TIOL-DDT 1150 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1150</font><br> 09.07.2009<br> Thursday</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Supplementary Invoices – Differential Duty - Interest Payable</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT </strong> is a general practice among the trade, especially those who use the raw materials which are susceptible to price fluctuations to have a price escalation clause in the purchase orders. The price of the finished goods is revised based on the raw material prices and the differential amounts are collected by what are popularly known as "supplementary invoices". These invoices are issued for collecting the additional amounts and excise duty is also paid on such additional amounts collected after the goods were cleared from the factory. The dispute was, whether the assessee is liable to pay interest under Section 11 AB of the Central Excise Act by treating the differential duty paid on the supplementary invoices as duty short paid. The matter was referred to Larger Bench in <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2008/2008-TIOL-575-CESTAT-MAD.htm" target="_blank"><font size="1">2008-TIOL-575-CESTAT-MAD</font></a>.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Larger Bench referred the matter to a still Larger of Five Members in the now hanging in suspense <em>Lucas </em>case - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2008/2008-TIOL-1843-CESTAT-MAD-LB.htm" target="_blank"><font size="1">2008-TIOL-1843-CESTAT-MAD-LB</font></a>.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It seems the 5 Member Larger Bench is ready with its decision, but is yet to be pronounced. Before that, a lot of judicial activity took place. The Bombay High Court in the <em>Rucha Engineering </em> case - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2007/2007-TIOL-785-HC-MUM-CX.htm" target="_blank">2007-TIOL-785-HC-MUM- CX</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> held that no interest is payable.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Based on this <em>Rucha </em> case, the Punjab and Haryana High Court in the <em>Polyplastics </em>case - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2009/2009-TIOL-181-HC-P-H-CX.htm" target="_blank"><font size="1">2009-TIOL-181-HC- P&H -CX</font></a> </strong>held that no interest was payable. Identical has been the decision of the same High Court in the case of <em>Goodyear India Ltd - </em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2009/2009-TIOL-55-HC-P-H-CX.htm" target="_blank"><font size="1">2009-TIOL-55-HC- P&H-CX</font></a></strong>. But the High Court was not aware that <em>Rucha Engineering </em> had been set aside by the Supreme Court and remanded to the Tribunal.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the situation was that we have </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. A High Court order that has been set aside and remanded.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Two High Court orders following the above High Court order which had been set aside.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. A matter pending pronouncement of order by a Five Member Bench of the CESTAT.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Obviously, the issue is PENDING.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But in the Meantime, the matter was before the Supreme Court in another appeal and the Supreme Court recently pronounced its judgement holding that interest is payable.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I asked a Lawyer friend of mine as to what would happen to the Five Member Bench decision (yet to be pronounced) of the CESTAT. He said, “even if it is a Fifteen Member Bench, its decision is irrelevant, once the Supreme Court has given its decision”.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Interest is leviable on delayed or deferred payment of duty for whatever reasons </font></strong><font color="#006600"><strong> – Supreme Court</strong></font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the case mentioned above, the Supreme Court held that “What is stated in Explanation 2 to sub-section (2B) is reiterated in section 11AB that states where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person who has paid the duty under sub-section (2B) of section 11A, shall, in addition to the duty, be liable to pay interest......It is thus to be seen that unlike penalty that is attracted to the category of cases in which the non-payment or short payment etc. of duty is "by reason of fraud, collusion or any wilful mis - statement or suppression of facts, or contravention of any of the provisions of the Act or of Rules made thereunder with intent to evade payment of duty", under the scheme of the four sections (11A, 11AA, 11AB & 11AC) <strong>interest is leviable on delayed or deferred payment of duty for whatever reasons.”</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court further held, “<strong>at the time of sale the goods carried a higher value and those were cleared on short payment of duty. The differential duty was paid only later when the assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus it was clearly a case of short payment of duty though indeed completely unintended and without any element of deceit etc." </strong> The payment of differential duty thus clearly came under sub-section (2B) of section 11A and attracted levy of interest under section 11AB of the Act.</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Even Supreme Court finds Excise Laws Complicated</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please have a look at Section 11AA and 11AB of the Central Excise Act extracted below.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>11AA . Interest on delayed payment of duty.-</strong></font></p> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">(1) Subject to the provisions contained in section 11AB , where a person, chargeable with duty determined under sub-section (2) of section 11A , fails to pay such duty within three months from the date of such determination, he shall pay, in addition to the duty, interest at such rate not below ten per cent. and not exceeding thirty six per cent per annum as is for the time being fixed by the Central Government, by notification in the Official Gazette, on such duty from the date immediately after the expiry of the said period of three months till the date of payment of such duty:</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Provided that where a person chargeable with duty determined under sub-section (2) of section 11A before the date on which the Finance Bill, 1995 receives the assent of the President, fails to pay such duty within three months from such date, then, such person shall be liable to pay interest under this section from the date immediately after three months from such date, till the date of payment of such duty.<em>xxxxx</em></font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) The provisions of sub-section (1) shall not apply to cases where the duty becomes payable on and after the date on which the Finance Bill, 2001 receives the assent of the President.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>11AB . Interest on delayed payment of duty.-</strong></font></p> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay the duty as determined under sub-section (2), or has paid the duty under sub-section (2B), of section 11A, shall, in addition to the duty, be liable to pay interest <strong>at such rate not below </strong>ten per cent. and not exceeding thirty six per cent per annum as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first date of the month succeeding the month in which the duty ought to have been paid under this Act, or from the date of such erroneous refund, as the case may be, but for the provisions contained in sub-section (2), or sub-section (2B), of section 11A till the date of payment of such duty:</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">xxxxx</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) The provisions of sub-section (1) shall not apply to cases where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Once, a group of IRS probationers was asked to find out the difference between Section 11AA and 11AB – NOT ONE COULD ANSWER – and they had passed one of the toughest competitive examinations in the world. What Probationers – even the Supreme Court finds these provisions complicated.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Apex Court observed,</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“If the object of the law is to state clearly and unambiguously the obligations of the person whom the law addresses and to spell out plainly and without any confusion the consequences of failure to discharge the obligations cast by the law, then the four sections of the Act fall miles short of the desired objective. Even as originally cast the provisions were far from very happily framed and worded. Subjected to amendments from time to time those provisions <strong>have now become so complicated that in order to discern their meaning it becomes necessary to read them back and forth several times </strong>. We see no reason why the two periods for which interest is leviable may not be put together and dealt with in one consolidated provision instead of being split up in sections 11AA and 11AB. Also, there is much scope to reorganise all the different subsections of section 11A and to present the scheme of that section in a more coherent and readable form.”</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It requires extraordinary talent to draft such laws which get such mild but stinging rebuke from the Apex Court. The Board should seriously think of hiring some good High School English teachers to draft their laws.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>All the three stories above pertain to the decision of the Supreme Court which held that interest is payable on differential Duty on Supplementary Invoices.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We will bring you this important judgement tomorrow.</strong></font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Budget 2009: A submissive first step to reforms say finance heads of Indian industry as per PricewaterhouseCoopers Opinion Poll</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">PricewaterhouseCoopers conducted an opinion poll to see whether the budget actually met people's expectations. The opinion poll conducted in Delhi, Mumbai and Bangalore on 6 July 2009 reveals that Budget 2009 has fairly met corporate India's expectations from the new government. The poll reflects the responses of people who attended the PricewaterhouseCoopers Budget Analysis seminars, including chairmen, chief executives, managing directors, chief operating officers, financial directors, chief financial officers and non-executive directors from some of India's largest businesses.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Dinesh Kanabar, leader tax practice, PricewaterhouseCoopers, said, “<em>The second UPA Government had a three-pronged plan of action at this juncture: putting the economy back on track towards achieving a growth rate of 9% of GDP, ensuring inclusive development and re-energising government machinery to provide high quality public service, security and rule of law. Budget 2009 reflects a modest first step in that direction”.</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Key findings of the PricewaterhouseCoopers Opinion Poll:</font></p> <div align="justify"> <blockquote><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ There seems to be a lopsided view among the industry leaders that Budget 2009 could perhaps have outlined stronger steps to attain the projected growth rate of 9% </font></blockquote> </div> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Budget 2009 has reaffirmed the commitment to roll out Goods and Services Tax (GST) as per schedule of 1 April 2010 but this seems to be a somewhat ambitious target </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ People are not in favour of taxing employee stock ownership plans (ESOPs) at the time of exercise </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Overall, industry captains had mixed views on whether Budget 2009 had laid out a clear path towards making the direct tax administration efficient</font></p> </blockquote> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Budget 2009 – Chartered Accountants happily enter into an area that was the exclusive domain of Cost Accountants</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Cost Accountants are deeply aggrieved by the Budget 2009 which has allowed CAs to enter an arena which was their exclusive turf.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 14A and 14AA of the Central Excise Act, the Department can order a Valuation or CENVAT Audit of the manufacturer by a Cost Accountant. Now the Finance Bill proposes that this audit can be done by a Chartered Accountant also. What had been an exclusive domain of the Cost Accountant has now been opened to the Chartered Accountant also. Apparently the Cost Accountants are very unhappy. “When Chartered Accountants have a huge playing field, why should they be allowed to enter the small exclusive domain of the cost accountants?” is what many a Cost Accountant is asking.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the Cost Accountants are deeply aggrieved, the fact is that now the Department is rarely resorting to Audit under Section 14A or 14AA.</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">–Friday's cases</font></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 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></strong></font></strong></font></strong></font></strong></font><font color="#663399">Central Excise</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">When the legal position was very plain like daylight, there was no reason for assessee to avail undue benefit of CENVAT Credit on Garden Maintenance Services – Exoneration cannot be claimed from penal liability – CESTAT</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TO</strong> the appellant's contention that no penalty is imposable as there was no contravention of any provisions, the CESTAT observed that as there was not even a remote connection between garden maintenance and manufacture/clearance of the final product, the appellant ought not to have availed any credit.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Income Tax</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6600">Assessee is warehousing corporation - avails exemption u/s 10(29) on various types of income - part of exemption disallowed - penalty imposed - held, unless assessee conceals income or furnishes wrong information, penalty cannot be levied for mere disallowance of exemption: HC</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AFTER</strong> the Apex Court decision in the case of <em>Dharamendra Textiles Processors </em> case <em>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2008/2008-TIOL-192-SC-CX-LB.htm"><font size="1"><strong>2008-TIOL-192-SC-CX-LB</strong></font></a>) </em> which distinguished the SC decision in the case of <em>Dilip Shroff </em> and deliberated on the issue of presence of <em>mens rea </em> before imposition of penalty, it seems Revenue's belief to levy penalty u/s 271(1)(c) has got an additional leg. However, the High Court has held that the two essential pre-requisites before penalty is levied are that the assessee should have either “concealed the particulars of his income”, or alternatively the assessee should have “furnished inaccurate particulars” of his income. Denial of an exemption availed by the assessee cannot be construed as furnishing of wrong information or concealment of income. It cannot be a valid ground to levy penalty u/s 271(1)(c).</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">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> </body> </html>