TIOL-DDT 2204
07.10.2013
Monday

AS we all know, Notification 67/95-CE exempts goods captively consumed within the factory in the manufacture of dutiable goods. Now when goods are cleared to SEZ units, no duty is paid. Does this mean that the manufacturer has to pay duty on the captive consumption as he is ineligible for the benefit of 67/95?

In a recent RAC meeting an assessee raised a query, the substance of which is: They are manufacturers of bulk drugs during the manufacture of which two intermediary dutiable products emerge. When they clear the final products for home consumption, the intermediary products are exempted under Notification No. 67/95 dated 16.03.1995. But when they clear the final products to an SEZ, the department is demanding duty on the intermediary products. Supplying to SEZ has become a liability.

Clarification: The Chief Commissioner informed that the duty of excise is exempted on the excisable goods manufactured and consumed captively within the factory of production of manufacture when duty of excise is discharged on the final products, as per the provisions of Notification No. 67/95 CE dated 16.03.1995. However, when final products are cleared

i. to a unit in FTZ or

ii. to a 100% EOU or

iii. to a unit in EHTP or

iv. to a unit in STPI or

v. under Notification No. 108/95 CE dated 28.08.1995 or

vi. by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in Rule 6 of the CENVAT Credit Rules, 2004

no duty of excise is payable on the goods captively consumed even though final products are cleared without payment of duty. The clearances for which the benefit of captive consumption is extended, does not include the clearances made to SEZ units. So, from this view point, duty is required to be paid. On the other hand it would appear that in the light of Rule 6(6 )(i) of Cenvat Credit Rules 2004, there is no obligation under Rule 6 for clearances to SEZ. Therefore the Chief Commissioner informed that Accountant General Audit has also raised objection on this issue and the department has contested the objection. As a result Show Cause Notices are transferred to call book.

They don't collect duty when goods are cleared to SEZ units - not because the goods are exempted, but because the goods are treated as exports. When that is the position, what is the problem in allowing the benefit of Notification No. 67/95? Is this the way the Government wants to encourage the SEZ scheme? Isn't the Government supposed to encourage clearances to SEZ instead of punishing those who do?

This is not an isolated case. The Department is spreading it fast throughout the country. In the Monthly Audit Bulletin for June 2013 circulated by CBEC's DG, Audit, the following objection was circulated:

Irregular availment of benefit of Notification No.67/95 - CE dated 1.3.1995, on clinker used as input in the manufacture of cement cleared without payment of duty to a unit in Special Economic Zone: The assessee is manufacturers of PPC Cement, OPC Cement and Clinker, falling under Chapter sub-heading Nos. 25232930, 25232910 and 25231000. During the course of audit it was observed that during the period from October 2011 to October 2012, the assessee cleared 2735 MTs of cement to M/s. Dr.Reddy's Lab, a unit in Special Economic Zone, without payment of Central Excise duty, under Rule 30 of SEZ Rules, 2006. Clinker used captively in the production of cement is exempted vide Notification No.67/1995 dated 16.03.1995 subject to the condition that final product is not exempted. This condition is relaxed in respect of clearance of final product to a 100% EOU, a unit in Software Technology Park, Electronic Hardware Technology Park and supplies made under Notification No.108/95, dated 28.08.1995 or by a manufacturer of dutiable and exempted final products after discharging the obligation in Rule 6 of the CENVAT Credit Rules, 2004. The audit pointed out that clearance of cement by the assessee to a SEZ is not covered under the aforesaid condition. Hence, Central Excise duty of Rs.7,04,352/- is payable on 2543.55 MTs of clinker used captively in the manufacture of cement cleared to a unit in a SEZ.

So, now all Commissionerates are required to instigate Show Cause Notices in such cases. In this very case of clinker, the CESTAT had given total waiver of pre-deposit in these cases.

1. 2011-TIOL-886-CESTAT-MAD

2. 2010-TIOL-970-CESTAT-MAD

3. 2009-TIOL-1545-CESTAT-MAD

In Sujana Metal Products case 2011-TIOL-1173-CESTAT-BANG, the Tribunal had held that in view of the overriding effect of Section 51 of the SEZ Act, the supplies made by DTA units to SEZ units will amount to export for the purpose of all export benefits.

Very recently in the Reliance Ports case - 2013-TIOL-1473-CESTAT-AHM, Tribunal in a Service Tax case held, " Sec. 51 of the SEZ Act also makes an over-riding provision that SEZ Act shall have effect even if there is anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any other law"

DDT 2019 08.01.2013 had covered this issue in detail.

Please also see Notifications 67/95-CE and 214/86-CE : A drain on exchequer?

SIONs Suspended

DGFT has suspended the following SIONs:

(i) SION- A 1143 - Phosphorous Trichloride

(ii) SION- A 1170 - Soda Ash

(iii) SION- A 3627 - Glass Vials, phials etc.

(iv) SION- K 134 - Glass Mosaics

DGFT Public Notice No. 30 (RE: 2013)/2009-2014, Dated: October 04, 2013

Exemption to Excisable Goods supplied to Government Departments

GOVERNMENT has exempted the following goods

(a) Scientific and technical instruments, apparatus, equipment(including computers);

(b) Accessories and spare parts of goods specified in (a) above and consumables;

(c) Computer software, Compact Disc-Read Only Memory(CD-ROM), recorded magnetic tapes, microfilms, microfiches;

(d) Prototypes

from the whole of excise duty, when supplied to Departments and laboratories of the Central Government and State Governments, other than a hospital, subject to the conditions that:

(i) The manufacturer produces at the time of clearance, a certificate from the head of the institution in each case, certifying that the said goods are required for research purpose only.

(ii) The aggregate value of prototypes received by an institution does not exceed fifty thousand rupees in a financial year.

This notification is certain to be embroiled in controversy in the days to come. "Laboratories' is understandable as far as "research" is concerned. But obtaining a certificate of "research" being conducted in "Departments" is going to be a tall task. And shouldn't "head" in relation to a "Department" be defined. The existing notification 10/97-CE (which has been amended now) mentions that in relation to an institution, the Director thereof (by whatever name called) is the "Head". And shouldn't there be any stipulation that the goods shall not be transferred or sold by the Department/laboratory for a period of five years from the date of installation, as stipulated for a ‘Research Institution'. By the way, computers and the like supplied to Government departments would also be eligible for exemption as they are used in "research" - after all, generating those tons of mindboggling statistics is also "research'. Need for "defining" research!

Notification No. 28/2013-Central Excise, Dated: October 01, 2013

Service Tax - 'Commercial training or coaching' - Education taxable irrespective of nomenclature or description of institute or establishment: Revenue wins big case with CESTAT LB

IT is a mega win for the Revenue. The Larger Bench of the Tribunal has emphatically held that the taxable service of "commercial training or coaching" occurs when any institute or establishment is engaged in the activity of imparting skill, knowledge or lessons on any subject or field (excluding sports), irrespective of whether such imparting of skill, knowledge or lessons is in respect of particular discipline or a broad spectrum of disciplines/ academic areas; irrespective of the nomenclature or description of the institute or establishment, as a coaching or training centre or an educational institution; regardless of whether an institute or establishment is incorporated by or registered under any law; and irrespective of distinctions on the basis of curriculum, course content, teaching methodology, course duration or otherwise.

Please wait till tomorrow for this vital order.

Don't Come drunk - to office - If you are loose, you lose your job

A clerk in a Central School barged into the Principal's room in a fully drunken state. The Principal called in the police and got him medically examined when it was confirmed that he was drunk. The clerk was removed from service against which he appealed to the CAT, which dismissed his application. On Friday, the Supreme Court confirmed the removal observing that Courts should not be guided by misplaced sympathy or continuity ground, as a factor in judicial review while examining the quantum of punishment.

An assessee told me of an interesting episode. He had gone to meet an Additional Commissioner. The peon or whoever was manning the door to the office was awfully drunk and demanded money from the assessee. He was furious and told the man that he was going to complain to the Additional Commissioner. When he went inside, he found that the Additional Commissioner was equally drunk!

Jurisprudentiol - Tuesday's cases

Customs

Import of goods declared as stock lot of colour picture tubes - wrong tariff entry - whether mis-declaration - matter referred to Third Member: CESTAT

REVENUE entertained a view that description of the goods in the invoice is not correct as also the classification of the same under heading 8540 4000 is not correct. The goods are properly classifiable under heading 8540 0090 and chargeable to customs duty at the rate of 12.5%. Accordingly, the matter was taken up for adjudication by the Additional Commissioner of Customs, who observed that inasmuch as the wrong classification was claimed by the importer and the goods were not stock lot and were new goods as observed by the Deputy Commissioner, the same were also undervalued. He accordingly, enhanced the value of the goods on the basis of NIDB data. Accordingly, vide his order, he confiscated the goods with an option to the appellant to redeem the same on payment of redemption fine of Rs.3 lakhs and penalty of Rs.1.50 lakhs was also imposed upon the importer without any reference to the section of Customs Act under which such penalty was being imposed.

Income Tax

Whether it is imperative that in order to fall under residuary clause 'general public utility', charitable institution has to be funded by voluntary contributions - NO: Delhi HC

ASSESSEE is a 'Not-for-Profit' Society promoted by the Ministry of Commerce and Indian Industry, duly registered under the Societies Registration Act, 1860. It was registered as a charitable society in the year 1996 under the residuary clause of Section 2(15). It had prayed for quashing of the order passed by DGIT(E) denying them registration u/s 10(23C)(iv) and for issue of mandamus directing that registration/approval under the said Section should be granted. Department had not disputed the identity of the petitioner society founded and promoted by Department of Commerce, Ministry of Commerce and Industry, Government of India. The issues before the Bench are - Whether in order to discern whether an activity is business, trade or commerce, profit motive is determinative and a critical factor; Whether when the propelling motive of a concern is 'general public good', it can be said it is working for profit; Whether in case an assessee carries on charitable activity under the residuary head 'general public utility', it would be considered as business; Whether it is imperative that in order to fall under the residuary clause 'general public utility', a charitable institution has to be funded by voluntary contributions; Whether in case of charitable institutions, accumulation of funds is for business purposes only and Whether activity performed with the object of providing services to trade, commerce or business can be considered as of charitable nature. And the assessee's writ is allowed.

Service Tax

"Commercial training or coaching" - Education taxable irrespective of nomenclature or description of institute or establishment: CESTAT LB

A Division Bench of the Tribunal has referred for consideration of a Larger Bench, the issue pertaining to interpretation of "Commercial Training or Coaching", taxable service specified in Section 65(105) (zzc) of the Finance Act, 1994 (the Act). Section 65(26) defines the expression "Commercial Training or Coaching"; and Section 65 (27), the expression "Commercial Training or Coaching Centre". By Finance Act, 2010 an "Explanation" was appended to Section 65(105) (zzc), with effect from 1.7.2003.

The Division Bench prima facie doubted the vitality of reasons recorded in the decision in Magnus Society vs. C.C. & C.E., Hyderabad - (2008-TIOL-1812-CESTAT-BANG), which tried to mark a distinction between activities of an institution imparting a particular skill such as in computers, computer operations, spoken English or accountancy on the one hand and a proper format of education imparted by institutions imparting "higher learning" such as MBA, management, computer science and such other disciplines; and concluded that institutions imparting higher learning like MBA etc. cannot be characterized as commercial training or coaching centres; that institutions preparing students for entrance examination to various universities could be called commercial training or coaching centre; but not so institutions recognized by law.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

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