TIOL-DDT 738 · the untouched capture
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<p><font face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT 738</font><font size="2"><br>
12.11.2007<br>
Monday</font></b> </font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Government intends to tax branded petrol and seeks response from public </font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Here
is some shocking news for Oil companies. The prices of Branded Petrol and
Diesel may shoot up like anything with the proposed levy of excise duty
on these products. Of late, the Petro companies started selling what they
call premium grade Petrol and Diesel which they claim to give more mileage
and improve the engine performance. The price of these branded fuels is
slightly more than the ordinary petrol/diesel. The process involved in
manufacture (?) of these products is rather simple. The normal petrol/diesel
manufactured in the refineries is mixed with some additives which normally
takes place at the Oil marketing terminals. Till the warehousing provisions
were in force, the value addition was taxed as the marketing terminals
were registered with excise department and duty was being paid at the Terminals
on the non-duty paid goods received from the refineries. In a rather hasty
move, the Government had withdrawn the age old warehousing facility for
terminals in 2004 with a view to include the "transit loses" form the refineries
to terminals in the duty ambit. As a result, all the refineries are clearing
the goods to the terminals only on payment of duty and there is no duty
payment from the terminals. After the withdrawal of the warehousing provisions,
what is the position of the Terminals with regard to braded petrol? Since
the mixing of normal petrol with the additives is done at the terminals,
whether they should pay duty again on "duty paid petrol/diesel"? </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=2570" target="_blank">TIOL raised this important issue immediately after the withdrawal of the warehousing provisions. Please see our Editorial </a></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the Government comes up with a draft circular to tax the branded petrol
and the value addition thereof and solicits public response. The draft
Circular clarifies that the process of mixing of additives in normal petrol/diesel
results in emergence of a new product having a distinct name, character,
and use, and as such the said process should be treated as a process amounting
to 'manufacture' and proposes to tax the value addition.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>This
Draft Circular raises some important questions :</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ If the mixing is done at the Terminals, where the duty paid normal Petrol/Diesel are received from the refineries, they have to pay duty on the Branded Petrol/Diesel again. The terminals cannot take Cenvat Credit on duty paid petrol and diesel as these two products are excluded from the definition of inputs in Cenvat Credit Rules. So, with the proposed move, not the "Value addition" alone is taxed, but the entire value of normal petrol/diesel is taxed TWICE!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Same is the case if the Branded Petrol is manufactured in the refinery itself as Petrol and Diesel are excluded from the inputs under Notification 67/95 CE.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Draft Circular says the pending disputes may be decided accordingly. Since the Circular dated 13.12.1994 will be in force till the draft circular is issued, what does the Board mean by "pending disputes may be decided accordingly?" Does it mean the benefit of Circular dated 13.12.1994 is to be extended for the period prior to the issue of the new Circular or not? Otherwise, how can the Oil companies expect in 2004 that in 2007, Board will suddenly announce that the duty has to be paid on Branded Petrol/Diesel?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The draft Circular says the earlier Circular issued on 13.12.1994 stands withdrawn. Vide Circular dated 13.12.1994, it was clarified that the process of mixing/blending 3% duty-paid methanol with 97% duty-paid motor spirit does not amount to `manufacture'. This Circular was issued based on the report by the Chief Chemist, CRCL, <st1:City w:st="on"><st1:place w:st="on">New Delhi</st1:place></st1:City>. How this report becomes irrelevant now? The draft circular does not explain.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ When it was clarified in 1994 that the process on blending methanol does not amount to manufacture, how the exemption notification were issued for ethanol blended petrol in 2002?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Is an important issue whether certain process amounts to manufacture or not left to the Board to decide? </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It
is good that the Board has decided to solicit the public response instead
of issuing the Circular straight away. Obviously the Circular in its present
form will create lot of confusion and does not address the problem from
all dimensions, the most important aspect being non availability of Cenvat
credit and captive consumption benefit. Further, there is a stay and full
waiver of pre-deposit by Mumbai Bench of the CESTAT in case of demand on
ethanol blended petrol in respect of M/s Reliance Industries Ltd <b>(</b></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2006/2006-TIOL-1966-CESTAT-MUM.htm">2006-TIOL-1966-CESTAT-MUM</a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b> ). </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the tax consultants must be grateful to the good Board for ensuring them good business throughout the year and years to come. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/petrocir.htm" target="_blank">CBEC Draft Circular in F.No.83/04/2007-CX.3</a></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Income Tax exemption for mining allowance - scope extended</font></b></font></p>
<p ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Underground Allowance granted to an employee working in uncongenial unnatural climate in underground <b>coal</b> mines is exempted from Income Tax up to Rs. 800/- per month. Now the word coal is deleted giving this exemption to all underground mines, not coal alone!</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=35&filename=notification/cbdt/2007/it07not270.htm" target="_blank">NOTIFICATION NO. 270/2007 Dated: <st1:date
ls="trans" Month="11" Day="7" Year="2007" w:st="on">November 7, 2007</st1:date></a></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Income Tax - Rent free and concessional rent accommodation - value of perks - Rule amended</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Act, 2007 had inserted a deeming provision to define concession in the matter of rent for the purpose of determining the perquisite value. It has also reduced the rate of valuation of perquisite in the nature of concessional rent accommodation and leased accommodation with retrospective effect from 1st day of April, 2006, that is with effect from assessment year 2006-2007. This has necessitated similar reduction of rates in case of both rent-free and concessional rent accommodations and leased accommodation in Table I of rule 3 with retrospective effect from 1st day of April, 2006, that is in relation to assessment year 2006-2007 and subsequent years.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further,
the Finance Act, 2005 had inserted a new Chapter XII-H in the Act, relating
to levy of Fringe Benefit Tax (FBT) on the employer with effect from 1st
April 2006, i.e. applicable for assessment year 2006-07 and subsequent
years. Accordingly, rule 3 was amended vide notification number S.O. 265(E)
dated the 28th February, 2005, to avoid double taxation on certain items.
Since, Chapter XII-H relating to FBT is not applicable to the employer
being an individual or a Hindu undivided family or any fund or trust or
institution eligible for exemption under clause <st1:metricconverter ProductID="23C"
w:st="on">23C</st1:metricconverter>) of section 10 or registered under section
12AA, rule 3 is required to be amended so as to include valuation of perquisite
in case of benefits provided by such employers to its employees. Accordingly,
sub-rules 2, 6, 7 (ii), (iii), (iv), (v) and (vi) have been inserted to
provide for such valuation. Sub-rule 7(ix) has been inserted to provide
for valuation of any other benefit or amenity, etc., in residual cases
relating to any employer. These sub-rules will take effect from the 1st
April, 2008 and will, accordingly, apply in relation to the assessment
year 2008-2009 and subsequent years. </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=35&filename=notification/cbdt/2007/it07not271.htm" target="_blank">NOTIFICATION NO. 271/2007 Dated: <st1:date ls="trans"
Month="11" Day="7" Year="2007" w:st="on">November 7, 2007</st1:date></a></font></p>
<p align=center ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">DDT Cartoon</font></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we bring you a cartoon from a bureaucrat - Dr. VS Gopalakrishnan who joined the IAS in 1962 and took voluntary retirement in 1995. His wife thought that he is both the cartoon and the cartoonist. <st1:PersonName
w:st="on"><st2:title w:st="on">Dr.</st2:title> <st2:Sn w:st="on">Gopal</st2:Sn></st1:PersonName> is a fine writer and has a tremendous sense of humour. He had also performed the boring job of Development Commissioner of an EPZ. Gopal had very kindly sent me four volumes of his cartoons with a blanket permission to use any of his cartoons and DDT has just made a beginning. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We have requested Gopal to write for us and we hope soon we will be able to carry some of his articles.</font></p>
<div align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_cartoon_738.jpg" alt="Legal Corner Icon" width="450" height="302" hspace="5" border="0" align="center"></b></font></strong> </div>
</font></p>
<p align="center"><font color="#FF6699" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>"To improve our collections, give an advertisement that all extortionists should now apply for a Permanent Account Number!" </strong></font></p>
<p align=center ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>From our Legal Corner - Tomorrow's cases</b></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9999">Income Tax</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9966">Provision for NPA debited to P & L account as per RBI Act, not eligible for deduction under I-T Act - Bad debts under I-T does not include doubtful debts - No conflict between RBI Act and I-T Act : ITAT Special Bench</font></b></font></p>
<p align="justify"><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong>issue before the Special Bench of the ITAT was : </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"Whether, a Provision for Non Performing Assets ('NPA') debited to profit and loss account and claimed as a deduction in accordance with the prudential norms issued by the RBI in exercise of powers conferred on it under section 45JA of the RBI Act, 1934, called the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998, should be allowed as deduction while computing income from business under the provisions of the Income-tax Act, 1961?" </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9999">Customs</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9966">Is an offence under Customs Act bailable? HC grants bail on second application</font></b></font></p>
<p align="justify" ><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>REMEMBER </b><st1:PersonName
w:st="on"><st2:GivenName w:st="on"></st2:GivenName></st1:PersonName></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><st1:PersonName
w:st="on"><st2:GivenName w:st="on">Avinash</st2:GivenName> <st2:Sn w:st="on">Bhosale</st2:Sn></st1:PersonName> case where the Pune Builder got bail from a magistrate at <st1:time Hour="0" Minute="00"
w:st="on">midnight</st1:time> after <st1:stockticker w:st="on">DRI</st1:stockticker> arrested him in Mumbai. The High Court had quashed the bail and Supreme Court set aside the High Court order and upheld the magistrate's bail.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Around this time we carried a case of <st1:PersonName
w:st="on"><st2:GivenName w:st="on"><b><font color="#FF9966">LALIT</font></b></st2:GivenName><font color="#FF9966"><b> <st2:Sn
w:st="on">GOEL</st2:Sn></b></font></st1:PersonName><font color="#FF9966"><b> Vs COMMISSIONER OF CENTRAL EXCISE, <st1:City w:st="on"><st1:place
w:st="on">DELHI</st1:place></st1:City>-I</b></font><b> - </b><a
href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2007/2007-TIOL-420-HC-DEL-CUS.htm">2007-TIOL-420-HC-DEL-CUS</a> wherein the High Court observed,</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Bail in economic offence cases - unscrupulous elements on a prowl to maximise material gains by unlawful means, needs to be placed in shackles - Personal liberty of an individual though precious, is of little value if the larger interest of the people and the Nation are at stake - the petitioner by his alleged criminal act caused loss to the public revenue, he, by diverting non-edible grade crude palm oil, meant for manufacture of washing soap, to Vansapati ghee manufacturers played for his selfish gain with the health of public at large thereby adding to the gravity of the offence - Bail plea rejected </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We had also carried an article by SK Choudhuri, former Member CBEC, <a
href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5861" target="_blank">Bhosale a free man - SC declares alleged Customs offence as 'apparently' bailable! Is the Apex Court right? </a></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now get back to <st2:GivenName w:st="on">Lalit</st2:GivenName> <st2:Sn w:st="on">Goel</st2:Sn>, who is back in the High Court with a second application for bail on the ground that the offence committed by the applicant is a bailable offence in view of the latest order of Supreme Court in <st1:PersonName w:st="on"><st2:GivenName w:st="on">Avinash</st2:GivenName> <st2:Sn w:st="on">Bhosale</st2:Sn></st1:PersonName> v. Union of India.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9999">Central Excise </font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#FF9966">Credit taken wrongly reversed with interest - no penalty : CESTAT</font></b></font></p>
<p align="justify" ><font color="#FF9966" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>THE</b></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b> </b>appellants had initially taken CENVAT credit of Countervailing duty (<st1:stockticker w:st="on">CVD</st1:stockticker>) on certain raw materials imported by them. These credits were taken on 29.11.2001, 8.01.2002 and 15.02.2002 in respect of three bills of entry, amounting to Rs. 38,06,068/-. They wrongly took CENVAT credit of the same amount once again on 31.03.2002. Subsequently, they realized their mistake and reversed a major part of the above credit on 09.04.02 and the balance credit on 12.04.02. They also paid Rs. 25,496/- in cash on 12.04.02 towards interest on the CENVAT credit amount from 31.03.02 to the dates of reversal. The Department issued a show cause notice dated 17.02.03 to the appellants proposing to impose penalty on them under Rule 13 (1) of the CENVAT Credit Rules, 2002. The adjudicating authority dropped the proposal. Its order was reviewed and, thereupon, an appeal was filed by the Department. The appellate authority allowed the Revenue's appeal to the extent of imposing penalties of Rs. 3.80 lakhs and Rs. 3.75 lakhs on the party respectively under sub-rule (1) and sub-rule (2) of Rule 13.</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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