TIOL-DDT 759 · the untouched capture
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<p><font size="2"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 759</font><font size="3" face="Verdana, Arial, Helvetica, sans-serif"></font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
11.12.2007<br>
Tuesday</font></b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Education Cess - A very educative discussion </b> <b> </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Within a few minutes after we uploaded the story on the judgement of Shimla High Court, mails started pouring in from different sections and there are a couple of posts on the Message Board also. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For more clarity, the effect of ruling of the <st1:PersonName w:st="on"><st2:GivenName w:st="on">Shimla</st2:GivenName> <st2:Sn w:st="on">HC</st2:Sn></st1:PersonName> is explained as under:</span></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tractors manufactured in Himachal are exempted - say if the tariff rate is 16%, duty of excise payable is NIL</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though excise duty is exempted, there is no exemption from automobile cess and the assessee has to pay automobile cess at 1/8% ad valorem</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee is also liable to pay education cess at 2% on the excise duty payable, but for the exemption. If excise duty payable is Rs 16/-, but exempted, still the assessee is liable to pay education cess on Rs 16/-. The High Court did not go into the aspect whether 1/8% automobile cess should also be taken into account for computation of education cess or not.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The debatable issues:</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Point No 1 : What if excise duty is exempted?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Education Cess on excisable goods, imported goods and the services is levied vide Sections 93, 94 and 95 respectively of the Finance Act 2004.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All the above three sections contain provisions that:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The provisions of the Central Excise Act, 1944 (1 of 1944) ( Customs Act or Finance Act as the case may be) and the rules made thereunder, including those relating to refunds and <b><font color="#FF6633">exemptions</font></b> from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So if the excise duty/customs duty or service tax is exempted, education cess is also exempted. This has also been clarified by the CBEC in <st1:PersonName w:st="on"><st2:GivenName
w:st="on">F.</st2:GivenName> <st2:middlename w:st="on">No.</st2:middlename></st1:PersonName> 345/2/2004-<st1:stockticker w:st="on">TRU</st1:stockticker> (Pt.), dated <st1:date ls="trans"
Month="10" Day="8" Year="2004" w:st="on">10-8-2004</st1:date></span></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Point No 2: Whether education cess is payable on other cesses which are collected as excise duty?</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Again section 93 of the Finance Act reads:</font></p>
<blockquote>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">The education Cess shall be calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess, and Secondary and Higher Education Cess levied under section 136 of the Finance Act, 2007 on excisable goods) <b>which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue),</b> under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the other allied Cesses like Sugar Cess, Tea Cess or Automobile Cess are not levied by the Central Government in the Ministry of Finance, but are levied under different Acts and the Ministry of Finance does the job of collection of these duties as duties of excise, to be paid to the respective departments. Therefore no Education Cess is leviable on such Cesses in terms of Section 93 of the Finance Act 2004. Precisely this is what has been clarified by the <st1:stockticker
w:st="on">TRU</st1:stockticker> in F.No 345/2/2004 <st1:stockticker w:st="on">TRU</st1:stockticker> dated <st1:date ls="trans" Month="10"
Day="8" Year="2004" w:st="on">10/8/2004</st1:date></span></font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">(4) : Whether duties/ cesses which either not collected as duty of excise/customs or are collected so but by a Department other than Department of Revenue, should be included for the purposes of calculation of Education Cess ? <br>
</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<strong><font color="#FF6633">Clarification:</font></strong> As the Education Cess is calculated on the aggregate duties of excise/customs (excluding certain duties of customs like anti-dumping duty, safe guard duty etc.) levied and collected by the Department of Revenue, only such duties, which are (a) levied and collected as duties of excise/customs and (b) are both levied and collected by the Department of Revenue should be taken into account for calculating Education Cess </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Take the case of Sugar. In addition to excise duty, cess is also levied under Sugar Cess Act 1982. While calculating the education cess, the sugar cess need not be included as clarified above by <st1:stockticker w:st="on">TRU</st1:stockticker>.</span></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So if the duty structure is 16% (excise) plus 5% ( cess), education cess is payable only on 16%. In case of Tractors manufactured in Himachal, since 16% is exempted, no education cess needs to be paid either on excise duty or on the automobile cess. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we are carrying another important judgement on this issue wherein the CESTAT relying on the <st1:stockticker w:st="on">TRU</st1:stockticker> letter dated <st1:date ls="trans" Month="10" Day="8" Year="2004" w:st="on">10/8/2004</st1:date> has held that no education cess need be paid on the Tea Cess as the same is not levied by the Central Government in the Ministry of Finance but levied by the Government in the Ministry of Commerce. </span></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><st1:City w:st="on"><st1:place
w:st="on"><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1898-CESTAT-AHM.htm" target="_blank">BOMBAY</a></u></st1:place></st1:City><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1899-CESTAT-MAD.htm"><u>BURMAH TRADING CORPORATION <st1:stockticker w:st="on">LTD</st1:stockticker>.</span></u> </a></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Export of non-basmati rice - exemption </b></font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The prohibition imposed on export of non-basmati rice shall not be applicable to export of 50,000 MT of rice to Peoples Republic of Bangladesh by M/s LMJ International Limited, 30, J.L. Nehru Road, Kolkata - 700 016 against the ordered quantity as per international tender opened by Government of Bangladesh on 08.10.2007.</font></p><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=45&filename=notification/dgft/2007/dgft07not060.htm" target="_blank">DGFT NOTIFICATION NO.<u>60 (RE-2007)/2004-2009, Dated: <st1:date ls="trans" Month="12" Day="6" Year="2007"
w:st="on">December 6, 2007</st1:date></span></u></a></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>LTUs - How large? </b></font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Yesterday the <b><font color="#FF6633">Hindu</font></b> reported, </font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">For
instance, to be part of the <st1:City w:st="on"><st1:place w:st="on">Bangalore</st1:place></st1:City> unit,
a corporate house should be paying central excise and service tax of Rs.<strong> 1,000
crore</strong> a year, or income tax of Rs. <strong>800</strong> crore.
For the Chennai unit, the threshold has been fixed at above Rs.<strong>7,000</strong> crore
for central excise and service tax and over Rs. <strong>1,500 </strong>crore
for income tax.</span></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is there any assessee paying this kind of taxes in the country? Which Company pays Rs. 1500 Crores as Income Tax? Only goes on to prove that while reporting tax matters, the best of newspapers are not exactly accurate.</font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And where is the <st1:PersonName w:st="on"><st2:GivenName
w:st="on">Chennai</st2:GivenName> <st2:Sn w:st="on">LTU</st2:Sn></st1:PersonName>? A helpful Departmental officer informed us that it is located at Door No 1775, Jawaharlal Nehru Inner Ring Road, AnnanagarWestern Extension, Chennai- 600101.</span><u> </u></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>Poor rich politicians - AP CM pays Rs. 12, 491 as Income Tax </b></font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The former IAS officer <st2:GivenName w:st="on">Jaya</st2:GivenName> <st2:middlename
w:st="on">Prakash</st2:middlename> <st2:Sn w:st="on">Narayan</st2:Sn>'s <st1:PersonName
w:st="on"><st2:GivenName w:st="on">Lok</st2:GivenName> <st2:Sn w:st="on">Satta</st2:Sn></st1:PersonName> reported that the AP Chief Minister <st1:PersonName w:st="on"><st2:title w:st="on">Dr.</st2:title> <st2:GivenName w:st="on">YS</st2:GivenName> <st2:middlename
w:st="on">Rajasekhara</st2:middlename> <st2:Sn
w:st="on">Reddy</st2:Sn></st1:PersonName> declared his wealth in his affidavit before returning officer during elections to the Assembly as Rs. 3,36,61,943 which included <st1:metricconverter ProductID="45 acres" w:st="on">45 acres</st1:metricconverter> of agricultural land and <st1:metricconverter ProductID="6.65 acres" w:st="on">6.65 acres</st1:metricconverter> of non-agricultural land, two buildings at <st1:place
w:st="on"><st1:City w:st="on">Hyderabad</st1:City></st1:place> and Pulivendula. His shares in companies are to a value of Rs. 42 lakhs. <b><font color="#FF6633">He paid Rs 12,491 only</font></b> as income tax for the assessment year 2004-05.</span></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The former CM and Leader of the Opposition N. Chandra Babu Naidu is a bit richer. He declared his wealth in his affidavit before the returning officer during 2004 elections as Rs. 20,92,29,305 which included Rs. 16,69,63,220 worth of shares and three buildings at <st1:place
w:st="on"><st1:City w:st="on">Hyderabad</st1:City></st1:place>. Subsequently he submitted his financial statement to the Speaker revealing that he purchased 2,01,020 shares in Heritage Foods from the market, which are valued at around Rs. 3 crores. The total value of his shareholding in the company, at the current market rates, now stands at Rs. 55 crores.</span></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Jurispruden</font><font color="#663399" size="5">tiol</font><font size="5"></font><font color="#006600">- Tomorrow's cases</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><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></b></font></b></font></b></font></b></font></b></font></b></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Central Excise </b></font></p><p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Capital goods and inputs destroyed in fire - No requirement of reversal of Cenvat credit : Tribunal</b></font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CENVAT credit Rules, 2004 has already seen ten amendments this year. Notable amongst them are the amending notifications 26/2007-CE(N.T) dated 11.05.2007, 33/2007 CE(NT) dated 07.09.2007 & 39/2007-CE(N.T) dated 13.11.2007. </font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the first notification inserts a sub-rule (5B) in rule 3 & prescribes payment of an amount equivalent to Cenvat credit availed while writing off the value of inputs/capital goods, the second attempts to make the Supplementary Instruction, paragraph 2.4 to Chapter 18, Part-I [reversal of Cenvat credit taken on inputs contained in finished goods on which duty remission has been granted under rule 21] a legal requirement by inserting a sub-rule (<st1:metricconverter ProductID="5C" w:st="on">5C</st1:metricconverter>) in rule 3 of the Cenvat Credit Rules, 2004. The last mentioned notification lays down the manner in which used Cenvatted Capital goods are to be removed from the factory. </span></font></p><p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Considering the amendments that have been made this year to "settle once & for all pending Cenvat issues", the decision being reported may prompt the Central Government to go in for one more amendment to the Cenvat Credit Rules, 2004 towards the close of the year.</font></p><p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax </b></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Input services used for windmills for generation of electricity - away from factory - not eligible for credit - As electricity is not excisable, no credit even if used at windmills - CESTAT</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant has a manufacturing unit at <st1:City
w:st="on"><st1:place w:st="on">Jamnagar</st1:place></st1:City>. They had set
up windmills at a place Kurunga, about 100 Kms. away from their factory. While setting up of the windmills,
they have availed the services for the purpose of installation, erection
and commissioning of windmills. The electricity generated at the windmills
is fed to grid of Gujarat Electricity Board on the basis of an agreement
and the appellant receives equal quantity of electricity fed by them from
the Gujarat Electricity Board at the factory site. Whatever quantity of
electricity is used in excess of what they produced is charged to them.
The appellant claimed the service tax paid on the services availed at the
windmill station. </span></font></p>
<p align="justify"><font color="#663399" 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="#FF6633">Exemption to charitable trusts cannot be denied if part of income was used for religious purposes: ITAT</font></b></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong>appellant filed return
of income on 26.10.03 declaring nil income. The assessment was framed u/s
143(3) on 5.1.96 at a total income of Rs.4,99,580/-.
It was held that since the appellant trust is not registered u/s 12A of the Act, the benefit of
exemption u/s 11 cannot be given. Subsequent to the passing of the assessment
order, the appellant society had been granted registration u/s 12A vide order dated 4.11.96 w.e.f. 1.4.1988. The assessee,
therefore, requested for rectification of the order and for claim of exemption
u/s 11 of the Act. The rectification application was rejected and the order
refusing rectification u/s 154 was confirmed by <ns1:ST1:STOCKTICKER u1:st="on"><st1:stockticker
w:st="on">CIT</ST1:STOCKTICKER></st1:stockticker>(A). On further appeal before the
Tribunal, the Tribunal held that the subsequent order of registration had
rendered the AO's finding that there was no registration, a mistake apparent
from record. The Tribunal set aside the matter to the AO to examine the
case in light of the requirement of Sections 11, 12 & 13 and to determine
eligibility for exemption and pass fresh order as per law.</span></font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><u>See our columns tomorrow for the judgements</u></font></strong></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></span></font></p>
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