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CBEC doesn't know under what Section Service Tax is Levied!

DDT in Limca Book of Records - Third Time in a rowTIOL-DDT 2644
20 07 2015
Monday

ON Friday the Government issued three most complicated notifications, two of which mentioned a condition,

If the said excisable goods are manufactured from inputs or capital goods or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid...

Section 66 of the Finance Act, 1994, was removed from the statute on 1.7.2012, by Finance Act 2012. Now Service Tax is levied under Section 66B of the Finance Act. Maybe Board doesn't have an updated copy of the Act! This is not the first time they have committed this mistake.

In fact in 2012 itself, they committed a huge blunder by not incorporating this 66B in Section 68, thereby jeopardising the entire levy of Service Tax. DDT 1880 15.06.2012, carried a headline - No Service Tax from 1.7.2012? We carried it on a Friday, which sent shock waves in North Block and on the same day, the Board issued a ‘Removal of Difficulty Order' amending Section 68. And on 18.06.2012, Monday, DDT 1881 wrote that this order was illegal. As the Revenue always has the retrospective legislation weapon with them, in the 2013 Finance Act, they rectified the lapse retrospectively. Actually I had called up the top Revenue Officer at that time before writing that Service Tax was not leviable from 1.7.2012 - he took it very casually and said, "we will issue a difficulty removal order" - only when DDT carried the news, the jitters started. If the ‘Removal of Difficulty' order was right and enough, what was the need to amend the Act retrospectively?

After three years, the Board is still not aware of Section 66B and issues a notification stating that Service Tax is levied under Section 66. Now, they will coolly issue a revised notification and say that is the right notification.

We have been requesting them to clarify on the education cess credit lying in balance and there is deafening silence from them, but they rush in with such notifications.

And the three deadly notifications issued on Friday, read on.

Confusing, Complicated and Controversial Notifications

ON Friday, the Board issued three Central Excise Notifications apparently to correct some earlier mistakes, but ending up making more mistakes and creating confusion and possible litigation. The tabulation below shows the changes that the trio "deadly Friday" notifications seek to make on manufacturers who were till now basking under exemption or concessional rates of CE duty.

Existing
Amendment

Notification 30/2004-CE: This is an exemption for certain textile articles

Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs has been taken under the provisions of the CENVAT Credit Rules, 2002 Provided that the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004.".

Notification 1/2011-CE; This notification prescribes an effective rate of 2% duty on certain goods

Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004.

Provided that the said excisable goods are manufactured from inputs or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004." .

Notification 12/2012-CE condition 16: This is an exemption for certain goods either wholly or partly - steel, Aluminium, Tablet Computer, Mobile handsets

If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 has been taken in respect of the inputs or capital goods used in the manufacture of these goods .

If the said excisable goods are manufactured from inputs or capital goods on which appropriate duty of excise leviable under the First Schedule to the (where is Central?) Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods has been taken by the manufacturer of such goods (and not the buyer of such goods) under rule 3 or rule 13 of the CENVAT Credit Rules, 2004.";

Notification 12/2012-CE condition 20 Clause (a): This is an exemption for certain goods - copper

(a) no credit of duty paid on inputs under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 has been taken; the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004;";

Notification 12/2012-CE condition 25: This is an exemption for certain goods - fertilisers, goldsmith wares

If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004, has been taken in respect of the inputs or input services used in the manufacture of these goods. If the said excisable goods are manufactured from inputs or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004." ;

Notification 12/2012-CE condition 52A: This is an exemption for certain goods - bunker fuels, solar water heater,

If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004, has been taken in respect of the inputs or input service or capital goods used in the manufacture of these goods. If the said excisable goods are manufactured from inputs or capital goods or by utilising input services on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) or service tax under section 66 of the Finance Act, 1994 (32 of 1994) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods or service tax on input services has been taken by the manufacturer of such goods (and not the buyer of such goods), under rule 3 or rule 13 of the CENVAT Credit Rules, 2004.".

The core idea in these amendments seems to be -

+ Insist that the inputs/capital goods which are used for manufacture of excisable goods on which the manufacturer seeks to claim Nil rate of duty or 2% duty or any other concessional rate of duty under the amended notifications should be such on which "appropriate duty has been paid", be it Central Excise duty or the Additional duty of Customs;

+ Insist that the input services which are utilized for manufacture of excisable goods on which the manufacturer seeks to claim Nil rate of duty or 2% duty or any other concessional rate of duty under the amended notifications should be such on which "appropriate service tax has been paid".

+ That the manufacturers claiming the exemption notification 30/2004-CE, 1/2011-CE or 12/2012-CE [condition numbers 16, 20(a), 25, 52A] in respect of these excisable goods should NOT avail CENVAT credit of duty/tax paid on inputs, capital goods, input services.

+ Clarification is provided that the non-availment of CENVAT credit condition is in respect of the manufacturers of these excisable goods and NOT THE BUYERS of such goods.

The said amendments are going to topsy-turvy the business projections of a large and diverse section of manufacturers belonging to the following trade - readymade garments, Mobile phone, Notebooks, Spectacles, Calculators, Water filters, Sauces and ketchups, Bicycles, etc.

How could the Government do this and put to naught their much publicized "Make in India" campaign?

Till the other day, if the manufacturer did not avail CENVAT credit of the duty paid on inputs/capital goods and input services, either under Rule 3 or Rule 13 of the CCR, 2004 that was enough.

There was no requirement that the inputs/capital goods and input services were duty/tax paid - no evidence was to be produced. Obviously, everything purchased from the market is deemed to be duty paid, goes the adage.

Now, these manufacturers would be required to be in possession of duty paid invoices and tax paid invoices even though the fact remains that they would not be claiming ANY CENVAT credit.

Even if the amendments do not say so in EXPLICIT terms but the fact of the matter is THIS is the REALITY. At least the AUDIT groups would be a happy lot, CERA included.

The Apex Court in the case of Dhiren Chemical Industries 2002-TIOL-83-SC-CX-CB held -

6. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification.

7. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material the notification will not apply.

8. The notification is intended to give relief against the cascading of excise duty - on the raw material and again on the goods made therefrom. There is no cascading effect when no excise duty is payable upon the raw material and the hardship that the notification seeks to alleviate does not arise.

The Central government probably remembered this ruling after nearly a decade (counting from the notification 30/2004-CE) and has put it to cataclysmic use.

Now, these manufacturers would be either required to get hold of suppliers/service providers who pay duty/tax and if unsuccessful forego the benefit of these exemption notifications.

Welcome Make in India.

But, then, anything sourced from the open market is "deemed to be duty paid" - Agreed, but you need to be in possession of the duty/tax paying documents even though you will not be availing any CENVAT credit.

The Larger Bench of the Tribunal in the case of Arvind Products Ltd., Vishal Fabrics & 2 Others - (2014-TIOL-2524-CESTAT-AHM-LB) had held thus -

CE - Apparent conflict between Condition-3 & Explanation-II of Notf.No.14/2002-CE has to be resolved by adopting a harmonious construction & understanding the intention of the legislature - if the views of the Revenue are accepted then it will lead to chaos and absurdity - fabric received for processing has to be considered as 'deemed duty paid' & actual duty payment nature is not to be established: LB CESTAT.

Nonetheless, the fact remains that in the said notification there existed an Explanation II which read -

Explanation -II - For the purposes of the conditions specified below, textile yarns or fabrics shall be deemed to have been duty paid even without production of documents evidencing payment of duty thereon.

No such explanation lurks in the subject notifications sought to be amended by the deadly trio.

All said and done, the condition imposed is nothing short of Mission Impossible for these manufacturers. And mind you, this notification has already come into effect last Friday.

The Government should have at least taken the trouble of issuing a "draft notification" before making the last Friday a BLACK Friday and gauged the reaction from the Trade.

This is what is called the Trade DISCONNECT.

By the way, the clarification that the non-availment of CENVAT credit condition is for the manufacturer and NOT THE BUYER is what has left us PERPLEXED. Probably it was an ingenious CERA objection!

Perhaps the apt route the Board should have taken is to at least come out with a CIRCULAR explaining the notifications issued on BLACK FRIDAY.

Or has that already been issued but not yet publicized?

Notification No.34/2015-Central Excise, Dated: July 17, 2015, Notification No.35/2015-Central Excise, Dated: July 17, 2015 and Notification No.36/2015-Central Excise, Dated: July 17, 2015

Confusion Worse Confounded?

LOOK at these Conditions in the first notification 34/2015-CE.

Provided that the said excisable goods are manufactured from inputs on which appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of the CENVAT Credit Rules, 2004.".

So, the conditions are, at the cost of repetition:

1. Inputs should be duty paid

2. No credit can be taken on the duty paid on these inputs, and

3. The Credit should not be taken by the manufacturer - not the buyer.

This is an amendment to Notification No. 30/2004-CE, which grants full exemption to certain goods in the textile industry. When full exemption is given the very condition that no credit should be taken is unnecessary, if the final products are exempted, there is no question of taking credit on the inputs. But now they want the inputs to be duty paid. Should all the inputs be duty paid or only the major input? Who will decide that? Are they virtually denying the exemption by insisting on duty payment for inputs? And what is this clarification that the credit should not be taken by the manufacturer and not the buyer? When the goods are exempted, where is the question of the buyer taking credit?

Excise Tariff or Central Excise Tariff?

In the Notifications in two places it is mentioned, First Schedule to the Central Excise Tariff Act and in four places it is First Schedule to the Excise Tariff Act - the ‘central' is missing.

Is the Act, the Central Excise Tariff Act or simply the Excise Tariff Act. You should be sure of your Act.

Customs Clearance thru Mobile Phone

US Customs and Border Protection (CBP) has a Mobile Passport Control (MPC) system in select airports, San Francisco International Airport is the latest to join.

Eligible travellers with a smartphone or tablet can download the Mobile Passport Control app from the Apple App Store or Google Play Store. Travellers will be prompted to create a profile via the app with their passport information. The profile includes the traveller's name, gender, date of birth, and country of citizenship. Upon landing in the United States, travellers will complete the "New Trip" section by selecting their arrival airport and airline, taking a self-photo, and answering a series of custom declaration questions. Once the traveller submits their customs declaration form through the app, the traveller will receive an electronic receipt with an Encrypted Quick Response (QR) code. This receipt will expire four hours after being issued. Travellers then bring their passport and mobile device with their digital bar-coded receipt to a CBP officer to finalize their inspection for entry into the United States.

The MPC app enables a traveller or family group to pre-position their biographic information prior to speaking with a CBP officer. The CBP officer is then able to focus on identity verification, admissibility and questioning to determine purpose and intent of travel. This process will ultimately reduce the traveller's time spent with the CBP officer—helping to improve service levels and decrease wait times.

I think this DDT is getting too long,

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in