TIOL-DDT 1292 · 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 1292 </font><br>
04.02.2010 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Undervaluation of Petroleum products by Oil Companies – Board prefers CESTAT to Supreme Court and withdraws Instructions </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>VIDE</strong> para No 11.3 of the CAG report for the year 2004-05, the auditors discovered that the oil companies are evading Crores of rupees of central excise duty by resorting to undervaluation. The <em>modus operandi </em>is: the oil companies in addition to clearing the goods to their depots/ dealers, also supply the goods to other oil companies at mutually agreed price. (It was felt that in public interest the companies have an agreement among all the oil companies, by which a company producing oil would supply the same to another company having the nearest marketing facility). The mutually agreed price on which the excise duty was paid was found to be lower than the value adopted for clearing the goods to their own outlets/ terminals. The Audit observed that the ultimate price to the consumer remained the same and there was an inflow of extra consideration to the other oil companies from ultimate consumers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When this issue came up before the CESTAT, in </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/2005/2005-TIOL-405-CESTAT-BANG.htm" target="_blank">2005-TIOL-405-CESTAT-BANG</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">, <strong>the Tribunal while setting aside the demand of duty had a word of caution to the department by holding that: </strong></font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">This arrangement definitely, reduces the transportation cost and is only in public interest. The Central Excise Authority cannot question this. Excise men better do not enter into territories alien to them. Even if the agreement between the companies results in mutual benefit, we don't understand why the Excise department should feel unhappy as long as duty is paid on the transaction value. On going through the agreement we do not find any ground to hold that the transactions are not at arm's length. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the revenue appeal against this order was dismissed by the Supreme Court, instructions were issued by the Board vide F No. 6/21/2003-CX.I( Pt) dated 14.2.2007, to the field formations to decide the pending cases accordingly. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If you think this is the end of the story, you are wrong. This is only the beginning. When this issue again came up before the Mumbai Bench of the Tribunal recently </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/2009/2009-TIOL-1850-CESTAT-MUM.htm" target="_blank">2009-TIOL-1850-CESTAT-MUM</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">,
the learned advocate on behalf of the appellants submitted before the CESTAT
that, with the dismissal of the civil appeal of the Department by the Supreme
Court and also with the directions of the Board to decide the pending cases,
it became the law of the land. But, the Tribunal was not impressed. While
upholding the duty demand of Rs 119 cores and also equal penalty, the CESTAT
observed: </font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">If the method of valuation contained in the MOU is accepted, it will prompt manufacturers in other sectors to follow suit. For example, the cement manufacturers all over India can enter into a similar arrangement with one another agreeing to provide cement to each other at a notional value of say, Rs.5 per 50 Kg bag and pay Central Excise duty on this price, when sales to in dependent dealers are at, say, Rs.50 per 50 Kg bag. Since equal quantities would be exchanged, there would be no loss to any manufacturer and the only loss would be to the Govt. on account of the Central Excise duty. Such a transaction cannot be given the legal cover of 'transaction value' under Section 4 of the Central Excise Act, 1944. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Unfortunately, the matrix of price and duty structure of the petroleum products is not that simple to draw a parallel to cement industry. Most of the domestic demand of petrol and diesel is met with the imports also. Sometimes, the duty paid on the imported petrol/diesel would be more than the domestic excise duty, but the oil companies charge the same price to the buyers. There are no different outlets for the oil companies to market petrol/diesel manufactured in the refineries and the imported goods. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the Board has now withdrawn the instructions dated 14.2.2007 and directed the field formations to CONSIGN all the pending show cause notices to call book till the appeal against the Mumbai Bench order is decided by the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the point to be noted here is, after the issue of instructions on 14.2.2007, most of the demand notices would have been dropped by now and there will be no fresh SCNs on this issue which could have been issued after 14.2.2007. So, as of now, absolutely no SCN would be pending to CONSIGN them to call book! </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Heard at Davos: where Rich and powerful of world, recently met. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>USUALLY</strong>, I am accustomed to sit with ministers, with government officials... And yesterday, they were business leaders. And we spoke almost with one voice: that education should be put on the agenda of the G20, as soon as possible. The sooner we do it, the better results will come out tomorrow. - <strong><font color="#663399">Irina Bokova, Director-General, United Nations Educational, Scientific and Cultural Organization (UNESCO) </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If we were to look at all these scourges facing our world, all these intractable problems – from poverty, hunger, disease, terrorism, climate change – all of these problems can be relieved, if not fully solved, through education. - <strong><font color="#FF6633">Queen Rania Al Abdullah of the Hashemite Kingdom of Jordan, Member of the Foundation Board of the World Economic Forum </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The good news, I think, is that the successful performance of the economy in the short run has in fact created a lot of confidence in the private sector [in India]. In fact, there is a marked difference in mood in Asia and the mood, let's say, in the industrialized world. - <strong><font color="#663399">Montek S. Ahluwalia, Deputy Chairman, Planning Commission, India </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the short term, I think agriculture has a key role to play in the economic recovery because, as many know, agriculture . . . contributes to the reduction of poverty twice as much – some people think even it's four times as much – as investment in other sectors. <strong>- <font color="#FF6633">Patricia A. Woertz, Chairman, President and Chief Executive Officer, Archer Daniels Midland Co. (ADM) </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is a fool's paradise, for people who think [the recession] is over... <br>
If we don't have jobs, there is no sustainable way of re-balancing the global economy... <br>
People... sit here and say ‘It's over', while we know there are millions of jobs still to be lost.” - <strong><font color="#663399">Sharan Burrow, President, International Trade Union Confederation (ITUC) </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This crisis is not just a global crisis. It is not a crisis in globalization. This crisis is a crisis of globalization.” - <strong>Nicolas Sarkozy, President of France</strong><strong> </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have an absolutely unique opportunity today, but it comes with its set of challenges. The first big challenge comprises ecological sustainability and tackling climate change. The second is that of reducing poverty and inequality in the world. To me, if you combine these two challenges, they present an opportunity. The key is to look at the very fundamental fact that the developing world has still to build most of its energy infrastructure [and] physical infrastructure, and to buy most of its consumer goods. This very simple fact – that the developing world does not have these things – is the great opportunity for tackling climate change and ecological sustainability.” - <strong>Azim H. Premji, Chairman, Wipro, India </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Increased global partnerships will be key moving forward, as well as more donations to fund the fight against diseases such as HIV, malaria, and tuberculosis" - <strong><font color="#FF6633">Melinda French Gates, Co-Chair, Bill & Melinda Gates Foundation, USA </font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>She has a right to speak as her foundation had just committed 10 billion dollars to help research, develop and deliver vaccines for the world's poorest countries. Melinda Gates estimates that the money will help save the lives of 8 million children over the next nine years. </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income
Tax - block assessment - Sec 143(2) notice to have mandatory
application once Revenue repudiates return and proceeds to make inquiry:
Supreme Court</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>INCOME T</strong>ax Search is an age-old practice
to curb tax evasion. However, there has been consistent infusion of elements
of natural justice in the way the Revenue completes the block assessment
in addition to regular assessment. Rejecting a return filed under block
assessment and proceeding to make inquiry is a substantive action on part
of the Revenue but whether a notice u/s 143(2) is procedural or mandatory
has been a bone of contention for quite some time. However, the controversy
has now been put at rest by the Apex Court which has held that <strong>once
the Revenue repudiates the return and proceeds to make inquiry, a notice
u/s 143(2) is mandatory in the scheme of provisions for completing assessment
u/s 143(3). The non-issue of notice is no way a procedural lapse which
can be cured.</strong></font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See
<font color="#663399">Breaking News</font></font></strong></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font></p>
<p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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">Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Settlement Commission – At time of admission of Settlement application, applicant is required to deposit only admitted amount – Commission's direction to deposit full amount quashed – The object of legislation is not to close door for settlement. - High Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> object of the Legislature is to open the doors for settlement. It is well settled canon of construction that in construing the provisions of a beneficial legislation, the Court should adopt the construction, which advances, fulfils and furthers the object of the Act rather than the one, which would defeat the same and prevent settlement. Beneficial statutes should not be construed too rigidly as it was for the protection of certain class of persons that the statute was enacted. The intention of the legislature and the policy underlying it has also to be kept in mind. </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>International Taxation - if correct arms length price is applied and paid, nothing further would be left to be taxed in hands of foreign enterprise. <em>Morgan Stanley </em> - </strong></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=37&filename=legal/sc/2007/2007-TIOL-125-SC-IT.htm" target="_blank">2007-TIOL-125-SC-IT</a>)</em></strong></font><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> and <em> SET Satellite -</em><font size="1"> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2008/2008-TIOL-414-HC-MUM-IT.htm" target="_blank">2008-TIOL-414-HC-MUM-IT</a></font> correctly followed.- ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT</strong> Circular No. 23 of 1969 is eloquently clear providing that if the value of the profit attributable to the services rendered by the agent is fully represented by the commission paid, it should, prima facie extinguish the assessment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessment of the amount of profits, allowance will be made for the expenses incurred, including the agent's commission, in making the sales and if the agent's commission fully represents the value of the profit attributable to his service, it should prima facie extinguish the assessment. </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>Rule 25 of CER, 2002 can be invoked without reference to section 11AC for imposing penalty if any of grounds enumerated is operative – Remission of duty application rejected by Commissioner but not appealed against – Duty liability unquestionable but penalty and interest u/s 11AC, 11AB not sustainable – CESTAT. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong> the unprecedented rains that caused havoc in Mumbai in July 2005, the appellant suffered at the hands of mother-nature. Water flooded his manufacturing unit damaging the stock of finished goods, raw materials etc. As soon as the rain water subsided, the manufacturer salvaged as much as he could but by then enough damage was already done. As a diligent manufacturer, he informed the jurisdictional Central Excise authorities about the damaged stock whereupon the Range officers inspected the factory and conducted verification of documents and stocks of the finished goods and raw materials. </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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