From our Legal Corner - Monday's cases
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Central Excise
Levy based on Annual Capacity of production - Larger Bench rules in favour of Revenue.
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.
It all started with the now famous Mitra Steel case - 2005-TIOL-824-CESTAT-MUM, 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? This was a major question which was being agitated for the last few years.
In , it was held "Since section 3A of the 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".
And see the following decisions:-
- Central 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.
- Demand for short payment u/s 3A raised - in absence of saving clause for deletion of the Section, pending proceedings cannot be continued
2006-TIOL-1187-CESTAT-DEL - Central Excise Act - Sec 3A omitted from statute - pending proceedings cannot be continued.
- Sec 3A - Duty demand under Rule 96ZO (2) - Issue no longer res integra - Demand set aside
- 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.
- Central Excise- Section 3A - in view of the omission of this provision from the statue, the demands held to be not determinable and confirmable.
- 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.
- Penalty levied in terms of Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 - Following decision in Mitra Steels, , 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.
But the scenario changed with - 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
(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.
(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.
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.
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.
Income Tax
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
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 expenditure incurred on account of project report for exploring the possibility of minerals and mineral ores in the licensed area.
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.
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 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.
Customs
Restricted goods are prohibited goods; redemption may be allowed : Tribunal
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 party. The quanta of penalties to be imposed on the party under Section 112 of the Act shall also be determined likewise.
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.
Until Monday with the 700th edition of DDT
Have a nice weekend.
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