TIOL-DDT 1008 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1008</font><br>
10.12.2008<br>
Wednesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Credit on goods procured from 100% EOUs - CENVAT Credit Rules amended finally</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In respect of 100% EOUs, not only the duty payable by the units (when they clear the goods in DTA) but also the amount of CENVAT credit available to the buyer of the goods has always been a confusing affair. However, to make things simpler, a formula was introduced in Rule 3(7) to quantify the amount of Credit available to the purchaser of the goods. When Notification <a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_023.htm" target="_blank"><strong>23/2003 CE</strong></a> has been amended vide Notification <a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2006/etariff06_022.htm" target="_blank"><strong>22/2006 CE</strong></a> dated 1.3.2006 to prescribe the duty payable by the EOU as "aggregate duties of customs on like goods imported with the duty of customs specified in the First Schedule to the Customs Tariff Act, 1975 reduced by 75%", the revised formula was incorporated in Rule 3(7) as under:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The credit shall be equal to X multiplied by {( 1+BCD/400) multiplied by (CVD/100)}</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assuming the value as Rs 100, BCD rate at 20% and CVD rate at 14%, the credit amount will be:</font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">{100X (1+20/400) multiplied by 14/100} = 14.7</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This 14.7 is nothing but the CVD payable on the goods at 5% (20% rate reduced by 75% under Notification 23/2003) BCD</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The duty payable by the EOUs has been revised in Budget 2008 and Notification 23/2003 has been amended vide Notification <strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/etariff08_10.htm" target="_blank">10/2008 CE</a></strong> dated 1.3.2008 to prescribe the customs duty as:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"the duty of customs specified in the First Schedule to the Customs Tariff Act, 1975 read with any other notification in force was reduced by 50%".</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, with the same rates as mentioned above, the CVD payable by the EOUs from 1.3.2008 will be:</font></p>
<div align="justify">
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top" width="254"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessable value </font></p></td>
<td valign="top" width="95"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rs 100 </font></p></td>
</tr>
<tr>
<td valign="top" width="254"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">BCD at 10% (50 % of 20%) </font></p></td>
<td valign="top" width="95"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rs 10 </font></p></td>
</tr>
<tr>
<td valign="top" width="254"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Value for CVD </font></p></td>
<td valign="top" width="95"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rs 110 </font></p></td>
</tr>
<tr>
<td valign="top" width="254"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CVD at 14% </font></p></td>
<td valign="top" width="95"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rs 15.4 </font></p></td>
</tr>
</table>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus, with effect from 1.3.2008, the buyer of the goods in DTA should have been entitled for a credit of Rs 15.4, but unfortunately the mathematician who incorporated the formula in Rule 3(7) of the CENVAT Credit Rules 2004 must have been transferred from his place by 2008 and nobody after him could understand the importance of amending the formula in CENVAT Credit rule to make the credit available as Rs 15.4 in view of the amendment to Notification <a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_023.htm" target="_blank"><strong>23/2003 CE</strong></a> in 2008.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, even after 1.3.2008, the Credit was governed by the old formula as per which only Rs 14.7 was available as credit.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the post Budget seminars organized by <strong>TIOL</strong>, many assessees explained that the formula in Rule 3(7) should be revised to replace the denominator 400 with 200 to make the credit available as Rs 15.4, but nobody could understand the crux of the issue. In an open house conducted in Hyderabad by FAPCCI, when a young Chartered Accountant was trying to explain the formula to the babus and the need for the amendment, he was simply silenced by clarifying that "Look, there is formula in the Rule and there must be reason behind it. Just follow the formula".</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And finally, after nearly 10 months, their prayers were answered. Rule 3(7) of the CENVAT Credit rules has now been amended to replace the denominator (400) in the formula with 200. The new formula now reads:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"X multiplied by [(1+BCD/200) multiplied by (CVD/100)]"</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What about the credit for the period from March to November? When they don't amend on their own, why can't they just give a patient hearing to someone who is trying to put forward the problem and try to understand the same?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We had brought this problem to the notice of the Board.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An assessee had asked the Board, In the recent budget, the duty now chargeable would be equivalent to 50% of the Basic Customs duty plus CVD (as applicable) as per notification no <strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/etariff08_10.htm" target="_blank">10/2008 CE</a></strong> dated 01-03-2008. We request you to kindly advice us any corresponding amendment with regard to availment of CENVAT credit under Rule 5(7) of CENVAT Credit Rules, 2004.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And the reply received from the Board tersely stated<strong>, <em>"there has been no amendment in this provision"</em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We had also extensively explained this issue in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7331" target="_blank">TIOL-DDT 870 22.05.2008</a> - </strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7331">Duty paid by EOUs for DTA clearance - amount of credit eligible. Board forgets to amend Cenvat Credit Rules while amending Notification No. 23/2003</a></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are happy that the Board has finally relented and amended the Rules, but this should have been done with retrospective effect.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We made an inadvertent mistake in our flash that the Credit is doubled and vigilant Netizens pounced on us. We thank them and we regret our lapse.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/exnt08_48.htm" target="_blank">Notification No.48/2008-Central Excise (N.T.) dated 5th December, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Reduction in duty rates across the board - shouldn't abatement rates and rule 6 amount payment follow suit?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have been receiving calls from anxious assessees as to whether the abatement rates for MRP based assessment, had been reduced consequent to 4% reduction in excise duties across the board. They wondered why there is no simultaneous amendment in the notification 14/2008 CE (N.T) dated 01.03.2008 prescribing various rates of abatement for commodities subjected to MRP based valuation. Since the duties have been reduced by four percentage points, shouldn't these abatement rates be also reduced?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We were surprised that the assessees were so concerned instead of enjoying the benefit; then a soft drinks giant informed us that what he really wanted to know is whether such a notification had been issued and we had not carried it. He also told us, "the trade is happy; don't remind the government about this." </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">AG's Audit will certainly object - stimulus notwithstanding.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Similarly, as mentioned in our analysis of the mini-budget, the 10% amount required to be paid under rule 6 of the CENVAT Credit Rules, 2004 needs a fresh look.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This 10% payment made its appearance when the CCR, 2002 gave way to CCR, 2004 on 10.09.2004. Earlier, it was 8% since the day such a rule came into being on 01.09.1996 in the form of rule 57CC, 57AD of CER, 1944, rule 6 of CCR, 2001. Incidentally, when it was made 10% on 10.09.2004, the 2% Education Cess was already in vogue since 09.07.2004. Although the Secondary & Higher Education Cess of 1% came to be imposed since 01.03.2007, the percentage of 10% amount still continued.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Union Budget, 2008 also failed to address this 10% factor suggesting that it is an "amount fixed" and would remain constant, come what may.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, that the CENVAT duties have been reduced by four percentage points across the board, except, of course in respect of petroleum products, this 10% amount to paid on the value of the exempted goods certainly needs a correction.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Bura, makhana, mishri, hardas or battasa (patashas) - exempted from Excise Duty</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What are all these? Obviously they are all sweet and classified under 1701 91 00 - <strong>refined Sugar containing added flavouring or colouring matter.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Bura </strong> - It is finely grained sugar and generally eaten with rice and ghee. It's the most famous dessert for common people especially in Uttar Pradesh.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Mishri - Candy Sugar, </strong>(or sweet diamonds as it is popularly called) is sparking white big crystal sugar obtained by cooling supersaturated sugar solutions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Makhana (Euryale ferox)<em>, </em></strong>a dry fruit, famed for its easy digestibility, high nutritional contents and wide use in religious fasting by people all over India<em>.</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Battasa </strong> -sugar wafer</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/etariff08_57.htm" target="_blank">Notification No. 57/2008-Central Excise dated 5th December, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Buyback/Prepayment of Foreign Currency Convertible Bonds (FCCBs) - RBI instructions</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI has decided to liberalise the procedure and consider applications for buyback of FCCBs by Indian companies, both under the automatic and approval routes:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A. Automatic Route:</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The designated AD Category - I banks may allow Indian companies to prematurely buyback FCCBs, subject to compliance with the terms and conditions as:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i) the buyback value of the FCCB shall be at a minimum discount of 15 per cent on the book value;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii) the funds used for the buyback shall be out of existing foreign currency funds held either in India (including funds held in EEFC account) or abroad and/or out of fresh ECB raised in conformity with the current ECB norms; and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB, as laid down in A. P. (DIR Series) No.26 dated October 22, 2008 shall apply.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>B. Approval Route:</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank will consider proposals from Indian companies for buyback of FCCBs under the approval route, subject to compliance with the following conditions:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i) the buyback value of the FCCB shall be at a minimum discount of 25 per cent on the book value;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii) the funds used for the buyback shall be out of internal accruals, to be evidenced by Statutory Auditor and designated AD Category - I bank's certificate; and</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii) the total amount of buyback shall not exceed USD 50 million of the redemption value, per company.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=280&filename=notification/rbi/2008/rbi08cir039.htm" target="_blank">RBI Circular No. 39 dated 8th December, 2008</a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise Arrears - Crown has no precedence - Supreme Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A unit is started with a loan from institutions like the State Finance Corporation. After some time the unit becomes sick.- Sick of everything - major reasons for the sickness would be excessive activism of a multitude of government agencies of this welfare state. In the meantime after a couple of Audit parties, preventive parties, Show Cause Notices and adjudication, arrears are born and by the time the Central Excise officer goes to serve the adjudication order, he is informed that the unit is closed, taken over by the SFC and sold.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Central Excise officer thinks he represents the Crown and so his dues take precedence - the Courts have repeatedly held that the Crown does not enjoy any such precedence - the crown is not tired of staking its claim and once again the Supreme Court has held that Central Excise arrears have no precedence.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8271" target="_blank">Breaking News</a> for
this important judgement.</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Removal of unwanted hair - taxable service?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>BEAUTY </strong> is in the eye of the beholder. If the beholder is a taxman, all that is done to improve your looks is a taxable service. Even though Board had clarified that the 'Beauty Treatment' does not include plastic/cosmetic surgery done to improve appearance, as they are not the kind of service provided by the beauty parlours, this issue reached the Tribunal by way of an appeal by Revenue.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8270" target="_blank">Breaking News</a> for
this interesting case</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>I am Satisfied - penalty under Income Tax Act</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Power to impose penalty under Section 271 of the Act depends upon the satisfaction of the Income Tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction; mere absence of the words 'I am satisfied' may not be fatal but such a satisfaction must be spelt out from the order of the Assessing Authority as to the concealment of income or deliberately furnishing inaccurate particulars.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8272" target="_blank">Breaking News</a> for
this satisfying case, which is now of only academic interest.</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> - Tomorrow's cases</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>UP Trade Tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>If an entry contained in a notification imposing tax is ambiguous, the assessee cannot suffer therefore; As paddy and rice are considered to be the separate commodities, paddy husk cannot be treated to be rice husk - Supreme Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WHEN a paddy is dehusked, it becomes paddy husk and when the rice is dehusked, it becomes rice husk.</strong> There are many other fruits which have two layers; for example Pista, Cashew Nut and Ground Nut etc. One may only remove the outer cover and take the fruit or grain with the inner cover but one may like to take out the inner cover also which will depend upon the taste of the person concerned. Some persons may like to take 'brown rice' but some other may like to take 'white rice'.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Registered office would determine the jurisdiction of the Central Excise Commissioner to adjudge service tax cases - Revenue loses yet another case as there is no notification appointing Chief Commissioner</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>REVENUE</strong> failed to produce copies of Notifications in the Official Gazette for perusal by the Bench and to satisfy that the signatories to the Review Order were authorized Authorities notified according to the procedure known to law to perform the functions of the Reviewing Authority. Accordingly, we are compelled to declare the act of review <em>ab initio </em> void and non est.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TDS - KPMG requisitions services of experts from own global network - cryptic invoice - disallowance u/s 40(a)(i) upheld; Quality check and risk analysis are not 'commercial knowledge' - no royalty: ITAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RAISING</strong> invoice is an art which may pay dividend on certain occasions and may not on others in terms of income tax liability. This is what happened in the case of MNC consulting and audit firm KPMG. It is normal practice in KPMG India to requisition the services of experts and other professionals working in their global network whenever they get an assignment in India and find that calling a non-resident expert may prove more beneficial for the project. But in most cases considered by the Tribunal in the instant case, they erred in not deducting TDS. In some cases the disallowance u/s 40(a)(i) of their payments made for the services of such experts has been upheld, and in some cases, the issue has gone back to the AO as adequate information could not be obtained from the invoice and other documents to decipher the nature of services rendered.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns tomorrow for the judgements</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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