TIOL-DDT 773 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 773 </font><font size="3"></font><font size="2"><br> 02.01.2008 <br> Wednesday </font></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tariff Value of Brass Scarp – Increased; Poppy seeds remain stable </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has increased the Tariff Value of imported Brass Scrap from US Dollars 4205 to US Dollars 4283. Tariff value for poppy seeds remains at 5398 Dollars. There is no change in the Tariff Value of other products too. </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=24&filename=notification/custom/2008/cnt08_001.htm" target="_blank">NOTIFICATION NO. 1/2008- Cus . ,( N.T. ), Dated: January 1, 2008 </a></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Misuse of Target Plus Scheme – Board is concerned </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In recent months several cases of alleged misuse of the benefits under TPS have been noticed by the DRI . It has been found that the items imported under the TPS have had no ‘broad nexus' with the products exported and neither these can be considered as ‘inputs' for the manufacture of export products. Further, the investigations revealed that the imported goods were subsequently sold in the local market in violations of the provisions of the TPS . The DRI suspects that the modus-operandi may be widespread and not limited only to a few cases.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of para 3.7.6 of the Foreign Trade Policy (FTP), the duty credit earned under the TPS may be used for import of any inputs, capital goods including spares, office equipment, professional equipment and office furniture provided the same are freely importable, by an importer for his own use or for the use of his supporting manufacturer(s) as declared in ‘ Aayat Niryat ' Form. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Paragraph 3.2.5(III) of Handbook of Procedures 2005-06 provides that the licensing authority shall at the time of issuance of the duty credit entitlement certificate endorse the name of the associate manufacturer/supporting manufacturer/job-worker on the certificate as declared by the applicant. Further, the goods imported under TPS shall have a ‘broad nexus' with the products exported. In terms of condition no.3 of notification Nos. 32/2009- Cus dated 8.4.2005 and 73/2006- Cus . Dated 10.7.2006 the certificate and the goods imported against it shall not be transferred or sold. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> The Board had clarified vide Circular No.21 /2007- Cus . dated 21.5.2007, that the words ‘inputs' and ‘use' may not be brushed aside and have to be in focus for the intended import. Together, these words indicate that the item sought to be imported should be an ‘input' in the manufacture of the exported products which is required for ‘use' by the exporter or the supporting manufacturer, as the case may be. For this purpose, the intended input must have a relationship with the export product. Whereas SION will act as a prima facie evidence of ‘inputs', the exporter is not debarred from satisfying the authorities that there is a ‘broad nexus' between the intended import item as an ‘input' with the export product, both falling within the same product group. It was also clarified that the holder of TPS certificate is permitted to import an item under the TPS and get the same processed into possible resultant products only if the same has a ‘broad nexus' with the product group as an ‘input' in the export product and is required to be used as an ‘input' in the product exported for which the TPS benefit is sought. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Now the CBEC further clarifies that:- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ under the TPS the exporter can import, within the entitlement, items in quantities in excess of that mentioned in SION or other items in the product group provided that, in either case, they form ‘inputs' and are ‘used' by him. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Board wants imports under TPS to be carefully scrutinized with reference to the provisions of the </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. FTP </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Handbook of Procedures </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. the customs notifications and </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Board's Circular </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">so as to ensure that the laid down provisions regarding ‘inputs', ‘broad nexus' and ‘use' and ‘supporting manufacturer(s)' are complied with. </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=25&filename=notification/custom/2007/cuscir07_45.htm" target="_blank">CBEC Circular No. 45 /2007- Cus . Dated 19 th December, 2007. </a> <br> </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DFIA - Correlation of Technical Characteristics, Quality and Specification of the Inputs with the Export Product </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Representations have been received from trade stating that the importers are facing difficulties in regard to clearance of material under DFIA Scheme because of insistence by the Customs to establish correlation between the imported goods and the exported product in all cases of imports under the DFIA scheme. <br> <br> Board Clarifies:- </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. In terms of paragraph 4.55.3 of the Handbook of Procedures, Vol.I 2004- 09, in respect of some 22 items, the exporters are required to give a declaration with regard to technical characteristics, quality and specification in the Shipping Bill. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. This position has also been <strong><font color="#663399">captured</font> </strong> in Circular No. 16/2006- Cus dated 9.5.2006. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Further, condition ( i ) of notification No. 40/2006- Cus dated 1.5.2006 states that in respect of the resultant product specified in paragraph 4.55.3 the materials permitted in the DFIA shall be of the same quality, technical characteristics and specification as the materials used in the said resultant product and that in respect of the said resultant product, the exporter shall give declaration with regard to the quality, technical characteristics and specification of materials used in the Shipping Bill. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The position is thus clear that only in respect of products specified in paragraph 4.55.3 of the Handbook a correlation of technical characteristics, quality and specification of the inputs with the export product is required to be established under the DFIA Scheme. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Such correlation is not required to be established in other cases unless the SION prescribes for the same. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC therefore clarifies that except for the items specified in paragraph 4.55.3 of the Handbook of Procedures, Vol.I 2004- 09, in all other cases a correlation between the inputs under import with those used in the exported product is not required to be established and that clearance under DFIA scheme may be allowed if other conditions of the scheme and Customs notification referred to above are fulfilled. </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=25&filename=notification/custom/2007/cuscir07_46.htm" target="_blank">CBEC Circular No. 46 /2007- Cus . Dated 20 th December , 2007. </a></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HRD Directorate in Income Tax – but what about CBEC? </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Minister, P Chidambaram, yesterday promised a more taxpayer friendly income tax department with the newly created directorate on human resource development ( HRD ) in CBDT set to within the next two years “significantly transform” the department from the point of view of the taxpayer. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He announced that the new directorate on HRD has been created in the CBDT to develop, train and reorient the human resources in the tax department and accordingly help improve taxpayer services. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“The department will become more taxpayer friendly, more customer oriented and geared to collect direct taxes causing the least amount of inconvenience or hardship to the taxpayer. The department will increasingly focus on voluntary compliance and take steps to improve such compliance. Compliance has already improved remarkably in the last two years” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The new directorate would be headed by a Director General of Income Tax ( HRD ) who will be an officer of the level of chief commissioner of Income Tax and will be located in New Delhi . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">According to the FM, “Direct taxes are taxes of the future. The CBDT must be reorganised and reengineered into a modern, efficient and well-equipped organisation. Its most important resource will be human resource and that resource must be carefully developed, trained and reoriented to meet the challenges of a growing economy” </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The HRD directorate would develop and design strategic human resource plans, policies and processes aligned to the goal and vision of the income tax department for ensuring optimal resource mobilisation and delivery of taxpayer services. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It would assess and determine the job requirements, job profiles and skills needed for various jobs in the income tax department and make projections of human resource requirements. The directorate would also assist the Board in developing and implementing proper human resources development policies including those relating to recruitment, promotions, performance appraisals, transfers and succession plans. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>But why no such directorate is created in CBEC? </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the meantime Direct tax collections have for the first time crossed the Rs. 2 Lakh Crores mark, overtaking the indirect tax collections. It is likely to cross the Rs. 3 lakhs Crores by the year end. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">“People would be better off if they paid me more taxes” - Chidambaram </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Candle Light protest and New Year greetings from CBI </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBI greeted the Customs and Central Excise Department on the New Year by arresting an Assistant Commissioner, a Superintendent and an Inspector on charges of demanding and accepting bribe on January 1 st . The officers are charged with demanding a bribe of Rs. 10 Lakhs and receiving an advance of Rs. 2.5 lakhs. With all the liberalization and simplification, it is surprising that there is scope for asking such kind of money. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And today 11480 Superintendents of Central Excise across the country are to protest against acute stagnation and pay anomaly, in lunch hour by lighting candles in front of the chambers of the Chief Commissioners and Commissioners throughout India followed by silent procession with different placards, as informed to us by the All India Association of Superintendents. Their grouse is that an Inspector who joined the Income tax Department in 1975 is now an Additional Commissioner, while the one who joined Central Excise is only a Superintendent. </font></p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font> <font color="#FF6633" size="5">tiol </font> <font color="#006600">– Tomorrow's cases </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"><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></strong></font></strong></font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Takeover of assessee's software company - non-compete fees paid in addition to payments for shares - Since it is payment for restrictive covenant to compete against same business it is capital in nature but not taxable to capital gains as there is no transfer of capital assets in this case : ITAT Special Bench </font></strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GIVEN</strong></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> the growing trend of takeovers of companies in the global corporate world, payments like non-compete fees have become an integral part of the overall multi-tier pricing structure. It is very obvious that when a company is built by a professional who creates a value-chain in the market, a stronger and moneyed company which is keen to take over such a value-adding company also has to pay non-compete fees so that the professionals with established skills and experience do not compete against the same company either on their own or by joining their competitors. In this background, what should be the treatment to such a receipt - Whether it is a capital or income receipt? This was the issue before the Special Bench which found that the nature and character of the non- compete fee received by the assessee was for undertaking restrictive covenant to compete with the business of the assessee directly or indirectly. These are not at all linked with the services rendered in the past or to be rendered in future. Such payments did not spring from relationship of an employer and employee. The nature and scope of activities spelt out in the new services agreement was different and independent from the non-compete agreement. Therefore, the payment cannot be linked directly or indirectly with the employment of the assessee as Managing Director of the Company. Therefore, the non-compete fees is not taxable under the head 'Income from salary'. The non-compete fee is also not taxable under section 28(ii) and 28(iv) of the Act because the assessee was not carrying on any business or profession. Such receipt is also not liable to tax under the head 'Capital Gains' or 'Income from other sources'. The non- compete fees for undertaking restrictive covenants was capital in nature and hence, not liable to tax under any head of income mentioned u/s 14 of the Act. The receipt of a non-compete fees under an agreement has been specifically made taxable under clause ( va ) of section 28 inserted by the Finance Act, 2002 w.e.f . 1.4.2003. The legislature has thought of making such amendment applicable from assessment year 2002-2003. Therefore, the same is not applicable to the assessment year under consideration. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Transfer of Cenvat Credit upon shifting factory - Non-availability of manufacturing facility cannot be bar : Tribunal </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IN this interesting case, the department was so attached to the assessee and his assets that they did not want him to shift his factory elsewhere. Probably because the assessee was a manufacturer of aromatic chemicals, essential oils etc. <br> <br> Any way, the problem started when the assessee applied for transfer of the Cenvat credit lying in his account in terms of rule 8 of the CCR , 2002. They intimated the department regarding shifting of factory and also intimated the detailed stock of inputs/packing materials & the balance lying in the cenvat & account current. Incidentally, a credit of Rs.1 ,01,581 /- was also raised against the inputs lying at job worker's premises. </font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise - Kerosene used for extraction of paraffin – retrospective exemption to returned kerosene – no unjust enrichment – refund entitled: Madras High Court </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE writ petitioner, a company incorporated under the Companies Act, 1956 and holder of Central Excise Registration Certificate for the manufacture of Linear Alkyl Benzene ( LAB ) falling under Chapter Heading No.3817.00 of the Central Excise Tariff Act, 1985. Kerosene from which paraffin was extracted, the main raw material for the manufacture of LAB was drawn from the adjacent Madras Refineries Ltd ( MRL ) by pipe line transfer basis. The petitioner extracted paraffin from the kerosene supplied by MRL which in turn was used for the manufacture of LAB . The kerosene so received by the petitioner after being subjected to the process of hydro-generation for extraction of paraffin was returned to MRL through another pipe line. The kerosene received back by MRL was supplied to the Indian Oil Corporation under bond without payment of duty. IOC sold the kerosene so received on payment of duty at the price applicable to kerosene supplied under the Public Distribution System. </font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements </strong></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> </body> </html>