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Central Excise Valuation - PDI charges and free After Sale Services charges not to be included in assessable value - Landmark Decision by Supreme Court

DDT in Limca Book of Records - Third Time in a row

16 12 2015

CBEC  in its  circular No. 643/34/2002-CX dated 1-7-2002  had clarified that After Sale Service (ASS) and Pre Delivery Inspection (PDI) charges were liable to be included in the assessable value under Section 4 of the Central Excise Act 1944.

This was the clarification:

What about the cost of after sales service charges and pre delivery inspection (PDI) charges, incurred by the dealer during the warranty period?

Since these services are provided free by the dealer on behalf of the assessee, the cost towards this is included in the dealer's margin (or reimbursed to him). This is one of the considerations for sale of the goods (motor vehicles, consumer items etc.) to the dealer and will therefore be governed by Rule 6 of the Valuation Rules on the same grounds as indicated in respect of Advertisement and Publicity charges. That is, in such cases the after sales service charges and PDI charges will be included in the assessable value.

In  Circular No. 909/29/09-CX dated 11.12.2009, Board directed to transfer all the show cause notices issued on the above subject to call book pending the decision of the larger bench of CESTAT in the case of Maruti Udyog Ltd.

The Larger Bench of CESTAT vide its order dated 13.8.2010 -  2010-TIOL-1127-CESTAT-DEL-LB  has held that Pre-delivery Inspection charges and After-sale Service charges collected by the dealers are to be included in the assessable value under Section 4 of the Central Excise Act, 1944.

So the Board in Circular No. 936/26/2010 -CX, Dated: October 27, 2010 directed the cases pending in the call book to be decided keeping in view the law laid down by the larger bench of CESTAT.

In Tata Motors Ltd. v. Union of India2012-TIOL-721-HC-MUM-CX, the Bombay High Court struck down the Board clarification in Circular No. 643/2002 as illegal and void and contrary to the provisions of Section 4(1)(a) r/w Section 4(3)(d) of the Act.

The Supreme Court yesterday finally settled the issue by holding that Pre Delivery Inspection( PDI) charges and free After Sale Service (ASS) charges would not be included in the assessable value under Section 4 of the Act for the purposes of paying excise duty.

We bring you the judgement today. Please see Breaking News

Income Tax - Last Date for Payment of Advance Tax extended in TN and Puducherry

CBDT has extended the last date for payment of December instalment of advance tax for FY 2015-16 from 15th December, 2015 to 31st December, 2015 in case of all the assessees, corporate and other than corporate in the State of Tamil Nadu and Union territory of Puducherry.

Will CBEC remember Puducherry?

CBDT Order in F.No.385/26/2015-IT(B)., Dated: December 15, 2015

Service Tax on fabrication of garments - CBEC Clarification

IT has come to the notice of the Board that certain field formations are taking a view that service tax is payable on services received by the apparel exporters from third party for job work. Apparently field formations are taking a view that the services received by apparel exporters is of manpower supply, which neither falls under the negative list nor is specifically exempt. However, trade is of the view that the services received by them is of job work involving a process amounting to manufacture or production of goods, and thus would fall under negative list [section 66D (f)] and hence would not attract service tax.

Board Explains:

1. The nature of manpower supply service is quite distinct from the service of job work. The  essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider's accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. The value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle.

2. On the other hand, the essential characteristics of job work service are that service provider is assigned a job e.g. fabrication/stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.

3. Therefore, the exact nature of service needs to be determined on the facts of each case which would vary from case to case. The terms of agreement and scope of activity undertaken by the service provider would determine the nature of service being provided.

The issue of applicability of service tax may accordingly be decided taking into account the nature of agreement/contract and the service being provided.


Perhaps, netizens can also make use of the following decisions to guide themselves about taxability under the Service Tax law - 2010-TIOL-539-CESTAT-BANG, 2015-TIOL-577-CESTAT-MUM, 2015-TIOL-1115-CESTAT-MUM, 2015-TIOL-1602-CESTAT-MUM, 2015-TIOL-2589-CESTAT-MUM.

Circular No. 190/9/2015-ST, Dated: December 15, 2015

Name and Contact Number of Signing Officer

A point raised in the recently held PTFC meeting of JN Customs was that time and again it has been agreed by the Department that whenever an official makes a written communication he will mention his name and contact number. This is not being done in many cases.

The Pr. Commissioner assured that Standing Instructions will be issued again that any letter issued to public will bear the name and contact number of signing officers.

Interestingly, this communication does not have the contact number of the Additional Commissioner who signed it!

By the way, why are the departmental officers still using a private email address for receiving the agenda points when their own NIC has provided one for each officer & section?

SSI Exemption - Export to Nepal still treated as Home Consumption!

FROM 1.3.2012, exports to Nepal is treated as exports to any other country, but the CBEC forgot to amend some notifications. DDT 2539-16 02 2015 pointed out,

Paragraph 5, Explanation clause "G" of Notification No. 8/2003-CE, dated 01.03.2003, reads -

G) "clearances for home consumption", wherever referred to in this notification, shall include clearances for export to Bhutan and Nepal;

When export to Nepal is at par with export to other countries, then if the export clearances made to Nepal is to be included in the clearances for home consumption, it will be a disadvantageous position for assessees clearing their goods for export to Nepal. Notification 8/2003 ought to have been amended accordingly.

This issue was discussed in the recent Central Excise Tariff Conference. Vizag Zone raised the issue:

In terms of SSI notification no. 8/2003-CE dated 01.03.2003, computation of clearances for home consumption, wherever referred in the notification, shall include clearances for export to Bhutan and Nepal. However, with effect from 01.03.2012, export clearances to Nepal have been made at par with all other countries. Further, CBEC vide Circular No.961/04/2012-CX dated 26.03.2012, has clarified that, in respect of Nepal, even if the export proceeds are received under Indian rupees, the clearances are still eligible for rebate or refund as the case may be. In such a case, it is not known why the export clearances to Nepal are still being considered as home clearances with reference to the limit of exemption available to an SSI under the notification referred. The condition in the notification is restricting the benefit to the Small Scale Manufacturers to the extent of clearances made to Nepal. Clarification is needed in view of the change in the treatment given to Exports to Nepal w.e.f. 01.03.2012.

Decision: The conference agreed that it was a valid suggestion and there was a need to amend notification no. 8/2003 - CE dated 01.03.2003 to bring parity in the exports to Nepal under various notifications. The conference recommended that Board may examine the same. However, it was also agreed that till the necessary amendments in SSI exemption are made, the present dispensation of treating exports to Nepal as domestic consumption shall continue to apply .

This anomaly is continuing for the last nearly four years. If people in Nepal come to know about this, they will call it a political strategy to block exports to Nepal and our already strained relations with Nepal will further be damaged. But Revenue is not bothered about foreign relations.

There is absolutely no reason or logic in treating exports to Nepal as domestic clearances, especially after 1.3.2012. The babus have simply forgotten to amend the Notification No. 8/2003-CE and a super ego will prevent them from admitting their mistake and amending it now. What they will perhaps do is substitute the whole notification with a new one in which they will remove Nepal. Wait for that rabbit from the hat and until then exports to Nepal are not really exports for SSI benefits.

Ease of doing business and precursor to GST!

Customs Officer - ruthless tyrant?

MUSIC Director Jayachandran posted on his facebook page,

“O My God!!!I had a nightmarish experience at Karipur Airport, Calicut, where some of the customs officials behaved like ruthless tyrants from the dark ages...Like real slave drivers...horrible .. the way our own brothers and sisters were being treated by these self proclaimed ignorant despots....Even I couldn't escape the wrath of tyranny from one of the senior customs officials whose name I don't want to disclose at this point of time.. I landed at Karipur airport in an Air India express flight from Kochi which was heading for Bahrain....Even though I was a domestic passenger, it is mandatory to stand in the queue where customs officials scan the hand bags of international passengers along with ours. It was a pretty long queue and I was waiting & waiting...I saw some of the passengers from the back breaking the queue with the help of a particular customs officer... I had to express displeasure at this show of favouritism....Then the man arrived...A senior customs officer...He said this is his place, his world, where everything happens to the set of rules he sets and that nobody dare raise voice against his oppressive ways...and...began shouting at me.. Then he began abusing- "If you think you are a big musician and celebrity, keep it to yourself...Here you have absolutely no voice.. if you raise your voice, I will take action against you"..I plainly told him in the same timbre of voice that I cannot be intimidated and that his ignorance and arrogance will not work at a people's airport and as an Indian citizen I had all the right to point out the flaw. Then he called me "YOU USELESS"...sweet words coming from a central government servant!!! I was taken aback and shocked.. Then it was verbal diarrhoea coming out from his mouth....words were lashed at me in disdain...But I sticked to my stand, which made him unleash more of his evil face of arrogance....I was insulted and abused in front of all the passengers and airport workers. I had no other way but to go straight to the airport manager and complain....As if like the other side of the coin, the airport manager Mrs Binulakshmi was so courteous and respectful...She took me to the Airport director who took time out from his meeting to patiently hear me.....Such a nice person he was...I lodged a complaint with him..

I have travelled through out the world and never have I come across such a terrible & humbling experience.....that too in our own soil....I feel sorry for my brothers and sisters who toil hard day and night in the gulf and land with their dreams at Karipur Airport...It is nothing less than brutal slavery...How long can we keep our mouths shut?? In a democratic country like ours how can we allow such officers to rule the roost?? I don't want anybody else to go through the torture that I underwent.. Let us get together and fight it out till it is a new morning at Karipur Airport, with the tyrant shown his way out.....”

It is reported that Finance Minister Arun Jaitley has ordered a probe.

Tariff Value of all Oils Increased

GOVERNMENT has increased the Tariff value of all oils; brass scrap and Areca Nuts see a reduction while poppy seeds remain unchanged. There is a decrease in the tariff value of silver while gold sees a small hike.

Table 1
S. No.
Chapter/ heading/ sub-heading/tariff item
Description of goods
Tariff value USD (Per Metric Tonne) as on 30.11.2015
Tariff value USD (Per Metric Tonne) from 15.12.2015
1 1511 10 00 Crude Palm Oil 536 553
2 1511 90 10 RBD Palm Oil 578 587
3 1511 90 90 Others - Palm Oil 557 570
4 1511 10 00 Crude Palmolein 588 599
5 1511 90 20 RBDPalmolein 591 602
6 1511 90 90 Others - Palmolein 590 601
7 1507 10 00 Crude Soyabean Oil 734 770
8 7404 00 22 Brass Scrap (all grades) 2993 2874
9 1207 91 00 Poppy seeds 2722 2722
Table 2
S. No.
Chapter/ heading/ sub-heading/tariff item
Description of goods
Tariff value USD from 30.11.2015
Tariff value USD from 15.12.2015
1 71 or 98 Gold, in any form in respect of which the benefit of entries at serial number 321 and 323 of the Notification No. 12/2012-Customs dated 17.03.2012 is availed. 344 per 10 grams 347 per 10 grams
2 71 or 98 Silver, in any form in respect of which the benefit of entries at serial number 322 and 324 of the Notification No. 12/2012-Customs dated 17.03.2012 is availed. 461 per kilogram 448 per kilogram
Table 3
S. No.
Chapter/ heading/ sub-heading/tariff item
Description of goods
Tariff value USD (Per Metric Tons) from 30.11.2015
Tariff value USD (Per Metric Tons) from 15.12.2015
1 080280 Areca nuts 2662 2558

Notification No. 142/2015-Customs (NT), Dated: December 15, 2015

Until Tomorrow with more DDT

Have a nice day.

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