TIOL-DDT 2211
17.10.2013
Thursday

THE DDT piece on this issue on Tuesday evoked mixed response. While everybody agreed with our views, there was a lone dissenting voice from one of the readers (probably a departmental officer). We were under the impression that there is absolutely no doubt that CENVAT Credit of Excise Duty (Let's call it BED) can be used for payment of Education Cess. But there are quite a few departmental officers who strongly believe that it cannot be so used.

This concerned Netizen wrote in, "At the outset, I wish to point out that there is no provision to utilise the BED (CENVAT) credit for payment of ED cess/SHE cess under CCR. The correct legal position in this matter has been spelt out in the case Bharat Box Factory (2011-TIOL-2007-CESTAT-DEL) decided in favour of the Department by a Bench headed by CESTAT President. Your DDT pieceis just opening up a Pandora's box in Central Excise prompting more assessees to utilise the ineligible CENVAT credit for payment of ED cess and SHE Cess thereby affecting revenue collections."

How sad!

Sir, the Bharat Box case was in the peculiar circumstances of Notification No. 56/2002 and is not applicable in general cases.

But the fact is that this issue has travelled to CESTAT several times and it was emphatically held that such credit utilisation is proper and legal. Please see

1. Commissioner of Central Excise, VAPI v BALAJI INDUSTRIES - 2008-TIOL-2629-CESTAT-AHM. This is an appeal by the Revenue on the ground that Education Cess is not excise duty and therefore, the BED cannot be used for payment of Education Cess. Held: Education Cess imposed on manufacture and production of goods under Sections 91 & 93 of Finance Act, 2004 is in a nature of excise duty. Once it is decided that Education Cess is a duty of excise, then in terms of sub-rule 3(4) of the Cenvat Credit Rules, 2004, Cenvat credit can be utilized for payment of any duty of excise including Education Cess on any final product.

2. CCE, Shillong Vs Godrej Consumer Products Ltd - 2007-TIOL-1174 CESTAT-KOL. In this Revenue appeal, the Department has objected to availment of basic excise duty credit for payment of education cess. The Tribunal found that the Department's appeals do not have any merit. Rule 7 (b) of the Cenvat Credit Rules, 2004 restricts education cess credit to be utilized for paying education cess. The said rule does not put any restriction of utilization of the Basic Duty Credit.

In the recent case of Commissioner of Central Excise Vs Madura Industries Textiles - 2012-TIOL-1094-HC-AHM-CX, the assessee used Cenvat Credit of basic excise duty available in the Cenvat credit account for payment of Education Cess. The Adjudicating Authority not only demanded duty but also imposed penalty. The Commissioner (Appeals) allowed the appeal, but the Department was not prepared to end litigation and took the matter to the CESTAT. The Tribunal dismissed the appeal of the Department on the ground that the benefit of utilization of credit of basic excise duty for payment of Education Cess could be allowed. Department is not one to keep quiet. It took the matter in appeal to the High Court. The High Court agreed with the Tribunal and dismissed the Revenue appeal as it is devoid of any merit and does not involve any question of law.

Interestingly, I came across a reasoned order passed by an adjudicating authority. The Deputy Commissioner, Gandhidham, Vinod Kumar in his OIO No. 14/2011-12 dated 26.07.2011 observed,

I find that both the cess are leviable on the manufacture of excisable goods and are leviable and collected under the provisions of Central Excise Act, 1944 and rules made there under and section 3 of the Central Excise Act, 1944 is the charging section for levy of duty on manufacture of goods. Hence, it is a type of Central Excise duty.

Rule 3(7) of the CENVAT Credit Rules, 2004 applies restriction to the credit of various duties, such as additional duties on textiles and textile articles, NCCD, Education Cess etc. There is nothing in this rule which restrict the use of CENVAT credit of basic excise duty for payment of Education cess and S. & H. education cess. When there is no restriction prescribed under rule 3(7) of the CENVAT rules about such utilization of credit of basic duty there is no reason to deny it. Therefore, in absence of any restriction and as provided under Rule 3(4) of Cenvat Credit Rules, 2004 the CENVAT credit of basic duty may be utilized for payment of any duty of excise on any final product.

I hold that the noticee is eligible for utilization of the CENVAT credit of basic duty for payment of Education Cess and the S. & H. Education Cess.

Bravo! Vinod Kumar - we need more such officers who have the courage to adjudicate properly and prevent the clogging of the judicial pipeline. We don't know whether the learned Commissioner has accepted this outrageous order of his Deputy Commissioner.

Ultimately, the fact is that CENVAT Credit of Basic Excise Duty can be used for payment of Education Cess - however confused some officers of the Department are.

Board should help in reducing litigation by issuing a clarification immediately.

Hyderabad II Commissionerate gets Rs. 15.69 Crores in one VCES Declaration

HYDERABAD II Commissionerate has done it! They got a huge revenue of Rs. 15.69 Crores from a single declarant under the VCES. Satyam Computers (Now Tech Mahindra) has filed a declaration for availing VCES 2013 and declared Rs. 15,68,77,700/-as Service Tax due under Sponsorship Service. They have paid the entire declared amount of Rs. 15,68,77,700/-on 09.10.2013.

We congratulate Commissioner MK Singh, Additional Commissioner Padmasri and all other officers in the VCES team of this Commissionerate who could instil confidence in the assessee to come forward to avail VCES. If the Department is VCES friendly, so will the assessees be.

Tariff Values of Gold and Silver slightly reduced - Other items also affected

THE Government has reduced the Tariff values of Gold, Silver and Areca Nuts and changed the values of most of the other items.

Tariff values as on 30.09.2013 and with effect from 15.10.2013 are as under:

Table 1

Table 2

Table 3

Notification No. 104/2013-Cus (NT), Dated: October 15, 2013

Swiss Bank Accounts; not all that secret any more

SWITZERLAND has become the 58th country to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (as reported in our Mixed Buzz on 16th October). The Convention was developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010. The Convention is the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance, a top priority for all countries. The Convention is a multilateral agreement designed to facilitate international co-operation among tax authorities to improve their ability to tackle tax evasion and avoidance and ensure full implementation of their national tax laws, while respecting the fundamental rights of taxpayers.

The Swiss Bank accounts may no more be all that secret. Will it mean the revelation of the slush funds or their flight to another safe destination?

Please also see Bringing back all the Money stashed away in foreign banks -a twist in the tale in DDT 1069.

From year of introduction alone it cannot be concluded that machine is not manufactured in previous year - allegation of under valuation not sustainable: CESTAT

THE respondent imported one set of used Noritsu Minilab system consisting of one Printer Processor Model QSS2211V and one Film Processor Model QSF430L with standard accessories with a declared value of US 00. The respondent declared the year of manufacture as 1995. On examination of the goods, the Customs authorities opined that the machine appeared to be less than ten years old and the residual life is more than five years.

Consequently, proceedings were initiated on the ground of under-valuation. The adjudicating authority loaded the value, ordered for confiscation of the machine and demanded differential duty and also imposed penalty.

As the Commissioner (A) set aside the order, the Revenue is aggrieved and has filed an appeal before the CESTAT. The year was 2004.

The matter was heard recently but the respondent was not around.

The primary argument of the Revenue is that since the model of the impugned machine was introduced in the year 1996, the year of manufacture could not have been 1995 as claimed by the importer; it is clear from the documents retrieved from the respondent's Delhi office that the model was introduced in the year 1996.

The Bench held -

"5. …The value in this case has been loaded on the basis that on physical appearance the machine appears to be less than 10 years old and the residual life is more than 5 years. Undisputedly, the examination was carried out by the officers present in the dock and the same has been accepted without any corroboratory evidence. We further find that in the letter of the respondent dated 6.3.2003, it is clearly mentioned that the year of manufacture is 1995. From the year of introduction alone it cannot be concluded that the machine is not manufactured in the previous year. Therefore, merely on presumption and assumption it cannot be said that the machine is less than 10 years old. In these circumstances, we do not find any merit in the appeal filed by the Revenue…"

The Revenue appeal was dismissed.

See 2013-TIOL-1534-CESTAT-MUM

Jurisprudentiol – Friday's cases

Service Tax

Amounts of Rs.1210 Crores and Rs.283 Crores given by M/s RCOM to appellant -When such payments have been made to appellant before firm came into existence, it is not understood as to how this amount can be treated as consideration received for services rendered by appellant: CESTAT

THE DGCEI received intelligence that M/s. RIL has been providing infrastructural support services to M/s. RCOM since April 2007 and though M/s. RIL were in receipt of sums from their service recipient towards charges for the service so rendered, they were not discharging their service tax liability. Investigation conducted revealed that M/s. RIL had entered into a master service agreement dated 10/04/2007 with M/s. RCOM. In this agreement, apart from the nature of the services to be provided by M/s. RIL and the service charges payable, it was specifically mentioned that financial support also would be provided by the service recipient to M/s. RIL as advances or customer credit which should be settled by way of set-off against the service charges payable to M/s. RIL.

Information technology service was brought under the service tax net with effect from 16/05/2008 -Consequently, the activity of testing and analysis of IT software was also brought into tax net by amending definition -testing and analysis of IT software would be leviable to service tax only with effect from 16/05/2008 - Revenue appeal dismissed: CESTAT

THE  appellants were engaged in providing services relating to testing and analysis of computer software for their clients located in India and abroad during the period 01/07/2003 to 31/03/2008. However, they did not take any service tax registration nor did they discharge any service tax liability.

The CCE, Pune-I dropped the demands on the ground that testing IT software was not part of the Technical testing and analysis service until 2008 and the activity of development of IT software itself was excluded from the scope of service tax until 2008 and, therefore, the service tax demand cannot be sustained. Not ready to let go of such huge demands, the Revenue wanted to test the merits of the order before the CESTAT.

Income Tax

Whether when assessee fails to receive her alimony and then she settles her past and future claims for certain lumpsum amount, such receipt is to be treated as capital receipt -YES: ITAT

THE issues before the Bench are -Whether when the assessee fails to receive her alimony and then she settles her past and future claims for certain lumpsum amount, such receipt is to be treated as capital receipt and Whether accumulated monthly installments of alimony can be taxed u/s 56(2)(vi). And the verdict goes against Revenue.

Central Excise

CENVAT -Bagasse arising during manufacture of sugar and molasses -no need to pay amount of 5%/10% on ground of common Inputs/Input Services: CESTAT

THE applicants are engaged in the manufacture of sugar and molasses. For the manufacture of sugar, sugarcane is crushed and ‘bagasse' is generated as waste in the course of manufacture of sugar. Revenue is of the view that the applicant has availed credit in respect of common inputs used in or in relation to manufacture of final product cleared on payment of duty as well as without payment of duty. The applicant had not maintained separate record regarding inputs, therefore, the applicants are liable to pay 5% / 10% of the price of ‘bagasse' which was cleared without payment of duty.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a Nice Day.

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