TIOL-DDT 545 · the untouched capture
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<html> <head> <meta http-equiv=Content-Type content="text/html; charset=windows-1252"> <title>Taxindiaonline's DDT 402</title> </head> <body> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 545</font><br> 05.02.2007<br> Monday</b></font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Withdrawing Cenvat Credit and monthly payment facility – Super-fast Board</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Give the babu a discretion to do good; he will never use it for fear of Audit/CBI/Vigilance and may be for hundred good reasons. Give him a whip and he will start cracking it immediately. Concepts like natural justice, fair play, equity were followed by an alien government that was ruling us for well over two centuries. But the brown sahibs don’t have any respect for their brown subjects. When the Tatas acquired Corus, somebody remarked, <b>“say it in Corus; India’s Standard is no longer Poor”,</b> “Standards and Poor” should note. But the government still looks at the industry as thieves! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Remember the draconian and useless Notification No. 32/2006 - Central Excise (N.T.) dated 30<sup>th</sup> December 2006 by which the Central Excise department can impose physical control, deny the use of Cenvat credit and monthly payment of duty, if somebody had a doubt that the assessee had evaded duty. It was only on 19<sup>th</sup> January 2007, by the first notification of the year, Notification No. 1/2007 –CENT, that Board notified the Member, CBEC as the officer competent to issue the order withdrawing the facilities and within a fortnight, the first order is issued. Super speed work by any standards! The whole country would be better off if the department is equally fast in giving refunds and obeying court orders. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A spokesperson of the CBEC informed reporters on Friday that the department has issued its first order against three firms-- Shriram Tubes, TahaWire and Nissan Copper Ltd, involved in duty evasion of Rs 10 crore. She said that the department has withdrawn the facility of payment of excise duty on monthly basis and utilisation of CENVAT credit to pay central excise duty for these firms for three months. She also said that there was no appeal against the order. Maybe the government does not recognize the existence of High Courts in this country which are vested with writ jurisdiction to protect the citizens from over-governance. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nobody would support an evader, but an evader is not one who the department assumes is an evader. You have laws in this country to punish evaders with huge penalties and imprisonment; you don’t need to resort to arm-twisting tactics just to extract a few more rupees. While we advance into the hi-tech age, we still have these barbarian laws. While the head is in the 22<sup>nd</sup> century, the tail is in the 16<sup>th</sup> century. All the assessees who don’t help the Commissioners reach their unrealistic targets, will have to face the same fate!</font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Weights and Measures – New Rules – Guidelines </b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The amended provisions of the Packaged Commodities Rules, 1977 have come into force with effect from 14.1.2007. The Ministry of Consumer Affairs, Food and Public Distribution has issued guidelines to the State officers and industries that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1) Efforts may be made to give wide publicity to these changes so as to spread awareness amongst manufacturers/wholesalers /retailers </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2) The initial enforcement steps may only be in the nature of investigational surveys. Any deficiency noticed should be brought to the notice of the concerned. This is being suggested to provide an opportunity to manufacturers to update their label declarations and the seller to put in place an appropriate weighing equipment. This approach may be continued upto 30th April 2007 and it is expected that in this initial period there would be no prosecution.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3) Manufacturers may be permitted to affix individual sticker to declare the details of consumer care cell upto 30th June ,2007, so as to utilize the existing packaging materials.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry has also issued certain clarifications:-</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>1) Definition of 'pre-packed commodity': </b>the intention is to include packages of bulbs ,ready made garments etc., which are kept in unsealed packages and are opened by consumers for examination. It is not intended to cover sealed packages ,opened subsequently.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>2) </b>declaration of designation of the person in charge of consumer care cell is enough, name not necessary.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1)<b> </b>the provisions of the Rules prohibit affixing of stickers for making or altering individual declaration. There is no bar on affixing a label containing all the declarations required under the Rules.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2) when a package has two wrappings, inner and outer , what is of concern to the consumer is outer wrapper . So there is no purpose of giving all declarations on inner wrapper. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3) the declaration of net content of ice cream will be by weight . However if manufacturer wants to declare volume as an additional information , they can do so of their volition. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Incidentally CBEC issued instructions recently regarding Ice Cream supplied to hotels being required to mention MRP. This is after the provision has been deleted from these Rules. We will bring you an insightful analysis of the issue in our Special Column day after tomorrow. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/swma.htm">Director, Legal Metrology’s letters.</a></u></font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Appeal to High Court – Limitation Act applies</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When the Income Tax Act specifies a certain time limit to appeal to the High Court, are the provisions of the Limitation Act applicable? Yes, says a full Bench of the Bombay High Court. Obviously this would apply to Customs Act and Central Excise Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See our <u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=4923">Breaking News</a></u> for a detailed analysis and the case which was delivered on 31.01.2007. We in <b>TIOL</b> have been constantly endeavouring to bring you the latest decisions of the Indian Judiciary and this case is a benchmark for us. We are able to report this within three working days from the date of order.</font></p> <p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Board Circulars - binding?</font></b></font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Consistency and discipline are of far greater importance than the winning or losing of court proceedings.</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Do you still doubt this? The issue comes up with boring regularity and we are not tired of repeatedly reporting it and commenting on it repeatedly. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Once upon a time it was believed that adjudicating authorities are independent judicial officers who were required to pass reasoned orders based on their own reasoning un-influenced by instructions or advice from their superior officers. The Central Excise adjudication manual published in 1988 (that was its last publication), in para 39 directed that Board Orders and reference numbers should not be quoted in the Adjudication Orders. It was further advised that Law ministry’s opinion is confidential and should never be communicated in the same language to even sub-ordinate officers. There were several Assistant Commissioners who used to boast “I am an adjudicating authority and not bound by the Board orders”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A few years down the lane and the whole concept changed. It is now well known that the Board circulars are binding on the departmental officers. This concept enunciated by the Supreme Court was also taken to ridiculous levels. What the Courts meant was that if a Board circular gave a benefit to the assessee, the department is barred from arguing that the circular was wrong. In <i>Dhiren Chemicals</i>, the Supreme Court explained the meaning of, “<i>appropriate duty has already been paid”</i> , but went on to add that if there was any circular of the Board contrary to the Supreme Court’s interpretation, the Board’s interpretation would prevail( in favour of the assessee). This was taken to mean that the Board was supreme and can give instructions even against the Supreme Court’s orders and they would be binding on the officers. Sometime back while talking to a senior law maker of the Board, I told him about a Supreme Court case. He was furious. He shouted at me, “Why do you people in the field go so legalistic?, Don’t you know that the Board instructions are binding on all the officers, even wrong instructions?” I never could understand how the Board can be superior to the Supreme Court? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was also the judicial opinion that Government circulars are not binding on quasi judicial authorities and they are bound by decisions of the courts and not the Board. In <b>Bengal Iron Corporation V Commercial Tax Officer,</b> it was held that </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So far as clarifications/circulars issued by the Central Government and/or State Government are concerned, they represent merely their understanding of the statutory provisions. They are notbinding upon the Courts. It is true that those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law.There can be no estoppels against the statute. <b>The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion</b>. It is doubtful whether such clarifications and, circulars bind the quasi judicial functioning of the authorities under the Act. While acting in quasi judicial capacity, <b>they are bound by law and not by any administrative instructions</b>, opinions, clarifications or circulars. Law is what is declared by this Court and the High Court - to wit, it is for this Court and the High Court to declare what does a particular provision of statute say, and not for the executive.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In KIRLOSKAR OIL ENGINES LTD. V UNION OF INDIA - the Apex Court</st1:Street> held that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Legally there can be no two opinions that a trade notice issued by the Collector or even the Board has no binding authority and the assessing authority can draw its conclusions.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Then came the now famous <b><i>RANADEY MICRONUTRIENTS v COLLECTOR OF CENTRAL EXCISE -</i></b><i><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-184-SC-CX.htm">2002-TIOL-184-SC-CX</a></i> case, where the Supreme Court held that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Such circulars are not advisory in character but binding on the Central Excise Officers - Department cannot be allowed to plead that such circular was not valid </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One should have thought that an officer of the Ministry of Finance would have greater respect for circulars such as these issued by the Board. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. <b>Consistency and discipline are of far greater importance than the winning or losing of court proceedings</b>.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not open to the Revenue to raise a contention that is contrary to a binding circular issued by the Board. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In an Income Tax case in UCO BANK v COMMISSIONER OF INCOME-TAX, <st1:place>WEST BENGAL</st1:place> - it was held that </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Departmental circulars are not meant for contradicting or nullifying any provision of the statute but are meant for ensuring proper and efficient administration of the statute, for mitigating the rigours of too literal an application of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision and for ensuring uniformity of assessment - Such circulars binding on the Department </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The PAPER PRODUCTS LTD. V COMMISSIONER OF CENTRAL EXCISE - <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm">2002-TIOL-84-SC-CX</a></u><b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-84-SC-CX.htm"> </a></u></b>case reiterated the Ranadey decision and it was held that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Circulars issued by C.B.E. & C. are binding on the departmental authorities and they cannot take a contrary stand - Department cannot repudiate a Circular issued by the Board on the basis that it was inconsistent with a statutory provision - However assessee can contest the validity or legality of such Departmental Circulars or Instructions - Department does not have a right to file an appeal against the correctness or binding nature of a Circular - Department’s actions have to be consistent with the Circulars - <b>Consistency and discipline are of far greater importance than winning or losing Court </b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In MAHAVIR ALUMINIUM LTD. V COLLECTOR OF CENTRAL EXCISE, JAIPUR - it was held that,</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Department is bound by the Circulars issued by the Central Board of Excise & Customs under Section 37B of the Central Excise Act, 1944.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A little later, the Supreme Court observed that Board decisions are not above court orders when it observed in HINDUSTAN AERONAUTICS LTD. V COMMR. OF INCOME TAX,</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board’s circulars or instructions are no doubt binding on the authorities under the Act but when Supreme Court or the High Court has declared the law on the question at issue, it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And then came the famous Dhiren Chemicals - COLLECTOR OF C. EX., VADODARA v DHIREN CHEMICAL INDUSTRIES - <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2002/2002-TIOL-83-SC-CX.htm">2002-TIOL-83-SC-CX</a></u><b><u>,</u></b> when the Supreme Court observed that</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase that interpretation will be binding upon the Revenue.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And this was confirmed in COLLECTOR OF CENTRAL EXCISE, <st1:City><st1:place>MEERUT</st1:place></st1:City> v MARUTI FOAM (P) LTD.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Regardless of interpretation place on such phrases by Court, if during the relevant time there were circulars issued by C.B.E.C. which place a different interpretation, that interpretation would be binding on Department till it is withdrawn. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Dhiren case was clarified in KALYANI PACKAGING INDUSTRY v UNION OF INDIA - <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2004/2004-TIOL-82-SC-CX.htm">2004-TIOL-82-SC-CX</a></u></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This did not mean that even in cases where Revenue/Department had already contended that benefit of an exemption notification was not available and matter was sub-judice before a Court or a Tribunal, the Court or Tribunal would also give, effect to circulars of Board in preference to a decision of Constitution Bench of Supreme Court</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This binding nature was doubted in COMMISSIONER OF CUSTOMS, <st1:place><st1:City>CALCUTTA</st1:City></st1:place> v INDIAN OIL CORPORATION LTD. - <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=26&filename=legal/sc/2004/2004-TIOL-23-SC-CUS.htm">2004-TIOL-23-SC-CUS</a>, by one of the judges and it was suggested that the matter needs to be examined by a Constitutional bench.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Proposition of law that even after highest Court settles law on the subject, view expressed by Central Board on same point of law should still hold the field until and unless revoked, is doubted - Customs authority should act subservient to decision of highest Constitutional Court and not to Circular of Board which is denuded of its rationale and substratum under impact of authoritative pronouncement of highest Court </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Common thread not running through decisions of Supreme Court - Dicta/observations in some of decisions need to be reconciled/explained - Need to redefine succinctly extent and parameters of binding character of circulars of Board looms large - Constitution Bench’s authoritative pronouncement of subject, is desirable.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though it was suggested that this issue requires examination by a Constitution bench, it was not really referred. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And then finally the Supreme Court has decided to refer the issue to a five member constitutional bench in <b>RATAN MELTING & WIRE INDUSTRIES - </b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2005/2005-TIOL-41-SC-CX-LB.htm">2005-TIOL-41-SC-CX-LB. </a></u></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The issue is again before the Supreme Court in appeal from the state. Today we are carrying a judgement where the Supreme Court had to reiterate the same decided issue. Interestingly the Supreme Court refused to refer the issue to a larger bench. It was apparently not brought to the notice of the Court that the matter already stands referred to a Constitutional Bench, on the question whether the Board Circular will prevail even after the Supreme Court has given its judgement on an issue. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> But why should the government take the issue to the Supreme Court so many times? The Government should be ashamed to argue that its circular was wrong. If the Circular was really wrong, it should be withdrawn and whatever benefits allowed till withdrawal should be forgotten. It is certainly not wrong to make mistakes; we all do. And it is really difficult for the poor babus in the Board not to make mistakes, but to make a virtue out of mistakes and fight court battles to take advantage of those mistakes is really silly and most unbecoming of a government! These may be tricks of the trade for a cheap evader, not a giant department which collects a couple of Lakhs of Crores of Revenue. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">May be next time a Revenue officer challenges a Board Circular in a court, he should be made to pay 1% of the revenue involved. That would be the only deterrent against such futile litigation.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Consistency and discipline are of far greater importance than the winning or losing of court proceedings.</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>See </b><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=32&filename=legal/sc/2007/2007-TIOL-12-SC-CX.htm">2007-TIOL-12-SC-CX </a></font></p> <p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Some taxing truths!</b></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++We have to curb the menace of under invoicing and over invoicing and duty and tax evasion. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ potential exists to increase tax collection in addition to existing up to 4% to 4.5% of the GDP in next 10 years and growth up to 0.25% to 0.35% to be achieved in the next three years against the required growth of 0.2%. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The sectors of economy have larger shares in GDP but are contributing negligible in the government revenues. The gap between shares in GDP and revenue payments by the said sectors is the actual gap that needs to be filled to achieve higher tax-to-GDP ratio.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The process of reforms moving ahead with targeted objectives of facilitation and increase in economic activity in the country would ultimately result in increased revenue collection. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Change has to come to tax machinery as well as private sector should change its mindset. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Existing tax base is not so narrow which it looks.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ these reforms would transform the Revenue department in to an efficient taxpayers service institution.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br> Sounds familiar? Well these are not our problems! These are pearls of wisdom from Muhammad Abdullah Yusuf, Chairman Central Board of Revenue of Pakistan, in a Seminar on Saturday.</font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more DDT </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">vijaywrite@taxindiaonline.com</a></span></font></p> </body> </html>