TIOL-DDT 2348 · 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> <s><strong><font size="2"><strong><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=20079"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2014_1.jpg" alt="DDT in Limca Book of Records - Third Time in a row" width="250" height="123" hspace="5" border="0" align="right"></a></font></strong></font></strong></font></strong></font></strong></font></strong></s><p><strong><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 2348 </font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br> 07.05.2014<br> Wednesday </font></strong></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Central Excise - Manufacture of dutiable and exempted final products - 6% payment/separate accounts - not applicable for exempted by-products - SC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> per Rule 6 of the CENVAT Credit Rules, a manufacturer who avails of CENVAT credit in respect of any inputs and manufactures such <strong>final products </strong>which are chargeable to duty as well as exempted goods, shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable <strong>final products</strong> and the quantity of inputs meant for use in the manufacture of exempted goods. If he is not able to maintain separate accounts, he should pay an amount equal to six percent of the value of the exempted goods. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What are <strong>final products</strong>? Do they include by-products? For example in the manufacture of zinc, sulphuric acid is an unavoidable by product. The zinc factory's purpose is to manufacture zinc - not sulphuric acid. Now if this zinc is exempted, should the assessee who has taken credit on inputs pay six percent while clearing exempted sulphuric acid?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was exactly the question before the Supreme Court in a judgement delivered yesterday. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court observed, </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"Sulphuric acid is indeed a by-product. In fact, it is so treated by the respondents in their balance sheet as well as various other documents. It is also a common case of the parties that Hindustan Zinc Limited and Birla Copper were established to produce zinc and copper respectively and not for the production of sulphuric acid. It was argued by the Counsel for the respondents, which could not be disputed by the Solicitor General, that emergence of sulphur dioxide in the calcination process of concentrated ore is a technological necessity and then conversion of the same into sulphuric acid as a non-polluting measure cannot elevate the sulphuric acid to the status of final product. Technologically, commercially and in common parlance, sulphuric acid is treated as a by-product in extraction of non-ferrous metals by companies not only in India but all over the world. That is the reason why the department accepted the position before the Tribunal that sulphuric acid is a by-product. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In these circumstances the position taken now by the appellant that sulphuric acid cannot be treated as a by-product cannot be countenanced. It was submitted that the extraction of zinc from the ore concentrate will inevitably result in the emergence of sulphur dioxide as a technological necessity. It is not as though the Respondents can use lesser quantity of zinc concentrate only to produce the metal and not produce sulphur dioxide. In other words, a given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which respondents have no control. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On these facts this court is inclined to accept the version of the respondents that the ore concentrate is completely consumed in the extraction of zinc and no part of the metal is forming part of sulphuric acid."</font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On the requirement of payment of 6% of the value, the Supreme Court observed, </font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"No doubt, Rule 57CC (present Rule 6) requires an assessee to maintain separate records for inputs which are used in the manufacture of two or more final products one of which is dutiable and the other is non-dutiable. In that event, Rule 57 CC will apply. For example, a tyre manufacturer manufactures different kinds of tyres, one or more of which were exempt like tyre used in animal carts and cycle tyre, where car tyres and truck tyres attract excise duty. The rubber, the accelerators, the retarders, the fillers, sulphur, vulcanising agents which are used in production of tyres are indeed common to both dutiable and exempt tyres. Such assesses are mandated to maintain separate records to avoid the duty demand of 8% on exempted tyres. But when we find that in the case of the respondents, it is not as though some quantity of zinc ore concentrate has gone into the production of sulphuric acid, applicability of Rule 57 CC can be attracted. As pointed out, the entire quantity of zinc has indeed been used in the production of zinc and no part can be traced in the sulphuric acid. It is for this reason, the respondents maintained the inventory of zinc concentrate for the production of zinc and we agree with the submission of the respondents that there was no necessity and indeed it is impossible, to maintain separate records for zinc concentrate used in the production of sulphuric acid."</font></em></p> </blockquote> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This landmark judgement delivered yesterday is brought to you today. Please see<strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=20364" target="_blank">Breaking News</a></strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=20364">. </a></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Prevention of Corruption Act - Investigation against Senior Babus - No prior sanction required - SC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS </strong>per Section 6-A of the Delhi Special Police Establishment Act under which the CBI functions, the CBI cannot conduct any inquiry or investigation into any offence alleged to have been committed under the Prevention of Corruption Act without the previous approval of the Central Government where such allegation relates to- the employees of the Central Government of the Level of Joint Secretary and above. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The constitutional validity of Section 6-A is in issue in writ petitions before the Supreme Court. The Supreme Court had in<font size="1"><strong> <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-22-SC-PIL-LB.htm">2005-TIOL-22-SC-PIL-LB</a></strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2005/2005-TIOL-22-SC-PIL-LB.htm"></a></font> referred the matter to a larger Bench. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Constitution Bench of the Supreme Court delivered its classic landmark judgment yesterday - after more than nine years! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court observed, </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The classification which is made in Section 6-A on the basis of status in the Government service is not permissible under Article 14 as it defeats the purpose of finding prima facie truth into the allegations of graft, which amount to an offence under the PC Act, 1988. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can there be sound differentiation between corrupt public servants based on their status? Surely not, because irrespective of their status or position, corrupt public servants are corrupters of public power. The corrupt public servants, whether high or low, are birds of the same feather and must be confronted with the process of investigation and inquiry equally. Based on the position or status in service, no distinction can be made between public servants against whom there are allegations amounting to an offence under the PC Act, 1988. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Corruption is an enemy of the nation and tracking down corrupt public servants and punishing such persons is a necessary mandate of the PC Act, 1988. It is difficult to justify the classification which has been made in Section 6-A because the goal of law in the PC Act, 1988 is to meet corruption cases with a very strong hand and all public servants are warned through such a legislative measure that corrupt public servants have to face very serious consequences. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good. The classification made in Section 6-A neither eliminates public mischief nor achieves somepositive public good. On the other hand, it advances public mischief and protects the crime-doer. The provision thwarts an independent, unhampered, unbiased, efficient and fearless inquiry/investigation to track down the corrupt public servants. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The essence of police investigation is skilful inquiry and collection of material and evidence in a manner by which the potential culpable individuals are not forewarned. The previous approval from the Government necessarily required under Section 6-A would result in indirectly putting to notice the officers to be investigated before commencement of investigation. Moreover, if the CBI is not even allowed to verify complaints by preliminary enquiry, how can the case move forward? A preliminary enquiry is intended to ascertain whether a <em>prima facie</em> case for investigation is made out or not. If CBI is prevented from holding a preliminary enquiry, at the very threshold, a fetter is put to enable the CBI to gather relevant material. As a matter of fact, the CBI is not able to collect the material even to move the Government for the purpose of obtaining previous approval from the Central Government. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is important to bear in mind that as per the CBI Manual, (Paragraph 9.10) a preliminary enquiry relating to allegations of bribery and corruption should be limited to the scrutiny of records and interrogation of bare minimum persons which being necessary to judge whether there is any substance in the allegations which are being enquired into and whether the case is worth pursuing further or not. Even this exercise of scrutiny of records and gathering relevant information to find out whether the case is worth pursuing further or not is not possible. In the criminal justice system, the inquiry and investigation into an offence is the domain of the police. The very power of CBI to enquire and investigate into the allegations of bribery and corruption against a certain class of public servants and officials in public undertakings is subverted and impinged by Section 6-A. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The justification for having such classification is founded principally on the statement made by the then Minister of Law and Justice that if no protection is to be given to the officers, who take the decisions and make discretions, then anybody can file a complaint and an inspector of the CBI or the police can raid their houses any moment. If this elementary protection is not given to the senior decision makers, they would not tender honest advice to political executives. Such senior officers then may play safe and give non-committal advice affecting the governance. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A class of Central Government employees has been created in Section 6-A inasmuch as it offers protection to a class of the Government officers of the level of Joint Secretary and above to whom DSPE Act applies but no such protection is available to the officers of the same level, who are posted in various States. This position is accepted by CBI. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Can it be said that the classification is based on intelligible differentia when one set of bureaucrats of Joint Secretary level and above who are working with the Central Government are offered protection under Section 6-A while the same level of officers who are working in the States do not get protection though both classes of these officers are accused of an offence under PC Act, 1988 and inquiry/investigation into such allegations is to be carried out. Our answer is in the negative. The provision in Section 6-A, thus, impedes tracking down the corrupt senior bureaucrats as without previous approval of the Central Government, the CBI cannot even hold preliminary inquiry much less an investigation into the allegations. The protection in Section 6-A has propensity of shielding the corrupt. The object of Section 6-A, that senior public servants of the level of Joint Secretary and above who take policy decision must not be put to any harassment, side-tracks the fundamental objective of the PC Act, 1988 to deal with corruption and act against senior public servants. The CBI is not able to proceed even to collect the material to unearth prima facie substance into the merits of allegations. Thus, the object of Section 6-A itself is discriminatory. That being the position, the discrimination cannot be justified on the ground that there is a reasonable classification because it has rational relation to the object sought to be achieved. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Corruption is an enemy of nation and tracking down corrupt public servant, howsoever high he may be, and punishing such person is a necessary mandate under the PC Act, 1988. The status or position of public servant does not qualify such public servant from exemption from equal treatment. The decision making power does not segregate corrupt officers into two classes as they are common crime doers and have to be tracked down by the same process of inquiry and investigation. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Corruption corrodes the moral fabric of the society and corruption by public servants not only leads to corrosion of the moral fabric of the society but also harmful to the national economy and national interest, as the persons occupying high posts in the Government by misusing their power due to corruption can cause considerable damage to the national economy, national interest and image of the country. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court held: </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 6- A(1), which requires approval of the Central Government to conduct any inquiry or investigation into any offence alleged to have been committed under the PC Act, 1988 where such allegation relates to (a) the employees of the Central Government of the level of Joint Secretary and above and (b) such officers as are appointed by the Central Government in corporations established by or under any Central Act, government companies, societies and local authorities owned or controlled by the Government, is invalid and violative of Article 14 of the Constitution. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, now the CBI can investigate senior officers of the Government without the permission of the Government. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will this make the CBI a super sleuth against all senior babus and will the babus start acting carefully to avoid CBI investigation. And what is the check to see that CBI does not become a witch hunting agency? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The signature tune in <em>Vineet Narain case</em> is, <strong><em>"However high you may be, the law is above you"</em></strong> Supreme Court reiterated the same. <strong>Section 6-A offends this signature tune and effectively Article 14.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this judgement today. Please see <strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTM0Nzk=" target="_blank"><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">2014-TIOL-56-SC-PIL-CB</font></strong></font></a><font size="1"></font></strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC wants Joint Secretary, Tax Research Unit (TRU) - URGENTLY</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>BOARD</strong> had in F. No. A.35017/32/2013-Ad.II, Dated: April 28, 2014, invited applications for the post of JS, TRU in the Finance Ministry, CBEC. They wanted the applications latest by 16.05.2014. (Please see<strong> <a href="http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=MjAzMDE=" target="_blank">DDT 2342 - 29.04.2014</a></strong>).</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, the Board wants the applications latest by 08.05.2014 that is by tomorrow. How will anyone apply by tomorrow? Why this undue haste? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On 16.05.2014, the election results will be announced and maybe the present FM cannot appoint somebody after that date. Perhaps, they want to complete the process of appointment before 16th May. </font></p> <p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=70&filename=pitara/deputation/vcacancy38_2014.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC F. No.A.35017/32/2013-Ad.II, Dated: May 06, 2014 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">GST in India - First Copy of Majumder's book presented to President of India </font></strong></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/Majumder_book.jpg" alt="Legal Corner Icon" width="579" height="338" hspace="5" border="0" align="center"> </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FORMER </strong>CBEC Chairman S. Dutt Majumder presented the first copy of his book "GST in India" to the President of India Pranab Mukherjee at the Rashtrapati Bhavan. The President was the Finance Minister during Majumder's tenure as CBEC Chairman. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Happily looking on is RK Jain, editor of ELT and CENTAX, the publisher of the book. </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><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">Service Tax</font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mandap keeper services - Appellant availing input service credit and also claiming abatement in terms of notfn. 1/2006-CE - when they came to know that CENVAT credit cannot be availed they stopped taking credit from October 2009 - appellant should have brought the above to notice of department and voluntarily reversed credit taken earlier - since that was not done, malafide intention is proved - demand not hit by limitation - appeal dismissed: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>appellant is a resort and providing various services like mandap keeper, hotel rooms, and catering service. The appellant was paying service tax as per Notification no. 21/97-ST by availing abatement of 40% of taxable amount. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Notification no. 21/97-ST was rescinded by notfn. 02/2006-ST and a new notification no. 1/06-ST occupied its place. As per said Notification, the appellant is not entitled to take input service credit on the services received by them to avail the benefit of abatement as per the Notification. The appellant continued to take input service credit on the services received and availed the benefit of abatement for payment of service tax. The appellant was also filing their service tax returns and showing amount of input service credit taken and benefit of the said abatement availed till October 2009. </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 when computation of book profits is done u/s 115JB, no penalty is warranted even if assessee made false claim of depreciation - YES: HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is a company. It is involved in the manufacture of steel pipes, Synthetic Filament Yarn and Polyster Clips, etc. It had filed its return for the AY 1998-1999, which was for 23 months disclosing the total loss at Rs. 1,75,91,003/ and had worked out its taxable liability u/s 115J of Rs.37,42640/. During assessment, AO had computed books profit for the purpose of levying tax u/s 115 J at Rs 5,58,33,750/. The allegation of the Assessing Authority was that the Assessee had claimed extra depreciation under the Profit and Loss Account. On appeal, Tribunal had accepted the book profit disclosed by the Assessee for the purpose of levy of tax u/s 115J . AO however on the basis of the assessment order levied penalty u/s 271(1)(c) at Rs. one crore which had been reduced to Rs.74,17,870/ by CIT(A) in the appeal against which the Assessee filed appeal before the Tribunal which has been allowed by Tribunal. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issues before the Bench are - Whether if the computation of book profits has been done u/s 115JB, the concealment of income has no role to play and it is totally irrelevant and Whether in such a case penalty for concealment cannot be levied even in respect of the false claim of depreciation made by the assessee. And the answers favour 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">Making of corrugated boxes from craft paper - amounts to manufacture - not liable to Service Tax - The order passed by Addl. Commissioner shows his total ignorance to Central Excise Law.: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> appears that the Additional Commissioner, in his anxiety to confirm the service tax demand made in the show cause notice put up before him for adjudication, did not realize that on the basis of his decision in this adjudication order that making of corrugated boxes from craft paper on job work basis does not amount to manufacture, all the corrugated box manufacturing unit manufacturing corrugated boxes from craft paper would claim that their activity would not attract excise duty. It is also surprising that the Commissioner (Appeals), instead of deciding the appeal on merits, as an Advocate representing the appellant had appeared before him, has chosen to dismiss the appeal by invoking Rule 5 of the Central Excise (Appeal) Rules, which pertains to the production of additional evidence. Considering the reply to the show cause notice and hearing the appellant when the original adjudicating authority had passed an ex parte order without waiting for the reply to the show cause notice cannot be treated as introduction of additional evidence. </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> </body> </html>