TIOL-DDT 2002 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14276"><img src="http://www.taxindiaonline.com/RC2/image/ddt/ddt_1794.jpg" alt="DDT in Limca Book of Records" width="175" height="120" hspace="5" border="0" align="right"></a></font></strong></font></strong></font><font color="#663399" size="3">TIOL-DDT 2002 </font><br>
</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>13.12.2012 <br>
Thursday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CENVAT credit on LSHS utilized in manufacture of exempted fertilizer - Matter referred to Larger Bench: Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> History: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.The Tribunal Larger Bench by its order dated 27th December 2006/4th January 2007 <font size="1"><strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2007/2007-TIOL-104-CESTAT-MUM-LB.htm" target="_blank">2007-TIOL-104-CESTAT-MUM-LB</a>)</strong></font>, held that the assessee was entitled to claim cenvat credit on the LSHS used as input for producing steam and electricity for the manufacture of fertilizer. According to the larger Bench, the issue raised by the assessee was fully covered in its favour by a decision of the Tribunal in <em>Gujarat Narmada Fertilizers Co. Ltd. v. Commissioner of Central Excise, Vadodara </em>, <em><font size="1"><strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=34&filename=legal/cestat/2004/2004-TIOL-1173-CESTAT-MUM.htm">2004-TIOL-1173-CESTAT-MUM</a>) </strong></font></em>against which the Revenue's appeal before the Gujarat High Court was dismissed since no substantial question of law arose in <em>Commissioner of Central Excise and Customs v. Gujarat Narmada Fertilizers Co. Ltd </em>., <font size="1"><strong>(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2005/2005-TIOL-204-HC-AHM-CX.htm">2005-TIOL-204-HC-AHM-CX</a>)</strong></font>. The Larger Bench held that, <em>that the assessees are eligible to cenvat credit of duty paid on that quantity of LSHS which was used for producing steam and electricity used in turn in relation to manufacture of exempted goods, namely fertilizers</em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Based on the Larger Bench Order, A division Bench allowed the assessee's appeals, which is now impugned in the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Meanwhile, Revenue filed an appeal against the Larger Bench Decision and the Supreme Court in <em>Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited</em>, - <em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2009/2009-TIOL-96-SC-CX.htm" target="_blank"><font size="1">2009-TIOL-96-SC-CX</font></a> </strong></em> set aside the order of the larger Bench and decided the issue in favour of the Revenue. The Supreme Court held that <em>on a cumulative reading of Rule 6(1) and Rule 6(2) of the Rules (CENVAT CREDIT RULES) it is clear that the legal effect of Rule 6(1) of the Rules is applicable to all inputs, including fuel. Therefore, cenvat credit will not be permissible on the quantity of fuel used in the manufacture of exempted goods. As regards non-fuel inputs, an assessee would have to maintain separate accounts or be governed by Rule 6(3) of the Rules. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. There was an earlier case of <em>Commissioner of Central Excise Vadodara v. Gujarat State Fertilizers & Chemicals Ltd</em>.,<em><strong><font size="1">(<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2008/2008-TIOL-252-SC-CX.htm">2008-TIOL-252-SC-CX</a>)</font></strong></em> in which the Supreme Court had clearly held that a claim of modvat credit on LSHS is justified if it is used in the manufacture of steam, which in turn is used in the generation of electricity for the manufacture of fertilizer exempt from duty. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While deciding the case in (3) above, the Supreme Court had not noticed the decision in GSFCL case in (4) above which, resulted in two diametrically opposite decisions on the same subject. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court noted that there was an apparent conflict between the decisions in (3) and (4) above. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the only option before the Supreme Court was to refer the matter to the Chief Justice to constitute a Larger Bench. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em> Commissioner of Central Excise v. Gujarat Narmada Fertilizers Company Limited</em>, - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2009/2009-TIOL-96-SC-CX.htm" target="_blank"><font size="1">2009-TIOL-96-SC-CX</font></a></strong>, the Supreme Court had stated, "<em>It may be noted that litigation on interpretation of CENVAT Credit Rules has arisen on account of various conflicting decisions given by the various Benches of CESTAT, <strong>the reason being that the Rules have not been properly drafted </strong></em>". </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this Supreme Court decision today. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=16498" target="_blank">Breaking News </a></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CESTAT President Bharihoke Quits </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> are told that Justice Ajit Bharihoke relinquished his office as President of CESTAT yesterday. Day before yesterday, DDT called up the President and he was not too keen to talk. When we asked him about his quitting CESTAT, he told us that nothing was certain. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And yesterday, when we called up his office, we are informed that he has relinquished charge. It is understood that he is joining the <em>National Consumer Disputes Redressal Commission </em> as a Member. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Justice Bharihoke took over as President of the CESTAT exactly nine months ago on 12.03.2012. His predecessor, Justice Khandeparker demitted office seven months ago on 12.08.2011. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It will take a minimum of six months to get a new President and even then, we are not sure that Government would appoint a President. The other Tax Tribunal, the ITAT is the first Tribunal in India and is more than seventy years old. The ITAT is without a regular President for the last two and a half years! </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FTP - Amendment in Para 3.11.8 of Handbook of Procedures </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DGFT</strong> has amended Para 3.11.8 (c) of the Handbook of Procedures (HOP) Vol. I (RE 2012)/ 2009-14: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter 3 of the HOP deals with Promotional Measures. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Para 3.11.8 of the HOP as amended by Public Notice No. 12/2012 dated 26.07.2012 reads as:- </font></p>
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<td width="0" valign="top"><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>3.11.8 </strong></font></p></td>
<td width="0" valign="top"><p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Declaration of Intent on Free Shipping Bills </strong></font></p></td>
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<td width="0" colspan="2" valign="top"><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(a) “Export shipments filed under the Free Shipping Bill category, would need the following declaration on the Shipping Bills in order to be eligible for claiming benefits under chapter 3 of FTP: </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>‘We intend to claim benefits under Chapter 3.' </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(b) Such declaration shall not be required for export shipments under any of the schemes of Chapter 4 (including drawback), Chapter 5 or Chapter 6 of FTP. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(c) If there is a decision <strong>subsequently / later </strong> to include any new product or new market to avail such benefit, then: </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(i) For exports of such products/ export to such markets, a grace period of one month from the date of decision/ notification/public notice will be allowed for making this declaration of intent on free shipping bills. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(ii) After the grace period of one month, all exports (of such products or to such markets) would have to include the declaration of intent on the free shipping bills. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(iii) For exports made prior to date of decision/notification/public notice of products/markets, such a declaration will not be required since such exports would have already taken place.” </em></font></p></td>
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<td width="0" colspan="2" valign="top"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the words, <strong>subsequently <em>/later </em></strong> in (c) are replaced by the words, '<strong>during the year</strong>' </font></p></td>
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<p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=47&filename=notification/dgft/2012/dgft12pn036.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DGFT Public Notice No. 36 (RE-2012)/ 2009-14, Dated: December 12, 2012</strong></font></a></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Transparency in Government Purchases - CVC Frowns </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>Central Vigilance Commission has been emphasising on the need for observing integrity, transparency, fairness and equity in all aspects of decision making including in tendering and award of contracts. However, the Commission is still receiving complaints regarding adoption of non-transparent methods in tendering and award of contracts. A number of such complaints pertain to award on nomination (single source procurement) basis instead of following a process of open competitive bidding. The Commission in their earlier office order No. 23/7/07 dated 05.07.2007 had laid down the exceptional circumstances where 'single source procurement' can be resorted. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of the complaints being received regarding award of contracts on 'nomination basis' without adequate justification, the Commission has reiterated the earlier instructions for strict implementation. The Commission has also observed that there have been instances where government organisations/PSUs obtain contract from other government organisations/PSUs and further award the same to private entities on 'back to back tie up' basis without competitive tendering mechanism and without any significant value addition by the procuring government organisation/PSU. This practice subverts the Commission's emphasis on integrity, transparency, fairness and equity in decision making. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, the Commission directs that details of all tenders awarded on nomination basis shall be posted on website in public domain. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/cvccir/2012/circvc_12_018.htm" target="_blank"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CVC Circular No. 18/12/12, Dated: December 11 2012. </strong></font></a></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"> – Friday's cases</font></strong></font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><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"></font>Central Excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong></strong></font><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Captive
mines have to be considered as part of factory only - Tyres get used
in process of handling raw materials which is an integral part of manufacturing
process - nothing in definition of "capital goods" or "inputs" provides
for explicitly excluding tyres from either of the definitions - CENVAT
Credit is available on tyres: CESTAT </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellants
are manufacturers of Zinc and have availed CENVAT credit in respect of "tyres" for Low
Profile Dump Truck ("LPDT" for short) used in the captive mines for transportation
of ore. </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"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Whether assessee is entitled to claim deduction 80IB(10) proportionately in respect of residential units where there is also commercial area constructed if all other conditions are satisfied - YES: HC </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assessee is engaged in the business of developing and constructing housing projects. A survey operation was carried out u/s 133A of the Act to verify the claim of deduction u/s 80-IB(10) claimed by the assessee. AO observed that the extent of commercial area in both the projects as per sanctioned the plan were at 974 sq.ft. and 1075 sq.ft respectively. It was further observed that directors of the assessee company also purchased flats which were merged to one flat with a total area of 1850 sq. ft. AO pointed out that after purchase, the purchasers had converted the flats into commercial establishments. In one building, there were no residential units, but three commercial units were built. AO viewed that the provisions u/s 80IB (10) had not been satisfied, thus, was not entitled for deduction. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Services such as legal services, market data, payroll processing, customer support activities etc. are essential in running output services namely "BAS" to customers located abroad - any service which has nexus with business activity has to be treated as 'Input Service' - appellant entitled to refund of ST paid on input services - Appeal allowed: CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>appellant is engaged in providing Business Auxiliary Services to their customers who are located abroad. For rendering the aforesaid services, they used various input services such as legal services, market data, payroll processing, customers support activities etc. The appellant filed a refund claim for the service tax paid on input services under Rule 5 of CENVAT Credit Rules, 2004, on the ground that they are unable to utilize the credit inasmuch as all their output services are exported. The adjudicating authority rejected the claim on the following two grounds namely (i) there is no nexus between input services and output services and (ii) they have not submitted the invoices for the service tax paid on input services. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements </strong></font></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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