Indirect Tax Newsletter

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1 Corporate India Advisors LLP 15th March 2015 Indirect Tax Newsletter I NSIDE THIS ISSUE 1 Service Tax 2 CENVAT Credit 3 Central Excise 4 Customs and FTP 5 VAT/CST Contents Notifications/Circulars Central Excise 1 Customs 2 Judgments Service Tax.2 CENVAT Credit.4 Central Excise 5 Customs & FTP.5 VAT/CST 6 News..7 Notifications / Circulars Central Excise Circular Risk based audits CBEC has issued the revised audit norms under Central Excise and Service Tax. As per the revised guidelines, the earlier approach of shorlisting of assessee on turnover basis has been converted to risk basis, in accordance with the guidelines to be prescribed by the Directorate General of Audit. The Circular clarified that the Assessees could be given accredited status, similar to the one given in Customs, based on their proven track record of compliance with tax laws and procedures. Such identified assessees need not be subjected to Audit in every cycle. The Circular further clarified that the Audit Commissionerate would release an Annual plan by 31st May, indicating the names of Assessees that are proposed to be audited during the course of the year (period between 1 st July to 30 th June of the next year) and the month in which the Audit officers would visit the units for verification of records. Circular No 995/02/2015-CX, Dated: February 27, 2015

2 Page 2 Customs Notification Rules of origin framed The Government supreceeded the earlier rules and framed new rules namely Customs Tariff (Determination of Origin of Products under the Duty Free Tariff Preference Scheme for Least Developed Countries) Rules, Notification No. 29/ Customs (N.T.) Dated: March 10, 2015 Judgments Service Tax Refund cannot be denied on procedural infirmities Obtaining registration under a newly inserted category of taxable service is akin to declaration to authorities Works Contract services even if carried out by a subcontractor for Government will be exempt Secondment by parent entity not taxable In this case an SEZ unit applied for refund claim on the services which ought to have been outright exempt at the first instance. The Tribunal allowed the refund claim by holding that refund cannot be denied under the Act for procedural infraction of having paid the Service Tax which ought not to have been paid by the service provider. EON Kharadi Infrastructure Pvt. Ltd. Vs. CCE, Pune III [2015-TIOL-327-CESTAT- MUM] In this case the appellant immediately after the introduction of service tax under the category of supply of tangible goods, took registration on 2 nd July The authorities demanded service tax and alleged suppression on the basis that appellant had neither declared their activities to the department nor obtained the service tax registration under the category of supply of tangible goods' for use. Basis this fact pattern the Tribunal overruled the allegation of suppression of facts. Global Vectra Helicorp Ltd. Vs. CST, Mumbai-II [2015-TIOL-380-CESTAT-MUM] In this case the appellant, a subcontractor, constructed residential building for Delhi Police. The authorities denied service tax exemptions on the basis that services of main contractor to GOI are exempt and not that of subcontractor. The Tribunal held that once it comes out that Government has undertaken a project which is non-commercial in nature and not taxable, service received on this account by the Government would not come under the taxability even by the subcontractor. R B CHY Ruchi Ram Khattar & Sons Vs. CST, New Delhi [2015-TIOL-388- CESTAT-DEL] In this case the Tribunal held that secondment of staff by parent entity to subsidiary is not a taxable service since the only the costs are disbursed and subsidiary companies cannot be called the clients of parent entities. Samsung India Electronics Pvt. Ltd. Vs. CCE & ST [2015-TIOL-393-CESTAT-DEL]

3 Page 3 Operation is not akin to advising and hence not covered under Management Consultancy services Service tax under reverse charge can be paid through CENVAT credit prior to July 2012 Works contract composition benefit is available for terminated contracts and new contracts entered after Benefit under exemption notification is not mandatory for service provider Unjust enrichment is not applicable on export of services In this case the appellant was engaged in to running the hotels and share the revenue with the building owner. The authorities demanded service tax from the appellant under the taxable category of Management consultant services. The Tribunal negated these demand on the basis that operating the hotel cannot be called as a service rendered under the category of Management Consultancy Service. The Indian Hotels Co. Ltd. Vs. CST, Mumbai-I [2015-TIOL-299-CESTAT-MUM] In this case the appellant discharged the service tax liability under reverse charge mechanism by utilising the CENVAT credit which was disputed by the authorities. The Tribunal held it correct on the basis that a harmonious reading of Rule 2(p) and 2(r) of CENVAT Credit Rules, 2004 and Rule 2(1)(d)(iv) of Service Tax Rules, 1994 provides that assesse is person liable to pay service tax and hence is a service provider. Morarjee Textiles Ltd. Vs. CCE, Nagpur [2015-TIOL-354-CESTAT-MUM] In this case the appellant obtained a works contract under a contract dated However, the contract was terminated for some reasons on and the contractee again invited bids for the same contract. The appellant qualified for the bid and new contract was executed on The appellant discharged service tax liability under composition scheme to which the authorities objected. The Tribunal overruled such objection and held that fresh contract from is to be considered as a new contract, there cannot be any objection to classify the service rendered in this contract as a Works Contract Service, which was introduced w.e.f and hence the composition scheme is available. ABL Infrastructure Pvt. Ltd. Vs. CCE, Nashik [2015-TIOL-360-CESTAT-MUM] In this case the appellant did not avail exemption on the output service and consequently did not reversed the CENVAT credit. The authorities objected that in view of exemption notification, CENVAT credit is to be reversed. The Tribunal negated the departmental contentions and held that in service tax law, there is no provision akin to Section 5A(1A) of the Central Excise Act, 1944 and hence it is upto the assesee whether to avail the benefit under an exemption notification. Deloitte Haskins & Sells Vs. CCE, Thane I [2015-TIOL-366-CESTAT-MUM] In this case the appellant was erroneously paid service tax on services exported outside India. The department disallowed the refund claim by alleging unjust enrichment. The tribunal allowed the refund claim by holding that unjust enrichment does not arise in the case of export of services. Kirloskar Ebara Pumps Ltd. Vs. CCE, Kolhapur [2015-TIOL-328-CESTAT-MUM]

4 Page 4 CENVAT Credit CENVAT credit not deniable even if the input supplier has not paid the duty No interest payable if sufficient CENVAT credit is available CENVAT Credit allowed on original third copy CENVAT credit is allowed if the depreciation claimed in income tax on capital goods is reversed CENVAT Credit is allowed to job worker on the basis of BoE in the name of principal CENVAT Credit prior to 2011 allowed on outdoor caterer even to small manufacturers In this case the appellant obtained inputs from a raw material supplier on which such raw material supplier did not discharge the output duty. The authorities denied the CENVAT credit on such invoices. The Tribunal allowed the CENVAT credit by holding that when the invoices received by appellant were showing duty payment, the input recipient cannot be expected to know that the manufacturer has not actually discharged the duty burden. Ultratech Cement Ltd. Vs. CCE, Jaipur-II [2015-TIOL-325-CESTAT-DEL] In this case the appellant discharged service tax on quarterly basis instead of monthly basis by utilising the CENVAT credit. The authorities demanded service tax on such late debits. The Tribunal disallowed levying interest on the basis that the appellant had sufficient CENVAT credit balance in its account. Oil and Natural Gas Corporation Ltd. Vs. CCE & ST, Surat [2015-TIOL-402- CESTAT-AHM] In this case the Tribunal allowed the CENVAT Credit on the basis of third original copy of the invoice by holding that the credit is allowed since the fact of actual receipt of capital goods in the factory is not under dispute. Ultratech Cement Vs. CCE & ST, Ghaziabad [2015-TIOL-408-CESTAT-DEL] In this case the respondent procured the capital goods and availed the CENVAT credit and simultaneous depreciation on the capital goods. However, before the issuance of SCN the respondent revised the income tax return and reversed the depreciation so claimed. The Tribunal allowed the CENVAT credit in these fact patterns. CCE & C, Aurangabad Vs. Jalna Sidhivinayak Alloys Pvt. Ltd. [2015-TIOL-430- CESTAT-MUM] In this case the appellant availed the CENVAT credit on the basis of BoE which was addressed to the principal manufacturer. The authorities denied the credit on the basis that credit is irregular. The Tribunal allowed the credit by holding that BoE is specified document and the goods are actually received. Raheja Plastics Vs. CCE, Mumbai-V [2015-TIOL-435-CESTAT-MUM] In this case the Tribunal allowed the CENVAT credit on outdoor caterer s services to a manufacturer having less than 250 employees. CST, Mumbai-I Vs. Reliance Capital Asset Management Ltd. [2015-TIOL-447- CESTAT-MUM]

5 Page 5 Central Excise Certificate from concerned Ministry can be relied upon by Excise authorities Refund of deposits made during investigation will not be barred by unjust enrichment In this case the respondent intended to avail benefit under an exemption notification on the basis of increase in installed capacity. In this direction it got its facility inspected before and after the enhancement by the Ministry of Industry and held a certificate in this respect. The excise authorities denied the exemption notification benefit by holding that there is not prescribed expansion in view of non-availability of machines. The Tribunal set aside these contentions and held that when the directorate of industries have certified to such an extent and merely the absence of additional machinery for manufacture of corrugated boxes, will not render the claim of respondent inapplicable in so far as the enhanced capacity is concerned. CCE, Chandigarh Vs. Bhandari Deepak Industries Pvt. Ltd. [2015-TIOL-413- CESTAT-DEL] In this case the High Court of Madras held that the amount paid during the investigation is not a duty and hold a character of deposit under protest. Accordingly, the principles of unjust enrichment would not apply. CCE, Coimbatore vs. M/s Pricol Ltd. [2015-TIOL-515-HC-MAD-CX] CUSTOMS Mere refiling of IGM will not render the goods liable for confiscation Mandatory pre-deposit from is not onerous In this case, an appellant filed an application for amendment of IGM because one of the importer did not want to clear the goods. The customs authorities held back the goods alleging fraud. The Tribunal denied such holding of goods for confiscation by holding that amendment to the IGM was necessitated because one of the importers after filing the bills of entry chose not to clear the goods; therefore, the goods were required to be sold to new consignees and consequently, fresh bills of lading and invoices were required to be issued. Shaan Marine Services Pvt. Ltd. Vs. CC (Import), Mumbai [2015-TIOL-395- CESTAT-MUM] In this case the High Court of Kerala held that the prescribed quantum of predeposit is only a small percentage of the duty/penalty amount confirmed against him, and the said amount has to be refunded to the petitioner in the event of his succeeding in the appeal before the Appellate Tribunal. Accordingly, the High Court held that the mandatory pre-deposit is not onerous. Sea Breeze Courier Vs. CCE, C & ST [2015-TIOL-499-HC-KERALA-CUS]

6 Page 6 Actual service and not mere assessment date is relevant Mere issuance of SCN is no reason to discontinue FTP incentives In this case the appellant s BoE was assessed on and communicated to the appellant on The appellant filed the appeal for refund on The authorities treated that the appeal is filed beyond the condonable limit of 30days as provided under the Act. The Tribunal held that the relevant date is service of order and not mere passage of the order. Thus, the appeal is filed within condonable time limit. Bharat Sanchar Nigam Ltd Vs. CC (Imports Seaport), Chennai [2015-TIOL-424- CESTAT-MAD] In this case the authorities discontinued the Status Holders Incentive Scripincentive and EPCG incentive merely because the SCN were issued to the petitioners. The High Court of Bombay allowed these benefits provided the petitioner submits the valid EPCG and SHIS licenses. Lupin Ltd. Vs. UOI & ORS [2015-TIOL-484-HC-MUM-CUS] VAT Medical procedure involving medicines and stents etc. cannot be severed into goods and services Contract providing separate consideration for supply of goods and for civil works are divisible In this case the petitioner was a hospital and treating the in house patients by administering various procedures, medicines, items like stents etc. The State Government treated the transaction as sales of goods and demanded sales tax. The High Court of Punjab and Haryana denied these contentions and held that a medical procedure is a pure service with no part having the attributes or the elements set out in Article 366 (29-A) of the Constitution of India or the definition of sale under the Punjab and Haryana statutes and, therefore, cannot be held to involve a "sale" and hence non applicability of VAT. Fortis Health Care Ltd. and another Vs. State of Punjab & Others [2015-TIOL- 466-HC-P&H-VAT] In this case the petitioner entered into an agreement with a Government agency to supply and lay down the pipeline. The agreement provided for separate consideration for supply of pipes and for civil works. The adjudicating authorities treated the project as divisible contract and disallowed the exemption to sale of pipes by treating that as sales simplicitor. The High Court of Rajasthan upheld the classification of contract as divisible contract and held that the exemption will be applicable prospectively and contract is a divisible contract. The Indian Hume Pipe Co. Ltd. Vs. State Of Rajasthan & ORS [2015-TIOL-548- HC-RAJ-CT]

7 Page 7 Input credit not admissible on R&D equipment and cement for construction of factory In this case the petitioner purchased the equipment for undertaking research and development and cement for construction of factory. The petitioner claimed the set off of the input taxes on the basis that the goods are used in manufacture. The High Court of Bombay denied such input credit on the basis that none of the goods have direct connection with the manufacturing activity. Gharda Chemicals Ltd. Vs. The State Of Maharashtra & ORS [2015-TIOL-485- HC-MUM-CT] News Swachh may be added to payable on services provided by four/five star hotels Initiatives taken by the Government to enhance growth in Industrial Production The government has identified five "high-end services", including services by four- and five-star hotels, which will attract additional service tax to fund Prime Minister Narendra Modi's Swachh Bharat campaign. The details of other four services are not available yet. It indicates that against an "enabling provision" of levying up to 2% cess over the 14% service tax, the government is expected to notify an additional 1% levy. The government aims to mop up around Rs 14,000 crore annually for the Swachh Bharat Kosh, which includes 1% cess on the five services. Several initiatives have been taken give the necessary thrust for pacing up the industrial sector which enhances job opportunities, through policy amendments, procedural simplifications and promotional measures. These includes: i) Pruning the list of industries that can be considered as defence industries requiring industrial license, two extensions of two years each in the initial validity of three years of the industrial license permitted up to seven years, removal of stipulation of annual capacity in the industrial license, and deregulating the annual capacity for defence items for Industrial License. ii) Certain recent amendments in Foreign Direct Investment (FDI) policy include allowing FDI in Defence up to 49% and FDI in Railway infrastructure up to 100%, easing the norms for FDI in construction and exempting FDI in medical devices from sectoral restrictions of pharmaceuticals. iii) Improvement in Ease of Doing Business in India through simplification and rationalization of the existing rules and use of information technology to make governance more efficient and effective has been taken up.

8 Page 8 iv) The Government has launched a Make in India initiative with 25 thrust sectors to provide a major push to manufacturing in India. Information on the thrust sectors has been put up on Make in India s web portal ( along with details of FDI Policy, National Manufacturing Policy, Intellectual Property Rights and the National Industrial Corridors including the Delhi Mumbai Industrial Corridor. v) The Government has also developed unified Web Portal Shram Suvidha facilitating industries in allotment of Unique Labour Identification Number (UN) to units vi) An Investor Facilitation Cell with back end support up to the State level has been created in Invest India to assist, guide, hand-hold and facilitate investors during the various phases of the business life cycle.

9 Page 9 Corporate India Advisors LLP MUMBAI Suresh Rohira suresh@cia-llp.com Phone: DELHI RohiniAggarawal rohini@cia-llp.com Pankaj Goel pankaj@cia-llp.com PUNE Phone: Kumar Iyer kumar@cia-llp.com Phone: About CIA CIA is an indirect tax specialist firm. CIA is run by eminent professionals having a niche experience in all realms of indirect taxes in leading multinational consulting firms. The services comprises of Service tax, Central Excise, Foreign Trade Policy, Customs, Value Added Tax, Central Sales Tax, Anti-dumping / Subsidy Measures and Goods and Services Tax. CIA has Wide spectrum of network on PAN India basis and provides best value for money proposition. CIA leverages upon its strong knowledge base, research and professionals with distinguished background For Private Circulation Only CIA does not assume any responsibility for the information given under the document. While every effort has made to avoid errors or omissions in this publication, it is suggested that to avoid any doubt the reader should cross-check all the facts, law and contents of the publication with original Government publication or notification or judgment. CIA neither accepts nor assumes any responsibility or liability for any act undertaken by any reader of this publication in whatsoever manner.