TIOL-DDT 1639 · the untouched capture
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<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1639
</font><br>
28.06.2011 <br>
Tuesday</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> </font></div>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Is remission admissible on finished goods received back in factory under Rule 16? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AN</strong> assessee had a peculiar problem recently. Some of the finished goods removed from the factory were received back due to quality complaints. The assessee availed CENVAT Credit on the finished goods received back under Rule 16 of the Central Excise Rules “as if the goods are received as inputs” under CENVAT Credit Rules, 2004. The goods received back were to be cleared again on payment of duty after reprocessing, but unfortunately the finished goods brought back were destroyed in a fire accident before reprocessing. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, can the assessee claim remission under Rule 21 of the Central Excise Rules 2002 and for the purpose of remission, can the goods be treated as finished goods? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is indeed a tricky situation but it seems remission cannot be denied by treating them as inputs for the following reasons: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though these goods are deemed as inputs, their character of being duty paid final products remains and they are eligible for remission. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 16 allows duty paid finished goods from any manufacturer to be brought back to the factory of any manufacturer for remake, repair or reconditioning. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rule 21 does not specify that the goods on which remission is sought should be manufactured by the same manufacturer. Rule 21 also provides that remission can be sought by a manufacturer that the goods are unfit for consumption. Now this can be viewed as 'unfit for consumption' in his own manufacturing process under Rule 16 or as 'unfit for consumption' by his customers. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In both the situations, the goods being duty paid finished goods, the duty on such goods has to be remitted by treating them as final products only. It is by deeming fiction, these finished goods are treated as inputs for extending CENVAT Credit facility. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To
draw a parallel, earlier, in Central Excise Rules, there was Rule 57(F)(ii)
according to which, when any inputs are removed as such from the factory,
the assessee has to pay duty on the inputs “as if such inputs are manufactured
in the factory”. This had resulted in disputes relating to the inputs received
from Small Scale Units at concessional rate of duty. Revenue insisted that
when such inputs are removed as such, the assessee has to pay full duty instead
of concessional rate of duty originally availed as credit. The dispute was
finally settled by the Larger Bench </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/2002/2002-TIOL-72-CESTAT-DEL-LB.htm" target="_blank">2002-TIOL-72-CESTAT-DEL-LB)</a></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> by
holding that “the legal fiction of treating the inputs as having been manufactured
by the recipients of the inputs was only to see that the manufacturer restores
the original position by debiting the same rate of duty at which he had taken
the credit”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus, Rule 16 also creates a legal fiction to facilitate the availment of CENVAT Credit by deeming fiction that the finished goods are inputs and there should not be absolutely any problem in this regard. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the issue has another dimension. Remission is allowed under Rule 21 only before removal of the goods from the factory and there is a lot of dispute as to whether remission can be sanctioned once the goods were removed from the factory. <font color="#FF6633"><strong>This issue has been referred to the President to consider whether the disputed issue should be placed before the Larger Bench in</strong></font> </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-2566-CESTAT-AHM.htm" target="_blank">2009-TIOL-2566-CESTAT-AHM</a></strong>.</font> </p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Point of Taxation Rules - 2011 amended </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RULE</strong> 7 of the POT Rules, 2011 reads as follows: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>7. <strong>Determination of point of taxation in case of specified services or persons</strong>.- Notwithstanding anything contained in these rules, the point of taxation in respect of,- </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>xxxx </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">xxxx </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (p), (q), (s), (t), (u), (za), (zzzzm) of clause (105) of section 65 of the Finance Act, 1994, </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">shall be the date on which payment is received or made, as the case may be: </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">xxxx </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">xxxx </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">These services are: </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(p) : Architect </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(q) : Interior Decorator </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(s) : Chartered Accountant </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(t) : Cost Accountant </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(u) : Company secretary </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(za) : Scientific or Technical consultancy </font></strong></font></p>
<p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(zzzzm) : Law </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the Central Government has amended sub-rule (c) of Rule 7 to bring clause (g) of sub-section (105) of section 65 of the Finance Act, 1994 which relates to ‘Consulting Engineer's service' also into its purview. To achieve this, ‘(g)' is inserted before ‘(p)' in the said sub-rule. This amendment will be effective from July 1, 2011. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, with effect from July 1, 2011, the point of taxation for consulting engineer's service provided by individuals or proprietary firms or partnership firms shall be the date on which payment is received or made. </font></p>
<p align="justify"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2011/stnot11_041.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 41/2011-S.T., Dated: June 27, 2011 </font></strong></a></strong></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Imports from ASEAN Countries - Philippines added in Notification </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NOTIFICATION</strong> No. 189/2009-Cus (N.T.)., dated December 31, 2009 provides for Customs Tariff [Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India] Rules, 2009. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Central Government has now amended this notification to include ‘Philippines' in Annexure-IV of this Notification. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Netizens may recall that Notification No. 153/2009-Cus dated December 31, 2009 which provided for concessional rate of duties for specified commodities imported from certain ASEAN countries was superseded by Notification No. 46/2011-Cus, dated June 1, 2011 to include ‘Philippines', which was the only ASEAN country left out of the scheme of exemption extended to other ASEAN countries (except Cambodia which is covered by another exemption Notification), albeit at higher rates of duty. A minor lapse in the new notification was also rectified by issuing a corrigendum. Please refer to <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=12591" target="_blank">TIOL-DDT 1622 03.06.2011</a></strong> and <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=12655" target="_blank">TIOL-DDT 1632 17.06.2011</a></strong> which covered this episode. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In fact, as far as imports from Philippines are concerned, Notification No. 46/2011-Cus would be ineffective unless ‘Philippines' is notified as a country in Notification No. 189/2009-Cus (N.T.) which deals with Rules of Origin for the said imports. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thankfully, Board noticed this lapse and came up with the latest amendment. While we can only say ‘better late than never', and pat the Board for coming up with this amendment, the question remains – what if there were any imports from Philippines during the intervening period availing the benefit of Notification No. 46/2011-Cus? </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2011/cnt11_040.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 40/2011-CUS (N.T.), Dated: June 24, 2011</font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Corporates and banks mandated to issue Form 16A downloaded from TIN central system - CBDT Reminds </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBDT</strong> has issued a
<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/itcir.htmf"><strong>Circular No. 03/2011 </strong></a> dated May 13, 2011 as per which TDS Certificates in Form No. 16A will be generated from <a href="https://onlineservices.tin.nsdl.com/TIN/JSP/security/TanLogin.jsp" target="_blank"><strong>Tax Information Network (TIN)</strong></a>. It is mandatory for Companies and Banks to issue Form 16A from TIN to their deductees for deductions made from April 1, 2011 (F.Y. 2011-12 onwards). Taxpayers are advised to insist on Form 16A (quarterly TDS certificate) that has been downloaded by the deductors from TIN Central System only. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT reiterates and advises: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is mandatory for corporates and banks to issue TDS certificate in Form 16A as generated from Tax Information Network of Income Tax Deptt. Please Insist on Form 16A (quarterly TDS certificate) that has been downloaded from TIN Central System only. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Verify that the Form 16A, is in PDF form and has a “unique six alpha character (e.g. AQTYUR) TDS Certificate number”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ To verify genuineness of certificate click on “Verification of TDS certificate (Form 16A) by Tax payer </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(<a href="https://onlineservices.tin.nsdl.com/TIN/JSP/form16A/LinkToUnauthorizedView.jsp" target="_blank">https://onlineservices.tin.nsdl.com/TIN/JSP/form16A/LinkToUnauthorizedView.jsp</a>)</strong>“ in the “TDS” link at <a href="http://www.incometaxindia.gov.in" target="_blank"><strong>www.incometaxindia.gov.in</strong></a>. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Option to view Form 16A is also available, while viewing 26AS statement online. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBDT adds that the Income Tax Department (ITD) is not responsible for any mismatch in the TDS certificate and the actual transaction of the taxpayer with the deductor. In case of mismatch please contact your deductor for necessary action </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"> – Wednesday'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"><font color="#663399"><strong>Income Tax </strong></font></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income tax - Whether, for making additions, FIR with Police is contemporaneous evidence and contents of same cannot be ignored in light of self-serving documents - YES, rules ITAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issues before the Tribunal are - Whether, for making additions, FIR is contemporaneous evidence and the contents of the same cannot be ignored in the light of self-serving documents and whether human conduct and human probabilities are to be given weightage over the self generated evidences. And the verdict goes against the assessee. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Penalty imposed on registered dealer u/r 26 of CER, 2002 - Issue of fictitious invoices also implies taking huge amount of CENVAT credit in fraudulent manner and same is punishable under rule 13 of CCR, 2002 - though for imposition of penalty rule 13 has not been invoked, it is a settled law that mere mention of wrong provision of law is not sufficient to invalidate exercise of that power: CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ON</strong> receipt of information that the appellant as registered dealer had been issuing cenvatable invoices, enquiries were initiated wherein it was revealed that the address given in the application for obtaining Central Excise Registration was fictitious. The enquiry also revealed that though in the quarterly returns filed by the appellant they had declared nil transactions, they had actually been issuing Cenvatable invoices to the manufacturers located at Surat and Bhiwandi in respect of textile yarn, on the basis of which, the manufacturers had taken CENVAT credit amounting to Rs.4,05,93,445/- . </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">Corporate office issuing Input Service Distributor Challans using SAP system which results in factories getting immediate credit without physical receipt of challan - No prima facie cause for denying CENVAT credit – at best, interest can be demanded – Pre-deposit waived: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DURING</strong> the course of verification of records of the appellants, it was noticed that the head office situated in Mumbai of the appellants was distributing input service tax credit among various factories located in different parts of the country by issuing Input Service Distributor challans under Rule 7 of the CENVAT Credit Rules, 2004. Further, it was also noticed that certain challans had been received in their office in the month of September, October and December 2008 but credit was availed in the month of August, September and November, 2008. On the ground that the credits were taken wrongly, CENVAT credit of Rs.76,60,985/- has been disallowed by the CCE, Nagpur and hence the appellant is before the CESTAT. </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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