TIOL-DDT 1814
14.03.2012
Wednesday

BY virtue of Notifications 30/2006-CE(NT) and 31/2006-CE(NT) both dated 30.12.2006, Rules 12CC and 12AA were inserted in Central Excise Rules, 2002 and CENVAT Credit Rules, 2004 respectively.

Rule 12CC read as follows:

¶12CC. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and type of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of, excise duty, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including suspension of registration in case of a dealer, types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board¶.

Rule 12AA read as follows:

“12AA. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit as specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board.”

Exercising the powers under these two Rules, the Central Government notified the detailed provisions with regard to nature of restrictions that could be imposed and the type of facilities that could be withdrawn by issuing Notification No. 32/2006-CE (NT) dated 30.12.2006 as amended by Notification No. 15/2009-CE(NT) dated June 10, 2009. While commenting on these draconian provisions, in TIOL-DDT 523 dated 02.01.2007, we asked,

Perhaps, Board has forgotten that we still have Courts in this country! Board wants a recommending officer to give a hearing, but he need not pass any order and the officer who will pass the order need not hear. Will this strange system pass even initial judicial scrutiny? As no adjudication or appellate mechanism is prescribed, assessees will have to run to the nearest High Court. Does the CBEC plan to clog our High Courts completely?

Subsequent actions on certain assessees did generate litigation. While a few of them mounted challenges on the legality of these provisions, others aggrieved by overzealous CBEC orders challenged the same in High Courts and in one such case in Vinay Wires and Poly Products Pvt Ltd vs. Member, CBEC & Anr 2010-TIOL-102-HC-DEL-CX, the Delhi High Court, while highlighting the importance of the requirement of adhering to PNJ while imposing restrictions or withdrawing facilities to assessees observed,

“…… the said notification itself stipulates that the noticee has to be given an opportunity of being heard and that his representation must be considered before the recommendation is made to the Director General. Opportunity of hearing means an effective opportunity of hearing and in this case it means that the petitioner ought to have been supplied with the documents so that he could have made an effective representation against the contemplated action” (emphasis supplied).

A special leave petition filed by the Union of India against this judgment of the High Court was dismissed by the Supreme Court.

While it is not clear statistically as to how effectively these provisions were employed by the CBEC over the years to deter erring assessees, a few days before Budget 2012, the Central Government has issued a few notifications replacing the above mentioned Rules in CER 2002 and CCR 2004 while coming out with detailed guidelines for imposing restrictions or withdrawal of facilities. Rule 12CC of CER 2002 is substituted by Rule 12CCC which reads as follows:

¶12CCC: Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and type of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of, duty of excise, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify the nature of restrictions including suspension of registration in case of a dealer, types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board¶.

Rule 12AA of CCR, 2004 is substituted by Rule 12AAA which reads as follows:

¶12AAA: Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit as specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify the nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board¶.

And the all important Notification No. 32/2006-CE (NT) dated 30.12.2006 which provided for detailed guidelines to be followed by the officials while imposing restrictions or withdrawing facilities is now superseded by a new notification. And surprisingly there is no significant change in the procedure to be followed by the officials. So, it is a simple case of pouring old wine into a new bottle!

At least, they could have provided some appellate mechanism for the orders passed by CBEC, which was absent in the earlier provisions. Because every time an assessee is aggrieved by an order he has to rush to the nearest High Court and the cost of litigation has become dearer by the day. Unfortunately, Government does not have to bother about the litigation costs because ultimately the burden falls on us – the taxpayers!

And by virtue of these new notifications, the only change we can foresee is a further depletion of green cover in our country because reams of paper will be used to circulate these notifications from Delhi to Galli!

Notifications 3/2012-CE (NT), 4/2012-CE (NT) and 5/2012-CE (NT)., Dated: March 12, 2012

Cenvat or CENVAT?

ONE of the changes made by Notification No. 5/2012 –CX dated 12.03.2012, is substituting the word CENVAT with Cenvat. CENVAT is certainly the correct usage and now they have changed it to Cenvat. And they have substituted Rule 12AA with Rule 12AAA and Rule 12CC with Rule 12CCC. So, now after 12A, you have 12AA and after 12C, you have 12CCC – a new serial devised by the Board. What would be the next in the series – take one of those IQ tests.

Why Amendments Now?

IN the case of Dhariyal Chemicals vs. Union of India - 2008-TIOL-710-HC-Ahm-CX, the Gujarat High Court while dismissing the challenge to the vires of Rule 12CC of the CER, 2002 and the notification issued thereunder observed -

“9. In so far as challenge to validity of Rule 12CC of the Rules and the Notification is concerned, it is not possible to accept the contention raised on behalf of the petitioner. Rule 12CC of the Rules grants power to the Central Government to issue a Notification whereunder specific restrictions may be placed on the specified category of persons having regard to the extent of evasion of duty, nature and type of offence or such other factors as may be relevant in order to prevent such evasion, default in payment of excise duty etc. In exercise of these powers Notification No. 32 of 2006 -C.E. (N.T.), dated 30-12- 2006 has been issued. The Notification provides for a summary scheme which is to act as a deterrent against tax evaders by withdrawal of facilities from such persons.

10. On a plain reading of Rule 12CC of the Rules and the impugned Notification it becomes apparent that the Rule and the Notification have been framed for a specified class of persons having reasonable nexus with the object sought to be achieved, and this becomes abundantly clear when one considers paragraph No. 3 of the Notification which lays down the monetary limit in which class of cases the Notification shall be made applicable. Therefore, there is no merit in the challenge to constitutional validity of the Rule and the Notification.”

In the case of Hiren Aluminium Ltd. vs. Union of India - 2009-TIOL-83-HC-Mum-CX, such an order issued by the CBEC Member was held to be arbitrary and hence stayed and in the case of Vinay Wires & Poly Products Pvt. Ltd. - 2010-TIOL-102-HC-DEL-CX, the order was set aside as no effective opportunity of hearing was given.

In the case of Saviton Metplast (P) Ltd - 2010-TIOL-882–HC–P&H-CX though the provisions were not struck down, the order of withdrawing the facility of monthly payment was quashed.

However, it appears that the Central government fearing that the said rule may face the axe sooner or later on grounds of being ultra vires, chose to equip itself amply by amending section 37 of the Central Excise Act, 1944 by inserting the following clause (xiiia) in sub-section (2) and which reads –

“(xiiia) provide for withdrawal of facilities or imposition of restrictions (including restrictions on utilization of CENVAT credit) on manufacturer or exporter or suspension of registration of dealer, for dealing with evasion of duty or misuse of CENVAT credit.”

The above amendment was carried out by Section 68 of the Finance Act, 2010. This gave the Government power to make Rules, which they already made in 2006!

The Latest Position: In Aryan Ispat and Power Pvt Ltd v UOI – 2011-TIOL-499-HC-ORISSA-CX, the High Court held that Rule 12CC of the Central Excise Rules and Rules and Rule 12AA of the CENVAT Credit Rules and Notification No. 32/2006-CENT dated 30.12.2006, were not valid prior to 8.5.2010, when Section 37 was amended.

Naturally, the Government was offended and took up the matter in appeal to the Supreme Court. The Supreme Court admitted the appeal in January 2012.

After they amended Section 37 in 2010, they should have amended the Rules and issued the new notification, which they have done now.

Ideally, the Board would have got the amendment to Section 37 ratified retrospectively from 2006, in this year's budget (which they may still do).

Is there any meaning to all this confusion and litigation? For whose benefit is the Government working?

Why Deterrent Action?

ADDRESSING our post budget Seminar in April 2010, the then Chairman of the CBEC said,

There is one provision, deterrent action, on which Taxindiaonline's position is very strong, as they have written quite strongly but let me submit it in this forum. Why do we go for a provision like deterrent action? Try to understand, we are facilitating and liberalizing to bring down the rates so we expect the taxpayers also to pay tax. Without using the word draconian, this deterrent action is only against a minuscule percentage of trade and industry who are really bad boys. They are doing evasion of duties by fake invoices. They are taking input credit; they are clandestinely removing the goods. We don't invoke these for classification dispute or valuation dispute. This is not really a penal provision; this provision is to just teach them a lesson. Here there is small lacuna in Section 37 and it has been amended accordingly.

Justice Bharihoke takes over as CESTAT President

JUSTICE Ajit Bharihoke has taken over as the new President of the CESTAT, on Monday. TIOL wishes the illustrious President all the best in this challenging job. We hope for better days for the Tribunal.

Lifting of Ban on Export of Cotton – CBEC Instructions

THE CBEC informs the field that DGFT has lifted the ban on export of cotton and now the export of Cotton is free subject to the condition “prior registration of Contract with DGFT”.

Considering the sensitivity of the issue, the Board desires that the field formations should strictly monitor the conditions imposed by DGFT with immediate effect.

CBEC Circular No. 08/2012-Customs, dated March 13, 2012

CBI Files Charge sheet Against CE Commissioner

CBI has filed a charge sheet against Dr. Anup Kumar Srivastava, then Commissioner, Central Excise, Delhi-I; Lallan Ojha, Superintendent, Central Excise; Hemant Gandhi, a middleman; Dilip Aggarwal, a private person and Anand Aggarwal, a private person. The Charge is that the Commissioner & Superintendent, along with the middleman (Private person) hatched a conspiracy among themselves to get an illegal raid conducted on the premises at Rama Road in Karol Bagh, New Delhi of a mobile phone importer, with a view to extract illegal gratification. As a result, the Superintendent led the said raid and settled for a bribe of Rs. 60 lakhs. The mobile operator & his partner allegedly paid Rs. 40 Lakhs to the Superintendent of Central Excise, which was collected by the middleman including a cheque of Rs. 20 lakhs for the balance amount.

No Bail for former DRI Boss

A CBI Court in Chennai, yesterday dismissed the bail petition of C. Rajan, DRI ADG (is it former? The DRI website still shows him as ADG, Chennai). Rajan's driver Murugesan was also denied bail. The CBI's plea was that Rajan was an influential person and if he was enlarged on bail, his subordinates might not give evidence against him. It seems CBI has found that the DRI officials have demanded and received bribes in other cases also.

These days, it is a one-way ticket to jail - going in is very easy, but coming out is almost impossible.

No Printed Budget Bulletins from CBEC This Year

THE Commissioner in the Directorate of Publicity and Public Relations in CBEC has informed all the Chief Commissioners and Commissioners that the Directorate will not be printing and circulating Budget Bulletins for Union Budget 2012. This is based on a letter from TRU JS who informed her that as the entire budget is made available on the Internet immediately after its presentation, it has been decided to dispense with the practice of printing Budget Bulletins.

We must be grateful to Board for saving a few acres of forestland.

DPPR F. No.-DP/Press/13/2007 dated March 13, 2012 and JS, TRU Letter in F. No. 334/1/2012-TRU dated March 05, 2012

Budget 2012 With TIOL

THE Budget is to be presented on 16 March. We will analyse every tax bit of the budget incisively.

Please send us your comments on the Budget as soon as you can. Share your Budget reactions through TIOL.

Jurisprudentiol – Thursday's cases

Central Excise

There is no provision whatsoever under law to exclude warranty charges from retail sale price - Pre-deposit ordered of nearly Rs.2 crores: CESTAT

MERELY because the inclusive part of the definition describes certain elements to be included in the retail sale price, it does not mean that whatever is not specifically stated therein cannot be included in the retail sale price - there is no provision whatsoever under the law to exclude warranty charges from the retail sale price.

Income Tax

Whether leasehold right in a property is akin to capital asset, and thus consideration received on surrender of such rights attracts provisions of Sec 50C- NO, rules ITAT

THE issues before the Bench are - Whether leasehold right in a property is akin to capital asset, and thus the consideration received on surrender of such rights attracts provisions of Sec 50C; Whether merely because assessee is a party to the tripartite agreement signed on sale of the property, the receipt received by the assessee-tenant is attributable to ownership right and whether cost of acquisition of tenancy rights is to be computed by totalling up the rentals paid and the benefits of cost inflation index for computing capital gains tax. And the answer goes against the Revenue.

Service Tax

Construction of civil structure for MTDC and BSNL is prima facie chargeable to Service Tax – Pre-deposit ordered: CESTAT

SERVICE rendered to MHADA, is a construction of buildings under re-development scheme of the State Government wherein funds were shared by Central and State Government for the welfare of the poor people for their rehabilitation. Therefore, prima facie, this service does not come under ‘construction service' as defined under the Finance Act, 1994. With regard to the construction of civil structure on behalf of MTDC, the said structure has been constructed for development of that area for tourism purposes and tourism itself is an industry. Therefore, prima facie, the said civil construction comes under the category of ‘Construction Service'.

See our columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

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