TIOL-DDT 2561 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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><strong><font color="#663399" size="3">TIOL-DDT 2561 </font><br>
19 03 2015<br>
Thursday</strong></font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Classification under VAT - HSN Applicable? Supreme Court Classic Judgement - Assessee wins appeal, but no refund of tax paid </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Supreme Court yesterday delivered a masterly judgement on Classification. Though the issue was classification under Kerala VAT, the judgement extensively covered Customs, Central Excise and HSN.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue was classification of "Ujala Supreme" and "Ujala Stiff and Shine". The Kerala High Court opined that an acid base industrial raw material cannot be used as a laundry whitener and it has to be necessarily subjected to processing or manufacture to make it fit for use as a laundry whitener which is exactly what is done by Jyothy Laboratories, the supplier of the items to the appellant and since in the process, the original item lost its identity and a new commodity with distinct composition, identity and use emerged, and accordingly rejected the appellant's contention that the item should be treated as the original commodity for classification. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court repelled the contention that the common parlance or commercial parlance test cannot be applied and identification of the products should be in accord with HSN Code No., for the said two products cannot be regarded as original items from which they are made, more so, for the purpose of payment of VAT under the Kerala VAT Act. The High Court opined that even though the classification of items under VAT regime is also based on HSN numbers, it does not mean that the products made out of items with HSN numbers should be classified as the original items with same HSN number, and when the products made from industrial raw material are commercially different with distinct use and purpose, it cannot be treated as the raw material from which it is made. On the said foundation it ruled that the two items can be classified under the residuary Entry 103 of SRO 82/2006. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus the appeal reached the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court elaborately dealt with the issue taking help from some decided cases. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Primacy of HSN</strong>: The Supreme Court explained,<em> the commodities mentioned in the schedules have been allotted code numbers developed by International Customs Organisation, which is known as Harmonised System of Nomenclature (HSN). The same has been adopted in the Customs Tariff Act, 1975. Where the commodities have been given HSN numbers, the same meaning would be given for classification under the Customs Tariff Act, 1975. The rules accept that for certain entries, HSN numbers are not given. Where commodities are not ascribed any HSN number, they would be interpreted as understood in common or commercial parlance. In case of inconsistency between meaning of a commodity without HSN number and a commodity with HSN number, the commodity without HSN number should be interpreted by including the commodity in that entry, which has been given HSN number. Thus, primacy is given to HSN number classification and adoption/interpretation of HSN classification under the Customs Tariff Act, 1975 and any inconsistency or debate would be decided with the commodity being categorized against the HSN number. As is seen, general guidelines have been given on interpretation of four digit, six digit and eight digit HSN numbers. The rules also provided for resolution and conflict between the commodities with four digit, six digit and eight digit HSN number, when they overlap. It can be emphatically stated that the word "other" used in sub-entries or sub-sub-entries have to be construed by adopting the doctrine of <strong>ejusdem generis</strong>. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HSN Code and VAT</strong>: The Supreme Court had in an earlier case held that<em> in cases where HSN code number is indicated against the tariff item mentioned in the Third Schedule, then one has to go by the provisions of the HSN as adopted by the Customs Tariff Act, 1975. If that is the case, then, one needs to interpret the entries in the Third Schedule not only in the light of the entries in the Customs Tariff Act, 1975 but also the judgments applicable to the corresponding entries in the Customs Tariff Act. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus the Supreme Court held that in interpreting the VAT schedule, one has to follow not only the entries in Customs Tariff Act, 1975 but also the judgments applicable to the corresponding entries in the Customs Tariff Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise and HSN</strong>: In the <em>Woodcraft Products case, the Supreme Court had observed, It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central Excise Tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to "reduce disputes on account of tariff classification". Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In another case the Supreme Court had observed, "<em>Further, the scheme of the Central Excise Tariff is based on Harmonised System of Nomenclature (for short "HSN") and the explanatory notes thereto. Therefore, HSN along with the explanatory notes provides a safe guide for interpretation of an entry</em>."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise Tariff and VAT</strong>: The Supreme Court observed, "<em>The submissions of learned counsel for the State that the decisions under the Excise Act would have no play, for they deal with the issue of the manufacture, does not commend acceptance. It is pertinent to state here that the question of manufacture is not relevant for the purposes of 2003 Act (VAT). What is really relevant is the classification based upon the HSN number. The decisions rendered by the CESTAT have decided on the classification which is founded upon the HSN number</em>." </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On the case at hand, the Supreme Court observed, <em>It has been laid down that after devolution with water the goods continue to remain classified under the same HSN number. This means that the goods remain in list "A" of the Third Schedule. It may be noted that the position would have been totally different had the goods in question been separately and specifically itemized in SRO number 82/ 2006 dated 21st January 2006. The goods which are specifically mentioned in any of the entries of the said SRO, would be chargeable to tax @ 12.5%. But that is not the lis here, for the Revenue has included the goods in the residuary Entry 103 and the said entry, by no stretch of reasoning, can be made applicable."</em> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Case won but NO REFUND</strong>: The Supreme Court set aside the High Court order allowing the appeals, but held that <strong>if any assessee-appellant has paid the amount of VAT to the State Government, they will not be entitled to get any refund of the said amount</strong> . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgement was delivered yesterday and we bring it to you today. For the next few hours, we will be the only site carrying the judgement.</font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see -
<a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTAwODA3" target="_blank">2015-TIOL-22-SC-VAT
</a></font></strong></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Cairn Demand - global investors worry about risks of investing in India - UKIBC </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>COMMENTING </strong>on India UK relations and the FM's visit to London last week, the UK India Business Council said, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>However, while it is a strong and positive relationship, it is not without challenges. </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Both, Cairn Energy and its India-based former subsidiary Cairn India received retrospective tax bills of USD 1.6 USD billion and USD 3.2bn respectively last week. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This came at a time when the Indian Government has been publicly talking about the negative impact of retrospective taxation on investor sentiment towards India. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Cairn Energy, of course, has invested USD 5bn in India over the last twenty years, creating jobs and energy in Rajasthan, and enabling thousands of Indian investors to take a stake in Cairn India. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Minister Jaitley claimed that these actions were "legacy matters" and did not contradict statements by NDA minister's new retrospective tax demands and, moreover, that investor sentiment should not be affected by these demands. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is undoubtedly true is the tax department's actions have not only damaged Cairns employees and shareholders, but have caused many global investors to worry about the risks of investing in India. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While we welcome the decision of the Indian Government not to challenge the recent rulings in favour of Shell and Vodafone in the Mumbai High Court, UK India Business Council continues to believe that the most effective resolution of all these matters is by a repeal of the 2012 amendment. </font></em></p>
</blockquote>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Customs - Interest on Delayed payment is compensatory </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THIS</strong> is a long case. An importer realised that he paid the Customs duty, even though he was eligible for an exemption. He promptly filed a refund claim of Rs.1,06,74,049/- on 24.12.1998 and it was promptly rejected. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commissioner (Appeals) allowed the appeal but ordered crediting the refund amount to the Consumer Welfare Fund on the ground of unjust enrichment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Appeal against the said order was allowed by the Tribunal vide order dated 27.07.2005 in favour of the appellant by holding that the refund claim is not hit by the principles of unjust enrichment. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue appeal against the Tribunal order was dismissed by the High Court on 01.04.2010. Revenue took the matter to the Supreme Court, where also it lost the case on 21.02.2011. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The importer approached the Customs for refund with interest - twelve years after filing the first refund claim. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department was kind enough to grant refund but not interest. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commissioner (Appeals) upheld the rejection of interest on the ground that the refund amount has been sanctioned within three months from the date of judgment of Hon'ble Supreme Court in dismissing the Special Leave Petition (SLP) filed by the department; and that for a substantial period, the amount was lying with the Consumer Welfare Fund and not with the department. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The importer is again before the Tribunal. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal observed, "The observations by the Commissioner (Appeals) in the impugned order that since, for a considerable time, the refund amount was lying with the Consumer Welfare Fund and not with the department, and therefore, no interest is payable to appellant, in absence of any delay of sanction of refund amount, is implausible and is contrary to the statutory provisions. The object behind insertion of interest provisions in Section 27A of the Act is that interest is compensatory in character." </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal allowed the appeal with consequential benefits. </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see - <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTAwNDcy" target="_blank">2015-TIOL-442-CESTAT-BANG</a></font></strong></p>
<p align="center"><font color="#006600" face="Georgia, Times New Roman, Times, serif"><strong><em><font size="3">New Norwegian Kroner exchange rate </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Central Government has notified new Norwegian Kroner rates from today. The rate of exchange of one unit of foreign currency equivalent to Indian rupees is Rs.7.65 for imported goods and Rs.7.45 for export goods. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTc4MDU=" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification 31/2015-Cus (NT) dated: March 18, 2015</font></strong></a></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"><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></strong></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@tiol.in"><strong>vijaywrite@tiol.in</strong></a></font></p>
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