TIOL-DDT 2077
03.04.2013
Wednesday

THE Bangalore Bench of the CESTAT yesterday passed a landmark order virtually nullifying the Board's New Year circular 967 dated 1-1-2013.

The Tribunal noted that the circular directed officers of the department to recover confirmed demands wherever there is no order staying recovery. The Tribunal observed that because of increased coverage of services for levy of service tax and increase in industrial activity, number of appeals and stay applications have gone up with no corresponding increase in number of benches of the Tribunal. The number of appeals pending before the Bangalore Bench of the CESTAT is 12932 and stay applications pending is 3521 as of February 2013. Consequently for no fault of the assesses, stay applications remain pending for long periods which created no problems before 1-1-2013. But after the issue of the Board's circular, officers can resort to detention, attachment, freezing of bank accounts etc. to recover dues during the pendency of stay applications.

Appreciating the difficulties of the assessees, the Bangalore Bench had been granting ad interim stay after a brief hearing in deserving cases. The Tribunal found that even after 3 months of issue of the circular, such mentions seeking intervention show no sign of abatement. For example, on 27-3-2013 the Bench spent one full hour on such cases only and could take up listed matters only after that.

The Tribunal found that this benefits neither the assessees nor the revenue. Assessees continue to get notices and approach the Tribunal and officers continue to issue notices generating a lot of additional work for the registry and the Bench adding thereby to the already grim pendency situation. The Tribunal noted that if the time spent on such mentioned matters could be used to hear the listed stay applications, the revenue can legitimately expect to gain some pre deposit in cases where the assessees fail to make a prima facie case. The circular and actions in pursuance thereof have mostly spoiled these chances of the revenue.

Based on the experience gained over the last three months, the Tribunal felt that the time was ripe to pass a general order which would ensure that the department cannot resort to coercive action in cases where stay applications/stay extension applications are pending.

The Tribunal directed that the department should not resort to coercive action during pendency of stay applications;

a) Unless the case is one where service tax/central excise duty has been collected but not paid.

b) Unless the case is one of admitted duty/service tax liability yet to be discharged.

c) If the case is one where the assessees has deposited the entire duty/service tax liability.

d) Unless the case is one where the commissioner(Appeals) has rejected the appeal on the ground that the appeal was filled beyond the time limit

The Tribunal has directed that in the cases falling within the exceptions listed above, the field formations coming within the jurisdiction of the Bench (the states of Kerala, Karnataka and Andhra Pradesh) shall not resort to any action as proposed in the Board's circular. The Tribunal further directed that where such action is proposed, the officer initiating action shall clearly indicate that he is satisfied that the assessee does not fall in any of the exceptions above. The Tribunal directed that copies of the order shall be sent forthwith to all the chief commissioners within the jurisdiction of the Bangalore Bench of the CESTAT.

We will bring you the full text of this unprecedented order as soon as it is released. Every assessee should keep a laminated copy of this order prominently displayed in his registered premises and any officer not prepared to accept this order should be enlightened that he would be liable for contempt.

An advocate friend asked me if the Tribunal has the power to issue such an order. Rule 41 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, reads as:

RULE 41.Orders and directions in certain cases. - The Tribunal may make such orders or give such directions as may be necessary or expedient to give effect or in relation to its orders or to prevent abuse of its process or to secure the ends of justice.

In any case, the Tribunal has liberated the assessees, Revenue and the Tribunal itself from the huge burden of wasted money and time, caused by the Frankenstein Circular. At least now the Board should graciously withdraw the mischievous circular which has only caused havoc without a single rupee of Revenue.

Denial of Job-work permission - permission denied because it will lead to fall in revenue for Commissionerate?

THE assessee is a multi-location unit. The unit at Tuticorin had applied for permission to send copper anodes to the units at other locations on job-work basis under Rule 4(6) of the CENVAT Credit Rules, 2004 for conversion into copper cathodes. The permission was denied on the ground that the goods sought to be sent for job work are not inputs or partially processed inputs , but are final products of Tuticorin unit.

The assessee inter alia submitted that “they have been manufacturing Anode, Cathode and all downstream products at both Tuticorin factory and the factories at Vapi since 2002. They have been given permission to remove anodes without payment of duty from Tuticorin factory to other factories since 2002. This arrangement was resulting in lower payment of excise duty at Tuticorin Commissionerate about which the central excise officials there were unhappy because they wanted to show higher collections in their Commissionerate. According to him, such an approach has resulted in the genesis of the problem at hand, though actually there is no Revenue loss to the exchequer because the duty if paid at Tuticorin would have resulted in lesser collections for the same amount at Vapi.”

The Tribunal dismissed the revenue appeal against the order of Commissioner (Appeals), but the above case reveals that the sheer ambition to reach revenue targets could make an assessee run from pillar to post for permissions, while it makes no difference to the total revenue.

See 2013-TIOL-545-CESTAT-MAD

Export of perishable cargo - 24 x 7 Customs clearance - CBEC instructions

PARLIAMENTARY Standing Committee on Commerce has emphasized that in order to promote export of Agriculture and Processed Food products, the Customs authorities must be sensitized to accord priority clearance to perishable agro products cargo.

Accordingly, the Board has issued a Circular directing that export consignments of perishable agricultural goods should not be examined in a routine manner and should be examined only in cases of specific intelligence with prior permission of concerned Assistant Commissioner/Deputy Commissioner of Customs. Such perishable cargo which is taken up for examination should be given Customs clearance on the same day itself. In the event there are contraventions of Customs law, necessary legal action shall be taken but, in this case too, it shall be ensured that the perishable cargo is dealt with in such a manner including grant of provisional release (where permissible) so that it is not unduly held up in ports/airports etc.

Exactly, similar directions were issued vide Circular No 08 / 2007-Cus, Dated : January 22, 2007 and it appears when the instructions already issued are not followed, a fresh Circular is issued.

Board has also decided, as a trade facilitation measure, to extend the facility of 24x7 Customs clearance for export consignments of perishable agricultural export goods at all air cargo complexes across the country.

CBEC Circular No. 12 / 2013-Customs Dated April 02, 2013

Income Tax - No Penalty for wrong claim due to a bona fide mistake/wrong advice of CA - HC

THE assessee had in its return of income claimed depreciation at Rs.1.70 crores. During the assessment proceedings, the respondent-assessee realised that it had wrongly claimed Rs.1.70 crores of depreciation instead of Rs.1.05 crores. This excess claim for depreciation had happened due to a mistake in calculation i.e. instead of reducing the amount of Rs.32.51 lakhs from Rs.1.38 crores, the amount of Rs.32.51 lakhs was added to Rs.1.38 lakhs resulting in claim for depreciation at Rs.1.70 crores. The Assessing Officer did not accept that it was a mistake and levied penalty under Section 271(1)(c) of the Income Tax Act, 1961 (the Act).

Tribunal held that excess depreciation originally claimed was on account of bona fide and inadvertent mistake on the part of the assessee. In any case, during the course of the assessment proceedings, the assessee realised its mistake and pointed out the same. The Tribunal held that mistake should not be visited with penalty.

The assessee had during the assessment year sold its garment manufacturing machine and claimed a loss of Rs.21.68 lakhs thereon as a revenue expenditure in its return of income. In the course of the assessment proceedings, the assessee realised its mistake and withdrew the above loss shown as revenue expenditure in its profit and loss account and in the consequent return of income. The Assessing Officer accepted the above withdrawal and completed the assessment. However, he imposed penalty under Section 271(1)(c) of the Act.

The Tribunal found that the above loss was claimed by the assessee as a revenue expenditure as the Chartered Accountant did not advise them correctly as to the legal position. On the above facts, the Tribunal concluded the claim for deduction made by the respondent-assessee was on account of a bona fide mistake and in such circumstances, the levying of penalty was not justified.

Revenue was not happy and took the matter to the High Court which dismissed it.

Please see 2013-TIOL-258-HC-MUM-IT

Dirty Dozen tax scams for 2013

THE Internal Revenue Service of USA issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft, Phishing, Return Preparer Fraud, Hiding Income Offshore, “Free Money” from the IRS & Tax Scams Involving Social Security, Impersonation of Charitable Organizations, False/Inflated Income and Expenses, False Form 1099 Refund Claims, Frivolous Arguments, Falsely Claiming Zero Wages, Disguised Corporate Ownership, Misuse of Trusts

Republic of Yemen included in Least Developed Countries

GOVERNMENT has amended the Notification No. 96/2008-Customs, dated 13th August, 2008 so as to include "Republic of Yemen" in the list of Least Developed Countries eligible to avail of the benefit of duty free tariff preferences (DFTP) scheme.

Notification No. 19/2013-Customs; Dated April 02 2013

Jurisprudentiol - Thursday's cases

Service Tax

Any order directing party to pay any amount as pre-deposit should be in writing and has to be tendered as per provisions of s.37C of the CEA, 1944 - matter remanded to Commissioner(A): CESTAT

WE recently reported the case 2013-TIOL-463-CESTAT-MUM wherein the CESTAT had observed thus -

“…In these circumstances, I find that the Commissioner has no knowledge how to deal with the appeals filed before him. In fact, the first duty of the Commissioner (Appeals) is to dispose of the stay application and if he is not satisfied with the arguments advanced for waiver of pre-deposit, he may ask for pre-deposit but while considering the stay application along with appeal together, he has no power to dismiss the appeal for non-compliance of Section 35F of the Central Excise Act.”

The Commissioner(A) in the firing line was the CCE(Appeals), Aurangabad.

The CCE(A), Pune-I finds himself in a similar situation in the present case.

Read further -

Income Tax

Whether retrospective amendment can be applied only to cases whose assessment or appellate proceedings are still pending - NO: HC

THE issues before the Bench are - Whether when the Supreme Court pointed out the inadequacy of the existing clause (c) of Section 115JB to cover a provision for the diminution in the value of any asset, the legislatative action to plug the lacuna by inserting clause (i) which permitted an upward adjustment of the book profit by the provision made for diminution in the value of any asset with retrospective operation, is unconstitutional; Whether the principle that fiscal benefits specifically provided under the Income Tax Act to foster growth in a sector, cannot be revoked retrospectively, be compared with the provisions of Minimum Alternate Tax; Whether retrospective amendment can be applied only to cases whose assessment or appellate proceedings are still pending and Whether a completed assessment, if reopened on genuine grounds can be treated separately on the basis of retrospective amendment. And the verdict goes against the assessee.

Central Excise

Inputs/Capital goods destroyed in fire - It is not in dispute that Inputs have gone into process of manufacturing and Capital goods were also in use - Appellant has been able to prove through certificate issued by Insurance Company that they have not entertained MODVAT credit component while entertaining their insurance claim - Credit cannot be denied: CESTAT

EARLY in the morning of 10.09.2000, a fire accident took place in appellant's Butyl Phenol Plant. In the fire, in-process material lying in the plant of the factory and the capital goods were destroyed/damaged.

The next day, the appellant informed the department that the capital goods on which CENVAT credit of Rs.55,26,242/- was availed and the “inputs” put in process of manufacturing of final product on which CENVAT credit of Rs, 14,74,796/- was availed have been damaged and destroyed in fire.

Almost a year later, a SCN was issued by the jurisdictional authorities asking the appellant to reverse the total CENVAT credit availed by them on capital goods and inputs used in-process of manufacturing that were lost/damaged in the fire.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

HAVE A NICE DAY.

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