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Thread: CA Final Notes - Indirect Tax Laws.

  1. #1
    arisha
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    INDIRECT TAX LAWS


    QUESTIONS


    EXCISE

    1. An article does not become liable to excise duty merely because of its specification in Schedule to Central Excise Tariff Act, 1985. Vendibility criterion is a litmus-test to be satisfied, before any goods can be subjected to the levy of excise duty. Discuss the statement, with the help of a decided case law, if any.


    Answer

    The statement is absolutely correct. Recently, in case of CCEx., Chandigarh v. Gurdaspur Distillery 2008 (224) ELT 337, Supreme Court reiterated the principle that an article does not become liable to excise duty merely because of its specification in Schedule to Central Excise Tariff Act, 1985 unless it is salable and known to market.

    In the instant case, the assessee was engaged in the manufacture of de-natured ethyl alcohol. During the manufacture of de-natured ethyl alcohol, a residue known as spent wash came into existence. The same was reacted in a closed type digester and methane gas was being produced. This methane gas was being consumed captively by the assessee as a fuel in distillery. Revenue appealed that duty should be levied on the methane gas thereby produced. However, the assessee took the stand that since methane gas was not marketable as such, it was not dutiable.

    Tribunal referred to the case of Bhor Industries Ltd. v. Collector of Central Excise 1989 (40) ELT 280 (SC) wherein it was held that marketability is an essential ingredient in order to attract excise duty and thus, decided the case in favour of the assessee.

    Supreme Court upholding the Tribunal’s decision held that since the Department failed to prove the marketability of the goods in question, methane gas produced by respondent was not marketable and hence, was not liable to duty.

  2. #2
    arisha
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    CENVAT Credit

    2. (a) Power Rise Industrial Corporation (PRIC) provides services from its office located at Saurashtra while its head office is located at Gorakhpur.

    The excise duty paid at Saurashtra office of PRIC for the month of December ’08 is as follows:-

    Rs.
    Excise duty paid on:-
    Inputs used in providing output service 1,80,000
    Capital goods purchased and involved in providing output service 2,50,000
    Input services used in output service 4,20,000

    The invoices in respect of aforementioned inputs, capital goods and input services are in the name of Gorakhpur office. Compute the amount of the CENVAT credit admissible to Saurashtra office of PRIC for the month of December ’08.

    (b) Adecco Corporation Limited (ACL) was a manufacturer of polypropylene bags. It shifted its factory located at Kalyanpuri to Greater Kailash. ACL transferred a quantity of 20,000 kg of inputs (plastic granules) and one capital good i.e. automatic bag machine to the new site. These were the only available inputs and capital goods with ACL at the time of transfer. The inputs, capital goods and the balance of unutilized CENVAT credit were duly received and accounted for in the registers of the new unit.

    The said balance of unutilized CENVAT credit transferred was Rs 6,00,000.
    However, the CENVAT credit corresponding to inputs and capital goods transferred to the new site amounted to Rs. 4,50,000 only. The Department raised the plea that assessee was entitled to transfer only Rs 4,50,000 of CENVAT credit and not the entire balance of unutilised credit of Rs. 6,00,000. Explain, with the help of a decided case law, if any,

    whether Department’s plea is justified in law.

    (c) Whether input services distributor can also opt for any of the options provided under rule 6(3) of CENVAT Credit Rules, 2004?


    Answer

    (a) Computation of CENVAT credit admissible to Saurashtra office of PRICParticulars Rupees

    CENVAT credit of inputs (Note – 1) 1,80,000
    CENVAT credit of capital goods (50% of Rs. 2,50,000) (Note – 1 & 2) 1,25,000
    CENVAT credit of input services (Note – 3) 4,20,000

    Total CENVAT credit admissible 7,25,000


    Note -


    1. A provider of output services can avail the CENVAT credit of the inputs and capital goods received on the basis of an invoice, challan or bill issued by an office or any other premises (head office) of the said provider of output service, which receives invoices, issued in terms of the provisions of the Central Excise Rules, 2002, towards the purchase of inputs and capital goods [Rule 7A of CENVAT Credit Rules, 2004 inserted w.e.f. 01.04.2008].

    2. The CENVAT credit in respect of capital goods received in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year [Rule 4(2)(a) of CENVAT Credit Rules, 2004 ]

    3. The ‘input service distributor’ (Gorakhpur office) can distribute CENVAT credit in respect of the service tax among its units providing output service (Saurashtra office) provided the credit distributed does not exceed the service tax paid [Rule 7 of CENVAT Credit Rules, 2004].

    (b) The facts of the given case are similar to the case of CCE, Pondicherry v. CESTAT 2008 (230) ELT 209 (Mad.).

    In this case, Madras High Court decided that erstwhile rule 8 of the CENVAT Credit Rules, 2002 [now rule 10 of the CENVAT Credit Rules, 2004*] did not provide that the assessee could transfer the CENVAT credit corresponding only to the quantum of inputs or capital goods transferred to the new factory, but permitted the assessee to transfer the entire balance of unutilised CENVAT credit along with inputs and capital goods in stock at the factory to the new location provided the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central Excise. Thus, requirement of erstwhile rule 8 of the CENVAT Credit Rules, 2002 [now rule 10 of the CENVAT Credit Rules, 2004*] had been fulfilled by the assessee. Hence, he could avail the CENVAT credit transferred by him.

    Thus, in the given question, Adecco Corporation Limited (ACL) can avail the entire balance of unutilized CENVAT credit of Rs.6,00,000 available with him.

    *Note – Relevant portion of rule 10 of CENVAT Credit Rules, 2004 reads as follows:-

    If a manufacturer of the final products shifts his factory to another site, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred factory.

    Such transfer of the CENVAT credit shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of, are duly accounted for to the satisfaction of the

    Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central Excise.

    (c) Circular no. 868/6/2008 – CX dated 09.05.2008 clarified that as an input service distributor does not provide any service, and is like a trader, the question of availing either of the options provided under rule 6(3) of CENVAT Credit Rules, 2004 would not arise.

  3. #3
    arisha
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    SSI

    3. M/s sona & Sons, registered as a small scale unit, manufactures adhesive tapes under the brand name “Sena ‘’. M/s sona & sons has approached you as a consultant whether their Small Scale Unit is eligible for concession under Notification No. 8/2003 dated 01.03.2003. What would be your advice in this regard?


    Answer

    Yes, M/s Sona & sons can claim the benefit under Notification No. 8/2003 dated 01.03.2003. Notification No. 47/2008 CE dated 01.09.2008 has amended Notification No. 8/2003 CE dated 01.03.2003 to extend the benefit of small scale exemption of excise duty to Small Scale Industries producing goods bearing the brand name or trade name of another person provided these goods are in the nature of packing materials, namely, printed cartons of paper or paper board, metal containers, HDPE woven sacks, adhesive tapes, stickers, PP caps, crown corks, metal labels. Since, sona & sons manufactures the goods specified in the notification; the benefit of small scale exemption of excise duty shall be available to Golden Enterprises.

    The said amendment would be applicable to the clearances of these goods affected on or after 1st September, 2008.

    However, this exemption shall be restricted to Rs.90 lakh for the remaining part of the financial year 2008-09.

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    4. Explain the validity of the following statements with reference to Central Excise Rules, 2002 :-

    (a) Inputs received in the factory may be removed as such for further processing to a job worker without payment of excise duty.

    (b) The date of removal of any excisable goods being captively consumed within the factory of production is the date on which the final product in the production of which such goods are being used is removed.

    (c) The assessee can pay duty on the goods, removed from the factory in the month of December 2008, electronically through internet banking till 6.01.2009.

    (d) Goods removed from a 100% Export Oriented Unit to Domestic Tariff Area are exempt from the duty of excise.


    Answer

    (a) The statement is absolutely valid. Rule 16A of Central Excise Rules, 2002 provides that any inputs received in a factory may be removed as such or after being partially processed to a job worker for further processing, testing, repair, re-conditioning or any other purpose subject to the fulfilment of conditions specified in this behalf by the Commissioner of Central Excise having jurisdiction.

    (b) The statement is not correct. The date of removal of any excisable goods being captively consumed within the factory of production is the date on which these goods are issued for such use and not the date on which the final product in the production of which such goods are being used is removed [Explanation to rule 5(2) of Central Excise Rules, 2002].

    (c) The statement is absolutely justified. Rule 8(1) of the Central Excise Rules, 2002 has been amended to provide that the duty on the goods removed from the factory or the warehouse during a month shall be paid by the 6th day of the following month, if the duty is paid electronically through internet banking.

    (d) The statement is incorrect. Goods removed from a 100% Export Oriented Unit to Domestic Tariff Area are liable to duty of excise. Rule 17 of Central Excise Rules, 2002 provides that goods shall be removed from a 100% Export Oriented Unit to Domestic Tariff Area under an invoice by following the procedure specified in rule 11, and the duty leviable on such goods shall be paid by utilizing the CENVAT credit or by crediting the duty payable to the account of the Central Government in the manner specified in rule 8 of the said rules.

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    arisha
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    Demand, Adjudication & Offences

    5. Is there any discretion vested with authority under section 11AC of the Central Excise Act, 1944 to impose a penalty less than the amount equal to duty evaded ?


    Answer


    The question, whether there is any discretion under section 11AC of the Central Excise Act, 1944 to impose penalty less than the amount equal to duty evaded, came up for consideration before Bombay High Court in case of C.C.E. & C., Aurangabad v. Godavari Manar Sahakari Sakhar Karkhana Ltd. 2008 (228) ELT 172 (Bom.) wherein the Court pronounced that under section 11AC, there was no discretion vested with the authority to impose any penalty different than the one prescribed by the said provision. It was evident that legislature had not fixed any upper or lower limit, but prescribed only one quantum of penalty which was equal to the duty intentionally evaded.

    Hence, there is no discretion under section 11AC of the Central Excise Act, 1944 to impose penalty less than the amount equal to duty evaded. The Court further observed that the reason for such stiff and stringent provision is that since the penalty under section 11AC is a sort of penal provision, the said provision ought to be harsh and stringent.

    In view of above, it can be concluded that under section 11AC of the Central Excise Act, 1944, the amount of penalty cannot be less than the amount equal to duty evaded.

    Note - Relevant portion of section 11AC of the Central Excise Act, 1944 reads as under:

    Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made there under with intent to evade payment of duty, the person who is liable to pay duty as determined under subsection (2) of section 11A of the Act, shall also be liable to pay a penalty equal to the duty so determined.

  6. #6
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    CUSTOMS

    Valuation


    6. Starbuck Group has imported a machine by air from United States. Bill of entry is presented on 18.07.2008.
    However, entry inwards is granted on 7.08.2008.

    The relevant details of the transaction are provided as follows:-

    CIF value of the machine imported $ 13,000

    Air freight paid $ 2,800

    Insurance charges paid $200

    Rate of exchange as

    announced by

    As on 18.07.2008 As on 7.08.2008

    CBEC 1 US $=Rs 46 1 US $=Rs 45.80

    RBI 1 US $=Rs 46.10 1 US $=Rs 46.10

    Calculate the assessable value (in rupees) for the purposes of levy of customs duty.

    Make suitable assumptions wherever necessary.


    Answer

    Computation of assessable value for Starbuck Group:-

    CIF Value of the machine imported - 13,000

    Less:Air freight paid - 2,800

    Less:Insurance paid - 200

    FOB (Free on Board) Value - 10,000

    Add:Air freight (Note – 1) - 2,000

    Add:Insurance (actually paid) - 200

    CIF Value of the machine - 12,200

    Add: Landing charges (Note – 2) - 122

    Assessable value (in dollars) - 12,322

    Assessable Value (in rupees) = $ 12,322 × Rs. 46 = Rs. 5,66,812

    Notes - For the purpose of ascertaining the assessable value of imported goods:-

    1. air freight shall not exceed twenty per cent of the FOB (Free on Board) value of the goods [Second proviso to rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

    Since, in given case, actual air freight paid is 28% of the FOB value, air freight is restricted to 20% of FOB value (20% of $10,000) i.e. $ 2,000.

    2. landing charges at the rate of 1% of the CIF value of the imported goods, shall be included, whether ascertainable or not [First proviso to rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

    3. the rate of exchange shall be the rate of exchange as in force on the date on which a bill of entry is presented under section 46 [Third proviso to section 14(1) of Customs Act, 1962].

    Explanation to section 14(1) further clarifies that rate of exchange shall be the rate as notified by CBEC.

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    arisha
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    Duty Drawback

    7. Explain the procedure for claiming drawback on goods exported by post.

    Divergence between accounting and taxation principles


    Answer

    Rule 11 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 lays down the procedure for claiming drawback on goods exported by post as under:-

    1. Outer Packing
    The outer packing of the parcel/package carrying the address of the consignee shall also carry in bold letters the words "DRAWBACK EXPORT"

    2. Form of filing of claim
    The exporter shall deliver a claim in the prescribed form, in quadruplicate, along with the parcel/package, to the competent Postal Authority.

    3. Date of filing of claim
    The date of receipt of the aforesaid claim form by the proper officer of customs from the postal authorities shall be deemed to be date of filing of drawback claim by the exporter for the purpose of section 75A.

    4. Intimation to exporter
    An intimation of the same shall be given by the proper officer of customs to the
    exporter in such form as the Commissioner of Customs may prescribe.

    5. Deficiencies in drawback claim form
    In case the aforesaid claim form is not complete in all respects, the exporter shall be informed of the deficiencies therein within fifteen days of its receipt from postal authorities by a deficiency memo in the form prescribed by the Commissioner of Customs, and such claim shall be deemed not to have been received for the purpose of claiming drawback.

    6. Compliance of deficiencies and date of filing of claim in such case
    When the exporter complies with the requirements specified in the deficiency memo within thirty days of its return, he shall be issued an acknowledgement by the proper officer in the form prescribed by the Commissioner of Customs and the date of such acknowledgement shall be deemed to be date of filing the claim for the purpose of section 75A.

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    arisha
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    SERVICE TAX & VAT

    Taxability of Services

    11. Examine the validity of following statements:-

    (a) Hindustan Info systems is engaged in study, analysis, design and programming of information technology software. The said services are taxable under the category ‘business auxiliary services’.

    (b) The services provided by a money changer in relation to dealing of foreign currency (buying or selling), at specified rates, without separately charging any amount as commission for such dealing, is not liable to service tax as foreign exchange broking under ‘banking and other financial services’.

    (c) The services provided by a consulting engineer engaged in providing consultancy in the discipline of computer software engineering shall be exempt under the category ‘consulting engineer’s service’.

    (d) Some transporters undertake door- to-door transportation of goods or articles and they have made special arrangements for speedy transportation and timely delivery of such goods or articles. Such services are known as ‘Express Cargo Service’ with assurance of timely delivery. Such ‘Express cargo service’ is covered under ‘courier agency service’.


    Answer

    (a) The statement is incorrect. The services of study, analysis, design and programming of information technology software are taxable under the category of ‘information technology software services’ under section 65(105)(zzzze) of the Finance Act, 1994 as amended by Finance Act 2008. Prior to this amendment, any information technology software service was taxable under the category of ‘business auxiliary service’.

    (b) The statement is absolutely correct. Circular No. 96/7/2007 ST dated 23.08.2007 clarifies that moneychangers are authorized by RBI to buy and sell foreign exchange at the prevalent market rates. Buying or selling of foreign exchange by such persons without separately charging any amount as commission or brokerage does not fall within the scope of foreign exchange broking and is not liable to service tax under section 65(105)(zm) of the Finance Act, 1994 as amended.

    (c) The statement is incorrect. By amending the definition of taxable consulting service provided under sub – clause (g) of clause (105) of section 65, Finance Act 2008 has included the consultancy services in the field of computer software engineering within the scope of taxable services provided by a consulting engineer. Hence, the said services are no longer exempt and are taxable under the category ‘consulting engineer’s service’.

    (d) The statement is absolutely correct. Circular No. 96/7/2007 ST dated 23.08.2007 clarifies that the nature of service provided by ‘Express Cargo Service’ provider falls within the scope and definition of the courier agency. Hence, the said service is liable to service tax under courier agency service under section 65(105)(f)] of the Finance Act, 1994 as amended.


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