THERE used to be a small time enterprising businessman in a small town. He purchased a second hand sachet making machine for about Rs. 10,000/-. He used to buy some coconut oil from a mill and pack in sachets of 10 mls and sell them in the Railway Station. The Central Excise Intelligence caught up with him and they booked a case against him for manufacturing and clearing hair oil without payment of duty. His factory was a small room in a small house! Lakhs of rupees of duty with equal penalty got confirmed and the poor fellow simply did not know what hit him. What he could not understand was that the coconut oil in the mill where thousands of kilolitres were ‘ manufactured' and sold, was not taxable, but his few kgs when packed in a sachet became taxable. With his rustic intelligence he asked, if the mighty river Ganga is not excisable, will a bottle of water from Ganga become excisable?

Now is coconut oil packed in small containers simply coconut oil falling under 150300 or cosmetics falling under Chapter 33?

The Board had in Circular No. 145/56/95- CX , dated 31-8-1995, clarified that,

It is felt that coconut oil whether pure or refined and whether packed in small or large containers merits classification under Heading No. 1503 as long as it satisfies the criteria of ‘fixed vegetable oil' laid down in Chapter Note 3 of Chapter 15. It is also clarified that if the containers bear labels/literature, etc., indicating that it is meant for application on hair, as specified under Note 2 of Chapter 33 and/or if the coconut oil has additives (other than BHA ) or has undergone processes which made it a preparation for use on hair as mentioned in Chapter Note 6 of Chapter 33 then the coconut oil may merit classification under Chapter 33.

But Board Circulars are not generously accepted by the Field. Show Cause Notices flew around, but Tribunal in all cases that reached that level held that coconut oil, simply by being packed in a sachet will not become cosmetics.

In AMARDEO PLASTICS INDUSTRIES vs UOI - 2007-TIOL-240-CESTAT-MUM , the Tribunal observed through the Third Member,

I also note that the Board vide its Circular dated 31/08/95 has examined the entire issue of classification including the report of the Chief Chemist CRCL and has clarified that the mere fact of packing the same in small containers will not shift the classification of the same from Chapter 15 to Chapter 33.

Revenue cannot be heard arguing against its own Board's Circular.

the said Board's Circular is binding on the revenue and the fact of engaging a Senior Counsel by the revenue to defend the proceedings before the Tribunal, (as observed by Member (T)) will not change the above position of law, which stands re-affirmed by the Court in a number of subsequent decisions.

I find that the issue stands decided by the Tribunal's decision in the case of Kothari Products Ltd., Vs. CCE , Shrikanth Sachets Pvt. Ltd., Vs. CCE , - 2004-TIOL-1021-CESTAT-BANG & CCE Vs. Essen Products (I) Ltd ., 2006-TIOL-580-CESTAT-MUM . It is not the revenue's case that the said decisions were appealed against by them before the higher appellate forum. Inasmuch as the same have attained finality, they are required to be allowed.

So the issue is almost settled.

But, no. No issue in Central Excise is settled; it's only a temporary lull.

Suddenly the Board has realised that the Chapter Note to Chapter 33 and Section Note to section VI of the Tariff were amended with effect from 28.02.2005 and LO and Behold! That coconut sachet has again become dutiable by falling under Chapter 33 instead of 15.

So the Board has again researched the issue and came up with astounding findings that these small packs of coconut oil are displayed at the ‘hair care' shelves in the shops and the customer ask for the smaller packages or the sachets for using them as ‘hair oil'.

So the Board issued the following instructions:

(i) The Circular No.145 /56/1995- CX , dated. 31.08.1995, stands withdrawn.

(ii) The coconut oil packed in small container of sizes upto 200 ml [better put 201 ml and avoid excise - DDT] shall be classified under heading 3305.

Now, since when is this 1995 Circular withdrawn? From Yesterday or from 1995?

If the amendment to the Tariff in 2005 changed the whole situation, why did it take the Board more than four years to react?

Who is responsible for the loss of Revenue for the last four years?

Will there be Show Cause Notices alleging that the assessee has suppressed the fact the Board is going to issue a Circular in June 2009?

Is this an invitation to go to the High Court/Supreme Court to get the Circular quashed?

What was the provocation to issue this Circular now?

Has the Board got the approval of the Minister before issuing such a clarification?

We will not get answers to these questions in the near future!

CBEC Circular No. 890/10/2009- CX , Dated : June 3, 2009

Health Warning on Tobacco Products – Health Ministry Memo

As per the Health Ministry's OFFICE MEMORANDUM,

(i) No tobacco products will be cleared from the manufacturing premises by the department of Central excise and Customs unless and until it bears the specified Health Warning and other requisites as prescribed in the Rules. In case of Beedi units manufacturing 20 lakh beedi or below, Department of Labour and any other concerned authority is also authorized to check violation under the Packaging and Labeling Rules 2008.

(ii) No tobacco products which are imported will be cleared by the department of Customs unless and until it bears the specified Health Warning and other requisites as prescribed in the Rules.

All the concerned authorities are directed to ensure effective implementation of the above said Rules on specified health warning.

The Authorities should be really concerned.

It's time we arrange an English drafting course for all our BABUs .

Health Ministry's OFFICE MEMORANDUM in P.16011 /07/05-PH-I Dated: May 29, 2009

And CBEC reacts – Pretty fast

The CBEC has reacted rather fast and asked its field formations to take necessary action accordingly as per the above mentioned Memorandum.

CBEC says Detailed instructions on the issue will follow shortly . Until then, what is the field supposed to do?

Confused bureaucracy at its height of incompetence?

CBEC's F.No.267 /50/2007- CX -8 dated 2nd June, 2009

Enhance Excise and service Tax Exemption limits – Budget wish list

The Federation of Association of Small Industries of India ( FASII ) has demanded to raise the central excise exemption limit for small-scale industries to Rs 3 crore from the current limit of Rs 1.5 crore , during the pre-budget meeting called by Union Finance Minister Pranab Mukherjee in New Delhi.

The Federation has said that in view of the inflationary trend and the rigours of the service tax procedures, the exemption limit should be raised to Rs 20 lakhs .

Jurisprudentiol – Friday's cases

Central Excise

If all the machineries that are required to set up a plant can get a benefit, there is no justification to deny the benefit to the plant itself - Desalination Plants being Water Treatment Plants are entitled for exemption from Central Excise duty in terms of notification 6/2006-CE: CESTAT

It is only logical that the exemption, which is available to all items of machinery including instruments, apparatus and appliances, auxiliary equipment and their components/parts required for setting up of water treatment plants, should be available to the plant also. Any contrary interpretation, which defeats the objective of the Notification, needs to be avoided.

Income Tax

Interest Income from non-resident company cannot be treated as Fee for Technical Services, taxable at 20%, not 30%: In re-assessment proceedings, ITO's jurisdiction is confined to only such income which has escaped tax – assessee cannot be permitted to re-agitate questions which had been decided in original assessment: ITAT

In proceedings under section 147 of the Act, the Income tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of the notice under section 148 and where reassessment is made under section 147 in respect of income which has escaped tax, the income-tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which was not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2).

Customs

Appeal against Tribunal order setting aside confiscation and penalty not maintainable as High Court does not have jurisdiction over valuation matters - Revenue at liberty to approach Apex Court: Madras High Court

Whether or not the authorities were justified in holding that the respondents had undervalued the goods for the purposes of assessment of duty - this question shall be raised by filing a statutory appeal before the Supreme Court.

See our columns tomorrow for the judgements

Until tomorrow with more DDT

Have a nice Day.

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