Bottling of liquor - Board realizes reality?
TIOL-DDT 463
05 10 2006
Thursday
Please recollect our article Beer manufacture and service tax - intaxicating? and the High Court judgement in 2006-TIOL-268-HC-MP-ST. regarding Service Tax on bottling of liquor. The article suggested and the High Court held that the activity of bottling liquor was liable to Service Tax. Under Business Auxiliary Service definition, manufacturing activity within the meaning of clause (f) of Section 2 of Central Excise Act is excluded from its purview. Since bottling of liquor does not amount to manufacture under Central Excise as liquor is not excisable at all, the obvious conclusion was that it would fall under Service Tax. But one of our enlightened netizens, Unnikrishnan had pointed out,
“As per section 2 (f) of the CEA, 1944 'any activity incidental or ancillary to the completion of a manufactured goods amounts to manufacture'. There is no condition that the process should be carried out for the completion of excisable goods. So any activity incidental or ancillary for the completion of non-excisable goods also comes under the purview of section 2 (f). Accordingly, it is only to find out whether the bottling is essential for the completion of liquor. As such the liquor cannot be marketed without bottling; the activity of bottling has to be considered as manufacture for the completion of liquor. So, it is pertinently seen that activity of liquor bottling is outside the purview of 'packaging service' under Section 65 of Finance Act, 1994. It appears that the aforesaid law point was not argued in the HC . Hope the said point will be presented in the apex court.”
Before the issue is decided by the Supreme Court, perhaps Board wants to get its share in the liquor business. Board has released a draft circular which stipulates that,
the activity of blending, manufacture, bottling or labelling, etc on job work basis by a distiller, in respect of Indian Made Foreign Liquor on behalf of brand owner, would be covered under the category of business auxiliary service.
While we are happy that Board has taken note of the issue pretty fast, we wish the Board would take into consideration the issue raised by Unnikrishnan, which has serious ramifications.
Incidentally is it legal and right for the Board to clarify an issue already decided by a High Court? Fortunately in this case the Board agrees with the High Court.
Interestingly, the Board circular has a disclaimer, “This Draft Circular has been put up only to elicit public response. No final decision has been taken by Government/ Board. Government/ Board will proceed further in the matter only after due examination of the responses received.”
Is it to preempt the powerful liquor lobby from going to court? Trouble is brewing fast for the brewing industry and the concept of contract brewing is likely to undergo a major change. Intaxicating days ahead? If you have any comments, send them to the Board by 20th October.
Draft Circular in F.No. 249/1/2006-CX.4
ST-3 Form to be amended
The Board wants to amend the ST- 3 form again. This was a simple form for Service Tax return in 1994. The form survived for 8 long years when it was substituted with a new form by notification No. 12/2002-S.T., dated 1-8-2002. The form was again changed by Notification No. 31/2005-S.T., dated 20-10-2005. Now exactly a year later, Board proposes to change the form. A draft form has been published for comments. This also has the disclaimer.
DRAFT FORM ST-3
Sale to SEZ – How to claim rebate?
A netizen has sent us a copy of a letter written by the Gujarat Chamber of Commerce and Industry to the CBEC Chairman about difficulties in getting rebate for goods supplied to SEZ. The letter states,
As per the provisions of the Special Economic Zone, goods sold by a unit in Domestic Tariff Area to a Unit in this Zone are considered as exports. As per Rule 30 of the Special Economic Zone Rules 2006, a unit in DTA can supply goods to a unit in SEZ either under Bond or under claim of rebate. As per the rule, if the goods are supplied to SEZ unit by DTA unit under claim of rebate, the DTA unit can claim the refund of Excise Duty.
Notwithstanding the aforesaid provision, the DTA units are not in a position to get refund of Excise duty paid on the goods supplied to a unit in SEZ as no procedure has been prescribed by the Government.
On account of the above anomaly, huge amount of funds of DTA units are blocked for want of rebate of Duty.
No procedure is required Sir. As you have rightly mentioned, Rule 30 of the SEZ Rules provides that
The Domestic Tariff Area supplier supplying goods to a Unit or Developer shall clear the goods, as in the case of exports, either under bond or as duty paid goods under claim of rebate on the cover of ARE-I referred to in notification number 40/2001- Central Excise (NT) dated the 26th June, 2001. (Of course this Notification was rescinded in 2004 about which the Commerce Ministry is blissfully ignorant in 2006)
SEZ is deemed to be outside India and any clearance to SEZ is export and rebate can be claimed as if the goods are exported. Apparently, the Chamber has faced some problems where rebate is not sanctioned. Will the Board issue a clarification that clearances to SEZ should be treated as exports and rebate granted?
SEZ – why treat them on par with real estate – Commerce Secretary seeks clarification
The new Commerce Secretary GK Pillai in his first press conference after assuming office had quite a few bites for the press. He informed that he had a written a lrtter to the RBI seeking a clarification on why the SEZs are treated on par with real estate.
++ not a single farmer has been displaced owing to the 181 SEZs which have been cleared till now
++ much of the debate around SEZs does not consider the fact that only one SEZ in Mumbai in Maharashtra had been cleared for an area as large as 10,000 hectares. The other SEZs in Gurgaon and Dadri being cited had earlier been given approval "in principle'' before the SEZ Act came into force, but had not been formally cleared by the Board.
++ land being a State subject, the Board of Approval had advised State industrial development corporations to give land in SEZs on a lease rather than to sell it.
++ States had been told to ensure that double cropped land should not amount to over 10 per cent of the land being acquired.
++ It was envisaged that housing should be provided within the SEZs for employees as otherwise it could lead to congestion in neighbouring cities as has happened in Bangalore.
++ Customs clearance of perishable goods will be faster.
Exporting corruption – India tops
‘Corruption’, as a great lady, remarked is a global phenomenon and we are true to globalization. Not only do we practice it, but we export it. Transparency International has just released its “Bribe Payers Index 2006” of exporting countries.
The BPI looks at the propensity of companies from 30 leading exporting countries to bribe abroad. Companies from the wealthiest countries generally rank in the top half of the Index, but still routinely pay bribes, particularlyin developing economies. Companies from emerging export powers India, China and Russia rank among the worst. In the case of China and other emerging export powers, efforts to strengthen domestic anti-corruption activities have failed to extend abroad.
India consistently scores worst across most regions and sub-groupings. China is the world’s fourth largest exporter and ranks second to last in the Index.
India’s exports account for hardly one percent of the world’s exports, but in corrupting abroad, we are right on top.
But in all these great countries where Indians paid bribes, obviously there were innocent bribe takers. Who is more guilty, the bribe giver or taker? That reinforces the view that corruption is after all a global phenomenon.
LTUs – How serious is the Government?
The Bangalore LTU is supposed to be functioning from 3rd October but they are still posting people and they could not find a Chief Commissioner to head the LTU. It is another additional charge.
Until tomorrow with more DDT
Have a nice day.
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