TIOL-DDT 1379 · the untouched capture
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<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1379 </font><br>
14.06.2010 <br>
Monday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Can
a 100 % EOU export goods on payment of duty and claim rebate? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> received this query from an enlightened assessee.</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633"><u>Query :</u></font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#FF6633">Whether a 100% EOU can export the goods on payment of Excise duty and claim rebate under Rule 18 of Central Excise Rules, 2002. </font></font></p>
<p align="justify"><font color="#FF6633"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_024.htm" target="_blank"><strong><em>Notification No.24/2003-C.E. dated 31.03.2003</em></strong></a> exempts excise duty on goods manufactured by 100%EOU . Further, Section 5A (1A) of Central Excise Act, 1944 when there is any exemption granted, manufacturer should not pay Excise duty. Thus, 100% EOU is bound by Notification No.24 /2003 read with Section 5A (1A) and cannot pay Excise duty on exports. </font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#663399"><strong><u>Our Response:</u></strong></font></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">It may be noted that Section 5A (1A) of Central Excise Act, 1944 stipulates that where an exemption under sub-section (1) thereof has been granted absolutely in respect of any excisable goods from the whole of the duty of excise leviable thereon, the manufacturer of such excisable goods shall not pay the duty of excise on such goods. The operative words of this sub-section are 'exemption granted absolutely'. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">While <em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_024.htm" target="_blank"><strong>Notification No. 24/2003-CE</strong></a></em> exempts all excisable goods manufactured or produced in an export oriented unit from levy of excise duties, the proviso says that the exemption shall not apply if such goods are brought to any other place in India. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Since the provisions of Section 5A (1A) speaks of an absolute exemption and the binding nature of such an absolute exemption on manufacturers of excisable goods, <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_024.htm" target="_blank">Notification No. 24/2003-CE</a></strong></em> cannot be regarded as an exemption notification granting absolute exemption to EOUs from levy of excise duties because the proviso thereof makes this exemption conditional i.e. this exemption is not applicable to EOUs if they clear excisable goods to any other place in India and such clearances would be chargeable to excise duties as per proviso to Section 3(1) of Central Excise Act read with Notification No. 23/2003-CE as amended. <br>
<br>
Absolute exemption means an exemption without any conditions, whether preceding or subsequent, to be followed by those who avail such exemption. In view of this, <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_024.htm" target="_blank">Notification No. 24/2003-CE</a></strong></em> may not fall under the category of an absolute exemption as envisaged in Section 5A (1A) of Central Excise Act, 1944. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> In view of the above, a 100% EOU may export goods on payment of duty and claim rebate under Rule 18 of Central Excise Rules, 2002. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> However, excise officials may not accept the above interpretation of the nature and characteristic of <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=29&filename=notification/excise/2003/etariff03_024.htm" target="_blank">Notification No. 24/2003-CE</a></strong></em> and disallow rebate claims. Since the policy of the Government is to allow export of goods and services unhindered and not the incidental taxes thereon, there is a possibility of the above views prevailing in higher judicial forums. <br>
<br>
Alternatively, if there is excess <em>CENVAT credit</em> lying unutilized in the books, the export oriented unit is not precluded from claiming refund under Rule 5 of <em>CENVAT Credit</em> Rules, 2004 read with <em>Notification No. 5/2006- CE( NT)</em> as amended. This is an easier route to get refund of unutilized credit lying in books and devoid of any legal complications for an export oriented unit. <br>
<br>
Therefore, it is advisable to follow the refund route under Rule 5 of <em>CENVAT Credit</em> Rules, 2004 instead of inviting unwarranted litigation by adopting the rebate route under Rule 18 of Central Excise Rules, 2002. </font></p>
</blockquote>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">What if someone violates Sec 5A (1A)? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>YES</strong>,
they cannot pay duty on the goods manufactured and exported by a 100% EOU.
But, what if someone violates Sec 5A (1A)? Refund the duty that should not
have been paid? Levy penalty? In this case, of course, they will deny rebate,
but generally, what is the consequence if someone violated Sec 5A (1A) and
pays duty? This is certainly no offence punishable under the Act! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally the exemption notifications issued under Section 5A (1) are not applicable to EOUs unless specifically provided in such notification. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Electronic
filing of Annual Financial Information Statement - ER-4? Who should file? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per Rule 12 (2) of the Central Excise Rules, every assessee shall submit to the Superintendent of Central Excise, an Annual Financial Information Statement for the preceding financial year to which the statement relates in the form specified by notification by the Board by 30 th day of November of the succeeding year. [Board has by Notification No. 36/2004 prescribed the Form ER-4] </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Provided that where an assessee has paid total duty of rupees ten lakh or more including the amount of duty paid by utilization of <em>CENVAT credit</em> in the preceding financial year, he shall file the said Annual Financial Information Statement electronically: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Central Government may, by notification, and subject to such conditions or limitations as may be specified in such notification, specify assessee or class of assessees who may not require to submit such an Annual Financial Information Statement. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessees who have paid a duty of less than Rs . 1 crore through PLA (Account current) during any financial year were not required to file this return, as per <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2006/exnt06_17.htm" target="_blank">Notification 17/2006 CE-NT Dated 01.08.2006</a></strong></em> (Earlier 35/2004 CE NT). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This condition has been amended vide <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2008/exnt08_42.htm" target="_blank">Notification 42/2008 CE NT Dated 29.09.2008</a></strong></em> whereby, those who have paid a duty of less than Rs . 1 Crore , irrespective of the mode of payment ( PLA or utilization of <em>CENVAT credit</em>) alone are entitled for exemption. In other words, those who have paid a duty of over Rs . 1 crore , either by way of PLA (Account current) or by way of utilization of CENVAT credit or both, shall file this return. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By<strong><em> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2010/exnt10_20.htm" target="_blank">Notification No. 20/2010-CX.,(N.T.), Dated: May 18, 2010</a></em></strong>, a proviso was added to Rule 12, </font></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Provided that where an assessee has paid total duty of rupees ten lakh or more including the amount of duty paid by utilization of CENVAT credit in the preceding financial year, he shall file the said Annual Financial Information Statement electronically:” </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> So, now the situation is </font></p>
<blockquote>
<blockquote>
<p align="justify"><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you have paid more than Rs. 10 Lakhs duty, you are required to file ER-4 electronically.</font></strong></p>
</blockquote>
<p align="justify"><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">If your duty payment is less than one Crore Rupees, you are not required to file the ER-4 return at all. </font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>When you are not required to file the return at all, where is the question of filing them electronically? </strong></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A <strong><em>concerned</em></strong> Netizen brought this to our notice and honestly <strong>DDT</strong> did not notice this lapse.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will the CBEC clarify? And what about ER-5 and ER-6? </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"> –Tuesday'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">Customs </font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">No appeal of department would lie to CESTAT against any order passed by Commissioner of Customs under Regulation 23(7) of the CHALR , 1984. </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> CHA was issued a show cause notice asking as to why his licence should not be revoked on the ground that they had violated the CHALR , 1984. The CHA submitted his defence . The enquiry officer appointed to look into the charges framed against the CHA gave a clean chit to the CHA. However, the Commissioner of Customs (General), Mumbai was not satisfied. He appointed another enquiry officer (<em><strong>permissible??</strong></em>) who too submitted a report in favour of the CHA. The Commissioner rejected the report and revoked the CHA licence on the ground of breach of CHALR provisions, under Regulation 23(7) of the CHALR , 1984. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 37(1) - Whether expenses incurred to protect business interest of assessee firm in protecting valuable trade mark owned by its sister concern could be allowed as deduction - Whether deduction of expenses on account of foreign tour expenses be allowed on mere filing of credit card bills showing amount spent - Whether expenses incurred on membership and subscription fee be said to be incurred for purpose of business and accordingly allowable </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is a partnership firm engaged in the business of exporting “Precious” brand agarbattis (incense sticks) which are manufactured by it's sister concern M/s. Hem Corporation - incurs certain expenses in connection with trade mark “Precious” owned by it's sister concern, in respect of a litigation in U.S.A. - While agarbattis are manufactured by the sister concern, the entire export of agarbattis is being handled by the assessee - It was in these circumstances and since the expenses related to export market, the expenditure was borne by the assessee - The AO declined deduction in respect of the same on the ground that the trade mark was owned by the sister concern - CIT(A) allowed only half of the expenditure on the ground that the sister concern ought to bear half of this expenditure as the sister concern also had valuable rights protected by the said litigation; </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Laying of pipelines for drinking water supply projects run by Gujarat Water Supply and Sewerage Board, not leviable to tax under either Commercial or Industrial Construction Service or Works Contract Service – CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellant, M/s. Nagarjuna Constructions Company Ltd., Hyderabad executed laying of long distance pipelines in the State of Gujarat under a contract awarded to them by M/s. Gujarat Water Supply and Sewerage Board (‘GWSSB'). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The lower authority found that the appellant had engaged in providing 'Commercial or Industrial Construction Services' during the material period and demanded service tax of Rs 7,15,36,082/- along with applicable interest and imposed a penalty @ 2% on the demand confirmed against the appellant subject to the maximum of the tax demanded. Further, a penalty of Rs . 8 crores under Section 78 of the Finance Act, 1994 was also imposed. </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"><strong>vijayWrite@taxindiaonline.com</strong></a></font></p>
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