TIOL-DDT 1318
15.03.2010
Monday

FOR setting up an EOU in India, you need two things. One is LOP from the Development Commissioner and the other is a Master's in Mathematics from a reputed University. The former is required for carrying the operations as EOU and the latter for computing the duties payable on DTA clearances and the CENVAT Credit against such clearances.

In the Sarla Polyesters case 2008-TIOL-985-CESTAT-AHM, the CESTAT held that the third time cess is payable.

The High Court (2008-TIOL-516-HC-MUM-CX) set aside the CESTAT order and remanded the matter to the Tribunal with the following directions:

We, therefore, find prima facie substance in the submission made on behalf of the appellant that when the goods manufactured by EOU, which are brought to any other place in India are to be treated as imported goods for the purpose of levying excise duty, the same fiction will have to be extended while calculating and levying the education cess. We are not expressing any final opinion on this question. We find from the order of the tribunal that the tribunal has not approached the question from this perspective. In our opinion, the tribunal should have considered the purpose for which the statutory fiction has been created by the legislature and whether considering that purpose the fiction can be extended while levying education cess under Section 93 of the Finance Act also.

We have been informed that any decision taken on this question is likely to affect a number of EOUs and therefore, in our opinion, the tribunal should also consider issuing general notice making it know that any person representing EOU can address the tribunal on this question so that a well-considered decision on the subject can be taken.

On remand, as per the directions of the Bombay High Court, Tribunal served notice to the general public so that all the parties who are interested may also apply as interveners. After hearing the appellants, the interveners and the departmental representative, the CESTAT held, “What is required for the purpose of proviso to Section 3 of Central Excise Act, 1944 is to arrive at aggregate of customs duties and once we take a view that education cess is part of the customs duty and is an enhancement, the question of adding it again does not arise.”

You will have to wait till tomorrow for this very important order.

Also see the following well researched articles published by TIOL on this contentious issue:

Education cess payable by EoUs on DTA sale : Will this Budget clarify?

Setback for EOUs: CESTAT rules Education Cess is payable on DTA clearances in addition to duties computed under relevant Notifications

Education cess by EOUs - Raghavendra Rao formula?

DO you know how to calculate the education cess payable by the EOUs while making DTA clearances? The Development Commissioner of an SEZ, (who is also the Development Commissioner for all the EOUs in his state) the other day in a meeting expressed his anguish that nobody is clear on what exactly is the amount payable. He said “now there is the Raghavendra Rao formula”. He was referring to Taxindiaonline last week's guest column article by Raghavendra Rao.

[from our archives – we carried the above item five years ago in DDT 48 07 02 2005. Let us hope the dispute ends here and the government will graciously accept the Tribunal decision]

Guidelines issued to Free Trade Warehousing Zones

BASED on the decisions taken in a meeting held under the chairmanship of Additional Secretary (SEZ) to discuss the issues relating to FTWZs, the following guidelines are issued:

i) No approval for procurement of service “Rental” of immovable property for office outside the Special Economic Zone/FTWZ can be given.

ii) Regarding Licensing requirement, it is clarified that in terms of Rule 27 of SEZ Rules, a unit in SEZ/FTWZ can import all types of goods except prohibited items. However, in terms of Rule 26 of SEZ Rules, if any permission is required for import under any other law, the same shall be allowed with the approval of BOA. In respect of prohibited items, Instruction No.47 dated 4th March, 2010 shall apply.

iii) Regarding permissibility of diesel in the FTWZ, it is clarified that Rule 27 of SEZ Rules permits a developer to procure all types of goods including consumables for authorized operations. Hence diesel is permitted for authorized operations in the processing area including material handling equipment.

iv) There are no limitations on Units set up in FTWZs located in Sector Specific SEZs to carry out Trading and Warehousing Activities in respect of any product.

v) Trading and Warehousing units located within FTWZ can carry out DTA to FTWZ and FTWZ to DTA transactions.

vi) Requests for allowing cutting, polishing, blending etc. as part of authorised operation of a FTWZ unit can be considered by the Approval Committee on a case to case basis based on the merits of the case.

SEZ Instruction No. 49, Dated: March 12, 2010

Employment of washing process in manufacture of agglomerates etc from imported plastic waste and scrap

ON the issue of employment of washing process in the manufacture of agglomerates etc from imported plastic waste and scrap, the Department of Commerce has clarified as follows:

“The imported scrap is tested to meet the eligibility requirements. Hence, washing process has no bearing on the eligibility of scrap and unit can use such processes to remove impurities which may get added to the scrap during its collection and transportation and washing is a permissible activity . However, the washing process must meet the State Pollution Control Board's standards.”

SEZ Instruction No. 48, Dated: March 10, 2010

Government Exempts IT on income received by foreign service provider of Project Seabird (Phase II-A)

IN terms of Section 10(6C) of the Income-tax Act, 1961, the Government hereby declares that any income arising to Sinclair Knight Merz Pty Limited, Australia having its office at 100, Christie Street, P.O. Box 164, St. Leonards, New South Wales, Australia-2065 by way of fees for technical services received in pursuance of the agreement dated the 27th November, 2009 entered into by the Government of India for providing services in or outside India in the Project Seabird (Phase II-A) connected with security of India shall not be included in computing the total income of a previous year of the said company under the said Act.

IT NOTIFICATION NO. 15/2010, Dated: March 12, 2010

CBEC Assigns Power of Adjudication for DRI cases

BOARD has assigned the power of adjudication to Commissioner of Customs (Adjudication), Mumbai, for the eight show cause notices issued by DRI.

CBEC Letter F.No.437/136/2009-Cus.IV, Dated: March 11, 2010

Customs Quiz Contest 2010 Held at Nhava Sheva Customs House

THE final of the Customs Quiz 2010 was held on 10.03.2010 at Jawaharlal Nehru Customs House, Nhava Sheva. Sh. Ajesh Kumar, Additional Director General, National Academy of Customs, Excise and Narcotics, Mumbai was the chief guest on the occasion.

Sh. K. R. Bhargava, Chief Commissioner, Sh. A.K.Das, Commissioner (Import) and Sh. B. K. Sinha, Commissioner (Export) graced the occasion.  Sh. Rajan Chaudhary, Additional Commissioner of Customs was the Quiz Master.

The main objective of the Quiz Programme was to disseminate knowledge and enhance awareness on the Customs and Allied Laws among working customs staff at the cutting edge level, in an interactive mode.

The quiz was held among 12 teams selected from various sections and divisions under JNCH. Two preliminary elimination rounds were held on 03.03.2010 and 04.03.2010 to select four teams for the finals. The winner of the Quiz contest was Team ‘Lohani Tigers' representing the Customs House. Team ‘Chandan Chargers' representing the Docks was the runners up. The prizes and trophies to winners and runners up were given by the Chief Guest.

Jurisprudentiol – Tuesday's cases

Central Excise

Good news for EOUs -  CESTAT rules that education cess is not payable 'for third time' on DTA clearances.

THE dispute is with regard to the quantum of education cess payable by the EOUs when the goods are cleared in DTA. The revenue is of the view that the EOUs have to pay education cess of 2% on the total duty computed in terms of proviso to Section 3(1) of the Central Excise Act read with Notification 23/2003 CE. This is popularly known as THIDRD TIME CESS.  This third time cess was initially upheld by the CESTAT also in (2008-TIOL-985-CESTAT-AHM). However, on appeal against the said order, the Bombay High Court has remanded the matter to the Tribunal and the Tribunal has not approached the question from the perspective of treating the goods as imported goods for the purpose of levying excise duty in (2008-TIOL-516-HC-MUM-CX) Since the issue is likely to affect a number of EOUs , the HC also directed the tribunal to consider issuing general notice making it known that any person representing EOU can address the tribunal on this question so that a well-considered decision on the subject can be taken.

Central Excise

Intent to evade payment of duty has to be deciphered from conduct of assessee – No clean conduct found on part of appellant – Penalty upheld and ROM dismissed: CESTAT

THE amount involved is a pittance. The assessee filed an appeal against the order of the Commissioner(A) imposing an equivalent penalty, all of which is less than Rupees Fifty thousand (even if you include the duty amount) and when called for hearing before the CESTAT, they gave a written submission with a request that the case be decided on merits.

Income Tax

I-T - non-resident buys shares of partnership firm and converts it into subsidiary company - transfer u/s 2(47) - capital gains - there is violation of clause (d) of proviso to Sec 47(xiii) by premature transfer of shares but there is no tax liability as there is no profit or gain in the conversion: Advance Ruling

THE Applicant is a tax resident of Luxembourg. It buys shares of an Indian partnership firm and makes it a wholly owned subsidiary. The partnership firm is converted into a private limited company - whether the conversion of the firm into a registered company will be treated as transfer u/s 2(47). Whether it would give rise to capital gains liable to tax. Whether it is eligible for exemption as per the provision in clause (d) of proviso to Sec 47(xiii).

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice weekend.

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