TIOL-DDT 1183 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1183</font> <br>
26.08.2009 <br>
Wednesday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Can CENVAT Credit of Basic Excise Duty be used for payment of Education Cess / Secondary and Higher Education Cess? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS </strong>is
an oft-repeated question by many manufacturers who are at the receiving end
of the Departmental Authorities and is also the subject of many audit objections
resulting in show cause notices against the manufacturers. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Kindly enlighten us as to whether CENVAT Credit of Basic Excise Duty can be used for payment of Education Cess / Secondary Higher Education Cess? </em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This question was posed to us by a leading manufacturer and we decided to explain the relevant provisions in this regard to clear the air. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of sub clauses (i), (ii), and (via) of Rule 3(1) of the CENVAT Credit Rules, 2004 a manufacturer is allowed to avail CENVAT Credit of duty of excise, education cess (‘ ECess ') and secondary & higher education cess (‘SHE Cess') and Rule 3(4) (a) thereof allows the same to be utilized for payment of ‘any duty of excise' on any final product. It may be noted that ECess and SHE Cess are also duties of excise. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, in terms of Rule 3(7) (b) (iii) & (iiia) and the two provisos to sub clause (b) therein, the credit of ECess and SHE Cess can be utilized only towards ECess and SHE Cess respectively and cannot be utilized to pay any duty of excise other than those for which it is permitted under the said provisions. So if there is any excess credit of ECess and SHE Cess is lying in the CENVAT Credit account, the same cannot be utilized for payment of basic excise duty on the final products (or output services as the case may be). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, sub-rule (7) of Rule 3 starts with a <em>non-obstante </em> clause which states that the provisions therein are applicable notwithstanding anything contained in sub rules (1) and (4) of Rule 3. This <em>non-obstante </em> clause is probably the reason for all the confusion in the field. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the provisions of Rule 3(7) (b) (iii) & (iiia) restricts utilization of ECess and SHE Cess for payment of ECess and SHE Cess only [while allowing for cross utilization for goods and services as per the two provisos under sub clause (b)], there is no such specific restriction on utilization of credit of duty of excise (or basic excise duty) which is governed by Rule 3(4)( a). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hence, in terms of Rule 3(4) (a), credit of duty of excise may be utilized for payment of ‘any duty of excise' on any final product and as mentioned above ‘duties of excise' includes both ECess and SHE Cess as well. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And fortunately, we have a few decided cases on this issue –in </font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Commissioner
of Central Excise, VAPI v BALAJI INDUSTRIES <strong> - </strong></em></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2008/2008-TIOL-2629-CESTAT-AHM.htm" target="_blank">2008-TIOL-2629-CESTAT-AHM</a></strong>.</font> </p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>CCE , Shillong Vs Godrej Consumer Products Ltd </em> - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2007/2007-TIOL-1174-CESTAT-KOL.htm" target="_blank">2007-TIOL-1174 CESTAT- Kol</a> </strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>, </strong> and </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Sun Pharmaceutical Industries Vs CCE , Jammu </em> - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2006/2006-TIOL-1444-CESTAT-DEL.htm" target="_blank">2006-TIOL-1444-CESTAT-Del</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> which
support the above view. </font></p>
</blockquote>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Festival Bonanza for Babus – 2nd Instalment of Pay Commission Arrears </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Government Employees have every reason to celebrate Dusshera and Deepavali in grand style – it's raining money – they are going to get the second instalment of the VI Pay Commission Arrears – and that is going to be one and a half times of what they got last year. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">About Rs. 12,000 Crores will come into the economy and will surely help the markets. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Government servants will be permitted to deposit their arrears in their GPF Accounts. Though not mandated, Government servants are encouraged to deposit their arrears in their GPF accounts, as per the Government OM. But please remember, under the new tax regime, withdrawals from the GPF may be taxable – so GPF may not be after all a wise investment – spending that money maybe a better option! </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Department of Expenditure F.No . 1/1/2008-IC Dated 25 th August 2009 </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Delhi and Mumbai – Least expensive Cities in World </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Leading Swiss Bank UBS study reveals that </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Oslo, Copenhagen, Zurich, Geneva and Tokyo are the world's priciest cities </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Employees in Zurich and Geneva have the highest net wages in the world </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ People in Cairo and Seoul work the longest – roughly 600 hours more per year than their peers in Western Europe </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Oslo, Zurich, Copenhagen, Geneva, Tokyo and New York are the world's most expensive cities based on a standardized basket of 122 goods and services. When rent prices are factored into the equation, New York, Oslo, Geneva and Tokyo emerge as especially pricey places to live. The basket costs the least in Kuala Lumpur, Manila, <strong>Delhi </strong> and <strong>Mumbai </strong>. The study was based on data collected in 73 cities around the world between March and April of this year. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Earnings highest in Switzerland, Denmark and the US:</font> </strong>The survey of 73 international cities found that employees in Copenhagen, Zurich, Geneva and New York have the highest gross wages. Zurich and Geneva – the two Swiss cities in the study – top the rankings in the international comparison of net wages. By contrast, the average employee in Delhi, Manila, Jakarta and Mumbai earns less than one-fifteenth of Swiss hourly wages after taxes. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Nine hours of work for an iPod nano :</font> </strong>One vivid way to illustrate the relative purchasing power of wages is to replace the abstract basket of goods and services with a specific, highly uniform product that is available everywhere with the same quality, and then calculate how long an employee would have to work to be able to afford it in each city. The study determined that employees have to work a global average of 37 minutes to earn enough to pay for a Big Mac, 22 minutes for a kilo of rice and 25 minutes for a kilo of bread. For the first time, a non-food product was used in the study to compare working hours. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The iPod nano with 8 GB of storage is an ideal example of a globally uniform product. An average wage-earner in Zurich and New York can buy a nano from an Apple store after nine hours of work. At the other end of the spectrum, workers in <strong>Mumbai </strong>, need to work 20 nine-hour days – roughly the equivalent of one month's salary – to purchase an iPod nano . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Costliest Cities:</font> </strong>While Tokyo ranks as one of the world's five costliest cities, Kuala Lumpur, Manila, <strong>Delhi </strong> and <strong>Mumbai </strong> are all at the bottom of the price range. Workers in Tokyo earn the highest wages in Asia. Likewise, consumers in Tokyo, Hong Kong and Taipei have the greatest purchasing power in the continent. Sydney ranks among the top ten cities in the international comparison. </font></p>
<p align="center"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600" size="2">Jurispruden</font><font color="#FF6633" size="4">tiol</font><font color="#006600" size="2"> – Thursday's
cases</font></strong></font></strong></font></p>
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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" 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color="#663399" 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>ST paid on outward transportation - Liquid Oxygen, Nitrogen and Medicinal gas delivered to buyers in cryogenic tanks maintained at sub-zero temp and mounted on goods transport vehicles - CENVAT Credit allowed: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The short question is whether CENVAT credit of the Service Tax paid for GTA service availed by the assessee for outward transportation of the final product viz. liquefied gases from factory to the buyers' premises during period February to September, 2005 is admissible to them. </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="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee's claim of foreseeable losses to be allowed irrespective of method of accounting in terms of AS-7: ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After considering the arguments from both sides, ITAT held that the contention of the assessee regarding allowability of foreseeable loss is to be accepted in principle in view of decisions rendered in <em>CIT vs. Woodward Governor India (P) Ltd. </em><strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2007/2007-TIOL-418-HC-DEL-IT.htm"><font size="1">2007-TIOL-418-HC-DEL-IT</font></a></em></strong><em>, Metal Box Co. of India Ltd. vs. Their Workmen and Gopal Purohit vs. DCIT </em>. However, for the purpose of quantification and calculation of said losses in terms of AS-7, the issue is restored to file of A.O for both the AYs.</font></p>
<p align="justify"><font color="#663399" 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>Interest is compensatory in nature and different from penalty – No interest is payable if CENVAT credit is not utilised: High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant wrongly availed CENVAT Credit and utilised nearly 5.7.crores for payment of duty. A case was registered against assessee by the DGCEI and the assessee approached the Settlement Commission after paying Rs 4 crores in PLA and the remaining amount from CENVAT account. The Settlement Commission passed an order inter alia for payment of interest. The appellant sought a clarification from the Settlement Commissioner where interest has to be computed from the date of taking credit or from date of utilising the same for payment of duty. It was clarified by Settlement Commission that the date of taking credit is relevant for computing the inertest. The appellant challenged the said order in WP before the HC. </font></p>
<p align="justify"><strong><font color="#663399" 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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