TIOL-DDT 1726 · 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 1726 </font><br>
03.11.2011 <br>
Thursday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Vandana Global – Appeal Admitted by Chattisgarh HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>the famous <em>Vandana Global case</em><strong> - <font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2010/2010-TIOL-624-CESTAT-DEL-LB.htm" target="_blank">2010-TIOL-624-CESTAT-DEL-LB</a></font></strong>, the Larger Bench of the CESTAT held, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(a) The term "capital goods" has been defined in the CENVAT Credit Rules, which in turn have been framed under the rule making powers conferred under Section 37(2) of the Act. The said Section refers to credit of duty paid on goods used in, or in relation to the manufacture of excisable goods. Hence, 'capital goods' defined in the CENVAT Credit Rules in the context of providing credit of duty paid, have to be excisable goods. Whether a particular plant or structure embedded to earth can be considered as excisable goods or not has to be determined in the light of the decisions of the Hon'ble Supreme Court on the issue, which is no longer res integra. </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules for the impugned period. </font></em></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There were more than 20 appellants in this case. While reporting this case, we commented, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"But is it the end of road for assessees? </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Not necessarily, because the nexus test laid down by the Apex Court in Maruti Suzuki Ltd case appears to have been twisted by the Larger Bench to reject CENVAT credit on the impugned goods because the Supreme Court in that case was dealing with the limited issue of eligibility of input credit on inputs used in generation of electricity in a captive power plant and cleared to joint ventures, power grid etc for a price, apart from captively consuming the same for their manufacturing activity. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After all without a civil structure or foundation and/or a structural support, plant and machinery can never be installed in a factory and without proper installation of plant and machinery how can they function (remember the functional test) and produce/manufacture final products. Probably, a field visit by members of the Larger Bench perhaps to a large cement plant (which has huge conveyor belts to transfer coal, iron pellets, and clinker etc to rotary kilns) would have resulted in a better understanding of the various tests laid down by the Apex Court . </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So in all probability this issue is bound to reach the highest temple of justice viz., the Apex Court. Watch this space"</font></em></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Bilaspur Bench of the Chattisgarh has admitted an appeal against this order. This is certainly going to be a long-standing litigation. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Pakistan Grants MFN Status to India - If diplomacy can't end enmity, then trade should be given a chance to turn yesterday's foes into today's friends</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PAKISTAN'S</strong> government announced yesterday that it would normalise trade with its neighbour India.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">India is to get ‘Most Favoured Nation' status and that would enable Pakistan to export more goods to booming India at a time when Pakistan's own economy is in doldrums. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Most Pakistani and Indian business quarters welcomed the decision, but in Pakistan, there was also strong opposition and some feared that cheaper Indian goods would be flooding the Pakistani markets. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The annual trade between India and Pakistan is estimated to be around 1 billion dollars and this could grow to 9 billion dollars. As of now, the trade is mostly illicit, with goods going to Gulf first and from there, smuggled to both countries making them more expensive and bringing no tax revenue to the governments. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MFN status means that countries trade on equal and improved terms, typically giving each other low tariffs and high import quotas. India gave Pakistan MFN in 1996, but Pakistan but it took Pakistan a good 15 years to reciprocate. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pakistan has long complained that Indian quality standards and customs procedures have hindered the flow of its goods into India. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“We deeply appreciate this positive gesture that Pakistan has taken,” Commerce and Industry Minister Anand Sharma said in New Delhi. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pakistani Minister for Information and Broadcasting Dr Firdous Ashiq Awan said that Pakistan has taken this decision keeping in view its national interests and taking all stakeholders into confidence and without compromising “our national sovereignty”. Pakistan, she said, has already granted MFN status to 100 countries including China for boosting its regional trade for the benefit of the country.
The Minister recalled that granting of MFN status to India was started in 1947 and 1948 as Father of Nation Quaid-e-Azam Muhammad Ali Jinnah and Quaid-e-Millat Nawabzada Liaqat Ali Khan initiated this vision and the present government has fulfilled their vision. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Some comments heard in Pakistan, </font></p>
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<font size="2" face="Verdana, Arial, Helvetica, sans-serif">“They (the federal government) are doing it under the US pressure. It`ll be India's victory if Pakistan grants it MFN status. </font>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If diplomacy can't end enmity, then trade should be given a chance to turn yesterday's foes into today's friends. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If Germany and France, and China and Taiwan can trade, why not Pakistan and India?” </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What is MFN? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MOST</strong>-<strong>favoured Nation (MFN): treating other people equally:</strong> Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This principle is known as most-favoured Nation (MFN) treatment. It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries. And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions. In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners - whether rich or poor, weak or strong. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The principles : </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The trading system should be... </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>++ Without discrimination -</strong> a country should not discriminate between its trading partners (giving them equally “most-favoured-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”); </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>++ Freer -</strong> barriers coming down through negotiation; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>++ Predictable - </strong>foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>++ More competitive -</strong> discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>++ More beneficial for less developed countries </strong>- giving them more time to adjust, greater flexibility and special privileges. </font></p>
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<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">‘Citizens right To Grievance Redress Bill' 2011 </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS</strong> is a comprehensive rights based bill for the citizens of the country, providing statutory backing for getting timely services and goods specified in citizens charters of public authorities from Gram Panchayat, Block, District, State up to Central Level. Any violation of the citizens charter will be dealt as a grievance and institutional mechanism has been provided for time-bound grievance redressal and malafide action on the part of responsible officers will lead to penalty / disciplinary action . </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Context:</font></strong></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Common man faces day-to-day hassles with regard to delivery of public services and corruption in service delivery </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Currently inadequate institutionalised mechanism to address these problems </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Lok Pal Bill will not address these day-to-day issues </font></p>
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<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Highlights:</font></strong></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. There will be a Citizens Charter, containing category of goods and services rendered by it, the time within which such goods or services be rendered. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Any violation of the Citizens charter will result in time bound grievance redressal and also penalty / disciplinary action. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Bill can be enacted as a central legislation under the concurrent list Item 8 (actionable wrongs) and can cover: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a. Central Schemes and Central Government Departments </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b. Provide a Platform to States to make this a Grievance Redressal Mechanism for State Schemes and Departments </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Bill will incorporate the institution of Information and Facilitation Centre in all public authorities to ensure that Citizens can be facilitated and grievances are systematically recorded and tracked using telephone, sms, web etc. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. First level Redress should be within concerned department as proposed. This should be done through a Grievance Redress Officer in each department </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The second level redress/ appeal will be at the level of Head of the Department of the public authority. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. Central / State level Grievance Commissions should be set up as second level appellate authorities. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Objectives:</strong> To get committed standards of public service and redressal of grievances in the stipulated time limit, the Citizens Right to Grievance Redress Bill will seek to enumerate; </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Grievances: Any violation of Citizens Charter and implied obligations of public authority </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Liability and Penalty: To identify liabilities of public servants in case of default and to impose penalties for failure to deliver services or redress grievances in a time-bound manner and disciplinary action; </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Architecture: To ensure an appropriate, decentralised and citizen friendly mechanism to redress grievances arising out of the violation of the above.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Friday's cases</font></strong></strong></font></font></p>
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<p><strong><font color="#663399" 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">Customs</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">‘Sulphonated fish oil' classifiable under Chapter 34029020 - No infirmity in impugned order of Appellate Commissioner - Revenue appeals rejected: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue before CESTAT was with regard to classification of imported goods described as Sulphonated Fish Oil in bills of entry. The department allowed provisional clearance of goods after drawing samples which were sent to CRCL for testing. As per the test reports, the goods were identified as ‘a preparation having sulphonated fish oil and additives'. </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">Whether while computing Sec 10A benefits, if export turnover in numerator is to be calculated after excluding certain expenses, same is also to be excluded for computing export turnover as component of total turnover in denominator - ruled in favour of assessee: HC </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE </strong>is engaged in the business of specialized after sales services, marketing and distribution of customized high technology computer systems and storage devices, computer consultancy and solutions and software promotion. The main source of revenue for the assessee had been from trading division and STP unit engaged in Call Centre operations. Assessee claimed exemption u/s 10-A for the profits and gains derived from STP unit alongwith form 56F and Annexure A thereto. In the total turnover, the assessee did not include Rs 10.44 crores incurred by it towards communication expenses. Assessee was asked to substantiate the non inclusion of this expenditure incurred in foreign currency for the purpose of computation of exemption of income claimed u/s 10-A. AO held that section 10A defines only export turnover and total turnover is not defined which clearly manifests the legislature's intention to give the natural meaning to the term 'total turnover' and therefore, the communication expenses is to be excluded from the export turnover only. Consequently, the excess claim was disallowed. </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">Service Tax - Amalgamation - Date of amalgamation is date from which High Court allowed amalgamation, not date of filing application with ROC - Service to Self - Not taxable: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per facts on record, M/s ITC Hotels Ltd. and M/s Ansal Hotels Ltd. were subsiding companies of ITC Ltd. while holding company was also running a few hotels of its own M/s ITC Hotels Ltd. were paying service tax under the category of 'management consultant services' being provided by them to M/s ITC Ltd. and M/s Ansal Hotels Ltd. During the period April, 2004 to September, 2004, Amalgamation proceedings in respect of the three were going on before the Delhi High Court and Kolkata High Court and vide their respective orders, the High Courts allowed the amalgamation of the two companies with the parent company, ITC Ltd. with effect from 1.4.2004 i.e. the appointed date as per Amalgamation Scheme duly approved by the High Courts. </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><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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