach: Student tries to apply Standard or AS whatever comes to his minds. Generalized Approach- Students tries to use SA 230 on Audit Documentation, SA 260- Communicating those Charged with Governance or Even CARO in his answers in a 4 Marks Questions and believing that he will get numbers in Exam. One will have to HIT/WRITE correct Standards to get Marks. While attempting Questions by Quoting such 4 Generalized Standards will not lead to scoring of Marks. Many of you should be busy in sharpening your skills in various classes to face the CA Final Examination. It is very easy to pronounce the word 'SUCCESS'. But it required a lot of pain and persistent efforts to achieve it. Success comes to those who belive in themselves and work toward it. But in order to come out with flying colours students have to do, not only the hard work but also the smart work. This can be possible only after giving due relevance to the ICAI study material. Here at VPJ classes We help the students to cover all the topics and improving his/her writting skills. Our VPJ classes modules covers comprehensively entire ICAI 1100 pages module. As aptly said by Peter Drucker, "time is the scarest resource available." We at VPJ Classes help the students in well utilization of this crucial time in the most optimum manner. We help in avoiding rote learning and cramming.


Audit become terror for number of students because they previously think it is a theoretical subject and they can do it by self study near the exams date and the other reason is that they are misguided by saying that.....just remember few standards and apply them irrespective of facts of questions. But the students realised their mistakes after the results and the most unfortunate thing is that still some students are not realising that. Chartered Accountancy Examinations are not that difficult as they are perceived to be by some of the students. More than hard work, you need positive attitude. Make full use of educational inputs such as study material, suggested answers, revision test papers provided by board of studies. In the contemporary age of specialization, We, VPJ classes, are trying our best to ensure that all possible doors are open for the students for clearing their exams. Our mission is to spread awareness amongst the students that students should follow the ICAI, and do not abundant the audit for the last time and quit the following the generalized approach as soon as possible. With Warm Regards, CA Vinod Parakh Jain


INDEX

S.No. PARTICULARS Page No.

PART I Foreing Trade Policy 14-51

PART II RTP Amendments 52-74

PART III RTP Case Studies

- Summary of Case Studies 76-84

- Detailed case Studies 85-113

PART IV Amendments applicable for Nov 2014 exams 115-156

PART V Case Studies applicable for Nov 2014 exams

- Summary of Important Case Studies 158-166

- Summary of Miscellaneous Case Studies 167-178

- Important Case Studies 179-206

- Miscellaneous Case Studies 206-225


AUDIT GENERALLY CONSIDERED AS A LOW SCORING SUBJECT, EVEN RANK HOLDERS NOT BEING ABLE TO SCORE……….., Our Students are Scoring More than the Rank Holders in The Audit Subject. Around 60% of Our Students are scoring more than 55% Marks in Audit Subject.

Mark Sheet of Our Student- TOP Bhadur Shahi

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Examination Results May 2012

Final Examination Results

ROLL Number 122250

FINANCIAL REPORTING 62

STRATEGIC FINANCIAL MANAGEMENT 46

ADVANCED AUDITING AND FINANCIAL MANAGEMENT 64 CORPORATE AND ALLIED LAWS 57

MAY 2012- 2nd Rank Holder’s Marksheet THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Examination Results May 2012


ROLL Number 111935





Mark Sheet of Our Student- Kamal Sharma

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Examination Results Nov 2012


ROLL Number 120668

FINANCIAL REPORTING 051 STRATEGIC FINANCIAL MANAGEMENT 063


NOV 2012 – 1st Rank Holder’s Marksheet THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Examination Results Nov 2012


ROLL Number 111935 FINANCIAL REPORTING 90




Where the result was just 3% in Nov. 2013. Our No. of Students became CA in

this tough time. Then also no. of our students like Jivesh, Rahul Dason, Arpit,

Narayan Kadel, Risabh , Lalit dutt became CA

Mark Sheet of Our Student- Shreyans Jain THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Examination Results Nov 2013


ROLL Number 16649




Nov 2013 -1st Rank Holder’s Marksheet

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Examination Results Nov 2013


ROLL Number 111935





ADVANCED AUDITING AND PROFESSIONAL ETHICS

By CA VINOD PARAKH JAIN

(ACA, DISA, CVO,B.Com(H)

ONLY BOOK TO COVER ICAI MODULE CONSISTING OF MORE THAN

1100 PAGES COMPREHENSIVELY

Questions on AS asked in Auditing Paper have been compiled at one place Diagrammatic Presentation 110 Questions on SA’s, SRE,SAE and SRS 100 Questions on Professional Ethics For All Other Topics- Past Exam Questions from SA, RTP and Practice

Manual are covered at one place With Revisionary Notes

Incorporates Flowcharts at Appropriate Places


100% COVERAGE-NOT A FAST TRACK COURSE

By

CA Vinod Parakh Jain

{FCA, DISA, CVO, B.COM (H)}

9 Years Practical Experience across leading MNC’s

CA Final-Audit @22 Classes (Comprehensive Coverage of 1100 Pages of Study Material and 350+ Questions of PM,SA and RTP covered in Class)

MORNING BATCH

Start Date Completion Date Days Timing Fees

11th Dec.14 End of Jan 2015 TTSat 6:45 -10:30 AM 5,500

CLASSES WILL BE CONDUCTED AT ITO- HINDI BHAWAN. For details contact/: 91-7503630594/8130713615 SMS/WhatsApp-7503630594 Facebook Page- VPJ Classes Email –[email protected] ; Visit us at www.vpjclasses.com


We Teach Students the deep Intricacies of Law but side by Side we also help Student to Crack the Exam Questions. It’s Not the No. of Classes which makes a student’s Master of the Subject. But it is the Concentration Efficiency and Effectiveness which the teacher’s Nurtures the Students helps his to master the Subject. VPJ carries vast exposure across no. of leading MNC. His vast Knowledge Bank comes as a helping hand for students in connecting the actual theoretical knowledge of IDT subject with actual Industry dynamics. We Help the Students to swim across the vast practical Knowledge and simultaneously maintain the energy balance by completing the course in Just 40 classes as students generally complain that they loses their steam after 40 classes . So, before they lose their zeal- we help them to master Exams Questions, Case Studies, Industry Knowledge and understand what the examiner wants. In One Line….

How to CRACK the EXAMINATION

The ICAI examination Marking System becoming more and more rigorous and this is the need of the Hour. VPJ uses his wide Industry exposure to connect his Student how the Industry works. But Makes Sure this Gyan is Limited to Gyan Only and Student don’t Mix Gyan with exams Approach


FOR MAY 2015 Batch Start Completion Date Days Timing Fees 5th Dec. 2014 2nd Week of Feb 2015 MWFS 6:45-10:30 AM 11,000

By CA Vinod Parakh Jain

{FCA, DISA, CVO, B.COM (H)} 9 Years Practical Experience across leading MNC’s

Key Features: Questions of RTP, Suggested Answers & Practice Manual are practiced in the class Simple and effective way of teaching through concept building, class-room practice, home-exercise and power

point presentation. All Provisions Explained in In-depth and lucid manner with the approach of backward linkages of provisions

rather than Forward Linkages

ONE TO ONE ATTENTION. HANDLING OF QUERIES IN THE CLASS ITSELF Short revisionary notes for quick revision Concept explained via Flow chart at appropriate places LIVE BACK UP OF CLASSES

Note: Entire syllabus will be covered via 4 Modules (PREPARED STICTLY AS PER ICAI MODULE) including Revisionary Module

FOR LATEST UPDATE………..

With 650+ Questions covered in Class Itself. 100% COVERAGE. NOT A FAST TRACK COURSE

CLASSES WILL BE CONDUCTED AT ITO- HINDI BHAWAN. For details contact/: 91-7503630594/8130713615 SMS/WhatsApp-7503630594 Facebook Page- VPJ Classes Email –[email protected] ; Visit us at www.vpjclasses.com


Connect with us at the Following Face book Page: vpj classes

Or Our website:

IDT one of the most dynamic and fast changing subject at CA FINAL LEVEL. We sincerely believe that we need to follow ICAI strictly as we are evaluated in the exams on the basis of Guidelines set by ICAI. Due to fast pace of change in the subject, we needed a forum to connect with our students. So we keep our student updated on latest development in the field of IDT and Audit on our facebook page. Do connect with us on the Facebook page to get the latest updates. ICAI releases the Following Updates for IDT Subject:

(1) Amendment on Basis on Finance Act (2) Latest Circular, Notifications issued six Months before Exams (3) RTP (4) Recent Case Study

Our Analysis on the recent updates and amendments is uploaded after ICAI releases the same. We also provide REVISIONARY CAPSIULES running into mere 6-7 pages for revising all the case laws. Around 30 marks Questions are being asked presently from these case laws. Please do connect with us for all these amendments. THESE WILL BE UPLOADED IN THE MONTH OF MARCH AND SEPTEMBER on our website www.vpjclasses.com and link will also be provided on our Page or as an alternative you can drop in your E-Mail ID at our site. So that we can send a copy of the same

http://www.vpjclasses.com/


1. Foreign Trade Policy

2. Legislation governing foreign trade

3. Features of the Foreign Trade Policy

4. Administration of the FTP

5. Contents of Foreign Trade Policy

6. Foreign Trade Policy vis a vis tax laws

7. Scope of FTP

8. Special Focus Initiatives

9. Board of Trade

10. General Provisions regarding imports and exports

11. Export Promotion Schemes

- DUTY EXEMPTION & REMISSION SCHEMES

- REWARD SCHEMES

- EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)

- EOU, EHTP, STP, BTP & SEZ SCHEMES

- DEEMED EXPORTS

12. Penalties

“You were born to win, But to be winner, you must Plan to win, prepare to win

And expect to win”

PART I - FOREIGN TRADE POLICY

Learning


Foreign Trade Policy Foreign Trade Policy is a set of guidelines or instructions issued by the Central Government in matters related to import and export of goods in India viz., foreign trade. In the era of globalization, foreign trade has become the lifeline of any economy. Its primary purpose is not merely to earn foreign exchange, but also to stimulate greater economic activity.

Legislation governing foreign trade: In India, Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of foreign trade. The main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act, 1992 FT(D&R) Act. This Act replaced the earlier Act namely, Import and Export (Control) Act 1947. The FT(D&R) Act provides for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto.

Foreign Trade Policy: In exercise of the powers conferred by the FT(D&R) Act , the

Union Ministry of Commerce and Industry, Government of India announces the integrated Foreign Trade Policy (FTP) in every five years with certain underlined objectives. The Foreign Trade Policy was earlier called as Export Import policy i.e., EXIM Policy.

This policy is updated every year in April, in addition to changes that are made throughout the year.

The FTP, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position.

The Foreign Trade Policy, which was announced on 27th

August, 2009, is an integrated policy for the period 2009-14. The policy aims at developing export potential, improving export performance, boosting foreign trade, and earning valuable foreign exchange. The policy is valid upto31.03.2014.

Features of the Foreign Trade Policy: The following are some of the key features of the FTP: Export-Import is free unless specifically regulated by the provisions of the Policy or any other law

for the time being in force. There are restrictions on exports and imports for various strategic, health, and other reasons. If

the goods are not banned, the government can give a permission/license for specific reasons. Exports are promoted through various promotional schemes. There should be no taxes on exports and hence, the taxes are either exempted or adjusted or

refunded on both outputs and inputs, through schemes of Duty Exemption, Duty Refund (Drawbacks and Rebates).

Even capital goods can be imported at NIL duty for the purpose of exports under the scheme of EPCG.

For units undertaking to export all their production, there are special schemes so that they can avoid taxes at every stage under the scheme of EOU.


In certain cases imports get duty exemption/concession for certain special purposes. In such cases, to enable domestic suppliers compete with the international suppliers, the supplies of domestic suppliers are treated as deemed exports.

The policy not only prescribes the guidelines as to which goods and services can be imported/exported and the relevant procedures thereto but also provides a lot of benefits if properly planned. Schemes like Duty Exemption Schemes, EPCG Schemes, Deemed Exports, etc., benefit exporters, importers and even defined domestic businesses thereby assisting all businesses to reduce costs at every stage in the value chain

Administration of the FTP:

Administration of the FTP

DGFT

Other Authorities Involved

The FTP is formulated, controlled and supervised by the office of the Director General of Foreign Trade (DGFT), an attached office of the Ministry of Commerce & Industry, Government of India. DGFT has several offices in various parts of the country which work on the basis of the policy formed by the headquarters at Delhi. DGFT issues authorization (earlier called as licence) for import/export. ‘Authorization’ means a permission in terms of the FT(D&R) Act to import or export. It also grants Importer Exporter Code (IEC) number to importers and exporters. Import and Export without IEC number is not permitted unless specifically exempted. Decision of DGFT is final and binding in respect of interpretation of any provision of FTP, classification of any item in ITC (HS), content scope or issue of any authorisation issued under FTP.

Though the FTP is formulated by DGFT, it is administered in close co-ordination with other agencies. Other important authorities dealing with FTP are: 1) Central Board of Excise & Customs (CBEC) –

CBEC comes under Ministry of Finance and its two departments namely, Customs and Central Excise facilitate in implementing the provisions of FTP.

2) Reserve Bank of India (RBI) – RBI is nodal bank in the country which formulates the policies related to management of money including payments and receipts of foreign exchange. It also monitors the receipts and payments for exports and imports.

3) State VAT Departments – Since VAT is payable on domestic goods but not on export goods, formalities with State VAT departments assume importance in tax free exports.

Contents of Foreign Trade Policy


FTP 2009-14 It is having 9 Chapters giving basic policy. This is notified by the Central Government.

Handbook of Procedures

(i) Handbook of Procedures Volume I: (HBP) containing 9 chapters, covering procedural aspects of policy. It also contains many Appendices, giving various forms, guidelines and lists. This is notified by Director General of Foreign Trade.

(ii) Handbook of Procedures Volume II: (HBP) containing Standard Input-Output

Norms (SION) of various products. Based on SION, exporters are provided the facility to make duty-free import of inputs required for manufacture of export products under the Duty Exemption Scheme or Duty Remission Schemes.

ITC(HS) Classification

The Indian Trade Classification Code is based on Harmonized System of Coding ITC(HS)]. ITC-HS Coding was adopted in India for import-export operations.

ITC-HS codes are divided into two schedules. ITC(HS) Import Schedule I describe the rules and guidelines related to import policies where as Schedule II describe the rules and regulation related to export policies.

Any changes or formulation or addition of new codes in ITC-HS Codes are carried out by DGFT (Directorate General of Foreign Trade).

Foreign Trade Policy vis a vis tax laws The Foreign Trade Policy is closely knit with the Customs and Excise laws of India. However, the policy provisions per-se do not override tax laws. The exemptions extended by FTP are given effect to by issue of notifications under respective tax laws (e.g., Customs Tariff Act). Thus, actual benefit of the exemption depends on the language of exemption notifications issued by the CBEC. In most of the cases the exemption notifications refer to policy provisions for detailed conditions. Ministry of Finance/Tax Authorities cannot question the decision of authorities under the Ministry of Commerce (so far as the issue of authorization etc. is concerned).

FTP, Handbook of procedures under FTP, Central Excise Act and Customs Act and notifications issued hereunder form an integrated scheme of indirect taxation. All these statues have to be read as a whole and not in isolation, since they are series of statues relating to same subject matter.

Scope of FTP The FTP covers the policies and regulations with respect to the following matters: a) Policy for regulating import and export of goods and services b) Export Promotional Measures c) Duty Remission and Duty Exemption Scheme for promotion of exports d) Export promotion Capital Goods (EPCG) Scheme


e) Export Oriented Undertakings (EOU) / Electronic Hardware Technology Park (EHTP) / f) Software Technology Park (STP) and Bio Technology Parks (BTU) Schemes g) Special Economic Zones h) Deemed Exports

Special Focus Initiatives The FTP provides certain special focus initiatives for Market Diversification, Technological Upgradation, Support to status holders, Agriculture, Handlooms, Handicraft, Gems & Jewellery, Leather, Marine, Electronics and IT Hardware Manufacturing Industries, Green products, Exports of products from North-East, Sports Goods and Toys sectors wherein the Government of India shall make concerted efforts to promote exports.

Board of Trade Board of Trade (BOT) has been constituted to advise Government on Policy measures for increasing exports, review export performance, review policy and procedures for imports and exports and examine issues relevant for promotion of India’s foreign trade. Commerce & Industry Minister will be the Chairman of the BOT. Government shall also nominate upto 25 persons, of whom at least 10 will be experts in trade policy. In addition, Chairmen of recognized EPCs and President or Secretary-Generals of National Chambers of Commerce will be ex-officio members. BOT will meet at least once every quarter.

General Provisions regarding imports and exports

Exports and imports are free unless regulated

Exports and Imports shall be free, except where regulated by FTP or any other law in force. The item wise export and import policy shall be specified in ITC(HS) notified by DGFT from time to time.

Compliance with laws

Every exporter or importer shall comply with the provisions of the FT (D&R) Act, the rules and orders made there-under, the FTP and terms and conditions of any authorization granted to him.

All imported goods shall also be subject to domestic laws, rules, orders, regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods.

Interpretation of policy

If any question or doubt arises in respect of interpretation of any provision, said question or doubt shall be referred to DGFT whose decision thereon shall be final and binding.

Procedure DGFT may specify procedure to be followed by an exporter or importer or by any licencing or any other competent authority for the purpose of implementing provisions of Foreign Trade Act, the rules and the orders made there-under and FTP. Such procedures shall be published in Hand Book of Procedures by means of a Public Notice, and may, in like manner, be amended from time to time.

Exemption from Policy/Procedure

DGFT may pass such orders or grant such relaxation or relief, as he may deem fit and proper, on grounds of genuine hardship and adverse impact on trade. DGFT may, in public interest, exempt any person or class or category of persons from any provision of FTP or any procedure and may, while granting such exemption, impose such conditions as he may deem fit.

Principles of Restriction

DGFT may, through a notification, adopt and enforce any measure necessary for: (a) Protection of:-

(i) public morals. (ii) human, animal or plant life or health.


(iii) patents, trademarks and copyrights and the prevention of deceptive practices.

(iv) national treasures of artistic, historic or archaeological value (v) trade of fissionable material or material from which they are derived

(b) Prevention of traffic in arms, ammunition and implements of war and use of prison labour. (c) Conservation of exhaustible natural resources.

Export/import of restricted goods/services

Any goods/services, export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with an Authorization or in terms of a public notice issued in this regard.

Terms and Conditions of an authorization

Every Authorization shall be valid for prescribed period of validity and shall contain such terms and conditions as may be specified by Regional Authority (RA), which may include: (a) Quantity, description and value of goods; (b) Actual User condition; (c) Export obligation; (d) Value addition to be achieved; and (e) Minimum export/ import price.

Authorization not a right

No person may claim an Authorization as a right and DGFT or RA shall have power to refuse to grant or renew the same in accordance with provisions of FT(D&R) Act, rules made there under and FTP.

Penalty If an authorization holder violates any condition of such authorization or fails to fulfill export obligation, he shall be liable for action in accordance with FT (D&R) Act, the Rules and Orders made there under, FTP and any other law for time being in force

State Trading Any goods, import or export of which is governed through exclusive or special privileges granted to State Trading Enterprises [STE(s)], may be imported or exported by STE(s) as per conditions specified in ITC(HS). DGFT may however, grant an authorization to any other person to import or export any of these goods.

Importer-Exporter Code (IEC)

It is a unique 10 digit code issued by DGFT to Indian companies. IEC is mandatory to export any goods out of India or to import any goods into India unless specifically exempt. Permanent Account Number (PAN) is pre-requisite for grant of an IEC. Only one IEC can be issued against a single PAN. An application for IEC is to be made to the nearest RA of DGFT in the ‘Aayaat Niryaat Form-ANF2A’ and shall be accompanied by prescribed documents.. In case of STPI/ EHTP/ BTP units, the Regional Offices of the DGFT having jurisdiction over the district in which the Registered/ Head Office of the STPI unit is located shall issue or amend the IECs.

Trade with neighbouring countries

DGFT may issue instructions or frame schemes as may be required to promote trade and strengthen economic ties with neighbouring countries.

Transit facility Transit of goods through India from/ or to countries adjacent to India shall be regulated in accordance with bilateral treaties between India and those countries and will be subject to such restrictions as may be specified by DGFT in accordance with international conventions.

Actual user condition

Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require an Authorization, actual user alone may import such goods unless actual user condition is specifically dispensed with by RA.

Second hand goods

Import of second hand (used) goods, except second hand capital goods, shall be restricted for imports and may be imported only in accordance with the


provisions of FTP, ITC(HS), prescribed procedures, public notice or an Authorization in this regard.

Import of second hand capital goods, including refurbished/ re-conditioned spares shall be allowed freely.

However, second hand personal computers/ laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against a licence. Import of remanufactured goods shall be allowed only against a licence.

Scrap/ Waste in SEZ

Any waste or scrap or remnant including any form of metallic waste & scrap generated during manufacturing or processing activities of an SEZ Unit/ Developer/ Co-developer shall be allowed to be disposed in DTA freely subject to payment of applicable customs duty.

Import of gifts Import of gifts shall be permitted where such goods are otherwise freely importable under ITC(HS). In other cases, a Customs Clearance Permit (CCP) shall be required from DGFT. Further, import of samples shall be governed by the prescribed procedures.

Passenger Baggage

a) Bonafide household goods and personal effects may be imported as part of passenger baggage as per limits, terms and conditions thereof in the Baggage Rules, 1998.

b) Samples of such items that are otherwise freely importable under FTP may also be imported as part of passenger baggage without an Authorization.

c) Exporters coming from abroad are also allowed to import drawings, patterns, labels, price tags, buttons, belts, trimming and embellishments required for export, as part of their passenger baggage without an Authorization

Import on export basis

Freely exportable new or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without an Authorization on execution of LUT/ BG with Customs Authorities.

Re-import of goods repaired abroad

Capital goods, equipments, components, parts and accessories, whether imported or indigenous, except those restricted under ITC(HS) may be sent abroad for repairs, testing, quality improvement or upgradation or standardization of technology and re-imported without an Authorization.

Import of goods used in projects abroad

After completion of projects abroad, project contractors may import, without an Authorization, goods including capital goods used in the project provided they have been used for at least one year

Sale on high seas Sale of goods on high seas for import into India may be made subject to FTP or any other law in force.

Import under lease financing

Permission of RA is not required for import of capital goods under lease financing.

Clearance of goods from customs

Goods already imported/ shipped/ arrived, in advance, but not cleared from customs may also be cleared against an Authorization issued subsequently.

Execution of BG/ LUT

Whenever goods are imported duty free or otherwise specifically stated, importer shall execute prescribed LUT/ BG/ Bond with Customs Authority before clearance of goods. In case of indigenous sourcing, Authorization holder shall furnish LUT/ BG/ Bond to RA concerned before sourcing material from indigenous supplier/nominated agency as per the prescribed procedures.

Private/ public bonded warehouses for imports

Private/ public bonded warehouses may be set up in DTA as per terms and conditions of notification issued by DoR. Any person may import goods, except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such bonded warehouses. Such goods may be cleared for home consumption whenever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom


authorities may permit, importer of such goods shall re-export the goods.

Free exports All goods may be exported without any restriction except to the extent that such export is regulated by ITC(HS) or any other provision of FTP or any other law for the time being in force. DGFT may however, specify through a public notice such terms and conditions according to which any goods, not included in ITC(HS), may be exported without an Authorization.

Export of samples

Export of samples and free of charge goods shall be governed by prescribed procedures.

Export of passenger baggage

Bonafide personal baggage may be exported either along with passenger or, if unaccompanied, within one year before or after passenger’s departure from India. However, items mentioned as restricted in ITC(HS) shall require an Authorization. Government of India officials proceeding abroad on official postings shall, however, be permitted to carry alongwith their personal baggage, food items (free, restricted or prohibited) strictly for their personal consumption. Samples of such items that are otherwise freely exportable under FTP may also be exported as part of passenger baggage without an Authorisation.

Export of gifts Goods, including edible items, of value not exceeding Rs.5,00,000/ - in a licensing year, may be exported as a gift. However, items mentioned as restricted for exports in ITC(HS) shall not be exported as a gift, without an Authorization.

Export of spares Warranty spares (whether indigenous or imported) of plant, equipment, machinery, automobiles or any other goods, [except those restricted under ITC(HS)] may be exported along with main equipment or subsequently, but within contracted warranty period of such goods subject to approval of RBI.

Third party exports

Third-party exports means exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases, export documents such as shipping bills shall indicate name of both manufacturing exporter/manufacturer and third party exporter(s). BRC, GR declaration, export order and invoice should be in the name of third party exporter. Such third party exports shall be allowed under FTP

Export of imported goods

Goods imported, in accordance with FTP, may be exported in same or substantially the same form without an Authorization, provided that an item to be imported or exported is not restricted for import or export in ITC(HS). Exports of such goods imported against payment in freely convertible currency would be permitted against payment in freely convertible currency. Goods, including those mentioned as restricted for import (except prohibited items) may be imported under Customs Bond for export in freely convertible currency without an Authorization provided that item is freely exportable without any conditionality/requirement of licence/ permission as may be required under ITC(HS) [Schedule IIExport Policy of ITC(HS)]. Hides, Skins and semi finished leather may be imported in the Public Bonded warehouse for the purpose of DTA sale and the unsold items thereof can be re-exported from such bonded warehouses at 50% of the applicable export duty. However, this facility shall not be allowed for import under Private Bonded warehouse.

Export of replacement goods

Goods or parts thereof on being exported and found defective/ damaged may be replaced free of charge by the exporter and such goods shall be allowed clearance by customs authorities, provided that replacement goods are not mentioned as restricted items for exports in ITC(HS).

Export of repaired goods

Goods or parts exported and found defective, damaged or otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without an Authorization and in accordance with customs notification.

Private Bonded Warehouses for exports

Private bonded warehouses, which are set up exclusively for exports shall be entitled to procure goods from domestic manufacturers without payment of duty. Supplies made by a domestic supplier to such notified warehouses shall be treated


as physical exports provided payments are made in free foreign exchange.

Denomination of export contracts

All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realised in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan. Additionally, rupee payment through Vostro account must be against payment in free foreign currency by buyer in his non-resident bank account. Free foreign exchange remitted by buyer to his non-resident bank (after deducting the bank service charges) on account of this transaction would be taken as export realization under export promotion schemes of FTP. Contracts for which payments are received through ACU shall be denominated in ACU Dollar. Central Government may relax provisions in this regard in appropriate cases. Export contracts and invoices can be denominated in Indian rupees against EXIM Bank/ Government of India line of credit.

Realisation of export proceeds

If an exporter fails to realise export proceeds within time specified by RBI, he shall, without prejudice to any liability or penalty under any law in force, be liable to action in accordance with provisions of FT(D&R) Act, rules and orders made thereunder and provisions of FTP.

Free movement of export goods

Consignments of items meant for exports shall not be withheld/ delayed for any reason by any agency of Central/ State Government. In case of any doubt, authorities concerned may ask for an undertaking from exporter.

No seizure of stock

No seizure of stock shall be made by any agency so as to disrupt manufacturing activity and delivery schedule of exports. In exceptional cases, concerned agency may seize the stock on basis of prima facie evidence. However, such seizure should be lifted within 7 days.

Export Promotion Councils (EPC)

Basic objective of Export Promotion Councils (EPCs) is to promote and develop Indian exports. Each Council is responsible for promotion of a particular group of products, projects and services.

Registration-cum-Membership Certificate (RCMC)

Any person, applying for an Authorization to import/ export, or any other benefit or concession under FTP shall be required to furnish RCMC granted by competent authority. Certificate of Registration as Exporter of Spices (CRES) issued by Spices Board shall be treated as RCMC for the purposes under this Policy.

Trade facilitation through EDI initiatives

It is endeavor of Government to work towards greater simplification, standardization and harmonization of trade documents using international best practices. As a step in this direction, a secure EDI Message Exchange System for various documents i.e. Authorisations, Shipping Bills, IEC application fee, RCMCs has been established with trade partners i.e. Customs, Banks and Export Promotion Councils. These documents are no longer required to be physically filed with DGFT or transmitted physically to the concerned partners. Therefore, it has reduced the transaction cost for the exporters. It is the endeavour of the DGFT to enlarge the scope and domain of EDI exchange continuously.

DGCI&S Commercial Trade Data

DGCI&S has put in place a Data Suppression Policy. Transaction level data would not be made publically available to protect privacy. DGCI&S trade data shall be made available at aggregate level with a minimum possible time lag in a query based structured format on commercial criteria.

Fiscal incentives to promote EDI initiatives

With a view to promote use of Information Technology, DGFT will provide fiscal incentives to user community. Deductions in Application Fee would be admissible for applications signed digitally or/ and where application fee is paid electronically through EFT (Electronic Fund Transfer).

Regularization of EO default and

To provide assistance to firms who have defaulted under FTP for reasons beyond their control as also facilitating merger, acquisition and rehabilitation of sick units,


settlement of customs duty and interest through Settlement Commission

it has been decided to empower Settlement Commission in CBEC to decide such cases w.e.f. 1.4.2005.

Easing of documentation requirement

DGFT has provided ‘on-line’ facility for filing applications to obtain various authorizations / IECode. The authorizations are issued and transmitted electronically to Customs for clearance so as to reduce the required documentation. DGFT has also become India’s first digital signature enabled department in Government of India, which has introduced a higher level of encrypted 2048 bit digital signature for enhanced security in communications with essential features like authentication, Privacy, non-repudiation and integrity in the virtual world.

Exemption/ remission from service tax in DTA

For all services which are exported from units in DTA and units in EOU/ EHTP/ STP/ BTP exemption/ remission of service tax levied and related to exports shall be allowed as per the prescribed procedure.

Exemption from service tax in SEZ

Units in SEZ shall be exempted from service tax.

Exemption from service tax on services received abroad

For all services exported from India, services received/ rendered abroad, wherever possible, shall be exempted from service tax.

GRIEVANCE REDRESSAL

DGFT as a facilitator of exports/ imports

DGFT has a commitment to function as a facilitator of exports and imports. Focus is on good governance, which depends on clean, transparent and accountable delivery systems.

Citizen’s Charter DGFT has in place a citizen’s charter giving time schedules for providing services to clients and details of committees at different levels.

Grievance Redressal Committee

This scheme has now been abolished and its place a personal hearing system has been put in place by DGFT.

Export of Perishable Agricultural Products

To reduce transaction and handling costs, a single window system to facilitate export of perishable agricultural produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by Agricultural and processed Food Products Export Development Authority (APEDA), New Delhi

Export Promotion Schemes Exports of a country play an important role in the economy. Government always endeavours to encourage exports by introducing various export promotion schemes which are operated under Ministry of Commerce through various Export Promotion Councils.


As per WTO, export incentives cannot be given to exporters as such otherwise there would be no free competition. Hence, all the export promotion schemes in India are directed towards ensuring inputs as well as final products are made tax free.

DUTY EXEMPTION & REMISSION SCHEME

The Duty Exemption and Remission Scheme is one of the most important schemes in the Foreign Trade Policy, because it is most widely utilized and remains largely compatible with the provisions of the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO. Duty Exemption Schemes: Under duty exemption schemes, exporter can import duty free for export production. Two duty exemption schemes are as follows:

1) Advance Authorisation Scheme 2) Duty Free Import Authorisation Scheme (DFIA)

Advance Authorisation Scheme: Under advance authorisation scheme, inputs which are used in the export product can be imported without payment of customs duty. The goods imported are exempt from basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty. The conditions for duty free imports against physical exports are provided in the notification issued under Custom law. Features of Advance Authorization Scheme

Advance Authorization and/ or materials imported there under will be with actual user condition. It will not be transferable.

In case where CENVAT credit facility on inputs has been availed for the exported goods, even after completion of export obligation, the goods imported against Advance Authorization shall be utilized only in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer).

Advance Authorization necessitates exports with a minimum value addition


of 15%, however, for tea it shall be 50%. If some items are supplied free of cost by foreign buyer, its notional value will be considered for purpose of calculating value addition. Exports to SEZ Units/ supplies to Developers/ Co-developers, irrespective of currency of realization, would also be covered.

Where inputs are supplied free of cost by foreign buyer, in such cases for calculation of value addition notional value shall be taken. Where all inputs are supplied free of cost, exporter shall also have option to follow provision prescribed by DoR.

eligible for advance authorization

Advance Authorization can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s) to import inputs. Such Authorization can also be issued for supplies made to United Nations Organisations or under Aid Programme of the United Nations or other multilateral agencies and which are paid for in free foreign exchange.

Items which can be imported duty free against advance authorisation

Inputs which are physically incorporated in export product (making normal allowance for wastage)

Fuel, oil, energy, catalysts which are consumed/utilised to obtain export product.

Mandatory spares upto 10% of CIF value of authorisation which are required to be exported/supplied with resultant product.

Items which cannot be imported against advance authorization

Prohibited items mentioned in ITC(HS).

Energy

Items reserved for imports by STEs. However, such items can be procured from STEs against ARO or Invalidation letter.

Advance Release Order

Holder of advance authorization has an option to procure the materials/ inputs from indigenous manufacturer/STE in lieu of direct import against Advance Release Order (ARO)/Invalidation letter denominated in free foreign exchange/Indian rupees. However, supplies may be obtained against Authorisation from EOU/EHTP/BTP/STP/SEZ units, without conversion into ARO or Invalidation letter.

SION Advance Authorizations are issued for inputs and export items given under SION i.e., the import of raw materials is on the basis of standard input output norms. The SION is finalized and quantity allowed to importer will be based on quantity exported.

Annual Advance authorization

Advance Authorization can also be issued for annual requirement. Status Certificate holder and all other categories of exporters having past export performance (in preceding two years) shall be entitled for Advance Authorization for Annual Requirement. Entitlement in terms of CIF value of imports shall be upto 300% of the FOB value of physical export and/ or FOR value of deemed export in preceding licensing year or Rs. 1 crore, whichever is higher.

Duty Free Import Authorization (DFIA) Scheme This scheme has been introduced effective 01.05.2006. Provisions of Advance Authorization scheme (as contained in FTP) are applicable in case of DFIA. However, these Authorizations shall be issued only for products for which Standard Input and Output Norms (SION) have been notified. DFIA is issued to allow duty free import of inputs, fuel, oil, energy sources, catalyst which are required for production of export product. DFIA is issued with actual user condition. Imports will be exempt from payment of basic customs duty, additional customs duty/excise duty, education cess, anti-


dumping duty and safeguard duty. The imported material under DFIA can be transferred after fulfillment of export obligation. A minimum 20% value addition shall be required for issuance of such Authorization except for items in gems and jewellery sector. Once export obligation has been fulfilled, request for transferability of Authorization or inputs imported against it may be made before concerned RA. Once, transferability is endorsed, Authorization holder may transfer DFIA or duty free inputs, except fuel and any other item(s) notified by DGFT. However, for fuel, import entitlement may be transferred only to companies which have been granted Authorization to market fuel by Ministry of Petroleum and Natural Gas. Once transferability is endorsed, imports/ domestic procurement against Authorization or transfer of imported inputs/ domestically procured inputs shall be subject to payment of applicable additional customs duty/ excise duty. CENVAT credit facility shall be available for inputs either imported or procured indigenously. There is a facility to procure the materials/ inputs from indigenous manufacturer against advance release order, alternatively exporter can obtain goods from indigenous sources on basis of back to back inland letter of credit. Validity period of imports has been reduced from 24 months to 18 months and export obligation period has also been reduced from 36 months to 18 months. However RAs can now grant extension for 6 months.

Duty Remission Schemes: Under Duty remission scheme, duty on inputs used in export product is either replenished or remitted. The two duty remission schemes are as follows:

1) Duty Drawback (DBK) Scheme 2) Duty Entitlement Passbook (DEPB) Scheme

Duty Drawback (DBK) Scheme As per Duty Drawback in Customs Act

Duty Entitlement Passbook (DEPB) Scheme This scheme was similar to CENVAT credit scheme. The exporter used to get credit when he exported the goods. The credit was on basis of DEPB rates prescribed. This credit could be utilized for payment of customs duty on imported goods (which are freely importable). However, this scheme has been abolished with effect from 01.10.2011 as it was said to be non-compliant of WTO requirements. Re-import of goods exported under duty exemption/remission scheme: Goods exported under Advance Authorization/ DFIA/ DEPB may be re-imported in same or substantially the same form. The RA which has issued AA / DFIA /DEPB, should also be kept informed of such re-importation within one month of the re-importation. For the purpose of duty exemption and remission schemes, Value Addition (VA) shall be calculated as follows:- Value addition= (A –B)/B×100 where: A = FOB value of export realized/ FOR value of supply received B = CIF value of inputs covered by Authorization, plus any other imported materials used on which


benefit of DBK is claimed.

REWARD SCHEMES Reward schemes are the schemes which entitle the exporters to duty credit scrips subject to various conditions. Following points merit consideration regarding these schemes:- 1) Scrips of VKGUY, FMS, FPS and MLFPS are freely transferable and an exporter can claim only one

of the four benefits of his choice. However, duty credit scrips under SFIS and SHIS are not freely transferable.

2) Duty credit scrips can be used to pay the custom duty in case of EO default but not for payment of penalty.

3) Freely importable as well as restricted items can be imported under duty credit scrips. However, certain specified items namely, garlic, peas, vegetables with a duty of more than 30%, spices, tea, coffee, pepper, oil seeds, natural rubber, some capital goods like irrigation pumps, threshers, tractors, etc. are not permitted to be imported under duty credit scrips.

4) Credit obtained under duty credit scrips can be used to pay the duty against imports under EPCG scheme.

5) Duty credit scrips can be used to clear goods from Customs Bonded Warehouse subject to prescribed conditions.

6) Duty credit scrips can be used to pay the composition fee and application fee under FTP. 7) Duty credit scrip is valid only for 24 months and can be revalidated only if it had expired when the

goods were under the custody of customs. 8) Application for duty credit scrips shall be made within 12 months from:-

(i) date of export (ii) 6 months from the date of realization, or (iii) 3 months from the printing/release of shipping bill

whichever is later. For SFIS, last date shall be 12 months from the end of application frequency period.

9) Procedural aspects of duty credit scrips are given in Volume-I of Handbook of Procedures. Significant reward schemes have been discussed as under:-

1. Status Category

With a view to encourage exporters by recognizing their achievement and helping them build marketing infrastructure and expertise required for export promotion, the Govt. has created 5 categories of Status Holders depending on their export turnover (FOB) [FOR in case of deemed exports] in current plus three preceding years. For Export House (EH) status, export performance is necessary in at least two out of four years. These are the Export House (EH), Star Export House (SEH), Trading House (TH), Star Trading House (STH) and

Premier Trading House (PTH).

Export performance criterion for Status Holders

Status Category Export Performance [FOB/FOR Value (Rs. In Crore)

Export House (EH) 20


Star Export House (SEH) 100 Trading House (TH) 500 Star Trading House (STH) 2,500 Premier Trading House (PTH) 10,000

Benefit to Status holders

Status holders are granted benefit like: a) Licence/certificate/permission and custom clearances for both imports

and exports on self-declaration basis. b) Fixation of input output norms on priority i.e. 60 days c) Exemption from compulsory negotiation of documents through banks.

The remittance receipt, however, would continue to be received through banking channels

d) 100% retention of foreign exchange in foreign EEFC account. e) Exemption from furnishing of BG in schemes under FTP f) SEHs and above shall be permitted to establish export warehouses as per

DOR guidelines. g) For PTH, the average level of exports under EPCG scheme shall be the

arithmetic mean of export performance in last 5 years, instead of 3 years. h) Status Holders of specified sectors shall be eligible for Status Holder

Incentive Scrip. i) Status Holders of Agriculture Sector shall be eligible for Agriculture

Infrastructure Incentive Scrip under VKGUY.

2. Served From India Scheme (SFIS)

Objective of the scheme is to accelerate growth in export of services so as to create a powerful and unique ‘Served from India’ brand, instantly recognised and respected world over.

Eligible Service providers

All Indian Service Providers who have free foreign exchange earning of at least Rs. 10 lacs in current financial year shall qualify for Duty Credit Scrip. For Individual service providers, minimum free foreign exchange earnings would be Rs. 5 lacs. Only service providers of specified services [listed in Handbook of procedures] are so eligible.

Entitlement to duty credit scrips

Eligible service providers shall be entitled to Duty Credit Scrip equivalent to 10% of the net free foreign exchange earned during current financial year. Free foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service shall also be taken into account for computation of Duty Credit Scrip

Utilization of duty credit scrip

a) Import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables; that are otherwise freely importable and/ or restricted under ITC(HS). Imports shall relate to any service sector business of applicant. Utilization of Duty Credit scrip earned shall be permitted for payment of duty in case of import of only those vehicles, which are in the nature of professional equipment to the service provider. In case of hotels; clubs having residential facility of minimum 30 room’s golf resorts and stand-alone restaurants having catering facilities, Duty Credit scrip may also be used for import of consumables including food items and alcoholic beverages.


b) Entitlement/ goods (imported/ procured) shall be non transferable (except within group company and managed hotels) and be subject to Actual User condition

c) Utilization of Duty Credit Scrip shall be permitted for payment of excise duty in terms of DoR notification issued in this behalf for procurement from domestic sources, of items permitted for imports under SFIS Duty Credit Scrip.

3. Vishesh Krishi and Gram Udyog Yojana (VKGUY) -Special Agriculture and Village Industry Scheme

The objective of VKGUY is to compensate high transport costs and offset other disadvantages in the exports of specified agricultural products.

Eligible Exporters

Exporters of fruits, vegetables, flowers, minor forest produce, dairy, poultry and their value added products, Gram Udyog products and forest based products are entitled for Duty Credit scrip equivalent to 5% of FOB value of exports realized in free foreign exchange. However, export of some flowers, fruits, vegetables and other listed products are entitled to an additional duty credit scrip equivalent to 2% of FOB value of exports; over and above the 5% VKGUY entitlement available.

Utilization of scrip

This scrip can be utilized for payment of customs duties of all freely importable items as well as for procurement of domestic items without payment of central excise duty as well as service tax. Further it can also be utilized for payment of application fee to DGFT for obtaining any Authorisation. However, this facility is available only to original Duty Credit Scrip Holders.

4. Agri-Infrasturcture Incentive Scrip

Eligible exporters

For exports made during a particular year, all Status Holders (having status recognition for the current year) exporting specified products (mainly vegetable products and animal products) shall be eligible for additional benefit of duty credit scrip equal to 10% of FOB value of agricultural exports (including benefits entitled under VKGUY) provided that the total benefits for all status holders put together do not exceed Rs. 100 crore (i.e., Rs. 50 crore for each half year) and the prescribed conditions in this regard are satisfied.

Actual user condition

This benefit shall be subject to actual user condition and hence non-transferable. However, for import of Cold Chain Equipment, this Incentive Scrip shall be freely transferable amongst Status Holders as well as to Units* in the Food Parks. *Note: The term ‘Units’ shall not include Developers.

5. Focus Market Scheme (FMS)

Thus scheme has been introduced with objective to penetrate those markets [primarily Latin America, Africa, Eastern Europe, etc.] which Indian exports have been neglecting (owing to high freight costs and other externalities). However, these markets have bright future prospects. Thus, in order to increase India’s export competitiveness in these countries, Focus Market Scheme has been introduced.

Eligible exporters

Exporters of all products to notified countries shall be entitled for Duty Credit Scrip equivalent to 3% of FOB value of exports (in free foreign exchange) for exports. Export of products to some of the notified countries will be entitled for additional duty credit scrip @ 1% of FOB value of exports (in free foreign exchange).

Utilisation of scrip

This scrip can be utilized for payment of customs duties of all freely importable items as well as for procurement of domestic items without payment of central excise duty.


6. Focus Product Scheme (FPS)

With a view to promote export of those products which have high export intensity/employment potential, Focus Product Scheme has been introduced.

Eligible exports Exports of notified products (mainly covering value added leather products & leather footwear, fireworks and stationery items, value added coir products and other focus products) to all countries (including SEZ units) shall be entitled for Duty Credit scrip equivalent to 2% of FOB value of exports (in free foreign exchange). However, Special Focus Product(s)/sector(s) [mainly covering toys and sports goods and handicraft products], shall be granted Duty Credit Scrip equivalent to 5% of FOB value of exports (in free foreign exchange).

Bonus benefits Following additional benefits have been provided over and above the existing rate for a product/sector for exports:-

Focus Product(s)/ Sector(s) notified Additional Duty Credit Scrip as % of FOB value of exports (in free foreign exchange)

Certain specified items of special focus products/sectors namely rubber sole with leather cloth uppers, EPNS ware, handmade lace, grinding balls, etc.

2%

Ferrous products, LPG cylinder, hand saws, files, rasps & similar tools, carbon blacks, tower cranes, specified chemicals etc.

1%

Utilization of scrip

This scrip can be utilized for payment of Customs duties of all freely importable items as well as for procurement of domestic items without payment of Central Excise duty.

7. Market Linked Focus Product Scrip (MLFPS)

Specified products exported to specified countries are entitled to 2% of the FOB value as Duty Credit Scrip. This scrip can be utilized for payment of Customs duties of all freely importable items as well as for procurement of domestic items without payment of Central Excise duty.

8. Status Holder Incentive Scheme (SHIS)

Earlier, Status Holders of certain specified sectors were entitled to duty credit scrip [over and above any duty credit scrip claimed/ availed] at the rate of 1% of the FOB value of exports made during 2009-10, 2010-11, 2011-12 and 2012-13. However, this Scheme is not extended for the year 2013-14 and thus will not be applicable for exports made after 31.03.2013

9. Incremental Exports Incentivisation Scheme on annual basis

Eligible exporters

Under this scheme, an exporter (IEC holder) would be entitled for duty credit scrip @ 2% on the incremental growth achieved by the IEC holder during the period 01.04.2013 to 31.3.2014 compared to the period from 01.04.2012 to 31.3.2013 on the FOB value of exports. The calculation of the benefit shall be on annual basis.

Exports to be excluded while computing entitlement under the

For calculation of export performance/for computation of entitlement under the scheme, export of imported goods or exports made through trans-shipment, export from SEZ/ EOU /EHTP /STPI /BTP/FTWZ, deemed exports, service exports, third party exports, export performance made by one exporter on behalf of other exporter, supplies made to SEZ units, items, export of which requires an export authorisation


scheme (except SCOMET), will not be considered.

EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG) Export Promotion Capital Goods Scheme (EPCG) permits exporters to procure capital goods at concessional rate of customs duty/zero customs duty. In return, exporter is under an obligation to fulfill the export obligation. The license holder can either procure the capital goods (whether used for pre-production, production or post-production) from global market or domestic market. The capital goods can also be imported in CKD/ SKD to be assembled in India. Further, capital goods which can be imported under ‘Project Imports’ can also be imported under EPCG scheme.

Eligible exporters under the scheme

EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers. EPCG scheme also covers a service provider who is designated/ certified as a Common Service Provider by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a Town of Export Excellence subject to provisions as mentioned in FTP Handbook with the following conditions:-

(i) EPCG licence to be given to the CSP should have a clear endorsement giving the details of the users and the quantum of Export Obligation (EO) which each user would fulfill;

(ii) Such exports will not count towards fulfillment of other specific export obligations; and

(iii) Each one of the users of the CSP apart from the CSP should furnish 100% Bank Guarantee (BG) equivalent to their portion of duty foregone apportioned in terms of quantum of EO to be discharged by them and the BG will be enforced in the event of the obligation not being fulfilled.

Condition for import of capital goods

Import of capital goods shall be subject to Actual User condition till export obligation is completed.

Export obligation

Export obligation means obligation to export product(s) covered by Authorisation/permission in terms of quantity or value or both, as may be prescribed/specified by Regional or competent authority.

Various EPCG schemes have been discussed as follows:-

Zero duty EPCG Scheme

Zero duty EPCG scheme allows import of capital goods (including CKD/SKD thereof as well as computer software systems) for pre-production, production and post-production at zero customs duty. The period for import under the scheme would be 18 months. This benefit is subject to the condition that export obligation equivalent to 6 times of duty saved on capital goods imported under EPCG scheme is to be fulfilled in 6 years reckoned from Authorization issue-date. In case countervailing duty (CVD) is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided the same is not CENVATed No Zero duty EPCG scheme for exporters availing SHIS Zero duty EPCG scheme shall not be available to exporters, who avail in that year,


the benefit of SHIS*. In case they have already availed SHIS benefit they would be eligible for Zero Duty Scheme if they surrender or refund SHIS, with applicable interest in case SHIS has been utilized. However, exporters who have availed benefits under Technology Upgradation Fund Scheme (TUFS) administered by Ministry of Textiles, can also avail the benefit of Zero duty EPCG Scheme. *Note: SHIS has not been made available for exports made after 31.03.2013

Capital goods permitted to be imported zero duty under EPCG Under EPCG scheme, capital goods can be imported at zero customs duty. Capital goods shall include spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. However, import of restricted items of imports mentioned under ITC(HS) shall only be allowed under EPCG Scheme after approval from EFC at Headquarters. Following capital goods are not allowed to be imported under EPCG scheme:- a) The import of motor cars, SUVs, all purpose vehicles for hotels, travel agents, or

tour transport operators and companies owning/operating golf resorts will not be allowed under the new Zero Duty EPCG Scheme.

b) Second hand capital goods

Authorization under EPCG Scheme shall not be issued for import of any capital goods (including captive plants and power generator sets of any kind) for:- a) Export of electrical energy (power) b) Supply of electrical energy (power) under deemed exports c) Use of power (energy) in their own unit, and d) Supply/export of electricity transmission services. Spares (including refurbished/reconditioned spares), moulds, dies, jigs, fixtures, tools, and refractory for initial lining; for existing plant and machinery (imported earlier, under EPCG or otherwise), shall be allowed to be imported under the EPCG scheme subject to an export obligation equivalent to 50% of the prescribed export obligation (for import of capital goods), to be fulfilled in 6 years, reckoned from Authorization issue date. This would however be subject to the condition that the CIF value of import of the above spares etc. will be limited to 10% of the value of plant and machinery imported under the EPCG scheme. In case of plant and machinery is not imported under the EPCG scheme, CIF value of import of the spares etc. will be limited to 10% of the book value of the plant and machinery. However, this provision will not be applicable for import of spares in respect of capital goods sourced indigenously.

EPCG for projects

An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports [Project Imports has been discussed in detail in Chapter-8-Warehousing]. Export obligation for such EPCG Authorizations would be 8 times (6 times for zero duty EPCG scheme) of duty saved. Duty saved would be difference between the effective duty under Project Imports and concessional duty under the EPCG scheme.

EPCG for Retail Sector

In order to create modern infrastructure in retail sector, concessional duty benefits under EPCG scheme has been introduced for import of capital goods required by retailers. Such retailer must have minimum area of 1000 sq. meters and shall fulfill export obligation i.e. 8 times of duty saved, in 8 years.


EPCG authorization for annual requirement

Status Holders, exporters having past export performance (in preceding two years) can also avail EPCG Authorization for Annual Requirement. The annual entitlement in terms of duty saved amount shall be upto 50% of FOB value of Physical Export and / or FOR value of Deemed Export, in preceding licensing year.

Provisions for BIFR Units

Any firm/ company registered with BIFR or any firm/ company acquiring a unit, which is under BIFR, may be allowed EO extension, as per rehabilitation package prepared by operating agency and approved by BIFR/ Rehabilitation Department of State Government, upto 12 years if not specified. These provisions also apply to SSI units as per rehabilitation scheme of concerned State Government.

EPCG for agro units

LUT/ Bond or 15% BG may be given for EPCG Authorization granted to units in Agri Export Zones provided EPCG Authorization is taken for export of notified primary agricultural products or their value added variants.

Indigenous Sourcing of capital goods and benefits to domestic supplier

A person holding an EPCG Authorization may source capital goods from a domestic manufacturer. Such domestic manufacturer shall be eligible for deemed export benefit under FTP. Such domestic sourcing shall also be permitted from EOUs and these supplies shall be counted for purpose of fulfillment of positive NFE by said EOU.

Fixation of Export Obligation

Initially, only the exports made in freely convertible currency were being accepted for discharge of export obligation. Later, the condition has been modified to accept deemed exports also for discharge of export obligation. In case of direct imports, export obligation shall be reckoned with reference to actual duty saved amount. In case of domestic sourcing, export obligation shall be reckoned with reference to notional Customs duties saved on FOR value.

Technological Upgradation of existing EPCG machinery

EPCG Authorization holders can opt for ‘Technological Upgradation’ of existing capital goods imported under EPCG Authorization(s). Conditions governing are as under: a) Minimum time period for applying for ‘Technological upgradation’ is 4 years

from earlier EPCG Authorization issue-date. b) Minimum exports made must be 50% of total export obligation imposed on

earlier EPCG Authorization(s). c) EO would be re-fixed such that

(i) total EO shall be sum total of 6 times of duty saved of earlier EPCG and the new one, and

(ii) EOP is 6 years from EPCG authorization issue-date under this Para. d) Facility for technological up-gradation shall be available only once and the

minimum imports to be made shall be at least 10% of the existing investment in plant and machinery by applicant.

e) Capital Goods to be imported must be new and technologically superior to earlier CG (to be certified by Chartered Engineer).

Incentives for Fast Track Companies

To incentivize fast track companies with a view to accelerate exports, in cases where Authorization holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the Authorization redeemed by RA concerned.

EPCG for Green Technology Products

For exporters of Green Technology Products [namely waste heat boiler, wind turbine, water treatment plants, bio-mass boiler, wind mill, solar cells, etc.], specific EO shall be 75% of EO stipulated under zero duty EPCG Scheme. Average EO remains unchanged.

Post Export EPCG Duty Credit Scrip(s)

Under this scheme, capital goods are imported on full payment of applicable duties in cash. Later, basic customs duty paid on Capital Goods is remitted in the form of freely transferable duty credit scrip(s) [similar to the Reward schemes discussed earlier].


Salient features of the schemes are as follows:- a) Specific EO under this scheme shall be 85% of the applicable specific EO, if the

imports of such capital goods had taken benefit of duty exemption. Average EO remains unchanged.

b) Duty remission shall be in proportion to the EO fulfilled. c) These Duty Credit Scrip(s) can be used for payment of applicable custom duties

for imports and applicable excise duties for domestic procurement. d) All provisions of the existing EPCG Scheme shall apply insofar as they are not

inconsistent with this scheme.

Reduced EO for North East Region and J&K

For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Jammu & Kashmir, specific EO shall be 25% of the EO stipulated under zero duty EPCG Scheme. However, there shall be no change in average EO.

EOU, EHTP, STP, BTP & SEZ SCHEMES

EOU, EHTP, STP AND BTP Units undertaking to export their entire production of goods and services (except permissible sales

in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, remaking, reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes. An EOU/ EHTP/ STP/ BTP unit may export all kinds of goods and services except items that are prohibited in ITC(HS). EOU/ BTP/ EHTP/ STPs should start production within 3 years from the date of grant of Letter of Permission (LoP)/ Letter of Intent (LoI).

Procurement and supply of export promotion material like brochure/ literature, pamphlets, hoardings, catalogues posters etc. upto a maximum value limit of 1.5% of FOB value of previous years exports shall be allowed.

An EOU/ EHTP/ STP/ BTP unit may import and/ or procure, from DTA or bonded warehouses in DTA/ international exhibition held in India, without payment of duty, all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC(HS).

Units shall also be permitted to import goods including capital goods required for approved activity, free of cost or on loan/ lease from clients. Import of capital goods will be on a self certification basis. Goods imported by a unit shall be with actual user condition and shall be utilized for export production.

Second hand capital goods, without any age limit, may also be imported duty free. An EOU/ EHTP/ STP/ BTP unit may, on the basis of a firm contract between parties, source capital goods from a domestic/ foreign leasing company without payment of customs/ excise duty.

An EOU/ EHTP/ BTP/ STP unit may sell capital goods and lease back the same from a Non Banking Financial Company (NBFC), subject to the following conditions:

The unit should obtain permission from the jurisdictional Deputy/ Assistant Commissioner of Customs or Central Excise, for entering into transaction of ‘Sale and Lease Back of Assets’, and submit full details of the goods to be sold and leased back and the details of NBFC;

The goods sold and leased back shall not be removed from the unit’s premises; The unit should be NFE positive at the time when it enters into sale and lease back transaction with

NBFC; A joint undertaking by the unit and NBFC should be given to pay duty on goods in case of violation

or contravention of any provision of the notification under which these goods were imported or procured.


EOU/ EHTP/ STP/ BTP units may import/ procure from DTA, without payment of duty, certain specified goods for creating a central facility. Software EOU/ DTA units may use such facility for export of software.

An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may be permitted to remove specified goods in connection with its activities for use outside bonded area.

Gems and jewellery EOUs may source gold/ silver/ platinum through nominated agencies on loan/ outright purchase basis. Units obtaining gold/ silver/ platinum from nominated agencies, either on loan basis or outright purchase basis shall export gold/ silver/ platinum within 90 days from date of release.

EOU/ EHTP/ STP/ BTP unit shall be a positive net foreign exchange earner except for sector specific provision as specified, where a higher value addition shall be required.

NFE Earnings shall be calculated cumulatively in blocks of five years, starting from commencement of production.

Whenever a unit is unable to export due to prohibition/ restriction imposed on export of any product mentioned in LoP, the five year block period for calculation of NFE earnings may be suitably extended by BoA.

BoA may also consider extension of block period by another one year, for calculation of NFE, on case to case basis, for those units which complete 5 years block period in between 30.09.2008 and 30.09.2009, keeping in view the decline in exports in that particular unit, due to economic slowdown only.

Only projects having a minimum investment of Rs. 1 Crore in plant & machinery shall be considered for establishment as EOUs. However, this shall not apply to existing units and units in EHTP/ STP/ BTP, Handicrafts/ Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/ Information Technology, Services, Brass Hardware and Handmade jewellery sectors. BoA may also allow establishment of EOUs with a lower investment criteria.

Applications for conversion into an EOU/ EHTP/ STP/ BTP unit from existing DTA units, having an investment of Rs. 50 crores and above in plant and machinery or exporting Rs.50 crores and above annually, shall be placed before BoA for a decision.

DTA Sale of Finished Products/ Rejects/ Waste/ Scrap/ Remnants and By-products

a. Units, other than gems and jewellery units may sell goods upto 50% of FOB value of exports, subject to fulfilment of positive NFE, on payment of concessional duties. Within entitlement of DTA sale, unit may sell in DTA, its products similar to goods which are exported or expected to be exported from units. However, units which are manufacturing and exporting more than one product can sell any of these products into DTA, upto 90% of FOB value of export of the specific products, subject to the condition that total DTA sale does not exceed the overall entitlement of 50% of FOB value of exports for the unit, as stipulated above. No DTA sale at concessional duty shall be permissible in respect of motor cars, alcoholic liquors, books, tea (except instant tea), pepper & pepper products, marble and such other items as may be notified from time to time.

b. For services, including software units, sale in DTA in any mode, including on line data communication, shall also be permissible up to 50% of FOB value of exports and/ or 50% of foreign exchange earned, where payment of such services is received in foreign exchange.

c. Gems and jewellery units may sell upto 10% of FOB value of exports of the preceding year in DTA, subject to fulfillment of positive NFE. In respect of sale of plain jewellery, recipient shall pay concessional rate of duty as applicable to sale from nominated agencies. In respect of studded jewellery, duty shall be payable as applicable.

d. Rejects within an overall limit of 50% may be sold in DTA on payment of duties as applicable, on prior intimation to Customs authorities. Such sales shall be counted against DTA sale entitlement. Sale of rejects upto 5% of


FOB value of exports shall not be subject to achievement of NFE. e. Scrap/ waste/ remnants arising out of production process or in connection

therewith may be sold in DTA, as per SION notified under Duty Exemption Scheme, on payment of concessional duties as applicable, within overall ceiling of 50% of FOB value of exports. There shall be no duties/ taxes on scrap/ waste/ remnants, in case same are destroyed with permission of Customs authorities.

f. By-products included in LoP may also be sold in DTA subject to achievement of positive NFE, on payment of applicable duties, within the overall entitlement. Sale of by-products by units not entitled to DTA sales, or beyond entitlements shall also be permissible on payment of full duties.

g. EOU/ EHTP/ STP/ BTP units may sell finished products, except pepper and pepper products and marble, which are freely importable under FTP in DTA, under intimation to DC, against payment of full duties, provided they have achieved positive NFE.

h. In case of units manufacturing electronics hardware and software, NFE and DTA sale entitlement shall be reckoned separately for hardware and software.

i. In case of new EOUs, advance DTA sale will be allowed not exceeding 50% of its estimated exports for first year, except pharmaceutical units where this will be based on its estimated exports for first two years.

j. Units in Textile and Granite sectors shall have an option to sell goods into DTA, on payment of an amount equal to aggregate of duties of excise leviable under section 3 of the Central Excise Act, 1944 or under any other law for the time being in force, on like goods produced or manufactured in India other than in an EOU.

Other Supplies in DTA

Following supplies effected from EOU/ EHTP/ STP/ BTP units to DTA will be counted for fulfillment of positive NFE: i. Supplies affected in DTA to holders of Advance Authorisation/ Advance

Authorisation for annual requirement/ DFIA under duty exemption/ remission scheme/ EPCG scheme. However, printing sector EOUs (or any other sector that may be notified in Handbook of Procedures), cannot supply goods, where basic customs duty and CVD is nil or exempted otherwise, to holders of Advance Authorisation/ Advance Authorization for annual requirement.

ii. Supplies affected in DTA against foreign exchange remittance received from overseas.

iii. Supplies to other EOU/ EHTP/ STP/ BTP/ SEZ units, provided that such goods are permissible for procurement in terms of relevant provisions of FTP.

iv. Supplies made to bonded warehouses set up under FTP and/ or under section 65 of Customs Act and free trade and warehousing zones, where payment is received in foreign exchange.

v. Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by MoF.

vi. Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom/ electronics items.

vii. Supplies of items like tags, labels, printed bags, stickers, belts, buttons or hangers to DTA unit for export.

Supply of LPG produced in an EOU refinery to Public Sector domestic oil companies for being supplied to household domestic consumers at subsidized prices under the Public Distribution System (PDS) Kerosene and Domestic LPG Subsidy Scheme, 2002, (hereinafter referred to as PDS Scheme).


Export through other exporters

An EOU/ EHTP/ STP/ BTP unit may export goods manufactured/ software developed by it through another exporter or any other EOU/ EHTP/ STP/ SEZ unit subject to specified conditions

Entitlement for supplies from the DTA

i. Supplies from DTA to EOU/ EHTP/ STP/ BTP units will be regarded as “deemed exports” and DTA supplier shall be eligible for relevant entitlements under chapter 8 of FTP, besides discharge of export obligation, if any, on the supplier. Notwithstanding the above, EOU/ EHTP/ STP/ BTP units shall, on production of a suitable disclaimer from DTA supplier, be eligible for obtaining entitlements specified under the provisions relating to deemed exports in FTP. For claiming deemed export duty drawback, they shall get brand rates fixed by DC wherever All Industry Rates of Drawback are not available.

ii. Suppliers of precious and semi-precious stones, synthetic stones and processed pearls from DTA to EOU shall be eligible for grant of Replenishment Authorizations at rates and for specified items.

iii. In addition, EOU/ EHTP/ STP/ BTP units shall be entitled to following: 1. Reimbursement of Central Sales Tax (CST) on goods manufactured in

India. Interest @ 6% will be payable on delay refund of CST, if the case is not settled within 30 days of receipt of complete application.

2. Exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India.

3. Reimbursement of duty paid on fuel procured from domestic oil companies/ Depots of domestic oil Public Sector Undertakings as per drawback rate notified by DGFT from time to time. Reimbursement of additional duty of excise levied on fuel under the Finance Acts would also be admissible.

4. CENVAT Credit on service tax paid.

Other Entitlements Other entitlements of EOU/ EHTP/ STP/ BTP units are as under: (a) Exemption from Income Tax as per Section 10A and 10B of the Income Tax Act. (b) Exemption from industrial licensing for manufacture of items reserved for SSI sector. (c) Export proceeds will be realized within 12 months. (d) Units will be allowed to retain 100% of its export earnings in the Exchange Earners’ Foreign Currency (EFFC) account. (e) Unit will not be required to furnish bank guarantee at the time of import or going for job work in DTA, where unit has (i) a turnover of Rs. 5 crores or above; (ii) unit is in existence for at least three years; (iii) The unit: • Has achieved positive NFE/ export obligation wherever applicable; • Has not been issued a show cause notice or a confirmed demand, during the preceding 3 years, on grounds other than procedural violations, under the penal provision of the Customs Act, the Central Excise Act, the Foreign Trade (Development & Regulation) Act, the Foreign Exchange Management Act, the Finance Act, 1994 covering Service Tax or any allied Acts or the rules made there under, on account of fraud/ collusion/ willful mis-statement/ suppression of facts or contravention of any of the provisions thereof; (f) 100% FDI investment permitted through automatic route similar to SEZ units. (g) Units shall pay duty on the goods produced or manufactured and cleared into DTA on monthly basis in the manner prescribed in the Central Excise Rules.

Inter Unit Transfer i. Transfer of manufactured goods from one EOU/ EHTP/ STP/ BTP unit to another EOU/EHTP/ STP/ BTP unit is allowed with prior intimation to


concerned DC and Customs authorities, following procedure of in-bond movement of goods. Transfer of manufactured goods shall also be allowed from EOU/ EHTP/ STP/ BTP unit to a SEZ developer or unit following procedure prescribed in SEZ Rules, 2006.

ii. Capital goods may be transferred or given on loan to other EOU/ EHTP/ STP/ BTP/ SEZ units, with prior intimation to concerned DC and Customs authorities.

iii. Goods supplied by one unit of EOU/ EHTP/ STP/ BTP to another unit shall be treated as imported goods for second unit for payment of duty, on DTA sale by second unit.

Sub-Contracting (a) (i) EOU/ EHTP/ STP/ BTP units, including gems and jewellery units, may on the basis of annual permission from Customs authorities, subcontract production processes to DTA through job work which may also involve change of form or nature of goods, through job work by units in DTA. (ii) These units may subcontract upto 50% of overall production of previous year in value terms in DTA with permission of Customs authorities. (b) (i) EOU may, with annual permission from Customs authorities, undertake job work for export, on behalf of DTA exporter, provided that goods are exported directly from EOU and export document shall jointly be in name of DTA/ EOU. (ii) Duty free import of goods for execution of export order placed on EOU by foreign supplier on job work basis, would be allowed subject to condition that no DTA clearance shall be allowed. (iii) Subcontracting of both production and production processes may also be undertaken without any limit through other EOU/ EHTP/ STP/ BTP/ SEZ units, on the basis of records maintained in unit. (iv) EOU/ EHTP/ STP/ BTP units may subcontract part of production process abroad and send intermediate products abroad as mentioned in LoP. (c) Scrap/ waste/ remnants generated through job work may either be cleared from job worker’s premises on payment of applicable duty on transaction value or destroyed in presence of Customs/ Central Excise authorities or returned to unit. Destruction shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.

Sale of Unutilized Material

(a) In case an EOU/ EHTP/ STP/ BTP unit is unable to utilize goods and services, imported or procured from DTA, it may be (i) transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit; or (ii) disposed off in DTA with approval of Customs authorities on payment of applicable duties and submission of import authorization; or (iii) exported. Such transfer from EOU/ EHTP/ STP/ BTP unit to another such unit would be treated as import for receiving unit. (b) Capital goods and spares that have become obsolete/ surplus, may either be exported, transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit or disposed off in DTA on payment of applicable duties. (c) In case of textile sector, disposal of left over material/ fabrics upto 2% of CIF value or quantity of import, whichever is lower, on payment of duty on transaction value, may be allowed, subject to certification of Central Excise/ Customs officers that these are leftover items. (d) Disposal of used packing material will be allowed on payment of duty on transaction value.

Reconditioning/ Repair and Re-engineering

EOU/ EHTP/ STP/ BTP units may be set up with approval of BoA to carry out reconditioning, repair, remaking, testing, calibration, quality improvement, up-gradation of technology and reengineering activities for export in foreign currency.


Replacement/ Repair of Imported/ Indigenous Goods

i. General provisions of FTP relating to export/ import of replacement/ repair of goods would also apply equally to EOU/ EHTP/ STP/ BTP units. Cases not covered by these provisions shall be considered on merits by DC.

ii. Goods sold in DTA and not accepted for any reasons, may be brought back for repair/ replacement, under intimation to concerned jurisdictional Customs/ Central Excise authorities.

iii. Goods or parts thereof, on being imported/ indigenously procured and found defective or otherwise unfit for use or which have been damaged or become defective subsequently, may be returned and replacement obtained or destroyed.

Exit from EOU Scheme

i. With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment of Excise and Customs duties and industrial policy in force.

ii. If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.

iii. In the event of a gems and jewellery unit ceasing its operation, gold and other precious metals, alloys, gems and other materials available for manufacture of jewellery, shall be handed over to an agency nominated by DoC, at price to be determined by that agency.

iv. An EOU/ EHTP/ STP/ BTP unit may also be permitted by DC to exit from the scheme at any time on payment of duty on capital goods under the prevailing EPCG Scheme for DTA Units. (e) Unit proposing to exit out of EOU scheme shall intimate DC and Customs and Central Excise authorities in writing. Unit shall assess duty liability arising out of debonding and submit details of such assessment to Customs and Central Excise authorities. Customs and Central Excise authorities shall confirm duty liabilities on priority basis, subject to the condition that the unit has achieved positive NFE, taking into consideration the depreciation allowed. After payment of duty and clearance of all dues, unit shall obtain “No Dues Certificate” from Customs and Central Excise authorities. On the basis of “No Dues Certificate” so issued by the Customs and Central Excise authorities, unit shall apply to DC for final debonding. In case there is no proceeding pending under FT(D&R) Act, DC shall issue final debonding order within a period of 7 working days. Between “No

v. In cases where a unit is initially established as DTA unit with machines procured from abroad after payment of applicable import duty, or from domestic market after payment of excise duty, and unit is subsequently converted to EOU, in such cases removal of such capital goods to DTA after debonding would be without payment of duty.

vi. An EOU/ EHTP/ STP/ BTP unit may also be permitted by DC to exit under Advance Authorization as a onetime option. This will be subject to fulfillment of positive NFE criteria.

Conversion

i. Existing DTA units may also apply for conversion into an EOU/ EHTP/ STP/ BTP unit, and Income Tax benefits under Section 10A and 10B will be available for plant, machinery and equipment already installed.

ii. Existing EHTP/ STP units may also apply for conversion/ merger to EOU unit and viceversa.

In such cases, units will remain in bond and avail exemptions in duties and taxes as applicable.

Monitoring of NFE Performance of EOU/ EHTP/ STP/ BTP units shall be monitored by Units Approval Committee as per prescribed guidelines.

Export through Exhibitions/ Export

EOU/ EHTP/ STP/ BTP are permitted to: a. Export goods for holding/ participating in exhibitions abroad with


Promotion Tours/ showrooms abroad/ Duty Free Shops

permission of DC. b. Personal carriage of gold/ silver/ platinum jewellery, precious, semi-precious

stones, beads and articles. c. Export goods for display/ sale in permitted shops set up abroad. d. Display/ sell in permitted shops set up abroad, or in showrooms of their

distributors/ agents. e. Set up showrooms/ retail outlets at International Airports.

Personal Carriage of Import/ Export Parcels including through Foreign bound Passengers

Import/ export through personal carriage of gems and jewellery items may be undertaken as per Customs procedure. However, export proceeds shall be realized through normal banking channel. Import/ export through personal carriage by units, other than gems and jewellery units, shall be allowed provided goods are not in commercial quantity. An authorized person of Gems & Jewellery EOU may also import gold in primary form, upto 10 Kgs in a financial year through personal carriage, as per guidelines prescribed by RBI and DoR.

Export/ Import by Post/ Courier

Goods including free samples may be exported/ imported by airfreight or through foreign post office or through courier, as per Customs procedure.

Revival of Sick Units Subject to a unit being declared sick by appropriate authority, proposals for revival of the unit or its takeover may be considered by BoA.

Approval of EHTP/ STP

In case of units under EHTP/ STP schemes, necessary approval/ permission under relevant paragraphs of this Chapter shall be granted by officer designated by Ministry of Communication and Information Technology, Department of Information Technology, instead of DC, and by Inter-Ministerial Standing Committee (IMSC) instead of BoA.

Approval of BTP Bio-Technology Parks (BTP) would be notified by DGFT on recommendations of Department of Biotechnology. In case of units in BTP, necessary approval/ permission will be granted by designated officer of Department of Biotechnology.

SPECIAL ECONOMIC ZONE Introduction A Special Economic Zone (SEZ) is a geographically bound zone where the economic laws in matters

related to export and import are more broadminded and liberal as compared to other parts of the country.

SEZ are like a separate island within the territory of India. SEZs are projected as duty free area for the purpose of trade, operations, duty, and tariffs. SEZ units are self-contained and integrated having their own infrastructure and support services.

SEZ is considered to be a place outside India for all tax purpose. Within SEZs, a unit may be set-up for the manufacture of goods and other activities including processing, assembling, trading, repairing, reconditioning, making of gold/ silver, platinum jewellery etc.

As per law, SEZ units are deemed to be outside the customs territory of India. Goods and services coming into SEZs from the domestic tariff area or DTA are treated as exports from India and goods and services rendered from the SEZ to the DTA are treated as imports into India. India experimented with the concept of such units in the form of Free Trade Zone, Export Processing Zones (EPZ), and the idea being similar to the scheme of SEZ. SEZ Act (2005) was also introduced and in 2006 SEZ Rules were formulated.

State Governments play a very active role in the establishment of SEZ unit. Any proposal for setting up of SEZ unit in the Private/ Joint/ State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration.

The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006.


The main objectives of the SEZ Act are:

a) Export of goods and services without taxes b) Generation of additional economic activity c) Promotion of exports of goods and services; d) Promotion of investment from domestic and foreign sources; e) Creation of employment opportunities; f) Development of infrastructure facilities; g) Providing exemption from duties and taxes on procurement; h) Single window clearance it is expected that this will trigger a large flow of

foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.

The SEZ Rules provide for:

a) Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs;

b) Single window clearance for setting up of an SEZ; c) Single window clearance for setting up a unit in a Special Economic Zone; d) Single Window clearance on matters relating to Central as well as State

Governments; e) Simplified compliance procedures f) Maintenance of documents with self certification Simplified compliance

procedures and documentation with an emphasis on self certification.

The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment are

a) Duty free import/ domestic procurement of goods for development, operation and maintenance of SEZ units.

b) 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.

c) Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

d) External commercial borrowing by SEZ unit’s upto US $ 500 million in a year without any maturity restriction through recognized banking channels.

e) Exemption from Central Sales Tax. f) Exemption from Service Tax. g) Single window clearance for Central and State level approvals. h) Exemption from State sales tax and other levies as extended by the respective

State Governments. i) Exemption to capital gains from transfer of capital assets j) Exemption from dividend distribution tax

Measures to revise investors’ interest in SEZ

A package of measures has been formulated in the Annual Supplement of 18.04.2013 to revive investors’ interest in SEZ and to boost exports. The main and salient fetures are as follows: a. Reduction in minimum land area requirement. b. Graded Scale for minimum land criteria. c. Sect oral Broad banding d. Treatment of vacancy of Land e. Special considerations on requirement of land for IT Sector f. An Exit Policy is now in place to permit transfer of ownership of SEZ Units

including sale. These provisions will be incorporated in an amendment to the SEZ Rules 2006 shortly.

DEEMED EXPORTS


Deemed Exports refer to specified transactions in which goods manufactured in India are supplied to specified projects or to specific categories of consumers. In deemed exports, goods supplied do not leave the country but payment for such supplies are received either in Indian rupees or in free foreign exchange by the recipient of the goods. The objective of deemed exports is to ensure that the domestic suppliers are not in disadvantageous position vis-à-vis foreign suppliers in terms of the fiscal concessions. The underlying theory is that foreign exchange saved must be treated at par with foreign exchange earned by placing Indian manufacturers on par with foreign suppliers. Deemed exports broadly cover three areas. a. Supplies to domestic entities who can import their requirements duty free or at reduced rates of

duty. b. Supplies to projects/ purposes that involve international competitive bidding. c. Supplies to infrastructure projects of national importance.

Categories of Supplies

Specified categories of supplies made by contractor/ sub-contractor shall be regarded as ‘Deemed Exports’ provided the goods are manufactured in India: a) Supply of goods against Advance Authorization/ Advance Authorization for

Annual Requirement/ DFRC/ DFIA under Duty Exemption/ Remission Scheme; b) Supply of goods to Export Oriented Units (EOUs) or units located in or

Software Technology Parks (STPs) or to Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP)

c) Supply of capital goods to holders of licences under the Export Promotion Capital Goods (EPCG) Scheme;

d) Supply of goods to projects financed by multilateral or bilateral agencies/ funds as notified by the Department of Economic Affairs, Ministry of Finance under International competitive bidding in accordance with the procedures of those agencies/ funds, where the legal agreements provide for tender evaluation without including the customs duty.

e) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty;

f) Supply of marine freight containers by 100% EOU (Domestic freight containers manufacturers) provided the said containers are exported out of India within 6 months or such period as permitted by the custom authorities;

g) Supply to projects funded by UN Agencies; h) Supply of goods to nuclear projects through competitive bidding as opposed

to international competitive bidding.

Benefits for Deemed Exports

Subject to specific conditions as attached to different categories of Deemed Export supplies, the suppliers are eligible for any or all of the following benefits in respect of manufacture and supply of goods qualifying as deemed exports: a. Advance Authorisation/ Advance Authorisation for Annual requirement/ DFIA b. Deemed Export Drawback c. Refund of terminal excise duty will be given if exemption is not available.

Exemption from TED is available to the following categories of supplies: (i) Supplies against ICB; (ii) Supplies of intermediate goods, against invalidation letter, made by an

Advance Authorisation holder to another Advance Authorisation holder; and

(iii) Supplies of goods by DTA unit to EOU / EHTP / STP / BTP unit Thus such categories of supply which are exempt ab initio will not be eligible to receive refund of TED.

Eligibility for Refund of Terminal Excise duty or Central Excise duty paid on inputs/ components


Refund of Terminal Excise Duty/ Drawback

will be available only when CENVAT credit/ rebate of the same have not been availed by the recipient of such goods. Similarly, supplies will be eligible for deemed export drawback on Central Excise paid on inputs, provided CENVAT credit facility/ rebate has not been availed by the applicant.

Supplies to be made by Main/ Sub-contractor

In all the cases, goods shall be supplied directly to concerned agency/ person. However, goods supplied by sub-contractor to contractor shall also be eligible for deemed exports benefits provided the sub-contractor is indicated either originally or subsequently in the contract and payment certificate is issued by the project authority in the name of the sub-contractor.

Supply to Non Mega Power Projects shall not be entitled to any Deemed Exports Benefits

Earlier, supplies to non mega power projects were entitled to benefits for Deemed Exports under Advance Authorisation/ Advance Authorisation for annual requirement/ DFIA. However, now supply to non mega power projects shall not be entitled to any deemed export benefit.

Penalties In case any exporter or importer in the country violates any provision of the Foreign Trade Policy or for that matter any other law in force, like Central Excise or Customs or Foreign Exchange, his IEC number can be cancelled by the office of DGFT and thereupon that exporter or importer would not be able to transact any business in export or import. The premises where any violation of the provisions of FTP has taken place or is expected to take place can be searched and the suspicious material seized. Violations would cover situations when import or export has been made by unauthorized persons who are not legally allowed to carry out import or export or when any person carries out or admits to carry out any import or export in contravention of the basic FTP.


Question & Answers

Question 1 What do you understand by the term ‘Foreign Trade Policy’ (FTP)? Which is the governing legislation for FTP? Which Government authorities administer FTP in India? Answer Foreign Trade Policy is a set of guidelines or instructions issued by the Central Government in matters related to import and export of goods in India viz., foreign trade. The FTP, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. In India, Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of foreign trade. The main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act, 1992 FT(D&R) Act. In exercise of the powers conferred by the FT(D&R) Act , the Union Ministry of Commerce and Industry, Government of India announces the integrated Foreign Trade Policy (FTP) in every five years with certain underlined objectives. This policy is updated every year in April, in addition to changes that are made throughout the year. The FTP is formulated, controlled and supervised by the office of the Director General of Foreign Trade (DGFT), an attached office of the Ministry of Commerce & Industry, Government of India. DGFT has several offices in various parts of the country which work on the basis of the policy formed by the headquarters at Delhi. Though the FTP is formulated by DGFT, it is administered in close coordination with other agencies. Other important authorities dealing with FTP are: (i) Central Board of Excise and Customs (CBEC) (ii) Reserve Bank of India (RBI) (iii) State VAT Departments Question 2 Briefly explain as to how FTP is linked with excise and customs laws. Answer The Foreign Trade Policy is closely knit with the Customs and Excise laws of India. However, the policy provisions per-se do not override tax laws. The exemptions extended by FTP are given effect to by issue of notifications under respective tax laws (e.g., Customs Tariff Act). Thus, actual benefit of the exemption depends on the language of exemption notifications issued by the CBEC. In most of the cases the exemption notifications refer to policy provisions for detailed conditions. Ministry of Finance/ Tax Authorities cannot question the decision of authorities under the Ministry of Commerce (so far as the issue of authorization etc. is concerned). Question 3 Enumerate the various matters in respect of which policies and regulations are framed under FTP. Answer The FTP covers the policies and regulations with respect to the following matters:

(i) Policy for regulating import and export of goods and services (ii) Export Promotional Measures (iii) Duty Remission and Duty Exemption Scheme for promotion of exports (iv) Export promotion Capital Goods (EPCG) Scheme (v) Export Oriented Undertakings (EOU) / Electronic Hardware Technology Park (EHTP) /Software

Technology Park (STP) and Bio Technology Parks (BTU) Schemes (vi) Special Economic Zones

(vii) Deemed Exports


Question 4 Briefly explain the salient features of the Customs Act, 1962 relating to Special Economic Zones. Answer The salient features of Special Economic Zones (SEZ) are as follows:

(i) SEZ is deemed as a separate island outside India where Inputs, Capital Goods and Input Services can be obtained without payment of duties and taxes such as Customs Duty, Excise Duty, Central Sales Tax, State VAT and Service Tax.

(ii) For the sheer objective of ensuring consistent development of SEZ, an exclusive Act namely Special Economic Zone Act 2005(hereinafter abbreviated as SEZ Act 2005) was passed. The twin prime purposes of foregoing Act are to ensure smooth operations in SEZ as well as Single Window Clearance with a view to set up either an SEZ or a Unit in SEZ.

(iii) SEZ may be set up in the public, private or joint sector OR by the Central Government or State Government, jointly or severally [section 3(1) of SEZ Act 2005]

(iv) Any goods imported directly from outside India or procured from within India shall be authorized for admission to the SEZ. Goods admitted to SEZ are exempt from duties of customs subject to certain conditions.

(v) Any goods admitted to SEZ from DTA shall be chargeable to export duties at such rates as are leviable on such goods when exported, subject to any rules made in this behalf. Any goods removed from the SEZ to DTA shall be chargeable to the duties of customs including antidumping, countervailing and safeguard duties as leviable on such goods when imported.

(vi) SEZ could be set up for manufacturing goods, rendering of services, production, processing, assembling, trading, repair, re-making, re-conditioning and re-engineering, making of gold, silver and other articles of precious metals and jewellery.

(vii) It shall be under the administrative control of the Development Commissioner. All activities in the SEZ, unless otherwise specified, shall be carried out through self certification procedure.

(viii) Goods going into SEZ from DTA shall be treated as deemed exports. At the same time, goods coming from SEZ to DTA shall be treated as import of goods.

Question 5 With reference to the provisions of FTP 2009-14, discuss giving reasons whether the following statements are true or false:

(i) If any doubt arises in respect of interpretation of any provision of FTP, the said doubt should be forwarded to CBEC, whose decision thereon would be final and binding.

(ii) Authorization once claimed by an importer cannot be refused by DGFT. (iii) IEC is a unique 12 digit PAN based alphanumeric code issued by DGFT to Indiancompanies. (iv) Waste generated during manufacture in an SEZ Unit can be freely disposed in DTA on payment

of applicable customs duty, without any authorization. (v) A Customs Clearance Permit (CCP) is required from DGFT in certain specific cases of import of

gifts. Answer

(i) False. If any question or doubt arises in respect of interpretation of any provision of the FTP, said question or doubt ought to be referred to DGFT whose decision thereon would be final and binding.

(ii) False. No person may claim an Authorization as a right and DGFT shall have power to refuse to grant or renew the same in accordance with provisions of FT(D&R) Act, rules made thereunder and FTP.

(iii) False. IEC is a unique 10 digit code issued by DGFT to Indian companies. (iv) True. Any waste or scrap or remnant including any form of metallic waste & scrap generated

during manufacturing or processing activities of an SEZ Unit/ Developer/ Codeveloper are allowed to be disposed in DTA freely, without any authorization, subject to payment of applicable customs duty.


(v) True. A Customs Clearance Permit (CCP) for import of gifts is not required from DGFT if such goods are otherwise freely importable under ITC(HS). Thus, only when the goods imported as gifts are not freely importable under ITC(HS), a CCP is required.

Question 6 Mr. A wants to import a laptop from the USA which has been used by the seller for some time there. Mr. A contends that he can freely import such laptop without any restriction/authorization. Examine the correctness of Mr. A’s claim in the light of the provisions of FTP 2009-14. Answer As per FTP 2009-14, second hand (used) goods, except second hand capital goods, are restricted for imports and can be imported only in accordance with the provisions of FTP, ITC(HS), prescribed procedures, public notice or an Authorization in this regard. Import of second hand capital goods, including refurbished/ re-conditioned spares is allowed freely. However, second hand personal computers/ laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against an authorization. Import of remanufactured goods will also be allowed only against an authorization. In view of the afore-mentioned provisions, Mr. A’s claim is not correct as second hand laptops can be imported only against an authorization. Question 7 AB Corporation, a manufacturer-exporter, has approached CD Corporation, a merchant exporter, to export one of its consignments as owing to some technical difficulties, AB Corporation could not export the consignment itself. The shipping bills relating to the consignment bear the name of CD Corporation. Bank Realization Certificate, GR declaration, export order and invoice are also in the name of CD Corporation. Comment whether AB Corporation would be deemed as the exporter under FTP. Answer The above scenario is a case of third-party exports. Third-party exports means exports made by an exporter or manufacturer on behalf of another exporter(s). The conditions for being allowed as third-party exports under FTP are: (i) Export documents such as shipping bills shall indicate name of both manufacturing exporter/manufacturer and third party exporter(s). (ii) BRC, GR declaration, export order and invoice should be in the name of third party exporter. In the above case, though BRC, GR declaration, export order and invoice are in the name of CD Corporation (third party exporter), the shipping bill does not have the name of AB Corporation (manufacturing exporter). Therefore, AB Corporation will not be treated as the exporter in this case. Question 8 Answer the following questions with reference to the provisions of Foreign Trade Policy:

(i) FIintex Manufacturers manufactures goods by using imported inputs and supplies the same under Aid Programme of the United Nations. The payment for such supply is received in free foreign exchange. Can FIintex Manufacturers seek Advance Authorization for the supplies made by it?

(ii) XYZ Ltd. has imported inputs without payment of duty under Advance Authorization. The CIF value of such inputs is ` 10,00,000. The inputs are processed and the final product is exported. The exports made by XYZ Ltd. are subject to general rate of value addition prescribed under Advance Authorization Scheme. No other input is being used by XYZ Ltd. in the processing. What should be the minimum FOB value of the exports made by the XYZ Ltd. as per the provisions of Advance Authorization?


(iii) ‘A’ has used some duty paid inputs in its export products. However, for the rest of the inputs, he wants to apply for the Advance Authorization. Can he do so? Explain.

Answer (i) Advance Authorization can be issued for supplies made to United Nations Organisations or under Aid Programme of the United Nations or other multilateral agencies and such supplies need to be paid for in free foreign exchange. Therefore, Flintex Manufacturers can seek an Advance Authorization for the supplies made by it. (ii) Advance Authorization necessitates exports with a minimum value addition of 15% value addition (VA). VA = [(A – B)/B x 100] A = FOB value of export realized, B = CIF value of inputs covered by authorization. Therefore, the minimum FOB value of the exports made by XYZ Ltd. should be Rs. 11,50,000. (iii) Yes, ‘A’ can do so. In case of part duty free and part duty paid imports, both Advance Authorization and drawback will be available. Drawback can be obtained for any duty paid material, whether imported or indigenous, used in goods exported, as per drawback rate fixed by DoR, Ministry of Finance (Directorate of Drawback). Advance Authorization can be used for importing duty free material. Drawback allowed must be mentioned in the application for Advance Authorization. Question 9 What are the salient features of Duty-Free Import Authorization Scheme (DFIA)? Which duties are exempted under this scheme? Answer DFIA is issued to allow duty free import of inputs, fuel, oil, energy sources, catalyst which are required for production of export product. DFIA is of two types: (i) Pre export Authorization and (ii) Post export Authorization Pre-export DFIA is issued with actual user condition. In case of actual user DFIA and where CENVAT credit facility on inputs have been availed for the exported goods, even after completion of export obligation, the goods imported against such DFIA should be utilized in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer). In case of Post-export DFIA, a merchant exporter is required to mention only name(s) and address(s) of manufacturer(s) of the export product(s). DFIA or the inputs imported against it can be transferred after the fulfillment of the export obligation. Inputs imported against DFIA are exempt from payment of basic customs duty, additional customs duty/ excise duty, education cess, anti-dumping duty and safeguard duty. Question 10 Two exporters namely, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. have achieved the status of Star Export House (SEH) and Trading House (TH) respectively in the financial year 2013-14. Both the exporters have been regularly exporting goods every year. What would have been the minimum export performance of the two exporters to achieve such status? Both the exporters want to establish export warehouses in accordance with the applicable guidelines. However, Black Night Pvt. Ltd. contends that it, being a Trading House, is only entitled to establish export warehouses and that a Star Export House (SEH) cannot do so. Explain whether the contention of Black Night Pvt. Ltd. is correct. Answer Status recognition depends upon export performance. An applicant is categorized as status holder upon achieving export performance indicated in table below. The export performance is counted on the basis of FOB value of export proceeds realized during current plus previous three years (taken together). For Export House (EH) Status, export performance is necessary in at least two out of four years. Status Category Export Performance FOB / FOR Value


(Rupees in Crores) Export House (EH) 20 Star Export House (SEH) 100 Trading House (TH) 500 Star Trading House (STH) 2,500 Premier Trading House (PTH) 7,500 In view of the above discussion, minimum FOB value of the exports made by Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. (TH) during the year 2013-14 plus the preceding three years would have been Rs. 100 crores and Rs. 500 crores respectively as they have achieved the status of SEH and TH in the year 2013-14. SEHs and above are permitted to establish export warehouses as per DoR guidelines. Therefore, Red Sky Pvt. Ltd. being a SEH is eligible to establish an export warehouse and thus, the contention of Black Night Pvt. Ltd. is not correct. Question 11 Examine whether benefit of Served From India Scheme (SFIS) can be availed in the following cases:

(i) Foreign exchange earned by Mr. Aniket, a service provider, in the current year is Rs. 3 lakh. (ii) Foreign exchange earned by Mr. Samrat, a manufacturer, in the current year is Rs. 6 lakh. (iii) X and Y Brothers, a firm of service providers, has earned foreign exchange to the tune of Rs. 12

lakh in the current year. (iv) Mr. Ishaan, a service provider, has earned foreign exchange of Rs. 5.10 lakh in the current year.

Out of such Rs. 5.10 lakh, Rs. 3.5 lakh has been paid to Mr. Ishaan through the credit card of the foreign client.

The services provided by all the above service providers are eligible for the Scheme. Answer All Indian Service Providers who have free foreign exchange earning of at least Rs. 10 Lakh in current financial year qualify for SFIS Scheme. For individual Indian Service Providers, minimum free foreign exchange earnings are Rs. 5 Lakh. Free foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service are also be taken into account for computation of Duty Credit Scrip. In the light of the above provisions, the cases are examined as under:

(i) Mr. Aniket is not eligible for SFIS Scheme as his foreign exchange earnings are less than Rs. 5 lakh (minimum limit for individuals).

(ii) The Scheme is available only for service providers. Manufacturers are not entitled for this Scheme. Thus, Mr. Samrat cannot avail the benefit of SFIS Scheme.

(iii) X and Y Brothers are eligible for the Scheme as their foreign exchange earnings exceed the limit of Rs. 10 lakh (minimum limit for firms).

(iv) Foreign exchange earned through credit cards is counted for the purpose of computing the limit of minimum foreign exchange required for being eligible to SFIS Scheme. Thus, Mr. Ishaan is eligible for SFIS Scheme.

Question 12 Answer the following questions with reference to the provisions of SFIS Scheme:

(i) Rishita provides services eligible for SFIS Scheme. She wants to sell SFIS scrips earned by her. Can she do so?

(ii) Can a service provider, instead of importing the inputs, source the same indigenously without payment of excise duty?

(iii) What is the rate of entitlement under the Scheme? (iv) An upcoming Hotel chain wants to use SFIS scrip for import of cement to be used in the

construction of a new Hotel. Is it possible? Answer


(i) No. Entitlement/ goods (imported/ procured) are non transferable and subject to actual user condition. However, the scrip earned by a company can be utilized by other companies of the same group. Similar is the case of managed hotels also.

(ii) Yes. Utilization of duty credit scrip is permitted for payment of excise duty for procurement from domestic sources, of items permitted for imports under SFIS Duty Credit Scrip.

(iii) Eligible service providers are entitled for duty credit scrip of 10% of the net free foreign exchange earned during current financial year.

(iv) No. Following items can be imported under the SFIS Scheme: a. Import must relate to service sector business of the applicant, should be freely importable

and/or restricted under ITC(HS) and must belong to following categories:

Any capital goods including spares,

Office equipment

Pofessional equipment

Office furniture

Consumables. b. Only such vehicles, which are in the nature of professional equipment to the service

provider can be imported using the scrip. Motor cars, SUV’s and all purpose vehicles can be imported/sourced domestically as professional equipment by Hotels, Travel agents, Tour operators or Tour Transport operators and companies owning/operating golf resorts. Such vehicles (operating on road and requiring registration) will have to be registered for tourist purpose only.

c. Hotels; clubs having residential facility of minimum 30 rooms; golf resorts and stand-alone restaurants having catering facilities can also import consumables including food items and alcoholic beverages.

d. Service providers who are also engaged in manufacturing activity can use their SFIS scrip for importing / domestic sourcing of capital goods including spares related to the manufacturing sector business of the service provider.

Question 13

(i) Mention the reward scheme provided under FTP which aims to compensate high transport costs and offset other disadvantages in the export of specified agricultural and village industry products. What is the general rate of entitlement under the Scheme? How can the duty scrips issued under the Scheme be utilized?

(ii) State the scheme provided under FTP to primarily penetrate Latin American, African and Eastern European markets. What is the general rate of entitlement under the Scheme? Can diamonds and other precious, semi precious stones be exported under this Scheme?

Answer (i) Vishesh Krishi and Gram Udyog Yojana (VKGUY) has been provided under FTP to compensate

high transport costs and offset other disadvantages in the exports of specified agricultural products. Eligible exporters are entitled for duty credit scrip equivalent to 5% of FOB value of exports realized in free foreign exchange. The scrip can be utilized for payment of customs duties of all freely importable items as well as for procurement of domestic items without payment of central excise duty as well as service tax. Further, it can also be utilized for payment of application fee to DGFT for obtaining any Authorisation.

(ii) Focus Market Scheme (FMS) has been introduced under FTP to penetrate those markets [primarily Latin America, Africa, Eastern Europe, etc.] which Indian exports have been neglecting (owing to high freight costs and other externalities). Eligible exporters to notified countries are entitled for duty credit scrip equivalent to 3% of FOB value of exports (in free foreign exchange) for exports. No, export of diamonds and other precious, semi precious stones is not eligible for duty credit scrip, under FMS scheme:


Question 14 XP Pvt. Ltd., a manufacturer, wants to import capital goods in CKD condition from a foreign country and assemble the same in India. The import of the capital goods will be under Project Imports. The capital goods will be used for pre-production processes. The final products of XP Pvt. Ltd. would be supplied in SEZ. XP Pvt. Ltd. wishes to sell the capital goods imported by it as soon as the production process starts. XP Pvt. Ltd. seeks your advice whether it can avail the benefit of EPCG Scheme for importing the intended capital goods. Note – Base your opinion on the facts given above assuming that all other conditions required for being eligible to the EPCG Scheme are fulfilled in the above case. Answer Export Promotion Capital Goods Scheme (EPCG) permits exporters to procure capital goods at concessional rate of customs duty/zero customs duty. In return, exporter is under an obligation to fulfill the export obligation. Export obligation means obligation to export product(s) covered by Authorisation/permission in terms of quantity or value or both, as may be prescribed/specified by Regional or competent authority. The license holder can either procure the capital goods (whether used for pre-production, production or post-production) from global market or domestic market. The capital goods can also be imported in CKD/ SKD to be assembled in India. An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports Export obligation for such EPCG Authorizations would be 6 times of duty saved. Duty saved would be difference between the effective duty under Project Imports and concessional duty under the EPCG scheme. However, import of capital goods is subject to ‘Actual User’ condition till export obligation is completed. Therefore, based on the above discussion, XP Pvt. Ltd. can import the capital goods under EPCG Scheme. However, it has to make sure that it does not sell the capital goods till the export obligation is completed. Question 15 With reference to the provisions relating to EOU, EHTP, STP, BTP & SEZ Schemes as contained in FTP, answer the following questions: 1. A unit intending to trade in handicrafts wants to set up an EOU. Is it allowed? 2. An EOU has started production after 3 years 10 months from the date of grant of Letter of

Permission (LoP)/ Letter of Intent (LoI). Is it correct? 3. A EOU wants to import a second hand capital goods which is prohibited under ITC (HS). Can it do

so? 4. An existing DTA Unit wants to convert into an EOU. It has invested Rs. 68 lakh in plant and

machinery. It exports goods valuing ` 52 crores annually. Which authority has the power to approved the application for conversion of such unit?

5. An EOU wants to sell 45% of its rejects in DTA on payment of applicable duties on prior intimation to Customs authorities. Can it do so?

Answer 1. No. Units undertaking to export their entire production of goods and services (except permissible

sales in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, remaking, reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes.

2. No. EOU/ BTP/ EHTP/ STPs should start production within 3 years from the date of grant of Letter of Permission (LoP)/ Letter of Intent (LoI). In other words, LoP/ LoI have an initial validity of 3 years, by which time unit should have commenced production. Its validity may be extended further up to 3 years by competent authority. However, proposals for extension beyond six years shall be considered in exceptional circumstances, on a case to case basis by BoA.


3. No. Though an EOU is permitted to import duty free second hand capital goods, without any age limit, it cannot import capital goods that are prohibited items of import in the ITC(HS).

4. The application for conversion into an EOU from existing DTA unit having an investment of Rs. 50 crores and above in plant and machinery or exporting ` 50 crores and above is placed before Board of Approval for a decision.

5. Yes. Rejects within an overall limit of 50% may be sold in DTA on payment of duties as applicable, on prior intimation to Customs authorities. Such sales are counted against DTA sale entitlement. Sale of rejects upto 5% of FOB value of exports are not subject to achievement of NFE.

Question 16 Are supplies made by the sub-contractors eligible for deemed export benefits under FTP? Discuss. Answer Yes, the supplies made by the sub-contractor are eligible for deemed export benefit. Normally, in order to be eligible for deemed export benefits, supplies are to be made directly to designated Projects/Agencies/Units/Advance Authorization/EPCG Authorization holders. However, FTP allows a sub-contractor to make supplies to main contractor, instead of supplying directly to designated Projects/Agencies. Such supplies are eligible for deemed export benefits if the main contractor makes payment to sub-contractor and issues payment certificate. Supplies made by an Indian sub-contractor of an Indian or foreign main contractor directly to the designated Projects/Agencies are also eligible for deemed export benefits provided the name of the sub-contractor is indicated either originally or subsequently in the main contract (but before the date of supply of such goods) and payment certificate is issued by Project Authority in the name of sub-contractor.


Part II – RTP Amendments


A. CENTRAL EXCISE

I. Amendments in the CENVAT Credit Rules, 2004

1. Procedure, safeguards, conditions and limitations prescribed for refund of CENVAT credit to service providers covered under partial reverse charge Rule 5B stipulates that a service provider providing services taxed under reverse charge mechanism and unable to utilize the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilized CENVAT credit. The procedure, safeguards, conditions and limitations to which such refund shall be subject to have been prescribed by CBEC vide Notification No. 12/2014 CE (NT) dated 03.03.2014 as under: A. SAFEGUARDS, CONDITIONS AND LIMITATIONS

(a) Refund is admissible, of unutilised CENVAT credit taken on inputs and input services during the half year for which refund is claimed, for providing following output services:

i. renting of a motor vehicle designed to carry passengers on non-abated value, to any person who is not engaged in a similar business;

ii. supply of manpower for any purpose or security services; or iii. service portion in the execution of a works contract;

(hereinafter above mentioned services will be termed as partial reverse charge services). The amount of refund would be computed as follows:

Unutilised CENVAT credit taken on inputs and input

services during the half year for providing partial

reverse charge services.

(A)-(B)

Where:

A

CENVAT credit taken

on inputs and input

services during the half

year

X

Turnover of output service under

partial reverse charge duirng the

half year

Total turnover of goods and

services during the half year

B Service tax paid by the service provider for such partial reverse charge services

during the half year.

b) Refund shall not exceed the amount of service tax liability paid/payable by the service receiver

with respect to the partial reverse charge services provided during the period of half year for which refund is claimed.

c) Amount claimed as refund shall be debited by the claimant from his CENVAT credit account at the time of making the claim. However, if the amount of refund sanctioned is less than the amount of refund claimed, then the claimant may take back the credit of the difference between the amount claimed and the amount sanctioned.

d) The claimant shall submit not more than one claim of refund under this notification for every half year.


e) Refund claim shall be filed after filing of service tax return for the period for which refund is claimed.

f) No refund shall be admissible for the CENVAT credit taken on input or input services received prior to 01.07.2012.

Half year means a period of six consecutive months with the first half year beginning from

the 1st day of April every year and second half year from the 1st day of October of every

year.

B. PROCEDURE FOR FILING THE REFUND CLAIM

a) The output service provider shall submit an application in Form A, along with specified documents and enclosures, to jurisdictional Assistant Commissioner/Deputy Commissioner, before the expiry of 1 year* from the due date of filing of return for the half year. Copies of return(s) filed for the said half year shall also be filed along with the application. *In case of more than one return required to be filed for the half year, 1 year shall be calculated from due date of filing of the return for the later period. However, last date of filing of application in Form A, for the half year ending on 30.09.2012, shall be 30.04.2014.

b) The Assistant Commissioner/Deputy Commissioner, may call for any document in case he has reason to believe that information provided in the refund claim is incorrect or insufficient and further enquiry needs to be caused before the sanction of refund claim, and shall sanction the claim after satisfying himself that the refund claim is correct and complete in every respect.

2. Provisions relating to distribution of credit in case of input service distributor amended [Rule 7] With effect from 01.04.2014, rule 7 has been amended to simplify the mechanism of distribution of CENVAT credit in case of input service distributor as under:

S.No. Position as per erstwhile rule 7

Position as per the amended rule 7

1 In case of a unit exclusively engaged in manufacture of exempted goods/ providing exempted services, service tax paid on input services used IN such a unit was not allowed to be distributed as CENVAT credit.

In case of a unit exclusively engaged in manufacture of exempted goods/ providing exempted services, service tax paid on input services used BY one or more such units will not be allowed to be distributed as CENVAT credit

With the substitution of word ‘IN’ with ‘BY’, credit of services, which have been used by such units though not actually consumed within such units, would also not be distributed.

2 Credit of service tax attributable to service used wholly IN a unit was to be distributed only to that unit.

Credit of service tax attributable to service used wholly BY a unit shall be distributed only to that unit.

Substitution of word ‘IN’ with ‘BY’ would increase the scope of services pertaining to which credit could be distributed to a unit. Resultantly, credit for


services like good transport agency services, rent-a-cab service, testing and analysis of the product etc. would now be available to the unit availing them.

3 Credit of service tax attributable to service used IN more than one unit was to be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service related during the same period.

Credit of service tax attributable to service used BY more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.

In case of common input services, amount of CENVAT credit attributed to a unit may be reduced as now turnover of all operational units has to be taken in denominator instead of only the units to which the service relates.

4 Relevant period was the month/quarter previous to the month/quarter during which the CENVAT credit was

distributed. In case of an assessee who did not have any total turnover in the said period, the input service distributor was to distribute any credit only after the end of such relevant period wherein the total turnover of its units was available.

Relevant period shall be the ‘financial year’ preceding to the year during which credit is to be distributed for month/ quarter provided assessee has turnover in such preceding financial year. If the assessee does not have turnover for some/ all the units in the preceding financial year, relevant period shall be the last quarter for which details of turnover of all the units are available, previous to the month/ quarter for which credit is to be distributed.

Distribution of credit is now based on previous financial year’s turnover instead of previous month’s/quarter’s turnover.

[Notification No. 5/2014-CE (NT) dated 24.02.2014]

3. Amendments in rule 3 (i) Duty leviable on transaction value to be paid on removal of capital goods as waste and scrap [Rule 3(5A)] Rule 3(5A) of the CENVAT Credit Rules, 2004 provides for reversal of CENVAT credit in the event of removal of capital goods after being used, whether as capital goods or as waste/ scrap. Earlier, the quantum of credit that needs to be reversed was higher of the following two amounts: (I) CENVAT credit taken on the said capital goods reduced by the specified percentage points calculated by straight line method for each quarter of a year or part thereof from the date of taking the CEVAT credit or (II) Duty leviable on transaction value. However, with effect from 27.09.2013, if the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.


Thus, a manufacturer removing capital goods as waste and scrap will no longer be required to compare the amount equivalent to the duty leviable on transaction value with the amount equivalent to CENVAT credit taken on the said capital goods reduced by the specified percentage points. However, when capital goods will be removed, after being used, otherwise than as waste and scrap, the higher of the above-mentioned two amounts will be required to be paid. [Notification No. 12/2013 CE (NT) dated 27.09.2013] (ii) CENVAT credit taken on input services to be reversed if duty paid on final product remitted [Rule 3(5C)] Earlier, where on any goods manufactured or produced by an assessee, the payment of duty was ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods was required to be reversed. Thus, earlier, reversal was only required in respect of inputs and not for input services. Rule 3(5C) has been amended to provide that CENVAT credit taken on input services used in or in relation to the manufacture or production of said goods is also required to be reversed. [Notification No. 1/2014 CE (NT) dated 08.01.2014] (iii) Amount payable under sub-rules (5), (5A), (5B) and (5C) of rule 3 to be paid on or before the 5th day of the following month by utilizing CENVAT credit or otherwise As per explanation 1 inserted after rule 3(5C), the amount payable under following sub-rules of rule 3 shall be paid by the manufacturer of goods or the provider of output service

(i) Rule 3(5) Reversal of credit in case of removal of inputs or capital goods as such from the factory/premises of the output service provider

(ii) Rule 3(5A) Reversal of credit in case of removal of capital goods after being used, whether as capital goods or as scrap or waste

(iii) Rule 3(5B) Reversal of credit in case of full or partial writing off of the value of input or capital goods before being put to use

(iv) Rule 3(5C) Reversal of credit in case of remission of duty on final product

by debiting the CENVAT credit or otherwise

on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March.

[Notification No. 1/2014 CE (NT) dated 08.01.2014] (iv) Failure to reverse the credit taken on inputs and input services used in goods on which duty is ordered to be remitted also to attract recovery provisions under rule 14 [Explanation 2 to rule 3(5C)] Hitherto, as per explanation occurring after proviso to rule 3(5B), recovery provisions under rule 14 of the CENVAT Credit Rules, 2004 were applicable if the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A) and (5B) of rule 3. The said explanation has been omitted and a new explanation 2 has been inserted after rule 3(5C). As per the new explanation 2, in addition to sub-rules (5), (5A) and (5B) of rule 3, recovery provisions under rule 14 will also apply to sub-rule (5C) of rule 3. In other words, even in a case where the manufacturer of goods or the provider of output service fails to reverse the CENVAT credit taken on inputs and input services used in goods on which duty has been ordered to be remitted, it would be recovered, in the manner provided under rule 14, for recovery of CENVAT credit wrongly taken. [Notification No. 1/2014 CE (NT) dated 08.01.2014]


II. Amendment in the Central Excise Rules, 2002

1. Threshold limit for e-payment of central excise duty reduced from Rs. 10 lakh to Rs. 1 lakh Third proviso to rule 8(1) of the Central Excise Rules, 2002 has been amended to reduce the threshold limit for e-payment of central excise duty from Rs.10 lakh to Rs.1 lakh. Henceforth, with effect from 01.01.2014, where an assessee has paid an excise duty of Rs.1 lakh or more including the amount paid by utilization of CENVAT credit, in the preceding financial year, he shall deposit the excise duty liable to be paid by him electronically through internet banking. [Notification No. 15/2013 CE(NT) dated 22.11.2013]

III. Inter-related amendments in the CENVAT Credit Rules, 2004 and Central Excise Rules, 2002

1. Rule 12CCC of Central Excise Rules 2002 & Rule 12AAA of CENVAT Credit Rules, 2004 substituted with new rules-restriction to be imposed, facilities to be withdrawn and procedure for the same amended. Rule 12CCC of the Central Excise Rules 2002 (hereinafter referred to a CER, 2002) and 12AAA of the CENVAT Credit Rules, 2004 (hereinafter referred to as CCR, 2004) empower the Central Government to provide for certain measures including restrictions on a manufacturer, first stage dealer, second stage dealer and an exporter and specify, by a notification in the Official Gazette, the nature of restrictions to be imposed, types of facilities to be withdrawn and procedure for issuance of such order. Rule 12CCC of the CER, 2002 is invoked to prevent evasion of or default in payment of excise duty while rule 12AAA of the CCR, 2004 is invoked to prevent the misuse of the provisions of CENVAT credit. With effect from 21.03.2014, said rules [Rule 12CCC of the CER, 2002 and rule 12AAA of the CCR, 2004] have been substituted with new rules respectively. As per the new rules, only Chief Commissioner of Central Excise can pass an order for imposing the restrictions on manufacturer, first stage dealer, second stage dealer and exporter, and for withdrawing the facilities provided to them. Earlier, any officer authorised by the Board was empowered to pass such an order. The aforesaid rules empower the Central Government to specify, by a notification in the Official Gazette, the nature of restrictions, types of facilities to be withdrawn and procedure for issue of such order. Earlier, in pursuance of this power, Notification No. 5/2012-CE(NT) dated 12.03.2012 had been issued. Now, the said notification has been superseded by Notification No. 16/2014-C.E. (N.T.) dated 21.03.2014. A comparison between the erstwhile notification and the new notification is outlined as below:

Particulars Notification No. 5/2012 Notification No. 16/2014

1. Specified offences Same under both the notifications

2. Who is authorized to order the withdrawal of facilities & imposition of restrictions?

An officer authorized by CBEC Chief Commissioner of Central Excise

3 Time period for which restrictions

Earlier, no time – limit was prescribed for which restrictions

Restrictions for the


could be imposed on the commission of specified offences

might be imposed/ facilities might be withdrawn for the offences committed whether for the first time or subsequently.

could be imposed for a period upto

offence committed

(i) 6 months for the first time

(ii) 1 year Subsequently

4 Restrictions that could be imposed on the commission of specified offences for second time or subsequently

Restrictions that could be imposed on the commission of specified offences for second time or subsequently. Earlier, in such case out of all the specified restrictions, following two restrictions may not be imposed: (i) the assessee may be required to maintain records of receipt, disposal, consumption and inventory of the principal inputs on which CENVAT credit has not been taken. (ii) the assessee may be required to intimate the Superintendent of Central Excise regarding receipt of principal inputs in the factory on which CENVAT credit has or has not been taken, within a period specified in the order and the said inputs shall be made available for verification upto the period specified in the order.

Any of the specified restrictions may be imposed.

5 Monetary limit Same under both the notifications

6 Procedure Earlier, proposal to withdraw the facilities and impose restrictions was forwarded by Commissioner of Central Excise (CCE)/Additional Director General of Central Excise Intelligence (ADGCEI) to Chief CCE/ DGCEI who, after giving the defaulter an opportunity of being heard, might forward it to CBEC along with its recommendations. Thereafter, an officer authorized by CBEC might pass the order withdrawing facilities and imposing restrictions for the period specified in the order.

Now, proposal to withdraw the facilities and impose restrictions is to be forwarded by CCE/ ADGCEI to Chief CCE who, after giving the defaulter an opportunity of being heard, would pass the order withdrawing facilities and imposing restrictions for the period specified in the order.

[Notification No.s 14 to 16/2014-Central Excise (N.T.) all dated 21.03.2014]


2. Importer issuing CENVATable invoices now required to obtain registration and submit quarterly returns (i) Importer required to obtain registration [Rule 9(1) of the CER, 2002 amended] Hitherto, every person, who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods, was required to get registration under central excise. With effect from 01.04.2014, an importer who issues an invoice on which CENVAT credit can be taken is also required to obtain such registration. Thus, such importer will have to obtain registration as a ‘registered importer’ with the central excise authorities to pass on the credit on the imported goods. Consequently, Form A [Application for Central Excise Registration] has also been accordingly amended. (ii) Importer required to file quarterly return [Rule 9(8) of the CCR, 2004 amended] Earlier, rule 9(8) of the CCR, 2004 required a first stage dealer and a second stage dealer to submit a return (electronically) within 15 days from the close of each quarter of a year to the Superintendent of Central Excise. With effect from 01.04.2014, said rule has been amended. Thus, now a registered importer is also required to submit such quarterly return. Consequently, the return form prescribed for the same has also been accordingly amended. [Notification Nos. 8 to 11/2014-Central Excise (N.T.) dated 28.02.2014]

IV. Amendment in rules 8, 9 and 10 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000

Hitherto, literal interpretation of rules 8, 9 and 10 lead to a conclusion that valuation methods prescribed therein will be applicable only in a case where ALL the goods were either captively consumed or sold to a unrelated buyer or to/through an inter-connected undertaking respectively. In other words, these rules did not cover the cases where some goods were captively consumed while others were sold, or a case where goods were partly sold to related buyers and partly to unrelated buyers. With effect from 01.12.2013, rules 8, 9 and 10 dealing with determination of assessable value in case of captive consumption, sale to related person and sale to/through an interconnected undertaking respectively have been amended to clearly state that these rules apply irrespective of whether the whole or a part of the clearances of manufactured goods are covered by the circumstances given in these rules. Each clearance is required to be assessed according to section 4(1)(a) or the relevant rule dealing with the circumstances of clearance of the goods, as the case may be. Thus, now valuation mechanism provided in rules 8, 9 and 10 is applicable in following the cases: (i) Rule 8: Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles. (ii) Rule 9: Where whole or part of the excisable goods are sold by the assessee to or through a person who is related in the manner specified in any of the sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Central Excise Act, 1944. (iii) Rule 10: Where whole or part of the excisable goods are sold by the assessee to or through an inter-connected undertaking. For example, if an assessee clears his goods in such a way that first removal of goods is to an independent buyer, second removal is to such a related person who is covered under rule 9 and third removal is to a person who is covered under rule 10, while some goods are captively consumed, then the first removal should assessed under section 4(1)(a), second removal should be assessed under rule 9 and third removal should be assessed under rule 10, while captively consumed goods should be assessed under rule 8 of these rules. It may be noted that Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are not required to be followed sequentially.


Consequently, clarifications with regard to following issues as contained in Serial no. 5, 12 and 14 of the Circular no. 643/34/2002-CX dated 1-7-2002 containing reference to rules 8, 9 and 10 have also been deleted: (i) How will valuation be done in cases of captive consumption (i.e. consumed within the same factory) including transfer to a sister unit or another factory of the same company/firm for further use in the manufacture of goods? (ii) How will valuation be done when goods are sold partly to related persons and partly to independent buyers? (iii) How will valuation be done when inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory? [Notification No. 14/2013 CE (NT) dated 22.11.2013 and Circular No. 975/09/2013-CX dated 25.11.2013]

V. OTHERS

1. Unregistered premises used solely for affixing lower ceiling prices on pharmaceutical products to comply with DPCO, 2013 exempted from obtaining central excise registration Unregistered premises used solely for affixing a sticker/re-printing/re-labeling/re-packing of pharmaceutical products falling under Chapter 30 of the Central Excise Tariff Act, 1985 with lower ceiling price to comply with the notifications issued under Drugs (Prices Control) Order, 2013 have been exempted from obtaining registration under central excise. However, the exemption from registration will be available subject to the conditions specified in Notification No. 22/2013 CE dated 29.07.2013 exempting the pharmaceutical products from payment of central excise duty. [Notification No. 11/2013 CE (NT) dated 02.08.2013] Note: Ministry of Chemicals and Fertilizers (Department of Pharmaceuticals) issued the new Drug Price Control Order (DPCO) on May 15, 2013 which required existing manufacturers/traders, selling medicines at a price higher than the ceiling price fixed by the Government to execute downward revision of prices. The Government mandated that the prices of scheduled drugs be changed within 45 days from the date the price notification came into force. For this purpose, the drugmakers had to re-print/re-label/repack the medicines which had already been sent out of their factories at sites other than the facilities registered under the Central Excise Act. As pharmaceutical products falling under Heading 3004 of the Central Excise Tariff (scheduled formulations) are included in the Third Schedule to the Central Excise Act, 1944, labeling or re-labeling of containers including the declaration or alteration of retail sale price on it amounts to manufacture in terms of section 2(f)(iii) of the Central Excise Act, 1944. So, as not to impose any duty liability that may arise on account of re-printing/ re-labeling/ repacking mandated by the DPCO, the Central Government has exempted scheduled formulations as defined under DPCO, 2013 which are subjected to re-labelling, reprinting, repacking or stickering, in unregistered premises from payment of excise duty. 2. Facility of removal without payment of duty extended to excisable goods stored and sold from Duty Free Shops at International Airports The facility of removal without payment of duty provided under rule 20(1) of the Central Excise Rules, 2002 has been extended to all excisable goods intended for storage in godown/retail outlet of a Duty Free Shop in the Departure Hall/Arrival Hall of International Airport, appointed/licensed as ‘warehouse’ under sections 57 or 58 of the Customs Act, 1962 and for sale therefrom, against foreign exchange to passengers going out of India or to the passengers or members of crew arriving from abroad. The facility will be subject to specified limitations, conditions and safeguards [Notification No. 07/2013 CE (NT) dated 23.05.2013].


Consequently, godown or retail outlets of the above-mentioned Duty Free Shops will be deemed to be registered as a warehouse under rule 9 of the Central Excise Rules, 2002 [Notification No. 09/2013 CE (NT) dated 23.05.2013]. CBEC, vide Circular No. 970/04/2013-CX dated 23.05.2013 has specified conditions, limitations, safeguards and procedures for removal of such excisable goods to godowns/retail outlets of Duty Free Shops to which warehousing provisions have been extended vide Notification No. 07/2013 CE (NT) dated 23.05.2013. Note: Hitherto only foreign goods were sold in Duty Free Shops (DFS) located in the International Airports. A passenger going abroad or coming from a foreign country could buy foreign goods without customs duty and the incoming passenger could clear those goods without duty within his available limits as per the baggage rules. The Central Government has now allowed excise duty-free sale of goods manufactured in India to international passengers or crew arriving from abroad at the DFS located in the arrival halls of international airports. Such exemption from excise duty is subject to limitations, conditions and safeguards as may be specified by the CBEC. Therefore, now a passenger arriving from abroad shall have the choice to buy either duty-free imported goods or duty-free indigenous goods within his overall permissible baggage allowance.

VI. CLARIFICATIONS

1. Good cleared against specified duty credit scrips not to be treated as exempted goods Notifications Nos. 29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 09.07.2012 provide exemption to certain manufactured goods when cleared against the specified duty credit scrips issued to an exporter. The specified duty credit scrips are:

Focus Product Scheme (FPS) duty credit scrip,

Focus Market Scheme (FMS) duty credit scrip

VKGUY (Special Agriculture and Village Industry Scheme) duty credit scrip

Agri Infrastructure Incentive Scrip duty credit scrip

Status Holder Incentive Scheme duty credit scrip One of the conditions for availing of these exemptions is that duties leviable, but for these exemptions, are debited in or on the reverse of said scrip and the scrip holder is permitted to avail of CENVAT credit of the duties debited in the scrip. In view of these provisions it has been clarified that such debit of duty in these scrips shall be treated as payment of duty for the purpose of determining the applicability of rule 6 of the CENVAT Credit Rules, 2004. The clearance of excisable goods against such specified duty credit scrips cannot be considered as clearances of exempted goods and therefore, the provisions regarding payment of amount under rule 6(3) of the CENVAT Credit Rules, 2004 will not apply in such a case. [Circular No. 973/07/2013-CX dated 04.09.2013] 2. Guidelines for arrest and bail under the Central Excise Act, 1944 In view of the amendments made in sections 9A, 20 and 21 of the Central Excise Act, 1944 vide the Finance Act, 2013, certain offences have been made cognizable and nonbailable. The following significant guidelines have been issued by CBEC vide Circular No. 974/08/2013 CX dated 17.09.2013 with regard to implementation of arrest and bail provisions under the amended central excise law:

(i) A person can be arrested for both bailable and non-bailable offences. Since arrest takes away the liberty of an individual, the power must be exercised with utmost care and caution and only when the exigencies of the situation demand arrest.


(ii) Decision to arrest needs to be taken on case-to-case basis considering various factors, such as, nature & gravity of offence, quantum of duty evaded or credit wrongfully availed, nature & quality of evidence, possibility of evidences being tampered with or witnesses being influenced, cooperation with the investigation, etc. Thus, power to arrest has to be exercised after careful consideration of the facts of the case and the above factors.

(iii) A person can be arrested for non-bailable offence only when the offence committed by him is covered under clause (b) or clause (bbbb) of sub-section 9(1) and the duty involvement exceeds Rs. 50 lakh. Any person arrested for offences under these clauses should be informed of the grounds of arrest and produced before a magistrate without unnecessary delay and within 24 hours of arrest.

(iv) In respect of the following non-bailable offences, decision to arrest may be taken by the Commissioner:

(a) clandestine removal of manufactured goods; (b) removal of goods without declaring the correct assessable value and receiving a

portion of sale price in cash which is in excess of invoice price and not accounted for in the books of account;

(c) taking CENVAT credit without receiving the goods specified in the invoice; (d) taking CENVAT credit on fake invoices; (e) issuing Cenvatable invoices without delivering the goods specified in the said invoice.

(v) In all other cases of cognizable and non-bailable offences, not referred above, the decision to arrest shall be taken by the Commissioner only with the approval of the jurisdictional Chief Commissioner. Examples of such cases are:

(a) removal of inputs as such, without reflecting such removal in records, on which CENVAT credit has been taken, without payment of amount equal to the credit availed on such inputs

(b) irregular and wrongful availment of benefit of central excise duty exemption by reason of fraud, collusion, willful misstatement, suppression of facts, or contravention of the provisions of the Act or the rules with intent to evade payment of duty, etc.

(vi) Chief Commissioners/ Commissioners of Central Excise are required to ensure that approval for arrest for non-bailable offence is granted only where the intent to evade duty is evident and element of mens rea/guilty mind is palpable.

(vii) Any person arrested for non-cognizable and bailable offence shall have to be released on bail, if he offers bail, and in case of default of bail, he is to be forwarded to the custody of magistrate. In terms of Notification no 9/99-C.E.(N.T.) dated 10-2-99, an officer not below the rank of Superintendent of Central Excise can exercise powers under section 21 including powers to grant bail.

(viii) Bail should be subject to the condition(s), as deemed fit, depending upon the facts and circumstances of each individual case. It has to be ensured that the amount of bail bond/ surety should not be excessive and should be commensurate with the financial status of the arrested person. Further the bail conditions should be informed by the arresting officer in writing to the person arrested and also informed on telephone to the nominated person of the person(s) arrested. Arrested person should be allowed to talk to the nominated person.

(ix) If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail.

(x) The arresting officer may, and shall if such a person is indigent and unable to furnish surety, instead of taking bail, discharge him on executing a bond without sureties to his appearance as provided under section 436 of Cr PC. However, in cases where the conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate magistrate within 24 hours of arrest.

(xi) Only in the event of circumstances preventing the production of the person arrested before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody during night, under proper Challan and produced before the magistrate the next day. These provisions shall apply for non-bailable offence also. The nominated person of the arrested person may also be informed accordingly.


3. Clarification on implementation of decision of Supreme Court in case of goods sold at a price below the cost In case of M/s Fiat India Ltd. 2012 (283) E.L.T 161 (S.C.) [reported in Select Cases in Direct and Indirect Tax Laws-An essential reading for Final Course (Relevant for May, 2014 and November, 2014 examination)], SC had held that in case the goods were sold at a price substantially lower than the cost of the manufacture to achieve market penetration, the transaction value declared under section 4 may be rejected. CBEC, vide Circular No. 979/03/20014-CX dated 15.01.2014, has clarified that the transaction value cannot be rejected in every case where the declared value is lower than the manufacturing cost and profit. Due care will be taken at the level of the Commissioner to see whether the case at hand is similar to the facts and circumstances of the FIAT case. Further, extended period of limitation shall apply only if there is a sale in the circumstances similar to the case of M/s Fiat and yet transaction value of goods is declared as the correct transaction value after the date of the judgment, ie. 29.08.2012. 4. Extension of warehousing and acceptance of Letter of undertaking in place of Bank Guarantee for export warehousing Circular No. 976/10/2013-CX dated 12.12.2013 has made following amendments in Circular No. 579/16/2001-CX. dated 26-6-2001 and Circular No. 581/18/2001-CX. dated 29-6-2001 which prescribe conditions, procedures and safeguards applicable for storage in a warehouse registered at such places as may be specified by the Board and export there from regarding all excisable goods specified in the First Schedule to the Central Excise Tariff Act, 1985:

S.No. Basis Circular No. 579/16/2001 Circular No. 976/10/2013

1. Period of warehousing Any goods warehoused may be left in the warehouse in which they are deposited, or in any warehouse to which such goods have been removed, till the expiry of 3 years from the date on which such goods were first warehoused.

Warehousing of goods shall initially be allowed for a period upto 6 months, which may be further extended by Assistant/ Deputy Commissioner, each extension being for a period not exceeding 6 months, subject to verification that the goods have not deteriorated in quality. • The maximum period, for which goods may be left in the warehouse in which they are deposited, or in any warehouse to which such goods have been removed, shall be three years from the date on which such goods were first warehoused. • Excisable goods shall be deemed to be cleared for home consumption on expiry of warehousing period including extensions granted, if any. • Duty and interest @ 24% per annum shall be charged on such deemed removal.

2 Revocation/suspension of warehouse registration

The excisable goods lodged therein shall either be cleared for home

The excisable goods lodged therein shall either be cleared for home consumption on payment


consumption on payment of duty or be removed to another warehouse without payment of duty.

of duty and interest @ 24% per annum or shall be removed to another warehouse without payment of duty.

S.No. Basis Circular No. 581/18/2001 Circular No. 976/10/2013

3 Requirement to furnish security equal to 25% of the Bond amount

An exporter is required to furnish security equal to 25% of the Bond amount for availing the facility of export warehousing.

Now, where exporter is a manufacturer and a Status Holder with a clean track record, requirement to furnish security equal to 25% of bond amount shall be replaced by the requirement of furnishing an LUT initially for a period upto 6 months which may be extended by a further period not exceeding 6 months. Further, extensions in the warehousing period as provided in point 1. above shall be allowed to such exporter only on furnishing security of 25% of the bond amount.

5. Clarification regarding levy of the Education Cess and the Secondary and Higher Education Cess on other cesses Education Cess and the Secondary and Higher Education Cess are not to be calculated on cesses which are levied under Acts administered by Department/Ministries other than Ministry of Finance (Department of Revenue) [for instance, Sugar cess levied under the Sugar Cess Act, 1982, Tea Cess levied under

Tea Act, 1953] but are only collected by the Department of Revenue in terms of those Acts. [Circular No. 978/02/2014-CX dated 07.01.2014]


SERVICE TAX

EXEMPTION & ABATEMENTS

I. EXEMPTIONS:

1. Mega exemption notification amended Exemption to following services has been provided by amending the mega exemption notification-Notification No. 25/2012-ST dated 30.06.2012:- (a) Exemption to services in relation to serving of food/ beverages by an air conditioned canteen maintained in a factory Services provided, in relation to serving of food or beverages, by a canteen have been exempted from service tax provided such canteen:- (i) is maintained in a factory covered under the Factories Act, 1948, and (ii) has the facility of air-conditioning or central air-heating at any time during the year. [Notification No. 14/2013-ST dated 22.10.2013] (b) Exemption to services provided by NSDC or by an approved SKC/ assessment agency/ training partner Services provided by:- (i) the National Skill Development Corporation (NSDC) set up by the Government of India; (ii) a Sector Skill Council (SSC) approved by the NSDC; (iii) an assessment agency approved by the SKC or the NSDC; (iv) a training partner approved by the NSDC or the SKC in relation to:- (a) the National Skill Development Programme implemented by the NSDC; or (b) a vocational skill development course under the National Skill Certification and Monetary Reward Scheme; or (c) any other Scheme implemented by the NSDC have been exempted from service tax. [Notification No. 13/2013-ST dated 10.09.2013]

Note: Prior to 10.05.2013, courses run by an institute affiliated to NSDC were not liable to service tax as same were included in the definition of approved vocational courses and thus were exempt vide entry (l) of the negative list. With effect from 10.05.2013, the Finance Act, 2013 made the courses run by an institute affiliated to NSDC liable to service tax by amending the definition of approved vocational courses. With effect from 10.09.2013, said services have been exempted from service tax by incorporating them in the mega exemption notification. Hence, such services were taxable only during the period between 10.05.2013 and 09.09.2013.

(c) Services provided by cord blood banks by way of preservation of stem cells exempted Services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation have been exempted from service tax. [Notification No. 04/2014-ST dated 17.02.2014] (d) Loading/unloading/packing/storage/warehousing of rice exempted


Services by way of loading, unloading, packing, storage or warehousing of rice have been exempted from service tax. [Notification No. 04/2014-ST dated 17.02.2014]

(e) Scope of definition of ‘Governmental authority’ widened The definition of “Governmental authority” has been substituted with the following new definition:- “Governmental authority” means an authority or a board or any other body;

i. set up by an Act of Parliament or a State Legislature; or ii. established by Government,

with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution. Thus, the scope of the definition has been enhanced. Henceforth, an authority or a board or any other body established by Government with 90% or more participation by way of equity or control need not be set up under an Act of Parliament or a State Legislature to qualify as Governmental authority. [Notification No. 02/2014-ST dated 30.01.2014]

(f) Expansion in the scope of exemption of services provided by way of sponsorship of sports events Hitherto, services provided by way of sponsorship of sporting events organized by a national sports federation, or its affiliated federations were exempt from service tax where the participating teams or individuals represent any district, State or zone. The said exemption has been extended even in a case where the participating teams or individuals represent any COUNTRY. [Notification No. 01/2014-ST dated 10.01.2014]

2. Exemption to restaurant and accommodation services provided between 17.09.2013 and 31.03.2013 in Uttarakhand [Exemption Order 1/2013-ST dated 17.09.2013]

Following taxable services provided, during the period between 17th September, 2013 and 31st March, 2014, to any person in the State of Uttarakhand are exempt from whole of the service tax leviable thereon:-

(i) Services by way of renting of a room in a hotel, inn, guest house, club, campsite or other commercial place meant for residential or lodging purposes.

(ii) Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess.


3. Revised scheme of service tax exemption in case of services provided to SEZ unit/Developer Notification No. 40/2012-ST dated 20.06.2012 prescribing the scheme for claiming exemption in respect of the services received by a developer/units of an SEZ has been superseded by Notification No. 12/2013-ST dated 01.07.2013. The new notification has expanded the scope of ab-initio exemption and refund available to SEZ unit/developer. The significant changes in the new notification vis-à-vis erstwhile notification have been outlined as follows:-

Basis NN 40/2012 NN 12/2013

Services eligible for ab initio exemption

Only specified services wholly consumed within SEZ were eligible for the ab initio exemption. Further, the definition of wholly consumed services, linked with the Place of Provision of Services Rules, 2012, emphasized that the specified services must be provided only within SEZ.

Specified services received by the SEZ Unit or the Developer used exclusively for the authorized operations are eligible for the ab initio exemption. Consequently, any services used exclusively for the authorized operations whether provided within SEZ or outside, will be eligible for upfront exemption.

Refund of service tax paid on the common services shared between Authorized operations in SEZ and its DTA operations

Maximum refund was restricted as under:- Maximum refund = (ST × ET)/TT where ST stands for service tax paid on services other than wholly consumed services (used for both SEZ and DTA Unit) ET stands for Export turnover of goods and services of SEZ Unit/Developer TT stands for Total turnover for the period

The service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer and the DTA unit(s) in the manner as prescribed in rule 7 of the CENVAT Credit Rules, 2004. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorized operation during the relevant period. Such amount would be available as refund.

Option not to avail the exemption and instead take CENVAT credit as usual

Earlier scheme did not expressly provide for such an option.

SEZ Unit/the Developer has an option not to avail of this exemption and instead take CENVAT credit on the specified services in accordance with the CENVAT Credit Rules, 2004.

Availability of refund of service tax on the specified services on which ab-initio exemption is admissible but not claimed

Refund of service tax on the specified services on which abinitio exemption is admissible but not claimed was not expressly provided in the earlier scheme.

The SEZ Unit or the Developer shall be entitled to the refund of service tax on the specified services on which ab-initio exemption is admissible but not claimed.


II. OTHER AMENDMENTS

Threshold limit for e-payment of service tax reduced from 10 lakh to Rs.1 lakh Proviso to rule 6(2) of the Service Tax Rules, 1994 has been amended to reduce the threshold limit for e-payment of service tax from Rs.10 lakh to Rs.1 lakh. Henceforth, with effect from 01.01.2014, where an assessee has paid a total service tax of Rs.1 lakh or more including the amount paid by utilization of CENVAT credit, in the preceding financial year, he shall deposit the service tax liable to be paid by him electronically through internet banking. [Notification No. 16/2013-ST dated 22.11.2013]

CLARIFICATIONS

1. Clarification on issues pertaining to restaurant service Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year are exempt from service tax vide mega exemption notification. In this regard, CBEC, vide Circular No.173/8/2013 – ST dated 07.10.2013, has clarified the following:- A. Services provided (in relation to serving of food or beverages) by air-conditioned as well as non-air-conditioned restaurants, eating joints or mess, operating in a complex In a complex, air conditioned as well as non-air conditioned restaurants are operational. These restaurants are clearly demarcated and separately named, but food is sourced from a common kitchen. In such a case, services provided in relation to serving of food/beverages restaurant having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year is liable to service tax. However, such services provided in a non air-conditioned or non centrally air- heated restaurant will be treated as exempted service and thus, will not be liable to service tax. B. Services are provided by a ‘specified restaurant’ in other areas e.g. swimming pool or an open area attached to the restaurant Services provided by restaurant having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year, in other areas of the hotel are liable to service tax. C. Service tax on goods sold on MRP basis across the counter as part of the Bill/invoice If goods are sold on MRP basis (fixed under the Legal Metrology Act), they have to be excluded from total amount for the determination of value of service portion.

2. Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994. Powers to arrest is introduced under the service tax law by the Finance Act, 2013. Accordingly, a person who has committed any of the offences specified under section 89(1) and the amount involved in the offence exceeds `50 lakh, can be arrested. Circular No. 171/6/2013-ST dated 17.09.2013 outlines post arrest procedure as follows:- (i) Procedure in case of non-cognizable and bailable offence:


The Assistant Commissioner/Deputy Commissioner is bound to release a person on bail against a bail bond. The bail conditions should be informed to the arrested person as well as to the nominated person of the person(s) arrested. The conditions will relate to, inter alia, execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer.

If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail forthwith. Otherwise, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within 24 hours of arrest. The arrested person may be handed over to the nearest police station for his safe custody, within 24 hours, during the night under a challan, before he is produced before the Court.

(ii) Procedure in case of cognizable offence: Only in the event of circumstances preventing the production of the arrested person before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody, within 24 hours, under a proper challan, and produced before the Magistrate on the next day, and the nominated person of the arrested person may be also informed accordingly.

3. Clarification as to whether “agricultural produce” includes rice and benefits available in respect of rice under mega exemption notification CBEC vide Circular No.177/03/2014 – ST dated 17.02.2014, has clarified that the definition of agricultural produce under section 65(5) of the Finance Act, 1994 covers ‘paddy’; but excludes ‘rice’. It implies that benefits available to agricultural produce in the negative list [Section 66D(d)] are not available to rice. However, many such benefits have been extended to rice by way of appropriate entries in the mega exemption notification as follows:- (i) Services by way of transportation of food stuff by rail/vessel/goods transport agency is exempt from service tax. Food stuff includes rice. (ii) Services by way of loading, unloading, packing, storage or warehousing of rice are exempt from service tax. (iii) Carrying out an intermediate production process as job work in relation to agriculture is exempt from service tax. It is clarified that paddy milled into rice, on job work basis is also exempt from service tax since such milling of paddy is an intermediate production process in relation to agriculture.

4. Clarification regarding exemption available to services provided by a Resident Welfare Association (RWA) to its own members Mega exemption Notification No. 25/2012-ST dated 20.06.2012 provides exemption to services provided by an RWA to its own members by way of reimbursement of charges or share of contribution up to 5,000 per month per member for sourcing of goods or services from a third person for the common use of its members. Certain doubts have been raised regarding the scope of said exemption. CBEC vide Circular No.175/01/2014 – ST dated 10.01.2014, has clarified these doubts as follows:


S.No. Doubt Clarification

1 (i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable on the same? (ii) If the contribution of a member(s) of a RWA exceeds Rs.5,000 per month, how should the service tax liability be calculated?

Exemption in mega exemption notification is provided specifically with reference to service provided by an unincorporated body or a non–profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of Rs.5,000 per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month per member contribution of any or some members of a RWA exceeds Rs.5,000, entire contribution of such members whose per month contribution exceeds Rs.5,000 would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.

2 (i) Is Small Service Provider’s (SSP) exemption under Notification No. 33/2012-ST available to RWA? (ii) Does ‘aggregate value’ for the purpose of threshold exemption, include the value of exempt service?

SSP exemption under Notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding Rs.10 lakh in any financial year is exempted from service tax. As per the definition of ‘aggregate value’ provided in explanation of the notification, aggregate value does not include the value of services which are exempt from service tax.

3 If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a ‘pure agent’ of its members, is exclusion from value of taxable service available for the purposes of SSP exemption or exemption provided under mega exemption notification?

In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the said rule. For example, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available. However, in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would


not be available.

4 Is CENVAT credit available to RWA for payment of service tax?

RWA may avail CENVAT credit and use the same for payment of service tax, in accordance with the CENVAT Credit Rules, 2004.

C. Customs 1. Drawback allowed on milk products and ceasin, caseinates etc. and disallowed on wheat Earlier, no drawback was allowed on milk products falling under headings 0401, 0402, 0403, 0404, 0405, 0406, rice falling under heading 1006 and casein, caseinates and other casein derivatives; casein glues falling under heading 3501 of the Customs Tariff. However, with effect from 21.09.2013, drawback will not be allowed only in respect of rice falling under heading 1006 and wheat falling under heading 1001 of the Customs Tariff. In effect, drawback will • be allowed in respect of milk products falling under the above-mentioned headings and ceasin, caseinates etc. falling under heading 3501 (which was not allowed prior to 21.09.2013); and • not be allowed on wheat falling under heading 1001 (which was allowed prior to 21.09.2013). Rule 3 of the Central Excise Duties and Service Tax Drawback Rules, 1995 has been amended vide Notification No. 97/2013 Cus. (NT) dated 14.09.2013 to give effect to this amendment. Consequential amendments have been made in rule 6(4) and rule 7(5) of the said rules. 2. Import of LCD/LED/Plasma TV as part of free baggage allowance disallowed With effect from 26.08.2013, Annexure I to the Baggage Rules, 1988 which specifies the items that cannot be allowed duty free clearance as part of free baggage allowance has been amended vide Notification No. 84/2013 Cus (NT) dated 19.08.2013 to include Flat panel (LCD/LED/Plasma) Television therein. Therefore, import of flat panel (LCD/LED/Plasma) television as part of free baggage allowance has been disallowed from August 26 and travelers bringing in LCD/LED/Plasma TV as part of baggage will have to pay customs duty at 36.05% (35% + 3% education cesses). 3. Period of 90 days under section 61(2)(ii) of the Customs Act, 1962 commences from the date of deposit of goods in the warehouse Circular No. 39/2013 Cus dated 01.10.2013 has clarified that the period of 90 days, under section 61(2)(ii) of the Customs Act, 1962 would commence from the date of deposit of goods in the warehouse. As per section 61(2)(ii) of the Customs Act, 1962 where any warehoused goods (not intended for being used in 100% EOU) remain in a warehouse beyond a period of ninety days, interest shall be payable for the period from the expiry of the said ninety days till the date of payment of duty on the warehoused goods. Section 2(44) of the Customs Act, 1962 defines ‘warehoused goods’ as ‘goods deposited in a warehouse’.


Thus, a harmonious reading of section 61(2)(ii) and section 2(44) indicates that when the goods deposited in a warehouse remain warehoused beyond a period of ninety days, then the interest starts accruing. In other words, the relevant date when the period of 90 days would commence would be the date of depositing the goods in the warehouse. 4. Guidelines for arrest and bail under Customs Act, 1962 In view of the amendments made in section 104 of the Customs Act, 1962 vide Finance Act, 2013, offences punishable under section 135 of the Act have been made as non-bailable. The following significant guidelines have been issued by CBEC vide Circular No. 974/08/2013-CX dated 17.09.2013 with regard to implementation of arrest and bail provisions under the amended customs law: (i) Since arrest takes away the liberty of an individual, the power must be exercised with utmost care and caution in cases where a Commissioner of Customs or Additional Director General has reason to believe on basis of information or suspicion that such person has committed an offence under the Act punishable under the sections 132 or 133 or 135 or 135A or 136 of the Customs Act, 1962. (ii) The decision to arrest should be taken in cases which fulfil the requirement of the provisions of section 104(1) of Customs Act, 1962 and after considering the nature of offence, the role of the person involved and evidence available. (iii) Persons involved should not be arrested unless the exigencies of certain situations demand their immediate arrest. These situations may include circumstances: (a) to ensure proper investigation of the offence; (b) to prevent such person from absconding; (c) cases involving organised smuggling of goods or evasion of customs duty by way of concealment; (d) masterminds or key operators effecting proxy/benami imports/ exports in the name of dummy or non-existent persons/IECs, etc. (iv) While the Act does not specify any value limits for exercising the powers of arrest, the same should be effected in respect of bailable offence only in exceptional situations which may include : (a) Outright smuggling of high value goods such as precious metal, restricted items or prohibited items or goods notified under section 123 of the Customs Act, 1962 or foreign currency where the value of offending goods exceeds Rs.20 lakh. (b) In a case related to importation of trade goods (i.e. appraising cases) involving wilful mis-declaration in description of goods/ concealment of goods/goods covered under section 123 of Customs Act, 1962 with a view to import restricted or prohibited items and where the CIF value of the offending goods exceeds Rs.50 lakh. (v) In every case of arrest effected in accordance with the provisions of section 104(1) of the Customs Act, 1962, there should be immediate intimation to the jurisdictional Chief Commissioner or DGRI, as the case may be. (vi) A person arrested for a non-bailable offence should be produced before concerned Magistrate without unnecessary delay in terms of provisions of section 104(2) of the Act. (vii) However, a Customs officer (arresting officer) is bound to offer release on bail to a person arrested in respect of bailable offence and accept bail bond for bailable offence. (vii) The guidelines relating to bail prescribed under central excise vide Circular No. 974/08/2013 CX dated 17.09.2013 (given above from nos. (viii) to no. (xi) under point 5 in Central Excise) will apply in relation to grating of bails under customs law as well. 5. Exemption from Special Additional Duty of Customs (SAD) is not available on goods cleared from the SEZ / FTWZ into the DTA on stock transfer basis. Notification No. 45/2005-Cus. dated 16.05.2005 exempts all goods produced or manufactured in an Special Economic Zone (SEZ) and brought to Domestic Tariff Area (DTA), from the whole of the additional duty of customs leviable under section 3(5) of the Customs Tariff Act, 1975 [hereinafter referred as SAD]. However, such exemption shall not be available if such goods, when sold in DTA, are exempted by the State Government from payment of sales tax or VAT.


Issue: Would the benefit of exemption from SAD under aforersaid notification be available when the goods are cleared in the nature of stock transfer from an SEZ/ FTWZ unit to its DTA unit for self-consumption. Clarification: The aforesaid notification clearly states that the exemption shall not be available if such goods, when sold in DTA, are exempt from payment of sales tax/VAT. In case of clearances which are in the nature of stock transfer from SEZ/FTWZ unit to the DTA unit for self-consumption i.e. otherwise than for sale as such, no sales tax/VAT is leviable on such a transaction. Since no sales tax/VAT is leviable on the said transaction, SAD is payable. Hence, the benefit of exemption from SAD under aforersaid notification would NOT be available when a DTA unit imports goods and routes it through SEZ/FTWZ for self consumption i.e. in the nature of stock transfer from SEZ/FTWZ. [Circular No. 44/2013 Cus dated 30.12.2013]

D. Common Topics 1. Classification of various imported items: CBEC has clarified with regard to the classification issues arising in the following products:-

S.No. Circular No. Product Disputed Tariff Items Clarification

1 36/2013 dated 05.09.2013

Bluetooth Wireless Headset for mobile phones / cell phones

8517 “…; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network),…” 8518 “…; headphones and earphones, whether or not combined with a microphone,…”

Wireless headsets for mobile phones / cell phones is Correctly classifiable in heading 8517.

2 28/2013 dated 01.08.2013

Cockroach traps and Mosquito Repellent

3506 –“Prepared glues and other prepared adhesives, not elsewhere specified or included; products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg”; 3822 –“Diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing, other than those of heading 3002 or 3006; certified reference materials”; 3926 – “Other articles of plastics and articles of other materials of headings 3901 to 3914”; 3808 – “Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar

Such products should merit classification under heading 3808.


products, put up in forms or packings for retail sale or as preparations or articles(for example, sulphur-treated bands, wicks and candles, and fly-papers)”; 4823 –“Other paper, paperboard, cellulose wadding and webs of cellulose fibers, cut to size or shape; other articles of paper pulp, paper, paperboard, cellulose wadding or webs of cellulose fibers

3 20/2013 dated 14.05.2013

Tablet Computers

8517- “Telephone sets,……….” 8471- Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded from and machines for processing such data, not elsewhere specified or included

Tablet Computers are classifiable under heading 8471.

4 2/2014 dated 09.01.2014.

Transmissio n shafts / Power Takeoff (PTO) shafts

8432-Agricultural, horticultural or forestry machinery for soil preparation or cultivation; lawn or sports- ground rollers 8433-Harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers; machines for cleaning, sorting or grading eggs, fruit or other agricultural produce, other than machinery of heading 8437”. 8483-Transmission shafts (including cam shafts and crank shafts) and cranks; bearing housings and plain shaft bearings; gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joints

Transmission shafts / PTO shafts are classifiable under heading 8483.


Part III – RTP Case Studies


Summary of RTP Case Studies S.N. Case Law Issue Decision

1. Balrampur Chini Mills Ltd. v. Union of India 2014 (300) ELT 372 (All.)

Whether bagasse which is a marketable product but not a manufactured product can be subjected to excise duty?

The High Court concluded that though bagasse is an agricultural waste of sugarcane, it is a marketable product. However, duty cannot be imposed thereon simply by virtue of the explanation added under section 2(d) of the Central Excise Act, 1944 as it does not involve any manufacturing activity. The High Court quashed the CBEC’s Circular dated 28-10-2009.

2. CCEx v. Super Synotex (India) Ltd. 2014 (301) E.L.T. 273 (S.C.)

Is the amount of sales tax/VAT collected by the asssessee and retained with him in accordance with any State Sales Tax Incentive Scheme, includible in the assessable value for payment of excise duty?

The Apex Court held that such retained amount has to be treated as the price of the goods under the basic fundamental conception of "transaction value" as substituted with effect from 1.7.2000 and therefore, the assessee is bound to pay excise duty on the said sum.

3. CCEx. v. Prag Bosimi Synthetics Ltd. 2013 (295) ELT 682 (Gau.)

Can CENVAT credit of duties, other than National Calamity Contingent Duty (NCCD), be used to pay NCCD?

The High Court held that merely because CENVAT credit in respect of NCCD can be utilized only for payment of NCCD, it does not lead to the conclusion that credit of any other duty cannot be utilized for payment of NCCD.

4. KCP Ltd. v. CCEx. 2013 (295) ELT 353 (SC)

Can CENVAT credit be availed on machineries purchased for being used in setting up a sugar plant in foreign country when (i) the same are not used in the factory premises and (ii) no duty is paid on final product viz., the sugar plant?

The Supreme Court held that CENVAT credit could not be allowed to the assessee as no duty was paid on sugar plant set up in a foreign country. Further, since the bought-out machinery was not used in the assessee’s factory premises, the necessary condition for availing CENVAT credit on capital goods could not be fulfilled.

5. CCE v. Satish Industries 2013 (298) E.L.T. 188 (Bom.)

Whether wrongful availment of 100% CENVAT credit on capital goods in the year of purchase be upheld if wrongly availed credit of 50% is not utilized in the said year?

The High Court held that if 50% CENVAT credit on capital goods pertaining to subsequent financial year which had been wrongly availed in the first year had not been not utilized till the commencement of the subsequent financial year, no prejudice was caused to the Revenue and thus, the same could be upheld.

6. UM Cables Limited v. Union of India 2013 (293) ELT 641 (Bom.)

Can export rebate claim be denied merely for non-production of original and duplicate copies of ARE-1 when evidence for export of goods is available?

The High Court, therefore, held that the procedure cannot be raised to the level of a mandatory requirement. Rule 18 itself makes a distinction between conditions and limitations subject to which a rebate can be granted and the procedure governing the grant of a rebate. It was held by the High Court


that while the conditions and limitations for the grant of rebate are mandatory, matters of procedure are directory. The High Court ruled that non-production of ARE-1 forms ipso facto cannot invalidate rebate claim. In such a case, exporter can demonstrate by cogent evidence that goods were exported and duty paid and satisfy the requirements of rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004 CE (NT).

7. Rajasthan Textile Mills v. UOI 2013 (298) E.L.T. 183 (Raj.)

In case of export of goods under rule 18 of the Central Excise Rules, 2002, is it possible to claim rebate of duty paid on excisable goods as well rebate of duty paid on materials used in the manufacture or processing of such goods?

Under rule 18 of the Central Excise Rules, 2002, grant of rebate of duty paid is available either on excisable goods or on materials used in the manufacture or processing of such goods i.e. on raw material. Thus, it is open to claim the benefit of rebate either on manufactured/finished goods or on raw material, but not on both.

8. CCEx v Xenon 2013 (296) ELT 26 (Jhar.)

Where clearances of a dubious company are clubbed with clearances of the original company, whether penalty can be imposed on such dubious company if all the clearances have been made by the original company?

The High Court held that when it had been established that dubious company did not undertake any transactions, penalty could not be levied on the same for the transactions undertaken by the original company. The High Court emphasized that penalty could not be imposed upon the company who did not undertake any transaction.

9. S & S Power Switch Gear Ltd. v. CCEx. Chennai-II 2013 (294) ELT 18 (Mad.)

Where a circular issued under section 37B of the Central Excise Act, 1944 clarifies a classification issue, can a demand alleging misclassification be raised under section 11A of the Act for a period prior to the date of the said circular?

The High Court, thus, held that once reclassification Notification/Circular is issued, the Revenue cannot invoke section 11A of the Act to make demand for a period prior to the date of said classification notification/circular.

10. Delhi Chit Fund Association v. UOI 2013 (30) S.T.R. 347 (Del.)

Can service tax be levied on the services rendered in connection with a chit fund business?

The High Court inferred that since in a chit fund business, the subscription is tendered in any one forms of money as defined under section 65B(33), it would be a transaction in money and would fall in the exclusionary part of the definition. Otherwise also, in view of Explanation 2 read along with the exclusionary part, the services rendered by the foreman of the chit business for which a separate consideration is charged would be out of the clutches of the definition. Thus, either way, the services of a foreman of a chit business do not constitute a taxable service. Consequently, the High Court quashed Notification No. 26/2012-S.T. dated


20.06.2012 to the extent of the entry in serial No. 8 thereof.

11. CIT v. Rajasthan Urban Infrastructure 2013 (31) STR 642 (Raj.)

Whether tax is to be deducted at source under section 194J of the Income-tax Act, 1961 on the amount of service tax if it is paid separately and is not included in the fees for professional services/technical services?

The High Court held that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and is not included in the fees for professional services or technical services, the service tax component would not be subject to TDS under section 194J of the Income-tax Act, 1961.

12. A.C.L. Education Centre (P) Ltd. v. UOI 2014 (33) S.T.R. 609 (All.)

Is rule 5A(2) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994?

In the light of the aforesaid discussion, the High Court held that section 5A(2) is not ultra vires. It is in consonance with section 72A of the Finance Act, 1994.

13. C.C.E. & S.T. (LTU), Bangalore v. Dell Intl. Services India P. Ltd. 2014 (33) S.T.R. 362 (Kar.)

Can the Committee of Commissioners review its decision taken earlier under section 86(2A) of the Finance Act, 1994, at the instance of Chief Commissioner?

The Karnataka High Court held that once the Committee of Commissioners, on a careful examination of the order of the Commissioner (Appeals), did not differ in their opinion against the said order of the Commissioner (Appeals) and decide to accept the said order, the matter ends there. The said decision is final and binding on the Chief Commissioner also. The Chief Commissioner is not vested with any power to call upon the Committee of Commissioners to review its order so that he could take decision to prefer an appeal. Such a procedure is not contemplated under law and is without jurisdiction.

14. Commissioner of Service Tax v. Ernst & Young Pvt. Ltd. 2014 (34) S.T.R. 3 (Del.)

Whether the question of chargeability or levy of service tax on a particular activity would be covered within the term “determination of any question having relation to rate of service tax or value of a service for the purpose of assessment” as contemplated under sections 35G and 35L of the Central Excise Act, 1944?

Thus, the High Court held that question of chargeability or levy of service tax on a particular activity would be covered within the term “determination of any question relating to rate of service tax or value of a service for the purpose of assessment”.

15. Caravel Logistics Pvt. Ltd. v. Joint Secretary (RA) 2013 (293) ELT 342 (Mad.)

Can penalty for short-landing of goods be imposed on the steamer agent of a vessel if he files the Import General Manifest, deals with the goods at different stages of shipment and conducts all affairs in compliance with the provisions of the Customs Act, 1962?

The High Court held that conjoint reading of sections 2(31), 116 and 148 of Customs Act, 1962 makes it clear that in case of short-landing of goods, if penalty is to be imposed on person-in-charge of conveyance/vessel, it can also be imposed on the agent appointed by him. Hence, duly appointed steamer agent of a vessel, would be liable to penalty. However, steamer agent, if innocent, could work out his remedy


against the shipper for short-landing. The High Court also clarified that in view of section 42 under which no conveyance can leave without written order, there is an automatic penalty for not accounting of goods which have been shown as loaded on vessel in terms of Import General Manifest. There is no requirement of proving mens rea on part of person-in-charge of conveyance to fall within the mischief of section 116 of the Customs Act.

16. Akanksha Syntex (P) Ltd. v Union of India 2014 (300) E.L.T. 49 (P & H)

Where goods have been ordered to be released provisionally under section 110A of the Customs Act, 1962, can release of goods be claimed under section 110(2) of the Customs Act, 1962?

The remedy of provisional release is independent of remedy of claiming unconditional release in the absence of issuance of any valid show cause notice during the period of limitation or extended limitation prescribed under section 110(2) of the Customs Act, 1962.

17. Vishnu M Harlalka v. Union of India 2013 (294) ELT 5 (Bom)

Whether any interest is payable on delayed refund of sale proceeds of auction of seized goods after adjustment of expenses and charges in terms of section 150 of the Customs Act, 1962?

The High Court held that Department cannot plead that the Customs Act, 1962 provides for the payment of interest only in respect of refund of duty and interest and hence, the assessee would not be entitled to interest on the balance of the sale proceeds which were directed to be paid by the Settlement Commission. The High Court clarified that acceptance of such a submission would mean that despite an order of the competent authority directing the Department to grant a refund, the Department can wait for an inordinately long period to grant the refund. The High Court directed the Department to pay interest from the date of approval of proposal for sanctioning the refund.

18. CCEx. v. Ciens Laboratories 2013 (295) ELT 3 (SC)

How will a cream which is available across the counters as also on prescription of dermatologists for treating dry skin conditions, be classified if it has subsidiary pharmaceutical contents - as medicament or as cosmetics?

he Supreme Court held that owing to the pharmaceutical constituents present in the cream ‘Moisturex’ and its use for the cure of certain skin diseases, the same would be classifiable as a medicament under Heading 30.03.

19. CCEx. v. Delphi Automotive Systems Ltd. 2013 (292) E.L.T. 189 (All.)

Can penalty under section 11AC of the Central Excise Act, 1944 be imposed in a case where there are divergent judicial pronouncements on an issue and the assessee chooses to follow one of those pronouncements?

The High Court held that mens rea (guilty mind) is an essential part for levy of penalty under section 11AC of the Central Excise Act, 1944. Where a provision of statute is not clear and there are divergent judicial pronouncements, it cannot be said that there is mens rea on the part of the assessee if he chooses to follow his course of action in the light of one of


the judicial pronouncements.

20. Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.) & Vandana Bidyut Chatterjee v. UOI 2013 (292) E.L.T. 6 (Bom.)

Can a former director of a company be held liable for the recovery of the excise dues of such company?

Delhi High Court in case of Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.) had elucidated that a former director of a company cannot be held liable for the recovery of the customs dues of such company. Bombay High Court has taken a similar view in case of Vandana Bidyut Chatterjee v. UOI 2013 (292) E.L.T. 6 (Bom.).

21. CCEx. V. Ratnamani Metals and Tubes Ltd. 2013 (296) ELT 327 (Guj.)

Can Appellate Authorities or Courts permit the assessee to pay reduced penalty of 25% beyond 30 days of the communication of the order of the adjudicating authority as prescribed under section 11AC?

The High Court answered the aforesaid question of law in affirmative. It held that an option can also be granted to the assessee to deposit the entire dues along with 25% interest and penalty within a period of 30 days of communication of the order of Tribunal.

22. Chitra Builders Private Ltd. v. Addl. Commr. of CCEx. & ST 2013 (31) STR 515 (Mad.)

Is it justified to recover service tax during search without passing appropriate assessment order?

Thus, the High Court held that the amount collected by Department, from the petitioner, during the search conducted, could not be held to be valid in the eye of law, and directed the Department to return to the petitioner the sum of Rs.2 crores, collected from it, during the search conducted.

23. Infinity Infotech Parks Ltd. v. UOI 2013 (31) STR 653 (Cal.)

Can extended period of limitation be invoked for mere contravention of statutory provisions without the intent to evade service tax being proved?

It held that mere contravention of provision of Chapter V or rules framed thereunder does not enable the service tax authorities to invoke the extended period of limitation. The contravention necessarily has to be with the intent to evade payment of service tax.

24. Kandra Rameshbabu Naidu v. Superintendent (A.E.), S.T., Mumbai-II 2014 (34) S.T.R. 16 (Bom.)

Would service tax collected but not deposited prior to 10.05.2013 be taken into consideration while calculating the amount of Rs.50 lakh as contemplated by clause (ii) of section 89(1) of the Finance Act, 1994?

The High Court held that since the said offence is a continuing offence, entire amount of service tax outstanding [which is required to be deposited with the Central Government] as on 10.05.2013, would be taken into consideration while calculating the amount of Rs. 50 lakh as contemplated by section 89(1)(ii) of the Finance Act, 1994.

25. Kemtech International Pvt. Ltd. v. CCus. 2013 (292) E.L.T. 321 (S.C.)

Is the adjudicating authority required to supply to the assessee copies of the documents on which it proposes to place reliance for the purpose of requantification of short-levy of customs duty?

The Apex Court elucidated that for the purpose of re-quantification of short-levy of customs duty, the adjudicating authority, following the principles of natural justice, should supply to the assessee all the documents on which it proposed to place reliance. Thereafter the assessee might furnish their explanation thereon and might provide additional evidence, in support of their claim.


26. CCus. v Dinesh Chhajer 2014 (300) E.L.T. 498 (Kar.)

Can customs duty be demanded under section 28 and/or section 125(2) of the Customs Act, 1962 from a person dealing in smuggled goods when no such goods are seized from him?

The High Court held that Tribunal was justified in holding that no duty is leviable against the assessee as he is neither the importer nor the owner of the goods or was in possession of any goods.

27. CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.) & Swastik Sanitarywares Ltd. v. UOI 2013 (296) E.L.T. 321 (Guj.)

Can refund of an amount mistakenly paid as excise duty be rejected on the ground of limitation under section 11B of the Central Excise Act, 1944?

Karnataka High Court in case of CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.) had held that refund of an amount mistakenly paid as service tax could not be rejected on ground of limitation under section 11B of the Central Excise Act, 1944 (as made applicable in case of service tax vide section 83 of the Finance Act, 1994). Gujarat High Court has taken a similar view in case of Swastik Sanitarywares Ltd. v. UOI 2013 (296) E.L.T. 321 (Guj.).

28. ICMC Corporation Ltd.v CESTAT, CHENNAI 2014 (302) E.L.T. 45 (Mad.)

Whether filing of refund claim under section 11B of Central Excise Act, 1944 is required in case of suo motu availment of CENVAT credit which was reversed earlier (i.e., the debit in the CENVAT Account is not made towards any duty payment)?

The High Court held that this process involves only an account entry reversal and factually there is no outflow of funds from the assessee by way of payment of duty. Thus, filing of refund claim under section 11B of the Central Excise Act, 1944 is not required. Further, it held that on a technical adjustment made, the question of unjust enrichment as a concept does not arise.

29. CCEx v. Superintending Engineer TNEB 2014 (300) E.L.T. 45 (Mad.)

Does the principle of unjust enrichment apply to State Undertakings?

The High Court relied on the decision of the Constitution Bench of the Apex Court rendered in the case of Mafatlal Industries Ltd. v. Union of India 1997 (89) E.L.T. 247 SC. It was held that held that the concept of unjust enrichment is not applicable as far as State Undertakings are concerned and to the State.

30. KSJ Metal Impex (P) Ltd. v. Under Secretary (Cus.) M.F. (D.R.) 2013 (294) ELT 211 (Mad.)

Whether interest is liable to be paid on delayed refund of special CVD arising in pursuance of the exemption granted vide Notification No. 102/2007 Cus dated 14.09.2007?

The High Court, therefore, held that : (i) It would be a misconception of the provisions of the Customs Act, 1962 to state that notification issued under section 25 of the Customs Act, 1962 does not have any specific provision for interest on delayed payment of refund. (ii) When section 27 of the Customs Act, 1962 provides for refund of duty and section 27A of the Customs Act, 1962 provides for interest on delayed refunds, the Department cannot override the said provisions by a Circular and deny the right which is granted by the provisions of the Customs Act, 1962 and CETA. (iii) Paragraph 4.3 of the Circular No. 6/2008 Cus. dated 28.04.2008 being


contrary to the statute has to be struck down as bad.

31. Khanapur Taluka Co-op. Shipping Mills Ltd. v. CCEx. 2013 (292) E.L.T. 16 (Bom.)

In a case where an appeal against order-in-original of the adjudicating authority has been dismissed by the appellate authorities as time-barred, can a writ petition be filed to High Court against the order-in-original?

The High Court referred to the case of Raj Chemicals v. UOI 2013 (287) ELT 145 (Bom.) wherein it held that where the appeal filed against the order-in-original was dismissed as time-barred, the High Court in exercise of writ jurisdiction could neither direct the appellate authority to condone the delay nor interfere with the order passed by the adjudicating authority. Consequently, it refused to entertain the writ petition in the instant case.

32. Texcellence Overseas v. Union of India 2013 (293) ELT 496 (Guj.)

Can the High Court condone the delay - beyond the statutory period of three months prescribed under section 35 of the Central Excise Act, 1944 - in filing an appeal before the Commissioner (Appeals)?

The High Court opined that since the total length of delay was very small and the case had extremely good ground on merits to sustain, its non interference at that stage would cause gross injustice to the petitioner. Thus, the High Court, by invoking its extraordinary jurisdiction, quashed the order which held that refund was erroneously granted. The High Court held that such powers are required to be exercised very sparingly and in extraordinary circumstances in appropriate cases, where otherwise the Court would fail in its duty if such powers are not invoked.

33. Habib Agro Industries v. CCEx. 2013 (291) E.L.T. 321 (Kar.)

Can delay in filing appeal to CESTAT for the reason that the person dealing with the case went on a foreign trip and on his return his mother expired, be condoned?

The High Court observed that there did not appear to be any deliberate latches or neglect on the part of the authorised representative to file the appeal. It held that the reason for delay in filing appeal to CESTAT, that the person dealing with the case went on a foreign trip and on his return his mother expired, could not be considered as unreasonable for condonation of delay.

34. Metal Weld Electrodes v. CESTAT 2014 (299) ELT 3 (Mad.)

Which remedy is available against a pre-deposit order passed by CESTAT under section 35F of Central Excise Act, 1944/section 129E of Customs Act, 1962; is it an appeal to High Court under section 35G of Central Excise Act, 1944/section 130 of Customs Act, 1962 or a writ petition before High Court?

The High Court held that the order passed by the CESTAT in terms of section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962 is appealable in terms of section 35G of the Excise Act, 1944 or section 130 of the Customs Act, 1962.

35. N.B.C. Corporation Ltd. v. Commissioner of Service Tax 2014 (33) S.T.R. 113 (Del.)

Whether best judgment assessment under section 72 of the Finance Act, 1994 is an ex-parte* assessment procedure?

The High Court held that section 72 could per se not be considered as an ex parte assessment procedure as ordinarily understood under the Income-tax Act, 1961. Section 72 mandates that the assessee must


appear and must furnish books of account, documents and material to the Central Excise Officer before he passes the best judgment assessment order. Thus, said order is not akin to an ex parte order. Such an order will be akin to an ex parte order, when the assessee fails to produce records and the Central Excise Officer has to proceed on other information or data which may be available.

36. Margara Industries Ltd. v. Commr. of C. Ex. & Cus. (Appeals) 2013 (293) E.L.T. 24 (All.)

Can delay in filing appeal to CESTAT due to the mistake of the counsel of the appellant, be condoned?

The High Court held that the Tribunal ought to have taken a lenient view in this matter as the appellant was not going to gain anything by not filing the appeal and the reason for delay in filing appeal as given by the appellant was the mistake of its counsel who had also filed his personal affidavit.

37. Rishiroop Polymers Pvt. Ltd. v. Designated Authority 2013 (294) E.L.T. 547 (Bom.)

Can a writ petition be filed against an order passed by the CESTAT under section 9C of the Customs Tariff Act, 1975?

The High Court, therefore, held that it would not be appropriate for it to exercise the jurisdiction under Article 226 of the Constitution, since an alternate remedy by way of an appeal was available in accordance with law. The High Court thus, dismissed the petition leaving it open to the assessee to take recourse to the appellate remedy.

38. Vadilal Gases Limited v Union of India 2014 (301) E.L.T. 321 (Guj.)

(i) Where a settlement application filed under section 32E(1) of the Central Excise Act, 1944 (herein after referred to as ‘Act’) is not accompanied with the additional amount of excise duty along with interest due, can Settlement Commission pass a final order under section 32F(1) rejecting the application and abating the proceedings before it ? (ii) In the above case, whether a second application filed under section 32E(1), after payment of additional excise duty along with interest, would be maintainable?

High Court held that since the earlier application was dismissed on technical defect for non-compliance of the provisions of clause (d) of the proviso to section 32E(1) of the Act and the same was not considered and decided on merits, the second application filed after depositing the additional excise duty and interest would be maintainable.

39. CCus.v. Ashok Kumar Jain 2013 (292) ELT 32 (Del.)

Does Settlement Commission have jurisdiction over baggage cases?

The High Court opined that the provisions that conferred jurisdiction on the Settlement Commission (Section 127B) cannot be construed as narrowly as it sought to be urged by the Revenue. A plain reading of the provisions of sections 127A and 127B reveals that


there is no bar/express or implied on the Settlement Commission - in respect of entertaining applications by the passengers which brought in goods through their baggage. It further noted that section 127B enumerates the kinds of cases which could not be entertained by the Settlement Commission. Had the intention of the Parliament been to exclude adjudication by Customs Authorities in respect of baggage claim from the purview of the Commission’s jurisdiction, such intention would have been more clearly manifested as it had been mentioned in provisos to section 127B(1).

40. Saurashtra Cement Ltd. v. CCus. 2013 (292) E.L.T. 486 (Guj.)

Is judicial review of the order of the Settlement Commission by the High Court or Supreme Court under writ petition/special leave petition, permissible?

the High Court noted that although the decision of Settlement Commission is final, finality clause would not exclude the jurisdiction of the High Court under Article 226 of the Constitution (writ petition to a High Court) or that of the Supreme Court under Articles 32 or 136 of the Constitution (writ petition or special leave petition to Supreme Court). The Court would ordinarily interfere if the Settlement Commission has acted without jurisdiction vested in it or its decision is wholly arbitrary or perverse or mala fide or is against the principles of natural justice or when such decision is ultra vires the Act or the same is based on irrelevant considerations. The Court, however, pronounced that the scope of court’s inquiry against the decision of the Settlement Commission is very narrow, i.e. judicial review is concerned with the decision-making process and not with the decision of the Settlement Commission.


EXCISE

Basic concepts of excise

1. Balrampur Chini Mills Ltd. v. Union of India 2014 (300) ELT 372 (All.)

Issue: Whether bagasse which is a marketable product but not a manufactured product can be subjected to excise duty? Background: Bagasse is a residue/waste of the sugarcane which is left behind when sugarcane stalks are crushed to extract their juice during the manufacture of sugar. It is currently used as a biofuel and in manufacture of pulp and paper products and building materials and is classified under sub-heading 2303 20 00 of Central Excise Tariff Act, 1985 as ‘Beet-Pulp’, ‘bagasse’ and ‘other waste of sugar manufacture’ with NIL rate of duty. Section 2(d) of Central Excise Act, 1944 defines excisable goods. An explanation had been inserted in section 2(d) of the Central Excise Act, 1944 vide Finance Act, 2008 to provide that “goods” include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable. Consequent to this amendment, CBEC issued a Circular dated 28-10-2009 clarifying that ‘bagasse’ and other like materials would be covered under the definition of excisable goods and chargeable to payment of excise duty post Finance Act, 2008. The Circular further clarified that in case, the rate of duty in respect of such products is ‘nil’ or they are exempted from duty vide any notification and if CENVAT credit has been taken on the inputs which are used for manufacture of dutiable and exempted goods and no separate accounts have been maintained in this regard, then in terms of rule 6(3) of CENVAT Credit Rules, 2004 (CCR), proportionate credit would be reversed or 5% (now 6%) amount would be paid. However, Supreme Court in the case of Balrampur Chini Mills Ltd. in Civil Appeal No. 2791 of 2005, decided on 21-7-2010 held that bagasse is a waste and not a manufactured product. Point of dispute: Petitioner contended that since rule 6(3) applies when a manufacturer manufacturers both dutiable as well as exempted final products, the same would not apply in their case in view of the above-mentioned Supreme Court’s judgment holding bagasse as a non-manufactured final product. Therefore, the petitioner is not liable to reverse 5% (now 6%) of the amount of bagasse sold. Department, however, contended that by virtue of the amendment made in the definition of excisable goods vide the Finance Act, 2008, bagasse becomes an 'exempted excisable goods' (bagassee is chargeable at NIL rate of duty in Central Excise Tariff) and hence provisions of rule 6(3) of CENVAT Credit Rules, 2004 (CCR) would apply in the petitioner’s case. Observations of the Court: High Court made the following observations: (i) Supreme Court in its judgement given vide order dated 21.7.2010 in Civil Appeal No.2791 of 2005 has held that reversal of 8% amount (now 6%) is not applicable in case of bagasse as the same is not a final product, but a waste. Bagasse is never manufactured, but it only emerges as a waste from the crushing of sugarcane for the manufacture of final product, namely, sugar and thus, rule 6(2) and rule 6(3) would not be applicable. (ii) Explanation added to section 2(d) deems the goods, which are capable of being bought and sold, to be marketable. Earlier also, bagasse was being bought and sold for a consideration and even after the amendment in 2008 it is being bought and sold for a consideration. Hence, it was marketable earlier also and no difference has been made about the marketability of bagasse on account of addition of explanation to section 2(d) of CEA, 1944 inasmuch as it does not cease to be waste and it does not become a manufactured final product for the purposes of rule 6 of CENVAT Credit Rules.


Decision: The High Court concluded that though bagasse is an agricultural waste of sugarcane, it is a marketable product. However, duty cannot be imposed thereon simply by virtue of the explanation added under section 2(d) of the Central Excise Act, 1944 as it does not involve any manufacturing activity. The High Court quashed the CBEC’s Circular dated 28-10-2009.

Valuation of excisable goods

2. CCEx v. Super Synotex (India) Ltd. 2014 (301) E.L.T. 273 (S.C.)

Issue: Is the amount of sales tax/VAT collected by the asssessee and retained with him in accordance with any State Sales Tax Incentive Scheme, includible in the assessable value for payment of excise duty? Facts: Assessee was a manufacturer of manmade fibre yarns which were chargeable to excise duty. The assessee availed the benefit of Sales Tax New Incentive Scheme for Industries, 1989 (‘State Incentive Scheme’) whereby he could retain 75% of the total sales tax collected from buyer and pay only remaining 25% to the State Government. Point of dispute: While computing the ‘transaction value’ for the purpose of payment of excise duty, assessee claimed 100% deduction of sales tax collected from buyer. Department objected to this as effectively, the assessee did not pay excise duty on the additional consideration received towards sales tax collected but not deposited with the State exchequer. Observations of the Court: Supreme Court observed that amount paid or payable to the State Government towards sales tax, VAT, etc. is excluded as it is not an amount paid to the manufacturer towards the price, but an amount paid or payable to the State Government for the sale transaction. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not payable or to be paid as sales tax/VAT, should not be charged from the third party/customer, but if it charged and is not payable or paid, it is a part and should not be excluded from the transaction value. This is the position after amendment w.e.f. 01.07.2000 of section 4 of Central Excise Act, 1944, where “actually paid” is significant. Supreme Court further observed that unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of "transaction value" under section 4(3)(d) of Central Excise Act, 1944, for it is not excludible. As is seen from the facts, 25% of the sales tax collected had been paid to the State exchequer by way of deposit and the remaining amount had been retained by the assessee. Decision: The Apex Court held that such retained amount has to be treated as the price of the goods under the basic fundamental conception of "transaction value" as substituted with effect from 1.7.2000 and therefore, the assessee is bound to pay excise duty on the said sum. Note – This case establishes that retention of the specified sales tax amount under the relevant State Sales Tax Incentive Schemes ought to be treated as additional consideration and subjected to central excise duty since deduction of sales tax is available only when it is actually paid to the Sales Tax Department (in terms of the definition of transaction value as introduced from July 1, 2000). In other words, the Apex Court has negated the idea that such amounts are in the nature of a subsidy and do not form part of the sale proceeds. The issue of includibility, or otherwise, of sales tax collected and retained, in terms of Incentive Schemes, in the assessable value has been dealt in the context of both old (existing prior to July 1, 2000) and new section 4 (effective from July 1, 2000) in the above-mentioned case law. However, in the above summary only the


observations and conclusion involving new section 4, based on transaction value, have been discussed and the ones relating to old section 4, based on normal price, have been avoided.

CENVAT credit

3. CCEx. v. Prag Bosimi Synthetics Ltd. 2013 (295) ELT 682 (Gau.)

Issue: Can CENVAT credit of duties, other than National Calamity Contingent Duty (NCCD), be used to pay NCCD? Point of dispute: The assessee contended that though CENVAT credit in respect of NCCD can be utilized only for payment of NCCD duty, NCCD can be paid by using CENVAT credit of basic excise duty also. The Revenue, however, rejected the assessee’s contention. Observations of the Court: The High Court noted that in terms of rule 3(1) of the CENVAT Credit Rules, 2004 [CCR], a manufacturer or producer of a final product is allowed to take CENVAT credit of NCCD. Rule 3(4) of CCR provides that CENVAT credit may be utilized for payment of any duty of excise on any final product. Therefore, CENVAT credit of NCCD may also be utilized for payment of any duty of excise on any final product in terms of rule 3(4) subject to rule 3(7). However, rule 3(7) of CCR limits the utilization of CENVAT credit in respect of NCCD as also other duties mentioned in rule 3(7)(b). Rule 3(7)(b) provides that CENVAT credit in respect of NCCD and other duties shall be utilized towards payment of duty of excise leviable under various statutes respectively. The High Court stressed upon the importance of the word “respectively” as it confines the utilization of CENVAT credit obtained under a particular statute for payment of duty under that statute only. The High Court, however, categorically added that the converse does not follow from the above discussion. Decision: The High Court held that merely because CENVAT credit in respect of NCCD can be utilized only for payment of NCCD, it does not lead to the conclusion that credit of any other duty cannot be utilized for payment of NCCD. Note: Fourth proviso to rule 3(4) of the CENVAT Credit Rules, 2004 provides that in case of mobile phones, credit of only NCCD can be utilised for payment of the NCCD payable thereon. In other words, in the absence of the credit of NCCD, NCCD payable on mobile phones will have to be paid in cash (even if credit of other duties/tax is available) as no other credit can be utilized to pay such duty.

4. KCP Ltd. v. CCEx. 2013 (295) ELT 353 (SC)

Issue: Can CENVAT credit be availed on machineries purchased for being used in setting up a sugar plant in foreign country when (i) the same are not used in the factory premises and (ii) no duty is paid on final product viz., the sugar plant? Facts of the case: The assessee was a manufacturer of machinery for sugar and cement plants and parts thereof falling under Chapter 84 of the Central Excise Act, 1944. It entered into a contract for setting up a sugar manufacturing plant in Vietnam. For this purpose, the assessee manufactured certain machines in its own factory and also purchased certain other machinery from other dealers/manufacturers. Both the machineries (manufactured and bought-out) were then put in a container and transported to Vietnam for setting up the sugar plant.


Point of dispute: The assessee availed CENVAT credit on bought-out machinery describing them as eligible capital goods. The Department, however, contended that the bought-out machinery was not eligible capital goods as the same had not been used by the assessee in its factory premises. Observations of the Court: The Supreme Court observed that the objective of the scheme of CENVAT credit is to remove cascading effect of duty imposed on the final product. There are two basic conditions for availing CENVAT credit: (i) Duty must have been paid on inputs and such inputs must be used in manufacture of final product in the factory of the manufacturer, (ii) Excise duty must have been levied on final product. The Supreme Court explained that if duty is not levied on the final product, question of grant of any relief would not arise as in that case there would not be any cascading effect on the duty imposed on inputs. The Supreme Court pointed out that since the sugar plant was set up in Vietnam, it could not be said that the plant was manufactured in the factory of the assessee. Thus, no duty was paid by the assessee on the final product i.e., on sugar plant which had been set up in Vietnam. Therefore, there would not be any question of availing credit of the duty paid on the inputs. The Supreme Court further observed that the bought-out machinery was not used by the assessee in the manufacture of the machinery (which had been transported along with bought-out machinery to Vietnam for setting up the sugar plant) as the same was not even unpacked or tested, and transported in exact condition along with machinery manufactured by the assessee. The assessee, therefore, merely acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country. Decision: The Supreme Court held that CENVAT credit could not be allowed to the assessee as no duty was paid on sugar plant set up in a foreign country. Further, since the bought-out machinery was not used in the assessee’s factory premises, the necessary condition for availing CENVAT credit on capital goods could not be fulfilled. Note: Although the above-mentioned case is based on old MODVAT provisions, the principle enunciated therein will hold good in context of CENVAT Credit Rules, 2004 also.For the sake of simplicity and better understanding, the term MODVAT has been referred to as CENVAT wherever applicable.

5. CCE v. Satish Industries 2013 (298) E.L.T. 188 (Bom.)

Issue: Whether wrongful availment of 100% CENVAT credit on capital goods in the year of purchase be upheld if wrongly availed credit of 50% is not utilized in the said year? Facts of the case: In the instant case, the assessee availed 100% CENVAT credit on capital goods in the year of purchase, i.e. in first year itself. However, he utilized only 50% of the CENVAT credit so availed in the first year. As per Revenue, assessee was entitled to avail 50% of the credit of duty paid on capital goods in the first financial year and avail the balance 50% credit in subsequent financial year. Decision: The High Court held that if 50% CENVAT credit on capital goods pertaining to subsequent financial year which had been wrongly availed in the first year had not been not utilized till the commencement of the subsequent financial year, no prejudice was caused to the Revenue and thus, the same could be upheld.


Export procedures

6. UM Cables Limited v. Union of India 2013 (293) ELT 641 (Bom.)

Issue: Can export rebate claim be denied merely for non-production of original and duplicate copies of ARE-1 when evidence for export of goods is available? Observations of the Court: The High Court observed that the objective of the procedure laid down in Notification No. 19/2004 CE (NT) dated 06.09.2004 and CBEC’s Manual of Supplementary Instructions 2005 is to facilitate the processing of a rebate claim and to enable the authority to be duly satisfied that the two fold requirement of goods (i) having been exported and (ii) being duty paid is fulfilled. The High Court referred to the decision of Supreme Court in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner 1991 (55) E.L.T. 437 (SC) wherein the Apex Court held that non-compliance of a condition which is substantive and fundamental to the policy underlying the grant of an exemption would result in an invalidation of the claim. However, it would be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes which they intend to serve, as some requirements may merely relate to procedures. Decision: The High Court, therefore, held that the procedure cannot be raised to the level of a mandatory requirement. Rule 18 itself makes a distinction between conditions and limitations subject to which a rebate can be granted and the procedure governing the grant of a rebate. It was held by the High Court that while the conditions and limitations for the grant of rebate are mandatory, matters of procedure are directory. The High Court ruled that non-production of ARE-1 forms ipso facto cannot invalidate rebate claim. In such a case, exporter can demonstrate by cogent evidence that goods were exported and duty paid and satisfy the requirements of rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004 CE (NT). Note: Where any goods are exported, rule 18 of the Central Excise Rules, 2002 empowers the Central Government to grant by way of a notification a rebate of duty paid on such excisable goods or on materials used in the manufacture or processing of such goods. The rebate is subject to such conditions or limitations, if any, and the fulfilment of such procedure as may be specified in the notification. Notification No. 19/2004 CE (NT) dated 06.09.2004 as amended has been issued by the Central Government to grant rebate under rule 18.

7. Rajasthan Textile Mills v. UOI 2013 (298) E.L.T. 183 (Raj.)

Issue: In case of export of goods under rule 18 of the Central Excise Rules, 2002, is it possible to claim rebate of duty paid on excisable goods as well rebate of duty paid on materials used in the manufacture or processing of such goods? Facts of the case: The petitioner manufactured M.M. Yarn by using duty paid inputs and cleared the same for export on payment of duty. It claimed rebate of duty paid by it on inputs as well as of duty paid on finished goods under rule 18 of the Central Excise Rules, 2002. The Department rejected the rebate claims on the ground that rule 18 does not permit grant of rebate of duty paid on exported finished goods simultaneously with the rebate of duty paid on inputs. The petitioner contended that it should be allowed the rebate of the duty paid on both the manufactured goods as well as on materials used in the manufacture of such goods. He submitted that word “or” used in rule 18 should be read as “and” as there is a combined form-Form ARE-2 for claiming the rebate on the manufactured goods as well as rebate on materials used in the manufacture or processing of such goods. Further, since whole of the duty paid on manufactured goods is exempted


under rule 19 of the Central Excise Rules, 2002, the petitioner opting for rule 18 cannot be put at a disadvantageous situation in the matter of claiming such rebate. Observations of the Court: The High Court considering the contentions of the petitioner observed as under:- (i) On plain reading of rule 18, it is apparent that if the word “or” is taken to be disjunctive, the intention manifested in rule 18 can be given full effect to, i.e. to give the benefit admissible on one of the item, either on finished goods or inputs used in the manufacture or processing of such goods. (ii) Rule 19 provides benefit on the finished goods i.e. any excisable goods can be exported without payment of duty from the factory of producer. However, it does not provide for rebate of duty paid on the materials used in manufacture or processing of such goods. Thus, the intention of rule 19 is to provide benefit on finished goods and not on raw materials. Merely with the aid of different provision of rule 19, interpreting the word “or” used in rule 18 as “and” to provide benefit for both, would not be permissible. (iii) It is important to note that Notification No. 19/2004-Central Excise (N.T.) dated 06.09.2004 provides rebate of the whole of the duty paid on all “excisable goods” while Notification No. 21/2004-C.E. (N.T.) dated 06.09.2004 provides the rebate of whole of the duty paid on ‘materials’ i.e. inputs used in the manufacture or processing of export goods. Issuance of two difference notifications further makes it clear that both the benefits cannot be claimed simultaneously. (iv) Merely by the fact that Form ARE-2 can be used either to claim the rebate on finished goods or on inputs used in manufacture of such goods, it cannot be culled out that the rebate is available on both i.e., finished goods as well as on the inputs. Merely by preparation of any combined form for both the benefits, the word “or” cannot be construed as “and” to be used conjunctively. Decision: Under rule 18 of the Central Excise Rules, 2002, grant of rebate of duty paid is available either on excisable goods or on materials used in the manufacture or processing of such goods i.e. on raw material. Thus, it is open to claim the benefit of rebate either on manufactured/finished goods or on raw material, but not on both. Note: Rule 18 of the CER, 2002 provides that where any goods are exported, the CG may, by notification, grant rebate of duty paid on such excisable goods OR duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as may be specified in the notification.

Exemption based on value of clearances (SSI)

8. CCEx v Xenon 2013 (296) ELT 26 (Jhar.)

Issue: Where clearances of a dubious company are clubbed with clearances of the original company, whether penalty can be imposed on such dubious company if all the clearances have been made by the original company? Facts of the case: In the instant case, the Department found that the assessee had set up a dubious company of another company to mis-utilize the benefits of SSI exemption notification. It was established that the dubious company did not manufacture and clear any goods and that all the transactions shown by it were, in fact, the transactions undertaken by the original company. Thus, the manufacture and clearances shown by the two units separately were clubbed together as manufacture and clearances of a single unit viz. original company in terms of the applicable SSI exemption notification and the differential duty and penalty was imposed on such original company. At the same time, penalty was also imposed on the dubious company.


Point of dispute: The issue which came up before the High Court was whether separate penalty could be levied on the dubious company, as the same was, in fact, a non-existent company. The Department contended that since there existed two companies, which had different registrations and availed separate SSI exemptions, the dubious company could not be said to be a non-existent company. Therefore, the said dubious company should also be liable to penalty for taking wrong benefits of the SSI exemption. Observations of the Court: The High Court observed that merely because the dubious company was in existence, it could not be said that it undertook the transactions. Its existence could not itself create any liability; the liability could arise only when the transactions were actually undertaken by the dubious company. If the transactions shown by the dubious company were not undertaken by the same but by the original company, then such transactions would be taken to be the transactions of the original company and clubbed with the transactions of the original company. Decision: The High Court held that when it had been established that dubious company did not undertake any transactions, penalty could not be levied on the same for the transactions undertaken by the original company. The High Court emphasized that penalty could not be imposed upon the company who did not undertake any transaction. Note: Though the above-mentioned case relates to the old provisions of law, the ratio of the judgment will also hold good in the context of present position of law as applicable to SSI exemption.

Notifications, departmental clarifications and trade notices

9. S & S Power Switch Gear Ltd. v. CCEx. Chennai-II 2013 (294) ELT 18 (Mad.)

Issue: Where a circular issued under section 37B of the Central Excise Act, 1944 clarifies a classification issue, can a demand alleging misclassification be raised under section 11A of the Act for a period prior to the date of the said circular? Observations of the Court: The High Court observed that similar issue had been considered by the Supreme Court in the case of H.M. Bags Manufacturer v. Collector of Central Excise 1997 (94) ELT 3 (SC) wherein the Apex Court held that a demand under section 11A of the Act cannot be raised for any date prior to the date of the Board Circular and the time-limit as provided under section 11A of the Act is not available to the Department. Decision: The High Court, thus, held that once reclassification Notification/Circular is issued, the Revenue cannot invoke section 11A of the Act to make demand for a period prior to the date of said classification notification/circular. Note: The principle enunciated in this judgment is that a Departmental Circular, issued under section 37B of the Central Excise Act, 1944, which clarifies a classification issue, can only apply prospectively from the date of the Circular and that the same cannot be applied retrospectively. In other words, demands cannot be raised for mis-classification i.e., not following the classification specified by the said Circular, for a period prior to the date of the Circular. Section 37B – Instructions to Central Excise Officers: CBEC constituted under the Central Boards of Revenue Act, 1963, may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board :


Provided that no such orders, instructions or directions shall be issued— a) so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions.

SERVICE TAX

Basic concepts of service tax

10. Delhi Chit Fund Association v. UOI 2013 (30) S.T.R. 347 (Del.)

Issue: Can service tax be levied on the services rendered in connection with a chit fund business? In this case, the petitioner is an association of chit fund companies based in Delhi. As per the petitioner, services rendered in connection with chit fund business are not taxable. As per the definition of service under section 65B(44), transaction in money is not a service. Further, the exclusionary part of the said definition excludes a transaction in money. Since, a provision cannot exclude something from the definition unless it is included in the definition, the intention of legislature would have been to exclude services rendered in relation to transaction in money. Therefore, the chit fund business being a transaction in money, the services rendered in connection with the said business are excluded from the definition. Explanation 2 in the said section further provides that the only service in relation to a transaction in money or actionable claim, which is taxable, is the activity relating to the use of money or its conversion from one form, currency or denomination to another for which a separate consideration is charged. Resultantly, all other services rendered in connection with a transaction in money or actionable claim, including the services rendered by the foreman of a chit business, stand excluded from the definition. It further submitted that since chit fund business is not a service, Notification No. 26/2012 dated 30.06.2012 granting an abatement of 30% to services provided in relation to chit should be quashed as question of exempting a part of the consideration received for the services in chit fund business could not arise when the law provided that such services were not taxable at all. Observations of the Court: The High Court observed that as per the opening words of the definition of ‘service’, an activity cannot be charged with service tax unless following four aspects or characteristics are present:- (i) the person who provides the service, (ii) the person who receives the service, (iii) the actual rendering of the service and (iv) the consideration for the service. A ‘mere transaction in money’ cannot be considered as ‘service’ as it lacks the above four constituent elements. The High Court elucidated that even though ‘mere transaction in money’ is not service in the first place, the intention of the legislature in excluding it from the definition might be that the legislature deemed it fit, ex abundanti cautela, to exclude it. A clue to proper interpretation of the exclusionary part of the definition is embedded in Explanation 2 which provides that except an activity for which a separate consideration is charged and which relates to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination, all other cases of transaction in money shall


stand excluded from the charge of service tax, including the consideration charged for the services of a foreman in a chit business. Decision: The High Court inferred that since in a chit fund business, the subscription is tendered in any one forms of money as defined under section 65B(33), it would be a transaction in money and would fall in the exclusionary part of the definition. Otherwise also, in view of Explanation 2 read along with the exclusionary part, the services rendered by the foreman of the chit business for which a separate consideration is charged would be out of the clutches of the definition. Thus, either way, the services of a foreman of a chit business do not constitute a taxable service. Consequently, the High Court quashed Notification No. 26/2012-S.T. dated 20.06.2012 to the extent of the entry in serial No. 8 thereof. Note: A brief account of the operations of a chit fund business is provided hereunder:-

Lets suppose 50 persons, each contributing Rs.1,000/- per month, have come together to organize a chit for a period of 50 months. Number of subscribers should be equal to number of months for which chit would operate. At

the end of each month, an amount of Rs.50,000/- (Rs.1,000/- × 50) would be available in the kitty of the chit fund. The said amount is put to auction and those subscribers who are interested in drawing the money early because of their needs may participate in the auction. The auction is organized by a foreman who conducts its proceedings. The successful bidder who is normally the person who offers the highest discount is given the chit amount. From this discount amount, after deducting a fixed amount representing the commission payable to the “foreman”, balance becomes the dividend which is to be distributed to all the subscribers. The auction would be repeated in the subsequent months and the same procedure is followed. Any subscriber who delays the bidding or does not bid at all stands to gain the maximum discount.

Service tax procedures

11. CIT v. Rajasthan Urban Infrastructure 2013 (31) STR 642 (Raj.)

Issue: Whether tax is to be deducted at source under section 194J of the Income-tax Act, 1961 on the amount of service tax if it is paid separately and is not included in the fees for professional services/technical services? Decision: The High Court held that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and is not included in the fees for professional services or technical services, the service tax component would not be subject to TDS under section 194J of the Income-tax Act, 1961.

Note: Section 194J of the Income-tax Act, 1961 provides for deduction of income tax equal to 10% of any sum paid as fees for professional services/technical services, by any person, not being an individual or HUF, who is responsible for paying such sum to a resident, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

12. A.C.L. Education Centre (P) Ltd. v. UOI 2014 (33) S.T.R. 609 (All.)

Issue: Is rule 5A(2) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994? Facts of the case: Central Excise Department issued intimation under rule 5A(2) of the Service Tax Rules, 1994, demanding necessary documents from the petitioners for making a reference to conduct an audit. The petitioners objected and also challenged the vires of rule 5A(2), inter alia, on the ground that the provisions of rule 5A(2) are contrary to the provisions of section 72A of the Finance Act, 1994.


The petitioner further submitted that as per rule 5A(2), assessee is required to provide record for audit to the audit party deputed by Commissioner or by CAG for carrying out audit of the records of assessee. However, there is no provision in the Finance Act, 1994 which empowers Central Government to frame rules in respect of the audit of the accounts of private person or companies or firms who are paying service tax by self assessment. Thus, rule 5A(2) empowering the departmental officers as auditor is arbitrary, illegal and ultra vires to the provisions of the Finance Act, 1994.

1 Students may note that the view taken in the said judgment has been incorporated by CBDT in Circular No. 1/2014 dated 13.01.2014.

Observations of the Court: The High Court observed that in case of private assessee, the Commissioner will refer the matter to an officer or Chartered Accountant, to collect the material for the purpose of audit. Thus, the material can be collected either by the officer authorized by the Commissioner or by the auditor himself, but audit will be conducted by the audit party headed by the Chartered Accountant/Cost Accountant, as deputed by the Commissioner. The manner for conducting the audit is as per the accounting standards provided by the Institute of Chartered Accountant of India and the audit report will be made available to the assessee, as per law. So, it is pious duty of every assessee to make available, to the authorized officer/ audit party, the records, trial balance and income-tax audit report, if any, for the scrutiny of the officer or the audit party. Decision: In the light of the aforesaid discussion, the High Court held that section 5A(2) is not ultra vires. It is in consonance with section 72A of the Finance Act, 1994. Note: Rule 5A(2) of the Service Tax Rules, 1994 stipulates that every assessee shall, on demand, make available to an officer authorised by the Commissioner or the audit party deputed by the Commissioner or CAG, within a reasonable time not exceeding 15 working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be, -

(i) the records as mentioned in rule 5(2); (ii) trial balance or its equivalent; and

(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961, for the scrutiny of the officer or audit party, as the case may be. Further, as per section 72A, the Commissioner of Central Excise may direct a person to get his accounts audited by a chartered accountant or cost accountant nominated by him, to the extent and for the period as may be specified by him in certain specified cases. Chartered accountant or cost accountant would submit an audit report duly signed and certified by him to the said Commissioner and shall give an opportunity of being heard to such person (whose accounts are being audited) in respect of any material gathered on the basis of the audit.

Other provisions

13. C.C.E. & S.T. (LTU), Bangalore v. Dell Intl. Services India P. Ltd. 2014 (33) S.T.R. 362 (Kar.)

Issue: Can the Committee of Commissioners review its decision taken earlier under section 86(2A) of the Finance Act, 1994, at the instance of Chief Commissioner? Decision: The Karnataka High Court held that once the Committee of Commissioners, on a careful examination of the order of the Commissioner (Appeals), did not differ in their opinion against the said order of the Commissioner (Appeals) and decide to accept the said order, the matter ends there. The said decision is final and binding on the Chief Commissioner also. The Chief Commissioner is not vested with any power to call upon the Committee of Commissioners to review its order so that he could take


decision to prefer an appeal. Such a procedure is not contemplated under law and is without jurisdiction. Note: The aforesaid case law analyses sub-section (2A) of section 86 of the Finance Act, 1994, which provides that a Committee of Commissioners may, if it objects to any order passed by the Commissioner of Central Excise (Appeals) under section 85, direct any Central Excise Officer to appeal on its behalf to the Appellate Tribunal against the order. Further, where the Committee of Commissioners differs in its opinion against the order of the Commissioner of Central Excise (Appeals), it shall state the point or points on which it differs and make a reference to the jurisdictional Chief Commissioner who shall, after considering the facts of the order, if is of the opinion that the order passed by the Commissioner of Central Excise (Appeals) is not legal or proper, direct any Central Excise Officer to appeal to the Appellate Tribunal against the order.

14. Commissioner of Service Tax v. Ernst & Young Pvt. Ltd. 2014 (34) S.T.R. 3 (Del.)

Issue: Whether the question of chargeability or levy of service tax on a particular activity would be covered within the term “determination of any question having relation to rate of service tax or value of a service for the purpose of assessment” as contemplated under sections 35G and 35L of the Central Excise Act, 1944? Point of dispute: The precise and significant issue which arose for consideration of the High Court was whether chargeability or levy of service tax on a particular activity would be covered within the term ‘determination of any question having relation to rate of duty of excise (or service tax) or value of goods (or service) for the purpose of assessment’ as contained in sections 35G and 35L of the Central Excise Act, 1944, so as to decide whether the order of Tribunal relating to such issue is appealable to High Court or Supreme Court. Observations of the Court: The High Court observed that determination of any question relating to rate of tax would necessarily directly and proximately involve the question, whether activity falls within the charging section and service tax is leviable on the said activity. The reason for the same is that in case service tax is not to be leviable under the charging section, rate of tax will be nil. Further, all assessments necessarily have to determine and decide the rate of tax after determining and deciding whether or not activity is chargeable to tax or tax can be levied. Assessment of the assessee would decide the rate of tax applicable once it is held that the activity is chargeable to service tax. The words ‘rate of tax’ would include the question whether or not the activity is exigible to tax under a particular or specific provision. Decision: Thus, the High Court held that question of chargeability or levy of service tax on a particular activity would be covered within the term “determination of any question relating to rate of service tax or value of a service for the purpose of assessment”. Note: Section 35G of the Central Excise Act, 1944 containing the provisions in respect to appeals to High Court and section 35L of the Act containing the provisions in respect to appeals to Supreme Court are applicable in case of service tax vide section 83 of the Finance Act, 1994. Section 35G read along with section 35L provides that an appeal against “an order of Tribunal relating to the determination of any question having a relation to the rate of duty of excise/service tax or to the value of goods/service tax for purposes of assessment” shall not lie to High Court. Appeal against such an order can be filed to Supreme Court. The High Court, in the aforesaid case, has interpreted as to whether the question of chargeability or levy of service tax on a particular activity would be covered within the said term so as to determine if the order of Tribunal relating to such issue would be appealable to High Court or Supreme Court.


CUSTOMS

Provisions relating to illegal import, illegal export, confiscation, penalty & allied provisions

15. Caravel Logistics Pvt. Ltd. v. Joint Secretary (RA) 2013 (293) ELT 342 (Mad.)

Issue: Can penalty for short-landing of goods be imposed on the steamer agent of a vessel if he files the Import General Manifest, deals with the goods at different stages of shipment and conducts all affairs in compliance with the provisions of the Customs Act, 1962? Facts of the case: In the instant case, the steamer agent (assessee) authored Import General Manifest and acted on behalf of the master of the vessel (the person-in-charge) before Customs Authorities to conduct all affairs in compliance with the Customs Act, 1962. The assessee filed Import General Manifest, affixed the seal on the containers and took charge of the sealed containers. It also dealt with the customs department for appropriate orders that had to be passed in terms of section 42 of the Customs Act. Penalty under section 116 of the Customs Act was imposed by the Department on the steamer agent for short landing of goods. Observations of the Court: The High Court noted that section 116 of the Act imposes a penalty on the person- in-charge of the conveyance inter alia for short-landing of the goods at the place of destination and if the deficiency is not accounted for to the satisfaction of the Customs Authorities. Section 2(31) defines “person-in-charge” to inter alia mean in relation to a vessel, the master of the vessel. Section 148 provides that the agent appointed by the person-in-charge of the conveyance and any person who represents himself to any officer of customs as an agent of any such person-in-charge is held to be liable for fulfillment in respect of the matter in question of all obligations imposed on such person-in-charge by or under this Act and to penalties and confiscation which may be incurred in respect of that matter. The High Court observed that if assessee affixed seal on containers after stuffing and took their charge, he stepped into shoes of/acted on behalf of master of vessel, the person-in-charge. Decision: The High Court held that conjoint reading of sections 2(31), 116 and 148 of Customs Act, 1962 makes it clear that in case of short-landing of goods, if penalty is to be imposed on person-in-charge of conveyance/vessel, it can also be imposed on the agent appointed by him. Hence, duly appointed steamer agent of a vessel, would be liable to penalty. However, steamer agent, if innocent, could work out his remedy against the shipper for short-landing. The High Court also clarified that in view of section 42 under which no conveyance can leave without written order, there is an automatic penalty for not accounting of goods which have been shown as loaded on vessel in terms of Import General Manifest. There is no requirement of proving mens rea on part of person-in-charge of conveyance to fall within the mischief of section 116 of the Customs Act. Note: Steamer agent is a person who undertakes, either directly or indirectly,- (i) to perform any service in connection with the ship’s husbandry or dispatch includingthe rendering of administrative work related thereto; or (ii) to book, advertise or canvass for cargo for or on behalf of a shipping line; or (iii) to provide container feeder services for or on behalf of a shipping line.


16. Akanksha Syntex (P) Ltd. v Union of India 2014 (300) E.L.T. 49 (P & H)

Issue: Where goods have been ordered to be released provisionally under section 110A of the Customs Act, 1962, can release of goods be claimed under section 110(2) of the Customs Act, 1962? Facts of the case: In the instant case, an order for provisional release of the seized goods had been made under section 110A of the Act pursuant to an application filed by the petitioner in this regard. However, the petitioner claimed unconditional release of its seized goods in terms of sections 110(2) and 124 of the Act as no show cause notice had been issued within the extended period of six months (initial period of six months was extended by another six months by the Commissioner of Customs in this case). As per section 110(2) of the Customs Act, 1962 where any goods are seized under subsection (1) and no notice in respect thereof is given under clause (a) of section 124 within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized. However, the aforesaid period of six months may, on sufficient cause being shown, be extended by the Commissioner of Customs for a period not exceeding six months. Point of dispute: It was the contention of the Department that once an order for provisional release of goods has been made under section 110A of the Act, in view of judgment of the Bombay High Court in Jayant Hansraj Shah v. Union of India and Others 2008 (229) E.L.T. 339 (Bom.), goods cannot be released under sections 110(2) and 124 of the Act. The only recourse available to the petitioner was either to comply with the order of provisional release and in case, the petitioner was unable to abide by the terms of the provisional release then in view of the judgment of the Bombay High Court in Jayant Hansraj Shah’s case, the prayer for return of goods unconditionally could not be made. Observations of the Court: The High Court observed that the object of enacting section 110(2) of the Act is that the Customs Officer may not deprive the right to property for indefinite period to the person from whose possession the goods are seized under subsection (1) thereof. Sub-section (2) of section 110 strikes a balance between the Revenue’s power of seizure and an individual’s right to get the seized goods released by prescribing a limitation period of six months from the date of seizure if no show cause notice within that period has been issued under section 124(a) for confiscation of the goods. The High Court opined that a plain and combined reading of sections 110(2), 124 and 110A spells out that any order for provisional release shall not take away the right of the assessee under section 110(2) read with section 124 of the Act. Where no action is initiated by way of issuance of show cause notice under section 124(a) of the Act within six months or extended period stipulated under section 110(2) of the Act, the person from whose possession the goods were seized becomes entitled to their return. The High Court did not accept the contrary interpretation of the Bombay High Court in Jayant Hansraj Shah’s case. The High Court was of the view that the said interpretation was not borne out from the plain reading of the aforesaid provisions. Decision: The remedy of provisional release is independent of remedy of claiming unconditional release in the absence of issuance of any valid show cause notice during the period of limitation or extended limitation prescribed under section 110(2) of the Customs Act, 1962. Notes: (i) Delhi High Court has also taken a similar view in the case of Jatin Ahuja vs Union of India 2013 (287) E.L.T. 3 (Del.) and held that any effort to say that provisional release of seized goods under section 110A would extinguish the operation of the consequence (of not issuing show cause notice, within the statutory period) spelt out in section 110(2) would be contrary to the plain meaning and intendment of the statute. This is because section 110A is an interim order enabling release of goods, (for instance, where they are fast moving, or perishable). The existence of such power does not in any way impede or limit the operation of the mandatory provision of section 110(2). There are no internal indications in section 110A that the amplitude of section 110(2) is curtailed. Thus, the


effect of the statute, by virtue of section 110(2), is that on expiration of the total period of one year (in the absence of a show cause notice) the seizure ceases, and the goods which are the subject matter of seizure, are to be released unconditionally. There is nothing in section 110A to detract from this consequence. (ii) In Jayant Hansraj Shah’s case the Bombay High Court took a contrary view and rejected the plea of the petitioner of unconditional release of the seized goods with the following observations :- “The procedure for confiscation of the goods can be resorted to if the goods are not provisionally released. If the owner in terms of section 110A applies for provisional release and an order is passed it can be said that the goods continue to be under seizure as the order under section 110A is a quasi judicial order. Section 110(2) would not be operative. It is only in the case where no provisional order is passed for release of the seized goods and if no notice is issued under Section 124(a) for confiscation of the goods only then would section 110(2) apply and the respondent would be bound to release the goods. Any other reading of the section would mean that a person whose goods are seized would seek a provisional release of the goods, get an order of provisional release, allow the authorities to proceed to believe on that basis that such person seeks to release the goods provisionally and on the expiry of the period of six months if notice is not issued under section 124(a) then contend that the terms for provisional release of the goods are no longer binding as the period of six months has expired and no notice has been served. The period of notice is only when the respondents seek to confiscate the goods. If there be a provisional release order it is not within the jurisdiction of the respondents to proceed to issue the notice under section 124. At the highest they can proceed under section 110(1A) by following the procedure set out therein. In our opinion, therefore, as procedure for confiscation could not have been initiated pursuant to the order of provisional release the contention urged by the petitioners that the goods should be released under section 124(2) has to be rejected.”

(iii) Punjab and Haryana High Court also departed from Jayant Hansraj Shah case in the case of Rama Overseas v. Union of India 2013 (293) ELT 669 (P & H).

Miscellaneous provisions

17. Vishnu M Harlalka v. Union of India 2013 (294) ELT 5 (Bom)

Issue: Whether any interest is payable on delayed refund of sale proceeds of auction of seized goods after adjustment of expenses and charges in terms of section 150 of the Customs Act, 1962? Facts of the case: In the instant case, the Settlement Commission ordered to release the seized goods of the assessee on payment of a specified amount of fine and penalty adjudicated by it. However, since the seized goods had already been auctioned by the Department, the Commission directed the Revenue to refund to the assessee, the amount remaining in balance after adjustment of expenses and charges as payable in terms of section 150 of the Customs Act, 1962 and further adjustment of fine and penalty as adjudicated by it. The refund was however, not granted despite several representations. The response to the RTI query showed that refund was sanctioned but it was not paid till filing of this writ petition. During the pendency of this writ petition, the principal amount of the sale proceeds was paid to the assessee but the interest on the same was not paid. It was the contention of the Department that the amount paid to the assessee represented the balance of sale proceeds of the goods auctioned or disposed of after adjustments under section 150 of the Act. Since the amount paid did not represent the amount of duty or interest, the provisions of sections 27 and 27A of the Customs Act relating to claim for refund of duty and interest on delayed refunds respectively would not be applicable. Observations of the Court: The High Court observed that though no period was stipulated in the order of the Settlement Commission for the grant of refund, the entire exercise ought to have been carried out within a reasonable period of time. All statutory powers have to be exercised within a reasonable period even when no specific period is prescribed by the provision of law. The High Court noted that there was absolutely no reason or justification for the delay in payment of balance sale proceeds. Decision: The High Court held that Department cannot plead that the Customs Act, 1962 provides for the payment of interest only in respect of refund of duty and interest and hence, the assessee would not be entitled to interest on the balance of the sale proceeds which were directed to be paid by the


Settlement Commission. The High Court clarified that acceptance of such a submission would mean that despite an order of the competent authority directing the Department to grant a refund, the Department can wait for an inordinately long period to grant the refund. The High Court directed the Department to pay interest from the date of approval of proposal for sanctioning the refund. Note: Section 27(1) inter alia provides that a person claiming refund of duty and interest, if any, paid or borne by him may make an application for such refund before the expiry of one year from the date of payment of such duty or interest. Section 27(2) inter alia requires an order to be passed on the receipt of such application, subject to the satisfaction of the Assistant/Deputy Commissioner of Customs, that the whole or part of the duty or interest paid by the applicant is refundable. Section 27A stipulates that if any duty ordered to be refunded under section 27(2) to an applicant is not refunded within three months from the receipt of the application under section 27(1), interest shall be paid at such rate not below 5% and not exceeding 30% p.a. as fixed by the Central Government. Currently, the notified rate of interest on delayed refunds is 6%. Where any goods, not being confiscated goods, are sold under the provisions of the Act, the manner of application of sale proceeds thereof is provided under section 150(2). The proceeds have to be applied for the payment of (i) expenses of sale, (ii) freight and other charges to the carrier, (iii) duty, if any; (iv) charges to the person having custody of the goods; and (v) any amount due to the Central Government from the owner of the goods, under the provisions of the Act or under any law relating to customs. The balance is to be paid to the owner of the goods.

Classification of excisable goods

18. CCEx. v. Ciens Laboratories 2013 (295) ELT 3 (SC)

Issue: How will a cream which is available across the counters as also on prescription of dermatologists for treating dry skin conditions, be classified if it has subsidiary pharmaceutical contents - as medicament or as cosmetics? Facts of the case: The assessee manufactured a cream called as ‘Moisturex’ which was prescribed by dermatologists for treating dry skin conditions. However, the same was also available in chemist or pharmaceutical shops without prescription of a medical practitioner. The pharmaceutical content of the cream included urea (10%), lactic acid (10%) and propylene glycol (10%). The assessee classified the cream as medicament under Heading 30.03 of the Central Excise Tariff. Point of dispute: The Department contended that the product ‘Moisturex’ is mainly used for care of the skin and thus, the same ought to be classified as cosmetic or toilet preparations under Heading 33.04. It was further contended that even if such cosmetic products contained certain subsidiary pharmaceutical contents or even if they had certain subsidiary curative or prophylactic value, still, they would be treated as cosmetics only. It was also contended that since the product can be purchased without prescription of a medical practitioner, it could not be a medicament. The assessee on the other hand contended that the very presence of pharmaceutical substances changes the identity of the product since such constituents are not used for care of the skin, but for cure of certain diseases relating to skin. Observations of the Court: The Apex Court observed that the cream was not primarily intended to protect the skin but was meant for treating or curing dry skin conditions of the human skin. The Apex Court stated that presence of pharmaceutical ingredients in the cream show that it is used for prophylactic and therapeutic purposes. The Supreme Court made the following further significant observations: (i) When a product contains pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, the proportion of such ingredients is not invariably the decisive factor in


classification. The relevant factor is the curative attributes of such ingredients that render the product a medicament and not a cosmetic. (ii) Though a product is sold without a prescription of a medical practitioner, it does not lead to the immediate conclusion that all products that are sold over / across the counter are cosmetics. There are several products that are sold over-the-counter and are yet, medicaments. (iii) Prior to adjudicating upon whether a product is a medicament or not, it ought to be seen as to how do the people who actually use the product, understand it to be. If a product's primary function is "care” and not "cure”, it is not a medicament. Medicinal products are used to treat or cure some medical condition whereas cosmetic products are used in enhancing or improving a person's appearance or beauty. (iv) A product that is used mainly in curing or treating ailments or diseases and contains curative ingredients, even in small quantities, is to be treated as a medicament. Decision: The Supreme Court held that owing to the pharmaceutical constituents present in the cream ‘Moisturex’ and its use for the cure of certain skin diseases, the same would be classifiable as a medicament under Heading 30.03. Note: The classification discussed in the above-mentioned case relates to the old Central Excise Tariff. However, the ratio of the judgment will hold good under the current Central Excise Tariff as well.

Demand, adjudication and offences

19. CCEx. v. Delphi Automotive Systems Ltd. 2013 (292) E.L.T. 189 (All.)

Issue: Can penalty under section 11AC of the Central Excise Act, 1944 be imposed in a case where there are divergent judicial pronouncements on an issue and the assessee chooses to follow one of those pronouncements? Decision: The High Court held that mens rea (guilty mind) is an essential part for levy of penalty under section 11AC of the Central Excise Act, 1944. Where a provision of statute is not clear and there are divergent judicial pronouncements, it cannot be said that there is mens rea on the part of the assessee if he chooses to follow his course of action in the light of one of the judicial pronouncements.

20. Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.) & Vandana Bidyut Chatterjee v. UOI 2013 (292) E.L.T. 6 (Bom.)

Issue: Can a former director of a company be held liable for the recovery of the excise dues of such company? Decision: Delhi High Court in case of Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.) had elucidated that a former director of a company cannot be held liable for the recovery of the customs dues of such company. Bombay High Court has taken a similar view in case of Vandana Bidyut Chatterjee v. UOI 2013 (292) E.L.T. 6 (Bom.). In this case, Department alleged that the petitioner was liable to pay the arrears of the excise duty and penalty of a company of which her late father was a director and sought to attach the property belonging to the petitioner for recovery of such dues. The said property was gifted to the petitioner by her late father during his lifetime. The company was jointly controlled by Mukherjee Brothers (the petitioner) and Kapoor family. They entered into agreement wherein the latter


transferred their shares to Mukherjee Brothers and placed the responsibility to discharge the excise duty liability of the company on them. The High Court observed that duty and penalty were the arrears of the company because company was the person engaged in the manufacture of goods and registered as manufacturer. As per section 142 of the Customs Act, 1962 read along with the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995*, Central Government could recover dues belonging only to a defaulter. Thus, the recovery proceedings could be taken only against the company, as it alone was the defaulter. There was no provision to recover the arrears of the company from its directors and or shareholders under the Customs Act. Further, there was no provision in the Customs Act as was found under section 179 of the Income Tax Act, 1961 or under section 18 of the Central Sales Tax Act, 1956 where the dues of a private limited company could be recovered from its directors when the private limited company was under liquidation, in specific circumstances. Since a company was a separate person having a distinct identity, independent from its shareholders and directors, company’s dues could not be recovered from the directors and/or individual shareholder of the company. Furthermore, the Department’s reliance upon the agreement entered into between Mukherjee Brothers and Kapoor family to fasten the liability of excise duty and penalty arrears of the said company upon the petitioners’ father was not sustainable. Hence, the Court held that in the instant case, the attachment notices issued on the former late director and his daughter were without jurisdiction. Note: Section 12 of the Central Excise Act, 1944 empowers the Central Government to apply specified provisions of the Customs Act to central excise subject to some modifications. Consequently, section 142 of the Customs Act, 1962 has been made applicable to the Central Excise Act by virtue of Notification No. 68/63-CE dated 4th May, 1963 issued under section 12 of the Central Excise Act.

21. CCEx. V. Ratnamani Metals and Tubes Ltd. 2013 (296) ELT 327 (Guj.)

Issue: Can Appellate Authorities or Courts permit the assessee to pay reduced penalty of 25% beyond 30 days of the communication of the order of the adjudicating authority as prescribed under section 11AC? Decision: The High Court answered the aforesaid question of law in affirmative. It held that an option can also be granted to the assessee to deposit the entire dues along with 25% interest and penalty within a period of 30 days of communication of the order of Tribunal. Note: The Bombay High Court has taken a view contrary to the abovementioned opinion of Gujarat High Court in case of CCEx. v. Castrol India Ltd. 2012 (286) E.L.T. 194 (Bom.).

22. Chitra Builders Private Ltd. v. Addl. Commr. of CCEx. & ST 2013 (31) STR 515 (Mad.)

Issue: Is it justified to recover service tax during search without passing appropriate assessment order? Facts of the case: A search was conducted at a branch office of the petitioner company and at the residence of director wherein a sum of Rs. 2 crores was collected by the Department from the petitioner. The petitioner filed a writ petition requesting the Court to direct the Department to return the money so collected. Points of dispute: The petitioner’s major contentions were as follows:-

(i) Since the petitioner was not liable to pay service tax, collection of said amount from the petitioner, was arbitrary and illegal.


(ii) Department had no jurisdiction to search the premises of the petitioner, or of its Directors, as it was neither carrying on its business nor was not registered, within the jurisdiction of the Commissionerate who had issued the search warrant.

(iii) The petitioner further alleged that as per a deposition recorded under coercion on the date of search, the sum of Rs.2 crores had been paid to the Department, voluntarily, as part of the arrears of service tax due from the company. However, tax could not be collected from the petitioner without a proper assessment order being passed, in accordance with the procedures established by law.

The Department counterargued that since the petitioner was actually liable to pay a larger amount of service tax, it could not claim for return of the said amount which was paid by him during the search as the said amount was paid by it voluntarily and not under coercion to mitigate the offence committed by it, under section 73(3) of the Finance Act, 1994. Observations of the Court: The Court observed that it is a well settled position in law that no tax can be collected from the assessee, without an appropriate assessment order being passed by the authority concerned and without following the procedures established by law. However, in the present case, no such procedures had been followed. Further, although Department had stated that the said amount had been paid voluntarily by the petitioner in respect of its service tax liability; it had failed to show that the petitioner was actually liable to pay service tax. Decision: Thus, the High Court held that the amount collected by Department, from the petitioner, during the search conducted, could not be held to be valid in the eye of law, and directed the Department to return to the petitioner the sum of Rs.2 crores, collected from it, during the search conducted.

23. Infinity Infotech Parks Ltd. v. UOI 2013 (31) STR 653 (Cal.)

Issue: Can extended period of limitation be invoked for mere contravention of statutory provisions without the intent to evade service tax being proved? The High Court observed that as per proviso to section 73(1), extended period of limitation can be invoked if the service tax has not been levied or paid or has been shortlevied or short-paid or erroneously refunded by reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provision of Chapter V or of rules made thereunder with the intent to evade the payment of service tax. Decision: It held that mere contravention of provision of Chapter V or rules framed thereunder does not enable the service tax authorities to invoke the extended period of limitation. The contravention necessarily has to be with the intent to evade payment of service tax.

24. Kandra Rameshbabu Naidu v. Superintendent (A.E.), S.T., Mumbai-II 2014 (34) S.T.R. 16 (Bom.)

Issue: Would service tax collected but not deposited prior to 10.05.2013 be taken into consideration while calculating the amount of Rs.50 lakh as contemplated by clause (ii) of section 89(1) of the Finance Act, 1994? Facts of the case: The assessee was arrested on 22.01.2014 on the ground that he had collected service tax of Rs. 2.59 crores during the period between financial years 2010-11 and 2013-14, but had deposited only Rs. 15 lakh with the Government.


The assessee did not dispute the liability to pay the service tax to the Government. However, he contended that only the amount collected between 10.05.2013 and 21.07.2013 (six months prior to his arrest) should be considered while calculating the amount of Rs. 50 lakh as contemplated by clause (ii) of section 89(1) of the Finance Act, 1994. He submitted that since penal provisions could not be made effective retrospectively, amended section 89(1) and newly introduced sections 90 and 91 of the Finance Act, 1994 (as introduced by the Finance Act, 2013) could not be made effective for a period prior to 10.05.2013 [i.e. the date on which Finance Act, 2013 came into effect]. Assessee further submitted that since the amount collected between 10.05.2013 and 21.07.2013 was much less than Rs. 50 lakh, provisions of amended clause (ii) of section 89(1) were not applicable in his case. Revenue contended that since failure to deposit service tax with Central Government after collecting it from the customers was a continuing offence, entire amount of arrears of service tax was required to be construed as liable to be deposited with the Central Government when it became due and it being a continuing offence, the assessee was liable to deposit the entire arrears which was more than Rs. 50 lakh. Decision: The High Court held that since the said offence is a continuing offence, entire amount of service tax outstanding [which is required to be deposited with the Central Government] as on 10.05.2013, would be taken into consideration while calculating the amount of Rs. 50 lakh as contemplated by section 89(1)(ii) of the Finance Act, 1994. Note: In the aforesaid case law, the assessee collected service tax but did not deposit it for a period between financial years 2010-11 and 2013-14. The relevant legal provisions pertaining to said default during this period are as follows:- Prior to 08.04.2011, in case of failure to pay service tax to the credit of the Central Government, only interest and penal provisions were attracted. With effect from 08.04.2011, prosecution provisions were introduced in service tax law by the Finance Act, 2011 vide section 89 whereby, inter alia, said offence (where the amount involved exceeded ` 50 lakh) was also made punishable with a maximum imprisonment of 3 years. Further, it was a non-cognizable and bailable offence. With effect from 10.05.2013, section 89(1) of the Finance Act, 1994 was amended by the Finance Act, 2013 to enhance the punishment for said offence (where the amount involved exceeds ` 50 lakh) from a maximum imprisonment of 3 years to 7 years. Further, new sections 90 and 91 were introduced to make said offence cognizable and liable to arrest provisions.

25. Kemtech International Pvt. Ltd. v. CCus. 2013 (292) E.L.T. 321 (S.C.)

Issue: Is the adjudicating authority required to supply to the assessee copies of the documents on which it proposes to place reliance for the purpose of requantification of short-levy of customs duty? Decision: The Apex Court elucidated that for the purpose of re-quantification of short-levy of customs duty, the adjudicating authority, following the principles of natural justice, should supply to the assessee all the documents on which it proposed to place reliance. Thereafter the assessee might furnish their explanation thereon and might provide additional evidence, in support of their claim.

26. CCus. v Dinesh Chhajer 2014 (300) E.L.T. 498 (Kar.)

Issue: Can customs duty be demanded under section 28 and/or section 125(2) of the Customs Act, 1962 from a person dealing in smuggled goods when no such goods are seized from him?


Facts of the case: Department’s investigation revealed that the assessee was dealing in smuggled goods though no smuggled goods were seized from the assessee. Duty was demanded from the assessee under section 28 and 125(2) of the Customs Act, 1962. The Tribunal, when the matter was brought before it, held that duty can be demanded under section 28 only from the person chargeable with duty, who is the importer as defined under section 2(26) of the Act. Further, it held that if the smuggled goods are seized, confiscated and then an option to pay fine is given to the person from whose possession the goods were seized or to the owner of the goods, duty could be demanded from such person under section 125(2) of the Act, apart from fine and penalty. However, since in the instant case, the assessee was not the importer and goods were also not confiscated, the demand of duty on the assessee was unsustainable in law. The matter was then taken before the High Court. Observations of the Court: The High Court observed as under:

(i) Section 28 applies to a case where the goods are imported by an importer and the duty is not paid in accordance with law, for which a notice of demand is issued on the person. In case of notice demanding duty under section 125(2), firstly the goods should have been confiscated and the duty demandable is in addition to the fine payable under section 125(1) in respect of confiscated goods. Thus, notices issued under sections 28 and 125(2) are not identical and fall into completely different areas.

(ii) The material on record disclosed that the assessee did not import the goods. He was not the owner of the goods but only a dealer of the smuggled goods and therefore, there was no obligation cast on him under the Act to pay duty. Thus, the notice issued under section 28 of the Act to the assessee is unsustainable as he is not the person who is chargeable to duty under the Act.

(iii) Since no goods were seized, there could not be any confiscation and in the absence of a confiscation, question of payment of duty by the person who is the owner of the goods or from whose possession the goods are seized, does not arise.

Decision: The High Court held that Tribunal was justified in holding that no duty is leviable against the assessee as he is neither the importer nor the owner of the goods or was in possession of any goods.

Refund

27. CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.) & Swastik Sanitarywares Ltd. v. UOI 2013 (296) E.L.T. 321 (Guj.)

Issue: Can refund of an amount mistakenly paid as excise duty be rejected on the ground of limitation under section 11B of the Central Excise Act, 1944? Decision: Karnataka High Court in case of CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.) had held that refund of an amount mistakenly paid as service tax could not be rejected on ground of limitation under section 11B of the Central Excise Act, 1944 (as made applicable in case of service tax vide section 83 of the Finance Act, 1994). Gujarat High Court has taken a similar view in case of Swastik Sanitarywares Ltd. v. UOI 2013 (296) E.L.T. 321 (Guj.). In this case, the assessee had erroneously deposited the excise duty twice on the clearance of same goods. However, the burden of the duty paid the second time was not passed on to the consumer. When it applied for the refund of the second deposit of the same amount, the refund claim was rejected on the ground of limitation under section 11B of the Central Excise Act, 1944.


The High Court held that payment made by the assessee the second time could not be considered as duty deposited or paid. Hence, repayment of such amount could not be seen as a refund claim made under section 11B. Consequently, such amount is repayable to the assessee by the Department.

28. ICMC Corporation Ltd.v CESTAT, CHENNAI 2014 (302) E.L.T. 45 (Mad.)

Issue: Whether filing of refund claim under section 11B of Central Excise Act, 1944 is required in case of suo motu availment of CENVAT credit which was reversed earlier (i.e., the debit in the CENVAT Account is not made towards any duty payment)? Decision: The High Court held that this process involves only an account entry reversal and factually there is no outflow of funds from the assessee by way of payment of duty. Thus, filing of refund claim under section 11B of the Central Excise Act, 1944 is not required. Further, it held that on a technical adjustment made, the question of unjust enrichment as a concept does not arise.

29. CCEx v. Superintending Engineer TNEB 2014 (300) E.L.T. 45 (Mad.)

Issue: Does the principle of unjust enrichment apply to State Undertakings? Decision: The High Court relied on the decision of the Constitution Bench of the Apex Court rendered in the case of Mafatlal Industries Ltd. v. Union of India 1997 (89) E.L.T. 247 SC. The Supreme Court in the said case held as under: “The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched.” The High Court followed the decision of the Apex Court and held that the concept of unjust enrichment is not applicable as far as State Undertakings are concerned and to the State.

30. KSJ Metal Impex (P) Ltd. v. Under Secretary (Cus.) M.F. (D.R.) 2013 (294) ELT 211 (Mad.)

Issue: Whether interest is liable to be paid on delayed refund of special CVD arising in pursuance of the exemption granted vide Notification No. 102/2007 Cus dated 14.09.2007? Facts of the case: Section 3(5) of the Customs Tariff Act, 1975 (CETA) provides for levy of special additional duty (special CVD) in addition to duty leviable under section 3(1) of the CETA to counterbalance sales tax, value added tax, local tax or any other charges. Notification No. 102/2007 Cus dated 14.09.2007, issued under section 25(1) of the Customs Act, 1962, grants exemption in respect of such special CVD subject to certain conditions. The exemption under the said notification is being granted by way of refund of the special CVD. In other words, exemption is not given ab initio but duty has to be paid first and thereafter, refund for the same needs to be claimed. The assessee paid the special CVD and applied for the refund of the same under section 27 of the Customs Act, 1962 along with interest in pursuance of the above-mentioned notification. The Department, however, rejected the assessee’s claim for the interest in view of paragraph 4.3 of CBEC Circular No. 6/2008 Cus. dated 28.04.2008 which stipulated that interest could not be granted as Notification No. 102/2007-Cus. did not have any specific provision for payment of the same on refund of duty. The Department was of the view that since such refund of special CVD was an automatic


refund by virtue of Notification No. 102/2007 Cus, it could not be considered as a refund under section 27 of the Customs Act, 1962 so as to claim interest under section 27A of the Customs Act,1962. Observations of the Court: The High Court was of the view that paragraph 4.3 of Circular No. 6/2008 Cus was totally inconsistent with the provisions of the Customs Act, 1962 and the CETA. The High Court observed that grant of exemption under section 25(1) of the Customs Act, 1962 is an independent exercise of power by the Central Government. Notification No. 102/2007 Cus., issued in exercise of such powers, provides exemption by way of refund of special CVD and imposes certain conditions for seeking refund. However, the procedure for such refund will be governed in terms of section 3(8) of the CETA. Therefore, provisions of section 27 of the Customs Act, 1962 in relation to refund of duty [made applicable to refund of special CVD vide section 3(8) of CETA] would be applicable to such refund of special CVD also. The High Court further stated that a conjoint reading of section 25(1) and section 27 of the Customs Act makes it clear that the refund application of special CVD should only be filed in accordance with the procedure specified under section 27 of the Customs Act, 1962 and that there is no method prescribed under section 25 of the Customs Act, 1962 to file an application for refund of duty or interest. Decision: The High Court, therefore, held that : (i) It would be a misconception of the provisions of the Customs Act, 1962 to state that notification issued under section 25 of the Customs Act, 1962 does not have any specific provision for interest on delayed payment of refund. (ii) When section 27 of the Customs Act, 1962 provides for refund of duty and section 27A of the Customs Act, 1962 provides for interest on delayed refunds, the Department cannot override the said provisions by a Circular and deny the right which is granted by the provisions of the Customs Act, 1962 and CETA. (iii) Paragraph 4.3 of the Circular No. 6/2008 Cus. dated 28.04.2008 being contrary to the statute has to be struck down as bad. Note: This case clarifies that refund of special CVD arising as a result of exemption granted by way of exemption notification is governed under section 27 of the Customs Act, 1962 and thus, the provisions relating to payment of interest on delayed refund of duty as contained in section 27A of the Customs Act also become applicable in respect of delayed refunds of special CVD which is granted to give effect to the exemption contained in an exemption notification. Thus, it appears that the provisions applicable to normal refunds of duty/tax may apply to refunds of duty/tax arising as a result of exemption granted by way of exemption notifications as well.

Appeals

31. Khanapur Taluka Co-op. Shipping Mills Ltd. v. CCEx. 2013 (292) E.L.T. 16 (Bom.)

Issue: In a case where an appeal against order-in-original of the adjudicating authority has been dismissed by the appellate authorities as time-barred, can a writ petition be filed to High Court against the order-in-original? Facts of the case: In this case, assessee filed the appeal to the Commissioner (Appeals) and then further appeal to CESTAT against the order-in-original passed by the adjudicating authority. However, the appeals were dismissed as time-barred. Point of dispute: The assessee filed a writ petition to the High Court challenging the correctness of the order-in-original. It further contended that although the appeal filed by it had been dismissed by the


appellate authorities on the ground that same had been time-barred, it was entitled to challenge the correctness of the order-in-original in a writ petition. Decision: The High Court referred to the case of Raj Chemicals v. UOI 2013 (287) ELT 145 (Bom.) wherein it held that where the appeal filed against the order-in-original was dismissed as time-barred, the High Court in exercise of writ jurisdiction could neither direct the appellate authority to condone the delay nor interfere with the order passed by the adjudicating authority. Consequently, it refused to entertain the writ petition in the instant case. Note: Gujarat High Court has taken a contrary view in case of Texcellence Overseas v. Union of India 2013 (293) ELT 496 (Guj.) as reported below:-

32. Texcellence Overseas v. Union of India 2013 (293) ELT 496 (Guj.)

Issue: Can the High Court condone the delay - beyond the statutory period of three months prescribed under section 35 of the Central Excise Act, 1944 - in filing an appeal before the Commissioner (Appeals)? Facts of the case: The petitioner was granted a refund by way of order-in-original and the same was also upheld by the CESTAT. However, a fresh show cause notice was issued on the ground that refund was erroneously granted. The show cause notice, this time was adjudicated in favour of the Department. The petitioner challenged this order before Commissioner (Appeals) five months after the said order was passed. As per section 35 of the Central Excise Act, 1944, an appeal needs to be filed with the Commissioner (Appeals) within 60 days from the date of the communication of the order sought to be appealed against. However, the Commissioner (Appeals) is empowered to condone the delay for a period of 30 days if he is satisfied with the sufficiency of the cause of the delay. Therefore, the Commissioner (Appeals) and Tribunal (when the matter was brought before it) rejected the appeal on the grounds of limitation as the same was filed beyond three months from the date of the impugned order. Observations of the Court: The High Court observed that none of the appellate authorities decided the question on merit after the second round of litigation began and therefore, the question of merger* would not arise until the matter is decided on merits. Treating these circumstances as extraordinary, the High Court sought to uphold the petitioner’s challenge to the impugned order. The High Court noted that Department did not dispute the fact that the petitioner had extremely good case on merit. Further, the petitioner, while challenging the impugned order before the Commissioner (Appeals), had also preferred an application for condonation of delay and substantiated the same with sufficient and acceptable grounds. The High Court, thus, concluded that the petitioner had sufficiently explained the delay from the very beginning, though the appellate forums were bound by the law on the issue. Decision: The High Court opined that since the total length of delay was very small and the case had extremely good ground on merits to sustain, its non interference at that stage would cause gross injustice to the petitioner. Thus, the High Court, by invoking its extraordinary jurisdiction, quashed the order which held that refund was erroneously granted. The High Court held that such powers are required to be exercised very sparingly and in extraordinary circumstances in appropriate cases, where otherwise the Court would fail in its duty if such powers are not invoked. Note: The principle enunciated in the afore-mentioned case is that the High Court has extraordinary powers to interfere in appropriate cases even while upholding the contention that there is statutory limitation to which delay can be condoned by the authorities. If an aggrieved person knocks the door of the High Court seeking redressal


under writ jurisdiction to obviate extraordinary hardship and injustice, such plea can be entertained even beyond the period of limitation. *What is Doctrine of Merger? The doctrine of merger is neither a doctrine of constitutional law nor a doctrine which is recognised statutorily. It is the fusion or absorption of a lesser right with a greater right; or merger of the order of lower appellate authority [e.g. Commissioner (Appeals]) with the order of a higher appellate authority [e.g. CESTAT]. Since, there cannot be more than one operative order governing the same subject-matter at one and the same time, the judgment of a lower appellate authority, if subjected to an examination by the higher appellate authority, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the higher appellate authority. In other words, the judgment of the lower appellate authority loses its identity by its merger with the judgment of the higher appellate authority. However, the doctrine of merger cannot be applied universally. It cannot be said that wherever there are two orders, one by the lower appellate authority and the other by a higher appellate authority, passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of the appellate or revision order and the scope of the appeal or revision contemplated by the particular statute. The application of the doctrine depends on the nature of the appellate or revision order in each case and the scope of the statutory provisions.

33. Habib Agro Industries v. CCEx. 2013 (291) E.L.T. 321 (Kar.)

Issue: Can delay in filing appeal to CESTAT for the reason that the person dealing with the case went on a foreign trip and on his return his mother expired, be condoned? Facts of the case: In this case, the application for filing appeal to CESTAT was filed with a delay of 45 days. The reason for the delay was that the authorised representative who dealt with the case had gone abroad for about a month. On his return, his mother had expired. After attending obsequies, the appeal was filed. However, the Tribunal dismissed the said application holding that there was no sufficient cause shown for condonation of delay. Decision: The High Court observed that there did not appear to be any deliberate latches or neglect on the part of the authorised representative to file the appeal. It held that the reason for delay in filing appeal to CESTAT, that the person dealing with the case went on a foreign trip and on his return his mother expired, could not be considered as unreasonable for condonation of delay.

34. Metal Weld Electrodes v. CESTAT 2014 (299) ELT 3 (Mad.)

Issue: Which remedy is available against a pre-deposit order passed by CESTAT under section 35F of Central Excise Act, 1944/section 129E of Customs Act, 1962; is it an appeal to High Court under section 35G of Central Excise Act, 1944/section 130 of Customs Act, 1962 or a writ petition before High Court? As per section 35G(1)/130(1) of the relevant Acts, an appeal lies to the High Court from every order passed in appeal by the Appellate Tribunal (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise/customs or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law. Sub-section (2) of section 35G/130 inter alia provides that the Commissioner of Central Excise or the other party aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court. The assessee contended that only a writ petition, and not an appeal, can be filed against the pre-deposit orders of CESTAT on account of following reasons:


(i) Only an order determining the final issues arising between the parties in the appeal before the Appellate Tribunal is appellable before the High Court. However, a predeposit order is an interim order not passed in appeal but in appeal proceedings. The term "every order" (as mentioned above) does not include interim order under section 35F/129E. (ii) A substantial question of law cannot arise out of an interlocutory order that deals only with prima facie nature of the case; it can arise only from the order, which finally decides the rights of the parties in controversy. (iii) A period of 180 days have been granted in the statute for filing an appeal. However, very short time is granted to comply with the pre-deposit orders and therefore, such order cannot be construed as an order to be appealed against. The assessee submitted that when a remedy is not available under the Act, remedy under Article 226 of the Constitution of India (writ petition) has to be permitted. Observations of the Court: The High Court made the following significant observations:

(i) There is a vital difference between sub-sections (1) and (2) of section 35G/130. While sub-section (1) reads that an appeal shall lie to the High Court from "every order passed in appeal by the Appellate Tribunal", sub-section (2) further contemplates that the Commissioner of Central Excise or the other party aggrieved may file an appeal to the High Court against "any order passed by the Appellate Tribunal". The words "in appeal" is conspicuously absent under sub-section (2).

(ii) (ii) The legislature at its wisdom thought fit to enlarge the scope of appeal by providing sub-section (2) with a specific expression "any order passed by the Appellate Tribunal". The words “in appeal” cannot be confined to mean only final orders passed in appeal. Interim orders are also orders passed in appeal; they are not passed outside the scope of appeal or as independent or parallel orders.

(iii) Unless the statute specifically prohibits the filing of an appeal against interlocutory orders or there is an express provision saying only a final order of the Tribunal is appealable, the scope of filing appeal contemplated under sections 35G and 130 cannot be narrowed down or restricted.

(iv) Whether a substantial question of law would arise in case of interim orders would depend upon facts/circumstances of each case and there cannot be any uniform presumption that no substantial question of law would arise in all pre-deposit orders.

(v) The contention of the petitioners that granting of short time to comply with the predeposit orders would prevent them from filing an appeal before the High Court cannot be countenanced. Prescribing a period of limitation for filing an appeal does not mean that within such period of limitation, the said order cannot be put into operation unless a statutory bar is provided against doing so. Further, the party intending to file appeal need not wait till the last date of limitation to file appeal.

Decision: Finally, the High Court held that the order passed by the CESTAT in terms of section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962 is appealable in terms of section 35G of the Excise Act, 1944 or section 130 of the Customs Act, 1962. Note: Supreme Court in the case of Raj Kumar Shivare's v. Assistant Director, Directorate of Enforcement 2010 (253) ELT 3 SC had held that writ petition is not ordinarily maintainable to challenge an order of the Tribunal. Though the said decision was rendered in context of Foreign Exchange Management Act, 1999 (FEMA), the High Court in the above case clarified that the ratio laid down in the said case would apply in respect of the cases covered under Central Excise Act and Customs Act also. Recently the Andhra Pradesh High Court in M/s Patel Engineering Ltd v. CCEx Cus & ST 2013- TIOL-997-HC-AP-ST has also followed the Madras High Court decision and has held that an order passed under section 35F is appealable under section 35G and that a writ petition against the same is not maintainable.


35. N.B.C. Corporation Ltd. v. Commissioner of Service Tax 2014 (33) S.T.R. 113 (Del.)

Issue: Whether best judgment assessment under section 72 of the Finance Act, 1994 is an ex-parte* assessment procedure? Decision: The High Court held that section 72 could per se not be considered as an ex parte assessment procedure as ordinarily understood under the Income-tax Act, 1961. Section 72 mandates that the assessee must appear and must furnish books of account, documents and material to the Central Excise Officer before he passes the best judgment assessment order. Thus, said order is not akin to an ex parte order. Such an order will be akin to an ex parte order, when the assessee fails to produce records and the Central Excise Officer has to proceed on other information or data which may be available. *Note: The term ex-parte means of the one part; from one party. This term is applied in law to a proceeding by one party in the absence of, and without notice to, the other.

36. Margara Industries Ltd. v. Commr. of C. Ex. & Cus. (Appeals) 2013 (293) E.L.T. 24 (All.)

Issue: Can delay in filing appeal to CESTAT due to the mistake of the counsel of the appellant, be condoned? Fact of the case: In this case, CESTAT rejected the appellant’s application for condonation of delay in filing the appeal before CESTAT on the ground that the reasons given for filing the appeal beyond stipulated time were not convincing. The Counsel of the appellant filed his personal affidavit stating that the appeal had been filed with a delay due to his mistake. Decision: The High Court held that the Tribunal ought to have taken a lenient view in this matter as the appellant was not going to gain anything by not filing the appeal and the reason for delay in filing appeal as given by the appellant was the mistake of its counsel who had also filed his personal affidavit.

37. Rishiroop Polymers Pvt. Ltd. v. Designated Authority 2013 (294) E.L.T. 547 (Bom.)

Issue: Can a writ petition be filed against an order passed by the CESTAT under section 9C of the Customs Tariff Act, 1975? Facts of the case: In the instant case, the CESTAT upheld a notification issued by the Central Government imposing definitive anti-dumping duty on certain products originating from specified countries pursuant to the findings recorded by the Designated Authority in a review of anti-dumping duty. The assessee filed a writ petition under Article 226 of the Constitution to challenge the said order passed by the CESTAT under section 9C of the Customs Tariff Act, 1975. Point of dispute: The Department contended that an appeal, and not a writ petition, would lie against the order passed by the CESTAT. Observations of the Court: The High Court observed that section 9A(8) of the Customs Tariff Act, 1975 specifically incorporates all the provisions of the Customs Act, 1962 relating to appeal as far as may be, in their application to the anti-dumping duty chargeable under section 9A. The order of the CESTAT passed in appeal would, therefore, clearly be subject to appeal, either to this Court under section 130 or to the Supreme Court under section 130E of the Customs Act, 1962 if the appeal relates to the rate of duty or to valuation of goods for the purposes of assessment.


The assessee submitted that under section 130(2), an appeal can be filed by the Commissioner of Customs or the other party. However, in case of anti-dumping duty, Commissioner of Customs would have no occasion to file an appeal since proceedings are against the designated authority. Against this submission, the High Court clarified that since appellate provisions of the Customs Act, 1962 have been incorporated in section 9A(8) of the Customs Tariff Act, 1975, they necessarily apply in a manner that would make the same intelligible and workable. Decision: The High Court, therefore, held that it would not be appropriate for it to exercise the jurisdiction under Article 226 of the Constitution, since an alternate remedy by way of an appeal was available in accordance with law. The High Court thus, dismissed the petition leaving it open to the assessee to take recourse to the appellate remedy. Note: The statutory provisions discussed in the above case law are given hereunder: Section 9C(1) provides that an appeal against the order of determination or review thereof regarding the existence, degree and effect of any subsidy or dumping in relation to import of any article shall lie to the CESTAT constituted under section 129 of the Customs Act, 1962. Section 9A(8) of the Customs Tariff Act, 1975 provides that the provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to the date for determination of rate of duty, assessment, non-levy, short levy, refunds, interest, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section as they apply in relation to duties leviable under that Act. Under section 130 of the Customs Act, 1962, an appeal can be filed to the High Court from every order passed in appeal by the Tribunal on a substantial question of law (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment). Section 130E(b) of the Customs Act provides that an appeal shall lie to the Supreme Court from an order passed by the Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of customs or to the value of goods for the purposes of assessment. The afore-mentioned case reaffirms the settled position of law that writ petitions should not be entertained by the High Court under Article 226 of the Constitution of India when alternate remedies are available under the relevant statute. Courts have held that where a hierarchy of appeals is provided under the relevant statues, taxpayers must exhaust the statutory remedies before resorting to writ jurisdiction. A writ is a directive from a higher court ordering a lower court or government official to take a certain action in accordance with the law. Writs are usually considered to be extraordinary remedies which are permitted only when there is no other adequate remedy, such as an appeal. In other words, a writ can be filed to contest a point that cannot be raised in an appeal. Since, writ petitions are heard more quickly than appeals, the same are preferred by the assessees to secure a speedy review of some issue when the matter is urgent. Writ petition can also be filed when a final judgment has not yet been made in the lower court, but the party seeking the writ needs relief at once to prevent an injustice or unnecessary expense.

Settlement Commission

38. Vadilal Gases Limited v Union of India 2014 (301) E.L.T. 321 (Guj.)

Issue: (i) Where a settlement application filed under section 32E(1) of the Central Excise Act, 1944 (herein after referred to as ‘Act’) is not accompanied with the additional amount of excise duty along with interest due, can Settlement Commission pass a final order under section 32F(1) rejecting the application and abating the proceedings before it ? (ii) In the above case, whether a second application filed under section 32E(1), after payment of additional excise duty along with interest, would be maintainable? Observations of the Court: The High Court observed as under:


(i) Clause (d) of the first proviso to sub-section (1) of section 32E of the Act clearly lays down that no application under section 32E(1) shall be made unless the applicant has paid the additional amount of excise duty accepted by him along with interest due under section 11AB. Therefore, if an application is made without complying with the first proviso, it would be defective and not maintainable.

(ii) Settlement Commission in its discretion may allow time to the applicants to remove the defects or may direct that the applications be returned. Such discretionary power must be deemed to have been conferred on Settlement Commission.

(iii) Under section 32F(1) only valid applications which do not suffer from any bar created by the first proviso to section 32E(1) can be considered and decided according to the procedure provided in the section. Therefore, the applications which are defective and non-maintainable in terms of the first proviso to section 32E(1) cannot be decided or rejected or declared to have abated under section 32F(1).

(iv) Rejection of application cannot be taken as amounting to a final order, as that would render the mandatory bar created by clause (d) of proviso to section 32E(1) nugatory, redundant and otiose. Order rejecting the application for non-compliance with clause (d) of proviso to section 32E(1) would amount to administrative/technical order and it would not bar the second application filed by the petitioner. In other words, principle of res judicata would not apply as matter was not determined on merits.

(v) Moreover, second application would not be barred under section 32-O as no direction had been issued under section 32L (the application was rejected as not entertainable).

Decision: High Court held that since the earlier application was dismissed on technical defect for non-compliance of the provisions of clause (d) of the proviso to section 32E(1) of the Act and the same was not considered and decided on merits, the second application filed after depositing the additional excise duty and interest would be maintainable. Notes: Res judicata means the principle that a matter may not, generally, be relitigated once it has been judged on the merits. The relevant extracts of provisions of section 32-O and 32L of the Act are given hereunder: Section 32-O: Bar on subsequent application for settlement in certain cases Where, (i) an order of settlement passed under sub-section (5) of section 32F provides for the imposition of a penalty on the person who made the application under section 32E for settlement, on the ground of concealment of particulars of his duty liability; or (ii) after the passing of an order of settlement under the said sub-section (5) of section 32F in relation to a case, such person is convicted of any offence under this Act in relation to that case; or (iii) the case of such person is sent back to the Central Excise Officer having jurisdiction by the Settlement Commission under section 32L, then, he shall not be entitled to apply for settlement under section 32E in relation to any other matter. Section 32L: Power of Settlement Commission to send a case back to the Central Excise Officer The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 32E has not co-operated with the Settlement Commission in the proceedings before it, send the case back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under section 32E had been made.

39. CCus.v. Ashok Kumar Jain 2013 (292) ELT 32 (Del.)

Issue: Does Settlement Commission have jurisdiction over baggage cases? Points of dispute: In this case the Department contended that the Settlement Commission lacks the jurisdiction to entertain the baggage cases.


Decision: The High Court opined that the provisions that conferred jurisdiction on the Settlement Commission (Section 127B) cannot be construed as narrowly as it sought to be urged by the Revenue. A plain reading of the provisions of sections 127A and 127B reveals that there is no bar/express or implied on the Settlement Commission - in respect of entertaining applications by the passengers which brought in goods through their baggage. It further noted that section 127B enumerates the kinds of cases which could not be entertained by the Settlement Commission. Had the intention of the Parliament been to exclude adjudication by Customs Authorities in respect of baggage claim from the purview of the Commission’s jurisdiction, such intention would have been more clearly manifested as it had been mentioned in provisos to section 127B(1).

40. Saurashtra Cement Ltd. v. CCus. 2013 (292) E.L.T. 486 (Guj.)

Issue: Is judicial review of the order of the Settlement Commission by the High Court or Supreme Court under writ petition/special leave petition, permissible? While examining the scope of judicial review in relation to a decision of Settlement Commission, the High Court noted that although the decision of Settlement Commission is final, finality clause would not exclude the jurisdiction of the High Court under Article 226 of the Constitution (writ petition to a High Court) or that of the Supreme Court under Articles 32 or 136 of the Constitution (writ petition or special leave petition to Supreme Court). The Court would ordinarily interfere if the Settlement Commission has acted without jurisdiction vested in it or its decision is wholly arbitrary or perverse or mala fide or is against the principles of natural justice or when such decision is ultra vires the Act or the same is based on irrelevant considerations. The Court, however, pronounced that the scope of court’s inquiry against the decision of the Settlement Commission is very narrow, i.e. judicial review is concerned with the decision-making process and not with the decision of the Settlement Commission. Note: Apart from the appellate remedies available under the customs law, the Constitution of India also provides remedies in the form of Special Leave Petitions (SLPs) and Writs. The Supreme Court of India is empowered under Article 136 of the Constitution of India to grant special leave to any of the parties to appeal, aggrieved by any order or judgment passed by any Court or Tribunal in India. The applications under Article 136 are termed as Special Leave Petitions (SLPs) as these can be admitted only with special leave (permission) of Supreme Court. The High Courts, within the territory of its jurisdiction, have powers, vide article 226 of Constitution, to issue orders or writs for enforcement of any fundamental right and for any other purpose. The Supreme Court, under Article 32 of the Constitution of India, is also empowered to issue writs for enforcement of fundamental rights.


Part - IV Amendments Applicable

for Nov 2014 exams


CENTRAL EXCISE

AMENDMENT IN THE CENTRAL EXCISE RULES, 2002

Time period for computing interest on refund arising out of finalization of provisional assessment amended [Rule 7(5)] [Notification No. 02/2013 (CE) NT dated 01.03.2013] In case of provisional assessment, where the assessee is entitled to a refund consequent to an order of final assessment, it is paid along with interest at the rate specified under section 11BB of the Central Excise Act, 1944.

Earlier Position New Position

The interest on such refund was computed from the first day of the month succeeding the month for which such refund was determined, till the date of refund [Rule 7(5)].

With effect from 01.03.2013, rule 7(5) has been substituted to provide that the interest on refund arising out of finalization of provisional assessment will be computed from the date immediately after the expiry of three months from the date of receipt of refund application till the date of refund of such duty.

AMENDMENT IN THE CENVAT CREDIT RULES, 2004

Recovery provisions under rule 14 to apply in case of failure to pay the amount on removal of inputs/capital goods as such, removal of capital goods after use and writing off the value of the inputs/capital goods [Notification No. 03/2013 (CE) NT dated 01.03.2013]

With effect from 01.03.2013, if the manufacturer of goods or the provider of output service fails to pay the amount payable under following sub-rules of rule 3, it would be recovered, in the manner provided under rule 14, for recovery of CENVAT credit wrongly taken:-

Shall lead to


Rule 3(5) Rule 3(5A) Rule 3(5B)

Inputs or capital goods removed as such from the factory/

premises of the output service provider

Capital goods removed after being used, whether as capital

goods or as scrap or waste

Inputs/ capital goods before being put to use written off

fully or partially

Rule 3(5) requires payment of an amount equal to CENVAT credit availed where inputs or capital goods, on which CENVAT credit has been taken are removed as such from the factory/premises of the output service provider.

Rule 3(5A) requires payment of specified amount where capital goods on which CENVAT credit has been taken have been removed after being used, whether as capital goods or as scrap or waste.

Rule 3(5B) provides for payment of an amount equivalent to CENVAT credit taken in respect of input or capital goods, if the value of such input, or capital goods before being put to use is written off fully or partially or any provision in this respect has been made.

OFFENCE & PENALTY

1. Offences involving evasion of duty exceeding Rs.50 lakh to attract imprisonment instead of earlier Rs.30 lakh [Section 9(1)(i)] Section 9 of the Central Excise Act, 1944 enumerates the acts that constitute an offence. Further, it provides that an offence relating to any excisable goods on which the duty leviable exceeds Rs.30 lakh shall be punishable with a term of imprisonment extending to 7 years and with fine. The said

monetary limit has been increased from Rs.30 lakh to Rs.50 lakh by the Finance Act, 2013. [Effective from 10.05.2013]

2. Offences under Central Excise-Cognizable and non-cognizable

Back Ground

Prior to the Finance Act, 2013, all offences under Central Excise law were non-cognizable and bailable. In the case of Om Prakash v. UOI 2011 (272) ELT 321 (SC), Supreme Court also affirmed that all the offences under the Central Excise Act are non-cognizable and bailable. However, the Finance Act, 2013 has amended sections 9A, 20 and 21 to overrule the aforesaid judgment to make certain offences cognizable and non-bailable. Therefore, now some offences under central excise are cognizable while others non-cognizable. Further, cognizable offences would be non-bailable and non-cognizable offences would be bailable.

Erstwhile position New Position

As Per Sec 9A, all offences under Central Excise Law were non-cognizable. Provisions of Sec 9- Whoever commits any of the following offences, namely: - a) Contravenes any of the provisions of section

dealing with restrictions on possession of tobacco; b) Evades the payment of any duty payable under

this Act;

The Finance Act, 2013 has made certain offences cognizable and non-bailable. Non Cognizable If It Exceeds Rs 50 Lakhs, Cognizable


bb)Removes any excisable goods in contravention of any of the provisions of this Act/Rules/ in any way concerns himself with such removal bbb) Acquires possession of, or ------- in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or ------- in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act /Rule bbbb) Contravenes any of the provisions of this Act or the rules made thereunder in relation to credit of any duty allowed to be utilised towards payment of excise duty on final products; c) Fails to supply any information which he is required by rules made under this Act to supply, or supplies false information; d) Attempts to commit, or abets the commission of, any of the offences mentioned above in clauses (a) and (b).

Non Cognizable If It Exceeds Rs 50 Lakhs, Cognizable Non Cognizable

*Specified offences are:- (a) Contravention of any of the provisions of section 8 (dealing with restriction on possession of certain goods specified in the Second Schedule) or of a rule made under section 37(2)(iii) [relating to power of Central Government to restrict transit of excisable goods to any part of India] or section 37(2)(xxvii) [relating to power of Central Government to specify the persons required to get registered], OR (b) Evasion of payment of any duty payable under the Central Excise Act.


(B) Cognizable offences to be non-bailable Every person arrested under Central Excise Act has to be forwarded, without delay:-

(i) to the nearest Central Excise Officer (empowered to send persons so arrested to a Magistrate) or

(ii) to the officer-in-charge of the nearest police station if there is no such Central Excise Officer within a reasonable distance [Section 19].

Erstwhile position The bail provisions under the old position of law have been outlined below:-

(i) In case where the accused person is forwarded to the officer-in-charge of the nearest police station: Such officer shall either admit him to bail to appear before the Magistrate having jurisdiction, or in default of bail, forward him in custody to such Magistrate [Section 20].

(ii) In case where the accused person is forwarded to the nearest Central Excise Officer: The Central Excise Officer may exercise the same powers and shall be subject to the same provisions as the officer-in-charge of a police station may exercise and is subject to under the Code of Criminal Procedure, 1898, when investigating a cognizable case. In case there is sufficient evidence or reasonable ground of suspicion against the accused person, CEO shall either admit him to bail to appear before the Magistrate having jurisdiction, or in default of bail, forward him in custody to such Magistrate. Otherwise, he shall release the accused person on his executing a bond, with or without sureties and may direct to appear before Jurisdictional Magistrate [Section 21].


Earlier, all offences under Central Excise were non-cognizable and bailable.

New position The Finance Act, 2013 has amended section 20 to provide that a person can be admitted to bail by an officer-in-charge of the police station only in respect of an offence which is non-cognizable. Similar amendment has been made under section 21 whereby the provisions relating to release of arrested persons on bail or personal bond by the nearest Central Excise Officer have been made applicable only to non-cognizable offences.

Henceforth, bail can be granted only for non-cognizable offences. Cognizable offences would be non-bailable.

[Effective from 10.05.2013]


COMMON TOPICS

DEMAND & RECOVERY

1. Recovery mechanism strengthened [Section 11] Section 11 of the Central Excise Act, 1944 deals with recovery mechanism of duty and other sums payable to the Central Government under any of the provisions of the Central Excise Act, 1944 or rules made thereunder including the excess amount collected and required to be paid to the credit of the Central Government under section 11D. The Finance Act, 2013 has strengthened the said recovery mechanism. For this purpose, erstwhile section 11 has been re-numbered as section 11(1) and a new sub-section (2) has been inserted to section 11.

A. Powers of recovery may be extended to a Central Excise Officer/ proper officer authorised section 142 of the Customs Act also [Sub-section (1)] Earlier, only an officer empowered by CBEC was authorized to recover the excise duty. However, with effect from 10.05.2013, the officer empowered by the CBEC may also require the following two categories of officers to recover excise duty: (i) A Central Excise Officer; or (ii) A proper officer authorized to recover the sums due from the Government under section 142 of the Customs Act, 1962.

B. Money due to the Government may now be recovered from any person other than from whom money is due after giving proper notice, if that other person holds money for/on account of the first person - Garnishee Proceedings [New sub-section (2) inserted]


Section 11(2) empowers the Central Excise Officer to recover the monies due to the Government from any person other than from whom money is due, if that other person holds money for/on account of the first person. The procedure for the same is as under:- (i) Issuance of the notice for recovery to any person other than from whom money is due: The Central Excise Officer may issue a written recovery notice to the following persons:

any person from whom money is due to such person any person from whom money may become due to such person any person who holds money for or on account of such person any person who may subsequently hold money for or on account of such person.

The noticee would be required to pay to the credit of the Central Government so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount. The money would be paid either forthwith upon the same becoming due or being held, or at or within the time specified in the notice. However, in no case the money would be required to be paid before it becomes due or is held. (ii) Noticee bound to comply with the notice: Every person to whom a notice is issued under this sub-section shall be bound to comply with such notice. In case any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary. (iii) In case of failure to make the payment, the noticee deemed to be the assessee in default: In a case where the person to whom a notice under this sub-section has been issued, fails to make the payment, he shall be deemed to be a person from whom duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or the rules made thereunder have become due, in respect of the amount specified in the notice. Therefore, all the consequences prescribed for assessees in default would apply for such other person as well. [Effective from 10.05.2013]

2. Service of a statement containing details of duty not levied/paid, short levied/paid or erroneously refunded to be deemed to be service of show cause notice [Subsection (7A) inserted in section 11A] New sub-section (7A) to section 11A stipulates as follows:- Notwithstanding anything contained in sub-section (1)/(3)/(4)/(5), the Central Excise Officer may, serve, subsequent to any notice(s) served under any of those sub-sections, as the case may be, a statement, containing the details of duty of central excise not levied or paid or short-levied or short-paid or erroneously refunded for the subsequent period, on the person chargeable to duty of central excise, then, service of such statement shall be deemed to be service of notice on such person under the aforesaid sub-section (1)/(3)/(4)/(5), subject to the condition that the grounds relied upon for the subsequent period are the same as are mentioned in the earlier notice(s). In simple words, if one show cause notice has been issued, then service of a statement containing details of non/short payment, short/non levy or erroneous refund of duty etc. would be deemed to be a service of show cause notice provided the grounds relied upon for the subsequent period are the same as are mentioned in the earlier notice(s). Therefore, the limitation period of one year or five years, as the case may be, would be be computed from the date of service of such statement. [Effective from 10.05.2013]


3. Central Excise Officer empowered to attach the property belonging to person on whom notice is served under ANY sub-section of section 11A [Section 11DDA(1)]

Erstwhile position New position

Section 11DDA(1) provides for the provisional attachment of property by Central Excise officer, for the purpose of protecting the interest of the revenue, during the pendency of any proceedings under section 11A or section 11D. Earlier, a Central Excise Officer could provisionally attach the property belonging to only such person on whom notice had been served under sub-section (1) of section 11A. Thus, in respect of notices issued under other sub-sections of section 11A namely, subsection (3), or (4) or (5), provisional attachment of property could not be ordered

Section 11DDA(1) has been amended by the Finance Act, 2013 so as to enable a Central Excise Officer to attach the property belonging to any person on whom a notice is served under any of the sub-sections of section 11A.

Background As per section 11A, a notice can be issued under following sub-sections:- (i) Sub-section (1): In case of non/short levy, non/short payment and erroneous refund of excise duty for any reason, other than the reason of fraud or collusion etc. (ii) Subsection (3): Where amount paid in pursuance to notice issued under sub-section (1) falls short of amount actually payable. (iii) Sub-section (4): In case of non/short levy, non/short payment and erroneous refund of excise duty by reason of fraud, or collusion, or any misstatement etc. (iv) Sub-section (5): Where during the course of audit, investigation or verification, it is found that any duty has not been levied/paid or short levied/paid or erroneously refunded by reason of fraud, collusion, or any misstatement etc., but the details relating to the transactions are available in the specified records.


4. Recovery procedure against confirmed demand orders – CBEC amends the existing procedures [Circular No. 967/01/2013 CX dated 01.01.2013] CBEC has amended the procedure of initiation of recovery proceedings against a confirmed demand in the following manner:

Where NO appeal is filed with Commissioner (Appeals)/ CESTAT

Recovery to be initiated after the expiry of statutory period for filing appeal i.e 60 days / 90 days.

Where an appeal is filed with Commissioner (Appeals)/ CESTAT,

Recovery to be initiated after filing of such appeal, without waiting for the statutory period of filling an appeal to be exhausted.


WITHOUT a stay application

Where an appeal is filed WITH a stay application with Commissioner (Appeals)/ CESTAT

Recovery to be initiated 30 days after the filing of appeal, if no stay is granted, otherwise as per the conditions of the stay order. Further, apart from above, recovery proceedings will be initiated IMMEDIATELY in the following cases:

Where Commissioners (Appeals) confirms demand in the order in original

Where Tribunal or High Court confirms the demand, with no stay in operation.

These guidelines have been issued on the basis of the decision of Hon’ble Supreme Court in the case of Collector of Customs, Bombay v. Krishna Sales (P) Ltd [1994 (73) E.L.T 519 (S.C).

5. Provisions of Section 28AAA of the Customs Act, 1962 made applicable to excise duty also [Notification No. 29/2012-CE (NT) dated 10.10.2012] CG has provided that the provisions of section 28AAA of the Customs Act, 1962 shall be applicable in regard to like matters in respect of the duties imposed by section 3 of the Central Excise Act, 1944, subject to the necessary modifications and alterations which the Central Government considers necessary and desirable to adapt those provisions to the circumstances.

6. Speed post with proof of delivery or courier approved by the CBEC will also be the authorized modes of delivery of any decision or order or any summons or notices [Section 37C(1)(a)]

Erstwhile position

New position

Hitherto, a decision, order, summon or notice used to be served to the intended person either by tendering the same (physical delivery) or by sending it through registered post with acknowledgment due [Section 37C(1)(a)].

Section 37C(1)(a) has been amended. A decision, order, summons or notice can now be served by any of the following modes of delivery:-

(i) by tendering (ii) by registered post with acknowledgment due, or

(iii) by speed post with proof of delivery or by courier approved by the Central Board of Excise and Customs

Thus, Finance Act, 2013 has specified additional modes of delivery for decisions, orders, summons or notices namely, speed post with proof of delivery or courier approved by CBEC. [Effective from 10.05.2013]


Modes of service of decisions/orders/summons/notices under section 37C(1)(a)

7. Proper officer empowered to provisionally attach the property in case of non-payment of customs duty or interest thereon on account of fraud, collusion, suppression of facts etc. as well [Section 28BA(1)]


Section 28BA(1) provides for the provisional attachment of property by proper officer, for the purpose of protecting the interest of the revenue, during the pendency of any proceedings under section 28 or section 28AAA or section 28B. Prior to the amendment made by the Finance Act, 2013, a proper officer could provisionally attach the property belonging to only such person on whom notice had been served under section 28(1) In other words, proper officer was empowered to provisionally attach the property belonging to a person on whom a show cause notice (SCN) had been served for short-levy/ non-levy/erroneous refund of customs duty or non-payment/ part-payment/ erroneous refund of any interest payable, for any reason other than the reasons of collusion or any wilful misstatement or suppression of facts. Hence, in a case where SCN was issued for short-levy/non-levy/ erroneous refund of customs duty or non-payment/ part-payment/ erroneous refund of any interest payable, by reason of collusion or any wilful mis-statement or suppression of facts, proper officer could not provisionally attach the property.

Section 28BA(1) has been amended so as to enable a proper officer to attach the property belonging to any person on whom notice is served under sub-section (1) or sub-section (4) of section 28. It implies that proper officer has now been empowered to provisionally attach the property belonging to a person on whom a SCN has been served for short-levy/ non-levy/ erroneous refund of customs duty or non-payment/ part-payment/ erroneous refund of any interest payable, by reasons of collusion or any wilful mis-statement or suppression of facts. [Effective from 10.05.2013]

Added by the FA, 2013


8. Money due to the Government may now be recovered from any person other than from whom money is due after giving proper notice, if that other person holds money for/on account of the first person - Garnishee Proceedings [New clause (d) inserted to section [142(1)]

Meaning of GARNISHEE The word 'Garnish' is derived from an old French word 'garnir' which means to warn or to prepare. It is to serve an heir with notice. Garnisher is a judgment-creditor (decree-holder) who initiates a garnishment action to reach the debtor’s property that is thought to be held or owed by a third party. Consider Two Examples: Suppose A owes Rs. 1000 to B and B owes Rs. 1000 to C. by a garnishee order the court may require A not pay money owed to him to B, but instead to Pay C, since B owes the said amount to C, who has obtained the order. Suppose A owes B Rs 2,000/. A refuses to repay the amount to B and B sues A. He obtains a decree in his favor. Here B is a judgment-creditor and A is the judgment-debtor. B comes to know that A has some money in a bank account and would like to have his decree satisfied by attaching the funds in the hands of A's bank. For this purpose he approaches a court and obtains a Garnishee order attaching funds at the bank standing to the credit of A. In this e.g., A, is the garnishee and B is the Garnisher (Person who initiates action).

Source- Research Paper on Power of the Indian Courts to Issue Garnishee Order

–by Varsha Rajaora-

New clause (d) inserted to section 142(1) empowers the Proper Officer to recover the monies due to the Government from any person other than from whom money is due, if that other person holds money for/on account of the first person. The procedure for the same is as under:-

(i) Issuance of the notice for recovery to any person other than from whom money is due

The Proper Officer may issue a written recovery notice to the following persons:

• any person from whom money is due to such person • any person from whom money may become due to such person • any person who holds money for or on account of such person • any person who may subsequently hold money for or on account of such person.

The noticee would be required to pay to the credit of the Central Government so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount. The money would be paid either forthwith upon the same becoming due or being held, or at or within the time specified in the notice. However, in no case the money would be required to be paid before the same becomes due or is held.

(ii) Noticee bound to comply with the notice

Every person to whom a notice is issued under this sub-section shall be bound to comply with such notice. In case any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary.

(iii) In case of failure to make the payment, the

In a case where the person to whom a notice under this sub-section has been issued, fails to make the payment, he shall be deemed to be a defaulter in respect of the amount specified in the notice. Therefore, all the


noticee deemed to be the assessee in default:

consequences prescribed for assessee in default would apply for such other person as well. [Effective from 10.05.2013]

REFUND

1. No refund and recovery if the amount of customs duty involved is less than Rs.100 [Section 27(1) and 28(1) amended]

Minimum Limit of Refund Minimum limit for recovery of customs duty

(a) Third proviso inserted in section 27(1) Hitherto, no minimum limit for refund of customs duty had been specified under the Customs Act, 1962. The Finance Act, 2013 has inserted a third proviso in section 27(1) which provides that where the amount of refund claimed is less than ` 100, the same shall not be refunded. In other words, there would be no refund if the amount of customs duty involved is less than Rs. 100.

(b) Proviso inserted in section 28(1) Hitherto, no minimum limit for recovery of customs duty had been specified under the Customs Act, 1962. Thus, recovery proceedings could be initiated even for the default of Rs. 1. The Finance Act, 2013 has inserted third proviso in section 28(1) which provides that the proper officer will not serve the show cause notice, where the amount involved is less than ` 100. In other words, there would be no recovery of the customs duty if the amount of customs duty involved is less than Rs. 100.


ADVANCE RULING

1. Scope of advance ruling widened [Section 23A(a) and section 23C(2)(e)] The scope of advance ruling has been significantly widened in the following manner:- (i) Existing producer or manufacturer may seek advance ruling at the time of starting a new line of business


Advance ruling means the determination, by the authority of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity proposed to be undertaken, by the applicant [Section 23A(b)]. Earlier, activity was defined to mean production or manufacture of goods [Section 23A(a)].

The definition of activity has been expanded to include any new business of production/manufacture proposed to be undertaken by the existing producer/manufacturer, as the case may be. It implies that any existing producer or manufacturer may also seek advance ruling in relation to any new business of production or manufacture proposed to be undertaken by him.


(ii) Advance ruling can also be sought on the issue of admissibility of credit of service tax paid or deemed to have been paid


Earlier, the application for advance ruling was admissible, inter alia, on the question of admissibility of credit of excise duty paid or deemed to have been paid on the goods used in or in relation to manufacture of the excisable goods [Section 23C(2)(e)].

Section 23C(2)(e) has been amended to extend the advance ruling provisions to the admissibility of the credit of service tax paid or deemed to have been paid on input services used in the manufacture of excisable goods as well.

(iii) In section 23F (relating to advance ruling to be void in certain circumstances), reference to section 28-I which was earlier given erroneously* has been appropriately substituted with section 23D [procedure on receipt of application for advance ruling under excise].

*Section 28-I is the relevant section outlining the procedure on receipt of application for advance ruling under the Customs Act, 1962.


2. Benefit of advance ruling extended to resident public limited companies [Notification No. 04/2013 (CE) NT dated 01.03.2013] & [Notification No. 04/2013 ST dated 01.03.2013]

Prior to 01.03.2013, only public sector companies were notified as the class or category of resident persons who can apply for advance ruling in case of specified matters relating to central excise. As per section 2(36A) of the Income-tax Act, 1961, public sector company means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956. The scope of advance ruling has been expanded by additionally notifying resident public limited companies as class or category of resident persons who can apply for advance ruling in case of specified matters relating to central excise/Service Tax. Thus, resident public limited companies can

also now obtain advance ruling in case of central excise matters. Meaning of important terms:

Public limited company: means a company which - a) is not a private company ; b) has a minimum paid-up capital of Rs. 5 lakh or such higher paid-up capital, as may be prescribed

; c) is a private company which is a subsidiary of a company which is not a private company and shall include a private company that becomes a public company by virtue of section 43A of the Companies Act, 1956. Resident: shall have the same meaning as is assigned to it in section 2(42) of the Income-tax Act, 1961 in so far as it applies to a company


3. Scope of advance ruling widened by enabling the existing importer/exporter to seek advance ruling at the time of undertaking a new business of import or export [Section 28E(a)]


Advance ruling means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity which is proposed to be undertaken, by the applicant [Section 28E(b)]. Earlier, activity was defined to mean import or export [Section 28E(a)].

The definition of activity has been expanded to include any new business of import or export proposed to be undertaken by the existing importer or exporter, as the case may be. It implies that any existing importer or exporter may also seek advance ruling in relation to any new business of import or export proposed to be undertaken by him. [Effective from 10.05.2013]

APPEALS

1. Tribunal empowered to grant stay by another 185 days [Third proviso inserted to section 35C(2A)] Where CESTAT grants a stay in an appeal filed before it, it shall dispose of the appeal (where it is possible to do so) within a period of 180 days from the date of stay order. In case the appeal is not disposed of within 180 days from the date of stay order, the stay order stands vacated [First and second provisos to section 35C(2A)]. The Finance Act, 2013 has inserted third proviso to section 35C(2A) to provide that CESTAT may further extend the period of stay, by not more than 185 days:-

(i) on an application made in this behalf by a party and (ii) on being satisfied that the delay in disposing of the appeal is not attributable to such party.

In case the appeal is not disposed of within the total period of 365 days from the date of the stay order, the stay order shall, on the expiry of 365 days, stand vacated. [Effective from 10.05.2013]

2. Monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals

enhanced from Rs. 10 lakh to Rs. 50 lakh [Section 35D(3)]


Earlier, single bench of CESTAT could hear and dispose of appeals where the duty involved or the difference in duty involved or the amount of fine/penalty involved was upto Rs. 10 lakh.

The Finance Act, 2013 has amended section 35D(3) to enhance this monetary limit to Rs. 50 lakh. Therefore, now, single bench of CESTAT has been empowered to hear and dispose of appeals where the duty involved or the difference in duty involved or the amount of fine or penalty involved is upto ` 50 lakh. [Effective from 10.05.2013]


3. Forms for filing appeals in CESTAT under Central Excise, Customs and Service Tax aligned [Rule 7] [N/ No. 6/2013-CE (N.T.), 37/2013-Customs (N.T.) and 5/2013-ST, all dated 10.04.2013] In order to align the form of filing appeals under excise and customs with that of service tax, both appeals against the order of Commissioner as well as Commissioner (Appeals) are to be filed in Form EA-5/CA-5.

Earlier Provisions New Provision

Earlier,

Departmental appeal (u/s 35B(2) of the Central Excise Act, 1944 & section 129A(2) of the Customs Act, 1962) against orders passed by the Commissioner (Appeals) was filed in Form EA-3/CA-3 and

Departmental application against order-in original of the Commissioner on the strength of the order of the Committee of Chief Commissioner (u/s 35E(1) of the Central Excise Act, 1944/section 129D(1) of the Customs Act, 1962) was filed in Form EA-5/CA-5.

However, in service tax appeals are filed under section 86(2) and section 86(2A) of the Finance Act, 1994 against orders passed by the Commissioner and Commissioner (Appeals) respectively in a single form ST-7.

With effect from 01.06.2013, rule 7 of the Central Excise (Appeals) Rules, 2001/Customs (Appeals) Rules, 1982 has been substituted with a new rule 7. New rule 7 of the respective rules provides as follows:- 1) An appeal under section 35B(2) of the Central

Excise Act, 1944/129A(2) of the Customs Act, 1962 and application under section 35E(4)/129D(4) are to be filed in Form EA-5/CA-5.

2) The appeal or application, as the case may be, in Form No. EA-5/ CA-5 shall be filed in quadruplicate accompanied by an equal number of copies of the decision or order (one of which at least shall be a certified copy) passed:- a) by the Commissioner (Appeals) and a copy

of the order passed by the Committee of Commissioners under section 35B(2)/129A(2) of the Act.

b) by the Commissioner and a copy of the order passed by the Committee of Chief Commissioners under section 35E(1)/129D(1) of the Act.

Further, new forms for appeals have been prescribed for all appeals filed in the Tribunal [EA-3, EA-4 and EA-5/ CA-3, CA-4 and CA-5/ST-5, ST-6 and ST-7] on or after 1.6.2013 with an objective to ensure quick disposal of cases. Furnishing of PAN by the appellants has been made mandatory. In case where PAN is not available and the appellant is having UID, the same is required to be furnished. Furnishing of IEC (Importer Exporter Code) has been made mandatory in the appeal form for customs.

4. Tribunal empowered to grant stay by another 185 days [Third proviso inserted to section 129B(2A)] Where CESTAT grants a stay in an appeal filed before it, it shall dispose of the appeal (where it is possible to do so) within a period of 180 days from the date of stay order. In case the appeal is not disposed of within 180 days from the date of stay order, the stay order stands vacated. The Finance Act, 2013 has inserted third proviso to section 129B(2A) to provide that CESTAT may further extend the period of stay, upto a maximum period of 185 days:-

(i) on an application made in this behalf by a party and (ii) on being satisfied that the delay in disposing of the appeal is not attributable to such party.

In case the appeal is not disposed of within the total period of 365 days from the date of the stay order, the stay order shall, on the expiry of 365 days, stand vacated. [Effective from 10.05.2013]


5. Monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals enhanced from Rs. 10 lakh to Rs. 50 lakh [Section 129C(4)]

Erstwhile position

New position

Earlier, single bench of CESTAT could hear and dispose of appeals where:- (i) the value of the goods confiscated without option having been

given to the owner of the goods to pay a fine in lieu of confiscation under Section 125;

(ii) In any other disputed case other than case of determination of any question relating to the rate of duty of customs or to the value of goods for the purpose of assessment is in issue or is one of the points in issue the difference in duty involved or the duty involved; or

(iii) the amount of fine or penalty involved was upto Rs.10 lakh [Section 129C(4)].

The Finance Act, 2013 has amended section 129C(4) to enhance this monetary

limit to Rs. 50 lakh. [Effective from 10.05.2013]

6. Offences involving evasion of duty exceeding Rs.50 lakh to attract 7 years imprisonment and fine instead of earlier Rs.30 lakh [Sub-clause (C) and (D) of section 135(1)(i)] Section 135 stipulates the penal provisions applicable to a person who has committed any of the offences specified therein (hereafter referred to as offender).


Earlier, such an offender was punishable with an imprisonment for a term which may extend upto 7 years and with fine in case of an offence relating to:- (i) evasion or attempted evasion of duty

exceeding Rs.30 lakh or

(ii) fraudulently availing of or attempting to avail of drawback or any exemption from duty provided under the Customs Act in connection with export of goods, if the amount of drawback

or exemption from duty exceeds Rs.30 lakh.

The said monetary limit has been increased from Rs.30 lakh to Rs.50 lakh. Thus, now the offender would be punishable with an imprisonment upto 7 years and with fine in case the evasion or attempted evasion of duty exceeds Rs.50 lakh or in case of fraudulent availment of or attempt to avail the drawback or any exemption from duty for export of goods, the amount of drawback or exemption from duty exceeds Rs.50 lakh. [Effective from 10.05.2013]


CUSTOMS

IMPORTATION, EXPORTATION AND TRANSPORTATION OF GOODS

1. CBEC empowered to permit landing of vessels and aircrafts at any place other than customs port or customs airport [Section 29(1)]

Erstwhile Position New position

Hitherto, the person-in-charge of a vessel/aircraft entering India from any place outside India could not cause or permit the vessel or aircraft to call or land for the first time after arrival in India or at any time while it is carrying passengers or cargo brought in that vessel or aircraft at any place other than a customs port or a customs airport, as the case may be [Section 29(1)]

The Finance Act, 2013 has amended section 29(1) to empower CBEC to permit landing of vessels and aircrafts at any place other than customs port or customs airport. [Effective from 10.05.2013]

AUTHOR’s Comment

Earlier all vessels / aircrafts from outside India had to land only at customs ports/ airports. No exception / deviation was allowed. But Now if the board considers necessary, it may allow the same

2. Electronic filing of import/export manifest mandatory except in cases allowed by Commissioner of Customs [Section 30(1) & Section 41(1)]


Earlier, the person-in-charge was required to deliver the import/export manifest to the proper

officer manually.

Section 30(1) and section 41(1) have been amended vide the Finance

Act, 2013 to provide for the mandatory electronic filing of the import manifest and export manifest respectively. However, in cases where it is not feasible to deliver import/export manifest by presenting them electronically, the Commissioner of Customs may, allow the same to be delivered in any other manner. [Effective from 10.05.2013]

3. Interest free period for payment of import duty reduced from five days to two days [Section 47(2)]


The import duty assessed on goods entered for

the home consumption should be paid within 5 days (excluding holidays) of the determination of such duty amount. In case he fails to do so, he is required to pay interest on the duty till the time he actually pays the duty and clears the goods [Section 47(2)].

The Finance Act, 2013 has amended section 47(2) so as to reduce the interest free period for

payment of import duty from 5 days to 2 days. [Effective from 10.05.2013]


4. Period of storage without warehousing restricted to 30 days [Section 49]

Background Where any imported goods entered for home consumption cannot be cleared within a reasonable time, the same may, pending clearance, be permitted to be stored in a public warehouse/private warehouse. Such goods shall not be deemed to be warehoused goods for the purpose of the Customs Act and accordingly warehousing provisions shall not apply to such goods. This is also called warehousing without warehousing [Section 49].


Earlier, no time-period had been specified under section 49 for which imported goods could be stored in a warehouse.

Section 49 has been amended to introduce a

time limit of 30 days for storage of goods in a warehouse in the interest of accountability and early finalization of assessments. However, the Commissioner of Customs may extend the period of storage for a further period not exceeding 30 days at a time. [Effective from 10.05.2013]

5. Classes of importers liable to pay customs duty electronically notified [Notification No. 83/2012-Cus (N.T.) dated 17.09.2012]

First proviso to section 47(2) of the Customs Act, 1962 empowers the Central Government to specify the class or classes of importers who shall pay customs duty electronically. In exercise of such powers, the Central Government hereby specify following classes of importers who shall pay customs duty electronically, namely:-

(i) Importers registered under Accredited Clients Programme. (ii) Importers paying customs duty of Rs. 1 lakh or more per bill of entry.


WAREHOUSING

1. Export of warehoused goods without payment of import duty allowed on presenting postal export documents also [Section 69(1)(a)] As per section 69(1)(a) of the Customs Act, 1962, any warehoused goods might be exported to a place outside India without payment of import duty provided a shipping bill or a bill of export had been presented in respect of such goods in the prescribed form. This section had been amended to allow export of warehoused goods under postal export documents [as referred to in section 82] also.

Note: In the case of goods exported by post, any label or declaration accompanying the goods, which contains the description, quantity and value thereof, is deemed to be an entry for export.


AUTHOR’s Comment

Earlier only allowed against – ‘shipping bill’ (export by vessel/ aircraft)/ ‘bill of export’ (export by land). But now also allowed against Postal Export document.

BAGGAGE

1. Baggage provisions relating to the crew members engaged in the foreign going vessel/aircraft amended [Proviso to Rule 10(1) and rule 10(2) of the Baggage Rules, 1998] [Notification No. 25/2013-Cus (N.T.) dated 01.03.2013]

Earlier Provision New Provision

A crew member of a vessel/aircraft is allowed to bring items like chocolates, cheese, cosmetics and other petty gift items for their personal or family use while returning from a foreign journey upto a value of Rs. 600.

A crew member of a vessel/aircraft is allowed to bring items like chocolates, cheese, cosmetics and other petty gift items for their personal or family use while returning from a foreign journey upto a value of Rs. 1,500.

2. Jewellery allowance increased five times for an Indian passenger who had stayed abroad for more than one year [Notification No. 25/2013-Cus (N.T.) dated 01.03.2013] An Indian non-tourist passenger who had stayed abroad for more than one year is allowed an additional jewellery allowance. This allowance has been increased five times.

S.No. In case of Jewellery Allowance

Till 28.02.2013 With effect from 01.03.2013

1 Gentleman Passenger upto Rs. 10,000/- upto Rs. 50,000/-

2 Lady Passenger upto Rs. 20,000/- upto Rs. 100,000/-


3. Jewellery allowance increased five times in case of transfer of residence [Notification No. 25/2013-Cus (N.T.) dated 01.03.2013] A passenger, who has been staying abroad for a minimum period of two years and transferring his residence to India, is given a duty free allowance of jewellery as follows:

S.No. In case of Jewellery Allowance

Till 28.02.2013 With effect from 01.03.2013

1 Gentleman Passenger upto Rs. 10,000/- upto Rs. 50,000/-

2 Lady Passenger upto Rs. 20,000/- upto Rs. 100,000/-

Note: The jewellery taken out of India can be brought back without any limit provided necessary export certificate was taken at the time of going out of India. Further, jewellery which is normally worn is treated as “personal effects” and is exempt from duty even if export certificate is not issued.

AUTHOR’s Comment

Finance minister stated: The baggage rules permitting eligible passengers to bring jewellery was last amended in 1991. Gold prices have risen since, and passengers have complained of harrasment. Hence, I propose to raise the duty-free limit to 50,000 in the case of a male passenger and `100,000 in the case of a female passenger, subject to the usual conditions

SEARCH, SEIZURE, ARREST & CONFISCATION

1. Certain specified offences to be non-bailable [Section 104(6)]

Erstwhile position Earlier, ALL offences under Customs Law were bailable [Section 104(6)]. New position Finance Act, 2013 has substituted sub-section (6) to section 104 with sub-sections (6) and (7). Now, certain offences have been specified as non-bailable offences. Rest of the offences would be bailable as before. The provisions of sub-sections (6) and (7) to section 104 have been discussed in detail as follows:- NON-BAILABLE OFFENCES An offence punishable under section 135 relating to:- a) evasion or attempted evasion of duty exceeding Rs.50 lakh; or b) prohibited goods [notified under section 11 also notified under section 135(1)(i)(C)]; or c) import/export of any goods which have not been declared in accordance with the provisions of

this Act and the market price of which exceeds Rs.1 crore; or d) fraudulently availing of or attempt to avail of drawback or any exemption from duty provided

under this Act, if the amount of drawback or exemption from duty exceeds Rs.50 lakh, shall be a non-bailable offence.

BAILABLE OFFENCES All other offences under the Customs Act, 1962 except those specified above shall be bailable. [Effective from 10.05.2013]


MISCELLANEOUS PROVISIONS

1. Central Government empowered to prohibit the importation/exportation of goods for protection of "designs and geographical indications" also [Section 11(2)(n)]

Background Section 11(1) of the Customs Act, 1962 empowers the Central Government to prohibit either absolutely or conditionally the import or export of specified goods, for any of the purposes enumerated in various clauses of sub-section (2). Clause (n) of section 11(2) provided that importation/exportation of goods may be prohibited for the protection of patents, trademarks and copyrights.

Amendment The Finance Act, 2013 has expanded the scope of clause (n) to include designs and geographical indications so as to provide for protection of these legal rights also. Consequently, Central Government can now prohibit the import/export of specified goods for protection of designs and geographical indications also apart from patents, trademarks and copyrights. [Effective from 10.05.2013]

AUTHOR’s Comment

S 11 allows CG to prohibit (completely or subject to Conditions) import of goods. • Such power allowed only for purposes specified in S. 11(2) • Protection of ‘design rights and geographical indications now included’

2. Provisions of section 143A omitted Section 143A providing option for duty deferment for adjustment of duty payable against drawback has been omitted. [Effective from 10.05.2013]


3. Removal of duty liability on any sample of goods consumed/destroyed during the course of testing/examination [Section 144(3)]


Earlier, section 144(3) stipulated that no duty shall be chargeable on any sample of goods taken under this section which is consumed or destroyed during the course of any test or

examination thereof, if such duty amounts to Rs. 5 or more.

The words “if such duty amounts to Rs. 5 or more” have been omitted from the aforesaid section. Consequently, there shall be no duty liability on a sample of goods consumed/destroyed during the course of testing/examination. [Effective from 10.05.2013]

AUTHOR’s Comment

Great Relief!! • Earlier duty was chargeable, if such duty amounts to less than Rs. 5

4. Change of nomenclature of “customs house agents” to “customs brokers” [Section 146 and section 146A(2)(b)] Considering the global practice and internationally accepted nomenclature, nomenclature of “customs house agents”, wherever used in the Customs Act, 1962, has been replaced with “customs brokers”. Consequently, reference to “customs house agents”, in section 146 and 146A(2)(b) in the Customs Act, 1962, has been substituted with “customs brokers”. [Effective from 10.05.2013]

5. Person who has committed offence under the Finance Act, 1994 also disqualified to act as authorized representative [Section 146A(4)(b)]


Hitherto, any person who was convicted of an offence connected with any proceeding under the Customs Act, 1962, the Central Excises and Salt Act, 1944, or the Gold (Control) Act, 1968 was disqualified from acting as an authorized representative in customs matters.

Clause (b) to section 146A(4) has been substituted with new clause (b) to provide that any person who was convicted of an offence connected with any proceeding under the Customs Act, 1962, the Central Excise Act, 1944, or the Gold (Control) Act, 1968 or the Finance Act, 1994 is disqualified from acting as an authorized representative in customs matters. Hence, a person convicted under the Finance Act, 1994 has also been disqualified from acting as an authorized representative in customs matters. [Effective from 10.05.2013]

6. Expansion of scope of liability of the owner/importer/exporter of any goods [Section 147(3)] Section 147 stipulates that anything required to be done by the owner/importer/exporter of any goods can be done by his agent. However, the owner/importer/exporter shall be liable for all the acts of his agent. Further, agent would be deemed to be the owner/importer/exporter of such goods for the purposes of the Customs Act, 1962.


Finance Act, 2013 has amended sub-section (3) of section 147 to enhance the scope of the liability of agents of the owner/importer/exporter of any goods. It now casts equal responsibility on agents for making correct self-assessment.

AUTHOR’s Comment

Earlier also equally liable

Now made explicit • However liability only if owner unable to pay

SERVICE TAX

BASIC OVERVIEW OF SERVICE TAX

Reference to erstwhile section 66 to be construed as reference to section 66B [New section 66BA inserted] Owing to the difficulties being faced in implementation of the negative list approach of taxation of services, in so far as it related to insertion of new charging section- section 66B, an explanation to section 66B was inserted vide Order No. 2/2012 dated 29.06.2012 to provide that with effect from 01.07.2012, for the purpose of levy and collection of service tax, the references to section 66 shall be construed as references to section 66B. The Finance Act, 2013 has deleted the said explanation and re-introduced the same in the form of a separate section viz., section 66BA. By the authority of this section, with effect from July 1st, 2012, references to section 66 (charging section under the positive list approach) in Chapter V of the Finance Act, 1994 or any other Act, will be construed as reference to section 66B (charging section under the negative list approach). Hence, reference to section 66 appearing in the Finance (No.2) Act, 2004 [in the context of education cess] and the Finance Act, 2007 [in the context of secondary and higher education cess] will also be read as 66B, in accordance with this new section. [Retrospectively effective from July 1, 2012]

Negative List of Services

1. Courses run by ITI/ITC affiliated to State Council of Vocational Training not liable to service tax [Section 65B(11)] Services by way of education as a part of an “approved vocational education course” are not liable to service tax as they are included in the negative list of services [Clause (l) of section 66D]. The definition of “approved vocational education course” under section 65B(11) has been amended vide the Finance Act, 2013 in the following manner: (i) Courses in designated trades offered by industrial training institute (ITI)/industrial training

centre (ITC) affiliated to State Council of Vocational Training have been included in the definition. Earlier, only the courses offered by ITI/ITC affiliated to National Council of Vocational Training were covered in the definition.


(ii) A course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India has been removed from the definition.

A comparative analysis of the taxability of various vocational courses pre and post the Finance Act, 2013 is given hereunder:-

S.No. Vocational courses Prior to

10.05.2013 With effect from 10.05.2013

1. Courses offered by ITI/ITC affiliated to State Council of Vocational Training

2. Courses offered by ITI/ITC affiliated to National Council of Vocational Training

3. Modular Employable Skill Course

4. Courses run by an institute affiliated to the National Skill Development Corporation

2. Manufacture under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 not liable to service tax [Section 65B(40)]


The negative list of services includes “any process amounting to manufacture or production of goods” [Clause (f) of section 66D]. The term process amounting to manufacture or production of goods had been defined under section 65B(40) to include- (i) a process on which excise duty is leviable under section 3 of the Central Excise Act, 1944

or (ii) any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force. Thus, the above two processes, being covered under the negative list of services, were not liable to service tax.

Definition of “any process amounting to manufacture or production of goods” has been expanded by the Finance Act, 2013 so as also to include a process on which excise duty is leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. Thus, now service tax is not leviable on a process on which excise duty is leviable under the Medicinal and Toilet Preparations (Excise Duties) Act. Since, manufacture of the products specified in the Schedule to the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 also attracts excise duty, it should not be exigible to service tax. However, on account of the erstwhile definition of “any process amounting to manufacture or production of goods”, the same had been liable to service tax. This anamoly has now been rectified by bringing such manufacture under the negative list of services. [Effective from 10.05.2013]

Example:

S.No. Institute/Centre April, 2013 June, 2013

a) Manufacture of herbal cosmetics liable to excise duty under the Central Excise Act, 1944

b) Manufacture of alcoholic drinks liable to excise duty under the Punjab Excise Act, 1914

c) Processing of raw materials to make them fit for further production. The process is not liable to any excise duty.


d) Manufacture of medicines liable to excise duty under Medicinal and Toilet Preparations (Excise Duties) Act, 1955

3. ALL testing activities including seed testing directly related to production of any agricultural produce not liable to service tax [Section 66D(d)(i)]


Earlier, sub-clause (i) of Section 66D(d) [Negative list], inter alia, included only the “seed testing” directly related to production of any agricultural produce. Consequently, other type of testing activities directly related to production of any agricultural produce like soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes etc. became liable to service tax.

The Finance Act, 2013 has expanded the scope of the said negative list entry by deleting the word “seed”. As a result, all types of testing activities which are directly related to production of any agricultural produce have been covered under the negative list. [Effective from 10.05.2013]

Exemption & Abatements

1. Lower abatement for commercial construction and high-end construction of residential

units [Notification No. 09/2013 ST dated 08.05.2013]

Earlier Provision New Provisions

construction services (both residential and commercial

units)

commercial construction and high-end

residential construction

Residential Unit

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the

Service tax abatement has been decreased from 75% to 70% in case of commercial construction and high-end residential construction. provided

abatement of 75% would be available in case of residential units which fulfil the following two conditions cumulatively: (i) the carpet area of the unit is less than 2000 square feet; and


competent authority - 75% abatement is allowed provided (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.

(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.

(ii) the amount charged for the unit is less than Rs. 1 crore; provided (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.

2. Mega exemption notification amended

Mega exemption notification, Notification No. 25/2012 dated 20.06.2012, has been amended as follows:- (A) Services by way of slaughtering of ALL animals exempted Mega exemption notification has been amended to provide the exemption to services by way of slaughtering of ALL animals. Earlier, this exemption was restricted to the slaughtering of bovine animals only. [Notification No. 44/2012-S.T. dated 07.08.2012] (B) Life insurance services provided under Janashree Bima Yojana and Aam Aadmi Bima Yojana exempt Mega exemption notification has been amended to provide the exemption to services of life insurance business provided under following schemes - (a) Janashree Bima Yojana (JBY); or (b) Aam Aadmi Bima Yojana (AABY) [Notification No. 49/2012-S.T. dated 24.12.2012] (C) Mega exemption notification amended vide Notification No. 03/2013-ST dated 01.03.2013. Few exemptions have been withdrawn and few others have been rationalized. All these amendments will be effective from April 1, 2013. These amendments are as follows:

I. Withdrawal of exemptions:

(i) Exemption to auxiliary educational services and renting of immovable property service provided BY an educational institution withdrawn


Auxiliary educational services and renting of immovable property services provided TO or BY an educational institution in respect of education exempted from service tax were

Now exemption to auxiliary educational services and renting of immovable property provided BY an educational institution has now been withdrawn. Thus, w.e.f. 01.04.2013, only the


exempted from service tax. auxiliary educational services and renting of immovable property provided TO an educational institution in respect of education exempted from service tax would be exempt from service tax.

(ii) ALL restaurants with air-conditioning or central air heating liable to service tax


Serving of food or beverages by only those restaurants, eating joints or mess were liable to service tax which had:

(i) the license to serve alcohol, and

(i) the facility of air-conditioning/ central air-heating in any part of the establishment, at any time during the year. Thus, the restaurants, eating joint or mess which fulfilled any one of the two requirements or did not fulfill both the two requirements were exempt from service tax.

Serving of food or beverages by only those restaurants, eating joints or mess were liable to service tax which had:

(i) the facility of air-conditioning/ central air-heating in any part of the establishment, at any time during the year. Thus, only non airconditioned/ non-centrally air-heated restaurants are eligible for exemption. Rest all are liable to service tax.

Example Atithi Restaurant is a restaurant located at a prominent location in the city. It is centrally air-conditioned, but does not have the license to serve liquor. Determine whether it is liable to pay service tax in the month of March and April, 2013. Solution: Atithi Restaurant is eligible for the exemption under mega exemption notification till 31.03.2013 as it does not have the licence to serve alcohol. However, with effect from 01.04.2013, all air conditioned restaurants, irrespective of whether they have the license to serve alcohol or not, have been made liable to service tax. Thus, Atithi Restaurant is liable to pay service tax with effect from 01.04.2013.

(iii) Exemption to parking of vehicles withdrawn


Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility were exempt.

W.e.f. from April 1, 2013, services by way of vehicle parking to general public (unreserved parking) liable to service tax. Leasing of space to an entity for providing such parking facility (reserved parking)


which was liable to service tax even prior to 01.04.2013 will continue to be liable to service tax.

(iv) Exemption to repair or maintenance of Government aircrafts withdrawn


Services provided to Government, a local authority or a governmental authority by way of repair or maintenance of a vessel or an aircraft were exempt from service tax.

With effect from 01.04.2013, exemption in respect of services provided to the Government by way of repair or maintenance of an aircraft has been withdrawn. Services provided to Government, a local authority or a governmental authority by way of repair or maintenance of a vessel were exempt from service tax.

(v) Exemption upto Rs. 25 lakh available to entity registered under section 12AA of the Income tax Act, 1961 providing services for advancement of “any other object of general public utility” withdrawn

The exemption available to entity registered under section 12AA of the Income tax Act, 1961 providing services for advancement of “any other object of general public utility” up to Rs. 25 lakh has been withdrawn. The said amendment has been given effect to by modifying the definition of “charitable activities”. The threshold exemption as available to all other taxable services will continue to be available up to Rs. 10 lakh.

(vi) Exhibition of films in a place other than a cinema hall or a theatre liable to service tax Till March 31, 2013, temporary transfer or permitting the use or enjoyment of a copyright of cinematograph films was exempt from service tax. However, the benefit of exemption in relation to copyrights for cinematograph films will now be available only to films exhibited in a cinema hall or theatre. Therefore, exhibition of cinematograph films in a place other than cinema hall or theatre, will be taxable. This will allow service providers to pass on input tax credit to taxable end-user.


II. Rationalization of exemptions

1. Exemption granted to the services of transportation of goods by road/rail/vessel harmonized Prior to April 1, 2013 Earlier, transport of certain goods through rail or a vessel was exempt from service tax but the transport of same goods in a goods carriage through road was liable to service tax. Thus, there was a disparity with respect to levy of service tax on transport of same goods in different modes of transportation viz. rail/vessel and goods carriage. The exemptions granted to transport of goods through rail or a vessel and a goods carriage have been presented in the following table:

Transportation of the following goods by rail/vessel was exempt

Transportation of the following goods by a goods transport agency was exempt

(a) petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the Central Excise Tariff Act, 1985;

(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

(b) relief materials meant for victims of natural or manmade disasters, calamities, accidents or mishap;

(b) goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed Rs.1500; or

(c) defence or military equipments; (c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed Rs.750.

(d) postal mail or mail bags;

(e) household effects;

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) railway equipments or materials;

(h) agricultural produce;

(i) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

(j) chemical fertilizer and oil cakes.

New position With effect from 01.04.2013, exemptions available to transportation of goods by road/rail/vessel have been harmonized to a large extent in the following manner:

Transportation of the following goods by rail/vessel have been exempted from service tax

Transportation of the following goods by a goods transport agency have been exempted from service tax

Railway equipments or materials (i) goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed Rs.1500; or

(ii) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed Rs. 750.

Common exemptions

a) agricultural produce b) foodstuff** including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil,


excluding alcoholic beverages c) chemical fertilizer and oilcakes d) newspaper or magazines registered with the Registrar of Newspapers e) relief materials meant for victims of natural or man-made disasters, calamities, accidents or

mishap f) defence or military equipments

Thus, with effect from 01.04.2013, exemption to transportation of petroleum and petroleum products, postal mails or mail bags and household effects by railways and vessels has been withdrawn. Moreover, the scope of exemption to transport of goods by goods transport agency has been widened. As against the earlier exemption available to transport of fruits, vegetables, eggs, milk, food grains or pulses by GTA in a goods carriage, now transportation of all agricultural produce and food stuff has been exempted.

**Note: CBEC has clarified that the expression foodstuff here includes milk also [Circular No.167/2/2013 – ST dated 01.01.2013]

3. Transportation of passengers and goods by Indian Rail service exempted till 30-9-2012 [Notification No. 43/2012-S.T. dated 02.07.2012]

Following services provided by the Indian Railways are taxable as they have been specifically excluded from the negative list. However, they have been exempted from service tax between 02.07.2012 and 30.09.2012 (both inclusive):- a) Service of transportation of passengers, with or without accompanied belongings, by railways in-

i. first class; or ii. an air conditioned coach

b) Services by way of transportation of goods by railways.

Consequently, with effect from October 1, 2012, the above services have again become liable to service tax @ 12.36% with an abatement of 70% been granted to such services. Therefore, the effective rate of service tax for such services would be 3.7%.

4. Exemption to specified export promotion schemes-Focus Market Scheme, Focus Product Scheme and Vishesh Krishi and Gram Udyog Yojana [N/No.s 6/2013 to 8/2013-ST dated 18.04.2013]

The taxable services provided or agreed to be provided against the following duty credit scrips by a person located in the taxable territory are exempt from service tax:-

(i) Focus Market Scheme duty credit scrip issued to an exporter by the Regional Authority in accordance the Foreign Trade Policy.

(ii) Focus Product Scheme duty credit scrip issued to an exporter by the Regional Authority in accordance with the Foreign Trade Policy.

(iii) Vishesh Krishi and Gram Udyog Yojana (Special Agriculture and Village Industry Scheme) duty credit scrip issued to an exporter by the Regional Authority in accordance with the Foreign Trade Policy.


5. Directors fee & security charges brought under Reverse Charge Mechanism [Notification No. 45 & 46/2012-S.T. dated 07.08.2012]

(i) Reverse charge notification amended Notification No. 30/2012 dated 20.06.2012 has been amended to bring the directors fee & security charges under Reverse Charge System in the following manner:-

S.N. Description of a service Percentage payable by the service provider

Percentage payable by the service receiver

1 in respect of services provided or agreed to be provided by a director of a company to the said company

Nil 100%

2 in respect of services provided or agreed to be provided by way of security services for any purpose by any individual/HUF/partnership firm (whether registered or not) including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory

25% 75%

(ii) Service Tax Rules, 1994 amended Definition of person liable to pay service tax provided under rule 2(1)(d) of the Service Tax Rules, 1994 has also been accordingly amended as follows:- a) Person liable for paying service tax in relation to service provided or agreed to be provided by a

director of a company to the said company is the recipient of such service [Item (EE) inserted to rule 2(1)(d)(i)].

b) Person liable for paying service tax in relation to services provided or agreed to be provided by way of security services by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as a body corporate, located in the taxable territory are both the service provider and the service recipient to the extent notified u/s 68(2) of the Act, for each respectively [Item (F) to rule 2(1)(d)(i) amended].

Adjudication & Offences

1. SCN issued by invoking extended period of limitation, if not found sustainable, to be deemed to be a SCN issued for a period of eighteen months [New sub-section (2A) inserted in section 73] [Effective from 10.05.2013]


Hitherto, if any appellate authority or Tribunal or Court concluded that extended period of limitation could not be invoked because the charges for fraud, suppression, wilful

In order to plug this lacuna, the Finance Act, 2013 has inserted new sub-section (2A) to section 73. It provides that in cases where the Department has raised a demand invoking the extended period of limitation (i.e. 5 years), and the appellate authority or Tribunal or Court concludes that extended period cannot be invoked because the charges for fraud, suppression,


misstatement etc. were not established, then the entire demand raised in the show cause notice was quashed even though the same was confirmable on merits. Thus, the Central Excise Officer could not determine the demand even for the normal period of limitation of eighteen months.

willful misstatement etc. are not established, the Central Excise Officer can determine the service tax liability for the normal period of limitation i.e, the last eighteen months and raise the demand accordingly. It may be noted that in case of non/short levy or non/short payment of service tax in non fraud cases, penalty under section 78 does not apply. For such cases, penalty under section 76 is invoked. However, interest is payable under section 75 in both the cases for the period of default.

Note: Similar provision already exists in Central Excise Law under section 11A(9) of the Central Excise Act, 1944.

2. Maximum penalty for failure to obtain registration restricted to Rs.10,000 [Section 77(1)(a)] Penalty for failure to obtain registration in accordance with the provisions of section 69 or the related rules has been relaxed vide the Finance Act, 2013. A comparative analysis of the pre and post Finance Act, 2013 situation is as follows:-

Penalty prior to 10.05.2013 Higher of the following:- (a) Penalty upto Rs. 10,000 or (b) Rs. 200 for every day during which such failure continues

Penalty on or after 10.05.2013 Maximum penalty upto Rs. 10,000. Daily penalty of Rs. 200 per day has been done away with.

3. Imposition of personal penalty on director, manager, secretary, or other officer found to be knowingly concerned with specified contraventions [New section 78A] The new section 78A makes a director, manager, secretary or other officer of the company personally liable to a penalty upto Rs. 1 lakh in case of certain specified contraventions committed by the company. Such penalty would be leviable if the director, manager, secretary or other officer of the company was in charge of, and was responsible to, the company for the conduct of business


of such company at the time of commitment of any of the specified contraventions and was knowingly concerned with such contravention. The specified contraventions are: a) evasion of service tax; or b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in

violation of the rules made under the provisions of Chapter V; or c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or

excisable goods either fully or partially in violation of the rules made under the provisions of Chapter V; or

d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due.

4. Tribunal empowered to condone the delay in filing of an appeal by the assessee [Section 86(5)]


Hitherto, section 86(5) of the Finance Act, 1994 empowered the Appellate Tribunal to admit an appeal filed by the Commissioner of Central Excise or a Central Excise Officer following the direction of Committee of

The Finance Act, 2013 has amended section 86(5) so as to empower the Appellate Tribunal to also admit an appeal filed by the assessee after the

Penalty upto Rs. 1,00,000

Director /Manager/Secretary/ other officer of company knowingly concerned with any of specified contraventions liable to


Chief Commissioners of Central Excise or Committee of Commissioners of Central Excise respectively after the expiry of the statutory period (4 months) for filing the same, if it was satisfied that there was sufficient cause for not presenting it within that period. Similarly, the Tribunal also had the powers to permit the filing of a memorandum of cross-objections by the Commissioner/ Central Excise Officer/ assessee after the expiry of the statutory period (45 days) for filing the same, if it is satisfied that there was sufficient cause for not presenting it within that period. Thus, there was no provision enabling the Tribunal to condone the delay in filing of an appeal by the assessee.

expiry of the statutory period for filing the same, i.e., 4 months if it is satisfied that there was sufficient cause for not presenting it within that period. [Effective from 10.05.2013]

5. Non-payment of amount collected as service tax beyond six months, when the amount exceeds Rs.50 lakh, to be a cognizable offence punishable with an imprisonment extendible to seven years [Section 89 and 90] The Finance Act, 2013 has made the prosecution provisions [as contained in section 89] more stringent with respect to the offence relating to failure to pay the amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, when such amount exceeds Rs.50 lakh. Further, new section 90 has been introduced to make the said offence cognizable. The remaining offences have been categorized as non-cognizable and bailable. Section 89: The provisions of amended section 89 have been discussed in details below: (i) The offences described in section 89 can be divided into two categories, namely category ‘A’

and category ‘B’.

Category ‘A’ offences: Category ‘B’ offences:

a) willful evasion of payment of service tax; or b) availment and utilization of credit of service

tax / excise duty without actual receipt of taxable service / excisable goods either fully or partially in violation of the rules made under the provisions of Chapter V; or

c) Maintenance of false books of account or failure to supply any information which a person is required to supply or knowingly supplying false information.

Collection of any amount as service tax but failure to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due

Prosecution Prosecution

a) If any person commits any of the category ‘A’ offences, he shall be punishable with imprisonment for a term from six months to three years if the amount involved in the

a) A person who has committed category ‘B’ offence will be punishable with imprisonment for a term which may extend from six months to seven years if


offence exceeds Rs. 50 lakh. b) In case, the amount involved does not

exceed Rs. 50 lakh, the imprisonment shall be for a term which may extend to one year.

c) Any second or subsequent offence from category ‘A’ offences (whether the amount involved exceeds Rs. 50 lakh or not) would be punishable with imprisonment for a term which may extend to three years.

the amount exceeds Rs.50 lakh. b) In case, the amount involved in respect

of the category ‘B’ offence does not exceed Rs. 50 lakh, the imprisonment shall be for a term which may extend to one year.

c) A second or subsequent category ‘B’ offence (where the amount involved does not exceed Rs. 50 lakh) would be punishable with imprisonment for a term which may extend to three years.

d) A second or subsequent category ‘B’ offence (where the amount involved exceeds Rs. 50 lakh) would be punishable with imprisonment for a term which may extend to seven years.

It may be noted that in case where a person has been convicted of an offence of category ‘A’ and category ‘B’ offences for the first time, the term of imprisonment cannot be less than six months if the amount involved in the offence exceeds Rs. 50 lakh. However, the punishment can be reduced if there are special and adequate reasons, which would be recorded in the judgment of the Court, for granting lesser punishment. [Effective from 10.05.2013] Section 90: New section 90 relating to cognizance of offences has been discussed in details as below: (i) Prior to the Finance Act, 2013, section 9A of the Central Excise Act, 1944 was applicable in

service tax matters vide section 83 of the Finance Act, 1994. (ii) Earlier, sub-section 9A(1) of the Central Excise Act, 1944 deemed all offences under section 9 to

be non-cognizable. Thus, in service tax also, all the offences were deemed to be non-cognizable.

(iii) However, the Finance Act, 2013 has introduced new section 90 which provides that offence involving collection of any amount as service tax but failure to pay the amount so collected to the credit of the Central Government beyond a period of six months would be a cognizable offence if the amount exceeds Rs.50 lakh. Therefore, arrest can be made for such an offence without a warrant.

(iv) All the category ‘A’ offences would be non-cognizable and bailable. Further, non-payment of amount collected as service tax beyond a period of six months, when the amount does not exceed Rs.50 lakh, would also be a non-cognizable and bailable offence.

The amended provisions of section 89 and new section 90 have been depicted by way of diagrams as follows:


Offence Category

If any person is convicted for an offence for [Section 89]

A First time where the amount is

Term of imprisonment

Prior to Amendment

After the amendment

(i) upto Rs. 50 lakh Upto 1 year Upto 1 year

(ii) more than Rs. 50 Lakh

6 months* - 3 years

6 months* - 3 years

Second & every Subsequent offence

The term of imprisonment would be 6 months* - 3 years.

The term of imprisonment may extend to 3 years.

B First time where the amount is

Term of imprisonment

Prior to Amendment

After the amendment

(i) upto Rs. 50 lakh Upto 1 year Upto 1 year

(ii) more than Rs. 50 lakh

6 months* - 3 years

6 months* - 7 years

Second & every Subsequent time

(i) upto Rs. 50 lakh 6 months* - 3 years

Upto 3 years

(ii) more than Rs. 50 lakh

6 months* - 3 years

Upto 7 years

*Such imprisonment shall be for a term of less than six months if there are special and adequate reasons to be recorded in the judgment of the Court.


6. Powers of arrest introduced in service tax [New section 91] Under Central Excise Law, an Inspector or any other Central Excise Officer above his rank is empowered to arrest any person whom he has reason to believe to be liable to punishment. However, such an arrest needs to be authorized with the prior approval of the Commissioner of Central Excise [Section 13 of the Central Excise Act, 1944]. Similar powers have been introduced in the service tax law this year by the Finance Act, 2013.

Who can arrest? New section 91 provides that the Commissioner of Central Excise by general or special order authorize any officer of Central Excise, not below the rank of Superintendent of Central Excise to arrest a person.

- Who can be arrested? - A person who has committed any of the offences specified under section 89(1) and the amount involved in the offence exceeds Rs.50 lakh.

When can arrest be ordered?

- The Commissioner of Central Excise can order arrest if he has reason to believe that a person has committed the offence mentioned above.

Manner of arrest - All arrests have to be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to arrests.

Procedure in case of cognizable offence

– In case of cognizable offence, every officer authorised to arrest a person has to inform the arrested person of the grounds of arrest and produce him before a magistrate within 24 hours.

Procedure in case of non-cognizable and bailable offence

– The Assistant Commissioner /Deputy Commissioner is empowered to release an arrested person on bail or otherwise. For this purpose, the Assistant Commissioner /Deputy Commissioner will have same powers and be subject to the same provisions as an officer in charge of a police station is under Code of Criminal Procedure, 1973.


7. Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) The Finance Act, 2013 has introduced an amnesty scheme for service tax assesses known as ‘Service Tax Voluntary Compliance Encouragement Scheme’ to encourage the service providers as well as service receivers - liable to pay service tax under reverse charge - who are either stop filers, non-filers or non-registrants or who have not disclosed their true liability in the returns filed by them to pay their tax dues without payment of interest and penalty. The salient features of the scheme are:

(i) Eligibly/ Ineligibility

(i) Any person who is liable to pay tax for the period 01.10.2007 to 31.12.2012, but has not paid the same till 01.03.2013 would be eligible for claiming the benefit of this scheme. However, the following persons would not be allowed to declare their tax dues under VCES: a. a person to whom any notice or order has been issued before 1st

March 2013. b. a person who has filed the returns disclosing his true liability and

not discharged the service tax amount shown in the same. c. a person whose tax dues pertain to a issue for which a notice has

been served or an order has been passed in the previous period. d. a person against whom an inquiry or investigation in respect of

non/short levy or non/short- payment of service tax has been initiated by way of search of premises or summons or requiring production of accounts, documents or other evidences and such inquiry/investigation is pending as on 01.03.2013.

e. person against whom an audit has been initiated and such audit is pending as on 01.03.2013.


(ii) Truthful Declaration

The defaulter is required to make a truthful declaration of all his pending tax dues (from October 1, 2007 to December 31, 2012) on or before 31.12.2013. However, if the Commissioner has reasons to believe that the declaration made by a declarant under VCES was substantially false, he may serve a show cause notice within one year from the date of declaration.

(iii) Payment At least half of the declared tax dues need to be paid by December 31, 2013. The remaining half can be paid by: a) June 30, 2014 without interest; or b) by December 31, 2014 with interest @ 18% from July 1, 2014

onwards. The amount so paid would be non-refundable.

(iv) Immunity from Interest Penalty, Proceeding etc

On compliance with all the prescribed requirements, the declarant will be granted immunity from interest (as specified), penalties and other proceedings. The proceeding under VCES would be final and cannot be reopened by any forum.

(v) Action in case of Non Payment

If the declared tax dues are not paid either in part or in full, such dues will be recovered along with interest as per the provisions of section 87.

(vi) Dues after Dec 31st 2012

The tax-payers will need to settle their dues for the period after December 31, 2012 as per the provisions applicable under the present law.

Clarifications – Service Tax

1. No service tax on remittances from abroad [Circular No.163/14/2012 ST dated 10.07.2012] CBEC has clarified that service tax is not leviable on the amount of foreign currency remitted to India from overseas as definition of ‘service’ under section 65B(44) specifically excludes transactions in money. Further, service tax would also not be leviable on the fee or conversion fee chargeable for sending such money as the company conducting the remittances and the person sending the money are located outside India. Such services are deemed to be provided outside India in terms of the Place of Provision of Services Rules, 2012. It has also been clarified that Indian counterpart or financial institutions or entity who charges the foreign bank or any other entity for the services provided at the receiving end will also not be liable to service tax as the place of provision of such service shall be the location of the recipient of the service, i.e., outside India, in terms of Rule 3 of the Place of Provision of Services Rules, 2012.

2. Determination of POT for works contracts in progression on July 1, 2012 [Circular No. 162/13/2012 ST dated 06.07.2012] CBEC has clarified the following issues relating to point of taxation arising out of the amendments made vide the Budget 2012 and subsequent amendments made effective from July 1, 2012: (a) Point of taxation and the applicable rate for continuous supply of services at the time of change in

rates effective from 01.04.2012;


(b) Applicability of the revised rule 2A of the Service Tax (Determination of Value) Rules, 2006 to ongoing works contracts for determination of value when the value was being determined under the erstwhile Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007; and

(c) Applicability of partial reverse charge provisions in respect of specified services. Till 31.03.2012, rule 6 of the Point of Taxation Rules, 2011 (POTR) determined point of taxation (POT) in case of continuous supply of services. Since, the rule started with a non-obstantate clause, “notwithstanding anything contained in rules 3, 4 …”, the POT for continuous supply of services provided on or before 31.03.2012 would not be affected by rule 4 of POTR. In other words, if the invoice had been issued or payment received for such services on or before 31.03.2012, the POT would be determined under rule 6, not being affected by the amendments made effective only from 1.4.2012. However, with effect from 01.04.2012, rule 6 has been omitted and the POT for continuous supply of services is also being determined ordinarily under the main rule i.e., rule 3 subject to provisions of rule 4. Rule 4 determines the POT when there is a “change in effective rate of tax”. Change in effective rate of tax includes a change in the portion of value on which tax is payable. The following examples have been given by the Board to illustrate as to what would constitute changes in effective rate of tax:-

(i) the change in the portion of total value liable to tax in respect of works contract other than original works (from @ 4.8% earlier to @ 12% on 60% of the total amount charged, or effectively @ 7.2% now).

(ii) exemption granted to certain works contracts w.e.f. 1st July 2012 which were earlier taxable. (iii) taxability of certain works contracts which were hitherto exempted. (iv) change in the manner of payment of tax for works contracts from composition scheme to payment

on actual value under clause (i) of rule 2A of the Service Tax (Determination of Value) Rules, 2006. However, the following will not constitute the change in effective rate of tax:- (i) works contracts paying service tax at the composite rate of 4.8% earlier and now required to pay

service tax @12% on 40% of the total amount charged as the effective rate remains the same at 4.8%.

(ii) non – taxable works contracts (and not merely exempted) which have become now taxable e.g. construction of residential complex comprising of 2 to 12 residential units, construction of buildings meant for use by NGOs etc. Rule 5 of the POTR will apply in such cases.

It has been further clarified that the provisions of partial reverse charge would also be applicable in respect of such services where point of taxation is on or after 01.07.2012 under the applicable rule in respect of the service provider.

3. No service tax on vocational education course if offered by the Central/ State

Government/Local Authority [Circular No.164/15/2012 ST dated 28.08.2012] CBEC has clarified that service tax is not leviable on vocational education/training/ skill development courses (VEC) offered by the institution of the Government (Central Government or State Government) or a local authority as in terms of section 66D (a), only specified services provided by the Government are liable to tax and VEC is excluded from the service tax. However, if the VEC is offered by an institution, as an independent entity in the form of society or any other similar body, service tax treatment would be determined by either sub-clause (ii) or (iii) of clause (l) of section 66D of the Finance Act, 1994.


Sub-clause (ii) refers to “qualification recognized by any law” and sub-clause (iii) refers to “approved VEC”. In the context of VEC, qualification implies a Certificate, Diploma, Degree or any other similar Certificate. The words “recognized by any law” will include such courses as are approved or recognized by any entity established under a central or state law including delegated legislation, for the purpose of granting recognition to any education course including a VEC.

4. Accounting codes for payment of service tax under negative list approach of taxation of services [Circular No. 165/16/2012 –ST dated 20.11.2012, Circular No. 161/12/2012 –ST dated 06.07.2012 & Notification No. 48/2012 ST dated 30.11.2012] Earlier, under the positive list approach of taxation of services, Department had issued Accounting codes [eight digit numerical codes] in respect of each taxable service to be used by the assessee while paying service tax through GAR-7 challan. Thus, 119 service specific accounting codes were there. With the introduction of negative list approach of taxation of services, with effect from 01.07.2012, at first service specific old accounting codes were done away with and one Accounting code was prescribed for the purpose of payment of service tax i.e. “All Taxable Services” – 00441089. However, subsequently, for the purpose of statistical analysis, service specific old accounting codes were again restored along with 120th description as “other taxable services”. Consequently, CBEC has accordingly amended Form ST-1 (Registration Form under Service Tax). The amended form has an annexure containing description of taxable services and accounting codes for payment of service tax. The assessee can choose the description as applicable to him from the annexure.

5. No service tax liability at the time of issue of reminder letters by life insurance companies to policy holders to pay renewal premiums [Circular No.166/1/2013 – ST dated 01.01.2013]

Issue Clarification

In terms of practice followed, life insurance companies issue reminder notices/letters to the policy holders to pay renewal premiums. Such reminder notices only solicit furtherance of service which if accepted by policy holder by payment of premium results in a service. Whether service tax needs to be paid on the basis of such reminders?

Under the Point of Taxation Rules 2011, the point of taxation generally is the date of issue of invoice or receipt of payment whichever is earlier. The invoice mentioned refers to the invoices as issued under Rule 4A of the Service Tax Rules, 1994. No tax point arises on account of such reminders. Thus, it is clarified that reminder letters /notices for insurance policies not being invoices would not invite levy of service tax. In case of issuance of any invoice, point of taxation shall accordingly be determined.

6. Service tax leviable on the activity by way of erection of pandal or shamiana [Circular No. 168/3/2013-ST dated 15.04.2013]

Issue: Whether service tax is leviable on the activity of preparation of place for organizing event or function by way of erection/laying of pandal and shamiana or is it a transaction involving “transfer of right to use goods” and hence deemed sale?


Clarification: The activity of providing pandal and shamiana along with erection thereof is generally coupled with other incidental activities like supply of crockery, furniture, sound system, lighting arrangements, etc. It is a reasonably specialized job and is carried out by the supplier with the help of his own labour. For a transaction to be regarded as “transfer of right to use goods”, the transfer has to be coupled with effective control and possession [Rashtriya Ispat Nigam Ltd.]. Moreover, if pandal is given to the customers for use only after having been erected, then it is not transfer of right to use goods [Harbans Lal vs. State of Haryana]. Applying the ratio of these judgments and the test formulated by SC in case of BSNL v. UOI 2006 (2) S.T.R. 161 (S.C.)[discussed below], CBEC clarified that pandal/shamiana erection activities do not amount to transfer of right to use goods because effective possession and control over the pandal or shamiana remains with the service provider, even after the erection is complete and the specially made–up space for temporary use handed over to the customer. Hence, the activity by way of erection of pandal or shamiana is a declared service, under section 66E(f). In order to constitute the transaction for the transfer of the right to use the goods, the transaction must have the following attributes:- a) There must be goods available for delivery; b) There must be a consensus ad idem as to the identity of the goods; c) The transferee should have a legal right to use the goods and, consequently, all legal consequences of

such use including any permissions or licenses required therefore should be available to the transferee; d) For the period during which the transferee has such legal right, it has to be the exclusion of the

transferor: this is the necessary concomitant or the plain language of the statute, viz., a “transfer of the right to use” and not merely a license to use the goods:

e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others [BSNL v. UOI 2006 (2) S.T.R. 161 (S.C.)]

SERVICE TAX

EXEMPTION & ABATEMENTS

II. ABATEMENT IN RESPECT OF CONSTRUCTION SERVICES Lower abatement for commercial construction and high-end construction of residential units With effect from May 8, 2013, abatement of 75% would be available in case of residential units which fulfil the following two conditions cumulatively:

(i) the carpet area of the unit is less than 2000 square feet; and (ii) the amount charged for the unit is less than `1 crore;

Thus, residential units having carpet area of 2000 sq ft or more or where the amount charged is `1 crore or more would be considered as high-end construction eligible for lower abatement of 70%. The amended position has been depicted in the diagram below:-


Note: The two conditions to be satisfied for claiming the abatement remain the same. [Notification No. 09/2013 ST dated 08.05.2013]


PART V Applicable for Nov 2014

exams


Summary of Important Case Studies S.N. Case Law Issue Decision

1. Commissioner v. Steel Authority of India Ltd. 2012 (283) E.L.T. A112 (S.C.)

Does the process of washing of iron ore for removal of foreign materials from such ore amount to manufacture?

SC held that removal of foreign materials from iron ore do not result in manufacture of different commercial commodity. No Central excise duty is leviable on iron ore concentrate.

2. CCE v. Osnar Chemical Pvt. Ltd. 2012 (276) E.L.T. 162 (S.C.)

Whether the addition and mixing of polymers and additives to base bitumen results in the manufacture of a new marketable commodity and as such exigible to excise duty?

The process of mixing polymers and additives to heated bitumen, which results in emergence of polymer modified bitumen (PMB) and crumbled rubber modified bitumen (CRMB) does not amount to manufacture because there was no change in characteristics or identity of bitumen, only its grade or quality was improved. Further, the said process was not specified in section or chapter notes of the Tariff Act as amounting to manufacture. The Supreme Court thus concluded that the process of mixing polymers and additives with bitumen did not amount to manufacture.

3. Grasim Industries Ltd. v. UOI 2011 (273) E.L.T. 10 (S.C.)

Whether the metal scrap or waste generated during the repair of his worn out machineries/ parts of cement manufacturing plant by a cement manufacturer amounts to manufacture?

SC held that the generation of metal scrap or waste during the repair of the worn out machineries/parts of cement manufacturing plant does not amount to manufacture.

4. CCE v. GTC Industries Ltd. 2011 (266) E.L.T. 160 (Bom.)

Does the process of cutting and embossing aluminium foil for packing the cigarettes amount to manufacture?

It was held that cutting and embossing did not transform aluminium foil into distinct and identifiable commodity. It did not change the nature and substance of foil. The said process did not render any marketable value, only made it usable for packing. Hence, process did not amount to manufacture as per section 2(f) of Central Excise Act, 1944.

5. CCEx., Mumbai v. Fiat India Pvt. Ltd. 2012 (283) E.L.T. 161 (S.C.)

Whether the price used for selling of a product below the cost price for penetration of market can be considered as transaction value?

Supreme Court opined that no prudent business person would continuously suffer huge loss only to penetrate market; they are expected to act with discretion to seek reasonable income, preserve capital and, in general, avoid speculative investments. It is immaterial that the cars were not sold to related persons. In view of the above resorting to best judgment assessment was proper.

6. Tata Motors Ltd. v. UOI 2012 (286) E.L.T. 161

Can the pre-delivery inspection (PDI) and free

The High Court held that Clause No. 7 of Circular No. 643/34/2002 dated 1st July,


(Bom.) after sales services charges be included in the transaction value when they are not charged by the assessee to the buyer?

2002 and Circular dated 12th December, 2002 (where it confirms the earlier circular dated 1st July, 2002) were not in conformity with the provisions of section 4(1)(a) read with section 4(3)(d) of the Central Excise Act, 1944. Further, as per section 4(3)(d), the PDI and free after sales services charges could be included in the transaction value only when they were charged by the assessee to the buyer.

7. Flex Engineering Ltd. v. Commissioner of Central Excise, U.P. 2012 (276) E.L.T. 153 (S.C.)

In case the testing is critical to ensure marketability of manufactured product i.e. the manufacture is not complete without testing; is CENVAT credit of the testing material allowed?

The SC was of the opinion that the process of testing the customized F&S machines was inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence, not marketable at the factory gate. The Court was, therefore, of the opinion that the manufacturing process in the present case gets completed on testing of the said machines. Hence, CENVAT credit is available of the testing material.

8. CCE v. Tata Advanced Materials Ltd. 2011 (271) E.L.T. 62 (Kar.)

The assessee claimed the CENVAT credit on the duty paid on capital goods which were later destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise duty. Is the CENVAT credit availed by the assessee required to be reversed?

The High Court observed that merely because the Insurance Company had paid the assessee the value of goods including the excise duty paid, it would not render the availment of the CENVAT credit wrong or irregular. It was not a case of double benefit as contended by the Department. The High Court therefore answered the substantial question of law in favour of the assessee.

9. CCEx v. Cadila Healthcare Ltd. 2013 (30) S.T.R. 3 (Guj.)

Whether (i) technical testing and analysis services availed by the assessee for testing of clinical samples prior to commencement of commercial production and (ii) services of commission agent are eligible input services for claiming CENVAT?

The High Court held that technical testing and analysis services availed for testing of clinical samples prior to commencement of commercial production were directly related to the manufacture of the final product and hence, were input services eligible for CENVAT credit. With respect to the services provided by foreign commission agents, the High Court held that since the agents were directly concerned with sales rather than sales promotion, the services provided by them were not covered in main or inclusive part of definition of input service as provided in rule 2(l) of the CENVAT Credit Rules, 2004.

10. Sintex Industries Ltd. vs. Will two units of a The High Court held that credit could be


CCEx 2013 (287) ELT 261 (Guj.)

manufacturer surrounded by a common boundary wall be considered as one factory for the purpose of CENVAT credit if they have separate central excise registration?

availed on eligible inputs utilized in the generation of electricity only to the extent the same were used to produce electricity within the factory registered for that purpose (textile division). However, credit on inputs utilized to produce electricity which was supplied to a factory registered as a different unit (plastic division) would not be allowed. The High Court rejected the contention of the assessee that separate registration of two units situated within a common boundary wall would not make them two different factories.

11. CCEx. v. Balaji Trading Co. 2013 (290) E.L.T. 200 (Del.)

In a case where the manufacturer clandestinely removes the goods and stores them with a firm for further sales, can penalty under rule 25 of the Central Excise Rules, 2002 be imposed on such firm?

High Court concurred with the view of the Tribunal is concluded that rule 25(1)(c) would have no application in the present case.

12. Commissioner v. Elex Knitting Machinery Co. 2012 (283) E.LT. A18 (S.C.)

Whether an assessee can claim the benefit of SSI exemption on the brand name of another firm if its proprietor is also a partner in such other firm?

The Supreme Court held that the appellant was eligible to claim benefit of the SSI exemption as the proprietor of Elex Knitting Machinery Co. was one of the partners in Elex Engineering Works. And hence being the co-owner of the brand name of Elex, he could not be said to have used the brand name of another person, in the manufacture and clearance of the goods in his individual capacity.

13. Bonanzo Engg. & Chemical P. Ltd. v. CCEx. 2012 (277) E.L.T. 145 (S.C.)

Whether the exempted goods on which duty has been paid by mistake by the assessee and refund thereof has also not been claimed would be excluded while computing turnover for preceding year for claiming SSI exemption?

The Supreme Court opined that SSI exemption would be allowable to the assessee, as they meet all the conditions thereof. The amount of clearances in the SSI exemption notification needs to be computed after excluding the value of exempted goods. The Court directed the adjudicating authority to apply the SSI exemption notification in the assessee’s case without taking into consideration the excess duty paid by the assessee under the other exemption notification.

14. CCEx vs. Australian Foods India (P) Ltd 2013 (287) ELT 385 (SC)

Whether the manufacture and sale of specified goods, not physically bearing a brand name, from branded sale outlets would disentitle an assessee to avail benefit of small scale exemption?

The Supreme Court held that it is not necessary for goods to be stamped with a trade or brand name to be considered as branded goods for the purpose of SSI exemption. A scrutiny of the surrounding circumstances is not only permissible, but necessary to decipher the same; the most important of these factors being the specific outlet from which the good is sold. However, such


factors would carry different hues in different scenarios. There can be no single formula to determine if a good is branded or not; such determination would vary from case to case.

15. Commissioner of Customs (Import), Mumbai v. Konkan Synthetic Fibres 2012 (278) E.L.T. 37 (S.C.)

In case no statutory definition is provided under law, can the opinion of expert in trade who deals in those goods be considered while determining duty liability?

The Supreme Court stated that it was a settled proposition in a fiscal or taxation law that while ascertaining the scope or expressions used in a particular entry, the opinion of the expert in the field of trade, who deals in those goods, should not be ignored, rather it should be given due importance. Thus, the Supreme Court concluded that the imported goods were covered under the exemption notification.

16. Commissioner of Cus., Vishakhapatnam v. Aggarwal Industries Ltd. 2011 E.L.T. 641 (S.C.)

Whether subsequent increase in the market price of the imported goods due to inflation would lead to increase in customs duty although the contract price between the parties has not increased accordingly?

The Supreme Court held that in the instant case, the contract for supply of crude sunflower seed oil @ US $ 435 CIF/ metric ton was entered into on 26th June 2001. It could not be performed on time because of which extension of time for shipment was agreed between the contracting parties. It is true that the commodity involved had volatile fluctuations in its price in the international market, but having delayed the shipment; the supplier did not increase the price of the commodity even after the increase in its price in the international market. There was no allegation of the supplier and importer being in collusion. Thus, the appeal was allowed in the favour of the respondent- assessee.

17. CCus v. Shreeji Overseas (India) Pvt. Ltd. 2013 (289) E.L.T. 401 (Guj.)

Can the time-limit prescribed under section 48 of the Customs Act, 1962 for clearance of the goods within 30 days be read as time-limit for filing of bill of entry under section 46 of the Act?

The High Court noted that though section 46 does not provide for any time-limit for filing a bill of entry by an importer upon arrival of goods, section 48 permits the authorities to sell the goods after following the specified procedure, provided the same are not cleared for home consumption/ warehoused/ transshipped within 30 days of unloading the same at the customs station. The High Court however held that the time-limit prescribed under section 48 for clearance of the goods within 30 days cannot be read into section 46 and it cannot be inferred that section 46 prescribes any time-limit prescribed for filing of bill of entry.

18. Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.)

Can the former director of the company be held liable for the recovery of customs

Considering the provisions of section 142 of the Customs Act, 1962 and the relevant rules*, the High Court


dues of such company?

elucidated that it was only the defaulter against whom steps might be taken under Rules. The defaulter was the person from whom dues were recoverable under the Act. In the present case, it was the company who was the defaulter. There was no averment that the company had been or was being wound up. Thus, juristic personality of an existing company and its former director were certainly separate; the dues recoverable from the former could not, in the absence of a statutory provision, be recovered from the latter. There was no provision in the Customs Act, 1962 corresponding to section 179 of the Income Tax Act, 1961 or section 18 of the Central Sales Tax, 1956 (refer note below) which might enable the Revenue authorities to proceed against directors of companies who were not defaulters.

19. Commissioner of Central Excise, Bhopal v. Minwool Rock Fibres Ltd. 2012 (278) E.L.T. 581 (S.C.)

In case of specific classification viz-à-viz classification based on material used/ composition of goods, which one should be adopted?

A heading based on composition of goods is a more specific heading, as it is based on commercial nomenclature rather than the specific classification.

20. CCE v. Wockhardt Life Sciences Ltd. 2012 (277) E.L.T. 299 (S.C.)

In case of a specific entry viz-a-viz a residuary entry, which one should be preferred for classification purpose?

The SC held that the combined factor that requires to be taken note of for the purpose of the classification of the goods are the composition, the product literature, the label, the character of the product and the use to which the product is put. The product in question can be safely classified as a “medicament” which is a specific entry.

21. Keihin Penalfa Ltd. v. Commissioner of Customs 2012 (278) E.L.T. 578 (S.C.)

Where a classification (under a Customs Tariff head) is recognized by the Government in a notification any point of time, can the same be made applicable in a previous classification in the absence of any conscious modification in the Tariff?

The Apex Court observed that the Central Government has issued a exemption notification dated 1-3-2002 and in the said notification it has classified the Electronic Automatic Regulators under Chapter sub-heading 9032.89. Since the Revenue itself has classified the goods in dispute under Chapter sub-heading 9032.89 from 1-3-2002, the said classification need to be accepted.

22. CCEx. v. Connaught Plaza Restaurant (Pvt) Ltd. 2012 (286) E.L.T. 321 (S.C.)

Can the ‘soft serve’ served at McDonalds India be classified as “ice cream” for the purpose of levying excise duty?

SC held that in the presence of Heading 21.05 (ice cream), “ice cream” could not be classified as a dairy product under Heading 04.04. Heading 21.05 was clearly a specific entry. Further, referring to a trade notice issued by the Mumbai Commissionerate


relating to classification of softy ice-cream being sold in restaurant etc. dispensed by vending machine, the Apex Court observed that the said trade notice indicated the commercial understanding of ‘soft-serve’ as ‘softy ice-cream’.

23. Raghunath International Ltd. v. Union of India, 2012 (280) E.L.T. 321 (All.)

Whether Additional Director General, Directorate General of Central Excise Intelligence can be considered a central excise officer for the purpose of issuing SCN?

It was held that the Additional Director General, Directorate General of Central Excise Intelligence having been specified as a Commissioner of Central Excise was fully entitled to issue the show cause notice under section 11A, being a Central Excise Officer. No such provision had been referred to nor shown which may require approval before issuing the show cause notice of the adjudicating authority/officer.

24. Commissioner of C. Ex., Mumbai-III v. Tikitar Industries, 2012 (277) E.L.T. 149 (S.C.)

If Revenue accepts judgment of the Commissioner (Appeals) on an issue for one period, can it be precluded to make an appeal on the same issue for another period?

SC observed that since the Revenue had not questioned the correctness or otherwise of the findings on the conclusion reached by the first appellate authority, it may not be open for the Revenue to contend this issue further by issuing the impugned show cause notices on the same issue for further periods.

25. Nanumal Glass Works v. CCEx. Kanpur, 2012 (284) E.L.T. 15 (All.)

Can a decision pronounced in the open court in the presence of the advocate of the assessee, be deemed to be the service of the order to the assessee?

The High Court held that when a decision is pronounced in the open court in the presence of the advocate of the assessee, who is the authorized agent of the assessee within the meaning of section 37C, the date of pronouncement of order would be deemed to be the date of service of order.

26. Jay Kumar Lohani v. CCEx 2012 (28) S.T.R. 350 (M.P.)

In a case where the assessee has been issued a show cause notice regarding confiscation, is it necessary that another SCN regarding recovery of dues and penalty on the same allegations can be issued only when first SCN is adjudicated?

The High Court held that since it was not a case of show cause notice being issued without jurisdiction, adjudicating authority could not be restrained from proceeding further with the SCN.

27. C.C.E. & C. v. Gujarat Narmada Fertilizers Co. Ltd. 2012 (285) E.L.T. 336 (Guj.)

Is assessee required to pay interest in case of voluntary payment of time-barred duty before issuance of the show cause notice?

The High Court held that the assessee was not required to pay interest in case of voluntary payment of time-barred duty before issuance of show cause notice

28. CCEx. v. Castrol India Ltd. 2012 (286) E.L.T. 194 (Bom.)

Can Appellate Authorities or Courts permit assessee to pay reduced penalty of 25% beyond the time prescribed

The High Court inferred that Tribunal permitting the assessee to pay 25% penalty beyond the time prescribed under the first and second proviso to


under section 11AC?

erstwhile section 11AC [now section 11AC(1)(c)], was not permissible in law.

29. Uniworth Textiles Ltd. vs. CCEx. 2013 (288) ELT 161 (SC)

Whether extended period of limitation for demand of customs duty can be invoked in a case where the assessee had sought a clarification about exemption from a wrong authority?

The Supreme Court held that mere non-payment of duties could not be equated with collusion or willful misstatement or suppression of facts as then there would be no form of non-payment which would amount to ordinary default. The Apex Court opined that something more must be shown to construe the acts of the assessee as fit for the applicability of the proviso.

30. CCE v. Techno Rubber Industries Pvt Ltd. 2011 (272) E.L.T. 191 (Kar.)

Can the excess duty paid by the seller be refunded on the basis of the debit note issued by the buyer?

The High Court elucidated that once it is admitted that the Department has received excess duty, they are bound to refund it to the person who has paid the excess duty. If the buyer of the goods has paid that excess duty, he would have been entitled to the said refund. (Already asked in CA Final’s May,2012 attempt)

31. Raja Mechanical Co. (P) Ltd. v. Commissioner of C. Ex., Delhi-I, 2012 (279) E.L.T. 481 (S.C.)

Whether doctrine of merger is applicable when appeal dismissed on the grounds of limitation and not on merits?

The Court observed that if for any reason an appeal is dismissed on the ground of limitation and not on merits, that order would not merge with the orders passed by the first appellate authority. Apex Court opined that the High Court was justified in rejecting the request made by the assessee for directing the Revenue to state the case and also the question of law for its consideration and decision. In view of the above discussion, Supreme Court rejected the appeal.

32. Commissioner of Central Excise v. Rajendra Narayan 2012 (281) E.L.T. 38 (Del.)

Whether the construction of pre-fabricated components at one site to be used at different inter-connected metro construction sites in Delhi would get covered under exemption N/N-1/2011-C.E.(N.T.) dt 17-2-2011 exempting the ‘goods manufactured at the site of construction for use in construction work at such site’ ?

The Court held that keeping in view the facts of the present case and that the construction was done virtually all over Delhi and construction sites were interconnected, practically prefabrication was done on construction site only. Therefore, it allowed the appeal in the favour of the respondent- assessee.

33. Mihani Network v. CCus. & CEx. 2012 (285) ELT 182 (MP)

Can the deposit of 50% of tax amount be made a condition for condoning the delay in filing of an appeal?

The High Court held that the condition of depositing 50% of tax amount for condoning the delay is illegal and that the CESTAT ought not to have mixed the issue with the separate application filed for stay.

34. Thakker Shipping P. Ltd. v. Commissioner of Customs

Can Tribunal condone the delay in filing application

The High Court ruled that the Tribunal was competent to invoke section


(General) 2012 (285) E.L.T. 321 (S.C.)

consequent to review by the Committee of Chief Commissioners if it is satisfied that there was sufficient cause for not presenting it within the prescribed period?

129A(5) where an application under section 129D(4) had not been made within the prescribed time and condone the delay in making such application if it was satisfied that there was sufficient cause for not presenting it within that period.

35. Maruthi Tex Print & Processors P. Ltd. v. C. & C. Ex. Sett. Comm., Chennai 2012 (281) E.L.T. 509 (Mad.)

Can the Settlement Commission decline to grant immunity from prosecution and confirming the demand and imposing the penalty without placing the burden on the Department to prove the clandestine manufacture and clearances of goods?

The Court set aside the order relating to non-grant of immunity for prosecution and resultantly, the assessee was granted immunity from being prosecuted.

36. Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran 2012 (26) S.T.R. 289 (S.C.)

Whether the service tax liability created under law can be shifted by a clause entered in the contract?

The Supreme Court observed that reading the agreement between the parties as a whole and harmonizing various provisions thereof, it can be inferred that service provider (contractor) accepted liability to pay service tax, since it arose out of discharge of their obligations under contract. With regard to the submission of shifting of tax liability, Supreme Court held that service tax is indirect tax which may be passed on. Thus, assessee can contract to shift their liability.

37. CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.)

Will service tax paid mistakenly arouse service tax liability?

it was held that refund of an amount mistakenly paid as service tax could not be rejected on ground of limitation under section 11B of the Central Excise Act, 1944.

38. Tirumala Tirupati Devasthanams, Tirupati V. Superintendent of Customs, Central Excise, Service Tax (2012-TIOL-97-HC-AP-ST)

Were services provided to the pilgrims taxable under short term accommodation service?

The Andhra Pradesh High Court held that the petitioner was religious and charitable institution and was running guest houses by whatever name called, whether it was a shelter for pilgrims or any other name for a considerable time and thus was liable to get itself registered under ‘Short term accommodation service’ and pay service tax on the same.

39. Mayo College General Council v. CCEx. (Appeals) 2012 (28) STR 225 (Raj)

A society, running renowned schools, allows other schools to use a specific name, its logo and motto and receives a non-refundable amount and annual fee as a consideration. Whether this

The High Court held that when the petitioner permitted other schools to use their name, logo as also motto, it clearly tantamounted to providing ‘franchise service’ to the said schools and if the petitioner realized the ‘franchise’ or ‘collaboration fees’ from the franchise schools, the petitioner was


amounts to a taxable service?

duty bound to pay service tax to the department.

40. Wipro Ltd. v. Union of India 2013 (29) S.T.R. 545 (Del.)

Whether filing of declaration of description, value etc. of input services used in providing IT enabled services (call centre/BPO services) exported outside India, after the date of export of services will disentitle an exporter from rebate of service tax paid on such input services?

The High Court, therefore, allowed the rebate claims filed by the appellants and held that the condition of the notification must be capable of being complied with as if it could not be complied with, there would be no purpose behind it.

41. Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India 2013 (29) S.T.R. 9 (Del.)

Whether expenditure like travel, hotel stay, transportation and the like incurred by service provider in course of providing taxable service should be treated as consideration for taxable service and included in value for charging service tax?

The High Court, therefore, held that rule 5(1) of the Rules runs counter and is repugnant to sections 66 and 67 of the Act and to that extent it is ultra vires the Finance Act, 1994.

42. Ankleshwar Taluka ONGC Land Loosers Travellers Co. OP. v. C.C.E., Surat-II 2013 (29) STR 352 (Guj.)

In a case where the assessee has acted bona fide, can penalty be imposed for the delay in payment of service tax arising on account of confusion regarding tax liability and divergent views due to conflicting court decisions?

The High Court held that even if the appellants were aware of the levy of service tax and were not paying the amount on the ground of dispute with the ONGC, there could be no justification in levying the penalty in absence of any fraud, misrepresentation, collusion or wilful mis-statement or suppression. Moreover, when the entire issue for levying of the tax was debatable, that also would surely provide legitimate ground not to impose the penalty.

43. DBOI Global Service Pvt. Ltd. v. UOI 2013 (29) S.T.R. 117 (Bom.)

Whether non-filing of additional documents despite several opportunities to the assessee to produce the same, could be a sufficient ground for passing a nonspeaking order?

The High Court held that if the assessee had failed to furnish additional information, it had been obligatory on the part of the adjudicating authority to record a finding as to why the documents furnished by the assessee were not sufficient to allow his claim and why additional documents were necessary, especially when on the basis of similar documents furnished by the assessee in the past, the claims had been allowed. Thus, deciding the petition in favour of the assessee, the High Court set aside the order of the adjudicating authority.


Other Case Studies

S.No. Case Law Issue Decision

1 Bata India Ltd. v. CCE 2010 (252) ELT 492 (SC)

Whether the theoretical possibility of product being sold is sufficient to establish the marketability of a product?

Test of marketability is that product which is made liable to duty must be marketable in the condition in which it emerge

The mere theoretical possibility of the product being sold is not sufficient but there should be commercial capability of being sold. Theory and practice will not go together when one examine the marketability of a product.

2 CCE v. Solid & Correct Engineering Works and Ors 2010 (252) ELT 481 (SC)

Whether the machine which is not assimilated in permanent structure would be considered to be moveable so as to be dutiable under the Central Excise Act?

SC observed that the machine was fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth, but because a foundation was necessary to provide a wobble free operation to the machine. Hence, the plants in question were not immovable property so as to be immune from the levy of excise duty. Consequently, duty would be levied on them.

3 CCE v. Sony Music Entertainment (I) Pvt. Ltd. 2010 (249) E.L.T. 341 (Bom.)

Does the activity of packing of imported compact discs in a jewel box along with inlay card amount to manufacture?

The High Court observed that none of the activity that the assessee undertook involved any process on the compact discs that were imported. It held that the activities carried out by the respondent did not amount to manufacture since the compact disc had been complete and finished when imported by the assessee. They had been imported in finished and completed form.

4 Medley Pharmaceuticals Ltd. [2011] (SC)- IMP

Whether physician samples

distributed to medical

practitioner as free samples, are

goods under excise?

Excise duty is a levy on production or manufacture and is payable whether or not the goods are sold. Further, such prohibition on sale of physicians' samples under Drugs Act doesn't also affect the marketability of such samples: marketability doesn't require actual sale, it is capability of being bought and sold. Even otherwise, restrictions under Drugs Act cannot affect imposition of excise duty under the Central Excise Act thereby causing loss of revenue. Therefore, physicians' samples are liable to excise duty.

5 Nicholas Piramal India Ltd. v. CCEx., Mumbai 2010 (260) E.L.T. 338

Does a product with short shelf-life satisfy the test of marketability?

SC ruled that short shelf-life could not be equated with no shelf-life and would not ipso facto mean that it


(S.C.) could not be marketed. A shelf-life of 2 to 3 days was sufficiently long enough for a product to be commercially marketed. Shelf-life of a product would not be a relevant factor to test the marketability of a product unless it was shown that the product had absolutely no shelf-life or the shelf-life of the product was such that it was not capable of being brought or sold during that shelf-life. Hence, product with the shelf life of 2 to 3 days was marketable and hence, excisable.

6 Usha Rectifier Corpn.

(I) Ltd. v. CCEx., New

Delhi 2011 (263) E.L.T.

655 (S.C.)

The Supreme Court observed that once the appellant had themselves made admission regarding the development of testing equipments in their own Balance Sheet, which was further substantiated in the Director’s report, it could not make contrary submissions later on. Moreover, assessee’s stand that testing equipments were developed in the factory to avoid importing of such equipments with a view to save foreign exchange, confirmed that such equipments were saleable and marketable. Hence, the Apex Court held that duty was payable on such testing equipments.

7 CCE v. Tarpaulin International 2010 (256) E.L.T. 481 (S.C.)

Does the process of preparation of tarpaulin made-ups after cutting and stitching the tarpaulin fabric and fixing the eye-lets amount to manufacture?

The Apex Court opined that stitching of tarpaulin sheets and making eyelets did not change basic characteristic of the raw material and end product. The process did not bring into existence a new and distinct product with total transformation in the original commodity. The original material used i.e., the tarpaulin, was still called tarpaulin made-ups even after undergoing the said process. Hence, it could not be said that the process was a manufacturing process. Therefore, there could be no levy of central excise duty on the tarpaulin made-ups.

8 CCus. v. Prime Health Care Products 2011 (272) E.L.T. 54 (Guj.)

In case of combo-pack of bought out tooth brush sold along with tooth paste manufactured by assessee; is tooth brush eligible as input under the CENVAT Credit Rules, 2004?

The HC noted that: Process of packing and re-

packing the input in a unit container would fall within the ambit of “manufacture” *as per section 2(f) of the Central Excise Act, 1944

“input” as defined in rule 2(k) of


the CENVAT Credit Rules, 2004 also included accessories of the final products cleared along with final product.

There was no dispute about the fact that on toothbrush, excise duty had been paid. HC said that the credit was admissible.

9 CCE v. Bhuwalka Steel Industries Ltd. 2010 (249) ELT 218 (Tri-LB)

Whether CENVAT credit can be denied on the ground that the weight of the inputs recorded on receipt in the premises of the manufacturer of the final products shows a shortage as compared to the weight recorded in the relevant invoice?

Tribunal held that each case had to be decided according to merit and no hard and fast rule can be laid down for dealing with different kinds of shortages. Decision to allow or not to allow credit under rule 3(1), in any particular case, will depend on various factors.

Tolerances in respect of hygroscopic, volatile and such other cargo has to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims.

Similarly, minor variations arising due to weighment by different machines will also have to be ignored if such variations are within tolerance limits.

10 Ashok Kumar H. Fulwadhya v. UOI 2010 (251) E.L.T. 336 (Bom.)

Whether penalty can be imposed on the directors of the company for the wrong CENVAT credit availed by the company?

It was held that words “any person” used in rule 13(1) of the erstwhile CENVAT Credit Rules, 2002 [now rule 15(1) of the CENVAT Credit Rules, 2004] clearly indicate that the person who has availed CENVAT credit shall only be the person liable to the penalty. . The Court said CENVAT credit had availed by the CO. & the penalty under rule 15(1) was imposable only on the person who had availed CENVAT credit [company in the given case], who was a manufacturer. The petitioners-directors of the company could not be said to be manufacturer availing CENVAT credit

11 CCEx. v. Stelko Strips Ltd. 2010 (255) ELT 397 (P & H)

Whether private challans other than the prescribed documents are valid for taking MODVAT credit under the Central Excise Rules, 1944.

Once duty payment is not disputed & it is found that documents are genuine & not fraudulent, the manufacturer would be entitled to MODVAT credit on duty paid on inputs

If the paid character of inputs & their receipt in manufacturer’s factory & utilisation for manufacturing a final product is


not disputed, credit cannot be denied.

HC held MODVAT credit could be taken on strength of PVT challans as same were not found fake & there was certification that duty had duty been paid.

12 CCE v. Deora Engineering Works 2010 (255) ELT 184 (P & H)

Whether the clearances of two firms having common brand name, goods being manufactured in the same factory premises, having common management and accounts etc. can be clubbed for the purposes of SSI exemption?

The High Court held that the partners of both the firms were common and belonged to same family. They were manufacturing and clearing the goods by the common brand name, manufactured in the same factory premises, having common management and accounts etc. Therefore,HC was of view that the clearance of the common goods under the same brand name manufactured by both the firms had been rightly clubbed.

CUSTOMS 13. CCE v. Decorative

Laminates (I) Pvt. Ltd. 2010 (257) E.L.T. 61 (Kar.)

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)?

It was held that the circumstances made out under section 23 were not applicable to the present case since the destruction of the goods or loss of the goods had not occurred before the clearance for home consumption within the meaning of that section. When the goods are not cleared within the period or extended period as given by the authorities, their continuance in the warehouse will not attract section 23 of the Act.

14. Paras Fab International v. CCE 2010 (256) E.L.T. 556 (Tri. – LB)

Following questions arose before the Larger Bench of the Tribunal for consideration:- a) Whether the entire premises

of 100% EOU should be treated as a warehouse?

b) Whether the imported goods warehoused in the premises of 100% EOU are to be held to have been removed from the warehouse if the same is issued for manufacture/ production /processing by the 100% EOU?

c) Whether issue for use by 100% EOU would amount to clearance for home consumption?

d) Whether non-filing of ex-bond bill of entry before using the goods by the 100% EOU makes the goods as not

The Tribunal answered the issues raised as follows:- a) The entire premises of a 100% EOU has to be treated as a warehouse if the licence granted under section 58 to the unit is in respect of the entire premises. (b), (c ) and (d) Imported goods warehoused in the premises of a 100% EOU (which is licensed as a Customs bonded warehouse) and used for the purpose of manufacturing in bond as authorized under section 65 of the Customs Act, 1962, cannot be treated to have been removed for home consumption.


cleared for home consumption?

15 Wringley India Pvt.Ltd. v. Commr.of Cus.(Imports), Chennai 2011 (274) E.L.T. 172 (Mad.)

Whether discharge of liability on indicated value would still make the assesse liable for confiscation of goods if he has initially made a mis-declaration of the value thereof?

HC held that since the appellant made an attempt to mis-declare the value of the imported goods and to misguide the Customs Department. Hence It was held that there was clear mis-declaration of value by the appellant and as per section 111(m) of the Customs Act, the Revenue was asked to confiscate the goods so imported.

16 In Re: Hemal K. Shah 2012 (275) ELT 266 (GOI)

Whether the smuggled goods can be re-exported from the customs area without formally getting them release from confiscation?

The passenger had grossly mis declared the goods with intention to evade duty and smuggle the goods into India. As per Section 80 of Customs Act, 1962 when the baggage of the passenger contains article which is dutiable or prohibited and in respect of which the declaration is made u/s 77, the proper officer on request of passenger detain such article for the purpose of being returned to him on his leaving India. Since passenger neither made true declaration nor requested for detention of goods for re-export, before customs at the time of his arrival at Airport. So the re-export of said goods cannot be allowed under Section 80 of Customs Act.

17 Manish Lalit Kumar Bavishi v. Addl. DIR. General, DRI 2011 (272) E.L.T. 42 (Bom.)

Is it mandatory for the Revenue officers to make available the copies of the seized documents to the person from whose custody such documents were seized?

HC observed that: (i) U/s 110(4), Customs officers are mandatorily required to make available the copies asked for. (ii)It is the party concerned who has the choice of either asking for the document/seeking extract and not the officer. HC held that officer was bound to make available copies of those documents and denial by the Revenue to make the documents available was clearly an act without jurisdiction. HC directed the Revenue to make available the copies of the documents asked for by the assessee which was seized during the course of the seizure action (Already asked in CA Final’s May,2012 attempt)

18 O.T. Enasu v. UOI 2011 (272) E.L.T. 51 (Ker.)

Under what circumstances can the penalty be imposed in terms of section 112(a)(ii) of the

The High Court inferred that unless it is established that a person has, by his omissions or commissions, led to


Customs Act, 1962? a situation where duty is sought to be evaded, there cannot be an imposition of penalty in terms of section 112(a)(ii) of the Act.

19 Textoplast Industries v. Additional Commissioner of Customs 2011 (272) E.L.T. 513 (Bom.)

Can separate penalty under section 112 of the Customs Act be imposed on the partners when the same has already been imposed on partnership firm?

The High Court held that for the purpose of imposing penalty, the adjudicating authority under Customs Act, 1962 might, in an appropriate case, impose a penalty both upon a partnership firm as well as on its partners. (Already asked in CA Final’s Nov.,2012 attempt)

20 CCus. v. Jaya Singh Vijaya Jhaveri 2010 (251) E.L.T. 38 (Ker.)

Is the want of evidence from foreign supplier enough to cancel the confiscation order of goods undervalued?

In the instant case, the High Court held that in a case of confiscation of goods because of their under valuation, Tribunal could not cancel the confiscation order for the want of evidence from the foreign supplier.(as supplier wont give evidence against him)

21 CCus. (Prev.), Mumbai v. M. Ambalal & Co. 2010 (260) E.L.T. 487 (SC)

Whether the benefit of exemption meant for imported goods can also be given to the smuggled goods?

The Apex Court held that the smuggled goods could not be considered as ‘imported goods’ for the purpose of benefit of the exemption notification. It opined that if the smuggled goods and imported goods were to be treated as the same, then there would have been no need for two different definitions under the Customs Act, 1962. The Court observed that one of the principal functions of the Customs Act was to curb the ills of smuggling on the economy. Hence, it held that it would be contrary to the purpose of exemption notifications to give the benefit meant for imported goods to smuggled goods. (Already asked in CA Final’s May,2012 attempt)

Common Topics

22 Atherton Engineering Co. Pvt. Ltd. v. UOI 2010 (256) E.L.T. 358 (Cal.)

Classification of the imported product changes if it undergoes a change after importation and before being actually used?

The Court opined that if the embryo within the egg was incubated in controlled temperature and under 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 prawns under the heading 2309. These embryos might not be proper prawn feed at


the time of importation but could become so, after incubation.

23 M/s CPS Textiles P Ltd. v. Joint Secretary 2010 (255) ELT 228 (Mad.)

Will the description of the goods as per the documents submitted along with the Shipping Bill be a relevant criterion for the purpose of classification, if not otherwise disputed on the basis of any technical opinion or test? Whether a separate notice is required to be issued for payment of interest which is mandatory and automatically applies for recovery of excess drawback?

The High Court held that the description of the goods as per the documents submitted along with the Shipping Bill would be a relevant criteria for the purpose of classification, if not otherwise disputed on the basis of any technical opinion or test. The petitioner could not plead that the exported goods should be classified under different headings contrary to the description given in the invoice and the Shipping Bill which had been assessed and cleared for export.

24 Hans Steel Rolling Mill v. CCEx., Chandigarh 2011 (265) E.L.T. 321 (S.C.)

Whether time-limit under section 11A of the Central Excise Act, 1944 is applicable to recovery of dues under compounded levy scheme?

The Apex Court elucidated that compounded levy scheme is a separate scheme from the normal scheme for collection of excise duty on goods manufactured. Rules under compounded levy scheme stipulate method, time and manner of payment of duty, interest and penalty. Since the compounded levy scheme is comprehensive scheme in itself, general provisions of the Central Excise Act and rules are excluded from this scheme.

25 CC Ex. & C v. Accrapac (India) Pvt. Ltd. 2010 (257) E.L.T. 84 (Guj.)

Whether non-disclosure of a statutory requirement under law would amount to suppression for invoking the larger period of limitation under section 11A?

Tribunal noted that denaturing process in the cosmetic industry was a statutory requirement under Medicinal & Toilet (M&TP) Act. Thus, addition of DEP to ENA to make the same unfit for human consumption was a statutory requirement. Failure on the part of the respondent to declare the same could not be held to be suppression. HC pronounced that non-disclosure of the said fact on the part of the assessee would not amount to suppression so as to call for invocation of the extended period of limitation ( In the Given case- The assessee manufactured various toilet preparations such as after-shave lotion, deo-spray, mouthwash, skin creams, shampoos, etc. He procured Extra Natural Alcohol (ENA) from the local market on payment of duty, to which Di-ethyl Phthalate (DEP) is added so as to denature it & render the same unfit for human consumption. The Department


alleged that intermediate product i.e. Di-ethyl Alcohol manufactured as a result of addition of DEP to ENA, was liable to central excise duty.)

26 CCE & ST v. Adecco Flexione Workforce Solutions Ltd. 2012 (26) S.T.R 3 (Kar)

Whether the penalty is payable even when service tax and interest has been paid before issue of show cause notice?

It was held that the authorities had no authority to initiate proceedings for recovery of penalty under section 76 of the Act when the tax payer paid service tax along with interest for delayed payments promptly. As per section 73(3), no notice shall be served against persons who had paid tax with interest; the authorities can initiate proceedings against defaulters who had not paid tax and not to harass persons who had paid tax with interest on their own. If the notices were issued contrary to this section, the person who had issued notice should be punishable and not the person to whom it was issued.

REFUND 27 CCE v. Gem Properties

(P) Ltd. 2010 (257) E.L.T. 222 (Kar.)

Merely because assessee has sustained loss more than the refund claim, is it justifiable to hold that it is not a case of unjust enrichment even though the assessee failed to establish non-inclusion of duty in the cost of production?

HC observed that assessee was not liable to pay the duty and was entitled to the refund of the excise duty wrongly paid by it. Court explained that merely because the assessee had sustained the loss in the relevant year, could not be a ground to hold it had not been a case of unjust enrichment.

It was evident from the Chartered Accountant’s certificate that the cost of the duty was included while computing the cost of production of the material.

HC held that assessee could not be granted relief since it had failed to establish that the cost of the duty was not included while computing the cost of the products

28 CCus., Chennai v. BPL Ltd. 2010 (259) E.L.T. 526 (Mad.)

Whether Chartered Accountant’s certificate alone is sufficient evidence to rule out the unjust enrichment under customs?

It was held that The certificate issued by the Chartered Accountant was merely a piece of evidence acknowledging certain facts. It would not automatically entitle a person to refund in the absence of any other evidence. Hence, the respondent could not be granted refund merely on the basis of the said certificate.

29 Narayan Nambiar Meloths v. CCus. 2010 (251) E.L.T. 57 (Ker.)

Can the assessee be denied the refund claim only on the basis of contention that he had produced

The Kerala HC decided that the petitioner could not be denied the refund claim on account that he


the attested copy of TR-6 challan* and not the original of the TR-6 challan*?

produced only attested copy. As per clarification issued, a simple letter from the person who made the deposit, requesting for return of the amount, along with the appellate order and attested Xerox copy of the Challan in GAR-7 would suffice for processing the refund application.

30 Icon Industries v. UOI 2011 (273) E.L.T. 487 (Del.)

Whether a consolidated return filed by the assessee after obtaining registration, but for the period prior to obtaining registration, could be treated as a return under clause (a) of first proviso to section 32E(1)?

The Court rejected the submission of the petitioner that filing of consolidated return covering all the past periods would serve the purpose

31 Ashwani Tobacco Co. Pvt. Ltd. v. UOI 2010 (251) E.L.T. 162 (Del.)

Is the Settlement Commission empowered to grant the benefit under the proviso to section 11AC in cases of settlement?

Court ruled that benefit u/s 11AC could not be granted by the Settlement Commission in cases of settlement. It explained that order of settlement made by the settlement commission is distinct from adjudication order made by C. Ex officer. Unlike settlement commission, CEO has no power to accord immunity from prosecution while determining duty liability under excise Act. Scheme of settlement is in chapter V of Act. If petitioner adopted settlement, he has to be governed by chapter V Therefore benefit u/s 11AC which could have been availed when the matter of determination of duty was before CEO was not attracted to cases of settlement

32 Sanghvi Reconditioners Pvt. Ltd. V. UOI 2010 (251) ELT 3 (SC)

In case of a Settlement Commission's order, can the assessee be permitted to accept what is favourable to them and reject what is not?

The Apex Court held that the application under section 127B of the Customs Act, 1962 is maintainable only if the duty liability is disclosed. The disclosure contemplated is in the nature of voluntary disclosure of concealed additional customs duty. The Court further opined that having opted to get their customs duty liability settled by the Settlement Commission, the appellant could not be permitted to dissect the Settlement Commission's order with a view to accept what is favourable to them and reject what is not.

33 Union of India v. Cus. & C. Ex. Settlement Commission 2010 (258) ELT 476 (Bom.)

Does the Settlement Commission have jurisdiction to settle cases relating to the recovery of drawback erroneously paid by

It was held that the duty drawback or claim for duty drawback is nothing but a claim for refund of duty may be as per the statutory scheme framed


the Revenue? by the Government of India or in exercise of statutory powers under the provisions of the Act. Thus, the High Court held that the Settlement Commission has jurisdiction to deal with the question relating to the recovery of drawback erroneously paid by the Revenue. (Already asked in CA Final’s Nov.,2012 attempt)

34 CCE v. RDC Concrete (India) Pvt. Ltd. 2011 (270) E.L.T. 625 (S.C.)

Can re-appreciation of evidence by CESTAT be considered to be rectification of mistake apparent on record under section 35C(2) of the Central Excise Act, 1944?

The Apex Court held that CESTAT had reconsidered its legal view as it concluded differently by accepting the arguments which it had rejected earlier. Hence, the Court opined that CESTAT exceeded its powers under section 35C(2) of the Act. In pursuance of a rectification application, it cannot re-appreciate the evidence and reconsider its legal view taken earlier.

35 CCE v. Gujchem Distillers 2011 (270) E.L.T. 338 (Bom.)

Can CESTAT decide an appeal on a totally new ground which had not been urged before adjudicating authority?

The High Court elucidated that in the instant case, the CESTAT had disposed of the appeal on a ground which was not urged by the respondents before the adjudicating authority. Thereby the CESTAT had disposed of the appeal on a totally new ground which was not laid before the adjudicating authority and which would entail a finding on facts. The High Court explained that had the CESTAT not been satisfied with the approach of the adjudicating authority, it should have remanded the matter back to the adjudicating authority. However, it could not have assumed to itself the jurisdiction to decide the appeal on a ground which had not been urged before the lower authorities.

36 CCEx. & ST v. Volvo India Ltd. 2011 (24) S.T.R. 25 (Kar.)

Can an appeal be filed in a High Court for deciding the question relating to the taxability of service?

The High Court held that the question as to whether the assessee is liable to pay service tax falls squarely within the exception carved cut in section 35G of the Central Excise Act, 1944, viz. ‘an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment’, and the High Court has no jurisdiction to adjudicate the said issue. The appeal lies to the Apex Court under section 35L of the Central Excise Act, 1944, which alone has exclusive


jurisdiction to decide the said question.

SERVICE TAX

37 Commissioner of Service Tax v. Lincoln Helios (India) Ltd. 2011 (23) S.T.R. 112 (Kar.)

Is the service tax and excise liability mutually exclusive?

The High Court held that the excise duty is levied on the aspect of manufacture and service tax is levied on the aspect of services rendered. Hence, it would not amount to payment of tax twice and the assessee would be liable to pay service tax on the value of services. (Already asked in CA Final’s May,2012 attempt)

38 Kishore K.S. v. Cherthala Municipality 2011 (24) S.T.R. 538 (Ker.)

In case where rooms have been rented out by Municipality, can it pass the burden of service tax to the service receivers i.e. tenants?

Court held that this is a statutory right of the service provider/Municipality under law to pass service tax on to the tenants (even though not provided in the agreement). They may decide not to pass it on fully or partly. Service tax is an indirect tax and the law provides that it can be passed on to the beneficiary. Hence, the service tax can be passed on by the service provider i.e. Municipality. The word “State” in Article does not include Municipality. Hence, when service tax is levied on the Municipality there is no violation of Article 289. Hence, it was held that Municipality can pass on the burden of service tax to the tenants.

39 Infotech Software Dealers Association (ISODA) v. Union of India 2010 (20) STR 289 (Mad.)

Can a software be treated as goods and if so, whether its supply to a customer as per an "End User Licence Agreement" (EULA) would be treated as sale or service?

The High court reiterated that software is goods as per article 366 (12) of the constitution. Further, the court was of the view that such transaction taking place between members of ISODA & its customer, the software is NOT sold as such, but only the content of the data stored in the software are sold which would only amts. to service & NOT Sale. The High Court observed that though software is goods, the transaction may not amount to sale in all cases and it may vary depending upon the terms of EULA.

40 CCE v. Nahar Industrial Enterprises Ltd. 2010 (19) STR 166 (P & H)

Whether service tax is chargeable on the buffer subsidy provided by the Government for storage of free sale sugar, under the category of `storage and warehousing services'?

HC noted that service tax could be levied only if service of `storage and warehousing' was provided. In the instant case, he received subsidy not on account of services rendered to GOI, but had received compensation on account of loss of interest, cost of insurance etc. incurred on account of


maintenance of stock. Hence, the act of assessee could not be called as rendering of services. HC held that just because the storage period was extended at the behest of GOI, he neither becomes `storage and warehouse keeper' nor the GOI becomes their ‘client’ Therefore, it could not be treated as providing `storage and warehousing' services to the GOI. But from 1.7.2012 it is taxable under declared service of restrain to do an act

NOTIFICATIONS, DEPARTMENTAL CLARIFICATIONS AND TRADE NOTICES

41 Darshan Boardlam Ltd. v. UOI 2013 (287) E.L.T. 401 (Guj.)

Whether a circular necessarily needs to be issued under section 37B, in order to be binding on the Department?

The High Court observed that any clarification issued by the Board is binding upon the Central Excise Officers who are duty-bound to observe and follow such circulars. Whether section 37B is referred to in such circular or not, is not relevant. When other Central Excise authorities of equal and higher rank have followed and acted as per the clarifications, the jurisdictional Commissioner in the instant case, could not have taken a contrary view on the assumption that the clarifications are only letters and not orders under section 37B. Central Excise is a central levy and, therefore, such a levy has to be collected uniformly from all similarly situated manufacturers located all throughout the country.


Important Case Studies

Excise

Chapter 1 –Basic Concept

1. Commissioner v. Steel Authority of India Ltd. 2012 (283) E.L.T. A112 (S.C.)

Issue: Does the process of washing of iron ore for removal of foreign materials from such ore amount to manufacture?

Facts of the Case: The Steel Authority of India Ltd. (SAIL) was mining iron ore from mines. The Department submitted that Steel Authority of India Ltd. (SAIL) was mining iron ore from mines and subjecting the same to crushing, grinding, screening and washing with a view to remove foreign materials and to concentrate such ores. And the processes undertaken by them involved removal of parts of foreign material from the ores and increase the “Fe” content (i.e. iron content); thus goods so obtained by such process would qualify as concentrate. The SAIL submitted that the washing of iron ore by itself could never convert it into concentrates and that washing by itself did not amount to manufacture.

Point of Dispute: Department contended that any ore which after being subjected to physical or physico chemical process viz., crushing, screening, etc., has had part or whole of its extraneous, foreign matter removed, would be termed as “concentrate”; and thus the product obtained after the processes carried out by the Respondents was “iron ore concentrate” only and not iron ore. Decision of the Case: The Supreme Court held that removal of foreign materials from iron ore, i.e., mining iron ore from mines and then subjecting to process of crushing, grinding, screening and washing with a view to remove foreign materials to concentrate such ores do not result in manufacture of different commercial commodity. No Central excise duty is leviable on iron ore concentrate.

2. CCE v. Osnar Chemical Pvt. Ltd. 2012 (276) E.L.T. 162 (S.C.) Issue: Whether the addition and mixing of polymers and additives to base bitumen results in the manufacture of a new marketable commodity and as such exigible to excise duty?

Facts of the Case: Osnar Chemical Pvt. Ltd. (Osnar) was engaged in the supply of Polymer Modified Bitumen (for short “PMB”). The assessee additionally supplied Crumbled Rubber Modified Bitumen (CRMB). It entered into a contract with M/s. Afcons Infrastructure Ltd. (Afcons) for supply of PMB at their work site. As per the agreement, the base bitumen and certain additives were to be supplied by Afcons to Osnar directly at the site, where Osnar, in its mobile polymer modification plant, was required to heat the bitumen at a temperature of 160°C with the help of burners. To this hot bitumen, 1% polymer and 0.2% additives were added under constant agitation, for improving its quality by increasing its softening point and penetration. The process of agitation was to be continued for a period of 12 to 18 hours till the mixture becomes homogenous and the required properties were met. The said bitumen in its hot agitated condition was mixed with stone aggregates which were then used


for road construction. The Osnar paid duty on PMB processed at their factory in Mumbai but had not paid the same for the conversion done at their work site Decision of the Case: The process of mixing polymers and additives to heated bitumen, which results in emergence of polymer modified bitumen (PMB) and crumbled rubber modified bitumen (CRMB) does not amount to manufacture because there was no change in characteristics or identity of bitumen, only its grade or quality was improved. The said process did not result in transformation of bitumen into new product having different identity, characteristic and end use: the end use also remained same, viz. mixing of aggregates for constructing roads. Further, the said process was not specified in section or chapter notes of the Tariff Act as amounting to manufacture. The Supreme Court thus concluded that the process of mixing polymers and additives with bitumen did not amount to manufacture.

3. Grasim Industries Ltd. v. UOI 2011 (273) E.L.T. 10 (S.C.) Issue: Whether the metal scrap or waste generated during the repair of his worn out machineries/ parts of cement manufacturing plant by a cement manufacturer amounts to manufacture?

Facts of the case: The assessee was the manufacturer of the white cement. He repaired his worn out machineries/parts of the cement manufacturing plant at its workshop such as damaged roller, shafts and coupling with the help of welding electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S. Beams, etc. In this process of repair, M.S. scrap and Iron scrap were generated. The assessee cleared this metal scrap and waste without paying any excise duty. The Department issued a show cause notice demanding duty on the said waste contending that the process of generation of scrap and waste amounted to the manufacture in terms of section 2(f) of the Central Excise Act. Decision of the case: The Apex Court observed that manufacture in terms of section 2(f) includes any process incidental or ancillary to the completion of the manufactured product. This ‘any process’ can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to the raw material at various stages by different operations. The process in relation to manufacture means a process which is so integrally connected to the manufacturing of the end product without which, the manufacture of the end product would be impossible or commercially inexpedient. However, in the present case, it is clear that the process of repair and maintenance of the machinery of the cement manufacturing plant, in which M.S. scrap and Iron scrap arise, has no contribution or effect on the process of manufacturing of the cement, (the end product). The repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product. Therefore, the M.S. scrap and Iron scrap cannot be said to be a by-product of the final product. At the best, it is the by-product of the repairing process. Hence, it held that the generation of metal scrap or waste during the repair of the worn out machineries/parts of cement manufacturing plant does not amount to manufacture.

4. CCE v. GTC Industries Ltd. 2011 (266) E.L.T. 160 (Bom.) Issue: Does the process of cutting and embossing aluminium foil for packing the cigarettes amount to manufacture?

Facts of the case: A roll of aluminium foil was cut horizontally to make separate pieces of the foil and word ‘PULL’ was embossed on it. Thereafter fixed number cigarettes were wrapped in it. Aluminium foil, being a resistant to moisture, was used as a protector for the cigarettes and to keep them dry.


Revenue submitted that the process of cutting and embossing aluminium foil amounted to manufacture. Since the aluminium foil was used as a shell for cigarettes to protect them from moisture; the nature, form and purpose of foil were changed. Decision of the case: The High Court pronounced that cutting and embossing did not transform aluminium foil into distinct and identifiable commodity. It did not change the nature and substance of foil. The said process did not render any marketable value, only made it usable for packing. There were no records to suggest that cut to shape/embossed aluminium foils used for packing cigarettes were distinct marketable commodity. Hence, process did not amount to manufacture as per section 2(f) of Central Excise Act, 1944. Only the process which produces distinct and identifiable commodity with marketable value can be called manufacture.

Valuation of Excisable Goods

5. CCEx., Mumbai v. Fiat India Pvt. Ltd. 2012 (283) E.L.T. 161 (S.C.)

Issue: Whether the price used for selling of a product below the cost price for penetration of market can be considered as transaction value?

Facts of the Case: The Fiat India Pvt. Ltd. (Fiat) was the manufacturer of motor cars. They were selling Fiat UNO model cars below cost and were making losses in wholesale trade. The purpose was penetration of market and competing with other manufacturers of similar goods. The prices were not based on manufacturing cost and profit. This was happening over the period of five years. The Assistant Commissioner directed for the provisional assessment of the cars at a price which would include cost of production, selling expenses including transportation and landing charges, wherever necessary and profit margin, on the ground that the cars were not ordinarily sold in the course of wholesale trade as the cost of production is much more than their wholesale price, but were sold at loss for a consideration.

Point of Dispute: - The Department disputed that as the extra commercial consideration was involved in this case an additional consideration should be added to the price for the purpose of duty. Thus, the Department invoked Best Judgment Assessment.

Decision of the Case: The Supreme Court held duty has to be paid on the “transaction value”. Section 4(1)(a) of the Central Excise Act, 1944 defines transaction value as under “in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value If any of the ingredients in the above definition is missing then the price shall not be considered as the sole consideration as transaction value. Supreme Court opined that this is a case of extra commercial consideration in fixing of price, and artificially depressing it. Full commercial cost of manufacturing and selling was not reflected in the price as it was deliberately kept below the cost of production. Thus, price could not be considered as the sole consideration for sale. No prudent business person would continuously suffer huge loss only to penetrate market; they are expected to act with discretion to seek reasonable income, preserve capital and, in general, avoid speculative investments. It is immaterial that the cars were not sold to related persons.

In view of the above resorting to best judgment assessment was proper.


6. Tata Motors Ltd. v. UOI 2012 (286) E.L.T. 161 (Bom.)

Issue: Can the pre-delivery inspection (PDI) and free after sales services charges be included in the transaction value when they are not charged by the assessee to the buyer? Facts of the case: The petitioners-Tata Motors Ltd. were the manufacturers of cars. They sold their cars to their subsidiary companies-M/s TMLD which in turn sold cars to the dealers. The petitioners appointed various persons as dealers to sell the car in the market. On selection of a person for being appointed as a dealer, an agreement was entered into between the petitioners and the said dealer. The petitioners notified the maximum amount for which the car could be sold by the dealer. The dealer paid to the petitioners a particular price quoted by them. According to the petitioners, this price was the assessable value and excise duty was paid on it. The amount charged by the dealer to his customer minus the amount charged by the petitioners to such dealer was the dealer’s margin. Further, on account of the dealership agreement, the dealer was required to carry out Pre Delivery Inspection (PDI) before the car was actually delivered to the customer. After the car was delivered to the customer, the dealer was required to conduct specified number of free services of the said car as set out in the Owner’s Manual [hereinafter referred to as “said services”]. Moreover, the petitioners gave warranty to the customer provided the customer got the car duly inspected as per the PDI requirements and also availed the said services. If a particular customer did not get the PDI done or did not submit his car for said services, he would not be able to get the benefit of terms of warranty. Point of dispute: Revenue issued a show cause notice to the petitioners alleging that costs incurred by the dealer towards PDI and said services was also includible in the assessable value on account of Clause 7 of Circular No. 643/34/2002 dated 1st July, 2002. However, the petitioners contended that Circular No. 643/34/2002-CX, dated 1-7-2002 and Circular No. 681/72/2002-CX, dated 12-12-2002 were contrary to the provisions of section 4(1)(a) and section 4(3)(d) of the Central Excise Act, 1944. They further submitted that the dealer had to incur the expenses to conduct PDI and said services without reference to them. The petitioners did not reimburse such expenses incurred by the dealer. They paid the excise duty on the amount charged by them to the dealer while selling the car to the dealer. Decision: The High Court held that Clause No. 7 of Circular No. 643/34/2002 dated 1st July, 2002 and Circular dated 12th December, 2002 (where it confirms the earlier circular dated 1st July, 2002) were not in conformity with the provisions of section 4(1)(a) read with section 4(3)(d) of the Central Excise Act, 1944. Further, as per section 4(3)(d), the PDI and free after sales services charges could be included in the transaction value only when they were charged by the assessee to the buyer.

Note: Clause 7 of Circular No. 643/34/2002 dated 01.07.2002 reads as follows:- Point of doubt: What about the cost of after sales service charges and pre-delivery inspection (PDI) charges, incurred by the dealer during the warranty period? Clarification: Since these services are provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer’s margin (or reimbursed to him). This is one of the considerations for sale of the goods (motor vehicles, consumer items etc.) to the dealer and will therefore be governed by Rule 6 of the Valuation Rules on the same grounds as indicated in respect of Advertisement and Publicity charges. That is, in such cases the after sales service charges and PDI charges will be included in the assessable value. Circular No. 681/72/2002-CX dated 12.12.2002, inter alia, affirms the aforesaid circular.


Cenvat Credit

7. Flex Engineering Ltd. v. Commissioner of Central Excise, U.P. 2012 (276) E.L.T. 153 (S.C.) Issue: In case the testing is critical to ensure marketability of manufactured product i.e. the manufacture is not complete without testing; is CENVAT credit of the testing material allowed? Facts of the Case: The Flex Engineering Ltd. (‘Flex’ in short), a manufacturer was engaged in the manufacturing of various types of packaging machines, marketed Automatic Form Fill and Seal Machines (‘F&S machines’ in short). The machines were ‘made to order’, in as much as all the dimensions of the packaging/sealing pouches, for which the F&S machine is required, are provided by the customer. The purchase order contained the following inspection clause: “Inspection/trial will be carried out at your works in the presence of our engineer before dispatch of equipment for the performance of the machine.” As the machine ordered was customer specific, if after inspection by the customer it was found deficient in respect of its operations for being used for a particular specified packaging, it could not be delivered to the customer, till it was re-adjusted and tuned to make it match with the required size of the pouches as per the customer’s requirement. On completion of the above process and when the customer was satisfied, an entry was made in the RG-1 register declaring the machine as manufactured, ready for clearance. As per the above clause, testing material to be used was Flexible Laminated Plastic Film in roll form & Poly Paper which are duty paid. Point of Dispute: The Department denied CENVAT credit on the material used for testing of the packaging machines. Two questions were raised to the High Court in this regard:-

(i) Whether duties paid on testing material would be eligible as credit? (ii) Whether such use of material in testing, in view of the purposes mentioned above, could be

said to be used in the manufacture of or use in relation to the manufacture of the final products viz., machines as assembled?

The High Court answered both the above questions in the negative. The Flex made an appeal to the Supreme Court against the above order. Decision of the Case: The Supreme Court held that the process of manufacture would not be complete if a product is not saleable as it would not be marketable. Thus, the duty of excise would not be leviable on it. The Supreme Court was of the opinion that the process of testing the customized F&S machines was inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence, not marketable at the factory gate. The Court was, therefore, of the opinion that the manufacturing process in the present case gets completed on testing of the said machines. Hence, the afore-stated goods viz. the flexible plastic films used for testing the F&S machines are inputs used in relation to the manufacture of the final product and would be eligible for CENVAT credit under rule 2(k) of the CENVAT Credit Rules, 2004.

8. CCE v. Tata Advanced Materials Ltd. 2011 (271) E.L.T. 62 (Kar.)


Issue: The assessee claimed the CENVAT credit on the duty paid on capital goods which were later destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise duty. Is the CENVAT credit availed by the assessee required to be reversed? Facts of the case: The assessee purchased some capital goods and paid the excise duty on it. Since, said capital goods were used in the manufacture of excisable goods, he claimed the CENVAT credit of the excise duty paid on it. However, after three years the said capital goods (which were insured) were destroyed by fire. The Insurance Company reimbursed the amount to the assessee, which included the excise duty, which the assessee had paid on the capital goods. Excise Department demanded the reversal of the CENVAT credit by the assessee on the ground that the assessee had availed a double benefit.

Decision of the case: The High Court noted that the as per CENVAT Credit Rules, 2004, CENVAT credit taken irregularly stands cancelled and CENVAT credit utilised irregularly has to be paid for. In the instant case, the Insurance Company, in terms of the policy, had compensated the assessee. The High Court observed that merely because the Insurance Company had paid the assessee the value of goods including the excise duty paid, it would not render the availment of the CENVAT credit wrong or irregular. It was not a case of double benefit as contended by the Department. The High Court therefore answered the substantial question of law in favour of the assessee.

9. CCEx v. Cadila Healthcare Ltd. 2013 (30) S.T.R. 3 (Guj.)

Issue: Whether (i) technical testing and analysis services availed by the assessee for testing of clinical samples prior to commencement of commercial production and (ii) services of commission agent are eligible input services for claiming CENVAT? Facts of the case: In the instant case, the assessee was engaged in the manufacture of medicaments. Since, the medicament could be manufactured only upon approval of the regulatory authority after the product undergoes technical testing and analysis, the assessee availed the services of various technical testing and analysis agencies for testing of clinical samples prior to commencement of commercial production. These samples were manufactured in small trial batches and removed after payment of excise duty. The assesee availed CENVAT credit of service tax paid by it on such testing services. However, the department alleged that unless goods reached the commercial production stage, CENVAT credit was not admissible. Further, the assessee also availed CENVAT credit of service tax paid by it on commission paid to foreign agents for the sale of such medicaments. Credit was taken as per the inclusive part of the definition of input service, which included services in relation to sales promotion. However, the department contended that there was a clear distinction between sales promotion and sale and a commission agent is directly concerned with sales rather than sales promotion. Therefore, service provided by commission agent would not fall within the purview of the main or inclusive part of the definition of input service. Decision: The High Court held that technical testing and analysis services availed for testing of clinical samples prior to commencement of commercial production were directly related to the manufacture of the final product and hence, were input services eligible for CENVAT credit. With respect to the services provided by foreign commission agents, the High Court held that since the agents were directly concerned with sales rather than sales promotion, the services provided by them


were not covered in main or inclusive part of definition of input service as provided in rule 2(l) of the CENVAT Credit Rules, 2004.

10. Sintex Industries Ltd. vs. CCEx 2013 (287) ELT 261 (Guj.)

Issue: Will two units of a manufacturer surrounded by a common boundary wall be considered as one factory for the purpose of CENVAT credit if they have separate central excise registration? Facts of the case: The assessee, a company incorporated under the Companies Act, 1956, had two divisions namely, textile division and plastic division situated adjacent to each other on a common ground and surrounded by a common boundary wall. Both the units had separate central excise registrations but the assessee, a single entity, had a common PAN under the Income- tax Act. In order to receive continuous and uninterrupted supply of electricity, the assessee installed DG sets/electricity generation plant to be used in the factory of the textile division and it used furnace oil as fuel in the generation of electricity. The assessee availed CENVAT credit on furnace oil, used as fuel for the generation of electricity, which was used for captive consumption in their own factory. When the assessee's other unit required electricity, the assessee supplied part of the electricity so generated to its other unit. The contention of the Revenue was that the assessee ought to reverse the credit taken on furnace oil used in the generation of electricity and supplied to the other unit. However, the assessee contended that since both the units were situated within a common boundary wall, the electricity supplied to the other unit could not be treated as being supplied to a different entity but within its own factory. The assessee further contended that separate registration of the plastic unit would not make it a different factory. Decision: The High Court held that credit could be availed on eligible inputs utilized in the generation of electricity only to the extent the same were used to produce electricity within the factory registered for that purpose (textile division). However, credit on inputs utilized to produce electricity which was supplied to a factory registered as a different unit (plastic division) would not be allowed. The High Court rejected the contention of the assessee that separate registration of two units situated within a common boundary wall would not make them two different factories.

Chapter –Central Excise Procedures

11. CCEx. v. Balaji Trading Co. 2013 (290) E.L.T. 200 (Del.)

Issue: In a case where the manufacturer clandestinely removes the goods and stores them with a firm for further sales, can penalty under rule 25 of the Central Excise Rules, 2002 be imposed on such firm? Facts of the Case: Prabhat Zarda Factory was engaged in manufacturing zarda which had the brand name of “Ratna”. It clandestinely cleared ‘Ratna’ zarda and stored them with Balaji Trading Co. (respondents) for further sales. The respondents were allegedly the related concerns of Prabhat Zarda Factory.


Commissioner (Adjudication) imposed a penalty under rule 25 of the Central Excise Rules, 2002 on the respondents. However, in an appeal filed by the respondents to CESTAT, CESTAT noted that penalty under rule 25 could be imposed only on four categories of persons:- a) producer; b) manufacturer; c) registered person of a warehouse; or d) a registered dealer. Since, the respondents were neither producers nor manufacturers of the said zarda, neither were they the registered persons of a warehouse in which the said zarda had been stored nor were the registered dealers, penalty under rule 25 (higher of duty payable on excisable goods in respect of which contravention has been committed or Rs. 2,000), could not be imposed on the respondents. The Department aggrieved by the said order filed an appeal with High Court wherein it contended that rule 25(1)(c) of the Central Excise Rules, 2002 would be applicable in the instant case. Decision: High Court concurred with the view of the Tribunal is concluded that rule 25(1)(c) would have no application in the present case.

EXEMPTION BASED ON VALUE OF CLEARANCES (SSI)

12. Commissioner v. Elex Knitting Machinery Co. 2012 (283) E.LT. A18 (S.C.)

Issue: Whether an assessee can claim the benefit of SSI exemption on the brand name of another firm if its proprietor is also a partner in such other firm? Facts of the Case: The Elex Knitting Machinery Co. was engaged in the manufacture of flat knitting machines. They had been availing the SSI exemption. They were found using the brand name “ELEX” on those machines which belonged to M/s. Elex Engineering Works and according to the Central Excise Authorities, they were not entitled to avail the benefit of said notification. The proprietor of Elex Knitting Machinery Co. was a partner in M/s Elex Engineering Works. Point of Dispute: The Department denied the benefit of the SSI exemption notification solely on the ground that they had manufactured and cleared the goods (flat knitting machines) under the brand name “ELEX” which belonged to M/s. ELEX Engineering Works. Decision of the Court: The Supreme Court was of the view that the benefit of exemption could be availed only when the company is manufacturing the goods under its own brand name or the brand name being used belonged to a sister concern of that company. The Supreme Court held that the appellant was eligible to claim benefit of the SSI exemption as the proprietor of Elex Knitting Machinery Co. was one of the partners in Elex Engineering Works. And hence being the co-owner of the brand name of Elex, he could not be said to have used the brand name of another person, in the manufacture and clearance of the goods in his individual capacity.

13. Bonanzo Engg. & Chemical P. Ltd. v. CCEx. 2012 (277) E.L.T. 145 (S.C.)

Issue: Whether the exempted goods on which duty has been paid by mistake by the assessee and refund thereof has also not been claimed would be excluded while computing turnover for preceding year for claiming SSI exemption?


Facts of the case: The appellant was a manufacturer of goods falling under Chapter headings 32 and 84 of the first schedule to the Central Excise Tariff Act, 1985. The goods falling under Chapter heading 84 were wholly exempt from duty vide an exemption notification, but the appellant by mistake paid the excise duty on it and did not even claim refund of the same. For goods falling under Chapter heading 32, the appellant wanted to claim SSI exemption. For the purposes of computing the eligible turnover for SSI exemption, the assessee excluded the goods which were exempted although duty was paid mistakenly on them. However, the Revenue contended that clearances of such goods should be included while computing the eligible turnover although the appellant satisfied all the other conditions for claiming the SSI exemption. Decision of the Case: The Supreme Court opined that SSI exemption would be allowable to the assessee, as they meet all the conditions thereof. The amount of clearances in the SSI exemption notification needs to be computed after excluding the value of exempted goods. Merely because the assessee by mistake paid duty on the goods which were exempted from the duty payment under some other notification, did not mean that the goods would become goods liable for duty under the Act. Secondly, merely because the assessee had not claimed any refund on the duty paid by him would not come in the way of claiming benefit of the SSI exemption. Accordingly, the appeal was allowed in the favor of the appellant-assessee. The Court directed the adjudicating authority to apply the SSI exemption notification in the assessee’s case without taking into consideration the excess duty paid by the assessee under the other exemption notification.

14. CCEx vs. Australian Foods India (P) Ltd 2013 (287) ELT 385 (SC)

Issue: Whether the manufacture and sale of specified goods, not physically bearing a brand name, from branded sale outlets would disentitle an assessee to avail benefit of small scale exemption? Facts of the case: The assessee was engaged in the manufacture and sale of cookies from branded retail outlets of "Cookie Man". The assessee had acquired this brand name from M/s Cookie Man Pvt. Ltd, Australia (which in turn acquired it from M/s Autobake Pvt. Ltd., Australia). The assessee was selling some of these cookies in plastic pouches/containers on which the brand name described above was printed. No brand name was affixed or inscribed on the cookies. Excise duty was duly paid, on the cookies sold in the said pouches/containers. However, on the cookies sold loosely from the counter of the same retail outlet, with plain plates and tissue paper, duty was not paid. The retail outlets did not receive any loose cookies nor did they manufacture them. They received all cookies in sealed pouches/containers. Those sold loosely were taken out of the containers and displayed for sale separately. The assessee contended that SSI exemption would be available on cookies sold loosely as they did not bear the brand name. Decision: The Supreme Court held that it is not necessary for goods to be stamped with a trade or brand name to be considered as branded goods for the purpose of SSI exemption. A scrutiny of the surrounding circumstances is not only permissible, but necessary to decipher the same; the most important of these factors being the specific outlet from which the good is sold. However, such factors would carry different hues in different scenarios. There can be no single formula to determine if a good is branded or not; such determination would vary from case to case.


CUSTOMS

BASIC CONCEPTS

15. Commissioner of Customs (Import), Mumbai v. Konkan Synthetic Fibres 2012 (278) E.L.T.

37 (S.C.) Issue: In case no statutory definition is provided under law, can the opinion of expert in trade who deals in those goods be considered while determining duty liability? Facts of the Case: Konkan Synthetic Fibres was an importer. It had imported one unit of the equipment which was declared as “Kari Mayer High Speed Draw Warping Machine with 1536 ends along with essential spares”. The importer claimed that these goods are covered under an exemption notification. Under said notification, exemption was available in respect of the High Speed Warping Machine with yarn tensioning, pneumatic suction devices and accessories. Undisputedly, the assessee had imported High Speed Warping Machine, but it had drawing unit and not the pneumatic suction device. The textile commissioner, who was well conversant with these machines, had stated that the goods imported by the assessee were covered under the exemption notification. He further stated that drawing unit was just an essential accessory to the machines imported by assessee and, therefore, was covered under said notification. The opinion so furnished is taken note of by the Tribunal while granting relief to the assessee. The Customs authorities refused to accept the request of the assessee and accordingly, had directed the assessee to pay the duty under the provisions of the Customs Act, 1962. Point of Dispute: Revenue contended that the machine imported by the assessee was not in consonance with the exemption notification and, therefore, the benefit of exemption should not be available under the notification to the assessee. Decision of the Case: The Supreme Court stated that it was a settled proposition in a fiscal or taxation law that while ascertaining the scope or expressions used in a particular entry, the opinion of the expert in the field of trade, who deals in those goods, should not be ignored, rather it should be given due importance. The Supreme Court on referring to the case of Collector of Customs v. Swastik Woollens (P) Ltd. 1988 (37) E.L.T. 474 (S.C.), held that when no statutory definition was provided in respect of an item in the Customs Act or the Central Excise Act, the trade understanding, i.e. the understanding in the opinion of those who deal with the goods in question was the safest guide. Thus, the Supreme Court concluded that the imported goods were covered under the exemption notification.

VALUATION UNDER THE CUSTOMS ACT, 1962

16. Commissioner of Cus., Vishakhapatnam v. Aggarwal Industries Ltd. 2011 E.L.T. 641 (S.C.)

Issue: Whether subsequent increase in the market price of the imported goods due to inflation would lead to increase in customs duty although the contract price between the parties has not increased accordingly? Facts of the Case: On 26th June 2001, Aggarwal Industries Ltd. entered into a contract with foreign suppliers viz M/s. Wilmar Trading Pvt. Ltd., Singapore, for import of 500 metric tons of crude sunflower


seed oil at the rate of US $ 435 CIF/metric ton. Under the contract, the consignment was to be shipped in the month of July 2001. However, the mutually agreed time for shipment was extended to ‘mid August 2001’. Thus, the goods were actually shipped on 5th August 2001 at the price prevailing at the contract date. Point of Dispute: The Revenue contended that when actual shipment took place, after the expiry of the original shipment period, the international market price of crude sunflower seed oil had increased drastically, and, therefore, the contract price could not be accepted as the ‘transaction value’ in terms of rule 4 of the erstwhile Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 [now rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007]. Therefore the duty should be imposed on the increased prices. Decision of the Case: The Supreme Court held that in the instant case, the contract for supply of crude sunflower seed oil @ US $ 435 CIF/ metric ton was entered into on 26th June 2001. It could not be performed on time because of which extension of time for shipment was agreed between the contracting parties. It is true that the commodity involved had volatile fluctuations in its price in the international market, but having delayed the shipment; the supplier did not increase the price of the commodity even after the increase in its price in the international market. There was no allegation of the supplier and importer being in collusion. Thus, the appeal was allowed in the favour of the respondent- assessee.

Chapter – Importation, Exportation and Transportation of Goods

17. CCus v. Shreeji Overseas (India) Pvt. Ltd. 2013 (289) E.L.T. 401 (Guj.)

Issue: Can the time-limit prescribed under section 48 of the Customs Act, 1962 for clearance of the goods within 30 days be read as time-limit for filing of bill of entry under section 46 of the Act? Decision: The High Court noted that though section 46 does not provide for any time-limit for filing a bill of entry by an importer upon arrival of goods, section 48 permits the authorities to sell the goods after following the specified procedure, provided the same are not cleared for home consumption/ warehoused/ transshipped within 30 days of unloading the same at the customs station. The High Court however held that the time-limit prescribed under section 48 for clearance of the goods within 30 days cannot be read into section 46 and it cannot be inferred that section 46 prescribes any time-limit prescribed for filing of bill of entry.

Chapter –Miscellaneous Provisions

18. Anita Grover v. CCEx. 2013 (288) E.L.T. 63 (Del.)

Issue: Can the directors of the company be held liable for the recovery of customs dues on the company? Facts of the case: A demand notice was raised against the petitioner in respect of the excise duty payable by the company- Shri Ram Casting P. Ltd. which she was formerly a director of. She had resigned from the Board of the company long time back. The Customs Department sought to attach the


properties belonging to the petitioner for recovery of the dues to the company. The petitioner contended that the action of the Department was not justified as the said properties belonged to her and not the company. Revenue contended that as director, the petitioner could not distance herself from the company’s acts and omissions; she had to shoulder its liabilities. It was in furtherance of such obligation that the authorities acted within their jurisdiction in issuing the impugned notice. Decision: Considering the provisions of section 142 of the Customs Act, 1962 and the relevant rules*, the High Court elucidated that it was only the defaulter against whom steps might be taken under Rules. The defaulter was the person from whom dues were recoverable under the Act. In the present case, it was the company who was the defaulter. There was no averment that the company had been or was being wound up. Thus, juristic personality of an existing company and its former director were certainly separate; the dues recoverable from the former could not, in the absence of a statutory provision, be recovered from the latter. There was no provision in the Customs Act, 1962 corresponding to section 179 of the Income Tax Act, 1961 or section 18 of the Central Sales Tax, 1956 (refer note below) which might enable the Revenue authorities to proceed against directors of companies who were not defaulters.

COMMON TOPICS

Classification of Goods

19. Commissioner of Central Excise, Bhopal v. Minwool Rock Fibres Ltd. 2012 (278) E.L.T. 581

(S.C.)

Issue: In case of specific classification viz-à-viz classification based on material used/ composition of goods, which one should be adopted? Facts of the Case: Minwool Rock Fibres Ltd. started manufacturing rockwool and slagwool using more than 25% of blast furnace slag by weight in 1993. They classified them under Central Excise Tarriff heading 6803.00 (i.e. Slagwool, Rockwool and similar mineral wools) and had been filing classification declarations mentioning this fact. Such declarations so filed prior to 1997-98 were accepted by the Department. However, another specific sub-heading 6807.10 of the Central Excise Tariff was introduced vide Budget 1997 for ‘Goods having more than 25% by weight blast furnace slag’. Accordingly, they claimed that the goods manufactured by them, namely, slagwool and rockwool should henceforth be classified under Chapter sub-heading 6807.10 of the Tariff. The Revenue contended that when there was a specific sub-heading, i.e. 6803.00 wherein the goods, such as Slagwool, Rockwool and similar wools were enumerated, that entry requires to be applied and not Chapter sub-heading 6807.10.

Point of Dispute: The assessee’s contention was that the appropriate classification for their product was under Chapter sub-heading 6807.10 of the Act while the Department contended that the appropriate classification was under Chapter sub-heading 6803.00 of the Act. This was the subject matter of the appeal before the Supreme Court.

Decision of the Case: The Supreme Court held that there was a specific entry which speaks of Slagwool and Rockwool under sub-heading 6803.00 chargeable at 18%, but there was yet another entry which was consciously introduced by the Legislature under sub-heading 6807.10 chargeable at 8%, which


speaks of goods in which Rockwool, Slag wool and products thereof were manufactured by use of more than 25% by weight of blast furnace slag. It was not in dispute that the goods in question were those goods in which more than 25% by weight of one or more of red mud, press mud or blast furnace slag was used. If that be the case, then, in a classification dispute, an entry which was beneficial to the assessee required to be applied and the same had been done by the adjudicating authority, which had been confirmed by the Tribunal. Further, tariff heading specifying goods according to its composition should be preferred over the specific heading. Sub-heading 6807.10 is specific to the goods in which more than 25% by weight, red mud, press mud or blast furnace slag is used as it is based entirely on material used or composition of goods. Therefore, the Court opined that the goods in issue were appropriately classifiable under Subheading 6807.10 of the Tariff.

20. CCE v. Wockhardt Life Sciences Ltd. 2012 (277) E.L.T. 299 (S.C.) Issue: In case of a specific entry viz-a-viz a residuary entry, which one should be preferred for classification purpose?

Facts of the Case: Wockhardt Life Sciences Ltd. was the manufacturer of Povidone Iodine Cleansing Solution USP and Wokadine Surgical Scrub. The only difference between these two products was that Wokadine was a branded product whereas Povidone Iodine Cleansing Solution was a generic name. The Revenue contended that the said products were not medicament in terms of Chapter Note 2(i) of Chapter 30 of the Tariff Act* as it neither had “Prophylactic” nor “Therapeutic” usage. The Revenue said that in order to qualify as a medicament, the goods must be capable of curing or preventing some disease or aliment. Therefore, the said products cannot be classified under Chapter Heading 3003 of Tariff Act. They submitted that the product in dispute, namely Povidone Iodine Solution or its patent and proprietary equivalent Wokadine surgical scrub, was essentially used as a medicated detergent. The assessee stated that the Revenue, in their show cause notices, had admitted that the products in issue were antiseptic and used by surgeons for cleaning or de-germing their hands and scrubbing surface of skin of patient before operation. They further submitted that the products were medicament in which some carriers were added and therefore, it would fall under chapter sub-heading 3003 and not under chapter 34. Point of Dispute: The assessee’s claim before the authorities and also before the Tribunal was that the aforesaid products were medicaments and, therefore, required to be classified under Chapter sub-heading 3003 of the Tariff, whereas the Revenue’s stand was that the products in question are detergents and, therefore, to be classified under chapter subheading 3402.90. Decision of the Case: The Supreme Court held that the combined factor that requires to be taken note of for the purpose of the classification of the goods are the composition, the product literature, the label, the character of the product and the use to which the product is put. In the instant case, it is not is dispute that this is used by the surgeons for the purpose of cleaning or degerming their hands and scrubbing the surface of the skin of the patient that portion is operated upon. The purpose is to prevent the infection or disease. Therefore, the product in question can be safely classified as a “medicament” which would fall under chapter sub-heading 3003 which is a specific entry and not under chapter sub-heading 3402.90 which is a residuary entry. Thus, on the basis of the above observation by the Court the Revenue’s appeal was rejected.

21. Keihin Penalfa Ltd. v. Commissioner of Customs 2012 (278) E.L.T. 578 (S.C.)

Issue: Where a classification (under a Customs Tariff head) is recognized by the Government in a notification any point of time, can the same be made applicable in a previous classification in the absence of any conscious modification in the Tariff?


Facts of the Case: Department contended that ‘Electronic Automatic Regulators’ were classifiable under Chapter sub-heading 8543.89 whereas Keihin Penalfa Ltd. was of the view that the aforesaid goods were classifiable under Chapter sub-heading 9032.89. An exemption notification dated 1-3-2002 exempted the disputed goods classifying them under chapter sub-heading 9032.89. The period of dispute, however, was prior to 1-3-2002. Point of Dispute: The dispute was on classification of Electronic Automatic Regulators. Decision of the Court: The Apex Court observed that the Central Government has issued a exemption notification dated 1-3-2002 and in the said notification it has classified the Electronic Automatic Regulators under Chapter sub-heading 9032.89. Since the Revenue itself has classified the goods in dispute under Chapter sub-heading 9032.89 from 1-3-2002, the said classification need to be accepted.

22. CCEx. v. Connaught Plaza Restaurant (Pvt) Ltd. 2012 (286) E.L.T. 321 (S.C.)

Issue: Can the ‘soft serve’ served at McDonalds India be classified as “ice cream” for the purpose of levying excise duty? Facts of the case: McDonalds India [M/s Connaught Plaza Restaurant (Pvt) Ltd.] manufactured and served ‘soft serves’ dispensed through vending machines at its restaurants. The Department raised a demand for the excise duty on the fast-food restaurant chain. It contended that 'soft serve' was classifiable under Heading 21.05, Sub-Heading 2105.00-“ice cream and other edible ice, whether or not containing cocoa” and thus, would attract excise duty @ 16% plus an additional duty (applicable at the relevant time). However, McDonalds India opposed the classification sought by the Department and claimed that the ‘soft serve’ was classifiable under Heading 04.04 as “other dairy produce” chargeable to nil rate of duty. Hence, it was not required to pay any duty. Point of dispute: Revenue claimed that although “ice-cream” had not been defined under Heading 21.05 or in any of the chapter notes of Chapter 21, ‘soft serve’ was known as “ice-cream” in common parlance. Therefore, soft serve’ must be classified in the category of “ice-cream” under Heading 21.05 of the Tariff Act. On the other hand, the assessee contended that ‘soft serve’ must be classified under Heading 04.04 as “other dairy produce” and not under Heading 21.05. The Tribunal, rejecting the common parlance principle and considering the technical meaning and specifications of the product “ice cream”, concluded that soft serve was classifiable under Heading 2108.91 (edible preparations, not elsewhere specified or included) and thus chargeable to nil rate of duty. Decision: SC held that in the presence of Heading 21.05 (ice cream), “ice cream” could not be classified as a dairy product under Heading 04.04. Heading 21.05 was clearly a specific entry. Further, referring to a trade notice issued by the Mumbai Commissionerate relating to classification of softy ice-cream being sold in restaurant etc. dispensed by vending machine, the Apex Court observed that the said trade notice indicated the commercial understanding of ‘soft-serve’ as ‘softy ice-cream’. Note: The headings cited in the aforesaid judgment may not co-relate with the headings of the present Excise Tariff as they relate to an earlier point of time. The description and rate of the relevant entries at the relevant time is given below:


Heading Sub-Heading Description of Goods Rate of Duty

(1) (2) (3) (4)

21.05 2105.00 Ice-cream and other edible ice, whether or not containing cocoa

16%

21.08 Edible preparations, not elsewhere specified or included

2108.91 -Not bearing a brand name Nil

04.04 Other dairy produce; Edible products of animal origin, not elsewhere specified or included - Ghee :

0404.11 --Put up in unit containers and bearing a brand name Nil

0404.19 --Other Nil

0404.90 --Other Nil

Demand, Adjudication & Offences

23. Raghunath International Ltd. v. Union of India, 2012 (280) E.L.T. 321 (All.) Issue: Whether Additional Director General, Directorate General of Central Excise Intelligence can be considered a central excise officer for the purpose of issuing SCN?

Facts of the Case: The appellant was engaged in the manufacture and clearance of Gutkha and Pan Masala. Search and seizure was conducted at the appellant’s premises by the officers of the Directorate General of Central Excise, New Delhi. A show-cause notice was issued by Additional Director General, Directorate General of Central Excise Intelligence, asking the petitioner to show cause to the Commissioner of Central Excise, Kanpur within 30 days as to why the duty, penalty and interest were not to be imposed. Point of Dispute: The appellant contended that Additional Director General, Directorate General of Central Excise Intelligence had no jurisdiction to issue the Show Cause Notice. It was contended that he was not a “Central Excise Officer” within the meaning of section 2(b) of the Central Excise Act, 1944. It was further contended that no notification regarding his appointment as Central Excise Officer was published in the Official Gazettee as required by the rule 3(1) of the Central Excise Rules, 2002. Another contention pressed by the appellant was that the authority who had issued the show cause notice ought to have obtained prior permission from the adjudicating authority before issuing the Show Cause Notice. Decision of the Case: The Court on observing the issue held that Additional Director General, Directorate General of Central Excise Intelligence having been authorized to act as a Commissioner of Central Excise was a Central Excise Officer, within the meaning of section 2(b) of the Central Excise Act, 1944 and was fully authorized to issue the Show Cause Notice. It was held that the Additional Director General, Directorate General of Central Excise Intelligence having been specified as a Commissioner of Central Excise was fully entitled to issue the show cause notice under section 11A, being a Central Excise Officer. No such provision had been referred to nor shown which may require approval before issuing the show cause notice of the adjudicating authority/officer.

24. Commissioner of C. Ex., Mumbai-III v. Tikitar Industries, 2012 (277) E.L.T. 149 (S.C.)

Issue: If Revenue accepts judgment of the Commissioner (Appeals) on an issue for one period, can it be precluded to make an appeal on the same issue for another period?


Facts of the Case: The assessee was a manufacturer of the ‘Bitulux Insulation Board’ known as ‘TikkiExjo Filler’. The ‘TikkiExjo Filler’ is obtained by the process of bituminization of the Insulation board. The adjudicating authority concluding that the above process amounts to manufacture, levied excise duty on it. Aggrieved by the order, the assessee carried an appeal before the Commissioner (Appeals), who accepted the assessee’s stand and held that the above process does not amount to manufacture. Department did not appeal against it and the above order of the appellate authority attained the finality. In the meantime, the Revenue issued several Show Cause-cum-Demand Notices to the assessee directing the assessee to pay the differential duty, but for a time period different from the period covered in the said appeal. Point of Dispute: The assessee was of the view that the process of bituminization of the Insulation board by which ‘TikkiExjo Filler’ is obtained, is not manufacture. Revenue, on the other hand, was of the view that the process of bituminization of the Insulation Board resulted in manufacture and thus, duty should be levied on it. Decision of the Case: The Supreme Court observed that since the Revenue had not questioned the correctness or otherwise of the findings on the conclusion reached by the first appellate authority, it may not be open for the Revenue to contend this issue further by issuing the impugned show cause notices on the same issue for further periods.

25. Nanumal Glass Works v. CCEx. Kanpur, 2012 (284) E.L.T. 15 (All.) Issue: Can a decision pronounced in the open court in the presence of the advocate of the assessee, be deemed to be the service of the order to the assessee? Facts of the case: The CESTAT, while hearing an appeal filed by the assessee, gave an option to the assessee that if 25% of the penalty amount was paid within 30 days from the date of its order (viz. 22nd

July, 2010), the penalty would be reduced to 25%. The counsel (advocate) of the assessee who appeared and argued the case before the Tribunal informed the local counsel of the assessee, but the local counsel could not inform the assessee about the option given by the Tribunal. Resultantly, the assessee deposited 25% penalty on 30th August, 2010 and was denied the benefit of the option as there had occasioned a delay of 9 days. The assessee submitted that the order could not be said to be tendered to him on 22nd

July, 2010 as it was not received by the assessee in person and that he had deposited the amount of 25% of penalty within 30 days from the date of communication of the order to him and there had been no delay. However, the Revenue contended that as the advocate of the assessee was present at the time of passing of the order, the order would be deemed to have been communicated to him on the same date (22nd July, 2010) and 30 days time would run from the same date. Observations of the Court: The High Court noted that in terms of section 37C(a) of the Central Excise Act, 1944, containing the provisions relating to service of decisions, orders, summons etc., an order is deemed to be served on the person if it is tendered to the person for whom it is intended or his authorized agent. The High Court opined that the communication of the order to the authorised agent of a person, therefore, is sufficient communication. Thus, when the order was passed by the Tribunal on 22nd July, 2010 in presence of advocate of the assessee, the order would be deemed to be communicated to the authorized agent of the assessee (i.e. his advocate) on the same date and 30 days period would start from 22nd July, 2010. Decision of the case: The High Court held that when a decision is pronounced in the open court in the presence of the advocate of the assessee, who is the authorized agent of the assessee within the


meaning of section 37C, the date of pronouncement of order would be deemed to be the date of service of order.

26. Jay Kumar Lohani v. CCEx 2012 (28) S.T.R. 350 (M.P.)

Issue: In a case where the assessee has been issued a show cause notice regarding confiscation, is it necessary that another SCN regarding recovery of dues and penalty on the same allegations can be issued only when first SCN is adjudicated? Facts of the case: The assessee was issued a show cause notice by the Commissioner proposing confiscation of seized goods and imposition of penalty. A reply to the said notice was submitted by the assessee. However, before taking any decision on such SCN, another SCN was issued by the Commissioner demanding excise duty and imposing penalty by invoking extended period of limitation of five years on the same allegations. Point of dispute: The assessee contended that since no decision was taken in respect of first SCN, the Commissioner could not pre-judge the issue involved in the matter and issue another SCN for recovery of duty and penalty. Therefore, the assessee submitted that the second SCN be quashed or an order be passed prohibiting the Commissioner from proceeding further with the said show cause notice till the final adjudication of the question involved in earlier SCN. Observations of the Court: The High Court observed that since the subsequent show cause notice only formed prima facie view in regard to allegations, it could not be said to be issued after pre-judging the question involved in the matter. It was pointed out by the High Court that there was no legal provision requiring authorities to first adjudicate the notice issued regarding confiscation and, only thereafter, issue show cause notice for recovery of dues and penalty. Decision: The High Court held that since it was not a case of show cause notice being issued without jurisdiction, adjudicating authority could not be restrained from proceeding further with the SCN.

27. C.C.E. & C. v. Gujarat Narmada Fertilizers Co. Ltd. 2012 (285) E.L.T. 336 (Guj.) Issue: Is assessee required to pay interest in case of voluntary payment of time-barred duty before issuance of the show cause notice? Point of dispute: The question which arose for consideration before Gujarat High Court was that in a case where before the issuance of the show cause notice, the assessee voluntarily pays the duty short paid recovery of which has become time-barred, can he be required to pay interest on the duty so paid. Observations of the Court: The High Court observed that in case the recovery of the unpaid or short paid duty has become time-barred, if the manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same. Thus, if he does it voluntarily despite completion of period of limitation, he should not, further be saddled with the liability to pay statutory interest. The High Court held that while issuing sub-section (2B) in erstwhile section 11A of the Act [now section 11A(1)(b)], intention of the Legislature was not to impose interest on the voluntary payment of time-barred duty. Decision: The High Court held that the assessee was not required to pay interest in case of voluntary payment of time-barred duty before issuance of show cause notice


28. CCEx. v. Castrol India Ltd. 2012 (286) E.L.T. 194 (Bom.)

Issue: Can Appellate Authorities or Courts permit assessee to pay reduced penalty of 25% beyond the time prescribed under section 11AC? Facts of the case: The penalty under section 11AC was imposed on the assessee. The assessee paid the duty sought to be evaded and interest payable thereon before the passing of the adjudication order. However, the assessee did not pay 25% of the penalty imposed under section 11AC within 30 days from the date of the communication of the order of Central Excise Officer determining the duty sought to be evaded under erstwhile section 11A(2) [now section 11A(10)] which was the mandatory requirement under section 11AC for claiming the benefit of reduced penalty. Instead of paying 25% of the penalty within the stipulated time, the assessee chose to file an appeal against imposition of penalty under section 11AC. Tribunal affirmed that the penalty was leviable under section 11AC. However, it further noted that since the option to pay the reduced penalty under the proviso to erstwhile section 11AC [now section 11AC(1)(c)] had not been given in the adjudication order, the benefit of reduced penalty under section 11AC could not be denied to the assessee. Thus, it permitted the assessee to pay 25% penalty from the date of communication of the order passed by the Tribunal. Point of dispute: The Revenue contended that Tribunal could not permit assessee to pay reduced penalty of 25% beyond time prescribed under section 11AC. Decision: The High Court inferred that Tribunal permitting the assessee to pay 25% penalty beyond the time prescribed under the first and second proviso to erstwhile section 11AC [now section 11AC(1)(c)], was not permissible in law.

29. Uniworth Textiles Ltd. vs. CCEx. 2013 (288) ELT 161 (SC)

Issue: Whether extended period of limitation for demand of customs duty can be invoked in a case where the assessee had sought a clarification about exemption from a wrong authority? Facts of the case: Assessee, an EOU, purchased electricity generated by the captive power plant of its sister unit. The furnace oil required for running the captive power plant was imported by the sister unit and the same was exempt from payment of customs duty under a relevant exemption notification. Later, the sister unit informed the assessee that it could not supply the electricity to the assessee as it would run the captive power plant for its own use only. Consequently, as a temporary measure, for overcoming this difficulty, the assessee imported furnace oil and supplied the same to sister unit for generation of electricity, which it continued to receive as before. The assessee also claimed exemption on import of furnace oil under the same notification as was claimed by its sister unit. As the assessee was procuring furnace oil for captive power plant of another unit, it sought a clarification from the Development Commissioner seeking as to whether import of furnace oil and receipt of electricity would be liable to duty. The Development Commissioner replied in favour of the assessee quoting letter by Ministry of Commerce and thereafter, the assessee claimed the exemption. However, irrespective of the clarification from the Development Commissioner, a show cause notice demanding duty was issued on the assessee more than six months after he had imported furnace oil on behalf of it sister unit. The contention of the Revenue was that the entitlement of duty free import of fuel for its captive power plant lies with the owner of the captive power plant, and not the consumer of electricity generated from that power plant. Decision: The Supreme Court held that mere non-payment of duties could not be equated with collusion or willful misstatement or suppression of facts as then there would be no form of non-


payment which would amount to ordinary default. The Apex Court opined that something more must be shown to construe the acts of the assessee as fit for the applicability of the proviso.

Note: Section 28 of the Customs Act, 1962 as stated in the above case is based on the old provisions of law. As per the amended section 28, the time limit for issuing a demand notice in case of inadvertent non-payment of duty is one year from the relevant date and such provisions find place in sub-section (1) of section 28. Issue of demand notice by invoking the extended period of limitation (five years from the relevant date) in case of deliberate default is covered under sub-section (4) of section 28. However, it may be noted that the principle enunciated in the above case will hold good even after the amendment made in section 28.

REFUND

30. CCE v. Techno Rubber Industries Pvt Ltd. 2011 (272) E.L.T. 191 (Kar.)

Issue: Can the excess duty paid by the seller be refunded on the basis of the debit note issued by the buyer? Facts of the case: The assessee cleared the goods paying higher rate of excise duty in the month of March, although the rate of duty on the said goods had been reduced in the budget of the same financial year. However, the buyer refused to pay the higher duty which the assessee had paid by mistake. The customer raised a debit note in his name in the month of June of the same year. The assessee applied for the refund of excess excise duty paid. Revenue rejected his claim on the ground that incidence of the duty had been passed by him to the buyer. While claiming refund, the assessee relied on the debit note raised by the buyer in his name in the month of June to demonstrate that his customer had not paid the excess duty to him. The adjudicating authority argued that since the debit note was issued in the month of June and not March, it could not be the basis for refund. Decision of the case: The High Court elucidated that once it is admitted that the Department has received excess duty, they are bound to refund it to the person who has paid the excess duty. If the buyer of the goods has paid that excess duty, he would have been entitled to the said refund. In the instant case, when the buyer had refused to pay excess duty claimed and had raised a debit note, the only inference to be drawn was that the assessee had not received that excess duty which he had paid to the Department. Consequently, Department was bound to refund to the assessee the excess duty calculated. Hence, the substantial question of law raised was answered in favour of the assessee and against the revenue.

APPEALS

31. Raja Mechanical Co. (P) Ltd. v. Commissioner of C. Ex., Delhi-I, 2012 (279) E.L.T. 481 (S.C.)

Issue: Whether doctrine of merger is applicable when appeal dismissed on the grounds of limitation and not on merits? Point of Dispute: The issue under consideration is that in case the first appellate authority had rejected the appeal filed by the assessee on the ground of limitation, whether the orders passed by the original authority would merge with the orders passed by the first appellate authority.


The learned counsel for the assessee contended that in given case, the orders passed by the original authority would merge with the orders passed by the first appellate authority and, therefore, the Tribunal should consider the appeal filed by the assessee. It further submitted that the Tribunal ought to have considered the assessee’s appeal not only on the ground of limitation but also on merits of the case. Since that has not been done, according to the learned counsel, the Tribunal has committed a serious error. The learned counsel further submitted that the “doctrine of merger” theory would apply in the sense that though the first appellate authority had rejected the appeal filed by the assessee on the ground of limitation, the orders passed by the original authority would merge with the orders passed by the first appellate authority and, therefore, the Tribunal ought to have considered the appeal. On the other hand, the learned counsel for the respondent submitted that the doctrine of merger would not apply to a case where an appeal was dismissed only on the ground of the limitation. Decision of the Case: The Court observed that if for any reason an appeal is dismissed on the ground of limitation and not on merits, that order would not merge with the orders passed by the first appellate authority. Apex Court opined that the High Court was justified in rejecting the request made by the assessee for directing the Revenue to state the case and also the question of law for its consideration and decision. In view of the above discussion, Supreme Court rejected the appeal.

32. Commissioner of Central Excise v. Rajendra Narayan 2012 (281) E.L.T. 38 (Del.)

Issue: Whether the construction of pre-fabricated components at one site to be used at different inter-connected metro construction sites in Delhi would get covered under exemption Notification No. 1/2011-C.E.(N.T.) dated 17-2-2011 exempting the ‘goods manufactured at the site of construction for use in construction work at such site’ ? Facts of the Case: The respondent-assessees were carrying on construction of the Delhi Metro. They had manufactured pre-fabricated components, which have been used in the construction of the Delhi Metro. The assessee claimed the exemption under Notification No. 1/2011-C.E. (N.T.) dated 17-2-2011 which exempts the goods covered under specified chapter headings for a specified period, manufactured at the site of construction for use in construction work at such site. The Department contended that the respondent-assessees were not entitled to claim the exemption stating that the goods were not manufactured at the site of the construction for use in the construction work at the site. Decision of the Court: The Court noted that Delhi Metro Rail Corporation Ltd. had contracted and called upon the respondent-assessee to construct pre-fabricated components of different segments to be used in elevated viaducts etc.. For the purpose of pre-fabricating the components a specific casting yard, premises was allotted by Delhi Metro Rail Corporation Ltd. The said casting yard constituted the construction site. From the said construction site, components had been moved to different locations where elevated viaducts of the tunnel were being constructed. The Court held that keeping in view the facts of the present case and that the construction was done virtually all over Delhi and construction sites were interconnected, practically prefabrication was done on construction site only. Therefore, it allowed the appeal in the favour of the respondent- assessee.

33. Mihani Network v. CCus. & CEx. 2012 (285) ELT 182 (MP)

Issue: Can the deposit of 50% of tax amount be made a condition for condoning the delay in filing of an appeal?


Facts of the case: In the instant case, the assessee had filed an appeal along with an application for stay before the CESTAT. However, since there had been a delay in filing the appeal, the assessee also filed an application for condonation of delay. The CESTAT ordered that the delay would be treated as condoned, if the assessee deposits 50% of the amount of tax. By the same order, the CESTAT also finally disposed of the assessee’s application for stay. Observations of the Court: When the matter was brought before the High Court, the High Court observed that there is no legal provision which provides for condoning the delay in filing the appeal on a condition of depositing 50% of tax amount. Delay in filing the appeal is condoned or refused depending upon the sufficiency of cause for delay. If the party is found to be prevented by a sufficient cause to the satisfaction of the appellate authority/Tribunal, the delay is condoned and if not found to be prevented by a sufficient cause, the delay is not condoned. Decision: The High Court held that the condition of depositing 50% of tax amount for condoning the delay is illegal and that the CESTAT ought not to have mixed the issue with the separate application filed for stay.

34. Thakker Shipping P. Ltd. v. Commissioner of Customs (General) 2012 (285) E.L.T. 321 (S.C.)

Issue: Can Tribunal condone the delay in filing application consequent to review by the Committee of Chief Commissioners if it is satisfied that there was sufficient cause for not presenting it within the prescribed period? Facts of the case: The proceedings were initiated against the assessee under the Customs Act, 1962. However, Commissioner of Customs (General), in his order-inoriginal, dropped the said proceedings. The Committee of Chief Commissioners of Customs constituted under section 129A(1B) of the Customs Act, 1962 reviewed his order and directed him to apply to the Tribunal for determination of certain points. The Commissioner, accordingly, made an application under section 129D(4) of the Act before the Tribunal. As the said application could not be made within the prescribed period and was delayed by 10 days, an application for condonation of delay was filed with a prayer for condonation. However, Tribunal rejected the application for condonation of delay on the ground that Tribunal had no power to condone the delay caused in filing application under section 129D(4) by the Department beyond the prescribed period of three months. Point of dispute: The question which arose for consideration before this Court was whether the Tribunal was competent to invoke section 129A(5) where an application under section 129D(4) had not been made by the Commissioner within the prescribed time and to condone the delay in making such application if it was satisfied that there was sufficient cause for not presenting it within that period. Decision: The High Court ruled that the Tribunal was competent to invoke section 129A(5) where an application under section 129D(4) had not been made within the prescribed time and condone the delay in making such application if it was satisfied that there was sufficient cause for not presenting it within that period. Note: The provisions of section 129A(5) and 129D(4) of the Customs Act, 1962 have been outlined below:- Section129A(5): The Appellate Tribunal may admit an appeal or permit the filing of a memorandum of cross-objections after the expiry of the relevant period referred to in sub-section (3) or sub-section (4), if it is satisfied that there was sufficient cause for not presenting it within that period. Section 129D(4): Where in pursuance of an order under sub-section (1) or sub-section (2), the adjudicating authority or any officer of customs authorised in this behalf by the Commissioner of Customs, makes an application to the Appellate Tribunal or the Commissioner (Appeals) within a period of one month from the


date of communication of the order under sub-section (1) or sub-section (2) to the adjudicating authority, such application shall be heard by the Appellate Tribunal or the Commissioner (Appeals), as the case may be, as if such application were an appeal made against the decision or order of the adjudicating authority and the provisions of this Act regarding appeals, including the provisions of section 129A(4) shall, so far as may be, apply to such application.

SETTLEMENT COMMISSION

35. Maruthi Tex Print & Processors P. Ltd. v. C. & C. Ex. Sett. Comm., Chennai 2012 (281) E.L.T. 509 (Mad.)

Issue: Can the Settlement Commission decline to grant immunity from prosecution and confirming the demand and imposing the penalty without placing the burden on the Department to prove the clandestine manufacture and clearances of goods? Facts of the Case: M/s. Maruthi Tex Print & Processors Pvt. Limited, Hyderabad, was a concern registered with the Excise Department for manufacture of man-made fabrics (MMF) and also for manufacture of cotton fabrics. During the course of business, search was carried out at various places, including the factory, registered office premises, their godown and dealers’ premises, which resulted in recovery of certain records relating to delivery of processed fabrics, and seizure of certain quantities of grey and processed fabrics. The Department issued SCN confirming demand at the higher rate of duty and interest and penalty thereon and seized goods also. However, there was no clear evidence to hold that the fabrics mentioned in all delivery challans were attracting higher rate of duty. The assessee approached the Settlement Commission. The Settlement Commission confirmed the entire demand, penalty, seizure and denied the immunity from the prosecution. The assessee approached the High Court. Point of Dispute: Can the Settlement Commission decline to grant immunity from prosecution after confirming the demand and imposing the penalty? Decision of the Court: The High Court held that when an allegation of clandestine manufacture and clearances is made, the person making the allegation should establish the complete charge including the nature of the goods and its value involved for determining the appropriate demand of duty. Secondly, the Settlement Commission can be approached if a person, who suffered a show cause notice on the charge of evasion of duty, finally wants to settle the matter, by making full disclosure admitting certain omissions/commissions. The Settlement Commission, by looking at the onus upon the Department to prove about the nature of goods cleared without payment of duty, should decide the matter. However, in the present case, without placing the burden on the Department to prove their case, the Settlement Commission confirmed the demand on the assessee. Settlement Commission should not have refused the benefit of immunity from prosecution. Hence, that part of refusal to grant immunity for prosecution is alone interfered with. Accordingly, the Court set aside the order relating to non-grant of immunity for prosecution and resultantly, the assessee was granted immunity from being prosecuted.


SERVICE TAX

BASIC CONCEPTS OF SERVICE TAX

36. Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran 2012 (26) S.T.R. 289 (S.C.) Issue: Whether the service tax liability created under law can be shifted by a clause entered in the contract? Facts of the Case: Rashtriya Ispat Nigam Ltd., the appellant was engaged in the manufacture of steel products and pig-iron for sale in the domestic and export markets. The respondent was a partnership firm carrying on the business of clearing and forwarding agents. In the year 1997, the appellant appointed the respondent as the handling contractor in respect of appellant’s iron and steel materials from their stockyard. A formal contract was entered into between the two of them. One of the terms and conditions of the contract read as follows:- “The contractor shall bear and pay all taxes, duties and other liabilities in connection with discharge of his obligations under this order. Any income tax or any other taxes or duties which the company may be required by law to deduct shall be deducted at source and the same shall be paid to the tax authorities for the account of the contractor and the service recipient shall provide the contractor with required tax deduction certificate.” In the year 2000, liability to pay service tax in case of clearing and forwarding agent’s services was shifted from service provider (contractor in the given case) to service receiver retrospectively from 16-7-1997 (refer note below). Consequent thereupon, the appellant deducted 5% tax on the bills of the respondent. The respondent, however, refused to accept the deductions saying that the contractual clause cannot alter the liability placed on the service recipient (appellant) by law. Point of Dispute: Where the law places liability to pay service tax on the service recipient, can the service provider be made liable to pay service tax on account of such clause provided in the contract? Decision of the Case: The Supreme Court observed that reading the agreement between the parties as a whole and harmonizing various provisions thereof, it can be inferred that service provider (contractor) accepted liability to pay service tax, since it arose out of discharge of their obligations under contract. With regard to the submission of shifting of tax liability, Supreme Court held that service tax is indirect tax which may be passed on. Thus, assessee can contract to shift their liability. Finance Act, 1994 is relevant only between assessee and tax authorities; it is irrelevant to determine rights and liabilities between service provider and recipient as agreed in contract between them. There is nothing in law to prevent them from entering into agreement regarding burden of tax arising under contract between them.

37. CCE (A) v. KVR Construction 2012 (26) STR 195 (Kar.)

Issue: Will service tax paid mistakenly arouse service tax liability? Facts of the Case: KVR Construction was a construction company rendering services under category of “construction of residential complex service” and were paying the service tax in accordance with Finance Act, 1994. They undertook certain construction work on behalf of a trust and paid service tax


accordingly. However, later they filed refund claim for the service tax so paid contending that they were not actually liable to pay service tax as it was exempt. The appellant, on the other hand, rejected the refund claim on the ground that the refund application filed by the respondent-assessee was beyond the limitation period as stated in section 11B of Central Excise Act. Department did not dispute the fact that service tax was exempted in the instant case. Point of Dispute: Is assessee liable to claim refund on service tax paid on construction activity so done by them? Decision of the Case: The Hon’ble High Court of Karnataka, distinguishing the landmark judgment by Supreme Court in the case of Mafatlal Industries v. UOI 1997 (89) E.L.T. 247 (S.C.) relating to refund of duty/tax, held that service tax paid mistakenly under construction service although actually exempt, is payment made without authority of law. Mere payment of amount would not make it ‘service tax’ payable by the respondents. When once there is lack of authority to collect such service tax from the respondent, it would not give authority to Department to retain such amount and validate it. In view of the above, it was held that refund of an amount mistakenly paid as service tax could not be rejected on ground of limitation under section 11B of the Central Excise Act, 1944.

38. Tirumala Tirupati Devasthanams, Tirupati V. Superintendent of Customs, Central Excise, Service Tax (2012-TIOL-97-HC-AP-ST)

Issue: Were services provided to the pilgrims taxable under short term accommodation service? Facts of the Case: Tirumala Tirupati Devasthanams, Tirupati was running guest houses for the pilgrims. The department issued S.C.N stating that the assesse were liable to get service tax registration under “short term accommodation service” and thus liable to pay service tax. The assessee, on the other hand, submitted that they were not club or any other association and thus, were not liable to get registered under service tax. Point of Dispute: Assessee contested that since they were running guest houses without any profit motive hence they were not liable to pay service tax. Decision of the Case: The Andhra Pradesh High Court held that the petitioner was religious and charitable institution and was running guest houses by whatever name called, whether it was a shelter for pilgrims or any other name for a considerable time and thus was liable to get itself registered under ‘Short term accommodation service’ and pay service tax on the same. Note: In the new regime, this case would be relevant in context of short accommodation service.

39. Mayo College General Council v. CCEx. (Appeals) 2012 (28) STR 225 (Raj)

Issue: A society, running renowned schools, allows other schools to use a specific name, its logo and motto and receives a non-refundable amount and annual fee as a consideration. Whether this amounts to a taxable service? Facts of the case: The petitioner, Mayo College, was a society running internationally renowned schools. It allowed other schools to use the name ‘Mayoor School’, its logo and motto, and as a consideration thereof received collaboration fees from such schools which comprised of a non-refundable amount and annual fee. The schools were required to observe certain obligations/terms and unimpeachable confidentiality.


Points of dispute: The department contended that the petitioner was engaged in providing franchise service to schools that were running their institutes using its school name “Mayoor School”. Therefore, a show cause notice proposing recovery of service tax along with interest and penalty was issued against them. The petitioners submitted that they did not provide any franchise services to the said schools, rather they provided their expertise for the establishment and development of these schools. The agreement entered in to between the petitioners and the said schools also did not reveal that any franchise service was provided by the petitioner to these schools. It was contended by the petitioners that they were a non-profit society carrying on non-commercial activities and that their main obligation was to maintain the high standard of the education in the said schools. Further, they did not collect any ‘franchise fees’ from the said schools and therefore, were not liable to pay service tax. Decision: The High Court held that when the petitioner permitted other schools to use their name, logo as also motto, it clearly tantamounted to providing ‘franchise service’ to the said schools and if the petitioner realized the ‘franchise’ or ‘collaboration fees’ from the franchise schools, the petitioner was duty bound to pay service tax to the department.

Chapter – Place of Provision of Service

40. Wipro Ltd. v. Union of India 2013 (29) S.T.R. 545 (Del.)

Issue: Whether filing of declaration of description, value etc. of input services used in providing IT enabled services (call centre/BPO services) exported outside India, after the date of export of services will disentitle an exporter from rebate of service tax paid on such input services? As per Notification No. 12/2005 ST dated 19.04.2005, rebate is granted of the whole of the duty paid on excisable inputs or the whole of the service tax and cess paid on all taxable input services used in providing taxable service exported out of India. Condition 3.1 of the Notification stipulated that the provider of taxable service to be exported has to file a declaration with the jurisdictional Assistant/Deputy Commissioner of Central Excise describing the taxable service intended to be exported with description, value and the amount of service tax/excise duty and cess payable on input services/inputs actually required to be used in providing taxable service to be exported, prior to date of export of such taxable service. Facts of the case: In the instant case, the appellant rendered IT-enabled services such as technical support services, customer-care services, back-office services etc. to clients outside the country. It involved attending to cross-border telephone calls relating to a variety of queries from existing or prospective customers in respect of the products or services of multinational corporations. For rendering such services, the appellant used input services such as night transportation, recruitment, training, bank charges etc. The appellant claimed rebate of the service tax paid by it on such input services, used in providing the output services which were exported during a particular time period, under the said notification. However, the declaration required under para 3.1 of the notification was filed only after the export of the services i.e., after the particular time period during which the services were exported and for which the rebate claim was filed. The appellant filed two claims under the said notification claiming rebate in respect of service tax paid on such input services. In respect of the services rendered by the appellant between 16.03.2005 and 30.09.2005, the claim for rebate was filed on 15.12.2005 and in respect of the services rendered between 01.10.2005 and 31.12.2005, the claim was filed on 17.03.2006. The declaration required to be filed in terms of para 3.1 of the Notification was however filed by the appellant only on 05.02.2007. The rebate claims were rejected by the Department on the ground that the prescribed procedure, as laid down in Notification No.12/2005, for obtaining the rebate was not followed by the appellant.


Decision: The High Court, therefore, allowed the rebate claims filed by the appellants and held that the condition of the notification must be capable of being complied with as if it could not be complied with, there would be no purpose behind it.

Note: With effect from 01.07.2012, provisions of rebate of service tax/excise duty paid on input services/inputs used in providing taxable service exported out of India are being governed by Notification No. 39/2012 ST dated 20.06.2012 issued under rule 6A of the Service Tax Rules, 1994. Since the said notification also requires filing of the declaration ‘prior to export’, the principle enunciated in the above case will hold good under the present law as well.

Chapter – Valuation of Taxable Service

41. Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India 2013 (29) S.T.R. 9 (Del.)

Issue: Whether expenditure like travel, hotel stay, transportation and the like incurred by service provider in course of providing taxable service should be treated as consideration for taxable service and included in value for charging service tax? Observations of the Court: The above question came up for consideration before the Delhi High Court. The High Court noted that as per Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as Rules), expenditure/costs, such as travel, hotel stay, transportation, etc. incurred by service provider in course of providing taxable service has to be treated as consideration for taxable service and included in value for charging service tax. The High Court observed that since section 67(1) of Finance Act, 1994 is subject to provisions of Chapter V - which includes section 66 (now section 66B) – the value of taxable services has to be in consonance with section 66 which levies tax only on taxable service. Thus, there is an inbuilt mechanism to ensure that only taxable service are evaluated under section 67 which provides that value of taxable service is the gross amount charged by service provider ‘for such service’. The High Court, therefore, opined that it is only the consideration for the taxable service which is chargeable to tax under the relevant Sections. However, rule 5(1) goes far beyond the charging provisions as it includes the expenditure and costs - which are incurred by the service provider “in the course of providing taxable service” - in the value of the taxable service. The High Court elaborated that power to make rules could not exceed or go beyond the section which provides for charge or collection of service tax. The High Court clarified that even though section 94 prescribes to lay every rule framed by Central Government before each House of Parliament, which have power to modify them; the same cannot add any greater force to the Rules than what they ordinarily have as species of subordinate legislation. The High Court further observed that rule 5(1) may also result in double taxation, if expenses like air travel tickets, had already been subjected to service tax. The High Court was of the view that double taxation can be imposed only when it is clearly provided for and intended. It can never be enforced by implication. Decision: The High Court, therefore, held that rule 5(1) of the Rules runs counter and is repugnant to sections 66 and 67 of the Act and to that extent it is ultra vires the Finance Act, 1994.


Chapter 13 – Adjudication & Offences

42. Ankleshwar Taluka ONGC Land Loosers Travellers Co. OP. v. C.C.E., Surat-II 2013 (29) STR 352 (Guj.)

Issue: In a case where the assessee has acted bona fide, can penalty be imposed for the delay in payment of service tax arising on account of confusion regarding tax liability and divergent views due to conflicting court decisions? Facts of the case: The appellant, a Co-operative Society, rendered rent-a-cab service to M/s. ONGC. The members of the society were essentially agriculturists who formed the society after they lost their land when ONGC plant was being set up. At the time, when the appellant started rendering the service to the ONGC, there was no service tax levy on rent-a-cab service. However, service tax was imposed on rent-a-cab service subsequently. A show cause notice was issued on the appellants proposing to recover service tax with applicable penalty and interest. The appellants paid the entire disputed amount and thereafter regularly paid the service tax. The issue under consideration before the High Court, therefore, was only in relation to the imposition of penalty. The appellant contended that they did not pay service tax at the relevant point of time as it being a new levy; they were unaware of legal provisions. Also, there were divergent views of different Benches of Tribunal, which had added to the confusion, and the issue was debatable. Further, it was pointed out by the appellant that since initially there was no condition relating to payment of service tax in the service contract with the ONGC-as there was no levy at that point of time - ONGC denied paying service tax when the same was subsequently imposed on the service rendered by them. However, with due negotiation and arbitration, it was decided that the disputed amount would first be paid by the appellant and the same would be reimbursed by ONGC. Thus, there had also been confusion regarding the liability of the appellant. However, such contention was not accepted by the Department. Decision: The High Court held that even if the appellants were aware of the levy of service tax and were not paying the amount on the ground of dispute with the ONGC, there could be no justification in levying the penalty in absence of any fraud, misrepresentation, collusion or wilful mis-statement or suppression. Moreover, when the entire issue for levying of the tax was debatable, that also would surely provide legitimate ground not to impose the penalty.

43. DBOI Global Service Pvt. Ltd. v. UOI 2013 (29) S.T.R. 117 (Bom.)

Issue: Whether non-filing of additional documents despite several opportunities to the assessee to produce the same, could be a sufficient ground for passing a nonspeaking order? Facts of the case: In the instant case, the adjudicating authority had disallowed the refund claim filed by the assessee and called for certain additional documents, although similar refund claims filed by the assessee for the earlier periods had been allowed by the adjudicating authority without these additional documents. The assessee failed to furnish the additional documents despite being given several opportunities to produce the same. The adjudicating authority passed an order rejecting the refund claim but failed to record any reason as to why it differed with the earlier decisions. The assessee pleaded that since the adjudicating authority has failed to state any reason for differing with the earlier decisions, its order must be quashed. Revenue contended that the adjudicating authority was justified in passing the non-speaking order because inspite of several opportunities given to produce additional documents, the assessee had failed to produce those documents. Decision: The High Court held that if the assessee had failed to furnish additional information, it had been obligatory on the part of the adjudicating authority to record a finding as to why the documents furnished by the assessee were not sufficient to allow his claim and why additional documents were


necessary, especially when on the basis of similar documents furnished by the assessee in the past, the claims had been allowed. Thus, deciding the petition in favour of the assessee, the High Court set aside the order of the adjudicating authority.

Miscellaneous Case Studies

CENTRAL EXCISE

Chapter 1 –Basic Concept

1. Bata India Ltd. v. CCE 2010 (252) ELT 492 (SC)

Issue: Whether the theoretical possibility of product being sold is sufficient to establish the marketability of a product? Decision of the case: The Apex Court observed that marketability is essentially a question of fact to be decided on the facts of each case and there can be no generalization. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. The question is not whether there is a hypothetical possibility of a purchase and sale of the commodity, but whether there is sufficient proof that the product is commercially known. The mere theoretical possibility of the product being sold is not sufficient but there should be commercial capability of being sold. Theory and practice will not go together when one examine the marketability of a product. The Supreme Court further ruled that the burden to show that the product is marketed or capable of being bought or sold is entirely on the Revenue. Revenue, in the given case, had not produced any material before the Tribunal to show that the product was either being marketed or capable of being marketed, but expressed its opinion unsupported by any relevant materials. Note: The above judgment is in conformity with the explanation to section 2(d) of the Central Excise Act, 1944 inserted by the Finance Act, 2008.

2. CCE v. Solid & Correct Engineering Works and Ors 2010 (252) ELT 481 (SC)

Issue: Whether the machine which is not assimilated in permanent structure would be considered to be moveable so as to be dutiable under the Central Excise Act? Facts of the case: The assessee was engaged in the manufacture of asphalt batch mix and drum mix/hot mix plant by assembling and installing its parts and components. The Revenue contended that the said plant would be considered to be moveable so as to be dutiable under the Central Excise Act, 1944. Decision of the case: The Court opined that an attachment where the necessary intent of making the same permanent is absent cannot constitute permanent fixing, embedding or attachment in the sense that would make the machine a part and parcel of the earth permanently. The Court observed that as per the assessee, the machine was fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth, but because a foundation was necessary to provide a wobble


free operation to the machine. Hence, the Supreme Court held that the plants in question were not immovable property so as to be immune from the levy of excise duty. Consequently, duty would be levied on them.

3. CCE v. Sony Music Entertainment (I) Pvt. Ltd. 2010 (249) E.L.T. 341 (Bom.)

Issue: Does the activity of packing of imported compact discs in a jewel box along with inlay card amount to manufacture? Facts of the case: The appellant imported recorded audio and video discs in boxes of 50 and packed each individual disc in transparent plastic cases known as jewel boxes. An inlay card containing the details of the content of the compact disc was also placed in the jewel box. The whole thing was then shrink wrapped and sold in wholesale. The Department contended that the said process amounted to manufacture. Decision of the case: The High Court observed that none of the activity that the assessee undertook involved any process on the compact discs that were imported. It held that the Tribunal rightly concluded that the activities carried out by the respondent did not amount to manufacture since the compact disc had been complete and finished when imported by the assessee. They had been imported in finished and completed form.

4. Medley Pharmaceuticals Ltd. [2011] (SC)- IMP

Issue: Whether physician samples distributed to medical practitioner as free samples, are goods under excise? The question which arose for consideration was whether physician samples of patent and proprietary medicines intended for distribution to medical practitioner as free samples, satisfied the test of marketability. The appellant contended that since the sale of the physician samples was prohibited under the Drugs and Cosmetics Act, 1940 and the rules made thereunder, the same could not be considered to be marketable. Decision: Even though Drugs and Cosmetics Act, 1940 bars the sale of physicians' samples, however,

excisability of a product is not dependent on its saleability. Excise duty is a levy on production or manufacture and is payable whether or not the goods are

sold. Further, such prohibition on sale of physicians' samples under Drugs Act doesn't also affect the marketability of such samples: marketability doesn't require actual sale, it is capability of being bought and sold.

Even otherwise, restrictions under Drugs Act cannot affect imposition of excise duty under the Central Excise Act thereby causing loss of revenue.

Therefore, physicians' samples are liable to excise duty.

5. Nicholas Piramal India Ltd. v. CCEx., Mumbai 2010 (260) E.L.T. 338 (S.C.)

Issue: Does a product with short shelf-life satisfy the test of marketability? Facts of the case: In the instant case, the product had a shelf-life of 2 to 3 days. The appellant contended that since the product did not have shelf-life, it did not satisfy the test of marketability. Decision of the case:


The Supreme Court ruled that short shelf-life could not be equated with no shelf-life and would not ipso facto mean that it could not be marketed. A shelf-life of 2 to 3 days was sufficiently long enough for a product to be commercially marketed. Shelf-life of a product would not be a relevant factor to test the marketability of a product unless it was shown that the product had absolutely no shelf-life or the shelf-life of the product was such that it was not capable of being brought or sold during that shelf-life. Hence, product with the shelf life of 2 to 3 days was marketable and hence, excisable.

6. Usha Rectifier Corpn. (I) Ltd. v. CCEx., New Delhi 2011 (263) E.L.T. 655 (S.C.)

Issue: Whether assembling of the testing equipments for testing the final product in the factory amounts to manufacture? Facts of the case: The appellant was a manufacturer of electronic transformers, semiconductor devices and other electrical and electronics equipments. During the course of such manufacture, the appellant also manufactured machinery in the nature of testing equipments to test their final products. Balance sheet of the appellant stated that the testing equipments had been capitalised. The said position was further substantiated in the Director’s report wherein it was mentioned that during the year, the company developed a large number of testing equipments on its own. However, the assessee contended that such items were assembled in the factory for purely research and development purposes, but research being unsuccessful, same were dismantled. Hence, it would not amount to manufacture. The appellant further submitted that the said project was undertaken only to avoid importing of such equipment from the developed countries with a view to save foreign exchange. Decision of the case: The Supreme Court observed that once the appellant had themselves made admission regarding the development of testing equipments in their own Balance Sheet, which was further substantiated in the Director’s report, it could not make contrary submissions later on. Moreover, assessee’s stand that testing equipments were developed in the factory to avoid importing of such equipments with a view to save foreign exchange, confirmed that such equipments were saleable and marketable. Hence, the Apex Court held that duty was payable on such testing equipments.

7. CCE v. Tarpaulin International 2010 (256) E.L.T. 481 (S.C.)

Issue: Does the process of preparation of tarpaulin made-ups after cutting and stitching the tarpaulin fabric and fixing the eye-lets amount to manufacture? Facts of the case: The assessee was engaged in manufacture of ‘tarpaulin made-ups’. The tarpaulin made-ups were prepared by cutting and stitching the tarpaulin cloth into various sizes and thereafter fixing the eye-lets. Department viewed that the “tarpaulin made-ups” so prepared amounted to manufacture and, hence, they were exigible to duty. However, the assessee stated that the process of mere cutting, stitching and putting eyelets did not amount to manufacture and hence, the Department could not levy excise duty on tarpaulin made-ups. Decision of the case: The Apex Court opined that stitching of tarpaulin sheets and making eyelets did not change basic characteristic of the raw material and end product. The process did not bring into existence a new and distinct product with total transformation in the original commodity. The original material used i.e., the tarpaulin, was still called tarpaulin made-ups even after undergoing the said process. Hence, it could not be said that the process was a manufacturing process. Therefore, there could be no levy of central excise duty on the tarpaulin made-ups.


Cenvat Credit

8. CCus. v. Prime Health Care Products 2011 (272) E.L.T. 54 (Guj.)

Issue: In case of combo-pack of bought out tooth brush sold along with tooth paste manufactured by assessee; is tooth brush eligible as input under the CENVAT Credit Rules, 2004?

Facts of the case: The assessee was engaged in the manufacture of tooth paste. It was sold as a combo pack of tooth paste and a bought out tooth brush. The assessee availed CENVAT credit of central excise duty paid on the tooth brush. Revenue contended that the tooth brush was not an input for the manufacture of the tooth paste and the cost of tooth brush was not added in the M.R.P. of the combo pack and hence, the assessee had availed CENVAT credit of duty paid on tooth brush in contravention of the provisions of the CENVAT Credit Rules, 2004. Decision of the case: The High Court noted that the process of packing and re-packing the input, that was, toothbrush and tooth paste in a unit container would fall within the ambit of “manufacture” [as per section 2(f)(iii) of the Central Excise Act, 1944]. Further, the word “input” was defined in rule 2(k) of the CENVAT Credit Rules, 2004 which also included accessories of the final products cleared along with final product. There was no dispute about the fact that on toothbrush, excise duty had been paid. The toothbrush was put in the packet along with the tooth paste and no extra amount was recovered from the consumer on the toothbrush*. Considering the definition given in the rules of “input” and the provisions contained in rule 3, the High Court upheld the Tribunal’s decision that the credit was admissible in the case of the assessee.

9. CCE v. Bhuwalka Steel Industries Ltd. 2010 (249) ELT 218 (Tri-LB)

Issue: Whether CENVAT credit can be denied on the ground that the weight of the inputs recorded on receipt in the premises of the manufacturer of the final products shows a shortage as compared to the weight recorded in the relevant invoice?

Decision: The Larger Bench of the Tribunal held that each case had to be decided according to merit and no hard and fast rule can be laid down for dealing with different kinds of shortages. Decision to allow or not to allow credit under rule 3(1), in any particular case, will depend on various factors such as the following:-

(i) Whether the inputs/capital goods have been diverted en-route or the entire quantity with the packing intact has been received and put to the intended use at the recipient factory.

(ii) Whether the impugned goods are hygroscopic in nature or are amenable to transit loss by way of evaporation etc.

(iii) Whether the impugned goods comprise countable number of pieces or packages and whether all such packages and pieces have been received and accounted for at the receiving end.

(iv) Whether the difference in weight in any particular case is on account of weighment on different scales at the despatch and receiving ends and whether the same is within the tolerance limits with reference to the Standards of Weights and Measures Act, 1976.

(v) Whether the recipient assessee has claimed compensation for the shortage of goods either from the supplier or from the transporter or the insurer of the cargo.

Tolerances in respect of hygroscopic, volatile and such other cargo has to be allowed as per industry norms excluding, however, unreasonable and exorbitant claims. Similarly, minor variations arising due to weighment by different machines will also have to be ignored if such variations are within tolerance limits.


10. Ashok Kumar H. Fulwadhya v. UOI 2010 (251) E.L.T. 336 (Bom.)

Issue: Whether penalty can be imposed on the directors of the company for the wrong CENVAT credit availed by the company?

Decision of the case: It was held that words “any person” used in rule 13(1) of the erstwhile CENVAT Credit Rules, 2002 [now rule 15(1) of the CENVAT Credit Rules, 2004] clearly indicate that the person who has availed CENVAT credit shall only be the person liable to the penalty. The Court observed that, in the instant case, CENVAT credit had been availed by the company and the penalty under rule 13(1) [now rule 15(1)] was imposable only on the person who had availed CENVAT credit [company in the given case], who was a manufacturer. The petitioners-directors of the company could not be said to be manufacturer availing CENVAT credit.

11. CCEx. v. Stelko Strips Ltd. 2010 (255) ELT 397 (P & H)

Issue: The issue under consideration before the High Court in the instant case was that whether private challans other than the prescribed documents are valid for taking MODVAT credit under the Central Excise Rules, 1944.

Decision of the case: The High Court placed reliance on its decision in the case of CCE v. M/s. Auto Spark Industries CEC No. 34 of 2004 decided on 11.07.2006 wherein it was held that once duty payment is not disputed and it is found that documents are genuine and not fraudulent, the manufacturer would be entitled to MODVAT credit on duty paid on inputs. The High Court also relied on its decision in the case of CCE v. Ralson India Ltd. 2006 (200) ELT 759 (P & H) wherein it was held that if the duty paid character of inputs and their receipt in manufacturer’s factory and utilization for manufacturing a final product is not disputed, credit cannot be denied. Thus, the High Court held that CENVAT credit could be taken on the strength of private challans as the same were not found to be fake and there was a proper certification that duty had been paid.

EXEMPTION BASED ON VALUE OF CLEARANCES (SSI)

12. CCE v. Deora Engineering Works 2010 (255) ELT 184 (P & H) Issue: Whether the clearances of two firms having common brand name, goods being manufactured in the same factory premises, having common management and accounts etc. can be clubbed for the purposes of SSI exemption? Facts of the case: The respondent-assessee was using the brand name of "Dominant" while clearing the goods manufactured by it. One more manufacturing unit was also engaged in the manufacture and clearance of the same goods under the same brand name of "Dominant" in the same premises. Both the firms had common partners, the brand name was also common and the machines were cleared from both the units under common serial number having common accounts. Department clubbed the clearance of the goods from the both the units for the purposes of SSI exemption because both the units belong to same persons and they had common machinery, staff and office premises etc. Decision of the case: The High Court held that indisputably, in the instant case, that the partners of both the firms were common and belonged to same family. They were manufacturing and clearing the goods by the common brand name, manufactured in the same factory premises, having common


management and accounts etc. Therefore, High Court was of the considered view that the clearance of the common goods under the same brand name manufactured by both the firms had been rightly clubbed.

CUSTOMS

LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY

13. CCE v. Decorative Laminates (I) Pvt. Ltd. 2010 (257) E.L.T. 61 (Kar.)

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)? Facts of the case: The respondent imported resin impregnated paper and plywood for the purpose of manufacture of furniture. The said goods were warehoused from the date of its import. The respondent sought an extension of the warehousing period which was granted by the authorities. However, even after the expiry of the said date, it did not remove the goods from the warehouse. Subsequently, the assessee applied for remission of duty under section 23 of the Customs Act, 1962 on the ground that the said goods had become unfit for use on account of non-availability of orders for clearance. Decision of the case: The High Court, while interpreting section 23, stipulated that section 23 states that only when the imported goods have been lost or destroyed at any time before clearance for home consumption, the application for remission of duty can be considered. Further, even before an order for clearance of goods for home consumption is made, relinquishing of title to the goods can be made; in such event also, an importer would not be liable to pay duty. The High Court, overruling the decision of the Tribunal, held that the circumstances made out under section 23 were not applicable to the present case since the destruction of the goods or loss of the goods had not occurred before the clearance for home consumption within the meaning of that section. When the goods are not cleared within the period or extended period as given by the authorities, their continuance in the warehouse will not attract section 23 of the Act.

WAREHOUSING

14. Paras Fab International v. CCE 2010 (256) E.L.T. 556 (Tri. – LB)

Issue: Following questions arose before the Larger Bench of the Tribunal for consideration:- e) Whether the entire premises of 100% EOU should be treated as a warehouse? f) Whether the imported goods warehoused in the premises of 100% EOU are to be held to have

been removed from the warehouse if the same is issued for manufacture/production/processing by the 100% EOU?

g) Whether issue for use by 100% EOU would amount to clearance for home consumption? h) Whether non-filing of ex-bond bill of entry before using the goods by the 100% EOU makes the

goods as not cleared for home consumption?


Facts of the case: The appellants were 100% EOU in Alwar. They imported the impugned goods namely HSD oil through Kandla Port and filed ‘into Bond Bill of Entry’ for warehousing the imported goods. The impugned goods were warehoused in their 100% EOU in Alwar and subsequently used in the factory within the premises of the 100% EOU for manufacture of the finished goods. The Department demanded customs duty on the impugned goods. The contention of the appellants was that since (i) the entire premises of the 100% EOU had been licensed as a warehouse under the Customs Act; (ii) the impugned goods had been warehoused therein and subsequently utilized for manufacture of finished goods in bond; and (iii) the impugned goods had not been removed from the warehouse, there could not be any question of demanding duty on the same. Department contended that the entire premises of the 100% EOU could not be treated as a warehouse. The Appellants had executed a common bond B-17 for fulfilling the requirements under the Customs Act, 1962 and the Central Excise Act, 1944. Under the Central Excise Law, the removal of goods for captive consumption would be treated as removal of goods and the assessee were required to pay duty on such removal. Decision of the case: The Tribunal answered the issues raised as follows:- a) The entire premises of a 100% EOU has to be treated as a warehouse if the licence granted under section 58 to the unit is in respect of the entire premises. (b), (c ) and (d) Imported goods warehoused in the premises of a 100% EOU (which is licensed as a Customs bonded warehouse) and used for the purpose of manufacturing in bond as authorized under section 65 of the Customs Act, 1962, cannot be treated to have been removed for home consumption.

PROVISIONS RELATING TO ILLEGAL IMPORT, ILLEGAL EXPORT, CONFISCATION,

PENALTY & ALLIED PROVISIONS

15. Wringley India Pvt.Ltd. v. Commr.of Cus.(Imports), Chennai 2011 (274) E.L.T. 172 (Mad.)

Issue: Whether discharge of liability on indicated value would still make the assesse liable for confiscation of goods if he has initially made a mis-declaration of the value thereof? Facts of the Case: Wringley India Pvt. Ltd. had imported second-hand machinery along with spare parts from its sister concern located at Spain as per Bill of Entry dated 28-4- 2006. There was indication in the invoice that the machinery was certified by M/s. S.G.S. Spain, the load port Chartered Engineer at Euro 35876.49. However, the certificate issued by M/s. S.G.S. Spain, the load port Chartered Engineer was not enclosed along with the Bill of Entry and only the invoice was submitted. Since the appellant didn’t submit the valuation report, the Custom authorities referred the matter for valuation to local valuer. It entrusted the valuation to the local Chartered Engineer-M/s S.G.S. India Pvt. Ltd. During the process of valuation, M/s. S.G.S. India Private Limited found that the report originally issued by M/s. S.G.S. Spain was showing a higher value of goods than the value declared by the appellant to the customs authorities. Wringley India then paid duty on that high value indicated as per the original report of M/s. S.G.S. Spain. Point of Dispute: The Revenue contended that since the appellant had mis-declared the value of the goods imported, therefore the imported goods should be confiscated under section 111(m) of the Customs Act, 1962.


Decision of the Case: The High Court held that since the appellant made an attempt to mis-declare the value of the imported goods and to misguide the Customs Department, which was also evident from the fact that when the Customs Department directed the appellant to obtain the certificate from the local Chartered Engineer, even at that time they did not disclose the true value assessed by the load port Chartered Engineer M/s. S.G.S. Spain. Even after obtaining the valuation certificate from M/s. S.G.S. India Private Limited, the appellant had no grievance. In fact the valuation so done by the local Chartered Engineer was readily accepted by the appellant as evident from the letter issued by them to the Customs Department and the subsequent payment made by them. The High Court was thus convinced that there was clear mis-declaration of value by the appellant and as per section 111(m) of the Customs Act, the Revenue was asked to confiscate the goods so imported.

16. In Re: Hemal K. Shah (275) ELT 266 GOI Issue: Whether the smuggled goods can be re-exported from the customs area without formally getting them release from confiscation? Facts of the Case: Shri Hemal K. Shah, a passenger, who arrived at SVPI Airport, Ahmedabad on 20-6-2009, had declared the total value of goods as Rs.13,500 in the disembarkation slip. On detailed examination of his baggage, it was found to contain Saffron, Unicore Rhodium Black, Titan Wrist watches, Mobile Phones, assorted perfumes, Imitation stones and bags. Since, the said goods were in commercial quantity and did not appear to be a bona fide baggage, the said goods were placed under seizure. The passenger in his statement admitted the offence and showed his readiness to pay duty on seized goods or re-shipment of the said goods. The adjudicating authority determined total value of seized

goods; ordered confiscation of seized goods under section 111(d) and 111(m) of the Customs Act, 1962; imposed penalty on Hemal K. Shah; confirmed and ordered for recovery of customs duty on the goods with interest and gave an option to redeem the goods on payment of a fine which should be exercised within a period of three months from date of receipt of the order. On appeal by Hemal K. Shah, the appellate authority The adjudicating authority determined total value of seized goods; ordered confiscation of seized goods under section 111(d) and 111(m) of the Customs Act, 1962; imposed penalty on Hemal K. Shah; confirmed and ordered for recovery of customs duty on the goods with interest and gave an option to redeem the goods on payment of a fine which should be exercised within a period of three months from date of receipt of the order. On appeal by Hemal K. Shah, the appellate authority Point of Dispute: The Department disputed the re-export of confiscated goods. They said that the goods which have been confiscated were being smuggled in by the passenger without declaring the same to the Customs and are in commercial quantity. In view of these facts, the appellate authority has erred in by allowing the re-export of the goods by reducing the redemption fine. Decision of the Case: The Government noted that the passenger had grossly mis-declared the goods with intention to evade duty and smuggle the goods into India. As per the provision of section 80 of the Customs Act, 1962 when the baggage of the passenger contains article which is dutiable or prohibited and in respect of which the declaration is made under section 77, the proper officer on request of passenger detain such article for the purpose of being returned to him on his leaving India. Since passenger neither made true declaration nor requested for detention of goods for re-export, before customs at the time of his arrival at airport. So, the re-export of said goods cannot be allowed under section 80 of Customs Act.


17. Manish Lalit Kumar Bavishi v. Addl. DIR. General, DRI 2011 (272) E.L.T. 42 (Bom.)

Issue: Is it mandatory for the Revenue officers to make available the copies of the seized documents to the person from whose custody such documents were seized? Facts of the case: The assessee sought copies of the documents seized from his office premises under panchanama and print outs drawn from the Laptop during his attendance in DRI. However, Revenue officers replied that the documents would be provided to him on completion of the investigation. Decision of the case: The High Court held that from the language of section 110(4), it was apparent that the Customs officers were mandatorily required to make available the copies asked for. It was the party concerned who had the choice of either asking for the document/seeking extract and not the officer. If any document was seized during the course of any action by an officer and relatable to the provisions of the Customs Act, that officer was bound to make available copies of those documents. The denial by the Revenue to make the documents available was clearly an act without jurisdiction. The High Court directed the Revenue to make available the copies of the documents asked for by the assessee which was seized during the course of the seizure action.

18. O.T. Enasu v. UOI 2011 (272) E.L.T. 51 (Ker.)

Issue: Under what circumstances can the penalty be imposed in terms of section 112(a)(ii) of the Customs Act, 1962? Decision of the case: The High Court noted that under sub-clause (ii) of clause (a) of section 112, the liability to penalty is determined on the basis of duty sought to be evaded. Therefore, the jurisdictional fact to impose a penalty in terms of section 112(a)(ii) includes the essential ingredient that “duty was sought to be evaded”. Being a penal provision, it requires to be strictly construed. “Evade” means, to escape, slip away, to escape or avoid artfully, to shirk, to baffle, elude. The concept of evading involves a conscious exercise by the person who evades. Therefore, the process of “seeking to evade” essentially involves a mental element and the concept of the status “sought to be evaded” is arrived at only by a conscious attempt to evade. In view of the above discussion, the High Court inferred that unless it is established that a person has, by his omissions or commissions, led to a situation where duty is sought to be evaded, there cannot be an imposition of penalty in terms of section 112(a)(ii) of the Act.

19. Textoplast Industries v. Additional Commissioner of Customs 2011 (272) E.L.T. 513 (Bom.)

Issue: Can separate penalty under section 112 of the Customs Act be imposed on the partners when the same has already been imposed on partnership firm? Decision of the case: The High Court noted that Explanation to section 140 of the Customs Act, 1962 brings within purview of “Company”, a firm or an association of individuals, and “Director” in relation to firm, includes its partner. The High Court observed that in case of Apex Court judgment of Standard Chartered Bank v. Directorate of Enforcement, there emerged the principle that the deeming fiction is not confined to a criminal prosecution but will also extend to an adjudication proceeding as well. Hence, the High Court, in the instant case, held that the deeming fiction in section 140(2) making Director, Manager, Secretary or other officer of company liable to penalty, would not be confined to criminal prosecution but extends to adjudication proceeding as well.


The High Court explained that had it been otherwise, it would have led to strange situation where, for criminal prosecution, partner as well as person in charge responsible for conduct of business of partnership firm would be liable whereas for adjudication purposes, a narrower construction had to be adopted. There was no reason to exclude penalty on partnership firm, particularly when it was consistent with overall scheme and object of the Act. In view of the above discussion, the High Court held that for the purpose of imposing penalty, the adjudicating authority under Customs Act, 1962 might, in an appropriate case, impose a penalty both upon a partnership firm as well as on its partners.

20. CCus. v. Jaya Singh Vijaya Jhaveri 2010 (251) E.L.T. 38 (Ker.)

Issue: Is the want of evidence from foreign supplier enough to cancel the confiscation order of goods undervalued? Decision of the case: In the instant case, the High Court held that in a case of confiscation of goods because of their under valuation, Tribunal could not cancel the confiscation order for the want of evidence from the foreign supplier. The Court considered it be illogical that a person who was a party to undervaluation would give evidence to the Department to prove the case that the invoice raised by him on the respondent was a bogus one and that they had received underhand payment of the differential price. Resultantly, the Court upheld the confiscation order.

21. CCus. (Prev.), Mumbai v. M. Ambalal & Co. 2010 (260) E.L.T. 487 (SC)

Issue: Whether the benefit of exemption meant for imported goods can also be given to the smuggled goods? Decision of the case: The question which arose before the Apex Court for consideration was whether goods that were smuggled into the country could be considered as ‘imported goods’ for the purpose of granting the benefit of the exemption notification. The Apex Court held that the smuggled goods could not be considered as ‘imported goods’ for the purpose of benefit of the exemption notification. It opined that if the smuggled goods and imported goods were to be treated as the same, then there would have been no need for two different definitions under the Customs Act, 1962. The Court observed that one of the principal functions of the Customs Act was to curb the ills of smuggling on the economy. Hence, it held that it would be contrary to the purpose of exemption notifications to give the benefit meant for imported goods to smuggled goods.

COMMON TOPICS

Classification of Goods

22. Atherton Engineering Co. Pvt. Ltd. v. UOI 2010 (256) E.L.T. 358 (Cal.)

Whether classification of the imported product changes if it undergoes a change after importation and before being actually used?


Decision of the case: The Court noted that it was the use of the product that had to be considered in the instant case. If a 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 remained the same. The Court opined that if the embryo within the egg was incubated in controlled temperature and under 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 prawns under the heading 2309. These embryos might not be proper prawn feed at the time of importation but could become so, after incubation. Note - The Headings cited in this case law may not co-relate with the Headings of the present Customs Tariff as this case relates to an earlier point of time.

23. M/s CPS Textiles P Ltd. v. Joint Secretary 2010 (255) ELT 228 (Mad.)

Will the description of the goods as per the documents submitted along with the Shipping Bill be a relevant criterion for the purpose of classification, if not otherwise disputed on the basis of any technical opinion or test? Whether a separate notice is required to be issued for payment of interest which is mandatory and automatically applies for recovery of excess drawback?

Decision of the case: The High Court held that the description of the goods as per the documents submitted along with the Shipping Bill would be a relevant criteria for the purpose of classification, if not otherwise disputed on the basis of any technical opinion or test. The petitioner could not plead that the exported goods should be classified under different headings contrary to the description given in the invoice and the Shipping Bill which had been assessed and cleared for export. Further, the Court, while interpreting section 75A(2) of the Customs Act, 1962, noted that when the claimant is liable to pay the excess amount of drawback, he is liable to pay interest as well. The section provides for payment of interest automatically along with excess drawback. No notice need be issued separately as the payment of interest become automatic, once it is held that excess drawback has to be repaid.

Demand, Adjudication & Offences

24. Hans Steel Rolling Mill v. CCEx., Chandigarh 2011 (265) E.L.T. 321 (S.C.)

Issue: Whether time-limit under section 11A of the Central Excise Act, 1944 is applicable to recovery of dues under compounded levy scheme?

The Apex Court elucidated that compounded levy scheme is a separate scheme from the normal scheme for collection of excise duty on goods manufactured. Rules under compounded levy scheme stipulate method, time and manner of payment of duty, interest and penalty. Since the compounded levy scheme is comprehensive scheme in itself, general provisions of the Central Excise Act and rules are excluded from this scheme. The Supreme Court affirmed that importing one scheme of tax administration to a different scheme is inappropriate and would disturb smooth functioning of such unique scheme. Hence, it held that the time-limit under section 11A of the Central Excise Act, 1944 is not applicable to recovery of dues under compounded levy scheme.


25. CC Ex. & C v. Accrapac (India) Pvt. Ltd. 2010 (257) E.L.T. 84 (Guj.)

Whether non-disclosure of a statutory requirement under law would amount to suppression for invoking the larger period of limitation under section 11A?

Facts of the case: The respondent-assessee was engaged in manufacture of various toilet preparations such as after-shave lotion, deo-spray, mouthwash, skin creams, shampoos, etc. The respondent procured Extra Natural Alcohol (ENA) from the local market on payment of duty, to which Di-ethyl Phthalate (DEP) is added so as to denature it and render the same unfit for human consumption. The Department alleged that the intermediate product i.e. Di-ethyl Alcohol manufactured as a result of addition of DEP to ENA, was liable to central excise duty.

Issue: The question which arose before the High Court in the instant case is whether non-disclosure as regards manufacture of Denatured Ethly Alcohol amounts to suppression of material facts thereby attracting the larger period of limitation under section 11A. Decision of the case: The Tribunal noted that denaturing process in the cosmetic industry was a statutory requirement under the Medicinal & Toilet Preparations (M&TP) Act. Thus, addition of DEP to ENA to make the same unfit for human consumption was a statutory requirement. Hence, failure on the part of the respondent to declare the same could not be held to be suppression as Department, knowing the fact that the respondent was manufacturing cosmetics, must have the knowledge of the said requirement. Further, as similarly situated assesses were not paying duty on denatured ethyl alcohol, the respondent entertained a reasonable belief that it was not liable to pay excise duty on such product. The High Court upheld the Tribunal’s judgment and pronounced that non-disclosure of the said fact on the part of the assessee would not amount to suppression so as to call for invocation of the extended period of limitation.

26. CCE & ST v. Adecco Flexione Workforce Solutions Ltd. 2012 (26) S.T.R 3 (Kar)

Whether the penalty is payable even when service tax and interest has been paid before issue of show cause notice?

Facts of the Case: Adecco Flexione Workforce Solutions Ltd. had paid both the service tax and interest for delayed payment before issue of show cause notice under the Act. Section 73(3) of the Finance Act, 1994 categorically stated that if the payment of service tax and interest has been intimated to the authorities in writing, the authorities should not serve any notice for the amount so paid. But to the above, the authorities issued SCN to the appellant for delay in payment of service tax.

Point of Dispute: Assessee contested the issue of SCN when they had already paid the service tax along with interest for delayed payment of service tax.

Decision of the Case: The Karnataka High Court held that the authorities had no authority to initiate proceedings for recovery of penalty under section 76 of the Act when the tax payer paid service tax along with interest for delayed payments promptly. As per section 73(3), no notice shall be served against persons who had paid tax with interest; the authorities can initiate proceedings against defaulters who had not paid tax and not to harass persons who had paid tax with interest on their own. If the notices were issued contrary to this section, the person who had issued notice should be punishable and not the person to whom it was issued.


REFUND

27. CCE v. Gem Properties (P) Ltd. 2010 (257) E.L.T. 222 (Kar.)

Issue: Merely because assessee has sustained loss more than the refund claim, is it justifiable to hold that it is not a case of unjust enrichment even though the assessee failed to establish non-inclusion of duty in the cost of production? Decision of the Case: The High Court answered the question of law in favour of the Revenue. The Court observed that indisputably, the assessee was not liable to pay the duty and was entitled to the refund of the excise duty wrongly paid by it. The claim of the assessee had been rejected on the ground that if the application was allowed, it would amount to unjust enrichment because all the materials sold by the assessee had been inclusive of the duty. Therefore, the burden had been heavy on the assessee to prove that while computing the cost of the material it had not included the duty paid by it. The Court elucidated that merely because the assessee had sustained the loss in the relevant year, could not be a ground to hold it had not been a case of unjust enrichment. It was evident from the Chartered Accountant’s certificate that the cost of the duty was included while computing the cost of production of the material. Therefore, on facts of the case, the High Court held that assessee could not be granted relief since it had failed to establish that the cost of the duty was not included while computing the cost of the products.

28. CCus., Chennai v. BPL Ltd. 2010 (259) E.L.T. 526 (Mad.)

Issue: Whether Chartered Accountant’s certificate alone is sufficient evidence to rule out the unjust enrichment under customs? Decision of the case: The High Court noted that section 27 of the Customs Act mandates on the importer to produce such documents or other evidence, while seeking refund, to establish that the amount of duty in relation to which such refund is claimed, has not been passed on by him to any other person. However, in the given case, the respondent had not produced any document other than the certificate issued by the Chartered Accountant to substantiate its refund claim. The certificate issued by the Chartered Accountant was merely a piece of evidence acknowledging certain facts. It would not automatically entitle a person to refund in the absence of any other evidence. Hence, the respondent could not be granted refund merely on the basis of the said certificate. Thus, the High Court, overruling the Tribunal’s decision, answered the question of law in favour of revenue.

29. Narayan Nambiar Meloths v. CCus. 2010 (251) E.L.T. 57 (Ker.)

Can the assessee be denied the refund claim only on the basis of contention thathe had produced the attested copy of TR-6 challan* and not the original of the TR-6 challan*? Facts of the case: In the instant case, the refund application filed by the assessee was not entertained on the ground that the petitioner had not produced original of the TR-6 Challan* and what was produced was only an attested copy. According to repondents, production of original of the TR-6 challan* was a mandatory requirement for processing the refund application.


Decision of the case: The Kerela High Court decided that the petitioner could not be denied the refund claim on account of following mentioned grounds:- 1) Firstly, the Court opined that the only contention raised against the petitioner was that TR-6

Challan* he produced was only an attested copy, which was purely a technical contention and could not be accepted.

2) Secondly, as per clarification issued vide F.No. 275/37/2K-CX. 8A dated 2-1-2002, a simple letter from the person who made the deposit, requesting for return of the amount, along with the appellate order and attested Xerox copy of the Challan in Form TR-6* would suffice for processing the refund application. Evidently, in the instant case, the petitioner had fully complied with the requirement laid down in this clarification.

*Note: Now TR-6 Challan has been replaced with GAR-7 challan

SETTLEMENT COMMISSION

30. Icon Industries v. UOI 2011 (273) E.L.T. 487 (Del.)

Issue: Whether a consolidated return filed by the assessee after obtaining registration, but for the period prior to obtaining registration, could be treated as a return under clause (a) of first proviso to section 32E(1)? Facts of the case: The petitioner got its units registered after few days of the search conducted in its units. Thereafter, it filed consolidated return with the Department for the period prior to search. After that, it filed a settlement application in respect of the proceedings issued by the Commissioner. The Settlement Commission opined that the units were registered only after the search was conducted and prior to that there was no registration and no returns as mandated by clause (a) of first proviso to section 32E(1) of the Central Excise Act, 1944 were filed. Consequently, the Commission rejected the settlement application on the ground that the application did not conform to the parameters as stipulated under section 32E(1) of the Act. Decision of the case: The High Court noted that certain riders have been provided in section 32E(1) for entertaining applications for settlement. Clause (a) of first proviso clearly lays down that unless the applicant has filed returns, showing production, clearance and Central Excise duty paid in the prescribed manner, no such application shall be entertained. The Court referred the case of M/s. Emerson Electric Company India Pvt. Ltd. wherein it was held that although section 32E(1) does not refer to rule 12 of the Central Excise Rules, 2002 under which ER-1/ER-3 returns are prescribed, since the said returns contain details of excisable goods manufactured, cleared and duty paid in the prescribed manner, the said return can be deemed to be the ‘return’ referred to in section 32E(1). Hence, the concept of return has to be understood in context of rule 12 of the Central Excise Rules, 2002. However, in case of consolidated returns filed in the instant case, the applicant would not be able to indicate ‘duty paid’ in the prescribed manner (or even in any manner) and question would continue to agitate about the details of production and clearance to be filled in such belated returns. Considering the above discussion, it rejected the submission of the petitioner that filing of consolidated return covering all the past periods would serve the purpose. Hence, it held that the order passed by the Settlement Commission was absolutely justifiable.


31. Ashwani Tobacco Co. Pvt. Ltd. v. UOI 2010 (251) E.L.T. 162 (Del.)

Issue: Is the Settlement Commission empowered to grant the benefit under the proviso to section 11AC in cases of settlement? Decision of the case: The Court ruled that benefit under the proviso to section 11AC could not be granted by the Settlement Commission in cases of settlement. It elucidated that the order of settlement made by the Settlement Commission is distinct from the adjudication order made by the Central Excise Officer. The scheme of settlement is contained in Chapter-V of the Central Excise Act, 1944 while adjudication undertaken by a Central Excise Officer is contained in the other Chapters of the said Act. Unlike Settlement Commission, Central Excise Officer has no power to accord immunity from prosecution while determining duty liability under the Excise Act. Once the petitioner has adopted the course of settlement, he has to be governed by the provisions of Chapter V. Therefore, the benefit under the proviso to section 11AC, which could have been availed when the matter of determination of duty was before a Central Excise Officer was not attracted to the cases of a settlement, undertaken under the provisions of Chapter-V of the Act.

32. Sanghvi Reconditioners Pvt. Ltd. V. UOI 2010 (251) ELT 3 (SC)

Issue: In case of a Settlement Commission's order, can the assessee be permitted to accept what is favourable to them and reject what is not? Decision of the case: The Apex Court held that the application under section 127B of the Customs Act, 1962 is maintainable only if the duty liability is disclosed. The disclosure contemplated is in the nature of voluntary disclosure of concealed additional customs duty. The Court further opined that having opted to get their customs duty liability settled by the Settlement Commission, the appellant could not be permitted to dissect the Settlement Commission's order with a view to accept what is favourable to them and reject what is not.

33. Union of India v. Cus. & C. Ex. Settlement Commission 2010 (258) ELT 476 (Bom.)

Issue: Does the Settlement Commission have jurisdiction to settle cases relating to the recovery of drawback erroneously paid by the Revenue? Facts of the case: The above question was the issue for consideration in a writ petition filed by the Union of India to challenge an order passed by the Settlement Commission in respect of a proceeding relating to recovery of drawback. The Commission vide its majority order overruled the objection taken by the Revenue challenging jurisdiction of the Commission and vide its final order settled the case. The aforesaid order of the Settlement Commission was the subject matter of challenge in this petition. The contention of the Revenue was that the recovery of duty drawback does not involve levy, assessment and collection of customs duty as envisaged under section 127A(b) of the Customs Act, 1962. Therefore, the said proceedings could not be treated as a case fit to be applied before the Settlement Commission. However, the contention of the respondent was that the word “duty” appearing in the definition of “case” is required to be given a wide meaning. The Customs Act provides for levy of customs duty as also the refund thereof under section 27. The respondent contended that the provisions relating to refund of duty also extend to drawback as drawback is nothing but the return of the customs duty and thus, the proceedings of recovery of drawback would be a fit case for settlement before the Commission.


Decision of the case: The High Court noted that the Settlement Commission while considering the aforesaid question of its jurisdiction for taking up the cases relating to drawback had considered the definition of “drawback” as defined in rules relating to drawback as also the definition of the word “case” as defined in section 127A(b) and after referring to the various judgments of the Tribunal came to the conclusion that the Commission had jurisdiction to deal with the application for settlement. The High Court stated that the reasons given by the Settlement Commission in support of its order are in consonance with the law laid down by the Supreme Court in the case of Liberty India v. Commissioner of Income Tax (2009) 317 ITR 218 (SC) wherein the Supreme Court has observed that drawback is nothing but remission of duty on account of statutory provisions in the Act and Scheme framed by the Government of India. The High Court thus concluded that the duty drawback or claim for duty drawback is nothing but a claim for refund of duty may be as per the statutory scheme framed by the Government of India or in exercise of statutory powers under the provisions of the Act. Thus, the High Court held that the Settlement Commission has jurisdiction to deal with the question relating to the recovery of drawback erroneously paid by the Revenue.

APPEALS

34. CCE v. RDC Concrete (India) Pvt. Ltd. 2011 (270) E.L.T. 625 (S.C.)

Issue: Can re-appreciation of evidence by CESTAT be considered to be rectification of mistake apparent on record under section 35C(2) of the Central Excise Act, 1944? Facts of the case: In this case, certain arguments were submitted before the Tribunal at an earlier stage when appeal was heard. The Tribunal rejected these arguments and decided the appeal. Subsequently, when an application for rectification of mistake apparent from record was filed with Tribunal, these arguments were again submitted. The arguments not accepted at an earlier point of time were accepted by the CESTAT while hearing the application for rectification of mistake and it arrived at a conclusion different from earlier one. Observations of the Court: The Supreme Court observed that arguments not accepted earlier during disposal of appeal cannot be accepted while hearing rectification of mistake application The Apex Court elucidated that re-appreciation of evidence on a debatable point cannot be said to be rectification of mistake apparent on record. It is a well settled law that a mistake apparent on record must be an obvious and patent mistake and the mistake should not be such which can be established by a long drawn process of reasoning. Decision of the case: The Apex Court held that CESTAT had reconsidered its legal view as it concluded differently by accepting the arguments which it had rejected earlier. Hence, the Court opined that CESTAT exceeded its powers under section 35C(2) of the Act. In pursuance of a rectification application, it cannot re-appreciate the evidence and reconsider its legal view taken earlier. Note: Section 35C(2) reads as under:- The Appellate Tribunal may, at any time within six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it and shall make such amendments if the mistake is brought to its notice by the Commissioner of Central Excise or the other party to the appeal.


35. CCE v. Gujchem Distillers 2011 (270) E.L.T. 338 (Bom.)

Issue: Can CESTAT decide an appeal on a totally new ground which had not been urged before adjudicating authority? Decision: The High Court elucidated that in the instant case, the CESTAT had disposed of the appeal on a ground which was not urged by the respondents before the adjudicating authority. Thereby the CESTAT had disposed of the appeal on a totally new ground which was not laid before the adjudicating authority and which would entail a finding on facts. The High Court explained that had the CESTAT not been satisfied with the approach of the adjudicating authority, it should have remanded the matter back to the adjudicating authority. However, it could not have assumed to itself the jurisdiction to decide the appeal on a ground which had not been urged before the lower authorities.

36. CCEx. & ST v. Volvo India Ltd. 2011 (24) S.T.R. 25 (Kar.)

Issue: Can an appeal be filed in a High Court for deciding the question relating to the taxability of service? Decision of the case: The High Court held that the question as to whether the assessee is liable to pay service tax falls squarely within the exception carved cut in section 35G of the Central Excise Act, 1944, viz. ‘an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment’, and the High Court has no jurisdiction to adjudicate the said issue. The appeal lies to the Apex Court under section 35L of the Central Excise Act, 1944, which alone has exclusive jurisdiction to decide the said question. Note: Section 35G(1) of the Central Excise Act, 1944 provides that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law. Further, section 35L of the Act, inter alia, provides that an appeal shall lie to the Supreme Court from any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

SERVICE TAX

BASIC CONCEPTS OF SERVICE TAX

37. Commissioner of Service Tax v. Lincoln Helios (India) Ltd. 2011 (23) S.T.R. 112 (Kar.)

Issue: Is the service tax and excise liability mutually exclusive? Facts of the case: The assessee undertook not only manufacture and sale of its products, but also erected and commissioned the finished products. The customer was charged for the services rendered as well as the value of the manufactured products. The assessee had paid the excise duty on whole value including that for services, but did not pay the service tax on the value of services on the ground that there could not be levy of tax under two parliamentary legislations.


Decision of the case: The High Court held that the excise duty is levied on the aspect of manufacture and service tax is levied on the aspect of services rendered. Hence, it would not amount to payment of tax twice and the assessee would be liable to pay service tax on the value of services.

38. Kishore K.S. v. Cherthala Municipality 2011 (24) S.T.R. 538 (Ker.)

Issue: In case where rooms have been rented out by Municipality, can it pass the burden of service tax to the service receivers i.e. tenants? Facts of the case: The petitioners entered into agreements with the respondent-Municipality and had taken rooms on rent from it. They were called upon to pay service tax. The primary contentions of the petitioners were as follows:- a) Under the agreement, there was no provision for payment of service tax. Therefore, the demand

for payment of service tax was illegal. Further, service tax was payable by the Municipality and there was no authority with which the Municipality could pass it on to the petitioners.

b) Since they were small tenants, the Municipality must be treated as units of the State within the meaning of Article 289 of the Constitution of India and, therefore, levy of service tax on the property or on the income of the Municipality was unsustainable.

The Revenue contended that service tax was an indirect tax. Though primarily the person liable to pay the tax was Municipality, there was nothing in the law which prevented passing of the liability to the tenants. Decision of the case: The High Court rejected the contentions of the assessee and opined as under:- a) As regards the contention that there was no mention of the service tax liability in the contract, the

Court held that this is a statutory right of the service provider/Municipality by virtue of the provisions under law to pass it on to the tenants. It is another matter that they may decide not to pass it on fully or partly. It is not open to the petitioners to challenge the validity of the demand for service tax, in view of the fact that service tax is an indirect tax and the law provides that it can be passed on to the beneficiary. Hence, the service tax can be passed on by the service provider i.e. Municipality.

b) The word “State” in Article 289 does not embrace within its scope the Municipalities. Hence, when service tax is levied on the Municipality there is no violation of Article 289. Moreover, Municipality has not raised the contention that there was a violation of Article 289.

Hence, it was held that Municipality can pass on the burden of service tax to the tenants.

39. Infotech Software Dealers Association (ISODA) v. Union of India 2010 (20) STR 289 (Mad.)

Issue: Can a software be treated as goods and if so, whether its supply to a customer as per an "End User Licence Agreement" (EULA) would be treated as sale or service? Decision of the case: The High Court observed that the law as to whether the software is goods or not is no longer res integra as it has been settled by the Supreme Court ruling in TCS case [2004 (178) ELT 22 (SC)]. The High Court reiterated that software is goods as per Article 366(12) of the Constitution. A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. Goods could be tangible property or an intangible one. A software, whether customized or noncustomised, would become goods provided it has the attributes thereof having regard to (a) utility (b) capable of being bought and sold (c) capable of transmitted, transferred, delivered, stored and possessed.


On the issue as to whether the transaction would amount to sale or service, the High Court was of the view that it would depend upon the nature of individual transaction. The High Court stated that as a transaction could be exclusive sale or exclusive service or composite one i.e., where the element of sales and service both are involved; the nature of transaction becomes relevant for imposition of tax. The High Court explained that when a statute, particularly a taxing statute is considered with reference to the legislative competence, the nature of transaction and the dominant intention on such transaction would be relevant. In the instant case, the terms of EULA indicated the dominant intention of parties whereby the developer retained the copyright of each software, be it canned, packaged or customised, and only the right to use with copyright protection was transferred to the subscribers or the members. The High Court opined that in the transactions taking place between the members of ISODA with its customers, the software is not sold as such, but only the contents of the data stored in the software are sold which would only amount to service and not sale. Further, the High Court was of the view that such transactions could also not be treated as deemed sale under Article 366(29A)(d) of the Constitution of India as that requires a transfer of right to use any goods and in the instant case, the goods as such are not transferred. As regards constitutional validity of service tax levy on information technology software service, the High Court did not agree with the contention of the assessee that since software is goods, all transactions between the members of ISODA and their customers would amount to sales and be liable to sales tax/VAT and that State Government alone would be competent to enact law therefor. The High Court observed that though software is goods, the transaction may not amount to sale in all cases and it may vary depending upon the terms of EULA. The High Court stated that the relevant test for this purpose would be whether section 65(105)(zzzze) of the Finance Act, 1994* can be brought under Enty 97 of List I of Schedule VII of Constitution as the Parliament has the legislative competence to make laws for service tax in terms of the said entry. Entry 97 is a residuary entry and relates to taxable service. The High Court referred to the case of Tamil Nadu Kalyana Mandapam Association v. Union Of Inida 2006 (3) STR 260 (SC) wherein it was held by the Apex Court that the Parliament is empowered to make law for service tax under said residuary powers in the absence of entry under List II. Thus, the High Court held that amended provisions to levy service tax on IT software service are not unconstitutional by virtue of the residuary power available to the Parliament under Entry 97. *Note: Services of development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software have now been included in the declared service under section 66E.

40. CCE v. Nahar Industrial Enterprises Ltd. 2010 (19) STR 166 (P & H)

Issue: Whether service tax is chargeable on the buffer subsidy provided by the Government for storage of free sale sugar, under the category of `storage and warehousing services'? Facts of the case: The assessee was engaged in the manufacture of sugar. The Central Government directed him to maintain buffer stock of free sale sugar for the specified period. In order to compensate the assessee, the Government of India extended buffer subsidy towards storage, interest and insurance charges for the said buffer stock of sugar. Revenue issued a show cause notice to the assessee raising the demand of service tax alleging that amount received by the assessee as buffer subsidy was for the services covered within the definition of `storage and warehousing services’. Decision of the case: The High Court noted that apparently, service tax could be levied only if service of `storage and warehousing' was provided. Nobody can provide service to himself. In the instant case,


the assessee stored the goods owned by him. After the expiry of storage period, he was free to sell them to the buyers of its own choice. He had stored goods in compliance to directions of Government of India issued under the Sugar Development Fund Act, 1982. He had received subsidy not on account of services rendered to Government of India, but had received compensation on account of loss of interest, cost of insurance etc. incurred on account of maintenance of stock. Hence, the act of assessee could not be called as rendering of services. The High Court upheld the Tribunal’s decision that just because the storage period of free sale sugar had to be extended at the behest of Government of India, neither the assessee becomes `storage and warehouse keeper' nor the Government of India becomes their ‘client’ in this regard. Therefore, the storage of specific quantity of free sale sugar could not be treated as providing `storage and warehousing' services to the Government of India.

NOTIFICATIONS, DEPARTMENTAL CLARIFICATIONS AND TRADE NOTICES

41. Darshan Boardlam Ltd. v. UOI 2013 (287) E.L.T. 401 (Guj.)

Issue: Whether a circular necessarily needs to be issued under section 37B, in order to be binding on the Department? Decision:The High Court observed that any clarification issued by the Board is binding upon the Central Excise Officers who are duty-bound to observe and follow such circulars. Whether section 37B is referred to in such circular or not, is not relevant. When other Central Excise authorities of equal and higher rank have followed and acted as per the clarifications, the jurisdictional Commissioner in the instant case, could not have taken a contrary view on the assumption that the clarifications are only letters and not orders under section 37B. Central Excise is a central levy and, therefore, such a levy has to be collected uniformly from all similarly situated manufacturers located all throughout the country.

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