TIOL-DDT 1064 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">TIOL-DDT 1064 </font><br>
03.03.2009 <br>
Tuesday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DTA Sale Entitlement of EOUs only against physical exports – DGEP Clarifies </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While reporting the case of <em>Virlon Textile Mills Ltd, Vs Commissioner of Central Excise, Mumbai- </em><strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2007/2007-TIOL-69-SC-CX.htm" target="_blank"><font size="1">2007-TIOL-69-SC- CX</font></a>, </em></strong>we had observed, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">IT </font></strong><font color="#FF6600">takes no extraordinary intelligence to understand the maze of the provisions relating to the 100% EOUs . It has a chequered history of judgments by Supreme Court/Tribunal and retrospective amendments. But still there are a few issues waiting to be put to rest finally. One such issue is clearances made by an EOU in DTA against payment in foreign exchange in terms of the erstwhile para 9.10(b) of the Exim Policy (6.9(b) of the existing policy). The revenue insisted that the duty on such clearances should be paid at the rate of aggregate duties of the customs leviable on like goods if imported into India and contested that the exemption of 50% of the duties given under Notification No 2/95 CE ( present notification is 23/2003 CE dated 31.3.2003) is not applicable for such clearances made under para 9.10(b) as the same does not figure in the exemption notification 2/95 CE </font></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">When the issue came up before the CESTAT in M/s Virlon Textile Mills Ltd, the Tribunal denied the benefit of Notification 2/95 CE in no ambiguous terms. The CESTAT reasoned that when the direct physical exports would entitle an EOU to be eligible for only 50% of the FOB value to clear the goods in DTA under Notification 2/95, allowing the exemption for deemed exports under para 9.10(b) would place a premium on the selling the goods in the domestic tariff area against foreign exchange than directly exporting. Surely that is not what the makers of the notification had in mind. </font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee challenged this order in the Supreme Court and Hon'ble Supreme Court found merit in the appeal. It was held </font></p>
<div align="justify">
<ul>
<li><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">As a rule every 100% EOU was obliged to export its entire production and earn foreign exchange. This was what was called as Physical Exports. However, this rule had certain exceptions. As an exception, there existed two types of DTA sales under the said Policy, namely, DTA sales against rupee and DTA sales against foreign exchange which was similar to physical exports. This latter category was known as "Other Supplies in DTA". Therefore, to put it in brief, "Other Supplies in DTA " was equated with physical exports which, was the general rule for 100% EOU.</font></li>
</ul>
<ul>
<li><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">According to the Revenue, the expression occurring in the second proviso to Section 3(1), namely, "allowed to be sold in India" was applicable only to DTA sales against rupee and not DTA sale against foreign exchange. In our view, DTA sale against foreign exchange was covered by the expression "allowed to be sold in India" and, therefore, such sale fell under the proviso to Section 3(1) of the 1944 Act. In the circumstances, the duty liability of the assessee was required to be determined after allowing to it the benefit of notification No. 2/95-CE.</font></li>
</ul>
<ul>
<li><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">That notification granted partial exemption to the assessee from duties in respect of goods manufactured in 100% EOU and allowed to be sold in India under para 9.9 (a), (b), (c) and (d). Once DTA sales against foreign exchange are held to be covered by the proviso to Section 3(1) of the 1944 Act then the whole difference between DTA sales against rupee and DTA sales against foreign exchange, for the purposes of notification No. 2/95-CE would stand eliminated. Therefore, in our view, the Tribunal had erred in relying on para 9.9(b) for limiting the benefits of exemption under notification No. 2/95-CE by imposing a new condition to the effect that the benefits would be admissible only in respect of 50% of such DTA sales against foreign exchange. Secondly, once the permission was granted by the competent authority under the Exim Policy to make DTA sales against foreign exchange, the assessee (appellant herein) was entitled to the benefit of concessional rate of duty under notification no. 2/95-CE. If DTA sales against rupee were allowed the benefit of notification No. 2/95-CE, then DTA supplies against foreign exchange, which were at par with physical exports, cannot be denied the same benefits and they cannot be subjected to a higher duty.</font></li>
</ul>
<ul>
<li><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Thirdly, once DTA sales against foreign exchange are covered by the above expression "allowed to be sold in India", all issues relating to calculation of the duty payable in terms of notification No. 2/95-CE will have to be decided afresh by the adjudicating authority and accordingly, the matter is remanded to the Commissioner for calculating the duties payable by the assessee in terms of notification No. 2/95. </font></li>
</ul>
</div>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, an interesting question. The clearances under para 9.10(b) are now eligible for exemption under 2/95 CE. These clearances are considered as deemed exports and are equated with physical exports. <strong>Therefore now, can the assessee claim a further DTA entitlement of the 50% of the value of clearances in DTA against foreign exchange? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The question asked by us nearly two years ago had been answered by the Commerce Ministry and DGFT. The Commerce Ministry in consultation with DGEP and DGFT clarified that </font></p>
<blockquote>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Supplies made under Para 6.9 of FTP could not be considered for calculating DTA entitlement because the aforesaid decision has no bearing on the quantum of DTA entitlement which is determined with reference to physical export of the EOU only. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Consequently the DGEP has clarified that, <font color="#FF6600">supplies made under para 6.9 of Foreign Trade Policy cannot be considered for calculating DTA entitlement, which is determined with reference to physical export only. </font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>L<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2009/DGEPletter_1.htm" target="_blank">etter DGEP/EOU/74/2008 Dated: January 27, 2009 </a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Summons in Service Tax matters - Board amends Circular</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In letter <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2007/instruct02.htm">F No. 137/39/2007- CX -4, dated 26.02.2007 </a>, CBEC had issued the following directions, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a) For calling for information/documents, normally the mode of communication should be either in the form of a telephone call or by way of sending a simple letter; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b) Issuance of summons should be resorted to, only when the above mentioned modes of communications are found to be ineffective or are likely to jeopardize revenue interest or when it is essential to ensure personal presence of the person concerned to tender evidence or record statement in connection with a service tax evasion case; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a) In cases mentioned under (b) above, the summons should be issued after obtaining prior written permission from an officer not <strong>below the rank of Deputy Commissioner </strong> with reasons for issuance of summons to be recorded in writing; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b) In case, for unavoidable operational reasons it is not possible to obtain such prior written permission, oral/telephonic permission from such officer must be obtained and the same should be reduced to writing and intimated to the officer according such permission at the earliest opportunity; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">c) In all cases, where summons are issued, the officer issuing summons must submit a report on proceeding that took place during the presence of the taxpayer/person summoned, and the officer authorizing issuance of summons must satisfy himself that no harassment has been caused during the visit of the person summoned to the office. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now you may observe that summons are to be issued only after getting the written permission from <strong>the Deputy Commissioner</strong>. Now the Deputy Commissioner and Assistant Commissioner are supposed to be same rank officers discharging same functions. As per the above circular only Deputy Commissioners can give permission and not Assistant Commissioners. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This lapse is rectified and now the permission can be given by an officer not below the rank of <strong>Assistant commissioner. </strong></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=41&filename=notification/servicetax/2009/summonsinstructions.htm" target="_blank">CBEC F No. 137/39/2007- CX -4, dated 21.11.2008</a> </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Import of marble – DGFT further relaxes conditions</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government has liberally allowed the request of the marble importers for relaxing the conditions to enable them to import the goods during the first quarter of next fiscal year. These are in continuation of the benefits covered in yesterday's DDT. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amendments are also made in the ITC (HS) Classifications of Export and Import Items, 2004-09: </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=46&filename=notification/dgft/2008/dgft08cir067.htm" target="_blank">DGFT Policy Circular No. 67</a> and</strong> <strong> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2008/dgft08cir068.htm" target="_blank">68 (RE-08)/2004-2009 Dated: March 2, 2009 </a></strong></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=45&filename=notification/dgft/2008/dgft08not090.htm" target="_blank">Notification No. 90 (RE-2008)/2004-09 Dated: March 2, 2009 </a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Import of toys from China - Conditionally allowed</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Import of toys from China was prohibited for six months from 23.01.2009. Now they are allowed if accompanied by the following certificates:- </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) A certificate that the toys being imported conform to the standards prescribed in ASTM F963 or standards prescribed in ISO 8124 (Parts I-III) or IS 9873 [Parts I-III]; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) A Certificate of Conformance from the manufacturer that representative sample of the toys being imported have been tested by an independent laboratory which is ILAC accredited and found to meet the specifications indicated above. The certificate would also link the toys in the consignment to the period of manufacture indicated in the Certificate of Conformity. </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=45&filename=notification/dgft/2008/dgft08not091.htm" target="_blank">Notification No. 91 (RE-2008)/2004-09 Dated: March 2, 2009 </a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A Symbol for the Indian Rupee – Govt invites Design - !@#%^&*~</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Major currencies of the world like US Dollar, Pound Sterling, Yen and the Euro have an Identification symbol. The Government of India also proposes to have a symbol for the Indian rupee to be selected through public competition. Accordingly, all Resident Indians (both Professional artists and Non-professionals) are invited to participate in a Competition for design of the ‘Symbol for Indian Rupee. </font></p>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">The symbol should represent the historical & cultural ethos of the country as widely accepted across the country.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">The symbol <strong>should be applicable to standard keyboard </strong>. The symbol has to be in the Indian National Language Script or a visual representation.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">The symbol should be original work of the participant and must not infringe the Intellectual Property Rights of any third party.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">A participant can send a maximum of two entries.</font></li>
</ul>
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">The entry could be an individual project or a team project. </font></li>
</ul>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Five entries shall be shortlisted for final selection. The shortlisted Designers would be required to make a presentation to the Jury and would be awarded a prize of Rs. 25,000/- each. The date, time and venue of the presentation shall be communicated separately to the shortlisted designers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Designer of the finally selected design will get a prize of Rs. 250,000/- and would be required to surrender copyright of the design to the government of India. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>India-USA DTAA - royalty income - Microsoft application seeking advance ruling rejected on ground that similar issue is pending with Tribunal </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL</strong> Netizens may recall a series of news reports and views carried by us in the case of royalty income of Gracemac Corporation of the USA which had the proprietary right over all the software and other products of Microsoft Corporation, and the same were manufactured and distributed by the Singapore-based Microsoft Operations Pte Ltd, in Asia, including India. In fact, the Singapore-based subsidiary had entered into an agreement with the Microsoft Regional Sales Corporation which has been selling a wide range of IT products through a marketing architecture of distributors/re-sellers to Indian customers. With the Revenue insisting on withholding tax on payments made to the USA-based entity as it always believed that it was royalty income, taxable under Sec 9(1)(vi) and also under DTAA , the applicant Microsoft Operations Pte Ltd moved the Authority for Advance Ruling on the question of TDS u/s 195 on such payments made to Microsoft. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this AAR Ruling today –<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8689" target="_blank"> <strong>See Breaking News</strong></a></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>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SSI Exemption – No exemption to goods bearing the Brand name of another person – Tribunal's fact finding not to be interfered with – Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MERELY</strong> because the registered trade mark is not entirely reproduced does not take the respondents out of clause 4 and make them eligible to the benefit of the notification; It is settled law that in order to claim benefit of a notification, a party must strictly comply with the terms of the notification. If on wording of the notification the benefit is not available then by stretching the words of the notification or by adding words to the notification benefit cannot be conferred. Even if the goods are different so long as the trade name or brand name of some other Company is used the benefit of the Notification would not be available. </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 color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Outward Freight – Eligible for Credit – High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5374">DDT-599 </a></strong>while reporting the Gujarat Ambuja case <strong>(<em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2007/2007-TIOL-539-CESTAT-DEL.htm" target="_blank"><font size="1">2007-TIOL-539-CESTAT-DEL</font></a></em>) </strong> - <strong>No credit of Service Tax on outward freight - landmark order from Tribunal, </strong>we stated, Not everything is lost. The issue has to be taken to a Larger Bench/High Court/Supreme Court. In<strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5384">DD-601</a></strong>, while reporting that the same issue was before the Bangalore Bench, we suggested, Now what can this Bench do, since there is already a decision by another Bench? It has only two choices – agree with the Delhi Bench or refer the matter to a Larger Bench. That is exactly what the Bangalore Bench did in the <em>India Cement </em> case - <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2007/2007-TIOL-1248-CESTAT-BANG.htm" target="_blank"><font size="1">2007-TIOL-1248-CESTAT</font></a></strong><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2007/2007-TIOL-1248-CESTAT-BANG.htm">-<strong>BANG</strong></a></font></em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the Larger Bench of the CESTAT is yet to decide the issue, the Punjab and Haryana High Court has decided the issue – in favour of the Assessee. </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 color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. Setting up of business is distinct from commencement of business - expenses incurred after the setting up of the business are deductible as Revenue expenditure - ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> is well-settled that business is nothing more than a continuous course of activities and for commencement of business all the activities which go to make up the business need to be started simultaneously. As soon as an activity which is the essential activity in the course of carrying on the business is started, the business must be said to have commenced. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise - AAR </strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Classification - parts of hulls, cleared over a period of time, for use in the manufacture of hulls, are classifiable under 7308 90 30 and not under 8906 90 00 or 7326 90 80 of the CE Tariff - AAR </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> structure of the Central Excise Tariff is based on the internationally accepted nomenclature in Harmonized System of Nomenclature (HSN). When the tariff entry is patterned on HSN , disputes relating to tariff classification must, as far as possible be resolved with reference to HSN Explanatory Notes. In the instant case the conclusion that parts of ships and boats, other than a complete hull, are excluded from Chapter 89 is reinforced by the Explanatory Notes to HSN. The General notes on Chapter 89 mentions that “Hull of any material” are covered by Chapter 89 and elaborates as follows “Complete vessels presented unassembled or disassembled, and hulls, unfinished or incomplete vessels (whether assembled or not), are classified as vessels of a particular kind, if they have the essential character of that kind of vessel. In other cases, such goods are classified in heading 89.06. </font></p>
<p align="justify"><font size="2"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font color="#FF6600" 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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