TIOL-DDT 621
25.05.2007
Friday

This is a classic example of how unintended actions can be disastrous to the trade and industry. Jute goods have been enjoying exemption for quite some time and twine is no exception. To eliminate the hassles of even exemptions, the Tariff rate itself is made NIL in the Central Excise Tariff. But in the maze of amendments to the Central Excise Tariff from 6 digit to 8 digit and consequential amendments to the related exemption Notifications, a small error is now snowballing into huge demands and going to be another gold mine for the consultants.

Jute twine is classified under the Chapter sub heading 5607.10 of the erstwhile Central Excise Tariff attracting NIL rate in the Tariff itself.

In 2004, Notification 30/2004CE was issued with the following changes:

The goods falling under the above three sub headings excluded attract a NIL rate of duty in the tariff, and thus exemption itself is not necessary.

With effect from 28.2.2006 the eight digit tariff has replaced the six digit tariff and jute twine was classifiable under Chapter sub heading 5607.1010 with NIL rate of duty. Notification 30/2004 has been further amended at serial No 11 as under vide Notification 15/2006

So, jute twine continued to attract NIL duty under Tariff.

The tariff heading have undergone another change in 2007 and from 1.1.2007, when the sub headings 5607.1010 and 5607.1090 were omitted from the tariff. But no mention was made about jute twine etc., Since there is a residuary entry in the Chapter, jute twine stand shifted to Chapter sub heading 56079090 under “others”. Now also the exemption notification 30/2004 has been amended as under vide Notification 48/2006 to exclude jute twine from the Notification.

But, unfortunately chapter sub heading 56079090 does not attract NIL rate in the Tariff and the rate of duty is 8%.

Another amendment was made vide Notification 13/2007 after which serial number 11 reads as under:

So, an exemption Notification, which was started to exclude jute twine from the exemption as it attracted NIL tariff rate, continued to be excluded even when the tariff rate became 8% in 2007. It implies that all other products of Chapter 56 are eligible for exemption ( 56011000 attracts NIL rate in Tariff) except jute twine!!

It cannot be construed as a conscious levy as all other jute products continue to attract NIL rate. Unfortunately the optional rate of duty with the facility of excise duty given under 29/2004 is also not applicable for jute twine as the same has been excluded even there.

The error is more glaring since no duty is levied on jute yarn and fabrics and it is highly improbable that government wanted to levy tax only on twine.

DDT has learnt that demand notices are already flying in West Bengal where majority of jute mills are located and the fire is fast spreading. Unless the Government attempts to stop it in the beginning, it is bound to be a big forest fire.

Simultaneous availment of CENVAT and SSI – Not allowed

The Ahmedabad Bench of the CESTAT has held that an SSI unit cannot avail CENVAT credit and SSI exemption simultaneously. This issue had been thoroughly analysed and decided in favour of the assessee by the Chennai Bench in Nebulae Health Care – 2006-TIOL-1380-CESTAT-MAD. Unfortunately this decision of the Chennai Bench was perhaps not brought to the notice of the Ahmedabad Bench. Moral of the story: Browse Taxindiaonline for the latest case law.

Shylock take your flesh but not a drop of blood

Works contract service tax – Bonus to the Government?

A passionate Netizen writes in

After readingtoday's DDT I thought I should write to you.

Without entry 92-C of the Constitution being amended, to tax the service part of the ¶indivisible works contract¶ by a deemed fiction of law, as the 46^th amendment to the Constitution, (Refer Supreme court decision in sales tax -Builders Association of India (1987) and BSNL's decision in 2006) Government has no power to tax the service part of an indivisible contract, as in all civil construction contracts rates quoted are inclusive of material cost. In a building construction contract for eg: flooring work, the rates quoted would definitely include cost of flooring material labour and profit of the contractor. Never cost of material and labour (service part) are quoted separately.Entry 92C gives power to tax service and not to tax cases where service and supply of material and profit thereon are integrated. It reminds me of the argument of the advocate Shakespearian drama Merchant of Venice where the advocate argues ¶you take flesh but not a drop of blood should be lost!

The BSNL decision is a bonus to Government. The present amendment works contract taxability for service tax has its base in BSNL's decision. So whatever Government gets on account of service tax in the case of indivisible works contract before amendment to 92-C, is a bonus to Government -- I believe.

Power packed seminar in Hyderabad today

Our seminar is under way in Hyderabad with Participation from the Top Officers of the CBEC and some of the Best Brains in Consulting in India who are also our noted authors. Delegates from Vadodara to Bangalore; Mumbai to Visakhapatnam are attending the seminar. We will bring you more details during the day.

Until Monday with more DDT

Have a nice Weekend.

Mail your comments to vijaywrite@taxindiaonline.com