A2Z TAXCORP LLP Tax and Law Practitioners Page 1

This bulletin brings to you the highlights of recent updates and important judgments in the field of indirect taxation along with key inputs from other fields to keep you abreast of all the latest happenings.

A2Z TAXCORP LLP NEW DELHI, INDIA

Indirect Tax and Other Laws Communique 2thFebruary, 2015

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CONTENTS Page No

Service Tax

Case laws Services of maintenance of equipment on behalf of foreign

clients to Indian buyers and identifying prospective customers in India qualify as export of services

03

Input Service Distributor need not be a ‘manufacturer’ or ‘output service provider’ for availing Cenvat credit 05

Once the Assessee has filed an appeal by paying the mandatory pre-deposit amount of 7.5%, their bank account cannot be freeze

06

No Service tax leviable under ‘Club or Association’ service in respect of the services provided by clubs to their members in view of the principle of mutuality

07

Central Excise

Notifications and Circulars New method provided for the calculation of Basic Excise Duty

on Branded High Speed Diesel 08

Case laws

In case of inter-unit 'stock transfer' of intermediate goods, doctrine of unjust enrichment would not apply 08

Cenvat Credit cannot be denied on erection and installation of machines by the Manufacturer as part of Input service and activities relating to business of the manufacturer

10

Availment and distribution of Cenvat credit by the Head Office registered as ISD cannot be denied on the ground that the invoices are in the name of Branch Office

11

Customs

Notifications and Circulars

No Anti-Dumping Duty can be collected on Acrylonitrile Butadiene beyond the validity period 12

Revision in Rate of Exchange for valuation of exported and imported goods 12

Revision in Tariff value of specified imported goods 12

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Case Laws Declared value of Imported goods cannot be enhanced merely

on the basis of NIDB data 12

Distribution fees paid to non-resident for rights to distribute a service has nothing to do with the Imported Goods, therefore enhancement of Assessable Value of Imported Goods to the extent of remittance of distribution fees is untenable

14

Where the duty is mistakenly paid in excess, the Assessee is entitled to refund - No need to challenge the assessment of the Bill of Entry

15

Benefit of the ‘Served from India Scheme’ cannot be denied only on the ground that the companies were subsidiaries of foreign companies

16

Foreign Trade Policy

Notifications and Circulars

Applications for online IEC effective from February 1, 2015 17

News Flash 18

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SERVICE TAX

RECENT CASE LAWS

Services of maintenance of equipment on

behalf of foreign clients to Indian buyers

and identifying prospective customers in

India qualify as export of services

Samsung India Electronics Pvt. Ltd Vs.

CCE. Noida [2015 (1) TMI 1098 - CESTAT

NEW DELHI]

Samsung India Electronics Pvt. Ltd. (“the

Appellant”) was rendering Customer care

services to the customers of CDMA mobile

phone in India on behalf of Samsung

Electronics Company Ltd., Korea

(“Samsung Korea”). The Appellant was

also engaged in identifying new

prospective customers and effectively

communicating to them the features of

CDMA products of Samsung Korea. In

return, the Appellant was receiving a

commission from Samsung Korea in

foreign exchange during the period

August 2003-December 2003, May 2005-

December 2005 and April 2007-March

2012.

The Department demanded Service tax on

the amount so received and the demand

made against the Appellant was

confirmed along with interest and

penalties.

Being aggrieved, the Appellant preferred

an appeal before the Hon’ble CESTAT,

Delhi. The Appellant relying upon the

decisions in the case of Blue Star Ltd. Vs.

Commissioner of Service Tax [2014-TIOL-

2257-Cestat-Mum] (“Blue Star case”) and

Simpra Agencies Ltd. Vs. C.C.E. [2014

TIOL-687-Cestat-Del] submitted that the

activities undertaken by the Appellant on

behalf of Samsung Korea are in the nature

of export of services in terms of Rule 3(3)

of the erstwhile Export of Services Rules,

2005 (“the Export Rules”) and hence not

exigible to Service tax. As regards the

period prior to introduction of the Export

Rules, the Appellant submitted that they

are covered under the Circular No.

56/5/2003/ST dated April 25, 2003.

The Hon’ble CESTAT, Delhi relying upon

the decision in the Blue Star case and in

the case of Paul Merchants Ltd. Vs. CCE

Chandigarh [2012-TIOL-1877-CESTAT-

DEL], held that the Appellant has provided

the service of procuring purchase orders

for their foreign clients and providing

maintenance service to the Indian buyers

during the warranty period on behalf of

their foreign clients on the instructions of

foreign clients, which are covered by Rule

3(3) of Export Rules. Therefore, the

Appellant was not required to pay Service

tax and accordingly are entitled for

refund.

Our Comments: The Hon’ble CESTAT,

Delhi in the case of Microsoft Corporation

(I) (P) Ltd. Vs. Commissioner of Service,

New Delhi [2014- TIOL-1964-CESTAT-DEL]

set aside the demand of Rs. 256 Crores by

holding that the services provided to

foreign principals for marketing their

products in India qualify as an export of

service under the Export Rules and hence

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not exigible to Service tax.

However, it would not be out of place

here to highlight the recent change in the

definition of ‘intermediary’ given under

Rule 2(f) of the Place of Provision of

Services Rules, 2012 (“the POP Rules”) to

include intermediary in respect of goods

also in its scope w.e.f. October 1, 2014.

Accordingly, an intermediary of goods,

such as a commission agent or

consignment agent shall be covered under

Rule 9(c) of the POP Rules (Location of

service provider) instead of Rule 3 of the

POP Rules (Location of service recipient).

We are reproducing here under the

amended definition of ‘intermediary’ as

effective from October 1, 2014 for the

ease of your reference:

“(f) “intermediary" means a broker, an

agent or any other person, by whatever

name called, who arranges or facilitates a

provision of a service (hereinafter called

the 'main' service) or a supply of goods,

between two or more persons, but does

not include a person who provides the

main service or supplies the goods on his

account;”

Hence, this change in the definition of

‘intermediary’ has brought intermediary

for goods at par with intermediary for

services effective from October 1, 2014

and chargeable to Service tax on the basis

of Location of service provider.

Input Service Distributor need not be a

‘manufacturer’ or ‘output service

provider’ for availing Cenvat credit

Moser Baer India Ltd. Vs. Commissioner

of Central Excise, Noida [2015 (1) TMI

1093 - CESTAT NEW DELHI]

Moser Baer India Ltd. (“the Appellant”) is

the manufacturer of CDR, CD Rom, DVDR

and DVD Rom, falling under Chapter

Heading 85 of the Central Excise Tariff Act,

1985, at their factory situated at Noida.

The Head Office of the Appellant, located

at Okhla, Delhi is registered as an Input

Service Distributer (“ISD”) in terms of Rule

2(m) of the Cenvat Credit Rules, 2004

(“the Credit Rules”). The Head Office was

discharging Service tax liability under

Reverse Charge for the various services

received by them from foreign country.

The Service tax so paid by them was

distributed by the Head Office to the

Appellant’s factory at Noida, which was

utilized by the Appellant in their factory

located at Noida.

The Department contended that in as

much as the Service tax was being paid by

the Head Office, which was neither

engaged in the manufacture of any

excisable goods nor providing any output

services, they were not entitled to avail

the said credit and in turn not entitled to

pass on the said credit to the Appellant’s

factory located at Noida.

Being aggrieved, the Appellant preferred

an appeal before the Hon’ble CESTAT,

Delhi.

The Hon’ble CESTAT, Delhi after analysing

Rule 2(m) and Rule 7 of the Credit Rules

held that:

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In the light of Rule 7 of the Credit Rules

which provides the manner of

distribution of Cenvat credit by ISD, the

basic requisite condition for the

distribution of the said credit is that the

ISD receives the invoices towards

purchase of input services and pays the

Service tax. There is nothing in the said

Rule to suggest that the Head Office or

the office of the manufacturer should

be himself in a position to provide any

output service or to manufacture any

excisable goods;

Further, Cenvat credit on the input

services is not dependent upon the

actual receipt of the services in the

factory unlike the Cenvat credit of the

duty paid on the inputs, which is

dependent upon the actual receipt of

the inputs or the capital goods in the

factory. As such, when the services

were first received by the Head Office

and then transferred to the factory for

further utilization, it cannot be made a

ground for denial of Cenvat credit;

The Tribunal in number of cases has

held that where the documents are in

the name of Head Office, Cenvat credit

can be availed in the factory belonging

to the same manufacturer - Modern

Petrofils Vs. CCE, Vadodara [2010 (20)

S.T.R. 627 (Tri. - Ahmd.)] and CCE, Vapi

Vs. DNH Spinners [2009 (244) E.L.T. 65

(Tri. - Ahmd.)].

Therefore, the Hon’ble Tribunal allowed

the Cenvat credit to the Appellant

transferred from their Head Office.

Once the Assessee has filed an appeal by

paying the mandatory pre-deposit

amount of 7.5%, their bank account

cannot be freeze

Kala Mines and Minerals Vs.

Commissioner of Customs, Central Excise

& Service Tax, Goa [2015-TIOL-193-

CESTAT-MUM]

In the instant case, an Order was passed

by the Ld. Commissioner, Goa confirming

Service tax liability on Kala Mines and

Minerals (“the Appellant”). Being

aggrieved by the said Order, the Appellant

preferred an appeal before the Hon’ble

CESTAT, Mumbai by making a pre-deposit

of 7.5% of the Service tax demand

confirmed in terms of Section 35F of the

Central Excise Act, 1944 (“the Excise

Act”).

Despite of such compliance, the Deputy

Director, DGCEI, Goa has written a letter

to Appellant’s bankers namely HDFC, SBI

and Corporation Bank to remit the

amounts lying balance in the account of

the Appellant in order to credit the same

with the Government exchequer against

the dues. Pursuant to the said

communication, the banks froze the

accounts and were not allowing the

Appellant to operate the accounts for

their day-to-day activities/ functioning.

Being aggrieved, the Appellant made a

plea before the Hon’ble Tribunal.

On listing of the matter before the

Hon’ble Tribunal on January 19, 2015, the

Hon’ble Tribunal held that once statutorily

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mandatory deposit of 7.5% has been

made, there is no reason for recovery of

any further amount from the Appellant

and the action of the Deputy Director,

DGCEI seems to be beyond the scope of

law. Hence, there is no need to freeze the

account of the Appellant as long as the

appeal is pending before the CESTAT.

Accordingly, the Hon’ble Tribunal directed

the lower authorities, especially the

Deputy Director, DGCEI, Goa to defreeze

the account forthwith by issuing

appropriate instructions to the Appellant's

bankers.

Our Comments: The Central Board of

Excise & Customs vide Circular No.

984/08/2014-CX dated September 16,

2014 clarified that no coercive measures

for the recovery of balance amount i.e.,

the amount in excess of 7.5% or 10%

deposited in terms of Section 35F of the

Excise Act or Section 129E of the Customs

Act, 1962 shall be taken during the

pendency of appeal where the Assessee

shows to the Jurisdictional Authorities:

(i) Proof of payment of stipulated amount

as pre-deposit of 7.5% / 10%, subject to a

limit of Rs. 10 crores , as the case may be;

and

(ii) Copy of appeal memo filed with the

Appellate Authority.

It was further provided that recovery

action, if any, can be initiated only after

the disposal of the case by the

Commissioner (Appeals)/ Tribunal in

favour of the Department unless the order

of the Tribunal is stayed by the High

Court/ Supreme Court.

The recovery, in such cases, would include

the interest, at the specified rate, from

the date duty became payable, till the

date of payment.

No Service tax leviable under ‘Club or

Association’ service in respect of the

services provided by clubs to their

members in view of the principle of

mutuality

Matunga Gymkhana, Tahnee Heights Co-

Op Housing Society Ltd. And Mittal Tower

Premises Co-Operative Society Vs.

Commissioner of Service Tax, Mumbai

[2015 (1) TMI 1146 - CESTAT MUMBAI]

In the instant case, the three Appellants

namely Matunga Gymkhana, Tahnee

Heights Co-Op Housing Society Ltd. and

Mittal Tower Premises Co-Operative

Society (“the Appellants”) were running a

club for their members. The activities

carried out by the Appellants for their

members included Sports, Yoga etc.

The Department confirmed the demand of

Service tax on the Appellants based on the

premise that the Appellants had provided

taxable service namely 'Club or

Association' service specified in erstwhile

Section 65(105)(zzze) of the Finance Act,

1994 (“the Finance Act”) read with

Section 65(25a) thereof. Being aggrieved,

the Appellants preferred their respective

appeals before the Hon’ble CESTAT,

Mumbai.

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The Hon’ble CESTAT, Mumbai held as

under:

The Hon’ble High Court of Jharkhand in

the case of Ranchi Club Vs. Chief

Commr. Of C. Exc. & ST, Ranchi [2012

(26) STR 401 (Jhar)], has held that in

view of the mutuality and the activities

of the club, if club provides any service

to its members may be in any form

including as mandap keeper, then it is

not a service by one to another as

foundational facts of existence of two

legal entities in such transaction is

missing;

Subsequently, the Hon’ble High Court

of Gujarat in the case of Sports Club of

Gujarat Vs. Union of India [2013-TIOL-

528-HC-AHM-ST] has declared Section

65(25a), Section 65(105)(zzze) and

Section 66 of the Finance Act as

incorporated/ amended by the Finance

Act, 2005 to the extent that the said

provisions purport to levy Service tax in

respect of services provided by club to

its members, as ultra vires;

The afore stated judgments were also

considered by the Principal Bench of

the Hon’ble CESTAT, Delhi in the case

of Federation of Indian Chambers of

Commerce & Industry Vs.

Commissioner of Service Tax, Delhi

[2014-TIOL-701-CESTAT-DEL], wherein

it was held that on application of the

principle of mutuality, services

provided by clubs to their respective

members would not fall within the

ambit of the taxable ‘Club or

Association’ service nor the

consideration whether by way of

subscription/ fee or otherwise received

therefore be exigible to Service tax.

Therefore, the Hon’ble Tribunal after

holding that the matter is no longer res-

integra, decided the matter in favour of

the Appellants.

Our Comments: The concept of principle

of mutuality in respect of clubs and their

members needs to be tested legally post

facto July 1, 2012 (Negative List Regime of

Service tax) whereby the definition of

‘Service’ provided first time under Section

65B(44) of the Finance Act, which

interalia, provides that any activity carried

out by a person for another for

consideration is a ‘Service’.

However, Explanation 3 to Section

65B(44) of the Finance Act has carved out

an exceptions to the General Rule that

Service tax leviable only when services

provided by a person to another. In terms

of Explanation 3(a) thereof, an

unincorporated association or a body of

persons, as the case may be, and a

member thereof shall be treated as

distinct persons.

Thus effective from July 1, 2012, services

provided by clubs even to their members

may be exigible to Service tax.

CENTRAL EXCISE

NOTIFICATIONS/CIRCULARS

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New method provided for the calculation

of Basic Excise Duty on Branded High

Speed Diesel

In the exercise of the power conferred

under Section 5A (1) of the Central Excise

Act, 1944, the Central Government under

vide Notification No. 04/2015-CE dated

January 30, 2015 has provided the new

method of imposition of Basic Excise Duty

on Branded High Speed Diesel as follows:

a) 14% ad valorem plus Rs. 5.00

per litre or

b) Rs. 10.25 per litre, whichever is lower

The said Notification is effective from

January 30, 2015.

RECENT CASE LAWS

In case of inter-unit 'stock transfer' of

intermediate goods, doctrine of unjust

enrichment would not apply

Bhansali Engg. Polymers Ltd. Vs.

Commissioner of Central Excise & Service

Tax, Bhopal [(2015) 53 taxmann.com 264

(New Delhi - CESTAT)]

Bhansali Engg. Polymers Ltd. (“the

Appellant”) manufactured Acrylonitrile

Butadiene Styrene Polymers (“Final

Product”) at its two unit located at

Satnoor, Madhya Pradesh (“Satnoor

unit”) and Abu Road, Rajasthan (“Abu

Road unit”). In course of manufacture of

Final Product, two intermediate products

namely HRG Powder and E-SAN Powder

(“Intermediate Products”) arose which

were captively used.

During the month of November 2011,

there was some break down in Abu Road

unit, as a result of which Intermediate

Products could not be manufactured

there. Therefore, during November 2011,

Abu Road unit received Intermediate

Products from Satnoor Unit on stock

transfer basis on payment of Excise duty

under invoices. This transaction was

assessed provisionally as the assessable

value was to be determined in terms of

Rule 8 of the Central Excise Valuation

Rules, 2000 on the basis of the cost of

production and it was not possible to

determine the cost of production exactly

at that time.

Later, in the final assessment it was

ascertained that the duty finally assessed

was less than the duty paid on provisional

basis, therefore the Appellant filed six

refund claims which were allowed by the

Deputy Commissioner with the finding

that unjust enrichment was not involved.

Being aggrieved the Revenue preferred an

appeal before the Hon’ble Commissioner

(Appeals) wherein the refund claims were

rejected. Aggrieved by the order of the

Commissioner (Appeals), the Appellant

preferred an appeal before the Hon’ble

CESTAT, Delhi.

The Hon’ble CESTAT, Delhi after observing

that the Abu Road unit had reversed the

Cenvat credit taken to the extent of

refund filed, held that although Satnoor

unit had cleared Intermediate Products on

payment of Excise duty, wherein the price

of Intermediate Products and the duty

had been separately mentioned in

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invoices, but such clearances were on

stock transfer basis and not on sale. When

the clearances were not on sale but were

purely on stock transfer basis, there is no

question of Satnoor unit having recovered

the incidence of duty from Abu Road unit

and, as such, the bar of unjust enrichment

would not apply.

It was further held that it is neither the

Department’s claim nor any evidence

produced to show that during November

2011, the price charged by Abu Road unit

for Final Product was higher. Hence, the

doctrine of unjust enrichment is not

applicable in the instant case.

Cenvat Credit cannot be denied on

erection and installation of machines by

the Manufacturer as part of Input service

and activities relating to business of the

manufacturer

Hercules Hoists Ltd. Vs. CCE, Mumbai-III

[2015 (1) TMI 1089 - CESTAT MUMBAI]

Hercules Hoists Ltd. (“the Appellant”) was

a manufacturer of machinery and parts

thereof which were cleared on payment

of Excise duty. The Appellant had also

taken the responsibility of installing the

machinery at the customer's premises. For

the installation charges, the Appellant had

claimed Cenvat credit of the installation

charges so paid.

The Department alleged that the

installation charges had been paid beyond

the place of removal as the Appellant had

cleared the machinery from the premises

and these charges were not included in

the assessable value, therefore, the

Appellant was not entitled for Cenvat

credit of the installation charges.

Whereas the Appellant submitted that

these services of erection and

commissioning of machinery was a part of

their business activity as they are

manufacturing the machinery and

installing the same at the customer's site.

They are not charging any amount over

and above the invoice price of the

machinery for erection and installation

charges from their customers. Therefore,

whatever charges for erection and

installation have been borne by them is

Input service under Rule 2(l) of the Cenvat

Credit Rules, 2004 (“the Credit Rules”).

Further the Department also denied the

benefit of the Exemption Notification No.

22/2003-CX dated March 31, 2003 (“the

Exemption Notification”) in respect of the

goods cleared to the 100% EOU on

production of CT-3 certificate as the

Appellant was unable to produce the re-

warehousing certificate within 90 days.

Both the lower Authorities confirmed the

demand of duty and further imposed

interest and penalty. Being aggrieved the

Appellant preferred an appeal before the

Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai relying

upon the judgment of the Hon'ble High

Court in the case of Commissioner of C.

Ex., Nagpur Vs. Ultra Tech Cement Ltd.

[2010 (260) ELT 369 (Bom)], wherein it

was held that an assessee who is a

manufacturer of excisable goods is

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entitled for Cenvat credit of the Input

services availed by him in the course of

their business, held that since the

machinery was inoperative in the absence

of erection and installation, the services

availed by the Appellant for the erection

and installation of machineries are part of

the business and the Appellants was

entitled for availing Cenvat credit on the

same.

Further, in respect of denial of benefit of

the Exemption Notification, the Hon’ble

Tribunal held that although the Appellant

was required to submit the re-

warehousing certificate within 90 days

which they failed to do, but at the same

time the Department had not taken

further steps to verify whether the re-

warehousing certificate has been obtained

or not to deny the benefit of the

Exemption Notification.

Furthermore, since the facts were in the

knowledge of the Department during the

audit, the demand was set aside on the

ground of being time barred.

Availment and distribution of Cenvat

credit by the Head Office registered as

ISD cannot be denied on the ground that

the invoices are in the name of Branch

Office

Mahindra and Mahindra Ltd. Vs.

Commissioner of Central Excise, Mumbai

–V [2015 (1) TMI 1086 - CESTAT

MUMBAI]

Mahindra and Mahindra Ltd. (“the

Appellant”) was engaged in the

manufacture of motor vehicle parts falling

under Chapter Headings 84 and 87 of the

Central Excise Tariff Act, 1985. The

Appellant availed Cenvat credit on inputs

as well as input services used in or in

relation to the manufacture of their final

products.

A Show Cause Notice dated June 22, 2012

was issued to the Appellant alleging that

the head office of the Appellant located at

Worli, Mumbai, which is registered as an

Input Service Distributor (“ISD”), has

distributed inadmissible input service

credit under the ISD invoices/ challans

which have been utilized towards

payment of duty. It was further alleged

that in many cases, the ISD office has

taken Cenvat credit of Service tax paid on

input services on the basis of invoices

issued by service providers on the address

of the branch offices and other offices of

the Appellant not registered as ISD. Also,

the payments for such services, including

Service tax, have been made by the

respective branch offices to the service

providers.

Thereafter, the Adjudicating Authority

vide Order-in-Original dated February 5,

2013 confirmed the demand of duty along

with interest and penalty which was

further upheld by the Ld. Commissioner

(Appeals). Being aggrieved, the Appellant

filed an appeal before the Hon’ble

CESTAT, Mumbai.

The Appellant placed reliance on the

judgment of the Hon’ble Tribunal in the

case of Manipal Advertising Services Pvt.

Ltd. Vs. CCE, Mangalore [2010 (19) STR

506 (Tri.-Bang.)] wherein it has been held

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that if a person is discharging Service tax

liability from his premises having

centralised registration, the benefit of

Cenvat credit cannot be denied on the

ground that the invoices are in the name

of branch office.

The Hon’ble CESTAT, Mumbai after

observing that the branch offices have no

separate accounting system and their

accounts form part of the Head Office

accounts, which is registered as an ISD,

held that the Appellant had rightly availed

Cenvat credit in respect of the services

received at the branch office/ regional

office and consequently, their distribution

in the manufacturing unit is also proper.

It was further held by the Hon’ble Tribunal

that the Revenue has erred in disallowing

the credit on misconception of the fact

that the invoices are not in the name of

the Appellant. In the facts and

circumstances, the invoices are found to

be in the name of the Appellant issued to

the branch offices. The payments are

accounted at the head office which is

registered as an ISD. The availment of

Cenvat credit and the distribution by the

head office are legal and proper.

CUSTOMS

NOTIFICATIONS/CIRCULARS

No Anti-Dumping Duty can be collected

on Acrylonitrile Butadiene beyond the

validity period

In exercise of the power conferred under

Section 9A of the Customs Tariff Act, 1975

(“the Customs Tariff Act”), the Central

Government vide Notification No.

100/2005-Customs dated November 29,

2005 (“Notification No. 100”) had levied

Anti-Dumping Duty on “Acrylonitrile

Butadiene” for a period of five years from

the date of its initial imposition and

provided that the said levy can be further

extended to one year if the Directorate

General of Anti-Dumping and Allied Duties

(“the DGAD”) initiate the sunset review in

the matter of levy of Anti-Dumping Duty

before the expiry of aforesaid five years.

However, reportedly Anti-Dumping Duty

was being demanded and levied under

Notification No. 100 by various Customs

Authorities on Acrylonitrile Butadiene at

the time of its clearance despite the fact

that the DGAD had not initiated sunset

review in the matter of levy of Anti-

Dumping Duty on Acrylonitrile Butadiene

before the expiry of Notification No. 100,

in terms of Section 9A (5) of the Customs

Tariff Act which reads as under:

“Provided further that where a review

initiated before the expiry of the aforesaid

period of five years has not come to

conclusion before such expiry, the anti-

dumping duty may continue to remain in

force pending the outcome of such a

review for a further period not exceeding

one year.”

Now, the Central Government vide

Circular No. 05/2015-Customs dated

January 28, 2015, has clarified that since

the sunset review has not been initiated

by the DGAD in respect of extension of

imposition of Anti-Dumping Duty on

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Acrylonitrile Butadiene, hence Anti-

Dumping Duty cannot be levied and

collected on the same after the lapse of

five years from the date of its imposition.

Revision in Rate of Exchange for valuation

of exported and imported goods

In the exercise of the power conferred

under Section 14 of the Customs Act,

1962, the Central Government vide

Notification No. 16/2015-Customs (NT)

dated January 30, 2015 has revised the

Rate of Exchange for “Canadian Dollar”

and “Swiss Franc”, applicable with effect

from January 31, 2015 to determine the

Assessable Value in respect of imported

and exported goods.

Revision in Rate of Exchange for valuation

of exported and imported goods

In the exercise of the power conferred

under Section 14 of the Customs Act,

1962, the Central Government vide

Notification No. 13/2015-Customs (NT)

dated January 27, 2015 has revised the

Rate of Exchange for “Danish Kroner”

and “EURO”, applicable with effect from

January 28, 2015 to determine the

Assessable Value in respect of imported

and exported goods.

Revision in Tariff value of specified

imported goods

In exercise of the powers conferred under

Section 14 of the Customs Act, 1962, the

Central Board of Excise and Customs vide

Notification No. 15/2015-Customs (NT)

dated January 30, 2015 has revised tariff

value in respect of imported goods such

Palm Oil, RBD Oil, Soya bean Oil, Gold and

Silver etc. applicable with immediate

effect.

RECENT CASE LAWS

Declared value of Imported goods cannot

be enhanced merely on the basis of NIDB

data

Topsia Estates Pvt. Ltd. Vs. Commissioner

of Customs, Chennai [(2015) 53

taxmann.com 345 (Chennai - CESTAT)]

Topsia Estates (“the Appellant” or “the

Company”) imported PU Coated Fabrics

(“impugned goods”) of various

thicknesses from China and filed 24 Bills of

Entry during the period from November,

2012 to July, 2013. The Assessing Officer

enhanced the declared value of impugned

goods based on National Import Data Base

(“NIDB”) data under Rule 9 of the

Customs Valuation Rules, 2007 (“the

Valuation Rules”). The Appellant paid

duty under-protest. On appeal being filed

to the Ld. Commissioner (Appeals), the

same was rejected. Being aggrieved, the

Appellant preferred an appeal before the

Hon’ble CESTAT, Chennai. Before the

Hon’ble CESTAT, Chennai, the Appellant

submitted as under:

The Company have been importing

impugned goods from various ports

such as Chennai, Kolkata etc., and the

value of impugned goods depends on

the country of origin, quality, size,

quantity etc;

In another case, the Company

A2Z TAXCORP LLP Tax and Law Practitioners Page 14

imported impugned goods from

Kolkata Port for which the Adjudicating

Authority enhanced the declared value

and when the Commissioner (Appeals)

set aside the Adjudication Order, no

appeal was filed by the Department.

Even the Company have also got the

refund;

In present case, the Adjudicating

Authority has wrongly enhanced the

value of the impugned goods as it is

well-settled by the Hon’ble Supreme

Court and the Tribunal that the

Transaction value cannot be rejected

merely on the basis of NIDB data and

Rule 9 of Valuation Rules cannot be

invoked.

On the other hand, the Revenue

contented that the value of PU Coated

Fabrics is a contentious issue for a long

time. The declared value of impugned

goods is on the lower side in comparison

to NIDB data relating to the goods of same

description, same country of origin and

similar quality.

The Hon’ble CESTAT, Chennai relying upon

the decision of the Hon’ble Supreme

Court in case of Eicher Tractors Ltd. Vs.

Commissioner of Customs [2000

taxmann.com 53 (SC)] which was

followed by the Tribunal in various

decisions, held that since there was no

evidence of higher value of

contemporaneous import from same

sources and no allegation of mis-

declaration of impugned goods, declared

value cannot be enhanced merely on the

basis of NIDB data. In the present case,

Rule 9 of the Valuation Rules cannot be

invoked.

Distribution fees paid to non-resident for

rights to distribute a service has nothing

to do with the Imported Goods,

therefore enhancement of Assessable

Value of Imported Goods to the extent of

remittance of distribution fees is

untenable

Multi Screen Media Pvt. Ltd. Vs.

Commissioner of Customs, Mumbai

[2015-TIOL-191-CESTAT-MUM]

Multi Screen Media Pvt. Ltd., Mumbai

(“the Appellant”) imported 72

consignments of Digi beta tapes/ beta

tapes/ video tapes (“Imported Goods”) by

courier through CSI Airport, Mumbai,

during June to December, 2007 on

payment of Customs duty.

During the Departmental investigations, it

was found that the Appellant had entered

into the Service Agreement namely

“Programme Acquisition and Service

Agreement” and the Distribution

Agreement with MSM Satellite Singapore

Pvt. Ltd. (“Foreign Entity”). Foreign Entity

was engaged in broadcasting of channels

from Singapore and they regularly sent

foreign movies, programmes and other

contents acquired by them to the

Appellant for the purpose of distribution

to channels, for which the Appellant

remitted Rs. 19.76 Crores to Foreign Entity

towards their share of distribution fees.

The Revenue contended that such

distribution fees will be included in the

Assessable value of Imported Goods in

A2Z TAXCORP LLP Tax and Law Practitioners Page 15

terms of Rule 10(1)(c) of the Customs

Valuation Rules, 2007 (“the Valuation

Rules”) as distribution fee is a condition of

sale of Imported Goods. Therefore a Show

Cause Notice was issued, which was

adjudicated by the Commissioner of

Customs, CSI, Mumbai (“the

Commissioner”). The Commissioner

ordered for re-assessment of Imported

Goods resulting in enhancement of value

of Imported Goods to the extent of

remittance of distribution fees and

confirmed the demand of differential

Customs duty of Rs. 4.83 Crores along

with interest, penalty and also held that

the Imported Goods are liable for

confiscation. Being aggrieved, the

Appellant preferred an Appeal before the

Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai held as

under:

The payment of distribution fees was

for acquiring non-exclusive rights for

satellite delivered, advertiser

supported, and television service.

Hence, payment made was for the

rights to distribute a service and has

nothing to do with Imported Goods;

The letter dated December 28, 2007

addressed to the Standard Chartered

Bank reveals that the Appellant

remitted Rs. 19.76 Crores towards

distribution fees in terms of the

Distribution Agreement and this factual

position was confirmed by the

Chartered Accountant's Certificate

dated December 28, 2007 for

remittance under Section 195 of the

Income Tax Act, 1961. Hence, no

evidence was adduced to support the

Department’s contention;

The Appellant was registered under the

taxable category of ‘Broadcasting

Services’ and distribution fees collected

has been declared for payment of

Service tax in their Service Tax Returns

filed;

The Commissioner mis-directed himself

in including the value of a taxable

service rendered in India in the value of

the Imported Goods. The television

programmes have been aired from

Singapore and the tapes were not

required for broadcasting the

programmes. The requirement of the

tapes was for the limited purpose of

obtaining certification from Central

Board of Film Certification and

technical quality checks and has

nothing to do with the distribution

activity. Therefore, there are no

records to show that the remittance

made to Foreign Entity had anything to

do with the Imported Goods.

Hence, the Order enhancing the value of

the Imported Goods to the extent of

remittance of distribution fees and

demanding Customs duty thereon under

the Valuation Rules was set aside by the

Hon’ble Tribunal as being unsustainable in

law.

Where the duty is mistakenly paid in

excess, the Assessee is entitled to refund

- No need to challenge the assessment of

the Bill of Entry

A2Z TAXCORP LLP Tax and Law Practitioners Page 16

Cipla Ltd. Vs. Commissioner of Customs

(ACC & IMPORT), Mumbai [2015-TIOL-

201-CESTAT-MUM]

Cipla Ltd. (“the Appellant”) imported

Fermoterol Fumarate and filed a Bill of

Entry dated March 31, 2010 for home

consumption. The Appellant paid excess

CVD at 10% instead of effective rate of 4%

in terms of unconditional exemption

Notification No. 4/2006-CE dated March

1, 2006 (“the Notification”) and therefore

filed a refund claim Rs. 1,33,779/- towards

the excess paid duty.

The Assistant Commissioner of Customs

relying on the ratio of the judgement in

the case of CCE Vs. Flock India [2000 (120)

ELT 285 (SC] and Priya Blue Industries Ltd.

[2004 (192) ELT 145 (SC)] rejected the

refund claims on the ground that the

Appellant has not challenged the

assessment of Bill of entry. On appeal

being filed, the Ld. Commissioner

(Appeals) upheld the order of the

Assistant Commissioner. Being aggrieved,

the Appellant preferred an appeal before

the Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai relying on

the Aman Medical products Ltd. Vs. CC,

[2009-TIOL-566-HC-DEL-CUS] (“Aman

Medical Case”) held as under:

In the present case, there is no dispute

that at the material time of import the

effective rate of CVD was 4% by the

Notification and the Appellant has paid

excess duty of 10% by oversight.

Further, the judgments relied upon by

the lower Appellate Authority have

been distinguished by the Hon’ble Apex

Court in Aman Medical Case;

In light of the judgement of the Hon'ble

Delhi High Court in the Aman Medical

Case, it is settled that where the duty

was mistakenly paid in excess, there is

no need to challenge the assessment of

the Bill of Entry. The refund of excess

paid duty is admissible;

Although the Revenue in the instant

case contended that the judgement in

Aman Medical Case has been

challenged before the Hon'ble

Supreme Court, but it is observed that

though the Revenue has filed appeal

before the Supreme Court, the Apex

Court has not granted the stay of

operation of the order of the Hon'ble

High Court of Delhi. Therefore, the

judgement of the Delhi High Court in

case of Aman Medical Case is binding.

Therefore, the Hon’ble Tribunal allowed

the refund of excess paid CVD to the

Appellant with an instruction that the

sanctioning Authority must verify the

aspect of unjust enrichment before

sanctioning the refund.

Benefit of the ‘Served from India Scheme’

cannot be denied only on the ground that

the companies were subsidiaries of

foreign companies

Yum Restaurants (I) Pvt. Ltd. & Anr,

Nokia Solutions And Networks India Pvt.

Ltd. & Anr & EI DuPont India Pvt. Ltd &

Anr Vs. Union Of India & Ors [2015 (1)

TMI 1127 - DELHI HIGH COURT]

A2Z TAXCORP LLP Tax and Law Practitioners Page 17

Yum Restaurants (I) Pvt. Ltd. & Anr (“the

Petitioners”) are companies incorporated

under the erstwhile Companies Act, 1956

and have their registered office situated in

India. The Petitioners applied for license

(Duty Credit Scrips) in terms of the ‘Served

from India Scheme’ (“SFIS”) as framed

under the Foreign Trade Policy (“FTP”)

2004-09 (effective upto August 26, 2009)

and FTP 2009-14 (effective from August

26, 2009) which were duly accepted.

However, later on the Policy

Interpretation Committee (“PIC”) and

Director General of Foreign Trade

(“DGFT”) denied the benefit of SFIS, as

framed under the FTP to the Petitioners

and separate communications were sent

to the Petitioners withdrawing/ recalling

the said benefits on the ground that they

were subsidiaries of foreign companies.

Hence the objective of SFIS to accelerate

growth in export of services from India

which creates a powerful and unique

served from India brand is not achieved.

Being aggrieved, the Petitioners filed Writ

Petition before the Hon’ble High Court of

Delhi.

The Hon’ble High Court of Delhi allowed

the benefit of SFIS to the Petitioners and

held the following:

It cannot be disputed that DGFT is

empowered to interpret the FTP but

such powers can be exercised only

when the plain language of the policy

presents an ambiguity. It would not be

open for DGFT to introduce new

conditions and criteria under the guise

of interpreting the policy as that would

amount to amending the provision of

the FTP;

The words used in Paragraph 3.12.2 of

FTP 2009-14 (“Para 3.12.2”) are “Indian

Service Providers”. There is no scope to

read into these words that for service

provider to be Indian, its shareholders

must also be Indian. As this would

amount to introducing an additional

eligibility condition, which is

extraneous to the eligibility criteria as

spelt out in Para 3.12.2;

The conclusion of DGFT that Indian

companies having foreign equity

cannot be considered as Indian,

militates against well-established

canons of the Company Law;

The Petitioners are companies

incorporated under the erstwhile

Companies Act, 1956 having registered

offices in India and are governed by the

provisions of the statute and hence are

Indian Companies. Insofar as the

domicile of the Petitioners is

concerned, no distinction can be drawn

between the Petitioners and other

companies incorporated under the said

Act;

Therefore, the decision of DGFT/ PIC

denying the benefit of the SFIS to the

Petitioners by withdrawing/recalling the

said benefits was set aside.

FOREIGN TRADE POLICY

NOTIFICATIONS/CIRCULARS

A2Z TAXCORP LLP Tax and Law Practitioners Page 18

Applications for online IEC effective from

February 1, 2015

The operationalization of the mandatory

system of online applications for Import

Export Code (“IEC”) with effect from

January 1, 2015 was notified vide Public

Notice 76 dated November 27, 2014. This

was, however, kept in abeyance vide

Public Notice No. 80 dated January 6,

2015.

Now, the Director General of Foreign

Trade (“the DGFT”) vide Public Notice.

83/(RE-2013)/2009-2014 dated January

30, 2015 has notified the

operationalization of the new system of

online applications for IEC with effect

from February 1, 2015. Applicants having

access to net-banking facility with banks

such as HDFC Bank, ICICI Bank, Bank of

India, State Bank of India etc., can apply

online in the format Notified vide Public

Notice No. 76 (RE-2013) dated November

27, 2014.

However, those applicants who do not

have access to net banking facility with

the notified banks can use the facility of

submission of application in manual

mode, until further notice.

NEWS FLASH

Industry waits for tax cuts, GST this fiscal

year

With slogans like Make in India and talk of

investment doing the rounds, the industry

is nursing high hopes from this budget.

Apart from this, the industry wants import

duty to be scrapped to take on

competition from Sri Lanka, Bangladesh

and China. It is worthwhile concern that in

our country there is an import duty of

18.9%, while there is no import duty in

Bangladesh. Bank interest rates in

neighboring countries are cheaper. The

highest rate is 9% and in our country the

rate of interest starts at 12%. This needs to

be reduced to save the industry and help

them counter international competition.

Vasundhara Raje: GST to be implemented

with full preparation in Rajasthan

Rajasthan Chief Minister

Vasundhara Raje said that the State will

go ahead with the Goods and Services

Tax (GST) with full preparation in public

interests once it is implemented at the

Centre’s level.

Referring to the Empowered Committee

headed by Union Finance Minister which

she attended recently, Raje told

State level advisory committee called to

discuss next Fiscal Year 2015-16 budget

in the State that the GST would be taken

up with full preparations whenever

Central Government started it.

A seminar to bring awareness on GST

would be organized with the support of

Tax and Trade Association, and problem

of match-mismatch (input credit) would

be resolved by organizing camps, and the

concept of governance was changed and

replaced by good governance instead of

regulatory governance, she said.

Rise in tax rate under GST to increase

cost of telecom service: COAI

A2Z TAXCORP LLP Tax and Law Practitioners Page 19

The GSM industry body has warned that

any increase in rate of indirect tax from

current 12% Service tax to a higher rate

under Goods & Services Tax (GST) would

increase the cost of telecom service,

which is an essential service for common

man. In its pre-budget recommendations

to Finance Ministry, the Cellular

Operators Association of India (COAI)

said that a consultation process with

trade and industry bodies should be

initiated for GST, and a platform for such

consultation should be formed. "Since

place of supply rules for telecom services

are distinct in almost all the overseas

jurisdictions, India would also need

distinct place of supply rules for telecom

services under the GST regime," it

said. COAI has also proposed that the

telecom goods manufactured in Special

Economic Zones should be exempted

from basic Customs duty. It said that

such an exemption would lower the cost

of telecom network while at the same

time, supporting the 'Digital India'

project. In last year's budget, exemption

from payment of customs duty was

withdrawn on import of specified

telecom products without mentioning

the specific name or description of the

products.

The body has also raised its concerns over

taxability of interconnect usage charges,

saying that the judiciary in India has

unequivocally held that these are standard

services and hence, fee for same cannot

be taxed as royalty under Indian tax laws.

Government considering Swachh Bharat

Cess on all services

In a bid to mop up revenues for the

Swacch Bharat Abhiyan, the Government

is planning to impose a cess on all services

which come under the Service Tax regime.

Earlier, there were reports that a cess may

be imposed on telecom services but now

sources tell that all services might come

under the ambit. An announcement is

expected in the Budget. The Ministry of

Sanitation has sought Rs 1 lakh crore for a

period of 5 years to fund Swachh Bharat

Mission for this purpose.

While Corporate Social Responsibility (CSR)

contributions are being made by corporate

India, the Government is realizing that it

needs to create a specific flow of funds

which is likely to be achieved by way of

Swachh Bharat Cess. According to the

proposal mooted by the Finance Ministry

Swachh Bharat Cess could be anywhere in

the range of 0.02 to 0.05 percent. This is

likely to be introduced by way of an

amendment to the Service Tax Act which

will be a part of the Finance Act. In the

Budget session itself the cess will be

collected for a specific purpose primarily

funding of infrastructure for sanitation and

for other sort of machinery for cleanliness

purpose.

Steel Ministry seeks increase in basic

Customs duty to deter cheap imports

The Steel Ministry is set to seek a sharp

increase in peak rate of basic customs duty

on steel products to 25% from 10%, a

measure that it wants to be announced in

the Budget next month to help stem the

tide of cheap imports from China and,

more recently, Russia. The Ministry also

A2Z TAXCORP LLP Tax and Law Practitioners Page 20

wants sops to make exports of Goa's low-

grade iron ore feasible. It has already

asked the Finance Ministry for an

immediate increase in duty to 10% from

7.5% for flat products and to double it to

10% for long steel.

"Increasing peak rate will allow the

Government to change duty to meet

market demands without going to

Parliament," said a ministry official,

requesting not to be named. The Centre

can easily meet this demand, the official

said, pointing out that the World Trade

Organization's peak import duty for steel is

40%, in the interest of domestic

steelmakers. A simultaneous waiver of the

2.5% import duty on raw material for steel

such as coking coal, dolomite, limestone

and scrap and nickel used in stainless steel

is also being sought, according to industry

executives.

FM asked the CBEC officials to maintain

certain level of civility with Assessees

Ahead of the Budget, Finance

Minister Arun Jaitley underlined the need

for tax reforms and quick decision-making

to ensure stability in policy regime. The

Minister also asked the Central Board of

Excise and Customs (CBEC) officials to

maintain a certain level of civility with

assessees but to take to task evaders and

avoiders.

The Union Finance Minister said that there

is a need for change both in attitude and

mind-set towards investors' and assessees.

We need to have a non-adversarial tax

administration which is both investors' and

assessee’s friendly. The second major

concern has been globally expressed at all

forums. Principal concern that (was)

repeatedly expressed is the strapped

structure of India and its administration

(perceived being) highly adversarial.

Government is looking at archaic labour

laws, easy credit to boost manufacturing:

Niramala Sitharaman

The Government said it is looking at the

archaic labour laws and working towards

ensuring easy credit to entrepreneurs with

a view to boost manufacturing as part of

‘Make in India’ campaign.

“Labour law is the area where the

Government has to spend a lot of time.

Government is definitely looking at it

carefully to ensure that labour’s rights and

their interest are well protected but at the

same time hindrance of law. Archaic rules

may all be looked into and some kind of

resolution brought in,” Commerce and

Industry Minister Nirmala Sitharaman said.

The Minister said that States like Rajasthan

have already announced ways to relax

labour laws. On the issue of credit

availability, she said that cost of capital is

an important issue. Sitharaman said the

recent cut in interest rates by the RBI is a

positive signal and an “indicator that

things are moving in the right direction”.

‘Make in India’ is an ambitious programme

of Prime Minister Narendra Modi which

aims at attracting domestic and foreign

investments and boost manufacturing

sector growth.

A2Z TAXCORP LLP Tax and Law Practitioners Page 21

“GST (Goods and Service Tax) is going to

make a big reform in the way taxes are

collected. Smart cities are being proposed

and MoUs being signed to develop these

cities. We are building smart cities with

international technologies,” she added.

Government puts reforms on fast track to

boost confidence among foreign

investors

The Government of India is quick on its

reform measures since it came into power

in May 2014. The prime focus is to make

the environment cordial for doing business

in the country. Right from increase in the

FDI limit in various industries, deregulation

of the diesel prices, reform in the food

subsidy and Government’s stand in the

distribution. Besides, it has also been quick

in clearing the regulatory approvals for

auctioning the coal blocks that have been

de-allocated by the Supreme Court, and

auctioning of the telecom spectrums in

various bands. The Government is also

moving fast in the implementation of

Goods and Services Tax (GST). It is pushing

hard on reviving the infrastructure

development and in this direction it has

approved the new land acquisition bill

which will act in favour to revive the

stalled infrastructure projects.

The Government has also encouraged

banks to finance infrastructure projects

which are in need of funds. Understanding

the amount of capital required for

developing infrastructure like road, ports

and railway infrastructure - the

Government has also hiked the FDI limits

in some sector and also opened the door

for FDI in closed sector.

The reform in the food subsidy and

distribution includes decentralizing grain

procurement, a process for disposing of

excess food grains, delivering food, and

fertilizer subsidies via direct cash transfers,

and reducing food subsidy coverage as

mandated by the National Food Security

Act to 40 per cent of the population from

67 per cent.

'Corporates must partner civil societies

for CSR activities'

With the eligible corporates mandated

under the new Companies Act to spend

two percent of their net profit for

corporate social responsibility (CSR)

activities, experts pitched for partnerships

with civil society for effective

implementation of corporate sponsored

peripheral development work at the

ground level.

"The companies should outsource

the CSR activities to civil society sector

instead of creating an army of people for

carrying out the CSR activities. They should

allow not for profit companies to actually

execute the programme at the ground

level," said Bhaskar Chatterjee, Director

General and CEO, Indian Institute of

Corporate Affairs at a multi-stakeholder

dialogue on corporate social responsibility

(CSR), here, jointly organized by Indian

Institute of Corporate Affairs (IICA) under

Union ministry of Corporate Affairs, Centre

for Youth and Social Development (CYSD)

and National Foundation for India in

collaboration with Unicef.

A2Z TAXCORP LLP Tax and Law Practitioners Page 22

ABOUT US

A2Z TAXCORP LLP having professionals from Multi disciplines which provides services under

the Indirect Tax Laws, DGFT, Foreign Trade Policy, SEZ, EOU, Export – Import Laws, Free

Trade Policy, Accounting, Auditing, Law, Company Laws, etc.

Executive Consultant:

Bimal Jain FCA, FCS, LLB, B.Com (Hons.)

CONTACT

A2Z TAXCORP LLP

Tax and Law Practitioners

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out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this

newsletter in the respective scenarios. While due care has been taken in preparing this

document, the existence of mistakes and omissions herein is not ruled out. No part of

this document should be distributed or copied (except for personal, non-commercial use)

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A2Z Taxcorp LLP Editorial Team: Isha Bansal, ACS Niraj Kumar, ACA ImpreetKaur, ACS