TIOL-DDT 806 · the untouched capture
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<p><font face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 806 </font><font size="3"></font><font size="2"><br>
18.02.2008 <br>
Monday </font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessment of imported second hand machinery – CBEC guidelines </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Small time illiterate merchants from Haryana regularly import second hand photocopiers and for the last five years, the Customs has been regularly harassing them. These machines are seized with routine regularity in all Customs Stations and value is enhanced and huge Redemption Fine and penalties are imposed. These poor merchants have to routinely hire consultants and fight the case up to the Tribunal to get some relief. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Board has issued instructions on valuation of second hand machinery. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has summarised judicial decisions on the issue as:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. If other parameters of Section 14 of the Customs Act, 1962 are satisfied, the transaction value method of Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 can also be applied to importation of second-hand machinery sold for export i.e. it was imported immediately after sale without any further usage abroad. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. However if transaction value of Rule 3 is rejected, valuation of second-hand machinery can be done under Rule 9, on the basis of value of new machine, as certified by the Chartered Engineer, and scaled down by allowing depreciation commensurate with the period of usage. Supreme Court judgement in the case of Gajra Bevel Gears [ <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-09-SC-CUS.htm" target="_blank">2002-TIOL-09-SC-CUS</a><strong>] </strong>refers in this regard. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. However, transaction value of Rule 3 cannot be rejected by <em>ab initio </em>application of Rule 9, inasmuch as one cannot, before rejecting transaction value of Rule 3 with sufficient evidences, straightaway arrive at a notional value under Rule 9. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has also given some tips on ‘how to reject transaction value'. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has further clarified that:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. There is no need to specify the agencies whose certificates alone, issued at the port of loading, would be accepted. The number of such agencies should not be limited. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. In the absence of proper Load Port Certificate, a local Chartered Engineer's certificate may be accepted. Each Custom House may consider issuing Public Notices giving names and addresses of Chartered Engineers, whom the trade can contact for issuance of CE Certificate. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. It is not essential to have the examination of the second hand machinery by a panel of officers, since in many Customs formations no machinery expert is posted. The routine examination of second hand machinery being done by the Docks staff shall continue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board wants these guidelines to be strictly followed. </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/2008/cuscir08_04.htm" target="_blank">CBEC Circular No. 4/2008- Cus Dated : February 12, 2008 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tariff Value of Poppy seeds reduced – No change in other items </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has decreased the Tariff Value of poppy seeds from 5398 Dollars to 5046 Dollars. There is no change in the Tariff Value of other products. </font></p>
<p><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_007.htm" target="_blank">NOTIFICATION NO. 7/2008-Cus.,( N.T. ), Dated: February 15, 2008 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund of sale proceeds when seized/confiscated goods are disposed of but the seizure/confiscation is set aside </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Quite often, the Department sells the seized goods even before confiscation and quite often the Department's confiscation is quashed by higher appellate authorities. On such occasions, the Department cannot return the confiscated goods; so they will have to refund the sale proceeds. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Somebody in the Department had a doubt as to whether in such cases, the sale proceeds or the current market price is to be refunded. It is strange that Revenue officers get such doubts. But Board has n o doubts. Board clarifies that only sale proceeds that have accrued to the Government shall be refunded to the owner of the goods. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=25&filename=notification/custom/2008/cs-instrc711.htm">CBEC F.No . F.No 711/38/2007-Cus(AS) Dated : January 23, 2008 </a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Is a validated Act, valid only for taxes collected and not for taxes not collected Supreme Court refers issue to Larger Bench </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In 1992, Parliament passed The CESS and Other Taxes on Minerals (Validation) Act to grant sanctity to certain laws declared void by the Supreme Court. The Validation Act was passed only with a view to absolve the states of their liability to refund illegally collected taxes as that would have cast a heavy financial burden on the States. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So what was enacted was, if you had paid the taxes, you get no refund even though the tax was illegal. But what happens if you had not paid the taxes during the period. Can it be collected under the Validation Act? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“NO”. Asserted the Supreme Court in the famous <strong><font color="#FF6633">‘District Mining Officer Vs. TISCO</font> </strong>on Appeals & Writ Petitions from several States. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Does it mean that the idiot who paid the tax does not get a refund while the smart avoider gets the benefit? Supreme Court raised this question while referring to the above case. The Supreme Court observed, suppose somebody has paid the taxes, there may be another person who has not paid it. The latter person cannot be placed at a better footing than the former one. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Difference between levy & collection : </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court differentiated between levy & collection. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.In Taxing Statute, the words ‘Levy & Collect' are not synonymous. </font>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.Levy would mean assessment or charging or imposing tax.
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.Collect would mean the physical realization of the tax levied or imposed.
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.Collection of tax is a stage subsequent to levy.
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.Enforcement of levy could only mean realization of the tax imposed or demanded. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We bring you this important judgement today. </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Cum-duty price – whether Education Cess(es) also figure therein? </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DDT is once again thankful to this netizen who keeps on sending interesting quips generating worthy debates. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Those were the days when the Excise Department refused to grant cum duty benefits even though the Tribunal in Sri Chakra Tyres had extended the same. Not even the Supreme Court decision in Maruti Udyog <strong>[</strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-34-SC-CX.htm" target="_blank">2002-TIOL-34-SC-CX</a><strong>] </strong> provided any relief to the manufacturers who were told by the adjudicating authorities that they were bound by the Board's Circular dated 745/69/2003-CX dated 26.9.2003 which informed that Review Petitions were filed by the Department before the Supreme Court & decision is awaited. It was also clarified therein that since Section 4 had been amended by the Finance Act, 2003 [w.e.f 14.05.2003], said benefit would apply prospectively & as far as earlier cases are concerned, the department's stand is clear – <em>no cum-duty benefits. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The department's Review petitions were dismissed on 9 th December 2004 & the Board graciously withdrew its earlier instruction by issuing another Circular 803/36/2004-CX dated 27.12.2004. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, it appears that the benevolent officers have started extending cum-duty benefits on all counts, left, right & center meaning to say while demanding Central Excise duty, be it on clandestine removals or on grounds of under valuation, they are working out the Assessable value by considering the Excise duty element as well as the Education Cess component of 2% and Secondary & Higher Education Cess component of 1%. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Explanation in Section 4(1) of the CEA '44 inserted w.e.f 14.5.2003 reads – <em>For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But is Cess really a TAX/DUTY & whether the same is abatable? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The treatise <font color="#FF6633">“ <strong><em>Supreme Court on Words & Phrases </em></strong>”</font> by Justice R.P.Sethi has this to say about “Cess” – </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++A ‘cess' may either be a tax or a fee. Whether a cess in a given context is a tax or a fee depends upon the purpose for which it is levied. [Kunwar Ram Nath v Municipal Board (1983) 3 SCC 357: AIR 1983 SC 930] </font>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++The word ‘cess' is used in Ireland and is still in use in India although the word ‘rate' has replaced it in England . It means a tax and is generally used when the levy is for some special administrative expense, which the name (health cess, road cess, education cess etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way, as the validity of the tax to which is an increment. [M/s Guruswamy & Co. Etc. vs. State of Mysore & Ors (1967)1 SCR 548; India Cement Ltd. vs. State of T.N (1990) 1 SCC 12, 23: AIR 1990 SC (85)] </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Education Cess & SHE Cess unlike Sales Tax and Other taxes is not <strong><em><font color="#FF6633">directly</font> </em></strong>relatable to the Value of the goods but are levied as an increment to Excise duty & hence <strong><em><font color="#FF6633">it is debatable as to whether the benefit of cum-duty-price should be extended in the matter of Cesses too. </font></em></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the answer provided in question 6.5 of the FAQ on Service Tax issued by the CBEC in association with DGST on 21 st December 2007 is an indication, both Cesses are required to be abated while computing the Assessable value.<font color="#FF6633"> <strong><em>But are they correct? </em></strong></font></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>Do you have a view? </em></strong></font></p>
<p align="center"><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"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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></strong></font></strong></font></strong></font></strong></font></strong></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>Reference application – High Court has no power to condone delay : Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court noted that under the Central Excise Act, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Under section 35 there is a provision for condonation of delay by the Commissioner (Appeals) </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Under Section 35 C (5), the CESTAT can condone delay in filing the appeal. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. No such provision exists for appeal or reference to the High Court. In other words, the legislative intent is clear that the Parliament never intended that delay in filing the reference application under Section 35- H could be condoned. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Above being the position, the High Court was justified in holding that there was no power for condonation of delay in filing reference application. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>NE Exemption - excise </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Exemption cannot be denied for depositing duty amounts in interest-bearing account - Senior revenue officials are expected to interpret notification intended to further developmental interest of a region in more pragmatic and liberal way : CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE dispute concerns interpretation of exemption Notification No.8/04-CE dated 21.01.04 as amended by Notification No.28/04-CE dated 09.07.04, the benefit of which has been claimed by the appellants and which has been denied by the Adjudicating Commissioner. The Notification in question provides a detailed mechanism under which tobacco products manufactured in the North-East Region are exempted provided an amount equal to the duty is deposited in an Escrow Account, which is required to be invested in the North-East Region comprising of states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellants admittedly deposited the necessary amount in the Escrow Account, but have fallen foul with the departmental authorities for reasons such as, no separate accounts were opened in respect of units falling in different states; no tripartite agreement was signed before opening the Account; and further, they asked the bank to transfer part of the money from the Escrow Account so that some interest can be earned on the money lying idle with the bank otherwise. The Commissioner has confirmed duty demands of over Rs. 50 Crores with equal penalty. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Rental space for keeping, storing, stuffing or consolidation of export cargo into containers – Services prima facie not liable to Tax under Storage and Warehousing Services: Tribunal </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MERELY because an activity is excluded from being charged to Service Tax under a particular category does not imply that the activity is not taxable under some other category – this is the Departmental way of looking at things - inwardly that is! </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Although section 65(23) excludes from its ambit “handling of export cargo”, it is the department's contention that the same cannot mean to say that the said activity is not taxable inasmuch as it can be very well be held to be taxable under the category defined in 65(102). </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The aforesaid quagmire came up before the Tribunal recently – of course in an appeal by the assessee. </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 color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Deduction under Sec 80HHC in a case of MAT assessment is to be worked out on basis of adjusted book profit under Sec 115JA : ITAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(Ground No. 5 and 6) against the order of the CIT (A) in directing the AO to allow <strong><font color="#FF6633">deduction under section 80HHC</font> </strong> of the Income Tax Act, 1961, while computing the book profit on the basis of profit disclosed in the Profit Loss Account after making adjustments, though clause (viii) of Explanation to section 115JA prescribes deduction under section 80HHC to be computed under clause (a) (b) or (c) of sub-section (3A) of section 80HHC. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Contending parties conceded that this issue now stands covered against the revenue by the Special Bench decision of the Tribunal in the case of DCIT vs. Syncome Formulations (I) Ltd., wherein the Tribunal held that deduction under section 80HHC in a case of MAT assessment is to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of profit computed under regular provisions of law applicable to computation of profit and gains of business or profession. Hence the appeal by the revenue on this ground fails and it is dismissed </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="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT's cartoon from Dr. Gopalakrishnanan, IAS (rtd) </strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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_cartoon_806.jpg" alt="Legal Corner Icon" width="327" height="499" hspace="5" border="0" align="lcenter"></b></strong></b></font></b></font></b></font></b></font></b></font></b></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">DDT</font> </strong> is now addicted to Dr. Gopal 's cartoons and somehow I cannot start the week without a cartoon from Dr. Gopal . Start the week with a smile. </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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