TIOL-DDT 699 · 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 699</font><br>
14.09.2007<br>
Friday</b></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Our FM is the best Parliamentarian of 2005 - TIOL's Hearty Congrats!</b></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/fm.jpg" alt="Legal Corner Icon" width="840" height="649" hspace="5" border="0" align="middle"></b></b></b></font></b></font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accepting the outstanding Parliamentarian Award of the year 2005, from <st1:PersonName u2:st="on">President <st2:GivenName u2:st="on">Pratibha <st2:Sn u2:st="on">Patil, yesterday, the FM said, </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">"I am grateful and deeply honoured to receive this Award for the year 2005. I accept the Award with humility.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Standing here in 2007 and looking back, the year 2005 indeed appears to have been a good year for parliamentary democracy - when bills were passed and there were lively and enlightening debates on matters of great importance.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Parliament, I submit with respect, has two major functions: to make laws and to debate issues. On the first, we may have a respectable score but the process is deeply flawed. On the second, we need to rediscover the art of reasoned debate.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Democracy is well and alive in <st1:place u2:st="on"><st1:country-region u2:st="on"><st1:country-region w:st="on"><st1:place w:st="on">India</st1:country-region></st1:country-region> - witness the millions who turn out at every election at every level. It is our recent experience with representative democracy that has cast a shadow of gloom.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">I remember the day when I first came to Parliament. I remember my leader, <st1:PersonName u2:st="on"><st2:GivenName u2:st="on">Shri <st2:middlename u2:st="on">Rajiv <st2:Sn u2:st="on">Gandhi</st2:Sn>. I recall the support and affection extended to me by my constituency, Sivaganga, in Tamil Nadu. I came with the belief that parliamentary democracy - especially representative democracy - is the apogee of humankind's urge to devise a model of governance that will reflect our aspirations - life, liberty and equality; also, the pursuit of learning, excellence and happiness. Despite doubts and discordant voices, I remain firm in that belief and I promise you, especially my fellow parliamentarians, that as long as I continue as a Member of Parliament I shall contribute my mite to make that belief into a reality."</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">With his affable manners, stentorian voice, cool temperament, effective use of words and free flow coupled with devastating logic, Chidambaram is a natural parliamentarian, the spotless white dress, disarming smile and intellectually powerful spectacles adding to the glamour. Nobody can really beat Chidambaram in a debate, unfortunately though we have very few debates in parliament these days. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"<st1:PersonName u2:st="on"><st2:GivenName u2:st="on">Shri <st2:Sn u2:st="on">Chidambaram</st2:Sn> is an extremely gifted, talented and hard working member of my Cabinet who has contributed enormously to the implementation of our policies", said the Prime Minister.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">TIOL</font></b> family congratulates the Finance Manager of the nation who is also an outstanding Parliamentarian. </font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>SEZ Policy to play a very important role in employment generation, increasing exports, creation of world class infrastructure and attracting Foreign Direct Investment - Kamal Nath </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Union Commerce Minister, Kamal Nath addressing the 4<sup>th</sup> Annual General Meeting of the Export Promotion Council for EOUs and SEZ Units (EPCES), yesterday said that a number of issues relating to EOUs have been resolved. This includes implementation of Fast Track Scheme, exemption from Bank Guarantee, extending the facility of Cenvat Credit, reduction of basic customs duty to 25% on the DTA sale, simplified procedure of registration at the port etc. However, a major issue relating to EOU i.e. removal of Sunset Clause is yet to be resolved and had been discussed with the Prime Minister's Economic Advisory Council.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commerce Minister added, <font color="#663399">"SEZ Policy is going to play a very important role in employment generation, increasing exports, creation of world class infrastructure and attracting Foreign Direct Investment in the country in the next one decade. SEZs are certainly going to play a very important role by providing inclusive growth in the country. At present SEZs-new and old are already providing direct employment to over 2,30,000 people. New Generation SEZs have already provided direct employment to over 45,000 people and I have been informed that over 1 lakh additional jobs will get created by December, 2007. Once all the 366 formally approved SEZs, become operational 4 million additional jobs are likely to be created. Manufacturing sector will also get a big boost. If you go and see the new SEZs, which have started functioning, you will find that most of the employment provided is to the rural youth from the nearby villages. Employment in the SEZs has completely changed the life of these employees and their family as well. I feel that this is the greatest contribution SEZs will make to the society. The huge investment being made by these SEZs is resulting in fast developments and as the SEZs become functional, the benefits will become more pronounced".</font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sir, do you remember you made an announcement in your Foreign Trade Policy in April 2007 that service Tax will be exempted for all exports? Five months down the line, nothing has happened. And recently the Tribunal ruled that service Tax paid on <st1:stockticker u2:st="on">CHA services is not even allowed as input Credit. Obviously the Revenue department does not think much of your lofty schemes!</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax payment - one day grace for e-payment</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Yesterday
we reported that excise duty payment through internet banking will get
one day grace period. The same applies to Service Tax also. The Service
Tax Rules have been amended to provide that those who opt for e-payment
can pay the tax by the 6<sup>th</sup> of the following month instead
of the 5 <sup>th</sup>. </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=40&filename=notification/servicetax/2007/stnot07_039.htm" target="_blank">NOTIFICATION NO. 39/2007-Service Tax, Dated: <st1:date u2:st="on" Year="2007" Day="12" Month="9" ls="trans">September 12, 2007</a></u></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>From
our Legal Corner - Monday's
cases<br>
</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><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></b></font></strong><b><b></b></b></font></b></font></strong></font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Central Excise</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Levy based on Annual Capacity of production - Larger Bench rules in favour of Revenue.</font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Section 3A of the Central Excise Act '44 was introduced in the year 1997 and lost its steam in the year 2001. While piloting the Finance Bill, 1997, the Finance Minister stated that in some sectors, like induction furnace, steel re-rolling mills etc., evasion of excise duty is substantial and the production was not being reported correctly. It was proposed to tackle this problem by introduction of collection of excise duty on the basis of their production capacity.</strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">It all started with the now famous <i>Mitra Steel</i> case - <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-824-CESTAT-MUM.htm" target="_blank"><font size="1">2005-TIOL-824-CESTAT</font></a></u><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-824-CESTAT-MUM.htm">-<u>MUM</u></a></font>, wherein the Tribunal held that Section 38A does not validate section 3A. Since Section 3A was omitted with effect from 11.05.2001, and so were the rules framed there under on 01.03.2001, do the pending proceedings lapse?<b> This was a major question which was being agitated for the last few years.</b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">In <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-111-CESTAT-MUM.htm" target="_blank"><font size="1">2006-TIOL-111-CESTAT-MUM</font></a></u>, it was held<b> "</b>Since section 3A of the <st1:stockticker u2:st="on">CEA'44, which is the parent provision for rule 96ZO has been omitted vide section 121 of the Finance Act, 2001, w.e.f 11.05.2001 without any saving clause, pending proceedings cannot be continued - following Mitra Steels decision of Tribunal dated 29.6.2005, demands together with interest and penalty set aside".</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">And see the following decisions:- </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-896-CESTAT-BANG.htm"><font size="1">2006-TIOL-896-CESTAT-BANG</font></a> - Central</u> Excise - Compounded Levy Scheme - Re-rollers - When the provisions of law have been deleted by the Finance Act the Show Cause Notices cannot be confirmed.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1124-CESTAT-DEL.htm" target="_blank"><font size="1">2006-TIOL-1124-CESTAT-<st1:stockticker u2:st="on">DEL</font></a></u><b><u> - </u></b>Demand for short payment u/s 3A raised - in absence of saving clause for deletion of the Section, pending proceedings cannot be continued</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1187-CESTAT-DEL.htm" target="_blank"><font size="1">2006-TIOL-1187-CESTAT-<st1:stockticker u2:st="on">DE</font></a><font size="1">L</font></u><b><u> - </u></b>Central Excise Act - Sec 3A omitted from statute - pending proceedings cannot be continued.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1692-CESTAT-DEL.htm" target="_blank"><font size="1">2006-TIOL-1692-CESTAT-<st1:stockticker u2:st="on">DEL</font></a></u> <b><u>- </u></b>Sec 3A - Duty demand under Rule 96ZO (2) - Issue no longer res integra - Demand set aside</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1744-CESTAT-BANG.htm" target="_blank"><font size="1">2006-TIOL-1744-CESTAT-BANG</font></a></u><b><u> - </u></b>Central Excise - Compounded levy - Section 3A and Rule 96ZO- The demands are not sustainable since charging section 3A is deleted with effect from 11.05.2001 of Finance Act, 2001 without saving clause.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-382-CESTAT-BANG.htm" target="_blank"><font size="1">2007-TIOL-382-CESTAT-BANG</font></a></u><b><u> - </u></b><st1:place u2:st="on"><st1:place w:st="on">Central Excise- Section 3A - in view of the omission of this provision from the statue, the demands held to be not determinable and confirmable.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-1123-CESTAT-MUM.htm" target="_blank"><font size="1">2005-TIOL-1123-CESTAT-MUM</font></a></u><b><u> - </u></b>Demand under Section 3A cannot be sustained as the said section has been omitted by the Finance Act, 2001 without a saving clause - Requirement of pre-deposit waived following decision in Mitra Steel & Alloys Pvt Ltd.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-1300-CESTAT-MUM.htm" target="_blank"><font size="1">2005-TIOL-1300-CESTAT-MUM</font></a></u> <b><u>- </u></b>Penalty levied in terms of Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 - Following decision in Mitra Steels, <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-824-CESTAT-MUM.htm" target="_blank"><font size="1">2005-TIOL-824-CESTAT-MUM</font></a><u>,</u> proviso providing for interest is ultra vires the delegated power of rule making granted under the Act - Power under Section 37(3) of the Central Excise Act 1944 is already exhausted by the Central Government by enacting Central Excise Rules, 1944 and hence cannot be a source relevant for enacting penalty under Rule 96ZP(3) - Stay granted and pre-deposit waived.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">But the scenario changed with <u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-450-CESTAT-MAD.htm" target="_blank"><font size="1">2007-TIOL-450-CESTAT-<st1:stockticker u2:st="on">MAD</font></a><b> - </b></u>Central Excise - Compounded levy - Steel Ingots - Omission of Section 3A with effect from 11.5.2001- Whether omission and repeal have the same meaning - Matter referred to Larger Bench</font></p>
<p ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Whether, having accepted the position that the protection under Section 38A of the Central Excise Act is available to action taken by the department against them under Rules 96ZO and 96ZP beyond the date of omission of these rules, the assessees are entitled to contend that similar protection under Section 6 of the General Clauses Act is not available to departmental action taken under Section 3A of Central Excise Act after the date of its omission. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) Whether Section 3A of the Central Excise Act, which was omitted with effect from 11.5.2001, could be considered to have been 'repealed' within the meaning of this expression used under Section 6 of the General Clauses Act, 1897.</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Chennai Bench of the Tribunal referred the issue to a Larger Bench and the Larger Bench chaired by the President yesterday ruled that Section 38A saves the Rules and so the second question was not answered. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgement was delivered in Chennai yesterday and keeping in tune with our mission of bringing the latest to you in the fastest possible time, we will carry this judgement on Monday. Until then refresh your memory with all the cases and our comments on the issue referred above. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Income Tax</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">Non-resident mineral extraction company claims deduction for expenditure on feasibility study done in licensed area - Sec 37(1) benefits cannot be allowed as such expenses incurred for setting up business are attributable to capital account : ITAT</font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GIVEN that there is no easy formula to determine whether an expenditure is revenue or capital as it depends on the character and nature of expenditure, one may come cross new cases coming up with the same old dispute before the courts. In the latest order which may amount to a setback for mineral and oil exploration and extraction companies, the Delhi Bench of ITAT had denied Sec 37(1) benefits to a non-resident company for </strong><b>expenditure incurred on account of project report for exploring the possibility of minerals and mineral ores in the licensed area.</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Basically the work was in the nature of feasibility study to see the viability of mineral deposits in the licensed area. The Tribunal held that any expenditure u/s 37(1) can be allowed only if it can be said that the business has been 'set up' by the assessee which means establishing of business and commencement or ready for commencement of function for which business has been set up and any expenditure before the setting up of business cannot be allowed.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
AO accordingly disallowed the claim of the assessee holding that it cannot
be said that in the instant case assessee had 'set up' its business which
was mainly extraction and processing of minerals and it had done nothing
towards establishing and commencing of its business of extraction and processing
of minerals as project report was mainly a feasibility study for seeing
the viability of minerals in the area and did not amount to 'setting up'
of business. The <b></b> nature
of feasibility study to see the viability of mineral deposits in the licensed
area. The Tribunal held that any expenditure u/s 37(1) can be allowed only
if it can be said that the business has been 'set up' by the assessee which
means establishing of business and commencement or ready for commencement
of function for which business has been set up and any expenditure before
the setting up of business cannot be allowed.</font></p>
<p align="justify" ><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Customs</b></font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Restricted goods are prohibited goods; redemption may be allowed : Tribunal</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tribunal
remanded the matter directing the Commissioner to give the appellants an
option to redeem the goods under Sections 125 of the Customs Act against
payment of a reasonable fine which shall be determined after hearing the<font color="#000000">
party</font><font color="#663399">.</font> The
quanta of penalties to be imposed on the party under Section 112 of the
Act shall also be determined likewise.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Pray, what is the Government going to get by confiscating the second hand copiers? By the time they put it up for sale, it will be junk and nobody will buy it even as scrap. Precious space in government offices are wasted in storing such useless junk.</font></p>
<p align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>See our columns Monday for the judgements</u></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><font color="#FF6666">Until Monday with the <strong><font color="#FF0000" size="3">700<sup>th</sup> <font color="#FF6666" size="2">edition</font></font></strong> of DDT </font></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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