TIOL-DDT 1354 · 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 1354</font> <br>
07.05.2010<br>
Friday</strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT
credit on Welding electrodes used in repairs and maintenance of plant entitled
for CENVAT credit – another High Court holds </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FOR</strong> the last decade or more, one particular subject that was haunting all adjudication and appellate channels right from AC to SC (Assistant Commissioner to Supreme Court) was the issue of entitlement of credit on welding electrodes used in repairs and maintenance of plant and machinery. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the Jaypee Rewa Plant case <font size="1"><strong>(<em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2003/2003-TIOL-246-CESTAT-DEL-LB.htm" target="_blank">2003-TIOL-246-CESTAT-DEL-LB</a></em></strong></font>), the Tribunal Larger Bench held that the welding electrodes were not entitled for credit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The decision in Jaypee Rewa Plant came into consideration before the Rajasthan High Court in the matter of Hindustan Zinc Ltd., <em><font size="1"><strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2008/2008-TIOL-408-HC-RAJ-CX.htm" target="_blank">2008-TIOL-408-HC-RAJ- CX</a></strong></font></em>), involving similar issue - "whether welding electrodes used for repair and maintenance of plant and machinery are eligible for <em>CENVAT credits</em>, both as capital goods as well as inputs?" </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Rajasthan High Court overruled Jaypee Rewa and held that they are entitled for credit. Revenue's SLP against the High Court decision was dismissed by the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CESTAT, Kolkata Bench in SAIL's case <em><strong>(<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2007/2007-TIOL-2272-CESTAT-RANCHI.htm" target="_blank">2007-TIOL-2272-CESTAT-RANCHI</a></font></strong></em>) held that credit is not admissible. SAIL's SLP was also dismissed by the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus two cases – one against Revenue and one in favour – got dismissed at the SLP stage in Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what would be the law of the land? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This interesting issue was decided by a High Court recently. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held that </font></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is settled law that refusing of special leave to file appeal by a non-speaking or speaking order does not attract the doctrine of merger, whereas where an award, appeal or revision is provided against the order passed by the Court, Tribunal or any other authority before a superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law, as held by the Supreme Court in Kunha Yammed (<font size="1"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-50-SC-LMT.htm" target="_blank">2002-TIOL-50-SC- LMT</a></strong></font>). </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held that decision in the matter of Jaypee Rewa Plant is not a good law in view of above judgment of the Rajasthan High Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now Revenue has another opportunity to go the Supreme Court. How much revenue is lost by a few welding electrodes? </font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will bring you the case on Monday. </font></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">C & AG Reports Irregularity in simultaneous claims of Rebate and Drawback – A
Classic case of misunderstanding of Drawback and CENVAT schemes </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>C & AG</strong> in its Audit Report for 2009-10 reported a case of simultaneous availment of drawback and rebate of duty paid on finished goods cleared for export and observed that such simultaneous claims tantamount to double benefit for the assessee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">M/s Indorama Synthetics Ltd in Nagpur Commissionerate manufactured polyester filament yarn (partially oriented yarn) and polyester staple fibre and exported these goods on payment of duty through <em>CENVAT credit</em>, under claim of rebate of duties so paid. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee availed <em>CENVAT credit</em> of excise duties paid on inputs used in the manufacture of exported finished goods. However, at the time of clearance of such finished goods for export under claim of rebate of duties, the assessee reversed the <em>CENVAT credit</em> availed on inputs and claimed duty drawback of Rs. 15.70 crore at full rate (of 16 per cent of FOB value i.e. value determined for shipment of goods). The assessee was also granted rebate of Rs. 5.09 crore in cash in lieu of duty paid through <em>CENVAT credit</em> on the said exported goods . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">C & AG states that through this modus operandi, the assessee obtained double benefit of liquidation of CENVAT credit in respect of inputs used in manufacture of exported goods, once as duty drawback at full rate in cash and again as rebate of duty on the goods exported by way of refund in cash. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In reply, the department stated that there was no double benefit as such benefit arose only when the same tax was refunded twice. The department further stated that if the Government's intention was to provide any one of the three rebates only, it would have provided exclusion clause in each of these schemes against the remaining two, which was not the case. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">C & AG said that the department's reply was not tenable in view of the judgement of the Bombay High Court in the case of <em>M/s Indorama Textiles Ltd vs. Commissioner of Central Excise, Nagpur <strong>(<font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=33&filename=legal/hc/2006/2006-TIOL-148-HC-MUM-CX.htm" target="_blank">2006-TIOL-148-HC-MUM-CX</a></font>)</strong></em> which held that in case of export of goods, the assessee was entitled either to rebate of duties paid on inputs or to rebate of duties paid on finished goods. </font></p>
<div align="justify">
<p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Indorama case in the High Court was a unique situation where the assessee simultaneously claimed rebate of duty paid on inputs used in the manufacture of finished goods exported as well as duty paid on such finished goods cleared for export, under Rule 18 of Central Excise Rules, 2002. The High Court observed that the intention of the Legislature was not to grant to simultaneous benefits under Rule 18 as claimed by the assessee, i.e. both input stage rebate and rebate of duty paid on finished goods.</font></p>
<p><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">If duty paid on inputs used in manufacture of goods cleared for export could be availed as <em>CENVAT credit</em> and at the same time the duty paid on such goods cleared for export (even utilizing CENVAT A/c) could be claimed as rebate under Rule 18, what is the harm if both the rebates i.e. input stage rebate and rebate of duty paid on finished goods cleared for export are claimed simultaneously so long as the duty paid on inputs is not availed as <em>CENVAT credit</em> and such <em>CENVAT credit</em> is not utilized to pay duty on finished goods exported under claim for rebate. </font>
</p>
</div>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Likewise, claim of drawback and claim of rebate of duty paid on finished goods work in altogether different spheres. While drawback is equivalent to element of duty paid on inputs used in the manufacture of export goods (even excluding the excise element in instances where such excise duty element could be availed as <em>CENVAT credit</em>), rebate claim of duty paid on finished goods does not overlap with this drawback element at all, as such rebate claim is only to the extent of duty paid by the exporter on the finished goods cleared for export. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">It will amount to double benefit as claimed by C & AG only if there is an overlap of the duty elements in drawback, rebate of input stage duties, CENVAT credit availment on inputs/input services and rebate of duty paid on finished goods (this element can be bracketed here only if the duty is paid on finished goods through CENVAT A/c). So long as there is no overlap of duty benefits, a case of double benefit cannot be made out. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">In the instant case the assessee appears to have availed CENVAT credit on inputs and reversed the entire amount before claiming the same as drawback and was also granted a rebate of duty paid on export goods through CENVAT A/c. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">C & AG Reports Short/Non-levy of Education Cess on DTA clearances </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> his Audit Report for the FY 2009-10, C & AG once again raises the issue of short/non-levy of education cess on DTA clearances. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Para 2.1 of Report No. 14 of 2009-10 – Union Government (Indirect Taxes – Customs) states that as per section 3 (1) of the Central Excise Act, 1944, the total excise duty in the case of sale of goods by 100 % EOU in DTA shall be equal to the aggregate of duties of customs leviable under the Customs Act, 1962, as if the goods were imported into India and on this central excise duty education cess is leviable. C & AG has reported four instances in the Audit Report wherein the short/non-levy was to the tune of Rs. 2.62 crores. This is popularly known as ‘third time cess'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In fact this controversial topic was given a decent burial by the Ahmedabad Bench of CESTAT in <em>Sarla Polyesters</em> case <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2010/2010-TIOL-408-CESTAT-AHM.htm" target="_blank"><font size="1">2010-TIOL-408-CESTAT-AHM</font></a></strong></em> wherein the CESTAT observed, “Once education cess is added to the customs duties to arrive at aggregate of customs duties, the question of charging education cess again does not arise. Because once it is an enhancement, it is part of the relevant type of the duty. What is required for the purpose of proviso to Section 3 of Central Excise Act, 1944 is to arrive at aggregate of customs duties and once we take a view that education cess is part of the customs duty and is an enhancement, the question of adding it again does not arise”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgment was delivered by the CESTAT after an earlier judgment from this Bench was reversed by the Gujarat High Court. While <strong>TIOL</strong> has consistently taken a stand that this levy of third time cess did not conform to the prevailing law of the land, there was utter confusion in the field formations as well as the trade and industry as regards the levy of this third time cess. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In this backdrop, CAG's ignorance of law is understandable. But with the judgments of Gujarat High Court and the Ahmedabad Bench of CESTAT conclusively deciding against the levy of third time cess, we hope that CAG takes cognizance of this CESTAT judgment and stops raising these objections. Because, every CAG objection results in a show cause notice in every field formation whether the field formations agree with that objection or not. </font></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"> – Monday's cases</font></strong></font></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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"><strong><font color="#663399">Central Excise </font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 6/2002-CE - Appellant mounting a tank over chassis supplied by M V manufacturers and claiming exemption - Whether chassis is different from a ‘running gear' - stand taken by department is neither logical nor based on any literature concerning motor vehicle industry – Duty correctly discharged – Appeals allowed: CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> distinction drawn by the lower authorities between chassis and running gear appears to be irrational. Admittedly, in this case, what was supplied by the customer was chassis and what was done by the assessee was body-building thereon. The Notification allowed the assessee to exclude the value of the chassis from the assessable value of their product (semi-trailer) which was cleared to the customer. Therefore, we hold that the correct amount of duty was paid on the goods in question </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"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">No Deduction for bribes: ITAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue pertains to the disallowance of Rs.8 ,40,000 on account of inadmissible expenses debited by the assessee in its books of account. The Assessing Officer pointed out that these disallowable items refer to bribes and other illegal payments made by the assessee company and debited to its books of account. The CIT (A) after going through the log book maintained by the assessee and the nature of expenses held that these expenses are in the nature of bribes. The assessee company has not brought forward any evidence to show that these expenses are not bribes. Section 37 of the Income-tax Act clearly does not allow such illegal payments to be deductible as business expenditure. </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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