TIOL-DDT 2742
10 12 2015
Thursday

DO you know that the Central Excise Act has three Schedules?   The First Schedule was the Central Excise Tariff and with the Tariff Act in 1986, this First Schedule was omitted. But the Second Schedule continued without a first one. The Second schedule actually deals with tobacco and should have been deleted long before the Tariff Act came into force. But it merrily continues in the statute. And in 2003, a new schedule christened as Third Schedule was inserted. When there is no first schedule, why can't they at least re-number these schedules? There is no first schedule, the second schedule is irrelevant and what is the sanctity of the Third schedule?

The Third Schedule gets its right to exist from section 2(f) (iii) of the Central Excise Act, which defines manufacture as, "manufacture" includes any process,-

(i) Xxxxx

(ii) Xxxxxx

(iii) which, in relation to any goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.

So, for the products listed in the Third Schedule, packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, would amount to manufacture.

Why the Third Schedule? The Memorandum to the Finance Bill 2003 as well as the letter from JSTRU states, "Section 2(f) of the Central Excise Act is being amended so as to provide that for goods presently covered under the provisions of Section 4A, any process of packing, re-packing, labelling or re-labelling of goods, putting them into unit containers or any subsequent declaration of RSP on goods or alteration thereof, shall amount to manufacture."

But the amendment to Section 2(f) as extracted above made no mention of Section 4A, but it created a list called the Third Schedule.

So, now we have two lists, one under the Third Schedule and one under a Notification issued under Section 4A. The current notification is 49/2008-CENT, dated 24.12.2008. For some time, the lists under the Third Schedule and the notification were identical, but somewhere down the line, the CBEC lost track and the two lists went their different ways.

The confusion they created in 2003 is still haunting them. Even the Board is not sure as to the two lists and for that matter sometimes they forget the Third Schedule. Sometimes they are not clear as to whether the Third Schedule is to the Central Excise Act or the Central Excise Tariff Act. In fact, they carried this ignorance to Parliament. In the 2011 Finance Act, they got Parliament to amend the "Third Schedule to the Central Excise Tariff Act". DDT pointed out this blunder in DDT 1599 and they got it retrospectively amended in a complicated amendment in the 2012 Budget.

There is really no need for this confusing Third Schedule, which appears to be there in the statute only to confuse - more the departmental officers than the assessees.

This merry-making by the Board was elaborately dealt with by the CESTAT in the recently reported case of Larsen & Toubro 2015-TIOL-2561-CESTAT-MUM in the context of manufacture vis-à-vis valuation of parts and components of automobiles/vehicles etc. Please refer paragraphs 14.6 to 14.10 of the judgment.

A Bouquet to Board - Notification 67/95-CE; Clearances to SEZ Eligible for Exemption - CBEC Sees Reason

FROM TIOL-DDT 2697 - 05 10 2015

We  have been highlighting in these columns the harassment meted out to Indian Industry through frivolous Show Cause Notices and non-application of mind in confirmation of demands. We reported one such issue in 2013.

Notification No. 67/95-CE dated 16.03.1995 as amended provides exemption from payment of whole of the Central Excise duty on the specified inputs manufactured in a factory and captively consumed within the factory of production in or in relation to the manufacture of specified final products provided the final products are cleared on payment of duty. This means, duty is payable on the inputs/intermediate goods, which are captively consumed in the manufacture of final products, which are fully exempted from payment of duty or chargeable to 'Nil' rate of duty.

However, in the notification, exception is given to those goods, which are cleared:

(i) to a unit in  Free Trade Zone, or

(ii) to a Hundred Percent Export Oriented Undertaking, or

(iii) to a unit in a Electronic Hardware Technology Park, or

(iv) to a unit in a Software Technology Park, or

(v) under Notification No. 108/95-CE dt. 28.08.1995, or

(vi) by the manufacturer of dutiable and exempted final products after discharging obligation prescribed in Rule 6 of Cenvat Credit Rules, 2004

The DG, Audit of the Department noticed that an assessee cleared certain quantities of Cement at "Nil" rate of duty to  SEZ   units. The clearances to a unit in SEZ is not notified as exception under the Notification No. 67/95-CE dated 16.03.1995 and hence it appears that the assessees are liable to pay central excise duty on the intermediate goods viz., "Clinker" used in the manufacture of cement, cleared to SEZ units without payment of duty.

A simple application of mind by the officers in the field would have saved the time and money of both department and the assessee. It is strange to know that the officers holding highest position in the department are not aware that the clearances to SEZ are neither 'exempted' nor chargeable to 'Nil' rate, but are 'exports' allowed to be cleared without payment of duty. Such clearances to SEZ are even eligible for sanction of rebate on par with exports. The exemption under captive consumption notification is not available only in cases where final products are 'exempted' or 'chargeable to Nil rate' and clearances to SEZ do not fall under these categories.

The word   FTZ   is being continued in the notification No. 67/95-CE as a vestige of the past horrors, as there are no FTZs functioning in the country after enactment of SEZ Act.

But, who can put these simple facts into the minds of adjudication officers, when they have decided not to apply mind at the time of issuance of demands. All these notices are routinely confirmed for fear of review.

We had suggested in 2012 that references to "free trade zone" have to be removed and 'Special Economic Zones" inserted in all statutes, but Board allows such confusion in the statute to continue and then allows the Commissioners to create havoc in the field. Can you imagine several Commissioners actually held that the exception in Notification 67/95 is applicable for the non-existing FTZ and not the existing SEZ? Where has reason fled? Gurudev Tagore did not visualize IRS officers when he wrote about the clear stream of reason.

Recently the Chennai Bench of the CESTAT emphatically held that the assessees are eligible for exemption under Notification 67/95-CE on clinker captively consumed for manufacture of cement cleared to SEZ units/developers without payment of duty.

This was one of the issues discussed in the Central Excise Tariff Conference organised by the CBEC recently.

The Conference noted,

the issue has been decided by the Tribunal in case of M/s Ultratech Cement and other manufacturers 2015-TIOL-2110-CESTAT-MAD where the Tribunal decided that benefit of exemption to intermediate products is available when the final products are supplied to SEZ. Hon'ble Tribunal noted that during the relevant period of dispute, no FTZ was in operation and therefore no clearance could be made to FTZ as this was a period after the enactment of SEZ Act on 10.02.2006. Once the SEZ Act came into effect from 10.02.2006, all the units functioning as FTZ were declared as SEZ units. notification no. 4/2003-CE, dated 30.03.2003 was issued to convert various FTZs into SEZs. Further, as per the Notes explaining clauses of the Finance Bill, 2007 (clause 106), after enactment of SEZ Act, FTZs have become redundant and hence it sought to amend subsection (1) of Section 3 of the Central Excise Act. By virtue of the above amendment, the word FTZ was omitted and substituted with the word SEZ in section 3 of the Central Excise Act, 1944. Consequently, tribunal concluded that now the expression FTZ in the notification no. 67/95-C.E. needs to be read as SEZ and the benefit of exemption extended to the intermediate goods when final goods are supplied to SEZ. Conference accepted this view and concluded that benefit of exemption should be extended to the intermediate goods when final goods are supplied to SEZ. Conference also recommended to the Board that notification no 67/95-C.E. should be amended to avoid litigation on the issue.

It is a matter of great relief that the conference saw reason and the Board accepted it. This is a problem faced by all units supplying goods to SEZ. Hopefully litigation on this issue will be closed.

Para B-13 of CBEC Instruction in F.No.96/85/2015-CX.I., Dated: December 07, 2015

Inputs or Capital Goods Cleared as such - Reversal of CENVAT Credit - Board Overrules CAG

THE CAG in one of its recent reports on Central Excise observed,

As per rule 3(5) of the Cenvat Credit Rules, 2004, when input or capital goods on which Cenvat credit has been taken, are removed as such from the factory, the manufacturer of final products shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9. However, there is no provision for reversal of proportionate Cenvat credit of input services at the time of clearance of inputs/capital goods as such  .

So the CAG has suggested that:

Board may consider incorporating suitable provisions in Cenvat Credit Rules, 2004 requiring reversal of proportionate credit attributable to input services at the time of clearance of inputs or capital goods as such .

While reporting this, DDT 2592 07 05 2015, observed, "Let us hope the Board doesn't embark upon any such misadventure, which would make life more miserable for the assessee, and the revenue earned will not cover the cost of even one audit report."

We are happy to report that the CBEC has taken a very positive decision.

This was an issue discussed in the recent Tariff Conference and it was noted that Rule 3(5) of the CENVAT Credit Rules, 2004 does not provide for reversal in respect of input services for a reason. Input services are consumed once the inputs and capital goods are received in the factory. Thus on receipt of inputs and capital goods, the associated input services have to be considered as consumed within the factory and become a cost to the business. Demand for reversal of the input services credit, when such input services cannot be reused, unlike inputs and capital goods which are available for reuse would not be fair to the trade.

It was concluded that the present rule represents the correct provision in accordance with the principles of input tax credit. Rule 3(5) of the Cenvat Credit Rules, 2004, does not need any amendment. Audit para may be replied accordingly.

What a refreshing change that the Government wants to be fair to the trade and actually clarifies a point in favour of the trade against Audit - to be fair. Obviously some sections of the Board do consider issues fairly.

Para B-26 of CBEC Instruction in F.No.96/85/2015-CX.I., Dated: December 07, 2015

TN Floods - Govt Issues Notifications extending the date for payment of Excise Duty and Service Tax - Puducherry truly forgotten

THE Government has issued the necessary notifications for extending the dates of payment of excise duty and Service Tax for November 2015 in the State of Tamil Nadu till 20.12.2015.

We had reminded the Government that neighbouring Puducherry was also affected by the floods, but as of now it has fallen on deaf ears.

The Board has also acquired the power to extend the due date for returns.

Incidentally, the Board had come out with a Press Release on the 5th December also announcing that the date of filing of the Central Excise return for the month of November 2015 is being extended to the 31st of December 2015. Now that the Board has given itself the power, the notification extending the date of filing would in all probability be issued today.

Notification No. 25/2015-Central Excise (N.T.), Dated: December 09, 2015 and Notification No. 26/2015-ST, Dated: December 09, 2015

Sodexo Meal Vouchers are not 'goods'- Supreme Court

THE Supreme Court delivered an interesting order yesterday which may have some impact on Service Tax.

The appellant company is conducting the business of providing pre-printed meal vouchers which are given the nomenclature of 'Sodexo Meal Vouchers'. As per the appellant, it enters into contracts with its customers for issuing the said vouchers. These customers are establishments/companies having number of employees on their rolls. They provide food/ meals and other items to their employees up to a certain amount. It is for this purpose that the agreement is entered into by such establishments/companies with the appellant for issuing the vouchers. After receiving these vouchers for a particular denomination, some are distributed by the companies to its employees. For utilisation of these vouchers by such employees, the appellant has made arrangements with various restaurants, departmental stores, shops, etc. ('affiliates'). From these affiliates, the employees who are issued the vouchers can procure the food and other items on presentation of the said vouchers. The affiliates, after receiving the said vouchers, present the same to the appellant and get reimbursement of the face value of those vouchers after deduction of service charge payable by the affiliates to the appellant as per their mutual arrangement. In this manner, the appellant, by issuing these vouchers to its customers, gets its service charge from the said companies. Likewise, the appellant also takes specified service charges from its affiliates.

The question is as to whether these vouchers can be treated as ' goods ' for the purpose of levy of Octroi or Local Body Tax (LBT) or the activity only amounts to rendering service by the appellant. The issue was examined as per the relevant provisions of the Maharashtra Municipal Corporation Act under which the Municipal Corporation is entitled to levy and collect Octroi or LBT.

The High Court had held that these vouchers are goods.

Now the Supreme Court has held that Sodexo Meal Vouchers are not 'Sgoods' within the meaning of Section 2(25) of the Act and, therefore, not liable for either Octroi or LBT.

We bring you this order today. Please see Breaking News

Please also see our article Meal Vouchers - How Good(s) is it? And case law 2013-TIOL-1838-CESTAT-MUM

Until Tomorrow with more DDT

Have a nice day.

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