TIOL-DDT 406 · the untouched capture
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<p > <strong><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT
406</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
14 07 2006<br>
Friday</font></strong></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Definition of manufacture
– there is no “and” – CBEC in yet another wrong clarification! </strong></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
CBEC has written a letter to all Chief Commissioners clarifying that there is
no extra “and” in the definition of manufacture in Section 2(f) of the Central
Excise Act, 1944. The letter reads as follows,</font></p>
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<table width="100%" border="0" align="center" cellpadding="3" cellspacing="0">
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<td><p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.
A number of departmental and private publications of Central Excise
Act, 1944, published from time to time after 1986, contain (ed) an extra
word 'and' at the end of section 2(f) (i) and before section 2(f) (ii)
Similarly, a number of publications of Central Excise Tariff Act, 1985
also contain the word 'and' in section 4(b) which provides the definition
of manufacture.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.
While making some inquiries in connection with a court case, it is noticed
that in the Official Gazette, the word 'and' was not there between section
2(f) (i) and section 2(f) (ii), as substituted vide section 4(b) of
Central Excise Tariff Act, 1985 (5 of 1986). <font color="#0000FF"><strong>Moreover,
the word 'and' has not been inserted later by any corrigenda or subsequent
amendment to Central Excise Act, 1944.</strong></font></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.
The correct section 2 (f) of the Central Excise Act, 1944 reads as under:-</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2(f)
"manufacture" includes any process, -</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
incidental or ancillary to the completion of a manufactured product;
(Board says there is no “and” here)</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
(ii) which is specified in relation to any goods in the Section or Chapter
Notes of the First Schedule to the Central Excise Tariff Act, 1985(5
of 1986) as amounting to manufacture; or</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
(iii) Which, in relation to the goods specified in the Third Schedule,
involves packing or repacking of such goods in a unit container or labelling
or re-labelling of containers including the declaration or alternation
of retail sale price on it or adoption of any other treatment on the
goods to render the product marketable to the consumer,and the word
"manufacture" shall be construed accordingly and shall include
not only a person who employs hired labour in the production or manufacture
of excisable goods, but also any person who engages in their production
or manufacture on his own account;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.
You may advice the field staff suitably to safeguard revenue.</font></p></td>
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<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">But
is the Board right?</font> As usual the clarification is more confusing than
the original confusion. Let’s delve into history to know the reality.</strong></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
all started with <strong>THE CENTRAL EXCISE TARIFF ACT, 1985.</strong> This
Tariff Act strangely amended the Central Excise Act too. Section 4 of the Tariff
Act read as follows</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.Consequential
amendments of, and construction of references to the First Schedule to Act 1
of 1944. - In the Central Excise Act, 1944, -</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
(a) Xxxxxx</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
(b) in section 2, for clause (f), the following clause shall be substituted;
namely :-</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">‘(f)
“manufacture” includes any process, –</font></p>
<p align="justify" > <font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(i)</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
incidental or ancillary to the completion of a manufactured product; <font color="#663399"><strong>and</strong></font>
<font color="#006600"><strong>(this <font color="#663399">and </font>was very
much required <font color="#663399">and</font> so was rightly there. This was
the first time that <font color="#663399">and</font> was put there <font color="#663399">and</font>
it remained there forever. If and was not correct there should have been an
<font color="#663399">or</font>)</strong></font></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
(ii) which is specified in relation to any goods in the Section or Chapter Notes
of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture,</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
Section 2(f) had two sub clauses, i and ii. A third sub clause was added by
Section 132 of the Finance Act 2002 which reads as </font></p>
<div align="justify">
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<td><p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>132.
Amendment of Section 2. -</strong>In the Central Excise Act, 1944 (1
of 1944) (hereinafter referred to as the Central Excise Act), in section
2, in clause (f), -</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
in sub-clause (ii), for the word “manufacture,”, the words “manufacture;
or” shall be substituted;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
after sub-clause (ii), the following sub-clause shall be inserted, namely
:–</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“(iii)
which is specified in relation to any goods by the CentralGovernment,
by notification in the Official Gazette, as amounting to manufacture,”.</font></p></td>
</tr>
</table>
</div>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
after the amendment the definition would read thus</font></p>
<p align="justify" ><font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>‘(f)
“manufacture” includes any process, –</strong></font></p>
<div align="justify">
<table width="100%" border="0" align="center" cellpadding="3" cellspacing="0">
<tr>
<td><p align="justify" ><font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(i)</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<font color="#0000FF"> <strong>incidental or ancillary to the completion
of a manufactured product; </strong></font><font color="#663399"><strong>and</strong></font>
<strong><font color="#006600">(please note that <font color="#663399">and</font>
was not removed, which should have been done and this is the mistake
the Government did, which they are now trying to justify as publisher’s
mistake)</font></strong></font></p>
<p align="justify" > <font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(ii)
which is specified in relation to any goods in the Section or Chapter
Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting
to manufacture, </strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>or</strong></font></p>
<p align="justify" > <font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(iii)</strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<strong>which is specified in relation to any goods by the Central Government,
by notification in the Official Gazette, as amounting to manufacture,</strong></font></p></td>
</tr>
</table>
</div>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Finally
there was another amendment in the Finance Act 2003, which reads as follows:-</font></p>
<div align="justify">
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<td><p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>135.
Amendment of section 2.-</strong> In section 2 of the Central Excise
Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise
Act), -</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a)
xxxxxxx</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b)
in clause (f), for sub-clause (iii), the following sub-clause shall
be substituted, namely :-</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“(iii)
which, in relation to the goods specified in the Third Schedule, involves
packing or repacking of such goods in a unit container or labelling
or re-labelling of containers including the declaration or alteration
of retail sale price on it or adoption of any other treatment on the
goods to render the product marketable to the consumer,”.</font></p></td>
</tr>
</table>
</div>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So
after the amendment the Section would read as:-</font></p>
<p align="justify" ><font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>‘(f)
“manufacture” includes any process, –</strong></font></p>
<div align="justify">
<table width="100%" border="0" align="center" cellpadding="3" cellspacing="0">
<tr>
<td><p align="justify" ><font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(i)
incidental or ancillary to the completion of a manufactured product;
<font color="#663399">and </font><font color="#006600">( The <font color="#663399">and
</font>merrily continues, though Board says it is not there)</font></strong></font></p>
<p align="justify" > <font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(ii)
which is specified in relation to any goods in the Section or Chapter
Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting
to manufacture, <font color="#663399">or</font></strong></font></p>
<p align="justify" > <font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>(iii)
</strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>which,
in relation to the goods specified in the Third Schedule, involves packing
or repacking of such goods in a unit container or labelling or re-labelling
of containers including the declaration or alteration of retail sale
price on it or adoption of any other treatment on the goods to render
the product marketable to the consumer</strong></font></p></td>
</tr>
</table>
</div>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>So
the fact is that and is very much there, was always there and as the Board tries
to wash it off, it is not a publisher’s mistake but wholly the government’s
mistake. Board’s clarification says,<font color="#0000FF"> the word 'and' has
not been inserted later by any corrigenda or subsequent amendment to Central
Excise Act, 1944.</font> Sir, it was there originally; can you tell us by which
corrigendum it had been removed? </strong> </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
fact is the Board messed up when they added the third sub clause to Section
2(f) in 2002. They forgot to remove the word, “and” at the end of sub clause
(i). Now they are trying to justify it by blaming the publishers. Unfortunately
for them, the publishers in India are far more careful than the Board and have
better archives than the Board. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
the Board wanted to remove the<strong><font color="#663399"> and </font></strong>,
they could have done it by an amendment instead of giving a clarification that
it was not there. In any case they have the undo button. They can amend it with
effect from 1986. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2006/cxinstruct04.htm">CBEC
letter in F. No. 4/3/2006/CX.I dated June 19, 2006</a></u></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Service Tax – consulting
work by Chartered accountants exempted </font></strong> </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the last budget, the exemption to CAs doing other work
like representing, consulting etc, was withdrawn. The CA’s institute had represented
to the government that this was discriminatory as a lawyer appearing before
a court was not subject to Service Tax, but if a CA did the same job, he had
to pay the Service Tax. Government has relented and exempted representation
work done by CA/Cost Accountant/CS from Service Tax. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The notification exempts service by a practicing chartered
accountant, a practicing cost accountant and a practicing company secretary
respectively (???), in his professional capacity, to a client, relating to representing
the client before any statutory authority in the course of proceedings initiated
under any law for the time being in force, by way of issue of notice, from the
whole of service tax leviable. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Here the catch is the service should relate to represent the
client before a statutory authority and there should have been a notice. Is
drafting reply to a Show Cause Notice representation? Notice seems to be very
important. In all cases of high handedness by the department, where they take
action without notice, if the client is represented by a CA, the CA has to pay
Service Tax as there was no notice. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Lawyers make a lot of money giving opinions. CAs can also
do so, but they will have to pay Service Tax. Assessees do take professional
help in making replies to Audit Objections. They should go to a lawyer rather
than a CA, because there is no Service Tax for the lawyer. </font></p>
<p ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=40&filename=notification/servicetax/2006/stnot06_025.htm">Notification.
No. 25 / 2006-Service Tax dated 13th July, 2006.</a></u></font></p>
<p align=center ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>To err is human, but
when the eraser wears out ahead of the pencil, you are overdoing it</strong></font></p>
<p align=right ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em> – J. Jenkins</em></strong></font></p>
<p ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT </font></p>
<p ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend. </font></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@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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