TIOL-DDT 621 · the untouched capture
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<p align=justify><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 621</font><br>
25.05.2007<br>
Friday</b></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Duty on Jute twine? Fire ignited and Jute Industry likely to be engulfed soon</font></b></font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is a classic example of how unintended actions can be disastrous to the trade and industry. Jute goods have been enjoying exemption for quite some time and twine is no exception. To eliminate the hassles of even exemptions, the Tariff rate itself is made NIL in the Central Excise Tariff. But in the maze of amendments to the Central Excise Tariff from 6 digit to 8 digit and consequential amendments to the related exemption Notifications, a small error is now snowballing into huge demands and going to be another gold mine for the <st1:PersonName w:st="on">consultant</st1:PersonName>s. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Jute twine is classified under the Chapter sub heading 5607.10 of the erstwhile Central Excise Tariff attracting NIL rate in the Tariff itself.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In 2004, Notification 30/2004CE was issued with the following changes: </font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
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<td width=79 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sl No</font></strong></p></td>
<td width=204 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter No</font></strong></p></td>
<td width=307 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
</tr>
<tr>
<td width=79 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11</font></p></td>
<td width=204 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">56 ( except 5601.10, 5607.10,5608.11)</font></p></td>
<td width=307 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All goods</font></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The goods falling under the above three sub headings excluded attract a NIL rate of duty in the tariff, and thus exemption itself is not necessary.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">With effect from 28.2.2006 the eight digit tariff has replaced the six digit tariff and jute twine was classifiable under Chapter sub heading 5607.1010 with NIL rate of duty. Notification 30/2004 has been further amended at serial No 11 as under vide Notification 15/2006</font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
<tr>
<td width=79 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sl No</font></strong></p></td>
<td width=204 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter No</font></strong></p></td>
<td width=307 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
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<tr>
<td width=79 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11</font></p></td>
<td width=204 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"56 (except 5601 10 00, 5607 10 10,5607 10 90, 5608 11 10 and 5608 11 90)" </font></p></td>
<td width=307 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All goods</font></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, jute twine continued to attract NIL duty under Tariff. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The tariff heading have undergone another change in 2007 and from 1.1.2007, when the sub headings 5607.1010 and 5607.1090 were omitted from the tariff. But no mention was made about jute twine etc., Since there is a residuary entry in the Chapter, jute twine stand shifted to Chapter sub heading 56079090 under “others”. Now also the exemption notification 30/2004 has been amended as under vide Notification 48/2006 to exclude jute twine from the Notification.</font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
<tr>
<td width=79 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sl No</font></strong></p></td>
<td width=204 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter No</font></strong></p></td>
<td width=307 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
</tr>
<tr>
<td width=79 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11</font></p></td>
<td width=204 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"56 (except 5601 10 00, 56079090 ( jute or other textile bastfibres of heading 5303, 5608 11 10 and 5608 11 90)" </font></p></td>
<td width=307 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All goods</font></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But, unfortunately chapter sub heading 56079090 does not attract NIL rate in the Tariff and the rate of duty is 8%. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another amendment was made vide Notification 13/2007 after which serial number 11 reads as under:</font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
<tr>
<td width=79 valign=top>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Sl No</strong></font></p></td>
<td width=204 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chapter No</font></strong></p></td>
<td width=307 valign=top>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Description of goods</font></strong></p></td>
</tr>
<tr>
<td width=79 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11</font></p></td>
<td width=204 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">56 (except 5601 10<br>
00)</font></p></td>
<td width=307 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All goods, other than of jute or other textile bastfibres of<br>
heading 5303.”.</font></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, an exemption Notification, which was started to exclude jute twine from the exemption as it attracted NIL tariff rate, continued to be excluded even when the tariff rate became 8% in 2007. It implies that all other products of Chapter 56 are eligible for exemption ( 56011000 attracts NIL rate in Tariff) except jute twine!!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It cannot be construed as a conscious levy as all other jute products continue to attract NIL rate. Unfortunately the optional rate of duty with the facility of excise duty given under 29/2004 is also not applicable for jute twine as the same has been excluded even there.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The error is more glaring since no duty is levied on jute yarn and fabrics and it is highly improbable that government wanted to levy tax only on twine. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>DDT</b> has learnt that demand notices are already flying in West Bengal where majority of jute mills are located and the fire is fast spreading. Unless the Government attempts to stop it in the beginning, it is bound to be a big forest fire. </font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Simultaneous availment of CENVAT and SSI – Not allowed</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Ahmedabad Bench of the CESTAT has held that an SSI unit cannot avail CENVAT
credit and SSI exemption simultaneously. This issue had been thoroughly analysed
and decided in favour of the assessee by the Chennai Bench in Nebulae Health
Care – <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1380-CESTAT-MAD.htm" target="_blank"><font size="1">2006-TIOL-1380-CESTAT-MAD</font></a></u>.
Unfortunately this decision of the Chennai Bench was perhaps not brought to
the notice of the Ahmedabad Bench. Moral of the story: <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-690-CESTAT-AHM.htm" target="_blank">Browse
Taxindiaonline for the latest case law</a>. </font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Shylock take your flesh but not a drop of blood</font></b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Works contract service tax – Bonus to the Government?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A passionate Netizen writes in</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">After readingtoday's DDT I thought I should write to you.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Without entry 92-C of the Constitution being amended, to tax the service part of the "indivisible works contract" by a deemed fiction of law, as the 46<sup>th</sup> amendment to the Constitution, (Refer Supreme court decision in sales tax -Builders Association of India (1987) and BSNL's decision in 2006) Government has no power to tax the service part of an indivisible contract, as in all civil construction contracts rates quoted are inclusive of material cost. In a building construction contract for eg: flooring work, the rates quoted would definitely include cost of flooring material labour and profit of the contractor. Never cost of material and labour (service part) are quoted separately.Entry 92C gives power to tax service and not to tax cases where service and supply of material and profit thereon are integrated. It reminds me of the argument of the advocate Shakespearian drama Merchant of Venice where the advocate argues "you take flesh but not a drop of blood should be lost!</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The BSNL decision is a bonus to Government. The present amendment works contract taxability for service tax has its base in BSNL's decision. So whatever Government gets on account of service tax in the case of indivisible works contract before amendment to 92-C, is a bonus to Government -- I believe.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Power packed seminar in Hyderabad today</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Our seminar is under way in Hyderabad with Participation from the Top Officers of the CBEC and some of the Best Brains in Consulting in India</st1:country-region> who are also our noted authors. Delegates from Vadodara to Bangalore; Mumbai to Visakhapatnam are attending the seminar. We will bring you more details during the day.</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Weekend.</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> </font></p>
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