Legal Roundup - July 2009

Legal Round-up Customs

Notifications/Circulars Government has notified concessional rates of basic customs duty (BCD) for goods falling under 450 tariff lines The Central Government has notified concessional rates of basic customs duty (BCD) for goods falling under 450 tariff lines, when imported from Paraguay, Uruguay, Argentina and Brazil, under the India – MERCOSUR Preferential Trade Agreement. The concessions are in the range of 10% to 20% of the applicable rates of BCD. Besides, goods falling under 21 tariff lines have been completely exempted from payment of BCD. The relevant Rules of Origin in this regard have also been notified. Customs Notification Nos. 56/2009 (NT) and 57/2009 dated 30/05/2009

Case Law Valuation Declared transaction value of imported goods cannot be rejected. The Tribunal has held that the declared transaction value of imported goods cannot be rejected on the basis of a comparison with imports from a different country of origin and\ where the goods were not of comparable quality. Samar Polytex Ltd. Vs. CC (2009 (238) ELT 621

The onus to prove the inaccuracy of the declared TV lies with the customs authorities. The Tribunal has held as follows: - the fundamental concept of TV has not undergone any change on account of the amendment of Section 14 of the Customs Act, 1962 (CA) w.e.f 10/10/2007; - the onus to prove the inaccuracy of the declared TV lies with the customs authorities and such onus may be discharged through a comparison of the declared TV with contemporaneous imports at higher prices; - the values to be considered by the customs authorities as contemporaneous imports should be the declared TV and not the enhanced values which may be subject to further adjudication. Pushpanjali Silks Pvt. Ltd. Vs. CC (2009 (238) ELT 135)

Others Appellate forum cannot suo moto take a decision based on any ground not taken up by the assessee in the appeal. The Tribunal has held that an appellate forum deciding on an assessment order is required to determine the availability of the relief sought by the appellant and cannot suo moto take a decision based on any ground not taken up by the assessee in the appeal. Oriental Container Ltd. Vs. CC, (2009 (238) ELT 301)

Delay in submission of a claim for refund of duty cannot be condoned.

The Tribunal has held that in the absence of a specific provision under the CA, a delay in submission of a claim for refund of duty cannot be condoned. The Tribunal has also held that where the benefit of an exemption notification is rendered inapplicable on account of noncompliance by the assessee of the procedural conditions attached to the exemption, the plea of provisional assessment, and, consequently, the inapplicability of the limitation provision with regard to delayed filing of the claim, as prescribed under Section 27, cannot be entertained. Trichy Steel Rolling Mills Ltd. Vs. CC (2009 (238) ELT 686)

Unjust enrichment is ruled out assessee provides a certificate from a Cost Accountant certifying that the incidence of duty was not passed on to the ultimate consumer. The Tribunal has held that where the assessee provides a certificate from a Cost Accountant certifying that the incidence of duty was not passed on to the ultimate consumer and relevant accounting entries are passed in the books of the company, unjust enrichment is ruled out unless evidence to the contrary is made available. South India Paper Mills Limited Vs. CC (2009 (238) ELT 651)

Application for amendment to the Bill of Entry filed by an importer cannot be denied solely on the ground that such amendment would result in a re- quantification of duty. The Tribunal has held that an application for amendment to the Bill of Entry filed by an importer under Section 149 of the CA cannot be denied solely on the ground that such amendment would result in a re- quantification of duty. Thiru Aroonan Sugars Limited and Shree Ambika Sugars Limited Vs. CC (2009 (165) ECR 204)

Bill of Entry assessed provisionally can be corrected under Section 154 of the Customs Act, 1962 The Tribunal has held that an error in a Bill of Entry assessed provisionally can be corrected under Section 154 of the Customs Act, 1962 (CA) pertaining to correction of clerical/ arithmetical errors. Volvo India Pvt. Ltd. Vs. CC(2009 (92) RLT 396)

Foreign Trade Policy (FTP) Notifications/Circulars All requests/applications/ forwarding letters to be submitted with the DGFT should mention the name and designation of the authorized signatories. The Central Government has mandated that all requests/applications/ forwarding letters to be submitted with the Director General of Foreign Trade (DGFT) should mention the name and designation of the authorized signatories. In case, the authorized signatory is not the Proprietor/ Director/ Partner of the firm, a copy of the power of attorney executed in favour of the signatory should also be submitted. (Zonal Jt. DGFT, Mumbai, Trade Notice No. 3/AM.10 dated 21/05/2009)

Letters of Approval (LOA) issued to the developers of SEZs shall remain valid until they are suspended/ revoked. The Central Government has clarified that Letters of Approval (LOA) issued to the developers of SEZs shall remain valid beyond the date prescribed therein for implementation of the project, until they are suspended/ revoked. (M. C. & I. (D.C.), SEZ Instruction No. 16, dated 11/06/2009)

SEZ developers are eligible to remove used packing materials to the DTA without payment of duty. The Central Government has clarified that SEZ developers are eligible to remove used packing materials to the DTA without payment of duty under Rule 49 (4) (b) read with Rule 14 of the SEZ Rules, 2006. (M. C. & I. (D.C.), SEZ Instruction No. 10, dated 25/05/2009)

Detailed procedures have been prescribed for obtaining approvals in respect of procurement of used capital goods by SEZ units. The Central Government has prescribed the detailed procedures for obtaining approvals in respect of procurement of used capital goods by SEZ units from the DTA. M. C. & I. (D.C.), SEZ Instruction No. 11, dated 25/05/2009

Ban on import of mobile phones without a valid IMEI number. The Central Government has imposed a ban on import of mobile phones without a valid International Mobile Equipment Identity (IMEI) number. DGFT Notification No. 112 (RE-2008)/ 2004-09 dated 16/06/2009

Antidumping Duty Notifications Provisional anti-dumping duty has been imposed on front axle beams and steering knuckles. Provisional anti-dumping duty has been imposed on front axle beams and steering knuckles meant for heavy and medium commercial vehicles originating in, or exported from the People’s Republic of China. Customs Notification No. 65/2009 dated 15/06/2009

Anti-dumping duty has been imposed on the following products:

- compact discs – recordable (CD-R) originating in, or exported from, Iran, Malaysia, Thailand, South Korea, United Arab Emirates and Vietnam; - potassium carbonate originating in, or exported from, the People’s Republic of China, South Korea, Taiwan and European Union. Customs Notification Nos. 44/2009 dated 30/04/2009, and 50/2009 dated 15/05/2009

CENVAT Case Law Manufacture/Dutiability Process of dilution of concentrate, not resulting in a new product, does not amount to manufacture under excise law. The Himachal Pradesh High Court has held that the process of dilution of concentrate, not resulting in a new product, does not amount to manufacture under excise law. CCE Vs. Karamchand Appliance (2009 (92) RLT 341)

Process of mere cutting and slitting of jumbo rolls into smaller rolls does not amount to manufacture under excise law. The Tribunal has held that the process of mere cutting and slitting of jumbo rolls into smaller rolls does not amount to manufacture under excise law. CCE Vs. Knowell Converters (2009 (238) ELT 156)

The process of plating of jewellery, not resulting in a new product, does not amount to manufacture under excise law. The Tribunal has held that the process of plating of jewellery, not resulting in a new product, does not amount to manufacture under excise law. CCE Vs. Midas Techniques Pvt Ltd (2009 (92) RLT 487)

Valuation In Otis Elevator Co (India) Ltd. Vs. CCE (2009-TIOL-910), the Tribunal has held that in case of manufactured goods cleared from the factory under indivisible/composite works contracts where the price of goods supplied is not separately ascertainable, valuation is required to be done on the basis of the cost construction method in terms of Rule 8 of the Valuation Rules.

CENVAT/MODVAT CENVAT credit to the extent of 50% of the excise duty paid on capital goods in the year of receipt is also applicable to education cess paid on such goods. The Tribunal has held that the restriction regarding availment of CENVAT credit to the extent of 50% of the excise duty paid on capital goods in the year of receipt is also applicable in relation to the credit of education cess paid on such goods. DCW Ltd Vs. CCE (2009-TIOL-942)

Others Job worker is not liable to pay duty merely for the reason of late filing of undertakings by the supplier of inputs.

The Kerala High Court has held that a job worker is not liable to pay duty merely for the reason of late filing of undertakings by the supplier of inputs as required under Notification 214/86-CE dated 25.3.86. CCE Vs Excel Corrugated Boxes Pvt Ltd (2009 (92) RLT 462)

No interest is payable on account of erroneous availment of credit. The Tribunal has held that no interest is payable on account of erroneous availment of credit if such credit has been reversed prior to utilization. Sweet Industries Vs CCE (2009 (238) ELT 522]

If packaged goods are sold on MRP basis, in the absence of any contrary evidence, it would be deemed that the duty burden has been passed on to the customer. The Tribunal has held that where packaged goods are sold on MRP basis, in the absence of any contrary evidence, it would be deemed that the duty burden has been passed on to the customer and refund of such duty would be barred by the principle of unjust enrichment. Shri Baidyanath Ayurved Bhavan Ltd. Vs. CCE (2009 (238) ELT 680)

Service Tax Case Law Service tax for manufacturing activities would apply regardless of whether the products in question were covered within the ambit of the Central Excise Tariff. The Larger Bench of the Madhya Pradesh High Court has held that the exclusion from service tax for manufacturing activities would apply regardless of whether the products in question were covered within the ambit of the Central Excise Tariff. The High Court has also held that bottling and packaging activities are integral to manufacturing activity and cannot be viewed in isolation and hence the benefit of exemption from the tax would apply to such activities as well. Som Distilleries Pvt. Ltd. Vs UOI [2009 (92) RLT 413]

The bar of unjust enrichment would not apply to refund in the case of issuance of credit notes. The Karnataka High Court has held that where the service tax collected from the recipients was returned to them by issuance of credit notes, the bar of unjust enrichment would not apply to the refund of such tax. CST Vs Shiva Analyticals (I) Ltd. [2009 (92) RLT 664]

Rendering of both clearing and forwarding activities is essential to be classified as Clearing and forwarding activities. The Punjab & Haryana High Court has held that for a service to be classified as ‘clearing and forwarding agent’ services, rendering of both clearing and forwarding activities is essential. CCE Vs Kulcip Medicines (P) Ltd. [2009 (14) STR 608]

Payment of service tax on imports of services would only arise from 18.04.2006. The Delhi High Court relying on the judgment of the Mumbai High Court in the case of Indian National Shipowners Association, has held that the liability for payment of service tax on imports of services would only arise from 18.04.2006 i.e from the date of introduction of Section 66A of the Finance Act 1994. Unitech Limited Vs CST [2009-TOIL-293-HCDEL- ST]

“Input service” as per the relevant rules would extend to both direct and indirect service. The Tribunal has held that the definition of “input service” as per the relevant rules would extend to both direct and indirect service. Consequently, the Tribunal has held that repair and maintenance of office motor vehicles photography services relating to capital equipment and rent-a-cab services for transportation of people are all eligible input services. CCE Vs J.K.Cement Works [2009 (20) STT 254]

Benefit of refunds / rebates cannot be denied on procedural grounds. The Tribunal has held that the substantive benefit of refunds / rebates cannot be denied on procedural grounds. Further, it has held that input services used for procurement of other eligible input services would also qualify as eligible input services. CST, Delhi Vs M/s Convergys India Pvt Ltd. [2009-TOIL-888-CESTAT-DEL]

“Banking and other financial services” cannot be classified under the category of “Business Auxiliary Services” prior to June 2007. The Tribunal has held that since cash management services were made taxable under the category of “Banking and other financial services” w.e.f June 2007, they could not be classified under the category of “Business Auxiliary Services” prior to that date. Federal Bank Ltd. Vs CCE [(2009) 20 STT 261]

Activity of transporting employees from various points in the city to the factory and back is not liable to service tax. The Tribunal has held that the activity of transporting employees from various points in the city to the factory and back is not liable to service tax under the category of “tour operator service” even after 10.09.04. Tamil Nadu State Transport Corporation (Kumbakonam) Vs CCE [2009 (92) RLT 434]

IT software is not covered under the ambit of technical testing and certification service. The Tribunal has held that testing and analysis of IT software is not covered under the ambit of technical testing and certification service and is only chargeable to tax as ‘information technology software services’ with effect from 16th May, 2008. RELQ Software Pvt. Ltd. Vs CST [2009 (92) RLT 535]

Deputation of staff to other group companies for conducting day to day activities would be taxable as “Manpower Recruitment or Supply Services” The Tribunal has held that deputation of staff to other group companies for conducting day to day activities in those group companies would be taxable as “Manpower Recruitment or Supply Services” and not as Management Consultancy Services. Daurala Organics Vs CCE [2009 (14) STR 620]

Subsequent import of goods through courier after purchase is not chargable to service tax. The Tribunal has held that the purchase of designs and drawings from outside India and its subsequent import into the country through courier is a transaction related to goods and hence is not chargeable to service tax. Solitz Corporation Vs CST [2009 (14) STR 642]

Sales Tax Case Law Movement of goods from one State to another is occasioned as a result of a covenant in the contract of sale can only be treated as an inter- State sale The Karnataka High Court has held that where movement of goods from one State to another is occasioned as a result of a covenant in the contract of sale or is incidental thereto, the transaction can only be treated as an inter- State sale. This position will not change even if the goods were to be inspected by the dealer’s representative in the Destination State prior to ultimate delivery to the buyer. NCR Corporation India Private Ltd Vs. Deputy Commissioner of Commercial Taxes [(2009) 22 VST 371]

STC undertaken physically to ship the goods abroad, the transaction is not of Inter – State Sales. In Liberty Footwear Company Vs. State of Haryana [(2009) 33 PHT 645], the Punjab and Haryana High Court has held that where goods were exported through the State Trading Corporation (STC) and where the STC had only undertaken to physically ship the goods abroad, the transaction was one of the direct export of goods from the country and not one of interState sales or supplies to the STC.

VAT Case Law Revised circular issued to nullify the impact of an existing beneficial circular will only have prospective effect and not retrospective effect The Karnataka High Court has held that a revised circular issued to nullify the impact of an existing beneficial circular will only have prospective effect and not retrospective effect. Thus,

the dealer would be allowed the benefit accruing under the earlier circular until the date of issuance of the revised circular. R. K. Corporation v/s Govt. of Karnataka [VSTI 2009 B-441]

Karnataka Notifications: Exemption from payment of entry tax Exemption from payment of entry tax\ available on imports of specified goods from outside the State by new industrial units located in specified zones,100% EOUs Also, time periods and procedures have been prescribed for availing the above benefit. Notification No. FD 05 CET 2009 dated June 3, 2009

Exemption from payment of entry tax on import of specified goods from outside the State by a developer / co-developer Exemption from payment of entry tax on import of specified goods (excluding petroleum products) from outside the State by a developer / co-developer of a Special Economic Zone / unit in Special Economic Zone, subject to prescribed conditions, has been granted. Notification No. FD 67 CSL 2009 dated May 26, 2009

Input tax credit of more than Rs 5 lakhs need to upload information related to local purchases and sales Dealers who are exporters or who claim input tax credit of more than Rs 5 lakhs need to upload information related to local purchases and sales, including exports, on the website before the 20th of each month. Notification No. KSA CR. 155/2007-08 dated June 8, 2009