TIOL-DDT 1164 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="3">TIOL-DDT 1164 </font><br>
29.07.2009 <br>
Wednesday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Exporters
at Receiving End from Smart Officers in Field – CBEC yet to Catch
Up with Suitable Clarifications </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9275" target="_blank">DDT 1146 03.07.2009</a> </strong> we reported the issue of overlapping duty rates due to multiple exemption notifications and exporters getting short changed due to rejection of refund claims because certain ingenious officers in the field were invoking the provisions of Section 5A (1A) of Central Excise Act, 1944 to enforce availment of exemption notification which provides for absolute exemption. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The catch is, if the exporters are forced to avail absolute exemption in spite of their product being dutiable by virtue of another notification, they in turn become ineligible for availment of CENVAT credit of duty/tax paid on inputs and input services used for the exempted goods according to the officers in the field and are therefore subjected to the provisions of Rule 6(1) read with 6(3)(ii) of the CENVAT Credit Rules, 2004 (CCR). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In fact in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=9406" target="_blank">DDT 1158 21.07.2009</a> </strong>while reporting another similar incident, we commented on this issue as follows: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#660099">“.….If such exempted goods are exported, even then there is no bar for such exporters in availing the refund of unutilized input tax credits in terms of Rule 5 of CENVAT Credit Rules, 2004. </font></em></font></p>
<p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>The phrase used in the opening sentence of this Rule is ‘any input or input service is used in the manufacture of <strong>final product </strong> which is cleared for export under bond or letter of undertaking… '. So if a manufacturer-exporter is engaged in the manufacture of <strong>final products </strong> which are cleared for export under bond or LUT , then credit availed on inputs or input services can be utilized for payment of duty of excise on any <strong>final product </strong> cleared for home consumption or ‘for export on payment of duty' or as service tax on output service. In case such utilization (or adjustment as indicated in the Rule) is not possible, such manufacturer-exporter shall be allowed refund of such unutilized credits. </em></font></p>
<p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Refund of unutilized credit is a substantive benefit provided by the CENVAT scheme for exporters and there are a plethora of judicial pronouncements which have held that substantive benefits accruing to an assessee cannot be denied on flimsy grounds. Further, this Rule when read with Rule 6(6) (v) ibid clearly allows availment of CENVAT credit and refund of unutilized credit.” </em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is another matter that the High Court or the CESTAT was also not impressed with this idea of the department subjecting export of exempted goods to Rule 6(1) read with Rule 6(3) of CCR [See <em>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"><font size="1">2007-TIOL-795-HC-MUM- CX</font></a></strong></em> and <em>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"><font size="1">2009-TIOL-976-CESTAT-BANG</font> </a></strong></em>]. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In spite of such clear mandate from the High Court / CESTAT, it appears that these officers while issuing show cause notices to deny refunds claimed under Rule 5 of CCR , are also resorting to issue of show cause notices for recovering the amount payable in terms of Rule 6(3)(ii) of CCR for having availed CENVAT credit on such inputs/input services used in the manufacture of exempted goods cleared for export. This approach goes against the grain of the CENVAT scheme and the judicial pronouncements on the subject. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the indifferent and disrespectful attitude of the officers in the field formations for judgements of Courts/CESTAT is widely documented, while reporting these unfortunate incidents in these columns, we requested the CBEC to issue suitable clarifications for the benefit of the exporters. Unfortunately, the delay on the part of CBEC is only compounding the woes of exporters. </font></p>
<p align="justify"> </p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>"A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another." </strong></font></p>
<p align="right"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>– President Barack Obama </strong></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> Thursday'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 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 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></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="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Wrongly availed exemption notification, no <em>mens rea </em>proved by Revenue – no cause for imposition of penalty under section 11AC of the CEA,1944 – Revenue Appeal Dismissed - CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as mis -statement or suppression of facts are concerned, they are clearly qualified by the word 'wilful', preceding the words " mis -statement or suppression of facts" which means with intent to evade duty. The next set of words 'contravention of any of the provisions of this Act or Rules' are again qualified by the immediately following words 'with intent to evade payment of duty'. Therefore, there cannot be suppression or mis -statement of facts, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A . Mis -statement of fact must be wilful". </font></p>
<p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Electricity Board sells energy saving devices after taking them on lease – Department alleges sham transaction - It cannot be said that any and every attempt of tax planning is illegal – no question of Law: High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Only contention raised by the learned counsel for the revenue is that the machinery was integral part of the boilers and the same continued to be with the assessee in spite of sale. The fact remains that the sale consideration was received by the assessee and lease rental was paid by the assessee. Merely because tax liability was reduced could not be conclusive of arrangement being sham of a device. The assessee was entitled to arrange his affairs to reduce tax liability, without violating the law. </font></p>
<p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax – Laying of pipelines for drinking water supply projects, prima facie not leviable to tax under Commercial or Industrial Construction Service – Pre-deposit of Rs. 15 Crores towards duty and penalty waived and stay granted – CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is very clear that the Board primarily executes water supply and sewerage works for the benefit of both the rural and urban communities excluding the municipal corporations. The water is supplied at highly subsidized rate. In view of these circumstances, we are of the view that the activity of laying of pipelines for the said Board by the appellants cannot be considered as services of ‘commercial or industrial construction'. Prima facie, we feel that the appellants have made out a strong case on merits. Hence, we order waiver of entire dues demanded in the impugned order. The stay application is allowed. There shall be no recovery of the amount even after expiry of 180 days from the date of this order. </font></p>
<p align="justify"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font color="#FF6666" 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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