Within a few minutes after we uploaded the story on the judgement of Shimla High Court, mails started pouring in from different sections and there are a couple of posts on the Message Board also.

For more clarity, the effect of ruling of the Shimla HC is explained as under:

Tractors manufactured in Himachal are exempted - say if the tariff rate is 16%, duty of excise payable is NIL

Though excise duty is exempted, there is no exemption from automobile cess and the assessee has to pay automobile cess at 1/8% ad valorem

The assessee is also liable to pay education cess at 2% on the excise duty payable, but for the exemption. If excise duty payable is Rs 16/-, but exempted, still the assessee is liable to pay education cess on Rs 16/-. The High Court did not go into the aspect whether 1/8% automobile cess should also be taken into account for computation of education cess or not.

The debatable issues:

Point No 1 : What if excise duty is exempted?

Education Cess on excisable goods, imported goods and the services is levied vide Sections 93, 94 and 95 respectively of the Finance Act 2004.

All the above three sections contain provisions that:

The provisions of the Central Excise Act, 1944 (1 of 1944) ( Customs Act or Finance Act as the case may be) and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be.

So if the excise duty/customs duty or service tax is exempted, education cess is also exempted. This has also been clarified by the CBEC in F. No. 345/2/2004-TRU (Pt.), dated 10-8-2004

Point No 2: Whether education cess is payable on other cesses which are collected as excise duty?

Again section 93 of the Finance Act reads:

The education Cess shall be calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess, and Secondary and Higher Education Cess levied under section 136 of the Finance Act, 2007 on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.

So, the other allied Cesses like Sugar Cess, Tea Cess or Automobile Cess are not levied by the Central Government in the Ministry of Finance, but are levied under different Acts and the Ministry of Finance does the job of collection of these duties as duties of excise, to be paid to the respective departments. Therefore no Education Cess is leviable on such Cesses in terms of Section 93 of the Finance Act 2004. Precisely this is what has been clarified by the TRU in F.No  345/2/2004 TRU dated 10/8/2004

(4) : Whether duties/ cesses which either not collected as duty of excise/customs or are collected so but by a Department other than Department of Revenue, should be included for the purposes of calculation of Education Cess ?

Clarification: As the Education Cess is calculated on the aggregate duties of excise/customs (excluding certain duties of customs like anti-dumping duty, safe guard duty etc.) levied and collected by the Department of Revenue, only such duties, which are (a) levied and collected as duties of excise/customs and (b) are both levied and collected by the Department of Revenue should be taken into account for calculating Education Cess    

Take the case of Sugar. In addition to excise duty, cess is also levied under Sugar Cess Act 1982. While calculating the education cess, the sugar cess need not be included as clarified above by TRU.

So if the duty structure is 16% (excise) plus 5% ( cess), education cess is payable only on 16%. In case of Tractors manufactured in Himachal, since 16% is exempted, no education cess needs to be paid either on excise duty or on the automobile cess.  

Today we are carrying another important judgement on this issue wherein the CESTAT relying on the TRU letter dated 10/8/2004 has held that no education cess need be paid on the Tea Cess as the same is not levied by the Central Government in the Ministry of Finance but levied by the Government in the Ministry of Commerce.

BOMBAYBURMAH TRADING CORPORATION LTD. 

Export of non-basmati rice - exemption

The prohibition imposed on export of non-basmati rice shall not be applicable to export of 50,000 MT of rice to Peoples Republic of Bangladesh by M/s LMJ International Limited, 30, J.L. Nehru Road, Kolkata - 700 016 against the ordered quantity as per international tender opened by Government of Bangladesh on 08.10.2007.

DGFT NOTIFICATION NO.60 (RE-2007)/2004-2009, Dated: December 6, 2007

LTUs - How large?  

Yesterday the Hindu reported,

For instance, to be part of the Bangalore unit, a corporate house should be paying central excise and service tax of Rs. 1,000 crore a year, or income tax of Rs. 800 crore. For the Chennai unit, the threshold has been fixed at above Rs.7,000 crore for central excise and service tax and over Rs. 1,500 crore for income tax.

Is there any assessee paying this kind of taxes in the country? Which Company pays Rs. 1500 Crores as Income Tax? Only goes on to prove that while reporting tax matters, the best of newspapers are not exactly accurate.

And where is the Chennai LTU? A helpful Departmental officer informed us that it is located at Door No 1775, Jawaharlal Nehru Inner Ring Road, AnnanagarWestern Extension, Chennai- 600101. 

 Poor rich politicians - AP CM pays Rs. 12, 491 as Income Tax

The former IAS officer Jaya Prakash Narayan's Lok Satta reported that the AP Chief Minister Dr. YS Rajasekhara Reddy declared his wealth in his affidavit before returning officer during elections to the Assembly as Rs. 3,36,61,943 which included 45 acres of agricultural land and 6.65 acres of non-agricultural land, two buildings at Hyderabad and Pulivendula. His shares in companies are to a value of Rs. 42 lakhs. He paid Rs 12,491 only as income tax for the assessment year 2004-05.

The former CM and Leader of the Opposition N. Chandra Babu Naidu is a bit richer. He declared his wealth in his affidavit before the returning officer during 2004 elections as Rs. 20,92,29,305 which included Rs. 16,69,63,220 worth of shares and three buildings at Hyderabad. Subsequently he submitted his financial statement to the Speaker revealing that he purchased 2,01,020 shares in Heritage Foods from the market, which are valued at around Rs. 3 crores. The total value of his shareholding in the company, at the current market rates, now stands at Rs. 55 crores.

Jurisprudentiol- Tomorrow's cases

Central Excise    

Capital goods and inputs destroyed in fire - No requirement of reversal of Cenvat credit : Tribunal

CENVAT credit Rules, 2004 has already seen ten amendments this year. Notable amongst them are the amending notifications 26/2007-CE(N.T) dated 11.05.2007, 33/2007 CE(NT) dated 07.09.2007 & 39/2007-CE(N.T) dated 13.11.2007.

While the first notification inserts a sub-rule (5B) in rule 3 & prescribes payment of an amount equivalent to Cenvat credit availed while writing off the value of inputs/capital goods, the second attempts to make the Supplementary Instruction, paragraph 2.4 to Chapter 18, Part-I [reversal of Cenvat credit taken on inputs contained in finished goods on which duty remission has been granted under rule 21] a legal requirement by inserting a sub-rule (5C) in rule 3 of the Cenvat Credit Rules, 2004. The last mentioned notification lays down the manner in which used Cenvatted Capital goods are to be removed from the factory.

Considering the amendments that have been made this year to "settle once & for all pending Cenvat issues", the decision being reported may prompt the Central Government to go in for one more amendment to the Cenvat Credit Rules, 2004 towards the close of the year.

Service Tax  

Input services used for windmills for generation of electricity -   away from factory - not eligible for credit - As electricity is not excisable, no credit even if used at windmills - CESTAT

The appellant has a manufacturing unit at Jamnagar. They had set up windmills at a place Kurunga, about 100 Kms. away from their factory. While setting up of the windmills, they have availed the services for the purpose of installation, erection and commissioning of windmills. The electricity generated at the windmills is fed to grid of Gujarat Electricity Board on the basis of an agreement and the appellant receives equal quantity of electricity fed by them from the Gujarat Electricity Board at the factory site. Whatever quantity of electricity is used in excess of what they produced is charged to them. The appellant claimed the service tax paid on the services availed at the windmill station.

Income Tax  

Exemption to charitable trusts cannot be denied if part of income was used for religious purposes: ITAT

THE appellant filed return of income on 26.10.03 declaring nil income. The assessment was framed u/s 143(3) on 5.1.96 at a total income of Rs.4,99,580/-. It was held that since the appellant trust is not registered u/s 12A of the Act, the benefit of exemption u/s 11 cannot be given. Subsequent to the passing of the assessment order, the appellant society had been granted registration u/s 12A vide order dated 4.11.96 w.e.f. 1.4.1988. The assessee, therefore, requested for rectification of the order and for claim of exemption u/s 11 of the Act. The rectification application was rejected and the order refusing rectification u/s 154 was confirmed by CIT(A). On further appeal before the Tribunal, the Tribunal held that the subsequent order of registration had rendered the AO's finding that there was no registration, a mistake apparent from record. The Tribunal set aside the matter to the AO to examine the case in light of the requirement of Sections 11, 12 & 13 and to determine eligibility for exemption and pass fresh order as per law.

See our columns tomorrow for the judgements

Until tomorrow with more DDT

Have a nice day.

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