ca final idt amendments module - vpj classesvpjclasses.com/study/idt may 16 amendments.pdf ·...

1 For VPJ Classes – CA Vinod Parakh Jain, ph/whatsapp:7503630594, www.vpjclasses.com

VPJ CLASSES

By: CA VINOD PARAKH JAIN

CA FINAL IDT

AMENDMENTS MODULE

Applicable for May 2016 Exams


INDEX

S.No. PARTICULARS Page No.

PART I Amendments applicable for May 2016

Excise 23-26

Commom Topics 27-37

Service Tax 38-65

Customs 66-69

PART II RTP Amendments applicable for May 2016

Excise 71-78

Customs 79-82

Commom Topics 83-87

Service Tax 88-65

PART III New Case Studies Introduced 91-111

PART IV Case Studies Deleted 112-115

PART V RTP Case Studies

- Summary of Case Studies 116-118

- Detailed case Studies 119-127


FOR LATEST UPDATE/IMPORTANT INFORMATIONS/RESOLVING YOUR QUERY……….. Connect with us at the Following Face book Page: vpj classes

Or Our website:

No- 7503630594

At [email protected]


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. In such short span of time we have proved the same. Around 60% of Our Students are scoring more than 55% Marks in Audit Subject.

ICAI - Examination Results May 2015

Our Student- Arjun Sobti Marksheet May 2015- 1st Rank Holder’s Marksheet

ROLL Number

FINANCIAL REPORTING 64

STRATEGICFINANCIAL MANAGEMENT 54

ADVANCED AUDITING AND FINANCIAL MANAGEMENT

60

CORPORATE AND ALLIED LAWS 58

ROLL Number 130814


STRATEGIC FINANCIAL MANAGEMENT 88


60


ICAI - Examination Results Nov 2014

Our Student- Dhanwal Batra Marksheet Nov 2014- 1st Rank Holder’s Marksheet

ROLL Number 133055




64


ROLL Number 122226




52



Our Student- Mukesh Sethia Marksheet May 2014- 1st Rank Holder’s Marksheet

ROLL Number 201007




73


ROLL Number 142217




64




Our Student- Shreyans Jain Marksheet Nov 2013- 1st Rank Holder’s Marksheet

ROLL Number 16649




057


ROLL Number 111935




56



Our Student- Kamal Sharma Marksheet Nov 2012- 1st Rank Holder’s Marksheet

ROLL Number 120668




061


ROLL Number 111935




55



Our Student-TOP Bhadur Shahi Marksheet MAY 2012- 2nd Rank Holder’s Marksheet

ROLL Number 122250




64


ROLL Number 111935




60



TOPICS & QUESTIONS COVERED IN OUR AUDIT CLASSES

S.No. PARTICULARS No. of Pages

No. of Questions

1. Professional Ethics 55 Pages 91

2. Engagement & Quality Control Standards- ALL SA’s/SRE/SRS/SQC,s (Total 44 )

140 Pages 123

3 Bank Audit 35 Pages 34

4 Audit of General Insurance Companies 15 Pages 21

5 Audit of Public Sector Undertakings 10 Pages 13

6 Cost Audit 12 Pages 11

7 Audit of Co-operative Society 6 Pages 15

8 Special Audit Assignments 18 Pages 29

9 Audit of NBFCs 11 Pages 8

10 Audit under CIS Environment 12 Pages 24

11 Management & Operational Audit 12 Pages 18

12 Investigation & Due Diligence 12 Pages 20

13 Corporate Governance 12 Pages 8

14 Peer Review 7 Pages 10

15 Sarbanes Oxley Act 5 Pages 5

16 Others(Diveded, Tax Audit Etc.) 18 Pages 36

17 Audit Reports 6 Pages 17

Our Books of Audit Distributed and Covered in class


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 as it is not easy to pass ca final Audit Exam by reading a bunch of few pages. 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 and want to wrap the subject as soon as possible, again getting into the Traps. There are many areas where students do not have thorough 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 one of 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 misleadS the students and ruin the career of students. Hit and Trial Approach: Students try to apply Standard or AS whatever comes to his/her minds. Generalized Approach- Students try 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. By understanding the above mentioned errors committed by students and the constraint of time for students, We at VPJ Classes have tried to cover all the Topics of ICAI Material in Concise and the most Effective Way, help the student to overcome his/her shortcomings. We always emphasize on study material issued by ICAI because Study Material and Practice Manual of ICAI are prepared by the Group of Professionals following an authentic and systematic process. Now it is time to take action that’s why 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 believe 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


We Teach Students the deep Intricacies of Law but side by Side we also help Student to Crack the Exam Questions. It is Not the No. of Classes which makes a student Master of the Subject. But it is the Concentration Efficiency and Effectiveness with which the teacher nurtures the Students helps him 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 AND EXCEL IN CUT THROAT INDUSTRY COMPETITION

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


Look a New Trend Have Started….. 100% of Syllabus being Covered in lesser classes with effective Output and Questions of RTP, SA and Practice Manual being covered in the class itself

When we started the Audit Classes , the General Trend in the CA Final Audit- Coaching was More Classes with less Output and No Examinations Questions being practiced in Class. We tried to reverse the trend with Effective Output, Lesser fees and Practice of Exams Questions in the class itself and at a very economical Rate. NOW OTHERS ARE FOLLOWING OUR MODEL ………………….. We FEEL HAPPY IT’s in Greater Interest of Students Fraternity

SHUBAS PANDEY [Ex- President at Hatemalo Nepali Student Group]

It is really hard to think OUT OF THE BOX & it is even more complex to do the same but he is doing the same. VPJ sir believes in Purity of Teaching profession and guides his students how to excel in CA Exams. VPJ sir strictly follow institute's materials along with question & answer in the class itself. Finally i came to know that why there is such low pass percentage in CA Final & further i saved my TIME & MONEY that matters me.

VARUN MITTAL

Thank u Sir Ji .... Earlier I thought ki audit ho jayegi yaar by self study but after studying with you I realise that I was very short of my observation... All the mnemonics plus practical approach of all relevant SAs and other topics (in practical sense) are really really helpful for me.....:-)

ARUN SHARMA

Sir guided me in a right direction and told me whats the lacuna in other materials which was not updated as per study material. Now i passed with sir advice and guidance that how to present the answer in a right way. I got success in this attempt which was not availed previous attempts......thank u sir.

SHREYANS JAIN

A Very big thank you for your Audting batch . A balanced approach b/w practical exposure & examinations, all those mnemonics helped a great deal in the exams. And you were dead right as i was able to revise all the standards in about 4 hours a day before exam & except 1 or 2 application questions nothing was there which was not covered by your module.

ACHARYA PRAVESH

[Ex. Secretary at Hatemalo]

VPJ sir guides exactly what ICAI wants form studentshis Teaching is totally correlated with practical business environment. One thing that i really love about him is he focuses on students to crack question first & then ask students to write


down answers& finally helps students to correct silly mistakes

PUNEET AHUJA

Finally....The Streak Is Over as I Arjun Sobti have Conquered 1st Group of CA Final Exams.

I would like to thank CA Vinod Parakh Jain / VPJ classes Sir, I have always been short of words to THANK YOU, you have been there by my side since the day i had walked into your Class room, you motivated me when the chips where down and YES! YES! YES! we made it.

PUNEET AHUJA

Thank you sir just because of your support i cleared my first group.....after having audit class from you, I believe that audit is the most important subject that we always ignore and just took at end.....but now I am sure that with your teaching techniques specially auditing standards will help me a lot in my auditing career... hatts off to you sir...

RAHUL YADAV

CA V.P Jain sir is the first ever teacher from whom I met and who completes IDT as well as Audit in lesser days with full coverage of syllabus in deep. There are only merits and no demerits of VPJ classes: 1. Full coverage of syllabus in deep. 2. Improves concentration power for studying other subjects also 3. Industry wide sharing of knowledge 4. Saves money & time too as required for new trend. 5. Easiest and simplest way of learning with mnemonic 6. Classes full of motivation & confidence 7. And last but not least---“No bakwas only gyan with exam oriented approach” A heartiest thanks to CA V.P Jain sir for teaching those who are not able to take costly & reputed classes. You are the only teacher who teaches with full of energy and without any self motive..thanks a lot Sir Ji..

SAURAB PANDAY [Came Specially From Nepal For Our classes]

Thanx a lot Sir.. its all your support n belief in me that i could prove myself.. Really I appreciate your hard work for making us success..

MAHAK PODDAR

Only u r the best teacher who is thinking for benefits of CA student and tells them how can they utilize their tym in best way..

ANKIT

Sir Hum to Khuskismat hai ki Aap Hume Mil Gaye……

https://www.facebook.com/cavinod.p.jain

https://www.facebook.com/pages/VPJ-classes/249716041716484


IDT We Have Started the Same Concept in IDT. IDT one of the Most Interesting Subject of CA Final. The Mastery of IDT Subject can never be gained by Flowchart or case Laws based Interpretations. We have started the concept of Interpreting the Law on basis of Law Itself. And to cross check the understanding of the same we Practice the Exams Questions- RTP, Practice Manual and SA's AND the CASE STUDIES in the Class Itself and do not leave the same for the student to be completed at their own end by knowing Fully Well the student's constraint. We Value Our Student Money, Time and Energy so that they can channelize their saved time and energy towards other subjects and achieve success in Holistic Way.

TESTEMONIALS

DIVYA GOEL

He is the best teacher in IDT..i must say, that I do not have any queries or doubts left after leaving the class..

NISHA GUPTA

As a student I found VPJ Sir's IDT and AUDIT classes VERY effective. Sir you took only 40 classes in IDT to complete the entire syllabus according to ICAI modules WITH 100% conceptual clarity, WITH around 550 questions done in the class. NOT ONLY THIS, your classes also help me to increase my CONCENTRATION and RETENTION to an unimaginable level. I want to say big thanks to THE BEST TEACHER of my life

AMIT YADAV

Sir the IDT classes were really amazing, I could never have completed the subject in such a short time on my own along with so many practical questions from, also the discussions about law interpretation & presentation were really helpful. I always wondered where the marks went. Now i am very much positive and confident about the exams. Best classes ever, I have attended, couldn’t ask for more. Thank You much Sir.

PRITI CHOUHAN

Thanks for your great efforts Sir! Cos of u in such a short span of time have completed one subject. Teachers like u will definitely bring a change. You value our time and money. Had a wonderful experience in your class. A BIG THANKS to u Sir :-)


PRIYANKA GROVER

I've been searching for a teacher who value our precious time and make us efficient enough to study the whole syllabus in depth and when I found u; I just found the best way to study IDT.I am not in favour of attending classes with strength of 500 students.. I am a kind of student who needs personal attention. I am glad I found u!!! And plzzz now you make sure to start a DT batch as well so that students ka future ban jaekuch

BISHAL THAKUR

I was sure that this will hapensoon..U R THE BEST TEACHER Not of IDT But also AUDIT As well.Sir I told u at very begining ab aap DT v padhana start kardijiye.

NIKITA NIKI

VINOD PARAKAH JAIN is the only teacher who teaches ca final idt in 32 classes with covering all past year questions & relevant case laws that to with reasonable fees. He makes idt a friend of urs. He’ll tell u what to study & how to study to crack the exam. He is really a trend breaker. He believes in imparting a pure soul of teaching & broadens the mind of student to step up the ladder of success. He is the only teacher who entertains all urs queries. After studying from u sir I came to know that idt is a very scoring subject if we learn how to study law instead of hearing all those stories & emphasis on relevant case studies instead of author’s personal selected case laws or as u say fair & lovely case studies. Really thanks & obliged u sir for this……. —

AAKASH KUMAR

Its absolutely true ..u r different from others money making teachers...the best part about you is you are only teacher i saw and heard who says institute study module and approaches are correct. rest of the teachers always critics institute.. bottom line is institute gives a tittle of CA. its our duty to comply with it. But we never did... thats why most of students suffered

JIVESH

The most interactive classes ever & personal attention to each & every student. A teacher is one who educates a student, who help student get rid of his deficiencies, develop his intellect. No doubt all teachers are good & are knowledgeable but Vinod Parakh Jain is the one who understands & develop student's power to comprehend & analyse, which would help a student in his professional endeavours in future. In todays, competitive era just passing the exams would not be enough. A CA needs to be dynamic & analytical. Highly recommended classes (VPJ CLASSES) for students. Students GET OUT OF THIS RAT RACE.


VISHAL KHANDELWAL

I think for indirect tax Vinod Jain. Hindi bhawan delhi is the best teacher . his concept clarity is excellent and course is going to complete in sweet 40 dys only with minimum fees and with all the question covered in the class only.. i think it is better not to go heavyly paid teacher in this time and we must encourage new good teacher in the market as the demand only dictates the price . if the demand is high other have to follow the rules of game .

ANKIT MAHESHWARI

From CPT to CA-Final I have taken classes from various teachers in Delhi including some famous one, who use to take 5-6 months to complete a single subject without entertaining industry level practical queries. Such behaviour of famous teacher was very frustrating for me because of two reasons, primarily the long duration of classes normally 5 months for a single subject which is too high as compared to CA coaching pattern in South India or CFA Coaching & second reason is high monetary cost. After such extortion, I attended your CA-Final Audit Class with low expectation in my mind but I was able to connect with you & your content from day one & at end of the batch I was more than satisfied because in 20 classes only you have completed our syllabus with lots of question practice. Further I have attended your IDT batch as well after applying for refund of fees which I paid earlier to a very famous IDT teacher in Delhi because I find there is no use to attending 80 classes when a person like you having too much practical knowledge can complete the same in 25-30 classes that to with practicing questions & entertaining student’s query. The best part was your habit to entertain student’s query both from examination & practical point of view & developing the habit among student to interpret law. As my classes with you are finally over yesterday, so today I thought to appreciate the good work done by you. So Sir thanks a lot for imparting purest form of knowledge to us without consuming too much time. I was wonderful experience to attend your classes.

PANKAJ KUMAR SHRIVASTVA

U r real catalyst for student true way. End of my superb journey with vpj class (idt) ito new delhi today.mai thoda dukhi v tha but happy v.it is fentiastic class of ca final audit and indirect tax.superbly advise by vinod prakh jain sir. its class near my heart. I will alwas miss it. I saw new typ of education system in this class.only focus study.thanks

ATUL VERMA

Sir My Paper is Awesome Sab Kuch apki Book Mei Sey Aya. Thanks a Lot Sir You gave me strength. I was glad you were my teacher (or child’s teacher).

Thank you for giving me courage.

https://www.facebook.com/pankajkumar.shrivastva?fref=nf

https://www.facebook.com/pankajkumar.shrivastva?fref=nf


You made me a better person. I’ll never forget you. You gave me confidence in myself. Thank you for your patience. You helped me see what I could be. You are the best teacher ever

HARNEET SINGH

Sir you are always at your best.. Much more to come from sir....stay tuned CA students. A person with great passion for CA students ,their road to success for future as well. Keep the good work going sir

SHRINIVAS BHATT

Sir you are the inspiration that today I am getting all the credit and love. I am here to change the system and so are you

Feedback of Students After the Results

RAJESH BEHERA

Thank U very much sir for showing me the right way to study IDT.... Got 74 in IDT...

— feeling happy.

NISHA GUPTA

Tons of thanks to CA VINOD PARAKH JAIN SIR... Nisha Gupta becomes CA Nisha Gupta...this could be possible with the precious guidance of my teacher vinod sir. Because he is the only teacher who emphasize on STUDY MATERIAL ISSUED BY ICAI, he is totally different from other money maker teachers. He guides us not only in his subjects but in other subjects also and emphasized us to study material issued by ICAI. He is the teacher who gives us something to take home to think about besides homework. I read somewhere.... there are two types of teachers, first that fill you with so much quail shot that you can’t move and the second like VINOD SIR, the kind just push a little and you jump to skies. Thanks to you sir....

JYOTI GOYAL

Thank u sir... I got 62 marks in IDT:). Without your guidance n blessings it won’t b possible...dis tym I cleared my second GRP.. Once again thank u.

https://www.facebook.com/rajesh.behera.1441?fref=nf


RAHUL VASISTH Thank you Sir, i got 64 in IDT, Thanks for you guidance and support.....

DHANWAL BATRA

I can’t thank you enough for your invaluable guidance for the "Advanced Auditing and Professional ethics" paper. With your guidance and blessings I have become a CA, scoring 64 marks in Audit in the process.. Many thanks once again sir. God bless you :)

RAHUL KUMAR. [1st in Dhanbad center(Jharkhand)- Acknowledged in Newspaper]

Thank u sir i got 55 marks in audit, without your support it wouldn’t be possible. once again thanks u sir.

Surbhi Hans[55 in Audit & 71 Marks in IDT]

Thank u So Much Sir for teaching me Audit so well….. U Rock!!! Any amount of thanks wudnt be enough.. simply.. u r the best teacher in my entire CA course journey

Akash Gupta [3rd Rank in Uttrakhand]

Thanks sir.... I must have to say that its not a crash course of 40 class.....u cover all syllabus of ICAI study mat.......And my Results Proves the sames..

SHAHI TOP

thank u sir for your contribution in audit

MANISH GROVER

sir ....superb felling.... n ty vei much sir for your guidance n support.... ....module module module bs ICAI module r kch ni ...shortcut h ye ........seriously sir... ty vei much sir...

https://www.facebook.com/acrhlsharma?fref=nf


Glimpse of Training conducted by VPJ

VPJ at OIC Staff Training College Train The Trainers- Insurance Commissioners from all the

Regions of our Country- on How to Handle Service Tax Issues, Insurance Claims…

Training at the Power Finance Corporation- one of the largest Public Sector Undertaking

Training at IBM


Registration at BRIGHT COMMERCE ACADEMY

1/53 2nd Floor, Lalita Park, Laxmi Nagar 110092; Ph No-011-47665555

EVENING- BATCH -100% Coverage Start Date Completion Date Days Timing Fees

5th Mar 2016 28th Mar.16 Daily 5:30 -9:00 PM 7,000

11th June 2016 End of July 2016 TTSat 5:30 -9:00 PM 7,000

MORNING BATCH-100% Coverage Start Date Completion Date Days Timing Fees

30th July 2016 21st Aug. 2016 Daily 6:45 -10:30 AM 7,000

By CA Vinod Parakh Jain

9 Years Practical Experience across leading MNC’s

Contact/Whatsapp- 7503630594; www.vpjclasses.com Key Features: Blended Approach (i.e. Result Orientations & Practical

Knowledge) in the Class so that students can easily crack the Exams and Meet upto the Industry Demand.

Detailed analysis of SAs, SREs, SRS, SAEs via practical industry relevant examples.

Concept explained via Flow chart and animation at appropriate places

Short revisionary notes for quick revision LIVE BACK UP OF CLASSES

CA Final-Audit @ 22 Classes

Comprehensive Coverage of 1100 Pages of Study Material and 350+Questions of PM, SA and RTP covered

in Class. Cover Entire Audit in JUST 80 Hours with our EXPERT GUIDANCE & save AT LEAST 240+ Hours of Self Study with One’s Own Limitations

CA VINOD PARAKH JAIN PRESENTING LAPTOP TO HIS

STUDENT MUKESH SETHIA FOR SECURING

ALL INDIA HIGHEST 73 MARKS IN AUDIT


Classes at ITO-Hindi Bhawan; Log on to vpj vlasses.com; For Details Cnct:7503630594(Whatsapp)

FOR MAY 2016/NOV.2016

Batch 1 Start Date End Date Days Timing Fees

1stMarch 2016 17th April 2016* Daily 6:45 -10:30 AM 13,000 * For May 2016 attempt, Extra Classes will be held to complete the course before 7th April 2016

Batch 2 Start Date End Date Days Timing Fees

8th June 2016 3rd week of July Daily 6:45- 10:30 AM 14,000

By CA Vinod Parakh Jain

{ACA, 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.

Equal Emphasis and Clarity on Full Course , be it Excise, Custom, Service Tax or FTP & No Overemphasis or Under Emphasis on any Topic

Blended Approach(i.e. Result Orientations & Practical Knowledge) in the Class so that student can easily crack the Exams and Meet upto the Industry Demand. ONE TO ONE ATTENTION. HANDLING OF QUERIES IN THE CLASS ITSELF Short revisionary notes for Quick Revision

COMPLETE YOUR CA Final-IDT in Just 1.5 Months- 48 Classes

100% COVERAGE-NOT A FAST TRACK COURSE

With 650+ Questions of PM,RTP, SA are covered in Class Itself.

110 Case Studies issued by ICAI for May 2016 and Nov 2016 Exams will be Covered in the Class


PART I

AMENDMENTS APPLICABLE FOR May 16 EXAMS Onwards


Amendment No- 1 Standard ad valorem rate of excise duty increased from 12% to 12.50% and education cesses leviable on excisable goods fully exempted

The standard ad valorem rate of excise duty (i.e. CENVAT) has been increased from 12% to 12.50%. Further, Education Cess levied on all excisable goods as a duty of excise under section 91 read with section 93 of the Finance Act, 2004 has been fully exempted vide Notification No. 14/2015 CE dated 01.03.2015. Similarly, Secondary & Higher Education Cess leviable on excisable goods as a duty of excise under section 136 read with 138 of the Finance Act, 2007 has also been fully exempted vide Notification No. 15/2015 CE dated 01.03.2015. Thus, in effect, the effective general rate of excise duty has been increased from 12.36% (inclusive of cesses) to 12.50% (with cesses exempted). [Effective from 01.03.2015]

Notifications exempting education cesses on clean energy cess rescinded consequent to education cesses on excise duty being exempted Notifications Nos. 28/2010 CE and 29/2010 CE both dated 22.06.2010 exempt the levy of Education Cess and Secondary & Higher Education Cess on the Clean Energy Cess leviable on coal. Since Education Cess and Secondary & Higher Education Cess have been exempted on excisable goods in general, such notifications have been rescinded vide Notification No. 17/2015 CE dated 01.03.2015. It may be noted that rescinding of the said exemption notifications for education cesses does not imply that the same would now become payable on clean energy cess, as these cesses have now been exempted on excisable goods in general. Thus, the ultimate position remains same – education cesses were not payable on clean energy cess earlier and will also not be payable on or after March 1, 2015. [Effective from 01.03.2015]

CHAPTER 1 – BASIC CONCEPT OF EXCISE


Minimum General penalty under rule 25 increased from Rs. 2,000 to Rs.5,000 [Rule 25] Further, with effect from 14.05.2015, the minimum general penalty prescribed under rule 25 has been increased from Rs. 2,000 to Rs. 5,000.

CHAPTER 3 – CENTRAL EXCISE RULES


Amendment No- 1 Penalty provisions under rule 15 aligned with new provisions of section 11AC of the Central Excise Act and section 76 and section 78 of the Finance Act, 1994 [Rule 15]

Particulars Nature of Non-Compliance Penalty

Unintentional Default of Manufacturer/ Service provider

[Rule 15(1)]

Any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules

a) All such goods shall be liable to confiscation; and

b) Such Person shall be liable to a penalty not exceeding

The duty or service tax on such goods or services, as the case may be, or

Rs. two thousand /-, whichever is greater.

in terms of Section 11AC (1)(a) or 11AC (1)(b) of the Excise Act or Section 76(1) of the CEA, as the case may be

Intentional default of Manufacturer

[Rule 15(2)]

Where the CENVAT credit on input or capital goods or input services has been taken or utilised wrongly by reason of-

fraud,

collusion or

any wilful mis-statement or suppression of facts, or

contravention of any of the provisions of the Excise Act, or of the rules made thereunder

with intent to evade payment of duty

Manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act. Section 11AC(1)(c) or 11AC(1)(d) or 11AC(1)(e) of the Excise Act

Intentional default of Service Provider

[Rule 15(3)]

Where the CENVAT credit on input or capital goods or input services has been taken or utilised wrongly by reason of-

fraud,

collusion or

any wilful mis-statement or

suppression of facts, or contravention of any of the provisions of the

Finance Act or of the rules made thereunder with intent to evade payment of service tax.

The provider of output service shall also be liable to pay penalty in terms of the provisions of Section 78 of the Finance Act.

CHAPTER 4 – CENVAT CREDIT


Analysis of Amendment

Earlier, wrongful availment/utilization of CENVAT credit on inputs or capital goods was liable to a penalty not exceeding the duty on excisable goods in respect of which any contravention has been committed or Rs. 2,000, whichever is greater. Likewise, wrongful availment/utilization of CENVAT credit on input services was liable to a penalty which might extend up to Rs. 2,000. Further, wrongful availment/utilization of CENVAT credit by reason of fraud etc. with the intent to evade payment of excise duty and service tax was liable to penalty in terms of erstwhile section 11AC of the Central Excise Act, 1944 and erstwhile section 78 of the Finance Act, 1994 respectively. Now the penalty provisions under central excise and service tax have been rationalized vide Finance Act, 2015 by substituting section 11AC of the Central Excise Act and sections 76 and 78 of the Finance Act, 1994 with new sections. Therefore, consequential amendments have been made in rule 15 to align the penal provisions provided therein with the penalty provisions provided under new section 11AC and sections 76 and 78. Thus, wrongful availment/utilization of CENVAT credit on inputs or capital goods will now be liable to a penalty not exceeding 10% of the duty on such goods or Rs. 5,000, whichever is higher and wrongful availment/utilization of CENVAT credit on input services will be liable to a penalty not exceeding 10% of service tax on such services. The quantum of such penalties can be reduced or even nullified depending on the time of payment of excise duty/service tax, interest and reduced penalty, as the case may be, in accordance with clause (a) or clause (b) of section 11AC(1) and section 76(1), as the case may be. Similarly, penalty for wrongful availment/utilization of CENVAT credit by reason of fraud etc. with the intent to evade payment of excise duty or service tax will be governed in accordance with the provisions of clause (c), clause (d) or clause (e) of section 11AC(1) and section 78(1), as the case may be. [Effective from 14.05.2015]


Amendment No- 1

Category of cases where extended period of limitation applies but the transactions are recorded in the specified record removed from the statute [Sub section (5), (6), (7) deleted]

Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded [Section 11A]

(1) Cases other than fraud, collusion etc.

Where any excise duty:- (a) has not been levied (b) has not been paid (c) has been short-levied (d) has been short-paid (e) has been erroneously refunded …………………………….

2. Cases of fraud Collusion etc.

Issuance of SCN by CEO within Five years [Sec.11A(4)]

CEO shall, within 5 years from the relevant date, serve notice on such person requiring him to show cause why he should not pay

the amount specified in the notice along with interest payable thereon u/s 11AA and

a penalty equivalent to the duty specified in the notice. Period of stay to be excluded: For this purpose, where the service of the notice is stayed by an order of a court or tribunal, the period of such stay shall be excluded in computing the aforesaid period of one year [Section 11(8)]

Issuance of SCN by CEO, Penalty to be halved [Sec.11A(5)]

Where, during the course of any audit, investigation or verification, it is found that- any duty has not been levied or paid or short-levied or short-paid or erroneously

refunded for the reason mentioned in Section 11A(4)(a)/(b)/(c)/(d)/(e) but the details relating to the transactions are available in the specified record, then in such cases, the CEO shall within a period of 5 years from the relevant date, serve a notice on the person chargeable with the duty requiring him to show cause

why he should not pay-

the amount specified in the notice along with interest under section 11AA and penalty equivalent to 50% of such duty. Period of stay to be excluded: For this purpose, where the service of the notice is stayed by an order of a court or tribunal, the period of such stay shall be excluded in computing the aforesaid period of one year [Section 11(8)] DELETED BY FA 2015

Voluntary Any person chargeable with duty u/s 11A(5), may, before service of SCN on him,

COMMON TOPICS- CHAPTER 2 – DEMAND & RECOVERY


payment of ED before SCN is served [Sec.11A(6)]*

Pay the duty in full or in part, as may be accepted by him along with the interest payable thereon under section 11AA and

Pay penalty equal to 1% of such duty per month to be calculated from the month following the month in which such duty was payable, but not exceeding a maximum of 25% of the duty,

and Inform the CEO of such payment in writing. DELETED BY FA 2015

Conclusion of Proceedings / SCN issued for Recovery [Sec.11A(7)]

The CEO, on receipt of information u/s 11A(6) shall - i. not serve any notice in respect of the amount so paid and all proceedings in respect

of the said duty shall be deemed to be concluded -

where it is found by the CEO that the amount of duty, interest and penalty as provided u/s 11A(6) has been fully paid;

proceed for recovery of such amount if found to be short-paid in the manner specified u/s 11A(1) and the period of one year shall be computed from the date of receipt of such information DELETED BY FA 2015

Analysis

a) Sub-sections (5), (6) and (7) have been omitted. These sub-sections provided for reduced penalty in cases where fraud etc. was involved but the transactions were recorded in the specified records. These provisions have now been removed from central excise legislation so as to bring uniformity in all fraud cases irrespective of whether the transaction is recorded or not.

b) It may be noted that section 11AC providing for penalty for short-levy or nonlevy of duty in certain cases has also been substituted with a new section. Under the amended provisions of section 11AC, the benefit of reduced penalty for captured (recorded in specified records) fraud cases has been withdrawn.

c) Consequential amendments have been made in sub-sections (7A), (8) and (11)(b) of section 11A by removing the reference to sub-section (5) wherever it occurred in these sub-sections. Further, clause (c) of Explanation 1 defining the specified records has also been omitted. [Effective from 14.05.2015]

Amendment No- 2

Definition of relevant date provided for cases (i) where a return is not filed on the due date and (ii) where only interest is required to be recovered [Explanation 1(b)(ii) and 1(b)(vi)]

Explanation

(a) Refund “Refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) Relevant Date

Means:

Event Relevant Date

(i) In the case of excisable goods on which excise duty has not been levied or paid or has been short-levied or short-paid and the No Periodical return as Required by the Provisions of the Act has been filed

Last date on which such return is required to be filed


(ii) In the case of excisable goods on which excise duty has not been levied or paid or has been short-levied or short-paid and the the return has been filed on due date (Deleted by FA 2015)

Date on which such return has been filed.

(iii) Any other case

Date on which excise duty is required to be paid

(iv) Provisional assessment of excise duty Date of adjustment of the excise duty after the final assessment thereof

(v) Erroneous refund of excise duty Date of such refund

(vi) In case where only interest is to be recovered (INSERTED BY FA 2015)

the date of payment of duty to which such interest relates

© Specified Records

“Specified Records” means records including computerised records maintained by the person chargeable with the duty in accordance with any law for the time being in force.’ DELETED BY FA 2015

Analysis

a) Sub-clause (ii) of clause (b) of Explanation 1 clarified that relevant date in the case of excisable goods on which excise duty has not been levied or paid or has been short-levied or short-paid and the return has been filed on due date is the date on which such return has been filed. Thus, earlier, the relevant date was defined only in respect of cases where the return was filed on due date. The said sub-clause (ii) has been amended to provide that relevant date in the case of excisable goods on which excise duty has not been levied or paid or has been short-levied or short-paid and the return has been filed is the date on which such return has been filed. Therefore, now the definition of relevant date has also been provided in respect of cases where a return is not filed on the due date.

b) A new clause (vi) has been inserted in Explanation 1 to provide the relevant date in a case where only interest is to be recovered. In such cases, the relevant date will be the date of payment of duty to which such interest relates. [Effective from 14.05.2015]

Amendment No- 3

Demand provisions under section 11A not to apply where non-payment or short payment of duty is shown in periodic returns [New sub-section (16) inserted]

Provisions of Section 11A not applicable for Recovery of Non/Short Payment of duty declared in Periodic Returns [Sec.11A (16)] Inserted by FA

Provisions of section 11A will not apply to cases where the liability of duty not paid or short-paid is self assessed and declared as duty payable by the assessee in the periodic returns filed by him.

In such cases, recovery of non-payment or short-payment of duty shall be made in such manner as may be prescribed.


2015

Analysis

A new sub-section (16) has been inserted to lay down that provisions of section 11A will not apply to cases where the liability of duty not paid or short-paid is self assessed and declared as duty payable by the assessee in the periodic returns filed by him. In such cases, recovery of non-payment or short-payment of duty shall be made in such manner as may be prescribed. Corresponding amendment has been made in Rule 8(4) of Central Excise Rules, 2002 to provide that provisions of section 11 will be applicable for recovery of non/short-payment of duty declared in the periodic returns. Section 11 provides for recovery of amount due from assessee by attachment and sale of excisable goods or certification proceedings. The amendment basically implies that recovery proceedings can be initiated without issuing a showcase notice. [Effective from 14.05.2015]

Amendment No- 4

Only the show cause notices issued post enactment of the Finance Bill, 2015 will be governed by amended provisions of section 11A [Substituted Explanation 2]

Explanation 2 has been substituted with a new Explanation to provide that any nonlevy, short levy, non-payment, short-payment or erroneous refund where no show cause notice has been issued before 14.05.2015 (the date on which the Finance Bill, 2015 received the assent of the President of India) will be governed by the provisions of section 11A as amended by the Finance Act, 2015. [Effective from 14.05.2015]

Amendment No- 5

Penalty provisions under section 11AC rationalized [Substituted section 11AC by FA 2015]

Penalty for short-levy or non-levy of duty in certain cases [Section 11AC] Cases for Levy of Penalty - [Section 11AC(1)] The amount of penalty for non-levy or short-levy or non-payment or short payment or erroneous refund shall be as follows :-

a. where any duty of excise has not been levied or paid or short-levied or short paid or erroneously refunded, by reason of fraud or collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty.

the person who is liable to pay duty as determined u/s11A(10) shall also be liable to pay-

a penalty equal to the duty so determined;

b. where details of any transaction available in the specified records, reveal that any duty of excise has not been levied or paid or short-levied or short-paid or erroneously refunded as referred to in section 11A(5).

the person who is liable to pay duty as determined u/s 11A(10) shall also be liable to pay-

a penalty equal to 50% of the duty so determined;

c. where any duty as determined u/s 11A(10) and the interest payable thereon u/s 11AA in respect of transactions referred to in clause (b) is paid within 30 days of the date of communication of order of the Central Excise Officer who has determined such duty

the amount of penalty liable to be paid by such person shall be-

25% of the duty so determined only in a case where the penalty is paid within the period so specified.;


d. where the appellate authority modifies the amount of duty of excise determined by the Central Excise Officer u/s 11A(10), then, the amount of penalties and interest payable shall stand modified accordingly and after taking into account the amount of duty of excise so modified

the person who is liable to pay duty as determined u/s11A(10) shall also be liable to pay such amount of penalty or interest so modified.

Explanation: For the removal of doubts, it is hereby declared that in a case where a notice has been served u/s 11A(4) and subsequent to issue of such notice, the Central Excise Officer is of the opinion that the transactions in respect of which notice was issued have been recorded in specified records and the case falls u/s 11A(5), penalty equal to fifty per cent of the duty shall be leviable.

Summary: Levy of penalty is mandatory in case of fraud. CEO has no discretion as to imposition of penalty.

Transaction not captured in the books – 100% of ED [Section 11 AC(1)(a)] Transaction was captured in the books – 50% of ED [Section 11 AC(1)(b)] Transaction was captured in the books and dues paid within 30 days – 25% of ED [Section 11 AC(1)(c)]

Amount by Appellate authority > Amount by CEO - [Section 11AC(2)]

Where the amount as modified by the appellate authority is more than the amount determined u/s 11A(10) by the Central Excise Officer, the time within which the interest or penalty is payable under this Act shall be counted from the date of the order of the appellate authority in respect of such increased amount

DELETED BY FA 2015

Penalty provisions under section 11AC rationalized [Substituted section 11AC by FA 2015] Section 11AC which contained the penalty provisions for short/non-levy or short/non-payment or erroneous refund of excise duty in fraud cases has been substituted by a new section. The penalty provisions under the new section can be broadly classified under two categories:

(i) penalty provisions where duty has been short/non levied or short/non paid or erroneously refunded for reasons other than fraud etc.

(ii) penalty provisions where duty has been short/non levied or short/non paid or erroneously refunded by reason of fraud, collusion etc.

The provisions of new section 11AC are explained hereunder:

A. Duty has been short/non levied or short/non paid or erroneously refunded for reasons other than fraud etc.

(i) Where any excise duty has been short/non levied or short/non paid or erroneously refunded, for any reason other than the reason of fraud/collusion/wilful mis-statement/ suppression of facts/contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under section 11A(10) will also be liable to pay a penalty not exceeding 10% of the duty so determined or Rs. 5,000, whichever is higher [Sub-section 1(a)].

(ii) NIL PENALTY: if such duty along with interest payable under section 11AA is paid either before the issue of show cause notice or within 30 days of issue of show cause notice (but before adjudication order), no penalty shall be payable by the person liable to pay duty or the person


who has paid the duty and all proceedings in respect of said duty and interest will be deemed to be concluded [Proviso to sub-section (1)(a)].

(iii) 25% PENALTY: if the duty and interest is not so paid and the matter is adjudicated and a order determining duty is passed under section 11A(10), the penalty would be reduced to 25% of the penalty imposed if the following amounts are paid within 30 days of the date of communication of the order of the Central Excise Officer who has determined such duty:

Duty as determined under sub-section 11A(10);

Interest payable thereon under section 11AA; and

Reduced penalty (25% of the penalty imposed) [Sub-section (1)(b)].

B. Duty has been short/non levied or short/non paid or erroneously refunded by reason of fraud, collusion etc. (i) Where any excise duty has been short/non levied or short/non paid or erroneously refunded, by

reason of fraud/collusion/wilful mis-statement/ suppression of facts/contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under section 11A(10) will also be liable to pay a penalty equal to the duty so determined [Sub-section (1)(c)].

(ii) In respect of cases where the details relating to such transactions are recorded in the specified records for the period between 08.04.2011 and 14.05.2015 (date on which the Finance Bill, 2015 received the assent of the President [both days inclusive]), the penalty will be 50% of the duty so determined [Proviso to sub-section (1)(c)]. As per Explanation 2, ‘specified records’ means records maintained by the person chargeable with the duty in accordance with any law for the time being in force and includes computerized records.

(iii) 15% PENALTY: However, if the duty in points [B(i) and B(ii)] and the applicable interest is paid within 30 days of the communication of show cause notice, the amount of penalty liable to be paid by such person will be reduced to 15% of the duty demanded, subject to the condition that such reduced penalty is also paid within the period so specified. Further, all proceedings in respect of the said duty, interest and penalty will be deemed to be concluded [Sub-section (1)(d)].

(iv) 25% PENALTY: if the duty in points [B(i) and B(ii)] and the applicable interest is not so paid and the matter is adjudicated and a order determining duty is passed under section 11A(10), the penalty would be reduced to 25% of the duty so determined if the following amounts are paid within 30 days of the date of communication of the order of the Central Excise Officer who has determined such duty:

Duty as determined under sub-section 11A(10);

Interest payable thereon under section 11AA; and

Reduced penalty [25% of the duty determined under section 11A(10)] [Sub-section (1)(e)].

C. If the duty amount gets modified in any appellate proceeding, then the penalty amount mentioned in [B)(i)] and [B(ii)] above and interest shall also stand modified accordingly. Where the duty amount or penalty is increased in the appellate proceedings, the benefit of reduced penalty as specified in [A(iii)] and [B(iv)] above will be admissible if duty, interest and reduced penalty in relation to such increased amount of duty is paid within 30 days of the date of such appellate order [Subsections (2) and (3)].

D. Cases where no show cause notice has been issued prior to 14.05.2015 will be governed by amended provisions of section 11AC [Explanation 1(i)].


E. Proceedings in the pending show cause notices can be closed – (i) on payment of duty, interest and penalty @ 15% of the duty in fraud cases and (ii) on payment of duty and interest in cases not involving fraud etc., within 30 days of 14.05.2015.

F. In all cases where show cause notices are adjudicated after 14.05.2015, reduced penalty @ 25% of the duty in fraud cases and 25% of the penalty imposed in cases not involving fraud etc. can be paid within 30 days of communication of the adjudication order if the duty, interest and penalty is paid within such time. The provisions of section 11AC have been summarized in the figure given Below. [Effective from 14.05.2015]

PENALTY PAYABLE UNDER SECTION 11AC

Non-Fraud Cases Fraud Cases

Penalty payable reduced to 15% of the duty demanded, if such reduced penalty is also paid within 30 days of communication of SCN

If duty & interest paid within 30 days of the date of communication of order

If duty & interest paid within 30 days of the issuance of SCN

If duty & interest paid before issuance of SCN

Penalty up to 10% of the

duty or Rs. 5,000

whichever is greater If duty & interest paid within 30 days of the communicati

on of SCN

If duty & interest paid within 30 days of the date of communicatio

n of order

Penalty payable reduced to 25% of the duty determined, if such reduced penalty is also paid within 30 days of communication

of order

25% of the Penalty imposed will be payable, if such reduced penalty is also paid within 30 days of the date of communicat on of order

Penalty not payable & all proceedings will be deemed to be concluded

Penalty equal to the duty demanded


Amendment No- 6

Penalty provisions of Custom Act Rationalized

Following amendments have been made in section 28 of the Customs Act, 1962 vide the Finance Act, 2015: (i) Penalty not to be imposed in non-fraud cases if duty and/or interest as specified in the notice is paid in full within 30 days of receipt of notice [Section 28(2)] Sub-section (2) of section 28 provides that the person who has paid the duty along with interest or the amount of interest will inform the proper officer of such payment in writing, who, on receipt of such information, will not serve any notice under section 28(1)(a) in respect of the duty or interest so paid or any penalty leviable in respect of such duty or interest. A proviso has been inserted in sub-section (2) to lay down that where notice under section 28(1)(a) has been served (non-fraud cases), penalty will not be imposed if the proper officer is of the opinion that amount of duty along with interest leviable under section 28AA or the amount of interest, as the case may be, as specified in the notice, has been paid in full within 30 days from the date of receipt of the notice. The proceedings in respect of such person or other persons to whom the notice is served will be deemed to be concluded. [Effective from 14.05.2015] (ii) Penalty in fraud cases reduced from 25% to 15% of the duty amount [Section 28(5)] Sub-section (5) of section 28 provided that when a notice is served in respect of cases involving fraud etc., if the notice pays the duty in full or in part, as may be accepted by him, and the applicable interest within 30 days of the receipt of the notice and inform the proper officer of such payment in writing, the penalty would be reduced to 25% of the duty specified in the notice or the duty so accepted by him provided such reduced penalty is also paid by him along with the duty and interest. Sub-section (5) has now been amended to reduce the quantum of such penalty from 25% to 15% of the duty specified in the notice or the duty accepted by the noticee. [Effective from 14.05.2015] (iii) In pending cases (both fraud and non-fraud) where the order has not been passed before 14.05.2015, proceedings to conclude if duty, interest and penalty is paid in full within 30 days of 14.05.2015 [New Explanation 3 to section 28] Explanation 3 has been inserted in section 28 to provide that where a notice under section 28(1) [non-fraud cases] or section 28(4) [fraud cases], as the case may be, has been served but an order determining duty under section 28(8) has not been passed before 14.05.2015 then, without prejudice to the provisions of sections 135, 135A and 140, as may be applicable, the proceedings in respect of such person or other persons to whom the notice is served will be deemed to be concluded if the payment of duty, interest and penalty under the proviso to section 28(2) or under section 28(5), as the case may be, is made in full within 30 days from 14.05.2015. [Effective from 14.05.2015]

Amendment No- 7

Minimum penalty prescribed under sub-sections (4) and (5) of section 37 increased from Rs. 2,000 to Rs. 5,000 [Sub-sections (4) and (5) of section 37]

Section 37 of Central Excise Act, 1944 empowers Central Government to frame rules in various cases. Earlier, section 37(4) of Central Excise Act, 1944 provided for a minimum penalty of Rs. 2,000, if the manufacturer, producer or licensee of a warehouse commits any of the offences specified therein. Similarly, section 37(5) also provided for imposition of a minimum penalty of Rs. 2,000 upon any person who acquires possession of, or is in any way concerned in transporting, removing, 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.


The Finance Act, 2015 has amended sub-sections (4) and (5) of section 37 so as to increase the quantum of minimum penalty prescribed under these sub-sections from Rs. 2,000 to Rs. 5,000. [Effective from 14.05.2015]


Amendment No- 1

All proceedings referred back to the adjudicating authority for a fresh adjudication and not just the proceedings referred back in any appeal or revision ineligible for settlement [Section 31(c)]

Case It means any proceeding under this Act or any other Act for the levy, assessment and collection of excise duty, pending before an adjudicating authority on the date on which an application u/s 32E(1) is made: Provided that- when any proceeding is referred back in any appeal or revision, as the case may be (Deleted by FA 2015) WHETHER IN APPEAL OR REVISION OR OTHERWISE, by any court, Appellate Tribunal or any other authority, to the adjudicating authority for a fresh adjudication or decision, as the case may be, then such proceeding shall not be deemed to be a proceeding pending within the meaning of this clause.

Analysis

1. All proceedings referred back to the adjudicating authority for a fresh adjudication and not just the proceedings referred back in any appeal or revision ineligible for settlement [Section 31(c)]

2. Section 31(c) of the Central Excise Act, 1944 defines a “case” in respect of which an application for settlement can be made before the Settlement Commission. The definition states that a case means any proceeding under the Central Excise Act or any other Act for the levy, assessment and collection of excise duty, pending before an adjudicating authority on the date on which an application under section 32E(1) is made. However, the proviso to clause (c) of section 31 laid down that when any proceeding is referred back in any appeal or revision, as the case may be, by any court, Appellate Tribunal or any other authority, to the adjudicating authority for a fresh adjudication or decision, as the case may be, then such proceeding shall not be deemed to be a proceeding pending within the meaning of this clause. The said proviso to sub-section (c) of section 31 has been amended vide the Finance Act, 2015 so as to provide that when any proceeding is referred back, whether in appeal or revision or otherwise, by any court, Appellate Tribunal Authority or any other authority to the adjudicating authority for a fresh adjudication or decision, then such case shall not be entitled for settlement. This has been done by deleting the reference to the words “in any appeal or revision, as the case may be” in the proviso. Parallel amendment has been made in the Customs Act, 1962 in section 127A(b). [Effective from 14.05.2015]

Amendment No- 2

Proviso to section 32(3) omitted [Proviso to section 32(3)]

The proviso to sub-section (3) of section 32 provides that where a Member of the Central Board of Excise & Customs is appointed as the Chairman, Vice Chairman or Member of the Settlement Commission, he shall cease to be a member of the Board.

COMMON TOPICS: CHAPTER 5 - SETTLEMENT COMMISSION


However, as per Customs and Central Excise Settlement Commission (Recruitment and Conditions of Service of Chairman, Vice Chairman and Members) Rules, Members of the Board are not eligible to be Member of the Settlement Commission. Thus, the proviso to sub-section (3) of section 32 had become redundant. The Finance Act, 2015 has rectified this anamoly by omitting the said proviso. [Effective from 14.05.2015]

Amendment No- 3

In addition to Vice Chairman, Member of the Settlement Commission also empowered to officiate as Chairman of the Commission in his absence [Section 32B]

Section 32B of Central Excise Act, 1944 enabled the Vice-Chairman of the Settlement Commission to act as Chairman of the Commission or to discharge his functions in certain circumstances. The Finance Act, 2015 has amended section 32B so as to enable a Member of the Settlement Commission also to officiate as Chairman in the absence of the Chairman of the Settlement Commission. Such member will be authorized by the Central Government by way of a notification. [Effective from 14.05.2015] It may be noted that the above amendments made in the provisions relating to Settlement Commission will be applicable for service tax also through section 83 of the Finance Act, 1994.


Amendment No- 1

Service tax rate enhanced from 12% to 14% and (ii) Levy of education cesses on taxable services ceased to have effect [Section 66B] 2% Swachh Bharat Cess to be levied on value of all or any of taxable services

Charge of service tax [Section 66B] Section 66B is the charging section of the Act, which provides that -

there shall be levied a tax (hereinafter referred to as the service tax) at the rate of 12% 14%[from 01.06.2015 rate has been enhanced from 12% to 14%] on the value of all services other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

2% Swachh Bharat Cess to be levied on value of all or any of taxable services [Section 119 of the Finance Act, 2015] Section 119 of the Finance Act, 2015 has empowered the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. This cess shall be levied from such date as may be notified by the Central Government. The details of coverage of this Cess would be notified in due course. However, no notification has been issued in this regard, as yet. [To be effective from a date to be notified]

ANALYSIS

The rate of service tax has been increased from 12% to 14%. Further, the ‘Education Cess’ @ 2% and ‘Secondary and Higher Education Cess’ @ 1% have been subsumed in the revised rate of service tax. Thus, the effective increase in service tax rate is from the existing 12.36% (inclusive of cesses) to 14%, subsuming the cesses. The change in rate of service tax has been effected as under: i. Section 66B, the charging section, has been amended to increase the rate of service tax from 12% to

14%.

ii. It has been provided vide sections 153 and 159 respectively of the Finance Act, 2015 that sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007, levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect.

Both the above amendments were to be effective from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015. The Central Government, after the Bill got enacted on 14.05.2015, vide Notification No. 14/2015 dated 19.05.2015 has notified June 1, 2015 as the date for these amendments to become effective. Thus, the new service tax rate has come into effect from 01.06.2015.

CHAPTER 1: BASIC OVERVIEW OF SERVICE TAX


[Effective from 01.06.2015]

Amendment No- 2

Activities undertaken by (i) chit fund foremen in relation to chit and (ii) lottery distributors and selling agents in relation to lotteries are not transactions in money or actionable claim and are thus, liable to service tax - Explanation 2 substituted in the definition of “service” [Explanation 2 to section 65B(44)]

Definition of service [Section 65B(44)] (w.e.f 01/07/2012)

Means & Includes But Excludes

i. any activity for consideration

ii. carried out by a person for another

a declared service

a) an activity which constitutes merely,— i. a transfer of title in goods or immovable

property, by way of sale, gift or in any other manner; or

ii. such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

iii. a transaction in money or actionable claim; b) a provision of service by an employee to the employer

in the course of or in relation to his employment; c) fees taken in any Court or tribunal established under

any law for the time being in force.

Explanation 1

………………………………………

Explanation 2

For the purposes of this clause, transaction in money shall not include :

any activity relating 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 for which a SEPARATE CONSIDERATION IS CHARGED.

any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out– a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;

b) by a foreman of chit fund for conducting or organising a chit in any manner. (Insertion)

Analysis of the Amendment-Effective from 14.05.2015

Relevant Provision

Clause (44) of section 65B inter alia defines service to mean any activity carried out by a person for another for consideration, and includes a declared service. The definition inter alia excludes an activity which constitutes merely a transaction in money or actionable claim.

Judgments of Court

a) The Delhi High Court in the case of Delhi Chit Fund Association v. UOI 2013 (30) STR 347 (Del.)1 held that services of a foreman of a chit business do not constitute taxable service and thus, are not liable to service tax. The High Court observed that since in a chit 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. Further, since services rendered by foreman of a chit business for which separate consideration is charged is not an activity of the nature explained in Explanation 2 to section 65B(44), the same would be out of the clutches of the definition. The Special Leave Petition filed by the Department against the High Court order has been dismissed by the Supreme Court vide an order dated 7th January, 2014 – 2014-TIOL-23-SC-ST.

b) The Sikkim High Court in the case of Future Gaming Solutions India Pvt. Ltd. 2014 (36) STR 733 (Sikkim) examined the issue as to whether the activity of promoting, organising or assisting in arranging the sale of lottery tickets of the Government is a taxable service under the Finance Act, 1994 or not. After noting the decision of the Supreme Court in the case of Sunrise Associates vs. Govt. of NCT of Delhi and Others - 2006-TIOL-4O-SC-CT-LB, wherein lotteries have been held to be actionable claims, the High Court held that in the light of section 65B(44), lottery is excluded from the definition of 'service' being an 'actionable claim'. Further, lottery also stands excluded from the purview of service tax since it is covered in negative list of services. The High Court was of the view that the activity of petitioner comprising of promotions, organising, reselling or any other manner assisting in arranging of lottery tickets of the State Lotteries does not establish the relationship of a principal or an agent but rather that of a buyer and a seller and, on principal to principal basis in view of the nature of the transaction consisting of bulk purchases of lottery tickets by the petitioner from the State Government on full payment on a discounted price as a natural business transaction and, other related features like there being no privity of contract between the State Government and the stockists, agents, resellers under the Petitioner.

Amendments made by

Finance Act

The Finance Act, 2015, however, has now substituted Explanation 2 to the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and lottery distributors and selling


2015 agents in relation to lotteries.

TRU Letter explaining the

budget proposals

The TRU Letter explaining the budget proposals says that the intention in law has been to levy service tax on the services provided by: a) chit fund foremen by way of conducting a chit b) distributor or selling agents of lottery, as appointed or authorized by the organizing

state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

Thus, it has been made clear that what is excluded from the definition of service is only a transaction in money or actionable claim (like lottery) and not any activity in relation to, or for facilitation of a transaction in money or actionable claim

Judgments of the Court

Overruled by the

Amendments Made by

Finance Act

Thus, the decision of the Delhi High Court in the case of Delhi Chit Fund Association v. UOI and Sikkim High Court in the case of Future Gaming Solutions India Pvt. Ltd. described above stand overruled to that extent.

Certain Other Interconnected Amendments

With effect from 01.06.2015, an Explanation has been inserted in clause (i) of section 66D which covers betting, gambling or lottery under negative list of services. The Explanation clarifies that the expression 'betting, gambling or lottery' shall not include the activity specified in Explanation 2 to section 65B(44). Thus, by virtue of the said amendments, the activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner shall be out of the ambit of transaction in money or actionable claim' as well as the negative list of services.

A new clause Section 65B(23A) to define the term “foreman of chit fund” as under: “Foreman of chit found shall have the same meaning as is assigned to the term foreman in clause (j) of section 2 of the Chit Funds Act, 1982.”

Also, another new clause Section 65B(31A) to define the term “lottery distributor or selling agent” as under:

“Lottery distributor or selling agent means a person appointed or authorised by a State for the purposes of promoting, marketing, selling or facilitating in organizing lottery of any kind, in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998.”


Amendment No- 3

Illustration inserted in section 66F to explain the principle of bundled services [Section 66F]

Section 66F prescribes the principles to interpret the specified descriptions of services or bundled services. Section 66F(1) prescribes that unless otherwise specified, reference to a service (main service) shall not include reference to any input service used for providing such service (main service). The following illustration has been incorporated in this section to exemplify the scope of this provision: “The services by the Reserve Bank of India, being the main service within the meaning of clause (b) of section 66D, does not include any agency service provided or agreed to be provided by any bank to the Reserve Bank of India. Such agency service, being input service, used by the Reserve Bank of India for providing the main service, for which the consideration by way of fee or commission or any other amount is received by the agent bank, does not get excluded from the levy of service tax by virtue of inclusion of the main service in clause (b) of the negative list in section 66D and hence, such service is leviable to service tax.” [Effective from 14.05.2015]


Taxable Value of Service for different mode of Consideration [Section 67(1)] Where service tax chargeable on any taxable service with reference to its value shall,—

i in a case where the provision of service is for a consideration in money

The gross amount charged by the service provider for such service provided or to be provided by him

ii in a case where the provision of service is for a consideration not wholly or partly consisting of money

Such amount in money, with the addition of service tax charged, is equivalent to the consideration.

iii in a case where the provision of service is for a consideration which is not ascertainable,

The amount as may be determined in the prescribed manner.

Explanation: For the purposes of this section, -

(a) “Consideration” includes any amount that is payable for the taxable services provided or to be provided; (Substituted) Consideration includes– i. any amount that is payable for the taxable services provided or to be provided;

ii. any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable services except in such circumstances, and subject to such conditions, as may be prescribed.

iii. Any amount retained by the lottery distributor or selling agent from the gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which distributor and selling agent gets such tickets.

(b) Omitted

(c ) Gross amount charged” includes

payment by cheque, credit card,

deduction from account and

any form of payment by issue of credit notes or debit notes and

book adjustment, and

any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

Latest Amendments

Consideration for a service includes (i) reimbursements and (ii) amount retained by distributor/selling agent of lottery from gross sale amount of lottery ticket or discount received thereon [Clause (a) of Explanation to section 67]

AMENDMENTS BY FINANCE ACT, 2015

Analysis i. Section 67 prescribes the provisions for determining the value of taxable services. Clause (a) of

Explanation to section 67 clarified that “consideration” includes any amount that is payable for the

CHAPTER 3: VALUATION OF SERVICES


taxable services provided or to be provided.

ii. As per rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as Valuation Rules) expenditure/costs incurred by service provider in course of providing taxable service have to be treated as consideration for taxable service and included in value for charging service tax.

iii. The Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India

2013 (29) S.T.R. 9 (Del.)2 held that rule 5(1) of the Valuation Rules runs counter and is repugnant to erstwhile section 66 and section 67 of the Act and to that extent it is ultra vires the Finance Act, 1994.

The High Court held that it is only the consideration for the taxable service which is chargeable to tax under the relevant sections but 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 Department has filed an appeal to Supreme Court against the aforesaid decision and it has been admitted in 2014 (35) STR J99 (SC).

iv. The Finance Act, 2015 has sought to put to rest the above dispute by substituting clause (a) of Explanation

to section 67 which defines consideration.

v. The substituted clause (a) of Explanation to section 67 reads as under: a) consideration includes–

I. any amount that is payable for the taxable services provided or to be provided;

II. any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable services except in such circumstances, and subject to such conditions, as may be prescribed.

III. Any amount retained by the lottery distributor or selling agent from the gross sale amount of lottery

ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which distributor and selling agent gets such tickets.

vi. The TRU Letter explaining the budget proposals says that the intention has always been to include

reimbursement expenditure in the value of taxable services. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature has been specially stated in section 67 (in the form of new definition of consideration). Thus, the rational of Delhi High Court decision in the Intercontinental Consultants & Technocrats Pvt. Ltd. case, of rule going beyond the statutory provisions contained in relevant sections will no longer hold good.

vii. Further, a consequential amendment has been made in clause (aa) of section 94(2). Under section

94(2)(aa), the Central Government was empowered to make rules for the determination of the amount and value of taxable service under section 67. The said sub-clause has been substituted to provide that rules can be made for determination of the amount and value of service, the manner thereof, and the circumstances and conditions under which an amount shall not be a consideration, under section 67.



Amendment No- 1

Definition of Government incorporated in the Act

All services provided by the Government or local authority to a business entity removed from the negative list

1. Section 66D(a) Services provided by Government or Local Authority

Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere— (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an Rs.airport; (iii) transport of goods or passengers; or (iv) support services (ANY SERVICE, yet to be notified*) other than services covered under clauses (i) to (iii) above, provided to business entities

*The words ―support services are to be substituted with the words ―any service from a date to be notified by the Central Government. However, no such date has been notified as yet.

Meaning of Government Section 65B(26A)

Government means : the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the

accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder[Effective from 14.05.2015]

Government has nowhere been defined in the Finance Act, 1994 or the rules made thereunder. As per General Clauses Act, 1897, Government shall include both the Central Government and any State Government [Section 3(23)of the General Clauses Act, 1897]. It would include various departments and offices of the Central or State Government or the Union Territory Administrations which carry out their functions in the name and by order of the President of India or the Governor of a State.

ANALYSIS

Definition of Government incorporated in the Act [Section 65B(26A)]

Services, excluding a few specified services, provided by the Government are included in the Negative List. Further, specified services received by the Government are also exempt. However, the term “government” had not been defined in the Act or under any notification. This gave rise to interpretational issues. To address such issues, w.e.f. 14.05.2015, a definition of the term “Government” has been incorporated in the Act vide clause (26A) under section 65B.

All services provided by the Government or local

Services provided by the Government or a local authority, excluding certain services, are covered in the Negative List of services vide clause (a) of section 66D. The excluded services are specified under sub clause (i) to (iv) of clause (a). Sub-clause (iv) covers

CHAPTER 5: NEGATIVE LIST OF SERVICES


authority to a business entity removed from the negative list [Section 66 D(a) (iv)]

support services provided by the Government or Local authority to business entities thereby making the same liable to service tax. The said sub-clause (iv) has been amended by substituting the words “support services" with the words “any services”. This would enable exclusion of all services provided by the Government or Local authority to a business entity from the Negative List. Consequently, the definition of “support services” as provided under section 65B(49) has also been omitted. Therefore, all services provided by the Government or Local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List would be liable to service tax net on account of the said amendment. However, this cannot be the intention of the legislature. An appropriate clarification from the Department would be required to clear such doubts. It may be noted that this amendment is yet to become effective as the date on which the same will come into effect has not been notified as of now. [To be effective from a date to be notified]

Amendment No- 2

Services by way of carrying out any process amounting to manufacture/ production of potable liquor made liable to service tax [Section 66D(f)]

Section 66D(f) Processes amounting to manufacture or production of goods

Services by way of carrying out any process amounting to manufacture or production of goods EXCLUDING ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION (Insertion)” shall not be taxable.

Process amounting to manufacture or production of goods [Section 65B(40)]

It means (i) a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 or (ii) any process amounting to manufacture of alcoholic liquors for human consumption, (Omitted)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

Analysis Services by way of carrying out any process amounting to manufacture or production of goods were covered in the Negative List under Section 66D(f). Clause (f) has been substituted by a new clause to exclude process for production or manufacture of alcoholic liquor for human consumption from the ambit of negative list. Consequently, service tax would be levied on contract manufacturing/job work for production of potable liquor for a consideration. The substituted clause (f) reads as under:


“services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption”. Pursuant to the said amendment, following consequential amendments have also been made in other provisions of service tax law: i. The words “alcoholic liquors for human consumption” have been omitted from the definition of the term

“process amounting to manufacture or production of goods” as provided in clause Section 65B(40). The amended definition reads as under:

“process amounting to manufacture or production of goods” means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 or any process amounting to manufacture of 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”. ii. Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended to withdraw exemption

pertaining to intermediate production of alcoholic liquor for human consumption. The amendments in the Mega Exemption Notification have been discussed in detail in Chapter 5: Exemptions and Abatements.


Amendment No- 3

Admission to entertainment events or access to amusement facilities made liable to service tax [Section 66D(j)]

10.Entry to Entertainment Events and Access to Amusement Facilities [Section 66D(j)]

Following two services are not taxable:-

i. Entry to entertainment events ii. Access to amusement facilities

Entertainment event [Section 65B(24)]: Entertainment event means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition of

cinematographic film,

circus,

performances including drama, ballets or

any such event or programme. Amusement facility [Section 65B(9)]: Amusement facility means a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places but does not include a place within such facility where other services are provided.


Clarifications

Cultural programme, drama or a ballet held in an open garden not in a theatre

Standalone ride set up in a mall

Entry to video parlors exhibiting movies played on a DVD player & displayed on a TV screen

Membership of a club

Auxiliary services for organizing an entertainment event etc.

It qualifies as an entertainment event

The words used in the definition are ‘theatrical performances’ and not ‘performances in theatres’. A cultural programme, drama or a ballet preformed in the open does not cease to be a theatrical performance provided it is performed in the manner it is performed in a theatre, i.e. before an audience.

It qualifies as an amusement facility

A standalone amusement ride in a mall is also a facility in which fun or recreation is provided by means of a ride. Access to such amusement ride on payment of charges would be covered in the negative list.

Entry to video parlors exhibiting movies played on a DVD player and displayed through a TV screen is covered in the entry because such exhibition is an exhibition of cinematographic film.

DOES NOT qualify as access to an amusement facility.

A club does not fall in the definition of an amusement facility. Hence, membership of a club does not mean access to an amusement facility.

Auxiliary services provided by a person, like an event manager, for organizing an entertainment event or by an entertainer for providing the entertainment to an entertainment event organizer would NOT be covered in this entry.

Such services are in the nature of services used for providing the service specified in this negative list entry and would not be covered in the ambit of such specified service by operation of the rule of interpretation contained in clause (1) of section 66F of the Act.

Analysis Clause (j) of the negative list under section 66D pertaining to “admission to entertainment events or access to amusement facilities” has been omitted vide the Finance Act, 2015. Consequently, the definitions of “amusement facility” and “entertainment event” as contained in section 65B(9) and section 65B(24) have also been omitted. Therefore, service tax would be leviable on admission to entertainment event or access to amusement facility. Thus, entry to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks would be exigible to service tax. However, simultaneous exemption has also been provided in respect of admission to certain specific events/programmes etc. by inserting a new entry in the Mega Exemption Notification. The amendments in the Mega Exemption Notification have been discussed in detail in Chapter 5: Exemptions and Abatements. [Effective from 01.06.2015]


Amendment No- 1

Exemption to carrying out an intermediate production process of alcoholic liquor for home consumption on job work basis withdrawn

ENTRY NO.-30

Carrying out an intermediate production process as job work in relation to - a) agriculture, printing or textile processing; b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious

metals, falling under Chapter 71 of the Central Excise Tariff Act, 1985; c) any goods on which appropriate duty is payable by the principal manufacturer; BUT EXCLUDE CARRYING

OUT AN INTERMEDIATE PRODUCTION PROCESS OF ALCOHOLIC LIQUOR FOR HOME CONSUMPTION ON JOB WORK(Insertion); OR

d) processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of Rs. 150 lakh in a financial year subject to the condition that such aggregate value had not exceeded Rs.150 lakh rupees during the preceding financial year

are exempt from service tax.

Analysis Earlier, carrying out an intermediate production process as job work in relation to any goods on which appropriate duty is payable by the principal manufacturer was exempt from service tax vide clause (c) of entry 30 of the notification. However, consequent to imposition of service tax on services by way of manufacture of alcoholic liquor for human consumption, an amendment has been made in entry 30(c) of the notification to exclude carrying out of intermediate production process of alcoholic liquor for human consumption on job work, from this entry. [Effective from 01.06.2015]

Amendment No- 2

Services by way of right to admission to certain events/programmes exempted

ENTRY NO.-47

Services by way of right to admission to,-

exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet;

recognized sporting event; award function, concert, pageant, musical performance or any sporting event other than a recognized sporting event, where the

CHAPTER 7: EXEMPTIONS AND ABATEMETS

http://www.google.co.in/url?sa=i&rct=j&q=&esrc=s&source=imgres&cd=&cad=rja&uact=8&ved=0ahUKEwil19fMmJrKAhVEGo4KHTgfD1gQjRwICTAA&url=http://somaevents.com/our-services/&psig=AFQjCNEDj_kiHprxu6G6tyggQ4rmA8oSog&ust=1452341705204291


consideration for admission is not more than ₹ 500 per person

Recognized sporting event [Clause (zab)]

mean any sporting event- i. organised by a recognised sports body where the participating team or

individual represent any district, state, zone or country; ii. covered under entry 11.

Analysis With effect from 01.06.2015, clause (j) of the negative list under section 66D pertaining to “admission to entertainment events or access to amusement facilities” has been omitted vide the Finance Act, 2015. Therefore, service tax would be leviable on admission to entertainment event or access to amusement facility. However, simultaneous exemption has also been provided in respect of admission to certain specific events/programmes etc. [described below] by inserting a new entry 47 in the mega exemption notification. Thus, in effect service tax would continue to be exempted on these activities even after the amendment made in the negative list. The difference would be, thus, that prior to 01.06.2015, these activities were covered under the negative list of services and from 01.06.2015 they would be exempted vide Mega Exemption Notification. New entry 47 provides exemption in respect of the services by way of right to admission to-

i. exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet; ii. recognized sporting event;

iii. award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than Rs. 500 per person.

Therefore, service tax would be levied on service by way of admission to entertainment event of concerts, pageants, musical performance, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. Entry 11 of the notification covers services by way of sponsorship of sporting events organised- a) a national sports federation, or its affiliated federations, where the participating teams or individuals

represent any district, state, zone or country; b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All

India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat; c) by Central Civil Services Cultural and Sports Board; d) as part of national games, by Indian Olympic Association; or e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme.



Special provision for payment of service tax

A. In case of air travel agent [Rule 6(7)] Person liable for paying the service tax in relation to the services provided by an air travel agent, shall have the option to pay following amounts instead of paying service tax at the rate of 14%:-

In the case of Option to pay an amount calculated at the rate of

Domestic bookings of passage for travel by air 0.6% of the basic fare0.7% of the basic Fare

International bookings of passage for travel by air 1.2% of the basic fare 1.4% of the basic Fare

Note: The option once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air

made by him and shall not be changed during a financial year under any circumstances. "Basic fare" means that part of the air fare on which commission is normally paid to the air travel agent by

the airline.

B. In case of insurer carrying on life insurance business [Rule 6(7A)]: An insurer carrying on life insurance business shall have the option to pay tax: (i) on the gross premium charged from a policy holder reduced by the amount allocated for investment, or

savings on behalf of policy holder, if such amount is intimated to the policy holder at the time of providing of service;

(ii) Where amount of the gross premium allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service:-

First year on 3%3.5% of the gross amount of premium charged

Subsequent year on 1.5% 1.75% of the gross amount of premium charged

towards the discharge of his service tax liability instead of paying service tax at the rate of 14%.

Option not available in certain cases Such option shall not be available in cases where the entire premium paid by the policy holder is only towards risk cover in life insurance.

C. In case of sale/purchase of foreign currency including money changing [Rule 6(7B)]: Person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, has an option to pay an amount at the following rates instead of paying service tax at the rate of 12%:-

S.No. For an amount Service tax shall be calculated at the rate of

1 Upto Rs.100,000 0.12 % of the gross amount of currency exchanged or Rs. 30 whichever is higher

CHAPTER 10 – PAYMENT OF SERVICE TAX & REVERSE CHARGE


0.14 % of the gross amount of currency exchanged or Rs.35 whichever is higher

2 Exceeding Rs. 1,00,000 and upto Rs. 10,00,000

Rs.120 + 0.06 % of the excess over Rs. 1,00,000 Rs.140 + 0.07 % of the (gross amount of currency exchanged -Rs.1,00,000)

3 Exceeding Rs. 10,00,000

Rs.660 + 0.012 % of the excess over Rs. 10,00,000 or Rs.6,000 whichever is lower Rs.770 + 0.014 % of the (gross amount of currency exchanged -Rs.10,00,000) or Rs.7,000 whichever is lower

Note: However, the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

D. In case of service of promotion, marketing or organising/assisting in organizing lottery [Rule 6(7C)]: An optional mode of payment of service tax has been provided for the taxable service of promotion, marketing or organising/assisting in organising lottery in the following manner instead of paying service tax at the rate of 12%:-

Where the guaranteed lottery prize payout is > 80%

Rs.7,000/-8,200 on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

Where the guaranteed lottery prize payout is < 80%

Rs. 11,000/- 12,800 on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

Note: 1) In case of online lottery, the aggregate face value of lottery tickets will be the aggregate value of tickets

sold. 2) The distributor/selling agent will have to exercise such option within a period of one month of the

beginning of each financial year. The new service provider can exercise such option within one month of providing the service.

3) The option once exercised cannot be withdrawn during the remaining part of the financial year.

Analysis Alternative rates for payment of service tax on air travel agent’s service, life insurance services, money changing service and service provided by lottery distributor/selling agent increased pursuant to the upward revision in service tax rate [Sub rules (7), (7A), (7B) and (7C) of rule 6] In respect of services given in the table below, the service provider has been allowed to pay service tax at an alternative rate subject to the conditions prescribed under rule sub-rules (7), (7A), (7B) and (7C) of rule 6 of the Service Tax Rules, 1994. Consequent to the upward revision in service tax rate from 12% to 14%, the said alternative rates have also been revised proportionately as under:


Rule Service Old Rate New Rate

Rule 6(7) Air travel agent’s service (Domestic Bookings)

0.6% of the basic fare 0.7% of the basic Fare

Air travel agent’s service (International Bookings)

1.2% of the basic Fare 1.4% of the basic Fare

Rule 6(7A) Life insurance service (First year)

3% of the premium Charged

3.5% of the premium charged

Life insurance service (Subsequent year)

1.5% of the premium Charged

1.75% of the premium charged

Rule 6(7B) Money changing service

Upto Rs.100,000

0.12 % of the gross amount of currency exchanged or Rs.30 whichever is Higher

0.14 % of the gross amount of currency exchanged or Rs.35 whichever is higher

Exceeding Rs.1,00,000 and upto Rs.10,00,000

Rs.120 + 0.06 % of the (gross amount of currency exchanged -Rs.1,00,000)

Rs.140 + 0.07 % of the (gross amount of currency exchanged -Rs.1,00,000)

Exceeding Rs. 10,00,000

Rs.660 + 0.012 % of the (gross amount of currency exchanged -Rs.10,00,000) or Rs.6,000 whichever is lower

Rs.770 + 0.014 % of the (gross amount of currency exchanged -Rs.10,00,000) or Rs.7,000 whichever is lower

Rule 6(7C) Lottery distributor and selling agent’s service

Where the guaranteed Lottery prize payout is > 80%

Rs.7000/- on every Rs.10 lakh (or part of Rs.10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw

Rs.8,200/-on every Rs.10 lakh (or part of Rs.10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

Where the guaranteed Lottery prize payout is < 80%

Rs.11,000/- on every Rs.10 lakh (or part of Rs.10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw

Rs.12,800/- on every Rs.10 lakh (or part of Rs.10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

[Effective from 01.06.2015] The meaning of distributor or selling agent given vide sub-clause (i) of the Explanation to rule 6(7C) has been omitted as the same has been provided in the Finance Act, 1994 itself under section 65B(31A). [Effective from 14.05.2015]


Amendment No- 1

Self-assessed service tax that is declared in the return but not paid, to be recovered under section 87 without service of any notice [Sub-section (1B) inserted]

A new sub-section (1B) has been inserted in section 73 which provides that notwithstanding anything contained in section 73(1), in a case where the amount of service tax payable has been self-assessed in the return furnished under section 70(1), but not paid either in full or in part, the same will be recovered along with interest thereon in any of the modes specified in section 87, without service of notice under section 73(1).

It may be noted that the sub-section starts with the words 'Notwithstanding anything contained in sub-section (1)' and ends with the words 'without service of notice under sub-section (1)'. Thus, once liability is admitted by the assessee in his returns, no show cause notice is required for recovery and since the provisions of section 73(1) will not apply, the period of limitation will not apply either.

Consequent to the above insertion of sub-section (1B), rule 6(6A) of Service Tax Rules, 1994 has been deleted which provided for recovery of service tax self assessed and declared in the return (but not paid) under section 87. [Effective from 14.05.2015]

Amendment No- 2

Provision for reduced penalty where true and complete details of transaction are available on specified records removed from the statute [Sub-section (4A) omitted]

Sub-section (4A) of section 73 provided that where short/non-payment or short/nonlevy or erroneous refund of service tax is noticed in the course of departmental audit/ investigation/ verification but the true and complete details of transactions are captured in the specified records; the assessee (apart from non-levied/short levied or non-paid/short paid or erroneous refunded tax an applicable interest) is liable to pay 1% of such tax per month for the period during which the default continues subject to a maximum of 25% of the tax amount, to close the proceedings without service of a notice. The said sub-section (4A) has now been omitted by the Finance Act, 2015.


Amendment No- 3 Provision for reduced penalty where true and complete details of transaction

CHAPTER 14 – OTHER PROVISIONS


are available on specified records removed from the statute [Sub-section (4A) omitted]

i. In respect of orders passed by Commissioner (Appeals) relating to transit loss, processing loss,

rebate of duty or export without payment of duty, a revision application has to be filed with the Revision Authority (Central Government) and not an appeal before CESTAT in terms of section 35EE of the Central Excise Act, 1944.

ii. Vide section 83 of the Finance Act, 1994, certain sections of the Central Excise Act are made applicable so far as may be, in relation to service tax as they apply in relation to a duty of excise. Section 35EE of Central Excise Act, 1944 has been made applicable to service tax vide the Finance Act, 2012.

iii. As per section 86 of the Finance Act 1994, an appeal can be made to the CESTAT, inter alia, against an order passed by the Commissioner (Appeals). In line with the provisions of section 35EE, section 35B of Central Excise Act, 1944 bars an appeal to the CESTAT in respect of transit loss, processing loss, rebate of duty or export without payment of duty. However, there is no such restriction in section 86 under service tax.

iv. This created doubts as to whether in respect of cases involving service tax rebate, an appeal needs to be filed with CESTAT or a revision application is to be filed with the Central Government.

v. The Delhi High Court in the case of CCEx. v. Glyph International Ltd 2014 (35) STR (30) (All.) held that in such cases the appeal will lie to CESTAT. The High Court observed that amendment to section 83 by making a specific reference to section 35EE of the Central Excise Act, 1944 did not make any difference to the nature of jurisdiction exercisable by the CESTAT under section 86; it continued to possess jurisdiction to decide on matters pertaining to rebate and refund. The Mumbai High Court also concurred with the Delhi High Court’s view in the case of Commissioner of Service Tax-I vs Ambe International 2015-TIOL-577-HC-MUM-ST.

vi. The Finance Act, 2015 has, however, amended section 86 to prescribe that remedy against the order passed by Commissioner (Appeals), in a matter involving rebate of service tax on input services or rebate of duty paid on inputs, used in providing the service which has been exported shall lie in terms of section 35EEE of the Central Excise Act. A proviso has been inserted in Section 86(1) to give effect to this amendment.

vii. It has also been provided that all appeals filed in tribunal, pertaining to said matter, after

28.05.2012 [date of enactment of the Finance Act, 2012] and pending before it upto 14.05.2015 will be transferred and dealt in accordance with Section 35EE of the Central Excise Act. Second proviso has been inserted in Section 86(1) to give effect to this amendment.

viii. Therefore, now for in matters involving rebate of service tax of rebate of duty paid on inputs used

in providing the service which has been exported, a revision application will be filed with the Revision Authority and not an appeal with CESTAT and all cases pending in the CESTAT will be transferred to the Revision Authority.


ix. Section 86(1) provided that any assessee aggrieved by the order passed by a Commissioner/Principal Commissioner of Central Excise under section 73 or section 83A or an order passed by a Commissioner of Central Excise (Appeals) under Section 85, may appeal to the Appleate Tribunal against such order within 3 months of the date of receipt of the order. Pursuant to the above amendment, consequential amendment has been made to substitute the words any assessee with the words “save as otherwise provided herein, an assessee’.


Amendment No- 1

Penalty provisions under section 78 rationalized [Substituted section 78]

Penalty for suppressing the value of taxable services [Substituted section 78] Earlier Provision: Penalty for service tax not levied or paid or short-levied or short-paid or erroneously refunded [Section 78(1)] : Where any service tax has not been levied or paid or has been short-levied or short paid or erroneously refunded, by reason of-

(i) fraud; or (ii) collusion; or

(iii) wilful mis-statement; or (iv) suppression of facts; or (v) contravention of any of the provisions of this Chapter or of the rules made thereunder with

the intent to evade payment of service tax, person, liable to pay such service tax or erroneous refund, as determined under section 73(2), shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded. Provided that-

(1) (2) (3)

Reduced penalty in case true and complete details of the transactions are available in the specified records Penalty to be halved:

Penalty further reduced to 25% of the service tax if service tax and interest payable thereon paid within 30 days :

Benefit of Reduced Penalty subject to payment within 30 days

Where true and complete details of the transactions are available in the specified records, penalty shall be reduced to 50% of the service tax so not levied or paid or short levied or short-paid or erroneously refunded.

Where such service tax and the interest payable thereon is paid within 30 days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be 25% of such service tax

It may be noted that the benefit of reduced penalty is available only if the amount of penalty so determined has also been paid within the said period of 30 days

CHAPTER 13 – ADJUDICATION & OFFENCES


Period of 30 days extended to 90 days for service providers with turnover upto Rs. 60 lakh : In case of a service provider whose value of taxable services does not exceed Rs. 60 lakh during any of the years covered by the notice or during the last preceding financial year, the period of 30 days shall be extended to 90 days. Amount of penalty to be modified accordingly in case of increase/decrease in the amount of service tax payable [section 78(2)] : Where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court then, for the purposes of this section, the service tax as reduced or increased, as the case maybe, shall be taken into account Provided that-

(1) (2)

Benefit of reduced penalty of 25% of service tax available if increased service tax and interest thereon and 25% of consequential increase of

penalty paid within 30/90 days

Section 76 not to apply

In case where the service tax to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the second proviso to Section 78(1), shall be available, if the amount of service tax so increased, the interest payable thereon and 25% of the consequential increase of penalty have also been paid within 30 days or 90 days, as the case may be, of communication of the order by which such increase in service tax takes effect

If the penalty is payable under section 78 (penalty for suppressing value of taxable services), the provisions of section 76 (penalty for failure to pay service tax) shall not apply

Section 78 which contained the penalty provisions for short/non-levy or short/non-payment or erroneous refund of service tax in fraud cases has been substituted by a new section. The new penalty provisions under section 78 are explained hereunder:

i. Where any service tax has been short/non levied or short/non paid or erroneously refunded, by reason of fraud/collusion/wilful mis-statement/ suppression of facts/contravention of any of the provisions of service tax law with intent to evade payment of service tax, the person who has been served notice under the proviso to section 73(1) [fraud cases invoking extended period of limitation] be liable to pay a penalty which shall be equal to 100% of such service tax. The above penalty is payable in addition to the service tax and interest specified in the notice [Subsection (1)].


Benefit of reduced penalty

ii. In respect of the cases where the details relating to such transactions are recorded in the specified record for the period beginning with 08.04.2011 upto 14.05.2015 (both days inclusive), the penalty will be 50% of the service tax so determined [First proviso to sub-section (1)].

iii. Here, "specified records” means records including computerised data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of accounts shall be considered as the specified records [Explanation to sub-section (1)].

iv. However, if service tax and interest is paid within 30 days of the date of service of notice under the proviso section 73(1), the penalty payable will be 15% of such service tax and proceedings in respect of such service tax, interest and penalty will be deemed to be concluded [Clause (i) of second proviso to sub-section (1)].

v. However, if service tax and interest is paid within 30 days of the date of receipt of the order of the Central Excise Officer determining the amount of service tax under section 73(2), the penalty payable will be 25% of the service tax so determined [Clause (ii) of second proviso to sub-section (1)].

vi. The benefit of reduced penalty under clause (i) [15%] or clause (ii) [25%] of second proviso to section 78(1) will be available only if the amount of such reduced penalty is also paid within such period [Third proviso to sub-section (1)].

vii. Where the Commissioner (Appeals)/ the Appellate Tribunal/ the court modifies the amount of service tax determined under section 73(2), then the amount of penalty payable under section 78(1) and the interest payable thereon under section 75 will stand modified accordingly. The person who is liable to pay such modified amount of service tax, will also be liable to pay the amount of penalty and interest so modified [Sub-section (2)].

viii. Where the amount of service tax or penalty is increased by the Commissioner (Appeals)/ the Appellate Tribunal/ the court over and above the amount as determined under section 73(2), the time within which the interest and the reduced penalty is payable under clause (ii) of the second proviso to section 78(1) in relation to such increased amount of service tax will be counted from the date of the order of the Commissioner (Appeals)/ the Appellate Tribunal/ the court, as the case may be [Sub section (3)]

The penalties payable under sections 76 and 78 are illustrated with the help of the following example:

Section 76 - Non-fraud cases

Service tax short/ nonlevied or

Penalty leviable

Date of service of Show cause

Date of receipt of the order

Date of payment of service tax

Penalty payable, if Any


short/ non paid or erroneously refunded

Notice and interest

Rs. 1,00,000

Up to Rs. 10,000

20.05.2015 NA 10.06.2015 No penalty as service tax and interest is paid within 30 days of 20.05.2015 (date of service of show cause notice)

Rs. 1,00,000

Up to Rs. 10,000

20.05.2015 20.08.2015 10.09.2015 25% of penalty imposed in the order, if such reduced penalty is also paid within 30 days of 20.08.2015 (date of receipt of the order)

Rs.1,00,000

Rs. 1,00,000

20.05.2015 20.08.2015 25.09.2015 100% of the service tax determined in the order as service tax and interest is paid after 30 days of 20.08.2015 (date of receipt of the order)


Amendment No- 2

Transition provisions provided for applicability of new penalty provisions under sections 76 and 78 [New section 78B]

A new section 78B has been inserted to prescribe, by way of a transition provision that- a) Amended provisions of sections 76 and 78 will apply to cases where either no notice has been

served, or notice has been served under section 73(1) [non-fraud case] or proviso thereto [fraud cases] but no order has been issued under section 73(2), before 14.05.2015.

b) In cases where show cause notice has been issued under section 73(1) or under the proviso thereto, but no order has been passed under section 73(2) before 14.05.2015, the period of 30 days for the purpose of closure of proceedings on payment of service tax and interest under clause (i) of the proviso to section 76(1) or on the payment of service tax, interest and penalty (15% penalty) under clause (i) of the second proviso to section 78(1), will be counted from 14.05.2015. [Effective from 14.05.2015]


Amendment No- 3

Provision for waiving off penalties leviable under sections 76 or 77 upon proving of reasonable cause withdrawn [Section 80 omitted]

Reasonable cause [Section 80] Penalty to be waived in case of reasonable cause for failure [Section 80(1) Section 80(1) provides that no penalty under section 76, 77 or first proviso to Section 78(1) shall be imposed if the assessee proves that there is “reasonable cause” for the failure referred to in the said sections. Circular No. 97/8/2007 ST dated 23.08.2007

S.No. In case the demand for short payment/ nonpayment of service tax is

1. Upto Rs. 1,000 If the service provider, on the default being pointed out, pays the service tax along with interest within a period of one month of the default in payment, the penalty should be waived, taking recourse to the provisions under section 80 of the Act.

2. More than Rs. 1,000 Penal action prescribed under sections 76, 77 and 79 would be attracted.

Section 80 provided that no penalty would be imposable on the assessee for any failure referred to in section 76 or section 77 if the assessee proves that there was reasonable cause for the said failure. The section started with a non-obstante clause namely “Notwithstanding anything contained in the provisions of section 76, or section 77” meaning thereby that section 80 had overriding provisions and penalty leviable under section 76 or section 77 could be waived thereunder upon proving of reasonable cause. The Finance Act, 2015 has omitted section 80. Therefore, the penalty leviable under section 76 or section 77 could not be waived now under any circumstances. [Effective from 14.05.2015]


CUSTOM


Amendment No- 1

Penalty for improper importation of goods, etc. [Section 112]

Any person, - a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods

liable to confiscation under section 111, or abets the doing or omission of such an act, or b) who acquires possession of or is in any way concerned in carrying, rem oving,

depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable to penalty not exceeding, -

Clause Goods Penalty Amount

(i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force

the value of the goods or five thousand rupees, whichever is the greater;

(ii) in the case of dutiable goods, other than prohibited goods,

the duty sought to be evaded on such goods or

five thousand rupees, whichever is the greater;

Analysis Penalty for improper importation of non-prohibited dutiable goods reduced from up to 100% to up to 10% of duty sought to be evaded, subject to a minimum amount of Rs. 5,000 [Section 112(ii)] Section 112 provides for penalty for improper importation of goods etc. In the case of dutiable goods, other than prohibited goods, clause (ii) of section 112 provided for a penalty not exceeding the duty sought to be evaded on such goods or Rs. 5,000, whichever is greater.

CHAPTER 13: SEARCH, SEIZURE, ARREST & CONFISCATION


Sub-clause (ii) of section 112 has been substituted by a new sub-clause. The new subclause provides for a penalty not exceeding 10% of the duty sought to be evaded or Rs. 5,000, whichever is higher. Further, such penalty will be subject to the provisions of section 114A. Penalty to reduce to 25% of penalty determined if duty and interest are paid within 30 days from the date of communication of the order A proviso has also been inserted in clause (ii) to lay down that where such duty as determined under section 28(8) and the interest payable thereon under section 28AA is paid within 30 days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be 25% of the penalty so determined. [Effective from 14.05.2015]

Amendment No- 2

Penalty for improper importation of goods, etc. [Section 112]

Any person who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 113, or abets the doing or omission of such an act, shall be liable, -

Clause Goods Penalty Amount

a) In case of prohibited goods (a) Three times the value of the goods declared by the exporter or (b) Value as determined under the Customs Act, whichever is greater

b) In case of dutiable goods, other than prohibited goods

(a) Duty sought to be evaded on such goods or (b) Rs. 5,000, whichever is greater

c) In case of any other goods (a) Value of the goods declared by the exporter or

(b) Value as determined under the Customs Act, whichever is greater


Analysis Penalty for improper exportation of non-prohibited dutiable goods reduced from up to 100% to up to 10% of duty sought to be evaded, subject to a minimum amount of Rs. 5,000 [Section 114(ii)] Section 114 provides for penalty for attempt to export goods improperly etc. In the case of dutiable goods, other than prohibited goods, clause (ii) of section 114 provided for a penalty not exceeding the duty sought to be evaded or Rs. 5,000, whichever is greater. Clause (ii) has been substituted by a new clause. The new clause provides for a penalty not exceeding 10% of the duty sought to be evaded or Rs. 5,000, whichever is higher. Further, such penalty will be subject to the provisions of section 114A. Penalty to reduce to 25% of penalty determined if duty and interest are paid within 30 days from the date of communication of the order A proviso has also been inserted in clause (ii) to lay down that where such duty as determined under section 28(8) and the interest payable thereon under section 28AA is paid within 30 days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be 25% of the penalty so determined. [Effective from 14.05.2015]


PART II

RTP AMENDMENTS


EXCISE


AMENDMENT No.-1 Clarification regarding CENVAT credit in transit sale through dealer The invoice shall be serially numbered and shall contain:

The registration number, address of the concerned Central Excise Division,

name of the consignee,

Description, classification,

Mode of transport and vehicle registration number,

Time and date of removal, rate of duty, quantity and value, of goods and the duty payable thereon.

First proviso Provided that- In case of a proprietary concern or a business owned by HUF, the name of the proprietor or Hindu Undivided Family, as the case may be, shall also be mentioned in the invoice.

Second proviso- [New Insertion w.e.f.-01.03.15]

Provided further that if goods are directly sent to a job worker on the direction of a manufacturer or the provider of output service, the invoice shall also contain the details of the manufacturer or the provider of output service, as the case may be, as buyer and contain the details of job worker as the consignee

Analysis The above amendment has been made pursuant to the amendment made in rule 4 of CCR allowing CENVAT credit on receipt of inputs and capital goods in the premises of job worker without first bringing them to the premises of the manufacturer/output service provider.

Third proviso-[New Insertion w.e.f.-01.03.15]

Provided also that if the goods are directly sent to any person on the direction of the registered dealer, the invoice shall also contain the details of the registered dealer as the buyer and the person as the consignee, and that person shall take CENVAT credit on the basis of the registered dealer’s invoice:

Fourth proviso)- [New Insertion w.e.f.-01.03.15]

Provided also that if the goods imported under the cover of a bill of entry are sent directly to buyer’s premises, the invoice issued by the importer shall mention that goods are sent directly from the place or port of import to the buyer’s premises

If goods are directly sent to any person on the direction of the registered dealer, the invoice will also contain the details of the registered dealer as the buyer and the person as the consignee, and that person will take CENVAT credit on the basis of the registered dealer’s invoice [Third proviso to rule 11(2)]. Further, if the goods imported under the cover of a bill of entry are sent directly to buyer’s premises, the invoice issued by the importer should mention that goods are sent directly from the place or port of import to the buyer’s premises [Fourth proviso to rule 11(2)]. In this regard, following clarifications have been issued: (i) Where a registered dealer negotiates sale of an entire consignment from a manufacturer/a registered importer and orders direct transport of goods to the consignee, credit can be availed by the consignee on the basis of invoice issued by the manufacturer or the registered importer. In such cases no CENVATABLE invoice shall be issued by the registered dealer in favour of the consignee though commercial invoice can be issued. Where a registered dealer negotiates sale of goods from the total stock ordered on a manufacturer or an importer to multiple buyers and orders direct transportation of goods to the consignees and the manufacturer

CHAPTER 3: CENTRAL EXCISE PROCEDURE


or the importer is willing to issue individual invoices for each sale in favour of the consignees for such individual sale, the same procedure shall apply. (ii) Where a registered dealer negotiates sale by splitting a consignment procured from a manufacturer or a registered importer and issues CENVATABLE invoices for each of the sale, it would now be possible for the dealer to order direct transport of the consignments as per the individual sales to the consignee without bringing the goods to his godown. This would save time and transportation cost for the dealer adding to ease of doing business. This is a new facility which flows from the amended provisions. Procedure as prescribed in the third proviso of rule 11(2) shall be applicable in such case. (iii) Where a un-registered dealer negotiates sale of an entire consignment from a manufacturer or a registered importer and orders direct transport of goods to the consignee, credit can be availed by the consignee on the basis of invoice issued by the manufacturer or the registered importer. As the dealer is not registered, there is no question of issuing any CENVATABLE invoice by him . Such dealers as in the past can continue to be un-registered. (iv) Where goods are sold by the registered importer to an end-user (say a manufacturer) who would avail credit on the basis of importer’s invoice and the goods are transported directly from the port or warehouse at the port to the buyer’s premises, the amendment prescribes that for such movement the factum of such direct transport to the buyer’s premises needs to be recorded in the invoice. [Circular No. 1003/10/2015 CX dated 05.05.2015]

AMENDMENT No.-2 Centralised registration allowed to manufacturers of aluminium roofing panels subject to fulfillment of specified conditions

Every manufacturing unit engaged in the manufacture of aluminium roofing panels* has been exempted from obtaining the central excise registration, subject to fulfillment of the following conditions: (i) such roofing panels are consumed at the site of manufacture for execution of the project and (ii) manufacturer of such goods has a centralised billing or accounting system in respect of such goods manufactured by different manufacturing units and he opts for registering only the premises or office from where such centralised billing or accounting is done. *falling under tariff item 7610 90 10 of the First Schedule to the Central Excise Tariff Act, 1985 [Notification No. 17/2015 CE (NT) dated 08.06.2015]

AMENDMENT No.-3 Conditions, safeguards and procedure for preserving digitally signed records and issuing digitally signed invoices prescribed

Rule 10(4) [New Insertion w.e.f.-01.03.15]

The records under this rule may be preserved in electronic form and every page of the record so preserved shall be authenticated by means of a digital signature.

Rule 10(5) [New Insertion w.e.f.-01.03.15]

The Board may, by notification, specify the conditions, safeguards and procedure to be followed by an assessee preserving digitally signed records.

Rule 10(4) and rule 11(8) of the Central Excise Rules, 2002 provide for authentication of every page of excise records preserved in electronic form and of invoices respectively, by means of digital signatures. Further, rule 10(5) and rule 11(9) have authorized CBEC to notify the conditions, safeguards and procedure to be followed by an assessee for preserving digitally signed records and issuing digitally signed invoices.


In this regard, following conditions, safeguards and procedure have been prescribed vide Notification No. 18/2015 CE (NT) dated 06.07.2015: (a) Every assessee proposing to use digital signature shall use Class 2* or Class 3** Digital Signature Certificate duly issued by the Certifying Authority in India.

*Class 2 Certificate: These certificates are issued for both business personnel and private individuals use and are available for download after verifying a person’s identity against a trusted and pre-verified database. **Class 3 Certificate: This certificate is issued to individuals as well as organizations. Since these are high assurance certificates, primarily intended for ecommerce applications, they shall be issued to individuals only on their personal (physical) appearance before the Certifying Authorities.

(b) Every assessee proposing to use digital signatures shall intimate the following details to the jurisdictional Deputy/ Assistant Commissioner of Central Excise, at least 15 days in advance: • name, e-mail id, office address and designation of the person authorised to use the digital signature certificate; • name of the Certifying Authority; • date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the said Authority. However, in case of any change in aforesaid details, complete details shall be submitted afresh within 15 days of such change. In case of assessees already using digital signature, aforesaid details should be intimated within 15 days of issue of this notification. (c) Every assessee who opts to maintain records in electronic form: (i) and has more than one factory/ service tax registration shall maintain separate electronic records for each factory/ service tax registration. (ii) shall on request (in a letter or e-mail) by a Central Excise Officer, produce the specified records in electronic form and invoices through e-mail or on a specified storage device in an electronically readable format for verification of the authenticity of the document. (iii) shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain. (d) A Central Excise Officer, during an enquiry, investigation or audit, may direct an assessee to furnish printouts of the records in electronic form and invoices and may resume printouts of such records and invoices after verifying the correctness of the same in electronic format; and after the print outs of such records in electronic form have been signed by the assessee or any other person authorised by the assessee in this regard, if so requested by such Central Excise Officer. Note: The above conditions will also apply in case of preservation of service tax records in electronic form and authentication of service tax invoices by digital signatures. Further, all importers and exporters using services of Customs Brokers for formalities under Customs Act, 1962, shipping lines and air lines have also been required to file customs documents under digital signature certificates mandatorily with effect from 01.01.2016. The importers/ exporters desirous of filing Bill of Entry or Shipping Bill individually may however have the option of filing declarations/ documents without using digital signature [Circular No. 26/2015 Cus. Dated 23.10.2015]


Amendment No.-1

Exemption from sealing in a package/container to export of bulk cargo [for e.g. coal, iron-ore, alumina concentrate, heavy machinery etc.] which is difficult to seal in packages/container

The conditions and procedure relating to export (under bond) without payment of duty to all countries except Bhutan are contained in Notification No. 42/2001 CE (NT) dated 26.06.2001 issued under rule 19 of the Central Excise Rules, 2002. The said notification stipulates that before clearing the export consignments from the factory/ warehouse/ any other approved premises, goods needs to be sealed-either by Central Excise Officer after examination of such goods or by the exporter himself under self-sealing and self certification. However, bulk cargo e.g. coal, iron-ore, alumina concentrate, heavy machinery etc. are difficult to seal in packages or container. Consequently, Notification No. 23 /2015 CE (NT) dated 30.10.2015 has been issued which provides that where the nature of goods is such that the goods cannot be sealed in a package or a container such as coal or ore, etc., exemption from sealing of package or container may be granted by the Principal Chief Commissioner/ Chief Commissioner of Central Excise subject to safeguard as may be specified by him in the permission. The safeguards shall, inter-alia, include the following:- (i) method of verification of quantity and quality of goods including testing of goods where necessary at the place of removal or despatch and at the port of export or SEZ, where the goods are received; (ii) no remission of duty shall be allowed for loss of goods within transit; (iii) permission shall be given on case to case basis for a specified period not exceeding 1 year at a time and may be withdrawn in case of misuse; and (iv) any additional safeguards as may be specified.

CHAPTER 5: EXPORT PROCEDURES


AMENDMENT No.-1 No refund of CENVAT credit under rule 5B to service providers providing manpower supply/ security services

Procedure, safeguards, conditions and limitations prescribed for refund of CENVAT credit to service providers covered under partial reverse charge [RULE 5B]

Notification No. 12/2014 CE (NT) dated 03.03.2014

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;

ANALYSIS

Rule 5B of the CENVAT Credit Rules, 2004 provides that service providers, rendering notified reverse charge services, being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit. In this regard, earlier following partial reverse charge services were notified: (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 Since with effect from 01.04.2015, service tax with respect to supply of manpower for any purpose or security services is payable on the basis full reverse charge, service providers of said services will no longer be eligible for refund of CENVAT credit availed on inputs and input services for payment of service tax on such output services. Further, application in Form A for claiming refund has also been suitably modified. The aforesaid amendment is effective from April 01, 2015.

AMENDMENT No.-2 Reversal of credit under rule 6 not required in case of ethanol produced from molasses generated from cane crushed in the sugar season 2015-16 [Clause (ix) inserted to rule 6(6) of the CENVAT Credit Rules, 2004

The provisions of sub-rules (1), (2), (3) and (4) of rule 6 would not apply to ethanol produced from molasses generated from cane crushed in the sugar season 2015-16 i.e. 1st October, 2015 onwards, for supply to the public sector oil marketing companies, namely, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation

CHAPTER 4: CENVAT CREDIT


Ltd. or Bharat Petroleum Corporation Ltd., for the purposes of blending with petrol, under Notification No.12/2012 CE dated 17.03.2012. In case of such removal, though ethanol is removed without payment of duty, CENVAT credit on inputs/capital goods/input services used in the manufacture of ethanol can be availed. Further, where common inputs/input services are used to manufacture ethanol and other dutiable final product, reversal of credit or payment of amount on removal of ethanol will not be required. [Notification No. 21/2015 CE (NT) dated 07.10.2015]

AMENDMENT No.-3 Output service providers allowed to utilize credit of education cess (EC) and secondary and higher education cess (SHEC) for payment of service tax on any output service [Sixth, seventh and eighth provisos inserted to rule 3(7)(b) of the CENVAT Credit Rules, 2004]

Prior to 01.03.2015, education cess (EC) and secondary and higher education cess (SHEC) paid on excisable goods could be availed as CENVAT credit. Further, EC and SHEC paid on taxable services could also be availed as CENVAT credit till 31.05.2015. Credit of EC on excisable goods or taxable services could not be utilised for payment of any other duty except EC payable on excisable goods or taxable services. Similarly, credit of SHEC on excisable goods or taxable services could not be utilised for payment of any other duty except SHEC payable on excisable goods or taxable services. However, pursuant to EC and SHEC leviable on all taxable services ceasing to have effect (with effect from 01.06.2015), an output service provider has been allowed to utilise the following credits of EC and SHEC for the payment of service tax on any output service: (i) credit of EC and SHEC paid on inputs/ capital goods received in the premises of the output service provider on or after 01.06.2015; (ii) credit of balance 50% EC and SHEC paid on capital goods received in the premises of the output service provider in the financial year 2014-15; and (iii) credit of EC and SHEC paid on input service in respect of which the invoice, bill, challan or Service Tax Certificate for Transportation of Goods by Rail (referred to in rule 9), as the case may be, is received by the output service provider on/ after 01.06.2015.

AMENDMENT No.-4 Amount payable under rule 6(3)(i) of CENVAT Credit Rules, 2004 enhanced from 6% to 7% of the value of exempted services

Earlier, in case an output service provider provides output service chargeable to tax as well as exempted services, he had an option to avail CENVAT credit in respect of any inputs/ input services without maintaining separate accounts provided he has paid an amount equal to 6% of the value of exempted services [Rule 6(3)(i) of the CENVAT Credit Rules, 2004]. With effect from 01.06.2015, pursuant to increase in the rate of service tax from 12% to 14%, aforesaid rate has been enhanced from 6% to 7%. Further, if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken, amount specified in rule 6(3)(i) has also been enhanced to 7% of the value so exempted. [Notification No. 14/2015 CE (NT) dated 19.05.2015]


AMENDMENT No.-1 Board Circulars contrary to Supreme Court and High Court judgments (where Board has decided not to file an appeal on merit) not binding on Departmental officers

Supreme Court in case of Ratan Melting & Wire Industries v. CCE 2008 (231) E.L.T. 22 (S.C.) has held that circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/ circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the Court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. A circular which is contrary to the statutory provisions has really no existence in law. In the light of the aforesaid judgment, CBEC, vide Circular No. 1006/13/2015-CX dated 21.09.2015, has clarified that Board Circulars contrary to the judgements of Hon’ble Supreme Court and High Court judgments where Board has decided not to file an appeal on merit, become non-est in law and should not be followed. All pending cases decided after the date of the judgement would, conform to the law laid by the Hon’ble Supreme Court or High Court, as the case may be, irrespective of whether the circular has been rescinded or not.

CHAPTER 10: ORGANISATION STRUCTURE OF THE EXCISE DEPARTMENT


CUSTOMS


Safeguard duties are rebatable as duty drawback With respect to safeguard duties which are leviable under section 8B or section 8C of the Customs Tariff Act, 1975 read with section 12 of the Customs Act, it is clarified that these are rebatable as drawback in terms of section 75 of the Customs Act. Since safeguard duties are not taken into consideration while fixing All Industry Rates of drawback, the drawback of the same can be claimed under an application for Brand Rate under rule 6 or rule 7 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. This implies that drawback shall be admissible only where the inputs which suffered safeguard duties were actually used in the goods exported as confirmed by the verification conducted for fixation of Brand Rate. Further, where imported goods subject to safeguard duties are exported out of the country as such, then the drawback payable under section 74 of the Customs Act would also include the incidence of safeguard duties as part of total duties paid, subject to fulfillment of other conditions. [Circular No. 23/2015 Cus dated 29.09.2015]

DRAWBACK


Provisions relating to Illegal Import, Illegal Export, Confiscation, Penalty and Allied Provisions 1. Monetary threshold limits enhanced for prosecution and arrest under customs Prosecution Revised guidelines have been issued on prosecution under Customs Act, 1962. The significant aspects of the guidelines are: (a) Person liable to be prosecuted: As per the provisions of the Customs Act, prosecution may be launched against any person including legal person for offences covered under sections 132, 133, 134, 135, 135A or 136 of the Customs Act, 1962. (b) Threshold limits for launching of prosecution: CBEC has laid down the following threshold limits for launching prosecution:

S. No.

Particulars Threshold limits

(i) Baggage and Outright smuggling cases:

(a) Cases involving unauthorized importation in baggage/ cases under Transfer of Residence Rules

CIF value of the goods involved is Rs. 20 lakh or more

(b) Outright smuggling of high value goods such as precious metal, restricted items or prohibited items notified under section 11 of the Customs Act, 1962 or goods notified under section 123 of the Act or offence involving foreign currency

Value of offending goods is Rs. 20 lakh or more

(ii) Appraising Cases/ Commercial Frauds

(a) Importation of trade goods involving wilful mis-declaration in value/ description of goods/ concealment of restricted goods/ goods notified under section 11 of the Act

CIF value of the offending goods is Rs. 1 crore or more

(b) Fraudulent availment of drawback or attempt to avail of drawback or any exemption from duty provided under the Customs Act, 1962

Amount of drawback or exemption from duty is Rs. 1 crore or more

(c) Exportation of trade goods involving wilful mis-declaration in value /description, concealment of restricted goods or goods notified under section 11 of the Customs Act, 1962

FOB value of the offending goods is Rs. 1 crore or more

(c) Exceptions: Threshold limit will not apply in following cases: (i) In case of habitual offenders or where criminal intent is evident in ingenious way of concealment, where prosecutions can be considered irrespective of the value of goods/currency involved in such professional or habitual offenders, etc. provided the cumulative value of 3 or more such offences in past 5 years from the date of the decision exceeds the threshold limit(s) indicated in above table. (ii) In cases involving offences relating to items i.e., fake Indian currency notes (FICN), arms, ammunitions and explosives, antiques, art treasures, wild life items and endangered species of flora and fauna, prosecution would be launched invariably,irrespective of value of offending goods involved.

Miscellaneous Provisions


(iii) In respect of cases involving non-declaration of foreign currency by foreign nationals and NRIs detected at the time of departure back from India, exceeding the threshold limits of Rs. 20 lakh, if it is claimed that the currency has been legally acquired and brought into India, prosecution would not be considered as a routine. Prosecutions will not be launched as a matter of routine and/or in cases of technical nature, where the additional claim for duty is based solely on a difference of interpretation of the law. (d) Authority to sanction prosecution: Prosecution may be launched after due sanction by the Commissioner / Principle Commissioner or Additional Director General / Principle Additional Director General of Revenue Intelligence (collectively known as ‘sanctioning authority’). However, in case of habitual offenders and appraising cases/commercial frauds, prior approval of the Chief Commissioner/Principal Chief Commissioner or Director General/Principal Director General of Revenue Intelligence, as the case may be, will be required for launching prosecution. (e) Stage for launching of prosecution: Normally, prosecution may be launched immediately on completion of adjudication proceedings. Exceptions: (i) Prosecution in respect of cases involving offences relating to items i.e. FICN, arms, ammunitions and explosives, antiques, art treasures, wild life items and endangered species of flora and fauna may preferably be launched immediately after issuance of show cause notice (ii) If the party deliberately delays completion of adjudication proceedings, prosecution may be launched even during the pendency of the adjudication proceedings, where offence is grave and qualitative evidences are available [in view of the decision of Supreme Court in case of Radhe Shyam Kejriwal 2011(266)ELT 294*. Further, in following cases investigation may be completed in time bound manner preferably within six months and adjudication may be expedited to facilitate launching of prosecution. These cases are: (A) Case where arrest has been made during investigation (for commercial fraud cases as well as outright smuggling cases) or in the case of a habitual offender. (B) Case where arrest has not been made but it relates to outright smuggling of high value goods such as precious metal, restricted items or prohibited items notified under section 11 or goods notified under section 123 of the Customs Act, 1962 or foreign currency where the value of goods is Rs. 20 lakh or more. [Circular No. 27/2015 Cus dated 23.10.2015] Arrest Pursuant to the enhancement in threshold limits for prosecution, threshold limits for arrest have also been enhanced vide Circular No. 28/2015 Cus dated 23.10.2015. Threshold limits for arrest are also the same as mentioned in case of initiating prosecution. It has been clarified that powers of arrest should be exercised in exceptional situation. However, such threshold limit would not apply in case of offences relating to FICN, arms, ammunitions and explosives, antiques, art treasures, wild life items and endangered species of flora and fauna. In such cases, arrest, if required on the basis of facts and circumstances of the case, may be considered irrespective of value of offending goods involved.

* The Supreme Court of India in the case of Radhe Shyam Kejriwal 2011 (266) ELT 294 (SC) had, inter alia, observed that (i) adjudication proceedings and criminal proceedings can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication proceedings and criminal proceedings are independent of each other in nature and (iv) the findings against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution.


COMMON TOPICS


Amendment 1 Withdrawal of circular classifying coconut oil packed in small size containers upto 200 ml

as Hair oil

1.Classification of coconut oil packed in small containers -Circular No. 890/10/2009 CX dated 03.06.2009[CIRCULAR WITHDRAWN] Issue: Under which of the following two chapters, the coconut oil sold in small packs (upto 200 ml), should be classified: • Chapter 15 covering various types of vegetable oil including coconut oil. • Chapter 33 covering cosmetics including hair oil? Clarification

*Annexure A In this case, the classification of coconut oil would depend upon the fact as to how the majority of the customers use it. Therefore, it would be classified as follows:-

S.No. Use by the consumer It would be classified as

1. Coconut oil packed in packages which are generally meant for sale in retail as hair oil (packed in containers upto 200 ml)

Hair oil under heading 3305 (refer Note below) (even though few consumers may use it as edible oil)

2. Coconut oil packed in say 1 liter or 2 liter packages, which are generally used by consumers for edible purposes

Vegetable oil under Chapter 15 (even though some customers may use it as hair oil)

Note: Reasons for the classification under heading 3305:- 1. Chapter Note 2 of Chapter 33 prescribes a condition that heading No. 3305 (which covers hair oil also) applies to products put up in packing of a kind sold by retail for such use. 2. Section Note 2 to Section VI also provides that goods classifiable in heading 3305 by reason of being put up for retail sales are to be classified in the said heading and in no other heading of the schedule. This Section Note further supports the aforesaid interpretation.

CHAPTER 1: CLASSIFICATION OF GOODS


Analysis

Earlier, Circular No. 890/10/2009 dated 3.6.2009 had clarified that coconut oil packed in small container of sizes upto 200 ml was classifiable under Central Excise Tariff Heading 3305 as Hair oil. However, in the case of Raj Oil Mills Ltd. v. CCE 2014 (314) ELT 541 (Tri.-Mumbai) [maintained by SC], it has been held that edible coconut oil in retail packing of 200 ml or less is classifiable under Chapter 15 covering animal or vegetable fats and oils and not under Chapter 33 covering Cosmetics and Toilet Preparation. Further, in the case of Capital Technologies Ltd. & Ors v. CCE 2015 (321) ELT 479 (Tri.-Bang.) [maintained by SC] also, it was held that the edible coconut oil packed in retail packs of 50 ml, 100 ml, 200 ml and 500 ml would be classifiable as coconut oil under heading 1513 and not as Hair oil under heading 3305. Thus, in view of the said judicial pronouncements, aforesaid circular has been withdrawn vide Circular No.1007/14/2015 CE dated 12.10.2015. The issue of classification would be decided considering the facts of the case read with the judicial pronouncements.


Amendment No- 1

Monetary threshold limits enhanced for prosecution and arrest in central excise and service tax

Prosecution Revised guidelines have been issued on prosecution under central excise and service Tax. The significant aspects of the guidelines are:

(a) Monetary limit Prosecution will normally not be launched unless evasion of central excise duty or service tax, or misuse of CENVAT credit in relation to offences specified under section 9(1) of the Central Excise Act, 1944 or section 89(1) of the Finance Act, 1994 is equal to or more than Rs. 1 crore. It may be noted that though there is no change in the monetary limits (Rs. 50 lakh) prescribed under the concerned sections, these directions have been issued to optimally utilize limited resources of the Department.

(b) Habitual evaders

Notwithstanding the above limits, prosecution can be launched in the case of a company/ assessee habitually evading tax/ duty or misusing CENVAT credit facility. A company/ assessee would be treated as habitually evading tax/ duty or misusing CENVAT credit facility, if it has been involved in 3 or more cases of confirmed demand (at the first appellate level or above) of central excise duty or service tax or misuse of CENVAT credit involving fraud, suppression of facts etc. in past 5 years from the date of the decision such that the total duty or tax evaded or total credit misused is equal to or more than Rs. 1 crore.

(c) Authority to sanction prosecution:

The criminal complaint for prosecuting a person can be filed only after obtaining the sanction of the Principal Chief/Chief Commissioner of Central Excise or Service Tax as the case may be. Once the sanction for prosecution has been obtained, criminal complaint in the court of law will be filed as early as possible by an officer of the jurisdictional Commissionerate authorized by the Commissioner.

(d) Cases when prosecution would not be filed:

Prosecution would not be filed merely because a demand has been confirmed in the adjudication proceedings particularly in cases of technical nature or where interpretation of law is involved.

(e) Adequacy of evidence

One of the important considerations for deciding whether prosecution can be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher as the case has to be established beyond reasonable doubt whereas the adjudication proceedings are decided on the basis of preponderance of probability. Therefore, even cases where demand is confirmed in adjudication proceedings, evidence collected would be weighed so as to likely meet the test of being beyond reasonable doubt for recommending prosecution. Decision will be taken on case-to-case basis considering various factors, such as, nature and gravity of offence, quantum of duty/tax evaded or CENVAT credit wrongly availed and the nature as well as quality of evidence collected.

(f) Stage for launching of prosecution

Normally, prosecution may be launched immediately on completion of adjudication proceedings. If the party deliberately delays completion of adjudication proceedings, prosecution may be launched even during the pendency of the adjudication proceedings, where offence is grave and qualitative evidences are available [in view of the decision of Supreme Court in case of Radhe Shyam Kejriwal 2011(266)ELT 294 [discussed in detail

CHAPTER 2 – DEMAND & RECOVERY


under Customs section].

[Circular No.1009/16/2015 CX dated 23.10.2015] Arrest Pursuant to the enhancement in prosecution limits, monetary limits for arrest have also been enhanced. Henceforth, arrest of a person in relation to offences specified under clauses (a) to (d) of section 9(1) of the Central Excise Act, 1944 or under clauses (i) or (ii) of section 89(1) of the Finance Act, 1994, may be made in cases where the evasion of central excise duty/ service tax or the misuse of CENVAT credit is equal to or more than Rs. 1 crore. [Circular No.1010/16/2015 CX dated 23.10.2015]


SERVICE TAX


Amendment No- 1

Yoga included in the definition of charitable activities

Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 exempts services by an entity registered under section 12AA of the Income-tax Act, 1961 by way of charitable activities. Activities relating to advancement of religion or spirituality are included in the definition of charitable activities. Now yoga has also been included therein. Thus, services relating to advancement of yoga provided by charitable entities registered under section 12AA of the Income-tax Act, 1961 will not be liable to service tax e.g., service tax will not be payable on fee charged for yoga camps conducted by charitable trusts. [Notification No. 20/2015 ST dated 21.10.2015]

Amendment No- 2

Services provided under the Power System Development Fund Scheme of the Ministry of Power exempted from service tax

Exemption from service tax has been granted to taxable services provided under the Power System Development Fund Scheme of the Ministry of Power by way of- (A) re-gasification of Liquefied Natural Gas (LNG) imported by the Gas Authority of India Limited (GAIL); (B) transportation of the incremental Re-gasified Liquefied Natural Gas (RLNG) (e-bid RLNG) to specified power generating companies or plants subject to fulfillment of certain conditions prescribed in the exemption notification. However, the exemption shall not be available if such RLNG and LNG are used for generation of electrical energy by captive generating plant as defined in section 2(8) of the Electricity Act, 2003. Further, the exemption shall be valid only till 31.03.2017. [Notification No. 17/2015 ST dated 19.05.2015]

Amendment No- 3

Services provided by (i) business facilitator/business correspondent with respect to Basic Savings Bank Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana and (ii) an intermediary to business facilitator/business correspondent with respect to such services, exempt from service tax

With a view to promote financial inclusion, Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended to exempt the services provided by a business facilitator or a business correspondent to a banking company with respect to Basic Savings Bank Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana (PMJDY) by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificates and Aadhar seeding, in the rural area branches of banking companies, from service tax. Further, the services provided by any person as an intermediary to a business facilitator or a business correspondent with respect to the above mentioned services, have also been exempted from service tax. For this purpose, Basic Savings Bank Deposit Account has been defined to mean a Basic Savings Bank Deposit Account opened under the guidelines issued by Reserve Bank of India relating thereto. [Notification No. 20/2015 ST dated 21.10.2015]

CHAPTER 7: EXEMPTIONS AND ABATEMETS


Amendment No- 4

70% abatement available on ancillary services provided by a GTA in the course of transportation of goods

It has been clarified that ancillary services such as loading/ unloading, packing/unpacking, transshipment, temporary storage etc., would form part of the goods transport agency’s (GTA) service if such services are provided by a GTA in the course of transportation of goods and the charges for such services are included in the invoice issued by the GTA, and not by any other person. Thus, abatement of 70%, applicable to GTA service, would also be available to the ancillary services. In other words, a single composite service need not be broken into its components and need not be considered as constituting separate services, if it is provided as such in the ordinary course of business. Thus, a composite service should be treated as a single service based on the main or principal service. It has also been clarified that in cases where GTA undertakes to deliver goods at a destination within a stipulated time, it should be considered as services of GTA in relation to transportation of goods. Thus abatement of 70% will be applicable if the entire transportation of goods is by road and the GTA issues a consignment note, by whatever name called. [Circular No. 186/5/2015 dated 05.10.2015]

Amendment No- 5

Section 11C benefits granted to MTSO agents in relation to remittance of forex from outside India for disputed period (01.07.2012 to 13.10.2014)

During the period between 01.07.2012 and 13.10.2014, service tax was not being levied and paid on the services provided by an Indian Bank or other entity acting as an agent to the Money Transfer Service Operators (MTSO) in relation to remittance of foreign currency from outside India to India, in terms of a practice that was generally prevalent at that time. However, this service was liable to service tax as also clarified vide Circular No. 180/06/2014 ST dated 14.10.2014. Now, the Central Government, in exercise of the powers conferred by section 11C of the Central Excise Act, 1944 [as made applicable to like matters in service tax vide section 83 of the Finance Act, 1994] has directed that the service tax payable on the service provided by an Indian Bank or other entity acting as an agent to the MTSO in relation to remittance of foreign currency from outside India to India, in the said period, but for the said practice, shall not be required to be paid. [Notification No. 19/2015 ST dated 14.10.2015] Note: Circular No. 180/06/2014 ST dated 14.10.2014 clarified that the services provided by an Indian Bank or other entity acting as an agent to MTSO in relation to remittance of foreign currency from outside India to India are liable to service tax.


Part

Part III

New Case Studies

Introduced


Central Excise

Chapter – Basic Concept of Excise 1. Amrit Bottlers Private Limited v. CCE 2014 (306) E.L.T. 207 (All.)

Issue Whether contaminated, under or over filled bottles or badly crowned bottles amount to

manufactured finished goods which are required to be entered under R.G.-1 register, and which are exigible to payment of excise duty?

Facts of the Case

The appellant was engaged in manufacturer of aerated water. Revenue alleged that the appellant was draining out manufactured aerated water on account of contaminated, under

filled, over filled, badly crowned bottles, without entering them in R.G.1 register [daily stock account] and without payment of excise duty on the same. It issued a demand-cum show cause notice on the appellant for the recovery of said duty. Revenue was of the view that contaminated, under filled, over filled, badly crowned bottles were excisable goods. Further, if such goods were defective/non-marketable, the appellant should have sought remission of duty paid on such goods. The appellant contended that such aerated water was drained out as certain bottles were found to be defective on account of contamination, under/over filling of the aerated water in bottles or such bottles were badly crowned. Under and over filling of the bottles make them unusable under the erstwhile Weights and Measures Act [now Legal Meteorology Act, 2009] as well as under the Prevention of Food Adulteration Act. Consequently, the aerated water which was drained out was not marketable. Thus, it was not required to be entered in R.G.-1 register. The appellant further submitted that excise duty could not levied on the goods which had not been manufactured and which were not marketable.

Observations of the Court

The Court observed that only a finished product can be entered in RG 1 register. A finished product is a product which is manufactured as well as which is marketable. The law required the appellant to provide a screening test before it could declare the manufactured product as a finished product, which was marketable. In other words, a finished product was required to be accounted for in R.G. 1 register only after undergoing the screening test and having found that they were fit for sale. Under filled or over filled or badly crowned caps bottles could not be treated as being fully manufactured nor could they be treated as finished goods. Moreover, bottles filled with less or more aerated water were not marketable under the erstwhile Weights and Measures Act [now Legal Meteorology Act, 2009]. Consequently, such goods could not be entered in R.G. 1 register.

Decision The Court held that in the instant case, contaminated, under filled, over filled and badly crowned bottles found at the stage of production were not marketable goods. Thus, they were not required to be entered under R.G.-1 register and consequently, no excise duty was payable on them.

Note RG-1 register is a daily stock account required to be maintained under rule 10 of the Central Excise Rules, 2002. Rule 10 provides that every assessee shall maintain proper records, on a daily basis, in a legible manner indicating the particulars regarding: a. description of the goods produced or manufactured, b. opening balance, quantity produced or manufactured, c. inventory of goods, d. quantity removed, e. assessable value,


f. the amount of duty payable; and g. particulars regarding amount of duty actually paid.

Chapter – Valuation of excisable goods

2. CCEx v. Super Synotex (India) Ltd. 2014 (301) ELT 273 (SC)

Issue Is the amount of sales tax/VAT collected by the assessee and retained with him in

accordance with any State Sales Tax Incentive Scheme, includible in the assessable value for payment of excise duty?

Facts of the Case

Assessee was a manufacturer of manmade fibre yarns which were chargeable to excise duty. The assessee availed the benefit of Sales Tax New Incen tive 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.


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.

Notes: (i) The Review Petition filed against the aforesaid judgement has been dismissed by the Supreme Court in Bharat Roll Industry (Pvt.) Ltd. v. Commissioner - 2015 (317) ELT A187 (SC) thereby affirming the said judgment. (ii) 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. (iii) 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. (iv) With effect from July 1, 2000 the definition of 'transaction value' reads as under: (d) ―transaction value‖ means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. (v) The same issue came up again before the Supreme Court in the case of CCE v. Maruti Suzuki India Limited 2014 (307) ELT 625 (SC) . The summary of the said case is given hereunder: Facts of the Case: The assessee was a prestigious unit manufacturing and selling vehicles in the State of Haryana. Being a prestigious unit, a tax concession was granted to the assessee considered by the High Powered Committee (HPC) under the erstwhile Haryana General Sales Tax Rules, 1975. Therefore, an entitlement certificate was issued to the assessee for implementation of the decision of HPC. A show cause notice was issued by the Department on the ground that on the sale of its vehicles during the period in question, the assessee had deposited only 50% of the sales tax collected by it from its customers and retained balance 50% availing the tax concession granted to it. The retained sales tax was neither actually paid nor actually payable to the State Government. Therefore, the sales tax retained by the assessee constituted a part of the "transaction value" of the vehicles sold by the assessee to the customers in terms of its definition in section 4(3)(d) of the Central Excise Act, 1944 and excise duty was payable on the same. The assessee contended that it was not actually exempted from payment of sales tax to the extent of 50% collected from the customers, but that the payment of sales tax was deferred. The 50% sales tax retained for a period of 14 years had to be adjusted against the capital subsidy due to the assessee by the State Government. However, Revenue contended that decision of the HPC did not support the case of the assessee as the entitlement certificate did not mention anything to the effect that it was for the deferment of payment of any sales tax. Thus, the assessee was not supposed to return any amount of sales tax concession to the State Government nor this amount was to be adjusted towards any capital subsidy granted by the State Government. Supreme Court’s Observations: The Supreme Court concurred with the Revenue‘s contention that there was no mention in the decision of the HPC about adjustment of this amount of sales tax concession against any scheme or any capital subsidy. The entitlement certificate also did not give any indication of deferment of tax or capital subsidy. Further, referring to CBEC Circular dated 30th June, 2000, the Apex Court opined that the assessee retained 50% of the sales tax collected from its customers and it was neither actually paid nor actually payable to the Government. Therefore, the transaction value under section 4(3)(d) shall be calculated by including the amount of sales tax retained by the assessee and they were liable to pay excise duty on such amount. Supreme Court’s Decision: The Apex Court, overruling the Tribunal‘s decision, held that since assessee retained 50% of the sales tax collected from customers which was neither actually paid to the exchequer nor actually payable to the exchequer, transaction value under section 4(3)(d) of the Central Excise Act,1944, would include the amount of such sales tax. (vi) The relevant paragraphs of the CBEC Circular No. 354/81/2000 TRU dated 30th June, 2000 read as follows:-


―As regards exclusion of taxes while working out assessable value, the definition of transaction value itself mentions that whatever amount is actually paid or actually payable to the Government or the relevant statutory authority by way of excise, sale tax and other taxes, such amount shall be excluded from the transaction value. In other words, if any excise duty or other tax is paid at a concessional rate for a particular transaction, the amount of excise duty or tax actually paid at the concessional rate shall only be allowed to be deducted from price. The assessee cannot claim that the excise duty or tax payable at the "normal rate" should be allowed to be deducted. The words "actually paid" have, therefore, been used to (in) the definition of transaction value to reflect the legislative intention as explained above. The words "actually payable" in the context of the amount of duty of excise, sales tax and other taxes would normally come into play only in those situations where the amount of excise, sales tax or other taxes is not paid at the time of transaction but paid subsequently, for example, sales tax payable under a deferment scheme."

Chapter – Cenvat Credit 3. Commissioner v. Dynamic Industries Limited 2014 (35) S.T.R. 674 (Guj.)

Issue Whether CENVAT credit can be availed of service tax paid on customs house agents’ (CHA)

services, shipping agents’ and container services and services of overseas commission agents used by the manufacturer of final product for the purpose of export, when the export is on FOB basis?

Facts of the Case

The assessee availed CENVAT credit of service tax paid by it on CHA services, shipping agent and container service and commission paid to overseas agents in respect of finished goods which were exported. The Revenue objected to the CENVAT credit claimed on these services.

Point of dispute

The Revenue alleged that the CHA services, shipping agent’s services, container services and services of overseas commission agent had been availed after the goods were cleared from the place of removal and they were not in relation to the manufacturing activities undertaken by the assessee nor these were pertaining to the activities of clearance of goods from the place of removal. These services, according to the Revenue, did not fall under the definition of the term "input service" and the related CENVAT credit availed was inadmissible. The assessee contended that the issue was no more res integra and in a host of decisions the Tribunal had taken a view that where exports are FOB basis, the place of removal has to be taken as port and, therefore, the service availed by it till the goods reach the port would be admissible; that without the assistance of overseas agents, manufactured goods cannot be sold and, therefore, the services of overseas agents have to be treated as one relating to manufacture.


The High Court referred to definition of 'input service as also placed reliance on various cases dealing with subject and made the following observations: (i) In case of all three services in relation to which substantial question of law has been framed there is no specific inclusion of such services in the definition of input service. (ii) Any service used by the manufacturer directly or indirectly in relation to manufacture of final products and clearing of final products upto the place of removal would certainly be covered within the definition of input service. In the present case, the place of removal would be the port. (iii) Revenue has not disputed the fact that the services in relation to which the CENVAT credit is claimed by the assessee were availed for the purpose of clearing the goods for the purpose of export.


(iv) As regards customs house agent service and shipping agents and container services, the decision of this Court in Cadila Healthcare Ltd. 2013 (30) STR 3 (Guj.) would apply and the definition of input service would cover both these services, considering the nature of services and the place of removal being the 'port' in this case. (v) With regard to the services of overseas commission agent also, the decision of this Court in Cadila Healthcare Ltd. 2013 (30) STR 3 (Guj.) would apply wherein it was held that the CENVAT credit on a service could be availed if that service is used directly or indirectly in the manufacture or clearance of final product. As the services of overseas commission agent have not been used for these purposes, the denial in the referred case shall apply to the present case also. Consequently, CENVAT credit would not be admissible in respect of the commission paid to foreign agents.

Decision The High Court held that CENVAT credit in respect of (i) customs house agents services, (ii) shipping agents and container services and (iii) cargo handling services is admissible, but the CENVAT credit availed for the services of overseas commission agent is not allowed.

Note: ‘Place of removal’ is a significant concept in the CENVAT Credit Rules, 2004. The services relating to clearance upto place of removal are covered in the definition of input service and services beyond the place of removal are not so covered. The above judgment deals with this concept, and takes a view that in the present case since the property in the goods was passed at port, the port would be considered as place of removal and services of CHA etc. used till port are therefore covered in the definition of input service. Another position taken in this case by the Gujarat High Court is that the services of ‘overseas commission agents’ are not covered in the definition of input service. This is highly disputable position and there are judgments where a different view has been taken e.g. the judgment of Punjab & Haryana High Court in the case of Ambika Overseas 2012 (25) STR 348 says that the services of commission agent are covered in the definition of input service.

4. UOI v Hindustan Zinc Limited. 2014 (303) E.L.T. 321 (S.C.)

Issue Will rule 6 of the CENVAT Credit Rules, 2004 apply, if the assessee clears an exempted by-

product and a dutiable final product?

Facts of the Case

The respondent assessee was engaged in the manufacture of a dutiable product. During the manufacturing process, a by-product was also being produced which was exempted from the excise duty. The Department denied CENVAT credit to the assessee saying that since the output products of the assessee were both dutiable and exempted, they were either required to maintain separate records for inputs used in taxable and exempted output or were to pay 8% [now 6%] of the sale price of by-product in terms of rule 6 of the CENVAT Credit Rules, 2004. It was submitted that language of the CENVAT Credit Rules, 2004 needs to be interpreted literally. Since, rule 6 does not provide any distinction between exempted final product and exempted by-product, its provisions would also be applicable to the by product manufactured and therefore, the assessee was obliged to pay excise duty @ 8% [now 6%] in respect of clearance of exempted by-product.

Decision The Supreme Court held that since in rule 57CC of the erstwhile Central Excise Rules, 1944 [now rule 6 of the CENVAT Credit Rules, 2004], the term used is ‘final product’ and not ‘by-product’, said rule cannot be applied in case of ‘by-product’ when such by-product emerged as a technological necessity. If the Revenue’s argument is accepted, it would amount to equating by-product with final product thereby obliterating the difference, though recognised by the legislation itself.

Note: The principle enunciated in the above case by the Supreme Court is that rule 6 of CCR would not


apply when manufacture of dutiable final product results in emergence of exempt by-product on account of technological necessity.

5. CCE v. Fenner India Limited 2014 (307) E.L.T.516 (Mad.)

Issue Can CENVAT credit availed on inputs (contained in the work-in-progress destroyed on

account of fire) be ordered to be reversed under rule 3(5C) of the CENVAT Credit Rules, 2004?

Facts of the Case

The respondent assessee was engaged in manufacturing of Oil Seals. On account of fire accident in the factory, the work in progress stocks were burnt and rendered unfit for usage. The assessee had availed CENVAT credit on the raw materials, which were to be used for production of Oil Seals. A show cause notice was issued to the assessee demanding the CENVAT credit availed on raw materials destroyed along with the interest and penalty though Department did not dispute the fact that inputs on which CENVAT credit had been taken were destroyed by fire when work was in progress. The assessee contended that since inputs were put in use for the manufacture of final products, question of reversing the credit did not arise. However, Revenue, by relying upon rule 3(5C) of the CENVAT Credit Rules, 2004 submitted that the assessee was bound to reverse the credit taken on the inputs.


The High Court observed that, it was not in dispute that the inputs on which the CENVAT credit had been availed were destroyed in a fire accident when the work was in progress. Once the fact was not disputed, then the assessee could not be called upon to reverse the credit. The High Court placed reliance upon the view taken by the Gujarat High Court in the case of CCE v. Biopac India Corporation Limited 2010 (258) E.L.T.56 (Gujarat H.C.), wherein it was held that the goods destroyed in fire after being used for many years cannot be said as not used in the manufacture of final product and the assessee need not reverse the credit availed on such inputs. The High Court further noted that rule 3(5C) can be invoked where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002. Thus, only in such case, the CENVAT credit taken on the inputs used in the manufacture of production of said goods shall be reversed.

Decision The High Court held that CENVAT credit would need to be reversed only when the payment of excise duty on final product is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, which deals with the remission of duty. In the present case, the assessee has not claimed any remission and no final product has been removed, hence, assessee need not reverse the CENVAT credit taken on inputs (contained in the work-in-progress) destroyed in fire.

6. Bharti Airtel Ltd. v. CCEx. Pune III 2014 (35) STR 865 (Bom.)

Issue Is a cellular mobile service provider entitled to avail CENVAT credit on tower parts & pre-

fabricated buildings (PFB)?

Facts of the Case

The appellant was engaged in providing cellular telephone services and was paying service tax on the same. The appellant availed CENVAT credit of excise duty paid on the Base Transreceiver Station (BTS) claiming to be a single integrated system consisting of tower, GSM or Microwave Antennas, Prefabricated building (PFB), isolation transformers, electrical equipments, generator sets, feeder cables etc. The appellant treated these systems as “composite system” classifiable under Chapter 85.25 of the Central Excise Tariff Act [CETA].

Department‟s The Department allowed the credit on antenna but objected to availment of CENVAT credit on


contentions other items viz. the tower and parts thereof and the PFB on the following grounds: (i) Each of the goods of the BTS had independent functions and hence, they could not be treated and classified as single unit. (ii) Tower was fixed to the earth and after its installation became immovable and therefore, could not be said to be goods. Even in CKD or SKD condition, the tower and parts thereof would fall under Chapter heading 7308 of the Central Excise Tariff Act which is not specified in clause (i) of Rule 2(a)(A) of the Credit Rules, 2004 (CCR) as capital goods. (iii) Tower and parts thereof were not directly utilised for output service as the same had been basically a structural support for certain equipment.

Appellant‟s contentions

The appellant contended that the goods in question were clearly covered within the ambit of the definition of “capital goods” under rule 2(a)(A) of the CCR. The appellant submitted that tower is an accessory of antenna and that without towers antennas cannot be installed and as such the antennas cannot function and hence, the tower should be treated as parts and components of the antenna. Alternatively, the goods in question would fall within the definition of “input” under rule 2(k) of CCR. Since, the towers and shelters were received in knocked down condition (CKD) and were used for providing telecom services, the same qualified as “inputs” in terms of rule 2(k) of the CCR. The appellant submitted that since rule 2(k)(2) [now 2(k)(iv)] uses the words “all goods” which are “used for providing any “output service”, these goods completely fell within the purview of rule 2(k) so as to mean inputs. However, the Tribunal, when the matter was brought before it, rejected the appellant's plea that the towers and parts thereof and the PFB were capital goods under CCR as also the alternate plea of the appellant that the said goods were inputs falling under rule 2(k) of the CCR.


When the appellant moved the High Court, the High Court observed as under: (i) A combined reading of rule 2(a)(A)(i), 2(a)(A)(iii) and 2(a)(2) indicates that only the category of goods in rule 2(a)(A) falling under clause (i) and (iii) and used for providing output services can qualify as capital goods in the relevant context. All capital goods are not eligible for credit and only those relatable to the output services would be eligible for credit. (ii) The appellant‟s contention that they were entitled for credit of the duty paid on account of BTS being a single integrated/composite system classifiable under Chapter 85.25 of the CETA Tariff Act, is not acceptable. Since the various components of the BTS had independent functions, it could not be classified as single integrated/composite system so as to be capital goods. In that case, tower and parts thereof and PFB would not fall under clause (i) of rule 2(A)(a) of CCR. (iii) The other contention of the appellant of tower being an accessory of antenna is also without substance as the antenna can be installed irrespective of tower. It would be misconceived and absurd to accept that tower is a part of antenna. An accessory or a part of any goods would necessarily mean such accessory or part which would be utilized to make the goods a finished product or such articles which would go into the composition of another article. The towers are structures fastened to the earth on which the antennas are installed and hence, cannot be considered to be an accessory or part of the antenna. (iv) Therefore, the goods in question namely the tower and part thereof and the PFB did not fall within the definition of capital goods and hence, the appellants could not claim the credit of duty paid on these items. (v) The alternative contention of the appellant that the tower and parts thereof and the PFB would also fall under the definition of „input‟ under rule 2(k), could also not be sustained. (vi) Since the tower and parts thereof were fastened and were fixed to the earth and after their erection became immovable, they could not be termed as goods. The towers were admittedly immovable structures and non-marketable and nonexcisable and hence, could neither be regarded as capital goods under rule 2(a) nor could be categorized as „inputs'


under rule 2(k) of the CCR. (vii) Even in the CKD or SKD condition, the tower and parts thereof would fall under the Chapter heading 7308 of the Central Excise Tariff Act which is not specified in clause (i) of rule 2(a)(A) of CCR so as to be capital goods.

Decision The High Court rejected the appeals of the appellant and upheld the findings of the Tribunal holding that the mobile towers and parts thereof and shelters / prefabricated buildings are neither capital goods under rule 2(a) nor „inputs‟ under rule 2(k) of the CCR. Hence, CENVAT credit of the duty paid thereon by a cellular mobile service provider was not admissible.

7. Astik Dyestuff Private Limited v. CCEx. & Cus. 2014 (34) S.T.R. 814 (Guj.)

Issue Whether sales commission services are eligible input services for availment of CENVAT

credit? If there is any conflict between the decision of the jurisdictional High Court and the CBEC circular, then which decision would be binding on the Department? Also, if there is a contradiction between the decision passed by jurisdiction High Court and another High Court, which decision will prevail?

Facts of the Case

In the present case, the assessee availed CENVAT credit on sales commission services obtained by them. The Revenue, however, denied such credit on the contention that ‘sales commission services' do not fit into the definition of ‘input services' under rule 2(l) of CENVAT Credit Rules, 2004 in view of the Gujarat High Court decision in the case of Commissioner v. M/s.Cadila Healthcare Ltd in 2013 (4) STR 3.

Point of dispute

The assessee submitted that in view of CBEC Circular dated 29-04- 2011, they were entitled to CENVAT credit on sales commission services obtained by them and that the Department, bounded by the CBEC Circular, could not take a contrary decision. They further submitted that since the decision of the Gujarat High Court in case of Cadila Healthcare Limited referred by the Revenue is contrary to that of the Punjab & Haryana High court in the case of Commissioner v. Ambika Overseas 2012 (25) STR 348 (P&H), wherein the CENVAT credit on such input services was allowed to the assessee, hence the matter should be referred to the Larger bench.


The High Court observed that it is required to be noted that issue involved in the present appeal i.e. whether the appellant would be entitled to CENVAT credit on sales commission services obtained by them is now not res integra in view of the decision of this Court in the case of Cadila Healthcare Limited. It was elaborated by the High Court that in the case of Cadila Healthcare Limited, the jurisdictional High Court did not allow CENVAT credit on sales commission services after interpreting the relevant provisions of law. The High Court clarified that the decision of the jurisdictional High Court is binding to the Department rather than the Circular issued by the C.B.E. & C. In regard to the request made by the assessee to refer the issue to the Larger Bench, the High Court rejected the same by saying that the appeal against the decision of the jurisdictional High Court (Gujarat H.C) in the case of Cadila Healthcare Limited was filed before the Hon'ble Supreme Court and the Apex Court had seized the matter and no stay order was granted in that case. Therefore, the High Court opined that it will not be proper on its part to refer the matter to the Larger Bench in the present case. Even otherwise, the High Court did not find any reason to take a contrary view than its decision in the case of Cadila Healthcare Limited.

Decision The High Court held that – (i) if there is any conflict between the decision of the jurisdictional High Court and the CBEC Circular, then decision of the jurisdictional High Court will be binding to the Department rather than CBEC Circular. Therefore, the assessee would not be entitled to CENVAT credit on sales commission services obtained by them.


(ii) merely because there might be a contrary decision of another High Court is no ground to refer the matter to the Larger Bench. (iii) when there are two contrary decisions, one of jurisdictional High Court and another of the other High Court, then the decision of the jurisdictional High Court would be binding to the Department and not the decision of another High Court.

General Procedures under Central Excise 8. Ceat Limited v. CCE & C 2015 (317) ELT 192 (Bom.)

Issue Is interest payable under rule 7(4) of the Central Excise Rules, 2002 if amount of differential

duty paid in full before final assessment order is passed?

Facts of the Case

The appellants cleared the manufactured goods on provisional assessment basis under rule 7 of the Central Excise Rules, 2002. However, they did not wait for the passing of final assessment order by Deputy/ Assistant Commissioner finalizing the provisional assessment and paid the differential duty before the passing of said order. The Department issued a show cause-cum-demand seeking to recover from the assessee the interest under rule 7(4) of the rule on the amount of differential duty paid by them. However, Revenue did not contend that the differential duty paid prior to finalization of the assessment was not correct, accurate or was not properly computed. The assessee contended that interest liability under rule 7(4) of the rules arises only after passing of final assessment order. Interest is liable to be paid from the month following the month in which assessments were finalized. However, since the assessee had paid the differential duty well before the date of final ization of the assessment order, it was not liable to pay the interest on the same. Further, since the finalisation of provisional assessment had not resulted into any additional liability, rule 7(4) was not attracted and consequently, interest was not payable by the assessee.


The High Court observed that on finalization of provisional assessment, it is possible that duty liability determined is more than that recovered in the provisional assessment. Liability to pay interest under rule 7(4) arises on any such amount payable to Central Government consequent to order for final assessment under rule 7(3). The Court agreed that since in the assessee‟s case, final assessment resulted in nothing due and payable to the Government; later part of rule 7(4) was not attracted. Consequently, no interest was recoverable from them. Indeed, in case where assessee had paid the differential duty prior to finalization of the assessment, if the interest was to be recovered and was payable on such date, rule would have specifically said so.

Decision The High Court held that provisions of rule 7(4) will not be applicable and hence, the interest is not payable, if amount of differential duty is paid in full before the final assessment order is passed.


Common Topics

Classification of goods 9. State of Punjab v. Nokia India Private Limited 2015 (315) ELT 162 (SC)

Issue Whether the mobile battery charger is classifiable as an accessory of the cell phone or as an

integral part of the same?

Facts of the Case

In this case, the assessee classified the mobile battery charger as an integral part of the main product i.e. Nokia mobile phone. It contended that cell phone could not be operated without the charger. Further, mobile battery chargers were provided free with the cell phone in a composite package. Therefore, it applied the concessional rate of tax on the mobile battery charger also, as applicable on the mobile phone. However, it also admitted that whenever it sold the chargers separately, tax was not charged at the concessional rate. According to Department, a battery charger was not a part of the cell phone but merely an accessory thereof. Thus, concessional rate of tax applicable on cell phones was not applicable to the mobile battery chargers.


The Supreme Court decided the case in favour of Revenue and against the assessee holding that the battery charger is not a part of the mobile/cell phone but an accessory to it, on the basis of the following observ ations: (i) Had the charger been a part of cell phone, cell phone could not have been operated without using the battery charger. However, as a matter of fact, it is not required at the time of operation. Further, the battery in the cell phone can be charged directly from the other means also like laptop without employing the battery charger, implying thereby, that it is nothing but an accessory to the mobile phone. (ii) As per the information available on the website of the assessee, it had invariably put the mobile battery charger in the category of an accessory which means that in the common parlance also, the mobile battery charger is understood as an accessory. (iii) A particular model of Nokia make battery charger was compatible with many models of Nokia mobile phones and also many models of Nokia make battery chargers are compatible with a particular model of Nokia mobile phone, imparting various levels of effectiveness and convenience to the users. (iv) Rule 3(b) of the General Rules for Interpretation of the First Schedule of the Customs Tariff Act, 1975 can also not be applied in the assessee‟s case as merely making a composite package of cell phone and mobile battery charger will not make it composite goods for the purpose of interpretation of the provisions.

Decision The Apex Court held that mobile battery charger is an accessory to mobile phone and not an integral part of it. Further, battery charger cannot be held to be a composite part of the cell phone, but is an independent product which can be sold separately without selling the cell phone.

Note Though the above judgement has been rendered in context of VAT laws, the principle of classification of mobile charger may hold good in case of customs classification matter as well.


Demand, Adjudication and Offences 10. Sanjay Industrial Corporation v. CCE 2015 (318) ELT 15 (SC)

Issue In case the revenue authorities themselves have doubts about the dutiability of a product,

can extended period of limitation be invoked alleging that assessee has suppressed the facts?

Facts of the Case

In this case, the appellant was engaged in the business of cutting larger steel plates into smaller sizes and shapes as per the requirement of the customers. After cutting the plates as per the customer‟s specifications, same were supplied to them. This process is known as profile cutting. The appellant did not pay excise duty on the belief that the aforesaid process did not amount to manufacture as per section 2(f) of the Central Excise Act, 1944. Department issued a show cause notice demanding the excise duty and penalty alleging that the activity carried out by the appellant amounts to “manufacture”. It had invoked the extended period of limitation under section 11A holding that it was a case of suppression and misrepresentation facts by the appellant.

Point of Dispute

The primary contention of the appellant was that penalty could not be imposed invoking extended period of limitation as there was no suppression or misrepresentation of facts by them. It referred to order-in-original in case of M/s Pioneer Profile Industries, Pune involving the same process wherein although the Commissioner held that process of profile cutting amounted to manufacture, but did not impose the penalty because the question as to whether this process amounted to manufacture was in doubt earlier.


Referring the order of the Commissioner in case of M/s Pioneer Profile Industries, Pune, the Apex Court inferred that even Department had the doubts relating to excisability of process of profile cutting. In view thereof, if the appellant also had nurtured the belief that the process carried out by him did not amount to manufacture and did not pay excise duty, this conduct of the appellant was a bonafide conduct and could not be treated as willful suppression of facts.

Decision The Supreme Court held that since Revenue authorities themselves had the doubts relating to excisability of process of profile cutting, the bonafides of the appellant could not be doubted. Hence, extended period of limitation could not be invoked and penalty was set aside.

11. Jay Balaji Jyoti Steels Limited v. CESTAT Kolkata 2015 (37) STR 673 (Ori.)

Issue Whether the amendment made by Finance Act, 2013 in section 37C(1)(a) of Central Excise

Act,1944 to include speed post as an additional mode of delivery of notice is merely clarificatory in nature having retrospective effect or does it operate prospectively?

Point of Dispute

The contention of the assessee was that the amendment made in section 37(C)(1)(a) of the Central Excise Act,1944 which added “speed post” as an additional mode of service of notice could only operate prospectively and not retrospectively.


The High Court observed that in view of section 28 of the Indian Post Office Act, 1898, any postal article which is registered at the post office from which it is posted, and a receipt has been issued in respect of such article, is to be treated as “registered post”. The High Court pointed out that since for both “registered post” as well as “speed post”, receipts are required to be issued when articles are delivered to the post offices, both “speed post” and “regis tered post” satisfy the requirement of section 28 of the Indian Post Office Act, 1898. The only difference between the two is that the charges payable for the “speed post” are higher as the


same ensures delivery at an early date. Consequently, the High Court was of the view that addition of the term “speed post” in section 37(C)(1)(a) was merely clarificatory. The High Court further stated that the said amendment is clearly curative since various other High Courts have held that “communication of notices through speed post was in consonance with law”. The High Court reiterated that it is well settled in law that where an amendment which is brought about is “clarificatory in nature”, the same would date back to the date on which the original provision was introduced*.

Decision The High Court, therefore, held that insertion of words “or by speed post with proof of delivery” in section 37C(1)(a) of the Central Excise Act, 1944 is clarificatory and a procedural amendment and hence, would have retrospective effect.

Note 1. Prior to 10.05.2013, 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 in terms of section 37C(1)(a) of the Central Excise Act, 1944. However, w.e.f. 10.05.2013, section 37C(1)(a) was amended vide the Finance Act, 2013 so as to include additional modes of delivery for decisions, orders, summons or notices namely, speed post with proof of delivery or courier approved by CBEC. *2. The Supreme Court dealt with the issue of retrospective operation of clarificatory amendments in the case of R. Rajagopal Reddy (dead) by Lrs. & Ors. v. Padmini Chandrasekharan (dead) by Lrs., 1995 (2) SCC 630 as under: “Declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. A clarificatory amendment of this nature will have retrospective effect and therefore, if the principal Act was existing law when the Constitution came into force the amending Act also will be part of the existing law. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.” The said judgement of the Apex Court was affirmed by the Full Bench of the Hon‟ble Supreme Court in the case of Shyam Sunder and Others v. Ram Kumar and Another, 2001 (8) SCC 24.

Chapter – Refund 12. CCus CEx & ST v. Indian Farmers Fertilizers Coop. Limited 2014 (35) STR 492 (All)

Issue Whether the recipient of taxable service having borne the incidence of service tax is entitled

to claim refund of excess service tax paid consequent upon the downward revision of charges already paid, and whether the question of unjust enrichment arises in such situation?

Facts of the Case

The CESTAT answered the above question against the Revenue so this appeal was filed with the High Court by the Revenue. It was the contention of the Revenue that the respondent being recipient of service was not entitled to file a refund claim under section 11B as the expression “any person” in section 11B of the Central Excise Act, 1944 does not include the recipient of the service. The Revenue submitted before the High Court that the principles of unjust enrichment as provided in section 11B were not considered by the CESTAT while allowing the refund claim and that the refund claim filed was not within the period of limitation of one year under section 11B.

Observations The High Court relied on the case of Mafatlal Industries Ltd. v. Union of India 1997 (89) ELT 247


of the Court wherein the Supreme Court held that “Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund.” The High Court observed that since the respondent, being the recipient of taxable service, had borne the incidence of service tax themselves; there was no question of unjust enrichment. Hence, the respondent was entitled to claim refund of excess service tax paid consequent upon the downward revision of the charges payable by it. Further, the High Court pointed out that the fact that respondent had not filed the refund claim with the period of limitation was not challenged by the Revenue in the grounds of appeal before the first appellate authority [Commissioner (Appeals)] or in the form of cross objections before the Tribunal. The High Court relied on the Supreme Court’s decision in the case of Commissioner of Customs v. Toyo Engineering India Limited 2006 (201) ELT 513 (SC) wherein it was held that the Revenue could not be allowed to raise submissions for the first time in a second appeal before the Tribunal.

Decision The High Court upheld the decision of the CESTAT that since the burden of tax has been borne by the respondent as a service recipient, question of unjust enrichment will not arise as per section 11B of the Central Excise Act 1944 (as applicable to service tax under section 83 of Finance Act,1994). Further, the High Court held that once the finding of the adjudicating authority that the claim for refund was filed within the period of limitation was not challenged by the Revenue before the first appellate authority and CESTAT, Revenue could not assert to contrary and first time urge a point in an appeal before this Court which was not raised in grounds of appeal before authorities below.

13. Parimal Ray v. CCus. 2015 (318) ELT 379 (Cal.)

Issue Is limitation period of one year applicable for claiming the refund of amount paid on account

of wrong classification of the imported goods?

Facts of the Case

The petitioners imported tunnel boring machines which were otherwise fully exempt from customs duty. However, owing to erroneous classification of such machines, they paid large amount of customs duty. After expiry of more than 3 years, the petitioners filed a writ petition claiming the refund of the amount so paid. The said refund claim was rejected on the ground that the petitioners failed to make a proper application of refund under section 27 of the Customs Act, 1962 within the stipulated period of 1 year of payment of duty.


The High Court observed that, the provisions of section 27 applies only when there is over payment of duty or interest under the Customs Act, 1962. When the petitioners‟ case is that tunnel boring machines imported by it were not exigible to any duty, and any sum paid into the exchequer by them was not duty or excess duty but simply money paid into the Government account. The Government could not have claimed or appropriated any part of this as duty or interest. The money received by Government could more appropriately be called money paid by mistake by one person to another, which the other person is under obligation to repay under section 72 of the Indian Contract Act, 1872. The obligation was a continuing obligation. When a wrong is continuing, there is no limitation for instituting a suit complaining about it

Decision The High Court held that law of limitation under Customs Act is applicable to duty or interest paid under the Act. However, any sum paid into the exchequer by the assessee is not duty or excess duty but is simply money paid into the account of Government. Therefore, the assessee


is entitled to refund of the sum paid by it to the customs authorities.

Note (i) The principle enunciated in this case is that law of limitation under Customs Act is applicable to duty or interest paid under that Act. However, any sum paid to the exchequer by mistake is not duty or excess duty but is simply money paid to the account of Government. Therefore, limitation of one year applicable to refunds of customs duty will not apply to refunds of amount paid to the Government by mistake. The High Court elaborated that under the Limitation Act, 1963, money paid by mistake can be recovered up to three years from the time the plaintiff discovers the mistake or could have discovered the same with reasonable diligence. (ii) A cestui que trust is a person for whose benefit a trust is created; a beneficiary. Although legal title of the trust is vested in the trustee, the cestui que trust is the beneficiary who is entitled to all benefits from a trust.

Chapter – Appeals 14. CCE v. Fact Paper Mills Private Limited 2014 (308) E.L.T. 442 (SC)

Issue Can an appeal be filed before the Supreme Court against an order of the CESTAT relating to

clandestine removal of manufactured goods and clandestine manufacture of goods?

Decision The Supreme Court held that the appeals relating to clandestine removal of manufactured goods and clandestine manufacture of goods are not maintainable before the Apex Court under section 35L of the Central Excise Act, 1944.

15. M/s Venus Rubbers v. The Additional Commissioner of Central Excise, Coimbatore 2014 (310) ELT 685

(Mad.)

Issue Does the Commissioner (Appeals) have the power to review his own order of predeposit?

Decision The High Court held that there is no provision of law under the Central Excise Act, 1944 which gives power to the Commissioner (Appeals) to review his order. However, such a power is available to the Tribunal under section 35C(2) of the Central Excise Act, 1944 to rectify any mistake apparent on the record. The High Court elaborated that when there is no power under the statute, the Commissioner (Appeals) has no authority to entertain the application for review of the order.

16. Commissioner of Service Tax v. Associated Hotels Ltd. 2015 (37) STR 723 (Guj.)

Issue Can the Commissioner (Appeals) remand back a case to the adjudicating authority under

section 85 of the Finance Act, 1994?

Point of dispute

The question of law which was raised in this case was that whether the Commissioner (Appeals), exercising powers under section 85 of the Finance Act, 1994, has the power to remand the proceedings back to the adjudicating authority . The Department contended that due to the amendment made in section 35A(3) of the Central Excise Act, 1944, in the year 2001*, the powers of remand which were previously specifically granted to the Commissioner (Appeals) were taken away. It was argued by the Department that since section 85(5) of the Finance Act, 1994 provides that the Commissioner (Appeals) while hearing the appeals under section 85 of the Act, follows the same procedure and


exercises same powers which he does while hearing the appeals under the Central Excise Act, 1944, Commissioner (Appeals) does not have the power to remand the proceedings back to the adjudicating authority in service tax matters also.


The High Court observed that section 85(4) of the Finance Act, 1994 is worded widely and gives ample powers to the Commissioner while hearing and disposing of the appeals to pass such orders as he thinks fit including an order enhancing tax, interest or penalty. Such powers would, therefore, inherently contain the power to remand a proceeding for proper reasons to the adjudicating authority. Further, the High Court rejected the Department‟s contention that by virtue of section 85(5) of the Finance Act, 1994, the limitation on power of Commissioner (Appeals) to remand a proceeding as contained in section 35A(3) of Central Excise Act, 1944 also applied to appeals under section 85 of Finance Act, 1994. This is so because, even though sub-section (5) of section 85 requires the Commissioner (Appeals) to follow the same procedure and exercise same powers in making orders under section 85, as he does while hearing the appeals under the Central Excise Act, 1944, sub-section (5) itself starts with the expression “subject to the provisions of this Chapter”. The High Court held that sub-section (4) of section 85 itself contains the width of the power of the Commissioner (Appeals) in hearing the proceedings of appeal under section 85. The scope of such powers flowing from sub-section (4), therefore, cannot be curtailed by any reference to sub-section (5) of section 85 of the Finance Act, 1994.

Decision The High Court, therefore, held that section 85(4) of the Finance Act, 1994 gives ample powers to the Commissioner while hearing and disposing of the appeals and such powers inherently contain the power to remand a proceeding for proper reasons to the adjudicating authority.

Note *1. Section 35A(3) of the Central Excise Act, 1944 was amended with effect from 11-5-2001. Prior to the amendment, the said provision read as under: “The Commissioner (Appeals) may, after making such further inquiry as may be necessary, pass such order as he thinks fit confirming, modifying or annulling the decision or order appealed against, or may refer the case back to the adjudicating authority with such directions as he may think fit for a fresh adjudication or decision, as the case may be, after taking additional evidence, if necessary.” After 11-5-2001, the amended section 35A(3) reads as under : “The Commissioner (Appeals) shall, after making such further inquiry as may be necessary, pass such order, as he thinks just and proper, confirming, modifyi ng or annulling the decision or order appealed against.” 2. The Delhi High Court in the case of Commissioner v. World Vision 2011 (24) STR 650 (Del.) has also held that under section 85(4) of Finance Act, 1994, the Commissioner (Appeals) has the power to remand back the case to the adjudicating authority for fresh consideration.

17. CCus & CEx. v. Ashok Kumar Tiwari 2015 (37) STR 727 (All.)

Issue Whether the period of limitation or the period within which delay in filing an appeal can be

condoned, specified in terms of months in a statute, means a calendar month or number of days?

Facts of the case

The assessee received the adjudication order on 08.10.2011 and filed an appeal against the said order before Commissioner of Central Excise (Appeals) on 09.04.2012 along with an application for condonation of delay. However, the Commissioner dismissed the appeal as being time barred and declined to condone the delay. Tribunal, on appeal, decided that the delay should be condoned in assessee‟s case. It observed that period of limitation of 3 months prescribed under section 85(3) of the Finance Act, 1994 meant 3 calendar months and not 90


days and proviso to said sub - section empowered Commissioner to condone the delay for sufficient cause so as to allow the appeal to be presented within a further period of 3 months.

Point of dispute

The issue which came up for consideration before High Court was whether the period of limitation or the period within which delay in filing an appeal can be condoned, specified in terms of months in a statute, means a calendar month or number of days.


The High Court opined that where the legislature intends to define the period of limitation with regard to the number of days, it does so specifically. Section 85 of the Finance Act, 1994 has defined the period of limitation as well as the power to condone the delay with regard to a stipulation in terms of months and such a stipulation can only mean a calendar month. Once the legislature has used the expression “three months” both in the substantive part of sub-section (3) of section 85 as well as in its proviso*, it would not be open for the High Court to substitute the words “3 months” by the words “90 days” and if it does so, it would amount to rewriting the legislative provision, which is impermissible. The High Court noted that section 3(35) of the General Clauses Act, 1897 also defines the expression “month” to mean a month reckoned according to the British calendar. Further, the day on which order was received by the assessee, i.e. 08.10.2011 had to be excluded while computing the period of limitation in view of section 9 of said Act**. Since the original period of limitation and the period within which delay could be condoned expired on a public holiday, i.e. 08.04.2012, the assessee filed the appeal on the next working day, i.e. 09.04.2012.

Decision In the given case, the Commissioner of Central Excise (Appeals) had the jurisdiction to condone the delay in filing of appeal by the assessee as the same had been filed within the stipulated time prescribed for the same.

Note *1. Sub-section (3) of section 85 of the Finance Act, 1994 stipulates the period of limitation for filing an appeal with Commissioner of Central Excise (Appeals). Further, proviso to said section stipulates the period within which delay in filing said appeal can be condoned. Provisions of section 85(3) and its proviso were applicable till 27.05.2012. However, with effect from 28.05.2012, sub-section (3) of section 85 and its proviso ceased to have effect and sub-section (3A) to said section and its proviso were inserted by the Finance Act, 2012. While sub-section (3) and its proviso stipulated the original period of limitation as three months and the extent to which delay could be condoned also as three months, as per sub-section (3A), the original period of limitation is two months and delay can be condoned within a further period of one month. Although the aforesaid judgment is based on sub-section (3) of section 85, the principle derived in the said ruling i.e., where legislature specifies period of limitation as well as period within which delay in filing an appeal can be condoned in terms of months, such a stipulation can only mean a calendar month and not number of days, is applicable to sub-section (3A) of section 85 also. **2. Supreme Court, in case of M/s. Econ Antri Ltd v. M/s. Rom Industries Ltd. & Anr, had also taken a similar view on this point and decided that while computing the period of limitation, the day on which the offence is committed/ date of cause of action has to be excluded.

18. Chakiat Agencies v. UOI 2015 (37) STR 712 (Mad.)

Issue Can the appeal filed in time but to wrong authority be rejected by the appellate authority

being time barred?

Facts of the case

In the instant case, the assessee filed an appeal to Commissioner, but mistakenly gave it to the adjudicating officer who had passed the original order. The appellate authority rejected the appeal on the ground that the appeal was not received in time in his office.


Point of dispute

The Department contended that although appeal was received in time by the adjudicating officer, appellate authority rejected the appeal as the same was not received in its office in time.


The High Court noted that the appeal had been preferred in time, but reached different wing of the same building. Since the appeal was received by the adjudicating officer who has passed the original order, he ought to have sent it to the other wing of the same building, but he had not done the same. Therefore, the order passed by the appellate authority cancelling the appeal on the ground that it was not received in time, could not be accepted. The High Court, further, referred to Andhra Pradesh High Court judgment in Radha Vinyl Pvt. Ltd. v. Commissioner of Income Tax and Another case where in similar circumstances it was held that although the appeal had been addressed to the wrong officer, Department could not deny the fact that the appeal was pending before it. Either the Department should have returned the appeal papers to the assessee to enable him to file appeal before the appropriate authority or should have handed over the appeal papers to the competent authority. Consequently, now the Department could not say that the appeal was not filed with the competent authority.

Decision In the light of the above discussion, the High Court directed the appellate authority to entertain the appeal of the assessee and to pass appropriate orders on merits and in accordance with law, after affording him an opportunity of being heard.

19. Neeraj Jhanji v. CCE & Cus. 2014 (308) E.L.T. 3 (S.C.)

Issue Can a writ petition be filed before a High Court which does not have territorial jurisdiction

over the matter?

Facts of the Case

In this case, the assessee filed a writ petition before the Delhi High Court against the order in original passed by the Commissioner of Customs of Kanpur. However, the jurisdictional High Court for the petitioner would have been Allahabad High Court. When the Revenue raised objection over the territorial jurisdiction of the High Court, the assessee withdrew the appeal from the Delhi High Court and filed the appeal with the Allahabad High Court with the application for condonation of delay. The Allahabad High Court, however, dismissed the application for condonation of delay and also dismissed the appeal as time barred. Then, the assessee filed a special leave petition with the Supreme Court.

Decision The Supreme Court observed that the very filing of writ petition by the petitioner in Delhi High Court against the order in original passed by the Commissioner of Customs, Kanpur indicated that the petitioner had taken chance in approaching the High Court at Delhi which had no territorial jurisdiction in the matter. The filing of the writ petition before Delhi High Court was not at all bona fide.

Note In the aforementioned case, the Apex Court has disapproved the practice of Forum Shopping as adopted by the petitioner. Forum Shopping is the practice adopted by the litigants to have their legal case heard in the Court which would provide most favourable decision.


Customs

Levy and Exemption from the Customs Duty 20. Aidek Tourism Services Pvt. Ltd. v. CCus. 2015 (318) ELT 3 (SC)

Issue Would countervailing duty (CVD) on an imported product be exempted if the excise duty on

a like article produced or manufactured in India is exempt?

Decision Supreme Court held that rate of additional duty leviable under section 3(1) of the Customs Tariff Act, 1975 would be only that which is payable under the Central Excise Act, 1944 on a like article. Therefore, the importer would be entitled to payment of concessional/ reduced or nil rate of countervailing duty if any notification is issued providing exemption/ remission of excise duty with respect to a like article if produced/ manufactured in India.

Chapter – Valuation under the Customs Act, 1962 21. Gira Enterprises v. CCus. 2014 (307) E.L.T.209 (SC)

Issue Can the value of imported goods be increased if Department fails to provide to the importer,

evidence of import of identical goods at higher prices?

Facts of the Case

The appellant imported some goods from China. On the basis of certain information obtained through a computer printout from the Customs House, Department alleged that during the period in question, large number of such goods were imported at a much higher price than the price declared by the appellant. Therefore, Department valued such goods on the basis of transaction value of identical goods as per erstwhile rule 5 [now rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007] and demanded the differential duty alongwith penalty and interest from the appellant. However, Department did not provide these printouts to the appellant. The appellant contended that Department’s demand was without any basis in law, without any legally admissible evidence and opposed to the principles of natural justice as the computer printout which formed the basis of such demand had not been supplied to them. Resultantly, the appellant had no means of knowing as to whether any imports of comparable nature were made at the relevant point of time.


Supreme Court observed that since Revenue did not supply the copy of computer printout, which formed the basis of the conclusion that the appellants under-valued the imported goods, the appellants obviously could not and did not have any opportunity to demonstrate that the transactions relied upon by the Revenue were not comparable transactions.

Decision The Supreme Court held that mere existence of alleged computer printout was not proof of existence of comparable imports. Even if assumed that such printout did exist and content thereof were true, such printout must have been supplied to the appellant and it should have been given reasonable opportunity to establish that the import transactions were not comparable.


Thus, in the given case, the value of imported goods could not be enhanced on the basis of value of identical goods as Department was not able to provide evidence of import of identical goods at higher prices.

Note This case establishes the principle that the onus to prove that identical goods have been imported at a price higher than the value of the goods declared by the importer, lies with the Department.

Chapter - Provisions relating to illegal import, illegal export, confiscation, penalty &

allied provisions 22. Purushottam Jajodia v. Director of Revenue Intelligence 2014 (307) E.L.T. 837 (Del.)

Issue Whether mere dispatch of a notice under section 124(a) would imply that the notice was

“given” within the meaning of section 124(a) and section 110(2) of the said Customs Act, 1962?

Facts of the Case

As per section 110(2) of the Customs Act, 1962, a notice under section 124(a) is required to be “given” to the person from whose possession they were seized informing him the grounds on which goods are proposed to be confiscated, within 6 months (extendable upto one year) of seizure of the goods. Otherwise, goods need be returned to such person. However, in the present case, the notice under section 124(a) was dispatched by registered post on the date of expiry of stipulated period under section 110(2) and received by the petitioner after the expiry of such period. The petitioner contended that since said notice had not been received before the expiry of the said period of six months (extendable upto one year), goods should be returned to him. Relying on Supreme Court’s decision in case of K. Narsimhiah v. H.C. Singri Gowda AIR 1966 SC 330 and Gujarat High Court’s decision in case of Ambalal Morarji Soni v. Union of India AIR 1972 GUJ 126, it submitted that by the use of the word "given" used in section 110(2), the legislative intent was clear that the notice had to be received by the person concerned or the notice had to be offered/tendered and refused by the person concerned. Mere dispatch by post would not be covered by the word "given" as appearing in the above mentioned provisions of the said Act. Further the expression "given" was distinct and different from the word "issued" or "served". Revenue, referring to section 153(a), submitted that the moment a notice is tendered or sent by registered post or by an approved courier, that amounts to service of the notice and the actual receipt by the noticee is not a relevant consideration. Since the notice had been sent by registered post within the stipulated period as prescribed under section 110(2) of the said Act, the goods were not liable to be released. They primarily placed reliance on decision of Calcutta High Court in case of Kanti Tarafdar 1997 (91) ELT 51 (Cal.) and Madhya Pradesh High Court in case of Ram Kumar Aggarwal 2012 (280) ELT 13 (M.P.).


The Delhi High Court observed that section 124(a) clearly stipulates that no order confiscating any goods or imposing any penalty on any person shall be made unless the owner of the goods or person from whom goods have been seized is “given a notice” in writing, “informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty”. In case such notice is not given within the stipulated period of six months or the extended period of a further six months, seized goods have to be released. The object of section 124(a) is that the person from whom the goods have been seized had to be informed of the grounds on which the confiscation of the goods is to be founded. This can


happen only when such person receives the notice and is capable of reading and understanding the grounds of the proposed confiscation. On a conjoint reading of section 110(2) and section 124(a) of the said Act, the Court opined that the notice contemplated in these provisions can only be regarded as having been “given” when it is actually received or deemed to be received by the person from whom the goods have been seized. The Delhi High Court was in complete agreement with the Supreme Court’s decision in case of K. Narsimhiah as followed by Gujarat High Court in case of Ambalal Morarji Soni. However, it disagreed with the decision of Calcutta High Court in case of Kanti Tarafdar. The Delhi High Court pointed out that the decision in the said case was arrived at on the (wrong) premise that section 124 requires that a notice be “issued” as against a notice being “given” when the body of the provision of section 124 nowhere uses the expression “issue of show cause notice”. The Delhi Court elaborated that it is only the heading of that section which uses that expression (issue of show notice) and the body of section 124(a), on the contrary, uses the exact same expression “given” as used in section 110(2) of the said Act. Therefore, the Delhi High Court was of the view that very basis of the Calcutta High Court’s decision in Kanti Tarafdar is incorrect. The Delhi High Court also disagreed with the Calcutta High Court’s observation that the word “given” used in section 110(2) and section 124(a) is in any manner controlled by section 153. The Delhi High Court opined that in the context of the present cases, section 153 would only define the mode and manner of service and not the time of service or when a notice can be said to have been “given”. Further, Delhi High Court was of the view that Madhya Pradesh High Court, in case of Ram Kumar Aggarwal, wrongly concluded that when the legislature had used the words “notice is given” it would “obviously mean that the notice must be issued within six months of the date of seizure”. The Delhi High Court, on the other hand, opined that expression “notice is given” does not logically translate to the conclusion that “notice must be issued within the stipulated period”.

Decision The High Court held that since the petitioners did not receive the notice under section 124(a) within the time stipulated in section 110(2) of the Act, such notice will not considered to be “given” by the Department within the stipulated time, i.e. before the terminal date. Consequently, the Department was directed to release the goods seized.

Note: Section 124(a) of the Customs Act, 1962, inter alia, stipulates that no order confiscating any goods or imposing any penalty on any person shall be made under this Chapter unless the owner of the goods or such person is given a notice in writing informing him of the grounds on which it is proposed to confiscate the goods or to impose a penalty. Further, section 110(2) of the Act stipulates that where no such notice is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized.


Cenvat Credit

1. 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.


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.

PART IV - CASE STUDIES DELETED


For the sake of simplicity and better understanding, the term MODVAT has been referred to as CENVAT wherever applicable.

2. 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.

Demand, Adjudication & Offences

3. 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.

4. CCEx. v. Castrol India Ltd. 2012 (286) E.L.T. 194 (Bom.)

Issue Can Appellate Authorities or Courts permit the 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 within 30 days from the date of communication of the order passed by the Tribunal.

Points of dispute

The Revenue contended that Tribunal could not permit assessee to pay reduced penalty of 25% beyond time prescribed under section 11AC.


The High Court elucidated that when the 25% penalty under first and the second proviso to erstwhile section 11AC [now section 11AC(1)(c)] was required to be paid within 30 days from the date of communication of the order of the Central Excise Officer determining duty under erstwhile section 11A(2) [now section 11A(10)], it would not be open to the appellate authority or the Court to direct the assessee to pay 25% penalty beyond the stipulated time period. Further, the Court noted that the third and fourth proviso to erstwhile section 11AC [now sections 11AC(1)(d) and 11AC(2)] made it clear that, it was only when the duty determined as payable under erstwhile section 11A(2) [now section 11A(10)] was increased by the appellate authority/Court in the appellate proceedings, the appellate authority/Court was authorised to permit the assessee to pay 25% of the increased penalty within 30 days from the date of communication of the order increasing the duty.

Decision In the light of the aforesaid discussion, the High Court held that Tribunal could not permit 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)].

Note 1. The aforesaid judgment relates to erstwhile section 11AC which existed prior to 08.04.2011. However, the principle enunciated in the said judgment, that Appellate Authorities or Courts cannot permit the assessee to pay reduced penalty of 25% beyond time prescribed under section 11AC, holds good in terms of present section 11AC also (applicable with effect from 08.04.2011). Further, it is important to note that under present section 11AC(1)(c), in case where there is a short levy/non-levy, short payment/non-payment or erroneous refund of excise duty by fraud, collusion etc., option to pay 25% penalty is available provided:- (i) the default has been found during the course of any audit, investigation or verification and (ii) the details of such transaction are available in the specified records. Under the erstwhile section 11AC, the aforesaid two conditions were not required to be fulfilled. 2. The Bombay High Court, while deciding the aforesaid case, departed from the view taken by the High Courts in the following cases in the said matter:- • Commissioner v. Bhagyoday Silk Industries 2010 (262) E.L.T. 248 (Guj.) • Commissioner v. J.R. Fabrics Pvt. Ltd. 2009 (238) E.L.T. 209 (P & H) • K.P. Pouches Pvt. Ltd. v. Union of India 2008 (228) E.L.T. 31 (Del.). 3. The Gujarat High Court has taken a view contrary to the abovementioned opinion of Bombay High Court in case of CCEx. v. Ratnamani Metals and Tubes Ltd. 2013 (296) ELT 327 (Guj.) wherein the High Court held that an option can also be granted to the assessee to deposit the entire dues along with interest and 25% penalty within a period of 30 days of communication of the order of Tribunal.

SETTLEMENT COMMISSION

1. 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.

Point of Dispute

The Settlement Commission rejected the petitioner’s application on the ground that no returns as mandated by clause (a) of first proviso to section 32E(1) of the Central Excise Act, 1944 were filed (as the units were registered only after the search was conducted). The assessee contended that a return filed before enquiry or show cause, even though filed belatedly, would entitle him to put forth his grievance before the Settlement Commission and claim the benefit.

Observation of the Court

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 to the case of M/s. Emerson Electric Company India Pvt. Ltd. 2005 (189) ELT 377 wherein it was held inter alia that (i) 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, the said returns can be deemed to be the ‘returns’ referred to in section 32E(1), as the said returns contain details of excisable goods manufactured, cleared and duty paid in the prescribed manner. Hence, the concept of return has to be understood in context of rule 12 of the Central Excise Rules, 2002. (ii) ‘Returns’ are to be filed on monthly/quarterly basis. There is no provision for filing the same in a consolidated manner covering more than one month. However, there is no specific bar against ‘belated filing of returns’. (iii) Even if returns (for pre-registration period) are filed after getting ECC Number, 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. The High Court explained that in the above case, the Commission has drawn distinction between monthly/quarterly returns filed belatedly but before inquiry/show cause notice and consolidated returns. Whereas monthly/quarterly returns (for post-registration period) filed belatedly but before inquiry/show cause notice can be taken cognizance of for the purpose of Section 32E(1) of the Central Excise Act, 1944 to allow filing settlement application, consolidated returns (for pre - registration period) have not been treated as returns under clause (a) to Section 32E(1).

Decision Considering the above discussion, the High Court 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.


Part V RTP - Significant Recent Legal Decisions

SUMMARY OF RTP CASE STUDIES S.N. Case Law Issue Decision

1. CCE v. Fitrite Packers 2015 (324) ELT 625 (SC)

Does printing on jumbo rolls of GI paper as per design and specification of customers with logo and name of product in colourful form, amount to manufacture?

The Supreme Court held that the process of aforesaid particular kind of printing resulted into a product i.e., paper with distinct character and use of its own which it did not bear earlier. The Court emphasised that there has to be a transformation in the original article and this transformation should bring out a distinctive or different use in the article, in order to cover the process under the definition of manufacture. Since these tests were satisfied in the present case, the Apex Court held that the process amounted to manufacture.

2. CCE v. Haryana Sheet Glass Ltd. 2015 (39) STR 0392 (P&H)

Is the assessee entitled to avail CENVAT credit of service tax paid on outward transportation of goods cleared from factory?

The High Court held that outward transportation up to the place of removal falls within the expression "input service". The place of removal, in terms of the Circular* of the Board is a question of fact. If a manufacturer is to deliver the goods to the purchaser, the place of removal would not be a factory gate of the manufacturer but that of the purchaser. In the given case, there is no evidence that the property in goods stood transferred to the purchaser at the factory door of the assessee. Therefore, the assessee is entitled to avail CENVAT credit of service tax paid on outward transportation of goods cleared from factory

3. Bansal Classes v. CCE & ST 2015 (039) STR 0967 (Raj.)

Can a commercial training and coaching institute claim CENVAT credit in respect of the input services of catering, photography and tent services used to encourage the coaching class students, maintenance and repair of its motor vehicle and travelling expenses?

The High Court upheld the Tribunal’s decision. Thus, the assessee is not eligible for CENVAT credit of the service tax paid on catering, photography and tent services, maintenance and repair of its motor vehicle and travelling expenses.

4. Commr. of C. Ex., & Whether assessee is entitled to The High Court agreeing with and


S.T., LTU v. Rane TRW Steering Systems Ltd. 2015 (039) STR 13 (Mad.)

claim CENVAT credit of service tax paid on house-keeping and landscaping services availed to maintain their factory premises in an eco-friendly manner?

following the ratio laid down in the aforesaid decision held that where an employer spends money to maintain their factory premises in an eco-friendly manner, the tax paid on such services would form part of the cost of the final products. Therefore, housekeeping and gardening services would fall within the ambit of input services and the assessee is entitled to claim the benefit of CENVAT credit on the same.

5. Spentex Industries Ltd v. CCE 2015 (324) ELT 686 (SC)

Whether rule 18 of Central Excise Rules, 2002 (CER) allows export rebate of excise duty paid on both inputs as well as the final product manufactured from such inputs?

The Supreme Court held that normally the two words ‘or’ and ‘and’ are to be given their literal meaning. However, wherever use of such a word, viz., ‘and’/’or’ produces unintelligible or absurd results, the Court has power to read the word ‘or’ as ‘and’ and vice versa to give effect to the intention of the Legislature which is otherwise quite clear. The Apex Court held that the exporters/appellants are entitled to both the rebates under rule 18 and not one kind of rebate.

6. CCE v. Otto Bilz (India) Pvt. Ltd 2015 (324) ELT 430 (SC)

Whether an assessee using a foreign brand name, assigned to it by the brand owner ith right to use the same in India exclusively, is eligible for SSI exemption?

The Supreme Court held that because of the aforesaid assignment, the assessee was using the trade mark in its own right as its own trade mark and therefore, it could not be said that it was using the trade mark of another person. The assessee was entitled to SSI exemption.

7. CCE v. Honda Siel Power Products Ltd. 2015 (323) E.L.T. 644 (S.C.)

Can the benefit of exemption notification be granted to assessee where one of the conditions to avail the exemption is not strictly followed?

The Apex Court observed that the assessee was required to fulfill the condition in stricto senso viz. to pay the duty either in cash or through account current if it wanted to avail the benefit of exemption notification and not through adjustment of CENVAT credit which was not the mode prescribed in the aforesaid condition. It is trite that exemption notifications are to be construed strictly and even if there is any doubt same is to be given in favour of the Department. The Supreme Court held that once it is found that the conditions had not been fulfilled the obvious consequence would be that the assessee was not


entitled to the benefit of said notification.

8. CCE v. Vijaya Consultants, Engineers and Consultants 2015 (040) STR 0232 (AP)

Can service tax be demanded by a speaking order without issuing a show cause notice but after issuing a letter and giving the assessee an opportunity to represent his case along with personal hearing?

The High Court held that by no stretch of imagination, the said letter could be treated as a show cause notice satisfying the requirement of section 73 of the Act. The High Court further held that the procedural requirement of issuance of notice and calling for explanation cannot be dispensed with as otherwise the demand of money in the name of tax would be in violation of the very procedure prescribed under the Act. The High Court thus, dismissed the appeal.

9. Delhi Transport Corporation v. Commissioner Service Tax 2015 (038) STR 673 (Del.)

Based on the contractual arrangement, can the assessee ask the Department to recover the tax dues from a third party or wait till the assessee recovers the same?

The High Court held that undoubtedly, the service tax burden can be transferred by contractual arrangement to the other party. However, on account of such contractual arrangement, the assessee cannot ask the Revenue to recover the tax dues from a third party (the other party) or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors (the other party).

10. Mangalore Refinery & Petrochemicals Ltd v. CCus. 2015 (323) ELT 433 (SC)

In case of import of crude oil, whether customs duty is payable on the basis of the quantity of oil shown in the bill of lading or on the actual quantity received into shore tanks in India?

The Supreme Court set aside the Tribunal’s judgment and declared that the quantity of crude oil actually received into a shore tank in a port in India should be the basis for payment of customs duty.


Central Excise

Chapter – Basic Concept of Excise

1. CCE v. Fitrite Packers 2015 (324) ELT 625 (SC)

Issue Does printing on jumbo rolls of GI paper as per design and specification of customers with

logo and name of product in colourful form, amount to manufacture? Facts of the Case

The assessee purchased duty paid GI paper from the market and carried out printing on it according to the design and specifications of the customer. The printing was done on jumbo rolls of GIP twist wrappers. On the paper, logo and name of the product was printed in colorful form and the same was delivered to the customers in jumbo rolls without slitting. The customer intended to use this paper as a wrapping/packing paper for packing of their goods.

Point of Dispute

Revenue contended that the process amounted to manufacture and the assessee was liable to pay excise duty thereon. However, the Tribunal, when the matter was brought before it, concluded that printing was only incidental and primary use of GI printing paper roll was for wrapping, which was not changed by the process of printing. Aggrieved by the Tribunal’s order, the Revenue appealed before the Supreme Court.


The Supreme Court referred to one of its earlier judgments in the case of Servo-Med Industries Pvt. Ltd. v. CCEx. 2015 (319) ELT 578. In this case, the Apex Court had culled out four categories of cases to ascertain whether a particular process would amount to manufacture or not: (i) Where the goods remain exactly the same even after a particular process - There is obviously no manufacture involved. Process which remove foreign matter from goods complete in themselves and / or processes which clean goods that are complete in themselves fall in this category. (ii) Where the goods remain essentially the same after the particular process – Again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process. (iii) Where the goods are transformed into something different and / or new after a particular process but the said goods are not marketable - No manufacture of goods takes place. Examples within this group are cases where the transformation of goods having a shelf life which is of extremely small duration. (iv) Where the goods are transformed into goods which are different and / or new after a particular process and such goods are marketable as such - It is in this category that manufacture of goods can be said to take place. The Apex Court observed that GI paper was meant for wrapping and its use did not undergo any change even after printing - the end use thereof was still the same namely wrapping / packaging. However, whereas the blank paper could be used as wrapper for any kind of product, after the printing of logo and name of the specific product thereupon, its end use got confined to only that particular and specific product of the particular company / customer. The printing, therefore, was not merely a value addition but had transformed the general wrapping paper to special wrapping paper.

Decision The Supreme Court held that the process of aforesaid particular kind of printing resulted into a product i.e., paper with distinct character and use of its own which it did not bear earlier. The Court emphasised that there has to be a transformation in the original article and this transformation should bring out a distinctive or different use in the article, in order to cover the process under the definition of manufacture. Since these tests were satisfied in the present


case, the Apex Court held that the process amounted to manufacture.

Chapter – Cenvat Credit 2. CCE v. Haryana Sheet Glass Ltd. 2015 (39) STR 0392 (P&H)

Issue Is the assessee entitled to avail CENVAT credit of service tax paid on outward transportation

of goods cleared from factory? Facts of the Case

Assessee availed CENVAT credit of service tax paid on outward transportation of goods cleared from factory. The assessee was of the view that the transportation of goods from factory to the premises of the petitioner ought to be treated as input service. However, the Revenue disallowed the credit holding that the assessee was not entitled to credit of the service tax towards outgoing freight. The Appellate Tribunal, allowed the appeal of the assessee.

Decision The High Court relied upon one of its earlier decision in the case of Ambuja Cements Ltd. v. Union of India 2009 (236) ELT 431 (P&H) and upheld the decision of the Tribunal. The High Court held that outward transportation up to the place of removal falls within the expression "input service". The place of removal, in terms of the Circular* of the Board is a question of fact. If a manufacturer is to deliver the goods to the purchaser, the place of removal would not be a factory gate of the manufacturer but that of the purchaser. In the given case, there is no evidence that the property in goods stood transferred to the purchaser at the factory door of the assessee. Therefore, the assessee is entitled to avail CENVAT credit of service tax paid on outward transportation of goods cleared from factory.

Note: (1) The above case establishes that factory cannot necessarily be the place of removal in all cases. Only if the property in goods is transferred at factory gate, the sale will get complete at the factory gate, and then the factory will be considered as the place of removal. *(2) The circular referred to in the above case law was issued at an earlier point of time on 23.08.2007. However, a recent circular [Circular No. 988/12/2014 CX dated 20.10.2014] issued by the Board clarifies that the place of removal needs to be ascertained in term of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930. Payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk are not the relevant considerations to ascertain the place of removal. The place where sale has taken place or when the property in goods passes from the seller to the buyer is the relevant consideration to determine the place of removal.

3. Bansal Classes v. CCE & ST 2015 (039) STR 0967 (Raj.)

Issue Can a commercial training and coaching institute claim CENVAT credit in respect of the

input services of catering, photography and tent services used to encourage the coaching class students, maintenance and repair of its motor vehicle and travelling expenses?

Facts of the Case

The assessee is engaged in providing taxable commercial training and coaching services to students. It organises celebrations during the academic sessions whereby the services of catering, photography and tents are used. During these celebrations, students successful in coaching are rewarded so as to encourage the existing students and to motivate the new students. Further, it hires examination hall on rent basis for the purpose of conducting examination for students under the coaching. It also undertakes the maintenance and repair of vehicles used by it and incurs travelling expenses for the business tours. It has availed CENVAT credit on the aforesaid services availed by it. However, Revenue


alleged that CENVAT credit on such services was not admissible as these are not covered under the definition of input services under rule 2(l) of the CENVAT Credit Rules, 2004 since not used in/ in relation to providing output services. When appealed before Tribunal, it held that assessee is eligible for CENVAT credit in respect of service tax paid on renting of immovable property service of hiring of examination hall, but disallowed the CENVAT credit availed with respect to other activities. The assessee appealed to High Court against the said order.

High Court’s observations

The High Court agreed with the view taken by the Tribunal that once the students pass their coaching classes, the activities of catering, photography and tent services cannot be said to have been used to provide the output service of commercial training or coaching. Similarly, the assessee maintains and repairs its motor vehicle during the course of the business and there is no material to show that maintenance and repairs have any nexus to commercial training or coaching. Likewise, the travelling expenses incurred by assessee for the business tours cannot be related to provision of commercial training or coaching.

Decision The High Court upheld the Tribunal’s decision. Thus, the assessee is not eligible for CENVAT credit of the service tax paid on catering, photography and tent services, maintenance and repair of its motor vehicle and travelling expenses.

4. Commr. of C. Ex., & S.T., LTU v. Rane TRW Steering Systems Ltd. 2015 (039) STR 13 (Mad.)

Issue Whether assessee is entitled to claim CENVAT credit of service tax paid on house-keeping

and landscaping services availed to maintain their factory premises in an eco-friendly manner?

Facts of the Case

Assessee had availed credit of service tax paid on house-keeping and gardening services. However, Revenue disallowed the credit and also imposed penalty on the ground that the assessee was not eligible to avail credit of service tax on these services.


The High Court noted that principle enunciated in case of CCE v. Millipore India Pvt. Ltd. 2012 (26) S.T.R. 514 (Kar.) is applicable to the case on hand. In this case, the Karnataka High Court held that landscaping of factory or garden certainly would fall within the concept of modernization, renovation, repair, etc., of the office premises. At any rate, the credit rating of an industry is depended upon how the factory is maintained inside and outside the premises. The environmental law expects the employer to keep the factory without contravening any of those laws. That apart, now the concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly manner, certainly, the tax paid on such services would form part of the costs of the final products.

Decision The High Court agreeing with and following the ratio laid down in the aforesaid decision held that where an employer spends money to maintain their factory premises in an eco-friendly manner, the tax paid on such services would form part of the cost of the final products. Therefore, housekeeping and gardening services would fall within the ambit of input services and the assessee is entitled to claim the benefit of CENVAT credit on the same.


Chapter – Export Procedure

5. Spentex Industries Ltd v. CCE 2015 (324) ELT 686 (SC)

Issue Whether rule 18 of Central Excise Rules, 2002 (CER) allows export rebate of excise duty

paid on both inputs as well as the final product manufactured from such inputs? Facts of the Case

Rule 18 of CER stipulates that where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods OR duty paid on material used in the manufacturing or processing of such goods. The issue in the instant case was that the word ‘OR’ used in between the two kinds of duties in respect of which rebate can be granted, postulates grant of one of the two duties or both the duties.


The Apex Court made the following significant observations: (i) Rules 18 and 19 of CER provide two alternatives to an exporter for getting the benefit of exemption from paying excise duty. (ii) Under rule 19 of CER, the exporter is not required to pay any excise duty at all. When the exporter opts for this method, he is not required to pay duty either on the final product, i.e., on excisable goods or on the material used in the manufacture of those goods. The intention thus, is that goods meant for exports are free from any excise duty. (iii) Once this scheme is kept in mind, it cannot be the intention of the Legislature to provide rebate only on one item in case a particular exporter opts for other alternative under rule 18, namely, paying the duty in the first instance and then claiming the rebate. Giving such restrictive meaning to rule 18 would not only be anomalous but would lead to absurdity as well and would defeat the very purpose of grant of remission from payment of excise duty in respect of export goods. It may also lead to invidious discrimination and arbitrary results. (iv) The Central Government has issued necessary notifications under rule 18 for rebate in respect of both the duties, i.e., on intermediate product as well as on the final product. Further, and which is more significant, these notifications providing detailed procedure for claiming such rebates contemplate a situation where excise duty may have been paid both on the excisable goods and on material used in the manufacture of those goods and enable the exporter to claim rebate on both the duties. (v) It is to be borne in mind that it is the Central Government which has framed the Rules as well as issued the notifications. If the Central Government itself is of the opinion that the rebate is to be allowed on both the forms of excise duties, the rule in question has to be interpreted in accordance with this understanding of the rule maker. (vi) Though, the principle is that the word ‘or’ is normally disjunctive and ‘and’ is normally conjunctive, there may be circumstances where these words are to be read as vice versa to give effect to manifest intention of the Legislature as disclosed from the context. The Supreme Court also referred to the order passed by the Revision Authority on the said issue (when the matter was brought before it vide a revision petition) wherein the Authority had held that the word ‘OR’ occurring in rule 18 cannot be given literal interpretation as that leads to various disastrous results. Therefore, ‘or’ has to be read as ‘and’ to carry out the objectives of the rule 18 and also to bring it at par with rule 19 and also because that is what was intended by the rule maker in the scheme of things.

Decision The Supreme Court held that normally the two words ‘or’ and ‘and’ are to be given their literal meaning. However, wherever use of such a word, viz., ‘and’/’or’ produces unintelligible or absurd results, the Court has power to read the word ‘or’ as ‘and’ and vice versa to give effect to the intention of the Legislature which is otherwise quite clear. The Apex Court held that the exporters/appellants are entitled to both the rebates under rule 18 and not one kind of rebate.


Note This case is in line with the Government’s policy of neutralising the duty element (both Customs and Central Excise) on the goods exported with a view to promote exports of domestic products and make then internationally competitive. This case overrules the Rajasthan High Court’s decision in the case of Rajasthan Textile Mills v. UOI 2013 (298) ELT 183 reported in Select Cases in Direct and Indirect Tax Laws – 2015 [August 2015 Edition]. In this case, the High Court had held that under rule 18 of the Central Excise Rules, 2002, rebate can be claimed either on excisable goods or on materials used in the manufacture or processing of such goods i.e. on raw material, but not on both.

Chapter – Exemption Based on Value of Clearances (SSI)

6. CCE v. Otto Bilz (India) Pvt. Ltd 2015 (324) ELT 430 (SC)

Issue Whether an assessee using a foreign brand name, assigned to it by the brand owner ith

right to use the same in India exclusively, is eligible for SSI exemption? Facts of the Case

The assessee was availing the benefit of SSI exemption notification and was using a brand name ‘BILZ’ of a foreign company. The foreign company had assigned the said brand name in favour of the assessee under an agreement with right to use the said trade mark in India exclusively. The Revenue contended that since the assessee was using a brand name of a foreign company, it was ineligible to seek exemption under the aforesaid Notification.

Decision The Supreme Court held that because of the aforesaid assignment, the assessee was using the trade mark in its own right as its own trade mark and therefore, it could not be said that it was using the trade mark of another person. The assessee was entitled to SSI exemption.

Chapter –Notification, Departmental Clarifications and Trade Notices

7. CCE v. Honda Siel Power Products Ltd. 2015 (323) E.L.T. 644 (S.C.)

Issue Can the benefit of exemption notification be granted to assessee where one of the

conditions to avail the exemption is not strictly followed? Facts of the Case

The assessee was availing the benefit of an exemption notification. One of the conditions to avail the benefit of said notification was that duty was to be paid in either of two modes of payment of duty – in cash or through account current. However, the assessee cleared the goods through utilization of CENVAT credit which was not the prescribed mode mentioned as per said condition.

Point of dispute

The issue which arose for consideration was as to whether the assessee was entitled to avail the benefit of said notification.

Decision The Apex Court observed that the assessee was required to fulfill the condition in stricto senso viz. to pay the duty either in cash or through account current if it wanted to avail the benefit of exemption notification and not through adjustment of CENVAT credit which was


not the mode prescribed in the aforesaid condition. It is trite that exemption notifications are to be construed strictly and even if there is any doubt same is to be given in favour of the Department. The Supreme Court held that once it is found that the conditions had not been fulfilled the obvious consequence would be that the assessee was not entitled to the benefit of said notification.

Service Tax

Chapter –Demand, Adjudication and Offences

8. CCE v. Vijaya Consultants, Engineers and Consultants 2015 (040) STR 0232 (AP)

Issue Can service tax be demanded by a speaking order without issuing a show cause notice but

after issuing a letter and giving the assessee an opportunity to represent his case along with personal hearing?

Facts of the Case

The Deputy Commissioner issued an order to the respondent demanding service tax. The appeal before the Commissioner (Appeals) challenging the order of the Deputy Commissioner ended up in dismissal confirming the order of the Deputy Commissioner. The CESTAT, on consideration of the arguments of the respondent and perusal of the record, found that the respondent was never issued a show cause notice as required under section 73 of the Finance Act, 1994. Hence the Tribunal set aside the order of the adjudicating authority. Aggrieved by this order, Revenue preferred appeal to High Court.

Appellant’s (Revenue) Contentions

Revenue contended that the CESTAT was not justified in setting aside the speaking order passed by the competent adjudicating authority and confirmed by appellate authority, on the short ground of non-issuance of show cause notice as the respondent was suitably put on notice vide a letter. Thereafter the respondent had filed a 20 page explanation and fully utilized opportunity of personal hearing. The Revenue was of the view that since the respondent was afforded an opportunity of personal hearing before the case was decided, speaking order was passed after observing the principles of natural justice. Therefore, there was a substantial compliance on the part of the Revenue and the non-issuance of show cause notice was only a technical breach on their part.

Respondent’s (assessee) Contentions

The respondent submitted that there was a categorical finding of the Tribunal that there was fundamental breach of compliance of the statutory provision (i.e., non-issuance of SCN) which is the basic requirement to initiate the very proceedings under service tax law. Therefore, the order of the Tribunal was unassailable and did not call for any interference by this Court.

High Court’s Observations

The High Court observed that a perusal of section 73 of the Finance Act, 1994 leaves no doubt that there is a requirement of issuance of notice stating whether the noticee falls within the category of section 73(1)(a) or 1(b) of the Act [now section 73(1) and proviso to section 73(1)] and further specify the amount of service tax that is payable. The High Court observed that in the present case no notice was issued to the respondent and reliance was placed on a letter. The letter did not satisfy the requirements of the notice as there was no allegation that a specified amount was required to be paid as service tax and even no period was mentioned therein.


Decision The High Court held that by no stretch of imagination, the said letter could be treated as a show cause notice satisfying the requirement of section 73 of the Act. The High Court further held that the procedural requirement of issuance of notice and calling for explanation cannot be dispensed with as otherwise the demand of money in the name of tax would be in violation of the very procedure prescribed under the Act. The High Court thus, dismissed the appeal.

9. Delhi Transport Corporation v. Commissioner Service Tax 2015 (038) STR 673 (Del.)

Issue Based on the contractual arrangement, can the assessee ask the Department to recover the

tax dues from a third party or wait till the assessee recovers the same? Facts of the Case

The appellants entered into contracts with seven various agencies for display of advertisements, inter alia, on bus-queue shelters and time-keeping booths. The terms of the contract clearly stated that it would be the responsibility of the contractors/advertisers to pay directly to the concerned authority the tax/levy imposed by such authority in addition to the license fee. The Department issued show cause notice asking the appellant to pay service tax along with interest and penalties on the service of display of advertisements rendered by them.

Appellant’s Contentions

The appellant argued that they were under a bona fide belief that the liability to remit service tax stood transferred to the recipient qua the agreements; this caused the failure to file returns and remit service tax. They relied upon Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran 2012 (26) STR 289 (SC) to urge that having entered into the contracts in the nature mentioned above, it was a legitimate expectation that the service tax liability would be borne by the contractors/advertisers and, thus, there was no justification for the appellant being held in default or burdened with penalties.


The High Court observed that there is no dispute that services provided are taxable and that the appellant is liable to pay service tax thereupon. Further, the reliance of the appellant on Rashtriya Ispat Nigam Limited’s case regarding transferring of service tax liability by way of a contract was correct. The High Court, however, observed that the said ruling of Supreme Court cannot detract from the fact that in terms of the statutory provisions it is the appellant which is to discharge the liability towards the Revenue on account of service tax. The High Court agreed with the observations of CESTAT that the plea of “bona fide belief” is devoid of substance. The appellant was a public sector undertaking and should have been more vigilant in compliance with its statutory obligations. It could not take cover under the plea that contractors engaged by it having agreed to bear the burden of taxation, there was no need for any further action on its part. For purposes of the taxing statute, the appellant was an assessee, and statutorily bound to not only get itself registered but also submit the requisite returns as per the prescription of law and rules framed thereunder.

Decision The High Court held that undoubtedly, the service tax burden can be transferred by contractual arrangement to the other party. However, on account of such contractual arrangement, the assessee cannot ask the Revenue to recover the tax dues from a third party (the other party) or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors (the other party).

Note In the case of Rashtriya Ispat Nigam Limited1, the Supreme Court held that the provisions concerning service tax are relevant only between the appellant as an assessee (service receiver in this case) under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent (service provider) as agreed in the contract between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent


under the contract would be borne by the respondent.

Custom

Chapter –Levy of and Exemption from Custom Duty

10. Mangalore Refinery & Petrochemicals Ltd v. CCus. 2015 (323) ELT 433 (SC)

Issue In case of import of crude oil, whether customs duty is payable on the basis of the quantity

of oil shown in the bill of lading or on the actual quantity received into shore tanks in India?

Facts of the Case

The assessee imported crude oil. On account of ocean loss, the quantity of crude oil shown in the bill of lading was higher than the actual quantity received into the shore tanks in India. The assessee paid the customs duty on the actual quantity received into the shore tanks.

Point of Dispute

The Department contended that the quantity of crude oil mentioned in the various bills of lading should be the basis for payment of duty, and not the quantity actually received into the shore tanks in India. This was stated on the basis that duty was levied on an ad valorem basis and not on a specific rate. The assessee contended that it makes no difference as to whether the basis for customs duty is at a specific rate or is ad valorem, inasmuch as the quantity of goods at the time of import alone is to be looked at.

Tribunal’s Observations

The Tribunal accepted the Department’s contentions on the basis of the following reasons: (i) Duty ought to be levied on the total payment made by the assessee irrespective of the quantity received. (ii) An ad valorem duty would necessarily lead to this result but duty levied at the specific rate would not. The quantity of goods to be considered in the latter case will only be the quantity of crude oil received in the shore tank. (iii) Section 14 of the Customs Act, 1962 kicks in when the duty is on an ad valorem basis and sections 13 and 23 of the Act do not stand in the way because it is not the question of demanding duty on goods not received, but it is the demand of duty on the transaction value. In spite of the “ocean loss”, the assessee has to make payment on the basis of the bill of lading quantity.


The assessee raised the issue before the Supreme Court. The Apex Court noted the following: (i) The levy of customs duty under section 12 of the Act is only on goods imported into India. Goods are said to be imported into India when they are brought into India from a place outside India. Unless such goods are brought into India, the act of importation which triggers the levy does not take place. (ii) If the goods are pilfered after they are unloaded or lost or destroyed at any time before clearance for home consumption or deposit in a warehouse, the importer is not liable to pay the duty leviable on such goods. This is for the reason that the import of goods does not take place until they become part of the land mass of India and until the act of importation is complete which under sections 13 and 23 happen only after an order for clearance for home consumption is made and/or an order permitting the deposit of goods in a warehouse is made. (iii) Under section 23(2), the owner of the imported goods may also at any time before such orders have been made relinquish his title to the goods and shall not be liable to pay any


duty thereon. In short, he may abandon the said goods even after they have physically landed at any port in India but before any of the aforesaid orders have been made. This again is for the good reason that the act of importation gets complete when goods are in the hands of the importer after they have been cleared either for home consumption or for deposit in a warehouse. (iv) Further, as per section 47 of the Customs Act, the importer has to pay import duty only on goods that are entered for home consumption. Obviously, the quantity of goods imported will be the quantity of goods at the time they are entered for home consumption. The Supreme Court stated that Tribunal’s reasoning for concluding that the bill of lading quantity alone should be considered for the purpose of valuing the imported goods is incorrect in law. The Apex Court examined each of the reasons given by the Tribunal as under: (i) The Tribunal lost sight of the fact that a levy in the context of import duty can only be on imported goods, that is, on goods brought into India from a place outside of India. Till that is done, there is no charge to tax. (ii) The taxable event in the case of imported goods is “import”. The taxable event in the case of a purchase tax is the purchase of goods. The quantity of goods stated in a bill of lading would perhaps reflect the quantity of goods in the purchase transaction between the parties, but would not reflect the quantity of goods at the time and place of importation. A bill of lading quantity, therefore, could only be validly looked at in the case of a purchase tax but not in the case of an import duty. (iii) The Tribunal wholly lost sight of sections 13 and 23 of the Act. Where goods which are imported are lost, pilfered or destroyed, no import duty is leviable thereon until they are out of customs and come into the hands of the importer. It is clear, therefore, that it is only at this stage that the quantity of the goods imported is to be looked at for the purposes of valuation. (iv) The basis of the judgment of the Tribunal is on a complete misreading of section 14 of the Customs Act. First and foremost, the said section is a section which affords the measure for the levy of customs duty which is to be found in section 12 of the said Act. Even when the measure talks of value of imported goods, it does so at the time and place of importation, which again is lost sight of by the Tribunal. (v) The Tribunal's reasoning that somehow when customs duty is ad valorem the basis for arriving at the quantity of goods imported changes, is wholly unsustainable. Whether customs duty is at a specific rate or is ad valorem does not make the least difference to the statutory scheme. Customs duty whether at a specific rate or ad valorem is not leviable on goods that are pilfered, lost or destroyed until a bill of entry for home consumption is made or an order to warehouse the goods is made This is for the reason that the import is not complete until what has been stated above has happened.

Decision The Supreme Court set aside the Tribunal’s judgment and declared that the quantity of crude oil actually received into a shore tank in a port in India should be the basis for payment of customs duty.

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