TIOL-DDT 2023
14.01.2013
Monday  

ONE sunny day, the assessee is visited by some Central Excise officers. He is first given a lecture on etiquettes - that is he should have made a trip to the Central Excise office and ¶paid¶ his respect to his jurisdictional officers. Not having done that, the officers were required to trudge all the way to his factory and that would cost him MORE.

Not to be intimidated by such ¶paid respects¶, the assessee informs the ¶bank¶ [CBI] who co-ordinate with the assessee and a trap is laid - the hunter becomes the hunted!

High on seeking badla , a case is booked against the assessee and the demand runs - should we say, gallops - into crores. Not ready to take things lying down, the assessee files a Writ petition before the High Court. He says it is plain revenge.

In the meantime, the demand is confirmed and another SCN traipses in. A couple of Writ Petitions against this too! The assessee says that the demand is ¶imaginary¶ - no such ¶excisable goods¶ saw birth in his factory and it is wishful thinking on the part of the department. Proof in the form of photographs of the machinery and the flow chart of the manufacturing process and the report of the experts... Probably, the officers never took a round in the factory but visited only the Managing Director's office…

Anyways, there was never a Central Excise issue involved - it was only a personnel issue - personnel getting caught!

By the way, on the subject matter (read excisability) one of our guest columnists had many years ago narrated this in his piece - ¶A steal for Rs.2.95!¶

¶…This blended cut tobacco is fed into the cigarette making machine, which is a complex machinery boasting a multitude of ancillary functions like: -

1. Un-spooling the cigarette paper spool;

2. the cigarette paper is printed with the logo of the company, a written word being the brand name, and on occasions with the name of the manufacturer written sideways, black or golden yellow in colour;

3. the cigarette paper after printing is simultaneously fed with the cut tobacco and immediately gets converted into a cylinder - a running tube with cut tobacco filled in it by sealing alongside with glue;

4. this laden tube is cut with a fast revolving blades into running lengths of specific size depending upon the intended cigarette length;

5. It then moves onto another roller which is being fed with cigarette filter rods (chapter 56) each 66 mm in length cut into filters of 22 mm which is placed on the roller to which two pieces of the cut tobacco filled tubes are placed on either side and then simultaneously covered and glued by the filter covering paper/wrapper - golden yellow, brown, dotted or white in colour, and finally halved on the filter portion into two cigarette sticks, one facing the other; (Way back in early ‘80's, while prescribing the effective rate of duty, it was mandatory that the cigarette filter should have a minimum length of 11 mm, nowadays the tariff entry itself prescribes this.)

6. these processes are too quick to be noticed by the naked unless the machine breaks down and you can see the cigarette in various stages of un-dressing;

7. These cigarettes are moved in trolleys to a drying room if required and then carried to the packing/production section, where they will be dressed up into a packet;

8. The packing machine is another beautiful example of harmony, we have the conventional ¶shell and slide¶ pack and the premium brands are clothed in a flamboyant manner in a ¶hinge lid pack¶ (HLP), you have soft cup labels too;

9. First - the shell and slide pack (the department sought duty on the ¶conjugal bliss¶ acquired by the shell and slide by alleging that a box classifiable under heading 4819.12 of the CETA'85 came in to being. Fortunately, the conjugal bliss was a long lived one for the Madras High Court in the case of Asia Tobacco Co. Ltd. v. U.O.I. (2003-TIOL-108-HC-MAD-CX) and again in the case of the very same company Asia Tobacco Co. Ltd. vs. A.C, C.Ex, (2003-TIOL-109-HC-MAD-CX) held that what comes into being is not a mere ¶packet/box/carton¶ consisting of a shell and a slide but a ¶CIGARETTE PACKET containing ten cigarettes¶. A look at the said manufacturing process would reveal that cigarettes, 10 or 20 in number are first placed mechanically on an embossed paper backed aluminium foil cut into a specific length by the machine leaving a portion of the foil for being folded upwards to keep a part of the cigarettes exposed, (note that embossing is done on the machine itself on the plain paper backed aluminium foil while being un-spooled), the exposed portion is then covered with another cut piece of embossed paper backed aluminium foil and this in turn is placed on the open slide, which then slides into the opened shell and what is ultimately formed is a ¶packet containing ten cigarettes¶ wrapped in embossed paper backed Aluminium foil. Had someone studied the manufacturing process and then proceeded to issue demand notices this exercise in futility could have been avoided . Although, Board Circular 11/89 dated 30.03.1989 in the context of ¶plastic milk pouches¶ and ¶tea packets¶ clarified that these were not chargeable to duty, no one bothered to apply the same logic here. Also refer the case of Milk Plant, 1995(79)ELT 315(Tri) wherein a similar view was taken.¶

For more on the CBI trap and Vendetta, look out for the Delhi High Court decision that we would be reporting tomorrow…some days ago, it was ¶Sex orgies, contraceptives, tomato ketchup, blow dryer & Tax Evasion¶!

CBEC's Draconian Circular -Target Oriented Scheme - Likely to be Withdrawn After 31.03.2013

CBEC's draconian Circular No.967/01/2013-CX dated 01.01.2013 has evoked all round resentment and has sent a chill down the spines of assessees. There is a mad scramble to catch hold of the first available lawyer to rush to the jurisdictional High Court to get a stay.

It appears the whole exercise by the Board is simply to boost up the revenue in the last three months of the Financial Year and after 1st April 2013, by which date they hope to hit their target and satisfy the FM, the Circular would perhaps be given a decent burial. Grin and bear it till 31st March.

Why not a mandatory 20% pre-deposit for appeal to CESTAT?

THERE was a proposal to amend the statute to provide for a mandatory pre-deposit of 20% of the duty demanded for appealing to the Tribunal. The logic behind 20% is that the success rate of Government in Tribunal is about 20% and if 20% of duty is collected from all appellants, Government revenue is protected. Once this is statutorily provided for, there would be no need for any stay applications before CESTAT and Tribunal can concentrate on the serious business of deciding appeals and cases need not wait for six to seven years to be decided. All a very cosy situation? Not really - for the lawyers and consultants. Now the major part of the work for any lawyer is getting the stay - with no or least possible pre-deposit - after that, the assessees are safe for about five years. We cannot have any law that will virtually cause huge unemployment among lawyers - so, this proposal seems to have been nipped in the bud.

Fiat Case - No Amendment to Law

IN Commissioner of Central Excise vs Fiat India pvt Ltd - 2012-TIOL-58-SC-CX , the Supreme Court had held that if the goods are sold below the cost price, that price is not the transaction value and value had to be determined. The review petition filed by the party was dismissed. [2012-TIOL-110-SC-CX].

Even the Government knows that this was not their intention in bringing in the concept of ‘transaction value'. There is a strong demand to amend the law to undo the Supreme Court verdict, if not retrospectively, at least prospectively. All the Government experts on valuation are convinced that the issue needs to be legislatively clarified - but there is a view at the top that a beneficial order to Revenue from the Apex Court, even if it is against their own view, should not be thrown out. So, most probably there would be no amendment to the Law. We will have to wait till the Supreme Court is convinced that this order needs a review.

FTP - Export of Pharmaceutical Grade Sugar - No registration with DGFT

GOVERNMENT has amended Notification No. 117 (RE-2010)/2009-2014 dated 14.05.2012, to stipulate that Export of Pharmaceutical Grade Sugar [(i) Sucrose IP/BP/EP/USP/JP and (ii) Sucrose AR &LR] and Specialty Sugar [(i) Sugar cubes (ii) Sugar sachets (white & brown) (iii) Castor sugar (iv) Demerara sugar (v) Light brown sugar (vi) Icing sugar (vii) Fondant icing sugar (viii) Kathali sugar (ix) Candy sugar (x) Rainbow sugar (xi) Pearl sugar and (xii) Trimoline (invert sugar)] would not be subject to registration requirement .Every other type of sugar would continue to be subject to registration with DGFT before export.

DGFT Notification No. 29/(RE - 2012)/2009-2014, Dated: January 11, 2013

Jurisprudentiol – Tuesday's cases

Central Excise

Whole basis of the impugned show cause notice and the adjudication order is that the petitioner manufactures blank CDs/DVDs at an intermediate stage - When this assumption is nothing but a mere ipse dixit on the part of the revenue, without any foundation, the show cause notice as well as the adjudication order do not have any legs to stand on and are quashed - Writ Petitions allowed: High Court

IT is absolutely clear that at no point of time in the manufacturing process employed by the petitioner, does a blank CD/DVD come into existence. The very first test of manufacture is not satisfied in the present case. When no such product comes into existence at all, then, obviously, the second test of marketability cannot also be satisfied. Consequently, no excise duty can be demanded from the petitioner for blank CDs/DVDs. The entire show-cause notice as also the adjudication order is, therefore, without any substance

Income Tax

Whether transfer of leasehold rights attracts application of provisions of section 50C - YES: ITAT

ASSESSEE had taken a plot of land on lease from Maharashtra Industrial Development Corporation (MIDC) in the year 1967 for a lease of 95 years commencing from 1st January, 1967. Assessee had also paid premium to MIDC as per their rules prevalent at that time. In the previous year 2007-08 assessee entered into a MOU for transfer of part of the said land on 9th April 2007, received an advance of Rs.30lacs and applied to MIDC for their consent. MIDC gave their consent on 25/1/2008 for two different plots sub divided from the original one and accordingly the transfer of the lease was affected by agreement dated 7th March, 2008. At the time of entering into MOU an advance of Rs.30lacs was obtained by assessee and subsequently the two plots together with Building thereon were transferred for a total sum of Rs.2,01,57,606. Assessee worked out capital gain of Rs.1,60,38,687 after deducting the value of building at Rs.14,30,220/- and the market value as on 1/4/1981 increased by indexation cost to Rs.26,88,699. The AO applied Sec. 50C of the Income tax Act and considered the market value of the plot of land at Rs.2,39,91,000 and considered this as long term capital gain for the purpose of computation of income. While taking this view the AO did not allow any cost as deduction and also did not exclude the value of building standing on the plots of land which was valued at Rs.14,30,220 and adjusted in the block of assets while computing depreciation under the Income tax.

Service Tax

While framing charges adjudicating authority has not specified specifically under which part of the IPR definition the applicant is covered - demand of Rs.18 Crores not sustainable - Prima facie case in favour - pre-deposit waived and stay granted: CESTAT

THE appellant is a manufacturer of Ion exchange resins. M/s Purolite International Ltd. filed a suit in the USA court and the applicant was charged with using the trade secret of M/s Purolite International Ltd. Court proceedings were initiated against the applicant.Not to escalate the matter further and be saddled with damages of astronomical proportions, the applicant entered into an agreement with M/s Purolite International Ltd., to settle the dispute out of court. As per the settlement, they paid consideration for the use of trade secret and became the co-owner of the Purolite's technology and information transferred by ShriNarender Singh to the applicant.

Revenue found this ¶out of court settlement¶ and took a view that the consideration paid by the applicant to Purolite is covered under Intellectual Property Service under reverse charge mechanism and, therefore, the applicant is liable to pay service tax on the entire consideration.

Proceedings were initiated and this resulted in a confirmation of demand of Service tax of Rs.18,05,50,717/- along with imposition of equivalent amount of penalty under section 78 of the FA, 1994 by the CCE, Pune I .

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day

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