SRD Legal - TAX Update Issue 3 - 20151001

A

GST Central Excise

Service Tax Customs

Foreign Trade

October, 2015

Issue 3

TAX Update Newsletter on Indirect Taxes

TAX Update Issue 3, October 2015

2 SRD Legal, Advocates & Consultants

Dear Readers,

Greetings from Team SRD Legal.

The Service Tax Return (ST-3) for the period

April, 2015 to September, 2015 is due latest by

25th October, 2015. We advise that:

a. File the return latest by 15th October

(instead of waiting till 25th).

b. Use the latest version of the excel

utility (V1.4). Download it from the

ACES website.

We shall be available for assistance and

clarifications.

Mr. Santosh Parab of Dalal Engineering Pvt.

Ltd. has suggested that we should start a series

of articles on the matters relating to the day-to-

day issues faced by excise executives in the

factory. These may be small topics, but do

matter a lot.

We shall soon start the series. Do mail us your

suggestions to [email protected]

Tomorrow we celebrate birthday of one of the

finest Advocate dear Gandhiji.

Manoj Kasale Advocate 01st October, 2015

In this issueIn this issueIn this issueIn this issue

Assessment proceedings cannot be

continued against legal heirs on death of

proprietor

Cenvat Credit available if exempted

goods are exported

Credit available if the job-worker pays

duty by mistake

Job-worker not required to reverse 6%,

7% etc. under rule 6 (3) (i).

Service received from Associated

Enterprise situated abroad Tax payable

even on provisional entries in account

books

Credit available on services received by

manufacturer-exporter from CHA.

Services received prior to

commencement of production Credit

allowed

Credit available on the inputs inherently

lost during the manufacturing process

Several photographs in this issue have

been contributed by Bhavya Sharma

from Budapest, Hungary.



CBEC Circular

CBEC instructs its officers - Board

Circulars contrary to the judgements

of Hon'ble Supreme Court should not

be followed:

Doesnt it look obvious? But obviously it

was not being followed by the officers.

Therefore, the Board has clarified that

Circulars contrary to the judgements of

Hon'ble Supreme Court become non-est

in law (i.e. legally they do not exist) and

should not be followed. All pending cases

decided after the date of the judgement

should, conform to the law laid by the

Hon'ble Supreme Court or High Court,

as the case may be, irrespective of

whether the circular has been rescinded

or not.

The Board further clarifies that the

above direction would also apply to the

judgements of Hon'ble High Court where

Board has decided that no appeal would

be filed on merit. However where appeal

has been filed by revenue against the

High Court's order, pending adjudication

should be transferred to the Call-Book

and such appeals should be kept alive.

This is indeed a welcome clarification

and would help in issuance of fair orders.

Circular no. 1006/13/2015-CX, Dated:

September 21, 2015

CASE LAWS

When the proprietor dies - Can

Central Excise Duty be demanded

from his legal heirs? Supreme Court

says NO.

By this judgment dated 29th July 2015,

the Hon'ble Supreme Court has reversed

the judgment of Division Bench of the

High Court of Kerala.

We may begin by saying that there is a

distinction between assessment and

recovery of tax. Assessment refers to the

process of determination as to whether

any tax is payable or not and if so, how

much. Recovery of tax is the next step.

The judgment concerns assessment and

not recovery. The Hon'ble Supreme

Court has held that assessment

proceedings cannot be continued against



legal heirs after death of the sole

proprietor.

A show cause notice was issued to a

proprietary concern alleging that it had

manufactured and cleared goods without

payment of duty and had suppressed the

facts from the department. The

proprietor of the unit died before the

notice could be adjudicated. As a result,

the department issued another notice

asking his wife and four daughters as to

why the duty should not be demanded

from them. In reply they submitted that

there was no provision in the C. Excise

law to continue assessment proceeding

against a dead person in the hands of

the legal representatives; and that the

proceedings abated on his death.

Having lost the matter before Division

Bench of the High Court, the legal heirs

approached Supreme Court which after

analyzing the law and several case laws,

and comparing the position under Sales

Tax as well as Income Tax law concluded

that there is no provision under C.

Excise law to assess tax in hands of the

legal heirs.

Shabina Abraham & Ors. Vs.

Collector of Central Excise &

Customs (2015-TIOL-159-SC-CX)

* * *



Export of exempted goods - CENVAT

Credit available Refund of

accumulated CENVAT credit also

admissible under Notification

No.5/2006-CE-(NT).

Normally, Cenvat Credit is not available

if the final products are exempted.

However, there are certain exceptions to

this rule. Thus, for instance credit

remains available if the exempted goods

are exported or supplied to SEZ/ EOU

etc. Such exception is provided vide rule

6 (6) of Cenvat Credit Rules, 2004.

Further, if Cenvat Credit gets

accumulated due to exports, then refund

of the same can be claimed under rule 5.

In the present case, when the appellant

sought refund, the department

contended that the credit itself was not

available since the final products were

exempted. Honble Tribunal held that

the refund cannot be denied for this

reason. The Tribunal relied on the

decision of Honble Bombay High Court

in Repro India Limited wherein it had

been held that the petitioners are

entitled to avail Cenvat Credit in respect

of the inputs used in the manufacture of

the final products being exported

irrespective of the fact that the final

products are otherwise exempt.

Jolly Board Limited Vs. CCE,

Aurangabad. 2015(321) ELT

(502)(Tri. Mum.)

* * *

Inputs sent for job-work after

availing CENVAT Credit Job-

worker paid duty on the processed

goods Credit available to the

principal Its not double benefit

Assessee sent inputs for job-work after

availing CENVTA Credit. Instead of

returning the goods under a challan, the

job-worker returned the goods under

Central Excise invoices on payment of

duty. Assessee took credit of duty paid

by the job-worker. Department was of

the view that the job-worker was not

liable to pay duty and credit had been

claimed twice by the assessee.

The Honble High Court vide order dated

27.08.15 rejected the contention of the

department and held that assessee did

not claim credit twice over. Since the job-

worker had paid the duty and collected it

from the assessee, the credit was taken

only of that duty that had to be paid on

account of the mistake committed by the

job worker. This cannot be construed as

a double benefit by applying the theory

of unjust enrichment.

CCE, Chennai III Vs. Sundaram Auto

Components-2015-TIOL-2192- HC Mad-CX

* * *

Job-work Cenvat Credit Rule 6 -

Job-worker is not required to pay

6%, 7% etc. of the job-charges:

Job-workers are exempted from paying

duty on the goods manufactured on job-

work basis if the principal undertakes to

pay the duty. On the other hand, in



terms of rule 6, Cenvat Credit is not

available on the inputs/ input services

used for manufacture of exempted goods

or for providing exempted services.

Combining these together, the

department contended that the assessee

should have paid 6% of the job-charges

by way of reversal of credit of the inputs

& input services used for carrying out

the exempted job-work.

This issue had, in fact, already been

decided against the department and in

favour of the assessee by the larger

bench of Tribunal in Sterlite Industries

Ltd. vs. CCE [2005 (183) E.L.T. 353

(Tribunal - LB)]. The Hon'ble larger

bench held that in case of job-works, the

duty liability is just temporarily

deferred. Ultimately the duty is paid on

the goods by the principal. Hence it was

held that the credit would be available to

the job-worker and nothing is required to

be reversed on this account. The decision

has been followed in several cases.

Hon'ble Tribunal decided the matter in

favour of the job-worker relying on JBF

Industries vs. C.C.E, VAPI - [2014 (34)

S.T.R. 345 (Tri.-AHMD.)] = 2014-TIOL-

972-CESTAT-AHM.

S. B. Engineers v/s. CCE, C & ST,

Vadodara-II [2015-TIOL-1984-

CESTAT-AHM]



Service Tax Service received from

Associated Enterprise situated

abroad Tax payable even on

provisional entries in account books

In case of services received from

associated enterprises situated abroad

service tax is payable by the Indian

company under reverse charge

mechanism. The rule requires payment

of service tax when the amount is

actually paid to the foreign company or

even when an entry is passed in the

account books.

The assessee in this case had received

technical know-how from its associated

enterprise abroad and was paying

royalty based the quarterly sales of the

goods manufactured by it. However for

the purposes of furnishing Management

Information System (MIS) reports to the

holding company, they used to pass

provisional entries every month. These

entries were reversed at the end of the

quarter and fresh entries were passed on

the basis of actual sales figures.

Hon'ble Tribunal held that tax is

payable with reference to the provisional

entries passed each month.

Thus, in effect, a delay has occurred in

payment of tax for the first two months

of each quarter. The assessee is liable to

pay interest on the same.

General Motors (I) Pvt Ltd. v/s. CCE,

Pune-I [2015-TIOL-1993-CESTAT-

MUM]

* * *

Cenvat Credit Credit available on

Services received from CHA

The department sought to deny credit of

the service tax paid on services of CHA

on the ground that the services are

rendered after clearance of goods from

the factory.

Hon'ble Tribunal allowed the credit

holding that the issue is already settled

in the favour of the appellant assessee

by the judgment of the Tribunal in the

case of Adani Pharma. P. Ltd. - 2008

(232) ELT 804 and Modern Petrofils -

2010 (18) STR 625.

We may note that credit would not be

available in case of export through

merchant exporter.

M/s Lona Industries Ltd Vs CCE

2015-TIOL-1991-CESTAT-MUM

* * *

Cenvat Credit Services received

prior to commencement of

production Credit allowed

The credit was availed on services

relating to procurement of inputs. The

production in the appellants factory was

started on 4.2.2010 and the ISD

distributed the cenvat credit to the

appellant prior to the start of their

production.

Hon'ble Tribunal allowed the credit

holding that there is no restriction to the

effect that if any assessee avail cenvat

credit on procurement of inputs (prior to

start of manufacture), is not entitled to

take cenvat credit. Infact, without

procuring inputs, or some inputs service,



assessee cannot start manufacturing

activity. Therefore, it cannot be said that

an assessee who is a manufacturer of

excisable goods is to be denied the cenvat

credit of duty paid on inputs or input

service availed prior to start of

manufacturing activity.

Shree Cement Ltd. v/s. CCE, Jaipur

[2015-TIOL-1988-CESTAT-DEL]

* * *

Cenvat Credit Losses during

process Credit available on the

inputs inherently lost during the

manufacturing process:

Although this judgment relates to the

peculiar events occurring in the year

2003, the principal narrated in it is

useful. Hence we have chosen to present

it in the TAX Update.

Duty was freshly imposed on certain

textile goods in the year 2003. The

manufacturers were asked to declare

stock of goods held by them. A provision

was introduced (rule 9A) which allowed

the manufacturers Cenvat Credit equal

to the duty paid on inputs contained in

finished products lying in stock as on

31st day of March 2003. The assessee

declared the stock of fabric and availed

credit of the duty paid on the yarn used

to manufacture the fabric.

Appellant claimed that about 5% of the

quantity and value of yarn is lost while

making it into a fabric. Thus 100 kg of

yarn would result into 95 kg of fabric.

They claimed that against a stock of 95

kg of fabric they would be entitled to

credit of 100 kg of yarn.

Thus, the appellant made a claim for

CENVAT credit in respect of the total

quantity and value of goods that had

gone into the making of fabric. The

department, on the other hand, was of

the view that the appellant would be

entitled to avail credit only in respect of

the inputs physically contained in the

fabric.

Hon'ble High Court analysed meaning of

contained in finished product in the

following words:

13. To say that what is contained

in finished product is only a

quantity of all the inputs of the

same weight as that of the

finished product would

presuppose that all

manufacturing processes would

never have an inherent loss in the

process of manufacture. The

expression 'inputs of such

finished product' contained in

finished products' cannot be

looked at theoretically with its

semantics. It has to be

understood in the context of what

a manufacturing process is. If

there is no dispute about the fact

that every manufacturing process

would automatically result in

some kind of a loss such as

evaporation, creation of by-



products, etc., the total quantity

of inputs that went into the

making of the finished product

represents the inputs of such

products in entirety.

14. If the purport of Rule 9A

is not understood in this

manner, every

manufacturer will have to

pay excise duty on the

quantity and value of

inputs, which go to the

making of a finished

product, whose weight will

never be equivalent to the

sum total of the weight of

all the inputs. Therefore,

this is not the way to

understand Rule 9A.

Rupa & Co. Limited Vs. CCE, decision

dated 13/08/2015 in Civil Miscellaneous

Appeal No.2350 of 2006 & M.P.No.1 of

2006.



About SRD LEGAL:

SRD LEGAL was established in 2007 by Sanjay Dwivedi, Advocate and has grown

into a team headed by four Advocates. The firm handles litigations on C. Excise,

Service Tax & Customs matters up to High Court. It also renders legal advisory

services.

Contact:

512, Business Park, Citi of Joy,

J. S. D. Road, Mulund (West),

Mumbai - 400 080.

Tel. : +91-22-25 6565 47/ 48

+91- 90048 25702/ 87676 61950

Fax : +91-22-25 6565 49

e-mail: [email protected]

Team SRD Legal

Mr. Sanjay Dwivedi, Advocate 93204 56555

Mr. Manoj Kasale, Advocate 96190 29095

Mr. Raymond George, Advocate 98204 80597

Mrs. Savita Dwivedi, Advocate 99873 70673

For private circulation only.

SRD Legal

Disclaimer

The information contained in this publication is intended for informational purposes

only and does not constitute legal opinion or advice. The views & information

contained herein are of general nature and are not intended to address the

circumstances of any particular person or entity. The contents are not comprehensive

or sufficient for taking decisions. Please do not act on the information/ views

provided in this newsletter without obtaining professional advice after a thorough

examination of the facts and circumstances of a particular situation. There can be no

assurance that the judicial/quasi judicial authorities may not take a position

contrary to the views mentioned herein. Although we endeavour to provide accurate

and timely information, there is no assurance or guarantee in this regard.

SRD LEGAL neither accepts nor assumes any responsibility or liability arising from

any decision or action taken or to be taken or refrained to be taken, by anyone on the

basis of this publication.

SRD Legal - TAX Update Issue 3 - 20151001

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