Legal Roundup Sep 09

Legal Round-up for ICSI Mysore eNewsletter Customs Notifications/Circulars Refund of ADC in lieu of VAT/ sales tax can be sanctioned even when imports are assessed to duty provisionally. The Mumbai Customs Commissionerate has clarified that claims for refund of 4% additional duty of customs (ADC) in lieu of VAT/ sales tax can be sanctioned even when imports are assessed to duty provisionally. Commissioner of Customs (Import) Nhava Sheva, Public Notice No. 44/2009 dated 16/07/2009

Benefit of advance ruling to public sector companies and to residents proposing to import goods. The Central Government has extended the benefit of advance ruling to public sector companies and to residents proposing to import goods under the Project Import Scheme. Notification No. 124/2009 (NT)-Cus dated 20/8/2009

Case Law Valuation Transaction value (TV) of imported goods cannot be enhanced on the basis of the values of contemporaneous imports of goods. The Tribunal has held that transaction value (TV) of imported goods cannot be enhanced on the basis of the values of contemporaneous imports of goods which are not identical / similar in terms of quality and quantity. CC Vs. Amartex Industries Ltd. (2009 (240) ELT 152)

Holding of shares by foreign supplier in the Indian importer-company cannot be the reason for rejecting the TV of imports. The Tribunal has held that a mere holding of shares by foreign supplier in the Indian importercompany cannot be the reason for rejecting the TV of imports. The Tribunal has further held that consideration paid towards post importation services cannot be added to the TV. Vikem Metalkat Pvt. Ltd. Vs.CC (2009 (240) ELT 127)

Capital goods procured by the Developer /Co-developer for undertaking in the SEZ can be cleared back to the DTA without payment of duty.

The Central Government has clarified that the capital goods which have been procured by the Developer /Co-developer for undertaking authorized operations in the SEZ can be cleared back to the DTA without payment of duty in case no export entitlement was availed at the time of procurement from DTA. M.C. & I. (D.C.), (SEZ Section), Instruction No. 32 dated 17/8/2009

Central government has issued guidelines for use of duty free material for manufacture of capital goods for captive use by 100% EOUs. The Central Government has issued guidelines for use of duty free material for manufacture of capital goods for captive use by 100% Export Oriented Undertakings (100% EOUs). It has also clarified that such capital goods should be accounted and bonded by following the prescribed procedures and will be liable for payment of duty if removed outside the 100% EOU. DGEP Circular No. 22/2009 dated 19/8/2009

News Withhold refund of tax on notified services consumed for export of goods shall be subjected to departmental action. The Central Government has announced that officers who withhold refund of tax on notified services consumed for export of goods shall be subjected to departmental action. www.taxindiaonline.com dated 9/8/2009

Case Law Capital goods’ has a very wide connotation in terms of the Foreign Trade Policy The Tribunal has held that the term ‘capital goods’ has a very wide connotation in terms of the Foreign Trade Policy and gas imported along with gas Suppression System would be considered as capital goods and entitled for concessional customs duty in terms of the Export Promotion Capital Goods (EPCG) scheme. The Tribunal has further held that once the DGFT has issued an EPCG licence for a particular product, it is not open to the customs authorities to question such licence. Reliance Communication Infrastructure Ltd. Vs. CC (2009( 240) ELT 461)

Good imported by a DTA unit on which CENVAT credit was availed can be cleared to 100% EOU without charging excise duty. The Tribunal, in Solectron Centum Electronics Ltd. Vs. CCE (2009 (240) ELT 51), has held that goods imported by a Domestic Tariff Area (DTA) unit, on which CENVAT credit of applicable import duties was availed, can be cleared to 100% EOU without charging excise duty as per Notification No. 22/2003-CE dated 1/3/2003.

Antidumping Duty Notifications Provisional anti-dumping duty has been imposed on certain products.

Provisional anti-dumping duty has been imposed on the following products: - polypropylene, originating in, or exported from Oman, Saudi Arabia and Singapore; - carbon black originating in, or exported from the Australia, China PR, Russia and Thailand. Customs Notification No. 82/2009 dated 30/07/2009 and 83/2009 dated 30/07/2009

CENVAT Case Law Manufacture/Dutibility 4% Additional Duty of Customs (ADC) in lieu of sales tax would be payable by 100% EOUs enjoying State specific sales tax exemption. The Larger Bench of the Tribunal has held that the 4% Additional Duty of Customs (ADC) in lieu of sales tax would be payable by 100% EOUs enjoying State specific sales tax exemption in respect of clearance of their manufactured goods to the DTA . Moser Baer India Ltd. Vs. CCE (2009 (240) ELT 25)

Department is not permissible to demand excise duty if service tax is paid on processing activities. The Tribunal has held that if service taxes have been paid on processing activities, it is not permissible for the Department to demand excise duty on such activities on the ground that they amount to manufacture under excise law. Osnar Chemical Pvt. Ltd. Vs. CCE (2009 (240) ELT 115)

Mere process of blending additives in the emergence of duty paid motor spirit/HSD not resulting in a new product The Tribunal has held that the mere process of blending additives in the emergence of duty paid motor spirit/HSD not resulting in a new product, does not amount to manufacture under excise law. Bharat Petroleum Corpn. Ltd. Vs. CCE (2009 (240) ELT 403)

Valuation Under the definition of new transaction value, expenses in relation to loading of excisable goods within the factory for clearance to a buyer are liable to be included in the value of the goods. The Larger Bench of the Tribunal has held that under the definition of new transaction value, expenses in relation to loading of excisable goods within the factory for clearance to a buyer are liable to be included in the value of the goods unless it is proved that the burden of such expenses are not borne by the manufacturer. CCE Vs. Supreme Petrochem Ltd. (2009 (240) ELT 38)

The Tribunal has held that the value in respect of goods cleared to depots should be based on the price prevailing in the depots for such goods on the day of removal from the factory.

Nahar Spg. & Wvg. Mills Ltd. Vs. CCE (2009 (93) RLT 281)

Buyer and seller cannot be considered as related persons merely for the reason that the entire production is sold to one person. The Tribunal has held that the buyer and seller cannot be considered as related persons merely for the reason that the entire production is sold to one person unless it is established that the price charged is based on extra commercial considerations. Interbright Appliances Private Ltd Vs. CCE (2009 (240) ELT 592)

CENVAT/MODVAT CENVAT credit is admissible on feeder electric cables. The Tribunal has held that CENVAT credit is admissible on feeder electric cables used outside the factory for purpose of supply of electricity for manufacture of dutiable goods. Synthetic Packers Pvt Ltd Vs. CCE,(2009 (240) ELT 235)

Availment of CENVAT credit on capital goods to the extent of 50% each year applies to the education cess as well. The Tribunal has held that the restriction on availment of CENVAT credit on capital goods to the extent of 50% each year applies to the education cess as well. DCW Limited Vs. CCE (2009 (93) RLT 295)

The credit availed in relation to inputs cannot be denied merely for the reason that such inputs have already been used in the manufacture of dutiable goods. The Court has held that in case of shifting of a factory, the credit availed in relation to inputs cannot be denied merely for the reason that such inputs have already been used in the manufacture of dutiable goods and are not available for physical transfer. CCE Vs. CESTAT (2009 (240) ELT 367)

Others Interest liability under Section 11AB on erroneous availment of credit would arise from the date of utilization of such credit. It was held that interest liability under Section 11AB on erroneous availment of credit would arise from the date of utilization of such credit for purpose of payment of duty and not from the date of entry in the books of accounts. Punjab and Haryana High Court, in Ind- Swift Laboratories Ltd Vs. Union of India (2009 (240) ELT 328)

Refund claims cannot be rejected on the ground of unjust enrichment. The Tribunal has held that refund claims cannot be rejected on the ground of unjust enrichment where appropriate debit/ credit notes have been issued to establish that the burden of duty has not been passed on. CCE Vs. Lanco Industries Limited (2009- TIOL-1248)

Service Tax Notification/Circulars Definition of India Amended. The Central Government has amended the Export of Services Rules, 2005 whereby the definition of India has been amended to include installations, structures and vessels in the entire Continental Shelf of India and the Exclusive Economic Zone of India. Notification No.25/2009-ST dt. 19.08.2009

Advance ruling scheme extended to all public sector companies. The Central Government has extended the advance ruling scheme to all public sector companies. Notification No.27/2009-ST dt. 20.08.2009

Compensation for Managing Directors would not be liable to service tax. The CBEC has clarified that remuneration paid to managing directors / directors of companies, whether whole-time or independent, as compensation for their performance as such would not be liable to service tax. Circular No. 115/09/2009 –ST dt. 31.07.2009

Case Law Advertisement / marketing services procured by a manufacturer of specified intermediate products are eligible input services. The Bombay High Court has held that the advertisement / marketing services procured by a manufacturer of specified intermediate products are eligible input services even if they relate to other finished products, as long as the advertising enhances the marketability of their own intermediate products as well and such costs already stand included in the assessable value of the intermediate products for the purpose of discharging excise duty. The Tribunal held that the term ‘business’ connotes an integrated set of activities and is not confined to mere manufacture but is of wide import and covers all activities that are related to the functioning of a business. M/s Coca Cola India Pvt Ltd Vs. CCE (2009 (21) STT 285)

Service tax paid on security services used in the colony, transport services for employees and guest house maintenance services are all eligible input services. The Tribunal has held that service tax paid on security services used in the colony, transport services for employees and guest house maintenance services are all eligible input services, since the scope of input service is wide enough to cover activities which are indirectly used in or in relation to the manufacture of final products. CCE Vs. Hindustan Zinc. Ltd.(2009 (21) STT 285)

For the applicability of a particular notification, the key would be time of rendition of services.

The Tribunal has held that for the applicability of a particular notification, the key would be time of rendition of services. Consequently, the assessee can claim the benefit of a notification prevailing at the time of rendition of services irrespective of the fact that it had been rescinded subsequently at the time of receipt of consideration. Santosh Associates Vs. CST (2009 (93)RLT 348)

Only transport booking agents were covered under the taxable category of Goods Transport Agency. The Tribunal has held that only transport booking agents were covered under the taxable category of Goods Transport Agency for the period prior to May 2006 and not the individual truck operators. Consequently, the service tax erroneously paid by service recipients for engaging such individual truck operators is liable to be refunded. CCE Vs. Kanaka Durga Agro Oil Products Pvt. Ltd. (2009 (15) STR 399)

Canteen services, rent a cab services and group health insurances services of factory workers are all eligible ‘input services’. The Tribunal has held that canteen services, rent a cab services and group health insurances services of factory workers are all eligible ‘input services’. Stanzen Toyotetsu India (P) Ltd. Vs. CCE (2009 (21) STT 321)

Sales Tax Case Law Excise duty shall form part of the turnover for the purpose of determination of sales tax liability. The Patna High Court has held that for the purpose of determination of sales tax liability, excise duty shall form part of the turnover, even though the sale was effected on bond to bond basis as a result of which no excise duty was payable. M/s United Distillers Ltd. Vs. Commissioner of Commercial Taxes, Bihar (BRLJ 2009 324)

Merely on the basis of the description on the debit note cannot be concluded that the transaction constitutes a “right to use goods”. The Maharashtra Sales Tax Tribunal has held that merely on the basis of the description on the debit note reading “royalty for use of brand” it cannot be concluded that the transaction constitutes a “right to use goods”. Where the transfer of the right to use the trademark is incidental to the main contract and there is no transfer of effective control of the trademark, the transaction would not constitute a transfer of the right to use goods. M/s Diageo India Pvt. Ltd. Vs. State of Maharashtra (2009 MTJ (40) 285)

Mere existence of a prior purchase order or contract cannot constitute as an interState sale. The Central Sales Tax Appellate Authority, New Delhi has held that the mere existence of a prior purchase order or contract on the date of movement of standard goods is not sufficient to

establish an inextricable link between the existing orders and the movement of goods thereby establishing it as an inter-State sale. Tata Motors Pvt. Ltd. Vs. State of Jharkhand [(2009) 24 VST 167 (CSTAA)]