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AMENDMENTS (Final-NOV 2010)

AMENDMENTS APPLICABLE FOR NOV 2010 (upto 30th April, 2010) Note Page No. given in these amendments belong to 11th edition of IDT notes by CA. Ajay Jain.

Amendments under Excise

1.
Rule 8 of the Central Excise Rules, 2002 (pg. 37) In case of SSI: Provided further that where an assessee is eligible to avail SSI exemption availing of the exemption under a notification based on the value of clearances in a financial year, the duty on goods cleared during a quarter of a financial year calendar month shall be paid by the 6th of month, if the duty is deposited electronically through internet banking and 5th of the month, in any other case following that quarter. except in case of goods removed during the quarter January to March for which duty shall be paid by the 31st March. Explanation : The manner of payment as specified in this proviso shall be available to the assessee for the whole of the financial year. E-Payment:Provided further that an assessee, who has paid duty of Rs. 50 lakh or more, other than by CENVAT credit Rs. 10 lakhs or more including the amount of duty paid by utilization of Cenvat credit, in the preceding financial year, shall thereafter, deposit the duty electronically through internet banking. The due date of depositing the duty in this case shall be 6th of the following month.

2.

Rule 12 of the Central Excise Rules, 2002 (pg. 41) In case of SSI:Provided that where an assessee is eligible to avail SSI exemption availing of the exemption under a notification based on the value of clearances in a financial year, he shall file a quarterly return in specified form ER-3 of production and removal of goods and other relevant particulars within ten days after the close of the quarter to which the return relates. Explanation : The filing of returns as specified in this proviso shall be available to the assessee for the whole of the financial year. E-Filing:Provided also that where an assessee has paid duty of Rs. 10 lakhs or more including the amount of duty paid by utilization of Cenvat credit in the preceding financial year, he shall file the monthly or quarterly return, as the case may be, electronically. 3. Rule 4(2)(a) of the Cenvat Credit Rules, 2004 (pg. 49)

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AMENDMENTS (Final-NOV 2010)

Provided further that where an assessee is eligible to avail SSI exemption, the Cenvat credit in respect of capital goods received by such assessee shall be shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

4.

Rule 3(5) of the Cenvat Credit Rules, 2004 (pg. 58) Removal of capital goods after use Provided that if the capital goods on which Cenvat credit has been taken are removed after being used the manufacturer or provider of output service shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by percentage points calculated by straight line method as specified below 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit namely :(a) for computers and computer peripherals for each quarter in the first year @ 10% for each quarter in the second year @ 8% for each quarter in the third year @ 5% for each quarter in the fourth & fifth year @ 1% (b) for capital goods, other than computers & computer peripherals @ 2.5% for each quarter

5.

Rule 4(5)(b) of the Cenvat Credit Rules, 2004 (pg. 60) CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to i. another manufacturer for the production of goods; or ii. a job worker for the production of goods on his behalf, according to his specifications.

6. Rule 15 of the Cenvat Credit Rules, 2004 (pg. 76) credit on inputs/capital goods/input credit on input services services Offences Offences 1. If Cenvat credit in respect of inputs or 1. If CENVAT credit in respect of input capital or input services goods is taken or services is taken wrongly or utilized wrongly or in contravention of any provisions of these rules in respect of any 2. Contravention of any provisions of these inputs or capital goods or input services. rules in respect of any input service.
Consequences Consequences goods are

1. 2.

All such liable to confiscation and

1. Such person shall be liable to a penalty such person, shall be which may extend to an amount upto 2,000 Rs. liable to a penalty upto duty or service tax on the excisable goods in respect of which contravention has been committed on such goods or services, as the case may be, or two 2. Where the CENVAT credit in respect of

AJAY JAIN, 9310367879, www.caajayjain.com thousand rupees, whichever is greater.

AMENDMENTS (Final-NOV 2010) input services has been taken or utilized wrongly on account of fraud, willful mis-statement, collusion or suppression of facts, or contravention of any of the provisions with intention to evade payment of duty, then, the provider of output service shall also be liable to pay u/s 78 of the Finance Act.

3. In a case, where the CENVAT credit has been taken or utilized wrongly on account of fraud, willful misstatement, collusion or suppression of facts, or contravention of any provisions with intention to evade payment of duty, then, the manufacturer/ service provider shall also be liable to pay penalty u/s 11AC of Central Excise Act/ 78 of Finance Act. Any order shall be issued by the Central Excise Officer following the principles of natural justice. 7. Circular No. 915/05/2010-CX dated 19.2.2010 It has been clarified that the free physicians sample has to be valued under Rule 4 of the Central Excise Valuation Rules, 2000. 8. Circular No. 911/01/2010-CX dated 14.1.2010 In a situation, where there is irregular availment of Cenvat credit because of the activity not amounting to manufacture, it has been clarified that If the activity undertaken by the assessee indisputably does not amount to manufacture, the department should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs. If the assessee has paid duty and subsequently the Courts hold that the activity does not amount to manufacture, the assessee is at liberty to approach the Central Government for issue of appropriate notification under Section 5B of the Central Excise Act, 1944 for ordering non-reversal of the Cenvat credit availed in the past. 9. F. No. 267144/2009-CX8 dated 25.11.2009 It has been clarified that if a manufacturer receives rejected/returned goods in its factory before the prescribed date of duty payment, it can take credit of the duty payable under Rule 16 of the Central Excise Rules based on his own invoice. 10. Circular No. 907/27/2009-CX dated 7.12.2009 Finished Goods When the value of finished goods is written off and excise duty has not been remitted on finished goods, the manufacturer is liable to pay excise duty on such goods. When the value of finished goods is written off and excise duty has been remitted on finished goods, the manufacturer is required to reverse the credit on the inputs used for the manufacture of such finished goods. WIP The process of conversion of inputs into WIP may or may not amount to manufacture. If the process does not amount to manufacture and the value of WIP is written off, credit taken on the inputs needs to be reversed. However, if the process amount to manufacture and the value of WIP is written off, the treatment would be same as that

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AMENDMENTS (Final-NOV 2010)

of writing off of the finished goods i.e. the manufacturer is liable to pay excise duty on WIP.

11.

Circular No. 897/17/2009-CX dated It has been clarified that interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14 Cenvat Credit Rules, 2004. 12. Circular No. 06/2010-Cus dated 19.3.2010 It has been clarified that the benefit of claiming rebate under Rule 18 of Central Excise Rules, 2002 is available even in a case where a DTA supplies goods to SEZ.

Amendments under Service Tax

1. Rule 3 of Export of Service Rules, 2005 (pg. 105)

(2) Any taxable services provided shall be treated as export of services only if (a) such service is provided from India and used outside India; and (b) payment for such service is received in convertible foreign exchange. Explanation. - India includes the installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India, for the purposes of prospecting or extraction or production of mineral oil & natural gas and supply thereof. 2. Rule 2 of Taxation of Services (Provided from outside India and received in India) Rules, 2006 (pg. 107) India includes the installations, structures and vessels in the Continental Shelf and Exclusive Economic Zone of India, for the purposes of prospecting or extraction or production of mineral oil & natural gas and supply thereof. 3. Rule 6 of Service Tax (Determination of Value) Rules, 2006 (Pg. 102)

(2) The value of any taxable service does not include (v) the taxes levied by any Government on any passenger traveling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger. 4. Circular No. 122/3/2010-ST dated 30.4.2010

In the case of Associate Enterprises, credit of service tax can be availed of when the payment has been made to the service provider in terms of Section 67 (4)(c) of Finance Act, 1994 and the service tax has been paid to the Government Account.

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AMENDMENTS (Final-NOV 2010)

CASE LAWS Indirect Taxes 1. Whether classification of the imported product changes if it undergoes a change after importation and before being actually used?
Atherton Engineering Co. Pvt. Ltd. v. UOI

The assessee imported artemia cyst (brine shrimp eggs). It classified it as prawn feed under the heading 2309 which includes products used as animal feed. However, the Department contended that this product was classifiable under the heading 0511.99 which refers to other products in the category of non edible animal products. The contention of importer was that these imported cysts contained little organisms/embryos which later became larva that prawns feed on. Therefore, according to them, the nature and character of the product was not changed by nurturing or incubation. The Court noted that it was the use of the product that had to be considered in the instant case. If a product undergoes some change after importation till the time it is actually used, it is immaterial, provided it remains the same product and it is used for the purpose specified in the classification. Therefore, in the instant case, it examined whether the nature and character of the product remained the same. The Court opined that if the embryo within the egg was incubated in controlled temperature and under hydration, a larva was born. This larva did not assume the character of any different product. Its nature and characteristics were same as the product or organism which was within the egg. Hence, the Court held that if the said product should be classified as feeding materials for prawns under the heading 2309. These embryos might not be proper prawn feed at the time of importation but could become so, after incubation. 2. Can the order of the Settlement Commission be considered to be a judicial proceeding?
UOI v. East and West Shipping Agency

The Custom House Agent License of the respondents was suspended on the ground that authorised agent of the respondents had committed misconduct by taking active part in the act of smuggling and has thus violated the Custom House Agent Licensing Regulations, 2004. During pendency of the misconduct proceedings, respondents approached Settlement Commission. The Settlement Commission after hearing all the parties held that Revenue had failed to prove that the authorised agent of the

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AMENDMENTS (Final-NOV 2010)

respondent Custom House Agent (CHA) had a conscious knowledge of mis-declaration of goods. On the basis of said order of the Settlement Commission, Tribunal decided the case in favour of the respondents and dropped the misconduct proceedings against them. The appellants challenged the Tribunals order alleging that the order passed by the Settlement Commission was ab-initio, null and void being without jurisdiction. The High Court observed that as per section 127M of the Customs Act, 1962, the order passed by the Settlement Commissioner is in judicial proceedings and it is a judicial order. Further, the appellants had not challenged the said order. Hence, the order passed by the Settlement Commissioner could not be brushed aside considering the scheme of Chapter XVIA. It must be held good in law so long as it is not set aside. Considering the facts and circumstances of the case, the High Court answered the question of law in affirmative in favour of the respondents and against the appellant.

3. Whether the theoretical possibility of product being sold is sufficient to

establish the marketability of a product?
Bata India Ltd. v. CCE

The Apex Court observed that marketability is essentially a question of fact to be decided on the facts of each case and there can be no generalization. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. The question is not whether there is a hypothetical possibility of a purchase and sale of the commodity, but whether there is sufficient proof that the product is commercially known. The mere theoretical possibility of the product being sold is not sufficient but there should be commercial capability of being sold. Theory and practice will not go together when one examine the marketability of a product. The Supreme Court further ruled that the burden to show that the product is marketed or capable of being bought or sold is entirely on the Revenue. Revenue, in the given case, had not produced any material before the Tribunal to show that the product was either been marketed or capable of being marketed, but expressed its opinion unsupported by any relevant materials. Note: The above judgment is in conformity with the explanation to section 2(d) of the Central Excise Act, 1944 inserted by the Finance Act, 2008. 4. Whether the machine which is not assimilated in permanent structure would be considered to be moveable so as to be dutiable under the Central Excise Act?
CCE v. Solid & Correct Engineering Works and Ors

The asseseee was engaged in the manufacture of asphalt batch mix and drum mix/hot mix plant by assembling and installing its parts and components. The Court observed that as per the assessee, the machine is fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth, but because a foundation was necessary to provide a wobble free operation to the machine. The Court opined that an attachment where the necessary intent of making the same permanent is absent cannot constitute permanent fixing, embedding or attachment in the sense that would make the machine a part and parcel of the earth permanently.

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AMENDMENTS (Final-NOV 2010)

Hence, the Supreme Court held that the plants in question were not immovable property so as to be immune from the levy of excise duty. Consequently, duty would be levied on them. 5. Does the activity of packing imported compact discs in a jewel box along with inlay card amount to manufacture under section 2(f) of the Central Excise Act, 1944 ?
CCE v. Sony Music Entertainment (I) Pvt. Ltd.

The appellant imported recorded audio and video discs in boxes of 50 and packed each individual disc in transparent plastic cases known as jewel boxes. An inlay card containing the details of the content of the compact disc was also placed in the jewel box. The whole thing was then shrink wrapped and sold in wholesale. The Department contended that the said process amounted to manufacture. The High Court observed that none of the activity that the assessee undertook involved any process on the compact discs that were imported. It held that the Tribunal rightly concluded that the activities carried out by the respondent did not amount to manufacture since the compact disc had been complete and finished when imported by the assessee. They had been imported in finished and completed form. 6. Whether penalty can be imposed on the directors of the company for the wrong CENVAT credit availed by the company?
Ashok Kumar H. Fulwadhya v. UOI

It was held that words any person used in rule 13(1) of the erstwhile CENVAT Credit Rules, 2002 [now rule 15(1) of the CENVAT Credit Rules, 2004] clearly indicate that the person who has availed CENVAT credit shall only be the person liable to the penalty. The Court observed that, in the instant case, CENVAT credit had been availed company and the penalty under rule 13(1) [now rule 15(1)] was imposable only person who had availed CENVAT credit [company in the given case], who manufacturer. The petitioners-directors of the company could not be said manufacturer availing CENVAT credit. by the on the was a to be

7. Can a commission agent also acting as a consignment agent be covered under the definition of clearing and forwarding agent?
CCE v. Mahaveer Generics

The assessee contended that activity carried on by him came within purview of commission agent and not under the clearing and forwarding agent. The Court elucidated that assessee in question had not restricted its activities to business of commission agency, but had also carried on business as consignment agent. Since the consignment agent had been brought under statutory definition of clearing and forwarding agent by inclusive clause, the High Court held that the assessee falls under the definition of clearing and forwarding agent after considering the following points:-

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AMENDMENTS (Final-NOV 2010)

Agreement itself termed the assessee as a consignment agent. Price was mutually decided by the principal and the agent (assessee). Had the assessee been merely a commission agent, price determination would not have been within his domain. Since assessee had been given the authority and power to appoint dealers, stockists and distributors, it implied that it was not merely a commission agent. Mere procurement of purchase orders was not involved, but stored goods were also cleared and forwarded to stockists and dealers by the assessee.

8. Is the Settlement Commission empowered to grant the benefit under the proviso to section 11AC in cases of settlement?
Ashwani Tobacco Co. Pvt. Ltd. v. UOI vbekwjhl

The Court ruled that benefit under the proviso to section 11AC could not be granted by the Settlement Commission in case of settlement. It elucidated that the order of settlement made by the Settlement Commission is distinct from the adjudication order made by the Central Excise Officer. The scheme of settlement is contained in Chapter-V of the Central Excise Act, 1944 while adjudication undertaken by a Central Excise Officer is contained in the other Chapters of the said Act. Unlike Settlement Commission, Central Excise Officer has no power to accord immunity from prosecution while determining duty liability under the Excise Act. Once the petitioner has adopted the course of settlement, he has to be governed by the provisions of Chapter V. Therefore, the benefit under the proviso to section 11AC, which could have been availed when the matter of determination of duty was before a Central Excise Officer was not attracted to the cases of a settlement, undertaken under the provisions of Chapter-V of the Act.

9. Is the want of evidence from foreign supplier enough to cancel the confiscation order of goods undervalued?
CCus. v. Jaya Singh Vijaya Jhaveri 2010 (251) E.L.T. 38 (Ker.)

In the instant case, the High Court held that in a case of confiscation of goods because of their under valuation, Tribunal could not cancel the confiscation order for the want of evidence from the foreign supplier. The Court considered it be illogical that a person who was a party to undervaluation would give evidence to the Department to prove the case that the invoice raised by him on the respondent was a bogus one and that they

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AMENDMENTS (Final-NOV 2010)

had received underhand payment of the differential price. Resultantly, the Court upheld the confiscation order.