TIOL-DDT 1146 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html>
<head>
<title>Untitled Document</title>
<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1">
</head>
<body>
<div align="justify">
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong><font color="#663399" size="3">TIOL-DDT
1146</font><br>
</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>03.07.2009<br>
</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Friday
</strong></font> </p>
</div>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Overlapping
duty rates due to multiple exemption notifications – Double whammy for
exporters – CBEC should clarify</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
In December 2008, as a part of the stimulus package from the Finance Ministry,
CBEC issued two notifications viz., 58/2008-CE and 59/2008-CE both dated 07.12.2008
which in turn amended various central excise notifications providing for an
across the board reduction in effective rate of excise duty for various excisable
goods by 4%. The haste with which these notifications were issued spelt trouble
for certain manufacturers due to overlapping duty rates for some excisable goods
in different notifications.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
DDT 1010 dated 12.12.2008, we highlighted this very aspect while comparing the
rate of duty applicable to goods falling under Chapters 1507 to 1515. While
Notification No. 59/2008 CE dated 07.12.2008 prescribed 4% duty for most of
the goods listed therein including goods falling under Chapters 1507 to 1515
(apart from 8%, 20% and 20%+specific rates for a few others), the said goods
attracted ‘Nil’ duty by virtue of Notification No. 3/2006-CE dated
01.03.2006 as amended. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To
overcome the ambiguity in effective rates, DDT highlighted the clarification
issued by JS TRU in his DO Letter 334/1/2008- TRU dated 29th February, 2008
in this regard for the benefit of the Netizens. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
this DO letter issued pursuant to Budget 2008, TRU clarified as follows:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
"The general rate of excise duty (CENVAT) has been reduced from 16% to
14%. This reduction applies to all goods that hitherto attracted this general
rate of 16%. In some cases, a deeper reduction has been made, the details of
which are indicated in the subsequent paragraphs. These changes have been carried
out by notification. The other ad valorem rates of 24%, 12% and 8% have been
retained.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
Since the reduction in the general rate has been carried out by notification,
the possibility of the same product/item being covered by more than one notification
cannot be ruled out. In such a situation, the rate beneficial to the assessee
would have to be extended if he fulfils the attendant conditions of the exemption".</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However,
it appears that this TRU clarification on dual effective rates has fallen on
deaf ears in the field formations. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently,
the Head of Corporate taxation of a leading Industrial House contacted TIOL
and brought to our notice the ambiguity in duty rates for goods falling under
Chapter 63 by virtue of Notifications 58/2008-CE and 59/2008-CE both dated 07.12.2008
and requested us to clarify if they can avail the notification which is beneficial
to them. TIOL cited the TRU Circular and suggested to the assessee that based
on this clarification they are at liberty to choose a notification which is
beneficial to them.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
assessee being a large exporter of textile articles wanted to avail the benefit
of Notification 59/2008-CE which prescribes 4% duty for textile products of
Chapter 63 and avail rebate of duty paid on finished goods exported and also
refund under Rule 5 of CENVAT Credit Rules, 2004 for unutilized excess credit
lying in their books. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When
the assessee approached the jurisdictional excise authorities and mentioned
about the TRU clarification and their preference to avail Notification No. 59/2008-CE
which prescribes 4% duty instead of Notification No. 58/2008-CE which prescribes
‘nil’ duty, in view of the said clarification, the authorities informed
them that in view of sub-section 1A of Section 5A of the Central Excise Act,
1944, where excisable goods are exempt from levy of excise duty absolutely,
manufacturers of such excisable goods shall not pay excise duty on such goods.
Hence, they are not eligible to avail the benefit of notification 59/2008-CE
and were instead advised to avail benefit of exemption notification 58/2008-CE.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since
exempted goods defined under Rule 2(d) of CENVAT Credit Rules, 2004 includes
goods which are chargeable to ‘nil’ rate of duty, and in view of
the prevailing ambiguity in the provisions of Rule 6 [sub rule (1) read with
sub rule 6(6)(v)] ibid and the fact that jurisdictional authorities have rejected
refund claims under Rule 5 for export of exempted goods, the assessee was hesitant
to avail notification 58/2008-CE which may put their input credit availment
at risk.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
assessee lamented that the jurisdictional authorities have disregarded the Mumbai
High Court decision in Repro India Ltd vs. Union of India & Anr <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2007/2007-TIOL-795-HC-MUM-CX.htm" target="_blank"><font size="1">2007-TIOL-795-HC-MUM-CX</font></a></strong>
holding that the phrase ‘excisable goods’ employed in Rule 6(6)
ibid has a wider connotation and includes both dutiable and exempted goods.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
view of the dwindling exports in textile sector due to economic downturn and
the difficulties faced by the exporters, the assessee has requested <strong>TIOL</strong>
to take up this issue with the CBEC and request the Board to issue appropriate
clarifications to the field formations in this regard.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While
the ingenuity of the jurisdictional excise authorities in invoking provisions
of Section 5A (1A) in such cases is commendable, their utter disregard for TRU
DO letter which clarifies that an assessee is free to choose a notification
which is beneficial to them, is despicable.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recently,
<strong>TIOL </strong>carried a CESTAT decision in Neo Foods Pvt Ltd vs. CC
(Appeals) <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2009/2009-TIOL-976-CESTAT-BANG.htm" target="_blank"><font size="1">2009-TIOL-976-CESTAT-BANG</font></a></strong>,
wherein it was held that Rule 6(1) of CENVAT Credit Rules, 2004 is not a bar
to avail CENVAT credit on inputs/input services utilized in export of exempted
goods by 100% EOU. The CESTAT also exhorted that the principle of excise taxation
envisages only export of goods/services but not taxes and therefore refund of
unutilized credit by a 100% EOU is allowable in terms of Rule 5 ibid.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DDT
hopes that the good Board will be considerate towards these exporters and come
out with a suitable clarification on this issue very soon.</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Water
Treatment Plants – Exemption to pipe fittings – Board against Minister</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
has been brought to the notice of the Board that the manufacturers of pipe fittings
(joints, sleeves, elbow, couplings, etc.) are claiming the benefit of the Sl.
No. 7 of the Notification No. 6/06-C.E.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This
notification exempts, Pipes needed for delivery of water from its source to
the plant (including the clear treated water reservoir, if any, thereof), and
from there to the first storage point;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board
has come to know that some units are manufacturing pipes and pipe fittings and
claiming benefit of notification for pipe fittings which are cleared along with
pipes. The issue is whether the 'pipe fittings' in the water supply network
are also exempted. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board
clarifies that the intention behind the notification is to provide exemption
only to pipes as understood in the common parlance and not to fittings which
is a separate commodity and known differently in the market.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further,
even though the Tariff heading in which the pipes fall is not specified in the
notification but they are covered under the description given in the notification
in column 3. The description only specifies 'Pipes needed...'. There is no mention
of any pipe fittings. Further, pipe fittings are a separate commodity and cannot
be subsumed under the generic terms 'Pipes'. A glance at the Tariff shows that
the pipe fittings are classified separately from pipes. This clearly implies
that the two commodities are different. Even the HSN classifies them separately.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore,
Board is of the view that exemption at Sl. No. 7 of the Notification No. 6/06-C.E.
is not available to 'pipe fittings' used in the pipe network for supply of drinking
water.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Perfectly
logical and legal. It is only the Indian bureaucrat who will use all his intelligence
and ingenuity (both of which he is richly endowed with) to ensure that the citizen
does not get what the government wants to give him. It is only a master brain
that can think of giving exemption to pipes but not to the joints and elbows.
How on earth are the pipes going to be fitted? Was the idea to deny exemption
to the pipe fittings or to exempt the goods used in water treatment plants?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the whole saga of Show Cause Notices, adjudication, appeal and so on will start
enriching the consultants. If the pipe fittings were not legally eligible for
the exemption, the Board should have amended the notification and issued a Section
11C Notification for the past period instead of communicating to the nation
that this Board is against the very policy of the Government to provide water.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Water
has been on the high priority of the government’s pronounced programmes.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
his 2004 Budget, the Finance Minister said, “The poor want drinking water:
we shall ensure that every habitation has an assured source of drinking water.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
the 2005 Budget he said, “The UPA Government’s goals are: ......to
provide drinking water to the remaining 74,000 habitations that are uncovered.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
the 2008 Budget he said, “Our children should have good, clean drinking
water”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
just before the 2009 Budget, the Board wants to collect a few pennies from the
water treatment projects. Is it worth all the trouble?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
such manufacturers of pipes are not keen to avail the exemption because of the
complications of CENVAT Credit – dutiable and exempted goods and all that
confusion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That
incidentally is another issue which the Board should seriously consider. If
they want to grant exemption to any product, make the duty 1% instead of total
exemption. This will ensure that all litigations about dutiable and exempted
goods are avoided. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Anyway
for now all those manufacturers who claimed exemption for pipe fittings –
be ready to face the music from Central Excise.</font></p>
<p align="left"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2009/excircular891.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC
Circular NO. 891/11/2009-CX, Dated : June 15, 2009</font></a></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Gay
Delhi – Less to do with tax and more with sex, but they may demand some
minority concessions</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Delhi High Court’s judgement on consensual sex between adults of the same
sex saw celebrations by proclaimed gay and lesbian champions. DDT has nothing
to do with that, but we are only worried that they may now demand minority concessions
and reservations and maybe even a tax cut!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
it is interesting to note the quantum of punishment under the Indian Penal Code
for Sexual offences:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.
Section 373: Buying minor for purposes of prostitution: - imprisonment of either
description for a term which may extend to ten years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.
Section 376. Punishment for rape: shall not be less than seven years but which
may be for life or for a term which may extend to ten years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.
376A. Intercourse by a man with his wife during separation: imprisonment of
either description for a term which may extend to two years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.
376B. Intercourse by public servant with woman in his custody: imprisonment
of either description for a term which may extend to five years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.
376C. Intercourse by superintendent of jail, remand home, etc: imprisonment
of either description for a term which may extend to five years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6.
497. Adultery: imprisonment of either description for a term which may extend
to five years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7.
<font color="#663399"> <strong>377. Unnatural offences:</strong></font> This
is homo, lesbian or animal sex: imprisonment for life, or with imprisonment
of either description for a term which may extend to ten years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
you can see, the punishment under the IPC is maximum for gay sex - far higher
than inducing minors into prostitution, rape, custodial rape, adultery and of
course all the offences under the Customs, Excise or Income Tax Laws. A man
evading Crores of rupees in taxes was considered to be a less offender than
a man who chooses to sleep with another man. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Railway
Budget – Didi’s Bangalee English is the only problem</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Didi,
Mamta Banerjee is all set to present the Railway Budget. She is not exactly
new to the Rail Bhavan, but she has more allegiance to the headquarters of Eastern
Railways at Kolkata. Rail Ministers are known to shower goodies for their states.
Her illustrious predecessor from Bengal was known as the Minister for Malda.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
But what is immediately required is for Speaker of Lok Sabha, Meira Kumar to
arrange for translation of Didi Mamta Banerjee’s speech into English.
Mamta no doubt speaks English, but it sounds so Bengalee that outside Bengal
nobody would understand her. So there should be some simultaneous translation
facility to translate her English speech into understandable English.</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">–</font></strong></font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> Monday’s cases</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central
Excise </strong></font></p>
<p align="left"><strong><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mandatory
Penalty only when ingredients of Section 11AC are satisfied: Bombay HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THIS
is yet another case of the wise Revenue going in appeal and losing what little
it had before the appeal. Adjudicating Authority imposed a penalty of Rs. 1.3
Lakhs – CESTAT reduced it to Rs. 25,000/-. On appeal by Revenue, High
Court set aside even that penalty! The Commissioner (Appeals) has also not addressed
the issue as to whether the penalty is imposable on account of fraud, wilful
misstatement, collusion or suppression of facts or contravention of any other
provisions of the Act or Rules made thereunder with an intent to evade duty.
It is clear that not only there has to be fraud or wilful misstatement or collusion
or suppression of facts or contravention of any of the provisions of the Act
or Rules, but that must be with an intent to evade the payment of duty: The
only reason given has been that the assessee had not maintained proper accounts
of raw materials and finished goods in statutory records. This would not meet
or satisfy the predicates of Rule 57-I (4) of the Rules.</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"><strong><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Once
Revenue is accepting that profit arising on maturity of investment is business
income, then it cannot take stand that it is not stock-in-trade: Bad debts recovered
– when no deduction claimed for bad debts, recovery cannot be taxed: ITAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
such bad debts exceed the reserve, the excess amount alone can be charged to
P&L account as per 36(1)(vii) of the Act, in such event section 41(4) comes
to play, when the excess amount so charged to P&L account u/s. 36(1)(vii)
of the Act is subsequently recovered from bad debts.</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See
our columns Monday for the judgements</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Monday with more DDT and all the excitement of the Budget</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice weekend</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail
your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com" target="_blank">vijaywrite@taxindiaonline.com
</a></font></p>
</body>
</html>