INDIRECT TAX NEWSLETTER
Notifications / Circulars / Clarifications
1 – 7
Recent Case Law
8 – 15
13 June 2016
Notifications / Circulars / Clarifications
Anti-dumping duty imposed on ‘Coumarin’ of all types (Tariff Item 2932 20 10), originating in or exported from People’s Republic of China, for a period of five years (unless revoked, superseded or amended earlier).
(Ref: Notification No 20/2016-Cus (ADD) dated 27 May 2016)
Provisional anti-dumping duty imposed on seamless tubes, pipes & hollow profiles of iron, alloy or non-alloy steel (other than cast iron and stainless steel), whether hot finished or cold drawn or cold rolled of an external diameter not exceeding 355.6 mm or 14 OD, originating in or exported from People’s Republic of China, for a period not exceeding six months.
(Ref: Notification No 18/2016-Cus (ADD) dated 17 May 2016)
Definitive anti-dumping duty imposed on imports of Digital Versatile Discs-Recordable originating in, or exported from Vietnam and Thailand for a period of five years.
(Ref: Notification No 17/2016-Cus (ADD) dated 13 May 2016)
Definitive anti-dumping duty imposed on imports of measuring tapes originating in, or exported from Chinese Taipei, Malaysia, Thailand and Vietnam for a period of five years.
(Ref: Notification No 16/2016-Cus (ADD) dated 2 May 2016)
The Finance Act, 2016 has introduced a complete overhaul of the customs bonding regime. To operationalize the statutory changes, the Central Government has notified six (6) different regulations all dated 14 May 2016. The important features have been captured below:
Certain categories of goods only allowed to be stored, i.e., (i) precious metals, (ii) goods meant for supply to Duty Free Shops/ Stores for vessels or aircrafts/ Foreign Privileged persons.
Regulations governing licensing, custody and handling have been notified under (i) The Special Warehouse Licensing Regulations, 2016 and (ii) The Special Warehouse (Custody and Handling of Goods) Regulations, 2016.
Private Warehouses and Public Warehouses
The Private Warehouse Licensing Regulations, 2016 and the Public Warehouse Licensing Regulations, 2016 notified for licensing, which also contain conditions and compliances to be met by the applicant for a private or public warehouse. The conditions and compliances to be fulfilled by a private or a public warehouse are substantially similar to that of special warehouses.
Unlike special warehouses, no physical control over the private or public bonded warehouse by the customs authorities. This reduces interfacing by the warehouse operator with the customs authorities and grants more flexibility.
Existing private and public warehouses licensed under the erstwhile regime are required to compulsorily meet the requirements under these new regulations within a period of three (3) months.
The Warehouse (Customs and Handling of Goods) Regulations, 2016 have been notified for regulating the handling and custody of goods. It provides that the warehouse operator is to intimate customs authorities upon receipt/ transfer of goods. Removal of goods from the private/ public warehouse, however, can only be done with the prior permission of the customs authorities.
The warehouse operator is required to maintain records and file monthly returns on receipt/storage/operations and removal with the customs authorities.
Further to the above, in cases of transfer of goods from one warehouse to another (either special/ private/ public warehouse) or from a warehouse to a customs station for export purposes, the provisions of The Warehoused Goods (Removal) Regulations, 2016 are also additionally to be complied with.
The concessional rate of excise duty of 2% for manufacture of wireless data modem cards subject to the condition that no CENVAT Credit of duties paid on inputs and input services has been discontinued. Further, the unconditional concessional rate of excise duty of 6% on the same products has also been rescinded.
(Ref: Notification Nos 20 & 21/2016-CE dated 5 May 2016)
The mega exemption Notification No. 12/2012-CE dated 17 March 2012 has been amended. The important changes are captured below:
Excise duty on manufacture of gold bars and silver dore bars has been reduced from 9.5% to 9.35%;
Exemption from excise duty on manufacture of Populated Printed Circuit Boards (PPCBs) as parts/ components of either lithium ion batteries, broadband modems, routers, Digital Video Recorder/ Network Video Recorder, CCTV Cameras/ IP Cameras has been removed;
A new entry has been inserted providing, inter alia, a concessional excise duty of 4% for manufacture of PPCBs for all the products noted above. Further, excise duty on inputs required for manufacture of such PPCBs is now 2% subject to conditions;
Exemption from excise duty on manufacture of speakers for mobile phones and their inputs has been removed;
Exemption from excise duty on manufacture of parts, testing equipment and the like required for MRO operations has been extended to from not only those required for the aircraft but also its components or parts, including the engine.
Exemption on excise duty on RBD Palm Stearin, Methanol and Sodium Methoxide for the manufacture of bio-diesel (alkyl ester of long chain fatty acids obtained from vegetable oils, commonly known as biodiesels) on actual user basis for a period up to and inclusive of 31 March 2017.
Exemption on excise duty shall be withdrawn on biodiesel and its inputs, viz., RBD Palm Stearin, Methanol and Sodium Methoxide from 1 April 2017.
(Ref: Notification No 22/2016-CE dated 5 May 2016 and Notification No 23/2016-CE dated 17 May 2016)
Routers have been notified under Section 4A of the Central Excise Act, 1944, i.e., excise duty on manufacture is required to be paid on the basis of MRP less prescribed abatement of 20%.
(Ref: Notification No 25/2016-CE (NT) dated 5 May 2016)
The notifications relating to the procedure and conditions required for export under bond, export under claim of rebate have been suitably amended to include the element of infrastructure cess as was proposed in the Union Budget 2016-17.
(Ref: Notification No 26/2016-CE (NT) dated 5 May 2016)
The CENVAT Credit Rules, 2004 (Credit Rules) have been amended to suitably provide for Krishi Kalyan Cess (KKC). The salient observations are as follows:
CENVAT Credit of KKC paid on input services allowed only against KKC payable on output services.
CENVAT Credit of KKC can only be utilized for payment of service tax. Manufacturers with liability to excise duty cannot set off KKC paid on inputs.
(Ref: Notification No 28/2016-CE (NT) dated 26 May 2016)
The Central Board of Excise and Customs (CBEC) has clarified that clearance of segregated foreign materials (iron, steel, rubber, plastic, dust etc.) from honey grade brass scrap cannot be treated as removal of "inputs as such" mandating reversal of CENVAT Credit under Rule 3(5) of Credit Rules. The segregated foreign material shall be cleared on payment of excise duty on transaction value as per appropriate classification and rate of duty applicable.
(Ref: Circular No 1029/17/2016-CX dated 10 May 2016)
Exemption from service tax on services provided by government/ local authority to a business entity having a turnover up to INR 1 Million in the preceding financial year will not be available for (i) services covered under sub-clauses (i) to (iii) of Section 66D(a) of the Finance Act, 1994 and (ii) services by way of renting of immovable property.
(Ref: Notification No 26/2016-ST dated 20 May 2016)
The Central Government has issued a host of notifications for the purposes of implementing KKC. The notifications, inter alia, prescribe as follows:
KKC will be levied on the value of taxable services @ 0.5%. Effective rate of service tax enhanced from 14.5% to 15%.
KKC will be exempted only on those services which are fully exempt under the Finance Act, 1994. In respect of those taxable services where abatement is specified, KKC will be proportionately levied.
KKC will be exempt by way of refund or rebate under the relevant service tax notification on (i) services exported out of India or (ii) services provided to a unit in a Special Economic Zone (SEZ).
Provisions of reverse charge shall be applicable mutatis mutandis to KKC as well.
(Ref: Notification No 27 - 31/2016-ST all dated 26 May 2016)
The CBEC has clarified that there is no element of service by an arbitrator sitting on a panel to the Arbitral Tribunal. Consequently, no liability of service tax arises on the arbitrator. The said circular also clarified that liability to pay service tax for services provided by an arbitral tribunal (including individual arbitrators of the tribunal) shall be on the service recipient under reverse charge mechanism.
(Ref: Circular No 193/03/2016-ST dated 18 May 2016)
Value Added Tax
In the National Capital Territory of Delhi, filing of returns with Digital Signature is mandated for the period 1 April 2016 onwards under Delhi Value Added Tax Rules, 2005.
(Ref: Notification No F3 (643)/Policy/VAT/2016/157-169 dated 3 May 2016)
The Rajasthan Finance department has amended Schedule IV of the Rajasthan Value Added Tax Act, 2003 to include readymade garments, attracting VAT at 5.5%.
(Ref: Notification No F.12 (80) FD/Tax/2014-08 dated 6 May 2016)
The Rajasthan Finance department has amended schedule VI of the Rajasthan Value Added Tax Act, 2003 to include Semi-stitched garments, namely (i) Semi-stitched Lehnga Sets, and (ii) Semi-stitched Salwar suits, kurta/ kurta, attracting VAT rate at 0.65%. Further, they have also explained that "Semi-stitched" means garments having one or more part(s) that has been cut to shape and/ or is partially stitched.
(Ref: Notification No F.12 (80) FD/Tax/2014-09 dated 6 May 2016)
The state of Rajasthan has introduced the scheme of lump sum payment/composition in case of dealers engaged in semi-stitched garments which will be operation from 1 April 2016. The amount payable would be INR 1300 for every INR 2 lakhs or part thereof, of the turnover of goods in the relevant period.
(Ref: Notification No F.12 (80) FD/Tax/2014-10 dated 6 May 2016)
The State of Rajasthan has introduced the following provisions under the Rajasthan Value Added Tax Rules, 2006:
Change of principal place of business beyond jurisdiction of the existing officer is now permissible (Rule 16A)
Refund of amounts deposited wrongly or in excess of the actual liability (Rule 28).
(Ref: Notification No F.12 (79) FD/Tax/2014-15 dated 23 May 2016)
The "Profession Tax Enrolment Amnesty Scheme 2016" (‘Amnesty Scheme’) is introduced in the state of Maharashtra, wherein, all persons, who are liable but not yet enrolled under ‘The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 (Profession Tax Act)’ can take benefit of this Scheme. The salient features of this scheme is enumerated below:
The liability to pay tax by an unregistered person for a period before 1 April 2013 will not arise if he applies under the scheme during the period 1 April 2016 to 30 September 2016
If the person obtains Enrolment Certificate then interest in respect of periods prior to 1 April 2013, along with penalty under Section 5(5) the Profession Tax Act, 1975 will be waived in full.
(Ref: Trade Circular 12T of 2016 dated 6 May 2016)
The Telangana Value Added Tax Act, 2005 has been amended to extend the provisions of tax deduction at source in case of lease transactions which are liable to tax under Section 4 of the said Act. The tax to be deducted will be at the rate prescribed in the schedule for the said goods and shall be paid on the next day of deduction of such tax.
(Ref: Act No 10 of 2016 dated 9 May 2016)
The Telangana Value Added Tax Act, 2005 has been amended to include auto components sold to automobile manufacturing units located in the State as industrial input to be taxed at 5%.
(Ref: Act No 11 of 2016 dated 9 May 2016)
The State government of Odisha has made an amendment to the period for which an application for settlement of disputes under the Odisha Sales Tax (Settlement of Arrears) Act, 2011 can be made. An application can now be made within fifty nine (59) months from 1 May 2012 which is also the date of commencement of the abovementioned Act.
(Ref: Notification No 14592-FIN-CT1-TAX-0028-2012 dated 13 May 2016)
The State government of Jharkhand has extended the time limit for application and payment under Karasamadhana Scheme, 2015 by another eleven and half months for filing application and one more year for making payments so that dealers can avail the scheme. The revised due dates would be (i) Last date for filing application is 28 February 2017 (ii) Last date for making payment is 31 March 2017.
(Ref: Order dated 16 May 2016)
The State of Gujarat has made an amendment to Rule 37 of the Gujarat Value Added Tax Rules, 2006 to empower the Commissioner to grant provisional refund of INR 1 lakh or full amount subject to the following conditions being satisfied:
The amount of refund paid in the previous year should not have exceeded rupees one lakh; and
The dealer should be holding a certificate of registration under the Act for more than two years on the date of application for such refund.
(Ref: Notification dated 25 May 2016)
The State of Jharkhand has notified a list of non-sensitive goods to be taxed at respective rates provided thereon. All goods except those provided in the list are to be treated as sensitive goods.
(Ref: Order dated 27 May 2016)
The State of Haryana has notified an amnesty scheme namely, the Haryana Amnesty Scheme, 2016 for dealers affected during reservation agitation in the month of February, 2016. The scheme is intended to provide relief in respect of tax, interest, penalty or other dues payable under the Haryana Value Added Tax Act, 2003, for the period from the 1st January 2016 to 31st March 2016, to such affected dealers, subject to the conditions and restrictions as specified.
(Ref: Notification dated 27 May 2016)
The State of Delhi has withdrawn the online Form Delhi Sugam-1 (DS1) for furnishing the details in respect of any commodities/ goods to be moved from Delhi to any place outside the territory of Delhi on account of sale, stock transfer or due to whatsoever reason, by all the registered dealers of Delhi before the actual movement of such goods occurs.
(Ref: Notification No F3 (671)/Policy/VAT/2016/284-296 dated 27 May 2016)
The State of Jammu & Kashmir has increased the residuary rate for goods falling in schedule D-I from 13.5% to 14.5%. Cell phones/ Mobile phones, i-pad, tablets and other like handheld devices and their accessories etc. are notified in the said schedule with effect from 31 May 2016.
(Ref: Notification dated 30 May 2016)
Recent Case Law
Delhi High Court (HC) quashes the power of Directorate of Revenue Intelligence (DRI)/ Directorate General of Central Excise Intelligence (DGCEI) to issue Show Cause Notices (SCNs) prior to April 2011
Delhi HC quashes powers of DRI/ DGCEI officers to issue SCNs for assessment / re-assessment under Section 28(11) of Customs Act, 1962 (Customs Act) prior to 8 April 2011. Section 28(11) of the Customs Act was inserted by Customs (Amendment and Validation) Act, 2011 to provide that all persons appointed as Customs Officers prior to 6 July 2011 shall be deemed to have and always had the power of assessment and shall be deemed to have been and always had been the ’proper officer‘. Quashing the said provision, the HC held that that such officers are not ‘proper officers’ within the realms of Sec 2(34) of the Customs Act. The Court observed that prior to 8 April 2011 and even subsequent thereto, only a ’proper officer‘ who has been assigned specific functions by the CBEC or the Commissioner as amended by Sec 2(34) could undertake the task of non-levy, short-levy or erroneous refund and hence, the newly enacted Sec 28(11) cannot validate/ empower the officers of DRI and DGCEI to either proceed to adjudicate show cause notices already issued by them for period prior to 8 April 2011 or to issue notices for such period.
(Ref: Manali Impex and Others v. Union of India and Others)
Mumbai CESTAT holds that supply from Domestic Tariff Area (DTA) to SEZ constitutes as ‘export’
The Tribunal allows accumulated CENVAT credit refund under Rule 5 of Credit Rules on supply of final products from DTA to SEZ. Setting aside the adjudication order denying such refund, the Tribunal held that such supplies would be considered as ‘physical exports’ and therefore, all benefits provided for exports under Foreign Trade Policy (FTP), Central Excise and Customs laws shall be applicable to such exports.
(Ref: Sirmaxo Chemicals Private Limited v. Commissioner of Central Excise, Thane-II)
Delhi HC quashes SCN issued by Customs authorities on issues already examined by Director General of Foreign Trade (DGFT)
Allowing the writ petition filed by the assessee-exporter, the Delhi HC quashed the SCN issued by the Customs authorities alleging irregularities in exports, on the grounds that DGFT had already examined in detail the allegations and had passed detailed adjudicating order exonerating assessee-exporter from any violation of Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) and Foreign Trade (Regulation) Rules, 1993 (FTDR Rules). The Delhi HC observed that the SCN issued by the Customs authorities was similar to one examined by DGFT and Revenue could not produce any new grounds and hence, the said SCN is liable to be side aside.
(Ref: FNS Agro Foods Limited and Others v. Commissioner of Customs (Preventive) Delhi and Another)
Supreme Court (SC) distinguishes between a sale and mere transfer
The assessee is a manufacturer of HR coils for which the principal input is iron ore pellets (procured from an independent supplier). The assessee also availed CENVAT Credit on the same. A group company of the assessee was engaged in manufacturing pig iron for which the principal input was again iron ore pellets. When required by the group company, such pellets were transferred by a conveyor from the premises of the assessee to that of its group company under cover of an invoice and upon reversing an amount equal to the CENVAT Credit availed. In addition to such invoices, the assessee also raised debit notes on the group company for recovering actual expenditure incurred in relation to the procuring of the iron ore pellets such as bank commission, interest, etc.
The Central Excise Authorities took the view that the said transaction was a sale and the amounts recovered by assessee through debit notes were includible in assessable value.
The SC noted that the appellate tribunal was the last fact finding body, wherein it was held that transfer of iron ore pellets by the assessee to the group company was not sale but merely a transfer of raw materials procured under Tripartite Agreement between the two of them and supplier. This pure finding of fact had not been disproved by the excise authorities. This being the case, the SC applied a Circular dated 1 July 2002 which provided that if inputs are removed on sale, excise duty is to be paid “transaction value”. However, this was not so in the present case, as the inputs were merely ‘transferred’ to a group company and therefore, the stand of the central excise authorities was incorrect.
In conclusion, the SC rejected the appeals filed by the Central Excise Authorities.
(Ref: Commissioner of Central Excise v. M/s. Ispat Metallics Industries Limited)
Appellate Tribunal holds that mere payment of duty on goods unconditionally exempt cannot make them ‘dutiable’
The assessee was a manufacturer-cum-exporter of excisable goods. During the disputed period, the assessee exported the goods under claim of rebate per Rule 18 of the Central Excise Rules, 2002. It was subsequently found that the some of the goods exported by the assessee were unconditionally exempt from excise duty. Accordingly, the Central Excise Authorities demanded reversal of 10% of the CENVAT Credit in terms of Rule 6(3) of the Credit Rules.
The Appellate Tribunal after a detailed consideration, held that under Rule 6(1) of the Credit Rules, no CENVAT Credit is admissible in relation to inputs used for manufacture of exempted goods. Merely because the assessee in the present case has paid duty on exempted goods does not make the goods dutiable and consequently, out of the purview of Rule 6 of Credit Rules. The Appellate Tribunal relied upon the provisions of Section 5A of the Central Excise Act, 1944 in arriving at this conclusion. Therefore, the provisions of Rule 6(3) of Credit Rules mandating reversal are applicable.
On this basis, the Appellate Tribunal rejected the appeal filed by the assessee.
(Ref: Castleton Tea Co. Private Limited v. Commissioner of Central Excise)
Appellate Tribunal holds that CENVAT Credit of bought out items cannot be rejected
The issue before the Appellate Tribunal was eligibility of CENVAT Credit on bought out plastic bottles which were resold after affixing the caps manufactured by assessee. A show cause notice was issued proposing disallowance of CENVAT Credit availed on bought out plastic since no manufacturing activity was carried out and the bottles were resold as such.
The Appellate Tribunal noted the activity undertaken was permissible in terms of Rule 16 of the Central Excise Rules, 2002. The same provided that if any duty paid goods were brought in the factory for being re-made, refined, re-conditioned or for any other purpose and cleared thereafter, CENVAT Credit would be allowed on such purchases subject to the condition that excise duty is paid on the reissue of those goods. In case the activity did not amount to manufacture, the duty to be paid would be equal to the CENVAT credit amount, and if it did, duty would have to be paid on the transaction value.
The Appellate Tribunal observed that the assessee had availed CENVAT Credit on receipt of goods and at the time of clearance thereof, since the activity did not amount to manufacture, excise duty that was required to be paid should not have been less than the CENVAT Credit availed. As the quantum of payment of excise duty was not under dispute in the present case, the Appellate Tribunal held that the transaction of purchase of goods, availment of CENVAT Credit thereon and payment of duty on their removal, was squarely covered by the provisions of Rule 16. Consequently, the Appellate Tribunal CESTAT held that the assessee had correctly availed the CENVAT Credit on the bought out plastic bottles.
(Ref: Shree Rubber Plast Co. Private Limited v. Commissioner of Central Excise, Thane-II)
Appellate Tribunal holds that goods below the threshold weight/measurement cannot be assessed at retail price
The issue before the Appellate Tribunal was applicability of Sec 4A of Central Excise Act, 1944 for valuation of glue sticks and correction pens.
The assessee manufactured and cleared 'glue' in packs of 20 comprising 8 gms cylinders and 'correction fluid' in pens of 8 ml and 10 ml capacity in packs of 20 and 10 pieces each. Duty liability thereon was discharged by assessing the value of clearances on the transaction value under Section 4 of the Central Excise Act, 1944. The authorities contended that such payment was incorrect and that payment should have been on the basis of MRP less abatement as specified under Section 4A of the Central Excise Act, 1944.
The Appellate Tribunal observed that Section 4A applies only when the erstwhile Standards of Weights of Measures Act, 1976, or rules framed thereunder, prescribe a requirement to declare 'retail sale price' on the packages. The Appellate Tribunal further observed that there was no finding that the secondary packing containing the 'glue sticks' and 'correction pens' had retail sale price declared on them. There was also no allegation that the said goods were displayed for sale to the ultimate consumer in secondary packing. In other words, the packages were not 'multi-piece packages.' Further, the pieces inside the secondary packing were intended for sale only as individual pieces at the last point of sale to the ultimate consumer. The Appellate Tribunal observed that even though the individual pieces did not have the retail sale price declared on them, the net weight or measure contained in each of the sticks and pens did not exceed 10 gm and 10 ml respectively. Therefore, the same were covered under the exception in Rule 34(b) of the rules notified under the Standards of Weights of Measures Act, 1976. The Appellate Tribunal also held that the fact that the consumer buys the products on a number basis is not relevant as the rules under the Standards of Weights of Measures Act, 1976 do not mandate it.
(Ref: Commissioner of Central Excise, Nagpur v. Sony Polymers Private Limited)
Bombay High Court (Bombay HC) grants pre-emptive relief, no coercive measures to be taken pending adjudication
In this case, the service tax authorities initiated an investigation against Cleartrip Private Limited (assessee), providing tour operator and allied services. Such investigation was initiated on the belief that the assessee was collecting service tax but was not depositing the same with the government. On this sole basis, the officials of the competitor (Make-my-Trip) of the assessee were arrested and service tax was allegedly coerced from them. The assessee filed a pre-emptive writ petition seeking protection from such coercive (civil and criminal measures).
After a detailed consideration of the facts and the issues, the Bombay HC held that in the scheme of criminal law as also the Finance Act, 1994; there is no scope for such coercive measures being resorted to by the service tax authorities before crystallization of demand, by way of a reasoned adjudication order. The Bombay HC accordingly restrained the service tax authorities from taking such coercive steps without following the due procedure of law.
(Ref: Cleartrip Private Limited v. Union of India)
Appellate Tribunal holds that mere payment of duty on goods unconditionally exempt cannot make them ‘dutiable’
In this case, the assessee was registered under the category of 'Business Auxiliary Service' in 2004. The assessee also obtained registration as a 'Manpower Recruitment Agency' in 1 July 2005.
Upon due investigation, it was found that the assessee had entered into a contract with a particular customer for the purpose of packing, loading and unloading etc. of goods, for which labour was also supplied by the assessee. Further, it was also found that the assessee was raising two invoices, i.e., one for charging the amount of payments made to labour and the other for remaining expenses due to which, service tax was unpaid. Demand of service tax was accordingly raised on the assessee for providing Cargo Handling Services (CHS).
The SC observed that CHS as defined in Section 65(23) of the Finance Act, 1994, required two conditions to be fulfilled, i.e., (1) there must be a cargo i.e., a packed or unpacked commodity accepted by a transporter or carrier for carrying the same from one destination to another. It is only after the commodity becomes a cargo, its loading and unloading at the freight terminal for being transported by any mode becomes a cargo handling service, if it is provided by an independent agency and; (2) the service provider must independently be involved in loading-unloading or packing-unpacking of the cargo.
The SC noted that as per the contract between the assessee and the customer, the assessee was to supply manpower for working at the packing plant per the customer's requirement. The assessee was to ensure that manpower deployed on the work given by customer's officers was executed diligently and to the satisfaction of the customer in the factory premises of its works.
SC noted that no part of loading or unloading was assigned to the workers of assessee upto transportation of cement bags out of the factory. This work was, in fact, being performed by automatic machines. In view thereof, the SC concluded that the aforesaid services provided by the assessee when juxtaposed against the law cannot fall within the scope of CHS. In arriving at the same conclusion, the SC also placed reliance on Instruction F. No. B11/1/2002-TRU dated 1 August 2002 where it was clarified that loading or unloading of cargo through hired labour in their individual capacity, would not come within the purview of service tax as cargo handling agency.
(Ref: The Deputy Commissioner & Another v. Sushil & Company)
Madras High Court (Madras HC) differs and holds that mandatory pre-deposit of 7.5%/ 10% is payable on appeals filed on or after 6 August 2014.
In this case, the assessee was issued a Show Cause Notice demanding dues of service tax along with interest and penalty for the period October 2011 to September 2012. Such Show Cause Notice was confirmed by the adjudicating authority. The assessee filed a Writ Petition in the Madras HC. Claiming that the amendment to Section 35F of the Central Excise Act, 1944 with effect from 6 August 2014, requiring a mandatory pre-deposit of 7.5% of the tax dues would not apply to proceedings initiated before the date of coming into force of the amendment.
The salient observations are as follows:
The right of appeal is a creature of the statute and the legislature is well within its competence to impose conditions for the exercise of such a right subject only to the restriction that the conditions so imposed are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory. A fixed percentage of the demand as mandatory pre-deposit is not onerous.
In comparison to the provision prior to the amendment, there is no divested right being taken away but merely made a chance divested. What has now gone, is not the right, but the chance or hope. Hence, on this count also, such a requirement of pre-deposit cannot be termed as onerous.
On retrospective operation, i.e., where the lis was initiated prior to the amendment, it was noted that if one condition that was already available in the statute for the exercise of a right of appeal, is merely replaced by another condition, the same cannot be said to be retrospective, unless it is definitely shown that the amended condition is more onerous than the unamended condition. The amended conditions, in view of the Madras HC were not more onerous vis-à-vis the unamended conditions.
The writ filed by the department was allowed, and the assessee was directed to follow the normal statutory process.
(Ref: M/s Dream Castle and Others v. UOI and Others)
Advance Ruling Authority holds that processing payment service to a foreign entity qualifies as export and not an intermediary.
The assessee proposed to enter into a Services Agreement with a company in United States of America (US) which provides web services to customers across the globe. Under the agreement, the assessee shall provide payment processing services to the US based company for its customers located in India, i.e., the customers shall use products of the US based company, and make payment via the payment processing facilities of the assessee. In consideration for the services, the assessee will charge a fee equal to the operating costs incurred plus a mark-up of 13% on such costs with payment being made to the assessee is US Dollars.
The Advance Ruling Authority was required to determine the legal position on the following questions, the answers whereof have also been indicated in the table below:
Whether the place of provision of payment processing service is outside India in terms of Rule 3 of Place of Provision of Services Rules, 2012 (POPS)?
The service provided by the assessee is to the US based company only. No service is rendered by the assessee to the customers in India of the US based company. Further, the the assessee also is not an “intermediary” per facts in the present case. Therefore, per Rule 3 of the POPS, the provision of service has to be outside India.
Whether the services provided by the assessee would be an export of taxable services in terms of Rule 6A of the Service Tax Rules, 1994?
The services provided are not specified under the negative list Services; the assessee would receive payment convertible foreign exchange and applicant and the US based company are not merely establishments of a distinct person. Hence, all the ingredients enlisted under Rule 6A are satisfied.
(Ref: Universal Services India Private Limited v. The Commissioner of Service Tax)
Discharge of liability of unpaid service tax by CENVAT Credit earned post payment due date is not permissible
In this case, a demand of INR 1.25 million was confirmed on the assessee along with interest and penalty under the provisions of the Finance Act, 1994. The basis for such confirmation was that the assessee had paid this amount through their CENVAT Credit Account on 30 November 2008, 31 December 2008 and 31 November 2009 whereas this amount was due on 5 November 2008, this was not permissible in terms of Rule 3(4) of Credit Rules.
After hearing both the sides at length, the Appellate Tribunal held that the proviso to Rule 3(4) of the Credit Rules states that service tax liability of a particular month can be paid through CENVAT credit availed and lying in balance on the last day of the month for which the service tax is due. In the present case, however, the service tax liability for November 2008 was paid through the credit earned from 30 November 2008 to 31 January 2009 which is not permissible. The appellate tribunal concluded that the assessee was liable to make payment of INR 12.57 lakhs in cash. However, it waived penalty on the ground that the assessee had no intention of evasion of tax as it had paid the tax through CENVAT Credit instead of cash.
The appeal of the assessee was partly allowed.
(Ref: Axis Private Equity Ltd. v. Commissioner of Service Tax, Mumbai-I)
Value Added Tax
The SC holds that ‘Wind Mill’ installation related to works contract, cannot be taxable as "goods".
The appellant had filed an appeal before SC questioning the validity and legality of Karnataka High Court judgment which dismissed revision petition, and confirmed the order of lower authorities. The Order stated that expenditure incurred towards commissioning of the Mills at site, had to be excluded from exemption provided to windmills as they were not included in the expression ‘Wind Mill’. The said exclusion from exemption resulted in payment of tax on such amount. SC opined that lower authorities had committed a fundamental mistake in as much as foundation work or installation work, as this was considered as part of works contract by Assessing Officer (AO) himself, and hence, the same could not have been treated as ‘goods’.
The SC stated that even if one proceeded on the basis that such work does not fall within the expression ‘Wind Mill’, it could still not have been treated as goods which would be exigible to sales tax. The AO had himself classified these as goods involved in execution of works contract. Once this was the opinion of AO and part of the work, viz. foundation or erection work related to works contract, on this ground itself no sales tax could have been charged thereon on such activities.
(Ref: Enercon (India) Limited v. State of Karnataka)
The SC rejects plea of oil companies for payment of VAT at a reduced rate post price reduction.
SC ruled in Revenue's favour and upheld the Delhi High Court’s decision, of payment of VAT at regular rates and not the reduced rate notified on account of increased prices. The SC rejected interpretation of oil companies for paying Delhi VAT on lower amounts despite the petrol/ diesel price roll back. After petrol /diesel price hike in 2006, State Government reduced incidence of VAT to lower the impact of fuel prices, but subsequently when the price hike was withdrawn, oil companies continued to pay VAT on reduced amount. SC rejected oil companies' interpretation and observed that the objective to reduce VAT during interim period was to grant benefit only in respect of that element of enhanced VAT on account of increase in prices and if that component of increase ceased to be in existence, benefit of proviso also ceases to be in operation. SC stated that proviso cannot be given operation beyond the element of increase, so much so that even after complete roll back, the benefit in respect of that amount must operate. Proviso should be given normal and natural meaning keeping in mind the context, object and reasons for its enactment and incorporation.
(Ref: Indo Burma Petroleum Corporation Limited v. Commissioner VAT Delhi & Others)
The Delhi High Court (Delhi HC) observes that in absence of delegation by Commissioner, subordinate officers cannot reject Amnesty scheme applications.
The issue before Delhi HC was whether the rejection of applications of the assessees by the Additional Commissioners (AC) acting as ‘Designated Authority’ was without jurisdiction in as much as Clause 8 of the Delhi Tax Compliance Achievement Scheme, 2013 (Amnesty Scheme) envisages only the Commissioner passing such orders.
The Delhi HC was of the view that Clause 8 of said Scheme envisages rejection of application by Commissioner upon failure to make true declaration and issuance of show cause notice within 1 year thereof. Such powers cannot be exercised by Designated Authority viz. Addl. Commissioner unless same are specifically delegated under Section 68 of Delhi VAT Act, 2004 (DVAT Act). They further stated that while noting that Addl. Commissioner is empowered only under Clause 4 (procedure for declaration & payment of tax dues) and Clause 5 (reopening of assessment) it cannot be said that he is empowered to reject the applications. The Delhi HC relied on Yongnam Engineering & Construction Private Limited ruling where it was held that power under Section 36A(8) of DVAT Act cannot be exercised by officer other than Commissioner absent specific delegation order. Further, the Delhi HC also stated that since period of 1 year from applications for Scheme had lapsed, they cannot be placed before Commissioner for fresh decision.
(Ref: Jaycon Infrastructure Limited & others v. Commissioner of Trade and Taxes)
The Larger Bench of SC settles the classification issue of excavators by classifying it as motor vehicles.
The question before Larger Bench of SC pertained to classification of ‘excavator’ as ‘motor vehicle’ within meaning of Section 2(28) of Motor Vehicles Act, 1988 for making it liable for registration and payment of taxes under the Act.
SC Larger Bench held that ‘excavator’ would be classifiable as ‘motor vehicle’ within the meaning of Section 2(28) of Motor Vehicles Act and therefore, be liable for registration & payment of taxes. The SC considered the question in view of conflicting views between 3-Judge Bench ruling in Goodyear India Limited on one hand, and 2-Judge Bench decisions in Natwar Parikh & Co. Limited and Chairman, Rajasthan State Road Transport Corporation. The SC noted that in case of Goodyear, the Apex Court dealt with question of classification of tyres of size 1800 and above under Central Excise Tariff as ‘tyres of motor vehicles’ or ‘all other tyres’ and in which context, description of ‘motor vehicles’ contained in Item 34 of Central Excise Tariff Act was referred to. On the other hand, the 2 Judge Bench decisions in the 2 aforesaid cases held that vehicles involved therein would fall within ambit of Section 2(28). After a careful consideration of the definition of ‘motor vehicle’ and having regard to facts of the current case, the Larger Bench was of the view that Goodyear decision would have no application to present case and consequently, held excavators to be motor vehicles.
(Ref: Western Coalfields Limited v. State of Maharashtra & Another)
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