TIOL-DDT 2875 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=26988"><img src="http://www.taxindiaonline.com/RC2/image/stories/limca_book2016.jpg" alt="DDT in Limca Book of Records - Third Time in a row" width="252" height="220" hspace="5" border="0" align="right" ></a><strong><font color="#663399" size="3">TIOL-DDT 2875</font><br>
24 06 2016<br>
Friday</strong></font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600">Enhancing period of limitation to 2 years - some stray thoughts! </font></em></strong></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> received this mail, purportedly from an officer in the department - </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Audit had raised an objection in respect of an assessee in my Range and pursuant to which a demand of CE duty was required to be issued. This objection was communicated in the the first week of February, 2016. Accordingly, I had worked out the demand for the normal period of one year and issued the SCDN on 22 nd February 2016 by invoking section 11A of the CEA, 1944 as it existed then. I later noticed that the misfeasance on the part of the assessee was also prevalent for the prior period but that would have required invoking of the extended period of limitation and which in the facts of the case was a debatable thing. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally, the Finance Bill, 2016 proposed raising the normal period of limitation to "two years" and which brought a smile on my face. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under the category 'Amendments in the Central Excise Act, 1944', the TRU letter D.O F.No.334/8/2016-TRU dated 29th February 2016 curtly informed - </font></p>
<p align="justify"><em><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 11A is being amended so as to increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful mis-statement, etc. </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Bill, 2016 has been enacted on the 14th May 2016. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After the enactment, I am faced with a dicey situation i.e. whether I can issue the demand notice for the period which I referred to earlier and which falls beyond the one year normal period but within the two year period of limitation OR whether I should attempt to issue the SCDN by invoking the extended period of limitation of five years. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is no Board Circular/Instruction on the subject matter and no guidance note of any kind from the higher authorities. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The section 11A does not contain any Explanation clarifying the applicability of the new “two years” normal period of limitation nor is there presumably any saving clause which forbids applying the “two years normal period” to past evasion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually, there are many schools of thought which are prevalent in our Commissionerate - </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ One says that I withdraw the SCN issued earlier (before the enactment) and now issue a fresh SCN invoking the two year normal period which would ably cover the period which I am <em><strong>concerned</strong></em> about; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Another says that I issue a demand notice invoking the extended period of limitation and even if the adjudicating authority or the appellate authorities come to a conclusion that there was no suppression etc., yet the possible offshoot would be that they confirm the demand for the normal period of limitation and which in the new set up would be the “two year period”. Resultantly, I achieve what I attempted in the first place! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But isn't this a mockery of the law? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suppose I had not issued the demand notice in the first week of February (not that I had a premonition that the Finance Bill, 2016 would propose to increase the normal period of limitation from ‘one year' to ‘two years') then I would have been in a comfortable position and issued a single SCDN (after enactment) and which would have covered the two year period when the duty became due at the assessees end. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">I request DDT to publish this quandary of mine so that netizens respond with their views and at the same time the benign Board spares time to issue an Instruction for the benefit of the grassroot level worker like me. </font></p>
<p align="justify"><em><font color="#993300" size="2" face="Verdana, Arial, Helvetica, sans-serif">After all, Ease of working is the stepping stone for achieving Ease of Doing Business! </font></em></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><em><strong><font color="#006600"><a name="f1"></a>Enhancing period of limitation to 2 years - Board's Views </font></strong></em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>a similar situation, Board had sought the opinion of the Additional Solicitor General, which was communicated in CBEC Circular No. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2001/excircular588.htm" target="_blank">588/25/2001-CX</a></strong>, Dated : September 19, 2001 , as: </font></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1)<font color="#CC3300"> Whether it is correct to hold that the amendments would only cover demands for a period of six months prior to issue of SCN? </font></font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: In the "Negative" - in view of the fact that the word "<em>One Year</em>" has been substituted by the word "Six Months" by section 97-B of the Finance Act. Further, the amendment has been stated to be effective from 17th November, 1980.</font></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (2)<font color="#CC3300"> Whether demands for the extended period, where such demands were held as time barred on the ground that there was approved classification list/price list etc. would be covered by the amendments? </font></font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: In the "Affirmative" - such demands which were earlier held to be time barred because of the approval of the classification list would also be covered by the amendment as the amendment has been made retrospective w.e.f. 17th November, 1980. The factum of approval after the date will not come in the way of recovering the amounts which would be covered by such an amendment.</font></p>
<blockquote>
<p align="justify"><em><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif">
(3) Whether these provisions would apply to proceedings that have attained finality and where appeal periods have expired? </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: Under Section 110 of the Finance Act, any notice issued after the 17th of November, 1980 will be protected by the validating Act. The necessity for the amendment arose to over-come the judgment of the Hon'ble Supreme Court in the <em>Cotspun Ltd. Case</em><strong> - <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-187-SC-CX-CB.htm" target="_blank"><em>2002-TIOL-187-SC-CX-CB</em></a></strong></strong>. Further, the power to amend the law retrospectively has been recognised judicially in a number of pronouncements (for example, <em>Prithvi Cotton Mills Ltd. vs. Broach</em><strong> - <strong><strong><strong><strong><strong><em><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-479-SC-MISC-LB.htm" target="_blank">2002-TIOL-479-SC-MISC-LB</a></em></strong></strong></strong></strong></strong></strong>. The said judgment, in para 4, clearly provides "If the legislature has the power over the subject matter and competence to make a valid law, it can at any time, make such a valid law and make it retrospectively so as to bind even past transactions." Therefore, where notices have already been issued, the judgments rendered in the context of the earlier provision would cease to be of relevance. In fact, in the case of Cotspun itself, where the judgment of the Supreme Court was rendered, in view of the validating provisions, recovery could be made notwithstanding the Cotspun judgment. Under these circumstances, if the SCNs have been issued then even in respect of past proceedings where even judgments have been rendered, it will be open to the Department to make recoveries. </font></p>
<blockquote>
<p align="justify"><em><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif"> (4) Could recoveries be made in such cases, and what would be the period up to which such proceedings could be reopened and recoveries made? </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: Recoveries can be made in such cases for the period subsequent to 17th November, 1980 when the retrospective operation of the amended provision has come into play. However, this is subject to the SCNs having been issued in time. It is also worth noting that if SCNs have not been issued so far, now it will not be open to issue SCNs for the past period unless it is within the period of limitation as prescribed under the amended provisions. </font></p>
<blockquote>
<p align="justify"><em><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif"> (5) What would be the time limit, if any, for initiating proceedings under the amended provisions? </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: The time limit for initiating proceedings under the amended provisions would be One Year for issuance of fresh notices. However, as far as recoveries pursuant to notices already issued or subject matter of pending proceedings are concerned, the same are covered by answer to the previous queries. </font></p>
<blockquote>
<p align="justify"><em><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif"> (6) What is the kind of notice/order that should be issued for recoveries of dues in respect of proceedings which have attained finality? </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A: In respect of matters which have received finality, the demand notices should be issued referring to the amendment carried out and pointing out that in view of the amended provision, it is necessary for the assessee to make the payment, as demanded. Reliance should be placed on the amendments for the purpose of making recoveries.</font></p>
<blockquote>
<p align="justify"><em><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif">(7) How should the department proceed in respect of matters which are pending in appeal in Tribunal and Courts? </font></em></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As far as the pending matters are concerned, the Department should file an affidavit indicating the amendment having been carried out and the request that the controversy be decided in the context of the amended provisions. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In Circular No. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2000/excircular540.htm" target="_blank">540/36/2000-CX</a></strong>, dated August 8, 2000, CBEC Clarified: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1) Where the show-cause notice period of Six Months under the erstwhile Section 11 A was applicable and had expired before 12-5-2000, the provision of amended section can not be invoked for issuing show-cause notice for recovering duty short levied / not levied. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2) Where the said show-cause notice period of Six Months for recovery expires on or after 12-5-2000 i.e. the date of coming into force of the Finance Act, 2000, the Department can issue show-cause notices upto a period of 1 year from the relevant date. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And this seems to be the view of the Tribunal too. <a></a></font></p>
<p align="justify"><font color="#CC3300" size="2" face="Verdana, Arial, Helvetica, sans-serif">Board should again clarify this position to avoid litigation and perhaps take a benign view and decide that the limitation of two years will not be applicable in cases where the one year limitation is already over . </font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600"><a name="f2"></a>Admissibility of CENVAT Credit on Sales Commission on Dutiable Goods prior to 03/02/2016 </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN </strong>a recent meeting of the Central Excise Regional Advisory Committee of the Vadodara Zone, a question was raised on the admissibility of Cenvat Credit on Sales Commission ON DUTIABLE GOODS prior to 03/02/2016 in light of the CESTAT Ahmedabad order, in the case of <em>M/s ESSAR STEEL INDIA LTD Vs. COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, SURAT </em> -1 - <strong><a href="http://www.taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTExNTkw" target="_blank">2016-TIOL-520-CESTAT-AHM</a></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department clarified, <em>"The legal position is that the department has not accepted the order of CESTAT, A'bad in the case of M/s Essar Steel Ltd and challenged the jurisdiction of the CESTAT to determine retrospective application of explanation inserted in Rule 2(l) of CCR,2004 by Notification No <strong><a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MTkxMjY=" target="_blank">2/2016-CX(NT)</a></strong>. Further the matter has already been referred to the Board for clarification/advice."</em> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT adds</strong>: The Gujarat High Court admitted the Department's appeal on 14th of this month with the following substantial questions of Law. </font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A. Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that the services rendered by the marketing agents to the respondent is in the nature of “sales promotion” within the meaning of Rule 2(l) of the Cenvat Credit Rules, 2004 and not in the nature of sales commission as held by the adjudicating authority? </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">B. Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that on rendering of agency agreement/s between the respondent and its agents, the services rendered by the agents is to help in exploring marketing feedback and developing clients for enhancing the market share, and therefore, such agreement would be constructed as sales promotion agreement? </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">C. Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that explanation inserted in Rule 2(l) of the Cenvat Credit Rules, 2004 by notification No.2/2016-CX(NT) to be declaratory in nature and it has retrospective effect? D. Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that the availment of the Cenvat Credit by the respondent on input service received from its agent is permissible in law, and therefore, demand of duty along with interest and imposition of penalty by the adjudicating authority is liable to be set aside? </font></em></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600"><a name="f3"></a>Cenvat credit on ISD invoices: </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ANOTHER</strong> point raised in the same RAC meeting was: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The dept's audit team raises queries and asks for details of nature of services and service invoices for credits availed through ISD invoice by the manufacturing unit. In case of ISD invoices, the manufacturing units are not directly availing services at the manufacturing unit. Credits are availed based on the invoices of service providers; hence they are mere recipients of the credit distributed by Input service distributors. The details of services availed by ISD and service invoices are not available at manufacturing units. This causes unnecessary hardships to assessee at manufacturing unit. Hence, the department should verify the eligibility of such credit only at the end of the Input service distributors, i.e. during the audit of the head offices or any other offices distributing the credit so that manufacturing units do not have to face unnecessary hardships. Some tribunal judgments are also in favour of assessee in such cases. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department replied: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Cenvat credit on the invoices issued by the Input Service Distributor (ISD) in accordance to Rule 4A of Service Tax Rules, 1994 read with Rule 7 of Cenvat credit Rules, 2004 is a valid document for availability of Cenvat credit in terms of Rule 9(1) (g) of Cenvat credit Rules,2004. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further rule 9 (6) of Cenvat credit Rules, 2004 stipulates that the manufacturer shall maintain proper records for the receipt and consumption of Input Services in which the relevant information regarding the value, Tax paid, Cenvat credit taken and utilized, the person whom the input service has been procured is required to be recorded and the burden of proof regarding admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Also as per Rule 9(10) Input Service Distributor furnishes a half yearly return giving the details of credit received and distributed during that period. The same are also audited. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And as per Rule-14 of CCR,2004 provides that where Cenvat credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11A and 11AA of the Excise Act or Section 73 and 75 of the Finance Act, shall apply<em> mutatis mutandis</em> for effecting such recoveries. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of the above provision of the law, it appears that whenever a manufacturer take credit, they have to maintain their Cenvat Credit Register properly and the burden of proof regarding admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit. And it also appears that the wrong availment of Cenvat credit can be recovered from the manufacturing unit or service provider. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore, the proposed solution that to verify the eligibility of such said credit only at the end of the Input service distributors doesn't seem to be feasible. </font></p>
<p align="center"><font size="3" face="Georgia, Times New Roman, Times, serif"><strong><em><font color="#006600"><a name="f4"></a>Export - Refund - Procedural Hassles </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>YET</strong> another issue raised was: For filing of refund claim of Excise duty on exports, ARE is required to be attached with refund application. Getting of ARE from customs takes at least 45 to 60 days time & refund takes further 90 days. In short, refund of excise duty takes about 4 to 5 months after export. At the time of filing of refund claim, it is requested that assesses should be required to submit shipping bill & mate receipt as proof of export with copy of invoice & extract of RG23 part II for verification of payment of excise duty. This will save lot of time for filing of refund application by the exporters for getting refund of Excise duty. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Department Replied: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The procedures have already been laid down by the CBEC to be followed in case of admitting proof of export and for granting rebate in respect of goods exported. Further, Instructions/Circulars are also being issued by the Board from time to time for this purpose. The Rebate sanctioning authority after satisfying himself that the goods have been exported, by way of verifying the relevant document and also by counter verifying the same from the Government site, sanction the claim accordingly. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per the provisions of Notification No. <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=30&filename=notification/excise/2004/exnt04_19.htm" target="_blank">19/2004 - CE (NT)</a></strong> dated 06.09.2004 as amended, issued under Rule 18 of Central Excise Rules, 2002, it is clearly mentioned that the rebate sanctioning authority shall compare the duplicate copy of application received from the officer of Customs with the original copies received from the exporter and with triplicate copy received from the Central Excise officer and if satisfied that the claim is in order (with regard to the let export order by Customs and verification of assessment of Central Excise duty by Range Superintendent) he shall sanction the rebate either in whole or in part. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter relating to procedure for online filing of ARE 1 has already been referred to the Committee constituted by the Board to study the export procedure requiring simplification and automation including sanction of refund/rebate payment. </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 align="justify"><strong><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend.</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" target="_blank"><strong>vijaywrite@tiol.in</strong></a></font></p>
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