With a view to improve ease of doing business in India; the Central Board of Excise and Customs (CBEC) has issued various circulars prescribing procedural facilitations as follows:
Customs Authorities should not seek clarification from importers / exporters in a piece meal manner; but in one go itself. Further, time taken by the customs authorities after satisfactory submissions by the trade should be curtailed.
Proposals mooted inviting comments from stakeholders in reducing / eliminating paper and prints in respect of customs clearance.
Implementation of Electronic Delivery Orders
(Ref: Circular No 22/2015-Customs dated 03 September 2015; Circular 450/25/2013 - Cus IV (Pt) dated 01 October 2015; Circular No 24/2015-Customs dated 14 October 2015)
It has been clarified that the drawback of safeguard duties paid on inputs used for manufacture of the export goods can be claimed only under an application for fixation of brand rate of drawback.
(Ref: Circular No 22/2015-Customs dated 29 September 2015)
Revised procedures and modalities to be followed for valuation of imported second-hand machinery.
(Ref: Circular No 25/2015-Customs dated 15 October 2015)
Further instructions issued on the use of digital signatures for submission of customs clearance documents. With effect from 01 January 2016; all importers and exporters shall file customs documents under digital signature certificates mandatorily.
(Ref: Circular No 26/2015-Customs dated 23 October 2015)
Detailed procedures and guidelines issued on launching prosecution cases against importers / exporters. These guidelines prescribe, inter alia, threshold limits, exceptions, monitoring, approvals etc.
(Ref: Circular Nos. 27 & 28 /2015-Customs both dated 23 October 2015)
Directorate General of Foreign Trade (DGFT)
Policy condition 1 for import of aircraft (Chapter 88) is amended to update the list of organizations exempted from import licensing.
(Ref: Notification No 24/2015-2020 dated 09 October 2015)
Procedure for online modification of Importer-Exporter Code (IEC) has been notified. Further, all modifications henceforth to be done online only. This is applicable for IEC’s that have been issued online & in physical format from 21 September 2015.
(Ref: Public Notice No 36/2015-2020 dated 14 September 2015)
Para 2.63 of the Handbook of Procedures 2015-2020 has been amended. Henceforth, for temporary import/export of goods without Authorisation, the condition of furnishing bond to Customs and ATA Carnet has been replaced by either furnishing bond to Customs or ATA Carnet.
(Ref: Public Notice No 37/2015-2020 dated 21 September 2015)
Temporary reprieve granted to exporters, providing that Shipping bills, where declaration of intent ‘Y’ had not been marked and ‘N’ was been ticked inadvertently in the ‘reward item box’ for exports made between 01 April 2015 to 31 May 2015 are now eligible to claim MEIS benefit subject to procedure notified.
(Ref: Public Notice No 40/2015-2020 dated 09 October 2015)
The applicability period for services and reward rates under Appendix 3D extended to 31 March 2016. The list of services/rate is subject to review with effect from 01 April 2016.
(Ref: Public Notice No 42/2015-2020 dated 26 October 2015)
Additions and amendments made in the list and description of goods with reward rates of Appendix 3B under MEIS.
(Ref: Public Notice No 44/2015-2020 dated 29 October 2015)
It has been clarified that Para 5.10(d) of the Handbook of Procedures 2015-2020 [additional documents to be submitted for discharge of export obligation through 3rd parties] shall be applicable to all exports made post 01 April 2015 even if the EPCG Authorization was issued prior to 01 April 2015.
(Ref: Policy Circular No 3/2015-2020 dated 02 September 2015)
Anti-Dumping / Safeguard Duty Notifications
Provisional safeguard duty of 20% imposed on HR Coils (heading 7208 or tariff item 7225 30 90) when imported into India.
(Ref: Notification No 2/2015-Customs (SG) dated 14 September 2015)
Definitive anti-dumping duty imposed on the following goods:
Acrylo Nitrile Butadiene Rubber (Heading 4002) originating in, or exported from Korea RP.
Float Glass of thickness (Heading 7005) originating in, or exported from China PR or Indonesia.
Plain medium Density Fibre Board (Heading 4411) originating in, or exported from China PR, Malaysia, Thailand or Sri Lanka.
Front Axle Beam and Steering Knuckles meant for heavy and medium commercial vehicles (Tariff Items 7326 19 10, 7326 19 90, 7326 90 99, 8708 50 00, 8708 99 00 originating in, or exported from China PR.
Hexamine (Tariff Item 2921 29 10) originating in, or exported from China PR or UAE.
All Fully Drawn or Fully Oriented Yarn/Spin Draw Yarn/Flat Yarn of Polyester (non-textured and non - POY) (Heading 5402) originating in or exported from China PR or Thailand.
(Ref: Notification No 46/2015-Customs (ADD) dated 04 September 2015; Notification No 47/2015-Customs (ADD) dated 08 September 2015; Notification No 48/2015-Customs (ADD) dated 21 October 2015; Notification No 49/2015-Customs (ADD) dated 21 October 2015; Notification No 50/2015-Customs (ADD) dated 21 October 2015; Notification No 51/2015-Customs (ADD) dated 21 October 2015 respectively.)
In view of the decision of Hon’ble Supreme Court of India in Ratan Melting & Wire Industries (2008-TIOL-104-SC-CX-CB) the CBEC has clarified that circulars issued by it that are contrary to the Judgement; of the SC or High Courts are non-est in law and should not be followed even though not rescinded. The board has also directed that such circulars should be identified and rescinded.
(Ref: Circular No 1006/13/2015-CX dated 21 September 2015)
New consolidated guidelines for launching of prosecution under the Central Excise Act, 1944 and the Finance Act, 1994 concerning service tax have been issued by the CBEC. These guidelines are related to the person who could be prosecuted, monetary limits for launching prosecution, authority who may sanction prosecution, the procedure for sanction, monitoring of the prosecution once launched, Appeal against Court Order in case of inadequate punishment, procedure for withdrawal of prosecution etc, transitional provisions, compounding of offences and inspection of prosecution work.
This circular replaces eight earlier circulars.
Circular No 1009/16/2015-CX dated 23 October 2015)
The monetary limit prescribed, for launching prosecution proceedings for certain offences under Central excise and service tax and for misuse of CENVAT credit has been increased from Rs 50 lakhs to Rs 1 crore.
(Ref: Circular No 1010/17/2015-CX dated 23 October 2015)
As regards levy of service tax provided by a Goods Transport Agency (‘GTA’), the CBEC has clarified that a single service need not be broken into separate services if provided in the ordinary course of business. It has stated that all ancillary services such as loading/unloading, packing/unpacking, transhipment etc. provided will be considered as GTA services and consequently abatement applicable to GTA service would also be available to such ancillary services. The Board also clarifies with regard to transportation of goods on GTA’s undertaking to deliver within a stipulated time, qua notification 26/2012-ST dated 20.6. 2012.
Circular No 186/5/2015-ST dated 5 October 2015)
As regards services provided by an Indian Bank or other entity acting as an agent to the Money Transfer Service Operators during the period 1 July 2012 to 13 October 2014 the CBEC has issued a Notification under section IIC of the Central Excise Act, 1944 to the effect that service tax in relation to remittances of foreign currency in to India during the said period shall not be required to be paid.
(Ref: Notification 19/2015- ST dated 14 October 2015)
Value Added Tax (VAT)/ Central Sales Tax (CST)
With effect from 13 October 2015, lower rate of VAT increased from 4% to 5% in Dadra and Nagar Haveli.
(Ref: Notification No ADM/VAT/EMP.COMM/2012/1626 dated 13 October 2015)
With effect from 3 September 2015, “Car telephone, transportable telephone, cellular telephone or mobile phone” excluded from the ambit of “IT products” under Serial No 41 of Third Schedule – attracting VAT at 5% in Dadra and Nagar Haveli.
(Ref: Notification No DC/VAT/Rules/Amdt./Sch.III/2014/1181 dated 3 September 2015)
With effect from 15 September 2015, a new online form namely Form Delhi Sugam-2 (in short DS2') introduced in place of Form T-2, for providing information to the Department in respect of goods purchased or received as stock transfer or received on consignment basis from outside by the registered dealers of Delhi.
(Ref: Notification No F.7 (433)/Policy-II/VAT/2012/PF/703-712 dated 10 September 2015)
With effect from 1 November 2015, VAT introduced in Goa on works contractors (builders, real estate developers etc.) who undertake construction of flats, dwelling units, houses, buildings or premises. Further, different composite VAT rates specified for such works contractor, depending upon the value of the constructed property.
(Ref: Goa VAT (Seventh Amendment) Act, 2013 read with Notification No 4/5/2005-Fin(R&C)(128)1245 and 4/5/2005-Fin(R&C)(127)1243 dated 26 October 2015)
An Ordinance introduced in Jharkhand to provide for accelerated and time bound grant under specified Acts for various licenses, permissions and approvals to promote industrial development, in order to facilitate new investments . The Ordinance has been introduced to simplify the regulatory framework and to improve ease of doing business, to provide for an investor friendly environment in the State.
(Ref: Ordinance - No-LG.-37/2015-83-Leg. dated 3 September 2015)
With effect from 24 September 2015, VAT levied in the case of works contracts undertaken in SEZ Areas exempted till 31 March 2016, in Rajasthan.
(Ref: Notification No F. 12(43) FD/Tax/05-pt-88 dated 24 September 2015)
With effect from 4 September 2015, the additional VAT rate applicable on goods under residuary list (i.e. attracting VAT at 12.5%) in Uttar Pradesh increased from 1.5% to 2%, thereby making the effective rate as 14.5%.
(Ref: Notification No - KA.NI.-2-1309/XI-9(1)/2014-U.P.Act-5-2008-Order-(138)-2015 dated 3 September 2015)
Supreme Court denies exemption of Special Additional Duty of Customs; holds that since no sales tax is charged on the goods, proviso gets invoked and exemption unavailable.
The issue in this case was eligibility of exemption from Special Additional Duty (SAD) on imported goods under Notification No 34/98-Cus dated 13 June 1998 (‘notification’). . The proviso to the notification stated that exemption will not be allowed if no tax is chargeable on the sale of the goods in India.
The assessee contended that the goods may be exempted from sales tax but not non-chargeable to sales tax and hence, the proviso to the notification cannot be attracted. The SC took note of the fact that the imported goods were covered under Section 7 of the erstwhile Delhi Sales Tax Act, 1975 which provided for tax-free goods. Accordingly, the SC noted that this was not a case where the goods were exempt from sales tax by way of a notification. On the contrary, the goods were non-chargeable to tax in the first place itself. In conclusion, the SC rejected the contentions of the assessee and held that exemption will not be available.
(Ref: Commissioner of Customs vs Seiko Brushware India)
Appellate Tribunal held that imported Set–Top Boxes are not liable to MRP based assessment absent element of ‘sale’.
The issue in this case assessment of imported Set-Top Boxes (‘STB’) on the basis of Maximum Retail Price (‘MRP’) for Countervailing Duty (‘CVD’) purposes.
The assessee contended that there is no element of ‘sale’ between the DTH broadcasting company and the subscriber; as evidenced by the declarations on the package containing the STB, books of accounts and VAT rulings issued by certain states.
The Appellate Tribunal (Tribunal) held that MRP based assessment is applicable when the imported goods are meant for ‘retail sale’. Perusing the definition of ‘sale’ in the Legal Metrology Act, 2009; the Tribunal held that a ‘sale’ can take place when there is a transfer of property. In the present case, as there was ample evidence that no transfer of property has indeed taken place; the basic requirement of ‘sale’ itself is not satisfied. Consequently; the Tribunal held that no ‘retail sale’ has taken place in the present case. In sum, the Tribunal held that CVD cannot be assessed on the basis of MRP.
(Ref: M/s Bharti Telemedia Ltd. vs Commissioner of Customs)
Supreme Court held that no anti-dumping duty can be levied during the ‘interregnum’ period.
The issue in this case was levy of anti-dumping duty (‘ADD’) on imported goods during the interregnum period, i.e., period between expiry of provisional ADD and date of final imposition of ADD. The Supreme Court (SC)
After a detailed consideration; the SC noted that the international stand of various nations over the collection of duty during the interregnum period would lead to the conclusion that a holistic reading of Section 9A does not authorize the imposition of ADD with retrospective effect. Any ADD levied by a final duty notification during the interregnum period would necessarily amount to a retrospective levy of duty; which is impermissible in law.
In arriving at the above conclusion; the SC also noted that a construction which is both in consonance with international law and treaty obligations should be preferred. It was thus held that the final ADD only incorporates the period of levy of provisional ADD.
(Ref: Commissioner of Customs vs G.M. Exports)
Supreme Court held that merely being a sole distributor for imported goods is not sufficient to reject transaction value.
The issue in this case was related to rejection of transaction value declared by the importer on account of being a sole-distributor for the overseas supplier.
The importer had entered into a sole-distributorship agreement with the overseas supplier in 1995. It came to notice of the Revenue that the overseas supplier had entered into a sole-distributorship agreement with another party for the period 1965–1994 for the same product. The Revenue noted that price of the goods under the erstwhile distributorship agreement was more than what the importer had declared in the present case. The Revenue rejected the transaction value declared by the importer holding the importer to be a related party of the overseas supplier.
The Supreme Court (SC) took note that the factual matrix in the present case showed that the price declared was indeed at arms-length. The Revenue had adduced no evidence except the fact that the importer was a related person to the overseas supplier and the price has been influenced. The SC noted that ‘merely’ being a sole distributor does not suffice to hold that the relationship has influenced the price. It is the onus of the Revenue to provide cogent reasons and evidence to show the same. In conclusion, the SC held in favor of the importer.
(Ref: Commissioner of Customs vs Bayer Crop Science Ltd.)
Delhi High Court held that importer eligible to interest on refund of Special Additional Duty of Customs sans specific provision in law.
The issue in this case was whether an assessee would be entitled to interest under Section 27A of the Customs Act, 1962 for refund granted under Notification No 102/2007-Cus dated 14 September 2007 (‘notification’). Section 27A provides for interest at specified rates on refund claims granted under Section 27. The notification, on the other hand, provides for a separate refund of Special Additional Duty (SAD) subject to conditions.
The Delhi High Court (HC) noted that Section 2(15) of the Customs Act, 1962 defines ‘duty’ as ‘a duty of customs leviable under this Act’. Levy of SAD is provided under Section 3 of the Customs Tariff Act, 1985. The HC noted that the provisions of Customs Act, 1962 relating to refunds have been incorporated by reference in Section 3(8) of the Customs Tariff Act, 1985. As a result, the provisions of Customs Act, 1962 in so far as they relate to refund of duty and interest payable in the event of delay in refund, as provided by Sections 27 & 27A would apply to refund of SAD also.
(Ref: Principal Commissioner of Customs vs Riso India Pvt. Ltd.)
Bombay High Court held that settlement application cannot be rejected on the basis of interest not paid by the applicant under the relevant provision, when such provision was removed from the statute itself.
The issue in this case was whether an assessee would be entitled to seek a settlement proceeding without payment of interest under Section 28AB of the Customs Act, 1962. Section 28AB was removed from the Customs Act, 1962 on 08 April 2011 and substituted with Section 28AA with effect from Finance (No 2) Act, 2014 dated 06 August 2014.
In this case, the Revenue issued notices (post 08 April 2011) to the assessee for alleged undervaluation of imported cranes, and consequently, proposed to demand differential duty under Section 28 of the Customs Act, 1962 along with interest in terms of section 28AB. The assessee approached the settlement commission wherein it was pointed that interest liability under Section 28AB was not deposited. The assessee contended that Section 28AB was not in force on the date of issue of the notice, and hence, no interest liability arises. The Settlement Commission, inter alia, dismissed the applications filed by the assessee.
The Bombay High Court (HC) observed that despite the fact that section 28AB was deleted and replaced with section 28AA with effect from 08 April 2011, no corresponding amendment was carried out in Section 127B, i.e., a reference to Section 28AB continued in Section 127B. The HC noted that Section 127B (1) was amended by Finance (No2) Act, 2014, whereby the reference to Section 28AB was substituted with Section 28AA.
The HC concluded that on the date when the settlement applications were filed under Section 127B, section 28AB no longer remained on the statute and therefore it was impossible for assessee to comply with the condition of deposit of interest. In other words, the HC accepted assessee’ s contention and held that the Settlement Commission was in error in rejecting the settlement applications of assessee on the ground that assessee.
(Ref: Bharmpal Panchal vs Union of India)
The Supreme Court (‘SC’) held that amount paid as royalty for using a particular brand name belonging to the brand owner is not additional consideration for sale.
The petitioner Lakhanpal Ltd. was engaged in manufacturing torches, manufactured and marketed under the brand name ‘NOVINO’. This brand belonged to Lakhanpal National Ltd (‘LNL’). Both the parties had entered into an agreement to use its brand name 'NOVINO' and for this purpose, assessee was also paying royalty @2.5% in respect of sales of aforesaid products to buyers other than LNL. Show Cause Notice (‘SCN’) was served to the petitioner alleging that Royalty paid to the brand owner should be added to arrive at the transaction value of torches manufactured and sold by the assessee. The SCN was adjudicated by Commissioner confirming demand made in SCN and an appeal, of the assesse, was dismissed by the Tribunal. Before the SC it was argued that under rule 5 of the Customs Valuation Rules, additional consideration which flows directly or indirectly from buyer to the seller can be added to price charged by seller from buyer but as in the present case, royalty is actually paid by seller to the buyer, it could not be added to the price under the said Rule 5. The SC accepting the Petitioner’s contention and stated that, held the basis of SCN as untenable.
(Ref: Lakhanpal Ltd. vs Commissioner of Central Excise, Vadodra)
The Mumbai High Court (HC) allowed the petitioners writ and held that Customs Excise and Service Tax Appellate Tribunal (‘CESTAT’) cannot refuse to refer a question to Larger Bench in case of connected appeals dealing with same matters. Such refusal is unjustified.
The Petitioner who is a manufacture of excisable goods falling under Chapter 73 of First Schedule to Central Excise Tariff Act, (CETA) 1985, relied on a notification dated 1 March 2006, exempting non-conventional energy devices / systems falling under any Tariff Entry of CETA from whole of central excise duty. A notice demanding duty and interest was served on and adjudicated against the Petitioner. The petitioner preferred an appeal before CESTAT. Although the Petitioner informed the CESTAT that there were two more appeals of two other corporate entities, which were listed for hearing together with petitioners appeal, the CESTAT passed a final order partly allowing the Petitioner’s appeal confirming duty demand with interest but setting aside penalties. However, in other two appeals, the CESTAT referred a question or issue raised for opinion by a Larger Bench (LB). On noticing some mistake in initial order while invoking extended period of five years, the Petitioner filed an application for rectification of mistakes in initial order of CESTAT which was dismissed by CESTAT. Aggrieved thereby the petitioner filed a Writ Petition (WP) before HC. Before the HC, it was argued that if all three Appeals involved the same issue, CESTAT should have been consistent in its approach and should have referred question in all three Appeals for consideration by LB.
HC stated that the mistake was apparent and could have been rectified in rectification proceedings and that the CESTAT failed to exercise its powers and jurisdiction vested in it by law. HC accordingly set aside CESTAT’s order and directed the case of the petitioner to be referred to a LB and after LB renders a decision and answers it, CESTAT to decide all three appeals together in accordance with law and in tune with construction and interpretation of Notification.
(Ref: Rakhoh Industries Pvt. Ltd. vs Union of India & Others)
The Supreme Court (‘SC’) held that bar on availment of credit of duty paid on inputs for exempted goods is prospective in nature and does not bar utilization of credit accumulated prior to the barring provisions coming into effect.
The issue before SC pertained to utilisation of accumulated CENVAT Credit at the time when CENVAT Credit Rules (CCR) 2002 were brought into force and whether new Rule 6 of these Rules could be given effect prospectively. The Petitioner had two units, one, for manufacture of sugar and molasses and the other, for distilling of denatured spirit (dutiable product) and rectified spirit (non-dutiable). Petitioner applied for grant of single licence for both units as distilling unit was using molasses manufactured by sugar unit as inputs, for manufacture of dutiable and non-dutiable products. Also because both these units were located in same premises, the request of Petitioner was allowed and it was granted single licence. Under CCR 2001, they were paying duty @ 8% of the value of exempted goods cleared by it in lieu of credit availed by it on inputs utilized in manufacture of its goods. An issue arose with respect to utilization of CENVAT credit already accumulated in favour of Petitioner at the time when CCR 2002 was brought into force. Major portion of the accumulated credit was denied by Adjudicating Authority invoking provisions of Rule 6 of CCR 2002. CESTAT reversed this decision holding that Rule 6 had to be given effect prospectively and it would not come in the way of CENVAT Credit already earned and accumulated by Petitioner. Aggrieved thereby, Revenue filed an appeal before SC. The SC noted that same contention had been raised before CESTAT but had been repelled by observing that Rule 6 of CCR 2002 nowhere took away the right bestowed under Rule 9 of a manufacturer to utilize the already accumulated credit under the earlier CCR 2001. This rule only prohibited the availability of credit under the new CCR 2002, to a manufacturer engaged in the manufacture of exempted goods specified therein. Going by the spirit of said observations, SC found CESTAT perfectly justified in its judgement, refused to interfere with the same and accordingly, dismissed the Revenue’s appeal.
(Ref: Commissioner of Central Excise vs New Swadeshi Sugar Mills Page)
The Supreme Court (SC) reverses Customs Excise and Service Tax Appellate Tribunal (‘CESTAT’) decision and holds that exemption Notification is to be strictly construed and that benefit cannot be made available for non-compliance of the same.
The Petitioner, was involved in manufacturing water pump sets falling under Chapter 84 of Central Excise Tariff Act, and mentioned at Sl. No 35 of Notification 10/02-CE dated 1 March 2002. As per the Notification, the concessional rates of duty on excisable goods namely water pump sets manufactured by the Petitioner was 4%. One of the two conditions for availing of the benefit of the said Notification was that the duty was to be paid in cash or through account current. The petitioner had made duty payment through CENVAT Credit Account, which further gave rise to a dispute which ultimately reached the SC. The SC observed that the said condition, clearly spelt out that, to avail the benefit of Notification, duty was to be paid in cash or through account current and hence the Petitioner who had cleared the goods by utilization of CENVAT Credit had violated the said condition and was, consequently, not entitled to the benefit of the said Notification. The SC observed that it was well settled that exemption notifications are to be construed strictly and in case of any doubt, the benefit thereof was to be given in favour of Revenue.
Commissioner of Central Excise, Pondicherry vs Honda Siel Power Products Ltd.)
The issue before Supreme Court (SC) was whether ‘shrink sleeves’ were ‘Articles & Plastic’ to be covered under Chapter Sub-heading 3920.19 or ‘Products Of The Printing Industry’ to be covered under Sub-heading 4901.90 under Central Excise Tariff Act (CETA). The Supreme Court (SC) held that facts & purpose guide classification of a product.
The SC dismissed held that ‘shrink sleeves’ manufactured from duty paid plastic film is classifiable under CETH 39.20 dealing with “Plastics and articles thereof”. Revenue had contended that the same is classifiable as products of printing industry under CETH 49 as predominant purpose was printing done on product. The Petitioner contended that printing on 'shrink sleeves' was only incidental and not of primary use. The main purpose of the product was to provide tamper protection to product, to make it shatter resistance and enhance puncture resistance. The SC relied on its ruling in Metagraphs Pvt. Ltd. noting that classification of a particular product depends upon nature of products with respect to facts of each case and true determining purpose for which product used and treated by traders as well as consumers. The SC also placed reliance on its ruling in Holostick India Ltd., which decision was relied by Revenue but actually assisted the Petitioner in making out its case. The question in that case was whether printing was only incidental to primary use or something more. This further assisted the SC in firming its judgment that end use is vital for classification purposes.
Commissioner of Central Excise, Vapi vs The Paper Products Ltd.)
The Supreme Court (‘SC’) relying on its ruling of Servo-Med Industries held that printing of logo of one particular product or company on wrapping paper would constitute manufacture thereby bringing such printers within the Excise Net.
The SC allowed Revenue's appeal, on whether printing product logo as per customer’s specifications on Graphics Interface (GI) paper (a duty paid base paper) and delivering to customer in jumbo rolls without slitting would amount to 'manufacture' under section 2(f) of Central Excise Act. The SC rejected CESTAT’s findings which in turn were based on its decision in J.G. Glass Industries that, printing is only incidental and primary use of GI printing paper roll viz. wrapping, not changed by printing process. Rather the SC relying upon its recent decision in Servo-Med Industries Pvt Ltd concluded that where there is no commercial use without further process then, said process would amount to 'manufacture'. Taking note of principles laid in said case and reading them with the current facts, the SC observed that while blank paper could be used as wrapper for any kind of product, after printing logo and name of specific product of client thereupon, end use gets confined to that particular / specific product of said company. Therefore, the printing was not merely a value addition but has now been transformed from general wrapping paper to special wrapping paper, resulting into a product i.e. paper with distinct character and use, amounting to 'manufacture'.
Commissioner of Central Excise, Mumbai - IV vs. Fitrite Packers, Mumbai)
The Punjab and Haryana High Court (‘HC) held that the Finance Act, 1994 is a complete Act in itself and general provisions of Indian Penal Code, 1860 (IPC) not applicable to the Finance Act, 1994.
The HC granted relief to the petitioner and quashed the FIR registered under section 406 of the IPC and the consequential criminal proceedings for non-payment of outstanding service tax. The HC observed that Finance Act 1994 is a complete Code in itself and would prevail over general provisions of IPC that were made applicable in the present case. The State was unable to explain how the FIR was registered under general provisions, when competent authority under the Finance Act, 1994 has not found any financial liability on petitioner. The HC Observed, “….registration of the impugned FIR was nothing but abuse of process of Court…” since the moment assesse received demand, he immediately deposited the amount. However, the HC granted liberty to competent service tax authority to proceed further against the petitioner, as per procedure prescribed under Finance Act, 1994 and if he is found liable he would be bound to pay the tax.
Ajay Kumar Sandhu vs State of Haryana)
Tamil Nadu High Court (HC) held that Banks and Financial institutions would be considered as ‘dealers’ in respect of sale of hypothecated goods.
HC held that although in case of hypothecation, the ownership of the hypothecated goods remains only with the person creating the hypothecation, as upheld by various judicial precedents, the hypothecation agreement invariably contains clauses empowering the bank to repossess the vehicle in the event of a default and also to bring the vehicle to sale through public auction or by private negotiation without even involving the owner of the vehicle. Accordingly, given that the Bank has contractual right of sale, the contention that the bank does not become the owner of the property and that the seller must be in a position to pass on title, would not stand and hence Bank qualifies as ‘Dealer’.
(Ref: HDFC Bank Limited v. The State of Tamil Nadu)
The Karnataka HC held that in case of customized software, the developer does not retain any copyright in such software. In such a situation, what is provided is only a pure service, there can be no liability to VAT.
HC decided upon the taxability of software implementation service rendered to clients. HC held that in case of such software, where copyright is held by the developer and the copyrighted article alone is handed over to the customer (as a transfer of right to use goods), the software is goods and liable to VAT alone. However, in case of customized software, the copyright in such software belongs to the customer, as it is developed, and the developer of the software does not retain any copyright in such software. In such a situation, since there is no transfer of property in goods and what is provided is only a pure service, there can be no liability to VAT.
Further, in case of Annual Technical Support (ATS), if the contract includes the annual maintenance involving both service and issuing upgraded or enhanced software, then such a contract is a combination of both goods and service and is a works contract. VAT is liable to be paid on the goods part and service tax is to be paid on the labor aspect. In up-gradation and enhancement, the copyright is owned by the developer and what is transferred to the customer is the right to use and hence, such transaction is liable to VAT.
(Ref: Infosys Limited v. The State of Karnataka and Others)
The Andhra Pradesh HC held that in case of turnkey contracts, the title to goods is not transferred during the movement from one state to another, but only after the goods are incorporated in the said works and hence, ‘in-transit sales’ wherein title to goods is transferred during the course of inter-state movement of goods, cannot be considered as subsequent sales under CST law and hence, are not exempt from levy of CST.
The HC held that in even though there can be two separate contracts for supply of material and rendering services, however, as the obligations under both contracts cease only after the turnkey project became operational, after the final payment was made for supply of materials and for erection and installation of equipment and there being a cross-fall breach clause which enabled the contractee to terminate the supply contract for breach of the erection contract and vice versa, would mean that while the contracts are ostensibly two separate contracts, they are in fact one single indivisible contract.
The HC further observed that for a subsequent sale to fall under Section 6(2) of the CST Act, it is essential that the contract of sale entered into is neither before commencement of movement of goods nor after completion of movement of goods. HC opined that as in present case, the contracts were entered into between the contractor and the contractee prior to placing of an order (with identified suppliers by the contractor for the supply of goods), such sales cannot be eligible for CST exemption.
(Ref: M/s Larsen and Toubro Limited v. The State of Andhra Pradesh)
The Kerala HC quashed orders imposing penalty on the grounds that the Department had issued Notices pre-determining the guilt of assessees and that the impugned orders were almost verbatim reproductions of the Notices.
The HC quashed orders imposing penalty on Flipkart and another assessee (Myntra) for neither getting registered as ‘dealer’ nor filing returns nor maintaining true and correct accounts as mandated under Kerala VAT Act on the grounds that the Department had issued Notices pre-determining the guilt of assessees. HC held that the Notices issued cannot confront an assessee with definite conclusions as regards the commission of an offence, Noticing that impugned orders are more or less verbatim reproductions of notices issued, HC states that authority ought to have considered specific contentions of the assessee. HC observed that a specific finding was necessary to clothe the authority concerned with jurisdiction to proceed against assessees under penal provisions of Kerala VAT Act and hence, the impugned orders are liable to be set-aside.
(Ref: Flipkart Internet Private Limited and Another v. The State of Kerala and Others)
The Karnataka HC held that ‘smart cards’ supplied as part of computerized service delivery system has no intrinsic value and such supply is not liable to VAT under Karnataka VAT law.
The HC held that the contract between the parties is for supply, installation and maintenance of computer systems, supply and printing of smart cards, provision of data entry services and to carry out other activities incidental thereto. Under the terms of the agreement, the assessee ensures that the smart cards are specifically designed and developed for the transport department. The smart cards obtained by the assessee are consumables. They are the property of the transport department and were never considered as the property of the assessee. The assessee is not in the business of any sale of ID smart cards as such. The smart cards prepared by the assessee have no value in the commercial market other than the transport department. The smart card is only a media through which the particulars of each driver is embedded by virtue of the software which the assessee has developed. The use of smart cards for printing data and delivering the same to the transport department is incidental and hence, such transaction cannot be brought into VAT net.
(Ref: Zylog Systems Private Limited v. Additional Commissioner of Commercial Taxes, Bangalore)
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