TIOL-DDT 1066
05.03.2009
Thursday

REVENUE seems to be having a love for realising Revenue on freight. They have been fighting hundreds of cases in all appellate forums to get that extra pie of excise duty on transport charges. Right from the Supreme Court down to some rare ‘reasonable' Commissioners, everyone had been repeatedly telling them, “your duty is on manufacture, not transport” – but they don't listen. Whatever you write in your Rules, the fact remains that you cannot simply levy excise duty transport charges.

In this latest case, which we bring you today, they not only as usual ended up losing the appeal, but also were to pay the costs.

One reason for such frivolous appeals even after the issue had been settled long ago is, ‘the Revenue thinks they have no costs for litigation'.

Have a look at some decided cases of the Supreme Court.

BOMBAY TYRE INTERNATIONAL LTD - 2002-TIOL-374-SC- CX

Where the goods are sold by the assessee in the course of wholesale trade at a place or places outside the factory gate, the assessee will be entitled to a deduction on account of cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight even where such freight is charged on average basis so that the wholesale cash price from any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the average freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no Excise duty can be charged on it.

SHIVA GLASS WORKS - 2002-TIOL-410-SC-CX

As regards the transportation charges, it is clear that the transportation charges have been levied for the journey from the factory gate. They have been equalised and applied irrespective of the distance covered by the marketed goods from the factory gate and also without regard to the weight of the goods. Equalisation of freight should make no difference to the claim for deduction so long as the transportation charges are imposed in respect of the journey of the goods beyond the factory gate.

MADRAS RUBBER FACTORY LTD - 2002-TIOL-49-SC-CX-LB

Where the sale is effected at the factory gate, the several expenses mentioned including “charges for other services after delivery to the buyer, viz., after-sales service and marketing and selling organisation expenses cannot be deducted” from the price and (ii) where the sale is effected through the assessee's sales organisation at a place or places outside the factory gate, even there the aforesaid expenses cannot be deducted. The assessee, however, will be entitled in such a case to deduct the cost of transportation (including the cost of insurance on the freight) incurred for transporting the goods from the gate to the place of delivery.

BARODA ELECTRIC METERS LTD - 2002-TIOL-96-SC-CX-LB

Since the duty of excise is a tax on the manufacture and not a tax on the profits made on transportation, the excess amount collected by way of freight and transportation charges would not become part of assessable value.

ESCORTS JCB LTD - 2002-TIOL-05-SC-CX

The place of removal of goods is factory premises since the transaction of sale, payment of price and handing over possession of the goods to the carrier after clearance is at the factory.

Why is the Government so determined to collect that excise duty on transport charges, when their job is to collect excise duty on goods manufactured? This fad is extended to ridiculous levels where in Service Tax, outward transport is considered to be input service only if the cost of transport is included in the assessable value and the concept of ‘Place of Removal' is exported into service tax causing utter confusion.

Please see Breaking News for an important Supreme Court judgement we are carrying today.

Integrated Guided Missiles fly out of excise exemption – Government again on resurrection – a deadly Notification

As per Sl. No. 14 of the Table to the Notification No. 39/1996-Customs, dated : July 23, 1996, Machinery, equipment, instruments, components, jigs, fixtures, dies, tools, raw materials, accessories and spares required for the purposes of Integrated Guided Missile Development Programme (IGMDP) of the Ministry of Defence were exempted till 1.1.2009.

Now the Government has extended it till 31.12.2009, but after a lapse of 61 days. What happens to imports if any that took place between 1.1.2009 and 2.3.2009?

In fact this is not the first time this happened that this notification is resurrected after its death. Last year also the same thing happened. The Notification lapsed on 1.1.2008 and they extended it till 1.1.2009 on 4.2.2008 after a lapse of 34 days. Please see DDT 799 - 07.02.2008.

If your notifications are not kept simple and few in number, it is very difficult to keep track of them and renew them.

Incidentally when this notification was issued, the date of lapse was 1.1.2000 and it had been extended till 2008 –

By Notification No. 11/2000 - Customs, DATED : January 31, 2000, it was extended till 1.1.2002 when it was already dead for 30 days. However the next extension was on time when by Notification No. 130/2001-Customs, DATED: December 24, 2001, it was extended till 1.1.2006 and so was the next extension, when its validity was extended till 1.1.2008 by Notification No. 105/2005- Cus dated 28-12-2005 and then in 2008 they have again resurrected it after 34 days by NOTIFICATION NO. 14/2008- Cus., Dated: February 4, 2008.

And now in 2009, they have again resurrected it after 61 days.

Notification No. 23/2009- Cus ., Dated: March 3, 2009

ITC HS Codes Aligned with the Customs Tariff

The Government (read DGFT) had issued a Notification No. 94 on 2.3.2009, which our boys had a tough time uploading because of its sheer size.

What the government has really done was to align the ITC HS Codes with the Customs Tariff. There is no amendment in Policy for any item under the Notification.

DGFT Notification No. 94/(RE-2008)/ 2004-2009, Dated: March 2, 2009

and

DGFT Policy Circular No. 69 (RE-2008/2004-09) Dated: March 2, 2009

SEZ Developer - Amendment in Rule 6(6) (i) of CENVAT Credit Rules – Only Prospective

As you may recollect, the CENVAT Credit Rules have been amended by Notification No. 50/2008-CE (N.T.) dated 31st December, 2008 whereby the clearances made to both ‘SEZ units' and ‘SEZ developers' have been put on the same plane so far as Rule 6 of CCR is concerned and as a result, the manufacturers making clearances even to SEZ developers henceforth would not be required to maintain separate accounts or to pay 10% amount or reverse the credit as required under Rule 6 of CCR.

In DDT 1024 – 02.01.2009, we had raised certain issues like,

It should in probability end for the clearances made prospectively from 1/1/2009. Then what about past clearances? This is again an issue for raising big audit objections by C& AG.

Apart from the clearances made to SEZ units/SEZ developers directly, the DTA units also make clearances to contractors appointed by SEZ units. How to treat these clearances? Should they be treated as clearances made to SEZ units?

The government by amending clause i) of Rule 6 of CCR appears to be of the view that the clearances to SEZ developers/SEZ units as not constituting ‘exports under bond' so as to be covered under clause (v) of Rule 6(6) of CCR. Will this in  any way weaken the DRI view point of holding  such clearances as constituting ‘export' under bond?

Maybe the Board should come out with a detailed clarification on these issues and be a good sport and make this amendment retrospectively valid – we may have to wait till the next Budget for that to happen.

But the Board has not been as good as we hoped and the Board gave a clarification that the amendment is prospective in nature and would apply to supplies cleared from the date of the notification only and it is applicable only for the "authorized operations" of the developer.

This important clarification was again a secret communication, not a public circular.

CBEC's F.No.267 /52/2008- CX -8 Dated : January 7, 2009

Customs Officers Protest against Parking Charges at Airport

Customs officers enjoy free parking facilities in most of the airports of the world, but recently the Customs Men at Australia's Sydney Airport took out a rally protesting against an annual increase of about 2000 dollars in parking charges.

An officer said, “Without secure parking, officers' safety and security will be placed at risk. The train service is expensive and limited. The bus service doesn't even operate after dark. The nearest off-site free parking was a 25-minute walk to an isolated industrial zone.”

Australian Customs and Border Protection said the paid parking was introduced because a three-year free car-parking arrangement secured as part of the lease of a new headquarters in the airport precinct had expired.

Jurisprudentiol–Tomorrow's cases

Central Excise

Finalization of provisional assessment and differential duty paid before finalization – Interest cannot be charged prior to 01.07.2001 as there was no provision for the same – Tribunal

BOTH Rule 7(4) of the CER , 2001 (w.e.f 01.07.2001) and CER, 2002 (w.e.f 01.03.2002) mandates that an assessee pays interest on the amount payable consequent to finalization of provisional assessment; however no such provisions existed in earlier rule 9B of CER, 1944.

Also see our 'Guest Column'

Income Tax

Investment of interest-bearing fund - no immediate return - Revenue cannot disallow interest expenditure as investment in subsidiaries where assessee has stakes, is business decision to get business from them: ITAT

UTILISATION of interest-bearing funds is a major bone of contention in the tax domain. Since interest expenditure is an allowable deduction, Revenue generally tends to look at the corresponding entry of income arising from investment of such funds. However, for a business entity, it is an investment which may bear fruit or may go fruitless. Should Revenue disallow the interest expenditure if an investment goes awry? Anyway, here is a case where the assessee has share application money as well as interest-bearing funds. AO simply disallows on the ground that the business in which investments were made did not commence in the relevant year. But the CIT(A) disallows only the proportionate interest, after considering the availability of the share application money with the assessee.

And the final verdict of the Tribunal against these facts is that the CIT(A) order is not sustainable even though he has only partly disallowed the interest expenditure. And rationale for the same decision is that whether it is own fund or interest-bearing fund, as long as the same is invested in the subsidiaries of the assessee-company and the subsidiaries utilise the same for furtherance of their business which in turn sub-serves the interest of the assessee-company which has a reasonably good stake in the subsidiaries, the disallowance cannot be made. Thus, the Revenue's appeal is dismissed.

Customs

Conflicting judgements from two division benches as to whether appeal lies before a Tribunal on rejection of application for renewal of CHA license – Matter goes to larger bench – CESTAT

THE appellant aggrieved by the rejection of his application for renewal of CHA license approached the Tribunal for redressal. However, at the outset the Departmental Representative raised a preliminary objection on the maintainability of the appeal before the Tribunal. He relied on the decision of Delhi Bench in the case of G.P. Jaiswal vs. Commissioner of Customs, Lucknow. The counsel for the appellant countered this by relying on the Chennai bench in the case of Sri Shipping Services vs. Commissioner of Customs, Coimbatore.

See our columns tomorrow for the judgements

Until tomorrow with more DDT

Have a nice Day.

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