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Shree Guru Kripa’s Institute of Management, Chennai – IDT Updates for May 2015 Exams

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Latest Updates in Indirect Tax Law for May 2015 Exams

A. Central Excise

Nature Provision

Levy

Interpretation of levy / charging section

(a) In interpreting a taxing statute, equitable considerations are entirely out of place nor can taxing statutes be interpreted on any presumptions or assumptions.

(b) A Taxing Statute must be interpreted in light of what is clearly expressed and nothing can be implied which is not expressed. No one can be taxed by implication. A Charging Section has to be construed strictly. If a person has not been brought within ambit of charging section by clear words, he cannot be taxed at all.

(c) A legislature can make a law retrospectively or prospectively subject to justifiability and acceptability within Constitutional parameters. [State of Rajasthan vs Basant Agrotech (India) Ltd (SC) 41 Taxmann 93]

Exemption for EOU /EHTP

Goods produced or manufactured in an EOU or an Electronic Hardware Technology Park (EHTP) Unit or a Software Technology Park (STP) Unit are hereby exempt from Education Cess and Secondary and Higher Education Cess. Earlier only duty equivalent to special additional customs duty was exempt. (NOTIFICATION NO. 18/2014-CE, DATED 11-7-2014)

Valuation of Excisable Goods

Price is the sole consideration – Rule 6

Where price is not the sole consideration for sale of excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value. (Notification No.20/2014 dt. 11.07.2014)

Exclusions from Transaction Value – Sales Tax actually paid

Facts: Under the Sales Tax New Incentive Scheme for Industries, 1989, the Assessee was entitled to retain 75% of the Sales Tax collected and pay only 25% to the Government.

Decision: The Supreme Court held as under: • As per Rule 4, the Sales Tax actually paid to the Government can be reduced from the price to

determine transaction value. Hence, if the Sales Tax is not actually paid, no benefit of reduction under the concept of “Transaction Value”.

• 25% of the Sales Tax collected has been paid to the State Exchequer by way of deposit. The rest of the amount has been retained by the Assessee. That has to be treated as the Price of the goods under the basic fundamental concept of “Transaction Value”.

• Therefore, the Assessee is bound to pay the Excise Duty on 75% Sales Tax also, as it forms part of the Price collected. [Super Synotex (India) Ltd 2014–TIOL–19–SC dt 28.02.14)

Rule 8 – Captive Consumption

If the whole or part of the excisable goods is used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be 110% of the cost of production or manufacture of such goods. Note: Earlier, Rule 8 was applied only in a situation where entire goods are captively consumed.

Rule 9 – Clearances to Related Persons

Earlier Rule 9 was applicable only when the excisable goods are sold exclusively to Related Persons. However, w.e.f. 22.11.2013, the above Rule 9 is applicable, even if the whole or part of the goods is sold to Related Persons. (Notification No.14/2013 dt. 22.11.2013)

Rule 10 – Clearances to ICUs

Earlier Rule 10 was applicable only when the excisable goods are sold exclusively to Inter–Connected Undertakings(ICU’s). However, w.e.f. 22.11.2013, the above Rule 9 is applicable, even if the whole or part of the goods is sold to ICU’s. (Notification No.14/2013 dt. 22.11.2013)

Valuation of Goods below Cost and Profit – Rule 6

1. Situations for Valuation below Cost: The Supreme Court has cited that in the following cases, a Manufacturer may sell goods at a price lower than the cost of manufacture and profit and yet the declared value can be considered as Normal Price: (a) The Company wants to switch over its business (b) If a Manufacturer has goods which could not be sold within a reasonable time.

Hence, mere sale of goods below the manufacturing cost and profit cannot be taken as the sole basis for rejecting the Transaction Value.


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Nature Provision 2. Period of application of the decision in Fiat India decision:

(a) In the FIAT judgment, sale of cars at an abnormally lower price to penetrate the market has been considered by the Supreme Court as constituting extra–commercial consideration, even when there was no additional consideration of money value flowing directly or indirectly from the buyer to the seller.

(b) For the period prior to the date of the judgment, extended period of limitation is not acceptable. In such cases, only the normal period of limitation will apply.

(c) For the period from 29.8.2012 onwards, if there is a sale in the circumstances similar to the case of M/s FIAT, and yet Transaction Value of goods is declared as the correct assessable value, then such declaration would amount to wilful mis–statement of the Assessable Value. [Circular No.979/03/2014–CX dt. 15.01.2014]

Independent Valuation of each clearance

• Transaction Value of excisable goods shall be valued independently for every clearance. • Example: If an Assessee clears his first removal to an independent buyer, some goods are

captively consumed, second removal is to a Related Person covered under Rule 9, and third removal is to a person covered under Rule 10, then the first removal should assessed u/s 4, captively consumed goods should be assessed under Rule 8, second removal should be assessed under Rule 9, and third removal should be assessed under Rule 10.

• Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are not required to be followed sequentially. [Circular No.975/09/2013–CX dt 25.11.13]

Valuation of fertilisers for levy of excise duty

In case of price controlled goods where government grants certain subsidies to manufacturer, the excise duty will be levied on the MRP. Subsidy component cannot be regarded as a consideration and hence excise duty is not leviable on that. (Circular No.983/07/2014)

Departmental Communication

Whether a Circular necessarily needs to be issued u/s 37B, to bind the Department

• Any clarification issued by the Board is binding upon the Central Excise Officers who are duty–bound to observe and follow such Circulars. Whether Sec. 37B is referred to in such circular or not, is not relevant.

• When other Central Excise Authorities of equal and higher rank have followed and acted as per the clarifications, the Commissioner (in the instant case), could not have taken a contrary view on the assumption that the clarifications are only letters and not orders u/s 37B.

• Central Excise is a central levy and, therefore, such a levy has to be collected uniformly from all similarly situated manufacturers located all throughout the country. [Darshan Boardlam Ltd vs UOI 2013 (287) E.L.T. 401 (Guj.)

SSI

Removal under Brand Name and SSI Exemption

Facts: The Assessee was engaged in the manufacture and sale of cookies from branded retail outlets of “Cookie Man”. The Assessee had acquired this brand name from M/s Cookie Man Pvt. Ltd, Australia (which in turn acquired it from M/s Auto–Bake Pvt. Ltd, Australia). The Assessee was selling some of these cookies in plastic pouches/containers on which the brand name described above was printed.

No brand name was affixed or inscribed on the Cookies. Excise Duty was duly paid, on the cookies sold in the said pouches/containers. However, on the Cookies sold loosely from the counter of the same retail outlet, with plain plates and tissue paper, duty was not paid. The Assessee contended that SSI exemption would be available on cookies sold loosely, as they did not bear the brand name.

Decision: The Supreme Court made the following significant observations: • Physical manifestation of the brand name on goods is not a compulsory requirement, as such an

interpretation would lead to absurd results in case of goods, which are incapable of physically bearing brand names, viz, liquids, soft drinks, milk, dairy products, powders, etc. Such goods would continue to be branded good.

• The test of whether the goods is branded or unbranded, must not be the physical presence of the brand, but whether it is used in relation to such specified goods for the purpose of indicating a connection in the course of trade between such specified goods and some person using such name with or without any indication of the identity of the person.

• Once it is established that a specified good is a branded good, whether it is sold without any trade name on it, or by another Manufacturer, it does not cease to be a branded good of the first Manufacturer. Therefore, Soft Drinks of a certain company continue to be branded goods of that Company, even if they are served in plain glasses, without any indication of the Company, in a Private Restaurant.


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Nature Provision • It is not necessary for goods to be stamped with a trade or brand name to be considered as

branded goods for SSI exemption. The most important of these factors being the specific outlet from which the goods is sold. Hence, in the given case, the products would be considered as branded.

[CCEx vs Australian Foods India (P) Ltd 2013 (287) ELT 385 (SC)]

Other Procedures

Registration An Importer who issues Invoice on which CENVAT Credit can be taken, must be registered under the Central Excise Act and its Rules. [Notification No.6/2014–C.E.(N.T.) dt 26.02.2014]

E–payment Every Assessee shall electronically pay the duty through internet banking. However, if the AC / DC may allow an assessee to make payment by any mode other than internet banking. (Rule 8(1B)) (Notification No.19/2014 dt. 11.07.14)

Non–payment of duty after filing returns

If the assessee fails to pay the duty declared by him in the return within 1 month from the due date, then the assessee is liable to pay penalty at 1% p.m. or part thereof on the unpaid duty. “Month” means the period between 2 consecutive due dates. (Rule 8(3A))(Notification No.19/2014 dt. 11.07.14)

Powers of Central Excise Officers – Procedures

Additional Designations / Authorities

Any reference to the authorities mentioned in the first column shall apply to the authorities mentioned in the second column also:

Earlier Reference to Now refers to Chief Commissioner of Central Excise

Principal Chief Commissioner / Chief Commissioner of Central Excise

Commissioner of Central Excise

Principal Commissioner / Commissioner of Central Excise

All powers vested with the authorities mentioned in the first column shall also vest with the authorities mentioned in the second column.

(Finance Act, 2014) Sec.2(b) – Definition of CEO

Central Excise Officer includes (a) Principal Commissioner of Central Excise (b) Principal Commissioner of Central Excise. (Finance Act, 2014)

Sec.15A – Information Returns

1. Persons who need to furnish Information Returns: (a) An assessee (b) A local authority or other public body or association (c) A State Government Authority responsible for the collection of VAT / Sales Tax (d) An Income Tax Authority (e) A Banking Company (f) A State Electricity Board or an Electricity Distribution or transmission Licensee under the

Electricity Act, 2003 (g) The Registrar or Sub-Registrar appointed under the Registration Act, 1908; or (h) A Registrar within the meaning of the Companies Act, 2013; or (i) Authority empowered to register motor vehicles under the Motor Vehicles Act, 1988 (j) the Collector referred in the Right to Fair Compensation and Transparency in Land

Acquisition, Rehabilitation and Resettlement Act, 2013 or (k) The Recognised Stock Exchange (l) A depository referred to in the Depositories Act, 1996; or (m) An officer of the Reserve Bank of India,

2. Documents to be submitted: Such person is responsible for maintaining record of registration / statement of accounts or any periodic return or document with details of payment of tax and other details or transaction of goods or services or transactions related to a bank account or consumption of electricity or transaction of purchase, sale or exchange of goods or property or right or interest in a property.

3. Furnishing the Information Returns: The above listed persons shall furnish an Information Return for such periods, within such time, in such form and manner, to the prescribed authority or agency.


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Nature Provision 4. Verification of Information Returns:

(a) Where the prescribed authority considers that the information in the information return is defective, he may intimate the defect to the person concerned.

(b) Revised information returns to be submitted within 30 days from the date of such intimation or extended period.

Note: The Concept of “Annual Information Returns” is now introduced into Central Excise also. (Finance Act, 2014)

Sec.15B – Non Filing of AIR

Non–Submission of Information Returns: (a) Where a person has not furnished the returns within the specified time, the prescribed authority

may serve a notice to furnish within 90 ninety days. (b) If such Information Returns is not filed within the above period, then the prescribed authority

may levy penalty of ` 100 per day of default (Finance Act, 2014)

B. Customs

Classification of Customs Duties

Customs Tariff Act – Levy of Safeguard Duty (Section 8B)

Safeguard Duty shall not be levied on the goods imported by 100% EOU and SEZ. However, imports by 100% EOU and SEZ shall be subject to safeguard duty in the following cases: (a) If the notification / order specifically made it applicable or (b) If such articles are cleared as such into DTA or (c) If such articles are used in manufacture of articles which are cleared in DTA (Safeguard Duty

shall be levied on the extent of articles cleared into DTA as was leviable when it was imported into India)

Further, the above exemption is not applicable for imports by Free Trade Zone. (Finance Act, 2014)

C. Service Tax

Nature Provision

Levy of Service Tax

ST for Services from Foreign Banks

Foreign Banks are recovering certain charges for processing of import/export documents regarding remittance of Foreign Currency. The Banks in India would be treated as Recipient of Service, and therefore required to pay Service Tax. (Trade Notice No.20/13 dated 10.02.2014)

Taxability of capital contribution to Joint Venture

1. Joint Venture and its members are treated as distinct persons and therefore, taxable services provided for consideration, by the JV to its members or vice versa and between the members of the JV are taxable.

2. Capital contributions (Cash Calls) made by the members to the JV are merely a transaction in money and excluded from service. However, if a 'cash call' is merelya transaction in money or not would depend on the terms of the Joint Venture Agreement.

3. Detailed and close scrutiny of the JV agreement may be requiredto determine the service tax.

4. Illustrations are:

(a) Taxable service provided by a JV to its members: Cash callscould be advance payments by members for the taxable services to be received from the JV. For Eg. JV which receives the cash call from its members may in return agree to do something of direct benefit either to the member or on behalf of a member to a third party (For eg. Granting of right, reserving production capacity or providing an option on future supplies).

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Nature Provision (b) Taxable services received by a JV from its members or third party:

Payments made out of cash calls pooled by a JV, towards taxable services received from a member or a third party is in the nature of consideration and hence attracts service tax.

(c) Taxable services provided by members to the JV: A member of JV may provide support services (for example, administrative service in the form of setting up/management of a project office/site office) to the JV for a consideration either in cash or kind (say, goods or services). This could be liable for service tax.(CIRCULAR NO. 179/5/2014-ST, DATED 24-9-2014)

Exchange rate for conversion

The exchange rate for determination of value of taxable service shall be the applicable rate of exchange as per the generally accepted accounting principles on the date of Point of Taxation. (NOTIFICATION NO.19/2014-ST, DATED 25-8-2014)

Reverse Charge Mechanism

In the following cases recipient of the service is liable to pay service tax:

Nature of Service Person liable

Service by a director of a company or a body corporate

The Company or the body corporate

Recovery Agent The banking company or the financial institution or the non-banking financial company

Renting of a motor vehicle designed to carry passengers on non–abated value to any person who is not engaged in the similar line of business

ST payable be shared between Service provider and service receiver equally (earlier it was 60% by Service receiver and 40% by service provider

(Notification No.10/2014-STdt.11.07.2014)

Point of Taxation

Point of Taxation Rules (Rule 7)

In case of services for which reverse charge mechanism is applicable, POT shall be the date of payment. However, if the payment is not made within 3 months of date of invoice, Point of Taxation shall be the date immediately following three months. However this change will not apply only when the invoice is issued before 01.10.2014 (Notification No.13/2014-ST, dated 11-7-2014)

Negative List and Exemptions

Transportation of Passengers

(a) Transportation of passengers by radio taxi is leviable to service tax. (b) Metered Cab excludes Radio Taxi. Section 66D(o)(vi) & Section 65B(32) (c) Exemption in relation to service of providing advertisements is available only in case of print

media (d) Radio taxi will also be covered under service tax. However taxable portion will be only 40% of

amount charged (notification 18/2014 dated 25/08/2014)

Sec.66D(g) & Sec.65B(39a) – Print Media

Selling of space for advertisements in Print Media is covered in the Negative List and hence not leviable to service tax.

Print Media Means (a) "Book" as defined in Section 1(1) of the Press and Registration of Books Act, 1867. (b) But it excludes business directories, yellow pages and trade catalogues which are primarily

meant for commercial purposes. (c) "Newspaper" as defined in Section 1(1) of the Press and Registration of Books Act, 1867

Note: Earlier, selling of space for advertisements in Radio and TV was taxable. Every other space selling was not taxable. Now selling space in any modes like hoarding, bill boards, websites, business directories, yellow pages and other trade catalogues meant for commercial purposes are leviable to service tax. Negative list covers only advertisements in Books and Newspapers.

Exemption of service tax on service provided to a unit of SEZ

(a) Jurisdictional DC / AC of Central Excise shall give authorization to claim exemption in Form A–2 within 15 working days of submission of form A-1 by SEZ Developer.

(b) The above authorization is valid from date of verification of form A-1 by Specified Officer of SEZ. But if the Form A-1 is not submitted within 15days of said verification, the authorization shall be valid from date of submission.


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Nature Provision (c) SEZ developer shall give a copy of authorisation to the service provider on the basis of which he

can claim exemption from service tax. Even pending the issue of authorization, the service provider can claim exemption of service tax provided copy of authorisation is given to him within 3months from the time service is deemed to be provided.

(d) If service is not used exclusively for authorized operations of SEZ , theSEZ Unit shall pay the service tax which was exempted along with interest applicable. A service shall be considered as being used exclusively for authorized operations only if service is received under an invoice in the name of SEZ Unit and used for purpose of authorized operations

(e) In Forms A–1,A–2 and A–3, ST registration number need not be given if Service Tax is payable under reverse charge mechanism

(f) In Form A-2 the date from which authorisation is valid shall also be mentioned(Notification No.7/2014-ST, dt. 11.07.2014)

Changes in Exemption list

1. Services provided by operators of the Common Bio–medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio–medical waste or the processes incidental thereto.

2. Technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation shall be taxable.

3. Services provided by an educational institution to its staff, students, 4. Services provided to educational institution by way of

(a) Transportation of students, faculty and staff; (b) Catering including any mid-day meals scheme sponsored by the Government; (c) Security or cleaning or house-keeping services performed in such educational institution; (d) Services relating to admission to, or conduct of examination by, such institution;"; shall be exempt from service tax. (the definition of educational auxiliary services removed) Educational Institutionmeans an institution providing services specified in any of the services mentioned in point (1) above

5. Services by a hotel, inn, guest house, club or campsite, for residential or lodging purposes, having declared tariff per unit unit of accommodation < ` 1,000per day or equivalent shall be exempt from service tax.

6. Transportation of chemical fertilizer, organic manure, oil cakes, cotton (ginned / baled) by Rail / Goods Transport Agency from one place in India to another shall be exempt.

7. Transport of passengers (with or without accompanied belongings) by way of a contract carriage shall be exempt. However, in the following cases, it shall be taxable: (a) If it is meant for tourism, conducted tour, charter or hire (or) (b) If it is air–conditioned vehicle (or) (c) If it is a Radio Taxi (Note: Radio taxi means a taxi including a radio cab, which is in two–

way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS))

8. Services provided to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation is exempt from service tax.(Earlier there was a requirement that these services should be of nature that they would be ordinarily entrusted to municipality, now this requirement is dispensed with)

9. Services of general insurance business in relation to life micro–insurance product as approved by the IRDA, having maximum cover of ` 50,000 are exempt from service tax. (Note: Life micro-insurance product shall have the meaning as per the IRDA (Micro–insurance) Regulations, 2005)

10. Services by way of loading, unloading, packing, storage or warehousing of rice, cotton (ginned or baled) are exempt from service tax.

11. Services received by the RBI, from outside India in relation to management of Forex Reserves 12. Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly

outside India." 13. Meaning of Recognised Sports Body –

(i) The Indian Olympic Association, (ii) Sports Authority of India, (iii) National Sports Federation and National Sports Promotion Organisations recognised by the

Ministry of Sports and Youth Affairs of the Central Government, and its affiliated federations,


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Nature Provision (iv) The International Olympic Association or a federation recognised by the International

Olympic Association (v) A federation or a body which regulates a sport at international level and its affiliated

federations or bodies regulating a sport in India.(Notification No.6/2014-ST, dt.11.07.2014)

Exemption Notification

Services by a specified organization to a religious pilgrimage shall be exempt if it is facilitated by Ministry of External Affairs. Specified organization shall mean Kumaon Mandal Vikas Nigam, A Governemnt of Uttharkand Undertaking. (NOTIFICATION NO. 17/2014-ST, DATED 20-8-2014)

Sec.67A – Exchange Rate

Exchange rate shall be such rate as determined in accordance with rules prescribed. Note: Exchange rate was as notified by the CBEC under the Customs Act, 1962. Now it is to be determined as per rules.

Chit Fund and its taxability

Facts: The Assessee is an Association of Chit Funds. and it did not pay the Service Tax, treating the activity of Chit Fund as non–taxable. Principle: The Delhi High Court held that – (a) Services of Chit Fund were transaction in money, and hence not liable to Service Tax. (b) There was no question of exempting whole or any part thereof. (c) Exclusion of “activity which constitutes transaction merely in money” implies exclusion of

“service rendered in connection with activity which constitutes merely a transaction in money” and, therefore, Chit Funds (including Business Chit Funds), which are “transactions in money” are not liable to Service Tax.

(d) Providing partial exemption/abatement in relation to Chit Fund Business is not valid, as the entire activity itself is not a service. [Union of India vs Delhi Chit Fund Association 32 Taxmann 332 (Del.)]

Accommodation Service for Pilgrims

Facts: The Assessee was running guest houses for pilgrims. The Department issued Show Cause Notice stating that the assessee was liable to get Service Tax Registration under “short term accommodation service” and liable to pay Service Tax. The Assessee, on the other hand, submitted that it was a religious and charitable institution, and was running guest houses without any profit motive. Decision: The High Court held that since the Petitioner was running Guest Houses by whatever name called, whether it was a shelter for pilgrims or any other name, it was providing the taxable services and was thus liable to pay Service Tax. [Tirumala Tirupati Devasthanams vs Superintendent (30) S.T.R. 27 (A.P.)]

Franchise Services

Facts: The Petitioner, Mayo College, was a society running internationally renowned schools. It allowed other schools to use the name ‘Mayoor School’, its logo and motto, and as a consideration thereof received Collaboration Fees from such school, which comprised of a non–refundable amount and annual fee. The schools were required to observe certain obligations/terms and unimpeachable confidentiality.

Decision: The High Court held that when the Petitioner permitted other schools to use their name, logo as also motto, it clearly tantamounted to providing “Franchise Service” to the said schools. If the petitioner collected/earned the “Franchise” or “Collaboration Fees” from the Franchise Schools, the Petitioner was duty bound to pay Service Tax thereon. [Mayo College General Council vs CCEx. (Appeals) (28) STR 225 (Raj)]

Agriculture, etc.

(a) Loading, Packing, Transportation and Warehousing of Rice and Milling of Paddy into Rice on Job Work Basis is exempt.

(b) Services provided by Cord Blood Banks by way of preservation of stem cells or any other service in relation to such preservation is exempt. (Notification No.5/2014 dt. 24.02.2014)

Sub Broker services

Services provided by an Authorised Person or Sub–Broker, to the Member of a Recognized Association or a Registered Association, in relation to a Forward Contract, is exempted from service tax. (Notification No.3/2014 dt. 03.02.2014)

Sponsorship Service

Exemption is provided for the sponsorship of sporting events organized by a National Sports Federation or its affiliated federations, where the participating teams or individuals represent any District / State / Zone / Country. (Notification No.1/2014 dt. 10.01.2014)

Sec.100 – ESIC not taxable

Taxable Services rendered by Employees State Insurance Corporation set up under the ESI Act, 1948 shall not be taxable (before and after 01.07.2012) (Finance Act, 2014)

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Nature Provision

Government Authority

(a) Government Authority means an Authority / Board / State Legislature set by an Act of Parliament / State Legislature or established by the Government.

(b) Government holds atleast 90% or more participation by way of equity or control. (c) Its objective is to carry out any function entrusted to a Municipality under Article 243W of the

Constitution.

Returns to be given by SEZ

The SEZ Unit or the Developer shall furnish to the Jurisdictional Superintendent of Central Excise, a quarterly statement, in Form A–3, furnishing the details of specified services received by it without payment of service tax, by 30th of the month following the particular quarter. (Notification No.15/2013 dt. 21.11.2013)

Remittance of Foreign Currency

1. Service tax is not payable because it is a transaction in money.Even if an indian service provider remits currency abroad it is not a taxable service as service is provided a person located outside India.

2. However where an agent in India is appointed by the foreign remitter to facilitate remittance and a commission or fee received by such agent, thewn he is covered under definition of intermediary. Under Place of Provision of Service Rules, location of service provider is the plaxce of provision of service.(CIRCULAR NO. 180/06/2014-ST, DATED 14-10-2014)

Changes in Abatement of Service Tax

1. Instead of Renting of Motor Vehicle, it shall be considered as “Renting of Motor Cab”. 2. Abatement and CENVAT Credit:

Service Taxable Value

Condition

Goods Transport Agency 25% Service receiver can claim the abatement, if CENVAT Credit is not taken by the Service Provider

Services relating to Chit 70% CENVAT credit on inputs, input services and capital goods is not availed

Tour Operator Multiple %

CENVAT credit on inputs, input services and capital goods is not availed. Input service of another tour operator is eligible for CENVAT

Renting of Motor Cab 60%

(a) CENVAT Credit for Inputs, Capital Goods and Input Services.

(b) Input Services in relation to renting motor cab can be taken.

(c) CENVAT Credit for input service of renting of motor cab has been claimed in the following manner –Full credit on input service when the person has paid tax on 40% of value or 40% of input service when the person has paid tax on entire value.

Transport of passengers (with / without accompanied belongings), by a contract carriage (except motor cab) and radio taxi

40% CENVAT Credit has not been taken in respect of inputs, Capital goods and input services.

Transport of goods in a vessel 40% Earlier taxable value was 50%

(NOTIFICATION NO.8/2014-ST, dt.11.07.2014)

Place of Provision of Service Rules, 2012

Place of Provision of Service Rules

1. "Intermediary" means a broker, an agent or any other person, who arranges or facilitates a provision of a service or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.

2. As per Rule 4, Where goods are to be physically made available to service provider for providing service such as repairs, place of provision of service shall be the place of performance of service. However this criterion shall not apply where such goods are imported and are exported after Repairs without using them in taxable territory.i.e. in such case, the place of provision shall be as per Rule 3 i.e location of service receiver.

3. As per rule 9, in case of hiring of any means of transport for a period of one month, the place of provision shall be location of service provider, Such means include yachts but do not include aircraft and other vessels. (NOTIFICATION NO.14/2014-ST, DATED 11-7-2014)

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Nature Provision

Valuation of Taxable Services

Works Contract (Determination of Value) Rules

In case of works contract services like (a) Maintenance or repair or reconditioning or restoration or servicing of any goods (b) Maintenance or repair or completion and finishing services such as glazing or plastering or floor

and wall tiling or installation of electrical fittings of immovable property, Taxable Value shall be 70% of the total amount charged (NOTIFICATION NO.11/2014-ST, dt.11.07.2014)

Service Tax Procedures

Payment of service tax

Every assessee shall deposit the service tax electronically. But AC / DC may allow the assessee to deposit through any other mode for reasons to be recorded in writing. (Notification No.9/2014 dt. 11.07.2014)

Interest Rates for delayed payment of service tax

Period of delay from due date Interest rate

Upto 6 Months 18%

6 – 12 Months 24%

Greater than 12 Months 30%

(Notification No.12/2014-ST, dt.11.07.2014)

Additional Designations / Authorities

Any reference to the authorities mentioned in the first column shall apply to the authorities mentioned in the second column also:

Earlier Reference to Now refers to

Chief Commissioner of Customs

Principal Chief Commissioner / Chief Commissioner of Customs

Commissioner of Customs Principal Commissioner / Commissioner of Customs

All powers vested with the authorities mentioned in the first column shall also vest with the authorities mentioned in the second column.

(Notification No.16/2014–Cus(NT)dt. 11.07.2014)

Power to issue instructions

The Board or the CCCE may issue instructions for any incidental or supplemental matters for the implementation of the provisions of the Act. (NOTIFICATION NO.19/2014-ST, DATED 25-8-2014)

Sec.83 – Exemption provisions

The provisions of central excise under Section 5A(2) relating to exemptions are applicabe to the exemptions under Service Tax provisions also. Further, the provisions relating to Information Returns as mentioned in Central Excise Act u/s 15A and 15B shall also apply to service tax. (Finance Act, 2014)

Sec.94 – Formation of Rules

The Central Government may make rules for the following: (i) Imposing the duty of furnishing information, keeping records and the manner in which such

records shall be verifie, on the persons liable to pay service tax, for the proper levy and collection of the tax.

(ii) Make provisions for withdrawal of facilities or imposition of restrictions (including restrictions on utilisation of CENVAT credit) on service provider or exporter, for dealing with evasion of tax or misuse of CENVAT credit.

(iii) Authorisation of the CBEC or CCCEs to issue instructions, for any incidental or supplemental matters for the implementation of the provisions of this Act.

(iv) Any other matter which by this Chapter is to be or may be prescribed. Note: Additional powers vested with the Central Government. (Finance Act, 2014)

Discharge Certificate under VCES (Voluntary Compliance Encouragement Scheme)

• As per VCES, a declaration shall become conclusive only upon issuance of acknowledgement of discharge. Further, the acknowledgement of discharge in Form VCES–3 shall be issued within 7 working days from the date of furnishing of details of payment of tax dues in full along with interest, if any, by the Declarant.

• Upon payment of the tax dues in full, along with interest, if any, Chief Commissioners are also advised that they should ensure that the discharge Certificate is issued promptly, and not later than the stipulated period of 7 days. [Circular No.176/2/2014–ST dt. 20.01.2014]

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Nature Provision

Role of Designated Authority under VCES

The Designated Authority should not ask for any other undertaking or declaration beyond what has been prescribed in the Scheme. Declarant would pay a minimum 50% of the tax dues by 31.12.2013. Rest of the payment may be made by 30.6.2014, without any interest, and any amount remaining unpaid on 30.6.2014 shall be paid by 31.12.2014, with interest for the period of delay beyond 30.6.2014. There is no bar to pay these amounts in installments. The Scheme does not envisage investigation by the Designated Authority into the veracity of declaration. Only if the Commissioner has reason to believe that the declaration filed by the Declarant is substantially false, he may, serve notice on the declarant requiring him to show cause why he should not pay, the tax dues not paid or short–paid. (Instruction No. B1/19/2013 dt. 11.12.13)

Service Tax in relation to inward remittances from abroad to beneficiaries in India – Transaction Flow is as under: 1. Step 1: Remitter located outside India (say 'A') approaches a Money Transfer Service Operator (MTSO)/bank (say B)

located outside India for remitting the money to a beneficiary in India; 'B' charges a fee from 'A'. 2. Step 2:'B' avails the services of an Indian entity (agent) (say 'C') for delivery of money to the ultimate recipient of

money in India (say 'E'); 'C' is paid a commission/fee by 'B'. 3. Step 3:'C' may avail service of a sub-agent (D). 'D' charges fee/commission from 'C'. 4. Step 4:'C' or 'D', as the case may be, delivers the money to 'E' and may charge a fee from 'E'. Service Tax issues are discussed as under: No. Issues Clarification 1. Whether service tax is payable on remittance received from

abroad? No service tax as it amounts to a transaction in money

2. Whether the service of an agent or the representation service provided by an Indian entity/ bank to a Foreign Money Transfer Service Operator (MTSO) in relation to money transfer falls in the category of intermediary service?

Yes. The Indian bank or other entity acting as an agent to MTSO facilitates in the delivery of the remittance to the beneficiary in India. The agent receives commission. Hence, it is liable for service tax as the place of provision of service is in India (as per Rule 9)

3. Whether service tax would apply on the amount charged separately from the beneficiary who receives remittance in the taxable territory, for the service provided by the Indian bank

Yes. As the service is provided by Indian bank to a person located in taxable territory, the Place of Provision is in the taxable territory. Therefore, service tax is payable on amount charged separately, if any.

4. Whether services provided by sub-agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax?

Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.

Service Tax on Resident Welfare Association (RWA) Circular No. 175/01/2014–ST, dated 10–1–2014

Issue Clarification

1.

In a Residential Complex, monthly contribution collected from Members, is used by the RWA for the purpose of making payments to the third parties, for commonly used services or goods. Example.for providing security service, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of Electricity Bill for the common area and lift, etc.]. Is Service Tax leviable?

Such contributions (meant for sourcing of goods/ services from third party for common use of members) would be liable for service tax subject to a monetary ceiling of `5,000 p.m. per Member.


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Issue Clarification

2. If the contribution of a member/s of a RWA exceeds ` 5,000 p.m. how should the Service Tax liability be calculated?

If the monthly contribution per any or some of the members exceeds ` 5,000, the entire contribution of those members whose per month contribution exceeds ` 5,000 would be ineligible for the exemption. Service Tax would then be leviable on the aggregate amount of monthly contribution of such Members.

3. Is the Small Service Provider exemption of `10,00,000 eligible for RWA?

The Exemption of `10,00,000 is available for the aggregate value of services provided by RWA.

4. Does “Aggregate Value” for the purpose of threshold exemption, include the value of exempt service?

Aggregate Value does not include the value of services which are exempt from Service Tax.

5.

If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a “Pure Agent” of its members, is exclusion from value of taxable service?

Expenditure or Costs incurred by a RWA as a Pure agent of the Member, shall be excluded from the value of taxable service, subject to the conditions specified in the Rule.

6. Is CENVAT Credit available to RWA for payment of Service Tax? RWA may avail cenvat credit and use the same for payment of Service Tax, as per the CENVAT Credit Rules.

Procedure for Cancellation of Service Tax Registration (Trade Notice No.18/2013–ST dt. 19.12.2013)

1. Reasons for Surrender / Cancellation:

(a) Assessee's Turnover is below the threshold limit.

(b) Change in the constitution of Assessee, e.g. from Partnership to Company or Amalgamation, etc.

(c) Death of Proprietor.

(d) Assessee closing down his taxable service business.

(e) Assessee has centralized registration and hence wants to surrender his other multiple registrations of branches.

(f) Assessee has shifted its office from the jurisdiction of one Division/Commissionerate to another, and instead of requesting for change in the Location Code and Premises Code of the Assessee, a fresh registration has been taken at the new address.

2. Procedure: All the Assessees who wish to surrender their Registration Certificates, shall file their application on–line

using the ACES module on www.aces.gov.in. The Assessee shall submit signed copy of print out of the application generated by the ACES System to the Jurisdictional Superintendent of “Centralized Surrender Cell” in the concerned Division Office along with the following documents:

(a) Application Form & Undertaking for Surrender of Service Tax Registration.

(b) Copies of ST–3 Returns from the date of taking registration till the date of surrender (maximum 6 returns only)

(c) In case the Assessee has not filed ST–3 Returns for the period mentioned above, then it is not necessary for him to file the fresh return for surrender purpose, if his Taxable Turnover is below the exemption limit. He can apply for waiver of penalty under Rule 7C of STR for non–filing of returns. The fact of non–filing of return should be dearly mentioned in the Undertaking.

(d) Copies of Profit & Loss Account and Balance Sheet from the date of taking registration to the date of surrender but for a maximum of last 3 financial years only. However, if Balance Sheet, Profit & Loss statement has not been prepared, the Applicant may submit copies of Income Tax Return for the said period. If said Return has also not been filed, then, the applicant should provide some evidence like Bank Statement to satisfy the office about the correctness of reason for surrender.

(e) Details of Show Cause Notice, pending adjudication, details of confirmed demands, details of cases, audit, etc.

(f) Other relevant proofs must be given based on the reason for change.


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D. CENVAT Credit Rules, 2004

Topic Subject / Reference

Definitions

Treatment of 2 units surrounded by common boundary for CENVAT

Facts of the case: The Assessee had two divisions namely, Textile Division and Plastic Division, situated adjacent to each other on a common ground and surrounded by a common boundary wall. Both the units had separate Central Excise Registrations, but the Assessee, a single entity, had a common PAN under the Income–Tax Act. In order to receive continuous and uninterrupted supply of electricity, the Assessee installed DG Sets/Electricity Generation Plant to be used in the factory of the Textile Division, and it used Furnace Oil as Fuel in the generation of electricity and claimed CENVAT Credit on the same.

When the Assessee's other unit required electricity, the Assessee supplied part of the electricity so generated to its other unit. The contention of the Revenue was that the Assessee ought to reverse the credit taken on Furnace Oil used in the generation of electricity and supplied to the other unit.

Decision of the case: The High Court held that credit could be availed on eligible inputs utilized in the generation of electricity only to the extent the same were used to produce electricity within the factory registered for that purpose (Textile Division). However, credit on inputs utilized to produce electricity which was supplied to a Factory registered as a different unit (Plastic Division) would not be allowed. [Sintex Industries Ltd vs CCEx 2013 (287) ELT 261 (Guj.)]

Place of removal

Place of removal shall include: (a) a factory or any other place or premises of production or manufacture of the excisable goods; (b) a warehouse or any other place or premises wherein the excisable goods have been permitted to

be deposited without payment of duty; (c) a depot, premises of a consignment agent or any other place or premises from where the excisable

goods are to be sold after their clearance from the factory,from where such goods are removed;'

Clarification:Place of removal needs to be ascertained in term of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930. Payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk are not the relevant considerations to ascertain the place of removal. The place where sale has taken place or when the property in goods passes from the seller to the buyer is the relevant consideration to determine the place of removal. (CIRCULAR NO.988/12/2014-CX, DATED 20-10-2014)

Input Service

Facts: • The Assessee was engaged in the manufacture of medicaments. Since, the medicament could be

manufactured only upon approval of the Regulatory Authority after the product undergoes technical testing and analysis, the Assessee availed the services of various technical testing and analysis agencies for testing of clinical samples prior to commencement of commercial production. These samples were manufactured in small trial batches and removed after payment of excise duty.

• The assessee availed CENVAT Credit of Service Tax paid by it on such testing services, and also on the Commission paid to Foreign Agents for the sale of such medicaments.

• However, the Department alleged that unless goods reached the commercial production stage, CENVAT Credit was not admissible. However, the Department contended that there was a clear distinction between sales promotion and sale, and a Commission Agent is directly concerned with sales rather than sales promotion.

• Therefore, Service provided by Commission Agent would not fall within the purview of the main or inclusive part of the definition of Input Service.

Decision: • The activity of testing and analysis of the trial batches was in relation to the manufacture of final

product as unless such trial batches were tested and approval from the regulatory authority was obtained, the final product could not be manufactured. Hence, such Testing Services are considered as Input Services.

• As regards the Commission paid to Foreign Agents, the High Court observed that there was nothing on record to indicate that the Foreign Agents were actually involved in any sales promotion activities like advertising which was covered in inclusive part of definition of Input Service. Hence, not covered as Input Service. [CCEx vs Cadila Healthcare Ltd 2013 (30) S.T.R. 3 (Guj.)]


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First Stage Dealer

First Stage Dealer includes an Importer who sells goods imported by him under the cover of an Invoice on which CENVAT Credit may be taken, and such Invoice shall include an Invoice issued from his Depot or the Premises of his Consignment Agent.

Note: Earlier, the Dealer who purchases from the Importer was considered as First Stage Dealer. However, w.e.f. above amendment, such Dealers are excluded from the definition of First Stage Dealers. (Notification No.18/2013 dt. 31.12.13)

CENVAT CREDIT – CONDITIONS

Time limit for claiming CENVAT

Manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of the eligible documents mentioned in Rule 9 of CENVAT Credit Rules. (NOTIFICATION NO. 21/2014-C.E. (N.T.), DATED 11-7-2014)

CENVAT Credit on Input services liable under Reverse Charge mechanism

1. In respect of input service where 100% of the service tax is to be paid by the service receiver, credit shall be allowed after the service tax is paid.

2. In respect of input service, where the service receiver and service provider jointly share the liability to pay service tax, CENVAT credit shall be allowed on or after the day on which the service value and service tax thereon is paid as indicated in invoice, bill or challan.

3. In case if the above payment is not made within 3 months of the date of the invoice, bill or challan, the manufacturer / the service provider, shall pay an amount equal to the CENVAT credit availed on such input service

4. In case the said payment is made, the manufacturer or output service provider, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules. ( NOTIFICATION NO. 21/2014-C.E. (N.T.), DATED 11-7-2014)

CENVAT Credit in case of export of services

If such payment is received after the specified or extended period allowed by the RBI but within 1 year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier under Rule 6(3) based on documentary evidence of the payment so received. ( NOTIFICATION NO. 21/2014-C.E. (N.T.), DATED 11-7-2014)

Reversal of Credit

Reversal of Credit – Rule 3

Due Date of Payment: The amount payable under sub–rules (5), (5A), (5B) and (5C), unless specified otherwise, shall be paid by the Manufacturer of goods or the Provider of Output Service, by debiting the CENVAT Credit or otherwise, on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March.

Recovery: If the Manufacturer of goods or the Provider of Output Service fails to pay the amount payable under sub –rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT Credit wrongly taken and utilised. [Notification No. 01/2014–CX (NT), dated 08.01.2014]

Reversal of Input Service Credit in case of Remission of Duty

Where on any goods manufactured or produced by an Assessee, the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the CENVAT Credit taken on the inputs or Input Services used in or in relation to the manufacture or production of said goods shall be reversed.

Impact: Earlier Rule 3(5C) required only reversal of Input Credit. However, pursuant to the above, even Input Service Credit shall be reversed. [Notification No. 01/2014–CX (NT), dated 08.01.2014]

Input Service Distributor


Rule 7 Clause (d) has been amended to provide that the credit of service tax attributable to service used by more than one unit shall be distributed pro–rata, on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said period [Notification No 05/2014 – CX., (N.T.), dated 24.02.2014]

Definition of “Relevant Period”

For the purpose of Rule 7, “Relevant period” has been defined as follows – (a) If the Assessee has Turnover in the Financial Year preceding to the year during which credit is to

be distributed for month or quarter, as the case may be, the said financial year, or (b) If the Assessee does not have Turnover for some or all the units in the preceding financial year, the

last quarter for which details of Turnover of all the units are available, previous to the month or quarter for which credit is to be distributed. [Notification No 05/2014 – CX., (N.T.), dated 24.02.2014]


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Illustration for calculation under Input Service Distributor: An Input Service Distributor (ISD) has a total of 4 units namely 'A', “B', 'C' and 'D', which are operational in the current year. The credit of input service pertaining to more than one unit shall be

distributed as follows: X = Turnover of unit 'A' during the relevant period Y = Total turnover of all its unit i.e. 'A'+'B'+'C'+'D' during the relevant period

Z = Total credit of service tax attributable to services used by more than one unit. Similarly the credit shall be distributed to other units 'B', 'C' and 'D'. An ISD has a common input service credit of ` 12,000 pertaining to more than one unit. The ISD has 4 units namely 'A', 'B', 'C' and 'D' which are operational in the current year.

Unit Turnover in the previous year (in `)

A (Manufacturing Excisable Goods) 25,00,000

B (Manufacturing Excisable and Exempted Goods) 30,00,000

C (providing exclusively exempted service) 15,00,000

D (providing taxable and exempted service) 30,00,000

Total 1,00,00,000

The Common Input Service relates to units 'A', 'B' and 'C', the distribution will be as under:

(i) Distribution to 'A' = 12000 × 01,00,00,00

25,00,000 = 3,000

(ii) Distribution to 'B' = 12000 × 01,00,00,00

30,00,000 = 3,600

(iii) Distribution to 'C' = 12000 × 01,00,00,00

15,00,000 = 1,800

(iv) Distribution to 'D' = 12000 × 01,00,00,00

30,00,000 = 3,600

The distribution for the purpose of Rule 7(d), will be done in this ratio in all cases, irrespective of whether such common input services were used in all the units or in some of the units. (CIRCULAR NO.178/4/2014-ST, DATED 11-7-2014)

Distribution to 'A' = Y

X × Z

Records and Returns

Returns u/r 9

Rule 9 has been amended to provide that Registered Importers shall also be required to file periodic returns as may be specified by the Board. [Notification No 9/2014 – CE (NT), dated 28.02.2014] Note: The Board has notified the same form as applicable for First Stage and Second Stage Dealers shall also be filed by Registered Importers on a quarterly basis [Notification No. 11/2014 CE (NT) dated 28.02.2014]

Valid Documents for CENVAT Credit

CENVAT Credit shall be taken on basis of following document in case of transportation of goods by rail – a Service Tax Certificate for transportation of goods by Rail (herein after referred to as STTG Certificate) issued by the Indian Railways, along with the photocopies of the railway receipts mentioned in the STTG certificate(NOTIFICATION NO. 26/2014-C.E. (N.T.), dt27-8-2014)

CENTRAL GOVERNMENT’s POWERS

Restrictions on Service Provider

As per Rule 12AAA, the Central Government is now empowered to impose restriction on Taxable service provider to prevent misuse of CENVAT Credit.(NOTIFICATION NO.25/2014-C.E. (N.T.), DATED 25-8-2014)


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CG’s Power to impose restrictions (Rule 12CCC of CER, 2002)

CG’s Powers: The Central Government may specify the nature of restrictions including restrictions on utilization of CENVAT Credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by the Chief Commissioner of Central Excise. Restrictions shall be on a manufacturer, first stage and second stage dealer or an exporter. Situation: In case of misuse of CENVAT Credit, evasion of duty or any offences [Notification No.14/2014–CE (NT), dated 21.03.2014]

Rule 5B – Procedures for Refund – Partial Reverse Charge Situation

[Notification No.12/2014–C.E.(N.T.), dated 03.03.2014] 1. Applicability: Refund of the Unutilized CENVAT Credit shall be claimed, if it used for following Output Services

(hereinafter referred to as “Partial Reverse Charge Services”) (a) Renting of a Motor Vehicle designed to carry passengers on non–abated value, to any person who is not engaged

in a similar business, (b) Supply of manpower for any purpose or security services, or (c) Service portion in the execution of a works contract.

2. Refund: Unutilised CENVAT Credit taken on Inputs and Input Services during the half year for Partial Reverse Charge = A – B, where,

A = CENVAT Credit taken on Inputs and Input Services during the half year

× yearhalfthatinServicesandGoodsofTurnoverTotalyearhalftheduringeargChverseRePartialunderServiceOutputofTurnover

B = Service Tax paid by the Service Provider for such Partial Reverse Charge Services during the half year.

3. Conditions and Safeguards:

(a) Refund ≤ ST Liability paid or payable by the Service Receiver w.r.t. partial reverse charge. (b) The refund amount claimed shall be debited by the Claimant from his CENVAT Credit account. (c) If amount sanctioned is less than the amount of refund claimed, then the Claimant may take back the credit of the

difference between the amount claimed and amount sanctioned. (d) Only one refund shall be claimed for every 6 months under this Notification. (e) The Refund claimed shall be filed after filing the Service Tax Return. (f) No refund shall be admissible for the CENVAT Credit taken on Input or Input Services received before 01.07.2012.

4. Procedure for filing the Refund Claim:

(a) The Output service provider shall submit an application in Form A along with all the specified documents to the Jurisdictional AC / DC, before the expiry of 1 year from the due date of filing of return for the half year. Note: The last date of filing of application in Form A, for the period starting from 1st July 2012 to 30th September 2012, shall be 30th June 2014.

(b) In case of more than one return, time limit for of one year shall be calculated from the due date of filing of the Return for the later period.

(c) Copies of the Return (s) filed for the half year for which the refund is claimed shall also be submitted while claiming the refund.

(d) AC / DC shall satisfy himself of the correctness / completeness of the refund claim. He may call for any document, in case he has reason to believe that information provided is incorrect / insufficient, and further enquiry needs to be caused before the sanction of refund.


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Prohibited Activities under CE Rules, & Consequences [Notification No.16/2014–C.E.(N.T.), dated 21.03.2014]

1. Applicability: Only in cases where the duty of Excise or CENVAT Credit alleged to be involved exceeds ` 10 Lakhs – 2. Offences: If a Manufacturer, First Stage or Second Stage Dealer, or an Exporter including a Merchant Exporter, is

prima facie found to be knowingly involved in any of the following – (a) removal of goods without the cover of an Invoice and without payment of duty, (b) removal of goods without declaring the correct value for payment of duty, where a portion of Sale Price, in excess

of Invoice Price, is received by him or on his behalf but not accounted for in the books of account, (c) taking of CENVAT Credit without the receipt of goods specified in the document based on which the said credit has

been taken, (d) issuing Duty of Excise Invoice without delivery of goods specified in the said Invoice (Note: The Chief Commissioner of

Central Excise may order suspension of the registration granted for First Stage or Second Stage Dealer.) (e) claiming of refund or rebate based on the duty of excise paid or taking of CENVAT Credit on Invoice or other

documents which a person has reason to believe as not genuine, (Note: The Chief Commissioner of Central Excise may order withdrawal of the self sealing facility for export consignment, and each export consignment shall be examined and sealed by the Jurisdictional Central Excise Officer.)

(f) removal of inputs as such on which Cenvat credit has been taken, without paying an amount equal to credit availed on such inputs as per the CENVAT Credit Rules, 2004.

3. Withdrawal of Facilities: The Chief Commissioner of Central Excise may order for withdrawal of facilities or impose

the restrictions, namely– (a) Payment of ED for each consignment at the time of removal of goods instead of monthly payment. (b) Payment of ED without utilizing the CENVAT Credit (c) Maintenance of movements of the principal inputs on which CENVAT Credit has not been taken. (d) Intimation to the Superintendent regarding the receipt of principal inputs in the factory and making it available for

verification upto the period specified in the order, (e) Every removal of goods from factory may be ordered to be under an Invoice which shall be countersigned by the

Inspector or Superintendent of Central Excise, before the said goods are removed from the Factory or Warehouse, provided that the person is found to be knowingly involved in committing any of the offences.

Notes: (a) The person against whom the order has been passed, may continue to take CENVAT credit, however he would not

be able to utilize the credit. (b) If the Assessee commits offences for the first time, the restrictions shall apply for a period not more than 6 months

and for subsequent offences, restriction shall apply for a period not more than 1 year. (c) During the period of suspension, the said Dealer shall not issue any Central Excise Invoice.

E. Common Topics

Section Provision

Authority for Advance Rulings

Notified persons for AAR

Resident Private Limited Company shall be a person notified for eligible applicant before Authority for Advance Ruling. (Notification No.15/2014–Cus(NT)dt. 11.07.2014, (Notification No.51/2014–Cus(NT) dt. 11.07.2014))

Demand, Recovery, Refund, Drawback

Refund – Doctrine of unjust enrichment

Decision: As recorded by the Adjudicating Authority, the incidence of duty had not been passed over to the purchaser of finished goods. Such finding of the Adjudicating Authority had attained finality, as nobody challenged the said order. Due efforts were made to find out whether amount of duty had been passed over to purchasers, who are either government Companies or Corporations controlled by Government.


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Section Provision Even Purchasers had admitted fact that amount of duty paid by Assessee had not been passed over to said purchasers. In other words, the amount of duty had not been recovered from the purchasers. Hence, refund was allowable. [International Conveyors Ltd vs Commissioner of Central Excise & Customs [2014] 43 taxmann.com 75 (SC)]

Is Assessee required to pay interest in case of voluntary payment of time–barred duty?

Fact: In a case where the Assessee voluntarily pays the duty short paid, recovery of which has become time–barred, can he be required to pay interest on the duty so paid? Observations: The High Court observed that in case the recovery of the unpaid or short paid duty has become time–barred, if the Manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same. Thus, if he does it voluntarily despite completion of period of limitation, he should not, further be saddled with the liability to pay statutory interest. Decision: The High Court held that the Assessee was not required to pay interest in case of voluntary payment of time–barred duty. [Gujarat Narmada Fertilizers Co. Ltd 2012 (285) E.L.T. 336 (Guj.)]

Extended period where Assessee had sought clarification from wrong authority

Facts: The Assessee imported Furnace Oil and supplied the same to sister unit for generation of electricity, and the sister unit supplied electricity to the Assessee. The Assessee also claimed exemption on import of Furnace Oil under the same Notification as was claimed by its sister unit. As the Assessee was procuring Furnace Oil for captive Power Plant of another unit, it sought a clarification from the Development Commissioner seeking as to whether import of furnace oil and receipt of electricity would be liable to duty. The Development Commissioner replied in favour of the Assessee, and the Assessee claimed the exemption. However, in spite of the clarification from the Development Commissioner, a Show Cause Notice demanding duty was issued on the Assessee more than six months after he had imported furnace oil on behalf of it sister unit. The contention of the Revenue was that the entitlement of duty free import of fuel for its captive power plant lies with the Owner of the captive power plant, and not the consumer of electricity generated from that power plant. Decision: For invoking extended period of limitation, the intention to deliberately default is a mandatory pre–requisite. The assessee had shown bona fide conduct by seeking clarification from the Development Commissioner and in a sense had offered its activities to assessment. Only on receiving a satisfactory reply from the Development Commissioner did the Assessee claim the exemption. Hence, there was no deliberate default, and extended period is not invokable. [Uniworth Textiles Ltd vs CCEx. 2013 (288) ELT 161 (SC)]

Is non–filing of documents despite several opportunities, a sufficient ground for passing a non–speaking order?

Facts: The Adjudicating Authority had disallowed the Refund Claim filed by the Assessee and called for certain additional documents, although similar refund claims filed by the Assessee for the earlier periods had been allowed by the Adjudicating Authority without these additional documents. The Assessee failed to furnish the additional documents despite being given several opportunities to produce the same. The Adjudicating Authority passed an order rejecting the refund claim but failed to record any reason as to why it differed with the earlier decisions. Decision: If the assessee had failed to furnish additional information, it is obligatory on the part of the Adjudicating Authority to record a finding as to why the documents furnished by the Assessee were not sufficient to allow his claim, and why additional documents were necessary, especially when on the basis of similar documents furnished by the Assessee in the past, the claims had been allowed. Thus, the order of the Adjudicating Authority is liable to be set aside. [DBOI Global Service Pvt. Ltd vs UOI 2013 (29) S.T.R. 117 (Bom.)]

Determination of ST Liability – Demand

Sec.73A(4B) – Time Limit for Determination of ST due

Time Limit for determination of ST liability: The Central Excise Officer shall try to determine the amount of ST liability as follows:

Situation Time Limit for determination of ST

Cases whose limitation period is 18 Months 6 Months from the date of notice

Fraudulent cases and those fraudulent cases identified during audit / investigation 1 Year from the date of notice

(Finance Act, 2014)

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Section Provision

Recovery of Dues

Sec.87 – Recovery of ST dues in case of sale of business / trade

Situation: The person–in–default transfers or disposes of his business or trade in whole or in part, or effects any change in the ownership to another person Impact: In order to recover service tax and other sums due from the predecessor on the date of transfer, all goods, which are in the possession of the successor must be attached and sold by the officer empowered by CBEC (subject to written approval of the Commissioner of Central Excise). (Finance Act, 2014)

Appeals and Revision

Sec.86(1A) –Formation of Committees

CBEC may form Committee of Commissioners / Chief Commissioners by passing an order in this regard. Note: Earlier, the formation can be done only passing notification in Official Gazette. Now, it can be formed by passing order instead of committee. (Finance Act, 2014)

Sec.86(6A) – Fees for Appeal before CESTAT

Every appeal before CESTAT must be accompanied by a fees of ` 500. Note: Earlier, fees was applicable only for appeal for grant of stay. Now, all appeals by the assessee must be accompanied by ` 500. (Finance Act, 2014)

Res Judicata – Not applicable

Explanation: If an appeal has not been filed by the Department following instructions issued for not filing appeal below the monetary limit, no person, being a party in appeal, shall contend that the Department has acquiesced in the decision on the disputed issue by not filing appeal. The decisions/judgments accepted for reasons of monetary limit do not have precedent value. INSTRUCTION [F.NO.390/MISC./163/2010–JC], DATED 12–12–2013

Can the Assessee pay reduced penalty of 25% beyond the time prescribed under section 11AC?

Facts: Penalty u/s 11AC was imposed on the Assessee. The Assessee paid the duty sought to be evaded and interest payable thereon, before the passing of the adjudication order. However, the Assessee did not pay 25% of the penalty imposed u/s 11AC within 30 days from the date of the communication of the order. Instead of paying 25% of the penalty within the stipulated time, the Assessee chose to file an appeal against imposition of penalty u/s 11AC.

Point of dispute: The Revenue contended that Tribunal could not permit the Assessee to pay reduced penalty of 25% beyond the time prescribed u/s 11AC.

Observations of the Court: The High Court elucidated that when the 25% penalty was required to be paid within 30 days, it would not be open to the Appellate Authority or the Court to direct the assessee to pay 25% penalty beyond the stipulated time period.

Decision: The High Court held that Tribunal could not permit the Assessee to pay 25% penalty beyond the time prescribed under the first and second proviso to erstwhile section 11AC [now Sec.11AC(1)(c)]. CCEx. vs Castrol India Ltd 2012 (286) E.L.T. 194 (Bom.)

Pendency of Appeal – Vacation of Stay

Where stay orders have been issued by CESTAT, and the appeal itself not decided within 365 days of such stay order, in terms of Sec.35C(2A) of the Central Excise Act, 1944, such stay orders stand vacated after 365 days, even if the delay due the department [J.P. Transformers – [2013 TIOL 1152 HC ALL (ST)]

Sec.35B / Sec.129A(7) – Fees for Appeal before CESTAT

Every appeal before CESTAT must be accompanied by a fees of ` 500. Note: Earlier, fees was applicable only for appeal for grant of stay. Now, all appeals by the assessee must be accompanied by ` 500. (Finance Act, 2014)

Sec.35C / Sec.129B Time for disposal of appeal by CESTAT

The time for disposal of appeal by CESTAT shall be 3 years from the date of application. This time period shall be applicable even if it has granted stay on the recovery of demand. The stay shall not be vacated automatically. Note: Earlier, if stay is granted on recovery, CESTAT must dispose the appeal within 180 days from date of stay. It can be extended for further 185 days subject to conditions. However, such condition is removed. Hence, even if the appeal is not disposed within 365 days, stay shall not be vacated. (Finance Act, 2014)

Sec.35E proviso / Sec.129D(3) proviso Committee of Chief Commissioners

The Committee of Chief Commissioners may review the orders / decisions of the Commissioner and may order to apply to the CESTAT for determination of certain points. However, the Committee must pass the above order within 3 Months from the date of communication of Commissioner’s order. However, as per the amendment, the Board may extend such time by further 30 days on reasonable cause. (Finance Act, 2014)

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Section Provision

Sec.35F / Sec.129E – Compulsory Pre–deposit before appeals

The Appellate Authority shall not accept any appeal unless the appellant has made a pre-deposit of the following amounts:

Appellate Authority Original Order passed by % of Pre–deposit

Commissioner (Appeals) An Adjudicating Authority below the rank of Commissioner 7.5%

Appellate Tribunal Commissioner 7.5% Appellate Tribunal Commissioner (Appeals) 10%

Maximum Pre–deposit: ` 10 Crores % is calculated on (a) Total Duty Amount – if the dispute is related to Duty / Duty & Penalty (b) Total Penalty Amount – if the dispute is related to penalty alone

Duty amount includes (a) Demand u/s 11D (Excess collection of ED) (b) Erroneous CENVAT Credit taken (c) Amount payable u/r 6 of CENVAT Credit Rules, 2004 in relation to exempted goods and exempted services.

The above provisions shall not apply to the stay applications and appeals pending before any appellate authority prior to the Finance Act, 2014.

Note: Earlier, the pre–deposit is on specific direction of the appellate authority. However, now it is made compulsory w.e.f. Finance Act, 2014. (Finance Act, 2014)

Interest on refund of Pre–deposit (Sec.35FF / Sec.129EE)

Interest: Where an pre–deposit is to be refunded due to the order of the appellate authority, interest shall be paid at such rate (between 5% p.a. and 36% p.a. as notified by the Central Government)

Period shall be calculated from the date of payment till the date of refund.

Note: Interest is applicable only after the expiry of 3 months from the date of Appellate Authority’s order. Now its applicable from date of payment itself. (Finance Act, 2014)

Appeals before Supreme Court (Sec.32L)

In relation to appeals, the determination of any question on the duty rate shall include determination of taxability or excisability of goods for the purpose of assessment.

Note: This amendment is clarification for the word “Question on rate of duty”. As the Supreme Court deals with the question on rate of duty, this amendment seeks to clarify the meaning. (Finance Act, 2014)

Monetary Limits for appeals (Sec.35R)

If the Central Excise Officer has not filed the appeals in a particular case, then Commissioner (Appeals) must consider an appeal / revision have regard to such circumstances (as per the instructions on monetary limits). (Finance Act, 2014)

Monetary Limits for appeals

If the Commissioner decides not to file an appeal before Tribunal / High Court against an unfavorable decision, solely on the ground that the amount involved was less than the threshold limit, then Chief Commissioner’s concurrence is not required. However, if the Commissioner decides not to file an appeal because of the merits of the case, he has to obtain the Chief Commissioner’s concurrence even if the amount involved is less than the threshold limit. (Standing Order No.11/2014 dt. 01.09.2014)

Sec.35B / Sec.129A(1) – Appeal before CESTAT

CESTAT can reject the appeal filed against the orders of the Commissioner of Customs (Appeals), Board / Appellate of Commissioner of Customs / Order passed by the Board or the Commissioner of Customs, if the penalty / fine in such order does not exceed ` 2 Lakhs. Note: Earlier, the amount was ` 50,000. Now increased to ` 2,00,000. (Finance Act, 2014)

Sec.35B / Sec.129A(1B)– Formation of Committees

CBEC may form Committee of Commissioners / Chief Commissioners by passing an order in this regard.

Note: Earlier, the formation can be done only passing notification in Official Gazette. Now, it can be formed by passing order instead of committee. (Finance Act, 2014)

Sec.35f of the CEA, read with Sec.129e of the CUA Deposit, pending appeal, of duty demanded or penalty levied

1. In the event of appeal against the order of commissioner (Appeals), the amount of pre–deposit to be made is 10% of duty or penalty imposed by commissioner (Appeals). In case of short or non–deposit the appeal is liable for rejection.

2. Payment made during investigation or audit (before appeal) shall be considered as pre deposit. Any short fall shall be paid before filing of appeal. Date of filing shall be deemed as date of deposit.

3. No measures for recovery of amount in excess of amount deposited shall be taken during pendency of appeal provided the appellant provides copy of appeal and proof of deposit to jurisdictional authorities. Recovery shall commence only when the case is disposed.

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Section Provision 4. Appelant shall be entitled to refund of amount deposited if case is decided in his favour along with

interest from the date of payment till the date of refund. The said amount shall be refunded within 15days of receipt of letter seeking refund irrespective of whether the case is challenged with higher authorities.

5. In the event of remand, pre–deposit amount shall be refunded. In the event of partial remand, amount due to government as decided shall be adjusted before granting refund.

6. A Self attested document shall be taken as proof of payment. 7. A simple letter from the person who has made such deposit, requesting for return of the said

amount, along with a self attested Xerox copy of the order in appeal and the document evidencing payment of such deposit, addressed to Jurisdictional AC / DC would suffice for refund of the amount deposited along with interest at the rate specified.

8. The interest rate shall be 6% for delayed refund(CIRCULAR NO. 984/08/2014-CX, DATED 16-9-2014)

Search and Seizure

Sec.82(1) – Search

Situation: If the Joint Commissioner or Additional Commissioner of Central Excise or such other notified Central Excise officer has reasons to believe that any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Chapter, are secreted in any place. Who can search: He may authorise any Central Excise officer to search and seize or may himself search and seize such documents or books or things. (Finance Act, 2014)

Whether smuggled goods can be re–exported from the Customs Area without being released from confiscation?

Facts: Certain goods of the Assessee were seized on account of mis–declaration of particulars of baggage. The passenger in his statement admitted the offence and showed his readiness to pay duty on seized goods or re–shipment of the said goods. The Adjudicating authority determined Total Value of seized goods; ordered confiscation of seized goods u/s 111 of the Customs Act, 1962; imposed penalty on the Assessee; confirmed and ordered for recovery of Customs Duty on the goods with interest, and gave an option to pay Redemption Fine. On appeal by the Assessee, the Appellate Authority allowed re–export of the confiscated goods. Against this order, the Department filed a revision application before the Revisionary Authority u/s 129DD of the Customs Act, 1962.

Decision: The Government noted that the Passenger had grossly mis–declared the goods with intention to evade duty and to smuggle the goods into India. As per sec. 80, when the baggage of the passenger contains article which is dutiable or prohibited and in respect of which the declaration is made u/s 77, the Proper Officer on request of passenger can detain such article for the purpose of being returned to him on his leaving India. Since the passenger neither made true declaration nor requested for detention of goods for re–export, before the Customs Authorities at the time of his arrival at airport, the re–export of said goods could not be allowed u/s 80 of the Customs Act. [Hemal K. Shah 2012 (275) ELT 266 (GOI)]

Confiscation of Goods and Demand of Excise Duty

In a case where the Assessee has been issued a Show Cause Notice regarding confiscation, is it necessary that only when such SCN is adjudicated, can the SCN for demand of Excise Duty and Penalty be issued?

Observations: The High Court observed that since the subsequent Show Cause Notice only formed prima facie view in regard to allegations, it could not be said to be issued after pre–judging the question involved in the matter. Further, it was held that there was no legal provision requiring authorities to first adjudicate the notice issued regarding confiscation and, only thereafter, issue SCN for recovery of dues and penalty. Hence, the Adjudicating Authority could not be restrained from proceeding further with the SCN. [Jay Kumar Lohani vs CCEx 2012 (28) S.T.R. 350 (M.P.)]

Confiscation of Vehicle and release thereof

Facts: Assessee removed liquor without payment of State Excise Duty, and hence the relevant vehicle was confiscated.

Decision: Transportation of any intoxicant in contravention of provisions of the Act or of any Rule or order made or notification issued or any licence, permit or pass, is punishable and any vehicle used for carrying same, is liable for confiscation. Where anything liable for confiscation is seized or detained, the same shall be produced before the Deputy Commissioner who may order confiscation. No Court shall have jurisdiction to make any order with regard to property used in committing any offence and seized under this Act. [State (NCT of Delhi) vs Narender 42 Taxmann 47 (SC)]

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Section Provision

Offences, Penalties and Prosecution

Sec.80 – Waiver of penalty

Penalty shall not be waived if service tax is demanded for non–levy / short levy / non–payment / short payment /erroneous refund due to fraudulent reasons. Such penalty shall be compulsorily levied even if the true and adequate disclosures were available in specified records. Note: Earlier, penalty for the above situation can be waived by the department. However, now it is not possible. (Finance Act, 2014)

Penalty – where Assessee acted bona fide and conflicting court decisions

Facts: At the time, when the Appellant started rendering services, there was no Service Tax levy on Rent–a–Cab service. However, Service Tax was imposed on Rent–a–Cab Service subsequently. A Show Cause Notice was issued on the Appellants, proposing to recover Service Tax with applicable penalty and interest, which the Assessee paid and the Assessee had also subsequently paid ST promply.

The issue was only in relation to the imposition of penalty. The Appellant contended that they did not pay Service Tax at the relevant point of time as it being a new levy; they were unaware of legal provisions. Also, there were divergent views of different Benches of Tribunal, which had added to the confusion, and the issue was debatable.

Decision: The High Court held that even if the appellants were aware of the levy of service tax and were not paying the amount on the ground of dispute with its Clients regarding liability to pay ST, there could be no justification in levying the penalty in absence of any fraud, misrepresentation, collusion or wilful mis–statement or suppression. Moreover, when the entire issue for levying of the tax was debatable, that also would surely provide legitimate ground not to impose the penalty. [Ankleshwar Taluka ONGC Land Loosers Travellers Co. OP. vs C.C.E., Surat–II 2013 (29) STR 352 (Guj.)]

Settlement Commission

Sec.31, 32 (CE), Sec. 127A(f) (Cus) – Setement Comm

Settlement Commission shall be renamed as “Customs, Central Excise and Service Tax Settlement Commission” Note: Earlier, the name was “Customs and Central Excise Commission” (Finance Act, 2014)

Sec.32E (CE), Sec.127B (Cus) – Conditions for application before Settlement Commission

One of the conditions for applying before settlement commission shall be: The assessee must have paid the duties payable along with interest u/s 11AA / 28AA. Note: Earlier, interest u/s 11AB / 28AB was mentioned. However, Section 11AB / 28AB is applicable only in special cases. In regular cases, Section 11AA / 28AA is applicable. Hence, the law is now amended to mention any type of interest must be paid before going to settlement commission. (Finance Act, 2014)

Sec.32E (CE), Sec.127B (Cus.) – Conditions for application before Settlement Commission

One of the conditions for applying before Settlement Commission is to file the returns of production, clearance of goods and excise duty paid thereon. However, if the Settlement Commission is satisfied that there are circumstances for not filing the returns, then it may allow the application after recoding the reasons. (Finance Act, 2014) The applicant has filed a bill of entry or a shipping bill or a bill of export or a baggage declaration or a label or declaration along with the goods imported or exported through post or courieranda show cause notice has beenissued to him by the proper officer. Note: Earlier, baggage declaration / Declaration for postal and courier transactions were not mentioned in the law. (Finance Act, 2014)

Sec.32E (CE), Sec.127B (Cus) – Ineligibility to Settlement Commission

The Applicant shall be entitled to make an application before Settlement Commission, even if the dutiable goods, books of account or other documents are seized. (Finance Act, 2014) Note: Earlier, in case of seizure, the applicant could make an application to the Settlement Commission only after 180 days. However, after the above amendment, the application can be made immediately and the applicant need not wait for 180 days. (Finance Act, 2014)

Sec.32–O (CE), Sec.127L (Cus) – Bar on Subsequent application

The Applicant shall not be allowed to make an application before the Settlement Commission for the second time, if during the first time, settlement order is passed imposing penalty for concealment of particulars of duty liability. Explanation inserted as per the law: Such concealment shall include any concealment made before the Central Excise Officer / Officer of Customs. (Finance Act, 2014)

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Legal Updates in Indirect Taxation · PDF fileShree Guru Kripa’s Institute of...

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Transcript of Legal Updates in Indirect Taxation · PDF fileShree Guru Kripa’s Institute of...