Corporate India Advisors LLP November 2014 Indirect Tax Newsletter I NSIDE THIS ISSUE 1 Service Tax 2 CENVAT Credit 3 Central Excise 4 Customs and FTP 5 VAT/CST Notifications / Circulars Service tax ST Instruction letter SEZ unit or developer, at their option, may submit Form A2 or/and Form A3 directly to the SEZ Authority In view of the difficulty faced by SEZ developers and units in dealing with two authorities, i.e., SEZ and Central Excise, for obtaining Form A1 and Form A2, the Central Government clarified that at the option of SEZ unit or developer, Form A2 can be filed with the specified officer of SEZ instead of submitting directly to the service tax authorities. Similar clarification has been put forth for filing the quarterly Form A3 with SEZ officer instead of with service tax authorities. The above option given by the Government may not be of much help because Form A2 and A3 will ultimately have to be submitted with the Central Excise Authorities even if these are routed through SEZ authority. CBEC Instruction Letter (F.No.B1/6/2013-TRU) dated 25.11.2014 SEZ Circular Once the uniform list of services is approved by UAC, SEZ Developer/unit need not apply separately for authorization of the services covered in the list approved by UAC The Ministry of Commerce, Government of India has clarified that the SEZ units and SEZ developers should not be insisted to obtain authorisation from Unit approval Committee ( UAC ) for those authorized services which are already approved earlier by the UAC. Since this SEZ circular is relevant from the perspective of input service tax exemption to SEZ units/developers, this has been included in service tax section here. Commerce Ministry Instruction No. 83/2014, dated: November 21, 2014
Page 2 CENVAT Credit Circular Time limit of 6 months to avail CENVAT credit on inputs and input services from the date of invoice, not applicable on subsequent re-credit of the invoice The Government has given a limited relief to the Trade as to outer time limit of 6 months for availment of CENVAT Credit. It is clarified that the time limit of 6 months is applicable only on the first time availment of CENVAT credit by an assessee. The said time limit is not applicable on subsequent re-credit by the assessee. The Circular clarified that the purpose of the amendment made by Notification No. 21/2014-CE (NT) dated 11.07.2014 is to ensure that after the issue of a document under sub-rule (1) of Rule 9, credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document. It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules. This is a welcome step and Trade can utilize this Circular to ensure that it does not lose the CENVAT credit by virtue of this 6 months time limit. Circular No: 990/14/2014-CX-8 dated November 19, 2014 Central Excise Notification Central excise exemption on goods required for intensified malaria control project-ii funded by GFATM The Central Government has exempted Anti-Malarial drugs and diagnostics and Medical Products having specified description subject to the conditions. The Notification provides that the manufacturer shall produce a certificate from a specified officer in the ministry of health and family welfare at the time of clearance of the said goods to the jurisdictional Central Excise officer saying that the said goods are required for Intensified Malaria Control Project (IMCP)-II under the National Vector Borne Disease Control Programme (NVBDCP), funded by global fund to fight AIDS, TB and Malaria (GFATM). Notification No.23/2014 Central Excise (T) dated November 21, 2014 valid till September 30, 2015
Page 3 Customs and Foreign Trade Policy Notification Revision in rate of exchange for valuation of exported and imported goods Revised Rate of Exchange ( ROE ) notified with effect from November 21, 2014 for the purpose of determining the assessable value in respect of Imported and Exported goods. Notification No. 111/2014- Customs (N.T.) dated November 20, 2014 Notification Customs duty exemption on goods required for intensified malaria control project-ii funded by GFATM Notification and Circular New all industry rates (air) of duty drawback notified w.e.f. November 22, 2014 This notification has exempted Anti-Malarial drugs and Diagnostics and Medical products from the whole of the duty of Customs and additional duty leviable thereon subject to the condition that importer shall produce a certificate to the specified officer to the effect that the said goods are required for Intensified Malaria Control Project (IMCP)-II under National Vector Borne Disease Control Programme (NVBDCB). Notification No. 32/2014- Customs (T) dated November 21, 2014 valid till September 30, 2015. Notification No. 110/ 2014 issued superseding the Notification No. 98/2013- Customs (N.T.) dated September 14, 2013 and notified All Industry Rates (AIR) of duty drawback effective from November 22, 2014 subject to the notes and conditions mentioned therein. Notification No. 110/2014-Customs (N.T.) dated November 17, 2014 A detailed clarification has been issued explaining the features of the new All Industry Rates of Duty Drawback which is effective from November 22, 2014. Circular No. 13/2014- Customs dated November 18, 2014 Public Notice Import export code (IEC) to be filed online and to be issued within 2 days The Government replaced the Aayat Niryat form and provided that all IEC applications will mandatorily be filed online. It is further provided that the decision regarding grant or refusal of IEC will be conveyed within two working days by the concerned jurisdictional regional authority. Ministry of Commerce and Industry, Government of India issued a public notice no. 76/(RE-2013)/2009-2014, dated November 27, 2014
Page 4 Judgments Service Tax Amount paid incorrectly as service tax is to be considered as deposit on which no time bar applies for refund Commitment charges charged by a banker on non-withdrawal of sanctioned loan are not in the nature of interest, thus chargeable to service tax Service of digitization of maps & other documents is not a scientific or technical consultancy Service tax is not leviable on the amount of discounts/incentives received for placing advertisements as these are not consideration for any service rendered The issue in this case was whether one year time limitation under section 11B of the Central Excise Act, would apply to the refund of the amount which was paid incorrectly as service tax. The Tribunal held that the amounts deposited by the appellant whether by way of tax or interest assumed the character of deposit when it was held that that no service tax was payable on the given transaction. The Tribunal allowed the refund to the appellant. Roshan R Jaiswal Vs. CCE Nagpur [2014-TIOL-2308-CESTAT-MUM] The issue in this case was whether commitment charges recovered by the Bank were to be added to the value of taxable service of the banker for charging service tax or these charges were to be treated as interest whereon no service tax is chargeable. The tribunal held that the commitment charges are the charges imposed on the client who decide not to draw the amount of loan that has been at their disposal. Thus, it was held that such charges are integrally connected with the lending, and still do not partake the nature of interest. Thus the commitment charges are chargeable to service tax as charges for lending service. PNB vs. CCE & ST [2014-TIOL-2080-CESTAT-DEL] The issue in this case was whether assessee s activities i.e. digitization of maps, digitization of IRS PAN image, proposed computerization of updating of land plans and vectorisation of village maps for all features are taxable under the category of Scientific or Technical Consulting Services. The Tribunal observed that the respondents had not provided any advice or consultancy or scientific or technical assistance. The respondents are only doing a job of digitization of maps. Accordingly, relying on the definition of Scientific or technical consultancy given under section 65(92) of Finance Act, 1994, the Tribunal disallowed the demand raised on the respondents. CCE vs. ADCC Infocad Pvt. Ltd. [2014-TIOL-2039-CESTAT-MUM] The issue in this case was whether service tax was leviable in respect of discounts/incentives received by advertising agency from the print/broadcast media in respect of advertisements placed by the said agencies on behalf of customers; and also whether service tax was leviable on the amount which were written back as an accounting entry because these were outstanding payments not claimed by the creditors. The Tribunal held that service tax is not leviable on both of these amounts in as much as these are either incentives or accounting adjustments and not consideration for any service rendered. Group M Media India Pvt. Ltd. and others Vs. CCE & ST Thane-I/ Mumbai-II
Page 5 Service tax cannot be charged on value of goods if shown separately OIO delivered at wrong address due to non communication of new address by assessee will not be time barred The issue in this case related to the leviability of service tax and the appropriate taxable value thereof when the agreement depicted the value of goods and services separately. In this fact pattern, the Hon ble High Court of Allahabad negated the imposition of service tax on the value of goods. CCE Vs. Govardhan Transformer Udyog Pvt. Ltd. [2014-TIOL-1973-HC-ALL-ST] The issue pertains to delivery of order in original at the previous address of the assessee. It changed the premises but did not inform the authorities of such change. The Tribunal held that the OIO served at the previous premises was well within the prescribed timeline and hence the appeal filed by the appellant after the due date is time barred. Sree Gayatri Vs. CEE [2014 TIOL 2276 CESTAT MAD] CENVAT Credit Cenvat credit will be allowed based on invoice even if the seller is not traceable by the excise authorities Cenvat credit on services relating to maintenance of photocopier, rent-a-cab service and freight inwards is eligible credit Credit allowed of excess paid duty The issue in this case was whether the Cenvat Credit would be allowed in case where a manufacturer availed credit on the basis of input invoices issued by seller who was untraceable by the excise authorities. The Tribunal held that in the absence of any allegation of procurement of inputs from any other source, the inputs received by the appellant were held to be received under the cover of cenvatable invoices issued by the registered dealer and hence the credit was allowable. Roshan R Jaiswal Vs. CCE Nagpur [2014-TIOL-2308-CESTAT-MUM] The issue in this case was whether the appellant is eligible for Cenvat Credit on services relating to maintenance of photocopier, rent-a-cab service and freight inwards. The Tribunal held that with regards to Cenvat credit of Service Tax paid on photocopier maintenance, the credit was held as admissible; with regard to Cenvat credit of Service Tax paid on rent-a-cab service The Tribunal held that the service was availed for providing cabs to the customers who were required to come and inspect the goods as regards the quality and specification before they were removed and since this was an activity which was required to be completed before removal of goods, the appellant was eligible for the credit with regard to Cenvat credit on freight inwards, the credit was allowed on the ground that the entire amount relates to transportation of raw materials, etc., into the factory and does not relate to removal of goods from the factory gate. Mersen India Pvt. Ltd. Vs. CCE, C & ST [2014 (10) TMI 516 - CESTAT BANG] In this case, the respondent procured material from a manufacturer who removed these goods as such. The seller manufacturer charged duty @16% instead of reversing the credit. The authorities disallowed the credit on the basis that supplier of inputs has paid excess duty therefore respondent is not entitled to take credit of the excess duty. The Tribunal allowed the credit on the basis that respondent has taken the credit of the actual duty paid and excess payment is an issue between the revenue and the supplier manufacturer. CCE Vs. Ispat Ltd. [2014-TIOL-2277-CESTAT-MUM]
Page 6 Central Excise Bar of unjust enrichment not applicable if excise duty on finished products reduced from 16 % to 8 % Duty remission allowed if the goods are destroyed before the export Activity of cutting of papers into desired size is not manufacture The issue in this case was whether the bar of unjust enrichment is applicable or not when the excise duty on the finished product was reduced from 16% to 8% and customer refuses to pay duty over and above 8%. The Tribunal held that as per Notification no.16/04 dated 28.02.2004, the excise duty payable was 8% and there is no evidence on record which shows that the respondent have received any amount on account of excess duty charged in the invoice from the customers. Thus, the tribunal held that the bar of unjust enrichment is not applicable in this case. CCE Raigad Vs. Ispat Industries Ltd. [2014-TIOL-2053-CESTAT-MUM] In this case, the appellant was exporting the goods on CIF basis. However, the goods were destroyed before export thereof leading the exporter to file the claim of remission. The larger bench of Tribunal allowed such remission on the basis that in the fact pattern the place of removal was port. It also held that since the goods were destroyed before the exports and hence ownership of the said goods would be always to the account of appellant and thus the goods would be treated to have been destroyed before removal entitling it for the benefit of remission of duty. Honest Bio-Vet Pvt. Ltd. Vs. CCE Ahmedabad-I [2014-TIOL-2286 -CESTAT- AHM-LB] The issue in this case pertains was whether the activity of cutting paper into desired sizes amounts to manufacture or not. The Tribunal held that while cutting paper into required sizes, no new product emerges and thus cutting and slitting of paper does not amount to manufacture as the product remains only paper. CCE Thane Vs Anupam Stationery Mfg Ltd. [2014-TIOL-2037-CESTAT-MUM] Customs and Foreign Trade Policy Raw material imported without payment of duty and used in R&D by a 100% EOU within its premises duty not to be paid on raw material so used The issue in this case was whether duty is to be paid or not on the raw material used for research and development. The Tribunal held that the raw material, which was used for research and development activity, is essential for manufacture of human vaccines and is to be considered as part of raw material used for manufacturing of human vaccines. The tribunal considered the circumstances of the case and in view of the decision given in the case of CCE, Hyderabad vs. Dr. Reddy Laboratories Ltd. (253) ELT 316 (reported in 2010), found merit in the contention of the appellant as the appellants being a 100% EOU made import of certain raw material without payment of duty by availing the benefit of the Notifications and part of the raw material is used for research and development activity, which is essential for manufacture of human vaccines. Hence no duty was to be paid on raw material so used. Serum Institute of India Ltd Vs. CCE Pune-III [2014(10) TMI 371 CESTAT MUM]
Page 7 Bar of unjust enrichment does not apply in case of refund of security deposit under project import scheme The issue in this case relates to refund of security deposit made by the assessee under the project import scheme as revenue denied the refund claim saying that the assessee failed to pass the bar of unjust enrichment. The tribunal held that the bar of unjust enrichment is not applicable for security deposit as the tribunal relied on the CA S certificate, which showed the deposit as receivables in the balance sheet. Thus the refund claim was allowed. Agrasen Engg Industries Ltd. Vs. CC (I), Nhava Sheva [ 2014-TIOL-2035 - CESTAT MUM] VAT Person mentioned in contract as Contractee can not be treated as Contractor In this case, the appellant was engaged by M/s Sri Ramdas Motor Transport Corporation (SRMT) to construct certain property for onwards sales in the State of Andhra Pradesh (AP). SRMT deducted the WCT TDS by treating them as contractor. In the State of AP if the main contractor availed the composition scheme, the sub-contractor need not discharge any VAT liability after proving to this effect. The authorities demanded VAT from the appellant.the appellant submitted that it being a sub-contractor of SRMT need not pay any VAT. The High Court negated these contentions of appellant relying on the agreement which provided that the consideration was inclusive of all taxes including VAT. The Court observed that all the documents, commercials as well as submissions with the authorities, mentioned SRMT as contractee and hence the appellant cannot be allowed to seek exemption by arguing that SRMT is main contractor. Mark infrastructure Pvt. Ltd vs. CTO, Hyderabad and others [2014-TIOL-2003- HC-AP-VAT]
Page 8 NEWS The ministry of food processing industries recommends rationalisation of service tax on food items Gujarat HC strikes down Rule 8(3A) of the Central Excise Rules, 2002 GST Bill to be introduced in the Parliament after 12 December, 2014 The ministry of food processing industries (MoFPI), in a recent recommondatory note to the Union ministry of finance, has sought rationalisation of taxes such as service tax, which are levied upon various schemes of the ministry. A report has been prepared by the ministry which has been submitted to the government wherein we have put across several suggestions to the government. Amongst other things, rationalisation of service taxes has been proposed for cold chain services. For example, a cold chain facility provides some service to a wholesaler, presently the service tax is levied on that if the basic characterstics of that agriculture produce undergoes a change. So if it is frozen through IQF, service tax is levied on that. The ministry wants rationalisation in such issues, which would ultimately benefit the growth of the food processing sector. The Gujarat high court on 27th November, 2014, struck down Rule 8(3A) of the Central Excise Rules, 2002 and has now empowered manufacturers to use Cenvat credit during the one-month grace period to pay excise. The counsel for the petitioner Indsur Global Ltd, said that the central excise is to be paid by a manufacturer at the end of the month. If the manufacturer isn't in a position to pay the duty within one month's time, he gets a grace period of one more month. However, during this grace period, the manufacturer is restricted from utilizing his Cenvat credit as per the rule 8(3A) of the Central Excise Rule, 2002. He said that the restrictions on utilizing Cenvat credit when manufacturers already face liquidity problems so as to delay payment of excise puts them in bigger trouble. Moreover, the Central Excise department keeps sending notices saying that the credit cannot be utilized. On the other hand, allowing people to use the credit during the default period can solve their financial problems and further reduce the list of defaulters. Please note that the above sub-rule 3A has already been substituted by a new sub-rule 3A vide Notification No.19/2014-CE(NT) with effect from 01-10-2014. Finance Minister Arun Jaitley expressed hope that the much-awaited GST Bill, which provides for a uniform indirect tax structure, would be introduced in the current winter session of Parliament. "We will try and introduce GST (Goods and Services Tax) Bill in this session...gst Bill would be taken up by the Cabinet after Empowered Committee (of state finance Minister) meeting on December 12," the minister said.
Page 9 Corporate India Advisors LLP MUMBAI DELHI Suresh Rohira suresh@cia-llp.com Rohini Aggarwal rohini@cia-llp.com Sanjay Lunia sanjay@cia-llp.com Pankaj Goel pankaj@cia-llp.com Phone: 022-26714888 Phone: 011-45002880 PUNE Suresh Rohira suresh@cia-llp.com Kumar Aiyar kumar@cia-llp.com Phone: 020-26438202 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