TIOL-DDT 1185 · 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 1185 </font><br>
28.08.2009 <br>
Friday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Highlights of Foreign Trade Policy 2009-2014</strong></font></p>
<p><font color="#660099" 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 size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#660099" size="2" face="Verdana, Arial, Helvetica, 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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/ftp_28aug.jpg" alt="Legal Corner Icon" width="250" height="164" 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></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></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>COMMERCE</strong> Minister Anand Sharma released the new (without legal basis) Foreign Trade Policy yesterday. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Higher Support for Market and Product Diversification: </strong>26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A large number of products from various sectors have been included for benefits under FPS. These include, Engineering products (agricultural machinery, parts of trailers, sewing machines, hand tools, garden tools, musical instruments, clocks and watches, railway locomotives etc.), Plastic (value added products), Jute and Sisal products, Technical Textiles, Green Technology products (wind mills, wind turbines, electric operated vehicles etc.), Project goods, vegetable textiles and certain Electronic items. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Jaipur, Srinagar and Anantnag have been recognised as ‘Towns of Export Excellence' for handicrafts; Kanpur, Dewas and Ambur have been recognised as ‘Towns of Export Excellence' for leather products; and Malihabad for horticultural products. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under <strong>EPCG </strong>Scheme has been reduced to 50% of the normal specific export obligation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To impart stability to the Policy regime, <strong>Duty Entitlement Passbook </strong> (DEPB) Scheme is extended beyond 31-12- 2009 till 31.12.2010. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>EOUs: </strong>EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing 75%, (where more than one product is manufactured,) without changing the criteria of ‘similar goods', within the overall entitlement of 50% for DTA sale. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>To provide clarity to the customs field formations,<font color="#FF6633"> DOR shall</font> issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs.<font color="#FF6633"> [Is it binding on Revenue and when will they issue the clarification. What will Commerce Ministry do if CBEC does not issue the clarification?] </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DEPB: </strong>DEPB rate shall also include factoring of custom duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Simplification of Procedures: </strong>To facilitate duty free import of samples by exporters, number of samples/pieces has been increased from the existing 15 to 50. Customs clearance of such samples shall be based on declarations given by the importers with regard to the limit of value and quantity of samples. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To allow exemption for up to two stages from payment of excise duty in lieu of refund, in case of supply to an advance authorisation holder (against invalidation letter) by the domestic intermediate manufacturer. It would allow exemption for supplies made to a manufacturer, if such manufacturer in turn supplies the products to an ultimate exporter. At present, exemption is allowed upto one stage only. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Greater flexibility has been permitted to allow conversion of Shipping Bills from one Export Promotion scheme to other scheme. Customs shall now permit this conversion within three months, instead of the present limited period of only one month. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Reduction of Transaction Costs: </strong>Electronic Message Exchange between Customs and DGFT in respect of incentive schemes under Chapter 3 will become operational by 31.12.2009. This will obviate the need for verification of scrips by Customs facilitating faster clearances. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For EDI ports, with effect from December '09, double verification of shipping bills by customs for any of the DGFT schemes shall be dispensed with. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An Inter Ministerial Committee will be formed to redress/ resolve problems/issues of exporters. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An updated compilation of Standard Input Output Norms (SION) and ITC (HS) Classification of Export and Import Items has been published. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Directorate of Trade Remedy Measures: </strong>To enable support to Indian industry and exporters, especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate of Trade Remedy Measures shall be set up. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>No Cola War this – Coke and Pepsi together win major case in High Court - Service Tax on advertising – eligible as input credit </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was a major victory for the Cola giants in the Bombay High Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was held that advertising/marketing services and/or sales promotion services procured by manufacturers of ‘concentrates' for marketing aerated beverages are ‘input services' and the service tax paid thereon is available as input credit. In this context, the High Court extensively analyzed the definition of ‘input service', examined the scope of words and phrases like ‘means and includes', ‘such as', ‘activities relating to business' employed in the definition of ‘input service' and also discussed the relevance of inclusion of related costs in the assessable value of final products i.e. ‘concentrates' while arriving at this decision. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Earlier the Mumbai Bench of CESTAT - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2007/2007-TIOL-723-CESTAT-MUM.htm" target="_blank"><em>2007-TIOL-723-CESTAT-MUM</em></a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> held
that<em> M/s Coca Cola India Pvt Ltd</em> was not entitled to credit of service
tax paid on advertisement/marketing services utilized for marketing of aerated
beverages/waters since they are only engaged in the manufacture and sale
of ‘concentrates'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See this landmark judgement in our <strong>ST se GST Tak </strong> today. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>International VAT / GST Guidelines</strong></font></p>
<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court in the above case referred to the OECD guidelines on VAT/GST:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It should be borne in mind that value added tax systems are designed to tax final consumption and as such, in most cases it is only consumers who should actually bear the tax burden. Indeed, the tax is levied, ultimately, on consumption and not on intermediate transactions between firms as tax charged on these purchases is, in principle, fully deductible. This feature gives the tax its main characteristic of neutrality in the value chain and towards international trade. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Value added taxes are taxes on consumption, paid, ultimately, by final consumers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The tax is levied on a broad base (as opposed to e.g., excise duties that cover specific products); </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ In principle, business should not bear the burden of the tax itself since there are mechanisms in place that allow for a refund of the tax levied on intermediate transactions between firms. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The system is based on tax collection in a staged process, with successive taxpayers entitled to deduct input tax on purchases and account for output tax on sales. Each business in the supply chain takes part in the process of controlling and collecting the tax, remitting the proportion of tax corresponding to its margin i.e. on the difference between the VAT paid out to suppliers and the VAT charged to customers. In general, OECD countries with value added taxes impose the tax at all stages and normally allow immediate deduction of taxes on purchases by all but the final consumer. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These features give value added taxes their main economic characteristic, that of neutrality. The full right to deduction of input tax through the supply chain, with the exception of the final consumer, ensures the neutrality of the tax, whatever the nature of the product, the structure of the distribution chain and the technical means used for its delivery (stores, physical delivery, Internet). </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Why is Power of Audit only vested in Chartered Accountants? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per Section 383A (1) of the Companies Act, 1956 every company having a paid up capital of Rs. 2 Crores or above shall employ a whole time company secretary. But by virtue of the Companies Law (Amendment) Bill, 2008 this limit was enhanced from Rs. 2 Crores to Rs. 5 Crores leaving the Company Secretary fraternity fuming. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TIOL </strong> received mails from the Company Secretary fraternity wherein they drew analogies with Section 44AB of the Income Tax Act, 1961 to highlight the step-motherly treatment meted out to Company Secretaries. As per this IT provision, a person carrying on any business and having a turnover of Rs. 40 lakhs or above is required to be audited by a Chartered Accountant and an audit report has to be submitted in the prescribed format as the case may be (Form 3CA or 3CB or 3CD) to the Assessing Officer. This was introduced in the year 1984 and the monetary limit has not changed since then. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whereas the new Companies Law (Amendment) Bill 2008 enhanced the monetary limit from Rs. 2 Crores to Rs. 5 Crores. It appears that this enhancement has not gone down well with the Company Secretary fraternity. It is common knowledge that Company Secretaries are well versed with corporate laws and tax legislations and are competent to engage in all financial and legal aspects of the businesses. With such vast knowledge of corporate laws and tax legislations, there is a strong view emerging from this fraternity that even they should be allowed to audit the books of accounts and certify audit reports. </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"> – Monday's
cases</font></strong></font></strong></font></p>
<p><font color="#660099" 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, 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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>Appellant taking credit on Goods Transport Services even in respect of exempted goods but reversing same subsequently – since credit taken after clearances of exempted goods, rule 6 of CCR, 2004 not applicable – Penalty sustainable: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RULE </strong> 6 of the Cenvat Credit Rules, 2004 never ceases to <strong><em><font color="#FF6633">mesmerize</font> </em></strong>us. The department is always quick to invoke the contents of rule 6(3)(i) and ask the manufacturer to pay the “amount” of 10% [now 5%] of the value of the exempted goods the moment it sees that although common inputs/input services have been used in the manufacture of dutiable and exempted final products, no separate accounts have been maintained. There is never a thought spared to see the date on which the Cenvat Credit was availed on the common inputs/input services and whether there were any clearances effected of exempted goods after that date. <em>Or for that matter, whether the Cenvat Credit on the said “common input/input service” was eligible in the first place! </em></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>Transfer Pricing - Sec 92CA(3) - Is personal hearing obligatory before AO makes adjustment in ALP? - Supreme Court directs Revenue and assessees to go to Alternate Dispute Resolution panel mooted in Budget 2009 </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong><em>Moser Baer India Ltd Vs The additional Commissioner of Income-tax </em> </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2008/2008-TIOL-647-HC-DEL-IT.htm">2008-TIOL-647-HC-DEL-IT</a>)</em></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>,</em> the assessee Moser Baer and others like HCL Ltd filed writ petitions before the Delhi High Court seeking to quash the orders of adjustment passed by the TPO on the alleged ground of non-observance of the principles of natural justice. In these cases, although number of hearings did take place, the plea taken was that an oral hearing in terms of section 92CA (3) was not accorded by the TPO before making the alleged adjustments. The Income-tax department argued that oral hearing was not a necessary facet of natural justice. A right to effective representation would suffice and that was complied with in all the cases. However, the High Court, in this group of cases, held that the provisions of sub-section (3) of section 92CA cast an obligation on the TPO to afford a personal hearing to the assessee before he proceeds to pass an order of determining of the ALP. The High Court directed the TPO to afford opportunity to the taxpayers and decide the matters within three days. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Once adjudication proceedings exonerate accused on merits on a given set of facts, criminal prosecution based on identical set of facts cannot be allowed to continue – All proceedings arising out of criminal complaint filed against petitioner quashed: Delhi HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong> petitioner
approached the Delhi High Court challenging the dismissal of his discharge
application filed under Section 245 (2) of Cr PC by the ACMM, New Delhi in
a DRI case involving clandestine possession/dealings of foreign exchange
and sought for quashing of all criminal proceedings against him. The High
Court allowed his petition on the ground that when adjudication proceedings
against the petitioner exonerate him on merits on a given set of facts, then
criminal prosecution on identical set of facts cannot be pursued. </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"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT </strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend. </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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