TIOL-DDT 1062
27.02.2009
Friday

WE all felt proud when AR Rahman and Resul Pookutty flew in with the three Oscar golden statuettes between them. But one feels sorry that our Customs Administration failed to live up to expectations and clear Rahman and Pookutty honourably.

It would have been a great day for Indian Customs, if the Customs Commissioner had received Rahman at the airport and handed over to him an exemption notification exempting his trophies from Customs duty, as a small gesture from the Customs Department to a man who brought in so much honour and goodwill for the country. They lost the great opportunity and chose to look the other way and pretend that no duty was payable.

The Customs, both at Mumbai and Chennai, gave evasive excuses like, “it was not commercial”, “its value is only one dollar”, “ there is no need of any exemption”.

Is it so?

First of all Commercial quantities are not allowed to be imported as baggage even on payment of duty as per CBEC Circular No. 9/2001- Cus , Dated : February 22, 200. This does not mean that if it is not commercial, it can be freely cleared in the baggage.

To say the value of the statuette is One Dollar is an insult to Rahman and Oscar. The making cost of this year's Oscar statuette has been declared as 500 US Dollars. Michael Jackson had paid over a Million Dollars to buy the statuette presented for “Gone with the wind”. Of course now there is a contract that the statuette cannot be sold, even by the inheritors. The value is invaluable and no Customs Valuation Rules anywhere in the world can value it.

Coming back to baggage Rules, a passenger returning after three days of stay abroad is allowed a duty free baggage up to the value of Rs. 25,000/- but this cannot include Gold or Silver in any form, other than ornaments. So the statuette is clearly out of baggage.

There is a Customs Notification which exempts,

1. Medals and trophies - If awarded to members of Indian teams for their participation in international tournaments or competitions outside India;

2. Prizes won by any member of an Indian team - If the team has participated in any international tournament or competition in relation to any sport or game, with the approval of the Government of India in the Department of Youth Affairs and Sports

Notification No. 146/1994-Customs, DATED : July 13, 1994

This clearly shows that there is need for an exemption for this kind of prizes and awards and they cannot be cleared just by closing one's eyes. If the Oscar trophy can be cleared without an exemption, why should there be an exemption notification for a sports trophy? The fact is, we do win some sports trophies, but so far we never had the honour of a passenger landing up in an airport with an Oscar Statuette – actually two! And the Customs was caught napping – not that we didn't tell them! But they chose rather to break the law than make one.

A blog in siliconeindia said, when I get down at Delhi airport, a lot of people offer to take me thru green channel for $20. Maybe, the Mumbai high commissioner
can do the same for ARR. Just smile and look the other way”

It is sad to note that instead of granting an honourable exemption, the Indian Customs chose to look the other way – this is not what a law enforcing Authority should do. They could have simply amended Notification No. 146/1994. At least now they should do it with retrospective effect for the past and let us hope we have more Indians winning international awards who will have the honour of claiming exemption. Let the Majesty of Law prevail at least during the heights of honour.

Cess on sugar manufactured out of cess paid raw material – CBEC Clarifies

References have been received from some field formations that some manufacturers purchase sugar, on which central excise duty and sugar cess is paid by sugar manufacturers. Such manufacturers use the duty paid sugar to manufacture products like Pharmaceutical grade sugar and Bura sugar. All the products, namely sugar, pharmaceutical sugar and Bura sugar fall under the same tariff classification. The manufacturers have represented that both the raw material and final product fall under the same tariff heading, and as cess has been paid on raw material viz., sugar, they are not required to pay sugar cess on products as it amounts to double taxation.

Board Clarifies:-

The Ministry of Public Distribution and Consumer Affairs has now exempted the levy of cess on sugar, collected as a duty of excise, under subsection (1) of the Section 3 of Sugar Cess Act, 1982, on any sugar “manufactured from such other sugar” on which cess, leviable under sub section (1) of Section 3 of the said Act has been paid already . - Notification S.O.102 (E) published in Gazette of India on 7th January, 2009

This Notification has no retrospective effect.

CBEC Circular No. 883/3/2009- CX - Dated: February 26, 2009

Foreign Trade Policy – Kamal Nath bids adieu with more announcements

Commerce Minister Kamal Nath announced his first Foreign Trade Policy in August 2004 and we carried a story - Is the Foreign Trade Policy valid?

Well Kamal Nath went on to present that invalid Policy year after year and yesterday was the grand finale for his five year policy which in the normal course should have ended on 31 st March, 2009 but which is extended indefinitely, maybe till the new Government can put its ACT together.

The DGFT has amended the HOP – some details:-

1. Promotional Schemes: Freely Transferable Duty Credit scrip shall be granted on FOB value of exports, including commission, discounts, if any

2. All the pre-realization cases are to be monitored by RA concerned with respect to realization of export proceeds.

3. In case the FOB value realized in free foreign exchange is lower as per BRC, when compared to the FOB value in free foreign exchange as declared on the Shipping Bill(s) on which the original duty credit scrip was issued, excess duty credit scrip so granted earlier shall be adjusted from any future claim(s) (of any Duty Credit Scrip, including DEPB ), or by way of cash deposit.

4. In case the FOB value realized in free foreign exchange is higher as per BRC , when compared to the FOB value in free foreign exchange as declared on the Shipping Bill(s) on which the original duty credit scrip was issued, supplementary claim shall be filed within a period of six months from the date of realization.

5. DEPB shall be issued with transferable endorsement. – Without waiting for payment confirmation.

DGFT Public Notice No. 151 (RE-2008) 2004-2009, Dated: February 26, 2009

CBEC notifies exchange rates for March 2009

The CBEC has notified the Exchange Rates for Imported Goods and Export Goods with effect from 1st March 2009. Notification No . 18/2009-Customs (N. T.), dated the 28 th January, 2009, is superseded.

Notification NO. 21/2009 -CUSTOMS(NT), Dated: February 25, 2009

Provisional assessment and finalization – what is the rate of interest to be paid?

A distinguished Netizen sent us this:-

The Larger Bench decision in the case of Cadbury India Ltd. [2008-TIOL-1986-CESTAT-Mum-LB] has held that in case of provisional assessment under Central Excise Rules, 2002, interest is required to be paid from the first day of the month succeeding the month for which such amount is determined and that interest is required to be paid even if the differential amount is paid before the order under Rule 7(3) of the said rules is issued finalizing assessment.

Rule 7(4) of CER, 2002 reads –

“4.     The assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule (3), at the rate specified by the Central Government by notification issued under section 11AA or section 11AB of the Act from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.”

So, if one wishes to pay the interest, at what rate should he pay?

This is because the rate of interest u/s 11AB in vogue is 13% as prescribed by notification 66/2003-CE(N.T), dated 12.09.2003 and the rate of interest under Section 11AA prevalent today is 15% as prescribed by notification 18/2002-CE(N.T) dated 13.05.2002.

Incidentally, when the CER, 2002 came into being on 01.03.2002, the rates of interest u/s 11AB and u/s 11 AA of the CEA'44 was the same viz. 24%. The rate of interest under both the sections were simultaneously changed to 15% by notifications 18/2002- CE(N.T) and 19/2002-CE(N.T), both dated 13.05.2002. There was no conflict in the language of the said rule 7(4) of the CER , 2002 even then.  But things changed with the entry of Notification 66/2003- CE(N.T) dated 12.09.2003 which reduced the rate of interest u/s 11AB from 15 % to 13%. Unfortunately, the rates of interest u/s 11AA remained unchanged.

If this be so, shouldn't the Rule 7(4) be amended immediately before it brings tears?  After all, 2% is not a small amount.

Please also see the case we are reporting on Monday.

Jurisprudentiol–Monday's cases

Central Excise

Tribunal has to pass reasoned orders - reasons are like the bricks with which the edifice of justice is built. If bricks are not in place, or are missing, entire edifice comes crashing down – Copy of the Order to be sent to CESTAT President: Gujarat HC

THE High Court observed that an order made by the Tribunal is required to be made after giving an opportunity to the parties, of being heard. While making an order under Section 35C of the Act, the Tribunal must keep in mind that the proceedings before it are likely to have far-reaching financial implications so far as parties, i.e. the assessee as well as the Revenue are concerned and it is, therefore, essential that the order made by the Tribunal should reflect an application of mind before fastening of liability upon an assessee or granting relief against the Revenue.

Income Tax

Income Tax – cash sales of over Rs 1 Crore – Some evidence of sale generating extraordinary income of about 100% in hands of a loss making company required to be placed by assessee - Mere entries of sale to justify credit of Rs 1,00,04,855 were not good enough: ITAT by Majority

ON account of difference between Members of ITAT, this matter has been placed before the President as Third Member with the following questions:

1.    Whether, on the facts and in the circumstances of the case, the addition of Rs.1,00,04,855/- on account of cash credited in the books of accounts of the assessee is justified?

2.    Whether, on the facts and in the circumstances of the case, investment in cash of Rs.51,65,820/- is explained satisfactorily on the basis of material placed on record?

3.    Whether, on the facts and circumstances of the case, the issue relating to source of investment in purchases should be restored back to the file of the A.O for fresh decision as proposed by the Ld. A.M.?

Service Tax

CENVAT Credit – Service Tax paid on Erection and Commissioning at Buyer's premises – Entitled for Credit - Rules does not require that service has to be rendered at the factory of the manufacturer for the purpose of eligibility for service tax credit - CESTAT

IN this case erection and commissioning charges have been included in the cost of the machines sold. The appellants have selected the agency to do this work and once the purchaser enters into an agreement for supply of the machine including the erection and commissioning charges, the responsibility for erection and commissioning is of the manufacturer. Therefore what is happening in this case is that the supplier of the machine is not only selling the machine but is also providing the service of erection and commissioning. Once erection and commissioning cost is included in the transaction value, the natural conclusion that would emerge is that the processes undertaken in the buyer's premises are actually incidental to manufacturing activity undertaken in the manufacturer's premises. What has been sold in this case is the complete machine duly erected and commissioned and operational.

See our columns Monday for the judgements

Until Monday with more DDT

Have a nice Weekend.

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