TIOL-DDT 2743 · the untouched capture
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<p><strong><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 2743</font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
11 12 2015<br>
Friday</font></strong></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600">The "P" Factor </font></strong></em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>LET</strong> us imagine "<em>Coffee</em>" is dutiable and "<em>Tea</em>" is exempted. Assessee uses four inputs. Coffee powder, Tea Powder, Milk and Sugar. Since Tea is exempted, no CENVAT credit is admissible on Tea powder, which is exclusively used in manufacture of Tea . (Ref Explanation II of sub-rule 3 of Rule 6 of CENVAT Credit Rules, 2004). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the assessee does not maintain separate accounts, he has to reverse credit on inputs used in manufacture of exempted goods, i.e., Tea. To make things simple, let us follow a formula. If Tea sales is 20% of his total sales (Coffee plus Tea), the assessee has to pay back 20% of the total CENVAT Credit availed on Sugar and Milk. Now, if someone says he has to pay back 20% of the credit on coffee powder also in addition to milk and sugar, what do you call him? Revenue Officer? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the recently held Central Excise Tariff Conference, Chennai Zone asked this: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>B.19 –Cenvat Credit – Reversal of Credit on Common Input Services: </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Issue: </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of Rule 6(3) of Cenvat Credit Rules, 2004 [CCR], a manufacturer of goods or the provider of output service, opting not to maintain separate accounts for the receipt and use of input services used in the manufacture of dutiable final goods and exempted goods, or for providing output and exempted services, shall pay an amount equal to 6% of the value of exempted goods or 7% of the value of <font color="#FF0000">exempted goods (sic)</font> and exempted services or pay an amount as determined under Sub-rule 3A of Rule 6 of CCR 2004. The above sub rule prescribes a formula for arriving at the amount attributable to input services used for manufacture of exempted goods or providing exempted service. Doubts have been raised by the field formations about the expression "Total cenvat credit taken" used in the formula prescribed in the rule. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. A manufacturer of goods or provider of output services may use various input services in or in relation to the manufacture of dutiable and exempted final products and for the provision of output and exempted services. Certain input services may be used exclusively for the manufacture of dutiable goods or provision of taxable service viz. "A". Certain other input services may be used exclusively for exempted category viz. "B" and the third category of input services may be used for exempted as well as dutiable / taxable category viz. "C". In terms of Rule 6(1) and (2) of CCR, 2004, Cenvat credit shall not be allowed on such quantity of inputs or input services used for the manufacture of exempted goods or provision of exempted service's. It is clear from the above that Cenvat credit can be taken on input services covered under category "A" and Cenvat credit cannot be taken on input services used in category "B". Therefore, for arriving at the quantum of credit liable to be reversed, common input services referred in category "C" alone should be taken into account while applying the formula prescribed. However, it may be seen that the expression "P" in the formula specifically reads as ‘total cenvat credit taken on input services during the financial year'. Hence, the same is interpreted by some field officers as total of - Cenvat credit on the input services used exclusively in manufacture of dutiable goods and for provision of output services [+] Cenvat credit taken in respect of inputs used exclusively in exempted category [+] Cenvat credit taken on common input services used in both dutiable and exempted categories". </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. In this context, reference is invited to the observations of the Hon'ble CESTAT, Mumbai while passing stay order in the case of Thyssenkrupp Industries Pvt Ltd Vs CCE, Pune reported as <a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=OTYzNzY=" target="_blank"><strong>2014-TIOL-1825-CESTAT-MUM</strong></a>, which is reproduced hereunder for reference: </font></em></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"It is well settled position in law that while interpreting statutes, no word can be added or removed / deleted from the statute. As held by Rowlatt J., "in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". If, we apply this principle to the formula prescribed in sub-rule (3A), there is no scope for interpreting the term "P" otherwise. <strong>If the formula leads to an anomalous situation, the remedy lies in amending the provisions of statute and judiciary is helpless</strong>. In this regard, the decision of the Hon'ble Apex Court in the case of Shakar Raju – 2011 (271) E.L.T. 492 (S.C.) REFERS. In the present case, it is a fact that the total CENVAT credit taken on common input services is only Rs.2.07 Crore (approximately) whereas, if we apply the formula, the amount of credit required to be reversed works out to Rs.8.62 Crore" </font></em></p>
</blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. It may be seen that the Hon'ble CESTAT has noticed in the aforesaid order, an anomalous situation, where an assessee would be required to reverse more than the amount of Cenvat credit taken on common input services, if "P" is to mean total Cenvat credit taken on all the input services by the assessee instead of Cenvat credit taken on ‘common input services'. These are prima facie observations made by the Tribunal in the stay order and the final order is yet to be passed. It was suggested that the intention of the Government is to consider ‘credit taken on common input services' only, as this amount is only sought to be divided into the two categories viz. used for dutiable and exempted categories. Clarification was sought by the zone to avoid disputes on the issue and the divergent practices followed. </font></em></p>
<p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Discussion & Decision </font></strong></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The conference noted that the language of the rule is very clear. Further, the rule has been framed keeping the concept of averages in mind. The input and input services have been presumed to be going uniformly in the manufacture of the dutiable and exempted goods. This may lead to situations where some industry may be required to reverse lesser credit than actual usage in exempted goods whereas some other industries may be required to reverse credit more than the actual usage in the exempted goods. As this alternative comes in operation when separate accounts are not maintained, the formula can only be based on ratios of values which is how the formula in the rule is. Conference also noted that the rule is quite clear in terms of language used and has stabilized after a long period of time. Therefore, it was concluded that there was no need to amend or clarify Rule 6 as it exists and should be implemented in terms of clear provisions of the rule as it exists.</font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The whole purpose of the formula in Rule 6(3A) is to apportion the CENVAT Credit attributable to the exempted goods / services. When the assessee clearly establishes from the records that a particular input service is used only for dutiable goods/taxable service, how the same can be apportioned towards exempted goods / services? How can you ask me pay back part of CENVAT Credit on "coffee powder" because I am also making exempted "Tea"? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board had clarified earlier vide Circular No <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2008/excircular868.htm" target="_blank">868/6/2008-CX</a></strong>., Dated: May 9, 2008 that: </font></p>
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<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether credit in respect of input services covered by rule 6(5) would be required to be taken into account for determination of amount payable as per formula provided in rule 6(3A). </font></td>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">No, the credit attributable to services mentioned in sub-rule (5), shall not be taken into account for determination of amount under rule 6(3A). </font></td>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the above clarification was issued with reference to input services under erstwhile Rule 6(5), on which full credit was allowed, it emerges from the above clarification that the formula under Rule 6(3A) is intended only to apportion common input services. But the clarification issued by the Tariff conference appears to be otherwise. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Do you think any reasonable person can ask you to reverse credit on coffee powder for selling exempted Tea? The Indian Revenue can!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Please also see </strong>- <a href="http://www.taxindiaonline.com/RC2/print_story.php?newsid=12046" target="_blank"><strong>Rule 6(3A)(b)(iii ) of CCRs 2004 – A minor amendment is required to clear major confusion</strong> </a></font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTg4NjM=" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Para B-19 of CBEC Instruction in F.No.96/85/2015-CX.I., Dated: December 07, 2015 </font></strong></a></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">The 'Third Schedule' Confusion </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PLEASE</strong> see yesterday's DDT for the little known <em>‘third schedule</em>'. Can a product be assessed under MRP valuation if it figures in the ‘<em>Third Schedule</em>', but does not figure in the notification notifying the abatement for MRP goods? This was one of the questions raised by the Vadodara Zone in the recently held Central Excise Tariff conference. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A doubt had arisen regarding the applicability of section 4A of Central Excise Act, 1944 in respect of excisable products like Dish washing liquid, liquid floor cleaner, liquid toilet cleaners falling under tariff items 34022010 and 34022090. The said goods at present are being cleared in retail packs of 250 ml/500 ml/ 1 litre in open market, under Section 4 of Central Excise Act, 1944, and the manufacturer is paying duty on the transaction value under Section 4 instead of under Section 4A of said Act (MRP based assessment). The sponsoring zone was of the view that the said products are liable for assessment under Section 4A (MRP based assessment) in view of Serial no. 40 of notification no. 49/2008 (N.T) dated 24.12.2008 which prescribes <strong>abetment</strong> <font color="#FF0000">(<em>sic</em>) [perhaps, what they mean is abatement]</font> for assessment under section 4A read with the third schedule of the CEA,44 . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Discussion & Decision:</strong> The conference noted that for assessment of any commodity under Section 4A, one of the conditions to be satisfied is that Central Government should have specified it in a notification issued under Section 4A. In the present case, goods under discussion are covered in the third schedule of the Central Excise Act, 1944 but are not covered in the notification no. 49/2008 (N.T) dated 24.12.2008 issued under Section 4A. The scope of entry in the third schedule appeared to be larger than that of the entry in the notification and therefore assessment under Section 4A may not be possible for items not covered under the notification no. 49/2008 (N.T) dated 24.12.2008. <strong><em>Concerned </em></strong>zone may take final decision in light of the facts of the case and the case law cited. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why do you need two lists and unlimited confusion? Anyway, the conclusion is that MRP valuation is applicable only to the goods listed in the notification and not in the third schedule alone. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTg4NjM=" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Para B-3 of CBEC Instruction in F.No.96/85/2015-CX.I., Dated: December 07, 2015 </font></strong></a></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">FTP –Indian Kabuli Chickpeas under FPS </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CLARIFICATION</strong> has been sought in respect of eligibility of benefit under Focus Product Scheme of FTP(2009-14) to the Indian Kabuli Chickpeas. Export of pulses is prohibited. However, export of Kabuli Chana is exempted from the ban. It was noted that the description of export items, in this case, is Indian Kabuli Chickpeas whereas exemption from ban is on export is for "<em>Kabuli Chana</em>?. It was also noted that Customs Authorities are allowing this item for export without any authorisation from DGFT. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter was discussed in detail by the Policy Interpretation Committee (PIC) and after deliberations it was decided that: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Kabuli Chana and Indian Kabuli Chickpeas are the same item. Hence, Indian Kabuli Chickpeas is also exempted from ban on export. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Since Kabuli Chana is exempted from ban on export, Indian Kabuli Chickpeas cannot be treated as prohibited or restricted item. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) Chapter 7 of ITC(HS) Code, list items under the Heading Edible vegetables and certain ‘Roots and "Tubers?. Therefore, all items listed under Chapter 7 of ITC HS have to be either edible vegetables or certain roots or Tubers. The committee noted that Kabuli chickpeas are neither "<em>Roots</em>" nor "<em>Tubers</em>". The HS code for chickpea is 07132000 which is under subheading "Direct leguminous vegetables, shelled whether or not skinned or spilt". </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the DGFT has clarified that Indian Kabuli chickpeas is eligible under Focus Product Scheme (2009-2014). All RAs are advised to allow FPS benefit on export of Indian Kabuli chickpeas and dispose of all pending applications accordingly. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTg4Nzc=" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT Trade Notice No.10/2015-20., Dated: December 10, 2015 </font></strong></a></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Anti Dumping Duty on Purified Terephthalic Acid </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Government has imposed provisional anti dumping duty on <em>Purified Terephthalic Acid including its variants Medium Quality Terephthalic acid</em> & Qualified Terephthalic Acid falling under tariff item 2917 36 00 of the First Schedule to the Customs Tariff Act originating in, or exported from the People's Republic of China, Iran, Indonesia, Malaysia and Taiwan. </font></p>
<p align="justify"><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTg4NzY=" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 60/2015-Cus.,(ADD), Dated: December 10, 2015 </font></strong></a></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Redrafting of CBEC's Supplementary Instructions </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IT</strong> was decided in the tariff conference that that after taking inputs from the field, Supplementary Instructions would be examined for revision with the objective of providing solutions to the problems faced by the field. Chapter wise instructions would be circulated by the policy wing among the field formations for examining and proposing changes in the instructions. The policy wing would compile the proposals. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accordingly, Board has decided to to distribute various chapters in the supplementary instructions amongst different zones. A thorough review of the chapter(s) allotted to the respective zone should be conducted at the zonal level. While redrafting the respective chapters, Board wants the following points to be noted: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i. The language used while redrafting the chapters should be lucid and the contents therein may be made exhaustive for better understanding. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii. The topics referred to under various chapters are only indicative in nature and respective zones may add further topics for sake of clarity and understanding, as deemed fit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii. All the changes made in the chapters assigned to the zones, at the time of drafting, may be made in track change mode<em> vis­a­vis</em> existing manual. A cleaner version (not in track change mode) may also be forwarded. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iv. All the relevant notifications, circulars and instructions related to different topics in the chapters should be incorporated at the end of each topic with specific reference to the issue dealt by the said notification/ circular/ instruction. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board wants this exercise to be completed on or before 31.01.2016. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, that's a really tall task! </font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/pdfdocs/Redrafting_CBEC%27s-SupplementaryInstructions.pdf" target="_blank">CBEC F. No. 201/10/2015-CX.6., Dated: November 06 2015</a></font></strong></p>
<p align="center"><font size="3"><strong><em><font color="#006600" face="Verdana, Arial, Helvetica, sans-serif">Adjudication Order passed in State of Delirium! </font></em></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>a recent Order, the CESTAT observed, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. It seems that the "<em>discussion and finding</em>" portion of the impugned order is </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">a shoddy and careless cut-and-paste job </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">from another adjudication order which the adjudicating authority may have passed in relation to an earlier show cause notice which finds mention in the show cause notice dated 24.05.2012 related to the impugned order. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. There are some more such grave errors in the impugned order but we refrain from enumerating them all because what we have pointed out above is itself more than sufficient to infer that the impugned order is a </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">product of complete non-application of mind on the part of the adjudicating authority who seems to have passed it in a state of delirium. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Such conduct on the part of the adjudicating authority is too irresponsible to be ignored as it makes </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">a mockery of the quasi-judicial process </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">and can shake the faith of the assessees in the adjudication proceedings thereby<em> inter alia</em> adversely impacting the "ease of doing business" environment in the country. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Such conduct clearly falls within the unacceptable range of </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFFF00" span="span">gross adjudicatory indiscipline </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">which is a matter of concern for CESTAT in its official capacity as an appellate body. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Imposing of costs is one of the means available to CESTAT to instil a sense of responsibility and discipline in the lower adjudicating authorities with regard to adjudication matters and this is a fit case for CESTAT to exercise the power to do so. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CESTAT imposed costs of Rs. 10,000/- on the adjudicating authority who passed the impugned order. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, an almost similar observation was made by the same Bench in the case of <em>Coca Cola (I) Pvt. Ltd.</em> <strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTAxMjg4" target="_blank">2015-TIOL-613-CESTAT-DEL </a></strong>and a cost of Rs.25,000/- was imposed on the same Adjudicating authority. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you this order today. Please see<strong> <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=25466" target="_blank">Breaking News</a> </strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more<strong> DDT </strong></font></p>
<p><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend.</font></strong></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@tiol.in"><strong>vijaywrite@tiol.in</strong> </a></font></p>
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