TIOL-DDT 905 · the untouched capture
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<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#666699" size="3">TIOL-DDT
905</font><br>
10.07.2008<br>
Thursday </strong></font></div>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Export
Duty and SEZ – Commerce Concedes</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
there is a conflict between the Commerce Department and the Revenue Department,
who wins? No prizes for the correct answer, as we all know that it is always
REVENUE. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
confusion regarding the requirement of paying export duty on steel products
cleared to SEZ, ended with the Commerce Ministry failing to convince the Revenue
and conceding that duty has to be paid.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Commerce Ministry in a letter addressed to all the Development Commissioners
of SEZs, with a copy marked to the Member (Customs) in the CBEC, has requested
the Development Commissioners to allow entry of those goods into the SEZ only
after the export duty is paid. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And
remember we had mentioned about a Commissioner of Central Excise, who had given
a clarification that no export duty is payable on the goods cleared to the SEZ.
We understand that he has withdrawn his clarification. If Revenue can browbeat
the Commerce Ministry, what is a Commissioner under it?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
at least now Revenue should clarify as to who should pay this duty, when and
where? They should post Customs officers outside each SEZ to collect the export
duty!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the position is: Revenue had no doubts all through that export duty was payable,
though they were and are not clear when and where; whatever little doubts, the
Commerce Ministry had are of no consequence as Commerce has also conceded that
duty has to be paid.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
1633, a Pope found Galileo guilty of heresy and he was forced to kneel down
and confess that the Earth did not move, but as he got up, he muttered, "<strong>But
it does</strong>"</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We
have a Netizen who says that still the Revenue and Commerce Departments are
wrong and export duty is not payable. See our <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7556" target="_blank">Netizen’s Editorial</a> today. </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=260&filename=sez/sez_instructions/2006/sez06ins011.htm" target="_blank">F.
No. 6/2/2008 –SEZ (pt) of the Department of Commerce (SEZ Section) Dated:
June 30, 2008</a></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification
108/95 CE – No exemption if the goods are supplied for temporary use –
Board clarifies.</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification
108/95 CE dated August 28, 1995 provides exemption from whole of the excise
duty if the goods are supplied to the projects financed by the United Nations
or an international organization. This notification is in the news after this
year’s Budget because of an explanation inserted vide Notification 13/2008
CE dated 1.3.2008. This explanation reads as under:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
Explanation 2.-For the removal of doubts, it is hereby clarified that the benefit
under this notification, in the case of goods supplied to the projects financed
by the United Nations or an international organisation, is available when the
goods brought into the project are not withdrawn by the supplier or contractor
and the expression "goods are required for the execution of the project"
shall be construed accordingly.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
This explanation has stirred a hornet’s nest as it triggered divergent
interpretations. Some viewed that the exemption is available as long as the
goods are not withdrawn from the project till the completion of the project.
This means if a Road Roller is supplied for the project of laying a Highway
funded by the international organization, the exemption is available even if
the Roller is withdrawn after the completion of the project.</font></p>
<p align="left"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> Please
see a related article <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2008/letter.htm" target="_blank">Notification 108/95-CE</a> : <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7238" target="_blank">Premature withdrawal!</a> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But
some interpreted the above explanation to mean that the goods supplied should
form part of the project permanently and the exemption is not applicable if
the goods are withdrawn even after the completion of the project. So the confusion
continued and finally the Board has stepped in to explain the explanation. Board
has issued a letter to the field (not meant for the trade? Why not a Circular
instead of a letter on such important clarifications?) clarifying that:</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The
purpose of this notification is to enable the optimum utilization of funds provided
by United Nations/ International Agencies. The exemption was meant to be applied
only to goods procured with the project funds and actually used and consumed
in the core activity of the project. In the case of equipments purchased by
contractors independently, after completion of the project, the contractor re-allocates
the equipment for other commercial use.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Therefore,
it is clarified that the exemption is meant only for the goods which become
part of the project on permanent basis and not for the goods which are used
by the contractors for execution of the project and after completion of the
project, the goods remain with the contractors, being owners of such goods for
further deployment in other projects.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
amendment is purely clarificatory in nature and states the position that always
meant to be.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
So, no exemption if the goods do not become part of the project on permanent
basis. The good Board says this clarification is the position it was always
meant to be. So this is effective from 1995! The exemption is extended based
on the certificate issued by the project implementing authority. Once a certificate
is issued, it does not lie in the mouth of revenue to dishonour the same (<strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2005/2005-TIOL-1038-CESTAT-BANG.htm" target="_blank"><font size="1">2005-TIOL-1038-CESTAT-BANG</font></a></strong>).
For 13 years, the exemption has been extended based on the certificates issued
and now the Board says the same is not applicable if the goods are withdrawn
from the project. Really a tough time for the field as they have to explore
the possibilities of invoking suppression and raise demand for 13 years. And
no limitation?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why
can’t the Government be a little more careful in drafting the exemption
Notifications? Even today, the Notifications are issued without correctly assessing
the impact of the same. A recent notification relating to duty on Gutkha has
been drafted in such a way that the Higher MRP product attracts less duty than
the lower MRP product.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
May be it is time to explore the possibility of outsourcing the drafting of
Notifications. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
Our article referred to above had suggested, “<font color="#FF6633">contractors
have no other option but to build a museum in the respective sites, after completing
the project and keep all items procured without payment of duty of excise, for
execution of the project and make them a monument!</font></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Import
of cotton exempted</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Cotton,
not carded or combed exempted from Customs duty, of course when imported. Now
it is necessary to mention this as there is a controversial export duty.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Simultaneously,
the drawback benefit on export of this cotton has also been withdrawn</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=23&filename=notification/custom/2008/ctariff08_084.htm" target="_blank">NOTIFICATION
NO. 84 /2008-Cus</a><strong>., and </strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=24&filename=notification/custom/2008/cnt08_086.htm" target="_blank">86 /2008 - Cus.,(N.T.) Dated: July 8, 2008</a></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Export
- Oils Seeds and Oleaginous Fruits; Miscellaneous Grains, Seeds and Fruit; Industrial
or Medicinal Plants; Straw and Fodder</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Export
Licensing Note 2</strong> of Chapter 12 of Schedule-2 of the ITC (HS) Classifications
of Export and Import items, 2004-09 reads as,</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
However, in respect of CITES species, a CITES permit of export shall be required.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
Exports allowed only through the Ports of Mumbai, Nhava Sheva, Kolkata, Cochin,
Delhi, Chennai, Tuticorin, Amritsar, Calicut and Thiruvananthapuram.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)
Except for the documents prescribed above, no additional information /NOC/documents
shall be required to be furnished by the Exporter to any authority of State
or Central Government.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
this is amended to read as,</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
However, in respect of CITES species, a CITES permit of export shall be required</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
Exports allowed only through the Ports of Mumbai, Nhava Sheva, Kolkata, Cochin,
Delhi, Chennai, Tuticorin, Amritsar, Calicut, Thiruvananthapuram, Kandla and
Mundra</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)
Except for the documents prescribed above, no additional information/NOC/documents
shall be required to be furnished by the Exporter to any authority of State
or Central Government.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
amendment in effect means that Kandla and Mundra are added to the list of ports.</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=45&filename=notification/dgft/2008/dgft08not023.htm" target="_blank">DGFT
Notification No. 23 (RE-2008)/2004-09, Dated: July 8, 2008</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Jurispruden<font color="#FF6633" size="5">
tiol</font></strong></font><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">
– Tomorrow's cases</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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 color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></font></strong></font></strong></font></strong></font></strong></font></strong></font></strong></font></font><font color="#663399">Income
Tax </font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CIT
can assume jurisdiction suo moto if the order of the AO is erroneous in so far
as it is prejudicial to the interests of the Revenue. Absence of any inquiry,
much less a proper inquiry by the Assessing Officer makes the order erroneous
- ITAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
prerequisite to exercise of jurisdiction by the CIT suo moto, is that the order
of the ITO is erroneous in so far as it is prejudicial to the interests of the
Revenue. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
CIT has to be satisfied of twin conditions, namely, </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
the order of the AO sought to be revised is erroneous; and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
it is prejudicial to the interests of the Revenue. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
one of them is absent -if the order of the ITO is erroneous but is not prejudicial
to the Revenue or if it is not erroneous but is prejudicial to the Revenue -recourse
cannot be had to s. 263(1). There can be no doubt that the provision cannot
be invoked to correct each and every type of mistake or error committed by the
AO. However an incorrect application of law or framing the assessment without
making any inquiry on the facts and figures submitted by the assessee where
circumstances are such which warrants proper inquiry to be made before accepting
the same, will satisfy the requirement of the order being erroneous. </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>Department
cannot blow hot and cold at the same time – Once the cenvatted spares
have been cleared on payment of duty, there cannot be a proposal to deny the
credit – Tribunal sets aside Rs.6.81 crores religiously confirmed by the
Commissioner.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FRANKLY,</strong>
such an order of the Commissioner, Central Excise, as involved in the instant
case, <strong>would have signalled the demise of an assessee’s aspirations
with a weak ‘core’. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A
demand of Rs.6.81 crores was confirmed along with interest and equivalent penalty
although a similar issue had been decided by the Tribunal a decade ago in favour
of an assessee.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
6.81 crore case of the department is that the bought out spares brought into
their factory are neither utilized in the manufacture of the transformer nor
brought into factory for utilization in the manufacture of the final product.
</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs
</strong> </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Project
imports – Project Import Regulations allow import of spares even for maintenance
– Upto 10% of contract value allowed for spares: CESTAT</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE
case also belongs to a genre of cases where the Tribunal has pulled up the adjudicating
authority for non-application of mind. The appellants had registered four project
contracts with the Customs for import of machinery worth USD 3.7 Million for
implementation of four hydel projects. They subsequently imported spares valued
at USD 69,206 for maintenance of the machinery earlier imported. Pursuant to
objections raised by the C & AG auditors, the Customs authorities issued
notices to deny concessional rate of duty for import of spares. The lower authority
religiously confirmed the duty demand and within no time the matter travelled
to the Tribunal.</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="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day.</font></p>
<p align="justify"><font color="#FF6600" 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" target="_blank">vijaywrite@taxindiaonline.com</a></font></p>
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