TIOL-DDT 659 · the untouched capture
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<p align="justify"><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 659</font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
18.07.2007<br>
Wednesday</font></b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>Valuation of goods sold through depot - is rule 7 redundant? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Central Excise Valuation law has undergone a sea change with effect from July 1, 2000. A new Section 4 was introduced in the Central Excise Act, 1944 (CEA) supported by a new set of valuation rules [Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000]. The earlier concept of arriving at the value for the purpose of levy of excise duty based on the 'normal price in the course of wholesale trade' was replaced by the concept of 'transaction value'. The other significant change was the definition of 'place of removal' was restricted to that of a factory or a warehouse in the new Section 4 (3) (c) of CEA. The depots, consignment agent's premises were excluded from the definition of 'place of removal'. The definition of 'time of removal' was altogether deleted in the new Section 4. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. In the new valuation rules, Rule 7 was introduced to deduce the value of a transaction from the factory gate to the customers through the depots/consignment agent's premises. The Rule 7 of the new valuation rules is extracted below for ready reference:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Rule 7. Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The concept of 'normal transaction value' was introduced in Rule 7 of the valuation rules. 'Normal transaction value' was defined as the transaction value at which the greatest aggregate quantities of goods are sold from the depot at or about the nearest time to the time of removal of the goods under assessment at the factory gate.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Since the normal transaction value of the greatest aggregate quantity was not immediately available for the factory gate sale at the time of removal, the assessees were forced to reconcile the factory gate stock transfer price with the 'normal transaction value' available at that point in time. This leads to a big arithmetic exercise for assessees who had a majority of sales through their depots. It was a mammoth exercise in futility. It normally resulted in payment of differential duty and also file refund claims wherever the 'normal transaction value' was less than the factory gate stock transfer price to a depot. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. In the year 2003, vide Section 136 of Finance Act 2003 with effect from 14.05.2003, the definition of 'place of removal' in Section 4 (3) (c) of CEA was amended to include depots, consignment agent's premises among other things. The definition of 'time of removal' was also introduced vide a new sub-clause (cc) in sub-section 3 of Section 4. However Rule 7 of the valuation rules remained the same. When we substitute the words 'place of removal' for depot or the premises of a consignment agent, Rule 7 of the valuation rules will read as </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a "place of removal" (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. So it leads to an absurd situation because the value at one 'place of removal' has to be adopted at the other 'place of removal'. So the price at the factory gate can be adopted at the depot and vice versa. The original intention of the Rule 7 was to adopt the normal transaction value of the goods sold at the depot/consignment agent's at the factory gate by factoring in the nearest time. Now with the change in the definition of the 'place of removal' to include depot/consignment agent's premises etc the 'normal transaction value' at the factory gate can also be adopted for the sale at depot. The net result is that as there is no distinction between the factory gate and the depot, in other words, depot being an extension of the factory gate, the transaction value for each removal of goods at the depot or the factory gate shall be distinct from each other. The transaction value at one place of removal need not be adopted at the other place of removal because every transaction value is independent of each other. This leads us to a situation where even the removal of goods from a depot for sale to an independent buyer shall be covered in terms of Section 4(1) (a) of CEA.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. Therefore, the assessees need not resort to any arithmetic jugglery to arrive at the 'normal transaction value' at the depots and adopt the same for the factory gate sale. In other words, Rule 7 of the valuation rules and the concept of arriving at the 'normal transaction value' have totally become irrelevant with effect from 14.05.2003. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. However, unfortunately, many stakeholders viz., assessees, departmental officers and even the consultants in the indirect tax domain have failed to understand this significant change brought in by the amendments through Finance Act, 2003 and the consequential redundancy of arriving at the 'normal transaction value' and Rule 7 of the valuation rules for arriving at the value to be adopted for a factory gate sale. The amendments brought in by the Finance Act 2003 puts depot sales on par with the factory gate sale and the transactions at both the ends have to be viewed independently in view of the provisions of Section 4 (1) (a) of CEA.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">My friend Santosh Hatwar sent me the above piece. He has a point. What do you think? Mail us your opinion and will CBEC take note?</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Import of metallic waste and scrap - DGFT amends procedure - no more import through ICD, Delhi</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As per para 2.32.2(b) of the HOP, Import of scrap would take place only through following designated ports and no exceptions would be allowed even in case of EOUs, SEZs:-</font></p>
<table width="450" border=1 align="center" cellpadding=3 cellspacing=0>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Chennai</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">New Mangalore</font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">15</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Kolkata</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">22</font></p></td>
<td width=90 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CFSMulund</font></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><st1:State w:st="on"><st1:place w:st="on">Cochin</st1:place></st1:State></font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Paradip</font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">16</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD <st1:place w:st="on"><st1:City w:st="on">Ludhiana</st1:City></st1:place></font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">23</font></p></td>
<td width=90 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD <st1:place w:st="on"><st1:City w:st="on">Kanpur</st1:City></st1:place></font></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ennore</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tuticorin</font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">17</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICDDadri (Greater Noida)</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">24</font></p></td>
<td width=90 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD Ahmedabad</font></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">JNPT</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><st1:place w:st="on">Vishakhapatnam</st1:place></font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">18</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD <st1:place w:st="on"><st1:City w:st="on">Nagpur</st1:City></st1:place></font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">25</font></p></td>
<td width=90 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICDPitampur</font></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Kandla</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">12</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>ICDTughlakabad (<st1:place
w:st="on"><st1:City w:st="on">New Delhi</st1:City></st1:place>)</b></font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">19</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD <st1:place w:st="on"><st1:City w:st="on">Jodhpur</st1:City></st1:place></font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">26</font></p></td>
<td width=90 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICDMalanpur</font></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mormugao</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">13</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pipava</font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">20</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICDJaipur</font></p></td>
<td width=24 valign=top>
<p align="justify"></p></td>
<td width=90 valign=top>
<p align="justify"></p></td>
</tr>
<tr>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7</font></p></td>
<td width=120 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mumbai</font></p></td>
<td width=24 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">14</font></p></td>
<td width=144 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mundra</font></p></td>
<td width=36 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">21</font></p></td>
<td width=96 valign=top>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ICD <st1:place w:st="on"><st1:City w:st="on">Udaipur</st1:City></st1:place></font></p></td>
<td width=24 valign=top>
<p align="justify"></p></td>
<td width=90 valign=top>
<p align="justify"></p></td>
</tr>
</table>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now ICDTughlakabad (<st1:City w:st="on">New Delhi</st1:City>) is removed from the list and ICDLoni, <st1:City w:st="on"><st1:place w:st="on">Ghaziabad</st1:place></st1:City> is included in its place. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The new system of import from registered sources was to come into effect from 1.10.2007. Now they will be effective from 1.4.2008.</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=47&filename=notification/dgft/2007/dgft07pn019.htm" target="_blank">DGFT PUBLIC NOTICE NO. 19(RE-2007)/2004-2009., Dated: July 16, 2007</a></u></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>NO
REVENUE DEFICIT BY 2008-09 - FM-SPEAK</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">After a meeting with the chief commissioners of income-tax yesterday, Mr Chidambaram said:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The revenue deficit would be eliminated by 2008-09.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The target of reducing fiscal deficit to 3.3 per cent of GDP as well as collecting Rs 2,67,490crores direct tax revenues would be met this fiscal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. We have been right so far, there is no reason why we should be wrong next year.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The Fiscal Responsibility and Budgetary Management Act has targeted revenue deficit to be wiped out by 2008-09.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. I will achieve whatever I have proposed in the budget</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The total direct taxes collected for the first three months stood at Rs 41,154 crores. We are on target. I am confident that the targets would be achieved. Anything more than that, I will welcome.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. Overall direct tax collections are expected to grow by 16.31 per cent at Rs 2,67,490crores.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. e-filing of tax deducted at source (TDS) returns will be mandatory from September 1, 2007 for corporates and those companies whose turnover is Rs 40 lakh or more a year.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. e-payment of TDS would be mandatory from them from January 1, 2008.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10. File your returns today; there will be no extension.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Income Tax Department launches Taxpayer Education Programme</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To provide quality taxpayer service, the Income Tax Department has initiated a Taxpayer Education Programme where the taxpayers are trained in filling up the new Income Tax Return forms ITR 1, 2 and 4. It involves a tutorial which provides step by step information on how to fill up these forms. There is a voice over in English which explains the contents of the slide. The officers of the Department will train the taxpayers with the help of this tutorial.</font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">From our Legal Corner - tomorrow's cases</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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></font></b></font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong></strong></font><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">DRI raids importer - DRI officer arrested by CBI for taking bribe - importer to be detained under COFEPOSA - detention can be challenged before execution - Revenue fails to rebut allegations - order of detention is passed for extraneous reasons and not for collateral purpose : Delhi HC</font></b></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b></b></font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Sales Tax</b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Spices after grinding made into masala powder - commercially a new commodity emerges - liable to sales tax : SC </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">THE</font> </strong>appellant is engaged in the business of purchasing various spices like Cumin Seed (Jeera), Fenugreek Seeds (Methi), Cinnamon (Dalchini), Caraway Seeds (Shahijeera) etc. from the registered dealers in the State of <st1:State w:st="on"><st1:place w:st="on">Andhra Pradesh</st1:place></st1:State> and the said items are subjected to sales tax at the point of first sale the Andhra Pradesh General Sales Tax Act, 1957. All the items are called spices. The appellant by mixing and grinding all these spices together produces masala powder which is used for enhancing the taste of food.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><ST1:PLACE u1:st="on"><ST1:STATE u1:st="on"></ST1:STATE></ST1:PLACE><font color="#FF0000">Income Tax</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Order passed by transferred officer is valid because it was not originally challenged and because there is no prejudice caused : ITAT</font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>See our columns tomorrow for the judgements</u></b></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></font></p>
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