.... -- ...

1ffi(f fl~enI'!GOVERNMENT OF INDIA

fctm Jl?llC1l1 MINISTRY OF FINANCE~I\l1t<'.1~ DEPARTMENT OF REVENUE

~~1I 13~1~ ~ ~ m-r CfR 3ll¥ff C5T enillfC1l1-;:f.1. Fct~lI¥"fl m. Cfjrc)'is)c:. ~'6~'<I~~ - 620 001.

OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE & SERVICE TAXNO.1 WILLIAMS ROAD: CANTONMENT: TIRUCHCHIRAPPALLI "620001.

TradeNotice No: 0412011-5. Tax Date:07.06.2011

Sub: Service Tax - Communication of(i) Circular No.140/9/2011-STdated 12.05.2011(ii) Circular No.141/1 0/2011- TRU dated 13.05.2011(iii) Circular No.142/11/2011-ST dated 18.05.2011(iv) Circular No.143/12/2011-ST dated 26.5.2011 - Reg.

***The above said Circulars and letters are enclosed herewith for information and

necessary action

The contents of this Tfade Notice may be brought to the knowledge of all theconstituent members of the Trade Associations and Chamber of Commerce.

(Issued from file C.No.IV/16/943/2011-STC)

Encl:As above. (P.DEVARAJ)JOINT COMMISSIONER

ToThe Mailing list II [1/111

Circular No. 140/9/2011~TRU

F. No. 354/45/2011~TRUGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise & Customs

(Tax Research Unit).1tr****

New Delhi dated the iz" May, 2011.

To

Chief Commissioners of Central Excise and Service Tax (Ali),Director General (Service Tax),Director General (Central Excise Intelligence),Director General (Audit),Commissioners of Service Tax (Ail),Commissioners of Central Excise and Service Tax (Ali).

Madam/Sir,

Subject: Prosecution provision in Finance Act, 1994 -regarding.

With the enactment of Finance Act, 2011 (No.8 of 2011), Section89 which provides for prosecution of specified offences involving servicetax, becomes a part of Chapter V of Finance Act, 1994.

2. Prosecution provision was introduced this year, in Chapter Vof Finance Act, 1994, as part of a compliance philosophy involvingrationalization of penal provisions. Encouraging voluntary complianceand introduction of penalties based on the gravity of offences are someimportant principles which guide the changes made this year, in thepenal provisions governing service tax. While minor technical omissionsor commissions have been made punishable with simple penalmeasures, prosecution is meant to contain and tackle certain specifiedserious violations. Accordingly, it is imperative for the field formations, inparticular the sanctioning authority, to implement the prosecutionprovision keeping in view the overall compliance philosophy. Since theobjective of the prosecution provision is mainly to develop a holisticcompliance culture among the tax payers, it is expected that theinstructions will be followed in letter and spirit.

3. In the following paragraphs, some important aspects of theprosecution provision are explained, to guide the field formations:

4. Clause (a) of section 89(1) of Finance Act, 1994, is meant toapply, inter alia, where services have been provided without issuance ofinvoice in accordance with the prescribed provisions. In terms of rule 4Aof the Service Tax Rules, 1994, invoice is required to be issued lnter-aliawithin 14 days from the date of completion of the taxable service. Here,it should be noted that the emphasis in the prosecution provision is onthe non-issuance of invoice within the prescribed period rather than non­mention of the technical details in the invoice that have no bearing on thedetermination of tax liability.

./

5. In the case of services where the recipient is liable to pay tax onreverse charge basis, similar obligation has been cast on the servicerecipient, though the invoices are issued by the service provider. It isclarified that the date of provision of service shall be determined in termsof Point of Taxation Rules, 2011. In the case of persons liable to paytax on reverse charge basis, the date of provision of service shall be thedate of payment except in the case of associated enterprises receivingservices from abroad where the date shall be earlier of the date of creditin the books of accounts or the date of payment. It is at this stage thatthe transaction must be accounted for. Thus the service receiver, liableto pay tax on reverse charge basis is required to ensure that the invoiceis available at the time the payment is made or at least received within14 days thereafter and in the case of associated enterprises, invoiceshould be available with the service receiver at the time of credit in thebooks of accounts or the date of payment towards the service received.

6. Further, invoice mentioned in section 89( 1) will include a bill oras the case may be a challan, in accordance with the Service Tax Rules,1994. Invoice, bill, or as the case may be, challan, shall also include "anydocument" specified in respect of certain taxable services, in theprovisos to Rule 4A and Rule 48 of Service Tax Rules, 1994.

7. Clause (b) of section 89(1) of Finance Act, 1994, refers to theavailment and utilization of the credit of taxes paid without actual receiptof taxable service or excisable goods. It may be noted that in order toconstitute an offence under this clause the taxpayer must both avail aswell as utilize the credit without having actually received the goods or theservice. The clause is not meant to apply to situations where an invoicehas been issued for a service yet to be provided on which due tax hasbeen paid. It is only meant for such invoices that are typically known as"fake" where the tax has not been paid at the so called service provider'send or where the provider stated in the invoice is non-existent. It willalso cover situations where the value of the service stated in the invoiceand/or tax thereon have been altered with a view to avail Cenvat credit inexcess of the amount originally stated. While calculating the monetarylimit for the purpose of launching prosecution, the value shall be theamount availed as credit in excess of the amount originally stated in theinvoice.

8. Clause (c) of section 89(1) of Finance Act, 1994, is based onsimilar provision in the central excise law. It should be noted that theoffence in relation to maintenance of false books of accounts or failure tosupply the required information or supplying of false information, shouldbe in material particulars have a bearing on the tax liability. Mereexpression of opinions shall not be covered by the said clause.Supplying false information, in response to summons, will also becovered under this provision

9, Clause (d) of section 89(1) of Finance Act, 1994, will apply onlywhen the amount has been collected as service tax. It is not meant toapply to mere non-payment of service tax when due. This provisionwould be attracted when the amount was reflected in the invoices asservice tax, service receiver has already made the payment and theperiod of six months has elapsed from the date on which the serviceprovider was required to pay the tax to the Central Government. Wherethe service receiver has made part payment, the service provider will bepunishable to the extent he has failed to deposit the tax due to theGovernment.

10. Certain sections of the Central Excise Act, 1944, have beenmade applicable to service tax by section 83 of Finance Act, 1994.

Section 9AA of the Central Excise Act provides that where anoffence has been committed by a company, in addition to the company,every person who was in charge of the company and responsible forconduct of the business, at the time when offence was committed, canbe deemed guilty of an offence and can be proceeded against. Aperson so charged, however has an option to establish that offence wascommitted without his knowledge or he had exercised all due diligence toprevent the commission of offence.

11. Section 9C of Central Excise Act, 1944, which is madeapplicable to Finance Act, 1994, provides that in any prosecution for anoffence, existence of culpable mental state shall be presumed by thecourt. Therefore each offence described in section 89(1) of the FinanceAct, 1994, has an inherent mens rea. Delinquency by the defaulter ofservice tax itself establishes his 'guilt'. If the accused claims that he didnot have guilty mind, it is for him to prove the same beyond reasonabledoubt. Thus "burden of proof regarding non existence of 'mens rea' is onthe accused".

12. It may be noted that in terms of section 89(3) of Finance Act,1994, the following grounds are not considered special and adequatereasons for awarding reduced imprisonment:(i) the fact that the accused has been convicted for the first time for

an offence under Finance Act, 1994;(ii) the fact that in any proceeding under the said Act, other than

prosecution, the accused has been ordered to pay a penalty orany other action has been taken against him for the same actwhich constitutes the offence;

(iii) the fact that the accused was not the principal offender and wasacting merely as a secondary party in the commission ofoffence;

(iv) the age of the accused.

On the above grounds, sanctioning authority cannot refrain fromlaunching prosecution against an offender.

13. Sanction for prosecution has to be accorded by the ChiefCommissioner of Central Excise, in terms of the section 89(4) of theFinance Act, 1994. In accordance with Notification 3/2004-ST dated 11thMarch 2004, Director General of Central Excise Intelligence (DGCEI),can exercise the power of Chief Commissioner of Central Excise,throughout India.

14. Board has decided that monetary limit for prosecution will beRupees Ten Lakh in the case of offences specified in section 89(1) ofFinance Act, 1994, to ensure better utilization of manpower, time andresources of the field formations. Therefore, where an offence specifiedin section 89(1), involves an amount of less than Rupees Ten Lakh, suchcase need not be considered for launching prosecution. However themonetary limit will not apply in the case of repeat offence.

15. Provisions relating to prosecution are to be exercised with duediligence, caution and responsibility after carefully weighing all the factson record. Prosecution should not be launched merely on matters oftechnicalities. Evidence regarding the specified offence should bebeyond reasonable doubt, to obtain conviction. The sanctioning authorityshould record detailed reasons for its decision to sanction or not tosanction prosecution, on file.

16. Prosecution proceedings in a court of law are to be generallyinitiated after departmental adjudication of an offence has beencompleted, although there is no legal bar against launch of prosecutionbefore adjudication. Generally, the adjudicator should indicate whether acase is fit for prosecution, though this is not a necessary pre-condition.To launch prosecution against top management of the company,sufficient and clear evidence to show their direct involvement in theoffence is required. Once prosecution is sanctioned, complaint should befiled in the appropriate court immediately. If the complaint could not befiled for any reason, the matter should be immediately reported to theauthority that sanctioned the prosecution.

17. Instructions and guidelines issued by the Central Board ofExcise and Customs (CBEC) from time to time, regarding prosecutionunder Central Excise law, will also be applicable to service tax, to theextent they are harmonious with the provisions of Finance Act. 1994 andinstructions contained in this Circular for carrying out prosecution underservice tax law.

(J. M. Kennedy)Director, TRU

Tel: 011-23092634

Circular No. 141/10/2011·TRU

F.No. 280/26/2011-CX8A (Pt)Government of IndiaMinistry of Finance

Department of Revenue(Central Boardof Excise & Customs)

**1t**

New Delhi, dated the ia" May 2011.

ToThe Chief Commissioners of Central Excise and Service Tax

(Ali),The Director General (Ali),The Commissioners of Service Tax (Ali),The Commissioners of Central Excise and Service Tax (Ali).

Madam/Sir,

Subject: Applicability of the provisions of the Export of ServicesRules, 2005 in certain situations

Circular NO.111/05/2009-STwas issued on 24th February 2009 on theapplicability of the provisions of the Export of Services Rules, 2005 incertain situations. It had clarified on the expression "used outside India"in Rule 3(2)(a) of the Export of Service Rules 2005 as prevalent at thattime. The condition specified in Rule 3(2)(a) has since been omitted videNotification 06/2010-ST dated 27 Feb 2010. In the context of the statedCircular an issue has been raised, whether for the period prior to28.2.2010 the requirement that the service should be "used outsideIndia" invariably means the location of the recipient?

2. In the stated Circular it was inter-alia, clarified that the words,"used outside India" should be interpreted to mean that "the benefit ofthe service should accrue outside India". It is well known that services,being largely intangibles, are capable of being paid from one place andactually used at another place Such arrangements commonly existwhere the services are procured centrally eg audit. advertisement,consultancy, Business Auxiliary Services. For example, it is possible toobtain a consultancy report from a service provider in India, which maybe used either at the location of the customer or in any other placeoutside India or even in India. In a situation where the consultancy,though paid by a client located outside India, is actually used in respectof a project or an activity in India the service cannot be said to be usedoutside India.

3. It may be noted that the words "accrual of benefit" are notrestricted to mere impact on the bottom-line of the person who pays forthe service. If that were the intention it would render the requirement ofservices being used outside India during the period prior to 28.2.2010infructuous. These words should be given a harmonious interpretationkeeping in view that during the period upto 27.2.2010 the explicitcondition was provided in the rule that the service should be usedoutside India. In other words these words may be interpreted in thecontext where the effective use and enjoyment of the service has beenobtained. The effective use and enjoyment of the service will of coursedepend on the nature of the service. For example effective use ofadvertising services shall be the place where the advertising material isdisseminated to the audience though actually the benefit may finallyaccrue to the buyer who is located at another place.

4. This, however should not apply to services which are merelyperformed from India and where the accrual of benefit and their useoutside India are not in conflict with each other. The relation between theparties may also be relevant in certain circumstances, for example incase of passive holding! subsidiary companies or associated enterprises.In order to establish that the services have not been used outside Indiathe facts available should inter-alia, clearly indicate that only thepayment has been received from abroad and the service has been usedin India. It has already been clarified that in case of call centers andsimilar businesses which serve the customers located outside India fortheir clients who are also located outside India, the service is usedoutside India

5. Besides above, to attain the status of export, a number ofconditions need to be satisfied which are specified in Rule 3(1) and Rule3(2) of Export of Services Rules 2005. The Circular NO.111/05!2009-STexplained the expression "used outside India" only and the otherconjunct conditions. as applicable from time to time, also need to beindependently satisfied for availing the benefit of an export.

Yours faithfully,

(Samar Nanda)Under Secretary to Government of India

Circular NO.142/11/2011 - 5T

F. No.354 13012011-TRUGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise and Customs

Tax Research UnitNorth Block, New Delhi

To

ia" May 2011

Chief Commissioners of Central Exciseand Service Tax (Ali),Director General (Service Tax),Director General (Central Excise Intelligence),Director General (Audit),Commissioners of Service Tax (Ali),Commissioners of Central Exciseand Service Tax (Ail).

Madam/Sir,

Subject: SEZ - Service Tax Refund -- regarding.

Subsequent to the issuance of Notification 17/2011-ST dated 01.03. 2011, representations have been received seeking clarification oncertain doubts. These doubts and clarifications are as follows:

QUESTIONS CLARIFICATIONS

f----+---------------+----------.-- ...---..-.---~-----

1.

2.

To claim the refund arising out ofservice tax paid under section 66A, noproforma is prescribed in thenotification; how to claim it?

(i) In the notification, what is thetreatment for service tax paid ontaxable services which do not fall in thecategory of "wholly consumedservices", and also are not 'sharedservices' ? Is refund available?

(ii) Whether in the case of category (iii)services referred in paragraph 2(a) ofthe notification, 'proportionate refund'applies to only 'shared services' i.e.services that are used both for SEZ(Special Economic Zone) authorisedoperations as well as DTA (DomesticTariff Area) operations?

In the notification, there is no difference intreatment of service tax paid under section66 and section 66A of Finance Act, 1994.Where refund arises, Table - A, in Form A-2can be used for making a refund claim.

All taxable services (under section 66 orsection 66A) received by a SEZUnit/Developer for the authorised operations,have been exempted in the first paragraph ofnotification 17/2011-ST, subject toconditions.

In Paragraph 2, conditions attached tothis exemption are prescribed. In terms ofparagraph 2(a), refund route is the defaultoption for all who intend to claim theexemption granted by the notification in itsfirst paragraph. However, an exception isprovided in the form of ab initio (upfront)exemption, to the 'wholly consumed'services.

Services which fall outside thedefinition of 'wholly consumed' services canbe categorized as those which are usedexclusively by the SEZ Unit/Developer, forthe authorised operations in SEZ or sharedwith DTA operations. I

Para 2(d) of the notification _j§__J

applicable to refund arising from 'sharedservices' only. Thus exemption to servicesexclusively used for the authorisedoperations of SEZ. UniVOeveloper, willcontinue to be available by way of refund, asspecified in paragraph 2(a) itself, subject toother conditions. To claim this refund, Table­A, provided in Form A-2 may be used.

It is clarified that only such servicesshall be considered as exclusively used bySEZ UniUOeveloper, for the authorisedoperations, as they satisfy the followingcriteria:

(i) Invoice is raised in the nameof the SEZ Unit/Developer or in the invoice, itis mentioned that the taxable services aresupplied to the SEZ UniUDeveloper for theauthorised operations;

(ii) Such services are approvedby the 'Unit Approval Committee(UAC)" asrequired for the authorised operations;

(iii) Receipt and use of suchservices in the authorised operations areaccounted for in the books of accounts of theSEZ UniUOeveloper.

3. Meaning of the expression 'who does The expression refers to an entity which isnot own or carryon any business other carrying out business operations in SEZ andthan the operations in the SEZ' also DTA. Merely having an office in the OTAappearing in paragraph 2(a)(iii) of the for purpose of liaison/business promotion,notification, which creates a difference does not restrict a SEZ Unit from availingbetween 'standalone' and 'non- benefit extended to a standalone unit.standalone' SEZ Unit/Developer, maybe clarified.---+--_._-----------_._-----_ .._--_..._-----_..._-_.__.--._.--

4. Whether Approval by UAC is Yes. Unit Approval Committee (UAC) of thenecessary, to claim benefit under the SEZ determines goods and servicesnotification? required for the authorised operations of a

Unit/Developer, under the SEZ law. Henceapproval of the UAC is necessary for availingthe notification benefit, on the taxableservices.

~-,_----_------------------~---------------------------5. (i) Does condition (c) prescribed in In respect of category (i) and (ii) services

paragraph 2 of the notification, restrict listed in paragraph 2(a), upfront exemption isthe non-standalone Units/Developers, made available to all SEZ Units/Developers,from availing upfront exemption for who fulfill the conditions of notification; onlywholly consumed services, which fall in the case of category (iii), difference isunder category (i) and (ii) of para 2(a) created between standalone and non-of the notification? standalone SEZ Units/Developers.

Declaration in Form A-1 is required to beproduced, to a service provider, to claimupfront exemption (after striking out theinapplicable portion). This is a one-timeDeclaration. Original Declaration can beretained with the SEZ UniUDeveloper forbusiness record or for production to thejurisdictional Central Excise/Service Tax'------'---_._- .---.------.-_,_,~---'--'--'-'----'----'-----'---- ..--.--

(ii) For whom and for what purpose,Declaration in A-1 is required?

6. Meaning of the expression "totalturnover" found in paragraph 2(d) ofthe notification is not clear: whether itrefers to turnover of SEZ Unit or theentity (including DTA and SEZ Unit).This may be clarified.

authorities, if need be, for any verification; acopy has to be retained by SEZ SpecifiedOfficer; self-attested photocopies of theDeclaration can be submitted to serviceprovider to avail upfront exemption, subjectto fulfillment of other conditions mentioned inthe notification.

7. A Developer may not have exportturnover; therefore, he cannot getrefund of service tax based on theformula provided for shared services inparagraph 2(d) of the notificationtherefore, it may be explained how aDeveloper can claim exemption underthe notification?

8.

Total turnover includes turnover of DTA Unitand also export turnover of SEZ Unit This isthe way to calculate proportionate refund.Table-C in Form A-2, illustrates this aspect

Generally, SEZ Developers will be usingcategory (i) services listed in paragraph 2(a),relating to immovable property located withinSEZ; upfront exemption is available for theseservices, and category (ii) services,irrespective of whether the Developer isstandalone or not. As another option, refundroute is also available. In the case ofcategory (iii) services if Developer isstandalone, upfront exemption is available. IfDeveloper is not standalone, on service taxpaid on category (iii) services, which areexclusively used for the authorisedoperations in SEZ, he can avail exemptionthrough refund route. 'Exclusive use'explained in clarification for question NO.2.may also be referred in this connection.

Whether proportionate amount ofservice tax paid on shared servicesthat have not been refunded afterapplying the formula in paragraph 2(d),shall be available to the DTA Units ofthe entity as cenvat credit?

Yes. Available.

1----+-----------------+---------------------9. Whether consolidated refund claim If an entity is having multiple SEZ Units with

under 17/2011-ST can be filed by an a centralized service tax registration,entity having more than one SEZ unit consolidated refund claim can be filed,and a centralized service tax provided separate accounts are maintainedregistration. for receipt and use of services for the

authorised operations in SEZ Unit1-----1--------------------+-------------.- ...--..-----.---10. Whether certified copies of invoices

can be used for claiming refund, iforiginals are needed for other statutorypurpose; Whether on the basis ofsingle invoice, one can claimproportionate refund for SEZ Unit andbalance as cenvat credit

In terms of the notification, original invoicesare needed for claiming refund; afterreceiving the refund, originals can be takenback on submission of copies certified byChartered Accountant On a single invoice, ifproportionate refund (by SEZ Unit) andcenvat credit (by DTA Unit) needs to beobtained, then also similar system shall befollowed.

(J. M. Kennedy)Director, TRU

Tel: 011-23092634

Circular No. 143/12/2011 - STF.No.332/37/2010-TRUGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise and Customs

Tax ResearchUnitNorth Block, New Delhi

zs" May, 2011To

Chief Commissioners of Central Excise and Service Tax (Ali),Director General (Service Tax),Director General (Central Excise Intelligence),Director General (Audit),Commissioners of Service Tax (Ali),Commissioners of Central Exciseand Service Tax (Ali).

Madam/Sir,

Subject: - processing for or on behalf of client, in relation toagriculture - causing sale or purchase of agricultural produce -­reg.

Representations have been received that client processing oftobacco involving threshing and drying of tobacco leaves and clientprocessing of raw cashew involving roasting/drying, shelling and peelingof raw cashew to recover kernel, are considered by the field formationsas not falling within the meaning of the expression "in relation toagriculture" appearing in notification 14/2004-ST (as amended) dated10th September, 2004, resulting in avoidable disputes and litigation.

2. These representations have been examined. In the casesrepresented, the agricultural produce namely tobacco or raw cashew,which are subject to client processing retains their essentialcharacteristics at the output stage and therefore the processesundertaken on or behalf of client should be considered as covered by theexpression 'in relation to agriculture'. Client processing which falls underbusiness auxiliary service undertaken on the primary agriculturalproduce namely tobacco or raw cashew, does not result in any change intheir essential character of tobacco or cashew. In the light of the aboveprinciple (i) process of threshing and drying of tobacco leaves andthereafter packing the same and (ii) processing of raw cashew andrecovering kernel, undertaken for, or on behalf of, the clients byprocessing units are covered by the expression" ... processing of goodsfor, or on behalf of. the client.. ..and provided in relation to agriculture...."appearing in the said notification.

3. Also where the commission agents stationed abroad providebusiness auxiliary service to promote the export of rice. said businessauxiliary service is covered by notification 13/2003-ST(as amended)because, the word 'rice' is mentioned under the explanation to the term'agricultural produce', in the inclusive portion along with other items likecereals, pulses, etc.

(Samar Nanda)Under Secretary, TRU

Tel: 011-23092037

.rx::.•....~~. ~u r' /·i~1 -:~>c~

>-... \~ j 1 3 JUN .ZOllJ ._;:..~Hr1J~c""~..': ~~': . .;,::',///4,~ ~=9 \ ,:_ ,. .>, : ~.:.:,y)f'lft Circular No. ~7i2'Nfu{i!iff"

F.No.332/37/2010-TRU _(~Government of India ,'"Ministryof Finance

Department of RevenueCentral Boardof Exciseand Customs

TaxResearchUnitNorth Block, NewDelhi

26th May,2011To

ChiefCommissioners of Central Exciseand ServiceTax (All),DirectorGeneral (ServiceTax),DirectorGeneral (Central ExciseIntelligence),DirectorGeneral (Audit),Commissioners of ServiceTax (AI}),Commissioners of Central Exciseand ServiceTax (All).

Madam/Sir,Subiect: - processing for or on behalf of client, in relation to

agriculture - causing sale or purchase of agricultural produce --reg.

Representations have been received that client processing of tobacco involvingthreshing and drying of tobacco leaves and client processing of raw cashew involvingroasting/drying, shelling and peeling of raw cashew to recover kernel, are considered bythe field formations as not falling within the meaning of the expression "in relation toagriculture" appearing in notification 14/2004-ST (as amended) dated 10th September,2004, resulting in avoidable disputes and litigation.

2. These representations have been examined. In the cases represented, theagricultural produce namely tobacco or raw cashew, which are subject to clientprocessing retains their essential characteristics at the output stage and therefore theprocesses undertaken on or behalf of client should be considered as covered by theexpression 'in relation to agriculture'. Client processing which falls under businessauxiliary service undertaken on the primary agricultural produce namely tobacco or rawcashew, does not result in any change in their essential character of tobacco or cashew.In the light of the above principle (i) process of threshing and drying of tobacco leavesand thereafter packing the same and (ii) processing of raw cashew and recovering

Page 10f2

kernel, undertaken for, or on behalf of, the clients by processing units are covered by the

expression "... processing of goods for, or on behalf of, the client .....and provided inrelation to agriculture,..." appearing in the said notification.

3. Also where the commission agents stationed abroad provide business auxiliaryservice to promote the export of rice, said business auxiliary service is covered bynotification 13/2003-ST(as amended) because, the word 'rice' is mentioned under theexplanation to the term 'agricultural produce', in the inclusive portion along with otheritems like cereals, pulses, etc.

4. Trade Notice/Public Noticemaybe issued to the field formations accordingly.

5· Please acknowledgethe receipt of this circular. Hindi version to follow.

~a~Under Secretary,TRU

Tel: 011-23092037

Page 2 of 2

New Delhi dated the 12th May,2011.

ChiefCommissioners of Central Exciseand ServiceTax (All),DirectorGeneral (ServiceTax), -DirectorGeneral (Central ExciseIntelligence),DirectorGeneral (Audit),

- Commissioners-ofServiceTax (AlI),Commissioners of Central Exciseand ServiceTax (AIl).

To

Madam/Sir,

Subject: Prosecution provision in FinanceAct, 1994- regarding.

With the enactment of Finance Act, 2011 (No.8 of 2011), Section 89 whichprovides for prosecution of specified offences involving service tax, becomes a part ofChapter V of FinanceAct, 1994.

2. Prosecution provision was introduced this year, in Chapter V of Finance Act,1994, as part of a compliance philosophy involving rationalization of penal provisions.Encouraging voluntary compliance and introduction of penalties based on the gravity ofoffences are some important principles which guide the changes made this year, in thepenal provisions governing service tax. While minor technical omissions orcommissions have been made punishable with simple penal measures, prosecution ismeant to contain and tackle certain specified serious violations. Accordingly, it isimperative for the field formations, in particular the sanctioning authority, toimplement the prosecution provision keeping in view the overall compliancephilosophy. Since the objective of the prosecution provision is mainly to develop a

Page lof6

Circular No. 140/9/2011- S'

holistic compliance culture among the tax payers, it is expected that the instructions willbe followedin letter and spirit.

3. In the following paragraphs, some important aspects of the prosecutionprovision are explained, to guide the field formations:

4. Clause (a) of section 89(1) of Finance Act, 1994, is meant to apply, inter alia,where services have been provided without issuance of invoice in accordance with theprescribed provisions. In terms of rule 4A .of the Service Tax Rules, 1994, invoice is .required to be issued inter-alia within 14days from the date of completion of the taxableservice. Here, it should be noted that the emphasis in the prosecution provision is on. . . .. .

the non-issuance of invoicewithin the prescribed period rather than non-mention of thetechnical details in the invoice that have no bearing on the determination of tax liability.

5. In the case of services where the recipient is liable to pay tax on reverse chargebasis, similar obligation has been cast on the service recipient, though the invoices areissued by the serviceprovider. It is clarified that the date of provision of service shall bedetermined in terms of Point of Taxation Rules, 2011. In the case of persons liable topay tax on reverse charge basis, the date of provision of service shall be the date ofpayment except in the case of associated enterprises receiving services from abroadwhere the date shall be earlier of the date of credit in the books of accounts or the date ofpayment. It is at this stage that the transaction must be accounted for. Thus the servicereceiver, liable to pay tax on reverse charge basis is required to ensure that the invoiceisavailable at the time the payment is made or at least received within 14 days thereafterand in the case of associated enterprises, invoice should be available with the service.receiver at the time of credit in the books of accounts or the date of payment towards theservice received.

6. Further, invoicementioned in section 89(1) will include a bill or as the case maybe a challan, in accordance with the ServiceTax Rules, 1994. Invoice, bill, or as the case

Page 2 of 6

CircularNo.14o!9/2011- ST

may be, challan, shall also include "any document" specified in respect of certain taxableservices, in the provisos to Rule 4A and Rule 4Bof ServiceTax Rules, 1994.

7. Clause (b) of section 89(1) of Finance Act, 1994, refers to the availment andutilization of the credit of taxes paid without actual receipt of taxable service or excisablegoods. It may be noted that in order to constitute an offence under this clause thetaxpayer must both avail as well as utilize the credit without having actually received thegoods or the service. The clause is not meant to apply to situations where an invoicehasbeen issued for a service yet to be provided on which due tax has been paid. It is onlymeant for such invoices that are typically knoWnas "fake" where the tax has not be~npaid at the so called service provider's end or where the provider stated in the invoice isnon-existent, It will also cover situations where the value of the service stated "intheinvoice and/or tax thereon have been altered with a view to avail Cenvat credit in excessof the amount originally-stated. While calculating the monetary limit for the purpose oflaunching prosecution, the value shall be the amount availed as credit in excess of theamount originally stated in the invoice.

8. Clause (c) of section 89(1) of Finance Act, 1994, is based on similar ·provisioninthe central excise law. It should be noted that the offence in relation to maintenance offalse books of accounts or failure to supply the required information or supplying offalse information, should be in material particulars have a bearing on the tax liability.Mere expression of opinions shall not be covered by the said clause. Supplying falseinformation, in response to summons, willalso be covered under this provision.

9. Clause (d) of section 89(1) of Finance Act, 1994, will apply only when the amounthas been collected as service tax. It is not meant to apply to mere non-payment ofservice tax when due. This provision would be attracted when the amount was reflectedin the invoices as service tax, service receiver has already made the payment and theperiod of six months has elapsed from the date on which the service provider wasrequired to pay the tax to the Central Government. Where the service receiver has madepart payment, the service provider will be punishable to the extent he has failed todeposit the tax due to the Government.

Page30f6

Circular No. l40/9/2011 - S"-

10. Certain sections of the Central Excise Act, 1944, have been made applicable to

service tax by section 83 of Finance Act, 1994. Section 9AA of the Central Excise Act

provides that where an offence has been committed by a company, in addition to the

company, every person who was in charge of the company and responsible for conduct

of the business, at"the time when offence was committed, can be deemed guilty of an

offence and can be proceeded against. A person so charged, however has an option to

establish that offence was committed without his knowledge or he had exercised all due

diligence to prevent the commission of offence,

11. Section 9C of Central Excise Act, 1944, which is made applicable to Finance Act,1994, provides that in any prosecution for an offence, existence of culpable mental state

shall be presumed by the court. Therefore each offence described in section 89(1) of the

Finance Act, 1994, has an inherent mens rea. Delinquency by the defaulter of service

tax itself establishes his 'guilt'. If the accused claims that he did not have guilty mind, it

is for him to prove the same beyond reasonable doubt. Thus "burden of proof regarding

non existence of 'mens rea' is on the accused".

12. Itmay be noted that in terms of section 89(3) of Finance Act, 1994, the following

grounds are not. considered special and adequate reasons for awarding reduced

imprisonment:

(i) the fact that the accused has been convicted fOF the first time for an

offence under Finance Act, 1994;(ii) the fact that in any proceeding under the said Act, other than prosecution,

the accused has been ordered to pay a penalty or any other action has been

taken against him for the same act which constitutes the offence;

(iii) the fact that the accused was not the principal offender and was acting

merely as a secondary party in the commission of offence;

(iv) the age of the accused.

Page40f6

Circular No. 140/9/2011 - ST

On the above grounds, sanctioning authority cannot refrain from launching prosecution

against an offender.

13. Sanction for prosecution has to be accorded by the Chief Commissioner of

Central Excise, in terms of the section 89(4) of the Finance Act, 1994. In accordance

with Notification 3/2004-ST dated 11thMarch 2004, Director General of Central Excise

Intelligence (DGCEI), can exercise the power of Chief Commissioner of Central Excise,

throughout India.

14. . Board has decided' that monetary limit for prosecution will be Rupees Ten Lakh

in the case of offences specified in section 89(1) of Finance Act, 1994, to ensure better

utilization of manpower, time and resources of the field formations. Therefore, where an

offence specified in section 89(1), involves an amount of less than Rupees Ten Lakh,

such case need not be considered for launching prosecution. However the monetary

limit will not apply in the case of repeat offence.

15. Provisions relating to prosecution are to be exercised with due diligence, caution

and responsibility after carefully weighing all the facts on record. Prosecution should

not be launched merely on matters of technicalities. Evidence regarding the specified

offence should be beyond reasonable doubt, to obtain conviction. The sanctioning

authority should record detailed reasons for its decision to sanction or not to sanction

prosecution, on file.

16. Prosecution proceedings in a court of law are to be generally initiated after

departmental adjudication of an offence has been completed, although there is no legal

bar against launch of prosecution before adjudication. Generally, the adjudicator should

indicate whether a case is fit for prosecution, though this is not a necessary pre­

condition. To launch prosecution against top management of the company, sufficient

and clear evidence to show their direct involvement in the offence is required. Once

prosecution is sanctioned, complaint should be filed in the appropriate court

immediately. If the complaint could not be filed for any reason, the matter should be

immediately reported to the authority that sanctioned the prosecution. t•Page 5 of 6

I~,

Circular No. 140/9/2011- S....

17. Instructions and guidelines issued by the Central Board of Excise and Customs(CBEC)from time to time, regarding prosecution under Central Excise law, will also beapplicable to service tax, to the extent they are harmonious with the provisions ofFinance Act, 1994 and instructions contained in this Circular for carrying outprosecution under service tax law.

18. Field formations may be instructed accordingly.

19. Please acknowledgethe receipt of the Circular. HindiVersion to follow.

dM\~(J.M.Kennedy) )~\5f\\Director, TRU

Tel: 011-23092634

Page s of s

Circular No. 141fl0/2011-TRU . -

F.No. 280/26/20 ll-CX8A (Pt)Government of India _Ministry of Finance

Department of Revenue(Central Board of Excise & Customs)

*****

To

..

The Chief Commissioners of Central Excise and Service Tax (AIl),The Director General (All),The Commissioners of Service Tax (Ail),The Commissioners of Central Excise and Service TaK (Ail) .

Madam/Sir,

Subject: Applicability of the provisions of the Export or"Services Rules, 2005 in-.certain situatians

Circular No.lU/05/2009-ST was issued on 24th February 2009 on the applicability ofthe provisions of the Export of Services Rules, 2005 in certain situations. It had clarifiedon the:expression "used outside India" inRule 3(2)(a} of the Export of Service Rules2005 as prevalent at that time. The condition specified. in Rule 3(2)(a) has since beenomitted vide Notification 06/2010-ST ·dated 27 Feb 2010'. In the context of the statedCircular an issue bas been raised, whether for the period prior to 2&.2.2010 therequirement that the service should be "used outside India" invariably means the locationof the recipient?

2. In the stated Circular it was inter-alia, clarified that the words, "used outsideIndia" should be interpreted to mean that "the benefit of the service should accrue outsideIndia". It is well known that services, being largely intangibles, are capable of being paid

. from one place and actually used at 'another place. Such arrangements commonly existwhere the services are procured centrally eg audit, advertisement, consultancy, BusinessAuxiliary Services. For example, it is possible to obtain a consultancy report from aservice provider in India, which may be used either at the location of the customer or inany other place outside India or even in India. In a situation where the consultancy,though paid by a client located outside India, is actually used in respect of a project or anactivity in India the service cannot be said to be used outside India.

3. It may be noted that the words "accrual of benefit" are not restricted to mereimpact on the bottom-line of the person who pays for the service. If that were theintention it would render the requirement of services being used outside India during the

Circular No. i42/ i1./2011- ST

F. NO.354 /30 /2011-TRUGovernment of IndiaMinistry of Finance

DepancrnentofRevenueCentral Board of Excise and Customs

Tax Research Unit

,. :.

To

Madam/Sir,

Subject: SEZ- Service Tax Refund -- regarding.

Subsequent to the issuance of Notification 17/2011-ST dated 01. 03. 2011~representations have been received seeking clarification on certain doubts. Thesedoubts and clarifications are as follows:

QUESTIONS CLARIFICATIONS1. To claim the refund arising out of In the notification, there is no difference

service tax paid under section 66A, in treatment of service tax paid underno proforma is prescribed in the section 66 and section 66Aof Finance Act,notification; how to claim it? 1994. Where refund arises, Table - A, in

Form A-2 can be used for making a refundclaim.

2. (i) In the notification, what is the All taxable services (under section 66 ortreatment for service tax paid on section 66A) received by a SEZtaxable services which do not fall in Unit/Developer for the authorisedthe category of "wholly consumed operations, have been exempted in theservices", and also are not 'shared first paragraph of notification 17/2011-ST,services' ? Is refund available? subject to conditions.

In Paragraph 2, conditions attachedto this exemption are prescribed. In terms

(ii) Whether in the case of category of paragraph 2(a), refund route is the(iii) services referred in paragraph default option for all who intend to claim

Page 1 of4

the exemption granted by the notificatiun­III its first paragraph. However, anexception is provided in the form of abinitio (upfront) exemption, to the 'whollyconsumed' services.

Services which fall outside thedefinition of 'wholly consumed' servicescan be categorized as those which are usedexclusivelyby the SEZUnit/Developer, forthe authorised operations in SEZ orshared with DTAoperations.

Para 2(d) of the notification isapplicable to refund arising from 'sharedservices' only. Thus exemption to servicesexclusively used for the authorisedoperations of .sEZ Unit/Developer, willcontinue to be available by way of refund,as specified in paragraph 2(a) itself,subject to other conditions. To claim thisrefund, Table-A, provided in Form A-2maybe used.

It is clarified that only such servicesshall be considered as exclusively used bySEZ Unit/Developer, for the authorisedoperations, as they satisfy the followin.gcriteria:

(i) Invoice is raised in the nameof the SEZ Unit/Developer or in theinvoice, it is mentioned that the taxableservices are supplied to the SEZUnit/Developer for the authorisedoperations;

(ii) Such services are approvedby the 'Unit Approval Committee(UAC)',as required for the authorised operations;

(iii) Receipt and use of suchservices in the" authorised operations areaccounted for in the books of accounts ofthe SEZUnit/Developer.

2(a) of the notification,'proportionate refund' applies to only'shared services' i.e. services that areused both for SEZ (Special EconomicZone) authorised operations as wellas DTA (Domestic Tariff Area)operations?

3. I Meaning of the expression 'who The expression refers to an entity which isdoes not own or carry on any carrying out business operations in SEZbusiness other than the operations in and also DTA. Merely having an office inthe SEZ' appearing III paragraph the DTA for purpose of liaison/business2(a)(iii) of the notification, which promotion, does not restrict a SEZ Unitcreates a difference between from availing benefit extended to a'standalone' and 'non-standalone' standalone unit.

Page 2 of4

SEZ Unit/Developer, may beclarified.

4· Whether Approval by UAC ISnecessary, to claim benefit under thenotification?

Yes. Unit Approval Committee (UAC) ofthe SEZ determines goods and servicesrequired for the authorised operations of aUnit/Developer, under the SEZ law.Hence approval of the UAC is necessaryfor availing the notification benefit, on thetaxable services.

5· (i) Does condition (c) prescribed inparagraph 2 of the notification,restrict the non-standaloneUnits/Developers, from availingupfront exemption for whollyconsumed services, which fall undercategory (i) and (ii) of para 2(a) ofthe notification?

. . .(ii) For whom and for what purpose,Declaration inA-I is required?

In respect of category (i) and (ii)services listed in paragraph 2(a), upfrontexemption is made available to all SEZUrrits/Developers, who fulfill theconditions of notification; only in the caseof category (iii), difference is createdbetween standalone and non-standaloneSEZUnits/Developers.

Meaning of the expression "total Total turnover includes turnover of DTAturnover" found in paragraph 2(d) of Unit and also export turnover of SEZUnit.the notification is not clear: whether This is the way to calculate proportionateit refers to turnover of SEZ Unit or refund. Table-C in Form A-2, illustratesthe entity (including DTA and SEZ this aspect.Unit). This :qlaybe clar_ifi_:_le-=-'dO_.._-'-- __ +~-_____,;;~__==-..,..._-_=___-.-_":":':"-__='.---'---l

A .Developer may not have export Generally, SEZ Developers will be usingturnover; therefore, he cannot get category (i) services listed in paragraphrefund of service tax based on the 2(a), relating to immovable propertyformula provided for shared services located within SEZ; upfront exemption isin paragraph 2(d) of the notification: available for these services, and categorytherefore, it may be explained how a (ii) services, irrespective of whether the

6.

7·

Declaration in Form A-l is required to beproduced, to a service provider, to claimupfront exemption (after striking out theinapplicable portion). This is a one-timeDeclaration. Original Declaration can beretained with the SEZ Unit/Developer forbusiness record or for production to thejurisdictional Central Excise/Service Taxauthorities, if need be, for anyverification; a copy has to be retained bySEZ Specified Officer; self-attestedphotocopies of· the Declaration can be

. submitted to service provider to availupfront exemption, subject to fulfillmentof other conditions mentioned in thenotification.

Page 3 of 4

10.

Developer can claim exemptionunder the notification?

Developer is standalone or not. As anotL roption, refund route is also available. Inthe case of category (iii) services ifDeveloper is standalone, upfrontexemption is available. If Developer is notstandalone, on service tax paid oncategory (iii) services, which areexclusively used for the authorisedoperations in SEZ, he can avail exemptionthrough refund route. 'Exclusive use'explained in clarification for questionNO.2. may also be referred in thisconnection.Yes.Available.

If an entity is having multiple SEZ Unitswith a centralized service tax registration,consolidated refund claim can be filed,provided separate accounts aremaintained for receipt and use of servicesfor the authorised ooerations in SEZUnit.

Whether 'certified copies of:-j"--n-y,-oi:-ces-"i-r__;n";"-terms of the notification-:--original"can be used for claiming refund, if invoices are needed for claiming refund;originals are needed for other after receiving the refund, originals can bestatutory purpose; Whether on the taken back on submission of copiesbasis of single invoice, one can claim certified by Chartered Accountant. On aproportionate refund for SEZ Unit single invoice, if proportionate refund (byand balance as cenvat credit SEZUnit) and cenvat credit (by DtA Unit)

needs to be obtained, then also similarsystem shall be followed.

8. Whether proportionate amount ofservice tax paid on shared servicesthat have not been refunded afterapplying- the formula in paragraph2(d), shall be available to the DTAUnits of the entity as cenvat credit?Whether consolidated refund claimunder 17/2011-ST can be filed by anentity having more than one SEZunitand a centralized service taxregistration.

3. Field formations may he informed accordingly. Hindi version to follow.

9·

2. Trade Notice/Public Notice may be issued.

0M~ ____(J.M. Kennedy}­Director, TRU

Tel: 011-23°92634

Page 4 of4

To

Circular No.14211112011 8 ST

F. NO.35413012011-TRUGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Exciseand Customs

Tax Research UnitNorth Block, New Delhi

18th May 2011

Chief Commissioners of Central Excise and Service Tax (Ail),Director General (Service Tax),Director General (Central Excise Intelligence),Director General (Audit),Commissioners of Service Tax (Ail),Commissioners of Central Excise and Service Tax (Ali).

Madam/Sir,

Subject SEZ - Service Tax Refund -- regarding.

Subsequent to the Issuance of Notification 17/2011-ST dated 01. 03. 2011, representations have beenreceived seeking clarification on certain doubts. These doubts and clarifications are as follows:

QUESTIONS CLARIFICATIONS1. To claim the refund arising out of service tax

paid under section 66A. no proforma isprescribed in the notification; how to claim it?

In the notification, there is no difference in treatmentof service tax paid under section 66 and section 66Aof Finance Act, 1994. Where refund arises, Table -A, in Form A-2 can be used for making a refundclaim.

2. (i) In the notification, what is the treatment forservice tax paid on taxable services which donot fall in the category of "wholly consumedservices", and also are not 'shared services' ?Is refund available?

(ii) Whether in the case of category (iii)services referred in paragraph 2(a) of thenotification, 'proportionate refund' applies toonly 'shared services i.e. services that areused both for SEZ (Special Economic Zone)authorised operations as well as DTA(Domestic Tariff Area) operations?

All taxable services (under section 66 or section 66A)received by a SEZ Unit/Developer for the authorisedoperations have been exempted in the firstparagraph of notification 17/2011-ST, subject toconditions

In Paragraph 2, conditions attached to thisexemption are prescribed. In terms of paragraph 2(a), refund route is the default option for all whointend to claim the exemption granted by thenotification in its first paragraph. However, anexception ISprovided in the form of ab initio (upfront)exemption, to the 'wholly consumed' services.

Services which fall outside the definition of'wholly consumed' services can be categorized asthose which are used exclusively by the SEZUnit/Developer. for the authorised operations in SEZor shared with DTA operations

Para 2(d) of the notification is applicable torefund arising from 'shared services' only. Thusexemption to services exclusively used for theauthorised operations of SEZ Unit/Developer, willcontinue to be available by way of refund, asspecified in paragraph 2(a) itself, subject to otherconditions. To claim this refund, Table-A, provided inForm A-2 may be used

It is clarified that only such services shall beconsidered as exclusively used by SEZUnit/Developer, for the authorised operations, asthey satisfy the following criteria:

(i) Invoice is raised in the name of the

3

4

5.

6.

7.

8.

Meaning of the expression 'who does not ownor carry on any business other than theoperations in the SEZ' appearing in paragraph2(a)(iii) of the notification, which creates adifference between 'standalone and 'non­standalone' SEZ Unit/Oeveloper, may beclarified.Whether Approval by UAC is necessary, toclaim benefit under the notification?

(i) Does condition (c) prescribed in paragraph 2of the notification, restrict the non-standaloneUnits/Developers, from availing upfrontexemption for wholly consumed services,which fall under category (i) and (ii) of para 2(a)of the notification?

(ii) For whom and for what purpose,Declaration in A-1 is required?

Meaning of the expression "total turnover"found in paragraph 2(d) of the notification is notclear: whether it refers to turnover of SEZ Unitor the entity (including DTA and SEZ Unit).This may be clarified.

A Developer may not have export turnover;therefore, he cannot get refund of service taxbased on the formula provided for sharedservices in paragraph 2(d) of the notification: .therefore, it may be explained how a Developercan claim exemption under the notification?

Whether proportionate amount of service tax

SEZ UniUDeveloper or in the invoice, it ismentioned that the taxable services are supplied tothe SEZ UniUDeveloper for the authorisedoperations,

(ii) Such services are approved by the'Unit Approval Committee(UAC)', as required for theauthorised operations;

(iii) Receipt and use of such services inthe authorised operations are accounted for in thebooks of accounts of the SEZ Unit/Developer.The expression refers to an entity which is carryingout business operations in SEZ and also DTA.Merely having an office in the DTA for purpose ofliaison/business promotion, does not restrict a SEZUnit from availing benefit extended to a standaloneunit.

Yes. Unit Approval Committee (UAC) of the SEZdetermines goods and services required for theauthorised operations of a Unit/Developer, under theSEZ law. Hence approval of the UAC is necessaryfor availing the notification benefit, on the taxableservices.In respect of category (i) and (ii) services listed inparagraph 2(a), upfront exemption is made availableto all SEZ Units/Developers, who fulfill the conditionsof notification; only in the case of category (iii),difference is created between standalone and non­standalone SEZ Units/Developers.

Declaration in Form A-1 is required to be produced,to a service provider, to claim upfront exemption(after striking out the inapplicable portion). This is aone-time Declaration. Original Declaration can beretained with the SEZ Unit/Developer for businessrecord or for production to the jurisdictional CentralExcise/Service Tax authorities, if need be, for anyverification; a copy has to be retained by SEZSpecified Officer; self-attested photocopies of theDeclaration can be submitted to service provider toavail upfront exemption, subject to fulfillment of otherconditions mentioned in the notification.Total turnover includes turnover of DTA Unit and alsoexport turnover of SEZ Unit. This is the way tocalculate proportionate refund. Table-C in Form A-2,illustrates this aspect.

Generally, SEZ Developers will be using category (i)services listed in paragraph 2(a), relating toimmovable property located within SEZ; upfrontexemption is available for these services, andcategory (ii) services, irrespective of whether theDeveloper is standalone or not. As another option,refund route is also available In the case of category(iii) services if Developer is standalone, upfrontexemption is available. If Developer is notstandalone, on service tax paid on category (iii)services, which are exclusively used for theauthorised operations in SEZ, he can availexemption through refund route. 'Exclusive use'explained in clarification for question No.2. may alsobe referred In this connection.Yes. Available.

paid on shared services that have not beenrefunded after applying the formula inparagraph 2(d), shall be available to the DTAUnits of the entity as cenvat credit?

9.

10.

Whether consolidated refund claim under17/2011-ST can be filed by an entity havingmore than one SEZ unit and a centralizedservice tax registration.

Whether certified copies of invoices can beused for claiming refund, if originals areneeded for other statutory purpose; Whetheron the basis of single invoice, one can claimproportionate refund for SEZ Unit and balanceas cenvat credit

If an entity is having multiple SEZ Units with acentralized service tax registration, consolidatedrefund claim can be filed, provided separateaccounts are maintained for receipt and use ofservices for the authorised operations in SEZ Unit

In terms of the notification, original invoices areneeded for claiming refund; after receiving therefund, originals can be taken back on submission ofcopies certified by Chartered Accountant On asingle invoice, if proportionate refund (by SEZ Unit)and cenvat credit (by DTA Unit) needs to beobtained, then also similar system shall be followed.

2. Trade Notice/Public Notice may be issued.3. Field formations may be informed accordingly. Hindi version to follow.

(J M. Kennedy)Director, TRU

Tel: 011-23092634

Circular No. 143/12/2011 - ST, dated 26-05-2011

Circular No. 143/12/2011 - STF.No.332/37/2010-TRUGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise and Customs

Tax Research UnitNorth Block, New Delhi

26th May, 2011, To

Chief Commissioners of Central Excise and Service Tax (Ali),Director General (Service Tax), ~/Director General (Central Excise Intelligence), (/"~Director General (Audit), L"(/ ,if'Commissioners of Service Tax (Ali), " __.1Commissioners of Central Excise and Service Tax (Ali). "$'1' "(

~Madam/Sir,

Subject: - processing for or on behalf of client, in relation to agriculture -causing sale or purchase of agricultural produce -- reg.

Representations have been received that client processing of tobacco involvingthreshing and drying of tobacco leaves and client processing of raw cashew involvingroasting/drying, shelling and peeling of raw cashew to recover kernel, are considered by thefield formations as not falling within the meaning of the expression "in relation to agriculture"appearing in notification 14/2004-ST (as amended) dated 10th September, 2004, resulting inavoidable disputes and litigation.

2. These representations have been examined. In the cases represented, theagricultural produce namely tobacco or raw cashew, which are subject to client processingretains their essential characteristics at the output stage and therefore the processesundertaken on or behalf of client should be considered as covered by the expression 'inrelation to agriculture'. Client processing which falls under business auxiliary serviceundertaken on the primary agricultural produce namely tobacco or raw cashew, does notresult in any change in their essential character of tobacco or cashew. In the light of theabove principle (i) process of threshing and drying of tobacco leaves and thereafter packingthe same and (ii) processing of raw cashew and recovering kernel, undertaken for, or onbehalf of, the clients by processing units are covered by the expression "... processing ofgoods for, or on behalf of, the client.. ..and provided in relation to agriculture,..." appearing inthe said notification.

3. Also where the commission agents stationed abroad provide business auxiliaryservice to promote the export of rice, said business auxiliary service is covered bynotification 13/2003-ST(as amended) because, the word 'rice' is mentioned under theexplanation to the term 'agricultural produce', in the inclusive portion along with other itemslike cereals, pulses, etc.

4. Trade Notice/Public Notice may be issued to the field formations accordingly.

5. Please acknowledge the receipt of this circular. Hindi version to follow.Samar Nanda)

Under Secretary, TRUTel: 011-23092037

http://www.servicetax.gov.inJcircu)arlst-circularll/st-circ-143-2kll.htm

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