Jurisprudentiol–Tomorrow's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.EOU

Clearances by EOUs in DTA in the guise of rejects - rejection of transaction value upheld - value to be determined under Rule 7 of the Customs valuation rules, 1988 - Departmental Circulars contrary to statutory provisions are not binding - Second show cause notice issued by invoking larger period is not barred by limitation - CESTAT

THE case involves multiple issues. The appellant is a 100% EOU engaged in manufacture and export of all wool fabrics, wool silk and poly wool fabrics of different varieties. They availed the facility of clearing rejects in DTA upto 5% of the FOB value of exports. On investigations conducted by the officers of Central Excise, it was found that they were clearing the prime quality goods as rejects. Accordingly duty was demanded as per the proviso the Section 3 (1) of the Central Excise Act, 1944. It was also found that the appellant cleared entire rejects in DTA to their related unit and accordingly the duty was demanded by adopting the value at which the goods were sold by the related unit by invoking rule 7 of the Customs Valuation Rules 1988. The Tribunal has decided many important issues pertaining to the duty payable by EOUs , valuation of goods cleared in DTA , binding nature of Board's Circulars and invoking extended period in the second show cause notice.

Income Tax

Deduction u/s 10A has to be construed with regard to the income which is directly derived from the industrial undertaking- ITAT

THIS issue is covered against the assessee in decisions of the Bombay High Court in the case of in the case of CIT vs. Sterling Foods and also M/s Pandian Chemicals Ltd. vs. CIT wherein the Hon'ble High Court has explained the term derived from and has held that it has to be directly derived from the industrial undertaking. This view had been confirmed by the Supreme Court.

Central Excise

Disposable Aluminium foil container is correctly classifiable under heading 76.15 as ‘Articles for Table use' and is entitled to benefit of exemption notification 10/2006-CE – Tribunal

IT is also not disputed that primary use of the product manufactured by the appellant with lid is for serving meals on the table. Further, it also cannot be said that a primary purpose in such cases is packing and not serving meals. Therefore the product gets covered by the list of items appearing in the explanatory note heading No.73.23 which is applicable to Heading No.76.15. Further, anything used for packing does not get covered by Heading 76.12 as a container. Another point that goes in favour of the appellant is that the container under Heading No.76.12 are mainly to be used as a container whereas as already mentioned main end use of the appellant product is for serving food in Railways/Air-crafts.

See our columns tomorrow for the judgements