TIOL-DDT 2103
13.05.2013
Monday

THIS issue is a classic example of how Revenue wastes its own time and that of the courts and causes precious loss of time, money and peace to the assessees - for no good reason.

It is the declared policy of the Government that clearances to SEZ are not dutiable, as SEZs are treated as foreign territory and clearances to them are as good as exports. There was a time when cases were booked by DRI and DGCEI for the same clearances, once under the Customs and again under Central Excise.

As per Rule 6(6) of the CENVAT Credit Rules, 2004, the provisions of sub-rule (1), (2), (3) and (4) were not applicable in case the excisable goods removed without payment of duty (1) cleared to a unit in SEZ. [Exempted and dutiable goods - obligations]

This was amended by Notification No. 50/2008 - CENT dated 31.12.2008 to stipulate that these provisions will not apply to goods cleared to a unit in SEZ or to a developer of SEZ for their authorized operations. [ Developer was added]

So, the confusion about clearances to SEZ developers was sought to be put to an end. But things don't end like that in Revenue. Board by a private letter in F.No.267/52/2008-CX dated 7/1/2009, clarified that the amendment was prospective and would be applicable only from the date of the notification. So, the period prior to 31 st December 2008, was a happy issue for dispute. (any good reason to deny the benefit for the period prior to 31.12.2008?).

Show Cause Notices flew in all directions and dutiful Commissioners confirmed demands merrily.

But the Bangalore Bench of the Tribunal emphatically held that the amendment had retrospective effect in 2011-TIOL-1173-CESTAT-BANG.

Following the Bangalore decision, the Delhi Bench of the Tribunal in 2012-TIOL-740- CESTAT-DEL.

Did the controversy end? Revenue disputes are not allowed to settle that easily. Against the Bangalore Tribunal order, the Revenue took the matter to the AP High Court, where it is pending.

And against the Delhi Bench order, the Revenue appealed to the Chattisgarh High Court at Bilaspur. Three weeks ago, the Chattisgarh High Court gave an emphatic judgement that the amendment was indeed retrospective.

Will the Revenue keep quiet at least now or will they take it to the Supreme Court? Why are they so determined to frustrate the Government policy?

Please see the Chattisgarh High Court order in 2013-TIOL-384-HC-CHATTISGARH-CX

Please also see DDT 1024 , DDT 1066 , and DDT 1690

Rule 6 of CENVAT Credit Rules - Anomaly in rectifying an Anomaly

Karnataka High Court grants Interim Stay against CAG Audit of Service Tax Assessee

THE petitioner, a Service Tax assessee received an intimation from the AG's office proposing to audit their records and to keep ready 18 records for audit. The petitioner challenged this before the Karnataka High Court on the grounds inter alia that:

1. No power has been vested with the Comptroller and Auditor General of India, to conduct audit of companies which are fully privately owned, as is the case of the Petitioner, under Section 94 of the Finance Act, 1994 or under the Rules issued by the Central Government, under this Section.

2. If it is to be held that the Comptroller and Auditor General of India and its wings have rights to audit the ‘receipts' at the hands of the assessees who pay taxes which go into the Consolidated Fund of India, it could lead to an absurd situation wherein, the accounts of all private parties including individuals can be audited by the C & AG, on the basis of the view that the tax paid by these individuals and assessees are to be treated as going into the Consolidated Fund of India.

3. In terms of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971, the AG's officers have no power, authority or jurisdiction whatsoever to audit the records of the Petitioner. Even under the provisions of the Finance Act, 1994, they have no authority or jurisdiction to audit the records of a private company. Even under Rule 5A of the Service Tax Rules, 1994, there is no power conferred to conduct an ‘Audit'. Even otherwise, such a power is ultra vires the Finance Act, 1994, inasmuch as no such power is either contemplated or conferred in the said Act, to enable the Union to frames rules for conduct of an Audit by the AG.

The Karnataka High Court recently, granted an interim stay of the Audit and the matter is posted in July 2013.

Paid vs Payable?

THE uses of word "Payable", in Section 40(a)(ia) of the Act has created controversy as to whether payable includes amounts paid during the year. Special Bench of ITAT in the case of Merilyn Shipping & Transport vs. Addl CIT reported in 2012-TIOL-184-ITAT-VIZAG-SB decided the issue against the Revenue and after comparing the proposed and enacted provision which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid' to ‘payable' has held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. The AP High Court has granted interim stay/suspension of the order of the Special Bench. ( 2012-TIOL-971-HC-AP-IT )

Recently another High Court virtually overruled Merilyn Shipping observing, "we are of the opinion that Section 40(a) (ia) would cover not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT, does not lay down correct law".

We will bring you this case tomorrow.

FAQ on CBEC website - educating without any liability

WE received this mail -

"I recently visited the CBEC website www.cbec.gov.in .

On the LHS panel, there is a section called Frequently Asked Questions (FAQs). As expected, there is a disclaimer which says that the replies to the FAQ is aimed only at creating public awareness and cannot be used for legal or professional purposes. Be that as it may, the first head is Customs and the question is as below -

A great way to start the FAQ in the negative .

As you move further, you find that there are some questions which are repeated along with the answers - for eg. Questions 13 & 20, 10 & 32 and 6 & 29.

Of particular interest is the question number 6 and the answer given thereunder. Interestingly, the first sentence thanking the queryist is missing in the repeat question 29.

I stopped scrolling the page for the rest of the FAQ for fear of getting intaxicated."

DDT requests the Board to look into the FAQ.

Hummer car story - Revenue returns bank guarantee of Rs.20 lakhs

THE issue involved was import of a "Hummer Car". The Bench had inter alia held that the appellant was entitled for the benefit of notification 21/2002-Cus.[ 2013-TIOL-433-CESTAT-MUM ]

Although the appeals were allowed with consequential relief, no such consequential relief came their way. So, the applicant had filed a miscellaneous application seeking release of the bank guarantees of Rs.20 lakhs executed by them while seeking provisional release of the "Hummer".

The Bench noted that the final order was passed on 30.10.2012 in the Open court and as per the Board's Circular no. 802/35/2004-CX dated 8.12.2004, when an issue is decided by the Tribunal in favour of the assessee, Revenue is bound to release the Bank guarantee within 90 days of the said order.

In his reply [see DDT 2078 ] the Commissioner of Customs(Import), NhavaSheva Bank submitted that the Guarantee is the only security towards realizable and legal revenue and without any collateral security the interest of the Revenue would be in jeopardy.

It was also mentioned - "This Commissionerate would be highly obliged if the Hon'ble Tribunal grants us a six months time period for the return of Bank Guarantee. However, if Hon'ble Tribunal gives a contrary decision, we would have the fullest respect for the same and shall abide by the same, in letter and spirit."

The Bench was not impressed and observed that in the interest of justice ten day's time is given to comply with the order and the matter is to come up on the 8th April, 2013. [2013-TIOL-552-CESTAT-MUM]

DDT had promised to keep you posted.

Following is the order of the Bench passed on 08/04/2013 -

"Revenue was directed to cancel and release the bank guarantee executed by ShriInderpal Singh Gujral vide order dated 26/03/2013 [2013-TIOL-552-CESTAT-MUM]

2. When the case was called for compliance today, a letter has been submitted on behalf of the Revenue, which is addressed to ShriInderpal Singh Gujral dated 02/04/2013, wherein it is stated that the bank guarantee has been cancelled and returned.

3. In view of the above, the compliance is noted."

(See 2013-TIOL-723-CESTAT-MUM)

Jurisprudentiol - Tuesday's cases

Service Tax

No need to reverse CENVAT credit taken on inputs and input services used in or in relation to rendering of output services to a unit in SEZ or to a developer of SEZ for their authorized operations: CESTAT

THE appellants are registered with the department under the category of "Consulting Engineers Service". During the course of audit of the records of the appellant, it was observed that the appellant was providing both taxable and exempted service and was not maintaining separate accounts for the CENVAT credit availed. Accordingly, the department was of the view that the appellant was liable to pay an amount equivalent to 8% (6% with effect from July 2009) of the value of the exempted service in respect of such services provided during April 2008 to September 2009. Accordingly, a demand notice of Rs.1.69crores found its way to the office of the consulting engineer and the adjudicating authority did the rest.

Income Tax

High Court reverses ITAT Special Bench decision; rules provisions of Sec 40(a)(ia) cover not only sums, which are payable as on 31st March of a particular year but also which are payable at any time during year.

IN our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. Secondly, the statutory provision is amply clear. In the result, we are of the opinion that Section 40(a) (ia) would cover not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT , does not lay down correct law.

Central Excise

Rebate under Rule 18 when the original and duplicate ARE1s are lost - The procedure under Notification cannot be raised to the level of a mandatory requirement: High Court

THE rebate claims of the Petitions filed under Rule 18 of the Central Excise Rules, 2002 were rejected by the rebate sanctioning authority on the ground that they had failed to submit the original and duplicate copies of the ARE-1 forms. The revisional authority has also held that the submission of the original and duplicate of the ARE-1 forms duly endorsed by the customs authorities establishes the export of duty paid goods and is an essential requirement and upheld the rejection of rebate.

See our Columns Tuesday for the judgements

Until tomorrow with more DDT

Have a nice DAY.

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