LEX TAXARE- SAPAA s INSIGHTS

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1 LEX TAXARE- SAPAA s INSIGHTS Greetings from SAPAA! A journey of a thousand miles begins with a single step. We at SAPAA thought it s time to start something new and trust the magic of beginnings. Here we are presenting our first Publication- Lex Taxare which brings to you the latest updates and other prominent cases. We wish to stay connected to bring much more information through our Knowledge Team. Stay Connected.. Stay Updated! SERVICE TAX: CASES Reverse CENVAT to avail exemption CCE vs. M/s. Sanjay Engineering Industries, 2016 (8) TMI 93 Issue: Whether Exemption can be claimed by subsequent reversal of CENVAT with interest. Decision: Reversal of CENVAT Credit and payment of Service Tax with interest will relate to a situation as if no CENVAT is availed. Exemption can be claimed under Notifications. Wrong Availment of CENVAT Credit can be reversed to Claim exemption Place of Removal is it factory gate or Depot? BASF India Ltd. vs. CCE, 2016 (8) TMI 1056 Issue: Whether availment of CENVAT Credit on transport of goods from one depot to another depot of their own is valid.

2 Decision: Place of removal of goods will be place from where it is sold. Services prior to sale would be admissible as credit. Held Valid. ST paid under different classification Refund cannot be denied Natural Slate & Sandstone Exports Pvt. Ltd. vs. C.C.E, 2016 (8) TMI 547 Issue: Whether refund can be availed for Tax paid by Service Provider under different classification Decision: Refund can be availed for services received inside port to export goods. Refund cannot be denied on the ground that service provider has paid tax under different classification. Refund of CENVAT Credit on Export of Service M/s. B.A. Call Centre India Private Limited vs. C.S.T, 2016 (8) TMI 589 Issue: Whether Service recipient is overseas company or its customers in and outside India? Decision: Person availing the service and paying for the service is the ultimate beneficiary of Service. Payment for Services provided is made in a fully convertible Currency by Service recipient outside India Refund of CENVAT Credit is admissible for Export of Service though Service may be provided to Customers of Service recipient in India.

3 CENTRAL EXCISE CASES Admissibility of CENVAT Credit on unintentional Inputs A.R. Sulphonates Pvt. Ltd., vs. CCE, 2016 (8) TMI 495 Issue: By products - unintentional & unavoidable generation in manufacturing of main product -eligibility of CENVAT on Inputs Decision: Cenvat credit is admissible on the input contained in unintentional & unavoidable generation of a by-product in the process of production of main product as per para 3.7 of CBEC manual.therefore the demand of duty on the value of the exemption goods in terms of Rule 6(3)(b) is not sustainable. Eligibility CENVAT of CCE vs. Interface Microsystems, 2016 (8) TMI 282 Facts: The Respondent has availed the credit on manpower and recruitment supply agency service and security service which was utilised by the job worker. SCN was issued to deny the credit availed on the premise that that these services were not availed by the respondent. Issue: Benefit of exemption under Notification No. 214/86-CE available or not Decision: No reason to deny Cenvat credit of security services utilized by the appellant at the premises of the job workers and paid for by the appellant. CCE vs. Shree Bajrang Mettalics & Power Ltd., 2016 (8) TMI 625 Facts: The respondent has not supplied the goods directly to SEZ Unit but has supplied the same to M/s. Shree Bajrang Alloys Ltd., who have further supplied the goods to SEZ Units, the benefit of the notification (Exemption Notification No.

4 42/2001 CE (NT) dated 26/6/001 read with notification no. 43/2001-CE (NT) dated 26/6/2001) would not be available. Issue: Benefit of availment of Cenvat credit Decision: The benefit of the notification stands rightly availed by M/s. Shree Bajrang Metallics and Power Ltd. Eveready Industries India Ltd vs. CCE & ST, 2016 (8) TMI 541 Facts: No duty is paid on defective dry cell batteries. CENVAT credit is not admissible on defective dry cell batteries for which duty is not paid. Issue: CENVAT credit on defective batteries. Decision: CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products directly or indirectly. Limitation - Refund Balmer Lawrie & Co. Ltd. vs. CCE (8) TMI 197: Facts:Refund application filed in time AC sought further documents to remove defects Issue:whether the Relevant is the date of application or date of removal of defects Decision:Original date of filing is the date of filing, when the defects are rectified Penalty Interest & CCE vs Tata Motors, 2016 (8) TMI 120 Issue: Levy of Interest and penalty on differential duty. Decision: Interest liability is required to be assessed as soon as duty liability arises, which should otherwise be paid by the assessee, even if credit is available to the same assessee.

5 M/s B. Girijapathi Reddy & Company vs. CCE (vice versa), 2016 (8) TMI 6: Facts: 1.Mere taking of non-entitled credit by way of a book entry will not cause financial adversity to the exchequer, unless such ineligible credit is utilized. Only when a debit occurs to such CENVAT account by way of utilization, would the exchequer be adversely affected, since it is paid from account current or cash instead of adjusting from CENVAT account. 2. The adjudicating authority cannot travel beyond SCN. From the adjudicating authority's own findings that there is no suppression, fraud etc., the said penalty under Rule 15 read with S 11 AC will necessarily have to be dropped. Issue: 1. Claim of interest on reversal of Cenvat credit 2. Levy of Penalty Decision: 1. When there is no adverse deprivation to the exchequer, there cannot be a claim of interest that can be latched on to the assessee. 2. No penalty to be levied. NOTIFICATION Notification No. 42/2016 Central Excise (N.T.) dated Giving effect to Notification no. 8/ Central Excise(N.T) dated 31 st March 2016 The following sub-rule shall be inserted, namely: Where an assessee submits a revised return it shall be the relevant date for the purpose of recovery of Central Excise duty under Section 11A of the Act. An assessee who has filed Annual Return (AR) may submit a revised return within a period of one month from the AR submission date.

6 CUSTOMS CASES Warehousing- Reexport of imported goods M/s. Binny Limited v. The Commissioner of Customs (Imports), The Assistant Commissioner of customs (Bonds), The Superintendent of Customs (Bonds) (8) TMI 396. Issue: Appellants wanted to re-export the goods imported after being declared a sick company. Whether re-export is possible? Decision: The High Court referred to the Circular No.03/2003 Cus. dated : Validity of SCN when action taken after "2.The matter has been examined in the Board. It has been decided that in case an importer makes a request to permit re-export of the goods under Section 69 of the Customs Act, 1962, such a request may be allowed even if the permitted period for bonding has expired and demand notice has been issued or it has been decided to put the goods under auction. Before permitting re-export in each such case, however, it will be necessary to extend the period of warehousing under Section 61 of the Customs Act to enable the importer to export the goods within the permitted period of warehousing. 3. Chief Commissioners are, therefore, requested to consider/decide such requests from the importers keeping in view the aforesaid guidelines of the Board and also taking into consideration all the relevant rules/regulations for export." Hence allowing the re-export of the goods. M/S Navin C. Nanda National Institute of Echo Cardiography And Cardiac Research v. UOI -

7 17years 2016 (8) TMI 86 Issue: Whether the SCN is valid despite any action taken by the Department? Decision: In this case, the court held that when the Department failed to take action against SCN issued 17 years ago, the disinterest of the Department was clearly established. The Court hence, quashed the SCN and held in favour of the petitioners. NOTIFICATION Notification No. 115/2016 Cus (N.T.) dated Amendment to Handling of Cargo in Customs Areas Regulations, 2009 Time period brought down to 10 days from 30 days for storage of goods with regard to executing a bond. The Bank Guarantee that has to be submitted for the export of goods from customs area for export or transshipment shall have a new proviso. The following categories are exempted from Bank Guarantee: Ports notified under the Major Ports Act, 1962 The Central Government The State Governments or their undertakings The customs cargo

8 service provider authorised under Authorised Economic Operator Programme. Circular No 38/2016- Customs dated Circular No 39/2016- Customs dated CIRCULARS Guidelines regarding provisional Assessment under section 18 of the Customs Act, 1962 Disposal of confiscated goods- Amendment in Guidelines The Board rescinded "The Customs (Provisional Duty Assessment) Regulations 2011" vide notification no. 113/2016 Cus (NT) dated 22nd August 2016 since section 18 itself lays down the procedure to be followed in the case of provisional assessment. With regard to surety under section 18, for the sake of uniformity the Board has come up with certain guidelines while assessing the goods provisionally. The circular also has the format of bond enclosed with it. The confiscated/seized consumer goods, whose value does not exceed Rs. Five lakh, when ready for disposal shall be offered to NCCF/KB/Other Central government Employees Consumer Cooperative Society/ MultiState Consumer Cooperative Societies/State Consumer Cooperatives, at a uniform rebate/discount of 10%, subject to the few conditions.

9 Circular No 41/2016- Customs dated Admissibility of unutilized cenvat credit of DTA unit converted into EOU Any lot of confiscated/seized goods of all types and confiscated/seized consumer goods whose value exceeds Rs. Five lakhs shall not be sold directly to the aforesaid cooperative Societies/Federation and shall be sold by e-auction or auction cum tender basis. In the said auction other stake holders including the above can participate subject to fulfilment of certain conditions as stipulated. On conversion from a DTA unit to EOU, the transfer of unutilized cenvat credit lying in the books of DTA unit on the date of conversion into EOU unit is admissible. Circular No. 77/99 Cus dt is hereby withdrawn.

10 TNVAT CASES Delay in filing appeal ISIS Exports Private Limited vs. AC(CT), 2016 (8) TMI 334 Issue: Whether the pleading for extension of time limit for filing appeal is maintainable. Reversal ITC due to cancellation of Registration of the vendors Decision: The Madras High Court has directed the appellate authority to entertain appeal without reference to the question of limitation, but subject to compliance of other conditions. Rajyog Steels vs. CTO, 2016 (8) TMI 803 Issue: Whether reversal of ITC on the plea that registration certificates have been cancelled with retrospective effect can be countenanced. Decision: The Madras High Court held that the benefits of Input Tax Credit cannot be countenanced on the ground of cancellation of dealer s registration certificates with retrospective effect. The transactions which took place during the enforcement of registration certificates of dealer are very much valid and effective. Moreover, the several benefits which has been accrued to the Assessee based on the valid documents in the course of such transactions on which tax has been paid cannot be declined.

11 TRANSFER PRICING CASES Adjustments Calsonic Kansel Motherson Products Ltd. Vs. DCIT, 2016 (8) TMI 644 ITAT DELHI Issue: 1. Allowing capacity adjustment only in respect of depreciation cost and no other fixed costs incurred by the Appellant on account of lower capacity utilization of Appellant vis-a-vis the identified comparable. 2. TPO concluded that since tax payer failed to provide any documents mentioned under Rule 10D, the mark up of 4% charged by the AE on sale of capital goods, is to be disallowed Decision: DRP has accepted that adjustment of capacity utilization is to be allowed. However, in the absence of non-availability of item wise expenses, in the case of comparable companies, restricted the adjustment only to depreciation. In our opinion, this is not the correct approach because unutilized capacity has direct bearing on the operational profits of the company, because in initial years there is over absorption of fixed costs leading to losses. The fixed cost is not limited to depreciation only but there are other elements of fixed costs also. We restore this issue to the file of AO/ TPO to compute the quantum of capacity adjustment. This ground is allowed for statistical purposes. TPO pointed out that Assessee had used foreign comparable to justify the mark up on capital goods

12 which are not acceptable. It is true that Assessee is required to maintain the documents as per Rule 10D requirements but once Assessee has furnished the documents, the TPO has to consider the same and if he finds that same cannot be relied upon for determining the ALP, then he can resort to his own search process in order to find out the ALP of the transactions. We, therefore, restore this matter to TPO to find out local comparable which had undertaken similar service as the Assessee. In the result, this ground is allowed for statistical purposes. GKN Sinter Metals Pvt. Ltd. Vs. ACIT, 2016 (8) TMI 856 Issue: Machine purchased from AE at ALP on the basis of valuation certificate by an independent Chartered Engineer was rejected by the TPO and estimated the value of machine by applying CUP method Decision: The Assessee to show that the price paid to its AE is just and reasonable, apart from the valuation report, obtained quotation of the similar machine from Cincinnati, USA (the original manufacturer of the presses). The TPO in an arbitrary manner compared the value of machine with the machines manufactured in India and extrapolating the operating profit margin. If the TPO had any doubt over the pricing he should have referred the matter to Departmental Valuation Officer (DVO). The TPO has erred in extrapolating avg. operating margin of Indian manufactures and applying CUP method to markup import price and determine ALP AO was directed to delete the addition made on account of adjustment in value of capital asset.

13 Most Method (MAM) Appropriate Honda Motorcycle and Scooters India Pvt. Ltd. vs. ACIT, 2016 (8) TMI 1049 Issue: 1. Assesse entered into 12 distinct international transactions with unrelated enterprises. 2. Choose more than one method to prove that the transactions are at Arm s length. 3. For certain transactions, both CUP and TN Margin method was used by the Assesse to determine the ALP. 4. Transfer Pricing Officer declined the CUP and approved other method that was prejudicial to the Assesse Decision: Matter was remanded back to the file of the TPO as he failed to discuss the reasons why he chose TNMM over CUP method. If the TPO prefers application of one method over the other method that is being adopted by the Assesse, reasons are to be given in detail to substantiate his stand. Whether Transaction is at ALP? Pr. CIT vs. Sun Pharmaceutical Industries Ltd, 2016 (8) TMI 815 Issue: 1. AO made additions on the ground that Commission paid by the Assesse to AE not at arm s length 2. Tribunal gives a factual finding, that justification is given by the Assesse to substantiate that commission paid is at Arm s length Decision: HC relies on the findings given by the tribunal and holds that the commission paid is at ALP. Commission

14 paid to the related party was at 7.84% as against the commission paid to the unrelated party which was at 11.3%. The burden of proof lies on the revenue authority to bring comparable case on record to prove that the commission paid was not at Arm s length.