TIOL-DDT 1527 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1527</font><br> 12.01.2011 <br> Wednesday</strong> </font></div> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Preferential Area Exemption Notifications - Whether exemption applies to all duties of customs or only BCD? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT</strong> has issued various notifications granting exemption of customs duties for importing specified goods from ‘preferential areas' like Singapore, ASEAN, SAFTA etc subject to the fulfillment of conditions pertaining to Rules of Origin. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For example Notification No. 152/2009-Cus., dated December 31, 2009 as amended pertains to imports from Republic of Korea, Notification No. 153/2009-Cus., dated December 31, 2009 as amended pertains to imports from ASEAN countries, Notification No. 10/2008-Cus., January 15, 2008 pertains to imports from Singapore, Notification No. 72/2005-Cus., dated July 22, 2005 pertains to areas covered by Asia Pacific Trade agreement (formerly known as Bangkok agreement). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As regards countries under SAFTA there are two notifications viz., Notification No. 67/2006-Cus., dated June 30, 2006 as amended and Notification No. 107/2008-Cus., dated October 6, 2008 (which applies only to countries other than Islamic Republic of Pakistan and Republic of Sri Lanka). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Notification Nos. 10/2008-Cus., 152/2009-Cus., and 153/2009-Cus.</em>, the preamble of the said notifications mentions that the exemption applies to ‘duties of customs' without any specific reference to BCD or CVD or SAD or E Cesses etc. The relevant text in the said notifications reads as follows: </font></p> <p align="justify"><strong><em><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">'from so much of the duty of customs leviable thereon as is in excess of the amount calculated at the rate specified in the corresponding entry in column …. of the ….Table…' </font></em></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The tables annexed to the said notifications lists out the applicable rates of duty. For e.g. in Notification No. 152/2009-Cus the rates range from 3% to 9.63% to 23.5% etc. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Compare this with the text in a general exemption notification viz., 21/2002-Cus., dated March 01, 2002 which reads as follows: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em><font color="#FF6633"><strong>‘(a) From so much of the duty of customs leviable thereon under the said First Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table; </strong></font></em></font></p> <p align="justify"><font color="#FF6633"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) From so much of the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act, as is in excess of the rate specified in the corresponding entry in column (5) of the said Table…' </font></em></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, a Netizen has raised a point, “The moot point is whether the phrase ‘duties of customs' as mentioned in the above referred preferential area notifications applies only to BCD i.e. basic customs duty or it covers all the customs duties viz., BCD, CVD, SAD and ECesses and also other Cesses/duties if any, applicable to such imported goods.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And he answers it, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“In my view, the phrase ‘duties of customs' should cover the entire gamut of customs duties leviable on the specified goods listed in such notifications and is not restricted only to the ‘basic customs duty' as is generally understood. This view is also reinforced by the fact that the rates mentioned in the tables annexed therein are in some instances more than the tariff rate of ‘basic customs duty' applicable to such goods. For e.g. in Notification No. 152/2009-Cus., dated 31.12.2009 as amended, for various goods of chapter 84, the rates are varying from 9.38 to 10.63 whereas the tariff rate prescribed for a majority of the goods under Chapter 84 is 7.5%. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the phrase ‘duties of customs' is read to mean only ‘basic customs duty' then the said notification may become redundant for import of such products where the rate in the exemption notification indicates a higher number than that is mentioned in the tariff. It may also be noted that the rates mentioned in the said notification has decimals which do not readily refer to ‘basic customs duty' as specified in the tariff. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We also checked with reliable sources in the Customs regarding this aspect and it was found that there is some confusion on this front, though some are in agreement with the above viewpoint. It was mentioned to us that due to confusion prevailing in EDI software regarding this aspect, the importers who are opting to avail the benefit of these notifications are guided to opt for some other beneficial notifications thereby side stepping the problem. In view of this confusion, the Board should issue a detailed clarification at the earliest. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another aspect (which is not related to the above issue) is with regard to notifications pertaining to SAFTA countries. While Notification No. 67/2006-Cus applies to SAFTA countries (all countries including Islamic Republic of Pakistan and Republic of Sri Lanka) providing exemption from ‘duties of customs', Notification No. 107/2008-Cus., (applies to countries other than Islamic Republic of Pakistan and Republic of Sri Lanka) provides for concession in the form of application of a ‘percentage of applied rate of duty'. Since there is an overlapping of goods, the importers may avail the notification which is more beneficial to them. However, it would be appropriate if the Board gives a suitable clarification in this regard.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, the notification does not mention duties of Customs, but refers to only <em>duty of customs</em>. </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">How a Central Excise Assessee Motivates His Staff? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> much harassed Central Excise assessee, who is not very well educated, a rustic from a remote village trying to make it big in a big city, but a committed nationalist, proud to pay his taxes – amidst all the corruption and scandals – you think there can exist such a person. ? Well, we know such a person. The other day he told us, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Our 70 employees feel that they are better qualified and deserve better salaries than what we are paying them and doing a thankless job here wasting their talent. One day I called them and showed them the ER 1 returns and told them that this is what we are working for. We pay around Rs. 40 lakhs in a month as excise duty on our product. This is your contribution. This money is used for building roads, electricity and so on. We pay 3% on the 40 Lakhs separately for education as cess. This is used to build schools for your children, pay for their teachers. Now divide the tax by 70 and you will know how much each one of you is earning for yourself in addition to your salary. If you are not here, the factory is not here and you don't have this money for your development.” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can there be a better way of motivating the staff and understanding the concept of taxes? That too coming from a man from a village without much education. THERE IS STILL HOPE! </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Good Performance of Industry Vital for Overall Growth of Economy - FM </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Finance Minister Pranab Mukherjee held meeting with the stakeholders of different Industry Groups to get their inputs for General Budget 2011-12, yesterday. In his opening remarks, the Finance Minister said that a good performance of industry is vital for the overall growth of the economy and for the growth of government revenues to fund critical public expenditure on social and infrastructure development in the economy. He said that Indian industry, particularly the manufacturing sector, has been an important growth driver in recent years. The Finance Minister said that we have seen the economy clock over 9 per cent GDP growth in the years prior to the global economic slowdown, which impacted us in years 2008 and 2009. [<em>Economists have predicted that the growth cannot be sustained and in the year ahead we may not get the 9 per cent growth, while the FM hopes to surpass it</em>.] </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Minister said that he would also like to hear specific short and medium term suggestions from the stakeholders of industry sector for sustaining a double digit growth in industry and for stepping up the growth of manufactured exports. He asked for their specific observation about the corporate tax collections in the current financial year which are not keeping up with the anticipated trend. </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"> – Thursday's cases</font></strong></font></strong></font></p> <p align="justify"><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">Short payment of Duty is Default - Penal provisions like consignment wise payment and non-use of CENVAT Credit apply - CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SUPPOSE</strong> you are required to pay a duty of Rs. 1,00,001 and by mistake you pay only Rs. 1,00,000 and after six months the Audit party finds out that you have not discharged the full duty during that month. What are the consequences? You were an offender in the sense that during the last four months or so, you were not entitled to utilize any <em>CENVAT Credit</em> and you were required to pay the duty consignment wise. So you will be asked to reverse the entire CENVAT Credit utilized and pay the amount in cash - you will also be penalized for non-payment of duty, irregular Availment of CENVAT Credit and evading duty. The penalty maybe a few Crores - all for that one rupee short paid! </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">Sec 37 - Whether when assessee consistently writes off software in two years, AO is justified in treating expenses on software and web-hosting as capital expenditure and also disallowing depreciation in absence of tangible assets - NO, it is revenue expenditure: ITAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before the Tribunal is - Whether when assessee consistently writes off software within two years, AO is justified in treating expenses on software and web-hosting as capital expenditure, and also disallowing depreciation in the absence of tangible assets. NO, it is revenue expenditure, rules the ITAT.</font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"> Service Tax/CENVAT CREDIT </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Non-maintenance of separate accounts of input services - Reversal of pro-rata CENVAT Credit availed - issue settled in favour of respondent assessee by retrospective amendment made in rule 6 of CCR, 2004 by Finance Act, 2010 – Revenue appeal rejected: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> short issue involved in this case is reversal of <em>CENVAT credit</em> on input where the assessee manufacture both dutiable and exempted product without maintaining separate account. In this case, the respondents were having separate account for their inputs but they failed to maintain separate account of input services and they reversed proportionately after availing the CENVAT credit of input service after removal of goods. In the Budget 2010 an amendment has come in the Finance Act, 2010 with regard to Rule 6 of CENVAT Credit Rules, 2004, read with Schedule VIII. </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 size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#FF6666">Until Tomorrow with more<strong> DDT </strong></font></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> </body> </html>