TIOL-DDT 968 · 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 bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 968</font><br> 10.10.2008 <br> Friday </strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Excise duty exemption in respect of formulations of Artemisinin-CBEC clarifies in a private letter </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Entry No. 22 in List 1 of Notification No. 4/2006-CE dated 1.3.2006 exempts "Arteether or formulation of Artemisinin" from excise duty. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Doubts have been raised as to whether this entry covers other formulations of Artemisinin besides Artheether. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Representations received from the trade as well as from field formations suggest that divergent practices are being followed in the matter. Trade has also represented that Artemisinin is a bulk drug as well as mother drug used for the manufacture of other derivatives including Arteether. Accordingly, all the formulations of Artemisinin would qualify for exemption under the notification. However, the wordings of the entry are creating unnecessary doubt in the mind of field officers and excise duty exemption is being denied to other derivatives of Artemisinin in some field formations. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board has examined the matter and conveys, “In 2000-2001 budget, E-Mal (Alpha-beta Arteether) was fully exempted from excise duty and the existing entry read as "E-Mal (Alpha-beta Artheether)". In 2001-2002 budget, the existing entry was amended and was substituted with "Arteether or formulation of Artemisinin". The <strong>intention </strong> was to provide the benefit of the exemption notification to all formulations of Arteminisin including Artheether. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In view of this Board clarifies that notification No. 4/2006-CE dated 1st March, 2006, entry no.22 in List 1 covers all formulations of Artemisinin including Artheether and its scope is not confined to the latter. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Such an important clarification is conveyed through a private letter. God knows who will communicate this to the Trade! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is an old school of judicial thinking with which the bureaucrats may not agree that the intention of the notification is immaterial and nothing can be read into a notification. Why can't the Board incorporate this clarification into the Notification itself at least to avoid weighty Audit Objections? </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=31&filename=notification/excise/2008/excise_exemption.htm" target="_blank">CBEC F. No. 332/26/2008- TRU Dated: August 12, 2008 </a></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Incorrect utilisation of CENVAT credit for payment of service tax on input services. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Well, that brings us back to the CAG report. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Every year CAG compiles elaborate annual reports to the Parliament and this annual jamboree entails in compiling staid and lacklustre observations made by various CERA audit parties during the previous year. At <strong>TIOL </strong>, we take pains in going through this report and highlight some of the observations made therein. No wonder, one of my colleagues called this report ‘a perfect recipe for insanity' but nevertheless we have to deal with such occupational hazards once in a year and bring forth the controversial observations which have the potential to snowball into thousands of show cause notices in the field formations just because it forms a part of the CAG's annual report. Last week we have highlighted some of the observations which have the potential to wake up exorcised ghosts. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One more such observation is Para 11.3 of Chapter IX of the Report, title of which is “ <strong>Incorrect utilisation of CENVAT credit for payment of service tax on input services”. </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was observed that assessees are utilizing CENVAT credit balances for payment of service tax on input services for discharging their obligations as service recipients. The examples of such services are ‘Goods Transport services' and ‘Intellectual Property Right services'. So the CAG admits that GTA service is an ‘input service'. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We can come to this aspect a little later. The crux of the observation in this Para is that CENVAT credit balance cannot be utilized for payment of service tax by a service recipient who is mandated by law to pay service tax in terms of s. 68 (2) read with Rule 2 (1) (d) of Service tax Rules, 1994. Unfortunately, the observation does not actually make any references to these statutory provisions. We deciphered and inferred this from the observation. Further this was also admitted by the Ministry. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The moot point is whether a service recipient is eligible to utilize the balances available in CENVAT Credit account to discharge the service tax liability as recipients of taxable services (including ‘import of services'). Though this is the rigid view of the CAG and the Department, Tribunal Benches have thought otherwise. In <em>AP Paper Mills Ltd Vs CCE Visakhapatnam </em> [ <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1341-CESTAT-BANG.htm" target="_blank"><font size="1">2007-TIOL-1341-CESTAT-BANG</font></a> </strong>] and several other cases, the Tribunal held that when GTA service is a deemed ‘output service' in terms of Rule 2 (p) of CENVAT Credit Rules, 2004, service tax can be paid by utilizing the CENVAT Credit account. The following are some of the reported cases on this issue. </font></p> <div align="justify"> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">1. <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-555-CESTAT-DEL.htm" target="_blank"> 2007-TIOL-555-CESTAT-DEL</a></font> </strong> </font> </p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">2.</font></strong></font> <font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-645-CESTAT-MAD.htm" target="_blank">2007-TIOL-645-CESTAT-MAD</a> </strong> </font> </p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">3.</font></strong></font> <font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-891-CESTAT-MAD.htm" target="_blank">2007-TIOL-891-CESTAT-MAD</a> </strong> </font> </p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">4.</font></strong></font> <font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1317-CESTAT-MAD.htm" target="_blank">2007-TIOL-1317-CESTAT-MAD</a> </strong> </font> </p> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="1">5.</font></strong></font> <font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1234-CESTAT-DEL.htm" target="_blank">2008-TIOL-1234-CESTAT-DEL</a> </strong></font></p> </div> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strangely, it is observed in different sections of the Annual Report that CERA parties takes shelter under Tribunal judgments and quote them only wherever it is in favour of the Revenue and conveniently ignore those judgments which are in favour of the assessee. </font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Audit the Audit </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These are days when we are talking very loudly about judicial accountability and responsibility – even the highest levels of judiciary are being subjected to investigations and scrutiny. In such a scenario, should we have an Authority like CAG who is beyond Audit and scrutiny? It is time the Audit is also subject to an Audit. To start with maybe, the CAG himself can order an Audit on the functioning of his Audit Offices. This audit should cover the cost to the country because of frivolous and un-maintainable Audit Objections and the amount of time and money wasted for the assessees due to such audits. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is unfortunate that Parliament should be burdened with such silly audit objections running into hundreds of pages – there must be some other mechanism whereby the Heads of organisations like CBEC and CBDT can have meetings with the CAG's officers and thrash out all these issues and the views of the Revenue Heads should be final – for they are more interested in collecting revenue than the Audit Officers. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Rajya Sabha manual on Maintenance of Records shows that </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Medical Claims Register, Telephone Register, Bill Register, Medical reimbursement to Members (individual files) are to be destroyed only after audit objections are settled! </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If Newton were to be a Central Excise officer, the Audit would have found fault with him for allowing the apples to fall without his discovering the LAW! </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And when the AG's Audit does not visit an Income Tax or Customs assessee, why should the Central Excise and Service Tax assessees bear with them? </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">– </font></strong></font><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> Monday's cases</strong></font></p> <p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><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></strong></strong></strong></strong></strong></strong></strong></font><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>ST - demanding duty on activity of laying of pipeline interpreting it to be erection, commissioning and installation of a plant is totally misconceived and unacceptable - 'Erection, commissioning and installation' explained: CESTAT </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal agreed with the appellants' reading of the expressions contained in the relevant entry, namely, 'erection, commissioning or installation'. It found it elementary that 'erection' connotes construction or building of a structure and laying of pipeline does not involve erection. We find no ambiguity in the expression installation. It applies to machinery already made which are formally made ready to operate at the site. Installation implies setting up the machinery ready for use, like giving power connections or installing driver software in the case of a machine run with the aid computer software. Commissioning involves the operationalisation of the machinery after which it starts functioning regularly. In laying of long distance pipeline, earth is dug and pipes laid and jointed, and the pipes pass through sumps with boosters at intervals, if necessary. This activity will not involve erection. </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>construction of open drain for disposal of effluents – whether Revenue Expenditure or Capital Expenditure - High Court did not formulate a correct substantial question of law – matter remanded: </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Since the High Court has not formulated a correct substantial question of law and since the High Court is required to take into account all the above mentioned facts and circumstances of the case, the Supreme Court set aside the impugned order and remitted the matter to the High Court for fresh consideration in accordance with law. </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>Larger Bench of Tribunal holds that Physician Samples are to be valued in terms of Rule 4 of Valuation Rules from 8th January 2005 even though P&P medicaments are notified u/s 4A of CEA'44 </strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>HOPEFULLY, </em>this decision should put an end to the uncertainty prevailing in the matter of valuation </strong>of Physician samples. Prior to 8th January 2005 when the P & P medicaments were subject to valuation under section 4 of the CEA'44 , valuing physician samples was not an easy task. This was because since the samples are distributed free to the physicians by the medical representatives, the transaction value under Section 4(1)( a) was not applicable as there was no sale involved. Therefore the value had to be arrived as per the provisions of the Valuation Rules, 1975 (prior to 1.7.2000) and under the Central Excise Valuation (Determination of the Price of Excisable goods) Rules 2000 post 1.7.2000. Even under the Valuation rules, there arose a dispute as to whether the value has to be arrived on the basis of cost of production (Rule 6(b )(ii)/Rule 8) or on the basis of comparable price [Rule 6(b)(i)/Rule 4] of the valuation rules. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more <strong>DDT</strong> </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend. </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>