TIOL-DDT 2435
11.09.2014
Thursday

IN 2014-TIOL-664-CESTAT-DEL, the CESTAT held that the value of the goods and materials, which are used for the repair of the transformers, on which excise duty/VAT is paid, need not again suffer Service Tax. The Tribunal relied on several decisions to arrive at this conclusion, but Revenue was not impressed and took the matter in appeal to the Allahabad High Court with the following question of law:

"Whether the CESTAT has erred in holding that Service tax is not required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid on the value of the said goods, ignoring the fact that as per the contract the respondents were under an obligation to replace the damaged parts and to maintain the transformers in a proper working condition."

The Commissioner had in his order fairly observed,

"In this regard, I am in agreement with the party's view that while providing any kind of service of repair and maintenance, if any goods are replaced which are separately identifiable and on which proper taxes have been paid, the value of such goods should be excluded from the total value charged for the purpose of levy of Service Tax and the Service Tax should only be charged on the value representing the labour charges etc. as provided under Notification No.12/2003 dated 20.6.2003;

But he found a subtle difference:

but in the instant case, the condition are altogether different as in this contract a complete repair package cost per transformer (capacity wise) is being charged by the party. Further, it has been explained under para 1.2 of the said contract that for the purpose of calculations of price variation of HV/LV Leg Coil, Transformer Oil, excise duty, Sales Tax, the breakup of repair package is being given that means the replacement of parts like HV/LV Leg Coil, Transformer Oil was as part and parcel of condition of the said contract and the party was not having any option not to replace these items etc. which do not find a mention in the said contract.

And so he demanded Service Tax on the entire amount.

The High Court observed,

Tribunal held that merely because the segregation of various items was shown in the contract for the purpose of price variation, the contract would not be regarded as one for providing services inclusive of the value of the goods which were used. The Tribunal relied upon Notification 12/2003-ST, dated 20 June 2003 under which the value of goods and materials sold by the service provider to the recipient of services stands exempted from the service tax leviable thereon subject to the condition that there should be documentary proof specifically indicating the value of the goods and materials.

In the present case, it has been found as a matter of fact that the value of the goods and materials utilized for repair of the transformers is separately disclosed in the agreement and is separately mentioned in the invoices of the assessee. The assessee has paid excise duty or, as the case may be, value added tax on goods used in the repairing process. It was in this factual background, on which there is no dispute that the Tribunal held that service tax could not be demanded on that component representing the value of the goods and materials used for carrying out repairs. The mere fact that the cost of the various items was shown for the purpose of price variation was held not to make any difference to the legal position.

On this finding of fact which was recorded by the Tribunal, no substantial question of law would arise. As a matter of fact, we may note that in the memo of appeal which has been filed by the Revenue, no effort has been made to displace the finding of fact which has been recorded by the Tribunal as being admitted.

And so the Revenue appeal was dismissed.

Please see 2014-TIOL-1555-HC-ALL-ST

Serve a copy of appeal on assessee - High Court tells Revenue

IN the above case, assessee had a grievance that before appeals are filed before the Court by the Revenue, in view of the directions of the Court, service is required to be effected on the assessee prior to filing. However, it has been stated on behalf of the assessee that the Revenue serves only a narrative prepared by the Commissioner and not the memo of appeal, as a result of which it becomes difficult for the assessee to track the appeals which are being filed.

This is disputed by the counsel for the Revenue.

The High Court observed, "We only need to clarify that the Revenue, when it causes service to be effected on the assessee, must ensure that a complete set of the paper book is served on the assessee and not just the narrative so as to enable the assessee to pursue and keep track of the appeal when it is filed."

Air-conditioners not working in Court - Interference in Justice Delivery
Contempt Proceedings against Registrar

Cool temperature or temper?

Humidity or Humility?

DEFECTIVE air-conditioners caused a mild temperamental turbulence in a High Court recently. Place: Court No. 24 of the Lucknow Bench of the Allahabad High Court. Date: 26.08.2014

The Court noticed that 5 out of the 7 air conditioners installed in the Court were not working. Members of the Bar have been regularly making complaints. Due to non-functioning of 5 ACs, the atmosphere of the Court is very harm (warm - a spelling mistake, but maybe no mistake in meaning) and humid. The ACs were in such a bad condition that the panel of one of them fell on the head of a litigant, but fortunately, he sustained minor injuries. Divine Judgement?

On the previous day, the Court summoned the Senior Registrar and asked him to look into the matter and to get all ACs repaired so as to ensure that judicial functioning of the Court shall not be hampered due to non-functioning of the ACs installed in the Court, otherwise, stern action be taken against him.

But nothing happened.

The Court observed,

"To our dismay, it is found that despite the oral warning given to the Senior Registrar of this Court yesterday i.e. 25.8.2014, the Senior Registrar failed to make sincere efforts to ensure proper functioning of the ACs.

Taking serious note of the facts, we summoned the Senior Registrar again today and asked him as to why ACs are not properly repaired, despite oral direction given by this Court yesterday. The answer of the Senior Registrar is not as such which may impress us.

It would be apt to mention here that functioning of the constitutional body should not be adversely affected on account of certain lacuna of the administrative side in our judicial system. Tradition or practice which affects the administration of justice without any reasonable cause should be removed. The highest constitutional body on judicial side of the State should be made functional to its optimum level. In other words, Courts should function at all costs but on account of non-functioning of ACs and humidity and warmness in the Court, it becomes very difficult to discharge the judicial functions. It may be added that Sri …. (Registrar), when appeared before us, instead of giving assurance for speedy repair of ACs, uttered

And the Court promptly directed the office to register a criminal contempt case against the Senior Registrar and issue a notice to him as to why a proceeding under the Contempt of Courts Act should not be initiated against him.

We hope the court is cool by this time.

Exemption of vessels operating under the SEZ Rules, 2006 for oil spill response

A request has been received from Indian Coast Guard seeking exemption of vessels operating under the SEZ Rules, 2006 for oil spill response. The matter has been examined and it has been decided that the vessels authorized for use within the SEZ may be exempted from the application of Rule 34 of the SEZ Rules, 2006 for the following purposes:

(i) When the vessels are required to respond to oil spill emergencies under the direction of the Coast Guard as per the National Oil Spill Disaster Contingency Plan (NOSDCP); and

(ii) When the vessels are required to participate in scheduled oil spill response exercise under the directions of the Coast Guard as per the NOSDCP

DEPARTMENT OF COMMERCE (SEZ DIVISION) INSTRUCTION NO.81/2014, Dated: September 08, 2014

Frustrated Central Excise Supdts to demonstrate before residences of top brass

RAVI Malik, Secretary General of the All India Association of Central Excise Gazetted Executive Officers informs "Nothing being left to be happy in the life of the Superintendents of Central Excise, Service Tax & Customs in relation of career, pay or any other service matter, these officers will gather before the residences of Joint Secretary (Admn.) and Member (P&V) of Central Board of Excise & Customs on 20.09.14 in a symbolic manner to submit their pain to these authorities under the revival of Satyagraha programme in New Delhi. Same programme will be observed before the residences of Chairperson of CBEC and Revenue Secretary on 21.09.14. Despite of total demoralisation, disappointment, job dissatisfaction, demotivation, humiliation & frustration, the revenue targets are regularly being achieved above the set targets by the sincere, committed & dedicated efforts of these officers but nobody is worried about their career prospects."

In spite of the huge cadre review these officers are not happy as still many of them will not get promotions. What makes these officers angry is that the cadre review notified in December 2013 is yet to be implemented, while officers are retiring every month frustrated over that elusive promotion. CBEC is trying to promote about 400 officers but it seems even this is not coming through as the annual reports of some of the officers are missing. In every Commissionerate you find agitated Superintendents running around to find out how their missing reports can be retrieved. "Why should they be held responsible for the lapse of the senior officers", is what they angrily question.

The other day a just promoted JC was lamenting before me that their promotion was delayed by eight months!

Nobody seems to be happy in the Department!

Jurisprudentiol - Friday's cases

Central Excise

Appellant has discharged CE duty on clearances made to their own unit by determining value based on AV of same products cleared to independent buyers - no cause for employing Rule 8 of Valuation Rules, 2000 - issue settled by LB decision in Ispat case: CESTAT

DURING scrutiny of records it appeared to the CERA Audit that the appellants were transferring excisable goods to their own manufacturing unit on a value determined based on the factory gate sale of the same product to independent buyers. The CERA Audit was of the view that the appellant had to discharge duty liability on such transfers to their own units based on the valuation of goods under Rule 8 of the Valuation Rules, 2000 read with Board Circular dated 13.02.2003.

SCNs came to be issued invoking the extended period and they all met the same fate as is the norm. The adjudicating authority confirmed the demands along with interest but spared the appellants of any penalty. This obviously made the Revenue unhappy and what happened was that both the appellant as well as the Revenue is before the CESTAT

Income Tax

Whether when excise duty is payable at time of clearance of finished goods or debonding from warehouse, any addition is warranted in relation to valuation of closing stock on last day of accounting year - NO: HC

THE assessee concern was engaged in the business of manufacture and sale of alcohol and vanaspati. In addition, it was having rental and interest income. During assessment, AO made addition on account of excise duty in closing stock. It was noticed that excise duty had not been included in the value of closing stock in compliance to the verdict of SC in the case of CIT Vs British Paints Ltd. 2002-TIOL-796-SC-IT holding that valuation of stock only at the actual cost of raw material/ finished goods and not taking into account the overhead charges was not a correct mode of valuation. Excise and custom duties' payable by the manufacturer were manufacturing expenses and should go into calculation of production cost and closing inventory should include an element of such duties.

The issue before the Bench is - Whether when excise duty is payable at the time of clearance of finished goods or debonding from warehouse, any addition is warranted in relation to valuation of closing stock on the last day of the accounting year. NO is the answer.

Customs

Import of old and used digital multifunction printing machines - although confiscation part of order had not been challenged by importer Tribunal had gone into merits only to come to a prima facie conclusion that case does not deserve enhancement of redemption fine and penalty - Revenue appeal dismissed: HC

THE respondent imported old and used digital multifunction printing machines and filed bills of entry. The Revenue took the plea that as per the Trade Policy 2004-2009, import of photocopier machine was restricted and required import licence. The goods were subjected to verification by the customs authorities and according to the Revenue, the importers have admitted that they did not have any import licence and they requested for adjudication.

Orders-in-original were passed, in which value was enhanced based on the Chartered Engineer's Certificate, whose value was accepted by the importers and the goods were thereafter confiscated and were allowed redemption of the goods on payment of fine and penalty.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

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