Notifications / Circulars / Clarifications 1 2. Recent Case Laws 3 7. The Central Government has:

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1 NEWSLETTER INDIRECT TAX NEWSLETTER Contents Notifications / Circulars / Clarifications 1 2 Recent Case Laws October 2015 Notifications / Circulars / Clarifications Customs The Central Government has: extended the levy of anti-dumping duty on PVC Flex Films falling under Chapter 39, originating in or exported from the People's Republic of China, up to 29 July 2016 when imported into India. (Ref: Notification No 43/2015-Cus (ADD) dated 18 August 2015) extended the levy of anti-dumping duty on Viscose Staple Fibre excluding Bamboo Fibre falling under tariff item , originating in or exported from the People s Republic of China and Indonesia, up to 25 July 2016 when imported into India. (Ref: Notification No 37/2015-Cus (ADD) dated 6 August 2015) imposed anti-dumping duty on the imports of Phosphoric Acid, Caustic Soda, Diketopyrrolo Pyrrole Pigment Red 254 (DPP Red 254), Potassium Carbonate, Flax or Linen Fabric and Vitamin C from specific countries. This has been effected through various notifications which contains details of the imposition including requisite conditions for its application. Excise The Central Board of Excise and Customs has created the Directorate General of Taxpayers Services. This directorate has been set up in accordance with the recommendations of the Tax Administration Reforms Commission. The objective of setting up this directorate is to provide for better governance, assistance to assessees and quality improvement of the tax department s services. (Ref: Order No. 02/Ad. IV/2015 dated 27 August 2015) 1

2 Service Tax The Central Excise and Service Tax Division, Chandigarh has clarified that transactions involving pickup of food from a restaurant or home delivery by a restaurant is not liable to service tax due to absence of the service element, viz., ambience, live entertainment and the like in pickups or home deliveries. The nonlevy of service tax, however, is only applicable to situations where no separate amount charged by the restaurant for delivery or pickup. (Ref: Clarification No. ST-20/STD/Misc./Sevottam/62/12/4893 dated 13 August 2015) Value Added Tax (VAT)/ Central Sales Tax (CST) Chandigarh Administration has increased the rate of tax on cellphones including all its accessories to 9.35% and on batteries of all types except cellphone battery, torch battery, watch battery and other toys related batteries to 14.35%. (Ref: Notification No. E&T/ETO(Ref)-2015/2289 dated 14 August 2015) The State of Chhattisgarh has introduced electronic filing of appeal against an order of assessment or an order imposing penalty in Form 53. Revision application shall be made electronically in Form 54 can be filed within six months from the date of communication of the order. (Ref: Notification No. F /2015/CT/V ( 59) dated 22 August 2015) The State of Kerala has notified the format of the declaration to be obtained by sub-contractors for claiming exemption on the sale of goods by sub-contractors undertaking the works of units in special economic zones. (Ref: Circular No. 22/2015 No.C1-1/15/CT dated 7 August 2015) The State of Telangana has notified the discount rate of 7% for calculating and paying the net present value of the deferred taxes by an industrial unit under Rule 67 of the Telangana Valued Added Tax Rules, (Ref: Notification G. O. Ms No. 136 dated 17 August 2015) 2

3 Recent Case Laws Customs In case goods are sold to dealers/ consumers at price higher than Retail Sale Price (RSP) declared / affixed at the time of import, such higher price to be considered for payment of countervailing duty (CVD). The assessee was engaged in the business of importing various types of tiles, assessable in terms of Section 3 of the Customs Tariff Act, 1975 (Customs Tariff Act), on the basis of declared RSP to Customs. Post import, the assessee used to sell the imported tiles at a price higher than RSP declared at the time of import. Consequently, demands notices were issued to the assessee for payment of differential customs duty on price increased, for the period March 2001 to April The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the CVD must be paid on the basis of higher prices at which goods of same size were sold to customers and which were required to be declared as RSP under Section 3(2) of Customs Tariff Act. The Tribunal also held that the first in-first out) method is the most reasonable to arrive at RSP in absence of records to correlate bills of entry and invoices and in the absence of any other more judicious method, however, clarified that while determining price band, stray transactions must be ignored and higher price in such band should only be taken as RSP. (Ref: Nitco Tiles Limited v Commissioner of Customs (Import), 2015-TIOL CESTAT-MUM) CESTAT allows Special Additional Duty (SAD) refund on supply by EPC contractor, when 'title' of transfer undisputed. The assessee had entered into an agreement with main contractor for supply of certain equipment and materials for a power plant to be set up in the state of Uttarakhand. Consequently, the assessee imported and paid SAD (at 4%) per Section 3(5) of Customs Tariff Act at time of importation. These goods were sold to main contractor and subsequently, the assessee filed refund claim of 4% SAD under Section 27 of Customs Act, 1962 read with Notification No. 102/2007- Customs dated 14 September Upon adjudication, the adjudicating authority sanctioned the refund claim. Aggrieved, Revenue filed an appeal before the Commissioner (Appeals) and thereafter, with the present Tribunal, on the grounds that no sale of imported goods happened between the importer and the main contractor. Perusing the agreement between assessee and the main contractor, the Tribunal held that the sale is completed as soon as titles are transferred to the purchasers. Finance arranged by purchaser cannot be the basis to hold that there was no sale of goods. Further, the Tribunal observed that the sales tax authorities accepted the sale of the goods on the basis of invoices produced by assessee and hence, held that benefit of SAD refund cannot be denied. The Tribunal also clarified that the Customs authority cannot go beyond the sale transactions by disputing the nature of sales. (Ref: Commissioner of Customs, Kandla v Luna Infraprop Private Limited, TIOL-1499-CESTAT-AHM) Authority of Advance Ruling (AAR) allows exemption to import of new seats for replacement in aircrafts, as seats are integral part of aeroplane, required in servicing, repair or maintenance. While disposing off the application of Inter Globe Aviation Limited, AAR observed that, it is not possible for the airline to operate the flight without seats. New seats that are being imported for replacing the existing seats in aircraft are for servicing, repair or maintenance of the aircraft and are entitled for benefit of exemption Notification No. 12/2012-Cus. As per the AAR, a plain reading of the exemption notification all parts (other than specifically provided) of aircraft of Chapter 3

4 Heading were exempt from Basic Custom Duty and this must be given effect to. (Ref: Inter Globe Aviation Limited, 2015-TIOL-05-ARA-CUS) Karnataka High Court holds that 6 months limitation period for issuance of show cause notice (SCN), to be calculated till date of 'dispatch' of SCN, not 'receipt' by Notice. Excise The Karnataka High Court, while dismissing a petition relied on a decision of Madhya Pradesh High Court in Ram Kumar Aggarwal's case. In this case the court had held that issuance of SCN by registered post before the expiry of six months from the date of seizure would be sufficient compliance, more particularly when the same is received by the addressee though after lapse of six months. It has been further held that neither Section 110(2) nor clause (a) of Section 124 of the Act contemplates service of notice in strict sense should be within a period of six months. Judgement rendered by the High Court of Madhya Pradesh has since been affirmed by the Supreme Court. (Ref: K. Abdulla Kunhi Abdul Rahaman v Assistant Commissioner of Customs & Others, 2015-TIOL-1986-HC-KAR-CUS) Karnataka High Court allows input service credit on outward transportation of cement till doorstep of the buyer. In this case, the assessee was engaged in the manufacture of cement. The cement was sold by the assessee at the destination of the buyer. The question that arose before the Karnataka High Court was whether the assessee was entitled to CENVAT Credit of the transportation till the destination of the buyer for the period post April After due considerations of the arguments put forth by the assessee and the revenue, the High Court noted that the crux in the present case was the determination of place of removal. It noted that this determination was to be adjudged vide the provisions of the Central Excise Act, 1944 (CE Act) read with the provisions of the Sale of Goods Act, It was held that in the facts of the present case, the title of the goods were passed only at the place of destination and that the buyer had no right to the goods prior to delivery at the destination. Therefore, the place of removal in the present case would be the destination of the buyer. Accordingly, it was held that the assessee was eligible to claim CENVAT Credit of the service tax paid on outward transportation of goods. The High Court in passing also held that the amendment in the definition of input service in Rule 2(l) of the CENVAT Credit Rules, 2004 on 01 April 2008 was immaterial since the place of removal either pre or post amendment was the doorstep of the buyer. (Ref: Madras Cements Ltd. v Commissioner of Central Excise, TS-371-HC- 2015(KAR)-EXC) Supreme Court holds that invalidation of advance license in favour of intermediate-manufacturer (assessee) is indirect additional consideration for sale of goods to license-holder and liable to excise. In this case, the assessee was engaged in the manufacture of polyester chips, 4

5 Service Tax polyester staple fibre, polyester filament yarn and other goods and was clearing the same to domestic area upon payment of central excise duty as also to advance license holders as deemed exports after invalidation) of the advance license. The assessee took benefit of drawback on such deemed exports when supplied upon invalidation of the advance license. The price charged to the advance license holders was lower that what was charged to the domestic manufacturers. In other words, the assessee could get the duty drawback and it could only happen when the advance licence holder category of buyers got their advance licences invalidated thereby surrendering the benefits accrued under such advance licence. In the above background, the issue that arose for consideration before the Supreme Court was whether such drawback received by the assessee would constitute 'additional consideration' received by the assessee as per the definition of 'transaction value' contained in Section 4 of the CE Act read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, The Supreme Court noted when goods are sold by an assessee at different prices to different classes of buyers (not being related persons), each such price is to be deemed to be the transaction value of such goods in relation to each class of buyers, subject to any additional consideration (direct or indirect) flowing directly or indirectly from the buyer to the assessee. In the facts of the present case, the Supreme Court noted that the benefit of drawback to the assessee was facilitated as a result of the advance license by the buyer. In other words, getting the licence invalidated for direct import of items in favour of the buyer was the trigger point for availing the benefit of drawback. It was also held that even though the benefit of drawback was to be granted by the government, the same was directly as a result of the actions of the buyer, and hence, would amount to additional consideration under the rules. In arriving at this conclusion, the Supreme Court relied upon its earlier judgment in Commissioner of Central Excise v IFGL Refractories Ltd. [(2005) 6 SCC 713]. It rejected the request of the assessee to refer the matter to a larger bench in passing. (Ref: Commissioner of Central Excise v Indorama Synthetics (I) Ltd., TS-440-SC EXC) CESTAT grants partial reprieve to the assessee, orders that incentive for sale of vehicle is not taxable, but upholds demand on commission for auto loan marketing. In this case, the assessee was an authorized dealer and service station of Hyundai Motor India Limited (HMIL) and was engaged in the activity of selling cars and their spares, servicing as also direct sales agents (DSA) for banks under agreements to arrange loans from these institutions for prospective customers. On such activity of DSA, the assessee received commission / incentives from the bank and HMIL. Demand of service tax was raised on the assessee on four issues, viz., (i) commission received from banks for promotion of auto loans given by banks to customers; (ii) commission income under the heading incentives received from HMIL on account of sale of vehicles and their parts; (iii) reference insurance commission received from New India Assurance Co. Ltd. for promotion of services provided by New India Assurance and (iv) pre-delivery inspection charges 5

6 received from HMIL on sale of new vehicles. After due consideration, the CESTAT held as follows: In respect of (i), it was held that the service provided by the assessee was directly an activity of marketing of auto loans provided by the banks and assessee not provide a service 'on behalf of' the banks. It was noted that the assessee brought in customers for the banks and the banks provided the financial service to the customers. In such circumstances, demand of service tax was upheld under the category of business auxiliary services. In respect of (ii), it was held that the assessee and HMIL acted on a 'principal to principal' basis. The CESTAT observed that, only because some incentives/discounts were received by assessee under various schemes of the manufacturer cannot lead to the conclusion that the incentive was received for promotion and marketing of goods. In sum, such activity is not exigible to service tax. In respect of (iii), it was held that service tax was correctly leviable under promotion and marketing of insurance services. In respect of (iv), the service tax demand was dropped by the CESTAT as the same would not amount to business auxiliary services as claimed by the department. (Ref: Commissioner of Service Tax v Jaybharat Automobiles Ltd., TS-425- CESTAT-2015-ST) Punjab & Haryana High Court allows CENVAT Credit on land lease rentals and factory construction services for the period prior to In this case, the assessee was a manufacturer of metal sheet components for use in manufacture of automobiles. These components were supplied to Maruti Udyog Limited. During the year 2010, the assessee had had availed CENVAT Credit for service tax paid on civil work of constructing a plant as also on the tax paid on land lease rentals. The revenue sought to disallow the CENVAT Credit of approximately INR 1.45 crore on the ground that it was availed on inadmissible services. The revenue submitted that though the definition of input service under the CENVAT Credit Rules, 2004 (CCR) is wide, it does not cover services that remotely or in a roundabout way contribute to the manufacture of final products. The Punjab & Haryana High Court rejected the contentions put forth by Revenue and held that the assessee was eligible to claim CENVAT Credit as the services were indeed input services under the CCR. The High Court relied upon the judgment of the Bombay High Court in Coca Cola India Pvt. Ltd. v Commissioner of C. Excise [2009 (242) E.L.T. 168 (Bom.)] in arriving at the conclusion that the said services were indeed required for manufacture and clearance of the final products. The High Court also held that that services in question had not been used for bringing into existence an immovable property, but rather manufacture of final product. In sum, the HC dismissed the appeal filed by the revenue. (Ref: Commissioner of Central Excise v Bellsonica Auto Components India P. Ltd., TS-374-HC-2015(P&H)-ST) 6

7 Value Added Tax (VAT)/ Central Sales Tax (CST) Andhra Pradesh High Court (HC) held that in cases where there is no specific entry, the generic of dictionary meaning is acceptable for classification of goods. The assessee was engaged in the manufacture of refractory bricks which have a specific purpose of utilizing the same in heat treatment furnaces and other furnaces such as kilns, blast furnaces, steam boilers etc. The assessing officer accepted the assessee s contention and taxed the same at 5%. This was objected to by tax authorities. The Andhra Pradesh High Court held that absent a specific entry, the generic and natural meaning had to be given to the entry and the same would have to be taxed as falling in the same entry. The bricks continued to remain bricks and in the absence of a specific classification the general classification of bricks should be adopted. (Ref: State of Andhra Pradesh v Polygone Refractories Ltd. TS-421-HC-2015(TEL and AP)-VAT) For any queries please contact: editors@khaitanco.com For private circulation only The contents of this are for informational purposes only and for the reader s personal non-commercial use. The views expressed are not the personal views of Khaitan & Co and do not constitute legal advice. The contents are intended, but not guaranteed, to be correct, complete, or up to date. Khaitan & Co disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause Khaitan & Co. All rights reserved Mumbai New Delhi Bengaluru Kolkata One Indiabulls Centre, 13 th Floor Ashoka Estate, 12th Floor Simal, 2nd Floor Emerald House Tower 1 841, Senapati Bapat Marg 24 Barakhamba Road 7/1, Ulsoor Road 1 B Old Post Office Street Mumbai , India New Delhi , India Bengaluru , India Kolkata , India T: T: T: T: E: mumbai@khaitanco.com E: delhi@khaitanco.com E: bengaluru@khaitanco.com E: kolkata@khaitanco.com