TIOL-DDT 103 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b><font color="#0000CC" size="3">TIOL-DDT
103</font><br>
28 04 2005<br>
Thursday</b></font></p>
<p align="center"><font color="#006633" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>Fresh Board clarifications – As usual sure to cause litigation</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Valuation
of free samples – Board takes a U turn</b> – What is the value
for payment of excise duty on samples distributed free like Physicians’
samples for example? They are not sold, so there is no transaction value.
We will have to go to the Valuation Rules. Rules 4 to 11 deal with determining
the value. Just have a look at these provisions in brief in ordinary English.<br>
<br>
++ Rule 4: Based on the value of <b>such</b> goods for delivery nearest to
the time of removal that is when the value is not known at the time of removal
and there is a difference in value between the time of removal of the assessed
goods and such goods.<br>
<br>
++ Rue 5: For delivery at a place other than place of removal</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Rule 6: Additional
consideration when price is not the sole consideration<br>
<br>
++ Rule 7: Clearances from depot, warehouse etc,</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <b>Rule 8:
Not sold but used for captive consumption – 110% of cost of production</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Rule 9: Sold
to or through related persons</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Rule 10: Sold
to or through inter connected undertakings.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Rule 11: When
all the above methods are not applicable, use reasonable means consistent
with the Act and the Rules. <br>
<br>
Now where does our sample fit in? Apparently nowhere! The nearest possible
rule would be Rule 8 as the goods are not sold. In the old valuation Rules,
prior to 1.7.2000, there was a concept of ‘price of comparable goods’.
But with the advent of ‘transaction value’, where a different
price for each transaction is accepted as assessable value, there is no scope
for a comparable price. In my book, “Guide to Excise Valuation”
2nd edition released on 1.3.2002, I had suggested that valuation of samples
had to be done under Rule 11 and as per Rule 11, it had to be consistent with
the rules and the only option available was Rule 8 and therefore the value
had to be 110% of the cost of production. I had suggested in my book,<br>
<br>
So accordingly, the position would be that when goods are not sold, the first
option is to go to Rule 11, i.e. determine by using reasonable means. But
the reasonable means have to be consistent with the principles and provisions
of Valuation rules and Sub section (1) of Section 4 of the Act. So it is Rule
8 which speaks of a situation when <b>goods are not sold.</b> Now the present
Rule 8 does not have a provision for value of comparable goods. So we are
left with only one option, that of 115% (now 110%) of the cost as per Rule
8. And this seems to be the only option as of now.<br>
<br>
I was thrilled when Board gave a clarification exactly the way I suggested.
Circular No. 643/34/2002 dated 1-7-2002 in para 13 clarified,<br>
<br>
<i>Since the goods are not sold Section 4(1)(a) will not apply and recourse
will have to be taken to the Valuation Rules. No specific rule covers such
a contingency. Except Rule 8 all the other rules cover contingencies where
sale is involved in some form or the other. Therefore, the residuary Rule
11 will have to be adopted along with the spirit of Rule 8. In other words,
the assessable value would be 115% (now 110%) of the ‘cost of production
or manufacture’ of the goods.</i><br>
<br>
This view prevailed for nearly three years – a fairly long time for
any clarification. But for some inexplicable reason, the Board thrives on
clarifications and the resultant confusion and the inevitable litigation.
Now suddenly Board clarifies that valuation for samples has to be done according
to Rule 4 of the Valuation Rules. Now see what happens. According to the Board
clarification, when samples are cleared, duty has to be paid on the value
of such goods that is the main goods and any adjustment due to time difference
is permitted. How to calculate this? And what happens if a sample of a product
which is yet to be released in the market is cleared? There are no <b>such</b>
goods. What is to be the value? <br>
<br>
Rule 8 has been a fair proposition. God knows why the Board wants to upset
the applecart all of a sudden? <br>
<br>
Now does this clarification have retrospective effect and if so how far back
do you go? The department is capable of charging suppression of fact to invoke
the larger period of limitation. The Show Cause Notice would read something
like this,<br>
<br>
<i>“as the assessee, while clearing the said samples from 1.7.2002,
had suppressed the information that the Board is going to come up with a clarification
in 2005 that the value had to be determined under Rule 4 and with an intent
to evade duty followed the Board circular No 643 dated 1.7.2002 and determined
the value under Rule 8. Therefore the larger period of limitation is invokable
and they appear to be liable to a mandatory penalty.” </i><br>
<br>
Board is indeed one solid source sustaining a large number of consultants.
Next time you pay duty based on a Board circular, give a notice to the department
that you are not liable for future change of opinion by the Board. Then they
will go for retrospective amendment of the law. <br>
<br>
<b>Valuation when inputs or capital goods are cleared as such - Yet another
retrospective clarification - </b>Board clarifies, that when inputs or capital
goods are cleared as such under <br>
<br>
1. Rule 57AB of Central Excise Rules or <br>
2. Rule 3(4) of the Cenvat Credit Rules 2001 or <br>
3. Rule 3(4) of the Cenvat Credit Rules 2002, <br>
<br>
valuation should be as per Rule 3(5) of the Cenvat Credit Rules 2004. Now
this Rule does not speak of any valuation. An amount equal to the credit taken
is to be reversed. But how on earth can the provisions of Cenvat Credit Rules,
2004 be applicable to Central Excise Rules 1944, Cenvat Credit Rules 2001
& Cenvat Credit Rules 2002? Only the good Board can think of such ingenious
methods of taxation. Somebody who was clearing inputs as such in the year
2000 was required to anticipate the Board clarification to be issued in 2005
before paying an amount or reversing the credit. <br>
<br>
• As per Rule 57AB of the Central Excise Rules 1944, the value for such
clearances had to be determined under Section 4. <br>
<br>
• Same was the case under Cenvat Credit Rules 2001. <br>
<br>
• But under Cenvat Credit Rules 2002 there was no valuation and an amount
equal to the credit taken was to be reversed. <br>
<br>
Now the Board wants to apply the present Cenvat Credit Rules to all these
earlier rules - obviously with retrospective effect. <br>
<br>
Board certainly does not have the power to retrospectively amend the law,
however much it wants to usurp the powers of Parliament. The instructions
in this circular are going to result in hundreds of audit objections and thousands
of Show Cause Notices. Central Excise consultants are assured of buttered
bread as long as the Board is active and gives such clarifications. Board
had recently asked Commissioners not to issue individual trade notices as
they cause confusion. It is high time the FM puts a bar on the Board from
issuing clarifications. Interpretation of the law should be left to the field
officers and/or the judiciary. <br>
<br>
<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2005/excircular813.htm"><b>Circular
No. 813/10/2005-CX., dated 25-4-2005</b></a><br>
<br>
War is too serious a matter to be left to generals; Excise law is too serious
a matter to be left to the Board and its interpretation!<br>
<br>
<font color="#006633"><b>Candidate gets job as Customs Inspector after nine
years of selection</b></font><br>
<br>
The Supreme Court on Monday ordered the induction of a candidate as Customs
inspector after nine years. Shahid Rafiq was selected Customs inspector on
merit in December 1995. However, appointment orders were given to nine other
candidates, excluding the petitioner. Rafiq challenged the recruitment process
in the High Court. The High Court declared all recruitments illegal. All the
candidates moved the Supreme Court against the decision. The Supreme Court
summoned the record of the recruitment, which the counsel for the Customs,
advocate Sheikh Izharul Haq, failed to produce, saying the record had been
lost. The Supreme Court revoked the judgement of the High Court and reinstated
the services of all the nine inspectors and also ordered the induction of
Rafiq. He will be deemed to be inducted from December 14, 1995, however he
will not be entitled to have any arrears. <br>
<br>
This happened in Pakistan – from the <b>Daily Times</b> of Pakistan
dated 28.4.2005<br>
<br>
<b><font color="#006633">Scrap Imports – Innovative Bangladesh Customs</font><br>
</b><br>
Customs Inspectors in Bangladesh have struck back at people who avoid customs
duties on imported goods. They made an example of a railway container full
of products. Its owner declared the container held scrap metal. But inside,
inspectors found luxury cars, large-screen television sets and refrigerators.
Authorities decided that if the customs declaration said the goods were scrap,
they should make it true. So in a public ceremony, they crushed all the items
with a bulldozer – into fine scrap – from NPR dated 27.4.2005<br>
<br>
<b><font color="#006633">Single taxation department</font></b><br>
<br>
The Inland Revenue has officially merged with Her Majesty's Customs &
Excise to become a new department – HM Revenue & Customs (HMRC)
in England. Can’t we have one Revenue Service since we like to follow
the Brits? <br>
<br>
<font color="#FF6666"><b>Until Tomorrow with more DDT<br>
<br>
Have a Nice Day. <br>
<br>
Mail your comments to</b></font> <b>vijaywrite@taxindiaonline.com </b><br>
<br>
</font> </p>
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