TIOL-DDT 644 · the untouched capture
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<p align="justify"><font size="3"><strong><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 644</font></strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<strong>27.06.2007<br>
Wednesday</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Penalty under section 11AC-duty paid before SCN-Board seeks details in a strange
letter
</strong> </font>
</p>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board
has recently come to know about the Supreme Court dismissing the departmental
appeal against the Tribunal’s decision in the case of Rashtriya
Ispat Nigam Ltd holding that no penalty is imposable and interest leviable
if the duty has been paid before the issue of the Show Cause Notice.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has also realized that in a number of cases, appellate authorities have
held that penalty imposed under section 11AC is not mandatory and that Appellate
Authority is competent to reduce the penalty depending on the case.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An apparently perturbed Board has asked the field to furnish information on
the number of cases where appeal is pending, amount involved and the appellate
authority before whom appeal is filed regarding these two issues.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe something is cooking and the Board wants to act after a good three years;
but what is strange about this letter?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The letter is
dated 30th May 2007 and the Board wants the field to treat this as most
urgent and the report should reach the Board latest by <b>20 November 2006</b> – a
full six months before the Board even asked for the information!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board realized the problem after three years of the Supreme Court order and
then somebody decided to take action and maybe the file got stuck in the red
tape and suddenly somebody found it and decided to call for particulars but
forgot to change the date!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2007/penalty.htm" target="_blank">Board’s
F.No. 04/23/2006-CX.I dated May 30, 2007</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs valuation - WCO manual</strong></font></p>
<p align="justify"><font color="#000000" size="2" face="Verdana, Arial, Helvetica, sans-serif">The
WCO is going to issue a detailed CUSTOMS VALUATION CONTROL HANDBOOK to help
customs officers to correctly value goods for levying customs duty.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Indian Customs
seems to be on the lines suggested by the WCO. For example, let us see
the provisions for determination of value under the “fall
back” method – what we call the Residual Method.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The WCO provisions and the proposed Indian provisions in the Draft Circular
released in March 2007 may be compared. (Incidentally what happened to the
circular? Has everyone forgotten about it?)</font></p>
<table width="450" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td><div align="justify"><font color="#663399"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Proposed
WCO provisions</font></strong></font></div></td>
<td><div align="justify"><font color="#663399"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Proposed Indian provisions</font></strong></font></div></td>
</tr>
<tr>
<td><div align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Under the fall-back method, the Customs value must not be based on :</font></div></td>
<td><div align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">No value shall be determined under the provisions of' this rule on the basis of</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a)</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> the
selling price of goods produced in the country of importation;</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the selling price in India of the goods produced in India;</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b)</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> the
higher of two alternative values;</font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a system which provides for the acceptance for customs purposes of the highest of the two alternative values;</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the price of goods on the domestic market of the country of exportation </font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the price of the goods on the domestic market of the country of exportation;</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d)</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> the cost of production, except under the computed value method;</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the cost of production other than computed values which have been determined for identical or similar goods in accordance with the provisions of rule 9;</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e)</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> the
price of goods for export to a third country;</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">the price of the goods for the export to a country other than India</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(f) </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">minimum
Customs values; and </font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">and</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">minimum customs values; or</font></div></td>
</tr>
<tr>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) arbitrary or fictitious values </font></div></td>
<td><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">arbitrary or fictitious values.</font></div></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Draft WCO Manual is learnt to have given some examples on arriving at the
value based on this method.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) a trotting horse, imported by a buyer three years after its purchase in
the country of export was valued by an expert at importation at two times the
purchase price on the basis of expert evaluation;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) when there is no price actually paid or payable (and therefore no transaction
value) for certain foreign-made components purchased as part of a system which
also includes domestically-manufactured components, and there is no basis on
which the price for the foreign components can be quantified, in the absence
of an alternative basis of valuation, a method of valuation derived from computed
value could be used to value the foreign components;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) transaction
value may not be used to value merchandise imported pursuant to a lease agreement,
with an option to buy. However, where other bases of valuation may also not
be used, a value may be based on the transaction value approach using the "option-to-buy" price
in the lease agreement, reasonably adjusted to arrive at a value;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(d) the Customs value of used machines could be determined on the basis of
an expert's estimation of the value of the machines in the conditions as imported.
No other methods were available in this case, as the machines were disassembled
and used partly as spare parts by the importer in the country of importation;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(e) a series of second-hand machines and appliances for a specific treatment
of metal surfaces are sold at a nominal price of 5 currency units on the condition
that the buyer demolishes the machines, neutralizes and destroys the chemicals
used in the process and carries away the machines and appliances. These activities
are carried out in the country of importation. The machines have been used
for 15 to 20 years and can be used only after a fundamental repair. The Customs
value of this equipment could consist of the cost of demolishing the machines,
neutralizing and destroying the chemicals, and transporting the machines to
the place of importation;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(f) in the absence of data for the application of any other method, including
the computed value method, the Customs value of video cassettes imported on
hire terms for rehiring to private homes could be determined by applying flexibly
the provisions for the transaction value of the goods imported. In that case
the Customs value could be based on the amount of the royalties payable by
the importer to the lessor during the hire period, including the cost of delivery
of the cassettes to the place of importation;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(g) waste oil was collected by an importer from foreign service stations,
industrial plants, etc. and transported to the country of importation to be
used for heating the importer's greenhouses. There was no charge for the waste
oil, and its transportation in the country of importation was effected using
the importer's own vehicles. The Customs value was determined as composed of
the cost of collecting the waste oil plus the cost of transportation to the
place of importation.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A good study material for the Indian Customs officers.</strong></font></p>
<p align="center"><b><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Indirect taxes are playing increasingly important role in Revenue gathering
in many countries</font></b></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">“Competition between countries to attract and keep foreign investment
is continuing to drive down corporate tax rates across the world. But initial
indications suggest that governments are seeking to make up the shortfall in
tax revenues by increasing indirect taxes, which may require companies to shoulder
greater compliance and accounting standards”</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> concludes KPMG's Corporate
and Indirect Tax Rate Survey 2007.<br>
<br>
<strong>The Survey also found that</strong><br>
<br>
++ indirect taxes appear to be playing an increasingly important role in
the revenue-gathering strategies of many countries around the world.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> ++ This is a difficult policy for governments to follow because the link between
higher indirect taxes and higher prices is obvious to anyone who buys goods
and services, but the link between lower corporate tax rates and increased
inward investment is less well understood.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> ++ This has major implications for companies, their tax strategies and their
accounting systems.</font></p>
<p align="center"><b><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income
Tax transfers – Transfer pricing gets a good boost</font></b></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> CBDT has finally done it! The much awaited transfer orders have finally come.
They have transferred 227 Commissioners! Maybe the department is swarming
with commissioners. Sometime back I had gone to attend a function and there
outside the hall standing under a tree sipping tea from a plastic cup, I
saw one of my childhood friends. He told me he was a Commissioner of Income
Tax. I was surprised that a Commissioner would be standing under a tree and
sip tea from a plastic cup. And I told him so. He introduced me to six others – all
sipping tea from plastic cups and all Commissioners of Income Tax!<br>
<br>
Coming back to the transfers, from the list one could find that the CBDT
has created some new posts of Director, Transfer Pricing and CIT International
Tax in the ITAT benches. It is nice to know that the Department has realised
the importance of Transfer Pricing and the complications of International
Taxation that some CIT DRs are exclusively appointed to deal with those cases.
Maybe the poor cousin CBEC should learn from this. While the new posts are
welcome, we understand that several hard working sincere DRs in the ITAT
have been totally and unfairly given a bad treatment in the transfers.<br>
<br>
Both the Boards should treat the DRs as their dear kids and shower favours
on them, for they are your defenders against all odds!</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong><font color="#006600">From our Legal Corner – tomorrow’s cases</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <font color="#FF0000"><strong>Central Excise</strong></font><br>
<br>
<font color="#663399">Gypsum transported from appellant's yard to buyer's cement factories by contractor
hired by buyer - Only amounts which buyer is liable to pay to assessee are
includible in transaction value : CESTAT</font><br>
<br>
<strong><font color="#FF0000">Income Tax</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Deduction for VRS from total income - Advance Tax - Amendment by Finance
Act 2001 - Assessee cannot be penalised for not foreseeing amendment in provisions
- Interest u/s 234B and 234C set aside : Madras HC</font></p>
<p align="justify"><font color="#000000" size="2" face="Verdana, Arial, Helvetica, sans-serif">IN the case of taxation statutes the Government often opts for retrospective
amendments. There are innumerable examples. And such amendments necessarily
cause pain to taxpayers who are penalised despite acting bonafidely under the
given circumstances. This is what happened in the case of M/s Revathi Equipment
Ltd but High Court came to its rescue by setting aside the penalty and interest
u/s 234B and 234C.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns tomorrow for the judgements<br>
</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<font color="#FF6666">Until Tomorrow with more DDT</font></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="vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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