TIOL-DDT 990 · the untouched capture
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<strong><font color="#663399" size="3">TIOL-DDT 990</font><br>
12.11.2008<br>
Wednesday </strong></font> </div>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Claiming
exemption from Additional Duty of Customs on High Speed Diesel Oil under notification
No 21/2002 Cus – Right or wrong? An insight into a DRI case.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Vizag
and Kakinada are two important ports in coastal Andhra Pradesh. These two ports
are in news recently as DRI has detected a modus operandi adopted for duty evasion
in these ports by some importers. The impact of this issue on other ports is
also so significant that the DRI has reportedly alerted the customs at other
ports. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Vessels,
Tugs, Barges and other related Offshore Supply Vessels required for petroleum
exploration are imported duty free as per provisions of Notification No. 21/2002
–Cus dt. 1.03.2002. The exemption is also claimed on the HSD on board
(at the time of import) and that procured for further use of such vessels in
said operations. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However,
DRI feels that only BCD and CVD are exempted under the above Notification and
<strong>Additional Duty of Customs (over and above the BCD and CVD) is payable</strong>
(along with appropriate education cess), <strong>which is not being paid by
the importers.</strong> This duty was levied on Petrol in Finance Act 1998 and
same was extended to HSD as well , vide Section 116 of the Finance Act ,1999
read with the Second Schedule of said Act. The said Additional duty on HSD is
leviable w.e.f 28.2.1999 and the initial rate of Re.1 per litre was revised
to Rs. 1.50 per litre w.e.f. 28.2.2003 and to Rs.2 per litre w.e.f. 1.03.2005.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But,
is the issue so simple? Did the importers involve in the so called Modus Operandi
of evasion of Additional Duty of Customs? <strong>TIOL</strong> Research team
have tried to examine the Modus Operandi and our study revealed some interesting
facts.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
only question in the entire issue is whether the exemption under Notification
No 21/2002 Cus which is available to Basic Customs duty (BCD) and Additional
duty of Customs (CVD) is applicable for the <em><strong>Additional duty of Customs</strong></em>
levied under Section 116 of the Finance Act 1999. This Additional duty is not
levied under the Customs Act or under the Customs Tariff Act, but the levy itself
is under the Finance Act, 1999. When such <em><strong>miscellaneous</strong></em>
duty is levied under the Finance Act, how is this duty collected? By whom is
it collected? What are the machinery provisions available to collect such duty
if it is not paid by someone who is liable to pay the duty? Does the Finance
Act 1999 have the self contained machinery provisions? To answer the above issues,
we need to look into sub-section (3) of Section 116 of the Finance Act 1999.
This sub-section reads:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3)
The provisions of the Customs Act, and the rules and regulations made thereunder,
including those relating to refunds and exemptions from duties, shall, as
far as may be, apply in relation to the levy and collection of the additional
duty of customs leviable under this section in respect of any goods as they
apply in relation to the levy and collection of the duties of customs on such
goods under that Act or those rules and regulations, as the case may be.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So,
as per the above sub-section, the provisions of Customs Act, inter alia, in
relation to levy and collection are applicable to this additional duty. By the
same analogy, can it be viewed that the exemptions given under the Customs Act
are also applicable to this additional duty or does it require a separate Notification
expressly exempting the additional duty?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
case of M/s Toyota Kirloskar Motor (P) Ltd <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2007/2007-TIOL-1422-CESTAT-BANG.htm" target="_blank"><font size="1">2007-TIOL-1422-CESTAT-BANG</font></a></strong>,
an identical issue came up before the Tribunal. The assessee claimed exemption
from excise duty under Notification 108/95 CE. NCCD (National Calamity Contingent
Duty) is a special duty levied by virtue of Section 136 of the Finance Act 2001.
Since Notification 108/95 CE does not exempt NCCD, according to the revenue,
the appellant was not entitled for exemption from NCCD inasmuch as the exemption
under 108/95 CE is only for the Central Excise duty levied under Section 3 of
the Central Excise Act 1944 and Additional duty of excise under Goods of Special
Importance Act, 1957. The NCCD duty was not mentioned in the exemption notification
nor was exempted expressly under any other exemption notification. Incidentally,
Section 136 of the Finance Act 2001 also has a sub-section which reads:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3)
The provisions of the Central Excise Act, 1944 and the rules made thereunder,
including those relating to refunds and exemptions from duties and imposition
of penalty, shall as far as maybe, apply in relation to the levy and collection
of the National Calamity duty leviable under this section in respect of the
goods specified in the Seventh Schedule as they apply in relation to the levy
and collection of the duties of excise on such goods under that Act or those
rules, as the case may be.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
CESTAT in <em>Toyota Kirloskar Motor case held:</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A
close reading of the above (sub-sections) reveals that NCCD is indeed a duty
of excise. Further it is seen that the provisions of Central Excise Act 1944
especially with regard to exemptions from duties would be applicable to NCCD
leviable under Section 136.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further,
the Tribunal has also referred to CBEC Circular 60/01/06 CX dated 13.1.06 wherein
it was clarified that “none of the duties chargeable under any Act of
Parliament which provides that in relation to levy and collection of such duty,
the provisions of Central Excise Act and the rules made there-under shall as
far as may be apply on export of goods under Bond”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
above Circular was issued in 2006 on the issue of export of goods. As per Rule
19 of the Central Excise Rules, any excisable goods may be exported without
payment of duty under bond. As per Rule 2(e) of the Central Excise Rules, “
duty” means the duty payable under Section 3 of the Act. So, when the
field formations insisted on payment of “ other duties” on goods
cleared for export, the Board had issued instructions C.No. 60/01/06 CX dated
13.1.06 under Section 37 B of the Central Excise Act to the effect that:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apart
from the duties chargeable under the Central Excise Act, 1944, certain other
duties of excise are chargeable under different Acts of Parliament. The relevant
Acts explicitly stipulate that the provisions of the Central Excise Act and
the rules made thereunder, including those relating to refunds and exemptions
from duties, shall, as far as may be, apply in relation to the levy and collection
of such other duties of excise as they apply in relation to the levy and collection
of the duties of excise leviable under that Act or those rules, as the case
may be.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Accordingly,
none of the duties leviable under any such Act of Parliament is required to
be paid on export of goods under bond under rule 19 of the Central Excise
Rules, 2002 or rule 19 of the Central Excise Rules, 2001 or rule 13 of the
Central Excise Rules, 1944.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Objections
over non-payment/non-collection of some of the said duties, such as Additional
Duty of Excise (AED) and Special Additional Excise Duty (SAED) on Motor Spirit
(MS) and High Speed Diesel oil (H.S.D.) and Education Cess and National Calamity
Contingent Duty (NCCD) on various goods are still being raised and demands
are being issued by the field formations in pursuance thereof or otherwise.
To put an end to the uncertainty for the trade and industry and to bring in
clarity, the Board, for the purpose of uniformity with respect to levy of
duties of excise, hereby orders that as per rule 19 of the Central Excise
Rules, 2002, rule 19 of the Central Excise Rules, 2001 and rule 13 of the
Central Excise Rules, 1944, none of the duties chargeable under any Act of
Parliament which provides that in relation to levy and collection of such
duty, the provisions of the Central Excise Act and the rules made thereunder,
shall, as far as may be, apply; was/is payable on export of goods under bond.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Apparently,
the same ratio would apply to the Additional duty of Customs levied under Sec.
116 of the Finance Act 1999 on HSD and the same stands exempted by virtue of
sub-section (3) of Section 116, as per the ratio of the Tribunal’s decision
in Toyota Kirloskar case. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If
we look at the origin of Section 37 B order by the Board, we find that the same
was issued because an audit objection by the CAG. Vide paragraphs 4.3 of 2004
and 8.1 of 2005, the Audit had discovered “allowing exemption to Additional
duty on HSD without exemption notification”. Subsequently the Board issued
Section 37 B order and the same was also reported in the Audit Report for the
year 2008 under ‘impact’ of audit.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When
the issue is already settled in the favour of the assessee and even when the
Board had issued Section 37 B order, it is strange that still the “Intelligence”
agencies book cases and circulate the so called Modus Operandi and ensure that
the consultants line up before the Banks. Even if the DRI feels that the 37
B order and the Tribunal’s view are not acceptable to the intelligent
officers, they could have referred the issue to the Board for clarification
instead of “catching the evaders” and circulating the great achievement.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Assuming
for a moment that the duty is payable, yet no penalty can be imposed on the
importer for the alleged violation as Sub-section (3) of Section 116 of the
Finance Act 1999 does not make the provisions of “ offences and penalty”
under the Customs Act to the Additional duty under Sec 116. The words “offence
and penalty” were absent in Sub-section (3) of Section 116. This issue
stands settled by the Supreme Court in case of <em>Orient Fabrics case <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2003/2003-TIOL-32-SC-CX.htm" target="_blank"><font size="1">2003-TIOL-32-SC-CX</font></a></strong></em>
in the assessee’s favour. Having realized this mistake, in case of Goods
of Special Importance Act, 1957, vide Sec . 63(a) of the Finance Act, 1994 sub-section
(3) of Section 3 of the said Act was substituted, which now reads as under :</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>“Levy
and 3. collection of Additional Duties :-</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(1)
……</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(2)
……</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(3)
The provisions of the (Central Excise Act, 1944) (1 of 1944), and the rules
made thereunder, including those relating to refunds, exemptions from duty,
<strong> <font color="#FF6633">offences and penalties</font></strong>, shall,
so far as may be, apply in relation to the levy and collection of the additional
duties as they apply in relation to the levy and collection of the duties of
excise on the goods specified in sub-section (1).”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Subsequently,
in such similarly worded Sections (like sec 136 of the Finance Act 2001) the
provisions of penalty are also made applicable but in Section 116 of the FA
1999, there seems to be some copy paste catastrophe and it would be appropriate
for the DRI to issue a Modus operandi Circular to the Board to be vigilant while
drafting the provisions of the Finance Bill.</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Steep
fall in Excise Revenue for October 2008</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Recession
is what you call it, but the blunt fact is that the Excise Revenue for the month
of October 2008 was Rs. 900 Crores less than what it was in October 2007. If
this trend continues, real hard times are ahead. There was a 1% fall in Customs
Revenue too. However Service Tax is surging ahead with an 18% increase.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBI
lays 40 Traps based on SMS Campaigns</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
CBI took up countrywide Anti-corruption Awareness Campaigns by sending SMS to
common man for creating awareness about CBI's Anti-corruption initiative. Almost
all the subscribers of GSM/CDMA service providers such as Airtel, Vodafone,
MTNL, BSNL, Tata Indicom, Reliance, Idea, Aircel, BPL, etc. have been asked
to send SMS to mobile users. As an outcome of these campaigns, numerous queries
have been received by Anti Corruption Branches (ACB) of CBI regarding the nature
of complaints CBI entertains, and the procedure for making such complaints to
CBI, etc. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
a result of the campaigns, the complainants approaching Anti Corruption Branches
of CBI have increased manifold (about 500). On the basis of SMSs received by
general public, 40 traps could be successfully laid during the last month. Additionally,
some information about suspected offenders and also about cases already being
investigated by CBI has been received and the same is under process for further
necessary action.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Anti Corruption Branch of CBI, Delhi, has asked the service providers to send
this message</font></p>
<blockquote>
<p align="justify"> <font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<strong>"If a Central/Delhi Govt./PSU/Bank Employee demands bribe for any
official work in Delhi, please contact S.P.,CBI at 24361535 / 3541 / 2494 or
9968081216 / 17 / 18"</strong></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
Similar SMS campaigns have been undertaken at Mumbai, Chennai, Hyderabad, Patna/Ranchi,
Kolkata, Lucknow, Bhopal and Chandigarh regions.</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">No
technical service without a human face is liable to TDS: Delhi High Court</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">LENDING
a refreshingly new dimension to the concept of 'technical service' in the Income
Tax Act, the Delhi High Court has ruled that a service is not 'technical' without
the human element. Thus loses the Revenue the million-dollar cases of tax deduction
at source on payments made for interconnect / port access charges by private
telecom companies to PSU telecom companies such as MTNL/BSNL. Since the I-T
Act has not given clear-cut definition of 'technical service', the onus necessarily
fell on the judiciary to infuse clarity to the concept for the taxation purposes.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We
bring you this very interesting judgement today. <strong>See <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8138" target="_blank">Breaking News</a></strong></font></p>
<p align="center"><strong><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">– Friday's cases</font></strong></font></strong></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><font color="#663399">Central
Excise</font> </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Undervaluing
manufactured items and overvaluing bought out items, raising escalation bills
but no proof submitted that these were not honoured - Cost Auditor's marathon
efforts - Two crores pre-deposit ordered by Tribunal</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THIS
is a nearly five crore excise duty demand against the company engaged in the
manufacture of Sugar Machineries and a penalty imposition of Rs.2.5 crores against
the Chief Executive of the company. The assessee is manufacturing some of the
goods in their factory and rest are bought out and supplied to the customers.
The customers have notified composite purchase value for sugar plant or assemblies
and have not prescribed 'transaction value' for individual parts and components.
</font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income
Tax</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">India-Swiss
tax treaty - non-resident claims exemption under DTAA - Tax treaty comes into
picture only after it is adjudicated that an income is taxable as per domestic
law: ITAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IT
is often said that cricket is a funny game. But, some of the cases in the domain
of taxation are no less funny! It is well settled and well publicised as well
by now that in the case of non-residents, it is first the tax liability which
has to be determined as per the Income Tax Act, 1961 and then comes into the
picture the provisions of the Double Taxation Avoidance treaties to claim exemption
or concessions. However, Revenue tends to make this mistake in umpteen numbers
of cases. And the same is the case with the assessee as well like in this case.</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"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Sodexho
Pass Services gets relief from Service Tax liability for the period prior to
01.05.2006 – Finding a prima facie case, waiver of pre-deposit and Stay
of recovery granted - Tribunal</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
applicants are issuing meal and gift vouchers to corporate clients and were
receiving service charges. Lower authorities held that the appellant needs to
discharge Service tax liability on the amount of service charges received from
the clients to whom the meal and gift vouchers are sold and also from the amount
which they paid to the affiliates.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
adjudicating authority dropped the proceedings initiated under section 65(96)
but confirmed the demand under the services Business Auxiliary Services as being
enumerated in section 65(19)</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tomorrow
is a holiday.</strong></font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See
our columns Friday for the judgements</font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Friday with more DDT </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice Day.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail
your comments to <a href="mailto:vijaywrite@taxindiaonline.com" target="_blank">vijaywrite@taxindiaonline.com
</a></font></p>
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